Banks may be closed either by voluntary retirement or by involuntary retirement or failure. Since the national bank act went into effect over 500 national banks have been placed in the hands of receivers and have had their affairs wound up. Sometimes it happens that the business of a bank dwindles and becomes unprofitable, and it is thought desirable to liquidate. A national bank may go into voluntary liquidation on a vote of the owners of two-thirds of the stock. Notice of the proposal to liquidate is certified to the Comptroller of the Currency. Notice must also be published for two months in a New York City newspaper and in one where the bank is located, calling upon all creditors to present their claims. When a national bank fails the Comptroller of the Currency is charged with the duty of closing its affairs. He appoints a receiver who takes possession of the records and assets and collects all debts due the bank.
Bank failures are due to a variety of causes - bad management in making loans; dishonest officials who have used the bank's funds for their own speculations; rumors of insolvency which start a "run" by frightened depositors; panics, affecting the whole country; or violation of the laws under which the banks operate. In the annual report of the Comptroller of the Currency for 1911, the following analysis of national bank failures was made: 60 per cent of the failures were caused by violations of the banking laws; 23 per cent by injudicious banking; 13 per cent by shrinkage in values and general stringency in the money market; and 4 per cent resulted from the failure of large debtors and other minor causes. Criminal violations of the law caused 37 per cent of the failures, 23 per cent being caused by fraudulent management, 7 per cent by defalcations, and 7 per cent were wrecked by the cashier or other employee. Excessive loans caused 20 per cent of the failures, and heavy investments in real estate or mortgages about 3 per cent. Former Comptroller Ridgely once said: "The most frequent cause of bank troubles, in fact the almost invariable cause of bank failures, is the granting of credit far beyond the legal and prudent limits to the officers or to one concern or group of allied concerns generally owned and managed by the officers and directors of the bank, or in which they have, directly or indirectly, some large pecuniary interest."
One of the most common causes of closing is the impairment of the bank's capital by losses. If the examiner finds that by reason of bad loans the capital and surplus have been seriously impaired, the interests of the depositors may require that the business be taken out of the hands of those who have brought the bank to this dangerous condition. If it be a national bank, the Comptroller of the Currency appoints a receiver, who is usually a bank examiner. The receiver makes an inventory of the assets and liabilities. This may show that the bank is solvent and has only been temporarily embarrassed because of scarcity of cash. In the course of a few weeks or months, it may be possible to convert enough of the assets into cash to meet the demands of depositors, and the bank may then be opened again.