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I

MATERIALS REGARDING DEPOSIT
GUARANTY IN NEBRASKA, 1911-1930
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MATERIALS REGARDING DEPOSIT
GUARANTY IN NEBRASKA, 1911-1930

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Removal Notice
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Document type: Pamphlet

Pages
Removed:

Author(s): Watson, B. Frank

Title:

A History of the Nebraska Bank Guaranty Law

Date:

Written and Submitted to Federal Reserve Board on March 21, 1933

Journal:

Volume:
URL:

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—

NOTES AND MEMORANDA

187

STATE GUARANTY OF BANK DEPOSITS IN
NEBRASKA
ONE. of the amendments to the Currency Bill, proposed by

1

the Owen Committee in the Senate, provided for the setting
aside of one-fourth of the earnings above six per cent of the
Federal Reserve banks, for the purpose of paying the depositors of failed national banks. In debating this plan, its advocates, especially Senators Hitchcock, Bristow and Reed,cited
freely the state guaranty systems of Oklahoma, Nebraska,
Kansas and Texas, asserting that these had proved entirely
satisfactory and drawing the inference that national bank
guaranty would be equally practicable.
After the Currency Act was passed, without the guaranty
clause, the three Senators referred to were appointed as a
Subcommittee on the Guaranty of Bank Deposits, in order
that they might continue their efforts for the protection of
national bank depositors. Senator Hitchcock, as chairman
of this subcommittee, presented on June 23 last a history of
Guaranty of Bank Deposits, by George H. Shibley, in which,
after reviewing statements by the bank commissioners of the
states having the guaranty, quoting their various statutes,
and drawing liberally from the articles by Mr. Thornton
Cooke in this Journa1,1 Mr. Shibley drew the rather unequivocal conclusion that "the guaranty of bank deposits
has now become a demonstrated success, taken as a whole."
Considering that the state systems have been legally in
effect only three years and a half; that the Oklahoma fund
in that time ran $375,000 behind its assessments, tho the
latter averaged four-fifths of one per cent a year of the total
deposits; and that in the other three states, crops and financial conditions have been so favorable that only about a halfdozen small failures have occurred in all, it would seem that
the champions of national bank guaranty are using the argu. See vol. xxiv. .The Insurance of Bank Dew:wits in the West." and vol. :avid.
"Four Years More of Deposit Guaranty."


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QUARTERLY JOURNAL OF ECONOMICS

ment from example almost before the example exists. The
experience of the states which are trying the guaranty
system will certainly be of the greatest worth in demonstrating which method, or combination of methods — for
the various systems differ considerably in detail — will be the
fittest to survive; but the term "survivor"am hardly be
applied to any of them until they have met the testa of short
crop years, industrial depressions, and serious financial
crises.
The course of guaranty in Nebraska, where agitation for it
was begun long before the issue came into national prominence, shows what may be expected of such a system while
it is new, working under favorable conditions. A brief
sketch will here be given of the conditions which led to the
law of 1909, as well as its effects, so far as they are apparent,
and of the details of the method by which depositors are
paid.
Banking in Nebraska, from territorial times in the '50's
up to the first state supervision in 1886, was a good deal of
the kind called "wild-cat," yet failures were not so very
numerous. In the "hard time" years of 1892 to 1896,
however, came short crops and a nation-wide financial depression; and this produced a contraction of credits which swept
101 of the 650 state and national banks into insolvency.
The claims against these institutions aggregated over
$5,000,000, on which it is estimated about $2,000,000 were
finally paid. The total deposits fell off from $49,000,000 to
$27,000,000 in that six-year period.
It was the bitter experience in these years which led to the
first agitation in the state for the guaranty of deposits. It
is said that the president of the largest failed bank was the
first man to suggest it, writing a letter to the newspapers
outlining a plan, from the jail where he was awaiting trial for
wrecking his bank. Secretary W. J. Bryan, then Congressman from the First District, introduced a bill for national
bank guaranty into Congress in 1893. Guaranty bills were
brought up in the Nebraska legislatures of 1897, 1899, 1905
and 1907, all of them crude and unscientific measures, with


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NOTES AND MEMORANDA

189

no limit to the amount a bank might be assessed within one
year. They were all opposed, of course, by the bankers,
who saw from the record of '91 to '96 what an unlimited
guaranty might cost them if a repetition of those hard times
should occur.
The panic of 1907, however, and the adoption of the
Oklahoma law which followed, added so much impetus to the
movement that, altho no banks had failed in Nebraska on
account of the panic, Mr. Bryan and the Democratic state
leaders in 1908 were able to arouse enthusiasm over the
guaranty plank in their platform. It is difficult to say what
the result of the election would have been if the issue between
Democrats and Republicans had been really on that plank.
Probably the chief reason why a Democratic majority was
sent to the legislature that year was the personal strength of
Mr. Bryan at the head of the ticket. He lent his support to
the measure after election, as did also the governor, and the
party redeemed its pledge by enacting it into law. The law
was enjoined from operation by the Federal Court until
January, 1911, when the Supreme Court of the United States
upheld its constitutionality in common with the guaranty
laws of Oklahoma and Kansas. Its general provisions, as
slightly amended by the legislature of 1911, are as follows.
The Depositors' Guaranty Fund of Nebraska is to accumulate up to one and one-half per cent of the average daily
deposits for the whole state, at the rate of one-half of one
per cent for each of the first two years, then one-tenth of one
per cent until the limit is reached, at which time assessments
are to stop. No money is actually paid out by any bank
except its proportionate share of losses arising from failures;
the assessments are simply charged off from its profits and
entered to the credit of the Depositors' Guaranty Fund,
which can be drawn upon by the State Banking Board. In
case the fund becomes exhausted, emergency assessments
may be made by the Board up to one per cent in any one year.
Depositors in a failed bank are to be paid out of the fund as
soon as the district court in charge of the receivership determines,from the claims filed, the amount of cash necessary, in


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QUARTERLY JOURNAL OF ECONOMICS

addition to that on hand in the bank itself. The fund is then
reimbursed, so far as possible, by the sale of the failed institution's assets.
The effects of the law from 1909 to the beginning of 1914
were based chiefly on bankers' and depositors' guesses as to
what the final results would be. During the first year
bankers seemed, on the whole, to consider the businessgetting qualities of the guaranty more than worth the premiums involved,for fifty-five new state banks were chartered,
and only five former state banks became national to escape
the law. Depositors were not much affected, one way or the
other, for the deposits in both classes of banks, which had
been exceptionally low in 1908 on account of the panic the
year before, increased greatly in 1909, with little advantage
to either.' In 1910, while the constitutionality of the law
was still in doubt, the number and deposits of national banks
grew considerably; 28 new state banks were chartered, but
8 of the old ones nationalized, and their aggregate deposits fell
off over a million dollars. The law was upheld by the
Supreme Court in January, 1911, and that year 24 state
banks were chartered, 11 nationalized, and the national
banks gained a million more deposits than the state. A
number of state banks had also gone out of business by other
processes than nationalizing, so that at the close of 1911 the
state banks, as compared with their position two years
before, were ahead in number only 7, in aggregate capital
Items from statements of state and national banks at the end of years mentioned
(taken from reports of the Secretary of the State Banking Board):
STATE BAWLS
At End of
Individual
Year
Number of
Capital
Loans
Deposits
1908
628
$10.9
$55.7
$65.4
1909
662
12.0
66.0
71.7
1910
666
12.5
67.9
70.4
1911
669
12.8
67.5
72.2
1912
694
78.2
13.8
80.7
1913
714
14.4
84.9
89.3
NATIONAL BANKS
1908
214
$13.5
$75.9
$73.0
1909
220
14.4
89.8
83.8
1910
238
15.4
92.1
86.4
1911
247
16.2
95.0
890
1912
243
16.2
103.6
93.4
1913
241
16.27
102.9
94.6
sioT
. he.figures for capital, loans, deposits signify millions of dollars, e.g., $10.9 =


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NOTES AND MEMORANDA

1

191

only $800,000, and in deposits $500,000; while their national
competitors had added 27 banks, nearly $2,000,000 capital,
and more than $5,000,000 of individual deposits.
In 1912, 1913, and the first half of 1914, however, the drift
was steady and rapid in favor of the state banks, indicating
that these were becoming more popular with depositors, and
that bankers were finding this system a little more advantageous than the other. The number of state banks increased
about 70 in that period, while the total number of nationals
fell off 17. Between January, 1911, when the guaranty law
went into effect, and the middle of 1914, the individual
deposits of state banks increased about 19 millions, or 27
per cent; as compared with a 7 million gain for the nationals,
which is about 8 per cent.
The almost equal confidence in which both classes of banks
were held, during this period, by the people, was due in a
Large measure to the fact that no failures whatever had taken
place within the state for six years. In the past ten years
there had been but three small state bank crashes, which did
not attract much attention, and no national bank had become insolvent in fifteen years. During the first half of
1914, however, the movement of business toward state banks
was greatly accelerated by two circumstances: the first
case of immediate payment of depositors in a failed state
bank presented a striking contrast to the delay and uncertainty of two national liquidations, one of the latter in the
same town; and the Federal Reserve Act was passed, containing provisions so distasteful to several Nebraska nationals
that they converted into state banks.
The First National Bank of Sutton, with about $180,000
deposits, was the first to fail, in November, 1913. Two
months later the First National of Superior was closed, having
over $300,000 deposits. The former seems to have suffered
from the criminal actions of some of its officers, the latter
from a policy of injudicious extension of credit. The First
State Savings Bank of Superior, under practically the same
ownership as the national, was able to survive the shock only
three months, and was taken charge of by the State Banking


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QUARTERLY JOURNAL OF ECONOMICS

Board on March 9, 1914. Its deposits amounted then to
about $122,000.
When the state banks heard of this latter failure, they
grasped its advertising value to themselves, and instead of
being reluctant to contribute their share of what would be
required from the guaranty fund, many of them wrote to the
Secretary's office urging that the depositors be paid in full as
soon as possible from the guaranty fund, so that they could
point with pride to this example of how the state banks'
customers were protected from loss. But there was no way
by which the Banking Department could hasten matters.
The law requires that at least three weeks be allowed for the
filing of claims, and that an order of court be secured before
the fund is drawn upon; so depositors cannot, ordinarily, expect to get their money within six weeks to two months.
In this case, however,a development occurred by which the
depositors of the Superior state bank were paid as fast as
they presented their claims, without even a day's delay.
During the interval between the two failures, the other
national in Superior converted into a state bank. When the
receiver of the insolvent bank took charge and it was found
that no cash could be had from the guaranty fund for a month
or so, this newly reorganized State Bank of Superior offered
to supply whatever cash was needed, in addition to the $23,000 that was on hand when the savings bank closed, to pay all
depositors who needed their money. Their claims were
assigned to the new state bank,so that it could collect them in
the regular way from the receiver as soon as the money from
the fund was sent to him. This was of course a considerable
accommodation, and the result was that the enterprising
institution secured the larger portion of the business which
had formerly gone to the savings bank. People from neighboring towns were a little anxious, but the patrons living in
the vicinity of Superior made very little effort to draw out
their money. Many of them had not presented their claims
more than two months after the closing.
The likelihood of other banks accepting the claims without
discount, because of the certainty of their being paid out of


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NOTES AND MEMORANDA

193

the fund, was apparently not anticipated by the early advocates of the plan; but so strong is the inducement to people
to leave their money on deposit with the bank which accepts
their claims, that a similar action may probably be looked for
in the future. If the practice does become general, the disturbance by failures to local business will be greatly lessened,
which will be no small achievement for the guaranty system.
As soon as the receiver found that a trifle over $54,500
would be required, in addition to what cash there was on
hand in the bank, he called on the State Banking Board for
this amount out of the guaranty fund. The Board had his
report approved by the District Court in charge of the
receivership, and then proceeded to draw upon every state
bank in Nebraska for its proportionate share of the sum
needed, which was .06241 of its credit to the guaranty fund.
The accountant in the Secretary's office was overwhelmed
with all these decimal calculations, until he finally discovered a machine with which he could grind out the assessments by turning a crank. The seven hundred-odd drafts
were sent, about fifty days after the failure, to the receiver,
who turned them over to the State Bank of Superior in return
for the claims of like amount which it had bought up. It is
expected that the sale of assets and assessment on stockholders will be sufficient finally to reimburse the fund.
In contrast to this tranquil experience for depositors in the
state savings bank, is the misfortune of depositors in the
First National of Superior, and of the national at Sutton.
The latter bank has paid a dividend of ten per cent, the
Superior national has so far (July 23) paid nothing. Consequently their creditors are still waiting for returns on some
$360,000 which they had delivered over to these banks in
hard cash, and they may count themselves very fortunate
if they get seventy-five per cent of it after several long years
of waiting. It is easy to believe the following statement by
one of the officers of the State Bank of Superior, the reorganized national:
"The feeling down here is all state bank now, and the last national
in the county changed over to a state bank last week. . . It


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QUARTERLY JOURNAL OF ECONOMICS

in the city, where you deal entirely
does n't make so much difference dealings are mostly with farmers,
your
where
but
men,
s
busines
with
was n't a bank in the state that
it 's another proposition. There
the First National of Superior
that
had the confidence of the people shattered, and now the cry is
been
has
nce
confide
had. This
'Money guaranteed' or nothing."'
of the state thought
Several other banks in that section

the preferences of their
best to make the same concession to
lls) county. The
(Nucko
above
the
of
those
patrons as did
large
country bank in a
fairly
a
ge,
Holdre
City National of
d to a state
town at some distance from Superior, change
:
r
saying
charter, and sent out an advertising circula

an increasing demand on
"This step has been taken in response to
protection under the
for
banks
ka
Nebras
of
patrons
the part of
y
cannot be furnished
securit
This
law.
provisions of the guaranty
been purposely
having
feature
ty
guaran
the
bank,
l
by a nationa
=
law."
y
omitted in the new currenc
Fourteen nationals, in all, have converted into state banks

since the first failure, last November. Some give as a reason
their dissatisfaction with the new Federal Reserve Bank law,
so that the effect of the guaranty system in this movement is
obscured; yet there is little doubt that its influence is the
stronger of the two.
That the new deposits coming to the state banks are in the
nature of savings rather than commercial deposits is shown
by the fact that almost $11,000,000 of their $19,000,000 gain,
in three and a half years, is in time certificates of deposit,'
while the total number of depositors increased nearly 75,000.
It is probable that much of the money now invested in state
bank certificates of deposit at about four per cent has been
brought out of hoarding, as was predicted by the early advocates of the guaranty system and claimed among its chief
'Letter to the writer, dated May 26, 1911
Omaha World-Herald.
Time Certificates
Total Deposits
of Deposit
Year
$71.7
$24.8
1909
70.4
26.4
1910
72.2
27.2
1911
80.7
32.9
1912
89.3
37.2
1913
The figures for deposits signify millions of dollars; e g $24.8


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Number of
Depositors
224,632
230,067
243,333
266,669
296,505
$24,800,000

NOTES AND MEMORANDA

195

advantages. The national bankers, however, consider this
large proportion of time deposits a menace, for they say that
such depositors are the most timorous of all, and are likely to
want their money at the first talk of danger.
In opposition to the state bankers' argument that the
guaranty will produce such a feeling of security among the
depositors that runs on guaranteed banks will not occur,
the national bankers contend that in Nebraska, where no
bank ever failed on account of a run, there is no real danger
in this direction. Sooner or later, they say, a series of
failures among all banks will come,the fund will be exhausted,
and the state banks will be worse discredited in the public
eye than if no attempt had been made to secure their deposits.
The fund is already large enough to take care of the failures
of normal times, — $870,000, a little less than one per cent
of the deposits. But the limit of one and one-half per cent
is probably too low; two or three failures at the same time
among the larger institutions would sweep the whole away.
Then, if failures come one on the heels of another, as they do
in a crisis, the fund must be bolstered up by special assessments that can be met only with the greatest difficulty by the
sound banks, already having a strenuous struggle to meet
their other obligations. If the one per cent beyond which
assessments cannot be levied is not sufficient, some hastily
devised system of deferred payment will be adopted. But
meanwhile the frightened time depositors will have been
drawing out their money; and between such withdrawals
and the burdensome special assessments, the state bank
system will be shaken through and through.
Both these sources of danger, the probable strain on the
resources of many solvent banks, and the chance of a discreditable failure of the guaranty to meet depositors' expectations, could be removed by the establishment of a larger
limit to the fund, and by specific provision for ultimate
payment (after as much as possible had been paid from assets
of the bank and assessment on stockholders) 1 in the form of
1 Mr. Cooke makes both these recommendations (see thia Journal. vol.
p 104). saying that the failure of the Oklahoma plan was due to the immediate payment
provision as much as to any one emote.


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QUARTERLY JOURNAL OF ECONOMICS

interest-bearing warrants against the guaranty fund. Irk
this way the assessments would be continued at the same rate
in good times and bad, building up a large surplus before the
crisis and gradually paying off the bonded indebtedness of
the fund afterwards. If the state banks of Nebraska had
been compelled to guarantee each other's losses from 1892 to
1896 by special assessments, these would have averaged one
and one-half per cent of their deposits each year; but in the
twenty years from 1892 to 1912 the losses averaged but twotenths of one per cent of the total deposits.' Experience in
the future will doubtless show that a successful guaranty
system must devise means of creating its reserve by main_
taming payments through the prosperous years, when it is
easiest for the banks to pay, rather than by depending on
special assessments to provide the money when it is needed.
As to the policy of leaving on deposit with the banks the
full amount of their assessments, which Mr. Cooke regards
as unwise,2 the only alternative would be to collect the money
and then re-deposit it. To minimize the risk, the board
would undoubtedly divide it among several banks, so perhaps the safest way would be to distribute it all over the state.
That is precisely what the present system amounts to. The
fund can hardly be invested in mortgages or bonds, so long as
we have the system of immediate payment, because it is of
prime importance that the money be constantly available for
immediate use. If the plan of ultimate payment were
adopted, as in Kansas, our Board might invest the assessments in gilt-edged bonds, which it could sell in time to meet
demand on the fund. The bankers, however, have been
skeptical as to the safety of a large amount of money administered by the"politicians in the state house," because of the
defalcations of several state officials in the past. One advantage in the present method, therefore, is that it reduces the
antagonism of the contributors to the fund.
1 Reports, Secretary of the State Banking Board, 1892 to 1912.
"This is an arrangement that might easily lead to trouble Insurance premiums.
for that is what these assessments are, should be paid over to the insurer, not held by
the insured, subject to all sorts of claims and processes if the insured happens to think
his insurance is proving too expensive." — In this Journal, vol xxiv, p 3.58


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NOTES AND MEMORANDA

197

ecy
Nebraska's experience seems to confirm the proph
the
el
d
comp
m
woul
which was made, that a guaranty syste
elves
ct
thems
prote
experienced and legitimate bankers to
ts within the
against the operations of rascals and incompeten
d efforts of
unite
The
c.
system, and thus protect the publi
ing
regulation
fight
from
d
our bankers have been transferre
nding
dema
to
1909,
until
and guaranty, as was often done
and
rous
dange
of
ntion
preve
stringent regulation for the
which
act
same
The
ess.
speculative methods of busin
sions designed
created the fund also contained various provi
itor.' The
depos
the
to
dous
to make banking less hazar
excellent
The
.
ience
exper
same
other states have had the
for the
much
owes
aska
Nebr
banking department, to which
its
find
less
doubt
will
,
banks
high standard of its state
new
a
have
who
rs,
banke
the
by
hands upheld more and more
incentive for helping to prevent failures.
that in a
To conclude: Nebraska's experience indicates
normal
fairly
r
unde
,
banks
ized
system of efficiently organ
to the
r
unfai
not
and
ble
feasi
is
conditions, state guaranty
adver
of
tions
condi
under
ve
survi
will
bankers. Whether it
,
come
sity, such as must be expected sooner or later to
tate
remains to be seen. If it does survive, it will facili
relieve an
considerably the commerce of the state and will
important cause of individual distress.
Z. CLARK DICKINSON.
UNIVERSITY OF NEBRASKA.
time deposits, limit of
For example, the five per cent limit on interest paid on
to comply with any part
loans to ten per cent of deposits, criminal penalties for failure
of the law, Secretary's discretion as to need of new banks.


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ca 247

0- 7- Jle

)


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•
GUAKeAll LbG1LATION
IN MilihA

Tho following account of the oriein and enactment of depoeit
gu4r4nt4 legislation in Nebraska is taken from Z. Clark Lictineon, lot
leJosit Guaranty IsklitaligA40 Bulletin No. 6, Nebraska Legisletive Rada.
erence Bureau, November 1, 14.4,
I. Grost4
Banking in Nebraska, from territorikA tilas in the fifties up
to the first *Wm aupervLsion in 1064, wus partly of a *vild.scat,e mature.
No records are available as to failures until 199E, when the State Mankind Board was created with a regularly enpinyed secretary, but since all
that aka needllin the preceding forty years te start a bank was a sign
sad s counter
mad al every banker regarded as &Ls chief function the
borroeing of mow trmm the east to lend to the stru.,gliag settlere of
hiu cia4Lborhood, it is safe to sey thut failures were not uncommon. Although the aggregate deposits were nevem very lards in those days, the
sweeping swag of U. all savings of what depocitore there were in such
wrecked bunts must have meant great hardshiiJa to ttze indigent frontiersIn tao meal 1901 s, wnen the state baaas were rirat subject to
inspection, came & series of "hard time' years, when crops were ehort and
Within six years the
a financial depression swept the entire nation
creditors of Mebraska bans had over five million dollare tied up in 101
failed bunks, of which sue creditors of the natiowls finally recovered
million, and creditors or state Walks an unknown sum perhaps
less than
sometiand over a Killion. It is seen that the total number of bents in
Nebraska fell 1rom 660 IA LAW to 5E7 in 189dviand the aggregate deposits
declined in the SbAt time from 448,kiL0,GOU to 4E7,E84,000.
The largest failure was of the Capital National, in Lincoln,
whose claims amounted to $1,500,000. Only about B250,000 we fia‘14 realised from its assets. The distress occasioned by this million-dollar
loss to depoeitors W40 a tremendous object-lesson to the meibers of the
legislature of laipS, which eau then in session. Though no bill was
troduswi into the legIsluture 1:Jr deposit guaranty until tour years later,
apparently it been to be talked of at this time, us a practical aches*.
C. W. Mosher, president of the Capital National, is credited with having
ocettn a guartentv plan while in jail *waiting
written an article
1/ Dr. P. L. Hall, Proceedings Nebrasa Banters' Association, li$061 105


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triel for criainel hction in wreceiai his bunkel/ If ho did so, it
appeer ttt Noeher sc.-, the origio,Aor or tb idee in Bebrooku.

ould

It we aeo In 1JMB that W. J. Bryan, then representative from
the FlAst District of Nebraeke in Congress, introduced a bill into the
HoueeM/ providing for the peyeent of depositor of inaolvent netional
beta by en insurance rand administered by the Comptroller of the Curraney.
hie fiction wes inspired, some Kohraeaans seyeA/ by C. 0. edon, who wla
for mew yeeris a conalsteet advocete of national buns atemeit insurance.
These early enkgestions of a method of mitieeting the calanite
of failures by mutual bank ineureneei mod the record of failures fro* 1691
to 16196, culmineting in the fall of thlrlreeix benks with over 4 million
dollars d#:yosits in latot, give a hint as to the circumstasees which Intl*.
(owed the author of a bill in the legislature of 'ha eaectine a yearly tex
of
of 1 per coat on tee average daily deposits of stets b ries, to be
collected wIth other taxes and bold by the State Tre4surer in * separate
fund for the Ames% of the depositors of such bunko as might booms issil•
ventei/ SO amorously asseeseent was provided for, In case the fund should
be exhausted. The levy of 3 of 1 per cent was apparently thought to be
sufficient, u mopesitien quite in herummy with the tentutivo reed baphaasrd
drafting of the bill. The measure was referred to the Committee an Basking
and Curceagy, *here the bankers, assisted by Dr. hall, Seeretrry of the
State Benking Board, oreiptle killed it.
In the legislature of lhide Liz-. I. D. livens of K4124444 introduced
a bill requiring stet* benee to keep on deposit with the Siete Treesurer
5 per ceat of their average dull.) deocesits 44 ft eurety—fund for the pey—
eent of creditors of failed Waits. They ware alloeed to count thie d000sit
U3 part of their leeal reserve, knd the Tteasurer wee to loan the fuad out
to stets benks it 211 per cent interest. The income thee collected ve,s to
form a separate fund for the peyment of leases Me that no ;"hrter deoait
would be required unless the dreies were too lesevy4/ Mr. trails says that
the beakers of the Etat° at once began active efforts to defeet his bill,
writing numerous letters to V.e.ir repress- ntatives in the legislature ask—
ing thee to vote aeoinat IAA/ and thie is not surprising, considering
thet wader it each beax was require4 to guarantee all other beam' up to
6 per cent of Its deposits, end the experience of the past tee years had
tenet them that they might expect to perticipete in tee pqrseet of an ag.
26/ Conversatiou with It. P. L. Hali, President Central lotiomal S44.11, Lincoln.
Ti. WO, Cong. Lecord vol. 26.
1/ Y. A. halrison alma W. L. Locke of Lincoln.
I/ J. Y. 100, intr. by L. G. bete= or Friend. Dr. Mall sere the real
author ivoi Judge Beall of Hastings, who spent a great deal of time study—
ing the problem before the legielettre convened, and appeared in defense
of tee bill before the committee. I have not been able to verify this
Statement.
11/ 10 R. 70, MI6
Letter of March 14, 1916 to the writer.

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gregate less of from 1 per cent to 10 per cent of their total dwebeits.
e number of benkere and bunk attornees were pitting in the legislature
at the time. hr. A. C. Shallenberger of Alma and Lr. P. L. Nall were
prominent in the opposition which resulted in the defeat of the bill in
oommittee, though both of them wore very influential in securing the
Nieuwe of the present guaranty lee.
Lr. Nell now AAVS thet tee reeron us opposed the Watiloa and
bills
was bossages they provided for immediate pormeut of deposiLverie
peyaent
as soon as claims have been ?raven e- tient Le believed
ee
tors
now, in ultimete peyment ee. thut is, peynent out of the
does
he
as
than,
guaranty fungi only after all the gamete of the failed bank have been diepissed of anti us much us possible colleoted fres the stockholders.li Nevertheless his comment on the bills above mentioned, in hie re2ort us secretary of the tate Baulking Beard in "die, seems to inaicate that he wes
wholly unfavorable to the principle of esseentit guereetyi
ftkfrorts were made et tea it two sessions of the legislature to Amend the peaking act by providing for a reserve fund
to be collecteo from the banks for tne oroteotion or depositors
of a fellee bank. while protection to toe depositors is a
matter of the greatest importunes, auu protection along the lines
attempted us above indicated meets tee approval of many simperleuced bailees", whose opinion 1 bishai eriso, yet I have never
been able to bring myself to see that mach a plan vould be
equitable.W
It le iatereetiue to note that there Were fit thlw time sow
experienced beaeere" who see,roved of deoosit guaranty, even though taw
were evidently in the minority.

in 1000 the late C. 0. Whedon or Lincoln preperee w bill relete
lug to metions1 benefit which he sent, it ip etetedeW to then Congreetneen
k. J. Burkett of the First Listrict for introduction into Congress. This
bill, whiuh wee ;,)Uhliabed at recommeneed editorially in the Nebraska
&tate Journal on Leceiber le, proposed to set aside half the tax now paid
by autionta bane on their uirculetion for the toreetion of a guaranty
fund to protsot deopeitore. he hee eorked out etatiettt:al data *lab
showed, ee believed,thet ttee fend would be surfloient to meet the 4somado,
4.342 th4t t oteer halt of tLik tuA scale reimbarse the Federal Government
2,/ Conversetion, November, lelS.
Beeort, Oecly. htete hkg, bd.,
p. LO.
LI/ Conversation with Jen, A, Brown of Lincoln, tomer aecretery to
Nr. Nbadatip


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for ite expenses on tke netional banks' circulation. Mr. Chedon loter
eosieted the Attorney-General of debrasee in upholding tAa state It%w of
lea in the Supreme court of the United States.
At a benkerst meeting In Fremont In Aeril, le08. Dr. P. L.
Hall, tloen coahi r of the Goluabia &Alone' of Lineala, reed a peper
oelled *A Tax om penal to Protect Depoeia," in which he pr000sed 4 oetood
of guaranteeing veer aimilox to thet ehlah bee eines bowel* lee. he presented a tibia showine the deozits in fhiled stets banks compered with
the totel deeoalts in all stete banks for the ten yeero fro* 109e to 14)01.
essuming that 80 per cent of these deAkeite bad bees recovered In dividends,
eptyried named had been mearly 1 per
he estimated that the loaeee fer
Cent a year on the averao daily deooeits. Using the national beaking
everaee or 75 pmr cent dividends, hoeever, toe loud bed been about .88 Of
1 per coat, Lail, oonsiderine the extreareinery eenditioem prevailing LS
that docede, ne eepreseed his opinioa thet ae annual aseeasment of 1-10
of 1 per cent on too averege depeelte would bo onoogh to ow all 106404
which wou1:1 occur in the future, eerier toe preeeet ban:slag laws Krui ine
gpecelon. he oorted Oat 4 system In ceualdereble detail, advisine
especially thet the fund be Dot collected end entrusted to the ooliticians
who temoorerlly held office at tre State aouoe, bit be left eith tee bunks,
to remain inteet until drewu I.V.42 by tee dtate Baneing beard to pey ree
ceiverto certificates iesued to the deoceoiture of aey failed bNnk. Followxi ustriAct froa his peper:
"If the priuciple of a guaranty tuna la right, end the ree
sults proeuced would be whet Jo cleleed, it would be meney moll
eufficient gueteate fuad would iusoire coninvestoe. Thet
fidence, 4: in tie* of !AAJA1 allay the feero or ci4s,obitors,
there can be but Ivitic doebt. Tht,t it eould bring to the banks
increaaed depool4 I think eel be fairly assumed. Tiv,t such a
fund eau be maintelned without oepreeelve texetien to the bones
is a problem Otiose demoastretioa depeade on mew varying condition., 'ouch 411 L:Al rise ond fell of velume ond ericos, the inand contrectioa of credits, en4 all the 1411-4cao*u influences that materially effect and Influence the solvency of
bailee :tend their ability to meet the demeude made won them.q/
This lenguege seeme to us So tomperuto
connerv,.1,1e ti.att
we udx harelT roan:et hee reeicul it eeoeured to toe cenvention. So
discussion was mode of it at this meeting, but when Dr. Sall read the
eLlie article before another group et Fella Lity in July of the Sake year,
the record stateal
'Mr. Mereheed roeuesteci ttet the meebers who vsere not in
favor of &ewe aeutiment rise. There W30 unealmous sentiment
44WAJA it4014/

Two years later (Jenuery, 1405), Frank J000mooto thoo of
1/ Procteoluee ace. Bunkers' ANaln., 14014 p. Ba.
il Ibid., p. asi


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Poteroburg, introdueed a guarenty bill into the Bougie which he, being
dhairman of the Benkine and Curreney Goemitteep managed to eet before
the Committee ef the Whole, *here it W40 defeated. Thiu bill oriel/IA.1y
set aside
of 1 per cent of the average nomeintereetebeering deposits
every six months, to be drawn upon by the Stets Treeeurer pro rttt when
endel to
noceesery to per be es. in committee the assesement wt.
, This wts the most carefully drawn bill tnus far
1-10 of 1 per eentat
introduced becelbe Dr. Sallie actuarial figures had demonstreted thut an
aseesemeet or 1-10 of 1 per cent woula probably be allele to meet prospective losee. As Mr. Jeuvenut did not return to the next leeisleturo,
J. 0. Nilligen of Wakefield introduced a bill into the Bowie on Februery 6,
1b07, which Aliti Identical with thc one introdnced by Joevenat in the procanine easeion, us emended by tke conmitteeeai This bill eLe, got peat
nking committee but met aefeet In Committee of the khole,
the
The hankers of the atate were no* beginning to admit, in their
convention/4 that the peiblic had a right to expect aomething more vein
*due diligence" in the safeguarding of itz savtneee and to the topic of
parent'
, woqi devoted a pod deal of diseuellon. At a meeting of the
Nebraska Bankers' AssOCiStiOn in 11006, henry N. Yates, president of the
Nebraska Netionhl beak of Omaha, contributed A peper on *Protection tor
Dank Bepositore.*
*The ulfficulter of ,,roviding or enfore:Jeg soy erste* which
will prevent bank failures hue led to the advansmeat of scheees
for guarenteeing benk de osits * - * This idea has Merit, und
deserves consideration. In the banxing of the futeree when our
widely extended myetwe of ndependent te_ales shall WOO greeter
coherency hnd stability, something of this kW imy be velL:lmod
and adopted but we are far from that /suitable eondition at present, end to_ey iItt ta objections to the scheme are now Ineurmountable.‘A/
dill hunks would be on the muse footing, he predicted, and *the
glibbeet talker end largeet prominer would have an equel chance with the
oldeet Arie, /nest Imperials/mod beneer." °All would go well or a Line," he
added Cerkly, *but in the end if continued so fcr, the businese woul4 be
destroyed, for good bankers eould dive up the contest end leek other
an of livelihood." He therefore recommended turnine ewe, from this
blind alley, sad the trying of other 1110400 to souls* grouter east,' such
es more rigid exeninetionc, more severe penalties for irregular'tit„
eud the Introd,tction of bookkeeping methods whieb woui n4t0 InOlvidOal
defalcations impossible.
i/ A. R. 155, leU6.
LI R. R. M t 11007.
1/ Proceedings, Nebraska Sesdiers. Assoc., Nov. 14%,. 1406, p. 101.


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Pastel savings bii thee bops to be talked of as providims the
dee red surety for Individual deposits, amd thibeakems become :alarmed at
the oroapect of so mueh money being taken out of the state. In a mooting
of Group One of the Nebreska Bankers' Aeeociation in June, 1407, a resolue
tion e6a introduced as follocst
fowitakA3, A gencral movement is being mude to secure the
paseage of a law. setahlishig4 4 system of posfel savngs
be it
*RESOLVED, That it woul4 be better for Le •:.nes of NebrasMe to provide a guaranty rued to protect deeoeitors then to eoncede the establishment of government poetal le,uks.6.1/
In other words, said the author, we nil) between the:, devil and
the deep sou, b4t have a alight preference for ehe deep sou of lelnk guar.
ante'. C. B. Anderson, ViceePresident of the Crete stets Bank, who hed
been prominent us eheirmen of the hesolutions Committee of the RepUblicen
state convention of ISOM, opposed the resolution, believing guarty
neither necessary, fair nor feasible. John R. Ceia, Jr., of Stella, is
eleo mentioned so being unfevoreble to it. C. L. hurlburt of Utica, und
L. R. Gurney of Fremest spoke in behalf of the plan, out it Ih.11 finally
laid on the table, and me nation was taken by these bankers to forwerd
the movemonts
In October C4Ac tee panic of 14007. The bunks of the reserve
cities all over the country suspended cesh ?Avocets, end Nebraska banks
becc.44e fearful of peying out too muoh of their coin law currency without
being able to got more free their correspondents. bo they formed clots,flgelsouse essociations end issued eertificetes in convenient demoninotions,
secured by depoeits of commential puper. Therm, &lone with their oeshicrls,
checks, they ,- eit iato circulation as such as poseible instead of cash.
Bankers of the other etates adopted the' same methods, except in Oklehoma.
There, as haa bees stated, the situation vas unusually precerious because
of the large goober of weak institutions. especially Ln tile old Ladle's
Territory, three aelveser was questionable. On the out-break of the panic,
the Governer deelared a legal holley of a week, while the Executive ComoMitts* of the Oklahoma B4kral aesocietion met to devise a wey out. This
eommittee reeemmendod parent, of state bunks by the state, end of nationel
banks by the matioa. Withina few weeks after this Oklahoma became a *tete.
and the first legielatare set at once. The Banking Board introduced a bill
for the guaranty of deeosits ef stets benAs by a 1 per coat ennuel aseeessent on the everaee Usposits, with unlimited speciel aseosseents in case
of emergeney. This bill birettas* law Deceeber 17, L'007. Nationel hens
4/ Nobroxki. btote Journal, June U,


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I

were invited to participate in the :vstel, .pat. were forbidden to da so
by ts. Comptroller of tilt, Currenciy.1/ The law was iseMedintag coMeeted
by otw of
o;.(Ilts affected, xtti Wil.4 by the state everts epheldedi
In Nebraska the panic c;.usloc no failures, because the very .11cleat State Banking Board had succeeded in bringing the basking bueinese
of tLe state into Kis excellent conditional but as !von os people were able
to get their money out of the bank, easy of them did so. The deposits of
Estate, private and sevinge banks dropped from $71#5514000 ele August Bl,
1u07 to 444,45400u on November 50, a fullinc off of seven millions, or
about oneAeath, In those throe moathissA/ It is true tht the August oeposits eve usual4 two to thrte milliona heavy, on account of nerketing
of erode, but that the i.onfidence of maw people 1M banks generally was
abeam b.; to. panic is certain, one evidenee being Veit the next year in
Aueust t e deosits were six millions below August, 19°I.
It beoame clear to to. bankers that a recurrenA:e of the oenditioug5 4klah 114d just i.tome about must, If poasible, be prevented. State
guarant or deoosits natural4 .41.9 into notice At ones as a possible
solution, D. Mall raad a paper in Janua.ry, 1SU8# before the Candle
Lielt Club of Liemoin, in which he recomeenoed a spates ofAnsurance similar to that which he proposed in 14041, above referred WAS/ The Oki,home
experiment was watehed with seen 'Interest. Reports of tts progress were
often printed SA1 the pipers, with varying opinions ur to Atieth r or not
it was proving successful. The Lesocratic natIonul .;:onventioa, moctihg
July 7# 1U05, at,a domleatle. by Mr. Bryan,
he was st.614 to get a plank
into the platform favoring naloma („ank guaraehy. This action c.z.11ed
the attention uf the entire country to the stbject, enlivened by a spirited
controversy between MO.'men ond Mr. Taft U8 to tom merits of the De011
cratio c:-etr:ne. When the Democratic state uonventi4n met September 22 ill
Nibrar,ka, tier. Bryan insisted es the following planks
"(VAD favor) A law under which the, state hunks ahall be recloirad to eatabliah A guaranty fund, under state supervelosit and
control, under an equitable system, Which shall also be availeble
to all n4tional tanxincinstitutione of this state visiting to
take tvantage of JURA/
The Democratic oendidate for overoor, Mr. Shtllenberger, eho,
as he been stated, is credited with hevinc ben active in defeating the
V Thornton Cooke, Warteriy Journal or i(,cononics, XXIV, 65.
i/ Seble btate Dank vs. ht. )54. Bd., B7 Pee. 5i00*
1/ Report of bec'y State Skin. Bd. 1M07, p. xv.
A/ The Commoner, Sept. 16, 1406.
1/ Illibrasxa State Journal, Sept. LB, l.


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bill in committee in 1699, else urged the adoption or the Above
plank by the convention.

1/ht10

In the BepublLan state conveation, welch oet tLe sump dor an
the Democretic, a determiaed effort re,o made by Governor Sheldon, *audio,
dete for reelection, and M. L. Fries or Areedia, eeiber of %hip renelatiess
coomittee, to have o guaranty plena .e•opted. all other mem of the
reeolatione committee were either beueera or bank atturoeysodi so there
was no oecond to Trice' motion. He therefore offered it from the floor
of the conveation. Coveroor Sheldoa aeconded and spoke ill its favor, As
dfd 4150 C. u. Whedon, but the oonvention voted t down,
to 141.4/
Twenty—six oembere of the convention, according to Y. A. Morrison, e,.
of the MObragl State Capital, were 14nm:totally interested in haelduis
The Lemocratt used their gueranty promise to good ad—
ventuee durint:, the cempaign, and although Mr. Bryen's personal populerity
in this stete was :In* of the most letortent of tele pertyle &fleets, yot
tho prospect of safer bunk deposits was andoUbtedly or great. :oree in
the election of Mr. bballeriberger and a majority or the bemoeratle C411-didates to thy legislature,

II.bahrtismoit sad. listablilat

Sat

Then the legislature met Jennao 6, 100V, Governor Shalledbereer
read his message, of which nearly two...thirds was devoted to benk deeoeit
guerenty. He Weloarended that an assessment of z of 1 pr coot of each
bailee averege daily deeloaits for the preced:ng six months be levied the
first of July, 1609, and
of 1 per oeut at intervels of six montae up
to Januery 1, 1911) them an annual issue:seem of 1-10 or 1 der cent. if
the fund. Should be eximessted, be would allow an eaergency eseeeemefA up
to 2 per cent in wee one year. Se advised that the fond be left on de—
nking
posit with the banks theenelves, sObject to ereft by the Stete
Boardog
A Committee on Benkiug, with Charles Greff of Bancroft as chair..
appointed in the HOUBt to draft the bill. This committee hired
Is Le Aibent of Coluabus es edeciel counsel, poring his $500 for his
services,* On March 1 H. B. ea wuu reported, eabo4ying most or the
Covernorla suggeetione, v,ne beering the stamp of Mr. Bryan's approval.
Man, WES

It
i/
4/
6/
.§/

Nebraska State Capitals bept. 25, 1W6.
Nebreeka State Journul, September ,S, 'SOO.
Mebrasxe State Capital, Sept. ZS, 1WO8.
Goveznor's 118811fte Senate Journal ISO0i) p. IL%
le0U.
Neb. State Capitel Feb.


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Dr. Sall ;la- otilera urged Nr. .6eyan to atzAd l'Jr. an ultimate :,:ymient form
or h111,11 beeaune of tne greater sufeity to the fund; bat the enthusiasts
who wanted the nozt popular neaeure pomible gained the ascendency over
him, and he commented to psyment of ue2ositore us moon 0.41 the; district
ceurt having dnarge of a reeeiverehl determines the amount of cash
eecesaary above t41t held in the bank, making a ?eriod of but sixty leye.
V. fund le then to be reimbureed by the self, of the hank'', assets. Amendmanta were mac.o in committee, limAing the morons,' esses,oents to 1 ;tfk.
r cent of
cent in any one jeer bati 4.ovidiag that the fund be kep at I
tLe aggregate arpoaita. To diseourcgo rockiest:, bidding for dedits,
more than 4 per coat Interest on time deposit* vas forbiddee. The bill
In thie form was envied by the Moue Ural) 9, 72 to 21. Sut one Democrat
opposed it, and only 7 ho7Oblicane voted for it. 31x nelbere who voted
No explained, however, tALt they favored reel bank guaranty, but did not
thins this bill woulu provide it.
When sent to the Senate M. N. US Chat In conflict with a billL/
introduced by a ReoUblionn from the weetern pert of the state, S. L. Were.
This produced a- partisan division, but M P. 426 ma finally paseed, 19 to
IL, only one eAvUtlicJa yeti% for it and but one Democrat against it.
The Governor aided his eigiv.ture April 25, completing the fulfillment of
the Democrats first plzItf..)lo pledge.
V. t!;., *ilson of ;Arosaburg also introduced ft bill which wee
paiv,en, alioeleg uut.ioa.0 r.i.xv to reeriAnIzt us state balsas &nil participate in tie guaranty eystemodal
Than followed a long period of litigation to esteblish tee v-nsp.
stituti,lity of the lay aud pnt it into operation. One requirement of
the act Wexti taut all ;:natitutions detn a banking business within the
stets suet be incorporAud; if net nationally, then under state la*.
Ibis eompelled the vrivate banes, numbering about twenty, to either iiioorperate or go oat of businsos, The First SUete Bans of Holatein, probably a tributary of the rivet National of Hastings* brouglit sult in the
United States Lietriet iiourt against Governor hhalleliberger end the
ether state officik,le to prevent them free putting the guaraety law into
operation. The nationel banaers of the state, it le claim*, eembined to
finance this as a test came, the late C. 0. *Won ossisted as legal
oenneel for the *tate, his lon4 study of the natter, extensive legal
aonvereatiou elth
.1.;" 6. F. O.
4. it. W.

1.• Nell.

i/ A. L. Clerk., of the latter bane, vms its president.


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knowledge shil oursest interest in the swiss makinc hie services extreely
valuable. In July, ISOM, he prepared ha 80-page brief, whoh wes sibs
mitted to ths court, end of whieh extracto were oUblished in the paperas1/
The compleinents contended that the guhreaty law was unconst;:tstional
becsuee it discriminated etaiest private bsass„ in forciat thee to either
incorporate or dissolve, and also n empelling solvent tiran to psy the
debts) or ineolvest lastitutiems. This conteation MGS upheld h:f. the court
in Its decision on Octobei le. The °pints% sritten b Jot, T. C.. MussOr,
sks in part as fa/loess
"It is entirely clear thet this act of thr legialetere does
deprive ths citisem of his right to engage, in t lawful business
except upos the terve that the state 1111 teSe of his loperty,
without his oeneento for the private uss of °there, sad althout
due preemie of limo This is not ascomplished by re%uiring that
L shell per direolly to B, or to Vs creditore, but the same
resalt is effected through a process skin to taxstic4n * * * *
The act not only attempts to exclude individuals from sere
gegin44, in the heshin4 busines,,4 =leas they lo so through the
amber of a corporation, but also etteepts to Impose wee these
as a eondition te their engaging In thst business even in that
fore, a duty to 'eke g000 the Obligations of tal other b4inaere
of tho opinion
in the state to their depositors * * * * *
thst this cannot be dons consistently with the 14th Aseendeest
of srtiole 1 or,
to the National Constitution or ,yith Section
the State Constitution, uad thst this act is therefore vold."Ai
By this deosion the gaerunt). lax, wee wise inoperetive. L
storm of protest went up 0.om ndveeetes of the leA. Mr. whecion„ in a
letter pui-lishod in the Sidarassa State Capitel of Octoser 2E, critiaised
the Federal Court's decision severe*. It /seared entire/y, he said, the
principle laid dove repeatedly by the i:siprome Court of the United States
tilt the Yourteestk Amondmeht was not intended to interfere with the
police )ower of a Siete, which inolmdee ser lees Ststs may puss to provide for the general we11db.in or its lideihitante.
The *tats *Metals appealed the sago December 10, 1%J0i, to
the ;hated Statee Negrene Court, hr. *Won still assisting as counsel.
At this time the other state beak tuersat;:, Uwe were also in the Supreme
Sourt oa appeal, so the hith tribunal lumped thee *11 tot:ether for parsoses
of argument. On January 32 1M11, Justice Oliver Wendell Manes decided
i thst as the ease principles wore
thet the Okluisoms les w.s volid,
Mebrassa Stste Ca)ite.1, 'Nay s5, lioUti.
uott
cMebrasxs Stste Journal, Oct. 17, 190M.
1/
In 17;:. Fed. VAio


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Cbille

reported

r

involve in the Sobreske cuse, the Nebreaka law wee also
dieleion of the Listrict Court sho4:1 be reversed.

and

The following is un extra4A from his opinions

1

"The levy aed collection, under a state statute, from
every bank existing uader the state laws, of ,An aesessment
'for thy ,ite%)ose o creeAlat4
bused upon average daily deposits,
a depoeitore guarenty fund to necure the full repayment of
deposits it ease saw such bank becoecs insolvent, is a valid
exercise of the police power, 41141 cannot be regarded as depriving a solvent bank or its liberty or property eithoot due vo
cuss of :Lew *•* * The police power of a state extends to
tht rcgultida of the b...nicint husinesel and avec to its ;MO—
ilfbitiont ,except on such conditions he the state
scribe.‘3./
Justice Nolmee proceewie to **Amin* the erguments advanced by
n
the hunimr, Ihich were aanorsee by the Lietriet Court, nt
“Neverthelese, notwithstaao:.ng the logical form of t.ise
objection, there are more )olverful consideretions on the other
side. In the first place :;t is established by a series of
CAsee that tux ulterior public advantage may justify a cooperetiveiy lasignificent taking of !vivato properir for what In
its immedi,te 2urpose ie a private use •* 0 * It :bey be said
in a gonerel why toet the police power extends to all the
greet pUblic needs * * *• Among natters of th,.t sort, prob...
abli few woeld dot that both usege afly. prepoddemut opinion
give teir sanction tic enforcing ta primary conditions of
successful commeros. One of these collations at the preseat
time is the popeibiliiky 4: pvment by checks drawn fq;aAnst
deamilte, to such SA extent do Cheeks repluce currency
in dully businese. If, thins, tie; legislature of the stete
thiaks thet t11:z pUblic *Wars requires the measure ander
consideration, analogy and principle are in favor of the
power to coact it..
Ue

curtly answers the reductio ad abeurdum of the luess

3dponentel
It 10 asken whether the state could require all corporatioao or eU grocers to help to guarantee eeeh otte,r's solvency,

16/ Noble State Bank vs. Haskell, L1W U. 3, 104.


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sod where we are eatog to drew the liao# bat thy last is a
futile question, utui, we will euswer toe others when thqY
arise.*
The blebrasky peso, weo dieoosed of by a oinele aenteuues
*This ass* if egoveroed by the decsion in Noble State
gime ea kookill.wAi
A motiou Cor reheering wed denied. This notable decieion
establisher*, to remarkably leeid leaguege, a stete's right to orotect
depositors in its boom., 4VOn to the extent of compelling mutual insurance of thy Institutions It ha4 ohortered.
Um legislature of 1011 oroceedeO to br;eg toe leOs law down
to date, i.u1.4 to patch up a few of its weak sots. Senator J. b. McGrew
Sloomieeton introduced a bill on February 7# 10111 repeeling fourtyen
of the sisty-eix, sections of the preceding act, auJ aebstitetiug amend*sate there;:orwe/ The detest for paying the :Irat I o,A. owat assessment
in four poet-wawa installments more &wired no two years, but it was
provided that no Lena ehieh should have netionelized after the assessseats wore oriiiueLly Cue, from JUly 1# 100V on, be released from the
Cbligotion for these permeate. As originelly reoorted from the Banking
Committee, the bill reduced toe intereat rate to be puld on neoaite
from 4 per coat to B per cent, loeitec the guorwity fu:: to 61,0001000,
and contained & cluuse elloeieg bonto volunterily liquidating to get
their fteNevements not drawn upon.
bool from 160 p r cwot to 00 por
It was amended in committee of the ohole to Remit 6,per cent interest
on time deposits, to establish an outelOe limit of lg per cent of the
ai
o
aggregate depoal a or the
e0Arunta; fend, an4 the refund
clause was stricken out. It was also more dsfinitejy stated thA no
/ t.tva the Depositors' Omarenty Fund ihenic be required
further seourit,
In tole form the bill WAS passed unanomouoly und
public
deouoite.
for
slimed by the governor.
The law now contains no diroction 33 to what shall become of
any ooakis share of the guaraat,y fuhd w:len it closes tte business up
voluntarily. The secretery of to. &tete Banking Boord recommended
in his report for LIU that a law be enected to clear up tois ambiguity,
caul a bill was introducedA/ allowing such a tittak to retain half its
fund, the other half to go to tee state Bankin4Board to create n fund
to be firet drawn udon 114 cues of loos. Thie bill, with others relating to the guaranty law, was not paused. A decision will doubtless be
.nee ault ugalast
&tole by the courts as aoon as a beak lioulostes ooa br.
the Bo4rd f.:ir its share of the fend.
1/ A. C. Shelled:haw et. al. v. First Bt. Bk.of holstein, 0.11, U. S. 114
k-o/ 3. F. 216.
1/ o. F. 219.

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Removal Notice
7KHLWHPLGHQWLILHGEHORZKDVEHHQUHPRYHGLQDFFRUGDQFHZLWK)5$6(5
VSROLF\RQKDQGOLQJ
VHQVLWLYHLQIRUPDWLRQLQGLJLWL]DWLRQSURMHFWVGXHWR copyright protections.

ŝƚĂƚŝŽŶ/ŶĨŽƌŵĂƚŝŽŶ
Document type: Journal article

Pages
Removed:

Author(s): Cooke, Thornton

Title:

The Collapse of Bank-Deposit Guaranty in Oklahoma and Its Position in Other States

Date:

November 1923

Journal:

The Quarterly Journal of Economics

Volume:

Vol. 38, No. 1

URL:

www.jstor.org/stable/1885771

Federal Reserve Bank of St. Louis


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THE NEBRASKA DEPOSIT GUARANTY FUND

110

0
from
THE QUARTERLY JOURNAL OF ECONOMICS
November, 1921

-

pp. 162-166

Perhaps it is a healthful sign that in states where deposits are guaranteed failures bring criticism of the state departments of banking. Insolvencies cost the sound banks money, for they mean assessments to replenish
the guaranty fund. In Nebraska, for instance, where nineteen banks have
closed last year and this, there has been effort to throw the blame on the
Bureau of Banking. State supervision is always the better for watchfulness
and criticism on the part of the banks; but Mr. J. E. Hart, Secretary of the
Department of Trade and Commerce and head of the Bureau, says that the statistics of failures and assessments have sometimes been very unfairly used. Correspondence with a number of well informed bankers in Nebraska has, in fact,
brought to the writer no evidence of inefficiency in the Bureau.

•

It is to be remembered, as Mr. J. B. Forgan has said, that examination
is always a process after the event. A crook can hide his stealings a long
while even from a competent examiner, and sometimes can loot a bank between
examinations. In such cases all the supervising authority can do is to close
banks as soon as it learns they are insolvent. It appears that in Nebraska
this is done, so avoiding the errors of some years ago in Oklahoma, where insolvent banks were allowed to run because there was no money in the guaranty
fund and the banking board hoped that the wrecked concerns would get into better condition. They got worse, and eventually cost the fund more than if they
had been closed at once. Kansas had a like experience when a former Bank Commissioner delayed closing a bank at Salina, hoping that he could restore it to
solvendy and thus avoid having to levy upon the guaranty fund. The shrinkage
of assets and the loss to the fund continued. Finally, the bank was closed,
but the cashier has not been apprehended. Ouster proceedings against the
Commissioner were, however, unsuccessful.
The con4ition of the Nebraska banks as a whole on August 6, 1921, was as
follows (000 omitted).
Loans and discounts
Overdrafts
Bonds, securities, etc
Banking house, fixtures, etc
Other real estate
Current expenses
Cash items
Due from other banks
Cash


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$212,643
1,307
10,001
7,148
1,106
6,248
159
37,545
9,104

$285,261

Capital stock
Surplus
Undivided profits
Dividends unpaid
Individual deposits
Certificates of deposit
Due to banks
Bills payable
Depositors' guaranty fund

$25,871
8,157
7,786
147
103,467
121,034
6,799
9,904
2,095

$285,260
The following items are computed from an abstract from the Bureau of
Banking covering the affairs of sixteen of the banks closed in 1920 and
1921:
Deposits on dates of closing
Drafts on guaranty fund
Cash in hands of receivers
Unpaid claims for deposits
Assets, good
Assets, unclassified
Assets, doubtful
Assets, worthless

•

$4,055
1,006
336
2,669
736

534
910
748

Three other failures were so recent that like data were not to be had
when these figures were assembled. The deposits of the three in November,
1920, were $1,128,000.
After the figures on which the second table is based were made up, and
before September 8 this year, $1,626,000 more was paid out of the guaranty
fund on account of banks covered by the table. This makes $2,632,778 paid
out of the guaranty fund - say three-fourths of one percent of deposits
during 1920 and the first eight months of 1921. This is a sum more than there
was in the fund at the date of any report in these two years, except the
very first report, which showed it to be $2,809,000. The largest single
payment was about $700,000, for a bank at Blair; the next in size $300,000
for a bank at Omaha. It is expected that much of this year's payments will
be recovered out of the assets of the failed banks.
All these figures have been obtained from the Nebraska Bureau of Banking, through the courtesy of Professor George O. Virtue of the University of
Nebraska and of Nebraska bank friends of the writer. In advance of detailed
official reports, they are the best yet available. They do not synchronize,
but it would appear that the guaranty fund, which on August 6 was $2,095,000,
must now have been reduced to $469,000. By the same computation, unpaid claims
would amount to $1,043,000 plus the deposits of the last three banks to close,
probably less than $1,000,000. Cash in the fund, plus assets classed as good,
would not cover the claims.


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-3

S

Considering, however, that the fund can be replenished by emergency
issessments equal to one percent of deposits each year, it will remain solvent. Much wreckage is probably still to be cleared away, and that will be
expensive; but the ability to levy two and a quarter millions per annum will,
at the worst, take care of all conceivable losses in a very few years.
It will help to tide matters over if Mr. Hart, head of the Bureau of
Banking, succeeds in obtaining legislation he is seeking for the postponement of payment of depositors until after the final liquidation of closed
banks, giving to depositors in the meantime interest-bearing certificates.
Kansas was the first state to adopt this method, and to the writer it has
always seemed wise. It leaves at least a little incentive to be careful in
picking one's bank; and if the depositors have got only certificates and not
cash, the bank wrecker is not made a hero when he comes back to town. The
point is not to be overemphasized, of course, for unquestionably the fact
that no depositor ultimately loses deadens public opinion. Certain proceedings in the Salina, Kansas, case illustrate this. The chief benefit of the
new legislation will be to let assessments catch up to the liabilities of the
fund while the receivers are collecting the realizable assets of the closed
institutions.

•

1/
The writer has said before, in these columns,—that in every state where
deposits are guaranteed the fund accumulated in cash is too small, and that
too much dependence is placed in the fact that assessments can be levied to
meet failures after they occur. Nebraska's experience seems to sustain this
view. The law contemplates the maintenance of the fund at one percent of
deposits. Now, a reserve of $2,000,000 is not sufficient insurance for
$200,000,000 of deposits, even if another $2,000,000 can be levied next year.
The fund might easily have become insolvent this year. Bank failures have
been fewer and smaller than could have been expected with wheat dropping
from $3.00 to $1.00, corn from $2.50 to 50 cents, and cattle from $20.00 per
cwt. to $8.50. Nebraska should have a cash fund of at least two and one-half
percent, and it would not hurt the Nebraska banks to raise it. They would
have to charge it off as an expense, it is true; but under the Nebraska law
they would simply set it aside on their books and have the use of it until
called for. Thus they would make just as much money on the fund as if it
were still their own property.
This is the more necessary because state-administered insurance - that
is what deposit guaranty is - cannot, like private underwriting, avoid concentration of risk. Over $10,000,000 of deposits are at the risk of the fund
in Omaha alone, and more than twice the fund, as it stood in August, is at
risk in a single bank. The bank referred to is one of standing; but such
underwriting is unscientific and might - not in this case, but somewhere,
sometime - jeopardize the whole fund. The fund, therefore, should be increased.
It must be borne in mind that insurance of deposits is not the cause
now leading to bank failures in Nebraska. In the neighboring state of
Missouri, where supervision is excellent but deposits are not guaranteed,
twenty-two state banks have closed so far in 1921. Fortunately all but one
were small, with $50,000 capital or less.

V See

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the issue for November, 1913, p. 113.

-4

•

Several more states have estab1is44 deposit insurance since the
writer last contributed to these pages.-/ Now and then even a national
banker expresses favor of the plan. The usual objection, discussed
before and still heard, is that deposit guaranty requires the honest
and competent bankers to make good to depositors the losses of dishonest and incapable competitors. Like objections are inherent in all
insurance, and the reader Will favor or oppose deposit insurance according to his estimate of its net social utility. The writer is coLvinced
that still more states will be led by the present bank casualties
to
adopt the plan.
THORNTON COOKE.
Columbia National Bank,
Kansas City, Missouri.

•

g/ See this Journal for November, 1909, "Insurance of Bank Deposits
in the West"; November, 1913, "Four Years more of Bank Guarantee"; February,
1915, "Deposit Guarantee in Mississippi."
A good survey of the subject at large is in the recently published book
of Professor T. B. Robb, The Guaranty of Bank Deposits (1921).

•

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Nebraska State banks which were not shown in Janut
.ry 1929
Rand McNally Banker's Directory as beiag operated
by Guaranty
Fund Commission, but Which were tAen over by
the Commission
after that time and were later reported as suspe
nded (turned
over to the Dept. of Trade and Commerce for liqui
dation
through receivert)

Name of Bank
A.Insworth
2loonCield
noom_Cleld
Dtlton.
lirvens
Humboldt
Inman
Lyman
lilaaon City
Y,inatare
liaeville
Surprise
Stremberg
Sutton

Date of Suspension

Citizens State Bank
w
Far. & ,Aer."
w
r
Nebraska
P
0
il.rers
state Eyak of ,,.!Aavens
Nebraska State Bank
Inman State bank
Lyman State Bank
Mason City Banking Co.
State Bank of Aanatare
Farmers :.tate Bank
State Bank of Surprise
FF..rmers 2tate Bank
City State tank

DIVISION OF BANK OPERATICS
June 20, 1929.

5-2-29
5-2-29
5-2-29
5-2-29
5-2-29
5-2-29
5-2-29
5-2-29
5-2-29
5-2-29
5-2-29
5-2-29
5-2-29
5-2-29

0

LIST OF NEBRASKA BANKS OPERATING UNDER *GUARANTY FIND COMMISSION* AT
THE BEGINNING OF THE YEAR 1928 - Rand McNally Banker's Directory,
January 1928

City
*Altona
Ansley
Bassett
Belden
Belgrade
Bennington
Bennington
Boelus
*Broken Bow
Brunswick
*Eurchard
Cedar Rapids
Clearwater
Cornlea
Crofton
Danneborg
Danneborg
*Dixon
Doniphan
Dunbar
Eagle
Elgin
Enola
*Fairfield
Fairfield
*Fullerton
Geneva
*Gibbon
Giltner
*Greeley
*Greenwood
Gretna
Hazard
Jackson
*Laurel
//Lindsay
Magnet
*Malcolm
Meadow Grove
*Mitchell
Mount Clare
Miturphy
Newcastle


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Name of Bank
Farmers State Bank
State Bank of Ansley
State Bank of 12-nsett
Farmers State liana
Bank of Belgrade
Bennington State Bank
Mangold & Glaadt Bank
Farmers Stato Bank
Custer State Bank
Farmers State Bank
Bank of Burchard
S. S. Hadley Co. Bankers
State Bwik of Clearwater
Cornice State Bank
Farmers State Bank
Danneborg State Bank
First State Bank
Dixon State Bank
Commercial Exchange Bank
Dunbar State Bank
Farmers State Bank
Elgin State 'Aink
Enola State Bank
Citizens Bank
Farmers & Merchants Bank
Farmers State Bank
Citizens State Bank
Commercial Bank
Citizens Bank
Greeley State Bank
Farmers State Bank
Farmers & Merchants Bank
Farmers State Bank
Jackson State Bank
State Bank of Laurel
Lindsay State Bank
Magnet State Bank
Malcolm State Bank
Meadow Grove State bank
Mitchell State Bank
-Mount Clare State Bank
First State Bank
Farmers State Bank

Date of SUSVOISiOU
1-18-29
5-26-28
3- 5-28
3-10-28
3-29-28
11- 2-28
1-25-28
12-18-28
2-13-29
3- 3-28
5- 2-29
4-25-28
2-14-21
4- 4-21
4-13-28
3-20-28
10-24-28
5- 2-29
4-13-28
4-30-28
4-30-28
3-27-28
3-10-28
3- 6-29
3- 2-25
5- 2-29
12-15-28
1-30-29
3-29-28
3- 2-29
5- 2-29
11-11-28
11-19-28
10- 3-28
5- 2-29
5- 2-29
4-13-21
10-24-28
2-22-28
5- 2-29
11-24-28
3-26-29
12- 5-28

- 2-

City

lee-port
*North Bend
Oakdale
Oakdale
Osceola
Petere'eurg
Petersburg
*Plainview
*Plainview
iScottsbliff
*Scribn.±-r
*Shelton
Springranch
Oterling
*Strang
Thurston
*Thurston
Tilden
Ulysses
Ulysses
Verdel
4Vesta
Wahoo
*Wakefield
Vestern
Ainnetoon
4-Wo1bach
York

Mame of Bei*

Rock County State Bank
First State sank
Antelope County Bank
Oakdale Bank
Osceola Bank
Citizens State Bank
Farmers State Bank
Citizens State Bank
Security State Bank
American State Bank
Scribner State Bank
Weisner State Bank
Blue Valley State Dank
Farmers & Merchants _Bank
Strang State Bank
Liberty State Bank
Thurston State Bank
State hank
Farmers & Merchants Bank
First I. . nk of Ulysses
Farmere State Bank
Vesta State Bank
Far. & Aer. State Bank
Security State Bank
Western State Bank
First State Bank
State Bank of Wolbach
Farmers 5tate Bank

Date of ..:Aleieension

1-18-28
2- 4-29
10-22-23
10-22-28
3-11-2E!
10-13-28
10-13-28
5- 2-29
3-25-29
1- 8-29
5- 2-29
5-16-29

4- 7-28
1-17-29
1-22-29

3- 6-28
5- 2-29
12- 5-28
4- 3-28
3-13-28
2-20-28
2-12-29
3-15-28

5- 2-29
3-20-2!
1-23-29
3- 2-29
5-11-28

*Shown &leo in January 1929 directory as operating under G. F. Comm.
#Shorn in January 1929 directory as 'closed*.

DIVIS104
BAA OPERATIONS
JAU0 20, 1929

I


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•

LIST OF ABRAM& LS OPERATING UNDEa "GlikPlj -Y. FUND COAMISSIO" La IFT
larCDi:ING iF T;7: 1F.o. 1929 - Rand
'walkers' Directory
Janury 179

Naae of i3aak
Allen
*Altona
Beemer
Benkelman
Biz Caring
Bloomington
Boone
Bradish
Brady
Breslau
Bridgeport
*broken Bow
Brownlee
Burton
*Burchard
Butte
Champion
Clarke
Crab Orchard
Creighton
Deweese
*Dixon
Dodge
*Fairfield
*Fullrton
Genoa
*Gibbon
Gilead
**Glenrock
Grainton
Gr3nt
*Greeley
*Greenwood
Haigler
Humboldt
Humphrey
Jackson
John:Aown
Lamar


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Allen State Bank
Farmers Stare Benk
beemer State baJk
Citizens State bank
American state Bank
Farmers State Bank
Boone State Bank
Farmers State Bank
rady tate Bank
Breslau tate Bank
Nebraska State Bank
Custer State Bank
Brownlee State Bank
Burton State Bank
Bank of Burchard
Citizens State Pen k
State Bank of Champion
State Bank of Clarks
Bank of Crab Orchard
Security Bank
::_tate Bank of pewees.
Di_xon State Bank
D.:Age State Bank
Cittzens Bank
Fare-s State Bank
FFirmers State
Commercial Bank
State Bank of Gilead
Community State Bank
Perkins County State Bank
Commercial Bank
Greeley State Bank
Farmers State Lank .
State Bank of Haigler
State Bank of Humboldt
Paul( of Otis and Aurl.hy
Bank of Dakota County
Citizens Bank
Lamar State Bank

Date of SuspeAs.

5-2-29
1-1g-29
5- 2-29
5- 2-29
5- 2-29
5- 2-29
5- 2-29
5- 2-29
5- 2-29
5- 2-29
5- 2-29
2-10-29
5- 2-29
5- 2-29
5- 2-29
5- 2-29
5- 2-29
5- 2-29
5- 2-29
5- 2-29
3-18-29
5- 2-29
5- 2-29
0- 6-29
5- 2-29
5- 2-29
1-30-29
5- 2-29
5- 2-29
5- 2-29
2-29
5- 2-29
5- 2-29
5- 2-29
5- 2-29
5- 2-29
5- 2-29
5- 2-29

I

City

*Laurel
Litchfield
#Madrid
*Malcolm
Nertinnbnrg
Martinsburg
Maxwell
*Mitchell
*North Bend
Overton
Panama
Pastes
Fierce
*Plainview
*Plainview
Flyaouth
Folk
Ponca
Ralston
ReFublican City
Rohrs
Scotia
*Scribner
*Shelton
Et. rdward
Stockville
*Strang
Si crier
*Thurston
*Vesta
*7akefield
*Winnetoon
*rolbach

Name of Bank

State Lank or Laurel
State bank of Litchfield
Madrid Exchange ?..ank
Malcolm State Bank
Citizens State Rank
gartinsburg State Bank
4axwe1l State Bank
'nitchell Stet, Bank
First State Bank
Overton State Bank
Farmers State Bank
CommeroD11 State Bank
Pierce State Bank
Citizen,n State Ban1-.
secnr1ty State Bank
Farmera State Bank
Farmers State hank
Security bank
:Ialston State Bank
Nebraska State Bank
Farmers Security State Bk.
Fnrmers State Bank
Scribner State Bank
Meisner State Bank
Farners State Bank
Frnntier Canty Bank
Strang State Bank
Citizens State Bank
Thurston .tate Bank
Vesta State Bank
Security state Bank
First State Bank
State Bank of tolbach

Date of susrensi

5- 2-29
4
d'

10-24-28
5- 2-29
5- 2-29
5- 2-29
5- 2-29
2- 4-29
5- 2-29
5- 2-29
2-22-29
5-2-29
3-25-29
5- 2-29
5-2-29
5- 2-29
5- 2-29
5- 2-29
5- 2-29
5- 2-29
3-16-29
5- 2-2
2-27-29
1-22-29
5- 2-29
5- 2-29
2-12-29
5- 7-29
1-23-29
:a- 2-29

*Shorn elno in 1923 directory as operating under G. Y. Comm.
** Gflne into voluntary liquidAon according to July 1928 directory.
iNot yet reported as closed or suspended or transferred by G. F.
Comm. to State Banking Department.

DIVISION OF BANK OPERATIONS
June 20, 1929


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on experio .
were 0.063 of 1
1692 to 1903, showiro that
uo,o
to meet losses on non-interooO obooO
loo,
of
half of toOaldboosi - s, ad proportion
three
the
the 'are as in nati_nal). Even for
woild not have eon quite sufficient. Concludes
satisfactory to timid Oepositors, and could not be depended on to otoi. a 1 000s.
then argues that fund would encourage bank failures. "The tendency of such 2
law is to widen the field of inco'.mpeent and dshonest bankers. ... Naturally the
weaker hanks, the sma7 1 on - s and the new ones, would offer inducements to depositors
whic experienced and conservative banks could not ond would not. The rosolt, would
be an increase of deposits in the less worthy hands.111Tmlen inviting field
would be opened to adventurers, speculators ahd unscrupulous ten. T can't doubt
would 'le used" (p. 7).
Concludes that if any guaranty fund is desired, it shogd le by private
eooiJanies, oraanized for the purpose, o -en to all, ollioatory on
Vol. 11, Decemboo 1906. President's address at annual conventi(n of Nebraska
Bankers Association urges examination of all banks members of -te associatio,n by
the association, ordicittg that if somethino of this sort is not done a deposit
guaratkr law will be forced upon the banks. Recoonizes that theory of deposit
insurance is sound, but argues that banks should not all be placed on the saw
"footino in their relations to the publoic." Notes that such a bill was introduced
in previous session of legislature, and is likely to be again in the next. (pp. 7-6)
Talk by Henry . Ya.es, ?resident NebraskaNational Dank, Omaha, Reco:nizes
that idea of deposit nsurance has merit and shoolcl be considered, but argu,a that
,
r.
Cr'n'H -"nr w;7' orovo insufficient and thinks system would fail
7to

Wbson, ins. First
,ol. 12, Juno iou4, pp. ,-10. taper by
Urges deposit i . 0000.00
Convention.
Hartin ton, Neb. before Nebraska Rankers
of p percent of
premium
with
Association,
of
the
placed in hands of mrimittee
year. Ref TS to
third
percent
-4
and
year
sc
ond
deposits first,year, if percent
guaranty to 90 per
of
limit
of
Suogests
banks
Georgia.
mu:Alai plan od the lihitham


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Federal Reserve Bank of St. Louis

•

„..,ok.,u;•
i-, • ..;., -..;L_...
. 'n Chicago, re deposit
"Resolved, That the American bankers Association is unaltc arbitrary lan looking to the mutual Faarant7- (x de-,osits eit
' \ -lation for the following reasons:
• 'I,.
1. It is a function outside of state or national
i
1
2. It is unsound in rr' nciple.
—
3. It is impractical and Tisleading.
h. It is revolutionarY in character.
1
5. It is subversive of sound economics.
6. It will lower the standard of our present la-king sysiJ
7. It is productive of and encourages bad '
,
8. It is a delusion that a tax upon the strong will r(vnt failures ol
9. It discredits.honesty, ability and conservatism.
10. A loss suffered by one Ilink jeopar&--- -I''
...
,
11. The public must eventually may ti
L... 12. It 1,t11 cause and not avert pani:
Vol. 15, Feb. 1';10, ri. 47. ' -uot s 1
Nebraska, assertia• that law is a c

E

April 1910, pp. 39-40. Quotes from
chairman of the Colorado 'cank;:rs Asociaticnfrom an Oklahoma banker--opposin
law and -t:s op':ration, on usual grounds and way ColtrITi- 1"•r


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Federal Reserve Bank of St. Louis

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and

Van E. Peterscr,
three standpoints:
that Ycs. results
1:oinFt banks, an
commission has
of the closed Tarr:,

•

Same issue, pp. 22-23, "Nebr
operatifln and administratica:1d need for amendments indi
that Bureau of Dankin be s,.
appointment of a SecreIa7y of '
qualified bank- rs nominted by '-te u examination fees be used specifical'
when Guaranty Fund Commission takes
be immediately determined and a lie
amended to define specifically t
protected
7 the law, and that receiverships •
one receives appointed by the Juara

t

Vol. 30. January 1925, p. 62. "Guaranty Fund
"In the last twelve months, Bobraska has c- or
tb a ,Tuarw.,,
business and agricultu-al adversity
less, in total. It looks now as thou:h the end of
the bankin institutions of the state is in
"The immense losses which the -uaranty fund has sus-uained were ,a,e good
a series of snecia assessments levied upon the state a', vs each y ar, in ad.kli
to the re''11
Solvent hanks ciw, thus cc-Pelle, to c
-annual assessmPnts.
a hearty load besides overcomirr t.e unfsvoralle _ircu,stances which surrounded
bus less. isut they I- al-0 weathered thn storm and are now sni1in - in smoother wa ,
"The-e 'a o-:cr '2,00u,000 no-; u" hand in f
The appended susl 9 -31 nt ho
]ch thern
(1-.11=
-.
ni4;44.422
A/1+-434


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Federal Reserve Bank of St. Louis

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cil .zr

e:

,-arch 1927, p. 77.
to ,,, _
s:
trade and commerce, s&:•
j t
failures, w'th deposits of - 39 million, o: .1c1:
1-k
T"-.
o • ora- ..
.-A.,
bankrs about 4:,11. million; ufth 141 of tLe 1'12 lio'Yls
.
--7-13
Z*
Situati•.n shot If cleared up in aout two years.
1 tl;
July 1927, P. 107. Reports SaTrn-nor Yc'Ullen's alDointments to tHe •
1-4.....
1
k•,
11.
commision.
( nT)oin'::-Ients - cro•or three -:'=aor term)
f'
:1 -eports qov rner's talk, pointin: out that liaranty fund cc:n•'•'cates na-e alwayy/ been nrlid beforematurity, and none now or,tstandin7 before Opt.

.-*'-

OW :
1
NeT

ar-roriations
Reports that .art of :ncreas-- of
Sntembc-r 1227, n.
for state flankih- nureau w7111 1.e lisao :or more pay and more examiners.
etersonl. Se etary of ,.. Ira:,E'
Va
3a-io isir. 23. "1--arizes annu 1 r nort
,
c., , a_
GIlla'an
.,
1s--/L.:4
,//t-if, 7
/,'•-f ‘
-s-j12.--/--- f,
,-e..
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from time to time to a depositors'
of the depositors of ay bank which
section 1 of the fourteenth amendment
which provides:
"No state shall make or enforce any law which
or immunities of citizens of the United States; nor shall any
person of life, liberty or property without due process of law,'
"
conflict with section 3 of article 1
declares: *No person shall be derive
Cue process of law," and therfore is void.
2. Same. Void provision, 'Alen inducement to
entire act invalid.
The provisions of the Nebraska act of March 2:, 1909, supra, which
individuals from engaging th the banking business, unleso they do so hec
agency of a corporation, and l_so condition the right to engage in that
business in that form upon the making of enforced contributions from time to
time to a depositors' guaranty fund to ITe employad in the payment of depositors of any bank which shall become insolvent, were the
the passage of that act, and as those provisio-s, se coulned to,7ether, are voi,
the entire act is hereby rendered invalid.

•

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Nothing noted

Vo1s. 7, 8, 9. 10. 11, 12,/3
Vols. 1h-22.

Not received from Library of Congress.

Vols. 23-25, for 1927-1929.

•

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Federal Reserve Bank of St. Louis

Nothing noted.

0

American Bankers Association Journal, January, 1930 - p. 724
"The Nebraska Guaranty Law Decision"

Despite a decision by the Nebraska Supreme Court early in December
upholding the state guaranty of deposits law the case seems destined to
reach the Supreme Court of the United States for a final determination.
Attorneys for the banks in the case have announced their intention to seek
a rehearing as preliminary to getting the matter before the Supreme Court.
A rehearing is sought on the ground that the principal questions at issue
were not passed upon in the decision of the Nebraska Supreme Court. Counsel
for the banks contend that the court did not pass upon the following questions:
First. Whether or not the special assessments provided by the guaranty
law are confiscatory.
Second. Whether or not at the present time such assessments protect
depositors in going banks.
Third. Whether or not the law is constitutional under present conditions.
The Nebraska court held that the banks cannot raise the question of
whether or not the law is constitutional, but the opinion did not say whether
this is because the former decision of the Supreme Court of the UnitedStates
is considered to have finally settled the question, or whether it is because
the banks have operated under the law or whether it is because of estoppel
waiver on the part of the banks.
Also it is felt that the court has not determined the question of whether
the banks could waive their rights to raise the question of the constitutionality
of the Nebraska law.
Counsel for the Nebraska banks feel that nearly every question raised
in their brief was ignored and that the decision apparently was based upon an
opinion of the Supreme Court of the United States rendered twenty years ago
when conditions were different from those of today.


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Vol. 129 - Part 2.

Commercial and Financial Chronicle, Dec. 14, 1929.

The Nebraska Supreme Court, after reversing a decision of the District
Coirt, stated in advice to the Chicago Journal of Commerce:

"The action is one wherein 559 State banks sought a permanent injunction
against the levying and collection of any further assessments, as provided
for in the law, limited to a half of 1% of average daily deposits. At
the present time this meahs a contribution of j1,000,0a) a year to the fThe action is ordered dismissed.

"Much ismade in the decision of the
hens participated and in pamphlets
in which the protection accorded to
an effort made to capitalize it for

advertising can paigns in which the State
issued by the Guaranty Fund Commission
derositors by the law was stressed and
the purpose of increasing deposits.

"The Court finds on this .point:

•

"From the evidence it clearly appears that a majority of the state banks
throughout Nebraska, and many others as well counted the bank depositors
guaranty fund, in its inception, a valuable asset and many predicted that
this plan would add greatly to the stability of the State banks and so
advertised among those with money to dgposit."
"The Court also cited the evidence of bankers to the effect that the epidemic 8f failures QC State banks was due to the general economic condition:
existing prior to 1928, and that instead of the assessments being a contributory factor the law had a steadying influence on the deposits of all
Testimony was also cited to show that the law was believed
state banks.
to have added $100,000,000 to deposits in State banks."

•

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1930.
-el. 1.7i'e part 2 - Commercial ec Financial Chronicle, May 31,

NEBRASKA BANKING

LAa

DESCRIBED AS EFVECTIVE BY S2ATE CO=SSIeNed

at Lincoln,
"Before Group I of the Nebraska Beakers' Association
of the State of Nebraska,
Neb., leeer 18, George 1. Woods, Bank Commissioner
is reported in the "United States Daily" as saying:
be timely.
"Bank supervision to be effective must
e.
curativ
preventive instead of

It must be

insti"A supervision which permits banks to operate as going
by
stocks
capital
their
exceed
losses
ated
accumul
tutions until their
ng
somethi
by
It must be replaced
400 to 600 (/0, can not be defended.
of State banks.
system
a
n
maintai
to
is
a
Nebrask
if
better

spie
'

shifting
"The banking department has been charged with suddenly
e
aa
opposit
to
sion,
supervi
from one extreme policy of slackness in its
also
dieuld
it
but
denied
not
is
This charge
extreme of rigid severity.
be kept in mind that the banking department is bound at all times by
been changed
etatutes and that the banking laws of Nebraska have likewise
from excessive slackness to rigid severity.
s
"The Department attempted to restrict the issuance of charter
as
law
the
by
d
thwarte
were
efforts
its
as early as 1914 and 1915 but
interpreted by the State Supreme Court.
policy
"No one will question but that a sound, well -considered
much
given
have
would
to,
adhered
ingly
and
unswerv
firmly
of supervision,
to
1911
from
better results; but such policy in Nebraska was not possible
of
charge
in
April, 1929, regardless of what man or men might have been
During that period Nebraska VMS experimenting
the banking department.
ting
with banking and Covernmenti‘ideas, some of them fundamentally conflic
ent
and
s
consist
ntinuou
cc
ie their nature, and thus rendering impossible a
supervision of banks.
"I say this in fairness to my predecessors in office who were
have not, I
forced to work under handicaps, the difficulties cf which
citizens generally.
our
by
ood
underst
and
think, been sufficiently recognized
for
alibi
myself.
an
up
set
to
I say this also because I do no; seek
to
"Since April 1929, the banking laws of Nebraska, with respect
ve.
and
able
effecti
practic
supervision have be.n adequate,
ence as to
". ... . but teeir defects are not of such consequ
sion.
supervi
hamper effective
supere
". ... The quality and effectiveness ar State bank
energy,
the
on
ever
in Nebraska under present laws will depend more than
ent.
departm
banking
the
of
el
alertness, ability and fidelity of the personn


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GUALANTY OF 1A1K DEPOSITS

NEB/ViSKA

From Federal Leserye Bulletin, September 1925

NEBRASKA EXPERIENCE

In Nebraska, as in other guaranty States,
nssessment$ on account of failed banks have in
recent yeiii.S imposed heavy burdens upon part icipatag-banks. During the guaranty period
to the end of 1924 assessments (less refunds)
and' amounts paid to depositors in failed banks
4itiye been in the following amounts:
to
d rdse"
,
Assessments 1 Papia

1911-1919
1920-1924

$2,367, 260
7,004,042

$239, 390

8,730,646

Assessments levied in the single year 1921
excluded total assessments during the nine years
1911-1919, and amounts paid to depositors in
this year totaled $2,741,719. Assesments and
payments continued in large amounts in 1922
and 1923. Fifty-seven State banksfailed in the
three years ended June 30, 1923, and it appears,
that approximately that number of other
banks were known to be on the verge of
failure. Under these conditions State bankers
became interested in the administration of
receiverships, and in ways and means of tiding
over weakened banks into a condition of
assured solvency. In recognition of their interests, a law which became effective April 7.
1923, created a guaranty fund commission
composed of , State bankers, and authorized
an assessment, not to exceed one-fourth of 1
per cent of deposits in any one year, to he
paid into a bankers' conservation fund. Banks
found to be in a weakened condition were to
be turned over to the ndw conunission which,
utilizing the conservation fund, was authorized
in its discretion to operate such institutions as
going concerns, without regard to their solvency. Some 57 receiverships, with liabilities
aggregating approximately $10,000,000, were
taken over by the new commission, and as a
result of putting "good collectors" in the

1-banks and of adopting improved methods it
is,kasserted that material savings have been
sleeted by which the guaranty fund has
benefited. In an address before Nebraska
State bankers in April, 1924, the secretary of
the commission stated that assets in the hands
of the commission included "everything from
a 20-ton safe down to pen points," every
article being "for sale at the right price."
, Among other assets the commission had in
hand "around 200 farms to sell," and it was
also extensively engaged in litigation, with
"about 1,500 cases in the courts."
It is stated in reply to inquiries submitted
to State authorities that depositors in failed
banks have been paid in full, and that in May
of the present year there were no outstanding
liabilities of the fund to depositors. Deposit
credits to the account of the guaranty fund
carried in the 922 participating banks totaled
$2,689,340, and guaranteed deposits in those
banks exceeded $250,000,000. Certificates issued on the security of the assets of failed
banks were outstanding at 6 and 7 per cent
interest, in the amount of $1,705,699, but the
fund was sufficient to pay these certificates in
full and leave a balance of $1,000,000 in the
fund. Assets in failed banks not yet liquidated, however, at this time totaled $11,000,000, and it will be apparent that the cost
of deposit guaranty in /Nebraska to date will
be determined largely by the amount of recoveries realized under the administration of the
Bankers' Conservation Commission on this
large volume of unliquidated assets.

1

NEBRASKA

NEBRASKA
[Compiled Statittes of Nebraska, 1922]

Sec. (7995). Reports—Approval—Certificates.
trans'Every corporation hereafter organized for State
this
acting a banking business under the laws of comme
rce
shall file with the department of trade and condition,
a full, complete, and detailed report of its and the
as provided in section 7996 of this article, and apdepartment, upon examination of the report
ation
proval of the same, if satisfied that such corpor, shall
has complied with the requirements of this article
stating
issue to said banking corporation a certificatewith the
that said banking corporation has complied
depositors,
laws of this State for the protection of bank deposi
tors'
and that its depositors are protected by the
Every
ka.
Nebras
of
State
the
of
fund
ty
guaran
shall
banking corporation receiving such certificate
ss
conspicuously display the same in its place of busine e
or engrav
print
may
ation
g
corpor
bankin
said
and
tors
upon its stationery words to the effect that its deposi
of the
fund
ty
guaran
tors'
deposi
the
by
ted
protec
are
by any
State of Nebraska. The printing or engraving
ty
guaran
such
ising
advert
ent
statem
a
false
or
bank
provisions
the
of
on
violati
a
be
to
ed
declar
hereby
is
of this article."
Sec. (7996). Preliminary statement.
ng to
"Every corporation organized for and desirincing
transact a banking business shall before commeto the
such business, make under oath, and transmitdetailed
department of trade and commerce a complete
statement of:
"First, the name of the proposed bank;
incor"Second, a certified copy of the articles of
poration;
"Third, the names of the stockholders;
the said
"Fourth, the county,city, or village in which
proposed bank is located;
g business,
"Fifth, the nature of the proposed bankin;
whether commercial, cooperative, or saving
stock, the
"Sixth, the amount of paid-up capital amount."
items of money and property included in said
Sec. (8024). Guaranty fund.
fund for
"For the purpose of providing a guaranty corporaevery
banks,
in
tors
deposi
of
tion
the protec
the laws
tion engaged in the business of banking under
be levied,
to
ment
assess
to
t
subjec
be
shall
State
of this
provided.
kept, collected, and applied as hereinafteragainst coed
assess
fund
ty
guaran
such
ed,
Provid


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engtigbil
Institutions included.—Every corporation
in the business of banking.
Participation.—Compulsory.
ity
Character of deposits guaranteed—The guitst
no money
fund is for the protection of depositors, but agreem
ent
deposited in any bank upon any collateralto maturity
other than an agreement for length of time
deposiand rate of interest shall be guaranteed by the
assets
the
in
y
of
priorit
claim
No
fund.
ty
tors' guaran
evion
based
is
which
d.
allowe
be
shall
bank
of a failed
to a
issued
or
of
hands
the
in
edness
indebt
of
dence
which
stockholder, officer, or employee of a failed bankofficer,
represents money obtained by such stockholder,to such
or employee for the purpose of effecting a loan
failed bank.
assessBasis and rate of (a) regular and (b) special are asments.—Banks organized since April 4, 1919,
thereafter
sessed 4 per cent of their capital stock and organized
are subject to the same assessments as banks zed after
after the enactment of the act. Banks organi per cent
4
the passage of the act are required to pay with the
of their capital and this payment together at least
first two semiannual assessments must equal
banks
1 per cent of the average daily deposits of suck ents.
as shown by their first two semiannual statem
pay(a) All banks which have completed their initialed ,h
ment of not less than 1 per cent shall be assessive of
per cent of their average daily deposits exclus
*, until
public money otherwise secured, semiannual cent of
the guaranty fund reaches the sum of 1% perbelow 1
such deposits. When the fund is depleted
ments
per cent of said deposits the necessary assess is remay again be levied. (h) If the guaranty fundthe deduced to less than 1 per cent of such deposits
special
partment of trade and commerce shall levy adeposits
sessment of not exceeding 1 per cent of said cent of
per
for 1923 and thereafter not exoeeding
such deposits in any one year.
shall
Method of payment of depositors.—Upon proof
of
be paid immediately out of,. available cash in .hands
er is
receiver, and if the sum in the hands of the receiv
to the
insufficient the amount needed shall be certified by it
department of trade and commerce and drawn
receiver
from the guaranty fund and forwarded to the
for payment to depositors and holders of exchange.ty
Powers of State board or commissioner.—A guaran ng
fund commission is created for the purpose of assisti
and
in conserving and administering the guaranty fund
banks.
providing a more complete supervision of State
and
The act provides in detail for the taking over
for the
managing of banks in an unsafe condition and
ible
winding up of the affairs of such banks as it is imposs
pending
to save. The court in which a receivership is
rs'
may authorize the receiver to issue and sell receive
t recertificates in amount not exceeding the amounnt of
quired to supply the deficiency for the payme
depositors in•the failed bank.
aDisposition of guaranty fund.—Banking corpor
tions against which levies are made shall set apart,
keep, and maintain in such banks the amounts levied
and
against them payable to the department of trade
commerce.
Rate of interest on outstanding warrants or certificates of indebtedness.—Rate of interest shall be fixed
by the court.

SEPTEMBER,1925

FEDERAL RESERVE BULLETIN

operative banks shall be kept separate and apart from
that asses/Jed against commercial and savings banks,
and shall be known and referred to as 'cooperative
bank protective fund' and shall be appliecLeolely to
the benefit of the depositors in cooperativellanks who
shall be limited to the benefits of such guilianty fund
which shall be levied and applied in all aspects and
manner as the guaranty fund required of commercial
and savings banks. The term guaranty fund or
depositors guaranty fund as used in this article shall,
when having reference to cooperative banks, be designated, called, and construed to mean 'cooperative
bank protective fund.'"
Sec, (8025). Same—Asseliessatv4,
"On the first day of Ante and December of eac„h
year every corporation engaged in banking under the
provisions of this article shall make and file with the
department of trade and commerce a statement in
writing verified by the oath of its president, vice
president, or cashier showing the average daily deposits in its bank for the preceding six months exclusive of public money otherwise secured. Any bank
commencing business and receiving deposits less than
six months prior to the date when the statement
referred to in this section is required to be made and
filed, shall show the average daily deposits for that
portion of the said semiannual period during which it
has been engaged in business and receiving deposits.
Any person making oath to any of the statements
herein required, knowing the same to be false, shall be
deemed guilty of a felony, and be punished by a fine
of not less than $100 nor more than $1,000, or be
imprisoned in the penitentiary for a term of not less
than one normore than five years, or both."
Sec. (8026). Credit fund—Assessments.
"Any bank organized subsequent to the date when
this article takes effect shall pay into the depositors'
guaranty fund an amount equal to 4 per cent of the
amount of the capital stock, when such bank opens
for business, which amount shall constitute a credit
fund, subject to adjustment on the basis of said bank's
average daily deposits, as shown by the first two sendannual statements required Wr section 8025 of this
article. The department otairade and commerce is
authorized and empowered to make such an adjustment of the rates of assessments to be paid by any
bank which engages in the banking business subsequent to the time when this article takes effect, as
shall require such bank to contribute to the depositors'
guaranty fund a just and eqtd able sum, and the
erce shell adjust
department of trade and co
assessments of such bank so tha the first two assessments, together with the credit, f an amout4 equal
to I per cent of the capital stock paid in by said bank
when it begins business shall at least equal 1 per
cent of the average daily deposits of said bank as
shown by the first two semiannual statements required by section (8025) of this article. Such payment shall not be required of new banks formed by
the reorganization or consolidation of banks which
have, prior thereto, complied with the law with reference to the payment of assessments. When any bank
hereafter organized shall acquire the business awl
resources of any national banking association, Rabb
bank shall pay into the depositors' guaranty fund not
less than 1 per cent of said national bank'
(ion's average daily depsdts .as,shown by
to the Comptroller of the Currency for the
year. On the first day of July and January of


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Federal Reserve Bank of St. Louis

647

s then
year the department shall levy on
ich have
engaged+looking under this ar
ss than 1
ir initial payments of
cornplet
provided
per ceee- o their average daily deposits
in this section one-twentieth of 1 per ent of the
average daily deposits as shown be the statements
required to be made and filed next preceding such
assessments.
"Every corporation to which a charter has been
granted since April 4, 1919, to conduct the banking
business shall pay into the guaranty fund an amount
equal to 4 per cent of its capital stock within 30 di"Vs
after the taking effect of this act and thereafter sbAll
be subject to assessment in the same manner sa banks
hereafter established."
•
e vy —Notification.
Sec. (8027)oillippine
"As soon as said assessments are respectively levied
the banking corporations against which the sone are
levied shall be notified of the aniountobf such assessment levied against them respectively by the department of trade and eommerce, and said banking corporations shall thereupon set apart, keep, and maintain in
their said banks the amount thus levied against them,
and the amounts thus levied, kept, and maintained
shall be and constitute what shall be designated as a
depositors' guaranty fund, payable to the department
of trade and commerce on demand for the uses and
purposes hereinafter provided. When the depositors'
guaranty fund reaches the total. sum of 13 per cent
of the average daily deposits, said assessments against
the deposits of said banks shall cease until such time
as the guaranty fund is depleted below 1 per cent of
the average daily deposits, when the necessary assessments may again be levied. No bank which has complied in full with all of the provisions of this article
shall be required to give any further security or bond
for the purpose of becoming a depository for any public
funds, btlt'depository funds shall be secured in the
same manner that private funds are secured."
Sec. (8035). Reimbursement of guaranty fund.
"To the extent of the amount paierfrom said guaranty fund to satisfy the claims of creditors, the department of trade and commerce, for the use and benefit of
said fund, shall be subrogated to all the right of the
ereditors thus paid, to participate in the assets of such
bank, and the same shall be enforced and collect'! I‘c
Mae receiver a ordingly, and when collected
and de omitted by theAtatartmeid
placed in said
ect to
lvent banktrs
of trade and co
proAsguaratity
the provisions of
ents
to the
•
portionate to the
levialiblegthast each of said
SESSION LA WS OF

1223, HOUSE RULJI NO. 272

SOC. 1. Guaranty fund commission.
"There is heaeby created the gustreinty fund 'cornunieekm for the purpose ,assisting n conservigag. and
guaranty fund eir the
administering the deposi
State of Nebraska, and pr ding a more thorough and
banks. The guaranty
complete supervision of S
leeted in the following
fend commission shall be
tanner:
Sec. 2, State divided into banking groups,
r ,lf,Ciftthe purpose of the act the State is divided into
roups. The act deieribes in detail
bankin
shall compose each of

IN
FEDERAL RESERVE BULLET

SEPTEMBER. 1925

648
banks, and the guaranty
any power or authority overno jurisdiction over going
on.
issi
have
comm
shall
int
fund commission
Sec. 3. Governor to appo
becomes a law the banks except in an advisory capacity."
"Within 10 days after this act
the
of
ent
cons
advice and
governor, by and with the
Sec. 9. Administrative fund.
anty fund commission,
may, unless an
e
Stat
senate, shall appoint the guar
a
of
er
The guaranty fund commission
offic
executive
which shall consist of one ing groups mentioned in appropriation is provided by law, make an esthnate
of
bank from each of the bank been for not less than of the amount necessary for the proper functioning ,
section 2 of this act, who lots of his appointment an said commission not to exceed $15,000 in all V one year
nt
five years preceding the datelite bank in the State certify said amount to the secretary of the departme
a
their of trade and commerce, .and such secretary shalle
active 'exeeittive officer of er
until
e
serv
all
Stat
secreof Nebraska. Such memb
and collect an assessment 'on all
a d have'qualified. The shall thereupon levyamount due from each. Such levy will
ed i
y
are elect
sr
a
stietessor
t
erce
the
for
s
comm
bank
and'
e
of the depertmen f trad guaranty fund com- be based on the average daily deposits as shown by
f the
such banks.
be ex officio a memb
the last semiannual statement of
mission and chairman the' reof."
on.
issi
comm
of
tion
Sec. 10. Compensa
chosen.
Sec. 4. Members—Who and how
commission shall receive an
the
each
'of
er
by
memb
ion
ch
elect
"Ea
the
The act provides in •deliitit forunder section 2 above amount to be fixdlii by the commission at not More
of the bank groups as ptovidedership on the guaranty than $10 per working day and his expenses actually
of three persons eligible for msmb rrnor shall, within 10 incurred in the performance of his duties :15 a member
fund commission, and the fgove from each group one of the commission."
days after such election, appoint
re to make reports.
member of the guaranty
of the persons so selected as a termination of the term Sec. 11. Impaired capital, failu
the department )
the
to
ar
Upon
appe
on.
shall
it
issi
r
comm
fund
"Wheneve
members shall be
or report
mati
exam
any
rom
ere
of office of such members new
tal of any
The term of office of trade and comm
c
er.
the
mann
that
ar
le,
simil
artic
a
t
in
by
ed
elect
fund commission is provided for
ess under
the members of the guaranty such member shall be corporation trans ing a banking b
on is conprovided for at length, and each 000 running to the this article is imnfa ed, that such cor
authorized
fe
unsa
an
in
ness
busi
required to give bond for $25, .
ducting its
erce
of its depose
,
department of trade and comm
manner, or is endangering the inter
on to make
corp
such
of
s.
re
ting
failu
the
—Mee
tion
upon
itors, or
Sec. 5. Permission--Organiza
ired by the
r
ts
emen
stat
or
rts
the
of
repo
tion
organiza
any of the
officers or employees
The aet provhles in detail for the
selection of officers, provisioi!! of this article, or if the
guaranty fund commission and er of calling meetings of any such bank shall refuse to submit its books,
of any examiner,
and the date of holding and mann
papers, and affairs to the inspection
e to be examined
refus
of such commission.
shall
eof
ther
er
offic
any
or if
such bank, or
oath touching the affairs of any
Sec. 6. Vacancies—How filled.
rt provided for by
ed upon
repo
caus
or
on
ion
issi
inat
comm
exam
any
fund
from
if
have
Vacancies in the guaranty
term of a member
rtment of trade and commerce shall
other than by the expiration of thethe governor, such law the depa lude that such bank is in an innate or
conc
by
to
ent
on
intm
rens
for
shall be filled by appo
first annual election unsound condition to transact the businessinexp ileieh
nt
appointee holding office until the
ted it la organized, or that it is unsafe and
selec
be
shall
r
esso
succ
the
thereafter, at which time
ese, or if any such bank' hall
busin
inue
cont
to
it
e.
for
abov
ided
in the manner prov
'der of the/ d artneglect or refuse to observt
department Ilmall
ations. ment of trade and commeige,
regul
and
s
Rule
ion—
lect
s—Se
Sec. 7. Employee
erty and bu less
ssion of th
posse
and
h
take
ge
hwit
enga
to
fort
r
powe
on 'of all money,
"The commission shall have rules and regulations of such bank, and retain •
y descrirrtfon
of e
discharge employees and make all business of the com- rights, credits, assets, and prop
esne or final
necessary for the conduct of the its employees. The belonging to such bank, as against an
ch bank or
mission and the government of at all thews during process issued by any court against
n, and may
guaranty fund commission shall part efithe records corporation whose property has been
e to make
business hours have access to anydepartment of trade retain such possession for a sufficient
thereof as
dis
in the bureau of banking in the verships. The sec- an examination of its affairs a
t ch
#
ains
at:
t lien
and commerce relating to recei and commerce shall provided by law. Any attach
he
next preced
retary of the department of trade commission at the property acquired within 30 d
and
irele
eby
ther
be
shall
lay before the guaranty fund
ssion
posse
s' reports showing taking of such
earliest opportunity all examiner in section 11 of dissolved."
ed
on
any of the conditions enumeratbank
to comply with
State treasurst by commissi
this act upon the failure of suchitions within 60 (lays Sec. 12. Payments to
cond
such
or receiver.
the law or to remedy
such other matters as
nt of trade and cornfrom the date of the report, and re the commission:
"For each day the departme ission shall issiitold
befo
lay
comm
to
fund
er
the guaranty
he may deem prop
ission shall have /fierce or , such hank shall pay to the State treasdrer
Provided, The guaranty fund comm
ine, nor possession
exam
d
to
itte
perm
be
ral fund a fee Of $10, and for
nor
,
no jurisdiction over
ng co- for account of the gene so hold possessten, such bank
erni
conc
nor,
of,
rds
reco
the
shall
receiver
have access to
shall be governed by each day a
compendation for his
operative banks, but such hanks age of this act. The shall pay sloth receiver such department of trade
pass
the
the
by
to
fixed
prior
be
ing
as May
the law exist
trade and commerce si•rvises
proval (if the guaranty
secretary of the department of hours have access to and dillhamerce, subjecttoq a case, du additiop to
ness
busi
ng
duri
r,
s
sion
title
all
mmis
shall at
guaranty fund com- fundfto
- hire and attorneys'
•
any part bUtlie records.of thenot be construed as said amount, the
manner."
same
shall
the
on
in
ed
secti
nsain
"This
dello
ion.*
be
ruiss
e and commerce of fees, to
depriving the department of trad


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Federal Reserve Bank of St. Louis

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SEPTEMBER,1925

FEDERAL RESERVE BULLETIN

649

Sec. 17. Inventory of assets and liabilities required.
"Upon taking possession of the property and assets
of any bank, the department of trade and commerce
shall immediately notify the secretary of the guaranty
fund commission and make an inventory of the assets
of such bank, in duplicate, one to be filed in the office
of the secretary of the guaranty fund commission, and
one in the office of the department of trade and commerce; such inventory to consist of a list of all assets
and liabilities of the institution so far as they can be
ascertained.'

liquidate the affairs of such bank through rit r iver
to be named by such commission: Provided, h
ver,
The court mayniltherize the guaranty fund co
ission to continue such bank as a going concorn under
the provisions of section 18 of the act.
Secs. 21, 22, 23. Limit for filing claims—Listing and
classification of claims—Hearing of claims.
The act provides in detail for limiting the time in
which claims may be filed with the receiver or nierk
of the court and for the listing and classification of
Sec. 18. Management by guaranty fund commission— claims by the receiver and presentation to the . rt,
and the hearing by the court of claims so filed
the
Liquidation.
receiver.
"Upon taking possession of the property and business
of any hank the department of trade and commerce Sec. 24. Priority of claims—Payment by depositors'
guaranty fund.
shall place such bank in charge of the guaranty fund
. a&
commission to ascertain if such bank may be main"The claims of depositors for depos
and claims
tained as a going concern, such commission may of holders of exchange, shall have p
ity over all
thereupon, with the consent and assignment of the other claims, except Federal, State, county,
and
owners of a majority.
,the capital stook of said bank municipal taxes, and, subject to such taxes, shall at
take charge and cotttifil of the property and business the time of the closing of it bank be a first lien on all
with such bank and open it and manage it as a going the assets of the tanking corporation from which they
concern, without regard to its solvency, and through are due and thus under receivershi
luding the
employees perform all duties and acts of the officers and liability of stockholders, and, upon p
reof, they
directors of such bank while managing the same, and shall be paid immediately out of th
le cash in
all salaries and expenses in connection therewith shall the hands of the receiver. If thee
he hands of
be paid by the bank. If any such stockholders shall the receiver available for such pur ,41.. ' sufficient
abscond or conceal themselves for the purpose of to pay the claims of depositors,
s of exevading service of process upon them, or any of them, change, not given for a previously
bt of the
then they shall be deemed to have consented to the bank other than a deposit, the co
the reassignment of their stock. The assignment of the ceivership is pending, or a judg
pon the
stock to the guaranty fund commission shall in no hearing shall determine the amoun
o supply
manner relieve or diminish the obligations of the stock- the deficiency and cause the same
ed to the
holders under the laws of this State or in any manner department of trade and commerc
11 thereabsolve the owners of such stock or the officers or upon draw against the deposito
fund in
directors of any liability undor the civil or criminal the amount required to supply su
ncy and
laws of the State. If the stockholders of such bank shall forthwith transmit the sa
heiver, to
decline to assign such stock and refuse to place the be applied on the said claims of
fi holders
property and business of such bank in the hands of the of such exchange: Provided, Hot.
cates of
guaranty fund commission, and if the guaranty fund deposit shall not be entitled to paefii . ntil
their
commission shall determine that it is impossible to maturity, according to their terms. No
flart of the
preserve such institution as a going concern, then the depositors' guaranty fund shall be used to supply
department of trade and commerce shall proceed to the deficiency that may accrue by the .
ailure of
liquidate such bank as by law provided."
any bank now transacting business, or
iich may
be
hereafter
organized,
which
bank
has
Sec. 19. Bond of receiver or agent.
nol filed the
report provided for in section
of th Compiled
The secretary of the department of trade and com- Statutes of Nebraska for 1922,7996
and received the cermerce shall require every receiver or agent of the guar- tificate provided for in section 7995
of theiCompiled
anty fund commission placed in charge of a bank to Statutes of Nebraska for 1922. Such
drafts against
give a bond in a reasonable amount subject to the the depositors' guaranty fund
approval of such secretary before the assets of such bank nearly as may be, among the shall be prorated, as
are surrendered. Such bond shall be for the benefit wherein the same is aff•rdoresaid several solvent banks
kept an ' intained
of all creditors and stockholders of the bank.
in accordance with thOimounts thereof h
by such
banks respectively. No claim to pr
Sec. 20. Procedure for liquidation.
hall be
•
debtedIf at any time the guaranty fund commission or the allowed which is based upot} any evide
department of trade and commerce shall determine ness in the hands of or originally issu 'to any stockthat it is impossible to preserve as a going concern holder, officer, or employee of such bank, whic reprer or
any bank of which the guaranty fund commission has sents money obtained by such stockholder, o
m,
taken charge, then the department of trade and com- employee, from himself or some other person,
merce shall communicate the facts to the attorney corporation, or bank in lieu of or for the purposk of
general who shall cause an application to be made to effecting a loan of funds to such failed hank.
the proper district court for an order directing the Sec. 25. Bankers' conservatiqn fund.
department of trade and commerce to take charge of
"For the purpose of preventing the
the business assets and property of every kind of such and conserving the guaranty fund, eloAing of banks
the
bank and to wind up its affairs. If, after a hearing, servation fund is hereby created. The bankers conthe court shall find that such bank is insolvent or that servation fund shall at all times belong bankers conto the hanks
it has violated any of the provisions of law nnthorizing contributing thereto, subject to the
provisions Of this
the department of trade and commerce to Me posses- act, and the asseeeragififte therefor shall
exceed onesion of the affairs of such bank then the court shall fourth of 1 per cenVertheaverage daily not
ds.osits of said
direct the guaranty fund commission to proceed to bank during any one year and said
fu
shall never

lip

•

•


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Federal Reserve Bank of St. Louis

•
650

FEDERAL RESERVE BULLETIN

exceed one-third of 1 per cent of the average daily
deposits of said bank at any time, based upon the last
report of average daily deposits filed before making
such levy. Whenever, under the law, it shall be proper
to a,senible and use any part of theApkeedinonservation fond the secretary of the department of trade and
commerce shall make an assessment on each of the
solvent beaks in the State for its proportion of the
man* Aletiliddisased on the average clear deposits
orsuCh beak is shown by the last semianatal statement, thereof, tiled ,with the department of trade and
commerce, by drawing a draft fog such amount and
transmitting the same as Provided by law. The banks
may carry the amount remitted on such draft on their
books as an asset, debited to the 'bankers' conservethin fund,' until such time as it may be repaid to said
bank or charged off against the profits of the banknot
needed for any purpose other than the payment of
dividends."
Sec. 26. Depletion of depositors' guaranty fund.—
Special assessment.
"If the, depositors' guaranty fund shall, from any
cause, be depleted or reduced to any amount less than
1 per cent of the average daily deposits as shown by
the last semiannual assessment statement thereof filed.
the department of trade and commerce shall levy a
special assessment aatinst the capital stock of the
corporations governedipy the provisions of this article,
to cover such deficients, which special assessment shall
be based on the said average daily deposits, and, when
required for the purpose of immediate payment to
depositors, said special assessment may be for any
amount not exceeding 1 per cent of said average daily
deppsits for the year 1923 and thereafter not exceeding
°netball of 1 per cent of said average daily deposits iu
any one year."
.
Sec. 27. Assessment on and repayment to bankers'
conservation fund.
"Whenever any bank shall have been placed by the
department of trade and commerce in the hands of the
guaranty fund commission, under the provisions of
section 18 of this act, said guaranty fund commission
may at any time certify to the dapartment of trade and
commerce an amount of money', hich it desires to use
oicv
in conducting the affairs of su
bank which has been
so taken over under the pr isions hereof, and the
department of trade and consinerce shall immediately
levy an assessment and draw upon the bankers' conservation fund for such amount and transmit the same
to the agent or representative of the guaranty fund
commission in charge of such bank to be used by him
as a deposit and for no other purpose. Provided, however,such receiver may, with the consent of the department of trade and commerce, borrow any part of said
amoUnt for the use of such bank and repay said borrowed money when the money is received from the
department of trade and commerce. The department
of trade and commerce or the guaranty fund commission may close said bank at any time for the purpose of
liquidation as provided by law, or niapreturn the management of its affairs to its proper officers whenever
such deposit, with interest at the rate 41 per cent per
annum, has been fully paid to the bankers' censers
vation fund, and the reason for retaining the management and control thereof no longer exists."
Sec. 32. Sale of assets—Publication—Refund.
"The department of trade andleggimpre may at
any time apply to any court in which a
ivership for
a bank is pending at the time this act takes effect for


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Federal Reserve Bank of St. Louis

si: umnicit.

an order directing the receiver to sell all or any part r •
the assets of every kied_and description in his pos,s
sion, , ir under his control. Notice of the heariug , m
said petition shall be given to all parties interested by
pnblication once each week for two weeks in a newspaper designated by the court, which notice hall state
the fact of such petition being filed, and the date of
hearing thereon. At such hearing, if it shall appear' to
the court from the evidence offered that the assets in
such receivership available for the payment of creditors
of such bank are insufficient to pay the claims °Udepositors if unpaid, or to reimburse the depositors'
guaranty fund for the amount drawn therefrom tar the
payment of the claims of deposit ors for depositarthen
the court shall enter an order directing the re*ver to
sell all of such assets at public sale, and shall fix the time
of such sale and the notice which shall be given thereof.
Such sale shall be held sus the date so fixed by the court,
or at such other time 48 the same may be adjourned to
by the receiver, which shall not be more than 10 days
from the date fisted by the court. At such sale the
secretary of the department of trade and commerce,
or his representative, may bid on such assets, and if
such bid shall be the highest bid offered for the assets,
the receiver shall deliver to such secretary or his representatives, all ofsuch assets and take a prop
/receipt
therefor, which shall be filed in the office of .e clerk
of the district court in the files of such rec wrg.ship.
The delivery of each receipt shall constitute payment
in full to the receiver for such assets. If the monetin
the hands of the receiver after the sale of such assets
to the department of trade and commerce shall be
insufficient to pay the costs amid expenses of such receivership remaining unpaid, thee the court or judge
thereof shall fix the amount of,aach unp4 gaits and
expenses, certify the same to 40 depart
t of trade
and commerce, and the depar
t of t
aid,commerce shall refund to such r
er sueqq neunt out
of the proceeds of the asset* such r reas
vhip, or
shall drawn against the deP
rs' gua
y fund for
such amount and tramenit t
ame to t
eoiver for
the payment of such ela
he depar
nt of trade
and commerce, upors,
leg the asse
'Lich receivership, shall tr
he same to
aranty
fund commission, wh
sIll place a rep
in
tivefor
charge thereof and cantle the same to be 1 w
the benefit of the gdfienty fund, and afte isayi the
expenses of such liquidation, shall place the bales) in
the depositors' guaranty fund in the several banks in
the same proportion as it was drawn therefrom."
Sec. 35. Records—Secrecy.
No one connected with the guaranty fund commission shall in any instance disclose the name of any
depositor or debtor of any bank of the amount of his
deposit or debt to anyone except in so far as may be
necessary in the performance of his official duty.
Sec. 39. Deposits not guaranteed—Certificates nonnegotiable.
"No State bank shall receive any deposit upon any
collateral agreement ' condition other than an agreement for length of' to maturity and rate of interest,
,4mougn:y d
d !IL°
ed in any such bank, upon any
ment or condition shall be guarsitors' guaranty fund. On or after
rtificates of
I shall be nonnegoand
avabl
depositor or assigns.
and every certi
on its faakwiwprorament
type 'nonnegotiab e

•

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SEPTEM BER, 1925

•

FEDERAL RESERVE BULLETIN

Sec. 41. Court may authorize receiver to borrow on
receiver's certificate.
"The court in which a receivership of a State bank
is pending, or any judge thereof, may, upon the applii ion of the receiver, in open court or sitting at chambers anywhere within his district, without notice or
upon such notice as he may direct, authorize and direct
such receiver to llorrpr money and for that purpose,
to issue and sell, Issiign, or hypothecate one or more
receivers' certificate:3 in an aggregate amount not
exceeding the amount required to supply the deficiency
for the payment of depositors in any failed bank. Such
receivers' certificates may be authorized and negotiated either before or after the amount shall have been
drawn from the depositors' guaranty fund and from
banks heretofore in receivership. If authorized after
the draft on the guaranty fund, the amount shall not
be greater than the market value of the assets remaining
in the receivership. The rate of interest shall be fixed
by the court. Such receivers' certificates, with the
interest thereon, shall be subrogated to all the rights of
the depositors thus paid or to the rights of the department of trade and commerce, to participate in the
assets of such bank, and shall be a first lien on all the
assets in the hands of the receiver and on the rights of
the depositors in the depositors' guaranty fund and
shall be enforced and collected by the receiver accordingly. All money derived from the sale or transfer of
such receivers' certificates shall be used for the payment of depositors if such receivers' certificates are sold
prior to the drawing of the money from the guaranty
fund, and shall be used to reimburse the guaranty
fund if sold after the drawing of the money and payment of the depositors from such guaranty fund."
Sec. 42. Cash to pay receiver's certificate.
"If the cash in the hands of the receiver be insufficient to pay such receivers' certificates with interest-thereon, as fixed by the court, when the same
become due, the court, or a judge thereof, shall determine the amount necessary to pay the face value of
such receivers' certificates with interest thereon to the
date of payment and cause the same to be certified to
the department of trade and commerce, which shall
thereupon draw against the .guaranty fund in the
amount required to supply the deficiency, and shall
forthwith transmit the same to the receiver to be
applied on the payment of such receivers' certificates.
Provided a new issue of certificate's may be authorized
by the court if application is made therefor."
Sec. 43. Registration of receivers' certificate.
"Receivers' certificates issued under this act shall
be presented to the secretary of the department of
trade and commerce and he shall certify thereon that
such certificates are payable out of the depositors'
guaranty fund of the State of Nebraska, and register
them in a book to be provided therefor in his office.
The secretary of the department of trade and commerce
shall prescribe the form of receivers' certificates and
shall fix the due date of each issue thereof, and they
shall be paid in the order of registration."
Sec. 48. Annual statement of funds.
"The secretary of the department of trade and commerce shall in the month of July of each year prepare
and mail to each State bank a report pertaining to the
guaranty fund, the bankent'eontervation fund, and
the banker' administratiWilivid showing the following data: (1) Names of drIlwee banks; (2) syerage
deposits on basis- of yhieh each assessment. was-4101.40
for the benefit of eallfbank;(3) amount of such asg8MA


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Federal Reserve Bank of St. Louis

651

ment on each bank for each bank for benefit of guaranty fund; (4) average deposits on basis of which each
assessment was made for benefit of bankers' conservation fund;(5) amount of each assessment on each bank
for each bank for benefit of bankers' conservation
fund;(6) amount of average deposits on basis of which
each assessment was made for benefit of bankers'
administrative fund; (7) amount of such assessment on
each bank for benefit of bankers' administrative fund;
(8) amount reimbursed to each bank from each bank
for benefit of guaranty fund; (9) amount reimbursed
from each bank to each bank for benefit of bankers'
conservation fund; (10) disbursements of bankers'
administrative fund; (11) statement of assets aiid
liabilities of each bank, as shown by last statement
published before such bank's coming into the hands of
the guaranty fund commission; (12) detailed expense
account of each bank operated by t
anty fund
commission; (13) amount realized
sale of real
estate and furniture and fixtures of each bank in hands
of guaranty fund commission• (14) amount realized
from other assets of each bank
'in hands of guaranty
fund commission, listing same in detail. In addition to the foregoing such report shall contain such
other data as the guaranty fund commission and the
secretary of the department of trade tiffs' commerce
may deem proper."
SESSION LAWS OF I323—HOUSE RU L E NO. 237

Sec. 28. Sale of assets by.guaranty fund commission.
"Whenever a receiver or representative shall be in
charge of a bank or receivership under the direction
of the guaranty fund commission, and such receiver
or representative can procure lawful purchasers for
the assets and capital stock of such bank, then such
receiver or representative may, with 1 he approval of
the guaranty fund commission, and the secretary of
the department of trade and commerce, petition the
district court of the county in which said bank or
receivership is located form order decreeing such bank
to be insolvent, if a going bank, and directing the sale
of all the property and corporate rights of such corporation upon such terms and conditions as to the
court may seem proper. Notice of such hearing shall
be in the same manner as for the appointment of a
receiver under this act. If the court, upon the hearing
thereof, shall find that such bank is insolvent, or in
receivership, and it is for the best interest of all creditors
of such corporaticin, then the court shall issue an order
directing the receiver or representative in charge, as
receiver, to sell such banking corporation and its
assets as prayed. The court shall determine at such
hearing the tights of the creditors, including cleflositors,
as nearly as possible, and shall direct the notiee to be
given and the pleadings to be filed for the dettrmination of the rights of creditors whose claims are not
allowes. at such hearing. The court shall authorize
and elfrect the receiver to issue from the stook book
of such corporation, certificates of stock to the purchasers thereof, and upon the delivery thereof and the
compliance with the terms of such sale; such purchasers shall be and become the only lawfully constituted stockholders of such corporation, and as such
shall proceed to organize with the proper officers and
directors for conducting a banking business. The
department of trade and commerce shall require the
officers to file the report provided for in section 7996,
Compiled Statutes for 1922, and if upon examination
the department finds that such corporation has complied with all of the requirements of law *shalt Issue

to such corporation the certificate provided for in
section 7995, Compiled Statutes of Nebraska for 1922,
and shall return the charter of such bank to the corporation herein .provided for: Provided, no sale shall
be ordered if the owners of the majority of the cSpital
stock whose acts do not show criminal liability, all
object and show to the court that there is a reasotkhble
probability of the bank becoming solvent by restoration
of its assets and of the former owners regaining possession thereof within one year from the date of
taking over the bank by the department of trade
and commerce."

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DEPOSIT GUARANTY IN NEBRASKA
(From Federal Reserve Board Files)
MEMORANDUM - Mr. Van Fossen

April 29, 1926.

NEBRASKA:

Law was passed on March 25, 1909, but did not go into effect until
July 1, 1911, having been in litigation for nearly two years.
Sixty-rive banks failed since adoption of guaranty law were liquidated
at a loss of $9,0000000. It is anticipated that 60 more banks are apt to come
into hands of commission and cause an additional loss of about
,000,000. There
is now in the fund 11,700,000 and about an equal amount of receivers' certificates
outstqnding against the same. From assets of $11,000,000 there should be realized
t3,000,000 and 2 years' assessments will bring in t3,000,000 or sufficient to
cover anticipated loss. Contributions have totaled $12,000,000 during 14 years,
an amount equal nearly to 1/2 of the capital of state banks today.
The Nebraska law provides that the department of trade and commerce
shall forthwith take possession of the property and business of any bank when it
has reason to conclaie that it is unsafe and inexpedient for it to continue
business, or under certain other conditions. Such banks are to be placed in
II.e of the guaranty fund commission to ascertain if such bank may be maintained
as a going concern. With the consent of the owners of a majority of the stock
such a bank may be opened and managed as a going concern by the commission without
regard to its solvency. For this purpose a "Bankers' conservation fund" was
created, assessments of not more than 1/4 of 1 per cent of the average daily
depo5its of each bank being authorized for the purpose, such funds to constitute
a loan by the bank assessed and not to exceed 1/3 of 1 per cent of a bank's
average daily deposits at any time. The Gove..naor of the state now advocates
a plan to take out the bad paper of banks in the hands of the commission, substitute receivers' certificates therefor and sell the banks with a time guaranty
on the remaining paper and is quoted as saying that the banks should sell for
much more than par.
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The consolidated statement of condition of state banks as of December
31, 1925, shows: "Bankers' conservation rund" as an asset item - t628,945.08;
and as a liability "Depositors' guarantee fund" - $1,238,402.19.
Memorandum - Mr. Van Fossen

January 31, 1927.

Nebraska: 151 banks have come into the hands of the guaranty fund commission since
1911, of which 38 are now being operated as going concerns regardless of
their insolvency. Depositors in all closed banks have been paid in full. The
cost to the solvent banks up to June, 1926 in assessments has been t14,000,000,
while the loss yet to be sustained in banks now being operated and those which
may yet come into the hands of the commission, may eventually amount to t6,000,000
more. The annual assessment of $1,700,000 at the maximum rate of 6/10 of 1 per
cent of average daily deposits amounts to 7 per cent of the toLal capital of
state banks on June 30, 1925. (See Commercial West, September 25, 1926).

WALL STREET JOURNAL - FEBRUARY 27

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1928.
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NEBRASKA DEPOSIT GUARANTEES BREAKDOWN
Legislative Action gay Be Necessary for State Wide Levy
to Maintain False Economic System

LINCOLN -- The State Guaranty Fund Commission, which handles the funds of the
State Deposit Guaranty System, has abandoned its long followed method of paying
off depositors in failed state banks as soon as their claims were proved to the
court in receivership proceedings. It is noy allowing these to go to judgment,
which attaches a 7% interest rate.
This has been necessary, says C. M. Skiles, general counsel for the commission,
because of inability to keep on floating receivers' certificates fast enough to
take up the claims as they go to judgment. There are $1,000,000 of these certificates outstanding, bearing 7%, and the new plan merely makes the depositor hold
them in the form of a judgment instead of the banks that have been investing in
these certificates.
Claims of depositors approved and not paid total $4,500,000, and there is
a contingent liability of $13,000,000 more from the 72 banks now operated by the
commission as going concerns.
The fund has about $10,000,000 of collectible paper and real estate that will
be available, when turned into cash, to meet these liabilities. The fund also
*has the power to levy a maximum yearly assessment of $1,500,000 on solvent banks.
Mr. Skiles says legislative aid will be necessary to gunrantee the fund
against an eventual breakdown. It will be necessary to stop interest on
depositors' claims gone to judgment, he says. There also is presented to the
legislature the alternative either of cleaning up the deficit by a state-wide
levy -- which Mr. Skiles justifies on the groumd that most depositors have believed
the state was an actual guarantor -- or pledging the state credit to a sufficient
tsue of 4% receivers' certificates to insure prompt payment of depositors when
their claims are approved in court.

NEBRASKA GUARANTY LAW IS KILLED
Lincoln, Nebraska -- The bank deposit guaranty fund law of Nebraska has
gone by the board as have those of several other states of the Union which
tried the theory and found it would not fit into the economic structure of banking
and business.
The Nebraska law was wiped off the statutes of the state by special
legislative action this week, the bill annulling the law having been signed
by Governor W. J. Weaver on Tuesday.
The only other state of the original nine which adopted bank deposit
guaranty laws and which has not rescinded them, or in which they are not
effective, is gississippi.

4111,

Abandonment of the old depositors protective law was effected in a substitute measure adopted
a special Nebraska banking legislature called to
iron out the ills of 65,000 depositors who were awaiting restitution from the

guaranty fund which had amassed a $20,000,000 deficit before it was repealed.
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The governor's acceptance of the new law , one he believes a compromise
for depositors and bankers alike, relieves all state banking institutions of
special and regular assessments with the exceition of a two-tenths of 1 per
cent levy to continue for ten years.
This assessment, the governor believes, will produce $3,000,000 in the
decade and this added to another $3,000,000 in levies forthcoming before the
law was removed from the statutes, will refill the empty purses of the
depositors.

A constitutional amendment to be voted on this fall will add another
$8,000,000 by state appropriation for the depositors if the plan is accepted
at the polls.
The Nebraska law, similiar in detail to a banking theory once tried by
eight other states but now effective in only one -- Mississippi -- has experienced
a trying existence in the past five years, Governor Weave- said.
Complications incident to post-war deflation, former Governor A. C.
Shallenberger, Democrat, who signed the original act, told the Senate last
week, spelled its defeat.
The substitute bill signed this week, with emergency clause annexed, bolsters up the bank situation in that it provides a surplus fund based on yearly
net profits -- a fund that must be invested in securities approved by the state
bank department.

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A summary of the reports of condition of state banks of Nebraska, as of
December 31) last, made public by the state banking department, shows a decrease
in assets during the quarter from $248,000,000 to $222,000,000, and in deposits
from $2170000,000 to $191,000,000. A corresponding reduction in capital,
surplus, undivided profits and loans and discounts is noted.
While a decrease in the number of banks through failures and nationalization is in part responsible for the drop in deposits, withdrawals from banks
due to the confused situation arising out of the large guaranty fund deficit
have accelerated the movement.
Governor heaver, reporting to the special session of the legislature upon
the experiment conducted for a period of six years, ending in 1929, of operation of failed banks, kept open by the guaranty fund commission and managed
by its agents, showed that the net loss was $1,322,728. Total operating costs
of thej.67_12_anks involved were $3,467,416, made up of general expenses,
$1,625,529; legal $179,517; interest paid $1,150,000; real estate $512,370.
Revenues were Income, Interest and Exchange, $1,743,000; real estate, $401,890;
total $2,144,890...
Former Congressman Shallenberger, in charge of the audit of failed banks
of the state, says that the worst is over in the banking situation in Nebraska
and that conditions are improving. He pointed out that as of December 31,
last, the banks were carrying a total reserve of 37 per cent, nearly double
the legal requirement, of which 20 per cent is in cash and 17 per cent in bonds.

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Commercial West, Volume 59 -- No. 12, March 22, 1930

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NEBRASKA GUARANTY FUND

Number of state banks in Nebraska arranging to enter national bank
system owing to danger of facing $8,000,000 deficit in the Nebraska Guaranty
Fund end of year.
In 16 years of operation the fund has paid depositors of failed banks
some $38,000,000, of which about $15,000,000 was paid out of Fume from assessments on solvent banks.
C. M. Skiles, General counsel for Commission, says law was forced on
bankers and as consequence three-fourths of solvent state banks have been unable
to pay dividends for several years. Many banks have paid into fund amounts
elual to their capital stock.
Solvent banks must be assessed about $10,000,000 to pay depositors of
138 banks in hands of Commission (not all at once). When depositor's claim
is allowed against Guaranty fund, it becomes a judgment and bears 7 per cent
interest per annum, so if $10,000,000 claims are allowed, interest alone amounts
to $700,0001 or about 1/2 amount collectible by assessments each year.
General feeling that law is uneconomic and should be repealed, or
some method other than assessing solvent banks should be found for raising
necessary funds. Entire State bank system in danger when assessments cause
suspension of dividends and in some cases make solvent banks insolvent - "for
surely it is much better to be a compulsory member of the Federal Reserve System
with its fancied ills than to be in a Guaranty Fume system with its known erns."
"The straw which is likely to "break the back of the camel" is the
failure of the Beemer State Bank of Beemer, which it is said has ,S1,000,000 of
fraudulent notes in its portfolio, with the president, Paul Nupper, a fugitive
from justice. He apparently took the capital, surplus and deposits of the bank
and left spurious notes from which there will be no "salvage."
Not surprising many banks seek national bank charters, when under the
law, which is compulsory in so ET as membership of state banks in the fund is
concered, solvent state banks are expected to pay all the depositors.
"As has been pointed out in these
twenty years, any law which makes an honest
of a dishonest or careless banker, when the
will fall by its own weight, and it is only
chimerical schemes will be wiped off of the

Briefed from article The Financial Age,
Vol. LVIII, No. 16
October 13, 1928.

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columns many t'_mes during the past
banker responsible for the debts
former has no check on the latter,
a matter of time when all of these
statute books."

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S
MEMORANDUM - Mr. Foster.
Date
State
effective
Nebraska
1911

REMARKS
Voluntary
or compulsory
Compulsory

Oct. 1, 1929.

Remarks
Injunction granted by District Court
against special assessments puts
Guaranty Law on non-operative basis.
Legislation for repeal passed both
to
houses in May, 1929, but falleA/receive Governor's approval.

MEMORANDUM

- Mr. Foster

Oct. 2, 1929.

Present Status of the Guaranty Fund Law.
States in which Guaranty Law is _partially opertive.
At the end of the year, 1928, Nebraska reported a total of
47 bank failures, an increase of 25 failures over the 1927
figure. The condition of the Guaranty Fund in a table
prepared by the Commission on December 31, 1928, shows a deficit of about 16
million dollars in unpaid claims die to depositors of failed banks. Despite the
burden and expense thrust upon the shoulders of solvent member banks and repeated
attempts towards repeal by taxpayers, bankers and legislators, the law still nmains
on the statute books.
Nebraska

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The Financial Age, iikarch 50, 1929, tells of the introduction of an individual guaranty system by which each State bank shall pay annually
one-fourth of one per cent of its average daily deposits into a fund to be
held in trust by the State Treasurer and invested by him until such a time
when it equals the capital stock and surplus of a bank. Thereafter the bank, as
long as it remains solvent, will receive the earnings of this trust fund, and
If it fails, the money is immediately paid
on liquidation shall get it back.
over to the banking department, which uses it along with the money itgets from
the liquidation of assets and the collection of stockholders' liability to pay off
depositors, as far as this can be done. Any surplus is returned tp the stockholders.
Although the Governor of Nebraska failed to ratify the
resolution for the repeal of the Guaranty Fund Commission, approved by both
houses of the 6tate 1Jegliature, its death knell was sounded during the first
week of May, 1929. In the District Court, Judge Lincoln Frost granted the application of more than 500 State banks to prevent the collection of further
special assessments on them. (Decision is subject to the approval of further
higher courts). These assessments were one-half of one per cent on average daily
deposits, while the regular assessments, not affected by the colIrt injunction,

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amounts to one-tanth of one per cent. This is so small that it will do little
more than pay operating expenses of the fund.

Memorandum - Mr. Foster
Subject:

December 23 1929

Nebraskan Courts clash on Guaranty ruling.

Two states, Nebraska and 14ississippi, have recently taken naw
stands in their attitude toward the bank deposit guaranty law. Nebraska state
bankers, after having almost succeeded in rendering the guaranty fund null and
void, finds to their dismay that the Supreme Court of the State has reversed the
District ruling and declared the burdensome act to be in full force and
effect.
The action taken by the Supreme Court of Nebraska is one of precedence
and marks, perhaps, the first departure from the usual interpretation of courts
in making decisions. In the early part of May of this year 559 State banks sought
a permanent injunction against the levying and collection of the special assessment
which, at the rate one-half per cent of average daily deposits, meant a contribution of $1,000,000 a year to the fund. The court upheld thdir claims that the
assessments had become so burdensome as to be confiscatory and thus endanger the
entire state banking system. Judge Frost, therefore, granted the bankers an injunction which restrained the Guaranty Fund Commission fro.n the collection of the
special assessments. Decision in the suit did not affect the regular assessment
of one-tenth per cent, but the proceeds from that levy are so small as to be negligible for paying depositors in failed banks. goreover, the regular assessment
will do little more than pay operating expenses of the fund.

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The findings of the Supreme Court defend the right of the State to
regulate within reason the banking business as carried on under a State charter.
Such business is quasi-public and, for the protection of the public and its
interests, is subjettto reasonable State regulation.
It is held that no court
shall annul a legislative enactment unless its provisions so clearly contravene a
provision of the fundamental law or are so clearly against public policy that
no other resort remains. Further, where a State bank has accepted benefits arising
from deposits of money pursuant to the terms of the bank depositors' guaranty law,
such a bank cannot be heard to make complaint against special assessments upon sue}
deposits which have been levied for the benefit of the guaranty fund. Evidence
is taken from the advertising campaign, sup orted by State banks and the Guaranty
Fund Commission, to show that many of the banks made an effort to capitalize on
the "protective elements of the law" for the purpose of increasing deposits. It
is obvious, the Supreme Court holds, that the special assessment does not constitAs a final resort, the
ute the taking of private property without due process.
Supreme Court says that "it may be observed that the bank guaranty fund law has
been held by the highest court in the land to be a constitutional act and well
within the meaning of the Federal constitution." (U. S. Supreme Court decision
was handed down by Justice holmes)

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Memorandum - Mr. Foster

April 1, 1930.

The guaranty law, compulsory as to membership, was passed in 1909.
It was promptly contested by the state bankers who carried their
suit to the U. S. Supreme Court to test its constitutionality.
Decision was rendered in favor of Nebraska State. The law became operative on
July 1, 1911. Bankers have paid into the fund over $16,500,000, which is slightly
less than the capital stock of all banks now operating. Between 360 and 370
state banks have failed, and the guaranty fund deficit has climbed to $20,000,000.
Interest on the deficit at 7 per cent amounted to $1,400,000, as compared to the
maximum assessment, about $1,500,000, annually. In 161ay, 1929, Judge L'incoln Frost
of the District Court answered the cry of 500 state bankers by granting a
permanent injunction against the collection of further special assessments,
which at the rate of 1/2 of 1 per cent brought in $1,240,000 annually. That
decision was reversed by the ilebraska Supreme Court on December 8, 1929, and
the law went again into full force and effect.
Nebraska:

•

In February, 1930, Governor eaver announced that a special
session of legislature would convene early in March to consider the repeal of
the guaranty law and to adopt a modified plan of deposit protection. Under
this plan all state banking institution would be relieved of special and regular
assessments with the exception of a 2/10 of 1 per cent levy to continue for
ten years. This measure, if enacted, would produce $3,000,000, which would be
added to a second $5,000,000 in levies due from state banks before the official
adoption of the new plan. A constitutional amendment, to be voted on in the
fall of 1930, would add another $8,000,000, if voters agree to shoulder .a part of
the guaranty fund deficit.


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The "blanket" guaranty law was formally ppealed on March 18, 1930.

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ILT. NEBRASKA
Impressed by the outward appearance of success presented by the
Oklahoma guaranty scheme during the first years of its operations, three
other states passed some form of guaranty law in 1909. The plan adopted
in Nebraska was the only one of these three that was fully compulsory
upon all banks under state charter as in the case of Oklahoma. Its operation was delayed for two years by a federal suit to test its constitutionality,
--'which was upheld,and it did not become effective until July, 1911.
Under this law the Depositors' Guarantee Fund of the State of Nebraska, as it was called, was created by semi-annual assessments on all
state banks equivalent to 1/20 of 1 per cent of their average daily deposits
until the fund should reach 11/2 per cent of deposits. New banks were assessed 4 per cent of their capital stock, which was credited to their subsequent pro rata obligations to the fund as established institutions. Special
assessments, not exceeding 1 per cent, reduced in 1923 to Y2 of 1 per cent,
of daily deposits in any one year, were collectible whenever the fund should
fall below 1 per cent of deposits. The maximum total assessments collectible in any year,after the reduction of the special assessment limit, were
3/5 of 1 per cent.
In operation each member bank was allowed to set up on its own books
the amount of its assessments as a cumulative liability designated "Depositors' Guarantee Fund." If a member failed, a judgment for approved
claims, which covered only unsecured individual deposits, was obtained
against the fund, and each member was drawn on ratably for enough to
pay in full the guaranteed deposits in the insolvent institution, whose
assets were taken over by the state,liquidated and the proceeds paid back
to the fund.
Nebraska was another state in which the banking department had no
discretionary power with respect to issuing new bank charters, and from
1911 until 1923, when discretion was granted to it, state banks increased
rapidly.
The Boom in State Charters
When this law became operative in Nebraska in 1911 there were 647
state banks with deposits of $53,200,000, and 231 national banks with
deposits of $56,800,000. The first nine years, that is, up to the depression
that began in 1920, were normal in banking and the plan in Nebraska as
in Oklahoma acquired the outward appearance of success. Under it state
banking expanded and national banking in the state suffered by comparison. The number of state banks increased every year, reaching 1,008
by June 1920, an increase in nine years of 361 units of this class, or over
55 per cent. Their deposits grew to $291,100,000,an increase of $237,900,000
or 447 per cent. A large part was money attracted to Nebraska state banks
from other states by the fancied security of the guaranty plan. In the
nation, state banks increased but 33 per cent in number and deposits
expanded only 126 per cent in this period.
During this same period the number of national banks in Nebraska
fell to 175,a loss of 56 or 24 per cent,and their deposits rose to $98,800,000,
or by $42,000,000, which was less than 74 per cent, as compared with 447
per cent for the state banks.
[ 15)

•
The effect of these changes on the total banking structure of the state
was to increase the aggregate number of both classes of institutions from
878 in 1911 to 1,183 in 1920, a gain of 305 or almost 35 per cent, while
combined deposits rose from $110,000,000 to $389,900,000, a gain of
$279,900,000 or more than 254 per cent. In this altered picture, the ratio
of the number of national banks in the state fell from 26 per cent to less
than 15 per cent, while their proportion of the aggregate deposits dropped
precipitately from over 51 per cent to only 25 per cent. Abnormally rapid
expansion in state bank deposits caused a marked increase in average
deposits per bank of both classes from $125,000 to $329,000. In this period,
the number of persons per bank in the state decreased from 1,360 to 1,090.
Summarized,these changes meant a great increase in state banks and in
the number of banking institutions in the state all told, a disproportionate
increase in the deposits in the banks under guaranty as compared with
the
increase that occurred in the non-guaranty banks and fewer persons per
bank in the state as a whole.
During this economically peaceful nine year opening period of the
Nebraska guaranty plan there were relatively few bank failures in this
state. The decade was largely dominated by the booms, inflation and easy
financial prosperity of the World War era, which brought large demand
s
for livestock and agricultural products to the West, with inevitable overexpansion and speculative stimulation, along with soundly based economi
c
activity. From June 1911 to June 1920 only five very small state banks
with aggregate liabilities of $235,000, were suspended and but two national
banks.
Bank Failures Under the Guaranty Plan
The collapse of the war inflation, however, brought a disastrous test.
In the depression year ending June 1921, 16 state banks suspended and
in 1922 there were 23 more suspensions. The direct cause of these failures
was the disastrous fall in agricultural prices that occurred in these as in the
ensuing years. In 1923, 18 state banks closed, 19 in 1924, 11 in 1925, 23 in
1926, 19 in 1927, 44 in 1928 and in 1929 there were 106 state bank failures
with total liabilities in excess of $30,000,000. In 1930 there were 50 more
with liabilities of $13,000,000 and in this year, following several years of
desperate efforts to reorganize the guaranty fund, it was abandon
ed
through repeal.
The foregoing record shows in the period 1921 through 1930 a total of
329 state bank failures in Nebraska, with total liabilities of $88,700,000.
That is, against a yearly average number of 855 state banks in these
years,
an average of 33, or 3.8 per cent, failed. In the same ten year period
31
national banks failed in the state, or an annual ratio against the
average
total of 158 of banks of this class in operation of 1.9 per cent.
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Obviously, this comparison between the guaranty state banks and the
non-guaranty national banks is not to be taken as a measure solely of the
ill effects of the guaranty of deposits plan. There were numerous other
factors causing the inferior showing of the state banks in Nebraska as compared with the national banks.
Other Causes of Weakness
One of these factors was the matter of under capitalization. When the
guaranty plan went into effect in 1911 the banking code placed the minimum capital with which a bank could open at $10,000 in hamlets of less
than 100 inhabitants, at $15,000 for towns of between 100 and 500 inhabitants, and on a rising scale for larger places. There were also in operation
a number of state banks chartered previously to this law with but $5,000
capital. About 65 per cent of all the state banks had capital of $20,000 or
less and the great majority were in small towns. The minimum for national
banks since 1900 has been $25,000 and a greater ratio of them was situated
in larger places. Of 337 state banks suspended during 190-1931, 89 had
capital of $15,000 or less, and 141, or nearly 42 per cent, had capital of
$20,000 or less.
Although these factors would doubtless have given the state banks
a worse record than the national banks in Nebraska even without the
guaranty law, the testimony of bankers who lived through the period of
the operation of the scheme is that it greatly contributed to the amount of'
small, weak and irresponsible state banking. A general atmosphere of false
security, confidence in all state banks and lack of discrimination between
good and bad banking was engendered by the mistaken idea that no one
would lose his deposits since they were guaranteed by a supposedly troubleproof banking structure. As a result, greater numbers than ever of undercapitalized, ill-situated banks, as well as of persons wholly unfitted as to
training, character or methods to be allowed to conduct banks, were able
to command public trust and patronage and to attract large deposits to
their institutions through high interest rates and trading on faith in the
guaranty plan. This is reflected in the tremendous expansion in state bank
deposits between 1911 and 191 as brought out above.
Therefore, although the guaranty plan cannot be held wholly responsible for the bank failures that occurred during its regime, nevertheless it
doubtless was mainly to blame since it fostered the excessive development
of those other weaknesses which produced the unusual severity of the state
banking disaster. This in turn destroyed the ability of the fund itself to
meet its obligations.
In drawing the foregoing comparisons reference is had specifically and
solely to state and national banking in Nebraska during 1911 to 1931. It
is not in any sense implied that they have any parallel application else[17)

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where or constitute an argument in favor of national as against state banking under normal conditions, for these aspects are not considered here.
There is no inherent reason why,under sound banking codes and well conceived standards of supervision, state banking should not be as successful
as national banking.
Financial History of the Plan
The financial history of the plan was a reflection of the foregoing statistical history. During the first nine years there was the semblance of success, with assessments creating a fund of $2,367,000, against which
draughts of only $39,830 were required to pay depositors in failed banks.
However, the sudden rise of failures that began in 1920 brought it to
the point of insolvency by 1922. The state bankers undertook steps to save
the plan through forming a State Agricultural Loan Association which
sold stock and notes to member banks in the amount of $2,000,000. Its
funds were applied to paying depositors in failed banks whose assets were
taken over by the association. The guaranty plan assessments on state
banks in 191 were $2,320,000, in 192,$1,970,000 and in 193,$2,050,000.
Yet by 193 the losses through added failures were so large that these
combined efforts were unable to meet the situation. Then the state legislature created the Guaranty Fund Commission with power to decide
whether crippled banks should be operated in an endeavor either to rehabilitate them or postpone their liquidation so as to cut down current claims
on the fund, or whether they should be placed in receivership for liquidation at once.
By 196 the banking crisis in the state showed signs of abating and it
was hoped the guaranty plan might pull through. At this point, the state
banks had paid assessments of about $12,600,000 to the fund in 15 years
and every depositor in every closed bank had been paid in full. On the
other hand the Guaranty Fund Commission was operating 38 banks,
which were being carried along as going institutions instead of being
closed, and the possible postponed losses were estimated at another
$6,000,000. The maximum annual assessments collectible from the state
banks on the basis of the then existing average daily volume of deposits,
about $265,000,000, would be about $1,600,000, and it was felt by the supporters of the plan that this prospective income,together with sums it was
hoped could be realized from assets in the hands of the commission, would
restore the financial equilibrium of the plan within three years.
This close-drawn hope was based on the assumption that the assessible
volume of deposits would not diminish and that there would be no additional bank failure to throw added losses on the fund. Neither of these
basic expectations was realized. During the year ending in June 196,
18)

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more banks failed and 19 more in 1927, while deposits steadily shrank.
Also, solvent banks were expected to purchase the receivers' certificates,
which were issued under the authority of the commission against the assets
of failed banks, in order to create immediate funds with which to cover
current deficiencies in the sums available for payment of depositors'
claims, but they lost confidence in the value of those certificates and declined to purchase them further.

•

The Financial Breakdown of the Plan
Disintegration of the plan was rapid. In 1928,44 more banks were suspended and in the year ending June 1929 another 106. This startling
figure of 106 included the banks that were being carried along by the Guaranty Fund Commission but which were now ordered to be closed. In January 1929, 135 banks were on the hands of the Guaranty Fund Commission, with unpaid deposits of about $25,000,000. Sixty-one of these banks
were in receivership and 74 were being operated by the commission.
In 1928 bankers started court action to have the guaranty law declared
confiscatory and unconstitutional. This suit was decided by the District
Court in favor of the banks but later the decision was reversed by the
State Supreme Court. Following this decision state banks began to nationalize in large numbers. The uneasiness of depositors in the situation
resulted in heavy withdrawals from state banks and increased failures.
This development prompted the calling of a special session of the Legislature to repeal the law in March 1930.
The Governor of the state indicated that the then apparent deficit of
the guaranty fund was from sixteen to twenty million dollars, that the interest on the depositors' claims represented in this deficit would likely
absorb virtually all the prospective income from assessments and that
nothing would be available to pay against the principal of the deficit. He
ended his statement with the assertion that under such a situation the
guaranty fund could not afford protection to then existing deposits against
any future losses.
This signalized the virtual suspension of the guaranty law as an operating plan. A few months later the Guaranty Fund Commission, created
in 1923 with power to operate or liquidate crippled banks in its discretion,
was abolished. The 69 banks it was then operating were ordered closed
and a new department of bank examination and supervision was set up. It
was given powers to bring about sounder banking methods and to work
out with the depositors the settlement of the affairs of such banks as subsequently failed or became weakened on a plan of composition or rehabilitation applicable to each case individually entirely outside the guaranty
plan.
[ 19)

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eivoset

Litigation and Confusion
As to that plan itself, the rest of its history deals with the steps taken
to remove it from the statute books and the methods and litigation involved in the attempt made to date to wind up its confused and bankrupt
affairs. When the law was repealed in March 1930 the deficit was estimated at $20,000,000.
The terms of the repeal relieved all state banks of further special and
regular assessments to guarantee existing or future deposits and substituted a levy of 2/10 of 1 per cent on their average daily deposits, to continue for a period of ten years, the proceeds to be applied wholly against
the old deficit through what was designated as the Depositors' Final Settlement Fund. This assessment was expected to produce $3,000,000 during
its life. Also, all monies due under old assessments levied before the repeal,
expected to yield another $3,000,000, were to be similarly applied, as were
the proceeds of the liquidation of the assets under the control of the formerly abolished Guaranty Fund Commission, consisting chiefly of the
wreckage of the banks that had been closed or operated under its auspices.
Finally it was decided to submit a constitutional amendment to the
people to permit a state bond issue of $8,000,000 whose proceeds should
be appropriated to the settlement fund. This proposal was based on the
theory that certain state policies, such as the operation of banks known
to be insolvent by the Guaranty Fund Commission,the permitting of certain depositors to withdraw funds from these insolvent institutions, and
also former chartering conditions which had permitted many undesirable
banks to start operations, had all contributed to the burden of insolvency
and that, in equity, it should therefore not fall solely upon the well conducted banks.
Remedial Plans Also Collapse
This plan collapsed. The bond issue project to meet part of the deficit
with general state funds was defeated. Also, the banks resisted through
joint litigation the collection of the old and new assessments as provided
for in the law. The Supreme Court of Nebraska upheld their contentions.
It found that the intended public purposes of theguaranty plan,namely,
to stabilize business and create confidence in the banks, were under radically changed conditions, wholly lacking in the final settlement fund plan
which, it declared, would in practical effect have results opposite to those
anticipated. The new assessments, it held in substance, would take money
from one class of persons not protected by the guaranty plan to pay to
another special class of persons who had been protected, and this it held
to be unconstitutional.
Also, the court held, the collection of the old assessments from solvent
banks was confiscatory under the changed conditions that had come into
(20)

existence, since they had operated at a loss during the period these assessments covered and payment could be made only through an impairment
of their capital. Such actions as these, it declared, could serve no public
purpose, would weaken solvent state banks, destroy public confidence in
them and tend to disrupt commerce. In such terms did the highest court
of the state indict and condemn, if not the original guaranty plan itself,
the only steps short of actual repudiation of its obligations that seemed
feasible for meeting the difficulties it had caused.
The Net Results
Seventeen years' operation of the Nebraska Guaranty Plan cost the
state banks there $17,700,000 in assessments. During the first nine years
these imposts averaged 1.3 per cent of their aggregate capital, surplus and
undivided profits. During the last eight years they were equivalent to an
average of 4.16 per cent. The burden was highly uneven as among the contributing banks,some with a high ratio of deposits to capital funds paying
as much as 15 per cent.
Even these ruinous expropriations of the legitimate earnings of blameless institutions to make good the shortcomings of others were far from
sufficient to serve the supposed public purposes for which they were taken.
Weaker instead of stronger banking resulted and depositors were only
partly protected. It would appear that, under the conditions that were
allowed to go on under the public banking policies that were followed, the
creation of sufficient funds to constitute an actual guaranty against any
loss by depositors would have consumed the earnings of good, well managed banks to so great an extent as to drive investment capital away from
them entirely and render the maintenance of a state banking structure
impossible.
In addition to this expropriation of $17,700,000 through guaranty
assessments from the fair earnings of persons who had invested in bank
capital, the depositing public was left with a loss through unpaid deposits
and interest of $22,000,000, as measured by the latest estimates of the
deficit left by the guaranty fund. There seems little doubt, in view of the
history of banking under the distortions of the guaranty plan, that this
combined sum of $39,700,000 mulcted from the public by bank failures
was greatly augmented by the type of banking fostered by the very plan
'ët up to prevent such losses.

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411^"

Removal Notice
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Document type: Newspaper articles

Pages
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Title:

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Date:

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Journal:

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Volume:
URL:

Federal Reserve Bank of St. Louis


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Federal Reserve Bank of St. Louis

December

5, 1955

MEMORANDUM
Dr. Cramer
TO:
FROM:

Clark Warburton

SUBJECT:

Report of work for week ended December 2

Reports of work of the staff of the Banking and Business Section are
attached. Miss Morton was on annual leave all week; Mrs. Shea was on annual
leave Monday-Wednesday; Miss Karp was on sick leave Tuesday.
Economic developments and banking history
Spent Monday and Tuesday at the offices of the Nebraska Department of
Banking in Lincoln. Talked with J. Floyd McLain, Director, C. R. Haines, Deputy
Director and Harold Johnson, Assistant Director. They had not been with the Department during the time the guaranty fund was in operation, and had only a
limited knowledge of the operations of the fund and the handling of insolvent
banks during that time. They informed me that Mr. Luikart continued to handle
these receiverships after the handling of failed banks was changed from a Judicial
to an administrative process in 1933, that his offices and records had been moved fr,
the capitol building, and (as we had been previously informed) some of the remaining records had been transferred to the University library. At the Department,
however, Mr. Haines had a set of schedules relating to insolvent banks, including
many of those that failed during 1927-1929, the period for which our previous information was negligible, giving percentage payments by the Guaranty Fund Commission while operated by the Commission (fur many of those so operated), and
percentage payments by receivers. They had also made a computation of depositors'
dividends, but Mr. Haines recognized this data as probably inaccurate in many
cases and it does not appear to me to be usable.
Tuesday morning I visited the University of Nebraska library, where fir. Miller
showed me the receivership records and I ascertained that,for many of the banks,
statements of final results of receivership -- both for percentage and amount of
dividends paid -- were given, and that, for other banks, partial data was available from which a reasonable estimate could be made. Spent Wednesday and Thursday
transcribing these data. While they were not available for as many of the banks
as in the banking department schedules, they confirmed the percentage dividends
shown on those schedules. Altogether it will be possible to prepare quite good
estimates of the losses on deposits classified by year of failure of the banks.
Friday forenoon I spent at the University library, the State library, and
the library of the Nebraska State Historical Society, looking for other material
on the deposit guaranty system and its operation. Found very little, except for
a few reports of the Guaranty Fund Commission which we had not located at the
Library of Congress. We will be able to ESEPOw these through inter-library loan,
and I considered that preferable to taking time on the trip to look them over
and take off data.
A heavy snowstorm, perhaps with snow lasting several days, was forecast at
Lincoln to begin Friday night. So we drove to Topeka Friday afternoon, instead
of Saturday morning.
Thursday afternoon I wrote to the Bank Commissioner of Kansas that I expected to call at his office Monday forenoon.


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CW:JK:jk

Stet

November 21,

1955

Librarian
University of Nebraska
Lincoln, Nebraska
Dear Sir:
In connection with a study of State experience with
the guaranty of bank deposits, our research staff is interested
in reviewing records of the Nebraska bank depositors' guaranty
fund and of the results of liquidation of the banks that failed
while it was in operation.

Mr. J. F. McLain, Director of Banking, has informed
me that records of banks in receivership prior to May 9, 1933, are
not available in the Department of Bunking but may be located in
the University library.
Mk. Clark Warburton, a member of our research staff,
plans to be in Lincoln on approximately November 26 and will stop
in the University library to see if these records are available
for review. Any assistance you may be able to extend to
Mr. Warburton in his efforts to fill in certain gape in our
study of the Nebraska fund would be very much appreciated.
Very truly yours,

Edison H. Cramer, Chief
Division of Research and Statistics

•

—77
DEPARTMENT OF BANKING

J. FLOYD McLAIN
DIRECTOR

-tatr of Nrhraoka
GOVERNOR

VICTOR E. ANDERSON,
LINCOLN 9

November 15, 1955

Mr. Edison H. Cramer, Chief,
Division of Research and Statistics,
Federal Deposit Insurance Corporation,
Washington 25, D. C.
Dear Mr. Cramer:

I

We appreciate receiving a copy of your report having to do
with deposit guaranty in Nebraska which was enclosed with your letter
of November 7. It is observed that you are particularly interested to
revise and amplify the data as reflected in Table 10, Page 45, of the
report and you inquire if we have in storage, information that will enable
you to supplement this data.
You may recall that prior to May 9, 1933, all banks were
handled through a judicialship procedure. Mr. E. H. Luikhart (now
deceased) was superintendent of banks during the period when a great
many banks were closed. When he left this Department, he continued to
handle these receiverships and all records pertaining to these insolvent
It is our understanding that
banks were removed from the State House.
a portion of these records are now under the control of the Nebraska State
University and we believe that you may obtain permission to review these
records.
Following May 9, 1933, the Department of Banking was authorized as an Administrative Receiver and all banks that were closed following that date are available for review.

•

We are not lending encouragement to the idea that you will be
able to obtain the information which you desire but your Mr. Warburton
is welcome to any information that we have and we shall be pleased to


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Federal Reserve Bank of St. Louis

-z Mr. Edison H. Cramer,
Washington, D. C.

November 15, 1955

co-operate with him to this end.
Very truly your

JFMcL:rnr

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Federal Reserve Bank of St. Louis

J.
Dire

Lain,
of Banking.

CW:jk

Stet

November

7, 1955

At. J. F. McLain
Director of Banking
Lincoln 9, Nebraska
Dear Mr. McLain:
Soon after the beginning of Federal deposit insurance, we
began to collect information on the experience of various States with
deposit guaranty. Our studies of these State systems were not brought to
completion at that time. They have recently been resumed, and we are now
preparing reports on each of them which we plan tc complete for publication.
In the case of Nebraska, a report prepared by Clark Warburton,
of our staff, WA typed but has not been circulated. A copy of this report is enclosed. We are particularly anxious to revise and amplify the
annual data in Table 10, page 45We are writing to ask whether records of the guaranty fund and
of the results of liquidation of the failed banks, particularly subsequent
to the period covered by Mr. Shallenborger's report in 1930, which we presume may now be in storage or dead files, would be available for the use
of a member of our staff? If records are available, and the time is convenient, Mr. Warburton will plan to be in Lincoln on November 28 to spend
a day or a few dogs amplifying and correcting our worksheets dealing with
this material.
We Shall be very grateful to you for any material that can be
made available, and also for any criticisms or other comments on the
report as typed.


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Very truly yours,

Edison N. Cramer, Chief
Division of Research and Statistics

•
CLIFFORD DEPUY
PUBLISH ER
305 FIFTEENTH STREET

DES MOINES 9.IOWA

September 14, 1955

Edison H. Cramer, Chief
Division of Research and Statistics
Federal Deposit Insurance Corporation
Washington 25, D. C.
Dear Mr. Cramer:

•

Please forgive my delay in acknowledging your recent letter. I was
away from the office for a time and then was buried under getting our
two magazines out.
The NORTHWESTERN BANKER has been --mblished since 1895 and we have file
conies in our office. This of course, covers the period from 1905 through
1929 in Which you are particularly interested. We cannot send these files
out of our office, but anyone from your staff is welcome to look through
them here in our office.
With best wishes, I am,
Cordially yours,

Ben Haller, Jr., Ed!
NORTHWESTERN BAIMER
BH/z


THE
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OLDEST

FINANCIAL

JOURNAL WEST OF THE MISSISSIPPI RIVER

0
•Y

October 18, 1939

Mr. B. N. Saunders,
Superintendent of Banks,
Lincoln, Nebraska.
Dear Mr. Saunders:
Five years ago this Division collected some material relating
to guaranty of bank deposits in the various States, prior to the creation
of the Federal Deposit Insurance Cotporation. It was impossible to
complete our study at that time and we are now attempting to obtain
further information regarding the various State funds.
The material which we obtained regarding the operations of the
guaranty fund in Nebraska includes the report of the Banking Investigation
of 1930, the report on the Depositors' Guaranty Fund made by Mr. R. H.
Walker, for the Banking Investigation, the report of the House SubCommittee on Guarantee Fund Commission to the Legislature in 1929, and the
Report of the Banking Investigation Committee authorized by the 1935
Legislature.

•

Would it be possible for us to obtain the following information
in addition to that contained in the foregoing reports? We shall be glad
to supply clerical or stenographic assistance or to reimburse you for
expenses incurred in compiling the data for us.
1. A statement of the annual receipts and disbursements of the fund
showing the a amounts received from the various sources (assessments,
receivers of closed banks, liquidation of sale trust assets, interest,
etc.) and disbursements for various purposes (payments on depositors'
claims, purchase of assets from failed banks, expenses, etc.).
2. A statement showing payments from the guaranty fund to failed
bankssince January 2, 1930, so that we may modify Exhibit C, in Mr. /
Wraer's report to Mr. Shallenberger, to take account of payments made__
in the final disposition of the guaranty fund.
3. A statement showing for each bank paid off by the guaranty fund
the total amount refunded by receivers or received from the disposition of
assets purchased by the fund. This can be given us either in the form of
a total figure for each bank up to date, or in the form of receipts since
January 2, 1930, which we can add to the amounts shown in Mr. Walker's
report to Mr. Shallenberger.

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Mr. Saunders - page two

4. A list of banks which failed during the period the guaranty law
was in force the deposits of which were not paid off by the fund, with
the following information for each bank:
a

Total deposits at date of failure;

b.

Deposits which should have been paid by the guaranty
fund, that is, amount of draft on guaranty fund,
had the fund been able to meet it;

c.

Deposits repaid from proceeds of liquidation of
assets of the bank;

d.

Deposits remaining unpaid.
Very truly yours,

Donald S. Thompson, Chief,
Division of Research and Statistics.

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October 13, 1934

•

HISTORY OF THE NEBRASKA STATE BANK GUARANTEE FUND

In an interview with Mr. Earhert, of the Omaha branch of the
Federal Reserve Bank, and George Woods, Vice-President of the Council
Bluffs, Iowa, First National Bank, and pest Commissioner of Banking for
the State of Nebraska) a brief history of the failure of another deposit
guarantee fund is available.
In 1911, a law passed in 1909 in Nebraska, became effective
making it mandatory for all State banks in Nebraska to participate in
the guarantee of bank deposits. The operation of the law called for
the payment of two regular assessments yearly on May 31 and November
30, of 1/20 of 1% or 1/10 of 1% per year--with additional assessments,
if required, up to 1% of all deposits. The fund guaranteed deposits
in full, regardless of amount, no minimum being set as in the case of
the present $5,000 Federal Deposit Insurance Corporation insurance. From
1911 to 1920 no losses resulted, and the fund had grown to $5,000,000.00.

•

At the outset, and for nine years, this law was the most popular
with bankers and the public that had ever been put on the statute books
of Nebraska.
As a result of its popularity, banks grew up like mushrooms, and
charters were promiscuously and freely granted, so that the number of banks
grew from 660 to 1,120--a regular free-for-all.
In 1920 the fund began to crack.
bank failures in Nebraska.

From 1920 to 1928 there were 263

While the fund was cracking deposits actually increased and there
was not a single run on a State bank. W. J. Bryan was the father of this
law and a strong advocate of it during his lifetime, his theory and that
of all its sponsors being that it would forever prevent bank runs. It did
just that.
The assessments, during the bank-failure period, became so heavy
that many State banks changed to National banks to prevent further drainage
through assessments. One bank, the Lincoln State Bank of Lincoln, Nebraska,
had deposits of $100,000 and $50,000 surplus, and actually paid out
$51,000 in assessments in three years, finally being compelled to change
over to a national bank. Such examples were numerous.

•

Many makeshift measures were taken during these trying times which
kept the fund from collapsing in 1921-22. In 1923 the Legislature gave
the banking department the right to restrict charters, also reducing the
special assessments from 1 1/10 to 6/10 of 1%. This only helped to prolong


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•
the agony and kept State banks from changing to mtionals.
of a makeshift nature kept the fund operating until 1927.

Other measures

During the "bank-busting" period politics prevented the promiscuous
closing of banks. The depositors in banks that were completely depleted by
embezzlement, etc. received their insurance at once, but banks that were in
fairly good shape carried on and in these banks the depositors lost their
all. The constitutionality of the law had been frequently attacked, but it
was so popular that it wasn't until 1930 that it was finally repealed.
During the progress of the fund, it is said that bank examinations
were very perfunctory, examiners examining two banks a day in a very loose
manner. In 1929 strict examinations were started, but too late to cure the
evil that had been done.
Recommendations regarding Federal Deposit Insurance Corporation
made by one of the bankers who served during the Nebraska episode, are:

I

1.

Eliminate politically appointed examiners, choosing men of
standing and unqualified ability;

2.

Guarantee all deposits, regardless of amount;

5.

Institute a unified system to insure stability;

4.

Limit the number of banks to do away with destructive
competition.

The observance of these principles, the banker declares, would
prevent the occurrence of the difficulties experienced by Nebraska during
the operation of its fund.
Respectfully submitted,
(Signed)

•

1


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A. O. Hurja

THE UNIVERSITY OF NEBRASKA
College of Business
Administration
Lincoln
Department of
Business Research
Sept. 24, 1934

Mortimer J. Fox, Chief Statistician
Federal Deposit Insurance Corporation
Washington, D. C.
My dear mr. Fox:
Your letter addressed to the Nebraska History and
Political Science Seminars regarding the operation of the 'Nebraska
law guaranteeing bank deposits has been referred to me for answer.
My own interest in the guarantee of bank deposits dates back to the
preparation of a book on this subject which was published in 1921,
and various articles since then. In volume two of the Encyclopaedia
of the Social Sciences I have a short article on this subject which
summarizes the situation in the various states, and in the last
January issue of the Annuals of the American Academy I have an
article on the same subject.
Coming more directly to an answer of your questions
the story of the bank guarantee law in this state can be stated in
very few words. The law went into operation in 1911 and the decade
that followed was one of rising prices. Bank failures were almost
unknown, and the guarantee a complete success. The period since
1921 was quite different. The shrinkage in values resulting from
the collapse of war prices caused about 600 banks to fail in this
state. This concentration of loss soon wiped out the guarantee fund
and built up such a deficit that the thingtecame hopeless. A special
session of the legislature in 1930 repealed the law. At the time
it was repealed the guarantee fund was probably from 20 to 25 million
dollars in debt. Since then approximately 200 additional banks have
failed. Most of these banks are in the process of lirluldation, and
it will be years before we know what the total losses will be.
If you wish a statement of the assailant features of
the Nebraska law you will find it in my book above mentioned. And
what I have just given shows briefly what happened after 1920. I will
be glad of course to assemble any material regarding the Nebraska
situation you may wish.

•

My own feeling has always been that the guarantee
bank deposits is essentially a matter of insurance, and this insurance
enterprise broke down because of the concentration of loss in the
depression phase of the business cycle. Consequently I always felt


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that a study of the guarantee question centers in a study of the
hazard; namely, bank failures. If bank deposits are to be successfully insured, the hazard must be understood and measured as carefully as in other fields of underwriting. All the state guarantee
laws failed because this was not done.
Under separate cover 1 am sending you a copy of two
of our business research bulletins of bank failures in Nebraska. Ihe
first bulletin published in 1931 dealt with failure of national banks,
and the second one deals with state bank failures and gives the
situation up to May 1, 1934. If you should wish additional copies of
either of these two bulletins we will gladly furnishthem free of
charge.

Very truly yours,

(s) T. Bruce hobb

•

•

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Chairman, Department of
Business hesearch

THE UNIVERSITY OF NEBRASKA
College of Business
Administration
Lincoln
Department of
Business Research
October 10, 1964

mr. Mortimer J. Fox, Jr., Chief Statistician
Federal Deposit Insurance Corporation
Washington, D. C.
Dear Lr.
I have your letter of October 1, asking for copies
and for suggesti)n regarding persons for actubibliographies,
of our
arial work. Under separate cover I am sending a copy of the bibliographies, but they have been long out of date and I am afraid you
will not find them of much value.

•

•

After consultation with others I might suggest the names
of H. F. Schwenker of the Lincoln Liberty Life, Lincoln, Nebr., and
E. Forrest Estes, assistant actuary of the Bankers Life, Lincoln,
Nebr. These men are both good actuaries, but I think their experience
has been chiefly in the field of life insurance. It occurs to me that
an actuary drawn from the field of casualty insurance would be nearer
what you want.
In fact I am not certain but that an economist whose
interest has been in banking would be your best bet for such a task.
I am more and more impressed with the fact that with a system of
decentralized unit banks there must be a high degree of uncertainty
regarding the hazard in bank deposit insurance. No one can oossibly
know what the future holds as to the chartering of superfluous banks
in long periods of rising prices and inflation. And no one can possibly know the amount of wreckage that will come with future periods
of deflation. In the past these price upheavals have usually come out
of great wars, but for the future it is probable we will see experibents
with the political control of prices, and whether this will result in
a greater degree of stability or more violent fluctuations no mortal
can possibly tell. And I wonder if the mathematician is not greatly
handicapped in dealing with such a problem. Taking American banking
experience up to 1920 it would have been quite easy to formulate what
seemed like reliable mortality tables for losses growing out of bank
failures. But surely the events since that date would have made such a
mortality table look pretty foolish. In my early study of the guaranty
of bank deposits I thought the hazard was one that could be insured
rather easily, but since then I have become more interested in the
strictly insurance phases of such an enterprise. More and more I am
convinced that with banking as it has been conducted in this country
up to the present time the fiAal outcome of any scheme to insure bank
deposits must be highly uncertain.


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Federal Reserve Bank of St. Louis

It seems to me that any such experiment may run
along for years with relatively few losses and seem to be a great
success. But there is no way of telling when such a fair weather test
may be upset by upheavals caused by great wars or something else as
bad. In Nebraska over 600 out of a total of 1,000 banks failed after 1920,
and what the final losses will be notione has the temerity to even try to
guess. If in 1918 anyone would nave suggested the possibility of such a
debacle it would have been considered nothing short of madness, yet it
came. And who has any right to say this experience will not be repeated?
The more I consider the matter the more convinced I become that bank
deposit insurance with banking as we have had it in this countrycan never
have the degree of certainty that is found, for instance, in life and
property insurance. If you succeed in discovering an actuary who at the
same time is endowed with the necessari power of divination, you will
certainly befbrtunate indeed.

Very truly yours,

111

(s)

T. Bruce hobb

Chairman, Department of
Business Research

•

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Federal Reserve Bank of St. Louis

FEDERAL DEPOSIT INSURANCE Ca

•

Supervising Examiner
Federal Deposit Insurance Corporation
Room 9o2, Federal Reserve Bank Bldg.
Kansas City, Missouri

October 17,
1 9 3 4.

Federal Deposit Insurance Corporation,
Aashington, D. C.
Attention:

Mortimer J. Fox, Jr.

Dear Mr. Fox:

•

Ae have taken up with mr. E. H. Luikart, Superintendent
of Banks for the State of Nebraska, the matter referred to in
your letter of October 10th and herewith enclose signed copy of
letter received from mr. Merle N. Foster, Deputy Superintendent
of Banks for the State of Nebraska, under date of October 16, 1964.
From his letter, which is self explanatory, it is
observed that they believe the furnishing of this information will
entail so great an amount of work and research that they are unable
to supply you with the information you requested. However, they
will be pleased to turn their books over to this Corporation, should
you desire to send an auditor to Lincoln for the purpose of obtaining this information. This office could furnish an auditor with
assistance at least during part of the time he wouid be engaged in
obtaining the information desired by you.


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Federal Reserve Bank of St. Louis

Respectfully,

(s)

G. F. hoetzel

G. F. ROETZEL,
Supervising Examiner.

•

r

COPY
Ashton C. Shallenberger

•

Committee on
Ways and Mean:,

Home Address:
Alma, Nebraska


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Federal Reserve Bank of St. Louis

CONGRESS OF THE UNITED STATES
HOUSE OF REPRESENTATIVES
WASHINGTON, D.C.

Alma, Nebraska, October 8, 1934

Mr. Morti_Ler J. Fox, Jr., Chief Statistician,
Federal Deposit Insurance Corporation,
Washington, D. C.
My dear Mr. Fox:
I have your letter of October 1 in which you ask
me for a copy of the preliminary report which I made to
the Governor of Nebraska as chief examiner of the banking
investigation submitted March 5, 1950, and also the
final report of later date.
I am enclosing you copy of the final report and I
am writing to the Banking Department at Lincoln for a
copy of the preliminary report. If available, I will
forward it to you as soon as received.
The exhibits referred to in the final_ report which
you ask for are the previous reports made by the Guarantee
Fund Commission and are contained in a document which I
am sending you also.
I am very glad if you find the records my investigation developed are of material assistance in your work
for the Federal Deposit Insurance Corporation. If I can
help you in any further manner do not hesitate to
command me.
Sincerely,

0
Petrus Peterson

hobert W. Devoe

Offices of
PETEESON
& DEVOE
Lawyers
Bankers Life Building
Lincoln, Nebraska

September 17, 1934

Mr. Mortimer J. Fox, Jr.,
Chief Statistician
Federal Deposit Insurance Corporation,
' Washington, D. e.
Dear Sir:
I have your letter of September lltn requesting
inftmation as to the case of Hubbell vs. Bryan.

•

We have a limited supply of our brief in this case
filed with the Supreme Court of the State of Nebraska,
which I think fully states the issues and the facts
involved. We do not have copies sufficient, however,
to enable us to part permanently with the same. We
would be glad to have a copy of our brief examined by
anyone you may wish to submit it to, or if you desire a
copy forwarded to your office you may supply us with
postage or a franked envelope for that purpose, with
an agreement on your part to return the same when you
have examined it.
Yours truly,

(s)
CPP:EC

•

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Federal Reserve Bank of St. Louis

Peterson & Devoe

Committee on
Ways and Means

Ashton C. Shallenberger
O

110

Home Address:
Alma, Nebraska
CONGhESS OF THE UNITED STATES
HOUSE OF REPRESENTATIVES
WASHINGTON, D. C.

Alma, Nebraska, October 26, 1934

Mr. Mortimer J. Fox, Jr., Chief Statistician
Federal Deposit Insurance Corporation
Washington, D. C.
My dear Mr. Fox:
Replying further to your letter of Octber 1, I am
sending you a copy of my "Preliminary Report as Chief
Examiner of the Banking Investigation" submitted March 3,
1950.

•

If I can be of further assistance, do not hesitate
to call upon me.
Sincerely yours,

(s)

•

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Federal Reserve Bank of St. Louis

A. C. Shallenberger

0

STATE OF NEBRASKA
Receivership Division
LI4COLN

November 6th, 1934.

Mortimer J. Fox, Jr.
Chief, Statistician,
Federal Deposit Insurance Corporation,
Aashington, D. C.
Denr Sir:
Referring to your letters of July 12th and August 7th, asking
certain
information, we have been unable to compile the data called
for
for with reference to deposits in banks suspended from January 1st, 1.911
to December 31st, 1929.

•

We are having prepared a copy of the data made by certified
public accountants under the administration of A. C. Shallenberger and as
soon as this copy is completed we will forward it to you.
As to tne rule for determining the average deposits to be used as
a basis for levying assessments against state banks for the benefit of
the Depositors' Guaranty Fund, there was no rule except that as provided
by statute. The statutory provision is as follows:
"On the first day of June and December of each year
every corporation engaged in banking under the provisions of this article shall make and file with the
department of trade and commerce a statement in writing
verified by the oath of its president, vice-president or
cashier, showing the average daily deposits in its bank
for the preceding six months exclusive of public money
otherwise secured. Any bank commencing business and
receiving deposits less than six months prior to the
date when the statement referred to in this section is
required to be mr,de and filed, shall show the average
daily deposits for that portion of the said semi-annual
period during which it has been engaged in business and
receiving deposits."

•

The Department of Banking furnished each bank a blank upon which
to make a report of its average daily deposits/''/ØØ$/ every six months.
This report showed the average deposits by months. Ihe banks were required
to compute their average deoosits every month, taking the total deposits


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Federal Reserve Bank of St. Louis

Mortimer J. Fox

- 2 -

11-6-34

of each day and dividing them by the number of business days in that
month. Then the average of the six months period was computed by taking
the average of the deposits for the six months.
Regretting the delay in furnishing you the informationcalled for,
but assuring you that we will furnish you with a copy of the Shallenberger
report on the Depositors' Guaranty Fund within a short tihie, we are
Very truly yours,

(s) C. G. Stall (I.A.)
Chief Receivership Division.

CGS/FA


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Federal Reserve Bank of St. Louis


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Federal Reserve Bank of St. Louis

P sHD

MAT

October

Mr. William b. Hughes, Secretary,
Nebraska Bankers association,
americiAm bankers Association Convention,
i11 rd Hotel,
Wftehtngtons D. C.
• r Lir. fiu0R-..st
In conneetiAl with our studies of the bank—
10wa fnct. their opeil.:,n in Au sUtes which htw* in
11.(1 deieoilt in:Axnce or guz..n.nty Uwe, it would
t,e of vnluale LeAstnce if onr of. the members of this
coulf h.ve v p,,rsAl Interview with you while
• rJ.v in Ilthi.ngtoh.
in

Your firothead knowlede of the situation
Webrcska would ilhed light on how thc vtrious parts of
the Ipw optrcted.
The offices of the leedeml Deposit Inpurince
Corporttion are loczoted in the &Aline' Pre35 Building,
which is Just across the street froa the WiWrd Hotel.
Our room nuabor is 433 and our telephone numtl iv District
Yxtenstm 112.
We would appreciate your grtnting us en inter—
view and advising US When and where it may to had.
Very truly yours,

Mortimer J. Fox, Jr.,
Chief 3t:Aisticion.

ro
Law Offices
SORENSEN, KYLE, NEWKIRK AND REIN
310 Barkley Building
Phone B-5434
Lincoln, Nebraska

OA.

Sorensen
Homer L. Kyle
L. Ross Newkirk
Clifford L. Rein

September 17, 1934.

Mr. Morti-ler J. Fox, Jr.,
Chief Statistician,
Federal Deposit Insurance Corp.,
Ylashington, D. C.
Dear Sir:
Your letter of September 10th at hand.

•

In December, 1928, the Abie State Bank, of Able, (282 US 765)
Nebraska, on behalf of itself and allcrther state banks, filed a
suit in the District Court of Lancaster County to enjoin the
Department of Trade and Commerce of the State of Nebraska from
collecting the guaranty fund assessments under the state guaranty
fund law. The District Court granted the injurtion. As Attorney
General I took an appeal to the Supreme Court of Nebraska, which
court overruled the injunction and sustained the law. The banks then
took an appeal to the Supreme Court of the United States. We argued
the case there in February, 1931. The United States Supreme Court in
an opinion by Chief Justice Hughes sustained the Nebraska law. In
our briefs we presented an exhOstive analysis of the working of the
guaranty fund law in Nebraska. I take it that you can obtain a copy
from the Clerk of the United States Supreme Court. If not we can
send you our office copy.
The Nebraska law failed for three reasons:
1.

No limitation on bank charters.

2.

No adequate examination and supervision of the banks.

6. No reserve built up during good years for the payment
of depositors in failed banks during periods of depression.
I became convinced that if at the ti.e that Nebraska adopted
the principle of guaranteeing bank deposits it had also provided for
the limitation of bank charters, stringent examination and supervision,
and the building up of a reserve during prospertus times, the guaranty
fund experiment would not have failed.
Sincerely yours,

(0. C.

411
CAS-DG


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Federal Reserve Bank of St. Louis

Sorensen

A


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Federal Reserve Bank of St. Louis

July 12, 1934
•

Illou E, H. Wheal
soperistatedest :Aide Balking Department
Ltheibls, Mehreake
Deer Mr. Lnikart
In asking a study at the deposit Janitress* laws
and their Operation Is the eteites *Soh hors tried it, we find
it dittilelt to set ap say tooperative tehles er darts for
Nebraska beeseee there ere ne eepiee at the repot at the State
males beard al the *arse Ow at our libraries here tree
IMO Is 1911, aed tor the years Lellf, 19
12114, and WNW. We
mow the' ne espies of the reports ter these years were east
eat.
,411011 it be possible for yes te tarsi* ws with
the ones* et deposit liability of mak elate book soepooded
telimaidovelth 1911, through 19e9?
wits there any rail's by the looktai beard or
0awata4ma 'hist masted how the "arersoe
dwrosit" was
to be Obtained?
Whet me the tosseetIs the'parr* toed seah year,
and whet vas the entsent SOMMINd
lows
,
Ass wassallimasywa war wake iagowdlaai ammo
astarial, or way aldw WNW yaw way giv• la al las apprestioa
et Us logo wilt be samilikerli.
Taw

perae,

Maettese j. Fos,
Misr leetiotistan.


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Federal Reserve Bank of St. Louis

T

October 16, 14

Ron. 16 11, Unikart, Superintendent,
Nebraska Departeent of Banking,
c/o National Conference of State
Supervioing Officials,
Lord Baltimore Motel,
Ultimora, MI,ryland.
Dear Mr. Luikarts
In conmection with our Audios of the
banking laws and their operation in the stete2 which
have in the N.13t 11P11 deposit insuranze or guaranty 1711,81
it wouli.:4 be of valumble assistance if one of the ambers
of this Divizion could have a personal interview with
you while you are in this neighborhood,
T, Ar firsthand knowledge of the sit*.'
tion in Nebraska 5o4id abed light on bow the vFlriome
parts of the as operated.
Will you please advise us aq to when
and where this interview may be had, either here in
Washington or in Baltimore. Le the tie* Jo eo ehort a
telerra.a :Tent colloid to the Statistical Division,
Federal Deposit Insurance Corporstion, Washington, D. C.
woUli he appreciated.
Very truly yowrs,

Mortimer :. Pox, Jr.,
Chief anti.tiiau.

•

CTOMM


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Federal Reserve Bank of St. Louis

STAT.

B.

November 14, 1934

Nebraska Legislative Heforence Bureau,
University of Nebraska,
Lincoln, Nebraska.
Gantimams
If *till available, will you
please on a* a oopy '1 gr. 7. Clark :Achinamlis
"Sank Daposit Guaranty in *Jiebraskao, cublished
ns Bulletin No. 6 In tbe Nebraska History and
Political Science Series,
Very truly yours,

Clark Warburton.

C

t
i
-6.71
'
1

„v,

A

•

u--Cc t

'


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Federal Reserve Bank of St. Louis

:RAT

1111, 19%
11111101Nest Uses* oat 1411111issi IMMO Ississoi
litivaratty id' Ilibiaela
Linos3a, Ilsbemia
6114101111111

Ia asking a Maly at the state deposit laaaresee
lows sad their operatica vs ssoarehing tar larsamikias
that 1411 amble up to set ep Aorta out tables obi* sill
sive as•platers et whet seall/ boyessed.
la Was am& tin mailable materiel snots"
vs towel •Millen& (116.8) blf 44, Ma*
lighosidea
stede
"Doak
Deposit Oraireaty la Illetwasks." This
Diddhesset entitled
•poi piStare at the sitesties
give
to
particular ea* same
the
%Wok base.* alba*
leao not se mei sae is lie taws
lee
sad 1.316
below*
alb 1,44140
WM* hippeasi
segue
it the dealeies Iasi* oat aareaty had 01111allsaiss
••••
stareaby
to as deposit
Aiw Isfenatiea yea ray be able to she vs, or
mar latematioa as to medlaids esinies ea tit e subjs.* 411
be streatly ssiomisto‘
Very truky pure,
gLe

M. J. Fox, Jr.

lartiaer Z. Pm
CILlat abstistislai.


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Federal Reserve Bank of St. Louis

LIAT

Septtclber 11,

Mr. C. ?strum Petersen,
Attorney at Law,
Lincoln, Nebraska.
Dear Mr. Petersen
The Tederel Deposit Insurnce CorponAtion
is nking a study of state laws of the GuLinty of Rtmk
Deposits and their operation. We are trying to get some
information about the Nebraska mveriencee with regard to
it? law.
Mr. R. M. Cordi11, one of the federal
Deposit Invyun,nce Corpartion examiners has migested tht-t
you mould be in a position to give us t-ome very valuable
information 6n this oubject because of your e.-,:„-Jerience
attorney in the cam, of Hubbel Rank vs. Bryan.
We would appreciate very much my information you would e•-re to give us or zny goats on the Nebraaka
law and the 93y:4-lances with dok:iait gunr,mty in the state.

Very truly yours,
(Signed M J. Fox, Jr.
Mortimer J. FoI„ Jr.,
Chief Statistician.


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Federal Reserve Bank of St. Louis

afi

SeptelYter 24, 1934.

Mr. C. Petrus Peterson,
PAtorney at Law,
Nebrrske.
De,,r

?etons

The informstioh contAned in your
letter of bepteber 17 tc.L1 be of help to us in
our tudy of t
Gik.rt!nty of Bonk Deposits. We
ve been !Allis to secure in Washington copies of
the case of Mabel bank vs. Bryan.
Thank yo for offering to lend
us your copies of tIliv ctAse.
Very truly yours,
Mend)

litelkal.

Xortiler J. Fox, .71.,
Chlef SutietiOion.


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Federal Reserve Bank of St. Louis

October 1, 197)4

De:.,r

.:2,1v1.1..AV-.),., •t;er:

Our Corpori:.ti.)1,
nae.tv
study Of thft state
experined In th,: JuNr,iy of
d9of;ite. We would
like to have co-vier b.);4 •.)17 yr,ur "Proliainary lieort as
Chief nwssiner of thy ELnking Investigation" submitted
Wirth 5, 19r)
, frifi of the "Fincl Report" of later date.
This Final Report mfers to four exhibits giving dettals
of th,1% Nobrbskb. 117-0erience. Thos. 03thibite appear to
oontain inforfat tioa ehich would be of great value to us
in our study. Would it be possible for us to obtain oo2ies
of these ?4. have been using a borrowed oopy of your
loinka Report bed have felted the material of great interest.
So ,nould be glbd to receive such further toformition h3 you ottn send to US.

Yours ver ,

Mortitner
FOY, Jr.,
CUaf StatisUcian.

lion. A. C. Shralenberger,
!Amt., NobrbskR.


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Federal Reserve Bank of St. Louis

Nessorablo Ashton C. Shsi:Amberger,
Alma, Nebraska.
Deer Congressman iihallenberger;
Reqort of the Beftkilt InvestigatIch
.

ta Nabraska and the "le.„..'rt of ffetwe Sub—Coaaittee on
Guarantee Assd Coulisaiou* fl 1)29 have beep reiseived.
Tha:1 you very =Oh for rur rrotat attention to onr request.
a),raetmto your assistants' is this
matter.

Very tral$ yours,

Uortimer J. Fox, Jr.,
Chief Statistician.


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Federal Reserve Bank of St. Louis

ratTVA

STAT.

October ;9. 19:4.

Mr. Ashton
ShalleMberffero
Alma, Mehrekkas
Dear Mr• Shallonhergers
Yoe'. copy of the !Prelleloary
Po;lort to Chief txa%iner of the Banking Inveetigptton" fribmittod AArch 3. MI hao.been reeotved
1104

VC apprecirte vur7 ought the
nesiettnee which yon have given no tn this sto4y rn4
we cre looking forward to the tie, when yen will re.
turn to WashiugUni
u peromanl couwers4tion with
rou wo hope to be tIble to et,
,,o 4745 clearly the xlitiota and economic ?<weep; 1!*Ach 117 behtnel t17,6 Ur,bnlike
experiment.
Very truiy yourt,
(811112ed) Di, J. Fox, Je.
4ortir*r J. Fox, Jr,
Chief iActistioien.


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Federal Reserve Bank of St. Louis

FHslin

ST;1

October 20, 1934

Ar. 4.:1 Placek, krevildent,
Nehreeks Bankers, Associt4t1,41
Americvn 14ankors Asnocition Conventim,
Wills rd aotel,
Wellington, 1). C.
Der

?laceks

In connection with our studio:: of the honkLng laws and their operttion in the et tes which hive in
the pLet lite deposit insurance or gus.rsnty laws, it would
be of volueble sesistoace if one of the afluttrs of this
Uvisian could h!.ve c persona interview with you while
you are in Widanteri.
Your firstht.ad knowledge of the Wul,tic,n
in Nehrf-skim would shed light on how the vLriour p:.rV4 of
the lc,w opemted.
The offices of the /*demi De?osit insur,nce
Corporction *re loctAed in the National Prer4 buiIding,
which is just ser*sx the street from the Wilt.rd Hotel.
Our room numter is 433 c,rs our telephone number is District
1240, Extension 11;:.
We would epprecirto4 your grvntini:, u 41 uiterview t,nd edvisini: us when md whf,re it nsy e htd.
Vr,try truly your,
.4
Nortiner J. Fox, Jr.,
Chief NUtistician.


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Federal Reserve Bank of St. Louis

October 16.

Mr.

L.
41.k.urce OorpJration,

t
Lc

Iferre
thl..t little ,ttent
--.)111 fLc
The tLe of cur e
o._
c,144ot,
thb.t adc'.1.tiolizA he
vic
rish tJ obtain the
the boo
a -ilb
could
of asb tist.nce

our letter f October
tern of
J. Yox,
,h(7 .:,1uiA the 7th.

LuLst,nho
Lie
tt.e a:'..ount of l'or4 and
infortion requested.
' it
and our appropriation ic such
.ned for this purpose but if they
:311 nditor to conpile tilt* information,
._1.1rose and )c.itly 'four eALminers
in ottininj, 151is information.
Lour

very truly,
BalaING

puty Su)erintendent.


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Federal Reserve Bank of St. Louis

lars100

3TAT

October 28,

Mr. T. Brue obb, Cheireaa.
De?artmont of Busineas Reeeereb.
CoUoe or Bwineen Administration,
The University of Nehraehe,
Lincoln, Nebraska.
Dear 'Cr. Robb*
Thank you very much for your
informative letter of October 10th. I me
moot intereuted in rimding your opinion on
depollt inourr.nce rnxi lk:)A ap:-Ireoiative of
the informetitin you coavey mith regard to
artumries.
Vtn.y truly yours,

Vet-timer I. 'Pox, Jr.,
Chief 2totistician.


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Federal Reserve Bank of St. Louis

?HsELT

STAT

Octobcr 1, 1974

Mr. T. Bruce Robb, Chairman
Departaant of Business Research,
University of Nebraska,
Uncoln, Nebraska.
Der Mr, Rabbi

Thank you vcry much for the two studies concerning
bunking fai:.ures in Nebraska, and for the informe,tion concerning
other sourcee of material relating to gmaranty of deposits.
We would like to have your bibliography on "What To
On Banking" and. "what to Road On lasuranee*.
Can you mama say person eke sembiose a theoretical knowledge of ineuranee with experienoe in estuarial lark?
No desire to ask, eons studies ooncerning aaseesseate that would
be necessary to place bank deposit insures., as a firm basis.
Any recommendations you crin make mhich will put us
in touch with e.fl imilvidual of this tyJe we will be very glad to
receive.

Tours iftry truly,

Mortimer J. For, Jr.,
Cif StatiEtIcian.

•


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Federal Reserve Bank of St. Louis

6eptsaber 10, 14

kr. A. C. Sorenson,
Lincoln, Nebracka.
De.3r M. 3orensos.
The Federal Deposit Twurance
CDr.porAion is making a study of State laws on the
Guaranty of Bank Deposits and their operntion4 We
en, trylng to g,t some information about the
Nebraska experiencee with roger%) to its lsw.
W. R. M. Cordill, one of the
InJur,
we Corporation examiners,
hew 3ugge- tod t'l!J you woULI be in a potion to
give us some very valuable information on this
ilujeat becLu -e z,f yr:ur experience as AttorneyGenet'nl or the Stt:te dtring the recent Guaranty
Fund litigation.
Fej,

We woul a-preeiete vvry mach
any- inf,A-mkAtan you would car‹, to give um or ally
comment3 on the Nebraska law and the experisom
with depo:it gnerenty in the ltate.
Very truly yours,
(Stimed1 M. J. P/OX

Tr

Mortimer J. Fox, Jr.,
Ch5lf Steti ,tisian.

•


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Federal Reserve Bank of St. Louis

PIET

Sopteaber Z4, 1934.

Ur, A. G. '-i,orensen,
Attorney at Lew,
Lincoln, NetaTokm.
De, r An. Sorenaoni
Thank you for the information given
the
r,,: eons for the failure of the Bank
concerning
ut
in Nebrankm.
Gumr-nty
iuw
Le2013it
We nawt boon able to 6eure
in
.
tori the full record of the case of the Abie
f,tvA, turefors, it will not be neoest.wry for
ik
r nur -Vice copy.
to
us
Vpry tru17 yours,
%Signed'
lortiLuer J. Fox, Jr.,
Chief Attiaticien.


https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis

November

1)74.

11r. C. G. Stoll,
Chief Receivership Division,
StLte of Nebraaka,
Lincoln, Nebrtska.
Doer Mr. Stalls
The information contained In your
litter of Nova:Aber 6 relating to tl.,e mcthod of
calculating average daily deposits hps been received.
We wili be very glad to hive the
data relating to the de,Aositoregueranty f,ind
as soon es it is possible for you to esnd it to
us.
Thank you for your cooperation In
this setter.
Vvry truly you,

Mortimer J. }ow, Jr.,
Chief Statistician.


https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis

November a, 1934.

Ar. L. ,,. 5toll,

Chief -oceiverehip Division,
'tste of Nebraoks,
Lincoln, Nebraska.
re:1- -r.
Noveber 17 with the
Your letter
enclosed copy of the report hfs been received.
The informe:tion contained in this report will be
of material tZhifltlICV to UA in our rAuly of the
sttte deposit ine',:r-nre experiences.
Ws are assuming that the report sent
which Mr. Luilart soke Nhen we
of
Axe
is the
talked with him here in lushington. iris is
the case, please expreas to him our appreciation.
The c000eration of yourself and the
departaent Is lost appreci:Aed.
Very truly yours,

'Aortimer J. Fox, Jr.,
Chief 5tetintician.


https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis

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Federal Reserve Bank of St. Louis

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Federal Reserve Bank of St. Louis

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(4.-ee--44A- If3 (-;
SWIC
klip banks ia State

Year

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4
Tt;
Total
Number
(includdeposit r
ing loan '
A trust •
companies

6 6-S '-- 17L.17 -

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https://fraser.stlouisfed.org eil••<
Federal Reserve Bank of St. Louis

BankSnnsbors

iluriber

of guarant v fund

.Total
capital
account

Total
deposits

toss" b
6-7
'f•

I775

big '11
WS' 7 0
74,5
ai5

2o.2jj A

738i
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Rate of
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https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis

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42.2-3‘/7

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https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis

7

_

F


https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis

Gft.

StIA,

tvyu.A1 AA'6

o•-•

1014i

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--HOLko
Of
)

a-At/CICAQA/

Table 13. RIMER AND DEPOSITS OF STLTE rJNKS IN NTBRA5KA, 1912-1929
Ban
Nov. 26
1912

Oct. 31
1914

grouped by amount of deposits
Nov. 17
1916

Nov. 1
1918

Nov. 13
1920

Sept. 30
1922

June 30
1.925

June 30 June 29
1927
1929

694

760

839 2/

934

1,009

963

913

872

688

Banks with demosit ofor less
372
262
$1:),:_,J0 to S250,
000
$45,000 to $500,000
56

387
503
64

20 1/

4.39
met

163
415
273

193
445

195
445
447

113
364
306

100
348
300

73
275
234

25
3
1

73
9
1

78
10
2

61
11
4

112
13
4
1

102
17

85
17
3
1

Number of banks - total

$500,000 to $1,000,000
$1,000,000 to $2,000,000
$2,000,000 to $5,000,000
$5,000,000 and over

4

5
1

De)oaits--total (thousands
of dollars)
82,537

93,420

with deposits of-21,665
less
39,868
$250,000
18,084
$500,000

22,684
45,783
20,451
3,479
1,023

In banks
$100,000 or
$100,000 to
$250,000 to

2,920
$500,000 to $1,000,000
$1,000,000 to $2,000,000
$21000,000 to $5,000,000
$5,000,000 and over

V A basik without deposits.


https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis

1

165,410 239,601

255,243

237,943

285,928

275,038 224,378

13,280
73,243
55,582

10,863
73,458
94,145

12,956
76,438
95,577

13,552
75,826
83,751

8,235
64,813
107,283

7,380
60,511
102,826

5,;c41
47,870
81,822

16,178
3,850
3,277

47,265
10,406
3,464

52,015
11,848
6,409

39,547
14,190
11,077

72,824
16,321
9,960
6,492

65,362
22,301
10,398
6,260

55,323
21,641
7,293
5,188

Table 14. MOOAMasposns Olt Minna BANKS IN NEBRASKA, 1912-1929
Banks grouped by amount of deposits

Sept. 4
1912

Sept.12
1914

Sept.12
1916

Aug. 31
1913

Sept. d
1920

Sept. 15
1922

245

220

193

191

188

13'
N-

,Banke with deposits of-22
$100,000 or less
122
$250,000
$100,000
$250,000 to $500,000
79

20
105
72

1
69
85

2
25
78

1
26
74

-3

3
7
4
3

9
8
2
4

23
6
5
4

64
12
6
4

64
13

98,096
of-1,551
21,378
26,597

87,812

151,051 155,009

1,567
18,207
23,952

90
12,537
30,401

$500,000 to $1,000000
5,384
$1,000,000 to $2,000,000 9,953
$2,000,000 to 35,0C/0,000 13,226
20,007
$5,000,000 and over

5,742
10,115
5,497
22,732

14,453
9,369
14,298
33,901

/lumber of banks - total

$500,000 to $1,000,000
$1,000,000 to 2,000,000
$2,000,000 to $5,000,000
$5,000,000 and over

Denosits--total (thousands
of dollars)
In banks with de,Josits
$100,000 or less
$100,000 to $250,000
$250,000 to $500,000

Tbeee figures cuntaiu Due to Banks.


https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis

Sept.28
1925
170

Oct. 10
1927

Dec. 31
1929

154

157

5

72

70

34
55

33
53

4

45
7
8
4

45
7
9
5

41
8
10
4

37
19
5
8

159,221

151,06

155,974

152,237

178
4,859
30,534

93
5,170
27,578

245
8,117
26,088

403
5,841
26,218

177
6,725
21,078

149
6,416
19,387

42,156
16,091
17,538
43,653

42,585
18,321
18,825
46,649

29,843
10,515
23,280
52,968

31,089
9,2)7
24,106
59,080

29,010
10,078
25,088
60,081

24,599
24,605
14,984
125,016

49

215,156 1/

3:40:t,
,
DT

121

0? .1,Lecx1T5
t. 3

F ROO tiLtotal
1
:rou.ct b7amouOt a depooiiit

iaii
02ye

1)0
to or 1Oos
100 000 to 260 Olo

/.2.0

250 600 to 600 4.D0

75

son 000 to 1 00 400
1 4o 000 to 000 .400
4,0 000 to6 400 000
5 000 000 and Over.

ZVI ow
br.t or doaiti
100 000 or
100 000 to 250 000
250 000 to 600 000


https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis

000 to 1 000 000
000 to 2 000 000
000 to 5 CO 1)00
000 and 'pylori,

,21i3

L/.3
,
2f/

/9

19/

1
9

2y

/0

/9/

t,

1.7

7

33

3

ig
3
V3
72

30
2g

Z3

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,

its-

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.7.

74

7

q_4-1121

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1Jiy

id --/J- 2--

cI2s

12.31.In.4.

/(.1 -/d.-27_ 31.2.i

170

IS

2.#1
VI
70

4,541

- 31

2.
33
53

,Y3
44
So

1t

7

2

5

-3

3

3

r

97 2r

rfur

_246

jcs,
.2.13n

!pi

2.6 517

-LC

53gy

sYr2.

.251

4.137
6 731
/
V- S.5"b

9f_3

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12--/Y/

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1g--2-(/7
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9031
bAy
/.1.5.37

2 r}ty

364/61

.32.7fL

7-2-74
1 /29
5-331
els ye yj

viis-3
'13c
/42y

33,3C,

Viy

33 951

1'311
C71(2.
i-flo

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/5 O d7

AV6-71

/3721/

/7i
cqs-7

6/

/3
5/76
27-5-/f

34z7
23-4y

4/7

1/AIS:‘

)g 31/ '
.$

AdY1
17.a
biS

2. 2-

7z3

4Y/

1 ter a 90

157 6sl.

.15511-7

lo 41‘.
.7,15f

bI7
..16.dq

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i 57
2-`1q20

24 s3
p 91
249/
3 I. os-

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16
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33./f
3fV
/6 /37
.5854

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11 92,
.-b5 32-t.
51.51

148

g 4Z.S

il°3
Slyi
-Z6 21I
310T7
7.237
2.4/d
siaV()

IS-2.237

2/5 /s4

1.71)
2./0-7g

/s47
4/4,
/93(7

22J 10
16 clA

2.s6
1. oo it

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https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis

Table 13. NUMBEF AND DEPOSITS OF STATE WINKS IN NEBRASKA, 1912-1929
i:lanicts grouped by amount of deposits

Nov. 26
1912
Number of banks - total
Banks
$100,000
$100,000
$250,000

Nov. 17
1916

Nov. 1
1918

Nov. 13
1920

Sept. 30
1922

June 30
1925

June 30
1927

June 29
1929

694

760

839 1/

934

1,009

963

913

872

688

with deposits of-or less
372
to 4250,000
262
to $500,000
56

387
303
64

203 1/
439
168

163
415
273

193
445
281

195
445
247

113
364
306

100
348
300

73
275
234

73
9
1

78
10
2

61
11
4

112
13
4
1

102
17
4
1

85
17
3
1

165,410 239,601

255,243

237,943

28),928

275,038 224,378

$500,000 to $1,000,000
$1,000,000 to $2,000,000
$2,000,000 to $5,000s000
$5,000,000 and over

4

Deposits-total (thousands
of dollars)
82,537,
lx banks
$100,000 or
$100,000 to
$250,000 to

with deposits of-less
21,665
$250,000
39,868
4500,060
18,084

$500,000 to $1,000,000
2,920
$4000,000 to $2,000,000
$2,000,000 to $5,000,000
$5,000,000 and over

ui
tank without deposits.


https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis

Oct. 31
1914

5
1

93,420

25
3
1

22,684
45,783
20,451

13,280
73,243
55,582

10,863
73,458
94,145

12,956
76,438
95,577

13,552
75,826
83,751

235
8,
64,813
107,283

7,380
t,0,511
102,826

5,241
47,870
81,822

3,479
1,023

16,178
3,850
3,277

47,265
10,406
3,464

52,015
11,848
6,409

39,547
14,190
11,077

72,824
16,321
9,960
6,492

65,362
22,301
10,398
6,260

55,323
21,641
7,293
5,188

Table 14.

NUMBER ARO OPOSITS OF NATIONAL BANKS IN NEBRASKA, 1912-1929
Banks grouped by amount of deposits

Sept. 4
1912
Number of banks - total

Sept.12
1914

Sopt.12 Aug. 31
1916
1918

Sept. 3
1920

245

220

193

191

188

22
122
79

20
105
72

1
69
.85

2
25
78

26
74

3
7
4
3

9
8
2
4

23
6
5
4

64
12
6
4

98,096
of-1,551
21,378
26,597

87,812
1,567
18,207
23,952

$500,000 to $4000,000
5,384
$1,000,000 to $2,000,000 9,953
$2,000,000 to $5,000,000 13,226
$5,000,000 and over
20,007

5,742
10,115
5,497
22,732

Banks
$100,000
$100,000
$250,000

with deposits
or less
be $250,000
to $500,000

Sept. 15
1922

Sept.28
1925

Oct. 10
1927

Dec. 31
1929

182

170

154

157

3
43
72

5
29
70

2
34
55

2
33
53

64
13
6

45
7
8
4

45
7
9
5

41
8
10
4

37
19
5
8

151,051 155.009

1.59,221

151,056

155,974

152,237

90
12,537
30,401

178
4,859
30,534

93
5,170
27,578

245
8,117
26,088

403
5,841
264,218

177
6,725
21,078

149
6,416
19,387

14,453
9,369
14,298
33,901

42,156
16,091
17,538
43,653

42,585
18,321
18,825
46,649

29,843
10,515
23,280
52,968

31,089
9,237
24,106
59,080

29,010

24,599
24,605
14,984
125,016

--

$500,000 to $1,000,000
$1,000,000 to ;2,000,000
$2,000,000 to $5,000,000
$5,0004,000 and over

De -osits--total. (thousands
of dollars)
In banks with deposits
$100,000 or lees
$100,000 to $250,000
$250,000 to $500,000

1

25,088
60,081

215,156 2--/

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11
1911
1912
1913
1914

NUMBER AND DEPOSITS OF STATE BANKS IN NEBRASKA CLOSED BECAUSE OF
FINANCIAL DIFFICULTIES, JULY 1, 1911, TO MARCH 18, 1930, BY YEARS

Total number
of failed
banks

r

j.915
1916
1917
1918
1919
1920
1921
1922
1923
1924

Reopened with
no obligatthon
on the fund

Failed banks entailing obligations on the fund
Number
Deposits (in Number
Deposits in
dollars)
suspended closed banks
per 100
per $100 of
active
deposits in
active banks
banks

---

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1

1
110

-•• 00

5

5

26
23
15
14

1

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1928
1929

20
22
22
50
149

1+
33

116

1930

11

2

9

TOTAL359

142

317

1112

/2 2,.///0

1

1

1
1

25
22
15
13

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p,20
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22
22
146

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2,2,
2,4

7. 7Rq,173
3? 4

5,4
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5

SUBTOTALS
qulm 1, 1911 to

'9141eke 30, 1927
1130-1, 1927 to
March 18, 19310


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AveraoNumberFailed
Number Fai.Leu,por 100
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NUMBER OF BANKS
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number

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100

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gRarented Banks
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500

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LIST OF NEBRASKA BANKS OPERATING UNDER "GUARANTY FUND COMA:16810N" AT THE
BEGINLTING OF THE YEAR 1929 - Rand Mciially bankers' Directory
January 1929

City

Allen v
'
*Altona
fiBeemer
tv-Benkelman
L.-Big Spring
,
' Bloomington.
L.-Boone
AyBrad ish
,-Brady
fr.-Breslau/
I.-BridgeportIv
V*Broken bow'-v Brownlee-J.— Burton
*1311/'Chard

Butte t."
1 -Championl,Clarks
Crab Orchard,
I "
Creighton
✓ DeweeseL,
L *Dixon t/ Dodge
✓ *Fairfield I-/*Fullerton Li' Genoa
v *Gibbon'
/ Gilead
V*A-Glenrock'
V Grainton
Grant
✓ *Greeley
"v *Greenwood
Haigler
✓ Humboldt
• RUmphrey
v Jackson
v/ Johnstown
VLamar


https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis

Name of Bank

Allen State Bank
Farmers State Bank
beemer State Bank
Citizens State Bank
American 1=,-tate Bank
Farmers State Bank
Boone btate Bank
tamers State Bank
brady btate Dank
Breslau otate Bank
Nebraska tate Bank
Custer State Bank
Brownlee State Bank
Burton btate Bank
Bank of Burchard
Citizens State Bank
State Bank of Champion
State Bank of Clarks
Bank of Crab Orchard
Security Bank
State bank of Dereese
Dixon btate Bank
Dodge State Bank
Citizens bank
Farmers State Bank
armers btate Bank
Commercial Bank
State Bank of Gilead
Community State Bank
Perkins County State Bank
Commercial Bank
Greeley State Bank
Farmers State Bank
State Bank of Haigler
State Bank of Humboldt
Bank of Otis and a‘urphy
Bank of Dakota County
Citizens Dank
Lamar State bank

Date of Suspension

5-2-29
555555555-

2-29
2-29
2-29
2-29
2-29

2-29
2-29
2-29
2-29

2-13-29

55555555-

2-29
2-29
2-29
2-29
2-29
2-29
2-29
2-29

3-18-29

5- 2-29
5- 2-29
3- 6-29
5- 2-29
5- 2-29
1-30-29
5- 2-29
5- '5- 2-29
3- 2-29
5- 2-29
5- 2-29
5- 2-29
5- 2-29
5- 2-29
5- 2-29
5- 2-29

City

/ *Laurel
• Litchfield
6/ #Madrid
*Malcolm
.
• Martinsburg'
martins burg :
Maxwell
k-katchell'
1*North Bendtv
iV Overtonfr=
Panama
'"". Paxton
v' Pierce
*Plainview
ke *klainview
✓ #Plymouth
1,/ Polk
" Ponca
6 -Ralston ,
v/ Republican Uity
• Rohrs
1 Scotia
/
4/ *Scribner i---6/*Shelton
v/ St. Edward ,
6Stockville
V *strang
II Superior -.✓ *Thurston v"
• *Vesta "'"
niakefie Ld
oon
v
*Volbach
vi

•

Name of Bank

State Bank of Laurel
State Bank of Litchfield
Madrid Exchange Bank
Malcotm State Bank
Citizens State Bank
Martinsburg State Bank
Maxwell state Bank
,Aitchell State Bank
First State Bank
Overton State Bank
Farmers State Bank
Commercial State Bank
Pierce State Bank
Citizens State Bank
Security state Bank
Farmers State Bank
rarmers State Bank
Security tank
Ralston State Bank
Nebraska State Bank
Farmers Security State Bk.
Farmers State Bank
Scribner State Bank
Meisner State Bank
/armers State Bank
Frontier County Bank
Strang State Bank
Citizens State Bank
Thurston tate Bank
Vesta State Bank
Security btate Bank
First State Bank
State Bank of 1-.olbach

Date of suspension

5- 2-29
5- 2-29
10-24-28 --5- 2-29
5- 2-29
5- 2-29
5- 2-29
2- 4-29
5- 2-29
5- 2-29
2-22-29
5-2-29
5-2-29
3-25-29
5- 2-29
5- 2-29
5- 2-29
5- 2-29
5- 2-29
5- 2-29
5- 2-29
3-16-29
5- 2-29
2-27-29
1-22-29'
5- 2-29
5- 2-29
2-12-29
5- 2-29
3- 2-29

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*Shown also in 1928 directory as operating under G. F. Comm.
** Gone into voluntary liquidaton according to July 1928 directory.
#Not yet reported as closed or suspended or transferred by G. F.
Comm. to State Banking Department.

DIVISION OF BANK OPERATIONS
June 20, 1929


https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis

LIST OF NEBRASKA BANKS OPERATING UNDER "GUARANTY FUND COMMISSION" AT
THE BEGINNING OF THE YEAR 1928 - Rand McNally Banker's Directory,
January 1928

City
*Altona
Ansley/
Bassett
Belden V
Belgrade/
Bennington
Bennington
Boelus
*Broken Bow
Brunswick
*Burchard
Cedar Rapids
Clearwater •/
Cornlea
Crofton /Danneborg
Danneborg
*Dixon
Doniphan
Dunbar /
Eagle a'
Elgin V
Enola
*Fairfield v
Fairfield"
*FuLlerton
Geneva/
*Gibbon
Giltner
*Greeley
*Greemood
Gretna 'Hazard
Jackson /
*Laurel /.
"
#Lindsayk.
Magnet

•

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Mount Clare/
/Murphy
Newcastle


https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis

Name of Bank
Farmers State Bank
State Bank of Ansley
State Bank of Bassett
Farmers State Bank
Bank of Belgrade
Bennington State Bank
Mangold & Glandt Bank
Farmers State Bank
Custer State Bank
Farmers State Bank
Bank of Burchard
S. S. Hadley Co. Bankers
State Bank of Clearwater
Cornlea State Bank
Farmers State Bank
Danneborg State Bank
First State Bank
Dixon State Bank
Commercial Exchange Bank
Dunbar State Bank
Farmers State Bank
Elgin State Bank
Enola State Bank
Citizens Bank
Farmers & Merchants Bank
Farmers State Bank
Citizens State Bank
Commercial Bank
Citizens Bank
Greeley State Bank
Farmers State Bank
Farmers & Merchants Bank
Farmers State Bank
Jackson State Bank
State Bank of Laurel
Lindsay State Bank
Magnet State Bank
Malcolm State Bank
Meadow Grove State Bank
Mitchell a;tate Bank
aiount Clare State Bank
First State Bank
Farmers State Bank

Date of Suspension
1-18-29
5-26-28
3- 5-28
3-10-28
3-29-28
11- 2-28
1-25-28
12-18-28
2-13-29
3- 3-28

5- 2-29
4-25-28
2-14-28
4- 4-28
4-13-28
3-20-28
10-24-28
5- 2-29
4-13-28
4-30-28
4-30-28
3-27-28
3-10-28
3- 6-29
3- 2-28
5- 2-29
12-15-28
1-30-29
3-29-28
3- 2-29
5- 2-29
11-11-28
11-19-28
10- 3-28
5- 2-29
5- 2-29
4-13-28
10-24-28
2-22-28
5- 2-29
11-24-28
3-26-29
12- 5-28

- 2-

S
Name of Bank

•

Newport -7
*North Bend/
Oakdale."
Oakdale,/
Osceola,--"
Petersburg"Petersburg.'
*Plainview /
*Plainview r'e
#ScottsbluffP'
*Scribner 7
*Shelton ./
Springrandh‘v
Sterling v
*Strang,
L
Thurston --*Thurston.'"
Tilden:.
,
Ulysses'''.
Ulysses 1--Verdell
,
*Vesta 6Wahoo "
1.
*Wakefield/
Western e*Winnetoon,*Wolbach k
York 4,--

Rock County State Bank
First State Bank
Antelope County Bank
Oakdale Bank
Osceola Bank
Citizens State Bank
Farmers State Bank
Citizens State Bank
Security State Bank
American State Bank
Scribner State Bank
Meisner State Bank
Blue Valley State Bank
Farmers & Merchants Bank
Strang State Bank
Liberty State Bank
Thurston State Bank
State Bank
Farmers it Merchants Bank
First Bank of Ulysses
Farmers State Bank
Vesta State Bank
Far. & Mer. State Bank
Security State Bank
Western State Bank
First State Bank
State Bank of Wolbach
Farmers State Bank

Date of Suspension

1-18-28
2- 4-29
10-22-28
10-22-28
3-11-28
10-13-28
10-13-28
5- 2-29
3-25-29
1- 8-29
5- 2-29
5-16-29
4- 7-28
1-17-29
1-22-29
3- 6-28
5- 2-29
12- 5-28
4- 3-28
3-13-28
2-20-28
2-12-29
3-15-28
5- 2-29
3-20-28
1-23-29
3- 2-29
5-11-28

*Shown also in January 1929 directory as operating under G. F. Comm.
#Sh rn in January 1929 directory as "closed".

• I,

DIVISION OF BAAK OPERATIONS
June 20, 1929

•

https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis

•
Nebraska State banks which were not shown in January 1929
Rand McNally Banker's Directory as being operated by Guaranty
Fund Commission, out which were taken over by the Commission
after that time and were later reported as suspended (turned
over to the Dept. of Trade and Commerce for liquidation
through receivership)

City

Ainsworth
Bloomfield
Bloomfield
Dalton
Havens
Humboldt
Inman
Lyman
Mason City
Minatare
Raeville
Surprise
Stromberg
Sutton

Name of Bank

Citizens State Bank
tt
Far. & Mer."
Nebraska "
Ii
'I
Farmers
state Bank of Aavens
Nebraska State Bank
Inman state Bank
Lyman state Bank
Mason City Banking Co.
State Bank of iiiinatare
Farmers state Bank
State Bank of Surprise
FErmers state Bank
City State Bank

DIVISION OF BANK OPERATIONS
June 20, 1929.

•

https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis

Date of Suspension

5-2-29
5-2-29
52-29
5-2-29
5-2-29
5-2-29
5-2-29
5-2-29
5-2-29
5-2-29
5-2-29
5-2-29
5-2-29
5-2-29

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Federal Reserve Bank of St. Louis

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Table 8. CAUSES OF SUBPENSIONS OF STATE BANKS
1921-1930 AS REPORTED ON SCHEDULES PREPARED BY
SECRETARY OF TRADE AND COMMERCE IN NEBRASKA FOR
THE FEDERAL RESERVE COMMITTEE ON BRANCH, GROUP,
AND CHAIN BANKING

Primary
Cause
Total number of suspensions, 1921-193a

Contributing
Cause

380

-

Dishonesty of officers or employees:
./tefalcation

38

13

4

36

30

143

264
16

40
14

40

27

10
113

4
144

43.1 q.2ecu1atim.a. _booms:
Regional economic disaster or adverse
conditions in specific indutries:
sses due to unforeseen agricultural
or industrial disaster, such as
flood, 0004XX drought, boll weevil,
etc.
Decline in real estate values
Managerial incompbtence, inadequate earnings,
and7 excessive competition:
Incompetent management
/Insufficient diversifittion
Cause/ not readily classified above:
11-!)eavy withdrawals,
4ailure of affiliated institutions
or correspondent
Other causes


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Federal Reserve Bank of St. Louis

(

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Table 8. CAUSES OF BANK FAIIUR S IN NEBRASKA, 1921-1930, R775OPT-D ON
SCF7DULES PREPAR7D FOP THE 1#3.11,00WCILMCI) FEDERAL RESERVE COMWITTEE ON
BRANCH, GROTE= AND CHAIN BANKING
Number of cases
Primary
Contributing
cause
cause

Item

Dishonesty of officers - total
Defalcation
Officer's irregularities -or shortages
Inside bank rebbery
Dishonesty of former management
irregularities
Misuse of bank funds, excessive loans, total
Mis* or misapplication of bank funas
Excess loans, or overloaning
iolation of State banking laws
Excessive and illegal loans
(pans to atockholders and relatives
allure or large aeotor

38

4
III

etersal of prosrerous conditions, decJine
in values - total
Unforeseen agricultural or industrial
disaster, such as flood, droght, etc
(Decline in value of farm rroducts, or
deflation of agricultural prices
$Urte --iii-gmtrr-pri-ereer,--ur-trtvaluas

11
21
3
1
1
..

4

36

30
264

16
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1
2
21

gossip

_28

4--

1r143
40

14
..76
27

*-..
11
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1
,-,
,
1

-XDa&th QLYrasioleat
--.K.A.c.raxaculatiAln- loans
)4I.Ga-mede out of Winkle territory
Lax enforcement of State banking laws

00

111

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Federal Reserve Bank of St. Louis

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3i1

Other causes - total
heavy withdrawals
12,A-1,
Failure of sZZ4liet-:d i nstitutionse;meacir-perirt4144mrt
41e4iiipe-af.cq--t-lm-,4u, tem
-Sihrtizsiriterger-w41413-4113-thar-barik. , insufficient operating income
..1.11xpliat.i.on of-eereit-reeerre
tack of business

,IJ

..
1

-1

epression
ecline in real estate values
Ilicompetent or poor management 1E0 totql
..(Excessive operating cost
/ Incompetent
management
Insufficient diversifitation
ong-term loans on real estate

-41-da

3

1
..

••22-73

\ ener'elation, or genera

13

..

-

i

2

37

6

3


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Federal Reserve Bank of St. Louis


https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis

Notes on Nebraska Estimates

Interest onReceivers' Certificates has not been included in Liabilities of
Fund (A2). See /teport of Uuarantee Fmnd Commission for 1927, pp. 30, for
amountof interest paid that year, and p. 44 for discussion of certificates.
The amount given in Cl as
includes some interest on
be the difference between
$12,553,810 (Final repot,
hardly possible,
ships?

having been paid on depositors' claims apparently
receivers' certificates. Could this be assumed to
$18,694,669, paid to receivers etc from fund, and
p. 12) given as due depositors' fund from receiverbut a part of he difference probably interest.

Total Diabilities (A4) is too low by amount of intereA on receivers' certificates,
etc. Such. interest, however, actually iaid from guarantee fund, is included in
Total Disbursements (C4). The difference between these, or liabilities unpaid
(D3) is therefore too small by amount of interest paid. This probably explains
the difference between D3 and imixxxxxxfxallowed claims to depositors unpaid (El)
Is there any wayof estimating interest?
Expenses of operation of Fund includes some expenses of liquidating banks. This
shoulA be eliminated from A, B and C to proviae comparability with other states.
Minor errors - found by committee of investigation - not allowed for in estimates.
Possibly certain items should be revised onthis account.

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Federal Reserve Bank of St. Louis

(over)

S

I

•

Was Aebraska law declaced unconstitutional by U.S. Supreme Uourt in 1930 or
Or was only law setting up
See The American banker; p. 3.
later?
nal?
declared
unconstituti
/Und
Final
Settlement
Depositors

Were balances held by fund with banks (i.e. assessments made but payment refused
by banks when drawn upon by draft) declared illegal by Supreme L'ourt decision?
If so, should not his amount be deducted from total assessments in estimate of
net receipts (Be)?


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Federal Reserve Bank of St. Louis

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NEBRASKA - GUARANTEED BANKS FAILED
List A. banks failed prior to February 5, 1929, noincluded among old or new
receiverships in report of House Subcommittee on Guaralin Fund Commission, 1929 (13 banks)
(Excluding banks reopened-or taken'oteir - see List E)
Locati_n and name
(SB = State Bank)

XI -‘

JJate in
receivership

71f
eeeZ1464./

f
--suneriod: The First State Mar.10,1914
savings Bank
tfi,e
June 13,1916
32.atur: Farmers SB

404

Jan.

alsey: Farmers SB

Page: Farmers Bank

1920

July 23,1920

1 rV-rdon: FerwEatang41
..easenten: Farmers SB
Hoskins: Farmers SB

•AnselmO:The Peoples SB

Nov.30,1920
Jun.2,i921 /3,e-Je)
Apr.30,1921 /j/

/3.5June 6 ”
May 28 "
/26
Wer: Farmers SB
3,1922 /?,TbFog?taaii/g Coj.an'
July 20,19223/.2
Shelton: Shelton SB
Sept.16, "
enedict: Farmers SB

Pf

ostwick: bostwAck SB

Mar.13,1926

6.2
/1/ Os/77
;.<36--()
7.5- 60 /
/3 ,Y13
/d3 /
/3.c 3/L
/r 717F/
3o 71

1/ 664

54,52617

18,97698

79,04814

43,92945 ,

37,20662

6,13181

206,72205 181,054.2
135,96065
91,33439
117,20221

97,02248
50,03523
275,52275
139,86868
121,00000

88,31714
83,66638
107,77761
1,48183
12,94921
238,96159
139,86868
115,40000

I6

7

0- 1

1.4-- /Or most of these banks three figures are available for the total payment made
guaranty fund: (1) as published in the annual reports of the Bureau of Banking; (2)
as given in the auditor's report to the chief examiner of the special banking investigation,
derived from the books of the guaranty fund as of January '2, 1930; and (3) as given in the
same auditor's report, derived from the books of the receivers as of January 2, 1930. the
differnces between the three figures are small. beta from the first source are available
for only part of the banks paid by the guaranty fund. The figures shown on these lists,ere
those derived from the books of the guaranty fund as of January 2, 1930.

•
by the

2/ Date regarding the net loss to the guaranty fund (or net payments to specified
,dates) are avililable from four sources as follows: 11)Renort of the House Sub-Committee, on
the Guaranty Fund Commission, showing amount due to the guaranty fund February 9, 1929;.
(2) auditor's report to the chief examiner of the special banking investigation, derived
Amkfrom the books of the guaranty fund (total payments mirus refunds from receiverships and
Wsele assets) as of January 2, 1930; (3) same auditor's report, derived from the books ef
the receivers; and (4) schedules prepared for the /ederal Reserve Committee on Oranch.
Group and Chain Banking, showing net payments as of June 30, 1930. Ihe figures shown en
these lists are those derived from the books of the guaranty- fund
A9-4 W,

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Federal Reserve Bank of St. Louis

A

NEBRASKA - GUARANTEED BANKS FAILED
List B. Banks listed as "old receiverships" in House Subcommittee Report
on Guaranty F#nd Commission, 1929 (46 benks)

•

Locati n and name
(SB = State Bank)
•o-t

Date in
0
receivership

--Valparaiso: Valparaiso SB .ian.13,1920
ore: American SB
May 10,1920
eresco: The SB of CerescoFeb.3,1921

"W

Merriman: American SB

Feb.1,1921

clair:136q195aRgtEeg

i-ar.15,1921

Long Pine: Brown County BkApr.18,

•

May 10

Boldrege: Holdrege SB

May 23

Oshkosh: First SB
Omaha: .eioneer SB ,

May

June 6

Lincoln: Mid1and151
Lincoln: The AmerLcan SB

July 1
July 16

Table Rock: Community SB
Sidney: Nebraska SB

Oct. 1
Aug.25

It

Octavia: Octavia SB

Sept.7

11

177,77761

,Y9J
1783F,Il

231,96539
20,21607
195,50785

145,30816

&()a )

43,25887
89,81804
300,76132 165,42983

04 2._
73/ (:

550,59425

243,23587

82,05180
170,28038

75,00000

5

ft

6

Kilgore: Kilgore SB

Oct. 27

Springfield: Farmers SB
Dunning: Home SB

Dec. 3 "
87
Jan.10,1922 // 7

11

Dec,10,1921
Gurley: Gurley SB
Nov.30 “
91ty Dec.13 It
Plattsmouth: It
els1
11
(
6
17-27
-(Aiiard: The Farmers SB
Jan.3,1922 /55
Ogallala: Exchange Bank
Feb.7, "
Homer: Homer SB

Peb.17 "
Farmers & Mer8pRfitsA pr.14 "
Newcastle: Necastle SB
411
.
iway 5 "
Long Pine: The American SBJune 12 "

3/6

AI' Welton:

Milligan: The Nebraska 6b July 19
Endicott: Endicott SB
Aug. 3
Morrill: FsErnEg &Wen Sept.19

ft

bholes: Wayne County Bank Sept. 2

11

oept 27

Amk

riemingford: First SB

Sept. 19 "

IV

Gering: SB of Gering

Sebt.28 "

Bennett: Farmers Bank
Chamber: South Fork SB

Dec. 15 "
Jan.11,1923

Kimball: Citizens SB

Dec.11,1922

112,20730

794g
?7,P
1,63?"
//3 7)

108,26918
154,10269
65,02665

+4.2

3g.2

-27 1/9
..26/
3/

7692/-5/7,5-00 O

It

Waco: Waco State Bank

/30

6 7 77

Waterift: Bank of WaterJuly 26 "


https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis

150,12284
74,25159
698,78602

150,31104
108,79323
28,45600
603,00000

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Winside: Farmers SB

0

155,31104

28 7().23
og (1-1/1-7

3,

June

Allen: Farmers SB

Nov.

311,87144

11

Belvidere:The Farmers SB

•
Obert: Obert SB

338,37974
0203 63 7

303/-54+4/
a5-.61(

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77

3„2.

20,21607

144,51774
108,76096
107,26918
154,10269
57,52399
85,65869

93,81576
365,72142

261,39570

82,27032

67,00000

239,88070
145,14708
116,66349

167,04692

233,13071
47,20000

/ O6

143,14708
70,99994
190,00000
47,20000

395,00907
296,16217
69,17666

376,50000
284,66217
39,70000

81,17972
29,96416

77,17972
23,00000

193,25928
93,17360

173,00000
88,67360

19,20000
207,07568

15,00000
148,19480

214,89359 214,89359
82,92005 71,00000
29,67070 28,67070
305,12417 300,70000

375

Y7

NE01611AbIlA--UriAillAolzzad npulla,)

List B. banks listed as "old receiverships" in Hou3e Subcommittee Reort
page 2
on guaranty Fund Commission, 1929 (46 banks)

41,

Location and nam(SB = State Bank)

Omaha: Ameriean SB
AmkApij.wwyn: Berwyn SB
7 B
'
1110gOistow: Americag
Maskell: Maskell SB
Henry: Henry SB
Gross: Gross a

Date in
receivership
Dec. 4,1922
Jan.17,1923
Jan.11,1923
Feb.30 ft
Feb.24
Feb 28

•

4-pt-

•

•
•

https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis

If

(-

7c-i,

44/
4'4.
go2
02/g
,2‘0
/463

208,81768

371,99980
186,58968

303,55884
130,83757

303,55884
130,83757

110,88947

97,50000

83,57780

82,00000

400,03902

/0/

r

NEBRASKA - GUARANTEED BANKS FAILED
List C. Banks listed as "net receiverships" in House Subcommittee Report
on Guaranty Fund Commission, 1929 (137 banks)

411

-

name
Lcattlor
=
s
B k)

Date of
receiv-r-

7;
4
/

071.40.-

(

ship
iftlysida: Wayside SB

Alk McCook: Citizens SB
II
,Broadwater: brondwater(S8
Dixon: Farmers SB
Eddyville: Security SB

June 3, 1923

300
164

Sept 14
July 5

36
sq

May 21
51

Royal: Citizens SB
24ov.14
VringView:Sprinoview SB_
„
-11terenzo: Lorenzo SB
Taverly: Bank of Waverly

gli

14

July -4
July 10

Sept 14
Bushnell: Farmers SB
Crookston: Bank of CrooksttRY 21

0Neligh: Atlas bank

1

bs-ir
os-o

11/

/

"

129
143

f "
/O3'46

102

1,DY0
7d9'.6

571
78
7

Jan.19,1974
Dec.31,1923

36
214

Pott-r: Citizens SB

Dec.17

158
113
92

12,20000

11,200,00

206,5747 120,500,10
145,44517 142,00000
21,56106
98,00000

21,56106
98,00000

107,31186

107,31186

74,93657

72,83450

809,34889 782,34889
19,87138
18,17138
4,00000

4,00000

20,40272 :6;75000
222,53725 217,03725
105,10147
92,60147
54,00000
38,00000

Dix: Farmers SB

Dec.14

Thedfo7d: Thedford4

Feb.25,1924

LcGrew:Security SB

Igiar 28

75

65,00000

74,65000
46,00000

Culbertson: Farmers SB

Apr.30

120

bartley: Farmers SB

May 2

43
220

92,91676
20,00000

90,90000
18,50000

NickerglOn: First SB of N. July 10
June 13
Monowi: konowi SB
Clinton: Clinton 6B

Cr-aforu:


https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis

Bank

Aug.26

tI

Dec. 16."

195
100
135
it.5-1k:11
193
23
60
295
119
155
70
517
110
464
78
276
257
182
880
99
51
789

47
6:
4

74,65000

208,94017 205,69017
148,46641 144,46641
78,15985
90,00000

78,15985
89,00000

3,07250
125,50000
14,00000

2,07250
121,00000
7,25000

39,33866
39,33866
151,63215 141,83215
80,00000
66,00000

73,50000
59,50000

55,79000
59,89850
90,69000

53,20000
59,89850
90,69000

401,50727
64,90916
200,00000

377,50727
64,90916

202,50000

149,15435
189,10000

18,00000

17,00000

716,25000 692,25000
63,00000
59,00000
18,05000
24,50000
415,00000

356,75000

if

Deposits
(from F.R.
schedules)

(

343
124
214
727
231

227,18574 222,999 99
125,00000 123,000 oo
161,09773 161,097 73
358,75000 338,000 oo
36,48401
33,784 01

387

302,48102

294,481 02

24

19,22833

19,228 33

43
573
160

21,85802
102,42000

14,858 02
102,420 00

77,00000

76,000 00

155

133,36649
10,00000

133,366 49
8,500 00

38,50000
141,31000

34,500 00
140,310 00

12
40
162

421,00000 421,000 oo
438.11350 438,113 50

359
1516

35,50000

35,500 oo

254

80,00000
256,00000

80,000 00
256,000 00

60

42,00676

42,006 76

19

16,00000

16,000 00

43
78

9,00000
78,49910

9,000 oo
78,499 10

277

29,00000

29,000 00

110
86

jq

132
176

Ill'

4

83
297,28499 297,284 99

314
121)

580

•


https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis

'

,

4 fr
I
i„Ar,
!

p91

338
55
408
592
151
234
163
509
393
179

172.1

•

Deposits
(from F.R.
schedules)
312
400
112
164
96
202
151
239
124
103
104

272
66
170
140

68
71
106
171
137
59
137
325
85
237
110
603
228
241

•

250
44
134
187

•

https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis

147,
230
98
197
122
122
249

•

Deposits
(from F.R.
schedules)
111

59
48
214
392
196

•

321
84

413
23
68
204
65
167

•
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https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis

c-AA7 _fi--,,,,,-0,-

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NYARASKA - guaranteed banks failed
•
List D. Banks placed in recivership Feb..i: 1929, to —arch 111, 1930 0/6
Banks starred * were oberated by the Guaranty Fund COmvisaion
Data from F.P. Comm. schedules
Total pfd.
receivershin
& general
J-'eposits
claims

Date in
l'ohation and name
(SB = State sank)

Amk

Wolbach: SB of Wolbach • Feb.23,1929
Vesta:Vesta 6B
* Feb. 13 "

111

'''rokenBow: Custer SB

* Feb.13 "

'orth Bend: Birst SB
Phxton: ComMercihl SB

* Feb.14 "
Feb.25 "

Greeley: Greeley SB
Stockville:Frontier SB

* Feb.23 "
Feb.27 "

Johnstown: Citizens Bank* Apr.27
Fairfield: Citizens bank* Mar. 6 "
DeWeese: SB of Deweese * Mar. 18

173
242
92
123
136
99
285
23

Plainview: Security SB

* Mar.25 "

231

Laurel: SB of Laurel

• Apr.6

Wakefield: Scurity SB

Arr.6

Plainview: Citizens SB
Dixon: Dixon SB

* Apr.6
Apr.6

Butta::Citizens SB

• Apr. 6 "
* Apr.27 "

0 Thlrston: Thurston SB

"
* May 2
Panama: Farmers SB
Crab 'rchard: Bank of CO* IhK
,e2 tj"

0

145
312

* Mar.16
* Mar.26 "

Sheltm: Meisner SB
Murphy: First SB

0

209
92

44
381
431
48
86
96
26
66

Humboldt: SB of Humboldt* May 23 "

154

)4, "
Havens: Star. Bank of HairenPY '
23 "
May
Farmers
Security
SB
Rohrs:
* May 24 to
Dradish:Farmers SB

27

to

49

Boone: Boone SB
Lindsay: Lindsay SB

* May 24

ft

Clarks: SB of Clarks

* May 23

If

Dodge: Dodge SB
HumpLiayiu4i16 of Otis

* May 24

to

*
24
* May 24
* May 24

to

311

ii
”

188

st. Fdward: Farmers SB
Scribner: Scribner SB

* May 24

42

30
169
156
234

187

Fullerton: Farmers 613
Genoa: Farmers S.B.

* May 24
May 24

ft

Gileld: 3B of Gilead

* May 28

ft

Grsenwood: Farmers SB

* May 27 "

102

Ralston: Ralston S B

* May 27 "

171

•

Stromsburg: Farmers SB
Nar•npn: First SR

https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis

149
108
134

May 28

109

June 4 "

113

NEBHASEA - GUARANTEhD BANKS FALED
List D. Banks placed in receivership Feb. 2, 1929, to March 18, 1930 -continued
page
Banks starred * were operated by the Guaranty Fund Commission
Date in
on and name
Locat!
State Bank)
(SR

receivership

* Jun.28,1929
Polk: Farmers SR
ft
Minetare: SB of Minatare May 31
May 31 ft
Lyman: Lyman SB
May 31
Bridgeport: Nebraska SB

117
147

345

Breslau.: 4reslau SR

June 4

122

June 1
Hrownlee: Brownlee.SB
Jackson: Bank o6 Daota * June
ounty
4
lartinSburg: Martinsburg 3B "

12
129
71
ft

22
'D

II

Scotia: Farmers SB

* June *6

Ponca: Security Bank
Pierce: Pierce SB

* June 4 "
* June 4 "
June 18 "
June 3 ft

Beemer: Beemer SB

June 6

It

Creighton: The S, eusak • June
* June 7
Overton: Overton 8 B
June 7
Litchfield: SB of

If
ft

Lnglia*

Brady: jrady SB
Maxwell: Maxwell SB

* June 7
* June 7

tt

Big Springs: Am-rican SB* June 7 ft
:June 11 tt
Lamar: Lamar SB
Chamrion: Bank of Champion June 11 ft
Madrid: Madrid Exchanae *
Bilnk
of *
Hiigler: State Bank
Haigier
oty*
Grainton: Perkins Cogi
*
Burton: Burton SB
Inman: Inman SB
Benkelmant Citizens SB
Allen: Aller-SB -

39
69
91

Stella: Farmers SB
Humboldt: Nebraska 6,b.

•

302
439
77
215
824
418
573
58
39
105
61

64
25

June

113

June

187

June 11 "
June 13"

57
62
99
375
298

June 13 "
* June 11 "
* June 22 "

June 26 "
"
* • May 28
•
Havelock: Farmers
1/
•
Mechanics gank
22 "
Aug.
Newman Grove: Farmers SB
Auburn: Nemeha County Bank Aug.12 "

Dalton: Farmers SB
Superior: Citizens SB

L

203

May 31

Pepublican City: Nebgnska June
Bloomington: Farmers SB * June

III

169

Mitchell: Mitchell SB

Martinsburg: Citizens SB* June

40

Data from F.P. Comm. schedules
Total pfd
Deposits & general
Claims

Newman Grove: Newman Grgge Aug.22 "
Apr.4,1930
Loretto: Loretto SB

111
299
154

259
377
275
68

1/ On F.R. comanittee list ot susoensions, classified

but not on receivershIpllist in rent
- •
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis

as in process of liquidation, June
of
nking.

PrNEBRASKA - GUARANTEED BANKS FAILM
List D. Banks placed in receivership Feb. 2, 1929 to 'arhh 18, 1930 - contivag

3

Jianks starred * were operated by the Guaranty lund Commission

•

Date in

-Location and name
(SR = State Bank)

Data froM 11R. Comm. schedules
Total pfd
receivership 1Jeposits
& general
claims

1929
Burchard: Bank of BurcharlSapt.20,
Belvidere: SB of Be1viderilApr.12,1930
Richfield: Richfield SB
SePt.28,1929

•
•
411

124

Nov.13 "
ar.18,1930

96

Valparaiso: Nebraska SB
Gadams: Gadams SB

Oct.25 1929
Jan.14,1930

100

Milford: Nebraska SB

Jan.25

221

114irion: Marion SB
Rovtnna: Citizens SB

Nov.16,1929
Jan.7,1930

Sprague: Bank of Sprague

Jan.4,1930

Polk: Bank of Polk

Kan.15 "

161

Scottsbluff:IrrigatoEgink

Nov.23,1929

Ong: Bank of Commerce

Nov.25,1929

335
123

Ashton: Bank of Ashton

Jan.3,1930

198

Lincoln: First SB

"

1/

83
56
68
377
55

64

Jan.2,1930

165

Feb., "

515

Cody: Ranchers SB

Jan.22 "

Gurley: Farmers SB

Dec.16,1929

234
91

Belgrade: Farmers SB

0 Chadron: Chadron SB

0

171

Chapman: Farmers SB
Julian: Bank of Julian

Tamara: Farmers Exchbelan

Amk

-

Dec.7

157

Loup City: LOUD City SB

Dec.1

Loomis: Farmers SB

Feb.13,19?0

273
86

Stanton: Elkhorn Valley SB Dec.13,1929

165

Meadow Groove: Security Bank " 14,
Overton: Farmers SB
Dec.16

118

Ashkand: Ashland SB

Dec.31

192

Bayard: Bank of Bayard

Feb.6,1930

292

Odell: Hinds State Bniik
Hallam: Farmers SB

Feb.15 "

151

Jan.7

Alliance: First SB
Feb.8
Beatrice: Security SagEge
1/

123
tI

Utiza: Merchants Bank
Feb.18,1930
Miller; The First Iff12; Feb.24, "
O'Neill: Nebraska SB
Mar. 6
liaitchell: American Bank
Mar 8
Wymore: Farmers & MorcLants " 15
bank

•

98
782
147
210
101
134
189
174

1/ On .1,1? committee suspension list but not on recei-v-rship list of DUr.'9A of Banking.
WP nommittee list as susnension rrior to repeal of kranty law on i-arch lb, 1930.

5-4 n,


https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis

e"7
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https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis


https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis

, 341
• 182
19.

.Jun,: 1;. "
LtE

14.

72
301
198

89

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Federal Reserve Bank of St. Louis

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Federal Reserve Bank of St. Louis

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Federal Reserve Bank of St. Louis

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Federal Reserve Bank of St. Louis

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S

DATA FOR THE NEBRASKA DEPOSITORS GUARANTY FUND FCR 1922
Reported in1Commercial West, Jan. 13, 1923, p. 5, and attributed to Secrettry
J.E. Hart of the state department of trade and commerce.

Drawn from the state banks during 1922 to pay depositors in
failed banks
$2,164,000
$558,853
(June,
Two special assessments iere made, totaling Dec. 1,h94,909)
2,053,762
Two regular assessments amounted to
229,683
last
In January (prewgele 1922), fund stood at
2,298,477
After December tietlar assessment, fund stood at
2,417,568
Average deposits in December were

f

tfrk

'.4tIC

230,361,079

T7W(-)
celarAtzet4,

•

t
q


https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis


https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis

LW BANK DEPUSITb• 1911-28

The legislature of Nebraska passed a law on March 25, 190i4 providing for the guaranty of deposite of banks operating in the State. The law
did not go into effect until January 5, 1911, on account of litigation regarding its constitutionality. All bunks chartered by the State were required
to join tee guaranty system, eno provision was made for the fJdIlii0S1OU of
national eanks. The Comptroller of the Currency, however, ruled that national
banes could not legally enter a State deposit guarante plan.
A summary- of the conditions leading to the passate of this law, and
information regarding t'ee eersons who were influentiel in sec wing its passage,
written by Z. Clark Diceenson, is given on pages
Aseeesmente. The law provided for four semi-annual assessments of
1/4 uf 1 per cent of averaee daily deposits, anc regular semi-annual ea.sesaments of 1/20 of 1 per cent tnereafter. Special assessments of not more than
1 per cent in any one year weie authorized if necessary to maintain the fund
equal to 1 per cent of total deposits. New banks were required to pay 4 eer
cent of their capital stock to the func, subject to adjustment to a "just
and equitable sum."
An amendment In 1911 set a maximum limit to the fund at 1 per cent
of aggregate deposits, and provided for cessation of assessments lien the
fund reached that amount, to be renewed upon depletion to 1 per cent of aggregate depoeits. It was also provided that no further security than the fund
should be required for public deposits. The maximum special assessment in
any one year was reduced to 1/2 of 1 per cent in 193, effective tee following
year.
Coverage. Under the plan all deposits wore guaranteed by the fund,
except money deposited upon collateral agreement, or upon condition other
than an agreement for length of time to maturite and rate of interest. Under
the amendment of 1911 interest on deposits wes limited to 5 per cent. This
was reduced in 1925 (effective April 1, 1926) to 4 per cent.

culatody

pluxtxt7

Adztaistmtiou
fund. The assessments were
not collected at tee time they Pere made, bat were retained in the custody of
the banes paying them subject to the call of the State Baneine Board. The
State Bankine Board, consisting of the Governor, euditor of ?utile accounts
and attorney-genera, and heving as its executive officer a secretary appointed
by tee Governor, was required to draw upon the fund upon receipt of a certification of a receiver of a clooed bank of the amount required to meet the
claims of depositors. The fund was subrogated to the rights of the creditors
thus paid, and amounts collected from the assets of closed banks 'were deposited
in the solvent banes in proportion to the assesements levied upon them. In
14.ii the powers of the State Banking Board were transferred to t.e Department


https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis

•
of Trade and Commerce and a Bureau of Banking, with tee Secretary of
the Department as its executive officer, wee organized in the Department.
In 1926 extensive changes were made in the operetion of the
deposit guaranty system and in the handling of insolvent benks. The
administration of the deposit guaranty law wr:s transferred to a eeely
created Guaranty Fund Commiseion. The adminietration expenses of the
Commission were met by an assessment for this purpose, levied upon all
State banks, of nut more than $15,000 in ay one year and by aseessments
upon banks in receivership.
dli:,g12Aga Isanks. Prior to 1a25 the State Banking
Board, or its successor, the Department of Trade and Commerce, wes eutherized to take possession of a bank found insolvent. If the credit of the
bank was repaired, ane its reserves restored, it was turned back to its
officers and stockholders. If it could not be reopened, it was liquidated by a receiver appointed by the local court.
In 1925 the Guaranty Fund Commission became a centralized
agency for handling all closed banks. This wes accomplished by providing that the CommisAon should take charge of a bank, and act for its
stockholders When directed to do so by the Deeartment of Trade ane Commerce, and by providing that a court might direct the Commisaion to liquidate a bank through a receiver named by tee Commission. The law provided
that the Commission might purchase the aseets of a cloaea bank at a public
sale, thus terminating the receivership and placing the assets of the
closed bank in the hands of the Commission for liquidation for the benefit
of the guaranty fund. The Commission was also authorized to take possession
of bane not in a satisfactory condition, and operate them without regard
to their solvency. To meet the expeases of such operation a "beakers'
conservation fund u was established, the Department of Trade and Commerce
being authorized to assess beaks for this purpose.
4asessments
Aeeosits j Wired banks., The regular
aseesements were levied from 1911 to 1929, when litigation prevented further collections. Special assessments to bring the fund up to 1 per cent
of total deposits were levied each year from 1919 to 19297 the rates being
per cent therein most years the meximum permitted (1 per cent to la2Z,
after).
These assessments were adequate during the first decade of operation of the fund. With the large number of bank failures which occurred in
1921 and the following years, it was insufficient to meet the claims of depositors of the banks closed.


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In the following table there are given the total amount of
assessments levied each year (including both regular and special asessments), the ratio of assessments to total deposits at the micdle of the
year, and the de)osits of banks closed each year. The apparent deficit
in the guaranty fund, indicated by the excess of deposits in failed
banks over assessments, is somewhat larger than the actual deficit.
figures on the amount of recoveries made by the fund each year from
collections on its claims against failed banks are not available, so
tnat the amount of the deficit at the close of each year cannot be ascertained.

GUAEANTY FdAL AS6E6aMeNTS, AIL BaA ed6FLASIONS
IN NtBaAe&A 1911-28

6:tr

Amount of
deposital/

71,885
1911
82,835
1912
87,591
1915
91,963
1914
105,829
1915
141,557
1916
1917
208,510
1918
246,088
288,235
1919
1920
290,251
227,815
1921
1922
253,285
248,625
1925
1024
254,522
1925
287,778
284,148
1926
275,161
1927
1928
261.087
5,664,941
Total
Average

Total

Lik6008.--

for
guaranty fundg/
mente

176,863
406,858
271,807
140,647
144,685
421,472
219,904
518,029
802,477
659,244
2,517,808
1,971,580
2,046,320
1,004,860
1,616,530
1,672,359
1,655,207
865.413
16,709,846

Assessment
for each
4100 of
deposits
.25
.49
.31
.15
.14
.50
.11
.13
.50
.22
1.02
.85
.82
.59
.56
.59
.60
.34

Bank failuresli
Deposits
Number

1
...
1
•••
.•.
...
5
24
25
lb
18
20
22
22
49
195

1,!2
111
...
...
-•
1,120
5,705
4,955
2,417
1,699
5,155
5,849
5,629
8.6i)6
41,156

.46

1/ June 20, or nearest available date. Figures inalude private, stock
savings ane commercial banks. From reports of State Banking Board, 191145.
jj John G. Blocker, Bureau of Businesa Research, University of Kansas,
Ilia Guaranty sal. State auk j)euosits, p. 57.
I/ Years 1911-20, Reports of the Bureau of Banking, State of Nebraska,
1919, 7. , and 1920,. p. 56. Figures for the banks failing in 1914 and
1916 are proved claims. boars 1921-28, Annual Re.)ort2L ILI federal
Reserve basaA6 1935, pp. 216, 219.


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Agnallina saf. insolvent DanAs Dz. Guaranty fag Commiesion. The
Guaranty Fund Commission published no annual reports. Information regarding its operations with respect to insolvent banks is available only
In the reports of special investigations, particularly the report of a
house Sub-committee of the Legislature of Nebraska in 1929, ane thet of
the banking investigation of 1920-30.
The report of the legislative sub-committee in 1329 shored
that on February 5 of that year, there were 52 insolvent bank trusts
under tee control of the Guarahty Fund Commission. There were four types
of trusts, as follows*
46 receivershies of banks Which had closed erior to
the establishment of the Commission in 1925;
157 receiverships of banes Which had closed after the
establishment of the Commission in 19231
70 trusts reereaenting the assets of banks which had
been bought at enblic sale, end were being liquidated for the benefit of the guaranty fund;
69 insolvent banks operated as going concerns.
a consolidated balance sheet of these trusts indicated t':t liabilities
amounting approximately to 42 million dollars remained uneAd. Of this
amount 26 millions were due to creditors of the lenk on deeosits and
other claims guaranteed by the fund, 15 millions were due to the guaranty fund, and the remaining million consisted chiefly of general claims
end bills payable not guaranteed by the fund Ald of clains in dispute.
Losses of approximately 10 million dollars had already been taken on
assets sold, and assets with a book value of 51 millions had not been
disposed of.
Deeoel`oral loses
all 'ans, closing, 1911e1926e The report of the House snb-committee in 1929 also presented h eumeexy of the
liabilities of all banes closed from the time the guaranty fund law went
into operation early in 1911 to February 5, 1929. During this period 273
banes had been closed (excluding insolvent banes operated as going concerns by the Guaranty Fund Commiseion), with aggregate liabilities amounting to slightly more than 77 million dollars. Of these liabilities
54

million dollars, or
the liquidation of
16e million dollars, or
the guaranty fund;
million dollars, or

45 per cent, had been paid from
the aasets of the closed banes;
21 per cent, had been paid from
and
54 per cent, remained unpaid.

The book value of the assets still unliquidated amounted to 40 million
dollars. It was estimated at that time that the cash value of these

F


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assets was aaproximately 10 million dollars. It is understood,
however)
teat leas than half of this amount has eance been realised.
The deeositors have thus recovered a total of about 70 per cent of their
claims.
afectid: deoosit auarante yam deoesitore losses.. The total
recoveries from the liquidation of the banks ehich failed in Nebras
ka
during the operation of the de2o5it guaranty fund (1911-28) have
amounted)
roughly, to half of the lidbilitiee of the bans. The deposi
tors vuuld
thus have lost aoproximately 50 per cent of their claims eithout
deeosit
guaranty. They recovered an additional 20 eer cent, approx
imately, from
the guaruata- fund, thus reducing their losses to about 50 2er
cent.
The average rate of assessment actually levied during the
years
1911-28 amounted epproximately to 4/10 of 1 per cent. Since the
amounts
collected 'rum asseeements were sufficient to pay only two-fi
fths of the
depositors' claims not recovered from liquidation, it would
have taken a
rate of approximately 1 per cent a year during this period to
have paid
all looses to depositors.
Cluziae sa: the auaraate peetemc It wee apparent by 1928
that
the guaran
.
, insolvent, and that it would be necessary
to abandon or greatly moeily the gyetem. Public sentiment at
that time
was probably in favor of abendonment. The closing of the
fund waa, however, a long procese, complicated by the difficulties
aaaociated with the
liquidation of failed banks, by politival maneuvers and
continued pressure for the retention of the principle of depcait guarenty,
and by controversies over the method of handling obligations alread
y incurred by
the fund.
The legislature of Nebraeka made an attempt in 1929 to
repeal
the guaranty law and to close the guaranty fund, but the
repeal act
failed to receive the Governor's aoproval. Leter in the
year an injunction was granted by a District Court prohibiting collection
of the special
assessments, which made the law temporarily inoperative. When
the injunction suit was brought before the State Supreme Court,
however, the
guaranty law was held constitutional, b11t. ttle injuction
dissolved. This
decision, rendered late in l,was confirmed by the United
States Supreme Court in 1:)31. 41/
In the meantime, an extraoruinery session of the legislature
in
1a30 had repealed the guaranty law insofar fikii. it provided
for benefits to
depositors in banas closed in the future. To aid in paying
existing
claims, the same act established a Depoeitors' Final Settle
ment Fund, con1/ Abie State Bank vs. Bryan, 262 U. S. 765.


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•

sisting of the remeining belencee o: the guerentr fend aAL of recei2ts
from annual esseesuents upon the le,nke for ten years of two-teethe of 1
per cent of average daily deposits. An appropriation had already been
made by the legislature for the reimbursement of deposits lost in the
banks Which had been operated by the Gueranty Fund Commission, and a
constitutional amendment submitted to the people providing for an eeero)riatien of ;;;,,8,u00,000 to diecherge tee obligations of the Depositors'
euarenty Fund. It was hoped that the collection of the aseeeemente for
192b and 19, held by the injunction euit, the approprietion under the
conetitutioeal emendeent, and the asseeements under the Depositoro' Final
Settlement Fund law, would be sufficient to pay all claims in full.
Thee plene ell felled. The Stets Supreme Court held that the
aperoprietiou :or th reiMbureement of deposits lost In the lieeee t which
had been opereted by Lhe Guaranty Fuud Commiseion, wee uncoustitutionel,
end the propeeed eoustitutioael amendment euthorieing aa epproprietion
for payment of the geneeel obligations of the fund was rejected at the
polls. Further, the constitutionality of the Act of 1950 was challenged,
and a renewed attempt made to declare the original act anconetitutionel.
This suit was heard by the court in 1952. The State Supreme Court decided that the pat of the :xt repealing the guereuty fuue law w-u con—
stItutional but tie t the pelt of the act eseeblishing the Lepesitorsi
Final Settlement Fiaie leaeed the pUblic purpose necessary to support it
as an exercise of thL police power, and that it took the property of one
person end gave it to another and thus deprived the one of hie propexty
eithout due procese of law.
The State Supreee Court uleo held that on eccount of the
changed coneitione the original act had become unconstitutional, and
that the asseeements levied in DeceMber 1928, end 1029 and 1e50, were
confiecetory and therefore uneonstitutional. Further legal deleye were
encountered in disposing of the ;smell accumulation of the fund, so that
final diepoeition Was not completed until 1144. It that time payment
we made in full to the depositors in one bank and in part to those in
another bank, nothing being uveilable for the remainder.


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CONSTITUTIONALITY JF LeeeeIT UtieheNT

eeGISLeTIJN

The deposit guaranty law in Nebraska, like that passed in Oklahoma
two years earlier, was attacked immediately after its paLsace on tee claim
that it violated t e Constitution of the United states. The Nebraska law
wee held unconstitutional by the State oupreee eourt, aad its operation
held in abeyance for two years. Arguments on tee two cases were heard together by t e dnited States Supreme Court. The decision was rendered in
the Oklahoma case Jenuery 5, lell, and appliee to Nebraska also.
Tee principal point in t e controversy was 1,Le contention that the
deeosit guaranty law took private properey of one baek for tee private use
of another bank without compensation. That this mieht be the case was admitted, but it was pointed out by the court teat such a transfer of property
is constitutional if there is sufficient eliblic purpose and necessity.
...It is established be a series of cases that an ulterior
public aavantaee may justify a comparatively insignificant taking of public property for what, in its immediate eur,ose, is a.
private use...There mey be other cee s besides the evceyday one
of taxation, in which the share to eace party in tee benefit of
a scheme of mutual protection is sufficient comeensation for the
correlative burden that it is compelled to assume. At least,
if we have a cese within the reasonable exercise of tee police
power as above explainee, no more need be said el/
The Court discussed the application of police weer to the guaranty of bank deposits as folloest
The levy and collection, under a state statute, from every
bank existing under t e state la, of an assessment based upon
averaee daily de osi e, for the purpose of creating a deeositors1
guaranty fund to secure the full repeement oe deeosits in case
any such bank becomes insolvent, is a valid exercise of the
police power, and cannot be regarded as depriving a solvent bank
of its liberty or eropert without due process of law.., the
police power of a state extends to tee reguletion of the banking business, and even to its erohibition, except on such conditions ae the state may prescribe.
It may be said in a general Ivey thee tee police power exteeds
to all ta great public needs. It mei be put forth in aid of what
is sanctioned by usage, or held by tee prevailiag morality or

A/

Noble State Bank vs. Baskell„ 219 U. 6. 112.


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strong and preponderant opinion to be greatly and immediately
necessary to the public welfare. Among matters of that sort
probably few would doubt that both usage and preponderant
opinion give tear sanction to enforcing the primary conditions of successful commerce. One of those conditions at
tne present time is tse possibility of pereent by checks
drawn aeainct bank deeosits, to such an extent do checks replace currency in deily business. If teen the legislature
of the State thinks that t c public welfare requires the
meeeure under consideration, analogy and principle are in
favor of the power to eeact it. Even the primary object of
the required assessment is not a private benefit as it was
in the cases above cited of a ditch for irrigation or a railway to a mine, bat it is to make the curreney of check secure,
and by the same stroke to make safe the almost compulsory resort of depositors to banks as the only available means for
keeping money on hand./
This decision is notable not only becueee it affirmed the constitutionality of the deposit guaranty legislation, but also because of the
grounds on which that affirmation was made. The decision is based on the
ground that safety of payments wade by check is one of the primary conditions of successful commerce, that the police power is one thet covers
any regulations necessary to "make the currency of checks secure," and
to make safe the money kept on hand by depositors in the form of bank
deposits. The decision thus rests wholly on the idea that the purpose of
the legislation is tee protection of the circulating media. The court
neither asserted nor implied that assessments upon one bank for the purpose of protecting investments of en individual in the form of interestbearing deeosits in another bank are constitutional, except as such protection may be involved in protecting deposits constituting circulating
media. The problem of the constitutionaliey of u deposit insurance plan
designed primarily to protect the invested savings of people of small
income, or other persons, was given no attention by the court.
In 1928, after seventeen years of operation, bankers in Nebraska
renewed their claim that the guarants law was unconstitutional. Their complaint was dismissed by the State Supreme Court, and the dismissal affireed
by the United States Supreme Court. In the course of its opinion, however,
tee United States Supreme Court remarked*
A decision of the Supreme Court of the United States in
a suit brought immediately upon the enactment of a Wink guaranty
law, holding such law to be constitutionel, does not preclude a

1/

Noble State Bank


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vs. thtukell,

l9

U. S. 104, 111-1a.

ealeequent suit for the purpose of testing, in the light of
later actual experience, the validit; of assessments made
thereunder, alleged to be unreasonable and confiscatory, and
hence repugnant to the due process clause of the Fourteenth
Amendment.2.1
In the light of this expression of opinion, another suit was
brought before the Nebresee btate Supieme Court in 1D3L, on the contention
that ceeneed corAitions made the assessments confiscatory an the act unconstitutional../ Extracts from the decision in this ceee aze as folloAst
The public purpose sufficient to support the constitutionality of the deepeitors 1 guaranty fund was the stabilisation of commerce and the creation of public confidence in the
benks. It had a public pur.nee. It was within the reasonable
exercise of the police power...
...State banks also challenge the constitutionality of the
assessment levied under the provisions of the depositors' guaranty fund law beginning with the special assessment of December 15, 1928....for that by reason of changed conditions the
regulatory act in its operation has become confiscetory....
If under the facts it is confiscatory, it is violative of
Fourteenth
the
Amendment to the Federal Constitution. If it
is confiscatory, then it can no longer be sustained us a constitutional legislative enactment under the polies power for e
public purpose. If confiscatory, the public adventeee does
not justify takiae of priv-te property for whet, in its purpose,
Is a private use.
In addition to the changed condition releting to changed staeutory enactments, there are facts and circumstances inherent in
tee conditions of the banking business in this state since December, 1028. These facts are established by the record. It was a
fact determined in 19e6 that, due to the unprecedented number of
failures of state benes, tee deeouitors' guaranty fund Was faced
with a deficit of millions, and that it Was impossible to restore the solvency of the fund. The comparatively smell and
regular assessments had been levied and collected. In addition,
the larger and more oppressive specie' assessments have been
1/ Able State Bank vs. Bryan, 282 U. S. 765.
1/ The discussion here refers only to the decision of
to the original deposit guaranty act. An Act of 1950,
itors' final settlement fund, was alJo involved in the
been discussed above in connection with the closing of


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the court with respect
setting up a deposGame case. This has
the guaranty funds.

levied regularly for years, in the vain hope of restring the
solvency of the fund. The bwaks were faced with an indefinite
continuance of these regular and special assessments. At the
same time, the public puivose which this legit, lation undoubtedly had in the beginning 1r:it: no longer served. From the condition of ths fund itself, instead of a stabiliz r of the state
bans, it became a menace sho a threat, sufficient to cense a
grelA loss of public confidence in thebanks with subsequent
loss of business and earning power....
From any viewpoint with which we consiaer these assessments, it is a .parent that all public purpose has been ibanstoned in relation thereto and that it now amounts to taking the
oroperty of one class of citizens to pay another cihss in contravention of the constitutional rights of tnc plaintiffs.1/
In brief, the plan was constitutional as long as depositors were
unconstitutional when it had been clearly demonstrated
protected; it
was not fulfilled. This decision has not been
purpose
that t..is public
the United States Supreme Court. However, in
by
confirmed
specifically
Court refused to review the case, and of its
the
that
view of that fact
the decision has had its implied approval...'
case,
1928
the
comments in

1/ hubbell Bank at al. vs. Charles W. Bryan, Governor, et al, 124 Neb. 55-67.


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•


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DEPOSIT GUARANTY IN NEBNAKA

Clhrk Warburton, Principal Economist
bivision of Research and Statistics
Feaerui Dekiosit Insurance Corporation

TABLE OF CC1‘TNTL;
DE1OL;IT GuA

Ti NEBRASKA
itte

Ciracter u the i:uaranty
Admission of banks
Deposits guaranteed
Assessments
Bankerol conservation fund
Administration and custody of the fund
Indebtedness of the guarant/ fund
Nethod of paying depositors and of liquidating failed banks
Expenses of administration
Conatitutionality
Decision of the
Decision of the
Later decisions
United State:-

of the deposit guaranty law
State Suoreme Court
United Statea Sudreme Court
of the Nebraska Sudreme Court and of the
Supreme Court

1
1
2
2a

3
4

5
6
9
10
10
11
11

Supervision and Tegulation of Luardnteed Cauks
Supervisory authority
Supervisory powers
Statutory limitations on bank operationu

14
14
15
17

Number and depoaits of guaranteed bunks
Number of participating banks
Deposits of participating and non,-,Jarticipating ounas
Concentration of bank deposits

21
21
21
25

Bank failures
Number and deposits of failed banks
Failures by size of bank
Causes of bank failures

27
30
33

Financial history of the guaranty fund
Sources and adequacy of information
Income and obligations of the guaranty fund
Annual assessments and losses in failed banks
Banker& conservation fund
Administrative cost of the depositors' guaranty faad
Adequacy of the guarenty fund
The burden of assesaments

47
4S
51

Effectivenesu of bank suvervialun

53

Closing of the guaranty fund

57


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38
343
46

44
47

LIST OF TABLES
Pa-re
--A-

Table
a.

Number of operating banks in Nebraska participating and not
participating in the depoait guaranty system, 1912-1930,
by years

2.

Deposits in operating banks in Nebraaka participating and not
participating in the deposit guaranty syetea, 1912-1930,
by years

24

Number and deposits of State bunks in Nebraska, October 31, 1914,
and June 30, 1927

26

Number and deposits of State banka in Nebraska closed beeauae of
financial difficulties, July. 1, 1911, to March 18, 1930

28

4.

5. Number and deposits of State banks in Nebraska closed because of
financial difficulties, July 1, 1911, to March 18, 1930,
by years

29

6. Size distribution of failed banast in Nebraska compared with
avorage size distribution of operating banks, 1921-1929
7.

3.

31

Bank failure rates in Nebraska, 1912-19"a9, compared with rates in
contiguous States and in the United States

32

Causes of bank failures in Nebraska, 19U-1930„ reported on
schedules prepared for tha Federal Reacrve Committee on Branch,
Group and Chain Banking

37

9. Estimated obligations, income, and deficit of the Nebraska
depositors' guaranty fund
10.

Collections from assessmata, and estiaateu losses from bank
failures, Nebraska deposit guaranty fund, by years

U. Receipts for saministrative purposes, Nebraska dekositors'
guaranty fund, June 30, 1911, to June 30, 1930
12.

41

45

49

Deposits in failed State bunks in Nebras‘a during period of
operation of depositors' guaranty fund, paid and unpaid, with
sources of funds used in payment

50

13.

Number and deposits of State banks in Nebraska, 1912-1929

600

14.

Number and deposits of national banks in Nebraska, 1912-1929

61


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FOREWORD

This report on deposit guaranty in Nebraska,
1911-1930, prepared by Clark Warburton, iu the third
of a projected group of reports on the character and
operation of deposit guaranty systems in various States
prior to the adoption of Federal deposit insurance. A
study of the previous systems of deposit guaranty in
the United States vas undertaken in the belief that a
knowledge of the eharacter and operation of those
systems would be helpful in tha formulation of policies
contributing to the success of deposit insurance.
In collecting data for the report, Mr. Warburton
hai, been assisted by Mrs. Ethel aa:Itedo oad other members
of the clerical and statistical staff of the Division. MO
has also had the advice and criticism of other aembers of
the 3taff of the Division in the preparation of the reort.

Donald S. Thompson, Chief
Division of Research and 3tatiatice
Federal DepoEit InLurance Corporation

April 1, 1.943

DEP9_SAUPUILRAIrri I

NE8#ASK1

The Nebraska law for guaranty of bank deposits was enacted
April

25,

1909.

At the time of ite enactment deposit insurauce wes in

operation in one State, Oklahoma; and in one other State, Kensas, a
deposit insurence law had been enacted.
in Nebrasea

W86

The effective date of the act

poetone6 for neerly two years pending litigatical regard-

ing its constitutionality.

An amending act in 1911 provided that assess-

ments were to begin on July 1 of that year.
The guaranty law in Nebraska continuec in operation for 19 years.
By 1930 the liabilities of the guaranty fund far exceeded the amounts which
were available to the fund, and on !Lerch 18 of thet year applioaoility of
the guaranty to future failures was reeealed.

Provisions regarding assess-

aente were continued until 1932, when the entire law was reieulled.

However,

under a State Supreme Court decision all aosessments subseuent to 1928 were
declared confiscatory and hence uuconstitutional.
CHARACTTR OF THE GUARANTY LEGISLATIA
Admisaion of banks.

Participation iu the deeosit guaranty plan

in !Ishmael" was made comeuleory for all State banks.
vas required for admiveion to the guaranty elan.

No s,Jecial examination

At the time the law went

into effect ae roelmetely 650 banks were oeerating under State law and
became participants in the guaranty system.
Provision

Wilt6

aide for a separate fund, to be enown as the "coop-

erative benk .)rotective fund," for co-operative bch.16.

howewr, no such

An account of the origin of deposit guaranty legislation in Nebraska, more complete than is available for any other Statep is given by Z. Clark
Dickenson, in Bank Deposit Guaranty in Nebraexa Bulletin No. 6, Nebraska
Legislative Reference Bureau (1914).


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-2.

banks apAlar to have been in existence, since no mention is made of
thew or of the nco-operativs bank protective funds in reports of the
State bank supervisory authority and of inve:Aigations of the depositors'
guaranty fund.
Deposita guareutsed.

The guaranty covt.red ail deposits. Receipt

of deposits by a bank upon any collateral a,reement or condition other
than an agreement for rete of interest and length of time to maturity

was

prohibited, and any money deposited under such an agreement was excluded
from guaranty.

No sAnial provision was mode in the originAl law rsgarding

public funds, but tnd amendments of 1911 ,ruvided that no security other
than the guaranty was necessary for such funds, thus repealing the previous
requirement that depository banks furnish bonds covering deposits of public
funds.
In conssction with the payment of deposits of failed banks,
several cases arose of interpretation of thc . law regarding insurance
coverage.

Ahere a county treaurer had deposited funds in excess of the

amount ;)ermitted in a single berm (50 percent of the paid-up capital of
the bank), the court held that the entire deposit
olaranty fund.

wc.6

protected by the

The court also held that a surety coin, any *hien had bonded

the bank end paid the liability on the bond, taking an assignment of the
rights and remedies of the treasurer, Was entitled to file claim for payment out of the guarenty fund.

State ex rel Davis, Atty. Cie. v. Yeo,les State Jan
198 NW 1018, 206 NW 758.

(1924/


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Federal Reserve Bank of St. Louis

of Anemia°

-ZaMoney purdorting to be a deposit at the maximum ruts of
interest permitted by the law on guaranteed deriiosital but with a bonus
of 1 percent above the interest rate, was held to be excluded from
guaranty. 1/
Aspessments.

tissesementu for meeting the cost of deposit

guaranty were levied upon the barscs on the basis of total average daily
deposits.

The firl;t four semi—anhual as esitments were at the rate of

1/4 of 1 percent and rsgular semi—annual asses.mants after tne

1/ Imas v. FarmFJrs State Bank of Decatur (1917) 11 Neb. 778,
165 NI 145.


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Federal Reserve Bank of St. Louis

3
first four were to be at the rate of 1/20 of 1 percent:2/ hew bans were
to pay 4 percent of their cesitai stock into a credit fund, together with
a further assessment to e "just and eysitable sum", arranged so that the
total aesesement after one year'

oration 'Lula amount to not less than

1 percent of average daily de,oeito.

The 1911. umendmente provided snot

the rogular semi-annual assessmente of i/o of 1 percent, of th. sorsrse
daily deposits enould ceese when the funs r,eched 1 1/2 percent of such
deposits, mod to be renewed when the funs became deploted below 1 percent.
Soecial assessments were ustnoriseo if ta-t tun- :J.:souls be reauced
below 1 percent of total average daily deposits (one-half of 1 percent durits;
the first yesr of o,eration of the funa).

The special assessments vre

not to exceed 1 percent of avere e aaily desosit- in any one year.

In

19ssi an amendment provided that ssecial ussesssents subse,uent to thet
year should not erresed 1/2 of 1 percent of average daily deposits in any
one year.

to provision wes mede for the depoeit of bond

or other security

asa guaranty for the ,ayment of assessments.
Bankers coneervation fund.

The amendmente in 19j also srovided

for a "beaucers conservation fund" for use in preventing the cloaing of aLnis
and conserving the guaranty fund.

Aseeseeents for this fund were authorised

at not more than ons-fourtn of i „secant of average daily deposits in any
year with a seximum et any time of one-third of 1 • ercent of evorage ually
desosits.

The benseral cnservation fund weo used as a "deposit" or loan

to banks in bad condition which had been placed in the bends of tne Guarantee;
Fund Commiseion and were opelatee by Sne Commission.

3. Due to the oelay in putting .the law in operation, the ap lication of
the initial rate we, modified in 1911 to cover th, first four semi-annual
aesessments beginning that year.


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Federal Reserve Bank of St. Louis

—4—
Administration and custodi of the fund.

The aeministretion

of the gu-ranty fun:: wee placee in Ulu hands of a state banking board,
composee of tee Governor us cnuirman, the Auditor of ?ublic Accounts,
tine the Attorney Geuerel.

The examination of boe.il

an. oteer ueeects

of benk exee;-eleion were aleo eleced ia cherge of tee Ste.te eeeeing
Boerd.

In 1919 a Deeartmeet of Trade ane Commerce

011ib

organised, with

a Secretery bee. ointed by tee Governor, an. the aemieietrecion of the
guaranty fumd wee eiaced in this departmeat.
Diesatiaf:xtion with the aUminietrat.wn of the guerenty feria
resulted in the creation in 1943 of a

CAL-TfintecnInd COMMi3SLU,

of the Seer t-ry of the Department of l'ede &n

Coaeerce

46

comeosed

ex officio

chairman, ane seven other members epeointed by the Governor from among
yawls of three ;ersone each, recomeendee by reereseetutives.of the
bunks in seven reeiene of the tieete.

Each pereon nominee d on the eeeele

was required to have been an executive officer of a State beek for five
years. Another chan e in the auminietretion of the rune wee meee in
1929 when the Gueranteriund Commisalen we

abolished, aeministretien of

the fune revertee to the Deeertment of Trade and Commerce, and the
position of Bunk Coumissiener eae created.
No eart of the useeeswente wee co/eucted at tne time eney were
levied.

The a

ssments 'turf.; kept in the banks aseeseed and credite4 to

Lae account of the Secretery of tee- SLe.te Bueeine Boere (in 1919, the
Deeartment of Trade and Commerce; and in 19ei, the Guaranterfund Commission)
in the form of depoeite subject to call by draft.

The law also erovided

that funes-received by the State Baneiee eoerd (or Deeertment of Trade aee
Commerce or GuaninteeFuna Commideion) from the liquidation of banks which


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Federal Reserve Bank of St. Louis

I

-5hea failed and the deoosit liabieities of weich hue been paid by the
guaranty fund :,eoule be aet.osited in aolveet teleee in proportlen to
tee guarenty fun eeeeeemente levied on Leese be
Baiies going let* voluntary liquidetion or changing to a
natienai ben._ chereer were reuired to pay to the Secretory of the
State Banking Board any atemeaments weich hae Peen leviee u,en tnem
out had not been called for by the Boar.

Thee funee could be eepoeited

in any bane deeignated by the Secretery ce: tee State Beneing Board.

In

191) such funds were ordered held le a eeecial reserve of the guaranty
fund which could not be used untie the lune itself wile depieeed out iere
to be used
Treaaurer.

mfore a epecial aseeosment
WaJ

Wh4

levied; and the State

authorized to inveet the special reeerve in certain ty,es

of babies the interest being added to the si-ecial reserve.
later an amendment

Two years

revided tnet the special reerve seeued be drawn

against along with ealls.ueon the operatint, teener; for eayments from
their parts of the guaranty fund, witn any balance remeining after three
year

from date of surrcneer of authority to transact a beneing busieees

to be refunded to the stockholders of the bank or their reereeentatives.
Indebtedness of the ivaranty fund.

The original lew contained

no erovisieei egeieet tit; contiegeacv thet tne regular and s,ecial as

ee-

manta authorized by the lee might be inadequate to pay ell of tne
deeosits in closed Penee.

In 1943 an inArect mete-) wa. i'vied by

which funds could be eJrrowed.

The receiver of a failed bank could

borrow money on a "receiver's certificate" at u rats of interest to be
fixed bi the court supervising the receivereni,. In the caee of a fejled


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Federal Reserve Bank of St. Louis

—6—

hank the depositors of which hue been paid from the proceeds of a draft
on the guaranty fund, the amount of the receiver's oertificute could not
exceed the estimated market value of the &soots remaining in the receivershi, ar

the money thuo borrowed 'nub paid over to the guaranty fund. In

the case of a failed bank the depositors of which had not yet been Aid
by the gua4anty fund, the amount of the receiver's certificate could not
exceed the amount needed (in addition tosyuileble caeh) to pay the
depositors. In either case the debt thus incurred was to be paid so fur
as possible from the proceeds of 11,uiaction of tha essete of the bank,
and the guaranty fund wua reeponsible for the payment of any such certificates still unpaid u:on oompletiou of liquidation of the banke.

All

receiver's certificates were to be registered by the Secretary of the
Department of Truae and Commerce and were re4uired to be pal

by the guer-

anty fund in the order of registration.
method of paying depositors and of liquidating failed banks.
Under the Nebraska dtexpait guaranty elan the depositors in a failed bank
wore to be paid promptly by the ;Iluranty fund.

The amount neccry to

pay the depositors, in addition to eyellaaie cash in th, hunde of the
receiver, was determined by the court havint.: jurisdiction over the
receivership, collected from th
Board (or Department of Trade an

gutranteed banks by the :tate Banking
Commerce or Guarantee Fund Commission),

and pale to the receiver of the failed bank for distribution to depositors.


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Federal Reserve Bank of St. Louis

7

The guaranty law provided thee deeositoral claims in a failed
bank were to have priority ov r all other claims, exce,t taxes, and that
the guaranty funa was to be subrogeted to the rite of depositors paid
from the fund.

After 19k.3 receivers' certificates, representing borrowings

by the receiver underwrituen by the guaranty fund, had priority over the
guaranty fund with respect to emyments from the proceeds of liquieution
of the asseta of the bank.
The State Banking Board wee authorised to order a bank examiner
to tate poeeission of any bene for a sufA ient length of time to mate a
thorough examination of its affairs, unc if found insolvent, until
receiver was apeointed.

The insolvency of a bent waa reported by the

State Banking Board to the Attorney General, who &yelled to the dietrict
court of the county in which the bunk was :Located for aeeointment of •
receiver or, in the absence of judge or judos thereof, to any judee of
the State Supreme Court.

The dietrtct court held juriseietion over the

reoeivership.
Stockholders of an insolvent beni: had the ri,;ht, while a bent
was in crulrge of an examiner or of a receiver, to restore the ban'a
credit, capitel and rea rvee,
fuW., and to reopen the bent.

to

re;ay any advancoz macte by tn,: cubrunty

In 1923 an amendment to the law eroviaed

thee the officers, etockholdere, or ouneea of an ineolvent Ohne could
furnish to the Departm,et of Trade end Commerce a bunk; sufficient to assure


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Federal Reserve Bank of St. Louis

-8fuls settlement of bele the

liabilitiee of the bank

ene then ,roceed with the lieuidetien of the bank.
eossible for tee ownere to reduce the cout

steted time,
This mede it

of a receiverehi

unu thus

to reduce tee eeount of aeseeement on account of double liability, in
caee, eherc collection of double liebility froth stoekholeees yrovided
sufficient funda to eay ell of the liabilitiee of the bank.
The 1923 amendments also provided elternetive metaaas of helmliag cloeed banks, deeigned te eermit eremet reoeening and to kee. as
many banks oeerutine a

eoseibiu.

One of these alternetives was eel° by

tne receiver of all the aseete of th

-peek to new stockholders, with the

ae :Oval of .he Gu.renteeFumo Comeiesiee eeki under the direction of the
court, uitn tne receiver aut _eieed Le drew on th
eny deficiency
flew.

guaraney fund to meet

fter Lae euee to moot claims payabs- from ene euarenty

Thie eroceauee

4
- fa

prohibited in ceee the majority ownere of the

ceeital atoex, whose acte ao not show criminel lieeiiiLy„ oojected eae.
anow-d the court taut the bank could ba mede eolvent

oe. Tee:. In

190, sale of aseets in this manneT to nee etockteleees wae eermittea%
without actual payment of tne deficiency by the guereuty fund oy eeraittine the reorganized eane to bold receivers certifie_tee Lee bills receivable
in an amount up rovec uy tne Deeerteent of Trade and Comacree.
The second method for headline closed banks, aeoetiod ie 19..i,
wee a erovisien thst the Department of Trhde an

Commerce, fter tekine

eouseseion of a bunk, ceuld turn it over to the GueranteeFunu Comeiseion
to °et:rate, with the caneene unC; aseigement of the owners of a majority
of the caeital stock.
Fund


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Federal Reserve Bank of St. Louis

The money obtained from the Beuxore Conservation

mentioned aoove, wae used as a loan to these banks to eermit their

•

—9

continued o
coul

tion.

A bmna opersted by the GuarantptFul

closed at any time either by the Commission or lthe sep-ftstent

of Tradeand Commerce.
The liquidation of closed banks which could not be reopened
in any of these waywa,. placed ih

handa of the Department of Trade

and Commerce, by providing that the Attorney General

,
,
,hou1d Li,li co the

District Court for an order directinl; the Deprtmont to take.cm,rge
the bunk ana wino uie
ment of a receiver.

of

af1sir3 in the plce of a r..tr-St .'or appointThe

&&2164

act provided th7tt all receiv.2rshi.s :ending

at the time the act became effective should be

taK.Oli

.rir

by

rent of Trsde anti Co. roe.
On
mon:

more provision of the 19:,3 amendm6nta designed to provide

efficient li.;sihatiA, shoulh be noted.

At th,. rcuest of the

fiertment of Tn,do and Commerci, the, court with jurisdiction over the
lt;uidation could ordef all or part of the a,sets to be sold, with the
Lepartmant of Trade
,uent

Whd

bilk;

Commerce permitted to bid.

In case the Dep4.rt-

the highest bidder, the assetu of the bank were turned over to

the Guarantewhimd Commission for liquidation, the proceeds thereof being
used to reimourse the guaranty func fur the payments it
depositors.

Mb..1.0

to the

Tnia proceoure made it possiblo to Ulnaimte, the maintonsuce

of liquidating agents for each of the varioue closed 'maks until all
ausetu WeVo disposed of,

t1110

enabled tne GuaranteeFunC Oommisoion to

01=
consolidate?rocesJAImmadispositi,A1 of the assets of tne various closed
banks.
Expenses of admini,t--stion.

No provision wat made in the

original deposit guaranty law regarding the expense of administering the
law.


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Federal Reserve Bank of St. Louis

3uch expenses were part of the cost of

it'
in

th, general

- 1C benking codes by the State Banking Board, ane were met by appropriations
from the general fund of the State.

Howev r, operating banes wore

assessed examination fees deelenee to meet the cost of bank supervision.
In 1943, when the GuarantetFune Commission was created, ero—
vioion was made for an aaministrative fund not exceeding $15,0u0 in any
one year, to be coliecteu by an assesement on all State banks on the
basis of average daily deposite at the time of the lact semi—annual
statement of the banks.

This assousment for the administrative fund waa

collected through drafts drawn on the banks by the Secretary of the Depart—
ment of Trade and Commerce,

and was then transmitted to the Secretary of

the Guarantee Fund Commission.

Also closed banks were aseeseed by the

GuarantrFUnd Comeission (Department of Trade and Commerce after abolition
of the Commiseion) to meet the cost of receivership.

CONSTITUTIONALITY OF THE DFPOSIT GUALINTY LAW
The deposit guaranty law was attacked immediately after its
enactment in 1909 on the claim that. it was unconstitutienal.

The basim

for claiming that deposit gueranty was unconstitutional wae esoentially
the same as in Oklahoma and in Kansas.
Decision of the State Supreme Court.
Nebraska deposit guaranty law

Vb43

A few days before the

to go into effect a temporary injunction

was granted by members of the State Supreme Court restraining the State
Banking Board from putting the law into o,eretion.

Shortly afterwerd

The court declared the law to be unconstitutional and made the injunction
For summaries of the arguments that tbe deposit guaranty laws
in Oklahoma and in Kansae were unconstitutional, see the reports Deposit.
Guaranty in Oklahoma ane Deeoeit Guaranty in Keneae.


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Federal Reserve Bank of St. Louis

permanent.

The decision of tie State Supreme Court was bused on the

contantion that the law appropri,ted the assets of one bank to meat the
obligations of another bank, so tht this resulted in

tking the

xoperty

one eiron without compensation to pay the debts of another, an

thus

was contrary to the Fourteenta Amendment to the Constitution of the
1.1
United States, and edy-4e artiele 1 of the Constitution of Nebraeka.
Decision of tie United States Supreme Court.

The decision of

tlrieitate Supreme Court made the deposit guaranty law in 'ilebraska ineffective pending appeal to the United States Supreme Court. In Oklahoma and
Kansas, where deposit guaranty laws had also been challenged, the State
courts Mem upheld the

onstitutionality of the legialetion, anal the laws

were the;efore placed in operation pending the result

of appeal to the

United States Sapreae Court.
Arguments regarding the constitutionality of the deposit
guaranty laws in the three Statea sere heard by the United States
Supreme COUTG at its fall term in 1909.

On Jenuary

1911, the United

States Suereme Court reudered a unanimous decision u holAng the
constitutionality of the Oklahoma law, and made the sane decision
applicable to the Kansus and Nebraska laws.
Later decisions of the Nebraska Supreme Court and of the
United States Supreme Court.

In 1923, alter the Neurasaa deposit

guaranty law hac been in operation for 17 years, hunkers rene.ed their
•••••••••••••••Imal11

1. First State Bank of Holstein, Neb. et al v. Shalleaberger„
Governor, at al (1909) 172 Feeeral heporter 999.
2. Noble State Bank v. Haskell (1911) 219 U. S. 11;i; and
jhilenborger, Governor, v. Firat Stets Hama of Holstein (1911)
219 U.S. 117. The decision of the United States Supreme Court is
deecribed in aore detail in the report Deposit Guaranty in Oklanoma.


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Federal Reserve Bank of St. Louis

•

-iaolaiw that the law was unconotitutionel and &eked for a review and
reversal of the decision mad. in 1911.

The complaint of the benkers

was dismissed by the State Stereme Court, end this dismissal was
affiemed by the United Stetes Supreme Court.

However, in the course

of its opinion, the United States Supreme Court remarkeds
v

....A decision of the Supreme Court of the United
States in a suit brought immediately upon the enactment of
a Walk guaranty law, holding such law to be constitutional,
does not preclude a subsequent suit for the purpose of
testing, in the light of later actual experience, the validity of assessments made thereunder, alleged to be unreasonable end confiscatory, and hence repugspent to the due process
clause of the Fourteenth Amendment.' a/
In the light of this expression of opinion by the United
States Supreme Court, the bankers in Nebraska brought another suit
regarding constituti.dnality of the guaranty law before the Nebraska
State Supreme Court in 193Z, on the contention that changed conditions
Blade the assessments confiscatory and the act unconstitutional. Extracts
from the decision in this case are given below.
The public purpose sufficient to sue. art the
constitutionality of the depositors' guarenty fund was the

Abie State Bank et el v. Weaver, Governor, et all (1930) 119
Neb. 153; and Able State Bane v. Brjah (1931) 'e U. S. 765.
21 Able State Bank v. Bryan (1931) 282 U. S. 765. It is perhaps
worthy of note that Willis Van deVanter, who wee one of the judges of
the State Supreme Court which declaree the original Nebraska law
unconstitutional, was a Justice of the United States Supreme Court at
the time of this decision, having been ap ointed to the United States
Court immediately after the original decision of that court upholding
the constitutionality of deposit guaranty laws in Oklahoma, Kansas,
and Nebraska.
2/ The quotation given here refels only to the decision of the
court with resisect to the original depouit guaranty act. An act of
1930, setting up a depositors' final settlement fund, was also involved
in the same case. For the decision of the court regarding this fund see
the section of this report dealing with the closire; of the guaranty
funds (page 58).


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Federal Reserve Bank of St. Louis

stabilisation of commerce and the creation of public confidence
in the banes. It had a public purpose. It was within the
reasonable exercise of the police ?or
...Stete banks also challenge the constitutionality of tee assessments levied under the erovisions of the
deeositors' guaranty fund law beginning with the social .
assessment of December 15, 1928...for that by reason of chanted
conditions the regulatory act in its oeeretion has becoeb confiscatory
If under the facts it is confiscatory, it is
violetive of the Fourteonth Amendment to the Federal Constitution. If it is confiscatory, than it can no longer be sustained as a constitutional legislative enactment under the
eolice sower for a eublic purpose. If confiscatory, the public
edveeteee does not justify taking of erivste eroperty for what,
in its purpose, is a private use.
In addition to the clanged condition relating to
changed ssetutory enactments, there are facts and circumstances
inherent in the conditions of the banking DIABillS6 in tete at. se
since December, 1928. These facts are eetablished by tne record.
It was a fact deterained in leeS that, due to the enereeedented
number of failurea of state banks, the depositors' guaranty fund
was faced with a deficit of millions, an that it was impossible
to restore the solvency of the fund. The comearatively small
and regular assesaments had been levied and collected. In addition, the larger and more opreesive aeeciai assessments have been
levied regularly for /elvers, in the vain hope of restoring the
solvency of the fund. The banks wore faced with an indefinite
continuance of these regular and special assessments. At the
ShMc time, the eublic eureoee weich this legislation undoubtedly
had in the beginning was no loneer served. From the condition of
the fund itself,inetead of a stebiliser of the otete hanks, it
became a menace and u throat, sufficient to cause a great loss
of public confidence in thu bunks with subeeeuent lose of businesa
and earning power.
Froe any viewpoint with which we consider Leese
assessments, it ie eeeerent that all ;ublic eareoee has been
abandoned in relation thereto stud that it now amounts to teeing
the eroperty of one class of citizens to eay another clues in ,
contravention of the constitutional rights of the plaintiffs. A/

1. Hubbell Bank et ell. v. Cheriee W. dreen, Governor
51-67; 245 la 20-27.


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Federal Reserve Bank of St. Louis

et el., lee Neb.

14

This decision stz,tea in effect that the deposit guaranty
.lan was, constitutional ah long

21W

depoaitors were protectd.

It becl-..me

unconstitutional ?then it had been clearly demonstrated that this public
1/rose

WI'S

not fulfil/ed.

This decision has not been specificaily con—

firmed by the United States Supreme Court, but hae hao the imelied
aperoval of that Court by the refusal of the Court to review the caae and
by its coments in the 1928

0646.

Sth'aVISION AK B4RJLATI3N OF GUAPANTEiD 3LNKS

S6uLts banks in Nebrau4a had been open.ting under the supervision
of the State Banking Board and a State Bank Examiner for ap„xoximateiy
twenty years prior to the enactment of the deposit guaranty law.

At the

time of enactment of the deposit guaranty law the bankin#,; code relL.ting
to supervision was revised.
Supervisory ,authority.

The new ounkine.: code provided for

administration of the bunking law by a State Benking Board composed of the
Oovernor as ex officio chairman, the Auditor of Puolic Accounts, and the
Attorney General.

Under thu law tne Governor apieinted a Secretary of the

State Banutng Board, who must have had-at /east three yet.,1-:i'ixatica
experience in actual bankiN,, at a. salary of iti,UOU.

A

suitabl

number of

bank examiners, who were alsu reuired to ku.vo three ye-re experience in
denxim, were also appointed by the Govurnor.

No member of the examining

force was permitted to examine the affairs of a bank in which he had a
.ersorial interest, or of whica he had been an officer or emeloyee within
one year of his appointment as examiner.


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Federal Reserve Bank of St. Louis

-15 -

In 1919 the

614031:Vi61.)11

of 'Dame wes transfexred to the

Department of Trade and Commerce, with a Oecretary appointed by th
Governor a

executive officer of the Department.

Examination and super-

vision of operating banks remained directly in charge of the Lecretary
of the Department of Trede and CommAJrce until 194, when the office of
Bank

COMMiblia0118I

wus cret.ted.

executive direction 072

The Bank Commissioner, under the

retary of the Department, wae placeU in

e

oke of administration of the bunking laws.•
The Guarantee Fund
abulished'in l%% ha

no

COMMifitdolt,

which was crlateC in 19x.j and

uties with respect to examinution and surer-

vision of regularly operating banks.

The duties of the Calarenbvf-Fund

Commission were confineu to hnnaling the guaranty fund, operation of
bunks taken over by the Commisaion, and liquidation of assets of failed
banks coming into possessiun of the ,:ueranty fund.
Supervisory powers.

The superv/sory powers of

Banking 3oui-d, ht the time of adoption of deposit guaranty, reIi.,ted
chiefly to bank examinations, and to re,uests for aph ointment of a receiver.

Two examini,tione each year wore required, hni.:1 adJitional examina-

tions could be made ht any timJ. Fees for examinatfona were apecified in
the law, ranging from 45 to $50 for euch examination, payabie into the
general fun:: of the State.1/
No bunk could open eitnout the authorisation of the 3tate Banking
. required to issue such authoristien if the bank
Board, but the Board wa;,
had been organised in th.

reJcrioed manner.

1. Snail increasee in feet', exce,t f
total reserves, eez-e i1ae in 1919.


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Federal Reserve Bank of St. Louis

The State Banking Boerd was

Ath le,e 'hem :7,5,000

e6 -

authorized to;re,uire any belie t. re.t_re iLiptired carital or reserves;
an

reeuiree to aeerove th

stock of a bunk.

reductien or cencelletion of caeitel

The Lioure was not given eower to order removal

undeeireble or iiiegui assets, or ele2 removaleof officers, employeee, or
Siecial re • orts, in a.idition to those required, coula be cellea

directors.

for at aey time.
•
The 6-tete Baraine Board wz.s authorized to reeuest the ar,ointsent of a receiver if a bank failed to make gooe any impeirmeut of
caiJital or re6erves udon order of tee Stete Bankine Soerd, if a bank
conducted it

business in an unsafe or unauthorized manner or endangered

the interaet of its deeositers, or if a bene fulled to make reeuirece
reeorte or otherwiee failed to comply with the benkine law.. The State
, Boere could order any examiner to tae poaseesion of e max for
134.11Aiti(
a thoroueh examination. If the bunk wee found insolvent, coneuctiee
busieess in an unsafe or unauthorized Munner, or eneeegerine the interest
on until a receiver was
.
of it, deeositors, the exeminer retained ..e)ssessi
apeointed.
Substantial edditionei eowers were conferred on the sueervieory
authority in 19.41.

In tht yeer the Depertment of Trade an

Commerce was

autnerizee to grent a cherter for tee oreenizatiun of u beuk if the
eerties requesting it arc of integrity and res,onsibility, una public
neceesity, convenience, elle reerenteee will be promoted.

In the name

fear all executive officers of banke were reeuired to be licensed by the
Departmant of Trade enu Commerce.

Such officers were required to be of

eop.! morel :!1-1_1.0r, known inteerity, business exeerience and ree,ensiullity, and caeable of coneucting a bank on sound eankine erinciples.


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Federal Reserve Bank of St. Louis

•

- 17 3ank officers at the time this provision went into effect were deemed to
have a three months' license subject to revocation by the Depertment.
In 1923 the Department of Trade and Commerce

Was

placed in

charge of all pending receiversnips, and the District Courts were authorized to place a bunk in the nands of the Department of Trade and Commerce
for liquidation rather than to appoint a receiver for this purpose.

The

Department was also authorized to bid on the assets of a failee bunk, et
a public sale under supervision of the court, and to turn such asbets over
to the GuaranteeFUnd Commission for li4aidation and reimburaement for the
deposita paid by the Commission. 6everal items were added to the list of
conditions for which a bunk could be placed in receiverships

refusal of

permission to inspect the bank's books, papers or affairs; refusal of
officers to observe any order of the Department; or if the Department
concluded, from the results of any examination or report provided for by
law, that it was unsefe or inexpedient for the bank to continuo busiuess.
Statutory limitatiom on bank operations.

The principal

statutory limitations on banking operations, under the banking law at
the time the guaranty law went into operation, and during the period of
its opera.ion, are summarized below.
Responsibility of officers,
directors, and stockholders:
resulting from loans
made in violation of legal
limitations

1400108

No provision until 1921, when any
director knowingly participating
in approval of such loans was
made directly liable for damages.

Liability of stockholders

Usual double liability

Bonding of active officers
and. employees
Meeting of directors

Optional with directors of each bank.
At least twice each year.

Dominations by •.:irectors

At least twice oach year.


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Federal Reserve Bank of St. Louis

Limitations on loans and
investmentst
Loans tc officers and
employees

Prohibited. In 1925, loan to a
corporation of which an officer
of the bine is a member reuired
to be approved by Board of
Directors.

Loans to directors

Must be ep.roved by Boerd of
Directors.

Loens to stookholders

iggregete amount limited to 50 percent of paid-Pp capital and
eurplus.

Maximum to sin4c borrower

Twenty percent of paid-up capit- 1
and eurplus.

Maximum secured by real
eL5t.; tu

No provieion.

When reeerve.is deficient

New loans prohibited.

Maximum total lour
investments

1-/if
Eight times cepital end surpluere
in 1913 ten times capital and
surplus; in 1919 fifteen timee
capital and surplus.

and

Limitations on ownership of
,propertyt
Maximum value of bing
house an fixtures

Ownershi
estate

of other real

Ownership of corporate
stocks

One-third of paid-up capital,
amended 4.9 1919 to 1/2 of paia-up
capital.li
P-ohibited.

Prohibite,4except to prevent loss
on debt previously contrected,
with MEYAMIla of 3,9 percent q;s4,,
,
4
paid up cdpit&lAi OwnershipAin
Federal Reserve &nes iettraitted
in 1915.

1. These provisions were not applicable to auvino banks.
2. These provieions are included in the bunking code in force
March 30, 1911, published in the Twentieth Annuei Report of the ;:;ecretary
of the State Banking Boaru, with a note that tee repeelin, ciause„ but not
the title or text of the 1911 act purported to repeal them. In the same
report the Secretary recommended modification of the limitation on loans
and investmenta.


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Federal Reserve Bank of St. Louis

-19 Time limit on ownership of
aseeta acuired by collection of debt

Five years for real estete, -with
maximum amount limited to 50
percent of paid-up
pital (75
percent aftur 1919)
siX months
for corporate stock.

Limitetions reIatini,; to deooeits
Maximum amount of deposits

No provision.

Maximum rate of intort
on deposit:.

Five percent; in 19;L5 (effective
April 1,
percent.

Receipt of depoeico when
insolvent

Prohibited.

?reference

No specific provision.

Limitations on borrowings:
4eximum

Two-thirds of paid-up eapital (modified in 1915 to full emount of
paid-up capital and surplus) except
borrowing for payment of depositors.
Additional borrowing permitted after
19.0 With written consent of 6ecioter/ of Department oC Trade and
Commerce.

Power of supervieing authority
to requiro reduction

No provision.

Maximum value of assetu which
may be pledged for borrowings

No provistuu until 19.0. After that
date limited to 1 1/4 time. &mount
of obligation excet with consent
of ;:iecretely of Depertment of Trade
and Commerce.

Limitetion:3 on jdayment of dividends:


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Federal Reserve Bank of St. Louis

?ercentage of net profits to
be carAed to surplus prior
to aividend

One-fifth of earnings until sur lus
reecheu 4) percent of cepital stocx.

When losea exceed or equal
unuivideo profite

Prohibited.

When reserve Li im,aired

erohibited.

When capital is im.airec

2rohibited.

1.

These provisions ware not a,plicable to savings banks.

-20 -

Required res•rve:
Total amount:
3anks other than savings

Fifteen percent for banks in places
under 252000 population; 20 percent
for banks in placed over 25,000
po,ulation, and bunks that are depositors or reserve agents for other
ban. After 1919, banks
members of the Federal Reserve system authorised to disregard these
provisions.

Savings banks

Five percent, amended in 1921 to
apply also to savings accounts
in other banks.

Proptyin to be held in actual
cas

1911, 1/3 for banks with 15 percent
total reserve, 2/5 for banks with
20 percent total reserve; 1913, 1/3;
/9191 1/5; 1925, 4/15.

Permissible character of remainder

1911, balances due from other solvent
banks.

Required fully-aid
In places with
100 inhabitants or less
100 to 500 inhabitants
500 to 1,000 inhabitants
1,000 to 2,000 inhabi*ants
2,000 to 5,000 inhabitants
5,000 to 25,000 inhabitants
25,000 to 100,000 inhabitants
100,00 or more inhabitants

$10,0000in 1921,
15,000 )
20,000 )
25,000 )
35,000
50,000
100,000
200,000

0u

aequirea reports:
Resources and liabilities

At lease four each year.

Earnings and dividends

No provision.

Leposits

Each six months, averu ,e daily
deposits.

1. In 1919, two-fifths of this casn was permitted to be in Liberty
:a other United States Government bonds, reduced in 19:0 to one-fifth.
2. These srequirements relate to bas other than savings bunks.
than
Minimum capital required for savings banks was 4:,15 2000 in places
inhabiinnabitants; $351000 in places wita from ,U,WO to 100000
tants; and $75,000 in places with 100,000 inhabitants or more.
3. In 1923, in places of less than 1,000 inhabitants, if no other
bank was available, $15,000.

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Federal Reserve Bank of St. Louis

ats.

WAIBER AND DEPOSITS OF GUARANTEED BANKS

Number of .partici,satini baake.

The number of State bunks

in Nebraska, all of Which Articipateo in the deposit guaranty system,
ohil the number of national banks in the SLte, which dia not participLte,
are given in Table 1 for each ye,:r of operation of the deposit guaranty
fund.
;tt the time the guaranty law went into ef:ect, z..bout 73 percent of the banks :perating in the :›tote wtlre oertin. unaer .;tate
law and therefore became participant:i in the guarantf oy:,tem.

During

y
the next eight years, this pro orti.in steadily increased, due primaril
to the conversion of netional banks to State banks, una reached 84
percent in IWO. This percentages remained stable for the next eight
yeara.

Durin, the remaining two yeark: of t.lc; guaranty system, the pro-

portion operating under State law . declined, falling to 8O percent of the
total number of operhtin, bchks at the b.,ginning of 1930.
De - o.dt, of 4..articipatine,, ano non-i:articipeting banks.
proportion of total do osits in al/ opui:-tin, baruc.

The

held by the State

4,, flks ',al, much smaller, througnout the perioa of de:osit guaranty, than
the percentage of number of banks.
average, considerably larger bank

The national banks were, on the
than the

t.itta bac4s.

At the beginning of deposit guaranty, about 40 percent of the
bank ieposits in the :)tate tore held by Jtte banks.

For a nuaber of

years this peroentage increa4,ed, rtsuchint, 59 percent in 19.a, aaL:
remaining between 55 and 59 ,)ercent until 193. During the last two


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Federal Reserve Bank of St. Louis

`RIM

years of depouit guaranty, the dei)osits in State b4niis declined relative
to tnoue in ntionk.i

so tht by 19)0 only 47 ,ereent of the de,osits

in the State were in banks participatin


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Federal Reserve Bank of St. Louis

in the deposit guaranty system.

-23 -

Table 1. NUMBZR OF OPMATING BANKS IN NEBRASKA PAnICIFATING ANL NOT
?ARTIGIFATING IN THE DEPOSIT GUARANTY SYSTEM, 1912-1930. BY YaRS.

Call date
nearest
January 111
1912
1913
1914
1915
1916
1c;17
1918
1919
1920
l'i21
1922
1923
1924
1925
19'26
1927
1928

1929
1930

All banks
operating in
Nebraska

Participatlni;
in deposi
J.,:uaranty6/

hot partici?ercentage
'dating in de-Farticipetin6
oit liNarantyg/

91(
9)5
965
983
1,007
1,031
1,110
1,133
1,188
1,196
1,170
1,137
1,118
1,101
1,072
, 1,043
1,012
882

669
694
728
765
803
839
920
942
999
1,009
986

726

156

84
82

804

647

157

80

955
938
928
90)

883
855

247
242
237
218
204
192
190
191
189
187
134
182
180
173
169
160

157

74

74
75
78
30
81
83
83
34
84
34
,84
34
84
84
35

.
.
1/ Call aetes for State en.; national b;...nlts are uot identical in
sever41 years.
All State banks, from annual or biennial reports of the State LiLnk
sui:erviaory authority.
It National bunks, from uunual reports of ti o Coaptroller of Lae
Currency.


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Federal Reserve Bank of St. Louis

24

_

_

Table 2. DEPOSITS IN OPCiiATING BALLS IN NEBRASKA PARTICIPATING AND NOT
PARTICIPATING IN THE DEiVIT GUA1,ANTY SL:TE,A, 1912-1930, BY YEARS.
(In thousands of dollars)

Call date
nearest ,
January 1

l912
1913
1914
1915
1916
1917
1918
1919
1920
1921
19.42
1923
19;44
1925
1926
1927
1928
1929
1930

All banks
ovrating in
Nebraska

193,591
204,925
213,726
216,796
240,870
342,671
419,23.Z
477,761
513,211
432,113
387,641
433,992
430,220
484,897
487,291
470,090
474,300
461,646
406,850

Banks participating J41 e.dait
guarant‘

73,890
82,528
92,747
100,812
114,438
105,528
3,499
259,875
278,769
255,067
216,478
238,754
239,985
271,529
281,547
275,552
274,54
252,460
191,658

Percentage of
Bbnics not
earticipating deeosita in all
banks neld by
in deposit /
tatini; banks
_artici
guk:rantyb
119,701
142,397
120,979
126,332
177,143
195,733
217,636
234,442
177,046
171,163
195,238
190,235
213,368
205,744
194,538
199,775
209,186
215,192

41
40
43
47
48
48
53
54
54
59
56
55
56
56
58
59
58
55
47'

Cull dates fur State dliki ntiLna. ot,nks ure not identical in
several years.
ij Deposits in all Sthte ban4a, data from annual or biennial retorts
of the Sta e bank su ervitiory authoritd.. Includes dividends unpaid.
Deposits in national banks, d-ta fr,:m annual reeorta of tie
Cometroller of tne Currency.


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Federal Reserve Bank of St. Louis

Concentration of bank dev)osits.
of depoUts helti on October

Table )shows the amounts

L, 1914, Lau June )O, 1927, by the State

bunks in Nebraska g.:Dliped accoruing to their depositsrl/

These years

are cnosen as representative of the earlier and later parts of the
period during which the deposit guaranty system was in oi:eration.
In 1914 the largest State bank La Nebraska held 1.1 percent,
and in 1927 the largest o,,,nk held 2.3 percent, of the deposits i4. all
State banks.

The larg,;st 10 bank6 held, on these dates, respectiviiy,

7 and 9 prcent of the deposits in all 6tate banas.

The concentration

of deposits in a few of the largest banks was not so gret in Nebraska
as in Kansa:t; ana in Oklehouri •urir4.; periods of operation of guaranty
deposit plane.

Similar figures for State banks for various years during the
period of operation of deposit guaranty are given in Table 13, page 60,
and for national banks in Table 14, page 61.


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Federal Reserve Bank of St. Louis

TL,la 3.

NUIC

3CTWiEli 31,

1914,

Number

of
ms.hks

Amount of

i.,rcautAxiia

Ge,o5iLe

of number
bf

of eggre6ute
deposits

10U.0

100.0

(tLouLunds
of 4ollurs)

P2rcentL0

411 ZALLe ban., October 31 , 1914
93,44.6

;.tan4s
-

Witn cri oLdi,;.: uf -

$100,000 to $250,b0,
450,000 to 45U0,006

$500,000 to $1,0043,000
$1,000,000 to 4,0,000

42,684

5Q.9

44.3

64
5

..,,783
20,451
3,479

39.9
8.4
.7

49.0
21.9

1

1,0.3

.1

1.1

337
>Lj

Lurgeut bhnk

1,023

LLrgest 5 bkruts
Largest 10 buni,..s

3,991

1.1
4.3

6,418

b.9

ial State baninc4 June 30, 1927
. j7.
Jants


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Federal Reserve Bank of St. Louis

Z75,06

110.0

7,380
60,511
104826
05,362
22,301
10,398

11.5
59.9

, .7

11.7
1.9
4.5

2).7
8.1
3.9

0,...b0

.1

100.

Witn ci8 ,06itai .-... -

430.6Wur le ...a

3100,000 to 4250,000
4250,000 to $500,000
1000,000 to n8000,000
$1,000,000 to $.4000,000
$2,000,000 to 452U00,.;W
Wer $5,000,000
Largest btat
I.Lrgest 5 abancn

Larg st 10 beanLe

100
343
300
102
17
4
1

6.260

4.3

.10,0,3

6.1
9.(::

..4,853

- 27 -

BANK FAILURES
Number

rJ

e_dosit6 of fated bunko.

Bering the 19 years of •

Jperetion of th deposit guerenty eystem in Nebreeka, 357 participating
banks closed because of financial difficulties.

Only seven of these

feilures occurred during the first half of the period of operation of the
fund.

One of the banks which closed

M113

bt-Ilk

which hau previously sus-

pended and had been reopened.
The deposits in tne guaranteed bunks closed because of financiel
difficUities amounted to $72,199,000.

The lergest bunk among the failures

was the Security State Bank, OaLhL, with deposita of approximately
.• No other bank with deposits of more than $1,U00,0t4, failed
during the life of the guaranty- fur. The Security state Beek was the
:,eventh largest bank operetin, under State law.
constituted

Depoeits of this dank

percent of the depoeits of all guaranteed banks which failed

prior to repeal of the applicability of Mae lee-. Concentration of risk
in large winks, ena failure of tnese betas, does not appear to have Dean
an important factor in the insolvency of the Nebruska guaranty fued.1"/
The distribution of the closed banes, and of their de,osits,

it

the

Arles grouped by size, are giver. in Table 4.

1. However, thele is abundant evidence that the majority of the
large banks in the fund were not in good condition. Of the six hanks
larger than the Security 6tat.e Bank, Outline, three failed within eighteen
..onths efterthe rpeel of tne guaranty provisions of the law, ana one
was absorbed prior to the close of deposit ixaranty under conditions
indicating that the benk maa about to fail. The otner two consolidated
and converted to a natiinal bank at about the time the guaranty law was
repealed.


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Federal Reserve Bank of St. Louis

—

Table 4. NUASEE 1,NE DEiOSITS OF STATE BANKS IN. NEBRASIA CLOSED SEC
OF FINA:LOII.L LIei'ICL:LTI., JULY 1, 1911 10 MARCH 1S, 193U.
_Lroupisa Uy amount of oeioalts.
iiliAbt,r of Deposits
Peroentai:o of to
babas(ili thoustakts
hureoer
of doliurs)

roTki.
Bunts with deposits of
or less
:1oO,000 to 1.;...5up00O
$250,000 to $5o0,000,
$500,000 t:., 61soU62OGO
Ivor $1,000,000 \-


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Federal Reserve Bank of St. Louis

7,
499

100.43

6004

164
16
69

.;,..32.'.77

.L.9.1
4.5.4
19.3

a
1

1,516

.3

F

;46,654

9.0
36.9
.3,...

.1L:

-;c9 Table 5. NUMBER AUL DEPOSIT.; OF :MIT BAHS IN NEBRASKA CLOSED BECAUSE OF
FINLUCIAL DIFFICULTIES, JULY 1, 1911, TO MARCH 18„._ 1930, BY YEARS.

!earl/

Closed banks
Deposits
Number
(In thousands
of
of dollars)
hanks

Number failed Deposits in
per 100
closed banks
per $100 in
operating
operating banks
banks

)17_

72.199

41.4

$ 1.92

1914

1

122

.1

.14

1916

1

111

.1

.97

5
26
23
15
14
20
22
22
50
150
8

1,121
6,090
4,955
2,417
1,744
5,155
5,849
5,629
8,550
29,128
1,328

.4
2.6
2.3
1.6
1.5
2.2
2.4
2.5
5.9
20.7
1.2

.40
2,39
2.29
1.01
.73
1.39
2.08
2.04
3.11
11.53
.69

TOTAL

1920
1921
1922
192)
1924
1925
1926
1927
1928 1/
1929 A/
1930 (to March 18)

SUBTOTALS
July 1, 1911 to ..,
136
June 30, 19272/
,
July 1, 1927 to
30, 1929 §,/ 146
,
May 1, 1929 to
2i
1930
75
March 18,

28,879
27,613
15,707

No State bank failed during years omitted.
Data obtained from reports of the State Bank 01ervisory authority ,
or schedules collected by the Federal Reserve Committee on Branch, Group,
and Chain Banking.
,il Figures for 1928 include 44 banks which had been laced in the
hands of the Guarantee-Fund Commission in prior ye4rs, and were being operated
by the Commission as going concerns at the boginning of 1928.
4/ Figures for 1.929 include 73 banks which had been placed in the
hands of the Guarantee Tuna Commission in prior years, and were being operated
by the Commis3ion as going concerns at the beginning of 1929.
51 Banks in winch depositors' claims wer ratA by the guaranty fund.
These 136 banks include:
125 banks in which payments nad been made by the Guaranty fund by
January 2, 1930 (report of the Bankin,g, Investigation);
3 otni,r banks which closed prior to the date of closing of the bank
with depositors' cluimu paid in part by the guaranty fund (it is
assumed that depositors' claims in these three banks were paid by


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Federal Reserve Bank of St. Louis

11

the guaranty fund between Janu.,ry
19)0, and the date of
anal settlement of the fund))
6 banks which reopened or were liquidated without payments from the
guaranty fund;
'2 banks in which depositors' claims were met (in full in one bank, in
part in the other) by the guaranty fund ut tine of settlement in
19)4 (The American Banker, July 13, 19)4).
.6./ Banks with depositors not paid bj the guaranty fund, which closed
prior to the date when the Guarantee Fund Commission MS abolished, or which
were operated by the Guarantee Funu Comthission an that date.
21 Banks failed from date of abolition of Guarantee FUnal Commission to
date of repeal of the law, excluding banks operated by Guarantee Fund Commission which were placed in receivership aubseuent to abolition of the
Commission.


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Federal Reserve Bank of St. Louis

- '30 -

The number and deposite of tne banks closed each year, with
ratios to the number una depoeits of operating banks at the beginningoL
tile year, are given in TLole 5.

The average annual rto of fais.ur:4

computed at the number of banks which failed per 100 operating at the
beginairk of each year, was

Howuybr, as ba

been meutioned, nearly

failures occurred during tne litter half of th

all of ta

oper6ti:m of Ulu fun6.
annual rate of failure

eriod of

For the 9-year period, 1941-199, the average
Wa3 4.k

par 100 banks.

The deposits of the closed

banks, for Ude perioe, averaged $3.01 per year for each $100 of deposits
in o,erating banks.

The latter rte, for the entire period of operation

of the fund, was $1.% per year for each Z100 in operating banks.
Failures

k

size of bank.

In Table 6, the size distributi:er. of

41-19k9, is coapz,red with
3
/
banks which failedduring the 9-yet period, 1
the tv:mge size distribution of o_ert.tint_banks.
this period rather than for the entile

Figures are given for

ericx. Juring which the fumawa

in opt -tion becauso nerly all of the failures occurrea auring this

During the 9-yoar period, bunk failures were negatively correlated
with size of bank.

Tha smallest bares td thy! highest, and the lar-est

banks the lowo,..t, failure rate.

Failures among bune.$ with leas tnan

1100,000 of deposits were more than four-fifths of the average numeer of
operating bin, while failure

imong banks with more than Z4000,000 of

deposits were only one-twentieth of 'the average number of such banks in
oeration.

1. This correlati,n is tilt: reverse of the situutLn in Oklahoma
during the operation of the guaranty fun in tiv,t tate, Moe. in Oklahoma
the failure rate among the larger banks .Ata much hUher than among the
smaller banks.


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Federal Reserve Bank of St. Louis

jr I bRnK Cud fjjWI:a
Table G. 3I2 ijI5TRI3UTI0N
'OIJ2RIbt.;TI01.:
OF
3i'HIIi46
bilNE:b„_
19,41 - 1949.
1E.;ILE
AV

, Deiiosits
Number of bunks
Averuo
AverdoNumberFailed
In failed
In
1411MD.'r failodper 1,J() in or- fulled
ounks per
o)
..erutin
oeerutir atin6
banig..z
-.10.
0 in
banka (thousandm oiicr Lily;
(thousenas
of
bunks-/
of doliu) aollura)

..612 144.

Total
'Janke with deposits of
...i.o0,000 or lees
i1U0,000 to 6'40,000
.45,,JC to 65U0,000

LW
358
,c72

1j-4
154
68

5u,u60 to 41,000,000
9U
to UpOW,G00 15
or more
4

1

1/ Theoe
can be obtainec. by


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Federal Reserve Bank of St. Louis

85
44

8,66,4

6,315

64.1,455

93,9;41

;,4,976

580464
13,613
14,167

13,64
1,516

73
4o

••

are for tae 9-yeux perioo. 4,roxishlw.
rates
iviLing tho figures by tuu number of years (9).

- 3k -

Table 7.

SAW,. FAILUPS' R..b.T.'S IN NhBRASKA, 1912-19-9, COMP),REL nTh Rt..TE6
C,,,JIGUDW:
AlkiD IN Ili!
01-1io

Nebradka

Failurea per 100
Deposits in file: banks ,.)er
100 tu operating banks
Qpert-tingbtis
State State National State
National
State
banka
flu
und
banks
bi.nke
banks
natil
baux.d
banks
lb
$2:z
40
36
.35
47

Six contiguouLi Stuus
South Da4ota
Iowa
Miesouri
Kansas
Colorado
Wyoming
Entire United $tuted

35

75
37

20
19
3;

kk
23
4i

56

67

15
31

28

11

70

46
28
3

5

„wiz

.11

0.3
4
b
13
10
31

81
29
9
20
17
41

33
1(.)
40
3

7
45

3

V Tabulated from duta from the following scurcess reportd of bank
commissiinee in the various Stat-dy Willie, Saukire; Ih4ry of-i9.; anima'
on
reorts of the Comptroller of the Currency; Federul Ro—rve Committ
Brtmch, Chain and Groul2 Banking, "Changed in Lae Number and Size of 3LLA.
in the United State, 19)4-1941;" and Federul Reoerve Bulletin, Septhmbe:.
1937 und November 1937.

Note. Thee rates are for tne entire olriod. Approlimetf, average
annual r..te can be obtained by dividin, thd agarce by the number of
years (18).


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Federal Reserve Bank of St. Louis

- 33 Caueee of bank failures.

The legislature of Nebraska ordered

in 1930 a special inveatigetien and audit of failed bunks in that State.
The report of this inveetigatieu, which was directed by Mr. A. C. Seellenburger, contains a discussien of the

C&11308

of failure without makini an

attemet to estimate the number due to specific causesel/ An analysis of
the evidence collected by this inveetigation which was made by Mr. T. Bruce
Robb Cor the Department of Business Research of the University of Nebraska
is also without an eetimate of the number of failures due to the various
causes mentioned../ Some further evidence regarding causes of bank failures
in Nebraska is given in the schedules collected by the Federal Reserve Committee on Branch, Group and Chain Baneing02/
Relatively little is said in the report 68 the Baneing Investigatien about theft, embezzlement, or defalcatien on the pert of bank
officials.

Such overt acts wore apeerently not regerded as a major cause

of failure in many of the bunxe which failed during the period of operation
of the guaranty fund.

More ettention is given to dishonesty by the stuoy

of the Department of Business Research of the University of Nebraska.

A

number of cases are cited of dishonesty on the part of bank officiels,
shortages due to the abstrections of caehiere, forded notes, end loans
obtained on worthless paper, to Which the following stateeent is added:

1‘ A. C. Shallenberger, Final Report of the Banking Investigation, to
the Governor and Legislature of Nebraaka, 1930, pp. 6,-9.
.4,/ T. Bruce Robb, State Bank Failures in Nebraska, Nebraska Studies
in Business No. 35 (The University of Nebraska, 1934), pp. 27-28.
)1 Schedules prepared in 1931 in the office of the Bureau of Banking
of Nebraska, for the Federal Reserve Committee on Branch, Group and Chain
Banking. The schedules have been made available through the courtesy of
the Board of Governors of the Federal Reserve System.


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Federal Reserve Bank of St. Louis

34

•••

If apace permittea the recitel of such eordid banging
transaction, it would unfortunately be greatly extended. The
first Lereeeion One gete from thie recore is the complete
lacKof &Ay feelire; of public reeponsibility for their uctions
on elle pert of the.' bank meneora.
Both the benking invoeti6etion

Vae Deperteent of Businees

Reeeerch pieced greet stress on speculLtion, loene to ietere.(e with whLch
benk officials were aeeocieted, end loens in excess of tee ledai limits.
The report of the Bankire; Investigation described the influence of these
elemente ue folloee:
The World Wer infIeted priced, both of lend ene eteer
proeerty, to such en exteut that a business boom developed
whicu swept meey baLnkarb, businees men no even fermerz into
a maelstrom of specuietion. Stenderds of values and normal
basis of credit weee coaeletely loet sight of and sound bueineer.; principled were forgotten....Lend speculation, a moet
dangerous economic diaeeee Cor benkere t- contrect, beceme
epidemic either throa6h loans on leeds or by inuirect purehasts
•
by bene officers....
Millioes of dellere of eorthleas loans encumbered the note
Ck.J195 of the benee audited by teie office. Very often siorit than
half of tee, note in failed banks weee fount, worthlees becense te,
f!'icers making them were speculators, not bauxers.
The

es,ect of tee situation sae u..scribee by Mr. Robb, in th

reeeort

of the Department of Business Rezearch, as follows:


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One of the greet weatneases of u ocentralised system of
unit beuee ee developed in this country is the oeportunity it
affords to men of affairs to enter the benking business and
use the community' deposits to lubricate their private ventures. No man ca succeeafully serve too mestere, ane the
st:c!ctiAzie of e beniter in the role of e credit men making loans
to his own enterprieee is grotesque. The period of rapid
growth in the number of banke 4U4; 981.Jeci&lly productive of
this, type of benker. It was a perioe of risiez prices end
seeculetivm exceeeee, und thn beeking busineee was aisgreced by
bankers whe were using their institueions to finance their own
f:.:rma, or Ike
mercantile ceieretiona, or the tenants on teeir
a dumping ground for tie_ euper collectee by their eutomobile
agenciee or thet-growing out of their cettle transactions.
Almeut without exceilloe, the loesee foeeot.ie in the trein of
this kind of balAing were &peening.

-35 -

An excessive number of bankel inaaequete eurnings and management by incompetent officials ere also emphasized as important joint
factors in the wideepreee collapse of IX:J148 in hebreske.
may wreck a owe- with good earning power.

Incompetence

However, incompetent manane-

ment# updearsalost frequently when new banks are opened freely, ana an
excessive number of banks in u locality in relation to the volume of
business ovailable in th
earnings.

locality is a major factor in inadequate

The report of the Banking Investigation describes the influence

of these factors in fiebrh.41,

as

follows:

...hundreds of banks weve cnartered for which there was
no economic use and man permitted to operate them who, for waet
of ability and hnnesty, have disgraced the busieess of baiking.
Too many banes une too few banners bred bankruptcy in the beeeing
business.
...The unsafe end unnecessary expansiOn in bunking during
the boom period beceuse of no limiting of chart,:rs led to an
extraordinary and dung,roue increase in loane and credits.,
Where too many benke mate competition ruins's*, bad loana become
common because there are not enough safe borrowers to absorb
the funds that must De loaned to Ma40 a show of profit.
Ur. Robb, in reviewing the evidence collected by the banking inveetigution,
makes &Jailer si,etomonts regnraing incompetent menegement unn an exceseiw,
number of benks.
It is not our purpose...in this section to consider cases whom),
more often than not, bank officers were honest and wull meaning,
nut where eitner through indolence or start ignorence of sound
bunking practice they showed themselves grossly incompetent to
operete a dune. It would oniy be ei-pected that where banA6 were
organized with such feverisn :unite as occurred between 191C and
194), any cusea would come to light of men permiteed to operate
banke who were utterly unfit to receive and loan other
money.
Economic circumstances and ra14o economic chengea, particularly
the sharp reverse/ in prices of agriculturul prcriucts after the close of
the World War end the renewed decline in thou(' prices wnich set in about


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Federal Reserve Bank of St. Louis

-36-

1926, were also imsortsnt eiemests in the lerge number of bunk failures.

in NobreLsiz&.

Nevrtholess, the r. ort of the bsnking Investigtion and

the analysis by the Der rtment of Business Kesearch of the Lniversity of
Mebrssks give only a moderate stress to the decline in sgriculturai prices.
This decline is considered

be thu occasion for bunk failures, but

speculstion, loans to bank officials an

their interests, incomsetent

musugement, end an exces lye number of sants are emphasized us more funsamental causes.
A aimilur emphasis is indiceted in the causes of failure of
wnics closed during the serioa 1921-1930, sa reported in the schedules colsectea by she Federal Eeserve Committee on Branen, Group sns Chain inking.
Out of 380 failure, for wnich a primary

Cause

of failure is mentioned, on*

)4 are attributed to tS0 decline in real est. te vsiues or to losses one to
unforeseen usricultural or industrial uisaster, while 38 are attributeld to
defalcation end 264 to incompetent munagemont.
agricultural conditisals are stressed
in a great majority of the failures.

1A3

Sowever, lund values and

an issortsnt contributing factor

A classification of the primary and

contributing causes of failure resorted on tnese schedules is given is
Table 8.


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Federal Reserve Bank of St. Louis

- 37 F UNE FALlLURNS IN NIBRAMA, 192204930, REPORTED ON
Table 8. CAUSE
FOR THE FEDERAL RESERVE COMMITTEE ON
l'REPARED
SCHEDULES
BRANCH, GROUP AND CHAIN BANKING

Item 2.-/

Number of cases
Contributing
Primary
CLUBS

Dishonesty of officers--total
Defalcation
Officer's irregularities or shortal;es
Inside bank robbery
Dishonesty of former mansement
Misuse of bank funds, exceseive loans.
irregularities—total
Misuse or misapplication of bank funds
Excess loans, or overloaning
Excessive and illegal loans
Loans to stockholders ana relatives
Failure of large debtor
Violation of State banking laws
Reversal of prosperous conditions„ decline in
values—total
Unforeseen agricultural or industrial
disaster, such as flood, drought, etc.
General deflation, or general depresLion
Decline in value of farm products, or
deflation of agricultural prices
Decline in real estate values
Incompetent or poor management—total
Incompetent management
Insufficient diversification
Long-term loans on real estate
Excessive operating cost
Other causes—total
Heavy withdrawals
Failure of other banking institutions
Insufficient operating income
Lack of business
Lax enforcement of State banking laws
Miscellaneous

38
1
••

cause

17
13
3
1

12.
;G7
••
••
••
2
••

11
21
1
1
••
3

4
28

36
16

23
30

.32
14)

281

264
16
1
I.

81
40
11
1
21
2
6

40
14
2
86
27
4
11
4
37
3

Specific items are from schedules coliectea by the Federal Reserve
Committee on Branch, Iroup and Chain Banking, the grouping by the author
of this report. The tabulation was made by the author of this report frorr.
the schedules, which were made available through Le courtcby of the Boar_
of Govt:rnors of the Federal Reserve System.


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Federal Reserve Bank of St. Louis

MNIM

-38 -

FINANCIAL HISTC/Li OF THE GUAludili FUNID

,aacy of information. Information regardiag

Sources and
the operation

of the Nebraeka depositors' guaranty fund is extensive

and fairly complete up to 1930.
deposit guaranty

!Rib

The financial hiatory of the funii while

in force, and its statue at the time of repeal of

the guaranty provisions in 1930, are tnus available.

However, iaformation

is not at hand reruing the subsequent liquidation of assete held by the
fund and for this reason only a crude estimate can be made of the final
reeults of the operation

of the fund.

The periodic reports of the Bureau of Banking, ouAng the
period when the fund was fully operative, conaainia limited a:aount of
information regarding th

operation of the depositors' guaranty fund.

The grat bulk of the available information ret;Lr,iaL; the financial
history of the guaranty fund is the outcome of special iavestigtious
ordered by the Nebrasaa legislature.

In January

19a9, the douse of

Repreaentatives requested its aunas 41-41. Bunking Committee to maae a
thorough inveatigatioa of the DOOK8 ax a recoroa of the Guarantee Fluid
Commission.

The results of thia inveutigation, which wen, published as

a document of the Legislature, give statements of the guaranty funa
of each closed bank

aa of February 5, 19k9.1/In April of the

same

Itia

year,

the Legislature ordered en examination and audit of failed banaa aaa of

1/ Legislatur of Nebrasaa, forty—fifth aeasi.,n, 199, Report oi
house Sub—ConAttee on Guarantee Funa Commission.


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Federal Reserve Bank of St. Louis

the deeurtmente charged with responsibility for the banking laws. This
etudy of the deposit guaranty fund was conducted from May 1929 to July
1930 by A. C. Bhallenberger, who wa;: aeeointed by the Governor

65

Chief

Examiner for this purpoeeel/ Official reports on the disposition, subsequent to 1930, of the remainine asset

of tee fund ana of the final

payments to de,oeitors in failed banks, are not evelleble.
Some additional ieformation is available from sources other
than these official reeorte. Payments by the guaranty fund in the case
of guaranteed banks which failed subeeeuent to Januery 1, 1921, are given
in the schedules pre-paved in 1931 for the Federal Reserve Committee on
Branch, Group and Chain Banking, but theee figures differ only slightly
from thou given in the reports of the special investigation of the
pregious year. Information reeareing the Nebraska fund eubliehed in
special surveys of deposit guaranty systems in operation in various States
pertains only to the eerly yeere of the system or is beeed on the reporte
of the seecial inveatigetion.A/ The final payment by the guaranty fund
1/ The reeulte of this inveatigution are given in three documents, as
fol_owv: (1) The Associated Certified Public Accountants of Nebraska,
'Report on Depositors' Guaranty Fund,* submitted to Mr. Shallonberger,
dated August 1, 1930; (2) A. C. Shallenbereor, *Report of Bank Investigation,*
dated March 3, 1930 (preliminary report submitted to the Governor; and (3)
A. C. Shallenberger, Chief Examiner, Final Report of the Bankimg Investigetion.
V Surveys of deposit guaranty systems in various States, which give
some information regarding the Nebraska system, include T. Bruce Robb, Ike
Guaranty of Sank Deeosits (Houehton Mifflin Company, 1921); Thornton Cooke,
articles in the euarterly Journal of Economics, November 1913 and November
1923; article and legislative summary in the Federal Reserve Bulletin, September 1925; and Blocker, The Guaranty of Beek D.posits (The School of
Business, University of Kansas, 1929).
Very little informution regeruing the financial operation of the Nebraska
deposit guaranty fund is given in the historical pamphlets by Z. Clark
Dickinson and B. Frank Watson entitled, respectively, Bank Deeosit Guaranty
in Nebraska (Bulletin No. 6, Nebraska Legislative Reference Bureau, 1914) and
A History of the Nebraska Bunk Guaranty Law. However, the latter discusses
the attitude of bankers toward deposit guaranty and the causes of the failure
of the system.


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Federal Reserve Bank of St. Louis

- 0to depositors in failed banks was reported in newseaeor articles in

1/
1934.
Income end oblieetione of the euaranty fund.

A eumeery etatement

of the income end oblieeeione of the Nebraska deeositors' guaranty fund, for
the entire etriod of its existence, is given in Teble 9.

The figures take

into account receiets and disbursements subseeuent to trio repeal of the
ap: licabilite of the guaranty to future failures, includine the final diseoaition of the fund in 1934.

The estimates in this table exclude indirect

borrowings of the fund (in the form of receivers' cortificatee) which were
eventually repaid.

Payments to depositors in failed bens which were made

directly by receivers from the cash and immediately available aseeto of the
banks are also excluded.
The total receipts of the guaranty fund, after allowance is made
for ueeeesments declared unconstitutional by the State Supreme Court, are
estimated at $19.4 million, of which $16.5 million was derived from assessments and 42.9 million from the liquidation of the banes in which depositors'
claims were paid by the guaranty fund.

The total obligetions incurred by

the guaranty fund are eetimeted at 449 million to the date of reeeai of the
law, of which 438 million are estimated to have been incurred erior to ?..lay 1,
1929, when the GuaranteeFund Coumisaion wae eboliehed.

Aeseesments levied

subsequent to that date were later refunded under the decision of the State
Suereme Court that they had become confiscutory and therefore unconstitutional.
The final deficit of the fund, after allowance for the estimeted
recoveries by depositors from the liquidation of the aseete of the failed
banks, is estimated at teeroximutely 416 million as of the date of abolition
of the Guarantee Fun

CommisAeu, ene et $25 billion ea of the date of reeeal

of the law.
Al
1934.

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Federal Reserve Bank of St. Louis

Chicago Daley Tribune, July le, 1934; The American danker, July 18,

41

Table 9. i.;STIMATLL OBLIG:JIONS, INCOME, AND DEFICIT OF
TUE NEBRASKA Di!SUbITORSI GUAiANTX FUND
Millions
of dollars
OblLutions
In banks with depositora paiu by guuri;.nty fluid
In bank. with depositors not pui,; by tiv.vanty run.14
Cloaed prior to May 1, 199, %hen Ou,runtee Fund
Commission wus aeolished
Closed from May it 199, to Mt.rch 18, 1930

19.4

18.5

1.5
46.4

Total obliEeti3n8
Income
hsseeamento on gue.ranteeu benit/
14,11RevJkel by decisien of St:4te ' reme CourtA/
fromm closed ban.
d
Unpaid — clue
Total assessments coliectediil
Recoveries from recoivers . of closed bans on
, by the guaranty fund:
dspoirors 1 claims pa416
To January k, 1930m
Subseuent to Janlu,ry '4, 193W
Toted. income

14.8
.3.0
—IL

t'ti

4.2

.7

'2.9
19.4

Deficit
Obligations not puia by guaranty fun*,
Less eatimatod depositor:0 recoveries414/
Final, deficit to ddte of repeci-14/

.29.0

d4.6

NOTE. Treatment of interest on receiveres certificates is obscure.
Whether the interest iu included in the depositors' cluima paid in each
bank in which they had been issued, or whether the interest ua.L paid Oy
the receivers and caurgee to tne expenees of receivership, is not known.

1/ Total payments by guaranty funn to January 4, 19)0, emountin4; to
013,716,0.:0, from auditor's r-port, Bunkini; Investig.Aion, plus preferree
'
.laims unpaid on June 30, 1930, in banks which closed prior to June 30,
£97, amounting to $635,855, reported on scnedules prepared Tor ti. Federt..i.
Reserve Committee on Branch, Chain ana Grout Junking. (For number and
deposits oC tnese bans, see Table 5:iztalxrcerter ).) This figure for


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Table

9, Footnotes (continued)

obligations of the guaranty fune is b7 percent of the total
aeposits
of the banks ht time of failure, us reported in tee annual report
of
the Nebreeee Bureau of Banxing, or le schedules prepared for the Federal
Reeerve Committee on Branch, Group, anu Cheju Bankinb. Thi8 differe
nce
is due to eeverai fectors, chiefly; (a) bunes reopened or lieiuide
ted
with no payments from the guaranty funa; (b) deposits paie by receive
rs
of closed bunks from the cush ene other immediately available uesets
of the benks; and (c) differences between the booes of the banes et
time
of cloalng and deposit eihims provihe and allowed by receivers.
Estimeted at 07 perceut of deposits, on the basie of the relatio
nship for banks closed prior to June 30, 19e7.
For number ens eeposits
of these banks, lied Table 5.
Final Beeort of the Banking. Investigation, p,. 17 and 27.
This
is the latest official figure available and includes assessments later
declared unconetitutienui by the Steto Supreee Ceurt (see footnot
e 4).
4/ The actual amount of the aeJoeseents revoked by the Supreme
Court declsien is unknown. The figure given here is the amount
of unpaid
assessments in going bands on January 2, 1930 (from Final ,Reeort
of
3enkihe Investigation, p. 17), which is useumod to be approximately the
amount revoked. The assessments revoked include the regular aseesaments
of July 1, 1949, and January 1, 1930, ena special assesements levied
Becember 15, 1923, April 17, 1909, and Jenuery 2, 1930.
Final Report, of Bunking Inveetieeti el p. 17.
Thitii figure differs from that given by a report of
the Economic
?olicy Commission, American Bankers Associetion, The Guarenty of Beee
. Deeosite (19))) p. 21. The fig4re given in that report is $17,700,066.

.7/ Final Report of Ben:eine, Inveetigetion, pp. 17 am 27.
A/ Estimated from difference between obii,etiene paie by tne
guaranty fund end the income of funa to January
1930, after ullouance
for assesements revoxed. Of thie amount $244,000 we::; paid from the
Depositors' Final Settlement Fund in May 1930, (Final .Repore
of Bankin4.
ineseel-..ti_h, p. lb), end 4134,000 was the final payment in
19)4.
.2/ This is a groes figure for the final deficit of the fune ;tee is
the estimated amount for which the fund Was legally kesponsible
at date
of repeal of the guaranty fund (for method of estimate, sec footnot
e
Estimate based on the
A assumption that suce recoveries were similar to recover
ies by
the depositors' guaranty fund on depoeite paid by the furies
i.e.,15 permit.
Of this amount, 14.8
relates to beaks which failed prior to May 1,
1929, when the Guarantee Fund Commission we.
,eboliehea, Or whice wore
operated by the Commission, anu 41.6 relates to banes which filee
betwten
May 1, 1929, and the repeel of the lee on Murca Id, 1930.


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Federal Reserve Bank of St. Louis

-43 -

Table 9, Footnotes (continued)

whicn
Of this eisount, $15.7 million is attriouted to
closed ‘prior to 1144. 1, 19',.9, or were o„;ers,ted , bi the Gueratiter Fula:
CommisAod, an::: 08.9 million to ie; ahich closed bt,twt-J1 May 1, 1949,
and Mart 18, 193O.


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Federal Reserve Bank of St. Louis

-44 -

Annual aseesements and loeoes in

iled banks.

The annuei reties

of essessment, ustimeteu amounts of eseeeement, and estieetue o2 tne
eventual losses in the eteuse which felled each yearo .erc given in Teele 10.
During the first nine years after the guaranty law went into effect, only
a fee bale( failure

the State, and depositors' claime in these

'Janke were met without seriously depleting the guaranty rune er retardieg
its growth.

Beginning in 19l, banx failures were numeroue.

In lee.t

year a special aseeaement amounting nearly to the maximum of 1 percent wee
necessary to restore the fund to thet amount.

This was repeeted in 19ee

and 1923.
With the modificatien of the law in 19e3, the combined regular
and special assesaments were limited to six-tenths of 1 ei;ecenr, per year,
une this amount was leviee each year

(except 1924 ) until the decision

el' the Supreme Court declaring that the assesemento hae become confiscatory
and therefore unconstitutional.

These. ussesementa were not sufficient to

eect tne cledees of depoeitore of naileu auexe, and it

as eeceeseri tu

use of the indirect borrowing procedure authorized in 1923.

11-4e

Also, approxi-

eetely 130 banks in financial uifficulties were teen over and opeeated by
the Guarantee Fund COMUSJial.
By 1927 difficulties were encountered in meeeetie6 tee receivers'
certificates, which were guaraeteed by the Guarantee luuu Coareieei,e,
because of the likelihood of insolvency of the gueeenty fuhe, an
eanxera renewed their attempt
stitutional.
ceased

is

to 'nave the law repealed or declared uncon-

The date, on which oorroAn6 througit receivers' certificates

unkneen, but it is believed tire t theee isaueu were evuatually

end that the loss on deeoeitorsi claims in the bank

whicn fuilee

suuse juent to June iLJ, 1927, wee borne entieely by depositors.


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Federal Reserve Bank of St. Louis

the

COLLECTIONS FROM 1236ESAENTS, AND E:3TIMI.TEV LIO6F6 FROM BANK FAILURES,
NEBRASKA DEPOSIT GUARANTY FUND, BY YEARS
(Amounts of assessments, losses, and deposits in thousands of dollars)

Table 10.

Year

Rate of assessment
(percent of deposits)
Rate
Computed
levied .1/

0.25
1911
1912
.50
1913
.30
1914
.10
1915
.10
1916
.10
1917
.10
1918
.10
1919
.10
1920
W
1921
W
1922
1923
A/
1924
W
1925
A/
1926
1/
1927
W
1928
8/
1929
.05
1930
Total

0.24
.54
.32
.15
.15
.15
.12
.13
.20
.22
.95
.85
.41
.60
.59
.59
.31
.05

Amount of
assessments 2/

Losses in failed banks
Paid by
Borne by
guaranty fund
,/ depositors
(net tuss to fund)A/ (estimated)

177
407
272
141
145
183
220
318
504
639
1,318
1,972
2,046
1,005
1,616
1,672
1,653
885
132
t
16,3;

Adjustments estimated recovery by guaranty fund
subscv.iuent to January 3, 1930
Estimated net losses paid by guaranty fund


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Federal Reserve Bank of St. Louis

Deposits in
ailed banka

4.0

00

..
..
19
..
44
..

••
..
..
..
..
..

..
..
.
.
122
..
111
••
SO

ego

••

••

es

6
49

Se

3,045
3,546
1,804
1,118
2,900
2,967
1,024
..
..
••
17,116

-7(30
16,416

00

..
..
..
.•
..
2,446
4,848
10,515

751
24,562

O.

1,121
6,090
4,955
2,417
1,744
5,155
5,849
5,629
8,550
29,128
1.328
72,199

AveraGe deJ,osits
in operating
bans, cull dutes
durik:g aut
erica
73,710
75,432
85,021
92,674
98,652
124,429
179,138
236,246
253,684
286,615
244,872
225,022
240,122
245,840
270,438
284,711
280,594
285,869
264,918
S.

fLble 10.

Footnotes.

1/ 1911-1919, initial an
ses.,mant for January 1.

r

Lrasses,:msnts;

i/ Lotimeted from av6rge depoeita 1- ueorted ()heal dates durin
base period for the assessments paid in eochnr ye.

the

1/ 1911-1923 from John G. Blocker, Tne Cuaranty of .btate
p.37, with figures for two years adjusted to make tiv, total for
1911-191v toual 4...,367,0U0, a figure given by Blocker (p.30) and siso
rye Bulletin Setember 194, p. 634. The a.:.;ustment
the Federal
made for 1916 ,,no 1919 because the amounts shown by Blocker for theae ye:
appear enroneous in view of th absence of secial asJeaemonts prior to
19k1. The figure for 1916 is interpolated from th,; preoeding and succeeding )(bars; that for 1919 is the residual to obtain the 1911-1919 totLl.
Ti 'i,ure for 199 is the estimated prooeada of one sgular
b.
on Jeo.it3 reiJortel :Awn dEtc8 durin,; th,7 OcA6
Oi tale gualn.,
fund minus refunds from receiverships and sale 4130,AS to Janwiry 3,
from the auditoes report to the chief examiner of theBanicinc, Investi,aLion.
The figure for 194 is from the same source for four ben;;.s, plus an
,,,stiak.te of payments in five othar O:,,nics, in widen payments by tir: guaranty
fund were mede subsequent to January 3, 19.3o, based on preferro olat:•
unpaid on June )3, 19Jus shown on scheai.i.o., oubuitted to tal! Federal
ComAtty on 3111nr!h, Grou.

astimateu at 5o.7 pe.ccent jfdeposits 4uported on 40116UWAtb
prepared for the Federal Reaerve Comaittou on Brunch, Group ana Chain
Banking, on the basis of the ratio of losses to deposits in the bunks with
dapositore claims paid by th,t guarhnty fun. Some of this los may possitly
nave been borne by holders of receivers' cortificabes,rathar than by
depositors.
.6
.
/ From Table 5. The figure for 1W7 incluJes deposits of 31,315,000
in nhaks with depositors' claims met by the guaranty fund, sea :leposits of
.:4,314,000 in banks not paid by th, guaranty fund.
Average of deposits
on call d.tea during th6 1..-montee1
period ended lay .jo. Tha se:Ai-annual a.).1,11ents :iue on .Lau,ry 1 and
July 1 of each yr. ./ere based respectively on average daily deposiLs for
th,, six-months' period ended the preceding November jJ and May 3k.).
14/ Not avaiieble. The ratas of thspeclui as:,e smeuts levied in
to resLre the: funa to 1 ercent of deiosits Lre une.n,wn.
in 1929 1,n, 19;O,
J YlUa


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Federal Reserve Bank of St. Louis

i, 19-9, wer-f

•

0.14
Dy tn; State 8upfecae Court.

•.3

-47BanKeral conservntion funa. No statement is ev,tiit,bia of the
Bankers' Conw.lryLtion Fund, authorized by tn
ilepOSit

6Lutranty

limited to a

for

Li..;.3U:..41VJrital

AlitXilial111

of V) of

were usan ab "H.?posit"
Funo CommisoL,ft.

19'..1: amendments to tne

Ca

,t ,rcent of doit

i

o

i.tinGbtlYlkop

locm,, to th- banks o,r,I.,ted by

In tn. ca,a of liquin, ti ,n of

lc:k.n or "deposit" from the

deposits in th.. btdiko

an,L.i9, whico, hJ. ixon °par•t,4:, by

t.%,
'

Guntee-

n

loat. Sucn laas.!.;

Fun..

It

°LW,

St.,14:: 61. tiki:%

it. 1f,th,.2efore, thet hprt J: L11-.;
',

n,ca

Conservation ?um!, sue!. ao;Apait,

no prefer.nce but we. ,ivon tl

systam to Li

7ire

uJan.. in Dobra.iko in au_iutul.kentt„

levied for tn

buarunt;, Lun-.

Th

ou..

such loese,, con'iste of entries, on the

vLil,b.,

llo. to tn-i
f:r

4c$C30(AU.,.

Federal Re -v'.' ComAttee on Brxnc-, Gxou,

Ctir.danici.,6, of divioems

pald on dep,:sitoral claim, from th.. dajobi6 ,uarcnty funi for a number of
bah-:s which were placed in r,c ,iv,rshil-, subse,iuent to June )0, 19..7.
deposit:, in tht—,‘bta

w r

not

ii by tt-

oitor 1

since

uar-aty fun-, it

is probable th t th4Je entries r.pre ent un,ai, "deiosItan of money nom
the BenKnr.31 Coaservation tuna.

These fit;tur a are 5.1

n in 1.4ie 044.K, of

subse;uenL to Jun,)1.,, 19,7, /Arlo amount to

whicn

totkl

of CZ10,C00.
innlinistr.tivc •:.3L
administri.Lavo

CO*Lo

oe,Joatorsi ;uavallz

h. oipobitorol „u_..anty fux, 1- -1.o ,Jxcluded from

the figures of La, fun.. 4ven in fable.) 9


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Federal Reserve Bank of St. Louis

.

,,,,uaf-nty to tna cr;..ttion ,; tn

Ina. 10. From tn.: begin.iing o'

Guar, ntee Fun-Co.Liin in

OM

48

4110

the sfund tryi aaministed by the St,te Banking

th

cost ol

o2eration wae not secregted from otner ex?ensee of th,f Board.
expenses of the Ot%t
but the Lit,t

Joara

111:t oy

Troaoh:y recAved th,! iwocoeu

Th.

0,ropri

of tit! oxamihtini

on 3tato benku.
Froze 191j to 19.,$:.;, a„.„)roximAely Z7oL,OL/O of ext.enklas
iacurroh by the Guanto,, Fula ComLiisaion, the r,-Jouiv,,r-rd
Department of Trade and Coerce, •n
tii,apiXOXiMAdii

0.66,UUc

1JdIL, Inveetiti.,.

Of tit.

obtained from au kle.,mnts on o-e.rating

eanite in aJoiti.n to th. L;u_;...artj fuh.

41,„AAjp.k0 from Loibt:AS6-

awnt6 on closed. burets, 4kO0,000 from iiLtt1v
$1°,UOU from internit

aivision (it

miAdellLneouo Jourcea.

various UOliCiOS oonnecteu with th,funi, t.n

u

roeriations,
Tru T r.'ot t

.

tno 11110Xret4Ala tALJJALOWil it

1930, ure shown in Table 11.
Adewacy of the .i„uuranty. fund.
in baru.s whicn

tLL

deo5it guaranty tlan

The extent t..)

de,unito;.E.

i iU of c‘ o.l'ion of the Nebfa6Ka

r

It is

Lissa.ted

4.) p,=rcent of :4 kio de,osiLl, In tneue burew
11.1uidation of th-,

o;7 t.ily banks.

,-3rceat of ttr, ue„Jouit.).

Th

from

Uuaranty fun: as.:,esmnto i)roviUed

remainin„ J4

ercent

,;()

depositors.
These eetiarAtes indicuto that aggregte usaessments
woulo 11.;ve

bu011

necessary to 'nava Aet Ull Of

tn

of 41.5

losJos to dei:oei-

tors and administrative expen.iee asoociated with the guaranty funti u, to
the dato of repeal of trio gu&ranty law.
two-fifths of the &mount.


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Federal Reserve Bank of St. Louis

The asseu&mente collected proviued

An averge unnnal us es&ment of 1.1 percent

-49—

Tuble 11.

NE-BEA:EA
RECEIPTS FOR abstINI6TRATIVE
)'ijj
GUid.TI FUND, June JU, 1911, to June J- L-), 1.9L

Source of
receipts

Assessments on
operating banks

Total

$168,751

Lancing
Depurtueut
Tradeand inveeti6atiO)
Commerce
COM4i3SiOn
19.9-193U=l
May 4, 19..) Receivership
to April :Ai,19*.e.9 Division
May 1,19..9
to June 2,,19.3
Guarantee
Fund

$168,751

Assessments on
closed LAnTIKS

318,50

....a.x.,

Legisl%tive
up,ropri: Lions

339,623

89

Interest and
miscelluneoue
Totul

Unexpended funds,
Juno ..;o, 1930

1159
$6.37,1j

..

J9

106,58

4802/

100,000

15,0UU

$4u9,146

$15usoW

7047.
$477,90

;)7,611

143, 583

Administrative
expense to June 3U,
688,5k
1930

a

$477,965

$111,59

ju,97;e2/

$99,028

W From Fisal Report. of Bana.in. InvestLution.
j Cost of invostigution in 1949 by sub-committee oC the Busts und
t
BEngdni Committee of the House of Representatives is not uvuilable.
Lxcludini; small amounts returned out of uppropriLtionm totalling
Includes 39:4,610 unexpended legislature uppropriation, unu 37,601
unexpended other receipts.
1/ Unexpenned August 1, 1930.


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Federal Reserve Bank of St. Louis

-50—

Table 12. DEIWIT6 I
ILE TA.Tr iv
IifibRA6K.A
PERIOD OF O..iTI
OF LaITOR:;$ GUARATY FUNL,4 rAIL
OF
U..)aID ?&i1 DL.

Amount
(in millions
of dollars)

Total deposits.

72.2

Percentage
of total
aepo6its

100

Deposits paid fromi
Liquidation of asats of failed mrie.5:11-.
Add directly to depositor:.; II
Paid to -1Laranty fun_l on subro6ated claims
Depositors, e;uaranty fund
Loss to depositors

23.2j
2.9]

43

16.5
0.4.6

34

1/ Estimated hib the difference detween total deposits and the sum of
deposits paiu by the Guaranty funa and losses to depositors. Lata are not
aVailable for a direct estim4Ae of payments by receivers of f&ilea bunica to
depositors.


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Federal Reserve Bank of St. Louis

- 51 would have been necessary to provide this sum.

The avereee coleected, ud

to the date as of, which they were revoked by decision of the state oeele
Court, was a little more than two-fifths of 1 percent per yeer.
The maximum annual assesement, under the original lea, wee 1.1
ercent; or just

tlot.1:h to have oov,Jrod the full cost of deeosit !-Liaranty

uuring the period the law wa

on the seeeute boo, hau it deou eossioie ce

have levied this MAIO= eech year through the period.

This wau not possible

during the firnt half of the period because failures were few, anid only the
initial assessment and the very small regular aesessment could be levied. It
was possible during the latter pert of the period because of the reduction in
the maximum assesement to 81x-tenths of 1 percent which
The burden of assesemeuts.

W86

made in 19'A3.

Asaesamnts during the firet few yeare

of the fund, at the regular rete of one-twentieth of 1 eercent per year, w,_1?
comparatively light, and banker:4 do not alp:Ater to have . roteeted thet the
assessments were a financial burden ueon tat. bunics.
in the early. 19201s, th t future a:1

When it became erooeble,

stmcntc, at the 71aY1mum rate would bc

necessary for severel years, the blimin felt that the asseeements would be
a heavy drain on their earnings and were successful in having the law
amended to reduce the maximum rate.

There does not aepear to have been any

significant tendency prior to 1929 for State banks to attempt to escape the
burden of aseesements by taxing out natienal bank charters.

At that time,

when it was obvious that the guaranty fund wan insolvent, and assessments
at the reduced maximum rate would not be sufficient for many years, some
converoions to national benes occurred.
Information is not available regarding the earnings and expenses of
Nebraska banks during the period of deeosit guerarity. As in other States, bankers declared that the asseaAtionts absorbed a large proportion of the profits


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Federal Reserve Bank of St. Louis

—

—

whice otherwise would have been available for etoceholders.
three yeeee

During the

leel-leee, when assesemente close to the maximum uneer the

original law were leviee, the asseaemente collected &veraged more than
5 percent on the total caeitai accounts of the banks; and during 19e5-1927,
when the maximum asseesmente under th

reduced rates were ieviea, the

asseasments collected equalled 5 percent on the total eapital accounts of
the. banks.1/
Whether a eee item of expense, such as an a
loseee in failed banks, comes out of
mined.

ent for meeting

rofita can never be. definitely eater-

If ta: expense ie one that ie borne by all or a leree majority of

tho oeeeatine telnke in the area, it ie prooeeie te:t other iteme of incoec
or ex,enee may be affected more tkue the profits of the benke. In Nebraska,
the maximum reee of intere,t taet tr,m,

eoeie puy on ee,oeita

W4Lifie

at the time of adoption of deposit eueraety, at five eerceet, and in 19e5
was reduced to four percent, but it le not known how large a proe ortion of
doeoeits bore the maximum rete nor how AUC11 the imeosition of this maximum
reduced the intereat eaie by bunee to their deeoeitore.

With the hien rte

of interest that was paid on ceeoeite by Nebraska hunks prior to depoeie
guaranty, in comehrison with thosepaiu in some other parts of LAL

.tion, it

-is conceivable Lnet aufficieet adjueteant couid .eve ueen maee in this item
alone to have thrown the full cost of deposit guaranty on eeedeitore, eho
are the chief beeeficiuriea of a

ucceeefui syatem of doeoeit inourence.

However, the presence of national teekel exciudee from tne euerauty system,
thoueh they constituted only 15 percent of tee peeks operating in Nebraaka

Al The bailee had leas capital relative to deposits in 19k.5-19k7 than
in 19.l-l9.3, whice is the reaeon why the recueec rate on deposits aurine
the later period was nearly the 11411114 proportion of total capital teYuunte.


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Federal Reserve Bank of St. Louis

-53 -

of the perioe o: eepoeit olaranty, probebly mede it Afficult
this kind of aujuatment in the: income and expense items o: the banks
WOW boogie ate.
hau deeoait granty embraced all dein...6 oiretint; in the SL,.. t,
the total lossee which thf: guaranty fund would have been called u. on to
meet

Ui.

urin

,..roximately
the State

erioe from June )0, 1911, to June )‘;„ 19ebl'woula

59 milliod.

deen

The asseesment r,te ukon all punk, oper-tiN; in

which would have been nocessery tL, meet this loos

/L,3 i'OUr-fifthS

Of i A.:ercent per your.

EFFECTIV:NZ6e uF WINK
The hi6h rat... of as.-e.em,nteLcheoule heve been new.,ealy to
have prevented ineolvency of th: Nebraska depdeitorst oinrenty rune, in
. omperison with tbe rete nuoessary to neve operated a similer fund on a
national ,scale during the same period of time, is a eirect reflection of
the relatively high frequency rate of bank feilures in the State.

Tnis

abnormally hi.i1 failure ratut ue has been hotua Lbovu t iD ,Atriouted to
inveJtibators in the 3tate fkailiar with the situation primarily to speculatiell., loan

to bane OffiCitaS 41/A thir intereAs, ineemp2tent danao-

sent, and an exceeiive numoer o

bEnka.

ThH 4ueatiOn may De hiikej enetner

failure p.te mie,ht hay.; peea auLeAe...ntially redue., ey ef:ective supervision over baekin, operations.
Inneffective or inadequate bank/at supervieion muy be dum to
ILI,;ufrIc21:tot poweru, or to inadaquuto Udt:1 3: powore podee.ised ey euperJieory offieiels. Inadequate powers were important in
Prior to that time the State Banking Board rm..; not;

to 19;(1.
to cock tnt: ten-

dency toward overbanking, nor to eliminate obviously innompetent *nxin6


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Federal Reserve Bank of St. Louis

— 54 —
Also, a number of the statutory limitations on Josue whict

officials.

have been found hulpful in other Litatee were not u part of tho baxJiri
code in Nebrasica.

While loons to officers an

eml,1oy1±,es wera prohibited,

no provisions covered loene to corporation

until 194

officere or employee*.

coLtrollea bi

No maximum limit was J..ceu ou Jowls secul'eu by

In general, penalties em eanctioho other than eloping of a

real estA,o.

o.nk were not ,k.vailablu to tiv:

fiaakin

doarU; an.. aa in othvr 6t4::to)s,

ort to tni3 drastic procedure was used sparingly.
The

OXCOAA.V0

numuer of banica op..:rating in Nebraska is indicated

by tho fact that in 19.'40 a bunk waz in op€!rtion for each 1,100 of the
population.

The average clientele, assuming that every realily in the

State had a 'Donk. account, was thus about ;e75 families.

Since a consioer—

able proportion of the bank,' must have had fewer customers theal the
&Ammo, it ia apparent that some of the bunks wore dependent for their
busineos uPon a relotively small numoer of families in at.,ricultural areas
populated by people in the low and

AbCd114

income groups.

The inaoility

of th,2 State Baninii:Board to check the birthrate of Danko wad thus a
serious deficiency in supervisory powers.
WAri 4130

The excessive number of banks

doubtless one of the conditiono conducive to the making of illegal

or uoauly riaky loans, hnd to the low generaa. level of competency among
bankers.

A

thausand goao bankers cannot be four e ae readily as a third of

that number.
The actual conduct of the bcfnk supervisory office has not been
a .art of the preoent study of the operation of the depositors' guaranty
fund in Nebraska.

Nor has an attempt been nada to determine whether banic

examinutina and other aspects of bank supervioion were hampered by lack
of funds.


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Federal Reserve Bank of St. Louis

That the people an

legislature were not satisfied with the

-55-

eaee eueeevisory situation euring the first

ecede of oeeretien of the

ee,beitorst guaranty fund is evidencea by the drhatic chune;es in the
eowere and eeministrative organization of the ben& supervieory office in
19e1 an

in

Informatien tuts not been collected to

=lie

poaeible in

this study an expressien of opinion on the eueetion to waut extent the
large number of failures during the next few yeers were busicaly elle to
eonditions which had devaloeed prior to 19:0, hnd whicn the supervieory
officials were unable to rectify, and to enaL extent they le:re uue to
conaitiune whicn could neve O0kti: mitieeted by rehswatbil effective euper—
vibien.

However, ehe foliowine quotatiene from tne reeort of the Beneing

Investigation in 193G are significant:
Three sound bunking principles W,IfI9 eeeentiel to the success,
of the Guarenty Lae, if the insurance plan wee to erove souna woo
safe.


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Federal Reserve Bank of St. Louis

First—Limitatien of bank cnartere to the requieemente or
business cl-41 Baru credit of toe communiee served.
Second—Bank eareings of suffieiant amount to insure e fair
return and the charging out of losses that eome in eeriuus of
businese deereseion. No bank that can nonvetey show a fair profit
ever fails.
Third—Competent ax u efficient meervision and examination by
ent in charge of the aeministration Of bauldlli; laws and
deeertm
the
reeuiring from all officere anu mnnaeers of arik a atate license
certifying as to their eoneety, ability end chneheter. Failure to
observe and enforce theee useentiala luelermined end wrecked the
Guerenty Fund.
The Guaranty Law brought prosperity ena etr.,nete to the state
deebeitors from losses of millions of uollars. It
bunAs nnu
and destroyed by ehose who absula have been
discreditee
has been
Betrayal of tneir trust by faithless
defenders.
ita ataunoneet
nullified tne law enu destroyed
supervisien
hankt,ra and inefficient
eathbliehed.
tha coleAdence it tinu
The bapertment of Bunking Lemenisteation is re,uiree by law
to close banks sayon insolvent by it examiuere. It it h felony
for officers of a benk to receive depouits sifter it is ineolvoet.
If an inuolvunt .a.ris. is dem i- t:tea to oe rate, the deeoeitor le
grossly deceived and hie sueeosed security becomes a sthee seinale.
In Case of failure stockholders are liable for an aeditienal emeeht
e,ual to their caeital inveetment. Under careful elarviLd,n the
double liebility should insure liquieetion eith litti 1068 to
aeeositore.

1

-56-

A former Gov,rner steted in a meseage to the Legieleture
that ,Itirly in his enainistretion his Banking Commiaeioner
rueorted to eim tnat eeeee were 1,0 State banka hopeleeely insolvent. A Banking Coamissierter of &nether enainietretion stetou to
me thet a :eve month
ter he took offiee no made a erieten
report thst 150 banks were at thet eate insolvent. Permitting
beoken benke to run only deluyed the deluge.. Lx law enforeement
did not save the banks. It did cost ee,ositore large loseue end
piled ue a aountain of bank fuiluree when eonnitions could no
longer be coneealed. The grueteet blot on our btete end national
governments is Cailule to enforce laws enacted for the protect/en
of property end the punishment of crime../
Mr. T. 3ruce Robb, Chairman, Committee on 3usinese Raebrch,
University of Rebreske, has mede the following comlaents on ehe facto
revealed by the bunkine investigationt


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Federal Reserve Bank of St. Louis

Probably the most bitter complaint made by the auditors in
connactien witn the bank examination W4j thee, reluting to the
enforcement of the benkine laws. In praceioelly every bank
aueited the accountants went out of eaeir way to eeephasixe how
the depouitorel money had been put in jeopardy tnrough the leee
of enforcement of th benking laws. In preceding eections it
OU3 pointeo out how bane officers used the bankis fuze te finance
their own private ventures, how the lew in ree,ect to OKCeba loens
end excese reel eetete was flagrantey violetee, and how the w.:16e16zlemsnt of bank funds by officers wee exteneive an. cerried on
over lone periods of time. Throuehout this eordiu story curely
the reener must have woneerad .bout eho matter of Law enfercement.
In this section, however, aeeifferent aspect of thia question
will LIN1 CULIA(101:0(1. Bunke were examined periodically. It hns
often been aseumed thee the weak piece in the supervision .of Stet°
oenks Who 14 the matter of beak examin.tions. The muehroom growth
of the 3tute - anking system in the decaue preceding the bunking
debacle naturelly placed a heevy atruin on the meceinery for
examining bank. Sank examinere were poorly pale, ai
s coon as
a young examiner of promise acquired proficiency he usuelly left
the service and went into wanking. hut a cereful study of tae audits
of the failed benke indicates thet the trouble was noe primarily
with the examinatione. No doubt bank examinetione were too infrequent and often :nee° by can with little experience, yet the feet
rvIkaiD4 trit,t if the informetiun eieclosed oy 'peek examinetions had
been *Acted upon aegree,iveey auca loes to eepositers woule have
oeen evoieedeti/
;LI Final Re-ort of the Bankine Inveetieutien, p„. 3-9.
ij T. Bruce Robo, tate iian Failuree in Nebraska, p„...4:4-43.

— 57 —

CLOSING OF TH.:, GUA)i4hTY YUNL

In 1929 the Legislature of Nebraska voted to repeal the deposit
uaranty law am to close the guaranty Cum, out the repeal at failed to
receive the Governor's spproVati.

Later in the year an injunction was

granted by a oistrict court prohibiting collection of the special
ment5,

suit

anh tnis mode the law temporarily inoperative.

Wit6

LSSeS6—

Waen the injunction

brouLjit befole the State Supreme Court the gunranty law was held

constitutional anu the injunction dissolved.
late in 199, anol w

This decision

ffs

rendered

coLfirmed by the United States Supreme Court in 19)1...1/

In the Sprinii of 1930 an extraordinary session of
was held to deal with the guaranty fund.

the

Legislature

A preliminary report of the

Oonking investigation was ,reptireo and suomittea by the Gov-3rnor in his
meHsage to the special sesoion.

On March 13, 1930, the legislature

repalea thu law so far as it releted to future failure.

To eid in

paying existing claims oLainst tn.! fund, the same act estaoAloo.o a
Final
Depositors'Abettlemnt• Pune consiattug of the is maining balance of the
guaranty fund ann of recit

rom annual assessments upon the banks for

ten plara of ono—fifth of 1 percent of av.)rae daily deposits.

An appro—

priation wa, mde by the Legislotare for the reimburaement of deposits
ioErt in the banks which kiti Oeen operated by the Guarantee?uno Commission,
am,a constitutional amendment was submitted to the people providing for
an appropriation of $8,00U,GOO to uischarge the obligations of the deposit
z.uoranty rune.

It

was hoped that the collection of the regular and

special ass•ssmeuts for 1923 and 1929 whicn had been held up by the in—
junction, the appropriation to be authorized valeteD by constitutional

28


https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis

A/ Abie State Bum v. Charles W. Bryan, Governor v et al (1931),
U. S. 765, 51 Sup. et. 4;z, 75 NW 690.

-53—
Depositors' Final
amendment, end the asses.,menta 40 be levied for the
SettleAent Fund wou.i

b

fficient to pay all oktims in

nili.

t guaranty fund
TheEw plans for meetinc, claims upon the deposi
failed.

The

the
titt., Supreme Court held that the apprepriation for

hau been oi)erted by the
reimbursement of depoeits lost in banks which
Guarantee Fund Commiseion

vitith

uneuwtitutional.

The proposed constitu—

for payment of the gemral
tionaa. amendment authorizing an ap,x(exiation
poll . Flurther, ea has been
Jbli .ations of the fund we„; rejected at the
tne law, a renemed attempt
noted in diecupiing the constitutionality of
an
m...de to declare the original tact unconstitutienel,

'A

tutionality of the act of 1930 was challen,ed.
the State Su. reme Court in 193...

the consti—

Tnis suit wa. iera by

The Court held that on account of the

uecome unconetitutional, ano that
changed condition the original act naa
the assessments levied in Duceiabor

ly26„ ark. in 1929 are; 1930 were con—

fiecatory and tnerefore unconstitutional:
From any viewpoint from whien we consider these
assessments it is apparent that all public purpose has been
s to tukini,
- C.)%lioned in relation thereto, and that it floe amount
in
class
r
anothe
pay
to
ns
citize
of
class
the property of one
iffs.
plaint
the
of
rignts
al
tution
conati
the
oontraventibn of
In regard to tin act of 1930, the

tate Supreme Court aecided

ty fund law vas oonstitutional,
that the cart of the act repeelin6 the guaran
the Depositoral Final Settlement
but that the part of the act establishing
sup ort it
Fund itickeu the public purpose necessary to

eJ

an e%ercise of

of one person and gave it
the police ,ower, and that it took the property
ty without aue process of
to anotndr, thus depriving the one of his proper
law.

et ui. (1932)
1/ Hubbell Bank at al. vs. Charles W. Bryan, eovernor,
124 14‘,.b. 51, 245 NW 20.


https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis

a

-59-

a

After the Supreme Court decision in 193

the Lepartmont of

irade and Commerce proceede,, to wind ue the affairs of the fund.
Further delays were encountered in uisposing of the small balance in
the Puna, and final disposition wa:, not completed until 1934.

At thet

time payment was muae in full on remaining claim:, of deeoeitors in two
bank:, which had closed early in June l9k7, and deuositorsicleime, in a
bank closed about the middle of the same month were paid in partAd
Notnind qa: available for the depositors of banka which failed aubsequent to June 19.7.

;o Daily rribune, July L.:, 1934, and
2/Chica,
July 13, 1934.


https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis

1112, American

banker,

Table 13. NUMBER AND DEPOSITS OF STATE WINKS IN NEBRASKA, 1912-1929
Banks grouped by amount of deposits
Nov. 26
1912

Nov. 1
1918

Nov. 13
1920

Sept. 30
1922

June 30
1925

JUne 30 June 29
1929
1927

760

839 1/

934

1,009

963

913

872

688

with de,Josits of-or less
372
to $250,000
262
to $500,000
56

387
303
64

203 1/
439
163

163
415
273

193
445
281

195
445
247

113
364
306

100
348
300

73
275
234

73
9
1

78
10
2

61
11
4

112
13
4
1

102
17
4
1

85
17
3
1

165,410 239,601

255,243

237,943

285,928

275,038 224,378

$500,000 to $1,000,000
$1,000,000 to 62,000,000
$2,000,000 to $5,000,000
$5,000,000 and over

in banks
$100,000 or
$100,000 to
$250,000 to

25
3
1

4

5
1

32,537

93,420

with deposits of-less
21,665
$250,000
39,868
$500,000
18,084

22,684
45,783
20,451

13,280
73,243
55,582

10,863
73,458
94,145

12,956
76,438
95,577

13,552
75,826
83,751

8,235
64,813
107,283

7,380
60,511
102,826

5,241
47,870
81,822

3,479
1,023

16,178
3,850
3,277

47,265
10,406
3,464

52,015
11,A48
6,409

39,547
14,190
11,077

72,824
16,321
_9,960
6,492

65,362
22,301
10,398
6,260

55,323
21,641
7,293
5,188

De.)osits--total (thousands
of dollars)

$500,000 to $1,000,000
2,920
$1,000,000 to $2,000,000
$2,000,000 to $5,000,000
$5,000,000 and over

Includes one,
V r,bank without dei:osits.


https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis

Nov. 17
1916

694

Number of banks - total
Banks
$100,000
$100,000
$250,000

Oct. 31
1914

Table 14.

NUMBER AND DEPOSITS OF NATIONAL BANKS IN NEBRASKA, 1912-1929
Banks grouped by amount of deposits

Sept. 4
1912
Number of banks - total
Banks
$100,000
$100,000
4250,000

Sept.12
1914

Sept.12
1916

Aug. 31
1918

Sept. 8
1920

Sept. 15
1922

Sept.28
1925

Oct. 10
1927

Dec. 31
1929

245

220

193

191

188

182

170

154

157

with depouits of-or lesu
22
be V:50,000
122
to 4500,000
79

20
105
72

1
69
35

1
26
74

3

25
78

43

5
29
70

34
55

2
33
53

9
a
2

23

$500p000 to 41 000,000
$1,300,000 to $2,000,000
$2000,000 to $5,000,000
$5,000,000 and over

Deposits-total (thousands
of dollar8)
In banks with deposits
$100,000 or less
$100,000 to 3250,000
$250,000 to 3500,000

7
4
3

64
12
6
4

64
13
6

45
7

45
7
9
5

41
8
10

37
19
5
a

151,051 155,009

159,221

151,056

155,974

152,237

215,15t,

5
4

98,096
of-1,551
21,378
26,597

1,567
18,207
23,952

90
12,537
30,401

178
4,859
30,534

93
5,170
27,578

245
8,117
26,088

403
5,841
26,218

177
6,725
21,078

149
6,416
19,387

$5002)00 to $1,000,000
5,384
$1,000,000 to $2,0008000 9,953
$2,000,000 to 45,000,000 13,226
$5,000,000 and over
20,007

5,742
10,115
5,497
22,732

14,453
9,369
14,298
33,901

42,156
16,091
17,538
43,653

42,585
18,321
18,825
46,649

29,843
10,515
23,280
52,968

31,089
9,237
24,106
59,080

29,010
10,078
25,088
601081

24,599
24,60
14,984
125,016

V

87,812

72

These fi&ures contain Due to Banks.


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Federal Reserve Bank of St. Louis