<<Vitamin B>>(August 27, 1997) Back to the Future

[Robert Hettinga <rah@shipwright.com>]

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X-Lotus-FromDomain: BIONOMICS@INTERLIANT @ OUTBOUND
From: "VitaminB"<VitaminB@bionomics.org>
To: "DAILY DOSE"<DAILY_DOSE@maxager.com>
Date: Wed, 27 Aug 1997 11:04:00 -0700
Subject: <<Vitamin B>>(August 27, 1997) Back to the Future
Mime-Version: 1.0






Vitamin B:
Your Daily Dose of Bionomics

August 27, 1997

Back to the Future

"In the pre-Civil War period, when the general
ethos of laissez faire severely discouraged
government intervention in the market economy,
private regulations arose in the form of a variety
of institutions, which accomplished much of
what we endeavor to do today with our elaborate
system of government rule making and
supervision. In particular, scholars have noted
that the period saw the development of private
measures to help holders of bank notes protect
themselves from risk. As the notes were not
legal tender, there was no obligation to accept
the currency of a suspect bank, or to accept it
at par value; accordingly, notes often were
accepted and cleared at less than par. As a
result, publications--bank note reporters--were
established to provide current information on
market rates for notes of different banks based
on their creditworthiness, reputation, and location,
as well as to identify counterfeit notes. Bank note
brokers created a ready market for notes of
different credit quality. In some areas, private
clearinghouses were established, which
provided incentives for self-regulation. "

"Banks competed for reputation, and advertised
high capital ratios to attract depositors. Capital to
asset ratios in those days often exceeded one-third.
One must keep in mind that then, as now, a significant
part of safety and soundness regulations came from
market forces and institutions. Government regulation
is an add-on that tries to identify presumed market
failures and, accordingly, substitute official rules to
fill in the gaps. "

"To be sure, much of what developed in that earlier
period was primitive and often ineffectual. But the
financial system itself was just beginning to evolve. "

"From today's presumably far more sophisticated
view of such matters, we may look askance at what
we have often dismissed as 'wildcat banking.' But
it should not escape our notice that, as the international
financial system becomes ever more complex, we,
in our regulatory roles, are being driven increasingly
toward reliance on private market self-regulation similar
to what emerged in more primitive forms in the 1850s
in the United States."

--Alan Greenspan
Toward Electronic Money & Banking: The Role of Government
A Conference Sponsored by the United States Department
of the Treasury
September 19-20, 1996

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-----------------
Robert Hettinga (rah@shipwright.com), Philodox
e$, 44 Farquhar Street, Boston, MA 02131 USA
"... however it may deserve respect for its usefulness and antiquity,
[predicting the end of the world] has not been found agreeable to
experience." -- Edward Gibbon, 'Decline and Fall of the Roman Empire'
The e$ Home Page: http://www.shipwright.com/