Year: 1867

~


Prest Second National Bank, Sendu ky.


To JAY COOKE, Gibraltar, -in-Bay, Ohio.


REPLY OF JAY COOKE.


G1BRALrAR, PUT rN-BAY, OHIO,


october II, 1857. !
| Gentlemen: Your favor Of the lltl


instant is received and in complying


with your request as far as I am able,


do so the more readily because regsrI
the national banking system as standing
upon its own merits, and not In any
sense a party question. With you,
deeply regret the mistaken opposition t.
this admirable system Of finance nov


msnifesting itself in so many quarters
and l cannot but believe that those o
both parties who are now apparently
most antagonistic to the national banks
if they had given as much thought Il
this great project as its Importance de-
mgnds. would be among the foremOs
defenders of q system which, trust, il
destined TO prove itself wise and benefi
cent-a permanent basis for our future
prosperity. 1 shall attempt to answer
your questions in the order In which
they occur in your letter.


! I.-ORIGrN OF THE NATIONAL BANK
ING SYSTEM.


Up to 1858 our paper currency consisted
! Of the notes of banks chartered by the
| several States-each State having laws
| peculiar to itself for the establishment and
government of itssbanking institutions.
/ There was no attempt at uniformity in
! bank legislation, the banks Of one State
standing on basis different from those Of
another. In some cases the banks were
! held to q striCt accountability and re-
quired at times to furnish reasonable
evidence of sOIvencySwh in others the
currency was left to take care Of itself,
and bill holders were permitted TO look
after their own interests as best they
could. (The banking systems of New
York, Ohio, and possibly one or two
other States, were the only exceptions
10 this chaotic rule. As very few State
bank notes passed at par in all parts of
the country, the notes Of each bank
| had different rate of discount and
the notes of the same bank had
different values in different parts Of the
country at the same time. The currency
of one State, although good at home,
was often rejected as uncurrent in an
other. This state OF things rendered eX-
change between the East and the West,
the North and the South, expensive and
veXati0us, eDtRiling constant loss upon
the business meu7of every section. The
notes Of no two banks were alike in ap-
pearance; cOunterfeits flooded the coun-
try, often deceiving the most experienced
judges, and rendering it unsafe for most
people to accept paper money other than
the notes Of their own local banks unless
accompanied by a gUarantee) without
consulting an expert. Failures were
frequent and disastrous, the loss usually
f.1Gf frat "a W
we're least able to bear it. It was impos-
sible to tell what banks were sound and
what ones were on the brink of bank
ruptcy. The whole system was wrapped
in cloud of uncertainty, and the public
mind was filled with apprehension. A
more chaotic and unsatisfactory finan-
cial condition could not well be imag-
ined.


At such time, ndunder such circum-
stances, the nation was engaged in sup
pressing a great rebellion, and was forced
To meet expenditures utterly unparalleled
in the history Of any country. The
national treasury was empty, hOstilities
were in progress and public confidence
in the financial situation was at its lowest
ebb. The Government could not, to any
extent, avail itself Of the then existing
banking system, for with the exception
Of the noble response of the New York,
Philadelphia and Boston associated banks
in furnishing the first fifty million loan,
the Secretary OF the Treasury sought in
vain for that concert Of action and finan-
cial strength among the banks Of the
country necessary to meet his daily in
creasing wants. The only manner in
which the old system could have been
made even temporarily available would
49, Ahr
the widest license Of issue, thus flooding
the country with an irredeemable
and, to a great extent unsecured
paper currency which long before
the close of hostilities must have
led to financial disaster and collapse for
not only would the then existing banks
have greatly increased their circulation;
bat hundreds of others would have been
established TO profit by the confusion OF
the times. This increase Of banks would
naturally have been greatest in those
States where the greatest license Of cir
culRtioD prevailed, and where there were
fewest checks upon irresponsible bank
ing As the only means Of bringing f.
nRncial order out OF chaos, of giving the
country q safe and uniform currency, Of
restoring the confidence of the people,
and, above all, of furnishing the sinews
OF war, our Government originated, Or
ganized and put in successful operation
that splendid system Of National bank
ing institutions which did much to ena-
BILE the nation to meet its enormous ex-
penditures, fight the war to victorious
close, and which still remains-One OF
the noblest fruits Of our great struggle.


The plan thus devised and put in Ope-
ration was not designed as 3 temporary
expedient TO meet q great emergency
aud die with il, but was meant to be a
permanent financial system, which
should not only strengthen the nation
during q costly war, but also benefit the
people through many years OF peace.


Before introducing the new system it
was necessary to remove the old, and
the latter was induced 10 lease the field
partly in consideration of the beneficial
features of the new system, and partly
by compulsion. Certain rights and priv
ileges were prOffered by the Government
to the old banking corporations If they
would surrender their State charters, re-
tire their circulation and organize under
the uniform plan now known as the
national banking system. Where these
inducements were insufficient to effect
the change, the stimulus OF force was
applied in the shape of special tax on the
circulation of all State banks. One of
these conditions on which the State
banks surrendered their charters and
cOnfOrmed themselves to the national
plan, was the pledge from the Govern
ment that they should be permitted to
issue 8 certain amount of circulating
notes. Particular mention is here made
OF this one condition OF the change from
the old system to the new, because from
1t is drawn the chief argument Of the
opponents Of the national banks, and
also in order that the condition men
toned may at the outset appear in its
true character, as one Of the terms OF
the contract between the National Gov
eminent and the old banking corpora
tions.


The change from the old plan to the
new was rapid and complete. The inn
mediate results Of the change, although
important beyond measure, may be
sketched in a single sentence 1t swept
from existence currency which was at
once mongrel In appearance, unstable in
value, and, with q few EXCEPTIONS, inse-
cure in character, and substituted there
for acurreney uniform in feature, every
where equal in worth and safe as the
Republic itself.


1t secured for the Government an i'm
mediate and much needed loan Of three
hundred millions OF bank capital, and
established throughout the country six
teen hundred most efficient and respon-
sible agents for the negotiation and dis
seulination Of other and for greater loans.
I am glad Of this opportunity of bearing
witness to the fact that not only in me-
gotiating the first five hundred and four
teen million loan Of fTe-twentiss, but
more particularly in the subsequent ne