Safety Fund System
SAFETY FUND SYSTEM
SAFETY FUND SYSTEM. The New York legislature passed the Safety Fund Act in 1829 to protect bank customers from losses incurred when the notoriously corrupt state banks failed. The Safety Fund System, as it came to be called, required that each bank incorporated in New York contribute to a common fund an amount equal to one-half of 1 percent of its capital stock, until such contributions aggregated 3 percent of its capital stock. Whenever a bank failed, this fund would be used to settle its debts. Should this safety fund be drained, the state comptroller was empowered to levy existing banks for additional contributions. The law was later refined to insure that holders of the defunct institution's bank notes would receive first consideration in the distribution of assets.
Chaddock, Robert E. The Safety-Fund Banking System in New York State, 1829–1866. Washington, D.C.: Government Printing Office, 1910.
Wright, Robert E. "The First Phase of the Empire State's 'Triple Transition': Bank's Influence on the Market, Democracy, and Federalism in New York." Social Science History 21, 4 (1997): 521–558.
See alsoBanking: Bank Failures ; Banking: Overview .