212 BANKING THEORIES IN UNITED STATES 
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that is, funds in the hands of banks and agents in New York 
and Boston, which they can draw for at sight, yet, should there 
be a suspension of specie payments in those cities, these specie 
funds would not be available as such.” ! Following the crisis 
of 1857 the New York superintendent of banking wrote that 
experience ‘‘for the first time has shown the bankers of New 
York that there is such a thing as suspending specie payments 
from an internal demand for coin.” And the great lesson of 
the crisis he found in the demonstration that ‘the greatest 
danger to the banker, as well as to the public, lies in the large 
amount of his deposits, and the least in the currency he issues.” 
Such a statement, he added, if made six months before, ‘would 
have stamped its promulgator as a tyro in banking.” 2 He then 
pointed out the manner in which New York served as the reserve 
center for other parts of the country, and urged that the New 
York banks be required to keep a twenty per cent reserve against 
deposits. 
Whatever demand for coin in unusual quantities may be made in this 
State or elsewhere, New York city must furnish it, either through the banks 
or citizens located within her borders. Upon no other point in this State can 
come a demand that can lead to a general suspension; and by a necessity 
that knows no law the suspension of that city is followed throughout this 
State and the Union.3 
1 Report, 1848, in U. S. House of Representatives, 3oth Congress, 1st Session, 
Document 77, p. 195. 
2 Report, 1857, Bankers’ Magazine (Dec., 1857), xii, 622. 
3 Ibid., p. 632. Related to the problem presented by the holding at New York 
of large balances due to other banks was the practice engaged in by outside banks 
of investing part of their funds in commercial paper in New York City — a phenom- 
enon that was incidental to the rise of the latter to a position of importance as 
financial center of the country. The bank commissioners of Massachusetts, New 
Hampshire, and Connecticut made frequent reference to it, beginning about 1840, 
usually to protest against it on the score that it implied neglect of potential borrow- 
ers at home. From the point of view of the New York money market, however, the 
difficulty lay in the fact that such outside funds represented but a fair-weather 
support, since they would probably be promptly withdrawn for use at home in 
times of widespread distress. The stringency in the New York money market would 
then be accentuated by the necessity of assuming the added burden of liquidating 
these assets of the outside banks. The bank commissioners of Connecticut, indeed, 
in their report of 1848, and the New Hampshire commissioners the following year, 
approved of such investments at New York on the very ground that they consti- 
tuted a secondary reserve. since their liquidation in times of revulsion would fortify