THE CHICAGO 'BAJIK.E'R
Founded in 1898
Number i
CHICAGO, JULY 3, 1909
Volume xxvii
$ How to Nullify the Bank Guaranty Fallacy
or indirect, to officers, directors or employees of the bank, or to corporations in which they are interested, also describing the condition of the work done in every department. All loans to officers, directors and employees, and to corporations in which they are interested, and the nature and value of the collateral held to secure same, are given particular attention, and it is a well known fact that a very large proportion of bank failures in the United States has been due to improper security on loans of this character.
The examiner’s report also sets out all loans, if any are found, in excess of the limit prescribed by federal or state statutes; all loans not fully margined by collateral; all overdue paper and an estimate of loss, if any, on such loans; bonds and securities, and an estimate of their market value ; condition of reserve on date of examination; and general condition of same for 30 days preceding date of examination; cash items; and in fact, all of the assets of the bank are treated under their separate heads, and an estimate made of their appreciation or depreciation in book value.
The bank examined is required to have statements of accounts with correspondent banks, at close of business on date of examination, mailed direct to the examiner. These statements are reconciled with the books of the bank, and should errors or discrepancies of importance develop, it is made a matter of special notice in the report.
A copy of the report made is filed in the clearing house, under the custody of the examiner; the original is delivered to the president of the bank for the use of its directors. The directors are notified the examination has been made and that the report has been delivered to the president, with the request that the individual directors acknowledge receipt of examiner’s notice. This acknowledgment is insisted upon, and if conditions warrant, a detailed reply, signed by all of the directors, regarding matters complained of in the report, and a statement from them as to what steps will be taken to correct the same, is required.
The detailed report is not examined by the clearing house committee unless in the judgment of the examiner, it is necessary to do so. When in the judgment of the examiner a condition exists that is not in harmony with sound banking, or the federal or state laws are being violated, the report is submitted to the committee, together with the reply of the directors, and after due consideration by that body, the officers and directors of the bank under examination are brought before the committee, given a hearing, and if conditions are not corrected, or a satisfactory adjustment of same made, the bank is denied the privilege of the clearing house, which every officer knows would be very injurious to his institution.
Thus there are two checks upon the banks in St. Louis: one, the national and state examination ; the other the clearing house examination—each made independently of the other— and under our system, improper banking, care-(Continued on page 15)
Address delivered by Fes-tus J. Wade, before the Indiana Bankers Association, at Fort Wayne, Indiana, June 24, 1909
fallacy as an argument for the increase in deposits of Oklahoma when there are no such laws in Ohio, Kansas, Illinois or Indiana? Notwithstanding this fact their deposits have been constantly increasing the last four years, as will be seen from the following:	Ohio, 1904,
$467,591,000; 1908, $644,428,000; Illinois, 1904, $572,507,000; 1908, $770,013,000; Kansas, 1904, $94,412,200; 1908, $132,412,000; Indiana, 1904, $150,794,000; 1908, $229,741,000.
Nevertheless, we must admit that this fallacious notion has become honestly inbedded in the minds of some of our citizens, and it is being agitated, in some instances conservatively, but more frequently by the demagogue and office-seeking politician who will use your influence and mine and the business of the country, whether it be profitable or otherwise, in order that he may obtain the office sought or that his ambition may be gratified.
Therefore, we as bankers should make some move in order to nullify this evil influence, this misguided provision, from the so-called financiers who have tried to tinker with the laws of the nation and the state to the detriment of the nation and the state.
To accomplish this, in St. Louis we have adopted what is known as the clearing house examination. The office of clearing house examiner was created in October, 1907; and became operative in March, 1908. The committee of management of the St. Louis Clearing House Association, gave the examiner assurance that every facility would be furnished him to make the operations of the department effective and successful, instructing him to engage necessary assistants, and use his own judgment as to details and manner of examination. The committee instructed the examiner to make such examinations as would give them a correct idea of the general condition of each institution examined. What the committee wished to know was the character of assets and general manner in which each bank or trust company was conducting the banking business.
The St. Louis clearing house is composed of 43 members, being practically every bank and trust company in the cities of St. Louis, East St. Louis, Madison and St. Louis county. Seventeen of the members compose the clearing house and are responsible for same 7 26 (all being smaller institutions) are associate members'. All of the 43 are examined by the clearing house examiner at least once each year, and more frequently when warranted. _
The work of examination has been carried on with such attention to detail as was necessary to accomplish the purpose. After each examination a detailed report is prepared, in duplicate, setting forth a description of the bank’s assets, including all loans, either direct
About every ten years some oily-tongued demagogue bobs up, offering the people of the United States in a plausible way, an exchange of unsound principles for fundamental facts. Particularly is this the case in the realm of finance. We have had fiat money, state bank money, the greenback, the trade dollar, sixteen to one; and now we have the bank guaranty fallacy to contend with.
This latest financial heresy, like the others that have gone before it, was quite attractive as a vote-catching device, and has created some disturbance in the minds of some bankers who have not given the subject even superficial examination.
The experiment is being tried in Oklahoma and it is announced and exploited throughout the land that it has been the means of increasing the deposits of Oklahoma quite substantially. How apparently strong such a statement appears when it is admitted to be a fact, which I do admit, that the banks of Oklahoma have increased their deposits. But how weak it must necessarily appear when the comparison is made with the bank deposits of Oklahoma, say for a period of four years, two years with no guaranty, two years with the guaranty. Here are the facts as near as they can be gathered for that period: The bank guaranty law did not go into effect until the fall of 1907. What caused the steady increase in bank deposits in Oklahoma prior to the enactment of the bank guaranty law?
Individual deposits in state banks, private banks, savings banks, trust companies and national banks in Oklahoma, including Indian Territory to time of admission to statehood: Oklahoma, 1904, $26,360,000; 1908, $57,328,000.
In your own state where the bank guaranty has not yet taken root, here are the same figures for the same time:	Indiana, 1904, $150,-
794; 1908, $229,741,000.
Why don’t you with equal force advertise the fact that your bank deposits have increased because you have no bank guaranty law on the statute books of Indiana? Would not your argument be about as sound as that of the Oklahoman?
Is there any one in this audience who has even paid the slightest attention to the westward immigration but who knows and must admit that Oklahoma as a state, has increased in population very rapidly during the last four or five years? The northern farmer, the western farmer, the eastern farmer, and the promoter and speculator, have been pouring into Oklahoma and Indian Territory for three years prior to the adoption of statehood, and since then the stream has been constantly kept up. Why should not the deposits of Oklahoma increase?
The state of Oklahoma is essentially an agricultural commonwealth. With the high prices received for all sorts of products of the soil the last few years, is it astonishing at all that the bank deposits not only in Oklahoma but in every other agricultural district have constantly increased?
Is 'it not idle to use the bank guaranty