SEPTEMBER 4, 1908
The Commoner.
3
9
suspension, the officer in charge had authority to pay all depositors,
and then the banking board proceeded to collect the assets of the
bank and to prosecute the officials criminally. When the business
was closed up, the stockholders passed a resolution thanking the
state board for its prompt action, the action of the board being a
protection to the stockholders, as well as to the depositors and to
the public generally.
Compare this failure under the guaranty system with a failure
where there is no guaranty. In Oklahoma the bank commissioner
telephoned the farmers to come in and get their money, and the an
swer was, "I am busy today with my crop; I will be in in a day or
two."
In Cleveland, Ohio, a bank failed about the same time, and the
papers announced "Twelve hundred infuriated Italians stormed the
closed doors of the busted banking house of Costan Liopea on
Orange street, today. The police drove the crowd back."
An objection is sometimes made to the guaranty law that a "new
bank would start up across the street," and, being able to promise
its depositors absolute security through the guaranty law, could
draw the deposits away from conservatively managed banks, by
offering a higher rate of interest than the latter could pay. This
objection is urged as if it were an unanswerable one. But let us
see how easily it can be met. Since the law makes all of the banks
liable for the obligations of each bank, the law should prohibit any
abuse of this security by any bank, and in Oklahoma the banking
board has already fixed the rate of interest that can be paid to de
positors. According to the rules of the Banking Board, no bank is
permitted to pay more than three per cent on short time deposits
or more than four per cent on time deposits running for six months
or more.
It has also been urged as an objection that under the guaranty
system a big bank would have no advantage over a little bank.
Even if this argument were sound, it could not weigh against the
advantages of the system, for banks are made for the people, not
the people for the banks. While there are advantages in having
big banks, the advantages are not sufficient to justify the jeopardiz
ing of the depositor or of the business interests of a community.
But, as a matter of fact, the big bank would still have several ad
vantages over the small one. In the first place, it could make larger
loans than the small bank. For instance, a bank with $1,000,000
capifal and surplus could, as at present, loan $100,000 to one per-.
son, while a bank with $100,000 capital and surplus could only loan
$10,000 to one person. This advantage would in itself draw to the
large bank the large deposits and the men doing business upon a
large scale, for deposits follow accommodations.
Then, too, there is a certain business advantage in depositing with
a big bank. It is worth something to be able to refer to a big bank
when one's financial standing is being investigated, and worth still
more to have the advice of a man of large business experience when
business enterprises are being considered.
Besides these there is a social advantage in being on good terms
with the men who are prominent in the banking world. Surely the
big bank's prestige will be worth enough to it under the guaranty
system; it should not begrudge the smaller banks the advantage
which the guaranty of deposits will bring to them.
I cannot pass from this subject without referring to the fact that
the big bank needs the guaranty as well as the little one, for big
banks fail as well as small banks, and the bigger the bank the
greater the calamity to the community when it fails. No bank is
so big as to be absolutely beyond danger, and a community needs
protection against the big banks' failure even more than against
the failure of the small banks.
It has sometimes been objected that the guaranty system would
bring into the banking business a lower class of men and reduce
the average in character. On the contrary, the guaranty of depos-'
its, I submit, would, if it made any difference in this respect, bring
into the banking business a better class of men and raise, if that is
possible, the average of character. It is not to a man's discredit
that he is not willing that one of his fellow men should lose money
on his account. Is it not a mark of character that a man should bo
careful of his good name and considerate of the esteem of his fel
lows? At present a successful farmer or business man may be in
duced to take stock in a bank. 5t may be that his name is desired
to give standing and credit to the bank, but such a man is constantly
haunted by the fear that a bank official may be guilty of criminal
conduct which will bring the bank into insolvency. It is even pos
sible that the bank's assets may be entirely dissipated, and that tho
honest citizen, who has become a stockholder, may either be com
pelled to go beyond his legal liability or meet the bitter criticism
of the depositors who have suffered by the failure. Would it not
be worth something to the stockholder, in peace of mind, to know
that the maximum of his loss would be the value of his stock and
the 100 per cent liability, and that no depositor could lose anything?
I am convinced that the guaranty of deposits would not lead to de
generation in the personnel of the bankers.
To justify a law guaranteeing depositors, it is not necessary to
show that tho advantage to the bankers would amount to more than
the tax. The examination of the banks would continuo to be made
at the expense of the banks, eyen if it were certain that tho exam
ination was of no pecuniary advantage to the banks. The law
would continue to require a certain amount of resorvo to be kept on
hand, even if it were certain that such a law brought no pecuniary
gain to the bank; and so the banks ought to bo compelled to insure
their depositors against loss, even if it could not bo shown that such
insurance would bring a compensating advantage to the bank. Tho
bank charter has a value; if it were not valuable tho bank would
not be organized. The bank charter is a gift from the people
through the law, and the people who authorize the establishment
of a bank have a right to demand, in return, that tho bank shall keep
the pledge which it gives when it invites deposits, and make good
its promises of security to those who deal with it.
But as a matter of fact, the banks will, as a rule, gain more from
the law than they will lose by the tax imposed by the law. The ex
perience of the Oklahoma banks shows this. The interest collected
upon the increased deposits will far more than pay the losses occa
sioned by insolvency. But two banks have failed and the assots have
in both cases been sufficient to reimburse the fund.
Then, too, the banks must remember that the question is not
merely whether depositors shall be made secure, but whether tho
security shall be given by the banks themselves or by tho govern
ment through a postal savings bank.
The refusal of the banks to permit the passage of a law granting
security to depositors is responsible for the growth of tho sentiment
in favor of the government savings bank, and the sentiment will
continue to grow unless something is done to satisfy the demands
of the people upon this subject.
The republican party proposes the establishment of a postal sav
ings bank system; the democratic party prefers the guaranteed bank
because it is better for the depositor and better for the banker it
gives the depositor the security which he needs and yet leaves the
banking business in the hands of the banks. But tho democratic
platform declares for "a postal savings bank if the guaranteed bank
cannot be secured'' and in November more than ninety per cent of
the voters will by their ballots demand either the guaranteed bank
or the postal savings bank. Can tho financiers prevent the carrying
out of this demand?
The republican platform does not go into detail, but it is fair to'
assume that the postal savings bank plank is intended as an endorse
ment of the postal savings bank system proposed by the President
and postmaster general. Under this plan the federal government
would invite the deposit of savings, a limit being placed upon the
amount that each person or rch family could doposit. According
to this plan, the business man would not be protected, for ho uses a
checking account instead of a savings account; but no one can doubt
that the successful operation of a government savings bank would
ultimately lead to an extension of the plan until the government
bank would include the ordinary checking account and be open to
deposits without limit. It would mean a long contest between the
depositors and the bankers, but a contest which must in the end be
decided on the side of the depositors. The banker must decide,
therefore, whether he will favor a postal savings bank which, in the
absence of the guaranteed bank, will grow until it absorbs the bank
ing business, or preserve the present system of banking by giving to
the people, through a guaranty law, the protection which they must
otherwise find in a government bank.
The democratic plan, therefore, contemplates a less radical change
than the republican plan. In his notification speech Mr. Taft
charged the democrats with being socialistic in some of their rem
edies. The charge was not well founded, but I might reply by charg
ing him with advocating an unnecessary extension of the govern
ment's sphere of activity in the establishment of the postal savingi
bank, when the guaranteed bank would answer the same purpose
without any considerable increase in the number of government em
ployes. I would rather see the banks attend to the banking business
than to have it transferred to the government, and because I prefer
to have the banking business done by the banks rather than by the
government, I urge the guaranty of deposits as the easiest solution
of our difficulties.
There are only 20,000 banks, while there are 15,000,000 depositors,
and I do not hesitate to declare that in a conflict between the two
the depositors have a prior claim to considerations. If we estimate
the average number of stockholders of each bank at seventy-five -and
that is a liberal estimate the total number of stockholders
would only be a million and a half, or one-tenth as many as there
are depositors. The stockholder is not compelled to buy stock, while
the depositor is compelled to use the banks, both for his own sake
and for the sake of the community, for only by using the banks can
he keep his money a part of the circulating medium. The guaranty
law, therefore, brings the greatest good to the greatest number, as
well as to those who have the greater equity upon their side.
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