The National Bank of Illinois at Chicago was organized August 29, 1871, and was placed in the hands of a receiver December 21, 1896, after having passed successfully through the great Chicago fire and the financial panics of 1873, 1877 and 1893. In volume of assets and liabilities this failure was the largest at that time of any in the history of the national banking system.
The suspension of this institution was due to recklessness, speculative and dishonest methods in banking, and inattention on the part of the directors to the bank's affairs. At the date of failure of this association it had an authorized capital of $1,000,000, a reported surplus of the same amount, and undivided profits of $315,212. The total assets of the bank aggregated nearly $22,000,000, and the liabilities to depositors and other creditors, exclusive of stockholders, exceeded $12,000,000.
The president of this association was one of Chicago's leading German citizens. He was connected with many social, political and business societies and organizations and through such connection secured for the bank many deposits of city and county funds and of clubs and society organizations.
The principal cause of failure of the bank was the large and unlawful loans to the Columet Electric Street Railway, which aggregated nearly $2,500,000, and in addition thereto about $500,000 to sundry contractors interested in elevated railroad building. A large amount of the loans to the Calumet Electric Company did not appear on the books of the bank as the liabilities of this concern, but were concealed in other accounts for the purpose of deceiving the bank examiner and the Comptroller.
This electric railroad had a short time previously made important extensions and development of its line. The company had about seventy-five miles of road running through a territory which at that time was sparsely settled and only beginning to develop, and the earnings of the company were naturally insufficient to pay its operating expenses. The company needed financing and the bank furnished the funds. Its outstanding bonds amounted to about $2,500,000, and these were made the basis of the loans by the bank.
When the bank was found by the examiner to be in a precarious condition the Clearing House Association of Chicago was appealed to for assistance, but after a searching investigation by a committee of that association, instead of coming to the relief of the bank, adopted a resolution suspending the bank from Clearing House privileges, because of the large unwarrantable and injudicious loans made to the Calumet Company and others, which, it was publicly announced by the committee, seriously impaired, if it did not entirely absorb, the capital and surplus of the bank. The committee, however, expressed the opinion that the assets of the bank were considered ample collateral for loans at seventy-five per centum of their face value, and in order to afford depositors speedy relief the Clearing House banks agreed to advance that amount upon all claims of creditors of the association approved by the receiver.
Considerable surprise was expressed at the time that the Clearing House Committee should have let the bank suspend rather than assist it to liquidate, but the committee found the condition of affairs to be such that heroic action was deemed necessary.
After the suspension of the bank it was found that the funds of the association had been freely used for years to bolster up the far-reaching speculations of the second vice-president, who was its chief executive officer. It was charged that he was principally instrumental in wrecking the institution. He commenced his career in the bank at the time of its organization in the capacity of a clerk. He gradually rose from this position to that of teller, later became cashier, and finally second vice-president and chief executive officer and the master mind of the institution. He had the reputation of being industrious, shrewd, careful, and of good business judgment, saved his earnings and invested them wisely. He then appears to have spread out in speculative investments, promotion schemes in mining and railroads, and various other enterprises that required large capital. The president of the bank had grown old and could no longer give the affairs of the institution the attention that he gave them in his younger days. In consequence the active control passed into the hands of the vice-president, which gave him an opportunity to carry out his schemes with no one to interfere with him, except the directors, who apparently left the sole management in his charge. After staking his private fortune in his investments, and additional capital being required, the funds of the bank were used to further his ventures, and, to conceal his unlawful loans, false entries in the books were resorted to. The bank did a large foreign exchange business, and this account was manipulated to cover overdrafts and conceal from the board of directors and the examiner the magnitude of the principal loans. So completely were the books of the bank and its published statements juggled that the receiver was compelled to go back to the beginning of every large account and trace down each item in order to arrive at a correct understanding of the amount of the liability.
On January 1, 1897, this vice-president disappeared in the dead of night from his home in Evanston, 111., and at noon on the following day his lifeless body was discovered floating in the lake near Evanston. He was driven to suicide by the responsibility resting upon him for having wrecked the bank and the fear of criminal prosecution.
In the liquidation of the trust the losses on assets compounded or sold by the receiver under order of the court, amounted to $7,132,812. An assessment of 100 per cent., or $1,000,000, was levied by the Comptroller upon the shareholders, of which amount $848,508 was collected, while the collections from all sources aggregated $14,233,221. Dividends amounting to 100 per cent. of the proved claims, or $11,932,745, were paid, with interest of 16.30 per cent. The Columet Electric Railway was sold early in 1906, for the sum of $3,150,000, including the remaining assets of the bank, and the receivership was* finally closed September 30, 1906.