Page:A History of Banking in the United States.djvu/443

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THE LOCAL BANKS, BY STATES; 1845 TO 1860.
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bank. If the bank fund of 1829 had provided only for the redemption of circulating notes, as is the case with the act for free banking, all the notes of the safety fund banks which have failed would have been paid at par by the contributions made to the safety fund from 1831 to 1845; and if the present plan of registering notes had also been in operation, the result would have been still more favorable, as fraudulent issues have been redeemed from the safety fund to the amount of $700,000."[1]

In the Constitution of 1846 it was enacted that no banking association might be created except under a general law. "The Legislature shall have no power to pass any law sanctioning in any manner, directly or indirectly, the suspension of specie payments, by any person, association, or corporation, issuing bank notes of any description." All circulating notes must be registered and secured. Stockholders in any association issuing circulating notes were to be "individually responsible to the amount of their respective share or shares for all its debts and liabilities of every kind contracted after January 1, 1850." Note-holders were to have preference over all other creditors.

The amount of circulation of the free banks still exceeded the value of the securities deposited, in 1847, by $127,077, although the securities were so rapidly appreciating that the margin was vanishing.

The abuse of shaving one-half of one per cent., by putting a bank away in some obscure village in the country, having been invented, was continued. The Comptroller, in 1847, complained of it, and gave a number of cases. Consequently the act of April 12, 1848, was passed, by which it was enacted that the business must be done at the domicile of the bank, and that every return must bear an oath that this act had been complied with. The same act provided that only the stocks of the State of New York bearing six per cent. interest might be deposited in the Banking Department, never being taken above par or above the market.

The act of 1837, fixing the limit of circulation for the safety fund banks, was modified, in 1848, so that those which had more than $200,000 might have a circulation equal to their capital. The Comptroller urged that the two systems, the safety fund and the free banking system, ought to be reduced to one by a choice between them. The amount of State bonds which had been issued in loans to the safety fund was $900,828. The average rate at which bank notes of suspended bond-deposit banks were redeemed, down to 1848, was 67.71 per cent.

The law of April 5, 1849, was an elaborate act to put in force the new constitutional provisions. It became the constitution of the banking system of the State, until the national bank system came in. The safety fund banks were allowed to go over into the free bank system. United States stocks might be deposited as security in the ratio of one-half. The liability of a

  1. The Bank of Buffalo was entitled to $200,000 circulation. Up to January 1, 1844, $433,329 of its notes had been redeemed. (Comptroller's Report, 1844).