Part 5 (1/2)

PANIC IN 1857.--The stoppage in 1848 was very brief. Discounts rose regularly from $332,000,000 to $364,000,000, $413,000,000, $557,000,000, $576,000,000, $634,000,000, and finally $684,000,000 in 1857. The progression was irresistible. The circulation rose from $114,000,000 to $214,000,000. The banks increased at such a rate that, from 707 in 1846, with a capital of $196,000,000, there were in 1857 1416, whose capital had risen to $370,000,000,--a very inferior figure, in comparison to the number of banks, to that of 1840, when 901 banks only had a capital of $358,000,000.

The metallic reserve, from $35,000,000 in 1847, easily reached $59,000,000 in 1856: but it was in proportion neither with the number of the banks nor their discounts and circulation; and, after all, this is only a moderate sum. We have not the extreme maximum or minimum, and the suspension of specie payments took place notwithstanding the amount of cash on hand, which was greater in 1857 than in 1856.

Deposits acc.u.mulated from $91,000,000 to $230,000,000; they rose to their greatest height in the very year of the crisis; nevertheless, they could not be drawn out.

During the Eastern war the prosperity of the United States had been so great that the clearing-houses established in New York in 1853, and in Boston in 1855, offered only a slight opposition to the excessive issue: at least, in 1837 the Congressional report stated the cash on hand was $6,500,00--that is to say, $1.00 in metal to each $6,00 in paper.

In 1857 cash on hand was $14,300,000, or $1.00 in hard money for each $8.00 in paper.

The banks had attracted deposits by high interest, and loaned the money to wild speculators. On the 22d of August, 1857, the amount of loans had become almost $12,000,000, counting together metal, notes, and deposits.

From December, 1856, to June, 1857, they had shown great strength.

Discounts had risen from $183,000,000 to $190,000,000 in June; cash on hand had risen from $11,000,000 to $14,000,000. The only evidence of weakness, so to speak, was that the withdrawal of deposits had risen from $94,000,000 to $104,000,000, while the circulation diminished $1,000,000.

In June ”the position of the Bank ought not to have caused any fear, to the most far-sighted,” says the report of the Committee of Inquiry.

Foreign exchange was favorable, and it is known that is the bankers'

guide. June, July, and August were tranquil, except for a slight disturbance in business experienced by the country bankers through the constantly increasing amount of notes presented for redemption, and among the city bankers by requests for discount.

The collapse of the ”Ohio Life,” which had the best New York connection, was the first muttering of the storm, and was soon followed by the suspension of the Mechanics' Banking a.s.sociation, one of the oldest banks in the country. The suspension of the Pennsylvania and Maryland banks followed. Public confidence remained unshaken--it relied upon the circulating medium.

Only one bank went to protest, and that on September 4th, on a $250 demand. Another protest followed on the 12th, a third on the 15th, both for insignificant amounts. Demands in the way of withdrawal amounted to almost nothing, and there was nothing like a panic.

The deposits at the savings banks were a little less, but this did not continue. Only at the close of September was the demand by the country banks for payment upon the Metropolitan American Exchange Bank for payment greater than it had ever been.

On the 13th of October, with exchange at par, an abundant harvest, with a premium of 1/4 to 1/2 per cent. on metal, the banks suspended specie payment, but resumed it on the 11th of December. The most critical period lasted about a month. The first step towards resumption of payments was made after the resolution adopted by the Committee of Liquidation to call upon the country banks to redeem the notes of the Metropolitan Bank, paying an allowance of 1/4 of 1 per cent. interest, running from the 20th of November.

At this time the city bankers held, in bills issued and in signed parcels of $5,000 each, about $7,000,000 due by the country banks. They were thus enabled to accomplish the payment of their notes at the rate of 20 per cent. a month by the 1st of January, 1858. The same favor of repaying their notes at the rate of 6 per cent. was granted to the city banks.

We need not inquire if, having granted this delay, the banks proved their liberality. The abundant harvest also a.s.sisted liquidation.

From 1853 to 1857 the metallic reserve fell to $7,000,000, deposits rose to $99,000,000, and discounts and loans to $122,000,000.

BANKS OF NEW YORK.

Proportion of Metallic Reserve. Deposits. Discounts, the Metallic Advances. Reserve to Deposits.

1854 ... $15,000,000 $ 58,000,000 $ 80,000,000 26% 1855 ... 9,900,000 85,000,000 101,000,000 11% 1856 ... 10,000,000 100,000,000 112,000,000 10% 1857 ... 7,000,000 99,000,000 122,600,000 7%

The reduction of the metallic reserve, increase of deposits and of discounts and of advances, are here clearly indicated.

From 1853 to 1857 the bank circulation hardly varied $100,000, indicating that the demand for hard money came from abroad and from the interior. The circulation was not the cause of the suspension,--at least such was the opinion expressed by the superintendent of the New York banks in his report.

In 1856 twenty-five companies were started, and three bankers opened business with a capital of $7,500,000, of which $7,200,000, was paid in.

In 1857 there were only five of these banks and three bankers having a capital of $6,000,000, of which only $4,000,000 were paid in. The collateral deposited by the banks represented $2,500,000 in 1856, on which credit of $2,000,000 in notes was granted.

In 1857 the same collateral did not exceed $560,000 estimated value, on which a credit of $383,000 in paper was granted.

At the height of the crisis failures were so numerous that a general suspension of payments, and, in consequence, a stoppage of business was dreaded. This suspension, in place of being general, turned out to be merely partial; it occurred at a juncture when it might well be feared that it would lead on to the very greatest disasters, but, far from harming, it helped the market. The banks had suspended payment upon a common understanding among themselves and with business circles. The critical moment having pa.s.sed, tranquillity reappeared as soon as the course determined on was known.