of November proximo, and they shall be received by creditor
banks during that period daily, in the same proportion as
they bear to the aggregate amount of the debtor balances paid
at the clearing-house.

The interest which may accrue upon these certificates shall,
on the 1st day of November next, or sooner, should the certifi-
cates all be redeemed, be apportioned among the banks which
shall have held them during that time.

The securities deposited with the committee, as above named, shall be held by them as a special deposit, pledged for the redemption of the certificates issued thereon.

The committee shall be authorized to exchange any portion of said securities for an equal amount of others, to be approved by them, at the request of the depositing bank, and shall have power to demand additional security, either by an exchange or an increased amount, at their discretion.

The amount of certificates which this committee may issue as above shall not exceed ten million dollars.

This arrangement shall be binding upon the clearing-house association when assented to by three-fourths of its members. The banks shall report to the manager of the clearinghouse every morning at 10 o'clock the amount of such certificates held by them.

That, in order to accomplish the purposes set forth in this arrangement, the legal tenders belonging to the associated banks shall be considered and treated as a common fund, held for mutual aid and protection, and the committee appointed shall have power to equalize the same by assessment, or otherwise, at their discretion.

For this purpose a statement shall be made to the committee of the condition of each bank on the morning of every day, before the commencement of business, which shall be sent with the exchanges to the manager of the clearing-house, specifying the following items:

1st. Amount of loans and discounts.

2d. Amount of loan certificates.

3d. Amount of United States certificates of deposit and legal-tender notes.

4th. Amount of deposits, deducting therefrom the amount of special gold deposits.

The suspension of currency payments followed and was at first confined to the banks of New York City, but afterward extended to other large cities because the New York banks could not respond to the demands of their correspondents in those cities, and these, in turn, could not respond to the demands of their correspondents. Exchange on New York, which would otherwise have commanded a slight premium, was at a discount, and to a considerable extent unavailable. The suspension of the banks in other leading cities, almost without exception, therefore followed, and their partial or entire suspension continued for forty days, until confidence was in a measure restored by the resumption of the New York City banks on the first day of November.

Although predictions had been made of the approach of a financial crisis, there were no apprehensions of its immediate occurrence. On the contrary there were in almost every direction evidences of prosperity. The harvest was nearly or quite completed, and the bins and granaries were full to overflowing. The manufacturing and mining interests had also been prosperous during the year, and there was good promise that the fall trade, which had opened, would be as large as during previous years. The value of the cereals, potatoes, tobacco, and hay for 1872, is estimated by the Department of Agriculture at $1,324,385,000. It is supposed that the value of these products for the present year, a large portion of which was at this time ready for sale and awaiting shipment to market, will not vary materially from the above-mentioned estimate of last year. An estimate based upon the census returns of 1869 gives the probable aggregate value of the marketable products of industry for that year as $4,036,000,000, and a similar estimate upon the same basis, and upon returns to the Agricultural Department, gives an increase of $1,788,000,000 for 1873 over the amount for 1868.

It is not the province of the Comptroller to explain the causes which led to this suspension. In order to enter upon such an explanation it would be necessary to obtain comparative data for a series of years in reference to the imports and exports, the products of industry, the issue of currency and other evidences of debt, and, in fact, a general discussion of the political economy of the country. The immediate cause of the crisis is, however, more apparent. The money market had become overloaded with debt, the cost of railroad construction for five years past being estimated to have been $1,700,000,000, or about $340,000,000 annually; while debt based upon almost every species of property-State, city, town, manufacturing corporations, and mining companies-had been sold in the market. Such bonds and stocks

had been disposed of to a considerable extent in foreign markets, and so long as this continued the sale of similar securities was stimulated, and additional amounts offered. When the sale of such securities could no longer be effected abroad, the bonds of railroads and other enterprises of like nature which were in process of construction were thus forced upon the home market, until their negotiation became almost impossible. The bankers of the city of New York, who were burdened with the load, could not respond to the demands of their creditors, the numerous holders of similar securities became alarmed, and the panic soon extended throughout the country.

The present financial crisis may, in a great degree, be attributed to the intimate relations of the banks of the city of New York with the transactions of the stock-board, more than one-fourth, and in many instances nearly one-third, of the bills-receivable of the banks, since the late civil war, having consisted of demand loans to brokers and members of the stock-board, which transactions have a tendency to impede and unsettle, instead of facilitating, the legitimate business interests of the whole country. Previous to the war the stock-board is said to have consisted of only one hundred and fifty members, and its organic principle was a strictly commission business, under a stringent and conservative constitution and by-laws. The close of the war found the membership of the stock-board increased to eleven hundred, and composed of men from all parts of the country, many

of whom had congregated in Wall street, adopting for their rule of business the apt motto of Horace, "Make money; make it honestly if you can; at all events make money:"* The law of the State of New York, restricting the operations of the stock-board, which had been retained on the statute-book since 1813,† had, unfortunately, been repealed in 1858, so that its members and manipulators were enabled to increase their operations to a gigantic scale.

The quotations of the stock-board are known to be too frequently fictions of speculation, and yet these fictions control the commerce and business of a great country, and their influence is not confined to this country, but extends to other countries, and seriously impairs our credit with foreign nations. The fictitious debts of railroads and other corporations which they have bolstered up, and which have obtained quotations in London and other markets of the world, have now been reduced to a more proper valuation, or stricken from the list. Whether the Congress of the United States or the legislature of the State of New York may not re-enact a law reviving similar restrictions with great benefit to the true business interests of all parties is respectfully submitted.

Many measures of reform are proposed in order that the lessons of the crisis may not be lost, and others be led hereafter to repeat similar errors. Unity of action among the leading banks of the great cities will do more to reform abuses than any congressional enactment; for unless such corporations shall unite and insist upon legitimate methods of conducting business, the laws of Congress in reference thereto will be likely soon to become inoperative-such enactments being observed in their true spirit by the few, while the many evade them and thus invite a repetition of similar disasters.

If, however, the banks are disinclined to unite for such a purpose, the legislation required of Congress will be such as will induce associa tions outside of the city of New York to retain in their vaults such funds as are not needed at the commercial center for purposes of legitimate business.

Rem facias; rem,

Si possis, recte; si non, quocunque modo rem.

"All contracts, written or verbal, for the sale or transfer of any certificate or other evidence of debt, due by or from the United States, or any separate State, or of any share or interest in the stock or any bank, or of any company incorporated under any law of the United States, or of any individual State, shall be absolutely void, unless the party contracting to sell or transfer the same shall, at the time of making such contract, be in the actual possession of the certificate or other evidence of such debt, share or interest, or be otherwise entitled in his own right, or be duly authorized by some person so entitled, to sell or transfer the said certificate of debt, share or interest so contracted for.

"All wagers concerning the price or prices, present or future, of any part of any debt due by or from the United States, or any separate State, or of any share or interest in the stock of any bank or other company incorporated under the laws of the United States, or any individual State, or of any certificate or other evidence of any such debt or part of such debt, or of any such share or interest, shall be void.

"Every person who shall pay or deliver any money, goods or thing in action, by way of premium or difference, in pursuance of any contract or wager in the two last sections declared vold, and his personal representatives may recover such money, goods, or other thing in action, of any from the party receiving the same and his personal representatives." Passed February 25, 1813. (Page 706, revised statutes of New York, vol. 1, second edition.) Repealed laws of New York, page 251, eighty-first session, 1858.


In my last annual report I referred briefly to the evils resulting from the payment of interest upon deposits, and my predecessors have frequently referred more at length to the same subject. The difficulty has been that the proposed legislation by Congress upon the subject would apply only to the national banks. The effect of such legislation would be to bring State banks and savings banks, organized by authority of the different States, in direct competition with the national banks in securing the accounts of correspondents and dealers; the national banks would be desirous of retaining their business, and the more unscrupulous would not hesitate to evade the law by offering to make collections throughout the country free of charge, to buy and sell stocks without commission, and to rediscount paper at low rates. The proposed action of the clearing-house in the city of New York, if adopted by the clearing-houses of the principal cities of the Union, would do more to prevent the payment of interest on deposits than any congressional enactment. But the evils resulting from the payment of interest upon deposits are by no means confined to the city banks. It may be safely said that this custom, which prevails in almost every city and village of the Union, has done more than any other to demoralize the business of banking. State banks, private bankers, and associations under the guise of savings banks everywhere, offer rates of interest upon deposits which cannot safely be paid by those engaged in legitimate business. National banks, desirous of retaining the business of their leaders, also make similar offers, and the result is, not only the increase of the rates of interest paid to business men, but, as a consequence, investment in unsecured loans, bringing ultimate loss both upon the shareholders of the bank and the depositors. The kind of legislation needed is that which shall apply to all banks and bankers alike, whether organized under the national currency act or otherwise. A law prohibiting the payment of interest on deposits by the national banks will have little effect, unless followed by similar legislation under authority of the different States, and there is little hope that such legislation can be obtained. The national currency act, which was passed during the war, provided for a tax of one-half of one percent. upon all deposits, and, subsequently, internal revenue legislation extended this tax to all deposits made with State banks and individual bankers. If legislation prohibiting the payment of interest on deposits shall be proposed, I recommend that this law be so amended as to repeal this tax, so far as it applies to demand deposits, and that an increased rate of taxation be imposed uniformly upon all deposits which, either directly or indirectly, are placed with banks and bankers with the offer or expectation of receiving interest. Such legislation, if rigidly enforced, would have the effect, not only of reducing the rate of interest throughout the country, but at the same time preventing the illegitimate organization of savings-banks-which organizations should be allowed only upon the condition that the savings of the people shall be carefully and prudently invested, and the interest arising therefrom, after deducting reasonable expenses, distributed from time to time to the depositors, and to no other persons whatsoever.

Annual Report, Secretary of Treasury (William A. Richardson)

[Forty-third Congress, 1st Session, December 1, 1873, Pages xi-xviii]


The prevailing practice, not only of national banks, but of State banks and private bankers, of paying interest on deposits attracts currency from all parts of the country to the large cities, and especially to New York, the great financial centre. At seasons of the year when there is comparatively little use for currency elsewhere, immense balances accumulate in New York, where, not being required by the demands of legitimate and ordinary business, they are loaned on call at a higher rate of interest than that paid to depositors and are used in speculation.

Every year, at the season when the demand sets in from the West and South for currency to be used in payment for and transportation of their agricultural products, there occurs a stringency in the money market arising from the calling in of such loans to meet this demand. Until this year, though annually creating some embarrassment, this demand has been met without serious difficulty.

During the past summer, anticipating the usual autumn stringency, the Treasury Department sold gold while the market price was high, currency abundant, and bonds for sale in the market were scarce, and while there was a surplus of gold in the Treasury, and thereby accumulated about fourteen million dollars of currency with the view of using the same or such part thereof as might be necessary in the purchase of bonds for the sinking fund at times during the autumn and winter when they could be bought at a price not above par in gold, or in meeting demands upon the Treasury, as circumstances Should require.

This year there was a great demand for currency to pay for the heavy crops of a bountiful harvest, for which the European countries offered a ready market. The suspension of certain large banking houses, the first of which occurred on the 18th day of September, alarmed the people as to the safety of banks and banking institutions in general. Suddenly there began a rapid calling in of demand loans and a very general run on the banks for the withdrawal of deposits. Entire confidence was manifested in United States notes and even in national-bank notes, and they were drawn wherever they could be obtained and were largely hoarded with as much avidity as coin was ever hoarded in times of financial distress when that was the circulating medium of the country. The banks found themselves unable to meet the demands upon them, currency in circulation became exceedingly scarce, and the business of the country became greatly embarrassed.

In this condition of things, great pressure was brought to bear upon the Treasury Department to afford relief by the issue of United States notes. The first application came from a number of gentlemen in New York, suggesting that no measure of relief would be adequate that did not place at the service of the banks of that city twenty millions of dollars in United States notes, and asking that the assistant treasurer

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