During the twelve years that Mr. Knox presided over the affairs of the Currency Bureau, there were seventy-three national bank failures. The largest of these was the National Bank of the State of Missouri at St. Louis.

This bank had a capital of $2,500,000. Its total liabilities at the time of failure were about $5,400,000. It was chartered in October, 1866, and was placed in the hands of a receiver June 23, 1877. The cause of its failure was fraudulent management, excessive loans to its officers and directors, and depreciation of securities. There was collected by the receiver from its assets $2,846,622, and from its stockholders by assessment $245,108, of which amount there was returned to the shareholders in cash $26,720, and the depositors and other creditors were paid one hundred per cent. of their claims with interest. The receivership was finally closed March 26, 1888.

In commenting upon this and other failures of that year, Mr. Knox, in his annual report for 1877, stated that the most fruitful cause of bank failures was the unlawful use of the funds or credits of these associations by their officers and directors, and that in most instances this was accomplished through malfeasance or crime by the discount of notes in which the bank had no interest.

He therefore recommended in this connection the passage of an Act prohibiting a bank from borrowing money upon its own obligations, or from lending its credit, and also from obtaining rediscounts upon its bills receivable, unless specifically authorized by resolution of its board of directors, under the seal of the bank.

This, he thought, would have the effect of putting other banks upon their guard when applied to for such favors.

The National Bank of the State of Missouri was the successor of the Missouri State Bank, which was chartered in 1857 with an authorized capital of $5,000,000 and was converted into a national association on October 31, 1866.

The manner in which this old and reputable institution was converted into a National bank and subsequently wiped out of existence by the wrecking of the latter association will prove interesting reading.

It appears from the published history of this case that in 1857, when the Missouri State Bank was chartered, the State subscribed for $1,000,000 of the capital stock and issued bonds in payment therefor. The stock was also distributed among individual subscribers and was later increased to $3,500,000, making the institution the largest bank in point of capital stock and the leading bank west of the Allegheny Mountains at that time.

An Act of the State Legislature was passed in 1866 authorizing the Governor to receive proposals for the purchase of the State's interest in the bank, and State bonds were authorized to be received in payment for the stock. The market value of these bonds at that time was about seventy cents on the dollar, with four years' accrued interest. The Act required the proceeds of the sale of the bank stock to be reserved as a permanent State school fund.

The bids for the purchase of the stock were opened by a Commissioner at the Planters' House in St. Louis, in November, 1866. There were only two proposals received for the stock, and one of these was from Robert A. Barnes, president of the bank. The other bidder was James B. Eads. The market value of the stock at this time had been depreciated to about sixty-five dollars a share of the par value of one hundred dollars. At the time of the sale, the State owned about 10,863 shares of the stock of the bank. Owing to some alleged irregularity in regard to the proposals, the bid of Eads was accepted, although it was said that Barnes was ready to pay more for the stock than Eads offered for it. Eads, it appears, represented a pool that had been formed for the purchase of the stock, but not having the funds to pay for it the pool borrowed State bonds from various parties with which to exchange for the stock, as authorized by the Act of the Legislature. The largest amount of these bonds was borrowed from the Bank of Commerce of New York City. These bonds were borrowed for a period long enough to enable the pool to make the arrangements necessary for the conversion of the State bank into a national association and to elect themselves directors of the latter institution.

Upon securing a charter for the national association, they immediately opened negotiations with the Bank of Commerce of New York for a loan of a sufficient amount to enable them to pay for the bonds which they had borrowed to make payment to the State for the stock, and to carry the indebtedness thereby incurred as long as they desired, agreeing at the same time to retain control and possession of the management of the National Bank of the State of Missouri. These negotiations were begun prior to the purchase of the stock from the State, but did not take active form until after the purchase was completed. The price paid by the Eads pool for the bank stock owned by the State was $108.50 per share.

During the time the Bank of Commerce was engaged in aiding the pool in the purchase of the bonds with which to make payment to the State, A. R. Barnes, then president of the State Bank of Missouri, employed the Bank of Commerce to procure bonds for him to enable the State Bank to become the purchaser of the 10,863 shares of stock that the State owned. The Bank of Commerce undertook to procure the bonds for Barnes, but it appears said nothing to him concerning the negotiations of the Eads pool for the same purpose. At this time, Eads and his associates had no connection with the Bank of the State of Missouri officially.

On September 26, 1866, before Eads and the pool had any official connection with the bank, and before that institution had become a national bank, the pool applied to the Bank of Commerce for a loan to the State Bank of Missouri of $1,000,000. The Bank of Commerce accepted the proposition in a resolution unanimously passed by its board of directors, although Mr.

Eads presented no credentials whatever from the State Bank of Missouri showing his authority to negotiate a loan for that bank.

The State Bank was converted into the National Bank of the State of Missouri on October 30, 1866, and the seven members of the Eads pool became the sole directors of the national association. In December following, the proposed loan, although alleged to be exclusively for the personal use of the seven directors, was contracted for in the name of the national bank, with the seven directors as sureties for the bank.

This money, it was charged, was appropriated by the pool on receipt, and the bank never had the use of a dollar of it. The loan, it is reported, was kept standing for eleven years, and interest at the rate of three per cent. was paid by the pool from the dividends on their million dollars' worth of stock.

The largest part of this loan was repaid to the Bank of Commerce, but at the time of the failure of the National Bank of the State of Missouri, there remained due a balance of $413,750, including interest up to the date of settlement, less $94,121.71 due from the Bank of Commerce, which had in the meantime also been converted into a national association under the title of the National Bank of Commerce. A suit was instituted by the latter bank in the United States District Court at St. Louis, for the recovery of this balance, and judgment was awarded the plaintiff for the sum of something like $445,518, by direction of the presiding judge, who held that the evidence clearly showed that the $1,000,000 was borrowed by the Eads pool for the Bank of Missouri and subsequently loaned to the directors of the bank after its conversion into a national association, and that he could see no basis in the evidence which would justify the jury in finding that the plaintiff bank knew that the directors of the defendant bank intended to make any fraudulent use or disposition of the money. He stated further that if the jury were to find to the contrary that he would deem it his duty to set aside their verdict, and he therefore instructed them to find a verdict for the plaintiff.

In the course of the arguments by the defendant's counsel, the judge expressed the view that it would have been a very wise provision for Congress to have inserted in the law a section prohibiting banks from borrowing money at interest for the purpose of relending, as no bank doing business on that principle was a safe institution.

The receiver of the failed National Bank of Missouri took an appeal of this case to the Supreme Court of the United States, but the appeal never was heard, as the claim of the National Bank of Commerce was compromised by the payment by the receiver of the sum of $200,000, Mr. Eads contributing $50,000 of this amount.

The other complications which contributed toward the failure of this bank were the general stagnation in business, the shrinkage in value of all kinds of securities, the large and unlawful advances to enterprises in which some of the directors were interested, including bridge and jetty constructions and injudicious management generally. At the time of the failure, the City of St. Louis had on deposit in the bank over $257,953.

About six weeks before the failure, the bank was examined by a special examiner from Washington, and as a result several changes were made in the board of directors. At the first meeting of the board after its reorganization a thorough examination into the condition of the association was made, under the supervision of the new board, on the completion of which it was unanimously voted to close the bank and wind up its affairs.

Several months after the suspension of the bank and the appointment of a receiver, the Federal Grand Jury being in session in St. Louis, a resolution was adopted by the jury requesting the United States Attorney to make an investigation of alleged criminal violations of law by the officers of this bank.

The United States Attorney advised the jury that the affairs of the bank had then been in the hands of the Comptroller of the Currency for eighteen months and if any criminal violations of law had been discovered in the management of the institution the receiver and the Comptroller were doubtless aware of the fact, and that until complaint was made by them, or either of them, he did not feel warranted in taking any steps toward an investigation.

In December, 1878, two creditors of the failed bank called at the office of the United States Attorney and made complaint against the president of the bank, charging him with criminal misapplication of the funds of the association. These charges were made in writing under oath. The United States Attorney then applied to the court for a subpoena duces tecum directing the receiver to appear before the grand jury with the books of the bank. An investigation was then begun, which lasted about forty-seven days, and resulted in the indictment of the president, vice-president and cashier of the bank, based upon the testimony developed. Subsequently other indictments, based upon additional evidence, were found against these parties.