Pittsburg dispatch. [volume] (Pittsburg [Pa.]) 1880-1923, 1891-11-09
FIGURES MADE TO LIE.
Matthew Marshall on How Easy 1t Is
to Show That Shaky Banks
ARE JUST AS SOUND AS GOOD ONES.
State Examiners Not Much Preferable to the
National Kind.
SHADOWS CAST BY RECENT FAILURES
ESPECIAL TELEGRAM TO THE DISPATCH, :,

OluclSl BANK EXAMINATIONS, Matthew
Marshall writes as follows for tomorrow s
Sun:
The gloom which began to overshadow
Wall street g month ago, after the light
weight operators, who jeered at my warn
ings of danger had exhausted their resources
in forcing a temporary rise in prices, and
had TO confess their mistake has been deep
ened during the past week by the bank
ruptcy of the Maverick National Bank at
Boston 1t is not that the catastrophe itself
has caused any extensive losses here, but it
has compelled the solvent Boston banks to
draw down their balances with our banks,
and it has impaired general confidence by
showing how an institution in good credit,
apparently sound and doing an enormous
business, may suddenly collapse and prove
to be an empty shell. Above all, it has
weakened peoples faith in official bank eS-
aminations as means of detecting hidden
financial weaknesses, and as a guarantee of
safety against mismanagement and fraud.
Coming, as it did, so soon after similar
failures of official examinations of the
Ninth National Bank, the American Loan
md Trust Company, the Keystone National
Bank of Philadelphia, and the Kingston
Savings Bank, it has excited suspicion as
TO the real condition of thousands of other
institutions which have likewise been Off
but which, it is now seen, may none the less
he insolvent
Comptroller Lacy Criticised.
The United States Comptroller OF the Cur
rency has been severely criticised, and with
reason. for his remissness in allowing the
Maverick bank to go on and incur new obli-
cations after it had been reported to him to
lie unworthy of credit. As in the similar
case of the Keystone National Bank, he may
have been influenced bv a natural reluct-
ance to precipitate the ruin of a tottering
institution so long as q chance remained of
restoring it to soundness. ANY precaution-
cry measure which he might have taken
would have been noised abroad, and thus
would of itself have caused the crash it was
intended to avert. Or, personal influence
with his official superior may have been
brought to bear on him, as it seems to have
been in respect of the keystone Bank, to
stay his hand and delay his action. What
ever be the true explanation of it, his
course has been shown by events to have
been detrimental to the public interest.
l should be glad to use these two instances
of the failure of Federal supervision to pre-
vent loss to depositors by bank failures as
mn argument in favor of replacement of
national banks by State banks, under State
guardianship, which, L am convinced, is
destined to take place as soon as the extin-
9uishment Of the national debt shall put an
end to the profitable issue of national bank
currency, which now makes the national so
fortunately. two of the other bank failures
J have mentioned demonstrate that State
officials are no more to be relied on than
those of the Federal Government, and that
IN" tncffciency of the one class is about
equal to that of the other. The American
Loan and Trust Company had to put up its
shutters because of insolvency only few
weeks after our State bank examiners had
passed it as perfectly sound, and the King
ston Savings Bank went into the hands of a
receiver in consequence OF a robbery by its
-1,s 1,.,d ,~.N1
by state examination over and over again,
and came to light only by accident.
Comparison of Bank Examinations
may, indeed, justly claim that the State
officials are not less efficient than those |
acting under Federal authority, but 1 must
admit that they are not more so. A man is |
nCither more nor less competent because he |
is sent from Albany instead of from Wash |
ington to investigate the condition of a |
financial institution, and the title he bears |
1na kes no difference in the value of his |
labors. Only the State examiners, who were |
Loan and Trust Company and of the Kings |
ton Savings Bank, are not, like the United |
States Comptroller of The Currency, charged |
with willful violation of their duty, and in |
that respect stand better in public esteem
Aside from bad faith and the suppression |
OF damaging discoveries, L think official
bank examiners are not always to be blamed 1
because they fail to announce the impending
insolvency OF an institution. In most cases
its collapse is due to the blunders or to the
frauds Of its active managers, and they use
every art TO conceal its true condition and
10 make good showing of its affairs How
that can be done anyone familiar with the
banking business knows full well. An
official examiner is not usually man of
Information, and cannot be e1-
pected to know the exact value of every
note or acceptance, every bond and every
kind Of stock in existence. If the invest
nents and the cOllaterals submitted to him
IS the assets of the concern he is examining
ire good on their face. and bear no features
which arouse suspicious, he must neces-
committee of experienced bank officers, |
snch As the Clearing House occasionally
appoints, may, indeed, if it will take the
time and the trouble, go over banks port
Ike q correct estimate Of the character OF
their contents.
Benefit of Official Examiners.
Yet, when this was done the other day, in
Boston, with the Maverick Bank, its Presi-
lent protested most energetically that the
came TO its unfav orable conclu-
sion in the most rough and ready way, and
allied 10 do his bank justice. He said that
they called everything bad which they did
lot know to be good, and then knocked 20
Der cent of the face OF the remainder to
lIlow for possible depreciation. They could
afely act thus because they were not re-
ponsible to anybody but themselves for the
but If official examiners were
o pursue the same course thev would not
ong be permitted to retain their places.
The way in which writers for the press
ma many people in conversation discuss
his subject bctrayS an Ignorance IN regard
10 it which is not surprising and yet is very |
They assume that any man able
o add up column of figures can go into a
'an : or trust company and determine its
condition from q mere inspection of its |
books and records. They forget the famil-
ar fact that figures can be made to prove |
and that especially they can be
made to prove solvency when 1t Is in the in
crest to do so of those who manipulate |
hem. A balance on the right side can al
vavs be created by eXaggerating the items
IN that side and diminishing those the
opposite one over and over again have |
instances occurred where such false bal
noes have been carried along for years by
cashiers, tellers and bookkeepers
without detection by directors or even by
residents Some 30 or 40 years ago the City
tank when Moses Taylor was its President, |
ras robbed of about 100000 by dishonest
eceiying teller. and he WAS not found out
ntil months afterward.
How Frauds Are Long Undiscovered.
Talking upon this subject with one of the
irectors of the bank, who was personal
riend of mine, 1 asked how the culprit ,
to conceal so long the abstraction
f so large a sum. The explanation was
cry simple. The banks aggregate deposits
ere millions, and its daily deposits were
lany hun ireds of thousands of dollars.
he thief took his plunder out of the de-
osits as they came in, and delayed to enter
ZEN on the banks books until the next
ay. when fresh deposits had filled the
;tcuum. The depositors pass books, if they
ad all been called in at once and written
n, would have reveal ed the defalcation,
ut as everyone knows, this is never done
Mess the bank is going into liquidation.
he suppressed entries in the banks own
ooks, being equal in amount to the money