chartered in 1831. The next year there were sixteen more added to the list; and in 1833, fourteen. In 1834 there was quite a financial stringency, and the creation of banks ceased, only to begin again in 1836, however, with renewed force* By the end of 1836, in addition to the 62 older banks rechartered-43 of them with increased capitals-78 new banks had been authorized.

Ilad it been necessary to raise actual money in the old-fashioned way for the capital of these newly chartered banks, a large proportion of them would have been unable to go into operation. But with the aid of invention and the latest improvements, the raising of bank capital had ceased to be a difficult or expensive process. It was only necessary to secure a place for the bank to be kept, organize by the choice of directors and officers, borrow for one day specie to the amount of one-half the authorized capital to be examined and counted by the commissioners, who should ascertain by the oaths of a majority of the directors, that such specie had been paid in by the stockholders, toward payment for their respective shares, and not for any other purpose, and that it was intended to have it remain as a part of said capital; then, return the specie: take the notes of the stockholders instead, for the amount of the paid-up capital, and set the printing press in motion turning out bank notes. With the process of raising bank capital thus simplified only five of these seventy-eight banks with a capital of $2,000,000, failed of getting under sail, It would not be surprising if half of them commenced without any considerable stock of actual capital. Such a record of fraud, perjury, and bogus financing, is not to be found in any other portion of the history of Massachusetts, before or since. "

Such an expansion-upon such a foundation-could not go on indefinitely. The merchants periodically complained of stringency, and the usury laws came in for their share of denunciation. But the trouble lay deeper than that. The whole banking system of the State, as of the rest of New England at the same time. was being buoyed up by a speculative mania which had at length to give way. While circulation and deposits had in September, 1836, more than doubled as compared with 1830, their specie reserves showed no considerable increase, and the ratio of specie to deposits and circulation was less than ever before, being as 1 to 13 52. But, more significant than all, a large proportion of the banks had gone into operation on borrowed specie and fictitious capital; while hundreds of business enterprises were depending upon them for support, which, upon the least jar to their shaky foundations they must refuse.

In November, 1836, the Nahant Bank, at Lynn, succumbed, with $242, 965 circulation outstanding; and a few months later suspicion began to fasten upon several of the lately chartered banks. In February, 1837, a legislative committee_appointed to investigate the affairs of the Chelsea, Kilby, Middling Interest, and Lafayette Banks, reported them to be sound. Nevertheless, one of them-the Chelsea-failed within two months, with $90,722 demand notes and $20,600 post notes in circulation, and but $36.71 cash on hand; and within three years every one of the banks thus "white washed" by the committee had failed.

The New York banks having suspended specie payments May 10, the Boston banks, while deploring the necessity, felt obliged to do the same-which they did on the 12th. "Specie became worth a premium of from ten to thirteen per cent., and so great a scarcity of small change ensued that, to meet the demand, the banks, forbidden to issue notes less than $1, issued fractional notes for $1.25, $1.50 and $1.75, which were eagerly sought for."

""

It was not until April, 1838, that the Legislature passed an act suspending till January 1, 1839, the statute imposing a penalty of 2 per cent. a month for failure to redeem in specie. But no bank could have the benefit of this immunity if it failed to redeem in specie at all times its notes below $5 if in Boston, and below $3 if elsewhere or if its circulation should exceed 75 per cent. of its capital; or which should have due to it, except from other banks, a sum greater than 175 per cent. of its capital stock; or whose capital should not be fully paid in. The act brought speedy relief; and the banks commenced at once the redemption of all small bills, and by August 13, 1838, resumption had become general throughout the State.

Meanwhile bank failures had been of frequent occurrence. In July, 1837, the Franklin and Lafayette banks had closed; and in January, 1838, came the failures of the Commonwealth, Middlesex (at Cambridge), American, Commercial, Fulton, Hancock and Kilby. Others followed at frequent intervals until 1842.

In all during the years 1837-1844 "seventeen banks had their charters repealed, in most cases for insolvency, and fifteen surrendered or forfeited their charters, making in all thirty-two banks which failed or discontinued in consequence of the crisis. Among these thirty-two banks were eleven of the thirty-two incorporated in 1836, six of the fourteen incorporated in 1833, two of the sixteen incorporated in 1832, and five

*One of the wild projects of the period, which did not go through, was the proposed incorporation in 1836 of a State bank with a capital of $10,000,000, of which the State was to subscribe one-half, to be raised by means of a 4 per cent. loan. The matter was favorably reported from the Committee on Banks, but was defeated on the third reading.

Dudley P. Bailey, Jr., in "Bankers' Magazine," September, 1876.

of the fifteen incorporated in 1831. Only seven were incorporated in the years 1824-2 inclusive, and only one incorporated previous to 1824, and this settled its affairs with out loss to the public or its stockholders. Out of thirty-two banks chartered in 1836 there remained in 1845 only seventeen, and one of these discontinued in 1851, though without loss to the public or its stockholders. The astonishing proportion of mor tality among the later creations is a sufficient commentary on the policy which brought them into being."*

Among these failures there had been developed several pure swindling schemes. One of these, for example, was the Roxbury Bank, of whose notes there were some $50,000 in the hands of the public at the time of the failure. This, however, was the on.y instance in which the enure assets seem to have passed out of the control of the bank, and the only one in which the note-holders suffered materially.†

The crisis of 1837 had disclosed the necessity of having the banks subjected to more efficient supervision, and early in 1838 the appointment of three Bank Commissioners was authorized, whose duty it was to make annual examinations of all the banks in the State, as well as special examinations as often as deemed necessary. This board continued in existence five years, when the law creating it was repealed.

It was many years after the experience of 1837-9 before the banking interests of Massachusetts were fully recovered from the shaking up which they had received, and it was not until after 1850 that the number of banks, or the amount of capital employed, rose to equal the figures of the years 1836-7. Nevertheless, the lesson of experience seemed to have been learned, and the ensuing period was one remarkably free from disturbance or loss by bank failures. In the fifteen years, 1840 to 1855, there had been but two failures-and both of these were cases in which the notes were paid in full

In 1843 banks were prohibited from paying out over their counters other notes than their own.

The charters of all the banks incorporated before 1849 were to expire October 1, 1851, and the prospect of their renewal led to several amendments in the banking laws. The most important of these was an act passed in 1849, making the stockholders in any bank, at the time when it stopped payment, individually liable in proportion to their stock for the redemption of the notes issued by such bank. Previously they had been liable only in case of official mismanagement, or upon the expiration of their charter. Another very important change was the re-establishment in 1851 of the office of Bank Commissioner, with substantially the same powers and duties as the former Board. This Board continued in existence until the State system was superseded in 1865 by the National Banking system.

An effort was also made to establish a system of free banking similar to that which had been in operation in New York since 1838. This was done by the act of May 24, 1851, which authorized any number of persons, not less than fifty, to become a body corporate to carry on the business of banking, with a capital of not less than $100,000, nor more than $1,000,000, one-half to be paid in before commencing, and the balance within one year thereafter. Upon the deposit by such a corporation with the Auditor of the State, at a rate not above either its par or its market value, the public stock of any New England State, or of the State of New York, or the United States, or of any city or town of Massachusetts, amounting in the aggregate to not less than $50,000 nor more than 25 per cent. beyond the capital of the bank, it was entitled to receive an equal amount of circulating notes prepared in blank and countersigned by the auditor, which notes, when executed and signed by the proper officers of the bank, might be put in circulation. These stocks were to be held in trust by the State officials, and in case of failure of the bank to redeem its notes on demand they were to be sold and the proceeds used for that purpose. In most other respects the banks to be organized under the general law were to be subject to the same provisions as the chartered banks. An act in 1852 reduced the number of persons necessary to form a corporation to ten, limited the circulation to the amount of the capital, and exempted from taxation the securities transferred to the auditor, to the extent of threefourths of the capital.

But all in vain. Banks would not organize under the general law if it were possible to avoid it. So long as the Legislature would grant petitions for additional special bank charters, persons desiring to engage in banking would invariably take that course; but when that became impossible, resort was had to the employment of additional capital in some of the existing banks, as the Legislature often granted peti

*D. F. Bailey, in Bankers' Magazine, October, 1876.

The whole public loss, then, from bank_failures which is ascertained, or which can be esti mated in numbers since the organization of this Board, is from the fraudulent issues of the Roxbury Bank, made before its condition could be ascertained. Of course this statement does not embrace the losses of stockholders, whose special interests are, as stated, beyond the control of the commissioners." -Report of Bank Commissioners, 1845.

In this estimate, however, no account is taken of the immediate loss to the holders of notes which were subsequently redeemed in full. As to this factor the Bank Commissioners, in 1852, remark: "Judging from past experience, a loss of 50 per cent. to most of the holders of the bills at the time would have been a favorable result, under the usual circumstances of the failure of a bank, though the bills may be ultimately paid in full."

tions for increase of capital when new charters would he refused. As a result, it was not until 1858 that the first bank took advantage of the act, and there were never more than seven banks incorporated under it-and these seven mainly banks of the City of Boston, to which the matter of circulation was relat.vely of small importance as compared with the volume of business transacted.*

During the years 1850-7 the bank mania raged with only less violence than during the few years preceding 1837. Fifty-eight new banks, with a capital of $14,400,000, were chartered, and 157 increases in existing capital were authorized, aggregating $18,745,000. The committee in 1856 reported against granting any more charters, and called attention to the fact that the excess of bank capital, instead of tending to make money plenty, had encouraged speculation and advanced prices, while leaving the rate of interest unusually high. Another warning was the failure of the Cochituate Bank in 1854-the only serious failure since about 1840. But, serious as it was, the Commissioners reported that the public would probably lose nothing, the note holders certainly being fully protected through their remedy at law against the stockholders. In November, 1855, the Grocers' Bank, in Boston, was also found to be insolvent. The provisions for securing publicity in regard to the conditions of the banks were better than ever before, the law of 1854 having required weekly returns from the banks in Boston, and monthly from all other banks in the State.

Early in 1857 the banks, both in Boston and elsewhere, appeared to be laboring under an undue expansion, the ratio of specie to circulation and deposits being in Boston as 1 to 6.24, and elsewhere as 1 to 21.09. In the months of August and September the crisis struck them, and instead of being in a position to extend accommodation, they were obliged to contract their loans and circulation very suddenly. The circulation of the country banks was reduced from $14,023,092 on the 3d of October, 1857, to $9,580,773 on the 2d of January following. During the most of this period the banks were acting under suspension of specie payments. In spite of the force of the panic, and the fact that business failures were far more numerous and serious than ever before, only one bank failed.

The bank capital steadily increased, reaching its maximum in 1862 of $67,544,200, divided among 138 banks-ten more than in October, 1857. They were in a position of great strength when the political disturbances of 1861 began to derange the finances of the country. Though compelled, in common with the banks in other sections, to suspend specie payments in December, 1861, there were no insolvents among them.

After the passage of the National Banking Law the Legislature passed an act to facilitate the transformation of State into National banks. So rapidly did this progress that by October, 1865, only one bank remained doing business under a State charter.

After the Colonial so called "banks" noted at page 2 above, the real history of banking in Rhode Island commences with the incorporation of the Providence Bank in 1791. There were at this time only four other banks in existence in the United States -one in each of the States Pennsylvania, New York, Massachusetts and Maryland. The preamble of the charter of the Providence Bank recites that Whereas the president and directors of the bank established at Providence on the third day of October last have petitioned this General Assembly for an act to incorporate the stockholders of said bank; and whereas well-regulated banks have proved very beneficial in several of the United States, as well as in Europe," the petition is granted and the bank duly incorporated. Of the authorized capital of $250,000, $50,000 was reserved for a subscription by the United States and $20,000 for a subscription by the State of Rhode Island, should they choose to subscribe. Neither the State nor the United States did so, however, and the subscriptions of private individuals were shortly afterward increased to $400,000.

Nothing is said in the charter as to the issue of notes, or as to any limitation either upon the circulation or the debts of the bank. Evidently it was not anticipated that the bank would or could issue so many notes as to injure the currency of the State, or that the public was liable to suffer any loss at the hands of the bank. The liability of the stockholders was limited as follows: "No stockholder or member of said corpora tion shall be answerable for any losses, deficiencies or failure of the capital stock of the said corporation for any more or larger sum or sums of money whatsoever than the amount of the stock, stocks or shares which shall appear by the books of the said corporation to belong to him at the time or times when such loss or losses shall be sustained."

But the provision in the charter which was perhaps of most importance in shaping the future history of banking in Rhode Island was that prescribing certain very extraordinary powers, which afterward came to be termed the "bank process.' These provisions were contained in a most elaborate section, and are to the effect that in case any person indebted upon any note or other instrument expressly made negotiable or payable at the bank should fail to make payment at the time specified, the president or certain of the directors were to cause a demand to be made in writing upon the delinquent debtor; and in case the obligation remained unpaid for ten days, these same officers could "write to either of the Clerks of the Courts of Common Pleas or of the Superior Court and order said clerk to issue a writ of execution capias satisfaciendum fieri facias, and attachment of real estate upon which the debt and costs may be

levied;" whereupon the Clerk was required to issue such an execution, to be served by any Sheriff or deputy; "all of which shall be as valid and effectual in law as if the same had issued on judgment regularly obtained according to the common and ordinary course of proceedings.'

In 1795, four years after the Providence Bank was started, a second bank-the Bank of Rhode Island—was incorporated, with a capital of $100,000. Its charter was practically the same as that of its predecessor, except that it gave even more arbitrary power in the matter of obtaining executions against the estates of debtors. The ten days of grace allowed by the charter of the Providence Bank were here omitted, and a simple protest before a notary public substituted for a demand in writing made of the debtor himself. Each bank thereafter chartered was given at least as much in the way of this extraordinary power, and the most of them were given more. For the charters granted in 1803 and later required neither demand in writing nor protest. It was sufficient that upon the failure of a debtor to meet his note when due, the officers of the bank should forthwith order the Clerk of one of the courts to proceed to issue the execution; and there is nothing left for the latter to do except to issue it as directed. This was the form in which the "bank process was incorporated in every bank charter granted from 1803 to 1818; and this was the extraordinary legislation which gave to the banks of Rhode Island so great an advantage over all other creditors in respect to the manner in which they were permitted to collect their debts, and undoubtedly contributed much both to attract capital into banking and to increase the power of the banking interests of the State.

By 1817 the opposition to the "bank process," which had been growing from year to year, resulted in the appointment of a legislative committee to consider the conditions and suggest a remedy. But even before this committee was ready to report, in February, 1818, the Legislature chartered ten new banks, to each of which were given the very powers to which opposition was then being made. This was followed, however, almost immediately by an act forbidding the further granting of such charters, but not disturbing the powers of those already granted. The Dartmouth College" case, then in the courts, and decided in 1819, holding in effect that the grantor of a charter could not change the terms of the grant except with the consent of the grantee, doubtless did much to continue to the banks to which these powers had been given the full enjoyment of them long after public sentiment would otherwise have sustained, and even demanded their prompt and summary curtailment. It was not until 1836 that, headed by Thomas W. Dorr-afterwards the leader in "Dorr's rebellion "-the Legislature passed an act limiting the banks thereafter to the same remedies for the collection of debts as were possessed by individuals. There were at that time sixty-one banks in the State, of which thirty possessed the powers known as the “bank pro

I have noted that in 1795 the second bank was incorporated. It was not until 1800 that this was followed by another; but from that time on bank charters were granted at frequent intervals. By the close of 1805 there were already thirteen in existence, with a capital of nearly $1,500,000.*

All of the banks seem to have been wholly unrestricted in their issue of notes, which, however, were protected by most strict State laws against counterfeiting. And an attempt was made to guard against embezzlement or fraud on the part of the officers by not only requiring them to give large bonds, but requiring that three of the Directors, usually selected from the Board by rotation, should monthly make a careful inspection of the bank, and at least once a week inspect the more important details, such as amount of cash held, notes in circulation and the general balance sheet.

Nevertheless, collusion and fraud were not rendered impossible. The case of the Farmers' Exchange Bank of Gloucester was by far the worst of any, being the only failure prior to 1829, and indeed the only instance in early years in which the mismanagement was such as to affect the public at large. Its capital was $100,000, of which only $19,141.86 was ever paid in, and of this the Directors withdrew the portion that they had paid in, leaving only $3,081.11. One of the directors who seemed to have a genius for finance, bought out eleven of the directors for $1,300 each, paid out of the bank funds. He then borrowed of the bank $760,265, giving his notes therefor, to be paid whenever the holders of a majority of the stock should demand payment; and with an express provision that as he himself was the holder of the majority of the stock, he should determine when the notes were to be paid. The bank failed in 1809, at which time its only available assets were $86.46 in specie; while the bills in circulation were estimated to amount to $580,000.

*One of these was the Rhode Island Union Bank, chartered in 1804, the promoters of which set forth that "the advantages accruing to the mercantile i terest from the institution of well regulated banks have been so uniformly felt throughout the United States that they need no comment. It is presumed that a bank in which the mercantile and agricultural interests should be united would be productive of the most beneficial advantages to a State like ours, where those interests are so blended and dependent on each other. In the establishment of banks heretofore the interest of the farmer has not been sufficiently consulted, and the pledge of his real estate, the best security in his power to give, is not acce ted. Impressed with these considerations, we, the subscribers, in order to further and promote those interests, do agree to establish a bank in the county of Newport, to be called the Rhode Island Union Bank."