BANK SMASHES

Ashburton Guardian, Volume XLVII, Issue 10903, 28 April 1927, Page 7

BANK SMASHES

SOME REMINISCENCES

The closing of all the banks in Japan recalls the famous "Wild Cat" crisis of 1837 in the United States. This great crash followed on a boom in the sales of public lands which were then being rapidly disposed of by the American Government. The lands were mostly bought Up by speculators and paid for in paper, and of real money necessary to make good the paper bubble not one-tenth part really existed. The Government at length became alarmed, and ordered all paytments for land to be made in specie. This brought down the house of cards, which was already toppling. Universal bankruptcy set in, all the. banks in the country had to close their doors, and many imagined fortunes made during the boom faded into nothingness. Britain's numerous panics have never resulted in a complete suspension by the banks like the above, but in the crisis of 1825, when the London Bank failed, it dragged down with it thirtysix country banks and sixty financial companies. During December of that year conditions were such in London that it was impossible to realise even the best securities, such as Government stock and Bank of England shares. This crash was considered to be due to the heavy investment of British money in the then new South American republics. In an inquiry into the crisis the following year Sir Robert Peel pointed out that in England a hundred banks had failed in the crisis of 1797, 157 failed in the period between 1810 and 1817, and he put the total banking failures during the 1825 crisis at 76. Another crisis came in 1839, when the Bank of England was bn ; the verge of bankruptcy and was only saved by Paris and Hamburg coming to the rescue. Sixty-three cc.intry banks had to suspend payment, and the liquidation of the business firms bankrupted wtjit on for four years, until 1843. It was after this that the Bank Charter Act was passed in 1544 regulating the rote jssue of the Bank of England and requiring the publication of weekly returns 01 its finances. In 1857 America had another great crisis, 7200 business houses failing. This was felt in Britain, particularly in the cotton industry in Manchester, where out of 236 factories, only 54 were working full time with, a full complement of hands, and 23 were stopped altogether. During this period of ctringency British manufactures were bankrupted on every hand, the smallest going first.

The United States had another great smash in 1873, following on the era of railway building after the Civil War. One after another the railway companies defaulted in the payment of interest on their bonds. The banks, loaded with railroad paper, began calling in their loans. On September 18, 1873, the crash came, Mr Jay Cooke, agent of the United States Government, with four million dollars of de-' Sosits, and 15 millions of North Pacific ailroad bonds, declaring his inability to meet the debts. The report flew through the country like a cyclone, railway shares were thrown on the market by the bushel, and Wall Street brokers failed by dozens during the day. Three days later many New York banks suspended payment, and at 11 o'clock on September 20 the New York Stock Exchange closed its doors for the first time and did not re-open until September 30. Australia's great banking smash of 1893 followed on very large investments of British capital in that country during the preceding years. Wild extravagance was caused by the easy money, and things came to such a pitch that the Victorian Government proclaimed a moratorium for five days from May 1 to 6, 1893. All the banks, save only four, closed their doors, and 12 institutions, with 965 branches throughout Australia, suspended business. Eleven of these banks were reconstructed. TJie bank failures totalled 23—five in 1891, four in 1892, and 14 in 1893.

The last big international crisis before the war occurred in 1907, the year of the gold stringency in the United States. It was rumoured that the trouble was caused by a ring of Wall Street financiers withdrawing their gold from the banks. The demand for gold in New York, however it was set up, caused every nation to raise its bank rate more or less sharply. Ruin to industry and misery to workers followed in the United States., and Europe, which was perfectly'innocent in the matter, suffered almost as severely. Nearly every one>of these big crises has been followed by solemn Government commissions of inquiry, but the riddle of stopping a boom from ending in a smash seems as far from being solved as evfer it was.