Wednesday, June 20, 2012

A History of the Origin and Development of Banks and Banking in the City of New York, by W. Harrison Bayles,


A History of the Origin and Development of Banks and Banking in the City of New York, by W. Harrison Bayles,
Pages 168-185,



— Some Trust Companies Withdraw from the Association on Account of the Reserve Requirement
— Combination of Citizens National and Central National Banks as the Citizens’ Central National Bank, with Capital, $2,550,000, and Deposits, $20,000,000
—Alliance Between the Consolidated National and the Mechanics’ and Traders Bank
— The Clearing House Association Exercises Supervision of Combinations of Member Banks
—The Bank Clearings at New York on 3 January, 1906, are $686,844,890, Making a Record
— Alliances Between the First National Banks of New York and Chicago, and Between the National City Bank of New York and the Riggs National Bank of Washington
— Presidents, Baker and Stillman, of two Great New York Banks, Become Directors of Out-of-Town Banks
—The Movement of Bank Alliances Reaches Beyond the United States
—Affiliations of the Knickerbocker Trust Company
—Lack of Confidence Prior to the 1907 Panic
— Supposed Scarcity of Money
— Large Promoters Heavily Interested in New York Financial Institutions
—Business Interests Connected With the Mercantile National Bank
—F. Augustus Heinze Buys Out the Interest of Edwin Gould and Becomes President of the Mercantile National—Copper Stock Speculation in October, 1907
—Disturbance of the Depositors of the Mercantile National Bank
—Mr. Heinze Resigns as President
—A Committee of the Clearing House Association Examines the Mercantile National and Reports It to be Sound
— The Association Assists the Bank but Requires the Resignations of the Officers
—Examination of All Banks Controlled by Mr. Morse
— How Control of These Banks Was Obtained
— Mr. Morse Resigns from all His Banks
— The Banks, Reported Solvent, Are Assisted by the Clearing House Association
— Seth M. Milliken Becomes President of the Mercantile National Bank and William F. Havemeyer President of the National Bank of North America
— Difficulties of the Knickerbocker Trust Company
—A Foster Higgins Succeeds Charles T. Barney as Its President
— Prominence of Mr. J. Pierpont Morgan in Saving the Situation
—A Run of Depositors, Withdrawing $8,000,000, Closes the Doors of the Knickerbocker Trust Company
— A Crisis Spreads from New York Throughout the Country
— Difficulties of the Trust Company of America
— Mr. Morgan Heads a Syndicate to Support This Institution
— Four-Days’ Run on the Trust Company of America, Having Deposits of Nearly $60,000,000
—$13,000,000 Paid Out in One Day, and $34,000,000 in Two Weeks, the Record for a Financial Institution Not Destroyed
—The Westinghouse Company Fails
—The Hamilton, Twelfth Ward, and United States Exchange Banks Close Their Doors
— The International Trust Company Suspends, and, in Brooklyn, the Williamsburgh and Jenkins’ Trust Companies and the First National and Borough Banks
—Run on the Lincoln Trust Company
— A General Hoarding of Cash
— The Savings Banks Enforce Their Requirement of Sixty Days’ Notice of Withdrawal
— The Panic of 1907 Forces Resort Again to Clearing House Certificates
—Certificates Issued for $101,060,000, With a Maximum Outstanding of $88,420,000
—The Clearing House Committee Handles Collateral Amounting to $453,000,000, Being $330,000,000 of Commercial Paper and $123,000,000 of Stocks, Bonds and Short-Term Railroad Notes
—A Currency Famine, Money at a Premium
—$296,000,000 of Currency Disappear from Circulation
—The Drain Falls on New York Banks, Many Out-of-Town Banks Actually Increasing Their Cash Holdings Methods of the New York Banks in the Crisis
— They Import and Pay Out $95,000,000 in Gold
—Temporary Currency Devised
—Difficulties of the National Bank of North America, Leading to Its Close
—The New Amsterdam National and Mechanics and Traders Bank, Through Lack of Public Confidence on Account of Mr. Morse, Close Their Doors
—The Oriental Bank Closes After a Prolonged Run
— A. Barton Hepburn Later Admits the Mistake of the Clearing House Committee in Not Supporting These Solvent Institutions.Trust Companies and the New York Clearing House Association

UNDER regulations adopted at a meeting of the New York Clearing House Association, November 3, 1899, most of the important trust companies became associated with the Clearing House as non-members. These regulations provided that no trust company should be cleared by any bank until it should have been examined by a committee appointed for the purpose, and that trust companies should furnish weekly statements, the same as non-member banks, but not intended for publication.

This arrangement continued but a few years. There was at the time an agreement among the members of the New York Clearing House Association that a certain cash reserve should be maintained by each of them, but there was no provision for enforcing it. The New York State banking law provided for the keeping of a cash reserve by the state banks of fifteen per cent. The trust companies were not required by law to carry any cash reserve. The broad charters of the trust companies, allowing them the privilege of carrying on a banking business, of which nearly all took advantage, gave them an immense advantage over the members of the Clearing House Association, and thereby enabled them to make considerable inroads into the members’ business.

The Clearing House Association had grown to be considered as an association in which the members were bound together for mutual protection and safety, and rules and regulations had gradually grown up to maintain a certain standard of strength and safety among its members and all non-members clearing through members. The extension of the privileges of the Clearing House to institutions not required by law nor by agreement to keep any reserve on hand caused a great deal of dissatisfaction among the associated banks, and this feeling culminated in resolutions enacted on February 11, 1903, as follows:

“Every non-member institution (not a bank required by law to maintain a specified reserve) now or hereafter sending its exchanges through a member of the association, shall on and after June 1, 1903, keep in its vaults a cash reserve equal to 5 per cent. of its deposits, and on and after February 1, 1904, such cash reserve shall be 71/2 per cent. of its deposits, and on and after June 1, 1904, such cash reserve shall be such percentage as shall from time to time be fixed by the clearing-house committee, but not less than 10 nor more than 15 per cent. of its deposits. The reserve hereby required shall be an average reserve as against the average deposits as shown upon its weekly statements.”

When this rule was passed by the Clearing House Association there were twenty-seven trust companies in the City of New York and vicinity which enjoyed clearing house facilities. Two consolidated, making the number twenty-six. Nine of these, with aggregate deposits, both trust and general, of $251,000,000, withdrew, while seventeen, with aggregate deposits of $146,000,000, continued making clearings under the new regulations requiring them to carry a reserve in their own vaults of 5 per cent. of deposits.

By June 1, 1904, all but two of the trust companies in the Borough of Manhattan — the Knickerbocker and the Manhattan—had ceased to use the Clearing House, as a result of the requirement of a fixed cash reserve. But it was said that those which had withdrawn had greatly increased their reserves, and this was supposed to indicate that it was not so much the requirement of a fixed reserve that they objected to as the attitude of surveillance and dictation assumed by the banks.

The Citizens’ National Bank combined with the Central National Bank, and on the morning of March 14, 1904, opened for business under the name of the Citizens’ Central National Bank, at 320 Broadway, in the building formerly occupied by the Central National Bank. To accomplish the merger the Central National went into liquidation, while the Citizens’ National increased its capital from $1,550,000 to $2,550,000, using the added capital to acquire the assets of the Central National. The former officers of the Citizens’ National became the same in the consolidated bank. Among the directors were James Stillman, President of the National City Bank, William Halls, J r., VicePresident of the Hanover National Bank, and John A. McCall and Henry Tuck, President and Vice-President, respectively, of the New York Life Insurance Company. It was thought that the consolidatedbank would be admirably adapted to care for the business interests of the dry goods trade in its neighborhood. Its enlarged capital and its deposits, amounting to $20,000,000, placed it among the large commercial banks of the city.

In January, 1906, an alliance was announced between the Consolidated National Bank and the Mechanics’ and Traders Bank, the latter soon after becoming the Clearing House agent of the former in place of the Fourth National Bank. E. R. Thomas, who had for some time controlled the Mechanics and Traders Bank, had secured control of the Consolidated National and had established close relations between the two institutions, to afford, it was said, better Clearing House facilities to the Consolidated National; Orlando F. Thomas was president of the Consolidated National Bank, and when, in April, 1906, E. R. Thomas acquired the control of the United States Exchange Bank, he became vice-president of that institution.

The numerous consolidations of banks caused an amendment to be made to the constitution of the New York Clearing House Association, in the latter part of the year 1906, giving the association supervision over the consolidation of any Clearing House bank with any other institution and providing that the Clearing House Committee shall have power in such a case to make examination of the consolidating bank and to submit to the association the question of continuance of membership of such a consolidated institution, which must receive the same assent as in the case of the admission of new members.

The consolidation or merging of national banks, and the establishing of branches by the state banks, continued. It was even conjectured and considered very likely that consolidation would continue among the Clearing House banks until an institution should be created with a capital of $100,000,000—the largest bank in the world. This has not yet been realized, but may be at some future time. The daily clearings of the banks of New York had for some time surpassed those of London, and the fact was noted that there were more millionaires in New York City than in London and Paris combined. Owing to the heavy dividend disbursements at the beginning of the year the exchanges made at the Clearing House by the New York banks on January 3, 1906, were the heaviest recorded up to that time, amounting to $686,844,890.

The large national banks not only obtained control of banks in New York City, but made important alliances with banks in other cities, the most important being that between the First National Bank of Chicago and the First National Bank of New York and that between the National City Bank of New York and the Riggs National Bank of Washington, D. C., in the early part of the year 1907. George F. Baker, president of the First National Bank of New York, became a director in the First National Bank of Chicago, and John W. Forgan, president of the First National Bank of Chicago, became a director in the First National Bank of New York. James Stillman, president of the National City Bank, became a director of the RiggsNational Bank of Washington, and was on the board of the Fidelity Trust Company of Kansas City, Mo., one of the strongest trust companies of the Mississippi Valley, the Newport Trust Company, and the Industrial Trust Company of Providence, R. I.

Interests associated with the National City Bank purchased a substantial block of shares in the Seattle National Bank, one of the largest financial institutions in the State of Washington, and this interest was represented on the board of the Seattle National Bank. The movement which was started some years back by several of the largest banks of New York City, to extend their influence over smaller institutions, was still gaining ground and enlarging its field of operation. Under the banking law it was unlawful for a national bank to purchase or own the stock of any other bank. The plan followed consists simply in the purchase by officers or directors of New York banks of stock in out-of-town banks, and thereafter voting in accordance with the wishes of the New York bank. The movement has passed out of the United States and extended its influence into Canada and Mexico.

Among the trust companies the most conspicuous example of this tendency to exert an influence over out-of-town institutions was the Knickerbocker Trust Company. Charles T. Barney, president of the Knickerbocker Trust Company, was a director in theAlbany Trust Company, the Chemung Canal Trust Company, the Schenectady Trust Company, the Syracuse Trust Company, and the Westchester Trust Company, while Frederick Eldridge, vice-president of the Knickerbocker Trust Company, was a director of the Troy Trust Company.

For more than a year before the panic of 1907, although no cloud could be decried on the financial horizon, thoughtful men doubted whether the appearance of great prosperity and the marvelous growth of banking in the preceding five or six years was the natural and healthy development of trade; and it seems that many men were in such a state of guarded watchfulness as to take alarm at the least sign of trouble. On the opening of the year 1907 there appeared to be no good reason why the prosperity enjoyed in the past year should not continue. The one source from which danger was thought most likely to come was what was called the “scarcity of money.”

Several men who were speculators and promoters of new enterprises, as well as of regularly established lines of business, and who seemed to be working in harmony in their business methods, had obtained large interests in a number of banks in New York City, some of which they controlled. This was well known and was regarded by some with suspicion, although it was not known at the time that any of them were using other than legal and proper methods. Charles W. Morse was vice-president of the National Bank of North America, of the New Amsterdam National Bank, and of the Garfield National Bank. He was also a large stockholder and director of the Mercantile National Bank and of other smaller banks. Edward R. Thomas was president of the Hamilton Bank, and had control of the Consolidated National Bank and the Mechanics and Traders Bank, his brother, Orlando F. Thomas, being the president of the former. He was also a large stockholder and a director of the Mercantile National Bank.

F. Augustus Heinze, interested in copper mines in the West, and president of the United Copper Company, at the suggestion of Charles W. Morse and Edward R. and Orlando F. Thomas, in January, 1907, secured control of the Mercantile National Bank from Edwin Gould and his associates. Frederick B. Schenck was at the time president of the bank and a large stockholder. Charles W. Morse and Edward R. Thomas were also largely interested in the institution, and there was a good deal of friction, between Mr. Gould and Mr. Schenck on the one hand, and Mr. Morse and Mr. Thomas on the other, over the policy of the bank in regard to certain enterprises in which Mr. Morse and Mr. Thomas were interested individually or together.

In this situation of affairs it was apparent that some one, probably F. Augustus Heinze, was trying to buy into the bank, and the market quotations of its shares rose to about $250, which was considered a liberal figure. Heinze, however, unable to acquire what he wished at this price, eventually, it is said, offered to Gould, for the interests of himself and his friends, $325 a share, $50 a share in cash and the remainder in a note. The note was for about $2,000,000, and the entire block of about 7,200 shares was put up as collateral with Gould, Heinze enjoying the voting control and paying six per cent. interest on the loan.

Frederick B. Schenck was forced out, but was immediately elected president of the Liberty National Bank. F. Augustus Heinze, although without training or experience in the banking business, was elected president in his place. He and his brothers, Arthur H. and Otto C., invested in the stock of other financial institutions and succeeded in gaining representation in the directorates of several of them.

On the 14th of October, 1907, certain persons speculating in United Copper Company stock, confident that they had control of the stock, succeeded, under the leadership of F. Augustus Heinze, in running up quotations from 37 to 60. The stock, purchased with a view of squeezing the bears, was unexpectedly delivered, and the brokers who purchased found themselves unable to pay for it. The stock dropped to 10 and it soon developed that the standing of a number of banking institutions, wholly or partially under the control of interests affiliated with these speculators, had become affected.

Depositors of the Mercantile National Bank, of which F. Augustus Heinze was president and the Thomases and Charles IV. Morse directors, took alarm because of the notoriety these men had attained in the copper stock speculation and began to withdraw deposits. Heavy balances against the bank, in settlements at the Clearing House, drew the attention of other bankers to the serious condition which threatened the bank’s existence. On Wednesday Morse was sought out and told that only the resignation of Heinze would prevent the withdrawal of funds from the Mercantile National which would force it to close. Mr. Morse called for a conference that night at his house. At this meeting Mr. Heinze and several directors of the bank were present.

After a preliminary discussion of the affairs of the bank, the question of resignation was put to Mr. Heinze, who absolutely refused to resign. When further pressed he became defiant. “ I won’t get out,” he answered. “ I own the control of the bank and you can’t force me out. I’ll close it myself. The Mercantile National won't even open to-morrow.” At the close of the meeting Mr. Heinze was left alone with Mr. Morse. What transpired is not known, but Mr. Heinze’s resignation was announced the next morning.

On the afternoon of Thursday, October 17, the Clearing House Committee held a meeting at which the affairs of the Mercantile National Bank and the sensational events in Wall Street connected with the United Copper Company were carefully considered. The resolution was reached to make an examination of the Mercantile National Bank at once, that institution as a member of the association being subject to such examination.

At this meeting were present three members of the Clearing House Committee, William A. Nash, president of the Corn Exchange Bank, Dumont Clark, president of the American Exchange National Bank, and Edward Townsend, president of the Importers’ and Traders’ National Bank, also J . Edward Simmons, president of the Fourth National Bank, and Alexander Gilbert, president of the Clearing House Association and president of the Market and Fulton National Bank.

A committee was appointed to examine the bank and their work lasted far into the night. The examining committee was composed of James G. Cannon, vice-president of the Fourth National Bank, Edward Townsend, president of the Importers and Traders National Bank, and Walter E. Frew, vice-president of the Corn Exchange Bank.

Upon completing their examination the committee went to the home of J. Edward Simmons, at 28 West 52d Street, and at midnight the following statement was given out by Mr. Simmons: “ Mr. Nash, the Acting Chairman of the Clearing House Committee, states that the committee with the full co-operation of the officers and directors of the Mercantile National Bank made an examination of its condition after the close of business to-day. The examination was very thorough and was not completed until a late hour. Mr. Nash and his associates were convinced from the result of the examination that the bank was perfectly solvent and able to meet all indebtedness. The capital of $3,000,000 is intact and with a large surplus.”

This was rightly interpreted to mean that the Clearing House Association would stand by the bank in case there was a run. On the morning of the day on which the bank submitted to an examination its debit balance at the Clearing House was about $600,000. This the bank was able to pay; but on the next day, Friday, the exchanges at the Clearing House produced another debit balance of $745,000. This the bank was not prepared to settle without assistance, and before assistance would be given the Clearing House Association required that the resignation of every director of the bankshould be placed in the hands of the president of that association. To this they were forced to comply.

At the meeting of the Clearing House, Committee, on Saturday morning, they agreed to make up any part of the debit of the Mercantile National Bank, amounting that morning to $1,137,000, which the bank itself might not be able to pay, and they were called upon to provide for the greater part of it.

While the committee were giving their attention to the Mercantile National Bank, many depositors were withdrawing funds from the banks in which Morse was in control, and late in the week one or two of these asked for assistance. A bank oflicer, excitedly remarking, “ Every time the situation becomes at all threatening we hear rumors about the Morse banks,” declared that it was about time that the Clearing House went to the bottom of the situation. Within forty-eight hours after this remark the wheels of investigation were set in motion. Examiners were put at work in theNational Bank of North America and in the New Amsterdam National Bank, of both of which Morse was vice-president.

The examiners found in the National Bank of North America, in the Mercantile National, and in other banks controlled by Morse and his associates, or in which they had interests, a condition of affairs which, although long suspected, had never been proven. They found loans to M-orse, the Thomases, and the Heinzes, secured by stocks and bonds of companies of their own promotion, and they found bank stock, owned by these parties, also put up as collateral for loans in these banks. Their method of acquiring bank stock is thus described: “ Mr. Morse first and then the Thomases and the Heinzes had, after securing one bank, hypothecated the stock of that bank in various financial institutions, not only here but all over--the country, had taken the money obtained by a loan on the stock of one bank to buy stock in another, had mortgaged that and bought into still another, and so on and one. Furthermore, after securing control of banks they had made loans to themselves for the flotation of promotion schemes and for the conduct of operations in the stock market.”

A meeting of the directors of the National Bank of North America was held on Saturday night, after the examination of the bank was completed. It was one of the stormiest and ugliest meetings in the history of Wall Street. Morse was asked to explain the negotiations of some of the notes and loans, and as a result was censured and upbraided in the strongest terms. He vigorously defended himself and fought hard against the demand for his resignation, declaring that every loan was amply secured and would be paid in full. He finally declared that he was himself worth $11,000,000, even at the prevailing low price of securities, and well able to take care of all his obligations.

Morse was finally forced to yield and handed in his resignation as an officer and director not only in the National Bank of North America but in all other banks in which he was interested. It took him seven years to acquire the control he held in New York banking affairs. It took him only about as many minutes to loosen his hold and retire entirely from the field.

The process of elimination continued the next day, Sunday, October 20. Meetings were held at the Clearing House and at the Mercantile National Bank. Many prominent bankers were present at the Clearing House, and at the bank were F. Augustus Heinze, E. R. Thomas, Charles W. Morse and other directors.

Following the prolonged meeting of the Clearing House Com-mittee, which lasted practically all Saturday night, and was continued at the Clearing House on Sunday morning, announcement was made that the examining committee had reported every one of the banks that had been examined to be solvent, although there was some impairment of surplus because of loans not well secured; and it was unanimously decided that the Clearing House Association should extend assistance to the banks that needed it. A fund of $10,000,000 was pledged by a number of banks to aid other solvent banks to meet the demands of their depositors.

At the same time it was declared that “ men who had lost public confidence to such an extent that runs were started on banks under their control should retire immediately from the Clearing House banks in which they were interested,” and that men “ who secure control of banks by the ‘ endless chain system ’ and use the deposits of the banks thus acquired to promote their own schemes shall never be allowed to do banking business under Clearing House auspices.” The committee also informed Morse, Thomas and Heinze that they “ must pay off loans at once without waiting for improvement in market conditions.”

Upon the resignation of F. Augustus Heinze the presidency of the Mercantile National Bank was offered to William B. Ridgely, Comptroller of the Currency, who came on at once to New York. He held the matter under consideration for several days, but finally declined. Seth M. Milliken was then elected president, on Saturday, October 19. William F. Havermeyer was elected president of the National Bank of North America, in place of Alfred H. Curtis, who became vice-president.

The disturbance in the banking interests of New York City, started by the speculations in copper stocks on Monday, October 14, was supposed bybank officers to be under their control at the end of the week. The newspapers on Monday morning stated that the Associated Press was assured by the Clearing House Committee that the Heinze, Morse, and Thomas interest had been eliminated from the banking organizations of New York. It was agreed that the Clearing House measures would fully meet the situation; but a new danger suddenly presented itself, and in the following week, from consequences little thought of, a crisis was developed which spread over the whole of the United States.

On Monday, October 21, there were heavy withdrawals from the Knickerbocker Trust Company, due largely, no doubt, to the close association of Charles T. Barney, its president, with Charles W. Morse in many business enterprises. Late in the afternoon the officers of the trust company applied to the Clearing House Association for assistance to the extent of $3,000,000, followed very soon by a notice from the National Bank of Commerce that they would no longer clear for the company. Charles T. Barney resigned, and A. Foster Higgins was chosen president in his place.

A conference was held on Monday night, one of many that were held nightly for some time, lasting, on some occasions, long after midnight. It marked the appearance of J. Pierpont Morgan as the most prominent figure among the bankers active in efforts to save the situation. At this meeting attempts were made to save the Knickerbocker Trust Company; but there was lack of organization among the trust companies, and although there appears to have been some promises to assist the Knickerbocker, they did not assume a sufficiently definite form to be effective.

It was announced at the close of the conference that money had been pledged to assist the Knickerbocker Trust Company, but for the protection of those rendering assistance it was necessary to make an examination of its condition. Such an examination was in progress when, on Tuesday, October '22, a run of depositors, drawing out eight millions of dollars, obliged the company to close its doors. The examination did not reveal sufficient strength to gain for it the necessary support.

Some of the directors of the Knickerbocker declared that they would not have opened for business on Tuesday morning but for positive assurances of support, and they severely criticised other bankers from whom they expected assistance. They said that one of the largest checks, and one of the earliest presented for collection, was one for $960,000 presented by a trust company, whose president had been the loudest in insisting that the Knickerbocker keep open, and the most positive in his assurances of strong support from his institution.

The closing of the Knickerbocker precipitated a crisis and caused alarm among depositors of other institutions. A run began on the Trust Company of America, largely due to the fact that Charles T. Barney, president of the Knickerbocker, was a director of the Trust Company of America, just as the run on the Knickerbocker started on account of the association of Barney with Morse.

That night there was a conference uptown in regard to the Trust Company of America, similar to that over the Knickerbocker the night before, but with more definite results; for a syndicate, headed by J . Pierpont Morgan, was formed, and it was announced that the Trust Company of America would be supported; yet the ease was so similar to that of the Knickerbocker that it was generally supposed that the results would be the same, and early on Wednesday morning long lines of depositors formed in front of the doors of the Trust Company of America.

This was the beginning of the four days of public excitement which continued to the end of the week. The evidence "of this excitement was the long line that stretched along Wall Street, from the doors of the Trust Company of America to William Street and down William Street to Exchange Place, consisting largely of bankers’ clerks and bank messengers. Many did not leave the line when the doors of the trust company were closed, at the end of banking hours, but remained to save their places for the ensuing morning. The police actually ticketed the men in line, to allow them a moment’s sleep or something to eat or drink. Added to this was an immense crowd attracted by the novelty of the scene. The police acted with admirable judgment and discretion in keeping the crowd on the move, allowing only those in the waiting line to stand still anywhere in the vicinity of the trust company.

The run on the Trust Company of America, having deposits of nearly $60,000,000, proved to be the most serious and extensive run ever made upon a banking institution without destroying it. In one day $13,000,000 was paid out, and within two weeks this was increased to $34,000,000, paid in cash to depositors and in settlement of checks presented by other banking institutions. There was also a run on the Lincoln Trust Company which reduced its deposits within a short time from about $20,000,000 to about $6,000,000.

The Westinghouse Electric and Manufacturing Company and allied concerns went into the hands of receivers. By this time money had reached 125 per cent. on call, and the Secretary of the Treasury, who had come on to New York, announced that he would deposit $25,000,000 of Government money in the New York City banks.

The Hamilton Bank, the Twelfth Ward Bank, and the United States Exchange Bank, all uptown institutions, closed their doors. In Brooklyn, the Williamsburg Trust Company, the Jenkins Trust Company, the First National Bank of Brooklyn, the Borough Bank of Brooklyn, and the International Trust Company of New York, suspended.

The fact that on Wednesday the big banking institutions had held out and promptly paid all demands did not lessen the fears of the public. The run on the Trust Company of America and on the Lincoln Trust Company continued with unabated intensity; and all the financial institutions of the city felt the effects. of a withdrawal and hoarding of cash unparalleled in the history of the city; while demands were so great on the savings banks that, as a precautionary measure and to prevent the throwing of securities on an already overburdened market, they put in force their legal right to demand a sixty days’ notice of withdrawal.

The New York Clearing House Association met on October 26, 1907, for the purpose of determining the expediency of issuing loan certificates. It had been hoped that the crisis might be successfully passed through without the need of using them. The situation, however, grew worse. Several banks had received assistance by the joint action of the stronger banks, which had advanced cash, receiving therefor participating certificates, for which the Clearing House held collateral security. The drain on the city banks from the interior banks, and from other depositors, was so severe that it was apparent that aid would soon be solicited by other members of the association. The result was that the Clearing House Committee, with the President of the Association, was authorized to act as a loan committee and issue certificates on the same plan as had been done on previous occasions when necessary. It required $11,235,000 to reimburse the banks for the above mentioned advances. The gross amount of this issue was $101,060,000 and the maximum amount outstanding at one time was $88,420,000. This was two and a half times as large as the issue of 1893 which, up to that time, was the largest that had been put out at any time.

During the time of this issue of loan certificates, commencing October 26, 1907, there passed through the hands of the loan committee collateral aggregating in amount the enormous sum of $453,000,000, of which $330,000,000 consisted of commercial paper and $123,000,000 of stocks, bonds, and short time railroad and other similar notes.

At a time when the supply of money was not only the largest, but of the highest standard, in the history of the country, the events of the latter part of October brought about a strange situation; a currency famine ensued, and actual money, or the generally recognized medium of exchange, either paper or metal, went to a premium. This premium was quoted in the newspapers during the month of November at from two to four per cent., but is said to have reached six per cent. in some instances.

The amount of currency that disappeared from circulation during the period of about six weeks, from the suspension of the Knickerbocker Trust Company on October 22 until confidence was partially restored early in December, as nearly as can be ascertained from reliable sources, was about $296,000,000. New York being the financial distributing center of the country, more than two-thirds of the burden of this enormous abstraction from the circulating medium of the count1'$’_about one-tenth of the entire amount of money in circulation in the United States — fell upon this city.

The entire net loss in national bank reserves, caused by this enormous drain and hoarding of money, fell upon the national banks of New York City. The national banks outside of New York City were actually able, by the aid of New York banks, to retain an amount of cash which was somewhat larger on December 3 than on the date of the previous report of August 22. The New York City banks not only met the demands for currency until their reserves were reduced $54,103,600 below the legal limit, but imported $95,000,000 in gold and paid out to their depositors and correspondents all the money which the Government deposited with them.

The banks, to protect their cash, resorted to the device of paying checks only through the Clearing House, except when the needs of customers for pay rolls, etc., made it necessary to accommodate them. They requested their customers to draw their checks “ payable only through the Clearing House,” and furnished them rubber stamps reading thus for this purpose. This method spread to other cities, and in some of them the banks issued drafts payable “ to bearer ” in small amounts. These passed from hand to hand, and were very near to if not actually in violation of the nationalbanking law. The banks of New York, and also those of other cities, discontinued publishing their individual statements each week, and only the aggregate showing of all the banks was given to the public after October 26.

The New York Clearing House Association, having decided that no more loan certificates should be issued, and anxious that all those outstanding should be retired, in order that the publication of the weekly bank statement might be resumed on February 8, sent out an intimation on January 25, 1908, to the National Bank of North America that its loan certificates must be taken up. Of the $6,780,000 in certificates, then outstanding, $4,000,000 had been issued to the National Bank of North America. The statement of the bank in August, 1907, showed deposits of $19,737,409 and cash, $3,916,000. By December 3 these had been reduced to deposits of $6,926,500 and cash of $381,900, and it was understood that since that time deposits had shrunk to less than $2,000,000, so that the bank was not only in no position to take up its certificates, but, withdrawals still being continuously made, was struggling for its very existence. President William F. Havemeyer exerted himself in every way to save the bank, and it was hoped that it would not be necessary to close it, but that some institution would be found to take over its indebtedness.

William B. Ridgely, Comptroller of the Currency, came on to New York to attend a conference with the officers and directors of the bank, but all efforts to save it were unsuccessful. Charles A. Hanna was put in charge as receiver on Monday, January 27, and spent the day in checking up its accounts, Comptroller Ridgely being in the bank a large part of the time.

The closing of the National Bank of North America brought to the attention of the public again the connection of Morse, the Heinzes, and the Thomases, with the banks of New York. Those banks with which they had been connected soon began to feel the results, in withdrawals of deposits. The New Amsterdam National Bank, at Broadway and Thirty-ninth Street, and the Mechanics and Traders Bank, at 565 Broadway, announced on Wednesday, January 29, after banking hours, that they would not open their doors for business next morning. The officials of both banks said that there was no question of their solvency, and that the closing was due solely to insufiicency of cash resources. The embarrassment of the New Amsterdam National was attributed by its officials to the renewed attention drawn to the connection with it of Charles W. Morse by the closing of the National Bank of North America, Mr. Morse having been vice-president of both banks.

In announcing their decision to close, the directors of the Mechanics and Traders Bank said that one of the chief reasons for this action was the refusal of the Clearing House to afford any further aid, although $6,000,000 of the bank’s assets were pledged with the Clearing House as security for loan certificates amounting to only $1,900,000.

Following the closing of the New Amsterdam National Bank and the Mechanics and Traders Bank there were unusual demands by depositors on the Oriental Bank, at Broadway and John Street, with a branch at the Bowery and Grand Street. Excepting those banks which had recently closed, it was the only bank which had Clearing House certificates still outstanding, and the Clearing House had decided to issue no more.

The run started as soon as the bank opened for business, at ten o’clock on Thursday morning, and during the day there was paid out, both at the main office and the branch, $216,000. Just prior to October, when conditions became disturbing, the deposits amounted to about $10,000,000. Then came constant and heavy withdrawals of funds. This drain continued until, at the close of the bank on Thursday afternoon, deposits had been reduced to $4,900,000. The cause of these withdrawals was a rumor of the bank’s connection in business transactions with a certain bank in Brooklyn which had failed and had been accused of irregular and unlawful methods of business.

Several depositors, who had not been paid ofi at the close of banking hours on Thursday, had representatives waiting in line outside the bank’s door throughout the night to keep their places for them. On Friday morning, facing a debit balance of $939,000 at the Clearing House, and with a line of depositors waiting for the opening of the bank to renew the run, the directors of the Oriental Bank, at their meeting held before banking hours, decided not to open its doors.

Although the Clearing House Association had decided not to issue any more loan certificates, the officers of the Oriental Bank had received promises of assistance from several banks, to the extent of a million dollars. But President Kelly of the Oriental, before ten o’clock on Friday morning had obtained information from the Clearing House of the probable size of the debit which would be returned against the bank if it should undertake to clear, and this proved the deciding factor with the directors.

A Barton Hepburn, who was then chairman of the Clearing House Committee, in his testimony before the Pujo Money Trust Investigating Committee, June 1], 1912, admitted freely that the sending of notices to the Oriental Bank, the New Amsterdam National Bank, the National Bank of North America and the Mechanics and Traders Bank, calling for the retirement of their Clearing House certificates, was a great mistake.

It appears from Mr. Hepburn’s testimony that the management of the Oriental Bank had been criticised, and that it was suggested that a change should be made, but he insisted that this was not made a condition of receiving aid. He also said that the desire to retire the certificates was laudable and commendable, and that if the presidents of the banks which were in trouble had been told in time, they could have arranged loans from other banks to take up the certificates. Any bank would have loaned them money at that time, on their collateral, to enable them to take up the loan certificates. It appears, however, that with the short notice given this could not be done in time to save them from suspension, and when the fact of the call on these banks to retire their certificates became known to the public, it produced runs on them which they could not stand without assistance.

Pages 186-202,


Progress of the New York Banks Between the Panic of 1907 and the World War of 1914.

—No Depositors Suffered Loss from the Bank Suspensions of 1907
—The Mechanics and Traders’ Bank of Brooklyn Continues as the Union Bank
—The Oriental Bank Transfers Its Assets to the Metropolitan Trust Company
—The Mercantile National Bank Resumes Paying Dividends in 1908
—The Knickerbocker, Jenkins and Williamsburg Trust Companies Suspend but Resume Business
—The Brooklyn Bank Absorbs the International Trust Company
—Loss of Thirty-Seven Per Cent. of their Deposits by the New York Trust Companies
—These Deposits Rapidly Regained, and Notably by the Trust Company of North America
—The Largest Gain by the Farmers’ Loan and Trust Company, of $30,638,000, or Over TwentySeven Per Cent. by August 31, 1908, Making it by Far the Largest Trust Company in New York
—A Reserve of Fifteen Per cent. for Trust Companies and of Twenty-Five Per Cent. for State Banks Required by the New York Legislature in 1908
—The Trust Companies Slow to Join the New York Clearing House Association
—Reduction of Interest on Deposits With Trust Companies
—Clearing House Association Plan of May, 1911, to Induce the Trust Companies to Join with the Banks
—Address of Mr. A. Barton Hepburn at the Trust Company Banquet, May 5, 1911
—The Cooperation Around J . P. Morgan & Company in 1907
—Eighteen Trust Companies Join the Clearing House Association Within a Short Period
—New York Follows Chicago in Employing a Regular Bank Examiner
—Work of a Clearing House Examiner— Rapid Growth of Large New York Banks
—Seventeen National Banks of New York City with More Than $25,000,000 of Deposits Each on June 30, 1910—Night Forces Adopted to Handle Out-of-Town Remittances
—A Single Bank Handles Checks and Drafts Amounting to $30,000,000 in a Night
—The National Currency Association of the City of New York Organized July 29, 1910, Under the Aldrich-Vreeland Act—Otficers Chosen: A. Barton Hepburn, President; Frank A. Vanderlip, Vice-President ; Alexander Gilbert, Treasurer; Edward Townsend, Secretary
—The National City Bank Organizes, in July, 1911, the National City Company with $10,000,000 Capital to Acquire and Hold Bank Stock
—Investigation. and Opinion of Attorney-General Wickersham
—Similar Relations of About Three Hundred Banking Institutions
—Close Relation of the First Security Company and the First National Bank of New York City
—Banks of the United States More Than Double in Number and Resources in Twelve Years Following 1900
—Bank Consolidations in Large Cities Rapidly Increase, Following Similar Consolidations in Manufacture and Transportation
—The Mechanics’ National Bank and the NationalCopper Bank Consolidate as the Mechanics’ and Metals National Bank with Capital and Surplus of $12,000,000 and Deposits of $70,000,000
—The New Bank Buys Property at 50 Wall Street. and Occupies it April 28, 1913
—The Fourth National Bank Increases Its Capital Stock from $3,000,000 to $5,000,000
—The National Park Bank Makes a Similar Increase, Also Having a Surplus of $12,000,000 and Deposits Amounting to -$83,000,000
—January 27, 1910, the Guaranty Trust Company Consolidates with the Morton Trust Company and the Fifth Avenue Trust Company, Thus Having Capital, $5,000,000, Surplus, $18,000,000, Undivided Profits, $3,000,000, Deposits, $138,116,672, and Total Resources, $16~1,411,710
—In February, 1911, the Phenix and ChathamNational Banks Unite as the Chatham and Phenix National
—In February, 1912, the Equitable Trust Company Absorbs the Trust Company of America
—In 1912 the Bankers’ Trust Company absorbs the Manhattan Trust Company, with $10,000,000 Capital, $160,000,000 Deposits and $185,000,000 Total Resources
—The Guaranty Trust Company Has Total Resources of $209,000,000 in 1912
—Growth of the Bankers’ Trust Company Since 1903—Thirty Bankers on the Board of Directors of the Bankers’ Trust Company
—In September, 1912, the Guaranty Trust Company, Absorbing the Standard Trust Company, Increases Its Total Resources to $227,000,000
—Congressional Investigation, June, 1912, of the So-Called “ Money Trust ”
—Gradual Extension of the Scope of Operation of the New York Clearing House Association—The Bank Clearings at New York Over Two Billion in One Week in 1912
—The Congressional Committee Discovers Nothing Sensational
—James G. Cannon Succeeds J . Edwards Simmons as President of the Fourth National Bank of New York
—In March, 1911, Lewis L. Clarke Succeeds his Father, Dumont Clarke, as President of the American Exchange National Bank
—William Woodward Succeeds his Uncle, James T. Woodward, as President of the Hanover National Bank
—In December, 1910, Joseph B. Martindale Succeeds, as President of the Chemical National Bank, William H. Porter, Who Becomes a Member of J . P. Morgan & Company
—James S. Alexander Succeeds Valentine P. Snyder as President of the National Bank of Commerce
—Frank A. Vanderlip Succeeds James Stillman as President of the City National Bank— Francis L. Hine Succeeds George F. Baker as President of the First National Bank— Albert H. Wiggin Succeeds A. Barton Hepburn as President of the Chase National Bank
—Walter E. Frew Succeeds William A. Nash as President of the Corn Exchange Bank
—In April, 1912, the Mercantile National Bank Merges With the Irving National Exchange Bank as the IrvingNational Bank with Offices in the Woolworth Building
—In May, 1912, the Hanover National Bank Absorbs the Gallatin National Bank
—Clearing House Arrangement for Free Collection of Out-of-Town Checks
—Remarks of James G. Cannon on the Subject.

THE panic of 1907 seems to have been brought about, not so much from any lack of strength or solvency of the banks or trust companies, as from a lack of confidence started by speculations in Wall street, the speculators being connected with banks which, although solvent, were compelled to retire from business. None of the depositors suffered pecuniary loss from the suspension of these banks.
In October, 1908, it was announced that sufficient money was in the hands of Receiver Edwards to pay depositors of the New Amsterdam National Bank and all other proved claims in full. The depositors of the National Bank of North America were paid in full with interest. The Mechanics and Traders’ Bank resumed in Brooklyn under the name of the Union Bank of Brooklyn, and the Oriental Bank transferred its assets to the Metropolitan Trust Company, which took them over under an agreement to pay off the depositors of that bank. There were $3,000,000 net deposits, and the terms of the agreement were that the Metropolitan Trust Company should receive a commission of $200,000, and interest at 6 per cent. per annum on all moneys advanced. In August, 1908, it was said that the stockholders of the Oriental Bank would receive from $175 to $200 a share.

The Mercantile National Bank, although assisted by Clearing House loan certificates and able to avoid suspension, met with heavy losses. The Heinze loans, as revealed by the committee, reached a very large total, and in writing off the heavy losses the surplus of the bank was reduced from over five million to two million dollars. It resumed payment of dividends on December 15, 1908, paying at that time 2 per cent.

Four trust companies in New York were forced to suspend, the Knickerbocker, Jenkins, Williamsburg and International. Of these the first three resumed business, paying depositors under the deferred payment plan, anticipating the payments. The International was absorbed by the Brooklyn Bank, which was equivalent to resumption. Thus depositors met with no financial loss. The strain in the crisis upon the trust companies of New York was tremendous. During the four months from August 22, 1907, to December 19, 1907, their aggregate deposits dropped from $946,608,382 to $591,912,441, a decrease of $354,695,941, or over 37 per cent. This loss actually occurred in a few weeks, during which the companies were called upon to pay out considerably more than one-third of their entire deposits, and at a time when the procuring of funds or credit was difficult in the extreme.

In the latter part of December deposits began to return and gains were continuous, so that the statement of August 31, 1908, shows that deposits had returned to within one and a half million dollars of those of August 22, 1907. In Manhattan Borough there was a gain of about nine million dollars. The Trust Company of America was conspicuous in showing remarkable recuperative powers. After a shrinkage of $44,000,000 in deposits and the necessity of borrowing $25,000,000, its deposits had been built up and the loan repaid in full, conclusive proof that the assets were sound.

During the panic there was no trust company in New York City whose deposits did not show decrease, but on some the strain may properly be described as terrific. The losses of deposits ranged all the way from 9 per cent. to 71 per cent. In the return of deposits some large gains were made by individual companies and some did not regain what they had lost; so that the relative standing of the companies as to deposits was somewhat changed. The largest gain was made by the Farmers’ Loan and Trust Company, whose deposits increased $30,638,009, or over 27 per cent., making its line of deposits on August 31, 1908, by far the largest of any trust company in New York.

Before the panic of 1907 it was considered by some of the prominent bankers that it was for the public interest that the trust companies should join the banks in the Clearing House Association, but for reasons already stated they declined to do so. The importance which some of the leading members of the Association attached to the return of the trust companies to the Clearing House was forcibly expressed by William A. Nash, upon his retirement from the presidency of that Association in 1906, when he pointed to the serious consequences which would arise in time of financial disturbance because the trust companies were not members of the Clearing House Association.

Early in 1908, as a result of the experience of the panic, and in pursuance of the report of a commission appointed by Governor Hughes, at the head of which was A. Barton Hepburn, Ex-Comptroller of the Currency, the Legislature of New York passed a law requiring all trust companies in the Borough of Manhattan, New York City, to keep a cash reserve, after February 1, 1909, of 15 per cent. against all deposits payable on demand, or at less than thirty days’ notice, except such as are secured by New York State bonds. The reserve required of the State banks in the Borough of Manhattan was raised to 25 per cent.

Meanwhile the Clearing House Association had, in January, passed a resolution allowing trust companies to be admitted in the same manner as banks, and, when so admitted, to be entitled to all the rights and benefits and subject to all the conditions and obligations of the banks. It also passed a measure which thereafter compelled all its members to keep and maintain in their own vaults a cash reserve of 25 per cent. of their deposits.

Shortly after the panic members of the Clearing House Association made another effort, and were again active in urging the trust companies to join that body, but the trust companies were not disposed to seek membership, even after they were required by law to keep a minimum cash reserve of 15 per cent. in their own vaults.

The law, going partially into effect, required the trust companies of the Borough of Manhattan to hold, on and after July 1, 1908, a cash reserve of 10 per cent. In order to comply with this law they drew from the banks about that time $20,000,000. After February 1, 1909, they were required to increase their reserve to 15 per cent. There were at this time only five trust companies availing themselves of clearing house privileges as non-members, namely: The Flatbush and Hamilton of Brooklyn, the Mechanics’ Trust Company of Bayonne, N. J ., and the Van Norden and Manhattan of New York City.

On account of their being compelled to keep a minimum reserve of 15 per cent., notices were sent out by some of the trust companies of the city to depositors advising them that there would be a reduction of interest on their deposits, and some of the companies decided to pay no interest at all on balances averaging less than one thousand dollars.

A plan for admitting the trust companies to full membership was laid before the Clearing House Association about the first of May, 1911, by a committee which had been appointed to investigate the matter. This involved a modification of the rule of January, 1908, which required all members to keep a 25 per cent. reserve. It provided that trust companies should keep 15 per cent. cash reserve in their own vaults, and an additional 10 per cent. reserve on deposit with some member of the Association maintaining a 25 per cent. reserve; and a renewed effort was made to induce the trust companies to join the banks in the Clearing House Association.

At the same time a proposition was made for the appointment of a competent examiner who in behalf of the Clearing House Association should make examinations of all banks and trust companies connected with the Association.

It was urged by the public press that the Clearing House Association and the trust companies should come to an agreement and that there should be a union of banking resources, not merely as a matter of expediency, but as an imperative requirement. It was declared that “The banking business of New York should be so organized that the Clearing House statement on Saturday would make a clear showing of the financial situation, the whole situation. It should be so organized that its entire strength can be made available in any emergency. The admission of the trust companies to the Clearing House and the establishment of a system of examination would give to this community such guarantees as it has never had, such a sense of security as it has never felt. If this promising plan of union is permitted to fall those responsible for the failure will be justly and severely criticised."

A. Barton Hepburn, in his address at the Trust Company Banquet on May 5, 1911, said: “ Under the circumstances, in 1907 it was feared that the right of the Clearing House to speak for the banking power of the city might be questioned; it was deemed wise to put J . P. Morgan & Co. to the front and all parties and all interests rally behind that firm. The great personal prestige of Mr. Morgan as well as the commanding influence of his banking house would command public confidence and no one would question that the united banking power of the town was behind him.

"The trust companies had no organization; their presidents were convened at Mr. Morgan’s library and an agreement reached whereby they should and did take charge of the situation so far as it related to trust companies. A committee composed of the late Edward King, E. S. Marston, John I. Waterbury, J . N. Wallace and others was appointed and did good work. The Secretary of the Treasury furnished $10,000,000 additional currency to be used in meeting the run upon certain trust companies, and the trust companies, through the Clearing House banks where they kept accounts, had whatever credit in the form of Clearing House certificates that they required. The situation was most embarrassing at the start and remained so until all banking situations were brought into harmonious co-operation. Had the strong trust companies been members of the Clearing House, the situation would have been handled through the Clearing House as similar situations have been handled in the past and as similar situations should be handled in the future. “ " " Is it not wise to get together for this reason and see if combined action will not enable us to provide a remedy‘! This is not an attempt on the part of the banks to obtain control of the trust companies any more than it is an attempt of the trust companies to control the banks. It is a getting together on an even keel for a common purpose of natural interest and advantage."

On Tuesday, May 9, the Clearing House Association voted to admit trust companies with a capital of $1,000,000 to full membership in the Association on the terms reported by the committee as above stated. The report of the committee in reference to a plan for the examination of members of the Association was approved and the Clearing House Committee was directed to organize a department for that purpose on the lines suggested by the report, and later a Clearing House Examiner was appointed. .The first to occupy this post was Charles A. Hanna. Within a few days several prominent trust companies applied for admission to the Association, and on the 20th it was announced that the number of these had increased to eighteen.

New York was not the pioneer or leader in the plan of having a regularly employed examiner for the banks of the Clearing House Association. This originated in Chicago.

In 1906 the Chicago Clearing House Association was notified by Government oflicials that, owing to losses sustained through loans to officers, one member of the Association and two afiiliated state institutions would have to be closed. Fearing the efl:'ect on general business, the Clearing House banks assumed the deposit liabilities of these banks and the liquidation of assets resulted in heavy losses to them.

To provide against a repetition of such an experience they set to work to devise some plan that would guarantee that the associated banks were being conducted in a safe and sound manner; that would tend to strengthen weaker banks, detect and correct dangerous tendencies, protect banks from undue loans to controlling officers and directors, insure stability in management; and that would provide for remedial action being taken for the rescue of a weak member before too late to save it. As a result a Clearing House Examiner was appointed June 6, 1906, with power to appoint a force of assistants.

The clearing houses of other cities followed the example set by Chicago in making bank examinations, in some cases employing certified accountants to do the work. The necessity or expediency of the appointment of a clearing house bank examiner had been discussed by the associated banks of New York, but each previous time that the subject was brought forward enough opposition had developed to prevent its accomplishment. The Clearing House Examiner is interested principally in determining the solvency and healthfulness of an institution and the character of its management. Special attention is paid to loans to oliicers, employes and directors, and to companies in which they may be interested; to investments in securities issued by companies which are owned or controlled by officers or directors‘.

The examiner works under the direction of the Clearing House Committee. The committee is advised of the completion of each examination, but is not furnished with details unless an unsatisfactory condition of a bank has been discovered. In such a case the committee immediately takes action to cause such condition to be corrected. As the Clearing House Committee is vested with the right to recommend the discontinuance of clearing privileges its action is usually efiective in hastening the elimination of matter open to criticism.

The business of the large banks had increased immensely. There were, according to the bank statements of June 30, 1910., seventeen national banks in New York City each having deposits exceeding $25,000,000, which was over half the national banks of the United States reporting deposits exceeding that amount.

The increase of the business of some of the banks with out-oftown customers, whose remittances came through the mail, induced several of them to put on night forces to handle this mail matter. The plan of working all night in order to keep up with the tremendous amount of business coming in by mail was inaugurated about the year 1905, and it proved so valuable to the first bank that tried it that one institution after another adopted it. Some have all-night workers, and some have workers for only a part of the night, coming on at midnight or about one o’clock in the morning.

Four big banks in the Wall street district continue work by shifts through the whole night. Two sets or shifts of clerks work between five o’clock in the afternoon until nine o’clock the next morning, one set of clerks taking up the Work where the other leaves off. Each shift of night workers consists of from twelve to twenty men. The work never stops. All night long, Sundays and holidays, men in these banks are busy opening thousands of letters, sorting and listing checks and drafts representing immense sums of money, and getting them ready for the day force, or placing them in the proper channels for prompt collection.

Each of these banks has a drawer in the general post office which is cleared of letters by a messenger from the bank every hour of the night. Three thousand letters a day is the average mail of one of these banks, and two-thirds of it comes in during the night. In the case of one, the night letters contain from 35,000 to 40,000 checks and drafts, representing at times as much as $30,000,000, rarely less than $20,000,000. If a large part of this can be put through the morning exchanges to the Clearing House, instead of lying over, it can readily be seen what valuable services the night force performs for this bank.

Acting on the suggestion of Franklin MacVeagh, Secretary of the Treasury, representatives of twenty-six national banks of New York City met on July 29, 1910, at the Clearing House, and organized the National Currency Association of the city of New York under the terms of the Aldrich-Vreeland Act. According to this act banks belonging to such associations can obtain from the Government additional circulation on pretty near the same terms, and by depositing pretty near the same kind of security, including commercial paper, as in obtaining Clearing House certificates, which could be used only among members of the Clearing House Association.

Since the enactment of the law the Government had been put to a large expense in printing the currency, and a great deal of work had been done in putting affairs in shape to comply with the law. Although A. Platt Andrews, Assistant Secretary of the Treasury, who represented Mr. MacVeagh at the meeting, said that he did not expect that the New York City association or any other would be called upon to issue emergency currency during the next four years, the period of the duration of the law; yet declared that it was desirable that the banks should get the necessary machinery ready in case it should ever be needed.

A. Barton Hepburn, President of the Chase National Bank, was elected president of the Association, and Frank A. Vanderlip, President of theNational City Bank, vice-president; Alexander Gilbert, President of the Market and Fulton National Bank, was chosen treasurer, and Edward Townsend, President of the Importers and Traders National Bank, secretary. After appointing an executive committee and adopting the by-laws, the bank presidents adjourned with the hope of never being called upon to meet again.

As has been stated, and as was generally known, the National City Bank, through its officers, directors, and those affiliated with it, had obtained interests in several banks in New York City and elsewhere, by which control was acquired over these smaller institutions, presumably to the advantage of the National City Bank. Under these circumstances the announcement made, in July, 1911, that the National City Company had been organized in New York City to hold bank stocks hitherto held and controlled by individuals identified with the National City Bank, aroused considerable interest. The incorporation of a company with a capital of $10,000,000 to acquire bank stock seemed to open up possibilities of engaging in this business on a somewhat extensive scale.

It was not considered that any great harm could come from control such as would be exercised by such an institution, and it was thought hardly probable that, with perhaps twenty-five thousand banks in the country, the banking business could be monopolized by any one bank or by a number of large institutions. Nevertheless, an inquiry was ordered by Secretary MacVeagh, and the attention of Attorney-General Wickersham was attracted to the National City Company, because of its announced intention to own bank stock and because of the fact that it was owned and controlled by stockholders nearly identical with the stockholders of the National City Bank. Mr. Wickersham reasoned that the control by a national bank of an institution created by State law for the purpose of holding the stocks of other national banks is a violation of the plain intent of the National Bank Act, and so reported it as his opinion to the Secretary of the Treasury.

The investigation, instituted for the purpose of showing how far similar control existed, resulted in the listing of the names of about three hundred institutions which possessed the same or similar relationship to other banks as that between the National City Company and the National City Bank.One of these was the First Security Company, organized in 1908 by the First National Bank of New York City with a capital of $10,000,000, the First National Bank distributing a special dividend of this amount to its stockholders, to whom was given the right to subscribe to the First Security Company stock in the ratio of their holdings of the stock of the First National Bank. Certificates of stock of the two corporations were printed on the same piece of paper, and other means were taken to discourage if not prevent the sale of one without the other, so that transfer of the stock of the First National Bank generally carried with it a proportionate interest in the First Security Company. Thus the First Security Company, a State corporation, owned entirely by stockholders of the First National Bank, for the purpose of controlling certain banks, was holding bank stock which it was unlawful for the First National Bank to hold.

In the dozen years following 1900 the number and resources of the banks of the United States more than doubled, and the consolidation of banks in all the large cities went on rapidly. The growth and consolidation in banking were the inevitable accompaniment and result of the growth and consolidation which had taken place in manufacture and transportation. As the business of the country came to be conducted on a larger and larger scale, it required from the banks larger and larger credit facilities, calling for institutions of large capital.

The tendency was toward increase of capital and the consolidation of small institutions into large ones controlling extensive interests. This policy was carried out with the trust companies as well as with the banks. The Mechanics’ National Bank of Wall street and the National Copper Bank of 115 Broadway consolidated under the name of the Mechanics’ and Metals National Bank, and opened business in the Mechanics’ National Bank building at No. 33 Wall street. The merger was consummated on January 29, 1910, and the statement of the new, consolidated institution, on Monday, January 31, as reported to the Comptroller of the Currency, shows capital $6,000,000, surplus $6,000,000, undivided profits $1,763,895, and, after deducting exchanges to the Clearing House, net deposits of about $70,000,000. Gates W. McGarrah, former president of the Mechanics’National Bank, became president, and Charles H. Sabin, former president of the National Copper Bank, became vice-president of the consolidated institution.

The Mechanics’ National Bank had in the early part of the year 1904 absorbed the business of the Leather Manufacturers’ National Bank of 29 Wall street, the latter going into liquidation. The capital of the Mechanics’ National Bank was then increased from $2,000,000 to $3,000,000, of which increase $600,000 was used to acquire the capital stock of the Leather Manufacturers’ National Bank, and $400,000 new stock was open to subscription by stockholders of the two banks. The National Copper Bank was a new banking institution, having been organized in 1907, but had been quite successful.

The Mechanics’ and Metals National Bank purchased the property No. 50 Wall street, next door to the Bank of New York, N. B. A., and remodeled the entire interior of the building to suit the needs of the bank, which, by the merger, became one of the very large and important banking institutions of the city. The bank moved into its new quarters and opened there for the transaction of business on Monday, April 28, 1913.

At a meeting of the stockholders of the Fourth National Bank, December 16, 1909, it was unanimously voted to increase the capital stock of the bank from $3,000,000 to $5,000,000, and this increase was soon after accomplished.

The capital stock of the National Park Bank was also, in the early part of the year 1910, increased from $3,000,000 to $5,000,000. The bank had then, in addition to its capital, a surplus of $12,000,000. The deposits of the bank amounted to $83,000,000.

A notable consolidation or merger of trust companies was that of the Guaranty Trust Company with the Morton Trust Company and the Fifth Avenue Trust Company, which took place January 27, 1910, the title of the first named company being maintained. The first statement issued by the Guaranty Trust Company, after the consolidation, was under date of January 31, only four days later, and shows capital of $5,000,000, surplus of $18,000,000, undivided profits of $3,013,024, deposits of $138,116,672, and total resources of $164,411,710, making it in capital and surplus, as well as in resources, the largest trust company in New York City, or in the United States.

In February, 1911, the Phenix National Bank and the Chatham National Bank were merged as the Chatham and Phenix National Bank, continuing business at the corner of Broadway and John street, where the Chatham National Bank had been located for several years. Louis G. Kaufman, who had been president of the Chatham National Bank, was made president of the consolidated bank.

In February, 1912, the Trust Company of America was absorbed by the Equitable Trust Company, and about the same time the Bankers’ Trust Company, by its absorption of the Manhattan Trust Company, became a close competitor of the Guaranty Trust Company to the claim of being the largest trust company in the United States. The consolidation gave to the Bankers’ Trust Company deposits of about $160,000,000; its capital being $10,000,000 and aggregate resources about $185,000,000. The total resources of the Guaranty Trust Company were then about $209,000,000.

The growth of the Bankers’ Trust Company since its organization in 1903 had been remarkable. Its resources in 1910 had reached to about $77,000,000. In that year it absorbed the Mercantile Trust Company and increased its totals in 1911 to $157,000,000, and was reported to have already accumulated a very large amount of trust business. The company had been organized for the promotion of a community of interest among the leading bankers of New York and other cities, as well as to secure the large and profitable business which the make-up of its board of directors would naturally bring to it. At the time of this merger the board consisted of thirty bankers, of whom eleven were presidents and four vice-presidents of national banks; four were presidents of State banks and one a vice-president, while five were private bankers and five were officers of the Bankers’ Trust Company. Sixteen New York banks and five New York banking houses were thus represented, with two Philadelphia banks and one each in Chicago and Kansas City. The name, Bankers’ Trust Company, thus correctly described the policy and make-up of the institution, and it appears quite evident th-at such a board of directors could exercise an enormous influence in the banking world.

The Wall Street Journal estimated that the actual direct representation of banking resources by these directors—that is, the total resources of the banks of which they were officers— aggregated over $1,367,000,000, while directly and indirectly, taking into consideration the other institutions of which these men were directors, the amount represented was over $2,198,000,000. With these facts in mind, it is not difficult to understand how the company was able to accumulate so large an amount of business in a few years.

Both the Bankers’ and the Manhattan trust companies belonged to what was spoken of as the Morgan group of banks; so that the merger did not, in fact, directly increase the amount of deposits held by those interests, but merely lessened the number of banking institutions holding them. Among the members of the board of directors were not only several members of the firm of J. P. Morgan & Co., but the other members represented banking institutions in which Morgan was known to have substantial interests. In view of the figures above given no one can doubt that this company was able to exercise very great influence on the financial affairs of the country.

The question was asked, what will be the limit of these big mergers? It was believed by many that others were likely to take place in the near future; in fact, at that very time, March, 1912, there were rumors that the Guaranty Trust Company was to absorb the Standard Trust Company. The resources of the latter were about $20,000,000, and with it the Guaranty Trust Company would have total resources of over $227,000,000.

The consolidation of these two companies was consummated a few months later. In September the directors and stockholders of the Guaranty Trust Company ratified the agreement by which the Standard Trust Company was absorbed, and the directors also voted to increase the capital stock of the company from $5,000,000 to $10,000,000. On September 17 the directors of both institutions recommended to the stockholders the formal ratification of the plan, which was accordingly made.

This plan provided for the payment of a dividend of twenty dollars a share by the Standard Trust Company to its stockholders, and for each two shares of the Standard Trust Company stock the stockholders were to receive one share of the Guaranty Trust Company.

When the Congressional Committee began its investigation into the so-called “ money trust,” at the Custom House in New York, in June, 1912, attention was focused on the Clearing House Committee which, as William Sherer, manager of the Clearing House, testified, practically embodied the power of that association, which in turn represented the banking power of New York and of the United States. Although the composition of this committee is changed in its personnel every year, the names of the five members that then composed it were soon flashed over the country as those of the men controlling the machinery of New York’s banking system. These men were Frank A. Vanderlip, President of the National City Bank; James G. Cannon, President of the Fourth National Bank; Walter E. Frew, President of the Corn Exchange Bank; Richard Delafield, President of the NationalPark Bank, and Otto T. Bannard, President of the New York Trust Company. A. Barton Hepburn was President of the Clearing House Association and ex offiicio member of the Clearing House Committee.

To be one of this annually changing group was considered a great honor, a recognition not only of banking ability but of the highest integrity; and, traditionally, the leaders of the New York Clearing House Association have lived up to the standard demanded of them.

While originally the principal function of the Clearing House was to provide for the convenient and rapid exchange of checks and other obligations, and while this doubtless continues to constitute the Clearing House’s chief function, yet its scope of operation has been gradually extended under the pressure of necessities developed by experience.

The daily exchanges of drafts and checks and the adjustment of balances, the primary functions of the clearing houses of the country, could hardly, even remotely, be classed as contributing to the organization of a “ money trust.” Yet the Congressional Committee apparently expected to find something in the association of the banks leading up to such a “ trust ” or monopoly.

The vastness of the wealth represented in the transactions of the New York banking institutions indicated how much the country’s store of cash and credit centered in New York. In the week that the Congressional Committee opened its hearings the banks passed through the New York Clearing House a total of more than two billion, one hundred million dollars, while the estimated total which passed through all of the other clearing houses of the United States combined was less than one billion, four hundred million dollars.

The immensity of these transactions stimulated the committee in the search, and the members of the Clearing House Committee were called upon to explain the workings of the Clearing House and the acts and regulations of the Association.

No startling developments, however, were brought out by the investigation, and nothing was found but What had been known by the well-informed people of New York. It was simply a threshing over of old straw. In regard to the use of Clearing House certificates, which was inquired into, A. Barton Hepburn reminded the committee that Congress, not the bankers, was responsible for this makeshift, to which the banks were obliged to resort.

In the two or three years following the opening of the year 1909 there were changes in the heads of several of the most prominent banks of the city. Upon the death of J . Edward Simmons, President of the Fourth Nartional Bank, who had for some years been prominent in financial affairs, James G. Cannon, in August, 1910, was elected to the office thus made vacant. In March, 1911, Lewis L. Clarke was elected President of the American Exchange National Bank to succeed his father, Dumont Clarke, who had died. The son had been connected with the bank for many years and was vice-president at the time of his father’s death. James T. Woodward, who had been President of the Hanover National Bank for thirty-three years, and had been successful in building up for it a large business, died in April, 1910, and was succeeded in the presidency by his nephew, William Woodward, who had been a vice-president of the bank for the previous six years.

In December, 1910, William H. Porter, President of the Chemical National Bank, became a member of the firm of J. P. Morgan & Co., and was succeeded in the presidency of the bank by Joseph B. Martindale. On April 1, 1911, Valentine P. Snyder resigned the presidency of the National Bank of Commerce and was succeeded in that office by James S. Alexander.

Frank A. Vanderlip, on January 12, 1909, succeeded James Stillman as President of the National City Bank, and on the same day Francis L. Hine succeeded George F. Baker as President of the First National Bank. Albert H. Wiggin was elected President of the Chase National Bank, in January, 1911, to succeed A. Barton Hepburn. Walter E. Frew about the same time succeeded William A. Nash as President of the Corn Exchange Bank. Each of these four retiring presidents was made chairman of the board of directors of the bank over which he had presided and thus retained his influence in its management.‘

In April, 1912, it was rumored that negotiations were in progress to bring about a merger of the Mercantile National Bank with the Irving NationalExchange Bank, and Willis G. Nash, President of the Mercantile National Bank, authorized the statement that a controlling interest in that bank had been purchased by Seth M. Milliken, its former president, F. W. Woolworth, and their associates. The Mercantile National Bank was soon after absorbed by the Irving National Exchange Bank, which then assumed its original name of Ir'ving National Bank. In April, 1913, it moved into its handsome and spacious new quarters in the Woolworth Building, where practically all of two floors immediately above the street had been fitted up for its accommodation.

In May, 1912, the Gallatin National Bank was absorbed by the Hanover National Bank. This added much to the resources of the Hanover National Bank which, previous to the merger, was one of the largest banks in the United States, with deposits of about $100,000,000. The consolidation was accomplished with the best results for the stockholders of both banks.

The New York banks had been for years, under the rules of the Clearing House, imposing charges for collecting country checks, except for a few especially excepted cases. In January, 1913, some relaxation of these rules was made, so that the banks might accept for free collection checks on all banks and trust companies in the States of New York, New Jersey, Connecticut, and Rhode Island which should remit at par on the day of their receipt of the checks drawn on them.

James G. Cannon, President of the Fourth National Bank, who was chairman of the committee which recommended the change, after six months’ study of the subject of country collections, said: “ The modification of the rules recognizes the right of the out-of-town check to circulate at its face value, provided the bank upon which it is drawn will remit for it on the day of receipt at par to the New York bank. I believe this plan is coming to be recognized as the scientific principle upon which to handle these items."

The plan adopted did not meet with the approval of many bankers in the States to be covered, and representatives of the bankers’ associations of these States adopted resolutions favoring something like the out-of-town system of collecting checks in use at Boston.

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