CHAPTER III.

THE ONE HUNDRED AND FIFTY MILLION BANK LOAN.

HARDLY had Congress adjourned, when Secretary Chase started for New York to borrow money. On the evening of the 9th of August a meeting was held at the house of John J. Cisco, the assistant United-States treasurer, who had been continued in office, notwithstanding the change of party administration. He had well served the government, and the President acted wisely in retaining him. When personal fitness shall be uniformly applied as a test for keeping men in office, the change will mark the beginning of a new era in national advancement more glorious in rational expectation than any era already passed.

At this meeting were assembled, beside Mr. Chase, bankers and other prominent men of New York. Mr. Coe, the president of the American Exchange Bank, suggested the practicability of organizing the banks into an efficient and inseparable body, for the for the purpose of advancing the capital of the country on government bonds in large amounts, and through their clearing-house facilities and other well-known expedients to distribute them in smaller sums among the people. This suggestion was heartily received, and, by request of the seeretary, was presented to the representatives of a considerable number of banks, who assembled on the following day. On that occasion a committee of ten were appointed to develop the suggestion into a plan for rendering assistance to the

government. On the 15th the committee reported. Thirty- V nine of the New York banks were represented; the Philadelphia banks were represented by Messrs. Mercer and Patterson; and Mr. Gray, of Boston, represented those of that city. "The report was cordially accepted and adopted by the banks in New York," while those in Boston and Philadelphia, through their representatives, "as zealously and cordially united in the organization." The co-operation of the banks of the West, though greatly desired, it was found impracticable to secure.

The following plan was adopted: There should be an immediate issue by the government of $50,000,000 of treasurynotes, running for three years, and bearing interest from August 15th, at 7.30 per cent. The banks of New York, Boston, and Philadelphia were to unite in taking this amount at par, with the privilege of taking $50,000,000 more on the 15th of October, and a similar amount two months later, unless the same should be previously subscribed as a nationa! loan. The secretary was to negotiate no other government stocks, bonds or treasury-notes, except those payable on demand, and the Oregon war loan, which had been recently authorized, and was less than $3,000,000. Negotiations in Europe, however, were not restricted by this agreement with the banks.

An appeal was to be made by the government to the people to subscribe for these notes, and the banks were to subscribe in proportion to their capital. No bank, however, could subscribe for more than one-fifth of the amount. The agreement also specified that, "as the subscriptions for the notes progress, and the moneys are paid in, the same shall be paid over to the government or deposited with banks selected by

the secretary of the treasury, with the concurrence of a committee of the associates; and so much of the proceeds of said loan, as shall be required for the purpose, shall be applied in reimbursement of the associates for subscriptions by them paid in, but not otherwise reimbursed."

The banks were to pay ten per cent of the sums subscribed forthwith to the assistant treasurers of the United States at Boston, New York, and Philadelphia, and the residue was to be placed to the credit of the United States on the books of the banks subscribing. Certificates were to be issued to each subscriber, stating the amount deposited, and, as the deposits should be withdrawn or paid into the treasury, treasury-notes bearing 7.30 per cent interest were to be issued in equal amounts to the subscribers. When the deposits were entirely paid to the United States, treasury-notes for the first deposit of the banks were to be issued, and all notes issued to the subscribers were to bear even date with the certificates and carry interest from it. The agreement provided for the formation of a committee to represent the banks in the three cities in conducting the business. The eighth section of the plan set forth that "in addition to the banks of New York, Boston, and Philadelphia, it would be desirable that other parties should become associates, say, trust companies, savings banks, insurance companies, and private bankers, who, in lieu of pro rata of capital, should designate, when joining the association, what amount of interest they decide to take."1

As soon as Mr. Chase had finished his negotiations with the banks, he returned to Washington and provided for "immediate exigencies" by issuing to public creditors who would receive them, or for cash, six-per-cent treasury-notes,

116 Bank. Mag., p. 161.

$14,019,034 of which were payable in two years, and \ $12,877,750 in sixty days. Meantime, to ensure the success of the bank loan, the expedient of issuing clearing-house certificates, and of appropriating and averaging all the coin in the various banks as a common fund, was adopted. This action was a continuation of the policy adopted by the banks in November, the previous year. At that time, foreseeing the future, they "deemed it wise to band themselves together, putting their coin into a common fund, and otherwise aiding each other, so as to enable them best to sustain their dealers, and by joint action to relieve the wants of the government, if it became necessary, to the largest possible extent."2 Such a vast financial undertaking had never been attempted before in this country, nor was ever a similar one matured and put into execution so quickly.

At the time of executing this agreement with the secretary of the treasury, "the credit of the government had become impaired to such a degree that a large loan could not be obtained in any ordinary way, nor even a small temporary loan, except for a very short period, at a high rate of interest.

Ann. Treas. Report, 1861.

* Report of the Loan Com. of the Associated Banks, p. 11. The committee added that they believed the objects proposed by the banks at that time had been very fully obtained. "That in the future the banks will look back with just pride to the record of the past, borne by them in the most critical and eventful period known in the history of the country; and that they may justly claim that by their foresight in organizing themselves, and their prompt action for the support of the government at the darkest moment of the past year, when they placed more than their entire capital at its command, almost without hope of profit, with ruin staring them in the face in the event of loss, that they did much to save the government from being overthrown and the country from being dismembered."

Men's hearts failed them; the rebellion was upon so large a scale, and had so unexpectedly broken out, and raged with such fury, that to subdue it seemed to most persons to be impossible. After careful deliberation and consultation with the secretary of the United-States treasury, the banks decided it to be wise for them to depart from their usual and legitimate business and sustain the government credit, and stand or fall with it. The Act restored the public confidence, and was the highest endorsement of the public credit that could then have been given."1

The bank capital thus associated aggregated $120,000,000, exceeding the capital of the Bank of England and the Bank of France. The banks that joined in the movement possessed the needful capacity for accomplishing the end, yet were free from the objection of acting as a single great corporation. Their financial condition was:

1Report of the Loan Com., p. 32. "When the banks agreed to advance their millions to the government, they did so without hope or expectation of profit from it, and they earnestly sought to obtain from the government the assurance that they should be indemnified from loss. It was not until five months after taking the first loan, and two months after taking the third,. . . that there was any reason to expect the securities to command in the market a price higher than that at which they had been taken.”— Ibid., p. 32.

* Their aggregate capital at that time was $120,000,000, New York banks having $70,000,000; Boston, $38,000,000, and Philadelphia, $12,000,000.