Today, the collapse of state banks is the problematic situation which is often associated with significant economic and political problems in the country. Nevertheless, it is impossible to state that this situation is characteristic only for the modern development of business and economics. The problem is in the fact that the history of the banks’ collapses is closely connected with the history of the USA. From this point, the history of the State Bank and the Real Estate Bank’s collapse is one of the most vivid examples to accentuate the idea that the causes of the collapse are often numerous, and it is important to pay attention to all the aspects of the economic and political development of the state where new banks are established.
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The history of the State Bank and the Real Estate Bank’s collapse in the state of Arkansas supports the vision that the economic development of the state significantly depends on the effective approaches of the government to improve and reform the economic and political situation.
The development of any new state is based on working out its economic and political spheres. That is why, after proclaiming the rights of the state, the legislature of Arkansas became responsible for establishing two main banks which could regulate the capital of the state. This decision of the state government was rather reasonable because “the absence of banking institutions in Arkansas meant that those funds the state government did derive went to banks outside the state”. As a result, the state authorities focused on establishing two banks which activities could improve the financial situation in Arkansas.
The capital and financial operations of both the banks depended on the bond interests. However, there were differences in the activities of the banks. Thus, “while the State Bank was at least nominally a state agency and was designed to promote business activity throughout the state, the Real Estate Bank of Arkansas was a creation of, by, and for the state’s planter interests.” The State Bank operations were more controlled by the government of the state because it was owned by the state authorities.
On the contrary, the public was more interested in the development of the Real Estate Bank because of the open shares. In spite of the fact the establishment of the banks was thought as the method to overcome the financial crisis, the problem was in the lack of the necessary regulation and increased additional loans which were not supported with the banks’ possibilities to cope with the debts. The banks’ notes on which the State Bank and the Real Estate Bank were based their operations began to decline in their values, creating the more problematic financial situation. Thus, questionable loans increased.
Those banks which were established in order to improve the economic situation in the state were inappropriately regulated, and the activities of the banks contributed to worsening the economic situation in Arkansas during the 1830s. The researchers pay attention to the fact that there are many approaches to explain the failures in the development of the State Bank and the Real Estate Bank. On the one hand, corruption was the characteristic feature of both the banks’ development.
Furthermore, the failures in regulation depend on poor timing. Thus, the main causes are the weaknesses in control and regulation. On the other hand, the previous economic events influenced the public and private owners’ attitudes to the banks and their possibilities. Therefore, the problem was in the fact that both the banks went into operation one year after “the beginning of the Panic of 1837, a severe national economic downturn brought on by a host of factors including depression in England, falling cotton prices, and the failure of the domestic wheat crop”. As a result, the appearance of two new banks did not contribute to the state’s economic development, but loan defaults and associated changes in the land prices affected the public’s economic state significantly.
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From this perspective, the further collapse of the State Bank and the Real Estate Bank was discussed as the situation contributing to reforming the financial system of the state in order to predict and prevent the further defaults and financial crises which influenced the economic state of not only private landowners but also of the whole state. To cope with the controversial results of the banks’ development, it was necessary to provide the act which prohibited the similar establishment of banks on the same conditions in the state of Arkansas.
The collapse of the banks emphasized the idea that the non-developed policy in establishing banks could not contribute to improving the economic situation of the whole state. The stories of the modern banks’ collapses are in main features associated with the examples of the State Bank and the Real Estate Bank because the main problems are often in the lack of regulation, poor timing, and corruption.
Baker, Harri. An Arkansas History for Young People. USA: University of Arkansas Press, 2002. Web.
Whayne, Jeannie. Arkansas: A Narrative. USA: University of Arkansas Press, 2002. Web.
Williams, Fred. A Documentary History of Arkansas. USA: University of Arkansas Press, 2005. Web.
Worley, Ted. “The Arkansas State Bank: Ante-Bellum Period”. Arkansas Historical Quarterly 23, no. 1 (1964). 65–73. Web.