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The Check is in the Mail: Correspondent Clearing and the Collapse of the Banking System, 1930 to 1933

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Author Info

  • Richardson, Gary

Abstract

Weaknesses within the check-clearing system played a hitherto unrecognized role in the banking crises of the Great Depression. Correspondent check-clearing networks were vulnerable to counter-party cascades. Accounting conventions that overstated reserves available to corresponding institutions may have exacerbated the situation. The initial banking panic began when a correspondent network centered in Nashville collapsed, forcing over 100 institutions to suspend operations. As the contraction continued, additional correspondent systems imploded. The vulnerability of correspondent networks is one reason that banks that cleared via correspondents failed at higher rates than other institutions during the Great Depression.

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Bibliographic Info

Article provided by Cambridge University Press in its journal The Journal of Economic History.

Volume (Year): 67 (2007)
Issue (Month): 03 (September)
Pages: 643-671

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Handle: RePEc:cup:jechis:v:67:y:2007:i:03:p:643-671_00

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Cited by:
  1. Mark Billings & Forrest Capie, 2011. "Financial crisis, contagion, and the British banking system between the world wars," Business History, Taylor & Francis Journals, vol. 53(2), pages 193-215.

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