USA > Massachusetts > Suffolk County > Boston > Metropolitan Boston; a modern history; Volume II > Part 2
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"The suspension of 1837 was a dire compulsion, occasioned by an extraordinary demand for specie for exportation, which came upon a people who had been two years engaged in the wildest schemes of specu- lation, and had come to regard, in practice, if not in fact, the holding of specie in a bank vault of no more importance as a basis for safe banking
340
METROPOLITAN BOSTON
than an equal weight of sand or stone. We may at least infer that such a delusion prevailed, when we see in official returns that the tremendous revulsion of 1837 found the banks of our State able to pay only about a twelfth part of their debts in that money. Fortunately, our banks, with the exception of ten or a dozen that through mismanagement or misfor- tune were swept away by the storm, had been well managed in other respects, and through the prudent course of the directors during the crisis, came out of the trial in a solvent condition; the banks in Boston commencing the payment of their bills of five dollars and under in specie, and the country banks those under five dollars, in April, 1838, and all finding themselves able to return to a full resumption in August following.
"During the suspension of specie payments, the bills of good banks fell to about ten per cent. discount; but, owing to the excellent arrange- ment known as the Suffolk Bank System, by which the bills of all New England banks were discredited as soon as they were refused at that bank, no general derangement of the paper currency of the State occurred.
"The system above referred to is not a product of legislation, nor is it recognized in the banking laws of the Commonwealth. On this account, therefore, as well as for its beneficial influence in securing the people, for a period of forty years, against the worst evils of a currency consist- ing of the bills of a great number of widely scattered banks, it seems proper that the last report which this board will make should contain something more than a passing notice of it.
"In the colonial period of our history, complaints were made that Massachusetts was flooded with the bills of credit issued by the other New England colonies ; a result of the tendency of the money of these colonies to Boston, the center of trade. Just so, on the establishment of banks, the bills of country banks, as those out of Boston were called, would be drawn to that place; but the Boston banks would not receive them at par, on deposit, or in exchange for their own bills, because they must meet their own liabilities in specie; and to convert these country bank bills into specie, they must be at the expense of sending them home to the banks which issued them; nor would they pay them out at their own counters, for by so doing they would lose the profit to be derived from circulating their own bills. Under these circumstances it is mani- fest that the only way in which these country bank bills could be kept at par in Boston, was by providing for their redemption in that place-a necessity which the country banks resisted for twenty years, but to which they were at last forced to yield, as we shall presently relate.
"In 1803 the capital of the two Boston banks was $1,600,000, and their circulation $714,840. The five country banks had an aggregate capital of $625,262, with a circulation of $850,349. In that and the following year,
34I
A HISTORY OF BANKING IN BOSTON
one new bank in Boston and eight in the country was incorporated, an increase of country banks which could hardly fail to aggravate the antag- onism already existing between the bills of the two classes of banks. To remedy this growing evil, legislative aid seems at this time to have been granted ; for, we find that, by an act passed June 23, 1804, incorporating a company called the Boston Exchange Office, with a capital of $150,000 in current bank bills of this Commonwealth, and $50,000 in specie, it was provided 'that the said Corporation shall neither directly nor indirectly run upon or make a demand for specie on any of the incorporated banks of this Commonwealth, or which may hereafter be incorporated, whereby to cause distress, nor knowingly furnish any person or persons with bills for that purpose ; and in order that an impartial currency may be given to the bills of this Commonwealth, said bills shall at all times be paid out promiscuously as they are received; and the said Corporation are hereby restricted from asking or receiving a premium for exchanging the bills of any one bank aforesaid, for those of any other of this Common- wealth, or for specie, or to purchase the bills of any bank of this Com- monwealth at a discount during its continuance.' But this scheme did not succeed. Boston was constantly receiving more bills than it paid out, and the accumulation of country bank bills there, growing out of the inevitable course of business, could only be prevented by a return of them to the banks which issued them. As these banks increased, the accumu- lation of bills increased also. The Boston banks and brokers would buy them up at a discount, in some cases as high as five per cent., and send them home for redemption ; but this act was very unpopular, and, unless pursued with energy and system, could not force the country banks into any plan for general and permanent reform.
"The Boston Exchange Office expired, by limitation of its charter, in 1812. We know but little of its operations, but, from a return to the Commonwealth, June 2, 1806, it was learned that its condition was then as follows :
Capital
$200,000.00
Deposits
322,964.81
Specie
3,833.15
Bills of Massachusetts banks.
160,145.00
Bills of banks of other States.
62,065 00
"It is said that it fell into the hands of a lawyer of Boston, named Andrew Dexter, who, obtaining control of several country banks of this State, and of the Farmers' Exchange Bank, in Rhode Island, entered upon a course of speculation and fraud, which occasioned the ruin of some of the banks, and a considerable loss to the people, among whom these worthless bills were scattered, and proving, by stronger evidence than had previously existed, the necessity of devising some check upon the
342
METROPOLITAN BOSTON
over-issue of the country bank speculation. The ruin of Dexter's banks was the result of a combination formed in Boston to put an end to the evasion and delay which some of the country banks had begun to prac- tice whenever their bills were sent home for redemption, and which the Northampton Bank carried so far as to attempt to pay off with four- pence-half-pennies a demand for a sum of specie which the agent of the combination made upon that bank. The object of this combination was a temporary one; but it was accomplished, and the combination itself may be said to have been the germ out of which the Suffolk Bank Sys- tem was afterwards developed.
"In 1813 the New England Bank, in Boston, was chartered, and soon after going into operation, began to take the bills of country banks at one per cent. discount-a much higher rate having previously prevailed --- and declared its readiness to collect of the country banks for the mere cost of sending to the respective banks. Hitherto there had been no fixed rate of discount, but banks and brokers bought this money on the best terms they could. Now, however, there was to be competition in the business, or the other Boston banks must suffer the New England to draw away their depositors, who of course would go where they could do best with their country bank money. The competition thus produced lessened the rate of discount on this money till finally the Suffolk Bank, which was chartered in 1818, began to take it at a quarter of one per cent. discount, adopting, however, no settled system for enforcing its redemption, but contenting itself with employing the most convenient means for disposing of it.
"The country banks, of course, received some Boston money and checks on Boston banks; and they also had paper payable in Boston, all of which were collected by an agent in that place, or by a messenger, and might sometimes have been used in taking up their bills; but as it was for the interest of these banks to keep out as large a circulation as they lawfully could, it is natural to suppose that, till their bills accumulated in Boston, in amounts sufficiently large to threaten a demand for specie, they would take no measures to bring them home. Many of them would not do it even then, as the experience of the Suffolk Bank proved.
"In the meantime, banks multiplied rapidly in the country towns of Massachusetts, and in the other New England States. The profit to be derived from circulating their bills was a temptation to over-issues, and the natural consequence followed; large amounts of their bills found their way to Boston, where the trifling discount on country bank money that had of late prevailed, offered no serious obstacle to their free circula- tion. In this state of affairs it was determined to make a vigorous effort to remedy the existing evil, and avert the dangers which threatened
343
A HISTORY OF BANKING IN BOSTON
greater ones in the future. This occurred in April, 1824, when a commit- tee of the directors of the Suffolk Bank was chosen to confer with other Boston banks with regard to the excessive issue of country bank paper, especially of that of the Eastern banks. The result of this conference was an arrangement by which six of these banks deposited with the Suf- folk $250,000, for the use of which the latter bank was to take all their country bank money at par, and assume all risk of loss from any cause whatever. The Suffolk then commenced sending home this money for redemption by an agent who was instructed to demand the specie. On the stage routes, the public conveyances were used, but it was sometimes necessary to make use of a hired vehicle; particularly when a call was to be made upon a distant bank which was expected to respond with a thou- sand or fifteen hundred pounds of silver. The business which this bank had undertaken was attended with a good deal of risk, some loss, and considerable expense; and it drew upon the bank no small amount of obloquy ; but the interest of all country merchants and traders, and peo- ple who bought goods in Boston, or had debts to pay there, together with the fact that nobody gained by non-redemption of these bills in Boston but those who issued them, insured the final success of this plan of com- pulsory redemption. A few of the oldest and soundest country banks held out for a long time, and paid in specie all the demands the Suffolk made upon them, necessitating, of course, a somewhat frequent replen- ishing of their vaults with this article. They resisted, they said, from principle. Their bills, they knew, were as good as those of the Boston or any other banks, and they could not, without a feeling that it would be a discredit to their bills, consent from any considerations of convenience or expediency to redeem them anywhere except at their own counters. But even these banks finally yielded, and, in the course of five or six years, the Suffolk Bank succeeded in inducing all of the banks of New England to redeem their bills in Boston, or, what practically amounts to the same thing, to keep an account in Boston with some bank, or other agent, where their bills could be exchanged for Boston credits.
"The course of the Suffolk Bank during this proceeding was honor- able, and as conciliatory as its object permitted. The country banks were only required to keep a small permanent deposit, without employing it as a redeeming bank, or, if so employing it, to keep a sufficient balance in the Suffolk as an equivalent, to compensate it for such risk as it might incur, and for the trouble and expense of receiving, sorting and sending home their bills.
"Though this business of redemption has been attended with an occasional loss to the Suffolk Bank, it has yielded a large net profit to that institution ; but, when it is considered what incalcuable benefit the
344
METROPOLITAN BOSTON
system has conferred upon the people of the State in affording them a sure safeguard against an unsound or fraudulent paper currency, none will regret that the numerous stockholders of an honorable corporation have received from it that pecuniary advantage to which the great service of the bank entitles them.
"The Commonwealth has been ever watchful of the condition and acts of its banking corporations, and prompt to condemn every infrac- tion of the laws by which they were bound; and we remember but two occasions on which any considerable number of those institutions have been summoned before the Legislature to show cause why their charters should not be repealed. The first of these arose on a charge of taking more than six per cent interest. The State had long before declared that to be the rate, and had enacted a law against usury ; but in 1829, it passed a law expressly prohibiting banks from taking directly or indirectly any greater interest than six per cent., except that on drafts or inland bills of exchange the existing rate of exchange between the place where it was discounted and that where it was payable might be charged. In 1836 some of the banks were brought up for a violation of this law. A degree of popular odium had been excited against this class of corporations, in consequence of the controversy about the United States Bank, and a minute and lengthy investigation by a committee of the Legislature took place ; the result of which was that two of the banks lost their charters, though they were afterwards restored. The law relating to the exchange was extended, in 1838, so as to include promissory notes of a certain class, and the banks availed themselves of the additional privilege to such an extent, and in such a manner, that their proceedings in this respect have been frequently brought to the notice of the Legislature by the Bank Commissioners. The resort, however, to any mode for obtain- ing more than six per cent., which, in the unusually sensitive state of the public mind in regard to banks prevailing in 1826, seemed so heinous, has been gradually superseded by the practice, which we believe has become well-nigh universal with these corporations, of discounting at the cur- rent rate, whatever that may be; and although the law may frown upon the practice, the consent of the people is freely accorded to it, because they cannot see any justice in requiring money-lenders to loan at three per cent., when money was worth no more, as in one period of the his- tory of our banks, and forbidding them to take more than six when borrowers are willing and glad to take it at nine. We trust that the time is not distant when the legislation of the State will concur in this custom, and make the trade in money as free as the trade in merchandise.
"The suspension of 1837 proved to be a crisis in the existence of sev- eral of our banks, and a few tottered dishonorably to ruin. Ten were
345
A HISTORY OF BANKING IN BOSTON
brought before the Legislature in 1838 and various acts of mismanage- ment and violation of law occasioned the repeal of their respective char- ters. The Commonwealth would gladly have been spared the shame of the transaction then disclosed ; but, considering the whirlwind of specu- lation that had just swept over the land, we have reason to rejoice that it left no greater stain. An English writer on banking has a fling at the 'moral and religious State of Massachusetts,' for its system; but the experience of his own country in such cases is similar to ours in this. And the suffering of both from such causes ought to make us watchful to provide against their recurrence, by striving to improve our system till we have obtained the best that human wisdom can devise.
"The banks of Massachusetts during the last twenty-five years have presented but few cases of mismanagement, and none that we remember by which the public met with loss. We also state with great satisfaction that, from the examinations we have made, and from our knowledge of the high character for intelligence and integrity enjoyed by the di- rectors and other officers connected with these institutions, it is our opin- ion that every one of them, at the time of conversion into a National association, could have paid off all its liabilities, and have returned to its stockholders all the capital they had invested in it, while in a great num- ber of instances, a large additional sum could have been given; and we take our leave of them with the wish that, as National institutions, they may continue in a career of prosperity and usefulness, and with the expression of our thanks to the several directors, cashiers and other offi- cers for the kindness and courtesy they have shown us."
When the Civil War came, Massachusetts was the first of the States to place troops in the field in response to the President's call. In order that this might be done, the Boston banks got together, and between April 16 and 29, 1861, placed a total of $5,672,000 at the disposal of the Com- monwealth. To show how these same banks went to the aid of the Union, it need only be mentioned that on August 19, 1861, they loaned the Government $10,000,000. On October I of the same year they loaned $10,000,000 more, while a third loan of a similar amount was made a short time afterward.
No record of the early banking history of Boston, up to the Civil War period, would be complete without mention of an institution which was started as an experiment and placed under the jurisdiction of the Board of Bank Commissioners. This institution was the Pawner's Bank, which received its charter from the General Court, becoming incorporated on April 5, 1859, and opening for business on January 2, 1860.
It was set forth at the time that there were fifty pawnbrokers doing business in the city who were charging rates of interest from ten
346
METROPOLITAN BOSTON
to one hundred times the legal rate. In the act creating the Pawner's Bank, the General Court provided that its capital should not exceed $300,000, and interest rates should be limited to one and one-half per cent. per month. The act (Ch. 173, 1859), specified that "When the bank has disposable funds, it shall loan on all goods and chattels offered, embraced within its rules and regulations, with this exception, that the bank many always discriminate in favor of small loans to the indigent."
A board of seven directors was provided, five to be elected by the stockholders, one to be appointed by the Governor and one by the mayor. Dividends not to exceed eight per cent. per annum were allowed, with the balance annually to be placed to a profit and loss fund "which shall be doled in fuel to the needy, under the direction of the board, during January, February and March."
The first report to the Board of Bank Commissioners was signed by E. B. Foster, cashier; Frederic W. Sawyer, president, and Daniel J. Coburn, J. Sullivan Warren and John Bigelow, for the directors. The institution continued until 1869, when the General Court changed its name to the Collateral Loan Company, and it passed from the jurisdic- tion of the State's Banking Department. It is still in existence under this name.
The final report showed that for the ten years it had existed as a type of State bank it had a capital stock "called in," amounting to $113,500; total resources of $141,795.82; had made a total number of 68,901 loans on 1,035,435 articles to a total amount of $1,817,012.60-the average amount of the loans being $32.90, with 64 out of every 100 being under $10.
Boston's National Banks-Volumes could be written about Boston's National banks, but it is possible to present a general history of these in- stitutions, together with brief sketches of several of the representative existing banks, in a reasonable number of words.
The National Banking Law was passed February 25, 1863. As already noted under Boston's Early Banking History, the first Boston bank to come under the statute was the Safety Fund Bank, which became the First National Bank, the date of its being made a National bank being February 1, 1864. Actually, it was National Bank Number 200, the First National Bank of Philadelphia, which commenced business on June 20, 1863, holding the Number I distinction.
The law originally required all National banks to be numbered in each city. The Granite Bank in Boston became the Second National Bank, following the First by less than two months. Then came two new banks, the first to be known as the Third National Bank, on April 1, 1864, and the second, the Fourth National Bank, which did not follow until July 19, 1875, the date of its first opening. Meanwhile, however, the
347
A HISTORY OF BANKING IN BOSTON
National Banking Law had been amended in 1864, allowing banks to retain their old names with "National" prefixed or added. The chang- ing over from State banks to National banks rapidly followed this amendment, the banks retaining their old identity.
One State bank had disappeared the year before the National Banking Law was passed. It was the Bank of the Metropolis, which had com- menced business in 1858, with a capital of $200,000. In 1862 the stock was bought up by Samuel A. Way. The old bank was then closed, and later managed as a private bank.
In many cases as the banks changed over they declared extra divi- dends. In some cases the capital was increased, and in a few instances it was decreased. The story of the changing can more easily be told by the following tables, which show first, the original date of incorporation and the date when converted, and secondly, the changes in capital which resulted. The amount of the extra dividends declared will then be given, although not in table form.
Name of Bank.
First Incorporated. Became National.
Atlantic National
1828
1865, Feb.
I
Atlas National
1833
1865, Feb. I
Blackstone National
1851
1864, Sept. 19
Blue Hill National
1832
1865, Jan.
I
Boston National
1853
1864, May 18
Old Boston National
1803
1865, May
I
Boylston National
1845
1864, Dec.
I
Broadway National
1853
1865, Feb.
City National
1822
1865, Jan.
I
Columbian National
1822
1865, Apr.
I
National Bank of Commerce.
1850
1864, Nov. 17
Continental National
1860
1864, Oct.
I
Eagle National
1822
1865, May
I
Eliot National
1853
1864, Nov. I
Everett National
1865
1865, July 24
Exchange National
1847
1864, Nov.
I
Faneuil Hall National
1851
1865, Apr.
I
First National (Safety Fund Bank)
1859
1864, Feb.
I
Freeman's National
1836
1865, Feb.
I
Globe National
1824
1865, May
I
Hamilton National
1832
1865, Mar.
I
Hide & Leather National
1858
1864, June 27
Howard National
1853
1865, Jan.
I
Market National
1832
1864, Sept. 19
Massachusetts National
1784
1865, May
I
Maverick National
1854
1865, Feb.
I
Mechanics' National
1836
1865, May
I
Merchants' National
1831
1864, July 18
Mount Vernon National
1860
1865, Mar.
I
National Bank of Redemption.
1858
1864, Oct.
I
New England National.
1813
1865, Feb.
I
North National
1825
1864, Oct. 20
National Bank of North America
1850
1865, Jan.
I
People's National
1833
1865, Jan. I
National Bank of the Republic ..
1860
1864, Apr. 2
Revere National
1859
1865, July I
Rockland National
1853
1865, Jan.
I
348
METROPOLITAN BOSTON
Name of Bank.
First Incorporated. Became National.
Second National (Granite Bank)
1833
1864, Mar. 22
Shawmut National
1836
1865, Jan.
I
Shoe & Leather National.
1836
1865, Feb.
I
State National
18II
1865, May
I
Suffolk National
1818
1865, Jan.
I
Third National
1864
1864, Apr.
I
This first table shows how rapidly and how completely the old State Banks took advantage of the National Banking Law to become National banks. The next table shows how the changes in capital were made, either at the time of becoming National banks, or within a month or two afterward :
Name of Bank.
Original Capital. Capital as Changed.
Atlantic National
$500,000
$750,000
Atlas National
500,000
1,500,000
Blackstone National
250,000
1,500,000
Blue Hill National
100,000
200,000
Boston National
300,000
1,000,000
Old Boston National
1,800,000
900,000
Boylston National
150,000
500,000
Broadway National
50,000
200,000
City National
500,000
1,000,000
Columbian National
500,000
1,000,000
National Bank of Commerce.
750,000
2,000,000
Continental National
300,000
1,000,000
Eagle National
500,000
1,000,000
Eliot National
300,000
1,000,000
Everett National
200,000
200,000
Exchange National
500,000
1,000,000
Faneuil Hall National
500,000
1,000,000
First National (Safety Fund Bank)
600,000
1,000,000
Freeman's National
150,000
600,000
Globe National
500,000
1,000,000
Hamilton ยท National
500,000
750,000
Hide & Leather National.
1,000,000
1,500,000
Howard National
500,000
1,000,000
Market National
500,000
800,000
Massachusetts National
300,000
800,000
Maverick National
400,000
400,000
Mechanics' National
150,000
250,000
Merchants' National
500,000
3,000,000
Mount Vernon National
200,000
200,000
National Bank of Redemption.
500,000
New England National
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