Inherent Instability In Banking: The Free Banking Experience

 

All Periods                          34             16                37               9                     96

*A dash(—) indicates that the state did not have a free banking law during the particular period.

Source: Rolnick and Weber (1984).

• January 1841-April 1842, when 20 banks failed in New York. The local real shock here was the possibility, which arose as early as 1839, that some states would default on their debts. In fact, Florida, Mississippi, Arkansas, and Indiana defaulted in 1841, followed by Illinois, Maryland, Michigan, Pennsylvania, 
  and Louisiana in 1842.
• June—September 1859, when 7 banks failed in Minnesota. The local real shock here was the suspension of construction on Minnesota's railroads in the late spring of 1859. This caused a drop in the price of Minnesota 7s (the so-called railroad bonds) which backed the notes of several Minnesota free banks. We 
  have determined that the failure of at least 5 Minnesota free banks was related to the suspension of railroad construction (Rolnick and Weber 1985).
• June 1860-June 1861, when 37 banks failed in Wisconsin and 4 more failed in the other three states. The real shock here was obviously the onset of the Civil War. The shock can be considered local in the sense that the prices of Southern state bonds were affected more than those of Northern state bonds.

  One cluster of failures we have not yet been able to definitely associate with a real shock: the July-December 1854 group of 11 failures in Indiana and one failure in New York. These failures may have been caused by extrinsic uncertainty. Nonetheless, of the free bank failures that occurred in clusters, 85 percent (68 of 80) seem consistent with an intrinsic uncertainty explanation of their cause.

  Contagion

Either view of inherent instability in banking requires that bank failures somehow be contagious. That is, for a banking system to be inherently unstable, a run on one or more banks and their subsequent failure must lead to the failure of other banks. We test for evidence of contagion by determining whether failures in one state were followed by failures in other states. This test is suggested by Friedman and Schwartz's (1963, p. 308) view that "contagion knows no geographical limits." (Some evidence on intrastate contagion is given in footnote 7.)

The clusters of bank failures just discussed show that free bank failures were quite localized. However, only three of the four clusters can provide evidence for our test of contagion. Of our four sample states, only New York allowed free banking before 1852. So only post-1852 clusters are useful here. None of these three clusters provide evidence that bank failures are contagious. Specifically,

• Between July and December 1854, 11 banks failed in Indiana. This is almost a quarter of the 46 free banks operating in that state in July 1854, which might indicate that bank failures spread through Indiana. However, they seem to have stopped there. Only one of the 232 free banks operating in New York in September 1854 and none of the 19 banks operating in Wisconsin in July 1854 failed during this period.
• Between June and September 1859, over half of Minnesota's free banks failed (7 of the 12 banks that had issued notes by June 1,1859). However, during this period none of the approximately 390 free banks operating in New York, Indiana, and

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     Wisconsin failed; failure seems to have been limited to Minnesota.

• Between June 1860 and June 1861, over a third of the free banks operating in Wisconsin in January 1860 failed (37 of the 107 banks). However, only one of the 273 free banks operating in New York in December 1859 and only one of the 17 free banks operating in Indiana in January 1860 failed during this period.⁶

    Again, free bank failures were virtually confined to one state. Overall, these three clusters of failures show that free banking had little if any inherent instability because whatever contagion might have existed was limited to specific states. The data do not indicate that free banks experienced the type of widespread contagion that Friedman and Schwartz (1963) observed for 1930.

Why were free bank failures not contagious? That is, why did the bank failures in one state not spread to other states? A possible explanation is that the requirement that free banks keep a reserve of state bonds behind their notes provided some public information about free bank portfolios which helped noteholders distinguish good banks from bad ones when local real shocks occurred.

Consider the cluster of seven free bank failures in Minnesota between June and September 1859. The local real shock here affected only the price of Minnesota 7s (the railroad bonds discussed above), and these bonds backed the notes of five of the banks that failed. There was no reason for the Minnesota failures to spread because the public knew that Minnesota 7s did not back the notes of banks in any other state. In New York, notes were differentiated by whether they were backed by state bonds alone or by state bonds and mortgages, and after 1840 the state allowed only New York or U.S. bonds to back notes. In Indiana and Wisconsin, Minnesota 7s could have backed free bank notes, but publicly available reports by state banking authorities indicate that none did.

Next consider the cluster of 41 free bank failures between June 1860 and June 1861, which occurred mostly in Wisconsin. The local shock here was the onset of the Civil War. The important feature of this shock from the standpoint of noteholder information is that the prices of bonds of Southern states declined far more than the prices of bonds of Northern states. For example, during this period the price of North Carolina 6s declined 56 percent; Missouri 6s* 57 percent; and Virginia 6s, 59 percent In contrast, the price of Indiana 5s declined only 20 percent.

All of these state bonds were traded on the New York Stock Exchange, so current market price information was readily available to the public.

That the rash of free bank failures in Wisconsin can be attributed tn the decline in Southern bond prices is clear in Table 4. There we present a breakdown of the bonds deposited with the Wisconsin state treasurer as backing for notes as of January 31,1860, by both the state of origin and whether or not the bank subsequently failed. (The report used to prepare this table included 107 banks, 35 of which subsequently failed.) The table shows that, on average, Wisconsin banks had a high percentage of Southern state bonds backing their notes. J ii particular, the banks that failed had close to 84 percent of their notes backed by Southern bonds.

Why did the Wisconsin failures not trigger failures in New York и id Indiana, the other two states we examined which had free bank-nig systems of any size at the time? We think it did not because the public knew that Southern bonds were a much smaller part of the ii' ite backing in these states than in Wisconsin. As noted above, after 1M0 New York only allowed New York or U.S. bonds as backing for notes. In Indiana, the state auditor regularly reported the bond backing of notes on a bank-by-bank basis. That auditor reported on November 1,1859, that only 44 percent of the notes of Indiana's free banks were backed by bonds of Southern states. (In addition, the average ratio of notes issued to the par value of securities deposited to back diem was substantially lower in Indiana than in Wisconsin.)

    CONCLUSION

The evidence we have gathered on the Free Banking Era indicates that the problems of this period are not consistent with the view that Kinking is inherently unstable. Further, we have argued that the i' ason we did not find evidence of inherent instability is that the ⁴Ute bond requirement, by providing information on bank portfolios to noteholders, prevented the failure

The state bond reserve requirement may have also limited intrastate contagion of free bank failures by providing noteholders with information about bank portfolios. For example, in Minnesota die banks that did not fail and had more than a nominal circulation backed their notes by bonds which held their value—either Minnesota 8s (backed by explicit taxes) or Ohio 6s. Also, in Wisconsin, on average, the banks that failed had a far higher percentage of Southern bonds backing their notes than did the banks that did not fail (Table 4). New York banks follow this pattern, too. We collected data on the bond holdings of the banks in New York during 1841-42. On average, New York banks that failed then backed their notes with a much higher percentage of bonds of states which defaulted on their debt than did banks that did not fail.

of a bank or a group of banks from spreading.⁸

We recognize, however, that this is not the only plausible explanation for our findings. A competing explanation is that unregulated banking is not inherently unstable and that the U.S. free banking system closely resembled a laissez-faire banking environment. In our view, which of these explanations is correct remains an open question. We encourage further study of other banking experiences in different regulatory environments—particularly of the availability of information on the value of bank assets.⁹

Finally, a note of caution for those who argue that regulation is required to prevent banking panics: not all regulations perform this role. Contrasting the experience of the Free Banking Era with that of the National Banking System and the Great Depression makes it clear that regulations which do not provide information to holders of bank demand liabilities will not prevent bank runs and panics. In fact, as Kareken and Wallace (1978) have argued about the Great Depression, regulations which seem to provide information, but really do not, could cause bank panics rather than prevent them.

   REFERENCES

Cagan, Phillip. "The First Fifty Years of the National Banking System—An Historical Appraisal." In Banking and Monetary Studies, pp. 15-42. Edited by Deane Carson. Homewood; Richard D. Irwin, 1963.

⁸Another lightly regulated banking system was the Scottish free banking system (1727-1844) studied by Lawrence White (1984). His evidence on this system is also not consistent with the view that banking is inherently unstable. Again, good noteholder information, in this case provided by the unlimited liability of most Scottish free bankers and good information on their wealth, is a possible explanation (pp. 41—42):

A Scottish creditor was legally entitled to the debtor's real and heritable estate as well [as the debtor's personal estate]. The amount of real and heritable estate an individual possessed could Ъе easily determined by consulting public records. ..

It ... enabled members of the public, if they wished, to ascertain the ultimate assets of a local banking partnership. The great security provided to creditors under Scots law helped immunize Scottish banks against any danger of a panic-induced run.

Some might be willing to accept the interpretation that the state bond reserve requirement prevented bank failures from spreading, but would argue that this regulation had the undesirable side effect of increasing the number of free bank Failures. They would argue that this regulation, by requiring banks to back their note issue with risky state bonds, led free banks to hold riskier portfolios than they would have without such a regulation. This issue is not addressed by the evidence we have presented. An argument against the proposition that the state bond reserve requirement increased bank failures is that free banks could still have made their notes perfectly safe by purchasing perfectly safe assets with them; that is, the regulation may not have been a binding constraint on free bank behavior (King 1983, p. 147, n. 31).

 

 

 

 

 

 

 

 

 

ЗАКЛЮЧЕНИЕ

В заключении можно сделать  следующий вывод, что для того, чтобы грамотно выполнить передачу смысла того, что сказано или написано на одном языке средствами другого  языка переводчику необходимо:

 

1. иметь определённый запас слов  английского так и русского  языка (в том числе специальной  терминологии в определённой  области знаний);

2. знать грамматику английского  и русского языка, иначе слова  останутся лишь «кирпичами», из  которых не удастся ничего «построить»;

3. владеть техникой перевода  и уметь эффективно пользоваться  словарём, но прежде чем открыть  словарь необходимо:

• знать по формальным признакам, к какой части речи относится незнакомое слово;
• знать все особенности построения словаря;

4. иметь представление  об области знания, к которой  относится переводимый текст  (а в идеале хорошо ориентироваться  в ней).

 

В своей работе я попыталась полно  и точно передать содержание текста на языке оригинала средствами языка  перевода. Чтобы выполнить эту задачу, в первую очередь необходимо определить, какой способ перевода следует применить. Выбирая тот или иной способ перевода, переводчик помимо всех прочих обстоятельств руководствуется еще  и тем соображением, что в чистом виде какой-либо из способов в реальном переводческом процессе действует редко: как правило, большинство сложных текстов переводятся с применением различных способов, однако один из них является ведущим и определяет характер отношений между исходным и переводным текстом в целом, диктуя и условия членения исходного текста, и определение единиц перевода, а также выбор переводческих приемов, с помощью которых исходный текст непосредственно преобразуется в переводной.В распоряжении переводчика имеются три основных группы приемов перевода: лексические, грамматические и стилистические. Я старалась использовать все, что показано в комментарии.

СПИСОК ЛИТЕРАТУРЫ

 

1. Бреус Е. В. Основы теории и практики перевода с русского языка на английский. – М.: Изд – во УРАО, 2002. - 208 с.
2. Дмитриева Л.Ф., Кунцевич С.Е., Мартинкевич Е.А., Смирнова Н.Ф. Английский язык. Курс перевода.- М.: Издательский центр «МарТ». – 2005.
3. Казакова Т.А. Практические основы перевода. – СПб.: Издательство «Союз». – 2005.
4. Комиссаров В.Н., Кораллова А.Л. Практикум по переводу с английского языка на русский. – М.: ВШ – 1990.
5. Латышев Л. К. Технология перевода. – М. – 2001.
6. Латышев Л. К. Эквивалентность перевода и способы её достижения. – М.: Междунар. Отношения. – 1981. – 248 с.
7. Слепович В.С. Курс перевода. – Мн.: ТетраСистемс. – 2004.
8. Федоров А.В. Основы общей теории перевода. – М.: Издательский Дом «Филология три». – 2002.
9. http://www.bolshe.ru/unit/10/books/1335/s/1
10. http://www.bolshe.ru/unit/10/books/1335/s/2

 

Словари:

1. Золоторогов В.Г. Экономика. Энциклопедический словарь. – Мн.: Книжный Дом. – 2002. – 720с.
2. http://dic.academic.ru/searchall.php
3. http://economics.about.com/
4. http://www.glossary.ru
5. http://www.multitran.ru

 

 

 

Мы определяем банкротство свободного банка как закрытие с убытками для вкладчиков, потому что основной целью законов свободного банковского  дела было обеспечение безопасной валюты. Законы не создавались с целью  защитить от риска вкладчиков или  акционеров.

² Мы определяем совершенно безопасные средства как денежные средства с одной и той же ценой во всевозможных государствах мира. По определению, тем не менее, совершенно безопасные средства также идеально ликвидны.

³ Настоящее потрясение носит местный характер и затрагивает определенную географическую область или определенный вид средств. Потрясение на уровне всей экономии затрагивает всю страну или многие виды средств.

⁴ Кажется, именно этот аспект объяснения банкротств из-за  недостаточной информации о местных потрясениях подтолкнул Фридмана и Шварца (1963) сделать ударение на высокий процент задолженностей, который многим обанкротившимся банкам пришлось выплатить после Великой Депрессии.