The first money-lender in England who at all approaches our modern idea of a banker was William de la Pole, a shipping-merchant of Hull, who loaned Edward the Third large sums to carry on his French wars, and in return the king made over to him the collection of customs and internal revenues. He collected the royal rents and acted as paymaster of the army, and in a general way became the royal banker. Naturally a title was conferred upon him.
The prefix of “Sir” was subsequently given to Dick Whittington, of cat celebrity, for similar services to Henry the Fourth and Henry the Fifth. The goldsmiths in those times acted as money-lenders and pawnbrokers. After Charles the First grabbed about a million dollars, which they had deposited in the mint for safe-keeping, the nobles began to deposit their money with the goldsmiths, who allowed them interest thereon, and from having the custody of their rents and their income it was a natural step for them to request the goldsmiths to collect the money. The goldsmiths gave written evidences of indebtedness for the sums intrusted to them, and these were often transmitted by the holders in settlement of debt. When one of these goldsmiths speculated unfortunately or his business went wrong, his depositors naturally had to suffer.
Losses of this kind paved the way for the establishment of the Bank of England in 1694. It was planned by a Scotchman named William Patterson, who, however, derived many of his ideas from the Bank of Amsterdam, which was then in successful operation. In return for a loan of twelve hundred thousand pounds sterling to the government the lenders, who organized the bank, were granted certain exclusive privileges, and their concern became the depository of the government money and has remained such ever since. It has now the accounts of many thousand private depositors, pays the interest on the government debt, issues circulating notes, and to a certain extent controls the rate of interest on money in England.
As to the establishment of banking, Congressman Ben Butterworth, of Ohio, says:
“In the forces of civilization we find the banker in the forefront. It was a banker that first taught the world the maxim of an honest commerce. It was the Bank of Venice that was the first to arbitrate commerce and control the seas; it was a banker that first taught a nation that the public fidelity was the right basis of all successful effort in the business world. For six hundred years Venice maintained unstained her honor, elevating the civilization of the world. In course of time she was succeeded by Amsterdam and Antwerp, their bankers honoring every check and paying every piece of paper, teaching the world that there was a giant in trade and commerce capable of strangling a nation. The bankers thus brought the world together, made the nations of the earth one man, one commonwealth.”
Savings banks originated in Switzerland, and were instituted mainly for the benefit of the poor. They were organized by benevolent persons, who received no salaries for their services, and no capital was required. The purpose was rather to induce working-people to save from their earnings something for a rainy day or to provide for their old age, and consequently but little effort at first was made to secure large earnings on the deposits. The first we can learn of in Switzerland was established in 1805. A dozen years later they were organized in Scotland and England, and shortly after in France. In this country the first was organized in Boston in 1816, and within a few years they were to be found in New York, Baltimore, and Philadelphia, and their success in these centres soon led to their establishment in all the large towns throughout the country. They were chartered by the States, and were held by the State authorities to account for their honest and prudent management. Naturally the ideas of legislators in the various States differed somewhat as to the nature and functions of the banks, and hence there was a difference in their organization at the beginning, which subsequent legislation has made still more marked. There are now in existence three different classes of savings banks: the first is of the primitive type, instituted without capital; the second are joint-stock concerns, and the third are of the trust-company type, and transact a banking business aside from the mere receipt and investment of deposits.
As population increased and the banks multiplied in number, and the desirability of establishing these banks became more general, they were no longer required to have a special charter in each instance, but were permitted to organize under general laws. The deposits in these now amount to a thousand million dollars, and the number of depositors in the Northern and Middle States is about three millions. Objection has been raised in some quarters to the joint-stock type of savings bank, on the ground that its deposits must be loaned profitably for the payment of dividends, and that consequently greater risks are incurred. This risk is still greater where savings banks are permitted to do a commercial business, as the paper which they discount may prove inconvertible in a time of commercial depression or in a panic. In some of the States the depositors are given the preference in such circumstances.
Mr. T. H. Hinchman, a prominent banker of Detroit, says: “The change from the purpose and policy of original savings institutions has been progressive, but of questionable character. It was not the acquirement of experience or the result of greater wisdom, but of enterprise by those in pursuit of greater profit. Different aims and objects should be under distinct, separate, and appropriate laws. Benevolent institutions require different men and other management than those conducted on a commercial basis for profit.” He argues that there should be separate enactments for savings institutions and for trust companies, and indeed a wise distinction is made by the laws of most of the older States. These undoubtedly prove advantageous to all banks and bankers, as they simplify and increase their business. Officers of banks doing a mixed business are thereby relieved from error, responsibilities, risks, and cares, and savings depositors escape commercial hazard, and are free from risks caused by mismanagement of persons who advertise as savings banks.
Those who remember the frightful confusion that prevailed before the establishment of the National Banking system, when the notes of the old State banks constituted a considerable portion of the circulating medium, are among the most ardent admirers of the present system, at least so far as its method for the issue and guarantee of notes is concerned. In those days the laborer often went to his home on Saturday night carrying the wages of his week’s labor in the shape of notes issued by banks in half a dozen different States, and when his thrifty wife went out to expend them in purchase of the necessaries of life for her family she would be distressed to find that for some she could get but ninety cents on the dollar, for others eighty cents, and that still others were of too questionable a character to be accepted by the shopkeepers at all. The farmer often received for the fruits of his toil notes of which he could know nothing, and which would be subsequently declared by experts to be worthless because the bank which had issued them was in liquidation, and it was not at all uncommon to find a forged note or two among them, for in the myriad issues of bills of every conceivable design and character of engraving the forger had an easy task.
The present National Banking system probably never could have been called into existence except for the difficulties in which the government was involved by the war with the South, for a scheme overthrowing, as it did, so many other systems organized by the authority of States would have met with an irresistible storm of opposition. As it was, the act authorizing it was fought not only by the opponents of the administration then in power, but by men like Roscoe Conkling, of New York, and Senator Collamer, of Vermont.