It was 2:30 a.m. when men dressed in two and three-piece suits and wearing fedoras and straw boater hats stepped onto the dock of Port of Havana.
They had sailed overnight from Key West, aboard a Cuban military gunboat carrying $26.5 million — the equivalent of almost half a billion dollars today. The cash was desperately needed at several U.S.-based banks on the island before sunrise or they wouldn’t open. What started as a bank run a few days earlier threatened to turn into a raging financial collapse of banks across Cuba. And the U.S. Federal Reserve was rushing to stop it.
It was Monday, Apr. 12, 1926. The crisis was ignited 72 hours earlier, setting off a frenetic financial response utilizing the era’s best technologies to contain the growing panic — the telegraph and railroads. It was one of the first significant stress tests of America’s lender of last resort, and its ability to swiftly meet a growing financial emergency.
Almost a century later, the Fed’s rescue tools have become more sophisticated yet the basic safety tactics remain: help banks have access to cash when depositors demand it, and do it fast. This was the case earlier this year, when the Fed took extreme and controversial measures to lead a weekend rescue of Silicon Valley Bank amid its own bank run.
Ninety-seven years later, the need for speed to respond to a banking crisis remains.
In 1926, those measures included a hastily arranged task force of financial first-responders carrying thousands of pounds of $5 and $10 bills barreling across a pre-Depression Florida on Henry Flagler's eighth wonder of the world to America’s southernmost point, and then embarking on a liquor-soaked crossing of Florida Bay.
With a looming sunrise deadline, the bankers, clerks and officials had time to gather for a remarkable group photo — one that's been tucked away in a once-confidential Federal Reserve file at the National Archives — before averting disaster.
Demand, false rumors, export tariffs — and a bank run
The increasingly urgent cables started coming on Friday, April 9, 1926.
At that point, Cuba was awash with U.S. currency thanks to the Spanish-American War. So much so that, by 1920, the Cuban government considered all those old bills “dangerous to public health” and even requested the Federal Reserve’s help in exchanging the money. Thus, America's relatively young central bank was operating on foreign soil.
Demand for cash had been growing in Cuba for several months, especially $5 bills. In March, the Havana branch of the Atlanta Fed had run out of those bills for a few days after the Royal Bank of Canada requested $2 million, mostly in that denomination.
By Friday midday, the manager of National City Bank of New York - today’s Citibank - worried that a bank run was taking off, fueled by false rumors in Spanish-language newspapers and disgruntled bank employees spreading fears. Low sugar prices and high U.S. tariffs on Cuban exports added to the growing panic by depositors that their money would be gone. They wanted it out of the banks before the cash was exhausted.
When the banks in Havana closed Friday evening they had burned through the $10 million in U.S. currency held at the local branch of the Federal Reserve Bank of Atlanta.
Depositors lined up Saturday morning, Apr. 10, outside the main RBC Havana office. The bank was “besieged” before 8 a.m., according to one local Federal Reserve official. Cuban President Gerardo Machado and two top officials of his administration hoped to calm nerves. The three of them visited banks, pressing through the crowds of customers, to put money into their vaults.
Machado arrived at the RBC branch at 11 a.m. “With great ostentation the Chief Executive deposited $100,000,” reported the New York Times. RBC was the largest bank in Cuba at that time with 65 branches across the island. Machado further promised the restless crowd that $40 million in the Cuban Treasury would be available.
“The words of the President had an immediately tranquilizing effect,” according to the Times’ dispatch. Depositors put away their bank passbooks and left.
Cuban Secretary of Public Works Carlos Céspedes pulled out 200 $1,000 bills, counting them to the crowd at the Banco del Comercio, which was heavily involved in the sugar trade. “The effect was magical,” reported the special cable published by the Times.
Except, it wasn’t. RBC was asking for $6.5 million as soon as possible. At 10 a.m. Saturday, the bank manager needed $1 million immediately or the branch would have to close. One Federal Reserve official in Havana wrote later, “I think that he exaggerated slightly.”
Banks were fast running out of currency. So was the Federal Reserve branch in Havana, which was the source of hard currency for the banks.
Fed officers rushed to get a handle on how much cash was needed by Monday morning. Banks were requesting millions by cable transfers throughout Saturday. By Saturday night, the Federal Reserve Bank of Atlanta’s Havana branch had just $250,000 in cash-on-hand — far less than what would be demanded by customers come Monday morning when the banks reopened. RBC and National City took a combined $12 million ($200 million today) from the Cuban Treasury with the Fed signing the I.O.U.
Fear and physics
The Federal Reserve system was established in 1913 to provide stability to America’s growing financial industry.
Two of the agency’s regional banks opened branches in Cuba in 1923. President Warren Harding and his administration viewed the Fed’s presence as important for expanding American business interests on the island. Cuba was an important trading partner, sending all of its copper and much of its sugar, coffee and tobacco to the U.S. The dollar had been the official currency in Cuba since 1899 when Spain ceded the island to America. The country would become independent in 1902, but only with the U.S. retaining its right to intervene.
Through the mangroves and soggy land of today’s South Florida, Flagler's train to paradise connected the continent with Key West, providing the financial link necessary in hopes of stopping a bank run 90 miles away in the spring of 1926.
Despite the overwhelming demand from depositors for their cash, the institutions weren’t yet insolvent on that Saturday in mid-April. But their branches had little available cash in Cuba to fulfill the expected pressure from customers who had been whipped up into a fearful frenzy.
An Associated Press report detailed one elderly woman, “feeble and infirm…with fear plainly showing on her wrinkled face,” left a Havana bank with her $5,000 life savings. “Her face was joyful” after making the withdrawal. Yet, two blocks from the bank, a pickpocket grabbed her money.
The bank run was accelerating and time was running short if the Fed would be able to quell the panic. The growing seriousness on Saturday of what Monday could bring finally sprung the Atlanta Fed to action.
A special train was commissioned. It left at 4 p.m. Saturday en route to Jacksonville, the nearest Federal Reserve outpost to the island. The three cars were loaded with more than 40 pouches of American cash, along with Fed officials, guards and currency counters. It wasn’t bundles of $100s - banks requested $5 and $10 bills. They needed small bills.
The challenge faced by the Fed was one of fear and physics. A combined $26.5 million in currency had been gathered in Atlanta and Jacksonville. Getting it to Havana before the banks opened Monday was paramount to soothing scared depositors.
In 1926, the largest planes had yet to be able to carry more than 5,000 pounds, including fuel. The emergency cash weighed more than five times that. Why the cash horde couldn't be split up and sent on separate planes is a decision lost to history.
Cash from Jacksonville was loaded on the train Saturday night, added to the money from Atlanta. It was headed through the night to the end of the line — Key West.
READ MORE: Almost a century later, remnants of the Overseas Railroad are still an integral part of the Keys
The millions rolled south over steel rails laid to achieve the ambition of Standard Oil magnet Henry Flagler.
Through the mangroves and soggy land of today’s South Florida where the Everglades flowed east to the Atlantic, and then hopscotching from one limestone key to the next, Flagler's train to paradise connected the continent with Key West, providing the financial link necessary in hopes of stopping a bank run 90 miles away in the spring of 1926.
More drama on deck, in overnight 'joy ride'
But the money still couldn’t get across the Florida Straits and there was no American government boat available that weekend in Key West.
A public ferry to Havana would have been an option, but one deemed too unsecured or too leisurely to the task. By Saturday afternoon, Cuban President Machado — back from his showy but ineffective effort to calm fears — offered the Cuba, with its steam up and ready to sail north from the harbor in Havana.
The boat set off to the north Sunday morning, about an hour after sunrise. There would be almost no moonlight on its return journey.
It was a warm day in Key West — 85 degrees and sunny. The Cuba arrived at 2:30 p.m. The train with $26.5 million was running early. It pulled in at 4 p.m. The Havana banks were scheduled to open in about 16 hours and 90 miles of sea separated them from the cash they needed.
The money was transferred onboard but the boat didn’t leave right away.
There was tension over who would accompany the currency and if the Americans could bring their guns onboard a Cuban government boat. There were almost two dozen people in all — officials from the Atlanta Federal Reserve, which supplied the money, a handful from the Boston Federal Reserve, which helped arrange for the boat in Cuba, and Cuban officers.
Finally, the ship sailed at 5:30 p.m. with about an hour left of daylight, and 14 hours before Havana banks would open for business or go bust.
What happened onboard as the Cuba steamed south was the subject of two investigations. The Federal Board of Governors in Washington, D.C. determined the Atlanta Fed official in charge of the rescue cash had gotten drunk by 9 p.m. After midnight two men were found on deck “laid out cold,” according to one passenger.
“A joy ride” is what the investigation called it. The agency was as bothered about the reputational risk of having officials intoxicated while responsible for millions of dollars as it was about the number of people brought along “imposing an unnecessary expense on the Federal Reserve Bank of Atlanta.”
Not surprisingly, the probe by the Atlanta bank found the accusations against its staff member came from an employee of the Federal Reserve Bank of Boston, which also operated in Havana, and so dismissed them as professional jealousy.
The Atlanta investigation absolved its employee from the accusations of drunkenness and bad behavior. The Board of Governors in Washington, D.C. did not agree and he lost his job.
Over four days, '$1 billion' averts disaster
But that came months after the Cuba was tied up at the Port of Havana, with its millions of dollars of American currency.
Trucks to carry the cash weren’t there when the gunboat moored at the early morning hour on Apr. 12. When they finally arrived, they weren’t secure enough to shuttle the bills through the dark Havana streets before sunrise.
Eventually, Cuban government trucks with guards were used to transport the cash to the vault inside the Atlanta Fed’s Havana branch.
The Cuba Treasury was paid back. RBC and National City Bank had their requested cash by 5 a.m. The emergency money from Atlanta helped but didn’t fill all the requests for cash in the Cuban capital after the banks opened for business Monday, though. RBC lent some of its emergency infusion to another bank around noon Monday after it was convinced the run was over.
More cash would come over the following days, but the fear was over. In just four days, the Federal Reserve system sent over $56 million (almost $1 billion today) to American banks in Cuba to stop a run on banks.
Ninety-seven years later, the need for speed to respond to a banking crisis remains.
