Evening star., 1924-08-10
BY 1. A. FLEMING.

~ pay oii tiiS uCpOoIlolS III luli, VI
under different management. They
are the American Commercial and
Savings Bank, the Terminal Savings
and Commercial, the Guaranty Say
ings, the Banking, Bond and Mort
gage Co, and the Exchange Bank.
Five banks practically retired from
business with not loss of a cent to
the thousands of depositors, nor
moments inconvenience in the mat
ter of shifting deposits to active 60
ing institutions.
Their capital, severally, was not
sufficient to meet the overhead, sal
aries, interest. supplies and score
of other unavoidable expenses. More
over, when a portion of the capital
had been expended in the purchase OF
a building and the usual incidentals
to organization, there We're not re-
sources enough to warrant the I'M
tied loans that were granted
In this condition it was increas-
ingly difficult to meet the demands
of depoSitors' requests for cash. and
the situation with some of them,
was. to say the least, threatening.
Then, too, some insiders having
knowledge of the prevailing condi-
tions. endeavored to dispose of their
stock holdings.
Clearing House Wide Awake.
The Washington Clearing House is
a wide awake association of bankers
and they are given much aid and
comfort by the national bank exam
iner of Controller Dawes Office.
Scenting trouble the committee as
signed to the duty is called into ac
ton and steps taken to prevent fur
ther development on the same lines.
In each case noted there was, for
tunately. quick assets sufficient to
care for the deposits. The Security
Savings and Commercial, the Com
mercial National, the Continental
Trust Co, the Standard National and
the Merchants Bank and Trust Co,
took over the five banks, in the or
der named-that is, they were given
sufficient cash and assets to meet
deposits, and the balance of the as
sets will be liquidated for the credit
of the shareholders.
1t is the shareholders that may
have to stand partial losses on their
while the depositors
have been cared for, and it may be
we'll to emphasize this point-the
stockholders were partners in the
would share in the gains
and must share in the losses.
BOn0nOfueF wore
on the other hand, bondholders
are creditors of the corporation or
company in issuing the bonds and
they must be paid off iE full or accept
compromise in the case of not suffi
icent assets.
This is one reason and the chief
one why investors not familiar with
market customs and securities should
always seek high grade bonds-be
creditors instead of partners.
Under Government supervision"
means that your deposits are practically
safe in Washington-the latter because
all State and National banks as we'll as
trust companies, all banks save those in
process Of organization, in the District
are under the care of the controller of
the currency. This evidently means. too,
that there will be harmony between the
bank examiner and the Clearing House
Association to prevent any loss in de-
poSitS-to apply the remedy before the
patients illness has developed to any
thing like a crisis. 1t will be some time
before there will be many new banks
with small capital in Washington. The
example of the past year has been too
patent in more ways than one.
Promoters Smooth Methods.
Small banks were organized here aft
er a peculiar formula A promoter or
promoters would select some more or
less popular man, at least one with
many friends and perhaps with some
ambition. With much palaver they
would approach their selection and with
honeyed words paint pretty picture
before ambition of the life and honors
Of a banker. The seed being planted,
would come the proposition, you ought
to be at the head of a bank; you're just
as competent as so and so. Just look at
the money the banks are making today.
haln VnI haVp lots Of friends
make out a list of some that you know
best and any that may be obligated to
you. We will go and see them, and /
will help you get their orders for stock
The ambitious man sells the stock.
most of it to himself, and the promoter
gets a fat commission. They talk of
s200,0 900 to 100000 capital, but when
the selling stops at $4,000 to S50,000,
or even 100000, that is the capitaliZa-
ton of the new bank.
Organization expenses and buying a
home, usually with remodeling, some
times with a profit to some official of
the institution, cuts a large slice off the
capital. Then few loans are made, so
that there is not much cash left The
depositorS need cash and loans fire.
quently require time to mature-are not
all secured by salable collateral-and
the trouble begins
A bank must pay its depositors on
demand, if it is to continue in business.
That is the law of the controllers Of
flee. This very method Of working was
used in the organization Of at least one
or two Of the banks that practically
yielded up the ghost.
when Munsey stepped into Breach.
1t has been many day since Wash
ington depositors lost any money
through bank failures, but there have
been occasions where the record came
very near indeed to being smashed. The
United States Trust Co. was probably
the nearest and would have been broad
had thousands of depositors, tens of
and it was not until Frank
Munsey, president of the Munsey Trust
Co, stepped into the breach that the
disaster was avoided.
AS a matter of fact and ancient his
tory Mr.. MunSey did not do much step
ping. He was present, as were all the
members of the Clearing House Asso-
citation, at a long meeting when John
Shelton Williams, then controller, ac-
cepted Endorsement of the national bank
presidents of a note for S1,000,O00, Sc
runs, taken from the assets of United
States Trust Co. Mr.. Munsey accepted
the situation and retired. leaving his
agents. to close the matter and receive
the 100000 from Mr.. Williams. The
next morning the Munsey Trust Co. pro-
ceeded to make payments to depositors.
The transaction was a profitable one, a
valuable clientele and a very valuable
leaSehold.
Local bankers have often wondered
Just what would have been the effect on
other institutions had the United States
Trust Co and it's numerous branches
closed their doors without making ar
rangements for the payment on demand
of deposits.
One thing is certain, the effect would
have strained the resources of the banks
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