How Did Pre-Fed Banking Panics End?

Gary Gorton and Ellis Tallman

No 1603, Working Papers (Old Series) from Federal Reserve Bank of Cleveland

Abstract: How did pre-Fed banking crises end? How did depositors? beliefs change? During the National Banking Era, 1863-1914, banks responded to the severe panics by suspending convertibility; that is, they refused to exchange cash for their liabilities (checking accounts). At the start of the suspension period, the private clearing houses cut off bank-specific information. Member banks were legally united into a single entity by the issuance of emergency loan certificates, a joint liability. A new market for certified checks opened, pricing the risk of clearing house failure. Certified checks traded at a discount to cash (a currency premium) in a market that opened during the suspension period. Confidence was restored when the currency premium reached zero.

Keywords: Financial crisis; bank runs; banking panics; clearinghouses; bank-specific information; currency premium (search for similar items in EconPapers)
JEL-codes: E44 E58 N21 (search for similar items in EconPapers)
Pages: 93 pages
Date: 2016-01-14
New Economics Papers: this item is included in nep-ban, nep-his, nep-mac and nep-mon
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Citations: View citations in EconPapers (18)

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Working Paper: How Did Pre-Fed Banking Panics End? (2016)
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DOI: 10.26509/frbc-wp-201603

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