Page:A History of Banking in the United States.djvu/254

 and make a bank. The Tammany society being in debt, a plan was proposed for paying the debt by making a bank. When the great fire occurred in New York, in 1835, a proposition was made to create a bank as a mode of relieving the sufferers. "To make a bank," said Niles, "is the great panacea for every ill that can befall the people of the United States; and yet it adds not one cent to the capital of the community."

The effect of this multiplication of banks and of the scramble between them for the public deposits was that an enormous amount of capital was arbitrarily distributed over the country, according to political favoritism and local influence, and in disregard of the industrial and commercial conditions. The banks which received this public money were expressly encouraged to loan it freely. Secretary Taney wrote to the deposit banks: "The deposits of the public money will enable you to afford increased facilities to the commercial and other classes of the community; and the Department [Treasury] anticipates from you the adoption of such a course respecting your accommodations as will prove acceptable to the people and safe to the government."

The banks used these deposits as a "basis for circulation." As soon therefore as this system began to work it produced a grand inflation, reaching out in all directions. In some cases the banks used the deposits which were given to them to put themselves in the position which they were required to occupy as a condition precedent to acceptance as deposit banks. The preliminary appearance which they presented was fraudulent, and was healed by the deposits after they got them.

The banks of were established by separate charters until 1831, the charters having, however, certain common features. The limit of issue was three times the capital; six per cent. of the profits to go to the State for a school fund. A peculiar feature was a provision that every bank director must give a bond for $8,000 to the State, to perform his duties faithfully under the charter. Any person who suffered by the bank might sue on one of these bonds. A safety fund act was passed in 1831. Each bank was to pay threequarters of one per cent. per annum for six years, thus constituting a fund of four and a-half per cent. of the capital, which was to be kept good by assessments not exceeding three-quarters of one per cent. per annum. This fund was liable for all debts of a failing bank. No bank was to begin until fifty per cent. of its capital was paid in, for which oath should be taken to the Bank Commissioners appointed in the act. In 1840 this act was amended and extended, so that the whole of the capital stock must be paid in within two years, or the bank could not go on. The directors were made liable for any losses sustained by individuals through a violation of this act, and each