Article Text
mand for a bank to 'make up the loss.' Four men were found printing bank notes in a New York garret and were set free by the police when they 'declared that they were a bank.' In a short time institutions were formed with an aggregate capital of $90,000,000, a sum all out of proportion to any real banking needs of the community of that day. "There was also the most harmful speculation in bank stock. Under the guaranty plan these stocks were most readily marketable with the public and stock certificates were turned out in an overwhelming supply, the promoters reaping a handsome profit on the sales. "The 'safety fund' itself went along swimmingly as long as times were prosperous, but in the hard times of 1837 the guaranty banks refused payment in body and the state was helpless. The guaranty scheme was shown to be utterly unable to cope with such a condition and the legislature was forced to pass an act authorizing suspension of payment for one year. "It was not until 1841, however, that the real weakness of the guaranty fund was wholly exposed. In that year came the first actual failure of a safety fund bank, when the Wayne County bank of Palmyra closed its doors. The president of the institution was short in his accounts, and the associated banks were compelled to shoulder an indebtedness of $132,000. This failure started others, and in a short time ten banks had closed their doors. It was seen at once that the guaranty was going to be inadequate, and there was general fear for the solvency of almost every bank in the state. "Under the ruling by the state comptroller it also became more clearly apparent that the safety fund was to be used to pay all debts of the banks. This fictitious credit was at once abused by some bank officials in recklessly contracting debts for the benefit of themselves, leaving the state to pay the piper. The comptroller officially declared that the good banks had been 'great losers by the swindling operations of some of their associates,' and urged the issuance of bonds to stave off the whole system from bankruptcy. The legislature passed an act making the guaranty apply only to note circulation and the deposit guaranty system came to an unwept end. The safety fund was not formally abolished, however, until 1849." In connection with this proposition Albert Gallatin (who was secretary of the treasury under no less a democrat than Thomas Jefferson,) said: "The annual tax of 1 per cent. imposed under the name of 'safety fund,' is unjust toward the banks which are well administered and injurious to the community at large. To make one bank responsible for the conduct of another, sometimes very distant and over which it has no control, is a premium given to neglect of duty, and to mismanagement at the expense of the banks which have performed their duty and been cautiously administered." The Chicago Evening Post has interviewed leading bankers of that town and they tell the same story: "I cannot see how it could be considered fair to compel one man to guarantee another man's business."-William A. Tilden president of the Ft. Dearborn National Bank. "Any man who cared to open a bank would receive the same guaranty as would the banker who had worked years in building up his institution."-D. R. Forgan, President National City Bank. "It would give the careless or negligent bank president the same, guaranty as would be extended to the more scrupulous financier. Thus an incentive would be held out to irresponsible persons to enter the banking business."-F. L. Wagner, President of the National Produce Bank. "I should think it very unfair if my stockholders should be subjected to a tax to pay the losses of banks in the management of which they have no voice." E. S. Lacey, President of the Bankers' National Bank. "Under a system of federal guaranty to the rewards of conservative banking and the restraints and recklessness
