All the US bank runs and panics of the late 19th century — 1857, 1861, 1866, 1873, 1877, 1890, 1893, 1896 and 1907 — are clearly visible in the chart below of the call money rate — the rate for borrowing collateralised against equities.

The call money market was the “shadow money” of its day — and lending terms almost always tightened when the underlying collateral was in a bear market, and usually eased remarkably quickly once it was over.

The big difference this time round was that we had a wholesale funding run starting in the shadow banking itself, unprotected by traditional deposit insurance, rather than a retail deposit run. And that the underlying collateral was housing and debt securities.

This fact in itself makes the 21st century version potentially even more dangerous, but this crisis and its effects on the real economy have all the hallmarks of a classic banking panic, rather than a secular debt crisis from which there can be no escape.

See, for example, Gary Gorton at the Yale School of Management:

The “shadow banking system” at the heart of the current credit crisis is, in fact, a proper banking system – and is vulnerable to a banking panic. Indeed, the events starting in August 2007 are a banking panic. Unlike the historical banking panics of the 19th and early 20th centuries, the current banking panic is a wholesale panic, not a retail panic.

Jonathan Wilmot, chief global strategist at Credit Suisse Investment Bank, is blogging at FT Alphaville for the day.

Please read this Credit Suisse small print

This entry was posted by Jonathan Wilmot on Tuesday, December 1st, 2009 at 9:20 and is filed under Capital markets. Tagged with credit suisse, Gary Gorton, Jonathan wilmot. Edit this entry.