Working Paper: NBER ID: w20032
Authors: Jeremy Atack; Matthew S. Jaremski; Peter L. Rousseau
Abstract: We investigate the relationships of bank failures and balance sheet conditions with measures of proximity to different forms of transportation in the United States over the period from 1830-1860. A series of hazard models and bank-level regressions indicate a systematic relationship between proximity to railroads (but not to other means of transportation) and "good" banking outcomes. Although railroads improved economic conditions along their routes, we offer evidence of another channel. Specifically, railroads facilitated better information flows about banks that led to modifications in bank asset composition consistent with reductions in the incidence of moral hazard.
Keywords: No keywords provided
JEL Codes: N21; N71
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| proximity to railroads (R49) | lower bank failure rates (G21) |
| proximity to railroads (R49) | improved banking outcomes (G21) |
| railroads (L92) | better information flows about banks (G21) |
| better information flows about banks (G21) | influence on asset composition (G11) |
| railroads (L92) | reduced moral hazard (G52) |
| railroads (L92) | enhanced banks' access to liquidity (G21) |
| railroads (L92) | diversification of loan portfolios (G51) |
| railroads (L92) | improved acceptability of bank notes (E42) |
| improved acceptability of bank notes (E42) | quicker redemption (G51) |
| railroads (L92) | greater oversight of banks (G28) |
| railroads (L92) | safer bank portfolios (G21) |
| safer bank portfolios (G21) | fewer bonds and more loans (G32) |
| railroads (L92) | alignment of interests of bankers and liability holders (G33) |
| alignment of interests of bankers and liability holders (G33) | reduced incidence of moral hazard (G52) |