Page:A History of Banking in the United States.djvu/466

 any bank, save under a general law, which, if passed, must provide for registry of notes by a State officer, with ample security, in the custody of a State officer; but a bank with branches and without this security might be established, provided that the branches should all be mutually responsible, the stockholders individually liable to the extent of double their shares, the notes redeemable in gold and silver, the note-holders to be the first preferred creditors, and such bank to last only twenty years. No law might ever sanction the suspension of specie payments. The State should never be a stockholder in any bank after the expiration of the present State Bank, nor in any other corporation, nor lend its credit to anybody.

A general banking law on the New York model was passed May 28, 1852. Under it wild-cat banking was developed to an extent then unknown. It was contemporaneous with the inflation in Ohio. "The speculator comes to Indianapolis," said the Governor, 1852, "with a bundle of bank notes in one hand and his stock in the other. In twenty-four hours he is on his way to some distant part of the Union to circulate what he calls a legal currency, authorized by the Legislature of the State of Indiana. He has nominally located his bank in some distant part of the State, difficult of access, where he knows that no banking facilities are required, and intends that his notes shall go into the hands of persons who will have no means of demanding their redemption."

In 1854 the Ohio valley was the scene of a bank crisis at the time of the crisis in the stock market at New York. The Auditor stated, in his report, that a heavy run commenced in May upon the State stock banks for coin. Nothing but coin would be taken. This continued for sixty days before any of the banks suspended. "A crisis then showed itself in the whole monetary operations of the western country." The notes of many banks in Ohio fell to a discount and the banks suspended. "Chicago and Illinois generally were next the theater of the effects of this combined demand for coin; also resulting in the failure of several banking houses, and a depreciation of their notes. The fact that the notes of the Indiana banks, under the general law, were secured by interest-paying bonds of the several States of the Union, and in many instances by the very best securities that any State issues, seemed to be of no value in the estimate put upon their notes by the public. A general depreciation ensued." At the same time, the deposited stocks declined in value on the New York market, so that if they had been forced to sale by the Bank Department, to redeem the notes of banks which had failed, there would have been a deficiency. It seemed to him that if notes secured by the best stocks could not command confidence, it was doubtful whether any system of paper currency would be regarded with public favor. On this occasion, the old-fashioned banks, with no securities in deposit, were so little upheld by public opinion, in Ohio and elsewhere, that their notes became almost valueless. He proposed a number of new