The success of the First and Second United States banks naturally led to the growth of imitations, and in a number of states banks modeled upon the federal institutions were established. Thus the states of South Carolina, Ohio, Indiana, and some others created institutions some of which proved decidedly successful.

Perhaps the best example of banks of this kind was the institution established by the state of Indiana in 1834. This bank had a capital of $1,600,000, one-half owned by the state and the other half by private individuals, though the state was in full control. One parent institution at Indianapolis and ten branches, each with a capital of $160,000, made up the organization. The parent bank did no business, but consisted merely of a president and board of directors who controlled the operations of the branches which thus constituted a system of banks. The management of the bank was throughout careful and scientific, and the profits were very handsome. The bank made its loans largely through the issue of notes and these notes were redeemed in specie upon presentation. The hostility of politicians led to the discontinuance of the bank, and a free banking system was established.

Other state banks worked along very much the same lines, and wherever the management was honest and careful and the capital was bona fide, the result was successful. In various cases, however, banks were established without adequate capital, their chief assets consisting of state securities which were of doubtful value and their specie being limited in amount. In other states imitations of the New York free banking system, with requirements based on the compulsory deposit of bonds or mortgages with the state authorities, were not infrequent, and of course did not produce notes of greater soundness than the securities on which they were based. Thus a great many unsound banks issuing "bond-secured notes" came into existence. They were no worse and no better than the banks that were established after the New England plan, issuing notes based on the general assets of the institutions, but unprotected by any special deposit.

Out of all these conflicting systems there developed a gradual tendency toward better banking conditions and wise management. After the discontinuance of the Second Bank of the United States there ensued a severe panic, starting in 1837, and due in part to unwise banking and the undue extension of credit upon improper or inadequate security. The result was to enforce the banking lessons that had already been afforded and to warn the banks against repetition of the practices which had led to inflation and disaster. There was a gradual improvement in methods between 1840 and 1860. But the evils of a decentralized, widely diffused, and uncontrolled system of banking continued to exist.

At the opening of the Civil War there were more than 1,600 kinds of bank notes in circulation. Counterfeits were numerous and, except for voluntary arrangements made by groups of banks among themselves, there was nothing to compel any bank to receive the notes of any other bank. Redemption facilities were crude and poor throughout most of the country, and there was a strong feeling in favor of some change in the direction of more powerful central control that would guarantee a more uniform note issue. The need of such control was emphasized by further banking difficulties in 1857, which, although by no means so severe as those of preceding periods of panic, were, nevertheless, disturbing.