Private banks in early Michigan, 1837–1884

Abstract

Using a comprehensive new data set on private (noncorporate) banks, we examine the business and business environment of private banking and exchange brokering in the state of Michigan from 1837 to the 1880s. The Michigan experience provides an example of the effect of widespread exchange brokers in an economy. We use econometric models to explain the determinants of the numbers of private banks in the state. We find that private banks were substitutes for locally issued state bank currency and were complements with adjacent states’ bank currency. With the demise of heterogeneous currencies, private banks transitioned their core business from exchange brokering to general banking. In both the antebellum and postbellum eras, private banks tended to exist when and where larger incorporated banks did not. Following the collapse of free banking in Michigan in the antebellum years, this was virtually the entire state. During the 1860s and 1870s, corporate banks used private banks as a root source to build on.