Evening star., 1933-05-11
BANK GUARANTEE
TO END FEAR URGED
Bulkley, Telling How System
Would Work, Sees Its
Success Certain.
BY G.. GOULD LINCOLN.

bank deposits, as written into the Glass
bank reform bill now before the Senate
Banking and Currency Committee, was
emphasized by Senator Buckley Of Ohio
today. =,
Fear. the most destructive OF all
forces, will be eliminated from the pank-
ing system of the United States II the
proposed law is enacted, the Ohio Sen
ator contended He is a member of
the subcommittee of the Banking and
Currency Committee, which has worked
on the bill sponsored by Senator Carter
Glass of Virginia. The insurance tea-
ture of the Glass bill is embodied also
III the bill introduced in the House by
Representative Steagall, chairman OF
the House Banking Committee, although
the Steagall bill provides for the lnsur-
ance of bank deposits in banks out
side the Federal Reserve System which
meet certain requirements.
While the Federal Treasury Is TO par :
ticipate to the extent of $3.50, ,O0O,0OO
contribution to the funds OF the lnsur-
ance corporation set up for the protec-
ton of bank deposits, Senator bulKley
pointed out that the insurance plan puts
the burden of losses directly on the
member banks and that it is not surety
a Government guarantee OF bank oe-
posits.
Agency Would Be Created.
The insurance plan calls for the
creation of a Federal bank deposit m
surance corporation with approximately
$3.50 1000 900 original capital STOCK OF
which the United States Treasury. tne
Federal reserve banks and the men;o1n
banks would SUBSCRIBE approximately
sl50000, 600 each.
less would be fully insured. Accounts
of more than $4,000 would be insured
to the extent of IS per cent OF the eX-
cess above $4,000 up to S5O,00O. While
those above S5O.O00 would be insured to
the extent of SO per cent OF the excess
above that sum.
The advantages of the new system
would be so great that few banks coulo
or would remain outside OF 1t, senator
Bulkley said. But to come into 1t eacn
sound bank would be subjected to sucn
a thorough and searching examination
that the chances of its closing, II ad-
mitted. would be reduced to minimum.
All banks admitted would not only be
regularly subjected to such scrutiny as
national banks now are but they would
also be forbidden to pay any interest,"
on demand deposits and the Feoeral
Reserve Board would regulate the IN
terest on both savings and time de-
pOsitS.
Senator Bulkley held that the restrlc-
tionS thus imposed upon interest," pay
ments will be more than enough to pay
the assessments made by the insurance
corporations against member banks on
account of losses.
Tells How System Works.
How the system would actually work
was described by the Ohio Senator
as follows:
Immediately upon the closing Of a
member bank the insurance corpora
ton will establish a new banking unit
which will be ready at once to func-
ton with respect to checking accounts,
This new unit will assume the net de-
post liabilities of the closed bank, and
as soon as the amount OF the total
depositors' net claims, after offsets, can
be determined, the depositors will be
credited with the amount of their ap-
proved claims in the form of deposit
in the new banking unit, subject to
check.
"The new unit will then be author
ICED to accept deposits so that depoSl-
tors may proceed, almost without in
terruption, to transact their daily buSi-
ness of drawing and depositing checks,
Just as they had previously conducted
it with the old bank. The Bank De-
posit Insurance Corporation will be
obligated to the new banking unit IN
an amount equal to the net deposit
liabilities of the closed bank and will
provide the new unit with such cash
as may be required to carry on its
business and allow low rate OF inter-
est on the balance of the obligation.
Thus the new banking unit will 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 that
they would have retained them in the
old bank had there been no suspicion
of insolvency This would make it pos
sible to protect the safety and con-
venience of the depositors without any
necessity for the insurance corporation
to advance in cash the entire amount
necessary to pay the depositors IN full.
Functions Limited.
While under the complete control
of the corporation through an executive
officer appointed by it, the new unit
would exercise no function except that
Of deposit banking and its only assets
being in cash, Government securities,
the balance due from the insurance
corporation and that due from the
Federal Reserve Bank, would be wholly
liquid.
Provision Is made for converting this
temporary unit into new national
bank. The stockholders of the closed
bank whose liabilities shall have been
L,t-t ha tan ho f,H will
be given the first opportunity to sub
scribe for the stock of the new bank.
Should subscriptions be insufficient for
forming a new bank, the insurance
corporation would have the right to
turn over the going business to any
approved banking institution already
existing which might be willing to take
over its assets and liabilities.
The new or combined bank would
then be given the chance to buy from
the receiver of the closed bank the
latter's sound assets. leaving the frozen
and questionable items to be iquidated
through the receivership. The corpo-
ration itself is to be the receiver ir
the case of any closed national bank
and it may also accept appointment,
as receiver of closed State bank II
that is possible under the State laws.
tion for any losses it may sustain a:
the result OF advancing to the receiver
of the closed bank the amount neces.
sary to permit him to meet all deposit
liabilities to depositors the bill pro-
vides that whenever the aggregate
amount of the corporations losses shai
exceed an amount equal to one-fourtf
of / per cent of the total deposit liza
bilities Of all member banks there
shall be an assessment Of one-fourtf
of / per cent Of such liability mad'
against all member banks. The amour
collected from such an assessment viii
then be credited to the deposit insur
ance account.
Sees Success Assured.
1.-THE plan has been so devised" Sen
ator Bulklev said, "as to afford com
plete insurance to the mass OF small
depositors and substantial measure o
insurance to all depositors and yet 81