491. Chartering the Fintech Future
- Author:
- Charles W. Calomiris
- Publication Date:
- 06-2021
- Content Type:
- Journal Article
- Journal:
- The Cato Journal
- Institution:
- The Cato Institute
- Abstract:
- What we use as our medium of exchange is subject to dramatic change over time, and sometimes bank regulation has accelerated such changes. The national banking system, founded in 1863, envisioned the creation of a uniform medium of exchange in the form of national bank notes, which replaced the preexisting system of state bank note issuance. But the creation of the national banking system soon resulted in the diminished importance of bank notes as a medium of exchange. Under the new system, state banks faced a prohibitive tax of 10 percent per year on any notes they issued, and national banks had to maintain collateral at the Treasury for their outstanding national bank notes equal to 111 percent of their outstanding notes, and also had to maintain an additional 5 percent in required government‐currency (“greenback”) cash reserves on hand. That meant that if a bank wanted to make loans, it had to find an alternative to bank notes as a funding source for those loans. Deposits had been growing in importance leading up to the National Banking Act of 1863, but the act accelerated the growth of deposits markedly, and they became the primary funding vehicle for loans. As Comptroller Eckels remarked in 1896: “And thus it has come about that deposit taking is now the feature, and the issuing of circulating notes but the incident, in national banking, instead of, as in the early history of the system, the note‐issuing function being the feature and deposit banking but the incident” (Eckels 1896: 565; emphasis added).
- Topic:
- Science and Technology, Finance, Banks, and Loans
- Political Geography:
- Global Focus