During a banking crisis during the period of free banking,the unexpected surge in the demand for money in the form of specie would cause bankers to call in loans which would,in turn,squeeze credit,slow output and increase unemployment.

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During the period of free banking, the banks did not have a central authority overseeing their activities, and therefore, a sudden surge in demand for money in the form of specie would cause a chain reaction leading to banks calling in loans, which would reduce the amount of credit and ultimately slow down output and increase unemployment. This is known as a "banking panic" and was a common occurrence during the free banking era.

During a Banking Crisis During the Period of Free Banking,the