Outside lending in the New York City call loan market: evidence from the Panic of 1907

Before the Panic of 1907 the large New York City banks were able to maintain the call loan market's liquidity during panics, but the rise in outside lending by trust companies and interior banks in the decade leading up the panic weakened the influence of the large banks. Creating a reliable source of liquidity and reserves external to the financial market like a central bank became obvious after the panic. In the call loan market, like the REPO market in 2008, lack of information on the identity of lenders and volume of the market hindered attempts to stop panic-related depositor withdrawals. Our new estimates of who was participating in the call loan market reveal that it did not contract after 1907; while the trust companies became less important, the New York national banks and outside lenders more than made up the difference.