Chapter 11, Problem 1Q

To determine

To explain: Whether before the National Bank Act of 1863 the prevailing conditions in the banking industry fostered or hindered the trade across the states in Country US.

Explanation of Solution

Before the National Bank Act of 1863, the conditions in the banking industry hindered the trade across the states in Country US. This can be said for the reasons as follows:

Before this act, the commercial banks in Country US were regulated by the banking commission of the states in which the banks were operational. There was no national currency which created problems in the regulation of trade. At that time banks have to obtain funds by issuing banknotes mainly. As the regulations of banking were very loose in many states, it was not easy to manage the trades across states. The banks reported many cases of fraud and insufficient bank funds so the banks failed many times and also the banknotes were not worthy then. So, it was difficult to manage the trade across the states.

The banking system in Country US before the National Bank Act of 1863 was regulated by the banking commission of states, which created many problems in the trading system of Country US.

As to manage trade across different states, it is necessary that the regulation of currency and trade should be uniform across the states. Before the National Bank Act of 1863, as there was no national currency and also the regulations of banking varied from state to state, it created a hindrance in the trades across states. The trade situations were not very easy and the development of trade was difficult. After the enactment of the National Bank Act 1863, a national banking system was made, and a national currency was established. This act was made to cover all the financial problems which were created after the federal war and to create uniformity for the trade situations.

Economics Concept Introduction

Introduction: The National Bank Act of 1863 was enacted to create a system of banking which is for the whole nation, which was ready to float the loans which were made in the Federal war and to establish a national currency. This act was passed to bring financial stability and to solve the financial crisis.

The banking industry in Country US is controlled by the Comptroller of the Currency. After the revolutionary war, the new banking act was made to have uniformity in banking.