Notwithstanding the undoubted wisdom of the course pursued by Mr. Ridgely and the associated banks of Chicago in thus averting a disastrous bank failure and a serious disturbance to the financial and business interests not only of Chicago but of other sections, the legality of the action of the clearing house banks in entering into an agreement with John R. Walsh and the directors of his bank to pay the creditors of the three banks, was questioned by some, and the Comptroller and the banks were subjected to criticism. But the situation was critical and called for prompt action. There was no time to waste in quibbling over legal technicalities. The Comptroller believed that the national banks that were members of the Clearing House Association had legal right to purchase from the directors of the Walsh banks their pro rata share of the assets of these institutions. The only possible legal objection that could be raised to their doing so was whether any bank in the combination, in assuming a pro rata share of the liabilities of the Walsh banks, exceeded the limitations of law in respect to loans. This question, however, was considered so unimportant compared with the tremendous interests at stake that neither the Comptroller nor the banks gave it any consideration. It would have been inexcusable for the Comptroller to have allowed a question of this nature to have interfered with the consummation of the arrangement agreed upon.
When the magnitude of the liabilities of the Walsh interests to the national bank and the other banking institutions became a matter of public information, the Comptroller was further criticised for having permitted this condition to continue so long before corrective measures were taken. When these excessive loans became known to the Comptroller through the reports of the national bank examiners, he did everything in his power to have them reduced to the legal limit, not only by correspondence with the directors of the bank, as the evidence at the Walsh trial demonstrated, but by personal conference with the officers and directors of the association, without material effect.
The sole power conferred upon the Comptroller of the Currency to enforce a compliance with the law in regard to the limit of loans was not a corrective but a destructive measure. He could no doubt have compelled the Walsh bank to reduce the excessive loans under a threat of forfeiture proceedings, but he would have destroyed the offending association by instituting such a suit.
The statutory provision authorizing the Comptroller to institute a suit to forfeit the charter of a, national bank for violating the law has never been construed as mandatory. It always had been interpreted as vesting in him a discretionary power, and no Comptroller ever felt that he would have been justified in resorting to so drastic a measure without first endeavoring to have the wrong corrected by other methods.
The wisdom of this policy was forcibly exemplified in the case of the Walsh bank. Had the Comptroller instituted a suit to forfeit the charter of the Chicago National Bank when it became known to him that the law had been violated, a receiver would have been the result, as a run would have been started on the bank as soon as it became known that such a suit had been entered, and in order to protect the interests of all depositors alike and prevent a preference of one creditor over another it would have been necessary for the Comptroller to have appointed a receiver for the institution even before the suit to forfeit the charter of the association could have been heard and determined. The closing of this bank would have been followed immediately by the closing of the two State institutions, and three receiverships would have been necessary; the assets of the three institutions would have depreciated in value and the creditors, instead of receiving payment in full and without any material delay, would have had to await the receipt of their deposits through the slow process of installment dividends from the respective receivers, extending over a period of several years, and undoubtedly other business failures would have followed, or at least serious embarrassments would have been occasioned in consequence of the large amount of money that would have been tied up indefinitely in the three banking institutions.
All three difficulties were avoided, however, by the wise course pursued by the Comptroller, aided by the clearing house banks. All of the creditors of the three institutions were paid in full without delay, and no serious consequences or embarrassments were experienced.
The Chicago National Bank was placed in liquidation by resolution of its shareholders adopted August 12, 1913, to take effect on the fifteenth of the same month. The associated banks which assumed its liabilities to depositors and took over a portion of its assets in payment therefor, returned to the bank in 1907 the remaining assets, amounting in value to about $168,000, from which the board of directors declared a dividend to the stockholders of $15 per share.
John R. Walsh, the president of the bank, and the controlling spirit in the three affiliated banking institutions, was indicted for misapplication of the funds of the national association and other violations of law. He was placed on trial in November, 1907, and was found guilty January 19, 1908. Every legal means known to his counsel was resorted to to have the verdict set aside. Appeal was made to the higher court and finally to the Supreme Court of the United States, consuming nearly two years, but without avail. He was then sentenced to serve a term of five years and entered the Leavenworth penitentiary in January, 1910. After being incarcerated for about a year and nine months, through the efforts of his friends he was paroled on account of failing health, and died in Chicago, October 23, 1911, nine days after his release from prison, at the age of seventy-four years.