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Certified Checks and the Currency Premium
Information on the condition of banks was difficult to obtain in New York City during the early 1800s. In response to a perceived need for banking information, the New York superintendent of banking required that the New York Clearing House member banks— the most important banks for the financial system— publish weekly in a newspaper (the New York Times) a selection of balance sheet items to indicate whether banks were in reasonable financial conditions. In a financial crisis during the National Banking Era, the New York Clearing House Association would order member banks to stop publishing this bank-specific information in the newspapers. Information on specific banks was cut off, and only aggregate totals of the New York Clearing House were published. But some information was available, and a new financial market would open in response to the suppression of information and the suspension of convertibility, and the prices in this market revealed information about the likelihood of the New York Clearing House being bankrupt, and by extension, whether the whole banking system of the United States was insolvent. These prices can be thought of as representing the aggregated beliefs of people during the suspension period. The Currency Famine In normal times, the fractional reserve banking system allows a modest amount of cash to support a much larger volume of bank deposits that are a more convenient medium for engaging in large-denomination transactions. But when there is concern about the safety of deposits in some banks, or more general concern about the solvency of the banking system, the frac-
