| I study country bank behavior in the United States between 1867 and 1930. My focal point is a monthly data set I have compiled from the original accounting records of The First National Bank of Bloomington (Illinois) (hereinafter referred to as the “Bank”) between January 1867 and October 1930. Over this entire period, I find the Bank's behavior in most respects was typical of country banks between 1896 and 1930. In addition, the Bank operated in a competitive market; any time it earned excess profits, other banks entered the local market or increased their capital.; In the second chapter, I use a simple portfolio selection model that reveals the Bank valued the risk-return characteristics of its deposits with correspondent city banks throughout the period 1867 to 1929, even aver the formation of the Federal reserve system in 1914 eliminated the need for them in making interregional payments. Innovation accounting analysis further reveals that, in the event of a shock, the Bank relied upon customers and the financial markets for immediate funds, while it kept bankers' deposits as a store of surplus funds for appropriate investment opportunities. After 1919, I find that the Bank relied even less on bankers' deposits and more on bonds as sources of immediate liquidity in response to shocks. I interpret the result to suggest that the Bank, in common with country banks nation-wide, found the bond markets more responsive after 1919 to its liquidity demands than the banking system.; The seasonal patterns of key account balances and financial ratios of the Bank show a marked decrease in seasonality after it joined the Federal Reserve System in 1914. But while the Bank's reserve ratios became less seasonal, as hypothesized, the Bank's financial investments remained seasonal and increased in importance, mainly because customers' cash demands remained seasonal. The Bank's financial investments, moreover, become more dispersed regionally, moving to Cleveland and Minneapolis, for example, cities with new Federal Reserve Banks.; In the fourth paper, I examine the decision to select locations for Federal Reserve Banks by the Reserve Board Organization Committee in April 1914. I estimate probability choice models for the 37 cities that requested consideration by the committee by relying upon statements of involved persons as proxies. The results confirm that reserve cities were selected systematically based upon objective information. I conclude that the selections reinforced local investments in National Banking infrastructure. The Bank's increased use of financial services in the new Federal Reserve Bank cities shows how important the location decision was for each city. |
