Rhode Island : three centuries of democracy, Vol. II, Part 35

Author: Carroll, Charles, author
Publication date: 1932
Publisher: New York : Lewis historical Pub. Co.
Number of Pages: 716

USA > Rhode Island > Rhode Island : three centuries of democracy, Vol. II > Part 35

Note: The text from this book was generated using artificial intelligence so there may be some errors. The full pages can be found on Archive.org (link on the Part 1 page).

*Vide supra.

tVide infra.

810

RHODE ISLAND-THREE CENTURIES OF DEMOCRACY

America, liquidation, 1904; Merchants' Bank of Newport, hopelessly insolvent, 1902; New England Commercial Bank of Newport, voluntary liquidation, 1914; Westminster Bank of Providence, voluntary liquidation, 1924; Citizens' National Bank of Woonsocket, receiver- ship, 1928. National banks operating in Rhode Island in 1930 were: Aquidneck National Exchange Bank of Newport, Ashaway National Bank of Hopkinton, Blackstone Canal National Bank of Providence, Centreville National Bank, First National Bank of Smithfield (Slatersville), Mechanics' National Bank of Providence, National Bank of Commerce of Providence, National Exchange Bank of Smithfield (Greenville), National Globe Bank of Woonsocket, Newport National Bank, Phenix National Bank of Providence, and Providence National Bank.

RISE OF TRUST COMPANIES-The Rhode Island Hospital Trust Company, first of the fourth* type of Rhode Island banks, was chartered in May, 1867. It was authorized to receive money on deposit at interest and to invest it at the discretion of the directors. In lieu of taxation, and until a competing trust company was chartered, it was required to pay one- third of its net income over six per cent. to the Rhode Island Hospital, whence the name. Twenty per cent. of its capital must be invested in bonds of Rhode Island, other New England states, New York or the United States, and deposited with the General Treasurer, in lieu of other bonds if the company were appointed executor, administrator, guardian, assignee or receiver. The same deposit relieved individuals acting as trustees in the capacities indicated from personal liability for trust funds deposited with the company. The Rhode Island Hos- pital Trust Company received savings deposits and sight deposits subject to check, paying interest on both, and carried on a general loan and discount business, but did not issue cur- rency. The offer of interest on checking accounts made the company a vigorous competitor of the new national banks for deposits, and furnished the trust company, through both savings and sights deposits, immediately with a ready-money capital for its loan and discount business.

A second trust company, the State Trust and Deposit Company of Providence, was char- tered in 1870, but never engaged in business. The Mutual Trust and Deposit Company of Providence was chartered in 1883; the name was changed to Bank of America Loan and Trust Company in 1890, when the company acquired the assets of the Bank of America, then in liquidation, and a second time to Union Trust Company, in 1894. The Industrial Trust Company was chartered in 1886. These three trust companies-Hospital, Industrial and Union-were in active business in 1930. Other trust companies chartered before 1890 were not favored by good fortune. The Fidelity Loan and Trust Company, 1886, changed its name to Pawtucket Loan and Trust Company in 1888, but did not engage in business. The Rhode Island Mortgage and Trust Company, 1887, went into liquidation in 1901; the Mer- cantile Trust Company, 1888, went into voluntary liquidation in 1897; and the Newport Safe Deposit and Trust Company, 1889, never engaged in business. Other trust companies that did not engage in business were chartered as follows: City, 1897; Eastern, 1903; Equitable, 1894; Equitable, 1903 ;; Exchange, 1906; Federal, 1907; Globe, 1893; International, 1902; Merchants', 1903; Narragansett, 1902; United States, 1902, all of Providence, besides the Citizens' of Newport, 1906, later known as the Island Savings Bank and Trust Company ; Westerly of Westerly, 1899; William Ellery of Newport, 1906; Woonsocket Loan and Trust Company, 1893; and Woonsocket Safe Deposit and Trust Company, 1892.

The activity of trust companies in absorbing national banks and savings banks has been noted. Trust companies were absorbed by trust companies as follows: Manufacturers' of Providence, chartered 1898, absorbed by Union, 1906; Slater of Pawtucket, chartered 1900, absorbed by Industrial, 1922; Warren, chartered 1891, absorbed by Industrial, 1904. The following trust companies were in active business in 1905: Central of Providence, 1900;

*State bank 1, savings bank 2, national bank 3, trust company 4. "A second company with the same name.

ERF STALL

Diefor. Smeother Horv Beautiful

CHEVROLET

DEVOE

PRODUCTS

Camels

STARKWEATHER

ALBEE VICTORY

WILLIAMS

PAINTS

HOME OF THE INDUSTRIAL TRUST COMPANY, PROVIDENCE'S NEWEST SKYSCRAPER

The lantern can be seen at night in every corner of Rhode Island. The building in the background at the right is the Union Trust Building, completed and occupied in 1901, and then the tallest building in the State. In front is the Soldiers' and Sailors' Monument. Insert-Building removed to make way for the Industrial Trust Building. It was one of the first iron-framed buildings in New England, built in 1876, and in its day was notable as a fine type.

8II

FINANCE AND BANKING

Colonial of Providence, 1905; Italo-American of Providence, 1904; Kingston, 1905; New England, 1902; Newport, 1901; Pawtucket, 1903; Pawtucket Safe Deposit and Trust Com- pany, 1891 ; Phenix of Phenix, 1899; Producers' of Woonsocket, 1901; Rhode Island Hos- pital Industrial and Union; Wakefield, 1890; Washington of Westerly, 1902.

A sharp turn in the New York stock market, in 1907, actually the springing of a trap set for Charles W. Morse and his associates, including Marsden J. Perry, then President of the Union Trust Company, was analyzed in Rhode Island as indicating serious losses, and precipi- tated a run on the Union Trust Company, which closed its doors after two days in order to conserve the interests of depositors, customers and stockholders. Receivers were appointed ; an examination of the assets showed that the bank was solvent eventually, although it held securities that must be sold at a loss if liquidation were forced. Eventually a plan was adopted and approved by most depositors, under the provisions of which assets were classified as quick and reserve, and the depositors accepted assignable deferred rights against the reserve assets. The bank redeemed all of its obligations in shorter time than the period named in the deferred rights, and resumed business. But public confidence in the banks had been shaken by the dis- closed weakness of the Union Trust Company, and an examination of other banks was made.

The General Assembly appointed a Bank Commissioner, with supervisory powers over all banking institutions chartered by the State. Other banks and trust companies were forced into liquidation at the same period as follows : Central Trust of Providence, chartered 1900, permanent receivership 1909; New England Trust of Providence, chartered 1902, receivership 1908; Pawtucket, chartered 1903, closed 1908; Kingston Savings Bank, chartered 1855, closed temporarily 1909, and absorbed 1912 by People's Savings Bank (depositors paid 100 per cent.). The Atlantic National Bank passed into a receivership in 1913, the reason for failure being imprudent loans ; and the Union National Bank of Newport closed in 1912. The Italo-American Trust Company, chartered 1904, became the Cosmopolitan Trust in 1919; the bank was in serious financial straits late in 1923, and was reorganized in 1924 as the Lin- coln Trust Company. Kingston Trust Company, chartered 1905, passed into receivership in 1925. Producers' Trust of Woonsocket, chartered 1901, went into voluntary liquidation in 1921. The following trust companies have not been in active business. Colonial of Provi- dence, chartered 1905, charter forfeited 1919; Providence Trust, chartered 1890, and People's Trust of Providence, chartered 1893. The following trust companies were in active business in 1930: Greenville (chartered 1928), Industrial, Lincoln, Newport, Phenix, Rhode Island Hospital, Union, Wakefield, Washington, Woonsocket (chartered 1912), and Pawtucket Safe Deposit and Trust Company.

PRESENT BANKING ORGANIZATION-The following exposition of the present organiza- tion of the trust companies of Rhode Island becomes necessary to correct the erroneous impres- sion that the story of consolidation of financial interests related in the preceding paragraph gives of unsoundness and failure. The Industrial Trust Company, besides its principal central banking business in Providence, conducts branch banks in Newport, Woonsocket, Bristol, Warren, Pascoag, Wickford, Westerly, East Providence, two in Pawtucket, and four in Providence, a total of fifteen banking houses. Greenville Trust Company has branches at Esmond and Cen- tredale. Rhode Island Hospital Trust has branch banks in Pawtucket and Woonsocket, and three in Providence. Union Trust Company has branches at Arctic, East Greenwich, and Woonsocket, and two in Providence. Columbus Exchange Trust Company operates four bank- ing houses in Providence. The twelve trust companies operate forty-one banking houses. Their resources are $334,000,000, as compared with $184,000,000 in savings banks, $7,000,000 in state banks and $61,000,000 in national banks, or fifty-seven per cent. of the $586,000,000 banking resources of Rhode Island. Other banking institutions include two state banks --

#Columbus Exchange Bank became a trust company in 1930; as did High Street Bank.

812

RHODE ISLAND-THREE CENTURIES OF DEMOCRACY

High Street and Dante-and eight building loan associations-Coats of Pawtucket, East Greenwich, Newport Cooperative, Old Colony Cooperative of Providence, Roger Williams, and Telephone Workers' of Providence, Westerly and Woonsocket; six loan and investment companies-Cranston, and Alliance Finance, Guaranty Loan, Morris Plan, Rhode Island Dis- count, and Washington Finance, all of Providence; eleven credit unions-Central Falls, Prov- idence, Manville, Pawtucket, Providence Lodge, Novelty Park of Pawtucket, Peoples' of Newport, Providence Postal Employes, Railway Express Employes of Providence, Textile Workers of Pawtucket, and Telephone Workers of Providence.

The distribution of banks in 1930 was: Bristol-Industrial Trust branch; Burrillville- Industrial Trust branch at Pascoag; East Greenwich-Union Trust branch; East Providence -Industrial Trust branch; Hopkinton-Ashaway National Bank; Newport-Aquidneck National Exchange Bank, Newport National Bank, Industrial Trust branch, Savings Bank of Newport; North Kingstown-Industrial Trust branch, Wickford Savings Bank; North Providence-Greenville Trust branch at Centredale; North Smithfield-First National Bank at Slatersville; Pawtucket-Industrial Trust, two branches, Rhode Island Hospital Trust branch, Pawtucket Safe Deposit and Trust Company, Pawtucket Institution for Savings ; Providence-Blackstone Canal National Bank, Mechanics' National Bank, National Bank of Commerce, Phenix National Bank, Providence National Bank, Industrial Trust and branches at Washington Park, Atwell's Avenue and Elmwood besides Exchange branch, Rhode Island Hospital Trust and East Side, West Side and Smith's Hill branches, Union Trust and branches at Olneyville and Hopkins Square, Lincoln Trust, High Street Bank, Dante Bank, Columbus Exchange Trust Company with branches on Westminster Street, Atwell's Avenue, Governor Street and Charles Street, Citizens' Savings Bank, Gorham Savings Bank, People's Savings Bank, Providence Institution for Savings (Old Stone Bank) with branches at Olneyville, and Aborn-Empire Streets ; Smithfield-National Exchange at Greenville, Greenville Trust with branch at Esmond; South Kingstown-Wakefield Trust Company, branch of People's Sav- ings Bank at Kingston; Warren-Industrial Trust branch; West Warwick-Centreville National Bank, Phenix Trust, Union Trust branch at Arctic, Centreville Savings Bank; Westerly-Washington Trust, Industrial Trust branch; Woonsocket-National Globe Bank, Industrial Trust branch, Hospital Trust branch, Union Trust branch, Woonsocket Trust, Woonsocket Institution for Savings.

MAGNIFICANCE REPLACES SHABBY GENTILITY-A banker from Kansas, who visited Providence in 1902 and who was being shown places of interest asked: "Where are the banks?" He was taken to several Providence banks, including the quarters occupied in 1902 by three leading trust companies, but was so little impressed that he asked questions with a patronizing manner, about capital and resources. It developed that he was amazed at what, from his midwestern point of view, he considered the humble and unpretentious type of banking house in Rhode Island. Yet the three trust companies, in 1902, occupied buildings that were among the "show places" in Rhode Island, though not one of them, in 1902, was so large or so finely appointed as the more recent buildings. On the basis of capital and resources, his Kansas bank was a very small institution if compared with any one of a dozen banks in Rhode Island in 1902; yet no Rhode Island bank at that time occupied quarters so large, so imposing, so well equipped and so attractively decorated as his bank in Kansas.

Could the Kansan visit Bank Street (which well might be the name given to Westminster Street east of Dorrance Street) in 1930, he would be more intrigued than he had been in 1902, as he looked into the imposing banking rooms of the Hospital Trust, the massive arcade at the Industrial Trust, and the beautifully embellished enlarged Union Trust; or into the new and finely appointed quarters of the Phenix National, National Bank of Commerce, and the Providence Bank, the last in a new building of colonial type reminiscent of its old quarters

813

FINANCE AND BANKING

on South Main Street and befitting the home of the oldest bank in Rhode Island. The classic marble front of the People's Savings Bank on Market Square would entice him to visit the fine interior; he would wish also to pass through the arcade of the Aborn-Empire Street branch of the Providence Institution for Savings, with its beautiful murals picturing the story of Rhode Island ships and shipping, and to enter the fine building of the Citizens' Savings Bank on the site of the famous Hoyle Tavern. The type of branch building located in various parts of the state is attractive and usually adds distinction to the neighborhood in which it is placed. The Kansan might believe in 1930 that Rhode Island banks had taken on the appear- ance of the prosperity which their reports indicate, in contrast with their almost shabby gen- tility of 1902.

COMMERCIAL BANKING-The development of commercial banking in Rhode Island has witnessed the rise of a distinctly modern type of bank and distinctly modern banking practices. One hundred forty years ago, when the Providence bank was chartered, one of the most sig- nificant purposes was provision of a "medium of exchange" for the lively business of the town and state. The authority to issue paper currency was one of two important prerogatives of the bank, the other being summary legal process for collecting debts, known as "bank pro- cess." The paper currency was almost necessary if trade and commerce were to rise superior to the limitations of barter, because (1) of the small volume of specie, and (2) the need for specie in foreign trade. Paper currency guaranteed by men of the type who projected the Providence Bank was welcomed in Rhode Island. The currency issued by Rhode Island banks was intended principally for circulation in the state, and as a medium for the loan and discount business which was the most important source of bank profits. The currency was acceptable as money because of the guarantors and because of ease of redemption. The earliest banks were provided with very modest capital, and in several instances the reputed capital was represented by notes of stockholders, or if specie had been paid in as capital it was withdrawn subsequently and replaced by stockholders' notes. The stability of some banks, including the Providence Bank, rested upon the possession of actual capital, in the form of specie or the notes issued by the United States government pursuant to Hamilton's policy of assumption of the Revolutionary debt of the states. Assuming fictitious or manipulated capital, however, the stockholders became guarantors or underwriters of liability for deposits and for currency issued by the banks as well as other liabilities. Deposits relatively were small, for the banks had few customers with accumulated free capital; there could be few in a period in which the building of industrial plants and the financing of manufacturing processes rapidly exhausted credit, and the banks had not learned ways of making banking attractive to large numbers of individuals with small means. In many banks the depositors were, for the most part, stockholders who, having withdrawn the specie contributed as capital, deposited it in the bank, thus increasing both the liabilities of the bank and its resources, according to the point of view. The almost exclusively credit nature of the business of the banks before the Civil War is indicated by the expansion of loans and discounts, the steady increase in issues of currency, and the comparatively slight change in the volume of specie held by the banks. Paper currency issued by Rhode Island banks circulated freely without depreciation because of faith in the soundness of the banks, and the provision made by associations of bankers for prompt redemption. Occasionally, a bank failure, or the expos- ure of fraud or premeditated fraud, focused attention on banks and banking, and led to supervision or other regulation by the state. For the most part, however, there was little public restriction of the activities of banks in Rhode Island, and the period preceding the Civil War may be characterized as one of free commercial banking conducted by corporations chartered by the General Assembly, and regulated principally by recourse to legal remedies and court action under common law or general statutes.

814

RHODE ISLAND-THREE CENTURIES OF DEMOCRACY

The chartering of national banks, involving the reorganization of most and eventually the closing of all state banks except the now century old High Street Bank in Providence, marked a period of transition rather than a permanent phase in Rhode Island banking. The essential departures in the national plan from the practices of state banks were: (1) rigid supervision and inspection by agents of the United States treasury, including periodic examinations and listing of assets at values established by the Comptroller of the Currency; (2) double liability of stockholders, leading, in the instance of most national banks, to the accumulation of surplus equalling capital, or division of actual capital as fifty per cent. nominal capital and fifty per cent. reserve; (3) currency restricted to ninety per cent. of the par value of bonds of the United States deposited in Washington, the currency being printed by the federal government and redemption guaranteed by the federal government. State bank currency was driven from circulation by the levying of a heavy tax; this measure constrained state banks depending for profit principally upon currency either to enter the national banking system or to liquidate. Besides that, the new national bank currency issued by Rhode Island national banks exceeded the volume of state bank currency before 1865 by almost thirty-three per cent., and furnished for the time being all the needs for a medium of exchange which had been one of the reasons for the development of state banks. The profit arising from exchanging United States bonds for currency diminished as the bonds increased in market value or yielded lower interest rates as refunding series were issued, and Rhode Island bankers were quick to perceive that the capital invested in bonds and thus transferred practically to the quiet of the vaults of the United States treasury decreased the working capital of Rhode Island banks and the volume of loans and discounts that could be made with the same amount of capital .* Moreover, the prosperity of savings banks had demonstrated the availability of working capital in the form of deposits that could be used to advantage in a commercial loan and discount business, and currency was becoming less and less profitable as the United States, after the war, achieved a national monetary system including a medium of exchange of ample volume. These were the factors that tended to limit to thirty-five years the period of the national bank as the predominat- ing type of commercial bank, and to lead to the consolidation of national banks and their absorp- tion by trust companies until in 1930 the number surviving had been reduced from sixty-three to twelve: (I) Decreasing profit in issuing currency as a banking function, and demonstra- tion by trust companies that commercial banking without the currency function may be profit- able; (2) recognition of overcapitalization of national banks as measured by the volume of loan and discount business related to working capital and the small dividends earned on the capital invested ; (3) increasing volume of a surplus (excess of earnings over cost of living) in the hands of thousands of individuals, which, if attracted to banks in the form of deposits may be made a part of a bank's working capital as deposits exceed a reasonable reserve for withdrawals; (4) demonstration by the trust companies that banking based on a working capi- tal consisting largely of deposits may be made highly profitable. The first Rhode Island trust company was incorporated within two years of the incorporation of the first national bank ; and as the two systems-national bank and trust company-developed through the same period, there was no possibility of mistaking advantage for the latter.

As already indicated the genius of the trust company, or the banking institution dominat- ing the third period of Rhode Island commercial banking, lies in the attraction of depositors and deposits, the latter to furnish a volume of ready-money working capital. Deposits are of two types-participation or savings deposits at a stipulated interest rate, usually the same as that paid by savings banks, received under much the same conditions and subject to practices similar to those prevailing in savings banks; and deposits subject to check or withdrawal at sight. On sight deposits interest may be paid at low rates upon the maintenance of stipulated daily balances ; on deposits of small amounts interest seldom is paid, the depositor accepting

*Vide supra.

815

FINANCE AND BANKING

the service of the bank in keeping his account and according him checking privileges as ample returns for his deposit. As banking accommodations have become more liberal, older rules requiring maintenance of stipulated balances as condition for the checking privilege have been abated. Eventually, however, the banks found that the carrying of large numbers of small accounts had become expensive because of the cost of bookkeeping, clerical and other service, including the printing of checks and other stationery (supplied by the banks), and in 1925 a service charge of one dollar per month was imposed on active checking accounts of depositors who fail to maintain through the month daily balances of at least one hundred dollars.

The volume of the checking business is indicated by the reports of the clearing house maintained by the banks for the purpose of adjusting daily balances between banks with the least possible transfer of actual money. The Providence clearing house reported annual exchanges, which at five-year periods are as follows : 1889, $261,600,000 ; 1893, $282,500,000 ; 1898, $265,500,000 ; 1903, $357,300,000; 1908, $337,500,000; 1913, $426,500,000; 1918, $594,100,000 ; 1923, $633, 100,000 ; 1928, $813,885,000. In forty years exchanges have more than trebled. Clearing house exchanges are regarded usually as reliable indices of general business conditions. In the series as given the years 1898 and 1908 are exceptions to the general rule of increase; business disturbances in 1898 produced an extraordinary number of bankruptcies throughout the United States in that year; in 1908 Rhode Island experienced a number of bank failures following the temporary discomfiture of the Union Trust Company. The building of branch banks within communities, such as the East Side, West Side and Smith's Hill branches of the Hospital Trust, or the Hopkins Square and Olneyville branches of the Union Trust, or the Washington Park, Elmwood and Atwell's Avenue branches of the Industrial Trust, or the Atwell's Avenue, Governor Street and Charles Street branches of the Columbus Exchange Trust, and the two city branches of the Providence Institution for Sav- ings, is part of a banking service maintained as much for the purpose of attracting depositors as for the accommodation of customers. With accumulation of deposits one of the most important factors determining working capital, the central banks have justified branch banks within the home city and branch banks located in other communities, such as the far-flung system of the Industrial Trust. swinging in a circle about Providence from Newport, through Bristol, Warren, East Providence, Pawtucket, Woonsocket, Pascoag, Westerly and Wick- ford. Yet another purpose achieved by the branch bank is an economy in bookkeeping by the division of accounts ; in this respect it is paralleled by the practices of central banks with large numbers of depositors in maintaining "banks within the bank," or classifying accounts and settling balances between divisions at the end of the banking day. Similarly in large banks the time-honored separation of receiving and paying teller is abandoned, and each teller becomes a "banker" for the day, receiving and paying money through the same wicket. Book- keeping in banks is simplified by use of cards or looseleaf devices, and the introduction of machines of various types for calculating and recording. Withal, through the device of sight deposits and checking, the banks furnish a service for credit exchange with slight demand for actual currency.

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Rhode Island : three centuries of democracy, Vol. II, Part 35

Author: Carroll, Charles, author Publication date: 1932 Publisher: New York : Lewis historical Pub. Co. Number of Pages: 716

Author: Carroll, Charles, author
Publication date: 1932
Publisher: New York : Lewis historical Pub. Co.
Number of Pages: 716