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Contagious bank runs in the free banking period


  • Iftekhar Hasan
  • Gerald P. Dwyer


In the free banking period in the United States, banks issued private banknotes without discretionary restriction of entry into banking. Previous research suggests that specific aspects of the free banking laws account for banks' difficulties, losses to noteholders, and the attendant relatively large number of banks closed. In this paper, we examine the hypothesis that contagious is: 1. the actual sequence of events in two episodes in which numerous banks closed; and 2. a statistical analysis of four episodes. The evidence is consistent with the hypothesis that contagious bank runs account of many of the banks closing. Bankers' use of measures such as restrictions of convertibility and joint guarantees was ad hoc and apparently less effective in this period than after the Civil War.

Suggested Citation

  • Iftekhar Hasan & Gerald P. Dwyer, 1989. "Contagious bank runs in the free banking period," Working Papers 1989-002, Federal Reserve Bank of St. Louis.
  • Handle: RePEc:fip:fedlwp:1989-002

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    References listed on IDEAS

    1. R. W. Hafer, 1986. "The response of stock prices to changes in weekly money and the discount rate," Review, Federal Reserve Bank of St. Louis, issue Mar, pages 5-14.
    2. Hardouvelis, Gikas A., 1987. "Macroeconomic information and stock prices," Journal of Economics and Business, Elsevier, vol. 39(2), pages 131-140, May.
    3. Hakkio, Craig S & Pearce, Douglas K, 1985. "The Reaction of Exchange Rates to Economic News," Economic Inquiry, Western Economic Association International, vol. 23(4), pages 621-636, October.
    4. Daniel L. Thornton, 1988. "The borrowed-reserves operating procedures: theory and evidence," Review, Federal Reserve Bank of St. Louis, issue Jan, pages 30-54.
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    Cited by:

    1. Michael D. Bordo, 1989. "The lender of last resort: some historical insights," Proceedings 234, Federal Reserve Bank of Chicago.
    2. Michael D. Bordo, 1990. "The lender of last resort : alternative views and historical experience," Economic Review, Federal Reserve Bank of Richmond, issue Jan, pages 18-29.


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