Hostname: page-component-5b777bbd6c-5mwv9 Total loading time: 0 Render date: 2025-06-21T22:02:22.216Z Has data issue: false hasContentIssue false
  • English
  • Français

The Check is in the Mail: Correspondent Clearing and the Collapse of the Banking System, 1930 to 1933

Published online by Cambridge University Press:  10 September 2007

Gary Richardson
Gary Richardson
Affiliation:
Associate Professor, Department of Economics, University of California at Irvine, 3151 Social Science Plaza, Irvine, CA 92697-5100, and Research Fellow, the National Bureau of Economic Research. E-mail: garyr@uci.edu.
Get access Rights & Permissions [Opens in a new window]

Abstract

Weaknesses within the check-clearing system played a hitherto unrecognized role in the banking crises of the Great Depression. Correspondent check-clearing networks were vulnerable to counter-party cascades. Accounting conventions that overstated reserves available to corresponding institutions may have exacerbated the situation. The initial banking panic began when a correspondent network centered in Nashville collapsed, forcing over 100 institutions to suspend operations. As the contraction continued, additional correspondent systems imploded. The vulnerability of correspondent networks is one reason that banks that cleared via correspondents failed at higher rates than other institutions during the Great Depression.

Type
ARTICLES
Information
The Journal of Economic History , Volume 67 , Issue 3 , September 2007 , pp. 643 - 671
Copyright
© 2007 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.)

Article purchase

Temporarily unavailable

References

Anderson Gordon B. “Some Phases of the New Check Collection System.” Annals of the American Academy of Political and Social Science 63, National Industries and the Federal Government, (January 1919): 122–31.
Andrews Fletcher. “The Operation of the City Clearing House.” Yale Law Journal 51, no. 4 (February 1942): 582–607.Google Scholar
Bankers' Magazine, Various Issues.
Board of Governors of the Federal Reserve System. Banking and Monetary Statistics, 1914—1941. Washington, DC: Federal Reserve System, 1943.
Board of Governors of the Federal Reserve System. All Bank Statistics, 1896–1955. Washington, DC: Federal Reserve System, 1959.
Bradstreet's, Various Issues.
Bryan George. “The Law of Clearing Houses.” Virginia Law Review 2, no. 6 (March 1915): 447–56.Google Scholar
Calomiris Charles W., and Joseph R. Mason. “Fundamentals, Panics, and Bank Distress During the Depression.” American Economic Review 93, no. 5 (December 2003): 1615–646.Google Scholar
Cannon James G. Clearinghouses. Washington, DC: GPO, 1910.
Congress of the United States. Federal Reserve Act, 12 USC; ch. 6, 38 Stat. 251 (23 December 1913).
Demmery Joseph. “Correspondent Banks and the Federal Reserve System.” The University Journal of Business 2, no. 3. (June 1924): 288–309.Google Scholar
Friedman Milton, and Anna J. Schwartz. A Monetary History of the United States, 1867–1960. Princeton, NJ: Princeton University Press, 1971.
Gidney Ray M. “Federal Reserve Check Clearings and Collections.” The Journal of Political Economy 24, no. 6, (June 1916): 606–08.Google Scholar
Gilbert R. Alton. “Did the Fed's Founding Improve the Efficiency of the U.S. Payments System?” Federal Reserve Bank of St. Louis Review 77 (1998): 7–23.Google Scholar
Goldenweiser E. A., et al. Bank Suspensions in the United States, 1892–1931. Volume 4. Material prepared for the information of the Federal Reserve System by the Federal Reserve Committee on Branch, Group, and Chain Banking, 1931.
Green Edward, and Richard M. Todd. “Thoughts on the Fed's Role in the Payments System.” Federal Reserve Bank of Minneapolis Quarterly Review 25 (2001): 12–27.Google Scholar
Hamilton David. “The Causes of the Banking Panic of 1930, Another View.” Journal of Southern History 51 (November 1985): 581–608.Google Scholar
James John and David Weiman. “Drafts, Correspondent Banking Networks, and the Transformation of the U.S. Payments System, 1850–1914.” Manuscript, February 2004.
James John and David Weiman. “From Drafts to Checks: The Evolution of Correspondent Banking Networks and the Formation of the Modern U.S. Payments System, 1850–1914.” ISERP Working Paper 06-11, December 2006.
Kniffin William. The Practical Work of a Bank: A Treatise on Practical Banking Which Aims to Show the Fundamental Principles of Money; The Practical Work of Bank in Detail, and Particularly, Credit in its Relation to Banking Operations, Seventh Edition. New York: The Bankers Publishing Company, 1928.
Lawrence J. S. “Borrowed Reserves and Bank Expansion.” Quarterly Journal of Economics 42, no. 4. (August 1928): 593–626.Google Scholar
Lawrence Robert and Duane Lougee. “Determinants of Correspondent Banking Relationships.” Journal of Money, Credit, and Banking 2, no. 3 (August 1970): 358–69.Google Scholar
Lucia Joseph. “The Failure of the Bank of the United States: A Reappraisal.” Explorations in Economic History 22 (October 1985): 402–16.Google Scholar
Magee James D. “Historical Analogy to the Fight Against Par Check Collection.” The Journal of Political Economy 31, no. 3 (June 1923): 433–45.Google Scholar
McFerrin James B. Caldwell and Company. Chapel Hill: University of North Carolina Press, 1939.
Mishkin Frederic. “How Big a Problem is Too Big to Fail? A Review of Gary Stern and Ron Feldman's Too Big to Fail: The Hazards of Bank Bailouts.” Journal of Economic Literature 44 (December 2006): 988–1004.Google Scholar
National Archives and Records Administration, Record Group 82, Federal Reserve Central Subject File, file number 434.-1, “Bank Changes 1921–1954 Districts 1929–1954 - Consolidations, Suspensions and Organizations-St. 6386 a,b,c, (By States) 1930–1933.”
Palyi Melchior. “Should Interbank Balances be Abolished?” The Journal of Political Economy 47, no. 5 (October 1939): 678–91.Google Scholar
Preston Howard. “The Federal Reserve Banks' System of Par Collections.” Journal of Political Economy 28, no. 7 (July 1920): 565–90.Google Scholar
Rand McNally. Rand McNally Bankers' Directory, various issues. Chicago: Rand McNally.
Redenius Scott A. “Hubs and Spokes: Network Effects and the Formation of Regional Banking Centers.” Manuscript: Bryn Mawr College, February 2003.
Richardson Gary. “The Records of the Federal Reserve Board of Governors in the National Archives of the United States.” Financial History Review 13, no. 01 (April 2006): pp 123–34.Google Scholar
Richardson Gary. “Bank Distress during the Great Contraction, 1929 to 1933, New Evidence from the Archives of the Board of Governors.” NBER Working Paper w12590, Cambridge, MA, October 2006.
Richardson Gary. “Quarterly Data on the Categories and Causes of Bank Distress during the Great Depression,” NBER Working Paper w12715, Cambridge, MA, December 2006.
Richardson Gary. “Correspondent Clearing and the Banking Panics of the Great Depression.” NBER Working Paper w12716, Cambridge, MA, December 2006.
Richardson Gary. “Bank Distress during the Great Depression: The Illiquidity-Insolvency Debate Revisited,” NBER Working Paper w12717, Cambridge, MA, December 2006.
Richardson Gary and William Troost. “Monetary Intervention Mitigated Banking Panics During the Great Depression: Quasi-Experimental Evidence from the Federal Reserve District Border in Mississippi, 1929 to 1933.” NBER Working Paper w12591, Cambridge, MA, October 2006.
Spahr Walter E. The Clearing and Collection of Checks. New York: Bankers Publishing, 1926.
Talbert Joseph. “Clearing: House and Domestic: Exchange Functions of the Federal Reserve Banks.” Proceedings of the Academy of Political Science in the City of New York 4, no. 1 (October 1913): 192–212.Google Scholar
Temin Peter. Did Monetary Forces Cause the Great Depression? New York: W.W. Norton, 1976.
Temin Peter. Lessons from the Great Depression. Cambridge, MA: MIT Press, 1989.
United States, Bureau of the Census. Historical Statistics of the United States, Colonial Times to 1970. Bicentennial Edition. Washington, DC: U.S. Department of Commerce, GPO, 1975
Warne Colston E. “Enforced Par Remittance Under the Federal Reserve System.” The Quarterly Journal of Economics 36, no. 2, (February 1922): 274–89.Google Scholar
Watkins Leonard L. Bankers' Balances. Chicago: A. W. Shaw Company. 1929.
White Eugene. 1984. The Regulation and Reform of the American Banking System, 1900–1929. Princeton, NJ: Princeton University Press, 1983.
White Eugene. “A Reinterpretation of the Banking Crisis of 1930.” This Journal 44, no. 1 (1984): 119–38.Google Scholar
Wicker Elmus. 1980. “A Reconsideration of the Causes of the Banking Panic of 1930.” This Journal 40, no. 3 (1980): 571–83.Google Scholar
Wicker Elmus. The Banking Panics of the Great Depression. Cambridge: Cambridge University Press, 1996.
Young Stanley. “Enlargement of Clearing House Functions.” Annals of the American Academy of Political and Social Science 36, no. 3, Banking Problems (November 1910): 129–34.Google Scholar