The two largest failures of national banks that occurred in 1893 were the Columbia National and Chemical National Banks of Chicago, 111. The capital stock of each of these banks was $1,000,000, and their liabilities were $2,559,885 and $2,910,745, respectively. The first-named institution was the parent bank of what was known as the Zimri Dwiggins chain of banks, or the Dwiggins System, as contra-distinguished from the national banking system.

The Dwiggins theory of banking seems to have been to organize a bank with sufficient capital for one institution and to establish branches at different points with no apparent connection with each other, for the purpose of feeding the parent institution with deposits, the capital of the latter being common to all, and the money necessary for each being furnished by the parent bank as needed.

The United States Loan and Trust Company, an Indiana corporation, with an office in Chicago, was an adjunct of the Columbia National Bank and the transactions of the two were so closely interwoven that they were practically one institution, and Mr. Dwiggins was the whole concern. He was the executive head of both banks and appears to have controlled the affairs of each without consultation with the directors of either. As president of the bank he appears to have contracted with himself as president of the Trust Company, and vice versa, and did not seem to think it necessary to leave any written evidence of his dealings between the two corporations.

The original purpose for which the Loan and Trust Company was organized was to negotiate farm mortgages, but about February, 1892, the company was reorganized and distributed all of the assets then in its possession among its stockholders. The object of the reorganized institution was to deal in the stocks of country banks. This Trust Company appears to have entered upon its existence without a cent of paid-in capital. Whatever capital the stockholders contributed at the time of its original organization was returned to them at the time of its reorganization. In place of capital stock the company issued $500,000 of what were designated "income bonds." The promoters of this enterprise offered these bonds to anyone who was foolish enough to buy them. The purchaser then stood in the position of a stockholder of the Trust Company, his bond being equivalent to a certificate of stock. The money derived from the sale of the income bonds was to be invested in the stocks of country banks. The plan contemplated further that when $250,000 of country bank stock was accumulated debenture bonds would be issued in a like amount, a series of bonds for each $250,000 of stock. These bonds were to bear interest at the rate of five per cent. per annum, payable from the dividends declared on the country bank stock. The debenture bonds were called "collateral trust gold bonds." It was expected to sell these bonds at par, and the holders of the income bonds, when the collateral trust gold bonds were disposed of, would have in the treasury an amount equal to the original sum they invested and be in a position to repeat the process.

Had this scheme been successful the United States Loan and Trust Company would have finally accumulated the stock of all the country banks in the Dwiggins chain, and when the last $250,000 of stock had been accumulated and the collateral trust gold bonds issued thereon and sold, the original purchasers of the income bonds would have had returned to them the amount they originally invested. The source of profit to the holder of income bonds was the country bank stock. It was the belief that the average annual dividends on this stock would exceed five per cent.

Seventy-five per cent. of whatever surplus was accumulated over and above five per cent. was to inure to the holders of the income bonds and the remaining twenty-five per cent. to the holders of the original stock of the United States Loan and Trust Company.

Operated honestly this banking scheme probably might have worked successfully and profitably, with little chance for the holders of the income bonds to lose anything. But it was not so conducted by the Trust Company. Instead of selling the income bonds for cash and investing the proceeds in country bank stock, Dwiggins, acting for the Trust Company, would call the stockholders of the country bank together and arrange to trade the income bonds for the bank stock at par, and as an evidence of good faith would agree to deposit with the bank an amount of money equal to the value of the stock sought to be purchased. After consummating the trade he would deposit with the country bank the amount agreed upon and take the bank's certificate of deposit therefor.

Up to this point the transaction appeared to be honest, but just at this stage the peculiar financiering of Dwiggins came into play. As president of the Loan and Trust Company he had possession of the country bank stock and the certificate of deposit in the country bank. Then as president of the Columbia National Bank he would purchase from himself as president of the Trust Company the certificate of deposit in the country bank for its face value, taking the precaution to have the certificate indorsed to the bank without recourse. In this manner the Loan and Trust Company would succeed in disposing of its income bonds and the bank would relieve the company of the burden of its contract. As president of the Loan and Trust Company he would also make an absolute or conditional sale of the income bonds to a country bank and take in payment therefor a certificate of deposit from the bank for the purchase price. Then as president of the Columbia National Bank he would purchase the certificate of deposit from himself as president of the Trust Company at its face value.

With a nominal investment on the part of the Trust Company and an actual investment on the part of the bank of from two to three hundred thousand dollars, Dwiggins, between the date of reorganization of the Trust Company in February, 1892, and September of the same year, succeeded in disposing of $250,000 of the income bonds and accumulated $250,000 of bank stock, while the Columbia National Bank, through Dwiggins, its executive head, had purchased from himself as president of the Trust Company at least $250,000 of certificates of deposits in country banks, most of which certificates were considered worthless at the time the Columbia National Bank failed.

Dwiggins apparently was more interested in the Loan and Trust Company than he was in the Columbia National Bank. As a net result of his numerous transactions, he unloaded upon the bank over $241,000 of the collateral trust and gold bonds and not less than $250,000 of certificates of deposit in the country banks, while the Trust Company succeeded, without any investment on its part, in getting possession of $231,000 of the bank's discounts.

The transactions of Dwiggins were responsible for the failure of the Columbia National Bank, as the bank appears to have been used simply as a feeder for the Trust Company. The shareholders of the bank were assessed $750,000 toward paying its liabilities to depositors and other creditors, but $47,350 of this amount was returned to them in cash, the assessment having been excessive. This is explained by the fact that the one hundred per cent. assessment levied by the Comptroller, if collected in full, would have been more than sufficient to pay the deficiency between the amount ralized from the assets and the liabilities of the bank to its creditors. Some of the stockholders paid the one hundred per cent. in full, while others responded in part only, or were unable to pay anything. The law provides that the shareholders of every national banking association shall be held individually responsible, equally and ratably, and not one for another, for all contracts, debts and engagements of the association to the extent of the par of their stock. The amount returned to the shareholders, therefore, represented the excess collected from those who paid one hundred per cent. over and above the ratable amount for which they were liable.

The losses on assets compounded or sold under order of the court amounted to nearly a million and one-half dollars. The affairs of the receivership were finally closed, September 30, 1905, after the payment of dividends to depositors and other creditors of eighty-one per cent.

The failure of this bank was probably the most disastrous of any of the national bank failures that occurred during the panic of 1893. Thirty or forty small banks were involved. These banks were scattered throughout the States of Illinois, Indiana and Michigan. They belonged to the Dwiggins chain, and all collapsed with the failure of the parent institution.