Niagara, at Buffalo, incorporated in 1816. All charters subsequently granted contained such a requirement.

Governor Clinton, in his message to the Legislature in 1818, called attention to the extreme looseness of the system after the close of the war, and pointed out the evils and abuses that had arisen, though suggesting no remedy.

"The Restraining Act of 1804, to which reference has been made, passed with the special object of preventing the Merchants' Bank of New York from continuing business without a legislative enactment, prohibited any person under a penalty of one thousand dollars, from subscribing to or becoming a member of any corporation for the purpose of receiving deposits or of transacting any other business which incorporated banks may or do transact by virtue of their acts of incorporation. This restraining law is said to have been passed through the aid of influential men who controlled and were interested in banking corporations then in existence. This law, as is seen, prohibited associations of persons from doing a banking business, but it did not specifically prohibit individuals or incorporated institutions from engaging in banking and issuing notes, which they did in denominations as low as six, twelve, twenty-five, fifty and seventy-five cents, as well as bills of greater value. At the close of the war of 1812 this had become an evil of great magnitude. Among those engaging in this business were the Bankers' Exchange Bank, Utica Insurance Company, Little Falls Aqueduct Association, Catskill Aqueduct Association, small notes of Benj. Rathbone, Calvin Cheeseman and a host of individuals and corporations, tavern-keepers, glass makers, merchants, turnpike companies, etc. To put a stop to this the Restraining Act of 1818 was passed, which provided that no person, association of persons, or body corporate, except such bodies corporate as were expressly authorized by law, should keep an office for the purpose of receiving deposits or discounting notes or bills, or for issuing any evidence of debt to be loaned or put in circulation as money. The law of 1804, thus amended, remained upon the statute books for thirty-two years, and, after various unsuccessful attempts, was finally repealed in 1837, one year before the passage of the Free Banking Law."*

It has been seen that the conservative banking in the period before the war of 1812 was attended by no bank failures; the looseness of the following years brought in its train the eight failures noted above.

No detailed information as to either the causes, circumstances or results of these failures is obtainable.

"SAFETY FUND" BANK NOTES.

In the years 1826, 1827 and 1828 no bank charters had been granted; while of the forty then in force, thirty would expire between 1829 and 1833. The banks were making most strenuous efforts to secure the renewal of their privileges "without conditions or restrictions, or, as the bank men expressed it, with clean charters;" but so strong an opposition had meanwhile developed that in none of the several attempts made in 1828 to extend the charters of various banks was the requisite two-thirds vote secured.

In his message to the Legislature in 1829 Governor Van Buren called attention to the opportunity for reform given by the expiration of so many charters, and briefly outlined in general terms a plan for the improvement of the banking system of the State, which he said had been presented to him by Mr. Joshua Forman, of Syracuse. This plan was more fully described by Governor Van Buren in a second communication to the Legislature, Jan. 26, 1829. In brief it contemplated a fund “to be raised from an annual payment of all the banks, according to capital, to be applied to the payment of the debts of such banks as shall fail; to go on accumulating until it shall amount to $500,000 or $1,000,000;" and when diminished by payments, to be brought up by further contributions. As to the -origin of the idea, Mr. Forman himself says: "The propriety of making the banks liable for each other was suggested by the regulations of the Hong merchants in Canton, where a number of men, each acting separately, have, by a grant of the Government, the exclusive right of trading with foreigners, and are all made liable for the debts of each in case of failure. The case of our banks is very similar; they enjoy in common the exclusive right of making a paper currency for the people of the State, and by the same rule should in common be answerable for that paper. This abstractly just principle, which has stood the test of experience for seventy years, and under which the bond of a Hong merchant has acquired a credit over the whole world not exceeded by that of any other security, modified and adapted to the milder features of our Republican institutions, constitutes the basis of the system."

LEGISLATION.

The recommendations of Governor Van Buren were favorably received by the Legislature, and were made the basis of the Act of April 2, 1829, commonly known as the "Safety Fund" Act.t

J. J. Knox, in Rhodes' Journal of Banking, April, 1892, p. 367.

+ Laws of 1829, Chap. 94," An Act to create a fund for the benefit of the creditors of certain moneyed corporations, and for other purposes."

1829.-The leading provisions of this act were that every bank thereafter established, or thereafter securing an extension of its charter, should pay to the Treasurer of the State, annually a sum equal to one-half per cent. of the capital stock of the bank, until the payments should amount to three per cent. of the capital stock. The "Bank Fund" thus created was to be invested by the State-apart of the income being used to pay the salaries of the Bank Commissioners, the remainder being paid over to the contributing banks as a dividend upon their respective contributions-and was to be "inviolably appropriated and applied to the payment of such portion of the debts, exclusive of the capital stock, of any of the said corporations which shall become insolvent, as shall remain unpaid after applying the property and effects of such insolvent corporations, as hereafter provided." The method of procedure provided for by the act, in case of a failure, was, First: The distribution of the assets of the bank in the customary way; Second: After all the assets should have been turned into money, and the final distribution thereof made among the creditors, a Court of Chancery should en er an order, showing the amount necessary to discharge the remaining debts, and authorize the Comptroller to pay such amount from the Bank Fund. Then, and not until then, could any part of the fund be applied to the purpose for which it was designed. Finally, whenever the fund should be reduced by such payment, the Comptroller should call upon the banks for additional contributions to the fund-not to exceed, however, one-half of one per cent. annually-to be continued until the fund should once more be made equal to three per cent. of the capital stock of the banks.

The act also authorized the appointment of three Bank Commissioners, and contained provisions limiting the circulation to twice the capital stock actually paid in, and the loans and discounts to two and one-half times the capital stock.

1837.-The act of May 8th, 1837, enabled the authorities to take such measures as might be necessary for the immediate payment of the notes of any insolvent bank whose liabilities in excess of assets should not exceed two-thirds of the Bank Fund and allowed the Comptroller to use his discretion as to the measures to be employed. The method actually adopted, in most cases, was the redemption, by the Comptroller in Albany, of the notes of any failed bank, due notice to all being given by publication. After the other creditors of the bank should be satisfied, the amounts thus paid from the Safety Fund in the redemption of bills, were to be repaid to the Comptroller from the remaining assets of the bank, if sufficient funds remained. At the final settlement of the affairs of the bank in this way, if the remaining assets should prove insufficient to fully reimburse the Bank Fund, the solvent banks should then be called upon to renew their contributions until the deficiency should be made good.

By the act of May 16, 1837-the act which authorized the suspension of specie payments the amount of circulation permitted to be issued was restricted to $150,000 on $100,000 capital; $200,000 on $200,000 capital; $800,000 on $1,000,000capital, $1,200,000 on $2,000,000 capital, etc.*

1840. By the act of May 14, 1840, all banks except those located in New York, Brooklyn or Albany, were required to arrange for the redemption of their notes in New York or Albany, at not to exceed one-half of one per cent. discount. 1841.-The Bank Commissioners in 1841, after one or two serious failures had occurred, proposed:

(1) That the application of any portion of the fund to the redemption of notes of any insolvent bank should be considered as an absolute reduction of the fund, to reimburse which the banks should be required to renew their contributions to the Safety Fund immediately; or,

(2) That the receiver shall sell at public action, after a short, stipulated period, the assets of the bank, and make the final dividend, with a view to bringing the case as speedily as possible within the provisions of the law of 1829.

The first of these provisions was subsequently adopted by the Legislature,+ so that when the system was so severely shaken by the failures of 1841 and 1842, the Comptroller had authority to compel the banks to renew their contributions to the fund at once-an authority which he was not slow to utilize.

1842.-April 12, 1842, when nine Safety Fund banks had failed, an act was passed providing that after the payment of the liabilities then charged against the fund, it should thereafter be applied only to the payment of circulating notes of failed banks. In anticipation of the facts which will be brought out later, it may be said, however, that the total remaining contributions of all the banks until the expiration of their charters, at various dates between 1845 and 1865, were hardly more than sufficient to pay the amounts charged against the fund at the passage of this act; so that the change came too late to be of any practical benefit in the administration of the system. It was hardly more than the recognition of the fact that a serious mistake had been made.

The Act of 1842, also authorized the redemption of the notes of insolvent banks in the order of the injunctions granted against them, continued the Act of May 26, 1841, ch. 292, sec. 5.

* See p. 13.

contributions from the banks, and provided that the annual contributions for the next four, five, or six years might be commuted by advance payments made in the notes of any insolvent bank at par, with an allowance of interest at the rate of 7 per cent. to such dates as the contributions would regularly have become due. This provision, it will be noted, made a practical exception to the previously prescribed rule that the notes of all banks should be redeemed from the fund in the order of the injunctions, inasmuch as it allowed the notes of the bank last failing to be redeemed in this way alongside the notes of the earlier cases. This was an advantage accruing only to the banks; individuals holding the notes of the banks last failing could obtain no benefit from it.

1843.-In 1843, to guard against over issues, an act was passed providing for the substitution of notes registered and countersigned by the Comptroller, to be delivered to the banks in blank, for the hitherto unrecorded issues—their original plates being surrendered by the banks. The office of Bank Commissioner was abolished at this time, and the duties of that office assigned the Comptroller, to whom each bank was required to make quarterly reports.

1845.-By the Act of April 28, 1845, the Comptroller was authorized to issue stock on behalf of the State, redeemable from subsequent contributions to the Bank Fund, with which to secure funds promptly to settle with the creditors of the eleven Safety Fund banks which were then insolvent.

1846.-The next step of importance in the development of the bank-note currency of the State was the Constitution of 1846, making the notes a first charge upon all the assets of any bank or banking association, and making the stockholders individually responsible, each to the amount of the stock held by him, for all debts or liabilities contracted after January 1, 1850.

1848.-By the Act of April 12, 1848, it was provided that any bank with a capital of more than $200,000 might issue notes up to the amount of capital paid in. The increase thus authorized was required to be secured by pledge of stocks in the same manner as the notes of "Free Banking" associations.

1866.-By Act of April 13, 1866, the Superintendent of Banking was directed to apportion the remnant of the Safety Fund then in his hands to the payment of circulation of failed banks still outstanding.

EXPERIENCE.

During the same session of the Legislature in which the original act of 1829 was passed, sixteen banks were rechartered in accordance with its provisions, and eleven new banks, also subject to this law, were established. The New York City banks at first refused to accept charters under the law, though they were glad enough to do so later on, when it became apparent that it would be impossible for them to secure any extension of their charters except under the "Safety Fund” Act. In 1830, nine new banks were chartered; in 1831, eight (all New York City banks) were re-chartered, and nine were newly established; in 1832, two were rechartered and seven were chartered; in the years 1833 to 1836, inclusive, twentyeight new banks were chartered. In 1836 the capital of one bank-the Dutchess County Bank-was increased to $450,000, and the bank placed under the provisions of the Safety Fund law, although the period of incorporation was not extended-it having then nine years yet to run. In 1839, two banks whose charters were about to expire were rechartered under the provisions of the Safety Fund law-their existence being continued until July 1st, 1845. This makes a total of ninety-three banks, with an aggregate original capital of nearly $38,000,000, either established or re-chartered under this act; although the largest number ever in operation at any one time was ninety-one, with an actual capital of $32,951,460.

The table below contains the name, amount of capital, date of incorporation or re-incorporation, and expiration of charter of each of these banks-the names of banks which afterwards failed being put in italics.

BANKS CHARTERED AND RECHARTERED BY THE STATE OF NEW YORK UNDER THE SAFETY FUND SYSTEM.

BANKS CHARTERED AND RECHARTERED BY THE STATE OF NEW YORK UNDER THE SAFETY FUND SYSTEM.-Concluded.

NOTE A.-The Middle District Bank ought hardly to be included in this list, as it failed in 1829, just after its charter was extended, but before the first contributions to the Safety Fund were due, and before its liabilities could become a charge upon the Fund.

NOTE B.-Charter of the Lockport Bank annulled by the Legislature in 1837.

NOTE C-The location of Sacket's Harbor Bank was changed in 1852 to Buffalo, and its name shortly afterwards changed to "Reciprocity Bank."

Ithaca
Watervliet

230,000

FIRST RESORT TO DE SAFETY FUND.

The first occasion for the use of the Safety Fund occurred in 1837. Early in May of that year injunctions were issued against three banks in Buffalo-the City Bank of Buffalo, the Bank of Buffalo and the Commercial Bank of Buffalo. Immediately upon the passage of the Act of May 8, 1837, mentioned above, the Chancellor authorized the Comptroller to take such measures as he might deem necessary for the immediate payment of the ordinary notes of these banks.

Their outstanding circulation at the time was reported by the Bank Commissioners to be:

The "measures deemed necessary" by the Comptroller were to authorize and give public notice that the bills of those banks would be received in payment of canal tolls and all other debts to the State; a measure which gave general credit to the bills in actual circulation. Between May 8 and June 30 there had been redeemed from the Bank Fund, of the notes of the Bank of Buffalo, $21,815; of the Commercial Bank of Buffalo, $18,173; and of the City Bank of Buffalo, $24,495. These advances, together with interest at 7 per cent., were repaid to the Safety Fund by the several banks on whose account they had been made.

In the same year the charters of two banks were repealed by the Legislature. These were the Sacket's Harbor Bank (charter repealed May 12, 1837) and the Lockport Bank (charter repealed May 15, 1837). On the 20th of May orders similar to those issued in the case of the Buffalo banks were issued authorizing the Comptroller to take measures for the immediate payment of the bills of these banks, after providing for the payment of the bills of the three banks against which prior injunctions had been granted. The reported circulation of the Sicket's Harbor Bank at the time was $154,552; and that of the Lockport Bank, $65,172.

*

*

*

"Notice was immediately given by the Comptroller that the bills of those banks would be received for canal tolls, and payments to the State Treasury: and the Comptroller did not deem it necessary to make any other provision than that before alluded to for the redemption of these bills, until a general arrangement was entered into by the banks for redeeming their bills in New York City. When this took effect notice was given that the bills of the Sacket's Harbor and Lockport banks would be redeemed as the bank where the Treasury deposits are kept in the city of Albany."*

The charter of the Sacket's Harbor Bank was shortly afterwards revived and all the charges on the fund on account of that bank were reimbursed by it as follows: Notes redeemed, $92,361; accrued interest, $814.29; total, $93,175.29.

The charter of the Lockport Bank, however, was not renewed. The amount of bills redeemed from the Fund was $33,168, in addition to which the bank itself redeemed at its own counters some $20,000. The trustees of the bank paid over to the Comptroller, for the benefit of the Bank Fund, $35,189.75, leaving unsettled a balance of $978.25, together with $2,021.75 accrued interest, which amounts were involved in controversy between the Comptroller and the bank. This was finally settled in 1841 by a special act of the Legislature which recognized the claim of the bank--the latter giving satisfactory security for the redemption of all its outstanding notes, and pledging itself to indemnify the Bank Fund against all claims upon it on account of any debts of the bank. The Safety Fund was therefore practically intact in 1840 when the first really serious failures occurred and stood at $870,615.76.

DISASTROUS FAILURES.

In the years 1840-42 there came following, one upon another, eleven important failures, viz:

(1.) City Bank of Buffalo.

(2.) Wayne County Bank.

(3.) Commercial Bank of New York.

(4.) Bank of Buffalo.

(5.) Commercial Bank of Buffalo..

(6.) Commercial Bank of Oswego.

(7.) Watervliet Bank...

(8.) Clinton County Bank.

(9.) Lafayette Bank..

(10.) Bank of Lyons.

(11.) Bank of Oswego.

Feb. 3, 1840.
.Dec., 1840.
.Sept., 1841.
Nov. 2, 1841.
Nov. 15, 1841.
.Dec. 7, 1841.

Mar. 9, 1842.

..Apr. 9, 1842.
.Feb., 1842.

.Sept, 13, 1842.
1842.

In the case of the first three of these the Comptroller at once proceeded, in accordance with the Act of 1837, to redeem the notes as fast as presented. By the

Comptroller's Report, 1838, p. 16.