Upon taking charge of the bank one month later, the examiner who had been appointed temporary receiver, found that the rediscounts were several hundred thousand dollars greater than the amount reported and that the books of the bank were so grossly falsified as to be wholly unreliable. Numerous notes were presented to the receiver soon after his appointment, bearing the endorsement of the Farmers and Drovers National Bank, which had been rediscounted in good faith by other banks, but did not appear as a liability of the Waynesburg bank upon its books.
Several months before this bank was closed, information was received by the Comptroller from outside sources that the bank was borrowing money freely and that its published reports of condition did not correctly show these liabilities. The examiner was advised of this fact and instructed to make a thorough investigation of the bank's condition in this respect. His examination covered a period of from twelve to fourteen days. At the commencement of this examination the cashier, who was the sole manager of the bank, informed him that the bank had no liabilities for rediscounts other than those shown by its books. During the progress of this examination evidence was obtained through the examination of other banks, which completely refuted this statement of the cashier. When he was confronted with the evidence of these rediscounts and asked why they did not appear upon the books of the bank, the cashier produced a private book which he kept in his desk, the existence of which was previously unknown to the examiner. An examination of this record showed rediscounts largely in excess of those theretofore discovered by the examiner, but even this record did not contain a complete list of such liabilities. Outside investigation was continued by the examiner, without any clue or assistance from the cashier, until liabilities for rediscounts were uncovered aggregating the enormous sum of nearly $620,000, not a dollar of which appeared upon the books. One of the cashier's plans of operation was to make a deposit with a bank, shift all balances to that bank, then borrow from it as much as possible, checking out the account and leaving an overdraft.
When this condition of affairs was discovered by the examiner he required the cashier to give the bank security in the nominal value of at least three hundred thousand dollars to cover any losses on the rediscounted paper, or any liabilitity of the cashier individually resulting from his acts.
While the cashier was criminally liable under the law for falsification of the books of the bank and reports made to the Comptroller, there was no evidence of insolvency of the association, and there was no reason to believe at that time that the rediscounted paper was not collectible. But as the cashier was found to be wholly unreliable and unsafe, the next and only course for the Comptroller to pursue was to demand his resignation or removal from the bank, pending the presentation of the evidence of criminal violations of law against him to the United States Attorney and placing the bank in a condition to withstand the effect of the disclosures which would follow his arrest. This demand was promptly made, insisted upon, and complied with on August 27, 1906, but was not carried out in good faith by the directors of the bank, who, secretly and without the knowledge of the examiner or the Comptroller, elected him vice-president of the association, and continued him in a position which enabled him to still carry on his nefarious operations, and it was not known by the Comptroller that this action had been taken by the board until the name of this cashier appeared as vice-president in the next report of condition of the bank made some time later.
Under such a condition of affairs, with deception practiced upon him at every turn, and the records of the bank's transactions wholly unreliable, it was absolutely impossible for the examiner to determine the true condition of this bank during its active existence, and it was months after the association had been placed in the hands of a receiver before the extent of its liabilities on rediscounted paper could be definitely ascertained, and then only through the slow process of awaiting the filing and proving of claims of creditors.
Many of the notes found in the bank were later proven to be forgeries when presented by the receiver for collection, and a number of those that were genuine were claimed by the makers to have been paid at maturity, but were carelessly left in the bank after payment, thus demonstrating the loose methods which prevailed, not only on the part of the bank in the conduct of its business but by some of its customers in their dealings with the institution.
Much of the rediscounted paper that was not forged was in the names of makers who were financially irresponsible and consequently was uncollectible.
As is usual in such cases, the examiner and the Comptroller were severely criticised and censured for not discovering during the active existence of this bank the conditions which were disclosed subsequent to its closing, and the Comptroller was charged with having a knowledge of these facts for months before he took possession of the association.
Mr. Ridgely was Comptroller at the time and the criticisms referred to were directed against him. It was charged editorially by some of the newspapers that the bank was permitted to continue in business long after it was known by the Comptroller to be in a most unsatisfactory condition, in order to subserve the interests of some of the officials of the bank who were candidates for political office at the approaching election. Allegations of this character and of a similar nature are usually without any foundation in fact, and display the ignorance or malice of those responsible for them.
Whenever a national bank fails, no matter from what cause, the examiner and the administrative officials charged with the duty of supervising the banks are criticised with more or less severity by the press and the public in general and by the depositors and stockholders of the failed institution in particular. The examiner is usually held responsible for not promptly discovering and reporting the unsatisfactory conditions which led to the failure, or administrative officials are censured for undue leniency, while, as a rule, the facts are that there was neither negligence nor incompetency on the part of the examiner nor undue forbearance on the part of the supervising officials. As before stated, sincere and intelligent criticism of the manner in which public officials discharge their duties are generally wholesome and productive of beneficial results, but erroneous criticism is not only harmful in its effect but is unjust to those against whom it is directed, and when applied to bank examiners or to those charged with the administration of the banking laws, is generally based upon ignorance or misconception of the law, or the facts, or both, and is therefore misleading and accomplishes no good purpose. Bank examiners are not infallible, and they do not always discover and size up a condition as it really exists, but instances of this kind are the exceptions and not the rule. Their estimates as to the real condition of a bank are generally reasonably accurate. Their powers are limited. They may suggest where they have no authority to direct, and if their advice or suggestions were followed by bank officers they would always be found to be on the side of safety and in the interest of good banking.