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Causes of bank suspensions in the panic of 1893

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  • Carlson, Mark

Abstract

There are two competing theories explaining bank panics. One argues that panics are driven by real shocks, asymmetric information, and concerns about insolvency. The other theory argues that bank runs are self-fulfilling, driven by illiquidity and the beliefs of depositors. This paper tests predictions of these two theories using information uniquely available for the Crisis of 1893. The results suggest that real economic shocks were important determinants of the location of panics at the national level, however at the local level, both insolvency and illiquidity were important as triggers of bank panics.

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Bibliographic Info

Article provided by Elsevier in its journal Explorations in Economic History.

Volume (Year): 42 (2005)
Issue (Month): 1 (January)
Pages: 56-80

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Handle: RePEc:eee:exehis:v:42:y:2005:i:1:p:56-80

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Web page: http://www.elsevier.com/locate/inca/622830

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References

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  1. Frederic S. Mishkin, 1990. "Asymmetric Information and Financial Crises: A Historical Perspective," NBER Working Papers 3400, National Bureau of Economic Research, Inc.
  2. S. Rao Aiyagari, 1988. "Banking panics, information, and rational expectations equilibrium," Working Papers 320, Federal Reserve Bank of Minneapolis.
  3. Reuven Glick & Andrew K. Rose, 1998. "Contagion and Trade: Why Are Currency Crises Regional?," NBER Working Papers 6806, National Bureau of Economic Research, Inc.
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  5. Steven Radelet & Jeffrey Sachs, 1998. "The Onset of the East Asian Financial Crisis," NBER Working Papers 6680, National Bureau of Economic Research, Inc.
  6. Douglas W. Diamond & Philip H. Dybvig, 2000. "Bank runs, deposit insurance, and liquidity," Quarterly Review, Federal Reserve Bank of Minneapolis, issue Win, pages 14-23.
  7. Smith, Bruce D, 1991. "Bank Panics, Suspensions, and Geography: Some Notes on the "Contagion of Fear" in Banking," Economic Inquiry, Western Economic Association International, vol. 29(2), pages 230-48, April.
  8. Donaldson, R. Glen, 1992. "Sources of panics : Evidence from the weekly data," Journal of Monetary Economics, Elsevier, vol. 30(2), pages 277-305, November.
  9. Wicker,Elmus, 2000. "Banking Panics of the Gilded Age," Cambridge Books, Cambridge University Press, number 9780521770231, October.
  10. Chari, V V & Jagannathan, Ravi, 1988. " Banking Panics, Information, and Rational Expectations Equilibrium," Journal of Finance, American Finance Association, vol. 43(3), pages 749-61, July.
  11. Charles W. Calomiris & Gary Gorton, 1991. "The Origins of Banking Panics: Models, Facts, and Bank Regulation," NBER Chapters, in: Financial Markets and Financial Crises, pages 109-174 National Bureau of Economic Research, Inc.
  12. V.V. Chari, 1989. "Banking without deposit insurance or bank panics: lessons from a model of the U.S. national banking system," Quarterly Review, Federal Reserve Bank of Minneapolis, issue Sum, pages 3-19.
  13. Miron, Jeffrey A, 1986. "Financial Panics, the Seasonality of the Nominal Interest Rate, and theFounding of the Fed," American Economic Review, American Economic Association, vol. 76(1), pages 125-40, March.
  14. Charles W. Calomiris & Joseph R. Mason, 1995. "Contagion and bank failures during the Great Depression: the June 1932 Chicago banking panic," Proceedings 451, Federal Reserve Bank of Chicago.
  15. Calomiris, Charles W & Kahn, Charles M, 1991. "The Role of Demandable Debt in Structuring Optimal Banking Arrangements," American Economic Review, American Economic Association, vol. 81(3), pages 497-513, June.
  16. Wicker,Elmus, 1996. "The Banking Panics of the Great Depression," Cambridge Books, Cambridge University Press, number 9780521562614, October.
  17. Neil Wallace, 1988. "Another attempt to explain an illiquid banking system: the Diamond and Dybvig model with sequential service taken seriously," Quarterly Review, Federal Reserve Bank of Minneapolis, issue Fall, pages 3-16.
  18. V.V. Chari & Ravi Jagannathan, 1984. "Banking Panics," Discussion Papers 618, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
  19. Engineer, Merwan, 1989. "Bank runs and the suspension of deposit convertibility," Journal of Monetary Economics, Elsevier, vol. 24(3), pages 443-454, November.
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Citations

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Cited by:
  1. Olivier Darné & Amélie Charles, 2011. "Large shocks in U.S. macroeconomic time series: 1860-1988," Cliometrica, Journal of Historical Economics and Econometric History, Association Française de Cliométrie (AFC), vol. 5(1), pages 79-100, January.
  2. Wilkerson, Chad R., 2013. "Senator Robert Owen of Oklahoma and the Federal Reserve's formative years," Economic Review, Federal Reserve Bank of Kansas City, issue Q III, pages 95-117.
  3. Scott Fulford & Felipe Schwartzman, 2013. "The credibility of exchange rate pegs and bank distress in historical perspective: lessons from the national banking era," Working Paper 13-18, Federal Reserve Bank of Richmond.
  4. Mark Carlson & Kris James Mitchener & Gary Richardson, 2010. "Arresting Banking Panics: Fed Liquidity Provision and the Forgotten Panic of 1929," NBER Working Papers 16460, National Bureau of Economic Research, Inc.
  5. Ramírez, Carlos D., 2009. "Bank fragility, "money under the mattress", and long-run growth: US evidence from the "perfect" Panic of 1893," Journal of Banking & Finance, Elsevier, vol. 33(12), pages 2185-2198, December.
  6. Yokoyama, Kazuki, 2007. "Too Big to Fail: the Panic of 1927," MPRA Paper 2768, University Library of Munich, Germany.

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