The Topeka state journal. [volume] (Topeka, Kansas) 1892-1980, 1908-01-13
THE BANK DEPOSIT LAW
Should the State Encourage "Wld
Cat Banking?

A special session of the legislature
has been called to enact a law guar |
anteeing bank deposits. that is. en-
dorsing for the banks. in sums that
would be liable soon to exceed $780, |
900, 600. 1.5zae<s
The proposition is that a special
fund shall be created for this purpose
by small annual tax on bank de- |
posts. But, as the states money Ia !
now, by law, deposited in the banks, !
this fund would be in their possession,
beyond the control of state officials,
and subject to the same risks as other
deposits.
The real trouble with the banks, as
with the people, is an in insufficient
supply of real money The scarcity
is felt, not only all over the United
States, but throughout the world. It
is true that some bankers insist that
there is a superabundanee Of money,
and in proof. point to their "enor-
nous deposits" and comparatively
few know that nine-tenths of these
deposits are, in fact, fictitious.
After the August call on the banks
for reports, Bank Commissioner
Royce was widely quoted as authority
for the statement that Kansas banks
had $144, 100000 of money on deposit
but his books show that they had
reported only $12,0S0,000 of real
proof that eleven-twelfths of their de-
posits-$132,0 100000 was hocus pocus
| money, pure and simple. 1t was what
| the banks owed those whose paper
they had discounted but not paid for,
| the several amounts due being enter
| ed in their books as deposits"
There are, in fact, two kinds of de-
posts in banks-those consisting or
real money, and those consisting or
debts due by the banks on demand.
And the United States comptroller's
| reports show that the country over,
/ f,,1I,, ,,iua-tantbS Of all hank deposits
consist of these debts-owed by the
| banks for paper purchased, but not
| paid for; and state guarantee 81
bank deposits would of course make
the state responsible for all of these
debts-no matter what the cause OF
the banks failure might be.
Even with the laws as they now are
banking has great attractions for the
| INSCRIPTIONS. get-rich-quick class Of
| operators and the knowledge that
| the state is to back them up with it's
| credit would naturally increase their
number and their recklessness. The
now comparatively small class OF I'M
anciel hyenas that disgrace the BANK
ling fraternity would also increase,
and both of these classes are already
| much larger than reputable bankers
like to admit.
guarantee of bank deposits by
the state would not increase the vol
ume of visible money, nor add dol
hanks. and this is a fundamental fact
the importance Of which can hardly
he overestimated. The intended ana
Immediate effect of such a state guar
antee would be to increase the con-
fdence'' Of both bankers and deposit
tors IT would, however, increase the
reckIessness Of constituencies bankers
and the Inevitable consequence would
be more disastrous collapse In the no.
distant future.
! nj
cash payments by the banks was
Aagrant breach OF trust, as we'll as
defiance Of law, had it not been re-
sorted to and acquiesced in. the panic
would have become world Wloe' ahe
the most disastrous ever known.
every student of finance knows
that there is not enough real money
In existence to have met such ar
emergency-and that merely snlItlns
a mart of the burden from the banks
to the state, without increasing -, rra
, ouantity of the medium OF exchange
1oieht have made matters worse, pu
could not have made them better
therefore submit that, even II al
bankers were honest Gas the most o
them are) the only possible way Z
, make it reasonably certain that de
positors will always be able to get incl
money when they wish 1t, is to requ1r
the banks to gradually increase incl
| cash reserves to at least 70 per cent.
| L.,
nlv of real money, this would necessl
| tate so great contraction of "banl
t loans" as to cause widespread rum.
And the only way to prevent this l
for the government to, In some way
, SO increase the volume of real money
.'of some kind" that the part OF
. that would be deposited in bonds woul
make up this increase in their reserves
There Is no other possible way t
: put an end to periodical Commercial
panics and long periods of business de
pression-with their consequent terri
BILE suffering.
The real needs are more money L
circulation and a safer banking sys
tenn: enough real money to make
| nossible for honorable bankers to al
ways redeem their prom1ses-and I
make it impossible for few bank p1
rates to precipitate panics.
Even asset currency bank bills woul
be a better medium of exchange than
. currency eleven-twefths of which is In
e yisible-provided the law forbids the1
d retirement without the simultaneou
o substitution of an equal amount
8 equally good money.
II The more these ideas are weighed, tn
. more clearly will it be seen that tn
y banking system cannot be made SAT
sane, and adequate, by any plan ths
| does not provide for enough real none
in circulation to make it possible fe
the banks to easily keep 20 per Gel
cash reserve always on hand.
1t It therefore, seems to me that, IL
stead of merely making the state n
sponsible for scores of millions of do
lars of bank debts. it would be bette
n for the legislature to call upon congre:
l. to Immediately, sufficiently, increa:
a the volume of real money, and to r.
2, uuire the banks to gradually increa:
lie their cash reserves
j. Since writing the foregoing, I hay
i. read Bank Commissioner Royces pull
l. lished plan, and submit that, If it ha
n been enacted in 1900. his l per Gel
fund would have been exhausted lor
ago, and even if it had remained il
tact, Kansas banks would have four
h themselves between the Devil ar
!: the deep sea when the New YoI
RS banks suspended cash payments.