The Bank of France also, on the 7th of November, 1907, raised its rate from 3½ to 4 per cent, owing to the drain of gold to this country; and such an advance is very rare in France. For seven years, up to the spring of 1907, it had stood at 3 per cent. The Bank of Germany also advanced its rate to 7½, and the Bank of Belgium to 6 per cent. These rates showed how severely the loss of this gold was felt in Europe. By November 16 our gold purchases aggregated $70,000,000.
In the interval the clearing houses in all the large cities of the United States had, in self defence, followed the example of New York in issuing clearing house certificates. Currency, too, had been selling at a premium ranging from 2½ to 5 per cent for certified checks, owing to its great scarcity. At Pittsburg the Stock Exchange was closed immediately after the announcement of the failure of the three Westinghouse companies there. Other failures were very numerous.
In Pittsburg, Chicago, New Orleans, and many other cities, the local clearing houses printed clearing house checks of small denominations, from 25 cents or one dollar up, to be taken out and paid out by the banks instead of currency, when found necessary. Several of the Western Boards of Trade closed, owing to the demoralization in the grain market, caused by the heavy decline in prices under the rush to sell in order to raise money, while many banks all over the country issued their own cashiers’ checks for both small and large amounts, instead of currency or clearing house certificates, in payment of depositors’ checks. The banks were in a partial state of suspension from Maine to California.
The extent of the drain on bank reserves may be inferred from the fact that the statement of totals for all the New York associated banks for the week ending on Saturday, November 2, showed that they were collectively $38,838,825 below the dead-line of 25 per cent reserve on their deposits, without counting Government deposits, which had been very large. The detailed statement of each bank’s condition was not published on that date, and continued to be withheld till after the crisis had passed into history.
This large deficit of the New York banks caused much uneasiness and a further sharp decline in the stock market, but the frequent day and night conferences of leading bank officers with Secretary Cortelyou and Mr. J. P. Morgan, to devise ways and means of relieving the extreme stringency and distrust of the monetary situation, were productive of much good. This was especially the case in bringing the trust companies together to act as a unit through a committee, of which Edward King, President of the Union Trust Co., was made chairman. This committee was organized in the office of J. P. Morgan & Co., which, indeed, was the headquarters for all banking relief outside of the Clearing House.
Unfortunately for Europe, our purchases there of so many millions of dollars’ worth of gold, within three weeks, seriously unsettled the London, Paris, and Berlin stock exchanges, and a continuous decline in stock and bond prices attended its export to this country. But, notwithstanding the relief we obtained from this great source, the banks here still continued under a heavy strain. An indication of this was found in the statement of the New York Clearing House, giving the totals for the week ending on Saturday, the 9th of November, the third week of the acute stage of the crisis.
It showed that the deficit of the associated New York City banks, in their legal reserve, had increased $13,085,800 over that of the week before, making their total deficit $51,921,625. But as the Clearing House statements are made up on averages for each week, and not on the actual condition of the banks at the end of the week, the gold imported was only credited from the dates on which it was received by the banks. Moreover, this statement was made on rising averages, that of the week before on falling averages.
A conspicuously important feature of the arrangements made at the Morgan conferences for supplying the needs and taking care of the Trust Company of America was the sale, at par—$100 a share—of the majority of the stock of the Tennessee Coal, Iron and R.R. Co.—which had been largely hypothecated with it—to the United States Steel Corporation, payment for the stock to be made in its 5 per cent sinking fund bonds at 84. This exchange of Tennessee stock for the Steel bonds was promptly made through J. P. Morgan & Co., on and after November 7, thus adding another large property to the many other subsidiary properties of the U. S. Steel Corporation.
This transfer was one of the most notable events of the memorable panic year—1907—the wreckage of which it will take a long time to clear away. But meanwhile the country will have started on a new career of prosperity, and with eighty-four millions of people to develop its boundless resources, we need have no fear but that its recovery will be rapid, and its future as great and grand as we could desire. Moreover, it will be all the better and stronger, and all the higher in its business standards, for the severe yet purifying ordeal through which it has passed.