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The national banking act of of 1863.
Gold and silver were collected by the population, forcing the government to us the banks for large loans of money. The banking system was quite happy to loan the government there notes and deluged the treasury with them. The problem was that a decent notes were off all different designs, values, and sizes. Those that circulated outside their local areas did so at a heavy discount. Secretary of the treasury, in an effort to introduce some sort of order into the chaos, issued US notes that had no backing other than the government's promise to pay. The result was the national banking act of 1863. The new law set minimum capitalization and reserves for any bank that applied for a national bank charter. The banks could then buy government bonds with their capital. Upon deposit of the bonds with the U.S. Treasury, the banks could then make loans for up to 90% of the value of the bonds they had deposited. The loans will be made using a standardized national banknote provided by the government. This system provided the government with low interest loans. For each provided the banks that interest on the bonds and interest again on the loans that they made. |