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Northwestern Financial Review, Jan 1-Jan 14, 2005

Flipping back 100 years through our volumes of Commercial West magazine, reveals that change - at least in this industry - is really a matter of degree. Here is a look at some of the issues and events that merited publication in 1905.

Federal deficit worries some

In a year when revenues exceeded Treasury's expectation by $3 million, the federal deficit came in $6 million more than secretary Leslie Shaw's estimate. As of the fiscal year-end, June 30,1905, the federal deficit was $24 million.

It looks as though the guessing in the Treasury Department was not strenuously accurate. Moreover, a little bungling in accounting is apparent. It seems that the loan of $4.5 million to the Louisiana Purchase Exposition was credited on the books twice. Postal expenditures were $2 million wide of the estimate ... Pensions were $1.75 million more than estimated; Indian service cost $1.3 million more than estimated and the interest bill was $500,000 above the estimate.

These large discrepancies indicate either very loose estimates or carelessness on the part of the departments in keeping within their allowances.

The commentary went on to report that more than 40 percent of the total federal budget of $567 million was spent on the war and navy departments.

The country might look upon the deficits with less disapproval, if the deficits were due to large expenditures for internal improvements to advance the development of the country, such as good roads, irrigation, rivers and harbors, or parks and forestry.

Shake up imminent at OCC

The Treasury Department was less than pleased with how the Office of the Comptroller of the Currency was managing its resources - especially its staff of national bank examiners -and in an attempt to create more thorough bank examinations, offered this assessment, published in 1905:

There are approximately 75 national bank examiners employed by the Treasury. It is stated that one-third are first class men, a second third fairly good, and the last third rather below the average. One of the troubles is thought to grow out of the way examiners are paid. They earn from $2,500 to $4,500 annually, and out of this sum pay their own expenses, both traveling and other. The law provides for two modes of payment. In one the compensation is based upon the capitalization of the bank, while the other class the Controller of the Currency determines the compensation upon certain fixed principles and within certain limits.

In either case, Treasury believed there was too much emphasis placed on the capital and assets of the examined bank for determining how its examiners would be compensated.

Treasury officials assert that too much has been expected of bank examiners. They are not able to test the strength of the bank's assets, and the examinations, they say, cannot possibly be given the character of an audit or a thorough accounting.

Iowa's remarkable banking growth

In 1905, Iowa had the largest number of banks of any state in the union - close to 1,525 private, state and national banks with a total of about $260 million in deposits. That deposit total represented an increase from 1904 of $40 million. Although the number of banks in Iowa was increasing at a rate of about 50 per year, all were not new institutions. Rather many private banks were reorganizing and securing charters as state or savings banks, and were counted by the state as new banks.

Kansas farmers diversify into banking

An investigation by state banking commissioner, John Q. Royce, revealed that farmers in Kansas were making good profits from their land as well as making savvy business investments. The farmers, said Royce, have begun to turn their attention to the business of banking.

Apparently, wheat markets where lucrative before 1905 but some farmers preferred to bury money rather than utilize the services of a bank. Many, however, found it necessary to diversify in order to keep their capital growing. It was fortunate, then, that by 1905 the reputation of the industry was on the upswing.

I know men in the wheat belt of Northern Kansas who would not have allowed the suspicion that they were in the banking business to creep out ten years ago, but they are proud of their connection with the sound institutions in their towns at this time, Royce said. In many counties all of the bank stock and the best offices of the banks are in the possession of the farmers. Some of those "bankers" have left their farms and moved to the villages because of these investments.

ABA convention held in nation's capital

The American Bankers Association held its 1905 convention in Washington D.O., offering attendees a White House reception among other highlights as John Hamilton of the Banking House of Hamilton & Cunningham, Hoopeston, 111., assumed the ABA presidency.

Addressing the general session, Treasury secretary Leslie Shaw spoke about trade expansion: The time is coming, gentlemen - when the United States will need new and important markets. The world may come to us in its own ships for the products of our farms and the raw products of our mines, but it will not come in its own ships for the finished products of our factories.