Free Banking - Free Banking Every state bank had been...

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Free Banking Every state bank had been chartered by a special act of the state legislature. The system was ripe for abuse by dishonest legislators. To correct the abuses, Michigan in 1837 and New York in 1838 passed so-called free banking laws, which automatically granted bank charters upon satisfaction of specified requirements. No special act of the legislature was required to establish a bank. Virtually all states adopted free banking laws. There was neither a nationwide bank nor a federal banking authority. All payments to the government were to be made in specie or government notes. All federal government funds would be held in "safety deposit boxes" constructed throughout the country. This was the independent treasury system. It made the money supply much more volatile as an excess of government receipts over expenditures filled the strong boxes but drained reserves from the banking system; government deficits had the opposite effect. The most striking feature of the free banking era was the state bank notes. Some Michigan, for
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This note was uploaded on 11/22/2011 for the course FIN FIN1100 taught by Professor Bradrifkin during the Fall '09 term at Broward College.

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Free Banking - Free Banking Every state bank had been...

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