The Indianapolis journal. [volume] (Indianapolis [Ind.]) 1867-1904, 1892-10-04
THE OLD STATE BANK SYSTEM.

Section s. We recommend that the pro-
hibitory 10 per cent. tax on State bank is
sues be acknowledgements tic Platform.
One of the worst features of the old
State bank SYSTEM, which was taxed out
going resolution is intended to re-estab-
lish. was that there was no uniformity
in it. Every State had it's own banking
law, and the result was a hodge-podge
of laws and of banking systeps. None
of the notes were legal tender, and their
value was a mere matter of caprice, de-
pendent largely on the public estimate
of the s%olvency of the bank and its man.
aRement. Some of the laws were better
than others, and the banks in some
States were better managed than those
In others, but there was no uniformity.
A glance at the banking systems of In
diana prior to the war will show what
the people of this State had to contend
with. The State Bank of Indiana, which
was one of the best of that day, was
chartered in the winter of 1894. and
its charter expired in 1867. There were
thirteen branches, and all were banks
of issue. The State held half the stock
in each branch, which it paid for in
bonds bearing 5 per cent. interest. This
bank was we'll managed and Its notes
were generally at par in the Western
States, though often quoted at a dis
count in the East. The State made a
profit out of it. The bank was a monop-
oily, as, by it's charter, no other bank
could be chartered and no other banking
system could be authorized in the State
during the existence of this one. The
affairs of the bank were wound up in
1859 and arrangements were made for
the redemption of it's notes then out
s~tar6ing.
Although, as above stated, the old
State Bank was intended to be a monop-
oily, the Legislature passed other bank
ing acts before its charter expired, the
constitutionality of which was ques-
toned, but never tested. In 1852 a gen.
eral or free banking act was passed.
By this law it was made the duty of the
State Treasurer to receive from banks
organized in conformity with it's pro-
visions bonds of this State and other
States, and to issue therefor notes pre-
pared at the expense OF the banks to
the full am cunt of the bonds. Any
body who could command $4,000 or 3d.
900 Could buy on a margin the bonds
necessary to start a bank, to be paid
for in its notes after its organization
had been completed. Many of these
free banks came into existence with no
more actual cash capital than vas re-
CURED to cover the engraver's bills and
to pay for the scanty furniture of
rented banking-rooms. The bonds
which constituted the security for
the circulation were in many cases
issued. There was nothing to, prevent
over-issues of notes. The following
case is one of actual occurrence. An
enterprising gentleman whose cash cap
ital did not exceed $40. 600. in n
ton with two others who were utterly
impecuniOus, bought, mostly on credit,
| $50.00 o of the bonds of one of the
| Southern States. These bonds he de-
| posted with the State Treasurer, and
as soon as they could be engraved he
received an equal mount of notes. with
which he paid for the bonds. This
transaction having been completed,
more bonds were bought and paid for in
the same manner, and the operation was
continued uctil the financial crisis of
1867 occurred, at which time the bank,
which had been started with a capital
of so. 900, had a circulation of 5000. 600,
secured by State bonds, on which the
bank had for two or three years been
receiving the interest.
Gov. Joseph A. Wright in his message
to the Legislature In 1856 said of this
act:
The practical operation of this law in
many instances has been that the indlvid-
uGl has not sought to locate and commence
the business of banking to accommo-
date the commercial community, but to
borrow money for himself under the sane
| ton of the law. Men without capital or
with barely credit sufficIenG to borrow q
few Thousand dollars of stocks have been
furnished facilities under the law to be-
come bankers to the extent of millions.
| With the currency procured upon the first
| deposit of stocks other securities h ave been
| purchased and other notes procured, and
thus q large circulation has been created
without u dollar of actual capital. Directors
and bank presidents are now issuing this de-
preciated currency over their own coun-
ters without any effort, or, IL is believed,
any ever TO redeem IL. With this
currency they purchase bills payable East,
and the farmer, instead OF getting an equiv
| alent for his products. is paid in a circula-
tion which he cannot dispose of without u
sacrifice nor retain in his possession with
ont danger Instances are not wanting
where the projectors of banks. after suffer
ing their institutions to suspend. have
themselves embarked in the business of
buying up their own paper at a heavy dis
count. thus plundering the laborer of his
hard earnings.
Under this law a large number of free
banks of issue sprang up in Indiana.
| Their career was short and disgraceful,
and their downfall ruinous to the peo-
pie. Such n system could not last long,
and when the crash came State bonds
declined rapidly in market value, the
bank notes secured by them declined
still more rapidly. and the unfortunate
note-holders were left to "hold the bag"
Note brokers and money sharks grew
rich, and the people were the losers.
The prospective retirement of the old
State Bank led to q movement for the