In 1806, after repeated unsuccessful attempts on the part of individuals to secure the incorporation of a bank, the Legislature--for the purpose of superseding private applications and, as was supposed, securing to the State the whole profits of bankingcreated the Vermont State Bank, to be the property of the State and managed by 13 directors chosen by the Legislature. The treasurer of the State advanced about $500 to buy plates and paper, which was the extent of the actual capitalization of the institution. No bills were to be issued at either of the two branches in excess of the specie on hand until that should amount to $25,000; after which it was authorized to issue not exceeding three times the amount of specie until it amounted to $300,000. The manner in which the bank went into operation seems to have been by exchanges of specie for notes, dollar for dollar, made by prospective borrowers until the required $25,000 specie was obtained, and then loans were made to them in the bills of the bank.

The bank commenced the issue of bills in February, and by September 30, according to a report by the directors, * there had been loaned $139,757.23. The bills were of the denominations of 50c., 75c., $1, $1.25, $1.50, $1.75, $2 and $5.

The scheme worked so well at the outset that in 1807 two other branches were established. To give confidence to the holders of the bills, the treasurer was directed to deposit in the branches all the funds of the State; and by various enactments the credit of the State became fully pledged for the redemption of the bills of the bank. But having in other respects no real capital, it was soon found that the bank was in danger of suffering from the want of punctuality on the part of debtors and the slow process of collections in the ordinary course of law; to remedy which, in 1899, the cashiers were virtually constituted a court of record and authorized to enter up judgment summarily and issue execution on all debts due more than three days to their respective branches. Thus did Vermont introduce practically the same

*This report closes with the following: "The obstacles which were inseparable from an institution established on principles hitherto unattempted in the banking system have been happily surmounted and the practicability of those principles established. The high credit and extensive circulation of our bills, we trust, are sufficient to inspire the public confidence, and to insure a continuance of their patronage. Under the fostering care of the Legislature, we are induced to believe that this institution may become highly conducive to the convenience of the citizens, and a productive source of revenue to the State."

"bank process" as that described at more length in connection with early banking in Rhode Island.

In 1810 the loans were restricted to twice the amount of specie on hand, and in no case to exceed $1,000 to any one person or company. The bills were also made a legal tender for taxes and in redemption of property sold for non-payment of taxes. All this availed nothing, however; by 1811 one branch had been closed, and a com. mittee was appointed to inspect the others, which were well on the way to insolvency. In 1812 a land tax was assessed upon the State of one cent per acre for the purpose of raising funds with which to redeem the bills of the bank, the affairs of which were being closed as speedily as possible.

The amount of loss to the State treasury was never definitely ascertained. All other creditors of the bank were paid in full. About $230,000 of the bills received by the treasurer of the State were never redeemed by the bank-viz.: $130,000 received in payment of taxes prior to the imposition of the land tax, and about $100,000 raised by the land tax for the redemption of such as were then outstanding. The assets of the bank were reported as being available for about $30,000; but whether more or less was realized is not apparent. Accepting this estimate, it would seem that the State lost about $200,000 on the venture. The affairs of the bank were not all settled up until about 1845.

After the disastrous ending of the State Bank it was not until 1817 that another banking institution was incorporated in the State. In that year a charter was granted for a bank at Windsor, with a capital of $150,000. But it contained a clause making the stockholders liable in their ersons and property for all demands against the bank which should not be paid within three days after due. This was sufficient to discourage subscriptions, and no attempt was made to put the bank into operation. The next year a charter free from the obnoxious provision was secured.

In 1818 the Windsor and Burlington banks were incorporated, to continue until January 1, 1834, with nominal capitals of $100,000 and $150,000, respectively. Brattleborough Bank was next chartered in 1821, with a capital of $100,000. Between 1824 and 1827 charters were freely given, and by the latter date ten were in existence. Prior to 1831 there was no general statute in force relating to banks; but the powers, duties and liabilities of each were regulated by its separate act of incorporation -the charters of the several banks being nearly uniform in their provisions. In general the limit of the amount of capital only was specified; but a bank might go into operation upon the payment of a small proportion of its nominal capital, and the amount of additional capital actually employed depended upon such assessments on the stockholders as the directors might from time to time make. The banks were required to pay their bills and liabilities on demand in specie; were prohibited from dealing in real estate or goods and limited to six per cent. interest charges. Their

total debts could not exceed their deposits and three times their capital. And inasmuch as their debts, exclusive of deposits, consisted mainly of their circulation, this amounted to a limitation of their circulation to three times their capital. In case of excess of indebtedness, the directors under whose administration it occurred were made liable in their private capacities. As an additional security to the public, each of the directors was required to give bonds, usually for the sum of $8,000, to the State Treasurer, conditioned upon the faithful discharge of the duties of his office.

In 1831 an act was passed modeled closely upon the "Safety-Fund Act" of New York. Its leading object was to create a fund out of which the creditors of any bank that should become insolvent might be paid. For this purpose each bank thereafter chartered was required to pay into the State Treasury the sum of 4 per cent. upon the amount of its capital stock, in six annual installments. In case the fund was reduced by the failure of any banks it was to be made up by assessments by the State Treasurer upon the several banks, not exceeding three-fourths of one per cent. in one year. The fund, until used for the purposes designated, was to remain the property of the respective banks contributing, and the balance of the income from its investment, after deducting the expenses of Bank Commissioners, for whose appointment provision was made, was to be paid to such banks, annually; and on the expiration of the charter of any bank its contribution to the fund, if not required to indemnify the creditors of any other bank which had become insolvent, was to be returned by the Treasurer.

This act also provided that no bank should go into operation until at least one-half the capital was paid in. In other particulars the banks were to be governed by their charters, which were renewed under the Act of 1831 without important modification. In place of the annual tax of six per cent. upon dividends, which the State had previously imposed, a tax of ten per cent. on profit was substituted.

In 1842 the General Assembly passed an additional act relating to banks, the important part of which was a provision that banks thereafter chartered might be relieved from the contribution to the Safety Fund if the directors should execute satisfactory bonds conditioned that they should "at all times pay and redeem according to law all bills issued by such bank, and should pay and refund all deposits made in such bank when such payments were demanded." This act also required not only that one-half of the capital should be paid before the bank went into operation, but that the other half should be paid in within two years. Loans to directors, stockholders and single individuals were also more strictly limited than theretofore.

Another part of the act provided for a fixed tax of one per cent. per annum upon capital in lieu of the tax of 10 per cent, on profits, but remitted this tax to such banks as should keep a sufficient deposit of funds in the city of Boston, and should at that city uniformly cause its bills to be redeemed at par.' This seems to have been the first official recognition and encouragement of the so-called "Suffolk redemption system by the State. The extension of the advantages of this exemption from tax to the other banks, provided they should give bonds, together with the natural advantages accruing from the system itself, eventually brought them all into the redemption system, though as late as 1848 three of them still refused to maintain the required deposit at Boston. By 1850, however, all were in line.

In 1839 the Essex Bank was placed in the hands of receivers. This bank, incorporated in 1832 under the safety-fund system, with a nominal capital of $40,000 had had called in but $25,000 of it. The bank had made large loans to persons outside of the State, and at the time of its failure a large part of this was uncollectable. Its statement showed a circulation of $66,262, and deposits $3,798, to meet which there were bills discounted aggregating $98,537; yet the Bank Commissioner reports that, from what he can learn from the receiver, he must conclude that the effects in his hands, and all the safety fund then paid in, and that the banks then chartered would be required to pay in, would be insufficient to redeem the bills of the bank.

The report of the committee of the General Assembly on the Essex Bank, October 24, 1842, contains the following:

"Your committee further report that, in their opinion, the Legislature, in granting the charters of the several safety-fund banks, and by the several laws they have enacted in relation to them, have endeavored to protect the rights of all persons who may have any concern with or interest in them. Under these laws a bank fund has accumulated to a large amount, which the law has intended for the payment or redemption of the bills of any safety-fund bank which may become insolvent through misfortune and without the fault of its officers. It h s also made ample provision for the protection of the billholders against the frauds of such officers, by requiring large bonds for the faithful discharge of their official duties to be lodged with the Treasurer of the State; and when the insolvency has been occasioned by the fraudulent conduct or neglect of such officers, adequate remedy may be obtained by the billholders by a prosecution of such officers in the manner prescribed by law

The billholders being the persons immediately injured by the failure of the bank to redeom its bills, and the inability so to do being produced by the fraudulent acts of its officers, no doubt can exist but that suits upon their bonds can be resorted to by the billholders for their indemnification. In all cases where officers have performed heir duties faithfully, and have been guilty of no breach of the conditions of their bonds. then no source can remain from which remuneration can be obtained by the billholder but the bank fund.

And as it was manifestly the intention of th Legislature that the interest of all persons concerned shall be equally guarded and protected we think that this construction of the law would evidently effect that object; but if billholders are permitted to resort to the bank fund for the redemption of the bills of insolvent banks, without regard to the manner in which that insolvency was produced,

it is manifest that no person would seek redress by a suit on the bonds while a single dollar of the bank fund shall remain in the treasury.

Your committee are clearly of the opinion that the billholders of insolvent safety-fund banks made so by the misconduct of their officers should never be permitted to have indemnity from the bank fund while they may obtain redress by a suit on the bonds of the officers. To permit such billbolders to resort to the bank fund for redress would be th height of ujustice; it would be taking the money of those banks which have honestly aad judiciously conducted their business topay the damages occasioned by the fraud of others at the same time depriving the State of the use and income of the bank fund, and destroying the security of the billholders, while those who have been guilty of the most barefaced frauds would go unpunished. In short, it would be punishing the Innocent and rewarding the guilty."

The amount of the Bank Fund in 1850 was $40,216.

One result of the attention directed to the disproportion between the amount of bills issued and the capital paid in was an act in 1840 limiting the circulation to twice the capital, instead of three times its amount as before.

CURRENT REDEMPTION.

EARLY METHODS.

The most interesting feature about the banking experience in New England was the system of bank-note redemption which was there developed-a system which not only had a vast influence in consolidating all the New England banks, without regard to the individual States by which they were chartered, into one single banking system, with its centre at Boston, but contributed more than almost any other agency to the remarkable success of its currency in the essential matters of safety, convertibility and elasticity

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The business man of to-day," says Mr. D. R. Whitney, in his admirable history of the Suffolk Bank, "knows little by experience of the inconvenience and loss suffered by the merchant of sixty years ago arising from the currency in which debts were then paid. The merchant of 1818, receiving payment in bank notes, assorted them into two parcels, current and uncurrent. In the first he placed the notes issued by the solvent banks of his own city, in the other the bills of all other banks. Upon these latter there was a discount, varying in amount according to the location and the tredit of the bank issuing them. How great the discount was he could learn only by consulting the "Bank Note Reporter," or by inquiring at the nearest exchange office; and he could avail himself of them only by selling them to a dealer in uncurrent money. He could neither deposit them nor use them in payment of his notes at a bank. The discount on them varied from one per cent. upward, according to the distance the bills had to be sent for redemption and the financial standing of the bank by which they were issued. Many banks were established in remote places mainly for the purpose of making a profit on circulation. The more distant they were from the business centres the more expensive it was to send their bills home for redemption, and the more difficult it was for the general public to know their true financial condition."

Even earlier than the period of which mention is here made tue condition was less settled, but no more satisfactory. For a few years, while the only notes in circulation were those payable in Boston, they were preferred to specie both in town and country; but as soon as notes issued by banks some distance removed came into circulation, the question arose whether or not they should be received by the Boston banks at par. The practice was fluctuating, sometimes at par and sometimes at a small discount. The country banks, sustained by public opinion, protested against those of Boston sending home their bills for redemption; and finally in 1796, the Boston banks gave up receiving them altogether.* The result was that the bills of the country banks filled almost exclusively the channels of circulation, even in Boston, and thus was a double currency introduced-"foreign" or "current" money, and "Boston" money. At this time, of course, means of communication were slow and inadequate; and the rapid spread of banking in 1803 and 1804 had resulted in the incorporation of what at that time must have seemed a multitude of banks, of the condition of which little could be ascertained. In 1804 an institution was established called the "Boston Exchange Office," the object of which seems to have been to extend and equalize the circulation of foreign bank notes, in which currency it received deposits, collected notes and made discounts.† This seems to have been the first attempt at anything beyond

* In this connection, it may be noted that the early records of Connecticut show that the Union Lank of New London, the second bank in the State, began a practice of sending specie to Boston to redeem their bills in the hands of one of the banks there. That this was quite exceptional, Dowever, is evident from the fact that in April, 1796, a letter was received from an officer of the Union Bank in Boston in which he said that the banks of that city had experienced so much inconvenience from the increase of foreign bills that they had agreed not to receive the bills of any bank out of Boston, and that they regretted extremely being obliged to apply the rule to the es of the Union Bank of New London, for if the other banks had been as attentive to the redeeming of their bills as that bank no suc regulation would have been necessary. A correspondence ensued which resulted in the appointment of this officer of the Union Bank in Boston as the age... for the redemption of the notes of the bank at Boston, he being furnished with funds in advance for that purpose. No evidence is at hand that any other bank made similar provision for their bills.

"The said corporation shall have liberty to establish and keep in Boston a fund of $150,000 in current bank bills of this Commonwealth and a further sum in specie of $50,000. The

individual action in dealing with the problem. The experience, however, was not satisfactory and the bills of the banks more readily accessible continued to be sent home for specie, and the di-count on the rest increased to four or five per cent.

Nothing further is heard of the Boston Exchange Office, and in 1808 the merchants and dealers of the City, having found the existing condition of the currency injurious to their business interests, raised a fund for the purpose of sending home bills received in business and enforcing their redemption. This move. however, was too sudden, and the failure of several banks which had issued notes without much preparation for their redemption was the result.

The year 1813 was marked by an important movement toward reforming the condition of the bank-note currency in this regard, through the agency of the New England Bank, which commenced operations October 5 of that year. The condition of the local currency of Boston was, at this time, in the main satisfactory; but the notes of banks in New York and all the New England States-many of them of doubtful solvency-were spread broadcast over the country and found ready acceptance even at Boston, where they almost monopolized the field. Scarcely a dollar of Boston paper could be seen. The reason was not far to seek. The notes of foreign banks-so long as they were known to be solvent-passed readily from hand to hand in ordinary business transactions, but at the banks they were not accepted. Persons having payments to make at the bank therefore found it advisable to lay aside any notes of Boston banks which might come into their hands, as such notes and specie were the only forms of currency accepted at par by the banks, while foreign notes, which were readily accepted in business, were paid out again and thus kept in circulation. The ordinary method of procedure when the holder of any of these foreign bills wished either to make a payment at a bank or to procure specie was, instead of sending them to the issuing banks for redemption in specie, to exchange them at a discount with some one in Boston who would give him Boston money.

This discount in 1813 was much greater than the actual expense and losses incurred would justify, and to its reduction the New England Bank set itself. It immediately gave notice that it would charge those who wished to avail themselves of such an arrangement only the actual cost of sending foreign money home to the issuing bank and obtaining specie for it. The result was that the rates of discount, both

on bills of Massachusetts banks out of Boston and on those of reasonably sound banks in other States, were very materially lessened.

This, however, subjected foreign banks to the necessity of being prepared for more prompt and certain redemption than they had been obliged to make preparation for, and some of them opposed it vigorously.* .)

THE SUFFOLK BANK SYSTEM.

The system inaugurated by the New England Bank did not do away with the discount in Boston upon foreign notes. It merely brought it down to more nearly the actual cost; and instead of four per cent, or five per cent., the usual rate in the years 1814-18 was about one per cent. for notes of Massachusetts banks, and somewhat more for those of other States.

In 1818 the Suffolk Bank was incorporated and went into operation in Boston. Almost immediately the directors turned their attention to foreign exchange, and in 1819, seeing that they might add to the profits of the bank by buying country bank notes at a discount and sending them home for redemption, they determined to give special attention to that branch. The committee by which the matter had been considered had reported—

"That it is expedient to receive at the Suffolk Bank the several kinds of foreign money that are now received at the New England Bank, and at the same rates. That if any bank will deposit with the Suffolk Bank $5,000 as a permanent deposit, with such further sums as shall be sufficient from time to time to redeem its bills taken by this bank, such bank shall have the privilege of receiving its own bills at the same discount at which they are purchased." They further recommended "that the banks located in Providence and Newport," and twenty-three other banks then keeping an account with the Suffolk, "shall have the privilege of receiving such of their bills. said corporation shall neither directly nor indirectly run upon, or make a demand for specie on any of the incorporated banks of this Commonwealth, or which may hereafter be incorporated, which may cause distres nor knowingly furnish any person or persons with bills for that purpose; and in order that an impartial currency may be given to the bills of this Commonwealth, said bills shall at all times be paid out promiscuously, as they are received; and the said corporation is hereby restricted from asking or receiving a premium for exchanging the bills of any one bank aforesaid, for those of any other of this Commonwealth, or for specie, or to purchase the bills of any bank of this Commonwealth at a discount, during its continuance."-Act of June 23, 1804.

This institution was subject to some of the restrictions of the banks of the State, and might: discount to the amount of one-third the specie and bills on deposit; but could issue no notes of its own.

* In 1814 three wagon loads of specie being transported from New York to Boston by the New England Bak were seized at Chester by the Collector of New York on the pretext that it was the intention of the New England Bank to send the money to Canada; the real reason for the seizure was obviously enough the hostility of the New York banks to the redemption programme of the New England. The restoration of the specie was secured through a petition of the Massachusetts Legislature to the President,