Bank Issues in New England.

The development of banking took place first in New England. It was of the kind later known as “ wild-cat” banking. The new financial machine seemed so powerful and beneficent that all that was necessary was to work it to the utmost. Notes under $5 were not allowed in Massachusetts until 1805, but after that smaller denominations were allowed, and finally notes were issued as low as 25 cents, and, by the law that paper drives out specie to the lowest denomination to which it is issued, there was no specie in the New England States. The stock of specie in bank was insignificant, and was moved from bank to bank to meet the inspectors' visits. The downfall came in 1809. One bank in Massachusetts had $40 in specie; another nothing. The system of subscribing to capital by notes was, as it appears, universal. The Farmers Exchange Bank of Gloucester, R. I., founded in 1804, was probably the worst case. Its capital was $1,000,000. Only $19,141.86 were ever paid in, and of this the directors withdrew what they paid in, leaving $3,081.11. One Dexter bought out eleven of the directors for $1,300 each, paid out of the bank's funds. He borrowed of the bank $760,265. When it failed it had $86.46 in specie; bills out unknown; the committee estimated them at $580,000. South of New England banks were fewer, and there was no disturbance. Silver was plentiful in the West. The exportation from Mexico was through the United States.

After this crash, the New England States passed severe banking laws, with penalty of twelve per cent, interest on all notes not redeemed on demand. In 1813 the New England Bank was chartered as a bank of redemption at Boston, in order to keep the paper of banks in the adjacent country at par. It accomplished this object, but was exceedingly unpopular with its country clients. This was the origin of the Suffolk Bank system.