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Liquidity creation without a lender of last resort: clearing house 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 clearing house 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. Clearing house loan certificates were essentially “bridge loans” arranged between clearing house members. They enabled and were issued in anticipation of 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 Clearing House issuing) a volume of clearing house loan certificates beyond their own immediate liquidity needs, in accord with their role as central reserve city banks in the national banking system.

Suggested Citation

  • Ellis W. Tallman & Jon R. Moen, 2010. "Liquidity creation without a lender of last resort: clearing house loan certificates in the Banking Panic of 1907," Working Paper 1010, Federal Reserve Bank of Cleveland.
  • Handle: RePEc:fip:fedcwp:1010
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    References listed on IDEAS

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    1. Clark, Truman A, 1984. "Violations of the Gold Points, 1890-1908," Journal of Political Economy, University of Chicago Press, vol. 92(5), pages 791-823, October.
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    Cited by:

    1. Rockoff, Hugh, 2015. "O.M.W. Sprague (the man who “wrote the book” on financial crises) and the founding of the Federal Reserve," Journal of Financial Stability, Elsevier, vol. 17(C), pages 35-45.
    2. 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.
    3. Caroline Fohlin & Thomas Gehrig & Marlene Haas, 2015. "Rumors and Runs in Opaque Markets: Evidence from the Panic of 1907," Emory Economics 1503, Department of Economics, Emory University (Atlanta).
    4. Gary Gorton & Ellis W. Tallman, 2016. "How Did Pre-Fed Banking Panics End?," NBER Working Papers 22036, National Bureau of Economic Research, Inc.
    5. 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.
    6. Christopher Hoag, 2015. "Clearinghouse Loan Certificates as Interbank Loans," Working Papers 1504, Trinity College, Department of Economics, revised Jun 2015.
    7. Hetzel, Robert L., 2014. "The Real Bills Views of the Founders of the Fed," Economic Quarterly, Federal Reserve Bank of Richmond, issue 2Q, pages 159-181.
    8. 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.
    9. repec:eee:jfinec:v:125:y:2017:i:3:p:434-453 is not listed on IDEAS
    10. Gary B. Gorton, 2012. "Some Reflections on the Recent Financial Crisis," NBER Working Papers 18397, National Bureau of Economic Research, Inc.
    11. Christopher Hoag, 2015. "Clearinghouse Loan Certificates as a Lender of Last Resort," Working Papers 1503, Trinity College, Department of Economics, revised Jun 2015.
    12. Ellis W. Tallman, 2012. "The Panic of 1907," Working Paper 1228, Federal Reserve Bank of Cleveland.
    13. Calomiris, Charles W. & Carlson, Mark, 2017. "Interbank networks in the National Banking Era: Their purpose and their role in the Panic of 1893," Journal of Financial Economics, Elsevier, vol. 125(3), pages 434-453.
    14. 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.
    15. 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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    Keywords

    Financial crises - United States ; Lenders of last resort;

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