I’d already decided to blog on old west banks today. It seemed kind of fitting, considering the state of their modern counterparts today.
Banks arrived in new western towns almost as rapidly as the newspapers I’ve blogged about earlier, and the wild west also meant wild banking. It’s often one of the frequent plot lines of western movies and novels. How many have you read or watched in which a bank failure or foreclosure was the inciting incident?
There were no regulations for these “community” banks,, and fraud and mismanagement was not uncommon. Usually several people got together, pooled their money and opened the bank. Usually a company was organized on the basis of a small cash subscription, with paper money supplying the deficit of metallic currency. And most of the banks’ loans were “frozen assets,” long term loans for the land or seed.
The farmer needed money for at least a year at a time, and often much longer, so the rural bank had little option but to tie up its money in fairly permanent form, Even worse the security for the loan was often inadequate. Often the banker took the farmer’s own optimistic concept of the value of his property, but even with a good evaluation, trouble lurked. Land tended to become practically worthless with economic depression and falling prices. When the farmer could not pay interest on his loan, the bank could foreclose, but then it was left paying taxes on land that was not worth the amount of the mortgage, while the borrower and his friends became extremely and bitterly hostile. A bank robbery could also ruin one of those early institutions, along with the savings of its depositors.
There was also fraud – think of Ponzi schemes today. The “saddlebag bank” was notorious. A man would ride his horse into a small town with his saddlebags crammed with beautiful crisp new banknotes. Then he would set up an office and lend his paper money to all the neighboring farmers on easy terms and with but little security. After collecting all possible promissory notes, he disposed of them to the store owner or the innkeeper at a discount for cash and decamped with the proceeds. The local noteholder was thus left with the job of placating the irate farmers when they discovered that their attractive new bank notes were practically worthless.
Some things never seem to change, regulations or not.
Little wonder that banks were viewed with some skepticism and more than a little hostility.
According to “The Settler’s West,” bank currency issued in the west was, in the words of one printer, “the substance of things hoped for, the evidence of things not seen.” When a Missouri river steamboat captain tried to bargain for a few cords at a wood yard, the proprietor asked, “What kind of money do ye tote?”
“The best on earth – the new Platte Valley Bank,” replied the captain.
“If that be so, I’ll trade cord for cord,” replied the proprietor.
But banks were particularly vital in the cattle towns. The sums exchanged in Kansas cattle towns during the eight years after the Civil War could be staggering. Drovers bought cattle in Texas on extended terms, likely as not to be paid for only upon their return with money in hands. They would then have to take out loans for supplies and to pay their hands while waiting for a buyer. As much as $50,000 to $100,000 occasionally changed hands in a single transaction between the owner/drover of a cattle herd and the cattle buyer, and few wanted to carry that kind of cash over long distances. Interest rates were high, and volume heavy, but a “panic” in 1873 led many banks to close, including Wichita’s First National Bank. Its president went to jail for having lapsed into fraudulent practices while trying to “repair” the damage.
Can you remember any plots based on bank failures or failure to get a loan?
One that immediately comes to my mind is “3:10 to Yuma” when the hero agreed to take a wanted man to Yuma after failing to get a loan. Any others?