Secretary Williams returned on Saturday night to Blue Ridge Summit. Before leaving he requested the Acting Comptroller to advise him by telephone on Sunday afternoon the result of the conference with the directors of the bank. There was considerable nervousness over the situation, in which the Secretary of the Treasury and Mr. Williams shared. The officers of the bank had pictured to Mr. Williams the disastrous consequences that would result from the closing of the bank. It was claimed that such action on the part of the Government would cause a run on every bank in Pittsburgh and precipitate a panic that would become general throughout the country.
That is the usual claim made by officers of tottering banks when all other efforts have failed to dissuade the Comptroller from taking possession of them, the extent of the predicted disaster varying with the size of the bank.
Mr. Williams was thoroughly imbued with the idea that dire consequences would follow the failure of this bank because of the numerous corporations with which its president and his brother were connected and their diversified interests, and therefore he was strongly opposed to the Government taking possession of the bank. Some of the Clearing House bankers were also of the same opinion.
The Acting Comptroller, however, contended that the only banks that would be seriously affected by the failure were those in Pittsburgh and vicinity with which the Kuhn brothers were connected, and he expressed his convictions at the time that the disturbance would not extend beyond such banks.
At the conference on Sunday morning the examiners discussed with the directors of the First-Second National Bank the principal items on which losses, were estimated and the transactions of a criminal nature which they had discovered. This conference lasted from ten o'clock in the morning until about three in the afternoon.
The Acting Comptroller advised the directors that if the Clearing House Association would guarantee the payment of all deposit liabilities of the bank on demand pending a reorganization of the board of directors and the restoration of the capital, the bank would be permitted to continue business while this was being done.
One member of the board offered to contribute his full share of the amount necessary to make up the deficiency in capital, but suggested that in view of the facts disclosed by the examiners and the rumors on the street that the bank was in a very bad condition, he thought it would be better for the Government to take possession of the bank and liquidate its affairs. He thought this would be for the best interests of all creditors alike. He stated that he believed if the bank's doors were opened on Monday morning some of the depositors who had knowledge of its condition would withdraw their balances and thus secure a preference over other creditors who had no such knowledge. He stated that the interests of the small depositors should be protected and he did not think it would be fair to open the doors and allow the large deposit balances to be withdrawn through the Clearing House and otherwise and leave the small and out-of-town depositors to share in what remained.
Such of the other directors present as expressed any views on the subject approved the course suggested, and all were of the opinion that to undertake to make up the deficiency in capital stock by assessment of the shareholders and keep the bank in operation at the same time was impossible.
A committee of the directors, therefore, was appointed to confer with the Clearing House Committee to determine what, if anything, could be done toward securing from the Clearing House Association a guaranty of the deposit liabilities of the bank pending a reorganization of its affairs and the payment of an assessment by the stockholders to make good the impaired capital.
A meeting was held with the Clearing House Committee at about five o'clock on the evening of the same day, when the proposition above outlined was again submitted, but the Clearing House Committee rejected the proposition because of the fact that the bank held slow and non-liquid assets equal to three times the amount of its capital stock and they were averse to tying up for a long time several millions of dollars in slow and unproductive real estate and other non-liquid securities.
The Clearing House Committee and the committee of the directors were then advised by the Acting Comptroller that the bank would not be permitted to open for business in the morning, as two hundred thousand dollars had been transferred the day before to another bank in Pittsburgh and it was rumored that a number of correspondent banks in the vicinity and elsewhere were arranging to withdraw their balances. It was also reported that Telling, the president of the bank, had stated that he felt morally obligated to protect certain accounts which he was instrumental in bringing into the bank and had advised such depositors to withdraw their balances.
The final conference with the Clearing House Committee was concluded so late in the day that the Acting Comptroller did not communicate the result to Secretary Williams by telephone as requested, but one of the directors of the First-Second National Bank got into communication with him and informed him that the Acting Comptroller intended taking possession of the bank on Monday morning. Mr. Williams was reported as having instructed the director to say to the Acting Comptroller that under no circumstances should the bank be closed, and to have the Acting Comptroller communicate with him by telephone immediately.
The Acting Comptroller got into communication with Mr. Williams and informed him briefly of the situation and that it was his purpose to close and take possession of the bank early Monday morning, as nothing else remained to be done. Mr. Williams suggested delay in taking possession until nine o'clock. He was told that the bank practically opened at eight o'clock, as many of the employees came in at that hour to get ready for the day's business, and that it was necessary for the examiners to take possession of everything and seal up the vaults and safes before their arrival.
Mr. Williams then suggested withholding the posting of a notice on the doors of the bank until he reached there, and stated that he would take the early morning train due to arrive in Pittsburgh at 7.30.
The Acting Comptroller and the examiners went to the bank at seven o'clock on Monday morning and the examiners proceeded to place their seals on the vaults, safes, boxes, and everything that was supposed to contain anything of value. At eight o'clock, Mr. Williams not having arrived, it was learned through inquiry by telephone at the depot that the Western Maryland train due to arrive at seven-thirty was over a half-hour late. As the clerks were beginning to assemble in the bank and a number of foreigners had gathered around the door, presumably to purchase steamship tickets, the Acting Comptroller instructed the examiners to take possession and post a notice on the doors that the bank was closed and in the hands of the Comptroller of the Currency.
Subsequently it was learned that on Sunday night one of the bankers who was present at the conference with the Clearing House Committee sent a night letter to correspondent banks advising them to transfer their deposit balances to his bank on Monday morning.
When Mr. Williams reached the bank about 8.15, he found the doors closed, a policeman on guard, and a number of people standing around reading the notice. He was then informed in detail of the efforts made to save the bank and the failure to obtain any assistance from the Clearing House Association beyond an understanding that they could take care of the situation in Pittsburgh outside of this bank without any aid from the United States Treasury.
The bank was declared to be insolvent and was placed in the hands of a receiver on July 7, 1913. It remained in charge of a receiver until April 25, 1914, when, after reorganization of the board of directors, it was allowed to resume business with a fully-paid-in capital stock of $4,000,000.
On the date of failure the total liabilities of the bank amounted to $29,656,512.52, and deposits of all kinds aggregated nearly $30,000,000. In point of total assets and deposit liabilities this was at that time the largest bank failure in the history of the national system.
As predicted by the Acting Comptroller, the disturbance caused by the failure was wholly local and was confined to a protracted run on the Pittsburgh Bank for Savings, of which the Kuhn interests were in control, and the temporary closing of the First National Bank of McKeesport, of which one of the Kuhn brothers was president.
The following day, after communicating with Mr. Williams, the Secretary of the Treasury gave to the press a statement covering the condition of the bank and the necessity for closing it, and he and Assistant Secretary Williams received numerous congratulations upon the failure of the predicted panic to materialize and the excellent manner in which they handled the situation and averted a panic.