The Journal of Banking
by William M. Gouge,
Banks as Corporations.
In this number, on page 93 and 94 we continue and conclude the chapter on "Banks as Corporations," began in our last.
We beg leave to call particular attention to this chapter. Some writers on the American Banking System, leave entirely ought of sight the fact that it is carried on by corporations, having privileges that individuals do not possess. This is particularly the case with the Rev. Dr. Wayland, President of Brown University, Rhode Island, in his Elements of Political Economy; and the Rev. Mr. Holdich, Professor of Moral Science in the Wesleyan University at Middletown, Connecticut, in his Political Economy Simplified.
As reasonable would it be to treat of the organization of the Church of England, and leave out of view the fact that it is established by law with privileges which dissenters do not enjoy. Dr. Waland and Mr. Holdich seem both to have borrowed their ideas from some European authors, who had the English country bank system, or perhaps the Scottish banking system, in view. As the copartners in the English country banks, and in the Scottish banks, (a few only excepted,) are liable in the whole extent of their private fortunes for the debts of the banks, and as the laws of both those countries afford a prompt remedy in case of a bank's stopping payments, arguments which may be plausible enough when used in support of the Scotch or the English country system, have not, to us at least, even the merit of plausibility when used in support of our American paper money system. To those, however, who will persist in shutting their eyes to the character of our banks as corporations, such arguments may be plausible enough.
The New Pet Banks.
The public moneys at Boston have been removed to the American Exchange Bank, at Charleston to the South Western Rail Road Bank, and at New York to the Bank of Commerce.
It is said that the Bank of Commerce has, in consequence of its being made a public depository, made a loan to Government of one million dollars --that is to say, the Bank of Commerce has received United States stock, bearing interest, and given in return therefor an inscription of credit on its books, bearing no interest. This is modern financiering.
As the Bank of Commerce will be expected to make loans to politicians, and as it dabbles in stocks, its name should be changed to suit its character. Instead of being called, The Bank of Commerce, it ought to be called "The Stock Jobber's and Politicians' Bank."
At the head of the list in the present number, we must place the United States Bank. It has for some time been in an equivocal position, but it must now be pronounced broken to all intents and purposes. The last assignment has been made in such a way as to secure the corporate existence of the bank: and, like the Miami Exporting Co., and other Ohio banks that broke some twenty years ago, it may be revived some years hence as a paper money manufactory. But, till that event occurs, we must class it with the broken banks.
The next on the list is, the North American Trust and Banking Company of New York. This is one of what are improperly called "the free banks." It was formed in 1838, with a special view, as we have reason to believe, of getting possession of the public deposits. It failed in this object, and has ever been of a sickly constitution. Its capital consists principally of bonds and mortgages, the exact value of which will be known when they come to be sold. Like the United States Bank, it has dabbled extensively in State stocks.
The founders of this bank were men of magnificent views. They took out a charter to last for four hundred and sixty-three years. They commenced with two millions of capital subscribed, (we do not say paid,) and with the privilege of increasing the capital to fifty millions. According to the return of January last, the amount of capital paid in was $3,285,900: but this capital, as already remarked, consisted principally of bonds and mortgages, and of these bonds and mortgages no interest has been received during the preceding six months, on $2,154,316. The circulation of the bank was then small, only $1,980; and its specie still smaller, $964. Its liabilities, besides its circulation, amounted to $4,650,684, of which $2,711,687 were due in Europe. Its assets amounted to $7,348,839: but of these, upwards of two millions consisted of bonds forming the capital stock on which no interest was paid; upwards of $1,200,00 of bonds for money lent, on which, likewise, no interest was paid; upwards of one million and a half in Arkansas, Indiana and Florida bonds, &c.
Some of the New York editors have been congratulating the public, that so little has been lost on the circulating medium created by the "free banks." But the losses which individuals sustain through the depreciation of bank notes, occasioned by the stoppage of banks, are among the least of the evils of paper money banking. What has been lost, and what will be lost by widows, orphans, and others, who have bought shares at high prices in the North American Trust, and other "free banks". The stock of this same North American Trust and Banking Company, has been sold at three dollars and half a share. We know of some persons, very astute generally in what relates to their private concerns, who bought shares when they were but little below par.
Still the losses sustained by holders of depreciated bank notes, and by holders of depreciated stocks, are as nothing, when compared with the evils paper money banking produces through its interference with all the regular operations of industry, and through its general demoralization of the community.
We mentioned in our last, that the Bank of Steubenville, Ohio, had failed. This bank was incorporated in 1809, and in 1816 its charter was extended to 1843. In 1830 it failed, and on examination it was found that it had a circulation of thirteen thousand dollars, to redeem which and to pay the private depositors, and $172,000 of Government deposits, there was in the vaults the sum of two dollars and sixty-two cents.
In 1839, the bank was revived by a clique of Buffalo financiers, who succeeded in throwing a great amount of its notes into circulation in the southern part of Ohio, and the western part of New York. On the 5th of August it suspended.
A Savannah paper states that the Bank of Rome, in the western part of Georgia, has closed its doors.
The failure of the Mineral Point Bank, Wisconsin, of which mention was made in our last, was accompanied, as is not unusual in such cases, with a bank default. The cashier, a Mr. Knapp, fled into Illinois, but was pursued by some of the public authorities, and arrested at Rockford. Before he was taken back to Mineral Point, he gave into the hands of a friend some books which he stated he did not consider safe in his possession. This fact leaked out, and the multitude, (always impertinently curious in such matters,) insisted on the books being examined. The examination was made, and there were found certificates of deposit, and other valuables, amounting in all to about one hundred thousand dollars, ingeniously secured under the fly, or blank leaves of the books.
In our last, we mentioned the loss of notes, amounting in all to about 72,000 dollars, by the branch of the Farmers' Bank at Danville, Virginia. As great part of the notes were cancelled, and all the specie in the bank was left untouched, the editor of the Farmers' Register thought that the depredator in this instance must have been some other than a bank officer. Mr. Joseph P. Terry, the teller of the bank, has, however, since been arrested, on suspicion, and circumstances are said to be strong against him. Mr. T. received part of his education in the Brandon Bank of Mississippi, an excellent school of modern financiering. The money stolen from the bank has been recovered. It was found in a burying ground, secreted under a tomb.
Farrington, the late President of the Gallipolis Bank, Ohio, has not been released from confinement, but only from prison labor till a new trial can be had.
The Augusta (Georgia) Constitutionalist, speaks of defalcations by two bank clerks at Columbus, amount not exactly known, but probably not over $100,000, nor less than $40,000. The Cashier says the deficiency is small, and the bank fully secured.
The United States Bank.
The whole number of suits brought against the United States Bank since the first of January, in the present year, is about one hundred and eighty. The judgments given against it, in the last nine months, in the District Court alone, are upwards of one hundred, for various amounts varying from one hundred to one hundred thousand dollars. Besides these, between fifty and sixty judgments have, in the same period, been given against it, in the Court of Common Pleas, for various amounts, from ten dollars to one hundred dollars.
As the prospect was that the number of suits would increase, the Directors deemed it best to make an assignment of the greater part of such of the effects of the bank as remained under their control: and such an assignment was accordingly made on the 4th of September, to James Robertseon, James S. Newbold, Richard H. Bayard, Herman Cope, and Thomas S. Taylor.
This is probably the best thing that could have been done --the beat for the creditors of the bank, the best for the stockholders, the best for the public.
Two previous assignments had been made of portions of the effects of the bank, one to secure the payment of the debts due to the city banks, and another to secure the note holders.
The only preferences in the last assignments are in favor of the persons who have become sureties for the bank.
The three assignees whose names are first mentioned, are to receive for their services fifteen hundred dollars a year, each: and the last mentioned two, are each to receive four thousand dollars a year.
Certain stocks said to be of little value are excepted from the assignment. They are shares in improvement companies in the interior of the State, to which the bank was compelled to subscribe, as one of the conditions on which its charter was granted. Besides this, it is stated in one of the papers, that about fifteen millions of suspended debts are not included in the assignment.
On the 6th inst., a supplementary assignment was made, intended to cover such balances as may result from the previous assignments made in Europe and America.
The history of this bank is a beautiful illustration of the nature of our banking system. How long it has been in a state of insolvency, is a question which it is easier to ask than to answer. Some think it has been in a very unsound condition for many years. Be this as it may, its credit was good, not only in the United States, but all the world over; and credit well managed will stand a bank in place of capital. It lost its credit chiefly through its stock jobbing operations. If it had confined itself to business paper, its fate would have been different.
Some of the incidents connected with the chartering of the bank by the Legislature of Pennsylvania, are still a subject of discussion in the daily papers.
Mr. Wm.B. Reed, the member of the Legislature who was accused of having received a sum of money from the bank for the services he rendered on that occasion, repels the charge in the columns of the Public Ledger. "Not a cent of money," he says, "was ever paid to me or for my benefit, either directly or indirectly, by the bank or any of its officers, in consequence of any public act of mine." For services rendered to the bank as a lawyer, after he left the Legislature, he states he has been "moderately compensated." In company with a committee of the board he visited Pittsburg, Erie, and New Brighton, preparatory to the establishment of branches in those places. "Employed, as I had no doubt I was by the Directors, and having faithfully discharged the duty assigned to me, it was sufficient if the President, or any accredited officer of the institution, had transmitted to me the compensation I had earned."
His anonymous assailant maintains that two thousand dollars was more than a moderate compensation for services which many a one would have been glad to perform, simply on condition of his travelling expenses being paid.
There ought to be a thorough investigation of the affairs of this bank. The stockholders ought to have the poor consolation of knowing what has become of their money.
The notes of the bank have been sold at a discount of 35, currency; and its stock has been sold at $7 a share, Philadelphia currency.
How They Do Things in Ohio.
Some thirty yeare ago, a charter was granted to a Library Company, in Newtown, Hamilton county, Ohio, which company, being in operation about ten years, sold its books by public auction, and dissolved itself to all intents and purposes.
Lest fall some enterprising gentlemen from the east, bought up the shares from the stockholders, under the plausible pretext of establishing a manual labor school. But, instead of doing this, they have, under color of the charter, commenced the issue of paper money on a pretty extensive scale. This procedure has excited considerable indignation in the neighborhood, especially since it has been discovered that the company has little wherewith to redeem its issues, except "a library," consisting of Harper's Family Library, some old newspapers, and some rusty novels and tracts. The chief book in the collection is a copy of "Oliver Twist, with engravings."
The company's issues have been known as those of the Bank of Hamilton County, Ohio. We know not why so much feeling should be excited. "Bank of Hamilton County" is a very sonorous name. A charter is a charter. And the capital of "The Bank of Hamilton County" is probably quite as sound as that of many other banks which might be mentioned.
Considerable excitement was produced in this city, one day last week, by a statement in one of the papers respecting the Bank of Pennsylvania. The statement was substantially that the deficiency of Smith, a former clerk, was nine hundred thousand dollars instead of one hundred thousand, and that the bank had, in imitation of the U.S. Bank, made an assignment of its effects. The President of the bank promptly came forward, and under his own signature declared that there was "no foundation for such rumors!"
A Mr. Charles Esenwein, a merchant of this city, has been "Financiering" in a manner for which he will be punished, if he can be caught, as be had no "charter" for his doings. He took possession of great part of the effects of two commercial houses, with which he was connected, one in this city and one in New York, and with these effects embarked for Europe. He is a German by birth, and was extensively engaged in the tobacco trade.
The land distribution bill having passed both Houses, and received the signature of the President, has become a law.
The revenue bill was amended in the Senate, by striking out the duty on tea and coffee. This made it necessary, after the bill had passed the Senate, to send it back to the House: and in the House other amendments were made, which made it necessary to return it to the Senate.
The Fiscal Corporation bill was, on the 3d of September, passed the Senate. Yeas 27, nays 22. On the 9th, the President sent it back to the House, with a message, of the character of which it is unnecessary to speak, as we spread it at length before out readers.