What is Wildcat Banking?
“Wildcat Banking” describes the United States’ history from 1837 to 1865, when banks were founded in isolated and difficult-to-reach places. At this time, there was no federal regulation, and only state law authorized banks. Laxer regulations in the banking industry gave rise to this era, also known as the Free Banking Era.
Comprehending Wildcat Finance
Only federal regulations did not apply to wildcat banks; they were not wholly unregulated. Relevant state regulations established wildcat banks and governed them at the state level. As a result, during the Free Banking Era, banking laws differed from state to state. The National Bank Act of 1863, which created the United States National Banking System, imposed federal regulations on banks and promoted the creation of a national currency issued by the Office of the Comptroller of the Currency and backed by U.S. Treasury holdings, marked the end of the Free Banking Era.
‘Wildcat Banking’: Its History
The origins of the phrase “wildcat banking” are said to have occurred in Michigan during the 1830s, when bankers established banks in isolated locations where wildcats were known to wander. Some claim the word came from an early bank that printed money with a wildcat on it.
“Wildcat” was first used to describe an irrational or reckless speculator in 1812. By 1838, the phrase was used to describe any risky or unsound commercial endeavor. Because of this, the name “wildcat” evolved to refer to a bank that was unstable and potentially failed, which is why wildcat banks have been represented as such in Western culture. For instance, in several Westerns, renegade bankers let depositors view barrels of cash within their vaults by keeping them open. To deceive depositors, the barrels are filled with flour, nails, or other equally useless materials, with a coating of cash on top.
Money that Wildcat Banks Issued
Whatever the term’s roots, wildcat banks were known for printing their own money until the National Bank Act of 1863 outlawed the practice. Because these bank branches were sometimes the only sites where the bank’s notes could be redeemed, noteholders faced significant challenges in saving their notes, giving dishonest bankers an unfair advantage.
Wildcat bankers have traditionally considered printed money worthless, and the collateral supporting their currencies has always been dubious. Certain wildcat banks backed their printed money with cash; others did the same with bonds or mortgages. About their face values, different coins issued by various banks traded at varying discounts. Public listings assisted bankers and currency dealers in appraising wildcat currencies and helped separate genuine notes from counterfeits.
Before creating the Federal Reserve System in 1913, banks gave their clients loans by issuing notes. A person may redeem their banknotes or bills by publishing them to the bank in exchange for a cash value reduction. Borrowers would receive banknotes backed by government bonds or wildlife. These notes gave the bearer a claim on bank assets, which in many states during the Free Banking Era required state bonds as backing.
Conclusion
- “Wildcat Banking” describes the United States’ history from 1837 to 1865, when banks were founded in isolated and difficult-to-reach places.
- Only federal regulations did not apply to wildcat banks; they were not wholly unregulated. Relevant state regulations established wildcat banks and governed them at the state level. As a result, during the Free Banking Era, banking laws differed from state to state.
- The origins of the phrase “wildcat banking” are said to have occurred in Michigan during the 1830s, when bankers established banks in isolated locations where wildcats were known to wander. Some claim the word came from an early bank that printed money with a wildcat on it.
