The National Bank of Kansas City, Mo., was organized April 13, 1886, with a capital stock of $1,000,000. It suspended temporarily during the panic of 1893, but resumed business October 9 of that year, after the payment of an assessment upon the stockholders of thirty per cent. and entering into an agreement with its creditors for an extension of their claims for periods ranging from three to twelve months. About ninety per cent. of the claims of depositors and other creditors were extended under this agreement.
After the bank resumed business, a large number of the depositors being in need of money, borrowed from other banks by hypothecating their extension certificates as security for their loans. These certificates were presented promptly for payment at the date of maturity by the banks holding them, and the National Bank of Kansas City was obliged to pay them on demand, as no further negotiations could be effected with the depositors who transferred their claims. This condition created a constant demand upon the cash resources of the bank from the date of the first maturity of these certificates up to near the time of the second closing of the bank.
While the bank at the date of resumption of business appeared to have ample cash resources to meet all demands that were likely to be made, the managers did not anticipate the hypothecation of such a large amount of the extension certificates and the demand for their payment as they matured. These demands soon absorbed all of the available cash of the bank, and while collections were made from the assets to a certain degree, they did not keep pace with the constant shrinkage in deposits. In addition to this, the continued business depression throughout that section of the country operated to further reduce individual balances, the depositors being unable to maintain their deposits, as they would no doubt have done under more favorable or normal business and financial conditions. The withdrawal of deposits did not seem to be so much from want of confidence in the management of the bank as from the necessities of the depositors, and the holders of the extension certificates could not, of course, be expected to permit the deposits to remain in the bank, but demanded payment at maturity.
In the course of twelve or fifteen months it became apparent that the bank was not gaining in resources, but on the contrary its cash availables were being constantly reduced. This fact was noticed by the depositors and the business public and naturally excited remark and distrust, which had the effect of causing quiet but steady withdrawals of balances. The last published statement of the bank made such an unfavorable showing in this respect as to produce a slight run, which resulted in the withdrawal during the one week immediately previous to suspension of $126,000.
The bank also had a large amount of paper based upon real estate security, the greater part of which, while ultimately good, was not immediately convertible.
When this condition of affairs became known to the examiner he made an examination of the bank and satisfied himself that unless some assistance was received from the Clearing House Association suspension was inevitable. Negotiations were under way at this time to sell the institution to one of the other banks in Kansas City, but nothing was accomplished in that direction, and when efforts to obtain assistance from the Clearing House Association failed, the examiner concluded that the interests of the depositors and the public would be best subserved by closing and taking possession of the association. This course was justified by subsequent discoveries. Upon taking possesion of the institution the examiner found in the bank's mail a demand from a correspondent bank for the immediate remittance of $30,000 in cash, and in addition, the bank was found to be a debtor to the Clearing House Association in the sum of $25,000, demand for which would have been made had the bank opened for business on Monday morning.
The failure of this institution was due principally to a depreciation of securities and the general stagnation in business that prevailed at that time. The total assets of the association at the time of failure amounted to $2,449,033. An assessment was levied upon the stockholders by the Comptroller to pay the claims of creditors, but only $196,535 of the $230,000 assessed was collected, while the total collections from all sources amounted to only $1,400,874. Several dividends, aggregating 78.54 per cent., or $947,455, were paid depositors and other creditors, and the trust was finally closed July 1, 1908.