osed of only at a discount.
Parallel with the beginnings of this movement in favour of a greater measure of competition, there took place in some other States foundations of State monopolies. Early in the nineteenth century Indiana and Illinois had prohibited banks unless the State should judge fit to establish one out of its own funds. The Bank of Indiana and the Bank of Ohio, founded in 1834 and 1845, respectively, were both State monopolies. Illinois followed the New York free banking plan in 1851, and Indiana and Wisconsin did the same a little later.
The improvement that took place in American banking in the twenty years preceding the Civil War was especially noticeable in the eastern region. The banking system was by no means perfect at this period, but except for the international crisis of 1857, when suspensions of specie payments
were general over most of the United States, the situation was far steadier than ever before. It is very probable that this improvement was not attributable to any considerable extent to State regulations relating to bond deposit guarantees for notes. In fact, the State authorities seem to have become, after a time, rather lax in the enforcement of the law, and the State Comptroller was usually satisfied if the bank had in its own possession the prescribed assets and was prepared to present them for his examination when he paid the bank visits on certain days. This gave scope for a system of window-dressing by which the banks passed round the same block of securities for exhibit on the appropriate days. The law was thereby rendered ineffective. Much the greater weight is to be attached to the more rigid enforcement of specie payments between banks by frequent exchange of notes, due in great part to the spread of the Suffolk system and to the institution of the New York clearing-house.
The Civil War provided the occasion for a radical change in the banking system of the whole country. The banks in the South gave their support to the secession and ceased remittances to the North, and since they had a large net liability towards the banks in the North the latter lost heavily, but they managed to keep above water by contracting their lending operations and were, in fact, in a very strong position regarding specie reserves. Pressure soon came however, from the side of Governmental financial needs. Secretary of the Treasury Chase experienced excessive difficulty in borrowing from the public, partly as a result of the very bad state of the finances in the preceding administration. Chase called a conference of the New York, Boston and Philadelphia banks, and with him they drew up a plan for
assisting the Government by advancing $50,000,000. Chase insisted on the loan being paid in specie, and at the same time he started the issue of United States notes payable on demand which further weakened the banks, since if they accepted the Government notes they were obliged to redeem them in coin. The result was that at the turn of the year (1861-62) the banks of New York, Boston and Philadelphia suspended payments. The Treasury followed by ceasing likewise to redeem the Treasury notes in coin. This was followed up by a bill for issuing legal tender irredeemable paper to the extent of $150,000,000, a measure which was strongly opposed by the banks, among others. One of the chief arguments for making the Government notes legal tender was to force the banks to accept them. Two further issues, each of $150,000,000, were made within the twelve months following. After that the issue of greenbacks was stopped, and Chase had recourse to a new scheme for obtaining funds by the sale of Government securities, namely, the National Bank system. This was an extension to a National or Federal, instead of a State, basis of the bond deposit system. By an Act of 1864 banks of not less than five associates, and having a capital of not less than $50,000, were allowed to form freely if they secured their notes by the deposit with the United States Treasurer of registered bonds of the United States. The amount of notes must 