They increased their reserve ratios and used bullion reserves to handle the financial transition, but collapsed almost to a bank regardless. The Confederacy at the war's start had one fourth the bank deposits of the Union and a very limited supply of specie. Because of this, the Confederacy switched to a fiat currency earlier than the Union (in the Union's case, the adoption of the Greenback was actually prompted by banks, who had already stopped exchanging bills for specie before the government made such a decision). The Confederate government gradually increased taxes throughout the war, but having been founded by generally anti-government activists who had resisted centralization and increased taxation at every turn for decades, was forced to rely on large volumes of printed currency.

The introduction of the greyback surprisingly was not a shock to the banks at first. Banks in that era generally had their own reserves of bullion since they offered services of exchanging paper tender for specie. These reserves represented "real" value of the money deposited. Further, the first greybacks carried interest, and were a financial investment for the banks that purchased them using bullion reserves as much as they were currency (this interest was made increasingly irredeemable as the war dragged on).

Over the course of the war, the price level in the Confederacy increased by an average of 10% a month, increasing to 92 times by 1865. This had devastating economic effects (per-capita consumption dropped 50%, showing the devastating effects of the war on the standard of living), but banks were especially endangered. Savings evaporated with the rapid depreciation of the currency. Many banks managed to survive a run on them through maintaining a high reserve ratio (the amount of money they do not loan out). This was often made the policy immediately after secession, seeing as Southern banks no longer had access to the Union treasury, which before the war would often bail out banks that were short of funds. Because of this, Confederate government financing registers show that loans from private banks were still significant in late 1862. However, inflation and competition from the government's high-interest bond scheme had wipe out banks by 1863.

While banks failed at varying times - the Exchange Bank of Virginia, the largest in the South, falling relatively early on - most had collapsed by September 1863. This determination is evident in the CSA's financial records, which showed a 90% decrease in the flow of private bank credit for the war effort between August 1862 and September 1863. In the same period, sales of government bonds doubled, indicating that the Confederacy's few remaining savers were shifting deposits towards government assets.

Some banks, such as the Bank of Virginia, re-founded after the war, but, almost universally, they were ruined by the conflict.

​

Sources:

​

Burdekin, Richard C.K., and Marc Weidenmier. Inflation Is Always and Everywhere a Monetary Phenomenon: Richmond vs. Houston in 1864.

Eugene M. Lerner. The Monetary and Fiscal Programs of the Confederate Government, 1861-65.

Roger L. Ransom. The Economics of the Civil War.

Carter, Susan. The Historical Statistics of the Confederacy.

Weidenmier, Marc. The Market for Confederate Cotton Bonds.

Burdekin and Langdana. War Finance in the Southern Confederacy, 1861-1865.

Schwab, J. C. The Finances of the Confederate States. <This source and the next two were written at the turn of the 20th century and are full of biases and ideological arguments, but provide excellent quantitative data. Royall in particular outlines the balance sheets of every bank in Virgina in 1860>

Schwab, J. C. The Confederate States of America 1861-1865: A Financial and Industrial History of the South During the Civil War.

Royall, William Lawrence. A history of Virginia banks and banking prior to the Civil War.