OHIO STATEWIDE FILES - Know your Ohio: Money at Home--- Banking in Ohio [2] *********************************************************************** OHGENWEB NOTICE: All distribution rights to this electronic data are reserved by the submitter. Reproduction or re-presentation of copyrighted material will require the permission of the copyright owner. The submitter has given permission to the USGenWeb Archives to store the file permanently for free access. *********************************************************************** File contributed for use in USGenWeb Archives by Darlene E. Kelley http://www.genrecords.net/emailregistry/vols/00026.html#0006374 December 20, 1999 *********************************************************************** Historical Collections of Ohio Diaries of S. J. Kelly Plains Dealer Know Your Ohio by Darlene E. Kelley *********************************************************************** Money at Home -- Banking in Ohio-- Creation of National Currancy -- Pt 2 Continuation of Canals-- In 1819 commenced the struggle for a canal to connect Lake Erie with the Ohio river. The resources of the state were yet undeveloped, and most of its six hundred thousand inhabitants were poor. The project had a few supporters, and the foresight, courage and perserverance required for such an undertaking, under the conditions then exisiting, is hard to be realized. Alfred Kelley had earlier been an enthusiastic believer in the importance and practically of the canal from the Hudson river to Lake Erie, and now he threw himself heart and soul into the proposition to construct a waterway, which should do for Ohio what the Erie Canal had done for New York. In 1822, after his retirement from the Presidency of the Commercial Bank of Lake Erie, he was appointed as one of the canal commisioners. He presented his report to the Senate and in the Spring of 1823, together with Macajah T. Williams of Cincinnati, he went to New York to inspect the New York canals and investigate their operation. When the project was finally authorized by the legislation, he was recognized as its responsible head. The Ohio Canal is a monument to the enterprise, energy, integrity and sagacity of Alfred Kelley. He was at all times its foremost advocate, and, from the inception of the work to its completion, was the leading member of the board of commissioners. During the construction of the canal, every part of the work was subjected to his supervision. Contractors soon learned that no fraud or artifice could escape his vigilence. He was inflexibly true to the interests of the state, and sacrificed both his health and his private interests in his untiring devotion to the public. The dimensions of the Ohio canal were the same as those of the Erie canal in New York, but the number of locks was nearly twice as great. No canal in this country, or Europe, of equal length, had been constructed at as small a cost per mile, or at so small an advance on the original estimate. In the meantime it was left to Alfred Kelley to decide upon the terminal location for the central canal. That is , whether the Lake Erie end of the canal would be at the end at the Cuyahoga or the Black River. It became beneficial to the state if land owned by General Simon Perkins, could be donated or loaned to the state along certain routes along the canals route to be decided upon. Upon investigation and trips attended by both parties, General Perkins gave a share or plots of ground as a gift to the state, with the only condition was that lock number 1 & basins should be located in a certain way. This was agreed upon and the canal was to be finished. The canal was practically finished in 1832 and Mr. Kelley remained at the head of the Commission until 1834, when the entire system was in sucessful operation. While the canal openings improved the distribution of produce and expanded trade, a severe panic in 1837 and a subsequent drepression tested the soundness of Cleveland's infant banking system. During the panic, commodity prices sank, and the two local banks were unable to collect on their outstanding loans.The Bank of Cleveland ( the second bank ) and The Commercial Bank of Lake Erie ( first bank ) was forced to suspend specie payments for a year, before losing its charter in 1843. The small amount of specie circulating in Cleveland consisted mainly of foreign coins--English, Spanish, and Mexican. The fragility of local banking systems was due to the imbalance between the large amount of paper bank notes in circulation, which had no intrinsic value, and the shortage of specie, which did-- a circumstance that fostered public distrust of paper money as a medium of exchange for goods and services. Exchange Brokers, Fireman's Insurance Company, Cleveland Clearinghouse Assn. The commercial depression and the chaotic money system showed Cleveland's economic development, and between 1842 and 1845 the city had no bank to provide a safe place for savings or to provide the capital necessary to make temporary loans. Exchange brokers and insurance companies, such as the Fireman's Insurance Co. of Cleveland, which had banking and note issuing priviledges, were the only fiscal agents offering banking services. The vagaries of early banking in Cleveland reflected the state of banking in Ohio. Still dependant on the agrcultural economy, many Ohio banks suspended spiecie redemption during the panic of 1837. 9 banks failed and 15 more did not have their charters renewed in 1843, including the two in Cleveland. The Ohio Legislature provided some relief from the finacial disorder with the Ohio Banking Act of 1845, which eliminated note-issuing authority for Ohio corporations other then banks, causing Fireman's Insurance Co. of Cleveland to reoorganize itself as the City Bank of Cleveland. The act also sought to compromise the differnces between those that wanted a strong state banking system and those that favored a system of independant banks. As a result, Ohio had two kinds of banks, state branch and independant banks. A State Board of Control made up representatives from each of the 63 state banks supervised Ohio's banking systems and furnished bank notes to the branches--two of which were in Cleveland. In order to stabilize the currency in circulation, all banks were required to maintain a specie reserve amounting to 30% of the total face value of the bank notes they issued. Ohio's banking system received its final form in 1851 when separate chartering legislation for each bank was no longer required, provided the bank met certain conditions. With these changes, Cleveland's banking facilities grew at a pace commensurate with ts expanding economy, and to expedite the increased exhange of checks among member banks, the Cleveland Clearinghouse Assn. was organized in 1858. With its banking system stabilized, the city made the transition from a commercial to an industrial economy, fueled by the growth of railroad transportation, and in 1850's the railroad boom initiated the city's metropolitan growth. New banks with stronger capitalization succeeded those that were defunct as banking and finance became more complex. The resources available in state banks, however, were insufficient to finance the North's Civil War effort and maintain specie redemption of notes at the same time. As a result the National Bank Acts of 1863 and 1864 established a national currency, secured by U.S. government bonds, to finance the war, and formed a system of nationally chartered commercial banks to distribute U.S. bank notes. Issurance of state banks notes ended in 1885 when congress taxed them out of existence. Without note-issuing priviledges. state and national banks continued to exist side by side as banks of deposit. With the creation of a National Currency, the value of paper money was stablized. *********************************************** To be continued in part 3.