The Pacific commercial advertiser. [volume] (Honolulu, Hawaiian Islands) 1856-1888, 1860-08-09
Banks of Circulation.
second story

HONOLULU, aug. ol0s lcJV-
Mr. EDITOR At a time when the subject Of
chartering a bank with power to issue notes for
circulation is before the Legislature Of these islands,
if there is any one who Is familiar with the subject
of banking and can state inrelligently and demon
strably the solid benefits to be derived 10 the COM
mercial and industrial interest, of these islands by
such an establishment it would no doubt be q public
benefit for him to do SO through the columns of the
-7dreTtissr or the P0iyaesiaH. There are many en-
gagged here in business who have not been placed in
any circumstances TO call for their examination Of
the banking system with its incidental benefits and
evils, and who hence are unPrepared to say whether
our peculiar c~ircumstances are such as to call for the
establishment here of an institution, which the neces-
sites of some countries require, though often attend
ed with many evils. 1t is no Impeachment OF the in
telligence Of men whose lives have been devoted TO
other pursuits that they are not masters of this sub
ject, whilst the experience Of other countries clearly
shows that the pecuniart interest OF the whole pub
lie is closely identified with it. Almost every reader
is as familiar with the disasters which come too fire.
9uently upon almost entire communities by large
commercial and bank failures, arising, perhaps usual
ly from over trading and an expansion of paper cir
culation with an insufficient specie basis. We learn
these facts as history, and although we may not un-
derstand the details, the why and wherefore, yet we
see and know the effects, perhaps have felt them
and hence are personally and as component parts Of
the public interested in the establishment of any in
stitution which may produce similar results here.
Is a Bank Of Circulation necessary here 10 regulate
exchange and remittances, or will it promote the
commercial. agricultural and other indus rial inter
ests Of the islands? If so, how iii makes money
pleutier in the form of bank notes, and cheaper by
reducing the interest, will it not tend to produce
over-trading and speculation, and the initiation Of
enterprises which cannot lie carried on and COM
pleted, and which must be cut short, and stopped
by the absolute necessity of curtailing and limiting
the bank circulation.
Banks created by the necessities of commerce and
government in other countries, and sustained by
their combined influence. have often placed the COM
munity in peril by their critical position while other
institutions, less powerfully supported. have failed,
producing wide spread disaster and distress. The
Bank of England, was saved in 1897 by an order
from government restraining the payment of specie,
and this order was issued no doubt TO save the bank.
for its circulation was some 60, OOO, 900 against e.
200, 900 of specie in its vaults, upon which there was
a constant drain. 1t did not resume specie payments
till 1928, n period Of t~wenty-six years. In 1874 Sir
Robert Peel, whose financial as well as political abil-
tiles none can doubt, - having become satisfied Of
the dangerous influence eIerted in its ever varying
and never stable system, first Of expansion, and
then OF contraction in its loan, - sought to provide
remedy in the renewal of its charter. ut with all his
great abilities he failed to impart that safety to the
system which he sought, and the law has been sus-
pended twice since to save the bank, to wit in I847,
and 1857. In the latter instance, the bank had, Of
gold and silver coin only. e5O4, 443, and Of reserve
notes only S957, 40 to meet a circulation of eI9.-
lob. O78.
In both of these instances the bank had an ample
amount Of other securities to meet its liabilities bur
these would not pay its notes. The city bank Of
Vienna, 9 failed during the Napoleouic wars leaving
an incredible amount of utterly worthless notes"
The Austrian national bank, which succeeded, sus-
pended specie payments in l84S, and its 400, OOO, 900
of forms now in circulation are almost worthless.
The first Continental currency issued by the L. s
TO the ultimate amount of 800, 900, 900 Of dollars in
the end became va'ueless. The late Bank of the L.
S, whose stock was worth at one period SO, closed
up in Feb. 1870, without loss indeed 10 the bill
holders, but with the entire loss Of its capital to the
stock holders.
la 1929 in consequence Of frequent disasters the
York legislature adopted the Safety Fund sys-
TEN to enhance bank security, by which all banks
under that law were to pay into the State
Treasury ] of l per cent. annually till the amount
the sum Of 3 per cent. on the capital Of the
bank. This was to constitute a reserve fund to meet
all losses Of the banks contributing, and if diminished
by losses was 10 be replenished in the same manner;
but the failure Of ten banks with losses largely ex-
the whole fund led to the Abandonment of
The system. In 1888 a . free banking law WAS
enacted, authorizing individuals or associations to en-
in banking upon depositing with the comptrol-
er [. States OF State Stocks which were equal to
3.per cent, and bond and mortgages upon real estate
II 8 per cent. Of twice the value Of the stock e1clu-
of all buildings thereon. Difficulties having
arisen in converting these securities into funds suf-
icient to redeem the notes, the law was again re-
modelled in 1870.
Banks not originated by the real wants Of COM
nerce and having to resort mainly to investments on
'ond and mortage as IN some European as well as
American countries, are not public benefits. being
u6Iect to the evils without the preponderating be3e-
It's OF those called into existence by the necessities Of
commerce. 4 writer says, perhaps no where in
ne world does the history of banking show greater
than in England, where during the last =
Ialf century joint-stock banks have failed bv scores
heir profits have been large, but their risks being
orresPondingly great, their failures have been most
DISASTROUS, Greater freedom has always existed in
cotch banking than in England, and consequently
has been greater security"
1t IS doubtless true that the United States have :
z~empLhed the instability of banking in quite as
reat a degree as England. The first bank of France
rom l'l7 10 1903 was unsuccessful, when il WINS mn,