practical banking new and enlarged

EcF
r
Practical
Banking
NEW AND ENLARGED
ALBERT
S.
BOLLES,
Ph. D.,
LL. D.
LECTURER ON
BANKING IN THE UNIVERSITY
OF
PENNSYLVANIA
AND
ON
COMMERCIAL
LAW
AND
BANKING IN
HAVERFORD
COLLEGE; AUTHOR
OF "BANKS AND THEIR DEPOSITORS."
"BANK
OFFICERS,"
"BANK COLLECTIONS,"
"THE
NATIONAL BANK
ACT
AND
ITS

JUDICIAL
MEANING," AND
"THE
FINANCIAL HISTORY OF
THE
UNITED
STATES."
ELEVENTH
EDITION.
Revised and
Greatly
Enlarged
with Many New Forms.
Price,
$3.00
Postpaid.
INDIANAPOLIS:
Levey
Bko's
& Co.,
Inc.,
Bank Stationers.
PUBLISHERS.
1903.
"PRACTICAL
BANKING,"
New
and Enlarged.
Copyright Renewed,
1898,

BY
LEVEY BRO'S
&
CO., INC.,
INDIANAPOLIS, IND.
BANK STATIONERS.
TO
Lyman J. Gage.,
THIS BOOK IS DEDICATED
AS A TOKEN
OF THE AUTHOR'S REGARD FOR
HIS
FRIENDSHIP
AND
ADMIRATION FOR HIS RARE
UNION
OF A KNOWLEDGE OF
THE HISTORY AND THEORY OF
BANKING AND FINANCE
WITH
EMINENT
SUCCESS
AS A BANKER
AND FINANCIER,
PREFACE
TO
THE
ELEVENTH
EDITION.

In the preface to
the first
edition
was fully set forth
the
origin
of this work.
As
there explained,
a
consider-
able
portion of Part I,
relating to Banks
of Deposit and
Discounts, was
derived from
the Bankers'
Commonplace
Book, a
work written
by
an experienced bank officer
and
possessing great
merit. Since his day, however,
many
changes have been introduced into banking, and his
work,
though still worth reading, does not adequately

deal with
the conditions
that now confront the
banking world.
So,
nearly all taken from that work has
been omitted,
except a part
of the chapter relating
to
the
duties of the
president
and
a
few paragraphs pertaining
to directors
and discounting.
Most of the
chapters
in
Part II,
treating
of
savings
banks, were written
by Mr. Charles
E.
Sprague,
president

of the Union Dime
Savings
Institution
of New
York,
and
these have
been revised
by him and
contain,
it is
believed,
every
idea in the
best savings
bank
practice.
The
Author.
CONTENTS.
PART
I.
DEPOSIT
AND
DISCOUNT
BANKING.
Chapter I.
page
The

Origin,
Classification
and Utility
of
Banks
3
Chapter
II.
The
History
of
State
and
National
Banking
7
Chapter
III.
The
Organizing
of a
Bank
21
Chapter
IV.
Shareholders
and the
Transfer of Stock
35
Chapter V.

Annual
Meetings.
Election
of Officers
46
Chapter
VI.
The
Circulation
49
Chapter
VII.
Deposits
and
Depositors
62
Chapter
VIII.
Directors
and Loans
76
Chapter IX.
The President
122
Chapter X.
The Cashier 135
Chapter
XI.
The
Paying Teller

141
Chapter
XII.
The Receiving
Teller
169
Chapter
XIII.
The
Note
Teller
180
Chapter XIV.
The
Discount Clerk
184
Vii
CONTENTS.
Chapter
XV.
page
Collections
•
• '
188
Chapter
XVI.
Correspondence
302
Chapter

XVII.
The
Keeping
of the
Lawful Money
Reserve by
National
Banks 205
Chapter
XVIII.
The
Bookkeeper
209
Chapter
XIX.
The
Runner
and Porter
241
Chapter
XX.
Dealings
in
Exchange
243
Chapter
XXI.
State
Banks
252

Chapter
XXII.
Private
Banks
255
Chapter
XXIII.
Country
Banking
259
PART
II.
SAVINGS
BANKS.
Chapter I.
Utility of
Savings
Banks
265
Chapter
II.
Janitor
271
Chapter
III.
The
Depositor
272
Chapter
IV.

The
Receiving Teller
279
Chapter
V.
The
Paying Teller
285
Chapter
VI.
The
Bookkeeper
289
Chapter
VII.
The
Treasurer
294
CONTENTS. VUl
Chapter
VIII.
page
The Secretary
299
Chapter IX.
The President
314
Chapter X.
The Board
of Trustees

315
Chapter
XI.
The Attorney
318
Chapter
XII.
State
Supervision and
Reports
321
Chapter
XIII.
How
Investments
Should be
Made
326
Chapter
XIV.
The Small Savings
Bank
332
Chapter
XV.
On
Making and
Withdrawing
Deposits
in

a Large Savings
Bank 336
PART
III.
CLEARINOHO
USES.
Chapter
I.
Origin
and
Utility of
the
Clearing-liouse 345
Chapter
II.
Organization
and
Mechanical
Arrangements
353
Chapter
III.
Preparation
of
the
Exchange
855
Chapter
IV.
How

Clearings
are
Made 360
Chapter
V.
How
Outside
Banks
Make
Clearings
.
. 365
Chapter VI.
Payment
of
Balances
367
Chapter
VII.
Clearing-house
Certificates 370
Chapter
VIII.
The
Records
Kept
and
their
Uses
873

IX
CONTENTS.
Chapter
IX.
page
Fines
,., „ , =
,
377
Chapter
X.
History of
the
New York Clearing House
378
Chapter XI.
Clearing-houses Outside
New York
383
Chapter XII.
Foreign
Clearing-houses
895
Chapter XIII.
Country
Clearings


405
PART IV.

LOAN
AND
TRUST
COMPANIES.
Chapter I.
History
and Scope
of Loan
and Trust
Companies
413
Chapter II.
How
Business is
Conducted
415
Chapter III.
The
Powers of
Trust Companies
422
PART V.
BANK
LITERATURE
Chapter I.
Bank
Literature
431
Chapter
II.

Bibliography
of
Works on
American
Banking .

,
.
437
APPENDIX.
Banking
as
a
Profession
for Young
Men
463
Advice
to
Depositors
467
Suggestions to
Young
Cashiers on
the
Duties
of Their
Profession
470

I
PART
I.
DEPOSIT
AND
DISCOUNT BANKING.
PRACTICAL
BANKING.
CHAPTER I.
THE
ORIGIN,
CLASSIFICATION
AND
UTILITY
OF BANKS.
The term bank Is
supposed to be
derived from
banco,
the Italian
word for bench, the
Lombard
Jews in Italy having
benches
in
the
market-place where
they exchan^^ed
money

and bills.
When
a
banker
failed, his
bench
was broken by the
people,
and he
was called
a
bankrupt.
This derivation
of
the term,
however, is
probably
wrong.
"The
true
original meaning
of banco."
says
MacLeod,* "is
a heap, or mound,
and this word
was metaphorically
applied
to
signify

a common
fund,
or
joint
stock, formed by the
contribution
of
a multitude
of persons."
A
brief
account of the
first banking
operations
in
Venice will
dispel
the
haze enveloping
this
subject. In
1171 the
financial
condition
of
Venice
was
strained in
consequence
of the

wars in
which
the
people
were engaged. The
great council of
the republic
finally
determined
to
raise a
forced loan.
Every citizen
was
obliged
to
contribute
the
hundredth
part of his possessions
to the
state,
receiving
therefor
interest at the rate of five
per cent.
The
public
revenues
were

mort-
gaged to
secure the
interest,
and commissioners
were
appointed
to
pay
the
interest to the fundholders
and
to transfer
the
stock.
The
loan
had
several
names
in
Italian,
Compera,
Mutuo,
but the
most
common
was
Monte, a
joint stock fund.

Afterward,
two more loans
were
contracted,
and
in
exchange for the money
contributed
by
the citizens,
the
com-
missioners
gave stock
certificates
bearing
interest,
and which
could
be
sold
and
transferred.
Principles
of Economic
Philosophy,
vol.
1, p.
547.
4

PRACTICAL BANKING.
At
this
period
the
Germans were masters
of
a
great part of Italy,
and
the
German
word
Banck came Into use as
well
as
its Italian
equivalent
Monte.
The
Italians
ere
long changed
Banck
into
Banco,
and
the
public
loans or debts were

called IMonti or
Banchi. Thus an
English writer,
Benbrigge,
who wrote
in
1G46,
mentioned the
"three
bankes"
at Venice, by
which he meant
the three public loans, or
Monte,
that we
have described.
Likewise Count
Cibrario, who wrote
a
work
on
Political Economy
in the
Middle Ages, says:
"It is known
that
the
first
Bank, or
Public

Debt, was erected
at Venice in
1171."
Other proof
of the
same
nature
might be added to
show that Banco in Italian meant
a
fund
formed by
several
contributions; and that the Bank of Venice
was
really
the
first
funding
system, or system of
public
debts.
"A
banker," says
Gilbart,
"is
a dealer
in capital,
or,
more

properly,
a
dealer in
money.
lie is an
intermediate party between the borrower
and
the
lender."
This definition, however,
only applies
to
a
banker
who
receives
and
lends the money of
others; very generally
he is
the
owner
of money
which he
also lends. Indeed, if he were not,
others
would
not be
inclined to deposit
their money with him.

Their con-
fidence
in
his
integrity and ability
is measured by his wealth.
This
is
a
guaranty
tliat
theirs will be prudently used and returned.
An
incorporated
or
public banlc, lilce
a
banker, is an institution
for
receiving
and
lending money.
This always has
a
capital of
its
own
to
lend,
besides

the
deposits received
from
individuals.
Banks
are
classified
in several ways. The
first division is into
private
and
public or
incorporated banks. A
private bank is
conducted
by
an
individual,
or by
several
individuals
as
partners. It was the
earliest
form
of
thanking and the
capital they used
belonged to them-
selves.

Tlie
practice
of receiving
deposits
of money from others
and
lending
them
did not
begin until
a
later
period.
Public or
incorporated
banks
are
divided into two classes:
National
banks
organized and
existing
by the laws of
the
United States, and
state
banks,
authorized
and
doing business by the laws of

the states in
which
they
are
located. The
latter may
be divided into three
classes:
banks
of deposit
and
discount,
savings banks, and trust
companies.
Having
classified these
institutions,
their utility
may
be considered.*
One
of
their
earliest
uses was that
of
a
depository for
money. Not
many

years ago
a
Western
farmer received
nearly ten thousand
dollars
in
specie from
the
government
in payment for
bonds. Not regarding
a
bank
as a
safe place for
depositing his gold, he put it
in
the
bottom of
a
barrel
in
his wood-shed,
filling
it nearly full of ashes, and
the
remainder
with straw,
making

a
nest at
the
top which
he filled with
*On
this
subject Mr. George S.
Coe,
president of the
American
Exchange
National Banlc,
delivered
a
noteworthy address
before the
American
Bankers' Association, in 1882.
answering the
question, "What
Important Function
Do
We,
as
Bankers,
Perform?" See
Banker's
Magazine,
vol.

37,
p.
170.
THE ORIGIN,
CLASSIFICATION
AND UTILITY OF
BANKS.
5
eggs,
and put
iu
the custody of
a
setting hen.
After waiting
a couple
of weelvS
he
thought
one
Sunday, when having nothing else
to do, that
he
would
examine
his highly original
safe in the
wood-shed. The
old
hen was

decidedly
cross, and did not enjoy
his presence. Still she
felt
batter
than
he did as
soon as
he
had plunged his
arm down the side
of
the
barrel and fou>Jcl
that some one
had kindly relieved
him of his
gold.
Probably
he will ttimic more highly
of bauks
as places of deposit
in
the
future.
The need of
a
safe
place
of

deposit yave rise
to <^he
leaving of valuables
with the goldsmiths
of London. Robberies
would
rapidly multiply if much
money
was
kept in
houses. The depositing
of
it
with banks
spares many
a
house
from the invasion
of robbers.
A profit is
derived from the
payment of interest on
deposits. It
is true
that in
this country the practice
has not become
genei'al among
banks of deposit
and discount to

pay
interest
on deposits, liut
the
practice is increasing
and will probably become
as
general
as
it
is in
the leading European countries.
Again, the payment Of
interest on
deposits is
a
stimulus
to
accu-
mulate money. Were there no savings
banks,
a
large
portion of
the
savings deposits iu them would never
have been collected
and
saved.
Probably the

majority
of these depositors
have no thought of collecting
enough
to buy
a
bond
or a
few shares
of stock. Such
a
process
of
saving is too elaborate for them.
But when
a way
is provided
for
adding
to
their
savings by simply
depositing their money in
a
bank,
thousands, nay,
millions,
of persons in our country
have
availed

them-
selves of the opportunity.
An
important service
performed by banks
is the lending of money
to
persons
who
wish to borrow. Loans
are made
chiefly
to persons
engaged
in
manufactures, trade, commerce, and other business
pur-
suits. Money is especially needful to them to conduct their enterprises.
Without it
they
could
not maintain their place
in the world of business.
The
credit that some mercantile liouses have is worth
more to them
than
the capital they actually possess.
Another utility is
that banks

save the transmission
of money from
one
part of the
world to another. Not only is
the risk of loss
from
robbery
and other accidents avoided, but the money
is kept in more
active
circulation.
Were it actually sent from
place to place
to effect
all
the
payments that are
daily made,
a
large
amount
would be locked
up
in
the process
of transportation, which otherwise
might
be
more

actively
employed.
There
is a
saving of time in
paying
large sums by check or
bills
of
exchange.
To count
the money would be
a
long process in making
the
many
heavy
payments of our time.
There is
less danger
of error when checks are used
than when
money
is
paid.
Of course,
there are some
risks attending
the
use of checks.

But
in paying
with money
there is also the risk of getting counterfeits,
light
weight,
or otherwise
defective
coin.
6
PRACTICAL
BANKING.
Besides,
checks
constitute
a
good
record of
one's
expenditure. If
an
individual
deposits
all the
money he receives
with a
bank, and
draws
it
out

by
checks,
his check-book
contains the
story of
his income
and
expenditure.
For
persons who do not
have strict
business
habits,
this mode
of keeping
their money and
paying
their bills is especially
worth
observing.
A
bank
account is
very useful
if
a
payment
is disputed.
Individuals
do

not
ahvays
take
receipts for the
uiouey they pay,
and even
if they
do,
sometimes
lose them.
If
a
bill is paid, but no proof of the
fact can
be
furnished
and
payment is
again demanded, too
often it must be
paid
a
second
time.
But
if
a
check
for
the bill is given, this is the

best
kind of
evidence
of
payment.
If one
has an account
with
a
bank it is often a good
channel
for
getting
useful
business
information. If one has
money
to
collect or to
remit, a
banker,
when asked,
will
state
the best way
of proceeding.
Not
infrequently
bank
officials

give valuable advice
pertaining
to
investments
and other
matters.
A
bank
is
a
means
for
organizing capital whereby its
full
power
may
be
utilized.
The function
of
a
banli in storing
up
capital,
and
thus
increasing
Its
power,
may

be
likened
to
the damming of
a
stream. By
storing up
the
vagrant
force it may
minister in
a
very potent
way to
advance
the
material prosperity
of man. In like manner, banks, by
collecting
the numberless
little
rills
of
capital, which otherwise would
minister
much less effectively to
human needs, perform
a
most
valuable

service
to
commerce,
for, by accumulating them,
a
great force is
created
which is always
needed in
production and exchange.
THE HISTORY
OF
STATE AND NATIONAL
BANKING.
CHAPTER
II.
THE HISTORY OE
STATE AND XATIOXAL BANKING.
A
l)rii'f
outline of
the
origin
and
principal
changes in
American
banking
is
a fitting introduction to

a
description of the business itself.
And
as
state banking is
the
older,
and forms the basis of the national
banking system, we
shall
begin Mith
a
description
of the
Bank of
North America, founded
in Philadelphia
in
1782,
during the dark
days
of the
Revolution. Its creator
was
Robert
Morris, the superintendent
of
finance, the one man whose personal credit
and financial ability
shone conspicuously amid

his
surroundings. Believing
that such an
institution would
minister effectively
to the
pressing needs
of the
gov-
ernment,
a
capital
was formed of
$400,000,
and of this amount,
$8.3,000
was
paid in
specie.
The bank
was
incorporated by
the name
of
the
President,
Directors, and
Company of the Bank of North America;
and
the

states were recommended
to pass laws forbidding the creation
of
any
rival institution during
the war.
Its
notes, which were payable
on
demand
in
gold and silver,
were
receivable
in payment of taxes,
duties and
debts of
the United States. To
the superintendent was
given the
right of inspection. The
people had been
deluded with such
copious
supplies of paper money
by the states and
the
Continental
Congress that,
notwithstanding every effort

to circulate the issues of
the
bank at par, they
fell
from ten
to
fifteen
per
cent, below in
the
Eastern
states. After
a
few months the credit
of the bank revived,
and
its notes were regarded with more favor. No
wonder that the
people,
after their costly experience with
the state and continental
issues, feared
this
new paper creation. They
wanted no more paper
money
until the remembrance
of their losses from taking
it had"
passed

away. Had Morris not been watchful
to preserve the specie
foundation
of the bank, and redeemed its
issues whenever
they were
presented, its
life
would have been short. Yet
its supply of specie
was
small, and on
more
than
one occasion during its early
days, persons
were followed,
after getting
specie for
their
notes, and besought
to
return
it. To strengthen
the
belief of visitors in
its metallic resources,
clerks were employed
to raise kegs
of

coin
from
the
cellar in
ways
that could
be easily seen and by less
obvious
ways put them back
again. This revelation may make
a
somewhat unpleasant
impression
on our
readers concerning the methods of the managers of the bank,
8
PRACTICAL BANKING.
but those
were
serious
times,
and no one
ever suffered from the
practice
of
this novel method to
create confidence in the
banli's ability
to
pay

its
obligations.
As
soon as
confidence was fully gained, the course of
the bank
was
free
from difficulty.
It divided handsome profits that
ere
long
were a
cause
of
jealousy to outsiders.
This grew until
they united
and
attempted
to
organize another
bank. The Banli of North
America
disputed
the field.
Its
opponents were
strong enough to
effect the

repeal
of the
charter
that had
been granted
by the legislature
of
Pennsylvania,
yet
the
bank continued
to thrive under the
charter
previously
granted
by the
Continental
Congress.
Public
sentiment, to
some
extent,
favored
the
opponents of the
existing bank,
for they
feared
its
power.

In
those days a
corporation was
a
monopoly, and
though
in form
was
similar
to
later corporations,
greatly differed
from
them
in
spirit
and purpose.
The
modern corporation, except
in
a few
cases,
is
no longer a
monopoly
like the Bank of England,
or the
monopolies
granted
by the

Stuart kings. Privileges are no longer
granted
which
others
cannot obtain on
similar terms.
The
contest,
however,
continued,
many
believing that the public would fare
better
with
two
banks
than
with only one.
Suddenly the strife ended; the
stock
of
the
Bank
of North
America was
increased and taken by
the
projectors
of
the

rival bank,
and for several years longer it alone
continued
to occupy
the field.
The
next
bank
established in the
United
States was the
Bank of
New
York—
the
creation
of Hamilton.
It
was chartered in 1784.
Its
success
was
immediate, as
one might imagine,
with
no rival
in
that
city.
Its

great
profits,
however,
tempted others to petition
to the legisla-
ture
for
authority
to
establish
another bank. For
several
years the
attempt
was
annually
made,
defeated and
renewed.
The leading spirit
in
the
movement
was
Aaron Burr,
Hamilton's
great rival. Finally
Burr
introduced
into the

legislature the charter of
a water company,
to
supply
the
people
living in
New
York city
with water. A very
worthy
purpose,
surely; what
legislature could
hesitate
to
grant
such
a
request?
The
charter
contained
an innocent clause
authorizing
the
company
to
lend
all the

money received not needed in its business
to
whoever
desired
it.*
With
this modest authority the
water company
began
to
engage
in
banking.
It did indeed build
a well and lay
some
pipes;
and
even to
this
day
an annual inspection
of
the
water supply
is
made
by
the
directors

followed
by
a
dinner.
*"Under
this charter,
which
is still
in operation,
the
Bank of
the
Manhattan
Company
must
be prepared at any
time
to furnish to
the
city
of New
York
450 gallons
of water per
minute
from their well.
If
at
any
time

it
should
fail to comply with the terms
of
the charter
in
the
matter
of
furnishing water the
bank
would
either have to go out
of
business or get a
new charter.
Naturally
the
Bank of the
Manhattan
Company
takes
good
care that the
tank
shall
never run dry nor
the
pumping machinery cease
its

working."—New
York
Herald.
THE
HISTORY
OF STATE AND NATIONAL
BANKING.
9
Thus
the
second
bank in New York
city came
into
being. The
difficulties
attending
its birth
well
illustrate the tenacity
with
which
corporations
in those early days
sought
to
maintain their
privileges.
Human
nature

was quite the same
then
as now,
and great profits were
as
unwillingly relinquished.
The
next bank was established in Boston, the Bank of
Massachu-
setts,
in
1784,
which' is
still among
the leading
banks of that city.
Soon
after the
organization of
the
Federal government,
Hamilton,
who
was
Secretary of
the Treasury, strongly urged the creation
of a
national
bank. Congress,
heeding his recommendation, chartered the

Bank
of the United States
in 1790.
Its
capital was
fixed
at $10,000,000.
One-fourth
of all the subscriptions was to
be paid in gold and
in silver,
and
three-fourths in stock issued to
creditors
by the
Federal govern-
ment
for its
indebtedness. The
government itself subscribed for
$2,000,000,
that was to be paid in ten annual
installments.
In truth,
the
banli loaned
the money to pay them, so that
the operation
simply
consisted

in borrowing and
repaying the money. The board of direct-
ors
consisted
of twenty-five persons. The
bank could lend on real
estate
security,
but own only enough whereon to
build banking-houses,
or
such
as
might be conveyed to
satisfy loans previously made. The
bank had
eight
branches
located
in
the
principal places. Only citizens
of
the
United
States could be directors, who served without
compensa-
tion.
The
l)ank was authorized to issue

circulating notes without
any
regulation
concerning the quantity of specie to be held for
redeem-
ing
them. They
were redeemable
on demand
in
gold and silver.
The
bills were
receivable in payment
of all debts
due to the
United
States,
but were
not
a
legal tender
between individuals. The stock of the bank
Avas
readil.v taken and
soon commanded a premium. The
average
annual
dividends
during

its twenty years'
of
existence were about
S^^
per
cent.
The charter
ran for twenty years, ending in 1811. Besides
other sources
of profit were the
deposits of
the
government. Its need
for
money was so
great that
a
few
years after establishing the bank,
it
parted
with its
stock, though at a
considerable premium. After the
country
had
been swept
of nearly all its
gold and silver
to pay the

constantly
accruing
balances
of trade against the people, the stock of
the
bank was
also
sent
abroad,
besides a large amount of the stock
of
the
United
States
in
settlement of foreign indebtedness. When,
there-
fore,
the
bank
came to
an end, the larger part of its stock
was held in
other
countries.
During
these
twenty years many state banks had
been created.
Their

capital
and
other resources
were much smaller
than those of
the
United
States
Bank, nor
did they command as much confidence.
Not
only
did
it
furnish a good
currency,
which
was
everywhere
taken, but
also set
the
pace
for other
banks to
follow. Its
conservative manage-
ment was a
check on
those

bankers
who.
except for its course before
their eyes,
would
have
been tempted
to
engage in wilder operations
10
PRACTICAL BANKING.
The
part
thus
silently played by the
bank
has
too often been overlooked
in
describing
its history.
It
ceased
at precisely the time when
it
was
most needed by the
government.
AVar with Great
Britain was then impending, and

com-
mon
sense should
have taught
all that it was the duty
of
the
govern-
ment to
make preparation, not
less in
providing
financial
supplies,
than
in
equipping
the army and navy.
But the euemies of
the
bank
had
never
been
silent from the day
of its creation.
Its
safe currency,
its
honest

and
intelligent management,
were not sufficient arguments
to
overthrow its
opponents. So the
bill introduced into fhe House for
the
renewal of
its charter
failed by
a
single vote. The
fight was then
renewed
in the Senate,
and
the bank lost through the
action of the
vice-president,
whose
vote was cast
against the renewal of
the charter.
No
sooner
had its
life ended than state
banks sprang
up

everywhere
like
the
well-known
nuishrooms.
Many of fhe
charters were of the
loosest
character.
The
legislature of
Pennsylvania in 1812 chartered
twenty-five
banks
that were vetoed
by Governor
Snyder, who clearly
saw
the
evils that
would
be
wrought
if
they
were permitted to
engage
in
banking. His
efforts to stay

the
tide were
unavailing. The
next
legislature
contained
more
numerous supporters
of state
banks than
the
former,
and
forty-one charters were
granted.
A ringing veto by
the
governor
fell on hardened
ears, the
charters were passed
notwith-
standing
his veto,
and thus
a
new
crop of
banks came into existence.
In

other
cities they
multiplied in the
same
manner. It is needless
to
add
that
they
conducted
their
business in
a
thoughtless,
not
to say
corrupt,
manner.
Few
if any
safeguards
surrounded the issue of their
notes.
Loans
were
taken on
the flimsiest
security. Soon the banks
suspended
specie

payments,
and their
notes rapidly depreciated
in value;
still
worse,
their
ruin
impaired the credit
of the
government. Its loans
were
taken
only at a
heavy
discount.
During 1813 and 1814
it
issued
stocks
to
the
amount
of over ?40,000.000,
that
were to
run twelve
years
at
six per

cent,
interest, but
which were
sold
at
a
discount of
fifteen
per cent.
The
succeeding
year,
after the war had
ended,
a
loan
for
nearly $9,000,000,
running nine years
and bearing seven per
cent,
interest, was
negotiated
at
par, while another
loan for nearly
$10,000,000,
running only
nine months, at
six per cent.,

yielded only
ninety-five
per
cent,
of its face
value. The fact may
also be recalled
that
even
while
these bonds
were
selling below par,
the government
received
paper
money in
payment
worth much less than its face,
so
that
it was
constantly
incurring a
double
loss.
In
consequence
of this disastrous
experiment in state

banking
Mr.
Dallas,
who
had
been
appointed
Secretary of the
Treasury
in
1814,
recommended
the
creation of another
bank
of
the
United States.
Madi-
son was
then
President.
An act
was
passed limiting
the charter to
twenty
years.
The
capital was

fixed at
.$3,'i,000,000, one-fifth of which
was
to be
subscribed by
the
government, payable
in coin or
in stock
THE HISTORY OF STATE
AND
NATIONAL BANKING.
11
bearing
five per cent, interest, and redeemable at
its pleasure.
The
remaining
stock was to be subscribed by individuals and corporations.
One-fourth was
payable in coin
and the
remainder in coin,
or
in the
funded debt of
the
United States.
Five directors were to be appointed by
the

President,
who were
to
serve
without compensation.
Branches
were to be
established,
and the
notes
of the
bank, payable on demand,
were
receivable in all payments
to
the
United States. A penalty of twelve per cent, was
prescribed
for
refusing
to
pay its notes or deposits in coin on demand. The
lowest
issue of
notes was
$5.
The
bank
was required to
transfer the public

funds to different
places, and negotiate public loans without charge.
It
was
also to
be the depository of the government receipts.
At first the bank did not
prosper. The
business of the country was
depressed,
and the banlv suffered from lack of competent management
It
was
especially
unfortunate
that, at the outset of this second experi
ment in
national banking, it should have
had an
incompetent
head.
In
181S, a
committee was appointed to investigate
its
affairs, which
reported that in several ways it had violated its charter, and
in
general
had

failed to
bring the relief
to the business of the country and the
government that was expected of the institution.
A new president
was
chosen,
and
$7,000,000
of specie were imported from
Europe to
furnish an
ample currency
redemption fund. The branch
at
Baltimore
had
been
mismanaged, losing
more
than
$3,000,000.
Under
more
intel-
ligent
direction, however, public confidence
in the institution
was re-
stored, its

deposits increased,
and it began
to
fulfill its
proper work of
regulating the exchanges of
the
country
and of lending to borrowers.
Its
currency circulated everywhere, was promptly
redeemed, nor
were
its
losses
larger
than
might have
been expected of an institution
doing
so
much business in so many places. Notwithstanding
all this, not long
after the induction of President Jackson into
office, he announced his
intention
of transferring
the
public
deposits

to
other banks. It
is said
that the
origin of
his intention grew out
of Senator Webster's unwill-
ingness to consent to the appointment
of one of President
Jackson's
political friends to the
office of
president
of
the l>ranch
at Portsmouth,
New
Hampsliire.
The president of the bank,
Nicholas Biddle.
informed
the
Pi-csidcnt that the bank had
never been
active
in
politics,
that
its
officers

had been
selected for their
fitness, and
as Mr.
Mason,
the
present
manager of the branch
at Portsmouth,
was a tried and
efficient
officer,
there was no reason
for displacing
him. As
Mr.
Biddle
would
not
yield
and
convert
the
liank
into
a mere
political
institution,
Presi
dent

Jackson
determined
to remove
the deposits,
well
knowing
that
this step
would
seriously
affect the
bank,
the
government
and
rive
country.
Mr.
Ingham,
who was then serving
as
Secretary
of the
Treas
ury,
refused to
comply
with the President's
wishes.
Both

branches
of
Congress
considered
the
question and
resolved
that
their
removal
was
inexpedient.
At
a
later period Mr.
Ingham
was
succeeded by Louis
12
PRACTICAL BANKING.
McLane,
of Baltimore, who also
declined
to
-ouiovo tlii'iu. He was
then bidden to step
aside
and
a third
Secretary

was appointed, Mr.
Duane, wlio was
quite
as stubborn
as his predecessors. Declining
either to
remove
them or to resign,
President
Jaclison removed him.
Finally
he succeeded
in
finding in the
person of Roger B. Taney, his
Attorney-General,
a man who
was willing
to execute his
wish. The
deposits were removed and not
long afterward
he
received his
re-
ward,
the
President appointing him
Chief
Justice of

the
Supreme
Court of
the United
States.
The removal of the
deposits
was regarded with
disfavor by
nearly
all business men of the country;
indeed,
by all except
the most
violent
partisans
and
personal
friends
of the President.
The deposits
were
put
in
state banks, man.v of
which were
managed by his
friends,
per-
'sons allied to

his party. While selecting
them with
reference
to their
party
preferences,
doubtless the
Secretary of
the Treasury tried
to
select
those that were
supposed to be in
sound condition.
But the
end
of
this
politico-financing
was
not
far off. A business
panic burst
out. men
failed everywhere, the banks
went down
in the general
crash,
the
government

was
unable
to
get
its deposits,
and President
Jackson's
successor,
Mr. Van
Buren,
was
obliged
to convene
Congress and tell
the
sorrowful tale, while that body
was obliged
to borrow
money to
pay
the ordinary expenses of the
government.
Such was the
result
of
Jackson's "humble effort,"
as
he styled
it,
to

regulate
the currency
and
banking for the people.
Another plan
was
now invented for
keeping the
government
de-
posits—the sub-treasury
system, which has been
in
use
ever
since.
We
shall
not attempt
to
discuss its
merits or defects;
two opinions
are
held
concerning it,
and
our readers who
may
wish

to know
these will finti
them
fullj'
stated elsewhere.*
To
return
to
the
state
banks.
The
second United
States bank
lived
its
appointed
time
and ceased
to be. Once more
the state banks
occupied
the
entire
field,
and rapidly
multiplied. Generally,
the
charters of
the

banks
in the Eastern
states were more conservative
than
those
issued
to
the
banks
in the Western and Southern
states. An
example
or two
may
be
given
to illustrate what
kind of
charters
was issued in
those
days.
A
law
was passed
by
the state
of Kentucky
requiring
the banliP

in that state,
before
opening doors
for business,
to
have
a specified
amount of specie in their vaults
to redeem
their circulation.
A bank,
therefore, to comply
with
the law
must obtain
the
specie, and
make
proof of the fact,
and
then
a
certificate
was
granted by
a proper
state
ofHcial
authorizing
it to

begin
operations.
As
many persons
deter-
mined to
organize banks under this
law, an
agent
was sent
to
New
York
to buy
enough specie to comply
with
the law in
organizing
a
*See
The
Independent Treasury
System,
by David
Kinley,
and
the
chapter
on
that

subject in
BoUes' American
Finance.
THE HISTORY
OP STATE
AND NATIONAL BANKING.
13
single
bauk. The
specie
was
properly
deposited with the first
banii
organized,
the
certificate above meutioued
was
grauted, its doors were
opened,
and
then
the
specie was promptly withdrawn
and deposited
with anothei",
where the
performance
was
repeated, and then with

another
until the circle
was completed and
the
certificates
obtained,
and
then the specie was
returned to New
Yorli
and sold. Thus
with
a
small amount of specie the
banks had been legally born
and
were
ready
for business.
They flourished,
too,
for
a
while, so long indeed as
no one wished
specie for their notes. It
is
easy enough to issue
notes
if others

will take them; the trouble comes when payment is
demanded.
So
the
banks found out. When some
noteholder
came in
ind demanded
a
few real, specie dollars, which
could not be paid, then the cat put
in his unwelcome
appearance. Others soon came and demanded pay-
ment of
their notes, and the
bank
was
obliged
to
close doors. The
story
of its failure spread,
and the whole series of banks, that were
nothing
but
windy structures,
speedily collapsed. There had
been
no
examination of

these
so-called banks, no
limit had been put on the
amount
of notes they might
issue,
and
their life was short. Had they
lived longer they
probably would have wrought
still
greater
mischief.
We
might add that in
those days the business was usually conducted
by
men witliout
l)anking experience, who knew not how to lend
money,
nor to
keep books,
or
the
worth of a
good banking system.
Besides, the easy method
of getting bank-notes, by simply printing
and
signing

them, tended
constantly to an excessive issue. A
bank
acquires
profits, not by keeping, but by lending its capital, and the more
that
can
be lent, properly secured,
the greater the
gain.
So,
during
this Jong
period, until the adoption
of
the national banking system, or
while
the system of cheap and
easy
bank issues existed, the country
was deluged with them.
This
was a
repetition of English experience.
If
anything
can be
clearly
proved
in

the
history of paper money issues
it
is this—the more easily they can be made, the larger is the
quanti<^y
pushed into the stream of circulation.
Notwithstanding this experience in Kentucky and
other states, for
many
years
banks
were often organized without the
contribution of
a
single
dollar. The shareholders organized, gave their notes to the
bank
for the
sums needful to pay for their stock, set the
printing press to
work
making notes, received these in exchange for
their
own notes,
and
then
transferred
them
back
to

the bank in payment for their
stock.
Thus
all
that
lianks
often had to
lend
was
their own notes;
they
held no real capital. Hundreds of banks were organized with
not
a
dollar
of gold or silver, or even the notes of other banks in
good
standing.
Their stock in trade consisted wholly of
their
own notes-
pure,
unadulterated credit resting on nothing. This was the radical
side
of state banking in
the
olden times—a bank issuing simply its own
notes.