Wildcat banking refers to the period in American financial history from 1837 to 1865, when banks operated under state charters without federal oversight. These banks often set up shop in remote and inaccessible locations, leading to a unique and diverse financial environment known as the Free Banking Era.
Fascinating Insights
- Unique Banking Period: From 1837 to 1865, banks in the United States were established in remote locations, operating under state laws without federal regulation.
- State Regulations: Wildcat banks weren’t entirely free of regulation; they were governed by varied state laws, differing widely across the country.
- Term Origin: The term likely emerged in 1830s Michigan, where some banks purportedly set up in rugged, uninhabited areas where only wildcats roamed. Another theory is tied to a local bank that issued currency featuring a wildcat image.
Immersive Understanding of Wildcat Banking
During the Free Banking Era, state laws governed the establishment and operation of banks, leading to diverse regulations and practices across different states. The era concluded with the enactment of the National Bank Act of 1863. This act introduced federal banking regulations, creating the U.S. National Banking System, and facilitated the development of a national currency backed by U.S. Treasury holdings and issued by the Office of the Comptroller of the Currency.
Origins of the ‘Wildcat Banking’ Term
In the 1830s, Michigan bankers were thought to establish banks in such remote areas that only wildcats inhabited them. Another origin story suggests a bank issuing currency adorned with a wildcat image. By 1812, ‘wildcat’ referred to brash or reckless speculators, and by 1838, it was associated with risky enterprises, subsequently extending to unstable banks prone to failure. Fictional portrayals in Westerns often depicted these environmentally precarious banks as vaults of deception.
Currency from Wildcat Banks
Despite its dubious inception, wildcat banks issued their own currency until this practice was banned by the National Bank Act of 1863. Often issued in remote locations, these banknotes created immense difficulties for redemption, unfairly benefiting unscrupulous bankers. The securities backing such currencies were unreliable, and while some notes were backed by specie, others depended on bonds or mortgages, trading at varied discounts vis-à-vis their face values. Lists were published to help discern genuine from counterfeit bills, aiding bankers and traders in appraising them.
Pre-Federal Reserve Practices
Prior to the Federal Reserve System’s 1913 establishment, banks extended loans by issuing notes. Individuals traded these notes with the issuing banks at a cash value discount. Borrowers would receive banknotes secured by government bonds or specie, ensuring the holder had a claim on the bank’s assets, underpinned by state bonds in many states during the Free Banking Era.
Discover the intricacies of wildcat banking, a fascinating chapter in American financial history, reflecting an era of innovation and unpredictable risk managed under a mosaic of state-level regulations.
Related Terms: National Bank Act, U.S. Treasury, Office of the Comptroller of the Currency, Government Bonds, Federal Reserve System
