New-York tribune., 1913-11-04
NEW YORK BANKS LOSE
IN HOOKING POOL CASE
Supreme Court Rules Against
Mechanics and Metals and
City National.
UNDUE PREFERENCE GIVEN
Decision Brings About New
Method of Handling Clear
ance Loans in Wall
Street.

Washington. Nov. IA decision that
revived memories Of the collapse Of the
1910 Wall street pool in Hooking Valley
Coal and Iron Company was handed
down by the Supreme Court to-day. BY
unanimous vote II was held that banks
which make clearance loans" 10 brokers
are not entitled TO preference over other
creditors I'm bankruptcy.
The ruling was that undue preferences
had been given to the National city Bank
OF New York I'm settling the affairs OF
Lathrop. Haskins & co. II was held that
I'm the failure OF j. NJ. Fiske & co. on
the same day the Mechanics and Metals
National Bank also had received for
bidden preference.
The cases involved a loan by the city
Bank 10 Lathrop. Haskins & Co and a
loan by the Mechanics Bank to j. NJ.
Flske & Co
The brokerage firms failed as result
Of the collapse Of the pool in Hooking
stock The Fiskc firm had borrowed
from Mechanics and Metals National
Bank a day" or clearance" loan OF
10000 and the firm Of Lathrop. Haskins
& Co had made a loan Of like character
from the National city Bank of 10000.
The National city Bank had received
deposits on the day OF the failure before
the hour Of actual collapse. which legally
reduced its loan 10 $4,000. When the
bank officers learned that the firm was
bankrupt, or about TO be so adjudged. the
81 Iy,. trtt
The Supreme Court to-day affirmed the
judgment Of the Court OF Appeals, hold
ing that this amounted to a preference,
and that the character of the loan-a
day" or clearance" loan, made with the
limitations attending such loans-gave the
bank no right to preference over other
creditors In bankruptcy
The Supreme Court also affirmed the
Judgment OF the court below, that the
National City Bank could not be held for
the full value OF the securities AT the
time they were taken. there having been
a shrinkage later. The court held that
the bank was liable only for the face
value of the securities.
In the case OF the Mechanics and
Metals National Bank the trustee was
allowed TO recover from the bank $4,000
deposited In the regular course Of busi-
ness with the bank after tho bank had
declared the account CLOSED. on the re-
ports Of impending bankruptcy.
The effect of the order closing the
account was that no checks were certi
fled for the Fiske firm after the hour of
the order closing the account, and the
Supreme Court agrees with the Court Of
Appeals that the bank could not retain
deposits received from the brokers after
the order closing the account.
AS result OF the Supreme Courts de-
cson against the National City Bank
and the Mechanics and Metals National
Bank. OF this city. officials of several
large Wall Street banks stated yesterday
that hereafter when call loans are made
the borrower must at once deposit his
collateral
IL has been the custom among the Stock
Exchange houses TO secure their call loans
for the day before the opening of the
market, with the understanding that the
collateral be deposited with the lending
bank later-usually after 3 o'clock when
the days transactions are adjusted. It
has often happened that no collateral
was necessary, as the loan was returned
after the stock markets close.
In the cases involved In the Supreme
Courts ruling the banks. upon hearing
of the impending failure of the brokerage
firms. Immediately obtained the collateral
for their loans. thus securing preference
over other creditors.
The decision of the banks to demand
immediate collateral for call loans is
considered Of great Importance In the
financial district. as these loans often
run as high as 100000 a day.