Page:A History of Banking in the United States.djvu/333

 with $50,000 capital, the percentage was 180; for larger banks the percentage was less, until for those having over $400,000 capital, it was 130. A bank of $50,000 capital was allowed circulation to the amount of seventy-five per cent. of the base sum; one of more than $400,000 capital only twenty per cent.

Upon the suspension, the Merchants' Bank of Providence and the Rhode Island banks grouped around it fell heavily in debt to the Suffolk Bank. The president of the latter wrote to the Merchants' Bank: "I hope you will take measures to induce the banks of your State to reduce their circulation to their means of redeeming as early as possible." They did not comply, and in September, 1838, they were threatened with a return of their notes. In December a new arrangement was made, and the amount of over-draft allowed the Merchants' Bank by the Suffolk was fixed at $50,000, "with the understanding that, if the banks of that State could not keep themselves in a condition to meet this limit, the Suffolk Bank would decline to receive their bills."

No bank failed in in this period. Legislation was aimed against the indebtedness of directors, which was limited, in 1840, to one-third of the capital for the whole body of directors of any bank.

.—Before the suspension of 1837, some banks in Albany had adopted the custom of buying country bank notes at a small discount and sending them home. During the suspension, the city banks gave the country banks time for redemption, according to distance. After resumption, this ceased. A voluntary arrangement was then made by which time was given to the country banks to redeem in New York funds and take home their issues at their own risk and expense, the city banks receiving the country notes at one-half or three-quarters of one per cent. discount. When the crisis came on in the fall of 1839, the city banks could not spare capital for this purpose, and the country notes depreciated. The country banks then arranged an exchange of notes at Albany; but the arrangement was imperfect and unsatisfactory because it did not include New York City. The Bank Commissioners, in their report of 1840, after reciting this history, go on to discuss plans for redeeming the notes at New York, in order to avoid exchange and produce a uniform currency. They say: "The vice of banking here, particularly in the country, has always been a tendency to investments in accommodation paper, and too great a reliance upon credit in carrying on the active operations of trade; and many able and experienced financiers consider it a fault of the system that its organization is such as to bring the borrower of money directly in contact with the bank which issues the currency. That its effect is to increase or diminish the amount of currency according to the supposed rather than the real wants of business, and that its tendency is to create a reciprocal stimulus between trade and banking, there can be no doubt."