It was five decades before the savings-and-loan crisis of the late 1980s, and it was seven decades before the Enron, WorldCom, and mutual-fund scandals. But in the early 1930s, Toledo had its own version of a financial disaster - and it got national attention.
Half a dozen Toledo banks went under in 1931, two years before President Franklin D. Roosevelt declared the national bank holiday in 1933, and there s ample evidence of cooked books, double-dealing, and favoritism toward large depositors and corporate bigwigs.
The debacle is chronicled in an article, “The Great Toledo Bank Panic” in the January-February issue of Timeline, an Ohio Historical Society publication, and it s a prelude to a book, Banksters, Bosses, and Smart Money: A Social History of the Great Toledo Bank Crash of 1931, to be published this fall by Ohio State University Press.
The author of the article and book, Timothy Messer-Kruse, an associate professor of history at the University of Toledo, researched Toledo s banking crisis for five years.
Depositors thronged outside the First National Bank building on Summit Street in downtown Toledo in 1931. The bank survived that year but failed in 1933 during the nationwide bank holiday.
“It s a story that s been told in pieces, but the story has been more lost than told [over the years],” he said. Dr. Messer-Kruse, chairman of UT s history department, also is director of Toledo s Attic, a “virtual museum” of Toledo history on the Internet.
His research into Toledo s banking crisis - which happened more than two years before the Federal Deposit Insurance Corp. came into being - uncovered numerous incidents that would be obvious red flags today.
For example, banks in the early 1930s often had boards filled with wealthy industrialists whose firms were heavy depositors, and many of the directors were closely related to directors of the other banks.
To make matters worse, many of the banks had a rather free-wheeling attitude about lending practices and often made loans with little or no real collateral. Banks became a sort of “private depository” for the privileged class, according to Dr. Messer-Kruse. “It was an environment where individuals could double dip, and the banks were run in a wild west way.”
But all that ended in the summer of 1931.
The Security-Home Trust Co. in Toledo failed to open on June 17 and most other banks imposed withdrawal restrictions for the following 60 days. And at the end of that period, in mid-August, three other banks were closed: Ohio Savings Bank & Trust, Commerce Guardian Trust & Savings, and Commercial Savings Bank & Trust.
Within days, others followed, including the Point Place Bank and the American Bank. Some outlying banks closed too, such as the State Savings Bank of Maumee, Home Savings Bank in Metamora, and the Hoytville Bank. A few months later, the Industrial Bank of Toledo closed its doors.
Among the banks that survived the 1931 closings was First National Bank. However, it too fell victim to the wide-sweeping closings of 1933.
Even during the 1931 period of restricted withdrawals, wealthy and well-connected Toledoans got their money out of banks, Dr. Messer-Kruse noted in the Historical Society article. Loopholes in the rules allowed commercial depositors to take money out, and many bank directors found ways to get money too, either as “loans” or as dividends.
He found that Security-Home s board voted a handsome dividend even though the bank was not profitable. “Such a vote, at the moment when the failure of a bank was a real possibility, was essentially stealing money from the depositors,” he wrote.
In 1931, “Toledo was far and away the basket case of the Cleveland [Fed] district,” according to the professor. “Toledo alone accounted for 75 percent of the district s losses.” He pointed out that many of the bank officers and directors were forced to return - or were shamed into returning - some of their “smart-money withdrawals.” But none went to prison.
Toledo also got lots of national press, including some stories saying that anywhere from $100 million to $160 million was frozen in Toledo s banks, and there were reverberations on Wall Street.
The author researched the book largely through articles that appeared in Toledo s three daily newspapers - The Blade, the former Toledo Times, and the former Toledo News-Bee - as well as in the Sun, an East Toledo weekly, and the Ameryka-Echo, a Polish-language daily printed in Toledo.
The Toledo Times provided “a useful window into the society world,” he said, and Ameryka-Echo carried regular news reports even as the major newspapers observed a news blackout during the 60 days when bank accounts were frozen.
The magazine article offers a preview of photographs and illustrations that will appear in the book, many of which came from The Blade and the News-Bee. When the News-Bee folded in 1938, The Blade acquired its photos and news clippings.
The professor said his book could be useful as a supplement for American history and economics classes.
Dr. Messer-Kruse closes his magazine piece with an anecdote showing how the banking collapse in the 1930s affected Toledoans for decades afterward - a story first told to The Blade by the late E.O. Knowles, who headed the former Peoples Savings Association (now part of Charter One Bank), on the 50th anniversary of the start of the Great Depression:
“One elderly man would walk into his bank on the first banking day each year and empty his account. Each year, he would return later that same week and redeposit the same amount.
“Once, a banker ... asked the man why. ... The customer, who was old enough to vividly remember the great bank run of 1931, answered, I just want to be sure I can get my money. ”