The Holly chieftain., 1908-10-02
MONEY N THE BANK
Hsw Depositers Are Secures
Against Less Of Fssds.
A Careful Student Of finance Writes
About Banking Methods
and Principles.
(From the Chicago News.)


II IL held by advocates Of the guar
anty of bank deposits that banking II
q quasi-public business and therefore
that the State should have charge over
the banks in the interests Of the people
Grant this; but that u no reason fol-
forcing one bank to guarantees the de-
positors in another bank.
How IL 1t with railwaysi Tho State
controls the railways, and even claims
the right to fix the rates charged 80
with banks; the State exacts reports,
governs investments, and even estab-
fishes usury laws, which dx the maxi
mum rates of interest. But 1t would
never occur to a 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
n depositor wishes absolute security he
can find it by depositing in 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. 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 dra It's
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 a 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 CONNER
cial bank, an institution must loan It's
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 public-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
ent treatment: First, public deposits
are more valuable to bank, because
they are called upon usually at regular
and foreseen dates and thus a larger
percentage can be loaned during the in
terva1s than is the case with private
deposits subject to daily checking. In
addition, 1t 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 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 be no commercial
banks, industry could get no use Of
idle funds and the reason for a bank
would disappear.
very WE'LL" 1t may be rejoined, ''if
security in bonds Ii impracticable-as
urged by some persons-then give us a
guaranty fund Of certain small per-
centage of deposits, say 1 per cent, such
as is required in Oklahoma. That will
be enough"
To that it is to be said unequivocally
and emphatically that the national
banks now provide q large guaranty
fund for deposltors, which must be
wholly used up before depositor can
lose cent. Indeed, the whole proposal
of guaranty Of deposits shows as
ignorance Of our banking sys-
tenn and banking operations.