What might have proved a very disastrous failure in December, 1905, was averted by the wise and timely course of Mr. Ridgely, with the co-operation of the associated banks in Chicago. The Chicago National Bank, of which John R. Walsh was president, was discovered to be in a very precarious condition, because of large loans made by Walsh to various concerns with which he was identified and which he either owned or controlled.

This bank had a capital stock of $1,000,000, surplus of $1,457,000, and deposits of $20,000,000. The bank had been the subject of the Comptroller's special attention for about two years previous to its suspension. Mr. Walsh was reputed to be worth several millions of dollars. He was identified with numerous enterprises, some of which were on a large scale. He had been a successful business man and had raised himself from obscurity to a position of financial affluence. While the aggregate of the loans by the bank to the Walsh enterprises amounted to a very large part of the total deposits, and more than double the amount of the capital and surplus of the association, these loans were distributed among a number of different concerns, each of which was engaged in a different line of business. In the Walsh combination there were three railroads, three gas companies, a large newspaper, a stone quarry, a coal company and other enterprises of greater or less magnitude.

While all of these concerns were affiliated and in the hands of the same interest, they were separate corporations, and as such were entitled under the law to receive a loan each equal to ten per cent. of the capital of the bank. Some of these loans exceeded the legal limit and were required by the Comptroller to be reduced, but none of them were regarded as dangerous or unsafe, except in the hazard attending the concentration of such a large amount of the bank's funds in the hands of interests so closely interwoven as were these several corporations. Notwithstanding this fact, there seemed to be every reason to believe that each corporation of the group would be carried to a successful outcome, and not only pay all its debts but leave a very substantial profit to Mr. Walsh and those associated with him.

In addition to the national bank, Mr. Walsh controlled to a large extent two other banking corporations in Chicago, the Equitable Trust Company and the Home Savings Bank.

In June, 1905, the Comptroller, through the national bank examiner, endeavored to arrange with the State bank authorities of Illinois, a simultaneous examination of these three banking institutions, with a view to ascertaining the aggregate liabilities of Walsh and his several corporations and interests to the three concerns, as it was suspected that the national bank was really in a worse condition than it appeared to be, but this effort to secure the co-operation of the State Banking Department failed, and the national bank had to be examined independently as usual. This examination developed no material improvement in the situation. While some of the loans that had been previously criticised and required to be reduced had been curtailed, others had taken their place, and at that time the total loans of the national bank to the several Walsh corporations amounted to over $6,800,000, while some of the loans had been shifted to the bond account.

The condition disclosed by this examination convinced the Comptroller that it was absolutely necessary to secure a simultaneous examination of the three institutions before the real condition of the national bank could be determined, and negotiations were again opened with the State Banking Department to that end, and an arrangement finally effected for an examination of the three banks on December 9, 1905.

It was thought that this joint examination would disclose transfers of cash or securities from the State to the national bank at the time of the previous examination of the latter, and vice versa, at the time of the examination of the State institutions, but such did not prove to be the case. No shortage of cash or securities in either institution was disclosed, nor anyhing to indicate any manipulation of the assets or accounts, or any false entries.

Aside from the large amount of loans made by the Chicago National Bank to the Walsh concerns, the bank seemed to be well managed, its other loans carefully and conservatively made, and its books and accounts accurately and well kept, always reflecting the true condition of the association.

The simultaneous examination of the three banks, however, developed the fact, as was suspected, that in addition to the large loans by the Chicago National Bank to the Walsh interests, loans had been made by the Home Savings Bank and the Equitable Trust Company to the same interests to an amount greater in proportion to their capital stock and deposits than the loans made by the national bank, and the aggregate of the loans made by the three institutions amounted to between fifteen and sixteen millions of dollars. The Home Savings Bank, which had about $4,272,000 of deposits, had $3,836,000 of these loans, and the Equitable Trust Company, with deposits amounting to $4,805,000, had over $4,250,000 of them.

This knowledge of the total liabilities of the Walsh interests, acquired through this joint examination of the three banks, made the situation much more critical and demanded immediate and decisive action on the part of the Comptroller.

If the amount of the indebtedness to the Chicago National Bank alone had represented anything like the total liabilities of the Walsh concerns, there would have been reasonable probability of Mr. Walsh being able to continue the sale of the bonds of his corporations and from the proceeds of such sales pay his liabilities to the bank. But with the increased amount of these liabilities, as shown by the examination of the three institutions, and with practically all of the funds of the two State banks loaned to the Walsh enterprises, any sudden demand made upon the State banks by their depositors would have necessitated their being supplied with funds by the national association, as the Equitable Trust Company had only about five thousand five hundred dollars and the Home Savings Bank about twelve thousand dollars in cash at the time of their examination, but they had on deposit with the Chicago National Bank fifty-four thousand dollars and one hundred and twenty-nine thousand dollars respectively.

At this stage of the situation, the State authorities were unwilling to allow the State banks to continue doing business, unless something was done to strengthen their financial condition, and the Comptroller did not deem it safe to permit the national bank to open for business on Monday morning, with the certainty that it would meet with trouble, if either of the State institutions became involved, or a run was started upon them by their depositors.

This was the condition of affairs which existed on Thursday, December 14, 1905, and the Comptroller, after a conference with the bank examiner by telephone, instructed him to take no action until after the close of business at noon on the following Saturday, when the time locks had been set on the vaults to prevent their being opened before Monday morning, then to call a meeting of the Clearing House Association and advise them of the situation. In the meantime, the Comptroller left Washington for Chicago, so as to direct matters at close range. He arrived in Chicago on Sunday, December 17, and arranged at once for a conference with Mr. Walsh and the directors of his bank, at which there were also present the attorneys for the Clearing House Association and the National and State bank examiners. This conference lasted from ten o'clock Sunday morning through the night until seven o'clock on Monday morning.

At the beginning of the conference the Comptroller announced his determination not to permit the national bank to open for business on Monday morning unless some satisfactory arrangement was made to insure the payment in full of all demands that might be made by the creditors upon the bank.

This conference resulted in an agreement in writing between the Chicago National Bank and the Clearing House Association, representing thirty-three Chicago banks, under the terms of which the latter banks purchased from the Chicago National Bank all of its assets, except cash and exchange, partially securing themselves by obtaining the guarantee of the directors of the Chicago National Bank to the extent of their individual resources.

The First Trust and Savings Bank of Chicago was appointed by the associated banks agent to receive and liquidate the purchased assets, under the direction and approval of the Chicago Clearing House Committee.

This arrangement was entered into only after a long and continued discussion. A representative of every bank in Chicago, which was a member of the Clearing House Association, was present at the meeting. The Comptroller did not attempt to dictate any of the provisions of the agreement, or to impose any conditions, except to insist that the creditors of the Chicago National Bank must be fully protected, otherwise he would place the association in the hands of a receiver on Monday morning.

The First Trust and Savings Bank continued to act as agent for the clearing house banks under this agreement until some time in 1907, when it was considered advisable to sell to John R. Walsh and Company, certain of the railroad and other securities to facilitate their liquidation, the consideration being the promissory note of Walsh and Company, secured by the assets purchased and the guarantee of the directors of the Chicago National Bank. The assets not sold to Walsh and Company, under this agreement, were retained by the associated banks and continued to be administered by the First Trust and Savings Bank as agent of the associated banks. Participation certificates were issued to the associated banks, representing their pro rata interest in the assets of the Chicago National Bank. These certificates were issued in two series, designated as Series A and Series B. Series A represented the interest of the associatd banks in the assets covered by the promissory note of John R. Walsh and Company, secured, as before stated, and Series B represented the interest of the associated banks in the remaining assets which were being administered by the First Trust and Savings Bank.

This plan was followed until January, 1910, at which time a ten per cent. dividend was declared on both series of certificates, and a settlement was arranged with John R. Walsh and Company whereby the assets purchased by him and his associates were taken back by the associated banks and the promissory note canceled. This settlement included the releasing of the directors of the Chicago National Bank under their individual guarantee, in consideration of their transferring certain of their personal assets to the First Trust and Savings Bank as trustee for the benefit of the associated banks.

At this juncture Series A and B participation certificates were called in and new certificates were issued in lieu thereof, designated Series C. These certificates were dated February 1, 1910, and aggregated approximately nine million dollars. They were issued to the associated banks to cover their interest in all the remaining assets of the Chicago National Bank.

A notable coincidence in connection with the conference on the night of December 17, was the fact that there were three ex-Comptrollers of the Currency and one Comptroller present. The three ex-Comptrollers were Messrs. Lacey, Eckels and Dawes, each of whom was at that time president of a banking institution in Chicago.