Evening star., 1935-12-17

the annual assessments from banks
the Federal Deposit Insurance Corp.
is authorized to issue notes or bonds
to the amount of SLIPS, 900, 900. There
is thus available to the corporation
from stock subscriptions, assessments
and the sale OF securities to meet pos
Sible demands, more than one and
one-half billion dollars.
Whatever may be thought of the
SoundneSs of the theory of deposit in
surance as permanent policy, there
is no question but what the mStitu-
ton of Federal deposit insurance, to-
gether with the other provisions of the
banking acts and administrative meas
ureS, have replaced fear and distfust
with confidence and assurance. Every
citizen knows that he can deposit his
funds up to the limit of $4,000 in any
insured bank in the United States with
the certainty that he may withdraw it
whenever he sees fit. The statute
makes every deposit not in excess of
$4,000 as secure in the smallest in
sured institution as in the largest
insured institution in the Nation
Guaranty of deposits is, of course, not
guaranty of good banking. Past ex-
perience with some State deposit
guaranty systems demonstrated that
it might become an inducement to
careless banking. The success of the
Federal deposit insurance plan rests
upon strict and severe supervision and
regulation of banking operations in the
United States.
Rigid Examinations Necessary.
Men who lack capital, or who are
deficient in banking experience and
capacity, or whose integrity is ques-
tionable, must not be permitted to
open, own or operate banks. Rigid
compliance with banking statutes must
be required. Strict examination of
banking methods and operations must
be maintained. Bankers must be forced
to recognize their obligation to the
public welfare and be trained to resist
the pressure of friends, local sentiment
and enthusiasm. Bankers must run
banks, not benevolent institutions to
give away their money and that of
their depositors. Universal local
popularity is not always (if ever evi-
dence of good banker. Banks must
cease to take the hazard of the busi-
ness success Of their borrowers. When
ever it is necessary for the repayment
Of loan that venture succeed, the
loan should not be made.
That the public has responded to
the assurance given by the new legis-
lation is evident from the fact that
Notwithstanding the country has not
yet emerged from the depression there
has been an increase ir the volume Of
deposits in insured banks since the
passage of the deposit insurance laws
of some S8.OO0,O0O,OOO
The loans and investments of the
banks have not kept pace with this IN
crease in deposits. The result is that
there has accumulated a tremendous
amount of unused money in the banks
and excess reserves in the Federal Re-
serve banks. Apprehension is expressed
in many quarters lest these excess re-
serves and unused deposits may be-
come the basis of a credit imitation.
Such an imitation is, of course, possible,
but it would seem unlikely, in light of
the recent experience of the country,
especially of the banks, with the con-
sequence of credit imitation, that, with
the provisions of the banking acts of
1888 and 1885 designed to prevent the
use of bank credits for speculative pur-
poses, such a financial calamity should
so soon revisit us.
Low Rates Essential.
Moreover, study of past depressionS
diScloses that in nearly every, if not in
every, instance, recovery did not come
until there had been vast accumula-
ton of unused funds in the hands of
investors and banks, providing abun-
dant capital at low interest rates for
the revival and stimulation of business
and commerce. 1t would seem, there
fore, that these excess reserves may be
regarded as an encouraging, rather
than a discouraging, sign. The prob
lem is to see that they are properly
used, not abused.
The original theory, when the Fed
eral Reserve System was inaugurated,
was to decentralize banking and
financial control; to take control Of
national finances from the financial
district of New York City and to dis
tribute it among the IL Federal Re-
serve districts.
The 1888 and 1885 banking acts
made numerous changes in the powers
and operation of the Federal Reserve
System and of local banks, but next
to the establishment of deposit in
surance the outstanding feature of