Still Solid South

In 1926 the Manley group of banks centering in Georgia collapsed. In one week, 90 institutions closed their doors. There have been more serious troubles in U. S. banking, far more significant troubles , but never more failures in one week in recent banking history.

Last week the Manley failures no longer constituted a record. More violent, more sensational grew the storm which began sweeping over Southern banking with the failure of Caldwell & Co., Nashville investment bankers ("We Bank on the South").

During the fortnight, 143 banks failed to open; $178,000,000 in deposits were tied up. Of these troubles, 129 could be attributed to the Caldwell failure and the fear it brewed. Of the others, two were in Iowa, two in Minnesota, one in Georgia.

No bank failure--as all know who have lived in a community where such a catastrophe has occurred--can be called harmless. Yet the South's troubles did not cause great alarm to U. S. banking at large. Rather, bankers in other States said the Southern trouble has been long in coming, is now ended.

When the first announcement of Caldwell & Co.'s troubles was made, Eugene Robert Black, Governor of the Atlanta Federal Reserve Bank (whose territory runs from Tennessee through Florida and from the Atlantic into Southern Louisiana), made an assuring statement (TIME. Oct. 27). Last week he again surveyed the Southern situation, made no grimace at the wreckage. Long associated with banking and industry in the South is Governor Black, whose reputed facial resemblance to Andy Gump of the funny papers amuses rather than bothers him. Heard with respect was his announcement last week:

"At this time, by reason of the closing of a number of Southern banks it may be well to consider our fundamental situation.

"We have just harvested our various crops. All these crops were large and yielded large cash returns. . . . The millions received from these crops are distributed in all the Southern States from Texas to Virginia.

"Our industries are on a sound basis and their products yield cash returns twice as large as our agricultural products. Our problem of unemployment is probably less acute than in any other section. . . .

"With resources of approximately $10,000,000,000 in Southern banks* there should be confidence that fundamentally our banking situation is sound, and with our agriculture, our industry, and our banking resources there should be no uneasiness as to our general situation."

Failure Figures. Survey of the actual events of the unhappy fortnight indeed indicated that the storm was more sensational than devastating. In hard-hit Arkansas, 64 banks either failed or invoked the State law allowing a five-day suspension. Deposits thus tied up were $35,804,000. But in all Arkansas, as of Dec. 31 last, there were 437 banks with deposits of over $208,500,000.

In Kentucky, where there were 579 banks with deposits of $447,900,000, only 15 banks with deposits of $59,122,000 failed.

Equally small proportions of disaster would be found in North Carolina where, supposedly because of real estate deflation, 16 banks with $26,103,000 in deposits failed and in Indiana where eight banks with $4,743,000 failed as an aftermath of the Louisville tempest.*

Group Banking. Anxiously scanning the casualty list were all U. S. bankers. One reason for their interest was that the question of group banking still looms for dispute, that the troubles of last week furnished two cases which will figure importantly in future arguments on the subject:

BancoKentucky. Organized last year to control banks in Kentucky, Indiana and Ohio was BancoKentucky. Two of its biggest units, practically 100%-owned, were National Bank of Kentucky and Louisville Trust Co., both of which went down early in the storm, did much to spread it.

Owners of bank stocks are liable for a 100% assessment on the par value of their shares. It has never been decided whether a holding company's shareholders are also liable, although the consensus is that they are not. Last week BancoKentucky Co. was faced with being held for double the par value of its holdings in its two biggest banks. Probably to obtain cash for this contingency it sold its stock in two Cincinnati banks. An indictment of this situation is found on the Chicago Stock Exchange where BancoKentucky which sold at $34 1/4 last year has dropped from above $16 on Sept. 1 to 13-c- last week.

President of BancoKentucky was James B. Brown, publisher of the Louisville Herald-Post. Last June he announced that BancoKentucky had bought a half interest in Caldwell & Co. and Rogers Caldwell had bought a big interest in BancoKentucky. No indication that this deal had failed to go through was made until last week, when Colonel Brown resigned from BancoKentucky.

A. B. Banks Banks. Another case of a chain breaking was in Arkansas. In that state a potent banking group is A. B. Banks & Co., which controls American Exchange Trust, biggest in the state, and some 50 other banks. Last week virtually all of these had closed.

The strength of the chain had been the strength of its strongest link, American Exchange, which had held deposits from all the other banks, swept them down when it fell.

A. B. Banks & Co., important Southern banking group, is headed by Aloysius Burton Banks, 62, Arkansas booster reputed to be worth $5,000,000. He is also a big factor in the insurance field. He lives in Little Rock in modest luxury, takes long walks at dusk, alone. Last week genial Mr. Banks took few walks, showed the strain of long conferences. He hoped that eventually his chain could be rewelded.

Farmer Caldwell. Last week Rogers Clark Caldwell commented on the situation his difficulty had started. Undismayed, he said to the St. Louis Star: "Everything happens for the best." He said he plans to auction his famed stables, retire. He explained, "The trouble is that modern business has been bottomed on paper values and they are being swept away." His remedy: "We must get back to fundamentals." He plans to become a farmer.

Negroes. In Louisville, two Negro banks were drawn into the maelstrom. The National Negro Bankers Association adopted a slogan: NO BANK SHALL FAIL.

* A recent tabulation places total banking resources of the Continental U. S. at $71,000,000,000. Total deposits (exclusive of bank deposits) are $55,000,000,000, of which one-fifth are in Manhattan banks. The South Atlantic states have $3,000,000,000 in deposits, the East South Central states $1,000,000,000. Nest to New York State, with $16,000,000,000 in deposits, is Pennsylvania with $4,000,000,000.

* Source for last fortnight's totals: American Banker.

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