Los Angeles herald., 1908-10-20

boarded by banks and people as fast
as issued, under the impulse of general
fright, and the measure would thus
resemble an attempt to resist q tor
nado with feather Nothing will pre-
vent or greatly mitigate future panics
of financial fear but absolute knoWl-
edge on the part of bank depositors
that their money is safe.
The present system is a scourge TO
the banks themselves. Every panic
reduces their net earnings by a large
percentage and for a period of years.
No one has more reason to dread
money panic than has the bank man
ager To him at least it is purgatory.
The present impracticable banking
system, especially since the panic of
1907, stimulates and tends to compel
and render universal and permanent
the evil habit of private boarding, with
it's danger to property and life through
robbery, it's Withdraw wal of vast sums
from the banks and the channels OF
business. and it's encouragement of
thrift by savings. Deposit insurance
would remey all this. 1t would bring
out many millions of dollars from
places of hiding, and thus swell bank
deposits and benefit the whole COM
munity. This gain alone would more
than compensate the banks for their
of deposit insurance.
Four simple questions without an
swers are suggestive: Has any general
bank panic ever occurred in this coun-
try which did not come directly from
a loss of confidence by bank depositors
in the security of their funds? Has
any general commercial panic or busl-
ness revusion ever occurred which did
not owe it's origin and severity to a
aI1 HnfAnGtfnTG
were rendered permanently sure OF the
safety of their deposits. what causes
could ever create anything approach
ing in Importance and injury one OF
our general bank panics, with its re-
sulting commercial collapse? If no
system of guaranteeing bank deposits
is to be adopted what can prevent a
continuance of the endless chain of
American bank panics, with their in
fallible sequel of commercial prostra-
tion and distresss?
Already government, both national
and state. has undertaken the duty
and responsibility of regulating the
banking business as a quasi-public
service, and rendering it as honest and
safe as practicable under the present
faulty banking system. Deposit insur-
ance is a logical broadening of that
duty and responsibility in order, for the
first time, to accomplish satisfactory
results. The people must depend on
government to compel a proper dis
charge of the banking function In
which lies their financial safety. The
individual depositor is as helpless
against money loss by bank failures
as the individual passenger is against
unnecessary railway wrecks.
Deposit Insurance for National Banks
There being as yet no organization
behind the movement for bank deposit
insurance, no specific plan has been
put forward with any show of au-
thority. While the principle is simple
enough, there is naturally considerable
diversity of view as to the best method
for it's application and as to the safe
guards which should be provided by
legislation. Referring now exclusively
to national banks. prevalent opinion
is fairly we'll agreed upon the following
outline of measure designated to Gre
ate a system of compulsory mutual de-
posit insurance by national banks un-
der government control:
1t is proposed that congress shall by
suitable legislation, to be administered
by the comptroller of the currency ad'
vised by the secretary of the treasury
provide for an initial assessment t.
be levied and collected upon the CAPT
tai stock of all national banks, equa
to a specified percentage upon the av-
erage deposits of each bank for the
preceding year. This assessment viii
be collected annually for five years
at the expiration of which time the
insurance or guaranty feature of the
law will be in operation.
The proceeds of the assessments re-
ferred to will constitute a national bank
ii 6A l1n11 in
the custody of the treasurer of the
United States and used for the pur-
poses of the law. From this fund,
whenever a national bank fails, its
depositors will be paid in full as soon
as their claims can be duly verified.
The comptroller of the currency, as
now, will take over the estate of the
failed bank, liquidate it's affairs. en-
forcing if necessary the stockholders
liability; the proceeds of the liquida-
ton will be devoted, first, to paying
the cost of settlement, and, second, to
making good the guaranty fund for the
draft made upon it to pay depositors;
the surplus, If any, to be paid over
to stockholders. In case the bank as
sets should fail to recoup the guaranty
fund, the resulting deficit in the fund
will be covered from future assess
ments to be levied when the fund falls
below a specified level.
Under such a plan the government
evidently incurs no pecuniary liability
whatever, and only such outlay for
clerical service as may incidentally at
tend the custody of the guaranty fund.
On the other hand. the integrity and
sufficiency of the guaranty fund is at
all times assured by the power and
duty of the comptroller of the cur
rency to keep that fund intact by any
required number Of successive assess
ments on all solvent national banks.
In this way the guaranty fund is rem
dered adjustable to any aggregate of
bank losses, whether greater or less
than anticipated.
One conclusive check the government
would have on improper banking would
be it's power publicly to withdraw from
any unfit bank the insurance privilege,
after due and unheeded warning and
admonition.
Effect on State and Private Banks
The composite nature of our bank
ing system as whole, including ma
tional banks, incorporated state banks
and unincorporated private banks, pre-
sents the first difficulty to be overcome
or provided for, and this difficulty Is
practically the same whether the ma
departure. If compulsory deposit in
surance is applied to national banks,
all the states will be placed under tre-
mendous pressure to adopt respectively
a similar plan for their own banks;