The Durham recorder. [volume] (Durham, N.C.) 1879-19??, 1911-04-18

The bank deposit guaranty system
of Oklahoma has evidently proved a
failure as 1t has been so far admins
istered. Soon after II was started
the guaranty fund contributed by. all
the banks IN the system became de-
lpleed BY the failure OF d large instr
tuition. This compelled further as
signment OF the banks to make good
the funds losses. and now other bad
bank failures are compelling further
assessments upon the solvent insti-
buttons. There Is accordingly rush
of state banks TO get away from the
system through organization as ma
tional banks: just as. at the begin
ming there was rush to abandon
national for state charters. in order
to keep the business which promised
to flow to the state banks under the
general guaranty OF deposits.
We should. however. avoid the
conclusion that the natural guaranty
OF deposits under public control has
necessarily by this experience been
demonstrated wrong as principle
of practical application. The Okla
homa application was started hur-
riedly and more or less inconsider-
ately. II seems to have been as
snmed that the beginning and end
of a mutual guaranty system were
to establishes fund at the expense of
the banks in genera. and pay IL out
for the recompense OF depositors In
particular banks which happened to
fail.
This was wrong assumption. As
we have insisted from the beginning
OF this discussion. the primary pur-
pose OF any successful guaranty
system must be TO prevent bad bank
ing. loose banking. reckless bank
ing And this purpose is bound to
be served effectively. as in no other
way. BY a mutual guaranty system
properly organized and administer
ed. The state which undertakes 90
administer such system must do
more than collect for the guaranty
fund and pay out from Il depositors
In failed banks. II must be watch
full and repressive Of reckless bank
ing The great value OF guaranty
system must lie In the fact that II es-
tablishes in every bank within the
system a strong selfish interest IN
the conservative conduct OF each and
all OF the other banks. II makes
every bank watchful OF the methods
and practices of the others. This
in itself constitutes powerful re-
siraining influence for conservative
banking and prevention OF insoIven-
cies: and snch must be the effect In
Oklahoma as the system natures IN
der such experiences as II has been
having. But the wafchfulness OF the
banks in relation 10 each other must
have the support OF the public au-
thority in all conserving suggestions.
Where conservative hanks are made
liable 70 loss for the recklesness OF
other banks. that recklesness must
be subject 10 repression BY the pub
lie authority. II in any place . per
trent intereet on bank deposits is all
that can be safely and reasonably
paid, then Individual hanks in the
system must be prohibited from pay
ing and per cent.
There Is no essential difference
between circulating bank note cred
/ its and book credits OF deposits.
Both are a credit liability. But mu-
tual guaranty Of circulating credits
is common and no system OF bank
assets currency so far proposed 10
this country Is without II. Why IL
IL then that mutual guaranty OF de-
posts should be regarded as 80 OBJ
+ Ieetionable and wrong! In Canada
the bank circulation redemption
fund has this salutary effect OF
bringing the banks together In re-
straint OF reckless banking. Says an
American student OF the Canadian
system tIireckenridge1:-
The effects Of the fund chiefly APP
pear IN the greater interest taken BY
banks in each others welfare. the
stronger solidarity in maintaining
confidence. the inclination more
promptly to grant deserved assist
ancc. and the more powerful motive
20 act al mentor In recalling some
what Grant hanks 70 the paths Of
sound policy. The strong banks.
have. themselves the power 10 bling
Eighty ones to time. for example. IN
the last resort By refusing 10 take
checks nron them.
And the mutual guaranty OF de-
poslts should have the same effect.
~ undoubtedly II will in time III
Oklahoma n Ii does not then the
public authority mus, be Interesting
itself In promoting rather than re-
strainlng seckIess banking. The pnr-
pose and effect OF a guaranty policy
must be 10 cheek unsound banking
and prevent failures. u IL, Of course
bound 10 fail II dealt with otherwise.
Springfield Republican.