The Bank of Manchester – Speculation, Boom and Bust in the 1830s (Part Two of Two)

The Short Life of the Bank of Manchester

by Ray Berg and Alan Dyer

It quickly became apparent by late 1837 that multiple cases of specie fraud were occurring at various banks. The same specie (i.e., exact same combination of gold and silver coin denominations) was being noted at different banks. In some cases, paper notes saying that a bank officer possessed specie were themselves treated as legitimate specie. Specie was being moved by speedy overnight coach from bank to bank before the bank commissioner made his arrivals at different banks, but eventually the state bank commissioners became aware and started investigations and audits under a state banking amendment in January 1838. The commissioners would tell the first bank they inspected that they were next going to a specific bank, but instead paid a surprise visit to a different bank. Several of these specie fraud cases involved the Godard brothers, Abel and Lewis, owners of the Bank of Ypsilanti and other banks. Abel Godard was the son-in-law of John Gilbert, the founder of Manchester, and when the Godard brothers’ fraud was uncovered, not only did John Gilbert suffer severe financial setback and loss of most of his investments, but the ramifications quickly spread to other Washtenaw area banks.

Pressure on the state legislators resulted in increased inspections led by state bank commissioner Alpheus Felch, who as a legislator had opposed the formation of Michigan’s free banks. Felch came to Manchester, and on February 21, 1838, Andrew Irwin, the cashier of the Bank of Manchester, swore to Felch that only $ 34,000 of the bank’s bills had been placed in circulation, within the specie and mortgage/bond backing limits. In reality, the bank had actually issued between $ 107,000 and $ 118,000 in bills, exceeding the legal limit. We can surmise that Irwin, clearly with George Howe’s participation as they were both signers of the bills, got caught up in the financial frenzy. The fraud was certainly common knowledge by April 19, 1838, when the State Journal reported:

“The Cashier of this institution (Bank of Manchester), we understand, has taken leg bail, having disposed of some fifty thousand dollars without knowledge of the Directors! Hurrah! For the General Banking Law! The wildcat tory currency! Three cheers for Gov. Mason’s “principle correct in theory, but mischievous in practice!” One hundred guns for this immortal display of modern democratic, wildcat, tory, loco foco wisdom!”

James H. Fargo replaced Irwin as cashier. In May 1838, a Washtenaw County Circuit Court grand jury found that Irwin should stand trial for falsely swearing to the number of bills in circulation, and a perjury warrant for his arrest was issued May 18, 1838. He was taken into custody and bail granted. A second warrant was also issued on May 18 against both Howe and Irwin for fraud, for having “willfully, unlawfully and contemptuously refused and neglected to report to the bank Commissioners whenever they discovered such violation”. Bail was also posted for these warrants.

With its officers facing criminal charges, and a general wave of financial hysteria beginning to unfold concerning all the wildcat banks, the Bank of Manchester had to do two things fast. It first had to find a means of providing security for the illegal outstanding bills in circulation. A plea was made to the community for its help, and largely due to the efforts of James and Stephen Fargo, land appraised at $ 91,282 was mortgaged to the state’s auditor general in June and July 1838 – a feat which was gratefully acknowledged in the Bank Commissioners’ report to the State Senate in 1839. These mortgages reveal a long list of Manchester area residents participating in the rescue beyond the original stockholders.

Second, the Bank of Manchester was faced with redeeming or buying back its bills. This was made possible by the general rapid depreciation of wildcat money which allowed it to be bought back at less than face value. James Fargo moved expeditiously to accomplish this, and by September 1838, Commissioner Felch reported that total circulation was down to $ 45,334, and the bank now deserved the public’s confidence. By January 1839, the number was down to $ 25,514, with sufficient bank assets to cover its liabilities. Still the commissioners recommended the bank be closed, in keeping with a letter written by Commissioner Felch to his wife on January 10, 1839 stating that he was in Ann Arbor engaged in his “old business of Killing Banks”. (Felch became governor of Michigan in 1845).

Figure 3 – Alpheus Felch, the Bank Commissioner

James Fargo worked to close the bank in an expeditious and secure manner. As the receiver, he took charge of all assets and property, determined what debts and liabilities existed, and collected outstanding debts to the bank. Fargo served as receiver until his death in November 1840, and final paperwork was filed with the state in late 1841. The state annulled the bank’s charter in its 1840 session, effective February 1842. In retrospect, the Bank of Manchester ended up among the more fortunate of the financial outcomes of the wildcat banks, but this only occurred due to the Fargo brothers’ work and the timing of Alpheus Felch’s challenge of cashier Irwin in February 1838. Bills totaling $ 180,000 had been printed, but $ 62,000 of them had not been issued when Felch showed up. Had these notes been issued, Fargo and his colleagues might not have been able to rescue the bank and bring about an orderly shutdown.

When it appeared that the Bank of Manchester would be able to recall its notes, repay creditors and effect an orderly shutdown without an outright collapse, the charges against Howe and Irwin were never pursued beyond their initial bail hearings and Irwin’s grand jury appearance. The County dropped all charges by 1840. Perhaps once it was determined that the bank could meet its obligations, the idea of prosecution lost its appeal, and the Manchester community just wanted to move on. The banknotes eventually saw value as collectors’ items, wallpaper, and some limited use as currency in the Confederacy during the 1860s.

Figure 4 – The Banking Scandals Led to Economic Depression – An 1840 Political Poster

George Howe and his family left Manchester and became involved in the development of the Village of Jefferson, Alaiedon Township, in Ingham County with his brother-in-law, Joseph Cowles, building a sawmill and farm. It is recorded that he passed away in 1846, and his wife and children had relocated back to Manchester by the 1850 census. Andrew Irwin relocated to Brooklyn, where he lived out his life as a farmer.

Postscript

Interested readers of this Bank of Manchester story can contact author Alan Dyer for more information on his extensive research on this subject, as well as the similar Farmers’ Bank of Sharon. You can also find Bank of Manchester notes available on eBay and other historic auction websites.

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by Ray Berg