CHAPTER THIRTY-FIVE

P. 409 BANKS AND BANKING IN SOUTHERN ILLINOIS

FIRST LAND OFFICES AND BANKS IN EGYPT—BANK OF ILLINOIS CREATED

BANK OF CAIRO—THE STATE BANKS—INTERNAL IMPROVEMENT SCHEMES—

FINANCIAL COMPLICATIONS AND EMBARRASSMENTS—THE FREE  BANKING LAW—

ONE HUNDRED AND FIFTEEN BANKS OF ISSUE—

EFFECTS OF NATIONAL BANKING SYSTEM—

ILLINOIS BANKERS’ ASSOCIATION—GROUP No. 10 (SOUTHERN ILLINOIS)—

BUILDING AND LOAN ASSOCIATIONS.

       Southern Illinois cannot lay claim to great wealth. It has always been a prosperous region; her resources are fairly varied, and there has existed from the beginning a certain amount of activity among her people; but farming has always been on a small scale, that is carried on by farmers of small resources; manufacturing has been limited to the cruder forms of articles, and mining is of recent years. One would not expect therefore to find great financial centers within our limits.

FIRST LAND OFFICES AND BANKS IN EGYPT

       Since the state was first settled in the southern part and the development of the state moved northward, we should expect the beginnings of the state’s financial history to be found in Egypt. And so it was. The first land office to be opened was at Kaskaskia, probably in the summer of 1804—the law establishing it passed March 26, 1804. The second office opened was at Shawneetown in 1814, and later one in Edwardsville. These land offices handled large sums of money and no doubt there were deposit banks at a very early day. There is very definite information about one such deposit bank in Shawneetown as early as 1813. This was conducted by John Marshall, an early settler in this town, having come in 1804. He conducted a store and was a man of considerable means. The salt works which were only ten miles away brought a large amount of business to Shawneetown. The land-office was also instrumental in bringing large sums of money to this town.

“BANK OF ILLINOIS” CREATED

       In the legislature of 1816 a bill was passed creating the “Bank of Illinois.” This was to be located at Shawneetown. The next year two more were chartered; one at Edwardsville and one at Kaskaskia. The bank at Shawneetown was evidently the successor of the John Marshall bank of 1813. The bank of 1816 was a bank of issue and deposit. A P 410

 

THE CAIRO BANK AT KASKASKIA.
THE WOODEN BUILDING IS THE BANK AND THE BRICK BUILDING THE LAND OFFICE

letter written in 1819 by John Marshall, president of the Shawneetown bank to Ninian Edwards who was a stockholder in the Edwardsville bank, complains that the receiver of public money at Kaskaskia would one day receive the Shawneetown bank notes and the next day reject them. He also speaks of the Bank of Missouri sending to Shawneetown $12,000 of the Shawneetown bank notes for redemption, and carrying away $12,000 in gold and silver. All three of the banks chartered in 1816 and 1817 were made banks of deposit for government funds. All three of these banks were private banks and the notes of issue had nothing behind them except the property of the stockholders.

“BANK OF CAIRO”

       In 1818, January 9, the territorial legislature passed a bill chartering the City and Bank of Cairo, the tenth section of which required the banking business to be transacted at Kaskaskia, The bank had a fairly prosperous career till 1843 when the charter was annulled, or at least that part conferring banking privileges. Bills show issues as late as 1841 and probably many bear later dates. They bear the signatures of David Jewett Baker as president.

THE STATE BANKS

       By 1821 the prosperous years following the close of the war of 1812 had vanished. Banks had failed, speculation had ceased, prices were low P 411 and the outlook was very discouraging. It was thought a new banking system would be the cure-all. After much bitter opposition a bill passed creating the State Bank, The capital was $500,000, and $300,000 in bills were put in circulation. There was not a dollar of capital in this bank but the whole structure was built on the credit of the state. For a short time everything went well but the bills soon fell in value and much distress resulted. The officers, directors, etc. were elected by the legislature and it may be predicted that there was too much politics mixed with the banking business. At any rate in 1831 when the charter expired and the state closed up the business of the defunct bank it was under the necessity of borrowing $100,000 to redeem the outstanding notes. This business transaction is called the “Wiggins Loan.”

       From 1831, when the State Bank went out of business, to 1834, there was no bank in Illinois doing an active banking business. Governor Duncan in his message to the legislature said: “Banks may be made exceedingly useful in society, not only by affording an opportunity to the widow. the orphan and the aged, who possess capital without the capacity of employing it in ordinary business to invest it in such stocks; but by its use the young and enterprising merchant, mechanic, and tradesman may be enabled more successfully to carry on his business and improve the country.” This was enough to touch off the legislature and a law was passed chartering a new State Bank with a capital of $1,500,000. This new State Bank was to have six branches. In addition the old State Bank of Shawneetown which had virtually been dead since 1822 was revived with a new charter with a capital of $300,000. In 1837 the capital of the State Bank was increased by $2,000,000, and that of the State Bank of Shawneetown by $1,400,000. This gave a total capital of $5,200,000 for the two banks. In addition the old City and Bank of Cairo with a capital of $200,000 was doing some business in Kaskaskia.

INTERNAL IMPROVEMENT SCITEMES

       In 1836 the great Internal Improvement schemes were launched. This plan of internal improvement contemplated the issuing of bonds to the amount of some ten or twelve millions of dollars. In addition there was the Illinois and Michigan canal which called for the expenditure of many thousands of dollars. These great financial ventures became so inextricably interwoven with the banking business that by 1842 the state was completely submerged by a great wave of financial distress. The banks were forced to suspend specie payment, the state’s bonds were a drug on the market, and financial ruin seemed our destiny. “Ever since the abandonment of the internal improvement system, and consequent cessation of operations on various public works, the state had been passing through a remarkable financial depression. Individual enterprise had been paralyzed, and all improvements undertaken on private account had been discontinued. The channels of trade had been obstructed and the vitality of business seemed almost extinct.” Immigration had ceased, money ceased to circulate, and bartering was very common. Wheat was forty cents per bushel, corn ten cents, pork one and one half cents per pound, butter five cents, plain cheap calico thirty-seven and one-half cents per yard, and groceries of all kinds out of sight. It was often impossible for people to pay their taxes. Sales under the hammer of constables and sheriffs were the order of the day. P 412

FINANCIAL COMPLICATIONS AND EMBARRASSMENTS

       The debt of the state at the close of the year 1842 was found to be $15,657,950.00. The income to the state was $140,000 annually while the current cost of government was $170,000, thus producing a deficit of $30,000 yearly. This annual deficit had grown to a floating debt of $313,000. The interest on the bonded debt was more than a million a year. It thus appears that the state’s debt was growing at the rate of over a million annually.

       Governor Ford came into office December, 1842. The legislature and the governor took up the great task of relieving the state of its very embarrassing situation. The state held several millions of stock in the State Bank and the State Bank of Shawaneetown. These two banks held several millions of the state‘s bonds. The banks were forced to exchange the bonds for their own stock. This reduced the debt and stopped interest. State lands were sold; the state also received a share of the sale of public lands from the general government; other steps were taken to bring order out of chaos. In different ways the debt was reduced several millions. Auditors’ warrants on the state treasury rose from forty and fifty cents to eighty-five and ninety cents. The state’s bonds rose from fourteen to twenty and to thirty, and then to forty. Immigration set in, the immigrants bringing small quantities of ready cash. The talk of repudiating the state’s debt was heard no more and every one felt that there was at least some chance of escape from financial, destruction.

       The bank at Shawneetown had been able to redeem its notes and was probably the soundest financial institution in the state. In 1841 when it was generally understood that the whole state and all private institutions were bankrupt, the State Bank at Shawneetown published a financial statement which is interesting at this time. The statement was as follows:

 
Liabilities:
1. State capital stock $1,000,000.00
2. Individual capital stock 349,240.00
 3. Circulation 1,309,996.00
4. United States treasurer 40.00
5. Unclaimed dividends 1,876.50
 6. Individual depositors 70,708.28
7. Due other banks  7,497.78
8. Discount, exchange, interest, etc. 29,259.61
9. Surplus fund 115,463.35
10.  Branch balance  2,317.51
 

Total  

$2,886,398.51

                                                                     

Resources
 1. Bills discounted $1,312,070.11
2. Bills of exchange 295,795.47
3. Suspended debt 101,085.92
4. Illinois bonds  369,998.68
5. Illinois scrip  819.55
6. Bank and insurance stock 11,900.00
7. Due from other banks 178,472.49
8. Real estate  83,336.74
9. Incidental Expenses $ 7,428.34
 10. Cash (specie) 422,371.13
11. Cash (bank notes) P 413 103,120.00
 

Total

 $2,886,398.51

 

 

OLD BANKING HOUSE IN SHAWNEETOWN
BUILT ABOUT 1840 AT A COST OF $80,000

       The real estate in item No. 8, in ‘‘resources,” consisted of a lot in the city of Shawneetown at the corner of Main and Main Cross streets upon which stood and upon which still stands, a magnificent brown stone structure, three stories high and a very spacious open porch or entrance whose roof is supported by five immense fluted columns of Ilone style. This open porch is approached by a flight of more than a score of stone steps. The floor above the basement is high enough to be above the high water mark of those days. This is the most imposing building in all the state which dates as far back as 1840. It readily impresses the stranger who “drops into” Shawneetown as altogether of another age. Joel Matteson bought the building after the crash of 1843 for $15,000 and began the banking business under the Free Banking system. At the outbreak of the Civil war ex-Governor Matteson fearing the invasion of Southern Illinois by the rebels closed the bank and later sold the building to Hon. Thomas S. Ridgway for $6,500. Mr. Ridgway used it for a residence till his death in November, 1897. In 1865 Mr. Ridgway and Mr. John McKee Peeples established the First National Bank of Shawneetown, and carried on the banking business in the front part of the building.

       The collapse of the improvement schemes and of the banks in 1842 and 1843, left the state dependent upon specie and the bank notes of banks of other states for its circulating medium. The Mexican war which absorbed people’s attention in 1846 to 1849 really distributed large quantities of cash in this state. Banks of deposit and exchange were in operation here and there, but there were no banks of issue in Illinois between 1843 and the passage of the Free Banking laws in 1851. P 414

THE FREE BANKING LAW

       The constitution of 1818 served the people for twenty years. In 1848 we adopted our second fundamental law. It had many features in it which differed radically from the one of 1818, but the phase we are just now interested in was the provision about banks and banking. Articles 10, section 3, reads: “No state bank shall hereafter be created, nor shall the state own or be liable for any stock in any corporation or joint-stock association for banking purposes, to be hereafter created.” Section 5 reads: “No act of the general assembly, authorizing corporations or associations with banking powers, shall go into effect, or in any manner be in force, unless the same shall be submitted to the people at the general election next succeeding the passage of the same, and be approved by a majority of all the votes cast at such election for or against such law.”

       In 1838, the legislature of New York passed a law which created a system of banking quite different from anything before tried in this country. This bill provided the following plan, briefly outlined:

       1. A person or persons might deposit with the comptroller of the State a certain amount of United States bonds, New York State bonds, or other state bonds, or mortgages to be approved by that officer, as security.

       2. The comptroller issued to such persons bank bills which when properly signed by the bank officers might be put into circulation as money.

       3. Said notes when put in circulation were to be redeemed by the bank when presented for redemption by the holder within a limited time, or

       4. The comptroller could sell the bonds deposited with him and redeem said bank notes.

       5. In case the State bad to wind up the affairs of any such bank and the securities on deposit did not bring an amount equal to the outstanding bank notes, the available cash from the sale of the bonds was used in paying as large a per cent as possible on the dollar, and all else was lost to the banknote holder.

       Upon the face of this law it looked as if there was scarcely any chance for loss to the banknote holder and of course there could be none to the state as it was acting merely in the capacity of an agent of trust. Following the ratification of the constitution of 1848, there began almost immediately an agitation for banks of issue in Illinois. In the session of 1851 the legislature passed a banking law modeled upon the New York law outlined above. This law could not go into effect until ratified by the majority of the votes cast at a general election. The general election was provided for in November, 1851, and the vote stood—for the law, 37,626; against the law, 31,405—a very light vote.

       This law was called the “Free Banking Law,” because anyone could go into the banking business. That is, one did not have to have a specially enacted charter. The securities were to be deposited with the auditor of public accounts, and might consist of United States bonds, Illinois state bonds, other state bonds. A provision in the law contemplated the depreciation in value of state bonds and so they were not taken for their full face value. No bank could be organized with a smaller bank issue than $50,000. It was also provided in the law that if any bank refused P 415 to redeem its issue, it was liable to a fine of 12½ per cent on the amount presented for redemption.

       One way the bank managed to keep people from presenting their bills for redemption was as follows: A bank, say in Springfield, Illinois, would send $25,000 of its own issue to a bank in Massachusetts, say in Boston; the Boston bank returning a like amount to the Springfield bank. Each bank would then pay out this money over its counter in small quantities and in this way the Springfield bank issue would become scattered all over New England and no person holding but a few dollars would think of coming to Springfield to get his bills redeemed. The issue of the Boston bank would be scattered through the west. In this way, and in other ways the money of Illinois became scattered in other states while in the ordinary business transactions in this state one would handle a large number of bills daily which had been issued in other states.

       No doubt many corporations went into the banking business under this law with clean hands and carried on a properly conducted banking business but there were ways by which irresponsible and dishonest men might go into the banking business and make large sums of money without very much capital invested. Such banks were known as Wild Cat Banks. The name is said to have originated from the picture of a wild cat engraved on the bills of one of these irresponsible banks in Michigan. However, they may have been named from the fact that the word wild cat was often applied to any irresponsible venture or scheme.

ONE HUNDRED AND FIFTEEN BANKS OF ISSUE

       There were, in Illinois, organized under this law, 115 banks of issue. Up to 1860 the “ultimate security” was sufficient at any time to redeem all outstanding bills, but when the Civil war came on the securities of the southern states, on deposit in the auditor’s office, depreciated greatly in value. The banks were going into liquidation rapidly. They redeemed their bills at all prices from par down to forty-nine cents on the dollar. It is estimated that the bill-holders lost about $400,000, but that it came in such a way that it was not felt seriously. This system of banking was followed by the National Banking system with which we are acquainted today.

       The one hundred and fifteen banks of issue which were in operation in Illinois just prior to the Civil war, issued nearly a thousand different kinds of bank bills. Because of the large number of kinds of bills, counterfeiting was easy, and it is said that much of the money in circulation was counterfeit. Bankers received reports as to the condition of the banks over the state daily. One never knew when he presented a bill in payment of a debt, whether or not it was of any value. Often the merchant would accept this paper money only when heavily discounted.

       There was quite a tendency to tamper with the law as originally ratified by the people in 1851. The question of constitutionality of amendments came up and some confusion resulted. In 1854 there was a money panic resulting from the failure of a number of banks in Ohio and Indiana. The flurry was caused by a quick decline of state securities on the New York market. The panic moved west and reached Illinois. The bank commissioners were able to satisfy the people that the P 416 bank notes were secure and the excitement soon died out. In 1857 another financial storm broke in this country and Illinois was of course seriously affected. It is stated that there were more than two hundred thousand failures in the United States, with liabilities of nearly three hundred million and with assets of about half that amount. The failures in Illinois were 316 with a liability of more than nine millions. It is thought these great sums were of a speculative nature. The legitimate business of the country was not so seriously affected.

       By 1860 the normal conditions of trade and business had been restored. There were at that time 110 free banks in Illinois with a circulation of $12,000,000 and with securities deposited with the auditor of public accounts of nearly $14,000,000. The notes of these banks were at par in Illinois, but out of the state they were at a discount of from one to three per cent. This system is said to have furnished a good circulating medium but there was more or less trouble about the redemption process.

EFFECTS OF NATIONAL BANKING SYSTEM

       In February, 1863, congress passed an act creating a National Banking System. This plan was modeled after the Free Banking System of the state of New York. Its several features are too well known to need any explanation at this time, several of the free banks of Illinois changed over to national banks in the summer of 1863. All free banks which had their notes secured by bonds of the seceding states were obliged to put up additional security or redeem their notes and go out of business. In this way the free banks began to disappear. In March, 1865, congress passed a law which placed a tax on all state bank issue. This law had the, effect of forcing the remainder of the free banks out of business or to force them into national banks. This national banking system has proved the most perfect scheme for issuing paper money of any yet devised, and is the most reliable financial factor in the business world.

ILLINOIS BANKERS’ ASSOCIATION

       The business of banking has grown wonderfully within the past half century. In 1891 the bankers perfected an organization known as “The Illinois Bankers’ Association.” In 1895 there was a consolidation of the association of private banks and the association of national and state banks. The following comparative table of items will show the growth of banks and banking business since the association has been organized:
 
  1890 1911
Number national banks  192 438
Number state banks  56  544
Number private banks 473 659

Totals

721 1,641

                                                                                                                 

National Banks
Capital 

$ 31,200,000

$ 73,220,000
Surplus 12,000,000 41,936,000
Deposits 102,696,000 657,552.000
Resources 206,638,000 826,933,000
State Banks
Capital P 417 $ 10,332,000 $ 64,071,000
Surplus 3,824,000 33,702,000
Deposits 49,259,000 630,205,000
Resources 826,933,000 755,454,000


       Group nine is Ben M. Smith, Salem; secretary, R. E. Hamill, Freeburg. One hundred seventy-five banks belong to group nine, and there are twenty-five banks that are not members, total 200 banks. The following is a list of counties with number of banks in each county: Bond, 6; Clay, 10; Clinton, 14; Edwards, 6; Effingham, 14; Fayette, 10; Jefferson, 15; Lawrence, 11; Madison, 30; Marion, 17; Monroe, 4; Perry, 8; Randolph, 17; Richland, 5; St. Clair, 18; Wabash, 6; Washington, 9; Wayne, S.

       Group ten has for chairman J. S. Aisthorpe, Cairo; secretary, E. B. Jackson, Marion, The following is a list of counties in the group and the number of banks in each: Alexander, 5; Franklin, 11; Gallatin, 8; Hamilton, 10; Hardin, 3; Jackson, 16; Johnson, 6; Massac, 6; Pope, 3; Pulaski, 6; Saline, 13; Union, 8; White, 15; Williamson 15. This group has 125 banks, 112 of which are members and 13 are non-members. For Southern Illinois there is one bank for  every 2,471 population.

       The twenty-first meeting of the Bankers’ Association was held in Springfield, October 11-12, 1911. For that year Mr. E. E. Crabtree of Jacksonville was president. The gathering was a notable one. The programme was varied and some prominent men were present; among them Hon. James J. Hill, who spoke on “The Production, Exchange, and Distribution of Wealth.” Dr. Eugene Davenport, dean of the College of Agriculture, University of Illinois, spoke on “The Relation of the Banker to Agriculture.” Hon. J. Adam Bede of Minnesota gave an address full of humorous incidents said to come out of his experience. There were present at this meeting a few of the charter members of the association, among them D. W. Smith and E. D. Keys of Springfield.

       It is difficult to estimate the part played by banks in the development of Southern Illinois. Without doubt a bank in a community begets the spirit of thrift, frugality, and conservatism. In many localities the banks foster industries of various kinds and often support the mercantile interests. The establishment of savings banks, and savings departments in other banks has worked greatly to beget a frugal habit in our people.

BUILDING AND LOAN ASSOCIATIONS

       It will be entirely in keeping with the subject matter in this chapter to consider very briefly here a species of banking, or at least of savings banking, which we know as “Building and Loan Associations.” In the Vol. 1—27 P 418 general assembly of 1879 an act was passed creating building and loan associations. These are cooperative associations having for their aim the creation of a fund by the monthly payment by “investors” of a small sum, which when sufficiently large may be loaned to “borrowers.” The borrower also becomes an investor, and when his investment amounts to a sum equal to the amount he borrowed, the interest having been paid monthly, the debt is cancelled. This enables people who have a small saving each month to invest that in building and loan stock. The earnings are usually better than other forms of investment because the borrower pays his interest monthly. This interest is immediately loaned and is compounded several times by the end of the year. The borrower finds it easy to pay his interest monthly and his investment also, and so in a sense profits much from this plan of paying for a home.

       The oldest building and loan association under the law of July 1, 1879, is without doubt one organized in Centralia in August, 1879. However it appears that there were “Savings and Loan Associations as early as June, 1874. One such was organized in Shelbyville in that year. This form of savings is very popular in Southern Illinois. There is scarcely a town of any size that does not have its association.

 

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