Evening star., 1948-02-01
Bank Safety
For IS Years
Guardian of 1882
Institutions Keeps
Losses Down
By Siqrid Arne

Wiu0oWS at d run "a QTcaTy Ane Ol
people on the sidewalk, bank books
in hand and anxiety on their faces
Actually, not since May, 1914, has
, any depositor in Government-in-
sured bank lost cent on deposit
Ii This report is written because
|. February, 1948, marks the 18th an
niversary of the congressional act
, which created FDIC. That act was
driven through Congress by three
men, only one of whom is living
Senator Arthur Vandenberg, Repub-
, lican, of Michigan. The two others
were Senators Carter Glass, Demo
crat, of Virginia and Representative
) Henry Steagall, Democrat, of Ala
: bama.
FDIC officers think the corpora
ton is strong enough now to with
stand another blow like '33, when an
epidemic of bank holidays" some
of which turned out to be perma
: nent, swept the Nation.
1882 Banks Belong
FDIC was set up to insure any de-
posit up to $1,000 In any national
bank willing to join the system and
meet the annual examination of
FDIC men.
| Last June, 1882 national banks
were members. Only 1,185 were out
side the system.
The system started to operate in
1884. Since then 4O4 insured banks
have closed. In the so-called
prosperity year" of 1925 alone
nearly 1000 banks closed their doors.
Here's the record on the 404
closed banks:
Three reopened by merging with
sound banks and needed no FDIC
help.
There were 1,319,427 depositors in
the 401 other banks.
Their deposits totaled $500 900, 900.
Less than one-eighth of per cent
OF that money was lost-all of 1t in
accounts of more than $4,000.
Almost SO per cent of the accounts
could be drawn on Immediately.
How the System Works
Under sort of mutual insurance
system, member banks kick in a
yearly assessment of one-twelfth of
1 per cent of the deposits on hand
on an average day. Those assess
ments, plus some income from in
vestments, make up revolving fund
used to bail out depositors in banks
which close or have to merge.
FDIC has operated in two ways:
/. 1t has stepped in when q bank
failed and paid the depositors i'm
mediately the amount Of their in
dividual accounts-up to $4,000.
2. It has seen that bank was too
shaky to last and after some quiet
talks, has merged the shaky bank
with a sound one. In such cases
the deposits in the closed bank
simply move to the good bank.
The depositors haven't missed a
day of banking service.
In recent years, FDIC has used
the second method exclusively. 1t
has found it loses less money that
way. Good assets of the poor bank
can be saved. Otherwise they would
be sold and when the bank finally
closed, FDIC would have to pay out
more to cover losses.
Has $4,000, ,OOO,O 900 Assets
In either case, the FDIC has tried
to recover on the poor assets it has
taken over. Because business has
been on an upward trend, many OF
these assets have increased in value.
FDIC has lost only 10 per cent OF
payments for closed banks. per
cent of those put out for mergers.
The FDIC now has permanent
insurance fund which must remain
at a minimum of billion dollars.
In case of emergency, the Treasury
l. is directed to lend 1t another
So 900 600, 900. D.
| Between 1921 and 1888 period
which embraced two fiurries OF
bank failures-depositors lost less
than a billion dollars. 1t is for that
reason FDIC officers think, with
the $4,000, 900, 900 they have on tap,
the system could withstand another
1888, despite the fact that deposits
have jumped. Now they total
s148, 400 900 900 in insured banks. In
1888 they were $4,000 900, 600.
Paid Out $500, 900, 900
FDIC officials think they have a
second reason for confidence. Assets
that banks hold are much better
than in crashed banks in 1888. And
FDIC keeps weather eye for banks
which collect too many risky assets.
| From the beginning FDIC has
paid out $306, ,00O, 600 to help closed
banks or to merge shaky ones. OF
that, FDIC recovered s276, 900 900.
1t expects to recover another S.
900 600, leaving net losses of only
$27 ,OO0. 900. There is more than a
billion now in the permanent In
surance fund.
/ The amount of capital which
banks keep to back the deposits
has dropped below the amount that
was traditional before World War II.
| The notion of how much money
stockholders should put into banks
has changed tremendously since
1875, for example, when they held
enough stock to cover IS per cent
of the accounts.
That dropped slowly until 1919,
when capital stock stood at 10 to
13 per cent of the deposits.
1os,fe D~oot;ooe Cforrad