The New York Free Banking Era: Deregulation or Reregulation?

The deregulation of the banking market is a frequently debated policy issue. Proponents of deregulation claim that free market forces would improve market efficiency. The basis for their argument is grounded in the work and tenets of Adam Smith. Deregulation opponents claim that a bank market left unfettered would disrupt the financial market; bank mismanagement, failures, and panics would pervade the market and cause distrust of the banking system . Opponents of deregulation derive their beliefs from actual historical experiences rather than theory . Many opponents point to a period of American banking history, called the Free Banking Era (1838-1863), in which banks entered the market without government sanction. The traditional accounts depict a period of financial chaos; wildcat\u27 banking, large noteholder losses, counterfeit banknotes and bank failures were commonplace. Opponents contend that the turmoil during the free banking period could again occur if the banking market were deregulated. The arguments put forth by opponents can be contested on two grounds. First, several recent studies have shown that wildcat banking, large noteholder losses and bank failures were limited to a few states. The evidence also indicates that noteholders of failed banks were usually compensated for their holdings. Second, the opponents have erroneously equated the free banking period with a period of free competition . Although potential entrants were free to enter without government sanction, the free banks were subject to numerous constraints and were under close scrutiny by the state and the public. In fact, a preliminary investigation of the New York banking laws (one of the free banking states) shows that the banking laws prior to the free banking period were more lenient than the free banking laws. Based on the New York evidence, one may contend that the free banking laws reregulated rather than deregulated the banking market

Free Bank Failures in New York and Wisconsin: A Portfolio Analysis

Rolnick and Weber found that a sharp decline in asset prices led to bank panics and, ultimately, bank failures during the free banking era. An examination of New York and Wisconsin free bank portfolios prior to a fall in asset prices indicates banks that weathered the turmoil held significantly different portfolios than closed banks. In general, solvent banks held more loans and specie, and issued more deposits and less bank notes than closed banks

Opposing the Lottery in the U.S.: The Forces Behind Individual Attitudes Towards Legalization in 1975

In the 1970s, opposition to the lottery started to fracture in the US. This study examines causes of the fracture and historical factors that contributed to changes in individual attitudes towards legalization. The opponents at the time held to traditional arguments against legalized lotteries—negative economic effects, costs to others and increased crime. Unlike in the past, however, there was weak religious institutional opposition to lotteries. Individuals with a strong commitment to their religious affiliation were more resistant to pro-lottery arguments, but in most cases could be convinced to support the lottery. The pre-World War II generation remained steadfast against the lottery, but there was relatively greater support among the post-World War II generation. This study has examined the 1975 survey data using a logit model to predict future legalization in states with large population samples. As expected, analysis of 1975 attitudes shows that states with low levels of opposition are likely to legalize lotteries earlier than states with high levels of opposition

The Impact of S&P Depository Receipts on the S&P Cash and Futures Market

The introduction of the S&P Depository Receipt (SPDR) in 1993 was a financial innovation that produced several ripple effects in the financial markets. Not only did it allow the small investor to purchase a piece of the S&P 500 Cash Index, it would allow the large investor to utilize the security for arbitrage opportunities with the S&P 500 futures. A theoretical model of arbitrage opportunities utilizing SPDR is developed. The theoretical model provides two outcomes. First, the adoption of the SPDR as an arbitrage tool depends on transaction and liquidity costs and second, the innovation could potentially reduce the traditional mispricing boundary. Due to differences in trading periods between the S&P 500 Cash Index, the S&P 500 Futures Contract, and the SPDR, end-of-day data can be utilized to identify linkages between the three securities. Pricing linkages will occur between the S&P Futures and the SPDR when the SPDR market matures enough to be an effective tool in arbitrage pricing. Pricing data from 1994 to 2001 indicates that it took three years before the SPDR was utilized in arbitrage decisions and four years before the innovation impacted the mispricing boundary

Political Barriers and the Transmission of Monetary Policy Across States: The New England Antebellum Banking Market

The New England antebellum banking market was examined to understand the interaction of political ideology and economic forces. With each state controlling bank entry, hence the money supply, political ideology could impede the supply of money within a state. However, the monetary forces from neighboring states may have influenced the degree to which parties held true to their political ideology. The results indicate that political ideology was an effective barrier in two of the six states, while three states were responsive to neighbor states\u27 monetary policy regardless of political ideology. These states responded by creating new banks, raising existing capital levels, or doing both

Examining the Impact of Casinos on Economic Development: A Spatial Analysis of the Counties in the Mid-Atlantic Region

Few have formally evaluated the economic impact of casinos, and yet most agree that it is crucial in estimating the net benefit to society. A new casino investment should stimulate economic activity in the immediate region, but its operations could potentially reduce employment and incomes within the industry. Grinols outlines the factors that could lead to positive or negative growth from the investment, but what is critical to the empirical validation of the investment is the definition of region. Since data is geographically limited to political boundaries, it is necessary to employ a spatial methodology that captures the impact beyond the political boundary. The Spatial Durbin Model {SDM) is outlined. The SDM captures both the local impacts and spillovers in the region and it can also identify if the casino competes or complements within their sectors. Income per capita and employment measurements for the county and the retail sector were examined. The evidence indicates that casinos raise per capita income in urban areas, but lower per capita income in rural areas, while employment has significant gains in private employment, total employment, and retail employment. The gains in both income and employment erode over time

The Impact of Reserve Requirements on Free Bank Failures

The Free Banking Era, noted for numerous bank failures and large creditor losses, has been traditionally viewed as the experiment in laissez-faire banking that failed. Current researchers have found evidence suggesting that bank failures and creditor losses were limited to selected states and have linked the cause of bank failures to periods of falling asset prices. Free banks were required to hold long-term assets as primary reserves for short-term liabilities. Current banking theory suggests that the maturity imbalance between assets and liabilities increases the free bank\u27s exposure to interest rate risk. Some states imposed a secondary reserve, the specie reserve requirement, that partially corrected the imbalance. This paper proposes that the link between bank failures and falling asset prices can be explained in part by one of the regulations imposed on the free banks. Six free banking states were selected to test the hypothesis that the secondary reserve requirement reduced bank failures. The evidence indicates that high-specie-reserve states experienced fewer bank failures than low-specie-reserve states

Do Pennsylvania Casinos Cannibalize PA State Lottery Revenues?

The first Pennsylvania casino opened its doors in 2006. Studies of other states, and nationally, indicate that casinos cannibalize lottery revenues as consumers substitute lottery spending for casino spending. Pennsylvania time-series data and cross-sectional data for each county suggests that higher casino wagering leads to lower lottery spending. Unlike the other studies, Pennsylvania\u27s rate of cannibalization is relatively low where state lottery revenues decline by five to fifteen cents for each dollar of casino revenue gained. About half of the cannibalization takes place in the counties where the casino resided

Examining the Impact of Competition on Casino Revenues and Prices In the Mid-Atlantic States

The expansion of casinos in the Mid-Atlantic States has been motivated by the quest of states to capture the economic and tax revenue benefits of the new industry. The expansion of casinos and the increase in competition, however, has had an impact on revenue growth and prices. This study examines the impact of expansion on the casino revenues in the region from 1997-2012, and the price for gaming in Pennsylvania and New Jersey from 2006-2012. A spatial econometric model was employed to examine the net impact of casino revenues from expansion. Spatial econometrics captures the within state impact of expansion but also estimates the impact on neighboring states. As expected expansion within one state lead to a significant decline in revenues of the neighboring states. Net estimates are given. Data gathered on wagers, payouts and promotional plays suggest that competition in Pennsylvania of new casinos has led to lower prices in the state, and the entry of Pennsylvania into the casino market has led to lower prices in New Jersey. Consumers have gain by the expansion in lower prices, but the benefits of tax revenues from gaming has slowed

The Search for Stock Market Bubbles: An Examination of the NYSE Index

Many have put forth reasons why the stock market has climbed to new and unprecedented heights. Two reasons are examined: (1) investors are expecting prices to increase and are bidding up price irrationally; (2) investors have moved to a long-term strategy and are requiring a lower risk premium. For the latter reason, the rise in stock prices is due to a change in the fundamentals, and for the former reason the rise represents the classical bubble. The evidence indicates that risk preferences have changed while price momentum does not appear during bubble periods