jim.shamlin.com

Central Banking in the U.S. - The National Banking System

The Civil War and the National Banking System

The cost of the war was financed with "greenbacks," backed by the word of the state, but no actual assets, the net result was 20-30% inflation for several years.

The National Banking Act of 1863 was an attempt to get this under control by discouraging state central banks and vesting all authority in a national banking system - in effect, a small handful of powerful banks sharing the authority of a central bank.

The National Banking Era and the Origins of the Federal Reserve System

From 1865 to 1893, the number of national banks doubled and state banks (subordinate to the national ones) quadrupled. Meanwhile, there were four major bank panics in 1873, 1884, 1893, and 1907. Banks, themselves, saw a more "cartelized" system as being in their best interest, along with the formal establishment of a single central bank.

Eventually, this was established by the Federal Reserve Act in 1913.