Evening star. [volume] (Washington, D.C.) 1854-1972, 1931-03-28
VERDICT PROTECTS
/. SMALL DEPOSTORS.
U. S. Court Gives All Cus-
toners Equal Rights When
Bank Fails.
By C. B. UPHAM.

The man with only a few dollars in
q national bank that fails stands Just
as good q chance Of recovering q part
or al Of his deposit rs the strongest
corporation with millions Of dollars to
its credit. according to 3 decision Just
handed down by the District Court Of
the United States for the Western Dis
trict Of Pennsylvania.
National banks. the court holds, can
not enter into special agreements with
large. depositors whereby bank assets
are pledged for the security OF irdivid-
ual or corporate deposits.
History 81 Case.
The Baltimore & Ohio Railroad CO.
maintained q deposit account with the
Citizens National Bank of Connellsville,
Pa. In order TO keep the account Of
stable proportions on its books. the
bank entered into an agreement with
the railroad under the terms Of which
bonds and securities belonging 70 the
bank were pledged with q Pittsburgh
bank In trust for the purpose Of guar
anteeing repayment of the railroad
company's deposit. The Connellsville
bank failed on July 81, 1890, and its re-
ceiver, by the decision, RECEIVERS the
and other creditors rather than the
railroad company, as contemplated BY
the agreement.
It Is frequently said that one Of the
causes Of bank failures in recent years
has been the concentration IN the large
centers of funds of corporations dSsng
national business Conversely, scsna
Of that concentration has been caused
BY bank failures among country banks
Special inducements of various kinds
have been held out 10 the large con-
Germs to keep their accounts In the
smaller banks. One company with
several million dollars on deposit IN a
large number Of banks throughout the
Southern States felt that It could not
withdraw its accounts, contributing 70
the general uneasiness and perhaps even
causing failures. It was unable to pro-
cure corporate surety bonds covering
many Of its accounts. and so was forced
to stand by inactiveIy, In the almost
certain knowledge that, by all the laws
OF averages. several OF its banks Of de-
post would fail.
Small wonder that IN such a situation
there would be attempts to establish
preferred positions Public funds are
so preferred, in fact. National banks,
Wnen oe6lgnabeQ Dy the Secretary OF the
Treasury as depositaries Of public
moneys. are required to deposit Gov-
eminent bonds or other security for
their safekeeping and prompt payment.
Last year this provision of the national
bank act was amended to cover deposits
Of States and their political subdivisions
as well, TO enable national banks to
compete with State banks for state
and municipal deposits.
Controllers Opinion.
The controller of the currency has
repeatedly held that national banks
have no power to secure private de-
posits. His regulation Is now supported
by the first decision OF Federal court
on the point IF any other rule were
followed, the court states, ut would fol-
low that bank could pledge all Of its
assets 70 secure the deposits Of q few
depositors' and the whole principle of
protection abandoned.
The court points out that state banks
probably have no implied power to Sc
cure private deposits in this way. al
though two old and rather feeble de-
cisions" seem to hold that they do.
Judge McVicar, in his opinion. ex-
presses doubt Of the wisdom Of permit
ting even public deposits to be secured.
but points out that the aggregate Of
public deposits Is generally very small
as compared with the total Of private
deposits.
Copyright, 1ss1)