NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

Correspondent Clearing and the Banking Panics of the Great Depression

Gary Richardson

NBER Working Paper No. 12716
Issued in December 2006
NBER Program(s):   DAE   ME

Between the founding of the Federal Reserve System in 1913 and the depression of the 1930s, three check-clearing systems operated in the United States. The Federal Reserve cleared checks for members of the system. Clearing houses cleared checks for members of their organizations. Correspondents cleared checks for all other institutions. The correspondent-clearing system was vulnerable to counter-party cascades, particularly because accounting conventions overstated reserves available to individual institutions and the system as a whole. In November 1930, a correspondent system in the center of the United States collapsed, causing the closure of more than one hundred institutions. Bank runs radiated from the locus of events, and additional correspondent networks succumbed to the situation. For the remainder of the contraction, banks that relied upon correspondents to clear checks failed at higher rates than other banks. In sum, weaknesses within a check-clearing system played a hitherto unrecognized role in the banking crises of the Great Depression.

download in pdf format
   (518 K)

email paper

This paper is available as PDF (518 K) or via email.

Machine-readable bibliographic record - MARC, RIS, BibTeX

Document Object Identifier (DOI): 10.3386/w12716

Published: Richardson, Gary, 2007. "The Check is in the Mail: Correspondent Clearing and the Collapse of the Banking System, 1930 to 1933," The Journal of Economic History, Cambridge University Press, vol. 67(03), pages 643-671, September.

Users who downloaded this paper also downloaded these:
Richardson w12717 Bank Distress during the Great Depression: The Illiquidity-Insolvency Debate Revisited
Richardson w12715 Quarterly Data on the Categories and Causes of Bank Distress During the Great Depression
Calomiris w13597 Bank Failures in Theory and History: The Great Depression and Other "Contagious" Events
Kane w0731 Changes in the Provision of Correspondent-Banking Services and the Role of Federal Reserve Banks under the DIDMC Act
Komai and Richardson w17443 A Brief History of Regulations Regarding Financial Markets in the United States: 1789 to 2009
 
Publications
Activities
Meetings
NBER Videos
Data
People
About

Support
National Bureau of Economic Research, 1050 Massachusetts Ave., Cambridge, MA 02138; 617-868-3900; email: info@nber.org

Contact Us