Every evening, Wilmington daily commercial., 1922-11-06

Washington, Nov. B.-Here and
there a recomrne ndat!on crops up
looking 70 Federal legislation for the
guaranteeing Of bank deposits. The
coming winter promises to be fruitful
in proposals for banking lawe and Il IL
quite likely some bank deposit guaran-
tee bill will be introduced. This idea
acquired much popularity few years
ago and even yet has sporadic periods
of favor.
On its face q proposal 10 have the
government guarantee depoeitors
against the loss Of their funds because
of the failure of banks would appear 10
be a sound one, although inclined TO
the paternal National banks and
even State banks and trust companies
which are members OF the Federal Re-
serve System are regulated by the
Federal government and Il would
seem reasonable that guarantee would
be a natural concomitent Of resuia-
ton.
The prime objection 70 the plan and
the one which has prevented rs gen.
eral adoption is one based wholly on
the frailty Of human nature. 1t -
a psychological objection. but very
strong one. II constitutes a sort OF
paradox.
The theory OF guaranteeing bank de-
posits is to insure security to the de-
positors. The operation, 1t seems, is
/ just the reverse. Instead OF strength
ening banks, it weakens them. In
stead of giving support, the plan re-
moves the strongest support which a
! bank has.
/ Fundamentally, the whole theory of
/ banking is based upon confidence and
/ character. Meyer Rothschild. the
| father OF modern banking in the sense
/ of accepting deposits, made his sue
/ cess and founded the great house OF
which a succession of BarOns Roths-
child were the heads, wholly through
force OF character. He built up a wide
spread feeling OF confidence in his
ability 10 pay back on demand the
sums which people deposited With
him.
This must always be the strongest
asset of n bank; infinitely stronger
than any regulation which govern
ments can devise.
The effect OF an impersonal govern
ment guarantee Of bank deposits is to
relieve the banker of the reSponsi-
bility for taking care OF them himself
Without such a guarantee. the banker
exercises the utmost caution to pre-
vent his banks getting into such
shape. through speculation or over
expan sion of bad loans. that he cannot
meet the demands of depositore. II
he has the government ready TO pay
the depositors If he is unable to, he
may not be so careful.
To be sure some men, undoubtedly
a majority, would be just as careful
with the guarantee as without il. bu
there are always some who will relay
the burden.
"The theory of the guarantee OF
bank deposits is that of insurance, but
1t has certain fundamental weakness
which are more serious in their effects
upon banking than in their relation tc
most other kinds Of business to which
insurance is applied. insurance il
sound as protection against un-
avoidable hazards, but dangerOu:
whenever It tends to increase th'
hazards. The insurance or guarante,
of bank deposits tends TO increase the
hazards by eliminating the value o.
character as bankers asset. I
tends 10 make all banks look alike <
the public and puts the careful, con
servative banker, who is unwilling L
make large promises and take larg'
. chances, at disadvantage. Th'
theory is at fault in placing NOR