The Scots Free banks worked like you say. When they failed, they failed and were liquidated ( as per Laurence H. White). They were forcibly folded into the the

The Scots Free banks worked like you say. When they failed, they failed and were liquidated ( as per Laurence H. White). They were forcibly folded into the the Bank of England by the Peel Act of 1845. There is a medium-length Murray Rothbard diatribe against Laurence H. White; it appears to me to be principally about inflation and whether or not the Scots banks actually had access to any specie. I can never say I am sure what Mr. Rothbard is on about. The very public justification given for bailouts is that there was systemic risk. Calomiris/Haber wrote "Fragile By Design" in which the U.S. and Canada are compared/contrasted ( as close to a natural experiment as you can get ) and they essentially find rather deep cultural reasons for this. The "why" of the mortgage crisis is something they seem to have in better focus than most; it has to do with how public welfare functions are perceived in Canada and the U.S. The amount we seem to not know about this issue is staggering.