Wildcat Banking

Wildcat Banking: Meaning and History

Key takeaways
* Wildcat banking refers to a period (roughly 1837–1865) in which state-chartered banks in the U.S. operated with little or no federal oversight, often from remote locations.
* These banks issued their own banknotes, which varied widely in value and redeemability; some were backed by specie or bonds, others by dubious securities.
* The Free Banking Era ended as federal reforms—most notably the National Bank Act of 1863—created a national banking system and a more uniform currency; later centralization continued with the Federal Reserve in 1913.

What was wildcat banking?
Wildcat banking describes banks chartered under state law during the Free Banking Era (circa 1837–1865) that operated without federal regulation. Because oversight and requirements differed by state, practices and reliability varied widely. Some banks set up in isolated locations that made redeeming their notes difficult for holders—hence the pejorative label “wildcat.”

Origins of the term
The phrase likely arose in the 1830s. Explanations include:
* Banks located so far from population centers that wildcats supposedly roamed nearby.
* A particular bank that used a wildcat image on its currency.
By the late 1830s “wildcat” had already become slang for an unsound, risky enterprise; applied to banks, it implied instability or a high risk of failure.

How wildcat banks operated
* State charters: Banks were formed under state laws, with regulation varying widely by state.
* Remote locations: Some banks placed offices in hard-to-reach areas so note-holders had difficulty redeeming notes for specie (gold or silver).
* Issuance of banknotes: Banks printed their own currency. Notes theoretically claimed a right to assets held by the issuing bank.
* Backing of notes: Backing ranged from specie to government or state bonds, mortgages, or other securities—sometimes questionable or fraudulent.
* Redemption and discounts: Because risk and distance mattered, notes from different banks traded at different discounts relative to face value. Published guides and lists helped traders and bankers identify reputable issues and detect counterfeits.
* Fraud and deception: Popular accounts (and some period fiction) depicted unscrupulous bankers who disguised insolvent vaults—e.g., placing a layer of cash over worthless goods—to mislead depositors.

Consequences and reforms
Problems with inconsistent currency quality and frequent bank failures helped prompt federal reforms:
* National Bank Act (1863): Established the United States National Banking System, encouraged a national currency backed by U.S. Treasury holdings, and placed national banks under federal supervision through the Office of the Comptroller of the Currency.
* Ongoing centralization: The Federal Reserve System (established in 1913) later further centralized monetary control and reduced the practice of individual banks issuing competing notes.

Legacy
Wildcat banking highlights the risks of highly fragmented regulation and locally issued currencies. The era’s instability contributed directly to the federal move toward standardized, centrally regulated currency and banking oversight—foundations of the modern U.S. banking system.