Page:A History of Banking in the United States.djvu/354

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A HISTORY OF BANKING.

them out throughout the State, and in each county, in proportion to representation. And they shall further have power to incorporate one other banking institution, calculated to aid and promote the great agricultural interests of the country; and the faith and Credit of the State may be pledged to raise the funds necessary to carry into operation the two banks herein specified: Provided, Such security can be given by the individual stockholders as will guarantee the State against loss or injury."

From this provision of the Constitution it is evident that the scheme of the banks was already in mind.

The report of the Committee of the Legislature, in 1836, on the proposition for the two banks, pointed to the example of the great Banks of the State in South Carolina, Georgia and Alabama; and spoke in general terms of the advantages of banking, with an issue of three for one on the capital. They said that the Bank of the State would gain not less than $50,000 per annum. Before it adjourned, the Legislature made plans to put the State in debt $3,040,000. Its population was about 90,000. It is one of the most astonishing facts in this marvelous period that communities like Arkansas, Illinois, Indiana, and Florida should have found anybody to lend to them, even if they were foolish enough to borrow. The best defense of themselves which they could make to their creditors afterwards was: We have all been crazy together.

The Real Estate Bank of Arkansas was incorporated October 26, 1836. It was on the mode of the Union Bank of Louisiana, but its history was longer, fuller, and is better known to us than that of any other bank on that model. The capital was to consist of $2 millions, borrowed abroad by means of bonds of the State, and the stockholders were to subscribe $2.5 millions in mortgages, to be transferred to the State as its security. It was to begin with three branches, each to be independent. Each branch was to elect two of its directors, who, with the president of the branch and three members of the parent board, were to constitute the Central Board. They were to elect the president, hold all papers and records, receive the State bonds and negotiate them at not less than par, in current money; the bank to pay the principal and interest of them. Each stockholder was entitled to a credit equal to one-half his shares. All dues to the bank were to be arranged so as to run out twenty-two years from the date of the charter; non-stockholders might renew notes with mortgage, annually, for ten years; the incorporation was for twenty-five years, the last three years being allowed for liquidation. The bank was a preferred creditor, so that its mortgages are called privileged mortgages. All profits were to remain in the bank and accumulate until the State bonds were paid. Only at the end of twenty-two years could the surplus assets be divided amongst the stockholders. Borrowers paid to the bank eight per cent.

The fact that it was the State which organized this institution, and that it was called a bank, blinded the minds of its originators to the fact that it was a gigantic financial experiment, containing an enormous risk. When