Wildcat banking

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Wildcat banking refers to the practices of any unsound bank chartered under state law during the period of uncontrolled state banking (1816–63) in the United States.

The Wildcat banks distributed nearly worthless currency backed by questionable security (such as mortgages and bonds) and were located in inaccessible areas to discourage note redemption. These actions ended when note circulation by state banks was stopped after the passage of the National Bank Act of 1863.

Before the permanent establishment of the Federal Reserve System in 1913, banks extended loans by issuing notes. An individual may take his promissory notes or bills of exchange to the bank for discount. Banks then, issued its own bank notes to the borrowers. Bank notes were usually backed by specie or government bonds. Thus holding a bank note is like holding a claim to the bank's assets.

The term "wildcat" banking derived from the fact that typically these banks were located in remote countryside; due to such locations, the holder of its notes had a lot of difficulty in redeeming their notes and so the banks could issue notes without actually honoring the obligations.

There were many varieties of money from many different banks, which traded at variable discounts to their face value. Lists were published to help bankers and others keep track of it all.

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