2577 
 JL3&3 
 
 UC-NRLF 
 
 SB 37 
 
EXCHANGE 
 
UNIVERSITY OF ILLINOIS 
 
 STATE BANKS OF ISSUE IN ILLINOIS 
 
 c 
 
 THE HENRY H. HARRIS BANKING PRIZE ESSAY 
 
 -BY- 
 
 CHARLES HUNTER GARNETT, A. M. 
 
 PUBLISHED BY THE UNIVERSITY 
 
 1898 
 
UNIVERSITY OF ILLINOIS 
 
 STATE BANKS OF ISSUE IN ILLINOIS 
 
 
 I J B F? A 
 
 THE HENRY H. HARRIS BANKING PRIZE ESSAY 
 
 BY- 
 
 CHARLES HUNTER GARNETT, A. M. 
 
 PUBLISHED BY THE UNIVERSITY 
 
PREFATORY NOTE. 
 
 This essay was written in competition for a prize of one 
 hundred dollars, offered in 1896 by Mr. Henry H. Harris, of 
 the First National Bank, of Champaign. Three essays 
 were submitted in competition. Professor William A. 
 Scott of the University of Wisconsin, Professor John H. 
 Gray of Northwestern University, and Hon. J. J. P. 
 Odell, then president of the Union National Bank of Chicago, 
 were requested to read the essays and give an opinion, first 
 as to whether any one of them was sufficiently meritorious 
 to deserve the prize, and if so which one; and second, as to 
 whether the successful essay was of sufficient interest and 
 value to put in print. These gentlemen kindly consented 
 to act as judges and unanimously agreed that an affirma- 
 'tive answer could be given to both questions in the case of 
 the essay of Mr. Charles Hunter Garnett, A. M. The essay 
 has been revised somewhat, and cut down for publication. 
 I believe that a complete history of this important subject 
 has not yet appeared. This essay throws some light on an 
 interesting portion of our state history and I take pleasure, 
 therefore, in sending it forth as a contribution thereto 
 by one of the students of my department. There 
 is much valuable material for a history of Illinois 
 not yet worked up. I trust that from time to time we shall 
 be able to take up one topic or another relating to this his- 
 tory. Certainly that is a proper field of activity for the 
 state University. 
 
 The generosity of Mr. Harris suggests a way by which 
 friends of the University^ may be very helpful to her. 
 
 V i :"": ..* DAVID KINXBY, 
 
 Dean of the College of. literature 'and Arts, and Professor 
 
 of 
 
STATE BANKS OF ISSUE IN ILLINOIS 
 
 FIRST PERIOD : BEFORE 1819. 
 
 Before the war of 1812 there was but little money in 
 Illinois. The French communistic settlements in the terri- 
 tory did not need much, for they supplied their own wants 
 and had but little intercourse with the outside world. Among 
 themselves the skins of the deer and 'coon passed current. 
 
 At the close of the war, emigrants from the states be- 
 gan to come in, and brought with them both money and 
 goods. At the same time money which had been paid to 
 the militia during- the war began to find its way among- the 
 settlers and fostered the beginnings of commerce. Most of 
 the new settlers came from Kentucky and Ohio, and settled 
 in the southern part of the territory. They believed that 
 the only thing- needed for the development of the community 
 into which they had come, was ''capital," and that this 
 could be most conveniently supplied by means of banks. 
 
 Accordingly a bank was started at Shawneetown as 
 early as 1813, when the population of the territory was but 
 fifteen hundred. It was incorporated in 1816 as the ''Presi- 
 dent, Directors and Company of the Bank of Illinois at 
 Shawneetown" and began business on January 1st, 1817, 
 with a charter extending for twenty years. It was to have 
 a capital stock not to exceed $300,000, divided into shares of 
 $100 each, one-third of which might be subscribed by the 
 territory. As soon as fifty thousand dollars were subscribed 
 and ten thousand were paid in, the bank might begin busi- 
 ness. Ten dollars on each share were to be paid in gold or 
 silver at the time of subscription, and the remainder was to 
 be paid in notes of other banks, in such installments as the 
 bank directors might determine, save that no installment 
 should exceed twenty-five per cent, or be demanded without 
 sixty days notice. The affairs of the bank were to be man- 
 
 239379 3 
 
PREFATORY NOTE. 
 
 This essay was written in competition for a prize of one 
 hundred dollars, offered in 1896 by Mr. Henry H. Harris, of 
 the First National Bank, of Champaign. Three essays 
 were submitted in competition. Professor William A. 
 Scott of the University of Wisconsin, Professor John H. 
 Gray of Northwestern University, and Hon. J. J. P. 
 Odell, then president of the Union National Bank of Chicago, 
 were requested to read the essays and give an opinion, first 
 as to whether any one of them was sufficiently meritorious 
 to deserve the prize, and if so which one; and second, as to 
 whether the successful essay was of sufficient interest and 
 value to put in print. These gentlemen kindly consented 
 to act as judges and unanimously agreed that an affirma- 
 tive answer could be given to both questions in the case of 
 the essay of Mr. Charles Hunter Garnett, A. M. The essay 
 has been revised somewhat, and cut down for publication. 
 I believe that a complete history of this important subject 
 has not yet appeared. This essay throws some light on an 
 interesting portion of our state history and I take pleasure, 
 therefore, in sending it forth as a contribution thereto 
 by one of the students of my department. There 
 is much valuable material for a history of Illinois 
 not yet worked up. I trust that from time to time we shall 
 be able to take up one topic or another relating to this his- 
 tory. Certainly that is a proper field of activity for the 
 state University. 
 
 The generosity of Mr. Harris suggests a way by which 
 friends of the University^may be; very helpful to her. 
 
 . V" i :"": : ..* DAVID KINI^Y, 
 
 Dean of the College gf. Literature- 'and Arts, and Professor 
 
 of BcGf&fcftcfct*' **' *::..:*' 
 
STATE BANKS OF ISSUE IN ILLINOIS 
 
 FIRST PERIOD : BEFORE 1819. 
 
 Before the war of 1812 there was but little money in 
 Illinois. The French communistic settlements in the terri- 
 tory did not need much, for they supplied their own wants 
 and had but little intercourse with the outside world. Among 
 themselves the skins of the deer and 'coon passed current. 
 
 At the close of the war, emigrants from the states be- 
 gan to come in, and brought with them both money and 
 goods. At the same time money which had been paid to 
 the militia during the war began to find its way among the 
 settlers and fostered the beginnings of commerce. Most of 
 the new settlers came from Kentucky and Ohio, and settled 
 in the southern part of the territory. They believed that 
 the only thing needed for the development of the community 
 into which they had come, was ' "capital," and that this 
 could be most conveniently supplied by means of banks. 
 
 Accordingly a bank was started at Shawneetown as 
 early as 1813, when the population of the territory was but 
 fifteen hundred. It was incorporated in 1816 as the "Presi- 
 dent, Directors and Company of the Bank of Illinois at 
 Shawneetown" and began business on January 1st, 1817, 
 with a charter extending for twenty years. It was to have 
 a capital stock not to exceed $300,000, divided into shares of 
 $100 each, one-third of which might be subscribed by the 
 territory. As soon as fifty thousand dollars were subscribed 
 and ten thousand were paid in, the bank might begin busi- 
 ness. Ten dollars on each share were to be paid in gold or 
 silver at the time of subscription, and the remainder was to 
 be paid in notes of other banks, in such installments as the 
 bank directors might determine, save that no installment 
 should exceed twenty-five per cent, or be demanded without 
 sixty days notice. The affairs of the bank were to be man- 
 
 239379 3 
 
aged by a board of twelve directors elected annually by the 
 stockholders, each stockholder being allowed votes accord- 
 ing- to the number of shares held by him, but with the ratio 
 of votes to shares decreasing- as the number of shares in- 
 creased. This provision was intended for the benefit of the 
 small stockholders and distributed the votes as follows: for 
 one share and not more than two, one vote; for every two 
 shares above two and not exceeding- ten, one vote; for every 
 four shares above ten and not exceeding thirty, one vote; 
 for every six shares above thirty and not exceeding sixty, 
 one vote; for every eight shares above sixty and not exceed- 
 ing one hundred, one vote; and for every ten shares above 
 one hundred, one vote. The governor of the territory 
 was empowered to act as agent for the legislature and to 
 cast the votes to which the territory should be entitled. No 
 one but a bona fide stockholder, who was a resident citizen 
 of the territory, could be a director. Any number of stock- 
 holders not less than fifteen, who owned not less than fifty 
 shares, could at any time appoint three of their number 
 a committee to examine the condition of the bank and the 
 manner in which its affairs were conducted. The bank 
 could not lawfully hold or deal in any property other than 
 gold, silver and bills, except what was necessary for busi- 
 ness accommodations or might be conveyed to it in the 
 satisfaction of debts. Its liabilities, exclusive of deposits, 
 were never to exceed twice the amount of its paid up capital 
 stock. The maximum rate of discount was fixed at six per 
 cent, per annum. Half yearly dividends were to be declared 
 of so much of the profits of the bank as should be deemed 
 expedient, and once in three years the directors were to lay 
 before a general meeting of the stockholders an exact state- 
 ment of the condition of the bank. Refusal to redeem its 
 notes in gfold and silver on demand, or delay in such redemp- 
 tion, was prohibited under a penalty of twelve per cent, per 
 annum on the notes defaulted, from the time of the de- 
 mand until the obligations were paid. 
 
 It is not necessary to criticise this charter. It was 
 better than many of its time. Its main defects were the 
 limitation of the rate of interest to six per cent, and the 
 permission to begin business on so small a capital as $10,000. 
 
On January 9, 1818, the acts incorporating 1 the Bank of 
 Edwardsville, the Bank of Kaskaskia, and the City and 
 Bank of Cairo were approved by the governor. 
 
 The Edwardsville bank was to have a capital stock of 
 $300,000, one third to be subscribed by the territory. In 
 all essential features its organization was to be the same as 
 that of the Shawneetown bank. 
 
 The Kaskaskia bank was to have a capital stock of 
 $500,000, and all payments of subscriptions were to be in 
 gold and silver. No provision was made allowing- the ter- 
 ritory to subscribe for stock. In other respects this bank 
 was to be similar to the one at Shawneetown. It is of little 
 consequence as it never transacted any business. Doubtless 
 the requirement that subscriptions for the stock should be 
 paid in gold and silver kept subscribers away, for they 
 would not care to invest in such stock when the stock of the 
 other banks was open for subscription and required 
 only ten per cent, of its value to be paid in gold and silver, 
 while the remainder might be paid in the plentiful notes of 
 the Ohio and Kentucky banks. 
 
 The scheme for the organization of the City and Bank 
 of Cairo was unique. It illustrates that sanguine and 
 confident western spirit which has produced so many Upto- 
 pias, and has given birth to so many hopeful plans for the 
 development of future great and populous cities. The pre- 
 amble of the act incorporating the city and bank sets forth 
 in glowing terms the great natural advantages for a metro- 
 polis at the junction of the Ohio and the Mississippi rivers. 
 By the provisions of the act the proprietors of the land on 
 which the proposed city was to be built were to constitute 
 a banking corporation, to exist for thirty years under the 
 name of the "President, Directors and Company of the 
 Bank of Cairo." The city was to be laid off into two thous- 
 and lots, valued at one hundred and fifty dollars each, and 
 no person could subscribe for more than ten lots. When a 
 lot was sold one third of the purchase money was credited 
 to the city improvement fund, and the remainder to the 
 stock of the bank. This latter sum was to be divided 
 into two shares of fifty dollars each, one to go to the pur- 
 chaser, and one to the original owner of the land. Every 
 
purchaser was to make a deposit of one third of the pur- 
 chase price of the lots to the credit of the Bank of Cairo in 
 the Bank of the United States, in one of its branches, or in 
 any convenient chartered bank. The rest was to be paid with- 
 in six months. As soon as five hundred lots had been taken, 
 thirteen directors were to be elected by the purchasers, and 
 these directors were to appoint commissioners to carry out 
 the city improvements. They might also increase the 
 capital stock of the bank, not to exceed $500,000. The 
 debts of the corporation were never at any time to exceed 
 twice the amount of the paid up capital. In other re- 
 spects the bank was similar to those organized at Edwards- 
 ville and Shawneetown. 
 
 Both the city and the bank thus elaborately planned 
 existed for several years only on paper. No part of the 
 scheme pertaining- to the city was ever carried out, though 
 in the course of time the city of Cairo appeared. The pro- 
 moters of the scheme even failed to pay for the land and it 
 was finally forfeited to the government. 
 
 "The Cairo Bank had a somewhat mythical existence 
 until 1836, at which time it was brought into actual life for 
 speculative purposes, issued its full quota of paper money, 
 flourished for a time, and finally succumbed to the rough 
 financial storms of the times."* The Kdwardsville and 
 Shawneetown banks became reputable institutions and did 
 business for several years. Through the efforts of Ninian 
 Edwards, then Congressman from Illinois, both of them be- 
 came depositories of the public money received from the 
 sale of public lands within the state. These funds they 
 applied to their own use. In 1820, amid the general crash 
 of banking institutions all over the Union, following the 
 period of inflation and speculation which had culminated 
 in the crisis of 1819, the Edwardsville bank failed. The 
 United States afterwards obtained a judgment against it 
 for $54,000 the amount of public money held by it at the 
 time of failure, but no part of this sum was ever collected. 
 The loss to individuals, depositors and stockholders is not 
 known. 
 
 The Shawneetown bank had better success, for it was 
 
 *A. T. Andreas' History of Cnicago, p. 524. 
 
more skillfully managed. "By the aid of government de- 
 posits, [it] acquired an extensive credit; issued and re- 
 deemed its bills for several years, and paid specie as late as 
 August, 1821 a considerable time after the Kentucky 
 banks had failed."* It was finally forced to close in 1823, 
 but managed to pay up or compound both its public and 
 private debts and thus save its charter. For the next dozen 
 years it remained inactive, appearing again, as we shall 
 see, in 1835. t 
 
 The condition of the Illinois banks in 1819 is shown by 
 the following table: 
 
 RESOURCES. LIABILITIES. 
 
 Loans and discounts $206,694.32 Capital $140,910.00 
 
 Specie 74,715.51 Circulation 52,021.00 
 
 Stocks and miscellan- 
 eous effects 6,614.00 Public deposits 119,036.92 
 
 Due from other banks.... 59,332.18 Private deposits 32,568.60 
 
 Real Estate 175.00 Undivided profits 2,994.49 
 
 Total $347,531.01 Total $347,531.01 
 
 These banks had been, perhaps, as successful and use- 
 ful to the community as any banking institutions could 
 have been at that time. The state had in fact very little 
 need of banks as yet. Its population at the time the 
 Edwardsville and Kaskaskia banks were chartered was only 
 thirty thousand. The capital necessary for banking could 
 not be found at home. There existed no commerce worthy 
 the name, no enterprises of importance, no developed system 
 of business. Hence there was but little occasion for the 
 exercise of the banking functions proper. The business 
 consisted almost wholly in issuing notes. These notes, 
 added to those sent into the state from banks in Ohio, 
 Kentucky and Missouri, produced local inflation and pro- 
 moted speculation. Houses were built and lands purchased 
 which were in no wise needed, but which the owners 
 expected soon to sell to immigrants at a handsome profit. 
 Every one was in a "rage for speculating inlands and town 
 lots," a proceeding which was called "developing the infant 
 resources of a new country." Public lands were then sell- 
 ing at two dollars an acre, one fourth cash, the remainder 
 on five years' time. Every one who had or could get eighty 
 dollars bought a quarter section of land, expecting to sell 
 
 *Brown's History of Illinois, p, 429. 
 tSee p. 25. 
 
8 
 
 it again at a profit before the remaining- payments fell due. 
 Almost all the bank notes in circulation were good at the 
 land offices. The abundance of money also made credit 
 easy to get. Merchants imported goods either from New 
 Orleans by way of the Mississippi or from Pittsburg by 
 way of the Ohio, and the people bought liberally from 
 the stores on credit, confidently expecting that payment 
 would be very easy as soon as the country became more 
 thickly settled. Everybody hoped to get rich out of the 
 future immigrant. "The speculator was to sell him houses 
 and lands, and the farmer was to sell him everything he 
 wanted to begin with and to live upon until he could supply 
 himself. Towns were laid out all over the country and lots 
 were purchased by every one on credit; the town maker re- 
 ceived no money for his lots but he received notes of hand 
 which he considered to be as good as cash ; and he lived and 
 embarked in other ventures as if they had been cash in 
 truth. In this mode by the year 1820, nearly the whole 
 people were irrecoverably involved in debt."* 
 
 The rage for bank speculation was not, however, confined 
 to private individuals. The state also joined in the com- 
 petition. The constitution of 1818 declared: "There shall 
 be no other banks or monied institutions in this State than 
 those already provided by law, except a State bank and its 
 branches, which may be established and regulated by the 
 general assembly of the State as they may think proper." 
 In accordance with this provision the legislature, feel- 
 ing some premonitory tremblings of the coming convulsion, 
 and wishing to provide against disaster, incorporated, 
 March 22, 1819, the "President, Directors, and Company of 
 the State Bank of Illinois." This bank was to be a monster 
 concern with a capital stock of $4,000,000. One half was 
 to be subscribed by individuals and the remainder by the 
 state. Ten per cent, of the subscriptions was to be paid in 
 specie or convertible bank notes; and operations were to be- 
 gin as soon as $15,000 were paid in. Ten branch banks 
 could be established. Six directors were to be elected by 
 the stockholders and six, together with the president, by 
 the Senate and House of Representatives on joint ballot. 
 *Ford's History of Illinois, p. 44. 
 
On account of interference in politics by the banks at 
 Edwardsville and Shawneetown, a provision was incor- 
 porated in the charter of the new bank, that no member of 
 the General Assembly nor any judge of the Supreme Court 
 or Circuit Court could be a director. In its lesser details 
 the charter was almost identical with that of the Shawnee- 
 town bank. 
 
 The attempt was a failure. Not a dollar of stock was 
 ever subscribed, and the institution perished at its birth. 
 Its charter was repealed in 1821. 
 
 These were halcyon days for the speculator, but their 
 end was close at hand. The time of reckoning- came with 
 the g-eneral crash of state banks during- 1819-20. There 
 was a sudden and complete collapse of prices. The ex- 
 pected tide of immigration had failed to come. Lands pur- 
 chased from the government were unpaid for, could not be 
 sold, and were likely to be forfeited. Specie had disap- 
 peared before the bank paper and when this became worth- 
 less there 'was no money in the country, nor sufficient com- 
 merce to bring- it from abroad. Suits were broug-ht for the 
 payment of debts, but the scarcity of monej made it almost 
 impossible for the debtor to pay. The newspapers of the 
 times are full of accounts of frauds, riots, and robberies. 
 So keenly was the distress felt that near the close of the 
 year 1819 a Congressional committee noted a "change of the 
 moral character of many of our citizens [caused] by the 
 presence of distress." Contracts which had been entered 
 into when prices were booming now began to mature when 
 property was almost unsalable. By 1821 every one was clam- 
 oring for relief "from the pressure of the times." As usual 
 under such circumstances the government was expected to 
 furnish the relief. Urged on every hand to ameliorate the 
 hard times, the legislature of 1821 revived the idea of 
 creating a bank based wholly on the credit of the state. 
 With its creation begins the second period of the history of 
 banking in Illinois. 
 
 SECOND PERIOD : 1819-1831. 
 
 Acting in response to public pressure the legislature 
 repealed the charter of the state bank of 1819 and incor- 
 
10 
 
 porated a new one under the name of the "President, Di- 
 rectors and Company of the State Bank of Illinois." This 
 was to be owned, operated, and backed by the state, the 
 legislators apparently having* become convinced that inas- 
 much as the Edwardsville and Shawneetown banks had both 
 suspended payment, nothing- but state influence and credit 
 could sustain any banking- institution. 
 
 The bank was to be located at Vandalia, then the seat o f 
 g-overnment, was to have a capital of $500,000, and was to 
 continue for ten years. It was empowered to receive and 
 hold for the use of the state any. kind of property to an 
 amount not to exceed twice the capital stock, and to convey 
 the same under the control and by the authority of the Gen- 
 eral Assembly. The state was divided into five districts 
 in each of which banch banks were to be established.* The 
 president and directors were to be elected biennially by the 
 Senate and House of Representatives on joint ballot, six 
 directors being chosen for the principal bank and five for 
 each of the branches. 
 
 Two thousand dollars were appropriated from the 
 treasury to defray the cost of issuing- three hundred thous- 
 and dollars in notes in denominations not exceeding- twenty 
 dollars nor less than one. These notes were to bear inter- 
 est at the rate of two per cent, per annum, and were pay- 
 able for salaries of state officers, and receivable for all debts 
 due the bank, the state or any county, and were to be dis- 
 tributed to the presidents and directors of the branches in 
 the several districts "in proportion to the inhabitants of 
 each district respectively." The bank had absolutely no 
 capital save the two thousand dollars appropriated to set it 
 up. As soon as the branch banks received their portion of 
 the notes they were to loan the same as fast as applied for, 
 distributing- the loans among the inhabitants as nearly as 
 possible according to population. All loans above one hun- 
 dred dollars were to be secured by mortgage on real estate 
 double the value of the amount loaned. For sums of one 
 hundred dollars, or under, approved personal security would 
 
 *These branches were located at Edwardsville, in Madison County; 
 Brownsville, in Jackson County; Shawneetown, in Gallatin County; and 
 Palmyra, in Edwards County. 
 
11 
 
 be taken. No person was to be entitled to receive a greater 
 loan than one thousand dollars, nor from any bank but the 
 one located in the district in which he resided. All loans 
 were to draw interest at six per cent, and to be renewable 
 annually on payment of ten per cent, of the principal. The 
 branch banks were to report half-yearly to the principal 
 bank, and the latter biennially to the legislature, which 
 was to appoint a permanent committee to examine the bank 
 or branches whenever it thought necessary. 
 
 The banks were to transact no business but loaning 
 notes, "except that they may receive in exchange for their 
 own bills, and notes, land office paper of the district in 
 which the bank may be located, or gold and silver coins; 
 all which exchanges shall not be made otherwise than at 
 par." Notes could not be issued beyond the value of the paid 
 up capital. One-tenth ot the notes was to be retired annu- 
 ally, and all lands, funds, and revenues, present and future, 
 of the state, its faith and credit, were irrevocably pledged for 
 the redemption of the bank's notes within ten years. All 
 executions on judgments then in force were stayed for nine 
 months and might be replevied for three years thereafter 
 unless the plaintiff would endorse on the back of the execu- 
 tion "that the notes or bills of the State bank of Illinois 
 or of either of its branches will be received in discharge of 
 this execution." Judgments on certain contracts for money 
 entered into after three months from the passage of the act 
 were to be "found due and assessed payable in the notes or 
 bills of the State Bank of Illinois." By these two provisions 
 the notes were given a quasi legal tender character. The 
 treasurer of the state was to deposit all state funds in the 
 bank and make his payments by checks on this deposit. 
 Likewise all moneys accruing to the state from the United 
 States for school purposes, together with all specie or land 
 office money that should come into the treasury, were to be 
 turned over to the principal bank, which was authorized to 
 issue notes to double the amount of money so deposited. 
 These were always to be redeemable in gold or silver coin at 
 the principal bank. All specie received at the branch banks 
 was to be forwarded to the principal bank. 
 
 A supplement to the above act, making some slight 
 
12 
 
 changes in the bank's government and enacting- stricter stay 
 laws for the collection of debts, was passed about a week 
 later. In fact, during its entire existence the bank was a 
 prolific source of legislation since at almost every session 
 of the General Assembly either the bank or bank debtors 
 prayed relief, while difficulties in the bank's operation were 
 constantly appearing. 
 
 The project met with strong opposition from the start. 
 By the constitution of the state at that time the governor 
 did not have a veto on legislation, but together with the 
 judges of the Supreme Court constituted a Council of Re- 
 vision whose duty it was to examine all bills passed by the 
 legislature and approve them or, if any bill was objection- 
 able, to return it with the objections in writing to the house 
 whence it originated. When the bank bill passed the leg- 
 islature, it was returned by this council with very urgent 
 objections. In the opinion of the council the act violated 
 the tenth section of the Constitution of the United States 
 which declares that "no state shall * * emit bills of 
 credit; make anything but gold and silver a tender in pay- 
 ment of debts, etc." The bank was certainly a state insti- 
 tution, officered by the legislature and backed by the credit 
 and resources of the state. Through the medium of the 
 bank "the State by virtue of its sovereignty, and upon the 
 faith of its credit" was to "emit paper money, redeemable 
 by the state, at a future day." This, the council main- 
 tained, was emitting bills of credit in the sense in which it 
 was forbidden to the states by the constitution. At any 
 rate these proposed bank notes would produce all the evil 
 effects which the constitutional provision was designed to 
 prevent. Nor did the council believe that the notes would 
 furnish the citizens of the state "with the means of com- 
 munication and intercourse with other States." They even 
 feared that the citizens themselves could not be forced to 
 take the bank paper. The argument that like measures 
 had been resorted to in other states would not justify either 
 the constitutionality or expediency of this measure; and 
 they believed that the "embarassments of the people" could 
 be relieved without resort to it. 
 
 These objections were replied to very fully, though 
 
13 
 
 with more of assurance than of logic, by the special com- 
 mittee to which they were referred by the house. The 
 committee declared that the proposed notes were not bills of 
 credit, but rather bank notes or promissory notes; that these 
 were not made a legal tender but could be received or not at 
 pleasure; that banking" rights were reserved to the state by 
 the constitution of 1817, " which had been discussed and 
 passed upon by the Federal Congress;" and that a measure 
 similar to the one in question, passed in 1819, had met with 
 approval. Besides, the redemption of these notes was sure, 
 "depending- on no contingency whatever," while the notes 
 of private banking institutions were always insecure and 
 generally proved to be irredeemable. And if the notes would 
 not circulate in other states, so much the better, for then 
 they would remain at home, answer all the needs of the 
 people, and, when redeemed, the money paid out would go 
 to citizens of the state. 
 
 John McLean, speaker of the lower house of the Gen- 
 eral Assembly resigned his position in order to speak against 
 the bank bill. He foretold many of the evil consequences 
 which the bank brought on the state. In spite of Mc- 
 Lean's eloquence and the objections of the council the bill 
 was passed by the constitutional majority. Thereupon 
 four members of the house who voted in the negative en- 
 tered a protest on the journal by way of justifying- their 
 action. This protest is interesting- as showing- some of the 
 ideas then current in reg-ard to the power of banks to in- 
 jure the public, and the extreme prejudice ag-ainst all bank- 
 ing- institutions caused by the reckless banking- of the ten 
 years previous. 
 
 The protestants, after recounting- the constitutional 
 objections to the scheme, declared that "all banking- insti- 
 tutions, even when founded upon a specie capital, are, in our 
 opinion dang-erous to civil liberty the public and private 
 morals of our citizens. " They believed that this bank would 
 place a power in the hands of ambitious men which would 
 "endang-er the existence of our political union." The morals 
 of the citizens would be corrupted by putting- u a means into 
 their hands whereby they will have a quick and easy access 
 to every luxury and vice." The idea that a bank such as 
 
14 
 
 the state bank of Illinois, based wholly on faith and paper, 
 could exist ten years and maintain its own and the state's 
 credit without depreciation, appeared to them to be "an 
 idle calculation, a visionary phantom, the acme of legisla- 
 tive folly, calculated to deceive the credulous, honest and 
 industrious part of the community." The currency of the 
 bank would tend to further the schemes of the speculator, 
 the bankrupt, and the ambitious politician, while the bank 
 itself would be a "hobby horse by which some political 
 demagogue will ride into power * * * a curtain 
 behind which the more artful but less daring- politician 
 will act by means of his dupes and tools without detec- 
 tion." The present embarrassments of the country have 
 been in a great degree caused by banks, which "ought 
 to teach us a sad lesson of their imprudence." And fur- 
 ther: "No part of our citizens, either commercial, manu- 
 facturing 1 or agricultural require any such currency." 
 
 The portion of the protest which predicted the depre- 
 ciation of the bank's paper, and with it the credit of the state, 
 and the use to which the bank would be put in serving- the 
 ends of politicians, was prophetic. 
 
 The unconstitutionality of notes such as the bank pro- 
 posed to issued was affirmed sometime afterward by the 
 Supreme Court of the United States,* althoug-h the Supreme 
 Court of Illinois had in 1826 ruled that they were constitu- 
 tional. Aside from the question of constitutionality, however, 
 the issue of inconvertible notes was objectionable, and the 
 worst feature of the whole measure was that which required a 
 creditor to take these notes at par for his debt or suffer it to 
 be replevied for three years by the debtor. This feature 
 was re-enacted repeatedly in the form of "stay laws" and 
 "stop laws" throughout the life time of the bank. 
 
 At first the bank was very popular. There was of 
 course no difficulty in putting- it in operation, since no 
 capital was required. It was generally believed that its 
 notes would be, or ought to be, accepted at the land offices 
 the same as specie. The expectation was not realized. More- 
 over, most of the people really expected the bank to bring 
 prosperity to the state. Not only did its opponents believe 
 *Craig vs. State of Missouri, 4 Peters 410. 
 
15 
 
 that it would put a means into the hands of the people 
 "whereby they will have a quick and easy access to every 
 luxury and vice,'' but judging- from the dishonesty that it 
 afterwards developed, some of its advocates thought the 
 same and preferred luxurious vice to destitute morality. 
 
 Its officers being elected by the legislature, the bank 
 naturally fell into the hands of politicians, who combined 
 ignorance and viciousness in its management. Three hun- 
 dred thousand dollars in notes were issued and at once loaned 
 with little care as to security or certainty of payment. 
 ' 'Every man who could get an endorser borrowed his hundred 
 dollars." All the directors "either were then or expected 
 to be candidates for office. Lending to everybody and re- 
 fusing none was the surest road to popularity." Under the 
 charter the bank officers had the right to become the largest 
 borrowers, the twenty six officials being entitled to receive 
 $51,350, or over one-sixth of all the bank's notes. They 
 used their right freely, either borrowing or transferring 
 their "right to borrow, to the full limit of the law, and thus 
 became more interested than any other class in the commun- 
 ity, in impairing the credit of the institution, and depreciat- 
 ing its notes, as the means of facilitating the discharge of 
 the debts they had contracted with it. And hence * * those 
 gentlemen * * have been generally if not universally, 
 found among the warmest advocates for depreciating those 
 notes; scaling bank debts, and various other expedients 
 whose inevitable effects would be, the revolting injustice of 
 requiring the balance of the community to be taxed for the 
 payment of their debts."* With such management it is not 
 surprising that the bank brought only distress and disaster 
 to the state. 
 
 No specie of consequence was ever received by the bank. 
 One branch received only two dollars in specie, both of 
 which were kept as curiosities.f The notes fell to seventy 
 cents, then to fifty, then to twenty-five, and finally ceased to 
 circulate. No more than $300,000 were issued. The notes 
 of the Ohio and Kentucky banks had previously driven all 
 the specie out of the country and these notes kept it out. 
 
 *Governor'3 Message, 1826. 
 tBrown's History of Illinois, p. 433. 
 
16 
 
 The people cut the new bills in pieces to make small change 
 and for four years this paper was the only kind of money in 
 the state. "In the meantime, very few persons pretended 
 to pay their debts to the bank. More than half of those 
 who had borrowed, considered what they had gotten from 
 it as so much clear gain, and never intended to pay it from 
 the first."* 
 
 But the bank did mischief in another way. In Decem- 
 ber, 1820, the governor had remarked in his message, upon 
 the "flourishing condition of the treasury." He declared 
 that a reduction of the taxes would be justified, as the funds 
 in the treasury greatly exceeded the demands against it. In 
 1823 the "funds" in the treasury consisted of state bank 
 paper worth about fifty cents on the dollar. In 1823 the 
 state auditor pointed out that on account of the low 
 price of the notes of the bank, debts due the state 
 by non-residents could be liquidated at half their 
 value, and that people in the service of the state at fixed 
 salaries suffered severely from the depreciation. In response 
 to his request for action on the matter the legislature 
 doubled the pay of its members and of some other officials. 
 This increase of expenditure soon emptied the treasury, and 
 auditor's warrants were issued in excess of the means to pay 
 them. By 1825 the bank notes and auditor's warrants 
 alike had depreciated still further, $6,000 of the paper hav- 
 ing been disposed of by the the canal commissioners at the 
 rate of 27 y?. cents. The legislature made it the duty of th e 
 auditor, treasurer, secretary of state, and cashier of the 
 principal bank to determine every month the current value 
 of the paper of the state bank, and this value was to be the 
 rate at which the paper should be paid out at the treasury 
 for the succeeding month. Until these officers had fixed 
 such a value the auditor was to rate the notes of the bank at 
 three dollars for one in specie. Both the notes and warrants 
 being receivable for taxes and debts due the state, the 
 result of the depreciation was to treble the state expenses 
 without increasing the revenue. . In 1825, $107,782 were 
 paid out in auditor's warrants which in good money at that 
 period were not worth more than $35,000, at the outside. 
 *Ford's History of Illinois, p. 47. 
 
17 
 
 Moreover, the revenue of the state then came almost exclu- 
 sively from the tax on lands of non-residents. Hence this 
 virtual decrease in the revenue was a relief not to the citi- 
 zens but to the non-residents. These latter bought up the 
 paper when it was cheapest and kept it to pay taxes. 
 
 The bank was from the start an important element in 
 state policy and legislation. In 1824 governor Coles rec- 
 ommended that it be thoroughly investigated and that 
 some measures be taken to restore the credit of its paper. 
 In pursuance of this recommendation an investigation was 
 made and it was found that up to the 10th of January, 1825, 
 "the current expenses of the principal bank had exceeded 
 the discounts by $2403.90." The Palmyra and Kdwards- 
 ville branches each showed a fair profit and the Browns- 
 ville branch a loss. The Shawneetown branch had been 
 "loosely and irregularly conducted" and its papers and ac- 
 counts were in a "deranged position." There appeared to 
 be a defalcation of $4,800.76 by the cashier, and $3,750.00 
 had been loaned in the previous October without security. 
 No attempt was made at the time to punish the officers of 
 the Shawneetown branch for their culpable negligence. 
 
 The legislature enacted a law staying executions of 
 judgments and requiring courts to render judgments on 
 contracts, and to issue executions, payable in bank paper. 
 It was made the duty of the cashier of the principal bank 
 to burn all notes on hand, and not needed for expenses, in 
 the public square in Vandalia in the presence of the gover- 
 nor and certain other officers. Notes received at the treas- 
 ury and again paid out were to cease bearing interest. 
 Auditor's warrants were made receivable for bank debts. 
 The bank was forbidden longer to receive deposits from in- 
 dividuals and deposits already received were to be returned 
 to the depositors. The offices of the presidents and directors 
 of the branch banks were abolished and the management 
 of these branches entrusted solely to cashiers appointed by 
 the governor. . 
 
 The object of this legislation was to reduce the func- 
 tions of the bank as nearly as possible to the collection of 
 its debts, and to restore the credit of its currency. In both 
 his subsequent messages governor Coles again recommended 
 
18 
 
 this policy, and, in Dec. 1826, advised winding 1 up its affairs. 
 Of the $300,000 issued by the bank $100,000 was burned 
 prior to January 1st, 1826, leaving $200,000, exclusive of 
 interest accrued, still outstanding-. Governor Edwards in his 
 inaugural message in 1826 strongly attacked the entire 
 banking system, and especially the management of the 
 Shawneetown branch, alleging that the report of the in- 
 vestigating 1 committee showed that there had been the 
 "clearest moral perjury" on the part of the officers of that 
 branch. In subsequent messages he charged specific acts 
 of corruption upon the officers of the Edwardsville branch, 
 and particularly upon judge Smith, the cashier, who, the 
 governor claimed, had violated every provision of the 
 bank's charter in reg-ard to making loans, and had been 
 guilty of culpable negligence in their collection. In a later 
 message the governor made nine distinct charges of mal- 
 administration against the cashier of the principal bank at 
 Vandalia, and added a charge against judge Smith to the 
 effect that he had appropriated to his own use and still held 
 a larg-e amount of the bank's funds. 
 
 The men attacked were adroit politicians, prominent 
 and influential Whigs, while the g-overnor was a Democrat. 
 They formed a combination to resist the attack, rallied 
 their friends and the friends and employees of the bank to 
 their support, raised the cry of persecution and denounced 
 the charges as political spite. The Whigs had a majority 
 in the legislature, and the charges were referred to a special 
 committee which g-overnor Ford says was "packed." This 
 committee found that some of the charg-es were not borne 
 out by the facts, and the governor retracted others. Yet much 
 irregularity in the conduct and management of the bank 
 was brought to light. The committee passed a resolution 
 acquitting the bank officers of any wilful misconduct. 
 
 The legislation of the next three General Assemblies 
 was aimed chiefly at facilitating the collection of bank 
 debts. The expedients resorted to and the inducements 
 offered in this connection emphasize the laxity and general 
 indifference of the people towards paying their debts. This 
 feeling of indifference was apparently common at that time 
 and had been produced largely by the bank. The legisla- 
 
19 
 
 ture of 1826 passed another stay law, for three months. All 
 defaulters in payments on bank debts were given the right 
 to renew their loans, and judgments were to be marked 
 satisfied on receipt of the debtor's note for the amount of 
 the judgment. The pay of the cashiers was reduced, and 
 that of the president and directors of the principal bank 
 was withdrawn. 
 
 In 1829 it was enacted that all public officers in debt to 
 the bank should not receive their salaries until their debts 
 were paid. Defaulters to the bank were to be allowed to 
 pay up in three annual installments by executing new 
 notes, one for each installment. These notes were to be 
 accepted in satisfaction of judgments already obtained. 
 The office of cashier of the principal bank was abolished 
 and its duties transferred to the state treasurer. Debtors 
 to the bank who would pay up before the 1st of July, 1830, 
 were to be released from all interest, and those who would 
 pay before Sept. 1st, 1829, were to be allowed ten per cent, 
 discount with the interest. 
 
 The governor was directed to borrow all the specie of 
 the school and seminary fund with which to meet the cur- 
 rent expenses of the government for the last three quarters of 
 the year 1830. In his report for 1830 the state treasurer recom- 
 mended that the state paper be funded into certificates of 
 stock bearing legal interest and that a loan be negotiated 
 sufficient to pay the government expenses for the next two 
 years so that the revenue during- that time could be applied 
 to the payment of interest and the principal debts. He 
 estimated the amount of fundable state paper at $120,000, 
 including interest. It would seem from this that the pre- 
 vious efforts to call in the paper had not been very success- 
 ful. 
 
 It devolved upon the legislature of 1830-31 to take 
 measures for winding up the affairs of the bank and to 
 make provision for the redemption of its notes, which were 
 to fall due in the course of the following summer. The 
 redemption of these notes meant high taxes and more debt, 
 and was sure to raise a storm of popular dissatisfaction. 
 Every previous legislature had shunned the difficulty, but 
 it could be postponed no longer. In accordance with the 
 
20 
 
 recommendation of the treasurer it was provided that 
 holders of state paper might have the same funded into six 
 per cent, stock, interest payable semi-annually. The stock 
 was made receivable for debts due the state, and was re- 
 deemable at the pleasure of the state. The governor was 
 authorized to negotiate a loan of $100,000 to be applied to 
 current expenses and the redemption of state paper. The 
 treasurer and auditor were to issue stock for the loan, $50,- 
 000 of which was to be paid in specie or United States bank 
 notes, and $50,000 in specie funds, state paper or auditor's 
 warrants. On the 12th of February, 1831, the g-overnor, 
 the auditor, the secretary of state and the treasurer, were 
 to burn all the state paper in the treasury, whether belong- 
 ing to the bank or state, and in like manner to burn all 
 on hand the end of every quarter. In order to offset in 
 some measure the unpopularity of the loan, debtors of the 
 bank were allowed to the 1st day of May, 1832, to pay their 
 debts by executing- new notes; if these notes should be 
 punctually paid interest on them was to be remitted, and if 
 paid before December 1st, 1831, six per cent, discount with 
 the interest was to be allowed. All debts due the bank 
 were to be turned over for collection to the attorney general 
 and the state's attorneys before the 4th of July, 1832, and 
 the attorney general was authorized to sell all the bank 
 property. In 1832 a supplementary act was passed which 
 directed the circuit court to cancel the debt of a deceased 
 debtor if in the opinion of the court its collection would 
 distress his widow or orphan children. Moreover, all debtors 
 to the bank were to be allowed to pay their debts in three 
 annual installments, with a remission of the interest and 
 twenty-five per cent, of the principal. The leniency toward 
 bank debtors proved very short-sighted statesmanship. It 
 not only caused heavy losses in the collection of bank debts, 
 but lowered the standard of honesty of the community 
 and lessened the feeling- of oblig-ation on the part of the 
 debtors generally, so that as early as 1830, perhaps, 
 most of them had no intention of paying their loans. The 
 leniency may be explained in part by the fact that the 
 legislators themselves were the largest debtors. 
 
 The loan which was authorized in 1831 was secured from 
 
21 
 
 a Mr. Wiggins, of Cincinnati. Demagogues spread the 
 rumor that the state had been "sold" to Wiggins, and suc- 
 ceeded in kindling the wrath of the people against the 
 members of the legislature which had authorized the loan, 
 so that most of them were politically killed. As governor 
 Ford put it, "the honor of the state was saved and the leg- 
 islature forever damned." 
 
 The loss to the state during the ten year regime of 
 state bank paper has been estimated at $300,000, in receiv- 
 ing and paying out the paper at the treasury, and $100,000 
 from loans which were never repaid and had to be made good 
 by the state. In addition must be counted the injury to the 
 public credit and the loss from the extensive issue of de- 
 preciated auditor's warrants, for which the bank legislation 
 Tfas responsible. Another authority places the total loss at 
 $500,000. The loss to the people and the damage to busi- 
 ness cannot be estimated. Specie was gone, public and 
 private credit broken down, enterprise stagnant, and busi- 
 ness morals corrupted. 
 
 THIRD PERIOD : 1835-1842. 
 
 From 1831 to 1835 Illinois had no banks. Indeed, dur- 
 ing these years the legislature was careful to insert in all 
 charters granted to corporations for business purposes that 
 no banking functions should be exercised by the corpora- 
 tion. But by 1835 the reaction against banks had nearly 
 spent its force, while events had recently occurred which 
 seemed to make a bank desirable for the state. Among 
 these events was the employment of the state banks as de- 
 positories by the national treasury. This employment was 
 one of the results of President Jackson's successful "war" 
 on the Bank of the United States. In his report for 1834, 
 the Secretary of the Treasury, Mr. Woodbury, remarked 
 that the $10,000,000 of public deposits were enabling the 
 selected state banks "to discount freely, and to support a 
 sound paper currency in their own neighborhood." Some 
 of the people of Illinois began to think it unfortunate that 
 their state was not in a position to obtain a share of the 
 benefits to be derived from the use of the public funds. 
 
22 
 
 In his message to the legislature in December, 1834, 
 acting- governor Wm. Lee D. Ewing, in the following- some- 
 what remarkable passage, proposed the re-establishment of 
 a bank: "Permit me to present to the consideration of your 
 honorable body, the subject of the establishment of a State 
 Bank. Public opinion seems to have been pronounced 
 against the re-charter of the present Bank of the United 
 States, in such unequivocal language as to involve the es- 
 tablishment of such an institution in an absolute necessity. 
 I, therefore, in my capacity as Senator, propose to offer for 
 your consideration a project for a State Bank, which, under 
 the administration of judicious management, will annually 
 defray the expenses of the civil administration of the State 
 Government pay off the interest and principal of the state 
 loan reproduce the annihilated school fund, and bring it 
 back into being cover all contingent defalcations and 
 create a fund for the ultimate payment of the loan neces- 
 sary to be made upon which to found the bank, as also the 
 annual payment of the interest thereof. And in addition 
 to all these desiderata, afford to our country, at this time 
 almost wholly destitute of a monetary medium, a safe and 
 approvable currency. The bills of the 
 
 United States Bank, withdrawn from circulation, as they 
 necessarily will be, in order to a final close of its concerns, 
 our State will be left without a known good or bad currency. 
 Hence I propose the establishment of a State Bank, founded 
 not upon the baseless impalpable fabric of a vision but 
 upon a gold and silver reality." 
 
 In his inaugural address at the same session governor 
 Duncan also advocated chartering a bank, but advised cau- 
 tion in framing its charter. "Unfortunately," he said, "bank 
 are too often established to benefit the rich speculator, with 
 no reference to the interest and convenience of the indus- 
 trious poor, which has justly excited a jealously among the 
 people against all banks, and should admonish us to be ex- 
 ceedingly careful in the first permanent introduction of 
 them into our state." 
 
 Perhaps the majority of the people of the state wished 
 to be as cautious as governor Duncan, but some, according 
 
23 
 
 ing to Ford,* were anxious that the speculations prevalent 
 farther east should begin in Illinois. The mania for sud- 
 den riches, which, as Prof. Sumnerf says, is the chief cause 
 of periods of speculative madness, had already taken pos- 
 session of the people in the northern and eastern parts of 
 of country. It was due in great part to the enlargement of 
 the Erie Canal in 1835, J which was expected to do wonders 
 for the development of the territory bordering on the lakes. 
 Speculation in Illinois had just begun and was as yet confined 
 entirely to Chicago. The Whigs as a party were supposed 
 to be favorable towards banks, state and national, and 
 many Democrats argued that President Jackson, though he 
 destroyed the Bank of the United States and denounced it 
 as a * 'permanent electioneering machine," was in favor of 
 state and local banks. 
 
 These various considerations led to an attempt in the 
 legislature of 1835 to re-establish a state bank. The es- 
 tablishment ot a bank had not been an issue in the cam- 
 paign, and their experience with the old state bank had 
 made so deep an impression on the people that the project 
 met with strong opposition. In the house it passed by a 
 majority of only one vote 27 to 26. This vote was ob- 
 tained by the bank party from a member opposed to the 
 bank, in consideration of his election as state's attorney. 
 In the senate a vote was obtained from a senator, likewise 
 opposed to banks, in consideration of the passage of a bill 
 to tax the lands of non-residents in the military tract at a 
 high rate for road purposes, f By such means as these the 
 bank measure was pushed through the legislature, and the 
 Council of Revision approved it, though the governor ob- 
 jected. It was not a party measure. Both Democrats and 
 Whigs voted for it on grounds of public utility and expe- 
 diency. It proved, however, to be the first of a series of 
 legislative acts which brought the most disastrous results 
 upon the state. 
 
 The act incorporating the "President, Directors, and 
 Company of the State Bank of Illinois," approved by the 
 
 *Ford's History of Illinois, p. 169. 
 
 tSumner's History of American Currency, p. 124. 
 
 Ubid., p. ]18. 
 
 1 Ford's History of Illinois, p. 170. 
 
24 
 
 governor February 12, 1835, was a much better and wiser 
 instrument than that which established the old state bank. 
 The capital stock was to be $1,500,000, which might be in- 
 creased by individual subscriptions by an amount not ex- 
 ceeding- $1,000,000; but business mig-ht be commenced as 
 soon as $250,000 in specie were subscribed. The state was 
 to subscribe $100,000 whenever the legislature thoug-ht 
 proper and the condition of the treasury justified. 
 
 The bank was to continue twenty-five years. It could 
 hold only such real estate as was necessary to its business 
 or had been mortgaged to it as security for loans. The 
 principal bank was to be at Springfield, and an office of 
 deposit and discount at Vandalia. The president and 
 directors were empowered to establish as many as six other 
 offices of discount and deposit. Ten dollars in specie or notes 
 of the Bank of the United States or certificates of deposit 
 in any of the deposit banks of the United States in New 
 York or Philadelphia, were to be paid down on each sub- 
 scription, and the remainder in such installments as the 
 directors might determine, but no installment could be 
 demanded without eight weeks' notice. As it was desired 
 that the stock be held as far as possible by the citizens of 
 the state, the charter provided that the subscription books 
 should be opened twenty days earlier within the state than 
 elsewhere, and that if upon closing them it was found that 
 more than $1,400,000 had been subscribed, the excess was to 
 be taken first from non-resident, and then from the large 
 resident, subscribers. The provisions intended to restrict 
 non-resident and extensive stock holding failed completely 
 to effect their purpose. Through numberless agents scat- 
 tered over the state, non-residents secured powers of 
 attorney from many persons, "empowering them respec- 
 tively to subscribe bank stock for them and to manage it 
 subsequently." * 
 
 In order to divorce the bank from politics the officers 
 were prohibited by the charter from membership in the 
 legislature, and the bank was forbidden to interfere in 
 elections under penalty of forfeiting its charter. The cor- 
 
 *Davidson and Stuve's History of Illinois, p. 419. 
 
25 
 
 poration was given power to borrow any sum not exceeding- 
 Si, 000, 000 and to loan it on real estate double in value to 
 the amount loaned, for a term not exceeding- five years, at a 
 rate not higher than ten per cent. It could issue notes to 
 the extent of two and one half times its capital stock paid 
 in and possessed, exclusive of deposits, and could loan and 
 discount to three times the amount of such stock. If it 
 should refuse for ten days to redeem any of its notes in 
 specie its charter was to be forfeited and damag-es assessed 
 to the holder of the notes at the rate of ten per cent, from 
 the time the notes were presented until they were paid. Notes 
 of a less denomination than five dollars were not to be 
 issued, and the legislature might, after fifteen years, re- 
 strict the issue of denominations less than ten dollars. As 
 a safeg-uard against the repetition of the "stay laws" of the 
 period of the former bank, it was provided that "The Leg- 
 islature of this State shall never pass any law retarding-, 
 obstructing, staying, protracting- or in any wise suspending 
 the collection of any debt or debts due the bank." In 
 lieu of all other taxes and impositions the bank was annually 
 to pay into the state treasury one half per cent, on its 
 capital stock paid in by individuals. 
 
 The same causes which had led to the establishment of 
 the state bank brought about a revival of the bank of Illi- 
 nois at Shawneetown, which had remained dormant since 
 its suspension in 1821. On February 12, 1835, an act was 
 passed extending- its charter for twenty years from January 
 1st, 1837. The directors were to issue a call for an install- 
 ment of its stock, and all stockholders who tailed to make 
 the payments in pursuance of the regular calls were to for- 
 feit their stock. The governor was directed to sell the 
 $100,000 of stock reserved by the charter frybe subscribed 
 by the state. If this stock could not be sold as provided 
 for, it was to remain on the books of the bank for subscrip- 
 tion. The legal rates of interest were fixed at six per cent, 
 on loans for six months or less, and eight per cent, on 
 loans for over six months. Like the state bank it was 
 to pay in lieu of taxes one half per cent, on its paid up 
 capital. The anxiety for a bank at this time was not 
 based on an actual need for it. As Ford says, "the State 
 
26 
 
 was young-. There was no social or business organization 
 upon any settled principles. * We had no 
 
 cities, no trade, no manufactures, and no punctuality in 
 the payment of debts. We exported little or nothing-. We 
 had no surplus capital, and consequently the capital for 
 banking- must come from abroad. Some few then foresaw, 
 what proved true, that it would be difficult to find directors 
 and officers for two banks and numerous branches, who, 
 from their known integrity, and financial knowledge, would 
 be entitled to the public confidence. The stockholders 
 would (as they did) reside abroad in other States. They 
 could not supervise the conduct of the directory in person. 
 It was probable that many improvident loans would be 
 made and that the banks would be greatly troubled in mak- 
 ing their collection."* 
 
 Yet the stock of the new bank was readily, even greed- 
 ily, taken, and the bank went into operation in 1835. At 
 that time a strong desire to build up a commercial emporium 
 within the state was entertained by many citizens; and 
 Alton was looked upon as the place most likely to fulfil 
 that desire. As yet, however, nearly the whole trade of 
 Illinois, Wisconsin, and the upper Mississippi, was con- 
 centrated at St. Louis. The Alton interest in the bank 
 was sufficient, in case of division, to control its manage- 
 ment. Accordingly the bank lent its aid towards building 
 up Alton and diverting the trade of the north and west 
 thither. Godfrey Oilman & Co. were supplied with $800,000 
 with which to get control of the immense lead trade from 
 the mines on Fever River and about Galena. Immediately 
 the price of lead rose from $2.75 to $4.25 per hundred. To 
 exclude further competition the Alton merchants invested 
 some two or three hundred thousand dollars in mines and 
 smelting establishments. But their agent did not stop here. 
 He began to deal in lots in Galena, and spent money pro- 
 fusely. The effect was soon apparent; property in Galena 
 rose in a few months more than 2,000 per cent. But all 
 these exertions and lavish expenditures to get control of the 
 lead trade could not keep up the price of that commodity in 
 the East, its destined market. The lead of the Alton 
 
 *Ford's History of Illinois, p. 173. 
 
27 
 
 merchants after being- stored in New York for a year or two 
 awaiting- a rise in prices, was finally sold at a ruinous 
 sacrifice. Operations in produce proved equally disastrous, 
 and it has been estimated that the bank lost al tog-ether in its 
 Alton operations nearly $1,000,000.* Instead of building up 
 Alton and giving- the bank, a monopoly of exchanges on the 
 East, the result of this scheme was to crush Alton and bring 
 the bank, in its second year of existence, to the verge of 
 bankruptcy. 
 
 In the meantime, however, the situation was on its sur- 
 face sufficiently promising. In the latter part of 1835 the 
 bank stock was at a premium of 13 per cent. This fact led 
 the governor to advise the legislature, which was then sit- 
 ting in special session, to subscribe in behalf of the state 
 for the $1,000,000 increase in its capital which the bank 
 by its charter was authorized to make. His plan was then 
 to sell the stock at a premium and turn the profit into the 
 treasury. But the legislature did not altogether follow his 
 advice. On January 16, 1836, it authorized the bank to 
 sell at public auction the additional $1,000,000 of stock 
 which its charter permitted it to issue; to establish three 
 additional branches at its option; and to have fifty days, in 
 addition to the ten previously allowed, for the redemption of 
 its notes after presentation; but none of these provisions 
 were to take effect until the bank had contracted with the 
 governor to redeem the Wiggins loanf with the interest 
 that should accrue thereafter on the same. This condition 
 was accepted by the bank on the 9th of the following June. 
 The legislature also made the bank paper receivable in pay- 
 ment of the revenue of the state, and of the college, school, 
 and seminary debts. 
 
 By the summer of 1836 land and town lot speculation 
 was in full blast in Illinois, and the follies of 1819 were re- 
 peated on a larger scale. Chicago had been the starting 
 place, and was still the center, of this activity. Nearly 
 every one had town lots for sale, and naturally enough all 
 were impatient for a great influx of immigration and the 
 
 *Ford's History of Illinois, p. 178. This paragraph is taken largely 
 from this author. 
 tSee p. 20. 
 
28 
 
 rapid development of the state. It was believed that these 
 could be obtained by a system of improvements. The peo- 
 ple soon became enthusiastic on the subject, and an in- 
 ternal improvment convention was assembled at the same 
 time that the legislature of 1836-37 met. The convention 
 recommended that the legislature adopt a system of inter- 
 nal improvements which "should be commensurate with 
 the wants of the people." Thus urged the legislature 
 passed an act "to establish and maintain a general system 
 of internal improvements." The act established what was 
 called a Board of Fund Commissioners and provided for a 
 vast system of works in the way of improving navigable 
 rivers, and constructing canals and railroads. For carry- 
 ing out the proposed schemes the legislature voted a 
 loan of $8,000,000. The total expenses of the government 
 of the state from its admission up to 1836, did not reach $1,- 
 000,000. Truly indeed did "mere possibilities appear highly 
 probable, and probabilities wear the livery of certainty it- 
 self." 
 
 On February 28, 1837, the Bank of Illinois was autho- 
 rized by the legislature to borrow $250,000 and loan the 
 same upon real estate security at a rate not higher than ten 
 per cent. On March 2 the governor was instructed to sub- 
 scribe for the $100,000 of stock reserved to the state by the 
 charter of the state bank of Illinois.* Two days later an 
 act was passed increasing the capital stock of the state bank 
 $2,000,000, to be subscribed wholly by the state, and that 
 of the Shawneetown bank $1,400,000, $1,000,000 to be sub- 
 scribed by the state and $400,000 by private subscription; 
 provided that the consent of the banks should first be ob- 
 tained, f Ten per cent, of the stock subscribed was to be 
 paid by the state (in specie) as had been done by private 
 stockholders. J The fund commissioners were authorized 
 to negotiate a loan, not exceeding $3, 000, 000, for which they 
 were to issue certificates of stock called "the Illinois bank 
 and International Improvement stock." When the increase 
 in the stock of these banks was subscribed by the state, the 
 
 *See p. 24. It had not been sold. 
 
 tSee error as to this in Davidson and Stuve's History of Illinois, p. 
 240. 
 
 tSee p. 24. 
 
29 
 
 legislature was to elect five additional directors for the 
 state bank and nine for the Shawneetown bank. This still 
 left a majority of the directors of each bank private 
 stockholders, although the state held much the larger por- 
 tion of the stock of each. The Shawneetown bank was 
 authorized to establish three branches of discount and de- 
 posit, one at Alton, one at Jacksonville, and one at Law- 
 renceville, whenever the interests of the community or bank 
 should require it. The fund commissioners might deposit 
 in any bank or banks of the state, all funds obtained for in- 
 ternal improvements; and the banks were made the fiscal 
 agents of the state in respect to all internal improvement 
 funds. They were to make quarterly reports of their con- 
 dition to the fund commissioners, and the legislature mig-ht, 
 by committee, make such examinations of their affairs as it 
 deemed proper. All bank notes were made payable where 
 issued. It was expected that the bank stock thus provided 
 would command a premium of at least ten per cent., since 
 the first $1,500,000 of stock, offered in 1835, had risen to 13 
 per cent, above par, and that the state's share of the stock 
 would yield a handsome dividend. Accordingly the bill pro- 
 vided that the dividends and profits accruing- from the stock 
 should be applied first to payment of interest on the loans 
 authorized by the same act; that the balance, tog-ether with 
 the premium on stock sold, should constitute a fund to be 
 held inviolable for the payment of the interest on the loans 
 authorized by the internal improvement act; and finally 
 that whatever balance of the dividends and profits remained 
 should be deposited in the banks to the account of the fund 
 commissioners. By another act of the same date the banks 
 were made depositories of the state revenues, which they 
 were to receive, and, upon the warrants of the auditor, pay 
 out without charge. 
 
 The fact that most of the officers of the state bank were 
 whig-s caused it to be regarded as a whig concern. Under 
 the leadership of judge Smith, who now pronounced the 
 bank unconstitutional, although he had written its charter 
 and advocated its passage through the legislature, and 
 judge McRoberts, receiver of public moneys at Danville, 
 the democrats maintained a strong opposition to it. An 
 
30 
 
 act of Congress of the previous session had provided that 
 the surplus revenue from the sale of public lands mig-ht be 
 deposited in the banks of the various states. The bank 
 made an effort to get a share of these deposits, but it was 
 so hated by the democrats, and they made such represen- 
 tations at Washington as to its unsoundness, that the Sec- 
 retary of the Treasury refused its request. Its notes fell 
 below par and were g-athered up and presented for specie, 
 which was then paid into the land office for public lands, 
 and thus drawn out of the state. To check in some measure 
 this constant drain of specie the bank resorted to the expe- 
 dient of g-etting- its notes in circulation as far as possible 
 from the branch where they were issued. 
 
 The state treasury had been solvent in 1835, but when, 
 after the old plan of making- the bank the custodian of 
 the public funds had been adopted, the bank's paper had 
 beg-un to depreciate, the road to bankruptcy was entered 
 upon and was traveled before 1838. 
 
 By the measures passed in the winter of 1837 the banks 
 and the state were inseparably linked tog-ether, and the gig-an- 
 tic improvement scheme involved both alike in ruin. This 
 scheme has a history of its own and can only be mentioned 
 here. A canal connecting Lake Michig-an and the Illinois 
 River had been the dream of every statesman since 1820, 
 and its realization now seemed near at hand. The first 
 difficulty arose when the bonds which the state issued for 
 the canal loan were taken east to be sold. To the great 
 surprise of the commissioners they could not be disposed of. 
 In this strait the banks came to the rescue and took $2,- 
 665,000 of the bonds at par. The Shawneetown bank dis- 
 posed of its share of $900,000, but the remaining- $1,765,000 
 of them which fell to the state bank were not sold but were 
 used as capital and the bank's business expanded accord- 
 ingly. The condition of the Illinois banks at this time and 
 for various years up to 1863 as well, may be seen from the 
 tables on pag-es 55 and 56. 
 
 Within two months after the passag-e of the internal 
 improvement act, and before the scheme could be fairly 
 launched, there came the financial revulsion of 1837. The 
 expansion of the banks, of which the internal improvement 
 
31 
 
 craze had been the chief cause, bari reached its widest limits 
 when the crash came. The causes and history of this panic 
 are too well known to need mention here. By May the 
 banks in the surrounding- states had suspended, and the Illi- 
 nois banks, though solvent, could no longer stand the 
 strain. By their articles of incorporation they could not 
 suspend specie payments longer than sixty days without for- 
 feiting their charters. But they had been made the fiscal 
 agents of the state, and all the state moneys and the internal 
 improvement funds, amounting in all to $1,055,604, were de 
 posited with them. If the banks were forced into liquidation, 
 it would mean a great loss to the state and the failure 
 of the whole internal improvement scheme. To avoid this 
 catastrophe the canal commissioners wrote to the governor 
 urging him to convene the general assembly for the purpose 
 of relieving the banks, which they declared to be perfectly 
 solvent, but manifestly unable to resume, or at all events to 
 continue, specie payments while all the other banks of the 
 country were in suspension. A special session was according- 
 ly called for July 10. In his message the governor made a 
 statement of the case without directly recommending that 
 suspension be legalized, though he did recommend a partial 
 repeal of the internal improvement act. The legislature legal- 
 ized the suspension, but left the internal impiovement act in- 
 tact. By an act of July 21, all the state's bank stock was 
 pledged to redeem any loans made for internal improvement. 
 On the same day that provision of law which declared that no 
 bank should refuse for sixty days to redeem its notes in specie 
 upon penalty of forfeiting its charter, was suspended until the 
 end of the next general or special session of the general as- 
 sembly; provided that each bank should first agree to conform 
 to the following conditions: Make no dividend before re- 
 suming specie payments; neither sell, dispose of nor pay out 
 any of its specie, except for change, and in sums under five 
 dollars; make monthly reports to the governor of its condi- 
 tion; not increase its circulation beyond the amount of capital 
 stock actually paid in; receive and pay out any funds belong- 
 ing to the state, free of charge; allow such of its debtors as 
 were citizens and residents of the state to pay their debts in in- 
 stallments of ten per cent, each, upon executing new notes 
 
 OK THE 
 
 UNJV- 
 
32 
 
 with approved security; and surrender its charter if any of 
 these conditions were violated. The conditions were 
 promptly accepted by the banks. "It will be re- 
 membered that the legislature, in 1835, in the law 
 incorporating the state banks of Illinois, had solemnly 
 enacted that the legislature of the state should never pass any 
 law retarding, staying, protracting, or in any wise suspending 
 the collection of any debt or debts due the state bank. It 
 furnishes a somewhat striking example of the futility of such 
 provisions not incorporated into a paramount written consti- 
 tution."* 
 
 At this session complaints were made of mismanagement 
 of the canal funds by the banks, but an examination by com- 
 mittees produced no results. 
 
 By this time party lines had become closely drawn upon 
 the subject of the banks. The whigs supported them and the 
 acts legalizing suspension, while the democrats opposed both. 
 The whigs regarded the banks as institutions of the state, and 
 denounced the democrats for opposing them as disloyal and 
 opposed to the government. This bitter partisanship was in a 
 way a benefit to the banks, for it gave them staunch and un- 
 swerving friends among the whigs. 
 
 In his farewell message, delivered Dec. 24, 1838, gover- 
 nor Duncan said: "The banks of our state, as well as those 
 of our sister states * * * have resumed specie payments, and 
 are fully entitled to the public applause and confidence they 
 are now enjoying, for the prudence and judgment they have 
 used in sustaining themselves under difficulties of so threaten- 
 ing a nature."! Certain members of the general assembly 
 also warmly commended the action of the banks in suspend- 
 ing as a step likely to conserve the best interests of the state 
 and community. At the very same session governor Carlin, 
 a Jackson democrat, in his inaugural address, denounced the 
 banks in severe terms, and declared that no exigency could 
 ever justify the suspension of specie payments, and that to 
 sanction such suspension by legislation was to legalize the 
 violation of law and moral obligation. He pointed out as de- 
 
 *Lyman J. Gage's Banking in Illinois, World's Congress of Bankers and 
 Financiers, p. 421. 
 
 tFord's History of Illinois, p. 227. 
 
33 
 
 fects of the banking system, "the difficulty of exacting from 
 the banks a strict and rigid compliance with the provisions of 
 their charters and of compelling them by process of law to 
 meet their various obligations and contracts; and the impos- 
 sibility of preventing them from using their power and in- 
 fluence to affect and control the politics of the country." 
 
 At the session of the legislature in 1838 an act was passed, 
 known as the small note act, to protect the state banks from 
 competition of private bankers. Several insurance, and other, 
 companies, notably the Chicago Marine and Fire Insurance 
 Company, had taken advantage of the privilege conferred by 
 their charters of loaning money and receiving it on deposit, 
 to issue certificates of deposit, which circulated as money and 
 were generally more certain of redemption than bank notes. 
 The new law declared that notes of a denomination less than 
 five dollars, issued by any banking institution not chartered 
 by the state to issue notes, should not be payable; that debts 
 incurred by receiving such notes should be uncollectable ; and 
 that any person passing them should be liable to severe pun- 
 ishment. 
 
 In March, 1839, the power of appointing state directors 
 to the banks was transferred from the legislature to the gov- 
 ernor, and the Shawneetown bank was authorized to establish 
 two additional branches. At the same time a joint resolution 
 was passed by the general assembly denouncing the action of 
 the general government in refusing to make the Illinois banks 
 depositories of the public money, and depositing it instead in 
 the bank of Missouri; an action which, according to the reso- 
 lution, was manifestly injurious to the interests of the people 
 of the state. 
 
 In September, 1839, upon the promise of governor Carlin 
 to deposit $500,000 of internal improvement bonds as col- 
 lateral security, the Shawneetown bank loaned the commis- 
 sioners of public works $200,000. The governor's promise 
 was never fulfilled. Ford says* that this sum, together with 
 $80,000 previously loaned for building the state house, was 
 never repaid. By an act of Feb. 26, 1841, the legislature di- 
 rected the debt to be paid in auditor's warrants of a denomi- 
 nation of $10,000, at 6 per cent, interest, and according to a 
 *History of Illinois, p.224. 
 
34 
 
 communication from an agent of the bank to the governor in 
 January, 1843, tne full amount was held by the bank at that 
 time in state bonds and scrip.* 
 
 When the legislature met in December, 1839, the crisis 
 of 1839 had already come and the banks had once more sus- 
 pended specie payment. Governor Carlin again attacked the 
 banks, especially the state bank, on much the same grounds as 
 before. He declared that the banking system of the state was 
 at war with the genius of a free government, and was radical- 
 ly defective ; that the state bank having set at defiance the will 
 of the community by the suspension of specie payments, no 
 longer merited any favors at the hands of the legislature. 
 Therefore he recommended that no law be passed to legalize 
 the suspension by the bank, and that a rigid and thorough ex- 
 amination be instituted into its condition. Such an examina- 
 tion was at once ordered by the legislature. Most of the in- 
 quiries made by the investigating committee were satisfactor- 
 ily answered by the bank. It appeared, however, that the bank 
 directors had in general been the largest borrowers ; that God- 
 frey Gilman & Co., of Alton, had at one time had loans to 
 the amount of $800,748; that Samuel Wiggins, of Cincin- 
 nati, having orginally taken $200,000 of bank stock, had ob- 
 tained loans to the amount of $108,000 upon the pledge of his 
 stock and had used the money thus obtained to meet his in- 
 stallments on the stock; that the Chicago branch, though with- 
 out the knowledge of the parent bank, had been engaged in 
 the pork trade; and that the parent bank had made a venture 
 in lead. 
 
 When this report was received the legislature, in which 
 the bank had many friends, again legalized its suspension of 
 specie payments, notwithstanding the governor's recommen- 
 dation to the contrary. The time limit and the conditions of 
 this suspension were the same as had been made in 1837, 
 with the additional proviso that the banks should make no 
 loan on a pledge of their own stock, nor suffer any person to 
 become indebted to them for over $10,000 on his own paper, 
 or $25,000 on bills of exchange. The Chicago branch was 
 ordered removed, and on the I4th of the following July it was 
 * House Reports, 1842-43, p. 202. 
 
35 
 
 transferred to Rockport. The other branches in operation at 
 this time, and located at Galena, Jacksonville, Belleville, 
 Mount Carmel, Alton, Quincy and Vandalia, were all con- 
 tinued. The internal improvement law was repealed and 
 operations under it stopped. The state debt was over $10,000- 
 ooo, and since the treasury was completely bankrupt interest 
 on it had to be met by further loans. 
 
 The legislature of 1840-41 was convened two weeks ear- 
 lier than usual in order to make some provisions for paying 
 the interest on the state debt. The debt by this time 
 amounted to $13,643,601, and the annual interest on it greatly 
 exceeded the state's revenue.* 
 
 In his message the governor presented the alternatives of 
 mcrasing taxation or increasing the state's banking capital, 
 but strongly advised against the latter. The committee on 
 finance, however, advised that, since there existed on the part 
 of the people such unwillingness to pay taxes, the bank capital 
 be increased to six millions. This increase, they thought, 
 would produce a reaction in business and enable the banks to 
 resume and sustain themselves, and even declare a dividend 
 of perhaps nine per cent. This dividend would, they declared, 
 pay the interest not only on the sum invested, but also on the 
 larger part of the state's debt. "Taxation for any public en- 
 terprise will be entirely avoided, by gradually increasing the 
 banking capital as the commerce and the population of the 
 state demands." Very fortunately the recommendation of the 
 committee was rejected and increased taxes were voted, the 
 immediate emergency having been met by the hypothecation 
 of state bonds. 
 
 The legislature was democratic and therefore opposed to 
 permitting the banks to continue in suspension. These institu- 
 tions had declared their ability and intention to resume on Jan- 
 uary, 15, 1841, the date fixed for resumption generally through- 
 out the United States, but their enemies were more anxious 
 to destroy them than to have them resume. Governor Carlin, 
 in his message, repeated his former denunciations of the banks. 
 It will be remembered that suspension had been legalized in 
 1839 to extend to the end of the next regular or special ses- 
 *Governor's Message, 1840. 
 
36 
 
 sion. The democrats now contended that that part of this ses- 
 sion preceding the time for the regular session to begin, con- 
 stituted a special session, and that if it were adjourned sine die 
 the banks would have to resume specie payments or forfeit 
 their charters. The whigs claimed that the whole was but 
 one session, and attempted to defeat the adjournment sine die, 
 by breaking a quorum. To prevent this the democrats closed 
 the doors, whereupon several whigs, Abraham Lincoln 
 among them, leaped out of the windows. Enough were de- 
 tained, however, to make a quorum, the legislature adjourned, 
 and the democrats believed that the banks were abolished. 
 But such was not the case, for though the banks failed to re- 
 sume even by January 15, the date they themselves had set 
 for the resumption, before the end of the regular session an 
 act was passed which set aside any forfeiture that had been 
 caused by the failure of the banks to redeem their notes. The 
 same act legalized indefinite suspension on the usual condi- 
 tions, but with the additional proviso on the part of the state 
 bank that it purchase at par $200,000 of state bonds in semi- 
 annual installments of $50,000 each. The Chicago branch 
 was reopened. Debtors were again allowed to pay their debts 
 by executing new notes and paying a ten per cent, installment, 
 and the bank was given the privilege of issuing notes in de- 
 nominations of one, two and three dollars until January ist, 
 1843. At this session, also, the singular condition was imposed 
 upon a manufacturing company in the grant of its charter, 
 that all sums received above $100 must be deposited in the 
 state bank at Vandalia. It was believed that the privilege of 
 issuing small notes would enable the banks to make an earlier 
 resumption. Of course it had the opposite effect. 
 
 The change of the legislature from a hostile to a friendly 
 attitude toward the bank may be accounted for by the fact 
 that since the bank was the custodian of the state's funds and 
 revenues was practically the state treasury the members 
 were entirely dependent upon it for their pay. Auditor's 
 warrants, issued at fifty cents on the dollar, could be cashed 
 only at the bank, which fact made many of the erstwhile hostile 
 now desirous of conciliating that institution. Many direct 
 charges of corruption and bribery were made against the bank 
 
37 
 
 at the time and have been made since but they are without 
 absolute proof. 
 
 The financial condition of the state at this time is revealed 
 by these words in the auditor's report for December 5, 1842: 
 ''Toward the close of the last session of the legislature, 
 when the state bank refused to redeem the auditor's warrants, 
 the members of the general assembly, after having been in 
 session about three months, were unpaid and without means; 
 the judges and other officers were in a similar condition, and 
 the credit of the state, at the same time, had sunk so low that 
 the public documents could not be obtained from the post 
 office, until the officers themselves became personally re- 
 sponsible for the postage. In this extremity the state bank 
 was able to dictate its own terms to the legislature and extort 
 from that body whatever concessions it chose to demand. "*j 
 
 The whigs claimed that this deplorable condition of 
 affairs was caused by a loss of confidence which the vindic- 
 tive opposition of the democrats to the banks had brought 
 about. "According to their views," says Ford,* "if the banks 
 owed five times as much as they were able to pay, and if the 
 people owed to each other and to the banks more than they 
 were able to pay, and yet if the whole people could be per- 
 suaded to believe the incredible falsehood that all were able 
 to pay, this would be a revival of confidence rather than the 
 restoration of a general delusion." 
 
 The banks soon passed the stage where confidence could 
 aid them. The state bank, in order to regain the favor of the 
 legislature and the people, which it knew it had forfeited, 
 taxed its resources to redeem outstanding auditor's warrants 
 to the amount of $300,000 Its notes, which had been at a dis- 
 count ever since the United States had refused to make it a 
 depository for the public money, had gradually sunk to 
 twelve and fifteen per cent, below par. Finally the action of 
 certain of the bank's directors, contractors to build the 
 Northern Cross railroad, brought on the culmination of its 
 misfortunes. For building the railroad they were to be paid 
 in canal bonds, which at that time were unsalable. To ob- 
 
 *History of Illinois, p. 227. 
 
38 
 
 tain loans from the bank they defeated a proposition not to 
 prevent expansion during suspension, and declared that the 
 bank could not issue an excess of paper while in suspension. 
 Having obtained loans themselves, they were compelled to 
 vote loans to others also. Greater tension was thus put upon 
 the bank's credit, and its notes, increased in volume, sank 
 still lower. At length, in February, 1842, the state bank of 
 Illinois, with a circulation of $3,000,000, "exploded with a 
 great crash, carrying wide-spread ruin all over the state and 
 into the neighboring states and territories." In the following 
 June the bank of Illinois, at Shawneetown, to which also the 
 state was heavily indebted, with a circulation of about $i,- 
 700,000, likewise collapsed. The notes of these banks, hav- 
 ing been at a slight discount for several years, had of course 
 banished all good money from the country so that now the 
 people were left without circulating medium. This had to be 
 obtained from other states by the then tardy process of trade 
 and commerce. "The banks and the state had been partners 
 in speculation and now they were partners in embarrassment. 
 The revenues were payable in notes of these broken banks; 
 the state paid no interest on her bonds, of which the banks 
 held a large amount, and they were worth in the market but 
 fourteen cents on the dollar."* Indeed, after July, 1841, no 
 attempt was made to pay the interest on the public "debt. 
 For this reason, and from a lack of information as to its 
 cause, the inhabitants of the state came to be regarded by 
 the citizens of other states as dishonest. 
 
 Towards the end of 1842 the bank paper had fallen to 
 one-third its face value, business was stagnant, immigration 
 had ceased, and barter had to be resorted to to procure the 
 necessaries of life. Governor Ford thus sums up the situa- 
 tion, as it was when the democrats elected him to the guber- 
 natorial chair in 1842 : "The domestic treasury of the state 
 was indebted for the ordinary expenses of government to the 
 amount of about $313,000. Auditor's warrants on the treas- 
 ury were selling at fifty per cent, discount, and there was no 
 money in the treasury whatever; not even to pay postage on 
 letters. The annual revenues applicable to the payment of 
 *Davidson & Stuve's History of Illinois, p, 425. 
 
39 
 
 ordinary expenses, amounted to about $130,000. The treas- 
 ury was bankrupt; the revenues were insufficient; the people 
 were unable and unwilling to pay high taxes; and the state 
 had borrowed itself out of all credit. A debt of near fourteen 
 million dollars had been contracted for the canal, railroads 
 and other purpose. The currency of the state had been an- 
 nihilated; there was not over two or three hundred thousand 
 dollars in good money in the pockets of the whole people, 
 which occasioned a general inability to pay taxes. The 
 whole people were in debt to the merchants; nearly all of 
 whom were indebted to the banks, or to foreign merchants; 
 and the banks owed everybody ;and none were able to pay."* 
 
 What to do with the banks was therefore the problem 
 which confronted the legislature of 1842. Governor Carlin 
 in his valedictory message recommended that their charters 
 be unconditionally repealed and the banks forced into 
 liquidation. This plan, though manifestly unjust, was advo- 
 cated by the group of ultra-democrats, and was sure of popu- 
 lar favor, for the banks had made themselves so odious by 
 their many delinquencies that the people were ready to 
 countenance the most extreme measures against them. Most 
 zealous among the advocates of repeal was Lyman Trum- 
 bull, secretary of state, and he was joined, after some hesita- 
 tion, by Stephen A. Douglas . The adoption of this plan 
 meant however the probable loss of the $3,100,000 of bank 
 stockf held by the state, and governor Ford in his inaugural 
 message favored some sort of compromise. It was evident 
 that the connection of the banks with the state ought to be 
 severed, and the governor thought that some arrangement 
 could be made by which the state could get back the $2,665,- 
 ooo in bonds which had been issued to them. He recom- 
 mended that, if the banks refused or were unable to resume 
 specie payments at an early day, the legislature provide for 
 winding up their affairs promptly and withdrawing their 
 notes from circulation, or take some other measure that 
 would "relieve the country from the curse and blight of 
 broken banks, and their depreciated paper." 
 
 *History of Illinois, p. 278. 
 tSee p. 28. 
 
40 
 
 By an act of January 24, 1843, tne state bank was given 
 four years in which to wind up its affairs, a bank commis- 
 sioner to represent the state was to be appointed by the gov- 
 ernor with the consent of the senate, and the bank was to go 
 into immediate liquidation and pay out its specie pro rata 
 among its depositors and note holders, with the exception of 
 $15,000 reserved to pay the expenses of settling its affairs. It 
 was also to issue certificates of indebtedness for the residue of 
 the respective obligations, these certificates to be receivable 
 for debts due the bank or property purchased of it. The 
 specie obtained in the collection of debts was likewise to be 
 paid out pro rata to creditors at the end of every twelve 
 months, and debtors who would pay one-fifth of their loans 
 with all interest and costs, were to be allowed to renew the 
 same from time to time by executing new notes. The bank 
 was to deliver to the governor, within five days, state bonds, 
 scrip, and other evidences of debt equal to $2,050,000, and 
 was to receive in return $2,050,000 of its stock held by the 
 state, the remaining $50,000 to be reserved until the bank's 
 final dissolution. No execution was to be levied upon specie 
 in possession of the bank so long as its officers complied with 
 the rules concerning the same; all banking privileges other 
 than those necessary to wind up its business were to be with- 
 drawn, no bank property was to be sold for less than two- 
 thirds of its appraised value; and finally, the bank was re- 
 quired, within three days, to file its acceptance of these pro- 
 visions with the secretary of state. 
 
 An act "to put the bank of Illinois into liquidation," 
 passed February 25, 1843, an d to go into effect on March 3 
 following, deserves some mention, though it was suspended 
 by another measure of the same date and never went into 
 force. That ** was arbitrary and severe as well as without 
 due regard to the rights of private stockholders will be seen 
 from some of its provisions. The bank's charter was to be 
 repealed, and all its estate was to vest in three commissioners, 
 appointed by the governor, who were to proceed direct to 
 Shawneetown and take possession of the banking house and 
 all goods and chattels, credits, cash, effects, and bank bills 
 belonging to the bank; all specie was to be paid out pro rata 
 
41 
 
 among creditors and the other property disposed of for their 
 benefit; if resistance was offered the commissioners were em- 
 powered to summon the posse comitatus to their aid, and any 
 person so resisting was declared a felon and liable to im- 
 prisonment for ten years. It is plain that this act was in- 
 tended chiefly as a threat to coerce the bank into compromis- 
 ing, for on the same day another bill, entitled "an act to re- 
 duce the public debt one million dollars and put the bank of 
 Illinois into liquidation," was passed. This measure was 
 similar to the one for closing- the state bank and provided 
 that the bank should turn over to the state $1,000,000 of state 
 liabilities, half in five days and half in twelve months, and 
 should receive from the governor in return an equal amount 
 of its stock, which the state held. On acceptance of these 
 provisions the act "to put the bank of Illinois into liquida- 
 tion" was to be suspended for four years. 
 
 By these acts the public debt was reduced by $3,050,000. 
 The action of the state in cancelling $3,050,000 of its bonds 
 by a transfer of an equal amount of bank stock by legislative 
 action has been criticised as not equitable towards the bill- 
 holders, or towards the private stockholders who had paid 
 cash for their stock. Certainly if an individual who bought 
 bank stock in 1837 had paid for it in his notes, as the state did 
 in bonds, he would not, after the bank had been acknowl- 
 edged insolvent, have been allowed to take them up by a re- 
 turn of the stock.* 
 
 But meanwhile others than the state were taking care of 
 their interests. Prior to this legislation, certain speculators 
 bought the controlling interest in the bank and had them- 
 selves elected directors. Then they secretly borrowed $100,- 
 ooo of its specie, transmitted it to New York, and bought at 
 thirty cents on the dollar $333,000 of the $804,000 of interest 
 bonds which had been illegally hypothecated with brokers 
 there by the fund commissioner in 1841. They then paid with 
 these bonds the $100,000 of specie which they had borrowed, 
 and their stock notes which the bank held. After the bonds had 
 passed into the possession of the bank, they were tendered to 
 the governor in 1844 in exchange for stock according to the 
 
 *Brown's History of Illinois, p. 442. 
 
42 
 
 liquidation law. At first the governor refused to receive them, 
 inasmuch as a law had been passed for the settlement of the 
 bonds hypothecated in New York; but later, when it became 
 apparent that these bonds had been widely scattered and the 
 law could not be complied with, he accepted them on condi- 
 tions subject to the approval of the legislature. That body 
 would not at first ratify the contract, but later, in 1847, com- 
 promised by receiving the bonds at forty-eight cents on the 
 dollar.* 
 
 Subsequently the state bank of Missouri, jointly with 
 several other creditors, brought a chancery suit in the United 
 States Court for the District of Illinois against the bank and 
 its officers and agents. By the decree in this case three re- 
 ceivers were appointed to take charge of the bank's assets, 
 make sale, and apply the proceeds in payment of its debts 
 and in redemption of its issues, and to settle its affairs gen- 
 erally. But one of the trustees qualified, and upon his death 
 judge Thomas, of Jacksonville, was appointed in his place, 
 and acted in that capacity about twenty years. In 1871 he 
 remitted for cancellation to the clerk of the United States Cir- 
 cuit Court, at Chicago, who had been appointed a special 
 auditor, the last of the notes and certificates, amounting to 
 about $700. f 
 
 The charter of the Cairo bank, which, it will be remem- 
 bered, had been granted in 1818, but not brought into ex- 
 istence until 1836, was repealed and the bank put into liquida- 
 tion on March 4, 1843. The institution was under the man- 
 agement of the Cairo City and Canal Company which had 
 come into possession of some of the lands mentioned in the 
 charter of the City and Bank of Cairo of 1818, and thereby 
 claimed the right to exercise banking functions, although its 
 own charter expressly prohibited all banking powers. Upon 
 this claim it established a branch at Kaskaskia, issued notes, 
 and carried on a general banking business for a few years, 
 but suspended in 1839 an d did not again resume. No com- 
 promise was offered it, but all its property was vested in a 
 trustee with the largest possible powers and with orders to 
 
 *Davidson & Stuye's History of Illinois, p. 4JJ6. 
 tlbid. 
 
43 
 
 collect the assets and pay them out pro rata as soon as pos- 
 sible. 
 
 This was the end of banks in Illinois owned in whole or 
 in part by the state. At once affairs began to brighten; audi- 
 tor's warrants rose to 85 and 90 cents, and state bonds from 
 14 to 40 cents; immigration began again and a period of 
 great prosperity followed. Various causes contributed to 
 bring about this result, th ough governor French in his in- 
 augural message in 1846 attributed it wholly to the liquida- 
 tion of the banks. And it is certainly true that throughout 
 the period of their connection the banks and the state had 
 proven "a mutual curse." 
 
 FOURTH PERIOD: FREE, OR STOOK, 
 BANKS, 1851-1863. 
 
 From 1843 to 1851 there were no banks of issue in Illi- 
 nois. The old banks were being wound up and various laws 
 were passed by the legislatures of 1846-47, 1848-49, and 
 1850-51, to expedite and direct their dissolution. The lead- 
 ing political party of the state, the democratic, held, and in 
 its platform of 1845 declared, that the state ought not to in- 
 corporate or charter either state banks or any other banking 
 institutions whatever. In 1847 a convention was held to 
 draft a new constitution, which was submitted to the people 
 and adopted by them in 1848. The democratic papers of the 
 state urged that the constitution be made to forbid banking 
 institutions, and an article was proposed in the convention 
 which forbade the legislature to create any bank or authorize 
 the issuing of bank paper, and required it to prohibit by 
 adequate penalties the circulation of any bank paper within 
 the state. This proposition was defeated by a single vote, 
 and the provisions finally inserted on the subject were much 
 milder. They read as follows:* 
 
 "No state bank shall hereafter be created, nor shall the 
 
 state own or be liable for any stock in any corporation or 
 
 joint stock association for banking purposes to be hereafter 
 
 created. The stockholders in every corporation or joint 
 
 *Davidson & Stuve's History of Illinois, p. 426. 
 
44 
 
 stock association for banking purposes issuing bank notes, 
 or any kind of paper credits to circulate as money, shall be in- 
 dividually responsible, to the amount of their respective 
 share, or shares, of stock in any such corporation or associa- 
 tion, for all its debts and liabilities of every kind. No act of 
 the general assembly, authorizing corporations or associa- 
 tions with banking powers, shall go into effect, or in anv 
 manner be in force, unless the same shall be submitted to 
 the people at the general election next succeeding the pas- 
 sage of the same, and be approved by a majority of all the 
 votes cast at such election for and against such law." 
 
 By the end of 1848 the establishment of a banking sys- 
 tem was again agitated. It was proposed to divide the state 
 into three banking districts with a board of bank trustees for 
 each. Circulating notes were to be issued to banking asso- 
 ciations upon deposit of United States stock and a certain 
 portion of gold as security. The scheme, however, failed of 
 adoption, though in respect to security it was certainly pre- 
 ferable to the one afterwards adopted. 
 
 In his message in 1851, governor French took strong 
 ground against the revival of banks in the state. This did 
 not, however, deter the legislature from passing an act to es- 
 tablish a general system of banking. li was modeled after 
 the banking law of New York. It provided that any number 
 of persons might form a banking association upon deposit- 
 ing with the auditor at least $50,000 of United States stocks 
 on which full interest was anually paid, or Illinois stocks 
 valued at twenty per cent, less than they had been sold for 
 in New York for six months previous, no stock to be valued 
 above its par value, or its market value at the time of de- 
 posit. The persons making this deposit were to receive 
 from the auditor notes of denominations above one dollar to 
 an amount equal in value to the stocks deposited. The issu- 
 ing of notes by the auditor in excess of the amount of stocks 
 deposited was forbidden under heavy penalties; and stock- 
 holders or creditors to the amount of three thousand dollars 
 or more might at any time apply to the circuit court for a 
 judicial examination of the bank. The auditor was to deliver 
 to the bankers an amount of their deposited stocks equal to 
 
45 
 
 the amount of any notes returned to him for cancellation. 
 Notes were redeemable only at the bank where issued. When 
 any bank refused to pay its notes on demand the auditor was 
 to sell the pledged bonds at auction in New York, and pay 
 the notes, with 12 1-2 per cent, interest as damage from the 
 proceeds. The bank was to be prohibited from exercising fur- 
 ther banking privileges, its assets were to be taken by a receiver 
 and applied first to the redemption of notes, second, to the 
 payment of other indebtedness, and third, to the payment of 
 stockholders. If the stocks and other effects of the bank 
 were insufficient to redeem its notes, the stockholders were 
 to be liable in their private capacities to the amount of their 
 shares. A board of three commissioners was provided for, 
 who were to examine the banks annually and inspect the se- 
 curities held by the auditor; if any of these had depreciated, 
 additional security was to be required. The officers of each 
 bank were to make quarterly statements of the condition of 
 the bank to the auditor. A bank might go into voluntary 
 liquidation after redeeming 90 per cent, of its notes and de- 
 positing specie for the remainder. 
 
 Upon the passage of this bill banks and banking at once 
 became again a source of political strife. The bill, though 
 passed by a democratic legislature, was returned by gov- 
 ernor French, himself a democrat, with a strongly worded 
 veto message.* Despite the governor's objections, however, 
 the bill passed both houses on the same day it was returned, 
 February 15, and became a law subject to the approval of the 
 people at the next general election. 
 
 There was great contrariety of opinion as to the prob- 
 able effect of the new law. Some feared that the provisions 
 of the act were so stringent that few banks would be organ- 
 ized under it; others "ran wild after the discovery of the new 
 and safe scheme whereby the capitalist, contrary to Frank- 
 lin's aphorism, might eat his cake and have his cake invest 
 his money in bonds, deposit them, and from the hands of the 
 auditor have his money again and own his bonds too."f 
 The currency of the state was already made up largely of 
 
 *House Reports, 1851, p. 493. 
 
 tDavidson & Stave's History of Illinois, p. 586. 
 
46 
 
 notes issued by similar banking institutions of other states 
 and the advocates of the measure urged that this state should 
 supply its own currency and derive the benefits to trade and 
 commerce which banks could confer. In order to have the 
 law voted on as early as possible and yet at general election, 
 as the constitution required, the general assembly resorted to 
 the expedient of legislating all the county treasurers out of 
 office and ordering a new election; and at this election, in 
 November, 1851, after the friends and opponents of the law 
 had thoroughly canvassed the state, it was adopted by a vote 
 of 37,626 to 31,405. 
 
 At the time this law went into operation Illinois was 
 growing at a marvelous rate and banking facilities and a 
 bank currency were certainly needed by her business interests. 
 Within a year seventeen banks were started, with a cir- 
 culation of $1,351,788. The stocks deposited with the audi- 
 tor to secure the circulation were chiefly Illinois canal, in- 
 terest, and internal improvement, bonds; the remainder being 
 Virginia 6's, and Ohio, Missouri, Kentucky, and California 
 bonds. This addition to the circulating medium produced a 
 rapid expansion of business and enhanced prices. A specula- 
 tive tendency soon appeared and some newspapers declared 
 that the experience of 1819 and 1837 was about to be re- 
 peated, but the expansion at this time was largely due to nat- 
 ural and legitimate causes. Illinois was at the height of pros- 
 perity. A vast tide of immigration was pouring in, railroads 
 and other improvements were being carried rapidly forward, 
 and commerce was developing accordingly. This rapid 
 growth, however, soon led to over-expansion, which, with 
 other causes produced the panic of 1854. This panic was es- 
 pecially felt in the west and northwest. "In Ohio, Illinois, 
 Michigan, Wisconsin, Iowa, and Missouri * * * a large circu- 
 lation of bank notes, mostly of the free banks, had been ob- 
 tained through expenditures for railroad purposes, and the 
 general expansion of business. When the contraction began, 
 this circulation came in rapidly and found the banks wholly 
 u nprepared to meet it."* The Illinois banks by drawing- on their 
 
 *Hunt's Merchants' Magazine, Dec. 1854. Summer's History of Ameri- 
 can Currency, p. 178. 
 
47 
 
 balances in the east and borrowing to the extent of their credit 
 managed to continue payments. A slight decline in their 
 stocks deposited was at once made good by additional se- 
 curities. The auditor's report for 1854 shows that the num- 
 ber of banks had increased to thirty-three, two of which, 
 however, had gone into liquidation solvent; and one, having 
 failed to redeem its notes, had been placed in the hands of a 
 receiver and its securities advertised. The securities de- 
 posited at this time were all at par except those of Ca 1 ifornia, 
 which were rated at 80 per cent., and those of Illinois, the 
 highest of which were rated at fifty per cent. The total 
 amount of the stocks deposited was $2,651,210, and the 
 amount of circulating notes outstanding was $2,649,341.* 
 
 The banks had not, however, succeeded in demonstrat- 
 ing their usefulness sufficiently to win over all their oppon- 
 ents. In his message of January 3, 1853, governor French 
 renewed his attack on them, protesting in the interests of the 
 people, "against a mass of circulating trash in the guise of a 
 paper currency, which is finding its way into every part of the 
 state." That a well secured paper currency should fail to 
 drive out worthless foreign and equally worthless domestic 
 issues was, of course, the only possible result. And the legis- 
 lature attempted the equally vain expedient of trying to legis- 
 late foreign irredeemable paper out of the state. An act, 
 commonly known as the "foreign small note act," was passed 
 on Feb. 10, 1853, and went into force on the first of the fol- 
 lowing August. It provided more stringent rules for the in- 
 corporation and regulation of banks within the state; and 
 enacted that any person who should issue, pass or receive a 
 note of a denomination less than five dollars, to be used as 
 money, other than the notes of the banks of this state, or 
 specie paying banks, lawfully organized in other states, 
 should be liable to a fine of fifty dollars and imprisonment for 
 one year. The law was, however, everywhere violated from 
 the start and foreign notes continued to circulate as before. 
 
 *It will be observed that the amounts of bank circulation securities, 
 etc., as taken from the auditor's reports, do not agree with the amounts 
 given in the table taken from the comptroller's report for 1876 and inserted 
 on pages 55 and 56. Presumably the auditor's figures are the more ac- 
 curate. 
 
48 
 
 Manifestly if unlawful currency already circulated and unlaw- 
 ful banking was being carried on, they could not be pre- 
 vented by making them more unlawful. In 1855 the bank 
 commissioners recommended that banks be allowed to 
 charge ten per cent, interest, like private individuals; that 
 they be allowed to take up their securities from the auditor 
 in sums of $1,000 or more, instead of being compelled to take 
 up all but ten per cent., as was then the law; and that the dis- 
 crimination of twenty per cent, against Illinois stocks de- 
 posited as security be removed. At this session only the 
 recommendation with respect to taking up securities was 
 enacted into law. 
 
 The auditor's report for 1856 gives a list of sixty-one 
 banks, with a circulation of $6,480,873, and securities with a 
 cash value of $6,663,389. Of these sixty-one banks, eleven 
 had been closed or had gone into voluntary liquidation, leav- 
 ing fifty in operation. 
 
 The panic of 1857 severely tried the banks. The state of 
 the currency was generally regarded as the root of tie 
 trouble, and to it were ascribed the over-trading, over-im- 
 portation, stock speculation, etc.* In Illinois especially, 
 business expansion was at its greatest tension. The period 
 from 1851 to 1860 has never been equalled by this state be- 
 fore or since in rapidity of growth. To this activity from 
 natural causes the abundant currency furnished by the stock 
 banks of the different states gave an unwonted stimulus. 
 In the spring of 1857, when signs of a crisis began to be 
 manifested, some of the securities of the Illinois banks de- 
 clined. On May 8, the bank commissioners notified the 
 banks to file additional securities, and all responded save 
 two. But the securities continued to decline, and on July 
 27 another reuisition was made on the banks to file, within 
 ninety days, additional security. The failure or inability of 
 the banks to meet this requisition would have thrown into 
 the market $4,560,000 worth of securities, $2,738,000 of 
 which were Missouri stocks. In the existing conditions of 
 the market this would have depressed their value below the 
 amount necessary to redeem the notes based on them, thereby 
 *Sumner's History of American Currency, p. 185. 
 

 49 
 
 producing a depreciated currency. From fear of this result 
 it was strongly urged that the time limit of the requisition 
 should be extended, but the bank commissioners remained 
 firm and all the banks but three promptly met the call. Some 
 embarrassment was caused later, in consequence of the re- 
 fusal of the St. Louis merchants and brokers to take Illinois 
 currency. But one of the bank commissioners visited them, 
 explained the provisions of the banking system for securing 
 notes, the value of which at that time depended largely on 
 the credit of Missouri, and induced them again to accept Illi- 
 nois currency. The recovery from this crisis was rapid and 
 complete. Yet the trial to which the banks had been sub- 
 jected had exhibited their worthlessness as props to business, 
 though no material losses resulted to the people on their cir- 
 culation. 
 
 In 1857 the legislature put Illinois' bonds on an equal 
 footing with those of other states as note securities, and all 
 were to be valued at ten per cent, less than their market 
 price; and the legal rate of interest was fixed at ten per cent. 
 The principal trouble with the circulation, however, arose 
 from the fact that banks were often started in remote 
 places at which alone their notes could be presented, and 
 where they had to be presented and protested separately; 
 and the bank could cause unreasonable delay in redemption 
 by counting out small change for each bill presented. This 
 evil, also, the legislature of 1857 sought to remedy. The lo- 
 cation of a bank in a place of less than two hundred inhabi- 
 tants was forbidden; the banks were required to be located 
 at the place where their notes were dated; and the notes were 
 made redeemable and could be protested in packages. The 
 Supreme Court of the state declared these amendments consti- 
 tutional without submission to the people. Yet the amend- 
 ments failed to accomplish all the desired results, for as late 
 as February, 1861, the bank commissioners reported: "The 
 business of banking has gone in many cases into the hands 
 of irresponsible and non-resident persons, who, having no 
 object of interest except to get their notes into circulation 
 and leave the bill holders to take care of them, have located 
 their banks in remote and inaccesible places, where no legiti- 
 
50 
 
 mate business can be done, or is expected to be done, and 
 thus the country has become flooded with what is known as 
 'wild cat' currency." 
 
 In 1858, fifty-six banks were reported, nine of which had 
 filed certificates of their intention to wind up their business, 
 and two had deposited specie with the auditor and withdrawn 
 their securities. The falling off in the number of banks was 
 doubtless due to the panic of 1857. The securities of deposit 
 amounted to $7,057,859. The sum total of their resources 
 was $11,000,000; their capital stock $4,000,000; the amount 
 of notes in circulation $5,000,000; the profit and loss account 
 about $1,200; and their surplus $164,000. 
 
 The figures in the report of the auditor for 1860 show 
 that one hundred and ten banks were then in operation 
 with a circulation of $12,320,694. The following table* shows 
 their securities and the cash value of the same: 
 
 STOCKS BELOW PAK. 
 
 Stocks. Par Value. Market Value. 
 
 Missouri 6's 13,026,000 At 67^ $2,042,550 
 
 Tennessee 6's 3,321,000 At 72} 2,407,725 
 
 VirginiaG's 1,284,000 At 76 975,840 
 
 Louisiana 6's 507,500 At 75 380,625 
 
 North Carolina 6's 888,000 At 82 728,160 
 
 South Carolina 6's 100,000 At 20 20,000 
 
 Georgia 6's 335,000 At 80 268,000 
 
 Kentucky 6's 66,000 At 92^ 61,050 
 
 $9,527,500 $6,883,950 
 
 PAR STOCK. 
 
 $6,883,950 
 
 Ohio 6's $ 284,855 
 
 Iowa 6's 91,000 
 
 Michigan 6's 442,000 
 
 Michigan 7's 50,000 
 
 MinnesotaS's 140,000 
 
 New York 6's.. 282,000 
 
 United States 5's 19,900 
 
 United States 6's 827,000 
 
 Illinois and Michigan Canal 531,619 
 
 Illinois New Internal Improvement Stock 323,238 
 
 Illinois 6's 1,418,000 
 
 Specie . 42,861 
 
 $ 4,452,473 
 
 $11,336,423 
 
 In the first half of 1860 banking under the general law 
 of 1851 reached its highest point. As a system of legitimate 
 banking it was faulty and lax in its provisions, but as a sys- 
 tem for furnishing a safe circulating medium it was well 
 *Bank Commissioner's Report, Dec. 14, 1858. 
 
51 
 
 guarded and successful.* During the nine years in which 
 the law had been in operation, fourteen banks had been 
 closed up, and all their notes had been redeemed at par, ex- 
 cepting in one case, and in that the discount had been but 
 three per cent.f The year 1861, however, brought new con- 
 ditions. All the securities had depreciated and the stocks of 
 southern states became almost worthless. 
 
 The general assembly, on February 14, 1861, amended 
 the law by requiring- that all securities thereafter deposited 
 should be United States or Illinois stocks and that upon the 
 depreciation for sixty days of any state bond, the auditor was 
 to call upon the banks to make up the deficiency within six 
 months. Springfield and Chicago were made centers of re- 
 demption, interest damages on notes protested were raised 
 from 12 1-2 to 20 per cent., and the auditor was directed to 
 pay out proceeds from bonds deposited pro rata -on notes 
 protested or notes of banks gone into liquidation. Within a 
 month the depreciation of the various state stocks had be- 
 come so great that many of the notes began to pass from 
 hand to hand with "a nervous precipitancy which showed a 
 general distrust of their value." The city banks tried to send 
 the doubtful bills out to the country to buy produce, but the 
 farmers were also distrustful and the bills were returned as 
 fast as they could be sent out. Chicago brokers and later, 
 the railroads, issued daily lists of the notes they would re- 
 ceive, made out arbitrarily and often rejecting notes shown 
 by the auditor's reports to be secure. No one could do busi- 
 ness without having one of the lists, or bank note reporters, 
 constantly with him. The notes came to be divided into 
 "Illinois common" and "Illinois preferred," of different 
 values, and New York exchange soon rose to 13 per cent, 
 above the preferred. To make matters worse large amounts 
 of the almost valueless currency of the southern states was in 
 circulation. "A well known banker bought a bank and en- 
 dorsed with his own hand all its notes as they came to him. 
 An equally well known editor, whenever he could get posses- 
 
 *Moses' History of Illinois, I. p. 570. 
 tGovernor's Message, 1861. 
 
52 
 
 sion of one of these notes, printed beneath the endorsement 
 a picture of wild cats quarreling and reissued them."* 
 
 A special session of the legislature met in April, and 
 various schemes for relief, one proposing that the state 
 guarantee the bills, were suggested. All failed of adoption. 
 A very elaborate plan for a new banking system, entitled "An 
 act providing for the organization of a central bank to be 
 called the Union Bank of Illinois, with as many branches as 
 might be organized under the charter," was passed by the 
 legislature but rejected by the people. Many of the banks 
 were unable to comply with the commissioners' demands for 
 additional securities, and by 1862 their number had de- 
 creased from no to 62, and most of their notes had been re- 
 deemed by surrendering them for the securities. The audi- 
 tor's report for 1864 shows twenty-three banks in operation 
 and ninety-eight in suspension. By this time the national 
 banking system had gone into operation and the tax on the 
 issues of state banks gradually extinguished their circulation. 
 A law was passed in 1867 permitting state banks to file a 
 bond for their circulation, and receive their securities. An- 
 other law declared that any person or persons, not incor- 
 porated by law with banking powers, who should issue notes 
 or bills, should be deemed a common swindler and liable to 
 indictment. It also provided that no more banks should be 
 incorporated with power to issue bills. This act closes the his- 
 tory of state banks of issue in Illinois. 
 
 State banks of deposit and discount have been in opera- 
 tion under general laws since 1851. By the construction put 
 upon the constitution of 1848, these laws did not need to 
 be submitted to the people. In the constitutional convention 
 of 1869, it was unanimously agreed that while state bank 
 systems had been fully tried and had brought only disaster, 
 it would not be unwise to make some provision for a sys- 
 tem of state banks which might be used in meeting; con- 
 tingencies that might occur. Accordingly the following pro- 
 visions were incorporated in the constitution and arc now 
 the, law : 
 
 "No state bank shall hereafter be created, nor shall the 
 
 *Lymau J. Gage's Banking in Illinois, p. 437. 
 
53 
 
 state own or be liable for any stock in any corporation or 
 joint stock company or association for banking purposes, 
 now created, or to be hereafter created. No act of the Gen- 
 eral Assembly authorizing or creating corporations or asso- , 
 ciations, with banking powers, whether of issue, deposit, or 
 discount, nor amendments thereto shall go into effect, or in 
 any manner be in force unless the same shall be submitted to 
 a vote of the people at the general election next succeeding 
 the passage of the same, and be approved by a majority of 
 all the votes cast at such an election for and against such law. 
 Every stockholder in a banking corporation or institution 
 shall be individually responsible and liable to its creditors 
 over and above the amount of stock by him or her held, to 
 an amount equal to his or her respective shares so held for 
 all its liabilities accruing while he or she remains such stock- 
 holder. The suspension of specie payments by banking in- 
 stitutions, on their circulation, created by the laws of this 
 state, shall never be permitted or sanctioned. Every bank- 
 ing association now, or which may hereafter be, organized 
 under the laws of this state, shall make and publish a full 
 and accurate quarterly statement of its affairs which shall be 
 certified to under oath, by one or more of its officers, as may 
 be provided by law. If a general banking law shall be 
 enacted, it shall provide for the registry and countersigning, 
 by an officer of state, of all bills or paper credit, designed to 
 circulate as money and require security to the full amount 
 thereof to be deposited with the state treasurer, in United 
 States or Illinois state stocks to be rated at ten per cent, be- 
 low their par value; and in case of a depreciation of said 
 stocks to the amount of ten per cent, below par the bank or 
 banks owning said stocks shall be required to make up said 
 deficiency by depositing additional stocks. And said law shall 
 also provide for the recording of the names of all stockhold- 
 ers in such corporation, the amount of stock held by each at 
 the time of any; transfer thereof, and to whom such transfer 
 is made/' 
 
 Amendatory acts of the law for state banks were passed 
 in 1879, an d in 1887; and at the latter date, also an act, en- 
 titled "an act providing for a state bank system" was passed 
 
54 
 
 by the legislature and ratified by the people, and, as amended 
 in 1889, is now the law. 
 
 With these banks of deposit and discount merely and 
 with private banks this history is not concerned. "They are 
 important factors in the banking interests of this state, how- 
 ever, for it is estimated that there are in Illinois today at least 
 five hundred banks of deposit and discount, either existing 
 under such private charters or unincorporated, and a capi- 
 tal of at least $13,000,000 engaged in banking through the 
 medium of such incorporations and of private banking 
 houses. These estimates are but roughly made as accurate 
 statistics cannot be had."* 
 
 *Lyman J. Gage's Banking in Illinois, p. 433. 
 
: 55 
 
 STATISTICS OF STATE* BANKS IN ILLINOIS FOR VARIOUS 
 YEARS. PRINCIPAL LIABILITIES. 
 
 YEARS. 
 
 CAPITAL STOCK. 
 
 CIRCULATION. 
 
 DUE TO BANKS. 
 
 OTHER 
 LIABILITIES. 
 
 1835 
 
 $ 278,739 
 
 $ 178,810 
 
 $ 5,739 
 
 $ 200,000 
 
 1836 
 
 478,220 
 
 653,661 
 
 13,175 
 
 200,000 
 
 1837 
 
 2,041,760 
 
 1,565,373 
 
 37,342 
 
 1,681 
 
 1838 
 
 4,673,050 
 
 1,990,993 
 
 348,995 
 
 188,836 
 
 1839 
 
 5,435,055 
 
 3,729,513 
 
 533,494 
 
 
 1840 
 
 5,423,185 
 
 3,724,092 
 
 230,707 
 
 24,891 
 
 1841 
 
 5,386 765 
 
 4,367,829 
 
 149 104 
 
 
 1843 
 
 5,016,640 
 
 2,212,127 
 
 17,550 
 
 
 1845 
 
 2,713,640 
 
 1,183,256 
 
 2,219 
 
 23,000 
 
 1853 
 
 1,702,456 
 
 1,351,788 
 
 315,441 
 
 14,116 
 
 1854 
 
 2,513,790 
 
 2,283,526 
 
 
 294,034 
 
 1856 
 
 3,840,946 
 
 3,420,985 
 
 
 241,903 
 
 1857 
 
 5,872,144 
 
 5,534,945 
 
 210,483 
 
 157,981 
 
 1858 
 1859 
 
 4,679,325 
 4,000,334 
 
 5,238,930 
 5,707,048 
 
 19,662 
 15,621 
 
 131,764 
 525,344 
 
 1860 
 
 5,251,225 
 
 8,981,723 
 
 26,533 
 
 552,338 
 
 1861 
 
 6,750,743 
 
 11,010,837 
 
 64,200 
 
 422,220 
 
 1862 
 
 
 1,415,076 
 
 
 
 1863 
 
 894,845 
 
 619,286 
 
 110,739 
 
 42,112 
 
 PRINCIPAL RESOURCES. 
 
 
 en 
 
 
 
 
 
 fe 
 
 
 
 
 
 M 
 
 
 
 Y~ 
 
 
 M 
 
 M- 
 
 
 
 en 
 
 * 
 
 LOANS 
 
 
 UUK 
 
 REAL 
 
 ca W M 
 
 01 
 
 fj 
 
 
 OTHER 
 
 4 
 
 < 
 
 AND DIS- 
 
 STOCKS. 
 
 OTHER 
 
 ESTATE. 
 
 M W fc 
 
 wg 
 
 SPECIE. 
 
 RE- 
 
 W 
 
 6 
 
 COUNTS. 
 
 
 BANKS. 
 
 
 g 
 
 fc 
 
 
 SOURCES. 
 
 1835 
 
 2 
 
 $ 313,902 
 
 1 
 
 $ 209,396 $ 4,671 
 
 $ 20,150 
 
 
 $243,223 
 
 * 
 
 1836 
 
 1 
 
 1,203,763 
 
 
 55,689 
 
 8,296 
 
 69,983 
 
 
 279,670 
 
 4,465 
 
 1837 
 
 8 
 
 3,098,751 
 
 
 620,790 
 
 14,179 
 
 268,653 
 
 
 590,794 
 
 11,070 
 
 1838 
 
 8 
 
 4,416,577 
 
 2,690,000 
 
 234,145 
 
 27,533 
 
 70,718 
 
 
 684,487 
 
 4,944 
 
 1839 
 
 8 
 
 6,046,615 
 
 3,363,750 
 
 701,290 
 
 57,138 
 
 331,860 
 
 
 989,172 
 
 103,136 
 
 1840 
 
 9 
 
 5,930,256 
 
 2,544,750 
 
 759,537 
 
 108,994 
 
 199,381 
 
 
 756,964 
 
 175,170 
 
 1841 
 
 15 
 
 5,454,938 
 
 2,128,629 
 
 1,105,817 
 
 534,421 
 
 193,124 
 
 
 942,895 
 
 
 1843 
 
 14 
 
 3,668,167 
 
 2,085,552 
 
 72,165 
 
 1,243,327 
 
 24.784 
 
 
 798,998 
 
 
 1845 
 
 15 
 
 2,286,902 
 
 424,326 
 
 30,363 
 
 1,191,505 
 
 11,836 
 
 
 78,697 
 
 
 1853 
 
 23 
 
 586,404 
 
 1,780,617 
 
 880,541 
 
 13,202 
 
 233,576 
 
 
 419,531 
 
 
 1854 
 
 29 
 
 316,841 
 
 2,671,903 
 
 878,612 
 
 31,158 
 
 385,339 
 
 63,892 
 
 565,152 
 
 1,368,203 
 
 1856 
 
 36 
 
 337,675 
 
 3,777,676 
 
 2,354,571 
 
 79,940 
 
 517,066 
 
 37,165 
 
 759,474 
 
 1,108,148 
 
 1857 
 
 42 
 
 1,740,671 
 
 6,120,613 
 
 3,952,450 
 
 52,832 
 
 433,717 
 
 19,297 
 
 635,810 
 
 
 1858 
 
 45 
 
 1,146,770 
 
 6,164,017 
 
 2,813,578 
 
 59,567 
 
 265,034 
 
 6,433 
 
 233,239 
 
 4,757 
 
 1859 
 
 48 
 
 1,296,616 
 
 6,486,652 
 
 2,627,690 
 
 87,769 
 
 271,526 
 
 9,272 
 
 269,585 
 
 1,837 
 
 1860 
 
 74 
 
 387,229 
 
 9,826,691 
 
 3,201,416 
 
 92,429 
 
 343,269 
 
 39,397 
 
 223,812 
 
 1,679,277 
 
 1861 
 
 94 
 
 546,876 
 
 12,264,580 
 
 3 ? 793,753 
 
 116,551 
 
 287,311 
 
 37,920 
 
 302,905 
 
 2,035,736 
 
 1862 
 
 19 
 
 
 
 
 
 
 
 
 
 1863 
 
 25 
 
 221,380 
 
 501,947 
 
 110,151 
 
 206,231 
 
 109,295 
 
 55,793 
 
 104,018 
 
 425,460 
 
 Report Compt. Curr., 1876, p. 118. 
 
f* H 
 1$^7!$ 
 
 in Illinois 
 
 <SITY 
 
 239379