When the National Banking System was established in 1865, and the 10 per cent tax on circulation was imposed, the life was choked out of one of the most perfect banking systems that had ever existed; and every note of the $1,439,000 outstanding on Jan. 2, 1865, was redeemed without the loss of a single cent to the holders.
The capital was $1,048,000; specie, $389,800; circulation, $1,439,000; deposits, $2,851,000.
Mr. Lawyer: In 1898 I heard an attorney from Richmond speak upon the State Banks of Virginia so boastfully, that out of pure suspicion I investigated them, not believing anything he said at the time.
About 1800 there sprung into life in Virginia a system of state banks based on the old Scotch system under which a half dozen banks of issue were authorized, with numerous branch banks in every part of the state. The charter provisions of these banks were the basis of the few laws that have been enacted in relation to banking since that day.
The first of the banks to be established under state control was the Bank of Virginia, incorporated by the General Assembly, Jan. 13, 1804, with a capital stock of $1,500,000 in shares of $100 apportioned; three thousand seven hundred and fifty shares to Richmond, three thousand to Norfolk, two thousand two hundred and fifty to Petersburg, one thousand to Fredericksburg, five hundred and twenty-five to Winchester, four hundred and fifty to Staunton and five hundred and twenty-five to Lynchburg.
The Charter provided that the banks should hold real estate and other effects to the value of $3,500,000, including the capital stock. The cashier was required to give bond for $50,000; the total amount of notes to be put into circulation by the banks, together with the debts, were restricted to $4,500,000, over and above the money actually deposited in the bank; that is, the issue could be three for one on its cash capital, and this was the established rate for this class of banks.
The bank was well managed and was highly successful. Its notes, all payable in gold, had a wide circulation and were at only one-fourth of 1 per cent discount in New York.
Five other banks were established with the power of establishing branches. These mother banks, six in number, were great institutions, and held the complete confidence of the people. The law did not require that they should keep any reserves and they kept none, except the specie held in their vaults to redeem their notes.
The law provided that the total amount of paper circulation of these banks should never exceed five times the amount of the coin in possession and actually the property of the bank. If the coin of the bank was reduced below one-fifth of its circulation, it was required to stop all discounts until the ratio was restored. As a matter of fact some of the banks issued as high as 8 to 1.