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

62 Pages Posted: 29 Sep 2016 Last revised: 19 Jul 2018

Mark E. Paddrik

Government of the United States of America - Office of Financial Research

Haelim Anderson

Government of the United States of America - Office of Financial Research; FDIC, Division of Insurance and Research

Jessie Jiaxu Wang

Arizona State University (ASU) - W.P. Carey School of Business

Date Written: July 6, 2018

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.

Keywords: bank networks, financial interconnectedness, systemic risk, contagion, liquidity withdrawal, the National Banking Acts

JEL Classification: G21, G28, D85, L14, N21

Suggested Citation

Paddrik, Mark E. and Anderson, Haelim and Wang, Jessie Jiaxu, Bank Networks and Systemic Risk: Evidence from the National Banking Acts (July 6, 2018). Available at SSRN: https://ssrn.com/abstract=2845123 or http://dx.doi.org/10.2139/ssrn.2845123

Mark Endel Paddrik

Government of the United States of America - Office of Financial Research ( email )

717 14th Street, NW
Washington DC, DC 20005
United States

Haelim Anderson

Government of the United States of America - Office of Financial Research ( email )

717 14th Street, NW
Washington DC, DC 20005
United States

FDIC, Division of Insurance and Research ( email )

550 17th Street NW
Washington, DC 20429
United States

Jessie Jiaxu Wang (Contact Author)

Arizona State University (ASU) - W.P. Carey School of Business ( email )

Tempe, AZ 85287-3706
United States

HOME PAGE: http://www.jiaxuwang.com

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