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During the 20 years leading up to the American Civil War, the number and importance of private banks in the country's commercial banking system increased significantly. These were unincorporated banks that operated without charters from state governments, with unlimited liability for their debts, and at a small scale relative to their chartered counterparts. Relatively little has been written on the market niche of the private banking sector within the US banking system, even though private banks comprised 40 percent of all commercial banks and issued 25 percent of all commercial bank deposits in 1860.
In his study of the nineteenth-century American capital market, Sylla argued that the growth of the private banking sector was the way the banking structure responded to westward shifts in the geographic distribution of population and the resulting shifts in the distribution of demand for banking systems, given that the 'antebellum state (banking) systems were not responsive to these shifts'. His data support this conclusion. On the eve of Civil War, private banks issued 7 percent of deposits in New England, 16-18 percent in the Middle Atlantic and the South, and 60-80 percent of all deposits in the regions with rapid population growth, the East and West North Central regions. In terms of the types of banking services provided, Sylla argued that private bankers 'functioned in ways very similar to those of the more studied chartered banks', providing means of payment in the form of deposits and, in some instances, circulating notes, and extending loans.
In this article I explore further the role of private banks in the antebellum US long-distance payments system, building on these insights from Sylla's work. I go beyond Sylla's analysis by considering both the issuance of payments instruments and the subsequent clearing and settlement of payments through banking networks and clearing houses.2 While states regulated the issuance of means of payment, the institutions used to clear and settle payments evolved out of practices and policies internal to the banking system. An analysis of these institutions, which took the form of networks and clearing houses, shows the development of a distinct division of labor between chartered banks and private, unincorporated banks. Private banks did substitute for chartered banks in...