Very few colonists had liquid assets as most settlers were small farmers or local merchants holding their wealth as land or in the form of perishable commodities. This situation inhibited investment and economic development. In order to assist people in obtaining liquidity several colonies instituted "Land Office Banks." The bank was operated by the colony with the consent of the Governor and the Board of Trade in London. Basically, a colony would print emissions of currency called "Land Office" notes. In several colonies the notes were allotted to local town or county boards. Property owners could then apply to their local board for a loan, usually up to £100 offering as collateral a portion of their property that was assessed at twice the value of the loan. The individual was required to pay off the loan with interest over a prescribed period of time.
South Carolina printed the first land office loan emission in 1712 offering a twelve year repayment plan. Loan offices soon followed in Massachusetts (1714 offering a 5 year loan at 5%), Rhode Island (1715 offering a 10 year loan at 5%) and New Hampshire (1717 offering an 11 year loan at 10%). The first currencies issued by the colonies of Pennsylvania and Delaware were printed in 1723 for distribution as land office loans, to be repaid over eight years at 5% interest. In 1724 New Jersey printed their first loan office emission (offering a 12 year loan at 5%) while North Carolina issued their first land office notes as handwritten documents in 1729. In 1732 Connecticut started a land office issue (offering a 12 year loan at 3%) as did Maryland in 1733 (offering 4%). New York issued its first land bank currency in 1737 (offering a 12 year loan at 5%). The last colony to start a land office bank was Georgia, which produced their first issue in 1755. These rates compared quite favorably to private lenders who charged around 8% interest with shorter repayment periods.
There were several benefits to the Land Bank system. It assisted in the distribution of capital to promote commerce, it was a method for financing emissions of currency without assessing taxes and it was a sources of revenue, as the colony collected the interest payments. Pennsylvania obtained some £2,500 per year in interest payments. In several colonies this money was used to reduce the tax burden. In New England part of the interest remained in the town where the loan was made to be used for poor relief, schools and other public expenses.
Unfortunately, due to lax standards, several problems developed with the Land Office system. In New England an excessive amounts of bills were printed causing a serious depreciation of the currency. The small colony of Rhode Island alone produced nine bank issues totaling £469,000, while the much larger but more conservative colony of Pennsylvania emitted a total of only £80,000 in land bank notes. The astounding difference between these two colonies is even more accentuated when comparing the square miles of land available in each for use as collateral. Further, many colonies required prompt payment of the interest but were negligent in requiring individuals to keep up with payment of the principle. Consequently, when loans became due a number of people defaulted, losing their land. At that point it was discovered the assessors had often overvalued the collateral making it impossible for the colony to recover their principle. If this were not enough, some of the bank directors embezzled funds. Due to the numerous problems most loan banks were not allowed to emit new issues after 1740.
Some land banks were quite successful and continued operations. In Pennsylvania the bank had remained centralized, so that all assessments, loans and payments were made through the Philadelphia office. They did not overextend themselves and so were allowed to continue operations. Maryland was also quite successful as they used the income from interest and principle payments to purchase stock in the Bank of England. When the Maryland bank was ordered to close on November 1, 1765 all outstanding currency issues were redeemed. Following the completion of the redemption there were enough remaining shares of stock in the Bank of England to secure Maryland's subsequent emissions until the revolution (1767, 1770 and 1774).
With the advent of the French and Indian War the colonies again needed large quantities of currency to immediately pay for unforseen military related expenses. Land bank issues did not produce quick profits consequently, the colonies focused on printing a significant number of emissions to be redeemed through anticipated future taxes.