September 26, 1908]	THE CHICAGO BANKER	17
(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
Guaranty of Bank Deposits
bank could not exist, if it did not invest the funds deposited with it. It creates demand liabilities for all deposits, but it tries to have paper maturing in such a continuous way that it can meet all normal demands for cash. A solvent bank can always meet cash demands, if given suitable notice of what is coming. Yet the agitator, who does not seem to know the difference between a safety vault and a commercial bank, asks for what is humanly impossible.—as a matter of justice. He asks that banks should receive the deposits, but in the same breath he asks that they should never do anything with it. Justice is given when, and only when, the banks invest in sound assets; and all depositors can secure their funds in due course only when the management is successful, cautious and conservative. The deposits, in short, are as safe as the assets are good; and the sum and substance of the whole matter is to be found in the character of the management. We come back to this truth from whatever point we begin our researches.
(4) Yet it may be said that commercial banks have a quasi-public function; that depositors are innocent of the inside doings of banks; that when the banks invest deposits they put them out of reach of the depositor ; and that too much is asked when the depositor is required to trust to the soundness of the investing judgment of bank officials. It is further added that when the authorities of a government, state or city deposit with banks, security for the deposit is given; and that if a bank exacts security from the borrower, the bank should give security to the depositor. To this case is joined the proposition that the very existence of banks organized under a national act gives a presumption to the trustful public that such banks are sound; and, if so, the government should see to it that the depositors are made absolutely safe.
Like serious-minded business men, let us look this case squarely in the face. Apart from the great privileges given by the banks to depositors —already described—do the banks recognize the fact of their quasi-public function, and that they must give security to depositors for exercising good judgment in making loans with the knowledge that the stockholders will suffer a heavy loss in case of error or fraud ? I answer, unequivocally, they do. In fact the childish ignorance shown by the advocates of insurance of deposits in no part of their argument appears more amazing than in not knowing that the banks now put up a very large fund as a security for depositors.
There are only two possible ways of using a guaranty fund: either for (1) ultimate or for (2) immediate redemption of deposits. Let us consider ultimate redemption first. Is it conceivable that the political orators do not know that there is already aguaranty fund for the ultimate payment of deposits? The capital, surplus and undivided profits of every national bank is to-day the buffer between the depositor and loss. Only
Prof. J. Laurence Laughlin, in his Lincoln address, divides his argument into two parts, the better to make answer to the advocates of deposit insurance ::	::	::
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profitable result, we need skilled labor to work up the raw materials, not only in industry, but in banking. The mere existence of capital does not insure profits; everything depends upon what is done with the capital. Capital is often badly invested and lost. In banking, we shall see that practically everything depends upon wise, honest, and capable management.
Moreover, since the days of the Bank of Venice, banks have come into existence as a means of satisfying a need of the business public. Persons deposit in banks voluntarily because they get privileges in return'; sometimes interest on deposits; collection of checks deposited; a chance to get loans where deposits are kept; and, above all, the banks provide the most convenient, least expensive, and most generally used, medium of exchange ever devised, by which payments can be made anywhere in the land, through checks drawn on a private account; and all the expense of this bookkeeping is usually given free to the depositor. All the monetary services of the general government, all the issues of ever}־ kind of paper money, do not begin to compare with the work of exchanging goods done by the banks and clearing houses through checks drawn by depositors on their accounts. Take that away from the depositors for twenty-four hours, and the whole trade of the country would be paralyzed; and yet there are persons so ignorant as to say that depositors are not given anything in return by the banks.
(3) But the ignorance of commercial banking shown by the advocates of a guaranty of deposits goes still further, when they demand such a guaranty on the ground of justice to depositors : that they ought to have a place wherein they could leave money and get it again whenever they want it. Now, if a depositor wishes none of the privileges of a commercial bank and a checking account, he can put his money in a safety vault, and get it again whenever he wants it. Any farmer can to-day deposit his funds in a safety vault and get absolute security. If he chooses a commercial bank instead of a safety vault as a place of deposit it is ipso facto proof that he gets valuable privileges from the bank in return for making deposits. In a commercial bank, on the other hand, it is never pretended that, if all depositors wanted their money, all could get it. Why? Because a commercial
(PART ONE)
All bankers ought to welcome the discussion caused by the proposal to guarantee deposits, because it will inevitably bring out a better understanding of the vital functions of banking and better explain the true services of banks to the community. All that bankers can desire is the truth about their business. It is undoubtedly clear that the reason for there being any question to discuss exists in the misunderstanding in certain quarters as to what banks really do, and as to what is essential to sound banking and to the safety of depositors. There can be a wish only for a fair field and a full discussion. The argument in favor of insuring deposits is addressed to two classes of persons, (1) the depositors, and (2) the bankers and stockholders in banks. In this order we shall discuss the subject.
(1)	In this country there are persons who are willing to set class against class, to stir up antagonisms between interests which are really bound together, provided they can thereby create political issues on which they can be voted into office. We all remember how the feelings engendered by the Civil War between the North and the South were appealed to by ruthless and selfish politicians who were ambitious for public office. Later, politicians have not hesitated to magnify the differences between capital and labor for selfish reasons, instead of patriotically trying to emphasize their common interests and to promote industrial peace. And now an attempt seems to be made, in similar fashion, to set the interests of 15,000,000 depositors of our country against those of the 1,500,000 of stockholders in banks. In truth, their interests are bound up together; the loss of one is the loss of the other. No antagonism exists between them; and the only explanation of an attempt to create such an antagonism must be due to the impossible supposition that there are 15,000,000 votes among the depositors, and only 1,500,000 among the bank stockholders—a supposition so inconceivable to a loyal American that we must dismiss it at once. The solvency of a bank is dependent on the solvency of the business men who are its customers and borrowers, and the depositors whose funds are loaned are no more interested in the solvency of these business men than the bank itself. The passenger on a steamer and the owners of the steamer are equally interested in not having the steamer sink. So it is with the depositor and the bank.
(2)	It is said that it is the depositor who makes banking profitable. Here appears a misconception as to the banking business. In reality, deposits are only the raw materials for profits; thev must be wisely and skillfully managed and invested or there would be, not only no profits, but even losses. To have a