The commoner. (Lincoln, Neb.) 1901-1923, September 18, 1908, Page 9, Image 9
yyf- '"VW'T l T 4p.wwiwff -yHh e ?j .. jfr i' , 4v?i ' r f f A" j8EPTEMBEIitl8-,' 1908 Commoner 9 10- Guarantee Fund to Protect Bank Deposits The following paper was read before the Candle Light club, Lincoln, Neb., January 27, 1908, by Dr. P. L. Hall, president Central Na tional bank, Lincoln, Neb.: I am in favor of a guarantee fund to pro tect bank deposits in stato and national banks, coming to this conclusion after a careful study of the reasons favoring and the objections there to. I believe the time is near at hand when without some provision for a guarantee of bank deposits, this country will adopt the European plan of postal savings banks. This can not mean anything else than ultimate disaster to the small independent banks, especially of interior points, .by taking deposits from all points touched by the postal service and aggre gating such deposits in favored central banks, much after the manner that government de posits are now distributed and always have been. The writer is opposed to any system which will take from even a cross-roads point, any re sources created there and which should be used there for the upbuilding of that community, and carrying them to some central point to become a plum to be controlled by some political accident. The persistent agitation of postal savings banks and the growing sentiment among the people favoring some government protection, especially to the smaller depositors, seems to indicate that unless some step is taken by the banks, state and national, that in the not distant future they will come in direct competition with the government itself for the deposits of the people. Believing the above to be true, I can not help but think it is imperative that the banks anticipate ,any, such probable outcome by at puce acceding to the ,sentiment of a large portion of the people orso'mg provision that will at least come near meeting .the demand., Here in, the west we" certainly will suffer more from the competition of .postal savings banks than will the eastern, cities. , For some reason, or in some way,, when the government has any favors to gran'tejrestvually. reqeives secondary cpn- j sideration. . Probably because New York and the larger cities adjacent thereto are geographi cally situated so that they are In closer touch with the government authorities. . With a full knowledge of the importance and far-reaching effect of legislation looking to the guaranteeing of bank deposits, I will en deavor to state briefly such facts and conclu sions as have come to me in a study of the various phases of this question. It is with no overconfident estimate of my ability that I attempt the role of advocate in deal ing with a matter of such vital impor tance and interest to thousands of people and millions of wealth. But the question seems to be on for settlement and whether set tled right or settled wrong its consideration is now being forced .and decision must be made soon unless all present indications fail. Oklahoma on the south has already adopt ed a law, which goes into effect February 15, and while the law adopted in that state is im perfect in many particulars and falls short, in many necessary essentials, of & perfect measure, yet it is so nearly practicable that by amend ments it may very easily be made a safe and workable law. The action of Oklahoma has stirred the state of Kansas to such an extent that a special session of the legislature is now being held. One of the principal objects of calling the special session, I am informed, is the pressure that has been brought by the peo ple, and to some extent by the banks of .Kansas, for a law of a similar nature. ThisJs clearly a defensive action on the part of Kansas. Al ready the action of Kansas is having a material effect on the minds of people in Nebraska and I have no doubt the next session of the legisla ture in this state will see this matter up for consideration. The struggles that ended the life qt the United States bank committed this country to the independent banking system In contra-dis-tinction to government control or semi-control and branch banks, as existing in other countries, especially in Europe. It is not necessary here to consider the relative merits of the two sys tems. The independent banking- system we have and with all its imperfections, the people of this country have steadfastly refused to exchange it for the banking system of any other country. It is a characteristically American system in that it offers the fullest and widest opportunities for individual initiative and effort. -It may he -and -isctiriperfect-in many ways and-it may-and does fail to fully meet all renulrfimontn hn If hne been a virile force in, and adjunct to, the might iest development and progress that ever marked the rise of any nation in the world. The meas ure of the wisdom that originated and perfect ed the system is clearly vindicated in the record it has made. The United States is but little over a cen tury old and yet it has forty-two per cent of the banking power of the entire world. It has a banking power of sixteen billions as against twenty-two billions for all the rest of the world. "When you hear an American criticising our banking Bystem and suggesting some old world system, such as asset currency or brancji bank ing, point to the above record. Just how much the Bplrit behind and con trolling this independent banking system has influenced the forces that have driven this civ ilization through forests, across plains and over mountains from the Atlantic to the Pacific, who knows! In view of the achievements of the people of this country working with -this sys tem, we have a right to believe It has been best for us and best suited to our needs. But the world mbcs, conditions change, requirements alter and everything must either go forward or backward. If this system is to be continued as the banking system of this country it must be improved from time to time to meet the demands and necessities of changing conditions. From the beginning we have had inde pendent state banks and for more than forty years, independent national banks. The one chartered by the state and the other by the nation. Both operated under the same theory of corporate independence an,d individuality. We have seen banks operated .under both systems,, in time of financial peace and in time of finan cial storm, go down. Side by side stand the strong and the weak. The strong glvjng. no help to the, weak, the weak asking none, know ing it would be useless to ask, as the iron law of competition ajid the universal rule of the survival of the .fittest utand,, as. mmqyabje uarners. t I Hf In the panics of 1837, 1857 and 1893 banks went down like broken reeds. However, In the panic of 1893, here and there was a concerted action by clearing houses in cities for the com mon good and since then there has been more of a tendency toward lending mutual assistance in time of trouble, stimulated by the fear of loss of the people's confidence following failure. Two years ago in the city of Chicago, was witnessed the taking over of one of the largest banks in that city by the other clearing house banks. It was not philanthropy; it was not sympathy for the depositors of the failing bank it was business. It was self-interest, and was done to protect the remaining banks of that city from the contagion of fear that might follow, which. is something every banker every where learnB to dread. The action was taken Xo preserve confidence, for confidence is .to a bank what faith is to religion. In the recent panic there was a hastily -formed compact here in the city of Lincoln, by which the banks stood as one bank, protecting and aiding each other until the storm passed. All over the United States, from ocean to ocean, from lakes to gulf, in one day, from Saturday's closing to Monday's opening there was a sus pension of currency payments and only concert ed action and a hastily formed compact with marvelous patience and loyalty of depositors saved this country from a panic of such disas trous proportions that those who understood its full import feel that it might have gone round the world. This panic demonstrated as never before the interdependence of banks in a time of crisis and indicated the power of-concrete and concerted action to meet emergencies. Had eaoh bank in the recent crisis stodd by itself the result would have been appalling and in stead of the people as they are today.-looking toward the future with hope and confidence, we would now be in the midst of tfinancial gloom. This concerted action and evide'nt inter dependence has done much to impress the people outside of the banks and awaken sentiment In side of the banks to the fact that some move, some system, some provision is vitally neces sary to enable the banks to meet such condi tions in the future. This brings us to the question of a guaran tee fund or mutual insurance for the protection of deposits. The probabilities are, this will take .the form of a 'tax.-on. the-. banks enforced and Controlled by the supervising authorities. This acorns to bo, at tho present time, the most pop ular method offered. By tho banking frater nity as a whole, in tho past, it has been looked upon as Impracticable and undesirable, but events arc forcing consideration and oven bank ers aro becoming advocates, believing it will maintain confidence and ward off government competition. Few indeed aro tho bank oincers who have not had this question of confidence brought to their attention in tho last two or three months. Many of thorn would doubtless havo been glad to pay a tax did it give relief from tho necessity of the strenuous efforts they had to make to allay the anxiety of their depositors. The situation in which tho banks were placed during that period, while It had a serious and comic side, was exceedingly unsatisfactory to both depositor and banker. Had the pcoplo known they were fully protected by a guaran tee of ultimate payment, there would havo been little or no disturbance and probably In tho west no suspension of currency payments. With out doubt this recent experience and tho hearty co-operation of tho people with tho banks, so lately demonstrated, brought tho depositor and tho banker nearer together than ever before in the history of banking in this country. It did much to riyot tho attention of tho public to tho wisdom of some remody that, under similar cir cumstances, might bo of benefit. The man on the outside of tho counter is probably more interested in something being done f.han ever before. It, Is npt to bo forgotton that ot tho total banking power of the United States tho stock holders of banks havo Invested less than three billipn dollar, whilp tho depositors havo invest ed twelve billion dollars, It takes a good de gree of temerity to deny to. the owners of tho twe.lvo hiJHpn dollars. in Uiolmnks a considerable' voicp In the laws governing these institutions' and that is why the public are assuming tho right to dlscusfj tho question of a guarantee fund to protect deposits. The .whole i matter Booms to resolve itself into a settlement- of, 'tho following propositions: Is it practicable and can a tax be levied sufficient ar. J yet npt be oppressive to fully pro tect deposits? Take the national-banking system as an example. For forty-five years that system has existed and through war and peacp, through prosperity and panic, year by year, its record has been written in tho archives of the treasury department at Washington capital, surplus profits, deposits, loss to depositors, in detail and total aro given and from those records it would seem that an annual tax of less than one-tenth of one per cent, on the average deposits for tho whole time would have paid all losses sustained during thp life of that system and then left some remaining in the fund. The average annual deposits in the national banks from 1865 to 1904, as shown by tho rc--port of the comptroller of the currency, wero $1,333,063,452. The annual loss to depositors is shown to be $1,075,724. It is to bo remem bered that legal restrictions and bank super vision were not, in the earlier years of the sys tem, the safeguards they now are, so that even a less tax with present supervision and restric tions would doubtless meet all losses sustained. An analysis of tho reports of tho depart ment of banking of this state shows that under state supervision approximately the same re sults have obtained. If the foregoing is true then this objection can not bo sustained, for such a tax would not bo oppressive. Would it be equitable to compel the pru dent, careful banker to pay a tax to protect depositors of the reckless, dishonest or incom petent banker? I am going to let James B. Forgan, president of the First National Bank of Chicago, answer this question for none have put the objections in more concise, terse language than .Mr. Forgan. "I an very decidedly opposed to such a proposition and my reason Is that if the gov ernment Is going to guarantee the deposits of all the banks, it completely eliminates the neces sity of the public discriminating between one bank, and another. The old-established bank with a record of many years of conservative management and accumulated strength would become just the same in the eyes of the public as a bank in the hands of speculators or in competent or dishonest managers. Ultimate ly the banks honestly managed, would have . to pay for the escapades of the dls- . honestly managed banks and there would bo "'-- (Continued 'on Page 12) , ; -- ill IF - Vfc v t iH t: ' M Wi y i v m ggi lAfrhiJ . iic. . mjaany ,.j, 'torn i