Document Type

Case Study

Case Series

Broad-Based Emergency Liquidity

JEL Codes

G01, G28


In the absence of a central bank, the New York Clearing House Association (NYCH), a group of 60 New York City banks, stepped in as a private lender of last resort in response to banking runs during the Panic of 1873. The NYCH issued clearinghouse loan certificates (CLCs) to member banks that could use them as temporary payment substitutes to settle their clearing balances with other member banks. Borrowing banks paid a flat 7% interest rate. If a borrowing bank failed to repay its CLCs, the membership of the NYCH internally split the cost based on each member bank’s share of capital and surplus. The NYCH required borrowing banks to deposit collateral, typically commercial paper and commercial loans, with its Loan Committee. In total, the NYCH issued about $26.6 million in CLCs from September 22 to November 20. On September 20, the NYCH announced it was requiring its members to pool their cash reserves, a controversial measure that it had used in earlier crises but would not use again after 1873. The 1873 crisis was also the first time clearinghouses in cities outside New York issued CLCs. The NYCH’s final CLC was canceled on January 14, 1874, as stability had returned to the New York banking sector. However, the Long Depression would inflict damage on the real economy for an additional five years.

Date Revised