Chapter

The Rise and Fall of the Suffolk System

Howard Bodenhorn

in State Banking in Early America

Published in print December 2002 | ISBN: 9780195147766
Published online November 2003 | e-ISBN: 9780199832910 | DOI: http://dx.doi.org/10.1093/0195147766.003.0005
The Rise and Fall of the Suffolk System

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The Suffolk Bank of Boston established a regional clearinghouse system known as the Suffolk system. Traditional interpretations of the system emphasize the benefits created by the system's clearing operations and effective coinsurance scheme. Although the system created such benefits, it did so by intimidating and coercing member banks. The system is analyzed using modern theories of networks, including membership externalities and appropriate pricing rules. Because the Suffolk Bank did not set efficient prices for its services, an alternative network was established and the system collapsed.

Keywords: banknotes; Boston; clearinghouse; coercion; coinsurance; membership externalities; networks; pricing; Suffolk system

Chapter.  12585 words.  Illustrated.

Subjects: Economic History

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