The National Banking System: The National Bank Note Puzzle

41 Pages Posted: 24 Jul 2008

See all articles by Bruce A. Champ

Bruce A. Champ

Federal Reserve Bank of Cleveland

Date Written: December 1, 2007


The era of the National Banking System (1863-1913) has been a puzzling one for monetary theorists and economic historians for well over a century. The puzzles associated with this period take various forms. Despite calculations of high profit rates on note issue for certain periods of the era, national banks never fully utilized their note-issuing powers. Relatedly, the behavior of interest rates during the period is also puzzling given the regime of bank note issuance put in place by the National Bank Acts. On the surface, it appears that an arbitrage condition is broken. The observed inelasticity in aggregate national bank note issue also is puzzling, particularly given the behavior of interest rates. This paper examines many of the puzzles of the national banking era and provides a summary of the current attempts to explain those puzzles. This paper represents a preliminary chapter from a forthcoming monograph on the period of the National Banking System. Other chapters of the monograph will appear in the Federal Reserve Bank of Cleveland's working paper series.

Keywords: bank notes, interest rates, National Banking System, national banks

JEL Classification: E42, E43, G21, N21

Suggested Citation

Champ, Bruce A., The National Banking System: The National Bank Note Puzzle (December 1, 2007). FRB of Cleveland Working Paper No. 07-22, Available at SSRN: or

Bruce A. Champ (Contact Author)

Federal Reserve Bank of Cleveland ( email )

PO Box 6387
Cleveland, OH 44101-1387
United States

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