USA > Massachusetts > Essex County > The story of Essex County, Volume II > Part 29
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BANKS, BANKING AND INSURANCE
currency and credit facilities. In 1740 a bank, which issued notes based on mortgages on land, was set up in Boston without govern- mental sanction. The theory advanced was that land was both plen- tiful and of stable value, and hence currency based on land would be safe and capable of meeting all the needs of the community. Aside from the fact that a land secured currency would prove too plentiful, there was no provision on the notes for redemption. Hence it is doubtful that the bills of the lands bank would have stayed in cir- culation long even if Parliament had not suppressed them in 1741.
The Essex County Land Bank, with its headquarters at Ipswich, was similar in organization to the Boston institution. Little is known of its transactions or personnel, save that a petition in its behalf was considered and rejected by the General Court early in 1741. A note issued by this bank is to be found in the Lenox Library, and reads as follows :
"We jointly and severally for our selves and partners promise to take this Bill as Two Shillings, lawful silver money, at Six Shillings and Eight Pence pr ounce, in all Payments, Trade and Business, and for Stock in our Treasury at any Time and to pay the same at that estimate on Demand to Mr. James Eveleth, or order in the Produce or Manufactures enumerated in our Scheme; as recorded in the County of Essex's Records, for Value recd. Datd at Ipswich, the First Day of May, 1741."
The note is signed by Jonathan Hale, Robert Choate, John Brown, and Eben Stevens. The bank met the same fate as the Bos- ton Land Bank.
The suppression of the land banks of Massachusetts, by order of Parliament in 1741, was due to experiences in English banking his- tory which had shown the unsound character of such institutions. Further, the disastrous "South Sea Bubble" period of speculation in England had brought disfavor upon the formation of joint stock companies and financial institutions not given governmental sanc- tion. It was fortunate that the land bank movement in the colonies was nipped in the bud before more harm was done. From this time until after the Revolution no further development of banking or other means of credit extension was seen in Essex County.
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THE STORY OF ESSEX COUNTY
During the period extending from the middle of the eighteenth century to the War of 1812, save for the years of the Revolution, it was customary for a few wealthy merchants of Salem, Newbury- port, and other commercial centers to have banking connections in England. A great deal of the sea-borne commerce of Essex County was financed in this manner. London bills of credit were known and accepted all over the world, whereas such American bills as appeared were taken, in many places, only at a discount. Thus, the lack of banking facilities in the colonies was compensated for by the highly developed credit system of London.
Twenty-five years of sound money, from 1750 to 1775, following the reform of the currency in the former year, were of great benefit to the commerce and industry of this section even though the debtor classes still wanted "cheap" money. It was during this period that the merchant and fishing fleets of Salem, Newburyport, Marblehead, Gloucester, and Ipswich prospered, and provided a training course in seamanship for the Yankee privateers of the Revolution.
With the outbreak of the War of Independence, however, began a period of confused and depreciated currency that lasted until 1790. As early as May, 1775, the Continental Congress began to consider issuing paper money. Since the Congress had no tax power, the only way to raise money for the war was to resort to the printing press. On June 22, $2,000,000 in Continental money was issued. This issue stated: "This bill entitles bearer to receive-Spanish milled dollars, or the value thereof in Gold or Silver." These early notes had no legal tender provision. Another issue of $1,000,000 fol- lowed in July, and the process was repeated frequently during the next few years. in 1777 $38,000,000 in Continental currency was outstanding, which in 1779 had become $140,000,000. This whole- sale printing of irredeemable paper necessarily caused hard money to be withdrawn from circulation. In 1778 the Continental dollar had depreciated so seriously that its ratio to the silver dollar was one hundred to three and one-half. After 1779 there were no more issues by the Congress, although several states continued to print paper money. By 178 1 the Continental dollar was practically value- less, the official ratio being two hundred and twenty-five to one. At its lowest, the ratio was five hundred to one. The phrase, "Not worth a Continental," has come down to the present day as a term denoting worthlessness.
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The depreciation and confusion of the currency was a great handi- cap to commerce during this period in Essex County as well as in other sections of the country. The only people to profit by it were the debtors, who were able to pay off their obligations in depreciated currency, and the speculators. Among the latter class, the cele- brated "Lord" Timothy Dexter, of Newburyport, merchant extra- ordinary, was outstanding. At the outset of the Revolution, Dexter was but a leather breeches maker of ordinary circumstances. When the currency was at its lowest, he plunged his savings into the nearly worthless paper. When the Continental money was finally retired in 1790, at a ratio of one hundred to one, Dexter, along with many others, practically quadrupled his capital. This personal fortune, which the eccentric breeches maker had acquired through specula- tion, enabled him to engage in the spectacular ventures that have made "Lord Dexter" a household name in Newburyport and nearby communities to the present day.
With the redemption of the Continental currency, in 1790, and the formation of the Bank of the United States, an era of sound money, prosperous trade, and commercial banking development began, and continued until the charter of the bank lapsed in 1811. Newburyport and Salem were in their golden age during this period, and other communities prospered accordingly. It was at this time that modern commercial banking acquired a permanent foothold in Essex County.
The first two banks to be incorporated were the Essex Bank, of Salem, and the Merrimac Bank, of Newburyport, in 1792 and 1795, respectively. The Essex Bank served the merchants of Salem for seventeen years, until it failed in the troublous times of 1819, its affairs being wound up three years later. The Merrimac Bank and its successors were more fortunate. Founded in 1795, it was com- bined with the Newburyport Bank, under the latter name, in 1805. The Newburyport Bank was succeeded by the Merchants' Bank in 1831, which in turn became the Merchants' National Bank in 1865. At present the Merchants' National Bank of Newburyport is one of the leading commercial banks of that city, and, by succession, the oldest financial institution doing business in Essex County.
There were several other commercial banks founded during the period of prosperity preceding the War of 1812. The Gloucester
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THE STORY OF ESSEX COUNTY
Bank was founded in 1796, followed by the Beverly Bank, estab- lished in 1802; the Salem Bank, in 1803; the Marblehead Bank, in 1804; and the Merchants' Bank of Salem, in 1811. Salem and New- buryport were the leading commercial towns at this time. Previous to the war Newburyport supported two banks, united in 1805, and Salem had three. These institutions did much to further the growth of trade in the towns of Essex County. Their place in the commu- nity was in accordance with the function of modern banks. They furnished credit where it was needed and justified. They issued notes which circulated freely at par, thus augmenting the currency when the demands of trade required more money in circulation. In addition, they offered a safer repository for funds than the private individual could provide for himself. The bank note was the prin- cipal form of credit at that time, for the use of cheques against deposits had not become general. In a remarkably short time the public became accustomed to the use of banks, and since the first decade of the nineteenth century banking has been an indispensable part of the commercial and industrial life of Essex County.
With the lapse of the charter of the Bank of the United States in 1811, and the outbreak of the War of 1812, a less fortunate period in banking and financial history began. The demise of the Bank of the United States caused banks of issue to spring up all over the country. Although the situation in New England was much less serious than elsewhere, it has some bearing on Essex County bank- ing development. The failure of the Essex Bank of Salem in 1819 is a case in point. The government was forced to issue "Treasury Notes," which circulated below par, during the war. The "wildcat" banks which sprang up all over the country generally over-issued, and their notes circulated far below par. The notes of New Eng- land banks, however, continued to be accepted nearly at face value in Boston.
Several banks were established in Essex County in the years between 1811 and 1820. The Mechanics' Bank of Newburyport, established in 1813; the Lynn Mechanics' Bank, in 1814; the Mer- rimac Bank of Haverhill, in 1814; and the Commercial Bank of Salem, in 1819, all began operations in this period. The general soundness of the Essex County banks, and the remarkable restraint observed during these trying times, may be attributed to the Yankee good sense and the years of commercial and financial experience of
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BANKS, BANKING AND INSURANCE
the merchants. It is remarkable, however, that so many banks should have been established at a time when the commerce and shipping of the Essex County ports had been hampered seriously by a ruinous and unpopular war.
The trying years after ISII showed the necessity of taking steps to reform the banking and currency of the country. In an attempt to improve these matters the Second Bank of the United States was chartered in 1816, and branches were established in some of the more important cities. Due to mismanagement and other troubles, the first years of the bank were hectic and of little advantage to the country. By 1820, however, the country's banking system was well under control, and notes again circulated at par. A number of banks were established in Essex County during the existence of the Second Bank of the United States. Among them were the Exchange Bank of Salem, in 1823; the Asiatic Bank of Salem, in 1824; the Dan- vers Bank, in 1825; the Andover Bank, in 1826; the Mercantile Bank of Salem, in 1826; the Naumkeag Bank of Salem, in 1831; the Bank of General Interest of Salem, in 1831; and the Ipswich Bank, in 1833.
During this time a practice known as the Suffolk Banking System grew up in New England, and had a decided effect on the banks of Essex County. Between 1811 and 1813 the notes of provincial banks circulated somewhat below par in Boston. The New Eng- land Bank took steps in 1813 to reduce the circulation of discounted notes in order to make room for the notes of Boston banks. The provincial notes were taken over the counter at a discount equal to the cost of returning them to the banks of origin. In this manner the notes of New England banks were discounted according to their distance from Boston. The discount was small, averaging only about one-half of one per cent., yet the fact that there was a differ- ence influenced Boston tradesmen to hand provincial notes along in trade, where they were accepted at face value, rather than to turn them in at the New England Bank. This difficulty was corrected, however, by the policy instituted by the Suffolk Bank of Boston, in 1818, which placed the cost of remitting the notes on the outlying banks themselves. The banks of New England were practically forced to accept this system, since the Suffolk Bank declined to honor the notes of institutions which refused to comply. Each outlying
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THE STORY OF ESSEX COUNTY
bank, on entering the system, had to agree to keep a deposit of $5,000 with the Suffolk Bank, the interest on which sum went to defray the expense of handling the notes. By 1824 the other Boston banks had joined the Suffolk Bank in this project, and the banks of New England had fallen into line. At this time the deposit required was $2,000, with a small fee for the redemption of notes.
The effects of this system on Essex County banking were highly beneficial. Such institutions as might have been inclined to over- issue were held in chack after 1813, and soundness became char- acteristic in the banks of this section. Commerce was assisted, yet not stimulated to unwise ventures, and the bank note currency cir- culated at face value. The guiding hand of the Suffolk Bank and its associates was to stand the banks of Essex County in good stead during the "free banking" period following the lapse of the charter of the Second Bank of the United States in 1836.
With the expiration of the Second Bank of the United States the banking system of the country went on without official control of any sort in most sections. In the South and West hundreds of banks of issue were founded between 1836 and 1861. The indiscriminate issue of notes by these institutions caused a general depreciation of bank paper. Notes circulated at discounts which varied according to their origin. In times of commercial crisis these mushroom banks failed by the hundreds. In New England, however, although bank suspensions sometimes occurred, there was no such increase in the number of banks and in the note issue as was experienced elsewhere. All during this period the Suffolk Banking System, assisted by Mas- sachusetts legislation in 1845, functioned smoothly, and bank failures and financial distress were comparatively rare.
Between 1836 and 1861 Essex County experienced a sane and normal growth of commercial banking activity. The year 1836, notable for an increase in the number of banks all over the country, saw the establishment of several institutions. Among them were the Haverhill Bank, the Powow River Bank of Amesbury, and the Manufacturers' Bank of Georgetown. In 1847 the Bay State Bank was founded in Lawrence, followed two years later by the Leighton Bank, afterwards the Central Bank, of Lynn, and the Union Bank, later the First National Bank of Haverhill. Other commercial bank- ing institutions established in Essex County during this period were
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BANKS, BANKING AND INSURANCE
the Rockport Bank, in 1851; the Essex Bank of Haverhill, in 1851; and the City Bank of Lynn, in 1854.
The most notable point regarding Essex County banking during this period and the decades to follow, aside from general soundness and conservatism, was the shift in banking development from the old seaport towns to the rising industrial centers. Of the first fourteen banks established in Essex County, from 1792 to 1824, six were in Salem, three in Newburyport, and Gloucester, Beverly, and Marble- head had one each. Since 1835, Haverhill, Lynn, Lawrence, and other industrial towns have led in banking development, while only Salem of the port towns managed to keep abreast. The shift in banking activities coincides nicely with the shift in economic impor- tance which accompanied the decadence of shipping and the rise of industry in the county.
During the period of National banks which followed the bank- ing law of 1861, the Nation's financial system was better regulated than before. In the 'sixties and 'seventies most of the Essex County commercial banks received national charters, and the word "National" was incorporated into their names. Many new "National Banks" were established in the next few years. The development of com- mercial banking in Essex County from this time on was coincidental with that of the rest of Massachusetts. Governed by strict State and national banking laws and conservative tradition, the record of the banks has been, on the whole, excellent. Troubles which swept the Nation in such times of banking panic as 1895 and 1933 have caused some suspensions and a few failures. In 1933 four banks in Lawrence, three in Haverhill, one in Gloucester, and one in Salem were in serious difficulties, and for some time suspended payments. The Bay State National Bank and the Merchants' National Bank, both of Lawrence, joined forces under the name of the Bay State Merchants' National Bank, and, as a strong financial institution, resumed business. The Arlington Trust Company, also of Law- rence, was able to recover, but the Lawrence Trust Company, a rela- tively small and weak bank, was forced to liquidate. The Salem Trust Company, the First National Bank of Haverhill, and the Essex National Bank, of Haverhill, were also unable to continue.
In spite of difficulties noted above, the record of the banks of Essex County, as compared with that of other parts of the country, has been good. At the present time there are thirty-one commercial
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THE STORY OF ESSEX COUNTY
banking institutions operating within the county bounds, with deposits totaling almost $76,000,000. The bank failures of 1933 caused a loss of less than five per cent. in deposits in the county as a whole. While such a loss was a serious blow to commerce, it was mild in comparison with the situation in the greater part of the country.
The existence of many very old commercial banks in Essex County may be attributed to the years of conservative practice which have kept bank failures at a minimum. Two banks that have their origin in the eighteenth century are still doing business.
The Merchants' National Bank of Newburyport, the older of the surviving eighteenth century banks, received its present charter in 1865, previous to that time having been operated as a State bank under the name of the Merchants' Bank. But the progenitor of this institution was the Merrimac Bank, founded in 1795, the second commercial bank to be established in Essex County. In 1805 the Merrimac Bank united with the Newburyport Bank, which had been founded in 1803. The institution, under the name of the Newbury- port Bank, continued until 1831, when it was succeeded by the Mer- chants' Bank. The president of the Merrimac Bank was William Bartlet. Mr. Bartlet served in this capacity in the Merrimac and Newburyport Banks until 1831. Among the early directors was the Hon. Caleb Cushing, one of Essex County's most distinguished men. After many years of honorable service, the Merchants' National Bank is still one of the county's most respected financial institutions. Since 1865 the capital has been $120,000. In 1934 the deposits were $1, 165,000, the surplus $150,000, and the undivided profits $38,000. The officers are: William Ilsley, president; Edgar F. Noyes, cashier ; Ralph A. Webb, assistant cashier ; Walter R. Noyes, assistant cashier.
The other bank established in the eighteenth century to survive to the present day is the Gloucester National Bank. It was founded in 1796 as the Gloucester Bank, and has retained its name, with the addition of the word "National" when it received its national char- ter, from the first. Its growth has been steady and continuous for one hundred and thirty-eight years. In 1934 the deposits of the Gloucester National Bank were $1,276,000, the capital and surplus $120,000 each, and the undivided profits $10,985. The officers are : Thomas J. Carroll, president; F. R. Loeffler, vice-president ; Jesse R. Kenyon, vice-president; Raymond M. Connell, vice-president; C. L. Curtis, cashier ; W. R. Robinson, assistant cashier.
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BANKS, BANKING AND INSURANCE
Besides being the home of a number of banks over one hundred years old, Essex County has developed several large and powerful commercial banking institutions. Lynn, which has become the larg- est of the Essex County cities, and which supports prosperous shoe and electrical industries, is the most important banking center. Sev- eral Lynn commercial banks have reached great size, but the largest and most powerful bank both in that city and in the county is the Security Trust Company, founded in 1910.
The Security Trust Company was formed by the consolidation of the Security Safe Deposit and Trust Company, established in 1 890, with the National Security Bank. The original officers included Benjamin F. Spinney, president, and C. Irving Lindsay, Luther H. Johnson, and Samuel J. Hollis, vice-presidents. The concern includes a foreign department, a trust department, and a safe deposit depart- ment. In 1934 the deposits were $8,043,705, the capital $200,000, the surplus $300,000, and the undivided profits $476,218. Samuel C. Hutchinson is president, Edward M. Winslow and John J. Hines are vice-presidents, Edward T. Chamberlain is treasurer, and Bernard F. Corey is assistant treasurer.
The second largest commercial bank in Essex County is the Haver- hill National Bank. This institution was founded in 1836. In 1916 the Merchants' National Bank was purchased, and in 1933 part of the business of the closed First National Bank was taken over. In 1934 the deposits were $6,198,417, the capital $200,000, the sur- plus $500,000, and the undivided profits $367,126. Herman E. Lewis is president, Charles N. Kelly vice-president, and O. E. Little cashier.
Space does not permit a description of the remaining twenty- seven commercial banks of Essex County. They range in size from the Bay State Merchants' National Bank, with deposits of $5,808,- 592, to the First National Bank of Merrimac, with deposits of but $113, III. Lynn is the leading banking city, having six commercial banks, whose combined deposits amount to $22,507,938. Lawrence is next on the list, with two banks having deposits of $11,338,330. Haverhill ranks third, with deposits of $8,862,638 distributed among three banks. Salem is fourth, with $8,267,346 on deposit in two banks.
The wealth and thrift of the people of Essex County are indi- cated by the large amount of money on deposit in the savings banks
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THE STORY OF ESSEX COUNTY
of the various towns and cities. There are few, if any, sections of like population in the country which could equal the total of $244,- 112,24I in savings bank deposits, the amount in Essex County sav- ings banks in 1933. The stringent character of the Massachusetts laws governing savings banks have made their security almost beyond question. Thus, people have been encouraged to save, and thrift has become a habit among a large proportion of the inhabitants of Essex County.
The savings bank idea had its origin in Scotland and was first introduced in this country with the establishment of the Provident Institution for Savings in the Town of Boston in 1816. The plan was to provide a safe place for small savings on which some income was desired. Previous to the establishment of savings banks the only way for an ordinary person to save money was to hide it away in some secret place. This method allowed no income on the savings, and was, at best, hazardous. The new plan permitted a group of people desirous of saving money to pool their savings and invest the aggregate with a view to attaining security and income. Mortgages on real estate have long been a favorite form of investment for sav- ings banks.
Since the first establishment of savings banks in Massachusetts the mutual plan has been adhered to, whereby the income from the investments of savings institutions is turned over to the depositors, unlike the procedure in ordinary corporations, which are conducted with the benefit of the stockholders as a criterion of policy. The mutual idea is a heritage from early colonial times, when cooperation of all kinds was essential in face of the common hardships and dan- gers. Mutual insurance companies, as well as mutual savings banks, are sprung from the early New England tradition of cooperative effort. It is significant that mutual savings banks and insurance com- panies are comparatively rare outside of New England, New York, and Pennsylvania.
Savings banks were introduced into Essex County at a time when the maritime commerce of the seaports was entering its decline. The period of rapid acquisition in Salem and Newburyport was ending, and an era of saving was beginning. It was becoming harder in those towns for men to find a profitable means of investing their savings. Also, in the industrial towns small merchants, artisans, and
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BANKS, BANKING AND INSURANCE
manufacturers welcomed an opportunity to put their savings to profitable use. Even the farmer and fisherman were quick to appre- ciate the advantage of putting their excess income to work.
Savings banks were established first in Salem and Newburyport, where there was considerable wealth seeking secure and remunera- tive employment, and they later spread to the other towns. From the time of their inception the savings banks have had a great and steadying effect upon the economic and social life of the communities of Essex County.
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