the Independent Treasury Act, and thereafter the Federal Government had no direct concern in banking until the Civil War broke out. The old United States Bank had its final downfall in the crash of 1837. That crisis taught wisdom to the State banks, and a general retrenchment was the consequence. Between 1838 and 1842 the number of banks was reduced from 675 to 577; capital from $317,000,000 to $229,000,000; circulation from $116,000,000 to $59,000,000; and discounts from $486,000,000 to $254,000,000. Further security was demanded by the public, and among the new measures were the Suffolk Bank plan in Massachusetts, and the New York safety-fund system. The Suffolk Bank plan was merely an arrangement whereby that bank was made the channel through which all notes of New England banks that found their way to Boston, as most of them naturally did, were at once forwarded to the issuers for redemption. The result was that all solid bankers found it for their interest to deposit with the Suffolk a redemption fund, as that insured the acceptance of their notes.
The New York safety-fund system, which is the cardinal principle of the present national banking plan, required each bank to deposit, with the banking department of the State, securities consisting of Federal or State stocks, or bonds and mortgages, which, in case of the failure of the bank, were sold, and the proceeds applied to the liquidation of its debts. In 1857 there was another crash, followed by a general suspension of specie payments; but the depression did not long continue.
One of the serious evils, avoided to a great extent by the issue of greenbacks and national bank currency, was counterfeited or altered bills. When almost every bank had its own plates for six or more denominations of notes, the country was flooded with counterfeits and alterations, and no business man ventured to accept a bank-note not well known to him without previous comparison with counterfeit detectors, weekly volumes giving description of counterfeits and spurious notes. In 1862 there were counterfeits on the notes of 253 banks, besides 1861 bills imitated, and 1685 entirely spurious notes. On the best notes there was a discount in the business centres of from 1 to 10 or even 15 per cent.; and exchange was more variable than the weather. The ‘wild-cat’ and ‘red-dog’ banks of Michigan and other Western States were notoriously unsafe. A dozen of them would club together to make a show for one only, when the examiner came along, and the same specie would be an hour in advance of him all along his route. The ‘red-dog’ bank was so called because of its movable nature, and of the color stamped on its notes. Established in one place on Monday, the ‘banker’ might pack his carpet-bag at night, and on Tuesday open his bank 50 miles away; in which case he stamped in red ink on the face of his notes the name of the place in which the ‘banking-house’ was last established.
The Civil War (1861-65) made large issues of credit necessary, and among the earliest financial proposals was one to enlist the interest of banks in the national credit by permitting them to organize under a national law and issue notes on the basis of bonds purchased by them and deposited with an officer of the Government. It was, however, some time before these proposals took the form of law in February, 1863. In the meantime. Congress had flooded the nation with paper money issued directly by the Government. The banking law of February 25, 1803, created a currency bureau in the Treasury Department, at the head of which is the Comptroller of the Currency, who has power to authorize banking by associations of not less than five persons, and a minimum capital (unless in very small places) of $100,000, one-half to be paid at once, and the remainder in six months. Before commencing business, the association must transfer to the Treasury of the United States interest-bearing bonds of the National Government to the amount of one-third the capital; whereupon they may receive circulating notes, registered and counter-signed, equal to 90 per cent. of the market value of the stocks deposited, but not beyond the amount of their par value. The entire amount of currency to be issued was limited to $300,000,000, one-half to be apportioned among the States according to their representative population, and the other half with regard to the existing banking capital, resources, and business of the several States. The system was slow in getting into operation, and the aid rendered the Government by furnishing a market for its bonds was, after all, slight. In January, 1865, there were only 683 banks that had organized under the national law. To hasten the process, a law of March 3, 1865, imposed a tax of ten per cent. on the notes of State banks, to go into effect August 1, 1866. Under the stimulus of this law, the reorganization proceeded rapidly, and in October, 1866, the number of national banks had reached 1644. The subsequent development of the national banking system is briefly shown in the following exhibit:
| DATE | Number of Banks |
MILLION DOLLARS | ||||
| Capital, Surplus, and Undivided Profits |
Individual Deposits |
Circulation | Loans and Discounts |
U. S. Bonds to Secure Circulation | ||
| Jan. 22, 1870 | 1,615 | 450 | 546 | 295 | 689 | 339 |
| Mar. 1, 1875 | 2,029 | 679 | 648 | 325 | 956 | 381 |
| Feb. 21, 1880 | 2,061 | 614 | 849 | 321 | 974 | 362 |
| Mar. 10, 1885 | 2,671 | 730 | 997 | 274 | 1,232 | 313 |
| Feb. 28, 1890 | 3,383 | 917 | 1,480 | 124 | 1,845 | 143 |
| Mar. 5. 1895 | 3,728 | 992 | 1,668 | 170 | 1,965 | 196 |
| Feb. 13, 1900 | 3,604 | 977 | 2,482 | 205 | 2,481 | 236 |
| Sept. 30, 1901 | 4,221 | 1,086 | 2,938 | 324 | 3,018 | 329 |
National Banks. Of the national banking system, it may be said that the Civil War presented to Congress as its first duty the invention of some plan for repressing the heterogeneous banking system and providing a system of a homogeneous and absolutely safe character; one that would be truly national, operating alike in every part of the United States. The necessities of the Government inspired the new order, but the old was rapidly failing to meet the wants of the people. The new, therefore, may be said to have grown out of the necessities of business as well as the straits of the nation. The new system preserved all the advantages
