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Responding to a shadow banking crisis: the lessons of 1763

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  • Stephen Quinn
  • William Roberds

Abstract

In August 1763, northern Europe experienced a financial crisis with numerous parallels to the 2008 Lehman Brothers episode. The 1763 crisis was sparked by the failure of a major provider of acceptance loans, a form of securitized credit resembling modern asset-backed commercial paper. The central bank at the hub of the crisis, the Bank of Amsterdam, responded by broadening the range of acceptable collateral for its repo transactions. Analysis of archival data shows that this emergency source of liquidity helped to contain the effects of the crisis, by preventing the collapse of at least two other major securitizers. While the underlying themes seem to have changed little in 250 years, the modest scope of the 1763 liquidity intervention, together with the lightly regulated nature of the eighteenth century financial landscape, provide some informative contrasts with events of late 2008.

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Paper provided by Federal Reserve Bank of Atlanta in its series Working Paper with number 2012-08.

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Date of creation: 2012
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Handle: RePEc:fip:fedawp:2012-08

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  1. Nogues-Marco, Pilar, 2013. "Competing Bimetallic Ratios: Amsterdam, London, and Bullion Arbitrage in Mid-Eighteenth Century," The Journal of Economic History, Cambridge University Press, vol. 73(02), pages 445-476, June.
  2. de Vries,Jan & van der Woude,Ad, 1997. "The First Modern Economy," Cambridge Books, Cambridge University Press, number 9780521578257.
  3. Ferderer, J. Peter, 2003. "Institutional Innovation and the Creation of Liquid Financial Markets: The Case of Bankers' Acceptances, 1914 1934," The Journal of Economic History, Cambridge University Press, vol. 63(03), pages 666-694, September.
  4. Linda S. Goldberg & Craig Kennedy & Jason Miu, 2010. "Central bank dollar swap lines and overseas dollar funding costs," Staff Reports 429, Federal Reserve Bank of New York.
  5. Flandreau, Marc & Ugolini, Stefano, 2011. "Where It All Began: Lending of Last Resort and the Bank of England during the Overend, Gurney Panic of 1866," CEPR Discussion Papers 8362, C.E.P.R. Discussion Papers.
  6. Stephen Quinn & William Roberds, 2010. "How Amsterdam got fiat money," Working Paper 2010-17, Federal Reserve Bank of Atlanta.
  7. Michael J. Fleming & Warren B. Hrung & Frank M. Keane, 2010. "Repo market effects of the Term Securities Lending Facility," Staff Reports 426, Federal Reserve Bank of New York.
  8. Morten L. Bech & Bart Hobijn, 2007. "Technology Diffusion within Central Banking: The Case of Real-Time Gross Settlement," International Journal of Central Banking, International Journal of Central Banking, vol. 3(3), pages 147-181, September.
  9. Isabel Schnabel & Hyun Song Shin, 2004. "Liquidity and Contagion: The Crisis of 1763," Journal of the European Economic Association, MIT Press, vol. 2(6), pages 929-968, December.
  10. Paolo Emilio Mistrulli, 2007. "Assessing financial contagion in the interbank market: Maximum entropy versus observed interbank lending patterns," Temi di discussione (Economic working papers) 641, Bank of Italy, Economic Research and International Relations Area.
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Cited by:
  1. Stephen Quinn & William Roberds, 2012. "The Bank of Amsterdam through the lens of monetary competition," Working Paper 2012-14, Federal Reserve Bank of Atlanta.
  2. Milovan Stanisic & Danka Stefanovic & Nada Arezina & Vule Mizdrakovic, 2013. "Analysis of auditor`s reports and bankruptcy risk in banking sector in the Republic of Serbia," The AMFITEATRU ECONOMIC journal, Academy of Economic Studies - Bucharest, Romania, vol. 15(34), pages 431-441, June.
  3. Peter Koudijs & Hans-Joachim Voth, 2014. "Leverage and Beliefs: Personal Experience and Risk Taking in Margin Lending," ECON - Working Papers 148, Department of Economics - University of Zurich.
  4. Menno Broos & Krit Carlier & Jan Kakes & Eric Klaaijsen, 2012. "Shadow Banking: An Exploratory Study for the Netherlands," DNB Occasional Studies 1005, Netherlands Central Bank, Research Department.
  5. Gary B. Gorton, 2012. "Some Reflections on the Recent Financial Crisis," NBER Working Papers 18397, National Bureau of Economic Research, Inc.
  6. Roberds, William & Velde, Francois R., 2014. "Early Public Banks," Working Paper Series WP-2014-3, Federal Reserve Bank of Chicago.

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