[ Vohm e XX VI I
THE CHICAGO BANKER
20
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action were taken simply because something in the bank was unsatisfactory such authority would be accused of shutting up a solvent institution, not only by its stockholders, but by its depositors themselves in whose behalf the action would be taken.
It may, therefore, be said that bank supervision by examination on the part of a clearing house committee, while probably the best and the most effective external supervision possible, has its limitations, which should be recognized by the intelligent public, and it should not be held to a degree of responsibility which it does not assume.
We will now consider supervision by directors in whom is vested the primary responsibilty for bank management. Their supervision is in the combined interests of the stockholders who elect them and of the depositors who confide in them.
They govern and direct as a board, requiring the presence of a quorum for the transaction of business. Their official actions and the responsibility they assume are therefore collective and not individual. They are not expected to devote their entire time and attention to the affairs of the bank and their supervision is necessarily more or less intermittent. They appoint and fix the remuneration of the officers and for cause can discipline or discharge them. Thus they, and they alone, control the initiative of management and on them must rest the final responsibility for it. The officers appointed by them dispose of their time and their talents to the bank for the consideration of their salaries and assume the daily details of management.
Such being the established relations it becomes the primary duty of the directors to hold the officers to a strict accountability, not only for integrity and honesty in motive, but for efficient and successful service. It will go without saying that the power of the directors to discipline or discharge officers should be promply exercised on the discovery of dishonesty, deception or bad faith, either in their personal or their official capacity, or for dissolute or improper conduct in their private life. It is equally essential however that the same power should be exercised in cases of incompetency, bad judgment, recklessness, speculation or whatever there may be in the makeup of the officers that injuriously affects the management or deprives it of public confidence and success. In the exercise of this prerogative, probably
w. E. NORTH
Cashier First National, Lake Charles, Louisiana
Foreman Bros. Banking Co.
no LaSalle Street CHICAGO
CAPITAL AND SURPLUS
$1,500,000
ESTABLISHED 1862
INCORPORATED AS A STATE BANK 1897
Officers
EDWIN G. FOREMAN, Pres. GEORGE N. NEISE, Cashier OSCAR G, FOREMAN, V. P. JOHN TERBORGH, A. Cash.
their bank’s condition as a whole, which the mere passing upon individual loans at their meetings does not afford.
Our experience has been that the banks have almost unanimously adopted every suggestion made by the committee. The method has worked with but little friction and while I cannot discuss such details as would show its efficacy, I can say that the result has been most satisfactory to all" concerned and that much good has been accomplished for the Chicago banks individually and collectively. The organization being entirely voluntary partakes somewhat of the nature of a gentleman’s agreement, under which each bank binds itself to conduct its business under proper methods. The disciplinary effectiveness of the method lies in the fact that they are all measured by the same standard, viz.: that their statements as rendered to the clearing house association shall be satisfactory to the committee, in view of the examiner’s reports upon them, otherwise they cannot continue to enjoy clearing house privileges. In no sense, however, does the association or its committee assume responsibility for the individual management of the banks or for the quality of all the loans current in them. This responsibility, as I have said before, rests, and must always rest, on the officers and directors of each bank. All the committee undertakes is to pass judgment, and that only approximately being based on the examiner’s report, on the reasonable integrity of each bank’s assets and the general reliability of its statement. In the fact that the members of the committee are well posted on local credits and financial affairs lies the superior efficacy of clearing house supervision. But the committee is not omnipotent, it is only an ordinary human agency. Like the comptroller, it has no control of the initiative management of the banks under its supervision. It fully realizes the heavy responsibility laid upon it. It is no easy problem to decide when summary action should be taken in connection with a badly managed bank’s condition, which depends on the condition of its customers, while both they and it are interdependent on each other. Conditions must become very bad and expostulation be exhausted before any supervisory authority, however constituted, will assume the responsibility of action that will lead to the closing of a bank’s doors. If it were otherwise and such