Question to the Cashier of the Commercial Bank of Cincinnati.

"17. Does the Commercial Bank of Cincinnati receive the notes of any of the Ohio Banks, except those located in the city of Cincinnati? If not, why does it refuse to take the paper of the country banks ?"

"Answer. The Cincinnati Banks have been in the practice of receiving all the notes of the Banks of this State, Kentucky and Indiana, and paying out the same in their ordinary transactions. The policy was adopted as a measure of conciliation, and for the purpose of avoiding the necessity of making demands on other Banks for the settlement of balances arising out of the receipt of notes other than our own. It was hoped that by this plan, the necessity of transmitting specie from bank to bank, would be in a great measure obviated, and vexatious questions avoided between banks, in regard to the value of the different descriptions of funds, which would otherwise be required to be used in settling balances.

"It was thought, also, that the community would be best accommodated by placing all the bank notes of the Ohio valley upon an equal footing, and making them all at par.Had the plan been generally adopted and practised in good faith, it might, perhaps have produced the advantages expected from it. It was not, however, universally adopted, some banks adhering to the policy of paying out their own notes, and other notes perhaps to a limited extent, and sending home for redemption a large portion of those received; while other banks availed themselves of the opportunity to throw out their small notes at distant places through brokers.

"Certain brokers of Cincinnati, are understood to have been employed to circulate the notes of the Granville Library Company, the Manhattan Bank, and the Urbana Banking Company, and very large drafts of specie were made by these and other brokers, but by these especially, which drafts being made simultaneously with the issues of the notes of those banks by their said agents, we are led to the conclusion, that the one operation conduced to the other.

"These operations created a demand for the notes of the Cincinnati banks, which caused them to command a premium, so that scarcely any of our notes were received by the banks here, in payment or deposit; nearly the whole mass of paper circulating in this vicinity being bought up and presented for redemption. Agents were at the same time employed by the brokers here, to traverse this and the neighboring states for the purpose of exchanging the notes of the interior banks for those of the banks on the Ohio river, with the view of drawing specie from the latter. This fact I know from information only.

"Concurring circumstances gave an importance to this operation, which of itself it would not have had. The spring of the year always brings heavy demands on the banks of this city, as our merchants are then going east to buy goods. Applications for loans are numerous, while the liabilities of the banks are eagerly sought for the purpose of procuring Eastern exchange.

"The large amount of these operations will be apparent from the following statement:

On the 1st of January last, the Commercial Bank of Cincinnati, had on hand, in specie,

We have imported since that date,

We have paid out,

Leaving,

$565,000 00 320,000 00

885,000 CO 630,000 00

$255,000 00 "Large amounts of this specie have been shipped by brokers to New York; some shipments have been made to New Orleans, but we think that the chief drains have been for the country banks.

"As a measure of self protection, we have now by a concerted action of all the city banks, determined to receive nothing but city bank notes, and to pay our own notes only. We have appointed an agent to buy up at a small discount, all the country bank notes, including those of Ohio, Indiana and Kentucky, and to return them to the banks that issued them. This measure has been necessary to relieve the community from a mass of paper, which, not being bankable, would necessarily depreciate, and which could not be receiv ed by the banks with safety to themselves; and the discount at which it is taken, is intended to be no more than sufficient to pay the expense of sending it home. "JAMES HALL, Cashier.

"Cincinnati, 30th May, 1839."

The Cashier of the Urbana Banking Company, in reply to the question, whether any unusual demands for specie had been made on that institution, since the 1st of March last, remarks:

"Demands have been made on us from Cincinnati, for large sums of coin and Eastern funds. In one instance only, has the coin been drawn for a large amount, say $26,000, by a person who stated it was his own, but, from information since received, we are satisfied it was drawn by the Commercial Bank of Cincinnati.

Urbana, 21st June, 1839."

Suspension of Specie Payments.

In the month of October last, several of the banks of this State suspended specie payments for a period not exceeding thirty days. The panic thus created, would undoubtedly have been followed by a general suspension of all our banks, tion of the law of the last session of the General Assembly. as in 1837, had it not been prevented by the salutary operaBy it a resumption of specie payments was enforced, and the banks of this State have generally continued to redeem their notes in gold and silver, whilst those of the adjoining States, were, as they still continue, in a state of suspension. So far as the commissioners were advised, no bank in this State refused to redeem its notes in gold and silver for a period of thirty days. It is probable the condition of the banks adopting the unwise policy of a temporary suspension, were not materially benefited by it, whilst the alarm and derangement in business were greatly increased.

The suspension by these institutions was much to be regretted, and particularly, as some of them were in a condition to have met any amount of their circulation which could have been returned upon them. An unnecessary degree of exIt is obvious from the experience of the last twenty-five years, citement was thus created, and public confidence diminished. that a system of banking which admits of great expansions and contractions, fostering in one case a wild and hazardous spirit of speculation, and in the other, collapsing and withholding all accommodations, to prepare for a revulsion of its own creation, will not only be destructive to individual wealth, but finally result in a general suspension of specie payments. Such has been the case with the institutions furnishing our paper currency, and such will be their future history, until the strong arm of public opinion shall enforce and maintain the same degree of responsibility, which attaches itself to the transactions of private individuals.

Whatever effect these revulsions may have on the pecuniary interests of the banks, their influence is always adverse to the prosperity of the community. The injustice and loss produced by suspensions, and by a sudden withdrawal of a large amount of the circulating medium, have been so often visited upon the people of the United States, and have left their impression so strongly fastened upon the mind, as to supersede all necessity of recurring to them. The fluctuations in our currency which result in a necessity of resorting to suspensions, should be provided against. How far they admit of remedy, without the co-operation of other states, and while their paper is circulating among us, is perhaps uncertain; yet it is obvious that any salutary enactments, by an individual state, would at a time, when the necessity of forming the banking system, is so generally felt and acknowedged, extend their influence to other states,

"

The commissioner who visited the bank was unable, from the absence of Mr. Stokely, and the inability of the cashier to furnish all the old books, to understand the liabilities of the institution at the time of its failure. A. J. McDowell, for many years, and up to 1830, clerk, says the supposed amount of notes in circulation "prior to its ceasing business, in 1830, was $13,600, but he believes it falls greatly below that sum." He estimates the circulation at from $3000 to $4000. This estimate is founded on the belief that $10,000 were lost by the sinking of a vessel on Lake Erie. The bank appears to have been in arrears at the time of its failure to the United States for the sum of $52,243 34 for which it gave a judgment to the United States for the further sum of $120,000, due by B. Wells, & Co.; making the liability of the institution to the United States, $172,234 34.

Since the passage of the law of Congress, of March 3d, 1837, authorizing the Secretary of the Treasury to compromise with banking institutions in arrears to the United States, Samuel Stokely and Hans Wilson, surviving trustees, have made an arrangement either in whole or in part, with the Secretary of the Treasury, by which the institution becomes relieved of this large debt. They pay over the entire proceeds of the effects of the bank, supposed to amount to about $10,000, of which they have paid $8,000.

Subsequently to this arrangement and on the 12th of August, 1839, at a general meeting of the stockholders, the resolution of the 27th July, 1830, was rescinded, and it was ordered that "the bank will and does hereby resume its legal and regular operations, as an institution for the deposit of money, the discounting of notes and other negotiable paper, and all the legal and usual functions of an incorporated bank."

A majority of the stock in the resuscitated institution, has been transferred by Mr. Stokely to an individual, understood to reside out of the State, which transfer has been sanctioned by the board of directors. In order to understand the nature of this transfer, the following interrogatory (among others) was left at the bank, with the request that Mr. Stokely would answer it under oath, and transmit his answer by mail.

66

4. Did you transfer the stock of the bank to Henry Roop, as trustee of the old concern, or on your own account― and what bonus (if any) did he pay you or agree to pay you-and what disposition was made of such bonus!"

A letter has been received from Mr. Stokely in which he says "that the stock transferred by me to Henry Roop, I considered my own private property, having been purchased from the individual stockholders or their representatives, at a fair price, and assigned to me by them, individually, or their attorneys in fact, in due form on the books of the banks. No part of this stock belonged to, or could be claimed by the State." It is to be regretted that Mr. Stokely did not comply with, and answer the interrogatory directly. The impression that merchandise has been made of the character of this institution, is not removed by Mr. Stokely's reply.

The faithlessness of the bank of Steubenville, preceding its failure in 1830, in connexion with the direction which a majority of stock has taken since its revival, imposes on the board the duty of making a suggestion to the General Assembly, which is done under a strong sense of public duty. They do not believe that this revived institution has any claims upon the people or the legislature for a new existence and a new credit, and it is respectfully submitted, whether the public interest does not require that the State should resume all the grants of power which were originally extended to the bank of Steubenville,

Bank of Gallipolis.

This institution having been put in operation during the past summer, has proceeded to issue notes and exercise other banking powers. On hearing of this circumstance, one of the commissioners referred to the laws under which the institution claimed to act. The fifth section of the law incorporating the stockholders of the Bank of Gallipolis, is in these words, viz:

"That this act of incorporation and charter hereby granted to the Bank of Gallipolis shall not be adjudged to

be forfeited for any non-user whatever, at any time before the first day of May, one thousand eight hundred and twenty." It was believed that the legislature, by inserting this provision, intended that if the privileges granted should not he embraced by the corporators, or if they should fail or neglect to take the necessary steps to enable them to use and enjoy them, on or before the first day of May, 1820, they could not do so at a future period, without a special act of the legislature.

On this ground, as well as that of non-compliance by the parties, with other requirements of the law, it was thought that the legal existence of all powers and privileges, granted by the act of incorporation had ceased, and the commissioner referred to, under these impressions deemed it to be his duty to defer any action until the General Assembly should decide upon the matter.

In connexion with this subject, it may not be considered improper to refer to the fact, that there are now upon our statute books, a great number of dormant acts of incorporation. We would respectfully suggest to the general Assembly, the necessity that exists of resuming all grants, powers and privileges, contained in every act of incorporation, not now in legal use, which might hereafter, possibly assume and exercise banking powers.

Stock Notes.

The practice of creating bank capital by the stockholders giving what is termed a stock note, cannot be too strongly condemned. When individuals apply to the legislature for an act of incorporation to bank, the charter is granted under the supposition that the corporators have, or can command the real capital, necessary to absorb the stock. But modern banking has found a substitute, and instead of paying up the subscription upon stock in specie, or its equivalent, instances are not uncommon where the stock note of the subscriber is taken as money and made to perform its office in establishing the institution. The impropriety of this course is apparent to every one, because by the process the nominal bank capital of the State may be augmented to any amount, and paper money increased, without a corresponding increase of the metalic basis.

Undisguised stock notes, or notes given avowedly in payment of stock, appear frequently, though they are not proba bly as numerous in the banking institutions of this State, as in some others; but there is a class of paper in the vaults of most of our institutions, which, though it bears a different name, is closely allied to them. The large amount of loans and discounts made to directors and other stockholders, almost unlimited in amount, and in time of payment would seem to give them a character approximating closely to that of stock notes.

There can be but little difference in the practice of one individual subscribing for bank stock, and paying his subscription by giving his stock note, and another who may pay his subscription for stock in money and immediately get his note discounted for the same or perhaps double the amountConsequences alike injurious, will result to the institution and community in the one case as in the other. Bankers should be money lenders and not money borrowers; and although there can be no well-grounded objection to a stockholder in a bank receiving an accommodation for legitimate business purposes, the practice of paying for stock in stock notes, and of directors and stockholders obtaining large loans, should not only be discountenanced, but to be effectually so, strong legislative guards ought to be interposed.

Loans to Directors and Officers.

One of the great abuses which exists, in the management of all banks, constituted as ours are, and one which appears to be inseparable from this system, is that of conferring a great proportion of their loans upon a few individuals, and of extending to that few, an inordinate amount, and instead of affording to the community at large that reasonable diffusion of their means, and giving to all the great interests of society that aid which has a tendency to support and sustain them, they restrict their accommodations to but a few favorite branches of trade or production, There is another abuse of

The solvency of banks is too often rendered precarious in consequence of large loans and discounts to a few individuals, and this is particularly the case, where the directors and officers monopolize in a great measure their available resourcesand the spirit of speculation, fostered, and encouraged by heavy accommodations from them, has done more within the last few years, to place the whole business of the country in the hands of a few, and to overthrow all the sound principles of trade, convulse the community, and prostrate the laboring classes, than all other causes combined.

It is always unfortunate, and deeply injurious to any country, when the products of labor, especially the common necessaries of life, become the subjects of monopoly, and fall into the hands of a few.

To what extent the public might be benefited by a more general diffusion of bank loans, is a subject worthy of some inquiry. It can not be disguised that a very limited number of persons are permitted to obtain a great proportion of the discounts from our banks - this we have found to be a general source of complaint: and the system of banking, or the existence of bank charters, that will admit of an indebtedness by a single individual, to a single bank, to an amount exceeding by fifty thousand dollars the whole of its capital stock paid in, and embracing more than three-fourths of the entire amount of its loans and discounts, appear to prove the correctness of that complaint, and calls for some radical changes.

The continued use of a great proportion of the facilities of banks by the directors and officers, not only endangers their solvency, and cripples their means, but operates oppressively on the community at large.

Whenever a revulsion in the monetary affairs of the country takes place, self-interest, and self-protection, impel them to the adoption of measures for their own safety; and the question of deciding whether their own liabilities shall, or shall not, be pressed to an immediate collection, being in their own hands, it is in accordance with the governing principles of human nature to suppose, that they would not solicit judicial aid to coerce the collection of their own debts. Under such circumstances, that class of debtors who are neither directors, officers, nor stockholders, will be forced to an immediate payment of all their liabilities, on the first appearance of a pressure-and the banks themselves, under the influence of its severity, and the continued indulgence extended to their own managers, combined with an amount of circulation and other liabilities put forth, and incurred without regard to prudence, are suddenly reduced to the condition of bankrupts-or what in the fashionable parlance of the day is called-a suspension of specie payments.

Usurious Bills.

Among other well founded causes of complaint against the conduct of many of the banks, is that, relative to the class of paper, upon which a large proportion of their loans and discounts have been made within the last few years.

Heretofore it has been held that a fair amount of the current discounts of each institution, should be made on domestic paper-being that kind of obligation, which is created by the actual local business of each community.

banks, really, if not avowedly, as such. And the only ap parent reason why this class of paper is preferred by the banks to common accommodation is, that it enables them to extract from the needy borrower, a rate of exchange, which, with the regular interest charged, constitutes a most usurious transaction.

Exchange.

Intimately connected with this branch of the subject, and no less obnoxious to the charge of extortion, is the price at which the banks sold their drafts, or checks, on the castern cities, during the period of the general suspension, commenced in May, 1837, and ending in August 1838. Before that time, the common price of exchange, as charged by the banks in the southern parts of the State, varied from one-half of one per cent., to one per cent. and in no part of the State was the regular charge higher than about one per cent. On the occurrence of the general suspension as above noticed, the banks proceeded to raise the price of exchange up to two and three, and in some instances to five per cent. No other cause for the sudden derangement of the exchanges by the banks, appeared to exist, but that of the indulgence of an eager desire to make large profits. In this instance however, it is to be regretted, that they had not taken into consideration the fact, that they could alone look to their own act of suspension, for the power by which they were enabled with impunity to make this new charge upon the public.

The actual rate of exchange between one part of the country and another, is always measured by the cost of transmission of the precious metals, including all things incident to that transmission-and since the completion of the Pennsylvania canal, the average cost of transportation from the line of the Ohio river, may be estimated at from one half of one per cent. to one per cent.-and as all attempts on the part of the banks to raise the price of exchange to an exorbitant rate whilst paying specie, must necessarily in the end react upon themselves, and cause a large demand for coin for exportation, we must look in vain for any good reason, founded in any sound principles of policy, for the measure.

Such, however, has been the case since the general resumption of specie payments in August, 1838, and to this cause may be mainly attributed the great demands of brokers on the banking institutions of this State since that period.

It may not be irrelevant here to add, that the banks, having by a short sighted policy, raised the price of exchange during the suspension, as before stated, could not apparently bear the idea of again reducing it to its real value at the period of resumption. The consequence was, that they brought into action the enterprise and ingenuity of an immense number of brokers, whose transactions necessarily came into direct conflict with the business of the banks in their exchange operations. To this new power, though similar in character, yet antagonist in interest, the banks were soon brought to pay tribute.

In a system of banking like ours, where in many instances the banks are put in operation by individuals for the purpose of borrowing money, instead of lending it, and which in all cases admits of so many abuses, it is not extraordinary that the General Assembly should be frequently applied to, by a class of applicants, for charters, who contend, that acts of incorporation of this description, with power to issue a mass of bills, without being in any way liable for their redemption, add to the capital of the state.

However much the confidence of the people of Ohio may have heretofore been placed upon the soundness of this hypothesis, it is believed, that the period has now arrived, when its fallacy is understood, and the idea that a capacity to issue notes, without an ability to redeem them in coin, or even a liability for their ultimate payment, adds to the money capi tal of the state, seems now, to be an exploded one.