The Mystery of Banking

de facto
swept away, and the
Treasury would now keep its deposits in a new series of “pets”:
the national banks, chartered directly by the federal government.
In this way, the Republican Party was able to use the wartime
emergency, marked by the virtual disappearance of Democrats
from Congress, to fulfill the long-standing Whig-Republican
dream of a permanently centralized banking system, able to
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inflate the supply of money and credit in a uniform manner. Sher-
man conceded that a vital object of the national banking system
was to eradicate the doctrine of state’s rights, and to nationalize
American politics. 
The Cooke-Chase connection with the new national banking
system was simple but crucial. As Secretary of the Treasury,
Salmon Chase wanted an assured market for the government
bonds that were being issued heavily during the Civil War. And as
the monopoly underwriter of U.S. government bonds for every
year but one from 1862 to 1873, Jay Cooke was even more
directly interested in an assured and expanding market for his
bonds. What better method of obtaining such a market than cre-
ating an entirely new banking system, in which expansion was
directly tied to the banks’ purchase of government bonds—and all
from Jay Cooke? 
The Cooke brothers played a major role in driving the
National Banking Act of 1863 through a reluctant Congress. The
Democrats, devoted to hard money, opposed the legislation
almost to a man. Only a narrow majority of Republicans could be
induced to agree to the bill. After John Sherman’s decisive speech
in the Senate in favor of the measure, Henry Cooke—now head
of the Washington office of the House of Cooke—wrote jubi-
lantly to his brother: 
It will be a great triumph, Jay, and one to which we have
contributed more than any other living men. The bank bill
had been repudiated by the House, and was without a spon-
sor in the Senate, and was thus virtually dead and buried
when I induced Sherman to take hold of it, and we went to
work with the newspapers.
3
Going to work with the newspapers meant something more
than gentle persuasion for the Cooke brothers. For as monop-
oly underwriter of government bonds, Cooke was paying the
Central Banking in the United States III
223
3
Quoted in Robert P. Sharkey, 
Money, Class and Party: An Economic
Study of Civil War and Reconstruction 
(Baltimore: Johns Hopkins Press,
1959), p. 245.
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The Mystery of Banking
newspapers large sums for advertising, and so the Cookes realized
that they could induce the newspapers to grant them an enor-
mous amount of free space “in which to set forth the merits of the
new national banking system.” Such space meant not only public-
ity and articles, but more important, the fervent editorial support
of most of the nation’s press. And so the press, virtually bought
for the occasion, kept up a drumroll of propaganda for the new
national banking system. As Cooke himself related: “For six
weeks or more nearly all the newspapers in the country were
filled with our editorials condemning the state bank system and
explaining the great benefits to be derived from the national
banking system now proposed.” And every day the indefatigable
Cookes put on the desks of every Congressman the relevant edi-
torials from newspapers in their respective districts.
4
As established in the bank acts of 1863 and 1864, national
banks could be chartered by the Comptroller of the Currency in
Washington, D.C. The banks were free in the sense that anyone
meeting the legal requirements could obtain a charter, but the
requirements were severe. For one thing, the minimum capital
requirements were so high—from $50,000 for rural banks to
$200,000 in the bigger cities—that small national banks could not
be established, particularly in the large cities. 
The national banking system created three sets of national
banks: