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(Seattle & Northern 1890)

Skagit River Journal

of History & Folklore
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Covers from British Columbia to Puget sound. Counties covered: Skagit, Whatcom, Island, San Juan. An evolving history dedicated to the principle of committing random acts of historical kindness
Noel V. Bourasaw, editor (bullet) 810 Central Ave., Sedro-Woolley, Washington, 98284
Home of the Tarheel Stomp (bullet) Mortimer Cook slept here & named the town Bug

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Banking in Washington and Skagit County, 1853-1962
Higgins, Chapter Two, Part One

(First National Bank 1905)
      This was the First National Bank of Sedro-Woolley. It opened in 1905 with Big Lake lumberman John C. Wixson as the principal shareholder and other board members included: Dr. C.C. Harbaugh of Sedro-Woolley; August Peterson, a retailer in the city; and F.A. Hegg, the leading grocer in the city. Peterson was elected president and Fred Bentley served as cashier and manager. We have no other details about either Peterson or Bentley so we hope that a reader will know. The bank was in the new Seidell building at the northwest corner of Metcalf and Ferry streets where the Hammer Heritage Square park rises today. See this Journal website about Art Seidell, a very famous local Civil War veteran. When the bank opened, the Bingham bank down the street had been without a competitor for 15 years since it opened in old-Sedro on July 30, 1890. The next building to the west (left) was the old Forest House hotel and Shea's Saloon and Pool Hall, which was torn down in the 1950s. The building to the north (right) with the awning was Frank Douglass's drug store.
      The bank moved across the street to the corner suite of the lower floor of the Gateway Hotel when it opened in 1910. By 1914, the year of the famous First National bank robbery, Bentley had been discharged due to shortages discovered in 1909 and he was replaced by John Gudall, who moved here in March 1910 from Gillett Grove, Iowa. The First National Bank failed on Feb. 23, 1932, and did not reopen again. The Bingham Bank was alone again in town until the Lyman State Bank moved here in 1945.

      Ed. note: The late John W. Higgins wrote an unpublished manuscript of the history of Skagit County and its Banks for his classes in Pacific Coast Banking School. At the time he was manager during the transition from the old Bingham Bank to a branch of the state chain of Seattle First National Bank organization. We are pleased that his son Tom Higgins, who lives in Day Creek, shared this manuscript with us exclusively to illuminate the story behind the scenes of banking from the territorial days and the next 100 years afterwards. We will be featuring chapters from his work for the next year. This first excerpt is an overview of the changes that banking went through over the decades. Future chapters will feature each town in the county. Our only disclaimer is that some old-timers have disputed a few of Higgins's anecdotes. We have checked those against the record. We welcome any corrections or discussion you might want to email to us about this series.

Chapter Two, Part Two: Washington banking through 1912
By John W. Higgins, Manager, Sea-First Bank, Sedro-Woolley, 1962
      Throughout the Washington territorial years from 1853 to 1889, banking was subject to many legal restrictions. At the time Congress granted territorial status, wildcat banking was causing considerable trouble. The result being that the Territorial Constitution was made to specify that no banks could be organized with the right to issue money, or in any way to pledge the faith of the people. National banks could be organized by meeting the demands of the Federal law; private banks by putting up a sign; and express companies could carry on the semi-banking part of their business; but no territorial banks could be incorporated. This condition held until 1886 when both the territorial and Federal Governments permitted the incorporation of banks. This change was made in Washington Territory because of increasing population and economic activity. This led to speculation and made the privileges of the private banker questionable and his unregulated practice hazardous. Also, the Territory was proving attractive to outside bankers whose limited knowledge of their adopted community made their activity insecure.
      The law of 1886 provided for stockholders double liability and for the filing of an annual report, a provision not enforced until 1907. The state constitution of 1889, as it applied to baking, continued to put limitations upon circulation of currency and the double liability provision of the territorial law. Banking restrictions as such had never precluded the operation of private banks, but only of corporations. This state of affairs was undoubtedly salutary until the 1880s and '90s since the private bank was peculiarly adapted to the needs of the pioneer communities. The ban placed upon incorporation left banking almost totally free of control, but the record of many of the early private bankers is in no need of an apologist. During the rapid influx of settlers and the speculative movement instilled by the coming of the railroads, the indiscriminate privilege of engaging in private banking became questionable, not because of the conservative early private banker but rather the later enterpriser who fell into disrepute.
      The most dramatic period in Washington's banking history is the interval between 1882 and 1892. The establishment of transcontinental railroads opened the eastern markets for Eastern Washington that soon became a center of livestock raising, woolen manufacturing, and grain production. Lumber production and shipping on the Sound spread to many communities and assumed greatly increased proportions. By 1885, the economic expansion of the territory had touched all resources and increased their productiveness sometimes by hundreds of percent. In 1882, there were two national banks in Washington Territory with a combined capital stock of $200,000 and individual deposits of $581,000. By the year 1892, this number had grown to 70 with a combined capital stock of $7,875,000 and combined individual deposits of $14,793,000. [Higgins footnote: Spencer, Lloyd. A History of the State of Washington , p. 242.]

Orgy of speculation peaks in 1892
      The orgy of speculation throughout the Northwest and the frenzied over-expansion of many cities came to a calamitous conclusion in 1892. Banks, having financed the boom of the preceding decade, began to fail as unreal values collapsed and anticipated developments were not realized. Some communities were deprived of all local banking facilities, including Anacortes, and all suffered small or larger losses. The extent of the bank failures of the Nineties may be judged by the decrease of national banks in Washington from 70 to 40, of private banks from 35 to 15, of state institutions from 78 to 36. The largest loss in a single year was of $700,000 in 1893, being considerably less in succeeding years, with the largest loss in a single bank failure being approximately $450,000 [Higgins footnote: Spencer, Lloyd. A History of the State of Washington , p. 247].
      An interesting development of the period was the circulation of scrip issued by cities, counties, school districts, stores and mills. Prominent among these currencies was that issued by Charles Cissna, proprietor of a store at Fairhaven on Bellingham Bay. The Cissna scrip was perhaps the major currency in the community, circulating in amounts up to $15,000 for several years and not disappearing from use until 1900 [Higgins footnote: Murray, Keith A., A Story of Banks in Whatcom County, p. 19].
      The revival of banking was, of course, dependent to a large degree upon the revival of business and the improvement of general conditions. By 1900, statewide developments were well under way; banking, consequently, began to revive, and with the banking revival came new legislation affecting financial institutions.
      Before 1907, private and state banks grew rapidly, largely because no reserve was required of them and the paid-in capital demanded of state banks was only $15,000. The required capital of national banks was $25,000.
      During the [first decade of] the 1900s the people of the state, [like those throughout the nation], became finance-minded and were demanding reforms in banking laws and in the state government's administration of public funds and financial institutions. The public alone was not responsible for the banking legislation. The Washington Bankers Association (hereafter WBA) urged reform laws in 1902 and presented a bill in the legislature in 1906 that did not pass. In 1907, an act proposed by the Washington Bankers Association was passed that provided for effective supervision by establishing a banking department under a State Bank Examiner, whose duties were to enforce the observance of the law. The capitalization of state banks was to be determined by the population of the community in which the bank carried on business, ranging from $10,000 in towns of less than 1,000 persons to $100,000 in cities of over 100,000 population. Banks were required to make three complete reports each year and publish them in a condensed form. Several changes were made in the original bill as sponsored by the WBA. One change was the removal of all limitations upon the amount of loans a bank might make, whereas the WBA had stipulated a limit of fifty percent of capital and surplus. The legislators also struck out the bankers' provision for regulating foreign and private banks.

Major law changes begin in 1913
      During the following years, a number of weaknesses were discovered in the law of 1907. The authority of the examiner did not extend to the authorization of incorporations or the control of banks during liquidation, conditions that hindered his maintenance of a sound financial structure among the state banks. The absence of limitation upon loans opened the way for disastrous banking practices. To remedy those weaknesses, the WBA cooperated with the examiner in submitting a bill to the 1913 Legislature. That bill was ignored, however, and private banking was prohibited and foreign banks were barred.
      [Ed. note: That planned prohibition led to the restructuring of Bingham Bank in 1913. Capital was increased to $50,000 and C.E. Bingham incorporated his private bank as a state bank.]
      Until 1913, the private banker in Washington state was governed only by his judgment. If it was sound, he succeeded; if it was weak, he failed, and his clients were unprotected by any certain measures of recovery. Historical data is not completely accurate but it appears that there were 52 private banks operating in the state in 1913. Under the new law of 1913, private banks could not be operated after 1914. Twenty-six qualified for state charters; the others were unable to meet the minimum requirements.
      Certain technical changes are noted in the banking laws passed by the 1915 legislature. Reserve requirements were increased to 15 percent of all deposits, as compared to the former rule of 20 percent of all demand deposits. Sections of the 1907 code relating to the liquidation of sale banks were replaced by the Insolvent Bank Act, which provided that all insolvent banks should be liquidated through the State Banking Department [Higgins footnote: A.H. Bingham of Sedro-Woolley and Frank Pickering of Mount Vernon both now feel that this legislation was sponsored by Skagit county bankers as a result of the failure of the W.E. Schricker & Co., in LaConner.]. In 1917, a new code prepared by the WBA in cooperation with the State Bank Examiners was adopted. Among the new laws was one giving the examiner the discretionary power necessary enabling him to remove incompetent officials and to compel the full subscription of the bank's capital. The incorporation of banks was made to depend upon the authorization of the Supervisor of Banking and this gave the examiners a firm control over the financial condition of the banking structure. New capital requirements were set: for banks in towns of less than 1,000 population — $15,000; for towns of 100,000 or more population — $150,000. The use of net profits to build up a surplus was required before dividends could be declared. The acceptance of deposits by an insolvent bank was made a felony and it is interesting to note that many of the provisions of the code of 1917 constitute much of the banking legislation in effect today.

Part 2 of Chapter 2 The state experiments with deposit insurance, will be posted in Issue 28 and subsequent chapters about banks in each town of the county will be posted, starting in the summer of 2005.

Story posted on June 1, 2001, and re-posted on May 10, 2005
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