Bank failure

“ This question is always coming home to the working people, because a bank failure is a tragedy in their lives.
Mr. Manufacturer: Yes, Mr. Laboringman, I certainly do agree with you, and I believe that this plan of having all the banks of the entire country examined by bankers just as they are now being examined by the clearing houses instead of politicians, and finding out, as such clearing house examiners will, not only the condition of the banks, but the financial condition of every business house as well, will accomplish what you want. ”

“ That this failure to function is unnecessary and is the fault of our particular system is plainly indicated by the fact that in Great Britain, where the economic mechanism has suffered far greater shocks than our own, there has not been a single bank failure during the depression. ”

“ As rapidly as the assets of failed banks are liquidated and realized upon by the bank commissioner, the same shall be applied first, after the payment of the expenses of liquidation, to the repayment of the depositors' guaranty fund of all money paid out of said fund to the depositors of such failed bank, and shall be applied by the state banking board toward refunding any emergency assessment levied by reason of the failure of such liquidated bank. ”

“ Most bank failures are due to the gradual acquirement of undesirable assets over a period of years, and if some authority exists with power to make recommendations of a remedial character, with the further power to enforce such recommendations, if necessary, there is little doubt that many bank failures would be averted. ”

“ One of the objects of the national bank system is to secure, in the event of insolvency, a just and equal distribution of the assets of national banks among unsecured creditors, and to prevent such banks from creating preference in contemplation of their failure. ”

“ The amount of deposits made by the laboring men and people of small means in savings banks and similar institutions throughout the country amount altogether to about $1,000,000,000. In this state there are over $200,000,000. Now, when some savings bank fails, and depositors lose a million or two, a cry of distress and indignation rises up at so great a calamity. If the failure has been brought about by reckless or dishonest management, the managers are loaded with the curses of the community, and justly so. ”

“ That the current business of the bank should sometimes want the requisite forms, might be excused, but that the same failure should take place in single transactions, which seldom take place, and are yet of great importance, seems to me to be scarcely possible. ”

“ Many a bank was saved embarrassment and possible failure in the recent panic of 1907 by the wise methods put into effect by the Clearing House Association. Selfishness and enmity were ordered to the rear. There are always banks whose officers have less foresight and wisdom than others. Some of these had been lending too freely, and their actual cash reserves were not sufficient to meet the storm of checks of their frightened depositors ”

“ After all, such figures give us no adequate measure for losses of this kind. "Among the experiences of working people none is more demoralizing and few are more cruel than loss of savings through failure of banks or absconding of individuals intrusted with funds." To such people there is cold comfort in the assurance that the average loss of savings bank depositors over a long period of years is but a fraction of a mill on a dollar. ”

“ What is meant by 'failure of the bank,' in the clause of its charter which makes the stockholders liable? If a partnership engaged in any mercantile or manufacturing business fails to meet, and pay when demanded, its current business paper as it falls due, that firm is said, in popular language, to have failed. ”

“ Death ensued to some from the shock, misery was the lot of others, and frantic confusion once more marked the alleys and the neighbourhood of Capel Court. Consternation reigned paramount, and almost every third man was a defaulter. All foreign securities were without a price; the bankers refused to advance money; the brokers’ checks were first doubted, and then rejected; nothing but bank-notes would be taken; and, with a desperation which will never be forgotten, the jobbers closed their books, refused to transact any business, and waited the result in almost abject despair. ”

“ Now, gentlemen, if we were to have a trial, the real amount of the loss would become known; and although we ourselves may feel confident that we can weather the storm, and can in time pull round, it is by no means certain that the public will take the same view. The run which has now been averted might then take place, and the bank be compelled to shut its doors. And you know, gentlemen, that when you come to a forced realization of effects, how far the sum realized falls short of the value placed upon it, and how heavy the calls upon the shareholders to make up the deficiency! ”

“ But when the aggregate of the money put in jeopardy by the four classes of institutions I name—national banks, savings-banks, trusts, and insurance companies—runs into billions and is lost, the loss must fall on the people, because the only other ones involved are the managers and controllers of these institutions, who always see to it that when the losses which would wreck the bank are actually made, they, the managers and controllers, have no deposits and none of the stock. ”

“ A collapse in the stock, which had been declining steadily, might seriously upset financial conditions all over the country, etc. Well, I weathered that and a couple others until I've got where I'm stumped. A bank has got the right to decide for itself what it wants to lend money on; it can decline a loan on any security or all securities offered, and what are you going to do about it? The trust companies are carrying all they can and besides they're being squeezed themselves. ”

“ At successive intervals the best and most enterprising men have been tempted to their ruin by excessive bank loans of mere paper credit, exciting them to extravagant importations of foreign goods, wild speculations, and ruinous and demoralizing stock gambling. When the crisis arrives, as arrive it must, the banks can extend no relief to the people. In a vain struggle to redeem their liabilities in specie they are compelled to contract their loans and their issues, and at last, in the hour of distress, when their assistance is most needed, they and their debtors together sink into insolvency. ”

“ Again, in adverse times, when there is a heavy drain upon the establishment for buying foreign grain, or discharging adverse exchanges, how is the bank to avoid insolvency, without at once, and suddenly, contracting its issues? The thing is unavoidable. Undue encouragement to speculation in prosperity, and undue contraction of credit in adversity, is to the Bank, since the acts of 1819 and 1844, not merely an essential preliminary to profit, but in trouble the condition of existence. ”

“ The issue of circulating notes by state banks had been the fruitful cause of loss, contention and bankruptcy, not only of the banks issuing them, but of all business men depending upon them for financial aid. Inflation and apparent prosperity were often followed by the closing of one bank and distrust of all others. ”

“ If that alarm is not so met, it aggravates into a panic, which is an opinion that most people, or very many people, will not pay their creditors; and this too can only be met by enabling all those persons to pay what they owe, which takes a great deal of money. No one has enough money, or anything like enough, but the holders of the bank reserve.... ”

“ Especially what has been advanced to merchants cannot easily be recovered; they are under immense liabilities, and they will not give back a penny which they imagine that even possibly they may need to discharge those liabilities. And bankers are in even greater terror. In a panic they will not discount a host of new bills; they are engrossed with their own liabilities and those of their own customers, and do not care for those of others. The notion that the Bank of England can stop discounting in a panic, and so obtain fresh money, is a delusion. ”

“ True, banks, when imprudently conducted, or when deceived in the character of their customers, frequently lend their notes to reckless persons, who overtrade them, and become bankrupt. But banks commit this error, when they do commit it, to a far greater extent by loans of their deposits and capital than by loans of their notes. In the second place, the immediate return of the notes, chiefly through other banks for gold, or for other portions of the reserve of the issuing bank, is a check to its issuing more notes than it has a reserve to meet. ”

“ How is the Provisional Government to find funds for the enormous multitudes who will thus be thrown upon them, or to satisfy the boundless expectations thus formed of them, and which their own acts have done so much to cherish? Already the want of money has been experienced. Nearly all the banks of Paris have failed; the savings’ banks have been virtually confiscated, by the depositors being paid only a tenth in specie, and the Bank of France has suspended cash payments. ”

“ Make the refractory banks comply with their promises; and there is an end of depreciated paper and deranged exchanges, and of all the distress which they create; and that without a national bank, or its base substitute, an exchequer bank; or a national institution of any kind to strike paper money. Make the delinquent banks pay up, or wind up. And why not? Why should not the insolvent wind up, and the solvent pay up? Why should not the community know the good from the bad? Suspension puts all on a level, and the community cannot distinguish between them. ”

“ Meantime the interior banks were compelled to pay to exporting merchants generous premiums for exchange bills upon Europe, through which, despite the high interest rates ruling in European markets, these banks were able to import 107 millions of gold for their own reserve requirements. In fact, the banking business involves the hazard not merely that some of the debtors of the bank may become insolvent, but also the general and overhead hazard attaching to its underwriting service that it may itself in time of stress become unable to meet its obligations. ”

“ Without going into the evidence in detail, it seems to us that it only establishes the fact that the officers of the bank had reason to be suspicious of the bankrupt's insolvency, when their security was obtained ”

“ De noche todas los gatos son pardos. So says the Spanish proverb. In the dark, all the cats are grey—all of one color: the same of banks in a state of suspension. And in this darkness and assimilation of colors, the Bank of the United States has found her safety and security—her equality with the rest, and her fair claim to recover the keeping of the long-lost deposits. The attempt at resumption exposed her emptiness, and her rottenness—showed her to be the whited sepulchre, filled with dead men's bones. Liquidation was her course—the only honest—the only justifiable course. ”

“ Every loan it makes is a risk. A few bad loans, made through dishonest or visionary representations of its customers, may blot out the bank's profits for a year or more. Every check or draft cashed is a risk. Every check, draft, or note it takes for collection is a risk. In fact, every transaction the bank undertakes is more than ordinarily hazardous. Moreover the profits of the average city bank are not large. Considering their responsibilities and the innumerable ways by which they may involve the bank, the salaries paid the employes, from the President to the messengers, are small. ”

“ The aggregate amount of private indebtedness had by this time become enormous, and the pressure for payment was serious and disquieting. ... The people must have relief; and what relief could be so certain or so speedy as more banks and more money? More banks therefore continued to be organized, and the paper current flowed out among the people in increasing volume. ... At the beginning of 1839 the bank commissioners estimated that there were a million dollars of bills of insolvent banks in the hands of individuals and unavailable. ”

“ A committee of o said that "in many cases the great bulk of the loss is attributable to the criminal negligence and dishonesty of the officers of the bank." They allowed the loans to be lost under the statute of limitations. They neglected to attend to the security of the debts, and allowed their friends who were men of wealth to escape, by taking men of no responsibility in their stead, and neglected to enforce collections. "The history of the bank exhibits the most astounding instance of long-continued mismanagement and open abuse of trust that ever occurred in a country of laws." ”

“ The plain fact is that wherever there is one bank that attempts to pay its debts, there must be great distress; but in those places where there are two or more, God help the people! The curse of borrowing, of suffering 'paper to do our business,' is falling heavily upon us." "With nearly $500 in notes of different sizes, and of many old and respectable banks, in his pocketbook, the writer of this article was compelled, on Saturday last, to borrow market money." "Misery abounds and the neighborhood of every bank is a neighborhood of bankrupts, positive or anticipated." ”

“ Again, from the mode of doing business among our banks—using each other's paper to bank upon, instead of holding each other to weekly settlements, and liquidation of balances in specie, and from the fatal practice of issuing notes at one place, payable at another—our banks have all become links of one chain, the strength of the whole being dependent on the strength of each. A few govern all. Whether it is to fail, or to resume, the few govern; and not only the few, but the weak. A few weak banks fail; a panic ensues, and the rest shut up; many strong ones are ready to resume ”