More Philippine Political Cartoons: The Philippine National Bank Scandal

The Philippines perennially suffers from the same problems and there is no better way to prove that than by looking to the past. This selection from Philippine Political Cartoons documents the Philippine National Bank (PNB) scandal of the early 1920s which resulted in its near collapse. This was due to massive corruption. To put it very simply once a Filipino was installed as director of the PNB he eviscerated the bank to enrich his friends.

The near collapse of the Philippine National Bank (PNB) in the early 1920s, as illustrated in the next six cartoons, was the great scandal of the American period. By the time it was over, the PNB's first Filipino president was in prison, the country's leading politicians were tarred by association and Philippine independence had been delayed by 10 if not 20 years 

Founded in February 1916 with a capital of ₱20 million, the PNB was given a vague charter to serve as both government depository and national development bank, a near fatal combination for the Philippine economy. Riding the crest of Governor-General Harrison's "Filipinization" program, Nacionalista Party leaders Sergio Osmeña and Manuel Quezon planned the bank as a bold entrepreneurial venture to promote Filipino business. The PNB's establishment coincided with the World War I boom in commodities which sae Philippine exports double and total banking volume increase five fold from ₱63 million in 1913 to ₱399 million in 1918.

As a pioneering institution, the PNB faced enormous staffing problems. The first president , Dr. H. Parker Wills, a U.S. Federal Reserve official and a friend of Quezon's wanted to proceed cautiously by increasing  loan  portfolio gradually in step with the capabilities of the Filipino staff. When the banks. senior Filipino appointees rebelled against his conservatism, Wills resigned and returned home after less than a year. The second president, Samuel Ferguson, was a lonely clerk who gained office through Governor Harrison's injudicious patronage. After his forced resignation for gross incompetence in less than a year, Speaker Osemña arranged the appointment of General Venancio Concepcion, a political crony with no banking experience of any kind. 

During Concepsion's term (1918-20), the PNB broke all banking procedures to shower Filipino farmers and traders with limitless loan facilities. Although Concepcion later defended his policy as national development, most large loans went to Nacionalista Party allies and cronies. PNB directors also extend huge sums to their own companies, a crime for which Concepcion was later convicted and others should have been. 

Investigations in 1921 to 1923 discovered a remarkable level of incompetence, corruption and mismanagement which had brought the bank to the brink of collapse. By transferring $37.7 million of the $49 million gold reserve fund to Manila for lending, the PNB destroyed the peso's backing and weakened its value by 12 percent. IN 1919 an auditor found the bank had no central accounts, has miscalculated its reserves by ₱22.3 million and had a discrepancy of ₱5 million in foreign exchange ledgers. The bank's Shanghai branch manager, an American, later took bribes from the city's Chinese speculators and lost some ₱12 million in currency transactions. 

Most of the PNB losses came from the mismanagement and corruption its domestic alone accounts. Under General Concpecion's direction, the PNB made liberal loans to the sugar, coconut and hemp industries without sufficient collateral on the assumption that wartime boom prices would last forever. When prices inevitably collapsed in 1920, traders and planters pleaded poverty and left the PNB holding a vast sum in long term loans, By 1921 the bank had $82 million in outstanding loans and only $46 million in deposits. 

The greatest controversy surrounded the large loans PNB directors made to their own companies. Although it only had an authorised borrowing capacity of ₱3.5 million, Concepcion extended ₱20 million in credit to the Philippine Vegetable Oil Company while simultaneously holding a major bloc of stock in his own name. By 1920 the coconut oil company was hopelessly indebted and close to bankruptcy. Similarly, PNB director Vicente Madrigal and Ramon Fernandez, leading Nacionalista supporters, sat in board meetings that approved of ₱1.2 million to their own companies for hemp trading, a clear violation of PNB regulations. Allegations about the Fernandez loans were leaked to the press when he ran as a Nacionalista Party candidate against Juan Sumulong in the special Senate election in October 1923. The revelations prompted editorial cartoons showing Fernandez being crucified by Quezon and Osmeña (cartoon 1); bribing the two leaders with Vicente Madrigal (cartoon 2); and being milked by the two leaders while Governor-Genral Wood stands guard on a PNB vault (cartoon 3). 

Ultimately, the PNB scandals brought about Leonard Wood's appointment as a Governor-General in 1921 with a mandate for strict control over the PNB and Filipino national enterprise.

Philippine Political Cartoons pg 320-321

The resultant appointment of Leonard Wood as Governor-General is an important event to note. Leonard Wood and Cameron Forbes conducted a fact finding mission in 1920 to ascertain whether or not the Philippines was fit for independence. Known as the Wood-Forbes Mission the report they filed recommended against independence. Despite praise for much of the progress Filipinos had been making in their drive toward free government and independence they also mentioned the PNB scandal writing the following:

The story of the Philippine National Bank is one of the most unfortunate and darkest pages in Philippine history.  

A man presumed to be expereinced in banking was brought from the United States and took the first presidency which he held a short time. An American inexperienced in baking was then put in charge, and up in his death a Filipino also without banking experience became president, The result of all this has been a series of banking losses estimated by the insular auditor to reach the sever totaled $22,500,000. A Partner of Messrs. Haskin & Sells, certified public accountatns of New York, after a careful examination of the bank makes the following comment 

Our examination ths far reveal the fac that the bank has been operated during almost the enitre period of its existence prior to the appointent of Mr. Wlson as manager in violation of every principle which prudence, intelligence, or even honesty dictate.

As a result of these findings, charges have been filed agaisnt General Concepcion, a former president of the bank.

http://www.archive.org/details/reportofgovernor1921phil

Filipinos were very angry at this negative report from Woods-Forbes and the House of Representatives issued a rebuttal dubbed the "Filipino Appeal for Freedom" arguing for independence. Here is their response to the section about the PNB.

The Philippine National Bank, much to the displeasure of competitive institutions already in the field, was organized. From a modest beginning the bank grew rapidly during prosperous times. But the depression following the war caught the bank unprepared for such emergencies. Naturally the people of the Philippine Islands deeply regret that the institution could not escape the effects of world-wide financial disturbance. 

As to the present condition of the bank, the Wood-Forbes mission report says '*** the affairs of the bank are in a fair way to be put on a sound footing."

http://www.archive.org/details/filipinoappealfo00phil 

That is a very dishonest citation from the Woods-Forbes report completely white-washing the corruption in the PNB which involved the government!  Here is the quote in full from the Woods-Forbes Mission report:

The government became alarmed at the seriousness of the situation and secured the services of an experiences banking man from the United States, under whose conservative guidance the affairs of the bank are in a fair way to be put on a sound footing. But a large part of the assestes of the bank have been loaned to concerns which will be unable to repay for many years - very largely in sugar centrals and coconut oil factories. These loans were made in excessive amounts during the period of boom prices; and minimum precatuin in regard to security was taken, with the result that the bank allowed its reserves to run down much lower than required by law, is unable to meet its current obligations, has has to as other banks not to press for the redemption of its notes, and has further has to ask time for payment of its obligations to many banks in Shanghai representing many countries, a list of which is attached, to whom it owes large sums of money as a result of losses incurred in specualtion in exchange transactions.

The Nacionalista Party wasn't about to take responsibility for the near collapse of the PNB which intimately involved them. Interestingly there is not a word about this major scandal on the PNB's Wikipedia entry.  

But enough with the history lesson and now for the cartoons.