The cost of banking panics in an age before “Too Big to Fail”
How costly were the banking panics of the National Banking Era (1861-1913)? I combine two hand-collected data sets - the weekly statements of the New York Clearing House banks and the monthly holding period return of every stock listed on the NYSE - to estimate the cost of banking panics in an era before “too big to fail.” The bank statements allow me to construct a hypothetical insurance contract which would have allowed investors to insure against sudden deposit withdrawals and the cross-section of stock returns allow us to draw inferences about the marginal utility during panic states. Panics were costly. The cross-section of gilded-age stock returns imply investors would have willingly paid a 14% annual premium above actuarial fair value to insure $100 against unexpected deposit withdrawals The implied consumption of stock investors suggests that the consumption loss associated with National Banking Era bank runs was far more costly than the consumption loss from stock market crashes.
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- Hansen, Lars Peter & Jagannathan, Ravi, 1997.
" Assessing Specification Errors in Stochastic Discount Factor Models,"
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- Sandro Brusco & Fabio Castiglionesi, 2005. "Liquidity Coinsurance, Moral Hazard and Financial Contagion," Department of Economics Working Papers 05-12, Stony Brook University, Department of Economics.
- Wicker,Elmus, 2000. "Banking Panics of the Gilded Age," Cambridge Books, Cambridge University Press, number 9780521770231, September. Full references (including those not matched with items on IDEAS)
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