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Liquidity creation without a central bank: Clearing house loan certificates in the banking panic of 1907

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  • Tallman, Ellis W.
  • Moen, Jon R.

Abstract

We employ a new data set comprised of disaggregate figures on clearing house 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. Clearing house loan certificates were extensions of credit by the New York Clearing House to its members. These certificates were transferable to other clearing house members as a form of final payment for settlement of interbank payments. The certificate issues allowed borrowing banks to maintain (and increase) loans, fulfill cash payment upon depositor withdrawal demands, and enabled gold imports, which took two to three weeks to arrive. The large, New York City national banks acted as private liquidity providers by requesting (and the New York Clearing House issuing) a volume of clearing house loan certificates in excess of their own immediate liquidity needs, in accord with their role as central reserve city banks in the national banking system.

Suggested Citation

  • 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.
  • Handle: RePEc:eee:finsta:v:8:y:2012:i:4:p:277-291
    DOI: 10.1016/j.jfs.2011.06.001
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    References listed on IDEAS

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    Cited by:

    1. Gary B. Gorton, 2012. "Some Reflections on the Recent Financial Crisis," NBER Working Papers 18397, National Bureau of Economic Research, Inc.
    2. Rockoff, Hugh, 2015. "O.M.W. Sprague (the man who “wrote the book” on financial crises) and the founding of the Federal Reserve," Journal of Financial Stability, Elsevier, vol. 17(C), pages 35-45.
    3. Tallman, Ellis W. & Gorton, Gary, 2016. "How Did Pre-Fed Banking Panics End?," Working Paper 1603, Federal Reserve Bank of Cleveland.
    4. Mark Carlson, 2015. "Lessons from the Historical Use of Reserve Requirements in the United States to Promote Bank Liquidity," International Journal of Central Banking, International Journal of Central Banking, vol. 11(1), pages 191-224, January.
    5. Fohlin, Caroline & Gehrig, Thomas & Haas, Marlene, 2015. "Rumors and Runs in Opaque Markets: Evidence from the Panic of 1907," CEPR Discussion Papers 10497, C.E.P.R. Discussion Papers.
    6. Hetzel, Robert L., 2014. "The Real Bills Views of the Founders of the Fed," Economic Quarterly, Federal Reserve Bank of Richmond, issue 2Q, pages 159-181.
    7. Christopher Hoag, 2015. "Clearinghouse Loan Certificates as a Lender of Last Resort," Working Papers 1503, Trinity College, Department of Economics, revised Jun 2015.
    8. Ellis W. Tallman, 2012. "The Panic of 1907," Working Paper 1228, Federal Reserve Bank of Cleveland.
    9. 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.
    10. Christopher Hoag, 2015. "Clearinghouse Loan Certificates as Interbank Loans," Working Papers 1504, Trinity College, Department of Economics, revised Jun 2015.
    11. repec:oup:ereveh:v:21:y:2017:i:1:p:64-82. is not listed on IDEAS
    12. Jon R. Moen & Ellis W. Tallman, 2013. "Close but not a central bank: The New York Clearing House and issues of clearing house loan certificates," Working Paper 1308, Federal Reserve Bank of Cleveland.

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