Proposals for Strengthening the National Banking System

Outside lending in the New York City call loan market: evidence from the Panic of 1907

“…As the resources of trusts grew, so did their participation in the call loan market, which is consistent with comments made by O. M. W. Sprague (1910, p. 47): ‘By far, the larger part of the loans of trust companies are made against collateral securities. In the call loan market, they compete constantly with the banks, and are said to take a larger proportion of the total of those loans than of time.’ The trust companies participated in the call loan market both as suppliers of funds directly and as agents of interior bank funds.…”

“…A unique feature of the Panic of 1907 reveals the concern of the large banks for the call loan market: the increase in loans at New York national banks during the panic. Sprague (1910, pp. 300–1) describes the volume of loans taken over by New York national banks to maintain liquidity in the money markets and the stock exchange:We have already seen that call loans were particularly favored by both trust companies and the outside banks.…”

“…The New York banks took over call loans because, as Sprague (1910, p. 302) notes, ‘Call loans … are local New York loans, and consequently the amount of them which must be made by New York banks increases when other lenders retire from the market.’…”

Harvests and Financial Crises in Gold Standard America

“…Our definition of crises is conventional. Following Sprague (1910), Wilson, Sylla and Jones (1990), Calomiris and Gorton (1991), Wicker (2000) and others, we define a national financial crisis as a general run on banks in New York City, and identify such events objectively by the actions of the New York Clearing House (NYCH). When NYCH directors perceived that a general run was underway or imminent, they authorized the issuance of clearinghouse loan certificates (Wicker, 2000, p. 116).…”

“…10 Farmers were paid for their crops, and farmworkers received most of their wages, during or shortly after the harvest, creating a surge in demand for cash which fell off gradually to a low in early summer. The surge was accommodated by cash shipments from the northeast, funded largely by withdrawals of bankers' balances from New York (Sprague, 1903;Kemmerer, 1910). Chari (1989) speculates that American financial crises occurred in years when agricultural conditions created especially large surges in cash demand and withdrawals of banks' balances, leaving New York banks vulnerable to further shocks.…”