The Development of the National Money Market, 1893-1911

Abstract

In this article the convergence of U.S. interregional interest rates in the late nineteenth century is examined and two major hypotheses are tested in the framework of a bank portfolio selection model based on the capital-asset-pricing model. Both the spread of the commercial paper market and the lowering of entry barriers through the reduction of national bank minimum capital requirements are rejected as principal explanations. The erosion of local monopoly power is shown to have been of central importance, and this development was due to the growth of state rather than national banks.