run on banks history

Depositors line up outside the American Union Bank in New York City in 1932. Waves of panic were sweeping the nation, and people rushed to withdraw their savings, causing thousands of banks across the country to go out of business.

By Jim Buchanan

Ninety years ago, Jackson County, and the rest of the nation, was wracked by bank panics, an unpleasant feature of the Great Depression.

“The History of Jackson County” recounts that Jackson County’s two banks, the Jackson County Bank and Tuckaseigee Bank, prospered until the Great Depression, but “The Tuckaseigee Bank had just been in its new marble building on Main Street a year when disaster struck. In April 1930 the bank became insolvent and was forced to close. An investigation of the bank revealed some unusual practices. The chairman of the state corporation commission and his chief clerk, who were charged with regulating the state’s banks, both had unsecured loans with Tuckaseigee. Angry depositors demanded that the officers of the bank be prosecuted.”

Three bank officials were indicted by a grand jury, but two were cleared of charges and the third was set to stand trial, but the trial was never held. “The bank was liquidated, and depositors eventually got 10 cents on the dollar.”

The Jackson County Bank anticipated a run by depositors and went so far as requesting Wachovia in Asheville to send an armored truck to Sylva full of money, but the run never occurred. The bank weathered the storm.

Many others didn’t.

Some forgotten terminology from the era explains what was going on. A bank run happens when clients start withdrawing their money on the belief the bank might fail because it doesn’t have enough cash to stay solvent. That was often a self-fulfilling prophecy that did in fact run some banks out of business. A bank panic is when runs are repeated at numerous banks.

An attempt to stem the tide in Western North Carolina was noted in the Dec. 18, 1930 Jackson County Journal. An area judge decided that idle gossip was spreading panic in the financial sector and set out to do something about it: Punish those spreading what he considered false information.

An article titled “Gossip about banks banned by the law” went thusly: “In commenting upon the bank situation of recent weeks in a number of Western North Carolina towns, Judge Cameron MacRae, presiding at Buncombe Superior Court, point out to the Grand Jury that it is a violation of law to maliciously spread rumors derogatory to banks … Judge MacRae said he has reliable information that at least 11 of the banks closed within the past few weeks had been forced to close because of panics resulting from malicious circulation of false rumors regarding conditions of these banks.

“Any person who shall willfully and maliciously make, circulate or transmit to another or others any statement, rumor or suggestion, written, printed or by word of mouth, which is directly or by inference derogatory to the financial condition or affects the solvency or financial condition of any bank, or who shall counsel, aid, procure or induce another to state, transmit or circulate any such statement or rumor, shall be guilty of a misdemeanor and upon conviction thereof shall be fined or imprisoned or both in the discretion of the court.”

MacRae’s edict was rousing, but in the end such moves were no match for the tide of failures sweeping the nation.

1930 was the first year of sustained bank panics. During the 1920s around 70 banks failed annually across the nation. 1930 saw 744 banks fail during the first 10 months. Panic begot panic.

By the time the 1930s ended some 9,000 banks had failed.