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Interbank Markets and Banking Crises: New Evidence on the Establishment and Impact of the Federal Reserve

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  • Carlson, Mark A.

    () (Bank for International Settlements, Basel, Switzerland)

  • Wheelock, David C.

    () (Federal Reserve Bank of St. Louis)

Abstract

This paper examines the impact of the Federal Reserve’s founding on seasonal pressures and contagion risk in the interbank system. Deposit flows among classes of banks were highly seasonal before 1914; amplitude and timing varied regionally. Panics interrupted normal flows as banks throughout the country sought funds from the central money markets simultaneously. Seasonal pressures and contagion risk in the system were lower by the 1920s, when the Fed provided seasonal liquidity and reserves. Panics returned in the 1930s, due in part to shocks from nonmember banks and because the Fed’s decentralized structure hampered a vigorous response to national crises.

Suggested Citation

  • Carlson, Mark A. & Wheelock, David C., 2015. "Interbank Markets and Banking Crises: New Evidence on the Establishment and Impact of the Federal Reserve," Working Papers 2015-37, Federal Reserve Bank of St. Louis.
  • Handle: RePEc:fip:fedlwp:2015-037
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    References listed on IDEAS

    as
    1. Glasserman, Paul & Young, H. Peyton, 2015. "How likely is contagion in financial networks?," Journal of Banking & Finance, Elsevier, vol. 50(C), pages 383-399.
    2. Milton Friedman & Anna J. Schwartz, 1963. "A Monetary History of the United States, 1867–1960," NBER Books, National Bureau of Economic Research, Inc, number frie63-1, June.
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    Cited by:

    1. Jieshuang He, 2016. "Endogenous Bank Networks and Contagion," Caepr Working Papers 2016-005 Classification-D, Center for Applied Economics and Policy Research, Economics Department, Indiana University Bloomington.
    2. Jaremski, Matthew & Wheelock, David C., 2015. "Banker Preferences, Interbank Connections, and the Enduring Structure of the Federal Reserve System," Working Papers 2015-11, Federal Reserve Bank of St. Louis, revised 16 Aug 2016.

    More about this item

    Keywords

    Federal Reserve; banking crises; banking panics; interbank market; correspondent banks; contagion; Great Depression;

    JEL classification:

    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • N21 - Economic History - - Financial Markets and Institutions - - - U.S.; Canada: Pre-1913
    • N22 - Economic History - - Financial Markets and Institutions - - - U.S.; Canada: 1913-

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