Wildcat Banks
Some of these many currencies were bank notes issued by wildcat banks . From 1837 to 1865 , the United States had a “ Free Banking ” system in which independent banks issued their own currency . All that was needed to set up a bank was some initial capital and registration with the state in which the bank was to operate . There were no US government regulations regarding banking . ( For this reason , the system is sometimes called the State Banking System .) If a bank wanted to issue currency , it had to deposit bonds with its state ’ s banking authority . Usually , a bank could issue anywhere from 90-100 % of the value of the bonds deposited . It would then set up shop and start issuing its own bank notes , which a private printer would produce .
However , not all banks were created equal . Some states had relaxed rules about how financially sound your bank or bond deposits had to be in order to issue currency . In some states , a bank could deposit nearly worthless bonds as collateral for its bank note issuances . And , of course , some banks just ignored the rules . There were banks that pretended to have the required specie to redeem their notes but were just cooking the books . The worst of these offenders were wildcat banks .
Wildcat banks were reckless or financially unsound . The term arose in Michigan in the 1830s and referred to banks set up in the middle of nowhere , far from any town . Established in the wilderness , “ where the wildcats roamed ,” these banks would take their bank notes and spend them far and wide . However , because of the inaccessible locations of the banks , hardly anyone would come to redeem the notes for specie . A wildcat bank could just pull up stakes and disappear , leaving worthless bank notes behind after having made a fabulous profit .
Jumping forward in time to today , one can see how history may repeat itself with the rise of the cryptocurrency system . In the Free Banking era , not all issuing banks were created equal . In the future , not all cryptocurrency issuers will be created equal , either . Some will have sounder finances and deposits than others . Some will follow the rules more closely than others . And , there will be fears of “ crypto ” wildcat banks that will issue a Examples of “ wildcat ” bank notes , from banks in New York , Rhode Island and Connecticut .
Collection of Mark R . Shenkman Collection of Mark R . Shenkman Collection of the Museum of American Finance Collection of the Museum of American Finance www . MoAF . org | Summer 2021 | FINANCIAL HISTORY 33