Being Lucky: Reminiscences and Reflections

5. Reopening, Reconstruction, and Reform

[5] 000 Reopening~ Reconstruction~ and Reform Two VERY BUSY YEARS followed my appointment in 1933 as secretary of the Commission for Financial Institutions and head of two divisions in the Department of Financial Institutions. The pace was terrific, from about nine o'clock in the morning frequently to about midnight, seven days a week, with most meals taken at the desk or conference table. In our dealings with bank officers and directors, my staff and I were guided by the conviction that, with the return of prosperity, assets that appeared to be worthless would again be valuable. Time proved this assumption to be correct as we lessened the economic impact of the bank and building and loan closings in many Indiana communities, and I made a host of lasting friends. The case of each closed institution had to be studied. Its assets and liabilities, the strength of its leadership, the need for it in the community, and its prospects for success if reopened-all had to be analyzed. Since depositors' funds were frozen, rapid decisions were desirable, but the labor involved was enormous. We worked under intense pressure. Believing that reform could come after recovery with less social cost, we took the position that our mission was to help speed recovery rather than to achieve immediate reform by liquidation of marginal units. In some departments in other states and among some federal bureaucrats, the attitude was almost the reverse. Reflecting the national anger against the banks and disillusion with all financial institutions, they took a punitive point of view and were eager to find ways to liquidate rather than to reopen banks. In that period it was difficult to be optimistic about the future. [62] Reopening, Reconstruction, and Reform In order for banks to reopen, additional capital was usually needed to offset the apparent losses. As much of this capital as possible had to be raised locally and, when the local source was exhausted, the rest typically had to be obtained from federal agencies. Board directors were often so depressed and discouraged that they had little will to attempt to raise the funds required for reopening. In some cases it became clear that the banks could not be reopened, but in most cases, with sacrifice and effQrt on the part of the owners and management, reopening was possible. When we talked with the boards and officers, while making firm conditions for reopening, we encouraged them to do better rather than criticized them for past mistakes, and we tried to create a sympathetic climate for innovative solutions to their problems. We stressed the point that their assets were far more valuable in operation than in liquidation. Once the package for reopening a closed bank was determined-the value of its assets, the amount of new local funds it could raise, and the amount to be sought elsewhere -the next steps involved seeking a loan from the Reconstruction Finance Corporation or refinancing frozen loans with the Federal Land Bank, the Farm Credit Administration, or other agencies. The final step was to win approval of the refinancing plan from the Federal Deposit Insurance Corporation (FDIC) in order for the deposits of the reopened bank to be insured. A similar procedure had to be followed in many instances for banks that had already reopened following the Bank Holiday, in order for them to be qualified for membership in the F D I c. This was a heady experience for me. I was only thirty-one when I became bank supervisor and, due to the particular circumstances of that era, of course, the bank supervisor had greater authority and weight and had to make more important decisions than ever before or ever since. I traveled regularly to Washington, D.C., taking with me individual cases to be presented to Jesse Jones, the chairman of the Reconstruction Finance Corporation, and to Leo Crowley, the chairman of the F D I c, and hoping for the approval of our proposals. I likewise journeyed regularly to New York, where were tied up some important assets that meant the life or death of certain Indiana banks. I spent a great many nights on Pullman sleeping cars, going east one night and coming back the next. I had been lucky enough to persuade Edward "Eddie" Edwards to join the Department of Financial Institutions and to take charge 64 PREPARATION FOR THE PRESIDENCY of the Division of Research and...