When Spokane made cash: The rise and fall, and rise again, of banks in the Pacific Northwest

Steve Baldwin sold his first coin 63 years ago – an 1863 Indian Head penny for $1.

He used the money to buy his first Hardy Boys book, “While the Clock Ticked,” the first book in what would be his first foray into collecting.

In the years since, as the owner of the Spokane Coin Exchange, a lot of coins and cash have passed through his hands. A 1907 $20 gold coin he sold for $95,000. Wooden currency from Weimar Republic-era Germany. An 1887 bill from the territory of Montana, for the “bounty for killing 28 squirrels” at 5 cents a head – as is scrawled in human hand on the warrant.

He’s also seen a lot of National Bank notes from Spokane. These bills were produced by local banks in the days before the nation’s banking system was highly centralized, when the $5, $10 and $20 bills were emblazoned with the local bank’s name.

As 10 million new quarters begin to hit the streets – marked with a little “W” to register their birth at the U.S. Mint facility in West Point, New York – don’t bother looking for those National Bank notes born in Spokane. As antiques from a different era, they’re worth far more than what they say in their four corners.

They can be worth as little as $50. They can be worth a lot more. In January 2018, a $20 bill from the Exchange National Bank of Spokane sold at auction for $11,400. In 2010, a $5 bill printed in Walla Walla in 1878 sold for $131,000.

For Baldwin, the most memorable local National Bank note came from the First National Bank of Hillyard. It was a $5 bill, and the man who brought it into his store 20 or so years ago didn’t know what it was worth. Neither did Baldwin, so he bought it for around $150. Then he sold it for about $425.

“That person sold it for $12,000 and that person sold it for $30,000 or something,” Baldwin said. “That’s what I heard.”

While not extraordinarily rare, the National Bank notes aren’t exactly common anymore – partly the reason for Baldwin’s story of the escalating price of the Hillyard bill. But at one time, there were lots of them. Between 1889 and 1935, numerous banks in Spokane printed millions of dollars worth of national currency.

The First National Bank of Hillyard printed $259,380 worth of national currency between 1908 and 1931. The bank’s building still stands as an antique emporium called the United Hillyard Mall near Market Street and Queen Avenue.

The Old National Bank Of Spokane, the most prominent example of Spokane’s early banking wealth that’s still in existence under the auspices of U.S. Bank, printed $19,327,890 worth of national currency between 1891 and 1935, by far the largest amount of local money and the longest stretch of production by a local bank.

The Exchange National Bank of Spokane Falls printed $12,379,420. The First National & Trading Savings Bank of Spokane printed $1,347,080. There were still more banks making cash: the Traders National Bank of Spokane Falls, Fidelity National Bank, Citizens National Bank, Browne National Bank, Brotherhood’s Co-operative National Bank and City National Bank.

In Washington state, 183 banks in 92 towns were authorized to print these notes by the U.S. Department of Treasury. In all, according to the Economic History Association, the nation’s local banks printed nearly $17.6 billion between 1864 and 1935, when the Federal Reserve took over the duties of cash making, putting an end to the practice of marking bills with their local origins.

“You had all kinds of banks putting them out,” Baldwin said. “But because of the Great Depression, they were trying to have more control over currency.”

National Banks created for Union war effort

When National Bank notes were born in 1863, Spokane had yet to see its first white settlers, let alone feel the transformative forces of the international banking system.

That would change soon enough.

In the midst of the Civil War in 1863, Congress passed the National Banking Act in response to the mishmash of local banks issuing unregulated local money. All kinds of money existed at the time, and the government was intent on preserving the union and forging a national identity.

According to a history of currency on the U.S. Department of the Treasury’s website, the many local banks and currencies “discouraged the development of an integrated national market and a shared national identity. At each destination, long-distance travelers had to convert their bank notes into local money, usually sustaining a loss with each exchange. The cost and inconvenience were significant deterrents to interstate travel and commerce.”

So lawmakers passed a bevy of measures, including one intended to stimulate bond sales and raise a lot of cash for the Treasury, its coffers drawn down by war with the slave-holding South.

The legislation’s leading proponents, which included President Abraham Lincoln, saw it “not only as a way to tap the North’s wealth and win the war but also as a means to assure the future greatness and permanence of the United States,” the Treasury’s website states.

The new law gave the Treasury Department the power to create guidelines for overseeing and regulating what would be called “national” banks around the country, which were responsible for issuing National Bank notes.

According to the Museum of American Finance, the law required banks to back the notes by “depositing bonds with their government regulator for liquidation and payment to note holders should the bank fail.” This requirement kept the note safe from devaluation, increased the demand of Union war bonds and allowed the National Banks to issue new, standardized notes that would be accepted by National Banks across the country.

By 1866, the 1,600 state banks that existed in 1860 had dwindled to 300, and the national banking system flourished. America was one, and so was its money.

Going Dutch

Plenty of downtown Spokane corners vie to be the “million dollar corner” – from even the earliest days of the city of Spokane to today.

James Glover, an early settler who platted what would become downtown, identified the east side of Howard Street, between Riverside and Sprague avenues, as “one of the finest lots in town.”

As the city boomed – growth fueled by the gold and silver mines in the region – developers continued to look to the city core for that “one best location in town,” wrote regional historian John Fahey in a 1971 essay called “The Million-Dollar Corner.”

In the days before banks discovered marketing and advertising, they sought the corners of the busiest intersections, “places in the stream of highest traffic,” Fahey wrote, where the fast-growing population of Spokane would happen by them and, perhaps, deposit their newfound wealth.

The city’s population jumped from 1,000 in 1881, to 20,000 in 1890, to 37,000 in 1900, and the number of busy downtown intersections also climbed. Of the 20 “premium” intersections in 1890 that Fahey identified, six were occupied by banks.

In this sense, there may be no better corner to tell the story of banking in Spokane than where the Exchange National Bank of Spokane once stood.

Today, Gesa Credit Union holds the spot, but it’s been a spot for banking since 1888, when John Blalock built a wooden four-story building for the First National Bank. It was destroyed in the Great Fire of 1889, but the bank quickly rebuilt, this time with a five-and-a-half-story, red sandstone, red brick, red tile roofed building designed by Kirtland Cutter.

The building, according to a 1949 Spokesman-Review article marking its demolition, was “deeply woven into the cloth of Spokane history. Construction was started while the ashes from the famous Spokane fire were still virtually warm.”

Three years later, in the economic panic of 1893, First National failed, and the building was renamed for its new owner, Hypotheekbank, which means “mortgage bank” in Dutch. As the name suggests, the days of international money shaping Spokane’s future had arrived.

The proliferation of banks in Spokane was not unique to the city, but the presence of Dutch investors certainly was, as was the vast fortune they made here. Dutch dollars flowed to and from Spokane thanks to a chance visit by a “Hollander” named Herman A. Van Valkenburg in 1883, who gave a positive “analysis of the city’s capital sources.” Valkenburg was impressed with the city’s “location, plans for feeder railroads, rich farming areas to the south, and potential waterpower,” Fahey wrote in 1981 essay called “When the Dutch Owned Spokane.”

But he thought the city “lacked capital to back its optimistic spirit.” His countrymen, however, didn’t.

So he started the Northwestern and Pacific Mortgage Company with the city’s first banker, Anthony Cannon, among its founding incorporators. It soon became the Northwestern and Pacific Hypotheekbank and siphoned money to and from the Netherlands to Spokane, supplying “money for building when capital was scarce” and returning to investors 14% dividends in its second year of operation.

When the fire came, Hypotheekbank was the “heaviest lender” to those rebuilding Spokane, those who altogether spent $4.2 million erecting “extravagant stone monuments among its muddy streets.” Two of the city’s new structures – the Holland and Van Valkenburg – did not hide their Dutch connection.

Then the Panic of 1893 besieged Spokane and the nation, shuttering seven of the city’s 10 banks. Hypotheekbank, with its foreign foundation of investors, survived and gobbled up the city’s properties as it foreclosed on mortgaged properties. The familiar names of those bankrupted by the panic read like the neighborhood names of the city: Browne, Cannon and Rockwood.

“Most pathetic,” Fahey states, is the case of Cannon. He got a $30,000 loan from Hypotheekbank and used 61 prime, undeveloped residential lots on the South Hill as collateral. In 1895, the bank took the property to pay off Cannon’s debts, “wiping out the old man’s last assets in the city he fostered.”

By 1896, the Dutch owned 25% of the central city. Overall, the value of the Dutch bank’s Spokane properties amounted to $4.7 million in 1896, nearly a third of Spokane’s total assessed valuation of $15 million and equivalent to more than $1.3 billion today.

One story from this time, probably apocryphal as Fahey notes, had visiting Dutch stockholders caught jaywalking during a “nighttime revel.” They ordered the cop to move aside, shouting, “Don’t you know who we are? We own this whole damned town.”

The bank began to sell off its many properties at bargain prices, even if it doubled its profit on the low price for which it had acquired the buildings. New fortunes were made with these deals from the Dutch, attached to new names: Corbin, Graves, Comstock and Cowles.

In 1899, the Exchange National Bank purchased the Hypotheekbank building, and it was this bank’s name that remained attached to the building – and the corner – until 1949, when it was demolished.

In 1907, Edwin Coman, a Colfax lawyer turned banker, became vice president and manager of the Exchange National Bank after he purchased a majority stock in the bank from Charles Sweeny, a mining promoter who left for New York City. On Jan. 16, 1907, Coman signed a $50 bill from the bank, putting it into circulation. That same bill, 111 years later, sold at auction for $11,400.

Federal Reserve takes over for National Banks

Like Spokane’s Dutch situation illustrates, the American economy still experienced moments of extreme instability. In other words, the National Bank notes had done little to hold financial markets steady. In the early 20th century, the public grew dissatisfied, some complained that the banking system “favored Eastern, urban interests over Western, rural ones,” the Treasury history states.

In 1913, the Federal Reserve was established, with the intent of creating a more centralized bank system that could better react to a combustible economy. National banks still existed, but the Fed created a whole new system, with a network of banks in large American cities and overseen by a board of governors in the nation’s capital.

Like the national banks, the Fed issued its own bills, called Federal Reserve notes. This “new, more flexible currency” would better react to the fluctuating economy, and would “gradually take the place of national bank notes in the money supply,” states the Treasury history.

The gradual replacement came to a hurried end in 1929, when the Great Depression laid waste to the nation’s many banks, which had been given new leeway to hand out large loans to individuals, make real estate loans, deal in securities and open new branches with the McFadden Act of 1927.

The Depression, coupled with the banks’ McFadden freedoms, “underscored the weaknesses of the existing regulatory framework, with its liberal if not runaway chartering, inconsistent supervision, and regulations that allowed banks to engage in the riskiest activities,” the Treasury history states. “Major changes came with the passage of the Glass–Steagall Act of 1933, which created ‘firewalls’ separating investment and commercial banking, regulated many deposit products, and raised minimum capital requirements for national banks.”

Spokane’s banks, however had their own problems.

Spokane banks faltered before Depression

When Coman fully took control of the Exchange National Bank in 1910, it was considered the second-largest bank in Spokane, behind only the Old National Bank.

Founded in 1889, decades later the pioneer bank continued as a “full-service” bank with a savings department, home loans, escrow, trusts and investment subsidiary, according to the Manuscripts, Archives and Special Collections department at Washington State University Libraries, which holds 7,500 documents, records and photographs from the bank’s 40-year history. Its owners and managers were active in government, education, philanthropy and the Fed, extending its reach beyond its own business.

Despite its integration into the community, the bank’s investment subsidiary, the Cariboo Company, would destroy the bank.

Through the 1920s, Cariboo made special loans, providing capital to businesses like stockyards and lumber mills. Everett Flood, Coman’s assistant, was “the moving spirit of the bank in the 1920s, who seems to have imagined himself as the ‘Washington Giannini,’ as WSU’s archives describe him. Amadeo Peter Giannini, or A.P. Giannini, was an American banker who founded the Bank of Italy, which became Bank of America.

Flood’s most disastrous lending came when he refinanced the loans of Fred Herrick, a Michigander who had come to St. Maries, Idaho, in 1909 and acquired large tracts of fire-damaged timberland from the Forest Service between 1911 and 1915. With his Midwestern connections, Herrick drew the attention of the Chicago, Milwaukee and St. Paul Railway, which built a spur from Plummer to Coeur d’Alene in part to collect Herrick’s lumber.

But as Fahey, the historian, wrote in his book “The Inland Empire: Unfolding Years, 1879-1929,” Herrick was “combative, opportunistic, exploitive, rising and falling, booming and busting with large hopes and small realizations.”

And he was in debt. He bought “large stumpage rights” in Idaho, an estimated 100 million board feet said to be “the largest single sale of standing timber by the government.” The 1910 fires had torched a railroad he had started and his timber, but he finished the line anyway, and built the Milwaukee Lumber Company in St. Maries. He began buying troubled companies to build his empire: the Coeur d’Alene mill for $1.5 million, St. Maries Lumber Company for $1.8 million, a 54,000-acre tract for $600,000.

“As he expanded, Herrick’s finances tangled,” Fahey wrote. “He owed two dozen or more loans to banks at any one time and stretched large lines of credit at his suppliers.”

That’s when Flood at the Exchange bank stepped in. Through the mid-1920s, Flood picked up Herrick’s notes from banks across the region, and “committed the bank to refinancing commercial loans secured by Herrick’s personal notes.” Too late, Flood realized Herrick was insolvent and on the brink of bankrupting the bank.

They had one last chance to save it all. Herrick owned cutting rights to 67,400 acres in Bear Valley, Oregon – the Malheur National Forest.

“Realizing that he must save Herrick to save the bank, Flood took the title of treasurer” in the Oregon company, Fahey wrote.

Herrick, the inveterate loner, badgered the Forest Service, which withdrew from its contract with Herrick to cut in the forest, the U.S. Senate investigated the arrangement and, finally, Oregon legislators blocked Herrick from cutting the wood.

Herrick was done. He declared bankruptcy. On Oct. 16, 1928, his creditors met in a room at the Old National Bank and counted 100 claims against him totaling $4.4 million. He owned 15 companies at the time, and was the second largest owner of white pine stumpage in the world.

Three months later, the Exchange bank collapsed, taking three other banks with it, destroyed by Herrick’s failure and Flood’s bad management, Fahey wrote.

Future of cash

is limited

Banks still fuel Spokane’s economy, as any look at the skyline can tell you. The tallest buildings are stamped with the names of national and multinational companies: Bank of America, Wells Fargo, U.S. Bank, Chase.

The buildings are a reminder of the power of financial companies to this day, but Baldwin’s coin store in the American Legion Building in downtown Spokane is a memory of the past. A museum of currency.

Our money may be standardized and nationalized, but, Baldwin said, nothing will really change. He predicted the end of cash someday, with fortunes tracked by computers and registered as just digits on a screen. In other words, currency has no inherent value.

“It is what we pretend it is,” he said.