The Salt Lake herald. [volume] (Salt Lake City [Utah]) 1870-1909, 1908-09-06
BANK DEPOSIT GUARANTY
Analysis of Views, Crude and Other.
wise, on Very Plain Proposition.
New York Journal of Commerce. }

"ASSs VI sSAy ldlu xIOpOSltlOu.
New York Journal of Commerce)
What is favored in the Denver plat
form Is requirement that. national
banks establish guarantee fund for
the prompt payment of the depositors
OF any insolvent national bank under
an equitable system which shall be
available to all state banking institu-
lions wishing to use it," This does not
propose a government guarantee.
though doubtless the government treas
ury department would be the custodian
or the fund and would prescribe the
regulations for an equitable system"
AS general proposition the chief OBJ
lection to IL Is that IL is not sufficiently
qualif1ed and it would mix state bank
ing Institutions. organized under a va
riety OF laws. with national banking as
sociations, making the use of the plan
compulsory for the latter and volun-
tary for the former. Properly defined
and properly understood. mutual
guarantee OF bank deposits Is a desir-
able thing and will surely come in time;
but In the current discussion, so far as
IT springs from desire to get party
issue out of the question, Only the crud-
est kind OF views find expression.
There is Postmaster General Never.
himself more conspicuous in the polit-
ical campaign than is becoming in a
high official of the government, giving
utterance to mere absurdities on the
subject, after a visit to Mr.. Taft at
Hot Springs. He says the guarantee
ing proposition compels by law The
banks to pay unknown sums for future
losses to an unknown amount and sub
1ect to unknown risks, over which they
have no control" There is something
very formidable in the word -.un-
KNOWN" but all future losses and all
risks are unknown as to amount, except
so Tar as experience may give a clue
to their average. If they were known
they could be provided for without
any insurance or any guarantee fund,
whose sole purpose is to make reason
able provision against the unknown
Ihere seems to be q suggestion in
these remarks that the plan mighc i'm
volve serious losses to the banks, but
any rational plan of guarantee would
go with a more effective regulation and
supervision than we now have, and the
experience of forty years shows that
under the present loose system of ex-
animation and control the loss to de-
posltors OF insolvent national banks has
been equivalent TO about eight cne-hun-
dredths of l per cent of deposits annu-
ally This indicates about what would
be necessary to keep up an adequate
guarantee fund. and the fact that losses
are so slight has been used by some as
an argument against the plan as neces-
sary. 1t is unnecessary except as a
safeguard to confidence in a time when
there is danger OF panic on account of
weakness shown by a few banks
X X x
70,
the only one that has any serious i'm
port. is echoed by Mr.. Meyer in the
statement that this guaranteeing of
deposits Of all national banks would
mean nothing less than that conserva-
lively and honestly managed banks
would have to pay the debts Of banks
which have been badly and dishonesty
managed. This assumes that with
this added responsibility national banks
would be less effectively regulated and
supervised than they are now If they
were to be allowed the legitimate use
of their credit for the issue of circulate
ing notes. under proper safeguards for
their redemption. they would be organ
lied in districts with a measure of con-
troll and supervision much more effec-
tive than the present. and there would
be less danger of insolvency from reck-
less management. The conseryatively
and honestly managed would them
selves be in a position TO look after
that The guarantee fund would be for
the security of notes and deposits alike.
and experience shows how little either
would be likely to draw upon the fund
and consequently how lightly it would
tax the banks TO keep it up.
X n
When Mr.. Meyer says that an I'M
scrupulous bank officer could secure de-
posits by offering 6 per cent for them
and in turn make investments involv-
ing great risks in order to make
money" thereby increasing speculation,
etc, he assumes a number of absurd
things. He assumes that bank depos-
itors would suddenly become idiotic,
that bank officers would become fools
as well as rascals. and that all restraint
and regulation over bank management
would be abandoned. The guarantee
fund could be drawn upon only to pay
deposits OF banks that have failed
Would bank officers run banks for the
purpose of failing, or would they be al
lowed to do so by those having super
vision of their management under reg
ulations established by law? This par
ticular bugbear. that INSCRIPTIONS or
Incompetent management would be en-
couraged. TO the ruin of conservative
and honest management is the shallow
est and fiimsiest of all objections,
though IL has received countenance In
some highly respectable quarters.
But the postmaster general reaches a
height of absurdity peculiar to himself
when he speaks of the great volume of
savings bank deposits in the country
and asks what greater injustice can be
imagined than that these deposits. the
savings OF wage-earners and individ-
uals Of very moderate means, should be
taxed to pay for the losses of misman-
aged banks?" Who proposes to tax
them for this or any other purpose {?
They are not national banking associa-
tons, or banking concerns at all, but
saving and investment institutions I'M
der state regulation and supervision.
Properly speaking, they are not banks,
and commercial banks should not and
national banks cannot now take savings
deposits. That is one point upon which
We dissent from the provisions of the
original Fowler bill. What is proposed
would in no way affect savings banks
or their depositors, but national bank
ing associations would contribute In
proportion to their deposits to a fund
from which the payment of deposits Of
any bank in the system that failed
would be guaranteed. Its own assets
would go as far as they would reach
and experience proves that the resort
to the guarantee fund would be rare
and the tax upon the banks to keep up
the fund would be slight. The assur-
ance to depositors in time OF disturbed