What Is Wildcat Banking?
Let me explain what wildcat banking really means. It refers to the banking practices in parts of the United States between 1837 and 1865, where banks popped up in remote, hard-to-reach spots. During this time, these banks got their charters from state laws, with no federal government looking over their shoulders. The lax rules back then earned this stretch the name Free Banking Era.
Key Takeaways
- Wildcat banking covers the U.S. banking scene from 1837 to 1865, with banks set up in isolated areas.
- These banks weren't completely unregulated; they followed state laws, not federal ones, so rules differed by state in the Free Banking Era.
- The term 'wildcat banking' likely started in 1830s Michigan, where banks were in such remote spots that wildcats supposedly roamed, or from a bank that put wildcat images on its currency.
Understanding Wildcat Banking
You should know that wildcat banks weren't totally free from rules—they just escaped federal control. They operated under state charters and state-level regulations, which meant banking standards varied widely from one state to another during the Free Banking Era. This all wrapped up with the National Bank Act of 1863, which brought in federal rules for banks, set up the United States National Banking System, and pushed for a national currency backed by U.S. Treasury holdings, issued by the Office of the Comptroller of the Currency.
Origins of the Term 'Wildcat Banking'
The term 'wildcat banking' traces back to the 1830s in Michigan, where bankers allegedly placed banks in areas so remote that wildcats wandered freely. Some argue it came from an early bank that featured a wildcat on its currency. As far back as 1812, 'wildcat' described a reckless speculator, and by 1838, it meant any risky business venture. When applied to banks, it signaled an unstable institution prone to failure—that's why Western movies often show wildcat bankers as shady types, like those who left vaults open to display barrels supposedly full of cash, but really packed with nails, flour, or other junk, topped with just a thin layer of money to trick depositors.
Currency Issued by Wildcat Banks
No matter where the name came from, wildcat banks printed their own currency until the National Bank Act of 1863 banned it. These banks were often in spots that were the only places to redeem the notes, making it tough for holders to cash them in and giving dishonest bankers a big edge. People traditionally saw wildcat currency as worthless, with backing from shaky securities. Some used actual specie, but others relied on bonds or mortgages. Currencies from different banks traded at various discounts to their face value, and there were published lists to spot fakes and value these wildcat bills properly.
Before the Federal Reserve came along in 1913, banks issued notes to give loans to customers. You could bring your banknotes or bills of exchange to the issuing bank and swap them for cash at a discount. Borrowers got notes backed by government bonds or specie, giving holders a claim on the bank's assets. In the Free Banking Era, many states required these to be backed by state bonds.
Other articles for you
Seed capital is the initial funding used to start a business or develop a new product idea, often sourced from personal networks.
A probability density function (PDF) describes the likelihood of outcomes in a continuous range, commonly used in finance to assess investment risks and returns.
NAV return measures the change in a fund's net asset value over time, which can differ from market or total returns due to premiums or discounts.
The Weighted Average Cost of Equity (WACE) calculates a company's equity cost by weighting different equity types based on their proportions in the capital structure.
The weighted average credit rating (WACR) measures the overall credit quality and risk of a bond fund by averaging the ratings of its bonds proportionally to their value.
A withdrawal penalty is a fee charged for early fund removal from restricted accounts like IRAs or CDs.
The text explains morbidity rate as a measure of disease occurrence in populations, distinguishing it from mortality rate and its uses in health and insurance.
Taxation without representation refers to being taxed by a government without having a say in its policies, famously sparking the American Revolution and still affecting places like Washington, D.C., and Puerto Rico today.
Certificates of deposit are fixed-rate savings accounts that offer higher interest than traditional savings but penalize early withdrawals.
Income tax is a government-imposed levy on individuals' and businesses' earnings to fund public services, with variations in calculation and types across federal, state, and local levels.