New York Failure

In The Bronx, N. Y., a small merchant went to a branch of Bank of United States and asked officials to buy his stock in the institution. They told him to keep it, that it was a good investment. He misunderstood, and by late afternoon a good-sized run had developed. Police kept clamorous depositors in line. The bad news spread to other branches.

That afternoon most of the great bankers of New York gathered on the tenth floor of the Federal Reserve Bank of New York. Specifically, their meeting was precipitated by the run on Bank of United States. But actually the run was only the climax to weeks of silent withdrawals, months of rumor, two attempts to merge Bank of United States with three other banks (TIME, Dec. 8). Only two days before the run, it was announced that the second attempt to merge had failed.

To the bankers' meeting came about 100 executives. Practically all of the great Manhattan institutions were represented. A late arrival was Charles Edwin Mitchell of National City Bank. He found the door locked, turned to a guard and said: "I am Mr. Mitchell."

"That doesn't impress me," responded the guard.

Eventually Mr. Mitchell was admitted. The gathering he saw was probably as great in dollar-power as any similar meeting ever held. Perhaps Mr. Mitchell recalled the momentous meeting in 1907, the year he arrived from Chicago to start his Manhattan banking career.*

The room into which Mr. Mitchell was admitted was the Governor's Room. Soon the bankers began breaking up into little groups, wandering through the building, earnestly and gravely discussing what should be done if Bank of United States failed.

Another late arrival was lanky Owen D. Young who came about 11 p. m. in full dress, accompanied by Thomas William Lamont of J. P. Morgan & Co. Looking taller than usual in his full dress, Mr. Young paused to peer down at and converse with small, able Isidor Kresel, counsel for Bank of United States, also the busy new special investigator of New York's magistracy scandals. Shortly before 3 a. m. Lieutenant Governor Herbert H. Lehman came, was hurriedly ushered into the conference room by James Herbert Case, chairman of Federal Reserve Bank of New York, who, for the public good, had previously agreed to head the merger into which Bank of United States failed to go.

Not until 3 a. m. did the bankers begin to leave. And not until 4 a. m. did the entire conference disband. Then Joseph A. Broderick, Superintendent of Banks in New York State, announced that he would have something to say in the morning. Reporters easily guessed what it would be, were sorry that their morning papers could not carry the sensational news that the Superintendent of Banks had taken over Bank of United States.

To the bank's depositors, many of whom were in line by 9 a. m., the news brought some hysteria. To the Stock Exchange, unsettled all week by fear of this development, the news brought uncertainty, alternate selling and buying. To the market in bank shares it brought much selling. If the Bronx merchant who had tried to sell his Bank of United States stock the day before had succeeded, he would have received 11 1/2a share. After the closing, he would have been lucky to get more than $3. Last year this stock sold at $240.

But while the late conference of the preceding night had failed to prevent the closing, it had at least given bankers a definite plan of action. To all European. houses and newspapers assurance had been sent that Bank of United States, despite its imposing name, was only a small State bank, had no connection with the U. S. Government. And with unprecedented speed, members of New York Clearing House announced they would lend 50% of Bank of United States' deposits as soon as balances could be checked. Proudly signing the Clearing House statement were two banks which had contemplated entering the four-ply merger--Manufacturers Trust and Public National Bank.sbTheir admission to the Clearing House relieved many a person of worry.

The troubles of Bank of United States began shortly after it entered a vigorous period of expansion. For many months its deposits have fallen, and it is estimated that now $160,000,000 is tied up against $212,000,000 on deposit Oct. 17. Half of the deposits are thought to be in thrift accounts./- Many large accounts were also tied up. The Salvation Army had on deposit $50,000 of the proceeds of the Army-Navy charity football game (see p. 34). J. C. Brownstone & Co., a clothing firm whose senior partner is a Bank of United States director, had the bulk of its liquid assets in the bank, asked for a receiver. Burns Bros. Coal dropped sharply on the Exchange on rumors that it too was involved, but the company announced it had less than $100,000 in the bank. The City of New York sought in vain to release a $1,500,000 deposit. Another big depositor was Industrial Council of Cloak, Suit & Skirt Manufacturers. The bank has around 400,000 depositors, 23,000 shareholders. Last week the State was busy investigating reports that the bank had sold stock to depositors at $198 a share, promised repurchase in the event of a decline, an illegal banking act.

The immediate difficulties are supposed to lie in large frozen assets, consisting of loans on mortgages, real estate and buildings, loans to the garment and fur trades. The bank's exact position will not be known for a long time, but the official hope that it will be reorganized is not widely accepted.

Conservative Manhattan bankers last week were angry at Bernard K. Marcus, dark-haired, heavily-built president of Bank of United States. His aim was perhaps much too high. Only last year he stated: "Often we've put two or three days work into one. We have gone ahead two or three times as fast as we would have had we been working only one day at a time." To bankers, a day's work is a day's work, to be done well, thoroughly. Constantly repeated was the story that at every conference Banker Marcus had adopted an attitude of "You know you are afraid to let my bank fail, so meet my terms." Complicating the bank's affairs is the existence of 57 subsidiary companies which are believed to have borrowed $20,000,000 of the bank's funds.

Significance. Many a banker argued late and loudly over the question of whether the big organizations ought to have prevented the failure of Bank of United States, cost what it might. One side said it would have been worth $50,000,000 to prevent fear from spreading through the ranks of the financially ignorant. The other side said that in helping the weak the strong impair their own strength, and hence the fundamental strength of the country. Agreed: It depends upon the particular case.

* On Oct. 22, 1907 Knickerbocker Trust closed its doors. That night, many great bankers gathered to consider the situation. At this conference trust companies appealed to banks for aid. When the public heard of the meeting tremendous runs started on two trust companies. Secretary of the Treasury George Bruce Cortel, now president of Consolidated Gas Co. of New York, arranged a $35,000,000 credit. On Oct. 24 a great panic swept the Exchange. Demand loans rose to 125%. J. P. Morgan and associates released $25,000,000 to assuage the situation. But not until Nov. 6 did bank runs stop.

*Goldman, Sachs Trading Corp. does not and never did own any stock in Bank of United States as stated by TIME, Dec. 8.

/-Only legitimate savings banks may use the word "savings." Their investments are subject to rigid requirements. Commercial banks have "thrift accounts" or "compound interest ac-counts," are not required to treat the funds differently from ordinary deposits, hence use them in the conduct of general business.

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