As @pkwsj reports, @GaryGensler continues to grotesquely mischaracterize antebellum U.S. banking: wsj.com/articles/secs-…
Although the Federal gov't didn't regulate banks then, state authorities certainly did: there was in fact no such animal as an "unregulated" antebellum state bank.
Banks established under so-called "free banking" laws were no exception: despite the name, such law always involved some very substantial regulations--many of which were detrimental to bank safety and soundness.
For example, no "free" bank was allowed to have branches. All were instead "unit" banks. Consequently they tended to be small, with dangerously under-diversified liabilities and assets. If you want failure-prone banks, unit banking is just the thing for it!
Unit banking was also the main cause of discounts from par placed on state bank notes that wandered far from their single point of redemption. Despite what many suppose, those discounts mostly reflected transportation costs, not with issuing banks' integrity.
"Free" banks were also required by law to hold specific securities as backing for their currency. And guess what? Some of those required securities turned out to be junk. Economic historians have shown that this, rather than fraud, was the main cause of "free" bank failures.
The same historians have shown that, while antebellum bank failures weren't uncommon, fly by night "wildcat" banks were actually few and far between. And wildcatting was also made more, not less, tempting by misconceived bond-backing rules. alt-m.org/2021/07/06/the…
Gensler's statement, "I don’t think there’s long-term viability for five or six thousand private forms of money,” further reveals his poor understanding of banking history.
It was only owing to branch-banking restrictions that the antebellum U.S. had so many banks of issue. The same was long the case after the Fed's took over, because national banks were also for the most part prevented from branching.
In most other countries, note-issuing banks enjoyed freedom to branch; and even where entry was relatively free, there were but dozens of them, not thousands! Scotland was one example. Canada, before it clamped down on entry, was another. alt-m.org/2018/05/08/ent…
The U.S. finally relaxed its branch banking laws in the 90s; and it should go without saying that today's electronic money issuers face no geographical barriers at all, so that their scale and number will depend entirely on economies of scale and scope.
For issuers of fully-redeemable media, redemption costs are also trivial: one needn't send an issuers' liabilities back to it on stagecoaches, trains, or steamships! Pressing a button will do.
Gensler is all too typical an example of what U.S. economists mean when they claim to know something about banking history: they mean they've gleaned a smattering of U.S. banking history from a textbook or two, much of it wrong, and hardly a thing about other nations' experience.
Such ignorance on the part of monetary and banking experts, though all too common, usually doesn't do much harm. But when it serves as the justification and foundation for new regulatory policies, as it seems to do in Gensler's case, it can be very dangerous indeed.
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