The Indianapolis times. [volume] (Indianapolis [Ind.]) 1922-1965, 1935-06-05

wide interest.
If we may anticipate the passage
by the Senate of provisions sub
Stantially similar to those recently
passed by the House, Federal de-
post insurance is about to pass
from its temporary form, as pro-
vided in the Banking Act of 1885
and later amended in 1884, into lis
permanent form. 1t will have had
a year and a half of actual expert
ence, and it is appropriate at this
time to ask what has happened
during this period. both in the ad-
ministration of the insurance and
in the public attitude toward the
experiment.
According to the testimony OF
Leo T. Crowley, chairman of the
Federal Deposit Insurance Corp,
before the House Committee on
Banking and Currency in February,
earnings of the corporation, before
deductions for overhead. had been
no to that time about $9.O00,0 900. The
corporation could, according to Mr..
Crowley, "be wound and pay
its losses and return to The Federal
Reserve Bank and to the govern
ment plus a return on their invest
ment."
Bank Attitude Shifts
The attitude of the banking COM
munitv toward the insurance plan
apparently has undergone Signl-
ficant change since the passage OF
the original provisions in 1888. Per-
haps part of this attitude is due to
the public reception Of deposit in
surance. A special report recently
made by the National Emergency
Council on the state of public opin-
ion regarding the activities of the
corporation should be, if accurate,
distinctly encouraging to the ad-
ministration. In few states some
public indifference was indicated,
but in the majority it appeared dis
tinctly favorable.
Since such a short experience
under the new scheme is insufficient
to settle any of the broad questions
involved in deposit insurance, it may
be appropriate to recall certain or
these briefly. Deposit insurance Is
supposed not only to protect the in
dividual deposition and to Stribute
risks and losses over a wide area
but also to be a corrective within the
banking system in that by creating
confidence it removes the danger
of bank failures.
Ineauities Secondary"
Almost any scheme devised may
be attacked as inequitable to some
of the parties involved. But the
essence of commercial banking is
the profitable use of other peoples
money much OF which the banker is
obligated, but obviously unable. to
repay to the owner on demand.
Considering the peculiar relation of
such a business to the public. any
inequities in a plan considered noes
sary for the protection of the public
are to be considered as of secondary
importance.
The real problem is. will the plan
work? A frequent objection to de-
post insurance concerns the moral
hazard" 1t is believed that insur-
ance will lead to lax banking and
hence to more rather than fewer
losses. This objection is not to be
dismissed lightly. but it is worth
remembering that. as one writer has
put it, it is the depositor and not
the banker who is insured.
The officers of a failed bank will
find themselves in practically as
unenviable a position as before. To
the related objection that deposit
insurance will make it unnecessary
for the depositor to exercise judg-
ment in selecting his bank, it is per-
tinent to inquire whether he has
ever been competent to do so and
whether selection by depositors is
an efficient method of promoting
good banking standards.