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Title: The (Dis)Advantages of Clearinghouses Before the Fed

Citation Type: Miscellaneous

Publication Year: 2014

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Abstract: Even well intentioned supervision and regulation can lead to ruin if not uniformly applied across the financial system. This paper studies the double-sided effect of historical U.S. clearinghouses. Clearinghouses were private organizations capable of auditing member banks balance sheets, levying fines, and providing emergency liquidity during financial panics. At the same time, their selective nature and membership costs left many banks unprotected. This paper studies how clearinghouses affected the composition and solvency of both members and non-members. Anannual database of national and state bank balance sheets from six states between 1880 and 1910 indicates that those member banks had a lower closure rate and non-member banks had a higher closures rate after a clearinghouse entered. The results suggest that the lack of universal protection might have led to the same instability clearinghouses were trying to trying to prevent.

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Authors: Jaremski, Matthew

Publisher: Colgate University

Data Collections: IPUMS NHGIS

Topics: Other

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