Aberdeen herald. [volume] (Aberdeen, Chehalis County, W.T.) 1886-1917, 1907-12-30
GUARANTEED BANKS
ASSURED SAFETY OF DEPOSITS
WILL ABOLISH PANICS.

OepositOrs In National Banks Secured
byredel al Government, and Those
of State Banks by the States. at
Cost Of Banks Would Prevent
paniCky Runs.
The plan of the guaranteed bank
is simply this. Statistics show the
average loss to depositors to be very
small, taking all the banks together.
But the depositors are afraid because
they do not know much about the
affairs of any particular bank. The
postmaster general, in recommending
the postal savings banks, called at
tention to the fact that a large sum
of money is sent back to the govern
ment banks of Europe by people who
are afraid to trust the private banks
here and Mr.. Wanamaker has been
quoted as saying that large sum is
kept in boarding and hiding places
in this country.
If this sum can be drawn into the
banks and thus be put into channels
of trade it will relieve the stringency
more effectively than anything else.
The postal bank will do this to a
limited extent, but not completely,
H"r in the plan proposed the deposit
tors will be limited as to each per-
son, and there will be no checking
account allowed.
The system of the guaranteed
banks contemplate the absolute
guarantee by the government of such
banks as may voluntarily enter into
the system. In entering the system
they agree to reimburse the govern
ment in proportion to their deposits
for any losses incurred by the gov
ernment in payment of depositors in
failed banks. During the last forty
years the average loss among ma
tional banks has been less than one
tenth Of one per cent. of deposits,
and, as we have passed through two
panics in that time, it is not likely
that the average loss will be greater
during the next forty years.
The government by it's guarantee
makes the bank deposits equivalent
to government bonds, and yet it as
sumes no real risk because it has the
capital, the stock, the surplus and
the additional liability of the stock
holders Of the guaranteed banks as
its security. The objection that is
most frequently urged to this plan
is that the state banks would suffer
by competition.
This is a confession, first, that the
.depositor wants absolute security,
and, second, that the state banks do
not give absolute security. 1t would
be hard to support position that
would put the interests of the state
banks above the interests of the de-
positors.
DuL tAC WCI " Lnlo al
is that the state ought to provide
similar protection for depositors in
such banks and until this can be
done the state banks ought to be
permitted to avail themselves of the
national guarantee if they are will
ing to place themselves on the same
basis in regard to inspection and Sc
curity.
To sum up the situation, the de-
positors need security and this must
either be given by the postal savings
banks, which will grow until it has
absorbed the deposit banking of the
country, or it must be furnished
through the guarantee of existing
banks.
We believe it is better to give it
as far as possible through existing
banks than to have the government
in the banking business on
so large a scale, as it would have to
do if the postal savings banks were
the only ones in which depositors
would feel safe.
1t is sometimes argued that the
system of guaranteed banks would
relieve bank officials of responsible
ity and make them careless in regard
to the bank, but there is no truth in
this, because the officials are chosen
by the stockholders and the stock
holders will lose everything before
the associated banks will have to pay
to depositors, and this loss
to stockholders will in itself be suf-
ticient to compel carefulness. When
banks become liable for each others
losses it will make 1t easier to enact
stringent laws for the regulation of
banks-laws for instance which will
prevent directors from exploiting
with the depositors' money, and laws
that will prevent the officials and di-
rectors from gambling. These are
the two sources through which de-