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THE CHICAGO BANKER
September 18, içop]
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and Los Angeles, while other cities are showing their interest by investigating our methods and the benefits to be derived from them.
A short statement of the Chicago method may therefore be of interest to you. Neither the committee having the matter in charge nor the examiner are hampered in their work by any code of rules and regulations adopted by the associated banks. Both were given an absolutely free hand. The committee was by resolution instructed to secure the services of a suitable man of experience to examine the seventeen member and some forty non-member banks clearing through members. Having secured the services of such a man, the committee in turn instructed him to engage the necessary help (he has now five assistants) and proceed in his own way to make thorough examinations of all the banks. The following extract from the original letter addressed by the committee to the president of each bank will fully explain the method adopted:
“The examiner will furnish you for the use of your directors a detailed report on the condition of your bank at the date of his examination. He will file in the clearing house vault, under his own custody, a copy of such detailed report. He will also make a separate report to the clearing house committee expressing in general terms his opinion of the condition of each bank as he finds it and calling special attention to any unwarranted conditions or gross irregularities discovered. His detailed reports will not be examined by the clearing house committee except when it may appear necessary to do so from the general report of conditions made to it.”
And the following from a letter , sent out later to the directors of each bank as the first examinations of them were completed will show that the method was intended to benefit directors and that their co-operation in correcting anything open to criticism was desired and expected by the committee:
“The clearing house committee, desiring the co-operation of bank directors in maintaining a high standard in the condition of banks in the city, has requested the official examiner to notify the directors of each bank, individually, when he has completed and delivered his report to the president so that every director will have an opportunity of perusing it. The committee urges upon every director that he should, as a part of his directorial duty, carefully examine such reports as promptly as possible after he receives notice of their existence.”
Bank directors have been most enthusiastic in their commendation of the method. They find that it gives them an opportunity of judging of
/ 5 Carloads a Minute
is the estimated amount of Pittsburgh’s mine and mill products. The financing of these immense industries gives Pittsburgh banks a large earning power. Because of its large volume of business and extensive connections, this Bank can offer attractive inducements to banks and trust companies everywhere to establish connections with it.
Correspondence Invited
OLUMBIA NATIONAL BANK
PITTSBURGH
Surplus, $1,000,000.00
OF
Captai, $600,000.00
ports is efficacious in inducing or compelling bankers to comply with the law and with proper banking methods and to face and provide for losses as they occur. ■ This should afford the public reasonable assurance. Such are the benefits to be derived from governmental supervision and the degree of their accomplishment is the measure of their efficacy. All external supervision is, however, based on the examination and consideration of transactions after they have occurred. It cannot control the making of loans or investments at the time they are made. It has no control of initiative management. It cannot, therefore, be held responsible for errors of judgment or lapses of integrity. Its business is to discover such and its efficacy depends upon its ability to do so. It is at best a human device and in common with all such devices its limitations should not be ignored or forgotten.
The next branch of our subject is “clearing house supervision in the interest of associated banks.” As you are doubtless all aware this niethod of local supervision was first inaugurated in Chicago three years ago. Its main strength is derived from the fact that it was evolved from the voluntary action of the banks themselves for their own benefit individually and for their protection collectively. Thus “its just powers are derived from the consent of the governed.” Similar bureaus have since been organized in St. Louis, Minneapolis, St. Paul, San Francisco, Kansas City, Philadelphia, St. Joseph, Milwaukee
steadily improving in the value and reliability of its service both to the banks and the public. As an illustration of this and of the ability of the department officers to develop their own methods under the general powers they now possess without specific legal enactments for every move they make, which would hinder and hamper more than they would help them, let me draw your attention to some of the department regulations recently inaugurated:
Bank examiners can be neither stockholders nor borrowers from national banks.
Savings banks, trust companies or other state banking institutions allied with national banks are examined simultaneously with them.
Bank examiners are to be selected from men of previous banking experience who have been connected with sound, progressive and well managed institutions.
Banks are classified in the department according to the character of their management and such as are classified poor are being examined four times a year in the presence of their directors, from whom a letter is required promising that conditions subject to criticism will be attended to and corrected, while those whose management is classified as very bad are being handled in a still more vigorous manner.
Examiners are now required to make such careful and complete reports in writing of all evidence discovered by them tending to show criminal violation of the federal statutes that the department of justice may determine from them without further investigation whether or not there has been a criminal violation of law.
The national bank examiners through the country have been divided into eleven districts with a chairman appointed by the comptroller for each district. Examiners in each district are required to meet twice a year to have a general discussion of methods of examination and to prepare reports of banks in the district whose condition is unsatisfactory and of any lines of doubtful credit in them ; each examiner to report to the chairman for his own particular section and the chairmen to furnish the comptroller with a complete report of the proceedings, retaining a copy for reference at future meetings. The chairman of each district at his discretion can report to the chairman of any other district such information as he may deem advantageous.
The efficacy of government supervision by examination lies primarily in its restraining influence on bank management. The knowledge that the banks are to be examined holds the officers in check. This followed by the criticisms of the comptroller based on the examiners’ re-