Thesis (M.C.P.)--Massachusetts Institute of Technology, Dept. of Urban Studies and Planning, 1980. / MICROFICHE COPY AVAILABLE IN ARCHIVES AND ROTCH. / Includes bibliographical references. / by Susan Elizabeth Jaster. / M.C.P.

This dissertation examines the free banking laws of seven states and the impact of three provisions of the laws on the states' banking experience. In Chapter I, a review of two current theories of the free banking experience is presented. One theory contends that the laws themselves induced the banking experience of the states. The second theory asserts that economic activity induced the banking experience. This study includes a discussion of both theories in the analysis of the provision's effect on the banking experience. In Chapter II, a simple model of the operations of a free bank is presented. Also, the laws of the seven states that determine the establishment and the operations of a free bank are reviewed. The review reveals that the states enacted similar provisions, but restrictions included in the provisions differ considerably. In Chapter III, the experiences of the states are examined. The states represent a spectrum of banking experiences. The experiences of each state are characterized by four measures; the entry rate, the failure rate, the below par rate, and the average loss per dollar. Each of these measures reflects a different aspect of banking behavior and each is examined in order to determine the effect of the provision and the effect of economic activity on the behavior of the free banks. The analysis shows that both the provisions and the economic activity influence bank behavior. In Chapter IV, a theoretical analysis of the effect of the stockholders liability provision on entry and on the bank's portfolio is developed. The theory shows that an increase in the stockholders liability of a free bank reduces entry into the free banking market and increases the risky asset-capital ratio of the free bank. The testing of the theories is presented in Chapter V. The empirical evidence confirms the hypothesis that an increase in the liability of the stockholders increases the risky asset-capital ratio. The evidence does not confirm the hypothesis that an increase in the liability of the stockholder reduces entry. / Ph. D.