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In New York in 1825 a report to the state senate was issued suggesting the repeal of restrictions against non-chartered banks into the banking system seeing as chartering process for banks was seen as scandolous.(Dowd) However, noteholder safety became a serious concern. A law was proposed that would require every non-chartered bank to deposit a designated amount of approved bonds to the state | In New York in 1825 a report to the state senate was issued suggesting the repeal of restrictions against non-chartered banks into the banking system seeing as chartering process for banks was seen as scandolous.(Dowd) However, noteholder safety became a serious concern. A law was proposed that would require every non-chartered bank to deposit a designated amount of approved bonds to the state authorities in case the banks fail. If the banks do fail then all noteholders of that bank would be repaid with those deposits. The free entry and bond deposit propositions were the two central aspects of the 'free banking' Act, which was pass in April of 1838. | ||
There were regulations still for permitting entry to banks. They must have at least $1000,000 in captial, they must maintain a 12.5 | There were regulations still for permitting entry to banks. They must have at least $1000,000 in captial, they must maintain a 12.5 percent specie reserve requirement against notes, and these notes must be redeemable upon demand. Within two years of act being passed the amount of banks had grown to nearly 120. | ||
Almost 18 states had passed acts that were similar to the New York Act. "Apart from New York, 'freebanking' laws were passed in Michigan(1837), Alabama(1849), New Jersey (1850), Illinois, Massachusetts, Ohio, and Vermont (1850), Connecticut, Indiana, Tennessee and Wisconsin (1852), Florida and Louisiana (1853), Michigan again (1857), Iowa and Minnesota (1858), and Pennsylvania (1860)." (Dowd, 153) | Almost 18 states had passed acts that were similar to the New York Act. "Apart from New York, 'freebanking' laws were passed in Michigan(1837), Alabama(1849), New Jersey (1850), Illinois, Massachusetts, Ohio, and Vermont (1850), Connecticut, Indiana, Tennessee and Wisconsin (1852), Florida and Louisiana (1853), Michigan again (1857), Iowa and Minnesota (1858), and Pennsylvania (1860)." (Dowd, 153) | ||
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Michigan- There was much dissatisfaction over the monopoly on the banking system, and so a free banking law was passed in 1837. The law that was passed was an order to stop the specie payment that was | Michigan- There was much dissatisfaction over the monopoly on the banking system, and so a free banking law was passed in 1837. The law that was passed was an order to stop the specie payment that was laid out in the New York free banking act. Prior to the issuance of this law, a bank was limited by state law from overissuing convertible notes. Any note that is issued must be redeemable by the bank upon demand for specie. After this, [[wildcats]] were permitted to issue notes with no risk to themselves because the state was not checking if the notes were redeemable or not. | ||
Illinois- A free banking act was approved in 1851 in Illinois that was modelled off of New York's.This system was | Illinois- A free banking act was approved in 1851 in Illinois that was modelled off of New York's.This system was working relatively well before a commissioner's report was found in 1857. This report showed that two thirds of Illinois' banknotes were actually secured by bond from Missouri. When Missouri bond prices dropped at the beginning of the civil war, the result was statewide bank failures for Illinois. Only two banks had failed before 1961, but 89 dropped in 1961 alone and noteholders encountered losses of 33 cents to the dollar. | ||
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Ohio- A feeling that the state of Ohio did not have enough banks or bank capital led to the approval of a 'free banking' law in 1851. The banks were aboe to organize under general banking laws and a currency was created that was well adapted to the | Ohio- A feeling that the state of Ohio did not have enough banks or bank capital led to the approval of a 'free banking' law in 1851. The banks were aboe to organize under general banking laws and a currency was created that was well adapted to the business wants of the people. | ||
Indiana- In 1852 a law, much like that of the 'free banking' law of New York, was passed in Indiana. Ninety four banks were established in the following three years and circulation increased from 3.5 million to 9.5 million dollars. Out of the 104 banks that were established 86 closed, but only about 31 percent closed without paying their creditors. Indiana's free banking system was concluded to be successful as 18 free banks were still in up and running the day before the Civil War began. | Indiana- In 1852 a law, much like that of the 'free banking' law of New York, was passed in Indiana. Ninety- four banks were established in the following three years and circulation increased from 3.5 million to 9.5 million dollars. Out of the 104 banks that were established 86 closed, but only about 31 percent closed without paying their creditors. Indiana's free banking system was concluded to be successful as 18 free banks were still in up and running the day before the Civil War began. | ||
Revision as of 07:20, 7 December 2006
US banking in the "free banking" period
One of the most notable political issues for Andrew Jackson's presidency was the fight against the second bank and its attempts to get re-chartered once its charter had expired in 1836. The bill was vetoed and a period of free-banking would follow.
http://www.multieducator.com/bio/rec/WilliamSeward.jpg
The start of free banking in the US
In New York in 1825 a report to the state senate was issued suggesting the repeal of restrictions against non-chartered banks into the banking system seeing as chartering process for banks was seen as scandolous.(Dowd) However, noteholder safety became a serious concern. A law was proposed that would require every non-chartered bank to deposit a designated amount of approved bonds to the state authorities in case the banks fail. If the banks do fail then all noteholders of that bank would be repaid with those deposits. The free entry and bond deposit propositions were the two central aspects of the 'free banking' Act, which was pass in April of 1838.
There were regulations still for permitting entry to banks. They must have at least $1000,000 in captial, they must maintain a 12.5 percent specie reserve requirement against notes, and these notes must be redeemable upon demand. Within two years of act being passed the amount of banks had grown to nearly 120.
Almost 18 states had passed acts that were similar to the New York Act. "Apart from New York, 'freebanking' laws were passed in Michigan(1837), Alabama(1849), New Jersey (1850), Illinois, Massachusetts, Ohio, and Vermont (1850), Connecticut, Indiana, Tennessee and Wisconsin (1852), Florida and Louisiana (1853), Michigan again (1857), Iowa and Minnesota (1858), and Pennsylvania (1860)." (Dowd, 153)
Failures of free banking
Michigan- There was much dissatisfaction over the monopoly on the banking system, and so a free banking law was passed in 1837. The law that was passed was an order to stop the specie payment that was laid out in the New York free banking act. Prior to the issuance of this law, a bank was limited by state law from overissuing convertible notes. Any note that is issued must be redeemable by the bank upon demand for specie. After this, wildcats were permitted to issue notes with no risk to themselves because the state was not checking if the notes were redeemable or not.
Illinois- A free banking act was approved in 1851 in Illinois that was modelled off of New York's.This system was working relatively well before a commissioner's report was found in 1857. This report showed that two thirds of Illinois' banknotes were actually secured by bond from Missouri. When Missouri bond prices dropped at the beginning of the civil war, the result was statewide bank failures for Illinois. Only two banks had failed before 1961, but 89 dropped in 1961 alone and noteholders encountered losses of 33 cents to the dollar.
Successes of Free Banking
Ohio- A feeling that the state of Ohio did not have enough banks or bank capital led to the approval of a 'free banking' law in 1851. The banks were aboe to organize under general banking laws and a currency was created that was well adapted to the business wants of the people.
Indiana- In 1852 a law, much like that of the 'free banking' law of New York, was passed in Indiana. Ninety- four banks were established in the following three years and circulation increased from 3.5 million to 9.5 million dollars. Out of the 104 banks that were established 86 closed, but only about 31 percent closed without paying their creditors. Indiana's free banking system was concluded to be successful as 18 free banks were still in up and running the day before the Civil War began.
