JANXTAKT 1J, 111
5
The Commoner.
gponsible for each other's deposit they will b
sufficiently interested in each other to favor bet
ter regulation and greater restrictions.
KWhat has Mr. Taft done to protect depositors
from recklessness and speculation T Whilo ho.
refuses to protect depositors, he praises the
Aldrich-Vreeland law, which invites speculation
and stock jobbing. In declaring that the system
proposed by the democrats "would remove all
safeguards against recklessness in banking'
Mr. Taft betrays an Ignorance of the subject,
for the plan does not propose the removal of
any safeguards. In fact, It contemplates stricter
regulations of the banks, and Oklahoma has
already made the banking regulations stricter.
He declares that "the only benefit would ac
crue to the speculator, who would bo delighted
to enter the banking business when it was cer
tain that he could enjoy any profit that would
accrue, while the risk would have to be assumed
by his honest and hard-working fellow." The
present banking law requires that a certain
amount of capital shall be invested in the busi
ness, and that law would still stand. To enter
the banking business, therefore, a man would
either bave to have the capital himself or secure
the confidence of men who had the capital. And
this capital, together with the 100 per cent lia
bility, would be a guaranty that the stockhold
ers would not intentionally select careless offi
cials. Why would a "speculator" be "delighted
to, enter the banking business" under tho guar
anty system? He is not relieved from pecuniary
obligation, nor is he relieved from criminal lia
bility. He would have nothing to gain by care
lessness, nor would tho stockholders have any
thing to gain by indifference.
Tho chief cause of bank failures is-the making
tff excessive loans to directors or officials of
he Bank. This is tho fruitful cause of disaster
and it has been imppssible to secure legislation
protecting banks from their own officials and
directors. "Why? Because there has been no
mutual responsibility. When all banks become
liablo for tho deposits of each, the stockholders
will insist upon the enactment of a law making
it a criminal offense for a bank official to loan
more than the prescribed amount to one indi
vidual. At present we have a law prohibiting
the loaning of more than one-tenth of the capi
tal and surplus to one person or corporation,
but' the" law is only directory. Of course, the
comptroller can suspend a bank if it violates
the law, but the law is "not enforced, because
the "enforcement of such a law would throw
tho punishment upon innocent stockholders and
upon the community, since the suspension of a
bank inflicts a great loss upon stockholders and
disturbs the business of the city or town in
which the bank is located.
The law should make It a criminal offense to
loan more than the prescribed amount to one
person and we would probably be able to secure
the passage of a law prohibiting market specu
lation by bank officials.
The Oklahoma plan is better. A bank recent
ly failed in Oklahoma; within forty-eight min
utes after the notice of suspension, the officer
in charge had authority to pay all depositors,
and then the banking board proceeded to col
lect the assets of tho bank and to prosecute tho
officials criminally. When the business was
closed up, the stockholders passed a resolution
thanking the, state boayi for its prompt action,
the action ' - ' r-u :belng a protection" to
the stockholders1," eta -wglP'as to the depositors
and to the public generally.
Compare this failure under the guaranty sys
tem 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 answer, was, "I am busy today with
my crop; I will be in ina day or two."
In Cleveland, Ohio, a bank failed about tho
same time, and tho 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 guar
anty law that a "new bank would start up across
the street," and, being able to promise' its de
positors absolute security through the guaranty
law, could draw the deposits away from con
servatively 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 alreadjr
fixed the rate of interest that can be paid to
depositors. According to the rules of the bank-
ing board, no bank is permitted to pay moro
than three per cent on short-time deposits or
moro than four per cent on timo deposits run
ning for six months or more.
It has also been urged as an objection that
tinder tho 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 tho system, for banks
are made for the people, not tho people for tho
banks. Whilo there are advantages In having
big banks, the advantages aro not sufficient to
justify tho jeopardizing of tho depositor or of
tho business interests of a community.
But, as a matter of fact, tho big bank would
still havo several advantages over tho smaller
one. In the first place, it could make- larger
loans than tho small bank. For instance a bank,
with $1,000,000 capital and surplus could, as
at present, loan $100,000 to ono person, whilo
a bank with $100,000 capital and surplus could
only loan $10,000 to ono person. This advan
tage would in itself draw to tho largo bank tho
large deposits and the men doing business upon
a largo scale, for deposits follow accommoda
tions. Then, too, there is a certain business advan
tage 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 investi
gated, and worth still moro to have ho advice
of a man of large business experience when
business enterprises aro being considered.
Besides these there is a social advantage in
being on good terms with the men who aro
prominent in tho banking world. Surely tho
big bank's prestige will be worth enough to
it under the guaranty system; it should not
begrudge the smaller banks tho advantago which
tho guaranty of deposits will bring to them.
I cannot pass from this subject without re
ferring to the fact that tho 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 tho calamity to the com
munity 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 tho failure of tho small
banks.
, It has sometimes been objected that tho guar
anty Bystem would bring into the hanking busi
ness a lower class of mon and reduce tho average
in character. On the contrary, the guaranty of
deposits, I submit, would, if it made any differ
ence in this respect, bring Into the banking busi
ness 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 loso money on his
.account. Is it not a mark of character that a
man should be careful of his good name and
considerate of the esteem of his fellows? At
present a successful farmer or business man may
be induced to take stock in a bank. It may bo
that his name is desired to give standing and
credit to the bank, but such a1 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 possible
that tho bank's assets may be entirely dissipat
ed, and that the honest citizen, who has become
a stockholder, may either bo compelled to go
beyond his legal liability or meet the bitter
criticism of the depositors who have suffered
by the failure. Would it not bo worth some
thing to the stockholder, in peace of mind, to
know that the maximum of his loss would bo
the value of his stock and the 100 per cent lia
bility, and that no depositor could lose any
thing? I am convinced that the guaranty of
deposits would not lead to degeneration in the
personnel of tho bankers.
To justify a law guaranteeing depositors, It
is not necessary to show that tho advantage to
the bankers would amount to moro than tho
tax. Tho examination of the banks would con
tinue to be made at tho expense of the banks,
even if it were certain that tho examination Was
of no pecuniary advantage to tho banks. The
law would continue to require a certain amount
of reserve to be kept on hand, even if it wero
certain that such a law brought no pecuniary
gain to the bank; and so the banks ought to be
compelled to insure their depositors against loss,
oven if It could not be shown that such insur
ance would bring a compensating advantage to
the bank. The bank charter has a value; if i.t
were not valuable the bank Would not be or
ganized. The bank charter is a gift from the
people through the law, and tho people who
anthoriz'e .m the establishment of a bank 'hiavo a
right to demand, in return, that' the b'ank1 shall
keep the pledge whlch.it gives yhen it- Invites
deposits, and mako good Its promises of security
to thoso who deal with It.
But as a matter of fact, tho banks will, as a
rulo, gain moro from tho law than thoy will
loso by the tax Imposed by tho law. Tho ox-'
porionco of tho Oklahoma banks shows this. Tho
interest collected upon the increased doposlts
will far more than pay tho losses occasioned
by insolvency. But two banks havo failed and
tho assets havo in both cases been sufficient to
rolmburso tho fund.
Then, too, tho banks must remember that
tho question is not merely whether depositors
shall bo made securo, but whether the security
shall bo given by tho banks themselves or by
the government through n postal savings bank.
Tho refusal of tho banks to pormlt the passago
of a law granting security to depositors is re
sponsible for tho growth of tho sentiment in
favor of tho government savings bank, and tho
sontimont will continue to grow unless some
thing is done to satisfy tho demands of the peo
plo upon this subject.
The republican party proposes the establish
ment of a postal savings bank system; tho dem
ocratic party prefers tho guaranteed bank bo
cause it is bettor for tho depositor and bettor
for tho banker it gives tho depositor the se
curity which ho needs and yet leaves tho bank
ing business in tho hands of tho banks. But tho
democratic platform declares for "a postal sav
ings bank if tho guaranteed bank cannot bo
secured," and in November more than ninety
per cent of tho voters will, by their ballots,
demand either tho guaranteed bank or tho postal
savings bank. Can tho financiers prevent tho
carrying out of this demand?
Tho republican platform does not go into de
tail, but it is fair to assume that tho postal
savings bank plank is intended as an indorse
ment of tho postal savings bank system pro
posed by the president and postmaster general.
Under this plan the federal government would
Invito tho deposit of savings, a limit being
placed upon tho amount that each person or
each family could deposit. According to. this
plan, the business man would not bo protected,
for he uses a checking account Instead of a
savings account; but no ono can doubt that
the successful operation of a' government savings
bank would ultimately lead to an extension
of tho plan until tho government bank would
include the ordinary checking account and bo
open to deposits without limit. It would mean
a long contest between the depositors and tho
bankers, but a contest which must in the end
bo decided on "the side of tho depositors. Tho
banker must decide, therefore, whether he will
favor a' postal savings bank which, in the ab
sence of tho guaranty bank, will grow until it
absorbs the banking business, or preserve tho
present system of banking by giving to the peo
ple, 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 tho
democrats with being socialistic in some of their
remedies. Tho charge was not well founded,
but I might reply by charging him with advo
cating an unnecessary extension of tho govern
ment's sphere of activity in the establishment of
the postal, savings bank, when tho guaranteed
bank would answer the same purpose without
any considerable increase in the number of gov
ernment employes. I would rather see tho banks
attend to tho banking business than to have it
transferred to the government, and because I
prefer to have tho banking business done by
tho banks rather than by tho government, I
urge the guaranty of deposits as tho easiest
solution of our difficulties.
There are only 20,000 banks, while there aro
15,000,000 depositors, and I do not hesitato
to declare that In a conflict between the two
the depositors havo a prior claim to considera
tion. If we estimate tho 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 aro depositors.
The stockholder is not compelled to buy stock,
while the depositor is compelled to use tho
banks, both for his own sake and for tho sake
of tho community, for only by using the banks
can he keep his money a part of the circulating
medium. Tho guaranty law, therefore, brings
the 'greatest good to tho .greatest number, as
well as to thoso who have the greater equity
upon their si'do.
There is another reason why tho claim of tho
depositor is superlorto the claim of the stock
holder. The stockholder has a voice In the selec
t
S-'JL:
feil't
tfWl.
Wi
8C
r.iiar fr'ifc.
..f'.Jll