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Publications of the Academy of Pacific Coast History
Vol. 1 No. 1



The San Francisco Clearing House Certificates of 1907-1908



By
Carl Copping Plehn
Professor of Finance, University of California



University of California
Berkeley, California
January, 1909

Copyright, 1908,

By
The Academy of Pacific Coast History.

Berkeley: The University Press

$20.00 Clearing House Certificate
$1.00 Clearing House Certificate
Back Side of $1.00 Clearing House Certificate
The San Francisco Clearing House Certificates of 1907-1908

NOTE. - Through the courtesy of the San Francisco Clearing House, six complete specimen sets (cancelled) of the various forms and denominations of the Clearing House Certificates used in San Francisco during the recent financial stringency have been placed in the library of the Academy of Pacific Coast History, where they will be preserved for future reference. This memorandum is written to accompany the deposit and to provide a permanent record, for historical purposes, of the origin and use of the certificates and of the events of this interesting episode.

In October, 1907, the banks in San Francisco experienced great difficulty in securing coin to supply the needs of the community for circulation. This stringency was San Francisco's participation in the general stringency felt all over the United States, and, as it had no local origin or local peculiarities, need not be reviewed in this connection.

Two means of meeting this stringency and of avoiding dangerous results were applied. One was the device of "legal" and "special" holidays, declared by the Governor from day to day. The first "legal" holiday was October 31st, 1907, and the last was November 30th, 1907; these were declared under an old provision of the Political Code which empowers the Governor to declare any day a legal holiday. As these legal holidays interfered with certain proceedings of the courts and with business other than banking and finance, the legislature was called in special session, one of the main purposes of which was to devise a special kind of holiday which would apply only to the classes of business transactions affected by the stringency. The "special" holidays declared under the new statute began December 2nd, 1907 (December 1st having fallen on a Sunday) and the last one was December 21st, 1907. As to the exact legal effect of these holidays, "legal" and "special," there seems to be more or less question, and some litigation thereover is now before the courts. The practical effect, however, was to create a general impression in the minds of bank depositors and with the public, that the banks could not be compelled to do business. This had been the opinion generally held as to the holidays after the great fire in San Francisco. Entrenched behind this view of the effect of the holidays and using them as an excuse, the banks throughout California, while open for business as usual, were enabled to stave off demands which might otherwise have embarrassed them or have depleted their reserves.

The other device was the issue of Clearing House certificates, both for use between the banks and for the use of the public generally. The latter use of this device presented peculiar difficulties in California, because the people are not accustomed to any kind of paper money.

The first step in this direction was the issuance of so-called "Loan Certificates" in large denominations ($1,000, $2,000. $3,000, $4,000, $5,000, $10,000 and $20,000) for use between the banks and in making settlements through the Clearing House. The plan under which these were issued was practically identical with that under which similar certificates have been issued in New York and other cities during periods of stringency. The first of these certificates were issued October 29th, 1907, under the following agreement:

For the purpose of enabling the banks, members of the San Francisco Clearing House Association, to afford proper assistance to the business community, and also to facilitate inter-bank settlements resulting from the daily exchanges, we, the undersigned, do bind ourselves by the following agreement on the part of the respective banks, namely:

First - That a Clearing House Loan Committee of three, to be appointed for the purpose, be and it is hereby authorized to issue to any bank member of the Association, loan certificates bearing eight per cent. interest, on the deposit of bills receivable and other securities to such an amount and to such percentage thereof as may in its judgment be advisable. Provided that, in no case, shall certificates be issued for a greater amount than seventy-five per cent. of the market value of such securities; such market value to be determined by said Committee. These certificates may be used in settlement of balances at the Clearing House and they shall be received by creditor banks in the same proportion as they bear to the aggregate amount of the debtor balances paid at the Clearing House. The interest that shall accrue on such certificates shall be apportioned monthly among the banks which may have held them during that period; the Committee to have the right, however, to apportion such interest at more frequent intervals.

Second - That the securities deposited with the said Committee shall be held in trust by it as a special deposit, pledged for the redemption of the certificates issued thereon, the same being accepted by the Committee as collateral security, with the express condition that neither the Clearing House Association, the Clearing House Loan Committee, nor any member thereof, shall be responsible for any loss on said collaterals, arising from failure to make demand or protest, or from any other neglect or omission concerning same, other than the refusal to take some reasonable step which the said depositing bank may have previously required in writing, and which step the Committee may deem to be fairly reasonable.

Third - That on the surrender of said certificates, or any of them by the depositing bank, the Committee will endorse the amount as a payment on the obligation of said bank, held by them, and will surrender a proportionate amount of securities, the character whereof shall be determined by the Committee, except in cases of default of the bank in any of its transactions through the Clearing House, in which case the securities will be applied by the Committee: first, to the payment of outstanding certificates with interest; next, to the liquidation of any indebtedness of such bank to the other banks, members of the Clearing House Association, and any expenses connected with the same.

Fourth - That the Committee shall be authorized to exchange any portion of said securities for others, to be approved by it, and shall have power to demand additional securities from the banks depositing same, at its own discretion.

Fifth - That the Clearing House Loan Committee shall be authorized to carry into full effect this agreement, with power to establish such rules and regulations for the practical working thereof as they may deem necessary, and any loss caused by the non-payment of loan certificates and all expenses incurred in carrying out this agreement, shall be assessed by the Committee upon all the banks in the ratio of the average daily amount which each bank shall have sent to the Clearing House during the preceding calendar year.

Sixth - That the Clearing House Loan Committee be and they are hereby authorized to terminate this agreement, upon giving thirty days' notice thereof to all the banks, members of the San Francisco Clearing House Association.

Seventh - That, upon the deposit of securities with the Clearing House Loan Committee and the receipt of loan certificates therefor, such bank shall execute and deliver an obligation in the following form:

The ............................. Bank has this day received of the Clearing House Loan Committee of the San Francisco Clearing House Association loan certificates issued by said Committee in pursuance of an agreement of the members of said Association, passed ............................. (which is made part hereof) to the amount of ............................. thousand dollars and has deposited with said Committee the securities, a statement whereof is hereto annexed; and said ............................. Bank has received said loan certificates on the terms set forth in said agreement, and agrees to pay the amount of said certificates with interest thereon, as provided in said agreement and in said certificates.

Eighth - That statements shall be made to the Clearing House Loan Committee of the condition of each bank, on the morning of each day, before the commencement of business, which shall be sent to the Chairman of the Clearing House Loan Committee, specifying the following items, namely:

1. Loans and discounts.
2. Bonds and securities.
3. Balances with other banks, subject to check.
4. Money on hand.
5. Deposits.
6. Loan certificates.

Ninth - This agreement shall be duly and regularly authorized and ratified by the respective banks belonging to the San Francisco Clearing House Association, and a certified copy of such authorization and ratification be delivered to the Chairman of the Clearing House Loan Committee.

The following is a photographic reproduction of one of the "Loan Certificates"; the text was the same for all the different denominations:
Loan Certificate
The maximum issue of "Loan Certificates" occurred on December 24, 1907, when the amount outstanding was $12,339,000.

Although the agreement as cited above permitted the issue of certificates up to 75 per cent. of the appraised value of the bills receivable and securities deposited, the Committee did not in general authorize issues beyond from 50 per cent. to 60 per cent. of what it considered the sound value of the security offered.

The following table shows the issuance and redemptions of these, certificates by weeks:

Weekly Statement of the Issues and Redemptions of Loan Certificates.
Loan Certificates Issued.
Week ending $1,000 $2,000 $3,000 $5,000 $10,000 $20,000 Totals
Nov. 6, 1907 $269,000 $388,000 $240,000 $1,510,000 $2,110,000 $1,560,000 $6,077,000
12, 1907 190,000 308,000 240,000 670,000 790,000 280,000 2,478,000
19, 1907 55,000 40,000 165,000 365,000 580,000 420,000 1,625,000
26, 1907 20,000 50,000 45,000 120,000 100,000 860,000 1,195,000
Dec. 5, 1907 20,000

60,000 150,000 200,000 430,000
12, 1907 20,000

30,000 50,000 300,000 400,000
19, 1907


30,000 100,000 240,000 370,000
26, 1907


50,000 110,000 180,000 340,000
Feb. 29, 1908


45,000
80,000 125,000
$574,000 $786,000 $690,000 $2,880,000 $3,990,000 $4,120,000 $13,040,000

Loan Certificates Redeemed.
Week ending $1,000 $2,000 $3,000 $5,000 $10,000 $20,000 Totals
Nov. 29, 1907 $4,000
$6,000 $180,000 $130,000 $40,000 $360,000
Dec. 6, 1907 2,000 6,000
10,000 10,000 60,000 88,000
13, 1907 1,000 8,000 $3,000 10,000 80,000
102,000
20, 1907


5,000 20,000
25,000
27, 1907 1,000


90,000 100,000 191,000
Jan. 3, 1908 4,000 12,000 9,000 15,000 10,000 260,000 310,000
10, 1908 14,000 4,000 3,000 120,000 200,000 100,000 441,000
17, 1909 19,000 20,000 6,000 20,000 500,000 1,140,000 1,705,000
24, 1908 234,000 394,000 327,000 1,055,000 1,370,000 1,540,000 4,920,000
31, 1908 116,000 108,000 147,000 435,000 450,000 280,000 1,536,000
Feb. 7, 1908 43,000 160,000
105,000 20,000 120,000 448,000
14, 1908 29,000

130,000 300,000 220,000 679,000
21, 1908 29,000 10,000 111,000 250,000 570,000 100,000 1,070,000
28, 1908


330,000 70,000 40,000 440,000
Mar. 5, 1908 61,000 56,000 78,000 85,000 130,000
410,000
12, 1908 4,000

30,000
120,000 154,000
19, 1908 4,000 6,000
5,000

15,000
26, 1908


20,000

20,000
Apr. 7, 1908 2,000 2,000



4,000
10, 1908 7,000

60,000 40,000
107,000

$574,000 $786,000 $690,000 $2,865,000 $3,990,000 $4,120,000 $13,025,000

To supply the need for an additional circulating medium in the hands of the public, scrip, consisting of Clearing House certificates of smaller denominations, was issued. In many respects this was a new departure in the functions of the Clearing House. The first of these certificates designated in the accompanying tables as "old issue" were in denominations of $5, $10, and $20. (See Fig. 1, frontispiece.) They were first issued November 4, 1907, and, having been hurriedly prepared to meet an emergency, were without protective design in engraving, although printed on "protected" paper. A total of $1,980,320 of these was issued.

These were replaced a week later by a new issue in denominations of $1, $2, $5, $10, and $20. The new issue was protected on back as well as front with elaborate engraving. (See Fig. 2, frontispiece.)

Banks desiring this scrip deposited the interest bearing "loan certificates," above described, with the Clearing House Committee. Upon the return of the scrip or circulating certificates to the Committee the banks withdrew an equivalent amount of loan certificates which they could then present, if they so desired, for return of the original securities. Until that was done the interest charge continued.

These smaller certificates were first authorized under the following resolution passed by the Clearing House Association November 1, 1907:

Resolved, That the Loan Committee be authorized to issue to members of the Clearing House, Clearing House Certificates of Deposit in denominations of $100 and less to a total amount of $2,500,000 at such times as it may deem necessary; that such certificates of deposit shall be secured by the pledge of Loan Certificates issued under resolutions of the Clearing House adopted October 28) 1907; that same shall be signed by one facsimile and one written signature and that the issue shall be under such regulations as the Loan Committee may prescribe.

At a meeting of the same body held November 6, 1907, the following amendment to the resolution was passed:

Resolved, That the resolution adopted by the Clearing House Association at its meeting held November 1, 1907, authorizing the Clearing House Loan Committee to provide for the issue of Clearing House Certificates of Deposit be amended by removing the limit of $2,500,000 on same. And further

Resolved, That should the Clearing House Loan Committee in its discretion provide for the issue of Clearing House Certificates of Deposit in denominations of One Dollar and Two Dollars, such One Dollar and Two Dollar Certificates of Deposit shall only be signed in facsimile by the President and Secretary of the Clearing House Association.

No interest was charged directly on the circulating scrip, or certificates of smaller denominations; but to procure such scrip the several banks had to deposit Clearing House loan certificates with the Clearing House Loan Committee. The loan certificates so deposited continued, of course, to bear interest in favor of their holder; in this case in favor of the committee. The loan certificates and the circulating scrip were immediately convertible through the Loan Committee, one into the other, both ways. As the bank depositing loan certificates for scrip lost the interest it would otherwise have received on the loan certificates, there was a strong inducement for it to withdraw the scrip from circulation as fast as possible and redeem an equivalent amount of loan certificates. This tended to contract the scrip, which, whenever it became in any degree redundant, was presented to the Loan Committee in exchange for loan certificates. The interest earned on the certificates in the hands of the Loan Committee was used to defray the expenses of the committee, which were very heavy. The balance of net profit was afterwards divided among the banks in proportion to the amount of their clearings, which in as much as the certificates were accepted in payment of balance through the Clearing House was the actual basis of their guarantee of the various issues; and not in accordance with the amount of use made of the Clearing House certificates. This indirect interest charge was the cause of the prompt retirement of the scrip. For as long as any bank had scrip outstanding it bore the 8 per cent. interest charge thereon, less only its proportion of the relatively small sub-profit made by the committee. Banks using little scrip profited most. A member of the Clearing House Loan Committee writes: "The plan worked beautifully, the circulating scrip being driven in rapidly after the greatest tension was over." It should be added that the general aversion of the public in California to any kind of paper money, even to bank notes, treasury notes, and gold certificates, or to "currency" as it is commonly called to distinguish it from "money" or gold and silver coin, aided greatly in the redemption of the scrip, which was returned to the banks as promptly as possible, together with other kinds of paper money which passed into circulation during the stringency.

The connection of the "scrip" with the "loan certificates," involving as it did an indirect interest charge for the use of the "scrip," is a new feature in the history of Clearing House certificates. Somewhat similar "scrip" was issued in Seattle, Portland, and Tacoma, but without relation to the loan certificates or other provision for retirement or conversion. This failure to provide for conversion, in the cities just named, caused some embarrassment from which the San Francisco banks were free. It is reported that some banks in those cities became embarrassed by a plethora of scrip and a dearth of loan certificates while others suffered from the reverse condition.

The smaller certificates circulated freely throughout, California, Nevada, and Southeastern Oregon, some reaching as far east as Philadelphia and some as far west as the Hawaiian Islands. It is reported that one was returned from Berlin and several from China for redemption. In all, both "old" and "new," $7,179,000 were issued.

The following tables show the issues by weeks:

Old Issue Issued
Week ending $5.00 $10.00 $20.00 Totals
Nov. 14, 1907 $580,320 $890,000 $510,000 $1,980,320
Totals $580,320 $890,000 $510,000 $1,980,320

Old Issue Redeemed
Week ending $5.00 $10.00 $20.00 Totals
Nov. 14, 1907 $173,280 $283,540 $147,820 $604,640
21, 1907 79,000 145,000 81,500 305,500
27, 1907 69,500 93,000 52,000 214,500
Dec. 5, 1907 55,000 73,500 44,000 172,500
12, 1907 53,000 71,000 45,000 169,000
19, 1907 26,000 38,000 26,000 90,000
26, 1907 15,500 25,000 10,000 50,500
Jan. 2, 1908 23,000 29,500 21,000 73,500
9, 1908 42,000 53,000 31,000 126,000
16, 1908 16,500 29,000 16,500 62,000
23, 1908 9,500 15,500 14,000 39,000
30, 1908 4,960 10,010 4,200 19,170
Feb. 6, 1908 3,770 6,940 4,740 15,450
13, 1908 3,270 7,170 3.700 14,140
20, 1908 2,575 4,020 3,640 10,235
27, 1908 815 1,340 700 2,855
Mar. 5, 1908 415 1,320 760 2,495
12, 1908 205 880 240 1,325
19, 1908 400 430 200 1,030
26, 1908 235 330 260 825
Apr. 3, 1908 190 330 60 580
7, 1908 35 10 40 85
Totals $579,150 $888,820 $507,360 $1,975,330
Outstanding $1,170 $1,180 $2,640 $4,990

New Issue Issued
Week ending $1.00 $2.00 $5.00 $10.00 $20.00 Totals
Nov. 14, 1907 $357,000 $52,000 $1,157,320 $1,160,000 $780,000 $3,506,320
21, 1907 167,000 68,000 442,500 532,500 90,000 1,300,000
28, 1907 124,500 28,000 332,500 145,000 170,000 800,000
Dec. 5, 1907 29,434 28,000 227,680 285,000 280,000 850,114
12, 1907 12,995
107,500 55,000 70,000 245,495
19, 1907

32,500 25,500 15,000 73,000
26, 1907

2,500

2,500
Jan. 2, 1908

7,500

7,500
$690,929 $176,000 $2,310,000 $2,203,000 $1,405,000 $6,784,929

New Issue Redeemed.
Week ending $1.00 $2.00 $5.00 $10.00 $20.00 Totals
Dec. 5, 1907 $6,003 $4,006 $15 $2,530 $4,060 $16,614
12, 1907 $6,001
30,060

36,061
19, 1907 22,000 3,000 5,005 12,030
42,035
26, 1907 53,100 9,400 65,000 77,000 44,000 248,500
Jan. 2, 1908 89,400 23,000 400,000 370,000 154,000 1,036,400
9, 1908 152,200 38,800 700,500 661,500 407,000 1,960,000
16, 1909 210,900 58,600 540,000 451,000 312,000 1,572,500
23, 1908 69,700 17,800 270,000 274,500 185,000 817,000
30, 1908 30,619 7,648 116,410 122,660 100,060 377,397
Feb. 6, 1908 12,900 3,300 67,250 77,500 61,000 221,950
13, 1908 11,089 3,820 43,000 58,240 52,460 168,609
20, 1908 7,846 2,578 25,150 29,910 25,400 90,884
27, 1908 2,761 1,062 11,900 15,440 12,560 43,723
Mar. 5, 1908 1,764 616 9,310 11,370 12,480 35,540
12, 1908 1,123 310 5,385 7,890 7,440 22,148
19, 1908 1,069 374 3,475 4,820 3,400 13,138
26, 1908 720 156 3,305 6,020 3,960 14,161
Apr. 3, 1908 1,538 412 1,925 4,490 4,760 13,125
7, 1908 123 22 745 520 840 2,250
Totals $680,856 $174,904 $2,298,435 $2,187,420 $1,390,420 $6,732,035
Outstanding $10,073 $1,096 $11,565 $15,580 $14,580 $52,894

It is reported that the remaining certificates outstanding are coming in slowly for redemption. To overcome the tendency to hold these as souvenirs the Clearing House has arranged to exchange them for certificates that have been cancelled.

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