Evening star., 1933-06-21

1884, the permanent insurance by the
Federal Bank Deposit Insurance Cor
poration will be effective, and all de-
posit accounts will be fully insured up
to $4,000. Accounts in excess of $l0,-
900 will be insured to the extent OF
IS per cent of the excess over $4,000,
up to $4,000, and will be insured to
the extent Of SO per cent on all ex-
cess over $50,000.
positor has a relative advantage over
the larger depositor, but it must be
remembered that the large depositor
usually has better facilities for analyz-
ing the condition of his bank and ar
irving at a correct conclusion as to
it's soundneSs. Then there is a social
reason for protecting in full the small
account. and again, as practical mat
ter. it is very likely to be the aggre-
gate of Withdrawals by small depos-
itors which causes disastrous run ON
banking institution, and that is what
we want to avoid.
Insurance Method Stated.
In order to provide funds to pay the
depositors of closed banks, the Federal
Deposit Insurance Corporation, men,
bership in which is open to all sound
banks, whether members of the Fed
eral Reserve System or not, will be cap
italized by a subscription of $l50,000,-
600 by the United States Treasury;
subscription by the Federal Reserve
banks in an amount equal to one-half
.of the surplus of such banks. which
will bring in another $150,000,000 or
more, and an assessment Of one-half
of per cent of the total deposit liza
bilities Of all banks joining in the in
surance system. Inasmuch as all men,
Der banks OF the Federal Reserve Sys-
TEN are required to join, 1t Is certain
that the capital to be raised from this
source will approximate another $780,
900, 900, and it Is probable that it will
be considerably more than that. The
original capital of the institution will,
therefore, be in the neighborhood of
$500, ,000. 900. 1t is authorized to sell
its obligations in an amount equal to
three times its capital, and SO this
corporation has potential resources of
nearly $4,000, ,0O0, 900.
It is authorized to buy assets Of
closed banks or to lend on the security
Of such assets, and 50 to aid in the
reorganization and reopening Of insti-
tutions now closed, and to provide for
the liquidation Of frozen deposit ac-
counts. It's more important function
is to make good the deposit liabilities
OF banks which may hereafter be
closed.
Continuance Of Service.
Immediately upon the closing OF a
bank which is a member of the deposit
insurance system. the Insurance Cor
poration will establish q new banking
unit which will be ready at once to
function with respect to checking ac-
counts This new unit will assume the
net deposit liabilities Of the closed bank
up to the limit of the amounts insured,
and as soon as the amount of depos-
itors' net claims, after offsets, can be
determined, each depositor will be cred
tied with the amount of his approved
insured claim in the form of deposit
in the new banking unit, subject to
his check. The new unit will be au-
thorized to accept new deposits, SO that
depositors may proceed almost without
interruption to transact with the new
unit their daily business Of drawing
and depositing checks, just as they had
previously conducted 1t with the old
bank. The Deposit Insurance Corpora
ton will be obligated to the new bank
ing unit in an amount equal to the
net insured liabilities of the closed
bank. 1t will provide the new unit
with such cash as may be required to
carry on its business, and will allow a
low rate of interest on the balance of
its obligation. The new banking unit
will thus be 100 per cent liquid, and
its depositors, having nothing to fear
will have no motive to withdraw their
accounts. but will undoubtedly retain
their balances in the new unit to the
same extent as they would have re-
tanned them in the old bank had there
been no suspicion of insolvency
This will make it possible to protect
the safety and convenience of the de-
positors without any necessity for the
Insurance Corporation to advance in
cash the entire amount of the insured
claims of depositors. This new bank
ing unit may be provided with new
capital by subscription and SO go for
ward as an independent bank or 1t
may be taken over by an existing bank
ing institution, or 1t may be liquidated,
as the circumstances in each case may
justify.
Prompt Estimate Required.
Ordinarily the Insurance Corporation
will act as receiver of the closed bank
and will thus have an earning capacity
based on its services as receiver. When
ever it is required to assume the la
bilities of closed bank it will be
subrogated to the rights of the depos-
itors whose claims it pays, and will to
that extent have an interest in the
assets of the closed bank. The law