In 1860 the capital of these banks was $12,660,000 and the circulation was $13,520,000.
Mr. Banker: The record made by the Kentucky banks was excellent, but for organization the State Bank of Iowa, like that of the State of Indiana, has had no superior anywhere in the world, and humanly speaking, the administration and working of both was practically perfect. Iowa in the morning of her statehood was opposed to banking as a business; her first constitution provided that "the general assembly shall provide for the organization of all other corporations except with banking privileges, the creation of which is prohibited."
The Constitution also provided, that "the general Assembly shall prohibit any person or persons, association, company, or corporation from exercising the privilege of banking or creating paper to circulate as money," the penalty for each offense being one year in the county jail and a fine.
During the intervening years down to 1857, when the new Constitution was framed, Iowa had suffered so severely from the bond-secured circulation of Illinois in particular, known as "Wild Cat," "Red Dog" and "Yellow Dog" money that a provision was incorporated permitting the legislature to create corporations with banking power, subject, however, to a vote of the people, and also to establish a State Bank with branches founded on actual specie basis.
I want to call the attention of you fellows to the fact that they had a referendum, a state referendum, in Iowa in those days.
It was provided that the branches should be mutually responsible for each other's notes; that the stockholders should be liable for an additional amount equal to their stock; that the bank could issue pure credit notes for double the amount of the paid-up capital; that in case of insolvency the bill holders should have a prior lien over other creditors and that specie redemption must be maintained.
To secure this solvency beyond peradventure, each branch was required to deposit with the State Bank either coin, United States stocks or interest-bearing state stocks at their market value in New York, but in no case above par. This deposit was equal to 12½ per cent of the note issue, and was known as "the Safety Fund" to redeem the notes of the branches in case any of them failed to do so. In addition each branch must have on hand an amount of coin, equal to 25 per cent of its notes outstanding and deposits held. Here is a replica of the banking system of the Bank of the State of Indiana, and it contains all of the prerequisites of a well-nigh perfect banking system; and the result proved the soundness of the plan.
This bank was prohibited from paying interest upon deposits. The parent bank was not a bank of issue or of deposit. It transacted no business, except with and for the branches.
Certainly there is no bank in the United States today with so good a charter as that of the State Bank of Iowa.
By an act approved in February, 1862, County Treasurers and the State Treasurer were authorized to accept the notes of these branches in payment of taxes, and by an Act approved March 10, 1864, payment of taxes and the interest and principal on the school fund might be paid in United States Treasury Notes, National Bank Notes, or Notes of the State Bank of Iowa, thus showing the unquestionable value of the State Bank Circulating Notes.