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Panic and propagation in 1873: A network analytic approach
journal contributionposted on 2023-05-16, 12:12 authored by D Ladley, PL Rousseau
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.
Author affiliationSchool of Business, University of Leicester
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