How to stop a bank run

By Joel Thurtell

A frantic financial adviser told me she’s warning everyone she knows with money in National City Bank, dead sure NatCity’s going under: Get your money out!

And I thought, gosh, isn’t that sort of like, well, promoting a bank run?

Panic!

She didn’t see it that way. She felt morally obligated to call people she knew who had more than $100,000 in National City. That’s the limit of federal insurance on bank deposits at the moment, though Congress may change that.

It made me think of a story I wrote 24 years ago for the South Bend Tribune, about a banker who stood up to the government during FDR’s 1933 Bank Holiday and refused to shut her bank.

A year ago, it was Countrywide, then last summer it was IndyMac.
Wachovia’s in deep weeds today.

But the tiny G.W. Jones Exchange bank in Marcellus, Michigan, didn’t need suitors when President Franklin Delano Roosevelt ordered all the nation’s banks to close from March 6-10 in 1933 (although she recalled it was in 1932, which would be when Herbert Hoover was still president) to stop people from withdrawing so much money it would cause banks to fail in some cases even if they were fundamentally sound.

Donna Schurtz told me the story in 1984 of how she trumped the Federal Deposit Insurance Corporation and won the right to keep her bank open. Apparently, the Jones bank was the only one in the country to stay open.

I was living in Marcellus at the time my story about Donna Schurtz ran in the Tribune’s Sunday Michiana Magazine on January 29, 1984. We had a checking and savings account at the Jones Bank, a dignified building with stone and mortar facade in a village so small you could hear cows lowing at one end of town and smell pig manure from the other side. There were 1,134 men, women and children living in Marcellus in 1980.

Marcellus is in the northeast corner of Cass County, a rolling, heavily wooded county with lots of streams and lakes. In 1980 there were 49,499 people and 199,000 pigs in Cass County. Hogs were not the only agriculture in Cass County. That rolling country was ideal for raising hogs on open range, and it provided great cover for some sizable marijuana plantations, which the sheriff would raid, directing cops to the spot from the county helicopter.

Much of the legitimately-earned money went into the Jones bank. I knew people from as far off as Three Rivers who were old enough to have lived through the Great Depression and still did all their banking at the G.W. Jones Exchange Bank because they remembered how Donna Schurtz kept her doors open when every other bank closed.

The Jones Bank was founded by her grandfather, G.W. Jones, a Quaker who went to California during the Gold Rush. The family had been Abolitionists before the Civil War and maintained a station on the Underground Railroad, helping slaves to freedom in Canada.

Why’d they do it? “They loved the excitement,” she told me.

That’s also why she got geeked about wildcatting for oil in Cass County. “It relieved the monotony,” she said.

In 1850, hearing that his father was sick, her grandfather was in California. He strapped gold onto his body in leather money bags and went home to pay off the family debts.

However, family members argue over whether he actually had much gold — maybe it was only enough to make gold wedding ring.

In 1869, G.W. heard a railroad was coming through and platted Marcellus and doggone, in 1870, the Peninsular Railroad came through and G.W. made money selling lots in the fledgling village. Then he made $14,000 on a clover and timothy seed deal.

In 1877, he started the bank. By 1884, its assets were $86,561.35.
In those days, there was no federal deposit insurance. If a bank failed, you were out of luck. My paternal grandparents, Howard C. and Harriet Thurtell, lost all their savings when their bank failed in the Depression. That would have been around the time Donna Schurtz was battling the feds to keep her bank open.

In the 1880s, the bank didn’t pay interest. People considered themselves lucky to have a safe place to store their cash.

They hoped.

In Marcellus in 1907, a new bank was founded and it offered higher interest than the 3 percent G.W. Jones was paying.

The Jones bank handed out pencils stamped “Better sleep on 3 percent than lie awake on higher rates.”

By the early 1930s, the Jones bank was still competing against the First State Bank of Marcellus.

Vaughn Bartlet, onetime mayor, fire chief, postmaster, village marshal, county treasurer in Marcellus and Cass County told me how he was warned the First State Bank was about to go under.

“An old-timer fellow said to me one day, ‘Vaughn, the bank’s gonna go broke here in a few days.’ ”

“I says, ‘How do you know?’ ”

“He says, ‘I saw Sam Lowery, the cashier, working there with his derby on — he’s ready to run out of there any minute.’ ”

“My sister-in-law had a lot of money in there (the First State Bank) and she got 50 cents on the dollar,” Bartlett told me.

That  gives you some idea of the banking industry in Marcellus, where peppermint farming was big and farmers would store their distilled mint — worth plenty — in the bank vault.

When I lived in Marcellus, running the South Bend Tribune’s Cass County News Bureau from the front porch of our house in the early 1980s, there was a drinking fountain near the teller windows with a sign that said, “A FREE DRINK.”

In 1921, Donna Schurtz took over the bank. She was 28. She’d earned a bachelor’s degree from the University of Michigan in 1916. Her major: Latin.

When I interviewed Donna Schurtz in 1984, she was 90 and still reading Cicero in the original Latin. Her daughter, Abigail Schten, was listening to our conversation.

Donna Schurtz had a great sense of humor. She told me how her grandfather walked to California.

“Well, he did have some common sense, and he decided he wasn’t going to walk back. So he went south to Panama, rode up the Mississippi home.”

“Well, now, mother,” said Abigail Schten, “How would he get from Panama to the Mississippi River?”

Donna Schurtz burst into laughter: “You tell me!”

When the order came to shut the bank, she told me, “Well, we phoned down to Washington and said, ‘Now we’re perfectly sound. Our community is unused to what you have requested.’ ”

“Well, you had to allow the public to have some money in its pocket, or they would have gone crazy!

We had quite a balance in Detroit (in a correspondent bank), and we had asked the teller — the currency department — to send us $40,000.”

“They said, ‘Forty thousand dollars!’ ”

“And I said, ‘You send that to us, or we’ll come right up there and look after you.’ Well, we got it. Nothing to be polite about.”

An armored car brought the currency, which she stacked on counters and window sills. Then she invited townspeople to come into the bank and see that it had money.

Spreading a rumor that a man wearing a derby hat means a bank is going bust is one way to start people withdrawing their funds in droves.

But stacking packets of real currency where everybody can see it is a way to stop a bank run.

Now, I can hear poeple saying, “That’s a quaint story from yesteryear, but stacking hundred dollar bills in the windows of hundreds of Wachovia branches ain’t gonna save that bank.”

No, you’re right.

But think about it: Wouldn’t the financial bailout plan of Treasury Secretary Henry Paulson and Federal Reserve Chairman Ben Bernanke accomplish roughly the same thing Donna Schurtz managed to do in tiny Marcellus back in ’33?

She knew that if her customers could see the money, they would not be so likely to stampede her teller windows and actually demand to have their savings.

She bolstered their confidence that the micro-economy surrounding her little G. W. Jones Exchange Bank was sound.

It’s 2008 now, and we’re talking macro-macro-macro, but the logic is the same.

Isn’t spreading $700 billion of cash through the financial system sort of like stacking currency on a bank’s counters?

It might just be what it takes to keep our economy — and we’re talking the world’s economy  — from slapping on its derby hat and hightailing it.

We’re talking faith, but sometimes faith needs a kick-start.

Still, there are differences, it seems to me, between Donna Schurtz’s stunt in 1933 and the plans for a massive bailout of banks today. In 1933, President Roosevelt was imposing discipline and REGULATION on financial institutions with the creation of safeguards like deposit insurance and watachdogs like the Securities and Exchange Commission. But the Bush regime has dismantled and defanged those watchdogs, leading us back to a situation more like my grandparents faced under the Republican pro-business Herbert Hoover.

Then too, Donna Schurtz’s $40 k was backed by something of substance — gold in Fort Knox.

What’s behind the Treasury’s $700 B today?

Faith — and a mammoth printing press.

There was nothing inflationary about what Donna Schurtz did. Can we say the same about creating hundreds of billions of new money?

The biggest difference of all between 1933 and today, of course, is that back then the nation had someone in charge — someone who cared more about the common good than about the good of corporations.

Keep the faith, for sure, and keep your fingers crossed.

Drop me a line at joelthurtell(at)gmail.com