Grand Forks herald. [volume] (Grand Forks, N.D.) 1916-1955, 1922-11-06
Washington, D. c., Nov: 3.-Here
ny fhora a crOnS

Washington, D. c., Nov. 3.-Here
and there a recommendation crops
up looking to federal legislation for
the guaranteeing of bank deposits.
The coming winter promises to be
fruitful in proposals. for banking laws
and it Is quite likely some bank de-
post guarantee, bill will be intro
duced. This idea acquired mach
popularity a few years ago and even
yet has sporadic periods of~favors
On its face a proposal to have the
government guarantee ~depositors
against the loss of their funds because
of the failure of banks would appear
to 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 h fed
eral government and 1t would seem
reasonable that guarantee would be
a natural concomitant of regulation.
The prime objection to the plan
general adoption is one based wholly
on the fraility of human nature. 1t
Is q psychological objection, but a
very strong one. It constitutes a sort
of paradox.
The theory of guaranteeing bank
deposits is to insure security to the
depositors. The operation, it seems,
is. just the reverse. Instead of
Strengthening banks, 1t weakens them.
Instead of giving support, the plan
removes 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
of accepting deposits. made his
Of which q succession Of. Barons
Rothscht1ds were the. heads, wholly
through force Of character. He built
up a widespread feeling of confidence
in his ability to pay back on demand
the sums which people deposited with
him.
This must always be the strongest
asset OF D bank; infinitely stronger
than any regulation which govern
ments car devise.
The effect OF an impersonal, govern
ment guarantee Of bank deposits Is to
relieve the banker Of the Responsible
ity for taking care Of them himself,
Without such a guarantee, n bank
er exercises the utmost caution to
prevent his banks getting into such
ldHCS la ou6k
expansion Of bad loans, that he can
not meet the demands of depositors'
If he has the government ready to
pay the depositors II he 10 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 1t, but
there are always some Who. will relax
when there As a strong arm to bear
the burden.
Theory That Of Insurance
The case is stmmedsup in the an
inualSreport Of the comptroller of the
|currency, which says:
'.The theory Of the guarantee 81
bank deposits IL th2t OF Insurance.
but 1t has certain fundamental weak.
lnesses which are more serious in their
effects upon banking than in their re
llation to most other kinds OF business
to which %insurance is applied. In
lsurancs is sound us q protection
against unavoidable hazards, but dan
the hazards. The insurance or guar;
IanteeAof blink deposits tends to In.
Grease the hazards by eliminating tht
lyaiue Of character al a bankers asset
1T, tends to make all banks look alike
ltd the, public and puts the careful
lc~ongeryative bank er, who's unwilling
Ito make large promises Mh taxe
llarReLchances. alta disadvantage. Tho
ItheorYds 1t fault IN placing more aIii'
lphasiS. upon ths payment Of sdeposi.
ltors after bark has failed than upor
preventing failure. Its weakness al.
ways developes IN crtsis."
II will be seen that this report takes
1.-The view that the gttaranteestheor,
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