Part 7 (1/2)
It suspended payment on May 6th, and the same day it was debited with $555,000; the books had been erased and overcharged for the benefit of one client alone to the amount of $766,000. He was a debtor to the amount of $2,400,000, six times the Bank's capital, and a portion of this debt was under a good many names of subordinate clerks. This same client had three open accounts, one as administrator, then a general account, and a special account. The whole thing was fict.i.tious; the schemers sought to conceal irregularities, and had thus imposed on the examiners and on the Directors themselves.
The certificates issued by the clearing house, when credit had entirely disappeared, rendered a great service and sustained a great number of houses in equilibrium, which without this a.s.sistance must have succ.u.mbed. They were granted especially to the banks belonging to the a.s.sociation, in order to make their daily settlements.
During the crisis of 1873 the same means had been resorted to, but too late; the panic was already at its height and the commotion general, so that nothing could re-establish confidence. This was not the case in 1884: the rapidity and decision with which the a.s.sociated Banks took steps gradually re-established confidence throughout the country. The maximum of issue did not exceed $24,900,000, of which $7,000,000 were for the National Metropolitan Bank; from the 10th of June balances at the clearing house were paid in legal money. Commercial paper, which for the most part was the collateral for these certificates, had already been redeemed. The Metropolitan National Bank alone requested time to liquidate.
The issue of these certificates was very rapid: $3,800,000 on the 15th day of May, $6,800,000 on the 16th, $6,700,000 on the 17th, or more than $17,000,000 in these first three days; then on the 19th, 20th, and 22d, $1,500,000, and that was all. The remainder of the amount was given in driblets. Payments, although slower, were made from the 1st of July to the 1st of August.
Let us now run over these occurrences: in 1873 instead of $24,900,000 in certificates $26,565,000 had been issued; $22,000,000, had been issued between the 22d and the 29th of September, the redemptions took place from the 3d of November to the 31st of December.
In both cases the same amount, so to speak, had been sufficient to answer for all needs. If so small a difference sufficed to save a disordered market, people could not understand why panics could not be provided against. It was necessary to remember that this a.s.sistance was only felt when the decline of prices had already re-established an exchange of goods, bringing about the liquidation of houses unfortunately involved.
From the month of June, owing to the bank balances or the rate of exchange, the tranquillity and steadiness which had become re-established grew daily; after the storm of the first few days no new disasters had occurred except the failures of Mathew and of Morgan.
The position of the market grew firmer and the clearing house reduced its loan certificates, which now replaced the former excessive issues of bank notes. From $24,000,000 they had already decreased to $18,000,000; of this amount $6,000,000 were taken by banks as a last resource, and there then remained only $12,000,000 in circulation. These $6,000,000 had served to sustain the shaken banks, and it is pleasant to state that outside of these requirements the amount needed was no larger.
Failures had ceased in the great centres, but they continued in the interior of the country; the shock, like a great wave, took a certain time to overrun the various States.
SUCCESSION OF PANICS IN THE UNITED STATES STUDIED THROUGH THE BALANCES OF THE BANKS.--Following the historical summary of panics in the United States it will be useful to have a general table, so as to glance at the very rare doc.u.ments which permit us to follow the working of the Banks through their balance sheets. We know their organization, and we take upon ourselves to state results flowing from it.
It strikes us at once that abuses and panics have constantly occurred.
Can we note a difference in the frequency and gravity of the casualties, according to whether we observe them working under the former or the new (the National Bank) system, inaugurated during the War of the Secession in 1864, when the machinery for the issue of bank notes was insufficient for the new requirements?
Without lingering over the regulations before and after 1864, let us consider the differences we may ascertain by examining the balance sheets. Unfortunately, the exactness of our observation is lessened on account of the very diversity of the field it covers.
In the case of the banks of the United States we have had to content ourselves with the returns that the Comptroller of the Currency gives in his annual report on a stated day during the months of February, May, June, October, and December, beginning with the year 1865. Before that period we had only the yearly situation of the banks of the different States upon one given day; we are better informed on the second period; however, basing our conclusions upon the few balance sheets we possess, we ascertain the same series of development and increase. Although there are lapses, still, from another point of view, the table will be more complete, because it embraces all the banks of the United States. On such an extended field, it is true, we risk seeing great discrepancies disappear and lose themselves in the magnitude of the amounts whose movements we follow. In order better to grasp them, we have put before us the returns of the banks of the United States, together with those of the a.s.sociated Banks of New York City; we may thus recognize and follow the share played by each of them.
During the first period of the State Banks (1811-1864), the increase in the number of the banks was continuous, except for two stoppages, in 1841 and in 1862; in 1841, during the liquidation of the panic of 1839, and in 1862 at the beginning of the War of Secession; the crisis of 1857 did not interrupt the movement.
The capital of the banks had followed the same changes. From $52,000,000 in 1811 to $368,000,000 in 1840, a reduction to $196,000,000 in 1846, and finally the last maximum reached in 1861, $429,000,000, at the breaking out of the war. In 1864 a new organization of the banks under the name of ”National Banks” presented to the State Banks, without suppressing them, a state of affairs destined to cause their liquidation, which, in fact, practically occurred.
As in England and France, the amount of discounts, as the balance sheets give it to us, rose each year during the prosperous period.
Thus from 1830 to 1839 it reached $492,000,000 from $200,000,000, to decline again to $254,000,000 at the end of the liquidation in 1843.
In the following period the same rising movement from $254,000,000 to $344,000,000 was reproduced in 1848. The panic in Europe burst forth in 1847; it resounded very slightly in the United States in 1848, as its subsequent liquidation in 1849 indicates, which only reduced the local discounts to $332,000,000.
A new period of prosperity followed the preceding events; the growing movement re-appeared, and from $332,000,000 carried the amount of the discounts to $684,000,000 between 1849 and 1857. The panic broke out simultaneously throughout the whole world; but notwithstanding the wrecks it caused, such was the saving already, so healthy was the general situation of business, that, after having thrown out a little sc.u.m, the current of affairs resumed its course until 1861, and discounts had already reached the amount of $696,000,000. This amount is greater than that we have noted in 1857, but at that time (whilst the movement continued in Europe up to 1864), despite the shock it received by the declaration of war here, there was complete stoppage until the end of the struggle; we have here come across a political panic, not a business one. Peace re-established, the movement resumed its course under new conditions and with a reorganization of the banks under the name of ”National Banks.” A change was due, but, as everything was made ready, it was speedy. The first balance sheet of the National Banks dates from 1864. The amount of discounts had already exceeded the sum of $100,000,000 in 1865, and grew to $500,000,000 in 1866. Once started the movement took its own course:
1865 ...... $166,000,000 1870 ...... $725,000,000 1866 ....... 500,000,000 1871 ....... 831,000,000 1867 ....... 609,000,000 1872 ....... 885,000,000 1868 ....... 657,000,000 1873 ....... 944,000,000 1869 ....... 686,000,000
The yearly progression was interrupted as in Europe, and the explosion occurred at the same time. The rise in prices stopped, and incipient liquidation became apparent at the end of the year, and reduced the amount of paper on hand to $846,000,000, but, instead of lasting, as in Europe, a movement of revival, a.n.a.logous to that which had followed the panic of 1864 in England, occurred. The amount of discounts rose from $856,000,000 to $984,000,000 in 1875, and then, and then only, the real retrograde movement showed itself as in Europe, and reduced the amount of the discounts to $814,000,000 in 1879, simultaneously with the movement in France and in England, when prices had reached the lowest quotations, and when a resumption of business was about to occur. In a word, affairs resumed their course; from the end of the year the amount of paper discounted rose to $933,000,000, and the steady advance as set forth in table No. 3 continued each year, until it reached $1,300,000,000 in 1884. The panic had burst forth in Europe in 1882, and the agitation, so lively was its impulse, lasted during eighteen months; but, as we have stated, the rise in prices ceased in 1882.
Starting from this time, a reaction appeared. The paper on hand lowered to $1,200,000,000 in 1885. This liquidation was scarcely noticeable, because we cover the whole Union, and there is always an upward movement in the new portions of it which have not yet taken part in business movements. If we note what occurred in the a.s.sociated Banks of New York, the very place where the greatest amount of business is carried on, the depression of the amount of paper on hand is most noticeable after the inflation observed at the height of the panic, while the decrease that we point out showed itself more slowly with the slackening of business.
Thus, in the last period, the greatest amount of paper appears on hand--at the close of 1881, $350,000,000, and the minimum in December, 1884, the very year the panic had burst forth, and when, during the first months, the sum of $351,000,000 reappeared once more; except for a million, exactly the same amount there was in 1881.
This maximum amount was only an accident, under the influence of pressing needs at the time of the difficulty, for since 1881 the yearly reduction of the maximum and minimum amounts ensued. This tendency had occurred suddenly, and disappeared likewise; the resumption dating from 1885, a year sooner than in Europe.
The discounts of the New York Banks, which had been reduced to $287,000,000, rose immediately upon the opening of the new period of prosperity, and a growing activity carried them to $408,000,000 in 1889; after a few more fortunate years we come to the end of the period of prosperity and high prices.