V. History of Maine Banking

History of Maine Banking

Exchange Street, Portland, 1845. Collections of Maine Historical Society.

Merchants National Bank of Portland bank note, 1885. National Museum of American History. Portland Bank, chartered in 1799, was Maine’s first bank. Until the early 1800s though, much trade was conducted through bartering, and the Spanish silver dollar was the principle medium of exchange. Deposits and checks were practically unknown.

Then, Maine businessmen began to see the advantage of bank notes, particularly when it came to real estate speculation. Bank notes provided them with quick access to capital to invest in the growing demand for transportation and residential and commercial infrastructure.

In the early days of banking, it was not unusual for banks to be established by a single family in their home or by small associations. Banking was investor driven versus depositor driven and was often based on large real estate ventures such as land holdings and railroads. Thus, loans were often made to stockholders before capital had been paid in. Problems with loans not being paid back were common, and banking regulations were almost nonexistent.

Mutual Savings Banks T

he era of 1819 to 1860 was considered the beginning of the savings bank movement in Maine.

e idea of a savings bank (or friendly society) was rst developed by the Swiss in the late 1700s. James Savage is one of those credited with introducing the concept in the U.S. He got the idea from plans for a London savings bank that were hanging over a replace in Gardiner, Maine.

Mutual (mutually bene cial) savings banks began primarily for wage earners and seamen. As the shing industry began to grow, so did the need for seamen to nd a secure place to hold their earnings. Savings banks also appealed to women, in particular, after the Women’s Act of 1848 enabled women to enter into their own contracts, collect rent and directly receive inheritance.

e rst savings bank was established in Maine in 1819. A total of 25 were incorporated in the state between 1820 and 1860.

In the beginning, commercial banks and savings banks were separate institutions because federal law prohibited commercial banks from accepting savings deposits. In 1860, the creation of the State Banking System, later replaced by the National Banking System, made it possible for banks to o er both savings and loans under one roof. From 1860 to 1873, a rapid growth in banking created many opportunities and many problems. Lawmakers and bankers alike were pioneers with little to guide them.

By the mid 1800s, the general population began earning enough to save money, and high interest rates—the average being 5 percent in 1866—encouraged them to deposit that money in savings banks. In 1859, Maine savings banks reached $1 million in deposits. By 1870, that gure had reached nearly $16 million. e check became the most common form of payment among the business community by 1865.

Between 1873 and 1875, many banks failed. Failed investments in American and European railroads, compounded by failed oil and mining speculation in the western states, caused a depression and widespread business panic.

Recovery began in 1878. Construction began to regain momentum and the value of building permits increased two and a half times between 1878 and 1883.

Mutual savings banks have gained the con dence of Maine customers and have evolved into one of the oldest and most important depositories for people’s savings.