They also expressed grave doubts as to the solvency of the company and regarded the condition of its affairs as so alarming and the situation so menacing to the banking community of Washington as to call for immediate action on the part of the clearing-house banks to strengthen and fortify themselves against any unusual demands.
On the morning of November 18, 1913, the examiner again conferred with the Acting Comptroller in regard to the situation, which was considered very verious, and the Acting Comptroller instructed him to arrange for an immediate meeting of the board of directors of the trust company in the office of the Comptroller. He took the matter up with the treasurer of the company, who informed him that some of the directors were out of town and an immediate meeting could not, therefore, be held. The treasurer suggested that a meeting be called for 4.30 in the afternoon of the following day, November 19. The Acting Comptroller then communicated by telephone with the treasurer of the company and insisted upon an immediate meeting of the officers and directors who were in the city. The treasurer stated that an earlier meeting than the time stated could not be had as some of the directors were absent and those who were in the city had important engagements. The Acting Comptroller informed him that no officer or director of the company could have any engagement of more importance than his attendance at this meeting which must be held at once. He stated he would see what could be done and would advise the Acting Comptroller later. Not hearing from him near the close of business on that day the Acting Comptroller called him again by telephone and he said the earliest hour he could arrange for a meeting was twelve o'clock on the following day. The Acting Comptroller advised him that a meeting must be had that night. He said that was impossible. He was then advised that it must be had not later than nine o'clock the next morning and that he would expect to see the directors at that hour in the Comptroller's office.
At the close of business on the same day the examiner and the banker who examined the assets came into the Comptroller's office for the purpose of discussing the situation and determining what should be done. The banker declared that all negotiations were off for a merger of the two institutions and expressed a serious doubt as to the solvency of the trust company.
After discussing all phases of the situation it was deemed advisable to call into conference the representatives of the principal clearing-house banks in order that some arrangement might be made to take care of the situation which had reached a critical stage. Accordingly the presidents of seven or eight of the largest banks in Washington were requested to meet that night in the office of the bank examiner.
The condition of the trust company was then explained to them in a general way. No information was given them in regard to the affairs of the company that the banker and his associates who had examined the assets did not already know and there was not a banker present who did not know and had not known for at least a year that the trust company was and had been in a very unsatisfactory and unsafe condition, and the subject of criticism by the Comptroller of the Currency.
Some of the bankers present expressed a willingness to come to the assistance of the trust company and desired to know how badly it was involved and how much money would be required to meet demands in the event of a run upon the institution. They were told that while the company was believed to be solvent, its capital was impaired to the extent of at least seventy-five per cent., and in addition thereto a large proportion of the assets were of a slow, doubtful and non-liquid character.
After a general discussion of the situation the conclusion was reached that the trust company's assets were of such a nature as to make it impracticable for the banks upon the security of such assets to furnish the funds necessary to meet the demands that would probably be made upon it. They concluded, therefore, to confine their efforts to taking care of the situation outside of this institution by fortifying their banks to meet any unusual withdrawals and extending assistance to each other. The meeting adjourned with this understanding, after the bankers present were admonished to refrain from any reference to the meeting or the trust company's affairs.
While the meeting was in progress two of the directors of the trust company came into the adjoining room. When the Acting Comptroller was advised of their presence he personally invited them to join the conference, but they declined to do so.
The Acting Comptroller then explained to them the condition of the trust company as disclosed by the examiner's report, but they did not seem to appreciate or realize the seriousness of the situation. They were told that the capital of the company would have to be made good if the bank was permitted to continue in business, and they were asked what the effect would be if a meeting of the shareholders were called for the purpose of restoring the deficiency in capital by an assessment of the stock. They expressed the belief that a call for such a meeting would result in closing the bank, as a large number of the shareholders would be unable to respond to an assessment.
They were advised by the Acting Comptroller that such being the condition it would be more creditable for the directors to close the institution and arrange for its liquidation, reorganization or absorption by some other bank than for the Comptroller of the Currency to close and take possession of it, as he would be compelled to do in the event of a run and the inability of the company to meet its demand liabilities. To this suggestion one of the directors replied that the Comptroller had power to close the bank if he thought it advisable to do so. He was informed that the Comptroller had the right to close the bank only in the event of insolvency and that the bank examiner had not reported it to be insolvent, but if a run should start and the bank should not be able to meet all demands according to their tenor the Comptroller would have authority to take possession.