TY  - JOUR
AU  - Calomiris,Charles W.
AU  - Mason,Joseph R.
TI  - Resolving the Puzzle of the Underissuance of National Bank Notes
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 10951
PY  - 2004
Y2  - December 2004
UR  - http://www.nber.org/papers/w10951
L1  - http://www.nber.org/papers/w10951.pdf
N1  - Author contact info:
Charles W. Calomiris
Graduate School of Business
Columbia University
3022 Broadway Street, Uris Hall
New York, NY 10027
Tel: 212/854-8748
Fax: 212/316-9219
E-Mail: cc374@columbia.edu
AB  - The puzzle of underissuance of national bank notes disappears when one disaggregates data, takes account of regulatory limits, and considers differences in opportunity costs. Banks with poor lending opportunities maximized their issuance. Other banks chose to limit issuance. Redemption costs do not explain cross-sectional variation in issuance and the observed relationship between note issuance and excess reserves is inconsistent with the redemption risk hypothesis of underissuance. National banks did not enter primarily to issue national bank notes, and a "pure arbitrage" strategy of chartering a national bank only to issue national bank notes would not have been profitable. Indeed, new entrants issued less while banks exiting were often maximum issuers. Economies of scope
between note issuing and deposit banking included shared overhead costs and the ability to reduce costs of mandatory minimum reserve and capital requirements.
ER  -