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Financing industrial growth: The transformation of bank investments from antebellum state banking to the national banks of the United States, 1840-1890

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posted on 2023-09-06, 02:54 authored by Jerome William Sheridan

On the eve of the Civil War, the banking system of the United States was a heterogeneous collection of state banking systems. Each state established the investment requirements under which its banks operated and each state's banking system reflected the policy goals and vision of economic development of the political leadership of that state. However, in 1863 Congress created the National Banking System, a nationwide system of banks that were subject to federal regulatory control. This dissertation demonstrates that the investments made by national banks were different from the investments made by antebellum banks in many states and regions. It draws upon nineteenth century writings on banking theory and practice to argue that the investment requirements of the National Banking System were at odds with prevailing banking thought and with standard banking practices in many states. It then supports these arguments with a brief history of antebellum banking in each state and a statistical comparison of investments under antebellum state banking and the National Banking System for each state and forseven regional areas. This statistical comparison consists of simple hypothesis tests about the relative size of six broad categories of investments in aggregate bank asset portfolios using data drawn from the official sources of the period. This study finds that the National Banking System's reserve requirements encouraged national banks to invest a greater share of their assets in bankers' balances than antebellum banks in over half the states. It finds that the National Banking System's note security requirements led national banks to invest a greater share of their assets in public securities in all but three states. Furthermore, it finds that the National Banking System's prohibition of mortgage lending compelled national banks to invest less heavily in loans in all but four states. The concluding chapter argues that this change in bank investments helped to fuel the industrial economic development of the United States. National banks in all states of the postbellum period played an intermediary role in the economy that was assumed by banks in only some states and regions in the antebellum period.







Ph.D. American University 1990.


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