One of the more recent ones is Silverton Bank where the FDIC is suing 17 of the former directors due to “slipshod lending practices and for spending lavishly as the bank’s condition worsened and the economy weakened.” Silverton was a little different in that it represented other banks rather than the general public. This very fact means their irresponsibility caused a “ripple effect” leading to other banks failing as well.
Though banking procedures and laws having changed through the last hundred years or so…..nothing really has changed regarding greed and those we trust to handle our money….case in point…..the Witham Banking Chain.As the South moved from Reconstruction into the New South era there was a sudden spike in the number for applications for new national banking charters by business men who had taken over as the new leading class. These men understood the New South philosophy calling for changes in the southern economy in the areas of industrialization and in the textile industry in particular. In order to get industries moving there had to be banks. In his book Cotton Fields and Skyscrapers David R. Goldfield states, “By 1910, Peachtree Street was emerging as Atlanta’s focus for commercial and financial activity. 13 banks were located within a three block area known as Five Points.”
One of the best known bankers during the New South era in Georgia and Florida was W.S. Witham. He was raised in LaGrange, Georgia during the Civil War and moved to New York City in 1867. By 1888, he had returned to Georgia and began building his banking system with his first bank in Jackson, Georgia.Witham Banks were state banks, organized under Georgia laws with individual officers and directors and each had their own individual capital.
As this site advises Witham would arrive in a rural area….most of the towns that had a Witham Bank had populations of 1,000 or less…..and he would meet with local citizens persuading them they needed a bank. At many of his lectures he was promoted to citizens as the State Sunday School Association president [the meeting was held at the local Methodist Church] and he advised every merchant should take one or more shares, “for if we let this opportunity pass, we may regret it for years. The merchants, of all people, need a bank. The farmers need a bank…” The article goes on to state, “The earnestness of the speaker [Witham] commanded the closest attention of every one present, and his plea for better work in the Sunday Schools made a deep impression.”By 1906 there were 72 Witham banks in Georgia and 5 in Florida. Witham had a sweet deal. After acquiring a few banks he had himself appointed fiscal agent of each affiliated bank. That position afforded him the right to shape bank policy and receive a fee from each branch of $750.00. Later Witham organized the Bankers Finance Company and conceived the idea of guaranteeing deposits before FDIC. In fact, one of his company mottoes emphasized how safe a Witham bank was…..”Safety First!”
The other motto was “Success!” which Witham promoted at every turn as he gave speeches, traveled across the country and resided in an elaborate Peachtree Street home referred to as Bide-a-wee that was between Peachtree Place and 14th Street.Witham took bank executives and their wives on extensive trips to build moral and preach his banking model to them. The financial family got together for yearly meetings at some resort at the beach or mountains. Sometimes as many as 200-500 people would go along. This article from Washington D.C.’s Evening Times for June, 1900 tells of a trip to Washington.
A New York Times article dated July, 1916 describes the trip to New York where an entire train was reserved for the banking officers.By 1911, the Witham System had 125 banks. Capital had increased and the name was changed to Bankers Trust Company of Georgia. Witham stepped to the rear while W.D. Manley took the lead until the chain was forced out of existence in 1926. By this time Witham was spending most of his time in Miami speculating on real estate.
Vickers (see cite below) advises Witham hired Manley in 1900 with no banking experience, but he had been a loyal employee as a cashier of the Farmers and Traders Bank.Manley had worked under Witham but unfortunately did not adhere to his conservative course. Manley’s course was aggressive and under his leadership the chain grew mainly in Florida. He also adhered to creative financing mean Manley would borrow from bank A to buy controlling shares of bank B. Once he owned controlling shares of bank B, it was simple to get a loan from bank B to pay off bank A. The shares of bank B could then be used to purchase control in bank C.
For example, Vickers explains the Banker’s Financing Company of Atlanta had $100,000 of capital. Manley raised the capital by personally borrowing $100,000 from his Farmers and Traders Bank and Maddox-Rucker Banking Company. He used the money to buy 1000 shares of the Bankers Financing Company which operated as a financial agent for member banks and provided fidelity insurance to members.While Witham had his Peachtree Street mansion and invested in Miami real estate and textile mills, Manley lived lavishly. Vickers explains during the early 20s Manley’s family lived in an Atlanta Paces Ferry mansion surrounded by 62 acres. In 1923, a reporter described turning off Paces Ferry Road and rolling down a long drive to an Italian Villa. There was a butler, chauffeurs, and a Cadillac limo as well as shopping excursions to New York City and Europe for Manley, his wife, and four children.
During the months leading to the crash Manley purchased a 1926 Rolls Royce limo and large Marmon sedan. He also bought his daughter a Marmon sports car.Valeria Rankin Manley was a spendthrift. In 1926 as the banks were failing she shopped at Atlanta’s Chamberlin-Johnson-DuBose Company which had been in operation since 1866 at their 5-story building. It was considered to be the most exclusive department store in Atlanta and in the South. Just during the first half of 1926 she bought 101 pairs of hose, 32 pairs of gloves, 23 dresses, 12 pairs of shoes, 10 handbags, 5 girdles and a kimono. There were also purchases for skirts, blouses, and costly jewelry. Let’s not forget the chairs, rugs, and other items that were purchased to decorate the home.
The Manleys ended up defaulting on the charges of course.Mrs. Manley actually borrowed from her husband’s banks, and her purchases from January to July, 1926 represented ten percent of the capital from Farmers and Traders Bank.
Regulators finally began gathering evidence, but they kept a lid on it. Instead of curbing the crisis the official deception by regulators caused a debacle to grow beyond anyone’s control.When word finally got out, panic hit depositors in Georgia and Florida. 117 banks closed in just ten days.
On June 28, 1928 a lawsuit was filed accusing Manley of massive bank fraud.Days later 83 more banks in Georgia closed which were 20% of the state’s banking system.
Vickers advises, “At the time of the banking crash state and federal regulators tried to calm depositors by stating that Manley’s banks were small country banks that operated as independent units. But before the collapse in July, 1926 the Georgia State Bank was one of the state’s largest banks, with its branching network of 20 offices throughout the state.”The bank failures shattered the economy in Georgia and Florida.
Many depositors lost their life savings. By the end of 1926, 150 banks in Florida and Georgia were closed and more than $30 million was missing.In an online book titled King of Casselberry the author states a bank regulator by the name of Ernest Amos actually borrowed money from the same bank he regulated…..money that he “poured cash into land deals.” After the banks failed he then appointed his friends to be the receivers and attorneys for the failed banks.
The New York Times advised Manley’s wife filed a petition stating he had been queer for 14 years and had taken to leaving their house in his pajamas, wandering down the road, and hiding in the bushes as a defense to the criminal probe. The Commission found him sane and able to handle his affairs. They objected to the fact his wife wanted to place him in a private sanatorium with every need catered to while so many of his depositors had lost everything. An official with the State Banking Department said there were 82 communities in Georgia where 110,000 depositors were affected. The commission’s findings cleared the way for criminal prosecution for “fraudulent insolvency”. Manley was found guilty and eventually served seven years.Even though Manley was found guilty and did serve time banking regulators laid the blame for the scandal at the feet of the depositors. One source quoted T.R. Bennett, the Georgia Superintendant of banks……“The trouble…is not with the banks, it is with the people…agitators and hysterical people are doing incalculable harm.”
Yes, how dare actual citizens become upset when their money is taken and used in such a reckless and irresponsible manner?Witham’s obituary dated November 16, 1934 quoted him from an early interview saying, “My banks are a system, not a chain. Don’t call them chain banks. Chain banks are un-American and never succeeded here; probably never will.”
Witham’s banks WERE a chain, and they DIDN’T succeed.Sources:
“The Witham Banks” by Day Allen Willey from Moody’s Magazine and American Investments, June, 1906
From God’s Capitalist: Asa Candler of Coca-Cola by Kathryn W. Kemp
From Branch Banking: it’s historical and theoretical position in America and abroad by John Martin Chapman and Ray Bert Westerfield
Panic in Paradise: Florida’s Banking Crash of 1926 by Raymond B. Vickers