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Contagious Bank Failures in a Free Banking System: A Persistent Misunderstanding

Contagious Bank Failures in a Free Banking System: A Persistent Misunderstanding Abstract A recurring citation in systemic risk literature reviews (P. Aghion, P. Bolton, and M. Dewatripont. 2000 . “Contagious Bank Failures in a Free Banking System.” European Economic Review 44:713–18) offers a model where what they describe as a free banking system is vulnerable to contagious bank runs through clearinghouse loans. The paper ignores key contributions to both free banking and financial history literature, such that the paper is of little relevance to the understanding of the stability of both free banking systems and clearinghouse arrangements. Our criticism concentrates on the institutions of banking absent or misrepresented. It is argued that their conclusions are inapplicable to free banking. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png Journal des Économistes et des Études Humaines de Gruyter

Contagious Bank Failures in a Free Banking System: A Persistent Misunderstanding

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Publisher
de Gruyter
Copyright
Copyright © 2014 by the
ISSN
2194-5799
eISSN
2153-1552
DOI
10.1515/jeeh-2014-0005
Publisher site
See Article on Publisher Site

Abstract

Abstract A recurring citation in systemic risk literature reviews (P. Aghion, P. Bolton, and M. Dewatripont. 2000 . “Contagious Bank Failures in a Free Banking System.” European Economic Review 44:713–18) offers a model where what they describe as a free banking system is vulnerable to contagious bank runs through clearinghouse loans. The paper ignores key contributions to both free banking and financial history literature, such that the paper is of little relevance to the understanding of the stability of both free banking systems and clearinghouse arrangements. Our criticism concentrates on the institutions of banking absent or misrepresented. It is argued that their conclusions are inapplicable to free banking.

Journal

Journal des Économistes et des Études Humainesde Gruyter

Published: Jul 1, 2014

References