The Topeka state journal. [volume] (Topeka, Kansas) 1892-1980, 1908-09-12

Deputy Comptroller OF 1
and security of the institution which
offers as an inducement for deposits
liberal or excessive rate of interest,
| and the one which pays no interest
on active accounts. or a moderate
rate only on certain lines of deposits.
| But the -depositor's guaranty
scheme offers no premium for ex-
perience, prudence and conserva-
| tism. 1t holds the careful and rep
utable banker responsible for his pro-
| portionate share of the deposit LA
| bilities of his injudicious or specu-
| lative neighbor when disaster over
takes the hazardous ventures of the
| latter.
1.-THE logical effect of such a sys-
| tenn as the Oklahoma guaranty law
is to require the strong banks to
stand sponsor for the weak; the con-
servatively managed for the specuia-
tive institutions. Personal equation,
an important factor to be considered
in the banking business. is eliminated
entirely, and SO far as the depositor
is concerned, inexperience, incompe-
tency and and recklessness count for
as much as conservatism and reputa-
ton. The relative strength and sta
bility of a bank would not concern
the average depositor. He would re-
gard his funds as safe in the wild
cat bank as in the safe and sanely
managed institution, because banks
of the latter class under a compul-
sorry guaranty law would be respon-
sible to the extent of their unkn own
liability for any deficiency in assets
in excess of the deposit liabilities of
the former concern. In addition
thereto, the self-reliant banks would
suffer the loss of business diverted to
the speculative or incompetently
managed institution which it would not
hax obtained h11f for the ron fdPnRR
inspired by the security of the guar
anty.
Not a Government Function.
at is not the function of the gov
eminent, state or national, to guar
anty deposits in the banks any more
than it 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
anty the deposits of each other.
1T is claimed by some Of the adj
vocates of this policy that because the
state and national governments ex-
act of banks security for public funds
that the depositors should be like
wise secured. An individual has the
same right as the government to re-
quire security for his deposit, but
neither the government nor the de-
positor has any right to require one
bank to guaranty a deposit in another
bank. A bank may lawfully and le-
ultimately guarantee its own obliga-
lions, but it has no moral right from
an economic point of view to guaran-
tee the obligations of another party.
bank or individual. Such a policy
based as it would be upon a false
premise. must eventually fail because
of it's inherent weakness.
ION July %, 1908, the date of the
attorney generals opinion on the
guaranty law, there were 307 nation
al banks in operation in the state of
Oklahoma. On August s, the comp
troller Of the currency notified all
of these banks that it was held to be
unlawful for any national association
to avail itself of the privileges Of the
guaranty law, and required such as
had entered into a contract of that
nature with the state banking board
to withdraw therefrom. Only 81 Of
these banks were found to have made
contract agreements, and of this
number 80 have informed the comp
troller of the currency that they have
withdrawn or would notify the state
banking board of their intention and
desire to do so. and the remaining 16
have the matter under Amusement
Thus far two only have actually gone
into liquidation for the purpose of
recognizing under the state banking
system.
availed themselves of the privileges
of the guaranty law, and a large
number reported that it was not their
purpose to do So as they were not
in sympathy with the movement.
Forced into Agreement.
"Some of the 81 banks that made
guaranty contracts declared that they
were compelled to enter into the
agreement because their neighboring
bank had done so and was advertis-
ing the fact as a means of attract
ing additional business.
1.-The annual average of individual
deposits in the active national banks
during the 40 years existence of the
national banking system ending with
1907. was $1.529.359,3 BIZ. The aver
age annual loss to creditors of such
of the insolvent banks as have been
finally liquidated amounted to STILL
705, or one-twentieth of one per cent
of the average deposits in active ma
tional associations.
This very creditable showing
speaks we'll for the security, popular
ity and successful operation of the
national banking system.
Instead, therefore, of entering
upon such a questionable and exper-
mental scheme as the guaranteeing
of deposits by the government, or by
the banks for each other, the national
banking laws should be amended
otherwise to increase the security Of
the creditors Of the banks and re-