In 1852 a "free bank" act was passed modeled closely after that in operation in New York. The securities permitted to be deposited as a basis for circulation were the stocks of the United States, of either of the New England States, of New York, Pennsylvania, Ohio, Virginia, Kentucky, or of the cities of New York or Boston, or any incorporated city in Connecticut.

Fourteen banks were organized under the act; but their operation under it was of short duration, there being so great a preference manifested for the system of chartered banks.* In 1855 they were all specially incorporated by a general act, the terms of which, when accepted by the banks, permitted the issue of notes to the amount of 150 per cent. of the paid-up capital. The stock and bonds theretofore deposited with the Treasurer as security for notes issued under the free banking law were to be returned as fast as the circulation for which they were pledged was returned for destruction. The notes were given a first lien upon the assets, as in the case of the other chartered banks, and in general they were subject to the same provisions of law. In the same year the circulation of all banks was limited to 125 per cent. of the capital; and in 1858 further restricted to 75 per cent.

The Connecticut banks generally redeemed their notes in Boston, but in 1862, exchange on Boston being against New York, the Suffolk Bank gave notice to the Connecticut banks that it would thereafter charge them exchange on New York funds sent to Boston for the redemption of their circulation. The difficulty of procuring sufficient Massachusetts iunds to serve the purpose resulted in several of the banks in the southwestern part of the State withdrawing their deposits from Boston and making their redemptions mainly in New York, keeping a small balance in Boston to provide for the inconsiderable amounts that found their way there.

By 1866, 67 of the banks of Connecticut had gone into the National Banking system, leaving only 8 in operation under the State charters.

Prior to the admission of Maine into the Union the incorporation of banks within its borders was secured through the General Court of Massachusetts, of which the prov ince of Maine was then a dependency. The earliest institution of its kind was the Portland Bank, established June 15, 1799. This was followed in the years 1802–4 by

Long experience in this State has shown that when the chartered banks have been carefully guarded, and when the Bank Commissioners have faithfully discharged their duties, the community have been furnished with a safe circulation. We are not satisfied that, as a whole, this system of establishing banks is not, to say the least, fully equal to any general banking law which has yet been devised." Report of Bank Commissioners of Connecticut, 1855.

the Maine Bank, also at Portland, and by other banks at Wiscasset, Hallowell and Saco. Between 1804 and 1812 only one other bank was established; but in the latter year the banking "boom" which was being felt in the other parts of the United States struck the Province of Maine, and in 1812 and 1813 seven more banks were established. During the next two years six others, with a capital of $100,000 each, were started, followed in 1819 by two more--making a total of twenty-one banks. But several of the earlier institutions had in the mean time failed or stopped payment. So that in 1820, at the time of the admission of Maine into the Union, the number of banks in operation is reported to have been only fifteen, with a capital stock of $1,654,900 and circulation of $1,380,572.

Up to 1820, the history of banking in Maine is thus most intimately connected with that of Massachusetts, whose general laws as to the circulation of small bills, issued by unauthorized companies, semi-annual returns, etc., were applicable to Maine. Prior to their recharter about 1812, the circulation of the banks was generally limited to twice their capital; after 1812, to 150 per cent. They also followed the charter of the State Bank of Massachusetts in provisions for individual liability of directors in case of excessive issues, etc.

For some years after 1820, few additions were made to the bank capital of Maine the number of banks reported in 1832 being but eighteen. The provisions of the charters under which these were acting were mainly based on those granted in Massachusetts. There was, however, in these years little done in the way of supervision or examination of banks, and, the conditions being thus rendered favorable for such schemes, there were several instances of failure caused by the withdrawal of the actual capital by irresponsible parties who had managed to secure control of the institutions. Such seems to have been the circumstances attending the failure of the Castine, Hallowell and Augusta, Wiscasset, Kennebec and Passamaquoddy banks, all of which were broken before 1829. In nearly every instance a large proportion of the circulation was a total loss to the note holders. The bills of the first three named banks reported in circulation four months before their failure amounted to $460,000.

The first comprehensive banking law of the State was that of March 31, 1881. Under this act all banks thereafter chartered were required to operate. Before business could be commenced at all 50 per cent. of the capital must be paid in, and the remainder within six months thereafter. No bank was permitted to loan upon the pledge of its own stock. The aggregate liabilities of all the directors were limited to one-third of the capital and no one stockholder was to own more than 20 per cent. of the capital. Several of these provisions were prompted by the experience had with failures of several of the earlier banking institutions, in nearly every one of which the trouble was directly traceable either to failure of the subscribers to pay in cash the amount of their subscriptions, or t. the practice of loaning to subscribers upon the pledge of their stock.

The aggregate amount of notes in circulation was limited to 150 per cent. of the capital stock actually paid in, and the total debts to be contracted to twice the capital. In case of excess of indebtedness over these limitations, the directors were personally liable. Bills under one dollar were prohibited, and the proportion of those under $5 limited to one-fourth of the capital. This, as well as the provision imposing a penalty of two per cent, a month for failure to redeem in specie on demand, was borrowed from the Massachusetts law. In case of any deficiency arising from official mismanagement, the directors and stockholders were to be held individually liable for an amount not exceeding the stock held. And upon the expiration of the charter, the stockholders were held severally liable in the same manner for two years for the redemption of the bills outstanding. The act also provided for the appointment of two Bank Commissioners and made all the banks subject to their inspection and slight supervision.

This act of 1831, just preceding as it did the expiration of a large number of the older charters, and the banking expansion which came with the failure of the second United States Bank to obtain a renewal of its charter, soon became the general basis of the entire banking system of the State. New banks were thereafter created, as they had been in the past, only by special act of the Legislature; but all were made subject to the provisions and limitations of the "Act to regulate banks and banking" of March 31, 1831.

The great increase in the number and capital of the banks of Maine, as shown by the table at page 19, is marked; and the reduction in the next half a dozen years scarcely less so. The expansion was, as in other States, speculative in character, and many of the institutions then started were founded where in normal times so much banking capital could not be fr. fitably employed.

Yet at the time there was a continuous cry for more banking capital. In 1836, after an increase of more than 100 per cent. in less than four years in the amount of capital employed, the Committee on Currency, in answer to such demands, went so far as to recommend the establishment of a State Bank to be owned entirely by the State, the capital of which should be raised by a loan of $8,000,000. The State itsel was to guarantee all bills, which were to be limited in amount to twice the capital. So promising was the outlook for additional banking projects that the Committee had

no difficulty in figuring out sufficient profits to accrue in ten years to repay the loan of $8,000,000, principal and interest, and by the expiration of the charter 30 years-to leave a surplus of more than $45,000,000 net profits to the State.

The State Bank was not chartered, but numerous private banking corporations were; and by January, 1837, the number in operation was fifty-five, as compared with eighteen five years before. Nineteen of them had gone into operation within a year, But their circulation, owing to the constant process of redemption to which it was subjected through the so-called "Suffolk" system, had not increased in proportion. During 1836 it actually decreased nearly half a million dollars, in spite of an increase of nearly a million and a half in capital stock during that period.

There were always those whose constant cry was "more money." They complained in 1835 that the circulation was too restricted to permit borrowers to obtain on easy terms the funds with which to pay their loans-noting that it was less than the amount of the capital stock, notwithstanding the fact that the law permitted it to be one-half greater. They wanted expansion, and rightly appreciating the action of the redemption system, constantly tending to retire any excess of circulation as soon as manifest, they sought such legislation as would prevent the banks from redeeming their notes elsewhere than at their own counters, hoping thereby "to render them independent of foreign power and influence." The Bank Commissioners, however, alluding to the same discrepancy between the authorized and the actual issue, rightly accounted for it as due to the limitations which the natural laws of exchange imposed; and, so far from objecting to the methods of redemption as an evil, expressed their belief that there was no danger of excessive issues so long as the system of redemption remained unchanged, as under it no bank could keep in circulation for any length of time the amount authorized by law, unless the actual demand was really urgent.

But the financial revulsion of 1837-9 and the straitened condition of affairs in the following years, demonstrated the inability of so many banks to profitably employ their capital. A few-mainly institutions in which there was crookedness in the management-failed.*

The larger part of the reduction, however, was effected legitimately through the surrender of charters which the management found no longer valuable. In these cases the stockholders suffered severely, the public comparatively little. As to the combined effect of the whole reduction from 55 banks with a capital of nearly five and a half millions to 39 banks with a capital of three and a third millions, involving the loss of nearly two millions of capital, the Bank Commissioners in 1842 state that "it has mainly fallen on stockholders; not more than about $175,000 have fallen upon innocent bill-holders." In other words the average loss to bill-holders during the six years of the panic and liquidation was less than $30,000 a year on an average circulation of $1,590,000-less than two per cent. of the average circulation, and less than one-half of one per cent. of the circulation of the banks of the State of Maine annually handled by the public.

Prior to the suspension of specie payments in 1837 the banks of Maine had been compelled by legislation to withdraw their bills below $5, and in 1838 the Commissioners reported that the amount of such denominations was less than $35,000. The object of the law, however-the securing of a substantial circulation of specie-was defeated by the circulation within the State of the small notes of banks of neighboring States. In fact, the Commissioners in 1838 estimated such small bills to constitute one-third the active circulation of the State.

By the act of March 13, 1838, the issue of notes was more closely limited than theretofore, being fixed at 100 per cent. of the capital in banks whose capital did not exceed $50.000; 75 per cent. of the capital in the case of banks employing more than $50,000 and rot more than $150,000 capital; and 66 2-3 per cent. in the case of banks having more than $150,000.

In 1846 the Senate Committee on banks, reporting a bill to continue the banks whose charters were about to expire, say:

The committee are of the opinion that our present banking laws are compara

*An instance of this is the case of the Globe Bank. After the worst of the storm had been sucessfully weathered, the institution had been gradually liquidating its liabilities until on August 18, 1840, its circulation was less than $10,000. Then commenced a series of transactions with New York parties which carried the circulation up to $74,000 in a very short time. It began with the granting of a loan of $11,000 to Joseph M. True, a young dry goods merchant in New York, followed by another Ian of $20,000 to the same person a few days later. Shortly after this one of the directors bought up 208 shares of stock in the bank at from $20 to $30 each, and sold them to True at par. The latter was then chosen a director, and proceeded immediately to borrow $16,000 more from the bank. In December True failed. Two gentlemen from the interior of New York State then appeared on the scene and purchased all the stock then held by True together with some others, amounting in all to 269 shares. At the same time the bank discounted for these purchasers their notes amounting to $58,000, of which they received $27,000 in the True paper, and the balance in bills of the bank for circulation by them in New York State. At the time of a legislative investigation of the transactions in 1842 it appears that of the total capital of $100,000, $48,700 wer owned by the bank itself-having been taken for debts. The major part of the assets at that time consisted of the notes given by the New York purchasers of stock. Other instances of similar schemes for the substitution of irresponsible foreign stockholders for the original subscribers, and thus enabling outside speculators to secure the credit and means of Eastern banks as a capital for their maneuvers in distant parts of the country, are the cases of the Washington County Bank, the Frankfort Bank, the Stillwater Canal Bank, and the Bank of Old Town.

tively safe, and experience shows that no losses to bill-holders have occurred in the last fifteen years where a reasonable discretion was exercised by the Legislature in granting charters. The revised statutes contain several salutary provisions not embraced in the Banking law of 1831; and it is believed with a due diligence on the part of Bank Commissioners, and a rigid enforcement of the proposed law, the redemption of all bills will be effectually secured."

The recommendations of this committee were the basis of the act of August 10, 1846, extending until October 1, 1857, the charters of all banks in the State. The most important change of law thereby made was in the matter of circulation. This law provided that for all amounts of circulation issued in excess of 50 per cent. of the capital, one dollar in specie should be kept for three dollars in bank-notes issued, and that the total amount of circulation should never exceed the capital plus the amount of specie on hand. For example, a bank with a capital of $100,000, if it possessed only $5,000 in specie, might lawfully issue only $50,000+3 x $5,000, or $65,000. If it possessed $25,000 of specie, it might issue $50,000 plus $75,000, or $125.000; while for all circulation above $125,000 it must hold specie, dollar for dollar. Cashiers were required to keep weekly balances showing outstanding circulation, and a penalty of ten per cent, was imposed for over-issue.

Early in the fifties there began another expansion of banking. As in other periods of speculation, the immediate results were eminently satisfactory to the banks. which quite generally divided 10 per cent. per annum in the years 1853-1855. But their foundation was unsound, and many of those projected failed to secure the requisite capital to comply with the law. For example, of the seventeen chartered in 1853, four never went into operation, and two others-Shipbuilders' and Canton-were in the nature of private speculations which failed disastrously. In 1854 eleven were incorporated, two of which-Mousam River and Grocers'-afterward failed; in 1855 eight were incorporated, two of which never organized, and one other afterward failed, while several of those incorporated in the next two years were never started.

This era of speculation culminated in the crisis of 1857, which carried down sev eral of the banks just started. The safeguards imposed by earlier legislation, how ever, were sufficient in most cases to secure to the note-holders full payments of their claims, though stockholders were heavy losers.

*Including stocks, etc. a, June; b, October; c, May. Other dates, January 1.

NEW HAMPSHIRE.

The first bank in New Hampshire was the New Hampshire Bank, chartered in 1792 to continue fifty years. It was located in Portsmouth, and was to have a capital of $160,000. For ten years it occupied the field alone; but in 1802 came the incorporation of the New Hampshire Union Bank, followed in 1803 by the Strafford, Portsmouth, Coos, and Cheshire Banks, and in 1806 by the Concord Bank.

By the original charter of the Concord Bank the stockholders were jointly and severally liable in the private capacities for the payment of all notes; but by the act extending the charter in 1824 this section was omitted.

Little data is accessible as to the condition of New Hampshire currency in the early years. The crisis of about 1809, however, which so violently shook the financial system of all New England, seems to have dealt severely with New Hampshire. The notes of the Cheshire Bank were quoted in Boston in 1809 at a discount of from 30 to 40 per cent.; those of the Hillsborough Bank at from 30 to 50 per cent.; while those of the Coos Bank, which was an especially disastrous failure, were at a discount of from 40 to 60 per cent.

As the number of the banks in the State and their indebtedness to the public increased it became advisable for the State to exercise some control over them, and an act was passed June 21, 1814, which required annual reports to be made by the banks to the State authorities. By 1831 the number of banks in operation was twenty-one, with an aggregate capital of $2,065,310, and a circulation of $1,107,901. The circulation of the banks was limited to the amount of the capital stock. But the practice of making loans to stockholders on the pledge of their stock resulting in diminution of the capital actually employed, practically the same as though it had never been paid in, by the act of July 5, 1837, it was enacted that from and after the 1st of January, 1839, the amount of loans on the pledge of capital stock should be deemed a diminution of capital, so far as concerns the basis of circulation, which should thereafter be limited to the amount of the capital exclusive of pledged stock. This act also required quarterly reports to the Secretary of State in lieu of the annual reports as theretofore.

In January, 1832, acts were passed prohibiting the emission and circulation of bills of small denominations. On July 4, 1838, owing to the cessation of specie payments and the consequent disappearance of small change, this last provision was suspended until July 1, 1840.

As in other New England States, the years following the financial crisis of 18371839 constitute a period of liquidation in which banking materially declined. By failures and voluntary liquidation by stockholders the number of banks decreased from twenty-eight in 1839 to seventeen in 1845.*

*Among the failures was that of the Concord Bank. Its paid-up capital, which had originally been $60,000, was increased in 1824 to $100,000, and a second renewal of the charter extended the period of its corporate existence to 1846. The management seems to have been left very largely to the cashier alone, without much attention either from the State authorities or from the Board of Directors. In 1841 the Bank Commissioners stated that no examination of the affairs of the institution had been made from 1812 to that time; and a statement of the debts due the bank, made by the cashier and laid before the Board of Directors in 1839, seems to have been the only statement even submitted to them, and gave them the first intimation of certain large debts due the bank. Of the $196,000 bills receivable the cashier himself had borrowed directly $40,000, and as surety for individuals and companies in which he was interested about $90,000 more. In 1840 the Directors got certain parties to give a bond for $30,000 to the Suffolk Bank to secure the redemption of the bills of the Concord Bank, and assigned $50,000 of the best assets of the bank to secure the bondsmen. Owing to the dissatisfaction of the Suffolk Bank with this bond it was replaced by one given by certain stockholders, and the securities for their indemnity were increased to $80,000. On receiving the bond the Suffolk Bank ceased to redeem the notes, having then over $29,000 of the bank's bills in its vaults. In addition to these there were outstanding about $59,000 in bills. The deposits by individuals and by banks at the same time amounted to about $70,000. At the time of the failure the bank had less than $700 in specie.

In the case of the failure of the Wolfborough Bank, the fact was brought out that upon the incor poration of the bank in 1834 the entire capital of $100,000 was paid in in cash by the subscribers, and upon the same day the same money was loaned to them, each receiving back as a loan the money paid in by him. The stock was pledged in each case as security for the loan. The stock was largely owned in New York, and nearly the entire amount of its $38,000 circulation was put in circulation at New York and other places out of the State.

In 1840, after the failure, the Commissioners reported that the officers of the bank state, under oath, that the bank had paid and secured every dollar of circulation within the State, so far as known to them; and that the bills of the bank unredeemed and unsecured rested in the hands of persons in the City of New York; and that the bank, so far as it had redeemed at all, had redeemed its bills at par. They were not then putting any bills in circulation, and expressed the hope and belief that eventually they should be able at least to redeem their entire circulation. Of their total loans, however, of $142,000, $105,000 had been borrowed by a single individual without any security except a lien upon previously mortgaged real estate.

Another instance of the deceptive character and wholly unsatisfactory basis of a capital stock not actually paid in is that of the Lancaster Bank, organized in 1833 with a capital stock of $50,000. The records showed that but 25 per cent. was paid in cash, and the remainder in the notes of stockholders. The capital actually paid in was thus but $12,500, against which the bank had outstanding, April 1, 1837, circulating notes to the amount of $48,000. Here, as in several other instances of banks with insufficient foundation, attempts were made to sell the interests of the stockholders to outsiders; but they failed.

The general facts as to the development of the banking interests of the State in the period 1831-1866 can be obtained from the following table: