State Bank Notes

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A History & Catalog of Minnesota Obsolete Bank Notes & Scrip has detailed articles about this and other major categories of obsolete bank notes.  Order your copy here.

The era of state bank notes in Minnesota began with legislation introduced at the time of statehood.  Minnesota 7 percent bonds, a bond issue to support the construction of railways in the state, were permitted to be used as backing for state currency.  The bonds were fairly illiquid and traded at values far less than par value, although they were accepted by the state auditor at the rate of 95 cents on the dollar.  This translated into a severely depreciated currency for those banks that used Minnesota 7s as a basis for their circulation.  The first state bank to open was Bank of the State of Minnesota, in St. Paul.

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Several banks were established solely for the purpose of intermediating Minnesota 7s, that is, a means to distribute the high denomination bonds without selling them as a whole.  The banks were called Railroad Banks.  Other banks were established with traditional interests in mind, and used otherwise sound bonds as a basis for the circulation.  The Farmers Bank of Garden City was one example, yet their remote location in southern Minnesota may have made redemptions a bit difficult.  The bank found it impossible to keep its currency afloat, and sought to wind up affairs the following year, although its notes were redeemed at par.

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One of the Minnesota bankers who ran a state bank went on to national fame.  He was J. Jay Knox -- later to be known as John J. Knox -- a banker with eastern roots who moved to Minnesota in the late 1850s.  He purchased the Central Bank of New Ulm from the original organizers in October 1859.  He and his brother Henry signed a relatively small number of notes before they permitted the bank to fail in 1862.  Noteholders received 30 cents on the dollar.  John J. Knox left Minnesota for Washington for several years of public service, becoming the Comptroller of the Currency.  In this capacity he supervised more than 2,500 national banks.

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By the end of 1860, only a few of the state banks remained open.  The Civil War complicated banking all over the country, by calling into question the value of bonds of many different states that was used to back circulation.  It wasn't until 1862 that Minnesota changed its laws to allow only sound bonds as a basis for its banks issues.  The first of the new era to be organized was the Bank of Minnesota in St. Paul, established by brothers Horace and James Thompson.

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During the small-change crisis of 1862, a couple Minnesota state banks also issued fractional scrip to complement their state bank issues.  They were Thorne's Bank and the Bank of Hastings, both of Hastings.

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The state bank era came to a close in 1865 when many state banks opted to convert their status into national banks.  In 1866, a federal law was passed that taxed the circulation of state banks.  One of the last state banks to close was the Winona County Bank, which was also one of the first to open, and had the longest life of all the Minnesota state banks.  Like many of the state banks, it issued notes in the $3 denomination, like the one shown below.

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Last updated: 02/22/10.