J.—Extract from the Annual Report of the Comptroller of New York, of January, 1840, upon the General Banking Law, with Abstracts from Two Recents Laws

J.

NEW YORK GENERAL BANKING LAW.

Extract from the annual Report of the Comptroller made to the Legislature of New York in January, 1840.

OPERATIONS UNDER THE ACT TO AUTHORISE THE BUSINESS OF BANKING.

THE press of business under this act existing at the time the present comptroller came into office and which continued to increase until very recently, rendered it indispensably necessary to employ additional aid. There are now engaged five registers and a book-keeper, and yet it has been necessary to pay a large amount to clerks for services out of office hours, and to other individuals for numbering circulating notes. At times, with all the force which could with propriety be put in requisition, the demand for notes could not be supplied promptly. That demand has now abated and it is supposed that hereafter a less number of registers may be able to answer all calls for bills within a reasonable time.

With a view to arrive at some degree of certainty in regard to the title and value of the real estate mortgaged, and to the accuracy of the conveyances, all the bonds and mortgages, with the deductions of title and appraisals of the land, which had been received in security or deposite, previous to the period when the present comptroller took charge of the office, were submitted to a professional gentleman of high standing for a thorough and critical examination, to the end that all defects or omissions might be supplied. The result of that examination showed its necessity and the propriety of a similar course thereafter, and therefore all papers relating to the pledge of real estate have been strictly examined and approved, before any circulating notes were delivered upon such securities. All the defects that were discovered have been supplied, and there is every reason for believing that the titles to property mortgaged are valid, the appraisals generally fair and reasonable, and that the papers are in due form.

Some months since, one of the associations which had elected to deposite state stocks and securities on real estate under the seventh section of the act, and had received bills stamped on their face “secured by pledge of public stocks and real estate,” applied for a further amount of bills to be stamped “secured by the pledge of public stocks,” tendering at the time of demand other stocks as a security on which the bills stamped as last mentioned were to be issued. The claim being contrary to the decision of the late comptroller, and in which the present comptroller acquiesced, the receipt of the stocks and the delivery of the bills was declined. Whereupon an application was made by the association to the Supreme Court for process to compel a compliance with such demand, which after argument of counsel on both sides, resulted in the award of an alternative mandamus. The comptroller, under these circumstances, came to the conclusion to yield to the alternative of issuing bills on stocks only to the association applying—a new account was opened with the same institution with a view to keep the two discriptions of bills separate, as well as the securities on which they were issued. Several other associations have been furnished circulating notes in like manner since that period.

In regard to receiving the stocks of other states, there has been a wide difference of opinion between persons engaged in banking and the comptroller, as to the amount at which those stocks should be received in pledge. The act having vested a discretion in the comptroller, in the receiving, and also in respect to the amount at which they might be received, constituted that officer the guardian of the interest of the bill holder; and in maintaining and protecting that interest, it is not surprising that there should have arisen a collision of opinion on the question of value. It was, among other things, alleged “that the late comptroller had decided to admit or receive the six per cent stocks of other states at par, or as equal to the five per cents of this state, and that purchases had been made with reference to that decision. As the prices of stocks had materially declined in market, and could not with propriety be received at that rate, to remove all ground of complaints arising from misapprehensions, the comptroller on the 9th March last, gave public notice as follows: “Notice to persons forming associations under the general banking law—

“To meet the inquiries that are constantly made respecting the principles which govern the comptroller in receiving stocks as collateral security for circulating notes, he thinks proper to state—that the stocks of this state, and those of the United States, at or about five per cent. will be received at par value, and notes will be delivered to an equal amount on such stock being deposited; and that stocks of other States of the United States, will be received or not according to circumstances existing at the lime they shall be offered, and when received will be estimated at a rate not exceeding the market value, and notes will be delivered accordingly.” Since which six percent. stocks of other states have been received from time to time, at 95, 90, 85, 80, and 70 per cent, and five per cent stocks at nearly corresponding rates.—The entire amount received is $4,9S4, 700 38-100, of which $478,200 38-100 are of this state $1,099,000 of Arkansas, $872,000 of Michigan, $1,045,000 of Illinois, $1,043,000 of Indiana, $10,000 of Ohio, $69,000 of Missouri, $207,000 of Alabama, $110,000 of Maine, $50,000 of Kentucky, and $1500 of United States.

Fully to carry into effect the manifest intention of the Legislature, by providing an ample security for all circulating bills delivered to the associations, it became a duty to fix a price at all times approximating to the actual market value of the different stocks offered and to do this, and at the same time to give general satisfaction to depositors, imposed a duty of extreme delicacy and much perplexity. There seemed to be no means within reach, by which the actual value of stocks could be ascertained with any tolerable degree of certainty. Stocks were evidently continually on the decline, and the comptroller felt it to be his duty to keep at or below the supposed value in market, for the reason that the disposal of the stocks pledged will most probably be called for at a time of the greatest pecuniary difficulty, and the sale must be promptly made at whatever sacrifice, to meet immediate demands that admit of no delay. In rating the value of stocks, this consideration has been steadily kept in view, to the end that, under the most adverse circumstances, there should be an adequate redemption fund; a matter of vital importance to the stability of the system, as well as to retain the confidence of the community, which has been so strongly manifested in favor of the circulation of these banks.

To some of the associations a larger amount of circulating notes has been delivered than the present estimated value of the stocks pledged will warrant, and in such cases the dividends on the stock will be retained to increase the security, agreeably to the fifth section of the act. The stocks received have been made payable to the comptroller in trust for the institution depositing, or have been assigned in writing, or an endorsement made upon each bond, specifying that the same has been deposited in pledge for circulating notes by the association making the deposite; this was done to prevent any unauthorised transfer of the securities. Although this is not in accordance with the custom among dealers in such securities, which authorises transfers by delivery, yet it has been deemed prudent to adopt every practicable measure tending to the safety of the deposite. As transferred or endorsed, these securities cannot become again negotiable without the signature and seal of the comptroller.

Beside this guard, and a safe place of deposite, the farther precaution has been taken to provide a suitable book, in which a general description of each certificate of state stock or bond is entered, in order that if any of the securities should be missing, a description and notice could be given to the proper officer of the state which issued the paper, and thereby prevent its payment to the holder. These measures are supposed to be all that are necessary for the safe keeping of the securities deposited. Less precaution seemed required in relation to the bonds and mortgages, as that class of securities is assigned to the comptroller, and the mortgages and assignments thereof have been duly recorded in the counties where the lands conveyed by them are situated, and notice of the assignment given to the obligors, and an acknowledgment of the amount due thereon taken of the mortgagors, where the mortgages were of long standing.

The joint committee appointed to examine the Treasurer’s accounts and the accounts in the Canal Room, has been invited to extend its examination to the Bank Department. The invitation was accepted, and a general examination has been had in relation to the situation of the securities, the manner of keeping the books and the general condition of that department.

The past year has not furnished a fair criterion by which to judge of the operation of the system. About half of the new banks have been in business but a few months, embracing a period of unusual derangement of the currency. As part of them, at least, were formed and put in operation without due preparation, and have been managed by officers of limited experience, it could scarcely prove otherwise than that difficulty and embarrassment should attend their operation. It is an experiment; and a much longer period of time will be required than has yet been given fully to test the practical effects of the system. A restriction which had existed for many years was suddenly removed; the right of banking by complying with certain conditions was opened to all; the occasion has been seized with avidity; 134 certificates of the formation of associations have been filed, seventy of which have commenced business, and also three private individual banks, making seventy-three new banks.

Such securities as are mentioned in the act have been sought, obtained and deposited to the amount of $7,168,507, and upon which over $6,000,000 in circulating notes have been issued from the office within the last fifteen months. A sort of banking mania seemed to prevail which alarmed the community at its extent and possible results. The comptroller felt that nothing short of the most rigid performance of the duty assigned to him in relation to the securities pledged, would sustain that confidence upon which the whole circulation of the free banks depends. One bank has been wound up without loss to the holders of its bills; two others are now coming to that point, and it is confidently believed that the result will be the same. If in times like these the redemption fund proves adequate to its object, additional confidence will be accorded to this class of circulation. During the influx of this new medium in the absence of organization and concert among the new banks, it is not surprising that the emission should become somewhat depreciated, more especially when it is considered how extremely difficult it has been to preserve the safety fund circulation of the country banks from a like depreciation, notwithstanding an organization of years standing, and the great experience of the officers of these institutions, and the privilege of availing themselves to some extent of the aid of the State by receiving its deposites.

The heavy expenses incident to the organization of so large a number of institutions, have with few exceptions, been paid on the draft of the comptroller, at sight. Such part of their circulation as has been returned for redemption has been promptly met, except by those associations in New York now closing.

The amount of circulation of the safety fund banks, as appears by the report of the bank commissioners,

Jan. 1st, 1839, was - - -	$19,373,149 00
The amount of circulating notes of free banks, Jan. 1st, 1839, was -	396,300 00
Making the whole circulation of the state, on the 1st of Jan. 1839 -	$19,769,449 00
The total amount of circulating notes issued up to the 1st Dec. 1839.
$6,012,019 00
Estimated amount of safety fund notes in circulation on 1st Dec. 1839 - - 12,000,000 00
Making the entire circulation on 1st of Dec. 1839, - - -	18,012,019 00
By this it is shown that the circulation has diminished - -	$1,757,440 00

And it is apparent that as that of the free banks expanded, that of the safety fund institutions contracted in about the same proportion. The aggregate of circulation of the state, (allowing all the notes delivered to the new banks to be out,) does not equal the aggregate of 1st January, 1839, by the sum above stated,

This does not include the amount of post notes issued by a very limited number of the free banks.—The comptroller has not deemed that a legitimate issue, and has therefore dircouraged the practice, and it is believed that it has not obtained to any considerable extent.

Such issues if allowed by law, will operate injuriously upon the credit of the new system. No pledge is made for the redemption of that species of paper a fact unknown to many, and therefore its circulation is deceptive.

Arrangements were made in the month of September last with the deposite bank in this city, to receive the bills of the associations from the treasurer in deposite at par, which enabled him to receive those bills for all sums due to the state. This arrangement put the bills of this description on an equal footing with the safety fund bills, so far as regarded the moneys receivable for the general and other funds of the state, (except the canal fund,) and large sums have been received by the treasurer in that kind of paper. As to receiving the bills of the free banks for tolls on the canal, the commissioners of the canal fund found that by the existing law, they were only authorised to deposite the moneys belonging to that fund with “safe incorporated moneyed institutions of this state;” consequently the canal board are compelled to select incorporated banks to receive tolls during the season of navigation. Having no right to direct what description of money or paper the selected banks should receive for tolls, the comptroller, in his communication, requested them to receive all kinds of bills provided they could do so without loss; and directions were given to the collectors to receive all kinds of bills which the deposite bank would receive of them.

Many of these banks have received of the collectors the bills of the associations in their vicinity, and some of those that were more remote. New banks were springing into existence as if by magic, and a part making no provision for the redemption of their bills in New York or Albany, the deposite banks felt unwilling to receive notes about which they could know little or nothing. Had the commissioners of the canal fund been able to give time to convert the new currency, an arrangement might have been made to receive them. But the constant heavy drafts of the canal commissioners in favor of the contractors, during a period of unprecedented pecuniary distress, placed it beyond their power to extend the time requisite to make such conversion. While no directions, therefore, could be given to receive the notes of the free banks for tolls, for the reasons mentioned, many of the deposite banks have taken freely of such as have taken the precaution to make arrangements to redeem their bills at New York or Albany, at similar rates as the safety fund banks. Had all adopted this course, there would have been little if any difficulty in the reception of the bills of all, in ordinary times. It is confidently hoped that hereafter, when the associations shall have had time to perfect a system of redemption and give a fair standing to their several institutions, no such difficulty will then be experienced.

It is one of the first and most sacred obligations of these associations and all other institutions enjoying the privilege of supplying a currency for the country, to render that currency equal to gold and silver at its place of payment. As a debtor cannot well be required to pay at two or more places, because that would require a double provision for his debts; and as the place of payment may be, and often is, distant from the point to which the currency is carried by the course of trade, there will naturally and necessarily be a depreciation in such currency equal to the expense of transporting gold and silver to such point. This is reasonable, but any farther depreciation is unjust to the community which has to sustain it.—The great question then arises how is this to be prevented in regard to the circulating notes issued by the banking associations under the general law.

A recent arrangement into which the safety fund banks, and many of the associations have entered, has proved in practice so successful in its operation, that nothing more seems required than to give it the sanction of law, and thereby compel its universal adoption by all the associations, to render their notes a sound and safe currency, equal to gold and silver in every part of the state, abating the slight deduction justified by the distances of the respective associations from the place where their notes maybe concentrated. The following might be substantially the provisions of such law. The banking associations should each be required to appoint a delegate to meet at some central point in the state to represent them, and the majority of such delegates to select some bank or banking association in the city of Albany as an exchange agent, and agree with it upon the terms on which it would perform the duties of the agency. Should the associations neglect to make such selection and agreement, some state officer or officers should be authorised to do it for them.

The agency being established, every association should be at liberty to send to it the notes of all the others for exchange and redemption. On a given day in each week the exchange agent should assort, count and arrange in separate packages all the notes received at the agency, adjust the balances between the different associations, seal each package, and give notices by mail to the respective associations, of the amount due from each, which notices should require the balances to be paid at the agency, at times to be adapted to the distance of the debtor association from it. The associations at and east of Utica might be required to pay in ten days after mailing the notice; those at and east of Rochester in fifteen days; those at and east of Buffalo in eighteen days; those at and south of Whitehall fifteen days; those at New York eight days; those at Poughkeepsie and north of it five days. Their times of payment would of course be regulated according to distances and facility of intercourse, and the same principle may be applied to all the counties in the state.

In case of a default to pay a balance at the appointed time, the exchange agent shall furnish proof of the fact to the comptroller, who should be authorised immediately to dispose of so much of the securities deposited with him, by such defaulting association, as shall be necessary to pay such balances, and thereupon redeem its notes sealed up, take them into his possession, and cancel the same. But if the comptroller should be of opinion that at the time, and under the circumstances, when such balances accrued, the securities deposited with him might not be immediately available to redeem the whole circulation of any defaulting association, he might be authorised to pay a just proportion on the amount of notes so sealed up, and in that case the notes sealed up should be delivered to him for the purpose of making such proportionate payment to owners of them. The comptroller may be authorised when no doubt is entertained of the sufficiency of such securities, to advance from the treasury the sum necessary to discharge such balances, to be refunded, with seven per cent. interest, with all costs and charges, out of the sale of the securities of the delinquent association. Upon the occurrence of such default, if the balance be not paid within ten days, with the interest, costs and charges the attorney-general should be required to apply to the chancellor, or a vice chancellor, for an order, which such officer should be authorised to grant, to restrain the officers and agents of such association from transacting any business, except the payment of its notes then in circulation, and to receive payment of debts due to it.

Upon granting such order, the officer to direct some master in chancery or some other proper person, to be designated, at the expense of the association, to examine into and report forthwith the condition of the same; and on such report coming in, the court to be authorised to dissolve the association and appoint a receiver to take charge of the effects and pay the debts. This plan will abundantly secure the holders of the circulating notes, and enable them at all times promptly to convert them into cash at a discount equal to the time allowed for payment of balances, which may be from ¼ of one per cent. to 1 per cent. and will not probably exceed the latter amount. It at the same time affords a reasonable time to the associations to meet their balances, and save them the necessity of providing funds in the principal cities to meet any larger amount. The clause requiring them to keep 12 ½ per cent. of the amount of their circulation in specie at the place of their business, may be so modified as to allow of a deposite to their credit at the agency for redeeming their notes, as an equivalent.

The rates at which compensation may be made to the exchange agency, in case no agreement be made by the associations, should be limited by the act.

It is believed that such a plan would render the circulation of these associations all that their most ardent friends have anticipated; no good reason can be perceived why the proposed system of redemption might not be applied also to the safety fund banks, thereby at once placing the whole circulation of the state on the same footing.

The following is also submitted as necessary amendments to the act authorizing the business of banking, viz:

1. No circulating notes to be delivered to any association or individual, until satisfactory proof shall be produced to the comptroller, showing that the capital paid in or secured to be paid in, amounts to $100,000.

2. No stocks, other than such as have been, or shall be issued by the authority of, and for the redemption of which the faith of the United States or of this state is or shall be pledged, shall be received in security for circulating notes, except where satisfactory evidence shall be adduced that such stocks cannot be procured without the payment of an exorbitant price.

3. Individual bankers, who shall commence business after 1st January,1840, shall comply with the same regulations which are applicable to associations. Such bankers who had commenced business before that day shall hereafter make semi-annual reports in like manner as associations, and comply with all regulations prescribed by law for associations.

4. Bonds and mortgages made direct to the comptroller by the president or other officers of the associations, or individual bankers, shall be valid, and such bonds and mortgages in such cases may hereafter be received in like manner as if transferred according to the 7th section of the act aforesaid.

5. No association or individual banker shall make, issue, or put in circulation as money, any notes, bills or other evidences of debt, except such as shall be obtained from the comptroller according to law.

6. Mutilated circulating notes may be returned and others issued in lieu of them, if the securities shall be sufficient to warrant it.

7. All protest fees shall be paid by the person procuring the services to be performed, and for which fees the association or individual banker shall be liable. No part of the pledged fund shall be applied in payment of such fees. There shall be but a single fee for protest allowed on all bills held by the same person, or persons, jointly interested at the time of protest.

8. When the dividend on stocks, or interest on mortgages shall be retained by the comptroller, he shall receive the same and deposite it in some safe bank or association in trust for the institution or banker to whom it belongs, at the highest rate of interest which can be obtained, to remain in deposite till the securities will authorise it to be paid over.

9. The committee annually appointed to examine the treasurer's accounts, shall also examine all the securities, account books and other papers which may be necessary, in their opinion; to enable them to report the true state and condition of that department to the legislature.

NOTE BY THE AUTHOR.

During the late session of the New York Legislature, two laws were passed relating to the Free Banks, copies of which could not be procured in time, but, the principal features of which are as follows:

From the New York Journal of Commerce of 25th April.

Redemption of Country Bank Notes.—The bill passed by the assembly on Tuesday in relation to this subject, provides that every bank, banking association and individual banker, except those in the cities of New York, Albany and Brooklyn, shall appoint an agent in the city of New York for the redemption of their notes, at a rate of discount not exceeding one half of one per cent.; that the bank, banking association or individual banker, whose agent shall neglect or refuse to redeem such notes on demand shall pay interest on the same at the rate of 20 per cent. per annum; and if such redemption and payment of interest is not made within 20 days after demand, such bank, banking association or individual banker, shall be liable to be proceeded against by the bank commissioners; that every association and individual banker who shall hereafter commence business, shall appoint an agent before receiving any circulating notes from the comptroller. That any number of banks, banking associations and private bankers, may, by agreement associate to raise a joint fund to be placed in the hands of the common agent for the redemption of their notes in the city of New York; and also the circulating notes of other banks, banking associations and individual bankers; and that no bank, banking association or individual banker, shall purchase, buy in or take up, their circulating notes at an amount less than what purports to be due thereon, at any other place or in any other manner than is directed by the present bill.

From the New York Commercial advertiser of May 20th.

Act to amend the act authorising the business of banking.—The second section of the act is amended so as to authorise the issue of notes by the comptroller to an amount equal to that of stocks of this state deposited with him by any person or association—such stocks to be equal to a five per cent stock of this state, and not to be taken at a rate above their par value, or above their current market value.

Stocks now held by the comptroller may hereafter be transferred to and received by him at their market value.

No association shall commence business until stocks to the amount of $100,000 have been deposited.

No person or association shall put in circulation any note not payable on demand. Violation of this provision punishable with fine and imprisonment, as a misdemeanor.

Comptroller shall receive mutilated notes, and issue others in place of them.

Thirty-third section of the act repealed.

When the securities deposited with the comptroller are in his judgment insufficient, he may receive the dividends on stocks and interest on bonds and mortgages, and deposite the same in some bank of Albany in trust, at such rate of interest as he may deem most advantageous; to be withdrawn and paid over when the sufficiency of the security shall render it proper.

The joint committee appointed to examine accounts of the treasurer shall also examine securities deposited with the comptroller, and books and papers.

President of any banking association may execute bonds and mortgages to the comptroller, as security for circulating bills.

Fees for protest of circulating notes to be paid by the person at whose instance the protest is made—association to be liable therefor—but not the securities deposited.

Bankers and associations made liable to inspection and supervision of the bank commissioners.

Refusal to submit books and papers for examination or to be examined under oath, or any violation of law, subjects parties to the same proceedings as in the case of incorporated banks.

An additional bank commissioner appointed, to be paid out of interest of securities deposited.

Bodies corporate may receive and hold transferable shares in stocks of banking associations, the same as in other stocks.

THE END.

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* When this was written, the exchange upon London in the United States, was at twelve and a half per cent advance.

* The weight of the eagle was fixed at 247 50-100 grs. fine, and 270 grains standard gold. The weight of the dollar at 371 25-100 grains fine, and 416 standard silver. The standard of gold was fixed at 22 carats, that is, 11 parts fine, to 1 part alloy. That of silver at 1485 parts fine, to 179 parts alloy.

* The precise per centage is 6.681, which is a fraction more than 6.

* If 247½ grains are equal to $10, 480 grains are equal to $19,39,4.

* If 232 grains are equal to $10, 480 grains are equal to $20,69.

* The imports and exports, for 1839, are estimated thus by the secretary, the exact returns not having been received by him.—Author.

^*See the report at full length in Journal of 28th March, 1785.