Abstract: We investigate the relationships of bank failures and balance sheet conditions with measures of proximity to different forms of transportation in the United States over the period from 1830-1860. A series of hazard models and bank-level regressions indicate a systematic relationship between proximity to railroads (but not to other means of transportation) and “good” banking outcomes. Although railroads improved economic conditions along their routes, we offer evidence of another channel. Specifically, railroads facilitated better information flows about banks that led to modifications in bank asset composition consistent with reductions in the incidence of moral hazard.
Nep-His has today published Professor Bernardo Bátiz-Lazo’s review of their paper. Bernardo draws an interesting comparison between the improvement in payments technology represented by the railway and today’s novel payment technologies, such as PayPal, which make it easier to move money long distances.