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that "bill holders of the Safety Fund banks might be amply secured by the payment annually into the Treasury of a sum equal to half of one per cent on the capital during the life of the charter; this sum to be invested, and the accumulations added to the fund, and held by the State as trustee for the bill holder" * * * "In addition to this, security might be exacted for the punctual payment of the per centage, on the delivery of the circulating notes to the officers of the bank, and such a provision would effectually protect the bill holder as well as the associated banks."—Assembly Doc No. 25, of 1846, pages 71-2.
As security now is only given for the redemption of the circulating notes, and not for the debts of the banks generally, as was required by the Bank Fund law of 1829, the half per cent. might be exacted only on the amount of notes issued by the Comptroller to each bank. The exaction should be ten per cent., allowing a charter for twenty years; and this on $150,000, the amount issued by a bank of $100,000, would be $15,000. The necessity of paying this sum into the Treasury, or securing its payment, and placing it beyond the reach of the banker, would to some extent counteract the prevalent tendency to establish banks at points where there is no business requiring banking facilities. The Constitution only requires security for the redemption of circulating notes, and it seems to be entirely equitable that each bank should contribute to the fund in proportion to the notes issued and used for its benefit. Each free bank is held to the same rule, by being required to give security in exact proportion to the amount of notes which it puts in circulation.
With paid up capital, and ten per cent. on the notes secured to the Safety Fund, to be held and husbanded as before suggested, it is believed that the currency would be amply secured, as contemplated by the Constitution.
This mode of contributing to a common fund to provide the means for redeeming the notes issued by any one of the contributing banks which might become insolvent, would require the assent of each of the associate banks, as it is not fairly inferrable that the Constitution intended to force one bank to furnish means for securing notes issued by another, unless by the assent of the corporators or associates of each bank. All existing banks, therefore, ought to have the option of continuing under the proposed Safety Fund system, or of securing the notes which they issue as money, by depositing State stocks and bonds and mortgages, as provided in the general banking law.
PAR REDEMPTIONS IN NEW YORK.
A class of banks have been established in this State under the system of free banking, not for the purpose of furnishing banking facilities to the business of the places where they are located, but with a view of putting the notes in circulation in New York at par, and redeeming them at a discount of half of one per cent., as provided by statute. In the annual report of the Comptroller in 1844, (p 61 to 63) the attention of the Legislature was called to this subject, as an evil which was then commencing, and it was suggested that an effectual remedy would be found in requiring all the banks to redeem their notes at par in the city of New York. This whole some reform in the currency has been defeated from year to year, by interests antagonist to a sound currency. An attempt was made to remedy the evil by requiring a deposit of fifty thousand dollars as a condition for the issue of notes. The inefficiency of this remedy is apparent from the fact that nineteen individual banks have been established within the last year, with capitals of $50,000 or more, and many of them at points as far removed from the principal channels of business as it was practicable to have them, without opening new roads. In almost every case the notes of these banks are secured by stocks of the State of New York; so that the notes would be half a per cent better after the death of the bank than during its life.
The opponents of par redemptions complain of the injustice of compelling the banks to redeem at two places. The practical effect would be a redemption at only one place. And then as to hardship—the banks crowd twenty millions of dollars of currency into the hands of the people, on which the stockholders are drawing more than a million of dollars annually in interest, and instead of making the return which justice demands, by redeeming their notes at a point which would render them equivalent to gold and silver, they are content to reap the additional gains, on the discredit of their own promises, by redeeming them at half of one per cent.
It is contended that half of one per cent is only a fair remuneration to the banks for transmitting funds to New York to redeem their notes. Is it to be supposed that the banks which have furnished facilities for sending products to tide water of the value of seventy millions of dollars, will be subjected to inconvenience or expense in getting funds in New York to redeem their notes?
In the annual report of 1846, statements were presented which proved that those banks that kept their notes at par in New York, had as good a circulation as those that redeemed at a discount of half of one per cent.
When ample security, as required by the constitution, shall have been provided for all the circulating notes, with a conviction in the public mind that all the bills registered and countersigned are amply secured, and at par with gold and silver in New York, what is to prevent the currency of this State from becoming, if not a national currency, at least a favorite medium in that vast region of country at the west, which contributes so large a portion to our canal revenues, and looks to New York for a market for its products?
BANK INVESTIGATIONS
The 6th section of the "act to abolish the office of Bank Commissioner and for other purposes," passed April 18th, 1843 provides that "it shall be competent for the Comptroller, whenever he shall have good and sufficient reasons to suspect the condition of any bank, or the correctness of its quarterly report, to appoint a special agent to examine the affairs of such bank, and who for that purpose shall have the same powers now vested by law in a Bank Commissioner."
The authority given to the Comptroller in this section, has been exercised in reference to the five following banks, viz: The Lockport Bank and Trust Company, in January, 1845; the Bank of Rochester, in September, 1845; the Lewis County Bank, in May, 1846, and in October, 1847; the Canal Bank of Lockport, in August, 1846; and the Bank of Watertown, in June, 1847.
In the case of the Lockport Bank and Trust Company, Thomas M. Burt, Esq. was appointed special agent, and commenced the examination of the bank on the 3d of January, 1845. By his report it appeared that the affairs of the bank were in a very embarrassed condition, and that immediately after refusal of its notes at the agency in Albany, and before his arrival at the bank, nearly the whole of its assets which were considered of any value, were assigned to secure certain creditors other than the bill holders. There had, however, been previously assigned to the agency in this city, assets to the amount of $116,701, to secure the payment of a large sum due for the redemption of its circulating notes. Amongst the liabilities of the bank was one amounting to $36,944 87, to the Commissioners of the canal Fund, for canal tolls deposited by the collector at that place. The special agent reported that this debt of the bank was less adequately secured than any other, to secure the payment of which the assignments had been made.
It was the opinion of the then Attorney General, that the bank possessed the legal authority to execute these assignments, and consequently no application was made for an injunction. Soon after the report of the special agent was received, the officers of the bank made arrangements for the redemption of its notes, and the association still continues its banking operations. The debt due to the Canal Fund has been reduced to the sum of $31,072.
In the case of the Bank of Rochester, application was made for an investigation in behalf of the officers of the bank and of some of the principal stockholders. Charles Stebbins, Esq., was appointed special agent, and entered on the examination on the 11th of Sept, 1845.
This bank was first chartered in 1824, with a capital of $250,000. In May, 1845, the charter was extended for two years, provided the stockholders assented to become personally liable for the debts of the bank, and that it should also become a contributor to the Safety Fund. A portion of the stockholders protested against incurring the liability; and it was determined to wind up the bank.
The special agent reports a loss of about $100,000 of the capital, but also reports that "it possesses the ability to discharge all its liabilities to the public," and that he has not discovered that the said banking corporation has violated any provision of law binding on it. The agent therefore did not deem it necessary to commence proceedings in chancery, and the directors have been allowed to proceed in winding up the affairs of the bank.
The special agent reports further, that an item of $40,821 50, charged in the statement to suspense account, "represents nothing of value, but consists of an amount of notes of the bank which have been redeemed from time to time, and which appear to have been at some time fraudulently issued by, or abstracted from the bank. It was some time since discovered, that 200 impressions of a $25 plate ($5,000) had been put into circulation, which were not entered on the books of the bank to the debit of the cash account. The amount is now entered to the debit of suspense account, and forms a part of that item in the statement. How these notes got into circulation, is as yet unascertained.
"It would hardly seem possible to have been a mere neglect to enter their issue upon the books, as in that case the cash must have exceeded the cash account by that amount, and of this there is no evidence. It is almost equally difficult to account for the fact in any other way, the integrity of all the officers employed in the bank, being unimpeached. The balance of the expense"}
