Financial History Issue 128 (Winter 2019) | Page 30

The
Suffolk
System
Creating Stability in
the New England Economy
By Ramon Vasconcellos
Commenting in his diary on the dev-
astating impact the Panic of 1837 had
imposed upon New York and the regional
economy, former mayor Philip Hone
lamented how “…immense fortunes
which we have heard so much about in the
days of speculation, have melted like the
snows before an April sun.” He continued,
“No man can calculate to escape ruin but
he who owes no money; happy is he who
has a little and is free from debt.”
Hone’s grievances were well founded.
That May, many New York City banks
had suspended paying gold and silver
to depositors holding paper money—a
practice already implemented by eastern
banks. By fall of 1837, federal revenues had
plummeted by 50%, and almost 90% of
the nation’s factories had closed. What’s
more, the defunct Second Bank of the
United States no longer functioned as a
“lender of last resort,” meaning it could
not disburse funds to banks in need of
cash. Local and regional banking institu-
tions would have to serve as financial cor-
nerstones in the hope of stabilizing their
economies.
A regional financial institution that did
function as a lender of last resort during
the crisis and grew to monopolize New
England’s banking activities, however, was
the Suffolk Bank of Boston, MA. Suffolk’s
operations within the region stabilized
New England’s banking community in
that it engaged in “note clearance”—the
redemption of bank notes in exchange
for gold and silver coins. This practice
expanded New England’s money sup-
ply; Suffolk also lent to distressed banks
throughout the region. At the time, most
of the nation was undergoing a contrac-
tion in the amount of funds available for
lending. New England was the exception,
due to Suffolk.
Banks operating in the decades follow-
ing the American Revolution consisted
mainly of independent “unit” banks that
View of Suffolk Bank, State Street,
Boston, circa 1850.
28    FINANCIAL HISTORY  |  Winter 2019  | www.MoAF.org