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What the New York Clearing House Did during National Banking Era Panics
In this chapter, we describe how the New York Clearing House Association responded to panics in order to quell the disturbance. To a large degree, these clearinghouse actions were designed to limit bank-specific information and turn the focus of investors and depositors instead toward the release of aggregate clearinghouse information. The release of bank-specific information to the public was not entirely stopped because the clearinghouse also sometimes examined individual member banks and released simple statements about these banks to confirm continuing operations or to close them. In response to panics, the New York Clearing House became in essence an information clearinghouse for its member banks, and the manager of information releases that were deemed important for depositors and the public. We set the start of a panic as the date of the decision by the clearinghouse to authorize the issuance of clearinghouse loan certificates. We choose this identification of panic starts because contemporary market participants knew far more about ongoing financial conditions at that time than we can uncover with limited data observations. We infer that if the New York Clearing House decided to authorize the issuance of loan certificates, such an action was sufficient to signal that there were bank runs or bank runs were thought to be imminent. Based on this decision rule, we examine five banking panics: 1873, 1884, 1890, 1893, and 1907.1 In the panics of 1884 and 1890, the issuance of loan certificates was, apparently, by itself enough to forestall runs, leaving 1873, 1893, and 1907 as the severe panics. In each of the five panics, the New York Clearing House took two actions— issues of clearinghouse loan certificates and the suppression of information on specific bank balance sheet items. These two actions in effect turned the
