authority, created financial structures designed to serve specific, local needs. Thus decentralized federalism provided state legislatures with a great deal of flexibility in their individual approaches to
economic and financial issues. The important lessons to be learned from Dr. Bodenhorn's historical account are that successful banking systems are flexible, predictable, and incentive-compatible; they meet the needs of the borrowers, depositors and shareholders, and they reduce downside risks to generally agreed upon levels. These lessons imply that we cannot, a priori, define an optimal, one-size-fits-all banking system. We need to know something about the formal and informal institutions
underlying an economy and about the risk preferences of its citizenry. Historically, outsiders view Americans as experimenters and risk takers. Nowhere is this experimentation and risk taking more
apparent than in early American banking policies.
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