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Liquidity creation without a lender of last resort: clearinghouse loan certificates in the Banking Panic of 1907

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  • Ellis W. Tallman
  • Jon R. Moen

Abstract

We employ a new data set comprised of disaggregate figures on clearinghouse 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. Clearinghouse loan certificates were essentially "bridge loans" arranged between clearinghouse members that enabled and were issued in anticipation of monetary gold imports, which took a few weeks to arrive. The large New York City national banks acted as private liquidity providers by requesting (and the New York clearinghouse issuing) a volume of clearinghouse loan certificates beyond their own immediate liquidity needs. While loan certificates were a temporary solution at best to the liquidity crisis in 1907, their issuance allowed the New York banks to serve their role as central reserve city banks in the national banking system.

Suggested Citation

  • 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.
  • Handle: RePEc:fip:fedawp:2006-23
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    References listed on IDEAS

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    1. Ellis W. Tallman, 2012. "The Panic of 1907," Working Paper 1228, Federal Reserve Bank of Cleveland.
    2. James J. McAndrews & Simon M. Potter, 2002. "Liquidity effects of the events of September 11, 2001," Economic Policy Review, Federal Reserve Bank of New York, issue Nov, pages 59-79.
    3. Miron, Jeffrey A. & Romer, Christina D., 1990. "A New Monthly Index of Industrial Production, 1884–1940," The Journal of Economic History, Cambridge University Press, vol. 50(02), pages 321-337, June.
    4. Gorton, Gary & Huang, Lixin, 2006. "Bank panics and the endogeneity of central banking," Journal of Monetary Economics, Elsevier, vol. 53(7), pages 1613-1629, October.
    5. Donaldson, R. Glen, 1992. "Costly liquidation, interbank trade, bank runs and panics," Journal of Financial Intermediation, Elsevier, vol. 2(1), pages 59-82, March.
    6. Gorton, Gary, 1985. "Clearinghouses and the Origin of Central Banking in the United States," The Journal of Economic History, Cambridge University Press, vol. 45(02), pages 277-283, June.
    7. 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.
    8. Bruce Champ & Bruce D. Smith & Stephen D. Williamson, 1996. "Currency Elasticity and Banking Panics: Theory and Evidence," Canadian Journal of Economics, Canadian Economics Association, vol. 29(4), pages 828-864, November.
    9. 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.
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    Cited by:

    1. 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.
    2. Viral V. Acharya & Denis Gromb & Tanju Yorulmazer, 2012. "Imperfect Competition in the Interbank Market for Liquidity as a Rationale for Central Banking," American Economic Journal: Macroeconomics, American Economic Association, vol. 4(2), pages 184-217, April.
    3. Tallman, Ellis W & Wicker, Elmus R., 2009. "Banking and Financial Crises in United States History: What Guidance can History Offer Policymakers?," MPRA Paper 21839, University Library of Munich, Germany.
    4. Gary B. Gorton, 2012. "Some Reflections on the Recent Financial Crisis," NBER Working Papers 18397, National Bureau of Economic Research, Inc.
    5. Ellis W. Tallman, 2012. "The Panic of 1907," Working Paper 1228, Federal Reserve Bank of Cleveland.
    6. 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.
    7. Norman, Ben & Shaw, Rachel & Speight, George, 2011. "The history of interbank settlement arrangements: exploring central banks’ role in the payment system," Bank of England working papers 412, Bank of England.

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