Bank-Specific Default Risk in the Pricing of Bank Note Discounts

• 成果类型: Article
• 署名作者: Colgate University
• 刊物名称: JOURNAL OF ECONOMIC HISTORY
• ISSN/ISSBN: 0022-0507
• DOI: 10.1017/S0022050711002208
• 发表日期: 2011
• 页码: 950-975
• 关键词: market discipline; failures

摘要

Bank notes were the largest component of the antebellum money supply despite losses as high as 5 percent in some years. Using a comprehensive bank-level panel of note discounts in New York City and Philadelphia, I explain this contradiction by showing that the secondary market reduced losses by accurately discounting notes based on their individual risk of default. Note discounts were almost exclusively sensitive to those factors which increased a bank's probability of default: specie suspensions, falling bond prices, and undiversified portfolios. Thus, by accounting for a bank's composition and environment, the market protected noteholders and allowed notes to circulate throughout the economy.