Bonus Law

From Ohio History Central
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Passed by the Ohio state legislature on February 23, 1816, the "Bonus Law" required banks in Ohio to obtain a charter from the state legislature in order to operate and to pay taxes to the state.

Under the Bonus Law, bank charters usually expired after a certain number of years unless the assembly voted to renew them. The Bonus Law extended the banks' charters until 1843 as long as they met one condition -- four percent of each bank's stock had to be turned over to the state. The state government hoped to use the income from this stock to buy further shares over time, thus increasing the state's role within the banking industry and providing additional income to the treasury. Ultimately, the goal was for the state to hold one-sixth of each bank's stock. Banks that agreed to accept the conditions of the Bonus Law were exempt from paying state taxes.

As a result of the Bonus Law, the state of Ohio owned shares in twenty-five of the twenty-eight state-chartered banks by January 1818. The state's partial ownership of these banks did not significantly improve the banking industry at this time, and Ohio's financial issues with the banking industry continued to plague the state in the next several years.

One motivation for the Ohio legislature's decision to tax the National Bank of the United States in 1819 was the National Bank's lack of participation in the Bonus Law. Unlike the state banks, the National Bank did not pay a tax or contribute a portion of its stock to the state treasury. This issue became a convenient justification for Ohio's attempt to push the National Bank out of the state, as Ohioans resented the bank on a number of other levels as well, most notably the recall of loans, which helped lead to the Banking Crisis of 1819 and the Panic of 1819.

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