No. 1.

Answers by the President and Cashier of the State Bank of Illinois to the inquiries contained in the “Joint Resolutions of the Senate and House of Representatives,” appointing a joint Select committee to examine into the condition of the Bank.

The first inquiry is, “whether or not the State Bank has forfeited her charter.”

The 25^th section of the Charter provides that “if at any time the Bank shall neglect or Refuse to pay for 60 days after demand to redeem in specie any evidence of debt issued by it, it shall discontinue and close all of its operations of business, except the securing and collecting of ^debts^ due or to become due to the Said Corporation, and the Charter hereby granted shall be forfeited.”

On the 21^st day of October last, the Bank declined paying specie for some of its paper, and has not since Resumed specie payment genereally. On proof of a demand and refusal as above the courts would be bound, in our opinion, to declare the charter forfeited, the forfeiture to date from the day of such demand and refusal.

The second inquiry is, “What ratio of its discounts have been to persons living out of the State?”

The discounts made by the bank for non-residents have always been very limited. We have made an examination of the books of the bank, and returns from the branches, with a view to ascertain the present amount of

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debt due the bank, created by discounts to non-residents; and the following statement shows the result:

Amount of paper of non-residents now held by the bank and branches, whether of bills discounted or bills of exchange, which have been received by the bank and discounted for the benefit of non-residents.

In the above sum due at the parent bank is embraced the debt of M^r Samuel Wiggins, of $90,ooo, the circumstances connected with which are hereinafter explained. The total amount of debt due the bank by individuals is upwards of $3,900,000, of which the above sum due by non-residents is but four per cent, and, exclusive of M^r Wiggins’s debt, is less than two per cent, or one-fiftieth of the whole. The discounts for non-residents have never greatly exceeded the present sum.

The third inquiry is, “What have been the transactions of the State Bank of Illinois with the house of Nevins & Townsend of New York?”

The bank went into operation in July, 1835. Its stock was paid in by instalments from that time until 1^st November, 1836. As most of the stock was owned in New York, and there was at that time a full supply of Eastern exchange in the country, the funds of the bank accumulated in the hands of the Phenix Bank, which was the agent for the receipt of the

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instalments. On the 16^th June, 1836, that bank was indebted to our Parent Bank about $240,000, and owed also a considerable sum to our branches. Our increasing circulation at this time rendered it desirable to convert a portion of this balance into specie; and, with this view, an account was first opened with Messrs. Nevins, Townsend & Co. in the manner explained in the following copy of a letter addressed to them:

This sum of $100,000 was obtained by them from the Phenix Bank, and placed to our credit at interest, at the rate of six per cent, and so remained until Sept. 19, 1836, when it was reduced to $50,000 by the purchase and transmission to us of $50,000 in gold, our balance on the books of the Phenix Bank being, during the whole time very considerable, notwithstanding our having embraced every opportunity to dispose of checks on New York. The President of the bank was in New York about this time, and finding that there was a loss of interest on the balance due by the Phenix Bank, (which refused to allow interest,) a further transfer of funds was made from that bank to Nevins, Townsend & Co. at the same rate of interest, they giving ample security, and holding the deposite subject to our eight checks. The balances of these accounts ranged after that time as follows:

Between this last period and the 2^nd October, the whole

balance was checked for, and the Bank drew on them for $5000 more, and thereby became their debtor in this sum. We continued to check on them, and increased our indebtedness as follows:

Between the last period and the 4^th day of June following, we received on deposit from the Fund Commissioners in New York a large sum, which we deposited with Nevins, Townsend & Co. and they became thereby our debtors on the last mentioned day to the amount of $320,000, which sum, the demand for Eastern exchange having greatly increased, was entirely drawn out of their hands by the 8^th day of the following October, (1838), and we had become indebted to them $18,000. From that period this balance due them increased greatly, sometimes amounting to several hundred thousand dollars, and up to the present time has never been less than $100,000. We have allowed them interest on these balances at six per cent. At this time the balance due them is about $150,000.

The whole of the original capital stock of the Bank owned by Nevins, Townsend & Co. has been fully paid up in cash, and all of their instalments have always been

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paid on or before the day on which they were called.

Of the additional capital stock of one million authorised to be sold at auction by the “Act supplemental to the charter,” approved January 6, 1836, Messrs. Nevins, Townsend & Co. purchased at the sale, for a company formed in New York, 8665 shares at $110 per share, on which $11 per share was paid at the time of purchase. On 965 shares of this stock, which was their proportion of the purchase, they have paid up the full amount of $110 per share, being a voluntary act on their part, as no additional call was ever made on this stock.

This house (Messrs. Nevins, Townsend & Co.) have also been employed by the bank as agents for the sale of its State stocks, and to negotiate for loans for the real estate fund of the bank, and some of our branches have kept current accounts with them. The necessity for ^such^ an agent of the bank in the city of New York is too apparent to need explanation; and all the business confided to this house, who are bankers of great wealth and high reputation, has1 been well and faithfully attended to. During all the time the bank had large balances to its credit either with them or the Phenix Bank, it sold its checks on New York freely, and at moderate rates of exchange.

In reply to inquiry “What portion of the stock of the bank subscribed for by Samuel Wiggins, of Cincinnatt[i] has been paid in?” We state that M^r Wiggins was the original owner of 1931 shares of the capital stock, amounting

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to the sum of $193,100. He paid fully some of the first instalments on this stock, but in October, 1835, he applied to the directors of the bank, stating that he had been disappointed in the sale of his stock, and could not meet the instalment called for that month without forcing the sale of his stock, and asking a delay of sixty days. This the directors granted him by discounting his note, secured by an hypothecation of his stock, for $50,000. He subsequently made a similar application, and obtained another discount of $58,500, with which aid he completed the full payment on all of his stock. Since obtaining these loans, he has reduced them to $90,000, which is the amount of his present indebtedness. He has frequently been urged to discharge this debt. but has always pleaded the great sacrifice on his stock, which would be required to enable him to do it. As he is considered abundantly responsible for the debt, independently of the security of the stock, the Board were unwilling to proceed to the extreme measure of selling the stock, and he has been indulged.

This is the only case in which a considerable discount has been made on hypothecation of the stock of the bank, or in which a large discount has been made for a stockholder to enable him to pay the instalments on his stock. The total amount of the discounts of the bank on the pledge of its stock besides the case of M^r Wiggins above, is only $3350.

M^r Wiggins was one of the company already mentioned as the purchasers of the 8665 shares of the additional capital stock of the bank. Eleven dollars on each of these shares was paid in cash at the time of sale, and no further call has ever been made on this stock. No dividends have ever been declared on this stock except on

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that part which was fully paid.

With regard to the inquiry as to “the nature of the transactions of the bank with the house of Denman, of Philadelphia,” we state that the bank never has had any transactions with this house. Bills have been purchased at various periods for two years past by the parent bank and the Alton branch on the house of M. B. Denman, of Philadelphia, drawn by persons who shipped produce to him. These bills have always been regularly paid at maturity, and he has never asked either a renewal or extension of his bills.

The house of Griggs & Weld, of Boston, which failed in 1837, was indebted to the bank, as acceptors of bills on them, which the bank had negotiated to the amount of nearly $70,000. These bills were mostly endorsed by persons at home, who were considered responsible, and the debt has been much reduced since the failure of the firm. Their present indebtedness is $22,129, exclusive of interest, and is believed to be amply secured. We have not at present the means of ascertaining the greatest sum which this house ever owed the bank, but we do not believe that it ever much exceeded seventy thousand dollars. It was created entirely by bills drawn on them by persons in this state.

With regard to the character and extent of loans to houses in St. Louis, we state that the bank has occasionally to a very limited extent, made discounts for St. Louis houses, such discounts being generally bills of exchange or short business paper. The amount has never been very considerable, and is at present but $27,194.

In answer to the inquiry concerning the character and extent of loans by this bank to the Bank of Missouri, we state that but one loan has been made to that bank, the conditions of which will fully appear from the following copy of the articles of agreement entered into at the time:

It will be perceived by this contract that the Bank of Missouri undertook the redemption of the paper of our bank which was lent her, and that the liabilities of our bank were not increased by the loan. A portion only of the paper was used by the Missouri bank, and was soon after returned.

In reply to the next inquiry, “Whether the bank has been engaged in speculations in lead, lands, or any other property,” we state that the bank has never directly or indirectly speculated or dealt in merchandise, produce, or any other commodity, but has always confined its business to the legitimate operations of banking. It has always, when in its power, afforded facilities to persons engaged in the business of exporting the produc-

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tions of the country, and has sometimes done so when it was not doing other kinds of discount business; and, from a misapprehension of its motives, or from other causes, reports of its being engaged in dealing in produce have originated. To correct these, we take the liberty to lay before the committee a brief statement of the motives of the directors, and the means they have used in promoting the business of exporting the surplus products of the country, and passing the proceeds of their sale through the bank.

Soon after the bank went into operation, the State embarked in an extensive system of internal improvements, beginning with the canal, and commenced the sale of its bonds in the Eastern money markets. The capital of the bank had been paid in in New York, and these two sources, aided by the large investments of Eastern capital, made in this country, furnished for a considerable time a large supply of Eastern funds. But the directors of the bank, in looking forward, could not fail to perceive that after the capital of the bank should be transferred to this country, and the State cease to borrow money abroad, the interest on the State loans, and the dividends on the bank stock, would create an annual demand for a large sum of money, which could only be realised by out of the sales of the surplus products of the industry of the State; and that, as these payments would be made chiefly in New York, it would be necessary to convert annually the proceeds of the sales of our surplus products to a great extent into funds current in that city, and that the bank would naturally be expected to perform the operation. With these views, it became an object with the directors so to shape the business of the bank as to

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secure the greatest attainable amount of the proceeds of the sales of such of our products as were sold in the Eastern and Southern markets, and they entered the more readily into the arrangements necessary for the attainment of this end, because they believed that, in aiding in taking the surplus productions of the State to their markets, they were, to the best of the ability of the bank, promoting the public prosperity. This object has been steadily pursued by the bank, and the results have justified the expectation. The sales of State bonds have suddenly ceased at a time when the country is heavily indebted to the Eastern cities, and the means in those cities which the bank has provided by purchases of bills drawn on shipments of produce and otherwise, have proved highly beneficial in sustaining the circulation of the bank, and affording the means of payment of our Eastern debt.

In the earliest stages of these arrangements, the attention of the directors was drawn towards the lead region of the northern part of the State, and they learned that lead to the amount of six or seven hundred thousand dollars was annually exported from Galena and its neighborhood, by far the greater part of which was sold in the Eastern cities, and it became an object with the directors to secure to the bank the Eastern funds for which this lead was sold. Other considerations were not wanting to induce them to turn their attention to this interest. This large quantity of lead was transshipped at St. Louis, and the benefits of the transshipment (as well as of the Eastern exchange) were en-

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joyed by that city, and it was considered desirable to transfer to some extent at least these benefits to one of our own towns. The interests also of the lead dealers, it was believed, were suffering from a combination2 which had existed for some time among the purchasers of the article in the Eastern markets, the object of which was to depress it in price. This they were able to do from the circumstance that the buyers were very few in number, being chiefly the manufacturers of shot and white lead, while the lead, finding its way to market through various channels, and on account of numerous owners, many of whom had no direct interest in the trade, was without any adequate protection. It was thought that if the bank could produce a concentration in the hands of a few sellers of a large proportion of the lead, this combination to keep down the price might be broken up, and thus great interest placed on such a footing as to afford a fine ^fair^ remuneration of the labor of the producers. The most natural and usual manner of effecting the desired change in this trade would have been the purchase by the bank in Galena of bills drawn, on letters of credit, by the dealers on commission houses in Eastern cities; and this was attempted; but the commercial derangements which followed occasioned the withdrawal of such letters, and other means became necessary. The plan finally adopted by the bank was one under which it purchased

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bills on the receipts ^security^ of lead shipped, means being taken to secure the most economical transmission of it to market, and the application of the whole of the proceeds of its sale, after payment of the amount advanced by the bank, to the benefit of the owners. Under this arrangement, the bank received only six per cent interest, and the advantage of the exchange; while the transfer to Alton of a large portion of the forwarding of lead, and a considerable rise in its price in New York, were some of the results. This arrangement, so beneficial in its results to the interests of Illinois, encountered a strong opposition from those whose interests suffered from the change produced by it in the lead trade; and one of the means used by them to compel the bank to abandon it was, to charge it with dealing directly in lead. This charge has been repeatedly been made in newspapers in New York, where it originated, doubtless, with those who had combined to depress the price of the article, and has been industriously circulated by some of the St. Louis commission houses and their dependants in the lead district, until it has, to some extent, obtained believers among our own people—with what foundation in truth we leave the committee to judge.

The other operations of the bank having in view the advancement of the export business, have also been much misunderstood and misrepresented. While the only connection which the bank has ever had with the pork business has been simply the advance of means to those

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engaged in it, chiefly by the purchase of their bills on the cities as above explained, the fact that the bank sometimes furnished those dealers with funds while it was not making loans on accommodation paper, payable in small instalments, at long intervals, gave rise to a suspicion that some motive of gain induced the bank to make the distinction. Charges thus originating found ready listeners in some who had previously been hostile to the bank, and in various ways obtained a wide circulation, and, as now appears, a degree of belief which was not anticipated by the directors.

The same desire of providing funds in New York which has induced the bank to lend its aid to the export business of the country, has sometimes caused them ^it^ to purchase bills on that city and Philadelphia from persons who used the proceeds in the purchase of public land; and from these operations have originated the unfounded and improbable report that the bank was speculating in lands.

The next inquirys are as follows “What amount has been or probably will be lost at the Branches of Chicago[,] Alton, and Galena, and the amount of suspended debt at those Branches. What portion to Citizens of the State, and what to non Residents, and the nature of the securities taken in all those cases, and also what has been the amount of loans to the principal dealers at those Branches. What portion of those debts has been on business paper, what on accommodation loans, and what on bills of exchange and whether said Bills have not frequently been taken up at maturity not with Cash but by accommodation paper?

Answer. In answer to these inquiries we lay before the Committee a number of statements; the examination of which will be necessary to the explanation of the matters referred to. We trust that the result of this examination will be satisfactory to the committee.

The next inquiry is. What portion of the loans to Citizens of this State, have been made to Bank Directors?

In reply to this inquiry we furnish the following Statement showing the present indebtedness of the parent B Directors of the parent Bank, and its Branches.

Statement of the indebtedness of the Directors of the parent Bank and its Branches.

It is proper to remark that the liabilities of the Directors of some of the Branches have at former periods been much larger than they now are, in consequence of some of the large debtors of the Bank, who have been Directors, having ceased to be so. The statements submitted in answer to the previous inquiry will afford full information on this subject.

It has always been considered by the Bank that its Directors are entitled to some advantages in its discounts. Those of the parent Bank being stockholders only to a very limited amount and the Branch Directors ^generally^ owning no stock, they have but little interest in the property ^prosperity^ of the Bank more than other citizens.

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None of them receive any compensation for their services, in discharging duties which require considerable time and attention and in which a good deal of odium is sometimes incurred, and it has been considered that they have a claim to some additional fascilities from the Bank. The Directors of the Parent Bank particularly devote much time and attention to the business of the Bank. It is proper to state that the foregoing list of liabilities of the Directors embraces the indebtedness of the Commercial houses, of which some of them are members, as well as their individual debt.

The next inquiry is. “Whether the Bank has not been governed by partiality and favoritism in some of its discounts and accommodations?”

To this inquiry, we answer, that we have never known such a principle to actuate the Directors of the Parent Bank in their discount business, and the Parent Board have no knowledge of such a course ever having been pursued at the Branches.

In the course, which has already been explained, of the Bank, in sometimes purchasing bills, while it declined other discount business, offence has sometimes been taken by those whose applications have been rejected. In its endeavours to aid the produce business of the Country, the Bank has sought to adopt that course which would the most widely diffuse the benefits of its operation and at the same ^time^ promote the welfare of the institution.

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With this view the Parent Bank in the fall of 1837, made loans to persons in different sections, who wished to go into the business of purchasing pork, taking their notes payable at home with personal security, on the express condition that the funds they obtained by the sale of the pork should be strictly appropriated to the payment of the notes held by the Bank. In a majority of these cases this condition was not complied with, and a portion of the accommodation paper now held by the Bank was taken in discharge of these notes, which by contract were to be paid at maturity; on some of them even the usual curtailments on accommodation paper have not been paid, and the Bank has been under the necessity of putting them in suit. Warned by the result of this experiment and at the next season of operations in pork, the Bank not being in a situation to Justify the doing any discount business, which would not in a few months produce funds in desirable places, the rule was adopted of requiring persons, who wished to obtain funds for the produce business to lodge in the Bank letters from good houses in the Eastern and other Cities, authorising bills to be drawn on them. By this arrangement the Bank can make a certain calculation of realising its funds at stated times and places, and has been enabled to furnish money for the purchase of produce, when, if it had no other resource than paper payable at home, it could not have done so. Much dissatisfaction has been expressed by some with this course of the Bank;

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and out of it have originated doubtless ^some^ charges of partiality. We take occasion to declare on leaving the subject, that we have no knowledge of a single case in which a draft offered to the Bank on a good letter of credit, was rejected by it, while it was purchasing such paper.

The next inquiry is, “the character of the transactions between the acting Fund Commissioner, and the President of the Bank, in the negotiation of the Bonds sold to constitute the stock owned by the State in that institution: and if the Bonds since the time of purchase by the Bank, could not have been sold for Cash at ^or^ about par: and why said Bonds were not sold: and also whether any money has been paid in to represent the Stock of the State in said Bank?

In reply to these inquiries, we state that of the Subscription of $2.100.000. of the Stock of the Bank owned by the State, the sum of $335.000. was paid into the Bank in Cash, and a state stock to the amount of $1.765.000. was created to be sold to provide the means of paying in that amount.

From the report of the Fund Commissioners on the Subject: it appears that they took all of the usual means to effect the sale of this stock, but without success; and that they afterwards offered it to the Bank, at par, in payment of the state Subscription as above. This offer was accepted by the Bank, under the hope that

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the Stock market would speedily improve, and the Stock could be disposed of. It has certainly ^constantly^ been held for sale ever since by the agents for the Bank in New York who report that there never has been a time at which any considerable portion could have been sold at par for cash.

The next inquiry is, “whether the Bank has not dealt unfairly in declaring dividends, and reporting means as available, which are in reality unavailable and in bad debts?”

In declaring dividends, the Directors have always been careful to retain what they believed to be a sufficiency of the profits to cover any bad or doubtful debt due the Bank. A contingent Fund to the amount of $90.000. has been set apart for this purpose, and after declaring the last dividend, there remained, in addition to this fund, of profits undivided $20.000; and five months interest amounting to $61,618. had accrued on the State Stocks, held by the Bank, making altogether a fund reserved of $171.618. which was considered an ample allowance for bad debts.

The last inquiry is, “whether the houses connected with some of the principal officers of the Bank, have not been accommodated largely to the exclusion of others equally solvent?”

To this we reply that we have no knowledge of any houses connected with the officers of the Bank who have been accommodated with largely to the exclusion of others equally solvent.