the Treasury, Gallatin, expressed the opinion some years later that if the Bank of the United States had been in existence in 1814, the chaotic banking disturbances of that year would not have occurred. The most essential condition for the suppression of excess note issues is their presentation for payment at frequent intervals. A very serious trouble throughout the history of American banking was the lack of a regular system of clearing the notes of the various banks. Notes tended to travel considerable distances, and since a bank in one State had no branches in any other State and generally no correspondents either, there existed no ready-made agencies for collecting the notes of rival banks and presenting them for payment. This was a function that the First Bank had begun successfully to perform, and its consequences must undoubtedly have been to curb the tendencies of the local banks to excessive note issues.
Another experiment in centralised banking institutions was made in 1816 with the foundation of the Second Bank of the United States. In common with the First Bank, part of its capital was subscribed by the Government, and it was to be the depository of the balances of the Federal Treasury without obligation to pay interest on them. It had, moreover, the right to establish branches without consulting the Governments of the States concerned. A new feature of its charter was a clause intended to minimise the likelihood of cash suspensions, by imposing a penalty, in the event of its failing to meet its obligations on demand, in the form of a 12 percent tax on the amount in default.
Gallatin maintains that it was only as a result of the organisation of this bank that the State banks were prevailed upon to resume cash payments, since it was the Second Bank which proposed a convention to which the State banks finally agreed. It is interesting to note that one of the stipulations made by the State banks was that the Bank of the United States should, in any emergency that might menace the credit of any of the said banks, contribute its resources to any reasonable extent in their support. This is a very early declaration of the view that it is the duty of the central bank to act as lender of last resort.
The Second Bank of the United States and its twenty-five branches soon came into conflict with the defenders of State rights, and of course the State banks backed up the opposition. The chief objection brought by the latter against the Bank was that it "accumulated their notes and then presented them for redemption in coin." "War" was declared on the Bank by Jackson when he succeeded to the Presidency in 1829. The first blow was struck in 1833 when he gave orders for the Government deposits to be removed from the Bank and deposited instead in selected State banks. Shortly afterwards the renewal of the Bank's charter was vetoed. This put an end for many decades to all projects for a central bank.
General suspensions of cash payments occurred in 1836, except in New England, where the banks again kept above water. Probably the worst feature of the American system and the one to which, combined with the exclusion of the entry of new firms, much of the chaos was due, was the extreme laxity with which principles of bankruptcy were applied to insolvent banks. Take as an example the State of New York. In charters granted before 1828 there were provisions that if a bank suspended payment for a certain period (usually three months) it should cease operations unless it obtained permission to continue, after an examination of its affairs, from the Chancellor of the Circuit, and if at the end of a year it still did not resume payment, it should surrender its rights altogether. Charters created after 1828 shortened the unconditional period allowed to ten days. But in 1837 all these rules were made completely ineffectual because the State legislature passed a Suspension Act allowing suspending banks to continue for a year without applying to the Commissioner. Other States followed New York's example and passed Suspension Laws of an even