This was the "Safety-Fund" plan or act of 1829 which, in brief, required all banks chartered thereafter to pay a graduated tax until the State had received a total of three per cent of their capital, the proceeds to be set aside as a fund for the liquidation of all liabilities, except the capital stock of banks that should fail. "The circulation of banks was limited to twice their capital, and loans and discounts to two and a half times the capital." All banks were to be examined three times a year, and all charters issued after 1829 were to be uniform. 

The old banks were given the option of sharing this system; new banks were not so privileged. This scheme failed to please the city banks for it seemed to give the advantage to the country institutions. The cities, because the banks were more heavily capitalized
there, would pay more into the safety fund, and the likelihood was that the country banks would the more often fail and reap the advantages of the fund. Fifteen out of twenty New York City banks came in during the next decade. In 1835 the number of banks under the safety-fund was 76 with a total capital of $26,231,460; that of the other banks in the State being but $5,175,000. The fund by this time had reached $400,000.

The First Test of the Safety-Fund
The first test of the fund came in 1837, another panic year. Andrew Jackson, who someone has said "had an innate capacity for doing the right thing in the wrong way" issued his "Specie Circular of 1836" requiring the payments for all public land to be made in coin. The country had just passed through one of its periodical booms; speculation had been rife; credit extended, and unbacked paper very widely circulated. Jackson's love of "hard money" and the attempt to bring in specie payments of notes, was but one of the factors in producing a panic, but he was blamed. The calamity was inevitable and the greatest which, as yet, had hit the finances of the country.

In 1837 there were in circulation notes of various banks to the amount of $149,185,000. These could not be redeemed with coin. Probably without a single exception, every bank in the United States in 1837 stopped specie payment. Three New York banks failed that year and the losses taken from the fund. The liabilities were few and small. In 1840 there was another panic; between 1840 and 1842 eleven banks failed, and by the time the affairs of four of these had been straightened out the fund was exhausted. In 1845 the State bonded for $1,000,000 to settle the claims of the insolvent banks. "The eleven banks had paid only $86,000 into the fund; their total assets after liquidation yielded $138,000." The settlement of their obligations required $2,565,000, which, with interest charges on the State bonds, brought the total amount paid out up to $3,120,000.

The Safety-Fund was continued until 1866, when the charters of all the incorporated banks had expired. Meanwhile the Federal government had established National banks not subject to the special taxes of other institutions, and had also laid a prohibitive tax on the note issues of State banks. This double combination almost did away at the time with the State bank as an important feature of banking. The history of the Safety-Fund covering nearly forty years is that of a good plan badly carried out. It was an interesting and valuable contribution to the art of banking, and taught lessons that were useful in later developments. Like systems have been tried in the West almost up to the present day. Canada established a redemption fund for the benefit of bank creditors in 1890.