December 5, igo8\	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
Philadelphia Chapter Presents Another Strong Program
stringency. The only solution for such an experience is better currency laws, which will enable banks to meet the needs of business in such seasons of alarm and distress.
Mr. Wayne: then stated that, in his opinion, the committee on federal legislation of the American Bankers Association about nailed the subject of a bank guaranty in the following pertinent words: “Depositors of a bank are guaranteed primarily by the character of the assets in which the depositors' money is invested, margined and fortified by the bank’s capital and surplus. If a bank’s assets are good, if the credits have been wisely made, depositors are amply protected and need no other guaranty. Why should not a bank's assets be guaranteed ? Why not guarantee payments to banks of their advances to various clients, for this would guarantee deposits ? Both propositions are alike illogical and absurd. We should rather discourage unwise extension of credit, rather than open the way for reckless banking, which -would seem to be the inevitable result of the proposed scheme.”
In closing, he quoted the words of ex-Presi-dent Powers, of the American Bankers Association, who said:	“Many good men, as we well
know, believe that such a guaranty was just and right, but in the early stages of the free silver heresy many good men also believed that cause right. There was a great awakening, however, after the fallacy of a sixteen to one had been thoroughly exposed and so it will be with the guaranty of bank deposits.”
The splendid ovation accorded Mr. Wayne at the conclusion of his address was strong proof of the appreciation with which his timely words were received by the young bankers present.
The concluding speaker of the evening, Prof. J. C. Monoghan, principal of the Stuyvesant Evening Trade School, of New York City, formerly of the United States bureau of commerce and labor, held the closest attention of his hearers on the subject “The Real Yellow׳ Peril.” Prof. Monoghan said in part:
The atmosphere surrounding the leading nations of the world is full of dread or fear of so-called perils—the American Peril, the German Peril, the Yellow Peril and the like. In all cases these perils are of a military nature and a brief analysis of each one of them will quickly dipsel the gloom the mere mention of them arouses in some parts of the world. This is especially true with regard to the oft repeated warnings of Japan’s warlike intentions towards this country. Prof. Monoghan disclaimed any danger from this source, even with England’s co-operation against us. And this, for the simple reason that it is a recognized fact that “armies move on their bellies,” which is to say, the commissary department is the most important one of an army. Both Japan and England are well aware of our almost inexhaustible supply along that line, and, on the other hand, their too limited resources for feeding their soldiers and especially at a distance from their base of supplies. In addition to this we have almost ideal protection from invasion in the magnificent mountain ranges lying near both our coasts, which would prevent the progress of an invading army inland. Again, Japan’s total wealth is estimated as but seven billions (7,000,-000,000) of dollars, which is only about equal to
By E. LESLIE ALLISON
est insurance companies taxed to guarantee the risks assumed by any and all insurance companies? Most assuredly not. The premium for insurance of guaranty or whatever it may be called, is in any line of business based upon the character of the risk involved, which principle, however, has apparently been overlooked in the bank guaranty plan.
The claim that a guaranty plan in action would make every banker a policeman or private detective to watch other banks and bankers, Mr. Wayne dismissed as absurd, being equally impracticable and undesirable, owing to the fact that no bank could have actual knowledge of the investments of another bank and no cause for action until some serious condition has actually developed.
Citing the experience of the state of Oklahoma, where the guaranty plan has been in operation for nearly one year, he pointed out that actual figures from the latest reports of its banking authorities showed the following:
Within the state there were fifty-eight millions (58,000,000) of deposits, of this amount thirty-seven millions (37,000,000) were in national banks prohibited from enjoying the protection of tire state guaranty law, leaving only twenty-one millions (21,000,000) of dollars on deposit with state institutions enjoying the privilege of the guaranty law, and this with all public moneys on deposit with the state banks. Only eight national banks have become state banks and the majority of those made the change owing to their affiliations with the guardians of the public funds.
Attention was then called to the fact that the bank deposits of the United States aggregate upwards of thirteen billion (13,000,000,000) dollars and that we now have a vast guaranty fund in the capital, surplus and undivided profits of our financial institutions, an amount in excess of three billions five hundred millions (3,500,000,-000) of dollars; to say nothing of the double liability of the stockholders of all national banks and some state institutions. In case there should be created the deposit guaranty fund as suggested, it would be the natural tendency to distribute the present fund among stockholders and let the government assume the liability at the expense of the depositors insured.
The most serious feature of the guaranty scheme, however, is that no practical plan has been provided for the handling of the immense guaranty fund which would of necessity be accumulated. To be effective, prompt payment of the depositors of a failed bank must be assured, and to accomplish this an enormous amount of actual money must be on hand awaiting emergencies. The requirements of general business would not permit the withdrawal from circulation of such an immense sum and depositing it wdth the government. Nor could it be distributed among the banks insured for that would virtually be taking it out of one pocket and putting it in another. In times of stress like last fall, it would have prevented the government from rendering the aid it did to the banks, and in either case it would have been practically impossible to have advanced the cash necessary to tide over such a
The November meeting of the Quaker City Chapter, held in the Roger Williams building last Friday night, was another proof of the excellent work of its speakers’ committee as well as another indication of what this season has in store for the chapter members and friends.
That the young bankers of Philadelphia are holding their ears close to the ground of public inquiry and opinion, was likewise apparent from the eminence of the speakers and the subjects presented.
The first speaker of the evening, Joseph Wayne, cashier of the Girard National and expresident of the Pennsylvania Bankers Association, gave a very able address on the subject of “Guaranty of Bank Deposits.” Mr. Wayne reminded his hearers that, although the agitation of this question during the heat of the presidential campaign is past, we must by no means take for granted that all the doctrines propounded by the defeated parties are dead. The comparatively new issue of a deposit guaranty is a live one and has so many strong adherents in all parties, that it is bound to bob to the surface during the next session of congress.
In answer to the claim that the defeat of deposit guaranty would force upon us a postal savings system, the speaker stated that, in his opinion, he could see no objection to the latter as he would consider a properly organized system of postal savings a welcome addition to our already nearly complete banking facilities. Such a system could in no way harm the present banks or savings institutions, as the rate of interest to be allowed would not attract their depositors; but would encourage small savings among a class of people who at present do not deposit in banks and who would not do so under any circumstances, thus putting into circulation a large sum of money that is not available for the purposes of banking or for commercial uses.
Commenting on the proposal of changing or shifting the responsibility of a bank to its depositors from an individual to a joint responsibility, he pointed out the dangers of removing from the business some of the present inducements for conservative banking—amount of capital, accumulated surplus and profits, personnel of officers and directors, and reputation for conservatism and ability to safeguard depositors’ interests. The foundation of the whole system is personality, which asset will be virtually swept away by the guaranty scheme, thus placing all banks upon the same footing. Another result would be to open wide the way to unfair and ruinous competition, as no laws could be framed which could safely limit the possible inducements for business.
In refutation of the fallacy that deposit guaranty would be similar to the principles in practice for insuring our lives, health and property, he called attention to the fact that such attempted comparison is misleading. Even if such a scheme were desirable or feasible, to be at all effective, is must be compulsory and therefore a tax. In placing insurance, a man is at liberty to choose the company which to his mind offers the best security; but that he has no guaranty other than the strength of the individual company involved that he will ever, in case of necessity, be able to collect the amount of his policy. Are the strong-