A similar result was witnessed in 1857. In consequence of the large supplies of gold received from California, the banks had all lent liberally, and issued paper in excess. When, then, one of the most unsound of them* became embarrassed, and failed to redeem its notes, a panic with all the rest caused them to suspend cash payments, by which all commercial and manufacturing industry was greatly checked, and, in some cases, entirely arrested.

The first object, therefore, to which these institutions should bend all their efforts, is to keep their issues within the limits of safety. With this view, they are subjected to various restrictions, in addition to those contained in their charters, which are imposed by the stockholders in their by-laws, and sometimes by the president and directors themselves. The most important of these regulations are the following:

In making their loans and discounts, these corporations should not only be guarded as to the amount and the security, but should also attend to the character and purpose of the loans. They should, with rare exceptions, make them for short terms, as sixty or ninety days; the difficulty of foreseeing the vicissitudes of trade being in proportion to the remoteness of the time. They should always prefer discounting that paper which had been given for an actual purchase of merchandise rather than that given merely to procure money. The former, commonly called "business paper," is the safest, because the maker of the note has received a value equal to the amount of the debt he has contracted with the bank; while the "accommodation paper" may have been an expedient to procure money to spend, or to discharge an old debt, and the bank has not as good an assurance that the borrower will be able to repay his debt when it is due.

* The Bank of Pennsylvania.

There is, indeed, in all the banks, much money lent of the latter description, nor is it always easy or important to avoid it; but many loans of this character are continued for years by a renewal of the notes every term of sixty or ninety days; and it is notorious that, in times of great pressure on the banks, when they aim to get back a portion of what has been thus lent, a curtailment to the amount of ten, or even five per cent., is severely felt by the borrowers.

The issue of small notes, though a source of profit to the banks, is injurious to the public. A dollar note is not more convenient than a gold dollar, and the cost of fabrication may be nearly or quite as much. But the great disadvantage of such notes is that they banish gold and silver from circulation to an equal amount; so that, when, by the course of trade, specie is demanded for exportation, the banks which are first applied to for gold and silver cannot readily obtain from the community what they have paid away. The greater, therefore, the denomination of the smallest notes, the larger is the reservoir from which the banks can supply the specie of which they have been drained, and thus better escape the evils of suspension.

But, more effectually to secure to the public the benefits of banks, and to guard against their mischiefs, the restrictions which the legislature should impose on them seem, principally, to be the following:

No bank should be established without a considerable capital. Sometimes these institutions are brought into existence where they are not wanted, by a few men, to serve their own selfish ends; by some who hope to be salaried officers of the bank; by others, who are needy borrowers; and by others again, who, being eager speculators, are looking forward to the prospect of large loans. It is only when the capital of a bank is large that the public can have a well-founded confidence in its solidity - that its facilities to trade were actually called for, and that its stock is owned by those who, possessing wealth, may be presumed to have the requisite prudence and judgment for its management.

The capital should be scrupulously paid in gold and silver. When a bank goes into operation before its whole capital stock is paid up, as is usual, the money paid on the last instalments is often specie drawn from the bank itself; by which course, its proportion of specie, and consequently both its profits and solidity, are much diminished.

Whenever the banks suspend cash payments, they should always be subjected to some penalty in addition to the loss of their profits. They should be made to pay interest on their notes, when not redeemed, to be recoverable by a short legal process.

Whenever their dividends, or actual profits, exceed a certain prescribed amount, one-half of the excess should be payable into the public treasury. There should be a frequent change of directors, and no one should continue in that office more than a certain number of years.

They should be prohibited from issuing any note under a certain amount. A few of the States have forbidden the issue or circulation of any note under five dollars. An extension of this restraint would be wise. Among many errors in relation to banking and finance into which General Jackson and his advisers were betrayed, there is one piece of policy the wisdom of which even many of his enemies admitted; and this was, that no bank should issue a note of a less denomination than twenty dollars. In that case, there would always be in the community an ample fund on which the banks could draw when pressed for specie.

They should be required, under a penalty, to limit the amount of their debts, whether to note-holders 01 depositors, in proportion to their specie.

But, of all regulations, no one has been found more beneficial than frequent published statements of their condition; in which the amount of their loans, circulation, deposits, and specie should be officially stated. At fixed times, also, commissioners should be appointed by the Government, to make a strict examination and full report of their liabilities and resources.