BANKS AND BANKING
In a circular letter dated December 4, 1860, addressed to the banks, Governor Moore announced that should the State secede from the Union, as seemed probable, $1,000,000 in specie or its equivalent, would be needed by the administration. The State bonds could not be sold in the North, nor in Europe except at a ruinous discount, and a tax on the people at this time would be inexpedient. Therefore he recommended that the banks hold their specie. Otherwise there would be a run on them and should an extra session of the Legislature be called to authorize the banks to suspend specie payments, such action would produce a run and thus defeat the object. He requested the banks to suspend specie payments, trusting to the convention to legalize this action.[[1]] The Governor then issued an address to the people stating his reasons for such a step. It was done, he said, at the request and by the advice of many citizens whose opinions were entitled to respect and consideration. Such a course, they thought, would relieve the banks from a run during the cotton season, enable them to aid the State, do away with the expense of a special session of the Legislature, prevent the sale of State bonds at a great sacrifice, and prevent extra taxation of the people in time of financial crisis.[[2]]
Three banks—the Central, Eastern, and Commercial—suspended at his request and made a loan of $200,000 in coin to the State. Their suspension was legalized later by an ordinance of the convention. The Bank of Mobile, and the Northern and the Southern Banks refused to suspend, though they announced that the State should have their full support. The Legislature passed an act in February, 1861, authorizing the suspension, on condition that the banks subscribe for 10-year State bonds at their par value. The bonds were to stand as capital, and the bills issued by the banks upon these bonds were to be receivable in payment of taxes. The amount which each bank was to pay into the Treasury for the bonds was fixed, and no interest was to be paid by the State on these bonds until specie payments were resumed. All the banks suspended under these acts, and thus the government secured most of the coin in the State.[[3]] In October, 1861, before all the banks had suspended, State bonds at par to the amount of $975,066.68 had been sold—all but $28,500 to the banks. By early acts specie payments were to be resumed in May, 1862, but in December, 1861, the suspension was continued until “one year after the conclusion of peace with the United States.” By this law the banks were to receive at par the Confederate Treasury notes in payment of debts, their notes being good for public dues. The banks were further required to make a loan of $200,000 to the State to pay its quota of the Confederate war tax of August 16, 1861. (The privilege of suspension was evidently worth paying for.[[4]])
The banking law was revised by the convention so that a bank might deposit with the State comptroller stocks of the Confederate States or of Alabama, receiving in return notes countersigned by the comptroller amounting to twice the market value of the bonds deposited. If a bank had on deposit with the comptroller under the old law any stocks of the United States, they could be withdrawn upon the deposit of an equal amount of Confederate stocks or bonds of the State. The same ordinance provided that none except citizens of Alabama and members of State corporations might engage in the banking business under this law. But no rights under the old law were to be affected. It was further provided that subsequent legislation might require any “free” bank to reduce its circulation to an amount not exceeding the market value of the bonds deposited with the comptroller. The notes thus retired were to be cancelled by the comptroller.[[5]] The suspension of specie payments was followed by an increase of banking business; note issues were enlarged; eleven new banks were chartered,[[6]] and none wound up affairs. They paid dividends regularly of from six to ten per cent. in coin, or Confederate notes, or in both. Speculation in government funds was quite profitable to the banks.