yFv.
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VOLUME 8, NUMBER 7
2
posit and carry on builnoM a a pr Ivtlo banker
without uny reflation or restriction ax to tfto
it ii.- inn niMut vnti ntlKllL
manner
uny roKUiauon or rwui; ,,;
of conducting the business, you might
have claimed credit ror such rjiu uimuh .
standing a you intent have been able to ucqwlro.
But you did not do that. You associated youi
self witli a bank wIioho prestige and reputation
dopond morn upon tho law and upon tho pr
Biimption given by tho peoplo to tho law, than
upon superior earn or management.
t.v i tin niililit!
UIO ('(jnnuum;u nun "j , ' ,
In your bank, but It is solfiHh to insist, mat me
rllrf.pnr. tho confidence 8I10WI1
ii.iinln IttiVft Tin I
,,..,,. ..., ..- ....- ------ . ,,
IT .. - . Milill I Al MIFII Villi I III lll
mo of tho advantagoB which it now has over
mller bankH. The bank exists for tho benefit
I IK M II11K Hi' iw tinniiiiivi """
The
for the do-
lit It lo in Minn "
..itriit tn nhinlii further security,
. - ..ii ti...t .... nn n r iiiKt.M
mifin ir tm ri rnuuii ri iiiiii. viiui uuiiii .ww...
I'V"' II
B01
BUI
ilm neonle exist for the benefit of tho bank.
laws regulating banking are made for the do
pnsllors rather than for the stockholders, be
ciiu.no the sio. kholderH are able to protect tncm
sclves, wliile the depositors are helpless.
The law requiroH that a certain percentage
of the deposit Khali be kept as a reserve why?
For the benefit, of depositors. Tho law pro
vides that not more than ten per cent of the
p.iiiiimI find Miirnlux shall be loaned to one per
son why? For the protection of depositors.
lOvory law panned for tho protection of doposi
torn tends to equalize the banks, and you can
make Just an sound an argument In favor of the
mtw.ni nf nil rest .rlctionB as you can make
nirfiinitt ilm irniiriLiit.en of donosits. Tho funda-
JlKi'llinL Ull! f,iiciiniin;i; vi ,v... -., -
menial diflicully is that you look at tho ques
tion from the standpoint of tho banker and not
from tho standpoint of tho depositor, and you
insist that the depositor shall lie loft unsecured
in order that your bank may have an advantage
over smaller banks.
What security do you give your depositors
that, other banks do not give their depositors?
Is it that tho ofllcors of your bank aro better
men? They may die, and inferior men tako
their places. Is It because your directors aro
hotter than other directors? The board of di
rectors may change. Is it because your stock
holders aro better than others? Your stock is
sold on tho market and a change may take place
any day In tho ownership of tho stock, that 'will
ontirely change tho character oC VYie" bank; and
if such change lakes nA?iec7 who will know it?
Will not the new 'rectors and the new o fllccrs
claim to be conservative? When a bank fails,
tho public fljruls out for the first time what has
. . ''V ......
been goMfe on behind tho counter.
ja'H banks aro "conservatively" managed
Until thev fail, and then thov tako their nlnrn
among "recklessly" managed banks. As a mat
ter of fact nearly all hanks are managed well
enough to protect 'depositors from loss but the
trouble is that the depositors have no way of
knowing with certainty which are good and
which aro bad. If tho depositors could know
just what banks are safe, and what unsafe, they
might not need tho protection of the law, but
they do not know this until too late.
In tho recent stringency, tho banks all over
tho country felt themselves justified In suspend
ing payment upon checks, and Tor tho first time
In our history tho depositor was told how much
or his own money ho would be allowed to draw
out for the carrying on of his business. Why
was this extraordinary step necessary? Because
the banks throughout tho country had deposited
a part of their reserves in Now York and other
reserve cities, and could not withdraw them
Each bank feared a run if It permitted the
withdrawal of doposits, and why would deposi
tors want to withdraw? Because they were
afraid of losing their deposits, if they did not
withdraw. You will remember that tho biir
hanks were not any better than the littlo ones
. In that crisis, and as a result of the stringency
that followed, immenso loss was suffered bv men
who had deposited money in tho banks with tho
firm belief that they could withdraw the money
1 answer your first argument, therefore, bv
saying, that you overestimate the personal cle
ment in the prestige that you enjoy and under
estimate the advantage that you derive from tie
law; and. second that our laws should bo made
for the benefit of all tho people and not for
tho benefit of a few of the people. The
of those who deposit In the banks is larger thin
tho number of stockholders, and you must nn
forget that widows and orphans a depositors
in hanks as well as purchasers of haul stock
While 1 can ad.nro tho interest which vou feel
In the widows and orphans who are stoekho dors
1 must remind you that the widows and
The Commoner.
orphan who deposit money in hanks are also
entitled to consideration. It is supremely selfish
In you to forget the interests of the larger num
ber of depositors who make banking profitable.
Banking would not be very advantageous it
vou only loaned the money of the stockholders.
The real profit of banking comes from the loan
of depositors' money and it Is a little heartless
In you to look at the question entirely from the
standpoint of those who get the benefit of the
deposits. The law considers the welfare of
those who make the deposits and it is unfortu
nate that those in charge of the banks do not
always take a view of the situation broad enough
to include the interests of depositors.
Your second argument is, that the guar
antee of deposits would lead to reckless bank
ing and that the business communities would
protest against the guarantee system on the
ground that it would make all banks insecure
and drive the better class of people out of the
banking business.
That, of course, is a prophecy, and a
prophecy is more difficult to answer than an
argument based upon history. Insofar as ex
perience teaches anything, it teaches just the
contrary. A guarantee law has been passed in
Oklahoma, and tho result is that the bankers
of southern Kansas have joined with the de
positors in asking for a special session of the
legislature in Kansas to consider a guarantee
system, and they have done so, because they
fear that deposits will bo withdrawn from Kan
sas and carried Into Oklahoma. In my home
city, a vote was taken In the Commercial club,
which Is composed of business and professionl
men, and the vote stood about ten to one In
favor of tho guaranteed bank. And since you
refer to the silver question, I beg to inform you
that tho men who voted ten to one in favor of
the guaranteed bank, voted about three to one
against the restoration of bimetallism. Instead
of driving men out of the banking business, the
Oklahoma law has led a number of national
bankers to take steps toward changing their
banks into state banks in order to take advan
tage of the state law, in case national hanks
are not allowed to enter the system. If na
tional banks aro not permitted to avail them
selves of state guarantee systems, the state
banks aro likely to gain an advantage over the
national banks, and the national bankers under
stand this.
When I tried to secure the passage of a
bill in Nebraska, providing a guarantee fund
for state banks, it was opposed by the national
banks on tho ground that people would remove
their doposits from the national banks to the
state banks, if the state banks were made abso
lutely secure; and it is to avoid injustice to
either class of banks, that I have urged that
national banks should be permitted to take ad
vantage of guarantee systems established in the
slates and that state banks should be permitted
to tako advantage of any guarantee system es
tablished by congress.
The guarantee of deposits will not produce
recklessness in management. You are selected
by the stockholders, not by the depositors. You
will endeavor to manage your bank in the inter
est of the stockholders, and your argument shows
that you consider their interests as paramount
1 mler a guaranteed system of banks, vou would
si ill bo responsible to your stockholders They
would lose all that they have and be subjected
to the 100 per cent liability in addition, before
other banks could lose anything on account of
your bank's failure. Would this not be sufii-
"Ul -u iiuiKtj you careiui? And If your regard
for your stockholders would make you careful
why would not other bank officials be made
careful by their regard for their stockholders?
The guarantee of deposits does not relieve the
stockholders of responsibility neither does it
relieve the director or the officer of care Tho
guarantee of deposits simply means that the de
positors who have no choice in tho selection of
officers shall not be held responsible because of
mismanagement by officers. ause of
Do you think we could improve the char
acter of our bankers by repealing all laws n?oI
valine for regulation and inspection? I? SS
why do you think it would lower the nhiLS '
nfos&mCialS t0 inCreaS - -ctitlaoTuee-
Your indictment against banking is more
i-ere than I have over hmn.ru "..1S moro
than is brought by depositors geneX Ynn
are not willing to trust nthOT i,lft"y:, ou
frmt nf hnlnl, i,. . V ""n.s LO tile e.-
yet you expect depositors to t.r ?, nT? ' ?,"d
even though the
donnelo ". ," fc"w "".
tnoy put into tho biSST V'MI M
trust each other, they ought not be surprised
at some timidity among "depositors.
The fact is, that the country is suffering to
day from lack of confidence in banks more than
from any other cause. The money can not bo
drawn from hiding and hoarding unless the de
positors are assured of the safety of tho hanks.
The amount of the tax on each bank would be
little compared with the benefit which it would
receive from its share of the increased de
posits, and as for making banks unsafe, the
guarantee system will insure safer banking.
Nearly every bank failure is due to the ap
propriation of the money by the directors or
officers. In discussing this question in New
York recently, I put the question to ex-Secretary
Gage and to Mr. Baker, the president of the
National Bank of New York, and they admitted
in the presence of a company of some eight
hundred that almost all bank failures are trace
able to the misconduct of directors. They also
admitted that the law ought to make it a crim
inal offense for a bank official to loan more
than one-tenth of the capital or surplus to one
person.
Why have we not been able to secure bet
ter regulation of banks? The answer is simple.
The bad banks don't want any regulation and
the good banks prefer to make a business ad
vantage out of the recklessness of other banks.
When banks become mutually responsible for
each other's depositors., it will be easier to secure
the proper regulation of the banks.
The financiers of the country have had their
way for a generation, and they" have not used
their influence to protect depositors. They have
failed so completely that the postmaster general
has recommended the postal savings bank for
the security of savings. Millions of dollars are
sent out of this country every year to be de
posited in the government banks of Europe be
cause of distrust of our banks, and the guaran
teed bank is being advocated as a means of
protecting depositors.
Those who preside over the. big banks have
not been as interested as they ought to have
been in the general public. They have been
satisfied to raise their own bank stock to a
premium, by pointing out the insecurity of de
posits in smaller banks, and they object to hav
ing this advantage removed. The big bank has
two advantages over the small bank even when
the depositors are made secure. In the first
place, a big bank can loan more to one per
son than a small bank can and Is thus able to
draw the business of the larger merchant. This
is an advantage that the big bank will still have.
A bank with a capital of a million and a surplus
of a million can loan two hundred thousand
dollars to one individual, while a bank with a
capital of a hundred thousand and a surplus
of a hundred thousand, can only loan twenty
thousand dollars to one person.
There is also a prestige In the big bank
that business men understand. There is a cer
tain vanity to which the big bank appeals. The
depositor has the advantage of business ac
quaintance and business connection with the big
bank. Ho can refer to it when his business
standing is asked, and this advantage the big
bank will still have. Why should it ask for
an advantage based upon the insecurity of all
depositors and the insecurity of all communities?
Why not make all banks equally good" so far
as the depositor is concerned? Why not pro
tect all widows and all orphans from danger
of loss to their deposits? Why not protect all
business men from the danger of having pay
ment on their checks suspended? Why not
protect all communities from the embarrassment
that follows a bank failure? Why not protect
banks from runs and withdrawals based upon
timidity and fear? Why not make banks so
secure that people will deposit all their money
in tho banks instead of putting some of it away
under carpets? The amount of money that will
be drawn from hoarding and hiding by the
guarantee of bank deposits will give us a larger
circulation han can be secured through frantic
w LU??n lhe Svernnient for its surplus funds.
SSnf?? S Were in dIstress, they did not
tl f . call11?pon the government for the
the people's money and that money was
of It J? f th0m w!thout interest t0 the extent
ThE miL W llundJred and fl"y million dollars.
nSi?o?? Vn m,isGd by taxation upon all the
P, Pjf, and ,wh le Jhe people's money was being
loaned to the banks to tide them over a strin
SSf S8, peopl themselves were afraid to
Sj,"01' oney n the banks and many of
them were witlwirnwimr ti,ni 'n. .
banks. """ muuey irom mo
It all depends upon the point of view. If
legislation is to have for its object the welfare
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