Los Angeles herald., 1909-08-21
BANKS DISCREDIT
STATE GUARANTY
OPINION AGAINST AGITATION
GAINS GROUND
TEST IN OKLAHOMA DEVELOPS
BAD FEATURES
Increases Number of Banks Beyond
Proportion of Increase in Deposits
Enabling UnscrupuIous Men
to Enter Banking
BY JAMES WYNKooP,

BY JAMES WYNKO0P,
An opinion which is gradually gain
ing ground in financial circles is that
no good can come from the agitation
for laws compelling banks to mutually
guarantee their deposits. Oklamoma
leads off in this legislation and there
are already conflicting accounts Oh tne
working of it's system. The CONNER
cial National bank of Chicago, recently
wrote to the leading national and state
hanks of Oklahoma, asking Tor 1actS
about conditions there and numerous
reD1ies were received. The national
banks are unanimous in opposition TO
the system, while the state banks dlVlde
in their opinions. 1t appears the argu-
ments for IT refer only to its popularity
and success in attracting deposits.
one banker praises 1t by reason that
his bank gets deposits from without the
state, from persons impressed with
sense of security OF the guarantee AHe
text of his letter reads:
at has been one Of the grandest things
which could have happened to OHIO
hona, and 1 am in favor of 1t. we get
deposits from all over the country am
the report of the bank commissioner
will show that it is doing in Oklahoma
better than / can say"
The report of the bank commissioner
bore out this bankers declaration, put
went on to say that ninety natlonaI
hanks had been converted into state
hanks as a result of the law. That
the state banks are gaining rapidly
over their former deposits was a 1act
brought forth in favor of the guaranty
Results Prove Nothing
OF course this means nothing as TO
the merits of the system as means
of regulating banking business. The
main nroblen1 of banking reform is not
merely to provide for reimbursing de-
nositors, but to raise the standards OF
banking practice and protect the de-
nositors themselves from mismanage-
ment and waste in the hands or IN
competent and unworthy custodians.
The oppositinn to the law is summed
up tersely by one banker as tolloWs'
First-It has increased the NUMBER
of banks beyond the proportion oI the
increase in deposits.
Sacond-It has enabled incompetent
and unscrupulous men to get into the
banking business and in many cases
such men are handling large sums OF
money.
Third-It demoralizes business for the
reason that the banker who pays the
highest rates Of interest and Ioans at
the lowest rate on the least security
and is an all-round good fellow gets
the deposits.
Fourth-It has forced seyenty-five
good national banks out of business
and in most cases replaced them with
banks of smaller capital.
Fifth-We are in an unsettled con-
dition, as the failure of big bank IN
the state would knock the guaranty
law into q cooked hat and make the
worst bank panic we ever had.
May Cause a Panic
Another banker, himself Identified
with the state bank system, declares
that an unusual increase in deposits
would, in the hands of unwise bankers,
result in bad loans and in the course
of a few years cause the failure of
many banks. He writes:
"As a means Of securing business for
banks not entitled to secure business
on their own merits, it is undoubtedly
a success, but in the hands of the in
experienced banker an unusually rapid
increase in deposits is in itself danger
which may lead to unWise loans and in
the course of two or three years to
many failing banks. We do not be-
lieve that it is a permanent improve
ment, but rather feel that in the course
of a few years certain things may Oc-
cur which will show to the conservative
state banks the danger to which they
are eXpoSel in guaranteeing the de
posits Of all other state competitors"
All accounts agree that the system is
popular with the public, as it multi
plies competition in banking and the
average depositor is pleased to think
he is relieved OF all responsibility and
can as well use one bank as another
If, however it is true that placing all
banks on a level enables men to get
into the business and take the lead I'm
acquiring deposits, who could not do
so on their own merits, it Is apparent
that the actual economic loss must be
increased, and the system is inherent
ly unsound.
Cannot Remove Weakness
Bankers and students who have given
the problem deep study are of the opin-
ion that the weakness of the American
banking system cannot be remedied by
any garantee Of deposits, which puts
the poorest banker on level with
the best and enables the most reckless
TO set the pace for all
European economists criticise Ameri-
can bankers for lending up close to the
legal reserves, leaving no margin for
sudden and exceptional demands. To
this practice Is attributed the extreme
and rapid huctuation in interest rates
in this country.
With money lending at unremunera-
tive rates there is little surplus now on
hand to meet the impending fall de
mands. If these demands should prove
large the American system will have
no resource within itself but buy or
borrow in Europe at the best terms
obtainable.
Conservatives hold it is idle to place
the responsibility for this state of af-
fairs upon the individual banker. !
what can one individual banker in
10000 do. by sacrificing profits, to
remedy the evil?" they ask
Would Copy French Law
As a solution of the problem of tho |
great American banking evil, the bank !
ing system of France is cited by those |
who seem to be the best Informed on
the subject. In France, the central
banking institution, upon which is fixed |
the responsibility of carrying reserves !
aleouate to protect the business in
terests of the country, with an out !
standing circulation Of $1.000000.00O. Is !