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http://ssrn.com/abstract=802726
 
 

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Resolving the Puzzle of the Underissuance of National Bank Notes


Charles W. Calomiris


Columbia University - Columbia Business School; National Bureau of Economic Research (NBER)

Joseph R. Mason


Louisiana State University - Ourso School of Business; University of Pennsylvania - Wharton Financial Institutions Center


FRB Philadelphia Working Paper No. 05-19

Abstract:     
The puzzle of underissuance of national bank notes disappears when one disaggregates data, takes account of regulatory limits, and considers differences in opportunity costs. Banks with poor lending opportunities maximized their issuance. Other banks chose to limit issuance. Redemption costs do not explain cross-sectional variation in issuance, and the observed relationship between note issuance and excess reserves is inconsistent with the redemption risk hypothesis of underissuance. National banks did not enter primarily to issue national bank notes, and a "pure arbitrage" strategy of chartering a national bank only to issue national bank notes would not have been profitable. Indeed, new entrants issued less while banks exiting were often maximum issuers. Economies of scope between note issuing and deposit banking included shared overhead costs and the ability to reduce costs of mandatory minimum reserve and capital requirements.

Number of Pages in PDF File: 61

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Date posted: October 13, 2005  

Suggested Citation

Calomiris, Charles W. and Mason, Joseph R., Resolving the Puzzle of the Underissuance of National Bank Notes. FRB Philadelphia Working Paper No. 05-19. Available at SSRN: http://ssrn.com/abstract=802726 or http://dx.doi.org/10.2139/ssrn.802726

Contact Information

Charles W. Calomiris (Contact Author)
Columbia University - Columbia Business School ( email )
3022 Broadway
601 Uris, Dept. of Finance & Economics
New York, NY 10027
United States
212-854-8748 (Phone)
212-316-9219 (Fax)

National Bureau of Economic Research (NBER)
1050 Massachusetts Avenue
Cambridge, MA 02138
United States
Joseph R. Mason
Louisiana State University - Ourso School of Business
2900 Business Education Complex
Baton Rouge, LA 70803
United States
202-683-8909 (Phone)
University of Pennsylvania - Wharton Financial Institutions Center ( email )
3641 Locust Walk
Philadelphia, PA 19104-6218
United States
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