In a circular letter dated December 4, 1860, addressed to the banks,
Governor Moore announced that should the State secede from the Union, as
seemed probable, $1,000,000 in specie or its equivalent, would be needed
by the administration. The State bonds could not be sold in the North,
nor in Europe except at a ruinous discount, and a tax on the people at
this time would be inexpedient. Therefore he recommended that the banks
hold their specie. Otherwise there would be a run on them and should an
extra session of the Legislature be called to authorize the banks to
suspend specie payments, such action would produce a run and thus defeat
the object. He requested the banks to suspend specie payments, trusting
to the convention to legalize this action.[1] The Governor then issued
an address to the people stating his reasons for such a step. It was
done, he said, at the request and by the advice of many citizens whose
opinions were entitled to respect and consideration. Such a course, they
thought, would relieve the banks from a run during the cotton season,
enable them to aid the State, do away with the expense of a special
session of the Legislature, prevent the sale of State bonds at a great
sacrifice, and prevent extra taxation of the people in time of financial
crisis.[2]
Three banks—the Central, Eastern, and Commercial—suspended at his
request and made a loan of $200,000 in coin to the State. Their
suspension was legalized later by an ordinance of the convention. The
Bank of Mobile, and the Northern and the Southern Banks refused to
suspend, though they announced that the State should have their full
support. The Legislature passed an act in February, 1861, authorizing
the suspension, on condition that the banks subscribe for 10-year State
bonds at their par value. The bonds were to stand as capital, and the
bills issued by the banks upon these bonds were to be receivable in
payment of taxes. The amount which each bank was to pay into the
Treasury for the bonds was fixed, and no interest was to be paid by the
State on these bonds until specie payments were resumed. All the banks
suspended under these acts, and thus the government secured most of the
coin in the State.[3] In October, 1861, before all the banks had
suspended, State bonds at par to the amount of $975,066.68 had been
sold—all but $28,500 to the banks. By early acts specie payments were to
be resumed in May, 1862, but in December, 1861, the suspension was
continued until “one year after the conclusion of peace with the United
States.” By this law the banks were to receive at par the Confederate
Treasury notes in payment of debts, their notes being good for public
dues. The banks were further required to make a loan of $200,000 to the
State to pay its quota of the Confederate war tax of August 16, 1861.
(The privilege of suspension was evidently worth paying for.[4])
The banking law was revised by the convention so that a bank might
deposit with the State comptroller stocks of the Confederate States or
of Alabama, receiving in return notes countersigned by the comptroller
amounting to twice the market value of the bonds deposited. If a bank
had on deposit with the comptroller under the old law any stocks of the
United States, they could be withdrawn upon the deposit of an equal
amount of Confederate stocks or bonds of the State. The same ordinance
provided that none except citizens of Alabama and members of State
corporations might engage in the banking business under this law. But no
rights under the old law were to be affected. It was further provided
that subsequent legislation might require any “free” bank to reduce its
circulation to an amount not exceeding the market value of the bonds
deposited with the comptroller. The notes thus retired were to be
cancelled by the comptroller.[5] The suspension of specie payments was
followed by an increase of banking business; note issues were enlarged;
eleven new banks were chartered,[6] and none wound up affairs. They paid
dividends regularly of from six to ten per cent. in coin, or Confederate
notes, or in both. Speculation in government funds was quite profitable
to the banks.