The Bismarck tribune. [volume] (Bismarck, N.D.) 1916-current, 1926-06-23
BANGS OUTLINES CAUSES WHICH Led
TO NUMEROUS BANK FAILURES, GIVES
SUGGESTIONS TO PREVENT RECURRENCE

/ States is about one bank to each H.
] 600 people. In North Dakota in De-
| cember. 1920, there were 723 banks or
an average Of one bank for each 800
people. men. women and children, in
the state, or one bank for every l6O
breadWinners.
Excessive competition necessarily
, brought a host Of evils, among which
| might be mentioned excessive extern
sion OF i'll advised credit, extra terri
,or.al and temporary deposits obtain
ed by the offer of high interest rates,
entrance by the banker into outside
,, business enterprises. etc. A variety
Of such enterprises too great to
enumerato thus became a source Of
danger to the banks. 1t was not
legitimate banking business but was
the legitimate fruit Of excessive COM
petition.
Diminishing Profits
The legitimate profits of the or
binary country bank are seriously inn
paired by variety of causes, such as
federal and state farm loans, which
have practically monopolized the farm
loan business to the serious impair
ment o! the business OF the country
banks; the entrance of the state into
the hail. and other forms Of insurance
business. and the federal reserve sys-
TEN which practically abolished all
revenue derived from exchange.
Capital Loans
1T is no part Of the business Of an
ordinary commercial bank to loan
money for capital purposes but it is
not extraordinary that in the develop
ment Of new country, as was North
Dakota, the distinction between cap
[ital loans and legitimate banking
loans was not strictly enforced. Cap
ital loans were decidedly NOT liquid
in their nature, and when deflation
came they added to the difficulties
of the bank. They were frozen as
sets, no matter how conservatively
they may have originally been made.
Inexperienced Officers
with the rapid increase in the
number Of banks it was inevitable
that inexperienced and perhaps negli-
gent officers should be employed.
Young men without any prior expert
ence were not infrequently in sole
and uncontrolled power.
DepOsitOrs Guaranty Fund Law
Whatever may be our individual
opinions touching the advisability of
the guaranty fund law there is little
or no division of opinion that upon
the banks during the last five or six
years its effect was detrimentally
manifest in added expense, the bring
ing in OF unstable deposits from out
side Of the state, and the impairment
OF the morale OF the depositors. When
to bank failures was added the
failure Of a patent nostrum so high
~ recommended as the guaranty fund
law, disquietude became panic"
Mr.. Bangs then sketched the effect
on North Dakota of the drop in wheat
prices which began in the summer OF
1920.
Farmers and business men had
borrowed from the banks upon the
strength Of the earlier prices, and
as the price declined the security
evaporated and the borrowers were
unable to pay the bank. They re.
quired the money they had on deposit
to pay operating expenses. The re-
suit was that loans and discounts
were frozen, while the deposits de-
parted" he said, and pointed out that
the condition was aggravated by the
reduction of land values which fol-
lowed the collapse Of wheat prices.
Remedial Measures
Turning to remedial measures, Mr.
Bangs said in part:
"The success of banking institu-
tons depends largely on the intelli-
gence and ability Of those intrusted
with their management. There is
suggested then for consideration and
discussion the proposal that some
, sort Of an examination and liccns sing
law be evolved, modelled to some ex-
tent 1T least upon the laws applicable
to tho professions
with the thought that conditions
may be made more favorable the fol
lowing suggestions are offered:
"A nonpolitical banking board Sc
lected from nominations made by the
State Banking Association with long
terms and very ample authority.
'"rho office OF state examiner
should be nonpolitical. He should
be we'll paid and his term should be
heightened. The examiners force and
theii compensation should be materi.
ally increased.
Excessive competition should be
eliminated by the consolidation OF
many of the present banks, and ample
power should be given to the state
banking board to accomplish that
purpose, as well as to prevent the ex.
| cessive granting Of charters in the
| future.
"a commission of experienced bank.
ers should be selected to revise
| codify. and recommend conservative
! reasonable banking laws"
Gil Of Congregational churches, ac