BANKS, STATE

The vici itudes of banking in the United States became vividly reflected in the history of the State banks. Among the earliest and best were the Bank of New York and the Ma achusetts Bank, formed in 1785, whose operation signalized the end of an era of unstable and cheapened currency and the inauguration of a financial system enabling bank notes to be redeemable in specie. During the existence of the two United States Banks controlled by the government (see Banxs, Harty AMERICAN), @ considerable number of State institutions arose, which also i ued notes, but the government banks, by reason of their larger capital and scope, dominated the entire banking system and regulated the i ues of the state banks. In many states the lack of capital, banking and otherwise, did not prevent the establishment of banks. Many had a mushroom growth. They started operations in some states as purchasers of bonds i ued for projected public improvements, which were devised solely in order to have a foundation for i uing the bonds, and the banks would i ue notes against the bonds. Banks thus established naturally had a curtailed and disastrous life. In other states sound banking principles were followed. But tor a long time state banking was a privileged calling. Charters frequently could only be granted through devious forms of subterfuge, when bribery or favoritism did not play a part. For ex- | ample, banks obtained charters origin-} ally as trading or other companies, with no indication in the charter that banking was the projected busine . After 1838, however, when free banking was established by law in New York State, the privileged few gradually ceased to monopolize banks. The law accorded all a ociations of persons complying with its terms the right to establish banks and its principles were virtually followed by the other States in their b anking legislation. This freedom to establish banks resulted in their great multiplication especially following the disappearance of the United States Bank, but their operation was accompanied by all the trials and disadvantages, developing at times into serious monetary crises, that attend a loose and unorganized banking system. The country’s financial history, in fact, was marked by the gravest misfortunes until its banking organizations were founded on a stable footing. Eventually the growth of state banks like that of national banks, had to be restricted. The states realized the need of checking their formation when projected, for instance, by the profe ional bank promotor or when there was danger of undue competition, which might have the effect of imperiling the security of banking rivals. Today the state banks are operated on a system which conforms generally to that of the national banks, and their stability may be said to be just as safe~- guarded by legislation. They are banks of discount and deposit or commer cia i banks incorporated by a state. New York has the greatest amount of capital invested in such banks, but they are much more numerous in the western than in the eastern states. They also outnumber the national banks by more than two to one. They can do busine on le capital, are free to undertake transactions denied to federal institutions, and they seem to be better adapted to the rural districts.