It is great to see that such a finely detailed, historically literate AAR will continue. I don't often visit the fiction section of this forum and I even more seldom post on it, but let me say that your writings have pulled out from me a wonderful reaction
However, one little nit-pick: No free banking system existed in the US in 1837. There really was no single, formal system that replaced the Second Bank of the United States, certainly not any one that Jackson implemented (although, technically, the Independent Treasury System created under van Buren was a 'replacement', in the sense that it took the place of the Second Bank as the Federal government's fiscal agent). There were, instead, the myriad of state banking systems, all based on some form of chartered bank idea. Those who wished to form a bank would go to a state legislature and ask for a charter of incorporation, without which they were not permitted to engage in the business of banking (most states whose economies demanded banking services had outlawed money issue by unincorporated banks and corporations without state permission to do so by the 1810's or so, starting with Massachusetts in the 1780's IIRC), and the legislature would figure out some way of getting its slice (usually by requiring the new bank to buy state bonds or to give the state a loan, or sometimes by having the new bank's directors give loans to individual lawmakers in a somewhat more corrupt bargain), grant the charter, and get on with life. At its most publicly interested, banking at the time was considered a source of state funds and a primary driver of the market for state bonds. In many states this entailed a breathtaking degree of corruption in general, with whole legislatures being bought off, and the overall reform movement surrounding Jackson's Bank War eventually led to general dis-satisfaction with the state of banking in the US.
It was only in the
aftermath of the 1837 Panic and Depression that the first (durable) Free Banking law was passed, in New York State, modeled on general incorporation laws that were just starting to find their way into the sphere of commercial corporations after a few decades of success amongst religious and educational institutions. However, this was very much a New York centric movement: While free banking statutes also popped up in Georgia and Michigan, the Michigan experience was short lived (technically first, actually) and both were not widely utilized, with little free banking taking place. Interestingly, some future Canadian provinces also got on board, but free banking laws were just as little used there as they were in Georgia. It was only in the 1850's that free banking laws took off much of anywhere else (with the last state to pass a free banking law being Pennsylvania, in 1860). In the after math of this the Lincoln administration modeled its National Banking System after the free banking systems of the several states, including the general incorporation aspect as well as the all important bond security clause (in every free banking state and in the National Banking laws, the banks were required to back their currency with the bonds of their respective governments, creating a natural market for state and Federal debt).
One of the interesting things to know is that, despite the suppression of state bank notes in the aftermath of the Civil War (via a tax on state issued bank notes, not via statute), free banking laws are still with us. Most of the states which instituted free banking in the antebellum era still have the laws on the books. Banks incorporated under state authority just don't issue their own currency anymore, instead being banks of deposit. It would probably technically be legal for them to start issuing notes again (the tax on state bank notes was done away with in one of the major financial reforms of the last 30 years, forget which), but they would face an immense up-hill battle in the courts and, even if they eventually won, Congress would probably quickly fix the oversight and outlaw their activity anyway.
Phew, ended up being more than a little nit-pick, sorry. Just get a bit over-interested in this subject a bit too easy because so much of what is 'common knowledge' is just plain wrong. There are few specialists in banking in this period and they are rarely consulted or well listened to when the general histories are written. Economic historians are kind of like the social outcasts of both economics and history.