The Minneapolis journal. [volume] (Minneapolis, Minn.) 1888-1939, 1903-08-20
The Soffolk Banking System.


: A Country Banker writes to The Jour
snai asking for information about the
s"Suffolk Banking System" If mistake
mot" he says, asset currency, called,
twas an essential part of the plan
: Assets currency was an essential part OF
1.-The plan in the sense that the Suffolk sys-
ITEM would never have come into existence
Eif there had not been an assets currency
Ito make a place for it. AS IN other
Estates, before the Introduction OF the ma
3tional bank system, Massachusetts banks
ISSUED notes for general circulation. For
iexample, under the Massachusetts, bank
Sing law of 1929, bank might issue notes
Yto an amount not to exceed more than 70
sper cent in excess Of it's pafd-up capital
fThese notes were first lien on the en-
.tire assets Of the bank and hence consti-
tuted an assets currency A later law,
that of 1843, provided that specie re-
}serve.efr15 per cent must be kept on hand
against notes and deposits and no bank
could pay out any notes except itsfown.
!, AS soon as one Of these bank notes
straGed away from the local neighborhood>
Fin which it could be conveniently pre-
scented at the bank for redemption 1T was
subject to discount when, presented at
other banks, the amount Of the discount
running from I per cent upward according
to the distance the bills had to be sent for
q, redemption and the financial standing OF
the bank issuing them. "
: The suffolk banking system grew out or
the opportunity for profit in discounting
and redeeming these notes. 1t was not a
ready-made legal system. The su1tolk
Z bank of Boston received charter In 1913.
! Simply as a business venture 1t took up
] as a regular practice the work OF recelV-
( ing and redeemng the notes OF the banks
of New England. The directors saw a
chance to make money in buying the notes
Gof country banks at discount and for
awarding them for redemption. 1T was
Apure matter of business in which the de-
sire of benevolently sustaining the cur
arency had. no part 1t soon MADE the
Suffolk bank a sort Of clearing house fo'
Gall the note-issuing banks of New Eng
land, and 1t became so powerful that the
.other banks were forced to come to IT.
terms 1t agreed to receive the notes o
any country bank which would deposi
$1,000, with such further sums as Nigh
be required to redeem the bills taken b.
1.-THE Suffolk bank. The banks agreeing t
do this were to have the privilege OF re
esceiving back their bills at the same dis
count the Suffolk paid for them Bank
that would not enter into this arrangement
had to redeem their bills at par vine
sent to them from the Suffolk for redemp
ton. The banks that entered into tn
J compact found that while they ha
benefited the Suffolk by the increase
loans it could make thru their deposits
their own circulation was raised nearly I
e par at distant points and secured cul
4rencv which was of great benefit to then
~ On the other hands, the banks that woul
T. not come to the Suffolks terms found thu
their notes were at such discount
Boston that the Suffolk made GOO
fproft by collecting them and sending the
! home for redemption at par.
e, 1.-THE system thus grew up sa.
j Knox's History of Banking without al
act Of legislature, simply from the for
of circumstances, and the fact that tt
1 managers of the Suffolk bank knew he
Il to- take advantage of them, both for t
j: benefit Of the bank and the community.
It But notwithstanding the efforts of t
Suffolk bank alone to send country pap
a home it circulated in Boston almost
the exclusion of the notes Of the Bost
banks In consequence six other ban
associated themselves with the Suffo
which was made their agent, in an efft
to hold the Boston field for themselv
by promptly redeeming country paper.
fund of $500, 900 was raised for this pr
gpose The result was that the count
slpanks found that their notes came ba
very fast, and this. discovery promot
(, safe banking, for it led the country bar
to prepare themselves to redeem tn
notes in specie on demand
After the association was formed cot
try banks having q capital Of $1OO,
.twere required to deposit $4,000 with
Suffolk bank, free Of interest, In pawn
of the redemption privilege. In consid
3, alton Of this deposit the Suffolk bank
taMcepted notes at par, providing the bs
issuing them had sufficient funds
III posted with the Suffolk bank to m
4 the notes. If the amount Of notes
t,ideemed exceeded the amount the bank
I. issue had to it's credit with the Sufft
sa 1t was charged interest on the differe
and the Suffolk reserved the right to s.
them home for redemption. Whene