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The first issue of loan certificates occurred in 1860. The statement of the New York City banks for August 25th, 1860, showed: Loans, $130,578,000 Deposits,

20,119,000 Circulation,


During September and October there was a steady contraction by the banks, and by the 24th of November the loans had been reduced over $8,000,000. Deposits had shrunk to $74,035,000 and the specie holdings were down to $18,759,300. Until the latter part of October this contraction had not seriously affected the money market, although it occurred at the season of the year when the demand for money to harvest and move the crops was unusually heavy. However, by November 24th the pressure of the situation had very much increased. The presidential election, always a disturbing factor, was in 1860 a cause of unusual anxiety. During the first week of November the banks expanded their loans by $2,000,000. The specie reserve stood at 22 millions and money was readily obtained on call loans at five and six per cent.

Immediately after the election of President Lincoln there followed a rapid decline in stocks, and money rates rose sharply. The political situation in some parts of the South was causing much apprehension and a general feeling of insecurity was apparent. The banks were disinclined to make new advances and were requesting payment of maturing obligations, wherever possible. By the middle of the month call loans were made at seven per cent., while the best business paper could command no lower rate than twelve per cent. By Wednesday, the 21st, the situation had become very critical. Commercial paper could not be marketed and the notes of many of the most wealthy houses were freely offered at twenty-four per cent. At this juncture a meeting of the officers of the Associated Banks was called and the plan of relief by the issue of clearing house loan certificates, then presented for the first time, was unanimously adopted.1 1 The following is a copy of the proceedings of the association :

In order to enable the banks of the City of New York to expand their loans and discounts, and also for the purpose of facilitating the settlement of the

Business paper

The effect of this action by the banks was felt at once. The loans made in the next few days are said to have exceeded $5,000,000 and the pressure was greatly relieved. Within thirty days there were outstanding nearly $7,000,000 of loan certificates and the banks had increased the line of discount by $8,000,000. From Jan. Ist, 1861, the improvement was rapid. By the last week in February the bank deposits had risen to ninety-one and one-half millions of dollars. was freely discounted at seven to eight per cent., and money was more abundant than it had been at any time during the exchanges between the banks, it is proposed that any bank in the ClearingHouse Association may, at its option, deposit with a committee of five personsto be appointed for that purpose-an amount of its bills receivable, United States stocks, Treasury notes or stocks of the State of New York, to be approved by said committee, who shall be authorized to issue thereon to said depositing bank certificates of deposit, bearing interest at seven per cent. per annum, in denominations of five and ten thousand dollars each, as may be desired, to an amount equal to seventy-five per cent. of such deposit. These certificates may be used in the settlement of balances at the Clearing House, for a period of thirty days from the date hereof, and they shall be received by creditor banks, during that period, daily, in the same proportion as they bear to the aggregate amount of the debtor balances paid at the Clearing House. The interest which may accrue upon these certificates shall, at the expiration of the thirty days, be apportioned among the banks which shall have held them during the time.

The securities deposited with said committee as above named, shall be held by them in trust as a special deposit, pledged for the redemption of the certificates issued thereupon.

The committee shall be authorized to exchange any portion of said securities for an equal amount of others, to be approved by them at the request of the depositing bank, and shall have power to demand additional security either by an exchange or an increased amount, at their discretion.

The amount of certificates which this committee may issue as above stated shall not exceed $5,000,000. (On Dec. 3d, 1860, it was voted to increase this limit to $10,000,000.)

This agreement shall be binding upon the Clearing House Association when assented to by three-fourths of its members.

Resolved, That in order to accomplish the purpose set forth in this agreement, the specie belonging to the associated banks shall be considered and treated as a common fund for mutual aid and protection, and the committee shall have power to equalize the same by assessment or otherwise.

For this purpose statements shall be made to the committee of the condition of each bank on the morning of every day before the commencement of business, which shall be sent with the exchanges to the manager of the Clearing House, specifying the following items, viz:

1. Loans and discounts. 2. Deposits. 3. Loan certificates. 4. Specie.

previous year. On March 9th, the last loan certificate was retired and cancelled.

In this undertaking of the Associated Banks, which unquestionably saved the mercantile community from a general suspension, unity of action was most essential. The resolutions authorizing the issuance of Loan Certificates and the agreement to make the aggregate stock of specie common among all the banks, were passed by the unanimous vote of all the banks who were represented at the Clearing House meeting of Nov. 21st. The Chemical Bank, however, did not participate in the movement. They had strengthened their specie reserve and declined to coöperate with the other institutions. A committee was appointed to wait upon them, but they declined to be a party to the measures. As a result of this unwillingness to share in the burdens of the Associated Banks, the Chemical Bank

1 At a meeting of bank officers, held on Tuesday, the 27th of November, 1860, 41 banks being represented, the following preamble and resolutions were unanimously adopted :

Whereas, The banks in the City of New York, as a measure of relief to the business community, in a period of great financial distress, have adopted an agreement for mutual support and protection ; and in so doing, in consideration of a great good to be accomplished, have yielded whatever advantages of position any of them may have possessed over the others; and whereas this agreement has been approved and agreed to by every bank in the City of New York, with the single exception of the Chemical Bank ; and whereas that bank will share equally with the others in the benefits arising from the measures adopted ; and whereas this agreement in its practical operations so affects the details of the Clearing House, as to render an exceptional case greatly annoying and inconvenient; and whereas there is obligation of duty which has moved the great body of bank officers in this trying emergency, which does not bear equally upon the bank in question :

Therefore, resolved, That while we hold its officers personally in high esteem, a proper official self-respect requires that after allowing that bank time for further consideration, we should, unless they unite with us, withhold from it the ordinary interchanges of business, and we therefore agree, that after Saturday, the first day of December next, no bank which is a party to the agreement will receive on deposit, or in payment of notes at its counter, checks drawn upon the Chemical Bank, and that no checks on that bank will be collected by either of us through the Clearing House.

Resolved, That a copy of this preamble and resolution be sent by the secretary to the Chemical Bank,

At a meeting held December 3d, 1860, a vote was passed as follows ;

Resolved, That the circulating bank notes of the Chemical Bank be not received on deposit and in payment of debts.

was suspended from the privileges of the Clearing House from December ist, 1860, until March 15th, 1861, upon which date the joint arrangement for relief measures was formally terminated, the last Loan Certificate having been retired on the 9th inst.1

In the years 1862, 1863 and 1864, the resources of the Associated Banks were again severely tested in aiding the operations of the Government and in assisting its financial measures.

Again were the banks obliged to take joint action and an issue of loan certificates was made in each of the three years.

In these years the issue was made against the deposit of United States interest-bearing treasury notes, while in 1860 bills receivable had been the form of the securities deposited.

In 1873 the precedent established in 1860 was again followed by the New York City banks, and the same policy was adopted by the associated banks of Boston, Philadelphia, Baltimore, New Orleans, Cincinnati and St. Louis. By the middle of September, 1873, a panic of unusual severity was raging in New York. On Friday, the 19th, the situation had become desperate, many failures had been announced, a few banks had suspended, and apprehension and alarm were everywhere felt. On the following day the Stock Exchange was closed for an indefinite period,' values were entirely upset and the best securities and business paper went begging.

Again the Clearing House authorized the use of Loan Certificates, and on Saturday, the 20th, it was determined to issue them at once to the amount of $10,000,000. It was also announced that the Government would purchase ten millions of bonds. These measures stemmed the tide of doubt and fear, and on Monday the most acute stage of the panic was over.

The resolutions authorizing this issue of certificates were practically the same as those adopted in 1860. On October 3d,

1 At a meeting of the Associated Banks held March 15th, 1861, the following resolution was adopted :

Resolved, That the resolution of non-intercourse with the Chemical Bank, adopted on the 27th day of November, last, which still remains in force, be now rescinded.

· Stock Exchange reopened September 30th.

eleven days after the issue of the first certificates, the amount outstanding was $22,410,000. No weekly Clearing House statement of the condition of each bank was made from Sept. 22d to Dec. 8th, as it was deemed inadvisable to call attention to the weak condition of any bank and so precipitate a run

upon it.

This course was also pursued by the Philadelphia banks, who published no weekly statements from Sept. 22d to Nov. 24th.

The following table will show the extent to which loan certificates were used in other cities at this time.

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In May, 1884, in order to save a wild and general panic, another issue of certificates was made.3

On May 24th, the bank statement, this time published weekly throughout the panic, showed a deficiency in the legal reserve of $6,607,125. The intensity of the panic was, however, of short duration.

By June 21st this deficiency had become a surplus of $10,020,075 above the legal requirement, and by the end of the month the necessity for the loan certificates was practically ended.

The next period of extreme financial stringency came suddenly in 1890, following close upon the failure of the Messrs.

Approximate, exact figures cannot be given.


9 Total amount issued.

3 In 1884 Loan Certificates were issued by the New York Clearing House only. On May 24th the amount outstanding reached its maximum of $21,885.000.

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