Paper Money

Financial Losses

Published May 1, 2024 | 5 min read

By Wendell Wolka

Located just south of Indianapolis, Johnson County is primarily an agricultural area, although industry has played an increasing role in recent years. In 1929 the Indiana county was home to eight National Banks. This seemed to be an ample number of banking facilities, given its population of 21,706 people, as registered in the 1930 federal census. 

Johnson County’s Banks

The majority of Johnson County’s National Banks were located in the county seat, Franklin. By 1929, the city was home to three such institutions:

The Franklin National Bank (of Franklin)—chartered in 1885 (Charter 3338)

The Citizens National Bank of Franklin—chartered in 1889 (Charter 3967)

The Franklin National Bank (in Franklin)—chartered in 1929 (Charter 13378)

On October 1, 1929, several newspapers published notices that a new institution, The Franklin National Bank in Franklin (Charter 13378) had “taken over the deposits, banking house, furniture and fixtures of the old Franklin National Bank whose corporate name is the Franklin National Bank of Franklin [author’s emphasis]” and was open for business. The new bank had a capital of $50,000 and a surplus of $25,000, all of which had been underwritten by stockholders in the old bank. The reason for this change boiled down to a loan portfolio of real estate that had depreciated in value and needed to be replaced by an assessment on the shareholders of the old bank. The Federal Banking Department advised that a more expedient approach would be that

“a new bank be organized, with new stockholders, which should take over all of the liquid assets of the old bank by eliminating all real estate holdings and questionable notes and proceed to the liquidation of the old institution.”

It was believed that this would preserve the bank’s loan portfolio  value by providing more time to resolve issues associated with these loans. At the time, the local  Franklin Evening Star confidently predicted that “the new bank begins operations with a very bright future.”  

Financial Disaster

Then the stock market crashed just three weeks later, on October 24, 1929, dramatically changing the financial landscape. On January 6, 1931, notices appeared announcing what seemed to be a rather routine shareholders’ annual meeting on January 13. All seemed well with the fledgling institution. Newspaper ads in early January 1931 solicited savings accounts, safe-deposit-box rentals, and other services. As it turned out, the shareholders’ meeting was anything but routine.

Like a bolt out of the blue, a newspaper headline announced on the front pages of the January 15, 1931, edition of the Franklin Evening Star, “Franklin National Bank Decides Upon Liquidation Plan.” This course of action was chosen because of “the accumulation of circumstances effecting the normal expectancy of the bank during the past year.” Reading between the lines, it sounds like it was déjà vu. The issues the old bank had faced were made worse by the deepening financial problems of the early days of the Great Depression. Earnings for the last six months of 1930 were essentially at break-even levels. It was thought that liquidation would best serve the interests of both depositors and shareholders.

Liquidation Process

In these pre-FDIC (Federal Deposit Insurance Corporation) days, it is interesting that depositors were paid in full almost immediately. According to the same article, Franklin’s remaining banking institutions—the Citizens National Bank of Franklin, the Farmers Trust Company, and the Union Trust Company—all agreed to receive checks given to Franklin National Bank depositors to settle their accounts. The three institutions apparently also took over the liquid assets of the bank, expediting the liquidation process. At the time, it was expected that this process could take at least a year to complete.

So, by the early part of 1931, Franklin had one National Bank and two Trust Companies to serve the needs of the community. The Citizens National Bank of Franklin, chartered in January 1889, was no newcomer. It had managed to weather the first few years of the Great Depression in apparently decent shape. It placed small ads in local newspapers soliciting savings accounts and listing its capital and surplus funds as $150,000 throughout 1931-33. That changed with a notice published on February 28, 1933. The announcement stated that the Citizens National Bank, along with all of Johnson County’s financial institutions, was restricting withdrawals made on or before February 25, 1933, to a maximum of 5 percent with future withdrawals to “be released from time to time as conditions justify.” New deposits made on February 27 or later were not subject to such restrictions, according to the notice. This action predated Franklin Roosevelt’s Bank Holiday declaration by a week.

Government Oversight

As the result of the seven-day Bank Holiday and subsequent federal bank examinations, the Citizens National Bank was placed in government conservatorship and reopened for business under direction of the government-appointed conservator (in this case, the bank’s own vice president). Its reorganization plan was approved in November 1933, and on January 25, 1934, a plan was announced to form The Johnson County National Bank (Charter 14075), which would succeed both the Citizens National Bank and the nearby Whiteland National Bank.

The new bank would occupy the former location of the Citizens National Bank of Franklin. Deposits were covered by FDIC insurance, and the Reconstruction Finance Corporation provided a cash infusion of $25,000. The new bank opened for business on March 23, 1934, with the old Citizens National Bank of Franklin placed in receivership on April 10, 1934. The Johnson County National Bank remained in business until around 1965, when it merged with the Farmers Trust Company to become the Franklin Bank & Trust Company. Thus ended Franklin’s National Bank experience, most of which occurred before the March 1933 Bank Holiday changed the whole landscape of national banking. 

A version of this article appears in the June 2024 issue of The Numismatist (