The History of New York State
Book 12, Chapter 19, Part 4

Editor, Dr. James Sullivan

Online Edition by Holice, Deb & Pam

 

Savings Bank--Savings associations, mutual in character, are very old, and were patterned after the English type. The first bank of this sort incorporated in New York was the Bank of Savings of New York city, chartered in 1819, a year which saw the rise of these institutions all through the East. In 1820 the Albany Savings Bank was incorporated. At first they were of a "semi-benevolent" nature, intended to provide a safe depository for the surplus earnings of wage workers, and those whose means did not put them on a par with the wealthy banker. Such a bank lacked most of the features of a State institution, having neither stockholders or many officers other then honorary. The deposits were held in trust for the benefit of those who made them, and all profits were divided proportionately. The State exercised little supervision over them, and the moneys handled wee exempt from taxation. Trustees managed the affairs of the association, and seldom received pay. They increased ore rapidly than did the State banks during the early days, but were outdistanced in numbers, at least, when New York started its free banking system. In 1854 about one-seventh of the banks in the State were of the savings variety--they had come under the supervision of the State Banking Department the year before. By 1873 they made up almost a third of the banks with 150, this number seldom having been exceeded since in organizations not affiliated with some different institution. In the number of depositors and sum of the deposits the savings banks surpassed those of all other banks in 1873, a condition which was true in 1900, and in this year their resources were almost as great as the discount banks and trust companies combined.

The savings bank led a rather precarious life before it was taken in as one of the children of the Banking Department in 1853, and care insisted upon in its management. Their accounts after that were examined with the same regularity as other banks, restrictions were laid, and laws passed limiting what they might do. They were allowed to continue as mutual organizations, but with limitations. They still operate without capital stock, and the profits go to the depositors. The laws affecting these institutions are very rigid, amply enough so to make them safe. There has been as few failures of savings banks in the last four decades as any other set of banking institutions, and the very few failures have been due to defalcation rather then to mismanagement. In recent years the tendency to consolidation which marks the present trend in banking, and the making of the savings department a branch of State banks and trust companies, has led to a decrease in the number of savings banks, but has greatly increased the facilities for the deposit of savings, and encouraged and taught the habit of saving.

The number of Savings banks In New York on January 1, 1926, was 266. These were capitalized at $93,207,400; had a surplus and undivided profits account of $124,492,575. The total deposits were $1,939,839,678, and total resources amounted to $2,262,109,441.

Trust Companies.--As late as 1907 one of the chief speakers addressed the American Bankers' Association on "the Distinction Between Trusts and Trust Companies." About the same time another banker wishing to gather data for an address had his questionnaire returned by the attorney-general of one State with the reply that there were no trust companies doing business in the State except the Standard Oil Company. Yet the Farmers' Loan and Trust of today had been started in 1822. Eight years later the New York Life Insurance and Trust Company was organized. The first great impetus given to the forming of trust companies was the National Banking Act of 1863, and between 1864 and 1875 forty of the present existing companies were added. It was not until 1874 that they were even put under the supervision of the superintendent of banks, although state banks had been reporting for nearly a quarter of a century. The report of that year stated that there were twelve in the State in apparently sound condition with an aggregate capital of #11,752,040 and deposits of $38,579,764. In the year 1907 there were probably 1,200 trust companies in the United States with resources of possibly $3,000,000, and as yet they were practically unknown or understood.

The trust company functioned at fist as a trustee, guardian, executor or administrator. This is still an important feature of such organizations and one of the most valuable. They bring a skill, a care, a safety to the administration of the affair of the estates left in their hands which individuals cannot give. But they have added to this feature that of general banking, among others, and made the most remarkable growth of all banking institutions. While their numbers are not so great as any other class of State banking organizations, their resources now exceed that of any other one class. A summary of their growth in this direction up to 1900 is given by Bradford Rhodes in a sentence as: "The assets of the trust companies in 1874 were doubled in 1882, tripled in 1886, quadrupled in 1889, grew to five fold in 1892, six fold in 1895, seven fold in 1898, and twelve fold by the end of 1899."

The present-day trust company has been called the "department store of finance." They are in addition to their fiduciary functions, bankers along commercial lines, depositories for savings, and private bankers. "In addition to their trust functions they receive both time and checking deposits, make loans of a more varied character than are permitted to commercial banks, maintain vaults for safe deposit of valuables, buy and sell securities, act as receivers, registrars and fiscal agents for corporations, promote industrial enterprises, and underwrite their stocks and bonds, and in recent year have also participated in the floating of loans of foreign governments and foreign industrial corporations in this country" (Scroggs). The trust company of today gives almost every reasonable service to its customers, "from acting as guardian for a new-born babe to serving as an executor for his estate after he dies of old age." There were 127 trust companies in the State in November, 14, 1925, capitalized at $113,100,000; surplus, $288,624,503; with total resources of $4,494,037,973.

The Federal Reserve System.--The founding of the "Reserve system," was one of the most remarkable advances made in American banking, and a climax to the progress made over a century and a quarter; it introduced a new era and came at a time when most needed. Our country lacked the central banking which is the feature of foreign financial methods, and students had pointed out that to take its place there should be some sort of money reservoir to care for emergencies; and "that much of the extreme variation in the money rate and the periodical stringencies could be voided by a proper use of discounting through some central organization." The act of December 23, 1913, recognize the two needs or principles indicated, and gave the country a central bank in everything but name. Through the Federal reserve Board established by this law, the banking power of the nation was bound together, but was dependent for its effect upon the membership. The national banks were required to join under penalty of forfeiture of their charters; many State banks and trust companies refused to become a part of it, although this was less true in New York. The World War crises did much, however, to strengthen the system and induce cooperation among banks. It received its greatest test during the war which followed close upon its inception; the through the period of reconstruction and deflation which followed it proved its worth.

One of the fist effects of the World War was to transfer the world's financial center from London to New York City. The Reserve System was expected to spread much of the financing and money involved over the country and lessen the importance of New York as a money capital of the Nation. It did divert from the New York market some of the adjustments of marginal funds; member banks meeting extra demands by borrowing from their local reserve bank, so that money markets are being developed in other cities than New York. But the metropolis remains, however, the principal center of the United States for the use of surplus funds and for the adjustment of banking reserves. Of the various regional branches, New York is first in importance. The following statement of its methods is printed on the authority of the institution itself.

The New York money market is the leading money market of the country, the one that is central and national in scope. As such it is the market to which gravitates the idle money of other sections in the effort to find employment, and thus it becomes a pool of the country's surplus funds. A bank with funds on hand which it is likely to need on a day's notice puts these funds in the New York money market. In the market these funds are invested in short term securities, such as short government securities, short municipal securities, bankers' acceptance, or other short obligations, or they are lent on a day to day basis as call money, either to brokers to carry stock and bonds or to dealers in Government securities and bankers' acceptance to carry their portfolios. Such obligations involve a minimum of risk and can usually be converted into cash immediately. As the funds so invested or lent are needed from time to time, the securities are sold or the loans called, thus making possible an immediate withdrawal of the funds.

Banks and industrial concerns all over the country have funds employed in the New York money market, and there is a constant movement, to and fro, of these funds. Almost any sudden need for funds in any part of the country finds reflection in some withdrawals of funds from the New York money market, while any accumulation of funds in any part of the country is apt to result in an increase in the supply of funds in the New York market. The New York City banks as the depositories of out-of-town banks and industrial concerns are the principal agencies through which funds reach or are withdrawn from the New York money market.

The Federal Reserve Bank of New York has two relations to the New York money market.

In the first place it has certain mechanical relationships. The Federal Reserve Bank furnished the mechanism by which currency is issued or retired, Government securities are issued and redeemed, and by which funds are transferred to and from all part of the country for the Government and for member banks. Transfer of funds include not only direct telegraphic transfer, but also the daily settlements made between New York and other sections for the immense volume of checks either deposited in or drawn upon the banks of this district. In fact, practically all financial transactions of banks, business houses, and the Government, between this district and other districts, are reflected in wire transfers or settlements made through this bank.

In the second place the Federal Reserve Bank of New York, is a credit reservoirs to which, largely through the member banks, the New York money market has access, in the same way as other money markets have access to the Federal Reserve banks of their districts. In a rapidly changing market, like that of New York, which employs surplus funds, the supply of funds is never incomplete equilibrium with the demand. One week the supply of funds will be large and another week unusual needs in some parts of the country will draw off funds. If all of these temporary fluctuations in the supply of funds were reflected in changes in money rates the movement of rates would be wide and irregular. As a matter of act, any temporary shortage of funds in the market is usually met by the use of funds form the Federal Reserve Bank. Similarly, when member banks are borrowing at the Reserve Bank, a large excess of fund seldom occurs, because any available funds are generally used to reduce or repay loans at the Reserve Bank.

Funds from the Federal Reserve reservoir reach the market mainly in four ways:

    1. Member banks whose reserves have been depleted by withdrawals of deposits or currency, or for any other reason, many restore these reserves by discounting paper at the Reserve Bank at its established discount rate. In such transactions the initiative lies with the member bank.
    2. Member banks, discount houses, and others may obtain funds from the Reserve Bank from time to time by selling to it bankers' acceptances. The immediate initiative in such transactions lies as a rule with the Reserve Bank but with the sellers, since the Reserve Bank stand ready to purchase at its established buying rate all offerings of bankers' acceptances that carry not less than two good banking names and meet certain other eligibility requirements.
    3. Dealers in short Government securities and bankers' acceptances, in addition to selling such securities outright to the Reserve Bank, may obtain fund from time to time by selling them to the Reserve Bank, at established rates for this type of transaction, under agreement to repurchase them within fifteen days. In these transactions the immediate initiative is taken by the dealers.
    4. The Reserve bank may furnish funds directly to the market by purchasing short Government or municipal securities, or may withdraw funds from the market either by selling such securities or by not replacing them when they mature,. Transactions of this nature are ordinarily undertaken on the initiative of the Reserve Bank.

These four classes o loans or investments constitute the major earning assets of the Federal Reserved Bank, and changes in money market conditions are promptly reflected in one or more of them.

 

TABLE I

TREASURER'S ACCOUNT SECOND FEDERAL RESERVE DISTRICT MONTH OF SEPTEMBER, 1925.

DEBITS.

Checks and warrants paid

$81,234,000

Coupons paid

39,548,000

Treasury notes and certificates redeemed

127,681,000

Funds transferred from New York

49,952,000

Purchases account treasury, various bureaus

53,455,000

Special one-day certificates purchased

278,000,000

Payment to Republic of Colombia

5,000,00

Total Debits

$634,870,000

 

CREDITS

Income taxes

$119,695,000

Internal Revenue receipts

49,477,000

Other receipts

28,722,000

Withdrawals from Government depositories

3,437,000

Funds transferred to New York

155,987,000

R. R. Payments and sale of Railroad notes

2,312,000

Sales account treasury various bureaus

778,000

Special one-day certificates redeemed

278,000,000

Total Credits

$638,408,000

 

Among the institutions which, while having no direct claim to the considered as part of the banking system, are none the less to great importance in the money market, and next to the Federal Government, the most important customers of the banks of New York, are the exchanges, which, by affording an instant market for securities of all kinds, not only aid in standardizing values, but render this form of wealth easily convertible to terms of cash. Of the many exchanges in New York--there are many dealing in commodities--the only ones which need to be discussed here are the Stock Exchange and the Curb Exchange. Both are the outgrowth of the gatherings of Merchants and financiers at the coffee houses, of which the most famous in New York's early financial history was the Tontine, on Wall Street. While drinking their coffee or something stronger, habitués of such coffee houses as the Tontine, and similar ones in London, would buy and sell public or corporate stocks and securities, and transact other business of a financial character in which the banks were not interested. Exchanges began to be formed about 1825 in all the principal financial centers, as the business of trading in shares became specialized, and those engaged in it felt that coffee house transaction were beneath their dignity. The first Stock Exchange was content with rented offices in the financial district, and it was not until 1865 that the members thought it worth while to erect their own building. But, in the reconstruction period following the close of the Civil War came the expansion in rails, and with it the necessity of floating large issues of securities. It is hardly unfair to say that the craze for speculation, to which early stock brokers were ready to lend themselves, was still another factor which not only increased the volume of business, but rendered it essential to safeguard transactions in stock and bonds as thoroughly as possible. Financial unrest was quickly reflected in the business of the Stock Exchange, on which the most noted of the early operators were Jay Gould, Jim Fisk, Daniel Drew and Cornelius Vanderbilt. These men did not appear themselves on the floor of the exchange, but operated through brokerage firms having seats there. Sometimes the Stock exchange was blamed for occurrences in which it had no part. Thus in the events leading up to the famous Black Friday in September, 1869, it was wholly blameless, the disaster having been caused by the attempt of Jay Gould and James Fisk, Jr., to corner the gold market, and the Stock Exchange did not and does not trade in gold. The episode reveals that even two generations ago the relationship of the several markets was so close that where one was affected, all must feel the reaction.

With the increase of business and the efforts to safeguard and govern it, membership in the exchange, which was always a membership association, and not a corporation, became increasingly valuable. Thus in 1898, 122, 160, 166 shares of stocks and bonds to the value of $922,514,410 changed hands on the floor of the Stock Exchange. That year the high price for a seat was $29,750, and the low, $19,000. In 1925 the shares of stock traded in were 452,211,399 and the bonds represented a par value of $3,398,346,045. That year seats on the Stock Exchange were $2150,000 high, and $102,000 low. The Stock Exchange disciplines its own membership, and itself decides what securities they maybe permitted to deal in through the exchange, although it cannot dictate in such mattes to its embers ion their private business capacities.

Certain highly important classes of industrial stocks, including the Standard Oil Company stock, were not listed, and in 1882, dealers in these stocks formed what was called the Curb Market. The operators collected in the middle of Broad Street, which was closed to traffic, roped off by the police, and practically given over to them, rent free, and would give buying and selling orders to the brokers' clerks who watched them from the windows, in sign language. While still exposed to the inclemency of the weather, but rent free, so-called "seats" on the Curb market were valued at $1,500. In 1921 the members took possession of a building erected for them as the "New York Curb Market," and toward the close of the year seats were valued at $3,500, were sold at $8,500 to $35,000 in 1925.

 

The History of New York State, Lewis Historical Publishing Company, Inc., 1927

This book is owned by Pam Rietsch and is a part of the Mardos Memorial Library

Transcribed by Holice B. Young

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