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EDUCATIONAL SERIES
"Oklahoma's Financial Muddle"
Guthrie, Okla., November 16, 1009. Editor
Kansas City Journal, Kansas City, Mo. Dear
Sir: From one of the several prominent bank
ers of your city, who personally knows of the
conditions of the Columbia Bank and Trust com
pany of Oklahoma City, I have just received
an elitorial clipping from your issue of the 15th
Inst., entitled "Oklahoma's Financial Muddle."
On several occasions I have noticed the most
reoklessly unreliable and untruthful statements'
in your paper concerning this bank failure that'
I feel that I should take the time to analyze
this editorial in detail.
If it is possible that you are being misled,
my answers, which will be fully sustained by
the records, will do you some good.
For a complete analysis, I separate your edi
torial into paragraphs, numbered with the an
swers following by numbers. You say:
One Disclosures following the failure of the
Columbia Bank and Trust Company of Okla
homa City indicate not only a deplorable ineffi
ciency in the examination of that institution.
Two But also that the much vaunted bank
guarantee law is wholly inadequate to make up
the losses of the depositors without practically
bankrupting some of the smaller banks of the
state.
Three This trust and banking concern was
of mushroom growth and at the time of the
passing of the guarantee law had but one-hundred
thousand dollars deposits. Within two
years the deposits grew to two million, eight
hundred thousand dollars, about half of which'
represented reserves placed in the central in
stitution by smaller banks because of the con
fidence in the new law.
Four -It has been shown that the bank was
recklessly , administered. Oil companies were
permitted to - make lcfrge overdrafts and over
one hundred thousand dollars in poor paper
was shifted to the bank from other institutions
in which the officers were interested.
Five This sort of banking would not be tol
erated for a moment in the conservative finan
cial institutions, but the magic spell of the
deposit guarantee led the officers into more and
more hazardous practices. What mattered it
if the bank had a load of bad paper? The guar
antee law would protect the depositors.
Six Why not honor "Unreasonable overdrafts?
There was a good percentage of profit in that
sort of thing so long as the more conservative
banks of the state stood to make good in the
event of failure.
Seven -There was little incentive to careful
and business-like methods. ...
-Eight When the inevitable crash came, the
state officers announced that It would require
two hundred and fifty thousand dollars to pay.
the bank's debts.
Nine A month later Bank Commissioner
Young made a report which showed that four
hundred thousand dollars was still due de
positors. Ten The other banks in the guarantee ar
rangement' were bled as long as they would
stand it, but some of them finally rebelled and
went into the federal courts to secure protection.
Eleven The whole miserable business has
happened just as had been predicted when the
ridiculous law was first suggested.
Twelve Those bankers who did not believe
in wildcat methods are iyw being called upon
to makegood the losses of a wlldcat-concern.
z Thirteen Naturally, there is a strong revul
sion of feeling among the bankers of Oklahoma
as well as among the depositors of the defunct
bank, who were led to believe that they would
be fully protected in case of failure.
Fourteen Unless there is a heavy assessment
among the sound banks of the state to wipe out
the indebtedness of the Columbia Bank and
Trust Company, the depositors will not be re
imbursed. Fifteen If that assessment is levied, It will
cause serious loss to the remaining banks.
Sixteen It Is easy to' see what would have
happened to the Oklahoma banks if the recent
failuro had been one of several in a time of
panic. SucK a situation Avould hayo carried
down the whole financial fabric of the state liko
a houso of cards.
.Seventeen- Oklahoma is learning in the hard
school of experience that the fads of hair-brained
reformers and half-baked, statesmen should be
shunned.
The abovo seventeen paragraphs being verba
tim from your editorial referred to, I answer
them by saying:
First Wo do not claim that violations of the
law of any character can be wholly prevented.
We only claim that tho closer regulation and
examination of banks under tho Oklahoma bank
ing law is much better and more efficient than
the national law. I point to the fact that out
of six hundred and sixty-six banks, there has
been but one failure in the last eighteen months
There is no better record under the national
banking law in the last forty years and when
you realize that Oklahoma is a new country and
that many strangers are constantly coming into
our state and engaging in business, you will
realize the greater difficulty here in maintain
ing stable conditions than should prevail In an
older state where men and their personal his
tory from childhood is usually well known or
easily ascertained. We have a regular bank ex
amination every three months and the detailed
report of the Columbia" Bank and Trust Company
I am satisfied will show that the principal losses
occurred within less than one month of its
closing.
Second The absurdity of this statement
should have been apparent to you by the pub
lished official report of November 13, wherein
there was a trifling balance of only forty-four
thousand dollars total unpaid deposits and no
tice given that these depositors could get their
money any time they presented their claims at
the Central State Bank of Oklahoma City. This
balance was all. that had not been previously
paid out of a total individual deposits, certifi
cates of deposit .and savings accounts aggregat
ing over one million, four hundred thousand
dollars when the state took charge September
29th and every depositor had been paid when
he presented his claim except a Chicago insur
ance company which at .first refused to swear
to the correctness of their account and one other
claimant who finally abandoned his suit, being
convinced that he could not prove his claim
against the bank.
As to number 3 The Columbia Bank and
Trust Company had been an active business con
cern for more than four years and had about
three hundred thousand dollars deposits when
te present managing officers bought its control
and took charge of its management. Its growth
in Individual deposits under our new law was
very little greater than the average growth of
all of the state banks In Oklahoma. It is true
that there was a large gain in bank accounts
with other banks of the state. This was an
entirely natural growth, duo to tho fact that
all over the central and 'western part of the
state, the wholesale and general commercial
business of Oklahoma City has been rapidly
extending and therefore necessitated local banks
opening active accounts with an Oklahoma City
bank. The Columbia, being the largest state
institution and having an active management,
attracted a great deal of this business, which
of necessity was seeking an Oklahoma' City
alliance, due to the natural trend of commerce,
so that the bank balances from a normal cause
had quickly grown to about thirteen hundred
thousand dollars.
Fourth It does-appear that the-management
was at least very generous in protecting and
aiding its friends in the oil business and in the
American National Bank at Bartlesville. It is
a question whether this generosity was the re
sult of bad judgment only or otherwise. As
to this, we hope to arrive at a proper conclu
sion when we have all the facts before us.
As to humber five We agree with you that
conservative financial institutions should not be
moved by feelings ,of generosity or friendship
and that is one-of the principal points of the
Oklahoma law. I believe you will agree with
me that so long as institutions are conservative
there would be no bank failures, even though
a' general financial calamity migh possibly cause
a .suspension, even of a conservative- institution.
Your suggestion that under the Oklahoma law
there is no inducement for a banker to be care
ful and conservative is .absurd. The banker
stands to lose not only the annual dividend
which he hopes to earn on his stock, but the
VOLUME? 9f:NUMBER 43
entire stock investment and as the profit on
his investment in his bank stock is the only in
ducement for him to engage in the banking busi"
ness, he certainly would feelal deep interest in
the safety of his stock investment and the possi
bility of annual dividends.
As to number six Overdrafts are a violation
of the Oklahoma law and I beg to advise you
that throughout the entire state of Oklahoma
this feature of our law is so much better en
forced than the similar feature of. the national
banking lav, that you, as a defender of the
national banking law, would blush to compare
them if you would post yourself before writing
your editorial, but I agree with you, it is a bad
practice in any kind of bank and so far as the
Oklahoma law is concerned, we expect to urce
a strict enforcement of this feature.
Answering your number seven I beg to ad
vise you that the incentive to good banking un
der our state law Is the safety of the stock
holders investment and the certainty of annual
dividends thereon. Your Idea that the other
bankers are being destroyed by the failure of
one bank- is not justified by the official records
Under the Oklahoma state law -we limit the
maximum rate of interest that the bank may
pay on deposits. This is not the case under
the national banking law and the result is that
the state bankers, during the twelve months,
ending September 1, saved about four hundred
and thirty-two thousand dollars on the amount
of interest paid their depositors as compared
with the higher rate paid depositors by the na
tional banks during the same period. Obviously
then, the depositors prefer to accept a' smaller
rate of interest in exchange for the feeling of
security and the certainty of getting their money
the day they call for it. This also shows that
inasmuch as the total emergency assessment
called from the other banks was only two hun
dred and forty-eight thousand dollars, that it
was the depositors who really paid ..the bill in
stead of the bankers, us the bankers would still
have left from their four hundred and thirty-two
thousand dollars of savings; one hundred and
eighty-four thousand dollars, saved from the in
terest -fund abovo stated.
Your number eight is not true. . No state offi
cer ever said that two hundred and fifty thou
sand dollars would pay the bank's debts. The
only statement on this subject made at all was
made by myself. I arrived at Oklahoma City
on the evening of the 28th of September. The
officials of our banking department had been
engaged for about four hours in a special exam
ination, which of course in that brief time was
only, limited. The bank managers expressed
confidence in the condition of the bank and de
sired to continue its operations. Commissioner
Youn& and myself conferred and I finally stated
to the bank manager, who assured me that they
could obtain any reasonable amount of money
to supplement the bank assets, that if they would
add two hundred and fifty thousand dollars by
9 o'clock the next morning, we would permit
them to continue in the operation of the bank
until the completed examination might show
whether or not any additional money was needed.
That is all there Is to your two hundred and fifty
thousand dollar story.
Ninth You misquoted Commissioner Young's
preliminary statement. The total w'as four hun
dred and. eleven thousand dollars then due, of
which two hundred and sixty-two thousand dol
lars was bank balances and the remainder cov
ered all classes of depositors.
As to your number ten -Your statement is
utterly false. The state banics were called on
for. just one emergency assessment, being three
fourths of one per cent,, which they all paid
promptly and only eleven protests out of six
hundred and sixty-five banks and these protests
were the outgrowth of partisan opposition and
not -a single banlc went to the federal court in
any way.
As to your number eleven-This of course is
a question of judgment. You do not like the
law and we do. We have tried it and ninety
five per cent of our people would revolt against
its repeal.
Your number twelve Is answered In various
statements above.
Your number thirteen Is untrue in both state
ments. An overwhelming majority of our state
bankers do like the law. Most of the national
bankers are jealous because the national bank
comptroller refuses to permit them to enjoy its
benefits. As to the depositors, "your statement
is utterly: false. The depositors get their money
as rapidly as they call for it so that at the end
of the thirty-ninth day, practically three million
dollars had been paid and only forty-four thou
sand dollars of. unclaimed deposits unpaid and
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