which was connected with it, led to the creation of these banks. It was easy at the time to obtain subscriptions in the East for bank stock in these distant States.
The reader may ask: What could a bank be expected to do for public improvements? It might be compelled to pay a bonus which could be appropriated to public works. That would be a mulct or loss once for all. If bonds were to be sold, it might act as financial agent to market them. If it bought them itself, it would lock up its capital and become a canal or railroad company, not a bank. It might make temporary advances before stocks were sold or taxes collected; but if the bank was to stay sound, these must run but a short time and payment must be strictly secured. If banks were used otherwise than in these limits, they and the improvements must all fail together. This is what happened. The Bank of the State engaged at once in a supply of capital for speculative operations at Alton. Ford thinks that it must have lost $1 million and was nearly insolvent before the end of the second year of its existence. It was regarded as a whig bank and could not get a share in the public deposits.
The Bank of Illinois was authorized February 28, 1837, to borrow $250,000 and lend it on mortgages, having not more than five years to run, at not more than ten per cent. March 2d, the Governor was ordered to subscribe $100,000 to the stock of that bank, on behalf of the State.
The internal improvement system had been undertaken on a most extragavant scale in 1836. March 4, 1837, an act was passed to increase the capital stock of certain banks and to provide means to pay the interest on the loan authorized by the act to establish internal improvements. The capital of the Bank of the State was to be increased $2 millions, and that of the Bank of Illinois, $1.4 millions, if they consent. The State was to contract a loan of $3 millions, at six per cent., payable in 1860, with which to take all the increase in the capital of the Bank of the State, and $1 million of the increase in the capital of the Bank of Illinois; $400,000 of the latter were to be left for private subscription; the dividends on the State stock in the banks were to be applied first to pay the interest on the loan here provided for, and the remainder to pay interest on the internal improvement loan. The money obtained on loans was to be deposited in the banks, at interest, until used.
It was believed that the State bonds would sell for 110 and that the dividends on the bank stock would pay the interest and sinking fund on them. It was not possible to sell them at 100. The banks took them.[1]
- ↑ Ford, 190.
