The true Democrat. [volume] (Bayou Sara [La.]) 1892-1928, 1914-05-23
THE FOREHANDED MAN
(Will Payne in The Saturday Evening
Post.)

AoiAdpS YOU nOIlceu tnaI' clause II
the banking bill, which would hav,
created a fund for the guaranty o
bank deposits, was stricken out at tn,
last moment. Concerning that claus,
Senator Root said:
The serious side of this proposition
is that it seeks to give the credit O.
the United States to every Spectator
promoter or BLACKBOARD who can scrapt
together twenty-five thousand dollars
and take out national-bank charter
1t Is a premium on indifference tc
honesty and soundness in business
premium on speculation and disregard
for all rules of business honor. 1t Is an
invitation to every adventurer to &c
into the national banking business and
get the Endorsement of the United
States back of his scheme"
This is rather harsh language; and
in my opinion, this country's exper.
fence with guaranty Of bank deposits
by no means warrants it. That ex.
lperience extends over nearly five
years; and, SO far, it does not prove
that guaranty of bank deposits can not
be worked successfully. What a long.
Ter experience may show nobody can
foretell; but | shall not be surprised
If that rejected clause should be heard
from again in year or two.
The theory Of guaranteed bank de-
posts is simple and plausible. The
history of the national banking system
shows that, with banks regulated and
inspected to the extent that national
institutions are, losses to depositors
through bank failures are very slight
indeed, when the system is regarded
as a whole. A tax of minute fraction
of one per cent on all the deposits in
national banks would have produced
a fund sufficient to reimburse depos-
itors for all the losses they have sus-
tanned since the system was establish.
ed-over forty years ago.
Ii theory 1t is quite like FIRE insur-
ance: A certain number of houses
burned last year, causing great losses
to their owners; but very small tax
or premium paid by all insured prop
erty creates a fund sufficient to reim-
burse the unlucky owners. The argu.
ment is: Why not insure deposits. and
let such losses as occur fall on the
banking system as a whole rather than
on the few unlucky depositors in failed
banks?
1t is true that in Oklahoma they
have got into a muddle with guaranty
of bank deposits, as Thornton Cooke,
an experienced Western banker, points
out In q recent article in the Quarterly
Journal of Economics; but the reasons
lie on the surface and by no means
imply that guaranty of deposits must
always be failure.
The Oklahoma Guaranty Law.
Oklahoma was the first state to
adopt guaranty Of deposits AS a result
Of the panic of 1907. The law, of
course, was attacked as unconstitu.
tional; but the Supreme Court of the
United States upheld 1t, observing:
when the Oklahoma legislature de-
clares that free banking is a public
danger, and that Incorporation, inspec-
ton and guaranty are necessary safe
guards, this court certainly can not
say that 1t is wrong"
The Oklahoma law originally pro-
vided for the accumulation of a fund in
the hands of the State Banking Board
equal to five per cent of the deposits
in state banks. Depositors in state
bank that failed were to be paid out of
the fund Immediately after the failure.
ALI state banks we're obliged to con.
tribute to the fund by small annual
assessments on their average deposits,
and might be called on for additional
assessments IL the fund became depict.
ed. In case the fund should not be
to pay depositors in a failed
bank, Understanding warrants were
TO be issued to them, the warrants to
be redeemed later on as further assess
ments from the banks accumulated.
This system went into effect in
new country that was enjoying boom.
Nearly all the state banks in the state
were promptly admitted to the system
lin some cases without sufficient in
quiry into their condition, ais later
events proved. The board that admin.
lstered the law was more or less
political concern and did not exhibit
very high banking ability.
Naturally, in pioneer country,
where boom times were forcing all
sorts of business enterprise, many new
state banks were organized. Since all