The Bank Failures of 1931

by Bob Brail

     Many Americans have seen the movie It's a Wonderful Life. Each Christmas people watch, once again, as Jimmy Stewart desperately tries to keep his bank from failing. For most Americans born since World War II, this fictional story is their only experience with bank failures. For their grandparents, however, it was a very different story. During the Great Depression, thousands of banks closed, and millions of Americans were affected.

     The failure of so many American banks is a well known chapter in the story of the Great Depression. Yet even now, eighty-five years later, the numbers are still staggering. About 9000 banks closed in the 1930's, the vast majority between 1930 and 1933. In just one year, 1933, 4000 banks failed in this country. By the end of 1933, depositors had lost approximately $140 billion in bank closings. The Midwest was particularly hard hit; Missouri alone experienced about 450 bank failures from 1929-1933.

     Until 1930 St. Charles County had never had a bank fail. However, by the time the numerous banking panics ended in 1933, at least twelve communities in the county had witnessed bank failures. Nine of those closing occurred in 1931, including Central Trust Bank of St. Charles, People's Bank of St. Charles, Bank of Portage Des Sioux, Bank of Flint Hill, and the Bank of Wentzville. Four of the banks were located in Boone-Duden country. From Thursday, December 24, through Wednesday, December 30, 1931, during what The St. Charles Banner-News called “the low point of the Depression” in the area, the banks in Hamburg, New Melle, Defiance, and Augusta closed their doors for the last time.

     These four closings in seven days were an example of a “contagion,” a phenomenon in which several banks in close proximity close at the same time. This was not uncommon during the Depression. The contagion, a kind of hysteria, worked like this. The depositors of Bank A hear rumors of their bank's demise and go to the bank and demand their money. Bank A does not have enough cash on had to satisfy all its depositors. Because bank assets are mostly loans and securities, these assets then had to be liquidated quickly by Bank A to meet its obligations to its depositors. Other banks in the area, cash-strapped themselves, are loath to pay fair market value, so Bank A sells its assets at a loss, and the bank is closed. The contagion spreads when the customers of Banks B and C in nearby communities hear of the Bank A failure and “run” their bank, demanding cash for their deposits. This may have happened in southern St. Charles County the last week of 1931.

     The first area institution to close was the Bank of Defiance, founded in 1907 by Dr. Frank Nichols. Its board of directors included Judge R. E. L. Fulkerson, L. L. Fulkerson. and I. M. McCormick. Its closure on Thursday, December 24, must have diminished the enthusiasm of Christmas celebrations the next day. The directors told a local newspaper reporter that the bank was “believed to be able to pay everything in full” and that its “last financial statement was excellent,” but it had been closed because of “continuous withdrawal of funds.” The bank never reopened.

     By the beginning of the next week, residents of Hamburg and Augusta knew of the Defiance closing and the runs on the banks in those communities began. By December 29, the damage was done. The Farmers Bank of Hamburg closed during the morning. Its president Theodore Seib posted a sign on the bank door, stating the bank was being closed due to constant withdrawals, although the notice sent to the State Finance Department did not give a reason for closing the bank, which never reopened. Ironically, exactly three weeks earlier, the Farmers Bank of Hamburg had been robbed; that loss of funds was fully covered by theft insurance, so no one lost a penny.

It would be only a few hours later when the Bank of Augusta closed. By noon its doors were shut for the final time by its board of directors J. D. Meyer, Phil C.Riek, Edward W. Haferkamp, and August F. Luetkemeyer. A few days later, the local Hamburg correspondent for The St. Charles Banner-News wrote, “The Farmer's Bank of Hamburg, Missouri, closed its doors this morning, December 29 . . . on account of too many withdrawals and to protect depositors. . . . [I]t will help us to sympathize and have a warmer heart for those that have been placed in our circumstances.”

     It would take less than twenty-four hours for another nearby town to be placed in those circumstances. The Bank of New Melle closed December 30 in spite of the fact that the bank, according to its board of directors, had been in “good shape,” until “a scare was created by the closing of two neighboring banks.” A. C. Hoefner, John Cunningham, and Edwin Wessler dealt with the run on their bank for two days, before closing its doors for the final time, stating,”The institution was closed to save the depositors.”

     For a period of several days, optimism existed for the eventual reopening of these four banks “in a short time.” In early January Edwin Wessler of the New Melle Bank stated, “We are thinking of reopening but cannot say for sure until our books have been examined, and bank officials from Augusta and Hamburg expressed similar hopes to newspaper reporters. All these communities felt the “necessity of a bank very keenly. It is almost impossible to transact business with a feeling of safety unless a depository is handy.” However, by January 6 it was clear the banks in Defiance and Hamburg would stay closed. Folks in Augusta held on to hope for a bit longer, but their hopes died when state finance department examiners decided against their bank. On January 9, a local newspaper headline read, “New Melle Bank to Start New Bank Without Delay,” but nothing happened. E. F. Ordelheide, a former cashier of the Farmers Bank of Hamburg, was appointed as liquidator of the Hamburg, Defiance, and Augusta banks. Webster Karrenbrock liquidated the assets of the New Melle bank.

     Besides the loss of most of their monies deposited in the four banks, area residents faced another financial crisis, at least for several days. For a time, St. Charles County was considering collecting 1931 tax payments directly from the residents who had already paid their taxes at one of the four failed banks. However, at the end of January, the county prosecutor ruled that, even if the county never received its money, patrons of the four closed banks would not have to repay their taxes, if they had a bank receipt for their taxes.

     Part of the responsibility for the bank closings could have belonged to the Federal Reserve Bank of St. Louis which was criticized for what many felt was its passive approach to the problem of bank closings in its jurisdiction. The Federal Reserve Bank of St. Louis believed that bank failures were often caused by poor management.

     One very notable exception to these communities that suffered the loss of their banks was the nearby village of Dutzow. In early August, 1931, a few months before the bank runs in Defiance, Hamburg, Augusta, and New Melle, the Security Bank of Dutzow closed by the state of Missouri due to a large decrease in the value of the bank's assets. On August 7 “bank patrons hurried into the town to find the bank doors locked and their questions and concerns unanswered.” The bank had been organized in 1910 and had operated for twenty years by John Roesner and his associates. In the following months, the bank liquidator, A. H. Jurgenmeyer, would send checks amounting to twenty-five percent of their deposits to bank patrons.

     Dutzow, however, would not be long without a bank. On September 25, The Warrenton Banner reported that there were “good prospects” for a new bank. Within just eleven weeks of the failure of Security Bank of Dutzow, Walter J. and Jean Voelkerding, both lawyers and lifelong Dutzow residents, organized a new bank. On October 23, 1931, the Bank of Dutzow opened. Officers were John Paul of Femme Osage, H. B. Roesner and Hugo Hellebusch of Dutzow, Louis Sehrt of Augusta, A. L. Dickhaus of Marthasville, and Walter J. Voelkerding. This was the first bank chartered in Missouri under a new banking law enacted in September, 1931, which permitted banks to issue stock for as low as $20 per share. The new bank's 140 stockholders represented the greatest number of stockholders of any bank in Warren County. The birth and eventual success of this bank was largely due to Walter J. Voelkerding, who “deserve[d] much of the credit for his untiring efforts,” including the construction of a new bank building.

     The St. Charles Banner-News reported that these small banks in Defiance, Hamburg, Augusta, and New Melle could “cope with the ordinary fluctuations of these rather perilous times, but [they] could not cope with fear in the hearts of the people that impelled them to draw out their funds.” Many people were ruined by bank failures like those that struck Boone-Duden country during the last week of 1931. Just over a year later, President Franklin Roosevelt declared a bank holiday, and new banking legislation was created, including the FDIC, which provides insurance for every bank depositor. However, in 1931 no such protections existed, and Hamburg, Defiance, New Melle, and Augusta, and other small towns across America suffered.

Sources: “Bank Run” (history.com); “Bank Statements from Defiance, Hamburg, New Melle” (Boone-Duden Historical Society archives); Cracker Barrel Country, Vol. 1 (Bill Schiermeier); Crossroads: A History of St.Charles County, MO (Steve Ehlmann); “Depression Era Bank Failure” (John R. Walter at unc.edu); Dutzow: A Place of Dreams (Urban Ruether); “Establishment of the FDIC” (fdic.gov); The Historical Center of Duden Country: Dutzow, Missouri (Jerry Holtmeyer); The Marthasville Record (newspapers.com); “The Missouri Division of Finance – the First 100 Years” (finance.mo.gov); The Plowman Transcript (newspapers.com); “Regulation, Market Structuring, and the Bank Failures of the Great Depression” (research.stlfed.org); St. Charles Cosmos-Monitor (St. Charles County Library); St. Charles Banner-News (St.Charles County Library); Small Glories (Dr. Daniel Brown); The Warrenton Banner (newspapers.com); The Washington Banner (statehistoricalsocietyofmissouri.org).