Now, if any one of you has any information about banking conditions before the war that can possibly be helpful, I hope he will give it to us for our consideration.
Mr. Banker: I have no hesitation whatever in saying that there were better banking institutions in the United States in 1860 than there are today, so far as the principles are concerned upon which they were operated. But, of course, we must note two things in this connection: First, banking generally was not nearly as good upon the average as it is today; nor could you expect it to be. Second, banks generally were small, and only in a very few states was banking any more under governmental direction and control than the grocery business, stock buying or horse trading. The result was that sharpers all over the country were using the word "bank" or "banker" to swindle the unwary people and defraud the public generally. Third, in some states the legislators were so ignorant of economic law that the laws passed by them only facilitated the schemes of the swindlers in their diabolical work.
It was the reaction against the disastrous and disgusting experiences in one state after another because of the rotten conditions prevailing that some of the states finally passed laws for the establishment of banking systems, which for soundness and efficiency had never been surpassed, nor even equalled for the territory covered and services rendered.
Let me cite you a few instances; I will take first Louisiana.
The State of Louisiana passed a Bank Act which, though erring in one or two particulars, was nevertheless almost ideal; and under it, the state in 1860 stood fourth in banking capital, and held more specie than any other state except one. No limit was placed upon the amount of credit notes the banks could issue, nor the deposits they could receive and no security was pledged for their redemption. The virtue and real substance of the Act was in requiring a coin reserve of 33-1/3 per cent of all liabilities, deposits as well as notes, and confining the loans outside of capital to paper running for ninety days, or less.
Not a single bank organized under this law suspended specie payments during the panic of 1857, and all were conforming to the requirements of redemption when General Butler marched down the streets of New Orleans. The capital of the banks in 1860 amounted to $24,496,000, the $12,115,000, the circulation $11,579,000 and the deposits $19,777,000.
On Feb. 24, 1845, the Legislature of Ohio passed a Bank Act under which the Ohio State Bank was organized, with the right to establish branches and to issue credit bank notes. Each bank was required to deposit 10 per cent of the amount of its circulation to create a safety fund to redeem the notes of any branch that might fail. In 1846 there were seventeen branches; in 1848 twenty-five branches; in 1849 thirty-eight branches and in 1850 thirty-nine branches.
The note issues were of a purely credit character, and were proportioned to the capital as follows: For the first $100,000 of capital, there might be $200,000 of notes; for the second $100,000 of capital, $150,000 of notes; for the third $100,000 of capital, $125,000 of notes; for the fourth $100,000 of capital, $100,000 of notes, and for each additional $100,000 of capital, $75,000 of notes.
The evident purpose of the Act was to give the people a uniform and sound currency, and the plan succeeded admirably. The State Bank of Ohio was regarded as one of the soundest in the country.
The essence of the Act was in the requirement that the notes issued by the respective branches should be redeemed in gold or silver coin, the lawful currency of the United States, and in the insurance given of this result by a reserve equal to 30 per cent, of which at least one-half should be gold or silver and the balance equivalent to gold or silver coin.