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Stopping Contagion with Bailouts: Microevidence from Pennsylvania Bank Networks During the Panic of 1884

Author

Listed:
  • John Bluedorn

    (International Monetary Fund)

  • Haelim Park

    (Office of Financial Research)

Abstract

Using a newly constructed historical dataset on the Pennsylvania state banking system, detailing the amounts of "due-froms" on a debtor-bank-by-debtor-bank basis, we investigate the effects of the Panic of 1884 and subsequent private sector-orchestrated bailout of systemically important banks (SIBs) on the broader banking sector. We find evidence that Pennsylvania banks with larger direct interbank exposures to New York City changed the composition of their asset holdings, shifting from loans to more liquid assets and reducing their New York City correspondent deposits in the near-term. Over the long-term though, only the lower correspondent deposits effect persisted. Our findings show that the banking turmoil in New York City impacted more exposed banks outside New York City, but that bailouts of SIBs by the New York Clearinghouse likely short-circuited a full-scale banking panic.

Suggested Citation

  • John Bluedorn & Haelim Park, 2016. "Stopping Contagion with Bailouts: Microevidence from Pennsylvania Bank Networks During the Panic of 1884," Working Papers 16-03, Office of Financial Research, US Department of the Treasury.
  • Handle: RePEc:ofr:wpaper:16-03
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    Cited by:

    1. Gary Gorton & Tyler Muir, 2016. "Mobile Collateral versus Immobile Collateral," NBER Working Papers 22619, National Bureau of Economic Research, Inc.
    2. Jieshuang He, 2016. "Endogenous Bank Networks and Contagion," CAEPR Working Papers 2016-005, Center for Applied Economics and Policy Research, Department of Economics, Indiana University Bloomington.
    3. Christopher Hoag, 2019. "Liquidity and Borrowing from a Lender of Last Resort during the Crisis of 1884," Working Papers 1901, Trinity College, Department of Economics, revised Jul 2019.
    4. Faff, Robert W. & Parwada, Jerry T. & Tan, Eric K.M., 2019. "Did connected hedge funds benefit from bank bailouts during the financial crisis?," Journal of Banking & Finance, Elsevier, vol. 107(C), pages 1-1.
    5. Zhao, Hong & Li, Jiayi & Lei, Yiqing & Zhou, Mingming, 2022. "Risk spillover of banking across regions: Evidence from the belt and road countries," Emerging Markets Review, Elsevier, vol. 52(C).

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    More about this item

    Keywords

    Bailouts; Contagion; Pennsylvania Bank Networks; Panic of 1884; Bank Runs;
    All these keywords.

    JEL classification:

    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation
    • N21 - Economic History - - Financial Markets and Institutions - - - U.S.; Canada: Pre-1913

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