Exhibit - "Scandinavian American Bank": Hard Times

Economic Downturn

In the early 1920s, following the conclusion of World War I, the United States economy was faced with a recession. In North Dakota, the economic downturn was felt during the harvesting and threshing season of 1920. Grain prices steadily fell, and farmers could not sell their grain except at a significant loss.

In one instance in 1922, it was reported in the Grand Forks Herald (1922-05-18, p. 3) that Bill Snyder, a Slope County farmer and rancher, made more money selling coyote hides than he did selling his wheat crop.

Banks in the state, and across the Great Plains, began to feel the strain because obligations to them were not being met. Many banks, especially small banks in rural areas, were forced to close.

Depositor's Guaranty Fund Commission

The Depositor's Guaranty Fund Commission, which Halvor J. Hagen (President of the Scandinavian American Bank) was a member, was created in 1917 and consisted of the Governor, State Examiner, and three members appointed by the Governor. Its purpose was to insure bank deposits, administer the Fund, review applications from in-state banks interested in participating in the program, and entice out-of-state deposits into North Dakota banks. Participating banks were only required to pay 1/20th of 1% of their deposits into the Fund, and this would prove to be a significant problem during the banking woes of the early 1920s.

During the 1921 legislative session, and amid the economic downturn, the legislature gave the Depositor's Guaranty Fund Commission the authority to supervise the liquidation of insolvent banks. The Fund had proved to be woefully inadequate because of its small investment requirements and because it was not designed to handle the number of banks that failed. The Fund was unable to guarantee all deposits that were lost in failed banks. From the creation of the Fund in 1917 to its repeal in 1929, over 300 banks in the state had closed.

Banking Crisis

The unstable banking industry also impacted the Bank of North Dakota (BND). In November 1920, political subdivisions were no longer obligated to deposit funds in the BND. The BND was faced with a serious cash flow problem, and the only way the BND could remain solvent was to call in or withdraw funds that it had redeposited in banks around the state. Many of these banks, however, were not able to meet the BND's demands, and they were forced to close.

Because of the economic downturn, falling grain prices, and the BND calling in redeposits, many banks in the state were forced to close. This included banks in Beach, Carpio, Columbus, Greene, Hatton, Killdeer, Minot, Mohall, and Tokio. Some of these banks only closed temporarily, but other closures were permanent. More than one of these banks had previously been organized by John J. Hastings and Thomas A. Box for the Nonpartisan League (NPL).

With the BND in financial trouble, A. C. Townley (leader of the NPL) recommended the NPL accept a proposal from a group of bankers to liquidate and close the BND. Townley, as the head of a multi-state organization, had spent more and more time at headquarters in the Twin Cities. As a result, his influence had declined in North Dakota. Other members of the NPL, including Lynn J. Frazier (Governor) and William Lemke (Attorney General), openly rejected Townley's recommendation. The majority of the North Dakota NPL caucus sided with Frazier and Lemke, and the plan was rejected.

With no other options, the BND and O. E. Lofthus (State Examiner) had to press banks in the state for the redeposits. Many banks could not meet the demands of the BND because they were also feeling the pressure of the economic downturn and poor grain prices. More banks in the state were forced to close. This included banks in Braddock, Fargo, Grand Forks, Leith, New Rockford, and Prosper.

Bank Permanently Closes

Banks failing in the state was a concern, and their closures did receive attention. However, on February 14, 1921, the issue was compounded and became political when, unable to meet its liabilities, the Scandinavian American Bank (SAB) of Fargo was forced to close. According to a report, the SAB was indebted to the BND in redeposits and loans for over $400,000 (equivalent to nearly $7,000,000 today). According to the Bismarck Tribune (1921-02-14, p. 1), the SAB was the 33rd bank in the state to fail.

Emil J. Headland (President of the SAB) placed some of the blame for the bank's closure on the negative press coming out of the House Audit Committee hearings in Bismarck, which caused heavy withdrawals in a short amount of time.