The causes of free bank failures

"In this paper we propose and test a new explanation of bank behavior during the Free Banking Era, 1837-63. Arguing against the view that free bank failures were due to fraud, we claim that they were caused by exposure to term structure risk. Testing this new explanation with a new and extensive body of data, we find strong support for it: periods of falling bond prices correspond to the periods with most of the free bank failures. The new data do not support the view that fraud caused the failures"--Federal Reserve Bank of Minneapolis web site.