under the free banking law that a panic arose in regard to the free banks in March. The notes of twenty-three of them were rejected, and all the safety fund and free bank notes were at a discount. The New York banks were refusing new accounts. New York notes were not then taken on New England railroads.[1]
A number of free banks failed at this time in connection with the decline in value of the securities deposited by them for their circulation, but not on account of it. "These stocks had not only been purchased at very high prices originally, but on credit, and without any means or resources, in many cases, for the payment of the debt thus created. The associations had been put into operation by borrowers instead of lenders of money, and the circulating notes had been employed to relieve the old embarrassments of the proprietors instead of being used either in the discount of business paper or even in the payment of the debt contracted in the purchase of the securities."[2]
On the 3d of August, the Comptroller sold the securities of twelve free banks, of which six were in Buffalo. The securities of seven of these banks, consisting largely of mortgages on unproductive property in Buffalo, which were in the fund at a valuation of $169,540, sold for $97,116.[3]
In September, the North American Trust and Banking Company was put in the hands of a receiver. This bank was organized in the summer of 1838. It was intended to have a capital of $50 millions, but started with $2 millions, consisting of bonds and mortgages. It was intended that it should obtain the federal deposits. It never had any solidity.[4]
The Commercial Bank failed at the same time. It had been founded in 1833, in order to get a part of the public deposits. The Comptroller of the State advertised for a loan of $120,000 at six per cent. in order to redeem its notes, because the safety fund then existed only as a credit due from the State.
In December, it was reported that few brokers would buy the notes of any of the free banking associations and "the notes of many of the safety fund banks of the interior are regarded with great distrust."[5] In the year 1841, twenty-five free banks and ten safety fund banks failed.[6]
Gouge[7] gives the following table of circulation in the State of New York, which shows the marvellous fluctuations to which it had been subjected:
Date.Safety Funds Banks.Free Banks.Total.
1837 January 1st.$24.1 millions.none.$24.1 millions.
1838 January 1st.„12.4millions.„none.„12.4millions.„
1839 January 1st.„19.3millions.„$2.5 millions.21.8millions.„
1840 January 1st.„10.3millions.„6.0 millions.„16.3millions.„
1841 January 1st.„15.2millions.„5.3 millions.„20.5millions.„
1842 January 1st.„8.1millions.„4.0 millions.„12.1millions.„
