Restoring Confidence in Troubled Financial Institutions After a Financial Crisis
After an unprecedented number of banks suspended operations during the Panic of 1893, the head regulator of banks chartered by the United States government allowed about 100 banks to reopen after certifying their solvency. We evaluate whether actions by bank owners to change management, contract with depositors to extend liability maturity structure, write off bad assets, and/or inject capital affected bank survival and deposit retention. This historical episode is particularly informative because there was no expectation of government intervention. We find that contracting with depositors provided short-term benefits while dealing with bad assets was key for long-run viability.
There are no funding sources to disclose and no conflicts. The views expressed herein are those of the authors and do not necessarily reflect the views of the National Bureau of Economic Research or of the Federal Reserve System.