, 1925-01-16

$780, 900. Figures furnished us frcm an authentic
source show that guaranty fund certificates is;
sued to depositirs amount at this time to about
Si,0OO,OO0. These certificates draw an average
rate of five per cent interest per annum or a to-
tai of s350,000 per year. 1t might be stated at this
point in order to differentiate between the condi-
tion of the Kansas fund and that of Nebraska,
that in the latter state, certificates are not is
sued, and depositors are not settled with until
the actual losses have been determined.
Although the Kansas banking department
claims that interest earned on the guaranty fund
and the assets of closed banks will largely off
set the interest paid on the depositor's certifi-
Gates, vet responsible bankers who are in posi-
ton TO speak with authority, claim that this can
not be true. They insist that the ayerave time to
l%iquidate Il closed bank in Kansas is two years
and that in this period of time during which
guaranty certificates must run, interest to the
amount of 100000 will accrue. This will increase
the amount to be paid by the going banks to APP
proXimntclv 81, 100000. Bankers estimate that
liquidation from closed banks will not exceed
s3,500,000, thus leaving the same amount plus in
terest of 100000, Or a total of 100000 to be
paid from the guaranty fund.
Therefore, .at the rate at which assessments
can be levied, it would require from fifteen to
seventeen years TO take care of guaranteed de-
posts of banks closed to date Later failures
which are bound to occur can not be taken care
of for many years, if at all.
The banking officials seem to take a different
view of the situation, and claim that four and
aN@'r wa ~ 49, - ~ Nta'h 'h'A
ures occur, to take care of the losses already de
termined. 1t is evident that time olAy will re
veal who is correct.
The American State bank at Wichita with de
posits- of over $l,000,00O failed about two years
ago. 1t became at once apparent that the reor-
ganization of this bank was necessary to prevent
a complete collapse of the guaranty law. Reliable
bankers say that in order TO accomplish this pur-
pose, the banking department employed drastic
methods which have called forth the most bitter
criticism. The condition of this bank was so bad
that Il sale of new capital stock Mt 500 per share
was required to permit the removal of its rec
ognized poor assets. Some bankers Of Kansas
we're practically compelled to subscribe to this
stock by threats that examiners would be placed
IN their banks and required to remain there until
the quota assigned TO them was subscribed for.
Fearing the disastrous effect of the fulfillment
of this threat a number made subscriptions.
Some, who had undivided profits enough to just
ify, at once charged off the stock, not desiring to
carry 1t as an asset, the value of which is even
yet extremely uncertain.
In one instance, vouched for by a reliable in.
formant, an examiner notified a banker that if he
would not subscribe for his quota of this stock,
he would be required to charge off a certain
note which had been carried by the bank as a
part of its assets. This requirement, in the opin-
ion of the banker would have seriously handicap
ped his institution. In order to avoid this en-
b-arrassment, he purchased the stock assigned to
his bank. '
As a result of the burdens imposed by the law
eleven banks have Withdrawn from the state
system during the last year.
Many instances of wildcat banking attribut-
able to the bank guaranty law could be cited.
Only one is mentioned which illustrates the meth
DDS resorted to. A banker in dire straits induced
a friend to deposit all. he had in the formers
bank. In return for the accommodation, the bank
paid a bonus of $4,000 to the depositor on condi-
ton that his deposit would remain for a period
of at least 100 days. The banker assured the de
positor that the law would protect him against
loss even though the Institution should fail.
In the opinion of certain officials, a compul-
sorry law is doomed to certain failure in the
course of time. They insist that all banks should
not be allowed to, come under the law and that
careful selection of the membership should be
made. The law is optional in Kansas.
One official expressed the opinion that the
law of Kansas limiting the amount of interest
that a state bank may pay on depisits should be
repealed and the bank permitted to pay as high
a rate us. its officers may deem necessary. The
opinion in all other states is exactly the contrary
as much of the troubles experienced in all of the
guaranteed states were caused in the effort to fix
rates at figures attractive to outside depositors.
Experience has taught that such depositors al
ways demand payment at n time when it occa-
sions the most embarrassment to the banks, thus
precipitating in many instances, bank failures.