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lic and establishing confidence in the sions of this original act that its subnew system. The stockholders, in stance has remained almost unchanged proportion to their stock interests, to this day. Such changes as have were made liable for the ultimate been put into effect were mere matters payment of all deposits, no matter of detail. In 1872, the $300,000,000 what emergency might arise; the ex- limit which had been placed upon the ecutive officers of all National banks circulation of the National banks havwere compelled to publish reports at ing been reached four years before, stated intervals setting forth the con- Congress authorized an extra issue of ditions of the institutions for which $54,000,000. This, too, was taken up they were responsible over their own so rapidly that in 1875 Congress signatures (duly sworn to beľore a deemed it advisable to remove all renotary); while, in addition, in case strictions upon the aggregate amount fraudulence should creep into these of bank-note issues. The original Nareports, provision was made for a uni- tional bank charters had been arform system ,of bank examinations ranged to lapse in 20 years, but in under the supervision of the Comp- 1882 Congress authorized the re-chartroller of the Currency.
tering of these banks for a similar The revenue which all National period. The most far-reaching banks were required to pay to the Gov- changes of all were effected by the ernment was provided for as follows: currency law of 1900; but these, like one-half per cent. on the circulation their predecessors, were drafted allowed by law; one-quarter per cent. chiefly with a view to the further exon the average deposits for each six tension of the system, although they months; and one-quarter per cent. on did call at the same time for importcapital not in government bonds. All ant changes in the conditions governof these levies must be met semi-annu- ing the issuance of National bankally, besides which the stockholders in notes. National banks are subject to local According to this law, the issue of taxation on the market value of their notes is permitted up to the par value stock, under the head of personal of the bonds deposited by a bank, inproperty. All National banks are fur- stead of up to only 90 per cent. of the ther required to deposit with the par value, as was the case before. The Treasurer of the United States legal- sole restriction imposed in this is that, tender notes representing five per
in the event of the market value of cent. of the amount of their circula- the bonds falling below the par value, tion, this deposit being utilized for the additional deposits may be required redemption of their various circula- in order to maintain the security of tions as may be necessary.
the notes issued, these deposits being So comprehensive were the provi- made either in the form of bonds or
legal tender. The law of 1900 con- fered heavily for some time, this crisis verted numerous series of outstand
was finally passed without wreck, and ing bonds into 2 per cent. gold bonds, on January 1, 1879, specie payment payable 30 years after date, and, by (which had been suspended since the way of accelerating this change, re- outbreak of the war in 1861) was reduced the tax levied upon the circula- sumed. The fact that this resumption tion so far, at least, as the new was effected without the slightest disbonds were concerned — from one to turbance of business reflects inestione-half per cent. This inducement mable credit upon the Nation. Thencesucceeded in its intent to render the forth the prosperity of the United issuance of notes more attractive. En- States progressed by leaps and couragement to the extension of the bounds. system was afforded through the fol- The next serious financial crisis lowing provisions, which for the first with which the Nation was confronted, time adequately took into account the although popularly referred to as the limitations of the smaller communi- panic of 1893,” was not a panic at ties: (1) The establishment of Na- all in the strict sense of the word. As tional banks with a capital of $50,000 a matter of fact, it arose almost enis permitted in places where the popu- tirely from the lack of confidence. lation does not exceed 6,000 inhabit. Nevertheless, it was of no longer duants; and (2) the establishment of Na- ration and came nearer to culminating tional banks with a capital of only in disaster than any previous emer$25,000 is permitted in places where gency. the population does not exceed 3,000. The general business depression and The fact that the National banks have financial stringency came on more been fostered in such fashion by the gradually than such things usually do. Government and that they have been They were first felt in 1892. Soon the only banks of issue in the country after, the money-broker, who had alshows to what a tremendous extent most entirely disappeared after the the banking system of America has Civil War, again bobbed up into prombeen dependent upon them.
inence and experienced no difficulty in Since the Civil War the United securing premium for currency of any States has had three panics. The first sort. With the banks money of all of these occurred in 1873. It was the sorts was extremely scarce, and for inevitable accompaniment of the Na- some time they made payments almost tion's transition from the inflation exclusively by means of certified caused by enormous war loans to the checks. This, of itself, should have sound and normal basis of peaceful been sufficient to prove that the prosperity. Although commercial and trouble was in no sense organic, while financial interests in all quarters suf- at the same time large sums of idle money, hoarded and withdrawn from
rectly to a general focussing of intercirculation, showed still further that ests, and the years of 1901 and 1902 the country was not actually impov- witnessed the rise and spread of vast erished. But public confidence was industrial combinations, and the lacking and operated as a check on growth of the large corporate interenterprise which, reacting industrially ests which have come to be known as (as it must), reached all classes and " the trusts." This centralization of was the cause of prolonged and in- financial interests naturally created tense suffering in every section of financial centres, of which New York the country. It gave rise also to the City, controlled largely by the group grave danger of a run being started of financiers designated as
66 Wall upon the savings banks. In fact, in Street," was the undisputed chief. many sections in the West this did ac- Prior to 1897 the rural banks had been tually take place, with the result that accustomed to keep on deposit in the several really solvent institutions banks of New York only such small were forced to the wall for no other
sums as were necessary to meet their reason than that they were unable to ordinary exchange obligations, but the realize on their securities with suffi- moment the concentration of the cient speed to meet the demands which money power became apparent, money came pouring in upon them. The sav- poured into the East from State and ings banks in New York, when besieged private banks in all quarters, either by long lines of excited individuals all for investment or to be placed on debent upon the recovery of their sav- posit at interest. There can be no ings, averted similar disaster only by question that this money movement availing themselves of the law which
was a substantial factor in furthering allowed them to refuse payment of the Nation's tremendous business deany account save on three months'
velopment, yet before long it became notice. Although technically this did apparent that the latter was going benot constitute a suspension of pay- yond even the new supplies of capital ment, it amounted to the same thing which had opened up to the banks. in effect. Of course, after things had This was really the advance note of adjusted themselves, the savings the third panic. banks were found to be as sound as After the remarkable expansion
which had preceded, it was no more It was 1897 before the country once than natural that the year 1903 should more fully settled down to its normal have been one of moderate reaction. level. Once this level had been re- During that period an inventory was gained, however, the industrial de- made of real and paper values. Bankvelopment of the Nation progressed ing institutions had been severally at unprecedented speed. This led di- taxed by the financing of such a great number of large undertakings during signs, and the result was that, when the two preceding years, and not a the panic did actually ensue, it came few banks found themselves saddled with comparative suddenness to the with flotations which proved un- majority. Beginning near the end of marketable. Money rates were conse- 1906, the downward movement of the quently high throughout the year, but stock market went on unchecked at the same time, although commercial throughout 1907. Toward the close failures were numerous, very few of the year came the silent or rich banks closed. This was due partly to man's panic, which was the means of the fact that, in answer to an appeal, preparing the way for the general the Government deposited $170,000,- panic occurring in October and throw000 with them.
ing the entire Nation into chaos, causThe reaction extended into 1904, the ing immense suffering, deranging busbank clearings falling sharply after iness to an unprecedented extent, and the January disbursements and re- affecting, while it lasted, all classes. maining below the normal until the The panic of 1907 was not of such long close of the summer, when they sud- duration as that of 1893, but it was denly began rocketing upward until much more intense — perhaps even new records were set in November more general — and in some respects and December. Thus, opening with presented the most serious financial highly encouraging conditions, 1905' situation which the United States has was another year of great industrial ever been forced to face. growth and one which, in many re
No class suffered more than did the spects, set unprecedented records. bankers, and the dangers attendant The same flourishing conditions pre- upon such concentration of capital as vailed most of the following year and had continued so long were thrown 1907, too, began without any percep
into the boldest relief. The panic ittible slackening in the industrial ex- self was greatly hastened by the colpansion. However, this growth, to lapse of a copper pool, headed by F. gether with increased speculation Augustus Heinze and his associates. which taxed capital almost without re- When their attempt to corner United gard, had nearly exhausted the bank- Copper stock fell through, conditions ing resources and fluid capital of the were such that confidence was lost country. The necessity of limiting in the Mercantile National Bank, any further extension of credit became Heinze's institution, and the long sestrikingly apparent, and the pressure ries of banks in which Charles W. for money was the dominant feature Morse, the Thomases, and other well throughout the year.
known men were interested. How Yet only the most astute could be great was the significance of this may persuaded to heed these unmistakable be realized when it is understood that these institutions included a round nal for runs on banking institutions dozen National banks and trust com- generally, not alone in New York, but panies and about as many State banks. in all parts of the country, the panic The general feeling of uncertainty having quickly communicated itself to toward these institutions forced an ex- even the most remote places. The savamination, which disclosed that the ings banks in particular were stamseries had been acquired by hypothe- peded by panic-stricken depositors. cating the stock of a bank as soon as Many banks were forced to suspend bought in order to furnish collateral
for a time, not from any inherent unfor funds with which to buy up an- soundness, but from sheer lack of other. Refusing to countenance such
cash. Only a few were found to be unmethods, the clearing house forced sound. In New York many savings Heinze, Morse, and the Thomases to
banks were forced at last, as they had resign from all official banking posi- been during the stringency of 1893, to tions. A more thorough examination
avail themselves of their charter of these banks, however, proving that rights and demand notice before dethey were sound, the Association
posits could be withdrawn. agreed to help them. But by that time
George B. Cortelyou, at the time the fear had become general, rumors
Secretary of the Treasury, hurried to of unsoundness were heard on every
New York and, making his headquarside and all banks began withdrawing 'ters at the sub-treasury there, did yeotheir loans and deposits from affiliated
man service in an effort to save the institutions. A heavy run on the
situation. Immediately he put $25,Knickerbocker Trust Company, of
000,000 at the disposal of the National New York, finally compelling it to
banks, stipulating that most of the close its doors, brought the panic to its
capital should be used to help the inhighest pitch.
stitutions then experiencing runs. It was then apparent that, unless
The Morgan group also still stood, strong measures were followed, utter ruin must follow. Accordingly, in an
working night and day to stave off diseffort to save the general situation, a
aster from many threatened institu
tions. John D. Rockefeller loaned group of bankers headed by Mr. J. Pierpont Morgan, volunteered to aid $10,000,000 for a similar purpose, but the Trust Company of America, which
still the panic continued, and more and had been found in sound condition.
more banks suspended daily. Call This institution successfully withstood money reached a maximum of 125 per a heavy run extending over four days, cent., and finally the general scarcity while the Lincoln Trust Company was of both money and banking credit left the scene of another sensational run the clearing house banks no alternaat the same time. These were the sig- tive but to issue clearing house cer