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Liquidity creation without a lender of last resort: clearinghouse loan certificates in the Banking Panic of 1907

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  • Jon R. Moen
  • Ellis W. Tallman

Abstract

We employ a new data set comprised of disaggregate figures on clearinghouse loan certificate issues in New York City to document how the dominant national banks were crucial providers of temporary liquidity during the Panic of 1907. Clearinghouse loan certificates were essentially \"bridge loans\" arranged between clearinghouse members that enabled and were issued in anticipation of monetary gold imports, which took a few weeks to arrive. The large New York City national banks acted as private liquidity providers by requesting (and the New York clearinghouse issuing) a volume of clearinghouse loan certificates beyond their own immediate liquidity needs. While loan certificates were a temporary solution at best to the liquidity crisis in 1907, their issuance allowed the New York banks to serve their role as central reserve city banks in the national banking system.

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  • Jon R. Moen & Ellis W. Tallman, 2007. "Liquidity creation without a lender of last resort: clearinghouse loan certificates in the Banking Panic of 1907," FRB Atlanta Working Paper 2006-23, Federal Reserve Bank of Atlanta.
    • Handle: RePEc:fip:fedawp:2006-23
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    7. Viral V. Acharya & Denis Gromb & Tanju Yorulmazer, 2012. "Imperfect Competition in the Interbank Market for Liquidity as a Rationale for Central Banking," American Economic Journal: Macroeconomics, American Economic Association, vol. 4(2), pages 184-217, April.
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    11. Christopher Hoag, 2015. "Clearinghouse Loan Certificates as Interbank Loans," Working Papers 1504, Trinity College, Department of Economics, revised Jun 2015.
    12. Robert L. Hetzel, 2014. "The Real Bills Views of the Founders of the Fed," Economic Quarterly, Federal Reserve Bank of Richmond, issue 2Q, pages 159-181.
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    14. Tallman, Ellis W & Wicker, Elmus R., 2009. "Banking and Financial Crises in United States History: What Guidance can History Offer Policymakers?," MPRA Paper 21839, University Library of Munich, Germany.
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    17. Christopher Hoag, 2015. "Clearinghouse Loan Certificates as a Lender of Last Resort," Working Papers 1503, Trinity College, Department of Economics, revised Jun 2015.
    18. Ellis W. Tallman, 2012. "The Panic of 1907," Working Papers (Old Series) 1228, Federal Reserve Bank of Cleveland.
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