The Suffolk's Demise
The extraordinary profits and power that the Suffolk had by 1858 attained spawned competitors.
The only one to become established was the Bank for Mutual Redemption in 1858.
This bank was partially a response to the somewhat arrogant behavior of the Suffolk by this time, after 35 years of unprecedented success.
But further, and more important, the balance of power in the state legislature had shifted
outside of Boston to the country bank areas.
The politicians were more amenable to the desires of the over-expanding country banks.
Still, it must be said that Suffolk acted toward the Bank of Mutual Redemption with spite
where conciliation would have helped.
Trying to force mutual redemption out of business, Suffolk, starting October 8, 1858, refused
to honor notes of banks having deposits in the newcomer.
Further, Suffolk in effect threatened any bank withdrawing deposits from it.
But country banks rallied to the newcomer, and on October 16th, Suffolk announced that
it would stop clearing any country bank notes, thus becoming just another bank.
Only the Bank for Mutual Redemption was left, and though it soon had half the New England
banks as members, it was much more lax toward over-issuance by country banks.
Perhaps the Suffolk would have returned amid dissatisfaction with its successor, but in
In 1861, just over two years after Suffolk stopped clearing, the Civil War began and
all specie payments were stopped.
As a final nail in the coffin, the National Banking System Act of 1863 forbade the issuance
of any state bank notes, giving a monopoly to the government that has continued ever
since.
While it lasted though, the Suffolk Banking System showed that it is possible in a free
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.