The Enquirer

This superintending authority it ought never to resign to the board of directors or of stockholders : or in other words, they should never be authorized to increase the capital of the bank whenever they think proper. 1st : Because, if the discounts and emissions of the bank should not increase with its capital, it would lessen the profits of the former share-holders. 2d : Because if they did increase, it would occasion a depreciation in the value of money, and a consequent disadvantage in the operations of foreign trade. 3dly : Because such an increase of the banking capital, as this privilege might sometimes produce, would violate the fundamental principle of banking institutions; that there ought always to be a certain ratio between the capital that is out of the bank, and the capital which is in it.

At what time therefore, ought this authority to be granted by the legislature ? becomes the only subject of enquiry. The writer of the Dialogue seemed to think, that the best rule was to increase the capital, whenever the directors were in the habit of refusing good negotiable paper for any continued time: because this limitation would seem to show that more money was required of the bank, than it could safely lend with its existing capital. Whether this or the value of the stock in the market will furnish the best data for determining the time when this augmentation may be authorized by the legislature, we leave to time and more mature reflection to ascertain.

2. The author of the Remarks has however supposed that it would be useless for the legislature to grant this privilege; as the stockholders would never consent to increase the banking capital. But what inducements would persuade them to decline this privilege? Is it that they would dread a diminution of their own profits? To this we may answer, that their profits arise from the dividends; that the dividends arise from discounts; and that the discounts are always regulated by the proportion between the capital of the bank and the effectual demands for money. Let the demand for money be so much increased as that the bank cannot consistently with its own safety supply it, and a new capital at once becomes necessary. The proportion between the value of good negotiable paper which it can safely discount, and the additional capital, remains the same as it was before : or in other words, the discounts which are now required at the bank will as completely absorb its whole aggregate capital, as they did previously to such an augmentation. The dividends on the stock and the profit of the stockholders will be therefore undiminished. What injury will their interests consequently receive from such an increase of shares?

Is it that they would refuse their consent. unless the legislature would consent on their part to put up with a smaller political influence in the new shares, than what they derived from the old? The present stockholders however would remain in statu quo. Their share in the direction of the affairs of the bank would not be diminished, but would remain the same, under this new system. Should they refuse their consent, they could not expect to destroy the political ratio of influence, which was already established by the charter. And if they granted their consent, their share in the direction would not receive the least diminution. We may observe en passant, what different feelings on this subject appear to have animated the author of the Remarks and of the memorial.

What motives then would the present stockholders have to refuse their consent to increase the number of shares, though the state should still retain its proportionate influence in the direction, since their interests both with respect to profit and influence would be little affected by the augmentation? This is not however the only view, which we may take of the interests of the shareholders. It may not only be proved that they would have no objection to this increase, but that under certain circumstances they would have two positive inducements to favour it.

1st: Whenever it is once proved, and not surmised, that "more banking capital is necessary," effectual exertions will be made to accomplish this purpose. Wealthy and energetic individuals will combine to obtain subscribers to their memorials : the voice of the state will be loud in their favour. Will the legislature resist these calls, as well as the obvious interests of commerce? Will they not resolutely adopt some scheme for increasing the banking capital? And yet two schemes only are before them : a new bank, or an increase of the capital of the old one. If the legislature are shut out from the last resource by the obstinate prejudices or the wanton opposition of the present stockholders, will they hesitate to put up a new bank? The present stockholders will thus be reduced to the dilemma; of consenting to augment their capital, or of seeing a new, and perhaps dangerous rival, established in their neighbourhood. For the conflicts of interest will never permit two banks to co-operate with each other, as the author of the memorial chooses to imagine. What would they do in this dilemma? They would certainly prefer having new shares incorporated with their present capital, to seeing this new rival raised against them, or even to having the fear of it continually suspended over their heads, which would surely produce a continual fluctuation and depreciation in the value of their stock.

2. The expense of conducting one bank with a large capital is scarcely greater than that of conducting a small one. The present officers & houses of the Virginia bank would be sufficient to manage its affairs, after its capital had been considerably increased. But this expense is paid by the Stockholders, and it is deducted out of their dividends. When it comes to be paid by a large capital, the tax upon each share is proportionably diminished; and the dividend is proportionally increased. Would not the present stockholders, therefore, find a new inducement in this consideration ? is it not probable that the saving of this expense would be at least equal to any diminution which might occur in the actual proceeds of their discounts ? As to the contempt which is thrown by the author of the Remarks upon the economy of the plan, it is certainly misapplied. Even the state itself in fixing the number of its judges or rulers will always prefer a few to many, when the other consequences are equal; and will sometimes make a sacrifice of other public advantages to the spirit of saving. How much stronger then will be its influence upon the esprit de corps of a monied corporation, whose plans are seldom inspired! by a comprehensive view of the public interests, and whose sole rule of action, is the quantity of money which they are to acquire or to save!

It is time, however, to dismiss this subject.