IDEAS home Printed from
MyIDEAS: Login to save this paper or follow this series

Suspension of payments, bank failures, and the nonbank public's losses

  • Gerald P. Dwyer, Jr.
  • Iftekhar Hasan

Arguably, eliminating suspensions of payments--periods when banks jointly refuse to convert their liabilities into outside money or other assets--was an important impetus for creating the Federal Reserve. Friedman and Schwartz suggest that a suspension in 1930 would have decreased the severity of the Great Depression. More recently, an emerging literature suggests that suspensions of payments may well be optimal in some states of the world. We present evidence about suspensions of payments from an episode that is close to a controlled experiment for examining their effects. In 1861, about 44 percent of the banks in Wisconsin closed, 81 percent of the banks in Illinois closed, and noteholders suffered substantial losses. The historical record suggests a possible explanation: an effective suspension of payments in Wisconsin but not Illinois. Historical and statistical evidence indicate that the suspension of payments decreased the number of banks that closed as well as noteholders' losses. Our statistical evidence indicates a 25 percent increase in the probability that an average bank in the two states remains open with the suspension of payments. The suspension of payments decreases noteholders' losses by about 20 cents per dollar of notes.

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.

File URL:
Download Restriction: no

Paper provided by Federal Reserve Bank of Atlanta in its series FRB Atlanta Working Paper No. with number 96-3.

in new window

Date of creation: 1996
Date of revision:
Handle: RePEc:fip:fedawp:96-3
Contact details of provider: Postal: 1000 Peachtree St., N.E., Atlanta, Georgia 30309
Phone: 404-521-8500
Web page:

More information through EDIRC

Order Information: Email:

No references listed on IDEAS
You can help add them by filling out this form.

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

When requesting a correction, please mention this item's handle: RePEc:fip:fedawp:96-3. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Meredith Rector)

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.

This information is provided to you by IDEAS at the Research Division of the Federal Reserve Bank of St. Louis using RePEc data.