capital has been actually invested, but in lieu of cash the personal security of the stockholder is accepted for a part of his subscription to the stock standing in his name; which security is guaranteed by the hypothecation of the stock so in part paid for, and sometimes secured by a mortgage of his lands; the balance so due is subject to interest to the institution, and the stock so hypothecated is transferable, and the purchaser assumes the debt; thus a fictitious capital is further increased, thereby enabling persons of small available property to become connected with these institutions. From all which facilities of investment and accommodation afforded, every member of the community stands in some way or other interested in these institutions.

In order to restrain the undue investment of property therein, as well as to raise a revenue from them, the state legislature on the 23rd April, 1823, passed an act by which all the incorporated associations are to be taxed and assessed as in the case of individuals; and requiring that the secretary, cashier, and treasurer of all such communities should pay the amount of the tax imposed upon the company. Provided, however, that if the said companies, or either of them, should elect or choose to pay directly to the treasurer of the county ten per cent. upon all dividends, profits, or income made by the company, they should be at liberty to do so, and the affidavits of the cashier, secretary, &c. as to the amount of dividend, or profit, should be accepted.

"Thus has the State not only required from many of these institutions a bonus for granting their charters, from some loans, and from others the privilege to subscribe for stock, thereby deriving an income from their operations, as well as securing to various public institutions the right to become shareholders; but have subjected them to the heavy tax of ten per cent., while the dividends payable to the public institutions are exempt from such tax. At the same time, the Bank of the United States has a branch at New York, which the legislature has not the power of taxing, yet by this bank all the customs and other revenue of the general government are managed, and much of the money transactions of the public.

"While a created capital of such extent is thus operating upon the community, it may be asserted there is not above one million and a half of dollars in all the banks of the State in specie. In this opinion I am fully borne out, by the opinion of many persons conversant with the subject, as well as by those whose situation enables them to resort to the most "correct data. In 1824, when Mr. Manning, one of the house of Barclay and Co. of London, the contractors for the loans, resorted to New York from Mexico, to procure £73,000 sterling, to remit to Mexico, although he had agents at Philadelphia and Boston, he could not procure it without so great delay, that he was obliged to send to London and have it sent direct to Vera Cruz. Also in 1812 when but 240,000 dollars for the British Commissioners at Halifax was required, it was necessary to send to Boston for 100,000 dollars, so that I am borne out by facts, that an immediate demand for one million of dollars in specie could not be met without resorting to the Bank of the United States, or those of the neighbouring states. But at the same time, it should be stated, that large demands are out of the ordinary transactions of the city, and I feel the most assured conviction that the capital of many of these

banks is as well secured, and their issues being as much the representatives of real wealth, as those of any similar institutions in the world; and were they liable for calls of larger sums in specie, their transactions would be regulated by such liability, but great curtailments in their issues would follow as well as general though temporary embarrass


"If bullion therefore is to be regarded as the only safe circulating medium, and if all securities not convertible into a metallic currency argues an unsound state of public credit-if according to the prevailing maxims of political economists, the existence of excessive fictitious capital is dangerous, then indeed are the people of this State and the United States in a truly awful condition; but opposed to all these maxims stands the actual situation of the State of New York."

"The first act relating to banks passed by the legislature of the State of New York, bears date the 11th day of April, 1782. It was prohibitory; namely, to prevent the establishment of any bank within the State, other than the Bank of North America, which had been chartered at Congress, and located at Philadelphia.

"The first act to incorporate a bank by the State legislature was passed in 1792, when the Bank of New York was chartered, by which the stockholders are allowed to issue notes to the amount of three times the capital paid in, as also to three times the amount of deposits. The amount authorized was one million dollars, and the charter was limited to May, 1811, but was afterwards extended to June, 1832; and as a bonus for such extension, the comptroller was to subscribe 15,000 dollars on the part of the commonwealth to the capital stock, the treasurer of Hamilton college 15,000 dollars, and of Columbia college 20,000 dollars. This bank has generally paid dividends of four and one half per cent. half yearly, and the stock has generally borne a premium of thirty per cent., but of late the dividends have been only equal to eight per cent. yearly.

"An act of incorporation passed in 1799, establishing an institution for supplying the city of New York with water, capital 2,000,000 dollars, surplus to be employed in money operations. Banking privileges are the chief objects of this company, which is called Manhattan Bank. Its stock has been very productive, and has generally sold from twelve to twenty per cent. above par, (the greater part of the stock is held by a gentleman in London.) Under the right to supply water this charter is deemed perpetual; in granting it the State reserved the right to subscribe one thousand shares of fifty dollars each, which it still holds.

"The Mechanics Bank was incorporated in 1810, the State reserving the privilege of subscribing 200,000 dollars of the capital, (1,500,000 dollars) but afterwards accepted 32,500 dollars in lieu of the privilege of subscribing. This stock generally bears a premium of twelve per cent. advance.

"In 1812, an act was passed to incorporate the Bank of America, in the city of New York, with a capital of 6,000,000 dollars, for which a bonus was required of 400,000 dollars for the State, and two loans, 1,000,000 dollars at 5 per cent. and 1,000,000 at 6 per cent. These terms were subsequently reduced to a loan of 100,000 dollars,

and a bonus of the like sum. This stock pays but five per cent. a year in dividends.

"In the same year, the city branch of New York was incorporated, with a capital of 2,000,000 dollars. For this act 120,000 dollars were paid as a bonus to the common school fund of the State, 50,000 dollars to the State itself, and 500,000 dollars were also lent to the State at 6 per cent. per annum.

From the year 1816 all acts of incorporation of banks required that their notes should be redeemed with specie under the penalty of being liable to pay at the rate of ten per cent. per annum interest, from the time of the demand in specie; suits to be prosecuted in any court of law.

"In the several banks, the State has invested 606,800 dollars; and several colleges in the State, hold 233,400 dollars, which stock was reserved as a privilege at the time of granting the charters.”

"In the State of New York there is, by law, what is termed a "safety fund security." The idea of this fund has greatly increased the confidence of the community in the paper of that State. I have endeavoured to make myself acquainted with the system; and if I understand it, there is little or no security in the fund. But many of the arrangements and restrictions connected with the system are beneficial. The fund can never consist of more than 500,000 dollars; and it is created by each of the banks paying annually half of 1 per cent. on their capital, until it amounts to the above sum. The contributions then cease, unless there is a defalcation in some bank. On such an event the contributions are continued, or re-commence, as the case may be, until the defalcation is made good, and the fund amounts to the specified sum. In this way, each bank is made liable, to a limited extent, for the paper of the others. It has been supposed, that by thus linking them together, a degree of watchfulness is created that otherwise would not exist.

"The salutary part of the system consists in requiring that the whole amount of the nominal capital of a bank shall be actually paid up before it commences operation; that it shall report to the legislature annually, under the oath of its officers, the true situation of the institution; that its books and vaults shall be open at all times to the inspection of bank commissioners, that are permanently appointed for the purpose of examining the state of these institutions; that the Chancellor of the State, on the report of these commissioners, purporting that they are not satisfied, may suspend the business of a bank until a full and complete examination can be had; and that they are all prohibited from making loans on their own stock.

An objection has been urged against this plan with great warmth. It is said, that the commissioners are mere politicians, subservient to the views of the dominant party; and that being so, they possess and exercise an undue influence on the directors of these banks; and that, in point of fact, the whole plan is a piece of political machinery. This charge, on the other hand, is stoutly denied. The prevailing opinion

out of the State is, that the project is quite as much political as it is as financial."-A Correspondent of the Times, who subscribes himself Genevese Traveller."

Mr. Gallatin says, that the safety fund appears to be unjust-first, by making institutions properly managed responsible for others at a great distance, and over which they have no control; secondly, because on account of the disproportion between the aggregate of the circulation and deposits of the city and country banks respectively, the former are made to pay to the safety fund about twice as much in proportion as the country banks.




It will be seen from the preceding sections that the banking institutions of America are different from those of England. America has no national bankno private banks, and no joint stock banks upon our system. Her banks are all chartered by the governments of the respective States in which they are established. Whether the banking institutions of America are upon the whole superior to those of this country, is an interesting subject of investigation. Those branches of the inquiry that have a reference to a national bank or to the private banks, will not be discussed in this section. I shall merely draw a comparison between our joint stock banks and the chartered banks of America, with a view to ascertain how far the former may be improved by the adoption of some of the regulations of the latter. As a guide to the inquiry, I shall compare the act to regulate banks and banking, passed by the State of Massachusetts in 1829, with the report of the secret committee of the House of Commons upon joint stock banks delivered in 1836. I must, however, premise that in the State of Massachusetts American banking is exhibited in its

most prudent form. In consequence of their superior management, the banks of New England did not suspend payment in 1814, as did the banks in the other parts of America.


An Act to regulate Banks and Banking.

"Sec. 1. Be it enacted by the Senate and House of Representatives, in general court assembled, and by the authority of the same, that from and after the passing of this act, every bank which shall receive a charter from or by authority of this commonwealth, and every bank whose capital shall be increased, or whose charter shall be extended, shall be governed by the following rules: and subject to all the duties, limitations, restrictions, liabilities, and provisions contained in this act."

This section implies that no bank shall be allowed to exist unless it have a charter, and that all the charters shall be drawn up according to the same general rules. In these respects, it stands opposed to the laws of this country. The following is the language of the parliamentary committee:

"The law imposes on the joint stock banks no preliminary obligation, beyond the payment of a license duty, and the registration of the names of shareholders at the stamp office.

"The law does not require that the deed of settlement shall be considered or revised by any competent authority whatever, and no precaution is taken to enforce the insertion in such deeds, of clauses the most obvious and necessary."

An American bank has a charter, a joint stock bank has a deed of settlement. The general heads of this document are thus stated by the committee.

1. "The power of altering the regulations of the company.



"The mode of conducting the business of banking."

3. "The degree of publicity to be given to the proceedings."

4. "The terms on which the company is to be dissolved."

Although the law may not require that the deeds of settlement be revised by any competent authority, yet in fact, they always are, and precaution is taken by the directors of the company to insert clauses the

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