The Indianapolis journal. [volume] (Indianapolis [Ind.]) 1867-1904, 1891-11-09
Excessive Endorsements by Directors Likely to
Be q Matter of Close Inquiry by National
Bank Examiners in the Future.
Secretary Foster Said 10 Favor Taking
Unsecured Paper Out of the Assets,
And Charging 1t Up TO the Liabilities Side Of
the Ledger-Radical Changes in the Meth
cd of Making Examinations Proposed.
EXCESSIVE ENDORSEMENTS.
A Question I'm the Supervision OF Nation
Banks That Ii Puzzling Officials.

WASHINGTON, Nov. Sit has been held
by Mr.. Lacey, the Controller of the Cur
rency, that there Is no authority under
which he can close national bank except
it be clearly proven that il is insolvents
What really constitutes insolvency is per-
picking the Treasury Department officials
just now in connection with the failure of
the Maverick National at Boston. Secre-
tary Foster, who Is an old banker and now
at the head of private bank which does q
large business, is quoted as having said in
o conversation the other day that the ex-
cessiye Endorsements OF the directors of the
Maverick should have been construed by
Controller Lacey 10 come within the IN
solvency clause of the national banking
laws. 1t will be remembered that some
months ago the Controller of the Currency
called the attention Of the directors of the
Maverick to the fact that they had indorsed
to q greater extent than they should, if the
interests of the bank were to be secure,
and that he demanded of them that they
reduce the amount of their Endorsements.
Experts in the Controllers Office contend
that if director of a national bank or
anybody else indorses beyond o limit
good in the event of the failure of the bor-
rover the excessive Endorsements can be
nothing more nor less than worthless; and
the paper must be taken out of the assets
of the bank. Ii this should have been
adopted by Controller Lacey and applied
to the Maverick. that institution was un-
questionably insolvent many months ago;
and if the excessively indorsed paper of
the Maverick had been carried to the loss
account of the bank il would been made in
solvent beyond doubt. In other words an
indorser is in degree to be regarded as
borrower.
SECRETARY FOSTERS VIEWS
The question of insolvency and excessive
Endorsements is one of not only great in
terest but the greatest possible moment to
bankers and every man who is interested
in ban king, even to the extent of being o
depositor. Secretary Foster is credited
with having conveyed. or with having in
tended to convey Ito Controller Lacey the
idea that unsecured paper should be
charged off the accounts of bank when.
ever the indorsers refuse to secure it other
wise. BY this process all securities held
by bank. as soon as they are, under busi-
ness-llke and good banking methods. re-
garded as unsecured, should move around
against the assets of tho bank; and, If they
are sufficient to absorb enough of the
capital, will make the bank under the law
insOlvent. Another extremely important
feature of the question is as to whether in
dorsements shall be considered in their
cumulative form. If they should bo so
concluded and indorsers estopped when
they have reached the aggregate of their
assets, very radical changes In national
banking methods will have to be adopted.
At present there is DO law OF rule in the
Controllers office forbidding any. amount
of indorsement. That has been left wholly
to the discretion of the banker.
1t is the general impression that other
radical changes are about to be made in
the national bank system which will pro-
tect depositors and stockholders. There is
no question but that the examinations of
national banks are far superior TO the ex-
aminatlons of State banks, as State exam
lners are, In a large measure, politicians,
while the examiners for national banks
are selected for their ability to properly do
the work. The trouble lies it is found, in
the law branches of the government. which
have to prosecute dishonest bank officials,
and III q laXity on part of the OLD exam
iner5.
AN EXAMINERS EXPERIENCE.
AS an illu stration of how bank examiners
are usually treated one gives this as his ex-
perience: IL found when first went upon
the road that bankers usually expected me
and were ready for my work. 1t is the GUS
tom to make examinations atabout certain
periods of the year. When / entered q
bank could tell instantly whether / was .
surprise. If was not expected would be
requested by one of tho officers of the in
stitutiOn to call in again, an hour or so
later or the next morning. when the presi-
dent. or assistant cashier. or somebody
else would be there, as IL was desired that
he should be present to 60 over the assets
with me. At first was STAYED off without
exciting my suspicious. Finally came to
the conclusion that time was wanted more
than the presence OF the officers named aud
l refused to wait in some instances. Then
II was. and only then. that found things
as they should not have been. Not once
did find affairs out of gear when time or
delay was not asked"
Rascality in national banks Is found the
same as in private banks but it has been
discovered that cash is more often stolen
from the former than the latter banks
showing conclusively two things-trst
that the book examinations of nation
al banks are more thorough than in
! private ones, and, secondly, that O condi-
| tiOn of bad affairs exists for O less period
| or time In national than in private banks
1t shows, too, that there is not a sufficient
| care exercised in the counting OF cash. In
each of the failures during the past few
months. notably in Boston and Philadel-
| phie, 1t has been claimed by the examiners
that they reported the dangerous condition
months before the banks were closed, and
ludb IluCn COulu udNo Uccu bdVtQ Dy earlier
closings. These statements have been the
ground for severe criticisms of Controller
Lacey, who has been held by some of the
| persons directly interested 10 not be COM
| petent TO make ON efficient officer. 1t
should be borne In mind, however, that
| there are always two sides 10 the closing of
q bank. The officers, stockholders and
many of the depositors interested ask the
Controller not TO close when there is dan
| ger of 1T. Promises are made for reparation,
N I'M fa ~ he 70
arc made they are complied with.
SERIOUS MATTER.
Ii is O serious thing to close O bank and
wreck men. Many outside interests are
affected. Often runs are made on other
banks and other interests are ruined. 1t is
the business of the Controller to exercise
| the best judgment and stand for the great
est number of interested persons. 1t thus
! happens that no matter which way the
! Controller turns be will be subject TO crit.
! icism. lt has been held. however, that no
steps have been taken for many years
toward "a more perfect IS stein of examina-
tion, aud that while rascaIIty has taken
! advanced steps and new methods invented
| for circumventing the federal officers, the
same old methods are in use tor detectinc
| the new fraud.
There will very likely be an entire new
system invented for not only the examina-