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Caught In The Headlights: Revising The Road Kill Hypothesis Of Antebellum Illinois Bank Failures, Scott N. Clayman, Scott Deacle, Andrew J. Economopoulos

Business and Economics Faculty Publications

Illinois had a dismal free banking experience, with over 80% of its free banks failing by the start of the Civil War. Researchers agree that a dramatic change in bond prices was the catalyst, and some have shown that the riskiest banks, ex ante, were the most likely to fail. This study examines how Illinois free banks adjusted their portfolios in the face of increased political and financial risks prior to Abraham Lincoln’s election as president. Lincoln’s nomination in May 1860 and the Democratic Party schism in June 1860 raised the likelihood of secession and the potential for a significant …