You, gentlemen, will all of you, no doubt, remember the Walsh failure at Chicago in 1906. You will also remember that Walsh had control of three different banks with approximately $30,000,000 resources; one was a National Bank, under national supervision; one a Trust Company and one a Savings Bank; both of the latter being under State supervision. This enabled Walsh to flim-flam the examiners, one examiner being national and the other state, by juggling the assets and then finally diverting practically all of the deposits into his own enterprises; certainly the best part of them was used in promoting his business schemes. It took this kind of an earthquake to wake up Chicago and bring into the banking fraternity, or business world, one of the greatest reforms of the commercial life of the country. I say commercial world advisedly because about the same time Chicago had an experience with a fish house that was really the biggest fish story that was ever told. The sad thing about this fish story was that it was true and cost the fishermen, the Chicago banks, and the fishermen and bankers elsewhere, about $3,000,000.

These two experiences capped the climax and illustrated perfectly the need of just what followed in the Clearing House at Chicago.

This brings me naturally to the third point that I mentioned as important and vital in the evolution of the American Clearing House.

On June 1, 1906, the Clearing House Association of Chicago, Illinois, acting upon a resolution introduced by Mr. Fenton, Vice-President of one of its banks, established an independent system of Clearing House bank examinations. Only recently the chairman of the Clearing House used this language:

"The result of our experience in Chicago is most satisfactory and gratifying. The banks have almost unanimously adopted every suggestion made by the Clearing House Committee for their betterment and strength. In several instances the Committee, from its wider knowledge of the financial situation, has been able to save some of the smaller institutions from loss by enabling them to take hold of conditions in time. I cannot properly go into such details as would illustrate the effectiveness of Clearing House examinations as we have experienced it, and can only say in a general way that it has been even more satisfactory than I anticipated it would be before it was undertaken."

Mr. Lawyer: Right on this point I want to read to you a letter I have just received from the Clearing House examiner of Los Angeles, California.

Dear Sir:

Replying to your inquiry of December 9th, will say that Clearing House examinations were begun in Los Angeles on May 1, 1908. Since the inauguration of the system there have been no bank failures, because the Executive Committee of the Clearing House Association will not permit banks to reach the danger point.

We have had one instance where, after watching a bank for three years, giving it a chance to correct its bad methods and put itself in good condition, the Clearing House finally compelled it to assign all of its assets to a trustee, and the public was notified that all claims would be paid on demand....

National and State examinations have improved greatly during the last ten years, but they will always lack the strongest element—the calm, clear judgment of the local executive committee, whose demands are founded on knowledge of the situation, and whose mind is not warped by political strings.

Yours very truly,
(Signed) John W. Wilson,
Examiner, Los Angeles
Clearing House Assn.

Mr. Cannon in his admirable work on Clearing Houses, says:

In substantially his own words the Chicago examiners operate under the following conditions: The examinations extend to all the associated banks in Chicago, and to all non-member institutions. The work is conducted with the aid of five regular assistants, each fitted by experience to thoroughly do that part of the work assigned to him. The examinations include, besides the verification of the assets and liabilities of each bank, so far as is possible, an investigation of the workings of every department, and are made as thorough as is practicable. After each examination the examiner prepares a detailed report in duplicate, describing the bank's loans, bonds, investments and other assets, mentioning specially all those, either direct, or indirect, to officers, directors, or employees, or to corporations in which they may be interested. The report also contains a description of conditions found in every department. One of these reports is filed in the vaults of the Clearing House in the custody of the examiner, and the other is handed to the examined banks' president for the use of its directors. The individual directors are then notified that the examination has been made, and that a copy of the examiners' report has been handed to the presidents for their use. In this way every director is given an opportunity to see the report, and the examiner, in every instance, insists upon receiving acknowledgment of the receipt of these notices.

The detailed report, retained by the examiner, is not submitted to the Clearing House committee, under whose direct supervision he operates, unless the discovery of unusual conditions make it necessary. A special report in brief form is prepared in every case, and read to the Clearing House committee at meetings called for that purpose. The report is made in letter form, and describes in general terms the character of the examined banks' assets, points out all loans, direct or indirect, to officers, directors, or employees, or to corporations in which they may have an interest. It further describes all excessive and important loans, calls attention to any unwarranted conditions, gross irregularities, or dangerous tendencies, should any such exist, and expresses in a general way the examiner's opinion of each bank as he finds it.