Wild Cat Banking

When the Civil War broke upon the country it found the national government illy prepared to meet the enormous expenditures which a war entails. The treasury was almost empty, and yet vast amounts of money were needed at once. Gold had been hoarded and exported in anticipation of war to such an extent that in the winter of 1861 the banks suspended specie payment. This left no circulating medium except the state bank notes. In 1862 and 1863 the government, to relieve the situation, issued $450,000,000 of government notes, called "greenbacks," with which it purchased the munitions of war and paid its expenses, but depreciation set in and further issues of such notes were stopped. It then became necessary for the government to borrow money, and issue its obligations in the form of bonds. In order to find a market for those, Secretary Chase, of the treasury department, proposed to offer as an inducement to their purchase certain banking privileges. He worked out the scheme of our national banking system and urged the organization of national banks, first in his report of December, 1861, and again in 1862. The chief points of advantage in his scheme were that it would create a demand for government bonds, in return for which the national treasury would receive large amounts of much needed cash, and second it would give the country a safe, uniform and stable note circulation. After much consideration Congress passed the National Banking Act, and in February, 1863, it received the president's signature and became a law.

U. S. Bonds

The original act was crude and unsatisfactory and has been often amended, but the general features of the system remain. In 1864 an amendment was made forbidding national banks from making loans on landed security, which had been permitted by the original act. The law was so framed as to enable state banks to become members of the national system by the simple process of conversion without reorganization. Every inducement was made to the state banks to lead them into the system, but they were slow to make the change. On March 3, 1865, a law was enacted imposing a ten per cent, tax per annum upon the note issues of all state banks. This was a death blow, as it was intended to be, and drove the state bank notes out of existence, leaving the field clear to the national bank circulation. Following this law the state banks rapidly came into the national system, and on the first of January, 1867, there were $291,093,294 of national bank notes in circulation. The large increase in the number and capital of the national banks meant an increased demand for government bonds, which in turn meant vast receipts of cash to the government treasury. Government bonds had been previously selling at 7 per cent, discount. The demand raised their price above par and thus the system proved of the greatest assistance to the government.

But the 10 per cent, tax which virtually made state bank issues unprofitable and hence impossible, aroused considerable opposition on the part of the state bankers. Congress was accused of overstepping its constitutional limitations in its attempt to interfere with state institutions. Suit was brought by a bank in Maine to recover the tax which it had paid, and in the brief submitted to the United States Supreme Court, the contention was made that the state had a right to charter a bank and empower it to issue circulating notes. This right had been exercised by all of the states from the foundation of the republic, without objection or interference from Congress. It had been recognized and upheld by the Supreme Court itself in a previous case. Now to subject the bank to a tax of ten per cent was virtually to destroy this right, and thus encroach upon the prerogatives of the state in a manner unwarranted by the Constitution. The court decided that "Congress had the undisputed power to provide a currency for the entire republic, and that in the exercise of that power it might, if it saw fit, by taxation or otherwise restrain the circulation of any notes not issued by its immediate author-ity."

Thus was formed a national banking system infinitely more powerful than the bank which Jackson waged a war upon, on account of his belief that it concentrated too much power in the hands of a few men, but a system which has proven all of Jackson's fears to be groundless. The favoring conditions in the formation of the national banking system were the stress of war, and the assumption of implied powers by the government made necessary in order to carry on its struggle for existence.

The principal features of the national banking system are as follows:

A currency bureau has been established as a department of the treasury, under the management of an officer called the Comptroller of the Currency. This bureau is charged with the execution of the banking law and the regulation of all details of the organization and management of national banks, the issue to such banks upon receiving their deposits of United States bonds, the appointment and supervision of inspeetors of banks, etc. The Comptroller must not be interested in any national bank either directly or indirectly. He must make an annual report to Congress of the conditions of all national banks.

At least five persons are necessary to form a national bank. Articles of association setting forth all of the details concerning the proposed bank, its name, place of business, capital, etc., are

Currency Bureau signed by the five stockholders and transmitted to the Comptroller at Washington, who, upon approving them and satisfying himself as to payment of the capital and compliance with other requirements of the law, issues a charter for twenty years. This charter may he renewed for a like term of twenty years. The law authorizes national banks to exercise by its board of directors or duly authorized officers or agents, subject to law, all such incidental powers as shall be necessary to carry on the business of banking; by discounting and negotiating promissory notes, drafts, bills of exchange and other evidences of debt; by receiving deposits; by buying and selling exchange, coin and bullion; by loaning money on personal security, and by obtaining, issuing and circulating notes." But they are not permitted to loan money on real estate security or hold real estate except such as is necessary for the conduct of the business, or may have been acquired in liquidation of previous obligations, and then only until it can be disposed of without sacrifice.