Deposit drains on “interest-paying” banks before financial crises

This paper conducts an econometric test of Diamond and Dybvig's [Diamond, D., Dybvig, P., 1983. Bank runs, deposit insurance, and liquidity. Journal of Political Economy 91, 401-420] theory of bank runs as interpreted by Chari [Chari, V.V., 1989. Banking without deposit insurance or banks panics: lessons from a model of the U.S. national banking system. Federal Reserve Bank of Minneapolis Quarterly Review 13, 3-19] and Calomiris and Gorton [Calomiris, C., Gorton, G., 1991. Origins of banking panics: models, facts, and bank regulation. In: Hubbard, R.G. (Ed.), Financial Markets and Financial Crises. NBER and Univ. Chicago press, Chicago, pp. 109-173]. We test whether or not seasonal deposit drains on New York banks coincide with the bank panics of 1873 and 1893 in the United States. We use individual bank level data to illuminate the reason for withdrawals. The evidence reveals that the panic of 1873 could have included a seasonal interior drain. A seasonal interpretation of Diamond and Dybvig's model cannot be applied to the bank panic of 1893.