Every evening, Wilmington daily commercial., 1922-11-06
Guaranteeing Bank Deposits
By Frederic J. Haskia

emphasis upon the payment OF de-
positors after bank has failed than
upon preventing failure. It's weakness
always develops IN a crisis"
It'wil be seen that this report
takes the view that the guarantee
theory is comparable 10 the practice OF
locking the stable door after the horse
Is stolen. Instead OF preventing bank
failures through which depositors run
the risk OF losing deposits, il produces
a condition calculated TO increase
failures and only come. into active
play after the real damage has been
done.
OF course. the purpose Of the
guarantee IS 70 insure that the de-
positor gets MS money. II would have
that effect so long as the theory were
restricted 10 comparatively few banks.
but the economists point out that 10
extend the plan nationally would
produce situation where there
would not be enough money 10 go
around to pay the deposltors and
therefore the guarantee would be
practically worthless.
How IL Worked in Oklahoma.
! An interesting study OF just how the
/ system works can be made with the
/ State of Oklahoma as a subject. Okla
/ homa. IN 1908. enacted legislation
/ guaranteeing bank deposits in State
ed by assessing the banks in proper
/ tion TO their deposits. Il was expect
ed that the banks so guaranteed would
attract increased deposits and more
| than a hundred national banks left
| the national system and reorganized
as State banks 20 take advantage Of
( the system.
One Of the first effects was to
stimulate the organization OF new
banks. When the system was intro
duced there were 4S5 State banks. At
/ the close Of 1921 there were 622 State
banks. Economists agree that too
many banks are in themselves q
weakness and the Comptroller OF the
/ Currency has announced that he will
move very cautiously in authorizing
the organization Of new national
banks.
During the existence OF the sys-
TEN 95 Oklahoma banks had 70 be
closed by the authorities because OF
weakness. The guaranteed deposits
Of these banks aggregated 81, ,050,.
900. The sum available in the
guarantee fund was only SO, ,s45 900. II
such case. the law provides that the
State may issue warrants-that is
borrow on the public credit IN order
to pay the depositors. This shifts the
burden OF bad banking TO the whol,
body Of taxpayers who must meet the
interest on the borrowed money Also
the first money that comes into tn,
exhausted guarantee fund must b,
paid out TO meet the guarantee on the
banks already failed. so there Is n,
fund to protect additional failures
once the fund is exhausted.
States which now have or until re
Gently had deposit guarantee laws ar,
Texas. Kansas. Nebraska, North Da
kota, Washington, South Dakota an,
Mississippi. The experience has beer
chiefly unhappy with all OF them, al
though Oklahoma's experience is re
garded as the worst.
The general opinion Of banking OH
cials. economists, and governmen
authorities Is that the deposit guaran
tee theory is unsound and tends to
much to the sort OF banking whicl
Old Man Burfey of Prince Georg
} county experienced. When he got HI
freedom from slavery he took the frs
} money he earned, $500. and deposite
} It IN savings bank which had open
, ed its doors shortly after the Civil Wa
J for the express purpose OF attractin