BANKING POLICY

181

fictitious exchange charge in addition to the rate of interest, and
often, at maturity of the loan, was obliged to sell the bank a similar
 draft in order to meet the obligation. This practice was very
widespread. The governor of New York complained of it in 18 35:
the commissioners of Massachusetts did so repeatedly from 1838
to the end of the period. The commissioners of Ohio referred to it
in 1839, and those of Kentucky and Tennessee within the next
few years. In 1859 the commissioners of Maine condemned this
“almost universal practice of exacting illegal interest.” Again, in
1854, the commissioners of Vermont found bills that were not
bona fide being drawn mutually upon each other by two individuals
 as a means of evading the law that set a limit upon loans
to any one borrower other than those arising from the “purchase
of bills of exchange.” 1

One or two distinctive types of loans received some consideration
 — for the most part at the hands of the bank commissioners
of the several states. Thus the Massachusetts commissioners
found fault almost yearly from 1851 to 18 57 with the practice of
one bank borrowing from another.? Banks should stand upon
their own resources and not upon “artificial relief’ that might be
withdrawn in peculiar exigencies. Investments by banks of part
of their funds in commercial paper bought in New York or Boston
attracted a larger amount of criticism. The Massachusetts commissioners
 condemned such “foreign loans” time after time, contending
 that paper that had to be “travelled for” was usually a
poor risk. Good paper found a market at home. Moreover, banks
are chartered to provide for the needs of their vicinity and not to
finance the undertakings of a distant city.* The commissioners of
Connecticut, on the other hand, saw no objection to such investments
 provided that they were confined to first-class, two-named
business paper and that they were made with surplus resources

+ Report (1854), in U. S. House of Representatives, 33d Congress, 2d Session,
Document 82, p. 27. Compare the similar treatment accorded real bills by the
Federal Reserve Act today.
* Cp. Silex, Letters on Banks and Banking (1853).
* Massachusetts Bank Commissioners, Reports, 1841, p. 11; 1842, p. 5; 1854,
D. 81: etc.