The Bismarck tribune. [volume] (Bismarck, N.D.) 1916-current, 1924-10-11
MILLIONS OF
C0LLATERALT0
BE RETURNED
State Banking Department
Announces Conservation
Agreement Which Is
Reached
~
WITH OUT-OF-STATE
Leading Twin Cities Banks
Head the List of Bills
Payable Holders in
Agreement
WITH OUT-OF-STATE

An agreement has been reached
with three Of the largest Twin Cities
banks and several other financial IN
stitutions which will result in con-
serving assets amounting to millions
Of dollars for the benefit of deposi-
tors of closed North Dakota banks, it
was announced today by the state
banking department. Under the
agreement these institutions will re-
turn to closed banks proceeds of col
lateral foreclosed in default of loans.
which is in excess of the loans.
The agreement was announced with
enthusiasm by the state banking de-
partment officials and is declared by
them to be the greatest accomplish
ment in the conservation of assets
of closed banks for depositors since
the bank failures first started in
North Dakota in 1920. The pact,
State Examiner Gilbert Semingson
asserted, is the banking departments
answer to charges which have been
made that it was permitting closed
banks of the state to be looted with
out raising hand to stop the loot
ing.
Negotiations resulting in the plan
have been in progress for ten
months. As far back as December,
1923, banking department officials felt
assured of the ultimate agreement,
but could make no definite announce
ment until it finally was reduced to
writing. Attorney George
Shafer and state banking officials, it
was learned, were ready to attempt
to enforce the contentious embodied
in the agreement by law suits, if ne
gotiations failed.
The pact covers seven-eighths of
the collateral paper held by banks
outside the state, amounting to many
millions of dollars, it was estimated
by Mr.. Semingson.
The Situation
The situation and agreement, in
brief, follows:
Out-of-state banks, chiefly Twin
Cities banks, had loaned to North
Dakota banks, taking notes of the
North Dakota banks given to them
by customers for loans, as security.
Many of these North Dakota banks
closed. The receivers did not find
sufficient cash in the assets to enable
them to repay the loans to the out
of-state banks. The out-of- state
banks, in the ordinary course of
business could, and did, foreclose on
their loans to the closed North Da-
kota banks. The collateral assets
put up with Twin Cities banks, on a
basis of two or three to one, would
be sold under foreclosure proceed
ings. The Twin Cities banks would
bid in the collateral, probably alta
low figure, there being few general
bidders for this kind of papef, with
the state in financial depression.
The out-of-state banks thus could
collect on the collateral notes from
the original makers, in most cases
North Dakota farmers. They also
could demand of the receiver the
difference between the amount Of
the loan and the amount the collater-
al security brought on sale.
With good crops in North Dakota
this fall, perhaps the bulk Of the
collateral notes held by Twin Cities
banks will be paid and many closed
banks will realize considerable
amount of money in cash. The Twin
Cities banks had the opportunity of
making perhaps millions of dollars,
which opportunity they are giving up,
according to the state banking OFF,
cials. 80.
How 1t Might Happen
A hypothetical example was cited
by banking department officials:
Suppose the Scandinavian-Ameri-
can Bank of Fargo borrowed $4,000
from q Twin City bank. It gave as
security notes received from farmers
to whom it had loaned money, total
ing $4,000, or basis of two and q
half to one. The Fargo bank closed.
The receiver was unable to pay the
$4,000 loan. The Twin City bank
| foreclosed, and the collateral was
put up for sale. The Twin City bank
bought the $4,000 of notes of the
| North Dakota bank for $4,000, be-
cause there was no other bidder at
public sale. Times changed, with
good crops, and the Twin City bank
collected all of the $50,0O0 due on
the notes. It would then have $780,
600 in return for a $4,000 loan. Since
the collateral sold for only $4,000,
it could claim the difference between
the amount of the sale and the loan,
| or $17O(O from the receiver of the
closed bank. If he had money he
would pay it. Therefore, the Twin
City bank could receive $4,000 Tor
its $4,000 loan. ...
What the Twin City banks are
agreeing to do is to give up this
possible opportunity. If they votld
collect the entire $4,000 on the
notes mentioned in this example,
they would turn back to the Scandin-
avian American Bank received $50.
Continued On paos y s.