NEW ORLEANS BANKING DURING THE CIVIL WAR

 
City of New Orleans $1 Note, 1862

Generally, Southern banking was not as developed as it was in the North; New York provided financial services to southern clients because, in large parts of the South, there were too few banks, or rather, the banks there were too small. An exception was to be found in New Orleans, the largest port in the southern states. Half of the South's cotton production transited through New Orleans each year and, since the city first became a part of the United States, it was an important financial center too. Both the First and Second Bank of the United States had branches established in New Orleans and the city also possessed a federal mint. New Orleans was further home to a wide variety of merchants, brokers, and bankers; many of these had arrived there from the northern states or from abroad.

The city's banks were well respected and may have been among the strongest in the country. An 1842 banking law in Louisiana required the state's banks to keep reserves in precious metals equal to one-third of their banknotes and deposits. Otherwise, the banknotes were appropriately backed by other short-term assets like loans or discounted bills due within ninety days. This composition of assets kept New Orleans banks, like the Citizens Bank, strong. New Orleans banks fared comparatively well during the Panic of 1857, either suspending payments only briefly or not at all.

After having been apprehensive for months following the election of 1860, the city saw a commercial crisis. Money was not lent anymore. Banks stopped making loans to shift the balance of their assets towards precious metal specie and reduce their liabilities. Those advancing money against merchants' receivables suspended their operations. As for the city's economy, the credit freeze was offset somewhat by frenzied export activity as buyers, nervous about the future, sought to buy up and export as much cotton as they could.

Still, the economy struggled in the winter as the credit crunch continued. By April 1861, the banknotes of New Orleans banks in circulation had declined by one-third. The short-term assets of the city's banking system, much of it tied up in forms of trade finance, had fallen from $24.4 million to $14.1 million. Despite the crisis, New Orleans banks did not have to suspend withdrawals or redemptions into precious metal, something that cannot be said of banks elsewhere in the South and North alike.

When the war started, taxes had to be raised and money borrowed. The Confederate government used the bullion inventories of the New Orleans mint to make new coins. The offices of the American Bank Note Company in the city were employed to print new banknotes for the Confederacy.

New Orleans banks initially refused to accept or pay out Confederate banknotes. Such paper money would discourage the use of the banks' own notes. True, the Confederate notes were not redeemable into precious metal specie whereas the banks' own notes were, meaning it was more secure for the banking system to transition to the new paper money as the primary circulating medium. However, New Orleans banks had just survived a remarkable crisis without resorting to suspending convertibility into precious metals.

The city quickly felt the effects of the war. As in other southern cities, goods became scarce. Buying by city merchants in the countryside caused considerable tension between New Orleans and the population in rural Louisiana which faced its own shortages. The U.S. Navy blockaded southern ports and the Union army tried to split the Confederacy in two along the Mississippi River. This made capturing New Orleans an early military objective.

When the attack got underway, a retreating Confederate army took specie out of the city. At the start of the occupation, there was panic buying but grocers and others were uncertain about the value of money paid for these goods. When New Orleans was captured, locals began trading their goods for food obtained from Union soldiers in the city. With the occupation, Confederate banknotes ceased to circulate as money starting on May 27, 1862. Only private banknotes, Union ‘greenbacks', gold, or silver could circulate as money under orders from the occupying army. People rushed to spend their Confederate money before it became demonetized.

A shortage of money ravaged the city. Few silver coins circulated in practice, so paper money issued by private banks, the city government, or merchants were practically the only money in use. Paper notes had to be printed in denominations as small as five cents. Even trolley tickets changed hands as money. In these conditions, merchants found it difficult to collect on debts and trading in securities stopped because there was no money.

To address the situation, New Orleans's city government printed small-denomination notes to replace the myriads of monies issued by city merchants, generally redeemable only in merchandise and which were easily counterfeited. These municipal notes were accepted in payment of taxes. Issuance of the money grew in 1863 and there were $2.23 million of these notes outstanding by February 1864. Especially in 1864, money from the north, specifically the greenbacks introduced during the war, came to circulate more and more. Still, this municipal government money circulated as well, albeit trading at a small discount to greenbacks.

To read the complete article, see:
New Orleans Banking During the Civil War (https://tontinecoffeehouse.com/2026/01/05/new-orleans-banking-during-the-civil-war/)

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