Readings in Money and Banking / Selected and Adapted

by Chester Arthur Phillips

The emergency currency itself immediately began to be retired by its issuers.... Had the reserve banks been in operation at the beginning of August, they would naturally have supplied the great volume of currency which was called for; but not having done so, a field of business which would naturally be theirs has been temporarily taken from them by reason of the fact that it was occupied by the clearing-house certificates and emergency notes.[316]

VI

The result of the restoration of trade, banking, and credit to earlier and more normal conditions has been steadily apparent. Cotton exchanges reopened on November 16, and stock exchanges opened for restricted trading shortly thereafter. In brief, by the close of the year, the phenomenal conditions growing directly out of the European war had been met and overcome. It is a notable fact that under the wholly unusual circumstances prevailing, the recovery was so prompt and effective. What share in this early improvement is to be assigned to the organization of the new banking system and to the effectiveness with which the Treasury Department co-operated in meeting the needs of the country cannot accurately be stated, and will probably afford grounds for difference of opinion. That it was great cannot be denied....

National Bank Failures and Suspensions—1914 Compared with 1893 and 1907[317]

A comparison of the failures and suspensions of national banks during the past year with failures and suspensions in the panic periods of 1893 and 1907 may be interesting at this time.

The figures show that for the 12 months ended October 31, 1914, 26 national banks, with aggregate capital stock of $2,510,000, failed or suspended payment. The total liabilities of these banks (in the case of receiverships claims proved) amounted to $14,177,408. In the case of six recent failures, the figures of total liabilities, less capital, surplus, and undivided profits, are used in lieu of the "claims proved," no report of the latter having yet been received as to these six banks.

For the 12 months ending October 31, 1893, 158 national banks suspended, with capital of $30,350,000. Sixty-five banks, with total capital stock of $10,935,000, were insolvent and required the appointment of receivers; 86, with capital stock aggregating $18,205,000, were able to resume business; and 7, with capital stock of $1,210,000, were placed in charge of examiners in the expectation of resumption. The total liabilities of failed and suspended banks for the period mentioned was $83,042,347—in the case of failed banks, "claims proved" being considered as "total liabilities."

During the six-months period from October 1, 1907, to April 1, 1908, there were 22 national bank failures and suspensions, and the total liabilities (in the case of receiverships these being "claims proved") were $32,443,978; the total capital stock, $6,540,000. Of these banks, however, 7, with capital stock of $1,440,000 and liabilities of $22,124,662, resumed business.

It is worthy of special note that in the crisis of 1914, unlike the panics of 1893 and 1907, there was no suspension of currency payments on the part of the banks of this country, either in the large cities or in the smaller towns. In the panics of 1893 and 1907, in addition to clearing-house checks, many artificial methods of supplying a temporary currency were resorted to, while actual currency commanded a premium of from 3 per cent. to 5 per cent.—$100 in currency costing anywhere from $103 to $105, or more, in certified bank checks.

In 1914 the banks of the country were enabled, as a result of the instant and active co-operation of the Treasury Department, and through the operations of the act of May 30, 1908, as amended by the Federal Reserve Act, to supply actual currency, even during the period of greatest stringency, to their customers and correspondents, both over the counter and in response to requests for shipments. Whenever any indications were seen of an attempt or disposition on the part of any solvent bank or banks to withhold or suspend cash payments, the subject was taken up immediately by the Treasury Department, and payments of currency over the counter and shipments by the banks upon demand, from the centers to the nearby and far-off districts, and vice versa, have been maintained practically without interruption throughout this crisis.