The Redwood gazette. [volume] (Redwood Falls, Minn.) 1873-1940, 1923-10-24
Bank Guarantee
Cited As Failure
COLLECTED IN
VARIOUS STATES INDICATES
IDEA WILL BE DISCARDED.

People in Minnesota were treated
to many issues pro and con on the
proposed law on guaranty of bank
deposits during the last session of the
and since that time further evidence
has been obtained relative to the
merits Of the issue. Charles B.
Cheney, special writer for the Mime
apolis Journal, has written an article
on the subject which appeared in a
recent issue of the Journal. AS a
matter of news information to the
readers of the Free Press who might
be interested in the question, we pub
lish the article, which follows:
Minnesota bankers, collecting am
munition for another battle over the
proposed guaranty of bank deposits,
recently obtained information from
three other states showing the failure
of the system. When bank guaranty
bills were beaten decisively in both
houses of the Minnesota legislature
last spring, the bankers of the state
congratulated themselves that the
issue was dead for some time to come.
They had beaten it with facts, mar
shalled wholly from the experience of
states where the system of guaran-
teeing deposits has been on trial.
Recently, however, evidence has
appeared that the issue will be reviv-
ed in the next state campaign and
before the legislative session which
will follow. The legislative commit
tee of the railway brotherhoods, in
making it's report in the last session,
has made the bank guaranty test
of the records of members. Any MEM
Der who voted against these bills is
given demerit mark by the report.
'The bankers of the state are pre-
pared to defend the record of any
member who helped to kill the guar
anty measures, and they have new
evidence developed since the legisla-
ture adjourned, as follows:
"Oklahoma, first state to enact a
bank guaranty law has repealed it,
and movement now is on foot to is
sue state bonds to meet about &c.
100000 of accumulated obligations.
Nebraska has legalized new or
ganization to support weak banks and
prevent further failures burdening
the overloaded guaranty fund system
"Washington's voluntary system
has gone out of business with with
drawal of the last member bank,
leaving heavy obligations in the fund
with no prospect of meeting them.
George H. Richards, secretary of
the Minnesota Bankers association,
got some first hand information about
o. x.,L, a%% he
tional convention recently at Atlantic
City.
"Oklahoma's decision to repeal it's
law after thorough trial is regarded
as knockout argument. 1t also, ac-
cording to Mr.. Richards, demon
strates the danger of entering such a
scheme and piling up obligations
which cannot be met. Certificates out
standing against the Oklahoma fund
amount to more than 100000, with
nothing but doubtful assets of small
cash value to meet them. Holders of
the certificates are demanding that
the state assume the obligation, and
there is agitation for a big bond
issue, throwing this heavy burden on
taxpayers.
OhlduOIIld was Lilc llISG SIdtC W
enact such law and has been used
as an argument for it, but now fur
nishes some valuable ammunition to
the other side, Mr.. Richards says.
"In Nebraska the obligations of
the guaranty fund became so burden
some to the surviving banks that last
winter they looked for way out
The state banks were paying the max
imum assessments, per cent on their
total deposits each year. This prac-
tically wiped out bank profits and in
many cases meant doing business at
loss, but even these assessments did
not begin to take up the obligations.
So the bankers formed an association
and got their plan legalized by the
legislature. Under this plan banks
that get in difficulties are taken over
they are liquidated if they are in too
bad shape, or if there is no apparent
need for the bank. In cases where
it is possible, the association gets be-
hind the weak banks and keeps them
operating, and so avoids adding an
other heavy charge to the guaranty
/ fund.
''When the Minnesota Legislature
was wrestling with the issue last win
ter, Washington's voluntary system
had dwindled until only seven banks
were left. Since that time, Mr.. Rich
ards is informed, they have all with
drawn, so Washington has a law but
no banks working under it.
meanwhile, he says, the expert
ences of other states fail to show any
practical merit in the idea, and only
demonstrate it's dangers. In North
Dakota the obligations of the fund
are so heavy that the maximum as
sessments on the banks just about
pay interest on the certificates, with
no prospect of wiping them out. In
that state and others, depositors have
been obliged to take certificates and
sell them at heavy discount, or else
wait indefinitely for their money.
Minnesota, without any law on the
subject, Mr.. Richards says, can make
a much better showing in the treat
ment of creditors of suspended banks
than the states which have the guar
anty systems. While depositors in
those states average so per cent or