 more pernicious nature.
Further suspensions took place in 1839, but were confined this time to Pennsylvania and the States further to the south and west. Boston and the eastern States sustained payments. Pennsylvania passed laws legalising the suspension on condition that the banks should make certain loans of money to the State, and it was arranged that they should resume specie payments in January, 1841. The obligation to lend to the Government naturally had the effect of making it more difficult, if not impossible, for the banks to resume payments, and the date for resumption was postponed by another Act which, in return for further subscription to a Government loan, allowed the banks to continue the suspensions until the loan was repaid, which might be any time up to five years.
The losses sustained by the Federal Treasury in the suspensions of 1836 and 1839 called forth proposals for making the Treasury independent of the banks.
From the 'forties onwards State banking showed signs of improvement. Most of the States had by this time succeeded in framing provisions for securing the paying up of capital by subscribing shareholders. The more difficult task was to remove the tendencies towards expansions and to secure note-holders against losses due to suspensions. A major deficiency over the whole of the American banking structure had long been the infrequency of the return of notes to their issuers. One of the earliest and most successful attempts to secure that notes were redeemed more often was a voluntary system put into force by the Suffolk Bank of Massachusetts. Bank-notes circulated at places distant from their issuing bank at discounts varying with the difficulty of sending them home for redemption. The smaller was the chance of its notes being presented for payment, the larger was the volume of notes that a bank could safely issue. The result of the lack of any machinery for ensuring the collection of notes was therefore that banks began purposely to place themselves at long distances from the most important centres of business. This was what happened in Massachusetts. The banks of Boston found themselves at a distinct disadvantage because the country banks were securing practically the entire circulation even in Boston. Large numbers of country bank-notes never returned to the banks that had issued them, but remained in Boston circulating without hindrance at the recognised rate of discount. The Boston banks made several attempts to systemise the sending back of notes for redemption. The most successful was the Suffolk Bank system. This bank arranged for New England country banks to keep with it permanent deposits of $5,000 plus a further sum sufficient to redeem notes reaching Boston. The Suffolk undertook to receive at par the notes of banks who made such deposits, and the notes of country banks who refused to come into the scheme would be sent back for redemption. The Suffolk Bank, moreover, refused admittance to its clearing agency to banks whose integrity was not above suspicion. This had the intended effect of curtailing the circulations of the country banks.
The Massachusetts legislature also passed a law, in 1843, to secure the more frequent return of notes by providing that no bank should pay over its counter any notes but its own. A similar law was passed in Louisiana. Other States placed penalties on the default to pay notes in specie on demand, either by the imposition of a percentage tax on the amount involved or by making the offending bank liable to the forfeiture of its charter. This latter measure should have been the most effective if it had been rigidly enforced. Specifications as to reserve requirements also began to emerge in many of the States. The most stringent of these was that of Louisiana requiring a specie reserve of one-third against circulation plus deposits.
In other cases efforts were directed not to preventing the over-issues and ensuring redeemability of notes on demand, but to giving some protection to the note-holder in the actual event of suspensions following such an over