23
THE CHICAGO BANKER
July ii, ipo5]
Bank
Surplus
$2,000,000
The Mercantile National
OF THE CITY OF NEW YORK
We offer the complete service of a safe, solid and conservative bank. Special and personal attention ¿iven to the business of banks and bankers
Willis G. Nash, Pres. Miles M. O’Brien, V.-Pres. Wm. Skinner, V.־Pres. Wm. H. Taylor, V.-Pres. Emil Klein, Cash.
Capital
$3,000,000
The Need of Guaranteed Deposits
affairs upon which fundamentally rests the security of our financial system. Examinations of banks as now conducted serve, to some extent, to check rascality in the conduct of banks, but so far as my observation has extended, utterly fails to disclose the true condition of the bank. So long as there are no excess loans, no large overdrafts, no real estate loans, the notes properly renewed at maturity, and the books kept in proper shape, the bank will pass muster with the examiner and Comptroller, and be given a clean bill of health, though in fact tire bulk of its assets are bad beyond question. The meat in the cocoanut is the condition of a bank’s securities, as well as the condition of its books. Considerable fuss is made by the Comptroller over real estate loans held by banks, but up to a certain percentage of its loans, they are the best asset a bank has when they are made with care, and the law should be amended to permit banks, at least in rural communities, to invest a certain percentage of their money in first mortgages on farms. There are now in round numbers 6,500 national banks. These banks are supposed to be examined twice each year, which makes in round numbers 13,000 examinations each, year, and to make these examinations we have about eighty examiners, a force entirely inadequate to do the work with any degree of effectiveness. There should be more examiners, how many, I am not prepared to say, but enough to give every bank a searching investigation twice each year, and they should be taken out of the commission business and placed upon a salary. The banks should be compelled to keep a credit book in which they should record the possessions and liabilities, so far as ascertainable, of every firm, corporation, or individual to whom a loan is made. This for the information of the bank examiner as well as the officers and directors of the bank. When an examination is made the directors should be called in and the notes gone over carefully, and if the examiner is not fully satisfied he should get outside information, especially regarding the makers of all notes of $500, or over. The banks should be compelled to have a discount committee which should meet at least once a month, and in large banks more often. Their meetings should be made a matter of record and they should pass upon all the loans made. The examiner should be empowered to see that these meetings are held, and in case of neglect of duty, should compel the resignation of any director in default.
Mr. James B. Forgan, president of the First National of Chicago, recently delivered an address at Peoria, Illinois, before Group Two of the Illinois Bankers Association, in which he strongly disapproves of the idea of guar-
E. L. Abel of Huron at South Dakota Bankers Convention
able. I would far^or such a system of supervision by the government as would make a bank failure as near as might be an impossibility, together with a tax upon all banks for the creation of a safety fund for the protection of depositors. In the event of a failure let the government take over the assets and pay all depositors at once. In case any banks could not measure up to the requirements let them be liquidated without delay. Such a system, with a limitation as to the amount banks could loan in proportion to their capital and deposits, would put our banks upon such a firm basis that those in the system would enjoy a credit so sound as never to be questioned, and make panics a thing of the past. This could be done without placing any burden upon the banks as a tax of one-eighth of 1 per cent upon deposits would have paid all losses to depositors since the organization of the national banking system, and now that we have the advantage of many years of experience in supervising these banks the percentage of loss would be smaller, and the increase of business and profits brought by this system of protection to depositors would more than cover the small tax the banks would have to pay.”
I have spoken of these things to show you that though this child is mine it has been adopted by many since it was born, chief among which is the present democratic candidate for president. In this connection I desire to state that the child is of republican parentage. I wish to state right here that I am not in favor of the government guaranteeing deposits, for I believe that to be wrong in principle as well as unconstitutional. My plan contemplates that the government shall act as trustee of the fund created by the banks themselves, and as such trustee, administer the trust for the benefit of depositors and banks.
Whether or not we shall have guaranteed deposits, we should have a most radical improvement in bank examinations and supervision, and political influence should be entirely eliminated from the office of the Comptroller of the Currency in all its departments. The Comptroller, his deputy, and all the examiners, should be men who, by education and experience, are practical bankers, and possess ability^ of the highest order to fill the positions they hold. The Comptroller should have full authority to select his examiners without the intervention of politicians. It is sufficiently bad to have the government run by the politicians without having the pernicious influence of politics entering into the conduct of those
At the time of the failure of Grant and Ward, and the Marine Bank, in New York City, during the year of 1884, I was conducting a bank in one of the smaller cities of Illinois. The failure of these concerns precipitated a quasi-panic throughout the country. The failure of the Miners’ Savings Bank of Murphysboro, the county seat of the county in which I was doing business, and only seven miles distant, caused considerable uneasiness among the depositors of the bank of which I was cashier. To provide funds to meet decreasing deposits we applied to the banks at Chicago and St. Louis, with which we were doing business, and though tendering good county bonds as security, were refused any accommodation, for the reason that the banks in both of these cities were unable, largely because of their fears, to extend any assistance to outside banks. For a week the bank was opened each morning with the fear that before closing time should come we should be forced to suspend, but by keeping up a bold front, and persuading depositors that the bank was able to meet all its obligations, we went through that trying ordeal and finally reached the rock of safety. We were not alone, for many of our brother bankers in that section had the same unpleasant experience. After this Rubicon was safely passed I began to wonder if there were not some means by which a similar experience in the future might be avoided. It occurred to me that the trouble lay in a lack of confidence upon the part of depositors, and that if it was possible to give them definite assurance that their deposits were safe, they would only withdraw their money in case of need, and from this thought, I evolved the idea that this assurance could be given by the creation of a safety fund, through an assessment upon all banks, which should be held in the hands of the government as a guaranty that every depositor in every regularly organized bank should be paid in full, in case of a failure. I mentioned this idea to several bankers at the time, but was given encouragement by none. Several years ago I was invited to deliver an address at Sioux City, Iowa, on the occasion of a joint meeting of the bankers of Iowa, Nebraska, and South Dakota. Being permitted to choose my subject, and the questions of banking and assets currency being in the limelight at that time, I spoke upon those questions and to the best of my ability opposed both. In the course of this address I used these words, “I believe, that of all persons to whom a bank is liable the depositor should be paid first. Depositors in banks should be absolutely guaranteed against loss in any event. Without depositors banks could do no business. They are the men who make banking possible and profit-