Banking and financial crises in United States history: what guidance can history offer policymakers?
AbstractThis paper assesses the validity of comparisons between the current financial crisis and past crises in the United States. We highlight aspects of two National Banking Era crises (the Panic of 1873 and the Panic of 1907) that are relevant for comparison with the Panic of 2008. In 1873, overinvestment in railroad debt and the default of railroad companies on that debt led to the failure of numerous brokerage houses, precursor to the modern investment bank. During the Panic of 1907, panic-related deposit withdrawals centered on the less regulated trust companies, which had only indirect access to the existing lender of last resort, similar to investment banks in 2008. The popular press has made numerous references to the banking crises of the Great Depression as relevant comparisons to the recent crisis. This paper argues that such an analogy is inaccurate. The previous banking crises in U.S. history reflected widespread depositor withdrawals whereas the recent panic arose from counterparty solvency fears and large counterparty exposures among large complex financial intermediaries. In historical incidents, monitoring counterparty exposures was standard banking practice and the exposures were smaller. From this perspective, the lessons from the past appear less directly relevant for the current crisis.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoPaper provided by Federal Reserve Bank of Cleveland in its series Working Paper with number 1009.
Date of creation: 2010
Date of revision:
Other versions of this item:
- 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.
- N22 - Economic History - - Financial Markets and Institutions - - - U.S.; Canada: 1913-
- E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
- N21 - Economic History - - Financial Markets and Institutions - - - U.S.; Canada: Pre-1913
This paper has been announced in the following NEP Reports:
- NEP-ALL-2010-08-14 (All new papers)
- NEP-CBA-2010-08-14 (Central Banking)
- NEP-HIS-2010-08-14 (Business, Economic & Financial History)
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.:
- Romer, Christina, 1986. "Spurious Volatility in Historical Unemployment Data," Journal of Political Economy, University of Chicago Press, vol. 94(1), pages 1-37, February.
- Moritz Schularick & Alan M. Taylor, 2012.
"Credit Booms Gone Bust: Monetary Policy, Leverage Cycles, and Financial Crises, 1870-2008,"
American Economic Review,
American Economic Association, vol. 102(2), pages 1029-61, April.
- Moritz Schularick & Alan M. Taylor, 2009. "Credit Booms Gone Bust: Monetary Policy, Leverage Cycles and Financial Crises, 1870–2008," NBER Working Papers 15512, National Bureau of Economic Research, Inc.
- Schularick, Moritz & Taylor, Alan M., 2009. "Credit Booms Gone Bust: Monetary Policy, Leverage Cycles and Financial Crises, 1870-2008," CEPR Discussion Papers 7570, C.E.P.R. Discussion Papers.
- Moen, Jon & Tallman, Ellis W., 1992. "The Bank Panic of 1907: The Role of Trust Companies," The Journal of Economic History, Cambridge University Press, vol. 52(03), pages 611-630, September.
- Ellis W. Tallman & Jon R. Moen, 2010.
"Liquidity creation without a lender of last resort: clearing house loan certificates in the Banking Panic of 1907,"
1010, Federal Reserve Bank of Cleveland.
- Tallman, Ellis W. & Moen, Jon R., 2012. "Liquidity creation without a central bank: Clearing house loan certificates in the banking panic of 1907," Journal of Financial Stability, Elsevier, vol. 8(4), pages 277-291.
- Ellis W. Tallman & Jon R. Moen, 2007. "Liquidity creation without a lender of last resort: clearinghouse loan certificates in the Banking Panic of 1907," Working Paper 2006-23, Federal Reserve Bank of Atlanta.
- Charles W. Calomiris & Gary Gorton, .
"The Origins of Banking Panics: Models, Facts, and Bank Regulation,"
Rodney L. White Center for Financial Research Working Papers
11-90, Wharton School Rodney L. White Center for Financial Research.
- 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.
- Moen, Jon R. & Tallman, Ellis W., 2000.
"Clearinghouse Membership and Deposit Contraction during the Panic of 1907,"
The Journal of Economic History,
Cambridge University Press, vol. 60(01), pages 145-163, March.
- Moen, Jon R. & Tallman, Ellis W., 2000. "Clearinghouse Membership and Deposit Contraction during the Panic of 1907," The Journal of Economic History, Cambridge University Press, vol. 60(01), pages 145-163, March.
- James M Nason & Ellis Tallman, 2012. "Business cycles and financial crises: the roles of credit supply and demand shocks," Working Paper 1221, Federal Reserve Bank of Cleveland.
- Jon R. Moen & Ellis W. Tallman, 1994. "Clearinghouse access and bank runs: trust companies in New York and Chicago during the Panic of 1907," Working Paper 94-12, Federal Reserve Bank of Atlanta.
- Richardson, Gary, 2007. "Categories and causes of bank distress during the great depression, 1929-1933: The illiquidity versus insolvency debate revisited," Explorations in Economic History, Elsevier, vol. 44(4), pages 588-607, October.
- Ellis W. Tallman & Jon R. Moen, 1990. "Lessons from the panic of 1907," Economic Review, Federal Reserve Bank of Atlanta, issue May, pages 2-13.
- Bliss, Robert R. & Kaufman, George G., 2006. "Derivatives and systemic risk: Netting, collateral, and closeout," Journal of Financial Stability, Elsevier, vol. 2(1), pages 55-70, April.
- Wicker,Elmus, 1996. "The Banking Panics of the Great Depression," Cambridge Books, Cambridge University Press, number 9780521562614, April.
- Nathan Balke & Robert J. Gordon, 1986. "Appendix B Historical Data," NBER Chapters, in: The American Business Cycle: Continuity and Change, pages 781-850 National Bureau of Economic Research, Inc.
- Gerald P. Dwyer, Jr. & R. Alton Gilbert, 1989. "Bank runs and private remedies," Review, Federal Reserve Bank of St. Louis, issue May, pages 43-61.
- Flannery, Mark J., 2009. "Financial system instability: Threats, prevention, management, and resolution," Journal of Financial Stability, Elsevier, vol. 5(3), pages 221-223, September.
- Richhild Moessner & William A. Allen, 2011. "Las crisis bancarias y el sistema monetario internacional en la Gran Depresión y en la actualidad," Revista de Economía Institucional, Universidad Externado de Colombia - Facultad de Economía, vol. 13(25), pages 43-87, July-Dece.
- Michael D. Bordo & John Landon-Lane, 2010. "The Lessons from the Banking Panics in the United States in the 1930s for the Financial Crisis of 2007-2008," NBER Working Papers 16365, National Bureau of Economic Research, Inc.
- Kay Giesecke & Francis A. Longstaff & Stephen Schaefer & Ilya Strebulaev, 2012. "Macroeconomic Effects of Corporate Default Crises: A Long-Term Perspective," NBER Working Papers 17854, National Bureau of Economic Research, Inc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Lee Faulhaber).
If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.
If references are entirely missing, you can add them using this form.
If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.
If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.
Please note that corrections may take a couple of weeks to filter through the various RePEc services.