Stabilizing Chicago's economy during the Civil War

A nationwide currency problem that arose during the Civil War era was addressed by Bank of America's first heritage bank in Chicago—The Merchants Savings Loan and Trust Company—which worked to save Chicago's economy during this uncertain time.

Prior to the Civil War, Chicago banks operated with little regulation and were prone to failure. Different banks printed different currency, most of which was not backed by bank assets. The banking industry grew more and more unstable as a result. When the Civil War broke out in 1861, currency was even more damaged. Its value plummeted, shutting down the flow of capital across the state of Illinois. The failure of bank notes backed by bonds issued by southern states constricted the flow of capital even further. By 1862, 93 of the 110 Illinois banks had failed and businesses were considering leaving the state.

This wasn't just a problem in Illinois—the banking industry across the entire nation was in chaos. The national currency supply was a confusing mix of bank notes issued by different banks chartered under different state laws with different rules. Notes backed by actual assets in stable banks circulated alongside notes from banks in financial trouble or banks that had already failed completely. Because of the confusion and variation in value among currencies, bank notes traded at a discount, so that a one-dollar note of a smaller, less well-known bank would likely have been valued at less than one dollar by a merchant. This led to trade magazines that published pictures of different bank notes with descriptions, estimated values and information about the issuing banks.

This problem was addressed by Bank of America's first heritage bank in Chicago—The Merchants Savings Loan and Trust Company—which worked to save Chicago's economy during this uncertain time. The bank’s first board of directors was made up of 13 prominent business men, including Isaac Arnold, who was elected the city’s first clerk in 1837 and served in the U.S. Congress from 1861 to 1865 where he was a friend and ally to President Lincoln. Arnold and the board were bitterly opposed to the wildcat system of banking and used their influence against it.

John Dunham, the bank's first president, coordinated a citywide effort to help stabilize the plummeting value of currency. The Merchants Savings Loan and Trust Company convinced other Chicago banks to follow its lead in a solution, to conduct all business in the more stable specie, or coin money. The effort succeeded in bringing stable banking to Chicago for the first time, spurring industrialization.

Mirroring this effort and perhaps influenced by it, President Lincoln convinced congress to pass the National Banking Acts of 1863 and 1864, which created the first government-secured, national paper currency, popularly known as the Greenback. One of the main objectives of the legislation was to provide a uniform national currency. The act provided government-secured currency that was uniform in value throughout the country. This quickly put an end to what was known as Wildcat Banking—banks printing their own currency without the sufficient capital in reserve to cover its value. 

By war's end, Merchants Savings Loan and Trust Company was one of 13 national banks in Chicago, more than any other city in America. The $30 million in deposits among those banks was the capital foundation that fueled industrial expansion. By 1870, since the outbreak of the war, both the number of factories in Chicago and the city's population tripled in size.

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