Our country was in a serious financial state in the 1920s. The small town banks had thrived in the early part of the 20th Century partly due to the slow method of transportation. Almost every small town had at least one bank if not two or more.
What we will find is that it was not the quality of the banking business as much as the multitudes of banks that existed. That was one of the main roots of the banking crisis that ruined so many banks, bankers, and depositors during the Great Depression era.
As the year 1921 approached, the financial economy of many small banks was not in the best situations. Locally, the small Bank of Mabel transferred its business to the Farmer’s State Bank in Cameron, because the consensus was the bank didn’t do enough business to warrant the maintenance of a bank. It wanted to suspend its operation while depositors could be paid in full.
In the same year, 1921, the Winston Bank at Winston, MO, closed. Its problem was referred to as “frozen assets” which means the bank had loans it was able to realize on, although probably safely secured.
Within the next few years, most banks were financially weak and were closing their doors. Several banks listed below, were located within a 25-mile radius of Gallatin and closed in the four years from 1924 to 1928:
- Carlow Bank at Carlow, closed 1924
- Bank of Lock Springs, closed 1925
- Bank of Altamont, closed 1925
- People’s Exchange Bank, Jamesport, closed 1925
- Commercial Bank of Jamesport, closed 1925
- Harrison County Bank at Bethany, closed 1927
- Bethany Savings Bank at Bethany, closed 1927
- Farmer’s Bank at Jameson, closed 1927
- Bank of Jameson at Jameson, closed 1927
- Bank of Kingston, closed 1927
- Bank of Melbourne, closed 1927
- Farmer’s State Bank of Winston, closed 1921
- Farmer’s Exchange Bank of Gallatin, closed 1934
Five banks in Trenton consolidated into four banks.
The downfall of the banks also brought down the downfall of the farmers and the working class. The banks started to call in their loans from the borrowers. This was legal because the loan papers contained a clause that stipulated the loans could be payable on demand.
Banks were now demanding payment in full within a short period of time. Borrowers didn’t have any way to pay off their loans. There wasn’t any insurance on the depositors accounts. With the loss of their monetary assets, people couldn’t pay their debts. The banks also took the depositors money with them. The depositor seemed to be the loser.
As a rule, depositors were only refunded a certain percent of the money they had in their account which might range from a low of 20-30% at one bank, to a high of 75-80% at a nearby bank. Three typical examples are the depositors at the Bank of Jameson were refunded 50 cents on the dollar. The depositors were paid six percent of their deposits and in 1930 received a second dividend ranging from 15-25%. It was made possible using the money from a $10,000 judgment against four bank directors.
The Farmer’s State Bank at Winston, had one of the best repayment rates. It repaid approximately 100 cents on the dollar. The Citizen’s State Bank at Altamont, refunded their depositors three percent of their accounts; however, after it had been closed eight years, the depositors received a second dividend which allowed them to receive 53% of their account.
Along with many others in our nation, the director at the Bank of Jameson also took his life when the bank failed. Several bankers were sent to prison on the charge of accepting deposits after a bank failed or was in serious financial upheaval. The sentences might vary from two to five years. Still, other bankers went into bankruptcy.
President Roosevelt closed all the banks for a short period of time which extended from March 6, 1933 to March 13, 1933. The main purpose of the shutdowns was to eliminate the weak banks. The strong banks would be allowed to reopen immediately and banks on the borderline would reopen on a trial basis, the rest were to remain closed.
Banks soon started to charge service charges on their customer’s accounts. They contended that these new charges were not to increase profits but to prevent losses from rendering their services.
Many farmers who had borrowed money from the insurance companies couldn’t make their payments and many farms were repossessed. Likewise, many farmers couldn’t pay their back taxes and their farms were also repossessed.
Large loan companies and large insurance companies often purchased the bank’s repossessed notes, sometimes for less than one-fourth of the note’s value. In turn, many of these insurance companies would work with the farmers who’d lost their farms if they’d tried to, and had the ability to meet their obligations in the past.
In other cases, the farms were rented to other farmers who’d been fortunate enough to keep a team of horses and some machinery. Both the farmer and the loan company received one-half of the crop’s income.
Still other farmers were left with no land, no machinery, and no livestock. They had to seek other ways to have income, which was hard for many of them to do because farming was the only skills many of them possessed.
— researched and presented by Wilbur Bush, Gallatin, MO