ABSTRACT
The first effect was to weaken - and therefore destabilize - the banking system by restricting banks' freedom to branch. Restricting branching increased banks' vulnerability by limiting the scope for diversifying their risks. It also made it more difficult for a bank office to borrow, and it hindered the development of note and deposit clearing systems which would have helped discipline overissue and maintain the value of bank money at par. Branching restrictions created a system of 'unit banks' that was to be a major - if not the major - source of weakness in the American banking system throughout its later history.
