Call Loan Market Research Articles

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

Before the Panic of 1907 the large New York City banks were able to maintain the call loan market's liquidity during panics, but the rise in outside lending by trust companies and interior banks in the decade leading up the panic weakened the influence of the large banks. Creating a reliable source of liquidity and reserves external to the financial market like a central bank became obvious after the panic. In the call loan market, like the REPO market in 2008, lack of information on the identity of lenders and volume of the market hindered attempts to stop panic-related depositor withdrawals. Our new estimates of who was participating in the call loan market reveal that it did not contract after 1907; while the trust companies became less important, the New York national banks and outside lenders more than made up the difference.

The transmission of the financial crisis in 1907: an empirical investigation

Using an extensive high-frequency data set, we investigate the transmission of financial crisis specifically focusing on the Panic of 1907, the final severe panic of the National Banking Era (1863–1913). We trace the transmission of the crisis from New York City trust companies to the New York City national banks through direct and indirect interconnections. Trust companies held cash balances at national banks and these balances were liquidated as trust companies suffered depositor runs. Secondly, trust companies and national banks were notable creditors to the New York Stock Exchange; when trusts were suffering runs, the call loan market on the stock exchange seized. The crisis spread to the interior banks after the New York Clearing House banks restricted the convertibility of deposits into cash. Bond returns were sharply negative in the 2 weeks following the suspension. The suspension of convertibility produced a currency premium, which in turn attracted gold imports from Europe. The New York Clearing House had only limited capability to fight the panic through its use of clearing house loan certificates. The gold imports ultimately restored liquidity to financial markets.

National bank window dressing and the call loan market, 1865–1872

Abstract After the American Civil War, market observers attributed increases in interest rates around quarterly reporting dates to window dressing by national banks. Window dressing is a temporary change in portfolio designed to produce a more appealing report to regulators or to the public. This paper tests for increases in interest rates at quarter end under a natural experiment, a change in the reporting law. Using daily data on the call loan interest rate in New York City, we find no evidence of systematic increases in the call loan rate just before the quarterly reporting dates of national banks.

The Transmission of the Financial Crisis in 1907: An Empirical Investigation

Using an extensive high-frequency data set, we investigate the transmission of financial crisis specifically focusing on the Panic of 1907, the final severe panic of the National Banking Era (1863-1913). We trace the transmission of the crisis from New York City trust companies to the New York City national banks through direct and indirect interconnections. Trust companies held cash balances at national banks, and these balances were liquidated as trust companies suffered depositor runs. Secondly, trust companies and national banks were notable creditors to the New York Stock Exchange; when trusts were suffering runs, the call loan market on the stock exchange seized. The crisis spread to the interior banks after the New York Clearing House banks restricted the convertibility of deposits into cash. Bond returns were sharply negative in the two weeks following the suspension. We highlight commonalities between the Panic of 1907 and the financial crisis of 2007-2009.

Outside Lending in the NYC Call Loan Market

Before the Panic of 1907 the large New York City banks were able to maintain the call loan market’s liquidity during panics, but the rise in outside lending by trust companies and interior banks in the decade leading up the panic weakened the influence of the large banks. Creating a reliable source of liquidity and reserves external to the financial market like a central bank became obvious after the panic. The lack of a lender of last resort for investment banks engaged in bank-like activities during the crisis of 2007-09 revealed a similar need for an external liquidity source.

Using stochastic dominance criterion to examine the day-of-the-week effect

We used stochastic dominance theory which is distribution-free, with and without risk-free asset to examine whether the day-of-the-week effect exists in the Taiwan Interbank Call Loan Market (TICLM). The empirical evidence from TICLM presented here suggests that Mondays are associated with higher return than all the other trading days of the week in the all various maturities except overnight. Tuesday is associated with higher returns in the overnight maturity. These results imply that financial institution getting the right asset allocation and to have a better funds management.

National Bank Window Dressing and the Call Loan Market, 1865-1872

National Bank Window Dressing and the Call Loan Market, 1865-1872

Liquidity Risk During the Great Depression

This paper applies Tian's liquidity risk model to analysis the liquidity shocks to the banking industry during the Great Depression. The weekly change of banks' balance sheet shows banks' liquidity preference was changed significantly during 1920s. Call-loans, functioned as today's shadow banking system, created liquidity among banks and provided external resources forbanks to absorb the deposit shocks. It quickly replaced other liquid assets, such as government bonds and cash, as the safety bu er. Such change improved individual banks' efficiency and provided sufficient credit to support economy boom. However, individual banks did not see market limit. When all banks increased the weight of long term investments, the banking industryas whole held too less liquid assets to absorb the systematic shocks, and the call-loan market was overloaded after 1928. The banking industry as whole lost its safety cushion. The stock market crash in 1929 caused the bank panic in two ways: first, the wealth e ffect created extra deposit shocks to banks; more important, the disappear of the call-loan market ruined banks' abilityto absorb liquidity risk. Banks were forced to re-sale their illiquid assetssimultaneously, which led to bank panic.

The Call Loan Market in the U.S. Financial System Prior to the Federal Reserve System

The call loan market in New York City played a central role in funding the expansion of economic growth and capital investment in the United States in the late 1800s and early 1900s. Changes in the identity of the intermediaries providing those funds help explain why the movement for the establishment of a central bank in the United States took hold only after the panic of 1907. The growing significance of nonclearinghouse creditors to the call money market diluted the relative financial influence of the New York City bankers and compromised the apparent coinsurance arrangement between brokers and New York Clearinghouse lenders that prevailed during the late nineteenth century.

Le marché monétaire de New York et sa subordination au marché de Londres au cours du XIXe siècle et jusqu'à 1914

Whereas the Rank of England has always played an important part in the evolution and functioning of the City, the development of the New York money market was, until the introduction of the Federal Reserve System in 1913, considerably hampered by the absence of a central banking system. The resulting absence of a discount market and the lack of an acceptance market such as the London one, increased New York’s dependence on the City of London. The American call-loan market encouraged speculation on a large scale, which only aggravated the situation in times of crisis. Moreover, the American economy depended largely on foreign capital for its development and at the end of the 19th century over 75 % of foreign investment in the United States was British. In times of crisis at home or when economic difficulties in America caused a lack of confidence abroad, the United Kingdom withdrew her capital, thus endangering the economic equilibrium of the debtor country — hence the financial crises of 1837-9, 1866 and 1890. This was contrary to the classical theory of international economic equilibrium. An increase in the rate of interest in New York could do little to re-establish the balance of American payments. The United States did not begin to invest capital abroad until 1895 and from then on was gradually able to liberate itself from London’s domination. But for some time to come, the development of New York as an international monetary centre was impeded by the fundamental weaknesses of its financial structure.