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Atlanta Fed Working Papers


Liquidity Creation without a Lender of Last Resort: Clearinghouse Loan Certificates in the Banking Panic of 1907

Ellis W. Tallman and Jon R. Moen
Working Paper 2006-23b
Revised October 2007

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We employ a new data set comprised of disaggregate figures on clearinghouse loan certificate issues in New York City to document how the dominant national banks were crucial providers of temporary liquidity during the Panic of 1907. Clearinghouse loan certificates were essentially "bridge loans" arranged between clearinghouse members that enabled and were issued in anticipation of monetary gold imports, which took a few weeks to arrive. The large New York City national banks acted as private liquidity providers by requesting (and the New York clearinghouse issuing) a volume of clearinghouse loan certificates beyond their own immediate liquidity needs. While loan certificates were a temporary solution at best to the liquidity crisis in 1907, their issuance allowed the New York banks to serve their role as central reserve city banks in the national banking system.

JEL classification: N11, N21, E42, D71

Key words: clearinghouse, financial crisis, panic, lender of last resort


The authors thank Elmus Wicker for graciously sharing data on New York Clearinghouse loan certificates outstanding during late 1907 and early 1908, which he calculated from the records of the New York Clearinghouse. They also thank Charles A. Goodhart, Marvin Goodfriend, and Lyndon Moore for insightful comments on earlier drafts and Scott Frame, Ken Kuttner, Jim Nason, William Roberds, and Larry Wall for helpful discussions. Seminar participants at Indiana University, Oberlin College, and the Bank of England offered useful comments and suggestions. The views expressed here are the authors' and not necessarily those of the Federal Reserve Bank of Atlanta or the Federal Reserve System. Any remaining errors are the authors' responsibility.

Please address questions regarding content to Ellis W. Tallman, Research Economist and Vice President, Research Department, Federal Reserve Bank of Atlanta, 1000 Peachtree Street, N.E., Atlanta, GA 30309-4470, 404-498-8915, ellis.tallman@atl.frb.org; or Jon R. Moen, Associate Professor of Economics, Department of Economics, University of Mississippi, University, MS 38677, 662-915-5467, jmoen@olemiss.edu.

For further information, contact the Public Affairs Department, Federal Reserve Bank of Atlanta, 1000 Peachtree Street, N.E., Atlanta, Georgia 30309-4470, 404-498-8020.

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