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332.11

Federal
1936




Bank Suspensions, 1892 - 1935

Federal Reserve System.

Board of Governors




Preliminary draft
Confidential

BANK SUSPENSIONS,
1892 - 1935

September 26, 1936

Preliminary draft
Confidential
BANK SUSPENSIONS, 1892 - 1935
Table of Contents
Chapter




I

-

Pa#e
INTRODUCTION AND SUMMARY
Introduction
Summary

II

-

1
3

DISTRIBUTION OF BANK SUSPENSIONS
Number of bank suspensions
By years and periods
By classes of banks
By geographic divisions and States
Deposits of suspended banks
By years and periods, and by classes of banks
By geographic divisions
Ratio of nuraber of suspended banks to number
of active banks
By years and periods
E y classes of banks
j
By geographic divisions and States
Size of suspended banks, measured by loans
and investments
By classes of banks
By geographic divisions
Average size of suspended banks
Suspension of very large banks

9

17

21

26

Size of suspended banks, measured by capital stock

37

Bank suspensions distributed by population of cities

38

Overbanking and bank suspensions

4-1

The age of suspended banks

/+2

BANK SUSPENSIONS, 1892 - 1935
Table of Contents

(Cont'd.)

Chapter




III

Pagfc
-

SUSPENSIONS DURING 1930 - 1933

4-6

Effect of bank moratoria, holidays, etc.,
on bank suspension statistics
IV

59

- FEDERAL AID TO BANKS
Loans to open banks

6/+

Loans to closed banks

67

Strengthening of the capital structure of b?.nks
following the banking holiday
V

69

~ LOSSES TO DEPOSITORS OF SUSPENDED BANKS
Source and scope of data
Losses in suspended banks reopened or taken over
Losses in suspended banks which have been comjxLetely
liquidated
National banks
State banks
By geographic divisions and States
Explanation : f differences in rate of loss in
<
national banks c spared with State banks

86

Losses by size of towns

88

Losses by year of suspension
-

76

Losses by size of banks

VI

72

89

80

EXPENSES OF LIQUIDATION AND LOSSES TO STOCKHOLDERS
OF SUSPENDED BANKS
Expenses of liquidation
Losses to stockholders

VII -

91
95

CAUSES OF BANK SUSPENSIONS

99

Preliminary draft
Confidential
BANK SUSPENSIONS. 1892-1935
CHAPTER I
INTRODUCTION AND SUMMARY

Introduction
More than 13,500 banks with deposits of nearly $8,000,000,000
suspended operations on account of financial difficulties in the 13 years
ended in 1933. About 7,800 of them with deposits of $6,000,000,000 closed
in a period of slightly more than three years —

from the beginning of

1930 up to and including the banking holiday in March 1933. Large as these
figures are, they do not fully measure the extent of banking difficulties
experienced during this period because many banks which were not technically
classed as suspensions were reorganized through waiver of deposits. Local
and finally State banking holidays were declared and various emergency
measures were adopted to permit distressed banks to adjust their affairs
without the intervention of receivership, but in spite of these measures
banking difficulties became greatly intensified and culminated in the
national banking holiday declared by the ^resident on March 6, 1933. Between
4,500 and 5,000 banks were not permitted to reopen following the holiday, of
which more than 2,100 were eventually placed in liquidation or receivership.
Because of the lack of essentietl data and of the fact that many
of the banks that suspended during recent years are sti^.1 in process of




liquidation, it is impossible as yet to determine definitely the amount
lost to depositors t y reason of this volume of bank failures. Nor is it
>
possible to measure the inconvenience, indirect losses and paralyzing
effect on business in general caused by the withholding in suspended banks
of depositors' funds, even though ultimately in the liquidation process a
fair percentage of return may be realized.

It has been estimated^/, how-

ever, that depositors of suspended banks sustained losses during the period
1865 to 1934 of about $3,4.00,000,000, of which amount nearly $3,150,000,000
was lost in banks that closed during the years 1921 - 1933.
In the following chapters bank suspensions are analyzed in some
detail by periods, geographic divisions, classes and sizes of banks, etc.
In addition, available data are presented on losses sustained by depositors
and stockholders and expenses of liquidation, followed by a general statement of causes underlying bank suspensions.

Loans made by the Reconstruc-

tion Finance Corporation to open and closed banks and purchases of capital
obligations of banks by the Corporation are also discussed briefly in
Chapter IV.

1/

Estimate prepared by the Federal Deposit Insurance Corporation.
(See Table 33 of the 1934 Annual Report of the Federal Deposit
Insurance C orporati on.)




— 3 —

Summary

The principal points brought out in the following compilations
and analyses are:
1.

During the nine-year period 1921 - 1929, suspensions were
concentrated largely in the agricultural sections of the country,
but during 1930 - 1933 suspensions increased in number and spread
into the industrial sections and financial centers of the East.
Even during the later period, however, the agricultural sections
of the country continued to show the largest number of suspensions.

2.

The rate of suspension during the fifteen-year period 1921 1935 was considerably lower at member banks than at norimember banks:
32 national banks suspended in 1921 - 1935 per 100 active banks
on June 30, 1920, 38 State member banks, and 51 nonmember State banks
(excluding private .banks).

3.

Many of the banks that suspended were of very small size.
About 42 percent of the banks that suspended in the period 1921 1929 had loans and investments of less than $150,000, 62 percent
less than $250,000, and 83 percent less than $500,000.

During

1930 - 1933, with an increasing number of suspensions in larger
cities, the size of suspended banks increased, but even in this
period suspensions were relatively more numerous among small bcnks.
The suspension rate was much higher at small than at large banks:
The rate for banks with Ijans and investments under $150,000 was




— 4 —

73 suspensions per 100 active banks on June 30, 1920j for banks
with loans and investments of $150,000 to $250,000, 47 per 100
active banksj and for banks with loans and investments of $250,000
to $500,000 it was 33. As the size of banks increased, the suspension rate decreased.
The higher rate of suspension

among the smaller banks was

due in part to the fact that the great majority of suspensions
occurred in the agricultural sections —

in small towns and cities —

where the typical bank is relatively small in size.

In the New

England states, however, the small banks made a better showing than
the larger institutions, and in the Middle Atlantic states the suspension rate was fairly uniform for banks in all size groups.
As the depression grew steadily worse in 1930 - 1933 there was
an increasing number of suspensions among banks in the larger size
groups. A number of very large banks suspended during the later
period —

30 suspended banks had loans and investments ranging f : r
r>a

$20,000,000 to $330,000,000, aggregating nearly $1,850,000,000, and
87 had loans and investments of $10,000,000 and more.

Size alone,

therefore, does not make banks failure-proof in the face of such
difficulties as




?ro experienced during the depression.

— 5

4.

The majority of banks suspended during 1921 - 1935 were
located in small communities —

33 percent in places with a

population of under 500 and 72 percent in places with a population of under 2,500,
The rate of suspension in places with a population under 500
was 52 banks suspended per 100 active banks in 1920, and in places
with a population under 2,500 the rate was 4-9 banks suspended per
100 banks in operation; The rate of suspension declined as the
size of community increased.
Suspensions were most numerous, in general, in those regions
where the number of banks showed the greatest increase prior to
1920 and where the population per bank was smallest in 1920. This
supports the general opinion that overbanking was a prime cause of
suspension.
5.

Unsecured depositors of national banks which suspended and
were completely liquidated during 1921 - 1930 received about 50 cents
m the dollar, while unsecured creditors of national banks completely
liquidated during 1931 - 1935 received about 62 cents

the dollar.

Unsedured depositors of State banks which suspended and were completely
liquidated during 1921 - 1930 received approximately 58 cents on
the dollar, but this higher rate resulted in part from the payments
made out of deposit guaranty funds in the early years.




Corresponding

„ 6 —

figures for State banks liquidated during 1931 - 1935 are not
available.
In general, the rate of loss to depositors of small banks
and of banks in small communities was somewhat larger than the
rate of loss at the larger institutions and at banks in larger
cities.

The rate of loss per $1 of deposits also was higher in

the states where most suspensions occurred.
Banks suspended during the early part of the period 1921 - 1930
generally paid a lower percentage of unsecured claims than banks
suspended during recent years, partly because of the large amount
of borrowings by banks that failed in the earlier years.
In the case of suspended banks reopened and taken over during
1921 - 1930, unsecured dep )sitors sustained relatively small losses
compared with those incurred by depositors in banks which were completely liquidated.

About three-fourths of such banks paid depositors

in full and about 11 percent paid under 60 cents on the dollar.
Comparable figures for the period 1931 - 1935 are not available, but
int the case of national banks unlicensed following the banking
holiday in March 1933 and later reopened depositors received about
the same return as in the case of suspended national banks reopened
or taken over during 1921 - 1930.
6.

An'?:.n^lysis of expenses of liquidating closed backs shows that
in the case of national banks completely liquidated during 1921 - 1930




expenses averaged about 5 percent of the total resources of the
banks at date of closing and 8.5 percent of total collections
from assets.

In the case of nati>nal banks completely liquidated

during 1931 - 1935 expenses of liquidation declined to 4 # 7 percent
)f total resources and 6.4 percent of total collections.

Corres-

ponding data f > State banks are not available except for three
r
States, where it appears that the ratios of expenses to total
collections were slightly higher than the ratios for national banks
in those States.
During the period 1930 - 1933 many banks obtained agreements
s
with depositors to waive or surrender or t > defer the withdrawal
of a part of their deposits. Local and State bank holidays were
declared in order to give banks time in which t: do this and to readjust their affairs without the intervention of receivership.
Because of these changes affecting the status of large numbers of
banks and the intervention of the banking holiday in March 1933 and
the reorganization of banks which followed, bank suspension statistics understate iho difficulties c mfrenting banks and depositors
during this period.
Early in 1932 the Reconstruction Finance Corporation began
making loans to banks in an effort to prevent wholesale suspensions.
By the end of 1932 loans amounting to $810,000,000 had been made.
After the collapse of the banking structure in March 1933 the
Reconstruction Finance Corporation began making loans on assets of
closed banks to aid in the liquidation process. These loans enabled



bank receivers to make available to depositors substantial sums
that in the ordinary liquidation process would have carried over
a long period of time. Loans of this kind amounted to $876,000,000
at the end of 1935. Folloy/ing the banking holiday the reorganization
of the capital structure of banks presented a problem of sizable
proportions.

The Reconstruction Finance Corporation was authorized

to purchase capital obligations of banks and, in addition, some
local subscriptions to capital were obtained. At the end of 1935
the Reconstruction Finance Corporation had outstanding an investment of $865,000,000 in preferred stock and capital notes and
debentures of banks.
A clear-cut and well-defined enumeration of the causes of bank
suspensions is difficult, or next to impossible, because the factors
underlying suspensions are not of equal importance and usually occur
in combination with many other so-called "causes". The principal
factors generally recognized as responsible for bank failures, however, are weaknesses in the banking structure resulting from the
chartering of too many small banks;

incompetent bank management and

improper supervision, resulting in lax loan and investment policies
and heavy losses; over-extension of credit to directors and their
interests; and general economic disturbances such as the recent
depression, over which even competent bankers have little control.
Dishonesty and criminal acts seem to be prime causes of failure in
times when failures are relatively few in number, as has been the
case in the last three years, but a general ?/ave of suspensions is

not


brought about by such acts.

Preliminary draft
Confidential

~

9-

BANK SUSPENSIONS. 1892 - 1935
CHAPTER II
DISTRIBUTION OF BANK SUSPENSIONS

Number of banK suspensions

By years ana periods.

In the years 1892-1935 a total of 16,562 banks

suspended-i/, of which 2,926 closed during the 29-year period 1892-1920, 5,712
during the 9-year period 1921-1929, and 7,833 during the 4-year period 1930-1933.
The number of suspensions each year from 1892 to 1935 is given in table 9;
satisfactory statistics on bank suspensions prior to 1892 are not available.
During the period from 1892 to 1921 there was a gradual but very great
increase in the number of banks in operation, from about 11,500 in 1892 to a
peak of 30,600 in 1921, after which there was a steady and eventually a sharp
decline to 13,000 (licensed banks) in 1933. The great increase in the number
of banks in operation during the period 1892-1921 reflects the easy chartering
policies of supervisory authorities during a period of comparative banking
prosperity.

Because of the increase in price levels and land values and ex-

pansion of agriculture and industry generally, many banks were able to operate

1/ Banks closed to the public, either temporarily or permanently, by
supervisory authorities or by the banks1 boards of directors on account
of financial difficulties, whether on a so-called moratorium basis or
otherwise, unless the closing was under a special bank holiday declared
by civil authorities. If a bank closed under a special holiday declared
by civil authorities and remained closed only during such holiday or
part thereof, it has not been counted as a bank suspension. Banks which,
without actually closing, obtained agreements from depositors to waive
a portion of their deoosits or to defer the withdrawal of a portion of
their deposits have not been classed as suspensions Banks which were
reopened or taKen over by other institutions after closing have been included as suspensions. For further statement regarding b^nks included as
suspensions in 1933, incident to the banking holiday, see Chapter III.



~ 10 successfully under a loose loan and investment policy.

Relatively few banks

suspended during that periodl/, and in the case of those that did suspend the
closing in many? Stanc€ ^as brought about by dishonesty or grossly injudicious
management^/.

When price levels declined in the post-war deflation period

beginning with 1921 bank* suspensions became very numerous.

This epidemic of

suspensions continued during the generally prosperous years following and
reached its peak in the depression years 1930-1933) culminating with the crisis
in March 1933.

1/ The following quotation is taken from "American Bank Failures" by
C. D. Bremer, p. 38:
"Since the absence of any great number of failures during these
decades of expansion and prosperity1 was rather an accidental
occurrence, it cannot properly be cited as evidence of the
soundness and adequacy of the banking system as a whole. It is
true that depositors enjoyed safety, and that stockholders were
paid large dividends. But it is not less true that during these
years the foundation was laid for future difficulties. The belief
in the permanence of this fortuitous state of affairs predominated,
and the majority of bankers, located as they were in more or less
isolated communities, paid little, attention to what was happening
outside their immediate territory, and did not try to ascertain
the trend of business and economic conditions in the country as a
whole, let alone abroad. When war prosperity came, it was looked
upon as a normal acceleration of the natural course of events,
-and the possibility of a reaction was seldom, if ever, considered.
Outward signs probably justified this optimism, but a consideration of the extravagances that were being indulged in — the unlimited granting of charters to all applicants, resulting in
admission to the banking fraternity of thousands of incompetent
individuals ana the establishment of a bank in practically every
village or hamlet, the enactment of banking statutes of the flimsiest
substance, and extreme laxity of supervision — would undoubtedly
have resulted in the realization that it would be impossible to
escape the consequences of such fair-weather banking."
2/

Fifty-eight percent of the failures of national banks during 1892-1920,
as tabulated from the Annual Reports of the Comptroller of the Currency,
were reported to have been caused by unlawful acts, and twenty-three
percent by grossly injudicious acts.




With the exception of the panic year 1893, the rate of bank suspensions from 1892 to 1920 was below or not far above 100 banks per year.

In

1921 the number of suspensions increased to 505, in 1930 the number reached
1,350, in 1931 - 2,293, in 1932. -

1,453, aid in 1933 - 2,737^/With the

closing of the weak banks and strengthening of the banking structure generally,
following the banking holiday in March 1933, and the establishment of Fedc?ral
deposit insurance for banks in January 193S

suspension? decreased in

number to 57 in 193^ < i 34 in 1935.
ud
By classes of banks.

Of the 13,636 banks (exclusive of 12 mutual

savings b.anks) that suspended in the 15 years from 1921 to 1935, 2,558 were
national banks, 521 were State member hanKn, 9,968 were nonmember State banks,
and 589 were private banks.
in the appendix.

Corresponding figures prior to 1921 are c > o ?
:hvn

The figures for the 15-year period, by years and by classes

of banks, are summarized in Table 1?

2/

Includes, (l) 447 banks suspended from January 1 to March 15, 1933;
(2) 179 banks that were licensed .after the banking holiday but which
later closed (between March 16 and December 31, 1933) because of
financial difficulties; ana (3) 2,111 banks which were not licensed
following the banking holiday and which were subsequently (between
March 16, 1933, and December 31, 1935) placed in liquidation or
receivership.




~ 12 Table 1 —

NUMBER OF BANK SUSPENSIONS, BY CLASSES OF BANKS A1ID BY YEARS,
1921-1935
Member banks

Uomaeiriber banks

Year

Total, .
All b-uiKSi/

1921
192?.
1923

505
366
646

52
49
90

19
13
32

390
281
501

44
23
23

192-4
1925
1926

775
618
976

122
118
123

38
28
35

578
433
766

37
39
52

3.927
1928
1929

669
498
659

91
57
64

31
16
17

514
406
547

33
19
31

1930
1931
1932

1,350
2,293
1,453

161
409
276

27
107
55

1,104
1,697
1,085

58
80
37

1933
193-4
1935

2,737
57
34

941
1
4

103

1,593
43
30

100
13

13,636

2,558

521

9,968

589

National j State
i

—

—

State

j Private

—

1/ Exclusive of 12 mutual savings banks; for information with regard to
such banks, see appendix.
HOTS J Detailed figures by states, geographic divisions, classes of banks,
years, etc., corresponding to this ana other text tables, appear
in the appendix.

By geographic divisions and States.

While suspensions were numerous

in all parts of the country during the 15-year period ended in 1935, the
agricultural sections of the country were particularly affected by bank suspensions.

Of the total 13,636 suspensions, 5,039 or 37 percent occurred in the

V/est North Central states, comprising Minnesota, Iowa, Missouri, North Dakota,
South Dakota, Nebraska and Kansas.




The South Atlantic and the West South

Central states, also largely agricultural, and the semi-agricultural East
North Central states contributed another A3 percent of the total number of
bank suspensions.

The number of bank suspensions during the years 1921-1935

are distributed by geographic divisions in table 2?
Table 2 —

NUMBER OF BANK SUSPENSIONS BY GEOGRAPHIC DIVISIONS, 1921-1935

Number of
suspensions

Percent
of total

New England
Middle Atlantic
East North Central

130
721
2,638

1.0
5.3
19.3

West North Central
South Atlantic
East South Central

5,039
1,80-4
729

37.0
13.2
5.3

'west South Central
Mountain
Pacific

1,381
805
389

10.1
5.9
2.9

13,636

100.0

Geographic
division!/

Total
1/ New England?

Maine, New Hampshire, Vermont, Massachusetts, Rhode Island,
Connecticut.
Middle Atlantic: New York, New Jersey, Pennsylvania,
Bast North Central? Ohio, Indiana, Illinois, Michigan, Wisconsin.
West North Central? Minnesota, Iowa, Missouri, North Dakota, South
Dakota, Nebraska, Kansas.

South Atlantic? Delaware, Maryland, District of Columbia, Virginia,
West Virginia, North Carolina, South Carolina, Georgia, Florida.
Bast South Central? Kentucky, Tennessee, Alabama, Mississippi.
West South Central? Arkansas, Louisiana, Oklahoma, Texas.
Mountain? Montana, Idaho, Wyoming, Colorado, New Mexico, Arizona, Utah,
Nevada.
Pacific? Washington, Oregon, California.




- 14 More than 11,000 of the bank suspensions during the 15-year period,
or 81 percent of the total number of banks suspending, occurred in 21 states,
mostly agricultural states.

In Iowa 1,197 banks suspended during the period,

the greatest number reported for any state, in Illinois 918 banks suspended,
in Missouri 808, and in Nebraska 737.

Five other states, Minnesota, North

Dakota, South Dakota, Indiana and Texas, each had a total of more than 500
suspensions during the period*

The states in which the largest number of

bank suspensions occurred are shown in table 3-

Table 3 —

STATES IN WHICH THE LARGEST NUMBER OF BANK SUSPENSIONS OCCURRED,
1921-1935
State

Number of suspensions

Iowa
Illinois
Missouri

1,197
918
808

Nebraska
Minnesota
North Dakota

737
69^
587

South Dakota
Indiana
Texas

574
532
506

Georgia
Kansas
Michigan

466
442
442

Pennsylvania
Oklahoma
Ohio

431
406
387

Wisconsin
North Carolina
Arkansas

359
351
335

South Carolina
Florida
Montana

326
279
252

Total, 21 states
Total, 28 other states!/
1/ Including District of Columbia.



11,029
2,607

Hot only do the above States account for the great majority of all
bank suspensions during the 15-year period as a whole, but the waves of bank
f.ailures were more pronounced in these states than in other sections of the
country.

For example, in 1926 there was a sharp rise in the number of sus-

pensions in most of these states with but little change in other sections of
the country; in the South Atlantic states the rise in suspensions in 1926
was precipitated by the collapse of the Florida real estate boom and the
failure of the Witham chain of banks; in the West North Central states crops
were smaller in 1926 than in the previous year and prices lower, resulting
in an increase in the number of bank suspensionst

The New England and

Middle Atlantic states were comparatively free from bank suspensions until
the depression years of 1930-1933.

In the U-year period 1930-1933, however,

116 suspensions occurred in the New England states, compared with but lA
in the period 1921-1929; in the Middle Atlantic states 638 suspensions were
reported during the four depression years, compared with only 68 in the
previous 9 yearsf

Nevertheless, even for the 4-year period, the Hew England

stakes contributed only 1.5 percent and the Miudle Atlantic states about
8 percent of the total suspensions in the country.

Differences in the

geographic distribution of suspensions during the depression period 19301933, compared with the 9-year period 1921-1929, are shown in table




~ 16 -

Table 4 —

NUMBER OF BANK SUSPENSIONS BY GEOGRAPHIC DIVISIONS,
1930-1933 AND 1921-1929

Geographic
division

1930--1933
IJuaber
Percent
of
of
suspensions
total

1921-1929
Number
Percent
of
of
suspensions
total

Mow England
Middle Atlantic
Sast North Central

116
638
2,157

1.5
8.2
27.5

447

Wast North. Central
South Atlantic
Sast South Central

2,366
809
527

30.2
10.3
6.7

2,652
985
200

West South Central
Mountain
Pacific

694

680
536
130

11.9

258

8.9
3.4
3.3

7,833

100.0

5,712

100.0

Total

268

14
68

.3
1.2
7.8

46,4
17.2
3.5

9.4
2.3

A distribution of suspensions during the four depression years and
during the 9-year period 1921-1929, among the ten states -vith the largest
number of bank suspensions in the respective periods, may be seen in table 5.
It will be noted that in both periods Iowa, Minnesota, Nebraska and Missouri
were among the ten states with the largest number of suspensions.




~ 17 Table 5 —

TEH STATES IN v f l H THE LARGEST NUMBER OF BANK SUSPENSIONS
fiC
OCCURRED DURING 1930-1933 AND DURING 1921-1929, RESPECTIVELY
Number of
suspensions
1930-1933

S.Tt
t-.e

State

Number of
suspensions
1921-1929

Illinois
Iowa
Missouri

783
668
501

Iowa
North Dakota
Minnesota

529
427
419

Indiana
Pennsylvania
Michigan

403
389
374

South Dakota
Nebraska
Georgia

396
366
357

Nebraska
Ohio
Minnesota

367
326
274

Missouri
Texas
Oklahoma

295
284
264

Wisconsin

271

South Carolina

225

4,356

Total

Total

3,562

Deposits of suspended banks.
By years and periods, and by classes of banks.

Satisfactory figures

of deposits of banks suspended prior to 1921 are not available.

Deposits of

banks suspended in the 15 years ended 1935 aggregated nearly §8,000,000,000.
In 1933 alone deposits of suspended banks amounted to $2,883,000,000.

In 1930

deposits of suspended banks were $837,000,000, in 1931, #1,690,000,000, and in
1932 $706,000,000.

The total for the four depression years 1930-1933 was

over $6,000,000,000.

Deposits of national banks suspended in the 15 years

ended in 1935 amounted to £2,646,000,000, of State member banks to $1,378,000,000,
of nonmember State banks to $3,652,000,000, and of private banks to $110,000,000.
Table 6 gives these figures by years and classes of banks.




~ 18 Table 6 —

DEPOSITS OF SUSPENDED BAHKS, BY CLASSES OF BANKS AIJB BY YEARS,
1921-1935

Total, ,
All bank si'

Year

Member banks
National

State

llonmember banks
State

Private^/

(in thousands of dollars)
1921
1922
1923

172,188
91,182
1-49,601

20,777
20,197
34,244

17,363
7,113
12,559

125,159
61,964
101,025

8,889
1,908
1,773

192-4
1925
1926

210,151
167,555
260,378

64,890
55,574
43,998

13,645
9,883
23,466

123,888
94,547
183,517

7,728
7,551
9,397

1927
1928
1929

199,329
142,386
230,643

45,547
36,483
41,614

17,942
10,247
16,459

131,503
92,710
164,858

4,337
2,946
7,712

1930
1931
1932

837,096
1,690,232
706,188

170,446
439,171
23.4,150

202,399
293,957
55,153

448,989
935,947
429,079

15,262
21,157
7,806

1933
1934
1935

2,882,712
36,937
10,099

1,453,898
40
5,313

697,529

718,932
35,456
4,786

12,353
1,441

7,786,677

2,646,342 1,377,715

3,652,360

110,260

Total

—

1/ Excluding t'30,474,000 deposits of mutual savings banks suspended during
the period.
2/ Deposit figures for 115 of the 589 private banks which suspended during
1921-1935 are not available.

By geographic divisions.

Table 7 shov/s the distribution, by geogranhic

divisions, of deposits of bomcs suspended during the 15—year period 1921-1935.




Table 7 —

DEPOSITS OF SUSPENDED BANKS BY GEOGRAPHIC DIVISIONS, 1921-1935

Deposits of
suspended banks
(in thousands of dollars)!

Geographic
division

Percent
of
total

New England
Middle Atlantic
East North Central

374,076
1,371,544
2,515,502

•4.8
17.6
32.3

West North Central
South Atlantic
East South Central

1,269,437
884,677
319,236

16.3
11.4
4.1

West South Central
Mountain
Pacific

539,413
251,348
261,444

6.9
3.2
3.4

7,786,677

100.0

Total

It will be noted that the East North Central states account for
nearly one-third of the deposits of all suspended banks, although as previously indicated only about one-fifth of the number of bank suspensions
occurred in these states.

In contrast, the West North Central states in

which 37 percent of the total number of bank suspensions took place account
for only 16 percent of the deposits of suspended banks.

The differences

in the geographic distribution of bank suspensions, based on the number of
suspensions and on deposits of suspended banks, respectively, are shown
clearly in table 8.

The differences reflect the closing of many large

banks in the later years, since the percentage distribution of the number
of suspensions was similar to the percentage distribution of deposits of
suspended banks .in




1921-1929 but not in 1930-1933.

~ 20 Table 8 —

PERCENTAGE DISTRIBUTION OF THE NUMBER AND DEPOSITS
OF SUSPENDED BANKS, BY GEOGRAPHIC DIVISIONS,
1930-1933 AND 1921-1929

Geographic
division
Hew England
Middle Atlantic
East North Central

1930-1933
1921-1929
Percent
Percent of
Percent of
Percent
of total total deposits of total
total deposits
suspensuspenof suspended
of suspended
sions
banks
sions
banks
1.4
5.7
1.5
.3
20.6
4.8
8.2
1.2
38.6
7.8
9.1
27.5

West North Central
South Atlantic
East South Central

30.2
10.3
6.7

10.4
9.4
4.4

46.4
17.2
3.5

38.9
19.0
3.2

West South Central
Mountain
Pacific

8.9
3.4
3.3

6.2
1.7
3,0

11.9
9.4
2.3

10.0
9.0
4.6

100.0

100.0

100.0

100.0

Total

It will be noted that, in the period 1921-1929, susoensions in the
West North Central states constituted 46 percent of the total number and 39
percent of the total deposits of suspended banks; in the South Atlantic states
the ratio was 17 percent as to nuiiber and 19 percent as to deposits; and in the
East North Central states 8 percent as to number and 9 percent as to deposits
of suspended banks.

In the period. 1930-1933, however, due to the failure of

larger banks in the eastern section of the country, the West North Central
states with 30 percent of the total number of bank suspensions accounted for
only 10 percent of the total deposits of suspended banks; the South Atlantic
states accounted for 10 percent of the number and 9 percent of the denosits;
and the East North Central states (in which the largest banks suspended)
accounted for 28 percent of the number and 39 percent of the deposits of
suspended banks.



~ 21 Ratio of number of suspended banks to number of active banks.
By years and periods.

Differences in the annual rate of bank sus-

pensions during 1892-1935 are brought out in table 9, which gives the number of
suspensions per 100 banks in operation.

The table shoxvs that the annual rate

of suspensions during the period 1892-1920 was less than 1 bank per 100 in
operation, except in 1893, 1896 and 1897.

During the period 1921-1933 the

ratio of suspended banks to active banks was much higher.

In 1930 nearly 6

banks suspended per hundred active banks, in 1931 - 11, in 1932 - 8, and in
1933 - 19 banks suspended per 100 banks in operation.




Table 9 —

NUMBER OF BANK SUSPENSIONS PEE 100 ACTIVE BANKS, BY YEARS,
1892-1935 If
Number of
suspensions

Year

Number of
suspensions

Suspensions
per 100
active banks

1892
1893
1894
1895
1896

80
491
83
110
l4l

.7
4.1
.7
.9
1.2

1914
1915
1916
1917
1918

149
152
52
49
47

.5
.5
•2
.2
.2

1897
1898
1899
1900
1901

139
63
32
35
65

1.2
.5
.3
.3
.4

1919
1920
1921
1922
1923

62
167
505
366
646

.2
.6
1.7
1.2
2.2

1902
1903
1904
1905
1906

54
52
125
80
53

.3
.3
.7
.4
.3

1924
1925
1926
1927
1928

775
618
976
669
498

2.7
2.2
3.5
2.5
1.9

1907
1908
1909
1910
1911

90
153
78
58
85

.4
.6
.3
.2
.3

1929
1930
1931
1932
1933

659
1,350
2,293
1,4 53
2,737

2.6
5.7
10.6
7.8
19.4

1912
1913

78
103

.3
.4

1934
1935

57
34

.4
.2

Year

Suspensions
per 100
active banks

1/ Includes national banks, State banks, and private banks suspended; excludes
mutual savings banks suspended, See appendix for corresponding figures
by class of bank, for information with respect to the 12 mutual savings
banks reported suspended 1921-1935, and for statement of how the number
of active banks each year was derived.




~

23 In the following discussions the number of bank suspensions during the

period 1921-1935 is compared with the number of banks in operation on June 30,
1920.

The year 1920 was used as the base because it marked approximately the

beginning of the banking difficulties experienced during 1921-1933 and because
it was near the peak in the number of banks in operations!/.
By classes of banks.

Table 10 shows that during 1921 - 1935, 32

national banks suspended for each 100 national banks in operation in June 1920,
compared with 3S State bank members, 51 nonmember State banks and Uk private
banks, respectively, per 100 of such banks in operation in 1920.

Although the

suspension rate2/ was high for all classes of banks, it is apparent that
national banks had a better record than other c?uasses of banks.
Table 10 —

NUL1BER OF BANK SUSPENSIONS 1921-1935 PER 100 ACTIVE BANKS
ON JUNE 30, 1920, BY CLASSES OF BANKS

Class of bank
National banks
State member banks
Nonmember State banks
Private banks
Total , all banics

Number of suspensions during
1921-1935 per 100 active banks
on June 30, 1.920
31.9
37.9
51.2
A3.6
-45.1

1/ A comparison of suspensions each year with active banks in that year would
be jnore logical than the use of June 30, 1920, as a base of comparison
for the entire period, but figures by size of active banks (used hereafter in connection with the size of suspended banks) are not available
for each year.
2/ Except where otherwise stated, the terra "suspension rate" as used here and
in subsequent pages means the number of suspensions per 100 active
banks on June 30, 1920.




~ 24 By geographic divisions a i States»
rd

In proportion to the number of

banks in operation, there were more suspensions in the South Atlantic and the
West North Central States than in any other groups; in each of these groups
suspensions during the 15-year period amounted to about 55 for each 100 banks
in operation in June 1920.

In the East North Central States there were 45

suspensions per 100 active banks, and in the East South Central and West South
Central States the rate was 40 suspensions per 100 active banks*. There were
fewer suspensions compared with banks in operation in the New England and
Middle Atlantic States than in other groups; the States comprising the New
England division showed 17 banks suspended and those comprising the Middle
Atlantic division showed 25 banks suspended for each 100 banks in operation on
June 30, 1920. The rate of bank suspensions in each geographic division is
shown in table 11.

Table 11 —




NUMBER OF BANK SUSPENSIONS 1921-1935 PER 100 ACTIVE BANKS
ON JUNE 30, 1920, BY GEOGRAPHIC DIVISIONS

Geographic
division

Number of suspensions during
1921-1935 per 100 active
banks on June 30% 1920

New England
Middle Atlantic
East North Central

44.7

West North Central
South Atlantic
East South Central

5-4.6
55.5
40.0

West South Central
Mountain
Pacific

40.2
50.7

Total, all banks

17.3

25.2

28.0

45.1

~ 25 Table 12. shows the 18 States in which there we re more than 50 suspensions
during 1921-1935 per 100 active banks on June 30, 192,0, The suspension rate
was highest in Florida!/, South Dakota, South Carolina, Arkansas, North Dakota,
Nevada, Iowa, Nebraska and Georgia, ranging from 60 to 107 suspensions during
1921-1935 per 100 active banks on June 30, 1920.

It will be noted also that

such States as Nevada, Arizona, New Mexico, Idaho .and Louisiana, where the
absolute number of suspensions during the 15-year period was not large, the
number of suspensions expressed as a ratio to the number of banks in operation
was quite high because of the relatively small number of banks in operation
in those States.

1/ In some States, particularly Florida, the use of June 1920 figures for
active banks -as a base for comparison with suspension figures gives
a somewhat distorted picture becauso of the organization of new banks
after 1920/




~ 26 Table 12 —

STATES WITH MORE THAN 50 BANK SUSPENSIONS DURING 1921-1935
PER 100 ACTIVE BANKS
Number of
suspensions
1921 - 1935

Suspensions during
1921-1935 per 100 active
banks on June 30, 1920

Florida
South Dakota
South Carolina

279
574
326

107.3
82.7
71.8

Arkansas
North Dakota
Nevada

335
587
21

68.9
65.4
63.6

1,197
737
466

61.9
61.6
61. i

North Carolina
Mississippi
Montana

351
198
252

60.5
58.9
58.5

Arizona
New Mexico
Idaho

49
69
120

56.3
56.1
54.1

Michigan
Indiana
Louisiana

442
532
134

51.0
50.5
50.1

States

Iowa
Nebraska
Georgia

Size of Suspended banks» measured by loans and investments^
Of the 13,636 banks suspended in the 15-year period 1921-1935, 5,138
had loans and investments under £150,000 each, 7,618 had loans and investments
under §250,000, and 11,959, or 88 percent of the total number of suspended
banks, had loans and investments under $1,000,000 each*

Because of the pre-

1/ Loans and investments, rather than deposits, were used as a measure of size
of suspended banks and of active banks by the Federal Reserve Committee on
Branch, Group, and Chain Banking. In order to tie in with the data prepared by that committee, loans and investments have been used as a measure
of size of banks in the present study. Total loons and investments bear a
close relationship to total deposits; consequontly,*..for the purpose at hand
the use of total loans and investments as a basis of classification ^ives
as satisfactory results as the use of total deoosits.



~ 27 ponderance of small banks in the banking structure, the rate of suspensions
per 100 banks was not quite as high at snail banks as these figures indicate;
it was, however, much higher than at the larger banks, as may be seen from
the percentages shown in the last column of table 13»

Table 13 —

NUMBER AND PERCENTAGE DISTRIBUTION OF ACTIVE BANKS ON
JUNE 30, 1920 AND OF BANK SUSPENSIONS DURING 1921-1935,
BY SIZE OF LOANS AND INVESTMENTS

Size group —
loans and
investments

Active banks on Bank suspensions, Ratio of suspensions
1921-]
June 30, 1920
L935
1921-1935 per 100
Percent
Percent
active banks on
Number
Number
June 30, 1920
of total.
of total

Under §150,000
§150,000 to $250,000
$250,000 to §500,000

7,066
5,321
7,165

23.4
17.6
23.7

5,138
2,480
2,728

37.7
18.2
20.0

72.7
46.6
38.1

$500,000 to$l,000,000
$1,000,000 to $2,000,000
$2,000,000 to $5,000,000

5,059
2,755
1,577

16.8
9.1
5.2

1,613
791
457

11.8
5.8
3.4

31.9
28.7
29.0

$5,000,000 to $10,000,000
$10,000,000 to §50,000,000
§50,000,000 and over

508
369
72

1.7
1.2
.2

143
82
9

1.0
.6
.1

28.1
22.2
12.5

Not available

343

1.1

195

1.4

56.9

30,235

100.0

13,636

100.0

45.1

Total




~ 28 It will be noted that among banks with loans and investments under
0150,000 the suspension rate was 73 banks suspended during 1921-1935 per 100
banks in operation on June 30, 1920^/; in the size group with loans and investments from $150,000 to §250,000, 47 banks suspended per 100 active banks;
and in the group with loans and investments from $250,000 to
banks suspended per 100 active banks.

$500,000, 38

The rate of suspension declined from

group to group with the increase in size of banks.
Due, however, to the failure of quite a number of large and medium
size banks in the latter part of the 15-year period 1921-1933, the percentage
distribution of the number of bank suspensions changed considerably between
1921-1929 and 1930-1933•

Table 14 shows that about 83 percent of all banks

suspended during the 9-year period had loans and investments below 0500,000,
while during the 4-year period 1930-1933. banks of that size accounted for
70 percent of all suspensions.

Conversely, banks with loans and investments

over $1,000,000 accounted for 16 percent of all suspensions in 1930-1933 and
only 8 percent in 1921-1929.
1/ As previously indicated, June 30, 1920, has been used as a base for active
banks, though the distribution of banks by states and by size groups
changed somewhat from year to year during the 15-year period. For example,
most of the suspensions during the period occurred among the relatively
small banks, with a consequent decrease in the proportion of active banks
in the smaller size groups; the number of banks in the larger size groups
on the other hand, was increasing at the same time through mergers, consolidations, etc. Hence the use of 1920 as a base against which to compare
suspensions tends to show lower suspension rates for banks in the smaller
size groups and higher rates in the larger size groups. This tendency is
partly offset, however, by the fact that banks ordinarily liquidate loans
and investments in meeting deposit withdraxvals prior to suspension and at
the time of suspension, therefore, banks are usually smaller than they are
as active solvent institutions. This factor tends to raise the suspension
rate among small banks. These factors exist with more or less equal force
whatever year or combination of years may be taken as a base and usually
affect a relatively small number of cases which fall close to the border
line between the various size groups. In any event, figures of active banks
by size of banks are not available by years and it is not possible, therefore, to compare suspensions each year with the active banks in that year.



~

29 -

Table lA —

NUMBER AND PERCENTAGE DISTRIBUTION OF BANK SUSPENSIONS
GROUPED BY SIZE OF LOANS AND INVESTMENTS, 1930-1933
AND 1921-1929

Size group —
loans and investments

1930-1933
Number of
suspensions

1921-1929

Percent
of total

Number of
suspensions

Percent
of total

Under $150,000
150,000 to 250,000
250,000 to 500,000

2,681
1,32-4
1,532

34.2
16.9
19.6

2,404
1,1-47
1,182

42.1
20.1
20.7

500,000 to 1,000,000
1,000,000 to 2,000,000
2,000,000 to 5,000,000

1,068
583
379

13.6
7.5
-4.8

539
206
74

9.4
3.6
1.3

128
78
9

1.6
1.0
.1

13
4

.2
.1

51

.7

143

2.5

7,833

100.0

5,712

100.0

5,000,000 to 10,000,000
10,000,000 to 50,000,000
50,000,000 and over
Not available
Total

—

—

It is apparent from the above table that, although the proportion of
suspensions among banks of larger size increased in the latter part of the 15year period, the small banks continued nevertheless to show the highest
mortality rate.

Prolonged depression in agriculture affecting primarily the

small communities with their small banks explains to some extent the continued
poorer showing for the small banks.

The fact that an increasing proportion of

large banks suspended in the A years 1930-1933 suggests, however, that mere
size alone in banks does not make them failure-proof.

By classes of banks.

An analysis of the number of suspensions by

classes of banks and by size of loans and investments indicates that the rate
of suspension during 1921-1935 per 100 active banks on June 30,1920 was somewhat higher at small national banks (with loans and investments below $250,000)



~

30 -

than at small State banks.

In all size groups comprising banks with loans

and investments of $250,000 and over, the rate of mortality was higher in the
case of State banks than in the case of national banks.

This is brought out

in table 15.

Table 15 —

BANK SUSPENSIONS BY CLASSES OF BANKS AND BY SIZE OF
LOANS AND INVESTMENTS, 1921-1935

Size group —
loans and investments

Member banks
Total,
All
National
State
banks
Number of bank suspensions

Nonmember banks
State
Private

Under ^150,000
150,000 to 250,000
250,000 to 500,000

5,138
2,480
2,728

273
405
701

74
71
114

4,555
1,937
1,844

236
67
69

500,000 to 1,000,000
1,000,000 to 2,000,000
2,000,000 to 5,000,000

1,613
791
457

559
340
189

111
57
41

921
386
2.24

22
8
3

5,000,000 to 10,000,000
10,000,000 to 50,000,000
50,000,000 and over

143
82
9

62
26
3

23
24
6

58
32

——«•

Not available

195

—

11

184

Total

13,636

9,968

589

—

2,558

521

Number of bank suspensions 1921-1935 per 100 active banks
on June 30, 1920
Under £150,000
150,000 to 250,000
250,000 to 500,000

72.7
46.6
38.1

79.1
53.4
34.5

2/7A.6

500,000 to 1,000,000
1,000,000 to 2,000,000
2,000,000 to 5,000,000

31.9
28.7
29.0

25.7
23.9
23.3

36.7
33.8
34.8

5,000,000 to 10,000,000
10,000,000 to 50,000,000
50,000,000 and over

28.1
22.2
12.5

23.8
14.1
8.1

32.7
30.3
17.1

45.1

31.9

50.3

Total

46.1
39.6

1/ The suspension rate (per 100 active banks) is not shorn for private banks
because loan and investments figures are not available for 3^3 active private
banks and for 184- private banks suspended. This would impair the value of
figures for private banks, but, as may be seen by reference to table 16,
it affects the suspension rate for all banks only slightly.
2/ The ratios in this column relate to all State banksj separate figures are
not available for State member and nonmember banks, respectively.



The higher "rate of suspension" (per 100 active banks) at small
national banks than at small State banks„ results from the fact that there were
relatively

fearer snail national banks than small State banks in operation

in June 1920; conversely, the lower rate of suspension at large national banks
conies about from the fact that there were relatively many more large national
banks than large State banks in operation in June 1920.

This shows ..also

that the rate of mortality has been high in the case of small banks regardless of whether they were under national or State supervision, but that large
banks under national supervision have been less subject to failure than large
banks under varied State supervision.
By geographic divisions.

Corresponding information by geographic

divisions indicates that, with the exception of the New England and Middle
Atlantic regions, the highest rate of bank failures was among the banks with
loans and investments under $150,000, also that the rate declined as the size
of banks increased.

In the New England states the suspension rate was highest

among banks with loans and investments of #5,000,000 to $50,000,000; in the
Middle Atlantic states the suspension rate differed relatively little by size
of bank, ranging from 20 to 30 suspensions during 1921-1935 per 100 active
banks in June 1920 in each size group under $50,000,000 loans and investments.




~ 32 Table 16 —

Size group —
Loans and
investments
(000 omitted)

NUMBER OF SUSPENSIONS DURING 1921-1935 PER 100 ACTIVE BANKS
O l JUNE 30, 1920, BY GEOGRAPHIC DIVISIONS AND BY SIZE OF
i
LOANS AND INVESTMENTs!/
East West South East West
Total, New Middle
North North
South South MounEng- AtlanAtlanPacifi<
All
Cen- CenCen- Cen- tain
land
tic
tic
banks
tral tral
tral tral

Under £150
150 to 250
250 to 500

74.9
47.2
38.1

6.7
4.6

26.0
30.4
26.5

78.8 85.0 86.7 53.3
48.4 53.7 52.8 33.6
37.2 41.0 49.7 38.1

59.8
33.0
29.9

70.8
50.5
43.5

55.5
39.5
31.4

500 to 1,000
1,000 to 2,000
2,000 to 5,000

31.9
28.6
28.9

15.5
18.1
22.0

27.6
23.9
25.7

37.0 31.2 38.9
34.2 26.6 39.8
42.7 22.8 41.3

27.9
29.1
23.1

45.7
31.9
18.5

15.9
17.9
13.5

5,000 to 10,000
10,000 to 50,000
50,000 and over

28.1
22.2
12.5

24.5
27.3

30.0
20.0
5.6

37.6 20.9
27.8 12.5
—
27.8

27.6 17.6 25.0
28.9 46.2 17.4
—
— 100.0

29.4
—

—

45.1

16.6

25.8

44.8

55.5

40.1

50.7

28.1

Total

—

54.3

31.9
31.1
31.0

39.7

—

14.3
12.8

1/ Covers national and State bonks only, figures for active private banks on
June 30, 1920, by size of loans and investments and geographic divisions
not being available.

The contrast in the rate of bank

suspensions by size of banks, as

between Northeastern states (Hew England and Middle Atlantic) and the other
geographic regions suggests that the size of suspended banks is determined,
in part at least, by the type of community in which the bank is located and
by economic factors within the region.

In the New England and Middle Atlantic

sections agricultural activities differ from those in most other sections.
There is a different type of agriculture, with big markets nearby for the
in the East
products, and

outlying agricultural communities/have not suffered to

the same extent as agriculture in other sections of the country.

The re-

sulting higher degree of stability has aided the snail b*?nks in outlying
agricultural communities.




On the other hand, in the large industrial and

~ 33 financial centers in the East which suffered from severe business depression
beginning in 1929-1930, the larger banks were called upon to n;:et a constant
and prolonged strain which proved too great for many of then, resulting in
the later years in a high suspension rate among the larger banks.
Average size of suspended banks.

It has been previously pointed out

that most of the suspensions during 1921-1933 occurred within the agricultural
and semi-agricultural regions where the average bank is small in size. Table
17 gives the average size of active banks on June 30, 1920 and the average
size of banks suspended during 1921-1935 by geographic divisions.

Table 17 —

AVERAGE SIZE OF ACTIVE BANKS JUNE 30, 1920 AND OF SUSPENDED
BANKS 1921-1935, BY GEOGRAPHIC DIVISIONS

Geographic
division

Average loans and investments per bank
(in thousands of dollars)
of active bantes
of suspended banks
on June 30. 1920
1930-1933
1921-1929

New England
Middle Atlantic
East North Central

3,488
4,73.8
1,357

3,746
2,630
1,338

2,420

West North Central
South Atlantic
East South Central

515
863
652

316

264
393
310

V/est South Central
Mountain
Pacific

623
623
1,824

612
464
829

295
345
651

1,252

958.

332

Total

869
657

4o4

It will be noted that the average bank suspended in the period 19301933 was nearly three tines the size of the average bnnk suspended in the
9-year period 1921-1929, because of the suspension/^juite a nunber of large
banks in the later period.

The use of average figures tends, however, to

obscure the true size of the great bulk of the suspensions.



For exanple,

- 34the average size in terms of loans and investments of banks suspended during
1930-1933 was $958,000 but 30 banks accounted for #1,850,000,000 of the total
loans and investments of all banks suspended during this period.

If these

large banks were removed from the figures, the average size of banks suspended
during 1930-1933 would be »;7l4,000 in tern of loans and investments.

On

June 30, 1920, the average bank had loans and investments of $1,252,000.
As table 17 shows, the average size of banks suspended increased in
all sections of the country in 1930-1933 over 1921-1929, but particularly in
the East North Central States in which the largest failures occurred.

It will

also be noted that in most regions the average size of banks suspended in
1930-1933 was close to the average size of active banks in the respective
regions.
Suspension of very large banks.

As previously stated, 30 of the

banks suspended in 1930-1933 had total loans and investments aggregating
01,850,000,000, comprising 2<5 percent of the total loans and investments of
all banks suspended during this period.

The individual bank figures ranged

from v20,000,000 to §380,000,000 and five of the banks had loans and investments ranging from $100,000,000 to 0380,000,000 each.

These five are the

Bank of the United States, Hew York City, which closed in the latter part of
1930, and the Guardian National Bank of Commerce and the First National Bank,
both of Detroit, the Union Trust Company and the Guardian Trust Company,
both of Cleveland, which closed with the banking holiday in 1933 nnd were
ultimately placed in liquidation or receivership.

The suspension of these

large banks had a direct effect on other banks whose correspondent accounts
were deposited with them and a profound psychological effect on bank depositors




generally, and doubtless contributed in an important degree to the closing
of many banks in various parts of the country•

The number of suspensions

indirectly attributable to the suspension of very large banks cannot of
course be measured, but it is obvious that the effect is much more disastrous than the failure of many small banks.

Table 18 gives the name and

location, date of suspension, class of bank, total loans and investments,
and total deposits of the 30 largest banks which suspended during 1921-1935.




- 36 Table 18 —

THIRTY LARGEST BANKS WHICH SUSPENDED DURING 1921-1935
(Arranged according to amount of loans and investments)

Name and location of bank

Class
Loans
Date
and in- Deposits
of
of
i/
suspension bankR vestments
(thousands of dollars)
Nat. 379,788
373,360
5-12-33
S.M. 213,403
161,000
12-11-30
S.M. 189,563
194,906
6-16-33

First National Bank of Detroit
Bank of United States
Union Trust Company

Detroit, Mich.
New York, N.Y.
Cleveland, Ohio

Guardian Trust Company
Guardian National Bank
of Commerce
Canal Bank & Trust Company

Cleveland, Ohio

6-16-33

S.M.

122,038

109,752

Detroit, Mich.
New Orleans,La.

5-12-33
5-22-33

Nat.
S.M.

109,856
60,720

108,103
58,012

First Central Trust Company
B m k of Pittsburgh, N.A.
Baltimore Trust Company
Bankers Trust Company

Akron, Ohio
Pittsburgh, Pa.
Baltimore, Md.
Philadelphia,Pa.

6-21-33
9-19-31
8- 7-33
12-22-30

S.M.
Nat.
S.M.
Non.

59,795
58,426
57,832
47,932

41,845
43,759
30,642
44,497

Hibernia Bank & Trust Co.
Ohio Savings Bank & Trust Co.
National Bank of Kentucky
Franklin Trust Company

New Orleans,La.
Toledo, Ohio
Louisville, Ky.
Philadelphia,Pa.

5-22-33
8-17-31
11-15-30
10- 6-31

S.M.
Non.
Nat.
Non.

47,535
44,261
37,721
35,763

52,860
38,692
37,830
21,777

American Savings Bk. & Tr.Co.
Fidelity National Bk. & Tr.Co.
Federal National Bank
Harriman National Bk. & Tr.Co.

Davenport, Ia«
Kansas City, Mo.
Boston, MasSt
New York, N. Y.

10- 1-31
7-24-33
12-15-31
10-16-33

S.M.
Nat.
Nat.
Nat.

31,357
29,749
28,484
25,944

26,858
18,407
24,000
22,630

City Bank & Trust Company
Security Hone Trust Company
Fletcher American National Bk.
Worcester Bank & Trust Co.

Hartford, Conn
Toledo, Ohio
Indianapolis, Inc
Worcester, Mass.

1- 2-32
6-16-31
8-24-33
6-12-33

Non,
Non.
Nat.
S;M..

25,755
25,148
24,235
24,045

23,512
25,192
15,269
23,453

Union Trust Company
Union Savings Bk. & Trust Co.
Central National Bank
Commerce Guardian Trust &
Savings Bank

Dayton, Ohio
Davenport, Iowa
Oakland, Calif.

10-30-31
12-28-32
4-24-33

S.M.
Non.
Nat.

23,553
22,315
22,096

20,156
12,525
18,651

Toledo, Ohio

8-17-31

S.M.

20,756

15,458

The George D. Harter Bank
Old First National Bank &
Trust Company
Central Bank & Trust Company
East Tennessee National Bank

Canton, Ohio

10-22-31

Non.

20,591

17,982

Fort Wayne, Ind.
Asheville, N.C.
Knoxville, Tenn.

10-30-33
11-20-30
1-20-33

Nat.
Non.
Nat.

20,175
20,124
19,952

12,464
17,563
9,000

Total
1/ Nat. - National bank* S.M.




1,848,912 1,620,155
State member bank; Non. - Nonmember bank.

~ 37 Size of suspended banks, measured by capital stock.

Capital stock is not as good a measure of size of banks as loans and
investments or deposits, because it is determined in part by requirements of
law and because of the practice of some banks of building up large surpluses
rather than increasing capital stock.

Capital stock has been rather widely

used, however, as a neasure of size of suspended banks and,accordingly, a
summary in terms of capital stock is shown in table 19, with details in the
appendix.
Table 19 —

BANK SUSPENSIONS 1921rl935, GROUPED BY SIZE OF CAPITAL STOCK

Size group —
capital stock

Number of
suspensions

Percent of
total

Under $25,000

4,315

31.6

25,000 to 50,000

4,315

31.6

50,000 to 100,000

2,541

18.7

100,000 and over

2,465

18.1

13,636

100.0

Total

It will be seen that 11,171 banks, representing 82 percent of the
13,636 suspensions during 1921-1935, had capital stock of less than $100,000
each; 8,630, or 63 percent of the total, had capital stock of less than
$50,000? and A,315 suspended banks, or 32 percent of total suspensions, had
capital stock of less than <£25,000 each.

This again indicates that suspen-

sions were more numerous among small banks than among large banks.




~

38 -

Bank suspensions distributed by population of cities.

Of the 13,636 banks suspensions during 1921-1935, ^,524 or 33 percent occurred in towns of less than 500 population, and 9,748 banks or 71
percent in towns of less than 2,500 population.
percent

Only 734 banks, or 5-

of total suspensions, were among banks in cities of a population of

100,000 and over.
Corresponding figures by classes of banks show a much smaller
percentage of national banks than of State banks suspended in places of
low population —

only 10 percent of the national bank suspensions we re

in places of less than 500 population, compared with 39 percent in the
case of nonmember State banks and lA percent in the case of State member
banks%

This difference in the rate of suspension of national banks and

State banks in small places follows, of course, from the fact that
relatively fewer national than State banks are located in small towns and
villages.
Although there were many more bank suspensions in small than in
large places, the differences in the rates of suspension (per 100 active
banks) were not nearly as marked, due, of course, to the fact that such a
large number of banks (particularly State banks) cperate in small cities,
towns and villages.

This may be seen from table 20, which shows the number

of bonk suspensions as well as the suspension rates.




~ 39 Table 20 —

NUMBER AND RATE OF BANK SUSPENSIONS BY POPULATION OF CITIES
1921-1935

Population of
city

Total,
All banks

Nonmember banks

Member banks
National

State

State

Private

Number of bank suspensions
Under 500
500 to 1,000
1,000 to 2,500

4,524
2,601
2,623

264
441
710

71
75
99

3,918
1,955
1,736

271
130
78

2,500 to 5,000
5,000 to 10,000
10,000 to 25,000

1,224
749
666

403
281
229

78
38
49

725
4l4
382

18
16
6

261
254
734

78
45
107

23
22
66

155
176
507

5
11
54

13,636

2,558

521

9,968

589

25,000 to 50,000
50,000 to 100,000
100,000 and over
Total

Rate of suspension per 100 active banks on June 30, 1920
Under 500
500 to 1,000
1,000 to 2,500

51.6
48.0
4 5.0

39.5
37.9
33.3

2/52.5
51.0
51.7

2,500 to 5,000
5,000 to 10,000
10,000 to 25,000

39.9
36.6
38.1

30.1
30.3
28.5

47.5
48.6
46.3

25,000 to 50,000
50,000 to 100,000
100,000 and over

34.1
38.1
41.1

10.2
19.6
23.6

41.3
47.8
48.4

45.3

31.9

50.3

Total

i!

1/ The suspension rate in the case of private banks is somewhat impaired
because a complete distribution of active private banks in 1920, by
population, is not available.
2( The ratios in this column relate to all State banks; separate figures
are not available for State member and nonmember banks, respectively.
It will be noted that, talcing all classes of banks as a whole, 52 banks
for each 100 banks in operation on June 30, 1920, suspended during 1921-1935
in places of less than 500 population, 48 in places of 500 to 1,000 population,




~ 40 and 45 in places of 1,000 to 2,500 population, with a somewhat further declining rate as the size of towns and cities increased.

It will also be noted

that there was considerable difference between national banks and State banks
in the rate of suspensions according to the size of the community in which
the suspensions occurred.

While the suspension rates are higher for State

banks than for national banks in all sizes of cities, the differences are
particularly noticeable in the larger cities where the rate of suspension
of national banks per 100 active banks was much below the suspension rate of
State banks.
The spread of suspensions during 1930-1933 into the larger centers
was quite pronounced as may be seen from table 21, which compares the number
of suspensions by size of community for the two periods 1930-1933 and 19211929.

During 1930-1933, 29 percent of the suspensions occurred in places with

a population of less than 500 and 66 percent in places of less than 2,500
population, compared with 39 percent and 79 percent, respectively, during the
period 1921-1929.

Cities with a population of 100,000 and over, on the other

hand, contributed 7 percent of the total suspensions in 1930-1933, compared
with only 3 percent in 1921-1929.




- 41 Table 21 —

NUMBER AND PERCENTAGE DISTRIBUTION OF BANK SUSPENSIONS
BY POPULATION OF CITIES, 1930-1933 AND 1921-1929

Population .of
city

1930-1933
Percent
of
of
suspensions
total
NuEber

1921-1929
Percent
Number
of
of
suspensions
total

2,254
1,422
1,490

28.8
18.1
19.0

2,234
1,165
1,116

39.1
20.4
19.5

2,500 to 5,000
5,000 to 10,000
10,000 to 25,000

775
510
455

9.9
6.5
5.8

446
234
206

7.8
4.1
3.6

25,000 to 50,000

200
182
545

2.6
2.3
7.0

61
68
182

1.1
1.2
3.2

7,833

100.0

5,712

100.0

Under 500
500 to 1,000
1,000 to 2,500

50,000 to 5.00,000

100,000 and over
Total

Overbanking and bank suspensions.

With some exceptions, suspensions during 1921-1935 were most numerous
in States where the number of banks increased rapidly prior to 1920 and in
those which had a low population per bank in 1920.

In the majority of States

with a high population per bank,suspension rates were substantially below the
average for the country as a whole.

This reflects the x^eakening effect on

the banking structure of the establishment of an excessive number of banks
prior to 1920.

Table 22 gives (l) the percent change in the number of banks

from 3.900 to 1920, (2) the population per bank in 1920, and (3) the suspension
ratio, for the ten States with the lowest and the ten States with the highest
suspension ratios.




- 42 Table 22 — PERCENT CHANGE I T THE NUMBER OF B A M S FEOM 1900 TO 1920,
1
POPULATION PER BASK IN 1920, 11® NUMBER OF BANK SUSPENSIONS
DURING- 1921-1935 PER 100 ACTIVE BANKS ON J J 1 30, 1920,
T1E
FOR THE TEN STATES WITH THE LOWEST AND THE TEN STATES
WITH THE HIGHEST SUSPENSION RATIOS
Percent change
in number of
States
banks
| 1900-1920
10 States with lowest suspension ratios
Hew Hampshire
+ 21.2
Delaware
+ 66.7
Bhode Island
- 5O.7
Mas sachuse t ts
- 54.1
Vermont
+ 79.6
New York
- 42.7
California
+l4s.5
Connecticut
+ 37.0
Maine
+ 7.3
Maryland
+ 79 .S

Population
per bank
in 1920
5,550

4,97s

12,515
14,423
4,000
12,799
4,812
9,957
6,517

5,49s

Suspensions during
1921-1935 per 100
active banks
on June 30, 1920

10.0
10.3
12.1
15.5
15.9
18.2
18.5
20.4
24.6
25.0

10 States with highest suspension ratios
North Carolina
Georgia
Nebraska
Iowa
Nevada
North Dakota
Arkansas
South Carolina
South Dakota
Florida
United States total

h404.0
+252.5
+103.4
-- 67.4
i
+371.4
+U6U.S

+667.2

"^77.5

4,136
3.9^3
1,089
1,1+12
2,333
719
3,6l6

3,670

60.5
6l.l
6l.6
61.9
63.6
65.4

68.9

924

+U03.2

3,762

71.8
82.7
107.3

+118.3

3,713

45.1

+266.5

The age of suspended hanks.
Data regarding the age of "banks at time of suspension are available
at present for national banks ancl for State banks during 10 years only, 19211930. From table 23 it will be seen that 25 percent of banks suspended in




~ 43 1921-1930 were less than 10 years old at time of closing and 64 percent were
less than 20 years old; 36 percent, on the other hand, had been in operation
for 20 years or more.

This clearly indicates that, although many of the sus-

pensions occurred among recently organized banks,

long established institu-

tions have by no means been immune to the difficulties which have prevailed.
Due, however, to such factors

as conversions, mergers, absorptions and re-

organizations, the "charter age" of some banks is not a good measure of their
span of existence; technically, some banks that resulted from mergers or
conversions have been in existence only a few years, while as a practical
matter they or their predecessors have been operating without interruption
for a long time.

Table 23 —

DISTRIBUTION OF BANK SUSPENSIONS ACCORDING TO AGE,
1921-1930 II

Years in operation
prior to suspension

Number of
suspensions

Percent
of total

Less than 5
5 to 9
10 to 14

735
925
1,266

11.1
14.0
19.1

15 to 19
20 to 24
25 to 29

1,283
1,213
561

19.4
18.3
8.5

30 to 34
35 to 39
40 to 44

272
180
100

4.1
2.7
1.5

43
40

;7
.6

45 to 49
50 and over
Total

6,618

100.0

1/ Covers national and state bank suspensions only and excludes 85 such
banks for which data are not available.




~

44 Considerable variation among the several States and geographic

divisions of the country obtained with respect to the age of suspended, banks,
as indicated in table 24.

Banks suspended in the West North Central states

during 1921-1930 were in existence prior to suspension for an average period
of 18 years and 9 months, the longest of any region, whereas in the Mountain
states the average age was only 11 years and 7 months, the shortest for any
geographic division.

The range is somewhat greater in the case of individual

statesr the age of banks suspended in Arizona, California, Colorado, Florida,
Massadmsufcte,Montana and Wyoming is distinctly below the average for the United
Rhode Island,
States as a whole, while in/Delaware, Iowa, Kentucky, Michigan, Nebraska,
Nevada, Pennsylvania and West Virginia the age of suspended banks is appreciably above the average for the country.
Table 24 —

AVERAGE AGE OF SUSPENDED BANKS, BY GEOGRAPHIC DIVISIONS,
1921-1930 1/

Geographic
division

Number of
suspension?

Average3 ase
Months
Years

New England
Middle Atlantic
East North Central

18
64
631

17
17
16

10
2
5

West North Central
South Atlantic
East South Central

2,965
1,165
352

18
15
17

9
4
5

West South Central
Mountain
Pacific

811
470
142

14
11
14

1
7
11

6,618

16

8

Total

1/ Covers national and state banks only and excludes 85 such banks in
Montana for which data are not available.




- 45 Suspension of banks with branches.

Of the 13,636 banks suspended during the 15-year period 1921-1935,
331 banks with loans and investments of §2,937,000,000 were operating 1,175
branches at time of suspension.

The suspension of banks operating branches

has been made the subject of a detailed analysis in the study of branch
banking.




- 46 Preliminary draft
Confidential
BANK SUSPENSIONS, 1892-1935
CHAPTER III
SUSPENSIONS DURING 1930-1933

In the preceding chapter it was pointed out that not only were bank
suspensions more numerous in the four critical years 1930-1933 than in previous years, but that suspensions became more diffused over the entire
country among all sizes and classes of banks.

During this period of nation-

wide economic depression there was a rapid decline in the value of securities
and real estate held as collateral for bank loans, as well as in the prices
of agricultural products, livestock and other commodities, all of which resulted in a reduction in income of banks' customers.

The consequent diffi-

culty of liquidating loans at maturity, combined with severe drought in many
of the agricultural sections, made it difficult even for institutions of
long standing and sound condition to hold up in the enveloping tide.

Another

factor undermining the position of many banks was the withdrawal of funds by
depositors for hoarding.

A vicious circle thus was created —

as economic

conditions grew steadily worse suspensions increased, and as suspensions
increased depositors became alarmed and withdrew funds, causing additional
suspensions ana adding to the depth of the economic depression.
Because of these factors and the large number of suspensions during
this period, as well because of the various attempts made by supervisory and
banking officials to avert the wholesale closing of banks, the period 19301933 is discussed separately, year by year, in this chapter.




- 47 ~
1930
During 1930 bank suspensions increased to 1,350 banks with deposits
of $837,000,000, compared with 659 banks with deposits of $231,000,000 suspended in the previous year.

The highest previous figure was recorded in

1926 when 976 banks with deposits of §260,000,000 suspended.
From January through October 1930 the rate of suspensions reported
for each month was not far above the monthly average for the previous 9year period.

Near the end of 1930 difficulties centering largely in the

East and West North Central states and in Arkansas, Kentucky, and North
Carolina accounted for the suspension of 256 banks in November and 352 banks
in December.

In these months 9 large banks in different sections of the

country suspended, including the Bank of the United States in New York City
with deposits of ^161,000,000, the Bankers Trust Company of Philadelphia with
deposits of §44,000,000, the National Bank of Kentucky and the Louisville
Trust Company, both of Louisville, with deposits totaling. $52,000,000, the
American Exchange Trust Company of Little Rock with deposits of $11,000,000,
th6 Bank of Tennessee of Nashville with deposits of $10,000,000, and the
Central Bank and Trust Company of Asheville with deposits of $17,500,000.
The closing of these large banks resulted in the closing of many other banks,
partly because of affiliated and correspondent relationships, and partly
because the spread of fear among depositors, particularly in territory near
the location of the banks.
The bank merger movement, which had been started prior to 1930
through an open competition on the part of banks for size and controlling
influence, continued in 1930 but generally for a somewhat different purpose —



- 48 ~
that of taking over weak banks to prevent their closing and avert possible
resulting runs on the absorbing banks and other institutions.

1931
Following January 1931 when about 200 banks suspended the nunber of
suspensions declined to less than 100 each month until June when 167 banks
suspended.

During the last four months of 1931, 1,360 banks suspended, more

than in any previous full year. The peak of this period was in October,
after the suspension of the gold standard in England, when 522 banks suspended.

By the end of the year a total of 2,293 braiKS had suspended.
In 1931, as in 1930, the East and West North Central groups of

states accounted for the largest proportion of suspensions - 610 and 717,
respectively, or more than half of all bank suspensions in 1931and Iowa each reported more than 200 suspensions during the year.

Illinois
The Hew

England states, which had previously been comparatively free from suspensions, reported 33 suspensions in 1931 and 11 in 1930, compared with a
yearly average of 2 for the 9-year period 1921-3.929.

The Middle Atlantic

states also were seriously affected during 1931; 230 banks suspended in
that region in 1931, compared with 30 in 1930 and a yearly average of 9
during 1921-1929.
While the number of suspensions ?/as greater in 1931 than in any
previous year —

about 4 times the yearly average for the 9-year period

1921-1929, deposits of suspended bamcs in 1931 were proportionately even
greater —




about 9 times the yearly average for the 9-ye^r period.

~

49 No single bank failure in 1931 approximated the size of the Bank of

the United States, New York City, which suspended in 1930, but quite a number
of the banks

that suspended in 1931 were of substantial size; 20 of the sus-*

pended banks had deposits of $10,000,000 or more, aggregating $380,000,000.
The largest bank failure during the year was the Bank of Pittsburgh, N.A.,
with deposits of about $44,000,000.
In an effort to stem the increasing tide of suspensions lue National
Credit Corporation was formed in October 1931 by the banks at the suggestion
of the President.

This corporation sought to relieve the situation by making

loans to banks on sound but not readily marketable assets. The benefits,
if any, of this new corporation were short lived, for while the number of suspensions decreased in November to 175 from 522 in October, December witnessed
an increase to 358.

1932
By January 1932 the banking situation was generally recognized as
extremely critical.

Depositors were becoming increasingly alarmed.

Overnight

mergers were reported in many sections of the country.
The placing of restrictions on deposit withdrawals, a practice that
had been used in 1931 in the East North Central states, particularly in
Wisconsin and Michigan, became more prevalent in 3.932 as a measure to cope
with the steady withdrawal of funds.

These restrictions on deposit with-

drawals were usually imposed through "depositors1 agreements" deferring withdrawal of varying percentages of deposits over periods of time ranging from
one to five years, certain percentages of deposits to be released at the end
of the first year . n additional percentages at the end of the succeeding years.
ad



~ 50 -

New business was conducted on an unrestricted basis.

Unfortunately, com-

prehensive figures are not available to show the number of banks that
obtained deposit deferment agreements^jor the amount of deposits involved
in such deferment agreements, but from what information is available it
appears that the practice was widely followed.
Another type of bank moratoria that became common during this period,
particularly in the E5ast North Central states, was the reorganization

of

banks through the waiving or surrender of a portion of deposits by the depositors.

This was accomplished in some cases through outright contributions

by certain of the depositors, but usually there was a segregation of assets
for the benefit of waiving depositors under a trust agreement, with a right
in the bank to substitute assets during a period of time running generally
from two to five years.

Figures are not available at present showing the

losses sustained by depositors through this type of reorganization of distressed banks.
Many banks in a number of states closed temporarily under special
"banking holidays" declared by civil authorities.

The first of a series

of state-wide banking holidays was declared in November by the Governor of
Nevada.
In spite of these efforts, suspensions and the accompanying epidemic
of fear were spreading.

The Reconstruction Finance Corporation was organized

in January 1932 and began almost immediately to make loans to banks. Member
banks were granted additional assistance through the provisions of the GlassSteagall Act adopted in February.

The Act gave the Federal Reserve Board

power to permit the use of United States Government securities as collateral
against Federal Reserve notes.



This made it possible for the Federal Reserve

banks to increase their purchases of United States Government securities,
thereby providing member banks with funds to meet additional demands for
currency and gold and at the sane tine to reduce their indebtedness at the
Reserve banks.

The Glass-S teagall Act also contained provisions under which

nenber banKS that were without adequate anounts of eligible and acceptable
assets coulti under certain conditions receive assistance on the basis of other
security satisfactory to the Reserve banks.
During the spring, summer, and autumn of 1932 the number of bank suspensions declined to less than 100 per month, with the exception of the months
of June when 151 banks suspended and July when 132 banks suspended.

In those

two months difficulties centered in Chicago and elsewhere in Illinois and in
Iowa.

Near the end of the year suspensions again increased in number,

mainly in the Mid-Western and Far Western states.

A total of 1,4-53 hanks

suspended during the year, involving deposits aggregating more than -700,000,000.
Fewer large banks suspended in 1932 than in either 1930 or 1931, but among
these were the Peoples State Bank of Charleston, South Carolina, a large branch
bank with deposits of £23,000,000, and the City Bank and Trust Company of
Hartford, Connecticut, with deposits of about the same amount.

1933
Early in 1933 banking difficulties, which had been grovdng steadily
worse since the beginning of the depression in 1929, became greatly intensified.

During the: first two months of 1933, 386 banks with deposits of

about y200,000,000 suspended.

These figures, however, do not measur- the

extent of the banking difficulties* that had developed during this period
to catastrophic proportions.



Banks which without actually closing obtained

~ 52 -

agreements from their depositors for the waiver or deferment of their claims,
as previously stated, are not included in suspension figures.

In addition, in

January and February of 1933 local bank holidays were declared by city
authorities in order to permit banks to obtain

deposit deferment or waiver

agreements, and to afford banks an opportunity to raise funds and made adjustments necessary to enable them to continue to meet their obligations.

These

holidays in many cases were extended from time to time, and in a few instances they lasted for more than two months1 time, culminating with the
national banking holiday in March.
These local types of bank moratoria could not cope with the problem.
More drastic action became necessary, and banking authorities in the different States were obliged to adopt emergency measures.

In a number of

States new laws were passed to provide for safeguarding of bank deposits or
for readjusting the liabilities of bamcs without establishing receiverships.
With a view to enabling the broking situation in any particular State to be
better handled as a whole a joint resolution was adopted on February 25
by Congress authorizing the Comptroller of the Currency to exercise with
respect to national banks such powers as State officials might have for
State banks.
On February 4 a one-day holiday was declared in Louisiana because
of difficulties in New Orleans.

On February 14 » four-day banking holiday

was declared in Michigan because of difficulties centering in Detroit.
Satisfactory settlement of the difficulties in Michigan was not reached,
howev,r, and the holiday was extended.

While the Michigan holiday arrested

withdrawals of deposits from banks in that State, outside Michigan there was




an increase in the movement of funds from weaker to stronger banks and in
currency withdrawals.

Funds were withdrawn from banks in other States to

send to Michigan or to meat payments that otherwise would have been met
from deposits in Michigan banks. Developments of this nature wore partly
responsible for the rapid spread of the banking holiday movement among other
States.

On February 25 the Governor of Maryland declared a banking holiday,

chiefly on account of conditions in Baltimore, and at about the same time
restrictions were authorized on withdrawals of bank deposits in Indiana,
Arkansas and Ohio.
On March 1 bank holidays v/ere declared in Alabama, Kentucky, Tennessee
and Nevada

and similar action was taken in six other

States on March 2 and in seven others on March 3.

On the morning of March

A, the Governor of the State of Hew York issued a proclamation declaring
htat day, which was a Saturday, and the following Monday to be bank holidays.

Similar action was taken in Illinois, Massachusetts, Hew Jersey,

Pennsylvania and elsewhere.

These declarations of State holidays in the

various States had by March A closed or placed restrictions on practically
all b inks in the country.

Federal Reserve banks also observed State holi-

days and closed on Liarch A.

All leading exchanges ceased operations and

business in general was practically at a standstill.

The following compila-

tion by the Associated Press published in the March 5, 1933, issue of the Hew
York Times shows the limitations on banking in effect at this time, State
by State:




Alabama - Closed until further notice
Arizona - Closed until March 13
Arkansas - Closed until March 7
California - Almost all closed until March 9




-54Colorado - Closed until March 8
Connecticut - Closed until March 7
Delaware - Closed indefinitely
District of Columbia - Three banks limited to 5%; nine savings
banks invoke sixty-days1 notice
Florida - Withdrawals restricted to 5% plus $10 until March 8
Georgia - Mostly closed until March 7, closing optional
Idaho - Some closed until March 18, closing optional
Illinois - Closed until March 8, then to be opened on
5% restriction basis for seven days
Indiana - About half restricted to 5% indefinitely
Iowa - Closed "temporarily"
Kansas - Restricted to 5% withdrawals indefinitely
Kentucky - Mostly restricted to % withdrawals until March 11
Louisiana - Closing mandatory until March 7
Maine - Closed until March 7
Maryland - Closed until March 6
Massachusetts - Closed until March 7
Michigan - Mostly closed, others restricted to 5% indefinitely?
Upper Peninsula banks open
Minnesota - Closed "temporarily"
Mississippi - Restricted to % indefinitely
Missouri - Closed until March 7
Montana - Closed until further notice
Nebraska - Closed until March 8
Nevada - Closed until March 8, also schools
New Hampshire - Closed subject to further proclamation
New Jersey - Closed until March 7
New Mexico - Mostly closed until March 8
New York - Closed until March 7
North Carolina - Some banks restricted to 5% withdrawals
North Dakota - Closed temporarily
Ohio - Mostly restricted to 5% withdrawals indefinitely
Oklahoma - All closed until March 8
Oregon - All closed until March 7
Pennsylvania - Mostly closed until March 7, Pittsburgh ban.cs open
Rhode Island - Closed yesterday
South Carolina - Some closed, some restricted, all on own initiative
South Dakota - Closed indefinitely

~ 55 -

Tennessee - A few closed, others restricted, until March 9
Texas - Mostly closed, others restricted to withdrawals on
$15 daily until March 8
Utah - Mostly closed until March 8
Vermont - Closed until March 7
Virginia - All closed until March 8
Washington - Some closed until March 7
West Virginia ~ Restricted to 5$ monthly withdrawals indefinitely
Wisconsin - Closed until March 17
Wyoming - Withdrawals restricted to 5% indefinitely

On March 6 the President issued a proclamation declaring a nationwide bank holiday to continue through the four days ending Thursday, March
9•

An important purpose of this action was to attack the problem of bank

failures comprehensively by reviewing at one time the condition of all banks
and reopening only such banks as co - l be determined to be in sound financial
.d
condition.

This procedure was intended to insure more equitable treatment

as between the depositors who were making withdrawals and those who were
not and to restore confidence in the banking structure as a whole.

The

proclamation declared that there had been heavy and unwarranted withdrawals
of gold and currency and extensive speculative activity in foreign exchanges,
which had created a national emergency, and the bank holiday was ordered
to prevent a continuation of such hoarding and speculation . n to permit
ad
the application of appropriate measures for protecting the interests of all
bank depositors and other persons dependent on banks.

During the holiday,

banks were not to pay out any coin, bullion or currency or to transact any
other banking business whatever except as might be permitted by the Secretary
of the Treasury.

The Secretary of the Treasury was authorized to permit

banks to perform any or all banking functions, to require or permit the
issuance of clearing house certificates, and to authorize special trust
accounts for receipt of new deposits.



~ 56 On March 9 the Emergency Banking Act was passed by Congress and
signed by the President.

On this day also the President issued a proclamation

indefinitely extending the bank holiday, . n on March 10, by Executive
ad
Order he conferred power on the Secretary of the Treasury to license member banks of the Federal Reserve System found to be in satisfactory condition
to conduct a usual banking business with exceptions as to paying out of
gold and the furnishing of currency for hoarding purposes.

Similar powers

were granted authorities of the various States with respect to banks not
members of the Federal Reserve System.

On Saturday, March 11, the Reserve

banks were authorized by the Secretary of the Treasury to reopen on the
following Monday.

On the same date it was announced that on March 13

banks in the 12 Federal Reserve bank cities would be reopened, on March l4
banks in approximately 250 other cities having recognized clearing houses,
and on March 15 banks in other places.
On March 15, 4,507 national banks and 571 State bank members of
the Federal Reserve System with deposits of #16,200,000,000 and
s?9,350,000,000, respectively, were licensed to reopen; 1,400 national banks
and 221 State bank members, with deposits of ^1,900,000,000 and §925,000,000,
respectively, were not granted licenses to reopen.

Corresponding figures

with respect to banks not members of the Federal. Reserve System were not
available prior to April 12, 1933, by which date 7,394 nonmember banks with
deposits of *c>4,950,000,000 had been authorized to reopen and 2,938 banks
with deposits of ^1,300,000,000 had not been granted authority to reopen.
On December 30, 1933, there were 512 member banks vdth deposits
of ^528,000,000 and 1,257 nonmember banks with deposits of ^497,000,000 that




~ 57 had not been granted licenses to reopen or had not been placed in liquidation or receivership.

By December 31, 1934, all but 9 of the member

banks and 147 of the nonmember banks not licensed following the banking
holiday had either been granted licenses to reopen or had been placed in
liquidation or receivership*

Table 25 shows the number and deposits of

banks licensed and not licensed on a series of dates following the national
banking holiday.




~

58 -

Table 25 - NUMBER AND DEPOSITS OF BANKS LICENSED AND NOT LICENSED
ON A SERIES OF DATES

Classes of banks
and dates
All banks
March 15, 1933
April 12, 1933
June 30, 1933
December 30, 1933
June 30, 1934 &
December 31, 1934

Banks not licensed
Banks licensed
1
Deposits 1/
Deposits 1/ Number of
Number of
(in thousands)
(in thousands)
banks
banks
(Not available)
30,932,272
12,819
13,794
31,635,391
14,344
32,229,882
36,325,932
15,135
15,370
39,909,817

(Not available)
4,194
3,977,530
3,078
2,329,999
1,024,942
1,769
346,228
622
158
38,332

National banks
March 15, 1933
April 12, 1933
June 30, 1933
December 30, 1933
June 30, 1934
December 31, 1934

4,507
4,789
4,897
5,154
5,417
5,462

16,195,145
1^,494,549
16,741,289
17,555,?39
19,895,897
21,637,150

1,400
1,108
985
452
95
5

1,942,574
1,818,541
1,028,347
434,978
97,999
6,510

State bank members
March 15, 1933
April 12, 1933
June 30, 1933
December 30, 1933
June 30, 1934
December 31, 1934

571
636
709
857
958
980

9,359,142
9,491,634
9,822,638
9,611,735
11,116,470
12,211,255

221
148
110
60
18
4

924,177
841,382
237,668
92,876
12,995
1,795

Nonmember banks-2/
March 15, 1933
April 12, 1933
June 30, 1933
December 30, 1933
June 27, 1934
December 31, 1934

(Not available)
4,946,089
7,394
5,071,664
8,188
5,062,908
8,333
8,760
5,313,565
8,928
6,061,412

(Not available)
2,938
1,317,607
1,063,984
1,983
497,088
1,257
234,234
519
149
80,027

1/ Deposits of national banks and State bank members are as of the nearest
prior call dates; deposits of nonmember banks for April 12 and June 30, 1933,
are as of December 30, 1932, or the nearest available call date prior thereto; deposits of nonmember banks for December 30, 1933 and June 27, 1934,
are as of December 30, 1933, or the nearest available call date prior thereto; and deposits of nonmember banks for December 31, 1934, are as of that
date, or nearest available call date prior thereto.
2/ June 27, 1934, in the case of nonmember banks.
3/ Exclusive of mutual savings banks.




~ 59 Effect of bank moratoria, holidays, etc., 011 bank suspension statistics.
Because of restrictions on deposit withdrawals and the reorganization
of banks through deposit waivers, accomplished during local and State bank
holidays without the "suspension" of the banks, and because the chan -es in
status of all banks incident to the national banking holiday, statistics of
bank suspensions for 1933 are not wholly comparable with those for previous
years.

The figures for 1933 as used in the present report are, however,

thought to be /airly in line with statistics of suspensions in former years.
The figures for 1933 comprise, as shown by table 26, (l)

banks suspended

from January 1 to March 15, 1933; (2) 179 banks that were licensed after the
banking holiday but which later closed (between March 16 and December 31
1933) because of financial difficulties; a r (3) 2,111 b : n s which were not
ni
->k
which
licensed following the banking holiday and/Wre subsequently (between
1933
March l(yand December 31, 1935) placed in liquidation or receivership.




-

Table 2o ~

60

-

BANK SUSPENSIONS DURING 1933
Total,
All
banks

Nonmember banks

Member banks
National

State

State

Private

Number of baak suspensions:
January 1 to March 1 5
March 1 6 to December 31
Banks not licensed following
banking holiday, placod in liquidation or receivership between
March 16,1933 and Dec. 31,1935^

336

22
10

1,103

63

179

66
9

2,111

866

2,737

9U1

103

1,593

100

73.183
January 1 to March 15
213^97
March 1 6 to December 3 1
17.322
1U5.710
Banks not licensed following ban!
ing holiday, placed in liquidation
or receivership between March
1 6 , 1 9 3 3 «nd Dec. 31.19351/
2,523,505 1,363,393
Total
2,SS2,712 1,1(53*893

21,7^2
3.527

llkyZkl
123,95S

3,725
903

672,260

Uso.127

697,529

71^,932

7,725
12,353

Total

23
6

Deposits of suspended banks?/
(In thousands of dollars)

l/ By the end of 1935 a ll
27 (all nonmembcrs) of the banks not licensed
immediately following the banking holiday had either been licensed or had
been placed in liquidation or receivership. These 27 banks had deposits
of $19,361,000.
2/ Deposits of member banks suspended are as of dates of suspension; deposits of
non-licensed national banks placed in liquidation or receivership are as of
dates of conservatorship; deposits of non-licensed state member banks placed
in liquidation or receivership are as of the nearest call dates prior to
liquidation or receivership; and deposits of nonmember banks are based on
the latest data available at the time of the reported closing of the banks*
The above figures exclude banks which, without actually closing, reorganized prior to the banking holiday through deposit waiver or deferment agreements.

The figures also oxclude banks that were not licensed immediately

following the banking holiday but which were subsequently licensed under
existing charters, whether or not the banks underwent any reorganization




~

61 -

incident to their reopening.

If the figures of bank suspensions during 1933

are deficient, therefore, it is because they understate rather than exaggerate
the banking difficulties in 1933*
In view of the amount of work involved in the examining . n certifyad
ing of banks for licensing during the banking holiday, it is fair to assume
that many institutions failed to open on the first three days of licensing,
March 13-15, through no fault of their own but simply because of procedural
difficulties resulting from the magnitude of the burden placed on supervisory
authorities.

This is evidenced by the comparatively large number of member

banks which opened between March 15 and April 12, 1933 —

279 national banks

with deposits of $316,000,000 and 48 State bank members with deposits of
^67,000,000.

If it is assumed that all banks that could qualify for reopen-

ing without considerable reorganization and loss to depositors had opened
by April 12, 1933, and that any banks not reopened by that date failed to do
so because of financial difficulties which would result in loss to depositors,
bank suspension figures for 1933 will be increased by more than 2,200 banks with
deposits of #1,180,000,000, representing banks licensed subsequent to April
12, 1933.

The addition of these banks would bring suspensions in 1933 up to

a total of 4,965 banks with deposits of ^,062,000,000, instead of 2,737
banks with deposits of $2,883,000,000 as used throughout this study.

Table

27 shows, by classes of banks, the number and deposits of banks suspended
during 1933 and the number and deposits of banks granted licenses between
April 12, 1933 and December 31, 1935.




~ 62 -

Table 27 —

BANKS SUSPENDED I I 1933 AND NON-LICENSED BANKS
I
GRANTED LICENSES
7
Derx>sits(ln thousands of dollars)
lumber of banks
Banks
Banks |
Banks
Banks
grant ed^/
Total
Total suspended granted
suspended licenses-'
licenses-^

National b inks
/
State member banks=y
Nonmember banks
State
Private
Total

1,192
195

941
103

251
92

1,730,033
834,083

1,453,898
697,529

276,135
136,554

3,461
117

1,593
100

1,868
17

1,483,915
14,090

718,932
12,353

764,983
1,737

4,965

2,737

2,228 4,062,121

2,882,712 1,179,409

1/ Includes non-licensed state member banks that withdrew from membership in
the Federal Reserve System prior to date of liquidation or receivership
or date of licensing.
2/ Includes banks licensed to reopen between April 12, 1933 and December 31,
1935 under existing charters, whether or not the banks required reorganization
and rehabilitation, capital correction, etc., prior to licensing.

While the addition of the 2,228 banks (granted licenses after April 12,
1933) to suspension figures would serve to emphasize the banking difficulties
in 1933, analysis of the figures for these 2,228 banks by states, geographic
divisions, and size of banks shows a distribution very similar to that of the
2,737 banics included as suspensions in 1933 in the present analyses.

V>ry little

data are available with respect to losses sustained by depositors in the process of reorganization or reopening of banks which were licensed after April
12, 1933 under their own charters.

It is safe to assume, however, that what-

ever the losses were they were not as great as losses sustained by depositors
in bonks which never obtained permission to reopen and were ultimately liqui-




~

63 -

dated through receivership or by sale to a now or existing bank!/.

De-

tailed figures covering banks granted licenses between April 12, 1933 and
December 31, 1935 according to states, geographic divisions, deposits,
loans and investments,

capital stock, and population of cities are

given in the appendix.

1/ By October 31, 1935, 90.59 percent of the total deposits had been released in 531 national b u i s licensed following the banking holiday
ic
under existing charters, compared with 58.1 percent of total deposits
in 554 national hanks placed in liquidation or receivership following
reorganization. The percentage covering 332 banks placed in receivership Trri.thout prior reorganization was not given. (See 1935 Annual
Report of the Comptroller of the Currency, page 45).




- 64

Preliminary draft
Confidential

-

BANK SUSPENSIONS, 1892-1935
CHAPTER IV
FEDERAL AID TO BANKS

Loans to open banks
In the autumn of 1931 the National Credit Corporation, a private
organization, was formed at the suggestion of the President to bolster the
financial structure of the weaker banks through the aid of the stronger
institutions.

This corporation made loans amounting to about ^155,000,000

by the end of January 19321/.

With the vast tide of suspensions during

the latter part of 1931, however, (l,6ll banks suspended during the last
half of 1931 with deposits aggregating more than 01,270,000,000) it was
evident that the Government itself must take immediate steps if a complete
collapse of the banking structure was to be avoided.

The Reconstruction

Finance Corporation was, therefore, organized in January 1932 and within
a very short time thereafter this organization began to make loans to
banks; by the middle of 1932 loans aggregating ^611,000,000 to about 3,600
banks had been authorized.

Table 28 shows, by quarters, cumulative figures

of the amount of loans to banks authorized and disbursed by the Reconstruction Finance Corporation from January 1932 to December 1935:

l/!fClosed and Distressed Banks,n Upham and Lamke, Page 7.
For statements of purpose of the corporation and for general plan of
organization and operation, see Federal Reserve Bulletin for
October 1931, pages 551-557.




~ 65 Table 28 —

LOANS BY THE RECONSTRUCTION FINANCE CORPORATION TO OPEN BANKS,
BY QUARTERS, FROM JANUARY 1932 THROUGH DECEMBER 1935
(Cumulative figures, in thousands of dollars)
Amount
authorized

Amount
disbursed

1932
First quarter
Second
"
Third
»
Fourth
"

156,009
615,391
809,313
893,745

124,107
487,062
675,254
810,110

117,886
419,965
525,537
576,178

1933
First quarter
Second
"
Third
»
Fourth
"

1,172,520
1,234,058
1,268,023
1,290,700

987,445
1,038,930
1,077,094
1,091,785

677,611
614,467
532,953
462,950

1934
First quarter
Second
"
Third
»
Fourth
"

1,309,442
1,322,062
1,326,733
1,329,2.39

1,103,080
1,122,110
1,130,377
1,133,063

353,066
290,110
259,949
229,184

1935
First quarter
Second
"
Third
"
Fourth
"

1,334,436
1,337,310
1,339,386
1,339,835

1,135,083
1,141,923
1,142,290
1,142,590

204,785
194,741
180,611
167,003

Quarter

Amount
outstanding;

In the light of later developments, including the closing of all
banks incident to the banking holiday, it is an open question whether
Reconstruction Finance Corporation loans to open ban-is in its effort to
support the collapsing banking structure were beneficial or detrimental
to the interest of depositors• [During 1932 and the early part of 1933»
however, when the bull: of these loans was made, it appeared most obvious
that wholesale suspensions could only be averted by such a course of
action on the part of this new Government agency.

In many cases, such

loans doubtless did furnish the assistance necessary to enable the banks



~

66 -

to £0 through the crisis without suspension, but in other cases the banks
which obtained Reconstruction finance Corporation aid eventually suspended.
Figures showing the number and deposits of banks that did not suspend after
being aided by the Reconstruction Finance Corporation, compared with those
that did suspend after such assistance, aro not available.
Where banks failed in spite of Reconstruction Finance Corporation
loans their depositors probably wore in a loss favorable position, at
least temporarily, than if their bank3 had not borrowed, as the banks1
good assets had been pledged to the Reconstruction Finance Corporation
and interest had to be borne by the depositors1 funds.

It would not be

practicable, however, to determine whether higher or lower losses would
have been sustained by depositors if Reconstruction Finance Corporation
aid had not boon extended, in view of the many factors that have affected
the value of bank assets since the banking holiday.

In individual cases

large depositors with knowledge of the banks1 borrowings may have boon
able to withdraw the bulk of their deposits, after the banks had been
aided by the Reconstruction Finance Corporation, leaving the smaller
uninformed depositors in a loss favorable position than if the loans had
not been made.

This, however, is not susceptible of statistical analysis.

In 1932 bank suspensions declined from their high 1931 level to S5
in August and to 67 in September, totaling 1,^33 for the year compared with
2,293 i^1 1931*

Temporarily there appeared to have been a restoration of

confidence in the banking structure.

The Reconstruction Finance Corpora-

tion during 1932 authorized loans to banks in an amount greater than the




~ 67 -

total amount of deposits involved in bank suspensions.

The heavy with-

drawals of deposits during the latter part of 1932 and early 1933, however,
in spite of the restrictions placed on deposit withdrawals by many banks
throughout the country and the declaration of local bank holidays, were
more than could be met by Reconstruction Finance Corporation loans, and
the national banking holiday in March 1933 resulted.

Nothing short of

complete guarantee of bank deposits by the Government, which may have required the absorption of heavy losses by the Treasury,could have averted
the closing of all b^nks.

Loans to closed banks

Deposits remaining tied up in banks that suspended in 1930 - 1932,
°9°
together with the approximately $4,500,000,/of deposits in banks that were
not granted licenses immediately following the banking holiday, constituted
a serious deflationary factor retarding recovery.

Agitation arose for the

Federal Government to take over the liquidation of closed banks and to make
depositors1 funds immediately available, and the task of assisting in the
liquidation of closed banks was turned over to the Reconstruction Finance
Corporation.

The Liquidation Division of the Reconstruction Finance

Corporation was established and machinery was set up to handle loans to
closed banks.

Banks that closed after January 1, 1933, were given first

attention; later loans were made to banks that closed prior to January 1933.
By June 1934 loans amounting to ^>802,000,000 had been authorized by the
Reconstruction Finance Corporation to closed banks, of which amount
$544,000 ,000 had been disbursed.

By this time the work of appraising assets

and making loans to closed banks was practically finished.



Table 29 gives

~ 68 cumulative figures of the amount of loans to closed banks authorized and
disbursed by the Reconstruction Finance Corporation, by quarters, from
January 1933 through December 1935.
Table 29 —

LOANS BY THE RECONSTRUCTION FINANCE CORPORATION TO
CLOSED BANKS, BY QUARTERS, FROM JANUARY 1933 THROUGH
DECEMBER 1935 1/
(Cumulative figures, in thousands of dollars)

Quarter

Amount
authorized

Amount
disbursed

Amount
outstanding

1933
First quarter
Second
"
Third
»
Fourth
"

97,535
193,112
321,260
572,230

78,251
150,663
249,258
383,377

48,292
99,918
181,397
291,604

1934
First quarter
Second
"
Third
"
Fourth
»

713,037
802,713
961,429
1,035,733

477,836
544,060
622,138
761,704

349,059
361,296
367,114
443,343

1935
First quarter
Second
»
Third
«
Fourth
»

1,069,976
1,117,928
1,140,972
1,170,157

795,632
822,557
850,551
876,125

372,065
320,135
287,399
245,725

l/ Includes loans to receivers, conservators, and liquidating agents,
loans through mortgage loan companies to aid closed banks, and loans
on assets of closed banks under Sec. 5e of the Reconstruction Finance
Corporation Act.

Loans to closed banks by the Reconstruction Finance Corporation provided immediate cash which, in the ordinary liquidation process, would not
have been available for distribution to depositors for a considerable length
of time.

Loans on the assets of closed banks provided the means for the

prompt opening of successor banks, at which a substantial part of the funds
of the closed banks became immediately available.



Such loans also avoided

~

69 of

the necessity of the dumping/large blocks of securities and mortgages by
the receivers of closed banks on an abnormally low market in an effort to
make depositors1 claims available.

It is quite probable, therefore, that

in spite of interest charges on loans by the Reconstruction Finance Corporation, depositors of banks realized a higher percentage of their claims than
would have been realized through the immediate liquidation of the banks
without such loans.

Strengthening of the capital structure of banks following the banking holiday-

Many of the banks that did not reopen immediately following the
banking holiday needed additional capital.

Existing stockholders and the

public in general could not, however, provide very much of the additional
capital funds necessary and the Government, through the Reconstruction
Finance Corporation, made extensive purchases of stock in such banks.

Banks

that had been licensed immediately following the banking holiday without
reorganization were invited to join in the program for strengthening the
capital structure of banks, and as a result many of the larger metropolitan
banks also sold capital stock to the Reconstruction Finance Corporation.
A large number of hanks were required to obtain additional capital funds
before admission to Federal deposit insurance.
By the end of June 1934 the program of capital rehibilitation was
well under way, the Reconstruction Finance Corporation having outstanding
on that date #814,707,000 investment in capital of banks.

At the end of

June 1.935 , which marked the approximate peak, the Reconstruction Finance
Corporation investment in preferred stock, capital notes and debentures




~ 70 of 5,752 banks amounted to #904,3^1,000.
amounted to $899,486,000.

On December 31, 1935, it

These figures are shown by quarters, from

January 1933 through December 1935, in table 30.

Table 30 —

PURCHASES BY THE RECONSTRUCTION FINANCE CORPORATION OF
PREFERRED STOCK AND CAPITAL NOTES OR DEBENTURES OF BANKS,
AND LOANS ON PREFERRED STOCK OF BANKS, BY QUARTERS, FROM
JANUARY 1933 THROUGH DECEMBER 1935
(Cumulative figures, in thousands of dollars)
Amount
authorized

Amount
disbursed

Amount
outstanding

1933
First quarter
Second
"
Third
«
Fourth
»

14,933
47,419
70,073
496,366

12,750
43,468
63,107
264,346

12,750
43,463
63,095
264,188

1934
First quarter
Second
"
Third
«
Fourth
«

932,623
1,047,659
1,104,772
1,156,904

493,577
817,303
890,775
938,004

593,039
814,707
827,660
865,083

1935
First quarter
Second
"
Third
»
Fourth
"

1,176,942
1,188,462
1,232,068
1,252,018

989,756
1,006,895
1,026,070
1,040,973

902,846
905,262
904,341
899,486

Quarter

A number of other Government agencies assisted in the liquidation
of bank assets, thereby strengthening the position of open banks and assisting in the liquidation of closed banks. Most of this aid consisted of the
replacement of "frozen" mortgages held in bank portfolios by marketable
bonds guaranteed by the Government.

In this refinancing program, preferred

consideration was given to cases threatened with foreclosure, -or where the




~

71 -

loans represented frozen assets ox closed banks.

For discussion of related

operations of Farm Credit Administration, Home Owners1 Loan Corporation,
etc., as well as for discussion of general activities of the Reconstruction
Finance Corporation, see Study No. 15, "Effect of Governmental Lending
Agencies and Postal Savings System upon Banks."




Preliminary draft
Confidential
BANK SUSPENSIONS, 1892-1935
CHAPTER V
LOSSES TO DEPOSITORS OF SUSPENDED BANKS

Depositors of banks suspended in this country have sustained losses
running into billions of dollars.

According to estimates prepared by the

Federal Deposit Insurance Corporation, depositors' losses in the banks that
000,
suspended during 1931-1934 amounted to more than §2,300,000,/in banks suspended during 1921-1930 to about $815,000,000, and in banks suspended during 1865-1920 to about #265,000,000.

Estimated losses in the 70-year

period 1865-1934 thus amounted to nearly ^3,500,000,000.

The figures are

summarized in Table 31•

Table 31 ~

Period

ESTIMATED LOSSES SUSTAINED BY UNSECURED DEPOSITORS IN
SUSPENDED BANKS, 1865-1934 2/
Estimated losses to depositors
(in thousands of dollars)
Total National
State and
all banks
banks
private. banks

Total, 1865-1934

3,411,029

1,129,719

2,281,310

1931-1934
1921-1930
1865-1920

2,333,121
815,309
262,599

879,711
196,100
53,908

1,453,410
619,209
208,691

1/ Estimate prepared by the Federal Deposit Insurance Corporation.
(See Table 33 of the 1934 Annual Report of the Federal Deposit Insurance
Corporation.)




- 73 ~
Available data with respect to losses resulting from closed banks
are rather sparce. Many of the banks that closed in recent years are still
in process of liquidation and it is impossible to determine the ultimate
losses in these banks.

Even in the case of banks completely liquidated,

reopened, or taken over by other banks, complete information is not available.

It is believed, however, that a fairly accurate measure of the losses

involved in closed banks can be obtained from such information as is available.

The following analysis is designed to show the rate of loss sustained

in (1) suspended banks reopened and taken over, and (2)
completely liquidated.

suspended banks

The material is presented by geographic divisions,

size of suspended banks, and population of cities in which the banks were
located.

The sources of the available data and the limitations thereof are

outlined below.
Source and scope of data for 1921-1930.

The information covering

the period 1921-1930, contained in this chapter, has been taken from data
prepared by the Federal Reserve System Committee on Branch, Group, and Chain
and covers both national and State banks.

Estimates of losses

1/ An individual schedule was obtained by the Committee for each bank that
suspended during the period, on the basis of which schedules the Committee^ compilations were prepared. The information presented reflects the status of the liquidation of the banks at the time the schedules
were px^epared (during the latter half of 1930 and the first half of 1931).
The time required for preparation of the schedules was several weeks
or even months in some of the states, and the date of the completion of
the schedules varied considerably from state to state.
Many complicating factors arose in the attempt to arrive at comparable
results representing losses to depositors in different states. The
detailed instructions prepared by the Committee when the original requests for data on suspensions were submitted to the Comptroller of the
Currency and the several State banking departments called for information on deposit claims only, divided into three classes: secured,
preferred,.and unsecured. It was particularly stressed that any departures



- 74 were made only with respect to claims of unsecured depositors, it having been
assumed that, unless the percentage of dividends paid to unsecured depositors
was abnormally low, preferred and secured depositors were paid in full.

In

those cases where the dividend payments (to unsecured depositors) were unusually low it is possible that the value of the collateral held by secured
depositors also may have been low, and that the secured claimants in such
cases suffered some loss.

Under the prevailing practice, secured creditors

receive the same dividend payments as unsecured creditors, until their
claius are met in full either from dividends or from the liquidation of
collateral held or both.

from this practice should be fully explained. Notwithstanding these
precautions, the returns from certain states showed that the data were
not always in the form requested, either because of inadvertence or
because they were not available in that form. In some states, for
instance, deposit claims were not segregated from other types of claims.
Moreover, the same types of liabilities were classified differently on
the suspension schedules from one state to another, sometimes apparently
because of a difference in statutory priority, and sometimes simply
because of a difference in the judgment of those who prepared the
schedules at the source.
An effort was made by the Committee, through further correspondence, to
determine in each statei (l) the statutory priority of lien of the
various types of deposits; (2) the precise character of deposits reported on the suspension schedules as (a) secured, (b) preferred, and
(c) unsecured; and (3) the precise character of other claims included
in the suspension schedules with depositors1 claims. The replies to
this inquiry were so diverse in character as to make impracticable any
attempt to show comparable results for the different states with respect to the claims of preferred or secured creditors and the payments
thereon in suspended state banks.
With respect to national bank suspensions for the period 1921-1930, it
was found that the work of segregating the claims of secured, preferred
and unsecured creditors was prohibitive; hence, for banks completely
liquidated or in process of liquidation, only the amount of claims of
unsecured depositors and the percentage payments thereon were obtained.
From the amount of claims of unsecured depositors . n the percentage of
ad
payments thereon, estimates have been made of the amounts paid to unsecured depositors. For banks reopened or takexi over, no losses of
secured or preferred claimants were recorded on suspension schedules.



~ 75 -

Source and scope of data for 1931-1935•

In connection with suspended

banks liquidated during the 5-year period 1931-1935, it was deemed impracticable, because of the magnitude of such an undertaking and the lack of
sufficient time, to forward requests to the Comptroller of the Currency and
to the various State banking authorities for sufficient data to permit the
compilation of statistics comparable to those used for the period 192.1-1930
by the Committee on Branch, Group and Chain Banking.

Consequently, the data

presented herein for banks liquidated during 1931-1935 were compiled
principally from annual reports of the Comptroller of the Currency in connection with national banks.
ing departments contain

Only a few of the annual reoorts of State bank. information on the subject, and a number of

such reports omit all reference to insolvent banks.

In the State reports

which contain such data, widely diverse methods of presentation are used by
the various supervisory authorities, and in most instances the information
presented was found to be of little value for the purposes desired.
For the period 1931-1935 the estimates in the case of national banks
represent losses sustained by all unsecured creditors, whereas in the
o/irlier period the estimates represent losses by unsecured depositors only.
The reason for this variation is that the Comptroller!s annual reports do
not show the portion of unsecured claims which is represented by unsecured
deposits.

It is believed, however, that in the majority of cases unsecured

claims consist almost entirely of deposits, since other claims against
national banks,such as those represented by bills payable or similar liabilities, were usually on a secured basis.

The Comptroller's reports do not

show the dollar amounts of creditors' unsecured claims, but the total
amounts of dividends paid are shown together with the percentage ratio of



~ 76 such dividends to unsecured claims, and, by applying the percentage ratio
to total dividend payments, an estimate of the original unsecured claims
was made.

Losses in suspended banks reopened or taken over.

1921-1930»

Unsecured depositors of banks which suspended and were

reopened or taken over during the 10-year period 1921-1930 suffered relatively
small losses, as a rule, compared with those incurred by depositors in banks
which were liquidated.

In Table 32 the suspended national and State banks

which were reopened or taken over during that period are classified according to the percentage of claims realized by unsecured depositors.

Table 32 —

NUMBER OF BANKS SUSPENDED AND REOPENED OR TAKEN-OVER
DURING 1921-1930, CLASSIFIED ACCORDING TO PERCENT
OF CLAIiiS REALIZED BY UNSECURED DEPOSITORS, BY
CLASSES OF BANKS U

Percent of unsecured
claims realized
(exclusive of offsets)

0% - 19%
20
40
60
80
100

-

39
59
79
99

Total

Number of banks
Total-National
National
and state
banks
banks

State
banks

6
31
94
114
48
904

1
7
17
9
119

6
30
87
97
39
785

1,197

153

1,044

—

1/ Banks suspended during 1921-1930 which had been reopened or taken over
by other institutions at the time the suspension schedules were prepared for the Committee on Branch, Group and Chain Banking. Figures
for 1 national bank and 139 State banks reopened or taken over during
the period are not available.




~

77

-

It will be noted that, of the 1,197 banks included in the tal>le9
90-4 or slightly more than 75 percent paid unsecured depositors in full,
• n that only 131 banks or roughly 11 percent of the total number
ad
secured depositors less than sixty cents on the dollar.

paid un-

There are in-*

stances, however, in which 'unsecured depositors received only 10 or 15 percent of their claims.

In Florida the deposits in most reopened banks were

frozen by waiver agreements for periods ranging from a few months to as many
as four or five years.

Under such circumstances it is evident that the

Florida percentages constitute nothing more than tentative estimates which
may or may not be actually realized.

Taken as a group, the West North

Central states made the poorest showing, nearly a fourth of all reopened and
taken-over banks in that area having paid depositors less than 60 percent of
their claims, as may be seen from table 33, which presents these figures
geographic divisions.

Table 33 -- NUMBER OF BANKS SUSPENDED AND REOPENED OR TAKEN OVER
DURING 1921-1930, CLASSIFIED ACCORDING TO PERCENT OF
CLAIMS REALIZED BY UNSECURED DEPOSITORS, BY
GEOGRAPHIC DIVISIONS V

Geographic
division

Total

Number of banks which paid unsecured
depositors the following percentages
of their claims (exclusive of offsets)
0%-99%\l00%
1
056-] . 9 $ 20%-39$ 140^-59%:-60^-79^ i 8
—

New England
Middle Atlantic
East North Central

2
15
184

—

West North Central
South Atlantic
East South Central

431
216
58

—

West South Central
Mountain
Pacific

203
64
24

Total

1,197

—

—

—

—

2
14
156

2

5

1
14

27

65
10
1

55
15
2

1

6
4
3

17
6
4

6
5
1

173
49
16

31

9-4

114

48

904

—

—

6

—

1

— —

—
—

—

—

—

6

—

7
21
8
—

257
183
54

1/ Banks suspended during 1921-1930 which had been reopened or taken over by
other institutions at the time the suspension schedules were prepared for
the Committee on Branch, Group and Chain Banking. Figures for 1 national

http://fraser.stlouisfed.org/ bank and 139 State banks reopened or taken over during the period are not
available.
Federal Reserve Bank of St. Louis

~ 78 The dollar anounts of losses to unsecured depositors in reopened
and taken-over banks were not always reported.. They were computed in each
case, however, by multiplying total deposits by the reported percentage
loss.

If it is assumed that about the same average proportionate loss

occurred .among the 140 banks for which no information as to losses was reported, as among other reopened and taken-over banks in the same areas,
the total losses sustained by unsecured depositors in the 1,337 banks which
suspended or were taken-over during 1921-1930 aggregated approximately
#54,000,000.

deposits of these 1,337 banks aggregated $487,000,000-/

and, therefore, the unsecured depositors suffered an average loss of about
11 percent.. For the 154 national banks the estimated loss was about 8 percent of total unsecured deposits, and for the 1,183 State banks it was
nearly 12 percent.

Estimated losses of national

and State banks reopened

or taken over during 1921-1930 are given, by geographic divisions, in
table 34.

2 J Condition figures reported on the suspension schedules for national banks
are as of the last examiner!s or call report prior to suspension, rather
than at time of closing. Since deposits ordinarily decline somewhat as
suspension approaches, some overstatement of estimated losses results
from the computation of losses by multiplying the percentage of loss in
each bank by deposits as shown on the suspension schedules.




~ 79 Table 34 —

TOTAL ESTIMATED LOSSES TO UNSECURED DEPOSITORS OF 1,337
BANKS WHICH SUSPENDED AND WERE REOPENED OR TAKEN OVER
DURING 1921-1930 ±J
(In thousands of dollars)
National and
State banks

Geographic
division

—

New England
Middle Atlantic
East North Central

. 257
6,607

State
banks

National
banks

—

—

•257
2.15

—

-.6,392.

West North Central
South Atlantic
East South Central

32,109
7,542
566

1,046
232
53

31,063
7,310
513

West South Central
Mountain
Pacific

2,432
2,517
2,051

925
1,377
1,633

1,507
l,l4o
418

54,081

5,738

48,343

Total

1/ Banks suspended during 1921-1930 which had been reopened or taken over
by other institutions at the time the suspension schedules were prepared for the Committee on Branch, Group and Chain Banking. Figures
for 1 national t>*ak < r d A39 State banks reopened or taken over during
ai
the period are not availa&Le.
1931-1935.

Information in connection with losses to unsecured

creditors of suspended banks reopened or taken-over during the period 19311935 is not available.

However, available data in connection with national

banks which were not given licenses immediately after the banking holiday
but which were licensed later on indicate that unsecured depositors of such
banks sustained relatively small losses, as compared with losses sustained
by depositors of unlicensed national banks placed in receivership^.
Data with respect to the losses sustained by depositors in banks
that were, not licensed immediately following the banking holiday in March
1933 are available only for national banks.

Between 4,500 and 5,000 national

1/ See 1935 Annual Report of the Comptroller of the Currency, page 45 .



~

80 -

and State banks were not granted licenses at the end of the banking holiday,
and their deposits aggregated about $4,$00,000,000.

More than 2,700 of these

banks with deposits of approximately $1,700,000,000 were reorganized and
eventually reopened under their own charters.

From rather sparce data

available with respect to national banks it appears that the rate of loss
was comparatively low at such banks (about the same as experienced by suspended banks reopened and taken over

during 1921-1930).

Figures for

unlicensed national banks placed in receivership and completely liquidated
by 1935 are included in the figures presented in the next section, which
relates to suspended national banks completely liquidated during 1931-1935.
Depositors of unlicensed national banks which were placed in voluntary
liquidation, rather than in receivership, had received approximately 69
cents on the dollar by October 31, 1935 y .

Since that time, additional

amounts have been released to depositors in these banks which will increase
the return somewhat.

Losses in suspended banks which have been completely liquidated.
National bariKS.

Of the 2,558 national banks which suspended

operations during the 15 years 1921-1935, 267 had been completely liquidated
at the time the data for the period 1921-1930 were compiled by the Federal
Reserve Committee on Branch, Group, and Chain Banking, and U2-0 additional
national banks had been completely liquidated by October 31, 1935.
During the 10-year period 1921-1930, receivers for 267 national
banks allowed claims to unsecured depositors, as distinugished from claims
1/ See 1935 Annual Report of the Comptroller of the Currency, page- 45.
2/ Exclusive of 4 banks that had only nominal amounts of assets administered
by receivers, the majority of creditors' claims having been assumed
by purchasing banks, also of 42 banks that had no unsecured claims

when receivers were appointed.


~

81 -

of preferred or secured creditors, in the amount of $68,489,000^/, on which
aggregate payments of >34,034,000 were made.

Unsecured depositors, there-

fore, received about 50 cents on the dollar, exclusive of offsets*!/.
During the 5-year period 1931-1935, receivers for 423 national banks
allowed claims to unsecured creditors to the extent of £>148,771,000, on
which aggregate payments of ^92,205,000 were made.

Unsecured creditors,

therefore, received approximately 62 cents on the dollar, exclusive of
offsets, which represents a considerable improvement over payments during
the earlier period.
State banks.

Corresponding data for completely liquidated State

banks for the period 1921-1930 are much less satisfactory than in the case
of national banks, and for the period 1931-1935 no such figures whatever
are available at this time.

As heretofore stated, no attempt has been made

to obtain the required data from the various State supervisory authorities
for the latter period, and the annual reports of State banking departments
contain only fragmentary information on the subject.
Of the 1,130 suspended State banks which were liquidated during
the earlier period 1921-1930, satisfactory data as to claims and payments
were received on only 988.

Aggregate unsecured claims in these 988 banks

amounted to £1.55,809,000, on which payments of >90,891,000 were made, depositors thus receiving an average of.58.3 cents on the dollar, exclusive
of offsets.

1/ This figure includes a negligible amount of claims of secured creditors
which it has not been possible to segregate*
2/ A depositor who is also a borrower usually has his deposit applied
against his indebtedness to the bank.




~

82 By geographic divisions and States.

Considerable differences are

shown by a study of results for individual States and geographic districts.
In table 35 the average percentage of claims received by unsecured creditors
of completely liquidated banics are shown by geographic divisions.

From

the table it is evident that, in general, depositors in the areas which
have had the most failures have realized the smallest percentage of their
claims upon liquidation.

Depositors in mid-western States, on the whole,

suffered larger losses proportionately than those in the eastern portion of
the United States.

This is true of banks liquidated during 1921-1930 and

of those liquidated in 1931-1935.
Table 35 —

PERCENTAGE OF CLAIMS REALIZED BY UNSECURED DEPOSITORS
AND CREDITORS OF SUSPENDED BANKS, BY GEOGRAPHIC DIVISIONS

Geographic
division

Average percentage of claims
realized by unsecured depositors
in 1,255 completely liquidated
national and State bonks!/
988 State
267 National
banks 3/
banks

Average percentage
of claims realized
by unsecured creditors in 423 ,
national banks^/

New England
Middle Atlantic
East North Central

67.0
80.5
59.0

100.0
88.6
68.5

76. A

West North Central
South Atlantic
East South Central

50.6
54.6
94.0

55.5
43.3
74.4

58.9
58.7
75.4

West South Central
Mountain
Pacific

45.4
42.5
61.9

49.6
58.1
73.7

57.1
56.1
62.4

49.7

58.3

62.0

United States

83.1
65.2

1/ Banks suspending during 1921-1930 which had been completely liquidated at
the time the schedules were prepared for the Committee on Branch, Grout) and
Chain Banking, with the exception of 142 State banKs for which information
as to claim;? and payments was not available.
2/ Banks suspending during 1921-1935 which had been completely liquidated by
October 31, 1935. Exclusive of 4 banks that had only nominal amounts of
assets administered by receivers, the majority of creditors1 claims having
been assumed by purchasing banks, also of 42 national banks that had no

unsecured claims when receivers were appointed.
http://fraser.stlouisfed.org/
3/ Guaranty Fund payments included.
Federal Reserve Bank of St. Louis

~ 83 Within each geographic division there are appreciable differences
arsong the several States in the percentage of deposits lost by unsecured
depositors of suspended banks, as is shown by tables included in the
appendix.

Leaving out of consideration those States in which the number of

banks that have been completely liquidated is inadequate to give a fair
indication of what more inclusive data might show, the proportion of unsecured claims realized in national banks completely liquidated during the
period 1921-1930 ranged from 28 percent in Montana, 35 percent in Oklahoma
and 37 percent in Idaho to 65 percent in Iowa, 66 percent in Wyoming and
67 percent in California.

For national banks liquidated during the period

1931-1935, realized claims were higher on the average, ranging from 32. percent in Alabama and AA percent in South Dakota to 75 percent in California,
79 percent in New York and 92 percent in Ohio.
In the case of suspended State banks completely liquidated during
1921-1930, the proportion of claims realized by unsecured depositors ranged
from 28 percent in North Dakota, 32 percent in Arkansas and 35 percent in
Montana to 66 percent in Colorado, 73 percent in Washington, 83 percent in
Tennessee, 8A percent in Texas and 100 percent in Nebraska.
Explanation of differences in rate of loss in national banks
compared with State banks.

The Nebraska banks which were reported as having

been completely liquidated during 1921-1930 all failed during 1921-1923,
when the Depositors1 Guaranty Fund was still in operation.

For a period of

years the depositors in suspended Nebraska State banks were paid in full,
the difference between the amount realized from a bank's assets and the liabilities assumed being paid out of the Depositors' Guaranty Fund.

In later

years, however, as bank failures increased, tne Guaranty Fund was inadequate
to pay all deposit claims.




By 1930 a deficit of about $20,000,000 is

~ 84 reported to have accumulated, and the Guaranty Fund law was repealed early
in that year.

The deficit at that time was greater than the total capital

stock of all active State banks in the State*
In seven other States the operation of State guaranty deposit funds
increased during a limited period the returns which depositors in State
banks received.

The guaranty funds were responsible in part for the fact

that, as shown in table 35, depositors in the liquidated State banks received a higher percentage of their claims than those in national banks.
The majority of the banks included in that table suspended during the early
part of the period under study, when several of the guaranty funds were
still in operation.

After the guaranty funds became inoperative, however,

the depositors of many State banks which had contributed heavily to the
maintenance of these funds received no benefits therefrom.
Oklahoma passed a guaranty laxv in 1907; Kansas, Nebraska, and Texas
in 1909; Mississippi in 1914? South Dakota in 1915; and North Dakota and
Washington in 1917.

In six of these States, all except Kansas and Wash-

ington, membership in the guaranty system was compulsory for all State banks.
In all of these States it was the intention that the guaranty funds should
be built up and maintained by initial, annual, and special assessments on
the banks.

Increasing bank failures after 1920, however, disrupted all of

the systems, leaving in all cases substantial deficiencies in the guaranty
funds.

These deficiencies ranged from three or four million dollars to over

thirty million dollars, according to a statement of the Comptroller of the
Currency to the Subcommittee of the Committee on Banking and Currency of the
House

In Washington the guaranty fund was inoperative

1/ 72nd Congress, 1st Session, Hearings on H.R. (10241) 11362.



~

85 -

after 1921, and the Oklahoma law, after an experience of 15 years, was
repealed in 1923.

The laws in the other six States were either repealed or

became inoperative in the period 1927-1930.
Another important factor in the differences between national and
State bank payments, as shown in table 35, is that the data for completely
liquidated State banks are not strictly comparable with those for national
banks.

Claims of preferred and secured creditors and the payments thereon

were not segregated from the claims of unsecured depositors in the case of
some State banks.

This fact would tend to improve the showing of State

banks, since a higher percentage is paid on the claims of secured and preferred creditors.

In some States, Idaho and Oregon*for example, the de-

positors are preferred by law over other creditors.
creases the depositors1 share of dividends.

This, of course, in-

Furthermore, the data for 142

completely liquidated State banks were too fragmentary to be included in
the tabulations.

While there is no proof that depositors in these banks

received a low percentage of claims, many of the 142 omitted cases were in
States in which the payments received by depositors were well below the
average for all completely liquidated State

banks.

The figures for national and State bmks for the period 1921-1930,
by States, are shown in the appendix.

In most of the States and in some

of the geographic divisions the number of cases of completely liquidated
laanks is so small that comparisons of national and State banks are practically
meaningless.

In some of the States, however, where suspensions have been

heaviest and where significant comparisons can be made, the national banks
show a higher percentageof claims realized than do State banks, notably in
Iowa, Minnesota, North Dakota, and Wyoming.

For the majority of States and

for the country as a whole, however, available data indicates that the State



~ 86 banks (partly because of the guaranty funds) showed somewhat better liquidating results for the period 1921-1930.

As previously stated, no comparable

data whatever are available for State banks for the period since 1930.

Losses by Size of Banks.

The classification of banks reopened, taken-over, and completely
liquidated during the period 1921-1930, according to size, as presented in
table 36, shows that depositors in banks with loans and investments of
$1,000,000 and over realized a somewhat higher percentage of claims than
depositors in smaller banks.

Within the group of banks with less than

&1,000,000 of loans and investments, however, size appears to have little
relation to the percentage of claims paid, for banks with less than $150,000
of loans and investments paid approximately the same percentage ox claims
as those with $500,000 to $1,000,000 of loans and investments.




~ 87 Table 36 —

DISTRIBUTION OF REOPENED, TAKEN-OVER, AND COMPLETELY
LIQUIDATED NATIONAL AND STATE BANKS', ACCORDING TO PERCENT
OF CLAIMS REALIZED BY UNSECURED DEPOSITORS AND BY SIZE
OF LOANS AND INVESTMENTS 1/

Size group loans and
investments

Number of banks which paid unsecured depositors the
following percentages of their claims
(exclusive of offsets):
Less than
80-100$
Total
40-79$
m

Under §150,000
150,000-500,000
500,000-1,000,000
1,000,000 and over

233
239
47
14

268
320
76
36

539
553
120
78

1,040
1,112
243
128

Total

533

700

1,290

2,523

Percent of b -\nks which paid unsecured depositors
the above nercentages of their claims (exclusive
of offsets)
Under $150,000
150,000-500,000
500,000-1,000,000
1,000,000 and over
Total

22.5
21.5
19.5
10.9

25,7
28.8
31.3
28.1

51.8
49.7
49.3
61.0

100.0
100.0
100.0
100.0

21.2

27.7

51.1

100.0

1/ Banks suspending during 1921-1930 which had been reopened, taken-over,
or liquidated at the tine the suspension schedules were prepared for
the Committee on Branch, Group and Chain Banking during the last half
of 1930 and the first half of 1931, excluding 211 banks for which
information is not available as to the percentage of claims realized
by depositors.

Comparable data for national and State banks are not available for
the period 1931-1935.

The appendix contains, however, a distribution of

suspended national banks completely liquidated during the period 1931-1935
according to the percentage of claims realized by unsecured creditors and
according to total assets at date of suspension.

Such figures indicate that,

insofar as the period of liquidation 1931-1935 is concerned, there is
relatively little difference, as between large and small banks, in the per centage


of claims realized by unsecured creditors.

~ 88 Losses by Size of Towns
The average percentage of claims realized by depositors in completely
liquidated banks, distributed by the size of towns in which the suspended
banks were located, is shown below.
Table 37 —

Population
of town
Under 1,000
1,000-5,000
5,000-10,000

10,000-25,000
25,000 and over
Total

PERCENTAGE OF CLAIMS REALISED BY UNSECURED DEPOSITORS
AND CREDITORS IN SUSPENDED BANKS, BY SIZE OF TOWN
Average percentage of claims realized by
Unsecured depositors in 1,255 Unsecured creditors
completely liquidated
.
in 423 national
national and State banksi/
banksfy
49,0
53.6
67.7
67.3

55.8
55.7
68.4
64.3
77.3

55.7

62.0

52.0

1/ Banks suspending during 1921-1930 which had been completely liquidated
at the time the schedules were prepared for the Committee on Branch,
Group and Chain Banking, with the exception of 142 State banks for
which information as to claims and payments was not available.
2/ Banks suspending during 1921-1935 which had been completely liquidated by
October 31, 1935. Exclusive of 4 banks that had only nominal amounts
of assets administered by receivers, the majority of creditors* claims
having been assumed by purchasing banks, also of 42 national banks that
had no unsecured claims when receivers were appointed.

The table shows that, ih the case of 1,255 national and State banks
completely liquidated during the 10-year period 1921-1930, unsecured depositors of suspended banks in towns with a population under 1,000 realized
an average of 49 percent of their claims, and that the percentage increased
as the size of towns increased to an average of 67 percent in the case of
suspended banks located in places with a population of 25,000 and over.




~ 89 Similarly, in the case of 423 national banks liquidated during the 5-year
period 1931-1935 the percentage of claims realized by unsecured creditors
rose from 56 percent in the case of banks located in places with a population under 1,000 to 77 percent at banks located in places with a population
of 25,000 and over.

Losses by year of suspension

The percentage of claims realized by unsecured depositors and
creditors of banks suspended in the early 1920's was lower than at tanks
suspended later, except in the case of State banks during the early years
of operation of the deposit guaranty funds.

Only very general comparisons

by year of suspension can be made, however, because of the fact that the
amount collected by receivers is greatly affected by changes in the values
of bank assets after suspension.

The recovery of values since the banking

holiday, for example, has made it possible in many cases to pay creditors in
full.

Another factor which makes such comparisons inconclusive is that many

of the banks suspended in the later years have not as yet been completely
liquidated, particularly those that were most heavily involved, with the
result that the indicated experience of banks suspended in recent years and
already liquidated is not a true average.

Still another factor making for

a high rate of return on claims against banks closed in recent years is the
granting of loans by the Reconstruction Finance Corporation to receivers
of closed banks for the very purpose of expediting dividends to depositors.
Nevertheless, there were factors in the early 1920!s which made for low
dividends to unsecured depositors, such as the heavy borrowings so common
to the post-war period.



The table below shows such data by year of

~

90 -

suspension as are avaixabiesubject to the limitations already indicated.
It also indicates the relatively large part of collections by national
bank receivers used to make payments to secured and preferred creditors
in the early years, which, of course, had an adverse effect on payments
to unsecured depositors.
Table 33 —

Year of
suspension

19a

PERCENTAGE OF CLAIMS REALIZED BY UNSECURED DEPOSITORS
AND CREDITORS OF SUSPENDED BANKS, BY YEAR OF SUSPENSION

Average percentage of
claims realized by unsecured depositors in
1,255 completely liquidated national and
state banks 1/
267 national 988 State,
b anks -a
banks

Average perPercentage of payments
centage of
from collections
claims realized made to secured and
by unsecured
preferred
creditors
creditors
in 423
national
267 national|423 Natjanal
banks*/
banks!/ I banksii/

1922
1923
1924

35.1
40.6
35.9
51.3

60.3
43.1
49.3
45.3

3/
y
30.0
55.1

3/
3/
51.6
44.7

82.5
79.2
59.1
48.8

1925
1926
1927
1928

58.5
71.6
61.0
2/

50.4
58.8
68.0
3/

59.7
51.4
60.2
64.4

34.5
24.1
40.9
3/

39.7
41.3
36.2
42.0

%
3/

59.6
81.7
80.0

3/
3/
3/

38.7
39.6
28.4

1929
1930
1931

K
3/

l/Banks suspending during 1921-1930 which had been completely liquidated at the
time the schedules were prepared for the Committee on Branch, Group and
Chain Banking, with the exception of 142 State banks for which information
as to claims and payments was not available.
2/ Guaranty Fund payments included.
3/ Percentages omitted because the number of banks is not sufficient to
produce a significant av^ri^e.
4/ Banks suspending during 1921-19^5 which had been completely liquidated by
October 31, 1935. Exclusive of 4 banks that had only nominal amounts of
assets administered by receivers, the majority of creditors1 claims having
been assumed by purchasing banks, also of 42 national banks that had no
unsecured claims when receivers were appointed.



- 91 BANK 'SUSPENSIONS, 1892-1935

Preliminary draft
Confidential

CHAPTER VI

EXPENSES OF LIQUIDATION AND LOSSES TO STOCKHOLDERS
OF SUSPENDED BANKS

Expenses of liquidation

National banks.
and costly process.

Liquidation of suspended banks is generally a slow

In order to throw some light on these costs, the ex-

penses of liquidating national banks during 1921-1935 have been compiled
from annual reports of the Comptroller of the Currency

and computations

have been made of the ratios of such expenses to total assets at time of
suspension and to collections from these assets.

The-ratios are presented

by geographic divisions in table 39 for national banks completely liquidated
during 1921-1930 and 1931-1935, respectively.

A comparison of the two

periods shows that the average ratio of expenses to total assets declined
slightly, for the United States as a whole, from 5 percent for 267 suspended
national banks whose liquidation was completed during the earlier period
to 4.7 percent for 465 national banks completely liquidated during 1931-1935.
The ratio of expenses to total collections declined in a larger proportion,
from 8.5 percent to 6.4 percent.

The lov?er average ratios in the period

1931-1935 may be accounted for in part by the fact that, of the 465 banks
liquidated in this period, 73 paid unsecured creditors 90-100 percent of
their claims and incurred less expenses because the liquidation period
generally \Tas shorter.

In the latest annual report of the Comptroller of

the Currency, however, it is stated that during the past two years . n
a
entirely new item of expense has been incurred in the liquidation of national




- 92 ~
banks, namely, interest paid on money borrowed from the Reconstruction
Finance Corporation against assets in closed banks for the purpose of
expediting payments to creditors.
Table 39 - RATIOS OF EXPENSES OF LIQUIDATION OF NATIONAL BANKS TO
TOTAL ASSETS AT TIME OF SUSPENSION AND TO COLLECTIONS
FROM SUCH ASSETS, BY GEOGRAPHIC DIVISIONS

Geographic
division

Ratio of expenses to
assets at tine
of suspension
267 banks
465 banks
liquidated in liquidated in
1931-19352/
1921-1930y

Ratio of expenses
to collections
from assets
465 banks
267 banks
liquidated in
liquidated in
1921-19301/
1931-19353/

New England
Middle Atlantic
East North Central

2J20.0
3.2
3.8

4.5
3.3
4.6

•2/13.7
4.5
5.0

4.9
4.8
5.7

West North Central
South Atlantic
East North Central

5.5
5.4
4.0

5.4
3.5
2.2

9.3
9.6
6.4

7.6
4.7
3.0

West North Central
Mountain
Pacific

4.1
5.3
5.9

5.2
4.6
5.6

7.2
9.6
8.1

7.9
6.5
6.6

5.0

4.7

8.5

6.4

United States

1/ Banks which suspended during 1921-1930 and which had been completely
liquidated at the time the suspension schedules were prepared.
2/ Banks which suspended during 1921-1935 and which were completely
liquidated during the period October 31, 1930 to October 31, 1935.
3/ Not representative —

covers only 1 small bank.

Considerable variations in the ratio of expenses of liquidation are
evident in different sections of the country.

Too few banks are included,

however, in the figures for some of the geographic divisions to justify very
definite conclusions.



Nevertheless it is clear that the ratios of expenses

- 93 of liquidation to total assets and to total collections were highest at
banks in the western states, wher- suspensions were most numerous.
Table AO gives a percentage distribution of national banks completely liquidated during 1921-1930 and 1931-1935, by amount of total
assets and by ratio of expenses of liquidation to total assets.

The table

shows that the expenses of liquidation in proportion to total assets have
been materially higher at the smaller banks than at the larger banks
about 25 percent of the small national banks during both periods were
liquidated at a cost of more than 10 cents oer $1 of assets remaining at
the time of suspension, whereas the expenses of liquidating the majority
of the larger banks was less than U cents per $1 of book assets at time of
suspension.




~ 94 Table 40 —

PERCENTAGE DISTRIBUTION OF LIQUIDATED NATIONAL BANKS,
BY AMOUNT OF TOTAL ASSETS AND BY RATIO OF EXPENSES
OF LIQUIDATION TO TOTAL ASSETS

Size group —
total assets

Percentage of liquidated banks with following ratios
of expenses of liquidation to total assets
4$
10$
Total
4-6$
6-8$
8-10$ 1 or over
or less
267 banks liquidated in 1921-1930^

Under §250,000
250',000-500,000

500,000-1,000,000

1,000,000 and over
Total

13.6
9.9
42.9
66.7

11.8
35.8
46.9
18.5

26.4
30.8
8.2
11,1

23.6
12.4

23.2

26.2

22.9

14.2

2.0

24.6
11.1

100.0
100.0
100.0
100.0

13.5

100.0

3.7

465 bamcs liquidated in 1931-1935^
Under ^250,000
250,000-500,000
500,000-1,000,000
1,000,000 and over
Total

13.0
10.3
25.9
55.5

20.7
32.6
44.7
38.9

21.3
23.0
25.9
3.7

18.4
20.8
2.3
1.9

26.6
13.3
1.2

100.0
100.0
100.0
100.0

19.9

31.2

20.5

14.0

14.4

100.0

1/ Banks which suspended during 1921-1930 and which had been completely
liquidated at the time the suspension schedules were prepared.
2/ Banks which suspended during 1921-1935 and which were completely
liquiaated during the period October 31, 1930 to October 31, 1935.

State banks.

Comparable information in connection with the expense of

liquidating State banks is not available, since annual reports of State bank
commissioners generally give little or no data on the subject.

In the case

of three states, however, where the annual reports do contain sufficient information to permit the calculation of the ratios of expenses of liquidation
to total collections from assets, the following ratios have been derived;




- 95 ~

Period

Number of
banks
completely
liquidated

Oregon
1921-1934
North Carolina 1927-1934
Michigan!/
1889-^935

28
79
22

Ratio of expenses
of liquidation to
total collections
(percent)
7.16
8.44
11.10

1/ Court receiverships only.

The Oregon ratio is about the same as the average for national banks,
while the ratio for North Carolina is somewhat higher and that for Michigan
materially higher.

The Michigan ratio, however, relates to court receiver-

ships only.

Losses to stockholders of suspended banks

The 5,712 banks that suspended during 1921-1929 had an aggregate
capital stock of 0225,000,000 and the 7,924 that suspended during 1930-1935
had an aggregate capital stock of $780,000,000, or a total of $1,000,000,000
for the 15-year period.

In view of the heavy losses sustained by bank de-

positors, even after collections from assessments made upon stockholders, it
is obvious that the stockholders lost practically their entire capital investment, apart from assessments paid under the double liability clausel/.

At

the time of suspension, of course, any surplus and undivided profits shown
by the books of suspended banks was non-existent, since even the capital
stock account was impaired in nearly all cases.

Even the aggregate amount

of capital stock of the suspended banks and of assessments collected does
not adequately measure the losses sustained by stockholders, as many of
1/ Recent changes in the National Bank Act . n in the banking laws of many
ad
States have done away with assessments on stockholders of insolvent b*nks.




~ 96 them purchased the stock considerably above par value and in some cases
the stock could have been sola far above par value when times were good
and bank earnings were high.

Nevertheless, the only satisfactory measure

of losses sustained by depositors are the figures of capital stock of suspended banks and such data as are available with respect to assessments
collected from the stockholders.
A computation made covering 267 suspended national banks which were
completely liquidated during the period 1921-1930 indicates that collections
on assessments averaged 45 percent of the aggregate capital stock, and a
similar computation recently made covering 465 suspended national banks
completely liquidated during 1931-1935 gives practically the same ratio.
The only corresponding information now available for State banks relates
to 529 suspended State banks that were completely liquidated during the
period 1921-1930; In the case of these banks collections averaged37
percent of aggregate

holdings of capital stock.

In many instances, also, a considerable amount of assessments
were collected before the suspension of the banks, in fact, in the case
of 927 national banks which suspended during the period 1921-1930 it was
found that assessments prior to suspension averaged 34 percent of capital
stock.

Data regarding assessments on shareholders of State banks prior

to suspension are much less satisfactory than for national banks, but thestudy made by the Federal Reserve Committee on Branch, Group and Chain
Banking indicates that, in a number of States where the information was




~ 97 -

reported, assessments before suspension averaged around 30 to 35 percent
of capital stock, or about the same as in the case of national banks.

On

the other hand, many of the States with heavy suspensions reported practically no or very little assessments before suspension.

It is known, how*-

ever5 that in many instances important directors or stockholders (of
national as well as of State banks) either made large outright contributions
to capital accounts of banks in efforts to save their institutions, or
purchased at book value worthless or questionable assets.

Furthermore,

in some instances large amounts of such assets have been transferred to
affiliated companies organized or used for that purpose.
Assessments in the case of suspended banks which were later reopened or taken over were probably not as high as those liquidated, but
it is likely that a higher percentage of such assessments was collected.
While there are no data to base an estimate of collections from suspended
banks reopened or taken over, there is no reason to suppose they would
average materially lower than in the case of liquidated banks.
In the above circumstances, it would appear that losses sustained
by stockholders of national and State banks suspended during 19.2L-1935
amounted to at least §1,400,000,000, made up as followsi




- 98
Table 4l —

ESTIMATED LOSSES SUSTAINED BY STOCKHOLDERS OF
SUSPENDED NATIONAL AND STATE BANKS, 1921-1935
(In thousands of dollars)
Total

Capital stock of banks
suspended in —
1921-1929
1930-1935

219,350
772,753

National
banks

47,352
261,846

i

State
banks

171,998
510,907

Est-ima+.prt flRRPSfiTUPn'hs
252,675
Total

1,383,917

448,337

935,580

1/ 45 percent of capital stock in the case of national banks and 37 percent
in the case of State banks.

Available statistics by states and classes of banks, pertaining
to losses sustained by stockholders of suspended banks, are shown in the
appendix.




Preliminary draft
Confidential

~ 99 -

BASK SUSF5IJSI0ITS, 1892-1935

CHAPTER VII
CAUSES 07 BAHI SUSPENSIONS

The foregoing review of bank suspensions in the United States
shows that in "good times" as well as in "bad times" large numbers of
banks have suspended, involving depositors' losses running into billions
of dollars, and when through successive years of economic depression
conditions became steadily worse the banking structure collapsed completely.

This cloarly demonstrates that our banking structure has been

indefensibly weak*

Some measures of reform have been adopted, particu-

larly in the last few years, but these corrections have not exhausted
all of the channels of improvement. The complete correction or reform
of the banking structure can be accomplished only if the causes of
weakness and failure are known and understood.

"Causes" of bank sus-

pensions, however, cannot be enumerated in a straight-forward list,
since the underlying factors are by no means coordinate and of equal
importance; thoy are likely to occur in a number of combinations and
with different degrees of importance in different circumstances, and
individual failures often are the result of a combination of causes
varying in importance and character.
"Immediate" causes of bank failures.

In our long, failure-rstudded

history of banking most of the institutions which suspended business were
subsequently proved to be insolvent.

This, however, does not prove that

insolvency is the prime cause of failure.
banks



Indeed the large number of

which were found to be insolvent and unworthy of support at the

~ 100 time of the banking holiday is substantive proof that insolvent "banks
can, with good luck and without supervisory interferenco, remain open
for a long time. The immediate factor which has caused banks to fail
has almost always been the lack of cash.

In a few instances supervisory

authorities have closed banks before cash shortages wore evident

and in

other instances boards of directors have closed their banks before cash
reserves were depleted, but generally this action was in contemplation
of an inevitable shortage of cash. Such shortages are almost always due
to deposit losses; which, in turn, arise from a number of circumstances.
In some cases, the confidence of depositors has been shattered, and the
resulting withdrawals of deposits through either the tellers1 windows or
the clearing houses have reduced cash reserves*

In other instances, as

in the case of agricultural communities or other areas where seasonal
industries predominate, payments are made to outsiders during the production season in excess of cash income, resulting also in depleted cash reserves*

In declining communities the excess of payments to outsiders con-

stitutes a regular drain on the cash reserves of the local bank or banks,
Fundamental or underlying causes. While the loss of cash reserves
is the immediate cause of the majority of suspensions it is not the fundamental or underlying cause. The loss of cash is something that can happen
to almost any bank, and by the tenets

of sound banking this contingency

should be provided for in the loan, investment, and reserve policies.

The

inability to replenish cash reserves is a condition which arises from
holding assets of an inferior quality —

assets which cannot be sold with-

out loss or used as collateral for borrowing.

It is usual among authori-

ties to charge this regrettable condition to bad management;

it is cer-

tainly reasonable to assume that with management of the highest integrity



~

101 -

and intelligence there would have been fewer bank suspensions. The supposition of management of the highest order, however, is rather contrary to
the characteristics of our banking structure*

In the two decades follow-

ing the turn of the century the number of new banks organized was considerable, and with this expansion in the number of banks during a relatively
short period the quality of bank personnel declined.
Whinesses in the banking structure»

Many factors of weakness in

the banking structure have previously been demonstrated in the chapter
dealing with the distribution of bank suspensions among the various sizes
of banksv.communities, etc.

The preponderance of failures among the small

banks and in small communities, particularly in the States that experienced
a considerable expansion in the number of banks during the first two decades
of this century, is convincing evidence that there were too many banks.
Another weakness of the structure was revealed by tho large number
of failures of very large banks in 1930 - 1933» rainy of which had grown
rapidly as a result of promotional methods or had been associated with the
promotional development of large groups and chains. The failures of such
banks as the Bank of the United States, How York City, and of two large
banks in both Detroit and Cleveland, demonstrate that size attained in a
competitive market of mergers and consolidations may be quite disadvantageous. The advantages of size gained by the bank itself through participation in expanding group banking organizations wore not necessarily beneficial
to the general ran of depositors, as the weakness of parts of such organizations spread and affect affiliated banks.
In a nunber of cases banks have been forced to close because of
the loss of cash funds sustained in the failure of an important city
correspondent. For example, a number of banks in Kentucky and southern



~

102 -

Indiana wore forced to close soon after the failure of t i Kational Bank
le
of Kentucky in Louisville.
There is one structural matter which has not been dealt with in
this report but which is an important
banks —

element in the strength of our

the gradual drift away from commercial banking l/. Hie growth

of time deposits in the member banks of the Federal Reserve System was
due, in part, to the lower reserve requirements put on s^ch deposits.
Their growth raised the problem of finding employment for those deposits
(because the commercial demand was not adequate to absorb them) at a
rate which would justify the interest cost which resulted from the competition for such deposits*

The testimony of bank examiners and others

familiar with the internal matters of such bar2-:s lias uniformly criticized
tho results of this general change.

It has been claimed that the banks

assumed additional liabilities with essentially the same degree of
volatility as their demand liabilities but without the compensating advantage of greater liquidity and "shiftability** of commercial assets#
General economic factors.

The direct responsibility of bark

management and the flaws of our banking structure have not been tho only
causes of bank suspensions.

There are certain elements in economic

affairs such as local or general business depressions and land and
socurity booms, which cannot but affect the fortunes of oven the stro:i(;est
and most prudently managed banks.

In addition the vagaries of nature such

as flood, drought, hail, etc., may be factors causing bank suspensions.
A reasonably prudent bank management in a good banking structure should be

1/ The changing character of bah!: assets and liabilities is discussed
in Studay Ho. 3, "Tho Conplexity of the Banking Structure."



- 103 able to nullify a part of the effect of these factors, but the fluctuations in asset

valines which occurred in the business depressions of

1921 and 1930 * 1933 were greater than could be reasonably anticipated
by competent bankers.

In the cases where this factor has been combined

with heavy losses of dexoosits, many well-managed banks failed.
The great increase in bank failures which followed the World
War has been generally ascribed to the depression of agriculture during
this period.

The expanded farming facilities produced more goods than

the post-war markets could absorb, so that the prices of agricultural
products and land were seriously depressed.
Lax loan and collection policies.

Tho measurement of the

element of bank management 1/ and its part in causing or averting bank
suspensions is a complex problem.

One of the few works on internal

factors of weakness in banks is a study prepared by the Federal Reserve
Coranittee on Branch, Group, and Chain Banking, "225 Bank Suspensions —
Case Histories From Examiners1 Reports".

This chapter has drawn heavily

on the findings of the Committee^ report and the material has been used
to a large extent without specific reference thereto. The Committee study
includes a frequency tabulation of the various types of criticism made
by the examiners, classified under the following heads:
Loan and collection policies
Investment policies
Other operating policies
Criticism of baiik j>ersonnel
Economic, climatic* and competitive factors
1/ For detailed discussion of problems relating to bank management, see
the separate report on that subject. That report indicates that incompetent management was the cause of failure in the case of one-third
of the 1,780 national banks which suspended during IS65 - 1931 > a n & a
"combination of incompetent management and local financial depression
from unforeseen disaster" was given as the cause in another one-sixth
of the cases. The "Report of Study Commission for Indiana Financial _
Institutions (1932)" indicates that the principal causes of/mSi^^x 01
banks in 1925 - 1931 vrero improper loan policies, inefficient management, declining price levels and earnings of borrowers, psychological
attitude of the public, and improper chartering of banks.




- 10U Criticisms of loan and collection policies of the 225 banks included in the survey were summarized under the categories listed below*
Opposite each heading is shown the frequency of occurrence in the
examiners1 reports*
Number of times mentioned out of 225 cases

Pfrpe of criticism
Lax lending methods
Slack collection methods
Unwise loans to directors and officers
lack of credit data
Capital loans
KPlaced paper"
Excessive loans to tenants
Loans subject to prior liens
Loans to accommodate other banks
Loans based on inflated land values
Excessive loans on city real estate
Evasion of loan limit by splitting lines
with other banks
Unwise loans to relatives and friends
Attempts to capture business by loans
Enphasis on profits over safety
lion-resident loans
Loans collateralled by bank!s own stock
Automobile paper
Belief in "service to c n f n - i y by loa,ns"
ofirit
Loans for security speculation
Concentration of credit on "one crop"
or industry
Loans to "straw men" to loermit speculation
by officers

152
133
110
S3"
H6
27
27
23
22
21
15
it
13
12
10
g
6
b
3
3
2

The most common criticisms of loan policies in the above list are
those that relate to the care and skill with which loans are made.

The

making of loans to the interests of bank officers or directors, their
friends and relatives was also iniportant*

These malpractices are scrupu-

lously avoided by well-trained bankers with professional integrity*

The

evidence suggests that a more careful training of those that engage in
the banking business would be of substantial assistance in eliminating
these evils*



~

105 A number of rather lengthy quotations excerpted from tho examina-

tion reports gave further information of interest in this connection.
They indicate that improper loan policies were usually matters of long
standing, and that the actual suspension of banking operations did not
occur in many cases until long after the bank was seriously involved
with poor loans.

This supports the general proposition that the imme-

diate occasions for bank suspensions are usually external circumstances,
while the underlying weakness of such banks arises from internal policy.
The quotations referred to above also indicate that the loans made
to officers, directors, relatives, and friends, though improper, usually
were not made v/ith vicious intent, but frequently with the honest conviction, born of optimism, that the loans were good and proper. Mistakes
made with the best of intention, however, are not the less damaging and
are all the more dangerous since examiners do not have the same moral
ground on which to force corrections.
Capital loans of suspended banks, according to the comments by
examiners, frequently had their origin in short~tern loans which became
slow and on which long-term and capital assets were taken as collateral.
Insofar as this was true, the criticism of capital loans is, of course,
nothing more than further elaboration of the criticism of "Lax lending
methods".
A balance sheet analysis showed that the ratio of "Other real
estate1' to total assets held by the 225 banks that subsequently failed
increased in the years prior to failure, whereas the ratio at banks which
did not fail, did not increase during the same interval.

The usual origin

of "Other real estate" is by foreclosure following default on loans.




- io6 Poor investment practices. Prior to 1931 the market for the type of investment securities commonly purchased by banks was so stable that the contribution of poor investment practices to the insolvency of banks was
probably negligible.

There xuidoubtedly were many cases in which banks sus-

tained serious losses on securities, but the criticism by examiners of investment policies was infrequent during this period.

In the years 1931

1932 the situation was changed considerably, and the market for investment
securities became so unsettled that many issues which were deemed to be
reasonably conservative in the pre-depression period dropped to but a
fraction of their former value. Even with this considerable factor it was
found that deprecinfcion of securities was the main cause of failure in only
six out of 105 cases of bank failures and was a major contributing cause
in only four other cases.
In this study of investment policies there were several specific types
of malpractice which were uncovered, such as
The purchase of bonds with high yields
The trading of bonds for turnover profits
The purchase of convertible bonds which
fluctuate in value with changes in stock
prices
The purchase of unlisted bonds and so-called
"one-house" bonds
The purchase of real estate and irrigation
bonds
The bonds of well-known companies enjoying a high investment repute have
typically borne only a modest yield, and high yields are typical only of the
bonds of lesser-known enterprises not enjoying a wide market. Such investments obviously do not qualify in any way as secondary reserves.

Likewise,

the type of securities which give trading profits must fluctuate in price
and such movements can produce losses as well as gains. The practice of




107 -

~

"bond trading, therefore, can be carried on only in second rate issues
which are likely to cause losses. The purchase of securities United to a
narrow market and having only real estate security is most obviously an
improper banking practice.
In addition to the improper practices described in the case study
to which reference has been made, there are several other improper and
imprudent practices, some of which are covered by provisions of the
Banking Act of 1933%

Most important of these practices has been the

purchase of securities by banks from their own security affiliates, or
from the security affiliates of correspondents which were engaged in the
sale or underwriting of securities.
Over-ex tension of loans and excessive borrowings by banks. Regardless of tho high quality of loans and investments of a bank, it is easily
possible for an institution to get itself in such an over-extended condition that deposit losses necessitate disadvantageous sales of assets or
continuous borrowings. This condition is not necessarily unsafe if all
the earning assets are of impeccable character but, becauso of the narrow
margin of safety, such a bank is less able to withstand natural and unpredictable hazards, such as business depressions, droughts, floods, crop
failures, etc.

In tho Committee^ case study previously alluded to, it was

observed that the proportions of loans and investments to deposits were considerably higher for the banks that suspended than for the banks that survived.

This was true for a number of years prior to failure.

In addition, the examination reports of these institutions mentioned
on ov^r-eattended condition in 106 of the 225 eases and continuous borrowing
(the same condition) was mentioned as a criticism in jG cases. The study




- 10S brought out that the suspended banks showed a much greater proportion
of borrowings than the bariks that survived; that the policy of heavy
borrowing existed for a number of years prior to failure; and finally,
that the banks that suspended in the years 1921 to 1930 were heavier
borrowers than the banks that suspended in the year 1931 • Of t i 225
^o
banks included in the study, those which suspended in 1921 - 1927 had
combined borrowings of more than 100 percent of their combined capital
and surplus, and in most cases these borrowings dated back to the last
half of 1920*

The banks that failed in the years 1922 - 1931, on the

other hand, did not have such a large proportion of borrowings at the
date of suspension, nor did thoy have a history of such excess borrowings, though the amount that they did borrow was in excess of the amounts
borrowed by bariks which remained active* As a matter of feet the sample
of banks which remained active had no borrowings after 1922.
Large investments in banking house. Large investments by banks
in banking house and fixtures may be a strong competitive force in
attracting and holding depositors, but such e:q>enditures have no doubt
contributed a great deal to the difficulties of banks by causing shortages of reserves and the iispairmont of effective capital. The proportion of funds invested in such items was Almost twice as large for the
banks that failed as for the banks that survived, as shown by the case
study already cited* Both the "marking up" of bank buildings and the
failure to depreciate this item were mentioned as criticisms of operating
policies*
Dividend policiest operating losses, etc* Just as excessive investment of banking funds in non-earning assets such as ban!:: building may im-




~

109 -

pair the capital which protects deposits, the depreciation of capital
by the payment of unearned dividends or largo salaries, high rates of
interest paid on deposits, and other operating expenses may give rise
to operating losses which impair capital.

In the co.sc study made by

tlie Branch, Group, and Chain Banking Committee, the payment of dividends
not currently earned was criticized by the examiners in 29 instances.
A survey of the earnings and dividend reports of the banks involved indicated that an even larger number uad been guilty of this practice.
The result of inadequate earnings either because of inadequate
gross revenues or excessive operating e:q?enses is important not only
because of the direct capital impairment created by the loss, but because
of the incentive which such a condition gives bankers to take extra
hazards and invest in high-yield and unsafe forms of securities.
One of the expenses which lias been an important source of operating
losses has been the payment of excessive ratos of interest to depostors l/
which resulted from the active competition for deposits* Tko ;payme:it of
excessive rates of interest was mentioned as a criticism of operating
policies in IS of the 225 cases in the Committee Report. Direct quotations given in this report mention the payment of rates as high as 5
percent to S percent on deposits. Provisions of the Banking Acts of 1933
and 1935 have keen directed against this practice.
Lar.^e deposit accounts. Small banks have accepted large deposit
accounts from a single source in many cases. Public funds are a com.ion
form of such deposits. Where banks holding such deposits have not pursued
l/por a detailed discussion of this and related points, see Study ilo. 2,
"Banking Profits, I S 9 2 - 1935".




~

110 -

an investment policy which protected them against reduction or withdrawal of such accounts, this factor has contributed to their suspensions.

The Branch, Group, and Chain Banking Committee's case study

reports that jjublic deioosits were mentioned in IS examination reports.
Other quotations indicate that such deposits have been a substantial
factor in the failure of a number of banks.
Criminal acts. Various criminal acts including defalcation,
embezzlement, and larceny have frequently been mentioned as important
factors in the failure of some banks.

The Comptroller's reports men-

tioned criminal acts as a major cause of failure in about

percent

of the national bank suspensions prior to 1920, but after 1920 this
accounted for a much less significant percentage of the national bahk
failures.

Since January 193^» when Federal deposit insurance became

operative, the major cause of suspensions cited is crininal acts of
bank officers^/.
Many men of prominence, including public officials, bankers,
economists, business men and others, have made statements in speeches,
writings, hearings, etc., on the causes of bank suspensions. As may
be expected, differences of opinion are apparent from a review of these
statements, but weaknesses both in the banking structure
and in the management of banks are generally included in all of these
statements. A number of thy^e statements have been included in the
appendix of this report.

1J "In the case of five of the nine insured banks failing in 193^, suspension was the direct result of criminal activities of bank
officers." See 193H Annual Heport of the Federal Deposit Insurance Corporation, pages 68 and 69.




—

Ill --

BANK SUSPENSIONS, 1890 - 1935

APPENDIX

Note
It is contemplated that the appendix will include approximately
25 statistical tables which will present detailed figures of bank suspensions, by classes of banks, years, geographic-divisions and States,
supporting the summary text tables. These tables will cover about 125
pages.

In addition to the tables it is contemplated that the appendix

will include selected statements by a number of men of prominence,
including public officials, bankers, economists, business men and others,
relating to causes of bank suspensions.
The appendix to the corresponding volume of the report of the
Federal Reserve System Committee on Branch, Group and Chain Banking
covered 75 pages. The present study covers a longer period of time
than that covered by the Committee, and since this report is intended to
be a primary source of information with respect to bank suspensions the
appendix to the present s u f r will be somewhat more detailed and consetcc
quently larger than the appendix to the Committee report.





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