To fill the void in banking the General Assembly established the second Bank of Kentucky in 1834. This institution was headquartered in Louisville and owned partly by the Commonwealth of Kentucky. The bank was initially authorized to have a capitalization of five million dollars, divided into shares of one hundred dollars each. By law, the Bank of Kentucky was restricted in the amounts of banknotes that could be issued to a multiple of the amounts species (gold, silver and coinage) held. The multiple was established by the Board of Directors.
During the spring of 1834 John Wesley Hunt, Benjamin Gratz, Thomas E. Boswell, Richard Higgins and Elijah W. Craig were appointed commissioners to oversee the subscription of the new bank's stock in Lexington. The entire issue of stock was sold out within days after the subscription books were opened. Shares were to be paid for in gold or silver, five dollars on the day of subscription and the remaining ninety-five dollars over the next two years.
John Wesley Hunt was a prominent dry goods merchant, hemp manufacturer and financier. He was the first millionaire west of the Allegheny Mountains. Mr. Hunt was also one of the larger stockholders of the Bank of Kentucky and became a director of the Lexington branch bank.
The Bank of Kentucky's charter authorized the creation of affiliate branch banks in the major cities of the Commonwealth. The Lexington branch of the Bank of Kentucky was organized on April 29, 1835. The Lexington branch bank, through a series of mergers, would eventually become the Lexington branch of JP Morgan Chase, the oldest operating bank in the Commonwealth of Kentucky.
The Lexington bank's first officers were Robert S. Todd, President; William S. Waller, Cashier; Thomas H. Pindell, Teller; Thomas W. Hawkins, Clerk and Ben C. Keiser, Porter. The Board of Directors originally consisted of Robert S. Todd, Benjamin Gratz, Norman Porter, James Hamilton, Stephen Swift, Joseph Bruen, William H. Rainey, James G. McKinney and David Heran (of Mt. Sterling).
Robert S. Todd, an important attorney and merchant, was the father of Mary Todd Lincoln, wife of President Abraham Lincoln. Thomas H. Pindell was one of the founders of the Kentucky Association in 1826, operator of the thoroughbred racetrack in Lexington until the 1930s.
The Bank of Kentucky at Lexington commenced business on July 10, 1835. Discount (payment) day was scheduled for every Tuesday. Initially the bank issued sixty thousand dollars in banknotes for circulation in Lexington. These notes were printed in various denominations, ranging from three to one hundred dollars, and engraved with the likeness of Henry Clay and Isaac Shelby. The bank acquired from Henry Clay on November 14, 1835, his former law offices, located on Short Street across from the Courthouse, to use as its banking house. This property was acquired for fifteen thousand dollars.
On February 2, 1836, a committee appointed by the parent bank reported "Lexington and Frankfort present a safe and prosperous condition, plainly evidencing an ability to sustain an increased circulation. We therefore recommend that each be furnished with additional circulation of from $60,000 to $200,000."
During the next few years, a number of banks were chartered around the state. These unregulated banks quickly extended loans for a number of railroads, canals, turnpikes and other projects around the state. This expansion was funded in part by issuing an increasing number of banknotes. This sudden influx of money, once again, caused an artificial "prosperity."
During the spring of 1837, a sharp drop in the price of cotton resulted in the failure of a number of New Orleans' banking houses. The panic spread throughout the United States forcing a number of businesses and banks to close. In Kentucky, all banks, including those in Lexington, were forced to suspend the redemption of banknotes. The Lexington & Ohio Railroad, still under construction, failed.
The next year, banks resumed redemption of notes and the speculation revived again. By 1838, the Lexington branch had banknotes in circulation of nine hundred twenty five thousand dollars. This figure represents almost a fifteen hundred percent increase in three years since its founding. Then in the fall of 1839, another more severe panic set in and forced payments to be suspended once again. A number of banks and business concerns that survived the 1837 panic were finally forced to close. Gradually, the economy began to recover and by 1844, business had returned to normal levels.
Mr. Todd continued to serve as President of the Lexington Branch until his death in 1849, during the nationwide cholera epidemic. During his tenure, the bank was chartered, experienced the prosperous periods of the mid 1830s and 1840s, and survived the Panics of 1837 and 1839. John B. Tilford succeeded Mr. Todd in September 1849, after serving as a director for several years. Mr. Tilford was the son of local banker John Tilford, former President of the Lexington branch of the Bank of the United States.
A long period of prosperity and economic expansion followed the recovery in 1844. The railroad, canal and turnpike ventures started during the 1830s were completed, rebuilt and expanded. The first telegraph in Kentucky began operations in 1848, with connections between Lexington and Louisville. The reorganized Lexington & Ohio Railroad was completed between Lexington and Frankfort. In addition, within the next five years the Lexington & Big Sandy (1851), Lexington & Covington (1851), Lexington & Maysville (1851) and Kentucky Central Railroads (1854) were established.
The operating statement of the Lexington Branch of the Bank of Kentucky for the six months ending December 31, 1855 revealed a profitable position. That statement consisted of:
Capital $ 650,000.00
Gross Profit $ 41,863.53
Expenses $ 4,552.45
Funds to Cover Loss $ 4,811.08
Net Profit $ 32,500.00
However, the plenitude of unbacked banknotes and speculative securities led once more to a recession in 1857. The Panic of 1857 lasted less than a year, but caused a number of newer banking houses to fail and ruined the fortunes of many businessmen. The Bank of Kentucky branch at Lexington survived the fiscal crash and enjoyed the expansion leading up to and during the Civil War.
Civil War:
The Confederate firing on Fort Sumter in April 1861 signaled the commencement of hostilities. In Lexington tensions mounted as brothers marched off to war in opposite directions. Armed violence was barely avoided during the spring of 1861, but frequent verbal clashes occurred between the Federal soldiers occupying the city and the local citizens favoring the Confederacy. The old Phoenix Hotel became the informal headquarters of the Southern cause until "invaded" by Federal troops. Federal troops remained quartered in the hotel for the remainder of the war and a small garrison maintained until 1869.
Local merchants began to thrive, as Lexington became a center of the war trade, supplying the Federal armies in Tennessee and the South. Benjamin Gratz, a prominent director of the Lexington branch, was an outspoken Union man. David A. Sayre, of D. A. Sayre & Company, accumulated a stockpile of rifles and ammunition in his banking offices for use by "loyal" citizens.
The Federal forces were in complete control of Lexington by the summer of 1861. Troops were quartered in a number of buildings, with artillery pieces lined up on Cheapside, opposite the offices of the branch bank. During the summer and fall of 1862, the city was briefly captured twice by Confederate raiders under General John Hunt Morgan. General Morgan was the grandson of Bank of Kentucky founder John Wesley Hunt. Both times the officers of the Lexington branch received enough advance warning to remove the bank's reserves and records to safety.
As the war entered its third year, Lexington was placed under martial law, with severe restrictions on the freedoms of speech and press. The city's merchants continued to flourish from the war trade, while the county's farmers suffered from the effects of the war. The fertile fields around the city became clogged with weeds due to the lack of manpower, as the farmer's sons enlisted or were drafted into both armies and slaves refused to work. Thoroughbred and standardbred farms around Lexington were looted of their best stock to raiding parties of both sides.
During the night of June 8, 1864, General Morgan's cavalry made a quick dash into Lexington and after a brief struggle succeeded in capturing the city for a few hours until dawn of the next day. After finding the doors of the bank strongly secured, General Morgan's men, either through advanced intelligence or through a tip from a Southern sympathizer, were able to locate the bank's Cashier, H. B. Hill. Mr. Hill was forced, at gunpoint, to open the bank's vault, while the raiders "borrowed" over ten thousand dollars in gold coins.
In early 1865, Congress passed a ten percent tax on banknotes to encourage state banks' conversion to national charters. The Lexington Branch of the Bank of Kentucky closed on March 13, 1865, when it’s banking house and operations were assumed by the First National Bank of Lexington (which see). First National purchased the real property and goodwill for thirty thousand dollars and was appointed agent to settle the branch's affairs, collect outstanding loans and transfer accounts.
The last officers were Henry Bell, President; H. B. Hill, Cashier; H. B. Hill, Jr., Teller and Edward S. Duncanson, Bookkeeper. Directors were John Carty, Dudley M. Craig, George Brand, Merit P. Lancaster and John G. Allen.
