New York Bank of the United States
Encyclopedia
The Bank of United States, founded by Joseph S. Marcus in 1913 at 77 Delancey Street in New York, was a New York City
New York City
New York is the most populous city in the United States and the center of the New York Metropolitan Area, one of the most populous metropolitan areas in the world. New York exerts a significant impact upon global commerce, finance, media, art, fashion, research, technology, education, and...

 bank that failed in 1931. The bank run
Bank run
A bank run occurs when a large number of bank customers withdraw their deposits because they believe the bank is, or might become, insolvent...

 on its Bronx
The Bronx
The Bronx is the northernmost of the five boroughs of New York City. It is also known as Bronx County, the last of the 62 counties of New York State to be incorporated...

 branch is said to have started the collapse of banking during the Great Depression
Great Depression
The Great Depression was a severe worldwide economic depression in the decade preceding World War II. The timing of the Great Depression varied across nations, but in most countries it started in about 1929 and lasted until the late 1930s or early 1940s...

.

Formation

The Bank of United States was chartered on 23 June 1913 with a capital of $100,000 and a surplus of $50,000. The bank was founded by Joseph S. Marcus, a former president of the Public Bank, also of Delancey Street. Marcus, who was responsible for the building up of Public Bank, started the new bank, with the backing of several well-known financiers, because of a disagreement with other members of the management. Though the directors of Public Bank objected to the choice of name, arguing that "ignorant foreigners would believe that the United States government was interested in this bank and that it was a branch of the United States Treasury in Washington", the name was approved and the bank came into being. The use of such an appellation was outlawed in 1925 but did not apply retroactively.

The founder, Joseph S. Marcus, was a Jewish immigrant to the United States. Born in the town of Telz in Germany in 1862, he went to school in Essen
Essen
- Origin of the name :In German-speaking countries, the name of the city Essen often causes confusion as to its origins, because it is commonly known as the German infinitive of the verb for the act of eating, and/or the German noun for food. Although scholars still dispute the interpretation of...

 and immigrated to the United States at the age of 17 and worked his way up from being a tailor, to a garment industry business, to a banker. He founded the Public Bank in 1906 and the Bank of United States in 1913. He died on 3 July 1927. He was also a philanthropist known for his donations to the Beth Israel Hospital
Beth Israel Medical Center
Beth Israel Medical Center is a 1,368-bed, full-service tertiary teaching hospital in New York City. Originally dedicated to serving immigrant Jews living in the tenement slums of the Lower East Side, it was founded at the turn of the 20th century. The main hospital location is the Petrie...

 and for the Hebrew Association for the Blind. His son, Bernard K. Marcus, a graduate of Worcester Academy
Worcester Academy
Worcester Academy is an independent coeducational preparatory school spread over in Worcester, Massachusetts in the United States. The school is divided into a middle school, serving approximately 150 students in grades six to eight, and an upper school, serving approximately 500 students in...

 and Columbia University
Columbia University
Columbia University in the City of New York is a private, Ivy League university in Manhattan, New York City. Columbia is the oldest institution of higher learning in the state of New York, the fifth oldest in the United States, and one of the country's nine Colonial Colleges founded before the...

, joined the bank in 1919.

Growth

The bank grew slowly, with only five branches by 1925. However, after the death of the founder, his son, Bernard Marcus who had been running the bank since 1919 grew the bank rapidly through a series of mergers until it had 62 branches by 1930. In April 1928, it merged with the Central Mercantile Bank and Trust Company with Bernard Marcus as the President. In August 1928, it absorbed the Cosmopolitan Bank.

In April 1929, it absorbed the Colonial Bank and the Bank of the Rockaways. In May 1929, it merged with the Municipal Bank and Trust Company making the combined Bank of United States the third largest bank in New York City, and twenty-eighth in the United States. With a book value
Book value
In accounting, book value or carrying value is the value of an asset according to its balance sheet account balance. For assets, the value is based on the original cost of the asset less any depreciation, amortization or Impairment costs made against the asset. Traditionally, a company's book value...

 of $60 and a dividend
Dividend
Dividends are payments made by a corporation to its shareholder members. It is the portion of corporate profits paid out to stockholders. When a corporation earns a profit or surplus, that money can be put to two uses: it can either be re-invested in the business , or it can be distributed to...

 payment of $2 for 1929, the president of the bank declared the bank to be on a sound footing in a letter to shareholders following the stock market failure on Black Tuesday
Wall Street Crash of 1929
The Wall Street Crash of 1929 , also known as the Great Crash, and the Stock Market Crash of 1929, was the most devastating stock market crash in the history of the United States, taking into consideration the full extent and duration of its fallout...

.

In mid-1930, four leading New York banks; Manufacturers Trust Company, Public National Bank and Trust Company, International Bank and Trust Company, and the Bank of United States; began talks to merge and, on 24 November 1930, announced that they had agreed to form a mega-bank headed by J. Herbert Case, the President of the Federal Reserve Bank of New York
Federal Reserve Bank of New York
The Federal Reserve Bank of New York is one of the 12 Federal Reserve Banks of the United States. It is located at 33 Liberty Street, New York, NY. It is responsible for the Second District of the Federal Reserve System, which encompasses New York state, the 12 northern counties of New Jersey,...

.

On 8 December 1930, unable to agree on merger terms, the plan was dropped, because, it later emerged, of difficulties in guaranteeing the deposits of Bank of United States, because of complications arising from the legal difficulties of the bank, and because of real estate mortgages and loans held by subsidiaries of the bank. Two days later, there was a run on a Bronx branch of the bank.

Failure

On 10 December 1930, a large crowd gathered at the Southern Boulevard branch in The Bronx seeking to withdraw their money and started what is usually considered the bank run
Bank run
A bank run occurs when a large number of bank customers withdraw their deposits because they believe the bank is, or might become, insolvent...

 that started the Great Depression
Great Depression
The Great Depression was a severe worldwide economic depression in the decade preceding World War II. The timing of the Great Depression varied across nations, but in most countries it started in about 1929 and lasted until the late 1930s or early 1940s...

 (though there had already been a wave of bank runs in the southeastern part of the U.S., at least as early as November 1930). The New York Times reported that the run was based on a false rumor spread by a small merchant, a holder of stock in the bank, who claimed that the bank had refused to sell his stock.

By the midday, a crowd of 20,000 to 25,000 people had gathered and had to be controlled by the police and by the end of the day, 2500 to 3000 depositors had withdrawn $2,000,000 from the branch. However, most of the 7000 depositors who came to withdraw their money, left their assets in the bank. One person stood in line for two hours to claim his $2 account balance. As the news spread, there were smaller runs at several other branches in the Bronx as well as in the East New York section of Brooklyn
Brooklyn
Brooklyn is the most populous of New York City's five boroughs, with nearly 2.6 million residents, and the second-largest in area. Since 1896, Brooklyn has had the same boundaries as Kings County, which is now the most populous county in New York State and the second-most densely populated...

.

The next day, fearing a run on the bank, the directors decided to close the bank and asked the Superintendent of Banks to take over the banks assets. The stock market reacted negatively with the stock price of the bank, which had traded as high as $91.50 during the year (and a lifetime high of $231.25 in 1928) dropping from $11.50 to $3.00 (with a low of $2.00). Most other bank stocks also sold off.

The directors of the bank as well as of other New York banks were optimistic that the bank would reopen in a few weeks and members of the New York Clearing House Association
New York Clearing House
The New York Clearing House Association, the nation’s first and largest bank clearing house, was created in 1853, and has played a variety of important roles in supporting the development of the banking system in America’s financial capital. Initially, it was created to simplify the chaotic...

 offered to lend Bank of United States depositors 50% of their deposits. At the same time, the office of the New York State Bureau of Securities announced that they had been investigating charges that the Bank of United States had sold stock to depositors under a one year guarantee against loss that they had not been honoring. The District Attorney's office undertook to examine the bank for possible crimes. Depositors thronged the bank branches but were turned away by mounted police and the Mayor of New York, Jimmy Walker
Jimmy Walker
James John Walker, often known as Jimmy Walker and colloquially as Beau James , was the mayor of New York City from 1926 to 1932...

 began legal action to recover $1.5 million which the city had in the bank. The New York Times reported that gross deposits in the bank had dropped from $212 million to $160 million between 17 October 1930 and 11 December 1930.

The closing of Bank of United States came as a shock to the banking industry which had not seen a failure of a large New York bank since the stock market crash of 1929 and the first failure of this magnitude since the failure of the Knickerbocker Trust Company
Knickerbocker Trust Company
The Knickerbocker Trust, chartered in 1884 by Frederick G. Eldridge, a friend and classmate of financier J.P. Morgan, figured at one time among the largest banks in the United States and a central player in the Panic of 1907. As a trust company, its main business was serving as trustee for...

 in 1907. Worried city and state officials tried to reassure the public by rushing through the program by which Bank of United States depositors could borrow money against their deposits. Some depositors started to receive their loans on 23 December 1930 and The New York Times reported that throngs of depositors lined up to receive their loans, many arriving hours before the branches opened and many were turned away because they could not be served by the end of the day.

Aftermath

Soon after the closing of the Bank of United States, another bank, the Chelsea Bank was taken over by the state banking superintendent, Joseph A. Broderick, amongst allegations attributed to 'reliable sources' that the Communist Party of America was actively trying to create a run on the bank (the Soviet Union
Soviet Union
The Soviet Union , officially the Union of Soviet Socialist Republics , was a constitutionally socialist state that existed in Eurasia between 1922 and 1991....

 was also accused of financing short sellers). Meanwhile, a $50 million stockholder suit was launched against the directors of the bank on the grounds of negligence and incompetence, a woman with deposits of $20,000 in the bank hung herself, and the Equity Casualty and Surety Company, which had invested more than $1 million in Bank of United States stock, declared bankruptcy.

Amongst the 608 banks that closed in November and December 1930, the Bank of United States accounted for a third of the total $550 million deposits lost and, it is thought, that with its closure, bank failures reached a critical mass. People flocked to withdraw their money from other banks. In turn, the banks called in loans and sold assets in order to stay liquid. In that month alone, over 300 banks around the country failed.

External links

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