Banks

In our articlo snme weeks sinee,wo slotcd (lint the Banks of th'ts country follow four branches of business. They reccive money on Deposie, theymake Exchanjca between different place, they makc L-ans o interest, rd they issue promiisory Note, which circuíate es raoney. We found, on ejnminv.ion, ihat ell theso branches of business, whun propcrly conducled, were attcruied witb bc-neftis to the pubüc. Secure and convei ienl plnces of je eral Doposit were nccesson in a commercial conimunhy: Exchnníea could be made by Banks with much greaier advontuge than spe cie could be transponed; Loansfor short peliodd were convetiient mul oconomical in busi ness transad ion ; and a certain omount of Paper money might be profiiably substiluted for specie. Bul we pointed out oleo inany and great evils which have hitherto ful lo wed i.i , the train of Banks, eapcciully througrli their i insolvency, and proniisai to conaider the mode3 by which altempts' have teen made lo aocure tho creditors from loss. Thin we will now do. In tho dicU9siona which constuntly tnke place respectingf Banks n torea, bar-room?, and other public placos, wo a!moft invariahly fina soniti of the disputante declaring thoyare "in favor of good Banke." If you qticstion them as lo the nature of a good Bank, their saswer will be, in substonce, that it 5 one that ahcays does as it agrecs - one who?e lia - bilities nre a'wiys met at the specified lime. As this is the popular idea of what constituie "a jood Bank," we will confine oursrlves lo this inqtrry - Haw can Banks best bc made lo meet their liahiliiies? Banks re created by law, and are made eubject í its provisions. The law rarely spcaks but to command, and la reqnirements are sustained by threatensd penaltiea for disobedience. It does not profes to govern ilie action of the Banks, except by oppealing to theinterests and fears of the proprietors and directora. Tbe Jaws of the different Staten have attemptcd lo compel the Banks to meet thei r eDgagements, in fuur différent ways: 1. By niaking the vioiation of the provisions cf the charter of the Bank & criminal offence on the part of the ofllcer?. 2. By a forfeiture of all corportte priviltget. 2. By requiring aecurity of the prnprietor of the Bank for the fulfilment of its liabilitics, pr-eriotis to its coromencing business. 4. By rendering the proprietors of the Bank reaponsible for all its debtB.Criminaxity of E a mí. Okficp.rs. Several statule cf this State have made officers of Banks Hablo to fine and itnprisontnent for wilfully disregnrding or riolatinj; ibe provisiona of thcir respective charters, or conveying away the ossets of the Bank for fraudulent purposes. Bit as the crimo in these cases s of a nature rot easily proved, from lhe6ccresy with which fraudulent trans actions in Banks are U6ually manoged, no in siance of conviction n this State ha eve come to our knowledge, notvvithslanding the great notnber of Bank faüurea that have occurred. Henea the tnefficiency of penal provisious agrainst the officeru, as a proventaüve of failurcs, is apparent. The annual Message of Gov. Bnrry, in 1S42, coutained recoramendations of more stringent penalties. It eays: "It ie worthy of your neriousconsiderntion whether all cajeaof insolvency should not bo dcemed prima jacte cvidence offruvd, and ïhe directora and other officere, and all privy thereto be üable to indictment, and On con viclii-n, to appropriate punishment. The insolvcncy of Bankt", in most cate?, reüults frnrn a failure locomply. in good 1 faithf with tin rt'quirements of law, nnd no good reason i perceived why tlmpe who aro culpable for siich negliyencc. 6hould not suffer for the in jury by tkem iniiicted on the public."We apprehond tlmt nn et of ihis kin'] would not be suatained by pubiïc sentiment. - Banks are Hable lo fail from tho same causea that individuaU are - misforlune, miimanagemenf, or dishonesty. In the first two coses, Uiere is not necessarily any crime, norconequentlv any criminal to bepunUhcd. It is Dot fuirto suppose that all Bank fuiliires are the reeull of fraud in tbeir managers. The ofiïcers and directora inay be dicfived by the knavery of othen, or they may bo unnule W meettheir eng&gements from relionce upon the agreemeutü of honpsi persons, wijo becomo umblo to fulfi! them. But 6uppo8ing the reconimen?ation of Go?. Burry to be carried into effoct, and condign punishment meted out to eyery guilty officer, iliut wuuld nol pay the cU-b:s of the broken Bank. lience wc concltide thal wlnlo a law for tbc punishment of Bank ewindüng ia riglit and propor, but little dependúnce can be p'aced op ou it ad a prevcntative of Bank failures. FORFKITURB OF PlllVILKCES. By an act of 1842, every Bank foiling to redecm its liabilities on demand, is declared to be insolvent, and loes all its corpora ie powere and pritjleges. This provisión must of couree opérate strongly on all institutions wbich derire to cuntinue business. Juj-i in proportion as they value tlieir coporate priviieen will ba tbeir curfulnes lest they loe them. A provisión of tliis kind is said tool itiu gencrall amon tbc New Etiglandnks. lt is doubtlesa a nore effeciuul check ipon the inj idicioua nciion of Banks, thr.n uiy pennl conditions fmpcscd upon tlinirconluciors. But theslighteat conpidcrition wi1l lbow rhat il csn liare no force on thuMJiW porations whoo intereata vuil te bettei proinnicd br failure thnn y contimtnncp in buiiin-s?. The Conductora of such insliiutioiiK, ü iihonot men, wili enre n .ihiiif for tlie chricr of the IJnk, uftr tli'y hiive uide nll " nf it thoy can. Henee Üm provisión "f Nw is rio srcuriiy atoll y itist he Tr.t : m nos d-incrons of Bank sAiudiorn, olihoupli. under yom circunislancen, it umy Imris u f;i utary iufluciice on honesl oud homuublc slock liokicrsof Uanks. BAftK SlXURITIKS. A third metlïod by wliicli !.p.'is!iturs hvp pndeavurt'd lo prevent ilic fnünre of B-tiikp, has heen by reqniring thun o p'cde propefty pufficic-ni for tlie raiempüo.i of U:e notes, before they nre bÚeí. I. tliid way, rvn if the Binks ehould fnü. it was Uipyjüj tho pub lic would be eccurrd frum ls. Snverai aid& of nccoapli!iing thia have bct-n trioJ: 1. Tho Safety Fund Syslum, by wjiieh n córemoa fund was raifccd by a continua! tax nr the ultímate redcinp'ion of the noïcs of any one of the Banks that tniylit fail. This plan has bcon tricd forsometimu in New York. We have not now the sUtÍBiics wlcrc we csn lay our hantlB upon them; bui it is notorions that a considerable numbor of the Banks on !his plan have failed; nnd althoucli the notes of all the fuiling Banks muy be n'.tiir.ately re iloernH] vt tlie resul, shows that tho Bystcm is no certain preventative agaui6t tho fnilure if the instilutions connocied wih it. 2. Nor was the plan of State Stock eenrities, afterwarda adopted in NVw York, nny more effcctual. Niles' Register says of tbis syelem :"There are nowr scvrnly Banks in the State nder that !sw. Twenty-nhie that conimen:ed operalion? have bce ; clused by Irgal pro:e?s froin tlio Comptroller, and trn olhcrs inve been woiind uj by their own Stockhold:r8. What losses have been sustaincd by hem in theaö cases, we are not aware. As n tew system, its resulis so far serm tn ajford no ztrlnin relief f rom the evil to ichidi the old systcm of Banking teas liab't" S. Tho third mode of tnking security from Banks vas by requirinj mortgages on Real Rstato to be cxecuted to the State, to be collected by the AUorney General in case the Banks failed to meet thrir enjapemonts. - This was a provisión of the G.'neral Banking Luw of Michigan, uhder which the Wildcat Banks TTcra orjjanized. Mortgngea were reqnired to be giveo to tho full extent of a!l tho billa ijued. But this oct took ciFect when specuiation was at fa heiflit, and property had risen in price with ach snccesKive sale until it bad no fixed valne. Owing to these circumstances, real estáte was received at. a valuotion four or five limes greater than it ould bring three years afler. Bosides, there s renson to beüere that a vast number of rauds were perpetrated in constitutinjf these ssociationn, and notwithstanding nll the feurjiies nominaüy tnkin. the rcsult was total ankruptcy. The hitjhest dividend paid by ny one Bank to its creditors we have seen tüted at four per cent. The whoie Bvstem vas most d8astriis to the morala snd the pecuniary interc6t of thecommunity. Now in rorerence to the plan of preventing losjes by Banks by requiring security in advance, in any of these ways, it may be remnrk ed that they are not sufficient to make gnoj currency. They do not go far enough. Pa per inoney, if it circu lates at all, can only Ik on a pir with 6pecie when it can he iti.-tnn'.lj exchanjed for it at any time. He rho ■akp he proiuistiory note of n Bjnk for or.c d lltr'.n preferenc io silver, wijl do it on!y ivbeu hc behecs ttmt the note will bc redrenud, nuú that it will be rrdecmed on dkjiasd. Now securities of Real Estáte, State Stock, oSafety Funds - even adiniltinjj that they rcnder the bill-holder ullimatdy secure, (which is not alwtys the case) - nfíbrd no obsolutf juarnntee, that the paper will be converted in to specie on danand. This raain requisito of gcod Banking cannot bo obtaind by securitie of this kind. Besides, the loss to individúale by the failure of Banks under these circumstance, is considerable. Taks the cseof one of the Red Back Banks of New York.- Nobody doubts (ho ultímate rodemption of its bill two yeara henee; but 500 persons who hold 850,000 of its notes have taken them for money and wish to use them rtow. The Bonk dus stoppod business; itd billa have deprecia - ted; and the only resource of tho boldera is to wait, ot much inconveniencc, till the time of redemption, or if they be poor or necossitoup. they must ell thera at n heavy &acrifice to some capitalist who can offord to wait. Thus we see that Pledges of Property made in advonce by Banks are no absolute se curity ngninst faihire: nor do they render a redemption of their notos certain; nor, if redeemed ultimotely, do these eccurities protect the public frotn great inconvenience and considerablo loss by the derangement of busines. RESPONSiBitiTy or Stockholdrrs. The fourth niethod we mentioned by which the law atlempts to secure the creditors ot lianks from los, ia by making the officersand proprieiors rcspons-ible. The extent of this re8ponsibiüty is various iudiflbrtnt State. In ome the directorö and s'ockholders are liable only to the extent of the itock they own in the Bank: in olher instances we belicve the directors are also holden in tlieir individual property when the etockholders ore not so holden; and in other cases, the stockholder aje ndividually holden for all ihe iabiüties ol the B-ink, just the same aa partners in mrcnnlilo business are holden.The latler syslem lias prevaÜed in Rhodr I eland fur a on time- for a quarter or o third of o century, wc beJieve, anti the result has beer, quito favornble. The Síate con(uic)B bul 31 touns, and a popula t ion of I0-I, 000, nnd yct liiere ore sixiy-three Banks in npcralion, beinjj nn average of two Bunks ii) each lown, and o Bank to every 1,730 perons, or one to every 430 families. Tiiere i probably not another instanco in the Union ol so much banking in so smull a populaíion. - Vet we are not n ware that there have bei more than two or three failurcs in the last 90 vcar, und ih less to tbc public by these, i!any, waa nol laí. Compare tr.iu íesult with thé loases FiutiiHed nder al! othcr eystemi in the othcr Nw Kiigland State, in Ffow York, ïn the West, and in the Sou'h, where millons wcro l"u nt once, nnd nn impresiion favorabla ló th plan of mukm-: the atockholder res)onKbl catMi.it be avoidwd. B it it U nitempted to set nside the Ies6ons of exuerieiice by plaüaiblo Rrgt;ments. It is siiiiithttt theonly real wcurity.in nny Bank coniislfi in the personal characlêr of the siuckl.nl.iers. U ÜSm bo so, the "iccurily" is símil iiifl'-cd: tor who eau teil wlio will bc the stoikholders of n.y Uank n month henee? Beiules, lie rafa if Sfod, will work both vvuv. Woiild nny Bank like to loa tnoney lro:n lts yanlts; aud have no seairity for its payinont bal th personal characUr of the bprrovverti Would it be wiliing to rolinquish all claim pon the property of its debtorK, and sy, "ihe o.my reul tecu ity wc con hnve or nk for is the personal character of thoso who uwe us?'' Was any Dank ever known to be fpoliah fnough to !o this? Annd if Bank slorkholdrrs are very carefu! to obtain secorily on piopcrty, wliy j-Iiould not the creditors of Banks bc equaliv Viyilnnt nnd w jjte? it is aiso said tliat men of character and prudence wili not cuntmit ihemsrlves in a Bank where their vvhole property s hulden for its debts. Adnu'ling1 the trulh of this as ertion for the ake of argument, let ns inquiro the reatqn óf this. "Alen of charkctër aud prudence" have reaeons for what thry do, or reftise to do. Why will they not tnkc stock in a Bank where they will be holden for its debts? The nnswer must be that the ritk of loss is (oo grenl. Now if the risk of loss be jreat to a ítockholder who has a shore in tlp governmcnl of the Bank and knows all its proprietors - who can examine its books overy day, nnd scrutinize its minutest transactions - how much gr enter s the risk of t.he bill holder who res.dea perhaps hundreds of miles diBtant, knows none of ts managers, has Do uccoss lo its books, and is tittcrly ignorant of U affairs? Ia it wise for a farmer nr aiborcr of "character nnd prndciicc" to take hose promissory notes for his wage?, or the pnvmcnt of which the shrewd nnd ,ccompl6hcl capitalist park rOT become rc'ponsible? Toour minds, the objction ia itelfun unanswerable argument vly no Bank lotesshould be illowed to circuíate without hc full responsibility of thse who issue thcm. Wehavethus gone through s brief conideration of eome of the nature and effect f Banke, and found them, when riphtly con lucted, productivo of considerable advantages. vhilo the tvilsto community, as exrmplifieri y many yeara experience, hare 0U0 been rreat. Whatover may be the conclusión of thcrs, we are well pcrsiiaded thnt the system f Banking in our country, which has heretoore existcd, as a wholt, Una been productiva jf more evil than good. Whlhcr all Banks, pon every possible basis, must necestarily work more injury than benefit to the commu nity, is a qucstion we are not now prepared to ecide. Nor is it nece.sary weihould. It i ufficiem that our ci'.izens adopt a wise au udiciouspolicy in rcference to tho institution actuallj existing nmong them. The preaen gcneration hnve been educated in he use o ïanks. Multitudes consider them indiapen sably necesüiry to the proper transaction o bueiness. We have three yet remaining i Michigan, n operalion. Of T.ho other tw Banks, now just resuming, w havo befor exptcseed our opinión. We cnnnot brin ourselvcs to behev that the inimediate nnm húal'ton of all these, while a lurge portion o the butiincBs community are in favor of relait ing them, would be either necessary or wise. So great and sudden a cltange of financjnl po'.icy would. in iisclf be an evil. Rather lel Ibe best popsible spcurity against losces be requircd, and let them run thpir race tí 11 thex piration of their charters. Then, if founc profitoblo and advantageous to tho community, their charters can be rcnewed with th same, or more slring'-nt restrictions; nnd i expener.ee shall show that by no popsibilttj con the public be made secure, or if thecourf of businesa shatl by that time hnve so Alter ed as to demónstrate that thejr are unnceona ry, let thcm cease to exist.By the act of 1843, the stockholdere of the Michigan Insurance Compony have been rendered responsible tor the issues uf that Bank in the following manner: "For all notes or other evidences of debt, now issued, or that may hereafter ba isfued by aid Michigan Insurance Company, upon a rcfusal to py the snme by said Jklichigan In surance Coropany, a demand, at its office, or bank.ng honse, in business hours, or in case its nsolvency, ihe directors and stockho)ders ihereof, or any person who may have been a director or slockholder withm two years previous to such rfifussl to pay, or insolvencyi their hcirs, cxecutors and administraiors shall be jointl y and Eeverally hable in their individual capacitics, and such direc'ors nnd stockholders may be sued upon any such liability of acid Corporation, jointly or ueverally, and judgment may be recovered ugainsl them, or eithcr of thein, for uil such eum or sums as ihty may fail to pay on snch dfrnand, whenever the payment of the samo shall have been refued by eaid corporation on such drmalid, and any refusal of payment by snid corporation of any such evidences of debt due by it, shall be presumptive cvidence of insolvcncy. And any pert-on or persons who may hold ch evidences of debt ngainst said corporation may upon refusal of pnympnt of the samp, by Ihe eaid Corporation tipon dernand. made uring npual business hours, sue for the somr, eithcr the paid corporntion, or the direc tor?, ur Btockliolderi, jointly or neverally." Dy another Fection, the Bank is forbidien to issue more bilis than "twice tin amount o ia cnpital nctnalJy paid in, in coin, and con stan tl y in tl:e vaulte of said corporation; no hall aid corpo'ation pay out, or put in circu lation, for any purpose, the notes uf any othe corporiitioi: whatever." We eubinit to every sensible man whthO provisioiiB of this kind do not add tnuch t the secunty of the b ill-holder, without duing any njustice to the stockliolder. We woul have this security required of all theexitfting Banks of the State, re.erving the question o the necesfity óf chartering ncw Banks to b detennined by the light of future expertence In Kliode Island, wc are told tiiat no porwn oan own more than 85,000 in ony one Bank thns providing for Iarge number of siockhüWert, end uèd'wg to the eecurtty of the3tnk; A provisión of similar churacter ahould o required of the Michigan Banks. The true doctrino rcspccting Banka rruy be ummed up i four words: Satk Banks, or