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Panic and propagation in 1873: A network analytic approach

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  • Ladley, Daniel
  • Rousseau, Peter L.

Abstract

We assess systemic risk in the U.S. banking system before and after the Panic of 1873, using a combination of linear programming and computational optimization to estimate the interbank network. We impose liquidity shocks resembling those of 1873, and find the network captures the distribution of interbank deposits a year later. The network predicts banks likely to panic in the crisis, and those banks see their balance sheets weaken in the year after the crisis more than others. The results shed light on the nature and regional pattern of withdrawals in a classic 19th-century U.S. financial crisis.

Suggested Citation

  • Ladley, Daniel & Rousseau, Peter L., 2023. "Panic and propagation in 1873: A network analytic approach," Journal of Banking & Finance, Elsevier, vol. 151(C).
    • Handle: RePEc:eee:jbfina:v:151:y:2023:i:c:s0378426623000699
    DOI: 10.1016/j.jbankfin.2023.106844
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    Cited by:

    1. Xu, Yuhong & Zhao, Xinyao, 2024. "How does node centrality in a financial network affect asset price prediction?," The North American Journal of Economics and Finance, Elsevier, vol. 73(C).

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    More about this item

    Keywords

    Panic of 1873; National banking system; Systemic risk; Network;
    All these keywords.

    JEL classification:

    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • N11 - Economic History - - Macroeconomics and Monetary Economics; Industrial Structure; Growth; Fluctuations - - - U.S.; Canada: Pre-1913
    • N21 - Economic History - - Financial Markets and Institutions - - - U.S.; Canada: Pre-1913
    • C63 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Computational Techniques

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