USA > Wisconsin > Sauk County > The history of Sauk County, Wisconsin, containing an account of settlement, growth, development and resources biographical sketches the whole preceded by a history of Wisconsin > Part 29
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BANKING IN WISCONSIN.
BY JOHN P. McGREGOR.
Wisconsin was organized as a territory in 1836, and the same year several acts were passed by the territorial legislature, incorporating banks of issue. Of these, one at Green Bay and another at Mineral Point went into operation just in time to play their part in the great panic of 1837. The bank at Green Bay soon failed and left its bills unredeemed. The bank at Mineral Point is said to have struggled a little longer, but both these concerns were short lived, and their issues were but a drop in the great flood of worthless wild-cat bank notes that spread over the whole western country in that disastrous time. The sufferings of the people of Wis- consin, from this cause, left a vivid impression on their minds, which manifested its results in the legislation of the territory and in the constitution of the state adopted in 1848. So jealous were the legislatures of the territory, of banks and all their works, that, in every act of incorporatior for any purpose, a clause was inserted to the effect that nothing in the act contained should be
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taken to authorize the corporation to assume or exercise any banking powers; and this proviso was even added to acts incorporating church societies. For some years there can hardly be said to have been any banking business done in the territory ; merchants and business men were left to their own devices to make their exchanges, and every man was his own banker.
In the year 1839 an act was passed incorporating the " Wisconsin Marine and Fire Insurance Company," of Milwaukee. This charter conferred on the corporation, in addition to the usual powers of a fire and marine insurance company, the privilege of receiving deposits, issuing certifi- cates of deposit and lending money,-and wound up with the usual prohibition from doing a banking business. This company commenced business at once under the management of George Smith as president and Alexander Mitchell as secretary. The receiving deposits, issuing certifi- cates of deposit and lending money, soon outgrew and overshadowed the insurance branch of the institution, which accordingly gradually dried up. In fact, the certificates of deposit had all the appearance of ordinary bank notes, and served the purposes of an excellent currency, being always promptly redeemed in coin on demand. Gradually these issues attained a great circulation all through the west, as the people gained more and more confidence in the honesty and ability of the managers ; and though " runs " were several times made, yet being successfully met, the public finally settled down into the belief that these bills were good beyond question, so that the amount in circulation at one time, is said, on good authority, to have been over $2,000,000.
As the general government required specie to be paid for all lands bought of it, the Wis- consin Marine and Fire Insurance company, by redemption of its " certificates of deposit," furnished a large part of the coin needed for use at the Milwaukee land office, and more or less for purchases at land offices in other parts of the state, and its issues were of course much in request for this purpose. For many years this institution furnished the main banking facilities for the business men of the territory and young state, in the way of discounts and exchanges. Its right to carry on the operations it was engaged in, under its somewhat dubious and incon- sistent charter, was often questioned, and, in 1852, under the administration of Governor Farwell, some steps were taken to test the matter ; but as the general banking law had then been passed by the legislature, and was about to be submitted to the people, and as it was understood that the company would organize as a bank under the law, if approved, the legal proceedings were not pressed. While this corporation played so important a part in the financial history and commer- cial development of Wisconsin, the writer is not aware of any available statistics as to the amount of business transacted by it before it became merged in the "Wisconsin Marine and Fire Insurance Company's Bank."
In 1847, the foundation of the present well-known firm of Marshall & Ilsley was laid by Samuel Marshall, who, in that year, opened a private banking office in Milwaukee, and was joined in 1849 by Charles F. Ilsley. This concern has always held a prominent position among the banking institutions of our state. About this time, at Mineral Point, Washburn & Woodman (C. C. Washburn and Cyrus Woodman) engaged in private banking, as a part of their business. After some years they were succeeded by Wm. T. Henry, who still continues the banking office. Among the early private bankers of the state were Mr. Kellogg, of Oshkosh; Ulmann and Bell, of Racine ; and T. C. Shove, of Manitowoc. The latter still continues his business, while that of the other firms has ! een wound up or merged in organized banks.
In 1848, Wisconsin adopted a state constitution. This constitution prohibited the legislature from incorporating banks and from conferring banking powers on any corporation; but provided the question of "banks or no banks " might be submitted to a vote of the electors, and, if the decision should be in favor of banks, then the legislature might charter banks or might enact a
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general banking law, but no such special charter or general banking law should have any force until submitted to the electors at a general election, and approved by a majority of votes cast on that subject. In 1851, the legislature submitted this question to the people, and a majority of the votes were cast in favor of "banks." Accordingly the legislature, in 1852, made a general banking law, which was submitted to the electors in November of that year, and was approved by them. This law was very similar to the free banking law of the state of New York, which had then been in force about fifteen years, and was generally approved in that state. Our law authorized any number of individuals to form a corporate association for banking purposes, and its main provisions were intended to provide security for the circulating notes, by deposit of state and United States stocks or bonds with the state treasurer, so that the bill holders should sustain no loss in case of the failure of the banks. Provision was made for a bank comptroller, whose main duty it was to see that countersigned circulating notes were issued to banks only in proper amounts for the securities deposited, and upon compliance with the law, and that the banks kept these securities good.
The first bank comptroller was James S. Baker, who was appointed by Governor Farwell.
The first banks organized under the new law were the " State Bank," established at Madi- son by Marshall & Ilsley, and the "Wisconsin Marine and Fire Insurance Company's Bank," established at Milwaukee under the old management of that company. These banks both went into operation early in January, 1853, and, later in that year, the " State Bank of Wisconsin " (now Milwaukee National Bank of Wisconsin), and the "Farmers' and Millers' Bank " (now First National Bank of Milwaukee), were established, followed in January, 1854, by the "Bank of Mil- waukee " (now National Exchange Bank of Milwaukee). From this time forward banks were rapidly established at different points through the state, until in July, 1857, they numbered sixty - with aggregate capital, $4,205,000; deposits, $3,920,238; and circulation, $2,231,829. In October, the great revulsion and panic of 1857 came on, and in its course and effects tried pretty severely the new banks in Wisconsin. Some of them succumbed to the pressure, but most of them stood the trial well.
The great source of loss and weakness at that time was found in the rapid decline of the market value of the securities deposited to protect circulation, which were mostly state bonds, and largely those of the southern states; so that this security, when it came to be tried, did not prove entirely sufficient. Another fault of the system, or of the practice under it, was developed at this time. It was found that many of the banks had been set up without actual working capi- tal, merely for the purpose of issuing circulating notes, and were located at distant and inaccessible points in what was then the great northern wilderness of the state; so that it was expensive and in fact impracticable to present their issues for redemption. While these evils and their rem- edies were a good deal discussed among bankers, the losses and inconveniences to the people were not yet great enough to lead to the adoption of thorough and complete measures of reform. The effect of these difficulties, however, was to bring the bankers of the state into the habit of consulting and acting together in cases of emergency, the first bankers' convention having been held in 1857. This was followed by others from time to time, and it would be difficult to over- value the great good that has resulted, at several important crises from the harn onious and con- servative action of the bankers of our state. Partly, at least, upon their recommendations the legislature, in 1858, adopted amendments to the banking law, providing that no bank should be located in a township containing less than two hundred inhabitants; and that the comptroller should not issue circulating notes, except to banks doing a regular discount deposit and exchange business in some inhabited town, village, city, or where the ordinary business of inhabited towns, villages and cities was carried on. These amendments were approved by the people at the fall
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election of that year.
Banking matters now ran along pretty smoothly until the election in 1860, of the republican presidential ticket, and the consequent agitation in the southern states threatening civil war, the effects of which were speedily felt; first, in the great depreciation of the bonds of the southern states, and then in a less decline in those of the northern states. At this time (taking the state- ment of July, 1860,) the number of banks was 104, with aggregate capital, $6,547,000; circula- tion, $4,075,918; deposits, $3,230,252. 1
During the winter following, there was a great deal of uneasiness in regard to our state cur- rency, and co .tinuous demand upon our banks for the redemption of their circulating notes in coin. Many banks of the wild-cat sort failed to redeem their notes, which became depreciated and uncurrent; and, when the rebellion came to a head by the firing on Fort Sumter, the banking interests of the state were threatened with destruction by compulsory winding up and enforced sale at the panic prices then prevailing, of the securities deposited to secure circulation. Under these circumstances, on the 17th of April, 1861, the legislature passed "an act to protect the holders of the circulating notes of the authorized banks of the state of Wisconsin." As the banking law could not be amended except by approval of the electors, by vote at a general election, a practical suspension of specie payment had to be effected by indirect methods. So this act first directed the bank comptroller to suspend all action toward banks for failing to redeem their circulation. Secondly, it prohibited notaries public from protesting bills of banks until Dec 1, 1861. Thirdly, it gave banks until that date to answer complaints in any proceed- ing to compel specie payment of circulating notes. This same legislature also amended the banking law, to cure defects that had been developed in it. These amendments were intended to facilitate the presentation and protest of circulating notes, and the winding up of banks failing to redeem them, and provided that the bank comptroller should not issue circulating.notes except to banks having actual cash capital ; on which point he was to take evidence in all cases ; that after Dec. 1, 1861, all banks of the state should redeem their issues either at Madison or Milwaukee, and no bonds or stocks should be received as security for circulation except those of the United States and of the state of Wisconsin.
Specie payment of bank bills was then practically suspended, in our state, from April 17 to December 1, 1861, and there was no longer any plain practical test for determining which were good, and which not. In this condition of things, bankers met in convention, and, after discus- sion and inquiry as to the condition and resources of the different banks, put forth a list of those whose issues were to be considered current and bankable. But things grew worse, and it was evident that the list contained banks that would never be able to redeem their circulation, and the issues of such were from time to time thrown out and discredited without any concert of action, so that the uneasiness of people in regard to the financial situation was greatly increased. The bankers finally met, gave the banks another sifting, and put forth a list of seventy banks, whose circulating notes they pledged themselves to receive, and pay out as current, until Decem- ber I. There had been so many changes that this pledge was thought necessary to allay the apprehensions of the public. But matters still grew worse instead of better. Some of the banks in the " current" list closed their doors to their depositors, and others were evidently unsound, and their circulation so insufficiently secured as to make it certain that it would never be redeemed. There was more or less sorting of the currency, both by banks and business men, all over the state, in the endeavor to keep the best and pay out the poorest. In this state of things, some of the Milwaukee banks, without concert of action, and acting under the apprehen- sion of being loaded up with the very worst of the currency, which, it was feared, the country banks and merchants were sorting out and sending to Milwaukee, revised the list again, and
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BANKING IN WISCONSIN.
threw out ten of the seventy banks whose issues it had been agreed should be received as current. Other banks and bankers were compelled to take the same course to protect them- selves. The consequence was a great disturbance of the public mind, and violent charges of bad faith on the part of the banks, which culminated in the bank riots of June 24, 1861. On that day, a crowd of several hundred disorderly people, starting out most probably only with the idea of making some sort of demonstration of their dissatisfaction with the action of the banks and bankers and with the failure to keep faith with the public, marched through the streets with a band of music, and brought up at the corner of Michigan and East Water streets.
The banks had just sufficient notice of these proceedings to enable them to lock up their money and valuables in their vaults, before the storm broke upon them. The mob halted at the place above mentioned, and for a time contented themselves with hooting, and showed no dispo- sition to proceed to violence; but, after a little while, a stone was thrown through the windows of the Wisconsin Marine and Fire Insurance Company's Bank, situated at one corner of the above streets, and volley ; of stones soon followed, not only against that bank, but also against the State Bank of Wisconsin, situated on the opposite corner. The windows of both these institutions and of the offices in the basements under them were effectually demolished. The mob then made a rush into these banks and offices, and completely gutted them, offering more or less violence to the inmates, though no person was seriously hurt. The broken furni- ture of the offices under the State Bank of Wisconsin was piled up, and the torch was applied by some of the rioters, while others were busy in endeavoring to break into the safes of the offices and the vaults of the banks. The debris of the furniture in the office of the Wisconsin Marine and Fire Insurance Company's Bank, was also set on fire, and it was plain that if the mob was not immediately checked, the city would be given up to conflagration and pillage -the worst elements, as is always the case with mobs, having assumed the leadership. Just at that juncture, the Milwaukee zouaves, a small military company, appeared on the scene, and with the help of the firemen who had been called out, the mob was put to flight, and the incipient fire was extin- guished.
The damage so far done was not great in amount, and the danger for the moment was over ; but the situation was still grave, as the city was full of threats, disturbance and apprehension. By the prompt action of the authorities, a number of companies of volunteers were brought from different places in the state, order was preserved, and, after muttering for three or four days, the storm died away. The effect of that disturbance and aların was, however, to bring home to the bankers and business men the conviction that effectual measures must be taken to settle our state currency matters on a sound and permanent basis, and that the issues of all banks that could not be put in shape to meet specie payment in December, must be retired from circulation and be got out of the way. A meeting of the bankers was held; also of the merchants' association of Milwaukee, and arrangements were made to raise $100,000, by these two bodies, to be used in assisting weak and crippled banks in securing or retiring their circulation. The bankers appointed a committee to take the matter in charge.
It happened that just at this time Governor Randall and State Treasurer Hastings returned from New York City, where they had been making unsuccessful efforts to dispose of $800,000 of Wisconsin war bonds, which had been issued to raise funds to fit out Wisconsin volunteers.
Our state had never had any bonds on the eastern market. For other reasons, our credit was not high in New York, and it had been found impossible to dispose of these bonds for over sixty cents on the dollar. The state officers conferred with the bankers to see what could be done at home ; and it was finally arranged that the bankers' committee should undertake to get the state banks to dispose of their southern and other depreciated state bonds on deposit to
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secure circulation, for what they would bring in coin, in New York, and replace these bonds with those of our own state,. which were to be taken by our banks nominally at par - seventy per cent. being paid in cash, and the different banks purchasing bonds, giving their individual obligation for the thirty per cent. balance, to be paid in semi-annual installments, with an agreement that the state should deduct these installments from the interest so long as these bonds should remain on deposit with the state. By the terms of the law, sixty per cent. of the proceeds of the bonds had to be paid in coin. The bankers' committee went to work, and with some labor and difficulty induced most of the banks to sell their southern securities at the existing low prices in New York, and thus produce the coin required to pay for our state bonds. From the funds provided by the merchants and bankers, they assisted many of the weaker banks to make good their securities with the banking department of the state. By the 19th of July, six of the ten rejected banks that had been the occasion of the riot, were made good, and restored to the list. The other four were wound up, and their issues redeemed at par, and, before the last of August, the value of the securities of all the banks on the current list were brought up to their circulation, as shown by the comptroller's report.
Wisconsin currency at the time of the bank riot was at a discount of about 15 per cent., as compared with gold or New York exchange. At the middle of July the discount was 10 to 12 per cent., and early in August it fell to 5 per cent. The bankers' committee continued their work in preparation for the resumption of specie payment on December I. While the securities for the bank circulation had been made good, it was, nevertheless, evident that many of the banks on the current list would not be equal to the continued redemption of their bills in specie, and that they would have to be wound up and got out of the way in season. Authority was got from such institutions, as fast as possible, for the bankers' committee to retire their circulation and sell their securities. The Milwaukee banks and bankers took upon themselves the great burden of this business, having arranged among themselves to sort out and withhold from cir- culation the bills of these banks,-distributing the load among themselves in certain defined proportions. Instead of paying out these doubted bills, the different banks brought to the bank- ers' committee such amounts as they accumulated from time to time, and received from the committee certificates of deposit bearing seven per cent. interest, and these bills were locked up by the committee until the securities for these notes could be sold and the proceeds realized. Over $400,000 of this sort of paper was locked up by the committee at one time; but it was all converted into cash, and, when the first of December came, the remaining banks of this state were ready to redeem their issues in gold or its equivalent, and so continued to redeem until the issue of the legal-tender notes and the general suspension of specie payment in the United States.
In July, 1861, the number of our banks was 107, with capital, $4,607,000; circulation, $2,317,907 ; deposits, $3,265,069.
By the contraction incident to the preparations for redemption in specie, the amount of cur- rent Wisconsin bank notes outstanding December 1, 1861, was reduced to about $1,500,000. When that day came, there was quite a disposition manifested to convert Wisconsin currency into coin, and a sharp financial pinch was felt for a few days; but as the public became satisfied that the banks were prepared to meet the demand, the call for redemption rapidly fell off, and the banks soon began to expand their circulation, which was now current and in good demand all through the northwestern states. The amount saved to all the interests of our state, by this successful effort to save our banking system from destruction, is beyond computation. From this time our banks ran along quietly until prohibitory taxation by act of congress drove the bills of state banks out of circulation.
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The national banking law was passed in 1863, and a few banks were soon organized under it in different parts of the country. The first in Wisconsin was formed by the re-organization of the Farmers' and Millers' Bank, in August, 1863, as the First National Bank of Milwaukee, with Edward D. Holton as president, and H. H. Camp, cashier. The growth of the new system, however, was not very rapid; the state banks were slow to avail themselves of the privileges of the national banking act, and the central authorities concluded to compel them to come in; so facilities were offered for their re-organization as national banks, and then a tax of ten per cent. was laid upon the issues of the state banks. This tax was imposed by act of March, 1865; and at once caused a commotion in our state. In July, 1864, the number of Wisconsin state banks was sixty-six, with capital $3,147,000, circulation $2,461,728, deposits $5,483,205, and these figures were probably not very different in the spring of 1865. The securities for the circulating notes were in great part the bonds of our own state, which, while known by our own people to be good beyond question, had never been on the general markets of the country so as to be cur- rently known there; and it was feared that in the hurried retirement of our circulation these bonds would be sacrificed, the currency depreciated, and great loss brought upon our banks and people. There was some excitement, and a general call for the redemption of our state circula- tion, but the banks mostly met the run well, and our people were disposed to stand by our own state bonds.
In April, 1861, the legislature passed laws, calling in the mortgage loans of the school fund, and directing its investment in these securities. The state treasurer was required to receive Wisconsin bank notes, not only for taxes and debts due the state, but also on deposit, and to issue certificates for such deposits bearing seven per cent. interest. By these and like means the threatened panic was stopped; and in the course of a few months Wisconsin state currency was nearly all withdrawn from circulation. In July, 1865, the number of state banks was twenty-six, with capital $1,087,000, circulation $192,323, deposits $2,284,210. Under the pressure put on by congress, the organization of national banks, and especially the re-organiza- tion of state banks, under the national system, was proceeding rapidly, and in a short time nearly every town in our own state of much size or importance was provided with one or more of these institutions.
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