How Did Pre-Fed Banking Panics End?

Gary Gorton and Ellis Tallman

No 22036, NBER Working Papers from National Bureau of Economic Research, Inc

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.

JEL-codes: E32 E42 E44 E58 (search for similar items in EconPapers)
Date: 2016-02
New Economics Papers: this item is included in nep-ban, nep-his, nep-mac and nep-mon
Note: AP CF DAE EFG ME
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