Bank stock

“ He immediately took the omnium to other brokers, represented to them an urgent necessity for money, sold it, and having been paid checks for the amount, immediately presented them to the bankers on whom they were drawn, and received the amount in cash. He then went to all whom he knew, or would trust him, borrowed money on the security of his own checks,—a common practice on the Stock Exchange,—with remarkable boldness, remained in London until near the hour when he knew his own draught would be presented and refused, and then left, laden alike with gold and a guilty conscience. ”

“ After five years after the passage of the Act, every such holding company affiliate shall possess unpledged readily marketable assets other than bank stock in an amount not less than 12% of the par value of all bank stocks controlled by such affiliate, which amount shall be increased by not less than 2% annually up to 25% thereof and by re-investing in such readily marketable assets net earnings in excess of 6% annually until such 25% requirement is reached. ”

“ These constitute the important intermediary which transforms stock exchange securities into the basis of bank-loans. The commercial banker buys, in general, not the stocks, but the note of the private banker, broker, speculator, or investor, with the stocks as collateral. If investment bankers, speculators and investors decide to support old ways of doing things, the banks lend on the securities of the old kinds of businesses; if investment bankers, speculators and investors turn to new things, the commercial banks follow suit. ”

“ But banks do need a substantial margin of liquidity, to protect the rest. They get it from stock exchange collateral loans, and from ownership of listed and easily marketable bonds, primarily. They get part of it from true commercial paper. Thus, the director of a country bank in Iowa told the writer that banks in his section—where banks owned in large measure by farmers, and dealing largely with farmers, are very numerous and important—make a regular practice of buying, through brokers, a considerable amount of notes of outside merchants. They do this to protect themselves. ”

“ But when railway shares and bonds, based upon lines of road which were constructed through the rich regions of the Union lying between the Atlantic and the Mississippi river, came upon the market in large amounts, affording ample security for investment and loans, the great banks of Wall Street were quick to appreciate the advantages of loans made upon such undoubted values, which were at all times convertible into cash on the stock exchange. In times of pressure, commercial paper is an inferior asset for a bank, all of whose obligations are payable on demand. ”

“ The stocks and shares of some of the South American railways command a high premium, but of the whole number quoted in the official list the large majority show a heavy decline on the original value, many indeed being valueless. These stocks are highly speculative and subject to be affected by political convulsions and other contingencies, which make them undesirable as an investment.
BANKS. A joint-stock bank is composed of a number of proprietors who hold the shares which make up the capital of the bank, and to the nominal amount of these shares their liability is limited. ”

“ Every day in the great speculative centres, and very especially in Wall Street, enormous advances are made to brokers, which are canceled during the day, but which, during their short life, are a real addition to bank-credit. To attempt to estimate this with any accuracy is hopeless, but the total on any ordinary day is enormous, and most of it is extended in connection with stock market transactions. ”

“ I'll bet a thousand dollars that every share is up as collateral in old Argand's bank."
"Oh! Well, it's all the same thing. They stand in together. They run the bank—the bank lends money; they buy the stock and put it up for the loan, and then run the road."
"And us," chipped in the other; for they had now gotten into a high good-humor with each other—"they get our franchises and our money, and then side-track us without breakfast while they go sailing by—in cars that they call theirs, but which we pay for. I do think we are the biggest fools!" ”

“ When its deposits approach an amount equal to ten times its capital and surplus, or whatever other limitation may be fixed, arrangements may be made to increase its capital. A bank whose deposits amount to ten times the capital and surplus, if efficiently managed, should be so profitable that there would be no difficulty in providing for an increase of capital by the sale of additional stock, and when the proposed increase shall have been authorized by two-thirds of its stockholders and approved by the Comptroller of the Currency, it can be made promptly effective. ”

“ It is proper to examine arithmetically also, the progress of stock in America. Our supposed fifty millions of bank stock, being a sum beyond the deposited and existing coin, fixes the capacity of our stock like the English; to multi ply itself without specie. It circulates, we will suppose, eighty millions of paper, costing the country ahove six per centum; adding these eighty millions to as much debt stock supposed to exist, and the grapples of stock to about thirty-two dollars a head, appear already to be thrown over us. ”

“ Whereas divers brokers and stock-jobbers have lately set up and carried on most unjust practices, in selling and discounting tallies, bank-stock, bank-bills, shares and interest on joint stock, and other matters, and have and do unlawfully combine to raise or fall the value of such securities, for their own private advantage ”

“ That argument was rejected by the court.↑ The history of bank-stock holding companies shows that their organizers were acutely aware of this problem and at times took steps to protect the depositors of the subsidiary banks on possible assessments on the bank stocks. One holding company is said to have kept 'at all times an amount in cash or its equivalent equal to our aggregate stockholders' liability on the bank stocks owned by us.' Branch, Chain and Group Banking, Hearings under H. Res. ”

“ The sale of stock too, by the Bank of England in the middle of a panic is impossible. The Bank at such a time is the only lender on stock, and it is only by loans from a bank that large purchases, at such a moment, can be made. Unless the Bank of England lend, no stock will be bought. There is not in the country any large sum of unused ready money ready to buy it. The only unused sum is the reserve in the Banking Department of the Bank of England ”

“ Were those stock-jobbers sincerely and heartily in the interest of King George and his government, as they pretend loudly, what run could there be upon the Bank, what ebb of credit, what sinking of stock? The honest Whigs, who were friends to the government at that time, mentioned above, who not only knew their duty, but how to make it seasonable and useful, acted after another manner. When others ran upon the Bank with all the fury possible, they carried all the money thither they could gather up ”

“ It must be evident that every fresh war, every new loan, and every public peculation, increased the importance of the members of the Stock Exchange; and when men saw the broker and jobber assuming a position the public was unwilling to grant, they mistook the effect for the cause; and a hundred voices were raised, and a hundred essays written, to prove that the brokers of ’Change Alley were the bane of the nation. ”

“ We have seen it for years past in banking, which, from the nature of the business, would be the most easily reformed upon the joint stock principle. It has also been working and making inroads upon commercial houses with a force which in the end will be irresistible, and which from year to year makes it more difficult for small firms with small capitals, to hold their own against the larger organisations, just as it is out of the question for any private person now to start a bank. ”

“ Nor is Capel Court an exception. When the fate of a jobber depends on the turn which the market may take,—when sorrow or success hangs upon a word,—when family, friends, and fortune are in the balance, and a rumored falsehood may sink or save,—it is not in humanity to resist the temptation; and it has, unhappily, become too general a practice to stop at no invention, and to hesitate at no assertion, which may assist the inventor. From this cause the Stock Exchange is rarely mentioned with that respect which it merits, as the theatre of the most extensive money transactions in the world. ”

“ Under this law a bank must be a corporation of not less than five persons who have subscribed for the entire stock and have paid at least 50 per cent of the value of this stock before beginning business, with provision for payment of 10 per cent each month until the whole of the capital [pg 143] stock is paid for in cash. Each stock-holder is individually liable to an amount equal to the value of his stock for any debts of the bank in excess of its original stock. ”

“ Both state banks and stock savings banks have a capital stock. Stock savings banks are primarily savings banks, and many of them do not do a discount and deposit business, but confine themselves to the savings bank business. But in several States the distinction between state banks and stock savings banks is of the most unsubstantial character, since the stock savings banks carry on the business of a commercial bank, receiving demand deposits payable on check, and discounting commercial paper. ”

“ It was a necessary consequence of the restoration of the currency to specie value.
The directors of the Bank resolved, December 2, 1823, to "operate in exchange." In the next two years, the active capital was increased by the sale of $3 millions or $4 millions worth of stock which had been forfeited in the stock jobbing operations of 1818. In the same years it took government loans of $10 millions. ”

“ The mutual bank pays dividends to depositors only; the stock bank pays dividends to both stockholders and depositors. The stock bank does not pretend to be philanthropic in its management. It is purely a business proposition, and where the investments are of the accepted savings bank type, it can justly claim to be on a par with its mutual friends, provided, of course, that it measures up to the standard in its management. ”

“ If it be objected here that it is impossible for one joint-stock to go through the whole business of the kingdom, I answer, I believe it is not either impossible or impracticable, particularly on this one account: that almost all the country business would be managed by running bills, and those the longest abroad of any, their distance keeping them out, to the increasing the credit, and consequently the stock of the bank. ”

“ If a man granted one on a fine estate for a consideration, that consideration was rarely paid in money. The unhappy borrower was obliged to take whatever he could get. Thus the stock-jobber made his prey receive consols at a price much above that of the market. The merchant gave him a bill of lading for some indifferent kind of merchandise. The banker handed him long-dated bills, and sometimes was a bankrupt before they were due. The large tradesmen—many of whom then, as now, surreptitiously carried on the trade of money lending—got rid of goods which were otherwise unsaleable. ”

“ The proportion of cash held by the leading banks has improved steadily and rapidly. Bagehot quotes, in Chapter IX., Mr. Weguelin, Governor of the Bank, as stating in 1857 that the joint stock banks of London had deposits of 30 millions and 2 millions of cash reserve. ”

“ Death ensued to some from the shock, misery was the lot of others, and frantic confusion once more marked the alleys and the neighbourhood of Capel Court. Consternation reigned paramount, and almost every third man was a defaulter. All foreign securities were without a price; the bankers refused to advance money; the brokers’ checks were first doubted, and then rejected; nothing but bank-notes would be taken; and, with a desperation which will never be forgotten, the jobbers closed their books, refused to transact any business, and waited the result in almost abject despair. ”

“ Let's see—you have now $328.00 balance to your credit in the bank. A thousand dollars is all you need. Now, I'll let you have that much. You can then pay off those jobbers, and still have a balance of about $250.00 on your account. You should not let it get below that figure. Your stock is far too heavy for your turn-over, and I think the best thing you can do is to find some way of turning your surplus stock into cash, and you must absolutely cease giving wild credit. ”

“ Thomas H. Hall, and Daniel Turner, of North Carolina; Tomlinson Foot of Connecticut; Joseph Lecompte, and Henry Daniel, of Kentucky. And this was the result of that first attempt to sell the United States stock in a bank chartered by itself and bearing its name. And now, why resuscitate these buried recollections? I answer: for the benefit of posterity! that they may have the benefit of our experience without the humiliation of having undergone it, and know what kind of a master seeks to rule over them if another national bank shall ever seek incorporation at their hands. ”

“ Nor were the brains of the speculators less capable than now. If at the present day a banker condescends to raise a railway bubble 50 per cent., the broker of that day understood his craft sufficiently to cause a variation in the price of East India Stock of 263 per cent.; and complaints became frequent that the Royal Exchange was perverted from its legitimate purpose, and that the jobbers—the term was applied ignominiously—ought to be driven from a spot polluted by their presence. Mines of gold, silver, and copper were so temptingly promised, that the entire town pursued the deception. ”