Research Papers:
"Correspondent Banking, Systemic Risk, and the Panic of 1893," with Peter L. Rousseau, in press at the Journal of Money, Credit and Banking (published online April 2024).
Abstract: During the U.S. National Banking Period (1863-1913), a network of correspondent bank relationships created vulnerabilities to bank failures and financial panics. Using data on correspondent relationships for all national, state, savings, and private banks just before the Panic of 1893, along with the precise dates of bank suspensions, we show that prior suspensions of both upstream and downstream correspondents increased the likelihood that a given bank would itself suspend, and that these effects varied over the Panic. Conditional on suspension, banks with prior correspondent suspensions were also more likely to reopen. New York Clearinghouse banks, despite low incidences of actual failure, saw significant balance sheet weakening early in the Panic when downstream respondents suspended, and falling stock prices throughout.
Cotter, C. 2021. Off the Rails: The Real Effects of Railroad Bond Defaults following the Panic of 1873. AEA Papers and Proceedings, 111: 508-13.
Abstract: Although corporate default crises are often quite severe, previous work has found little impact on real macroeconomic variables. This article investigates the relationship between railroad defaults and the balance sheets of local banks following the Panic of 1873. Receivers appointed to run railroads in default lacked the legal tools necessary to fully maintain railroad operations. The results indicate that railroad bond defaults negatively impacted the lending activity of local banks. Affected banks experienced declines in loans and deposits along with increases in excess reserves. These findings point to a disruption of the transportation network attributable to the railroad bond default crisis.
Extended working paper version here.
Cotter, C., Rousseau, P.L. and Vu, N.T. 2021. Electrification, telecommunications, and the finance-growth nexus: Evidence from firm-level data. Energy Economics, 94, p.1050-73.
Abstract: We explore variations in access to energy and telecommunications improvements across firms in 57 and 112 developing countries, respectively, between 2002 and 2014, and find that national investments in technological infrastructures provide a channel through which financial development promotes firm-level adoption of tangible innovations. In particular, when countries make large investments in their energy (electricity and natural gas) and telecommunications infrastructures, firms with greater access to financial resources are better positioned to benefit from these investments, experiencing significantly fewer power interruptions, more adoptions of power generators, and greater website use, all of which are related to higher firm-level growth in sales and employment.
“Regulatory Competition, State Banking, and Economic Growth in the National Banking Period”
Abstract: The dual banking system created an environment of regulatory competition between state and federal bank regulators that led to the passage of free banking laws in a number of states prior to 1900, allowing state-chartered banks to open in areas underserved by federally-chartered banks. This paper demonstrates the role that this expansion of state-chartered banking played in promoting economic growth. I use both an initial banking variables approach and an instrumental variables approach to identify the impact of state banking growth on county-level output and capital. The results indicate that state banks significantly contributed to output and capital growth in the agricultural sector, while the impact of national banks is concentrated primarily in the manufacturing sector. These findings suggest that state free banking laws, encouraged by regulatory competition, significantly increased the growth of agricultural output and capital during this period.
"Correspondent Banking, Systemic Risk, and the Panic of 1893," with Peter L. Rousseau, in press at the Journal of Money, Credit and Banking (published online April 2024).
Abstract: During the U.S. National Banking Period (1863-1913), a network of correspondent bank relationships created vulnerabilities to bank failures and financial panics. Using data on correspondent relationships for all national, state, savings, and private banks just before the Panic of 1893, along with the precise dates of bank suspensions, we show that prior suspensions of both upstream and downstream correspondents increased the likelihood that a given bank would itself suspend, and that these effects varied over the Panic. Conditional on suspension, banks with prior correspondent suspensions were also more likely to reopen. New York Clearinghouse banks, despite low incidences of actual failure, saw significant balance sheet weakening early in the Panic when downstream respondents suspended, and falling stock prices throughout.
Cotter, C. 2021. Off the Rails: The Real Effects of Railroad Bond Defaults following the Panic of 1873. AEA Papers and Proceedings, 111: 508-13.
Abstract: Although corporate default crises are often quite severe, previous work has found little impact on real macroeconomic variables. This article investigates the relationship between railroad defaults and the balance sheets of local banks following the Panic of 1873. Receivers appointed to run railroads in default lacked the legal tools necessary to fully maintain railroad operations. The results indicate that railroad bond defaults negatively impacted the lending activity of local banks. Affected banks experienced declines in loans and deposits along with increases in excess reserves. These findings point to a disruption of the transportation network attributable to the railroad bond default crisis.
Extended working paper version here.
Cotter, C., Rousseau, P.L. and Vu, N.T. 2021. Electrification, telecommunications, and the finance-growth nexus: Evidence from firm-level data. Energy Economics, 94, p.1050-73.
Abstract: We explore variations in access to energy and telecommunications improvements across firms in 57 and 112 developing countries, respectively, between 2002 and 2014, and find that national investments in technological infrastructures provide a channel through which financial development promotes firm-level adoption of tangible innovations. In particular, when countries make large investments in their energy (electricity and natural gas) and telecommunications infrastructures, firms with greater access to financial resources are better positioned to benefit from these investments, experiencing significantly fewer power interruptions, more adoptions of power generators, and greater website use, all of which are related to higher firm-level growth in sales and employment.
“Regulatory Competition, State Banking, and Economic Growth in the National Banking Period”
Abstract: The dual banking system created an environment of regulatory competition between state and federal bank regulators that led to the passage of free banking laws in a number of states prior to 1900, allowing state-chartered banks to open in areas underserved by federally-chartered banks. This paper demonstrates the role that this expansion of state-chartered banking played in promoting economic growth. I use both an initial banking variables approach and an instrumental variables approach to identify the impact of state banking growth on county-level output and capital. The results indicate that state banks significantly contributed to output and capital growth in the agricultural sector, while the impact of national banks is concentrated primarily in the manufacturing sector. These findings suggest that state free banking laws, encouraged by regulatory competition, significantly increased the growth of agricultural output and capital during this period.