218 BANKING THEORIES IN UNITED STATES
IE
spondents.! The superintendent of the banking department of
New York, in his annual report of 1857, criticized the practice of
paying interest on current deposits; and early in 1858 the New
York Clearing House Association appointed a special committee
to consider its discontinuance. The committee’s report stated
admirably the case against the paying of interest. The current
deposits in the New York banks, it observed, consisted in large
part of the virtual reserves of country banks. “As such deposits
constitute the credit and stability of the country at large, its
conservative power for sudden contingencies, they should be con-
sidered an inviolable trust, free from all risk, and consequently
from direct profits.”? But a bank, “having committed this first
error of paying interest on its deposits, is therefore compelled, by
the necessities of its position, to take the second false step, and
expand its operations beyond all prudent bounds.” ® Further-
more, the payment of interest on deposits induces the country’s
reserves to flow to New York to an excessive degree. The mem-
bers of the association favored the report by an overwhelming
majority, but, as in later years, could not prevail upon the dis-
senting few to adopt the reform. After the crisis of 1857 the
abolition of the practice of paying interest on current deposits
became one of the stock proposals of critics of our banking
system.
Still another aspect of the situation at New York attracted
attention — the deceptive qualities of the call loan. Call loans,
secured by stocks as collateral, seem to have become popular with
the banks of New York and Boston in the eighteen-thirties, but
their mischievous influence received rather little comment before
the panic of 1857 had imparted its many lessons. A special com-
mittee of the New York legislature reported against such loans
in 1837, but for reasons quite different from those advanced
in later discussions. Raguet, in enumerating various abuses
! See the report of the special bank examiner of Ohio, in Public Documents (1854).
xviii, 356, 401, passim.
2 Bankers’ Magazine (April, 1858), xii, 824.
3 Ibid., p. 825.
* New York, Assembly Document 328 (1837), iv, 4 ff.
