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While Iowa has more banks than any other State
in the Union, there is nothing unusual in the banking
history of this Commonwealth: the record here is
closely paralleled in other jurisdictions during the
same period. Thus the history of banking in Iowa
from 1838 to 1921 offers to the student a cross-sectional
view of the history of banking throughout the nation.

The author's training in economics, his experience
in teaching the subject of banking, and his first-hand
knowledge of Iowa economic conditions have made it
possible for him to handle a difficult undertaking in
a most satisfactory manner.

Benj. F. Shambaugh

OmcE OF THE Superintendent and Editor

The State Historical Society of Iowa

Iowa City Iowa



In the pages that follow the author has undertaken to give
a history of banking in Iowa from the earliest settlement to
the present time. Obviously many details had to be omitted
in order to keep within the bounds of a single volume. More-
over, the information for certain periods and phases of the
subject was very incomplete. Nevertheless it is believed
that sufficient data have been presented to give a true record
of Iowa's banking development. Special attention has been
given throughout to legislation in regard to banking, since
the laws enacted represent the popular sentiment toward
banks and their control.

The field covered includes more than simply those insti-
tutions which technically speaking can be called banks. In
the recent Federal Farm Loan Case the Supreme Court of
the United States announced a broad definition of banking
in these words : ' * Speaking generally, a bank is a moneyed
institution to facilitate the borrowing, lending and caring
for money. " Under such a liberal definition, practically all
institutions making up the financial organization of the State
could be comprehended. This study does not claim to be
all-inclusive, but it does cover a broad field : it includes com-
mercial banks, savings banks, fiduciary institutions, invest-
ment banks of various classes, farm mortgage companies,
industrial loan institutions, building and loan associations,
and various other special types of financial institutions.
The Iowa Bankers Association also receives considerable



attention. To some of these institutions the use of the word
bank, or any of its derivatives, in the formal title is ex-
pressly prohibited. Banks or financial institutions in Iowa
operating under Federal law are included in the treatment.
Thus, there is considerable discussion of institutions not
peculiar to Iowa; this seemed necessary for the benefit of
readers not familiar with the general banking history of the
United States.

During the formative period of American banking, prior
to the Civil War, Iowa can not be said to have contributed
any distinctive type of banking institution or control. Its
banking history presents rather a cross section of the his-
tory of banking in the nation. Wildcat banking, prohibi-
tion of banking, a free banking law, and a State bank were
all found in Iowa in this first epoch.

In the development since the founding of the national
banking system, the experience of Iowa has paralleled that
of the other Commonwealths.

Perhaps the most distinctive feature of the banking situa-
tion in Iowa at the present time is the large number of
banks: indeed, Iowa possesses more banks than any other
State in the Union. Some reasons for this unusual develop-
ment and the results thereof have been given in Chapter
XIV. Iowa's banking history is of special interest also
because the majority of the banks are strictly country banks
and their business is actually agricultural credit. The
regular banks do not, for the most part, loan on farm mort-
gage security but confine themselves to short time loans.
Farm mortgage banking, therefore, has had an unusual
development within the State. Here owing to the absence
of a large industrial population special types of industrial


loan organizations have not spread widely. Investment
banking is also somewhat less prominent than in many
States — unless the special farm mortgage companies are
included in that class. Iowa has an exceptional number of
banks called '* savings banks", but these are in reality
chiefly commercial banks.

The reader who is interested only in special phases of
the subject will find it possible to cover these topics without
reading the entire volume. The years prior to the Civil
War may be considered a distinct epoch in Iowa banking.
Existing State laws were rendered obsolete by the passage
of the national banking act. The establishment of the pres-
ent commercial and savings bank system and its develop-
ment to date are sketched in Chapters VII-X. The remain-
ing five chapters deal with special topics and each is prac-
tically a unit in itself, so that the reader may omit any por-
tion without serious loss of continuity.

For assistance in the preparation of this volume the
author wishes to acknowledge his indebtedness first of all
to the late Professor Isaac A. Loos for his inspiration as a
teacher and for suggesting this topic of investigation. The
main portion of the study was prepared under the direction
of Professor N. R. Whitney, now of the University of Cin-
cinnati, and from him the writer received many valuable
suggestions. Professor H. L. Lutz of Oberlin College, Pro-
fessor E. T. Miller of the University of Texas, and Pro-
fessor George W. Dowrie of the University of Minnesota
read portions of the manuscript and made helpful sugges-

For assistance in securing material and also for reading
those portions af the manuscript which pertain to their


I. Economic and Political Background ... 1

II. The Miners' Bank of Dubuque .... 10

III. Prohibition of Banking 35

IV. Frontier Banking in Iowa 45

V. Constitutional Authorization of Banking

Corporations 70

VI. The State Bank of Iowa 83

VII. Establishment of the Present Banking

System 126

VIII. Development of Banking, 1875-1921 . . . 143

IX. Supervision of Banking 183

X. The Federal Reserve System in Iowa . . . 204

XL Building and Loan Associations .... 229

XII. Farm Mortgage Banking 267

XIII. Special Types of Banking 306

XIV. Banks and the Community 333

XV. The Iowa Bankers Association .... 362

Notes and References 385

Index 433


For more than a century and a half after its first explora-
tion by Marquette and Joliet in 1673, the Iowa country re-
mained the hunting ground of Indian tribes : indeed, it was
not until the early thirties that white settlers crossed the
Mississippi in any considerable number, and even then the
land had not been surveyed and offered for sale. The best
evidence shows that these hardy pioneers who ** squatted'*
on the public domain were not lawless intruders, but an
industrious people coming from all parts of the Union.
Later when the country was surveyed and the territory
officially opened for settlement the rich prairie land of Iowa
was sold at $1.25 per acre. In 1835 there were over ten
thousand inhabitants in the Iowa country, and when the
Territory of Iowa was established in 1838 it had a popula-
tion of 22,859. The great highway of commerce was the
Mississippi River and along its banks the early towns ap-
peared. St. Louis, which was then the most important
trading point of the region, was the market for Iowa

At this time, when Iowa was being first settled and when
its first economic institutions were being established, Ameri-
can banking was in a very chaotic condition. In 1832 the
question of the recharter of the Second Bank of the United
States was the leading issue in the presidential campaign.
The Whigs under the leadership of Henry Clay espoused the
cause of the Bank, while the Democrats opposed it under
the leadership of President Jackson. The decisive victory
of the anti-bank party resulted in making the bank question
the leading political issue of the thirties and early forties.


Moreover, the salutary influence of the Bank of the United
States being removed, all banking regulation was left to the
discretion of the several State governments. An era of
State bank inflation resulted.

The number of State banks increased from 330 in 1830 to
788 at the close of the year 1836 ; and their note issue more
than trebled in the same period. With the lax regulation
imposed by many of the States, particularly in the West and
South, the quality of this circulation greatly deteriorated.
A wave of speculation in public lands swept over the coun-
try. In 1837 there came a violent financial collapse, fol-
lowed by the suspension of specie payments and heavy
liquidation. The latter continued until about 1843, with
some periods of improvement. Meantime, the volume of
bank notes in circulation dropped from the high level of
1836-1837 to about the point where it had been in 1830.
Some gain had been made in the quantity of specie in cir-
culation ; but in the six years of contraction the per capita
money in circulation in the United States fell from $13.87
to $7.87.2

It is not surprising that early banking in Iowa was
strongly colored by the economic and political background
against which it was projected. From the meager data
available it seems that the general economic disorders pre-
valent in the country were even more severe in the pioneer
communities of Iowa. Money was scarce and its quality
was very poor. The Iowa pioneer brought little money
with him to the new home. His former property had fre-
quently been converted into cash to pay for land. Often,
therefore, he was ' * land poor ' '. Heavily in debt as he fre-
quently was, he found the period of falling prices which
resulted from the heavy liquidation after the panic of 1837
very detrimental to his interest.

The effect of this scarcity of a satisfactory currency was
shown in the economic conditions of the early forties. A


Muscatine County correspondent of The Iowa Standard —
then published simultaneously at Bloomington (now Musca-
tine) and Iowa City — describes agricultural conditions in
Iowa in the fall of 1840 in a very interesting way. Doubt-
less the condition he pictures was characteristic of all other
Iowa communities at that time. The communication, signed
"Poor Richard and his Brother", reads in part as follows:

We are, many of us in debt. We came here, some two, some
six years ago, and settled upon land that was not in market, and
was not expected to be for some time after we settled. Some of us
then had a Uttle money and some of our neighbors had none. We
loaned to each other to buy the necessaries of our families, which
then cost us '*a right good chance of money." We also sold our
little effects in our old settlement partly on credit, expecting the
money when our land came into market. But the day of sale came
when many of us were not ready. We were obliged to borrow
money, at from 25 to 75 per cent, and pledge our homes for its
payment. We were also in debt to our neighbors and our mer-
chants. How are we to pay all these debts ?

We must sell part of our land. We know that Iowa has a rich
and productive soil, and that with little labor, compared with other
wild countries, it is brought into a cultivated field — that our great
navigable river will always enable us to carry off our produce with
little expense ; and therefore our lands will some day become valu-
able. If we wish to retain a footing here, we must sell a part and
redeem our pledges, satisfy our creditors and keep off the Sheriff.
We had better have but 80 acres and have it secure and safe, than
have twice or four times the quantity and make slaves of ourselves
to keep peace with our creditors. . . .

We may calculate that next spring there will be a good chance
of farm hunters, and we who are in debt, had better embrace the
opportunity and sell a part and save a part, than to do worse. We
have had the pleasures and hardships of settling this new country,
and don't want to try it over again. We want to stay here near
the river and near the market. We want to fix stables and shelters
for our stock ; to fix our gardens and set out orchards ; to make our
houses neat, durable, and comfortable; and to live in peace, com-
fort and happiness the remainder of our days.^


In the years immediately following, the situation de-
scribed by ''Poor Richard" in 1840 seems to have become
worse rather than better. An extract from the Iowa Sun
of Davenport shows how serious the condition had become
by April, 1841:

The times are hard, and business of all kinds dull. Money, even
counterfeit paper, and bogus, have almost totally disappeared (no
other money having been current here since the last land sales.)
Emigrants continue to pour into the Promised Land by tens, hun-
dreds, and thousands — filling up the back country with an indus-
trious and enterprising population.^

The hard times evidently reached their most acute stage
in the winter of 1842-1843. In the spring of that year the
economic conditions are reflected in the difficulties confront-
ing the newspapers. Notice is given that The Burlington
Haivkeye had been forced to suspend because it was unable
to collect the money due on subscriptions. The editor of
The Iowa Standard was very sympathetic, being in danger
of much the same fate himself. Money being scarce, he
asked for payment in produce ; and this notice appeared in
the comment on the fate of his colleague :

We are at this time in pressing need of many articles which our
country friends could supply us with, would they but wake up and
make an effort to pay their dues. Almost every description of
produce, in reasonable quantities, can be turned to account ; and if
those who are in arrearage would either come and see us, or com-
municate upon the subject by letter or messenger — (not subjecting
us to postage however) — doubtless arrangements mutually advan-
tageous could be made in almost every instance.^

Prices quoted on the St. Louis market at about this time
show that it would take a considerable quantity of bacon
and beans to pay a year's subscription to a weekly news-
paper. Representative of the value of products of the Iowa
farmer are quotations of bacon and ham at three cents per
pound; beans at fifty cents per bushel; butter in kegs at ten


cents per pound, in barrels at six cents ; wheat at forty-eight
to fifty cents per bushel; and shelled corn at twenty cents
per bushel. Since these quotations were for St. Louis in
May and were spoken of as representing a return of pros-
perity, we may safely assume that, at the worst of the hard
times, prices in Iowa were much lower.®

Under the caption ''Hard Money Times", The Iowa
Standard gives some earlier prices at a constable's sale of
the property of a poor widow in Pike County, Missouri — a
county on the Mississippi River in the northern part of the
State. The following named articles were sold at the prices
annexed :

3 good horses, each $1.50

1 large ox 12i/^

5 cows, 2 steers, 1 calf, the lot 3.25

20 sheep each 12i^

24 hogs, lot 75

1 dining table 50

1 eight day clock 2.50

1 lot of tobacco, 7 or 8 cwt., lot 5.00

3 stacks of hay each 25

1 stack fodder 25

The Hannibal Journal, from which these figures were
taken, was led to comment as follows:

Truly we are beginning to feel the benefits which flowed from the
destruction of the old United States Bank — the consequent influx
of shinplasters — and the ultimate return to a purely specie cur-
rency. The rich may well rejoice at a policy that more than
trebles their wealth — but as for the poor — God help them.^

Scarcity of money is evidenced by one more instance which
came a few months later. The Iowa Standard states that
the workmen who built the dam and mill at Iowa City took
their pay in stock of the corporation. Only $12 in cash was
spent in erecting a dam which cost $5000.® It must be re-
membered, too, that banks of deposit were not available, so
that no bank check was used by the builders.


The quality of the circulation appears to have been as
poor as its quantity was limited. There was little specie
in circulation in Iowa, and such as was used contained few
coins from the United States mint. By some writers this
lack of specie was ascribed to the policy of the treasury de-
partment as laid down in the specie circular — an order
issued on July 11, 1836, which required land payments to be
made in coin.® By others the blame was laid to the illegal
circulation of small bank notes which drove the better money
from use. A pioneer who came to Iowa in 1844, and is still
a resident of Iowa City, told the writer that in those days
most of the silver coins were of foreign mintage. Spanish
silver quarters were used until worn smooth. They were
then crossed with a knife and reduced to twenty cents. In
like manner the twelve and one-half and six and one-fourth
cent pieces were reduced to ten and five cents respectively.^^
The California gold discoveries increased the quantity of
American gold coins in circulation during the fifties. After
the change of the coinage ratio in 1834, silver was under-
valued to such a degree that a serious dearth of minor coins
was felt throughout the whole country. The situation be-
came so serious that in 1853 an act was passed providing
for the coinage of subsidiary silver coins of reduced weight
and limited legal tender quality. Four years later Con-
gress passed an act repealing all statutes giving legal tender
power to foreign coins. This legislation did much to estab-
lish a currency made up of domestic coins.^^

Paper currency included the poorest bank notes in cir-
culation. Michigan bank notes were a large item among
the assets of the Miners' Bank of Dubuque at the time of
its first published statements in 1837. These were the worst
of a very doubtful lot of currency. ' ' Michigan money was
reported in June, 1838, to consist of three kinds, red dog,
wild cat, and catamount. ' Of the best quality it is said that
it takes five pecks to make a bushel.' "^^ It appears that


rather more than five pecks of the notes in circulation in
Iowa were required for a bushel.

In view of the severe financial conditions against which
they were struggling, it is not surprising to find the Iowa
pioneers absorbingly interested in the questions of banking
and currency. Around these issues the political battles of
the thirties and early forties were waged. Andrew Jackson
had led the Democratic party into the fight against the Sec-
ond Bank of the United States. The substitute which was
provided was a heterogeneous system of State regulated —
or unregulated — ^banks. The Whigs had undertaken the es-
tablishment of a third Bank of the United States and gen-
erally supported the regulation rather than the prohibition
of banking within the States.

The loiva Standard, a supporter of the Whig doctrines,
in addition to upholding the Whig positions in national
and State affairs, printed the more extreme statements of
the opposition. A considerable amount of the space de-
voted to the Whig position was given over to long articles
defending the party doctrines. In one issue the front page
was almost entirely devoted to the ** Report of the Select
Committee of the States on the Currency". This was
Henry Clay's plan for the proposed Bank of the United
States in 1841. The Iowa Standard also carried articles
supporting the measure. A speech by State Senator Nash,
in the Ohio Senate, concerning banks and the currency was
given the entire front page and half of the second in two
issues. The Whig doctrine from the editor's own view
point was set forth in a series of long editorials which were
concluded on November 23, 1843. He pointed out that the
abolition of bank paper was working a hardship to the land-
owners of Iowa, who were largely in the debtor class.^^

Editors seemed to express themselves most feelingly when
describing conditions in neighboring Commonwealths or
attacking opposition papers. To show the extreme doctrine


of some opponents of banking The Iowa Standard quotes
the following from the Kalida Venture (Ohio), which it
calls a Loco-foco ^^ paper of the first water:

There is not a single hank in the United States that is much bet-
ter than a den of thieves, seeking an opportunity to "fail" to ad-
vantage and rob the people! How disgusting, then, is the hypo-
critical jargon of the bank lackeys and slaves, about the recharter
of the ' * good banks, " " sound banks ! ' ' Pish ! — humbug ! — how can
Goodness come out of Hell ?^^

The Iowa Capital Reporter, the organ of Democracy at
the capital, was untiring in its opposition to banks of any
kind. Antagonism to banking institutions even transcended
civic pride. When it was proposed to establish a bank at
Iowa City the brief notice in the paper fairly bristled with
invectives. The institution was called an ''incipient little
monster", a "vampire upon the body politic", and a ma-
chine for "swindling honest industry". The writer charged
that it was being promoted for the advantage of "a pam-
pered bank aristocracy in Iowa." But his firm faith in
the attitude of the Democratic majority in the legislature
led him to "bespeak: for this hybrid little monster, a warm
reception, a summary disposal, and a speedy quietus."^®

With statesmanship that would do credit to twentieth
century politicians each party sought to lay all the eco-
nomic ills of the day at the door of the party in power. As
is usual in such cases, strange inconsistencies may be found
in their reasoning. A writer in the Bloomington Herald
charged the unfortunate pecuniary condition of Indiana to
the Whigs. The Iowa Standard called attention to Illi-
nois, "where loco-focism rides triumphant, and the gov-
ernor was obliged to inform the legislature that the treasury
was not able even to pay the postage on his official corre-
spondence. "^'^

A review of the existing economic and political conditions
shows clearly that banking in Iowa began under anything


but favorable circumstances. The Territory was rich in
natural wealth, but sorely in need of working capital. Its
circulating medium was insufficient in quantity and poor in
quality. The entire country was suffering from a chaotic
banking situation and passing through a severe financial
depression. Bitter partisanship colored all consideration
of the banking question.



During the Territorial period the only chartered bank
established in what is now Iowa was the Miners' Bank of
Dubuque. The lead mines near Dubuque were responsible
for the early settlement and commercial importance of the
city. Lead had been discovered in this region by the
Indians, and the mines were later developed by Julien Du-
buque during the period of the Spanish possession of the
trans-Mississippi country. Prior to 1833 the lead district
was not legally open for settlement, and settlers were sev-
eral times ejected by the military forces of the United
States. In June of that year the government began leasing
the mines to its citizens, and by 1840 Dubuque had come to
be known as one of the chief lead producing sections in


Late in the year 1835 a branch of the Bank of Illinois was
established at Galena, Illinois.^^ Stimulated doubtless by
this action and feeling a real need for banking facilities, the
citizens of Dubuque made application to the legislature of
the Territory of Wisconsin (of which the Iowa country was
then a part) for a bank charter. On November 30, 1836, an
act to incorporate the stockholders of the Miners ' Bank of
Dubuque was approved by the Territorial legislature.^® The
approval of Congress was given, with certain limitations,
on March 3, 1837.^1

The terms of incorporation, as amended by Congress,
fixed the capital at $200,000 — divided into two thousand
shares of $100 each. Nine commissioners were appointed



to receive subscriptions; and these same men were to be-
come the first directors. Subscriptions were to be opened

Online LibraryHoward Hall PrestonHistory of banking in Iowa → online text (page 1 of 39)