13
THE CHICAGO BANKER
October io, 1908]
William A. Tilden President
Nelson N. Lampert Vice Prest.
Henry R. Kent Cashier
Charles Fernald Asst. Cashier
Colin S. Campbell Asst. Cashier
MONROE AND CLARK STREETS
C H I C A G О
Capital, $1,000,000 Surplus and Profits, $400,000
Your Business Solicited
THE
LIBERTY NATIONAL BANK
OF NEW YORK
FREDERICK B. SCHENCK, President
HENRY P. DAVISON, Chairman Executive Committee
CAPITAL, SURPLUS AND UNDIVIDED PROFITS
$ 3,400,000.00
A Kansas Banker Writes
on Guaranty of Deposits
I assert that the government cannot guarantee bank deposits; that it is utterly impossible. Take for instance the national banks of New York City, which have an aggregate of $1,294,-826,908 deposits. Where is the individual or set of individuals, bank or set of banks, state or states, or even the U. S. government that could pay these depositors of New York City alone, in cash? If the guaranty of deposits is to be guaranteed then it is money and nothing else that will be necessary to meet the extremist of times. In case of the federal government guaranteeing the deposits of banks it would not be safe for the government to keep on hand in gold less than the total of bank deposits that have suspended in the U. S. in anv one year of business. At this rate it would be necessary for the government to retain in its vaults $200,000,000 in gold. This would cause a great contraction of gold from bank reserves and would bring reaction.
The whole question of guaranty of bank deposits is purely political, as I stated in the begin-ing, and it is wrong and unsafe from a business and ethical standpoint.
There is the taking of one’s pride and ambition of his work away, by the placing of all banks, good, bad and indifferent, on the same solvent basis. God created man in his own image but I do not believe that he made him equal to and for all things as all men. We are fitted possibly better for this or that but we are not all fitted for all things. Making banking absolutely safe, regardless of capacity, honesty of purpose or thought, entails a condition that would soon be regretted. If the guaranty of bank deposits is morally right, then I insist that the banker, his directors, and his stockholders, should be freed from their double liability to depositors.
No one wishes to place his success and years of honest, hard thought and labor, to the up-build-ing of his ambition and then be placed equal and as secure as the man of lesser ambition and purpose. Man is proud of his achievement when crowned with honest}• and success and should be rewarded for such merits. Guaranty of deposits takes this away and makes the speculative, uncaring, shiftless, would-be-banker, the equal of the ambitious, honest and successful one. It is not guaranty of deposits we need to make better and safer banking, but strict and careful examinations and regulations by men who are competent.
Bonner Springs, Kansas, October 5, 1908.
Geo. L. Kreeck,
Cashier of First National.
At the present time the guaranty fund is deposited by the state officials in state warrants. These warrants draw 3 per cent interest. In times of a panic or the failure of banks it is absolutely necessary to have this fund ready and available. The form of security in which the fund is deposited is good, but in panicky times or adverse conditions the market for these warrants is not open, unless at a great discount. A majority of bank failures are caused because they are not able to realize upon their assets. The state warrants would become an asset of the state, but in times of need the state would find itself as banks do, unable to realize upon such assets and as the result the guaranty fund would amount to no better than our present system of banking. In times of panic or failure the depositors want money, not scrip or orders, but if the guaranty fund is to be tied up in assets that are not easily convertible, what has the guaranty system accomplished ?
Mr. Bryan in his federal guaranty of bank deposits says that it would place greater confidence in the banks. I would like to ask, if the government guarantees the bank deposits of the country, will it not cause disturbance of confidence in the government ? This is something that the government could not possibly do. The obligations which the government would assume, would be over five times the total national debt at the close of the Civil War. Think of the effect of our public credit and of our financial system if the government failed to reimburse depositors in times of distrust and panic. Think of the effect in requiring to borrow money for times of war, or in the preparations for large enterprises.
If the government guarantees the deposits of banks it is in its true sense guaranteeing the loans of banks. If this is true what and where will the government maintain and secure its enormous gold reserves that would be necessary for the guaranty fund ?
If you say that the government does not guarantee the payment to depositors and that it only stands as the custodian or agent of the guaranty fund, then you involve a deception to the people, who nevertheless in whatever manner you place the assertion, the public will maintain the government is in reality guaranteeing the banks.
Editor Chicago Banker : What I may have to say may possibly have been said before, yet I shall try not to involve repetition more than is necessary.
Questions of this kind are brought about either by economic conditions or by political aspirations. I11 this instance it is purely political, used to strike the popular chord, as a vote getter, at a time following the flurry of last fall. Advocates have made the assertion that the proposed guaranty of bank deposits would alleviate the panic conditions, but they utterly ignore the fundamental defect of our currency system, its rigidity.
We all know that it takes more money to handle the business of the country in the fall of the year than any other season, but the guaranty of deposits does not meet this demand.
The only thing before their eyes is the panic. As a matter of fact a panic is simply the last stage of disorder or mistrust. A panic is the climax of conditions where the system finally collapses, but there is heavy strain *before the collapse which however does not always come to a collapse, but the guaranty of deposits would in no way assist in this and the tendency in the future, under the proposed system, would not be changed.
Mr. Bryan in his keynote speech on guaranty of bank deposits at Topeka, said that when bank deposits were guaranteed we would escape panics. Of course he means that we would not be subjected to runs on banks. But it is not possible to meet runs without remedying the defects in our present currency system. Had we a way to convert our solvent bank assets into currency in times of runs, would not the evil be checked .J
Mr. Bryan also asked, why does the United States government, your state, and your county demand some guaranty of banks for the return of their deposits ? I should like to ask, why docs the state of Oklahoma, under the guaranty system of Mr. Bryan's plan, demand the banks of that state to give security for its deposits deposited in their guaranteed banks? Is it that the state of Oklahoma is afraid of its own “absolutely safe” system of guaranty ?
The guarantv system of Oklahoma has been pointed to with pride and as a model for all monetary evils. Let us look for a moment at this marvelous array of light on this subject.