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About The commoner. (Lincoln, Neb.) 1901-1923 | View Entire Issue (March 1, 1917)
fw The Commoner MAEOH, 1917 17 s responsible for each other's deposits they will he sufficiently interested in each other to favor better regulation and greater restrictions. What has Mr. Taft done to protect depositors from recklessness and speculation? While ho refuses to protect depositors, ho praises the Aldrich-Vreeland law, which invites speculation and stock jobbing. In declaring that the sys tem proposed by the deomcrats "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 better regulations of the banks, and Oklahoma has already made the banking regulations more strict. Ho declares that "the only benefit would ac crue to the speculator, who would be 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 as sumed 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 have to have the capital himself or se cure the confidence of men who had the. capital. And this capital, together with the 100 per cent liability, would be a guaranty that the stock holders , would not Intentionally select careless officials. Why would a "speculator" be "de lighted to enter the banking business" under the guaranty system? He is not relieved from pecuniary obligation, nor is he relieved from criminal liability. .He would have nothing to gain by carelessnessj nor would the stockhold ers have anything to gain by indifference. The chief cause of bank failures is the mak ing of excessive -loans, to directors or officials of the bank. This is the fruitful cause of dis aster, and it has been impossible to secure legis lation protecting banks, from their own officials and directors. Why? Because there , has been no. -mutual. responsibility. When all hanks be-come-liable for -the vdeposjts of each, the .stock holders 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 individual At present we have a law prohibit ing the. loaning of more than one-tenth of the .capital and surplus to one person or corpora tion, but the law is only directory. Of course, the comptroller can suspend a bank jf. it vio lates the law, but the law is not enforced, be cause the enforcement of, such a law would throw the punishment upon innocent stock holders and upon the community, since the sus pension 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, and1 we would probably be able to se cure the passage of a law prohibiting market speculation bybank officials. The Oklahoma plan is working satisfactorily. A bank recently , failed in Oklahoma; within forty-eight minutes after the notice of suspen sion, the officer in charge had authority to pay all depositors,- and then the banking board pro ceeded 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 ?--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 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 Gostan Liopea, on Orange street today. The' police drove the crowd back." V- 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 fnterest than the latter could pay. This objection ! urged as it it were an unanswer able one. But lot us see how easily it can bo mot. Since tho law makes all of tho banks li able for tho obligations of each bank, tho law should prohibit any abuso of this security by any bank, and in Oklahoma tho banking board has already fixed tho rate of interest that can bo paid to depositors. According to tho rules of the banking board, no bank is permitted to pay more than three per cent on short-timo de posits or more than four per cent on time de posits running for six months or more. It has also been urged as an objection that under tho guaranty system a big bank would have no advantage over a Httlo bank. Even if this argument were sound, it could not weigh againBt the advantages of tho system, for banks aro made for the people, not tho people for tho banks. While there aro advantages in having big banks, tho advantages aro not sufficient to justify" tho jeopardizing of tho depositor or of the business interests of a community. But, as a matter of fact, tho big bank would still have several advantages over tho small 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 pres ent, loan $100,000 to one person, while tho 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 tho large deposits and tho men doing business upon a large scale, for deposits follow accommodations. Then, too, there is a certain business advant age In depositing with a big bank. It is worth something to bo 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 en terprises aro being considered. Besides these, there is a social advantage in being on good terms with the men who are 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 the advantage which the guaranty of deposits will Tiring to them, I can not pass from this subject without re ferring to the fact that the big bank needs tho 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 commun ity when it fails. No bank is so big as to bo ab solutely 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 tho guar anty system would bring into the banking busi ness a lower class of men and reduce the aver age in character. On the contrary, the guar anty of deposits, I submit, would, if it made any difference in this respect, bring into tho banking business a better class of men and raise, if that is possible, the average of character. It is not to a man's dlscreditthat ho is not willing that one of his fellow meiNshall lose money on his account. Is it not a mar-k 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 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 possible that the bank's assets may be entirely dissipated, and that the honest citizen, who has become a stock holder, may either be compelled to go beyond his legal ability or meet the bitter criticism of the depositors who have suffered by the failure. Would it not be worth something to the stock holder, in peace of mind, to know that tho max imum of his loss would be the value of his stock and the 100 per cent liability, and that no de "posltor could lose anything? I am convinced that the guaranty of deposits would not lead to degeneration in the personnel of the bankers. To justify a law guaranteeing depositors, it i3 not necessary to show that the advantage to the bankers would amount to more than the tax. The examination of the banks would con tinue to be made at the expense of the banks, even if it were certain that the examination was of no pecuniary advantage to the banks, The law would continue to require 4, certain amount of reserve to be kept on hand even if it were certain that such a law brought no pecuniary gain to the bank; and so tho banks ought to fee compelled to Insuro thoir depositors against loss, oven if it could not bo shown that such insur ance would bring a compensating advantago to tho bank. Tho bank charter has a value; If it were not valuable tho bank would not bo or ganized. Tho bank charter Is a gift from the people through tho law, and tho people who au thorize the establishment of a bank havo a right to demand, in return, that tho bank shall keep the pledgo which it gives whon it invites de posits, and make good Its promises of security to those who deal with It. But as a matter ol! fact, tho banks will, as a rule, gain more from tho law than they will lose by the tax Imposod by tho law. Tho cxperlomre of tho Oklahoma banks shows this. Tho interest collected upon the increased deposits will far more than pay tho losses occasioned by insol vency. But two Oklahoma banks havo failed .and tho 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 bo made secure, but whether the security shall bo given by the banks themselves or by tho gov ernment through a postal savings, bank. Tho rofusal of tho banks topermii tho pass age of a law granting security to depositors is responsible for the growth of Bentimont In favor of the government savings bank, and tho senti ment will continue to grow unless something Is .done to satisfy tho demands of tho people upon this subject. Tho republican party proposes tho establish ment of a postal savings bank system; tho dem ocratic party prefers tho guaranteed bank be cause it is better for the depositor and better for tho banker it gives tho depositor tho se curity which he needs and yet leaves the bank ing business in the hands of tho banks. But the democratic platform declares for "a postal sav ings bank IF THE GUARANTEED BANK CAN NOT BE SECURED," and in November mora than ninety per cent of tho voters will by their, ballots demand either the guaranteed bank or the postal sayings bank. Can tho financiers prevent the carrying out of this demand? Tho republican platform does not go into de tail, but It is fair to assume that the postal sav ings bank plank is intended as an Indorsement of tho postal savings bank system proposed by tho President and postmaster-general. Under this plan tne federal government would invito tho deposit of savings, a limit being placed upon tho amount that each person of each family could deposit. According to this plan, the busi ness man would not be protected, for he uses a checking accouiflr instead of a savings account; but no ono can doubt that the successful oper ation of a government savings bank would ul timately lead to an extension of tho plan until tho government bank would includo the ordinary checking account and be open to deposits with out limit. It would mean a long contest be tween tho depositors and the bankers, but acon test which must in the end be decided on tho side of tho depositors. The banker must decide, therefore, whether he will favor a postal sav ings bank which, in the absence of the guaran teed bank, will grow until it absorbs tho bank ing business, or preserve tho present system of banking by giving to the peopie, 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. The charge was not well founded but I might reply by charging him with advo cating an unnecessary extension of I tho govern ment's sphere of activity in the establishment of the postal savings bank, when the guaranteed bank would answer tho same purpose without any considerable increase in the number of gov ernment employes. I would rather see tho bank attend to the banking business lfhan to havo It transferred to the government and because I prefer to have the banking juslncss done by tho banks rather titan by tho government, X urge -the guaranty of deposits as the easiest so lution 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 consideration - ? J a hjiktkisUSUis-tlMh"