The limited spread of free banking in the antebellum South: Case studies of Louisiana, Georgia, and South Carolina, 1842-1861

The spread of free banking laws, which allowed an individual meeting certain requirements to open a bank without a state-issued charter was the most important development in American banking and finance in the late antebellum period. The Southern free banking experience, however, was fundamentally different from that of the rest of the United States. While, between 1835 and 1865, seven of the eight Midwestern states passed free banking laws, allowing free entry into their banking systems, only five of the eleven Southern states enacted such laws. One of those, Louisiana, experienced free banking on a significant scale.;Louisiana, Georgia, and South Carolina had different banking systems during the antebellum period, and I looked for the factors that led to their decisions to implement or not to implement free banking. Did Southerners fear free banking because they believed such institutions would endanger their states' convertible currencies? Or, did Southerners oppose free banks in order to protect the interests of their existing chartered institutions? I examined the yearly balance sheets that the banks of each state submitted to the U.S. House of Representatives and recorded the entry and exit of free and chartered institutions. I also assessed the performance of both types of banks over time.;Though fewer than ten free banks operated in Louisiana, Georgia, and South Carolina during the period 1839-1861, I was not able to conclude that the legislatures of Georgia and South Carolina blocked the entry of such institutions in order to protect their existing banks. I found that both states allowed new institutions to open, but they had banking systems that did not encourage the growth of free banking. In Georgia, free banks had to operate under additional regulations, while South Carolina's reliance on bank charters kept it from considering such a law. Louisiana, in contrast, had a free banking law and a set of banking regulations that encouraged prospective bankers to open free banks. While many free banks operated outside the region, such institutions were not prevalent in the South because Southerners did not need the services of additional banks.