Matthew Jaremski

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

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 banks probability of default: specie suspensions, falling bond prices, and undiversified portfolios. Thus, by accounting for a banks composition and environment, the market protected noteholders and allowed notes to circulate throughout the economy.

The Evolution of Bank Supervisory Institutions: Evidence from American States

We use a novel data set spanning 1820–1910 to assess the factors leading to the creation of formal bank supervisory institutions across American states. We show that it took more than a century for all states to create separate agencies tasked with monitoring the safety and soundness of banks. State legislatures initially pursued cheaper regulatory alternatives, such as double liability laws; however, banking distress at the state level as well as the structural shift from note-issuing to deposit-taking commercial banks and competition with national banks propelled policymakers to adopt costly and permanent supervisory institutions.

American Banking and the Transportation Revolution before the Civil War

Studies have shown a connection between finance and growth, but most do not consider how financial and real factors interact to put a virtuous cycle of economic development into motion. As the main transportation advance of the 19th century, railroads connected established commercial centers and made unsettled areas along their routes better candidates for development. We measure the strength of links between railroads and banks in seven Midwest states using an annual transportation GIS database linked to a census of banking. These data indicate that those counties that already had a bank were more likely to see their first railroad go through over the next decade, while new banks tended to enter a county a year or two after it got a railroad. The initial banking system thus helped establish the rail system, while the rapid expansion of railroads helped fill in the banking map of the American Midwest.

Sales and Firm Entry: The Case of Wal-Mart

Temporary price reductions or isalesi have become increasingly important in the evolution of the price level. We present a model of repeated price competition to illustrate how entry causes incumbents to alternate between high and low prices. Using a six-year panel of weekly observations from a grocery chain, we find that individual stores employ more sales as the distance to Wal-Mart falls. Moreover, the increase in the frequency of sales was concentrated on the most popular products, suggesting the use of a loss-leader strategy.

National Banking's Role in U.S. Industrialization, 1850-1900

The passage of the National Banking Acts stabilized the existing financial system and encouraged the entry of 729 banks between 1863 and 1866. These new banks concentrated in the area that would eventually become the Manufacturing Belt. Using a new bank census, the article shows that these changes to the financial system were a major determinant of the geographic distribution of manufacturing and the nations sudden capital deepening. The entry not only resulted in more manufacturing capital and output at the county level, but also more steam engines and value added at the establishment level.

Estimating Antebellum Passenger Costs: A Hub-and-Spoke Approach

Abstract Over 30,000 miles of railroad and 4,000 miles of canals were constructed in the United States between 1815 and 1861. However, the lack of data has prevented the study of this “transportation revolution” for most cities. This article thus enables a closer study of antebellum travel improvements by constructing a hub-and-spoke network that is capable of estimating the cost of passenger travel from New York City and Philadelphia to any U.S. city in 1836, 1850, 1856, 1859, and 1867. The semi-parametric approach provides an accurate cost estimate by using available historical information to determine the travel cost to all other cities.