So let me maybe explain this. This is a issue that is really not understood at all even by most economists. History of economics and banking history is not really tough much beyond some broad interdiction as far as I know. There are some good economic historians that have done great work on this.

I'm gone try not to go to far back, but it does require a little bit of background to understand of banking and bank regulation in the 19th century US.

The first thing to understand is that banks would issue private bank notes in this period. Think of these like checking accounts. So a checking account is a IOU the bank has towards you, and for the privilege of you lending them money, they pay you interest.

Now a bank note is basically the same thing, just that the interest actually goes to the bank. This is basically the economic driver behind bank notes in the first place. Every bank wants to have as wide and large a distribution as possible because that is basically money that was lent to them but they don't have to pay interest.

This is a fine enough system and worked well in many places around the world for quite a long time, earliest accounts going back to China 1200 century. So the idea is that if people want to hold a lot of cash, the bank prints more notes because there is less demand for there reserves, higher cash preference. However if people prefer to have more money in their checking account, they equally have to reduce the amount of notes otherwise they are in danger of gold reserves being drained to other banks who did reduce their circulation. Other banks usually realize that you are losing gold faster then you are getting it so they start to blacklist you and then you are basically done.

In practice this is very evident because the amount of notes in circulation would spike up in the summer when you had to pay workers and do a lot of transaction, and many fewer notes were in circulation in the winter because there was just less reason to carry cash. Remember that much of the economy was still driven by farming and the harvest.

To earn interest the bank has to use money to make loans or buy stocks or obligation. In some system like Canada at the time there was little restriction put on the bank what they should use to 'back' these notes. The banks basically just had to made sure they are liquid enough reserves to cover incoming IOU from costumers or more likely other banks who had accumulated many of your notes and wanted to settle.

(Little aside, these settlements were done periodically 1:1 with each bank you have accumulated notes off. Better developed such system eventually developed private clearing houses that would do this arbitration for banks and what banks lost or gained reserves, either simply moving them from one account to another on its own ledger or ordering one bank to send another the gold reserves)

The US has a somewhat different history, once state governments allowed competitive banks at all, they required notes to be treated differently then checking accounts. And take a guess what states wanted as a backing asset for notes. Good old state government debt obligation. This is not so much different from many historical kingdoms where the king would basically force the banks to loan money to him.

This caused a lot of problems because it would mean some banks would be highly leveraged with state debt and states in that period were not very not very reliable. So if a state defaulted the bank might just collapse at the same time. This was not the main issue with banking in the US and the problems caused were mostly limited and localized.

Now because of the Civil War spending requirements changed and they now started to allow 'national banks' (National Bank System). And if you think the reason behind this is that these new federally regulated banks were required to buy federal debt, rather then state debt. You would be correct. This was a reasonable measure to pay for the war as far as these things go. People continued to use state bank currency in many cases anyway so eventually those banks were hit with a significant tax and that meant that you either became a national bank or stopped issuing currency.

The problem however came when the Republican government after the Civil War basically had a major policy of debt reduction. See in this nice chart:

https://cdn.theatlantic.com/assets/media/img/3rdparty/2012/1...

You can now understand what this means. Basically the government did what we would now call 'monetary policy' but instead of having some kind of actual goal, they simply did it without realizing the implications on banking.

Now put the "Cross of Gold" speech on that timeline and it makes more sense. If you are only allowed to print notes if you have federal debt and the federal debt is being reduced year over year then the amount of notes banks can actually issue is reduced. This is effectively caused two issues, one is that it is mildly deflationary (nothing like Great Depression but still not great) but the most significant impact is that there simply wasn't liquidity as banks were no longer responsive to note demand.

By 1890 virtually all government debt was bound up to back notes, even if one bank wanted to issue more notes, they had to buy these papers from other banks who in turn had to reduce their amount of notes. So instead, banks just were not responsive.

Silver was basically seen as an alternative more liquid currency. In my opinion they correctly identified the problem but the solution wasn't really the right one (not that I think silver as currency would have caused meaningful problems). The solution was to simply stop forcing banks to back their notes with ever reducing federal debt. You could go back and allow state and federal debt or allow a limited broader set of 'good assets', or simply bank what they would accept from other banks.

However, William Jennings Bryan himself used all his power to prevent exactly that solution, starting as a congress men around 1890 he basically believed such a solution would basically give power to the banks. He virulently oppose currency and bank reforms for the next 20 years even during major liquidity crisis. As leader of the progressive wing we was very powerful person in the opposition to these reforms.

His opposition were point to Canada that had non of the US issues, neither bank failures nor liquidity restrictions and had exactly such an 'Asset Currency'. There are nice graphs that I can't find anymore you can see how the currency in Canada is very responsive to the seasonal cycles.

These reforms would have fixed 'some' of the other issue in the US system as well but they were not politically viable. They had some powerful support, specially from some 'Mid' sized banks but were opposed by the large New York bank, the powerful rural banks.

So one could say Bryan was one of the major blockers of solving the actual problem and used the resulting crisis to make himself incredibly popular and powerful. To be clear, I'm not saying he knowingly did that, but this is what happened.

This is of course also how the initial version of the Fed was created a few years later. The Federal Reserve System is basically 12 new banks that don't suffer from the same regulation, so they can issue notes for assets, as Rick (from Rick and Morty) would say "That is just Asset Currencies with extra steps". So instead of just having assets and printing bank notes backed by those assets, you take the very same assets to the Fed and they would give you federal notes. This was more viable because for the Bryan's because while these Federal Reserve Banks were theoretically private, they were regulated by the government to a stronger degree.

Seems to me it would have been far easier to simply have additional regulation on banks and regulators publish a list of viable assets that existing banks had to follow rather then creating a whole new layer of banks on top.

Now, I should say, the this is only one not 'the' major cause of the increase number of banking panics and runs that happen towards that period. The US Banking System had a number of sub-optimal policies that all acted together to cause panics in this period.

I hope this helps. I left out a lot of stuff but this post is to long already.