Bisbee daily review., 1907-12-18
GUARANTEED DEPOSITS.

GUARANTEED DEPOSITS.
The plan of the guaranteed bank Is
simply this. Statistics show the aver
age loss to depositors to be very
small. taking all banks together. But
the depositors are afraid because they
do not know much about the affairs
of any particular bank. The postmast-
er general. in recommending the post
al savings banks. called attention to
the TACT that a large sum OF moRey Is
sent back to the government banks of
Europe by people here who are afraid
to trust the private banks Of this
country 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
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The postal banks will do this to a
limited extent, but not completely, for
in the plan proposed the depositors
viii be limited as to each person,
and there win be no checking account
allowed.
The system of the guaranteed
banks contemplate the absolute guar
antee by the government of such
banks as may Voluntarily enter into
the system. In entering the system
they agree TO reimburse the govern
meat in proportion to their deposits
for any losses incurred by the gov
eminent in payment of depositors in
failed banks. During the last forty
years the average loss among national
banks has been 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 viii be greater during the next
forty years.
The government by its guarantee
makes the bank deposits equivalent to
government bonds, and yet it assumes
no real risk because it has the capital.
the stock, the surplus and the addi-
tional liability Of the stockholders 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 a position that
would put the interest of the state
banks above the interests of the de-
positors.
But the answer to this argument is
that the state ought to provide SINH
lar 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 guar
antee if they are willing to place
themselves on the same basis in re-
gard to inspection and security.
To sum up the situation, the depos-
itors need security and this must eth
er be gixen 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 IMAM 10 nave the government
embark 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 re-
lieye bank officials of responsibility
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
anything to depositors. and this loss
to stockholders will in itself be sufi-
cient to compel cafefulness. When
banks become liable for each others
losses it win make it easier to enact
stringent laws for the regulation Of
banIss-laws for instance which will
prevent directors from exploiting with
the depositors' money. and laws that