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Interbank Networks and the Interregional Transmission of Financial Crises: Evidence from the Panic of 1907

Published online by Cambridge University Press:  26 December 2024

Matthew Jaremski  and
David C. Wheelock
Matthew Jaremski*
Affiliation:
F. Ross Peterson Professor of Economic History, Department of Economics and Finance, Utah State University, 3500 Old Main Hill, Logan, UT 84322.
David C. Wheelock
Affiliation:
Senior Vice President and Policy Advisor Federal Reserve Bank of St. Louis, P.O. Box 442, St. Louis, MO 63166. E-mail: david.c.wheelock@stls.frb.org.
*
E-mail: matthew.jaremski@usu.edu
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Abstract

This paper provides quantitative evidence on interbank transmission of financial distress in the Panic of 1907 and ensuing recession. Originating in New York City, the panic led to payment suspensions and emergency currency issuance in many cities. Data on the universe of interbank connections show that (1) suspension was more likely in cities whose banks had closer ties to banks at the center of the panic, (2) banks with such links were more likely to close in the panic and recession, and (3) banks responded to the panic by rearranging their correspondent relationships, with implications for network structure.

Type
Article
Information
The Journal of Economic History , Volume 85 , Issue 1 , March 2025 , pp. 152 - 179
Copyright
© The Author(s), 2025. Published by Cambridge University Press on behalf of the Economic History Association

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Footnotes

The authors thank Charles Calomiris, Mark Carlson, Jon Moen, and Ellis Tallman for comments, and Jason Dunn for research assistance. Views expressed in this paper do not necessarily reflect official positions of the Federal Reserve Bank of St. Louis or the Federal Reserve System. An expanded version of this paper is available as a working paper at https://www.nber.org/papers/w31270.

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