162 BANKING THEORIES IN UNITED STATES United States with its branches would suffice for the whole coun- try and that no competitor could prosper.! The establishment of banks by the states soon dispelled this notion and the merits of a multiplicity of banks had to be considered. Many held, as had Smith, that the competition of numerous banks could have none but a wholesome effect. It forces each bank to keep a large re- serve in order to be on its guard against possible run upon it by a rival institution, and it lessens the consequence of the failure of any one bank.2 The danger of excessive multiplication would be sufficiently guarded against by exacting a bonus for every charter granted, thought a committee of the Virginia House of Delegates.? Clearings, Hildreth observed, prevent excessive expansion by any one bank; increase in the number of banks lessens the probability of their acting in concert.* Dissent from the doctrine that banks should be allowed to multiply freely was expressed on the ground that larger reserves are necessary when they must be divided among many banks of issue.’ Others feared that the “imprudent jealousy’ of rival 1 «On Banking Companies in the United States,” American Museum (Sept., 1792), xii, 144. A few banks, of course, already existed at the time of the founding of the first Bank of the United States in 1791. The question whether a system of branch banking was to be preferred to one of many independent banks came in for very little consideration. Hamilton had mis- givings about the desirability of providing branches for the first Bank of the United States. Despite some advantages, he feared that the “complexity of such a plan would be apt to inspire doubts, which might deter from adventuring in it.” Report on a National Bank (1790), American State Papers, Finance, 1,73. In 1828 Willard Phillips again turned to the question and preferred a large number of inde- pendent banks, believing that they would be more effective checks against overissue by each other — a conclusion that is hardly supported by comparison of our own banking history with that of Canada and Scotland. Phillips also prized the greater degree of local management that attends independent banking. Manual of Political Economy (1828), pp. 263, 264. The two Banks of the United States and some of the state banks of the South and West did, of course, have branches. See Dewey, State Banking Before the Civil War, pp. 136-143. 2 Smith, Wealth of Nations, book II, chap. 2 (vol. i, p. 312); “On Banking Com- panies,” etc., American Museum (1792), Xii, 144, 145; Suggestions on the President's Message (1815), p. 31; etc. 3 “Report on Banks’ (1816), Niles’ Register, ix, I50- ¢ Hildreth, Banks, Banking, and Paper Currencies (1840), p- 158. American Review (1812). 1. 256; Bollman. Plax (1816), p- 206.