The New York herald. [volume] (New York [N.Y.]) 1840-1920, 1858-01-08

placed there as temporary investment upon interest
Experience must and will now correct this fundamental
error heretofore prevalent with our bankers. The
remedy het<Rith them its correction Is beyond legal Gu
actment.
teuden Why dwell upon the causes that produced sus
pension Of specie payments by our banks They have
sion as before stated this report without precedent
and the resumption OF the same character That the
banks Of this State should suspend specie payments on
the 18th October last, with foreign exchange below par
with abundant crops, with specie at quarter to one
half per cent premium phenomenon only equalled by
their resumption the 18th December following The
wreck Of corporate capital and prvase fortunes during
the past year. caused by the suspension Of banks
but intimately connected with ii, must form the
of the Superintendent for the time and devoted to
| wha. he deems the causes Of such suspension.
The first step in the direction Of resumption Of specie
the 18th OF November last OF series Of resolutions by the
New York clearing house. requiring the country banks TO
redempons the Metropolitan Bank Of that city At the
ega! rate Of onequarter Of one per cent discounthe
city banks holding in sealed packages Of 600 each
nearly 81 of the currency issued by the banks of
the interior Also requiring those banks to resume the
commencing the LIST of January, 1885, and requiring
interest to be paid at the rate OF per cent per aHnu
from the LIST Of December upon the notes thus sealed up
and 10 by the city banks That these terms we're
liberal the part Of the city banks will question
The practical effect of this process was simply to force
the banks of the interior actual resumption Of specie
payments upon all their outstanding liabilities, except
upon such Of their notes as were sealed up in the Meropo
lan Bank. This balance being required be paid
monthly instruments of 20 per cent, commencing on the
LIST OF January places that portion Of their de in the
| dtion Of special loan from the city banks.
This arrangement will undoubtedly lead TO the winding
Of several of the interior banks Ofths effect no cause
OF complaint reasonably exist The terms as before
stated liberal and bank that cannot recover itself
under this arrangement had better for the interest Of
both its stockholders and creditors, go into liquidation.
Still the Superintendent may be permitted Ito say that
he lar from being satisfied that this arrangement Of
city banks wh be beneficial to the business of the interior
Of the State
| The amount OF country currency under seal in New
Yol has steadily decreased since the LIST Of December,
fast the interior banks could retire the The
TACT that the amount placed upon interest at per cent
per aDnum, viii make them use every possible
exer,ou to retire it, they receiving but per
| cent upon their discounted debt the margin is
significant that every prudent interior banker will curta
his line OF discounted paper to master his circulation as
fast as possible.
| The Lac Of discount maintained by the interior banker
rests mainly upon his circulation. The interruption Of
business at present must naturally curta the circulation
of country bank notes. They must be paid upon the
don Of the resolution Of the 9TH Of November and they
will be- from reduction Of the line OF discounts of the
country banks or by the securities lodged in this Depart
ment- These briefly the reasons why the Supern-
teDdent believes the operation of the resolution will not
act benefcav upon the business interests OF the State
Others might be added and perhaps OF greater force
Let lock at the effect produced upon the City banks
by their own acton Tue resolution o. the 1h OF Noyem
Der involved the necessity OF sudden return To specie
payments by the New York city banks Two
apparent Tor this result the resolution forced them TO this
position and that too whether they were ready Tor such
| action or not.
The fret the compulsory retiring of the country
bank which had been used in the Clearing House for
the settlement of balances between the New York city
banks These had been used instead Of coin for pur
rose. When retired that settlement could only be made
| in coin, OF course.
Another was the fact the notes were bear ine
rest al SIX per cent per annunn H money became plenty
every evidence existing that such would be the case what
banker would pay his balance in the Clearing House in
country bank mole certificates with surplus OF spece m
bis vaults II he did, the loss at the rate of six per
Per that bsance they being secured by
deposit the Bank department. and guaranteed by the
banks themselves be refusing by that act to hold the
| best possible paper al six per cent
As before remarked, it forced resumption upon the
city banks by the first Of February, at the furtherest
They by that resolution deprived themselves Oft stand
ard Of value (Bext to con they erected Immediately after
their settlements balanced their accounts by their
tua promises 10 each other II required but little sagacy
the effect Of the action Of the New York Clearing
House on the 9TH Of November last
suspension Of specie payments IS looked upon by the
world unmtga,ed evil and is always supposed to be
followed by an unlimited expansion OF paper money That
this has been is usual result Is fully admitted.
This suspension has produced no such result; II has
been folowedy steady and certain contraction Of
currency The Bank Of England virtually suspends specie
pay meuts Tor the purpose Of enagng Der circulation
Of New York city shown by the respective dates
OF their assumptions, rather the part Of the
Bank of England When she returns to the legitimate pro-
The effect either OF action upon the business
relations Of their respective countries the Superintendent
While the superin,enden, admires the courage that
prompted the bankers return of specie payments and
at time when all Europe IN monetary CONFUSION, he
cannot refrain from saying That Is rather fearful ex
pertinent 10 make at this present moment II would
barely appear 70 hm thai he paper credits OF our couh
settlements and iquidaion Of our mutual Indebtedness,
for resumption Of specie payment The divergence Of
these two elements led directly the suspension and
time alone San place CAPITA and credit in such approx
NATION as Ia produce ahsslihy trade and commerce.
AnotheI snd may say the great element Of l9mdatcg
our Indebtedness TO each other particularly that Of the
country the city IS the bountful country Il
blessed with not 1.-THE of which has been movedfrom
the graunTy corn CRIB towards tie scaboard.
while a return to specie payments always desirable,
general prnoplc-and the superintendent oonsratu
latce tho bankers Of the state upon such rcsuhc
not but express the opinion that resumption although
entirely successful may cripple, or 81 least embarras
appears 10 him that the process Of payment and lqui.
daon Of Indebtedness TO each other must be far short
Of bringing capital and credit into such relative position,
20 enable the business of our citizens to resume an Gu
erzeic and beautiful acton. This Is merely individual
opinion and has basis derived from past experience
He hopes results the bus Of state may be
beneficial the motives honest that prompted this
sudden resumption general suspension % our banks
folloyca by a Resumption IN sixty GAYS Is ass enigma
that time alone solve. coufolnds all cal
culaiiou . 10 hs at mate results an dehes
all experiences Of The past. II teaches Que
great lesson THAI credit may be so cherished aud
stimulated among with contracted currency,
n endanger capital however safely may have en-.
trencbed ITSELF and places record for future zee and
warning the fact that the banks, With only Que dollar IN
10 nine Of immediate Liabilities, broken by our
own cit zeus a ~ protection 10 themselves.
And that while expandn. line Of loans and discounts Is
agreeable easy and apparently profitable 70 the banker
the consequent contraction that must necessarily follow an
nprudence in expansion process dangerous both 10
himself as well IA his customers.
The preventive for future suspension OF specie pay
mcnts only be urawn from past experience
without returning to the peculiar tina, produced
such result ia october last appears 10 the Supernten-
dent that categorical answer to the plain question, "Why
did the banks suspend specie payments will teach what
Is necessary 70 prevent is repetition That answer j.,
made upon them" RI the truth OF the answer be al.
mcd the remedy for the future s clearly apparent In
other words NOT safe FOR bank capital or Che public,
permit the banks Of this State 10 ssy eight or
nine dollars of demand loans 10 one dollar q specie in
their vaults
The Superintendent feels tina, he will be once,
ASSUMING this position by the assertion that the sovency
Of bank does not depend upon the specie In It's vault la
other words that bank may be perfectly solvent with
but little specie, nsovent with large amount on hand
This abstrscily true. The folly Of the assertion s in
It's application hank Indebtedness. The real solvcncy
speaking practically, 81 bank Ia ia immediate capacty
70 pay the demands upon H. not In ts ultimate pore 10
pay those demands. To illustrate the difference between