State banks. to bank circulation, the Western and Southern states still had only $105,000,000, against $250,000,000 in the Middle and Eastern states. State banks, of which only incomplete reports were available, showed an increase of 121 in number and $23,000,000 in capital. They had increased their surplus from less than $7,000,000 to more than $23,000,000, their deposits by $116,000,000, and their loans by $96,000,000. The relative supply of banking facilities of the several sections of the country is concisely stated in the following table compiled from the reports of the Comptroller of the Currency. Savings banks are here included, which give the Eastern and Middle states a great preponderance. The savings banks of California in the same manner increase the per capita of the Western section. An almost total absence of such institutions in the Southern states is a remarkable fact in the economic history of that section. The increase in banking power in the Southern and Central states did not keep pace with the growth of population, which accounted for the strength there of the "greenback movement." 1 This table has little value for comparative purposes; reports from six to twelve states are missing after 1876, but again included in later years. CHAPTER XVI 1883 TO 1890 1884. DURING the period now under discussion the banks were a neglected factor in currency affairs of the country; the government seemingly having assumed the province of furnishing circulating media, no legislation relating to banks was enacted or seriously considered. Henry W. Cannon became Comptroller of the Cur- Crisis of rency in 1884, succeeding John Jay Knox. In May of that year a serious financial crisis, produced by conditions in the country generally, but practically limited in its manifestation to New York City, caused numerous suspensions, including two large national banks. The crisis was caused largely by undue expansion of loans induced by speculation in securities. The New York banks again issued clearing-house loan certificates to be used in settling debit balances, the first bearing date May 15, and the maximum amount being $24,915,000. They were practically retired by July 1. The fact that the certificates were promptly issued served to restore confidence in a short time, and prevented more serious consequences. stringency. The withholding of money from deposit in banks and Causes of savings banks, the strengthening of their cash resources by interior banks, which caused a corresponding reduction of their balances in New York, necessarily produced a stringency. Any degree of fear or anxiety which induces the wage-earners employed by our large stores, factories, railroads, and employers of labor gen Clearinghouse certifi cates. erally, to keep the money received from the pay roll instead of depositing or spending the same, materially and immediately affects the volume of money in circulation. The banks under the rigid currency laws were powerless to afford relief. They could not buy bonds required to be deposited as security for circulation without investing more money in bonds than they would receive circulation in return. Had they borrowed the bonds it would have required about forty-five days after depositing them before the circulation could be prepared for delivery. The banks protected and retained their cash reserves by suspending cash payments as between themselves, and using loan certificates in payment of clearing-house debits. The crisis thus proclaimed undoubtedly drove money into hiding and prevented the banks from strengthening their reserves by the usual receipts of currency. The important and valuable function which clearinghouse certificates perform, and the only one which justifies their use, is the temporary inflation of currency which they in a manner produce. A bank may deposit with the clearing-house $1,250,000 of its assets and receive $1,000,000 of loan certificates. It then can loan to its customers $1,000,000 and meet and pay the checks drawn against such loans, in the clearing-house exchanges, with the $1,000,000 loan certificates it has received. It may then deposit the assets taken for said $1,000,000 of loans with the clearing-house and receive $800,000 in loan certificates. It could then in turn loan its customers $800,000 and settle for the same through the clearing-house exchanges with the $800,000 of loan certificates received, and so on. This illustration is given. to show the extent to which banks might extend accommodations to their customers without the use of actual currency. Of course the issuing or withholding of loan |