Working Paper: NBER ID: w31270
Authors: Matthew S. Jaremski; David C. Wheelock
Abstract: This paper provides quantitative evidence on interbank transmission of financial distress in the Panic of 1907 and ensuing recession. Originating in New York City, the panic led to payment suspensions and emergency currency issuance in many cities. Data on the universe of interbank connections show that i) suspension was more likely in cities whose banks had closer ties to banks at the center of the panic, ii) banks with such links were more likely to close in the panic and recession, and iii) banks responded to the panic by rearranging their correspondent relationships, with implications for network structure.
Keywords: interbank networks; financial crises; panic of 1907; banking; financial distress
JEL Codes: E44; G21; N11; N12
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Banks with stronger connections to panic-affected institutions (F65) | More likely to suspend operations (G33) |
| Closer ties to New York institutions (F59) | More likely to suspend payments (G51) |
| Direct network ties (D85) | Heightened vulnerability during the panic (E44) |
| Post-panic rearrangement of correspondent relationships (D51) | Decline in connections to New York institutions (N92) |