ciation that transferred the bonds and mortgages of such payment, and inay pay the same to such person or association on receiving other approved bonds and mortgages of equal amount.

§10. The person or association of persons assigning such bonds and mortgages to the comptroller, may receive the annual interest to accrue thereon, unless default shall be made in paying the bills or notes to be countersigned as aforesaid, or unless in the opinion of the comptroller the bonds and mortgages or stocks so pledged shall become an insufficient security for the payment of such bills or notes.

holders, and the number of shares held by each of them respectively.

5. The period at which such association shall commence and terminate; which certificate shall be proved or acknowledged and recorded in the office of the clerk of the county where any office of such association shall be established, and a copy thereof filed in the office of the secretary of state.

§17. The certificate required by the last preceding section to be recorded and filed in the offices of the clerk of the county and secretary of state as aforesaid, or copies thereof, duly certified by either of those of ficers, may be used as evidence in all courts and places for and against any such association.

11. In case such person or association of persons shall fail or refuse to pay such bills or notes on demand in the manner specified in the 4th section of this act, § 18. Such association shall have power to carry on the comptroller, after the ten days notice therein men- the business of banking, by discounting bills, notes, and tioned, may proceed to sell at public auction the public other evidences of debt; by receiving deposites; by stocks so pledged or the bonds and mortgages so as buying and selling gold and silver bullion, foreign signed, or any or either of them, and out of the pro- coins and bills of exchange in the manner specified in ceeds of such sale shall pay and cancel the said bills or their articles of association for the purpose authorised notes, default in paying which shall have been made as by this act; by loaning money on real and personal aforesaid; but nothing in this act contained shall be security; and by exercising such incidental powers as considered as implying any pledge on the part of the shall be necessary to carry on such business; to choose state for the payment of said bills or notes, beyond the one of their number as president of such association, proper application of the securities pledged to the comp-and to appoint a cashier, and such other officers and troller for their redemption.

§ 12. The public debt, and bonds, and mortgages, to be deposited with the comptroller by any such person or association, shall be held by him exclusively for the redemption of the bills or notes of such person or association put in circulation as money, until the same are paid.

agents as their business may require, and to remove such president, cashier, officers and agents at pleasure, and appoint others in their place.

§19. The shares of said association shall be deemed personal property, and shall be transferable on the books of the association in such manner as may be agreed on in the articles of association, and every person becoming a shareholder by such transfer, shall, in proportion to his shares, succeed to all the rights and liabilities of prior shareholders; and no change shall be made in the articles of association by which the rights, remedies, or security of its existing creditors shall be weakened or impaired. Such association shall not be dissolved by the death or insanity of any of the shareholders therein.

§13. The plates, dies, and materials to be procured by the comptroller for the printing and making of the circulating notes provided for hereby, shall remain in his custody and under his direction; and the expenses necessarily incurred in executing the provisions of this act, shall be audited and settled by the comptroller, and paid out of any moneys in the treasury not otherwise appropriated; and for the purpose of reimbursing the same, the said comptroller is hereby authorised and § 20. It shall be lawful for any association of perrequired to charge against and receive from such per-sons organised under this act by their articles of assoson or association applying for such circulating notes, such rate per cent. thereon as may be sufficient for that purpose, and as may be just and reasonable.

14. It shall not be lawful for the comptroller, or other officer, to countersign bills or notes for any person or association of persons, to an amount in the ag. gregate exceeding the public debt, or public debt and bonds and mortgages at their value, as provided in the 2d section of this act, deposited with the comptroller by such person or association; and any comptroller or other officer who shall violate the provisions of this section shall, upon conviction, be adjudged guilty of a misdemeanour, and shall be punished by a fine not less than five thousand dollars, or be imprisoned not less than five years, or by both such fine and imprisonment. § 15. Any number of persons may associate to establish offices of discount, deposite, and circulation, upon the terms and conditions, and subject to the lia. bilities prescribed in this act; but the aggregate amount of the capital stock of any such association shall not be less than one hundred thousand dollars. § 16. Such persons, under their hands and seals, shall make a certificate which shall specify:

1. The name assumed to distinguish such association, and to be used in its dealings.

2. The place where the operations of discount and deposite of such association are to be carried on, designating the particular city, town, or village.

3. The amount of the capital stock of such associa. tion, and the number of shares into which the same shall be divided.

ciation, to provide for an increase of their capital and of the number of the associates, from time to time, as they may think proper.

§21. Contracts made by any such association, and all notes and bills by them issued and put in circulation as money, shall be signed by the president or vice. president and cashier thereof; and all suits, actions, and proceedings brought or prosecuted by or on behalf of such association, may be brought or prosecuted in the name of the president thereof; and no such suit, action, or proceeding, shall abate by reason of the death, resignation, or removal from office of such president, but may be continued and prosecuted according to such rules as the courts of law or equity may direct, in the name of his successor in office, who shall exercise the powers, enjoy the rights, and discharge the duties of his predecessor.

§ 22. All persons having demands against any such association, may maintain actions against the presi dent thereof; which suits or actions shall not abate by reason of the death, resignation, or removal from office of such president, but may be continued and prosecuted to judgment against his successor; and all judgments and decrces obtained or rendered against such president for any debt or liability of such association, shall be enforced only against the joint property of the association, and which property shall be liable to be taken and sold by execution under any such judgment or decree.

§ 23. No shareholder of any such association shall be liable in his individual capacity for any contract, 4. The names and places of residence of the share- debt, or engagement of such association, unless the

articles of association by him signed shall have declared 9. The average amount in each month during the that the shareholder shall be so liable. preceding six months of the debts due to and from the § 24. It shall be lawful for such association to pur-association; the average amount of specie possessed by chase, hold, and convey real estate for the following purposes:

the exchanges of the country, in the mode suggested,
or some other mode equally efficient, will, in my judg
ment, have a direct tendency to aggravate rather than
remove the existing evils, inherent in our present
vicious credit system.

I am, dear sir, with great regard,
Your most obedient servant,

ISAAC BRONSON.

Philadelphia, May 11th, 1838.

ISAAC BRONSON, Esq., New York.

Dear Sir:-Your letter of 1st inst. was duly receiv. ed, enclosing a copy of the recently enacted General Banking Law of New York, and containing a request that I would furnish you with my opinion upon the probable influence of the same, and particularly as to the principles upon which an institution should be founded under it, which might be made to exert a controlling influence on the exchanges by its action on the currency.

I feel highly flattered by the unmerited compliments contained in your communication, which possibly refer to the articles on the late crisis in our money affairs written last year by me under the signature of "An Examiner," and shall endeavour to comply with your request, although I am not aware that any opinion of mine can benefit the cause in which you have been so long, so ably, and I may now say, so successfully enThe plan of investing the whole or any large portion of the capital of a bank in fixed securities, such as public stocks and mortgages, as required by this new law, will be so novel to most of our fellow citizens, that it is more than probable that a long time will elapse before its superiority over our present banking system will be generally admitted. The common impression, and it is almost universal, is, that banks should make no loans on real estate, or, for a period of years, but that all their transactions should consist in the dis. counting of promissory notes or bills of exchange, real or fictitious, at comparatively short dates. This impression is most probably the result of a want of careful discrimination between the operations of lending capital, and of lending credit; and as a proper understand. ing of the difference between these two operations is absolutely necessary to a correct apprehension of the true principles of banking, I will take the liberty of troubling you with the process of reasoning by which I have arrived at the opinions i entertain, and which with great deference are submitted to your superior judgment.

Dear Sir:-The present condition of the commerce, currency and commercial credit of the country, and the derangement of the fiscal concerns of the govern. ment, will, by every intelligent man, be admitted to be the result of our pernicious banking system; a system, framed by state legislators, which sets at defiance those immutable laws, to which all banks must submit, whether they will or not, in spite of legislative protection. You will see by a recent act of our legislature; some indication of its conviction of this truth, and of its willingness to allow practical men to establish an institution upon principles which may be made to an-gaged. swer the great end of regulating the exchanges, by restricting the issues of bank notes so as to keep the exchanges under perfect control. This being the only salutary use of any institution which can be formed under the provisions of this law; and knowing this to be a subject on which your well disciplined mind has been long occupied, and which you have fully examined, and, in its connection with the principles of political economy, well considered, I should be happy to receive from you an expression of your opinion upon the probable influence of the General Banking Law of this state, a copy of which is enclosed, and particularly your ideas of the principles on which an institution should be formed under this law, which might be made with unerring certainty to exert a controlling influence on the exchanges, by its action on the currency, and thus put in abeyance those sedative and stimulating influences which grow out of our present banking system. That system, if left uncontrolled, will ever create vascillation and periodical convulsion in all the business concerns of the country, at home and abroad. To propose a remedy for these evils, might well employ the pen which you have wielded with so much ability. My own opinion is, that a banking institution must be so constituted, as to exert no other influence on the commerce and exchanges of the country but what it exerts by its action on the currency: and that its own preservation and existence must be made to depend upon the unremitted exertion of that influence, through the medium of sixty or ninety day notes, discounted no faster than they are created by business-and to be punctually paid at maturity, but never renewed--returning for instant redemption, the bank notes received in payment, from whatever source they issue. The specie funds thus collected, should be deposited in the vaults of the bank, at its principal banking house, at which place all its notes should be made payable on demand. This will so effectually furnish the means of redemption, that the whole capital may be invested in permanent securities. Any monied institution, organised under the General Banking Law of this state, or any other law, whether enacted by congress or the states, that shall aim at an object short of controlling

All the banks in the United States combine in their operations the functions of banks of deposite, banks of discount, and banks of circulation. As banks of deposite they receive into their possession, repayable on demand, or at specified periods, the money of all who choose to open accounts with them. As banks of dis. count they lend their own capital, as well as the capital of depositors, by the discounting of notes or bills of exchange; and as banks of circulation, they lend their credit in the form of bank notes or of credits transfer. able on their books; also by the discounting of notes or bills of exchange. It is only for this last operation that banks have need of legislative sanction. Any individual or number of individuals may at any time receive on deposite the money of others repayable on demand, or at fixed periods, as many of our brokers have always been in the practice of doing; and if they possess capital, there is nothing to prevent them from lending it, as well as the money so deposited, to whom they please, for long or short periods, as best may suit then. It is only when bankers propose to issue paper

to the question-what is the legitimate mode of lending the credit of a bank?

Every body knows, that when a bank acquires the confidence of the community, its notes are circulated as money, without immediately returning for payment, and that the wider this confidence extends, the more extensive will be the circulation. Banks can therefore discount notes or bills of exchange beyond the amount of the capital at their disposal, to an extent proportioned to their credit; and as their circulation is greater at sometimes than at others, it is manifest that no bank could be always prepared to meet all possible demands upon it for specie, unless the notes it discounted were at such short dates as not to be very far off from the period of maturity. What is the greatest length of time that notes discounted by a bank of circulation should have to run, is more a matter of practical experience than of politico-economical adjustment. It is very clear that if a bank were to discount no note having more than thirty days to run, it could never be in danger of embarrassment, seing that in case of a run, the mere suspension of all fresh discounts would enable it in thirty days to collect an amount equal to the whole of its liabilities. On the other hand, it is equally clear, that if a bank were to discount chiefly paper having six months and upwards to run, it would be in no condition to meet any extraordinary demand for specie, either for exportation or in consequence of a domestic panic, and would in all probability stop payment from the necessarily slow process of its collections. A safe medium lies between these two terms.

Jacob Astor, would be better security than a real note drawn by John Smith and endorsed by Dobbs & Co., given for a hundred hogsheads of sugar. This no doubt might be the case; but every applicant for an accommodation at bank is not a Stephen Girard or a John Jacob Astor; such applicants indeed being very rare. It may happen that Dobbs & Co. may want an accommodation for a similar sum, besides the amount discounted on the sugar note, and might offer Mr. Smith as endorser. Now what would be the difference between the security of these two notes? Why precisely this: the bank, after it has discounted the real note, and paid Dobbs & Co. the net proceeds, knows that Dobbs & Co. have $10,000 in money, less the discount, and that Smith has a hundred hogsheads of sugar worth $10,000, and that consequently there is a double security for the payment of the note. In the case however, of the accommodation note, the bank only knows of the existence of the single $10,000, less the discount, paid to Dobbs & Co. and although it is possible that Smith may have $10,000 worth of property in some shape, not pledged for some other debt, yet the existence of that fact is by no means certain, and it is even possible that all the property of which Smith is in possession, may be $10,000 received by him at another bank upon the discount of an accommodation note with Dobbs & Co's endorsement. The difference therefore, in point of security, is precisely the same, as that between a bill of exchange drawn upon a shipment of cotton to Liverpool, and one drawn upon a credit obtained from a London house, known The banks of France and Great Britain never dis- by the name of a Kite; a difference which has been count paper that has more than ninety or a hundred too palpably demonstrated within the past year, to rendays to run, and thirty years ago it was not the gene- der any elucidation necessary. It is no doubt imposral practice of the banks of Philadelphia to discount sible for a bank at all times to ascertain from the apnotes that had more than sixty days to run. Of late pearance of a note whether it is real or fictitious, but years the competition of banking, in connection with if the rule of granting no renewals be rigidly adhered the augmentation of bank capitals, employment for to, as an indispensable requisite to a sound system of which on short paper could not be found, has intro- banking, deceptions would very soon be detected. And duced the custom here and elsewhere, of discounting it is even possible, that in times of high speculation, paper at four and six months, and it would not be the same property may be sold over and over again, hazarding too much to say, that to this practice may so as to give rise to a number of notes representing be ascribed the suddenness of the catastrophe which the same commodities; but any one can perceive that overwhelmed us in May 1837, by a general suspension these speculative notes, if offered for discount, are, so of specie payments, as well as the pernicious extent of long as the actual holder is in debt for the property for credits on merchandise sold, to which our importers and which they were issued, nothing but another form of manufacturers are reluctantly obliged to submit. If accommodation notes. This mode of raising money we are to look to experience as furnishing any safe is a well known expedient, and one which banks are guide in the matter, it appears to me, that the opera-bound to discountenance, if they wish to consult the tions of the Bank of France present a conclusive de- security of their loans. monstration on the subject. That institution during the latter months of 1836, and the early months of 1837, which embraced a period of great commercial disaster in Great Britain and the United States, the effects of which were sensibly felt in France, experienced no extraordinary reaction. The short periods at which all her loans fell due, gave her a control over the currency which enabled her in a short time to check the demand for specie, and ultimately to bring it back again into her coffers.

In order, however, that a bank may have that control of its issues, which is absolutely essential to its solvency, and to the good of both creditors and debtors, the paper discounted by it must not only have but a short time to run, but it must be founded upon an actual transfer of property, and must be payable without renewal. There are many persons who do not perceive any difference between the security of an accommodation note, and one founded upon a real transac tion, and on that account do not see why the latter should be preferred to the former in the operations of banks. They say, for instance, that an accommodation note drawn by Stephen Girard and endorsed by John

*

In the management of banks of circulation, there are five distinct interests to be consulted; namely, those of the community, of the holders of bank notes, of the depositors, of the stockholders, and of borrowers. Banks established upon the plan here suggested, and under the provisions of the New York law, it appears to me would promote all these interests far more certainly than those established upon our present system.

The interests of the community would be promoted by a greater stability in the value of the currency, seeing that expansions and contractions would not be so liable to occur under a system founded upon a capital placed for the time being beyond the reach of the directors, and upon a credit to which limits would be prescribed by the prohibition to issue notes beyond the amount of the property pledged in the hands of the comptroller, and by the known fact on the part of the directors, that in case of an excess of issues, they would have nothing to rely upon to meet the reaction, and to save the bank from the penalty of fourteen per cent. per annum interest, besides forfeiture of existence, but the discounted notes and bills.