t
The
VOL. 17, NO. 3
is
V
if.
Iv
!,
ir
'-
Guaranteed Deposits
Speech dollvorod by Mr. Bryan in Topoka,
Kansas, August 27, 1908.
Why not make the depositor secure? The
Unjictl States government requires the deposit
Of specific security when it entrusts monpy to a
national bank, although it can examine .the bank
at any time; the state requires security when
it deposits money in a bank; the county re
quires security and the city requires security;
even the banks require security from tho offi
cials who handlo money. Why should the de
positor bo loft to take his chances?
Not only is the depositor without protection,
but tho security given to nation, state, county
and city lessens his security. They are preferred
croditors; they have a mortgage on the gilt
edged assets and tho depositor must get along
as best ho can with what remains. Why are the
interests of depositors thus neglected-?
A bank asks deposits on the theory that the
depositor is suro of the return of his money,
and the laws ought to make the facts conform
to tho thoory. 'The depositor, the community
and the bankor himself will be benefited by
legislation which will give to every depositor
the assurance that that which is committed to
the keeping of the bank will be available to
meet his needs at any time. Such is no't tile m
case today, for while all banks are reasonably
secure, thoy are not absolutely so. This state
ment can be verified in several ways.
First: The President has advocated a postal
savings bank, and his postmaster-general, in
presenting an argument in its favor, pointed
out that many millions are sent to European
savings banks every year by Americans of for
eign birth, who prefer, to trust the state institu
tions of the nations beyond the sea rather than
the, private banking institutions here.
Second: It is known that a considerable
amount of money is in hiding, tli& amount in
creasing with the approach of a panic or busi
ness depression. This money is not only with
drawn from active use, but is likely to bo with
drawn just at a time when money is most need
ed and when the withdrawal will increase the
financial disturbance1. It is impossible to reas
on with fear; it is futile to tell men that they
will probably get their money. The moment the
depositors suspect a bank, they hasten to de
stroy its solvency. Distrust, and distrust alone,
can explain the hiding of money.
Third: The increase in the issue of money or
' dors, payable to the order of the purchaser, is
another evidence that people are seeking
greater security for their money. The banks will
pay an interest upon deposits, and yet those who
buy money orders prefer to lose tho interest and,
in addition to .that, pay the price of the money
order in order to secure the government's guar
anty. Fourth: National banks confess that their
banks are not secure when they oppose the
guaranty, of state banks on the ground that It
would lessen the deposits in national banks;
and state bankers confess that their banks are
not secure when they oppose a national guar
anty system on the ground that it will draw de
posits away from state banks. ' If you want to
find whether bankB are absolutely secure, ask
. the directors to give you their personal note to
secure your deposit and you will learn that they
will not bear the risk which they ask you to
bear.
Fifth: The experience of Oklahoma furnished
conclusive proof .that depositors do not reel that?
their "money is safe in unsecured banks. On the
17th of December, 1907, the Oklahoma legisla
ture enacted a depositors guaranty law, which
becanSOv operative February 4th, 1908.' By the
provisions of this law, all state banks, and as
many national banks as desire to avail them
selves of the law, are taxed one per cent on their
deposits, and the money thus collected is "put
into a guaranty fund. The banking board is
' authorized to make additional assessments from
time to time to keep the fund up to this amount,
and is directed to take possession of any insolv-
ent bank, pay the depositors in full, and reim
a burse the fund by collecting the assets of the
failed bank. Five hundred, and fifty-five banks,
including fifty-four national banks, had come
under the provisions of this law on ,the 14th ot
last May, leaving but 255 unsecured banks (all
national) in the state. Statements are made by
tho banks in December and May. Between
these periods the secured banks gained in de-
posits $4,237,765.22, while the unsecured banks,
all national, showed a decrease in deposits of
$1,101,807.86. A large part of this increase
represented money brought from hiding or from
without the state, but the decrease in the un
secured banks can only be explained in one way.
A large number of depositors withdrew their
money from tho unsecured banks, and deposited
it in the secured banks, and this, too, in spite
of the fact that in order to prevent withdrawals,
the unsecured banks, in some instances, offered
a higher rate of interest than the secured Danks
were permitted to pay; and it must be remem
bered also that the banlttf which suffered a loss
of deposits were all national banks. And to
make it certain that the difference was caused
by the guaranty law, the secured national banks
gained, while the unsecured banks lost. While
the deposits were increasing in the guaranteed
banks of Oklahoma, they were failing in the
state banks and trust companies of. Kansasthe
decrease being $1,153,026.27 between March
31st and June 13th.
No amount of criticism of the timid depositor
can change the facts; the people who deposit
money want more security than the laws at '
present give them. They will change banks to
get more security, and, if' necessary, they will
send their money to another state.
For many years efforts have been made in
congress and in the various states to secure a
law guaranteeing deposits, but the influence of
the great banking institutions has been sufficient
to prevent action. Last fall, however, when the
banks, by a. .concerted action, .suspended , pay- '
ments on checks, the depositors were every
where brought to a realization of the fact that
their deposits, are, in, fact, loans, payable on
demand under ordinary circumstances, but pay-
able at the will of the bank in emergencies.
The depositors suffered a considerable loss dur
ing the suspension of payments, and they have
not forgotten the lesson Which they then
learned. The democratic party, being more free
than the republican party to respond to the
needs of the masses of the people, inserted the
following plank in its national platform:
"We pledge ourselves to legislation by which
the national banks, shall be required to estab
lish a guaranty fund for the prompt payment of
the depositors of any insolvent national bank,
unaer an equitable system which shall be avail
able to all state banking institutions wishing to
'use it."
TJhis principle has been applied in-Oklahoma
and the results have been very satisfactory.
.The average annual loss to depositors in" na
tional banks during the last forty years has '.
been less than one-tenth of one per cent of the
deposits, and the loss to the fund in Oklahoma,
under better regulations and restrictions, has
.been absolutely nothing during the six months
in which the law has been in operation.
The republican platform is silent on the sub
ject, and the republican candidate not only does
'not advocatea Compulsory system, but specif "
fically and emphatically opposes it. He says: ""
'The democratic platform recommends a tax
upon national banks and upon such state banks
as may come in, in the nature of enforced in
surance, to raise a guaranty fund to pay the de
positors of any bank which fails."
And then he questions the right ofvthe govern
ment to enact such a law, saying:
"How state banks can be included in such a
. scheme under the constitution is left in the twi
light zone of state rights and federalism so
frequently dimming the meaning and purpose
of the promises of the platform. If they come
in under such a system, thev must necessarily
be brought within the closest natiSnal co
and so they must really cease to be state banks
and become national banks."
His solicitude for the state bank will hardly
impress the country, for he is quite indifferent
to states and their reserved rights when he
deals with other subjects, ttfhen congress is in
the control of thoso who want to legislate for
jthe yrhole -people rather than for the few it win
not be difficult to frame a law under which stat
banks can arall themselves of the advantages n?
a federal law guaranteeing the deposits of Da
tionai banks, just as it was easy in Oklahoma
to frame a law which permitted national banka
to take advantage of the state guaranty system
It will also be easy to enact a federal law which
will permit national banks to avail themselves
of state guaranty systems Until a national sys
tem can be secured. Attorney-General Bona
parte's ruling, whether it correctly interprets
the law or not, would not bring such consterna
tion as it does if the republican candidate fa
vored a law allowing national banks to take ad
vantage of state systems for the protection of
depositors, but Mr. Taft's hostility to all guar
anty systems is .shown in the objection which
ho offers:
"The proposition is to tax the honest and pru
dent banker to make up for the dishonesty and
imprudence of others. No one can foresee the
burden which, under this system, would be im
posed upon the sound and conservative bankers
of the country by this obligation to make good
the losses caused by the reckless,, speculative
and dishonest men, who would be enabled to
secure deposits under such a system on the faith
of the proposed insurance; as in its present
shape, the proposal would remove all safeguards
against recklessness in banking, and the chief,
and, in the end, probably the only, benefit would
accure to tho speculator, who would he deligkt
edto enter the banking business when it wa3
certain that he could enjoy any profit that would
accrue, while the risk would have to be assumed
by his honest and hard-working fellow."
He even pictures dire disaster and declares
that "if the proposal Were adopted exactly as
the democratic platform suggests, it would bring
the whole banking system of the country down
in ruin."
" As an afterthought, he. suggests that a vol
t untary system might, be tolerated, but as his
objections -o a' compulsory system apply just
as well to a voluntary system -we may fairly
count him against all legislation which has for
its object the guaranty of depositors.
As JMr. Taft's argument id that presented by
the big banks which put their own selfish in
terests above the welfare of the depositors and
the safety of the community, it is worth while
to answer several propositions which he ad
vances. Let us take the first sentence, that "the hon
est and prudent banker would be taxed to make
up for the dishonesty and imprudence of oth
ers." Is not this true of all restrictions on
banking? Does not the honest and prudent
banker, under existing laws, suffer in order that
the depositor may be protected from the dis
honest and imprudent? If we had no banking
laws at all, and banking was done by private
individuals, the honest and prudent banker
would save the money that he now pays for en
forced examination of his hank, and he could
at times make interest on -a part of the money
which' he is now required to keep in his vault
OS a rigid reserve. But because some bankers
are not prudent, these laws place a burden up
on ttie good as well as upon the bad, it being
difficult to distinguish the prudent banker from
the imprudent one until a bank actually fails.
In like manner it might be said that if all
people were careful about fire, fire insurance
rates need not be as high as they are, but the
careful have to pay higher rates than they
should because some- are not careful. Life in
surance rates are higher than would bo neces
sary to cover the aotual risk if everybody tooK
care of Ills health,. and here, too, the cautious
are burdened because some are careless of tneir
health. All insurance is open to the same oo
jection, and yet insurance of all forms is grow
ing, and the insurance of depositors w Browns
in popularity more rapidly than any other lorw
of insurance and, I may add, it yields the
largest return on the investment.
Mr. Taft complains that "no one can forese
the burden which, under this system, wouio
imposed upon the sound and conservative uu
ers of the country by this obligation to w
good the losses caused by the reckless, w
lative and dishonest men," etc. o -
lative ana aisnonesi mcu, . fr, Relieve
past to guide us, and we have reason to dl
that the loss, will be'less in we iui-
the past, because when banks become mm
L
