Communicated to the House of Representatives, February 2, 1820.
Mr. Kent made the following report:
The Committee of the District of Columbia, to whom were referred sundry petitions with respect to the banks of the District, and a resolution directing an inquiry into the expediency of prohibiting the circulation within the same of notes of a denomination under five dollars, have, according to order, had the same under consideration, and, after much deliberation and reflection, prepared a bill in relation thereto, which accompanies this report:
In the prosecution of the various inquiries to which the attention of the committee was directed, they were impressed with the belief that most serious injury would result to the District from an effort, at this time, suddenly to call in a considerable part of the debt due to the several banks. While the price of the staple commodity of the Potomac market is unusually depressed, such a measure would expose to sale, at a great sacrifice, much of the real property of the District, would totally prostrate its remaining commerce, and prove alike injurious to all classes of its citizens. It is needless to say that such a calamity would be sensibly felt by the adjacent country.
While the committee have been strongly impressed with the belief that the multiplication of banks within the District has been pushed to an extent injurious both to the lender and the borrower, they could find no safe remedy for this imprudence in a sudden prostration of the existing banks, nor in a forced consolidation of them into a smaller number.
The evil of excessive banking has its consequential or natural corrective in the reduced profits of the stockholder, and the frequent embarrassments of his debtor.
This remedy your committee found already in operation. The Franklin Bank has asked for time only to wind up its affairs. Several other banks, it is believed, like the Union Bank of Alexandria, will not avail themselves of the small extension afforded to their charters by this bill, except with a view either to follow the example of the Franklin Bank, or to embrace the opportunity presented to them by this bill, of uniting their funds, and saving the annual expense of a double or triple set of officers, and a like waste of fixed capital.
The committee would have endeavored to prescribe the principles of the associations expected to arise from the disposition manifested by the banks to reduce their number by consolidation; but they thought it better to leave those compromises, in which considerable difficulties are to be encountered and removed, to be settled by an intimate knowledge of the actual circumstances of the different banks. More harmony will be thereby assured to the society of the District, so likely to be agitated by questions vitally important to its prosperity.
To coerce a consolidation of the banks, it was believed, would prove not less injurious to their interest, and to that of the community around them, than to deny to them an opportunity of effecting such a consolidation in a mode adapted to both.
In preferring two banks to a single one, in each of the towns of the District, the committee have accommodated the number to the wishes of a great majority of their inhabitants, and have reserved the restraint of competition upon institutions, which, partaking of the character of powerful monopolies, might, without this salutary corrective, degenerate into cabals for private and sinister purposes.
The District of Columbia, although possessing very narrow dimensions, is marked by strong moral as well as physical divisions; and, in all legislation for its local concerns, its towns, if their wishes are at all consulted, must be regarded as distinct and separate communities. Any other course of legislation, instead of effacing, would render those divisions more prominent and injurious.
The committee have equally consulted the interest of the country, whose circulating medium is derived in part, at least, from the District, and whose chief market is there found. It would be an unmerited reproach upon the District banks to charge them with an excessive circulation. With an actual capital of $5,500,000, and a debt due to them of $6,845,000, they have a circulation of but $840,000, which is less than one moiety of their circulation at the close of the year 1818, but little more than one-third of that of the year next preceding, and about a moiety of the average annual circulation of the last ten years. Yet the accompanying bill is believed to furnish additional securities to the country against excessive bank issues.
The circulation of notes by corporations, instituted for purposes wholly distinct from banking, is an evasion of a former act of Congress, for which the bill, conforming to the provisions of that act, provides a similar remedy.
To preserve some specie in circulation for purposes to which it can be more conveniently applied than paper, and with less danger of actual loss to society; to invite and retain a larger supply at home, against the arrival of unforeseen emergencies, are among the motives which have dictated the provisions for the exclusion of small notes from circulation. A part only of the District banks have now the power to issue them. None of those in the neighboring State of Virginia are allowed to do so; and Maryland cannot be expected to follow this prudent example, while Congress authorizes the emission of such notes in the District of Columbia.
The premium charged for the charters of the consolidated banks is less than a moiety of the annual revenue which their consolidation will save them. Applied, as the bill proposes, to the education of the children of the indigent, it will more widely diffuse the blessing of instruction around the seat of the National Government, and illustrate a policy which, if the people of America did not begin, they have the glory to have prosecuted to a greater extent than any other nation.