The Rock Island Argus and daily union. (Rock Island, Ill.) 1920-1923, 1922-11-04
Frederick Haskin's letter
Guaranteeing hank Deposits

1t will be seen that hi, ,.....
takes tae view that the ru,rss.a
theory is comparable TO the ~
tice OF locking the stable door -
the horse is stolen. Instead ossf
venting bank failures ,h,npa' ..
which depositors run the ri.ss ssa
losing deposits, it produces a a.
dit,on calculated TO increass sss
ures and only comes into ,..;a ~
play after the real dama.s H.,
been done. -
: OF course. the purpose Of u.
guarantee is to insure that m. ~
positor gets his money. II, von,a
have that effect SO long .. ,as
theory were restricted to com,s,
atively few banks, but the come.
lists point out that to extend -.
plan nationally would produc.
situation where there would nos 4.
enough money to go around IA ~
depos,tors and therefore the M,
antee would be practically vor,s
less.
How 1t Worked in OklaAsra
An interesting study Of lust M,
the system works can be msa.
with the state of Oklahoma :,
subject. Oklahoma in 1908 IN.
acted legislation guarantesin,
bank deposits in state Charters
banks. A fund was created by -.
sessing the banks in proportion IA
their deposits. 1t was exp.ctsd
that the banks so guarantesS
would attract increased deposits
and more than a hundred nation.
banks left the national system ana
reorganized as state banks to tai,
advantage of the system.
One of the first effects was IA
stimulate the organization Of psv
banks. When the system was IN.
troduced there were 495 stat,
banks At the close of 1891 ther.
were 622 state banks. Economish
agree that too many banks a. in
themselves weakness and the
comptroller Of the currency has an.
nounced that he will move ver
cautiously in authorizing the or.
ganization of new national banks
During the existence of the sys.
tenn IS Oklahoma banks had to Be
closed by the authorities becaur
Of weakness The guaranteed d.
posts of these banks aggregstsd
S11, 100000. The sum available in
the guarantee fund was only s..
1000. In such a 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 whole bod!
of taxpayers who must meet the
interest on the borrowed monsy.
Also, the first money that comes
into the exhausted guarantee fond
must be paid out to meet the guar.
antee on the banks already failed,
so there is no fund. to protect add
tional failures, once the fund Is e.
hausted.
States which now have OF until
recently had deposit guarantee
laws are Texas, Kansas. Nebraska,
North Dakota, Washington South
Dakota and Mississippi. The eI-
perience has been chiefly unhappy
with all of them, although Okla.
homa's experience is regarded Is
the worst.
The general opinion Of banking
officials. economists and govern
ment authorities is that the deposit
guarantee theory is unsound and
tends too much to the sort Of bank
ing which Old Man Burfey OF
Prince George county experienced
When he got his freedom from
slavery he took the first money be
earned, $500, and deposited It in
a savings bank which had opened
its doors shortly after the Civi
war for the express purpose OF at
tracing the earnings Of the ne
groes. After some years. and after
, adding. from time to time. to his
deposit, the old man wanted to ouy
a mule and went to the bank, Hk-
ing for his money.
1.-THE bank man said Burfey e.
planned. that l didn't have no
money in the bank. asked Rim
how come when | had been rut.
ting it there right along. He SAID
| the interest just naturally eat II