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The Commoner
.
Z2L18- no. 12
u
"A1
Federal Guarantee of Deposits
in National Banks
" Following is tho full text of the statoraent
of Comptroller of tho Currency John Skolton
WilHams, Issued Juno 6, 1918, in advocacy of a
plan to provide federal guarantee of deposits in
national banks. Ed.
To National Banks:
It is dooply gratifying to chronicle tho steady
incroaso in tho strength and safety of the na
tional hanks of our country. Five months and
Jlvo days of tho yoar 1918 have now passed
without the failuro of a single national bank n
any ono of the 48 states, of tho union, whilo
applications have boon received in this period
for 12 charters fpr now national banks. Wo
cannot," however, in the ordinary course of
th'njjs, expect this extraordinary showing to bo
Indefinitely continued. In tho same period there
wero failuros in ton states of thirteen banking
institutions under, state" supervision.
THE RECORDS SHOW THAT AS TO NA
TIONAL BANKS THERE HAS BEEN NO SUCH
IMMUNITY FROM FAILURE BEFORE FOR
THIRTY-SEVEN YEARS, OR SINCE THE
YEAR 1881.
At that timo thoro wero in operation only
2,102 national banks with resources of 2,270
million dollars, ad compared with 7,707 national
banks' at .Ms time with resources of over 18,000
milllbn1 dollars. '
foro is, still rqqm tor improvement in bank
ing cqnditions. "section 333 of tho Revised
Statutes of tho Unitbd States provides that tho
comptroller of tho curroncy shall subm't an
nually a report to, .congress which shall contain,
Inter! alja, rocommendatlons for "any amondment
to, tho laws rolaUvq to banking by which tho
systoin may.be improvod, and tho security of the
hoddens of. Its notes , and other creditors may bo
inbtjoasecV' . A
lAs-ta result off much study and investigation,
the comptroller of tho currency in his last an
nual roport to congross mado a number of re
commendations looking toward increasing the
strength and safety of the banks and promoting
- tho wolfaro of tholr customers and the public.
Probably tho most important recommendation
rolatod to a bill to provide for tho guarantee of
nU deposit balances in national banks of $5,000
or loss, upon which intorest should not be paid
In excess of a roasonablo r tq, to be determined
by congress. Tho recommendation of tho comp
troller was that this rate on such guaranteed
deposits should not exceed 3 por cent per annum.
Tho comptroller's recommendation for a law
'for tho guarante. of national bank deposits was
submitted in pursuance of the duty imposed
upon him by the federal statue quoted above.
A bill for tho guarantee of deposits in national
banks of ? 5,0 00 and loss haB been favorably re
ported by tho Banking and Currency Committee
of the senate and is now before tho senate for
consideration and. action. It is understood that
tho plan for the guarantee of national bank do
posits for $5,000 or loss, upon which Interest
not exceeding 3 per cent is to bo paid, and mak
ing it discretionary with tho national banks as
to whethor or not they shall take advantage of
Its provisions, has already received tho approval
of tho secretary of tho- treasury, and, including
Its ox-offlclo members (the secretary of the
treasury and the comptroller of the currency)
of a majority of tho members, individually of
tho Fodoral Reserve Board, and also has tho
support of tho chairman of the Banking and
Currency Committees of the United States senate
and house of representatives and of other leading
men in both houses of congress.
It has been recently developed that a propa
ganda has been started for the purpose, if pos
sible, of defeating the bill, and of depriving tho
national banks of tho country and their
16,000,000 depositors, and tho public generally
(who aro Interested in having money now in
hiding brought again into circulation), of tho
, manifest and obvious advantages which this bill
would secure.
In order to obtain. If possible, the independent
Views of national banks, the comptroller of tho
currency, will bo pleased to have an expression
of opinion from tho management of each national
bank (preferably the view of a majority of tho
directors of each bank, or, if this Is impractic
able, an expression of opinion from tho President
or other chief executive officer) as to whether
they would liko to see such a bill as has been
recommended by tho comptroller of the currency
onarcted; and, if tho answer is negative,, tho
comptroller would be pleased to be furnished
briefly with tho principal reasons for such op
position. It is, of course, reasonable to assume ttfat tho
vast majority of tho sixtepn million depositors
' in national banks would receive the government
guarantee .of their deposits with deep satisfac
tion. Some objectors say that they are opposed to
the guaranty or insurance of deposits "on prin
ciple." If this reason Is alleged, the comptroller
would be pleased to be informed upon WHAT
PRINCIPLE such objection is made. Surely
there can be no sound argument against the
gonoral principle of insurance!
A man who invests his savings in a house,
wisely and gladly pays a premium to insure or
guarantee his investment against loss by fire or
by tornado, and its contents against loss by
burglary.
If his savings are Invested In a ship or its
cargo, he takes the precaution to insure or
guarantee it against loss at sea.
Upon what principlo can it bo contended that
it is wrong to give a man the opportunity of
paying a small premium for the purpose of in
suring his savings deposited in a national bank,
against Iobs, whether the loss be tlfe result of
incompetency, misfortune, or corrupt manage
ment. The principlo of tho guarantee of- bank de
posits has been tried in a number of states and
in some of these states, despite imperfections
In the laws, and various handicaps which are
avoided in tho bill now proposed, the plan has
worked to the- distinct advantage of the state
banks and of their depositors; and in some of
these states where tho national banks, whose
deposits have NOT been guaranteed, have com
peted with tho state banks whose deposits are
guaranteed, tho national banks have been placed
at a considerable disadvantage.
It is believed that there are millions of people
who have savings in the shape of gold, silver
or paper money, who keep no bank account, but
S.V?fUl.d ?ladli7 Pen accountB wlth-nSttonS
banks if such a law as is now proposed shbuld
be enacted. It is interesting to note that wUh
SfSlnB Str?ngth of ihe natIonal banking
system the number of depositors has Increased
by more than eight million since 1710mcreased
If it should be agreeable to you to inform Uiia
office whether your bank approves o ? dLapTroves
of the legislation proposed; it is hoped that vou
sions2 brIefly yUr reaSOns for yolvoVZ
In tho event that you may have written or
telegraphed to senators 'or congressman iS
positions to tho measure, ittoZw.JJB:
it will be agreeable to you S Sate Wiethe? suc'h
telegram or letter was sent AFTER the subw
'had been formally discussed by your board nf
directors and as a result of ihJ i , oC
of bourse" ImT 'no obJec0t on''r effin J?'
your replv. H0 stating In
this office to advocate tVooCh lmve moved
the eonxtotX for
you may have the opnoptunltvnT 5 is hoped
fore sending in you? reply 7 considerng be-
-- Pay-
of 3 per cent, but the deposits ?, '? exce8s
3 per cent per annum may be naM hJCh VER
have tho benefit of the fSmSi P are not to
If in your reply you de euarantee.
gestions in -necVe
Dermlssible on. sruarantnari ,w,.
features of the proposed law, this onwr Sbw
glad to have, you submit them. e Ul
- T ResPectfully,
JOHN SKELTON WlLLlAMg,
. - - - Comptrolief.
' ".t , EltfATH BELL 4420
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Providing for tlie Guarantee of Deposit -"
$5,000 or Less in National Bank?
The comptroller of the currency in his ,
report for the past year, in recommending1
passage of a bill for the guarantee of all L 2?
of $5,000 aniTunder to tho credit of an?
depositor in national banks, suggested that thi
guarantee should' apply only to those deJw
upon which the rate of interest paid should It
exceed 3 per cent per annum. (See Comptroller'
Annual Report, 1917, vol. 1, p. 24 .) pirolIer
As the bill as originally prepared contained nA
limitation on the rate of interest to be paid on
deposits, the senate committee inserted a mo.
vision limiting interest on guaranteed depoats to
4 per cent before reporting the bill to thn
senate. - u
The opponents of the measure have seized
upon the 4 per cent interest feature as a basis
for a general attack, and are using It as an argU.
ment to defeat the whole proposition. There are
several reasons why it may be undesirable to
guarantee deposits upon which as much as 4 per
cent interest is paid, but these reasons do not
apply to the bill as originally recommended
limiting the rate of interest on such deposits
to 3 per cent.
A 4 per cent guaranteed interest rate might
interfere to some extent with the investment of
money in Liberty bonds, but this interference is
not as serious as the opponents of the measuro
would make it appear for Government bonds
which pay 4 per cent anl 4 per cent are
EXEMPT FROM TAXATION, while money in
bank, whether the interest is guaranteed or
w'hetherjt is not, may be SUBJECT TO TAXA
TION, which in some states amounts to from
1 per cent to 2 per cent. A 4 per cent interest
rate on deposits is not generally conducive to
safe and conservative. banking. When bankB pay
high rates" on depobits .they 'are tempted to eiact
higher rates -from the borrowing public on good
loans often rates which are contrary to the
usury laws; and, moreover, they are induced
sometimes to take indifferent or unsafe loans be
cause of the higher Interest yield, which they
claim they are thus forced to ask when they pay
high interest on deposits.
The efforts of the comptroller of the currency
and also of the federal reserve board have been,
for some time past, directed against the payment
of excessive interest rates on deposits, whether
this interest is paid on balances to the credit
of banks or of individuals.
The argument which certain national banks
are urging, that it is unjust to require strong
and" well-managed, banks to pay a premium, say,
of one-tenth of 1 per cent for the benefit, as they
claim, principally of the weaker or less well
jnanaged institutions when the strong hanks do
not want the guarantee, and object to being
taxed for tho purpose of insuring their deposits,
will be fully met if the bill should be amended
so as 'to provide that, if ANY NATIONAL BANK
DOES NOT WISH TO HAVE ITS DEPOSITS
GUARANTEED, IT NEED NOT PAY THE TAX
WHICH IT IS PROPOSED TO CHARGE ON DE
POSITS THAT ARE GUARANTEED.
If such an amendment should be adopted the
opponents of the bill will have their arguments
cut completely from under them. They can have
no justification for opposing a measuro which,
while not taxing them, gives to other banks that
willingly pay the tax the benefit and advantage
whioh such banks and their depositors greatly
desire.
For example, what right would the Tenth Na
tional Bank of New York, with $10,000,000 of
capital, and deposits in proportion, have to ob
ject to a law under which tho Columbia National
Bank of Oswego (whose deposits or balances
aro ALL, we will say, for $5,000 or less) would
secure the government's guarantee on those de
posits by paying an "annual tax of one-tenth oi
1 per-cent? Is it not only a "dog-in-the-manger
spirit which could Inspire the big bank in a caso
like this to oppose and attack a measure whicn
would give a muck-desired benefit to a srmwer
bank with its thousands of small depositors
when the smaller Dank is perfectly willing
pay the cost, and. when the law.reguires no par
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