Albuquerque citizen. [volume] (Albuquerque, N.M.) 1907-1909, 1908-09-11

servative management inspires to Sc
cure its proportionate share of the
banking business Of the locality.
Depositors VINO have any regard
for the safety of their funds should
consider well the relative strength
and security of the institution which
offers as an inducement for deposits
a liberal or excessive rate of inter-
est, and the one which pays no in
terest on active accounts, or a mod
crate rate only on certain lines of
deposits.
But the depositors guaranty
scheme offers no premium for exper-
ience, prudence, and conservatism.
1t holds the careful and reputable
banker responsible for his proper
tionate share of the deposit liabilities
of his injudicious or speculative
neighbor when disaster overtakes the
hazardous ventures of the latter
1t Is not the function of the gov
ernment, state or national, to guar
anty deposits in the banks, any more
than ii is to insure the business ven
lures of the individual, company, or
corporation, in any other investment
or risk. Neither is it the legitimate
function of banks to insure or guar
antee the deposits of each other.
1t is claimed by some of the ad-
vocates of this policy that because
the state and national governments
exact of banks security for public
funds that the depositor should be
likewise secured. An individual has
the same right as the government to
require security for his deposit, but
neither the government nor the de-
positor has any right to require one
bank to guarantee a deposit in an
other bank. A bank may lawfully
and legitimately guarantee IT'S own
obligations, but 1t has no moral right
from an economic point of view to
guarantee the obligations of another
party bank, or individual. Such
policy, based as 1t would be upon
false premise, must eventually fail
because of its inherent weakness.
A bank failure is demorallzing in
any community, no matter how small
the percentage of loss may be to the
depositors. A guaranty of deposits
scheme would undoubtedly increase
rather than diminish the number of
bank failures, because of the hazard
Gus banking and speculative ventures
ana encourage through the augmen-
tation of deposits resulting from the
| reliance of depositors upon the guar
anty fund to insure them against loss,
and their consequent indifference as
to the reputation of the bank in
which they placed their money. The
number of failures would increase,
h.It the burden Of loss would be
sd lied from the uepositor to the
stockholder, whose profits would be
used toward maintaining or making
good any deficiency in the guaranty
fund.
The stockholder is as much entitled
to government protection in his in
vestment as the depositor. The one
places his money in the bank for the
interest he may receive therefor, or
for convenience of exchange in his
business transactions. The other in
vests his money in the stock for the
profits he may derive therefrom. The
capital stock of banks Is largely dis
tributed among people of limited
means. Why discriminate between
the depositor and the stockholder?
Congress at it's last session recog-
| nized the necessity for some amend
ments to our currency and banking
laws which would not only improve
our currency system, but would in
crease the security of deposits in ma
I tiOnal banks. and a national none
tary commission was authorized and
appointed to investigate these sub
jects. In compliance with the re-
| quest of this commission, the comp
| trOller of the currency has carefully
prepared and submitted to that body
! a number of recommendations which
! observation of the practical operation
of the banking laws has shown to be
necessary in the interest of the bet
: ter security of the depositors in the
| banks.
| If the banking laws are amended
! along the lines Of the comptroller's
| suggestions, and they undoubtedly
will be during the coming session Of
! Congress. the national system Will be
| very materially improved and
strengthened, and the security of de-
! positors increased.
No radical changes are necessary
! in our banking laws and no social
istic experiments should be under
| taken. Guaranteeing deposits will not
| stop paniCs. Panics are the results
OF runs upon the banks and lack OF
confidence in their ability to pay de-
/ post liabilities on demand. Amend
our inelastic currency laws so as to
place it within the power of the
banks to meet abnormal demands,
. ana the problem will be solved.