NEW ENGLAND BANK CURRENCY. The effect was immediately seen in the the foundation of the system was shattered.* working of the system. The bank Commissioners of Maine, in December, 1862, called attention to the fact that though circulation had been increasing (in many cases nearly doubling) during the first year of suspension, then closing, the redemptions in Boston had fallen off. The explanation which they offered was that in the then unsettled state of public affairs the people had more confidence in the bills of the local banks than in any other paper currency. In conclusion, the following quotations are given as showing the general approbation of the system among those familiar with its workings, who were in the best positions to judge of its merits: "The Suffolk System (if we may so call that system which has obtained throughout New England) the distinctive characteristic of which was a central point of redemption, has given to New England as sound a currency as was to be found in any part of our country. Bank failures at the north have been rare, and the losses to stockholders or billholders, when compared with the amount of capital invested have been very trifling. It is by no means wonderful that a system which has stood the test of time. and struck its roots so deep as to have become incorporated with and formed a part of our banking system, should be abandoned with hesitation for one which is new and untried."-Bank Commissioners Maine, 1865. No matter how ably a bank may be managed, nor how much wealth its directors and stockholders may hold-if it places its circulation in a different position from that of neighboring and kindred institutions, it fails, in some measure, of meeting the wants of trade. ***Such an arrangement injuriously affects other banks in the vicinity. The money not being current at Boston, or at par in New York, it is not remitted to either place, but the holders exchange it for such as will be received there without loss; thus forcing out the natural circulation of its neighbors and giving cause for complaint." There were at this time in Maine only two banks in good credit which did not redeem their bills in Boston. Beyond their immediate vicinity, the bills are current only at a discount. Of course they are not and cannot be used as remittances to Boston without loss. There is no reasonable doubt that these banks would do a good business if they should redeem as the other banks do, and then the whole circulation of our banks would be at par over a great extent of territory, and the petty vexations of uncurrent bills with three or four per cent. for exchange would cease."-Bank Commissioners of Maine, 1854. STATUS WHEN SUPERSEDED BY THE NATIONAL BANK SYSTEM. When the National Banking System appeared upon the scene it found the channels of circulation in New England filled by a State bank currency of well-recognized soundness. In general, it was a currency based upon the "banking principle." It was issued against general assets-not against the deposit of bonds. It was secured, in addition, in most of the States by the further liability of officers and stockholders, or by a first lien upon all the assets of the bank, or both. It was limited-rather loosely, we would now say-to one hundred and twenty-five or one hundred per cent, of the capital. But though issued under the legislation of six different States, it was in reality a single currency system-made so through the agency of a commercial enterprise, established and carried on without the aid of law. The bills of banks in any one part of New England passed at par in every other part; and for years the notes of New England banks had been enjoying an extended circulation in the West, where its reputation found for it ready acceptance. At home, too, its valuable points were appreciated, and its forced transference to the national system a matter of regret. The history of New England Bank Currency, thus closed, is significant for two First, the steady growth, under the teachings of experience, of the system as to "The bills of our banks are redeemed in Boston, the same as in past years, but the weekly Before the suspension of specie payments many of the banks were obliged to keep up a system of exchanges to be able to meet their weekly redemptions in Boston, but we are informed by the cashiers that such is not now the case-notwithstanding the large circulation of all the banks, many cashiers in the State pay out more foreign money over their own counters than of their own bills. When bank notes were redeemable in specie and the redemptions large in Boston, each bank made an effort to keep up its own circulation and drive home that of its neighbors. But since specie payments were suspended no motive for sending them home exists, and if a bank is in good credit their bills are held in the pockets of the people as being as valuable as anything else to lay by."-Rept. Bank Commissioners, New Hampshire, 1864. A second feature was the development of redemption facilities and methods. Starting with absolute chaos, assisted by no law, progressing tentatively as each necessity prompted the invention of new means to meet it, the result was a carefully buttressed and easily working system, under which, to an extent never approached in its efficiency by any plan elsewhere created by law, the bank-note currency of New England was made elastic, safe and ideally convenient and inexpensive in use. For a full generation before the war, the amount of ultimate loss to note holders was too small to be reckoned as an appreciable percentage on the amount of currency outstanding; while the delays and minor inconvenience in the prompt cashing of the bills of broken banks were the result rather of the imperfect communication and exchange facilities of those days than of material defects in the banking system itself. Indeed, so satisfactory had been the workings of what is known as the "Suffolk Bank Redemption Plan"-the work of the Bank of Mutual Redemption being upon practically the same basis-that the need even of the most modest guarantee fund for instant redemption of broken bank bills was not felt until after the panic of 1857; and even then the total loss was petty when compared with the total circulation, and such as the most moderate plan of subsidiary guarantee would have forever obviated. In conclusion, the following quotation from a Massachusetts report of 1865 may be permissible, voicing, as it does, sentiments then common to all New England: "The State parts with these objects of her care and solicitude with many regrets, but with a just pride in their career inspired by the belief that their capital has been highly instrumental in promoting the prosperity of the State, and that they have furnished as good a paper currency, based on individual credit, as any part of the country has ever enjoyed." SOUND CURRENCY. PUBLISHED BY THE SOUND CURRENCY COMMITTEE OF THE REFORM CLUB. Vol. II., No. 5. SUBSCRIPTION, $1.00. NEW YORK, FEBRUARY 1, 1895. SINGLE COPIES, 5 Cents. Each number contains a special discussion of some Sound Currency question. In his report for 1862, the N. Y. Superintendent of Banking, after referring to the recommendations of Secretary Chase, says: "The Secretary adds: the recent experience of several States in the valley of the Mississippi painfully illustrates the justice of these observations, and enforces by the most cogent practical arguments the duty of protecting commerce and industry against the recurrence of such disorders.' However truthful these remarks may be in regard to the institutions and currency of some portions of the country, they certainly do not apply to New York, and furnish no basis for interference with her institutions.”— H. H. VAN DYCK, N. Y. Bank Supt., in Report for 1862. What I have stated in regard to the value of the local bank currency is well known to the country. Why, sir, I read to the Senate the day before yesterday the price at which this money was sellir g in the city of New York, and it was 21⁄21⁄2 per cent. premium as quoted; and a banker from that city told me it was three the evening of that day. It is better and will ever remain better than greenbacks in my judgment.”—SENATOR LAZARUS W. POWELL, of Kentucky, February 13, 1863. Our Stute banks have sustained the Government; they have been the Barings and Rothschilds to whom we have gone for our funds to carry on this war. When Congress met in July, 1861, we found our financial affairs in the utmost embarrassment; we passed a bill authorizing a loan of $250,00),000. Where did we get the funds? The banks of the city of New York alone placed in his (the Secretary's) hands $105,000,000— nearly double the amount of their capital; and at this day the banks of the State of New York alone hold 150% of their capital in stocks of the United States."-SENATOR IRA HARRIS, Feb. 14, 1863. NEW YORK BANK CURRENCY. SAFETY FUND vs. BOND SECURITY. L. CARROLL ROOT. PAGE BANK CURRENCY IN NEW YORK PRIOR TO 1829. PREVIOUS TO THE WAR OF 1812. 286 286 STATUS WHEN SUPPRESSED BY TEN PER CENT. TAX. 306 66 INTRODUCTION. The history of banking in the State of New York naturally divides itself into three chapters. The first covers the period prior to the establishment of the so-called Safety Fund" system in 1829, the early part of which is characterized by a slow and steady growth and conservative banking; the latter part-after the war of 1812-by somewhat more reckless methods and management. The second is the history of the "Safety Fund" system, extending from 1829 to 1866; while the third includes our experience under the "Free Banking" system, from 1838 until all state bank circulation was suppressed by the federal tax of 10% against other than National Bank notes. The first and, to some extent, the early part of the second chapters deal with periods of political interference with, and political management of, banking corporations-when banking was regarded as a proper subject for monopoly, and when the political affiliations of the incorporators of a bank were considered as important as to-day they seem trivial; though the number of charters already in force, and the variety of the political situations in which they had been granted, had early made monopoly rather a theory than a situation, and left the slight extent to which favoritism might be shown in the organization of new institutions the only remnant of what had earlier been most important political factors. The third period was characterized by its assertion of the necessity of divorcing politics from the banking business; and, as a result of that assertion, the substitution of general laws instead of special charters. BANK CURRENCY IN NEW YORK PRIOR TO 1829. PRIOR TO THE WAR OF 1812. The history of banking in the State of New York practically begins with an Act passed by the Legislature in April, 1782, confirming for the State of New York the charter of the Bank of North America, granted by the Congress of the Confederated Colonies, and at the same time prohibiting the establishment of any other banking corporation within the State "during the present war with Great Britain." The Bank of North America, however, did not assume the national character that had been designed for it, and operated under a charter from the State of Pennsylvania; and, so far as concerns New York, about the only consequence of the Act of 1812 was the barrier it placed in the way of the incorporation of additional banks. March 21, 1791, however, the Legislature incorporated the Bank of New York, which since 1784 had been doing business under articles of association drawn by Alexander Hamilton, to whose able management somewhat of the success of the institution in its early years was due. It was organized with a paid up capital of $900,000, which was shortly afterward increased by a subscription of $50,000 by the State. Its charter was several times extended, and it has passed through the various stages of experience which go to make up the banking history of the State of New York. In 1852, when its " Safety Fund" charter expired, it was reorganized under the free banking system, and in 1865, after further increase of capital, became a National Bank. Following the Bank of New York came the establishment of the Bank of Albany, in 1792, and, in 1793, the Bank of Columbia at Hudson. But in New York City the Bank of New York continued until 1799 to monopolize the banking business. In that year under the leadership of Burr, the Manhattan Company obtained a perpetual charter ostensibly for the purpose of supplying the City of New York with water. The capital was $2,000,000, one-half of which was immediately employed in banking, the authority for which was contained in a clause permitting the company, in case it was found impracticable to employ the whole of its capital in the water works, to employ the surplus in any moneyed transactions and operations not inconsistent with the laws or constitution of the State. Since 1840 the company has been purely a banking institution. In the next ten years six additional banks were chartered. The expiration of the charter of the first Bank of the United States in 1811 acted as an incentive to the establishment of new banks, and in 1811 and 1812 no less than nine were chartered, the most important of which was the Bank of North America, whose capital-$6,000,000-was paid in, $5,000,000 in stock of the Bank of the United States, and $1,000,000 in cash. By the terms of its charter, which was secured only after a most serious contest, the bank was required to pay a bonus of $400,000 to the State, and to make large loans to the State at any time it might require. Both the requirements were remitted a few years later, however, in consideration of the reduction of its capital to $4,000,000, and later to $2,000,000. The most of the charters granted during this period contained provisions authorizing the colleges of the State (Hamilton, Union and Columbia) to subscribe for portions of the stock, and in many the State itself was authorized to be a subscriber. The maximum of debts to be contracted was limited to three times the amount of the capital stock. The following table shows the name, date of incorporation, etc., of each of the nineteen banks chartered in the period now under discussion : Of the nineteen banks, therefore, incorporated under special charters in the twenty-two years commencing with 1791 not one had failed during the period; and when in 1865 their circulation was suppressed by the ten per cent tax fifteen of them were still enjoying a career of continuous success. Fourteen of them had thrived alike under their special charter, a safety fund charter, and the free banking system; and from these, the old state banks, was derived the early strength of the National Banking system, which so many of them promptly entered. The circulation of each bank was unlimited and practically unguarded. The Restraining Act of 1804 prohibited banking by unincorporated companies, and declared their notes to be absolutely void. PERIOD 1812-1829. As noted above, the withdrawal of the capital of the Bank of the United States upon the expiration of its charter in 1811 opened a new field for banking. In August and September, 1814, the banks throughout the country west of New England suspended specie payments, which were not resumed until early in 1817, when the action of the newly chartered second Bank of the United States led the way to a general resumption. In the interval there had been a very considerable expansion of bank issues. For example, in the country as a whole, Mr. Gallatin estimates that within the first fifteen months after the suspension, the State bank circulation increased from $45,500,000 to $68,000,000. Difficult as it is to secure the statistics as to other States, there is none in regard to which there is so little basis for estimate as New York. Except as to the number of banks and amount of incorporated capital, there are almost no data obtainable as to the condition of its banks prior to 1830. Secretary Crawford, in a report to Congress in 1820, states that the circulation of the banks in New York State in 1819 amounted to $12,500,000. The following table gives the names, date of incorporation, capital, etc., of the twenty-four banks chartered during this period, the career of which was only lessnoteworthy than that of their predecessors noted above: The first bank required by its charter to pay its notes in specie was the Bank of + Considerations on the currency and barking system of the U. S., p. 286. |