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Free Banking and Bank Entry in Nineteenth-Century New York

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  • Howard Bodenhorn

Abstract

Previous studies of entry under New York's free banking law of 1838 have generated conflicting results. This article shows that different measures of entry lead to different conclusions about the competitive effects of the law. Measured by the entry of new banks, New York’s free banking law led to increased rates of entry relative to other states. Free banking did not, however, lead to significant increases in capital accumulation in the industry. This paradoxical outcome resulted from the regulatory features of free banking, especially the bond security feature, which reduced profitability and incentives to invest in banking.

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Bibliographic Info

Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 10654.

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Date of creation: Jul 2004
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Publication status: published as Bodenhorn, Howard. "Free Banking and Bank Entry in Nineteenth-Century New York." Financial History Review 15 (2008): 175-201.
Handle: RePEc:nbr:nberwo:10654

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  1. Arthur J. Rolnick & Warren E. Weber, 1982. "Free banking, wildcat banking, and shinplasters," Quarterly Review, Federal Reserve Bank of Minneapolis, Federal Reserve Bank of Minneapolis, issue Fall.
  2. Howard Bodenhorn, 2006. "Bank Chartering and Political Corruption in Antebellum New York. Free Banking as Reform," NBER Chapters, National Bureau of Economic Research, Inc, in: Corruption and Reform: Lessons from America's Economic History, pages 231-258 National Bureau of Economic Research, Inc.
  3. Anna Jacobson Schwartz, 1947. "The Beginning of Competitive Banking in Philadelphia, 1782-1809," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 55, pages 417.
  4. Bulow, Jeremy I, 1982. "Durable-Goods Monopolists," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 90(2), pages 314-32, April.
  5. Kenneth L. Sokoloff, 1988. "Inventive Activity in Early Industrial America: Evidence From Patent Records, 1790 - 1846," NBER Working Papers 2707, National Bureau of Economic Research, Inc.
  6. Bodenhorn, Howard & Haupert, Michael, 1996. "The Note Issue Paradox in the Free Banking Era," The Journal of Economic History, Cambridge University Press, Cambridge University Press, vol. 56(03), pages 687-693, September.
  7. Bodenhorn, Howard, 1990. "Entry, Rivalry and Free Banking in Antebellum America," The Review of Economics and Statistics, MIT Press, vol. 72(4), pages 682-86, November.
  8. Robert B. Litterman, 1983. "Optimal control of the money supply," Staff Report, Federal Reserve Bank of Minneapolis 82, Federal Reserve Bank of Minneapolis.
  9. Charles W. Calomiris, 1989. "Deposit insurance: lessons from the record," Economic Perspectives, Federal Reserve Bank of Chicago, Federal Reserve Bank of Chicago, issue May, pages 10-30.
  10. Howard Bodenhorn, 1998. "Quis Custodiet Ipsos Custodes?," Eastern Economic Journal, Eastern Economic Association, Eastern Economic Association, vol. 24(1), pages 7-24, Winter.
  11. Bodenhorn, Howard, 1999. "An Engine of Growth: Real Bills and Schumpeterian Banking in Antebellum New York," Explorations in Economic History, Elsevier, Elsevier, vol. 36(3), pages 278-302, July.
  12. Bodenhorn, Howard, 1993. "The Business Cycle and Entry into Early American Banking," The Review of Economics and Statistics, MIT Press, vol. 75(3), pages 531-35, August.
  13. Bodenhorn, Howard & Haupert, Michael, 1995. "Was There a Note Issue Conundrum in the Free Banking Era?," Journal of Money, Credit and Banking, Blackwell Publishing, Blackwell Publishing, vol. 27(3), pages 702-12, August.
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Cited by:
  1. Hilt, Eric, 2008. "When did Ownership Separate from Control? Corporate Governance in the Early Nineteenth Century," The Journal of Economic History, Cambridge University Press, Cambridge University Press, vol. 68(03), pages 645-685, September.
  2. Hilt, Eric & Valentine, Jacqueline, 2012. "Democratic Dividends: Stockholding, Wealth, and Politics in New York, 1791–1826," The Journal of Economic History, Cambridge University Press, Cambridge University Press, vol. 72(02), pages 332-363, June.
  3. Howard Bodenhorn & David Cuberes, 2010. "Financial Development and City Growth: Evidence from Northeastern American Cities, 1790-1870," NBER Working Papers 15997, National Bureau of Economic Research, Inc.
  4. Alberto Basso & David Cuberes, 2013. "Fertility and Financial Development: Evidence from U.S. Counties in the 19th Century," Working Papers, The University of Sheffield, Department of Economics 2013011, The University of Sheffield, Department of Economics.

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