"Let me draw your attention to a few of the legal restrictions which limit the Comptroller's power to act in such cases.
"1. Under the National Bank Act no obligation due a bank is considered bad until interest is past due six months and not then if it is secured or in process of collection.
"2. The Comptroller may appoint a receiver when he concludes that a bank is insolvent. But here again he has been hampered by the legal definition of insolvency, which is 'inability to pay current debts as they mature.'
"3. The making of a National bank report to the Comptroller so long as it is in accordance with the bank's books, however erroneous it may be as to actual values, which alone disclose a bank's true condition, cannot be construed as a misdemeanor.
"These legal restrictions are presumably the reason why some banks have been permitted to persistently publish to the public the figures of their statements as rendered to the Comptroller of the Currency after they are known to have met with heavy losses and have failed to provide for them by charging them to profit and loss. That this has been permitted in some cases is notorious. The case of the Chicago National Bank and a recent one in a large central city [$6,000,000 of $8,000,000 surplus was charged off] are conspicuous examples because of their size. Undoubtedly as a rule the published statements of the banks are reliable, but there are a few exceptions, with which, in view of the legal restrictions which govern his action, the Comptroller finds himself unable to cope. These exceptions, however, frequently result in failures and catastrophes. The Comptroller cannot legally take drastic measures with such banks until they perform some act of insolvency or when he believes their capitals to be impaired, which, being a matter of judgment in regard to the realizable value of their assets, is frequently difficult to prove.
"These disclosures in connection with the failures of these three banks showed the associated banks of Chicago that statements so rendered, which up to that time had been all the Clearing House Committee had to rely upon and which, as published, form the basis of the standing and credit of banks with the public, could not be implicitly relied upon. It was therefore unanimously resolved to adopt a system of supervision, under which there would be some assurance that such conditions could never again develop in any bank connected with the Chicago Clearing House Association. There was therefore organized a bureau of examination in connection with the Clearing House.
"As to the practical working of Clearing House examinations in Chicago during the six years of their existence I can only say that it has proved in every way most satisfactory and successful. There has been neither friction nor unpleasantness. Bank directors realize the great benefits derived and are unstinted in their praise of them. They are greatly assisted by these reports in keeping themselves informed on the condition of their banks and they readily coöperate with the Clearing House committee in the correction or elimination of anything open to criticism. Our experience has been that the banks have almost unanimously adopted every suggestion made by the committee. I cannot, of course, discuss such details as would show its efficacy. I can only say that the results have been most satisfactory to all concerned and that much good has been accomplished for the Chicago banks individually and collectively.
"The organization, being entirely voluntary, partakes somewhat of the nature of a gentlemen's agreement, under which each bank binds itself to conduct its business under proper methods. The effectiveness of the method lies in the fact that they are all measured by the same standard, viz.: that their statements as rendered to the Clearing House Association must be satisfactory to the committee, in view of the examiner's reports upon them, otherwise they cannot continue to enjoy Clearing House privileges."
Mr. Banker: From Mr. Wilson's statement about Los Angeles and Mr. Forgan's statement about Chicago, it must be perfectly clear to all of you, as it now is to me, that if we had in this country, say thirty or forty commercial zones, or free check zones, like New England now has, that is thirty or forty financial centres, covering all the territory naturally tributary to them, and so compassing, or covering the entire country, and these zones, all organized precisely as the Chicago Clearing House Association is organized for the examination of all the banks of the United States, bank failures would become a thing of the past.