Free Banking: Theory, History and a Laissez-Faire Model (Larry J. Sechrest)

Free Banking: Theory, History and a Laissez-Faire Model (Larry J. Sechrest)
- Highlight Loc. 2046-52  | Added on Sunday, November 20, 2011, 05:33 PM

Bank failure was not common according to White. The only major bank failure during the entire period was that of the Ayr Bank in 1772. It tried to do what could not be done in this system. It attempted to expand the circulation of its notes beyond the demand. Indeed, the Ayr Bank overextended itself to the tune of about 667,000 pounds-sterling. Nevertheless, this failure did not result in a general bank panic. In fact, the Edinburgh banks experienced a perceptible increase in specie demand for only one day. The reason was that, because of the rapid note-exchange mechanism, no other major banks were caught holding large amounts of the Ayr Bank’s notes. Furthermore, because of the unlimited liability provision, all the bank’s creditors were paid in full by the bank’s 241 shareholders (White 1984a, 31–32).