"One-Hundred Percent John" Vs the FDIC: Part One

J. M. (100%) Nichols, president and principal stockholder of the First National Bank of Englewood, Chicago, now sits on a two and one-half million dollar hoard of cash, and let the New Deal Lump it!
Business Week, 1936

By Gerry Curran

Reflecting on the current financial crisis it’s interesting to know that long ago a lone Chicago banker set an example on how a bank should function. That banker was John Milton Nichols, president of the long-gone First National Bank of Englewood at Sixty-Third Street and Stewart Avenue.

Nichols was known as "One-Hundred Per Cent John," as that was the level of liquidity he kept to pay depositors in the event they all closed their accounts at the same time. To maintain that degree of liquidity, he was very conservative. His interest rates were low and the bank’s investments were nearly risk-free. He looked down his nose at banks that didn’t operate along those same principles. While irresponsible bankers bothered him, he didn’t make a big deal about them. He figured their loose ways would catch up to them and he’d tell everybody ‘I told you so!’

Though Nichols attained a fair amount of recognition for his strong banking principles, it was his battles with the federal government over their banking rules and regulations that garnered headlines. "One-Hundred Per Cent John’s" time to shine came during the 1930s.

The 1932 election brought hope to millions of Americans laid low by the Great Depression when bank failures were a frequent, if not daily, occurrence. During the period of 1930-33, Chicago, of all large U.S. cities, experienced the greatest number of bank failures. Obviously, something had to be done.

Among the remedies tried, few were more successful than the Federal Deposit Insurance Corporation which guaranteed the safety of checking and savings accounts in Federal Reserve System member banks up to $2,500 (now $250,000). To illustrate the impact of the FDIC, consider this: From October 1929 through the end of 1933 more than 9,000 banks failed nationwide—4,004 during waning months of the Hoover administration alone. Then President Roosevelt signed the Glass-Steagall Act (also known as the Banking Act of 1933) creating the FDIC. From 1934 through 1941, there were only 370.

To fund the program, banks were to be assessed one-half of one percent of their assets. Bankers hated it. Francis Sisson, then-president of the American Bankers Association, declared the concept of paying into a fund to insure a bank’s losses "unsound, unscientific, unjust, and dangerous." Even President Roosevelt disliked it but public support of it was too great to ignore. While most bankers merely hated the plan, "One-Hundred Percent John" loathed it.

Nichols continued operating his bank as always: conservatively. He told TIME Magazine in October 1934 “If I were to put any of our 17,000 depositors behind my desk to pass on the type of security (that) borrowers offer these days they wouldn’t make the loans. Then why should I? I haven't been making much money lately, but I've been playing a lot of golf."

On December 26, 1933, Nichols announced that his bank would not participate in the FDIC plan unless absolutely compelled by the federal government. He felt, because of his bank’s liquidity policy, his membership in the FDIC was unnecessary. It was meant for those other guys. The next day, according the Chicago Tribune, “. . . Mr. Nichols has insisted that bankers perform their duties in such a way that it will not be necessary for them to lean on the government.”

The opening week of 1934 began Nichols’s headline-grabbing campaign against the FDIC and anything else related to the New Deal—or as he called it, the "Mis-Deal." He took on the persona of Old Man Potter but with Bugs Bunny’s attitude. On January 6, he restated his refusal to pay First National Bank of Englewood’s premium of $10,500, which established him, at that time, as the nation’s lone holdout of the federal government’s 6,000 reserve member banks. Less than a week later, addressing the Kiwanis at the Hamilton Club, he called the deposit guaranty plan “a farce.” According to the Tribune, he demanded that bankers come out in the open with complete financial statements...telling depositors how their money was being spent. Then, in an eerily prophetic statement, he focused on his central concern over the FDIC: “This deposit insurance scheme will throw open the door for one of the wildest eras of speculation this country has ever known. There would be no incentive for good banking. Why should a banker worry about the kind of loans he makes if he knows that if he gets into difficulty, the government will make good his losses?”

A month later, First National Bank of Englewood announced in a letter to depositors that they had amended its by-laws to allow the bank—in emergencies only—to pay depositors in cash or government securities. There was a proviso, which read: “. . . that the bank had on hand cash and government securities in an amount equal to or in excess of its total deposits.” Nichols ended the letter saying that he “. . . hoped that the day will come when he will be able to cease operating a ‘glorified currency exchange’ and run a bank.”

In May 1934, Nichols told some of his customers—3,000 of them—that accounts of $50 or less must be closed, claiming they were too expensive to maintain and, of course, blamed the whole thing on the New Deal. Hey, "One-Hundred Percent John" was just getting warmed up!

Addressing an Executives Club luncheon at the Sherman House in June that year, Nichols called the administration and Congress ‘a bunch of yes men.’ He charged FDR, whom he called Franklin Deficit Roosevelt, with insincerity and labeled him ‘the greatest socialist of all, not barring even Lenin.’ He was informed there were rumors of him soon being prosecuted for failure to pay the bank’s FDIC assessment. He said he’d welcome an appearance in federal court. While the July 1 payment assessment deadline passed, Nichols stood his ground. By this time, a few other— though much smaller—banks had also refused to pay the assessment but First National Bank of Englewood stood out.

Three weeks later, Nichols read in the Chicago Tribune that the FDIC intended to file suit in the next few days against First National Bank of Englewood to force payment of the assessment. He dashed off an angry letter to FDIC Chairman Leo Crowley that dared Crowley to make good his threat, with the statement “...If you are determined to crucify sound banks, such as ours, go to it. Tearing into sound banking institutions and supporting the weak ones can have but one ending.”

By October, the government increased the pressure on "One-Hundred Percent John." According to the Tribune, the government threatened “to fine (Nichols) $100 for every teller’s window he had open each day, because of his failure to join the (FDIC).” Nichols displayed the Fed’s warning in a poster in the lobby of First National Bank of Englewood and added:

“This Federal Deposit Insurance idea is merely a wolf in sheep’s clothing,” the poster read “...It is in no sense of the word insurance, for with true insurance the premium is based on the risk. Under their plan, a solvent bank such as ours is forced to pay the same premium as the one that couldn’t pay 10 cents on the dollar.” He called the plan “a shakedown ...to protect political favorites.”

Barely a week into 1935, with some banks still collapsing, First National Bank of Englewood declared a six percent dividend. Nichols noted that his bank’s liquid assets in cash and government securities equaled 100.59 percent of its deposits of $6,657,163. ""One-Hundred percent John" was still 100%.

But, who won; John or the FDIC? What happened to the bank? Join us next time for Part Two of One Hundred Percent John Vs the FDIC.

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Gerry Curran is a Southern California based writer who was born in Chicago and raised on the South Side. His work has appeared in Nostalgia Digest. Gerry served in the Marine Corps, and is now happily retired with his wife, Vicki. He spends a lot of time studying Chicago's history.