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lic and establishing confidence in the new system. The stockholders, in proportion to their stock interests, were made liable for the ultimate payment of all deposits, no matter what emergency might arise; the executive officers of all National banks were compelled to publish reports at stated intervals setting forth the conditions of the institutions for which they were responsible over their own signatures (duly sworn to before a notary); while, in addition, in case fraudulence should creep into these reports, provision was made for a uniform system of bank examinations under the supervision of the Comptroller of the Currency.

The revenue which all National banks were required to pay to the Government was provided for as follows: one-half per cent. on the circulation allowed by law; one-quarter per cent. on the average deposits for each six months; and one-quarter per cent. on capital not in government bonds. All of these levies must be met semi-annually, besides which the stockholders in National banks are subject to local taxation on the market value of their stock, under the head of personal property. All National banks are further required to deposit with the Treasurer of the United States legaltender notes representing five per cent. of the amount of their circulation, this deposit being utilized for the redemption of their various circulations as may be necessary.

sions of this original act that its substance has remained almost unchanged to this day. Such changes as have been put into effect were mere matters of detail. In 1872, the $300,000,000 limit which had been placed upon the circulation of the National banks having been reached four years before, Congress authorized an extra issue of $54,000,000. This, too, was taken up so rapidly that in 1875 Congress deemed it advisable to remove all restrictions upon the aggregate amount of bank-note issues. The original National bank charters had been arranged to lapse in 20 years, but in 1882 Congress authorized the re-chartering of these banks for a similar period. The most far-reaching changes of all were effected by the currency law of 1900; but these, like their predecessors, were drafted chiefly with a view to the further extension of the system, although they did call at the same time for important changes in the conditions governing the issuance of National banknotes.

According to this law, the issue of notes is permitted up to the par value of the bonds deposited by a bank, instead of up to only 90 per cent. of the par value, as was the case before. The sole restriction imposed in this is that, in the event of the market value of the bonds falling below the par value, additional deposits may be required in order to maintain the security of 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 converted numerous series of outstanding bonds into 2 per cent. gold bonds, payable 30 years after date, and, by way of accelerating this change, reduced the tax levied upon the circulation so far, at least, as the new bonds were concerned - from one to one-half per cent. This inducement succeeded in its intent to render the issuance of notes more attractive. Encouragement to the extension of the system was afforded through the following provisions, which for the first time adequately took into account the limitations of the smaller communities: (1) The establishment of National banks with a capital of $50,000 is permitted in places where the population does not exceed 6,000 inhabitants; and (2) the establishment of National banks with a capital of only $25,000 is permitted in places where the population does not exceed 3,000. The fact that the National banks have been fostered in such fashion by the Government and that they have been the only banks of issue in the country shows to what a tremendous extent the banking system of America has been dependent upon them.

Since the Civil War the United States has had three panics. The first of these occurred in 1873. It was the inevitable accompaniment of the Nation's transition from the inflation caused by enormous war loans to the sound and normal basis of peaceful prosperity. Although commercial and financial interests in all quarters suf


fered heavily for some time, this crisis was finally passed without wreck, and on January 1, 1879, specie payment (which had been suspended since the outbreak of the war in 1861) was resumed. The fact that this resumption was effected without the slightest disturbance of business reflects inestimable credit upon the Nation. Thenceforth the prosperity of the United States progressed by leaps and bounds.

The next serious financial crisis with which the Nation was confronted, although popularly referred to as the 66 panic of 1893," was not a panic at all in the strict sense of the word. As a matter of fact, it arose almost entirely from the lack of confidence. Nevertheless, it was of no longer duration and came nearer to culminating in disaster than any previous emer


The general business depression and financial stringency came on more gradually than such things usually do. They were first felt in 1892. Soon after, the money-broker, who had almost entirely disappeared after the Civil War, again bobbed up into prominence and experienced no difficulty in securing premium for currency of any sort. With the banks money of all sorts was extremely scarce, and for some time they made payments almost exclusively by means of certified checks. This, of itself, should have been sufficient to prove that the trouble was in no sense organic, while at the same time large sums of idle

money, hoarded and withdrawn from circulation, showed still further that the country was not actually impoverished. But public confidence was lacking and operated as a check on enterprise which, reacting industrially (as it must), reached all classes and was the cause of prolonged and intense suffering in every section of the country. It gave rise also to the grave danger of a run being started upon the savings banks. In fact, in many sections in the West this did actually take place, with the result that several really solvent institutions were forced to the wall for no other reason than that they were unable to realize on their securities with sufficient speed to meet the demands which came pouring in upon them. The savings banks in New York, when besieged by long lines of excited individuals all bent upon the recovery of their savings, averted similar disaster only by availing themselves of the law which allowed them to refuse payment of any account save on three months' notice. Although technically this did not constitute a suspension of payment, it amounted to the same thing in effect. Of course, after things had adjusted themselves, the savings banks were found to be as sound as


It was 1897 before the country once more fully settled down to its normal. level. Once this level had been regained, however, the industrial development of the Nation progressed at unprecedented speed. This led di

rectly to a general focussing of interests, and the years of 1901 and 1902 witnessed the rise and spread of vast industrial combinations, and the growth of the large corporate interests which have come to be known as "the trusts." This centralization of financial interests naturally created financial centres, of which New York City, controlled largely by the group of financiers designated as "Wall Street," was the undisputed chief. Prior to 1897 the rural banks had been accustomed to keep on deposit in the banks of New York only such small sums as were necessary to meet their ordinary exchange obligations, but the moment the concentration of the money power became apparent, money poured into the East from State and private banks in all quarters, either for investment or to be placed on deposit at interest. There can be no question that this money movement was a substantial factor in furthering the Nation's tremendous business development, yet before long it became apparent that the latter was going beyond even the new supplies of capital which had opened up to the banks. This was really the advance note of the third panic.

After the remarkable expansion which had preceded, it was no more than natural that the year 1903 should have been one of moderate reaction. During that period an inventory was made of real and paper values. Banking institutions had been severally taxed by the financing of such a great


number of large undertakings during the two preceding years, and not a few banks found themselves saddled with flotations which proved unmarketable. Money rates were consequently high throughout the year, but at the same time, although commercial failures were numerous, very few banks closed. This was due partly to the fact that, in answer to an appeal, the Government deposited $170,000,000 with them.


The reaction extended into 1904, the bank clearings falling sharply after the January disbursements and remaining below the normal until the close of the summer, when they suddenly began rocketing upward until new records were set in November and December. Thus, opening with highly encouraging conditions, 1905 was another year of great industrial growth and one which, in many respects, set unprecedented records. The same flourishing conditions prevailed most of the following year and 1907, too, began without any perceptible slackening in the industrial expansion. However, this growth, together with increased speculation which taxed capital almost without regard, had nearly exhausted the banking resources and fluid capital of the country. The necessity of limiting any further extension of credit became strikingly apparent, and the pressure for money was the dominant feature throughout the year.

Yet only the most astute could be persuaded to heed these unmistakable


signs, and the result was that, when the panic did actually ensue, it came with comparative suddenness to the majority. Beginning near the end of 1906, the downward movement of the stock market market went on unchecked throughout 1907. Toward the close of the year came the silent or rich man's panic, which was the means of preparing the way for the general panic occurring in October and throwing the entire Nation into chaos, causing immense suffering, deranging business to an unprecedented extent, and affecting, while it lasted, all classes. The panic of 1907 was not of such long duration as that of 1893, but it was much more intense-perhaps even more general-and in some respects presented the most serious financial situation which the United States has ever been forced to face.

No class suffered more than did the bankers, and the dangers attendant upon such concentration of capital as had continued so long were thrown into the boldest relief. The panic itself was greatly hastened by the collapse of a copper pool, headed by F. Augustus Heinze and his associates. When their attempt to corner United Copper stock fell through, conditions were such that confidence was lost in the Mercantile National Bank, Heinze's institution, and the long series of banks in which Charles W. Morse, the Thomases, and other well known men were interested. How great was the significance of this may be realized when it is understood that

these institutions included a round dozen National banks and trust companies and about as many State banks. The general feeling of uncertainty toward these institutions forced an examination, which disclosed that the series had been acquired by hypothecating the stock of a bank as soon as bought in order to furnish collateral for funds with which to buy up another. Refusing to countenance such methods, the clearing house forced Heinze, Morse, and the Thomases to resign from all official banking positions. A more thorough examination of these banks, however, proving that they were sound, the Association agreed to help them. But by that time the fear had become general, rumors of unsoundness were heard on every side and all banks began withdrawing their loans and deposits from affiliated institutions. A heavy run on the Knickerbocker Trust Company, of New York, finally compelling it to close its doors, brought the panic to its highest pitch.

It was then apparent that, unless strong measures were followed, utter ruin must follow. Accordingly, in an effort to save the general situation, a group of bankers headed by Mr. J. Pierpont Morgan, volunteered to aid the Trust Company of America, which had been found in sound condition. This institution successfully withstood a heavy run extending over four days, while the Lincoln Trust Company was the scene of another sensational run at the same time. These were the sig

nal for runs on banking institutions generally, not alone in New York, but in all parts of the country, the panic having quickly communicated itself to even the most remote places. The savings banks in particular were stampeded by panic-stricken depositors. Many banks were forced to suspend for a time, not from any inherent unsoundness, but from sheer lack of cash. Only a few were found to be unsound. In New York many savings banks were forced at last, as they had been during the stringency of 1893, to avail themselves of their charter rights and demand notice before deposits could be withdrawn.

George B. Cortelyou, at the time Secretary of the Treasury, hurried to New York and, making his headquarters at the sub-treasury there, did yeoman service in an effort to save the situation. Immediately he put $25,000,000 at the disposal of the National banks, stipulating that most of the capital should be used to help the institutions then experiencing runs. The Morgan group also still stood, working night and day to stave off disaster from many threatened institutions. John D. Rockefeller loaned $10,000,000 for a similar purpose, but still the panic continued, and more and more banks suspended daily. Call money reached a maximum of 125 per cent., and finally the general scarcity of both money and banking credit left the clearing house banks no alternative but to issue clearing house cer

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