In wake of sunatco debacle

With more restraint, The New York Times informed its readers:

FMA Bank Declared Sound Despite Sour Loan Problems The story had been carried, too, on last night's and this morning's TV network news shows.

Included in all reports was a hasty assurance by the Pederal Reserve that First Mercantile American Bank was solvent and depositors need have no cause for alarm. Just the same, FMA was now on the Fed's "problem list" and this morning a team of Federal Reserve examiners had quietly moved in clearly the first of several such incursions from regulatory agencies.

Tom Straughan, the bank's economist, answered Edwina's observation. "It isn't ghoulishness, really, that excites attention when a bank's in trouble.

Mostly, I think, it's fear. Fear among those with accounts that the bank might be forced out of business and they'd lose their money.

Also a wider fear that if one bank fails, others could catch the same disease and the entire system fall apart." "What I fear," Edwina said, "is the effect of this publicity." "I'm equally uneasy," Alex Vandervoort agreed.

"It's why well continue to watch closely to see what effect it has." Alex had called a midday strategy meeting

Among those summoned were heads of departments responsible for branch bank administration, since everyone was aware that any lack of public confidence in FMA would be felt in branches first. Earlier, Tom Straughan had reported that branch withdrawals late yesterday and this morning were higher than usual, and deposits lower, though it was too early yet to be sure of a definable trend.

Reassuringly, there had been no sign of panic among the bank's customers, though managers of all eighty-four PMA branches had instructions to report promptly if any were observed.

A bank survives on its reputation and the trust of others fragile plants which adversity and bad publicity can wither. One purpose of today's meeting had been to ensure that actions to be taken in event of a sudden crisis were understood, and communications functioning.

Apparently they were. "That's all for now," Alex told the group. "We'll meet tomorrow at the same time." They never did. At 10:15 next morning, Friday, the manager of the First Mercantile American branch at Tylersville, twenty miles upstate, telephoned Headquarters and his call was put through immediately to Alex Vandervoort. When the manager Fergus W. Gatwick identified himself, Alex asked crisply, "What's the problem?"

"A run, sir. This place is jammed with people more than a hundred of our regular customers, lined up with passbooks and checkbooks, and more are coming in They're withdrawing everything, cleaning out their accounts, demanding every last dollar."

The manager's voice was that of an alarmed man trying to stay calm. Alex went cold. A run on a bank was a nightmare any banker dreaded; it was also in the last few days what Alex and others in top management had feared most. Such a run implied public panic, crowd psychology, a total loss of faith. Even worse, once news of a run on a single branch got out, it could sweep through others in the FMA system like a flash fire, impossible to put out, becoming a catastrophe.

No banking institution not even the biggest and most sound ever had enough liquidity to repay the majority of its depositors at once, if all demanded cash.

Therefore, if the run persisted, cash reserves would be exhausted and FMA obliged to close its doors, perhaps permanently.

It had happened before to other banks. Given a combination of mismanagement, bad timing, and bad luck, it could happen anywhere. The first essential, Alex knew, was to assure those who wanted their money out that they would receive it. The second was to localize the outbreak. His instructions to the Tylersville manager were terse. "Fergus, you and all your staff are to act as if there is nothing out of the ordinary. Pay out without question itwhatever people ask for and have in their accounts. And don't walk around looking worried. Be cheerful" "It won't be easy, sir. I'll try."

"Do better than try. At this moment our entire bank is on your shoulders." "Yes, sir." "We'll get help out to you as quickly as we can.

What's your cash position?" "We've about a hundred and fifty thousand dollars in the vault," the manager said. "I figure, at the rate we're going, we can last an hour, not much more." "There'll be cash coming," Alex assured him.

"Meanwhile get the money you have out of the vault and stack it up on desks and tables where everyone can see it.

Then walk among your customers. Talk to them.

Assure them our bank is in excellent shape, despite what they've been reading, and ten them everyone will get their money."

Alex hung up. On another phone he immediately caned Straughan. - "Tom," Alex said, "the balloon's gone up at Tylersville. The branch there needs help and cash fast. Put Emergency Plan One in motion."

The municipality of Tylersville, like many a human being, was engaged in "finding itself."

It was a neo-suburb a mixture of bustling market town and farmland now partially engulfed by the encroaching city, but with enough of its origins remaining to resist, for a while, ex-urban conformity.

Its populace was a hybrid assortment of the old and new conservative, deep-rooted farming and local business families, and freshly resident commuters, many of the latter disgusted with decaying moral values of the city they had left, and seeking to absorb for themselves and growing families something of peaceful, rustic mores before these disappeared.

The result was an unlikely alliance of real and would-be ruralists, mistrusting big business and city-style maneuverings, including those of banks. Unique, too, in the case of the Tylersville bank run, was one gossipy mail carrier.

All day Thursday, while deliverinB letters and packages, he had also handed out the rumor, "Did you hear about First Mercantile American Bank going bust? They say anyone who has money in there and doesn't get it out by tomorrow is going to lose everything."

Only a few who heard the mailman believed him implicitly. But the story spread, then was fueled by news reports, including those of evening television.

Overnight, among farm folk, trades people and the new migrants, anxiety grew so that by Friday morning the consensus was:

Why take a chance? Let's get our money now.

A small town has its own jungle telegraph. Word of people's decisions circulated rapidly and, by midmorning, more and more of the populace was heading for the FMA branch bank. So, out of small threads, are large tapestries woven.

At FMA Headquarters Tower, some who had scarcely heard of Tylersville were hearing of it now. They would hear more as the chain of events in Vandervoort's Emergency Plan One went forward quickly.

On instructions from Tom Straughan, the bank's computer was consulted first.

A programmer tapped the question on a keyboard:

What are the totals of savings and demand deposits at Tylersville Branch?

The answer was instantaneous and up to the minute since the branch was on-line to the computer.

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