The problem in the late-1910s was that Montana had too many banks, plain and simple. In 1917 alone forty-one new national banks came to the state, often competing with state banks in towns of just a few hundred people. It just didn’t make sense, at least from any perspective that doesn’t put greed into the equation. The simple reason for this was the Federal Reserve Act of 1913, which stipulated that national banks could now compete with state banks on a level playing field. That meant competition, and it went wildly out of control.
The banks were nearly wiped out in the 1920s. Over six years from 1920 to 1926 there were 214 banks in Montana that went under, half of all those in the state. Even the Panic of 1893 hadn’t affected banking in the state so much. What’s more, the vast majority – 191 banks – closed in the last few months of 1924, something the Superintendent of Banks in Montana called a “veritable nightmare.” No state in the union had more bankruptcies from 1921 to 1926.
But blame can’t be laid at just one set of feet alone, and there were many factors. Grain prices fell from $3.30 a bushel in early 1920 to just $1.46 a bushel by the end of the year. Again, there was little those in America or Montana could do to stop soldiers from becoming farmers once again in Europe, and in that regard it’s a fluke of timing and geopolitical politics that played a large part in Montana’s stumble during the 1920s.
Still, the bank failure rate in Montana and other western states was much higher than the rest of the country. During the 1920s the bank failure rate in America was just 20%. In western states, however, it was much higher – 62% in North Dakota and 70% in Montana.
The Federal Reserve Bank of Minneapolis tried to stem the flow of money from the state and ease the bank closures. By 1921 alone they’d lent more than $13 million to Montana banks, bringing their own reserves to the minimum legal amount. That year saw banks in Montana reached a ratio of loans to deposits of 98.6%, a terrible number. Banks like the Stockman’s National Bank of Fort Benton, Montana, had deposits of $702,000 but loans of $1.4 million. There was no way they could survive.
There were 20,000 mortgage foreclosures in Montana from 1919 to 1925 and that meant half of the people in the state lost their land, and often homes.
Official census figures put the population loss in the “Roaring Twenties” at just 11,283, or 4%. That may not be an accurate figure as many came to the state to try their hand at farming when the rains returned mid-decade. When they slackened off again they left. Coupled with the foreclosure crisis, Montana may have lost closer to 60,000, or around 20% of its population. Most headed to neighboring states, such as Washington, Oregon and California.
“As rural Montanans moved on, the state began to assume a different population profile. Before the war Montana had been a typical frontier state, with a young and ambitious citizenry. But as younger families fled, Montana came to be more and more a state of the very young and the very old, with disproportionately few young and middle-aged adults. And it has remained that way.”
Malone, Michael P. Montana: A History of Two Centuries, p 283
K. Ross Toole, Twentieth-Century Montana, p 81