Reallocating Liquidity to Resolve a Crisis: Evidence from the Panic of 1873

Haelim Anderson, Kinda Hachem and Simpson Zhang

No 28870, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: We study financial stability with constraints on central bank intervention in a model with belief-driven bank runs. A pecuniary externality arises in the decentralized market for interbank loans and leads to excessively many bank failures. A forced reallocation of liquidity across banks improves social welfare and can be implemented through the issuance of clearinghouse loan certificates, such as those issued in New York City during the Panic of 1873. A new dataset constructed from archival records reveals that the New York Clearinghouse issued loan certificates to member banks in the way our model suggests would have helped resolve the panic.

JEL-codes: D53 D62 E42 E50 G01 N21 (search for similar items in EconPapers)
Date: 2021-05
New Economics Papers: this item is included in nep-cba, nep-his, nep-mac and nep-mon
Note: CF DAE ME
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Working Paper: Reallocating Liquidity to Resolve a Crisis: Evidence from the Panic of 1873 (2019)
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