The herald., 1898-10-21
LESSON OF TRADEMAN's Ma
TIONAL BANK FAILURE
SUPPLYING CAPITAL FOR IDEAS
Decision on Accident Insurance--Re-
cent National Bank Changes.
Extension of Life Insurance
OFFICE OF THE HERALD,
Los Angeles, Oct. ~, 10


The American Banker, in its issue OF the
10Th instant, Just received, takes conserva-
tive and correct view Of tho banks relations
towards its patrons and the public generally,
the remarks of the journal in question being
called forth by the recent failure of the
1'radesman's National, an event that has
excited wide attention in financial circles
throughout the country. The American
Banker says
Banks are not intended to furnish capital
for promoters. Their safety lies in making
loans at short maturities on saleable goods
or securities and in moderate amounts.
Their business is with "going concerns,
and not prospective enterprises. But, al
though the best experience has established
the truth of these observations, men will
persist in testing them for themselves, thus
riskinr their own and other peoples money.
An alteration of this kind from the correct
source seems to have been the cause OF the
trouble with the Tradesman's National
Rank. That institution as discounting
shop for the wool business seems to have
been carried on with due observance OF the
rules of correct banking. But it appears to
have embraced in it's operations far-reach-
ing promoters scheme, using considerable
part of it's capital in an attempt to make New
York City the leading market for wool IN
this country. A magnificent building was
erected where auction sales of wool were to
take place. and the bank was to offer special
facilities to the trade. The purpose OF the
promoters might have been successful, but
it is believed that miscarriage OF some sort
occurred at the first auction sale, which had
the effect of discouraging attendance there
after. The suspension of the sales brought
the bank s status into public discussion, and
an examination of the finances by the Clear
ing House committee disclosed the fact that
a large portion of the capital had been used
otherwise than in the discounting of COM
mercial paper 1t is not certain whether
the bank had lent its capital in an attempt
to corner wool and create an artificial reac-
ton from the prevailing depression, but it
Is possible that the advances recently made
to one of its officers on Wool Exchange stock
may have had some relation to an enterprise
of that character In the judgment OF the
committee these loans involved an impair
ment in the banks capital stock, and if it is
true that the depositors will be paid in full,
and that the banks business in other direc-
tions had been properly attended to, the oc-
casion which led the directors TO sanction
transactions which were ill-advised, to say
the least, must have been an extraordinary
one 1t may be that these loans were risked
in the hope of saving from failure some one
so conspicuously associated with the bank
that misfortune of that sort occurring to
him would have reacted disastrously on the
bank. Perhaps it was to avert an impend-
ing disaster of that kind which made it seem
cxpedient to the directors of the bank to
take a more than banking risk, expecting
that the fault might be rectifed when the
danger had passed over. If this inference
is correct it goes to show that a bank officer
whose interests outside of the bank are in
the region of speculative undertakings, is a
menace to the stability of his bank, however
carefully the latter is carried on. A bank
must not only refuse to furnish capital to
promoters, but must avoid official associa-
tion with such men, not because they are
bad men intrinsically, but because they may
become dangerous.
The practice of Pacific coast bankers runs
to an opposite extreme to that indicated
above, in the opinion of the San Francisco
Real Estate Circular, which says, under the
heading of Supplying Ideas with Capital"
as follows:
Cities like Chicago on this continent and
like Manchester, Leeds, Glasgow, Newcastle
and Belfast across the Atlantic, have been
created by cheap and liberal money, and by
the latter more than by the former. If asked
what we mean by liberal money, we answer
money freely supplied to develop new and
promising enterprises. When man has in
dustry and energy and carries new and
practical idea to banks in the old country
and in our west and northwest, they let him
have money to develop it; here such policy
is unknown. Money can be had here only on
collateral, which can ir moment bexurned
into coin. Shipyards, great factories, rail-
roads, shipping enterprises and all great pro-
jects have two sources, one of brain creation
and one of capital realization; ideas on the
one side, twenty-dollar pieces on the other;
the one inventing, the other realizing. Cities
and states are thus rapidly developed.