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The (Dis)Advantages of Clearinghouses Before the Fed

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  • Matthew S. Jaremski

Abstract

Operating in individual cities, U.S. clearinghouses were the closest thing to a central bank before 1914, but they only assisted banks that chose to join the association. Using an annual bank-level database for seven states between 1880 and 1910, this paper shows that after the entry of a clearinghouse member banks were less likely and non-member banks in the same city were more likely to close. The results are driven by the fact that the presence of clearinghouses led all banks to become more exposed to systemic liquidity risk, yet only provided liquidity to member banks during panics.

Suggested Citation

  • Matthew S. Jaremski, 2017. "The (Dis)Advantages of Clearinghouses Before the Fed," NBER Working Papers 23113, National Bureau of Economic Research, Inc.
  • Handle: RePEc:nbr:nberwo:23113
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    1. Moen, Jon R. & Tallman, Ellis W., 2000. "Clearinghouse Membership and Deposit Contraction during the Panic of 1907," The Journal of Economic History, Cambridge University Press, vol. 60(1), pages 145-163, March.
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    11. Yang-Ho Park & Nicole Abruzzo, 2016. "An Empirical Analysis of Futures Margin Changes: Determinants and Policy Implications," Journal of Financial Services Research, Springer;Western Finance Association, vol. 49(1), pages 65-100, February.
    12. 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.
    13. Kris James Mitchener & Gary Richardson, 2019. "Network Contagion and Interbank Amplification during the Great Depression," Journal of Political Economy, University of Chicago Press, vol. 127(2), pages 465-507.
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    20. Jaremski, Matthew, 2015. "Clearinghouses as credit regulators before the fed?," Journal of Financial Stability, Elsevier, vol. 17(C), pages 10-21.
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    24. Wicker,Elmus, 2000. "Banking Panics of the Gilded Age," Cambridge Books, Cambridge University Press, number 9780521770231, May.
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    Cited by:

    1. Jaremski, Matthew & Wheelock, David C., 2020. "The Founding of the Federal Reserve, the Great Depression, and the Evolution of the U.S. Interbank Network," The Journal of Economic History, Cambridge University Press, vol. 80(1), pages 69-99, March.
    2. Christopher Hoag, 2019. "Bank Executive Experience in a Financial Crisis," Working Papers 1902, Trinity College, Department of Economics.
    3. Stefano Ugolini, 2018. "The Historical Evolution of Central Banking," Post-Print hal-01887004, HAL.
    4. Christopher Hoag, 2019. "Liquidity and Borrowing from a Lender of Last Resort during the Crisis of 1884," Working Papers 1901, Trinity College, Department of Economics, revised Jul 2019.

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    More about this item

    JEL classification:

    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • N21 - Economic History - - Financial Markets and Institutions - - - U.S.; Canada: Pre-1913

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