Working Paper: NBER ID: w15770
Authors: Peter L. Rousseau
Abstract: The rapid growth of deposits in New York City over the three decades following the Civil War is often attributed to the release of pent-up demand for the services that transactions accounts could provide. I advance a complementary explanation that centers on the existence of an increasingly efficient market for bank shares. The stock market was important because it generated price and dividend quotations that signaled depositors about the soundness of individual banks, thereby directing the expansion. At the same time, innovations within the city's banks created conditions under which stock prices became more informative, reducing asymmetries between banks and depositors to a point where confidence in banks could grow. Using a new database of stock prices, dividends, and balance sheet items for traded New York City banks from 1866 to 1897, a series of dynamic panel data models supports the proposed mechanism.
Keywords: bank stocks; deposit banking; New York City; financial markets; 19th century
JEL Codes: E44; N11; N21
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| stock prices (G12) | interbank deposits (G21) |
| stock prices (G12) | individual deposits (D14) |
| stock prices (G12) | total deposits (G21) |
| stock prices (G12) | deposit growth (G21) |
| efficient market for bank shares (G14) | increase in deposits (G21) |