Unprepared for this situation, many banks were compelled to suspend specie payments
. (44) Six banks ceased operation, four of which were situated in Chicago, but the shutdown did not bring any losses to note holders, whose notes were fully redeemed by bank commissioners.
Thus, although the bank did not suspend specie payment, it is clear that McCulloch would have preferred to suspend but could not do so because of the political fragility of the bank's charter.
As the Daily Ohio Statesman reported, the banks were "resisting specie payment by the interposition of hired mobs.
It will be the first bank in the state to resume specie payments," stated the Mississippian on October 6, 1837.
Through 1838, as the state's surviving banks prepared to resume specie payments, the premium on specie relative to current banknotes fell to zero.
Measured as the increase in bank notes divided by the average price level, seigniorage only exceeded 10 percent of the deficit in 1810 and never rose above 5 percent of war revenue." (53) Ultimately, that the Bank planned on ending the suspension of specie payments prevented the government, and the Bank, from enacting more inflationary policies as it might have under a pure fiat currency.
The action that saved the Bank, and restored public confidence in the currency, was the resuming of specie payments in 1821.
During its period of neutrality, the United States maintained specie payments
and permitted gold to flow freely to and from other countries.
That feature have induced the state chartered banks to pyramid the issuing of their banknotes on state public debt (as a quid pro quo by their charters) and at same time offered a protection to them against systemic crisis by allowing them to periodic general suspensions of specie payments whenever necessary by the banking system as a whole (latest episode before the Civil War was in 1857).
(w)hereas the effects of the greenbacks were finally eliminated by the resumption of specie payments in 1879, the effect of the national banking system are still with us (2005: p.
Once the banks resumed specie payments in May 1838, most of them still could not qualify as depositories under the Deposit Act's restrictions, because during the suspension they had issued small-denomination notes.
When a second suspension of specie payments spread to half the country's banks that October, it seemed to verify the administration's suspicion of state depositories.