## July 21. 1866. N. 1195.

### New Facts relating to the Act of 1844.

Weiß nichts Gutes von dem Act zu sagen, als daß durch rechtzeitige Erhöhung des Zinsfusses von 1861–66 we kept sufficient bullion. Die längre high rate (vor dem Panic) attracted hither an unusual supply of foreign money. But this money was lent us on credit, leaves us mit impaired credit. When you create by law a limit to the issue of banknotes, you entail by inevitable events occasional acts of the Executive to break that law. The foreign discredit occasioned by such acts must not be charged to them. They are part and parcel of the Act itself –, inseparable from it. So are the evils they cause. Ferner: the Act led the B.o.E. to keep the rate of interest higher than it ever was for so protracted a period. Mit gutem credit, the more interest you offer the more money will you get; as soon as your credit is doubted, the higher the rate you offer, the less the money will come in. Dann high interest means bad security. And the foreign holders of bills on England have lately largely acted on it. … For a moment all large holders of a commodity have great power over its price, and at a moment of panic the B.o.E. has nearly despotic power over the price of money. If the B.o.E. had charged 15% for the last 6 weeks, the general market would have approximated to it, and been guided by it more or less nearly.

… verschiedene English Banks do not distinguish between the acceptances they give and the money they receive. receive (i.e. deposits), so daß kein Teufel ersieht, how much of this is paper given, and how much is money received.

### Money Market Movement.

Bank o. E. Increase: Circulation: 227,418l. Decrease: Private Deposits 1,651,546, Private Securities 1,287,285, |85 and Reserve: £576,045.

Railway shares. The difficulties of the have produced fears concerning the position of some of the other cos, with speculations adverse to firm prices.

Failures:
• Birmingham Banking Co. Liabilities 1,800,000, Assets 200,000l.
• Carleton (Brothers), wholesale warehousemen. (London)
• Preston Banking Co on 19 June. Liabilities about 1,000,000l.

## June 8. 1867. N. 1241.

### The National Bank System of the United States.

This System has been in course of establishment und diffusion throughout the Union during the last 5 years.

Prior to the passing of the 1st National Bank Act early in 1863 (25. March), the Banking Institutions of the Union had been regulated in each State by the State Legislature; considerable variations between one State and the other. In all the States there were regulations, more or less stringent, regarding the Deposit of State and Federal Bonds as a Guarantee for Note Circulation, in Bezug auf Publications of accounts etc. In the more commercial States, New York, New England und Philadelphia the current of opinion for some time gegen die excessive and minute interference formerly considered indispensable. There was a period when the State Comptroller professed to satisfy himself, by a personal visit to each Bank on certain days, that it had in its own actual possession the prescribed amount of specie and public securities. But it was soon discovered that by ingenious arrangements, the same parcel of specie and securities was made to travel through a series of banks – being, of course, borrowed for the occasion, and paid for handsomely, under the appropriate title of „shin plaster“. For some years prior to 1863, the American public had found out that by far the best preservative against vicious banking is not excessive legislation, but rigid enforcement of the obligation of specie payment. There had, accordingly, been long established in New England, a system of almost daily Note Exchanges between all Banks carrying on business within a given circle. This plan was known as the Suffolk Bank Redemption Plan. In New York, a Clearing House on the London model was set up about 12 years ago. Dadurch the irregularities of former periods practically impossible. A Bank endeavouring to force out more of its notes than the trade of the Neighbourhood required, had them, of course, immediately returned upon itself as cash demands through the Clearing House. Dadurch state der State Banks der Union sehr satisfactory for a considerable time before 1863. Diese State Banks private institutions, regulated by the State Legislatures.

The schemes during the last 40 years for establishing a single bank, or series of banks, specially selected und empowered by Congress, for the transaction of Federal Financial Business all utterly failed. The history of the two socalled Banks of the U. States a history of mistakes and disasters. Unter Andrew Jackson  |138 conviction prevailed that any powerful banking organisation, under control of the Federal Executive, would be a grave departure from the Constitution, and dangerous to Public Liberty. Daher regulation of Banks to be matter of purely State concern and policy. Even the Washington authorities required to provide themselves in New York and elsewhere, under the title of Sub-Treasuries, with separate offices of deposit for the collection and custody of the public revenue, until disbursed for Gvt. outgoings.

The exigencies of the Civil War compelled the banks generally to suspend specie payments on 28 Dec. 1861. In the preceding April (1861), an Act was passed by Congress – authorising a suspension of the Independent Treasury Law – that is, permitting the Secretary of the Treasury, at his discretion, to lodge the revenue collections not in the Sub-Treasuries, but in any banks considered eligible. Aber nicht much use made of this permission; and, as a matter of fact, the New York Banks were principally forced to suspend specie payment, in consequence of their large subscriptions in coin to the loan of 250 Mill. $opened in July, 1861. The War extended in the course of 1862. Chase überzeugt, daß to provide efficient financial support for the Federal Gvt, necessary to override all State Legislation on Banks, to suppress all the local issues of existing State Banks, to convert them into National banks, to require each National bank to invest considerable part of its paid-up Capital in Federal Securities, and to furnish strong inducements to the establishment dieser national banks, in small und remote places, hitherto not reached by, or unable to support, any private institutions of their own. Opposition in Congress und von den Banking interests of the larger States. Danach Chase[’]s scheme became law on 25 March, 1863, under the title: „An Act to provide a National Currency secured by a pledge of United States Bonds, and to provide for the circulation and redemption thereof.“ Dieser Act intricate und long (65 Sections.) Sein outline, mit subsequent amendments, ist: 1) An officer is established at Washington, called the Comptroller of the Currency. Under his charge all the machinery of the Act is placed. 2) Any number of persons, not less than 5, may constitute themselves into a Co. with liability limited to twice the value of the shares held for the purpose of forming a National Bank. The shares to be$100 (20l.) each.

3) In cities und places exceeding 50,000 persons, the capital of the National Bank to be not less than $200,000 (say 40,000l.), – in smaller towns not less than 100,000 (say 20,000l.) But at the direction of the Secretary of the Treasury, National Banks may be formed in places von nicht mehr als 6000 inhabitants mit Kapital of$50,000 (10,000l.) Half the capital to be paid up before commencing business, the other half by 5 monthly instalments.

4) Before commencing business, each National Bk. to transfer to the Comptroller registered Bonds of the U. States zu, at least, 30,000$, or in the case of the smaller banks, 1/3 of the paid up capital. In return for such transfer, the Comptroller shall deliver to the Bank, Circulating Notes of one dollar and upwards registered and countersigned on behalf of the Federal Gvt., but with blanks for the signatures of certain officers of each National Bank: the amount of the notes so furnished for issue not at any time to exceed 90% of the market value of the Bonds lodged as Security. 5) The Total Amount of the National Banknotes to be created under the Act not to exceed$300 Millions (60 Mill. l. St.) In the original Act of March, 1863, these 300 millions were apportioned among the several States, half according to representative population, half to banking capital, resources, and business. By amended Act of June, 1864, the distribution left to the discretion of the Secretary of Treasury; and in March, 1865, other amendment adopted, wodurch the State Banks encouraged to convert themselves into National Banks, regardless of any precise ratio in the distribution of the National Bank Note Circulation.

6) Each National Bk. to be primarily liable for the payment of the Notes issued by it under its counter signature, but failing such payment, the Un. States Treasury will redeem the notes and reimburse itself by the sale of the Bonds held by it, and by the exercise of a prior lien over the general assets of the defaulting bank.

7) National Banknotes to be received at par in all Revenue collections, except for Custom Duties, and to be paid by the Gvt. at par for salaries, wages, and debts, but not for interest on public debt, nor in redemption of the „greenback“ currency. The effect of this provision is to give the National Bank Notes a modified compulsory circulation between the Federal Gvt. and the Public, but not to render them legal tenders as between individuals.

8) In 17 places, viz. 1) New York, 2) Philadelphia, 3) Boston, 4) Albany, 5) St. Louis, 6) New Orleans, 7) Louisville, 8) Chicago, 9) Detroit, 10) Milwaukee, 11) Cincinnati, 12) Cleveland, 13) Pittsburgh, 14) Baltimore, 15) Leavensworth|139 16) San Francisco, 17) Washington, each National Bk. to have constantly in hand, a sum equal to at least 25% of the aggregate amount of its Circulation and Deposits, in lawful money of the U. St. (i.e. specie or greenbacks.) National Bks. in other than these 17 cities, need have only 15% of similar cash reserve, and of this 15%, 3/5 may be balances due to the Bank from its Correspondents in these 17 cities.

9) The Secretary of Treasury, at his discretion, may select National Bks. to be depositors depositories of public money except Customs duties) and to be employed as financial agents of the Gvt.

10) The Federal Taxes to be paid by National Bks. shall be – one % p. annum on the average amount of their Circulation; 1/2% p. annum on the average amount of Deposits; and 1/2% p.a. on the amount of capital not invested in U. States Bonds.

11) The Federal Taxes to be paid by State Banks to be 10% p. annum on the amount of their Circulation, and corresponding rates on their deposit and Capital.

12) Each National Bank to forward to the Comptroller quarterly full returns of its condition and business, and also monthly returns of a less elaborate character. The Comptroller may, at his discretion, order a personal verification of these returns.

13) All laws relating to usury which may prevail in the several States to continue in full force, and be applicable to all transactions of National Banks.

The principles of this arrangement come to this:

Ⅰ) Almost absolute control by the Federal Executive at Washington over all the National Banks. The Secretary of Treasury, at his discretion, can authorise the formation of Banks in all places of less than 6000 inhabitants; he can select National Bks. to be depositories of public money and Federal financial agents; he can constantly interfere in the affairs of each bank, by rigidly enforcing the condition that the Notes furnished shall only be 90% of the market value of the Bonds lodged; and, at his pleasure, tighten or relax the power of affecting the credit of any Bank, by directing the visit to it of a Special Inspector.

Ⅱ) The establishment of at least 300 mill. $circulation of National Bk. Notes , ultimately payable by the Federal Treasury out of the proceeds of Federal Securities, that is, of 300 millions of what may be called Greenbacks N. 2. These National Bk. Notes to be forcibly substituted (for the 10% tax on the circulation of the State Banks is virtually prohibitory) for the notes of the Banks previously existing under laws and constitutions adopted by the several States. The 300 mill. of National Bank Notes to be apportioned over the country virtually at the discretion of the Secretary of the Treasury. Ⅲ) The sudden and complete creation of a Federal Gvt. Banking Organisation of the most absolute character, differing only from the Bank of France in the circumstance that instead of creating, as in France, a large Central Bank, with a monopoly of Circulation and a monopoly of Branches, and a management largely nominated by the Minister, the procedure consists in scattering 1600 or 1700 separate institutions over the country, but placing them under the effective control of an office in Washington, compelling each of them to invest 1/3 of their capital in Federal Securities, and selecting from time to time from the most favoured Banks those which shall become depositories of public money and Gvt. financial agents. Folgendes ist der Progress of the National Banks, subsequent to First Act, March 1863, und Amended Act, June, 1864. Date Number of Banks. Capital paid up$ Circulation. \$
1863. October 63 6,700,000 No return
1864 Januar. 137 14,500,000
April. 309 42,000,000
1865. Jan. 643 135,000,000 67,000,000
July. 1264 325,000,000 131,000,000
1866 Januar. 1626 403,000,000 213,000,000
Oct. 1659 415,000,000 280,000,000
1867. Jan. 1649 419,000,000 291,000,000
April. 1649 419,000,000 291,000,000

The progress became rapid after Jan. 1865, when pressure really put on the State Banks to conform to the new system. Prior |140 to April, 1865, it is probable that most of the 6 or 700 National Banks opened were entirely new institutions. Z.B. out of 152 Banks established up to Feb., 1864, not less than 46 opened in small places where, up to this time, no bank had existed. It was, undoubtedly, a principal feature of Chase’s scheme to promote the creation of New National Banks in the more remote und primitive parts of the country.

### Manufacturing Markets.

Demand for goods only moderate. Prices well supported. Iron steady. Falling off in the transactions in coal.