ite of all this, by 1867 a large part of the National bank-notes were circulating at a discount against greenbacks and a number of the National banks had already failed in that year.
It seems that people at first placed undue faith in the security of the new notes and perhaps regarded them as not liable to over-issue. For this reason the notes tended to keep out in circulation longer without being sent in to the issuing
bank for redemption and there was thus lacking an effective check on the amount that any one bank could keep in circulation, until it was presently realised that it is a mistake to regard a security backing as good as specie.
The really substantial improvement that might have been effected through the National Banking Law was one that the authorities failed to realise, namely, the provision of facilities for a branch banking system. On the contrary the National banks were forbidden, except under special circumstances, to establish branches.
Some of the peculiarities of the bond deposit system as a means of regulating note issues have already been mentioned in connection with the free banking system of New York. We shall have occasion to refer again to these problems in a later chapter on the American experiences leading up to the Federal Reserve Act.