Bank networks and suspensions in the 1893 panic: evidence from the state banks and their correspondents in Kansas

Abstract

Using individual balance sheet data from the state banks in one state that was deeply impacted by the 1893 crisis, this article presents evidence that correspondent networks played an important role in transmitting the crisis. In particular, the unexpected closure of a single large national bank in Kansas City considerably increased the probability of suspension among the state banks that were connected to it through the correspondent networks. This episode thus illustrates how contagion can spread through interbank networks and sheds new light on the nature of the 1893 crisis.