NEW YORK CLEARINHOS
ASSOCIATION
OF A
~~ommift~~~~~ upon  }~~~~~cform~~~~ in ih~~~~  ~~    ~~
PRFS8,-Ty,NTF,  VOT-EMBf~R, 1873.
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The Committee Appointed by the New York Clearing House
Association,
"To  carefully consider  and  report what
Reorms  are  required in  the practical
operations of Banks with each other and
with the public, to increase the security
of their business,'
respectfully report
That, in order to reach the object sought by the reso lution, it is necessary briefly to review the condition and
practical working of the banking system in this city before the commencement of the late panic.
Banks are the natural depositories of the current capital
of the nation, passing into and out of active industry and
commerce.   The balances  held  by  them  are for  the time
specially reserved by their owners from permanent investment, and kept subject to immediate command. They constitute a main portion of the wealth of the community which
is not yet ready to be consolidated into fixed capital or immovable forms.   The  custodians of such  funds  are  consequently bound by the very nature of their trust, to preserve
them in their integrity, and to apply them only in such ways
as will prevent them from falling into inactivity, and, also,
to hold such proportion in ready cash in hand, as long experience has proved to be necessary, to meet immediate demands in every possible emergency. And it may be confideitly affirmed  that  a  bank, or  banker,  who  faithfully
meets all these obligations, renders a full equivalent for any
benefits which can be honorably derived  from the custody
of such a trust. 
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No  institution can, in the long  run, purchase deposits of
money payable on demand of the owners, and at the same
time secure to itself a just and proper compensation for
the business, without violating some of the conditions indispensable to the public safety.  It must either use them
in ways that are illegitimate and perilous, or use them in
excess. This has been abundantly proved by innumerable
instances in years past, and the practice of paying interest
for such deposits was unanimously condemned by the bank
officers in 1857, as one of the principal causes of the panic
at that period, for the reasons given in a printed report,
of  which  a  copy is annexed  hereto,  and to which, with
the  consequent  resolutions  of  the  associated banks  then
adopted, your Committee  most  respectfully invite attention.
The creation of many new institutions, since the late civil
war began, which have considered it expedient to purchase  public favor, and thus divert to themselves business
from established channels, has revived the custom of paying interest upon  deposits, and  has  also led some  of  the
older banks, -in self-defence, to yield more or less to the
pressure in the same direction, while it has induced others
to adopt newer methods of obtaining patronage equally per nicious.
And thus a sharp and degrading competition has not only
prevailed among banks in this city, but has been excited
as a necessary consequence in other places, where the far
reaching enterprise of some of our associates has led them
in pursuit of business, not only from institutions but from
all classes of society.   Banks throughout the country  have
been aroused to enlist in the same destructive prac tices toward each other, and in defence of their various
localities. A premium has been unnecessarily given for
business which, left to itself, would fall without cost into
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its natural channels, and adjust itself to such localities as
the convenience of the people and the best interests of the
country require.
Without such rivalry the resources of the nation would
be so diffused among the banks as to give increased finan cial strength and stability to every part, and not only re move a great cause of irritation, but add to the comfort,
efficiency and profit of all.
The evil results of paying interest upon current deposits,
avowed when the internal commerce of the nation was con ducted upon a specie basis, are greatly aggravated when
it is carried on by an irredeemable currency, which has a fixed
and invariable volume, and which flows to and from the commrercial centre with the changes of the seasons. Such a currency is superabundant in summer, and instead of being then
naturally absorbed and diminished by redemption, it accumulates in banks, which  cannot  keep  it idle without  loss
of the  interest paid  to  its owners.   Legitimate  commerce
does not then demand it.  It is still subject to instant call.
There is consequently no resource but to loan it in Wall street
upon stocks and bonds, in doing which so much of the nation's
moveable capital passes for the time into fixed and immovable forms of investment, and its essential character is instantly changed. Loans are made with facility upon securities
which have no strictly commercial quality, new and unnecessary
enterprises are encouraged, wild speculations are stimulated,
and the thoughtless and unwary are betrayed into ruinous
operations. The autumnal demand finds the resources of the
nation unnaturally diverted from their legitimate channels, and
they can only be turned back with difficulty and public embarrassment.   Such has been  our well known experience year
after year.   Interest upon money has, as a consequence, fluctuated widely from three and four per cent per annum in sum
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mer, to fifteen and twenty per cent. in the fall and winter
upon commercial paper, and upon stocks at times to one
half and even one per cent. a day. Vicissitudes like these
are utterly destructive to all legitimate commerce, and institutions whose operations tend to such results are enemies
to the public welfare.
Deposits which are derived from strictly commercial operations cannot fluctuate so widely, from time  to time,  as to
produce disturbance in the community; and banks which
confine their business to them, as they naturally arise, are
always  reliable  and  regular  in  their  treatment  of their
dealers, and can be conducted with ease and comfort to
their managers and safety to the public. On the contrary,
deposits which are purchased by payment of interest, or
otherwise, and which must, therefore, of necessity be largely
loaned "on demand,"  are the cause of  continual  agitation
and solicitude to those who hold them in charge. They
are certain to be withdrawn at the season of the year, and
at the moment  most inconvenient to the banks and to their
dealers. This fact is best illustrated by the following
figures:
The average deposits of the sixty Clearing House
Banks for 10 weeks from 5th July to 6th
Sept., were............................ $232,228,000
The lowest amount reached since the panic, was, 143,170,000
Showing a total reduction of............ $89,058,000
Of the above amount during the 10
weeks, twelve interest paying
banks held...................$111,585,000
The lowest total reached by them
since the panic............... 52,669,000
Showing a loss in 12 banks of             $58,916,000
and in the other 48 banks of................ $30,142,000 
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and were it not for the fact that several of the forty-eight
banks are more or less involved in the same practice, this
disparity would be still more apparent.
When the late panic commenced, the sixty banks composing the New York Clearing House were indebted for
about two hundred millions of  deposits.   Of  this  amount
three institutions (paying interest to their country depositors)
owed about fifty millions, and including these, twelve banks
of  similar character owed about one hundred millions; that
is to say, twelve institutions held one half of the aggregate deposits, and  the other forty-eight, their associates, the
other half. The proportionate reserve of legal tender notes
in the associated banks was also  greatly in  favor of  the
latter number, for the obvious reason, that banks which pay
interest upon money can least bear to have any amount of
it idle.   The active demand first came, as it usually comes,
for that portion of deposits due to country banks, who, in
addition to their annual necessities, had been disturbed by
failures of several city bankers, holding large balances
of money due to the interior.  These deposits were to a great
extent loaned upon stocks and bonds in Wall street, payable
"on  call," with  the  confident belief  that they were  there
earning more than the interest paid for securing them, and
were available as promised. But, from the very nature of
the case, the rapid withdrawal  of deposits from  the banks
made  the  "call"  from  every direction  simultaneous, and
closed every resource from which the "street" derived  its
power  to  respond.   Borrowers  upon  stocks were deprived
both  of  their  facilities  of  borrowing,  and  of  all power
to  sell  their  securities.   The  necessary  result  occurred.
Banks which found themselves in this dilemma had no
alternative but to ask the assistance of their associates, and
the conflagration was so rapid and violent that every con
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sideration of fraternal sympathy, self-preservation and public
safety, compelled  a general  and  earnest  cooperation;  and
the majority, who had for long years conducted their business upon sound principles, and who had patiently submitted to'the loss of valuable accounts, drawn from them by
their associates, by practices against which they had continually protested, instantly responded to the call by placing their resources at command of those who had done
so much towards producing the calamity. Making common
cause, the weak with the strong, to avert a universal
catastrophe.
An  expedient was  found  by which  the  stronger banks
placed  themselves under  the unequal  burthen, and  equalized the pressure, by gathering in their resources and placing them  at  the disposal of the weaker,  who  were thus
furnished with means to meet the demands of their depositors and to save themselves from public exposure, and their
dealers in city and country from disaster and ruin.  Meanwhile the public confidence in institutions had become so
greatly impaired  that  the " legal tender reserve"  was  reduced from thirty-four millions, on the 20th September,
to five millions eight hundred thousand on the 14th October-an amount of ready money never before paid out
in the same time.   Interior banks, whose  ready means in
hand had always been merely nominal, but whose resources
consisted chiefly of credits upon the books of interest paying banks in the principal cities, were under the necessity
of calling back their deposits in a medium never before
required, and to these the associated banks were asked to
respond, as well as to the demands of timid dealers at
home.
Your committee take this occasion to congratulate the
associated banks upon the liberal and excellent spirit in 
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which this crisis has been met, and upon the happy escape
from a most imminent danger which threatened them, and
with them, the country at large.   It is  not too  much  to
say that had it been less boldly, promptly or unanimously
encountered, the results must have been more disastrous
and widespread  than  any that  have  occurred  during  the
present generation.
While the banks have intelligently recognized the errors
of their associates, by which the late financial complications
were aggravated and the community imperiled, there has
been no disposition whatever  to deal in  harsh reproaches.
On the contrary, the magnitude of the trust is deeply felt,
and the utmost good feeling prevails; an earnest desire and
a unanimous determination are expressed on every side to
reform existing abuses, and to reorganize the Clearing House
upon a basis of mutual support and uniformity of business.
Late experience has again demonstrated the fact that the
banks in the association are necessarily dependent one upon
the other in times of peril, as well as in the trusts which
the large operations of the Clearing House daily impose,
and that the entire body inevitably suffers from  the errors
and indiscretions of a single member. No institution, therefore, has a moral right to conduct its affairs with the publie in defiance of the general conviction of its associates,
or to introduce private terms of dealing with its customers which are in conflict with the best interests of all.
Bank officers have no right to be sharp personal competitors
for public patronage, nor merely laborers for dividends on
behalf of a limited constituency. They are in a most important sense trustees for the whole community, and public
administrators of great interests, which forbid the least departure from principles which long experience has sanctified.
With these general considerations, your Committee pro 
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ceed  to the  more  practical  questions  submitted  to them,
viz.: "What reforms are required in the operations of banks
with each other and the public to increase the security of their
business;" and, first and most prominent, they recommend
that the banks entirely discontinue  the payment
of interest upon deposits, whether directly or indirectly.
THE RESERVE.
The  requirement of  a "legal reserve" is now  engaging
special public attention, and much impatience is expressed
at the law which compels Banks to hold a definite ratio
of legal tender notes to liabilities.   The practical difficulty
consists in attaching a rigid and inflexible rule of law to a
mobile fund, which is held for the purpose of meeting
sudden contingencies, and which is, therefore, in its very
nature, a variable quantity.   It is impossible clearly to prescribe by statute the circumstances or the exact periods during
which the reserve should be increased or diminished. There
seems an intrinsic absurdity in a law requiring that a "reserve" must be always kept, which was created on purpose
to be used, or that a bank officer who draws upon his reserve,
under circumstances for which it was intended, is false to
the oath which he takes to obey  the law.   But  the fact
that a military commander cannot be definitely instructed
when he may employ his reserve force, is not regarded as
a reason why that important portion of an army organization should be abandoned, or be reduced in number or
efficiency. So long as Bank debts are subject to cash
payments, so long must the  bgation be either imposed or
assumed, of keeping sufficient cash in hand to pay whatever portion can possibly be presented. It must always be
remembered that, in the absence of any important central
institution, such as exists in other commercial nations  the
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associated banks are the last resort in this country, in times
of financial extremity, and upon their stability and sound
conduct the national prosperity greatly depends.   In claim ing for them that, in taking faithful care of the active
capital of the nation with which they are entrusted, they
render a full and equitable compensation for its proper
use, your Committee point to the consequent and para mount duty of the banks to hold such proportion of that
fund in actual possession in cash as the extremest needs
may demand.
It has been  suggested  that the  federal  principle which
our association has applied to banking, through the use of
"loan certificates" in two  important crises, might  be used
effectively in regular business, by keeping two separate
accounts, viz: " Cash" and  "Bank  Credit," each payable  in
kind, to  avoid  a  "run"  upon  Banks  in times  of panic;
and much speculative study throughout the world is given
to the question how the idea of "clearing," as used through
banks, may be indefinitely extended to effect the smaller
exchanges of the community, so as to dispense in  a great
measure  with  large  reserves  of  ready  money.    But  in
the present condition of economic science, and especially
in this important exigency, your Committee recommend
that we accept the teachings of practical experience, and
pursue the well beaten track which trade and commerce
universally recognize.
Experience of older commercial nations has shown that
the               volume of " reserve" should be in the proportion of one
fourth to one third the direct liabilities of a bank, and
whenever it is there found receding from this amount, restrictive  measures are taken to replenish  it.  Our  own association in 1857 established a minimum ratio of twenty
p    e     r       cent in  coin, which was for  the  time  carefully ob
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served, and again in 1860 increased this minimum to twentyfive per cent.   The present abnormal condition of the currency increases the difficulty inherent in this subject.  The
law permits the reserve to consist of coin and legal tender
notes, and at the same time compels banks to receive as
money  the  notes of national banks, which  in  legal  payments are not money;  so that, for practical  uses  as  "reserve," we  are  troubled  by  a species of  money  which  is
above, and by another which is below, the standard quality.
And it affords a striking commentary upon our present
anomalous condition, that the money  of the world, which  is
now freely coming into the country from legitimate commerce, cannot be absorbed into our banking system, but is
necessarily repelled as a cause of serious embarrassment
The  opinion that has  largely prevailed,  that because  the
business of this country is now conducted upon a basis
of  irredeemable  paper,  that  therefore  there  can  be  no
suspension of payments, has been most effectually dispelled,
and  the contrary is established, that a currency, from  its
nature, limited. in volume, is subject to sudden and special
dangers, and  therefore  requires special protection.  Recent
experience has shown how rapidly thirty-four millions may
be withdrawn from our associated institutions, and, for practical uses, how  inadequate is the reserve held by  country
Banks.   That reserve,  as fixed by law, is fifteen per cent.
of liabilities, and three fifths of it may  consist of deposits
in Banks  in  the  larger cities, who  may  subdivide it by
placing  one  half their  own  reserves  in  Banks   in  the
City of New  York, where again it is subject to a further
reduction, from the fact that these last are only required to
hold twenty-five per cent. of their own liabilities, of which
these  deposits form  part.   The  aggregate held by all the
National Banks of the United States does not finally much
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exceed ten per cent of their direct liabilities, without
reference to the large amount of debt which is otherwise
dependent upon the same reserves.   When we consider that
a portion of this final reserve may consist of coin, which,
under present circumstances, has no practical power in an
extremity, and a further fact that the interest paying Banks,
which have always held the larger part of  those reserves,
have been forced by their position continually to disregard
the law, it is manifest that the requirement, in its real
operation, has not worked against the public welfare, or
against the true interests of the Banks themselves.
The abandonment of the practice of paying interest upon
deposits will  remove  a  great  inducement  to divide  these
reserves between cash in hand, and deposits in cities, and
make the Banks throughout the country what they should
always be, financial outposts, to strengthen the general situation. The Associated Banks of New York, the ultimate
resource in financial emergencies, are deprived by usury
laws, of the power, which is so effectively used by the
principal Banks in Europe, of protecting or augmenting
their resources by adjusting the rate of interest to the
necessities of the occasion-a power which, if practicable,
Congress might safely confer upon the Clearing House Committee, in consultation with the Secretary of the Treasury,
with great advantage to the country; as also the power
of deciding when the time or the emergency has arisen in
which the public interest required a relaxation of the rigid
legal requirement in respect to the reserve to be held by
Banks in New York city.
If the legal or financial necessity exists to maintain a certain
reserve, it is manifestly the duty of every institution to carry
its just proportion, and no Bank, whether incorporated under
National or State Law, can honorably evade its full share of
this burthen.
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Your Committee therefore recommend that all the Associated Banks, while they strictly follow the requirements of the National Currency Act, by keeping on
hand, either in Coin or Legal Tender Notes, an
amount not less than twenty-five per cent. of their
total liabilities to the public, be required always
to hold at fifteen least per cent. in Legal Tender
NIotes, subject only to such modifications as the Clearing
House  Committee  may,  from  time  to time,  unanimously
determine.
A suggestion has been made, which your Committee consider worthy of notice, because it has heretofore proved an
important restriction to excessive expansion, and because it
may assist in preventing many of the evils referred to-that
no institution be allowed to loan more than two
and a half times its Capital and Surplus.
CERTIFICATION OF CHECKS.
The practice of certifying checks upon Banks as "good,"
has proved a great public convenience, and has for that
reason grown into extensive use.  Your  Committee  approach
its consideration with some embarrassment. The custom originated in the natural inquiry of Bank tellers respecting the
standing and credit of their dealers, and for many  years it
had little significance, otherwise than as giving clerical information.   Checks  so marked were not regarded as binding
upon institutions in the nature of an official acceptance, and
were, therefore, not entered upon their books. It was only
since about the year 1850, that a new and influential institution deemed it expedient  to  define  the character of an
act then vague and uncertain, bye charging such  checks to
the accounts of their drawers; since when they have been
legally regarded as formal obligations, and have become the
medium  of the most important transactions.  If such writing 
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certified to a real fact, that the Bank actually had in pos session, and due from it to the drawer of the cheek the
stated sum, which it thus agreed to transfer to another party,
no possible injury, but great good would ensue.  But when a
Bank binds itself to transfer what it has not, but only expects
to have, it assumes for its dealers, without reason, all the
contingencies incident to human  transactions, and places its
shareholders under perils which they never intended to
assume.
The power of certifying checks is necessarily entrusted to
clerks or subordinate officers, who are employed to perform
the ordinary and more mechaniceal duties of the Bank, and
who are supposed to be strictly limited in giving to every
dealer, only what has before been received from him. Alnd
the power of bestowing credit is reserved for abler and
more experienced men, themselves personally identified with
the interests they administer, who gravely deliberate upon
every transaction, and decide with the  light of their united
wisdom. But the practice of certifying uncovered checks,
as pursued in some institutions, entirely reverses this established order, and while the responsible council is carefully
deliberating over smaller credits, a non-commissioned officer
is freely bestowing them in larger volumes, without security,
upon  comparatively irresponsible men.    So  extensively has
this practice been pursued by several institutions that the
amount of such cheeks, which have passed daily through
the Clearing House, has reached in some instances to twice
and  three times, and in one or two, to four and  five times
their capital stock, and this through long periods of time.
Every Bank  in the Association is directly involved in the
risks attending  this practice.  It multiplies  excessively  the
sums  which  such  institutions  pass  through  the  Clearing
House, and  the  consequent   balances  of  the  exchanges 
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with their associates, which the capital of such Banks can
never adequately  guarantee.
The most striking commentary  upon  the dangers of this
practice, was afforded during  the late panic,  by  the dealer
of a Bank who had largely received such favors, and who,
seeing by its application to others, that his own checks
were in peril, declined, under advice of counsel, to cover
them by a deposit, until otherwise assured that the Bank
could respond to these very obligations.
No sufficient reason, in the opinion of your Committee,
can be given why a corporation should place itself, without compensation and special security, between two parties
dealing  with  each  other,  and  become  the guarantor  of
either, in transactions entirely personal to themselves, simply
because one or the other is a depositor in the institution.
We have already stated that the safe custody of money
payable "on demand" is full compensation for its legitimate
use, and the risks attending such a business are all that
properly appertain to the profession of  a Banker.   And if
the rule be invariably observed of certifying checks only
when  the drawer has the full amount  at his credit in the
Bank,  no  one  can  be  injured  or  offended  when  he is
treated in all respects like every other of his fellow dealers. The restriction suggested will work favorably to every
interest-to the Banks, their shareholders, and their associates, by diminishing the risks now so widely incurred and
it also  conforms  to  and confirms the law which  Congress
has  established  upon  this  subject  in respect  to National
Banks.
Your  Committee, therefore, recommend  that in no case
shall a  check or other obligation  be  certified  by
a  Bank,  unless  the amount  of  it is first found
regularly entered to the credit of the dealer upon
the books of the institution.
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INDIRECT EXCHANGES.
A custom has grown up among the Associated Banks,
and has greatly increased within the last few years, of
engrafting upon themselves, and thus admitting to the bene fits of the Clearing House, other institutions and individuals, who, while not eligible to regular membership,
participate in all its advantages without sharing its expenses,
incurring its responsibilities, or submitting to its regulations.
Over all these the Association has no possible control. They
consist of Banks, and corporations  of various character and
objects, in this city and vicinity, many of whom attract to
themselves deposits of active capital from the commercial
community by extraordinary rewards, and use it for purposes and enterprises which are illegitimate in regular banking.   The  Associated  Banks   thus  find  themselves  surrounded by diligent competitors in their proper business,
which increase their risks, while they lean upon them for
support.   By  keeping a  satisfactory balance  in  Bank,  for
which interest is frequently paid, these institutions avoid
the necessity of any money reserve whatever, and not only
invest all the resources at their command in profitable
or unprofitable enterprises, but have a claim upon their
patron Bank for assistance in time of need. The Banks
are thus deprived of a large portion of commercial deposits
that would naturally come to them, and incur increased
and indefinite risks, and the public are unconsciously placing  their ready means where they are subject to unusual
hazards.
Any  Bank  in  the  city,  worthy  of public  confidence,
may become a regular member of the Clearing House Association, and the Banks which compose it are bound, in
duty  to  themselves  and  to  the  public, to withhold  the
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special support of this body from any who cannot submit
to, or safely pass through the necessary examination which
entitles them to credit.   And  your Committee  can see no
valid reason why Banks outside this city should receive
the benefit of the  New  York Clearing House, when they
share none of its burthens, and submit to none of its
regulations.
They, therefore, recommend that no Bank shall receive  upon  deposit, from  its city dealers, checks
or drafts other thas  upon  Banks members of this
Association.
RECEIVING OUT-OF-TOWN CHECKS AS CASH
~-  ~DEPOSITS.
Among the various devices introduced to attract mercantile accounts, and  to  secure deposits of  country banks, is
that of receiving and crediting immediately as cash, checks
and drafts upon places out of this city-a practice which
was commenced as a special inducement by one institution,
but which, as the natural consequence of unfair competition,
has been followed and extended by others, until it embraces points far and near throughout the whole country.
It has been carried on with such utter disregard of the
laws of exchange, and of the time necessary to effect returns, that the former and regular methods of making payments in, and remittances to this city, is greatly changed.
Interior merchants, finding that checks upon their own localities are readily accepted as cash in New York, prefer
that mode of payment, and they are naturally encouraged
to do so by their Banks at home, who receive the benefit; so that our own institutions are not only deprived of
deposits, which by the laws of trade naturally belong to
them, but they are  daily encumbered  by  a miscellaneous 
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mass of checks, which occasion serious embarrassment, loss
of time, great risk, clerical labor and expense in collect ing, entirely caused by this unnecessary diversion of business
from its natural courses.   Some  of the interest paying institutions,  which  have  by  this  expedient  enlarged  their
correspondence with interior banks, have with them adopted peculiar methods of facilitating such collections, which
they regard as advantageous to themselves, but by which
they are  continually extending  this  evil.  City merchants,
whose business is chiefly with the country, now accept such
checks freely from their customers, because their banks
will accept them from them, and many of the accounts
which, from their amount, dealers regard as very valuable
to their banks, the latter find by experience to result in
actual loss.   Instead of being  the  natural  depositories of
country banks for the business of legitimate commercial
exchanges in the city, such Banks are thus made ours.  The.
subject is the cause of continual irritation and discord between  banks and  their customers, and between  the banks
themselves.
Your Committee, in considering this evil, can perceive
no remedy but by its total abolition, and they therefore
recommend that the Clearing -Hotse Committee be
required to establish monthly a schedule of min,tmum rates at which the Associated Banks shall
receive on deposit, checks and drafts upon places
out of this city, and  to which every bank shall
be bound strictly to adhere.
Having now considered the prominent evils which exist,
the removal of which your Committee consider as indispensable to the harmonious intercourse between banks bound
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together by common interests, and having recommended for
their removal
1st That payment of interest upon deposits, either directly
or indirectly, be entirely prohibited.
2d. That each bank, while it observes the requirements of
the law of Congress respecting a reserve fund, be
required to carry at all times an amount of legal
tender notes, equal to at least fifteen per cent of
its liabilities to the public.
3d. That no bank shall'certify a check as good until the
full amount of it shall appear upon its books from a
deposit, regularly entered to the credit of the drawer.
4th: That no check or draft shall be received by a bank
upon deposit at par as cash, drawn otherwise than
upon one of the banks composing the Clearing House
AssociatiorL
5th. That all checks and drafts upon places out of the City
of New York shall only be taken at rates of discount
established monthly by the Clearing House Committee.
They now proceed to state how the observance of these
rules may be effectively secured. It is well known that in
some of these, the sentiment of the Association has been
repeatedly expressed, and resolutions of reform have been
adopted, but which have gradually fallen into neglect.
Your  Conmmittee believe that late occurrences have produced a deeper  ccnvicticn, Loth in the A,cciation and in
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the public mind, of the inter-dependence of the banks
upon  each other, and of the wrong which  any one  mem
ber imposes upon the entire body, by unsound or irregular practices.   They,  however,  recommend  as an  effectual
security for the future:
That the Constitution of the Clearing House be changed
into articles of association, which shall be signed by the
officers  of  every  bank, or member,  and ratified  by  its
Board of Directors. And your Committee respectfully submit for consideration the accompanying instrument, which
has  been  compiled  from  the present  Constitution of the
Clearing House Association, wvith such changes and amendments as present circumstances have suggested.
Your Committee also recommend that the Clearing House
Committee shall procure a tablet, containing in large and
very legible impressions, the rules which are to be observed
by each member  in dealing with  the public, as follows: 
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0O! THIE
9bsoxte  X]3anIks
OF THE CITY OF NEW YORK
WITH THEIR DEALERS.
1 o Bcanc sha1l pay, or proczre  to be paid
interest zpon deposits.
Xo Check shall be certifted  7,tatl the full
arnouzt is filrst deposi'ted. 
Checks  u,pon  ssoci'ated  Banks  only,  received0 on  deposit.
4.  Checks zupon places out of Xew  York City
received at rctes of discozout, fixed by Clear   in.I HTouse Coormwnittee.
5.  Checks will be takem at depositor's risk arcnd
collected throzt_h the Clearizm  Hooutse.
6.  Checks not -ood, will be returned  to the
depositor the day followimr.
Banks not strictlylobserving these Ruleslwill be exclud   ed from the Clearing House Association.
These  shall be  appropriately  framed,  and  always  kept
conspicuously suspended in the banking-roorn  of each insti,
ution for public informatioin,
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2.
S.
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With these regulations, the public are always informed
of the terms upon which alone they may conduct their
business uniformly with every bank that has the facilities
and the support  of the Clearing House Association.  With
these always in view, no person worthy of credit at a
bank  can  ever ask  a  deviation from them,  and no  institution can retain the confidence of any respectable dealer
after it is thus known to have compromised its integrity.
By these important changes, many of the evils which
have grown up in the business community, and which have
their origin in the vicious practices of banks, will expire,
the Banks will resume their rightful position as safe and
substantial supports of legitimate commerce, and their officers
will be relieved from the anxieties which, in the present
unnecessary competition, continually pursue them.
All which is respectfully submitted by
GEORGE S. COE,
Pres't Am'n Exchange Nat'l Bank.
W. L. JENKINS,
Pres't Bank of Am7erica
J. M. MORRISON,
Pres't Manhattan Bank.
MOSES TAYLOR
Pres't National City Bank.
F. D. TAPPETS
Pres't Gallatin National Bank.
JOHN E. WILLIAMS,
Prese't Metropolitan National Bank.
J. L. EVERITT,
Cashier National Broadway eank.
ROB'T BUCK,
Cashier Pacific Bank.
JOHN Q. JONES,
Pres't Chemical National Bank
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Co,mmi 
ARTICLES OF ASSOCIATION.
The undersigned  Banks in the City of New York,
in order to facilitate their regular business with
each other and with the public, hereby agree to
unite in an Association to be called "THE NEW
YORK  CLEARING  HOUSE ASSOCIATION," and  to
observe the following rules and regulations:
ARTICLE 1. —ThIe objects of the Association shall
be the effectiug at one place of the daily Exchanges
between the several Associated Banks, and the payment at the same  place of the balances resulting
from such Exchanges.  But the Association shall be
in nowise responsible in regard to such Exchanges,
nor in regard to the balances resulting therefrom,
except so far as such balances shall be actually
paid into the hands of the Manager. The responsibility of the Association is strictly limited to the
faithful distribution by the Manager among the
creditor Banks, for the time being, of the sums
actually received by him; and should any loss
occur whilst the said balances are in the custody
of the Manager, they shall be borne and paid by
the Associated Banks in the same proportion as the
other expenses of the Clearing House, as hereinafter
provided for
. 4.
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ARTIcLE 2.-Each Bank belonging to the Association shall be represented at all meetings thereof by
one or more of its principal officers, and shall be
entitled to one vote.
ARTICLE 3.-A general meeting of the Association
shall be holden at the Clearing House on the second
Tuesday in December in each year, at 12 o'clock, M.
At every annual meeting a Chairman shall be elected,
by ballot, to preside at that meeting and all subsequent  meetings  during  the year.   Whenever  he
shall  be  absent  a  Chairman  pro  tern. shall  be
appointed.  At  the same  meeting a Secretary shall
also be elected by ballot.
Special meetings shall be called by the Clearing
House Committee whenever they may deem it expedient, or whenever they shall be thereto requested
by any seven of the Associated Banks.
ARTICLE 4.-At all meetings of the Association a
quorum for the transaction of business shall consist
of a majority of the  whole  number of Associated
Banks.
A  fine of three dollars  shall  be  imposed  upon
every Bank not represented  at  roll  call at each
duly called meeting of the Association.    The fund
created by such fines shall be appropriated in such
manner  as  may be directed  by  the  Chairman of
the Association.
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24
ARTICLE  5.-At  every annual  meeting a Standing  Committee  of  seven  Bank  Officers  shall  be
elected by the majority and by ballot, to be called
the "Clearing House Committee," whose duty it shall
be to procure from time to time a suitable room
or rooms for the Clearing House; to provide proper books, stationery, furniture, fuel, and whatever else may be necessary for the convenient
transaction of business thereat; to appoint a Manager annually, and such clerks as may be necessary; to establish rules and regulations to be observed at the Clearing House in cases not provided
for in these Articles, subject to the approval of
the Association, and generally to supervise the
Clearing House affairs. This Committee shall have
charge of the funds belonging to the Association
shall draw on each Bank for its quota of the expenses, and shall also, at the first meeting of the
Association after their election, submit detailed
estimates of the expenditures that will be required
for the Clearing House during the current year.
This Committee shall receive and consider any
complaint made against a member of the Association for infraction of its rules, and shall have
power,  for  cause  by  them  unanimously deemed
sufficient, to suspend any Bank from the privileges
of the Clearing House until the pleasure of the
Association thereupon shall be ascertained. In case
of such suspension, this Committee shall forthwith 
25
call a general meeting of this Association, to take
such matter into consideration. This Committee shall
each month, or oftener if necessary, prepare and issue
for the use of the Associated Banks a schedule of
minimum  rates at which checks and drafts, payable
at places out of the City of New York, shall only
be received on deposit, and to which every Bank
shall conform.
ARTICLE 6.-The salary of the Manager shall
always be fixed by the Association. The salaries
of the clerks shall be fixed by the Clearing House
Committee. The Manager shall give a bond, with
sureties, in the sum of ten thousand dollars, and
each clerk in the sum of five thousand dollars, to
be approved by  said Committee.
ARTICLE 7.-The Manager, under control of the
Clearing House Committee, shall have immediate
charge of all business at the Clearing House, so
far as relates to the manner in which it shall be
transacted; and the clerks of the establishment, as
well as the settling clerks and the porters of the
several Associated Banks, while at the Clearing
House, shall be under his direction.
The Clearing House Committee shall have power
to remove the Manager, or any of the clerks, whenever, in the opinion of the Committee, the interest
of the Association shall require.
4 
26
ARTICLE 8.-The hour for making Exchanges at
the Clearing House shall be 10 o'clock, A. M.,
precisely.   Between the hours of 12-' and 1I o'clock
P. M., the debtor Banks shall pay the Manager
at the Clearing House the balances against them,
either in actual coin, United States legal tender notes,
or ill the certificates hereinafter mentioned, except
fractional amounts. At 1 o'clock, P. M., or as
soon thereafter as the amounts can be made  up and
proved, the creditor Banks shall receive from the
Manager, at the same place, the respective balances due to them, provided all the balances due
from the debtor Banks shall have been paid. The
Association, by a vote of three fourths of those present at a meeting called for that puiloose, may change
the hour for making  the  exchanges  and the settlement of balances.
ARTICLE 9.-Should any one of the Associated
Banks fail to appear at the Clearing House at the
proper hour, prepared to pay the balance against
it, the amount of that balance shall be immedi ately furnished to the Clearing House by the several
Banks exchanging with the defaulting Bank, in pro portion to their respective balances against that
Bank,  resulting  from  the  exchanges  of the  day;
and the Manager shall make requisitions according ly, so that the general settlement may  be accom plished with  as little delay  as possible.   The  re spective amounts so furnished the Clearing House
In 
27
on account of the defaulting Bank will, of course,
constitute claims on the part of the several responding  Banks  against that Bank;  but,  as  before
stated, the Association shall in nowise be responsible therefor.
ARTICLE 10.-Errors in the Exchanges, and claims
arising from the return of checks, or from any
other cause, are to be adjusted directly be(tween
the Banks who are parties to them, and not
through the Clearing House-the Association being
in no way responsible in respect to them.
ARTICLE 11.-Reclamations for errors and deficiencies  in specie or  United States legal tender notes
received at the Clearing House, contained in bags
or packages, sealed and marked in conformity with
any rules established upon that subject by the
Clearing House -Committee, shall be made by one
o'clock P.  If, on the following day, by the receiving
Bank, directly against the Bank  whose  mark  the
sealed  bag or  package  bears.   Notice of such error
shall be sent to the Bank iimmediateiy upon discovery,
the Association not being responsible for the contents of such sealed bags or packages.
All checks, drafts, notes, or other items in the Exchanges,
returned as "not good" or "mis-sent,'" shall be returned
the same day directly to the Bank from whom they
were received, by 2: o'clock, P. M., and the said Bank
shall immediately refund  to the Bank returning the
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28
same the amount which it had received through
the Clearing House for the said checks, drafts,
notes, or other items so returned to it, in specie or
legal tender notes.  But checks, drafts, notes, or other
items to be returned for endorsement or informality
may, after being certied  by  the  Bank returning it,
be returned tlhrough the Exchanges the following morning, not exceeding $5,000 in amount to any one
Bank.
ARTICLE 12.-Every Bank, member of the Clearing
House  Association,  shall, every  Saturday, before  12
o'clock, M, furnish a weekly statement of its condition
to the Manager, for publication, showing  the average
amount of
1 st. Loans and Discounts.
2d. Specie.
3d. Legal Tender Nlotes.
4th. Circulation.
5th. J)eposits.
And  shall  also  furnish for the information of the
Association such other items as may be called for
by the Clearing House Committee.
ARTICLE 13.-The   Associated  Banks  may  from
time to time appoint one of their own number, or
the Assistant Treasurer of the United States at New
York, to be a Depository, to receive in special trust,
such coin, or United States legal tender notes, as any
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of the Associated  Banks  inay choose to send to it
for safe keeping. The Depository shall issue certificates in exchange for such coin or United States legal
tender notes, in proper form, and for convenient
amounts. Such certificates shall be negotiable only
among the Associated Banks, and shall be received
by them in payment of balances at the Clearing
House.   Such  special  deposits of coin  or  United
States legal tender notes are to be entirely voluntary,
each Bank being left perfectly free to make them
or not, at its own discretion.   The  coin or notes
thus placed on special deposit, are to be the absolute property of such of the Associated Banks as
shall, from time to time, be the holders of the
certificates, and are to be held by the Depository,
subject to withdrawal, on the presentation of the
proper certificates, at any time during banking
hours.
Any member of the Clearing House Association
who shall pay or deliver to any party, other than
a member of the said Association, the certificates of
deposit of the Clearing House Depository, or any
other certificates which may be authorized by the
Association shall be subject to a fine of $100
(one hundred dollars) for each certificate so paid
or delivered.
ARTICLE 14.-A Committee of five Bank Officers
shall be appointed at every annual meeting, to
whomr all applications for admission into the Association shall be referred for examination. 
30
ARTICLE 15.-New members may be admitted into
the Association at any meeting thereof on the recommendation of the Committee on Admissions.
Such new members shall signify their assent to
these Articles of Association in the same manner
as the original members,  and  shall pay an  admission fee according to their respective capitals, as
follows:
Banks whose capital does not exceed $500,000 shall pay....$1,000
Exceeding $500,000, and not exceeding $1,000,000........ 2,000
CC 1,000,000,  "   "        C       2,000,000........ 3,000
2,000,000,  ".       3,000,000........ 4,000
3,000,000,  "   "       "       5,000,000........ 5,000
5,000,000.................................... 7,500
Any Bank, memnber of the Clearing House Association, increasing its capital, shall pay,  in addition  to
the above, a sum to correspond with  these rates.
But no new members shall be admitted, except
by a vote of three fourths of those present-such
vote to be taken by ballot.   Provided, however, that
it shall be competent,  by  a' vote of  three fourths of
those present, to impose such conditions as the Association may  deem  expedient at the time of  such admission.
ARTICLE 16.-For cause deemed sufficient by the
Associated Banks, at any meeting thereof, any Bank
may be expelled from the Association, and debarred from all the privileges of the Clearing House, 
provided a majority of the whole number of Associated Banks vote in favor thereof.
ARTICLE 17. —Any member of the Association may
withdraw therefrom at pleasure-first paying its due
proportion of all expenses incurred, and signifying
its intention to withdraw, to the Clearing House
Committee.
ARTICLE 18.-The expenses of the Clearing House,
not including the expense of printing for the several Banks (which last mentioned expense shall be
apportioned equally), shall be borne and paid by
the several Banks belonging to the Association according to the average amount which they shall have
sent to the Clearing House for the preceding year;
and in the same proportion, if more funds become
necessary.
ARTICLE 19.-At every annual meeting a Committee of five Bank Officers shall be elected, to
be  called  the  Committee  of  Arbitration,  whose
duty it shall be to hear and determine all disputes that may be submitted to them by both
parties thereto- any member of the Association
being one. Such Committee shall record a brief
abstract of each case referred to them, together
with their decision therein, in a book to be provided for that purpose, which book shall be kept
gl
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at the Clearing House, open to the inspection of
all members of the Association.
ARTICLE 20.-No  member  of the Clearing  House
Association shall be allowed to make the exchanges
for, or redeem the checks of or upon any other Bank
or Banks not members of said Association, nor of
any corporation, association, firm or individual.
ARTICLE 21. —The Chairman of the Association
shall be eligible for two successive years, and, after
an interval of one year, shall be again eligible in
like manner.
At least two new members on each of the Committees shall be elected each year, and those who
have  served the longest shall be first retired.  If
all have served the same length of time, then two
shall be retired by lot; and, after an interval of
one year, such members  shall be again eligible.
ARTICLE 22.-Every Bank, member of this Association, agrees to conform to the following rules in
its business with the public:
1. That it will not pay, or procure to be paid,
interest, or any bonus or sum of money what    ever, directly or indirectly, upon any deposit,
or balance due to a Bank or other corporation,
association, firm or individual.
2. That it will prohibit its officers and agents from
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33
certifying checks or other obligations of its
dealers, unless the amounts shall first appear
regularly entered upon its books to the credit
of such dealers.
3. That it will not receive upon deposit as  Cash,
from its dealers, checks drawn otherwise than
upon Banks which are members of this Asso    ciation.
4. That in receiving and crediting checks and drafts
upon  places  out of  New  York  City, it will
conform to the schedule of rates established
by the Clearing House Committee.
And that an infraction of these rules shall be con    sidered cause for expulsion from this Association.
ARTICLE 23.-Each member agrees to carry an
average  "reserve"  fund  in legal tender notes, equal
in amount to at least fifteen per cent. of its liabilities
to the public, subject only to such modifications as
the  Clearing  House  Committee  shall  decide  the
public exigencies may require.
ARTICLE 24.-These Articles of Association shall go
into operation on the first of January, 1874. They
shall be signed by every Bank composing the Association, and shall be confirmed by its Board of Directors. A certified copy of the vote or resolution
of the Board authorizing such signature, shall, with
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34
the original articles, be deposited for safe keeping
with the Chairman of the Clearing House Committee.
ARTICLE 25.-Amendments  to these articles may
be made at any meeting of the Association, by the
vote of a majority of all  the members  thereofnotice  of  the  proposed  amendments  having  been
given at a previous meeting. 
0
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At a meeting of Officers of the Banks in the City of New
York, convened at the rooms of the Clearing House Association, at 3 o'clock P. M. on the 5th March, 1858, at which
thirty-nine Banks were represented,
THOS. TILESTSON was chosen Chairnian, and J. L. EVERITT,
Secretary.
The  Committee previously appointed to confer with the various Banks in this City, relative to the "discontinuance of
the practice of allowing interest on current deposits, presented
their Report, of which the annexed is a copy:
On motion of Moses Taylor, President of the City Bank,
the Report was unanimously accepted, and adopted as expressing the sentiments of the meeting (with but a single dissenting voice). 
The following Resolutions, presented by A. E. Silliman, President of the Merchants' Bank, were then unanimously adopted:
Whereas, forty of the forty-six Banks composing the New
York Clearing House Association have already united in a
written agreement no longer  "to allow interest on deposits or
balances of any kind, either directly or indirectly, provided all
the Banks composing such Association shall concur in said agreement;" and whereas an almost entire unanimity on the subject has thus been expressed;
Resolved, That the great importance of the project proposed,
and the respect which we entertain towards those members 
38
of the Association who have not yet signed the agreement,
require that we give them further opportunity so to do; and
to that end it shall remain open until the 15th day of March,
instant; and in the meantime those who have already signed
the same do bind themselves in good faith to adhere consistently to the spirit of said agreement.
Resolved, That under the immediate pendency of this matter, it is the sense of this meeting that no member of this
Association who has subscribed to said agreement can, without the violation of good faith and honorable dealing, and no
member who has not signed will, under the circumstances of
the case, endeavor to attract, or consent to receive an account
coming from any other member of this Association, by a promise to allow interest on deposits, either directly or indirectly.
On motion of J. Punnett, Cashier of the Bank of America,
the following Resolution was unanimously adopted:
Resolved, That a Committee of three be appointed by the
Chair, to wait upon the Banks who have not signed the agreement with a copy thereof, and urgently and respectfully request that they will reconsider the question, and unite with
the other Banks inl signing the same.
The following gentlemen were appointed that Committee,
viz:
JAS. PUNNETT, of the Bank of America.
JAS. GALLATIN, of the National Bank.
WM. F. iHAVEMEYER, of the Bank of North America.
After some discussion, foltowing the passage of the above
Mr. Punnett proposed a further Resolution, viz:
Whereas, The experience of the past year has shown that
the aggregate specie reserve of the Banks of this city has
at times been  smaller than was consistent with that  caution 
39
and prudence which should at all times be observed by the
Banking Institutions of this city; therefore,
Resolved, That a Committee of five Bank Officers be appointed
to consider the measure of each Bank holding at all times
not less than a certain fixed percentage of coin to its liabilities, and to report to the adjourned meeting on the 15th
instant.
The Chair appointed as that Committee,
A. E. SILLIMAN, of the Merchants' Bank.
F. DEMING, of the Union Bank.
W. J. LANE, of the Fulton Bank.
H. L. JAQUES, of the Metropolitan Bank.
JOHN A. STEVENS, of the Bank  of Commerce.
On  motion, adjourned, to meet  at the same place on  Monday, the 15th instant, at 3 o'clock P. M.
J. L. EVERITT,
Secretary.
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REPORT.
AT a meeting of several Bank Officers, called together a
few weeks since to consult upon the practice which has generally prevailed among our City Banks of allowing interest on
Deposits, the undersigned were appointed a Committee to confer with all the Banks of this city connected with the Clearing House, and invite them to unite in a written agreement
to discontinue the practice.
The Committee, in the first place, called the attention of
every Bank to the subject by a printed notice, requesting
their views as to the expediency of abolishing the practice.
When a large number had responded favorably, your Committee prepared and  presented  to each  Bank, for  signature,
the following agreement, viz:
"The Banks in the City of New York, composing the Clearing
House Association, do hereby agree not to allow interest on Deposits or Balances of any kind, either directly or indirectly, provided all the Banks composing such Association shall concur in
this agreement.   This obligation may be annulled only by a vote
of two thirds of the Banks  hereunto  subscribing,  at a meeting
specially convened for that purpose, in pursuance of a written
notice.
"And they further agree, that they will not hereafter vote for
the admission of any Bank to the New  York Clearing House Association until such Bank shall have become bound by this agrees~nmi.)
.. 6 
41
Forty of the forty-six Banks which form the Clearing House
Association have signed this agreement.*
Such a majority, both in respect to numbers and relative
importance, certainly entitles their united opinion to the most
considerate  regard.   The  Committee  desire  at this  time  to
state briefly some of the reasons which have actuated them
and others in their movement on this subject.
They believe that the custom of allowing interest on current
deposits is unsound in principle, unsafe in practice, and that
it operates injuriously, both upon the Banks themselves and
upon the commercial community.
Because:
1. Such deposits represent that portion of the floating capital of the country which is held temporarily in reserve from
productive investment, waiting to be employed by its owners,
as prudence and opportunity shall dictate.
They indicate to some extent the measure of discretion in
the financial operations of the country, and serve to mark the
bounds within which it has been deemed wise to limit cornminercial transactions. Such deposits bear the same relation
to the business of country Banks that specie does to our
city Banks, and are not legitimately the subject of profit or
interest to their owners in the one case more than in the
other. They both constitute, from the nature of the case, the
amount of capital on hand, necessarily idle for the moment,
and therefore not legitimately the subject of direct profits. All
effort, therefore, to derive interest from such deposits, may
* Of the remaining six:
One has expressed its entire concurrence  in the action of the majority,
and its willingness to sign, if required, for unanimity.
One has not had opportunity fairly to present the subject to its Board.
One has expressed its assent, with a slight modification.
Leaving the minority substantially but  three.
6 
be considered as an overworking of capital to its peril; and
implies a permission on the part of its owners, that the very
reserve which constitutes their credit and safety, and which
they themselves have deemed it prudent to withhold from use,
may be placed in jeopardy by others.  It is clear, also, that
if the principle be correct, of deriving direct profits from
reserve floating capital, and if it were carried to its logical
result, there would be no reserve power whatever. The whole
financial system of the country would be expanded to its utmost limit, and be subjected momentarily  to destruction. 
As such deposits constitute the credit and stability of the
country at large, its conservative power for sudden contingencies, they should be considered an inviolable trust, free
from  all risk, and  consequently  from  direct  profits.   Those,
therefore, who insist upon receiving interest on such reserve
capital, so far relinquish the idea of holding it in reserve;
but it becomes at once a special risk, and they, therefore, so
far depart from the line of safety.
2. Were there no extraneous influences brought to bear upon
them, it is certain that this reserve fund, at command of
country Banks, would naturally be divided, mainly, into two
kinds, viz: specie in their vaults, and deposits in New  York,
for the purposes of exchange; and that there would consequently be scattered throughout the interior a multiplicity of
substantial resources for supplying the drain from our commercial centres, and affording a more secure basis for the
financial operations of the country.
Now, no one  can deny that the payment of interest on deposits in New York necessarily tends to increase the one
portion of the reserve referred to at the expense of the other;
and from the fact that deposits in New York are equally
40 
43
available to those who command them in any portion of the
land, they have come to be regarded as equivalent to, and
have nearly superseded the use of specie, as a conservative resource; so that the practice of paying interest on deposits
in New York, is operating continually as a process of exhaustion
of the specie strength of the country.
Nor can it be sa,id that the pernicious influence which
operates  to  imipoveri.-hl  the  interior,  ceases  its work.
same  cause  whiclh  iirnniturally diaws the  specie  to the
continues of necessity to effect its expulsion hence,  and
pels its exportation.
3. No Bank, in the opinion of your Committee, can allow
interest on deposits payable on demand, without danger alike
to itself and to the public.
The profit is more nominal than actual-apparent than real.
Take, for example, the case of a Bank paying four per cent.
interest (the rate which  customi  has established) on bank or
bankers' balances, to the amount of one million of dollars,
and allow of this, say 20 per cent., to strengthen the specie
reserve,  and the following result would  be shown
Interest paid on ain't of deposit,........  $1,000,000, is $40,000
Deduct 20 per cent. for reserved specie,..200,000
$800,000
Interest on the above  $800,000, at 7 per cent,......$56,800
Leaves............................................... $16,000
On the other hliand, suppose a Bank has deposits
without interest to the amin't of........... $300,000
Deduct reserve for specie................. 60,000
$240,000
On which  interest at 7 per  c nt, is.cen.,.....$16,800
thus
The
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44
This result is attained without allowing for increased loss
on the larger amount discounted, or for additional clerk hire,
and other expenses, which more than double the amount of
business necessarily involves.   Were  these considerations and
the losses incident to the larger volume of business and risks
allowed for, a sum  even  less than $250,000, WITHOUT interest,
would be shown to be equal to a deposit of $1,000,000, drawing 4 per cent. interest.
It is clear, therefore, that whatever profit is derived from
business of this character, must of necessity be made by
placing the largest possible proportion of such deposits on
interest, or, in other words, by encroaching, in disregard of
the highest prudential considerations, upon the amount which
it is everywhere acknowledged should be retained for specie
reserve.   A  Bank having committed  this first error of paying
interest  on its  deposits, is  therefore  compelled,  by  the  necessities of its position, to take the second false step, and
expand its operations beyond  all prudent bounds.
And  it may  be truly stated that,
city arranged -in the order of  their
perity for  the last  four  years,  the
the average would  largely consist of
a custom,  allowed interest  on  deposi
4. Your Committee also insist that Banks are, properly,
lenders of capital, and not borrowers, and that it is not one
of their legitimate functions to disturb the natural current of
trade by borrowing  at one price to lend at a higher.  Such
transactions constitute speculation in money, and stimulate a
tendency in the  community  which is dangerous  to  all, and
which ultimately reacts on the Banks themselves with destructive power.  From  the nature of their organization  they
should be  conservative.   They  are intentionally restricted in
their  operations  within  prescribed  limits, which  mark the
were the Banks in this
actual profits and prosmajority of. those above
those who have -not, as 
45
bounds that long experience has fixed as commercially safe to
themselves and to the  community; and  they cannot afford,
for an apparent profit, to foster a principle which, in its
final issue, will return injury for injury with accumulated
force.
Banks are designed to become  permanent  institutions, and,
therefore, have the highest motives to regard every influence
which they exert upon the financial operations of  the  community, whose commercial character alone gives such institutions all their stability and life.
Banks in this city have also a common interest, and can not be isolated.   The  discredit  or weakness of one operates
to the prejudice and injury of all, and therefore it cannot be
safely conceded that any member has perfect freedom to carry
into practice those principles of business which  are generally
acknowledged as inherently pernicious, or injurious to the
whole.   The experience of the last year has strikingly demonstrated the fact of mutual  dependence; and we  may  remind
some, that the practice of paying interest on deposits was
confessedly a prime cause, in more than one  case, of recent
embarrassment.   Besides,  a  certain  amount of specie in this
city is indispensable to the safety  of the  commercial  community  and  to  the  existence  of the Banks.   Now,  having
established  an  equitable  principle  upon  which  that  amount
should be based, it is neither safe to itself, nor even honorable towards the others, that any Bank should embody in its
practice a principle of business which prevents it from carrying its relative proportion of this specie reserve.   The practi.
cal assumption, that because others are more constitutionally
conservative, or posses a higher sense of their obligations to
society, and that therefore their fears will compel them to
provide the amount required for the common safety, cannot
be  too  strongly  condemned.   The known  fact  that  such a 
46
position may be effectually assumed, ought, in the opinion of
your Committee, to induce every member  of this Association
cheerfully to acquiesce in an agreement which at once removes the temptation and necessitv of a departure from sound
principles. No consideration of profit, in special cases, can
for a moment compare with the benefits which every Bank would
derive from the comfort and pleasure, and the profit, also, of
doing business free from the existence of this radical evil.
5. In reply to the objection that a discontinuance of interest
would divert capital to other cities, your Committee would
remark:
That if the Banks in other cities do not, as we believe they
would, accept the testimony of our experience, we can well
afford to give them opportunity to learn from their own,
confident that they will, sooner or later, reach the same result.
If the payment of interest on deposits serves to attract
capital unnaturally to this city, it is plain that it must produce
unsteadiness in business,  and  thus operate unfavorably both
upon the Banks and the community, inasmuch  as that capital
which flows out of its natural channel must, in the nature of
things, suddenly return again, and can only be held with great
uncertainty as to its repayment.   It is, in fact, sure  to be
withdrawn at the very moment least convenient for the Banks
to pay. All such forced deposits operate as a source of annoyance to the public, by promoting a feverish money market and
fluctuating values.   The necessity for holding them  at instant
command, and at the same time of keeping it employed at
remunerative prices, has given rise  to the system of "loans on
call," which constitutes another evil, the legitimate outgrowth
of the payment of interest on deposits, and which it is believed
is universally regarded as obnoxious.   In fact, the Banks,  having borrowed money  "on  call, with  interest," are  compelled 
47
to loan in the same manner; and thus the system is diffused
throughout the entire community, causing the unnecessary rise
and fall of stocks, the inflation or contraction of our money
market, and aggravates the multiplied evils, both financial and
moral, of the Stock Exchange.   The Banks  thus become instruments of evil, to direct capital into the destructive channels of speculation, to which it would not naturally flow,
because  they have borrowed money which  cannot profitably
be used to sustain the legitimate commerce of the country.
But your Committee believe that the danger of diverting
any considerable amount of substantial deposits from our Banks
is greatly over-estimated, because  this  city  has  become  the
financial centre of the country at large,; and must continue to
be the main depository of its surplus funds, without such factitious inducements.   The well known  fact that a deposit in
New York is as valuable as specie in any portion of the
United States, has secured the legitimate surplus deposits to
this city, as the result of an inevitable law of trade. Nothing,
therefore, but unhealthy competition among our banks has led
to the payment of interest, and such competition is a gratuitous and self-inflicted injury, imposed on the Banking system
by its own  members.   The proposed agreement to abolish the
practice, amounts then, to nothing more or less than a unanimous  resolve  to  cease  from  destructive warfare  on  each
other.
6. It is worthy of considerate attention, as directly bearing
upon our subject, that, by the rapid improvements made in
travel and intercourse, this country and the commercial world
are daily becoming more and more a unit in their operations
and influences, and that financial changes are everywhere becoming more sudden and simultaneous. The experience of the
last year has strikingly proved this, and it must daily become
still more apparent as these improvements advance. 
48
For the same reason the transitions of floating capital from
point to point are dailv becoming more rapid and certain.
The whole tendency of these improvements, is also towards the
centralization of commerce  and capital at such leading points
as London and New York.
Formerly, it was safe to assume that stagnation of business
and release of capital would occur in one locality while there
was activity in another, so that an average amount of deposits could  be relied  upon  as permanent  in New  York.   But
as the world's intelligence and consequent activity in commercial operations are everywhere simultaneous, and the financial
current is more rapid and extensive, the focal points require
a larger comparative reserve to meet contingencies of business,
as they increase in power and magnitude.
As an illustration of this truth, and of the transient character of these deposits, it may not be amiss to remind the
officers of our City Banks that, during the week of financial
excitement in this city, in October last, the exaggerated reports
of which were carried with the speed of lightning to every
part of the land, this new medium of communication with
equal rapidity filled our Banks with imperative orders for the
immediate return of their deposits in specie.
The necessity for holding a larger proportionate amount of
specie, therefore, precludes the possibility of paying interest
on deposits without a continually increasing hazard.  For  the
same reason any unsound principles or pernicious practices in
the monetary institutions of  New  York, are not confined  in
their influences within their own walls, nor even in the  city
or country which permit  them, but  they enter  at once,  as
elements, into the subtle atmosphere of trade, and tend, sooner
or later, to produce those violent commercial revulsions which
for the last year have so universally prevailed.   The  respon 
sibility of greatly retarding, if not of preventing the recurrence
of such calamities, is thus continually bearing more directly
upon  our  City Banks.   They are therefore bound, by  every
consideration of self interest and humanity, to ponder every
measure proposed for the common  good, with views and aims
reaching beyond the merely temporary advantage supposed to
be derived by any particular institution.
7. The example of Banks in Great Britain has been cited
to show the correctness of the principle of paying interest.
But, so far as your Committee are aware, the practice of
allowing interest by Joint Stock Banks (only instituted in
1834) differs widely from the system which prevails with us.
They discriminate between a current and an interest account,
not allowing interest on the former.   Since  the developments
in Liverpool and Glasgow, during the recent crisis, of the ten dency to wild and unwarrantable banking in their institutions,
it would hardly be safe to take Great Britain as a perfect
model for our future financial operations, although we are glad
to be instructed by the true exponents of sound principles in
any country.   Besiaes, the Banks there, other than the Bank
of England, are not the point of last resort, whence the whole
nation is to be supplied with coin.   Their Banks bear about
the same relation to the Bank of England as our country
Banks  do to those of this city.  It may  well be  doubted
whether a better system than that created in this State, under
the Free Banking Law of 1838, and the several acts amendatory thereof, exists either in this country or in England.
But the Bank of England, in which the specie strength of the
country is mainly concentrated, has never allowed interest on
deposits.
It is also instructive to remark that, in a recent discussion
in Parliament on the bill to legalize the suspension of the
Bank Charter Act, the very practice of paying interest on
7
40
PI 
deposits, even  in  the  modified form  there allowed by  Joint
Stock Banks, was severely censured by the Chancellor of the
Exchequer, as a principal cause of the financial embarrassments in Great Britain.
The very fact, also, that the Banks in New York contain,
to a greater degree than any other, the concentrated deposits
of the nation, and in that respect, as the ultimate resort of
specie reserve, bear the same relation to this country as the
Bank of England does to the United Kingdom, and that in
its long career that Bank has never adopted the practice,
might well be adduced to confirm the opinion which our own
experience has taught us.   The fact, also, that in our united
body we occupy that important relative position in this nation
renders it the more necessary that now, in a time of tranquillity, with the memory of the evils of divided views, which
prevailed  during  the  recent  crisis  clearly  before  us,  we
should unite in establishing such principles of action as shall
protect ourselves and the public, as far as may be, against the
recurrence of similar misfortunes.
The moral as well as financial responsibility of the Managers
of our Banks is thus daily enlarging, and both duty and
interest require us to yield something of what may seem
temporarily advantageous to any specific interest, if we can
thereby unite in establishing such simple and fundamental
principles as will make us' a conservative rather than a destructive  power  in  the  nation,  and  prevent  the  degrading
competition which has hitherto tended to distract our councils.
It is also evident  that no  just parallel can be drawn be
tween a new  country like our own,  where capital is greatly
disproporticned to the material necessities and commercial activity of the nation, and  those of older European countries
where it comparatively abounds.   Here  (and  the disparity be
60 
51
comes still more evident'as we recede from the Atlantic coast
to the far interior, from whence much of our Bank deposits
are derived) there can hardly be said to exist a reserve of
capital, in any just sense, as it is understood in Europe certainly, none which can be retained in any reliable average
amount, by any rate of interest which even the most adventurous of our City BPtnls has ever allowed.   Besides  this, the
well known characteristics of our nation for enterprise and
adventure, and  the value of mloney,  and  the multiplied and
multiplying demands  for  its investment, ever  prevent  a reserve of capital on deposit in New York, excepting such as
the necessities of trade imperatively demand, and such, therefore, as must of necessity pass through our Banks, whether
interest on them be allowed or not.
8. Interest has been hitherto allowed mainly on accounts
from abroad, which are the least valuable portion of a Bank's
deposits, because,
They fluctuate most and are least reliable at the active
period of the year.
They come when we want them least, and go when
needed most.
They are attended with more labor in correspondence,
and more risks from  the incidents of business, such
as endorsing and guaranteeing endorsements, and from
forgeries and accidents of every kind.
If, therefore, the principle be correct of allowing such interest, it has always been unequally applied, and other depositors are entitled to rights which they have not received.
Banks should occupy high moral  ground,  and cannot  discriminate with their  dealers, when  the conditions  are equal
I 
52
without degrading their institutions and their profession. For
the same reason, your Committee must insist that the objection which is made to uniting with us, on the part of
any Bank, "that it has but few accounts to which interest
is allowed," is not sufficient to justify its position; for if
they are right with the few, it has less sacrifice to make,
and is wrong with  the  many  from  whom  interest is withheld.
Those Banks only are really consistent who have either
paid no interest at all, or have made it a rule of general
application, under equal conditions of value.
: The Committee desire but to refer to the further objection,
that the agreement, if made, will not be faithfully  kept, and
to say, in reply, that they are unwilling to believe that any
Bank officer who has deliberately signed this agreement,
especially with the concurrence of his Board, has done so with
any other than an honorable intent, or entertains a serious
doubt of the good faith of others.   But if it were  so, the
Clearing louse Association has created a community of inter  est  among  our  Banks,  limited  in  numbers,  and  possessing
means of general and special information with regard  to the
transactions of its respective institutions which give it an in  fluence in this regard, and constitute it a moral tribunal for
offences against the common good, which no member of the
Association would more than once venture to defy.   Surely no
advantage which could accrue to a gentleman in official re   lations, however weak his moral sense, could be sufficient to
tempt him to incur the odium of public exposure before his
professional friends.   And if it were possible  to believe that
such a character existed in a place of honorable trust, the
public and private benefits derived from his exposure and
expulsion may well repay the effort which we make for
higher objects.
Hiaving thus endeavored to show that the practice of the
payment of interest on deposits by  our  City Banks is 
53
1. Inherently unsound;
2. That it tends to weaken the legitimate commerce of
the country, and to disturb the regularity of the
business of the city;
3. That no Bank can safely and  profitably  practice  it;
4. That it tends to interfere with the efficiency and sta        bility of our Banks, and with the harmony of their
intercourse with each other;
5. That its discontinuance will not divert any substantial
deposits from this city
6. That the reasons for its discontinuance  are  daily in        creasing
7. That it has, under like conditions, no  fair  precedent
in older countries;
8. That, as it exists here, it has been unjustly applied
Your Committee, in conclusion, have only to repeat their
firm convictions that this agreement, if consummated, will
promote  the highest public  benefit, and ensure  the  greater
prosperity and stability of the Banks  in this city; and  that
no simple measure can be adopted, of a public or legislative
character, that will- so effectually secure the good of the
country at large, withoutt he  least admixture of evil.  They,
therefore, on behalf of the very large majority of their associates who agree with them in these views, confidently appeal
to the good sense of the minority, with this weight of opinion
against their position, and leave with them the serious responsibility of defeating a measure which is deemed so important
and vital to the interest of the commercial and financial
community.
New York, March 4, 1858.
WM. A. BOOTH,
JOHN E. WILLIAMS,
E. W. DUNHAM,
PARKER HANDY,
' Committee.
i 
NEW YORK, March 18th, 1858.
At a Meeting of Bank Officers of this city, held at the Rooms
of the Clearing Hlouse Association, on Monday, 16th inst., fortyvtwo Banks being represented, the following Preamble and Resolitions were adopted, viz:
Whereas, the almost unanimous sentiment of the Banks in New
York has been expressed against the principle of paying interest
on current deposits, as unsafe to themselves and to the community; and whereas, we believe that the present is a peculiarly
auspicious time to correct this evil, therefore,
Resolved, That we, on behalf of our respective institutions, do
agree, that we will not hereafter consent to receive an account,
and allow interest on the same.
Resolved, Tha+ in order more effectually to accomplish a reform
which we believe is demanded alike by the best interests of the
commercial community and our own, we  hereby appoint a committee of five members, to whom shall be communicated all information touching the practical working of this agreement, and who
shall be required to call a meeting, for mutual counsel and protection, by written notice, whenever, in their opinion, the operations
of any Bank, or other causes, make it necessarv.
And whereas, in the opinion of this Association, it is impracticable for any institution in this city, engaged in the business
of legitimate banking, to pay interest on deposits, and at the
same time to carry the relative proportion of specie reserve
which experience has proved to be required for its own safety
and public good-therefore,
Resolved, That in furtherance of the end proposed by our agreement, to discontinue the payment of interests on deposits, and in
accordance with the recommendations of the Report of the Con,
'I 
mittee on that subject, we also agree, each, to keep on hand at all
times an amount of coin equivalent to not less than twenty per
cent. of our net deposits of every kind, which shall be made to inelude certified checks and all other liabilities (except circulating
notes) deducting the daily exchanges sent to the Clearing House.
The following named  gentlemen were appointed  a Committee in accordance with  the above, viz: WM. A. BOOTH, WM. F.
HAVEMEYER, J. L. EVERITT, J. T. SOUTTER, WM. T. HOOKER.  Your
concurrence in these Resolutions is respectfully solicited, and
you are requested to communicate your decision to the undersigned on or before the 31st instant.
J. L. EVERITT,
Secretary
55w 
tpon a subsequent occasion, in November, 1860, the  Banking
Association was convened by the recurrence of a financial crisis,
when the plan of relief by the issue of Loan Certificates and
the equalization of ready money, then originated by a member,
was first presented.
The following is a copy of the proceedings of the Association:
In order to enable the Banks of the City of New York to
expand their loans and discounts, and also for the purpose
of facilitating the settlement of the exchanges between the
Banks, it is proposed that any Bank in the Clearing House
Association may, at its option, deposit with a Committee of
five persons-to be appointed for that purpose-an amount of
its bills  receivable, United States stocks, Treasury  notes, or
stocks of the State of New York, to be approved by said
Committee, who shall be authorized to issue thereupon to
said depositing Bank, certificates of deposit, bearing interest
at seven per cent. per annum, in denominations of five and
ten thousand dollars each, as may be desired, to an amount
equal to seventy-five per cent. of such deposit.   These certificates may be used in settlement of balances at the Clearing
House, for a period of thirty days from the date hereof, and
they shall be received by creditor Banks, during that period,
daily, in the same proportion as they bear to the aggregate
amount of the debtor balances paid  at the  Clearing  iHouse.
The interest which may accrue upon these certificates shall,
at the expiration of the thirty days, be apportioned among
the Banks which shall have held them during the time.
The  securities  deposited  with  said  Committee  as  above
named  shall be  held by  them  in trust as a special deposit, 
57
pledged  for  the redemption of the  certificates  issued thereupon.
The Committee shall be authorized to exchange any portion
of said securities for an equal amount of others, to be approved by them, at the request of the depositing Bank, and
shall have power to demand additional security, either by an
exchange or an increased amount, at their discretion.
The amount of certificates which this Committee may issue
as above shall not exceed $5,000,000.
This agreement shall be binding upon the Clearing House
Association when  assented  to  by  three fourths of  its mem
bers.
Resolved, That in order to accomplish the purpose set forth in
this agreement, the specie belonging to the associated Banks shall
be considered and treated as a commnon fund for mutual aid and
protection, and the Committee shall have power to equalize the
same by assessment or otherwise.
For this purpose statements shall be made to the Committee of the condition of each Bank on the  morning of  every
day, before commencement of business, which shall be sent
with the exchanges -to the Manager of the Clearing Itouse,
specifying the following items, viz:
1. Loans and discounts.
2. Deposits.
3. Loan certificates.
4. Specie.
RPsoLvFD, That after the 1st of February nexst, every Bank in the
clearing House Association shall have on hand, at all times, in specie,
an amount equal to  one  fourth  of  its net l iabilities,
and any Banlc whose specie shall fall below that proportion shall
not naake  loans or discounts  until their position is reestablished;
and we, as members of the Clearing House Association, agree that we
8 
will not continue to eechange with any Bark which shall show by At
two successive weekly statements that it has violated this agreement.
The Chairman appointed the following named gentlemen as
the Committee:
MosEs TAYLOR, of the City Bank.
JAMES PUNNETT, of the Bank of Amnerica.
R. W. HIOWES, of the Park Bank.
A. S. FRASER, of the  Seventh Ward  Bank.
CHARI,s P. LNVERICH, of the Bank of New  York.
Adjourned.
JOHN A. STEVENS,
Chairman.
WV. F. HOOKEFR,
Secretary.
~8