1. Voluntary Retirement

Banks come to an end in two ways: by voluntary retirement and by involuntary retirement or failure. Not infrequently the business of a bank dries up, its officers grow old, satisfactory succes-sors can not be found, and it is thought best to liquidate. Such action is decidedly the wisest, for when a bank has once begun to decline, its revival is difficult unless new officers and a new board of directors take possession, bringing fresh business and endowing it with new life.

When the shareholders owning two thirds of the stock of a national bank wish to close the institution, they can unite for that purpose. Having signified their wish by a vote, the directors notify the Controller of the Currency, and the notice is duly published in a New York City newspaper, and also one published in the city or town where the association is located. When a bank goes into voluntary liquidation, the shareholders may be liable to assess-ments on their stork for the benefit of creditors it more money is needed to pay its debts, the same as in any other ease. The principal different is, in voluntary liquidation the creditors bring the bill or petition to enforce the liability against them; in the other case the bill is brought by order of the controller of the Currency

2. Involuntary Retirement

Far more often, however, a bank fails, and then, if it be a national one, the Controller of the Currency is charged with the duty of closing its affairs. He appoints a receiver who takes possession of all the books and assets and collects all the debts due to the bank. He is in law an agent of the United States and, as the Controller appoints him, he can be removed by the same authority.1

a. Authority of the Receiver. The receiver has authority to sue for all claims that can not be otherwise collected, but he can not compromise any claims or sell any property the bank may have without an order of the court.

b. Process of Settlement. The settlement of the affairs of a failed bank is often a long process. There are several important things to be done. First, is the collection of all the assets or money due the bank. This has been lent out for varying periods; furthermore, when the notes mature, not all of them can be immediately, if ever, paid. The receiver is often obliged to wait before he can receive payment. In other cases the makers, or other parties thereto, dispute payment. Then they must be sued, and litigation is often long and tedious. Evidence must be collected, trials had, perhaps appeals to higher courts may be taken, and years pass before they are fully determined. Then the bank may own real estate that it has taken either before or since its failure in payment of debts, or it may own its banking house, and the receiver can not sell it at once to advantage. He looks around for customers, advertises, makes every effort to sell. Thus time goes while he is trying to dispose of the property.

c. Adjustment of Claims. Again, a bank may hold property as collateral in which other parties also claim an interest. They, as well as the bank, are eager to get as much as possible out of the wreck. When the Fidelity National Bank of Cincinnati failed in 1887, a very competent receiver was appointed, and there were literally hundreds of cases tried in the courts before its affairs were fully settled. The bank did a very large collection business with banks in every part of the country, and when the institution failed, claims were in every stage of collection and settlement. Of course every bank doing business with it was eager to escape without loss, or with the smallest loss possible. Every bank that had sent checks to it tried first of all to recover these. If they had been collected, then the sending banks often claimed the proceeds and disputed the receiver's right to keep them. He, on the other hand, represented all the creditors, and it was his duty to collect and retain all the money or other property he legally could for their benefit. Other suits grew out of the claims presented, and the collaterals held by banks for loans, and finally other suits relating to the amount of interest that ought to be allowed on claims.

1 From the adoption of the national bank act in 1863 to October 31, 1902, 406 banks were placed in the hands of receivers. The amount of their capital was 567,687,420. The total amount of their liabilities was $186,731,459. Of this amount $144,272,471 has been paid, an average of 71.91 per cent. See Report of Controller of the Currency for 1902, page 23.

d. Assessments. A fruitful source of litigation and delay are the suits brought against shareholders for their assess-ments. We have elsewhere shown that every shareholder is liable to creditors for an amount equal to the par value of his stock. Who are these? Chiefly the depositors. Suppose a bank should fail owing $ 10,000,000 of deposits and having $1,000,000 capital and $1,000,000 of surplus. The entire amount, $12,000,000, less the reserve, has been loaned out. Were all borrowers paid in lull, there would be no occasion for making any assessment on the share holders.But a bank in that condition would not tail.

A bank fails because it has lost a considerable portion of its resources.

If a bank had lost only its surplus, it would still be solvent. A bank might lose all its surplus and a part or all of its capital, and though insolvent be able to pay all of its creditors, so that no assessment of the shareholders would be necessary. Thus, should a bank having $10,000,000 of deposits and $2,000,000 of capital and surplus lose its capital and surplus, but no more, it would be able to pay all of its creditors in full without assessing its shareholders. They would lose all they had put into the bank and also the surplus, but escape further loss. Suppose the bank, instead of losing $2,000,000 of deposits, should lose $5,000,000. Then the shareholders would be obliged to contribute another $1,000,000, which would be paid to the depositors. Even after paying this the depositors would lose forty per cent of their deposits. After contributing this sum, however, the shareholders would have paid to the full extent of their liability, and the depositors would be obliged to lose the rest unless they could collect the balance of the directors or managers personally. This is rarely done, for the reason that when banks fail through mismanagement their managers are ruined too and have no means wherewith to respond to any claim, however valid, that may be made against them.

Such assessments are most unwelcome and are often resisted. The suits are brought by the receiver by virtue of the Controller's order. All sorts of excuses are given for not paying. Not infrequently a shareholder, learning of the danger, sells his stock just before the crash, or transfers it to an irresponsible person to escape further loss. Such transfers are always overthrown as soon as their true nature is discovered. It is not always easy to dive down to the bottom of such transactions, but the rules of law that govern in them are well known; the difficulties, if there are any, relate to the proof.

Every shareholder's liability is his individual affair. If A can not pay, his inability is no excuse for B. If the bank owes shareholder C, his claim can not be set off against his assessment. Furthermore, no more can be collected than is needed to pay creditors. The Controller is careful not to demand more than is needed, but if he should make an assessment equal to twenty-five per cent of the par value of the stock, and this should prove insufficient, he could order as many as he pleased until the full one hundred per cent was paid. Generally, only one assessment is ordered. Lastly, the failure or inability of any shareholder to pay can not be added to the burden of another. Thus, if an assessment of twenty-five per cent is made, and some of the shareholders do not pay (for rarely is the amount assessed collected from all), the sum thus Lacking can not be added to the deficiency due creditors, and thereby increase the burden of those who have paid. In every respect, therefore, the liability of each shareholder to assessment is an individual liability, which can not become entangled, increased, or diminished by the action of any other shareholder.

c. Claims. Having described the duty of the receiver in collecting assets, we shall next consider the receiving . of claims. All claims are allowed which are "proved to the satisfaction of the Controller." Of course they must be against the bank and not the officers. Once the federal government had a priority over other creditors, but this is the law no longer. It was also claimed that if a depositor owed a note to the bank, the amount could not be deducted from his deposit and a claim be allowed for the balance, because, to permit this, was to give him .a preference or priority over other creditors. It was contended that he must pay his note in full to the receiver just as though he was not a depositor, and afterward accept his dividend on his deposit. The lower federal courts gave conflicting opinions on this question. Finally it reached the Supreme Court of the United States, which decided by a bare majority that the depositor could use his deposit as an offset against his note, and if it was more than sufficient, he had a claim like that of any other creditor for the balance; if his deposit was insufficient for the purpose, he must pay the balance due.

One other question relating to claims may be considered. As soon as a bank fails, its depositors have claims that are at once due which it must pay out of its assets or proceeds after they have been collected. Suppose a depositor's note is not due at the time of the bank's failure, can he set off his deposit against it the same as though the note had matured or was overdue? The highest court says he can. The effect of the bank's insolvency is to render the depositor's obligation at once payable, and therefore he can set it off against any claim the bank may have against him except an assessment, should he happen also to be a shareholder, which has been made against him.

f. Dividends. After the claims have all been paid the next step is to declare a dividend. This is done by the Controller. Several may be made during the settlement of a bank. Usually as soon as a considerable amount has been collected, and the claims determined or so nearly that there is no danger of overpayment, a dividend is declared. Quite often if the assets of a bank arc large, there may be one or two dividends declared within two or three months after the appointment of a receiver, and smaller ones afterward. The final dividend may be very small, running down to two or three per cent, or even less than one.

g. Expenses. The expenses of the receiver are taken out of the assets, and are not large compared with the expenses attending the settlement of many other failures. The chief basis of payment is a percentage based on the amount of assets or business transacted, with such additions as the circumstances of the case require.

3. State Banks

With respect to the failure of state banks and trust companies a word will suffice. When they fail their business is settled by officers, usually called receivers, appointed by the bank superintendent, or some court possessing competent authority, whose general course of procedure is quite similar to that above described. The state laws differ most in the classification of claims as preferential, and in the liabilities of shareholders.