The Globe-republican., 1908-10-01
MONEY IN THE BANK.
How Depositors Are Secured
Against Loss Of Funds.
A Careful Student Of Finance Writes
About Banking Methods
and Principles.
(Trom the Chicago News.)

1t Is held by advocates of the guar
anty of bank deposits that banking is
quasi-public business and therefore
that the State should have charge over
the banks In the interests of the people.
| Grant this; but that is no reason for
forcing one bank to guarantee the de-
| positors in another bank.
How is it with railways? The State
controls the railways. and even claims
| the right to fix the rates charged. So
with banks; the State exacts reports,
governs investments, and even estab-
fishes usury laws, which fix the maxi
mum rates Of interest. But 1t would
never occur to reasonable man to
oblige one railway to pay damages to a
traveller who met an injury due to care
lessness on another railway under
wholly different management. But that
is exactly what the guaranty Of bank
deposits means. 1t means that one we'll
managed, careful, small country bank
shall be called on to help pay the losses
of depositors In a large speculative
| Wall street bank, and yet the former
has no control whatever over the latter.
The recent panic scared some 'depos-
itors. and they wish absolute safety in
the future. That is what is wanted,
even though they do not altogether
know whether guaranty of deposits is
the right thing or not. Very well; If
a depositor wishes absolute security he
can find it by depositing in a safety
vault.
"Oh," says the depositor, II want
some little interest on my deposit, and
the right to draw checks, and yet get
absolute security, too" In short, he
wishes the privileges granted by COIN
mercial bank.
That is, the bank gives in return for
the deposits: ~ A checking account,
by which he can make payments with
out risk Of carrying money about; (2)
usually interest on average deposits !;
(3) the collection Of checks and drafts
on distant cities; AZ bookkeeping of
the account without expense, and (5)
the chance to borrow from the bank
where the deposits are made In other
words, the public has chosen against
absolute safety in deposit vault In or
der to get the conveniences given by a
commercial bank. If so, the public can
never have absolute safety, and no law
can give 1t.
By the very fact of being a CONNER
clal bank, an institution must loan its
deposits to men in industry and trade.
and take the risks implied in that pro-
cess. The deposits are as safe as the
leans to the business publc-no more,
no less.
If the timid depositOr wishes to get
at the center of the whole question of
the safety of his deposits in CONNER
cial bank, let him concentrate all his
criticism, argument and time on the
means Of inspecting bank loans and of
preventing doubtful or speculative op-
erations by banks.
Yet, when small depositors see the
national and State governments exact
bonds as security for deposits they
wonder why they should not have equal
protection.
There are two reasons why public
and private deposits should have differ
ept treatment: First, public deposits
are more valuable to bank, because
they are called upon usually at regular
and foreseen dates and thus Il larger
percentage can be- loaned during the in-
tervas than is the case with private
deposits subject to daily checking In
addition, it should be remembered that
public moneys are deposited by officials
who are under bond to account for ey-
cry cent turned over to them. There
is thus "A special reason for requiring
bonds as security for public deposits.
If every private and public depositor
exacted bonds as protection all the de-
posits would have to be invested in
bonds, there could he no commercial
banks, industry could get no use of
idle funds and the reason for a bank
would disappear.
Very we'll" it may be reioined. "if
security in bonds is impracticable-as
rrgcd by some pers0ns-then give us n |
guaranty fund Of a certain small per-
centage of deposits, say per cent, such
as is required in Oklahoma. That will
be enough
To that it is to be said unequiyocally |
and emphatieally that the national
banks now provide a large guaranty !
fund for depositors, which must be
wholly used up before depositor can
lose a cent. Indeed, the whole proposal |
of a guaranty of deposits shows as
founding ignorance of our banking sys-
TEN and banking operations.
The advocates of n guaranty them
selves advertise the fact that in about