9
Aftermath
It often has been repeated by the popular press as well as in numerous postmortems of the recent financial crisis that the central bank interventions during 2007– 8 “averted another Great Depression,” and that is perhaps so. It is very hard to evaluate central bank or clearinghouse responses to crises. Obviously, we have no counterfactuals. To evaluate the New York Clearing House Association’s actions during a panic, we look at rather narrow metrics: Did clearinghouse member banks fail? Were there losses on clearinghouse loan certificates, and if so, how much were the losses? These questions also address the nature of fighting crises. In financial crises, almost all banks survive, although during the crisis there are fears that the entire system might go down. If panics essentially arise from an information issue about which banks were insolvent, then it should be the case that very few clearinghouse member banks actually failed. Further, there should be relatively small losses to the clearinghouse from defaults on clearinghouse loan certificates. The alternative hypothesis is that the banks took on too much risk and that many banks were effectively insolvent. New York Clearing House Member Bank Failures How well did the New York Clearing House do in avoiding bank failures and losses? We saw in table 1.1 that few national banks actually failed during recessions with panics. Did New York Clearing House members fail during the panics or shortly after? We address this question in several ways. First, the 1920 Annual Report of the comptroller of the currency (56 – 73) lists all the national bank failures and the reason for the failure up until that date. There are thirty-three possible causes of failure, and each bank failure is
