only sound and uniform in itself, but perfectly adapted to all the purposes of the Government and the community, and more sound and uniform than that possessed by any other country." And yet, but seven years after this, on the 10th of May, 1837, all the banks then in operation, with the mammoth United States Bank of Pennsylvania among them, went into suspension, as if by common consent; or, as Colonel Benton has it, "with a concert and punctuality of action which announced arrangement and determination such as attend revolts and insurrections in other countries:" and he declares that "the prime mover and master manager of the suspension was the Bank of the United States, then rotton to the core and tottering to its fall, but strong enough to carry others with it, and seeking to hide its own downfall in the crash of a general catastrophe."* This allegation derives some support from the report of the committee of the stock holders, made in January, 1841, after the failure of the bank. They say: "The origin of the course of policy which has conducted to the present situation of the affairs of the institution dates beyond the period of the recharter by the State."

Favored by an excess of importations of specie, amounting to nearly twenty millions in the two years ending September 20, 1838, the banks of New York and New England resumed on May 10 of that year. The banks of Philadelphia made three resumptions and as many failures before February, 1841, and did not effectively resume until March of the following year; so that, from the time when the Senate committee had so highly commended them, a period of twelve years of vicious fluctuation and depreciation of the currency elapsed before the banks again settled into what was then called "a state of regularity." During this period they reduced their circulation from 149 millions in 1837 to 58 millions in 1843, which is three millions below the amount at which it stood thirteen years before.

The United States Bank did not wind up its affairs, nor even prepare to do so; on the contrary, it applied for and obtained a charter from the legislature of Pennsylvania, which was granted and approved by the Governor of the State on the 18th of February, 1836, just thirteen days before the expiration of its charter from the general Government. This charter differed in nothing essential from that just expiring, except in the term of the bank, which was extended to thirty years, and in the amount of the bonus paid and to be paid for it. It was in effect a renewal and extension of the charter, without change of conditions or purposes, and under the old corporate name. The title of the act of incorporation, however, is worthy of note. It is styled, "An act to repeal the State tax on real and personal property, and to continue and extend the improvements of the State by railroads and canals, and to charter a State bank, to be called the United States Bank." The bonus, or/cost of the charter to the bank, if it had maintained its existence and solvency long enough to meet the charges imposed, would not have fallen short of five millions of dollars, assuming, which it is safe to do, that the long list of subscriptions required to be made to railroads, canals, navigation companies, and turnpike roads, scattered all over the State, should eventually prove to be unproductive.

Colonel Benton describes the Pennsylvania charter as "a transmigration of the Bank of the United States, changing itself from


*Benton's Thirty Years in United States Senate, vol. 2, p. 21.

an imperial to a provincial institution, retaining all the while its body and essence, its nature and attributes, its name and location;" and he does not hesitate to ascribe "every circumstance of its enactment to corruption, bribery in the members who passed the act, and an attempt to bribe the people by distributing the bonus among them."* The subsequent disastrous history of the bank would seem in some measure to justify these charges. This bank, as has been seen, suspended specie payments as often as other State institutions, and finally succumbed to trials which other banks, more prudently managed, survived. It made an assignment of certain securities on May 1, 1841, to secure five millions of post notes which other banks had taken in exchange for its demand-notes. The second assignment was made June 7, 1841, to secure its notes and deposits, "among which were notes and deposits of the late Bank of the United States, incorporated by Congress," so that it appears to have been, up to 1841, using its old issues. The third and final assignment, made on September 4, 1841, covered all its remaining property, "to provide for the payment of sundry bodies corporate which the bank is at present unable to pay."



Nicholas Biddle had been the president of the bank from January, 1823, to March, 1839, when he resigned, leaving the institution, as he said, "prosperous." The shares, however, were sold at that time at 111, instead of 125, as in 1837, and and were quoted in April, 1843, after its failure, at one and seven-eighths.

The final result of the liquidation of the bank is briefly stated in a letter to this Office from Thomas Robins, esq., president of the Philadelphia National Bank, who is believed to be the only survivor of its numerous assignees. He says: "All the circulating notes of the Bank of the United States, together with the deposits, were paid in full, principal and interest, and the acccounts of the assignees were finally settled in 1856. There were no funds, and no dividend was paid to the stockholders of the bank; the whole twenty-eight millions of dollars were a total loss to them. The seven millions of stock held by the United States previous to the institution becoming a State bank was paid in full to the Government, so that the United States lost nothing by the bank." Elsewhere the profit made by the Government upon its shares in the bank is given from official sources.

Annual Report, Comptroller of Currency (Henry W. Cannon) [48th Congress, 2d Session, December 1, 1884, Pages xxxii-lix]


Owing to the large number of mercantile failures which had occurred during 1883, considerable financial uneasiness was felt at the beginning of 1884, and the year opened inauspiciously, by the appointment on January 1 of a receiver for the New York and New England Railroad. Following closely upon this failure were the troubles of

*Benton's Thirty Years in United States Senate, vol. 2, p. 24.

the Oregon and Transcontinental Company, and the appointment on January 12 of a receiver for the North River Construction Company. The months of February, March, and April were characterized by many commercial failures, rumors affecting the credit of various corporations, and a still further depreciation in the price of stocks and bonds, and in fact of all products and commodities.

This feeling of uneasiness and of uncertainty as to values culminated on May 6 with the failure of the Marine National Bank of New York whose president was a member of the firm of Grant & Ward. The failure of this firm immediately followed, and owing to the prominence of some of its members and its large liabilities, exceeding $17,000,000, its failure caused great excitement, that had not subsided when on May 13 the president of the Second National Bank of New York was discovered to be a defaulter to the extent of $3,185,000. Although this defalcation was immediately made good by the directors of the bank and did not result in its suspension or failure, such a shock was given to credit, and to the confidence of the public in all institutions and firms supposed to have loaned money upon such railroad and other securities as had greatly decreased in value or whose managers were supposed to be directly or indirectly interested in speculation in Wall street, was so shaken, that there was great pressure to sell stocks and securities and an active demand on the banks for deposits.

This condition of affairs culminated on May 14 in the suspension of the Metropolitan National Bank, the failures of Donnell, Lawson & Simpson, Hatch & Foote, and several other bankers and brokers. These failures were followed on May 15 by that of the Newark Savings Bank, and by the suspension of Fiske & Hatch and others. Failures and suspensions contínued through the months of May and June, including those of the Wall Street Bank, the Philadelphia and Reading Railroad, the West Shore Railroad, of C. K. Garrison, M. Morgan's Sons, and of other bankers and brokers.

The suspension of the Metropolitan National Bank on May 14 caused great excitement. All stocks and securities called upon the New York Stock Exchange were greatly depreciated under the pressure to sell, and it was practically impossible for the banks to collect their call loans, as their borrowers could not obtain money by sale of their securities except at ruinous rates; neither could they borrow elsewhere; and it was impracticable and impolitic to throw the mass of securities held as collateral to the call loans of the associated banks upon the market. If it had been done it is probable that a suspension of gold and currency payments by the banks throughout the country would have followed the general panic that would have ensued. In this emergency the members of the New York Clearing-House Association, realizing that an immediate demand for deposits would be made by their country correspondents, called a meeting at the clearing house on the afternoon of May 14, and the following plan for settling balances at the clearing house was unanimous adopted: ***

Resolved, That, in view of the present crisis, the banks in this association, for the purpose of sustaining each other and the business community, resolve:

That a committee of five be appointed by the chair, to receive from bank members of the association bills receivable

and other securities to be approved by said committee, who
shall be authorized to issue there for to such depositing banks
certificates of deposit bearing interest at six per cent. per
annum not in excess of 75 per cent. of the securities or bills
receivable so deposited, except in case of United States bonds,
and said certificates shall be received in settlement of bal-
ances at the clearing house.

After consultation with the officers and directors of the Metropolitan National Bank, a committee of examination was appointed to visit the bank and to ascertain if some plan could not be arranged to permit it to open again for business. The greater part of the securities of the bank were found to be of such a character that loan certificates could safely be issued upon them, and in this way the Metropolitan National was enabled to resume business on May 15 and settle its balances at the clearing house. The prompt action of the members of the associated banks and the resumption of the Metropolitan National Bank greatly assisted in allaying excitement and staying the panic, and although confidence was not immediately restored, and although the banks in the city of New York were largely drawn upon by their country correspondents reducing their reserve for a time below the 25 per cent. límit prescribed by law, and although on account of the great depreciation of values and the stringency of the money market occasioned by the want of confidence other failures of State banks, private bankers, and mercantile firms occurred in New York and throughout the country, there was no suspension of gold and currency payments at any point, and the issue of loan certificates was confined to the banks of New York City, which were soon enabled to collect their loans and make good their reserves.

The crisis of May, 1884, seems to have been even more unexpected to the country than that of September, 1873. Although many conservative people had predicted that the large increase in railroad and other securities, and the general inflation which had been going on for a number of years would bring financial troubles and disasters to the country, it was nevertheless generally believed that the depreciation of values and the liquidation which had already been going on for many months, and the further facts that the country was doing business upon a gold basis, that the prices of all commodities were already very low, that an increased area of territory was under cultivation, and that the prospects were excellent for good crops, together with the larger distribution of wealth throughout the Union, would prevent a repetition of the panic of 1873. This general belief was measurably correct, as the panic or crisis was confined principally to New York City, although its effects were more or less felt in all parts of the country, and the liquidation resulting therefrom has not yet been fully completed.

The most profound students of political economy have for many years endeavored to explain the causes which have led to financial troubles similar to those of 1857, 1873, and 1884, and it is not to be expected that the Comptroller can obtain sufficient data to enter into a complete and satisfactory explanation of the causes of the financial disturbances of the present year. The causes that lead to financial crises in a country so rich in agriculture, of which the manufacturing and mining interests are so varied and important, the imports and

exports so great, of so extensive an area of territory, and in which wealth is becoming so equally distributed, and the population of which is increasing so rapidly, are difficult to explain, and the issue of currency and creation of debt requires elaborate study to ascertain the reasons for the rise and fall in value of commodities and realty which cause a panic. It is scarcely possible at this time to explain why it should be necessary for the country to go through the liquidation and financial trouble which is now being experienced.

It is apparent, however, that a repetition of some of the same circumstances which brought about the monetary crisis of 1873 has been largely influential in causing the present crisis. Property of all kinds had been capitalized, as it is called; bonds and stocks had been issued for the purpose of building railroads, carrying on manufacturing and other business; municipal and other bonds had been issued for public improvements. These bonds and stocks were put upon the market, and commercial credit was extended until a point was reached where capitalists of this and other countries questioned the intrinsic value of these securities and the earning power of the property on which they were based, and also doubted the solvency of many firms in commercial business. This lack of confidence induced them to decline to make further advances or investments. A decrease in the earnings of railroads, manufacturing, and other enterprises followed, and the entire business of the country has consequently been restricted and deadened. There is little doubt that one of the causes which led to the local disturbances among the banks, national and State, and private bankers of the city of New York, was their intimate relation in many instances to the New York Stock Exchange, and the fact that a large portion of the loans made by the banks and bankers of New York were based upon the security of stocks and bonds, often speculative in their character, which are dealt in and regularly called at the Stock Board.

It is no doubt correct in principle to advance money in aid of enterprises which are legitimate in their aims, and from which reasonable returns may be expected, and in order that the general business and commerce or the carrying trade of the country may be benefited. Due care should, however, be taken that loans so made should not exceed the amount which it would be safe to advance upon the intrinsic value of the property represented by the securities, and not upon a fictitious. or unreal valuation. Lines should be closely drawn between ligitimate business and speculation. The principles which underlie judicious and sound banking are the growth of an experience of many years. Banks not only loan their own capital but that of their depositors and creditors, and are therefore, to a certain extent, trustees, and should not encourage speculation or lend money for the furtherance of doubtful enterprises, even though the profits promise to be exorbitant. The proper relation of the New York Stock Exchange to the business of the United States is yet to be determined. The value of an exchange for the convenient sale and handling of stocks and securities is unquestioned; but when the members of this exchange, who have associated themselves together for the purpose of furthering the business and commerce of the country, use the machinery of this exchange to create speculative values and to increase or decrease prices of stocks and bonds for purposes of speculation solely, or, more properly, to encourage a form of gambling, it is a matter for serious consideration

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