The Birmingham age-herald., 1914-07-03
BANKS WILLING ID !. STAND BEHIND THE CHAPLIN INTERESTS Small Institutions Will Prob ably Feel the Failure
 Most Keenly BIG BANKS COULD
 EASILY STAND LOSS Attention Called to Incident When Lyman J. Gage Charged Off Mill
 lion Dollars at One Stroke $
 of Pen
By HOLLAND

|
 mittee appointed to represent some of the
 principal banks of New York at a con
 ference with the executive management of
 one. of the largest of New York depart
 ment stores said frankly and sincerely at the meeting: If our examination of your
 books shows that the statement you have
 made respecting your condition is we'll
 founded you shall have every assistance
 that you ask for" The examination of books was made and the management was | informed that the books bore out in every respect the general statement made by the house. Therefore the banks were pre- pared to give assistance if any were asked
 The reply was brief and categorical. It
 consisted of a word of thanks and then
 the statement that no assistance was
 needed
 This house is one of the large depart
 ment stores which has been under the
 control of the corporation of which John Claflin was the head The belief prevails
 that other of the local institutions con
 trolled by the Claflin corporation are
 equally sound and that the failure of the
 H. B. Claflin company will occasion not
 the slightest embarrassment to any of
 them. Yet as time pasges the immediate
 and remote consequeno of this stupen-
 dous failure are more Ind more carefully discussed In the financial district there | is little difference of opinion respecting the effect upon the money market or the | financial situation. The conviction Is strong that the situation will not be ma terially affected, at least immediately. Whatever the indebtedness of the con | fn ha, ,alxq ha are all of them sufficiently strong to charge off the entire indebtedness with | out materially affecting them. Strong l banks which possess ample resources can do this. Lyman J. Gage, when president l of one of the largest of the Chicago 1 banks, directed that $1, 100000 be charged | off at one stroke of the pen. This ac- tion concentrated attention for sometime | upon Mir. Gage, and as 1t was somewhat | unusual, at least so far as the magnitude | of the sum was concerned, it was a topic | of common discussion in banking circles all over the country. This act furnished one of the reasons why William McKin- ley, when making up his first cabinet. was so favorably impressed with MT. Gage as man of finance that he invited him to become Secretary of the Treasury.
 Long, continued defalcations by one of the officers of a strong New York bank was at last discovered, and the aggregate
  somewhat in excess of $7O0,0o0. It was im- mediately charged off without in any way affecting the strength of the institution.
 Charging Off Indebtedness
 Whatever the amount which may be owed by the Claflin concern to New York banks is found to be, it could all be charged off without seriously incommod- ing the banks since no one bank has been carrying an exceptionally heavy amount of the Clafflin paper. But intimations have come to New York from Washington that at the treasury department consd- | erable interest is felt in the reports which have come from many sof the so-called | country banks. It is the understanding | that good deal of the paper which was | indorsed by the Claflin concern has been | sold to small banks which as whole | represent much of the country east of | the Mississippi river. Some of these banks | are understood to have no greater capital | than 1000; and many which have lookd | with high favor Claflin paper are | banks of $100,000 capitalization. A $50,000 | capitalized bank may by law accept and | carry at any one time s5000 of individual | paper. but it may be discovered that by | reason of the peculiarly complex or inter- | woven organizations which the Claflin | name represented it has been possible to l market larger amounts of paper than the | sum fixed upon by law, since some of the | paper may be regarded as issued by one | authority and other paper as issued by a | different authority, although in fact 1t | all represents the Claflin interests. The comptroller of the currency may | possibly find 1t expedient to direct the | small banks to charge off paper which | is not paid when it becomes due. And | just here will come a crucial test of the ] possible financial or banking effect of the | Claflin failure.
 A Long and Difficult Work
 Since the peculiar notifications and in- | terweaving of interests which represent | the Claf1in organizations will entail the | employment of actuaries and auditors so | that these complications may be unrav- l eled the possibilities are strong that a | long time must elapse before there be re- | organization or other settlement of the | present embarrassment. The interweav- | ing of various corporation interests and control has been spoken of here as quite | as complicated as were the affairs of the old Richmond Terminal railroad proper ties, although the amount involved in this railroad company was much greater than in the Claflin failure. The unravel- | ing of the Richmond terminal tangle was the great achievement of the late Charles Coster. It is not now so much a question of the expediency or commercial practicablity | of the organizations, parent and subsid- | iary, which were created by Mir. Clafiin | as it is question of the manner of com | posing the difficulties, realizing as much | as possible upon the assets. There will arise the question: Shall the business be | continued in reorganization form or shall | it be discontinued?
 One Certainty Since the Claf1in failure 1t is sometimes said that it illustrates the passing from | New York to the west of prestige and | supremacy as a jobbing center. but the | best business opinion here is that as long !, as the jobbng or commission business is | maintained New York will hold its own | with other great mercantile centers. The |
 Clafiin failure may demonstrate that, l after all ths attempt to eliminate the | middle man Is not founded upon good | business judgment-at least so far as the | wholesale or jobbing business Is con
 cerned.
 There is certain to be observed speedily | one effect of this failure. That is the i hardening or shriveling of credit of the 1 kind extended to mercantile houses. It l was in fact in part due to the disposition | of banks in other parts of the country to | curtail credits that. the Claffn house | found itself unable to renew it's paper or | to sell new notes. There always follows a | shriveling or contracting of credit after | a great commercial failure. That was observed at the time of the failure nf the | Barring Brothers in London in 1891 for although financial panic was averted, vet | the shriveling of credit occasioned py this failure was felt all over the world.