USA > Massachusetts > Suffolk County > Boston > Fifty years of Boston; a memorial volume issued in commemoration of the tercentenary of 1930; 1880-1930, Pt. 1 > Part 31
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ELLICOTTDALE, FRANKLIN PARK
THE ROSE GARDEN, FRANKLIN PARK
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240
FIFTY YEARS OF BOSTON
$48,000,000 and total deposits of. $361,000,000, several small trust companies having been given charters during recent years. Mutual savings banks had increased to twenty-two, with surplus funds of $21,000,000 and total deposits of $315,000,000, making a total deposit liability for Boston banks of $1,040,000,000. The private banking houses had also increased in importance. The Federal Reserve Bank of Boston had greatly strengthened its position by the admission of a number of state banks to membership, which had brought its paid-in capital to over $5,000,000 and its member bank reserve deposits to over $80,000,000. It had been called upon for a comparatively small amount of rediscounts by its member banks and had restricted its open market operations so that at that time it was carrying reserves of approximately seventy per cent.
The change in financial and commercial operations, brought about by the entrance of the United States into the World War, was felt quite as much in financial circles in Boston as elsewhere in the country, owing to the character of its industries and the investments held by the people of the communities that it served. With the declaration of war business more and more turned to the requirements of the Government, and banks were called upon to finance to a greater extent industries engaged in such work and to subscribe to Government securities. As the war progressed, these demands continued to increase,- a condition which did not change until a year or more after the armistice. Early in April, 1917, the Treasury needs were met by issues of certificates of indebtedness, later to be refunded in the form of so-called Liberty Loan Bonds. These certificates were largely subscribed for by the Boston banks and, although they were refunded at the time of the several bond issues, as the financing of the bond subscriptions also fell largely upon the banks, the burden became increasingly and cumulatively heavy.
Early in May the First Liberty Loan was announced to the public, sub- scriptions being taken from May 16 to June 15. Under the auspices of the Federal Reserve Bank a Liberty Loan Committee of prominent Boston bankers was organized. This committee, through an Executive Committee, directed and handled the subscription operations of the New England district, and with more or less the same personnel handled the subscriptions of the four later Government bond issues. The Executive Committee directed and developed the organization which handled these subscriptions to Government loans while the banking houses and brokerage offices turned over almost their entire organi- zations to the distribution of the bonds, the success of the subscriptions being undoubtedly chiefly due to this patriotic action. In Boston the subscription to each loan except the last (the Victory Loan) was far in excess of the quota. Not only did these bankers handle the details of the distribution of the bonds, but in the first bond issue they organized and assisted the physical handling of · subscriptions at the Reserve Bank. The Liberty Loan subscriptions allotted in Boston were as follows:
June 15, 1917. First Liberty Loan subscriptions $133,790,350
Nov. 1, 1917. Second Liberty Loan subscriptions
147,259,650
May 15, 1918. Third Liberty Loan subscriptions 77,202,500
Nov. 1, 1918. Fourth Liberty Loan subscriptions 139,008,150
May 20, 1919. Victory Loan subscriptions
83,852,700
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241
FINANCE
The financing of Treasury certificates and of Liberty Loan subscriptions naturally fell for the most part on those Boston banks that were members of the Federal Reserve System, and these operations, together with commercial financing, caused them to seek advances from the Federal Reserve Bank. These advances in 1917 reached a high point in December of $74,000,000; in November, 1918, they amounted to $79,000,000, and in December, 1919, to $131,000,000. In the last-named year, in order to maintain its legal reserves, the Federal Reserve Bank of Boston was obliged to seek rediscounts from other Federal Reserve Banks.
Active hostilities with the Central Powers of Europe ceased with the signing of the armistice on November 11, 1918, but the after effects of the Great War were to be felt in finance and industry in Boston as elsewhere in the country for many years to come. The first effect of the armistice was the rapid fall in commodity prices and a marked decline in production, but as the year 1919 progressed, export trade began to expand, particularly in cotton textiles, boots and shoes and building material. New bank credits financing the bulk of these exports, speculation in raw materials and over- production and overstocking by merchants began to appear before the end of the year. Foreign exchanges were very unsettled and finally, toward the end of 1919 and well into 1920, extravagant speculation in the stock exchanges manifested itself. Then, in May, 1920, began the deflation that was to last well into 1921. By the end of 1920 the commercial machinery of the entire world had come alinost to a standstill. Grain prices began to tumble and domestic cancellation of orders and frozen credits made their appearance. While during this deflation period all of the Boston banks and bankers suffered losses, the banking houses and most of the banks had conducted their affairs in such a manner, that, with the assistance of the Federal Reserve Bank, they were able to pass through the crisis quite as successfully as any other section of the country.
There were, however, during this period, certain disturbing features in the local financial situation. One Charles Ponzi had initiated a scheme by which, through the medium of the Securities Exchange Company, he pur- ported to deal in international postal money orders, agreeing to pay on money invested with him fifty per cent every forty-five days. Ponzi began his opera- tions in December, 1919, and a large number of unfortunate individuals were tempted to place their savings in his hands. In July, 1920, the District Attorney took charge of his affairs and disclosed a situation which finally landed the promoter in jail. Following the bursting of the Ponzi bubble, in fairly close succession, came the closing of five Boston trust companies. The first of these was the Hanover Trust Company, with $4,600,000 of deposits. This failure was more or less connected with the Ponzi affairs, Ponzi having been a director of that bank and a large stockholder and creditor. Next came the failure of the Prudential Trust Company on September 10, 1920, with deposits of $2,500,000, the Cosmopolitan Trust Company on September 25, 1920, with deposits of $18,000,000, the Fidelity Trust Company on September 28, 1920, with deposits of 816,000,000, and the Tremont Trust Company on February 17, 1921, with deposits of $13,000,000. The last-named company had been obliged to close after a severe run which had started the previous September. There was more
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242
FIFTY YEARS OF BOSTON
or less affiliation between these trust companies, but poor management, specula- tion and fraudulent loans in which the managements were interested were the actual causes of failure. They were comparatively new organizations, which catered to a large extent to the small depositor and to the population of foreign extraction, and all had large savings deposits. That this condition did not spread but was confined only to these institutions which had been under sus- picion for some years emphasized the strength of the general banking situation in Boston.
In 1920 there were thirteen national banks, with capital funds of $87,000,000 and total deposits of $439,000,000; twenty-eight trust companies, with $69,000,000 capital funds and $449,000,000 deposits, the trust companies having passed in size the national banks; twenty-two mutual savings banks, with surplus funds of $24,000,000 and total deposits of $354,000,000. The First National Bank of Boston, with a capital fund of $36,589,000 and deposits of $165,115,000, was now the largest bank in Boston, followed by the Old Colony Trust Company, with a capital fund of $17,587,000 and deposits of $127,943,000, while the Boston Five Cents Savings Bank, with $4,312,000 surplus fund and deposits of $60,308,000, had taken the lead among the mutual savings banks, and the total deposits of all Boston banks had reached about $1,250,000,000. The capital funds of the Federal Reserve Bank at this period had increased to about $23,000,000, its deposits representing member banks' reserves to about $120,000,000. As far back as January, 1915, this bank had become the fiscal agent of the Government and on October 25, 1920, it took over the functions of the Boston Sub-treasury, which was thus discon- tinued after having been in existence ever since 1846.
By the spring of 1922 the economic adjustment, as far as New England was concerned, had been virtually completed. The credit situation steadily improved, the cumulative betterment resulting by midsummer in a monetary ease not experienced since the period before the country entered the war. Savings deposits grew rapidly in all the Boston banks and with this condition began competition, evidenced by interest rates allowed to depositors. During the year there were several bank consolidations which were in the interest of greater banking stability. The ease in the money market gave encourage- ment to the real estate market and from then on for the next five or six years there was great expansion in real estate construction and real estate financing. Rapid changes were taking place in business conditions throughout the entire country, with increased production and expanding bank loans, but this activity proved temporary and by 1923 there was a marked slowing down, accompanied by low money rates. In this situation bank earnings were low and this led to further bank consolidations. On June 30 of that year the Fourth Atlantic National Bank consolidated with the Commonwealth Trust Company, which had several branches in the city, under the name of the Atlantic National Bank. On August 17 the First National Bank absorbed the Inter- national Trust Company with its several branches in the outlying districts of Boston. Banks also used every effort to augment their income by entering new fields of activity. To increase its acceptance business and expand its foreign exchange departments, the First National Bank of Boston in this year opened a branch in Cuba and established agencies in London, Paris and Berlin. The
243
FINANCE
C'uban branch was the second foreign branch that this bank had opened, the first, which had been opened at Buenos Aires, Argentina, in 1917, having proved a successful undertaking. Trust and safe deposit business was aggressively sought by the national banks and these departments largely increased. Soon after the debt settlement with Great Britain, which had been consummated in June, 1923, foreign loans began to be placed in increasing volume in the United States and the Boston banks and banking houses participated actively in the distribution of these securities. Gold imports and an improved agricultural situation soon brought a return of trade and by 1925 a general stock market speculation set in which was to continue until October, 1929. During this period there was little demand for commercial loans, corporations refunding bank loans by bond issues and stock flotations, which were readily taken up. Some of the banks at this time organized affiliated corporations to handle securities, although the First National Bank had organized such a corporation as far back as 1919 under the so-called Edge Act. This corporation was later incorporated under the Massachusetts business laws, as were the other bank corporations. The Atlantic Corporation was organized in 1924, the Old Colony Corporation in 1926, the Federal National Corporation in 1927 and the Webster- Atlas Corporation in 1929, all affiliated with banks of similar names. This brought the banks into active competition with the old-line investment houses, which in turn began to organize affiliated trust companies to handle the trust business of their clients, closely allied with the investment business. Kidder, Peabody and Company organized the Kidder, Peabody Trust Company Novem- ber 14, 1927, followed by the Lee, Higginson Trust Company, organized January 3, 1928, the Day Trust Company May 3, 1929, and the Harris, Forbes Trust Company June 1, 1929. Up to April, 1928, the demand for bonds was so great that at times these corporations and investment houses had few, if any, bonds on their shelves. This demand came largely from banks and was due to the small demand for commercial loans, which caused the banks to seek the field of bond investment as an outlet for their increasing deposits.
The year 1928 saw a continuance of the policy of the expansion of branches by the Boston banks after the passage of the McFadden Act on June 25, 1927. A new development also began to appear at this time, namely, the purchase of control of banks throughout the state by corporations affiliated with the Boston banks. The Old Colony Trust Company, the National Shawinut Bank, and the Federal National Bank were the outstanding leaders in this movement. In the summer of 1929 the First National Bank and the Old Colony Trust Company became affiliated through joint ownership of stock, the First National Bank taking over the commercial business of the trust company and the trust company, on the other hand, taking over the fiduciary business of the First National. This change made the First National Bank of Boston one of the largest banks in the country and added increased prestige to Boston as a financial center.
Many investors and investment trusts which began to appear at this time and which had become quite numerous in Boston were buying common stocks in preference to bonds. This change in investment policy had developed over the entire country, and the demand for common stocks became so great that the soaring prices made their dividend returns extremely low. Boston bank stocks,
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244
FIFTY YEARS OF BOSTON
especially those of the larger banks, were affected by this activity and rose to unheard of heights. Several of the banks split up their shares, which again continued to rise. Speculation was at fever heat. Corporations and individuals were also withdrawing deposits to buy securities or to loan on the call market, at the high rates prevailing. These withdrawals were felt in Boston more especially from April, 1928, until the end of May, 1929, when deposits began to return, and by May, 1929, the Boston banks were in a comfortable position again. During this period they eased their position through selling securities and rediscounting with the Federal Reserve Bank.
The borrowings of the Boston banks at the Reserve Bank on June 26, 1929, reached the high point of $70,000,000, the larger Boston banks not only having withdrawals by their own depositors but calls for accommodation from banks elsewhere in the district, more especially from savings banks that had been affected by similar withdrawals. These advances at the Reserve Bank, however, had all been paid off before the panic broke in the New York Stock Market on October 20, and even when the further break came, on November 4, the Boston banks were able to weather the storm in a comfortable manner without recourse to the Reserve Bank. While, as an aftermath of this panic in 1930, there were bank failures in New York and elsewhere in the country to a considerable number, no distress was reflected on the part of the Boston banks.
The years 1924 to 1928 have been called the golden age of American finance. Nothing approaching them was ever before experienced in the coun- try. Common stocks not only doubled or trebled in price but some issues at their peak in 1929 sold for five to twenty times their price in 1924. City and suburban real estate prices greatly increased in value. Extravagance was the order of the day and was expressed by the great increase in the volume of production. Then, beginning in September, 1929, stock prices started upon the most violent decline in their history. Average prices declined over forty- seven per cent in two months. Production, which had already begun to decline sharply in the summer of 1929, continued to diminish, with a temporary, though substantial, rise in the early months, throughout the year 1930. Boston banks and banking houses, however, had adjusted their position so that they were able to pass through this period in an unusually liquid and strong position, inarking time until renewed confidence in business and finance should furnish opportunity to invest their surplus funds.
It can be noted with much satisfaction that during the past fifty years Boston has shown a steady and continuous growth in its importance as one of the great financial centers in the United States. While during that period the national banks have been reduced from fifty-four to ten, the capital funds of these ten banks have increased from $63,000,000 to $157,000,000 and the deposits from $107,000,000 to over $1,000,000,000, the First National Bank alone showing deposits of over $500,000,000, or almost five times the total deposits of the original sixty-three national banks.
The importance of the trust companies in the commercial banking field during this period is also noteworthy, although their prominence in this respect seems to have reached its peak in 1920 and has declined somewhat since that year. On the other hand, these institutions have greatly expanded the busi- ness of their trust departments and have continued to do so from year to year.
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245
FINANCE
The mutual savings banks have also continued from year to year to show an increased growth quite as remarkable as that shown by the national banks, the deposits of these banks having grown from $68,000,000 in 1880 to over $600,000,000 in 1930. At the end of that year the Boston Five Cents Savings Bank had deposits of $100,000,000, or $32,000,000 more than the entire deposits on the earlier date.
The total deposit liability of the Boston banks, national, trust and savings banks, was but $184,000,000 in 1880, while in 1930 this had grown to about $1,800,000,000. Real estate values in Boston during these fifty years had more than quadrupled, and that personal property valuations have not shown a similar increase is due to changes in the method of taxation and other factors which quite fail to reflect the actual increase of Boston's wealth.
While the Boston Stock Exchange apparently has not shown in its volume of transactions the increase that might have been expected, these figures do not give an accurate picture, for in New England there is an unusually large investing public which buys stocks in less than 100-share lots, and, while the Stock Exchange has expanded its facilities to serve such a demand, these so-called odd-lot shares are not included in the published figures of the Exchange. During the year 1929 these figures alone were eight times greater than the figures reported for the year 1920.
Boston in 1930 has become a financial center of recognized and increasing importance not only in the United States but internationally as well, especially since the close of the World War. Boston banks and banking houses have not only participated in all of the more important foreign loans but in several of these undertakings they have taken the lead. Citizens of Boston have also taken representative positions in conferences in connection with reparations, European Government finance, and international assemblies that have been held from time to time during the rehabilitation period. Foreign central banks and banking houses have not only carried balances during this period in Boston banks and banking houses, but a contact has been built up in international finance which should tend to increase still further the prestige of Boston as a financial center.
TABLE I VALUATION OF PROPERTY - CITY OF BOSTON - 1880-1930
YEAR
Valuation, Real Estate
Valuation, Personal Estate
Total Valuation
Population
1880.
$437,370,100 495,973,400
$202,092,395
$639,462,495
362,839
1SS5.
189,605,672
685,579,072
390,393
1890
619,990,275
202,051,525
S22,041,S00
448,477
1895.
744,751,050
206,616,878
951,367,928
496,920
1900
902,490,700
226,685,132
1,129,175,832
560,892
1905
1,021,431,200
238,314,482
1,259,745,682
595,380
1910.
1,118,989,100
274,771,323
1,393,760,423
670,585
1915.
1,261,954,300
304,443,009
1,566,397,309
745,439
1920
1,396.073,300
176,385,480
1,572,458,870
748,060
1929
1,806,316,200
146,914,800
1,953,231,000
1930
1,827,460,600
144,687,600
1,972,148,200
781,188
1925
1,6S5,597,700
177,202,200
1,862,799,900
779,620
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246
FIFTY YEARS OF BOSTON
TABLE II GROWTH OF BANKING IN BOSTON, 1880-1929 (Amounts in Millions of Dollars)
NATIONAL BANKS
TRUST COMPANIES
MUTUAL SAVINGS BANKS
TOTAL, ALL BANKS
YEAR
Number
Capital
Funds*
Deposits
Number
Capital
Deposits
Number
Surplus
Deposits
Number
Capital
Deposits
1880.
54
$63
$107
3
$9
15
$2
$68
72
$66
$184
1881
54
65
120
4
3
11
15
2
71
73
70
202
1882
53
65
100
4
3
12
15
3
73
72
71
185
1883
54
66
98
4
3
17
15
3
77
.73
72
192
1884
54
66
97
4
4
18
15
3
80
73
73
195
1885
54
65
122
4
4
21
14
3
85
72
72
228
1886.
54
66
111
4
4
21
14
4
90
72
74
222
1887
54
67
112
7
6
21
14
4
93
75
77
226
1888.
55
69
135
7
6
28
14
4
97
76
79
260
1889
55
70
150
7
6
30
14
4
104
76
80
284
1890.
56
71
144
9
9
32
14
5
111
79
85
287
1891.
56
73
141
9
11
35
14
5
117
79
89
293
1892
55
72
157
10
12
43
15
6
125
80
90
325
1893 ..
55
73
132
11
12
39
15
6
126
8]
91
297
1894.
55
71
171
11
12
52
15
7
133
81
90
356
1895.
55
72
162
15
13
57
15
7
138
85
92
357
1896.
55
70
144
14
14
47
16
7
142
85
91
333
1897.
54
70
184
14
14
65
17
149
85
92
398
1898
52
69
201
14
15
81
17
153
83
92
435
1899.
41
59
233
16
17
9]
17
9
160
74
85
484
1900
38
58
206
16
19
85
17
9
166
71
86
4.57
1901
39
58
224
16
21
101
17
10
172
72
89
497
1902
34
56
213
18
27
110
17
10
180
69
93
503
1903
32
55
197
19
31
107
18
11
186
69
97
490
1904
27
50
221
20
32
130
18
12
195
65
94
546
1905.
26
50
221
20
33
146
18
12
206
64
95
573
1906
24
52
213
20
34
150
18
13
215
62
99
578
1907
22
53
207
22
35
136
18
14
216
62
102
559
1908
21
51
258
23
36
167
18
15
219
62
102
644
1909.
20
48
270
23
37
195
18
15
230
61
100
695
1910.
20
52
249
23
40
181
19
16
238
62
108
668
1911.
20
53
268
22
42
228
19
16
248
61
111
744
1912
19
68
279
23
42
223
20
17
262
62
127
764
1913
17
63
285
24
47
215
20
17
270
61
127
770
1914
14
60
275
24
44
224
21
18
281
59
122
780
1915 ..
13
60
300
25
42
268
21
19
293
59
121
861
1916 ..
10
58
357
26
44
328
22
20
313
58
122
998
1917
12
70
364
27
48
361
22
21
315
61
139
1,040
1918.
15
74
402
27
50
358
22
21
316
64
145
1,076
1919
12
75
465
29
58
431
22
22
336
63
155
1,232
1920 ..
13
87
439
28
69
449
22
24
354
63
180
1,242
1921.
15
95
383
20
59
352
22
26
372
57
180
1.107
1922.
13
91
471
20
58
410
22
28
395
55
177
1,276
1923.
92
559
15
48
321
22
31
429
48
171
1,309
1924
12
90
647
16
48
371
33
456
50
171
1,474
1925.
11
95
637
14
54
394
22
36
483
47
185
1,514
1926.
11
96
734
14
58
392
22
38
505
47
192
1,631
1927
11
107
776
15
67
433
22
40
536
48
214
1.745
1928.
11
119
755
17
75
443
22
42
569
50
236
1,767
1929
10
157
941
20
60
273
22
46
574
52
263
1,788
1930.
9
164
996
18
50
215
22
47
598
49
261
1.809
.
* Consists of capital, surplus and undivided profits.
Funds*
Funds*
247
FINANCE
TABLE III TRANSACTIONS OF BOSTON CLEARING HOUSE
YEAR.
Number of Banks Each Year.
Capital at End of Each Year.
Exchanges.
YEAR.
Number of Banks Each Year.
Capital at End of Each Year.
Exchanges.
1 SSO ..
51
$49,550,000
3,326,343,166
1906.
22
$26,650,000
7,969,401,440
1881.
51
50,000,000
4,233,260,201
1907.
20
25,650,000
8,484,380,527
1882.
52
50,000,000
3,636,373,805
1908.
- 20
25,650,000
7,551,530,518
1883.
52
50,600,000
3,515,746,083
1909.
18
22,650,000
7,686,732,998
1884
52
50,500,000
3,243,327,658
1910.
17
21,350,000
8,648,937,962
1885. .
52
50,500,000
3,483,134,891
1911
17
22,350,000
8,152,572,675
1886
52
50,500,000
4,095,215,231
1912.
17
22,350,000
8,554,907,066
1887
52
50,500,000
4,387,754,275
1913.
14
27,600,000
8,820,976,374
1888
54
51,200,000
4,427,357,070
1914.
13
27,400,000
7,953,641,114
1889
54
51,600,000
4,772,597,843
1915.
12
25,900,000
7,308,192,173
1890. .
5-1
51,400,000
5,129,878,745
1916.
12
31,600,000
9,003,225,015
1891
53
52,700,000
4,753,340,087
1917.
11
30,700,000
11,063,736,127
1892. .
53
52,700,000
5,005,389,685
1918.
11
33,200,000
12,977,553,342
1893
53
52,700,000
4,308,634,889
1919.
11
34,200,000
16,144,666,600
1894
53
52,700,000
4,148,050,132
1920.
11
34,200,000
18,851,470,890
1895
53
52,700,000
4,757,684,594
1921,
11
42,200,000
17,557,746,389
1896
53
51,800,000
4,498,124,352
1922
28
59,100,000
14,441,261,444
1897
53
50,300,000 -
5.096,619,199
1923
26
59,000,000
17,706,825,109
1898
53
49,900,000
5,425,647,169
1924.
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