The herald., 1893-05-21
WHY THE BANKS FAILED.
I. w. HELLMAN's EXPLANATION OF
RECENT DIsAsTERs.
The Notable Banker Expresses His
Views ON the Financial Failures
which Have Occurred Re-
Gently In Many Cities.

The San Francisco Examiner of the
14th printed the following interesting
article from the pen of [. W. Helmsn:
It is impossible TO assign any general
cause for the bank failures that have
been occurring all over the world. AL
most every group Of failures is due to
some special individual cause. There is
no connection between the collapse of
the London banks and the Chicago or
New York suspensions. No more is
there connection between the Chicago
failures and that OF the Santa Clara
bank. This last is merely sporadic
case OF rottenness, and is not to be traced
to any industrial crisis or peculiar con-
dition of the money marhet.
There ie of course world wide strin-
gency just now. 1t is not severe enough
to materially effect the business OF the
more prominent and solid institutions,
but it is enough to crowd the weaker
banks to the wall. Among all these
failures l have not noticed one of first
rate Institution
Now as to the cause of the failures
The London breakdowns are traceable
directly to the .colisDss of fi~ q .'sfrsiiap
L~-.-..
Seven banks in Australia suspended.
Their deposits aggregated probably
30,000 900 ($150, ,000. .000), a, great part
of which was English money. Over
speculation in land caused the Austrsl-
ian troubles. The banks fad them
selves with securities upon which they
cannot realize and they naturally can
not meet the demands made upon them.
There are some good banks over there,
and in the wild panic resulting from the
failure of other banks there is something
OF run made upon them. They call on
the English banks, which largely hold
their securities, and the stringency in
London results.
Over-speculation also caused this
stringency in New York, and this has
probably extended as far as Chicago.
Speculation in industrials is mainly re-
sponsible. For illustration of what |
mean, let US suppose there are 20 dis
tilleries in California whose combined
worth at fair estimate is 81 ,250, 900.
Now, suppose these distilleries combine
and issue stock as such trusts usually do
on basis OF S., 900 600. For time the
trust is successful. By limiting the
pFOOUCttOn AuA oh0o ACOPAh6 ~ OllO Idbc
they maintain the stock at high valua-
tion. They pay a large dividend on
SIS 900, 900 and the stock sells, say at 500
per share. Then something happens,
hard times or competition, and the stock
begins to 90 down to so, to 80. to 20, to
go, to so, to 40. to 80.
There is the shrinksge. By the time
the stock has reached itE actual value
all the trust people have sold out.
The public which mas been let in at
the top figures has Lost hoavily. There
is tightness of money in consequence,
a call on the banks and the insecure
ones 20 under. There Is nothing new
10 the condition, and there is nothing
to indicate that the shrinkage will be-
come acute or dangerous
So far no San Francisco bank has
felt apprecisbly the pressure that has
broken the Eastern Institutions, and
as our banks here are easy, secure and
conservative, San Franciseans are hardly
likely to have any greater interest in
these manifestations of stringency than
that OF mere spectators.