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NOTE 20. The Stuffolk's Demise

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The Suffolk's Demise

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The extraordinary profits and power that the Suffolk had by 1858 attained spawned competitors.

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The only one to become established was the Bank for Mutual Redemption in 1858.

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This bank was partially a response to the somewhat arrogant behavior of the Suffolk by this time, after 35 years of unprecedented success.

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But further, and more important, the balance of power in the state legislature had shifted

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outside of Boston to the country bank areas.

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The politicians were more amenable to the desires of the over-expanding country banks.

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Still, it must be said that Suffolk acted toward the Bank of Mutual Redemption with spite

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where conciliation would have helped.

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Trying to force mutual redemption out of business, Suffolk, starting October 8, 1858, refused

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to honor notes of banks having deposits in the newcomer.

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Further, Suffolk in effect threatened any bank withdrawing deposits from it.

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But country banks rallied to the newcomer, and on October 16th, Suffolk announced that

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it would stop clearing any country bank notes, thus becoming just another bank.

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Only the Bank for Mutual Redemption was left, and though it soon had half the New England

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banks as members, it was much more lax toward over-issuance by country banks.

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Perhaps the Suffolk would have returned amid dissatisfaction with its successor, but in

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In 1861, just over two years after Suffolk stopped clearing, the Civil War began and

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all specie payments were stopped.

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As a final nail in the coffin, the National Banking System Act of 1863 forbade the issuance

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of any state bank notes, giving a monopoly to the government that has continued ever

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since.

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While it lasted though, the Suffolk Banking System showed that it is possible in a free

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and the free market system to have private banks competing to establish themselves as efficient, safe, and in expensive clearing houses, limiting overissue of paper money.