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Private sector responses to the Panic of 1907: a comparison of New York and Chicago

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  • Ellis W. Tallman
  • Jon R. Moen

Abstract

The trend toward greater provision of payments services by nonbank providers raises a question for regulators: What if these nonbank institutions suffer unfavorable balances or experience a run? The authors of this article look to the Panic of 1907 as an example of how private market participants, in the absence of government institutions, react to a crisis in their industry. They suggest that New York's and Chicago's contrasting experiences during the panic may provide useful lessons for both regulators and market participants. ; The article compares responses to the panic by bank intermediaries in the two cities through clearinghouses. The apparent isolation of trusts from the New York Clearinghouse left the clearinghouse with inadequate knowledge of their condition and hindered prompt action. In Chicago, the clearinghouse had timely information on most intermediaries in the city, including the trusts, and therefore was positioned to react quickly. ; The distinct nature of the Panic of 1907 and the differences between private market regulation through clearinghouses and the current framework of public regulation limit recommendations for today's financial world. Nonetheless, the historical experience provides a precedent for the development and growth of payments services offered by nonbank providers, which should not be ignored as key players in the payments system. The key lesson from history is that such ignorance can be expensive.

Suggested Citation

  • Ellis W. Tallman & Jon R. Moen, 1995. "Private sector responses to the Panic of 1907: a comparison of New York and Chicago," Economic Review, Federal Reserve Bank of Atlanta, issue Mar, pages 1-9.
  • Handle: RePEc:fip:fedaer:y:1995:i:mar:p:1-9:n:v.80no.2
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    Cited by:

    1. METAXAS, Theodore & TROMPATZI, Georgia, 2015. "From The Bank Panic Of 1907 To The Great Depression Of 1929 And The Savings And Loan Crisis Of The 1980s: Comparative Analysis And Lessons For The Future," Applied Econometrics and International Development, Euro-American Association of Economic Development, vol. 15(1), pages 79-96.
    2. 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.
    3. Tallman, Ellis & Moen, Jon, 1998. "Gold Shocks, Liquidity, and the United States Economy during the National Banking Era," Explorations in Economic History, Elsevier, vol. 35(4), pages 381-404, October.
    4. Ellis W. Tallman & Jon R. Moen, 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.

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