Wildcat Banking: Swamp Banks, Nail-Filled Vaults, and Worthless Notes

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From roughly 1836 to 1865, the United States ran without a unified national currency. State-chartered banks printed their own paper notes, each a promise to pay gold or silver to whoever walked up to the counter. Wildcat banks exploited that promise by printing far more paper than they could redeem and, by one account of the name, by setting up shop in wilderness so remote that only wildcats lived there. This episode explains how the scheme worked, starting with Andrew Dexter Jr., who bought distant country banks in the early 1800s and paid Boston laborers with their unbacked notes.

The story runs through Andrew Jackson's war on the Second Bank of the United States, the 1836 Specie Circular that drained coin from the frontier, and the Panic of 1837. It reaches peak absurdity in Michigan, where 49 banks appeared almost overnight under the General Banking Act, and ends with the Civil War legislation that taxed state bank notes out of existence.

Dexter's Farmers Exchange Bank in Rhode Island collapsed in 1809 with more than $580,000 of its notes in circulation, the first American bank to officially fail.
Michigan bankers pooled their gold and sent it ahead by fast horse so the same coins could be counted at the next bank before the inspector arrived.
Commissioner Alpheus Felch pried open one bank's reserve boxes and found nails and broken glass under a thin layer of silver.
Merchants kept banknote reporters at the counter and discounted every bill by the reputation of its issuer, so a ten dollar note might buy six dollars of flour.
The National Bank Act of 1863 created a standardized currency backed by federal securities, and a 10 percent federal tax on state notes finished the wildcats.

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