IDEAS home Printed from https://ideas.repec.org/a/fip/fedmqr/y1992isprp13-21nv.16no.2.html
   My bibliography  Save this article

Resolving the national bank note paradox

Author

Listed:
  • Bruce A. Champ
  • Neil Wallace
  • Warren E. Weber

Abstract

During the 1882_1914 period, U.S. national banks could issue circulating notes backed by specified government securities. Earlier attempts to explain yields on those securities by costs of note issue discovered a paradox: yields were too high. We point out two previously ignored sources of costs: idle notes and note redemptions that were highly variable, thereby exacerbating the problem of managing reserves. We present data on idle notes and estimate, from partial data on redemptions, the uncertainty due to redemptions. We also present a semiannual time series of an upper bound on the average additional return on equity a national bank would earn by fully using its note issue privilege. Since the median of this series is 0.5 percent and since this upper bound does not include the average costs stemming from the exacerbated reserve management problem, we conclude that the specified government securities did not have paradoxically high yields.

Suggested Citation

  • Bruce A. Champ & Neil Wallace & Warren E. Weber, 1992. "Resolving the national bank note paradox," Quarterly Review, Federal Reserve Bank of Minneapolis, vol. 16(Spr), pages 13-21.
    • Handle: RePEc:fip:fedmqr:y:1992:i:spr:p:13-21:n:v.16no.2
    as

    Download full text from publisher

    File URL: http://minneapolisfed.org/research/qr/qr1622.pdf
    Download Restriction: no
    File URL: http://minneapolisfed.org/research/qr/qr1622.html
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Cagan, Phillip & Schwartz, Anna J, 1991. "The National Bank Note Puzzle Reinterpreted," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 23(3), pages 293-307, August.
    2. James, John A, 1976. "The Conundrum of the Low Issue of National Bank Notes," Journal of Political Economy, University of Chicago Press, vol. 84(2), pages 359-367, April.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Calomiris, Charles W. & Mason, Joseph R., 2008. "Resolving the puzzle of the underissuance of national bank notes," Explorations in Economic History, Elsevier, vol. 45(4), pages 327-355, September.
    2. Antoine Martin & Cyril Monnet & Warren E. Weber, 2000. "Costly banknote issuance and interest rates under the national banking system," Working Papers 601, Federal Reserve Bank of Minneapolis.
    3. Eugene N. White, 2011. ""To Establish a More Effective Supervision of Banking": How the Birth of the Fed Altered Bank Supervision," NBER Working Papers 16825, National Bureau of Economic Research, Inc.
    4. Charles W. Calomiris, 1992. "Greenback Resumption and Silver Risk: The Economics and Politics of Monetary Regime Change in the United States, 1862-1900," NBER Working Papers 4166, National Bureau of Economic Research, Inc.
    5. Jaremski, Matthew & Rousseau, Peter L., 2018. "The dawn of an ‘age of deposits’ in the United States," Journal of Banking & Finance, Elsevier, vol. 87(C), pages 264-281.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Calomiris, Charles W. & Mason, Joseph R., 2008. "Resolving the puzzle of the underissuance of national bank notes," Explorations in Economic History, Elsevier, vol. 45(4), pages 327-355, September.
    2. Eugene N. White, 2011. ""To Establish a More Effective Supervision of Banking": How the Birth of the Fed Altered Bank Supervision," NBER Working Papers 16825, National Bureau of Economic Research, Inc.
    3. Champ, Bruce & Wallace, Neil & Weber, Warren E., 1994. "Interest rates under the U.S. national banking system," Journal of Monetary Economics, Elsevier, vol. 34(3), pages 343-358, December.
    4. Antoine Martin & Cyril Monnet & Warren E. Weber, 2000. "Costly banknote issuance and interest rates under the national banking system," Working Papers 601, Federal Reserve Bank of Minneapolis.
    5. Gary Gorton & Toomas Laarits & Tyler Muir, 2022. "Mobile Collateral versus Immobile Collateral," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 54(6), pages 1673-1703, September.
    6. Warren E. Weber, 2015. "The efficiency of private e-money-like systems: the U.S. experience with national bank notes," FRB Atlanta CenFIS Working Paper 15-2, Federal Reserve Bank of Atlanta.
    7. Jaremski, Matthew & Rousseau, Peter L., 2018. "The dawn of an ‘age of deposits’ in the United States," Journal of Banking & Finance, Elsevier, vol. 87(C), pages 264-281.
    8. Michael D. Bordo, 1989. "The Contribution of "A Monetary History of the United States, 1867-1960" to Monetary History," NBER Chapters, in: Money, History, and International Finance: Essays in Honor of Anna J. Schwartz, pages 15-78, National Bureau of Economic Research, Inc.
    9. Leo Ferraris, 2002. "Money and credit in random matching models of money," Working Papers in Public Economics 59, Department of Economics and Law, Sapienza University of Roma.
    10. Jaremski, Matthew, 2017. "Privately Issued Money in the US," Working Papers 2017-05, Department of Economics, Colgate University, revised 20 Sep 2017.
    11. Charles W. Calomiris, 1992. "Greenback Resumption and Silver Risk: The Economics and Politics of Monetary Regime Change in the United States, 1862-1900," NBER Working Papers 4166, National Bureau of Economic Research, Inc.
    12. Nicholas A. Curott & Tyler Watts & Benjamin R. Thrasher, 2020. "Government-Cheerleading Bias in Money and Banking Textbooks," Econ Journal Watch, Econ Journal Watch, vol. 17(1), pages 1-98–151, March.
    13. Gary Gorton & Tyler Muir, 2016. "Mobile Collateral versus Immobile Collateral," NBER Working Papers 22619, National Bureau of Economic Research, Inc.

    More about this item

    Keywords

    Banks and banking - History;

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:fip:fedmqr:y:1992:i:spr:p:13-21:n:v.16no.2. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Kate Hansel (email available below). General contact details of provider: https://edirc.repec.org/data/cfrbmus.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.