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American Economic Review Vol. 109 No. 9 2019

Bank Networks and Systemic Risk: Evidence from the National Banking Acts

Haelim Anderson1; Mark E. Paddrik2; Jessie Jiaxu Wang3

1 Center for Financial Research, Federal Deposit Insurance Corporation, 550 17th Street NW, Washington, DC 20429 (email: ) · 2 Office of Financial Research, US Department of the Treasury, 717 14th Street NW, Washington, DC 20220 (email: ) · 3 W. P. Carey School of Business, Arizona State University, 400 E. Lemon Street, Tempe, AZ 85287 (email: )

Abstract

The National Banking Acts (NBAs) of 1863–1864 established rules governing the amounts and locations of interbank deposits, thereby reshaping the bank networks. Using unique data on bank balance sheets and detailed interbank deposits in 1862 and 1867 in Pennsylvania, we study how the NBAs changed the network structure and quantify the effect on financial stability in an interbank network model. We find that the NBAs induced a concentration of interbank deposits at both the city and bank levels, creating systemically important banks. Although the concentration facilitated diversification, contagion would have become more likely when financial center banks faced large shocks.

DOI
10.1257/aer.20161661
Volume
109
Issue
9
Pages
3125-3161
Language
en
Sources
bibtex:phds-export.bib openalex crossref

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