The Chemical National Bank of Chicago was organized December 15, 1891, with a capital stock of one million dollars. It suspended in May, 1893, but was not placed in the hands of a receiver until July 21 following, its affairs in the meantime having been in charge of a national bank examiner.
The failure of this institution was due to incompetent and improper management. Apparently the bank was organized, and had been freely used during its short existence, to further the interests of its directors and some of the larger stockholders. Of the fifteen directors of the association ten were either themselves directly liable to the bank upon their personal notes, were indorsers for others, or were interested in corporations which owed the institution an amount aggregating at least $225,000. Seventy-one of the shareholders, owning forty-seven hundred and seventy-two shares of the capital stock, owed the bank nearly $700,000, some of which indebtedness apparently was for original stock subscriptions. The general character of the securities held for loans was bad, or at least very questionable, and something like $750,000 of the paper held was of doubtful character, so much so that when the bank applied to other banks for rediscounts when it became involved, it was unable to obtain assistance upon the security offered.
In the liquidation of the bank under the receivership an assessment of $100,000, or ten per cent., was levied upon the stockholders, of which amount only $63,644 was collected. The total collections from all sources amounted to $1,712,489, and dividends amounting to 93.40 per cent., or $1,424,484, were paid, and the receivership was finally closed May 2, 1900.
Under a special Act of Congress, approved May 12, 1892, any national bank in the city of Chicago was authorized to establish and operate a branch bank on the grounds of the Columbian Exposition, for a period of not exceeding two years, beginning not earlier than July 1, 1892, and closing not later than July 1, 1894.
Under authority of this Act the Chemical National Bank established an office at Jackson Park on the Exposition grounds, but as the Exposition was not formally opened until May 1, 1893, the branch office hardly commenced business before the parent institution failed, which necessitated the closing of the branch.
This branch office received the deposits of the Exposition Company as well as those of exhibitors and others. At the time of the failure of the Chemical National Bank and the closing of the branch office, a large amount of deposits had been received by the latter institution. The Board of Directors of the Exposition paid the deposits of the exhibitors and made arrangements with the Northern Trust Company to do the banking business at the Park.
The authorization of the establishment of this branch on the grounds of the World's Columbian Exposition and a similar authority authorizing any bank or trust company located in the State of Missouri to conduct a banking office on the grounds of the Louisiana Exposition at St. Louis, approved March 3, 1901, are the only instances of the authorization by Congress of the privilege of establishing and operating a branch office in the United States by a national bank of primary organization. While the National Bank Act does not specifically prohibit the operations of branch banks, the implication to that effect is clear, and it always has been held that what is not specifically authorized by the Act is prohibited. National banks, therefore, are permitted to have but one banking house or office, at which the ordinary business of discount and deposit must be conducted, and the United States District Courts have held that they cannot lawfully receive deposits, cash checks or do any of the ordinary business of the bank elsewhere.1
Bank failures continued throughout the remaining years of Mr. Eckels' administration to a much greater extent than the yearly average number during the preceding periods. From April 14, 1865, the date of the first national bank failure, to December 31, 1897, the date of Mr. Eckels' retirement from office, three hundred and sixty-nine national banks were placed in the hands of receivers. Between April 26, 1893, and December 31, 1897, the period covered by Mr. Eckels' term as Comptroller, two hundred and eighty national banks suspended, one hundred and eighty-one of which were placed in the hands of receivers, or forty-nine per cent. of the total number of receiverships from the beginning of the national banking system.
The general stagnation in business throughout the entire country which followed the panic of 1893 and continued for several years, largely augmented the difficulties attending the liquidation of the affairs of the numerous receiverships resulting from the panic, and greatly increased the labors of the Currency Bureau. Settlement of the numerous complications arising from these failures and the litigation over disputed claims, constituted the principal work of the remaining years of Mr. Eckels' term. Confidence in the banks and the banking situation, however, was soon restored. Deposits, which declined from $1,764,456,177 on December 9, 1892, to $1,451,124,330, had again increased to $1,728,418,819 by October 2, 1894, or within about $36,000,000 of the highest figure attained in 1892. Owing to the business depression, there was a decided check upon the organization of new national associations. During the year following the panic only fifty national banks were organized, with an aggregate capital of $5,285,000, or an average capital of $105,700 each. This was the smallest number of new organizations and the minimum amount of capital authorized in any year since 1879. The net earnings of the banks were also the lowest recorded in the history of the system, with the exception of those for the years 1878 and 1879. The average dividends paid were only five per cent. Many banks were compelled to go into voluntary liquidation or reduce their capital stock in proportion to their deposits and to provide for losses which impaired their capital, in lieu of an assessment upon the stockholders to make good the deficiency. The unparalleled severity of the panic caused an appalling shrinkage in values of nearly every kind and character. The depreciation of securities usually dealt in on stock exchanges was so great as to make them unmarketable. Commercial houses, manufacturing establishments, railroads and factories, all were affected alike by the depression and numerous business failures and enforced idleness was the result. The return of deposits to the banks had the effect of accumulating large amounts of money at the principal financial centers and cash reserves were piled up with comparatively little expansion of loans. Out of a list of two hundred and twenty-seven securities dealt in on the New York Stock Exchange only nine showed an advance during the year, and a conservative estimate of the shrinkage in value of twenty-five speculative stocks amounted to $235,000,000. The mercantile and bank failures during the year were estimated to number about seventeen thousand.
1This paragraph was written before Mr. Crissinger assumed charge of the bureau and ruled, in substance, that while branch banks were not authorized by law it is permissible for a national bank to have one or more agencies in the same city or town in which it is located, with the approval of the Comptroller.
Under such a condition of affairs, the difficulties attending the liquidation of failed banks can readily be imagined. Notwithstanding this fact, Mr. Eckels devoted his energies during the remainder of his term to the liquidation of the failed institutions as expeditiously as possible consistent with the best interests of the trusts, and at the close of his term thirty-two out of the one hundred and eighty-one banks that were placed in the hands of receivers during his administration were finally closed, and a considerable number of the remainder had paid several dividends each to their depositors. The dividends paid in 1893 amounted to the sum of $3,433,646; in 1894 to $5,124,577; in 1895 to $3,380,552; in 1896 to $2,451,959, and in 1897 to $13,169,781, making a total of dividends paid within the five years from 1893 to 1897 of $27,560,515, or thirty-six and a quarter per cent. of all the dividends paid to creditors of insolvent national banks from 1863 to 1897.
During the thirty-four years covered by the period indicated, a total of $75,935,925 had been paid in dividends to creditors of the three hundred and sixty-eight banks that had been placed in the hands of receivers, and $13,169,781, or seventeen and one-third per cent. of this amount, was paid in 1897, the last year of Mr. Eckels' term. Seventeen additional dividends were ordered, amounting to $625,000, but had not been paid at the close of the Comptroller's report year of October 31, 1897.