Bank Expansion. (2)

The bank expansion from 1848–1851 was as follows:

These figures are not as trustworthy as one might wish. They represent the status on January I, or as near that date as possible, and minor fluctuations are not represented. A well-defined movement, however, was apparent before 1851. The currency set towards the financial centres, country banks keeping their balances generally in New York. These balances were required in the fall, and the withdrawal of them produced con traction and stringency at that season. Weekly bank statements were not made by any banks until August 6, 1853, when the New York banks began the custom, and others gradually followed.

In 1851 there was an export of gold with unfavorable exchange, and a drain upon the banks. As no reports were published, the extent of this drain was not known, but a writer in 1857 states that it amounted to twelve millions in June and July, and that the stock remaining in the New York banks was only six millions. The consequence was a sharp contraction and great suffering, which finally caused the Secretary of the Treasury to buy bonds for the relief of the market

The same course of events, more or less marked, occurred throughout this period. Currency flowed to New York during the summer, was loaned on call (interest being paid for deposits), was withdrawn in the fall, producing contraction of loans and stringency.

It was asserted at the time that the worse the currency the more mobile it will be, and the assertion is true; but it is still more true that when the currency is unequally bad it will flow to the financial centres. Gold was being exported as a commodity all the time, but the exchanges showed the pressure of the redundant paper at New York, and caused a demand of gold for export with chronic overtrading. This was, according to the doctrines of the Bullion Report (discussed in Chapter II), a warning that the issues were excessive. The New York banks of course felt the weight of the evil. The warning came to them in actual experience, but the pressure of the country issues, which were never regulated by the exchanges at all, continued, and the metropolitan banks do not seem to have taken measures to restrain them.

The usury law, although disregarded in private practice, made it impossible for the banks to publish a usurious rate, and thus control discounts by this means. They could only exert a direct contraction on their issues and loans whenever the drain upon them made it necessary, and the pressure of this was, of course, most severe in the city itself.