NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

The (Dis)Advantages of Clearinghouses Before the Fed

Matthew S. Jaremski

NBER Working Paper No. 23113
Issued in January 2017
NBER Program(s):Development of the American Economy

Operating in individual cities, U.S. clearinghouses were the closest thing to a central bank before 1914, but they only assisted banks that chose to join the association. Using an annual bank-level database for seven states between 1880 and 1910, this paper shows that after the entry of a clearinghouse member banks were less likely and non-member banks in the same city were more likely to close. The results are driven by the fact that the presence of clearinghouses led all banks to become more exposed to systemic liquidity risk, yet only provided liquidity to member banks during panics.

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Document Object Identifier (DOI): 10.3386/w23113

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