IDEAS home Printed from https://ideas.repec.org/a/eee/exehis/v45y2008i4p327-355.html
   My bibliography  Save this article

Resolving the puzzle of the underissuance of national bank notes

Author

Listed:
  • Calomiris, Charles W.
  • Mason, Joseph R.

Abstract

Much of the puzzle of underissuance of national bank notes can be resolved for the period 1880-1900 (the period when detailed, bank-level data are available) by disaggregating, taking account of regulatory limits, and considering differences in banks' opportunity costs cross-sectionally and over time. Banks with poor lending opportunities issued more, within regulatory limits. Banks tended to issue more when bond yields (the backing for notes) were high relative to lending opportunities. The profitability of note issuance was insufficient to attract entrants primarily or mainly for the purpose of note issuance. The observed lack of a general relationship between note issuance and reserve demand is inconsistent with the view that redemption costs from note issuance explain low note issuance in general. However, some variation in the propensities of urban banks to issue notes is associated with variation in reserve demand costs associated with the note issues of those banks. Generally, however, note issuance enjoyed economies of scope with deposit banking, including reduced costs of reserve requirements.

Suggested Citation

  • Calomiris, Charles W. & Mason, Joseph R., 2008. "Resolving the puzzle of the underissuance of national bank notes," Explorations in Economic History, Elsevier, vol. 45(4), pages 327-355, September.
    • Handle: RePEc:eee:exehis:v:45:y:2008:i:4:p:327-355
    as

    Download full text from publisher

    File URL: http://www.sciencedirect.com/science/article/pii/S0014-4983(08)00002-8
    Download Restriction: Full text for ScienceDirect subscribers only
    ---><---

    As the access to this document is restricted, you may want to look for a different version below or search for a different version of it.

    Other versions of this item:

    References listed on IDEAS

    as
    1. William J. Baumol, 1952. "The Transactions Demand for Cash: An Inventory Theoretic Approach," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 66(4), pages 545-556.
    2. Cagan, Phillip & Schwartz, Anna J, 1991. "The National Bank Note Puzzle Reinterpreted," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 23(3), pages 293-307, August.
    3. Charles W. Calomiris & R. Glenn Hubbard, 1987. "International Adjustment Under the Classical Gold Standard: Evidence for the U.S. and Britain, 1879-1914," NBER Working Papers 2206, National Bureau of Economic Research, Inc.
    4. Charles W. Calomiris & Berry Wilson, 2004. "Bank Capital and Portfolio Management: The 1930s "Capital Crunch" and the Scramble to Shed Risk," The Journal of Business, University of Chicago Press, vol. 77(3), pages 421-456, July.
    5. Tao Zhu & Neil Wallace, 2004. "Float on a note," Econometric Society 2004 Far Eastern Meetings 743, Econometric Society.
    6. Merton H. Miller & Daniel Orr, 1966. "A Model of the Demand for Money by Firms," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 80(3), pages 413-435.
    7. James, John A., 1976. "A Note on Interest Paid on New York Bankers' Balances in the Postbellum Period," Business History Review, Cambridge University Press, vol. 50(2), pages 198-202, July.
    8. Tao Zhu & Neil Wallace, 2004. "Float on a Note," 2004 Meeting Papers 342, Society for Economic Dynamics.
    9. Duggar, Jan Warren & Rost, Ronald F., 1969. "National Bank Note Redemption and Treasury Cash," The Journal of Economic History, Cambridge University Press, vol. 29(3), pages 512-520, September.
    10. Bruce A. Champ & Neil Wallace & Warren E. Weber, 1992. "Resolving the national bank note paradox," Quarterly Review, Federal Reserve Bank of Minneapolis, vol. 16(Spr), pages 13-21.
    11. Kuehlwein, Michael, 1992. "The National Bank Note Controversy Reexamined," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 24(1), pages 111-126, February.
    12. Calomiris, Charles W, 1994. "Price and Exchange Rate Determination during the Greenback Suspension," Oxford Economic Papers, Oxford University Press, vol. 46(2), pages 344-344, April.
    13. Tao Zhu & Neil Wallace, 2004. "Float on a Note," Econometric Society 2004 North American Summer Meetings 538, Econometric Society.
    14. Hetherington, Bruce W., 1990. "Bank Entry and the Low Issue of National Bank Notes: A Re-examination," The Journal of Economic History, Cambridge University Press, vol. 50(03), pages 669-675, September.
    15. James, John A, 1976. "The Conundrum of the Low Issue of National Bank Notes," Journal of Political Economy, University of Chicago Press, vol. 84(2), pages 359-367, April.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Jaremski, Matthew, 2017. "Privately Issued Money in the US," Working Papers 2017-05, Department of Economics, Colgate University, revised 20 Sep 2017.
    2. Calomiris, Charles W. & Carlson, Mark, 2016. "Corporate governance and risk management at unprotected banks: National banks in the 1890s," Journal of Financial Economics, Elsevier, vol. 119(3), pages 512-532.
    3. Kris James Mitchener & Matthew Jaremski, 2014. "The Evolution of Bank Supervision: Evidence from U.S. States," NBER Working Papers 20603, National Bureau of Economic Research, Inc.
    4. Bouwman, Christa H. S., 2013. "Liquidity: How Banks Create It and How It Should Be Regulated," Working Papers 13-32, University of Pennsylvania, Wharton School, Weiss Center.
    5. Gary Gorton & Toomas Laarits & Tyler Muir, 2022. "Mobile Collateral versus Immobile Collateral," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 54(6), pages 1673-1703, September.
    6. Stephen F. Quinn & William Roberds, 2008. "The evolution of the check as a means of payment: a historical survey," Economic Review, Federal Reserve Bank of Atlanta, vol. 93(4).
    7. 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.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Gary Gorton & Toomas Laarits & Tyler Muir, 2022. "Mobile Collateral versus Immobile Collateral," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 54(6), pages 1673-1703, September.
    2. Antoine Martin & Cyril Monnet & Warren E. Weber, 2000. "Costly banknote issuance and interest rates under the national banking system," Working Papers 601, Federal Reserve Bank of Minneapolis.
    3. Jaremski, Matthew & Rousseau, Peter L., 2018. "The dawn of an ‘age of deposits’ in the United States," Journal of Banking & Finance, Elsevier, vol. 87(C), pages 264-281.
    4. Eugene N. White, 2011. ""To Establish a More Effective Supervision of Banking": How the Birth of the Fed Altered Bank Supervision," NBER Working Papers 16825, National Bureau of Economic Research, Inc.
    5. Champ, Bruce & Wallace, Neil & Weber, Warren E., 1994. "Interest rates under the U.S. national banking system," Journal of Monetary Economics, Elsevier, vol. 34(3), pages 343-358, December.
    6. Charles W. Calomiris, 1992. "Greenback Resumption and Silver Risk: The Economics and Politics of Monetary Regime Change in the United States, 1862-1900," NBER Working Papers 4166, National Bureau of Economic Research, Inc.
    7. Fernando Alvarez & Francesco Lippi & Roberto Robatto, 2019. "Cost of Inflation in Inventory Theoretical Models," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 32, pages 206-226, April.
    8. Javier Gómez P., 1998. "La Demanda Por Dinero En Colombia," Borradores de Economia 2969, Banco de la Republica.
    9. Mirza Hammad Hassan & Hussain Haroon & Sarwar Ghulam & Habib Haroon, 2024. "Corporate Internationalization and Uncertainty of Cash Holdings: Evidence from an Emerging Market," Zagreb International Review of Economics and Business, Sciendo, vol. 27(1), pages 79-95.
    10. Opler, Tim & Pinkowitz, Lee & Stulz, Rene & Williamson, Rohan, 1999. "The determinants and implications of corporate cash holdings," Journal of Financial Economics, Elsevier, vol. 52(1), pages 3-46, April.
    11. Jan Tin, 2010. "Bequest motives and household money demand," Journal of Economics and Finance, Springer;Academy of Economics and Finance, vol. 34(3), pages 269-283, July.
    12. Luisanna Onnis & Patrizio Tirelli, 2015. "Shadow economy: Does it matter for money velocity?," Empirical Economics, Springer, vol. 49(3), pages 839-858, November.
    13. Quoc Trung Tran, 2020. "Corporate cash holdings and financial crisis: new evidence from an emerging market," Eurasian Business Review, Springer;Eurasia Business and Economics Society, vol. 10(2), pages 271-285, June.
    14. Hou, Canran & Liu, Huan, 2020. "Foreign residency rights and corporate cash holdings," Journal of Corporate Finance, Elsevier, vol. 64(C).
    15. Thakur, Bhanu Pratap Singh & Kannadhasan, M., 2019. "Corruption and cash holdings: Evidence from emerging market economies," Emerging Markets Review, Elsevier, vol. 38(C), pages 1-17.
    16. Dee, Philippa S., 1985. "Demands for real and financial assets in Botswana," Kiel Working Papers 244, Kiel Institute for the World Economy (IfW Kiel).
    17. David Laidler, 1999. "The Quantity of Money and Monetary Policy," Staff Working Papers 99-5, Bank of Canada.
    18. Reuven Glick, 1984. "The Geometry Of Asset Adjustment With Adjustment Costs," Journal of Financial Research, Southern Finance Association;Southwestern Finance Association, vol. 7(4), pages 303-314, December.
    19. Furkan Baser & Soner Gokten & Guray Kucukkocaoglu & Hasan Ture, 2016. "Liquidity-Profitability Tradeoff Existence In Turkey: An Empirical Investigation Under Structural Equation Modeling," Copernican Journal of Finance & Accounting, Uniwersytet Mikolaja Kopernika, vol. 5(2), pages 27-44.
    20. Franco Modigliani, 1977. "The monetarist controversy; or, should we forsake stabilization policies?," Economic Review, Federal Reserve Bank of San Francisco, issue Spr suppl, pages 27-46.

    More about this item

    Keywords

    National bank Bank notes Scope economies;

    JEL classification:

    • E5 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit
    • E42 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Monetary Sytsems; Standards; Regimes; Government and the Monetary System
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation
    • N11 - Economic History - - Macroeconomics and Monetary Economics; Industrial Structure; Growth; Fluctuations - - - U.S.; Canada: Pre-1913

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:eee:exehis:v:45:y:2008:i:4:p:327-355. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Catherine Liu (email available below). General contact details of provider: http://www.elsevier.com/locate/inca/622830 .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.