The Spatial Transmission of US Banking Panics: Evidence from 1870-1929
(joint with Seung Joo Lee)Submitted
Abstract: We study the propagation of localized banking panics across the United States, employing digitized state-level balance sheet data on the National Banks for the 1870-1929 period. Geographically localized panics result in the robust spillover outside the state borders where they originate, leading to moderately persistent credit contractions and the accumulation of liquid assets. We provide a tractable model illustrating a key trade-off: while interbank markets, e.g., the pyramidal reserve structure of the banking system during the National Banking Era, allow banks to access cheaper funding, they spread the effects of panics throughout the country as observed in the data.
Recommended citation: Dordal i Carreras, Marc and Seung Joo Lee. “The Spatial Transmission of US Banking Panics.” Working Paper (2023). http://marcdordal.github.io/files/WP_US_Panics.pdf