Page:A History of Banking in the United States.djvu/448

 It was expected in the spring of 1857 that the crop in England would be poor, and a speculation began for a rise in grain. It turned out, however, that the crops were all good, and the price fell. The mercantile failures were numerous, even in the first months of the year, but a commercial crisis was so little expected that the discount rate was lowered in July. It was this failure to foresee the crisis and to prepare for it which allowed it to get such headway that it became necessary to suspend the bank act and issue uncovered notes.

There were a few failures here at the beginning of August. August 24th, the Ohio Life and Trust Company failed, and a few days later the Mechanics' Banking Association at New York. The Pennsylvania and Maryland banks suspended immediately afterwards. A panic, however, did not at once develop.

The Ohio Life and Trust Company had been in excellent credit. McCulloch says that its failure was like a thunderbolt from a clear sky, and that its New York agents had speculated with its funds and ruined it, while the directors in Cincinnati thought it absolutely sound. The real trouble with it, however, and with the other banks also, was that they had advanced funds for railroad building, which at the time was particularly active in the Ohio States. This passive debt of the Ohio Company was stated at $5 millions. Towards the end of September, the pressure upon the country banks in New York to redeem their notes was very great, and they began to return their circulation and take up their bonds in order to execute their redemptions. If notes of any bank were presented at the redemption agencies at the Metropolitan and American Exchange Banks when there were not funds, those notes were immediately thrown out and the bank was posted in all the newspapers of the State as having failed.

"The suspension was preceded by a desperate struggle between all the banks themselves, and distrust and fear of currency was more apparent among them than with the public generally." The banks began a savage contraction, being in no position whatever to meet the crisis by bold loans to solvent borrowers. It was afterwards said, with great good reason, that the panic was entirely unnecessary and need not have occurred; but the banks put all the pressure on their loans to merchants because they could not recall those to the railroads. The loans were $95 millions January 5, 1856; $122 millions August 8, 1857; but were reduced to $101 millions on the 10th of October. At that time the rate for loans had advanced so far that it could not be quoted. Loans were not to be had, and during the following week the bank loans were reduced to $67 millions, with a run on the banks for gold, which carried the specie stock down from $13.5 millions, on the 19th of September, to $7.8 millions on the 17th of October; but this was comparatively unimportant. The circulation of the city banks fluctuated hardly $1.5 millions. The merchants organized a run on the banks for the deposits.