The New York herald. [volume] (New York [N.Y.]) 1840-1920, 1858-02-01
ny Opinions on Banking and. sns Late Hsvul-


nontnsi anu all ~npear TO desire the enactment Of
some law by vAieh system less liable to sudden ex-
pahs'ons Il SJntractions in the credits of the coun
W may De saugursted.
h4ay juGioious suggestions have been made by
We chief Executive of the country, the Governors OF
the several States, and BY the executive oicer OF
tbe Ranking Department of QUIZ own State, contem-
plating the remedy to be applied to the manifold
defects incident to the system now in vogue; but
none of them, in my judgment, develcpe an ettca,
sious cure The experience which we have derived
from the operations of the banking system OF our
Ssate as it has been conducted in the city OF New
York for the last tive years, appears 10 INC no' w
X most desirable, before we undertake to cure
an evil to discover the cause OF the disease ana taen
endeavor to apply such remediss as we may ase ~
win be most efficient in preventing recurrence Oh
n must be admitted that the city of New York is
Che centre of the financial system OF our coniedeqa
ted States and all mistakes napractices in theex
ecton of thelaws of trade, or in the management OF
ne funds which concentrate there, must be foit IN
Aeir detrimental effects throughout the vast extentof
eur country and as one hos nns
stopped short Of its direful Tesuts on all the nations
q The world with whom this country s either direct
p or indirectly connected.
observation, that what arm about to suggest does
nOt arise from any hostility to the banks, but on the
contrary is offered with view to their future sta
bihty and prosperity, Gas indissolubly unted with
the perranency and prosperity Of all the great inte
rests of the country,) will proceed to show:
First-That the leading cause OF the recent
sevulsion and financial embarrassment, (eom-
nencipg in the city of New Yu60 arose
from the great increase Of the discounts and
loans made by the banks during the first part OF the
wear 1857, and which were based upon the deposits
left with them on call and the sudden contracton OF
elimination of such loans, which occurred between
She 10th of August and the oath of October last.
The sudden( withdrawal of nearly $30,0o0 900 from
q borrowing community within the space OF perlod
of ten weeks tended to produce panic ana bankrupt
sy TO an alarming extent, while it affected ex-
changes, as between us and all other parts OF this
country and Europe to such an extent as to make IL
mpractcabe to get funds due u.s. at gwen points,
collected to meet Liabilities at home; in addition
and connected with this state OF affairs, dstrust
seized the minds of the depositors, who drew their
balances from the banks, and an almost universal
Eun and bankruptcy ensued
Second-The dstrust and panic which seized the
public mind did not arise so much from the want OF
sufficient specie basis on Inc part OF
she banks to meet promptly an Their ia
buities circulating money as from the fact OF the
alarming amount due their creditors on call, being
nearly sos 600 600 at that time $50 OF which,
together with all the capital OF the banks, making
together 1922 900 900, was loaned out to commu-
nifty unprepared to pay at short notice and unable
TO stand up under the withdrawal of nearly $50 0OO
600 within the short period of ten weeks, az above
stated
Third-while some Of the larger banks (more pru-
dent than their neghbor) had fortified themselves
with strong specie basis to meet the demands OF
depositors yet the banks (as whoe) III August last
were lily prepared for any excitement or distrust
among the public or It's calling in question their
ability to sustain themselves; and some OF the bank
officers becoming alarmed at their own positions
tthey lacking sagacity) adopted uniortuIatelya poll
sy OF retreat and retrenchment with such unwarrant
able precptancy that they lost the power to pro-
tect themselves, thereby producing the entire
ruin of many of their dealers, and entaled lasting
a l..I am na u
1T is conceded that ty our present banking sys-
ten Established under the General Banking lawO
the circulation of the banks is amply secured to the
biholder by deposit Of securities in the hands of
eur State officer, and am willing TO a6nit TINS 10
be a fact if we can hereafter be relieved from the
Ga1IeR prostraon of the values OF all property tour
be az full speee tut they eannot II
authority under the anston Of the Law, TO make
their issues and conduct the monetary affairs of our
State are allowed to again place themselves IN such
an attitude Of danger and insolvency, by beng per-
mitted to loan out so much of other peoples money
on time paper, and they sSbject TO pay these enor
nous amounts on call.
Now, ar toThe remedy. AMI the enactment of such
laws ~ shall Hereafter prevent recurrence OF sani'
lar events
IL must be conceded that the State legislature
has she right TO fix abe e. provisions Of
all general sp,cal acts. authorizing the tusine~l
by associations are formed, and the capital rs en-
ployed uader general provisions of law and II the
S:ate has the rigb: to dictate terms, and demand
full security ~ the deposit OF securities 81 tor the
they have also therght 70 say TO srhat amoun1 the
line OF discounts may be extended by each OF these
banks or associations and are a. liberty to aisect
what amount of the FUNDS deposited with them nay
be discounted on, over and above the amount Of
their respective capita,s paid IN IN cash.
This being the case ! would remast
Twenty per eeat in speese upon the anlout~
Of deposits OF funds left with the benks on call IL
New York wiz not accomplish the object, as II
would produce only one dollar Of specie 10 every
five dollars OF deposits du, on demand, and II liable
60 the same fluctuations those which have hereto
fore occurred while IL is impractcabje to carry out
the system FROM the sudden tfanseef OF large
amounts of deposits from large bank to another.
We have three objects TO attain by the proper and
systematic regulation Of the capital and deposits
wit ~
The protection of the deposition. and the certainty
that he NAV obtain his funds on call; the security
of those who may be engaged in business requiring
bank facilities from any sudden withdrawal OF The
capital or cre1f Of these institutions; and the pre-
vcntion of the injurious effects arising from exPsp
sions oontraotions OF these credits wherebya
speculative value is attached 10 all kinds Of pro
perry
To accomplish this end propose that the specie
basis Of the banks should be fixed sum or per
centage on the amount Of their respective capitals
employed and TO limit the amount each may dis
count Of the deposits left with them, as follows
Each bank may discount or loan such amount
of the deposits left with them, on call or other
wise, az shall amount TO sixty per cent on
the amount Of their respective capitals actually paid
in in cash, and shall at time have less than ten
per cent in specie Of the amount Of their respective
capitals and whenever they shall exceed in dis
counts or deposits sixty per cent, a. above, they
shall have hand dollar for dollar In bullion for
every dollar Of such excess
To illustrate: bank with q capital Of ti 900 600
may discount Of deposits $500 600, and must have
500 900 on hand In bullion. Thus the bank ear
maintain an uninterrupted line OF discount Of from
81 500 600 TO 81 ZOO 900 by aid Of its circulation on
800 600 Of bullion, and present 20 the depositor a
security of from 81 100000 to 81 100000 Ia discount
"a paper, and one hundred thousand In specie az a
security fot tne SIX puhdred thousand they hold on
enable the banks in the city TO grant facilities 10 the
public with more safety 10 themselves, and 20 much
iarcer amount than they did from the middle of