The Journal of Banking
by William M. Gouge,

Volume I., Number 9,
Philadelphia, Wednesday, October 27, 1841.

"United States Deposit and Exchange Regulator."

When the Reverend John Wesley and Father O'Leary were engaged in an amicable discussion of the tenets of their respective churches, Mr. Wesley objected to the doctrine of purgatory.  "You may go further and fare worse," said Father O'Leary.  So we say to those hard money men who are so very stiff-necked, that they are unwilling to sanction the use of paper, even though it may be the representative of gold and silver actually in deposit.

"You may go further and fare worse."  President Tyler is not a paper money man;  or, if he is, he is not what he used to be.  But a majority of the present Congress are paper money men, as has been proved by their votes on more than one occasion.  The President wishes to satisfy them, if he can, without compromising principles, and if paper which will be the representative of gold and silver actually in deposit, will give them satisfaction, by all means let them have it.

"We may go further and fare worse."  A late number of The Madisonian contains a plan for an institution to be called "The United States Deposit and Exchange Regulator," which we regard as much worse.  An outline of it follows:

1st. The Exchange Regulator to be at Washington, with branches wherever public or private convenience may require them.

2nd. The said Regulator and its branches to be provided with "ten or fifteen millions of paper for issue, in suitable sums, but of not less denomination than $20."  "If it was ten times as much," says the author of the scheme, "used as I would have it, it could do no harm."

3rd. The said paper never to be paid out by any branch, but after said branch shall have paid out all the notes of specie paying banks which it may have received, and all its specie.

4th. It is to be "obligatory on all [the branches] whenever specie, or current bills of specie paying banks in the vicinity are tendered, and a draft on tiny other branch desired, to draw said draft, charging such premium as Congress shall affix;  but this never to exceed the cost of transporting specie."

5th. Bills of exchange are to be purchased, but only for the purpose of settling balances between the branches, and then only when the premium on them is lees than, or not more than the ordinary cost of transporting specie.

6th. In other cases, the balances between the branches to be settled by the transportation of specie.

Such, as we understand it, is the scheme -- a scheme for a National Bank of a peculiar character.  Unlike former National Banks, it is to be founded exclusively on the credit and resources of the Government;  but like them it is to issue a credit currency.  The projector proposes to begin with 10 or 15 millions, and sees no objection to increasing the amount to 150 millions.  A credit currency it will be, indeed, for as the branches are not to begin to issue notes, till after their vaults and tills shall be exhausted of specie and the notes of specie paying banks, such notes cannot be said to rest on even a specie basis.  They would have nothing but the credit of the United States to support them.

Hitherto, the Government has received bank notes in payment of public dues only.  If this plan should be adopted, it must receive them to an extent sufficient to cover an immense amount of exchange transactions, whereby its risk of low from bank failures and suspension of specie payments, would be greatly increased.

It seems to us that the whole scheme is founded on erroneous views of the functions of Government.  The regulation of weights and measures is among the attributes of sovereignty;  but not the regulation of the rates of exchange, or the prices of commodities.  Let the weights and measures of a country, including therein its measures of value, be first properly adjusted, and free competition will fix the prices of bills of exchange and of all other commodities, better than can be done by any direct action of Government.

Where the banks pay specie, this "Exchange Regulator" is not wanted.  Exchanges are there already reduced to the lowest possible rate.  Thus, between New York and Boston, they vary from ¼ to 1/8 per cent.  Where the banks do not pay specie, this "Exchange Regulator" will be of no use.  The branches are to receive only specie, and the notes of specie paying banks.  To obtain these, the people will have to sell the notes of the local banks at a discount, which, with the premium they would have to pay to the branches of the "Regulator," would bring exchanges, as measured in depreciated paper to as high a rate as at present.

Even in the region of suspended bank paper, bills of exchange can be purchased for specie, at a premium not exceeding the cost of transporting gold and silver to the place where the bills are payable.  Sometimes they can be purchased for less.  This point we cannot better elucidate than by an extract from the able speech which Mr. Shields, of Alabama, delivered in the House of Representatives on the 7th August last.

"The exchanges between any two points -- as, for instance, between Mobile and New York may be entirely equal, whilst the local currencies of the two places may be greatly unequal in value, and when exchanged one for the other, would exhibit that inequality in a striking manner, as do the local currencies most generally throughout the Union at this time.  During the last winter, the notes of the Bank of Mobile, and of the Planters' and Merchants' Bank, (both specie paying banks,) at Mobile, bought checks and bills of exchange on New York at par, or within a fraction of par; whilst, at the same time, the notes of a non-specie paying bank in another street in the same city, (to-wit, the branch bank at Mobile,) with a capital paid in of four million dollars, could not buy a check or bill on New York short of a premium of ten or twelve per cent."

This short paragraph at once reveals the secret of the derangement of exchanges, and the true remedy.  The cause of the derangement is to be found in the suspension of specie payments by the banks.  The remedy is to be found in a resumption of specie payments.  For this, we must look to the State Governments.  The United States Government is herein nearly powerless.

Bank Failures.

"We have," says the Chilicothe Advertiser, "received information that the New Bank of Circleville has followed in the footsteps of the Gallipolis Bank and the German Bank of Wooster, and that it now refuses to give even the ragged notes of other banks in payment of its own paper."

"We understand," says the Ohio Sun, "that the Newtown Library Bank has exploded."  This is, we believe, what is otherwise known as the Bank of Hamilton County, and the capital of which has been described as consisting of some old books and pamphlets.

Bank Defaults.

The failure of the Commercial Bank of New York was mentioned in our last.  A day or two afterwards, it was discovered that Mr. Redfield, the cashier, was a defaulter in the amount of $56,000.  "No man," says the Journal of Commerce, in announcing the event, "would have been less suspected of standing in such a position than Mr. R."

Some of the papers state, that his extravagant style of living, led him to commit this breach of trust: but, according to the following extract from the Journal of Commerce, dabbling in stocks was the cause of his ruin.

"The dishonor of Mr. Redfield is the subject of general conversation in the monied circles, and excites various feelings of regret and condemnation.  He is quite an accomplished man in business.  His father is a respectable fur dealer in Water street;  and his father-in-law a very respectable gentleman of property, formerly of the Seventh Ward, but now of Worcester county.  He was a member and we believe in officer, of the Church in Market street, of which the Rev. Dr. Ferris is pastor.  Yet he has been for four years engaged in making fraudulent appropriations of the money of the Bank, and has every six months sworn to the accounts of the bank as rendered to the State, though he knew that the accounts were false, by means of his own depredations.  Men always have some way of settling such things with their conscience, and we are told that Mr. R. says, the statements to which he swore were true transcripts of the accounts of the Bank, as they stood upon the books, and that, therefore, his oath was not false.  The Bank Commissioners, however, entertained a different opinion, as we understand, and thought it their duty to cause a complaint to be entered for perjury.

"The defalcation was known to the commissioner who examined into the affairs of the Bank same ten days ago.  On the disclosure being made, Mr. Redfield set himself to make security to the Bank, hoping that if he did so, the matter would go no farther.  For this purpose he procured the notes of one gentleman for $10,000;  of another for $12,000, and of a third for $14,000, making $36,000 in all, which, with the bond for $20,000, signed by his father-in-law and another friend, that he had given at his entrance upon the office of cashier, covered the whole defalcation.  These large notes he was able to obtain of his friends by only saying that he was in need of them, without going into the details of his necessity, so great was the confidence placed in his character.

"He repaired to the house of his father-in-law on Friday night for the purpose of completing the matter of security, but he had said nothing of his errand, when, on Sunday morning, one of his friends in the city, perceiving the criminal character which the affair was taking, sent him word of his danger, and he immediately told his father-in-law that he was in trouble, and left abruptly.  Of course he did not go in the steamer from Boston that afternoon, for it was impossible.  Mr. Redfield owned two or three houses in the city, though they are probably mortgaged for their value, he said he bad lost the whole amount of his defalcation by dealing in stocks.  His style of living was always within his salary.  He kept a horse and wagon of little value, which he purchased at the recommendation of the physician.  The notes which he procured from his friends for $36,000 are in possession of the Bank, but whether they possess any legal validity remains to be seen.

"A bond given by the directors of the Commercial Bank to the Bank Commissioners, has been mentioned in several of the papers.  The last dividend was declared in violation of the well understood opinions of the Commissioners.  It was advertised in the newspapers before the Commissioners had any suspicion that, after what had passed, the Directors would think of declaring another dividend.  The Commissioners expostulated with the Directors for what they had done, and well nigh came to the conclusion to prevent the dividend from being paid.  But the Directors insisted that they were able to pay, that the stocks were sound, and that the Bank had a surplus, notwithstanding all its losses, and the fact also that $160,0000 of its capital had been used to buy its own stock.  The dividend had been advertised, and it was a bad business to countermand it.  The Commissioners therefore took the bond of the Directors to the amount of the dividend for the protection of the safety fund, and allowed the dividend to be paid.  If the Bank has assets enough to meet its debts, this bond will of course not be resorted to."

The next gentlemen on our list, are Mr. E.R. Biddle, the President, and Mr. E. Lord, the Vice President of the Morris Canal and Banking Company, at Jersey City.  Their story is thus told by the writer of the money articles of the New York Herald--

"The affairs of the Morris Canal and Banking Company have for some time been under the investigation of a committee appointed for that purpose, composed of Messrs. G.W. Fisk, Kenny, of Newark, and James B. Murray.  The progress of the investigation developes, as we anticipated it would, many curious facts in relation to the connection between that institution and the Biddle family.  In 1837, when the Morris Canal Company was newly organized under the Presidentship of Mr. McLane, E.R. Biddle became a director of the class whose time was to expire in 1842.  In the progress of events, and as the Morris Canal became more intimately connected with the United States Bank in its stock transactions, Mr. E.R. Biddle became President of the institution, and Edwin Lord, brother of Eleazor Lord, President of the Erie Railroad, was Vice President. Messrs. Biddle and Lord, about the same time, became interested in some iron works in Danville and Wilkesbarre, Pennsylvania.  In the former place they erected three furnaces for the manufacture of pig iron, and at the latter a rolling mill.  These movements promised to be lucrative, from the method of making iron by the use of anthracite coal, in relation to which a good deal of excitement was at that time felt, and Nicholas Biddle, Esq. addressed several public meetings on the subject, setting forth its great advantages in a pecuniary and political point of view.  Mr. E.R. Biddle, being then without property, on his assumption of the duties of President, moved to this city, took a house in Waverly Place, at a rent of $1,200, which was furnished at an expense of $8,000.  To carry on the iron works, the next step was to borrow of the Morris Canal Company $180,000, for which bonds were given payable in iron.  This sum furnished the capital with which the iron speculation was conducted, for the profit of Messrs. Biddle and Lord on the funds of the company over which they presided as officers.  The bonds of Biddle were given to the State of Michigan as part security for the balance of the $5,000,000 taken by the Morris Canal and made over to the U.S. Bank.

"These facts appearing, as the investigation progressed, the direction wrote to Messrs. Biddle and Lord, requesting them to resign.  Whereat those gentlemen were highly indignant, denied the legality of the proceedings and refused to vacate.  Nicholas Biddle, Esq. then came to this city a short time since, to remonstrate, and to endeavor to get up a counter investigating committee, but was unsuccessful.

"On Friday last the Directors had a meeting, and by a vote turned out both Mr. Biddle and Mr. Lord.  On the same day Mr. Biddle's furniture, at No. 20 Washington Square, Waverly Place, was partly sold at auction.  Most of the best articles were bought by R.S. Dyson.  The remainder was packed up, and it is said Mr. Biddle will remove to St. Louis, where he has a large amount of real estate, or may go to Danville, to enjoy the iron works built up by $180,000 of the funds of the creditors of the Morris Canal."

The Springfield (Illinois) Register, gives the following particulars of the default in the State Bank in that place, to which we alluded in the last number of the Journal.

"It appears that Cornwell had in charge, as clerk, the Real Estate account of the Bank, which is kept in a separate book.  The Real Estate fund consists of money loaned for five years, on mortgage, the borrower paying interest at 12 per centum per annum, half yearly.  Cornwell kept what is called a tickler;  in which he was to enter, during the day, the sums paid for interest.  When the Bank closed each day, these sums were added up at the foot of the page, and the amount reported to the teller, on whose book it was also entered.

"Cornwell, it appears, was in the habit occasionally of robbing the amount which some one person would pay in, leave it off the tickler for the time being, by which means his tickler agreed with the books of the teller to a cent.  Afterwards, he was in the habit of entering the amount on the tickler, without changing the sum total at the foot of the page.

"By this means, it would be next to impossible to discover the fraud, unless by some accident the pages of the tickler should be afterwards examined.  This was fortunately the case.  Mr. Campbell, the teller, happened a short time ago to have the tickler open before him on the counter, and almost without thinking what he was about, he added up a page of it, and found it made a hundred or two dollars more than the sum total at the foot of the page.  This excited his suspicion.  He carried the tickler to the cashier, Mr. Ridgely.  Both of them examined it closely;  and to their utter surprise and horror, they found that a system of fraud had been practised by Cornwell for a year past, the whole extent of which is not yet discovered.  One of the ticklers is missing, altogether.  Mr. Hogan, the President, pro. tem. of the bank, and one of the private directors, was called in by the cashier.  Cornwell was sent for by these gentlemen.  He at first stoutly denied the charge;  but finding the evidence too plain for denial, he confessed the crime, and immediately offered to secure the bank by giving up his house and lot, valued at $1,600.  It appears he was indebted to the Bank 650 dollars.  This, added to the amount purloined, made the sum of 1300 dollars.  The proposition, we learn, was accepted, and a deed was accordingly taken by the Bank for the house and lot.  Cornwell was then dismissed from his clerkship.

"At this stage of the business, the fraud was not publicly known.  From motives of charity, and a feeling of regret for the family and connections of Cornwell, who is a young married man, those privy to the transaction were willing to keep it secret.  Their feelings weighed down their sense of what was due to public justice, and the safety of society, and Cornwell was permitted to go at large.

"The crime, however, could not in the nature of things remain long concealed.  Mr. Hickox (one of the state directors) got at the bottom of the whole affair, and immediately caused Cornwell to be arrested and brought before a justice of the peace, where he was bound over to appear at court in the sum of eight hundred dollars --an amount entirely too small to ensure the appearance of the prisoner.

"We cannot let this occasion pass without an attempt to arrest the vicious practice which has now, on two occasions, prevailed with the officers of the bank, in attempting to conceal the robberies of the underlings.  When Town robbed the branch at Jacksonville, Mr. Mather expressly stated in court that he felt such regret for the young man, that he was willing he should escape justice upon his giving up the property he had stolen;  and now we have another example of the same kind.  This is all wrong.  In these times, when crime is marching with a bold and unblushing front all over the land, examples of justice should be made as a warning to the rising generation.  We will not say that their party feelings have operated with the officers of the Bank --we are willing to believe that false philanthropy has governed them in their attempts to screen the guilty;  yet this feeling may itself become a crime of the deepest magnitude against society, and the moral and political laws upon which it is founded."

Mr. Whiting, the young man who was accused of having done something wrong, while filling some station in the Bank of Gallipolis, Ohio, has been committed to prison.  Bail was demanded of him in the sum of six thousand dollars, and this he was unable to give.

Brown, the clerk in the Herkimer Bank, who ran off with 70,000 dollars, has, with his two confederates, been sentenced to four years imprisonment.

Mr. Knapp, the defaulting cashier of the Mineral Point Bank, Wisconsin, has, it is said, arranged matters to the satisfaction of the trustees.

The Foreign News.

The steam packet Columbia, arrived at Boston, brings intelligence from London to the date of Oct. 4th.

The corn law question is to be passed over entirely till the next session of parliament, in February, 1842.

It is believed that it will be necessary to import sixteen million bushels of wheat to supply the people with food.

The Government has advertised for a loan of three millions sterling.  Money has been in great demand at London, at 6 per cent. --a very high rate for that city.

Trade is in a very depressed state, and the sufferings of the operatives are in consequence very great.

The sales of cotton at Liverpool, during the week ending in Oct., amounted to 27,720 bales, 9760 New Orleans, 4¾ to 8; 5980 Mobile, &c., 4¾ to 7.

At Lisbon, in Portugal, a very serious failure had taken place;  that of the Spanish house of Corpas, Garcia & Co.  The bulk of the loss, nearly six hundred thousand dollars, will fall on the English cotton houses.  N.B. Portugal is a paper money country.

A great failure, involving £70,000, has occurred at Huddersfield, and thrown a number of persons out of employment.  Several more failures have occurred at Manchester.

The news of President Tyler's having vetoed two bank bills, and the consequent dissolution of his cabinet, produced a great sensation in England.  The John Bull, a Tory newspaper, says, "From the moment President Tyler took his line of policy on the bank question, and exhibited such Jackson like pertinacity in maintaining it, we foresaw the crash must come.  President Tyler may be an honest man, but he is clearly ignorant of the state of feeling in his own country.  There is no such thing as sterling honesty to be found from one extremity of the States to the other;  and as the bank scheme was taken up for the simple purpose of affording fresh facilities for speculation, he may depend upon it that in spite of his resistance, it will be carried."

Some of these remarks are not very complimentary.

The London Morning Herald, in commenting on the news respecting the United States Bank, says,

"The final declaration of the insolvency of that mighty institution ought not to be passed over in silence.  The directors, by the assignment of all its remaining property to trustees for the liquidation of its debts, have consummated its now irretrievable bankruptcy --a bankruptcy more prodigious, it may be said, than ever the world witnessed-- for it is the bankruptcy of a magnificent establishment which started with a capital of thirty-five millions of dollars;  and so total is the wreck that it may be doubted if a single cent of surplus property will remain, after the indispensable payment of debts, for division among the shareholders.  The famous Mississippi Association of Law in France, or the South Sea bubble in this country, were not, on their final explosion, to be compared with this gigantic failure."

The Leipsic Gazette, under date of Vienna the 22d ult., states that the modifications lately introduced into the charter of the National Bank of that city, had for their object to limit the issue of paper money.  The principal bankers disapproved of the measure, because formerly they received cash from the bank for bills at five per cent. discount, whilst they charged the merchants eight per cent.  The bank shares had in consequence fallen.

A new bank is about to be established in Flanders.  It is to make no loans to the Government, but the Government is to control the amount of its issues.

Advices from Canton have been received to a late date in May.  At that time the British and Chinese were engaged in active hostilities.  Some thousands of the Chinese have been killed.  The British loss was small.