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Resolving the puzzle of the underissuance of national bank notes

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Author Info
Calomiris, Charles W.
Mason, Joseph R.

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Abstract

Much of the puzzle of underissuance of national bank notes can be resolved for the period 1880-1900 (the period when detailed, bank-level data are available) by disaggregating, taking account of regulatory limits, and considering differences in banks' opportunity costs cross-sectionally and over time. Banks with poor lending opportunities issued more, within regulatory limits. Banks tended to issue more when bond yields (the backing for notes) were high relative to lending opportunities. The profitability of note issuance was insufficient to attract entrants primarily or mainly for the purpose of note issuance. The observed lack of a general relationship between note issuance and reserve demand is inconsistent with the view that redemption costs from note issuance explain low note issuance in general. However, some variation in the propensities of urban banks to issue notes is associated with variation in reserve demand costs associated with the note issues of those banks. Generally, however, note issuance enjoyed economies of scope with deposit banking, including reduced costs of reserve requirements.

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

Volume (Year): 45 (2008)
Issue (Month): 4 (September)
Pages: 327-355
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Handle: RePEc:eee:exehis:v:45:y:2008:i:4:p:327-355

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

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Keywords: National bank Bank notes Scope economies;

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References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
  1. Calomiris, Charles W, 1988. "Price and Exchange Rate Determination during the Greenback Suspension," Oxford Economic Papers, Oxford University Press, vol. 40(4), pages 719-50, December. [Downloadable!] (restricted)
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  2. Charles W. Calomiris & R. Glenn Hubbard, 1998. "International Adjustment Under the Classical Gold Standard: Evidence for the U.S. and Britain, 1879-1914," NBER Working Papers 2206, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  3. Bruce Champ & Neil Wallace & Warren E. Weber, 1992. "Resolving the national bank note paradox," Quarterly Review, Federal Reserve Bank of Minneapolis, issue Spr, pages 13-21. [Downloadable!]
  4. Cagan, Phillip & Schwartz, Anna J, 1991. "The National Bank Note Puzzle Reinterpreted," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 23(3), pages 293-307, August. [Downloadable!] (restricted)
  5. Kuehlwein, Michael, 1992. "The National Bank Note Controversy Reexamined," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 24(1), pages 111-26, February. [Downloadable!] (restricted)
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Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Stephen Quinn & William Roberds, 2008. "The evolution of the check as a means of payment: a historical survey," Economic Review, Federal Reserve Bank of Atlanta. [Downloadable!]
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