TY  - JOUR
AU  - White,Eugene N.
TI  - The Crash of 1882, Counterparty Risk, and the Bailout of the Paris Bourse
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 12933
PY  - 2007
Y2  - February 2007
UR  - http://www.nber.org/papers/w12933
L1  - http://www.nber.org/papers/w12933.pdf
N1  - Author contact info:
Eugene N. White
Department of Economics
Rutgers University
75 Hamilton Street
New Brunswick, NJ 08901-1248
Tel: 732-932-7363
Fax: 732/932-7416
E-Mail: white@economics.rutgers.edu
AB  - The rapid growth of derivative markets has raised concerns about counterparty risk.  It has been argued that their mutual guarantee funds provide an adequate safety net. While this mutualization of risk protects clients and brokers from idiosyncratic shocks, it is generally assumed that it also offers protection against systemic shocks, largely based on the observation that no twentieth century exchange has been forced to shut down. However, an important exception occurred in 1882 when the crash of the French stock market nearly forced the closure of the Paris Bourse.  This exchange's structure was very similar to today's futures markets, with a dominant forward market leading the Bourse to adopt a common fund to guarantee transactions.  Using new archival data, this paper shows how the crash overwhelmed the Bourse's common fund. Only an emergency loan from the Bank of France, intermediated by the largest banks, prevented a closure of the Bourse.
ER  -