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Clearinghouses as Credit Regulators Before the Fed?

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Abstract

Clearinghouses were private organizations that not only had the power to audit member banks’ balance sheets and levy fines, but also provided emergency liquidity during large-scale financial panics. This paper studies how clearinghouses affected bank composition and solvency during stable periods as well as panics. An annual database of all national bank balance sheets from 1865 to 1914 indicates that national banks grew larger after the creation of a clearinghouse. Relative to the rise in assets, banks reduced their cash reserves and individual deposits and increased their loans, circulation, and interbank deposits. The analysis also shows that while clearinghouse members were less likely to fail during panics, they were more likely to fail in other periods, particularly those in non-financial centers. In this way, clearinghouses seem to have freed up additional resources during stable periods and delayed bank failures until the potential for contagion was removed.

Suggested Citation

  • Jaremski, Matthew, 2014. "Clearinghouses as Credit Regulators Before the Fed?," Working Papers 2014-06, Department of Economics, Colgate University, revised 12 Jun 2014.
    • Handle: RePEc:cgt:wpaper:2014-06
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    File URL: https://digitalcollections.colgate.edu/islandora/object/islandora%253A4719
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    Cited by:

    1. Christopher Cotter & Peter L. Rousseau, 2025. "Correspondent Banking, Systemic Risk, and the Panic of 1893," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 57(4), pages 1023-1044, June.
    2. Kris James Mitchener & Matthew Jaremski, 2014. "The Evolution of Bank Supervision: Evidence from U.S. States," NBER Working Papers 20603, National Bureau of Economic Research, Inc.
    3. Jaremski, Matthew & Plastaras, Brady, 2015. "An In-depth Analysis of New England Mutual Savings Banks, 1870-1914," Working Papers 2015-02, Department of Economics, Colgate University, revised 12 Feb 2015.
    4. Nurlan Turdaliev & Yahong Zhang, 2025. "Bank runs and privately funded solutions," Journal of Economics, Springer, vol. 146(2), pages 103-143, October.
    5. Jaremski, Matthew & Mathy, Gabrial, 2017. "Looking Back On the Age of Checking in America, 1800-1960," MPRA Paper 78083, University Library of Munich, Germany.
    6. Jaremski, Matthew, 2018. "The (dis)advantages of clearinghouses before the Fed," Journal of Financial Economics, Elsevier, vol. 127(3), pages 435-458.
    7. 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.
    8. Barroso, Ricardo Vieira & Lima, Joaquim Ignacio Alves Vasconcellos & Lucchetti, Alexandre Henrique & Cajueiro, Daniel Oliveira, 2016. "Interbank network and regulation policies: an analysis through agent-based simulations with adaptive learning," MPRA Paper 73308, University Library of Munich, Germany.
    9. Jaremski, Matthew & Rousseau, Peter L., 2018. "The dawn of an ‘age of deposits’ in the United States," Journal of Banking & Finance, Elsevier, vol. 87(C), pages 264-281.
    10. Christopher Hoag, 2015. "Clearinghouse Loan Certificates as Interbank Loans," Working Papers 1504, Trinity College, Department of Economics, revised Jun 2015.
    11. repec:ofr:report:13-2 is not listed on IDEAS

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    Keywords

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    JEL classification:

    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • N21 - Economic History - - Financial Markets and Institutions - - - U.S.; Canada: Pre-1913

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