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Free banking and bank entry in nineteenth-century New York

Howard Bodenhorn ()

Financial History Review, 2008, vol. 15, issue 2, 175-201

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.

Date: 2008
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Working Paper: Free Banking and Bank Entry in Nineteenth-Century New York (2004) Downloads
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