BANKS AND BANKING 



579 



BANKS AND BANKING 



Origin of Banking. In its simplest form of 

 money-changing, banking is as old as history. 

 Ancient writers often referred to the money- 

 changers, the men who bought foreign money 

 and gave domestic coins in exchange. By the 

 end of the fifth century of the Christian Era 

 banking was a recognized business, and bankers 

 not only exchanged actual money but dealt 

 ly in credit. The code of Justinian, 

 which was compiled in A.D. 533, shows that 

 there were many laws on the subject of banking. 



The beginning of modem banking, however, 

 is usually assigned to the year 1587, when the 

 Banco di Rialto was established at Venice. As 

 we know from Shakespeare's Merchant of 

 Venice and other sources, private bankers had 

 conducted business here at earlier dates. The 

 Banco di Rialto, and its successor, the Banco 

 del Giro, received deposits payable on demand, 

 issued receipts for them, and allowed them to 

 be transferred on written orders. The receipts 

 were commonly used in Venice as money. The 

 Bank of Amsterdam and the Bank of Hamburg 

 were founded about the same time, and exer- 

 cised the same functions. The receipts which 

 they issued for deposits were commonly called 

 bank money, or current money. 



Banking in the United States. The history 

 of banking in the United States properly began 

 in 1782, with the chartering of the Bank of 

 North America. In colonial days there were 

 no banks in the sense in which the word is 

 used to-day. There were a few organizations, 

 called banks, which issued notes, but they did 

 not receive deposits or carry on any other 

 feature of a general banking business. So 

 insignificant, indeed, were they, that the name 

 bank was frequently given to the paper money 

 issued by them and by the colonies. Most of 

 the colonial governments at one time or an- 

 other issued notes as loans to private individ- 

 uals, who offered mortgages, silverware, horses 

 and other property as security. 



All this confusion came to an end in 1789, 

 for the individual states, under the terms of 

 the Constitution, were not allowed to issue 

 notes. The Congress of the Confederation had 

 already chartered three banks, the Bank of 

 North America at Philadelphia, the Bank of 

 New York at New York City, and the Bank of 

 Massachusetts at Boston. Tl.- n. m 1791, Con- 

 gress chartered a new bank, laru- i than any 

 of the others and more closely connected with 

 tin- Federal foranflMOfe the Bank oj 

 United States (which see). For twenty yean 

 the Bank of the United States dominated the 



banking system of the country. There were a 

 number of state banks, however, whose com- 

 bined influence was strong enough to prevent 

 a renewal of the Bank's charter in 1811. 



Then followed a five-year period of hopeless 

 confusion and depression, during which most 

 of the state banks suspended specie payments. 

 At the close of the War of 1812 the demand 

 for the "old regulator" grew strong, and in 

 1816 Congress issued a charter for the second 

 Bank of the United States. This Bank, like 

 the first, prospered, but through no fault of its 

 own the renewal of its charter became a politi- 

 cal, not a financial, question. The Bank in- 

 curred the enmity of President Jackson, whose 

 efforts were chiefly responsible for its end. 



The next twenty-five years included two 

 periods of great expansion among state banks, 

 and two periods of depression and general sus- 

 pension of specie payments. Previous to the 

 financial crises of 1837 and 1857, there was a 

 rapid growth in the number of state banks and 

 their deposits and loans. But the banking 

 expansion was merely one phase of the mush- 

 room development of the country. The craze 

 for "internal improvements" meant plenty of 

 money and large paper profits for banks, and 

 many banks did a flourishing business on little 

 or no capital. When the crash came in 1837 

 practically every bank in the country sus- 

 pended specie payments. During the whole 

 of this quarter-century bank notes were con- 

 stantly changing in value, and weekly guides 

 were published showing the current values and 

 discounts. When 800 or 900 banks were each 

 issuing five or six different kinds of notes it 

 required more than memory to know which 

 ones were safe. Added to the large number 

 of good notes were hundreds of counterfeits 

 and countless pieces of paper labeled "notes" 

 and issued by banks which never existed. See 

 WILDCAT BANKS. 



In 1846 Congress attempted to end all con- 

 nection between the banks of the country and 

 the government treasury by establishing a sys- 

 tem of treasury branches in the large cities. 

 This system, though considerably modified, is 

 still the basis of banking in the United States. 

 I ii<- first change came soon after the outbreak 

 of Hi" \Y:u of Secession. 



National Banks. Tin l> mmnm of war made 

 large demands on the credit of the national 

 imiKMt. One of the duties presented to 

 Congress was the devising of some new plan 

 of banking. Instead of a confused and unstable 

 system which had prevailed for twenty-five 



