The Washington union. [volume] (City of Washington [D.C.]) 1857-1859, 1857-10-06
BANKS AND BANKING-coNTINUED.


It viii be interesting to look into their history
and learn how banks of issue are usually established
There are doubtless some banks in New Orleans Bos
ton New York, and other places, which were estab-
lshed by those having capital which they wished to
invest to derive therefrom regular and liberal in
come, and which are wisely, literally, and safely
conducted. But, with few exceptions, they are set
on foot not by those having capital to loan, but by
persons wishing to increase the facilities for borrow
ing Formerly, legislatures granted charters deter
mining the extent of capital, sometimes requiring it
to be paid in and permitting the Issue of bills to twice
OF three times the amount of capital and sometimes
without any limitation. The subscribers sometimes
actually paid in their subscriptions but more usually
in borrowed bills or money, to be returned as soon
as the bank should be ready to issue when the bor
rowers would give their notes and obtain them.
On some occasions notes given directly to the
bank for part the whole of the subscription to the
capital If the charter required the capital to be
actually paid in it often borrowed paid in and
the fact sworn to- and then instantly taken out
and returned to its owners. Banks thus got up had
little or no real capital and banked upon fictitious
one Subsequently the legislatures authorized the for
nation of associations by those who wished to engage
in banking and conferred them the peculiar faci
ties and privileges of corporations. New plans were
devised to secure billholders old ones having
dedly failed. One to require the amount of the
capital stock to be secured by bond and mortgage
and deposited with some State functionary, and on
his approval he would issue bills to be signed by the
bank officers to the estimated value of the mortgages
AZ
signed by the officer of the State This continuance
early covered large portions of the real estate OF the
country with LIENS and has brought ruin upon thou
sands These mortgages did not form capital on
which to bank but security to bill-holders in
case Of failure As soon the bank obtained bills
to issue they discounted to the stockholders officers,
and others, and they thus thrown into cir
culation 1t is evident that bank thus started had
no money to bank upon. Security was given, but
that did not enable the bank to pay. Such security
could not be available until after the bank failed
Another mode of setting up bank is to deposte
stocks instead of mortgages, and upon them bills
are furnished to the bank. Sometimes these stocks
belong to the stockholders but more frequently they
are borrowed and the lender authorized to draw the
interest upon them. Not unfrequently they are OBJ
tanned on personal security, or through liens upon
real estate. When stock-security bank gets bills it
uses them in payment of the first purchase to pro-
cure more stock upon which to obtain additional
bills. Such banks certainly have no capital to bank
upon But sooner or later those getting them up
become tho principal borrowers at their counters.
While the community receive their bills as equal to
gold and silver, and their ability to redeem and pay
their debts is unquestoncd, all is apparently well.
Although without money, the bank has credit, and
those organizing it pledge their and borrow that
of the bank in the form of bills and often profit by
it. But the whole thing is unreal, and destroyed as
easily as bubble, which it often resembles. Banks
thus got up otcn speak of the mortgages and stocks
pledged to get bills as real capital but they are net
so. They are pledged, and cannot be used for any
other purpose. Instead of being real money capital
they are simply debts, owing by individuals, corpo
rations, States. They cannot be rendered in pay
ment Of debt, the creditors of banks be COM
PEELED to take them and discharge their debts nor
can the banks control them. Mortgages given for
the purpose of getting up bank the mortgagers do
not expect to pay. They are designed to BIO deposit
cd simply means Of obtaining bills, and the nom
inal interest upon them is to be liqudated out of
portion of expected large dividends
Stocks are always payable at future day---often
twenty years hence. When pancs occur and the banks
fail, these mortgages and stock securities strongly
tend to increase the difficulties. They are thrown
into market ut forced sales as is now being done |
Banks and individuals having money, instead Of
lending to the needy and easing the money market
keep their means to purchase at auction these mort
cages and stocks at prices far below their nominal
value The scarcity of money renders it certain that
they viii dcprecate in price with everything else
and consequently sell at low rate. We see the |
stocks Of sound and safe State as Virginia sell
ing at over twenty per cent discount, and those of
Missouri at between thirty and forty The stocks of
have all fallen. To the extent of these deprecia- I
lions the security contrived for the safety of the bill
holders is faacious. Mortgages likely to sell |
ut greater loss. Every sale increases the scarcity
Of money. Hence it is certain that mortgages and |
stocks do not form real and actual available money
capital to bank upon and that they only limited
security for the bil-holder; and when rcsorted to
on the actual failure of banks their sale really
increases the sringency Of the money market and oc
casons loss 1t is equally clear that in these opera
tons the stockholders must lose largely of their in
and indisputably to the extent of the