Creator: Weber, Warren E. Series: Working paper (Federal Reserve Bank of Minneapolis. Research Department) Number: 695 Abstract:
This paper examines two different clearing arrangements for bank liabilities. One was a profit-maximizing private entity, the Suffolk Banking System. It cleared notes for New England banks between 1827 and 1858. The other was a nonprofit collective, the clearinghouses organized in many cities beginning in 1853. The paper examines how well these arrangements prevented bank failures and acted as lenders of last resort. It finds the Suffolk system had fewer failures but acted less like a lender of last resort. It argues that these differences can be explained by the different incentives facing the Suffolk Bank and the members of clearinghouses.
Keyword: Banknotes, Clearinghouses, and Moral hazard Subject (JEL): N21 - Economic History: Financial Markets and Institutions: U.S.; Canada: Pre-1913 and E42 - Monetary Systems; Standards; Regimes; Government and the Monetary System; Payment Systems