The history of the US banking system

In the view of modern men banks are inextricably linked with the "notes", a system of paper money circulation. Causes of paper money in the British colonies of North America were simple and clear: to experience a chronic shortage in coins and believes in turnover mainly on bills colony urgently needed even in some cash that has local appeal. Already in 1690 the Massachusetts Bay Colony has produced the first issue of short-term paper-necessarily-ments (Shot bills) - a cross between bills and short-term obligations of the Government to finance a military expedition to Canada.

Mainly extraordinary military expenditures were explained and the first editions of the other colonies, but they were also used to finance peaceful purposes, such as the municipal government and payment of public debt. Despite their official status and some initiatives (for example, 5 percent discount when making their taxes), public reaction was ambivalent. The exchange rate between the colonies and even within individual colonies is constantly changing, moreover, sometimes he eventually fell as a result of redun- dant (relative to the actual number of coins) emission. As a matter of fact, there was nothing surprising, because until the collapse of the gold standard prevailing view that paper money can only be effective when they are on demand turn to gold or silver coins. But the main reason, is pushing for release of banknotes, - the lack of coins in circulation, - he continued to operate after the War of Independence (1775-1781), prompting the new Continental progress on behalf of the United Colonies (states) to accept a bill on the formation of the First Bank of the United States (First Bank of United States) and to authorize now the first federal issue, along with the decision to set up its first own mint (in Philadelphia), which was minted silver dollars and copper cents by weight of IP-Pana silver pesos (although the latter subsequently for many years dormant and in the country freely circulated Spanish silver).

However, the "founding fathers" of the United States (which is not surprising, considering how much has been among them planters of the southern states, and how relatively few traders from New England) is so suspicious of the issue of fiduciary (that is, those whose own value clearly less represented they cost) means of payment, which is specially made in 1787 to the Constitution a clause prohibiting states to conduct settlement of transactions anything but gold and silver coin a legal tender.

In early American history, when the national industry and commerce cereals Nye was only in its infancy, had not yet been erected many large cities, but built the railroads and the like, we can say more about the lack of real economic need in banks which made only difficult to attract private capital into them. The state in these conditions, was forced to become a major shareholder of the First United States Bank, to share the burden of popularity all central government institutions, and at the end of 1811 the 20-year period for which it was originally granted its charter (Anglicism meaning issued in English-speaking countries paper combined the functions of a bank charter and license) was not renewed. Soon, however, the banks still have started to appear, initially in the most developed states.

I must say that for America from the beginning were characterized by rejection of too much weight federal authorities and zealous protection of the individual rights of the states. The result was the division of power between the federal government and the states, which in varying degrees, and put the banking sector under the control of the two branches of government, although the first banks still operate within isolated from each other's legal systems of different states.

A common practice was to seek a charter, the acquisition of which gave the bank all the advantages of limited liability (contingented liability). Joint-stock company carried unlimited liability only in England and Scotland; in America, as well as continental European countries, the responsibility has been limited. In most cases, this charter limited deposit operations and is closely associated with them in the XVIII century the issue of bank notes to the amount times the equity shareholders - the most common great-Bel was the limitation put into circulation banknotes two banks' capital, but these boundaries are in practice purely nominal.

Only in very few states allowed the establishment of banks without a charter, which carried unlimited liability. Once there was the likelihood that ka-something any person or unincorporated association may wish to establish a bank without a charter, on their way there were numerous legal obstacles. Most of the eastern states have adopted laws similar to adopted in 1818 in upstate New York; Most western states have arisen subsequently also followed a similar policy, allowing emission and deposit business only if Nali-Chee official permission. However, the real return on this law varies from state to state, depending on how easy it was to get a charter. The least difficulties were in the east, where the need for banking institutions remained the most urgent; especially liberal policies practiced in the so-called New England.

The number of banks has been particularly rapid rise followed by the liquidation of the United States First Bank (at its base federal government subscribed to a significant portion of the share capital and promised within the next 20 years not to issue a charter to any other bank, perhaps something has been one of the main reasons, why, when in 1811 there was a question on the extension of the charter, he met strong opposition in Congress, enough to stop the activities of the bank). In 1811 they already numbered 88, and 120 new charter for the establishment of banks has been issued for the following three years.

When in 1812 broke the second war with England, dubbed the "Second War of Independence", the majority of these banks have been involved in intensive lending the federal government and the states; inevitably associated with it and the excess emission is made about three out of every four banks to apply in 1814 in their state governments for permission to suspend cash payments. Moreover, if the Bank of New England's most able to meet its obligations, almost all the banks to the south and west, arising usually later and weaker, it could not do. It is also interesting that a significant proportion of bankruptcies in these and the following years took place just there, where the creation of new banks were the most limited, and therefore, were existing in the most privileged position - so in New England during the period 1811- 1830 97 banks (annual average) had only 16 bankruptcies in the state of New York for the 26 banks the number of bankruptcies was 11 in Pennsylvania and 26 banks have 19, and this share is growing as we move to the south and west.

Formally, cash payments were resumed in 1817, but already in 1819 followed by a new pause, stretching for two more years. This is explained largely by the fact that the establishment of the first banks are often the result of political circumstances rather than real economic need. As often happens in such cases, the formation of banks was accompanied by abuse, especially in the formation of the authorized capital, and often even directly financed by public authorities - and, in the case of the First Bank of the United States 200 millionth subscription federal government was no more than a fictitious accounting entry. Almost all the bank's capital was less than the figures on which the odds-mally conducted subscription, and some banks had no capital. Another reason - a close relationship banking structures with state treasuries. Legislators, issuing charter, found it quite natural that the bank, if necessary, credited "their" state - earmarked article about it were recorded in a charter of any bank. But, in addition, from time to time to provide such a loan to certain needs just conducted "arbitrary decision" State administration; the result of this often became so large volumes of crediting of state governments, in order to ensure the commercial assets of demand as it were, no choice - probably this factor to a great extent and provoke excess emissions of banks, so that at times di zazhio (yaw down from nominal value) on the banknotes ranged from 10 to 30 percent.

Each bank has the right to conduct business only within the borders of the state in which he is luchil its charter. This meant that they were, in fact, could not develop a system of bank branches, so that the country's banking system began to gravitate to the fragmented structure of the small territory and nearly autonomous regions. Most likely, this fact became the main reason for the establishment of institutions such as First Bank of the United States, - at least, it was felt that if in 1814 the first bank still existed, many occurring while unrest in the banking sector could have been avoided .

Extremely serious problem throughout the history of American banking business to form the Federal Reserve System was precisely the absence of well-functioning system of mutual settlement (clearing) banknotes of various banks. Since the state banks usually do not have offices in other states, and many did not even have and cor-respondents, there is no system of accumulating banknotes, followed by the appearance of their payment to non-existent. This function at first, and quite successfully, took the first United States bank. Hence it becomes obvious the establishment in 1816 of the Second Bank of the United States (Second Bank of the United States). This was preceded broke out in 1813, at the height of the war, an acute financial crisis, you-who called the general abolition of specie payments (with the exception of New England banks). The new Minister of Finance, James Dallas (James Dallas) proposed to establish a new Cen-tral Bank of the United States. The bank, based in the capital at 35 million. Dollars, began operating in 1817. In the same year, resumed specie payments.

As is the case with the first bank in the capital of the new bank signed the fed-eral government, assuming the store on the federal treasury funds accounts. Two major innovations of the bank's charter became eligible for the establishment of its offices in the United States without the consent of their Governments, as well as an article aimed at minimizing the possibility of the suspension of cash payments - in this case, the bank had to pay a fine of 12 per cent of the amount of liabilities, he was not with standing-extinguish.

According to the Minister of Finance in 1801-1814 years Elbert Gallatin (Albert Gallatin), namely the establishment of the Second Bank was among the main reasons that contributed Having resumed-lished the state bank payments, as it suggested a convention to which they eventually agreed to - is interesting to note, that one of the conditions put forward in this case was to provide (reasonable, of course, limits) second Bank of the United States of its resources to support the state banks in the extreme situations, when the pre-verie them could be in jeopardy.

Question about the bank has acquired particular importance during the presidency of Andrew Jackson (Andrew Jackson) (1829-1837). Within a few years this institution with 25 branches by the number formed by the time the state was drawn into sharp conflict. Overbuilt, especially in new states (Indiana, Mississippi, Illinois, Alabama, MO) in cans were in most cases the victims of 1819 godu collapse caused by the release of large number of banknotes. Then, in the address of the bank we heard accusations that he was a direct, if not the culprit of the crisis (supposedly he was "saving up" the bill, and then present them to exchange for gold), then, at least, did nothing to mitigate it. Appointed in this regard the investigation revealed serious non-orders in the course of business in one of the largest branches of the bank (Baltimore).

When Jackson took over as president of the country, he announced the bank a real war, and in the face several times with "unacceptable" willfulness of its directors, has decided to do to destroy this institution. The presidential address 1832 Jackson encouraged Congress to withdraw from the bank all government contributions. Not having received the consent of the Congress to this action, the President ordered the Minister of Finance to do so without prior arrangement. The latter refused to execute this order, was dismissed and replaced by others who also failed to comply with the order of President, and was replaced by then - Attorney General Tene (Teney), izvlekshim government deposits from the Central Bank and place them in specially selected state banks. This action caused the financial crisis, which was accompanied by a strong commercial crisis will last several years. The Senate passed this water in a resolution expressing censure the president, but the board of representatives did not wish to join it. Needless to say, that the bank's concession, which expires in 1836, has not been renewed, with the result that it has become a national institution in a simple private bank; this event marked the cessation of any attempts to create in America the Central Bank for decades.

The new "epidemic" of mass termination of cash payments took place in 1836. The task that Jackson left his friend Van Buren (Van Buren) (president in 1837-1841 years), seemed easy; but barely had a new president to take office as in the field of credit and trade crisis erupted unexpectedly unprecedented force. He was summoned to 4 reasons:

    increase in the number of banks at the end of the concession period of the Second Bank of the United States;
    reinforced speculation the federal (government) lands to the west of the country, facilitates emergency credit availability;
    history of Second Bank of the United States;
    Circular issued literally in the last months of the presidency of Jackson, to demand payment for purchased Länder only specie.

The crisis initially hit banks in the north-eastern states. In May 1837 cease payments in specie all New York banks, it soon spread to other banks, and the number of bankruptcies has increased very much. extraordinary session of Congress (September-October 1838), but the President did not approve of its intervention in the money market situation, because, in his opinion, such an intervention beyond the scope of computer-tence of the federal government was convened. Instead, in the presidential address, he contented himself with the benefit of appropriate devices federal Finance proposed a partial reorganization of the Ministry of Finance, the so-called subtreasure scheme; This system was adopted in 1840, abolished in 1841, restored in 1846 and still operates.

The crisis was delayed until 1840; irritated dropped out on its share of disasters voters weight shift the responsibility on the Democratic Party, and it cost her boo-duschih elections.

Probably the worst feature of the then US banking system, which could be given a fair share of the blame, it was extremely good-natured when declaring bankruptcy of insolvent banks. If we take as an example of the state of New York, the charters issued here until 1828, provided for the termination of the bank's operations, co-tory delayed his plans by an average of 3 months - except in cases where the verdict on its continuation was passed, - after examining its current state, a certain official of the state - in this case it is subject to liquidation only in case of non-resumption of payments for another year. Charters issued after 1828, reduced the authorized period of the suspension of payments to 10 days. However, in 1837 these measures have lost all strength because the state legislature decided to suspend the law of payment (The Suspendion Act), which allowed banks to automatically pro-continue its activities for another year after the suspension of payments, without applying for a special permit to the named official.

Example of New York and other states followed, adopting their own versions of such a law, similar, or even worse in its effect. The next time the payments were suspended in 1839; this time it touched the states of Pennsylvania and to the south and west of it. Pennsylvania passed a law that allowed banks to delay payments in exchange for a loan by the state (cash payments under this law were to be restored in a year, ie in this case in 1841, but the credit commitments made by banks, of course, put the resumption of payments under another greater co-view, and the result was passed another law, which allowed banks not to pay the money for the entire repayment period of the loan, so that this period could be stretched quite informally to 5 years).

However, since the 1840s there have been clear signs of improvement in the functioning of the banking business at the state level. Most states have already mastered by the time the task of the legislative ensure the timeliness of payment of the authorized capital of banks founders. The more difficult task was to confront the issue of excess - not only possible, but almost "mandatory" when the phenomenon is too extended period of repayment of bank notes, as well as protect their holders against possible losses in case of suspension-you cards. One of the earliest and most successful attempts to become a voluntary system created Suffolk Bank of Massachusetts. Before we explain what is its essence, it must be said that the banknotes were circulating with some disagio, which depended on the degree of difficulty of delivery to repay bank issued them. The less there was a chance that they are presented for payment, the greater the temptation to resort to the bank's expansion, that is to release a large mass of notes that make it possible to ensure no risk to sobst-venous position. Due to the lack of any mechanism for collecting banknotes was Naib-Lee "cunning" banks are deliberately placed in the boondocks. In Massachusetts, the situation was such.

Quite unexpectedly for himself Bank of Boston (the state capital) have found that this "provincials" actually managed to gain control of the state of monetary circulation, flooding the channels handling their bills, many of which never returned to release their banks. Boston banks made several attempts to summon impudent to order; the most successful among them was the system of Suffolk Bank. Provincial banks have had to make in the Suffolk Bank permanent deposit in the amount of 5 thousand. Dollars plus an amount sufficient to pay off the bills fell into Boston. Instead, he pledged to take notes of these banks at face value, while the bill did not wish to join this system, banks have been delivered to repay directly to the issuing bank. Secondly, Suffolk Bank to refuse entry into its clearing agency to any bank whose honesty caused even the slightest doubt.

In addition, in 1843 the Massachusetts legislature for the same purpose decrease sewing-country banks circulation scale adopted a law aimed at encouraging more frequent return of banknotes and forbade banks to issue of cash any whatsoever banknotes except their own; a similar law was passed in the state of Louisiana.

The remaining states have established penalties in the event of the bank's inability to exchange notes on metal coins on demand. Fines were levied either in the form of a proportional tax on the unpaid payments, either through the imputation of bank-offender liable for a violation of the charter. In other cases, the effort is not so much to prevent excessive emissions and ensuring acceptance of banknotes were sent on demand as on the safeguards to protect the holders of notes in the event of suspension of payments. Some states introduced the practice with preliminary pledge assets of banks. Another measure was the establishment of a double-responsible, at which shareholders of the bank responsible for its obligations within the belonging-they-containing shares, net of their actual contribution to the capital of the bank. It is necessary to say more about the system of the New York Insurance Fund (New York Safety Fund), established in 1829 - a kind of compulsory insurance of banks in case of inability to fulfill its obligations. Banks have made contributions to the fund, which funds went to cover the debts of insolvent banks to the extent that the sum of their liabilities exceeded the value of assets. Thus, under this system there is an objective trend of hidden subsidies weak banks by stronger and prudently managed, even aggravated by the fact that the size of insurance premiums accrued on the basis not of the actual risk assessment of activities of a bank, but simply as a percentage of the share capital. In the years 1841-1842 the number of 11 banks were part of the fund went bankrupt, the fund turned out to be exhausted; after the bankruptcy in 1842 it reduced to only one insurance banknotes (not covering more deposit sphere), and in that capacity he was ineffective and was finally closed in 1866.

During the first 50 years of the United States banking Ost-lized, as a whole, rather closed to access her new banks. However, in the late 30-ies in a number of states approach outlined changes made possible the establishment of banks without a charter. Start the new policy marked the adoption of the State of New York in 1838, the so-called Act of free banking mode (Free-Banking Law), under which emission rights granted to any person or association, provided the deposit in the Comptroller's office (higher financial officer staff) securities in the amount of a certain type of emission. For the deposit can be used any securities of the federal government and the states, approved the controller, here also include some types of mortgages mortgages. The mechanism was simple: if the bank proved to be insolvent, Office of Inspector implemented Salo-conjugated securities and repay bills.

The first result was the freedom granted by the huge influx of wanting to immedi- ately-establish your bank (over 130). About half of them are actually opened, and in turn, each of the second opened by the Bank over the next three years was ruined. Many of these banks have been established with the sole purpose of emission, Nako-od in 1848, the state passed a law imputed to them also exercise the deposit and lending activities. In parallel with the trend towards greater competition in some states there has been a sort of retrograde motion to local monopolies - so, Bank of Indiana and the Bank of Ohio, established respectively in 1834 and 1845, were originally monopolies states (Illinois followed New York example free banking as early as 1851, and Indiana, and Wisconsin have done this a little later). While the US banking system in those years has in no way can not be called perfect, it is, nevertheless, was much more stable than it has ever been before. The exception was only the international crisis of 1857, when defaults spread throughout America. Radical changes in the current in the middle of the XIX century. US banking system began during the Civil War of 1861-1865, when the banks of the South, maintaining a divisive policy of their states, interrupted contacts with the northern banks. And as the southern banks had a large amount of obligations to the north, the latest suffered as a result of heavy losses, but at the expense of their lending operations have managed to stay afloat; while their position in terms of reserves, remained quite stable, but when unfolded full-scale military action, great-ernment need of money yet made itself felt.

Solomon Chase, Secretary of the Treasury in the years 1861-1865, having experienced serious difficulties with the placement of loans (of six in the amount of nearly $ 2.5 billion. Were produced during the war), radically transformed the entire US financial system. Chase called to "con-ference" representatives of the banks of the North-East, which was jointly developed a plan of assistance to the Government through the provision of his 50 millionth loan. At the insistence of Chase credit was issued with metal money, and at the same time that it is granted the Treasury started to issue banknotes of the United States demand. This step led to a further weakening of the banks that took government bills and pay them on the metal; as a result, at the end of 1862, banks in New York, Boston and Philadelphia have suspended payments, and after that came the bill on the issue of a new means of payment -. redeemable securities in the amount of $ 150 million This event sparked a wave of protests, including from banks. Over the next 12 months were made even 2 emissions at $ 150 million. Each, after which the issue has been discontinued, and Chase turned to the new scheme to raise funds through the sale of government bonds.

This Treasury step can be seen as a sort of logical extension of the system of deposit bonds, only this time not at the state level and at the federal level: according to the law in 1864 (National Banking Law of 1864) was allowed the establishment of banks with the number of shareholders not less than five and capital of at least $ 50 thousand .; condition for the creation of such banks was to ensure their emissions through sequestration regis-tered US government bonds in the Treasury, and this issue was the amount should not exceed 90% of the market value of the deposited bonds and 100% of their nominal value.

It is the same way, if the bank stopped payment, the Treasury was to sell bonds and to make payments on their own; In addition, the Treasury and enjoyed a preferential right on all the assets of the failed bank for the payment of all outstanding claims thereafter. The main motive for the organization of such a system would, of course, the desire to create a large market for government bonds. At the same time, it should be noted that the new, so-called "national" banks from the beginning conceived as a future replacement of the state banks, and special emphasis was placed on the benefits of the single currency. The law provides that the state banks are certain steps will have to take in order to "fit" into the scheme, but since the pace of this process were lower than those to-torye would like to see a government that in 1865 a law was passed providing for penalization banks are not subject to the new system, in the amount of up to 10% of the issue - it was almost fatal for many state banks, which are more dependent on the note issue.

"Greenbacks" (Greenbacks), both began to call these non-convertible state banknotes (to distinguish them from redeemable issues that had yellow turnover - by the way, from this place, and both modern slang name of dollar bills "greens" and "bucks"), accessed at essentially, as the legal tender and were required to accept at face value to all types of payments, produ-sary of the United States borders, including all tax purposes. In the midst of these banknotes stvom-government would make all payments related to pay and loan repayment (except for the payment of interest and repayment of the public debt). Despite this, by 1867 a significant portion of bank notes of national banks was cheaper than paper money, and many of these banks have already managed to go bankrupt.

In the last quarter of the XIX century, the United States remained the only one among the developed nations a country where centralized organization does not exist. The banking structure consisted of a myriad of small independent banks, the scope of which was limited to a very small area; the number of banks in 1860 reached 3000, in 1913 there were over 20,000, about 7,000 of them were emissionalnymi national banks, and the rest have acted according to the laws of his state, and had no right to issue banknotes. Such banking freedom "un-American" was significantly different from its European interpretation. Firstly, US banks were practically deprived of any possibility of building offices system. The banking firm established in one state did not have the ability to spread their operations beyond or through the opening of offices in another state or in any other way. With regard to the opening of offices in your state, the situation in different states of the Lich: some states, mostly southern, allowed the creation of bank-divisions in other laws prohibiting their establishment had been taken. After the adoption of the National Banking Act the right to open branches were saved only for those banks that were part of the national banking system, already having their offices. Therefore, the position of the majority of banks operating outside the major cities, in varying degrees, approaching to the position of local monopolies.

Secondly, nationwide banking law prescribes quite specific scheme to issue banknotes. Over time, the benefits of this scheme Mill hovered ever more questionable. Government bonds, which imposes og Romney demand as a basis to issue banknotes, are usually sold at a premium; This circum-ment in conjunction with the rule that the bank could make an issue only to the extent of 90% of the cost of purchased bonds, largely reduced the profitability of investments for the emission goals, and in cases where the bank has the ability to issue loans, without having to issue, he preferred to do so, and that gave rise to significant variations in the amount of circulating notes from year to year depending on the region.
In the early 1880s the federal government began to reduce debt Th-res redemption of the bonds; respectively, increased shortage of funds for bank notes and even more down bond yields. Circulation banknotes of national banks declined rapidly (between 1881 and 1890 fell by 60%). Synchronized there was a rapid build-up of cash reserves of banks (mainly gold) growth in the volume of deposits - phenomenon, a direct contradiction to what it would be logical to expect, while ensuring emission conventional bank assets.
Considerable criticism also causes inelasticity of emissions in the short term: those fluctuations in the ratio of banknotes and deposits, which occurred in the Euro-pean countries, particularly as a result of seasonal changes in demand - the huge demand for money, which is accompanied by the realization of the harvest, and have not been observed in America - and this despite the role played in this country agriculture. Buying and review were troublesome and break the bank. Moreover, the total value of the banknotes, which could pay off within a month, was also limited by law ($ 3 million. Before and $ 9 million. After 1908).

Therefore, once issued bills used by banks, as they say, to the maximum. The absence of significant reserves of banknotes led to frequent and strong fluctuations in interest rates - every autumn the level jumped up sharply. System software issue was accused of suppressing some "natural for sverhemissiey control mechanisms." She, in particular, made a normal process of the banknotes return to their maturity by the issuing bank is quite a rare event. Edinoob-sity appearance of banknotes of various banks, as well as the visibility improved security guarantees that they have been granted by law, made public do not distinguish between them. The banks did not repay on a reciprocal basis banknotes each other, instead of sending their competitors their bill for clearing, they preferred, as a rule, pay for it from their own offices - explained that, firstly, the hassle and expense of shipping in the Agency maturity, which (due to lack of branches of the system) was very small, and the current is at a distance from each other (up to 1874 notes could be redeemed at the issuing bank, or in one of the city's banks from the list of so-called "settlement cities ", and after 1874 the repayment could be made cashier issuing them or the Treasury). The second reason was that in the conditions of the high cost of issuance from the banks no direct motives of others with their own banknotes in circulation. All these factors have led to the disappearance of odes-tion of the important signals that can quickly give the bank to know that he has issued too many notes. To a large extent this is due to the fact that in a relatively short period of time America rocked several major financial crises - in 1873, 1884, 1890 and 1907; most of these crises took place in London, but there they were much less serious - in comparison with London rate in New York soared to fantastic heights. There was another important difference - in America in 1873, 1893 and 1907 (especially in 1907) have been substantial in scale partial or full suspension of cash payments and paper money valued above bank checks.

The essence of the claim to the American system of emission can be summarized in one word: inelasticity. This system has been unable to respond to fluctuations in demand both seasonal and critical nature. Suspension of payments were triggered by the demand of depositors trying to get their cash deposits - banks claimed, and not without reason, that their inability to pay was a direct result of problems with the release of additional notes.

Suspension of payments, from this point of view, explained the impossibility of money just to change its form - from current accounts on which to write out a check on the banknotes. This was taken into account when trying to improve the situation: in 1900, adopted a series of measures aimed at improving emission yields, such as a law permitting banks to issue bank notes at 100% of the nominal amount of security instead of 90%, in addition, in the period after 1900 year as security again permitted, as once, use not only the federal securities paper, and municipal levels; at the same time to issue tax was reduced from 1% to 0.5%.
But all these measures again served only to long-term increase in the scale of emissions without increasing its short-term elasticity. The result was a progressive increase in circulation, amounting to 90% of the years 1900-1907, and gave birth to an inflationary boom of those years; events as 1907 clearly showed that this new system is useless in times of crisis - defaults this year, lasted two months.
It is necessary to touch the redundancy problem, or rather, the norm of mandatory reserves Islands. Up until 1874, the National Bank of New York had to be stored in their vaults 25% of deposits and banknotes in the form of legal tender. Banks other cities called "urban settlement" also had to keep 25% as a reserve, but half of that amount could be kept on deposit in New York, and all the other banks were required to keep 15-percent reserves and 3/5 of this amount They could be deposited in authorized banks' repayment of cities. " After 1874 the reserve require--tion were revised and were treated to a deposit, and after the 1887 Chicago and St. Louis, along with New York received the status of "central reserve cities."
The official minimum reserves was so small that, in case of panic, to save the bank from liquidation was extremely difficult.
Banks each time was in a dilemma: either to suspend payments immediately, or, as far as possible, to use their own funds, hoping that demand is still subside, and the suspension of payments will be required. Under American law the bank, the level of reserves that is below the permissible mark, was obliged to stop lending operations up until the deficit is eliminated. This forced the banks to resort to a policy of immediate credit crunch. Naturally, it is much more easy way out of this situation was provided prostanovka payments - this procedure deprived efficacy claims of depositors on deposits, thus giving the bank a delay to return earlier loans; Moreover, it allowed the bank to issue new loans, even under the condition that customers were willing to accept payments by check, for koto-eye as yet been possible anywhere else to get cash.

Suspension of payments, of course, meant the formal declaration of insolvency. However, these actions were in many cases allowed, and a long tradition of mass suspensions, both before and after the creation of national banks has accustomed the public to their full "legality". (Changing direction, accumulated reserves). Thus, the root of the problem lay in the backup policy flexibility.
In the very first time, ordinary bank deposit balances practiced their balance sheets (thought to cash) to the banks of major cities, while maintaining, in such a Zoom, up to half of their total reserves. Due to the banks' repayment of cities, "as well as" central reserve cities "were classified as national banking legislation to the special category of" bank of banks ". Reservation system became centralized, it takes the form of a pyramid, and the "natural" way grew kvazitsentralizovannye banking institutions.
This situation has been recognized as completely inadequate; so since 1857 in financial circles constantly heard complaints that practiced by ordinary banks in the secondary deposit banks of major cities, and particularly in New York, gave incentives unhealthy speculation in the stock market; even more important seemed that whenever a crisis arose throughout the financial system, where ordinary banks were like hostages, could be, in the end, close your eyes, there is a developed system of bank branches in the country. However, its absence will definitely makes the situation less stable.
Again, instead of bank branches offices, emphasis has shifted to the practical task: to find within the existing system of rational way to use the reserves in times of crisis.

The national law on banks in 1864 was followed by the official recognition of the WTO-ary deposit of bank reserves, banks are allowed to take them into account as a private with an increase in minimum reserves. Earlier, the banks themselves isolated attempts to coordinate their actions; One such attempt was the use of so-called credit clearing house certificate (The Clearing House Loan Sertificate). (In the case where the clearing balance of any of its participants turned out to be passive, he should instead transfer bank lender of cash to bring to the Association of clearing the board (The Clearing House Association) bail, based on which the bank swim-twisted by credit certificates clearing fees, . yielding a rather high up-move from 5 to 10% per annum, which he held in lieu of cast loan balances essence of the scheme was that the stronger banks, whose clearing balance was positive, were as if to lend to weaker - this idea was directed against the aspirations of each bank to improve its position at the expense of others. Without such agreement, none of the banks would not have fearlessly to expand its lending operations in the situation periodically subject to panic demand for cash). For the first time this system was tested boston cal and New York banks in 1860. Its action was accompanied by then the agreement that the metallic reserves of all member banks are considered as a kind of collective fund (this was done in order to panic the period it was possible to use the reserves less affected banks, such a unity of reserves at the same time meant that the bank was deprived of the possibility to influence the the value of "his" reserve via credit restriction).

Bank of New York and Boston managed using this system still maintain cash payments during the crisis in 1860 year; in this system it was used again, this time similar associations, at least in seven major cities, and although still not managed to avoid this time the complete cessation of payments during 1873 crisis, but the suspension was a short-lived themselves (at least three weeks).
During subsequent crises clearing certificates used similar associations in almost all major cities, but without the equalization reserves, to achieve a satisfactory agreement that in most cases it was not possible. (However, the magnitude of the crisis in 1884 and the 1890s were small, and it's done without prios-SETTING payment, but during the next two crises of 1893 and 1907 the use of credit certificates without equalization reserves almost immediately turned into a cessation of payments and for individual banks was truly disastrous, as they prepared to perform a large number of checks from the other participants, and at the same time, pur-retaya so positive clearing balance with other banks, could not get their cash to maintain its own reserves. and as a true mockery It looked like a situation where at the same time they could come to terms with their own clients).

The successes and failures of the system of certificates of credit gave reasons for the two inter-related findings. Firstly, someone still had to keep at adequate reserves that could be used in the event of a crisis; Secondly, these resources were to be available for all the banks; Moreover, more and more weight gained opinion that there must be an organization similar to the central banks of European countries. Some in-similarity of this kind of organization could be considered as US Treasury. Even in 1846 it was established the rule that it was independent of the banks, that is has filed its funds largely on their own, instead of depositing them in banks (though this principle has been criticized both which had a negative effect on the circulation of money, if Treasury revenues on over a period of time greater than its cost). Since the Civil War Treasury almost mastered assistance in times of crisis. In 1857, when the national banking system did not exist, the Treasury almost mastered assistance in times of crisis. In 1873, it once again resorted to this, and, in addition, has sold for $ 5 million. Gold, placing the proceeds on deposit in several banks. In 1884 and 1890 years it bought bonds again, and, moreover, advance to prepay part of the interest on the national debt, but in 1893 it is no longer able was to have any help, and moreover, itself resorted to short-term loans from banks. In 1907, the Treasury, however, again failed to help, but the means by which it actually possessed, were very small, since the lion's share of available funds has been placed in the banks before the crisis.
The final "chord" is gaining momentum for banking reform movement sounded during the 1907 crisis. The aspirations of the majority is to create a kind of organization that can provide emergency funds in a panic.

The final "chord" movement gaining strength for banking reform sounded during the 1907 crisis. The aspirations of the majority is to create a kind of organization that can provide emergency funds in a panic. Authorities sympathies tended to the organization of the central emission reserve establishment, however, even after the banking crisis of 1907 opposition to the federal centralism was still very strong, which was the basis for the adoption in 1908, the so-called Aldrich-Vreeland (Aldrich-Vreeland Act of 1908), which were allowed to use the banks as security for any additional issue of securities in addition to the bonds, including commercial paper - provided, however, that all banks suffered both individual and joint responsibility for the repayment of the additional issue.
The same law, the National Commission of monetary (The National Monetary Commission) was set up, designed to monitor the progress of the reform process began, which lasted four years and conducted in-depth study of the banking system is not only the United States, but also the major European countries. Opub-lished Commission materials served for the establishment of a permanent central organization to issue paper money based on collateral commercial obligations, it would act as a lender of last resort and, in addition, would control the money market through the interest rate and the operations in the relative indoor market.

These intentions and materialized in the creation of the Federal Reserve System. In its structure, it is significantly different from the central banks of European countries. It consisted of twelve regional Federal Reserve Banks, which have been fixed for certain federal reserve territories. All national banks were required on a mandatory basis to join the Federal Reserve. These banks, whose activities are coordinated by the Federal Reserve Board were transferred to the function to issue banknotes and storing reserves Fed member banks and credit activity through re-allocation among member banks their capital Fed.

Creating the Fed helped to make adjustment check circulation.

At the same time with some of the fundamental flaws of the national banking system that emerged historically and fed exaggerated passion for freedom at the expense of a reasonable centralism, the Fed and could not do anything; some of them were somewhat offset by the development of other financial institutions: insurance companies, companies specializing in the production of traveler's checks, etc., and the other - remained unchanged..