Working Paper: NBER ID: w10654
Authors: Howard Bodenhorn
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.
Keywords: No keywords provided
JEL Codes: N21; N41
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| New York's free banking law (N21) | increased rates of bank entry (G21) |
| increased rates of bank entry (G21) | capital accumulation (E22) |
| New York's free banking law (N21) | capital accumulation (E22) |