American Banking SystemIn 1863, to help finance the Civil War, a system of national banks was established by the National Currency Act. The banks each had the authority to issue standardized national bank notes based on U.S. bonds held by the bank. The first national banking system had two main weaknesses. The first was “inelastic” money and the second was a lack of liquidity. During the last quarter of the 19th century and the beginning of the 20th century, the American economy went through a series of financial panics. One of the most serious panics, in 1907, made it clear that there was a need for renewed demands for banking and monetary reform. The following year, Congress enacted the Aldrich-Vreeland Act which provided for emergency currency and created the National Monetary Commission to study banking and currency reform..