In observance of Presidents' Day, we take a trip back to the civil war era.
In 1860, there were an estimated 8,000 state banks, each circulating its own currency. National Banks and our Nation's dual banking system didn't come into existence until 1863.
Today we celebrate 53 community banks that have passed the test of time. Each was established prior to 1860.
Jumbo Rate News JRN 43:07
President Lincoln Didn’t Bank Here, But He Could Have
As history has recorded, our 16th president conducted his banking at the Springfield Marine and Fire Insurance Company, Springfield, IL, which was not technically a bank.
Springfield Marine and Fire was state chartered, but back then, all “banks” issued their own currencies (bank notes). Springfield Marine and Fire took deposits and made loans, but the absence of issuing currency eliminated it from the bank definition. From its humble beginning, Springfield Marine and Fire eventually evolved and morphed into J.P. Morgan Chase Bank.
The value of individual bank notes would differ across the state line. There would generally be a fee to convert it, similar to foreign currency.
President Lincoln was a depositor from 1853 until his death in 1865. In fact, history buffs can view a copy of Lincoln’s actual bank ledger, preserved and on display, at the Chase Bank branch on the east side of Springfield’s city square.
Lincoln may be remembered foremost for the Civil War and the abolition of slavery. To finance that war, however, Lincoln and Treasury Secretary, Salmon P. Chase, formulated the national banking system and the Office of the Comptroller of the Currency (OCC) to organize, regulate & supervise it.
In 1863, Lincoln signed the National Currency Act into law, which also gave us a new national currency, but it could only be issued by national banks. That law was retooled the following year into what is now referred to simply as the National Bank Act. Although amended through the years as needs changed, this continues to be enforced today.
At the end of 1864, 683 national bank charters had been issued, but the majority of banks were still state chartered. That is until 1865 when, to encourage conversion to national charters, a 10% tax was levied on state issued bank notes.
The numbers quickly reversed. By the end of 1865, we had 349 state banks and 1,294 national banks. This “National Bank Era” lasted until 1913 when our 28th President Woodrow Wilson, signed the Federal Reserve Bank Act into law. It created a central bank and a new uniform currency to replace the plethora of individual banknotes. This law also moved the oversight and creation/management of the U.S. currency from the OCC to the Federal Reserve. The OCC would now focus solely on the examination and regulation of the banks under its supervision.
In 1860, it is estimated that there were over 8,000 different state bank notes circulating in the United States; many were unstable.
Roughly 42% of the banks still operating today already existed in 1913, but only 77 were established prior to 1860. Of those 77, 53 are “mostly” well-rated community banks. These 53 community banks can be found on page 5 of this week's Jumbo Rate News.
In spite of the mass migration from state to national charters, many of these older banks are state-chartered. For example:
5-Star BankNewport, Middletown, RI (18129) was established as a mutual bank in 1819 by the state of Rhode Island (one of the original 13 colonies). In 2004, depositors voted to reorganize into a Mutual Holding Company form of ownership (see column 2). In April 2005, Oceanpoint Financial Partners, MHC was created with BankNewport, which is now a stock bank, as its sole subsidiary.
5-Star National Grand Bank of Marblehead, MA (2608) was originally chartered in 1831 as Grand Bank by the state of Massachusetts. In 1865, it became one of the many state banks to convert to a national charter. Its name was changed accordingly to National Grand Bank.
Marblehead fisherman would sail twice a year to the Grand Bank off Newfoundland to bring home codfish. The bank’s name was a nod to them as well as to the wealthy merchants who also made their living on the ocean.
4-Star Saco & Biddeford Savings Institution, Saco, ME (17743) is the oldest bank in Maine. It was chartered as a mutual by the state in 1827, just seven years after Maine’s acceptance into the Union.
Saco & Biddeford Savings is one of just 236 mutual banks still in operation today. Over the past 40 years or so, most mutual banks have either merged or opted to change their corporate structure (like BankNewport) to that of a Mutual Holding Company (MHC). Both mutual banks and MHCs are owned primarily by the bank’s depositors, but with an added layer. The MHC holds the majority of the stock issued by the bank. The MHC layer adds to flexibility raise capital that the banks lack.
Mutuals were originally created because banks were for commerce. They did not make loans to “the working class”. Therefore, community members would get together, often at a bar or a general store, and pay dues. It was like a club. Once enough dues were collected, a loan would be disbursed to a member. Home loans were the primary loans while the overarching theme was the benefit to the depositors, borrowers and community.
4-Star Washington Trust Co. of Westerly, RI (23623), the oldest community bank in the nation, got its start 225 years ago as a trust company. The original charter, issued by the state of Rhode Island, recognized the area’s need for a local bank. Washington Trust, named after our 1st president, opened for business on August 22, 1800, just 24 years after our forefathers declared independence.
