Journal of Applied Finance & Banking

What Determined Banks Specie Reserve: New Evidences from Illinois Free Banks

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  • Abstract

    This paper empirically examines the historical allegation of fraudulent behavior of bank management by scrutinizing the balance sheet of individual bank and finds none of the Illinois free banks was without specie reserve. Applying econometric tools to balance sheet items, this paper identifies that deposit liabilities and banknotes in circulation were significant determinants of specie reserves for antebellum banks. Specie reserve was positively related to deposit liabilities and negatively related to banknotes in circulation. The elasticity of specie demand for deposits and banknotes was 22 and 51 percent respectively. Other liabilities like banks equity capital and notes of other banks insignificant.