Business: Loop Flurry

Not all the excitement on the streets of Chicago last week was caused by the convening of the Democracy (see p. 10). Some of it was caused by the Chicago banking situation.

At the beginning of the week the city became mildly bank-conscious when Banker John Bain & associates were put on trial as a result of the crash of the twelve Bain banks last October with deposits of $10,000,000, loans of $13,000,000 and only $321,832 on hand in cash. By the end of the week the city was far more bank-conscious. During the preceding three days, 22 outlying banks had closed their doors. Into the Loop, stronghold of Chicago finance, marched a small army of worried depositors, some of them foreigners, most of them poor, practically all of them owners of small savings accounts. They seemed to select no particular bank for their activities. For two days withdrawals were heavy. The largest Loop houses, Continental Illinois Bank & Trust Co. and First National Bank, felt the brunt of the army’s largest attack.

By Saturday withdrawing had subsided. Like all large and sound banking institutions, Chicago’s had made plain that the money was there and could be had for the asking. In First National, ruddy, crinkly-faced President Melvin Alvah Traylor made two speeches before crowds of clients, one speech in the savings department, another in the checking department. He explained that his bank had passed through the Chicago Fire (1871) and weathered it; had gone through other Depressions and weathered them; would pass through this Depression. Money was on hand for each & every depositor who wanted his share. The crowds dispersed.

By Monday the Loop was once more quiet. But behind closed doors there was great todo. Central figure in a long bankers’ conference was Charles Gates Dawes, lately resigned from Reconstruction Finance Corp.’s presidency to assume the chairmanship of his Central Republic Bank & Trust Co. Since his return to Chicago during the Republican Convention, speculation had run high as to why he had resigned from R. F. C. at what seemed like the peak of the corporation’s activities.

Toward Monday evening the reason for his return had become more apparent. In the week-end uncertainty, Central Republic’s stock, unlisted, had slipped badly on over-the-counter quotations—from 46 to 2. Talk of liquidation was in the air. Late in the evening Banker Dawes issued a statement. Said he:

“The demands on the Central Republic Bank & Trust Co. during the past week made necessary recourse to borrowing to meet them. These loans have been completed and place the bank in an impregnable cash position. The loans negotiated are for current requirements and to pay depositors, and are not for the purposes of liquidation.”

Observers thought they understood what Banker Dawes meant by this equivocal statement. Everyone was aware that the “borrowing” referred to was made through R. F. C. That fact explained why Banker Dawes had resigned its presidency. It also explained why he talked about the loan being for “current requirements and to pay depositors” and not for ‘”liquidation.” R. F. C. cannot lend money to liquidating banks. Thus smart Banker Dawes & advisers had found a polite formula that allowed the bank the option of buttressing its capital and staying in business or giving depositors the opportunity to withdraw their funds when, as if they saw fit, without undue haste, while other Loop banks remained unaffected by the perturbations of quick liquidation. Meanwhile Central Republic was reported to be making no new loans. The Loop was calm.

Still fresh and cheerful last week in the Loop was news issued a few days before from Northern Trust Co., long a model of conservatism among the five large Loop institutions. Northern Trust announced payment of its regular quarterly dividend of $4.50, thus maintaining its $18 annual rate (raised two years ago from $12). It was the only Loop bank failing to cut its dividend rate in 1932.