Clarke Crash

Many a Manhattanite last week began to think that putting savings in a sock was perhaps not such a foolish idea. Just as state officials were making a final report on last February's City Trust Co. failure (TIME, Feb. 25), their statements shared headlines with first investigation of Clarke Bros., another Manhattan banking firm which last fortnight closed its doors. First reports put the Clarke failure at $4,000,000, gave depositors hope of getting 25 cents on the dollar. Later it seemed likely that the failure was for $5,000,000. that 5 cents on the dollar was the probable settlement figure. Clarke Bros. (James, Philip, Hudson Clarke and John F. Bouker) announced that they would do everything they could. at the same time refusing to answer many an investigating question and showing few symptoms of real cooperation. Investigators for Irving Trust Co., receivers, quickly discovered that the listed assets of the bank had little meaning. There were bad bonds, bad oil stocks, bad loans. There was a credit of $840,000 against the New York Port Terminal Co., a company which was said not to be operating, if it had ever been formed. Also the brothers had apparently borrowed $404,-995 from their own bank. Thus while Clarke Bros, claimed assets of $5,852-377, the actual value of these assets was figured at a minimum of $640,000 and a maximum of $1,830,000. There are some 3,000 depositors, none of whom will receive anything for at least three months. Six depositors said their deposits had been accepted the day before the bank closed. Laymen who think that banks are banks all alike, wondered how the State Banking Department had permitted Clarke Bros, to get into such a dreadful condition. Explanation lay in the fact that Clarke Bros., unsupervised, belonged to that class of banking institutions known as "private bankers" which do not have to be supervised as long as they do not describe themselves as "banks," do not accept deposits that at any time run under $500,-- do not transmit money or negotiate notes. The $500 minimum deposit regulation (passed in 1914) is supposed to keep widows, orphans and other "small" depositors out of such banking houses. Present-day prosperity permits many to save $500 without having good banking judgment. Because Clarke Bros, conducted a private banking business, they have been erroneously described as a private bank. A private bank is really an entirely different kind of institution. It is fully supervised. It carries on a restricted, specialized business. Example: R. H. Macy's, Manhattan department store, is a private bank because it accepts deposits, pays interest, is in the banking business, but it is primarily a department store and its depositors are its customers. Neither private banks nor private bankers affect the stability of the standard, normal, supervised, incorporated savings banks and trust companies which constitute the type of bank which the public recognizes as such and in which the public has many a safeguard for its money.

*New York State banking law permits private bankers in smaller cities to accept smaller accounts without supervision, the amounts varying with the size of the city.