The Richmond palladium and sun-telegram. [volume] (Richmond, Ind.) 1907-1939, 1922-11-06

ors after bank has failed than upc
preventing failure. Its weakness E
ways develops crisis"
II viii be seen that this report take
the view that the guarantee tpeory
comparable to the practice on @ckin'
the stable door after the horse /
stolen. Instead OF preventing ban
failures through which depositors tt
the risk of losing deposits, It produce
d condition calculated to fncreas
failures and only comes into actiy
play after the real damage has bee
done
or course, the purpose OF the guara
tee is to insure that the depositor gel
his money. 1t would have that effes
so long as the theory were n
stricted to comparatively few bank
but the economists point out that
extend the plan nationally would pr
duce situation where there wou
not be enough money to go arouIi
to pay the depositors and thereof
the guarantee would be practical
worthless.
How 1t Worked
| In Oklahoma.
An interesting study of just how Il.
| system works can be made with I'll
state of Oklahoma as a subject. Okl'
homa IN 1908 enacted legislation guH
anteeing bank deposits in sta
charactered banks. A fund was CT
ated by assessing the banks in pr.
portion to their deposits. 1t was e.
pected that the banks so guarantee
would attract increased deposits az
more than a hundred national BAN
left the national system and reorgai
lied as state banks to take adyanta,
of the system.
One OF the first effects was to stil
ulate the organization of new banl
When the system was introduced the
were 495 state banks. At the close
1921 there were 622 state banks. Econ
mlsts agree that too many banks a.
IN themselves a weakness and Il
comptroller of the currency has a
nounced that he viii move very ca
dously in authorizing the organizatit
of new national banks.
| During the existence of the syste
4 80 Oklahoma banks had to closed /
the authorities because of wpaSnes
The guaranteed deposits csSDthe
banks aggregated $11,O50. 900. t.
sum available in the guarantee fu
was only $3,645, 900. In such a cas-
the law provides that the state M
issue warrants-that is, borrow on t
public credit in order to pay the depo
1tors- This shifts the burden of b.
banking to the whole body of taxps
ers who must meet the interest on Il
borrowed money. Also, the first me
ey that comes into the the exhaust
guarantee fund must be paid out
meet the guarantee on the banks
ready failed, so there is no fund
protect additional failures, once t
fund is exhausted.
States which now have or until i
Gently had deposit guarantee laws a
Iexas, Kansas, Nebraska, North i
kota, Washington, South Dakota. a
mississippi. The experience has be
chiefly unhappy with all of them.
though Oklahoma's experience is
garded as the worst.
The general opinion of banking
metals, economists, and governm q
authorities is that the deposit guar
tee theory is unsound and tends Il
much to the sort of banking viii.
Old Man Burley of Prince GeorI
County experienced. When he got h
freedom from slavery he took the fiji
money he earned, $500, and deposit
It in savings bank which had open
its doors shortly after the Civil W.
for the express purpose of attractil
the earnings Of negroes. After sor
years, and after adding, from time
time, to his deposit, the old m.
wanted to buy mule and went to I
bank, asking for his money.
The bank man said" Burfey Z
planned. that didn't have no mon.
in the bank. / asked him how cor
when had been putting it the~a RIG
along He said the interest ! D n
, urally eat IL I'm