The Commoner.
9
(t
NOISY OPPOSITION AND CLEVER SOPHISTRY
OF CORPORATION POLITICIANS"
By a Former Cabinet Officer
NOVEMBEH 1, MM
In its Issue of October 15 the Chicago Jour
nal printed an article dissecting the arguments
against guaranteed bank deposits, This article,
the Journal assures us, wan written by "a fdrmer
cabinet member." Inasmuch as guaranteed
bank deposits will bo a live issue until the peo
ple secure the reform this article will be of in
terest at this time. Here it is:
m Washington, October 14. Tho continuous
attack on tho democratic proposal to tguaranteo
bank deposits has led me to investigate this
question somewhat closely, with rather surpris
ing results.
Prom careful study of general banking con
ditions, and from analysis of the statistics set
forth in the last report of the comptroller of
the currency, I am quite sure these attacks are
based on false premises in every instance where
figures are quoted to back up the opposition.
I am equally sure, artd I make the charge
deliberately, that big , depositors, both individr
uals aiid corporations, h,ave fbsteredthis opposi
tion to deposit insuranqc, because' they are -very
largely .protected under present conditions, and:
they are unwilling to stand even the slight ex-
pense.of making. the small .depositor safe!. . l',t
- - The large depositor. is -the large? borrow'ew
If "his bank- fails:' he' charges' up his" deposit
against 'whatever he-'htis Borrowed, and' fe'duces
his Joss to a minimum. The. small dep'ogUdrthq
man whosq- savings re .jhe basis Qf alb oun
banking, is the man 'who suffers. .'-
r, '"). BIG BEPOSPTQR PRQ'JJECJPEI) , ", ..
' Suppose' histfccb'iint never shows nore than'
5500 'balance' at the 'bank.'. His. $500 and' the
$500 deposits, of ninety-nine, other 'small de
positors are used to make, a $50,000 loan to a
big depositor whoso deposit account amounts
to $50,000.
The bank fails. The receiver asks tho big
depositor to repay his loan to the bank. He
presents his bank book showing his $50,000
on deposit. His loan is canceled.
The big depositor who was a big borrower
has saved his entire deposit of $50,000, while
the one hundred little depositors at least tem
porarily lose their one hundred deposits of $500
each.
It is easy to see why rich men, rich corpor
ations, and politicians who are supported by rich
men and rich corporations make all sorts of
dire prophecies and reckless statements as to
what will happen if anything changes the pres
ent system of banking, under which one big
depositor's account is insured at the expense
of a dozen, a score, or a hundred depositors of
small means.
SHOWS HUGHES PROPHECIES SILLY
Governor Hughes in his western tour has
attracted a good deal of attention by his state
ment of what would have resulted under a bank
deposit insurance system in New York state.
Let us see what would have happened, not last
year, and not in New York state alone, but dur
ing tho entire forty-three-year period from the
beginning of the national bank system up to
1907.
These figures are taken from the last re
port of William B. Ridgely, comptroller of the
currency, and furnish a complete history of
our banking system, showing every detail dur
ing the forty-three-year period above mentioned.
Of 8,489 banks organized in forty-three
years, 447 have failed. The aggregate, lqss of
depositors was. $4,7,911,583, or $1,114,2;28 a
year. ")
To remoye aH possibility that anyotypj Can
consider my ; reasoning: unfair I will cdnflnfe; .it
to the 387 which! haye bad. their affairs (wound
upout of-'4,47''banks-that failed.'. The' sixty,
lianks whose -affairs are now in the hands of .
receivers have millions of undistributed assets
which will reduce tho loss below tho amount
above mentioned.
The depositors of tho 387 national banks
that have been wound" up lost a total of $24,
700,029. Compare this with the aggregato de
posit of $5,-256,100,000. An annual tax of one
ninth of one per cent on deposits would have
paid tho entire loss.
UNJUST? WHERE? WHY?
There has been loud complaint of what an
unjust tax this would bo to impose on the de
positor. Let us see. In 1907 tho United States
government received from" its semi-annual tax
on circulation $2,800,070.54. Tho department
of tho comptroller of the treasury spent but
$413,759.41 all told.
The government's not profit was exactly
$2,392,31113, Observe that this sum is irtoro
than enough to pay the average loss of deposi
tors for two years. If this profit were turned
over to tho bank deposit guaranty fund, it would
furnish the. entire necessary protection, without
a dollar of cost to tho depositors,
WHERE'f-S THE EXPENSE? 'J
Is It fair to, object totbe "expense" of Insuring-bank
deposits wlion the .present system
imposes enough unnecessary tax o insure all
depositors twice' over? Or are the objectors
animated more by' a desire to protect tho hig
depositors against the" small depositor, rather
than by apy conviction, of what Is .right or
wrong?
The government's total accumulation from
the national 'banking business' In fory-threo
years is $90,250,915.24. Tho total loss of de
positors, including the sixty banks now under
receivership, and whose losses will be reduced
by millions when the assets are all turne.d inttj'
cash, is only $47,911,583 for tho same period.
These figures effectually dispose of the in-.
justice" outcry that has been raised against tlio
insurance proposition. Add the profit of tho
government from bank notes never presented
for cancellation, and the maintenance of a largo
part of its circulation at Tao expense and it cer
tainly looks to me as though the government
could afford even to set aside an Insurance fund
without adding a penny to the depositors' ex
pense. SMASHES OFFICIAL'S ARGUMENT
Various writers and speakers, among them
tho deputy comptroller of the currency, argue
that it is just as reasonable to insure the stock
holder of a bank as he is more likely to lose
than is the depositor. Here are the facts:
In forty-three years national bank stock
holders have paid $17,616,104 under the stock
holders' liability act, and they have lost $59,
622,420 by depreciation of st"ck values, which
in some cases have been entirely SLlped out. A
total of $77,238,824 loss in forlFlhree years.
The comptroller's last report shows an aver
age dividend of 17.2 per cent for the sixteen
months just concluded on the stock of all the
national banks in the country.
During the same period surplus and undi
vided profits increased $69,983,898, adding
what is in effect an 8.3 per cent divldent on
their entire capital. . With this showing of 25.5
per cent earnings in sixteen months the poverty
stricken owners of national bank stocks need
protection as against the small depositor, it
is preposterous. If national hank stocks weren't
the best) investments ln America they wouldn't
bo held! entirely by millionaires. J T
There Isn't one Jogfcal argument against
the insurance of deposits. " Goveriior Hughes is
of statistics, which aro very evidently Intended
to 'mislead anyono who roads them carelessly.
SHOWS CLAIM NONSENSICAL
Tho nonsensical claim that such Insurance
would mako gamblers and thiovcB by whblosalo
out of heretofore honest bank ofilclals Is child
ish foolishness.
Tho comptroller's roport gives twenty-eight
distinct causes for bank failure. Of the 447
banks failing in forty-three years, 428 collapsed
through defalcations, frnuds, or other violation
of law, frequently cxccbsIvo loans to officers aiid
directors, which for somo mysterious reason
havo escaped classification as crimes.
Twenty-nine, failures wore duo to doprc-
elated securities, failure of largo borrowers,
runs, or being closed by directors for fear of
runs. . i, '
Twonty-ono of theso twonty-nlno banks'
have either Resumed business or p'ald' tiielr de
positors in full. ', 'Only' eight of , theso batikV
failcdJpermanently, and their total loss Lo de
positors' was $300,222.25; or less than $8,500 a
vFifr ' '
"T
JLv
cleverly begging .the question. In his neat array
.,. . Tq whole safety of tho depositor Uc in
honest banking, and the figures I have givpn.
prove It beyond tho shadow of doubt. '- wtf
. ', SHOWS TRIBUNE IN ERROR " '' t
"j The Chicago Trlbuno has recently been
quotod, as objecting editorially to tho' "injus
tice." .bank" deposit insurance would work, in)
Now York, Massachusetts and New Jersoyf where,
the failures would bo rare, and the assessments'
therefore an excessivo end needless hurden on
the poor depositor. If the Trlbuno made supH
a' statement it must havo taken leave of its
senses. '-'.
Now York, New Jersey and Massachusetts
according to tho Tribune's interpretation,' must
shoulder 45 per cent of tho entire loss to de,
posltors In forty-three years in the United
States, her territories and dependencies. ,: -
Bank losses arc not a question ef territory.'
Thoy are a question of common honesty. ' 'In
the District of Columbia, right at the center of
national life and law, depositors havo lost
$771,554,40, . In Wisconsin, which includes
Milwaukee with bank clearings of twice Wash
ington's transactions, the loss has been but
$131,702.72. Honesty Is not geographical, as
tho Chicago Tribune appears to think,, And
honesty is the wbolo Issue. $ Jo-.
More thorough examination by liborally-
salaried examiners; elimination of assistance
from within the bank in checking securities
and accounts; reduction of loans exceeding to
prescribed limit with immediate nptification of
the comptroller and the directors of the offend
ing bank; refusal to permit allied banking in
stitutions under one roof (to prevent temporary
transfer of securities for the benefit of the ex
aminer) ; punishment of directors who lend or
sell their names; punishment of directors also
for false statements to examiners or tho comp
troller; theso are needed reforms.
The profits of tho currency department are
large enough to warrant an increase In the
efficiency of the force. The government and tho
fidelity guarantee companies can enforce hon
esty among bank officers. The burden of de
posit insurance has been misrepresented, and
the dangers are imaginary.
"The underlying substantial wealth of our
industrial and agricultural classes," which
Comptroller Ridgely In his letter of last New
Year said "saved us from a worse panic," is
bearing the burden today. - -
And all the noisy opposition and clever
sophistry of corporation politicians directed
against bank deposit insurance is merely; tie at-
tempt to prevent any just part of tbla&Ura'e -til'
being, transferred to the big depositorwhote 'f"
day profits at tho expense of the little fellow
ai
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tani'-M
