Systemic Risk, Missing Gold Flows and the Panic of 1907

Wilson, Berry; Rodgers, Mary T.

doi:10.2139/ssrn.1617468

Cited by 4 publications

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“…The authors also conclude that the Bank of France actions signaled an ongoing ability to provide liquidity, and thereby a more enduring resolution of the crisis, in contrast to Courtelyou's and Morgan's temporary injections of funds. Wilson and Rodgers (2011) point out that, in addition to the various policy responses, the structure of the U.S. capital markets proved to be beneficial for the economy during the Panic of 1907. For example, the payment system for bond transactions was not necessarily tied to banks.…”

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Rumors and Runs in Opaque Markets: Evidence from the Panic of 1907

Fohlin

Gehrig

Haas³

2015

SSRN Journal

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Standard-Nutzungsbedingungen:Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden.Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen.Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. and 1910, we study the impact of information asymmetry during the liquidity freeze and market run of October 1907 -one of the most severe financial crises of the 20th century. We estimate that the market run drove up spreads from 0.5% to 3% during the peak of the crisis and, using a spread decomposition, we identify information risk as the largest component of illiquidity. Terms of use: Documents inInformation costs rose most in the mining sector -the origin of the stock corner and a sector with among the worst track records of corporate governance and accounting. We find other hallmarks of information-based illiquidity: trading volume dropped and price impact rose. Despite short-term cash infusions into the market, the market remained relatively illiquid for several months following the peak of the panic. Notably, market illiquidity risk is priced in the cross section of stock returns. Thus, our findings demonstrate how opaque systems allow idiosyncratic rumors to spread and amplify into a long-lasting, market-wide crisis.JEL-Codes: G000, G140, N000, N200.

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confidence: 99%

Rumors and Runs in Opaque Markets: Evidence from the Panic of 1907

Fohlin

Gehrig

Haas³

2015

SSRN Journal

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“…In contrast to Morgan's one-time injection of funds, the actions of the Bank of France provided ongoing stability (Rodgers and Payne, 2012). Wilson and Rodgers (2011), contend that fluctuations in U.S. capital markets explain the motivation behind the actions of the Bank of France. During the Panic of 1907 bond and stock payments occurred outside of the banking system; due to the gold clauses in most bond indentures, coupon and principal payments were specified in gold, which helped to integrate these securities into the international markets (Wilson and Rodgers, 2011).…”

Section: Banking Without Deposit Insurancementioning

confidence: 99%

“…Wilson and Rodgers (2011), contend that fluctuations in U.S. capital markets explain the motivation behind the actions of the Bank of France. During the Panic of 1907 bond and stock payments occurred outside of the banking system; due to the gold clauses in most bond indentures, coupon and principal payments were specified in gold, which helped to integrate these securities into the international markets (Wilson and Rodgers, 2011). Many of the American bond issues were jointly listed and traded in New York and in Europe, allowing an active arbitrage to develop between these markets.…”

Section: Banking Without Deposit Insurancementioning

confidence: 99%

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Review of the Causes of 1907 Panic and Aftermath

Ramjerdi

2020

J. Rev. Global Econ.

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The Panic of 1907 is often known as the Panic that initiated the development of the Federal Reserve System (Bordo, 1985). The Panic of 1907 was "The beginning of the end of unregulated capital markets and banking system without the lender of the last resort in the United States." (Fohlin, Gehrig and Haas, 2015, page 2). Numerous causes lead to the Panic of 1907 including: shadow banking, the San Francisco earthquake and fire, stock price manipulation, seasonal agriculture fluctuations, an outflow of gold, and higher interest rates. This paper reviews the primary literature on these causes, and how they led to the Panic of 1907 and the subsequent regulations culminating in the Federal Reserve Bank.

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Economic Effects of Runs on Early ‘Shadow Banks’: Trust Companies and the Impact of the Panic of 1907

2012

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Abstract:We use the unique circumstances that led to the Panic of 1907 to analyze its consequences for non-financial corporations. The panic was triggered by a shock to New York's trust companies that was unrelated to any major non-financial corporations affiliated with those institutions. Using newly collected data, we find that corporations with close ties to the trust companies that faced severe runs experienced an immediate decline in their stock price, and performed worse in the years following the panic: they earned fewer profits and paid fewer dividends, and faced higher interest rates on their debt.

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Systemic Risk, Missing Gold Flows and the Panic of 1907

Cited by 4 publications

References 12 publications

Rumors and Runs in Opaque Markets: Evidence from the Panic of 1907

Rumors and Runs in Opaque Markets: Evidence from the Panic of 1907

Review of the Causes of 1907 Panic and Aftermath

Economic Effects of Runs on Early ‘Shadow Banks’: Trust Companies and the Impact of the Panic of 1907

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