Wildcat banking
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Wildcat banking refers to the unusual practices of banks chartered under state law during the periods of non-federally regulated state banking between 1816 and 1863 in the United States, also known as the Free Banking Era. This era, commonly described as an example of free banking, was not a period of true free banking, as banks were only free of federal regulation, and banking was still left to the states to regulate. The actual regulation of banking during this period varied from state to state.
According to some sources, the term came from a bank in Michigan that issued private paper currency with the image of a wildcat. After the bank failed, poorly backed bank notes became known as wildcat currency, and the banks that issued them as wildcat banks.[1] However, according to others, wildcat meant a rash speculator as early as 1812, and by 1838 had been extended to any risky business venture.[2]
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[edit] About
The traditional view of wildcat banks describes them as distributing nearly worthless currency backed by questionable security (such as mortgages and bonds). These actions ended when note circulation by state banks was stopped after the passage of the National Bank Act of 1863. Mark Twain, in his autobiography, refers to the use of such currency in 1853, "The firm paid my wages in wildcat money at its face value" [3]
Before the establishment of the Federal Reserve System in 1913, banks extended loans by issuing notes. An individual may take his promissory notes or bills of exchange to the bank for discount. Banks would issue own bank notes to the borrowers. Bank notes were usually backed by specie or government bonds. The holder of the bank note had a claim on the bank's assets. The overwhelming determinate of value on a banks notes would be the quality of that bank's assets. Many of the states regulations required for the banks to back their notes with state Bonds. Banks in states that had safe bonds would thrive whereas banks in states that had risky bonds would suffer. Of course other factors could influence the value of a bank note, the major secondary cause would be the likelihood of fraud, either from the bank or from forgery.
Many varieties of money different banks traded at different discounts to their face value. Lists were published to help bankers and others to identify and appraise the bills (and forgeries). One of the major causes of discounting occurred due to the real cost of transferring the notes to the original bank.
[edit] Examples
[edit] See also
[edit] References
- ^ Robert Allen Palmer, Speaking of Animals: A Dictionary of Animal Metaphors, Westport, Conn.: Greenwood Press, 1995, p.414.
- ^ Christine Ammer, It's Raining Cats and Dogs ... and Other Beastly Expressions (New York: Bantam Doubleday Dell, 1989) 152
- ^ Autobiography of Mark Twain, Smith, page 460
[edit] External links
- U.S. banks and money Federal Reserve Bank of Atlanta
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