66 



BANKS, U. S. 



$50,000,000 of the stock. There remained 

 then $100,000,000 of the authorized loan, but 

 the Secretary had issued $25,000,000 in de- 

 mand notes, and the banks claimed the right to 

 take $50,000,000 more three-year bonds in Jan. 

 if they should then elect to do so. In all this 

 time there had been no steps taken to place 

 the Government finances on a sound and per- 

 manent footing; the arrangements with the 

 banks were justly regarded as mere makeshifts. 

 The institutions had advanced the money of 

 their depositors for Government securities, in 

 the hope of being able to get the money back 

 by selling them to the public. The public had 

 not purchased them, however, and they had 

 depreciated on the hands of the banks, while 



capitalists stood aloof. The meeting of Con- 

 gress was anxiously looked forward to for a 

 means of relief. It was supposed that the an- 

 nual report of the Secretary would present 

 some practical and well-digested plan of finance 

 that would restore confidence. When the doc- 

 ument appeared, however, public expectation 

 was disappointed at a moment when the great- 

 est anxiety prevailed in respect to the relations 

 with England, growing out of the capture of 

 the Trent. The Secretary had no plan, a for- 

 eign war threatened, and the banks were loaded 

 with securities they could not sell. The effect 

 of this state of things upon the banks is mani- 

 fest in the following figures : 

 The depositors made rapid drafts on the specie, 



which ran down $18,334,732 in four weeks, and 

 the banks suspended Dec. 30. They were fol- 

 lowed by those of other cities. The condition of 

 the banks in respect to the loan was as follows : 



When the number of banks in the city of 

 New York began to multiply in the years 

 1852-'3, and from 31 soon reached 55 in num- 

 ber, the labor of keeping the mutual accounts 

 was immensely increased ; it was requisite for 

 each institution to keep as many as there were 

 hanks, and to settle daily. It became apparent 

 that the work might be simplified, and the 

 clearing-house system was adopted. By this 

 each bank sends every morning to the clearing- 

 house all the checks, drafts, and demands that 

 it may have received the day previous in the 

 course of business ; all these are mutually ex- 

 changed, and those institutions against which 

 there are balances pay the amount. This was 

 adopted in 1853, and has since been in success- 

 ful operation. The banks of Boston and Phil- 

 adelphia adopted subsequently the same plan. 

 The settlement in balances was effected by each 

 bank making a proportionate deposit of specie 

 in a common fund, and receiving for it certifi- 

 cates of convenient size, and these were used in 

 the payment of balances. The amount of these 

 clearings was annually as follows in New York : 



These figures not only indicate the immense 

 increase of transactions in a series of years, but 

 show also the violent fluctuations which take 

 place in business from year to year. The larg- 

 est amount was in the year of panic 1857, and 

 it fell off nearly one-half in the next year as a 

 consequence of the panic. 



In November, 1860, the banks agreed to 

 lodge with the clearing-house committee a por- 

 tion of the loans, on which each was to re- 

 ceive 75 per cent, of the amount in a " loan 

 certificate" bearing 7 per cent, interest, which 

 certificates were to be used in the payment of 

 balances. When the institutions had taken the 

 Government loan, the 7 T 3 o Treasury notes were 

 deposited for certificates, and subsequently 

 when the demand notes of the Government 

 became currency, the banks under the law of 

 Congress deposited these with the assistant 

 treasurer, and received 5 per cent', certificates 

 of deposits, which were used in place of the 

 loan certificates, for the adjustment of clearing- 

 house balances. 



While the growth of bank facilities had been 

 very rapid at the East, it was for the most part 

 actual capital to be loaned or advanced upon 

 actual business paper, or such as represented 

 commodities in transitu. The increase at the 

 West, however, represented credits, and took 

 the shape rather of circulation than loans. The 

 basis of the circulation was Western and South- 

 ern stocks, and they kept afloat as long as 

 exchange remained in favor of the section. 

 The political events changed the current of ex- 

 change and greatly depreciated the value of the 

 stocks held, which were as follows (p. 67) in 

 three Western States. 



Such was the magnitude of free hanking in 

 three States only. The effect of the war panic 

 was to drive the circulation in faster than the 

 banks could redeem it, under which circum- 

 stance it became the duty of the State officers 

 to close up the banks and sell the securities. 

 This was done at the moment the expedition 



