Los Angeles herald., 1908-10-20
ASKS PROTECTION
FOR DEPOSITORS
REVIEW OF Reviews PLAN OF
INSURANCE
SAYS WIDESPREAD MOVEMENT
is SPONTANEOUS
Patrons of Financial Institutions Have
No Redress Under Present Sys-
tenn When Their Affairs Are
Mismanaged

) TUI HE proposition to provide some
general form of protection for
II bank depositors against loss from
/ bank failures is not new-not suddenly
born of recent fright and disaster
Certain experiments in this field were
made in the remote past, but under
| conditions so crude as to furnish no
useful basis of judgment. During the
| last dozen years number of we'll
| informed writer's on financial subjects
! in the United States, including several
practical bankers, have presented and
advocated fairly well digested plans to
! this end. In 1899 such measure
| lacked but two or three votes of en-
actment, by the legislature of Kansas.
A group of about 100 state banks doing
business in Georgia and Florida have
a mutual depositors' guarantee fund Of
moderate amount which is held in trust
bearing interest. The chartered banks
of Mexico have long maintained a vol
/ untary league among themselves under
the practical working of which all
come to the aid of each in time of
peril, whether from internal or exter-
nal cause, with the result that no such
bank has failed, and hence no depositor
| has suffered loss, since the system was
adopted under the advice of President
Diaz.
Prior to the autumn of 1907 the limit
ed discussion created little popular IN
terest and led to no legislation. It's
one apparent result was that num-
ber of existing surety and casualty
companies made arrangements to guar
antee applicants deposits in carefully
| selected banks at a uniform premium
| of n of / per cent per annum, TO be
| paid by the depositor himself. In linn
| tied volume this is now carried on as
| a minor branch of general surety
| business A few banks are already
thus insuring their reserve deposits in
other banks. The unprecedented busi-
ness experience through which the
American people have passed since
| September last has, like flash of
| financial lightning in. the night, re-
vealed an amazing situation, which
commands universal attention. In the
resulting earnest and widespread dis
cussion of remedies for a condition
which all concede to be intolerable the
hitherto neglected suggestion of bank
deposit insurance has, with apparent
suddenness, acquired much prominence.
The result is a very considerable and
apparently increasing demand that
some systematic and effective protec-
ton shall be thrown around bank de-
| posits, not for the benefit and safety
| of depositors only, but of the banks
themselves, and indirectly of the entire
community as we'll. This demand has
now reached a volume and force which
| compel attention and warrant respect
| full consideration.
| No one person or group of persons
has been especially conspicuous in pro-
| noting the new movement. 1t ap-
pears to be as nearly spontaneous as
such movements ever are. From pres
ent indications it seems inevitable that
this question will enter into the ap-
preaching presidential canvass, though
scarcely as an issue between the
parties.
OkIahoma's Pioneer System
The pioneer action of Oklahoma has
created wide interest. The deposit in
surance law of that state, enacted in
December last and now in operation,
provides for the simplest form of COM
pulsory bank deposit insurance by the
banks themselves, the state assuming
no pecuniary responsibility or risk.
Periodical assessments are to be levied
by the state on all banks in proper
ton to their average deposits for the
previous year. The proceeds constitute
the so-called bank deposit guaranty
fund, which is held in the custody of
the state treasurer. AS often as
bank fails all depositors are imne-
diately paid in full from the guaranty
fund. The state bank commissioner
bank and from the proceeds of assets
and from further assessments If neces-
sary on the banks the guaranty fund
is kept intact. The law provides a
number of novel safeguards for the
banking business of the state. For
example, whenever the state bank
commissioner obtains satisfactory
proof that any bank officer or employee
is dishonest, reckless or incompetent,
he may require and compel his resig
nation or his removal by the directors.
This law was passed by a nearly
unanimous and wholly non-partisan
vote in the legislature and with the
apparent approval of the people gen.
orally. The state now has a singularlJ
prosperous and progressive population
of nearly 100000, mainly winnowed'
from the central western states, and
contains 772 banks-46S state and 304
national. During the year 1907 the
state banks of Oklahoma held average
cash reserves of AS per cent. A better
field for a local test of the new system
could hardly have been chosen.
The fact that deposit insurance has
thus been inaugurated by one state
and seems likely to be adopted by other
adjoining states in the near future,
renders the discussion no longer merely
academic. Whether we like 1t or not,
the subject is now a live, important,
concrete proposition, which interests
and affects every class and every citi-
zen. The present article aims to pre-
sent with some fullness the views of
those who intelligently advocate de-
posit insurance.
Banks and Their Depositors
The case in favor of the deposit
guaranty plan naturally starts by
pointing out what is held to be the
central and fatal defect of our other
wise excellent banking system, a de-
feet which demands an immediate and
effective remedy if we are to continue
to do business:
Our complex and colossal business
fabric rests upon the banks of the
country; in turn, the banks depend
for their solvency and continued use
fulness upon theoretical mutual con-
fidence between themselves and their
depositors, which in fact only exists
during prosperous times, but suddenly
disappears when needed in times of
stress and is replaced with keen mu-
tual distrust and destructive COM
petitive scramble for currency, con-
stituting the moving cause of all our
severe financial panics.
Speaking broadly, $4,000 banks in the
United States. national, state and pri-
vate, borrow in the form of deposits
practically all the money the people
possess and from time to time control
except that which they carry on the
person or privately hoard This huge