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Federal Banking System Essay

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The adoption of the National Bank Acts of 1863 and 1864 from the Domestic Institutional perspective

The period between 1837 and 1863 is a “free banking” period. During this period the federal government almost did not regulate the banking system. After the collapse of the Second Bank of the United States in the 1836, state banks became the only supplier of banking services for the country. The states were left in charge of regulating the banks that they charted and there was little or no regular control in the states, which adopted the free banking laws (Kenneth, 1988).
The United States during “free banking” period had three important problems. First of all, the country did not have a unified and common currency. States banks issued and used their own banknotes as a currency. This system could not well control a counterfeiting and also created additional …show more content…

The banknotes production was regulated in each state by its own laws. States’ banks were able to produce any number of banknotes, which was not supported by the bank. In addition, some banknotes were often counterfeited and banknotes, which were issued by more reliable banks, were acquired and exchanged with a discount. So, the National Bank Acts were originally aimed to create a single currency for the United States (Grossman, 2010).
This Act established national banks, which were authorized to release the national currency. Released banknotes had a unified look (Grossman, 2010). In order to obtain a charter to release the banknotes, the National Banks had to transfer to the United States Department of the Treasury a certain amount of money depending on their capital in the form of interest-bearing registered bonds of the US government (Woelfel, 2000). The relationship between bank capital, bonds and emission of banknotes were changed by acts of 1874, 1882 and 1900 (Grossman,

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