BANKING POLICY

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larly in the West, contributed, we may well suppose, to make the
development of sound banking difficult. Many of the states required
 that the banks lend a certain proportion of their funds to
farmers for relatively long periods. Massachusetts inserted in
the charter of the Union Bank of Boston (1792) the provision that
“one-fifth of the whole funds of this Bank shall be always appropriated
 to Loans . . . wherein the Directors shall wholly and
exclusively regard the Agricultural interest.” ! The loans were to
be for not less than one year. This clause was repeated in most of
the early bank charters granted by the state.
The importance of liquid assets was too obvious and elementary,
however, to permit its neglect in theory to be very common, however
 long practices inconsistent with it continued to persist.2
Bollman struck a typical note when he asserted that “the discounting
 of any paper, the successive renewal of which is implied,
and understood, must be considered as inconsistent with sound
principles of banking.” Therefore, “banks in farming districts
are a nuisance,” he thought.? Cooper added similar testimony as
to the necessity of liquid assets, and took exception to farm loans
in particular. He doubted that farmers would usually be bene-!
 Massachusetts, Acts and Resolves, 1792-1793 (1895 edition), pp. 17 ffi. For
further examples see Dewey, State Banking Before the Civil War, Pp. 212-214.
* Nathan Appleton, who was, on the whole, a writer of sound views, regarded
six months as not an excessive period for loans to run. “I do not agree with you,”
he wrote to a New York banker in 1857, “that the banks should confine their discounts
 to short paper, which, if good for the banks, is bad for the community. I
have been for upwards of 40 years a director of the Boston Bank, during the greater
part of which time they have confined their discounts to real business paper, which
should be paid at maturity, and have not refused it even when having six months
to run.” Bankers’ Magazine, xii, 407.
® Bollman, Plan for an Improved System (1816), p. 15.
Indeed, from the very beginning the importance of restricting loans to short
tenors was not unappreciated by some of the bankers themselves. Upon opening
for business in 1784, the Bank of New York adopted a rule to the effect that “no
discount will be made for longer than thirty days, nor will any note or bill be discounted
 to pay a former one.” How closely this extreme standard was adhered to
is another matter. H. W. Domett, A History of the Bank of New York, p- 20.
On the other hand, we read a complaint in 1853 that the banks of New York and
New England had been tending, in the two previous years, to lengthen discounts
“from 6 to 8, 10 and 12 months.” Silex, Letters on Banks and Banking (1853), p- 30.
The editor of the Democratic Review found repeated occasion to decry excessively
long terms of loan. See, for example, issue of January, 1844, p. 053.