Evening star., 1954-06-03

| gency banking legislation on
March 8 and followed it with the
Banking Act of June 16, 1893,
under which the FDIC was es-
tablished to insure depositors
against loss resulting from bank
failures.
The idea was not new. From
1886 to June 1888. a total of
$50 Eills for guaranty or insur-
ance of bank deposits had been
introduced in Congress.
Many top legislators were in
volved in the Banking Act of
1888, among them Senator Ar
thur H. Vandenberg. Republican.
of Michigan. and Senator Will
liam Gibbs McAdoo, Democrat,
of California.
However. the bill signed by
President Roosevelt on June Is
carried the names of Senator
Carter Glass. Democrat, of Vir-
ginia, and Representative Henry
Bascom Steagall, Democrat of
Alabama, chairman of the
House Banking Committee.
But before the storm was
over and the FDIC got thor
oughly squared away, IL more
District banks had failed.
The same pattern prevailed
on a national scale. Failures
jumped from SIG in 1928 to
1872 in 1881 and scared to 1897
the next year. In the eight
month period ended by the bank
holiday, there were 1904 fail
ureS.
Laws Close Many.
After the week-long holiday,
banks reopened under dras-
tically frightened Government
supervision, which forced many
out of business. In the Arst
three days that followed, $3.50
banks suspended, while another
174 went under before the end
of the year.
During that time. the FDIC
examined 7,785 banks-with
hundreds of borrowed bank ex-
aminers-and found that about
1000 did not have enough assets
to cover their liabilities.
On January /, 1884, however,
when insurance of deposits be-
came effective, a total of 13.201
banks was insured.
Under rigid Government super
vision, bank failures dropped
year by year, from 81 in 1884 to
only one last year.
The last time an FDIC insured
bank failed-when the FDIC
paid off the depositors directly
was 10 years ago. in 1914. All
the others since then have been
non-inSured banks.
In the District and Virginia,
by the way, all banks are insured
as are 97.8 per cent of the
banks in Maryland.
There are three non-insured
Maryland banks. One is a COM
mercial bank of deposit, one is a
mutual savings bank and one is
a non-depoSit trust company,
which is not eligible.
How it Applies.
Insurance applies to both
commercial and savings banks if
Incorporated. as it does to ma
tional and State banks of deposit,
which are members of the Fed
erai Reserve System, and to non-
member national and State banks
of deposit, which are members
of the Federal Reserve System,
and to non-member national and
State banks of deposit, which
have applied for insurance and
have met the requirements of law
for admission to insurance.
Nationally, 1861 banks were
insured at the end of 1858, out
of 14,492 banks of deposit. both
commercial and savings.
Only in the five States of New
England are less than rs per cent
of banks insured. There. rela-
lively large numbers of mutual
savings banks do not participate
in Federal deposit insurance,
although they are eligible. Some,
particularly in Massachusetts
and New Hampshire, have their
own insurance setup.
One big reason for the low rate
of failures is that FDIC doesn't
stand quietly by and wait for the
collapse of a bank that is getting
into trouble.
In most cases, it moves in
quickly to straighten out the
difficulty, much of which is
caused by what one official calls
human frailty-fast women and
slow horses"
Besides acting as a receiver If
the bank actually collapses, the
FDIC can force absorption of a
weak insured bank by a strong
one or render direct financial aid
under specified circumstances.
In the case of absorption,
neither depositors nor stockhold-
ers are likely to lose any money.
Insures Up to $4,000.
AS it is, the FDIC does not in
sure all bank deposits. 1t guar
antees up to $40, 900, which covers
SO per cent of depoSitors, but the
uninsured portion of such ac-
counts-largely held by big cor
porationS-amountS to 46 per
cent of total deposits.
Thus, in case of an outright
failure, much of the big accounts
might be lost, which wouldn't t
happen in an absorption.
The FDIC originally was
financed through capital stock
purchased by the Treasury and
Federal Reserve banks. This was
paid off with interest nearly four
years ago. and the corporation
now is financed by a 81 ,451 .000,-
900 deposit insurance fund, +"