Daily Richmond Whig. [volume] (Richmond, Va.) 1840-1842, 1841-05-18
From fhs Madison,
EXCHANGE AND CURRENCY.

10 point out plan requires but few words but
may be necessary to add to the plan some expla
nations. for the information OF those who may not be
familiar w ith the subject Of exchange.
| First, as 10 plan.
J. An institution, or National Bank, with cap
ital oftwenty.hve millions Of dollars;
Z. Five millions to be subscribed and paid in by
| individuals, TO he used as active capital;
J. Twenty millions to hc subscribed by the Go
vernment and not paid in. The Government 20 de.
clare, by provision in the law establishing the in
sutuon, that II, at any time, the board Of directors
| shall represent TO the Secretary of the Treasury
that the bank has actually lost or sunk its pa in
capital oil million, and that there arc still outsta nd
ing debts then the Secretary OF the Treasury shall
issue so many bonds Of the United States, bearing
per cent. interest, shall amount to such def
ciences, propided the same does not exceed t~
millions Of dollars;
4. The institution to be a bank of discount and
deposit, with the power of issuing bills;
8. The bank TO be the fiscal agent of the Goyern-
ment, and receive and disburse the public revenue
without charge;
@. All its paper should be received a, par in nav.
ment OF public dues in every part of the Union
u. Three or four of the directors should be APP
pointed by the Secretary OF the Treasury annually;
8. Its books and papers To be open at all times TO
the examination Of these directors;
3. It's boord of directors and officer. to be pro
hibted, under severe penalties, from borrowing or
dealing with the Institution, directly indirectly,
beyond what IS repaired in the performance of the
duties oil the Office of director or officer;
TO- Directors and oths' officers I'LL be paid for
their services fair compensation;
III. The dividends shall be cou6ned 10 the FIVE
millions paid in, and the dividends on this sum shall
not exceed six per cent?
IL. All the surplus shall be applied TO the ex-
pense OF reducing the rate Of exchange on various
places;
10. No branch of this institution shall be located
IN any State OF this Union without the assent of the
Legislature thereof
This is plan well considered, and which will
meet q G wants of the Government and the appro.
baton OF the people.
IL you desire any explanations propound your
questions and they shall be answered
qussiion.-Why do you limit the active ca ptaI of
the bank to FIVE mill ons?
.fnspu.-ln addition to FIVE millions active capi-
ai, the institution will have the public deposits and
the credit that ITS connection with the government
will give At, which will produce large individual de
posts and n corresponding circulation of its notes.
These combined causes will furnish an available fund
lof at business purposes, equal, including capital,
TO twelve or fifteen millions.
=. This sum is than sufficient for all the pur-
poses TO which the funds of such an institution
should be applied. The local banks are now very
numerous and can loan their capital and bills ad-
vantageouSy by dlscountlng paper payable in their
own immediate neighborhood. Therefore the funds
OF this institution should be applied to the subject
oil Exchange, by discountng paper payable at diff.
ierent places, and thus facilitating remitiances If
the institution is not used TO swell the local capita
m
der ITS corro! will be more than sufficient for all its
purposes.
3. The great object OF the institution is 10 reduce
the cost for remittance, and thus render the Ex.
change and currency Of the country uniform.
10 effect this, loss OF interest and some expense
must be encountered. IL cannot be success(ullv and
permanently accomplished by any other means
IL we limit our active capital TO five Million and
only pay dividend Of six per cent. on this sum
we snail necessarily have a large surplus TO apply
n har III :
dividual deposits will be large and the notes of
the institution will necessarily have a circulation
through all the chinnes of trade and travel in our
country.
capital OF Eve millions with the security of The
government, will give as large a circulation and as
great an amount oil deposits the bank as If its ca
pal was fifty millions. Therefore its surplus earn
ings to be applied TO reducing the expense of Eek.
change would IN no degree be increased while thew
might be very seriously diminished.
4. A large active capital is dangerous TO The pub.
lie interests IN the hands of any body of men.
There is limit TO human knowledge and ability
And all experience has shown that banks of small
capital have been managed more safely for the pub.
lie, and much more probably for the stock -holders
than banks with larger nes,-although the expense
OF large bank is not much greater than one of
halflts capital Bank capital and credit when lesiti.
mately applied is used to discount business pa per ha
wing less than 80 days TO mature. Tomake safe loans
requires a general and accurate knowledge Of the
character and business OF all the customers OF the
bank. II the capital is large more difficulty is ex-
perienced in obtaining the information necessary TO
loan a the funds of the bank, and, consequently
the risk of discounting notes that will not be maid ~
maturity, IS increased.
A board Of directors, with honest intentions are
sometimes induced to make loans where their nior-
nation is not as accurate they would desire or
when they know the security is not the best, be-
cause they feel II their duty TO obtain interest #
possible, on all the money placed in their charge
Directors, generally, desire to make large dividends
to stockholders, and hence they great efforts to
increase the earnings OF an institution.
The plan above proposed, declares that all the
earnings OF the Institution, after paving six per
cent on its capital Of five millions shall be expend-
ed in equslizing the exchanges.
This provision will prevent the directors from ia
king any risk, or dlscouning doubtful paper, 10 in
crease the surplus IN the Bank.
Question. Why do you wish to prohibit the di.
rcctors and officers Of an institution from becoming
borrowers This is not done in any other bank
A director is an agent and should receive a salary
as other agents do.
A bank is lender OF money. The interest of
the lender should prevail. This is for the safety of
the public as well as the stakeholder. The interest
OF the lender IS 10 get the largest security for the
least loan and the interest OF the borrower is TO get
the largest loan for the least security This is the
reason that directors limited in some charters to
small loan, and always required to be stockhold.
a director is the ngent Of the stockholders he is
placed there TO loan out their money, therefore his
interest should be the same as his employers
u an agent 6orrovs the money left with him TO
lend his interest becomes adverse TO his employers
and still the owners have no voice in the matter
No lender would employ such an agent-beeause
the agent would only give such security as his own
interest should dictate From this cause has re-.
suited more bank failures than from any other.
One TACT IS notorious, men who wish TO borrow
or afford accommodation 10 their friends, are the
most anxious 10 become directors, and too many in.
stances ara on record, where borrower has by
management secured the votes Of ma jorty Of the
stockholders, and placed in the bank a board Of
directors 10 suit his own views, sometimes M lori
~ OF the stock has been purchased Tor the same pur
p0sc, and so we'll do the public understand the IN.
jury likely 10 result from the operation Of such an
influence, that banks thus situated become at once
discredited and its bills are taken with much hest.
ttton.
II this influence is felt when openly executed, il
should be guarded against IN the charter, by plain
declaration that no director officer shall be direct
ly or indirectly debtor To tho bank. By this means
dangerous influence will be excluded from the In
siitutlon.
IL may not be improper to say, that the safest
course TO pursue IN legislation and busness IL IN
make "honesy the best policy"
II you make il the interest Of individuals IN sc,
honestly, there is no danger 70 be appfebeodeJ
For, surely, n interest and character both prompt
man TO do right. he must be a madman who would
do wrong. But, "h selfthe waverng balance shake.
It's rarely right adjusted"
For these reasons would allow no officer or di
rector Of bank to become a debtor or borrower Of
the institution directly or in Indirectly, and would
limit the dtyidrud4 for the q1une rca.n, nj, a.