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Interbank networks in the National Banking Era: Their purpose and their role in the Panic of 1893

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  • Calomiris, Charles W.
  • Carlson, Mark

Abstract

The unit banking structure of the United States produced a uniquely important interbank correspondent network. During the National Banking Era, this network normally provided banks with access to money markets, facilitated payment processing, and helped banks meet legal reserve requirements. In crises, network connections could be a source of liquidity risk. That risk became evident during the Panic of 1893, when New York suspended convertibility. Banks with high two-sided liquidity risk (those holding more of their liquid assets with their correspondents and funded to a greater extent by deposits of other banks) were particularly exposed and more likely to close.

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  • Calomiris, Charles W. & Carlson, Mark, 2017. "Interbank networks in the National Banking Era: Their purpose and their role in the Panic of 1893," Journal of Financial Economics, Elsevier, vol. 125(3), pages 434-453.
    • Handle: RePEc:eee:jfinec:v:125:y:2017:i:3:p:434-453
    DOI: 10.1016/j.jfineco.2017.06.007
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    More about this item

    Keywords

    Interbank networks; Correspondent banking; Banking panics; Contagion; National Banking Era;
    All these keywords.

    JEL classification:

    • G01 - Financial Economics - - General - - - Financial Crises
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • N21 - Economic History - - Financial Markets and Institutions - - - U.S.; Canada: Pre-1913

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