Saturday, November 8, 2008
Bank of Indiana served state well during its short life
November 8, 2008
In the early years of statehood, Indiana existed without a banking system. The state chartered a couple of banks in Vincennes and Madison had been chartered to issue bank notes for circulation in payment of debts, but they did not last. A national Bank of the United States operated during the 1820s, but it had no branches in Indiana. Trade was often by barter, and there was no easy way for individuals or businesses to obtain loans.
Finally, in 1834, at the urging of Gov. Noah Noble, the Indiana General Assembly chartered a State Bank of Indiana that was a combination of public and private enterprise. The state owned half of the stock in the new bank and loaned private investors about two-thirds the cost of each share purchased. This substantial public expenditure was judged necessary to gain public confidence in the bank and to furnish it with capital for operating, issuing currency notes, and making loans. The state obtained the funds needed to make loans for stock purchases by selling a large bond issue to investors in London. The new bank also had the advantage of being designated a repository for U.S. Treasury revenues. President Andrew Jackson decided to deposit such revenues in state banks being established across the country.
Initially, the State Bank of Indiana consisted of 10 branches in the main cities of the time -- Madison, Lawrenceburg, Richmond, Lafayette, Indianapolis, Terre Haute, Vincennes, Bedford and Evansville. In the late 1830s, three additional branches were created in Fort Wayne, South Bend and Michigan City. The branches had some autonomy, with their own officers and boards of directors, but were also subject to the supervision of the parent bank. Provisions were made for conservative management: Losses by one branch were to be made up by the other branches; the parent bank served to audit the operations of the branches and could close them if deemed prudent; and no legislator or state office-holder could serve on the boards of the branches or parent.
When the state's massive Internal Improvements project of building canals and railroads ran out of funds in the late 1830s, the State Bank, although it had been providing loans for the project, was able to extend enough credit to the state to avoid bankruptcy. During the national Panic of 1837, the State Bank of Indiana was one of the few banking institutions in the country not to default on its obligations. It even made payment of hard money (specie) to the U.S. Treasury when most other banks suspended payment of gold or silver to redeem paper bank notes.
In the 1850s, public resentment of the state's monopoly in banking caused the framers of the 1851 constitution to authorize private banks and forbid state ownership of a bank. The State Bank of Indiana allowed its charter to expire in 1857 and wound up its affairs, paying the state a profit of nearly $3 million. Part of the bank's charter provided that it set aside 121/2 cents of every dividend to create a fund for state public education. During 25 years of existence, the fund underwrote the beginnings of publicly financed schools in Indiana.
Three buildings of the State Bank branches survive, all in the Greek Revival style. One in Terre Haute, at 219 Ohio St., has been restored by John Hesler Sr. and now houses the law offices of Hesler and his son John Hesler II. The younger attorney says the 1836 building is the oldest commercial building in Terre Haute and retains its original banking room with dome overhead.
In New Albany, Develop New Albany Inc. in 1997-98 saved the deteriorated branch building of 1837 at 203 Main St. and restored the exterior and part of the interior. After six years as a banquet facility, the structure is now for sale and features a dining room with a sweeping domed ceiling and skylight.
Finally, in Vincennes, the Indiana State Museum and State Historic Sites recently opened the 1838 branch bank at 112 N. Second St. for guided tours and special events. The old banking room is adorned with six Doric columns standing in a circle. At the rear is a room in which fur trading may have been conducted originally.
• Glass, of Indianapolis, is director of the Division of Historic Preservation and Archaeology, Indiana Department of Natural Resources. He can be reached at email@example.com.