The Joint Production of Confidence: Endogenous Regulation and Nineteenth Century Commercial-Bank Clearinghouses
During the nineteenth century, deposits increased relative to bank notes, c ausing increased information-asymmetry problems in banking. This pape r describes how bank clearinghouses lowered these costs by monitoring bank activities and establishing mechanisms of managerial control, i n effect "regulating" bank behavior. Such actions enforced the loca l one-to-one exchange rate between deposits and specie. Clearinghouse s increased regulation during financial panics, creating and enforcin g a risk-sharing device (loan certificates) for addressing panic-rela ted information problems. This paper concludes that "the market's" capacity to control bank managers depends on the banking product mix, and more generally, on information costs. Copyright 1987 by Ohio State University Press.
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Volume (Year): 19 (1987)
Issue (Month): 4 (November)
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