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HISTORY OF CRISES UNDER THE NATIONAL BANKING SYSTEM.
THE CRISIS OF 1873.
The crisis of 1873 was preceded by four years of general economic activity, which was by no means confined to the United States. In agriculture, manufactures, and transportation much real progress was made, but, as subsequent events proved, the pace was more rapid than was consistent with healthy development. Facilities for the production of many commodities were provided beyond the limits of profitable demand, and many enterprises which were enlarged upon a quite insufficient foundation of working capital went to the wall when subjected to the strain of crisis and depression." As in 1857, the most serious weakness was disclosed in connection with railroad building. Bonds often sold at a heavy discount had provided the means for building many roads which were in advance of any considerable population, and whose traffic proved insufficient to meet fixed charges. The situation of other roads was even more unsatisfactory. Before the crisis, construction had had to wait upon the slow sale of bonds
a For the general economic situation both before and after the crisis see "The Financial Crisis in America,” by Horace White, in Fortnightly Review, 1876, pp. 810-829.
CHAP. IV. The crisis of 1893-
Monetary and banking movements, 1890-1893- - - -
No changes in banking methods or legislation
V.—The crisis of 1907--
NOTE A.-Extracts from the Annual Report of the Secretary of the Treasury (William A. Richardson) relating to the crisis of 1873---
B.-Extracts from the Annual Report of the Comptroller
of the Currency (John Jay Knox) relating to the
C.-Extracts from the Annual Report of the Comptroller of
NOTE D.-Banking reform proposals in New York in 1894:
A. Address of George S. Coe_ - .
B. Report of the committee of the New York
E. Clearing-house loan certificates in 1890-
G.-Bank failures and suspensions in 1893 -
H.-A. Clearing-house loan certificates in 1893
B. Report of the New York clearing-house loan com-
I. The Banks and the Panic of 1893. By A. D. Noyes
K.-Substitutes for Cash in the Panic of 1907. By A. Piatt
or the venturesome advances of bankers, and after the crisis construction had to be discontinued altogether, leaving a large mileage connecting nothing in particular." A long period of depression and recuperation was inevitable, and its advent could not have been long postponed. But, as always happens, the exact moment of collapse was determined by particular occurrences and might have come a little earlier or at a somewhat later date.
BANK LOANS, 1869-1873.
The extent to which the banks may be held responsible for the unsound conditions which had developed before the crisis of 1873 can not be determined exactly. In matters of this kind it is impossible to make a complete distinction between causes and effects. The average quality of the loans of the banks must suffer if the general business situation becomes unsatisfactory. On the other hand, this condition may be in part a consequence of the failure of the banks to exercise sufficient caution in granting accommodation to borrowers. As will be seen later, few banks failed during the crisis or during the subsequent months and years of depression. And of the failures which did occur hardly any involved serious loss to creditors. There was, indeed, at the beginning of the crisis evidence of momentary loss of confidence in the banks, but this was primarily due to the disasters which had taken place in other branches of business, particularly among the railroads and the private bankers and brokers
a The Commercial and Financial Chronicle, January 10, 1874, contains a list of the railroads in default for nonpayment of interest on their bonds. See p. 81.
who dealt in their securities. There is, however, one method of estimating roughly the measure of responsibility which rests upon banks for the creation of crisis conditions. If the expansion of loans has been unusually rapid in the years just before a crisis, it must have contributed to the creation of the unhealthy situation. Moreover, the expansion of credit liabilities, which is created by the increase of bank loans, may not be accompanied by a parallel increase in the cash reserves in the banks. In that case the banks may be so weakened that, though able to withstand the shock of a crisis, they may not be able to extend that aid to the business community which may be reasonably expected from them. These are matters which can be analyzed statistically, and, so far as the national banks are concerned, the periodical returns to the Comptroller of the Currency, together with the weekly returns of the clearing-house banks in the large cities, provide a mass of data which is far more complete than that in any other country. Moreover, for the particular period under review the national-bank returns include a larger proportion of the banking operations of the country than is the case in later crises, because of the comparatively small number of state banks and trust companies at that time. In the tables which follow comparisons will be based upon the returns of the banks in June of each of the four years before 1873. The returns for that season of the year happen to have been made at almost the same date in successive years. They show the condition of the banks at a time when they were least influenced by special temporary circumstances, and when,