The Sauk Centre herald. (Sauk Centre, Stearns County, Minn.) 1886-current, 1933-09-07

Under the law there is set up Federal Deposit
Insurance Corporation. The federal government
will become stakeholder in this corporation to the
extent of one hundred fifty million dollars. The Fed
era Reserve Banks will become stockholders in it to
the extent of half their present SURPRISES. This will
add nearly another hundred fifty million dollars
All the member banks and all other banks that ion
the insurance plan will become stockholders to the
extent of one-haf of per cent of their deposit
liability. This will provide, perhaps, another one
hundred fifty million dollars onehalf which is to
be paid in by July 1884 and the other half upon call
This corporation shall then become guarantor of de-
posts in all the member banks and all other banks
that participate This will be one hundred per cent
guaranty on all deposits to $4,000 one ndivd-
ual or corporation in a single bank; seventy-ive
per cent guaranty on the part between $4,000 and
$4,000; and fifty per cent the part above $4,000
The federal Banking Act of 1888 permits banks
that are not members of the Federal Reserve Sys-
tenn to become members Of this insurance fund and
enjoy the benefits thereof until July l. 1886 if these
banks can obtain clean bill of health from the State
Commissioner and pass the examination REQUIRED
by the Federal Bank Deposits Insurance Corpora
ton. On July L. 1886, however, all of these banks
must have become members of the Federal Reserve
System or they excluded from participation in
the insurance fund. Probably bank, after it's de-
postors had been protected by federal insurance for
three years. could have the protection taken away and
still retain its deposits In short, as the law now
stands all banks that enter this insurance program
must become members of the Federal Reserve Sys-
tenn by July 1, 1896.
bank can now stay out of the system and live in com
petition with banks that enjoy the benefit of this in
surance 1t would, therefore, appear to be approx
matey correct to say that unless the federal
changed, all banks must become members of the
Federal Reserve System or go out of existence with
in the next three years.
This period leaves ample time for changes in the
federal law, to be sure, and I believe that changes
will be made and way will be found to prevent half
or more OF the communities that now enjoy banking
facilities being robbed of those facilities On the
other hand quite convinced that new legislation
Will not take the direction of permitting nonmember
state banks to continue to enjoy indefinitely the
ncQ T fool
the rescue legislation will take of two forms It
Will either provide more liberal terms of admission
widespread branch banking There will be no State
law permitting branch banking in Minnesota if can
prevent it.
One thing, however, is quite clear and that is
that the federal government has face definitely
toward unified system of banking and that unless
the several states take such steps will permit their
state chartered institutions to operate successfully
outside OF the federal insurance fund there will
presently be no state chartered institutions.
The argument for guaranteeing bank deposits
rests mainly upon two grounds-irst, that it is the
duty OF the government to that the savings of
people are protected; and second, that the banking
function is essential part of economic scheme
and that as a matter of pure economic expendiency
the banks must be made to command public conf
dence Every public service should stand on it's
own feet and be compelled to pay for the disasters
that are incident to it. The argument against the
guarantee of bank deposits is that good banks will
be obliged to pay for the mistakes and inefficient
management of socalled poor banks. That situation
prses. You and carry fire insurance upon build
ings owned by us; the rate pay is determined by
the losses that through res-the negligence or
lack of negligence of other policy holders determines
the rate that pay premiums for the insurance.
The same is true of automobile insurance which we
carry on an automobile if The rate we
pay is determined by the negligence lack neg
gence of all the holders of such accident policies
The same is true with respect to premiums we pay
for workmen's compensation insurance
The example of the unsuccessful attempts of
eight states of the Union in the guarantee bank
deposits is also held before It true that eight
states in the pioneer group, beginning with Oklahoma
in 1907 and ending with the state of Washington in
1917 did enact somewhat crude legislation designed
to accomplish that purpose. In every the orig
nal fund set up was wholly inadequate, and the
sessments which might subsequently be levied
limited as to make the carrying out of the plan i'm
possible; and in of the states participation Of
the banks was optional. In Washington, for in
stance there bank failures the first four
years after the Guaranty Act passed, but when
the first failure of bank occurred, which was a
large one, every other bank Immediately withdrew
from participation in the guaranty insurance.
1t should always be borne in mind that the pur-
pose of bank insurance is to protect the public and
not the bank. The big banks that now opposing
the carrying out of the terms of the Glass-Seagall
Bill are arguing from the standpoint of protecting
those banks and not protecting the depositng public
Minnesota has about 500 banks. Only three of them,
believe are members of the Federal Reserve Bank,
and less than one-third of them eligible
bership in the Federal Reserve System under the
present law The fact that only three of these 500
state banks members of the Federal Reserve Sys-
tenn, after all these years of opportunity to join,
suggests at that membership in the Federal Re
serve System has not, in the past been attractive
to them and that if those that eligible enter the
System it will be because they feel compelled
do so in order to avail themselves of the insurance
protection. The fact that more than two-thirds of
these 500 banks can't get into the Federal Reserve
System under the present law suggests also, very
practical problem. They can scarcely hope to
coed without insurance protection in competition with
the banks whose depositors enjoy that protection If
they avail themselves temporarily of this insurance
benefit, as they have right to do they then
headed for membership in the Federal Reserve Sys-
tenn or for absorption by branch banking system.
wholly under federal control liquidation
In the event that state banks do not desire
to, or are unable to become members of the Fedora,
Reserve System by February 1886, that changes
not made in the federal act by that time for the
benefit of independent state banks which consider
it nexpedient to join the System, Minnesota could
set its local system of bank deposit insurance
Let us look at the steps and the legislation
by which such program might be put into effect in
this state. Probably the separation Of true banking
and h,rS into xbo1 orofo