Contagion of speculative frenzy

Abstract

In August 1857 the failure of the Ohio Life and Trust Company started a banking panic which ended the boom decade which followed the Mexican War. In New York City, between 28 September and 13 October over five hundred depositors, i.e 9 percent of customers, of the Emigrant Industrial Saving Bank (EISB) closed their accont. The EISB was mutual saving bank which predominantly attracted Irish immigrants to the point that in the late 1850s they held almost 90 percent of accounts. In a pioneering study, M. Kelly and C. O’Grada (1999) studied the contagion of panic among the depositors. Their results are most striking for it turns out that contagion channels of panic were largely dependent upon the emigrant’s place of orgin in Ireland Ithe latter determined their living place in New York). For instance the proprotion of depositors who closed their accounts is about three times larger for emigrants from the province of Munster, in the south-west of Ireland, than for those comming from Ulster in the north-east; the impact of this factor can be traced even to country level. This example graphically shows the role of social proximity in the process of panic contagion. It is objective of this chapter to examine these mechanisms more closely.