Free Banking and Bank Entry in Nineteenth-Century New York

Howard Bodenhorn

NBER Working Paper No. 10654
Issued in July 2004
NBER Program(s):   DAE   ME

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.

(118 K)

Published: Bodenhorn, Howard. "Free Banking and Bank Entry in Nineteenth-Century New York." Financial History Review 15 (2008): 175-201.

This paper is available as PDF (118 K) or via email.

This paper was revised on January 29, 2008

Acknowledgments

Machine-readable bibliographic record - MARC, RIS, BibTeX