USA > Pennsylvania > The Register of Pennsylvania : devoted to the preservation of facts and documents and every other kind of useful information respecting the state of Pennsylvania, Vol. IX > Part 83
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The evidence of the president of the bank explains the character of these various loans, and the circum- stances which induced him to be satisfied with the secu- rity, and to make these advances; which, together with all the testimony and correspondence on this subject, will be found in the papers marked No. 9.
In that evidence it is stated, by tbe testimony of Webh and Noah, that they knew nothing of the first 15,000 dollar loan made by the president of the bank, to Bur- rows; that Burrows made them believe the $15,000 were loaned to Noah by his father, and that he had his father present to carry on that transaction, and for which loan Noah allowed Burrows 23 per cent, and did not receive it all for some months after giving his notes; that the notes were discounted by the bank, in their names, without their knowledge, and paid off in the same way. It will appear by the testimony of Mr. Webb, that the paper of which he is the editor, made two publications in the latter part of 1829, favorable to the establishment of branches; that shortly thereafter it commenced its opposition to the bank, and was, for six- teen months warmly opposed to it; and that, on or about the 8th of April, 1831, it changed its course in favor of the bank. Connected with this fact, is an admission on the part of one of the editors, that before the first loan was negotiated he held a conversation with a gentle- man, through whom the loan was then negotiating, (who the committee know to be Burrows, ) in which he, Burrows, urged the editors, one of whom, Webb, had expressed himself in favor of a modified recharter, to advocate an unconditional renewal, " but expressed great satisfaction at learning that [nne] was in favor of a charter under any circumstances."
'The committee will state they were anxious to obtain the testimony of Burrows, but were unable to do it. A subpoena was issued for him and sent to New York, to which the marshal returned he was not to be found. It was then sent to Washington City, and the Sergeant- at-Arms made the same return. The marshal of Penn- sylvania was directed by the chairman, to make and continue a search for the witness in Philadelphia, having heard of his expected arrival in that place; that the marshal reported to the chairman that he ascertained that the witness had arrived in that place on Thursday, the 5th inst, but he was not able to serve the process, because he could not be found
To an inquiry whether there were any other instances
of notes being discounted for the accommodation of any merchant and trader, at 1, 2, 3, 4, and 5 years' credit, unless to secure a debt in jeopardy, there were present- ed to the committee four other cases.
On the 3d of April the committee, by resolution, called for the following statements to assist them in the elucidation of certain facts which had appeared in other documents, viz:
1st. A tabular statement, showing the aggregate amount of notes discounted and still due the bank, drawn and endorsed by non residents of Philadelphia; which will be found marked A.
2d. The aggregate amount of good notes offered for discount, and rejected by the board; drawn and endors- ed by residents of Philadelphia, on the following days respectively : 9th of August; 16th December, 1831; 2d January; 10th February; 2d and 14th of March, 1832; 24th September, and 15th October, 1830. That state- ment, marked B, will show the amount of notes dis- counted; but the officers of the bank state their inabili- ty to discriminate between those that are good or other- wise.
3d. The aggregate amount of notes discounted on personal security, and made payable more than six months after date, which appear to be only four in num- ber, besides the case of J. W. Webb, and M. M. Noah.
4th. The aggregate of notes now due the bank, dis- counted for a firm, or the partners of a firm, without the name of some-person not belonging to the firm, as draw- er or endorser, distinguishing in each of the above statements the amount loaned to members of Congress, editors of newspapers, or persons holding offices under the general government. To this last resolution were added the following amendments, viz: "Ist. A statement of the loans made by the bank and its branches, to mem- - bers of Congress, editors of newspapers, and officers of the general government, and the terms of such loans." "2d. And the names and amounts of payments to mem- bers of Congress, in anticipation of their pay as mem- bers, before the passage of the general appropriation bill." "3d. And the amount of money due the United States, on the deposite in the hank, after deducting therefrom the sum thus advanced to those to whom the United States are indebted." "And lastly, a statement in detail of the amounts paid to those who are now, or have been members of Congress, or officers of govern- ment, since 1816, for services rendered to the bank, stating the nature of the service. For the information sought by these inquiries, see papers marked C. Be- sides these, there were furnished statements of loans made to five editors or publishers of newspapers, by which it will appear, that the accommodations to those five editors were upwards of $110,000, previous to the institution of this inquiry.
The various reports which have for a long period past, charged the bank with too frequent intercourse with brokers, and also of undue favoritism to certain individuals, as well as the large transactions which exhi- bited themselves upon many documents called for by the committee, induced them to examine particularly the accounts of the firms of which Mr. Thomas Biddle was and is the chief partner with tite bank, as a broker.
Four subjects of investigation presented themselves in relation to their transactions with the bank.
1st. The allowing and paying interest to them on de- posits.
2d. Relates to certain loans upon the pledge of stock, and the discounting of notes made to T. Biddle by the president or others without the knowledge of the board, and on partof them the pledge of stock without inte- rest. The committee wouldl refer for the particulars of these two charges to the papers marked No. 13.
The third subject is the amount of discounts made T' Biddle, anl the rate of interest. The document marked No. 14 will show the amount on the 15th of each month from the 15th day of September, 1830, to the 15th day of February, 1832. By this, it appears, that
1
UNITED STATES BANK.
294
[MAX
on the 15th of October, 1830, he had discounted up- wards of $1,120,000, and has at no time since been less than $400,000.
The committee doubt the policy of such large ac- commodations to individuals or firms, at any time, as it deprives the bank of the power of fulfilling one of the great objects of its institution, which is to facilitate trade by loans in time of pressure, and it may be proper to add, that these large loans, at a low rate of interest, in times when money is plenty, are usually followed by overtrading, which produces pecuniary embarrassment and general distress.
By a statement entitled, " Remittances to Europe," marked No. 16, it appears that the foreign purchase of foreign bills, were made of Thomas Biddle and Co., drawn by them, viz:
1831.
Oct. 14, 1 bill 60 days sight, and at a premium of 102 per cent. $32,399 68
Oct. 14, 3 bills at 75 to 90 and 105 days, and at a premium of 10} per cent. 115,411 11
Oct. 22, 13 bills at 40 to 125 days, and at a premium of 11 per cent. 592,000 00
Dec. 10, 9 bills at 40 to 110 days, and at a
506,250 00 premium of 10 per cent. 1832.
Feb. 14, 14 bills at 40 to 105 days, and at a premium of 10} per cent. 400,000,00
Feb. 14, 3 bills at 50 to 70 days, and at a premium of 11 per cent. 148,000 00
$1,794,060 79
By the foregoing statement, it appears that the bank purchased between the 14th of October, 1831, and the 15th of February, 1832, of T. Biddle and Co. foreign bills to the amount of $1,794,060 79.
With regard to these large loans, the committee refer to the statement marked No. 19, by which it appears that on the 9th of April, 1832, the total amount of dis- counts on bills and notes at the bank in Philadelphia, was $7,939,679 52. Of tbat sum more than two-thirds were loaned to ninety-nine persons, to wit, $5,434,111. More than $3,000,000 were in the hands of twenty-se- ven individuals; and nearly the seventeenth part in the hands of one person. The committee have already ex- pressed their conviction that these large accommoda- tions, to a few individuals, are injurious to trade gene- rally, and they will add, that they ought always to be made by either the board of directors, or the commit- tees empowered by them for that purpose. For an ex- planation of this subject, see papers numbered 13 and 18.
Properly connected with this subject is the accommo- dation extended by the bank to individuals on the pledge of stock. In all the monthly statements of the condi- tion of the bank, prior to the first of March last, there was no column showing these loans. In that month, for the first time, so far as the committee can discover, a new column isexhibited, entitled "loans on other stocks."" and which appeared, at that time, to have been trans- ferred from the line called " bills discounted on personal sceurity." This change was made in consequence of a call for stock loans, by the House of Representatives. A statement of the same was called for, marked No. 20, which exhibits a list of stocks pledged, consisting of Theatre shares, Museum stock, Arcade stock, Rail-road and Canal stocks, Coal company stock, real estate in Louisiana, &c. &c., amounting to the sum of $1,713,- 297 34.
The various transactions in specie, by the bank, has been a subject of special notice by the committee, and various statements called for, show the magnitude of them.
The first statement, marked No. 21, shows the amount of specie exported by the Bank of the United States, during the year 1831 :
To London, in Mexican coin,
$255,000 00
To Paris in Mexican coin, 620,000
To Paris, in gold, 247,000 Do. in mixed bullion, 180,000
1,047,000 00
$1,302,000 00
2d. The amount of specie exported since 1819, will be found in the statement marked No. 22. To England, 2,598,357 00
To France, 2,257,398 50
$4,855,755 50
Of this amount, there was in gold,
2,387,927 50
In bullion, 596,717 00
In silver, 1,871,111 00
$4,855,755 50
3d. The amount purchased since 1824, marked No. 23, shows:
Of silver, 605,850 00
gold coin, 17,596 00
gold bullion,
438,000 00
$1,061,446 00
4th. The amount of specie sold since 1817, marked No. 24, shows it be $5,184,910 29
Of which there was, American gold, 81,734 44
British, French, and Spanish, 48,291 35 Silver, 5,051,884 50
$5,184,910 29
5th. The amount of specie drawn from each of the southern and western offices, since 1820, to the Bank of the United States and New York, marked No. 25, shows the total amount to be $22,523,387 94
Of which $20,925,990 07 has been drawn
to those places since the first of Janua- ry, 1823, $20,925,990 07
6th. The amount of specie, (in the same statement,) sent to the southern and western branches, since 1819, is $896,472 10
The premium received on the specie sold, is 97,140 56 The premium paid on the specie purchas- ed, is 19,171 85
$77,968 71
What profits were made on the specie exported, the committee did not call for documents to enable them to ascertain; it must, however, from the great quantity sent away, have been considerable.
The committee called for a statement of all the spe- cie imported by the bank from abroad, since 1819; but, as none was returned, they presume none was imported.
What proportion of the gold exported was American coin the committee have not before them the means to determine; it was expected to have been given in the statement; but in looking into them, the gold exported is without a designatory name; it is believed, however, the amount is considerable.
In examining this subject minutely, the committee find that large amounts of the specie have been drawn from the office at New Orleans. Of this there can be no complaint; it is the principal depot for returns of goods shipped to Mexico, which are almost exclusively paid for in specie, and it cannot be expected that it will remain there. But the committee suggest whether the withdrawal of the specie from most of the other ports of the country, and substituting paper in its stead, might not be highly jujurious to those sections of country sub- ject to its operation.
The subject of the bank's furnishing bills of exchange for the trade of India, China, and South America, has been brought to the attention of the committee by do- cument marked No. 26; and having been so strongly described as affording great advantages to the country,
1832.]
UNITED STATES BANK.
295
in the triennial report of September last, as "econo- mizing" the specie of the country. The committee have felt it a duty to examine and present the subjectto the consideration of Congress and the commercial com- munity, believing, as they do, that there is something delusive in the operation. The result of their examina- tion has led them to the conviction that this new method of dealing in bills of exchange does not "economize" the specie of the country at all. It is a universal law of drawing, that funds must either go before or follow after the draft to honor it at maturity; and whether it goes directly or circuitously, the funds to discharge it, must, sooner or later, arrive at the place of payment. These bills are to be paid in England; but they go round the Cape of Good Hope before they reach their place of destination. Instead, therefore, of sending the spe- cie directly to India and China, as formerly, who does not perceive that it must now be sent to England, the country upon which these bills are drawn, there to meet them upon their arrival at the place where they are to be paid. The bank consequently becomes the shipper of the specie, to pay its bills, in place of the merchant to purchase his merchandize in the East Indies. It is simply and purely nothing but a change of the destina- tion of the specie, with only the advantage of its going to London.
The mode in which these bills are drawn and dispos- ed of to the purchasers, having twelve months to run, it will be seen by a copy of the obligation taken by the bank, marked Nu. 27, the committee consider of doubt- ed utility to the country. The legitimate object of a bank, the committee believe to be the granting facilities, not loaning capital. The supplying of bills appears even more objectionable than loaning capital, for it en- courages an operation which commences and ends with- out the employment of any capital whatever, and is similar in their character to respondentia securities. The buyer is enabled, within the term of credit, to make the voyage, dispose of his goods, and obtain from the proceeds the funds to meet his obligation, and the bank to transmit the same to the place upon which their bills are drawn, (which are at six months sight, ) long be- fore they become due. It would seem to produce a greater export of specie eventually, than would other- wise take place if the operations were commenced with specie, and not with bills purchased in the manner de- scribed; for the merchant relying upon his immediate resources, would not engage to such an extent in the business, and would combine in the operation much of the produce of the country; whereas, relying upon an extensive credit he hazards every thing on the success of his enterprize. It is a species of speculation in trade leading to great risks, and certainly terminating in over- trading-the evils of which the country is now sorely experiencing. By loans of a similar character by insur- ance companies, providing funds for traders to China, Government has sustained more loss than in any other branches of trade.
The increase of the number of branches established since 1832, cannot be passed over in silence by the committee, and deserves, as a source of extended in- fluence of the bank, the most serious consideration.
In some few instances where new branches have been established, perhaps they may have been called for by the community, and may have been useful to them and profitable to the bank; but, in most of these cases, the committee doubt whether they were called for from public utility, and their establishment will, in the end, not only prove unprofitable to the bank, but prove ve- ry injurious to the communities among which they are located. Mr. Cheves, in a letter uf the 27th of May, 1819, to Mr. Crawford, then Secretary of the Treasury, says: "I am perfectly satisfied that, with the present organization of the bank, it can never be managed well. We have too many branches, and the directors are fre- quently governed by individual and local interests and feelings. For a time we must bear with the branches, but I hope they will be reduced."
Again, in the same letter, he observes, "the real and original evil under which the country is suffering is over- banking. This leads to excess in trading, manufactur- ing, building, and the history of the ill-judged enter- prizes which have been undertaken in these several concerns, would give a full history of all the distresses of this country, excepting a little agricultural distress growing out of the inordinate expectations which the others excited." These opinions fully accord with the views of the committee, and they consider them as pe- culiarly applicable to the present time, as exhibiting similar causes now operating with extended force, from which similar effects must follow, augmented in propor- tion to the increase of its branches.
The stockholders, at the triennial meeting on the 1st of October, 1822, recommended a withdrawal of some of the branches then existing, in these words: " In tak- ing into view the business of the bank, as connected with its offices, the committee think it right to recom- mend to the continued attention of the president and directors the necessity of withdrawing those branches which are found to be unprofitable, and transferring their funds to the offices which shall seem to require additional capital." Since this period two have been discontinued, and nine others have been established, as per triennial report of 1831. These opinions of Mr. Cheves, in which the committee have concurred, were approved by the stockholders, as will appear by the fol- lowing extract from this same report in 1822. They say, " they take great pleasure in unanimously declaring that the circumstances of the bank fully realize their anticipations as expressed at their last meeting in regard to the president, (Mr. Cheves, ) who, by his talents, disinterestedness, and assiduity, has placed its affairs in an attitude so safe and prosperous as that the burthen of duty devolving upon his successor will be comparatively light."
The committee cannot but think that, had the suc- ceeding direction of the bank been guided more by the opinions and wishes of the stockholders, as then ex- pressed, and gone on gradually growing with the growth, and increasing with the natural wants of the country, great sufferings to the community would have been avoided.
In the year 1817, great abuses existed in the branches of which Mr. Cheves speaks without reserve, in his last report to the stockholders, as well as in his correspond- ence with Mr. Crawford, and upon casting the eye over the monthly statements, it is remarkable to observe what losses have taken place at the branches compared with the mother bank. For instance: on the first of Janua -- ry last, the loss of the mother bank, on a capital of six- teen millions and a half, was, in round numbers, $328,000; that of the Baltimore branch was, $1, 662,000, on a capital of one million and a half, so that it lost more than its capital. That of the Norfolk branch was S229,000, on a capital of 500,000, losing nearly one- half of its capital, and so with all the rest of the branchies, their losses are out of all proportion to their capital, and ten times greater than the mother bank, ac- cording to the amount of their respective capitals. These losses, however, were principally incurred prior to 1819. The proper inference to be drawn from these facts, is, that the worst of mismanagement has existed in the branches.
The "Contingent Fund" has claimed the attention of the committee. The object for which it was originally created, and the original amount provided, together with the additional appropriations which have been made to it, and the manner in which the same have been ap- plied at different periods, will all be explained in the following documents.
The report of the board of directors, in July, 1821, published in the gazettes at that time, marked No. 28; the reports of the stockholders at the triennial meeting in October, 1822; the report of the dividend Commit- tee, on the 16th January, 1823, marked No. 29; a state- ment of the particulars of the debts "considered best,"
.
296
UNITED STATES BANK.
[MAY
marked No. 30; a statement of the suspended debt and real estate, with the probable loss thereon, marked No. 31; the statement headed " Contingent Fund," marked No. 32; the sales of the forfeited bank stock, marked No. 33; and the dividend reports for July, 1829, Janua- ry and July, 1830, January and July, 1831, marked No. 34. To these the committee refer for the particulars of the subjects to which they relate, in connexion with the " Contingent Fand."
The committee feel it their duty now to give their views as to the causes of the present distress in the trad- ing community, and which they fear may greatly in- crease. It is an acknowledged principle, that like causes, in all cases, produce like effects; and as in 1819 contraction followed the expansion of 1817, and 1818, so, by the same rule, must contraction follow the im- mense expansion of 1830 and 1831, and like effects and consequences succeed. To illustrate more clearly the position, and bring it home to the mind of every one, the following table of the state of the bank during some of the months of 1818 and '19 and 1831 and '32, are here exhibited, embracing items from which direct calls upon the vaults proceed, and the immediate means which remain to meet them, viz: 'The first are the depo- sites, circulation and debts abroad, not on permanent loan The second, the specie, funded debt, and notes of other banks. The amount of each will be found un- der their proper heads, at the various periods mentioned. [ For this lable see page 301. ]
The preceding table shows that, at no period in 1819, when the bank was very near suspending payment, was it less able to extend relief to a suffering community than at the present moment. In April of that year, the month in which its difficulties were the greatest, its means of specie, notes of other banks, and funded debt, (which could have been turned into specie or notes of other banks,) amounted to upwards of ten millions of dollars; and the whole demands which could come against it in the same month, of circulation, deposites, and debts owing abroad, amounted only to about four- teen millions. But the committee feel bound in candor to state, that this was after a number of months of con- stant contraction, not only by the Bank of the United States, but also by most of the other banking institu- tions of the country, where a general exhaustion had been produced. It was on the 6th April, 1819, that Mr. Crawford, then Secretary of the Treasury, writes to Mr. Cheves thus: "It is even doubtful whether it is practicable, with all the exertions which it is in your power to make, to continue specie payments through- out the year." Under the same date he says, " My im- pression is, that the safety of the bank can only be effected by withdrawing nearly the whole of its paper in circulation. If the bank does this, all other solvent banks will he compelled to do the same. When this is effected, gold and silver will be introduced into the country, and make a substantial part of the circulation, and enable the banking institutions gradually to resume their accustomed operations. Whilst this is effecting, the community, in all its relations, will be greatly dis- tressed. Considering the extent of the suffering, it is greatly to be desired that some good may result from it."
The committee believe that the course of operations by the bank, during the years 1830 and 1831, have been nearly of a similar character to those of the years 1817 and 1818. Drafts and notes, payable at distant offices, were then freely discounted at the bank of the United States, and the different offices. Bank notes were is- sued by the bank, without regard to the wants of the community, or the effect upon the circulating medium, which became depreciated, driving the precious metals from the country; and, until the reaction had operated to check them, led to extravagant speculations, which ended in ruin; and relief was not obtained until the cir- culation of the Bank of the United States had been re- duced to about 4,000,000 of dollars. Before this was accomplished, the expedient was resorted to, of cur- 14th day of January and the 28th day of March, is
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