USA > Ohio > Montgomery County > Memoirs of the Miami valley > Part 20
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Lucas, the Ohio Monitor quotes from the Cincinnati Republican some figures as to the amount of banking capital in Ohio in Decem- ber, 1833. The capital employed in the branches of the United States bank (practically all held by non-residents) was $1,700,000, and the capital of local banks held by non-residents was $1,650,000, making the total held by non-residents, $3,350,000. The capital of local banks held by citizens of Ohio was $1,380,000, making the total amount of banking capital employed in the state, $4,730,000. The article then goes on to say that on all this foreign capital the people were paying about 9 per cent interest each year, since the dividends of the banks ranged from 8 to 10 per cent a year ; that on the $3,350,- 000 of stock held by non-residents this interest amounted to $301,- 500, which was carried out of the state and pocketed by eastern and foreign capitalists. The point was then made that the money neces- sary to organize a state bank could be obtained on long time state bonds directly from the east or Europe at 4 per cent. That is, that the difference between 4 per cent and 9 per cent, or 5 per cent, amounting to $167,500, would represent the annual saving to the state under the proposed new system. In other words, the article continued, under the proposed system, the same amount of interest as was then paid on three and one-half millions of foreign capital would furnish nearly $8,000,000. The point was also made that the currency furnished by the local banks was but a poor one anyway, because the notes of a local bank might be very good in the imme- diate vicinity of the institution issuing them ; but by the time they had traveled one hundred miles from home, they were refused un- less at a discount, or, what too frequently happened, they were re- fused at any price.
Soon after that the bills of Ohio banks in general were said to be at from 4 to 5 per cent discount at Cincinnati, and several of the banks were reported to be very much embarrassed. The opposi- tion to the state bank on the part of many local banks that wanted charters from the legislature was so strong that the bill providing for a state bank was killed in the legislature in 1834, the vote against it in the senate on January 20 being 19 to 15. And then the legisla- ture proceeded to grant charters to a number of new local banks, among which was the Ohio Life Insurance and Trust company and the Lafayette bank, both of Cincinnati. The charter of the former was dated Feb. 12, 1834, and its authorized capital stock was $2,000,- 000, while the latter was chartered on March 3, with an authorized capital stock of $1,000,000. Another of the banks chartered at this time was the Bank of Cleveland, and the books for subscription to the stock of this bank closed on April 10, in accordance with the pro- visions of its charter. At that time $393,200 had been subscribed, an excess of $93,200 over the capital authorized. The Dayton Journal of April 15, 1834, in commenting on this, observed: "The prompt- ness with which the stock of this bank has been taken up, is a flat- tering indication of the continued prosperity of the country and the confidence of capitalists in the value of the investment. The time for opening the books was the most unfavorable that could be, yet with all the cry of pressure and panic, there seems to be no lack of money when a profitable investment is to be made."
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Only $1,000,000 of the capital stock of the Ohio Life Insurance and Trust company was for banking purposes, and its privilege of issuing notes was to expire Jan. 1, 1843, the date when most of the bank charters in the state expired. Besides the power of note issue and other banking powers, this company was given authority to in- sure lives, to purchase and grant annuities, to receive and execute trusts of all kinds, and to buy and sell drafts and bills of exchange. Its management was in the hands of twenty trustees who must in- dividually be stockholders to the amount of $5,000. In 1841, M. T. Williams was president, J. M. Perkins, cashier, and the board of trustees consisted of gentlemen in Cincinnati, Warren, Gallipolis, Columbus, Cadiz, and Dayton, Ohio, and also New York, Boston, Philadelphia, and New Orleans. The institution was one of the largest in the country, and it aroused a good deal of opposition among those who, even at that date, feared the growth of corporate monopoly. It was bitterly denounced as placing dangerous power in the hands of a few. The following paragraph from an address of the Hon. R. T. Lytle, in 1835, illustrates the popular feeling regard- ing "this new and dangerous monopoly," which loaned money all over the state on real estate security.
"The rate of interest at which they let out money is nominally 7 per cent, but in fact (in most cases) the rate averages from 10 to 15. For instance, the borrower, before he can procure one cent of money is obliged to pay the agent of this bank for examining all the title papers of his land that it is to be mortgaged, to pay for the execution and recording of a mortgage deed ; to lose time in effect- ing the loan, so that it will cost him from 10 to 15 per cent the first year besides the interest; and immediately upon receiving the loan the borrower has to advance, for the first six months' interest, at the rate of 7 per cent per annum. At the end of every six months prompt payment is demanded, and if it should not be made at the day, yes, at the hour, it becomes due, the company can foreclose the mortgage, force a sale, and thus at one stroke sweep from a man his farm for the paltry sum of $100 or $200."
The wide distribution of the operations of this company is illus- trated by the fact that in January, 1836, it had loans secured by real estate in at least sixty-seven counties in the state, the amounts loaned in each county varying from a few hundred dollars to half a million. The total amounted to $1,858,099 and was secured by pledges of real estate to the estimated value of $4,338,117. The report of the master commissioner on this company, in 1836, speaks of the ability and integrity with which its affairs were conducted, of the prudence, safety and productiveness of its investments, and of the safety of those holding its investments. Nevertheless there was a bill before the legislature that year to repeal its charter. This bill had the sup- port of most of the Democratic papers in the state, though some of them favored the bank. The Ohio Monitor of March 14, 1836, gave a list of the stockholders of the Ohio Life Insurance and Trust com- pany, with the number of shares and amount of stock held by each, and commented regarding the stock thus: "Most of which, as may be discovered, is owned by the Wall Street gentry of New York." This paper also named the twenty trustees of the company, adding:
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"Three only, we believe, are citizens of Ohio and professing to be- long to the Democratic party." When the bill to repeal the char- ter of the company came to a vote in the legislature, however, it was postponed indefinitely by a vote of 40 to 27.
The Miami Exporting company, which had been compelled to close its doors in 1822, was revived and again put into operation in 1834, but the amount of its loans, specie, capital, and circulation is not given in a table published in 1835. Of the other Miami valley banks, however, that were mentioned in this table, the Dayton bank reported as follows : Loans and discounts, $242,719 ; specie, $92,250; capital, $102,640; circulation $214,125; the Commercial bank of Cincinnati reported loans and discounts $1,481,465 ; specie, $141,849; capital, $1,000,000; circulation, $285,817 ; the Franklin bank of Cin- cinnati, loans and discounts, $1,622,234; specie, $175,152; capital, $1,000,000; circulation, $372,514; Bank of Hamilton, loans and dis- counts, $145,027 ; specie, $28,613 ; capital, $65,000; circulation, $86,- 550; and the Lafayette bank of Cincinnati reported a capital of $250,000.
The distribution of the authorized banks in the Miami valley, in 1835, the estimated population of each county in which a bank was located, the total capital stock of the banks in each county, and the amount per capita in each county were as follows: Butler county, with a population of 27,668, had one bank with a paid in capital stock of $65,000, which was $2,250 per capita ; Hamilton county had a popu- lation of 66,231, with five banks and a total paid in capital stock of $3,222,452, which was $48,655 ; and Montgomery had a population of 28,150, one bank with a paid in capital stock of $102,640, which was $3,646 per capita. By charter provisions the tax on the Commercial bank of Cincinnati was limited to 4 per cent on its dividends and that on the Franklin bank of Cincinnati to 5 per cent.
A law passed Feb. 25, 1839, provided for three bank commis- sioners to be appointed by the legislature, whose duty it was to visit the banks, examine their books, and make regular reports. The first annual report of these commissioners was made Dec. 16, 1839, and in it they condemned the practice of creating bank capital by the stockholders giving what was called a stock note ; also, closely allied to the latter, the large loans and discounts made to directors and other stockholders "almost unlimited in amount and time of pay- ment." In the Miami valley the indebtedness of the directors and officers of each bank, at the time of examination, as principals, and liability as security, and the amount of stock held by them, was as follows: The Commercial bank of Cincinnati, indebtedness as principals $89,183, liabilities as security $45,821, amount of stock owned by directors and officers $46,900; Franklin bank of Cincinnati, indebtedness as principals $43,012, liabilities as security $49,062, amount of stock owned by directors and officers $25,800; Lafayette bank of Cincinnati, indebtedness as principals $79,986, liabilities as security $22,003, amount of stock owned by directors $18,600; Ohio Life Insurance and Trust company, indebtedness as principals $61,- 185, liabilities as security $5,194; Dayton bank, indebtedness as principals $5,198, liabilities as security $13,326, amount of stock owned by directors and officers $30,550. The refusal of the Supreme
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court to grant an injunction against an examination of the Lafayette bank of Cincinnati by the bank commissioners probably conduced to a general acquiescence in the constitutional requirement of the law.
Beginning with 1825 Ohio had been engaged in internal im- provements with a large expenditure each year, and all natural con- ditions tended to a state of prosperity, but the depressed prices of farm products produced stagnation. For example, the price of wheat at Cincinnati, which had risen from 62 cents a bushel in 1834 to $1.25 in 1836, dropped to 65 cents in 1839 and 60 cents in 1840; flour dropped from $8.25 a barrel in 1836 to $3.60 in 1840; and hogs from $7 a cwt. in 1836 to $4.75 in 1840, $2.25 in 1841, and $1.75 in 1842.
The legislature made various attempts to compel specie resump- tion. In March, 1842, the Cincinnati Gazette was complaining that the resumption law of Ohio had not yet put any coin in circula- tion, but that Ohio bank notes had disappeared and that the cur- rency then consisted of Indiana notes, while distress was about uni- versal. In the same month a general law to regulate banking was passed, "designed to supersede the necessity of special charters, fixing general law, the powers, liabilities, and terms for future banks, and imposing rigid restrictions on the abuses heretofore practiced in banking. This law was alleged to be too severe, and on Feb. 21, 1843, it was amended, and a number of prominent citi- zens, belonging to companies which had petitioned the legislature for a renewal of their charters, were authorized to organize and commence the business of banking. They declined, however, to engage in business on the conditions imposed, on account of the unsettled state of public sentiment on this subject, and with a view of obtaining banking privileges at a subsequent period, upon terms more in accordance with their own views." Among the old banks authorized to organize but which declined to do so was the Bank of Dayton.
Near the close of 1842 there were five specie paying banks re- maining in the Miami valley, and their condition at that time was as follows: Commercial bank of Cincinnati-resources : loans and dis- counts $929,123, due from banks $51,259, notes of other banks $55,- 803, specie $35,378, other resources $586,353 ; liabilities : circulation $79,783, deposits $180,163, due to banks $25,965, capital stock $1,- 000,000, other liabilities $374,005. Franklin bank of Cincinnati- resources : loans and discounts $963,382, due from banks $24,517, notes of other banks $111,697, specie $131,370, other resources $253,306; liabilities : circulation $22,116, deposits $251,130, due to banks $56,918, capital stock $1,000,000, other liabilities $154,108. Lafayette bank, Cincinnati-resources: loans and discounts $879,- 850, due from banks $41,031, notes of other banks $11,130, specie $61,882, other resources $163,315; liabilities : circulation $34,981, deposits $42,473, due to banks $23,052, capital stock $1,000,000, other liabilities $56,702. Ohio Life Insurance and Trust company- resources : loans and discounts $532,622, due from banks $54,320, notes of other banks $17,321, specie $77,961, other resources $533,- 642 ; liabilities : circulation $261,575, deposits $209,318, due to banks $15,597, capital stock $622,255, other liabilities $107,122. Dayton
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bank-resources : loans and discounts $48,734, due from banks $293, notes of other banks $18,159, specie $12,856, other resources $28,- 170; liabilities : circulation $17,644, deposits $1,277, due to banks $184, capital stock $88,110, other liabilities $998.
On Jan. 1, 1843, the charters of thirteen of the Ohio banks ex- pired, and two more expired Jan. 1, 1844, leaving only eight in the state. Referring to those whose charters expired Jan. 1, 1843, the Cincinnati Gazette remarked that they call up "the pleasing asso- ciations of honesty, sound currency, and general popularity ;" that they redeemed all their notes ever issued ; that all but one promptly met their engagements, and most of them returned 100 cents on the dollar on their capital stock, and some much more. In January, 1844, the Lafayette bank of Cincinnati was the only authorized bank in the Miami valley and the termination of its charter was due on Jan. 1, 1854. During 1843 and 1844 this bank was in good condition. It was prompt in meeting its engagements, and there was but little speculation in real estate and new enterprises. Most of the loans were on bills payable in eastern cities and founded on some actual transaction. Scarcely a bill was returned dishonored. In some instances accommodation paper was discounted and re- newals made where the parties were unquestionably good, but probably nine-tenths of the loans and transactions were confined to business paper and the purchase of bills on the actual shipment of produce, or the driving of stock to a northern or eastern market.
The great metropolis of the state was then Cincinnati. It had long been the center of the pork packing industry of the United States and had become known as Porkopolis, a name it retained until after the Civil war, when Chicago became the great packing center. Cincinnati was also a center of steamboat building and received extensive imports of goods from the east and exported the surplus crops of the Miami valley. It was already an extensive manufacturing place and thousands of dollars worth of its manu- factured goods were annually sent into the upper and lower Mis- sissippi country. The pork packing industry each winter threw into the market a large amount of bills of exchange, and after the season closed exchange on New York was likely to advance; for instance, in February, 1844, it was 1 per cent premium while a short time before it had been at a discount.
The prices of Ohio products were very low in 1843 and 1844, though not generally so low as in 1842. Thus in Cincinnati, in 1843, flour was $3.62 a barrel as compared with $2.62 in 1842, while pork opened the season of 1843-4 at $2.25 to $2.65 a hundred as compared with $1.62 to $2 the previous season. The Lafayette bank of Cincinnati, in reply to questions of the bank commissioners in 1844, stated that specie then formed but a small part of the cir- culating medium in Cincinnati; that at least four-fifths of the whole circulation of bank paper was furnished by institutions out of Ohio, while there was less specie in the state then than at any period for fifteen years.
A general banking law was passed by the state legislature, Feb. 24, 1845. It provided for the organization of two new classes- the State bank of Ohio, and independent banks- and in addition it
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recognized the old banks still existing. The Lafayette bank of Cin- cinnati and the Ohio Life Insurance and Trust company were specially authorized on certain conditions to recognize with such an amount of stock as their directors might determine, being re- stricted to not less than $300,000 each nor more than $1,000,000, and their circulation should not exceed $650,000 each. That the privilege of the act might not be monopolized the state was di- vided into twelve districts and the number of banks in each was limited. Hamilton county was allowed four banks, Miami two, Montgomery two, and no other county in the valley was allowed more than one. In March 18, 1845, pursuant to a notice from the Governor, the board of bank commissioners named in the law met at Columbus to act upon applications from banks organized under the act, and take the initiatory steps to put them into operation. By June 19, application had been filed and proper examinations made for two branch banks in Cincinnati and one in Dayton. Meanwhile some of the old banks whose charters had expired were taking ad- vantage of the part of the law which permitted them to become independent banks. The first independent bank in Ohio was the Commercial bank of Cincinnati, which was organized April 15, 1845.
But there was considerable opposition to the new law, and it manifested itself considerably in 1845 and 1846. A writer in a Dayton paper discussing the Dayton bank, an independent insti- tution, asked: "How has the circulating medium here been bene- fited by the transmission of nearly the whole circulation of this bank to neighboring counties and states?" No sooner had the law been passed than the anti-bank party announced its deter- mination to carry the question once more before the people of the state, but the result of the election was again in favor of the ad- vocates of the banks. As an example of the campaign appeals the following quotations are taken from resolutions unanimously adopted by the Democratic county convention in Hamilton county, Aug. 30, 1845:
"Resolved, that the corporate privilege of concentrated means, limited liability, and protracted succession beyond the casualties and conditions of individual action ought not to be conferred on money.
"Resolved, that metallic currency has been tested by the ex- perience of ages. On the contrary all systems of paper currency ever yet contrived have failed, and in their inevitable overthrow have detailed more distress and loss, and perpetrated more robbery and fraud than would colonize a continent with convicts and paupers. Nor have we seen in the Whig legislature of last year any symptoms of a wisdom superior to the paper-mongers who have gone before them-but a compound rather of all the shallow schemes of their predecessors."
When the election was over, in 1846, it was found that the Whigs had once more won, Gov. William Bebb, who was formerly attorney for the old bank of Hamilton, receiving a larger plurality than his predecessor two years before. And to add to the signifi- cance of the victory, John Woods, the former president of the bank of Hamilton, was elected State Auditor,
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Bank circulation was nearly doubled, and it is interesting in connection with this increase of circulation to compare some prices of Ohio products at Cincinnati for December, 1844, and December, 1845. The price of wheat had increased from 70 to 90 cents a bushel; flour from $3.70 to $5 a barrel; hogs from $2.60 to $4.37 a hundred; mess pork from $8 to $12 a barrel; and lard from 414 to 71/2 cents a pound. From a table giving the distribution of banks and capital in Ohio, in May, 1847, there appears to have been nine in the Miami valley, as follows: Hamilton county, with a popula- tion of 156,844, had six banks at Cincinnati, with a paid in capital stock of $1,640,026, making a per capita of $10,456; Miami county, with a population of 24,999, had a bank at Troy with a paid in capi- tal stock of $31,840, a per capita of $1,274 ; and Montgomery county, with a population of 38,218, had two banks at Dayton, with a paid in capital stock of $169,750, a per capita of $4,442.
At the Constitutional Convention, held in 1851, Mr. Dorsey of Miami county, a Democrat, introduced resolutions prohibiting the legislature from granting special bank charters, but permitting it to pass general banking laws with certain restrictions, which must, however, be submitted to the people before they should go into operation, and the clause came within one vote of being placed in the new constitution. But there was a widely circulated notion that more banks were needed. The Cincinnati Gazette, in 1850, was complaining that notwithstanding the wonderful strides of Cincinnati's commercial, manufacturing, and shipping interests, legitimate banks were from year to year denied the city, which in banking capital was far behind other cities of her size and smaller.
This condition was relieved by the passage of the "free banking law" of March 21, 1851, which resulted in a considerable increase in the number of banks, and this period of bank expansion was also one of increased business prosperity in the state. At Cincinnati much transient exchange was purchased in the market, which yielded considerable profits.
In the early '50s one noticeable fact about banking operations was the gradual extinction of all home discounting. This change was due largely to what was called the 10 per cent interest law, which was passed in 1850, allowing 10 per cent interest to be charged in special contracts. It resulted in a condition wherein banks seldom had any money to loan at 6 per cent when they could hand it over to a broker who was allowed to charge 10 per cent. The Miami valley bank at Dayton was one bank whose chartered privileges were placed in abeyance in the hands of their principal stockholders-brokers, who used the circulation and enjoyed all the advantageous part of the charter, but escaped all the legal re- straints, especially as to interest. The withdrawal of so many of the authorized banks from home discounting, along with the tempt- ing 10 per cent, brought into existence all over the state private bankers and brokers of but little real capital. They offered 6 per cent interest and more for deposits and banked on them. In Cist's Weekly Advertiser (Cincinnati), Feb. 11, 1853, a broker was ad- vertising for note and bill discounting, and offering 6 per cent in- terest on checking deposits and higher interest if left for a specified
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time. The Bankers' Magazine in 1851, commenting on the insuffi- ciency of incorporated banking capital in Cincinnati, names eighteen private banks, but also refers to a "host of brokers who are em- ployed in shaving notes or getting them shaved;" and referring to their high interest charges states that "the mercantile community of Cincinnati are annually fleeced out of from 20 to 25 per cent of their hard earned profits in the shape of usurious interest," while the private bankers and brokers have built up fortunes for them- selves. The Cincinnati Gazette, in December, 1852, refers to sev- eral private banks in that city returned by the assessor at from $200,000 to $400,000 each and numerous others at $150,000 each, while in October, 1853, the Bankers' Magazine estimates the private banking capital of Cincinnati at $4,000,000, not including brokers with taxable capital under $10,000. The capital of the firms included ranged from $17,700 to $1,200,000. The largest of these, Ellis & Sturges, together with two other well known and well thought of houses, Smead & Co. and Goodman & Co., suspended payment in the fall of 1854, causing great excitement in the city.
Cincinnati was often cited as a place where it was said the state had not provided sufficient banking capital and circulation. Yet the banks authorized there and in existence in 1854 might have issued a circulation of at least $4,500,000. The argument of a lack of capital or opportunity to maintain such a circulation seems weakened somewhat by the fact that five banks in Indiana and Kentucky issuing circulation to the amount of some $3,000,000 were maintained chiefly from Cincinnati capital, while the Com- mercial bank of Cincinnati protected for some time a large Tennessee circulation, and all the Cincinnati banks and brokers aided in the circulation of foreign notes. The same money that maintained a foreign circulation might have maintained a home currency. To avoid the continual draft upon them, banks resorted to those schemes so prevalent in former years to pay out their own paper so as to drive it as far from home as possible, while about home they circulated foreign paper. H. F. Baker, writing of Ohio banks in 1856, cites an instance of an old and wealthy citizen of Cincinnati writing a letter to the city council in which he states that in six years he had received but four Cincinnati bank notes.
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