Hostname: page-component-586b7cd67f-2plfb Total loading time: 0 Render date: 2024-11-26T09:57:05.788Z Has data issue: false hasContentIssue false
  • English
  • Français

Why Join the Fed?

Published online by Cambridge University Press:  14 June 2022

Charles W. Calomiris  and
Matthew Jaremski
Charles W. Calomiris
Affiliation:
Henry Kaufman Professor of Financial Institutions, Division of Finance, Columbia Business School, Columbia University, 3022 Broadway, 801 Uris Hall, New York, NY 10027. E-mail: [email protected]
Matthew Jaremski*
Affiliation:
Professor, Department of Economics and Finance, Utah State University, 3565 Old Main Hill, Logan, UT 84322. E-mail: [email protected]
*
E-mail: [email protected]
Get access Rights & Permissions [Opens in a new window]

Abstract

We study the decisions of state-chartered banks to join the Fed in its first decade. Ours is the first study to combine state regulatory environment characteristics and individual bank characteristics to explain Fed membership choice. Regulatory environments that reduced the benefit of discount window access or increased the regulatory cost of joining the Fed led to fewer banks joining. Individual bank characteristics that affected the magnitude of benefits from accessing the discount window (either passing on liquidity risk reduction to respondents or reducing the member bank’s own seasonal liquidity risk) were even more important in determining which banks joined.

I believe that, through the Federal Reserve Banks, … the better shall we be equipped to cope with the problems ahead of us, of helping ourselves and of helping the world; I believe it to be the duty of every bank in the country to contribute its share in equipping our nation for this task; … I firmly believe that the future will belong to those banks—national or state—that are members of the Federal Reserve System.

—Paul Warburg, Speech at the New York State Bankers’ Association Convention, 9 June 1916

Type
Article
Information
The Journal of Economic History , Volume 82 , Issue 3 , September 2022 , pp. 765 - 800
Copyright
© The Author(s), 2022. Published by Cambridge University Press on behalf of the Economic History Association

Access options

Get access to the full version of this content by using one of the access options below. (Log in options will check for institutional or personal access. Content may require purchase if you do not have access.)

Footnotes

The opinions expressed are those of the authors and should not be attributed to the Office of the Comptroller of the Currency or the U.S. Government.

References

REFERENCES

Agarwal, Sumit, Lucca, David, Seru, Amit, and Trebbi, Francesco. “Inconsistent Regulators: Evidence from Banking.” Quarterly Journal of Economics 129, no. 2 (2014): 889–938.CrossRefGoogle Scholar
Aiyar, Shekhar, Calomiris, Charles W., and Wieladek, Tomasz. “Does Macro-Prudential Regulation Leak? Evidence from a UK Policy Experiment.” Journal of Money, Credit and Banking 4, no. s1 (2014): 181–214.CrossRefGoogle Scholar
Anderson, Haelim, Calomiris, Charles W., Jaremski, Matthew, and Richardson, Gary. “Liquidity Risk, Bank Networks, and the Value of Joining the Federal Reserve System.” Journal of Money, Credit and Banking 50, no. 1 (2018): 173–201.CrossRefGoogle Scholar
Bernstein, Asaf, Hughson, Eric, and Weidenmier, Marc. “Identifying the Effects of a Lender of Last Resort on Financial Markets: Lessons from the Founding of the Fed.” Journal of Financial Economics 98, no. 1 (2010): 40–53.CrossRefGoogle Scholar
Board of Governors of the Federal Reserve System. Banking and Monetary Statistics 1914–1941. Washington, DC: GPO, 1943.Google Scholar
Board of Governors of the Federal Reserve System. All Bank Statistics 1896–1955. Washington, DC: GPO, 1959.Google Scholar
Board of Governors of the Federal Reserve System. Annual Report of the Federal Reserve Board. Washington, DC: GPO, various years.Google Scholar
Bordo, Michael D., Redish, Angela, and Rockoff, Hugh. “Why Didn’t Canada Have a Banking Crisis in 2008 (or in 1930, or 1907, or…)?” Economic History Review 68, no. 1 (2015): 218–43.CrossRefGoogle Scholar
Bordo, Michael D., and Wheelock, David C.. “Price Stability and Financial Stability: The Historical Record.” Review-Federal Reserve Bank of Saint Louis 80 (1998): 41–60.Google Scholar
Calomiris, Charles, and Carlson, Mark. “Interbank Networks in the National Banking Era: Their Purpose and Their Role in the Panic of 1893.” Journal of Financial Economics 125, no. 3 (2017): 434–53.CrossRefGoogle Scholar
Calomiris, Charles W., and Gorton, Gary. “The Origins of Banking Panics: Models, Facts, and Bank Regulation.” In Financial Markets and Financial Crises, edited by Glenn Hubbard, R., pp. 109–73. Chicago: University of Chicago Press, 1991.Google Scholar
Calomiris, Charles W., and Haber, Stephen H.. Fragile by Design: The Political Origins of Banking Crises and Scarce Credit. Princeton: Princeton University Press, 2014.Google Scholar
Calomiris, Charles W., and Jaremski, Matthew. “Stealing Deposits: Deposit Insurance, Risk-Taking and the Removal of Market Discipline in Early 20th Century Banks.” Journal of Finance 74 (2019): 711–54.CrossRefGoogle Scholar
Calomiris, Charles W., and Jaremski, Matthew. “Why Join the Fed?” Ann Arbor, MI: Inter-university Consortium for Political and Social Research [distributor], 2021-10-05. https://doi.org/10.3886/10.3886/E151661V1.CrossRefGoogle Scholar
Calomiris, Charles W., Jaremski, Matthew, and Wheelock, David. “Interbank Connections, Contagion and Bank Distress in the Great Depression.” Journal of Financial Intermediation, forthcoming 2021.CrossRefGoogle Scholar
Calomiris, Charles W., and Wilson, Berry. “Bank Capital and Portfolio Management: The 1930s ‘Capital Crunch’ and the Scramble to Shed Risk.” Journal of Business 77, no. (2004): 421–56.Google Scholar
Cannon, James G. Clearing Houses. National Monetary Commission, Senate Document No. 491, 61st Congress, 2nd Session. Washington DC: GPO, 1910.Google Scholar
Carlson, Mark. “Causes of Bank Suspensions in the Panic of 1893.” Explorations in Economic History 42, no. 1 (2005): 56–80.CrossRefGoogle Scholar
Carlson, Mark, Mitchener, Kris, and Richardson, Gary. “Arresting Banking Panics: Federal Reserve Liquidity Provision and the Forgotten Panic of 1929.” Journal of Political Economy 119, no. 5 (2011): 889–924.CrossRefGoogle Scholar
Congressional Quarterly. “Why State Banks Do Not Join the Federal Reserve System, the Effect on the System, and the Issues Involved.” Editorial Research Reports Vol. I, Washington, DC: CQ Press, 1923.Google Scholar
Gorton, Gary. “Clearinghouses and the Origin of Central Banking in the United States.” Journal of Economic History 45, no. 2 (1985): 277–83.CrossRefGoogle Scholar
Grossman, Richard. “Double Liability and Bank Risk Taking.” Journal of Money, Credit and Banking 33, no. 2 (2001): 143–59.CrossRefGoogle Scholar
Haines, Michael. “Historical, Demographic, Economic, and Social Data: The United States, 1790–2002 (ICPSR 2896).” Inter-University Consortium for Political and Social Research, 2004.CrossRefGoogle Scholar
Jalil, Andrew J. “A New History of Banking Panics in the United States, 1825–1929: Construction and Implications.” American Economic Journal: Macroeconomics 7, no. 3 (2015): 295–330.Google Scholar
Jaremski, Matthew. “Clearinghouses as Credit Regulators before the Fed?” Journal of Financial Stability 17 (2015): 10–21.CrossRefGoogle Scholar
Jaremski, Matthew. “The (Dis)Advantages of Clearinghouses before the Fed.” Journal of Financial Economics 127, no. 3 (2018): 435–58.CrossRefGoogle Scholar
Jaremski, Matthew, and Wheelock, David. “Banker Preferences, Interbank Connections, and the Enduring Structure of the Federal Reserve System.” Explorations in Economic History 66 (2017): 21–43.CrossRefGoogle Scholar
Jaremski, Matthew, and Wheelock, David. “Banking on the Boom, Tripped by the Bust: Banks and the World War I Agricultural Price Shock.” Journal of Money, Credit, and Banking 52, no. 7 (2020a): 1719–54.CrossRefGoogle Scholar
Jaremski, Matthew, and Wheelock, David. “The Founding of the Federal Reserve, the Great Depression and the Evolution of the U.S. Interbank Network.” Journal of Economic History 80, no. 1 (2020b): 69–99.CrossRefGoogle Scholar
Lawless, J. F., and Singhal, Kishore. “Efficient Screening of Nonnormal Regression Models.” Biometrics 34 (1978): 318–27.CrossRefGoogle Scholar
Lewis, Jeffrey B., Keith Poole, Howard Rosenthal, Boche, Adam, Rudkin, Aaron, and Sonnet, Luke. Voteview: Congressional Roll-Call Votes Database, 2019. Available at https://voteview.com/.Google Scholar
Miron, Jeffrey A. “Financial Panics, the Seasonality of the Nominal Interest Rate, and the Founding of the Fed.” American Economic Review 76 (1986): 125–40.Google Scholar
Mitchener, Kris J., and Richardson, Gary. “Does ‘Skin in the Game’ Reduce Risk Taking? Leverage, Liability and the Long-Run Consequences of New Deal Banking Reforms.” Explorations in Economic History 50 (2013): 508–25.CrossRefGoogle Scholar
Mitchener, Kris J., and Richardson, Gary. “Network Contagion and Interbank Amplification during the Great Depression.” Journal of Political Economy 127, no. 2 (2018): 465–507.CrossRefGoogle Scholar
Rand McNally Bankers’ Directory. Chicago: Rand McNally, 1910–1920.Google Scholar
Reinhart, Carmen M., and Rogoff, Kenneth S.. This Time Is Different: Eight Centuries of Financial Folly. Princeton: Princeton University Press, 2009.Google Scholar
Rezende, Marcelo. “The Effects of Bank Charter Switching on Supervisory Ratings.” FEDS Working Paper No. 2014-20, Washington, DC, March 2014.Google Scholar
Timberlake, R. “The Central Banking Role of Clearinghouse Associations.” Journal of Money, Credit, and Banking 16, no. 1 (1984): 1–15.CrossRefGoogle Scholar
Tippetts, Charles S. State Banks and the Federal Reserve System. New York: D Van Nostrand Company Inc., 1929.Google Scholar
United States National Monetary Commission. Letter from Secretary of the National Monetary Commission, Transmitting, Pursuant to Law, the Report of the Commission. 8 January 1912.Google Scholar
United States, Senate. “State Banks in Federal Reserve System: Letter from the Governor of the Federal Reserve Board in Response to a Senate Resolution of January 19, 1920.” Washington, DC: GPO, 1920.Google Scholar
Warburg, Paul. “The Federal Reserve System and the Banks.” Address to the New York State Bankers’ Association Convention, Atlantic City, New Jersey, 9 June 1916, New York: New York State Banker’s Association, 1916. Available at https://fraser.stlouisfed.org/title/?id=454#!9171, accessed 8 July 2015.Google Scholar
West, Robert C. Banking Reform and the Federal Reserve, 1863–1923. Ithaca, NY: Cornell University Press, 1977.Google Scholar
Wheelock, David C. “Government Policy and Banking Market Structure in the 1920s.” Journal of Economic History 53, no. 4 (1993): 857–79.CrossRefGoogle Scholar
Wheelock, David C., and Kumbhakar, Subal C.. “‘The Slack Banker Dances’: Deposit Insurance and Risk-Taking in the Banking Collapse of the 1920s.” Explorations in Economic History 31 (1994): 357–75.CrossRefGoogle Scholar
White, Eugene N. The Regulation and Reform of the American Banking System, 1900–1929. Princeton: Princeton University Press, 1983.CrossRefGoogle Scholar
Wicker, Elmus. The Banking Panics of the Great Depression. Cambridge: Cambridge University Press, 2000.Google Scholar
Yellen, Janet. Question and Answer Session After “Semiannual Monetary Policy Report to the Congress before the Committee on Financial Services, U.S. House of Representatives, Washington, D.C.” 15 July 2015.Google Scholar
Youngman, Elmer, eds. The Bankers Magazine. New York: The Bankers Publishing Company, 1916.Google Scholar