1918 KANSAS AND KANSANS Kansas Banks and Banking Part 1

KANSAS BANKS AND BANKING

The history of banking in Kansas is a story which has no moral or impressive warning bearing on the dangers of rash speculation; the taking of desperate financial chances; unrestrained expansion induced by exuberance of animal and intellectual spirits, and firm faith in the splendid future of the country, based for years upon nothing but faith; for the outcome of the banking institutions of the state was, finally, beyond all predictions - and this, despite the fact that virtually for forty years there was at best but a very loose government supervision of them. The period of state supervision dates from 1897, and since that year the Kansas spirit, the Kansas energy and the Kansas progressiveness, like a stalwart horse of the plains, have been placed in harness and wisely regulated, without being broken or retarded for the best purposes of society. The Kansas spirit and the Chicago spirit have long been placed in the same class.

Several banks were established in Kansas before any law had been passed by the territory under which they could be operated. They were not called into existence by the development of agriculture, by the founding of communities and the growth of local trade, but rather by the great overland transportation and supply business which mainly centered at Leavenworth and Atchison, and which, during the Civil war, was supplemented by Government work at the western forts.

When the banks were first coming into being, not only was the wild speculation in town sites at its height, but the territorial authorities had issued quite a quantity of scrip to supply the dearth of a medium of exchange under which the settlers suffered, to meet the expenses of political movements and to serve as a protection fund against the antifree soilers.

As was written by the late George W. Martin: "There were three issues of scrip in territory days and, being without a redeemer, it is curious to know what became of it. We have occasional inquiries to this day as to the value of this paper. There was first the Kansas State scrip, issued to pay the expenses of the Topeka Movement. It was signed by James H. Lane, president, and J. K. Goodin, secretary. We have a piece of this scrip for $20, issued to Timothy McIntyre, a doorkeeper of the Topeka constitutional convention. He was one of the first settlers of Topeka. He was born in New Hampshire in 1819 and died in the State Hospital, of old age, November 10, 1910. The Chicago Tribune said there was $50,000 of this paper issued.

"Another issue was called the Kansas Protection Fund. We have a piece of this for $130, dated February 29, 1856, signed by C. Robinson, J. H. Lane, J. K. Goodin and George W. Deitzler. The full amount is stated at $23,858, and it was to liquidate losses during the invasion of December, 1855. Governor Robinson secured donations in Massachusetts to redeem $10,000 of this protection scrip.

"Another issue is known as Free State warrants. We have two sampler, of this issue, one for $62 and one for $18, dated March 15, 1856, signed by George A. Cutler, auditor of state, and issued under act of March 15, 1856, defining certain duties of the auditor of state.

"The Historical Society also has, among its curios, quite a number and variety of bank notes issued in Kansas from 1854 to 1862, representing institutions at Leavenworth, Lecompton, Sumner, Lawrence, Atchison and Wyandotte. However, we find no mention of organized banks at Lecompton and Sumner."

For several years before the war numerous relief funds were being raised in New England and sent to Kansas - not only anti-slavery money (which has been estimated at a total of $250,000), but hundreds of thousands of dollars to assist Free Soil emigrants and relieve drought sufferers. In one statement of the New England Emigrant Aid Company it is stated that $455,000 was expended in the Territory of Kansas, $100,000 of which Pomeroy used in the drought of 1860. Much of the balance was for town sites, sawmills and hotels. The Kansas National Committee, prior to January, 1857, when it dissolved, sent to Kansas about $200,000. A report adds: "One-half of this value probably reached its destination; the remainder, during the disordered times of the summer and fall of 1856 was interrupted, destroyed or appropriated by the numerous bands of proslavery regulators who infested the landings on the upper Missouri, plundering Free State emigrants in the name of law and order."

It was in the midst of such chaotic conditions, the territorial Legislature of Kansas passed its first banking law. On January 29, 1857, an act was passed making it unlawful for any company or association to be formed for banking purposes, without authority from the Legislature. It was also made unlawful to subscribe for such purpose. The penalty for its violation was a fine ranging from $400 to $1,000, or imprisonment of from six months to twelve. The act establishing the Kansas Valley Bank at Leavenworth was approved on February 19th of the same year. It provided for branches at Atchison, Lecompton, Doniphan, Fort Scott and Shawnee. As an anomaly of nature, it may be stated that though the Leavenworth parent was never born, a vigorous son sprang into being at Atchison. Furthermore, the act made the branches entirely independent of the trunk!

An official examination of the books of the Atchison branch showed that 50 per cent of its authorized capital stock had been paid in and that the other terms of its charter had been complied with; so that it commenced business February 18, 1858, the charter of the Kansas Valley Bank having been repealed on the 3d of the month.

Three banks were incorporated by the act of February 11, 1858 - the Lawrence Bank, the Bank of Leavenworth and the Bank of Wyandotte. The authorized capital stock of each bank was $100,000, which was to be divided into shares of $100 each, and the affairs of each institution were to be managed by a board of eight directors. Section 12 of the act provided that "whenever the directors of either bank shall deposit with the comptroller an amount of the state bonds of any interest paying state in the Union, or of the United States, equal in value to $25,000, at the current rates of the New York Stock Exchange, and shall satisfy said officer that they have on hand $2,500 in specie for the purpose of redeeming notes of the bank, then the comptroller shall countersign $25,000 of said circulating notes and return them to the president for use; and it shall then be lawful for said bank to use said notes as currency."

On February 7, 1859, the Legislature passed an act authorizing the establishment of savings banks, and under its provisions was organized the Lawrence Savings Bank.

But before any of the banks organized under the territorial laws could be fairly established, except possibly the "Atchison branch," Kansas was admitted into the Union as a state (January 29, 1861). The status of those already authorized was in no wise altered, but, under the state government, the conditions under which other banks could be established were materially changed.

The Wyandotte Constitution contained a provision that no bank should be established except under a general banking law, and that no banking law should be in force until after it had been submitted to a vote of the people at a general election and approved by such popular vote. The first State Legislature, which met in March, 1861, passed a general banking law containing the following provision: "Whenever any person or association of persons, formed for the purpose of banking under the provisions of this act, shall duly assign or transfer in trust to the auditor of this state, any portion of the public stock issued, or to be issued by the United States, or the stocks of the State of Kansas, said stocks to be valued at a rate to be estimated and governed by the average rate at which said stocks are sold in the city of New York, at the time when such stocks may be left on deposit with the auditor of state, such person or association of persons shall be entitled to receive from the auditor an amount of circulating notes of different denominations registered and countersigned, equal to and not exceeding the amount of public stocks assigned and transferred as aforesaid."

Under the law, the stockholders were also required to give a bond to the auditor for an amount equal to one-fourth of the notes issued; also a certificate to the effect that 10 per cent of the capital stock had been paid in specie, which was to remain as security in the vaults of the bank. No bank was to be authorized with a capital stock less than $50,000. Annual statements showing the financial condition of the bank on a date certain were also required. In the event that a bank should fail to redeem its notes on demand, they might be protested, and, if not paid in twenty days, the auditor of state was authorized to give notice that they would be paid out of the trust funds. Note holders could recover damages from the bank. The law ratified at the general election of November 5, 1861, by a vote of 4,655 to 2,807, but before it could fairly be tested Congress passed the National Banking Law, and the banks of Kansas which continued to do business under their old charters were confined to institutions of discount and deposit.

Notwithstanding that the State Supreme Court decided that the state could only authorize the formation and operation of discount and deposit institutions, which are in reality not banks in full application of the word, banks which carried on a general business were authorized by the Legislature, and the banking affairs of the commonwealth were rather loosely regulated until the passage of the Kansas General Banking Law of 1891.

Perhaps the most important measure passed within this uncertain period was that relating to the reception of funds by any official of the bank after he knew it to be insolvent. By act of March 12, 1879, it was made unlawful for "any president, director, manager, cashier or other officer of any banking institution, to assent to the reception of deposits, or the creation of debts by such banking institution, after he shall have knowledge of the fact that it is insolvent or in failing circumstances." The act also made it the duty of every officer, director, agent or manager of any banking institution to examine into the affairs of the same and, if possible, know its condition. Another act of the same date provided that any officer of a bank receiving deposits, or assenting to the creation of debts when such bank shall be in an insolvent condition, should be deemed guilty of larceny and "punished in the same manner and to the same extent as is provided by law for stealing the same amount of money deposited, or other valuable thing, or if loss occur by reason of such deposit."

The conditions which prevailed two years before the passage of the State Banking Law of 1891, and which made it so necessary that such a measure be inaugurated at once, are thus set forth by Governor Humphrey in his message to the Legislature of 1889: "We have no law regulating the important subject of banks and banking. Banks of discount and deposit are referred to, as banks of issue are forbidden by the constitution, except by a vote of the people. Even the general corporation law does not include banking as one of the many purposes for which corporations may be formed, and the only provision on the subject is Article 16, Chapter 23, General Statutes, being an act of six sections for the organization and incorporation of savings associations. The right to incorporate banks under this act for the purpose of carrying on a general banking business has been questioned, and even the constitutionality of the act assailed in the case of Pape vs. Capital Bank, 20 K. 440.

"Notwithstanding this, hundreds of banks over the state have been organized and incorporated, not as savings banks, in fact, but to carry on a general business. In justice to those who desire to form banking corporations, there should be some adequate provision of law for that purpose; and in justice to them, as well as to the business public, there should be an act regulating the subject of banks and banking generally, with some power of examination, inspection and supervision, which might be lodged with a bank commissioner, or with the present superintendent of insurance."

Nothing was done at that session, but in 1891 the Legislature passed a general banking law which formed the foundation of the system which, as elaborated, is now in force. Its most important provision, Section 21, was the creation of a bank commissioner, in conformity with the governor's recommendation. Four years constituted the term of the new official, who was to be appointed by the governor and confirmed by the Senate. A deputy bank commissioner was also provided for. No person connected with a bank, or interested financially in it, was eligible for either office. The commissioner and the deputy are required to furnish $20,000 and $10,000 bonds respectively. Every bank doing business in the state except national banks, must be visited by the commissioner, or his deputy, at least once a year, or oftener if necessary, for an investigation into the financial standing of the institution.

By the provisions of the law, the commissioner and his deputy are empowered to investigate all persons connected with banks when making an investigation and report the same in writing. A graduated fee was to be charged for these examinations, ranging from $5 for banks of $5,000 capital stock to $20 for banks of $50,000 capital stock and over. It was also provided that the bank commissioner could call on all banks, except national, at any time for a report of their condition, and four such reports were to be made each year. When a bank became insolvent it was made the duty of the bank commissioner to take charge of it until a receiver could be appointed. By the law creating the office of commissioner, he was required in each even numbered year to report to the governor the "names of the owners or principal officers, the paid-up capital of each, the number of banks in the state, the name and location of each, and the number and dates of examination and reports of and by each."

Charles F. Johnson of Oskaloosa was the first bank commissioner, who served from 1891 to 1893. He was succeeded by John W. Briedenthal of Chetopa, whose term covered 1893-1900. Then came Morton Albaugh of Kingman, 1901-04; William S. Albright, Leavenworth, 1904-05; Joseph N. Dolley, Maplehill, 1909-1913; Charles M. Sawyer, Norton, 1913-14; William P. Benson, El Dorado, 1914-17; Walter E. Wilson, Washington, 1917 -

A second law was passed in 1897 by which banks were required to secure a charter of incorporation from the state, and when all its requirements were complied with, the commissioner was empowered to issue a certificate authorizing the bank to transact business. The law of 1897 was far more comprehensive than that of 1891. Of its sixty-five sections, perhaps the chief provisions are as follows: Giving five or more persons power to form a corporation for banking purposes; no two banks in the state to be permitted to operate under the same name; the building owned by the bank as a place of business not to equal in value more than one-third of the capital stock; stockholders to be liable for a sum equal to the par value of their holdings; banks organized prior to the passage of the act to conform to its provisions; receiving deposits by any officer after knowledge of the bank's insolvency, or impending insolvency, making the offender liable to a fine not exceeding $5,000, or imprisonment in the penitentiary from one to five years, or both; no bank to be permitted to do business without legislative authority, and the bank commissioner to retain the duties previously conferred upon him.

The act of 1901 placed trust companies under the banking laws of the state, especially as regards the impairment of capital and insolvency; that of 1903 provided that no bank should be established with a capital of less than $10,000, and that every officer of an incorporated bank should hold at least $500 of its stock as long as he was thus identified with it.

The act of March 6, 1909, has been defined as "doubtless the most radical and far-reaching law on the subject of banking ever passed by the Kansas Legislature." It provides for the security of depositors in the incorporated banks of the state, creates the bank depositors' guaranty fund of the State of Kansas, and lays down regulations and penalties. Principal features of the law: Any incorporated state bank with a paid-up surplus equal to one-tenth of its capital might participate in the benefits of the guaranty fund, and the bank commissioner was authorized to issue a certificate to that effect; before such certificate be issued, the bank was required to deposit with the state treasurer for each $100,000 of deposits, or fraction thereof, $500 in bonds of the United States, the State of Kansas, or some minor political division of the state, and in addition pay a sum equal to one-twentieth of 1 per cent of the average deposits; when any bank should be found insolvent the bank commissioner to take charge, issue to the depositors a certificate bearing interest at the rate of 6 per cent per annum, and if the bank's assets should prove insufficient to pay the depositors, then the certificates should be redeemed from the guaranty fund; national banks, by reorganizing, might become guaranty banks; any bank guaranteed under the provisions of the act that should receive deposits continuously for six months in excess of ten times its capital and surplus should be deemed guilty of violating the law and forfeit its guaranty rights and privileges.

Regarding the opposition which developed on the part of the national banks, during that period, a writer of the times says: "Soon after the passage of the law, opposition on the part of the national banks of the state developed, because it was feared that the guarantee of deposits in the state banks would give those institutions an undue advantage. Governor Stubbs, Bank Commissioner Dolley and Attorney-General Jackson went to Washington to confer with the United States attorney-general, and some national banks went also to present their side of the case. Attorney-General Wickersham upheld the law, and when it became apparent that it was the intention of the opponents of the law to bring an action in the Federal Court, the state forestalled the movement early in August, 1909, by instituting proceedings to enjoin certain persons and bankers from interfering in any way with the enforcement of the law. At the same time the attorney-general asked the Supreme Court for a writ of mandamus to make it necessary for the bank commissioner and the state treasurer to carry out the provisions of the law. The question, however, was finally carried to the Supreme Court of the United States, which upheld the law, and the state banks of Kansas were thus placed upon a basis of security surpassed by no state in the Union."

In common with all the states of the Union, Kansas was radically affected by the national financial legislation of 1915, especially by the passage of the Federal Reserve Act, by which the vast financial resources of the United States guaranteed the security of its banks, and the farmer was enabled to borrow money in promotion of his interests on the most favorable terms. The nation was divided into twelve districts, with a central reserve bank in each district. The Tenth district included Kansas, Nebraska, Colorado, Wyoming and parts of Missouri, Oklahoma and New Mexico, its central bank being established at Kansas City, Missouri. The third annual report of the Federal Reserve Board for the period covering July 15 - December 31, 1916, indicated that the banks in the twelve Federal Reserve cities had handled 28,884,676 items representing $12,538,260,555, of which the Kansas City Bank had handled 1,562,860 items valued at $845,154,257.

Having thus delineated the complications and difficulties which attended the establishment of the banking system of Kansas, with a notice of some of the more important measures which promoted its development, the reader may reasonably expect mention of the pioneer banks of the state from which those now in existence have sprung. No better record of such has been made than by George W. Martin, the lamented secretary of the Kansas State Historical Society, in a paper read before the Kansas Bankers' Association at its annual meeting held at Topeka, May 23, 1912. From it the writer makes the following generous extract: "When we consider the strength and importance of the banking interests of Kansas today, as in other lines of activity, the wonder is how a start was ever made. The first advertisement of a bank in Kansas appeared in the Leavenworth Herald of July 12, 1856. It was called the 'Banking and Exchange Office of C. P. Bailey, Jr., & Co., Delaware street, Leavenworth.' It reads thus: 'Buy and sell time and sight bills on the principal cities in the United States at the most favorable rate. Collections made and proceeds promptly remitted at current rates of exchange. Interest allowed on time deposits. Exchange for sale on the Royal Bank of London.' Then followed a list of ten references. In his History of Leavenworth County, H. Miles Moore says: 'Mr. Bailey opened up in a little one-story frame building on the north side of Delaware street between Main and Second. Mr. Bailey was a timid man and his money more so. As things progressed rapidly in the summer and the boys began to get a little gay with their guns, he thought the town was getting too rapid for him, and he pulled up stakes and returned to Ohio, bank and all.' Cutler's History mentions this as the first bank, but says its life was neither long nor vigorous.

"The first bank failure was that of the City Bank of Leavenworth. It was opened in the winter of 1856-57. Henry J. Adams, the first Free State mayor of Leavenworth, was president; A. C. Swift, cashier, and F. G. Adams, a brother of the president and for twenty-four years secretary of the State Historical Society, was also interested. It was a bank of issue, and was located on Delaware street between Second and Third. It failed during the crisis of 1857, with heavy loss to its owners. A number of red-back two dollar bills of this bank are still in existence.

"In Sutherland's directory of the city of Leavenworth for 1859-60 there are eight banks advertised. In the list are the following, which made great fame subsequently, in various ways: D. R. Anthony; Clark, Gruber & Company; J. C. Hemingray & Company; Scott, Kerr & Company, and Smoot, Russell & Company. From other sources it is learned that from 1857 to 1859 four other attempts at banking were made, two of which left their mark - J. M. Larimer and J. W. Morris.

"Smoot, Russell & Company opened a bank in the fall of 1855 at the southeast corner of Main and Shawnee, in a stone building, the north wall of which still stands. This was one of the largest and most important private banks in the West. When the Majors, Russell & Waddell government freighting concern was removed, the bank was succeeded by that of J. 0. Hemingray & Company in the same place. L. R. Smoot, W. H. Russell and W. B. Waddell were directors of the Atchison branch of the Kansas Valley Bank of Leavenworth, which was authorized by act of the Legislature of 1857, but never materialized, although the Atchison branch was organized.

"In this connection, it is proper to speak of the immense business opened up in Leavenworth, in the fall of 1855, by the Government Overland Transportation Company of Majors, Russell & Company. It built stores, blacksmith shops, wagon and repair shops, and employed annually over four hundred wagons, 7,500 head of cattle and about 1,000 men. In 1858, upon receiving a contract for the Government freighting for General A. S. Johnston's army to Utah, it increased operations to the employment of 4,000 men, 3,500 wagons and teams, with over 40,000 oxen and 1,000 mules to haul the supplies. This company also had a contract with the Government for beef cattle, and, it is said, had many contracts, to the amount of more than $1,000,000 a year. For the years 1855 and 1856 their profits footed up to about $300,000. W. H. Russell was the financial genius of the firm, as well as of the Central Overland California & Pike's Peak Express Company, of which he was president and manager. The founder of the freighting concern, Alexander Majors, the transportation genius, had begun his career freighting to Santa Fe in 1848, with an outfit of six teams. There is a memorial window in his honor in the dome of the capitol at Denver, where he died in 1899.

On January 29, 1857, the Territorial Legislature passed an act providing that every company or association of persons formed for banking purposes within the territory, and without an act of the Legislature authorizing the same, should be deemed unlawful. The first bank authorized by legislative act was that of the Kansas Valley Bank of Leavenworth, capital stock $800,000, with five branches at Atchison, Lecompton, Doniphan, Fort Scott and Shawnee, Johnson County. The capital stock of the branches was to be $300,000 each. For the Leavenworth bank the following men were named to take subscriptions to the capital stock: William F. Russell, A. J. Isaacs, William H. Rogers, William F. Dyer, F. J. Marshall and James M. Lyle. The Leavenworth bank never was formed, and the Atchison branch was the first to start out under act of the Legislature.

"Isett, Brewster & Company conducted the first legitimate banking business at Leavenworth, in a building erected for that purpose alone, and still standing in 1906. John Kerr was the company and manager. In three years Isett & Brewster sold out their interest to Lyman Scott, Sr., and the bank became Scott, Kerr & Company. Mr. Kerr sold to the Scotts (1865-66) and moved to Texas, where he continued in the banking business. Scott & Company continued until 1874, when the bank was absorbed by the First National Bank. The Scotts held the controlling interest in these banks for many years. They were Lyman, Sr., Lyman, Jr., and Lucian, who was either president or cashier for over twenty-five years.

"The First National Bank of Leavenworth, organized in 1863 or 1864 (chartered in 1863 - Editor), was also the first national bank in the state. Its history is peculiar in the personnel of its officers and directorate, and their connection with affairs of state. Thomas Carney, governor in 1863-64, was the first president and one of the organizers and directors. At a most critical time in the state's history, he advanced his private means and saved the credit of the state. He gave $1,000 for relief of the Quantrill-raid victims, and made the first subscription of $5,000 to the State University. Politics in the end got him. Robert Crozier, cashier in 1871, was district attorney in 1861, chief justice in 1864, United States senator in 1873-74, and judge of the First district, 1877-93. It was May 24, 1871, while he was cashier of the bank, that he, in behalf of the bankers of Leavenworth, requested Governor Harvey to issue a proclamation declaring May 30th a day for public fasting and thanksgiving, thus calling out the first proclamation for the observance 'of Decoration day in this state. (A footnote here states that Decoration day originated with General John A. Logan, who, on May 5, 1868, as commander-in-chief of the Grand Army of the Republic, issued an order appointing May 30th of that year to be set aside for decorating the graves of the comrades of that body-Editor.) This letter is filed in the archives department of the State Historical Society, with a copy of the proclamation.

"Edmund N. Morrill, who succeeded Lucian Scott as president of the First National, was congressman in 188391, governor 1895-97, a member of the Free State Legislature of 1858, major in the Civil War, state senator for two terms, organizer of the first bank in Hiawatha (1871, Barnett, Morrill & Company), and a director of the Interstate National Bank of Kansas City, Mo. Alexander Caldwell succeeded Governor Morrill as president in 1897. He had been a banker in Pennsylvania; came to Leavenworth in 1861, where he organized the firm of A. Caldwell & Company, United States transportation contractors. This firm did an immense business freighting government supplies to the frontier forts, requiring the use of 5,000 wagons, 50,000 animals and the employment of from 5,000 to 10,000 men. Mr. Caldwell was president or vice president of two railroads, a builder of railroads and bridges and head of the Kansas Manufacturing Company and of the Idaho & Oregon Improvement Company for location of towns, canals and irrigating ditches.

"The First National Bank absorbed the bank of Insley, Shire & Company. This was a private bank, organized in 1872, by M. H. Insley, Daniel Shire and E. F. Kellogg. In 1875 Mr. Kellogg retired and W. H. Carson became cashier. After the death of Mr. Insley the bank merged into the First National. The First National absorbed the German bank also.

"It is interesting to note that one of the early business men of Leavenworth, John F. Richards, an officer and stockholder in the German Bank, was quoted a few weeks ago in the Kansas City papers as the owner of $525,000 in stock in a Kansas City bank, and that his stock is today worth six times its face value and twenty-four times its original cost twenty-five years ago. Mr. Richards established in Leavenworth the largest wholesale hardware house west of St. Louis in 1856, and at a later date the great wholesale house of Richards, Conover & Company maintained a branch in Kansas City.

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A Standard History of Kansas and Kansans, written and compiled by William E. Connelley, transcribed by Carolyn Ward, 2000.

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