New-York tribune. [volume] (New York [N.Y.]) 1866-1924, 1913-08-19
CITY BANKS PROTECTED
Failure of Pittsburgh InStitu-
lion Will Not Involve Local
Concerns in Litigation.
REDISC0UNTING COMMON
r. Hypothecated Paper Was
Pledged Here, Bankers Say
Receivers Cannot Force
Surrender.

,.o,rts from Pittsburgh that New YORK
- f,llowing the collapse of the First
go National Bank Of Pittsburgh
-',,id no involved in complicated liuga-
-, ON account OF alleged rehypotheca-
.,or Of securities held by the failed IN
s+,,ution were not given much credence
-. bankers here yesterday who have iol-
iou,sd the affairs OF the Kuhn Bank.
ranks in this city, IT was asserted VIII
=. fuuy protected on any loans when
.hs, may have made 10 their pittsburgh
correspondent.
According TO the Pittsburgh dispatch
~ official of the failed bank. now miss
&c had taken hundreds Of thousands or
snIlars of securities which mad been held
., loans. and had placed them with sew
s-el New York city banks. The discoV-
or,, r. was said. was made recently. and
the argument was made that the receiv-
e~s of the bank. 20 realize on any Dos
chile assets. would charge the New York
hanks with the equivalent of receiving
stolen goods on this claim, II was as
serted the New York banks would be
forced 10 give up the securities held as
collateral. and take their place with other
creditors.
Neither the number nor the character
NJ the New York banks could be learned
in Pittsburgh or In what manner the Sc
curities had been pledged. None OF the
New York correspondents OF the First
Second National would admit knowledge
Of such action. These correspondents
were the Fourth National, the National
CITY. the National Park and the First
National banks.
The assumption by the Pittsburgh
bankers that the official had pledged the
securities for his personal benefit, and
had payment made 10 him. was secuted
by bankers here. Inquiry revealed the
fact that no large institution could be APP
preached by an official Of another bank
with negotiable securities and commercial
paper I'm his possession without having
suspicion aroused. and inquiries would
be made through the New York CORE
spondents. II would have been impossi-
bic. 1t was stated. for an official OF the
defunct bank 10 have dealt with any
except the First-Second Nationals New
York correspondents. and these would
have taken only commercial paper for
rediscount, as a loan to the Pittsburgh
bank.
The banking practice OF rediscounting
is a recognized one by large city banks
having out-of-town correspondents.
These city institutions. however. ii was
stated, almost invariably require that
q resolution be adopted by the board Of
directors Of the bank asking the loan.
authorizing the rediscounting. Many Of
the New York banks have standard
forms for the copy of the resolution.
while all require the countersig nature
Of some other official than the one ap-
plying for the loan
The necessity for a resolution by the
directors was realized following an ac-
ton brought several years ago by the
receivers for a failed San Francisco
bank against a large bank in New York
and one in Chicago. The receivers al
legged that the banks had illegally loaned
money 10 the failed bank in that the
directors had not authorized a redis-
count. and a federal court upheld the
contention The New York and Chicago
banks were forced TO surrender the bills
receivable they held as collateral and
take their share Of the assets with the
other creditors.
With the authorization Of the re-
hypothecauon by the board Of directors
Of the First-Second National, said one
local bank official. the New York banks
would be entitled TO realize on the col
lateral they held. and would thus es-
cape being ~ictimized. IL is possible
that II any Of the securities were
brought 10 this city, the resolution was
adopted by the directors. but not spread
upon the minutes, in order that the
bank examiner would not learn the
Pittsburgh bank was borrowing money