17
BANKER
TUE CHICAGO
September ip, ioo8\
CHAPTEM 1E۩11
(Department of Chicago Banker )
An Open Forum Dedicated to the Associated Chapters A. I. of B. in Which to Advance the Great Movement for Independent Action and Universal Membership
An Indiana View of Deposit Guaranty
comes relieve him from hysteria, and that panicky tendency to suspend payment and communicate that same feeling to his customers whereby all business becomes practically suspended indefinitely, with its resultant disastrous effects, which have cost this nation enough in actual value to pay the expense of this proposition for at least five years.
It does not invite fraud and dishonesty only in imagination, as the fire companies have long ago discounted that proposition and discovered that insurance does not make people dishonest; that they exist; are in business and cannot be identified; consequently all must be protected even at the expense and cost of the honest insurer.
The personality of a banker is lost sight of in time of a panic by the public and does not avail only to perhaps one-half of his depositors. The other half insist on the other kind of assurance of safety.
The federal government having the guaranty plan for public funds operative during the late panic manifested no anxiety as to safety. Confidence was serene while the other fellow walked the floor. Let us look at this situation. Who will venture to say it is a square deal to charter and supervise national banks inviting the confiding public to patronize them with assurance of safety while at the same time demanding other and additional security for public deposits. It is the same under state depositary laws. The common people, to a certain extent, accept what security is left after providing absolute security to the several governments.
The fundamental relation existing between any principal and creditor is purely one of confidence in the ability of the creditor, this extends to the depositor the creditor of the bank, who by nature of his position depends largely on hearsay as to the bank’s ability, and as is developed by our system of finance, the banks to-day are a creditor of the people to the extent of thirteen billions, a sum, the magnitude of which is likely at any time to produce uneasiness, in the mind of the depositor whose state of mind is largely controlled by anxiety. Therefore, to preserve the existing relation, the integrity and basis of deposits must be made secure against emergencies.
From the standpoint of the greatest good to the greatest number, the proposed unification of the banking interest of this nation along lines of co-operation promises incalculable benefits to the entire nation and peace of mind to the entire people. Therefore, it is worthy of our sincere consideration, that the selfish interests of a few may not prevail against the welfare and prosperity of the masses.
V*
Second National Bank of Bel Air
Corporate existence of a national bank has been extended to the Second National of Bel
The City National of Hobart
The City National of Hobart, Okla., was placed in liquidation recently.
By C. H. Church
of Muncie, Indiana
vent in a measure, any legislation for improvement of our financial system along lines whereby the smaller banks may be able to participate.
Note the late emergency law is so restrictive that only the larger capitalized banks, who
c. H. CHURCH Muncie, Ind.
own or control bonds can participate, while the interior banks not investing in bonds are so restricted as to be unable to obtain any valuable relief; in fact, it is intimated that the measure was intended as a means to assist in the bond market. In any event, very few banks are qualifying.
It is doubtful if the details of the guaranty plan have been fully explained, as stress is laid on the opportunity it would afford to pay high rates of interest in order to obtain large deposits to be handled recklessly, when in reality it is expected to provide that no bank either state or national under the plan shall pay to exceed two per cent on deposits or shall loan to customers at a rate exceeding six per cent, thereby eliminating all excessive rates and fully protecting the bankers and borrowers.
As we have double the number of state banks holding double the deposits of national banks, it is proposed and expected that state laws will be adopted practically uniform in many particulars.
It is claimed the proposition is to tax the honest and prudent banker to make up for the dishonesty and imprudence of others. The plan is to give the honest and prudent banker protection same as others and when the crisis
Since the subject of deposit guaranty became a live political issue and is prominently before the people it was to be expected the discussion would develop strong arguments, if any, against the fundamental principle involved, but so far nothing has been advanced having a definite bearing on the subject. An expert says “it is in no sense a political question and cannot be solved by party politics.” Agreed, yet it being an economic problem in which the owners of thirteen, billions of deposits are largely interested, it is attracting sufficient attention to enlist students of finance. The subject calls for thoughtful consideration with intelligent discussion.
The principle itself is ethically and fundamentally sound from the fact that it is the principle adopted by all bankers as the foundation in the organization of any bank, as the first and most important consideration is the security, protection and guaranty offered to depositors, that the bank may enjoy their confidence and attract their business.
Along this line men of well known integrity and ability are selected, having the confidence of the people where located. Its capital is then provided and offered as security together with the wise provision of the double liability of its stockholders, as protection and guaranty to the depositor, all of which are fully explained and extensively used as an assurance to the depositors that their deposits are safe and sound.
Right here is the principle put in active operation, and in ordinary times it has proved effective and confidence is maintained until suddenly a crisis occurs, like November, 1907, when fear and mistrust take the place of confidence among depositors, and it is then fully demonstrated that the present guaranty was insufficient to maintain the principle originally started with, to amply satisfy the depositor under all circumstances.
This seems to be a plain statement of the conditions surrounding the formation of our banking־ system and the common sense business plan is to undertake the remedy, by providing the requisite additional protection not supplied at the organization of the bank, in order to preserve the necessary stability, and satisfy the people. Had this proposition been in effect in 1907 who can doubt but that all serious disturbance would have been avoided, as anxiety and distrust on the part of the depositor would not have existed.
The bankers of this country cannot avoid their share of the responsibility for the general depression of business interests prevalent during and since the panic, as they neglected to provide this safeguard, which they now discover to be so essential to the preservation of the equilibrium.
It is claimed this movement does not originate with the depositor, but is caused by selfish competition between banks. I submit it is immaterial as to where it started or who started it, but it is regarded material and is advocated by two-thirds of the interior bankers ־who are alarmed by the attitude of the reserve city banks who seem determined to pre-