Evening times-Republican. [volume] (Marshalltown, Iowa) 1890-1923, 1905-12-07

CAUSE OF BANK FAILURES

Wronodoing Until 1t 10 Too Late
Bank Directors Urged to Aid in the
Supervision and Examination Of
sank Accounts.
Washington. Dec. THE most i'm
portant feature cf the report Of w.
b. Ridgely, comptroller of the cur
rency. submitted to congress today,
Is the cha.s rsdevoted to bank examin-
alton and supervision. He says in
part: 81
After careful study Of the cases
which have come under my observa-
tion during the past four years, I am
firmly convinced that no system Of
bank examination or supervision from
the outside Of the. bank can absolutely
prevent fraudulent bank failures. The
more thorough ard efficient the super
vision the more surely and quickly
frauds will be discovered, and the
more fear Of detection will tend to pre-
vent them, but they can not be surely
and in every case prevented by any
4 practical means outside Of the bank
Il am also equally convinced by
the same experience that with careful
and efficient work on the part Of the
examiner, aided Ky intelligent and thor
ough letters Of criticism based on
the examiners reports. any board Of
bank directors OF fair intelligence with
an honest desire to obey the law can,
by cooperating with the examiner
and the comptroller. make the failure
Of their bank practically IL not abso-
lutely impossible. S
am sure that in this direction the
cooperation between t1e directors Of
= bank and the supervising authority
lies the best hope OF decided and per-.
nanent improvement IN the supervision
OF banks and the reduction Of bank
sfaflures to minimum
No outside supervision can supply
honesty or brains for the management
Of q bank or take the place OF either.
when 1t Is lacking. The best It can
do IL to discover acts OF dishonesty
or bad errors cf judgment after they
have occurred, and to some extent
prevent Illegal acts by fear Of their
discovery and punishment.
An examiner always works under
one great and unavoidable disadvant- j
age. He can d'o little or nothing until
after the law has been violated when
much. II not all, OF the harm is done.
4 II the trouble Is q bad excessive, or
fraudulent loan, 1t has been made be-
fore he can act. r. there is a shortage
In the cash thru q defalcation or rob-
berry the money is gone before he can
know It, and often with little or no
chance for It's recovery. A good exam
1ner does his whole duty in the discoHs
cry Of such a case. It is not res
able to ask him to prevent 1t.
Cause Of Failure.
A bank does not often FAIL 81,
". The condition which leads y
apt to be Of comparatively slow ..tl.
Far the most frequent cause OF Ailure
is q large line OF loans to some Noncern
or group Of concerns in which the Of
hcers are interested. or to the Off
GERS themselves. When the loans are
new they lookiall right and frequently
are good; but Il things go wrong and
this outside venture loses money, the
loans begin to increase, and soon good
money begins to go after bad with the.
Inevitable result. It is surprising to see
in how few cases men who may have
been Heretofore honest and square
have the honesty and moral courage
to face the failure Of their bank, when
due to bad judgment or incompetency,
without resorting to frauds Of some
kind. It Is extremely rare to find a
bank has failed without some of the
officers committing fraudulent or iNeg-
al acts to hide 1t.
Every examiner, however, has many
cases to REPORT which are taken up and
corrected, sometimes after they have
become very bad. M1ere are great
many such cases where a bank gets in-
to more or less serious trouble, and yet
Is saved, where one goes on to fall
nre.
AFTER a bank fails ana disclosures
OF dishonesty are made, 1t Is wonder
ed why such things could go on un-
discovered sc, long. The examiner Is
blamed and abused, with or without
reason In some cases heis very much
to blame, but in those which have
had occasion to investigate this has
not very frequently been found to be
true It must be remembered that
these frauds and deceptions are in
most instances being carried on by men
Of unusual ability-men who stand
very high among their neighbors. not
only in business but also In social, re-
ligious and political matters. Almost
Invariably they deceive the whole
community. their business associates.
their friends. and even their families.
It Is frequently an astounding revela-
tion to all Of these that the banker
who has failed, defaulted, and per-
haps absconiled or killed himself, is not
man of wealth as well as the ideal
Of honor and business integrity. Only
men who establish such regulations
have the opportunity to betray large
trusts, and Of these, only those with
skill, shrewtiness and peculiar cour
age can carry them on for any length
Of time without discovery. However,
his suspicious may be aroused, the ex-
aminer H. ss / have said, under the
great disadvantage Of only being able
10 act after the crime is committed. He