The (Dis)Advantages of Clearinghouses Before the Fed
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.
The author would like to thank Charles Calomiris, Mark Carlson, Eric Hilt, Ellis Tallman, David Weiman, and David Wheelock as well as seminar participants at Barnard College, Vanderbilt University, University of Delaware, the Federal Reserve Board, and the Federal Reserve Bank of Atlanta for their valuable comments and suggestions. The views expressed herein are those of the author and do not necessarily reflect the views of the National Bureau of Economic Research.