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Federal Reserve Bank of St. Louis
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Additional material can be found in the following folders filed with
this binder:
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Federal Reserve Bank of St. Louis
Number and deposits of failed banks; fund warrants issued
and paid
Carbon copy of deposit guararanty report
404
MAThEIALS REGARDING DEPOSIT GUARANTY IN OKLAHOMA)
1908-1923
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Federal Reserve Bank of St. Louis
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OKLAHOMA
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Laws and iaw oases
Session laws:
1907, ch.
1908, ch.
1909, ch.
,4
, (House Bill No. 615)4,-44 /g°7
ZeAVGL,
5.
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1913, ch. 22.
1915, ch. 58.
_193.67-ehr-e0.
19197-ehy-t68.
1921, ch. 116.
1923, ch. 137, -e'-2O.
1924, ch. 59, eirr=47.
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State Supreme Court:
•
Citizens' National Bank of Broken Arrow v. State ex rel. Freeling
Atty. Gen. (1919),76 Oki. 94, 184 Pac. 63.
Columbia Bank & Trust Co. v. United States Fidelity & Guaranty Co.
(1912),33 Oki. 535, 126 Pac. 556.
Lovett et al., Creek County Com'rs. v Lankford et al. (1917), 47
Oki. 12, 145 Pac. 767.
Noble State Bank v. Haskell et al. (1908), 22 Oki. 48, 97 Pac. 590.
Security Bank and Trust Co., of Miami, Oklahoma, et al. v. Barnett,
et al. (1934), 36 Pac. (2d) 874.
State ex rel. Short, Atty. Gen. v. Johnson et al. (1923), 90 Oki. 21,
215 Pac. 2 945.
State ex rel. Walcott, State Bank Commissioner v. Zoll (1925), 240
A/1
Pac. 1035.
State ex rel. West, Atty. Gen. v. Farmers' National Bank of Cushing
(1915), 47 Oki. 667, 150 Pac. 212.
United States Fidelity & Guaranty Co. v. State et al. (1917), 67 Okl.
14, 168 Pac. 234.
United States Circuit Court.6..
Strain, State Bank Commissioner, et al. v. United States Fidelity &
Guaranty Co., Circuit Cokir.t;f Appeals, Eighth Circuit (1923),
292 F. 694.
United States Supreme Court:
Noble State Bank v. C. N. Haskell, et al. (1911), 219 U.S. 104, 55
L.Ed. 112
United States Fidelity & Guaranty Co. v. Joe H. Strain, Bank Commissioner
Of Oklahoma, et al. (1924), 264 U.S. 570, 68 L.Ed. 854.
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
-2State documents
Legislature:,
House Journal, February 21, 1933.
Bank Commissioner:'
Biennial Reports of the Bank Commissioner, indbMbed 1910-1920.
First Annual Report of the Rank Commissioner, 1908.
Unpublished State tax and Federal k,ecords
Bank Commissioner:
Minutes of the State Bads ing Baord, NOTt/1921/6an
Statements for the fund.
Warrant register.
Other records.
1922.
Courts:
District Court records, case no. 60838.
State Supreme Court records, case no. 24551.
Other publications and 4tanuscripts
,
.,..J114400-tal, "Oklahoma State Bankers Association," The State Banker, October
1915.
Fedexal-Resierwantluttnilp4tem1er-19etread-Mewomietmt9S7.
Neal, Linwood O. The History and Development of State Bank Supervision in
Oklahoma. Rutgers UniVersity2thesis, 1942.
L Pryor, J. L. "Guaranty Fund Warrants", The State Banker, January 1916.
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(References to gooks and _periodicals)
*Neal, Linwood O. The History and Development of State Bank Supervision in
Oklahoma. Rutgers University thesis, 1942.
"Oklahoma State Bankers Association,"
•
itorialY° The State Banker, October/
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1915.
Pryor, J. L.
The State Banker, January/1916.
"Guaranty Fund Warrants,"
(R.fererreers-ttriIlications and records of the State of Oklahoma) f
Oklahoma State Courts
District Court Records, Case No.
60838.
State Supreme Court Records, Case No. 24551.
Oklahoma State Legislature
House Journal, February 21, 1923.
State Bank Commissioner
Biennial Reports of the Bank Commissioner, published to 1920.
First Annual Report of the Bank Commissioner, 1908.'
Records of the Bank Commissioner
"Statements for the fund"
"Warrant Register"
Other Records
State Banking Board
Minutes of the State Banking Board.(
CasferncesITT6Eer-pt2ityi-keert-torrtt-Banker
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https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
Jametry(1916.
OKLAHOMA
• vNeal, Linwood O.
141.9k1ahcw4.
The History_pmd Development of State Bank Supervision
Rutgers University thesis, 1942.
Editorial, "Oklahoma State Bankers Association," 14a_StaLe Banker, October 1915.
, Pryor, J. L.
"Guaranty Fund Warrants," -Joa State Banker, January 1916.
,/ District Court records, Case no. 60838.
vState Supreme Court Records, Case no. 24551.
House Journal, February 21, 1923.
State Banking Board
,/Biennial Reports of the Bank Commissioner) 1910, 1912, 1915, 1917(?6th)
to 1920.
l':First Annual Report of the Bank Commissioner, 1908.
•
Records of the Bank Commissioner
"Statements mf for the fund"
"Warrant Register"
Other records,/
Minutes of the State Banking BoardiNove. 16, 1921; Jan.
4Federal Reserve Bulletin, November
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https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
1937, p.
9, 1922.
4CLAHOMA
), 33 gkg..
Guaranty Co. (190,
COlumbia Bank & Trust Co. v. 1,J 'ted States Fidelity
L.
%y
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Pac,
126
535,
•
0"-P.Accie
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f8rd etral (1914), 47 041. 12, 145 Pac. 4767
PoVett et. ai.,Ny.
(1917), 67 04. 14, 168 Pac.
1lKited States Fie ity & Guaranty Co. v. State
•
fate exarel. Short, Atty. Gen. v. Johnson etial_.(1923) 90, Okl. 21,xi2 215 Pac. 945.5•C
m.v. United States Fidelity & Guaranty Co.A circuit Court of Appeals,
..
.
*er11
Straincl
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Eighth Circ t
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U.S.570, 68 L.Ed. 654.
e.-84
Ste.
'trate
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41mr,v7.
Zoll (1925), 240 Pac. 103540
rel. :Icott
-ex r 1. West, Atty. Gen. V. Farmers' National Bahk of Cushing (1915), 47 AL
/. 1, 667, 50)Pac. 212.
lVttizensiJational Bank of Broken Arrow v. State ex r3x rel. Freeling, Atty. Gen.
(1919) 76 %a. 94, 184 Pac. 63. S
17/
upreme Court of Oklahoma, Noble State Bank v. Haskell et al., felerieeliVaer-41.1., 1908,
:5R,
22 04. 48, 97 Pac. 590.0
(1911) 219 U.S. 104, 55 L.pi. 112.
Toble State Bank v. Haskel
of Miami, Oklahoma, et al. v. Barnett, et al. no. 214.551
ity Bank and Trus Co
1934,
Pac:4874.
eme Court of Olspallgma,
tit
A
District Court Records, case no. 60838 - Oklahoma City Courthouse;
7upreme Court Records, case no. 24551 - State Capital.
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Federal Reserve Bank of St. Louis
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Federal Reserve Bank of St. Louis
eft
OKLAHOMA BANKING LAWS
(Revised)
House Bill No. 615
ii
,
RELATING TO BANKS AND BANKING AND DECLARING AN EMERGENCY.
BE IT ENACTED BY THE PEOPLE OF THE STATE OF OKLAHOMA
•
Section 1. Any three or more persons approved by the bank aommissionerl
a majority of whom shall be residents of this state, may execute articles of
incorporation and be incorporated as a banking corporation in the manner
hereinafter provided. Said articles of incorporation shall contain the
corporate name adopted by the corporation; which shall not be the same name
used by any corporation previously organized, or any imitation of such name,
the place where its business is to be conducted; the purpose for which it
is formed; the amount of its capital stock, which shall be divided into
shares of the par value of one hundred dollars each; the name and place
of residence of and number of shares subscribed by each stockholder; and
the name of the stockholders selected to act as the first board of directors, each of whom shall be a bona fide holder of at least five hundred
dollars of the stock of said bank fully paid and not hypothecated; the
length of time the corporation is to exist, which shall not exceed twentyfive years; and such other matters not inconsistent with law as the incorporators may deem proper. Said articles of incorporation shall be
subscribed by at least three of the stockholders of the proposed banking
corporation; and shall be acknowledged by them and filed in the office of
the secretary of state, and a copy thereof, duly certified by the secretary of state, shall be filed with the bank commissioner. The secretary
of state shall issue a certificate in the form provided by law for other
corporations and the existence of such bank as a corporation shall date
from the filing of its articles of incorporation, and the issuance of
certificate of the secretary of state from which time it shall have and
may exercise the powers conferred by law upon corporations generally, except as limited or modified by this act; Provided, that such bank shall
transact no business except the election of officers and the taking and
approving of their official bonds, the receipt of payments on account of
subscriptions of its capital stock, and such other business as is incidental to its organization until it shall have been authorized by the bank
commissioner to commence the business of banking as hereinafter provided.
Section 2. When the capital stock of any bank shall have been paid
up the president or cashier thereof shall transmit to the bank commissioner, a verified statement showing the names and places of residence of the
stockholders, the amount of stock subscribed and the amount paid in by
each, and the bank commissioner shall thereupon have the same power to
examine into the condition and affairs of such bank as if it had before
that time been engaged in the banking business; and if the commissioner
is satisfied that such bank has been organized as prescribed by law, and
that its capital is fully paid, and that it has in all respects complied
•
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Federal Reserve Bank of St. Louis
- 2-
with the law, he shall issue to such bank, under his hand and seal, a certificate showing that it has been organized and its capital paid in as
required by law and is authorized to transact a general banking business;
Provided, that in the reorganization of any bank or trust company the
assets may be accepted in lieu of cash at their actual value.
3. A banking corporation organized under the
4 this Section
act shall be permitted to receive money on deposit to
'
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provisions of
such an amount
in proportion to its Paid up capital and surplus as may be fixed by the
bank commissioner, and to pay interest thereon not to exceed the rate that
may from time to time be fixed by the bank commissioner as the maximum rate
that may be paid upon deposits by banks in this state; to buy and sell exchange, gold, silver, coin, bullion, uncurrent money, bonds of the United
States, or of this state, or of any city, county, school district, or other
municipal corporation thereof and state, county, city, township, school
district, or other municipal indebtedness; to lend money on chattel and
personal security, or on real estate securad_by_ first.mortgE_i.ges _running
not longer than one year; Provided, That such real estate loans shall'not
exceed twenty per cent of the aggregate loans of any such bank; to own a
suitable building, furniture and fixtures, for the transaction of its
business, the value of which shall not exceed one-third of the capital of
_
such bank fully paid; Provided, That nothing in this section shall prohibit such bank from holding and disposing of such real estate as it may
acquire through the collection of debts due it, and; Provided, Further,
That all E7anking institutions now organized: ascorporations doing business
In this state, are hereby permitted to continue said business, as at present
incorporated, but in all other respects, their business, and the manner of
conducting the same, and the operation of said bank, shall be carried on
subject to the laws of this state, and in accordance therewith, and, Provided further, That no bank except those that have complied with, or that
may be organized under the laws of this state relating to trust companies,
shall engage in any business other than is authorized by this act.
Section 4. That hereafter, the capital stock, which shall be fully
paid up, shalAnot be less than ten thousand dollars in towns or cities
having less than twenty-five hundred inhabitants; the capital stock of
which shall be fully paid up, shall not be less than fifteen thousand dollars in cities having more than twenty-five hundred and less than five
thousand inhabitants; the capital stock, which shall be fully paid up,
shall not be less than twenty thousand dollars in cities having more than
five thousand and less than ten thousand inhabitants; the capital.stock
which shall be fully paid up, shall not be less than twenty-five thousand
dollars in cities having over ten thousand inhabitants.
•
Section 5. The capital stock of any banking association, doing bus-_.,
mess under the laws of this state, may be increased or decreased at any
time by resolution adopted by three-fourths of its stockholders, at any
regular meeting or at a special meeting called for that purpose, of which
all stockholders shall have due notice, in the manner provided by the bylaws of such banking association. A certificate must be filed, with the
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Federal Reserve Bank of St. Louis
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•
bank commissioner, by the chairman and secretary of the meeting, and by a
majority of all the directors, showing the compliance of the provisions of
this section, the amount to which the capital stock has been increased or
decreased, the amount of stock represented at the meeting and the vote upon
the question to increase or decrease the capital stock. No sugh changes in
11Altda.i•atQck of any such associati2n-shfi11 be,vqTid,or binding until
the same shall have been approved by the bank commissioner:-Wincrease of
ills-n511-tir a-Mk—Shan -be 'approved until the amount thereof shall have
been paid in cash; ProiTied, however, That such increased capital may, when
authorized by all of the stockholders of said bank, be paid in whole or in
part from its surp1H2r undivided profits. Whenever the capital stock of
1nthis section, each stockholder
any bank shall be decrease& as pro
owner or holder of any stock C-eftificate shall surrender the same for cancellation, and shall be Hitlitre-d-VS-receive a new certificate for his proportion of the new stock. No decrease of the capital stock of any such
bank, shall be approved unless such banlii with reduced capital shall be
entirely solvent, and no reduction in capital shall be apnroved to an amount
less than is authorized by section two of this article. Whenever the capital stock of any bank shall be increased or decreased, as provided in this
section, and the same shall have been an-:roved by the commissioner, a certificate, signed by the president and cashier of the bank, setting forth
the amount of stock held by each stockholder, shall be filed with the secretary of state, with the bank commissioner and with the corporation commission.
Section 6. The affairs and business of any banking association organized under the laws of this state, shall be managed or controlled by a board
of directors of not less than three nor more than thirteen in number, who
shall be selected from the stockholders, at such time and in such manner as
may be provided by the by-laws of the association. No person shall be eligible to serve as a director of any bank, organized or existing under the
laws of this state, unless he shall be a bona fide owner of five hundred
dollars of the stock of such bank, fully paid and not hypothecated. _az_
directoIj_officer cr other rerson. who shall partici te,tn any violation
anking, shall be lre
of the laws of this state, relatIve io banks an
ax_1111_12aues,mhicn the said bank its stoCkhOlders, depositors, or_ci-oitors, shall sustain in consequence of such violation. The board shall sel-e-dt-from-aMong their number the Tresident and secretary and shall select
from among their stockholders a cashier. Such officers shall hold their
offices for a term of one year and until their successors are elected and
qualified. The board shall require the cashier and any and all officers,
having the care of the fundS Qf the bank to give a good and auffidient bond,
board. The board of
_
tb-he_Approved by
. them and nt!..11.1y_kne state bauking
year and at such
each
directors shall hold at least two regular meetings
and securities
funds
records,
meetings a thorough examination of the books,
record book,
its
upon
detail
in
recorded
held by the bank, shall be made and
and
commissioner
bank
the
to
forwarded
and a certified copy thereof shall be
days.
ten
within
to each stockholder of record
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Federal Reserve Bank of St. Louis
Ile
4
Section 7. Any officer of a bank found by the bank commissioner to be
dishonest, reckless or incompetentY shiaT be removed from office by the
board- of directors of the—EFEW of which he is an officer on the written
order of the bank commisg1aff6F.'
Section 8. The violation
of
_
officers or directors of any ban
of this state shall be sufficiffld
closed and liquidated by the bank
its charter.
any of. the provisions of this act by the
organized or existing subject to the laws
cause to subject the said bank to be
commissioner and for the annulment of
Section 9. The shareholders of every_bank organized under this act
shall be additionally fra
7Efi-FOr the amount of stock owned, and no more.
Section 10. No bank shall employ its moneys directly or indirectly in
trade or commerce by buying or selling goods, chattels, wares or merchandise,
and shall not invest any
its funds in .the stock of any other bank or incorporation nor make any loans or discount on the security of the shares of
its own capital stock, nor be the purchaser or holder of any such shares,
unless such secuirties or purchases shall be necessary to Prevent loss upon
a debt previously contracted in good faith, and stock so purchased or acquired shall within six months from the time of its purchase, be sold or
disposed of at public or private sale, after the expiration of six months
any such stock shall not be considered as part of the assets of any bank;
Provided, That it may sell any personal property which may come into its
possessions as collateral security for any debt or obligation due it, upon
posting a notice in five public places in the county wherein the property
is to be sold, at least ten days before the time therein specified for such
sale, and which said notice shall contain the name of the bank, and the name
of the pledgor, the date of the pledge, the nature of the default, and the
amount claimed to be due thereon at the date of the notice; a description
of the pledged property to be sold and the time and place of sale.
or
Section 11. Every bank doing business under the laws of this state
shall have on hand at all times in available funds the following sums, to
wit: Banks located in towns or cities having a population of less than
twenty-five hundred persons, an amount equal to twenty 7-er cent of their
.
entire deposits; banks located in cities having over twenty-five hundred
population) an amount equal to twenty-five per cent of their entire deposits,
two-thirds of such amounts may consist of balances due to them from good solvent banks, selected from time to time with the approval of the bank cominisshall consist of actual cash: Provided, That any
siOiieiç
bank that has been made the depository for the reserve of any other bank or
banks shall have on hand at all times in the manner provided herein twentyfive per cent of its deposits. Whenever the available funds in any bank
shall be below the required amount, such bank shall not increase its liabilities by making any new loans or discounts otheiivise than the discounting or purchasing bills of exchange payable at sight, nor make any dividends
of its profits until the required proportion between the aggregate amount of
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Federal Reserve Bank of St. Louis
-5
its deposits and Its lawful money reserve has been restored; and the bank
commissioner shall notify any b-ahk -WhiiSe lawful money reserve shall be below the amount required to be kept on hand to make good such reserve, and
if such bank or association shall_Tail to do so for a period of thirt_y_days
after
such notice ,-" it shall be deemed to be insolvent, and the bank commis__ .
sioner shall take possession of the same and proceedin the manner provided
In this act relating to insolvent banks. The bank commissioner may refuse
to consider as a part of its reserves, balances due to any bank from any
other bank association which shall refuse or neglect to furnish him with
such information as he may require from time to time relating to its business with any other bank doing business under this act, which shall enable
him to determine its solvency. Provided, That all savings associations
which do not transact a general banking business shall be required to keep
on hand at all times in actual cash a sum equal to ten per cent of their
deposits, and shall be required to keep a like sum invested in good bonds
of the United States or state, county, school district or municipal bonds
of the state of Oklahoma, worth not less than par.
Section 12. The total liabilities :to_any_bank of_any .person, company,
corporation or firm for money borrowed including in the liabilities of the
company or firm, the liabilities of the several members thereof shall not
at any time exceed twenty per cent of the capital stock of such bank, actually paid in, but the discount Of bi116-6T -exchange drawn in good faith
against actual existing values, as collateral security and a discount of
commercial or business paper, actually owned by the persons, shall not be
considered as money borrowed.
Section 13. 7very officer, director, agent or clerk of any bank doing
business under the laws of the state of Oklahome who wilfully and knowingly
subscribes to or makes any false report, or any false statements or enties
In the books of such bank or knowingly subscribes to or exhibits any false
writings on paper, with the intent to deceive any person as to the condition of such bank, shall be deemed guilty of a felony, and shall be punished by a fine not to exceed one thousand dollars or by imprisonment in the
state prison not exceeding five years, or by both such fine and imprisonment.
Section 14. It shall be unlawful for ani_IISIive managing officer of
any bank organized or existing under the laws of this ita-fe, to_borrow directly or indirectly, money from the bank with which he is connected. The
officer authorizing a loan to any of said persons, as well as the person receiving the same, shall be deemed guilty of a larceny of the amount borrowed.
Section 15. No bank shall accept or receive on deposit with or without
interest, any money, tank bills or notes, or United Stetes treasury notes,
gold or silver certificates, or currency or other notes, bills, checks or
drafts, when such bank is insolvent: and any officer, director, cashier,
manager, member,perty or,Auciaagips party of any bank who shall knowingly violate the provisions of this section, or be accessory to or !permit or connive
gqilty_of. a felat the receiving or accepting of any such deposit, shall be
not exceiding fine
a
by
punished
be
shall
thereof
ony, end upon conviction
not exceeding
penitentiary
the
in
five thousand dollars, or by imprisonment
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Federal Reserve Bank of St. Louis
6
five years, or by both such fine and imprisonment.
Section 16. It shall be unlawful for any individual, firm or corporation to receive money upon deposit or transact a banking business except as
authorized by this act, or by the laws relating to trust companies. Any person violating any provisions of this section, either individually or as an
interested party in any association or corporation, shall be guilty of a misdemeanor, and on conviction thereof, shall be fined in a sum not less than
three hundred dollars nor more than one thousand dollars, or by imprisonment
in the county jail not less than thirty days nor more than one year, or by
both such fine and imprisonment.
Section 17. Every bank shall_mak,e at_least_four reports each year, and
oftener if called upon, to the bank commissioner according to the form which
may be prescribed By him verified by the oath or affirmation of the president
or cashier of such association, and attested by the signatures of at least
two of the directors. Each such report shall exhibit in detail and under the
appropriate heads, the resources and liabilities of the association at the
close of business on any past day by him specified, and shall be transmitted
to the bank commissioner within ten days after the receipt of a request or
requisition therefor by him, and shall be published in the same form in which
it is made,to the bank commissioner, within ten days after the same is made,
In a newspaper published in the county in which such bank is established,
for two insertions at the expense of the bank; and such proof of publication
shall be furnished within five days after date of last publication, as may
be required by the bank commissioner. The bank commissioner shall also
have power to call for special reports from any bank whenever in his judgment the same are necessary in order to gain a full and complete knowledge
of its condition: Provided, The reports al:thorized and required by this
section, to be called or by the bank commissioner, shall relate to a date
prior to the date of such call to be specified therein.
Section 18. In addition to the reports required by the preceding section, each bank doing business under this act, shall, within ten days after
the declaring of any dividend, forward to the bank commissioner, a statement
of the amount of such dividend and the amount carried to the surplus and undivided profit accOailTi,_arnd shall forward to the bank commissioner, within
ten days after the first ofjanusry in each year, in such form as he may
designate, a verified statement howing the receipts and disbursements of
such bank for the preceding year.
Section 19. Every bank which fails to make and transmit or to publish
any report required under either of the two preceding sections, shall be
subject to a penalty of fifty dollars for each day after the period respectively therein mentioned that it delays to make and transmit its report or
the proof of publication. Whenever any bank delays or refuses to pay the
penalty herein imposed for a failure to make and transmit or to publish a
report, the commissioner is hereby authorized to maintain an action, in the
name of the state against the delinquent bank for the recovery of such penalty, and all sums collected by such action shall be paid into the treasury
of the state banking board.
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Federal Reserve Bank of St. Louis
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Section 20. Any bank doing business under this act may place its affairs and assets under the control of the bank commissioner by posting a
notice on its front door as follows: "This bank is in the hands of the
state bank commissioner." The posting of such notice, or the taking possession of any bank by the bank commissioner shall be sufficient to place
all of its assets and property of whatever nature in the possession of the
bank commissioner and shall operate as a bar to any attachment proceedings.
Section 21. Any bank doing business under this act may voluntarily
liquidate by raying off all its depositors in full and upon filing a verified statement with the bank commissioner setting forth the fact that all
its liabilities have bEn paid, end the surrendering of its certificate of
authority to transact a banking business, it shall cease to be subject to
the provisions of this act, and may continue to transact a loan and discount business under its charter: Provided, That the bank commissioner
shall make an examination of any such bank for the purpose of determining
that all its liabilities have been paid.
Section 22. A bank shall be deemed to be insolvent: First, when the
actual cash market value of its assets is insufficient to pay its liabilities; Second, when it is unable to meet the demands of its creditors in
the usual and customary manner; Third, when it shall fail to make good its
reserve as required by laws.
Section 23. The directors or owners of any bank doing business under
this act may declare dividends of so much of the net profits of their bank
as they shall judge expedient but each bank shall, before the declaration
of a dividend, carry not less than one-tenth of its net profits since the
last preceding dividend to its surplus fund, until the same shall amount
to fifty per cent of its capital stock: Provided, That such dividends if
any, shall be declared on the first day of January and the first day of
July of each year, and shall be reported to the bank commissioner on forms
prescribed by him.
Section 24. Any losses sustained by any bank, in excess of its undivided profits, may be charged to its surplus account: Provided, That its
surrlus fund shall thereafter be reimbursed from its earnings, and no dividend shell be declared or paid by any such bank until- its supItig -rUnt
shall be fully restored to its former amount.
Section 25. No bank officer or director thereof, shall, during the
time it shall continue its banking operaticns, withdraw, or permit to be
withdrawn, either in form of dividends or otherwise, any portion of its
capital. If losses have been at any time sustaAled by such bank equal to
or exceeding its undivided profits thap_on hand no. dividend shell be made,
and no dividend shall be declared by any bank while it continues its banking business to any amount greater then its profits on hand, deducting therefrom its losses to be ascertained by a careful estimate of the actual cash
value of all its assets at the time of making such dividends. The present
worth of all maturing paper shall be estimated at the usual discount rate
.
I
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Federal Reserve Bank of St. Louis
7
of the bank. Nothing in this section shall prevent the reduction of the capital stock of any bank in the manner prescribed herein.
Section 26. Every officer, banker, employee, director, or agent of any
bank, who shall neglect to perform any duty required by this act, or who shall
fail to conform tic) any lawful requirements made by the bank commissioner,
shall be deemed guilty of
felony, and upon conviction thereof, shall be
punished by
fine not to exceed one thousand dollars, or by imprisonment
in the renitentiopy not to exceed five years, or by both such fine and imprisonment.
Section 27. The state banking boerd shall have the power to offer and
pay out of the depositors guaranty fund, under such conditions as it may
deem proper, and not to exceed the sum of five hundred dollers in any one
case, rewards for the arrest and conviction of eny officer, agent, director
or employee of any bank charged with violating any of the laws of this State
relating to banks and banking for which a criminal penalty is provided, or
for the arrest end conviction of any person charged with stealing, with or
without force, any money, property or thing of value of any bank.
•
Section 28. It shall be unlawful for any officer, clerk, or egent of
any bank doing business under this act to certify any check, draft or order
drawn upon the bank unless the person, firm or corporation drawing such
check, draft or order has on deposit with the bank at the time such check,
draft or order is certified, an amount of money equal to the amount specified in such check. Any check, draft or order so certified by the duly authorized officer shell be a good and valid obligation against such bank, but
the officer, clerk or agent of any bank violating the provisions of this
Section shall be deemed guilty of a felony, and upon conviction shall be
punished as provided in this Act.
Sagtion 29. Every president, director, cashier, teller, clerk, officer or agent of any bank who embezzles, abstracts or wilfully misapplies any
of the moneys, funds, securities or credits of the bank, or who issues or
puts forth any certificate of deposit, draws any draft or bill of exchange
makes any acceptance, assigns any note, bond, draft, bill of exchange,
mortgage, judgment or decree, or who makes use of the bank in any manner
with intent in either case to injure or defraud the bank or any individual,
person, company or corporation, or to deceive any officer of the bank, and
any person who with the like intent aids or abets any officer, clerk, or
agent in violation of this Section, shall be deemed guilty of a felony and
upon conviction thereof shall be punished as provided in this Act.
Section 30. Any bank officer, or employee who shall pay out the funds
of any bank upon the check, order or draft of any individual, firm, corporation or associetion, which has not on deposit with such banks a sum equal
to such check, order or draft, shall be personally liable to such bank
for the amount so paid, and such liabilities shall be covered by his official bond.
Secticn 31. No bank, banker, or bank officiel shall give preference
to any depositor or creditor by pledging the
assets of the bank as collateral
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Federal Reserve Bank of St. Louis
8
security: Provided, That any bank may borrow money for temporary purposes,
not to exceed in amoun--6--tifiir pei.cent of its paid up capital, and may
pledge assets of the_bAak_as_gollateral security therefor: Provided, Further, That whenever it shall appear that a bank Is -b-Orroiing habitually for
the purpose of reloaning, the bank commissioner may require such bank to
pay off such borrowed money. Nothing herein shall prevent any bank from
rediscounting in good faith and endorsing any of its negotiable notes.
mg,
Section 32. Whenever it shall appear that the capital of any bank dong business under this Act has become impaired, the bank commissioner shall i
notify such bank to make such impairment good within sixty days, and it shall '
be the duty of the officers and directors of any bank receiving such notice
from the bank commissioner to immediately call a special meeting of its
stock-holders for the purpose of levying an assessment upon its stock-holders
sufficient to cover the impairment of its capital stock; Provided, That such
bank, if not insolvent, may reduce its capital stock to the extent of such impairment, if such reduction will not place its capital below the amount required by this Act; and Provided, Further, That the bank shall have a prior
lien upon the stock of each individual shareholder to the extent of such
assessment, and upon the failure of any such stock-holder to pay the assessment authorized by this Section within the time fixed by the bank commissioner for making good said impairment, said lien may be foreclosed and the
stock of such delinquent stock-holder sold, by giving public notice of the
time and place of such sale, and of the stock to be sold, by advertisement
for fifteen days in some newspaper of general circulation published in the
county where such bank is located.
Any national bank doing business in this State may incorporate as a state bank, as provided herein for the organization of banks;
Provided, that the bank commissioner may accept good assets of such national bank worth not less than par in lieu of cash payment for the stock of
such state bank.
Section 33.
Section 34. The president and cashier of every incorporated bank shall
cause to be kept at all times, a full and correct list of the names and residence of all shareholders in the bank and the number of shares held by each,
In the office where its business is transacted. Such list shall be subject
to the inspection of all the shareholders and creditors of the bank and the
officers authorized to assess taxes under the state authority, during business hours of each day in which business may be legally transacted. A copy
of such list on the first Monday in January of each year, verified by the
oath of such president or cashier, shall be transmitted to the bank commissioner.
•
Section 35. Whenever any officer of the bank shall refuse to submit
the books, papers, and effects of such bank to the inspection of the commissioner, or his assistant or shall in any manner obstruct or interfere
on oath
with him in the discharge of his duties, or refuse to be examined
authori
touching the affairs of the bank, the commissioner may revoke the
its
up
wind
of such bank to transact a banking business, and proceed to
business.
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Federal Reserve Bank of St. Louis
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Section 36. Any officer of any bank whose authority to transact a
banking business has been revoked as herein provided, who shall receive
or cause to be received any deposit of whatsoever nature after such revocation, shall be subject to the same penalty provided for persons transacting a banking business without authority.
Section 37. A bank may purchase, hold, and convey real estate for the
following purposes: First, such as shall be necessary for the convenient
transaction of its business, including its furniture and fixtures, but
which shall not exceed one-third of the paid in capital; Second, such as
shall be conveyed to it in satisfaction of debts previously contracted in
the course of its business; Third, such as it shall purchase at sale under
judgment, decree, or mortgage foreclosures under securities held by it; but
a bank shall not bid at any such sale a larger amount than enough to satisfy
its debts and costs. Real estate shall be conveyed under the corporate seal
of the bank and the hands of its president or vice-president and cahhier.
No real estate acquired in the cases contemplated in the second and third
sub-sections above shall be held for a longer time than five years. It
must be sold at a private or public sale within thirty days thereafter.
Section 38. The shares of stock of an incorporated bank shall be
deemed personal property, and shall be transferred on the books of the
bank in such manner as the by-laws thereof may direct, but no transfer of
stock shall be valid against a bank or any creditor thereof so long as the
registered holder thereof shall be liable as a principal debtor, surety,
or otherwise to the bank for any debt, nor in such cases shall any dividentl interest, or profits be paid on said stock so long as such liabilities continue, but all such dividends, interest, or profits shall be retained by the bank and applied to the discharge of such liabilities, and
no stock shall be transferred on the books of any bank where the tegistered holder thereof is in debt to the bank for any matured and unpaid
obligations.
Section 39. It shall be unlawful for any bank to loan its funds to
stockholders on their stock as collateral security; and the total in4
,
fts
./
debtedness of the stockholders of any incorporated bank shell at no time
exceed fifty per cent of its paid up capital; Provided, That any bank may
hold it stock to secure a debt previously contracted.
Section 40. For the purpose of carrying into effect the provisions
of this Act, the Bank Commissioner shell provide a form for the necessary
blanks for such examinations and reports; and all examinations and reports received by him shall be preserved in his office.
Section 41. Every officer or employee of a bank required by this
Act to take an oath or affirmation who shall willfully swear or affirm
falsely, shall be deemed guilty of perjury, and, upon conviction thereof
shall be punished as provided by the laws of the State in case of perjury.
•
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Federal Reserve Bank of St. Louis
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ARTICLE TWO
Section 1. The Statgepanki1;14..,PPEtrd shall be composed of the Governor,
Lieutenant Governor, the Preq1AAILI_OfAhe_Board of Agriculture State
Treasurer and State_Auat.or. Said board shall have the supervision ana
management of the Depositor's Guaranty Fund, hereinafter provided for and
shall have power to adopt all suitable rules end regulations not inconsistent with law, for the management and administration of same.
A
Section 2.A The state Banking Board shall levy against the capital
stock an assessment of one per cent of the bank's daily average depos.its,
less_the deposits of the United States and State funds, if otherwise secured„.. for the preceding year, upon each and every bank and trust company
organized or existing under the laws of this State, for the rurpose of creailig a- Depositor's Guaranty Fund. Said_assesament shall be collected upon
call _of the State Banking Board. In one year from the time the first assessment is levied, an annually thereafter, each_bank. and trust company
subject to the provisions of this Act shall report to the Bank Commission'
the amount of its average daily deposits for the 'preceding year, and if
per cent was presuch depoblts -6Ye _ In
_ excess of the amount upon which one
funds to equal
additional
by
d
viously paid, said report shall be accompanie
lessthe
deposits of
of
deposits
one per cent of the daily average excess
United States
the
of
deposits
the
and
less
State—Turd-a-11. --otherwise secured
shell be
anoiint
each
and
year,
government for the yeer over the preceding
fund
uaranty
_
.
del
DMItorts
the
If
fund.
ipla6a--to the depositortz guaranty
Board
Benking
theState_
of
duty
the
be
_shall
it
ii -Tepleted from any s cause,
all
in
deposits
total
the
of
cent
to
one
per
up
in order to keep said fund
Act,
this
of
the
provisions
to
subiect
trust
companies
of the said banks and
assessspecial
which
,
deficiency
such
to
cover
to levy a special assessment
ment shall be levied. upon the capital stock of the banks end trust companies
subject to this Act, according to the amount of their deposits as reported
0-611
An the office-0-t-th_e__Bank Commissioner. And such special espessrnent
due
and
y
payable.
become immediatel
.Ellied subsequent to the enSection 3. Bank.e .and trust companies_ort
s guaranty fund, three per
depositor'
the
into
pay
Agt.sha13
this
actment of
open for business, which
they
when
stock
cepital
of
their
amount
the
cent _of
on the basis of
adjustment
to
)Lject
..
sl
fund,
constitute
a_credit
shall
amount
now
existing at
companies
trust
and
banks
for
other
as
provided
deppsits
its
all
payment_sh
cent
per
three
said
However,
Provided,_
onee_ar.
of
end
:the
atior
re-organiz
the
by
formed
companies
trust
of
prd
new
banks
required
not be
y
complied
'previousl
have
that
companies
trust
.
banks
ion
and
of
consolidat
or
_
with the terms of this Act.
Section 4. Any National bank in this State approved by the bank: commis& ner may voluntarily avail its depositors.of the protectien of the depositor's guaranty funtk_14 aloPliSAIISOLI2Ithe_65tate Banking Baord in
in
writing and said_application_may be sustained won terms and conditions
1.--EFT-1
harmony with the_purpose of tlis Act to be agreed upon by the State
tionaL1
Board and the Bank _Commissioner'/Provided, That in the_eventat.
torts
should ba_required by Federal nectment to pay assessment to anyltposi
,
national
in
g.usEanty fund of the Federal_qovernment, and thereby the deposits
of Federal lews,liq,V- P
guarantee'
bh
banks in this State
_. by virtue
_ sould
I
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Federal Reserve Bank of St. Louis
1 Al
national banks having availed themselves of the benefits of this Act may
withdraw thQrefron, and have returned to them ninety per cent of the unused
portion of all assessments levied upon and paid by said banks.
Section 5. Whenever any bank or trust company organized or existing
under the laws of thia:State shall voluntarily place itself in the hands
be rendered by
of the Bank Commissioner, or, whenever any judgment
djudging
and
that such bank
jurisdiction
decreeing
competent
of
a_aourt
to conor
or
rig,17ts
franchises
whenever
its
insolvent,
or trust com;.En: is
adjudged
of
laws
been
shall
this
the
have
state
under
business
duct a banking
of
satisfied
bank
shall
the
become
whenever
commissioner
or
Isia-tke tQl-I_O.ted,
or
may,
bank
examinesuch
company
he
trust
due
any
after
of
insolvency
the
_tion_of its affairs take possession of said bank or trust company and its
assela, and proceed to wind up its affairs and enforce the personal liability of the stockholders, officers and directors.
Section 6. In the event that the Bank Commissioner shall take possession of any_bank or trust corusny which is subject to the provisions of
this Act the depositors of said bank or trust company shall be paid in
and when
the cash available or that can be made immediately available
_
of said bank or trust company is ins fficient to discharge its obliLations
to said depositors, the said baaing board shall draw from the depositor's
jp_gr_ality_-___.tUncl and from additional assessments, if required, as provided in
Section tWo, the amount_34EQaPserY-to make up the deficiency, and the State
shall have for the benefit of the depositor's guaranty fund a first lien
upon the assetti-Ot said bank or trust company and all liabilities against
the stockholders, officers, and directors 01' said bank or trust company and
against all qther, persons, corporations, or firms:--Mch liability maybe
enforced by the State for the benefit of the depositor's guaranty fund.
Section 7. 21 Bank commissioner shall take possession of the books,
records and assets of every description of such ban'n or trust company, collect debts, duesand,cfiiRs belonging to it, and upon order of the District
Court, or judge thereof, may sell or_Tacolo.lind, all bad or doubtfUl_d_Ots, and
on like oraer_m_gpll all the real or personal property of such bank or
trust company upon such terms as the court or judge thereof may directx_Aaq
IT.51i..„_111jaecessary, pay t)ae dglIts of such bank or trust company, and enforce
)
the liabilities of the stockholders officers, and directors: Provided
not
shall
insection
this
in
debts
used
as
E3Wever, That.ipd or doubtful
clude the liability of stockholders, officers, and directors.
Section 8. The Bank Commiss,ioner_sball deliver,to .lep.gh bank or trust
company _that be MAPlied with the provisions of this Act a certificate
stating that said bank or trust Cbmpanylag_pomplied with the laws of this
State for the protection of bank depositors, and that safety to its deposte_eLby 'ffierdeposfOrs guaRilty fund of the State of Oklahoma.
itors i_s_auaran
lace of business
certificate shaiT-17i _c-O-nspicpouslY di4k1yed
stationery and
upon
Its
engrave
or
print
may
and said baER-3i trust company
protected by
are
depositors
its
that
effect
the
to
11=1JALilig_mttar_yiords
1C•j
_allch
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Federal
Reserve Bank of St. Louis
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the Depositor!s Guaranty fund of the State of Oklahoma. The printing or enjravinz of a false statement to the fact lat before this named is hereby
declared a felony.
A
Section 9. _After_the_Bank Commissioner shall have taken possession of
any bank or trust company which is subject to the provisions of this Act,
the stockholders thereof may repair its credit _restore or substitute its
reserves and otherwise place it in condition so that it is qualified to do
a_ieneral_bankin business as before it was taken possession of by the Bank
Commissioner; but such bank shall n6t be permitted to reopen its business
unTirthe Bank Commissioaer, after a careful investigation of its affairs is
of the opinion that its stockholders have complied with the laws, that the
bank's credit and funds are in all respects repaired, and all adVances, if
any, mga-e—TiGnre depositor's Guaranty Fund fully re-Paid, its reserve restored or sufficiently substitutedj and that it should be permitted again
to reopen for 1ZuOiaess; whereupon said Bank Commissioner is authorized to
issue written permission for re-opening of said bank in the same manner as
)permission to do business_is granted after the incorporation thereof, and
thereupon said bank may be re-opened to do a general banking business.
•
Section 10. Any bank or trust company which has complied with the provisions of this Act shall be e1ig4_ble to act as a depository of State funds,
or any fund under the control of the State or any officer thereof, upon compliance with the laws of this State relating to the deposits of public funds.
ARTICLE THRTE
Section 1. The Governor shall appoint, by and with the advice and consent of the Senate, a Bank Commissioner, who shall hold office for the term
of four years, and until his successor is appointed and qualified. No officer or employee of any bank or any person interested as owned or stockholder
of any bank, shall be eligible to the office of Bank Commissioner; Provided,
That no person shall be appointed as Bank Commissioner, who shall not have
had, prior to such appointment, at least three years practical experience
as a banker.
Section 2. The Bank Commissioner shall before entering upon the discharge of his duties, take and subscribe the usual oath of office and execute to the State of Oklahoma, a bond in the sum of twenty-five thousand
dollars with sufficient surety for the faithful performance of his duty,
to be approved and filed as provided by law.
'
(3(_
- Section 3. It shall be the duty of the i3ank Commissioner, or one of
his assistants, to visit each and every bank or trust company subject to the
if he deem it ad/ provisions Ofthis Act_at least twice a year, and oftener
.
and inexamination
careful
the
_purpose
of
making
a
full
and
for
'
----- %visable,
purpose,
for
that
bank,
and
of
such
the
affairs
condition
of
the
quiry into
empowered
and
authorized
hereby
are
his
assistants
IloaL_Baak Commissioner and
to administer oaths, and to examine under oath the stockholders and directors and all officers and employes and agents of such banks or other persons.
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Federal Reserve Bank of St. Louis
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The Commissioner shall reduce the result thereof to writing, which shall contain_a_full, trUe, and careful statement of the condition of such bent, or
trust company and file and retain the same in his office.
-
1 J Section 4. The Bank Commissioner's salary shall be twenty-five hundred
dollars per annum and traveling expenses, and he shall appoint subject to
the approval of the Governor, necessary assistants, and the salary of each
assistant shall not exceed fifteen hundred dollars per annum and traveling
expenses.
Section 5. Each and every bank so examined, having not more than fifteen thousand dollars capital stock paid in, shell pay a fee of fifteen dollars for each and every examination; and each and every bank having more
than fifteen thousand dollars capital stock paid in and not more than twentyfive thousand dollars paid in, shall pay a fee of twenty dollars; and each
and every bank having more than twenty-five thousand dollars capital stock
paid in and not more than forty thousand dollars capital stock paid in,
shall pay a fee. of twenty-five dollars; and each and every bank having more
than forty thousand dollars capita] stock paid in, and not more than fifty
thousand dollars capital stock paid in, shall pay fee of thirty dollars; and
each and every bank having more than fifty thousand dollars capital stock
paid in, shall pay a fee of thirty-five dollars to the Commissioner.
•
A -Section 6. It shall be the duty of the Bank Commissioner to pay over
to the treasurer of the state banking board, all fees collected by him, and
said banking board shall use the same, or so much thereof as may be necessary
in, paying the expens6s incurred in making examinations of banks subject to
any of the banking laws of this state, and other expenses incurred by said
banking board in the administration of said depositors'guaranty fund.
Section 7. The Bank Commissioner shall have power at any time when
he deems it necessary to call upon any bank or trust company organized under the laws of this state, and upon any national bark, whose depositors
are protected by the depositors/ guaranty fund, for a report of its condition upon any given day which is passed, or as often as the Bank Commissioner may deem it necessary; Provided, That he shall require at least four
such reports during each and every calendar year. A copy of each call made
by the Bank Commissioner shall be mailed to each such bank.
Section 8. Any Bank Commissioner or assistant bank commissioner who
shall neglect to perform any duty provided for by this act, or who shall
make any false statement concerning any bank, or sho shall be guilty of
any misconduct or corruption in office shall, upon conviction thereof, be
deemed guilty of a felony and punished in the manner provided in this act,
and in addition thereto shall be removed from office.
Section 9. It shell be the duty of the Bank Commissioner to inform
the county attorney of the county in which the bank is located, of any
violations of any of the provisions of this act, which constitutes a misdemeanor or a felony, by the officers, owners, or employees of any bank.
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Federal Reserve Bank of St. Louis
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and upon receipt of such information the county attorney shall institute
proceedings to enforce the provisions of this act.
Section 10.
hereby repealed.
All acts and parts of acts in c )
- nflict herewith are
Section 11. An emergency is hereby declared by reason whereof it
is necessary for the immediate preservation of the public peace, health
and safety that this act take effect from and after its passage and approval.
WM. H. MURRAY,
Speaker of the House of Representatives
GEORGE W. bELLAMY,
President of the Senate.
Approved May 26th, 1908.
C. N. EASMaJ., Governor of the State of Oklahoma.
•
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Federal Reserve Bank of St. Louis
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is
041
AMENDMENTS TO THE BANKING LAWS OF OKLAHOMA
On larch 11, 1909, the following sections of the Oklahoma banking
laws were amended to read as follows:
ARTICLE I
Section 5. (First clause) A banking corporation organized under the
provisions of this act, shall be permitted to receive money on deposit not
to exceed ten (10) times the amount of its paid up capital and surplus,
deposits of other banks not included, and to pay interest thereon, not to
exceed the rate that may from time to time be fixed by the Bank Commissioner,
as the maximum rate that may be paid upon deposits by banks in this state;
(Final sentence added) .... And whenever it shall appear from the
preceding year reports made by such banking corporation that the total
deposits are more than ten (10) times the amount of its paid up capital and
surplus, deposits of other banks not included, the Bank Commissioner shall
have power and it shall be his duty to require such bank within thirty (30)
days to increase its capital or surplus to conform to the provisions of
this act, or cease to receive deposits.
•
Section 4. That hereafter the capital stock, which shall be fully paia
up, shall not be less than Ten Thousand (410,000.00) Dollars in towns
having five hundred (500) inhabitants or less; the capital stock, which
shall be fully paid up shall not be less than Fifteen Thousand (15,000)
Dollars in towns having more than five hundred (500) inhabitants and not
more than fifteen hundred (1500) inhabitants; the capital stock, which shall
be fully paid up shall not be less than Twenty-five Thousand ($25,000)
Dollars in cities and towns having more than fifteen hundred (1500) inhabitants and less than six thousand (6,000) inhabitants; the capital stock
which shall be fully paid up shall not be less than Fifty Thousand ($50,000)
Dollars in cities having more than six thousand (6,000) inhabitants, and
less than twenty thousand (20,000) inhabitants; the capital stock which shall
be fully paid up shall not be less than One Hundred Thousand ($100,000)
Dollars, in cities having more than twenty thousand (20,000) inhabitants.
4111
V
Section 25. No bank officer or director thereof shall, during the
l'
time it shall continue its banking operations, withdraw, or permit to be
withdrawn, either in form of dividends or otherwise, any portion of its
capital. If losses have been at any time unless the person, firm or corporation drawing such che value of all its assets at. the time of making such
dividends. The present worth of all maturing paper shall be estimated at
1 •
the usual discount rate of the bank. Nothing in this section shall prevent
'1
the reduction of the capital stock of any bank in the manner prescribed
-1
herein.
'4A1
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Federal Reserve Bank of St. Louis
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ARTICLE II
S
Section 2. There is hereby levied an assessment against the capital
stock of each and every bank and trust company organized or existing under
the laws of this state for the purpose of creating a Depositors' Guaranty
Fund equal to five (5) per centum of its average daily deposits during its
continuance in business as a banking corporation. Said assessments shall
be payable one-fifth during the first year and one-twentieth during each
year thereafter until the total amount of said five (5) per centum assessment shall have been fully paid; provided, however, that the assessments
heretofore levied and paid by banking corporations or trust companies now
existing shall be deducted from and credited as a payment on said five (5)
per centum assessment hereby levied. The average daily deposits of each
bank during the preceding year prior to the passage and approval of this
act, shall be taken as the basis for computing the amount of the first
payment on the levy hereby made. One year after the passage and approval
of this act, and an:Jun.11y thereafter, each bank and trust company doing
business under the laws of this state, shall report to the Bank Commissioner
the amount of its average daily deposits for the preceding year, and if
such deposits are in excess of the amount upon which the first or subsequent payment of the levy hereby made is computed, each bank or trust
company having such increased deposits shall immediately pay into the
Depositors' Guaranty Fund a sum sufficient to pay any deficiency on said
first or subsequent payment, as shown by such increased deposits. After
the five (5) per centum assessment hereby levied shall have been fully paid
up, no additional assessments shall be levied or collected against the
capital stock of any such bank or trust company, except emergency assessment,
hereinafter provided to pay the depositors of failed banks, and except
assessments as may be necessary by reason of increased deposits to maintain
such fund at five (5) per centum of the aggregate of all deposits in such
banks and trust companies doing busIness under the laws of this state.
Whenever the depositors' guaranty fund shall become impaired or be reduced
below said five (5) per centum by reason of payments to depositors of failed
banks, the State Banking Board shall have the power, and it shall be their
duty to levy emergency assessments against the capital stock of each bank
and trust company doing business in t is state sufficient to restore said
impairment or reduction below five (5) per centum; but the aggregate of
such emergency assessments shall not in any one calendar year exceed two
(2) per centum of the average daily deposits of all such banks and trust
companies. If the amount realized from such emergency assessments shall
be insufficient to pay off the depositors of all failed banks having valid
claims against said depositors' guaranty fund, the State Banking Board shall
issue and deliver to each depositor having any such unpaid deposit, a
certificate of indebtedness for the amount of nis unpaid deposit, bearing
six (6) per cent interest. Such certificates shall be consecutively numbered
and shall be payable upon the call of the State Banking Board in like manner
as state warrants are paid by the State Treasurer in the order of their
issue out of the emergency levy thereafter made; and the State Banking Board
shall from year to year levy emergency assessments as hereinbefore provided
against the capital stock of all banking corporations and trust companies
doing business in this state until all such certificates of indebtedness
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Federal Reserve Bank of St. Louis
with the accrued interest thereon shall have been fully paid. As rapidly
as the assets of failed banks are liquidated and realized upon by the Bank
Commissioner, the same shall be applied first after the payment of the
expense of liquidation to the repayment to the depositors' guaranty fund of
all money paid out of said fund to the depositors of such failed bank, and
shall be applied by the State Banking Board toward refunding any emergency
assessment levied by reason of the failure of such liquidated bank. Provided, further, That seventy-five (75) per cent of the Depositors' Guaranty
Fund shall be invested for the benefit of said fund in state warrants or
such other securities as state funds are now required to be invested.
Section 4 on page 274 of House Bill No. 615 eliminated in amended law.
Section 7. (Third sentence) Provided, however, That hereafter all
banks operating under the guaranty law of tne State of Oklahoma shall be
permitted to advertise that their deposits are guaranteed by the Depositors'
Guaranty Fund, but that no bank shall be permitted to advertise its
deposits as guaranteed by the State of Oklahoma, and any bank or bank
officer or employee who shall advertise tleir deposits as guaranteed by the State
of Oklahoma shall be guilty of a misdemeanor and upon conviction thereof
shall be punished by a fine not exceeding Five Hundred (4500.00) Dollars or
by imprisonment in the county jail for thirty days or by both such fine and
imprisonment in the discretion of the trial court.
ARTICLE III
Section 4. The Bank Commissioner's salary shall be Twenty-five Hundred
(2500.00) Dollars per annum and traveling expenses. There is hereby created
and established eight positions, each position to be known as an assistant
to the Bank Commissioner, and to be filled by appointment by the Bank Commissioner, subject to the approval of the Governor; and the salary of each
said assistant to Bank Commissioner shall be Eighteen Hundred (1800.00)
Dollars per annum and traveling expenses.
Section 11, on page 278 of House Bill No. 615, eliminated in amended
law.
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Federal Reserve Bank of St. Louis
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AMENDLENTS TO THE BANKING LAWS OF OKLAHOMA
1909
(Mrs. Pastedo's Synopsis)
Relation of Capital to Deposits
Chapter 5, Article II, Section 1, Page 120.
Section 594
Amends 1208 G. S.
The ratio of amount of deposits to capital and surplus is
established at ten to one, deposits of other banks to be
deducted.
Capital Requirements - Amount per population
Chapter E., Article II, Section 2, Page 121.
Section 595.
Population
sse
500
500
1500
6000
Over
or
to
to
to
less
1500
6000
20000
20000
Amends 1908 G. S.
Amount Required
Not less than $10,000
15,000
25,000
50,000
100,000
Capittiajogyirements - Relation of Capital to Deposits:
S. L. Chapter 5, Article II, Section 1, Page 120.
Section 594.
Amends 1208 G. S.
The ratio of amount of deposits to capital and surplus is
established at 10 to 1, deposits of other banks to be
deducted.
Assessments
Chapter 5, Article II, Section 3, pp. 122-123, amending 1908 G. S. Sections 634, 635.
.0
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Federal Reserve Bank of St. Louis
The capital stock of every bank and trust company operating
under state laws is assessed 5% of their average daily
deposits to be assessed as follows:
1/5 of the assessment payable the first year (1%), and 1/20
every year thereafter until the fund is complete. Those bank.:t;
having already paid assessments to be credited therewith toward
their 5% quota.
- 2-
Oft
Assessments to be based on average daily deposits for the yea2
preceding.
Additional assessme4ts to be made to adjust the assessment in
proportion to ttriiincrease mT,-481.e.ereelowin deposits.
Special assessments not to exceed 2% in any one year may be made
in case of depletion of the fund below the 5% basis and to
meet the payment of depositors in closed ban:s.
If the amount realized from the emergency assessments is insufficient to pay the depositors, the State Banking Board is to
issue to each depositor a certificate of indebtedness bearing
6% interest, these certificates to be consecutively numbered
and paid in order out of future assessments.
These certificates are payable on call.
The Fund
,
d/Chapter 5, Article II, Section 5, pp. 122-125.
Section 634
Amends 1908 G. E.
A fund of 5% of the average daily deposits of all banks and 47-:-4
companies, operating under state laws, is created.
The fund is to be restored by special assessments whenever depleted.
The proceeds of the assets of the bank, after the expenses of liquidation are met, are to be paid back to the guaranty fund, including refunding emergency assessments.
Bank Commissioner
Chapter 5, Article I, Section 1, Page 119.
Amends 1908 0. S. Section 646
Establishes 8 positions as assistant to the bank commissioner.
Raises assistants' pay from 0_500 to t1800 per annum, plus
expenses.
Chapter .5, Article II, Section 1, Page 120.
594.
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Federal Reserve Bank of St. Louis
Amends 1908 G. S. Section
Gives bank commissioner power to require a bank, whose deposits
exceed the 10 to 1 ratio, to increase its capital within 30
days or cease receiving deposits.
-3
igt•
Certificates to Depositors
Chapter 5, Article II, Section 3, pp. 122-125.
When the fund is insufficient after the special assessments, the
State Banking Board is to issue certificates bearing 6% interest
to each depositor to be paid in order of their issue.
Investedj How
Chapter 5, Article II, Section 5, pp. 122-123.
Provided that 75% of the guaranty fund shall be invested in
state warrants or such other securities as are now specified
for state funds.
Reports
Chapter 5, Article II, Section 3, pp. 122-123.
Annual reports are called for stating average daily deposits for
the year just passed.
Certificate of Membership
Chapter 5, Article II, Section 4, pp. 125-124.
Bank commissioner to issue to banks that have qualified a certificate that their deposits are guaranteed by the depositors
guaranty fund.
Banks are required to display these certificates and may advertise
to this effect, but are subject to punishment if they state that
the deposits are guaranteed by the State of Oklahoma.
•
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Federal Reserve Bank of St. Louis
AMENDMENTS TO THE BANKING LAWS OF OKLAHOMA
1911 (approved Feb. 25, 1911)
.
I
(Mrs. Bastedo's Synopsis)
The Fund - Supervision
Ch. 31, Sec. 1, p. 53 (Amends 1908 - G. S., Sec. 633)
The board to consist of the governor and two other members appointed
by the governor, with the approval of the Senate.
Compensation: $6.00 per day for time actually spent in session and
going to and from sessions, plus expenses. Bank Commissioner to be
ex-officio secretary of the Board.
StateBanking Board
Ch. 31, Section 1, p. 53. Revises 1908 G. S. Section 633.
The board to consist of tho governor and two other members, appointed
by the governor, with the approval of the Senate.
Compensation: ::,d6.00 per day for time actually spent in session and going
to and from sessions, plus expenses. Bank Commissioner to be ex-officio
secretary of the Board.
The members of the board other than the Bank Commissioner are not to
receive compensation for their services, except traveling expenses.
1111
Vacancies to be filled by governor's appointment.
Assessments
Section 3, pp. 54, 55, 56. Amends 1908 G. S. Sections 634 and 635.
Additional assessments due to increase in deposits are to be credited
to the Depositors Guaranty Fund and a certificate of deposit bearing
4% interest issued to the Bank Commissioner.
Trust companies not included after September 1, 1911.
The Fund collected is to be redeposited in the respective banks and
the banks are to issue certificates of deposit to the Bank Commissioner,
bearing 4% interest.
Invested, How
Chapter 31, Section 3, Page 56. Revising 1909 - Chapter 5, Article II,
Section 3, pp. 122-123.
Instead of investing the fund in certain securities it is to be
re-deposited in the respective banks, the banks to issue certificates
of deposit to the bank commissioner, bearing 4% interest.
Certificate of Membership
Chapter 31, Section 3, Page 55. (Amends 1908 G. S. Section 634).
After September 1, 1911 trust companies are no longer members of the
fund and do not receive the benefits thereof.
tale
Note: Law reads: "No corporation doing a trust business shall have
the benefits of this Act after September 1, 1911."
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Federal Reserve Bank of St. Louis
- 2 -
111/
2a1ILI
Commiesioner
Chapter 31, Section 2, pp. 53-54. Amending 1908 G. S. Section 646,
and 1909 Chapter 5, Article 1, Section 1.
Commissioner's salary raised from 42500 to
traveling expenses.
4O0 dGr year, plus
Assistants. The number of assistants allowed is increased from
8 to 12 positions, with the same requirements as for the bank commissioner, and the salary raised to $2000 per annum plus traveling
expenses, one of which is to be known as the Building and Loan
Auditor. Appointed by Commissioner with approval of Goveraor.
•
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Federal Reserve Bank of St. Louis
AMENDMENTS TO BANKING LAWS OF OKLAHOMA - 1913
)
(Mrs. Bastedo's Synopsis)
Charters
Chapter 22, Section 8, pp. 50-31
A certificate issued by the Bank Commissioner with the approval
of the Banking Board must be obtained before any bank can be
chartered.
Capital Stock
Chapter 22, Section 11, Page 63.
ResITigIgl.ons on transfer. They may be transferred by written
assignment on the certificates but must actually be transferred on
the stock books of the corporation before such transfer is binding.
For a period of one year after the transfer or until the bank has
been examined and the sale approved by the State Bank Commissioner,
the original owner continues to be jointly liable with the new
owner.
State Banking_Board
Chapter 22, Section 6, Page 26.
Members of board to be chosen by governor from those recommended 1
State Bankers Association. For further details see card under St
Bankers Association.
Section 5, pp. 26-27.
Board members may be removed by the governor - 2/3 vote of members
of State Bankers Association constitutes authority for recommending
removal.
Section 1, pp. 25-24. Amends 1911, Chapter 31, Section 1.
The governor still appoints the members of the board, with the consent of the senate, but is not himself a member. It now consists
of the Bank Commissioner, who is chairman, and three other persons
who are to hold office concurrently with the governor and are to
electfi-om their number a treasurer.
Section 6, page 28.
Records to be kept by Banking Board and a quarterly report made to
each member bank.
j, Assessments
zgrir
, Chapter 22, Section 4, Page 26. Amends 1911, Chapter 31, Section 3.
- tA4,...te.4.0,.,, New banks shall pay into the Fund when they open for business, 3%
t of their capital stock. This does not apply to banks formed by
gqo
reorganization or consolidation of banks which have previously complied with the laws of the state.
V141fA
Chapter
22, Section 6, pp. 27, 28, 29, 30. Amends 1911, Chapter 31,
IA/lei 14'
Section 3.
Provides for annual assessment against capital stock, of 1/5 of 1%
of average daily deposits as long as a bank continues as such until
fund reaches 2%.
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Federal Reserve Bank of St. Louis
, L41 41
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State Banking Board in their discretion may levy an additional
special assessment of 1/5 of 1% during the fiscal years ending
June 30, 1914, June 30, 1915 and June 50, 1916.
This fund to be used solely to liquidate deposits of failed banks
and to retire warrants provided for in this act.
Assessments to be paid by cashier's checks to be held by Banking
Board until it deems it necessary to collect same, but do not bear
interest while so held.
When fund reaches 2% assessment to cease until fund is depleted, in
which case assessments not to exceed 1/5 of 1% are. to be levied
annually and no more except the three years as specified.
The Fund
Chapter 22, Section 6, Page 28. Amends 1909, Chapter 5, Article II,
Section 3.
Reduces fund to % of average daily deposits of all banks (leaving
out trust companies).
(Section 6, continued) Records to be kept by Banking Board and a
quarterly report made to each member bank.
..// Chapter 22, Section 8, Pages 50, 31.
Security for Fund. All banks shall deposit with the State Banking
Board, as security for its liabilities to the Depositors Guaranty ,
Fund, bonds or warrants of the state, county,/ etc., equal to not
less than 1% of its average daily deposits* shall at all ti,..es
maintain in warrants or bonds as specifiea' an amount equal to its
pro rata share of all outstanding warrants, with the minimum set
at 4500.00 of such securities.
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The above securities are not to be charged out of the assets but
carried under "Securities with the State Banking Board", until
such bank defaults in payments of its liabilities to the Depositors
Guaranty Fund, when, uponnotice, the securities may be turned into
cash and the proceeds applied to any defaulted liability to the
fund of that bank.
The Find- Liabilities Secured.
v/ Chapter 22, Section 9, pp. 31,32.
Deposits not otherwise secured, and on which the rate of interest
is within the limit specified by state laws, are protected by the
Depositors Guaranty Fund. Deposits otherwise secured or on which a
greater rate of interest may be paid are not included in the basis
for assessments.
Ban!. Commissioner
Chapter 22, Section 2, pp. 24-25. Amending 1911, Chapter 31, Sections 2-3.
Requirements raised from5 to 5 years practical banking experience.
His salary to be paid from General Revenue Fund of the state.
140
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Federal Reserve Bank of St. Louis
)re of the twelve positions as assistants to the commissioner originally created i3 changed to Assistant Bank Commi33ioner, to be filled
•
z
- 3-
by appointment of the Bank Commissioner with approval afth
Board, to be secretary.
One of the assistants to the commissioner is to be Building and
Loan Auditor as before, but is to have building and loan experience instead of banking.
These 12 salaries to be paid from General Revenue Fund.
The members of the State Board shall give bond to the state for
$5,000.
CH.248ection 5, pp. 25-27.
May be removed by the governor - 2/3 of the members of State
Bankers Association constitutes authority to make recommendations
for removal to the governor, which he must give "due consideration."
Examinations
Chapter 22, Section 10, pp. 32-33.
Under direction of the Banking Board, an examiner is to visit each
bank twice a year or oftener, making a complete examination of the
affairs of the bank, making a report and other recommendations to
the Bank Commissioner.
(No mention is made of amending or repealing the old section on
examinations and both are still on the statutes.)
4110
Certificates to Depositors
Cnapter 22, Section 6, pp. 29-30. Amends above 1909 section, Chapter 5,
Article II, Section 6.
The certificates of indebtedness to depositors as given above are
now to be known as Depositors Guaranty Fund Warrants of the State
.of Oklaholia. These warrants constitute a first lien upon the
Depositors Guaranty Fund when it is collected, and also against
the capital stock, surplus and undivided profits of the member banks
to the extent of said bank's liability to the Depositors Guaranty
Fund.
Banking Board has authority to dispose of Depositors Guaranty Fund
Warrants at not Less than parto facilitate the liquidation of failed
banks. After deducting the exoense of liquidation the proceeds
from the sale of the assets of tne failed bank are credited to the
Depositors Guaranty Fund.
Chapter 22, Section 7, Page 30.
Depositors Guaranty Fund Warraats are an authorized investment for
capital and surplus of any state trust compeny, building and loan
association, or insurance company; also any foreign corporation may
deposit them with the state treasurer as security when re luired to
put up security in order to do business in the state.
41011
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Federal Reserve Bank of St. Louis
They are also good for security for any public funds and investment
of trust funds.
They are non-taxable.
•
-4 -
Invested, How
Chapter 22, p. 27.
Assessments paid in cashier's checks and so held,till called for.
,-.
Certificate of Membership
Chapter 22, Section 8, pp. 30-31.
A certificate issued by the Bank Commissioner with the approval of
the Banking Board must be obtained before any baak can be chartered.
State Bankers Association
Chapter 22, Section 3, Page 26.
A Representative is selected by the board of directors of each bank.
These representatives shall select an executive council of
not less
than 9 nor more than 15 members who shall recommend to the governo
r
6 persons qualified to be Bank Commissioner, and 9 for members of
the Banking Board, the governor to make lis appointments from
these
names.
Violations and Penalties
Chapter 22, Sections 10, 12, 21, pp. 32-38.
Term of
Imprisonment
Fine
Corruption in office by any official
or employee of Banking Department
411
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Federal Reserve Bank of St. Louis
Felonies - by officers or
employees: Embezzlement, etc.
4500-45000
1-10 yrs.
&
1-50 years
Issuing Certificate of Deposit,
draft, etc., or makes any acceptance, etc., with intent to
deceive or defraud
$500-$10000
&
1-50 years.
Certifying a check or draft on
the bank where the one drawing
has not the funds to cover on
deposit
(not over)
45000
or
5 years
(not over)
False entry or report (not over)
glowo
&
10 years (not aver)
Willfully causing reduction of
assets or increase of liabiltties
to make bank insolvent (not over)
$5000
10 years (Not over)
With intent - issuing check, bill
of exchange, draft, etc., without
suffident money for its payment,
or for forgery.
From $100 to 45000 Wor 1-5 yrs.
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Federal Reserve Bank of St. Louis
5
Loaning or advancing funds, without
written authority or consent of all
members of board of directors, to a
person or firm, etc., with whom he
is personally connected.
From $100 to $1000
or
1-3 yrs.
Publishing or uttering false or
From $100 to $1000
malicious statements
or
1-5 yrs.
Removing, destroying, etc., any
records to conceal or suppress
From $100 to $1000
evidence.
&
1-3 yrs.
No one convicted of violation of any Oklahoma state banking laws
may engage in or become an officer in any Oklahoma state bank.
AMLNDMENTS TO BANKING LAWS OF OKLAHOMA - 1915
(birs. Bastedo's Synopsis)
Reserves
Chapter 58, Section I, Page 81. Amends 1903 G. S. Section 602.
Population: Less than 2500 - 15%
Over
2500 - 20%
heserve depository lowered from 25 to 20%
Banking, Unlawful
Chapter 58, Section II, Page 82. Amends 1908 G. S. Section 607.
Adds advertising as or using term banker, bankers, investment
banker, without authority.
Also, any violation is grounds for the individual or firm being
put in hands of receiver.
Methods of handling Insolvent Banks - Liquidation
v'Chapter 58, Section V, pp. 86-84.
Surety companies paying a deposit of public funds for which they
are liable in a failed bank are entitle:Ito a pro-rata share with.
the depositors guaranty fund of the proceeds of the assets of
such failed banks.
•
The bank commissioner to ,,ave the administration end collection of
such assets wherever the depositors guaranty fund has been drawn on.
Public funds to be included in computation of "average daily
deposits."
Note:
There were, however, apparently no further amendments
on liquidation until after the repeal of the deposit guaranty
law, the liquidation laws passed after the repeal follow:
(1923 amendments)
State Bankers Association
v/ Chapter 58, Section 3, pp. 82,83.
The authority to recommend persons to the governor for appointment
as bank commissioner omitted.
Provision added for assessment of 500 per ia000 capital and surplus
of banks and authority to make rules and regulations relating thereto.
Certificates to Depositors
or Depositors Guaranty Fund Warrants
/ Chapter 53, Section 4, p. 83.
Any state bank in Oklahoma may invest its capital stock up to 10%,
and its entire surplus in depositors guaranty fund warrants equal
to its pro rata share of depositors guaranty fund warrants issued
after the passage of this act.
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Federal Reserve Bank of St. Louis
This does not exempt any bank from paying in cash any assessment
under state banking laws.
AMENDMENTS 70 BANKING LAWS OF OKLAHOMA - 1916
(:4.rs. Bastedo's Synopsis)
Usury
Chapter 20, Section 1, pp. 24-25.
Additional provision: In case suit is brought to collect such
indebtedness, or to foreclose any mortgage or lien given as security,
twice the amount of the interest charged may be claimed as a
set-off or counter claim.
Chapter 20, Section 2, pp. 25-26.
When a contract bearing a higher rate of interest falls due or at
any time before collection suit is started, the payor may offer a
written tender of the amount due less twice the amount of interest
charged. The Payee is allowed 24 hours in which to submit a written
acceptance of the tender acknowledging receipt in full. If the
payee fails to do this and institutes suit to collect, the payor
may deposit with the court the amount of the debt less trice the
interest charged and the costs incurred, and if still not accepted
the court shall make a finding and judgment against the payee and
for cost shall declare the debt satisfied and return the balance
to the payor.
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Federal Reserve Bank of St. Louis
AMLNDMENTS TO BANKING LAWS OF OKLAHOiLA - 199 -‘
r,„
3 .L? 3 .
(!--v
a',,
(Mrs. Bastedo's Synopsis)
(
(
e
Trust Companies
.-dP),, 1 1
7
(17, r
Chapter 168, Pages 242-244
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Federal Reserve Bank of St. Louis
Section 1. Savings departments. Authorizes trust companies, after
they have set aside for protection of their savings accounts a
portion of its capital stock which Shall not be less than the
amount of capital requivd to organize a state bank in a torn of
that size, to establish a savings department for the deposit of
savings, trust funds and -sinking funds.
Section 2. Investment of any savings department funds must be in
accordance with laws governing investment of trust funds.
Section 3 & 4 - The deposits in the savings department have first
claim on the capital stock set aside for it as well as al] deposits,
loans and investments held in the department.
In addition to the protection just named, the depositors in trust
company savings departments have equal claim with other creditors
on the remaining stock and other property of the corporation.
The accounts and transactions of the savings department are to be
kept separate from the general business of the corporation.
Section 5. Withdrawal of Deposits. A trust company may t..t any
time require a 90 day notice of intent to withdraw deposits, whole
or in part.
Section 6. 'Minors and incompetents. Savings department deposits
may be received from and payments made to minors and incompetents.
Section 7. Investment of trust funds in savings departments by
trust company as executor, administrator, etc., shall be according
to trust laws within 90 days after date of deposit, at rate of 8%.
Section 8. Supervision & Control. Savings department in trust
companies shall be under the supervision of the Bank Commissioner,
subject to the rules of the State Banking Board including the
Guarantee Fund Law.
Section 9. Use of word Trust or Trust Company without sufficient
paid in capital to do a trust business is a felony.
lb
AL.RNDENTS 10 BANKING LAS OF OKLAHOmA - 1021
tt.
,
(mrs. Bastedo's Synopsis)
Federal Reserve membership
Chapter 116
Section 1-3, pp. 143-4. Any state bank pr trust company may become
a member of a Federal Reserve Bank.
Gives state Federal Reserve member banks same power and duties .as
allowed and required by the Federal Reserve Let, but State Bank
Commissipner still has same power and responsibility over them.
Section 4, p.- 144. Provides for state Federal Reserve member banks
complying with reserve requirements of Federal Reserve.
Section 5; Examination. State Federal Reserve member banks are subject to examination under Federal Reserve act which examinations may
be, at the discretion of the state authorities, accepted in lieu of
state examinations and copies of all state examinations of such
banks may be furnished to the Federal Reserve Board.
•
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Federal Reserve Bank of St. Louis
Section 6. State Federal Reserve member banks and trust companies
are not limited in their borrowing and. rediscounting with the
Federal Reserve bank of which it is a member.
AMENDMENTS TO BANKING LAWS OF OKLAHOMA - 1923
('
14
'
41)
(Mrs. Bastedo's Synopsis)
Charters
Chapter 167, Section 8, Amends 1913, Chapter 22, Section 8.
AlL provision for the Depositors Guaranty Fund is omitted. In its
place is inserted the requirement for all banks to deposit with
the Bank Commissioner 4100.00 in cash to guarantee payment of
necessary expenses of the preliminary examination.
Interest Rates
Chapter 157, Section 9, p. 262. Amends 1908 G. S. Sec. 594.
Maximum rate of interest on deposits set at 4% except by written
consent of Bank Commissioner.
Loans and Investments
Chapter 137, Sec. 1, p. 228 - Amends 1908 G. S. Sec. 605.
Provides penalty of imprisonment from 5 to 15 years.
Depositor Preference
Chapter 137, Sec. 2, pp. 228-229.
Penalty for violation of above: Fine 4100.00 to 41,000.00 and/or
imprisonment from one to five years.
•
Bills Payable & Rediscounts
Chapter 167, Sec. 2, pp. 228-229. Amends 1908 G. S. Sec. 622.
No bank may pledge more than 25% of its notes and securities for
bills payable and rediscounts without the written consent of the
Bank Commissioner and then it must not exceed 53%.
Penalty for violation - Fine of not less than 4100.00 nor more
than $1000.00 and/or imprisonment from one to five years.
Real estate
Chapter 137, Section 5, p. 231. Amends 1908 G. S. Sec. 628
In the first provision the clause "except upon the written approval
of the Bank Commissioner couniersigned by the Banking Board," is
added.
Capital Stock
Chapter 137, Sec. 7, pp. 251-32. Amends 1908 G. S. Sec. 641.
Omits phrase requiring repayment to depositors guaranty fund before
bank may reopen.
State Banking Board
Chapter 137, Sec. 6, p. 231. Amends 1913 Chapter 22, Sec. 1.
The three members of the board other than the Bank Commissioner are
to receive 415.00 per day for their services while on the work of
the Board plus necessary expenses.
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The Board in conjunction with the Bank Commissioner has supervision
and control of issuing bank charters and administering the banking
laws.
•
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Lksessments
Chapter 137, Section 10, Page 232
Repeals all assessments for the Depositors Guranty Fund, but does
not release bank and officers, etc., from obligations already
existing at the time of the passage of this act.
The Fund
Chapter 137, Section 10, page 232.
Repeals all of the foregoing.
Methods of Handling Insolvent Banks
Chapter 167, Section 4, page 230. Amends 1915 Ch. 58, Section 5.
Surety Company Claims. Omits all reference to depositors guaranty
fund and includes the liability of officers and stockholders yif'l
the assets of the bank.
The bank commissioner to have exclusive control of collection an-administration of the assets until depositors have been fully
reimbursed.
This does not apply to banks wqich failed prior to the passage of
this act.
Chapter 137, Section 3, pp. 229-30.
Attorney for Receiver. Bank Commissioner to appoint attorney for
"Liquidating agent" if necessary, subject toappraval of the district
court or judge thereof.
Fees to be fixed by bank commissioner subject to approval as above,
but not to exceed $4,000.00 per annum.
Chapter 137, Section 6, pp. 229-30. Referring to 1908 G. S. Section 637
and 638.
Receiver. In event Bank Commissioner closes a bank he may appoint
a "liquidating agent" subject to approval of district court or judge,
which agent holds office at the pleasure of the Commissioner. Salary
to be fixed by him not to exceed t4,000.00 per annum.
Liquidating agent to employ other necessary employees with approval
of Bank Commissioner.
"Liquidating Agent" must give bond to the state, after which he
takes charge of the bank and its affairs to collect and liquidate.
Chapter 137, Section 3, pp. 229-230.
Priorita. "Liquidating agent" shall, after assets are reduced to
cash, make quarterly dividends to depositors and creditors of the
insolvent bank, after paying expenses of liquidation.
If the agent does not have available 10% at ti::e quarterly payment
is due he may postpone payment until such time as he has 10% available.
Assets remaining after liquidation is completed revertto the stockholders.
a.
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This section to govern liquidation of all banks in hands of Bank
Commissioner after its passage or subsequent to.
•
3
•
Methods of Handling Insolvent Banks (Cont.)
Chapter 137, Section 3, Page 230.
"Liquidating agent" to file quarterly report with bank commissioner
and district court.
Stockholders, Reparation by
Chapter 137, Section 7, pp. 231-32. Amends 1908 G. S. Section 641.
Omits phrase requiring repayment to Depositors Guaranty Fund before
bank may reopen.
,
1
'1H 11 /
rl
Bank Commissioner
I I/
Chapter 220(Section 1, p. 380-1. Amends 1916, Chapter 22, Section 2.
Adds telephone and telegraph bills to allowable expenses of Bank
Commissioner.
Chapter 220, Section 2, p. 381.
Assistant Bank Commissioner and Secretary of the Banking Board's
salary increased frou $2,000.00 to $3,600.00 per year and expenses.
Chapter 220, Section 3, pp. 381-382.
Instead of 11 positions as assistant to the Bank Commissioner there
are now 14 positions, all but two of whom must have banking experience. One of the two exceptions is to be Building and Loan auditor
as before and have Building and Loan experience.* The second exception is to be auditor for the Banking Department and must have
had 3 years experience as public accountant.
* Salary increased to 43,000.00 and must also be a licensed accountant.
4
Two of the other assistants to the Bank Commissioner must have had
two years experience as a state or national bank examiner and are
to be special assistants or field supervisors at large at $3,600.00
per year and expenses.
The salary of the remaining assistants is $2,400.00 the first year,
$2,600.00 the second, $2,800.00 the third and $3,000.00 the fourth,
plus traveling expenses; except where an assistant to Bank Commissioner has had two years previous experience as state or National
bank examiner he is entitled to the maximum $3,000,00 in the
beginning.
No assistant to the Bank Commissioner shall be or become interested
in any bank or building and loan association while holding office.
Examinations
Chapter 220, Section 10, Pages 383-384.
The minimum charge is raised from $15.00 to $20.00
New basis:
Capital stock not over
$25,000
420.00
25,000 50,000
27.50
50,000 100,000
32.50
100,000
35.00
100,000 200,00G
37.50
Plus two cents on eac,1 41000 of resources, or major fraction thereof.
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-4
Certificates to Depositors, also
Depositors Guaranty Fund Aarrants
)
Chapter 137, Section 10, P. 232. 1,
..epeals provision for issuing certificates and warrants but obligations already incurred before this act are still in force.
Attorney for Banking Department
Chapter 220, Section 41 p. 382.
Creates office of attorney for Banking Department to be appointed
by Balk Commissioner, with approval of Banking Board. Requirement:
Three years experience practicing law in Oklahoma. Salary, 4000 and
expenses, out of General hevenue Fund of State.
Chapter 220, Section 5, pp. 382-583.
Same povers and autIority as County Attorneys in crioinal prosecutions, for violations of banking laws, etc., also in civil cases,
as directed by Bank Commissioner and Banking Board.
Banking Departnent Employees
Chapter 220, Sections 6, 7, 8 and 02 Page 533.
The oositions of chief clerk, bonding clerk, and three stenographers
are created; appointments to be made by the Bank Commissioner subject
to approval by the board.
Chief Clerk: Three years' experience in bookkeeping and accounting.
Salary, 42400.
Bonding Clerk:
Three years' office experience.
Stenographers:
Three years' experience.
Salary, 41800.
•
Salary, 41500.
The Bank Commissioner and assistant bank commissioner must take usual
oat l of office and execute bonds to the state in sum of 425,000o
The assistants to the bank commissioner and the attorney for the
department must take the oath of office and execute 410,000 bonds
to the state.
Traveling Expenses
Chapter 220, Section II, Page 584.
Traveling expenses are limited to actual transportation charges
plus $4.00 per day in lieu of all subsistence.
Depositorb Guaranty Fund—Repeal
Section 10. That Section 1162 of the Compiled Oklahoma Statutes, annotated, 1921,
relation to the creation of the depositors guaranty fund and assessments therefor,
and depositors guaranty fund warrants is hereby repealed;. provided that the provisions
of this Section shall not relieve or release abty bank, fkrm or corporation, or any
officer, stockholder or director or any other person, from any obligation, assessment
or liaiility to the Depositors Guaranty Fund or to the depositors or creditors of any
failed state bank, which obligation, assessment or iability existed at the time of
the passage and approval of this Act.
Sectio:n 11. That Section b163 of the Compiled Oklahoma Statutes, annotated, 192L,
relatino to the emergency assessments for the depositors gupVanty fund be and the
same is hereby repealed.
Section 12. That Section 4168 of the Compiled Oklahoma Statutes, annotated, 1921,
relatirr to certificates of Guaranty and advertisement thereof, be and the same is
hereby repealed.
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AEND1ENTS
BAAKING LAWS OF OKLAHOMA - 1924
(mrs. Bastedo's Synopsis)
Interest hates
Chapter 59, Section 1, o. 74.
Board of Directors - Bank
Chapter 59, Section 2, op. 74-75. Amends 1908, Section 597.
Number of directors increased from 3 to 13 - to S to 21.
Any director violating any of the state banking laws is liable for
any damages thereby sustained and are individually liable for any
loans made to an individual in excess of presented (7) maximum.
The Board is to require fidelity bonds of all active employees of
the department.
It shall hold 6 regular meetings a year at least, instead of 2.
Reserves
Chapter 59, Section 3, pp. 75-76.
Reserve depository requirement raised to 25% again.
Loans and Investments
Chapter 59, Section 4, Page 76. Amends 1908 G. S. Section 603.
To an individual or corporation the maximum is lowered from 20% to
15% paid in capital and surplus. Allors 12 months for banks to
reduce their exiding loans to individuals.
Chapter 59, Section 1, Page 74. Amends 1908 G. S. Section 594,
Loaning on real estate secured by first mortgages running not over
two years.
Public Funds
Chapter 59, Section 5, Page 7C. Amends 1908 G. S. Section 642.
Depository banks for public funds to be chosen b:y State Treasurer.
must be in good standing and shall pay the state 5% per annum on
daily balances, but amount must not exceed bank's capital stock.
Such banks are to make quarterly reports.
Bank Commissioner
Chapter47, Section 1, Page 50.
Requirements for bank experience removed and instead "who has been a
tax payer for three years prior to appointment."
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•
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4
Excerpt from United States Sunreme Court Re orts, Lawyers' Edition, Rose's Notes,
55 Law. Ed. U. S. 219-221, pp. 341-343.
NOBLE STATE BANK, Plff. in Err.,
V.
C. N. HASKELL et al.
(See. S. C. Reporter's ed. 575-580.)
Eminent domain -- public use -- creating bank guaranty fund.
The levy and collection, under a state statute, from every bank existing under the state lams, of an assessment based upon average daily deposits, for
the purpose of creating a depositors' guaranty fund to.secure the full repayment
of deposits in case any such bank becomes insolvent, is for a public uses although,
judged from the proximate effect of the taking, the use seems to be a private
one.
Petition for rehearing presented January 27, 1911.
filed February 20, 1911.
Amended opinion
On motion for leave to file petition for rehearing of a writ of error
to the Supreme Court of the State of Oklahoma to review a decree which affirmed
a decree of the District Court of Logan County, in that state, dismissing the
petition in a suit to enjoin the levy and collection from a state bank of an
assessment for the purpose of creating a depositors' guaranty fund. Original
opinion amended.
See ante, 112.
The facts are stated in the opinion.
******
'Mr. C. B. Ames in supnort of the motion:
Private property cannot be taken for private use, and, if taken for
public use, there must be compensation.
***** *
Mr. Justice Holmes delivered the opinion of the court:
Leave to file an application for rehearing is asked in this case. We
reason
to grant it, but, as the judgment delivered seems to have conveyed
no
see
a wrong impression of the opinion of the court in some details, we add a few words
to what was said when the case was decided. We fully understand the practical
importance of the question, and the very powerful argument that can be made against
the wisdom of the legislation, but on that point we have nothing to say, as it is
not our concern. * * * 24- 2- * were cited to establish, not that property might be
taken for a private use, but that, among the public uses for which it might be
taken, were some which, if looked at only in their immediate aspects, according
to the proximate effect of the taking, might seem to be private. This case, in
our opinion, is of that sort. The analysis of the police power, whether correct
or not, was intended to indicate an interpretation of what has taken place in the
past, not to give a new or wider scppe to the power. The pragattions with regard
to it, however, in any form, are rather in the nature of preliminaries. For in
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Federal Reserve Bank of St. Louis
-2-
this case there is no out-and-out unconditional taking at all. The payment can
be avoided by going out of the banking business, and is required only as a condition for keeping on, from corporations created by the state. We have given what
we deem sufficient reasons for holding that such a condition may be imposed.
1/ All omissions indicated by astericks are omissions of legal references only.
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•
Excerpt from United States Supreme Court Reports, Lawyers' Edition, Rose's
Notes, 55 Law. Ed. U. S. 219-221/ pp. 112-117.
NOBLE STATE BANK, Plff. in Err., v.
C. N. HASKELL, G. W. Bellamy, J. P.
Connors, J. A. Menefee, M. E. Trapp,
and H. H. Smock.
(See S. C. Reporter's ed. 104-113).
Constitutional law -- reserved right to amend corporate charter -- creating
depositor's guaranty fund.
1. Contract obligations under a bank's charter which is subject to alteration or repeal are not unconstitutionally impaired by the levy and collection,
under a state statute, of an assessment based upon average daily deposits, for
the purpose of creating a depositors' guaranty fund to secure the full repayment of deposits in case it or any othr,r bank existing under the state laws
becomes insolvent, unless such statute deprives the bank of liberty or property
without due process of law. * * * * *
Constitutional law -- police power -- due process of law -- creating depositors'
guaranty fund.
2. The levy and collection, under a state statute, from every bank existing under the state laws, of an assessment based upon average daily deposits,
for the purpose of creating a depositors' guaranty fund to secure the full
repayment of deposits in case any such bank becomes insolvent, is a viid exercise of the police power, and cannot be regarded as depriving a solvent bank
of its liberty or property without due process of law. * * * * *
Constitutional law -- police power -- regulating banking.
3. The police power of a state extends to the regulation of the banking
business, and even to its prohibition except on such conditions as the state
may prescribe. * * * * *
[No. 71.]
Argued December 8, 1910.
Decided January 3, 1911.
In error to the Supreme Court of the State of Oklahoma to review a decree
which affirmed a decree of the District Court of Logan County in tha-Otate,
dismissing the petition in a suit to enjoin the levy and collection from a
state ban1/6f an assessment for the purpose of creating a depositors' guaranty
fund. Affirmed. * * * * *
The facts are stated in the opinion.
Mr. C. B. Ames argued the cause, and, with Messrs. J. B. Dudley and D. T.
Flynn, filed a brief for plaintiff in error:
The law requires a taking of the plaintiff's property for a private use.
111
****
_If
48.98:-N-11-**
*XXX**
The omissions indicated by the astericks are in every case omissions of
legal references.
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It is not an exercise of the power of taxation.
It is not a valid exercise of the police power.
aP._* * * * *
It is therefore a taking of property without due process of law,
and violative of the Constitution of the United States.
In taking the plaintiff's property it impairs the obligation of contracts; and, being a taking without due process of law, cannot be upheld as an
amendment of the plaintiff's charter.
The governor, when acting spit member of the state banking board, is
subject to the control of the courts.
The petition alleges and the demurrer admits that it is the purpose
of the defendants to compel the plaintiff to pay the assessment rerjuired by the
law. It therefore shows a sufficient state of facts to justify relief by injunction.
******
0
Messrs. C. B. Ames, D. T. Flynn, and T. G. Chambers also filed a brief
for plaintiff in error:
ProPerty cannot be taken forfprivate use in the exercise of the right
of eminent domain, even when part of the property taken is needed for ,Jublic0 use.
* * * * **
Property cannot be taken for private use under the taxing power.
******
Regulating railroads is clearly an exercise of the police power; but,
in so doing, the state cannot do anything which takes for private use the smallest
part of the railroadb property.
Private property cannot be taken for private use by the amendment of
corporate charters.
Mr. Charles West, Attorney General of Oklahoma, argued the cause, and,
with Messrs. E. G. Spilman and W. C. Reeves, filed a brief for defendants in
error:
•
Laws exist restricting the issuance of circulation, and attaching
conditions to the same,--notably by making the issuance of circulating medium a
franchise or privilege, and restricting its use to particular corporations
established for that purpose in the state or nation. The constitutionality of
this regulation has everywhere been upheld or taken for granted.
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i
The security of the public in its dealings with banks is a governmental
function, and the creation of a mutual reserve fund is a safety to the public
and a compulsory benefit to the banks.
******
Banking is fublic business.
** * ***
The Constitution should be liberally construed.
******
The law is va4id unless plainly invalid.
* *****
A modification of a common-law rule is not a deprivation of property.
* **** *
Can all banking be made a franchise?
******
The exercise of the police power violates no vested rights.
******
Mr. Charles West also filed a separate brief for defendants in error:
What at common law was a common right may be prohibited for the public
good without violating due process of law.
******
Private property may be taken pursuant to a public demand, for individual use, without violating the 14th Amendment.
*** ***
The following groups of cases exemplify the public right to involuntarcooperation by owner41of property.
******
As to these cases the Dog Tax Cases are not overruled or impaired by
Fox v. Mohawk gr H. River Humrne Soc. * * *
In the Firemen Fund Cases,the -luestion of the 14th Amendment was squarely
passed upon. In Firemen's Benev. Asso. v. Lounsbury, 21 III. 511, 74 Am. Dec.
1151 it was said: "The poder the legislature possesses of imposing burdens unon
certain members of the community who are supposed to be benefited by the efforts
or acts of certain other members" is the power upon which the cases rest.
The diversion of such funds for the upbuilding of an efficient fire
service was held 46eib1ic purpose, andolative of the 14th Amendment.
* * * 41.4 *
Mr. Justice Holmes delivered the opinion of the court:
•
This is a proceeding against the governor the state of Oklahoma and
other officials who constitute the state banking board, to prevent them from
levying and collecting an assessment from the plaintiff under the act approved
December 17, 1907. This act creates the board, and directs it ti levy upon every
bank existing under the laws of the state an assessment of 1 per cent of the bank!
average daily deposits, with certain deductions, for the purpose of creating a
depositors' guaranty fund. There are provisos for keeping up the fund, and by
an act passed March 11, 1909, since the suit was begun, the assessment is to be
5 per cent. The purpose of the fund is shown by its name. It is to secure the
full repayment of deposits. When a bank becomes insolvent and goas into the hands
of the bank commissioner, if its cash immediately available is not enough to pay
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Federal Reserve Bank of St. Louis
4
depositors in full, the banking board is to draw from the depositors' guaranty
fund (and from additional assessments if reauired) the amount needed to make up
the deficiency. A lien is reserved upon the assets of the failing bank to make
good the sum thus taken from the fund. The plaintiff says that it is solvent
and does not want the help of the guaranty fund, and that it cannot be called
upon to contribute toward securing or paying the depositors in other banks, consistently with article 1, Section 10, and the 14th Amendment of the Constitution
of the United States. The petition was dismissed on demurrer by the supreme court
of the state. 22 Okla. 48, 97, Pac. 590.
The reference to article 1, Section 10, does not strengthen the
plaintiff's bill. The only contract that it relies upon is its charter. That
is subject to alteration or repeal, as usual, IA- that the obligation hardly
could be said to be impaired by the act of 1907 before as, unless that statute
deprives the plaintiff of liberty or property without due process of law.. See
Sherman v. Smith, 1 Black, 587, 17 L. ed. 163. Whether it does so or not is the
only question in the cese.
•
In answering that question, we must be cautious about pressing the
broad words of the 14th Amendment to a drily logical extreme. Many laws which
it would be vain to esk the court to overthrow could be shown, easily enough,
to transgress a scholastic interpndation of one or another of the great guaranties
in the Bill of Rights. They more or less limit the liberty of the individual,
or they diminish property to a certain extent. We have few scientifically
certain criteria of legislation, and as it often is difficult to mark the line
where what is celled the police power of the states is limited by the Constitution of the United States, judges should be slow to read into the litter a
nolumus mutare asegainst the lawmaking power.
The substance of the plaintiff's argument is that the assessment takes
private property for private use without compensation. And while we should
assume that the plaintiff would retain a reversionary interest in its contribution to the fund, so as to be entitled to a return of what remained of it if the
purpose were given up (see Danba Bank v. State Treasurer, 39 Vt. 92, 98) still
there is no denying that by this law a portion of its property might be taken
without return to pay debts of a failing rival in business. Nevertheless, notwithstanding the logical form of the objection, there are more powerful cmsiderations on the other side. In the first place, it is established by a series of
cases that an ulterior public advantage may justify a comparatively insi7gnificant taking of private property for what, in its immediate purpose, is .6rivate
use. * * * * * And in the next, it would seem that there may be other cases
beside the everyday one of taxation, in which the share of each-Party in the
benefit of a scheme of mutual protection is sufficient compensation for the
correlative burden that it is compelled to assume. * * * * * At least, if we have
a case within the reasonable exercise of the police power as above explained, no
more need be said.
It may be said in e general way that the police power extends to all
It may be put forth in aid of what is sanctioned
4 '
the great public needs. '
prevailing
morality or strong and preponderant opinion
by usage, or held by the
necessary
to the public welfare. Among matters
immediately
to be greatly and
both usage and preponderant opinion
doubt
that
would
of that sort probably few
conditions of successful commerce.
primary
the
enforcing
give their sanction to
One of those conditions at the present time is the possibility of payment by checks
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5
•
•
drawn against bank deposits, to such an extent do checks replace currency in
daily business. If, then, the legislature of the state thinks that the public
welfare requires the measure under consideration, analogy and principle are in
favor of the power to enact it. Even the primary object of the required assea5ment is not a private benefit, as it was in the cases above cited of a ditch
for irrigation or a railway to a mine, but it is to make the currency of checks
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. The
priority of claim given to depositors is incidental to the same object, and is
justified in the same way. The power to restrict liberty by fixing a minimum of
capital required of those who would engage in banking is not denied. The power to
restrict investments to securities regarded as relatively safe seems equally
plain. It has been held,we do not doubt rightly, that inspections may be required
and the cost thrown on the bank. * * * * The power to compel, beforehand, cooperation, and thus) it is believed, to make a failure unlikely and a general panic
almost impossible, must be recognized, if government is to do its proper work,
unless we can say that the means have no reasonable relation to the end. ,
s4 * *
So far is that from being the case that the device is a familiar one. It was
adopted by some states the better part of a century ago, and seems never to have
been questioned until now. * * * * * * *
It is asked whether the state could require all corporations or all
grocers to help to guarantee each other's solvency, and where we are going to
draw the line. But the last is a futile question, and we will answer the others
when they arise. With regard to the police power, as elsewhere in the law, lines
are pricked out by the gradual approach and contact of decisions on the opposing
sides. * * * * * It will serve as a datum on this side, that, in our opinion,
the statute before us is well within the state's constitutional power, while the
use of the pub]ic credit on a large scale to help individuals in business has
been held to be beyond the line. * * * *
The question that we have decided is not much helped by propounding
the further one, whether the right to engage in baking is or can be made a
franchise. But as the latter question has some bearing on the former, and as
it will have to be considered in the following cases, if not here, we will dispose of it now. It is not answered by citing authorities for the existence of
the right at common law. There are many things that a man might do at common
law that the states may forbid. He might embezzle until a statute cut down his
liberty. We cannot say that the public interests to which we have adverted, and
others, are not sufficient to warrant the state in taking the whole business of
banking under its control. On the contrary, we are of opinion that it may go on
from regulation to prohibition except upon such conditions as it may prescribe.
In short, when/the Oklahoma legislature declares by implication that free banking
is a public danger, and that incorporation, inspection, and the above-described
cooperation are necessary safeguards, this court certainly cannot say that it is
wrong. * *'
* * Some further details might be mentioned, but we deem them
unnecessary. Of course, objections under the state Constitution are not open
here.
Judgment affirmed.
•
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DECISION of the United States Supreme Court.
NOBLE STATE BANK v. HAS_cELL
•
Opinion of the court.
pp. 111-112.
219 U. S. Reports. 1910.
It may be said in a general way that the police power
extends to all the great public needs. It may be put forth in aid of
what is sanctioned by usage, or held by the prevailing morality or
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 their sanction
to enforcing the primary conditions of successful commerce. One of
those conditions at the present time is the possibility of payment by
checks drawn against bank deposits, to such an extent do checks replace
currency in daily business. If then the legislature of the State thinks
that the public wifare requires the measure under consideration, analogy
and principle are in favor of the power to enact it. iven 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,
but it is to make the currency of checks secure, and by the same stroke
to make safe the almost compulsory resort of depositprs to banks as
the only available means for keeping money on hand. The priority of
claim given to depositors is incidental to the same object and is justified in the same wayJ The power to restrict liberty by fixing a
minimuo of capital required of those who would engage in banking is not
denied. The power to restrict investments to securities regarded as
relatively safe seems equally plain. It has been held, we do not doubt
rightly, that inspections may be required and the cost thrown on the bank.
The power to compel, beforehand, cooperation, and thus, it is believed,
to make a failure unlikely and a general panic almost impossible, must
be recognized, if government is to do its proper work, unless we can
say that the means have no reasonable relation to the end. So far is
that from being the case that the device is a familiar one. It was
adopted by some States the better part of a century ago, and seems
never to have been questioned until now. Recent cases going not less
far are cited.
NOTE:
•
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Federal Reserve Bank of St. Louis
For additional quotations from this opinion, see
Robb, "Guaranty bank deposits" pp 36-37.
•
219 U.S. p 580
OCTOBER TERM, 1910
Opinion of the Court
MR. JUSTICE HOLMES DELIVERED THE OPINION OF THE COURT.
•
Leave to file an application for rehearing is asked in this
case. We see no reason to grant it, but, as the judgment delivered, ante,
p. 104, seems to have conveyed a wrong impression of the opinion of the
court in some details, we add a few words to what was said when the case
was decided. We fully understand the practical importance of the question
and the very powerful argument that can be made against the wisdom of the
legislation, but on that point we have nothing to say, as it is not our
concern. Clark v. Nash, 198 U. S. 361, Strickly v. Highland Boy Mining
Co., 200 U. S. 527, etc., were cited to establish, not that property
might be taken for a private use, but that among the public uses for
which it might be taken were some which, if looked at only in their
immediate aspect, according to the proximate effect of the takin&might
seem to be private. This case, in our opinion, is of that sort. The
analysis of the police power, whether correct or not, was intended to
indicate an interpretation of what has taken place in the past not to give
a new or wider scope to the power. The propositions with regard to it,
however, in any form, are rather in the nature of preliminaries. For
in this case there is not out and out unconditional taking at all. The
payment can be avoided by going out of the banking business, and it re—
quired only as a conditiOn for keeping on, from corporations created
by State. We have given what we deem sufficient reasons for holding
that such a condition may be imposed.
Lave to file petition denied.
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Federal Reserve Bank of St. Louis
SUPREME COURT OF OKLAHOMA
NOBLE STATE BANK v. HASKEJJ, ET AL*
No.
.24-2121— 'peg
83. Opinion Filed September 11, 1908
(97 Pao. 590.)
7.`"e (akt-f
1.
BANKS AND BANKING--Dez)sitors' Guaranty Fund. Constitutionality-Due Process of Law. The act "creating a state banking board, establishing a depositors' guaranty fund to insure depositors against
loss when the bank becomes insolvent," etc., of December 17, 1907
(Laws 1907-08, p. 145, c. 6 art. 2), as amended on February 12, 1908
(Laws 1907-08 p. 153, c. 6, art. 3), is not in conflict with section
7, art. 2 (Bunn's Ed. Sec. 16) of the Constitution which Provides that
"No person shall be deprived of life, liberty, or property, without
due process of law."
2.
SAME--Obli tion of Contracts. Nor is it in violation of section 15,
art. 2 Bunn's Ed. Sec.
the Constitution, which provides that
"no law impairing the obligation of contracts shall ever be passed."
3. SAME--Pursuit of Happiness. Nor is it in violation of section 2,
art. 27711-17nI3 Ed. Sec. 11) of the Constitution, which provides that
"all persons have the inherent right to life, liberty, the pursuit of
happiness, and the enjoyment of the gains of their own industry."
4.
SAME—Taking 7rivate Prope/Lti. for Private Use. Nor is it in violation
of section 23, art. 2 (Bunn's Ed. Sec. 32) of the Constitution, which
provides that: "No private property shall be taken or damaged for
private use, with or without compensation, unless by the consent of
the owner, except for private ways of necessity, or for drains and
ditches across lands of others for agricultural, mining or sanitary
purposes, in such manner as may be prescribed by law."
5. SAMF--Takin&. Private Property for Public Use. Nor is it in violation
of section 24, art. 2 (Bunn's Ed. Sec. 33T of the Constitution, which
provides that "private property shall not be taken or damaged for
public use without just compensation."
6. SAME--Statutes--Title of Act. Nor is said act, embracing the provision
relative to the establishment of the depositors' guaranty fund, to
secure depositors against loss when the bank becomes insolvent, invalid
on account of section 57, art. 5 (Bunn's Ed. Sec. 130) of the Constitution, which provides that: "very act of the Legislature shall embrace
but one subject, which shall be clearly expressed in its title, except
* * *; provided, that if any subject be embraced in any act c.-ntrary to
the provisions of this section, such act shall be void only as to so
much of the law as may not be expressed in the title thereof."
•
*
Appealed to the Supreme Court of the United States.
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Federal Reserve Bank of St. Louis
-2-
•
7.
APPEAL AND ERROR--Review--Waiver of Error. When the brief of the plaintiff
in error, in any civil cause, fails to preserve, by specification of
error, any point complained of in the lower court, such question is
thereby waived in the court.
8.
SAME--Review--Denial of Injunction. Where the probative allegations do
not aver that the injury apprehended is irreparable, and the chancellor
denies an application for a temporary injunction, on review in this court
the action of the lower court will not be reversed. (Syllabus by the
Court.)
Summary of Plaintiff's Cause of Action
The Noble State Bank contended that the law creating the depositors'
guaranty fund violated the following sections of the Constitution of Oklahoma:
Sec. 2, Art. 2. . . . "which provides that 'all persons have
the inherent right to life, liberty, the pursuit of happiness and the
enjoyment of the gains of their own industry,' in that said law deprives
this plaintiff of the enjoyment of the gains of its own industry, for
the benefit of the depositors of other banks in which plaintiff has no
interest."
•
Sec. 7, Art. 2 . . . "which provides that 'no person shall be
deprived of life, liberty, or property, without due process of law,'
in that the said plaintiff is deprived of its property, by virtue of
said assessment, without due process of law."
Sec. 15, Art. 2 . . . "which provides that 'no bill of attainder,
ex post facto law, nor any law impairing the obligation of contracts,
shall ever be passed,' in that said law violates the contract between
this plaintiff and the state of Oklahoma, evidenced by its charter,
patent, and certificate of authority, . . ."
Sec. 23, Art. 2. . . . "which provides that 'no private property
shall be taken or damaged for private, with or without compensation,
unless by the consent of the owner, except for private ways of necessity,
or for drains and ditches across lands of others for agricultural,
mining or sanitary purposes, in such manner as may be prescribed by law,'
in that the private property of this plaintiff is sought to be taken for
private use, without compensation and against the consent of the plaintiff."
•
Sec. 24, Art. 2 . . . "which provides that 'private property shall
not be taken or damaged for public use without just compensation,' in that
said law proposes to take the property of this plaintiff; and, if it be
held that said taking is a taking for public use, then said taking is
without compensation, and not in accordance with the form prescribed for
the taking of private property for public use, . . . "
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Federal Reserve Bank of St. Louis
A
-3
Sec. 57, Art. 5 . . . "which provides that / every act of the Legislature shall embrace but one subject, . . . 'in that said law (1) creates
a state banking board; (2) establishes a depositors' guaranty fund;
(3) Prescribed the qualifications of officers and directors; (4) fixes
the salary of the Bank Commissioner; (5) fixes the penalty for embezzlement; (6) and limits the amount of the bank's funds that can be loaned to
any one person; and expresses all of said six different purposes in
the title, thus avoiding the entire act."
Sec. 8, Art. 10 . . . "which provides that 'all property which may
be taxed ad valorem shall be assessed for taxation at its fair cash
value, estimated at the price it would bring at a fair voluntary sale,'
in that said law, if it levies a tax, does not assess it upon the basis
of the fair cash value of the property affected, but upon an arbitrary basis,
having no regard to the fair cash value of the property assessed."
Sec. 9, Art. 10 . . . "which provides that, 'except as herein otherwise provided, the total taxes, on an ad valorem basis, for all purposes,
state, county, township, city- or town, and school district taxes, shall
not exceed in any one year thirty-one and one-half mills on the dollar,/
in that said law, for said special and private purpose, if it be construed
as levying a tax, levies a tax on this plaintiff of about 3.31 per cent.
of the fair cash value of the property of the plaintiff."
•
Sec. 14, Art. 10 . . ."Which provides that, 'taxes shall be levied
and collected by general laws, and for public purposes on1r, except that
taxes may be levied when necessary to carry into effect section thirtyone of the Bill of Rights,' in that said law, if it be construed as
levying a tax, does not levy said tax for public use, but for private
purposes."
Sec. 1, Art. 14 . . . "which provides that 'general laws shall be
enacted by the Legislature providing for the creation of a banking department, to be under the control of a bank commissioner, who shall be
appointed by the Governor for a term of four years, by and with the
consent of the Senate with sufficient power and authority to reguIcte and
control all state banks, loan, trust, and guaranty companies, under
laws which shall provide for the protection of depositors and individual
stockholders,' in that said pretended law does not provide for the protection of the individual stockholders of this plaintiff."
The Nob)„,e State Bank also contended that
e tonstitution of the United States:
9,
viola.
Sec. 10, Art. 1 . . . "which provides that 'no state shall pass any
bill of attainder, ex post facto, or law impairing the obligation of
contracts, * * * / in that said law impairs the obligation of the contract
between the plaintiff and the state of Oklahoma, as evidenced by its
articles of incorporation, patent, and certificate of authority, . . . "
•
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Federal Reserve Bank of St. Louis
•
Fourteenth amendment . . . "which provides that 'no state shall
make any law which shall abridge the privileges or immunities of citizens
of the United States; nor shall any state deprive any person of life,
liberty, or property, without due process of law, nor deny to any person
within its jurisdiction the equal protection of the laws,' in that
said pretended act deprives this plaintiff of its property without due
process of law, and denies to it the equal protection of the laws."
Notations on Decisions of the Court
The decision of the Court stated by Judge C. J. Williams is very
lengthy, and quotes a large number of cases from various States in rebuttal
to the various contentions of the plaintiff. The following quotation is
typical of the point of view maintained throughout the opinion:
•
"Banks are chartered by the state, not with the paramount view of
enabling the stockholders to make investments and derive profits therefrom, but to meet a public necessity. The stockholders, having made
investments therein, should be protected, but private interest must
always be subordinated by the state, in the reasonable exercise of its
police po-tier, to the public welfare or good. With the view that the
depositorx, as well as the stockholder, and the general public with an
incidental interest therein, may be protected,banking is regulated, and
limitations, restraints, and requirements are imposed. The imposition
of double liability upon the stockholders; the requirement of reserve
funds; stipulations as to what capital stock cannot be invested in;
prescribed qualifications of the directors--all these having been tried,
in the judgment of the Legislature the further restriction that active
officers should not borrow from the bank without incurring pains and
penalties was deemed salutary. In addition to further and more completely
protect the depositors, the depositors' guaranty fund is created, the
Legislature acting pursuant to the mandatory declaration of the
Constitution . . . "
•
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Federal Reserve Bank of St. Louis
`.
1
OKLAHOMA DEPOSIT GUARANTY LAW
DECISIONS OF SUPREME COURT OF OKLAHOMA
0'1-4
1908
NOBLE STATE BANK V. HASKELL, 22 Oki. 48.v Decree affirmed 219 U. S. 104
Opinion amended 219 U. S. 575.
statute establishing depositors' guaranty fund was not unconstitutional.
•••/iiitee% 1,
State ex rel. Wes-1, Atty. Gen.., v. Farmers' Nat. Bank of Cushing.
No. 5823.
(15C Pac. 212.)
Opinion filed June 22, 1915.
1.
BANKS AND BANKING - State Ban;:s - Assessment for Guaranty Fund.
Section 3 of the act of luarch 11, 1909 (Sess. Laws 1909, pp. 121-123),
created a depositors' guaranty fund for the immediate and continuous
protection of depositors in state banks, in a fixed and invariable
sum, to wit, in an amount equal to 5 per centun, of the average daily
deposits in all state banks, and an assessment therefor was thereby
levied against each state bank, organized and doing business under
the state banking law, and the amount thereof became a fixed,
present liability.
2.
SAME - State Bank Converted into National Bank - Effect on Liabilities.
A state bank, by converting into a national bank, places itself
beyond state control and ceases to exist as a state corporation, but
does not thereby escape liabilities incurred by it during its continuance as a state bank.
3.
SAYE. The effect of a state bank surrendering its charter and organizing as a national bank, under the United States banking laws, is
not to mature or discharge the deferred payments of the assessment
levied under section 3 of the act of March 11, 1909.
(Syllabus by the Court.)
/
1917
First State Bank of Oklahoma City v. Lee (L.P.A.11918 B, 609) 65 Okla.280.
Neither state banking commissioner nor banking boakd has authority to
create, destroy, or transmute corporate entity of banking corporation.
1917
United States Fidelity & Guaranty Co. v. State et al.
No. 6053 - Opinion Filed Oct. 9, 1917
(168 Pag % 254.)
•
(Syllabus.)
ezki,
1.
Banks and Banking - Depositors' Guaranty Statute - Application to
School Fund Deposit.
ee,("S
c
t4,04
Section 7 4
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Federal Reserve Bank of St. Louis
Con4.416- 1
provide
a spe
irvt44
(
-G
c system for the
protection of any part of the permanent school fund deposited in any
bank or trust company; and the protection extended to general depositors'
by virtue of the police power of the state, by virtue of section 523,
Comp. Laws 1909, which created the depositors' guaranty fund, did not
apply to deposits of the permanent school fund.
2.
Same - Insolvency of Bank - School Fund Deposit - Distribution of
Assets.
Where, in May, 1909, the commissioners of the land office deposited
certain moneys belonging to the permanent school fund in a certain
institution which thereafter became insolvent and passed into the
hands of the bank commissioner on September 29, 1909, who administered
its affairs under the banking laws of the state, and where the assets of
said institution were insufficient to pay the general depositors,
protected by the depositors' guaranty fund, the deposit of the commissioners
of the land office was not entitled to share in the assets of said institution.
-0)414'
14
'
168 P.` 234, Writ of Error Dismissed (1919)v
39 S. Ct., 250 U. S. 111, 63 L Ed. 876.
1919
Citizens' Nat. Bank of Broken Arrow v. State ex. rel. Freeling, Atty. Gen.
No. 9710 - Opinion Filed June 17, 1919.
Rehearing Denied October 7, 1919.
(Syllabus by the Court.)
r
76'44 IV
1.
Banks and Banking - Depositors' Guaranty Fund - Assessments of State
Banks - Liability.
Section 3, Cha,ter 51, Session Laws 1910-11, providing for a depositors'
guaranty fund, for the payment of depositors of failed state banks, does
not impose upon state banks a present indebtedness of 5 per centum upon their
average daily deposits during their continuance in business as state banks,
but does provide for annual payments; the bank being liable only for such
of these payments as mature or are payable while it is doing business as a
state bank.
2.
Same - Conversion of State into National Bank - Effect.
The conversion of a state into a national bank doe:, not mature, or
make payable these payments.
3.
•
Same - State Bank Continuing after Passage of Law - Effect.
The fact that a state bank continued to do business as a state bank
after this law went into effect did not impose this 5 per centum as a
liability on the bank, nor did the bank thereby assume or agree to pay it.
7-4
H7,141.4..
7, ,0-7/ e.pc ai
,4A;UZGV411;Alalid.4S....411.4.4,c....4-..
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Federal Reserve Bank of St. Louis
;%C..e
"Ji."4,44614f
2 _
r
.
3
•
1922
STATE ex rel. SHORT. Atty, Genl., v. Norman, Judge
No. 13023 - Opinion Filed March 21, 1922.
Rehearing Denied April 18, 1922
(Syllabus.)
8.
Same - (Banks and Banking - State System - Constitutional Provision)
Operation of Bank Guaranty Law.
By this system of laws it was the intention of the Legislature that the
bank guaranty law shall function in two ways, to wit; First, by im:,lediatelY
paying the depositors of the insolvent bank in full with cash available, or thni
can be made immediately available from the assets of the bank, together with
the money on hand in the guaranty fund, where such fund is sufficient for
that purpose; and, second, where such funds are not sufficient for such purpose, By issuing certificates of indebtedness payable from year to year
as money comes into the guaranty fund out of the assessments and emergency
assessments levied against solvent banks as provided by law.
9. Same - Interference by District Court Through Receivers.
That the law is functioning under the one mode or the other furnishes
no warrant whatever to the district court to interfere with the bank commissioner by the appointment of receivers, where he is proceeding as directed
by sections 302 and 304 Rev. Laws. 1910, to wind up the affairs of a failed
bank and to enforce the personal
of the stockholders, officers,
and directors.
11. Same - Status of Guaranty Fund and Failed Bank - Distribution of Assets.
The guaranty fund is created by assessments and replenished by em-rgency
assessments levied against solvent banks, and it becomes a creditor of the
insolvent bsnk whenever it pays the depositors of such bank, and in that event
its status is just the same as that of any other creditor, except the state
has a first lien upon the assets of the bank to secltre the payment to the
guaranty fund of such sum or sums as it has actually paid out to the depositors of such bank. If the guartlity fund does not become a creditor of the
failed bank; t
is, if there is no money paid out of the fund to the depositors of such
ed bank, the assets of the bank are distributed among the
depositors and other creditors in the process of winding up the affairs of
such bank pursuant to the general directions to the Bank Commissioner contnined
in the general statute hereinbefore
rred to.
( 61
-^16.
ref•
1923
STATE ex rel. SHORT_A_Atty. Gen. v. Johnson et sl.
No. 14024 - Opinion Filed May 22, 1923.
(Syllabus)
fo shg,
p_ p_
5. Same - (Statutes - Validity - Violation of Constitution) - Statute
Impairing Depositors' Eights in Assets of Failed Banks - Invalidity.
Chapters 5 end 6, Sess. Laws 1907-8, as amended and revised in chapter 6,
Rev. Laws 1910, vitalized and gave effect to the state policy declared in
section 57, art. 5, of the Constitution. Secti-m 5, ch. 58, Sess. Laws 1915,
has the effect of seriously impairing, if not virtually destroying Te
7777
ference right of the depositors against the assets of a failed bank by giving
_,
surety companies an equal preference right with the depositors' guaranty fund.
against such proceeds. Such provisio
t being expressed in the title, is
d 424114
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void.
•
Federal Reserve Bank of St. Louis
1912
Columbia Bank & Trust Co. v. United States Fidelity
Guaranty Co.
April 9, 1912. Rehearinc denied fiept. 10, 1912. 33 Oki. 535; 126 Pac. 556.
to'
Depositorsiguaranty fund law does not apply to deposits of the permanent school
fund, be aaw re ati 1-; to such funds
()vides for specific cecurity.
e7 ve„
1
Lovett et al., Creek County Comirs, v. Lankford et al.
denied Jan. 9, 1915
47 Oki 12; 145Pac. 767
Sept. 29, 1914. Rehear'
Wet&
county, Made pursu t to Relh"Lig
0, par. 1540, providing for
ample security and directingthem to be made under strict legislative safeguards,
do not come with in the meaning of a Pgeneral deposit," protected by the
depositor's guaranty fund, created pursuant to section 298 et seq.
The facts in this case examined, and held to bring the case within the rule announced
bythis court in the case of Columbia SIM & Trust Co. v. United States Fidelity &
Guaranty Company.
/
1913
Lankford, State Bank Coll'r, v. Oklahoma Engraving & Printing Co. Feb. 14,
35 old. 404; 130 Pac. 278
151.3
Section 323, Comp. Laws 1909, provides that the state shall have, for the benefit
of the depositors' guaranty fund, a first lien upon the assets of anyclefunct bank
or trust company) and all liabilities against the stockholders, officers, or
directors thereof, and against all oth-r persons, corporations, or firms; and that
such iabilities may be enforced by the state for the benefit of the depositors'
guarant:: fund. The effect of this statute is to make the state a preferred creditor
until any deficiency in the flaranty fund, created by the payment therefrom of the
depositors of an insolvent bank, is made up.
After that, any remaining assets of
the bank become available for the purpose of being prorated and distributed among
the generalareditors of the bank...
1915
Lankford, State Bank Comir, v. Schroeder (No. 3990) Feb. 5, 1915. Rehearing
denied ipril 27, 1915.
147 Oki. 279; 147 Pac. 1049
Were a purchaser of notes from a state bank left the notes with it for collection,
held, that he was not a depositor entitled to payment of his claim out of the bank's
assets in he bankccommissioner's hands or out of the state guaranty fund, though
the bank had collected notes and appropriated the money to its own use. The state
has aiist lien onthe asset', of a failed bank tomcure reimbursement of the guaranty
fund...
A "depositor" who is protected bythe state guaranty fund from loss by a failing
bank is one who takes his money or its equivalent and places it, or causes it to
be placed, inthe bank to his credit subject to his right to check it out or draw
ir from the bank at will.
1923
In re Dennis, State Bank Com'r. Jan. 30, 1923. Rehcarin, denied May 8, 1923.
89 Oki. 255; 214 Pac. 1074
Case relates to applicability of 1915 amendment giving surety companies paying public
funds pro rata claim against assets of fa led bank alorv with guaranty fund. Held not
to apply to -1 densit in excess of 14mit permittcd by law relative to a bank's capitalj
as surety company s obligation was then for br Lch of official duty , rather than
payment of a deposit.
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Federal Reserve Bank of St. Louis
-5-
payment, then to ya7 t11.9
,-eneyT21 cr
1925
State ex rel Walcott, State Bank Commissioner, v. Zoll (No. 15046)
May 12, 1925. Rehearing denied June 23, 1925.
240 Pac. 1035
Prior to repeal of guaranty fund law (note - case referred to Bartlesville State
Bank, which failed after cessation of issue of warrants), the unsecured deposits
must first be, aid to the depositors before zeneral creditors can participate in
a distribution of assets of the bank. In the case, in squestion liability as
genera creditor Au reiated to money peceived ioy the ank re frauduiantly issued
;stock. "...ws reach th; conclusion that it was a well-settled policy _f the
oankim law ch. ,nis state prior to the repeai of the Law creatin- tnt E:uarantv fund
o_fir"St pay the unsecured dep_sits in full to the de_esitcrs, and, after such
State ex rel. Walcott, v. Muenchmeyer. Oct. 27, 1925. 240 Pac. 1038
Salble kind of case, with same decision, as State V. 7011, above.
State ex rdl iNalcott, State Bank Com'r v. Drath (No. 15136). May 12, 1925
Same kind of case, with same decision applyi%, as State v. 7o11
113 Old. 17; 241 Pac. 808
1923
White et al v. State ex rdl Attorney General (No. 12389). Nov. 27, 1923.
911 Oki. 7; 220 Pac. 624
Relates to commissioner's responsibility of liquidatin, afteis of abark after
payment of all depositors for benefit of other creditors. Description of process
of payin1 depositors through sale of acsets to another bank placed on back of
worksheet - Union State Bank, Musko;.ee,
.17-e .0-1t. 12, 1 772.
[Aaiun SUM' COURT
DECISIONS (other than constitutionality)
1215
' J.D. Lankford, ,,nd others composing State Bankirv Board v. Platte Iron Works
235 U.S. 461, 35 Sup. Ct. 173, 59 L.Ed.316
January 5, 1915
Platte Iron lworks Coiripany, a Maine corporation, held two tile certificates in
Farmers & M:rchalts Bank, Sapulpa, closed Sept. 10, 1912, payment of which from
the olarty fund, or in fund certificatesof indebtedness, were both refued by
commissioner. Decision does not mention reason for this refusal.
Question
involved was whether this was a suit against the State (the zuaranty fund being
described as a state fund) which' could not be maintabed without the state's
consent. US Supreme Court divided five to four, with majority deciding that it
was such a suit, and minority claiming that it was a suit to compW officers to
perform their duty under a state statute.
Effect of majority decision was to
leave stateftrARithoW's decisions, or commissioner's in liqpidating abank, not
subject to sultv.excepE leg consent of the state.
1923
Strain, State Bank Com'r, et al. v. United States Fiddlity & Guaranty Co.
Circuit Court of Appeals, Eighth Circuit. Sept. 12, 1923
292 F 694
Affirmed by US Supreme Court 44 s.Ct. 334, 264 U.7. 570, 68 L.Ed. 854
2
- idelity company as surety for public deposits--certain funds belon?to the
1nited States, to state fulds, and to receivers—had paid the deposits. Claimed
priority for itself of payments made to the United States, and pro rata with
unsecured oepositors for payments on the other deposits.
Insolvent bark WAS the
Bank of Commerce of Okmulgee, failed Nov. 1, 1921, in which ,uaranty fund made no
payment.
US Supreme Court ruled not a suit against the State (as in Lankford case above)
becase no payment from guaranty fund involved; that claim of US was not prefErrod
but had sari* etatus as sucn ymeni
any other deorsitor; but that a i -toe claims
.,he 1 15 law had been declared unconstitutional) should
of -he surety cony ctbouff
share ratab1y with UnSecurt aepos tors, since the euaralty fund was not involved.
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Federal Reserve Bank of St. Louis
8
1908
Smock v. Farmers Union Stat
Bank.
Dec. a, 1908.
221bk1. 825, 98 Pao. 945
In this case the sank Commission= had attempted to deny the issue of a certificate
of authorization to open for business, on the ground that the town of Pragste, with
a poallation of,998,..haiti three b4oks and that a fourth bank wo'ald be a bad business
RRty fund. The action and reasoOsof the Bank
ventsaRlk.T8HareRdiOY
Commission r are described in the First Annual Report of the Commissionr, pp.
xii-xiii, while case was pendini:' before the state supreme court.
The court decided that the Commissioner had no power to refuse to issue a certificate
to open when the incorporators had complied with the express conditions of the law,
which did not grant such discretionary authority. But the charter had been granted
to the incorporators on 14)ri1 27, 1908, prior to the law of May 26, 1908. Under the
law of May 26, 1908, but not under the former law, the Commissioner was required to
approve the incorporators,beebre the issuance of a charter by the secretary of state.
This decision of the State Supreme Court as referred to in the second tiennial
report of the Bank Commissioner with a recommendation for legislation giving him
more discretionary power regardin issuance o; certificates to open, and stating
that he had used all the means he had to discourae thefbrmation of newbanks. Howeverj
he did not mention use of the power to approve the persons applyik: for a charter
for that purpose.
There appears to he no later decision regardin the limits of
i.
discretion
approving the incorporators -- i.e. whether limited to approval of
them as individuals sufficiently responsible, etc.,,Rr whether though personally
satisfactory approval could be withheld o0 ground that MITi71 was not desirable.
log
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Federal Reserve Bank of St. Louis
•
Excerpt from Oklahoma Decisions reported in Pacific Reporter, Second Series,
p. 874-881
Nea-c... 7 -Si
SECURITY BANK & TRUST CO. OF
MIAMI, OKL., et al. v. BARNETT
et al.
No. 24551
Supreme Court of Oklahoma
Sept. 11, 1934
Rehearing Denied Oct. 23, 1934.
1. Banks and banking - key 15.
Depositors' guaranty fund warrants, upon liquidation of insolvent
depositors' guaranty fund, constituted preferred claims against fund, and
holders of such warrants were entitled to payment in full in numerical order
(Comp. St. 1921, section 4162 (repealed by Laws 1923, c. 137, section 10).
2.
Banks and banking - key 15.
Statutory provision requiring depositors guaranty fund warrants
to be paid in numerical order is mandatory (Comp. St. 1921, sec. 4162
(repealed by Laws 1923, c. 137, section 10.).
3. Statutes
- key 274.
Repeal of statute does not affect rights already accrued thereunder (Const. art. 5, section 54).
4.
Banks and banki,ng - key 4.
Repeal of statute authorizing issuance of depositors' guaranty fund
warrants held not to affect rights of holders of outstanding warrants issued
prior to repeal (Comp. St. 1921, section 4162 (repealed by Laws 1923, c. 137,
section 10); Const. art. 5, section 54).
5.
Constitutional law - key 158.
Statute which, directly or indirectly, prevents collection of
interest according to terms of original obligation, would impair obligation
of contract, and would be unconstitutional (Const. Oki. art. 2, sec. 15;
Const. U. S. art. 1, sec. 10).
6. Banks and banking - key 15.
•
Holders of depositors' guaranty fund warrants, upon liquidation of
insolvent depositors' guaranty fund, held entitled to 6 per cent, interest
payable from moneys in special fund, where warrants constituted preferred
claims against fund (Comp. St. 1921, sec. 4162 (repealed by Laws 1923,
c. 137, sec. 10).
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Syllabus by the Court
1. Under the provisions of section 4162, C. O. S. 1921 (repealed by
chapter 137, Session Laws 1923), the state banking department was authorized
to issue and sell depositors' guaranty fund warrants for the purpose of
securing cash to supplement the depositors' guaranty fund, said warrants to
bear 6 per cent interest from date, and to constitute a charge and first
lien upon the depositors' guaranty fund, said warrants to be issued in numerical
order and retired in like order. In an action to liquidate the insolvent
depositors' guaranty fund, held, that the warrants issued and sold under the
provisions of said statute, and while it was in full force and effect,
constitute preferred or secured claims against the fund, and that the holders
of said warrants are entitled to payment thereof in full in numerical order,
together with interest thereon, out of the moneys in said special fund.
2. Under the provisions of section 54, article 5, of the Constitution,
the repeal of a statute does not affect any rights already accrued under such
repealed statute.
3. Under section 10, article 1, of the Constitution of the United States,
and section 15, article 2, of the state Constitution, the Legislature was prohibited from impairing the obligation of a contract made pursuant to existing
provisions of law by a repeal of the provisions of law under which said
contract was entered into.
•
Appeal from District Court, Oklahoma County; Sam Hooker, Judge.
Action brought by the Attorney General for the benefit of the Security
Bank & Trust Company of Miami, Oki., and for the benefit of all others holding claims against the Depositors' Guaranty Fund, against W. J. Barnett and
others. Several pending suits asserting claims against the Depositors'
Guaranty Fund were consolidated with the action, and the Bank Commissioner was
appointed receiver to administer, wind up, and completely liquidate the
Depositors' Guaranty Fund. From the judgment rendered, the plaintiff,
Security Bank & Trust Company, and others appeal.
Judgment reversed, and cause remanded, with directions.
M. Y. Thomas and Ames, Cochran, Ames & Monnet, all of Oklahoma City,
for plaintiffs in error.
M. B. Cope and Snyder, Owen & Lybrand, all of Oklahoma City, W. H. Hills
Enid,
Jos. I. Pitchford, of Okmulgee, and Malcolm W. McKenzie, of Oklahoma
of
City, for defendants in error.
OSBORN, Justice.
4IP
This action was instituted in the district court of Oklahoma county by
the Attorney General at the direction of the Governor, and was in the nature
of an application for a writ of mandamus to compel the bank commissioner and
the banking board to wind up and liquidate the depositors' guaranty fund.
The Attorney General alleged that he was bringing suit for the benefit of the
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Security Bank & Trust Company of Miami, Oki., and for the benefit of all
others holding claims against the depositors' guaranty fund of the state of
Oklahoma.
It is alleged that there was in said fund $214,057.70 in cash and
t149,621.90 in Liberty bonds and other securities, and that there are outstanding and unpaid $1,200,000 of depositors' guaranty fund warrants. It
is also shown that there was available to said fund $1,500,000, consisting
of promissory notes and other frozen assets received from various failed
banks which are of doubtful value.
A number of suits pending in the district court of Oklahoma county by
various parties asserting claims against the guaranty fund are consolidated
with this actionland the bank commissioner was appointed receiver to
administer, wind up, and completely liquidate the depositors' guaranty fund.
On March 25, 1930, the court directed that all claims of every kind and
character begoresented to the receiver on or before June 14, 1930. Pursuant
to said notice more than 500 claimants intervened and filed their claims
against said fund. The claims presented fell into one of the following named
four classes:
First. Holders of the numerically first outstanding and unpaid depositors' guaranty fund warrants who asserted that they had a first and prior
lien upon the depositors' guaranty fund, and that the funds on hand in the
depositors' guaranty fund should be applied in retiring the outstanding
warrants in their numerical order.
Second. Holders of outstanding unpaid depositors' guaranty fund warrants
who contend that, because of the alleged insolvency of the depositors'
guaranty fund and the repeal of the guaranty fund law, the funds on hand
should be applied to the payment of all outstanding depositors' guaranty fund
warrants on a pro rata bagis.
Third. Banks which sought the recovery of certain Liberty bonds, state
bonds, and other securities theretofore pledged by them with the state banking
board to secure and guarantee the payment of lawful assessments made against
them, which securities had never been converted into cash, but were held
intact by the banking board.
Fourth. Those who asserted claims against the depositors' guaranty fund,
which claims were neither based upon, nor evidenced by, outstanding depositors' guaranty fund warrants. Those claimants also contended that they
should be paid on a pro rata basis along with the warrant holders.
The court referred the matter to a referee, Hon. John B. Harrison, who
made extensive findings of fact and conclusions of law, all exceptions being
overruled thereto, and judgment being entered in conformity with the
recommendations of the referee.
Included in the judgment of the district court was an order to return
all securities held 10547- the bank commissioner and the banking board for the
purpose of securing payment of the assessments due the depositors' guaranty
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fund to the parties named in the judgment as being entitled thereto, same
being subsequently modified, but no question is raised herein concerning
that portion of the judgment, and we shall not notice the same further.
The court's judgment was further to the effect that the numericdly first
outstanding and unpaid depositors' guaranty fund warrants did not constitute
a first and prior lien upon the fund and its assets, that the outstanding and
unpaid warrants should not be paid in their numerical order, and that claims
were on a parity with warrants and all claims which had been presented to and
allowed by the court should share in a pro rata distribution of the depositors' guaranty fund. It was further adjudged that no interest should be
paid on the warrants or any other claims.
The plaintiffs in error herein are the owners of the numerically first
outstanding and unpaid depositors' guaranty fund warrants. The propodiions
upon which they rely to reverse the judgment of the trial court are as
follows:
"First: The trial court committed reversible error in ordering and
adjudging the payment of outstanding unpaid Guaranty Fund Warrants and claims
on a pro rata basis and in denying and refusing the prayer of these plaintiffs
In error that the outstanding and unpaid Guaranty Fund Warrants be retired
in their numerical order.
•
"Second: The trial court committed reversible error in ordering and
adjudging that plaintiffs in error were not entitled to receive interest upon
their Depositors' Guaranty Fund Warrants.
"Third: The trial court committed reversible error in ordering and adjudging that claims not based upon or evidenced by Depositors' Guaranty Fund
Warrants .were entitled to share in the Depasitors' Guaranty Fund on a parity
with valid outstanding and unpaid Guaranty Fund Warrants."
The bank commissioner, defendant in error, contends that, since the Bank
Guaranty Law was repealed by section 10, chapter 137, Session Laws 1923, the
various statutes cited and relied upon whereby plaintiffs in error seek to
establish their priority to the funds now on hand are not now effective; that,
the fund being insolvent, the distribution made by the district court, as a
trust fund in equity, is equitable and just, and should be sustained.
For the sake of convenience hereinafter the plaintiffs in error will be
referred to as plaintiffs and the defendants in error as defendants.
•
The principal question involved herein is whether or not the depositors'
guaranty fund warrants held by plaintiffs, being num-rically first outstanding,
together with interest thereon, are entitled to be paid in full. There is a
substantial difference, as we shall hereinafter notice, in the nature of the
respective obligations involved herein. The warrantsteld by plaintiffs were
issued under and by virtue of the provisions of a portion of section 4162,
C. 0. S. 1921 (section 6, chapter 22, S. I. 1913), which provides in part
as follows:
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"(e) If at any time the Depositors' Guaranty Fund on hand shall be
insufficient to pay the depositors of failed banks, or other indebtedness
properly chargeable against the same, the Banking Board shall have authority
to issue certificates of indebtedness to be known as 'Depositors' Guaranty
Fund Warrants of the State of Oklahoma,' in order to liquidate the deposits
of failed banks, or any other indebtedness properly chargeable against said
Depositors' Guaranty Fund.
"(f) Depositors' Guaranty Fund Warrants of the State of Oklahoma shall
bear six per cent interest from date of issue, payable annually, and shall
be issued in such form as may be prescribed by the Banking Board, and shall
constitute a charge and first lien upon the Depositors' Guaranty Fund when
collected, as well as a first lien against the capital stock, surplus, and
undivided profits of each and every bank operating under the banking laws of
the State of Oklahoma to the extent of liability of any such bank to the
Depositors' Guaranty Fund under the provisions of this act, and said Banking
Board shall have authority to negotiate or otherwise dispose of such Depositors Guaranty Fund warrants, at not less that par value in such manner as it
may see fit to facilitate the liquidation of failed banks.
411
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"(g) All warrants heretofore issued by the Banking Board shall be paid
serially in the order of their issuance from any funds on hand when this act
takes effect or provided for by the terms of this act, and all warrants hereafter issued shall be in numerical order and retired in like order. As
rapidly as the assets of failed banks are liquidated and realized upon by the
Bank Commissioner, the proceeds thereof, after deducting the exnenses of
liquidation, shall be paid to the StateBanking Board, and by said board credited
to the Depositors' Guaranty Fund. Quarterly, and on the dates provided for
financial statements in this act, or oftener if deemed advisable, the Banking
Board shall call for payment of such outstanding warrants, if any, as can be
liquidated from the available funds on hand. No corporation doing a trust
business shall be liable for assessmentsto create or maintain the Depositors'
Guaranty Fund, nor participate in the protection thereof in any manner whatsoever."
In order to determine the meaning of the above provision, let us briefly
allude to the various enactments relating to the guaranty of bank deposits in
this state) and to the methods of operation outlined by the various provisions.
The original enactment relating to said subject was passed by the first Legislature, chapter 6, article 2, S. L. 1907-08, and the system outlined provided
for certain assessments against the various state banks complying therewith on
the basis of the amountof capital stock. By the provisions of section 6, art.
2, S. L. 1907-08, p. 141 (section 4166, C. O. S. 1921), it is provided: "In
the event that the bank commissioner shall take possession of any bank or trust
company which is subject to the provisions of this chapter, the depositors of
said bank or trust company shall be paid in full, and when the cash available
or that can be made immediately available of said bank or trust company is
not sufficient to discharge its obligations to depositors, the said banking
board shall draw from the depositors' guaranty fund and fnmnadditional assessments, if required, as provided in Section 300, the amount necessary to make
up the deficiency; and the State shall have, for the benefit of the depositors'
Guaranty Fund, a first lien upon the assets of said bank or trust company,
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and all liabilities against the stockholders, officers and directors of said
bank or trust company and against all other persons, corporations or firms.
Such liabilities may be enforced by he State for the benefit of the depositors' guaranty fund."
It was not within the contemplation of the Legislature, as manifested by
said act, that the drain on the depositors' guaranty fund should be so great
as to fully and completely exhaust said fund in carrying out the primary object
of said legislation, to wit, the payment of the depositors in full in cash
immediately after the closing of a bank which had complied with the provisions
of said law. Practical experience showed, however, that the fund was soon
exhausted, and that additional emergency assessments were required to be made
in order to maintain such fund, and in some instances the depositors of said
banks that had failed were required to wait a considerable length of time
by reason of lack of funds with which to pay them. The Legislature of 1909
(section 3, art. 2, c. 5, S. L. 1909) and the Legislature of 1911 (section 3,
e. 31, S. L. 1910-11) undertook to make proper provisions for said situation.
By said legislation they provided that, when the cash on hand was insufficient
to make fill] payment to the depositors in a failed institution, "certificates
of indebtedness" should be issued against the depositors' guaranty fund which
would be paid in like manner as state warrants were paid; that is, in the
order of their issuance, out of the guaranty fund augmented by the emergency
levies provided for in said acts. It was also provided that, when the assets
of failed banks were liquidated and realized upon by the bank commissioner,
the same should be first applied to the payment of the expenses of liquidation, then to payment of the depositors' guaranty fund of all money paid out
of said fund to the depositors of said failed banks, then to the refunding
of said emergency assessmentsfrovided for by the above acts made necessary by
the unusual drain on said fund. It is to be noted that the "certificates of
indebtedness" above mentioned could be issued only in liquidation of expenses
or a valid claim against the depositors' guaranty fund accruing by reason of
the failure of a bank which had complied with the provisions of the various
acts. The "certificates of indebtedness" were to be paid out of the
depositors' guaranty fund, replenished by the regular and emergency assessments, and by the liquidation of the various failed banks.
110
The operation of the law in this particular was found to be tedious and
slow, and depositors were compelled to wait a considerable time before payment
could be made of the "certificates of indebtedness" issued pursuant to the
terms thereof. The legislature of 1913 (chapter 22, section 6, S. L. 1913,
p. 29, section 4162, C. 0. S. 1921) undertook to remedy this situation by
enacting the provisions above quoted as a substitute for the prior existing
provisions. It was still the manifest purpose to pay immediatakr in full the
depositors of a failed bank in cash, and to make the proper regular and
emergency assessments to replenish the fund against the various institutions
who had complied with the provisions of the law. But a new theory was
promulgated by the law of 1913. The provision theretofore existing for the
issuance of "certificates of indebtednesa" totbe depositors of failed banks
was incorporated whereby
was repealed by substitution, and a definite
the depositors' guaranty fund could be immediately and forthwith replenished,
and the depositors could be immediately paid in full in cash. By the provisions of the 1913 act the banking board was authorized to issue "Depositors'
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Guaranty Fund Warrants," bearing 6 per cent annual interest from date, in
numerical order, to be retired in
order, constituting a charge and first
lien upon the depositors' guaranty fund when collected, as well as a first
lien against the capital stock, surplus, and undivided profits of the various
complying banks to the extent of the liability of such banks under the provisions of said act, the act further providing: "And said Banking Board shall
have authority to negotiate or otherwise dispose of Depositors' Guaranty Fund
warrants, at not less than par value, in such manner as it may see fit to
facilitate the liquidation of failed banks." By subdivision (g) of said
section, provision was made for the banking board to call for payment at
stated intervals all "such outstanding warrants, if any, as can be liquidated
from the available funds on hand." For the first time legislative authority
was given to issue instruments and negotiate the same for not less than their
par value, in order to secure funds to be placed in the depleted depositors'
guaranty fund. It is upon this class of obligations that plaintiffs seek
full recovery in this action. The warrants, the basis of this action, were
purchased by the various plaintiff holders pursuant to the above-mentioned
provisions. The funds paid by them for such warrants went into the depositors' guaranty fund, and were thereafter paid out to depositors of failed
banks. By virtue of the above provision, money was borrowed from these
plaintiffs, to tide the depositors' guaranty fund over an emergency situation.
Special attention is called at this time to the provisions contained in
said act that said warrants should constitute a charge and first lien upon
the depositors' guaranty fund when collected and a first lien against the
capital stock, surplus, and undivided profits of each and every bank complying
with said law to the extent of the liability of any such bank thereunder,
and that said warrants should be issued in numerical order and retired in like
order. Prior to the above act, there was no provision fixing a lien on the
fund in favor of any holder of a "certificate of indebtedness." It is obvious
that there was a well-defined purpose for the inclusiT of such provision in
the law. It is equally obvious that there could be/pause or reason for fixing a lien on the fund in favor of the holder of a "certificate of indebtedness" who received same in payment of his claim in the ordinary course of
the operation of the law. This provision permitted the issuance of warrants,
the payment of which was vouchsafed by the specific provisions of the law
granting to the purchasers thereof certain preferences as above enumerated.
In the absence of such a provision, the purchasers of such warrants would
be placed in the ridiculous position of seeking an opportunity to pay out
their cash merely for the sake of placing themselves on a parity with the
depositors in a failed bank, with the attendant hazards6f ultimate return of
their investments. The credit of the state was not behind said warrants; but
the fund was created by virtue of the provisions of statutory law in a
designated manner. It is manifest that such warrants would not be readily
marketable and attractive to purchasers unless proper provisions were inserted
to make recompense certain for the cash invested by investors therein. It
was undoubtedly the purpose of the Legislature to provide an effective means
of guaranteeing repayment, with interest, of cash procured from the sale of
said warrants, which intention was manifested by the lien provided in said
act and by the provision requiring issuance in numerical order and retirement
thereof in like order. With the depositors' guaranty fund constantly depleted,
such an investment would otherwise have been positively hazardous. It is
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inconceivable that the Legislature intended that the warrants issued for the
purpose of negotiation to secure cash would stand on the same basis as
claims of depositors in failed institutions. At least it is inconceivable
that any one would seek the hazards of such an investment.
(1) It is evident that the 1913 act was to create a substantial change
in the method of payment to depositors. Instead of issuing "certificates of
indebtedness" against a depleted fund to the depositors in failed banks, to
be repaid by emergency assessments if and when collected, "depositors'
Guaranty Fund Warrants" were to be issued and sold and the proceeds used to
pay the unfortunate depositors. There was no longer any authority to issue
"certificates of indebtedness" to said depositors, for means thought to be
effective, though disappointing in the future, had been provided whereby
they could be paid immediately in cash. We are therefore driven irresistibly
to the conclusion that section 6, chapter 22, Session Laws 1913, as above
quoted, has no application whatever to checks, vouchers, certificates, warrants, orders, or by whatever designation the banking_board might denominate
them, in payment of claims of depositors in failed banks, but that the
warrants referred to are the depositors' guaranty fund warrants issued and
sold to investors for the purpose of securing cash to pay the depositors.
We think it is clear that the Legislature intended that such warrants would
operate as a first and prior lien on the depositors' guaranty fund, and on
the regular and emergency assessments and the assets in the process of liquidation of failed banks whose depositors had been paid, and that it was the
legislative intent that the depositors' guaranty fund warrants purchased by
such persons would take precedence in payment in the numerical order of
their issuance over any other obligation of the fund.
It is noted that we are dealing with two general classes of claims against
the insolvent guaranty fund: Those claims of parties holding guaranty fund
warrants, and claims of depositors in failed banks who were notpaid. As
heretofore stated, there is a substantial difference between these two classes
of claims; the difference arising by virtue of section 4162, supra, which
defines the rights, of plaintiffs as the holders of guaranty fund warrants.
(2) Defendants say, however, that the quoted provision as to issuance of
said warrants in numerical order and retirement in like order is to be construed
as directory and not mandatory, and in this connection it is proper to take
into consideration the intention of the Legislature. City of Enid v. Champlin
Refining Company, 112 Oki. 168, 240 P. 604, 608. In the case of Bonaparte Co.
v. American Vinegar Mfg. Co., 161 Okl. 54, 17 P. (2d) 1,41, 452, it is said:
" * * * Requirements intended for the protection of the citizen and to prevent
a sacrifice of his property, and by disregard of Which his rights might be
and generally will be injurtmsly affected, are not directory but mandatory.
French v. Edwards, 13 Wall. (U. S.) 506-517, 20 L. Ed. 702. * * * "
In the case of
said:
411
City of Enid v. Champlin Refining Co., supra, it is
"A directory provision within a statute is one, the observance of which
is not necessary to the validity of the proceeding and 'generally speaking,
those provisions which do not relate to the essence of the thing to be done,
and as to which compliance is a matter of convenience, rather than substance,
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are directory, while the provisions which relate to the essence of the thing
to be done, that is, to matters of substance, are mandatory.' 25 R. C. L.
766; Des Moines v. Manhattan Oil Co., 193 Iowa, 1096, 184 N. W. 823, 188 N. W.
921, 23 A. L. R. 1322; Thompson v. Alameda, 144 Cal. 281, 77 P. 951; Denver v.
Londoner, 33 Colo. 104, 80 P. 117; People v. Sanitary Dist., 184 Ill. 597,
56 N. E. 953; State v. Douglas, 27 Nev. 469, 77 P. 986; Norman v. Thompson,
30 Tex. Civ. App. 537, 72 S. W. 64; Re Cusick, 136 Pa. 459, 20 A. 574, 10
L. R. A. 228; Troy Min. Co. v. White, 10 S. D. 475,74 N. W. 236, 42 L. R. A.
549, are to the same effect and the rule appears to be universal.
"In Gallup, v. Smith, 59 Conn. 354, 22 A. 334, 12 L. R. A. 353, the court
said: "The most satisfactory and conclusive test of the question whether the
provisions of a statute are mandatory or directory, is whether the prescribed
mode of action is of the essence of thathing to be accomplished; in other
words, whether it relates to matters material or immaterial, to matters of
convenience or substancet."
In the light of the above authorities, it is not necessary to discuss
the issue further, as it plainly appears that the provision requiring warrants
to be paid in their numerical order is a mandatory provision of the statute,
as it involves a substantial right which would be injuriously affected if the
provision is disregarded.
•
Problems very similar to those presented here were considered by the
Supreme Court of Kansas in the case of State v. Bone, 125 Kan. 818, 266 P. 85.
It does not appear that the Bank Guaranty Law of Kansas had been repealed at
that time, but the fund was insolvent and the methods devised for the rehabilitation of the fund had virtually ceased to function. There was available only
an amount sufficient to pay a small percentage of the claims of the depositors
in the failed banks. It was contended that depositors in all of the failed
banks should share pro rata in the guaranty fund. The court held against such
contention, and decided that the claims should be paid in sequential order,
for the reason that the statutes so directed, and payment on any other basis
would be not only in violation of statutory direction but a violation of
constitutional law. In other words, the court was very explicit in its
holding that the plain intent of the statute must be followed. The reasoning
of the court therein is applicable herein.
(3, 4) It is further contended by defendant that such rights as accrued
to plaintiffs under section 4162, supra, are not now effective since the
repeal of said statute. In this connection attention is directed to section
54, article 5, of the Constitution, which provides as follows: "The repeal
of a statute shall not revive a statute previously repealed by such statute,
nor shall such repeal affect any accrued right, or penalty incurred, or
proceedings begun by virtue of such repealed statute."
•
Since the warrants held by plaintiffs were issued as security for a loan
of money to the banking department of the state under the statutory provisions
above referred to, they partake of the nature of bonds, and the cases hereinafter cited dealing with bond issues are analogous. In the case of State ex
rel. Freeling v. Howard, 67 Oki. 296, 171 P. 41, 42, this court had under
consideration the rights of bondholders who held state bonds issued pursuant
to the provisions of chapter 89, Session Laws 1910-11. Under the provisions of
the act, the proceeds of the sales and rentals of certain lands were pledged to
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410
the payment of the bonds. Thereafter the Legislature attempted to appropriate
a portion of the funds to other purposes, and, in discussing the rights of the
bondholders relating to their interest in the particular funds, this court
said: "It is conceded that the provisions of said chapter 89 constitute a
contract between the state and the holders of the bonds now outstanding, and
that the terms of said contract cannot be impaired by any subsequent legislation.
The general rule is that, where a special fund has been pledged for use in the
payment of bonds or other obligations, such fund may not be diverted to any
purpose other than that to which it is pledged. Diggs v. Lobsitz, 4 Okl. 232,
43 P. 1069; Wabash Pc Erie Canal Co. v. Beers, 67 U. S.(2 Black) 448, 17 L. Ed.
327; Louisiana v. Jumel, 107 U. S. 711, 2 S. Ct. 128, 27 L. Ed. 4.48; Graham
v. Horton, 6 Kan. 343; People v. Pacheco, 29 Cal. 210; People ex rel. McCauley
v. Brooks, 16 Cal. 11; Eidemiller v. City of Tacoma, 14 Wash. 376, 44 P. 577;
State v. Cardozo, 8 S. C. 71, 28 Am. Rep. 275; Park v. Candler, 113 Ga. 647,
39 S. E. 89; Western Savings Fund Society v. Philadelphia, 31 Pa. 175 (72 Am.
Dec. 730); Fazende et al. v. City of Houston (C. C.) 34 F. 95."
In the case of McGrath v. Oklahoma City, 156 Old. 34, 9 P. (2d) 717, 714,
it is said: "The laws existing at the time of the issuance of municipal bonds,
and under the authority of which they are issued, enter into and become a part
of the contract in such a way that the obligation of the contract cannot thereafter be in any way impaired, or its fulfillment hampered or obstructed, by a
change in the law." See, also, Nelson v. Pitts, 126 Okl. 191, 259 P. 533, 53
A. L. R. 1137; Perryman v. City Home Builders, 121 Okl. 150, 248 P. 605;
Runnells v. Oklahoma City, 150 Oki. 292, 1 P. (2d) 740; Moore v. Otis (C. C. A.)
275 F. 747; Moore v. Gas Securities Co. (C. C. A.) 278 F. 111.
In the case of Crump v. Guyer, 60 Okl. 222, 157 P. 321, 2 A. L. R. 331,
it is said: "A 'vested right' is the power to do certain actions or possess
certain things lawfully, and is substantially a property right, and may be
creEted either by common law, by statute, or by contract. And when it has
been once created, and has become absolute, it is protected from the invasion
of the Legislature by those provisions in the Constitution which apply to such
rights. And a failure to exercise a vested right before the passage of a subsequent statute, which seeks to divest it, in no way affects or lessens that
right."
In the case of St. Louis Union Trust Co. v. Franklin-American Trust Co.
(C. C. A. 8) 52 F. (2d) 431, 437, 87 A. L. R. 386, the court was concerned
with certain bond issues in the state of Arkansas. The Legislature, by four
special acts, passed in 1911, 1915, 1919, and 1921, authorized the issuance
of certain drainage district bonds. The Cypress drainage district issued
four special series of bonds by virtue of the four legislative acts. The district defaulted on all four issues. The case developed into a contest of right
of priority by the holders of the first, second, third, and fourth issues.
The lower court held that all four issucs were on a parity without any rights
of priority/disany one of them. The holder of the first issues appealed to the
Circuit Court of Appeals, and the judgment of the lower court was reversed,
with directions to enter a decree sustaining the priority of the first, then
the subsequent issues in order. The court therein said: "Also, it would be a
•
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clear impairment of their contract with the district. Under the legislative
authority of these acts of 1911 the district made its contract (theyledge and
bonds) with the bondholders and their representative, the trustee. That contract became effective, and right vested thereunder. Thereafter, the Legislature has no power to alter such contract rights to the detriment of those
who dealt with the district upon the faith of the authority granted by the
Legislature to the district. The matter is well expressed in a quotation
from Droit de la Nat. I. 1, c. 6, sec. 6, contained in City of Cincinnati v.
Seasongood, 46 Ohio St. 296, 21 N. F. 630, at page 633, as follows: 'A law
can be repealed by the law-giver; but the rights which have been acquired under
it while it was in force do not thereby cease. It would be an act of absolute
injustice to abolish with a law all the effects which it had produced.' The
same is as true of an amendment as of a repeal. To prevent just such character
of injustices was one of the reasons that the Constitution (article 1, sec. 10,
cl. 1) denied to the states the power of impairing the obligations of legal
contracts. Scotland County Court v. U. S., 140 U. S. 41, 11 S. Ct. 697, 35
L. Ed. 351; Seibert v. Lewis, 122 U. S. 284, 294, 7 S. Ct. 1190, 30 L. Ed.
1161; Port of Mobile v. Watson, 116 U. S. 289, 305, 6 S. Ct. 398, 29 L. Ed.
620; Louisiana v. Pilsbury, 105 U. S. 278, 26 L. Ed. 1090; Moore v. Otis
(C.C.A.) 275 F. 747, this court; Town of Samson v. Perry, 17 F. (2d) 1 (C.C.A.
5); Padgett v. Post, 106 F. 600 (C.C.A. 4); Brodie v. McCabe, 33 Ark. 690.
*** n
The cause was appealed to the Supreme Court of the United States and a
writ of certiorari dismissed. 286 U. S. 533, 52 S. Ct. 642, 76 L. Ed. 1274.
See annotations, 87 A. L. R. 397, and 85 A. L. R. 244.
•
The cases cited by the defendants from the various jurisdictions in which
similar problems have arisen are not controlling, but it may be helpful to
consider them briefly. Defendants rely upon the Texas case of Lacey v. State
Banking Board, 118 Tex. 91, 11 S. W. (2d) 496, 501, which is followed by
Lydick v. State Banking Board, 118 Tex. 168, 11 S. W. (2d) 505, 12 S. W. (2d)
954, and Smythe v. Cochran, 118 Tex. 297, 14 S. W. (2d) 821. In the Lacey
Case certain parties sought to establish a prior right to payment out of an
insolvent deposit guaranty fund over certain other claimants, solely by reason
of priority of time. It was held that the mere fact that certain claims were
prior in point of time did not establish a priority for the purpose of payment, but that the funds should be prorated among all claimants. We quote
from the language of the court as follows: "* * To our minds, the language
(of the statute) does no more than indicate a priority of right as to maturity
of claims for payment. The language is: 'The remainder shall be paid out of
the Depositors' Guaranty Fund through the Banking Board.' There is not one
word indicating an appropriation of any special fund or part of fund. The
language is merely the establishment of a liability and does not make the same
payable out of any particular portion of the fund. It is no more in legal
effect than the final establishment of the liability of the depositors'
guaranty fund. It, of course, is to be implied that such liability is presently payable, but there is lacking that essential intention creating a
preference by way of assignment or lien, either legal or equitable."
(5, 6) It is conceded by attorneys for defendants that, in the event
• plaintiffs succeed in establishing the priority of their claims, their contentions in regard to the right to collect interest should be sustained. The
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Federal Reserve Bank of St. Louis
12
authorities establish the correctness of the position taken by the parties
in this regard. The case of State v. Barret, 25 Mont. 112, 63 P. 1030, presents a state of facts very similar to the state of facts involved herein.
In that case an effort was made to stop the interest on certain state warrants
issued for a particular purpose by the repeal of a statute under which the
warrants were issued. The court therein said: "Where a contract was made
with reference to Pol. Code, sec. 1601, which provided that, if certain state
warrants to be issued in payment of work on the state school of mines building
could not be paid on presentation for lack of money in the state school of mines
building fund, out of which they were to be paid, they should bear interest
at the rate of 7 per cent per annum from the date of presentation, Laws 1897,
p. 124, repealing Pol. Code, sec. 1601, was void as to such contract, being
in conflict with Const. U. S. art. 1, sec. 10, forbidding the impairment of
the obligation of contracts by state legislation, and Const. Mont. art. 3,
sec. 2, to the same effect; hence the holder was entitled to interest on such
warrants." See Thompson v. Bone, 122 Kan. 195, 251 P. 178; 12 C. J. 999,
par. 612.
Section 15, article 2, of our Constitution, likewise prevents the impairment of the obligation of a contract.
We are not unmindful of the cases of Excise Board of Creek County v. Gulf
Pipe Line Co., 156 Oki. 103, 9 P. (2d) 460, and In re Protest of St. Louis-San
Francisco R. Co., 157 Oki. 131, 11 P. (2d) 189. Those cases deal with warrants issued in payment of claims, and the definition of a contract therein
relates only to a particular statute. In the instant case the warrants were
issued in lieu of bonds or other negotiable securities to secure a loan of
money, and are contractual in their nature. Consequently, any statute which
either directly or indirectly attempts to prevent the collection of interest
according to the terms of the original obligation would impair the obligation
of contract and would therefore be unconstitutional.
In view of our determination of the first two propositions, we deem a
determination of the third immaterial.
The trial court erred in ordering the payment of all the warrants and
claims on.a pro rata basis, and should have ordered the warrants of plaintiffs
with interest thereon paid in full.
The judgment of the trial court is reversed, and the cause remanded, with
directions to enter judgment in conformity with the views expressed herein.
RILEY, C. J., CULLISON, V. C. J., and SWINDALL, ANDREWS, McNEILL, BAYLESS,
BUSBY, and WELCH, JJ., concur.
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Federal Reserve Bank of St. Louis
y ;.,,,,,,r,r-:-.,--fv,-,--ar,c7fflogeitmiggfirregwarrelv.x---wv---,:.-747
Forty-fourth Day, Wednesday, February 21. 1923
773
To the Honorable Speaker of the House 6f Representatives:
Sir:
Under the terms of Engrossed House Bill No. 21, by
Laskey and Callahan, of the House, and Darnell, Barker and
Golobie, of the Senate, I am handing you, herewith, copy of
the report made in compliance with said resolution.
Yours very truly,
FRED PARKINSON,
State Examiner and Inspector.
STATE EXAMINER Sz INSPECTOR'S REPORT
1. STATEMENT OF THE TOTAL COLLECTIONS OF THE
ASSESSMENTS ON ACCOUNT OF THE BANK GUARANTY
FUND.
Gross Collection
$3,765,696.83
Refunds, Transfers, etc
118,210.41
Net Collection
$3,647,486.42
NUMBER OF STATE BANKS NOW OPERATING.
453.
On January 31, 1923.
3. NUMBER OF STATE BANKS FAILED, LIQUIDATED, CONSOLIDATED, AND THE NUMBER OF STATE BANKS NATIONALIZED.
Failed
121
Liquidated
57
Consolidated
124
Nationalized
251
Total
January 31, 1923.
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
553
774
House Journal
4. TOTAL AMOUNTS OF ASSETS TAKEN OVER FROM
FAILED, LIQUIDATED OR CONSOLIDATED BANKS.
Amount of resources taken over from failed banks where liquidating agents have not been appointed, $18,442,084.85.
This amount represents the resources on hand as shown by statement at time bank was closed by Bank Commissioner.
The amount of resources turned over to liquidating agents and
now in process of liquidation is $14,801,069.07.
5. TOTAL AMOUNT RECEIVED FROM THE SALE OF ASSETS AND OTHERWISE DISPOSED.
$2,134,586.11.
6. TOTAL AMOUNT OF ASSETS ON HAND.
The amount of assets from failed banks
turned over.to General Liquidating Agent___$3,159,049.23
7. TOTAL AMOUNT OF CASH ON HAND.
$4,492.57.
December 31, 1922.
8. TOTAL AMOUNT OF WARRANTS ISSUED TO DATE.
JANUARY 31. 1923.
Rebates, etc.—State Banks
Refunds to National Banks
-Salaries
—Expense of Examiners
--(ghee supplies
Banks
Cash Warrants
—Bank Robbers
-Miscellaneous
$
80,813.14
29,619.05
44,674.17
76,555.57
25,721.15 —
7,694,671.95
1,745,401.87
32,000.0073,310.10 --
Total
$9,802,767.00
9. TOTAL AMOUNT OF WARRANTS OUTSTANDING.
$1,413,246.05.
0
December 31, 1922.
10. TOTAL AMOUNT OF DEPOSITS.
$78,307,482.30.
At last call—December 29, 1922.
71
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
a 9/
7-ar1714."7-611"
Forty-fourth Day, Wednesday, February 21, 1923
-
775
11. TOTAL AMOUNT OF STATE BANKS AT LAST STATEMENT CALL.
464.
December 29, 1922.
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
Stuart
Stuart
Aylesworth
Bartlesville
Bromide
Clarita
Caddo
Chattanooga
Clayton
Coalgate
Cameron
Oklahoma City
Crowder
Oklahoma City
Durant
El Reno
Erick
Guthrie
GuthYie
Elva
Glencoe
Gore
Alva
Kenefick
Alva
Muskogee
Oklahoma City
iDU.4110f asnoH
AGENTS
12. NAMES AND ADDRESSES OF LIQUIDATING
D. M Rogers
First State Bank
Allen
D. M. Rogers
First State Bank
Atwood
J. C. Moore
Bank
State
First
Aylesworth
Bartlesville State Bank___H. W. Trippett
Bartlesville
_II. B. Jones
Bromide State Bank_
Bromide
Cleo Breedlove
Bank
State
First
Clarita
0. Huffman
H.
Okla. State Bank
Caddo
W. Crooks
Charles
Bank.
State
nooga
Chatta
Chattanooga
Box.
M.
Edw.
Bank
State
First
Clayton
Bunch
D.
C.
s
State
Bank
Citizen
Coalgate
W A Campbell
Bank of
Cameron
L. Duncan
J.
Farmers State Bank
Comanche
Thornton
Frank
of
_Bank
Crowder
Greening
N.
J.
of
Bank
State
Choctaw
Sam Swinney
First State Bank
Durant
I. B. Cope
Bank
cial
Commer
El Reno
C. S. Bonin
Western State Bank_
Erick
Chas. S. Olson
Guthrie State Bank
Guthrie
Chas S. Olson
Okla. State Bank
Guthrie
W. M Enlow
of
Bank
Goltry
Chas. Wright
Bank
s
State
Farmer
Glencoe
W. P. Woodruff
Illinois
of
Far. Bank
Gore
W M. Enlow
Bank
State
Imo
Imo
Farmers State Bank__ Tom Benson
Kenefick
W. M. Enlow
Bank of
Menu
C. Buchanan
J.
Bank
State
Central
ee
Muskog
s Price
Prentis
Bank_
Wilkin-Hale State
Oklahoma City.
12. NAMES AND ADDRESSES OF LIQUIDATING AGENTS---(Continued)
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
Bank of Commerce
Bank of Commerce
Bank of Commerce
Security State Bank
Farmers State Bank
Okla. State Bank
Bank of
Oklahoma State Bank
State Bank of
Bank of Commerce
Okla. State Bank
First State Bank
Yale State Bank
Yale State Bank
W. W. Folsom
N. S. Garnett, Jr
Wm H. Crume
Joe Soulsby
Chas. R. Freer
Wm H Crume
L B. Krouth
Geo. L. Zink
Wm M. Pegg
H. W Wells
W Lee Brooks
Joe S. Ford
I N. Tull
J. R. Potts
Okmulgee
Okmulgee
Okmulgee
Pawnee
Park Hill
Okmulgee
Sharon
Sentinel
Ada
.
Ada
Walters
Wagoner
Yelp
Yale
Forty-fourth Day, Wednesday, February 21, 1923
Okmulgee
Okmulgee
Okmulgee
Pawnee
Park Hill
Preston
Richmond
Sentinel
Stratford
Sulphur
Walters
Wagoner
Yale
Yale
House Journal
778
13. COMPENSATION OF LIQUIDATING AGENTS AND ATTORNEYS:
14. AMOUNTS PAID LIQUIDATING AGENTS IN THE PAST.
AYLESWORTH—FIRST STATE BANK.
Under contract 10 per cent on amounts collected. Attorneys
to receive amount provided in the notes.
BARTLESVILLE—BARTLESVILLE STATE BANK.
Allowed by Distriet Court 5 per cent to Liquidating Agents.
According to this amount it would aggregate about $4,000.00
per year to the two liquidating agents.
Clerical hire and expenses to date, approximately $2,500.00.
Court has allowed each of attorneys a fee of $2,000.00.
BROMIDE—BROMIDE STATE BANK.
This liquidating agent has only been appointed a few days.
Court has paid H. M. Shirley, Attorney, for expenses $150.00.
Other expenses $117.12.
CAMERON—BANK OF.
No money paid to liquidating as yet.
•
$287.75.
Expenses to date
CHATTANOOGA—CHATTANOOGA STATE BANK.
The salary fixed by Court is $250.00 per month and 15 cents
per mile for car used in services for bank. Salary paid to date
$2,250.00, and mileage expenses $347.70.
CLAYTON—FIRST STATE BANK.
Salary fixed by Court of $125.00 per month.
CLARITA—FIRST STATE BANK.
Court allowed the liquidating agent 10 per cent on all cash
collections and 25 per cent on all suits.
COALGATE—CITIZENS STATE BANK.
Amount paid to liquidating agent by order of court $7,709.69.
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
--ArimOIPMmor""
Forty-fourth Day, Wednesday, February 21, 1923
:779
CODiANCHE—FARMERS STATE BANK.
A commission of 15 per cent was allowed Liquidat
ing Agen
by District Court. Amount paid to Agent to date $12,390.39 t
.
•
Additional expenses paid out, $4,603.00.
CROWDER—BANK OF.
District Court fixed salary of liquidating agen
t at $200.00
per month. Total amount paid out and charged
to
expe
nses, $1,452.16.
DURANT—FIRST STATE BANK.
Amount fixed by Court as salary for liquidating
agent, $2,000.00 per annum. Expenses paid as foll
ows:
Atto
rney
's fees,
$2,500.00. All other expenses $1,209.94.
EL RENO—COMMERCIAL BANK.
Amount paid to liquidating agent as approved
by District
• Court to date, $3,150.00. All items of expe
nse are presented to
the Court each month and paid out on order from
them. Approximate amount paid out as expenses, $10,500.00
.
ERICK—WESTERN STATE BANK.
•
Nothing paid out to liquidating agent
Application to Court to be made at later or attorney up to date.
date.
GOLTRY, IMO AND MEls10.
The liquidating agent was allowed
month for,each bank. The court has a salary of $100.00 per
allowed attorney's fees of
$2,100.00. Also $960.00 for man and
use of car.
GLENCOE—FARMERS STATE BANK.
A salary of $200.00 per month has
been allowed the Liquidating Agent.
GORE—FARMERS BANK OF ILLINOIS
.
No salary paid to Liquidating Agen
t as yet. Total expenses
paid out to date, $192.14.
GUTHRIE--GUTHRIE STATE BANK.
Amount paid out as expenses to date
: Liquidating Agent
and Attorney, $4,700.00, to be divided
equally.
Clerical help, $451.50.
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
House Journal
GU.THRIE—OKLAHOMA STATE BANK.
paid
.
Court allowed 7 per cent as fee to liquidating agent. Amount
Agent, $2,075.45; Attorneys, $2,856.96.
Other expenses, $92.50.
HOFFMAN—FIRST BANK OF HOFFMAN.
Nothing.
KENEFICK—FARMERS STATE BANK.
Amount paid to Liquidating Agent, $425.00; Attorneys,
$500.00. Other clerical help, $410.00.
LOVELAND—FARMERS AND MERCHANTS STATE BANK.
No compensation on collections of this bank.
Under contract with Bank of blister.
MUSKOGEE—CENTRAL STATE BANK.
No fees as yet paid liquidating agent or attorney; $240.00
has been advanced to attorney covering traveling expenses. Expenses paid out up to date, $4,734.27.
OKLAHOMA CITY—WILKIN-HALE STATE BANK.
District Court allowed liquidating agent and attorneys a fee
of 2/
1
2 per. cent each. Amount paid to liquidating agent, $10,000.00, and to two attorneys, $10,000.00 each.
OKMULGEE—BANK OF COMMERCE.
Amount allowed by court, $4,000.00 each to the three liquidating agents. No expenses allowed them. Attorneys were paid
commission as shown on notes.
PARK HILL—FARMERS STATE BANK.
Paid to liquidating agent as salary, $1,537.89.
penses, $1,818.33.
Other ex-
PRESTON—OKLAHOMA STATE BANK.
No fee paid as yet to liquidating agent. Only expenses being
$104.25.
SENTINEL—OKLAHOMA STATE BANK.
No fees paid to liquidating agent or attorney.
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Federal Reserve Bank of St. Louis
":""f'•
Forty-fourth Day, Wednesday, February 21, 1923
781
STRATFORD---STATE BANK OF.
Salary of $250.00 per month allowed as compensation to
liquidating agent. No fees paid as yet to attorneys.
SULPHUR—BANK OF COMMERCE.
Amount paid to liquidating agent, $2,458.38, and other expenses, $1,291.41.
WALTERS—OKLAHOMA STATE BANK.
Amount allowed to Court as salary for liquidating agent,
$250.00 per month; total paid, $2,516.65; expenses, traveling, auto
hire, etc., paid $630.00. Paid to attorney for bank, $1,990.00.
Paid to outside attorneys, $605.00. Other expenses, taxes, etc.,
$2,516.09.
YALE—YALE STATE BANK.
The liquidating agents of this bank, Messrs. Potts and Tull,
are the heaviest depositors in above bank and are interested in
keeping expenses down to the minimum.. No salaries have been
paid them and just enough expenses to keep collections up.
CADDO—OKLAHOMA STATE BANK.
No commission .paid as yet to liquidating agent. Expenses,
$3,077.37. No attorney fees.
15. NUMBER AND STYLE OF SUITS FILED AGAINST STOCKHOLDERS AND CREDITORS OF DEFUNCT BANKS.
This information will be supplied direct from the Attorney
General's office.
.
REPORTS OF STANDING COMMITTEES.
Mr. Speaker:
The Committee on Engrossed and -Enrolled Bills begs leave to
report House Amendments to Senate Bill No. 23, house Concurrent
Resolution No. 13, and. House Bill No. 230, as amended, correctly
engrossed.
MOOTHART, Chairman.
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Federal Reserve Bank of St. Louis
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Federal Reserve Bank of St. Louis
GUARANTY FUND STATEMENTS IN REPORTS OF THE BANK
COMMISSIONER, OKLAHOMA
Statements relating to the deposit guaranty fund in Oklahoma
are given in the Biennial Reports of the Bank Commissioner only as
follows:
Quarter ended Dec. 31, 1914
"
Dec. 31, 1916
Dec. 31, 1918
Fourth Biennial Report, Jan. 1, 1915
Fifth
1917
Sixth
1919
No reports of the Baak Commissioner have been published since
1920, except in 1934. The 1920 and 1934 reports contain no data regarding
the guaranty fund or regarding bank failures.
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Federal Reserve Bank of St. Louis
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Federal Reserve Bank of St. Louis
L,74"
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The following is taken from:
"First Annual Report of the Bank Commissioner of the
State of Oklahoma, to his Excellency, the Governor of the
State. (dated November 1, 1908.)"
Taken from Page vii -
The Guaranty Law.
The first state legislature convened December 2, 1907. Just at
this time the entire country was suffering from a money onnic and
banks were restricting in a large measure cash :)ayments.
•
On December 17, 1907, house bill No. 11A, known as the depositors'
guaranty bill, became a law on approval by the Governor. The act
created a state banking board to be composed of the Governor, Lieutenant
Governor, President of the State Board of Agriculture, State Treasurer
and State Auditor. It provided that within 60 days after its passage
and approval the state banking board should levy against the capital
stock of each and every bank, organized and existing subject to the laws
of the state, an assessment of 1 per cent of the banks daily average deposits for the preceding yea;, less the deposits of United States and
state funds, for the eurpose of creating a depositors' guaranty fund. It
further provided that upon the closing or failure of any bank organized
or existing subject to the laws of this state, all depositors should be imedintely paid in full, authorizing the use of so much of the guaranty'j!!:fund as might be necessary for this purpose. The business of the bank v"'
/7
to be liquidated thereafter by the bank commissioner and the proceeds
applied to the reimbursement of the guaranty fund. Further provision was made empowering and directing the banking board to levy
additional assessments on the banks upon the depletion of the guaranty
fund from any cause and directing that said fund be maintained at 1
per cent of the average deposits of all the banks, to be determined at
the end of each year. The act further provided that upon the organization of a new bank it should be reouired to poy into the guaranty fund
3 ber cent of its caoital and that this amount should be subject to adjustment at the end of one year on the basis of 1 per cent of its average
deposits.
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Federal Reserve Bank of St. Louis
The bill also carried several important amendments to the old banking laws, among these being:
(a) Reouiring Bank Directors to own at least $500 stock, free
from pledge;
(b) Prohibiting active managing officers from borrowing, directly or
indirectly, of the bank's funds;
(c) Limiting loans to any person, corporation, company or firm to
20 per cent of the bank's capital, eliminating fro a calculatio: the
bank's surplus fund;
(d) Providing for the removal by the Board of Directors upon the
-1 -
_•
•
order of the Bank Commissioner any bank officer found to be dishonest,
reckless or incompetent;
(e) That the violation of any of the provisions of the Banking Laws
by the Officers or Directors of any bank is sufficient cause to subject
such bank to be closed and liquidated by the Bank Commissioner.
Snecial Examinations Made.
•
On account of the enactment of the depositors' guaranty law and
no examinations having been made of the banks in the Indian Territory,
it was deemed expedient to make a special examination of each bank
coming under the supervision of this department. For this purpose
thirty-one special examiners were employed, selected for the most part
from the official staff of banks throughout the entire state. Considering
their lack of special training for the work they did remarkably well.
These special examinations were made between January 7, and February
14, 1908. In all 513 examinations were made, a number of banks being
examined twice between these dates. The banks themselves assisted
greatly by making soecial effort to meet the requirements of the new
laws. On account of the unfavorable financial situation at this time
it was extremely difficult in many instances to meet every requirement
immediately. If the bank was solvent and showed a disposition to comply with the law as promatly as possible the deautment endeavored to
be fair and gave them an opportunity. Those whdreondition or last
record did not justify a continuation of business were ordered to discontinue receiving deposits and liquidate, and they did so. So far as
this department is advised no depositor suffered loss.
At this time the question arose as to whether a lx-1.1,1k could continue in operation without a certificate of guaranty under the depositors'
guaranty law. The matter was nresented to the attorney general by
this office in a letter dated January 15, 1903, and}e replied under same
date holding that whenever the banking board levied the assessment a4/
/provided for in house bill No. 11A, the deposits in all banks in Oklahoma, subject to the laws of the state would be immediately protected
by the guaranty fund and that the bank commissioner had no authority
to exclude any bank, except by closing it before the levy was made.
While a large number of banks were technically not in harmony
with every provision of the banking laws their general condition was
such that the department did not feel justified in closing them and upon
their promise to correct the objectionable features of their business they
were allowed to continue in operation. But )ne bank, the International
Bank of Coalgate, failed to make good.
The bankina board made the levy provided for in house bill No.
•
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Federal Reserve Bank of St. Louis
- 2-
S
11A, on February 14, 1908, and thereupon the deposits of :11 ban1L
operating under the state laws were protected by the depositor's guara,
fund, with but one exception, viz: the Noble State Bank of Noble. This
bank enjoined the collection of the assessment against it and et this dat,
the case is still 'nending before the supreme coirt of the United Stater.
National Banks under Guaranty Law.
Section 4 of house bill No. 11A provided that 'any national bank in
this state approved by the bank commissioner might voluntarily avail it.
depositors of the protection of the depositors guaranty fund by entnr1r,
into a contract inviting with the state bank4 ng boprd.
nns
Ninety-seven nationnn
the fees collected for making such examinations were paid to th
nrer of the banking hoPrd.
Of the number exaiLlined fiX14 sovo, witL a toI.L.L cai)iLL:....izz..tio:1 of
$1,900,000 and deposits of approximately $6,250,000 signed contracts
and complied with the guaranty law.
(Here folioed a lict of sucl, banks, which we purposely omit.
Subsequently, the attorney general of
qational banks could not legally participt posit law and uoon the order of the comptr
banks were compelled to withdraw. Ten of
rendered their national charters and reortInterest on Deposits.
:e—rnary, 190t, the legislature nesn, _
No. 533, in which the bznk coinnissioner was given authority to fix
In ace,
maximum rates of interest whicl, banks may may on deposits.
ance therewith a ruling was uro"ultt,ted on February 2. 1998. end
modified March 30, 1908, fixing the maximum rates as feOn bank balances, not to exceed Three Per Cent per annum.
On savings acconntz, not to exceed Four Per Cent per ann .
On time certificates for less than six months, not to exceeu Three
Per Cent per annum.
On tilae certificates for six months or longer, not to exceed Four
Per Cent per annum.
This ruling is still in force and so frr as the department is able
to determine is being generally observed by the banks.
International Bank of Coalgate.
•
Since the enactment of the depositors' guaranty law no bank has
failed in the usual meaninr of the term but one bank, the Internationn_L
Bank of Coalgate, was closed for violations of the nrovisions of the bankdeing laws and for its failure to comply with the lawful orders of this
- 3rertmert.
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Federal Reserve Bank of St. Louis
•
This bank was organized under an Indian Territory charter and began business November 1, 1905. It was first examined by this department on February 4, 1908. At that time it had a caoital of $38,000,
undivided profits $1,737.11, total deposits $.32,424.16 and a reserve of 39
per cent. The examiner reported officers' loans $3,922.86, stock loans
$7,811.50, doubtful °weer $91.50 and the furniture and fixtures carried at
about $900 in excess of its actual value. His report was received Febreere
6, and on the same day a letter was addressed to the bank ordering al]/
/officers' indebtedness and stock loans taken up and a reduction made in
the furniture and fixtures account. A reply was received signed by the
cashier of the bank stating that the obiectioneble matters would be adjusted. Felyinr upon his statement, as was done in numerous other
cases, and desiring to give thee an opportunity to place the bank in harmony with the law, it was permitted to continue in operation and its depositors secured the protection of the depositors guaranty law on the day
the state bankine board levied the assesseent creating the guarqnty fund,
Febrecr7/ 14, 1908.
The bank's report, made in response to call for statement Februar,
20, 1908, showed that it had not complied with the instructions of thio
office. They were again ordered to comely with the law.
I thee directed Mr. D. ..Wiitson, an assieteet, to examine the
bank end he did so on Mcy 1, 1908. I quote from his report as follow::
"I found the affairs of this bank in anything but good condition.
They have not comelied with your instructions in any particular. More
than two-thirds of their naeer is past due and a great majority of the active
paper has been in existence from one to three years and is plastered all
over the bees.- with extensions. They show a loss now and if they continue
in the same way they will show further loss. Officers loans $10,181.22,
other doubtful parer $5,485.44."
I immediately addressed a letter to the board of directors of the
bank stating that the law must be complied with without further delay
and ordered the removal from office of the nresident and cashier of the
bank, both of whom were active in its management. The board was further informed that the bank would be closed unless it comPlied with the
law. This letter was sent to Examincr Watson with instructions to return
to Coaleate, call a meeting of the directors, and lay the letter before them.
He did so and in accordance with his instructions remained at Coalgate
to assist the directors in placing the bank in proper condition and in
harmony with the banking laws. He spent seven days there, at the end
of which time he notified me that nothing had been done and that there
was but little hope that anything would be done. He said the directors
were not satisfied and expected the banking department to act. I immediately went to Coalgate called a meeting of the board of directors, at
which the officers of the bank and r. atson were present, and informed
the board that the matter could be delayed no longer. I explained in detail what had already been done and told them that unless tie bank was
placed in harmony with the laws it would be necessrry for me to close
it.
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Federal Reserve Bank of St. Louis
-4-
•
Jntil the next daa nL
it noon the next dry -Li.
bank apaarently made no aa—rt ia
aalacari
0 noon 1.1aa 21, 1D38 and a notice vas placed oa
/bank was in the hands of the bank com)oissioner and that ]
would be Paid in full by the state banking board.
At the time the bank was closed it had total deposits of
To nay depositors immediately p24,645.73 of the guaranty fund was
.ased. Mr. Herman C. Schultz was apnointed to take charge of the
and to liquidate its business.
All claims were :aid and the oParaat
reiabursed in full and the remaining proaerty us delivered to the stockholders Seater.ber 4, 1)J8. The bank has recently been reorganized 1:•''
the title of the Citizens State Bank of Coalgate. It is under diffa
management, has a capital of 425,000 surplus $1,000 and its assets are
in a clean and sound condition.
Extracts from resolutions adopted by the board of directors of the
International Bank of Coalgate, Seatember 4, 1908:
"Be it resolved by the board of directors of the International Bank
of Coalgate, Oklahoma,
"That, Whereas, the board of directors, by the assistance of Mr. D. C.
Meminger, an expert accountant employed for that purpose,has this day checkee
out Herman C. ochultz, assistant state bank commissioner for the State of
Oklahoma and received from his hands the property and affairs of said bank,
and
Whereas, We find that he has well and faithfully administered the trust
renosed in him as such officer as concerns the affairs of said bank, and
rendered an account thereof which we find true and correct in every detail,
Whereas We find the condition of the affairs of said bank very mucv, improved as compared with their condition at the time the said assistant bank
commissioner took charge thereof, and
Whereas, Much uncalled-for comment has been indP1aea-1
taking charge of said bank by the state authorities;
4- 1,1r
Now, Therefore, We, the board of directors of said bank, exia,u tai tile
state bank commissioner, H. H. Smock, and to Assistant State Bank CommissioneH. C. Schultz, oar thanks and our appreciation for the careful and efficient
manner in which they have conducted the settlement of this bank's affairs and
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Federal Reserve Bank of St. Louis
-5-
•
express our entire approval of the bank commissioner's action in
taking charge of the affairs of said bank at the time he did because
of the unsatisfactory condition and irregularities in the management
thereof by the president of said bank.
That a cony of these resolutions be spread upon the minutes of
this meeting and a cony thereof furnished to the state bank compdssionPr.
H. E. bmock, and to assistant Bank Commissiorrr Herman C. Schultz.
(Signed)
•
•
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Federal Reserve Bank of St. Louis
6
JOHN GENTILINI, Chairman,
ANTHONY SHAW
, Secretary.
I
•••
(Excerpts from Second Biennial_Eamort of Bank Commissioner, Oklahoma, Dec. 15, 1910'
4,0110101POP4NietetaraillinirtaMPOliatillaiA0V-UifillkAljp,i11,41111110611111113.14
Concerning Bank Failures
"In further reference to Bank failures, I wish to add that I find we can liquidate a bank much more economically through another bank located in the same town, or by
permitting the failed bank to be reorganized under another name. The notes are paid
or secured more readily, and the Banking Board is only required to handle such paper
as the Bank purchasing the assets is unable to collect or have renewed to their
satisfaction. By this method, a very small amount of money will take care of the
liquidation of a failed bank, and no financial disturbance whatever is created in
the community where the bank is located." (p. xii)
Concerning organization of new banks
"Since June 1st, 1910, when I became officially connected w—th the De there have been 49 applications for bak charters which were not a,Trovea,
reason that conditions in the various communities did not, in rt,, opinion,
jst
the organization of additional hanks. Accordin to a
decision of the S
of the State, the Bank Commissioner must issue a certificate of
authori„
to open for business when the incorporators, have complied witl
all the laws
.
pertaining to the organization of State Banks." (p. xii).
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Federal Reserve Bank of St. Louis
Excerpt from the Third Biennial Report of the Bank
Commissioner of the State of Oklahoma, dated
December 15, 1912.
"Within the first few months of my administration the
fact was disclosed that the department had many insolvent
banks on hand; some of which it was imperative to take
charge of and liquidate at once; others should have been
liquidated soon thereafter, but as our Guaranty Law provides that all depositors shall be paid at once, in full,
there being no funds on hand, and our banks as a whole
being unable to stand additional excessive and heavy
assessments, the Department was prevented from handling
them in the proper manner at the time."
•
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Federal Reserve Bank of St. Louis
"The only near fatal mistake made in our Guaranty Law
was that after its passage, the immediate taking in under
the guaranty system of all banks without first the most
careful and rigid examination of banks, men and methods.
They should have been tried out under the most thorough test
and the incompetent and dishonest should have been eliminated
from our financial institutions, and none but the strongest
and best men permitted to engage in banking. The department of banking should be elevated to the highest standard
and placed upon the most permanent and solid basis possible,
as nearly every individual in Oklahoma is effected more or
less by the condition of her financial institutions. With
this end in view the Commissioner is of the opinion that all
employees of the Banking Department should be appointed
under the civil service rules, with only one object in mind,
that of rendering the very best service at all times. In
making the appoiatments therefor, I have not in a single
instance asked as to the politics of any applicant, but
have only sought to select high class men, considering
efficiency and ability only.
•-•
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Excerpt from the Fourth Biennial Report of the Bank
Commissioner of the State of Oklahoma, dated
December 31, 1914
"It is a well known fact that the Oklahoma Bank Guaranty Law was
seriously wounded at its very inception, in that the most dangero
us and
unbusinesslike methods were adopted in placing the system in operatio
n.
Nothing more fatal to the success of this law could have been
devised than
the method of spreading over all banks it. the State a blanket
insurance;
that with the many incompetent and unscrupulous managing officer
s found
In our banks, over one hundred and twenty-five of which were displace
d
by the Commissioner during this administration; the wild, speculat
ive
tendencies which have prevailed here, as has been the case in all
new
states; the many crop failures in certain sections; shrinkage in real
estate values; financial depression and otherwise adverse economic conditions--make it the more marvelous that the crisis was averted in the
successful administration of the Depositors' Guaranty System. This
law
is grounded in the minds and hearts of the people, and any attempt by
our Legislature toward the repeal of sane would be considered an Innovation upon the rights of the citizenship of the State."
"The Guaranty System has been the means of preventing disastrous
business blight and great individual distress in that all depositors
of failed banks have been paid in cash, and that "in full," on demand,
which fact has not a parallel in the history of banking."
•
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Federal Reserve Bank of St. Louis
•
Excerpt from the Sixth Biennial REport of the Bank
Commissioner of the State of Oklahoma, dated
December 31, 1918
•
"All bona fide depositors of failed banks have been promptly
paid in full; however, there are certain existing and outstanding
claims growing out of banks, which failed some years ago, which
have been presented to the Banking Board for rayment at various
and sundry times. These claims have been shifted from one Attorney to another for iresentation, and political influences have
time and again sought to bring about favorable consideration
by the Banking Board during the past two administrations. But
the present Board, also the Board under the former administration, after making a most thorough and exhaustive investigation,
reached the definite conclusicn that practically all of these
claims are tainted with fraud, and while there might be and
probably are exceptions, and if there are such, even then they
could only be classed as common creditor claims, and therefore
in no instance would a charge against the Guaranty Fund be
permissable."
"Both the present and former Boards have tried to be fair,
just and equitable at all times in passing upon claims presented, and have not hesitated to do what they believed to be
right."
•
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Federal Reserve Bank of St. Louis
1.1ETho—
Excerpts from the Second Biennial Report of the Bank Commissioner
of the State of Oklahoma, dated December 15, 1910
0
Re Columbia Bank & Trust Company, closed Sept. 27, 1909.
TT _ Suffice to say that the Guaranty Fund from which a sufficient amount was drawn
to pay depositors in full, enabled the Bank Commissioner to promptly liquidate this
large institution without any disturbance to the financial interests of Oklahoma
City or the State of Oklahoma.
"As there was an insufficient amount in the Depositors' Guaranty Fund at the
time the Columbia Bank & Trust Company failed to liquidate the institution, it became
necessary for the Banking Board to levy a special assessment of 3-4 of 1 percent on
the average deposits held by State banks for the preceding year, which the banks
have been permitted to carry as an asset, pending finj 1 liquidation of the above
named bank, although a great many of them charged the amount to Expense or Profit and
Loss account when it was paid out." (pp.vii-viii)
Re First State Bank of Kiefer, closed Dec. 14, 1909.
"This being a small institution, the Commissioner drew a sufficient amount from
the Guaranty Fund in addition to the amount he could realize on the quick assets to
pay the depositors in full which required a period of only about eight days."
(pp. viii)
le
Re Bank of Ochelata, closed Dec. 31, 1909.
"The Commissioner entered into an agreement with Mr. G. D. Davis of Claremore
and his associates, to liquidate the Bank of Ochelata, through a new institution to
be known as the Oklahoma State Bank, with a capital stock of $15,000, fully paid up,
the Commissioner agreeing that the State Banking Board would protect the said
Oklahoma State Bank against loss in assuming the obligations to the depositors of
the Bank of Ochelata. On July 25th, 1910, the Oklahoma State Bank submitted a
report to the Bank Commissioner and the State Banking Board, a copy of which is on
file in this office, showing that there was due them for notes which they were
unable to collect, the sum of $18,968.48. The Banking Board issued their warrant
for the above amount and took up the notes. These notes were turned over to
Mr. E. A. Sharpe, collector for the Banking Board and this Department, and on
September 30th, 1910, he turned in $945.16, being the amount collected up to that
time. I understand he has since collected some of the notes which will be turned
over to the Treasurer of the Banking Board when he makes his quarterly report
December 31st, 1910."(p. ix)
Re Oklahoma State Bank, Durant, closed April 28, 1910.
"An agreement was entered into with the Guaranteed State Bank, of that city to
liquidate the Oklahoma State Bank, and the State Banking Board deposited with the
said Guaranteed State Bank, the sum of $25,000 to protect it against loss. The
Guaranteed State Bank, with the assistance of Mr. E. A. Sharpe, collector for the
Bank Commissioner and State Banking Board, is still collecting the assets of the
Oklahoma State Bank, and as the report has not been submitted to this department,
I am unable to state just what the loss will be." (p. x)
•
Re Creek Bank & Trust Company, Sapulpa, closed Nov. 11, 1910.
"Mr. M. Jones of Bristow and his associates offered to reorganize the bank
under the name of the Oklahoma State Bank, of Sapulpa, and pay in the 100 percent
assessment, on the condition that the Bank Commissioner enter into an agreement
to place all cash and accounts on the books in balance, and obtain the guarantee
of the State Banking Board on such notes belonging to the assets of the Creek
Bank & Trust Company, as the Oklahoma State Bank might desire to have guaranteed
after thirty days' investigation. Sucilan agreement was entered into and the same s
was confirmed by the Banking Board at a meeting on Dec. 1st, 1910.
"On this date, December 15th, 1910, the Oklahoma State Bank of Satulpa has not
require
mPlie its report to the Banking Board, and the amount of paper which they will
xi-xii)
,:arantee or take
the State Banidi
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Federal Reserve Bank of St. Louis
the Bank Commissiener .
Excerpts from the Third Biennialof
Report, ciated
1), 1912
Re Bank of Commerce, Geary, closed May el 1911
The'American State Bank of Geary assumed all of the deposits of said bank and
took over certain of itis asqets. The 'iankinn Board paid it the difference between
the eeposits which it assumed' and the assets which it took over.
Re Citizens Bank, Mountain Park, closed Apr. 10, 1911
A newcharter was granted to the Planters Sta,e Bank of Mountain Park and it
purchased the good aJsets of the Citizens Bank, and the Banking Board made up t::e
difference between the assets purchased and the 'iabil:Lties of the failed bank...
Re Night & Day Bank, Oklahoma City, closed June 7, 1911
The Night & Day Bank was taken over by the Wilkin-Hde State Bank, September 1St: ,
1911, the Banking Board taking all doubtful assets not accepted by the 'ilkin-Hale
State Bank, and paying them the difference between theliabilities assumed and assc
taken over...
(Tote. Statement shows :344,276 advanced, with cost to Jan 1, 1913,
of $379,026, including inter • st on banking board warrants).
Re Planters n. relechanics Bank, Oklahoma City, closed April 6, 111
Note. Liquidated by BankinF Board
•
ne iirst State Bank, Prior, closed Nov. 1, 1912
...arrangements were made with Yr. A. J. Langer, of Davenport, Oklahoma, and his
associates, to charter a new bank under the name of the American State Bank of
Pryor, and this bank purchased all of the good assets of the failed bank and the
stockholders arthe failed lank arranned to pay the new bank the difference betwee
deposits and assets taken over, amounting to about $30,000.00, and they took the
doubtful and bad assets of the failed bank to reimburse them for the $30,000. C.)
advanced.
_
re Farmers e.z Merchants Bank, Sapulpa, closed Sept. 10, 1912
Note. Liquidated by Banking Board
Re First State Bank, Shattuck, closed Oct. 3, 1911
This bank was voluntarily liquidated through the Guarantee State Benk of Shattuck,
on October 3, 1911... The Bvhkinn Board advanced $20.004.29 in the liquidation...
on account of a dep sit which the Citizens Stale Bank of Covington had with said
First State Bank and received in lieu thereof the followin assets.
Re Tank of Snyder, closed May 20, 1911
This bank was liquidated through the Kiowa County Bank of Snyder. (Note, 4th an
advance by the Banking Board)
Re Security State Bank, Sulphur, closed June le, 1911
Liquidated through the Bank of Comeeece, Sulphur.
•
Re Farmers State Bank, Tushka, closed Sept. 2, 1911
The Banking Board made an agreement with he stoc)-.holders that LC they would pay in
their double liability and put up an additjenal capitalstock, that they would be
protected. Said amounts were paid in e7Ith the exception of the double liability
on
the 7took of tIlr.! cashier. Ey this azreemert t e Cruaranty Fund i:17
s?..veral
rq:...;17!
I'lanters tate Bank of Tushka.
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Federal Reserve Bank of St. Louis
Excerpts irom T1-ird Biennial
-Gank Gomlnissoncr
contia-ed
Re State Guaranty Bank, .!atnnga l closed Feb. 19, 1912
Guaranty
f.atona Ste-1 Tani 1,a7 chari- -d to take the place of thc
Bank, and all of he at of the Ctate Guaranty Bank .iere ta en ovor by the
-vaton:a State Dank, an "- c'el'colts of
rtacl'Irrant7 ra-k as-lan.r'd y the now
organization. This bank continued until October 22nd, 1912i ,,Th-n it was taken
charge of by the Bank Co-Idssioner and liquidated.
Re Watona State Bank
...liquidated thro 11 th,
2 Llaine County Dank of 'o;atonga.
NOTE. la ill' statements showing the assets and liabilities taken own- by the
absorbin, or successor bank, and, by the State Balkin; Board, r spctively--which
are given for most of the cases--liabilities othcr than deposits were mostly assumed
either by the absorbing or successor bank or by the State Bankinz Board. It would
appear that the process protected other liabilities as well as deposits—many of
the other liabilities, sucha $ bills payable, doubtless bein, secured.
not published in any biennial reports
NOTE. Information such as the above
of the Bank Commissioner subsequent to the Third Biennial Report.
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CAUSES OF BANK FAILURES. IN OEIJIRDMA DURING OPERATION OF
THE GUARANTY FUND AS GIVEN IN BIENNIAL REPORTS OF THE BANK COMMISSIONER
Bank of Ochelata, failed December 31, 1909.
"Upon investigation in connection with the affairs of the bank, it
was discovered that Fred P. Spraul, the Cashier, had forged two notes.
He was placed under arrest...."
Oklahoma State Bank, Durant, failed April 28, 1910.
"As no irregularities other than poor judgment and negligence upon
the part of the officers have been discovered, no arrests have been made."
Creek Bank & Trust Company, Sapulpa, failed November 11, 1910.
"Subsequent to the re-organization, it has developed that the President and Cashier of the defunct Creek Bank & Trust Company had issued
certificates of deposits in the sum of 45,000 without making any record
of the same on the books of the bank."
Bank of Commerce, Geary, failed May
5, 1911.
"The president of the above mentioned bank, was indicted in connection with the failure of said institution and the Bank Commissioner recovered 42,500.00 on his surety bond. The assets which the American State
Bank refused to take, are either in judgment or in possessicn of this department and all amounts realized from said assets, will be applied to the
credit of the liquidation of said bank."
Citizens Bank, Mountain Park, failed April 10, 1911.
"The Banking Board took over $25,690.00 in notes of the failed bank
on which it will not be able to realize anything, as they represented
fraudulent transactions of the officers of the bank who have been arrested
and are now under bond awaiting trial."
Night & Day Bank, Oklahoma City, failed June
7, 1911.
"The Night & Day Bank was taken over by the Wilkin-Hale State Bank,
September 18th, 1911, the Banking Baord taking all doubtful assets not
accepted by the Wilkin-Hale State Bank, and paying them the difference
between the liabilities assumed and assets taken over, and as mat of
these are very undesirable, it is a question what they will be able to
realize on these assets."
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Federal Reserve Bank of St. Louis
-2-
S
Farmers State Bank, Tushka, failed September 28, 1911.
"This bank was taken charge of by the Bank Commissioner on September
28th, 1911, and the cashier committed suicide as soon as the bank was
closed, and as he was the only employee in the bank and had juggled his
books and accounts in an endeavor to cover up his transactions, it was
very hard to arrive at a just conclusion of the situation."
Afton Exchange Bank, Afton, failed April 7, 1914.
"The cashier of this institution absconded with certain moneys belonging to the bank; there were also a number of discrepancies in the
bank's affairs."
Alva Security Bank, Alva, failed August 9, 1913.
"The failure of this bank was caused by their attempting to finance
railroad deals, townsites, creameries, etc.: their note case was several
thousand dollars short. The cashier of this institution is now under indictment."
Bank 01' Commerce, Alva, failed April 4, 1914.
•
"The cause of this failure was an excessive amount of large loans,
upon which they were unable to realize."
Anadarko State Bank, Anadarko, failed June
3, 1913.
"The failure of this bank was brought about by certain stockholders
of the institution using an excessive amount of the funds bf the bank to
promote their personal interests."
Bank of Foraker, Foraker, failed October 31, 1913.
"The primary cause of the failure of this bank was the purchasing by
them of quite an amount of notes, executed in most cases by Indians, in
payment of premiums on insurance policies; a great majority of this paper
turned out to be an absolute loss."
Bank of Garvin, Garvin, failed January 16, 1913.
"The cause of this failure was financing speculative propositions
loans."
bad
and
Bank of Lawton, Lawton, failed July 14, 1913.
"The failure of this bank was caused principally by their attempt
finance
a street car deal."
to
0
Union State Bank, Muskogee, failed September 13, 1913.
"The cause of this failure was their inability to realize on certain
bad and doubtful assets."
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Federal Reserve Bank of St. Louis
-3
•
Peoples Bank and Trust Company, Muskogee, failed January 13,
1914.
"The cause of the failure was a serious impairment to their capital
stock which they failed to make good in cash."
First State Bank, Oklahoma City, failed March 10, 1913.
"The failure of this bank was caused by a large amount of bad,
slow
and doubtful real estate loans and securities which they were
carrying."
Oklahoma State Bank, Oklahoma City, failed August 11, 1913.
"This failure was caused by bad loans, general depression and shrinkage in values."
Oklahoma State Bank, Sapulpa, failed January 14, 1913.
"The cause of this failure was bad loans and general depression."
Bank of Spencer, Spencer, failed December 16, 1913.
•
"The principal cause of this failure was foreign and accomodation
loans."
Choctaw Commercial Bank, Sprio, failrd January
4, 1913.
'
"This failure was caused principally by financing outside investments."
Farmers and Merchants Bank, Snyder, failed September 16, 1913.
"The principal cause of the insolvency of this institution was slow
loans, and a cotton loss which could not be realized upon which may eventually be paid."
3ank of Stilwell, Stilwell, failed May 28, 1913.
"Doubtful assets and general bad management was the cause of this
failure."
First State Bank, Wainwright, failed October 16, 1913.
"The principal cause of the failure of this institution was funds
advanced by the bank to companies in which W. H. Wainwright was interested."
Farmers & Merchants Bank, Coweta, failed December 21, 1915.
•
"The failure of this bank was caused by bad and uncollectible paper,
and dummy notes, and the inability to realize on the assets sufficiently
to meet the regular demand of the depositors. The cashier of this bank
plead guilty to violation of the banking laws and received his sentence."
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Federal Reserve Bank of St. Louis
4
First State Bank, Mannsville, Oklahoma, failed September 30, 1915.
"The failure of this bank was caused by the defalcation of the Cashier,
and the extremely bad manner in which the affairs of this institution were
managed. Charges were filed with the County Attorney for action."
Farmers & Merchants Bank, Mountain View, failed February 16, 1915.
"This bank was in an extremely overloaned condition, and had a great
many large loans on which there was inadequate security, and the borrowers were in such bad financial condition that the bank was unable to realize on its paper sufficient to conduct its business further. There
are several charges pending against a former active officer of this bank."
Ponca State Bank, Ponca City, failed February 22, 1915.
"This failure was caused by the amanaging officer using the funds of
the bank to finance personal enterprises, and the placing of dummy notes
in its resources. On the evening of February 21, 1915, the active President of this bank committed suicide."
Bank of Mazie, Mazie, failed March 25, 1915.
"The records of this bank show that it has never made any money, but
lias been run in conjunction with a store owned by the former Cashier."
First State Bank, Row, failed November 17, 1916.
the bank building, furniture and fixtures and many of the records,
including the individual ledger, were burned on the night of Nov. 16, 1916;
also all records of the business transacted November 16, 1916."
"There are some discrepancies in the accounts of this bank for which
the Cashier is responsible."
First State Bank, Dewar, failed April 10, 1918.
"On account of inattention of Directors, probably dishonesty of Officers and careless methods, this Bank got into financial difficulties and
was taken charge of by the Commissioner on April 10, 1918."
First State Bank, Jay, failed May 13, 1917.
"It became necessary to take charge of this institution on May 13,
1917, which was by reason of the fact that the principal stockholder was
the owner of several banks in Adair and Delaware Counties and had become
involved in financial difficulties."
•
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Federal Reserve Bank of St. Louis
5
•
Farmers State Bank, Jefferson, failed January 11, 1917.
"This Bank had been mismanaged for many
of fraud and dishonesty had been detected by
repeated warnings and efforts on the part of
rect the evil tendencies it became necessary
months. Strong evidences
the Department and after
the Commissioner to corto enforce liquidation."
Mineral Belt Bank, Tar River, failed July 26, 1918.
"This institution was wrecked by the speculations of its Presid
ent,
Truman Elmore, who took his own life after having embezzled
twenty-five
or thirty thousand dollars of the funds of the bank."
Citizens State Ban, Tulsa, failedMay 28, 1918.
"A liquidation of this Bank became absolutely necessary in
order to
protect the Guaranty Fund as the management was wholly
incompetent. The
Commissioner time and again warned the Officers and direct
ors that their
institution was rapidly on the road to ruin and that a change
of management was immediately necessary, but it seemed imnossible to
impress them
with the gravity of the situation. It, therefore became necess
ary to act
hastily to save a complete wreck."
•
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Federal Reserve Bank of St. Louis
a
•
CLASSIFICATION OF FACTORS MENTIONED IN COMENTS ON BANK
FAILURwS IN THE BIENNIAL R'.'PORTS OF THE BANK COMMISSIONTT,
OKLAHOMA, 1909-1918.
A.
Dishonesty of officers or employees
Case numbers 1, 3, 4, 5, 7, 8, 9, 25, 26, 28, 33, 34 (these cases are
on other lists as follows: 9, list C; 25, list E; 28, list B)
B.
Excessive loans to certain interests
Case numbers 10, 11 (to interests of certain stockholders), 24, 28(an officer)
(case 28 is also on list J.
C.
Excessive loans
r certain tyres
Case numbers 9, 12, 14, 17, 20, 21 (case 9 also on list C; case 17 on list E)
D.
Speculative propositions
Case number 13
•
E.
Bad loans, undesireble assets, capital impairment, or other terms
descriptive of poor assets
Case numbers 6, 15, 16, 17, 18, 19, 22, 25, 27 (cases 17, 18, 19 and
on other lists also)
F.
Poor judgment, or bad management
Case numbers 2, 23, 31, 35
G.
General depression
Case numbers 18, 19
H.
(Both also on list E)
Other factors
Case number. 29 (never made money, run in conjunction with a store)
30 (bank building and r, cords burned)
32 (principal stockholder in financial: difficulties)
•
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Federal Reserve Bank of St. Louis
S
BANK FAILURES IN OKLAHOMA, 1908-1919, DESCRIBED BY ROBB
IN "GUARANTY OF BANK DEPOSITS"
Major causes of failure mention
Excessive
'Othel
Fraud or
defalcation loans to
special
interests
or participation in
specOative
boom—
Location and name of bank
Coalgate: International State Bank of Coalgate
Oklahoma City: Columbia Bank and Trust Company
Kiefer: The First State Bank of Kiefer
Moulitain Park: Citizens Bank
Sapulpa: The Farmers& Merchants Bank
Sapulpa: Creek Bank and Trust Company
Alva: Alva Security Bank
Anandarko: The Anandarko State Bank
Alva: Bank of Commerce
Elgin: Bank of Elgin
Garvin: Bank of Garvin
Enid: Garfield Exchange Bank
Muskogee: Alamo State Bank
Muskogee: Union State Bank
Oklahoma City: Night and Day Bank
: Planters and Mechantts Bank
: First State Bank
: Oklahoma State Bank
?I
: State Bank of Capitol Hill
1/ Robb indicates that there were evidences of dishonesty as
well as of speculation in most of these banks.
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ARCHIVAL MATERIAL FOR GOVERNMENT RESEARCH
in the Division of Manuscripts at the University of Oklahoma
-
•
No. 1
•
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REFERENCE CIRCULAR
1955
S
ARCHIVAL MATERIALS FOR GOVERNMENT RESEARCH
IN THE DIVISION OF MANUSCRIPTS AT THE UNIVERSITY OF OKLAHOMA
Reference Circular No. 1
1955
A keener insight into the functioning of government on the international, national, state, county,
and municipal level is being stimulated by the Department of Government at the University of Oklahoma through its classroom work, seminars, public conferences, and special lectures. The Government
Department is developing among the youth of the State a deeper appreciation of the interrelations of
the various branches of government; and, in cooperation with other teaching divisions, it is creating a
firmer understanding of the relations of government and business, government and labor, government
and the citizen.
As a contribution to the significant work being done in preparing young men and women for careers in these various fields, and for the encouragement of scholarly research in the ramifications of
government activity and influence, the Division of Manuscripts at the University offers this special
reference circular. This circular is designed to call attention to the availability of archival materials
in the field of government, contributed by Oklahomans who have been engaged in government service
at various levels.
Categories of materials. For convenience of reference, this inventory has been subdivided into
six categories: (1) Papers of Oklahoma Governors; (2) Papers of State Legislators; (3) Papers of
Jurists and Attorneys; (4) Papers of Oklahoma Senators; (5) Papers of Oklahoma Congressmen; (6)
Other collections in the category of Government and Political Science.
Under each category are listed the various collections appropriate to that classification. The
name of the collection is given, in reversed order for quick reference. Beside each entry appear: Inclusive dales of the materials comprising the collection. (These dates do not necessarily reflect the
period of service of the person, although in some instances this might be the case.) Volume or bulk
of the collection is given in terms of number of document containers. These are standard sized boxes,
either of letter or legal dimensions, holding approximately three linear inches of material.
Nature of the materials in the collections. Archival materials for government research available
at the University of Oklahoma's Division of Manuscripts are, basically, office files of correspondence.
These are usually arranged in a comprehensive subject classification. Files on particular subjects
include generally both original letters received, as well as carbons of replies thereto. Frequently, a
single folder will contain an almost endless sequence of exchanges between countless numbers of persons, all bearing in a general way upon the subject as indicated on the folder's guide or tab.
Archival materials also include photographs, scrapbooks, ledgers and other types of financial
records, membership and mailing lists, speeches (including, in some cases, annotated "reading copies" as well as processed or printed copies). There may be, in some instances, also recordings of
public events, such as speeches and rallies. Other materials encountered less frequently increase the
variety of archival sources.
PAPERS OF OKLAHOMA GOVERNORS. Included in this category are the records of the following
chief executives:
•
Haskell (C. N.) Collection. 1906-1928; 1 doc. case - • •
;
2 14,Cruce (Lee) Collection. 1899-1909; 27 doc. cases
Walton (Jack) Collection. 1915-1948; 8 doc. cases, 1 scrapbook
Murray (Wm. H.) Collection. 1899-1953; 5 doc. cases
Kerr (Robert S.) Collection. 1909-1946; 104 doc. cases
Murray (Johnston) Collection. 1951-1955; 91 doc. cases
•
PAPERS OF OKLAHOMA LEGISLATORS. Included in this category are the papers of the following
persons who have served in the State legislature:
Austin (W. C.) Collection. 1920-1943; 208 doc. cases
Harbison (R. B.) Collection. 1939-1942; 5 doc. cases
Disney (Wesley V.) Collection. 1949-1950; 5 doc. cases
Franklin (Wm. M.) Collection. 1912-1950; 2 doc. cases
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•
PAPERS OF OKLAHOMA JURISTS AND ATTORNEYS. Included in this category are the following
collections:
Broaddus (Bower) Collection. 1930-1949; 19 doc. cases
Hainer (Bayard))Collection. 1898-1933; 1 doc. case
Busby (Orel) Collection. 1916-1950; 12 doc. cases
Redwine (W. N.) Collection. 1898-1943; 36 doc. cases
Rails (J. G.) Collection. 1870-1924; 28 doc. cases
Tolbert (J. R.) Collection. 1907-1941; 58 doc. cases
Boatman (A. N.) Collection. 1922-1950; 1 doc. case
Pryor (W. W.) Collection. 1920-1938; 20 doc. cases
Feuquay (C. M.) Collection. 1885-1948; 20 doc. cases
PAPERS OF OKLAHOMA SENATORS. Included in this category are the following collections:
Gore (Thomas P.) Collection. 1890-1948; 43 doc. cases
Owen (Robert L.) Collection. 1915-1945; 7 doc. cases
Thomas (Elmer) Collection. 1926-1950; 1192 doc. cases
PAPERS OF OKLAHOMA CONGRESSMEN. Included in this category are the following collections:
Boren (Lyle) Collection. 1934-1946; 270 doc. cases, 8 scrapbooks
Cartwright (Wilburn) Collection. 1917-1950; 234 doc. cases
Garber (Milton) Collection. 1923-1948; 23 doc. cases
Gassaway (Percy L.) Collection. 1926-1942; 6 doc. cases
Gensman (L. N.) Collection. 1917-1923; 50 doc. cases
McKeown (Thomas D.) Collection. 1901-1936; 1 doc. case
Morgan (Dick T.) Collection. 1880-1920; 39 doc. cases
Morris (Toby) Collection. 1947-1953; 122 doc. cases
Nichols (Jack) Collection. 1936-1945; 6 doc. cases
Peden (Presten) Collection. 1947-1949; 74 doc. cases
Stigler (William) Collection. 1943-1952; 31 doc. cases
Weaver (Claude) Collection. 1885-1945; 6 doc. cases
Wilson,(George Howard) Collection. 1949-1951; 94 doc. cases
•
OTHER COLLECTIONS. Materials bearing upon other phases of Oklahoma's government, or having
interest to those in the field of political science, include the following:
Nowata County Collection. 1909-1939; 321 volumes
Simpson (John) Collection. 1889-1937; 9 doc. cases
Hyde (Clayton) Collection. 1881-1946; 42 doc. cases
Hague (Lyle) Collection. 1930-1938; 10 doc. cases
Daugherty (C. L.) Collection. 1908-1913; 3 doc. cases
Berry (William A.) Collection. 1941-1950; 1 doc. case
Ross (L. P.) Collection. 1892-1939; 3 doc. cases
Use of the Archival Collections. The numerous collections described above are available for
research under terms of accessibility that are unusually liberal. The donors of these collections, in
a most heart warming support of scholarship, have made their papers available for the use of qualified
students and scholars — specifying, in most cases, only that common sense rules be applied to insure
the preservation of the materials for use in generations to come, as well as the usual respect for the
individual's right to privacy.
Reference assistance to scholars. It is recommended that users of this circular, who may wish
to examine any of the materials described herein or who may wish to explore the possibilities of a research project, seek an interview with the Archivist. Out of such a conference may come helpful
points in the extension or delimiting of a project, in the light of the existing materials, or possibly a
refinement of some other research project in the light of materials not herein listed. Every possible
assistance, which may facilitate the user's research, is promised.
•
Leads to Similar Materials. Many readers of this circular may be in a singularly fortunate position, because of personal connections, to assist the University in the acquisition of additional archival
materials bearing on the field of government activity or service. Such collections may now be preserved in private hands, although they have long since come to have a particular place in the heritage
of our State and region. Leads to such collections, which may be had for the asking, are heartily welcomed.
Office of the Archivist. Those interested in archival materials for government research are
directed to Room 24, Main Library Building. Telephone: 900 — Extension 534. Office hours: Monday
through Friday, 8-12, 1-4; Saturdays, 8-12.
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I
GUARANTY OF BANK DEPOSITS
OKLAHOMA
From Federal Reserve Bulletin, September 1925
of the fund should. constitute a prior lien on
the assets of failed hanks, and that recoveries
in liquidation of these assets should be paid into
It is noted that a proposal to include in the the fund, and—to the amount of any excess
State constitution a provision guaranteeing accumulation over 1 per cent in the fund—
bank deposits had been presented to the bank- should be paid back to the banks in proportion
ing committee of the Oklahoma Constitutional to any special assessments which may have
Convention in 1906 and had been rejected in been levied upon thorn.
•1
the co
It was provided further, as it has beet t in the
by a vote of 7 to 6 on the ground
princip: that it was legislative in nhara,eter. statutes of several other States, that national
Oklahoma •canmetr8ate on Noxlinn • .16, banks might participate in the State guaranq
plan, with the privilege of withdrawing in case
1907. Its first legislature conv-ened
CelT1ber 2, and on December 17, acting .pon the the Federal Government set up a fund guaranurgent recommendation of the governor, it en- teeing deposits in national banks. linderlifis
provision, 97 national banks were examined,
acted a guaranty law.
and
57 of these signed contracts to comply with
This statute set up a
Sete scheme
of deposit insurance, an one which has been the law, but were compelled to withdraw on
adopted with modifications in each of the seven :order of the Comptroller of the Currency under
States which have since legislated along this a ruling of the Attorney General that national
line. Specifically it created an administrative banks could not legally participate. Some of
board and provided that this board should thebe banks surrendered their charters in order
levy an assessment against the capital stock of to reorganize as State banks under tile fund.
ational banks, it may be noted, have not been
all State banks equal to 1 per cent of average
daily deposits to be paid into a fund for the permitted to participate in any State plan.
Amendments in 1909 raised the amou4t of
guaranty of deposits; it provided that depositors in failed banks should be paid immedi- the fund from 1 to 5 per cent of average dein full, using the quick allits of Ale posits, the accumulation above 1 per cent to be
vent institution and draW/Wtpoii die by annual assessments of one-fourth of l per
in such amount as might be required; that cent over a period of 16 years. In 1913 the
d levy special assessments ;to amount of the fund was reduced to 2 per cent,
news in the fund and bring it back but this statutory maximum proved to be
ent of deposits; that pavment4kout of small practical consequence since the fund
INITIATION OF THE EXPERIMENT
II*ttee
•
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Federal Reserve Bank of St. Louis
I: PTI:
•
ISEU, 1925
FEDERAL RESERVE BULLETIN
did not in fact at any time nearly approach
its limit.
A much more important provision of the
original law was that making banks liable for
assessments—additional to the 1 per cent
leviedp create the fund—in such amounts as
might be required for the immediate payment
in full of depositors in failed banks. In the law
as amended in 1909 a limit was put upon these
additional assessments by providing that they
should not exceed 2 per cent in any one calendar
year, and in 1913 assessments were limited to
one-fifth of 1 per cent annually until the fund
should amount to 2 per cent of deposits, and
thereafter to such amounts, not exceeding onefifth of 1 per cent, in any one year, as might
be required to maintain the fund at 2 per cent,
with the provision that during the fiscal years
ending in 1914, 1915, and 1916 the State
banking board might levy an additional onefifth o 1 per cent each year.
Th srovision that depositors in failed banks
be paid immediately in full the amount
r proved claims, leaving the fund to
by such recoveries as might be realized
sequent liquidation of the assets of such
, was retained in the law to the end. The
'rather than the depositor was to do the
ng involved in the process of winding up a
's affairs, and consistently with this plan
riginal law authorized special assessments
year to year in such amounts as might be
ed. The restriction of these assessments
the ame ..,ients of 1909 and 191 ecesa furtherlikodification of the law
e procedure to be followed ihsase ,the
ds of the authorized s •
ate
uld be insuffi
t for i
fill of all de
ors. A rdingly,
in the 19 9 amendments that in
ity the State banking board shatuld
depositors certificates of indebtedoess
amounts of th • unpaid deposits, the
c tiffrates to beas,in
st at 6 per cent, and
t be payable serially order of issue on call
o
e board out of, subsequent emergency
1
These were to be continued at(2 per
from year to year until all certificates
taken up, principal and interest. The
ce fica s it was believed, would be practicall
nt to cash, and they would enable
t.
read payments on account of
ge losses.in any year over a
-years until assessments should
n the law as finally. amended,
restricting assessments after 1916 to one-fifth
of 1 per cent of deposits, the board was an-
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Federal Reserve Bank of St. Louis
62(s)
thorized to "negotiate or otherwise dispose of"
such certificates to be known as depositors'
guaranty fund warrants of the State of Oklahoma, "at not less than par value, in such
mannerv it may see fit to facili t ate liquidation
of failed'banks."
These modifications of the law—
the
limitation of cianual assessments to a d
ted
percentage of'deposits and the conse
t authorization of interest bearing certifi i s OT
warrants to cover balances of claims i
cess
of current assessments permitted—
of
fundamental importatice. It could nu airly
be
ed that assessments restricted -one„,r, ,..1 per cent of average deposits year,
wo ,..v .
1 e sufficient in the long run
pay
de.
rs' losses, even under the p
n
w
effect permitted the board to
fat
assessments to the limit of i
Wrest charges on any accumulated i
ness would in fact diminish the reso
able for the payment of losses and
ence of the State may be anticipated b
Mg that such charges were in the end
factor in rtwlering the fund inoperative.
:leCE
x rEl-N
.
UNDER THE OKLAHOMA L
The number of State banks on Decem.
1907, just prior to-kipproval of the act, i
as 468, and in the interval of 60 days
approval of the act and levying the 1
assessment, these banks were examin
an order of the bank commissioner th
whose condition or past record did
a continuation in business” shoul
n
deposits and be Ii
nde
ime limitation imposed b
however, the completion of any effec
ination of hundreds of widely scatt
tutions was clearly an impossible
the newly organized banking depart
Commissioner Lankford, who served a
missioner from 1911 to 1919, in on
reports comments as follows on t
procedure: "It is a well-known fact
Oklahoma bank guaranty law was
wounded at its very inception, in th
nesslike methods were adopted in p
system in operation. Nothing more f
success of this law could have be
than the method of spreading over
the State a blanket insurance."
The three or four yeoman diat
ing enactment of thefl guar
wer44
for Oklahoma years of reckless- spkiilatien
in land values, building projects, and oil-
630
FEDERAL RESERVE BULLETIN
field development schemes. Population was
increasing rapidly. Data from the Department of Agriculture Yearbook, awqtioted by
Dr. T. B. Itialab in his account of the Oklahoma
system, indicate that the years 1906, 1907, and
1908 were years of bumper crops,that yields fell
off in the two years following, and that 1911
was a year of crop failure. It is conservatively
estimated according te Doctor Robb that "the
inflated values of 4410 had shrunk nearly 50
per cent by 191* kid 1913." Tise Value of
building permitellieued in Oldatioraa City is
given as being *ell above $5,000,000 in each of
the years 1909ind 1910, an'd as having diminished to $17000 in 1913. Many banks were
caught in the'collapse of 1912 and 1913. The
following table giving the number of bank
failures in the years 1909-1920 and the amount
of capital arid deposits of the failed institutions
has been made up from reports of the State
bank commissioner, and ti* amount of assessments each year under the ,guaranty law is made
up from a table prepared by Doctor Robb,'
who estima s these assessments over the 12year pen, to be equivalent roughly to an
annual le
of 3 per cent on capital stock, or
36 per
or the whole period, and for the
four y
8-12 to 5 per cent of capital stock
eac
STA
AILIIRE8 IN 0KL
UNDER THE Gu
Number of
fallures
3
2
8
4
16
5
19
19
19
19
ion
Ira
Two irillgtutions only.
1
2
3
5
8
Capitak
$230,OW,
55,000
203,0001
1 65,000
414,000
105,000
75,000
10,000
20,090
150,000
90,000
155,000
AND ASSESSLAW
Deposits
$1,575.000
205,000
1,066,000
'372,000
1,745,000
398,
312,
40,
85.090
1, 199,000
803,900
1,58,5,000
ASSNS.
Imlfds
$198,836. 63
327,387.68
285,433.44
600,537. 52
511,054.04
201,824.66
148,084.00
161,817. 29
,963.65
55.69
00
801,
-
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e
ents the 6
antea in
tednes
per CO
the fund
increase rapidly, Governor Cru is quoted
as recommendilig a general tax levy in 1913
to cover this indebtedness, but no such nro4
vision was •made, and by September of 1914,
according to Doctor,Robb, the amount of tlie
'The guaranty of bank deposits, by Thomas Bruce Robb, Ph. D.,
p. 74.
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Federal Reserve Bank of St. Louis
SF:VI:13;316M
155
indebtedness exceeded SS00,000. Conditions
changed materially upon the advent of the
World War-in Oklahoma as in other Statesand in his biennial report for 1915-16 Commissioner Lankford reported that the law
"founded on the great principle of fairness,
equity, and justice" was "working with entire
satisfaction both to the depositor and the
banker." The warranted indebtedness of the
fund had been reduced to $666,000 and there
was a net balance of nearly $154,000 in the
fund. Two years later, in 1918, he could
report that all depositors in failed banks had
been promptly paid in full. This did not
mean that the fund had gotten entirely out
of debt, but the amount of outstanding warrants had been in fact materially reduced, and
by 1920 this indebtedness was entirely paid
off, with the fund showing a small cash -builance. Evidence of increasing confidence in
the integrity of the banks was found, according to the commissioner, in the "phenomenal
increase in deposits. "Doubt and apprehension," he writes, "has given way to a feeling
of good will and security."
Nevertheless, within a very few months 4lie
situation was completely changed. A suoilession of bank failures, occurring in consequ ce
of the disastrous collapse of credit and v es
in 1920, brought upon the guaranty fund 011ice
more an accumulation of liabilities, and this
time an accumulation for which resourcet in
hand or prospectively available under ri‘he
fixed one-fifth of 1 per cent assessment upon
deposits were quite inadequate.
The guaranty system became inoperative
in the fall of 1921. A condition characterized
by State authorities as one of practical ipeolvency had developed, and for a period of
some 18 months following the systentcontinued
inoperative,' until on March 31, 1913 the act
formally repealing the guaranty liiiiv'became
t.
effectiv
e of its aspects the story is a repetiIn
that covering the earlier experience.
ornton Cooke notes, for example, the
following important factors in titi
situation:
That comparing 1919 with 1920 th
us of the
Oklahoma wheat crop fell off from , 7,000,000
to $73,000,000; of the corn crop, from $94,000,000 to $42,000,000; and of the cotton
cro , from $209,000,000 to $96,000,000.
cording to reports of the Comptroller, 10
•
a State banks failed in the fiscal year
en. . une 30, 1921, and 37 and 13 in the two
years following, respectively. Developments
in 1921, as summarized by Mr. Thornton
•
•
SEPTEMBER,1925
Cooke, were as follows: "The Farmers State
Bank of Ada, closed in January, cost the
guaranty fund $50,000. Both banks in Kiefer
closed on the same day and gost the fund
$424,000. * * * The Oklaholtila State Bank
of Guthrie closed in October cost the fund
$589,000. Warrants for $2,196,000 were issued
in 1921 to cover the deposits of 13 banks; and
then the Bank of Commerce of Okmulgee
failed November 1, with deposits of $1,732,540.
* * * Seven other banks failed about the
same time whose deposits, added to those of
the Okmulgee institution, made $2,316,000.1
In March, 1923, when the law was repealed,,
the assumed liabilities of the fund included
interest-bearing warrants outstanding, and in
addition there were the unpaid deposits in
banks which became insolvent in the .period I
from October, 1921, when the system became I
inoperative, to March, 1923. On the warrants
outstanding no interest had been paid since
their issue and the amount still outstanding in
1925 is given by the State office as $1,330,000.
The unpaid deposits totaled approximately
$6,000,000, and it is stated that no provision
has been made for the payment of these deposits except in such amounts as are realized
from liquidation of the assets of the particular
banks. The fund has on hand a small cash
balance, given recently as $79,000. Unliquidated assets of banks which failed during the
life of the guaranty fund having a nominal
value of approximately $3,000,000 were left in
the hands of the banking department. Ultimate recoveries on these assets are expected
to be "very small." The interest-bearing
warrants outstanding are largely held by State
banks, and these banks stand to lose both principal and interest on their investment. It is
noted, however, that the warrants are widely
distributed and that there will be no serious
concentration of loss in individual banks.
Durieg the life of the guaranty law, from
February-of 1908 to March of 1923,State banks
paid into the fund assessments totaling $3,729937; a total of $2,195,137 was realized from
liquidation of the assets of failed banks taken
over by the department, and approximately
$6,000,000 was paid out to depositors.
In February of 1920 aggregate deposits in
the 606 State banks exceeded $170,000,000.
By June of the year following, although the
number of banks had increased to 622, aggro.
gate deposits had fallen off to $139,000,000.
Reports for June of 1922 give the number of
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Federal Reserve Bank of St. Louis
631
FEDERAL RESERVE BULLETIN
1 Quarterly Journal of Economics, March, 1923, p. 112.
banks as 486 and the amount of their deposits
as $76,000,000, and corresponding figures for
Juno of 1923 were 443 for the number of banks
and $71,000,000 for deposits. Assessments
at the statutory rate of one-fifth of 1 per cent.
on average daily deposits, with deposits running in the volume shown for 1922 and 1923,
could not yield more than $150,000, and this
amount would clearly be. insufficient to provide even for the interest: ,charges on any
volume,of indebtedness which would necessarily be assumed in providing for the $6,000,000 of unpaid deposits, making the most
liberal allowance for the value of quick assets
immediately available in the failed banks.
Certificates of indebtedness issued under these
conditions would have had little value, and
depositors naturally preferred and have been
allowed to take their chances under independent
liquidations of the assets of the particular
banks, since the guaranty of the fund could
have no real validity.
In the period from November 1, 1908, to
December 31, 1914, according to the State reports, 187 State banks converted into national banks. In the six calendar years, 1915
to 1920, inclusive, only six such conversions
are reported and 16 national hanks joined the
NUMBER OF BANKS
700(
DEPOSITS —IN MILLIONS OF DOLLARS
OKLAHOMA
1350
NUMBER OF BANKS
DEPOSITS
0 Sta e
.0.1n State
National
Na ional
600-
500
300 —
100
Her
State system. The report of the c
for the year ended October, 1921, sho only
two conversions of State hanks into mat' nal
in that year. The breaking away f m
e State system came principally in the
year following, during which 72 Stato institutions took out national charters. In 1923 the
F
O
632
FEDERAL RESE
. a
Iamb& of such conversions fell off to 9 and
id 1024 to 2. Changes in the number of State
banks and in the amount of their deposits from
year to year during the guaranty period are
illustrated by the accompanying chart, on
which are shown corresponding data for national banks. Throughiont this period, it may
be noted, a large proportion of the State banks
,A
ha)
ye been small institutions operating with a
. , ital of less-than $25,000, the minimum capirequirod4or a national bank. There were
386 such ingtitutions in a total of 623 State
banks operating under the guaranty law in December of 1920:
CONDENSED SUMMARY OF GUARANTY LAWS
OKLAHOMA
(Law r, pealed Mar. 31, 1923)
•
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Federal Reserve Bank of St. Louis
Institutions included.—Every bank and saving,:
departments of trust companies.
Participation.—Compulsory.
Character of deposits guaranteed.—Deposits of
failed banks, but no deposit otherwise secured, nor any
deposit on which a greater rate of interest is allowed
than is permitted by the rule of the bank commissioner.
Basis and rate of (a) regular and (b) special assessments.—(a) One-fifth per cent of average daily dep§sits
annually until guaranty fund amounts to 2 per cent of
average deposits of the banks; thereafter such 2 per
cent shall be maintained by assessments from time to
time but such assessments shall not exceed one-iiftli
per cent of the average daily deposits in any one year.
(2)) One-fifth per cent of average daily deposits dtiring
fiscal years ending in 1914, 1915, and 1916, in discretion
of banking board.
Method of payment of depositors.— Funds from
guaranty fund or by sale of guaranty fund warrants
issued by the banking board.
Powers of State board or commissioner.--Supervise
and control the guaranty fund and adopt all necessary
regulations not inconsistent with law for the administration of such fund. Such board may also issue
warrants when the guaranty fund is insufficient to pay
depositors of failed banks and may levy special assessments in fiscal years ending in 1914, 1915, and 1916.
The hank commissioner is authorized to take charge
of and wind up the affairs of insolvent banks.
Disposition of guaranty fund.—Paid to banking
board in cashiers' checks which shall be held by such
board until in its judgment it is necessary to collect
the same.
Maximum assessment in any one year.—One-fifth
per cent and in fiscal years ending in 1914, 1915, and
1916 an additional one-fifth per cent special assessment.
Rate of interest on outstanding warrants or certificates of indebtedness.—Six per cent.
NOTE.—The State of Oklahoma, in addition to the
contributions to the guaranty fund, as set out above,
required each bank to deposit with the banking board,
as security for its liabilities to the guaranty fund,
certain securities (enumerated in the act) in an amount
equal to 1 per cent of its average daily deposits, and
no bank might deposit less than $500 of such securities
with the board.
FEDERAL RESERVE BULLETIN
SUPTDMBElt, 19:25
,641
LAW DEPARTMENT
State laws relating to guaranty of bank deposits
The following is a digest of laws relating to
the guaranty of bank deposits enacted in
each State which has adopted legislation on
this subject. This digest was prepared in the
office of counsel of the Federal Reserve Board
with the assistance of counsel of the several
Federal reserve banks. It should be noted
that the Oklahoma law on this subject was
repealed in 1923. This repealing act is set
out at the end of the section devoted to
Oklahoma.
OKLAHOMA
[Ch. 34, Art. 3, Compiled Statutes Okla., 19211
•
Sec. 4161. State Banking Board.
The law provides that the banking board shall be
composed of the bank commissioner and three other
persons appointed by the governor, by and with the
advice and consent of the senate, no one of whom shall
be an officer or director in a national bank. The bank
commissioner shall be chairman of such board and the
board shall have the atipervision and control of the
depositors' guaranty Mild and shall have the power to
adopt all necessary rules and regulations not inconsistent with law for the administration of such fund.
The governor shall fill vacancies by appointment.
Sec. 4162. Depositors' guaranty fund—Assessments—
Warrants.
"(a) There is hereby levied against the capital stock
of each and every bank organized and existing under
the laws of this State an annual assessment equal to
one-fifth of 1 per cent, and no more, of its iverage daily
deposits during its continuance as a banking corporation for the purpose of creating a deposit s' guaranty
fund: Provided, That the State bankidg board, in
their discretion, may levy an additional special assessment of one-fifth of 1 per cent, as provided herein,
during the fiscal years ending June 30, 1914; June 30,
1915; and June 30, 1916. Such fund so created shall
be known as the depositors' guaranty fund of the State
of 011igitthoma, and shall be used solely for the purpose of
liquillating deposits of failed banks and retiring warrantS'^provided for in this act.
"(b) The assessment for the year 1913 shall be payable immediately after this act takes effect, and thereafter the annual assessment shall become due and
payable on the 11th day of March of each year, and all
ass ments shall be computed on the average daily
de its for the preceding year. Such assessments
sh
be paid by cashier's checks, which checks shall be
he
y the banking board, until in its judgment it is
ne Ay to collect the same, but such checks shall not
beta' interest during the,time they are so held.
'(c) It shiiiilb
e the duty of the banking board to
keep an accura
ccount of the condition of the depositors' guaran fund * * * and to send each
bank operating nader the laws of this State a quarterly
financial statement showing the exact condition of the
depositors' guaranty fund.
"(d) When the depositors' guaranty fund shall
amount to as much as 2 per cent of the average daily
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Federal Reserve Bank of St. Louis
deposits of the State banks, computed upon the last
preceding annual flWements of such average deposits
over and above all certificates
of said State ban
of indebtedness, or other obligations chargeable
proagainst the same, the annual assessment her
vided for shall cease, and thereafter it shall be the
duty of the State banking board to keep and maintain said depositors' guaranty fund to the amount of
2 per cent of such average daily deposits by making
from time to time assessments against the capital
stock of State banks operating under the banking
laws of this State, but such assessments shall not
exceed one-fifth of 1 per cent of the average daily
deposits of any bank in one year except as otherwise herein provided during the fiscal years ending
June 30, 1914, June 30, 1915, and June 30, 1916;
and authority to make such assessments is 'hereby
expressly conferred upon the said State bankiagboard,
and said board shall have authority to make all necessary rules and regulations not inconsistent with the
laws of this State for the purpose of collecting and
equalizing the assessments and the amount paid
thereon among the banks operating under the banking
laws of this State.
"(e) If at any time the depositors' guaranty fund
on hand shall be insufficient to pay the depositors
of failed banks, or other indebtedness properly chargeable against the same, the banking board shall have
authority to issue certificates of indebtedness to be
known as 'Depositors' guaranty fund warrants of
the State of Oklahoma,' in order to liquidate the
deposits of failed banks, or any other indebtedness
properly chargeable against said depositors' guaranty
t.
fund.
"(f) tepositors' guaranty fund warrants of the
State of Oklahoma shall bear 6 per cent•interest from
date of issue, payable annually, and shall 4Se issued
in such form as may be prescribed by the banking
board, and shall constitute a charge aintAest lien
upon the depositors' guaranty fund whenNollected,
as well as a first lien against the capital stock, surplus,
and undivided profits of each and every bank overrating under the banking laws, of the State of Oklahoma
to the extent of liability of
y such bank .to the
depositors' guaranty fund un r the provisiona of
this act, and said banking bo
shall have a.etbority
to negotiate or otherwise dis
of such deyesitors'
less than pmvalue,
guaranty fund warrants, at n
the
in such manner as
may see fit to facilit
liquidation of failed •
s.
"(g) All warrants
tofore issued by the balliting
y in the order of'their issuboard shall be paid s
hand when this act takes
ance from any funds
e terms of this act, and all
effect or provided for b
hall be in numerical order
warrants hereafter issue
s rapidly as the assets of
and retired in like order.
failed banks are liquidat
nd realized upon by the
eds thereof, after deductbank commissioner, the p
ing the expenses of liquidation, shall be paid to the
State banking board and by said board credited to
the depositors' guaranty fund. Quarterly, and on
the dates provided for financial statements in this
act, or oftener if deemed advisable, the banking
board shall call for payment such outstanding warrants, if any, as can be liquidated from the available
funds on hand. No corporation doing a trust business shall be liable for assessments to create or main-
642
FEDERAL RESERVE BULLETIN
tam n the depositors' guaranty fund, nor participate
.in the protection thereof in any manner whatsoever."
Sec. 4164. Banks organized subsequent to the enactment of this act—
"Shall pay into the depositors' guaranty fund 3
per cent of the amount of their capital stock when they
open for business, but said 3 per cent shall not be required for new banks formed by the reorganization or
consolidation of banks which have previously complied with the banking laws of this State."
Sec. 4165. Bank commissioner to wind up affiairs of
bank, when.
Whenever any bank or trust company voluntarily
places itself in the hands of the bank commissioner, or
whenever such bank or trust company is adjudged insolvent or the bank commissioner becomes satisfied
of its insolvency, or whenever its right to conduct a
banking business under the laws of Oklahoma shall
have been adjudged to be forfeited, the bank commissioner is authorized after examination of its affairs
to take possession of such bank or trust company and
its assets and proceed to wind up its affairs and enforce
the personal liability of the stockholders, officers, and
directors.
Sec. 4166. Commissioner to wind up affiairs of
banks—Depositors to be paid, how.
'In the event that the bank commissioner shall take
possession of any bank or trust company which is subject to the provisions of this chapter, the depositors of
said bank or trust company sheia be paid in full, and
when the cash available or that can be made immediately available of said bank or trust company is not
sufficient to discharge its obligations to depositors, the
said banking board shall draw from the depositors'
guaranty fund and from additional assessments, if required, as provided in section 300, the amount necessary to make up the deficiency; and the State shall have
for the benefit of the depositors' guaranty fund, a first
lien upon the assets of said bank or trust company, and
all liabilitiek against the stockholders, officers, and
directors ofteisid bank or trust company and against
all other Amiens, corporations, or firms. Such liabiliforced by the State for the benefit of
ties may
guaranty fund.
the deposit
Sec. 4167. A ets collected. etc.
missioner shall take possession of the
"The bank
assets of every description of such
books, records,
bank or trust com ny, collect debts, dues, and claims
belonging to it, and upon order of the district court,
or judge thereof, may sell or compound all bad or
doubtful debts, and on like order may sell all the
real or personal property of such bank or trust company upon such terms as the court or judge thereof
may direct, and may, if necessary, pay the debts of
such bank or trust company, and enforce the liabilities of the stockholders, officers, and directors: Provided,
however, That bad or doubtful debts as used in this
section shall not include the liability of stockholders,
officers or directors."
Sec. 4168. Certificate of guaranty—Advertisements.
The bank commissioner shall deliver to each bank
or trust company that has complied with the provisions of the guaranty fund law a certificate so stating,
and stating that safety to the depositors of such bank
or trust company is guaranteed by the depositors'
guaranty fund of the State of Oklahoma; such certificate shall be displayed in its place of business and
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Federal Reserve Bank of St. Louis
SE PT EM BER, 1925
such bank or trust company may advertise that its
depositors are protected by the depositors' guaranty
fund of the State of Oklahoma, but no bank shall
advertise its depositors as guaranteed by the State
of Oklahoma, and any bank or its officers or employees
who shall be convicted of so advertising shall be subject to a fine of not exceeding $500 or by imprisonment
for 30 days ornby both such fine and imprisonment.
Sec. 4169. Stockholders may repair loss—Bank reopened.
"After the bank commissioner shall have taken
is
possession of any bank or trust company whicht' ein
subject to the provisions of this chapter, the stockholders thereof may repair its credit, restore or substitute its reserves, and otherwise place it in condition
so that it is qualified to do a general banking business
as before it was taken possession of by the bank
commissioner; but such bank shall not be permitted
to reopen its business until the bank commissioner,
after a careful investigattati of its affairs, is of the
opinion that its stockholders have complied with the
laws, that the bank's credit and funds are in all respects
repaired, and all advances, if any, made from the
depositors' guaranty fund fully repaid, its reserve
restored or sufficiently substituted, and that it should
be permitted again to reopen for business; wherwpon
said bank commissioner is authorized to issue written
permission for reopening of said bank in the same
manner as permission to do business is granted after
the incorporation thereof, and thereupon said bank
may be reopened to do a general banking business."
Sec. 4174. Depositors' guaranty fund—Deposit of
securities with banking board.
"From and after the passage of this act no charter
or authority to engage in the banking business in
this State shall be issued, and no bank shall be permitted to engage in business, except on certificate
issued by the bank commissioner upon the approval
of the banking board. The issuance of such certificate shall rest solely in the discretion of the bank
commissioner and the banking board. Each and
every State bank operating under the laws of this
State shall deposit with the State banking board as
security for all of its liabilities to the depositors'
guaranty fund, bonds or warrants of the State of
Oklahoma, county, municipal, or school district bonds
or warrants, to be approved by the banking board,
in an amount equal to not less than 1 per cent
of its average daily deposits, computed as herein
provided, and shall at all times maintain with said
banking board bonds or warrants for an amount equal
to its pro rata share of all outstanding warrants;
provided, no bank shall deposit less than $500 of such
securities with said banking board. Such bonds or
securities shall not be charged out of the assets of
the bank, but shall be carried in its assets under the
heading 'Securities with the State banking board,'
until such time as said bank shall default in the payment of any of its liabilities to the depositors' guaranty fund. The bonds or securities, so deposited with
the banking hoard, shall be converted into cash whenever the bank shall make default in any liability to
the depositors' guaranty fund, upon official notice and
failure of the bank to cover such liability. Whenever
any State bank shall liquidate, or cease to operate
under the banking laws of this State, it shall be liable
for its pro rata share of any existing indebtedness
against the said depositors' guaranty fund or any unpaid assessments. Whenever such securities shall have
been converted into cash by the banking board, the
-••••••••.,
•
•
SEPTEMBER
',1925
FEDERAL RESERVE BUILFTIN
proceeds thereof shall be applied to the payment of
anv defaulted assessments or pro rata liability of any
such bank to the depositors' guaranty fund of the
State of Oklahoma."
Sec. 4175. Deposits not protected by guaranty fund.
"No deposit in a State bank, otherwise secured,
shall be protected by or paid out of the depositors'
guaranty fund created under the laws of the State of
Oklahoma, nor included in the computation of average daily deposits as a basis for assessments. No deposit in any State bank on which a greater rate of interest is allowed or paid, either directly or indirectly,
than is permitted by the rules of the hank commissioner,
shall participate in the benefits of the guaranty fund."
Sec. 4188. Guaranty fund warrants—Bank investment
privilege.
"Any bank engaged in the banking business under
the laws of the State of Oklahoma, may invest in depositors' guaranty fund warrants that portion of its
capital stock equal to its pro rata share of outstanding
depositors' guaranty fund warrants and its pro rata
share of depositors' guaranty fund warrants issued
after the passage and approval of this act. The amount
and extent to which any bank may so invest its capital
stock shall be ascertained from time to time by the
banking board: Provided, however, That no bank orgabized under the laws of this State shall be permitted
to invest more than 10 per cent of its capital stock in
such warrants, and any such bank, in addition to such
investment of its capital, may invest all, or any part
of its surplus, in depositors' guaranty fund warrants:
Provided, however, That nothing in this section shall
be construed to exempt any bank operating under the
banking laws of this State from paying in cash any
assessment under the laws of the State of Oklahoma,
or by the State banking board, pursuant to said laws.'
Sec. 4189. Failed banks—Bank commissioner control—Rights of surety companies.
"On and after the passage and approval of this act,
M all cases where a surety company is compelled to pay,
or voluntarily pays, a deposit of any State, county,
municipal, or other public funds for which it is liable
in a failed bank, operating under the banking laws of
this State, such surety company shall be entitled to
participate in a pro rata division of the proceeds of the
assets of any such bank with the depositors' guaranty
fund;,4nd the bank commissioner shall have exclusive
control of the administration and collection of the
assets of failed banks, in which any part of the depositors' guaranty fund has been used for payment of
deposits, until the depositors' guaranty fund is fully
reimbursed and the banking board shall pay to such
surety company its pro rata share of the proceeds of
such assets from time to time as collections from such
assets are made; and such surety company in writing
a depository bond for any such bank specifically agrees
to such administration and that the bank commissioner's jurisdiction shall be exclusive. All „public
deposits secured by surety company bonds or 6, the
assets of any bank shall be included in the computations of average daily, deposits as a basis for assessments for the depositor' guaranty fund."
Sec. 4223. Savings accounts of trust company—Supervision and control.
"The savings department of a trust company created
under the provisions of this act shall be under the supervision and control of the State bank commissioner of
the 'State of Oklahoma, and be subject to all rules and
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Federal Reserve Bank of St. Louis
643
regulations of the State banking board and State
bank commissioner of the State of Oklahoma:Previded.
That the depositors' guaranty law of •tbe•Ste.tes of
Oklahoma shall apply to the savings depatlataant of a
trust company, in the same meaner' and to,
the same
extent that said law now applies to State banks."
REPEAL OF OKLAHOMA GUARANTY ;
[Chap. 137, Laws of okiaboma.IP
Depositors' guaranty fund—Repeal.
"SEc. 10. That section 4162 of the Compiled Oklahoma Statutes, annotated, 1921, relating to the creation
of the depositors' guaranty fund and assessments therefor, and depositors' guaranty fund warrants is hereby
repealed: Provided, That the provisions of this section
shall not relieve or release any bank,firm,or corporation,
or any officer, stockholder, or director, or any other
person from any obligation, assessment, or liability to
the depositors' guaranty fund or to the depositors or
creditors of"any failed State bank, which obligation,
assessment, or liability existed at the time of the
passage and approval of this act.
"SEc. 11. That section 4163 of the Compiled Oklahoma Statutes, annotated, 1921, relating to the emergency assessments for the depositors' guaranty fund be
and the same is hereby repealed.
"SEc. 12. That section 4168 of the Compiled Oklahoma Statutes, annotated, 1921, relating to certificates
of guaranty and advertisement thereof, be and the same
is hereby repealed."
Sections 4161, 4169, 4174, and 4175 of the Compiled
Oklahoma Statutes are amended so as to eliminate provisions relating to the depositors guaranty fund.
Section 4166 of the Compiled Oklahoma Statutes is
amended so as to eliminate the provisions relating to
the depositors' guaranty fund and to provide a method
of liquidating and winding up the affairs of insolvent
banks, and it is provided that this amendment shall
only apply to insolvent State banks within the possession of the bank commissioner or those failed subsequent
to the passage and approval of the amendment, and it
is also provided that nothing in this amendment shall
operate to deprive the State of Oklahoma uf any lien it
may have on the assets of any bank that may have
been adjudged insolvent prior to the passage and
approval of the amendment.
Section 4189 of the Compiled Oklahoma Statutes is
amended so as to eliminate the provisions relating to
the depositors' guaranty fund, and it is provided that
the provisions of this section as amended shall not
apply to State banks that failed prior to the passage
of the amendment.
1925,
•
DEPOSIT GUARANTY IN OKLAHOMA
(From Federal Reserve Board Files)
Memorandum Mr. Van Fossen
Date: April 29 1926.
Oklahoma: Date law became effective - February 17, 1908.
The guaranty system became inoperative in the fall of 1921. A
condition characterized by state authorities as one of practical insolvency
had developed, and for a period of some 18 months following the system
continued inoperative,until on March 31, 1923, the act formally repealing
the guaranty law became effective.
The amount of warrants outstanding in 1925 was $1,330,000 on which
no interest had been paid since their issuance. Unpaid deposits of failed
banks totaled approximately $6,000,000. The fund had on hand a small cash
balance and unliquidated assets of failed banks to the nominal value of
$3,000,000 ultimate recoveries on which were expected to be "very small."
•
"During the life of the guaranty law, from February of 1908 to
March of 1923, state banks paid into the fund assessments totaling
$3,729,937; a total of $2,195,137 was realized from liquidation of the
assets of failed banks taken over by the department, and approximately
$6,000,000 was paid out to depositors."
Date: January 31, 1927.
Memorandum Mr. Van Fossen
Oklahoma: From the date the law became effective until its repeal in
266 state banks nationalized, 177 failed, and 138 consolidated with other
banks. This left 389 banks to assume the burdens of the law. Wildcat
banking of the worst kind was extensively indugled in and oil wells were
drilled with depositors' money, much of which came from other states
attracted by the high rates of interest, the depositors relying on the
"protection" of the guaranty law. (6ee Commercial West, October 23, 1926).
Summary of the Guaranty Bank Deposit Law
Voluntary
or compulsou
Date effective
State
Compulsory
Oklahoma
1908
Date: October l_1929.
RemarP;Elby Mr.Van Fossen)
Inoperative in 1921;repealed in
1925. At the end of 1922 guaranty fund was 7.5 million
dollars in arrears with interest of unpaid claims over three times as great
as current assessments levied.
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Federal Reserve Bank of St. Louis
-1-
•
April 1, 1930.
Memorandum Mr. Foster
Oklahoma: Oklahoma, the first state to adopt a compulsory guaranty
law, was also the first to admit its failure. The law went into effect to
on February 14, 1908. The depression of 1920 and 1921, pulling into
liquidation twenty banks, broke down the system. At the end of 1922
the fund was $7,500,300 in arrears with unpaid claims over three times
as gr- at as current assessnents levied. Repeal crme on larch 31, 1923.
During the fifteen years of operation the guaranty system cost the state
banks of Oklahoma $3,647,486. On February 19, 1929 the indebtedness of
the fund amounted to $1,297,000.
•
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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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Federal Reserve Bank of St. Louis
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4•
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Federal Reserve Bank of St. Louis
THE JOURNAL
0I;
POLITICAL ECONOMY
FEBRUARY-19o9
THE DEPOSITORS'GUARANTY LAW OF OKLAHOMA'
During the recent presidential campaign the people of this
country, especially those in the West, heard a great deal about
the guaranteeing of bank deposits. The idea is not a new one.
It has frequently been advocated in the past, and a few of our
states long ago tried the experiment: New York in 1829, Vermont in 1831, and Michigan in 1836. In all these cases the
experiments ended disastrously. In fact, it would be difficult
to find a single example of the successful operation of such a
scheme in this or any other country. • Yet the advocates of the
proposed plan, with varying degrees of inaccuracy, cite Germany's system of municipal savings banks, Canada's 5 per cent.
guaranty of bank notes, Georgia's "chain-of-banks" system, and
other unwarranted analogies, as ample evidence of their wisdom.
Now comes the new state of Oklahoma, and under the inspiration
of Mr. Bryan and Governor Haskell, the world is given another
guaranty law—a sure preventive of any future financial disasters.
Fortunately this is the only recent measure of the kind thus far
enacted, but it is greatly to be feared that it will not long retain
its solitary position, unless the spread of the false doctrine
throughout the West is speedily checked.
'
The author wishes to acknowledge his special indebtedness for material used
in the preparation of this article, to Mr. A. E. Sheldon, state librarian, Lincoln,
Neb., Mr. J. W. McNeill, Guthrie, Okla., and Mr. D. W. Hogan, Oklahoma City,
Okla.
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65
66
JOURNAL OF POLITICAL ECONOMY
Perhaps it is not strange that this doctrine should have taken
a deep hold upon the people of this section in the midst of the
dire effects of the recent financial panic. Those experiences were
calculated to arouse a general distrust of banks and a corresponding demand for greater safety of deposits. It was easy, therefore,
to resurrect this idea from the almost forgotten past and raise a
clamor for its immediate adoption. It seemed so plausible and
looked so good on the surface that many were naturally misled by
its false promises as voiced by the press, politicians, and pseudofinancial reformers. In view of this widespread interest in the
subject it may be well to study the operation up to date of the
new Oklahoma law, passed in a great hurry, with very little
discussion, during the first session of the legislature of that state.
This law was approved by Governor Haskell, December 17,
1907, but has actually been in operation only since February 14,
1908. Its chief distinctive features are found in various sections
of Article 2. A guaranty fund is created and placed under the
general management of the State Banking Board, composed of
the governor, lieutenant governor, president of the Board of
Agriculture, state treasurer, and state auditor. Each bank and
trust company organized under the laws of the state is required
to contribute I per cent, of its daily average deposits for the preceding year, less deposits of United States and state funds properly secured. Annually thereafter each such bank and trust company shall report its average daily deposits and contribute I per
cent. on whatever this amount may exceed the previous averages.
If the fund is depleted from any cause, a special assessment is
levied sufficient to keep up the fund to I per cent. of the total
deposits. Any new bank or trust company, when organized,
shall pay 3 per cent, of its capital stock into the guaranty fund.
From the total fund thus created the depositors of any insolvent
bank or trust company complying with the provisions of the
law are to be paid immediately, the state then having a first lien
upon the assets of the insolvent corporation.
The idea seems to be prevalent among many people in Oklahoma, neighboring states and elsewhere, that the state government
stands pledged to pay all bank losses. It cannot be emphasized
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DEPOSITORS' GUARANTY LAW OF OKLAHOMA
67
too strongly that this is incorrect. The credit of the state is not
in any way pledged to the payment of deposits in any bank. If
the fund is lost in any way, it does not become a liability of the
state, but would have to be replaced by another assessment. The
State Banking Board is not required by law to give any kind of
an indemnity bond as security for the fund, but the board has
adopted a rule of its own requiring the state treasurer, who acts
as special custodian of the fund, to give a $25,000 bond. Furthermore, this guaranty fund is not kept in cash in the state
treasury, but is redeposited in the banks and kept loaned out by
them. The Oklahoma law, therefore, provides simply for a
segregation of a certain small percentage of the assets of the state
banks. If this fund holds out, losses will be paid; if it does not
hold out or if the loans made from it cannot be cashed promptly,
the losses cannot be paid. Last October the total fund amounted
to only $135,000.
While the guaranty feature of the law is compulsory upon all
state banks, it was left optional with the national banks operating
within the state. From the first many doubted the wisdom and
legality of the national banks qualifying under the Oklahoma law.
Finally, August 1, 1908, Attorney-General Bonaparte rendered
an opinion to Secretary Cortelyou, to the effect that permission
could not be given to national banks to take advantage of the law,
on the ground that contribution to the guaranty fund amounts
to a contract by a bank to guarantee the obligations of a third
party. Thereupon the United States Treasury Department issued
an order forbidding national banks in Oklahoma to qualify under
the state law. Those national banks that had already done so
were obliged to withdraw, thus losing the money paid in, or surrender their charters as national banks, and take out new ones
from the state.
The other provisions of the Oklahoma law regarding the conditions and methods of incorporating banks, the restrictions imposed upon them, and the examination and supervision of the
same, are not materially different from the banking laws of most
other states, and consequently need not be described.
Soon after the new law went into effect the Noble State Bank
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JOURNAL OF POLITICAL ECONOMY
instituted a suit against the State Banking Board in the District
Court of Logan County, asking for an injunction restraining the
board from levying the i per cent. assessment, on the ground
that the law requiring it was unconstitutional. On February 19,
1908, that court, presided over by Judge A. H. Huston, denied
the relief asked by the plaintiff. Thereupon the case was
promptly appealed to the Supreme Court of the state, which body,
September i t, 1908, reaffirmed the decision of the DiStrict Court
and upheld the constitutionality of the law. The opinion rendered in this case was written by Chief Justice Williams and was
fully concurred in by the other judges. It is a voluminous document, filling 43 pages of the reports, and discusses some of the
questions involved in great detail. About two-thirds of the entire
opinion is devoted to a very detailed discussion of the general
right of the legislature to amend and repeal charters, which right
is urged in refuting the alleged impairment of the plaintiff's
contractual rights. Numerous federal and state constitutional
and statutory provisions, with their interpretation by the courts,
from early times to the present, are cited. To a layman, however, it would seem that the court might better have devoted
less time and thought to the discussion of this fundamental right
long ago recognized in our jurisprudence, and given us a much
fuller, more specific, and satisfactory treatment of the other
constitutional questions raised by this case. Only a very few
pages are devoted to the specific discussion of the other allegations of the plaintiff, and these pages are none too convincing on
some of the points touched. Many reputable lawyers throughout
the country, and even in Oklahoma, consider the law unconstitutional, notwithstanding the decision of the Supreme Court of the
state. Actuated by the same belief the Noble State Bank promptly
appealed, and September 28, 19o8, the case was docketed in the
United States Supreme Court, where it now rests for final decision.
Whatever one may think of the legal arguments of the Oklahoma court, one discovers numerous ex-cathedra passages in the
dicta, which seem somewhat out of place in a judicial opinion.
Many of the passages contain almost, if not quite, the exact
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DEPOSITORS' GUARANTY LAW OF OKLAHOMA
69
language of certain speeches made in favor of bank guarantees
during the recent presidential campaign in fact, they sound
more
like a political harangue than a sober, dignified, legal opinion
.
The judges seemed to think it incumbent upon them, not only
to uphold the constitutionality of the law, but also to give
vent
to their private opinions concerning its wisdom, expediency,
and
probable effects, and, in doing so, used arguments that seem
untenable and even absurd to many students of the problem.
Of course it must be admitted that the Oklahoma law has
not yet been in operation long enough to enable one to judge
its
ultimate effects adequately and fairly. Time alone can tell
whether some of the greatest benefits claimed for the law by its
arch-defenders will materialize in practice. If, however, it
can
be shown that the law is already producing opposite effects
to
those predicted by its champions, and that these are plainly harmful, the law stands condemned to that extent, and it may fairly
be inferred that the law is liable to fail in other and perhaps more
vital respects, when it has once been tried under the stress of
those conditions that in other places have always resulted in
wholesale bank failures with their attendant economic disaster.
It certainly is not safe to assume that this law is the panace
a
which will avert such conditions and disaster, until it has proven
its ability to do so in actual practice. Judging from the reports
concerning the operation of the law up to date, its expediency
may fairly be questioned, both negatively and positively. What,
then, are the signs of danger already revealed by the operation
of this law?
First, let us note that the Oklahoma law has not "closed the
door of hope" against "the reckless, dishonest, and incompetent
banker" as Justice Williams predicts in his opinion, but has
actually opened it much wider than it was before, so that the
state today seems to be entering upon an era of wildcat banking,
which, if it is not checked, will ultimately result in financial
disaster. There has been a very rapid increase in the number of
state banks, and in most localities this mushroom growth has not
been Warranted by the increase of loans or by general business
development. Furthermore, most of these banks have been capi-
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70
JOURNAL OF POLITICAL ECONOMY
talized on the minimum legal basis, viz., $1o,000, and at the same
time numerous state and national banks, in the process of reorganizing, have reduced their capital to the same minimum. Thus
the underlying security of the state's banking system has been
greatly diminished. Unfortunately, also, many of the members
of the state's banking fraternity are undeniably incompetent and
inexperienced in the business, their dishonesty, and in some cases
criminality, has been clearly proven, and they are conducting
their banks in the most reckless manner, offering rates of interest
for deposits that no conservative banker could possibly afford
to pay, presumably in order to raise funds with which to engage
in various kinds of speculation.
Between January i and October 31, 1908, forty-seven new
state banks and two new national banks were organized in Oklahoma. All but five of these new state banks were capitalized
at only $1o,000 each. During the same period twenty-two banks
were reorganized under the provisions of the new law, most of
which had formerly been private banks in Indian Territory.
Many of these banks reduced their capitalization at the time of
their reorganization. Up to the time that Attorney-General
Bonaparte rendered his decision that the national banks in Oklahoma could not legally take advantage of the new law, fiftyseven of them had become participants in the plan. After this
decision forty-five of the nationals withdrew from the guaranty
and the remaining twelve were converted into state banks by
new charters. These denationalized banks naturally reduced
their capital very greatly; one national with a capital of $too,000
was reorganized as a state bank with only $io,000 capital, and
yet increased its deposits; seven others with an aggregate capital
of $2oo,000 reorganized with only $97,500. The records show
that in one day, September 9, 1908, the secretary of state issued
charters for five new banks and one loan and investment company, their total capitalization being only $1o4,000. Although
this appears to be the highest daily record up to date, it would
hardly be safe to assume that the final limit has been reached.
The possibilities for speculative banking seemingly afforded by
this law are too alluring to expect the pseudo-financiers of Okla-
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DEPOSITORS' GUARANTY LAW OF OKLAHOMA
71
homa to rest content with that paltry record. Certain it is that
the state mill has not yet ceased to grind out its grist of new
bank charters. Indeed it would seem to be true that the mill
must grind whether its managers will or not. The State Banking
Board has at last become alarmed over the rapid increase of
banks and is trying to check it, but seemingly in vain. This board
recently refused to issue a bank charter to an applicant from a
very small town that already had three banks, but the parties
concerned immediately instituted mandamus proceedings in the
District Court of Logan County to force the issue of a charter.
On September 5, 1908, Judge A. H. Huston, the presiding officer
of that court, handed down his decision to the effect that the
State Banking Board had no right to refuse the charter. In his
opinion he stated that the facts that other banks in a town
objected, or that an objection was raised on the ground that the
applicant was inexperienced in the banking business, were not
matters for the banking board to consider, but that it was compelled, under the law, to grant a right and issue a charter to any
corporation seeking one, as long as the papers were properly
executed. Thus the banking board seems to be powerless to
check this mushroom growth.
A few typical illustrations will perhaps show more clearly
the practical operation of this law. Two men recently started
a bank in Oklahoma City, a town of forty to fifty thousand inhabitants, with a capital of only $25,000, an inadequate amount
for a city of that size. When someone ventured to criticize them
for capitalizing so low, they retorted, "What do we care about
capital? The state is in partnership with us." Ralston, with a
population of only 578, and Fairfax, with a still smaller population of 470, are two towns only about eight miles apart. When
the new law went into effect each had two national banks, certainly enough for such small towns. Now one new state bank
is in operation in each town, and one more state bank for each
has been organized and is fighting to get established. In each
town the two nationals have $25,000 capital each, while the new
state banks are each capitalized at only $1o,000. Another town
with a population of about r,000 now has four banks, two of
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Federal Reserve Bank of St. Louis
72
JOURNAL OF POLITICAL ECONOMY
which were recently organized under the new law; the total
deposits of the four banks are less than $100,000. In many small
towns throughout the state we find four banks, where only one
or two could hope to prosper under ordinary conditions. The
little village of Harrah is an extreme illustration of the prevailing mania for starting new banks. It has only about 150 in- habitants—all that it seems likely to have for some years—and
yet it already has two banks, one of them organized recently
under the new law; their total local deposits are less than $15,000.
We might perhaps look with less disfavor upon this wholesale
establishment of new banks in communities where there is little
or no need for them, if we could be sure that they are being
organized by honest and capable bankers, who may be expected
to manage them efficiently and conservatively. A few further
illustrations, however, would seem to indicate that the state has
not much to hope for in the character of the organizers and
managers of the numerous new banks. One man just released
from the state penitentiary, where he was confined as a public
defaulter, has recently organized a new bank and seems to be
securing quite large deposits. Another man failed in business
in Kansas a few years ago for $31,000. Soon after he resumed
business in his wife's name in Oklahoma, where he again failed,
making his father-in-law a preferred creditor for $ioo,000, his
real creditors never receiving a cent. Then he organized a
national bank, but obtained only $27,000 deposits on a capital
of $25,000. On the first of last July he started a state bank
under the new law, and on September 23 his deposits amounted
to $111,381.75. He now has three banks and blatantly announces
that he will soon start twelve more, making the celebrated chain
of fifteen banks, so widely heralded in recent newspaper issues
throughout the country. It is also interesting and suggestive to
note that the cashier of one of these banks is under indictment
for embezzlement. In another case, a saloonkeeper, who had
been shut out of business by the prohibition law, started a bank
with a very small capital and soon had deposits ranging between
$3o,000 and $4o,000.
Other similar examples might be given, if our allotted space
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DEPOSITORS' GUARANTY LAW
OF OKLAHOMA
73
allowed, but enough have been cited alre
ady to serve our purpose.
Let us, for a moment, depart from the
realm of facts that have
already passed into history, and venture
a suggestion concerning
one of the dangerous future possibilities
under the Oklahoma
law. What but the most drastic and
efficient inspection and
supervision, thoroughly alert to discover
and thwart all the tricks
of keen, dishonest bookkeepers, can prev
ent unscrupulous men
from organizing a bank capitalized at the
legal minimum, creating large fictitious deposits as the im weeds
of a lot of dummy
'notes, then letting the bank close its doors
and calling on the
guaranty fund to pay these deposits in cash?
The question naturally arises. How can men
of the character
cited in the above examples secure large
deposits? The answer
is very simple. When it is generally belie
ved that deposits in
all banks are equally safe, all that an
unscrupulous banker has
to do is to offer high rates of interest
and the deposits roll in
unstinted. Linder the new Oklahoma law
we find reckless bankers offering 5, 6, and even 8 per cent.,
presumably to secure funds
to use in all sorts of speculation.
It is true that the banking
board has limited the rate to 3 per
cent. on short-time deposits
and 4 per cent. on long-time depos
its, but the order is being
evaded all over the state by bank
officials personally paying the
excess over the legal rate. Not only
have excessive interest rates
been offered, but a good deal of
misrepresentation has been indulged in to attract large deposits.
Everything possible has been
done to create the false impression
that the state's credit is
pledged to pay all losses. One finds nume
rous misleading bank
advertisements in newspapers, perio
dicals, circulars, and even on
the checks of various banks containi
ng some such statement as
the following: "Your Deposits
in this Bank Are Guaranteed by
the State."
It is difficult to see how the arch-def
enders of the Oklahoma
law can reconcile their high-sou
nding claims with these hard,
cold facts of actual experience,
for we must remember that they
indignantly deny that the law
will stimulate reckless banking.
They claim that under this law
only men of "good precedents,
reputation and associations" can get
bank charters. We have
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74
JOURNAL OF POLITICAL ECONOMY
seen how far from the facts this contention is. They claim also
that the capital investment and double liability of stockholders
will insure the selection of honest officials and the use of conservative methods. Here, again, they overlook several facts. The
reduction of bank capital to the legal minimum, which the Oklahoma law encourages, weakens the investment motive for honest,
conservative management. Experience shows that stockholders,
directors and officers who are positively dishonest and intent
upon reckless speculations, are quite willing to risk the legal
minimum of capital in order to secure the use of the large
deposits that are made possible by the false confidence in the
equal security of all banks. And right here, it must be remembered, that the .worst evils will probably not be traceable to the
positively dishonest men who enter the business with the deliberate intention of fleecing the public. There is a certain amount
of potential dishonesty and recklessness in every community,
men who act honestly and conservatively when they are compelled
or think it to their advantage to do so. The guaranty of deposits, by removing or weakening the motive for honesty and conservatism, tends to turn, by gradual, easy and almost unconscious
stages, a great deal of potential dishonesty into a positive force
capable of doing the utmost harm.
Most defenders of the Oklahoma law unconsciously admit
the inadequacy of capital investment as a restraining force, when
at the same time they declare that there must be the most rigid
regulation and supervision of banks. If the first is a sufficient
guaranty, as they claim, what need is there for the other? But
without quibbling about this inconsistency, let us note that they
fail to recognize the extreme difficulty, if not impossibility, of
establishing such a drastic, searching, and efficient supervision
as would insure the prompt detection of all the numerous bookkeeping tricks, by which dishonest bankers can cover up their
illegitimate and reckless practices until the final crash comes.
They also fail to see that the guaranty of deposits tends to prolong the period of false confidence among depositors, during
which such tricks can be used, thus delaying their discovery and
increasing the ultimate losses. Again they claim that if the
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Federal Reserve Bank of St. Louis
DEPOSITORS' GUARANTY LAW OF OKLA
HOMA
75
present restrictions are insufficient to check reckless
banking, the
law can easily be amended so as to make it a crimin
al offence
for bankers to offer higher rates of interest on
deposits than
those fixed by the state, to speculate with the funds thus
secured,
to borrow from their own banks. or to loan more
than a certain
amount to any one party. But would it be easy or
even possible
to enforce criminal penalties upon all such offenses?
Since when
has it become possible to cure all such practices simply
by the
miraculous "be it enacted" of criminal law? The
difficulty of
detecting or convicting the offender, and of securing and
keeping
a public sentiment that would uphold the enforcemen
t of the
penalty, would still exist. Finally, some enthusiastic
champions
of the law even claim that it will bring a better class
of men into
the banking business and raise their average charac
ter to a higher
level. It is difficult, however. to follow their line
of reasoning.
We certainly prefer to take the facts as they are
actually occurring, rather than be swayed by such an extrav
agent theoretical
argument.
There are some other statements in the dicta of the Oklah
oma
court that cannot be left unchallenged. It is said
that "under
this law each banker is his brother banker's keeper,"
yet the law
creates no effective means whereby the honest and efficie
nt banker
can watch for and prevent wildcat banking on the part
of unscrupulous competitors in his own community, much less
check
the same evil elsewhere. The court also seeks to
justify a
general guaranty of individual deposits on the ground that "the
national, state, county, municipal and district governments"
require specific security for their deposits; in doing so it really
quotes one of the most hackneyed and fallacious arguments used
by politicians. In reality the two cases are not parallel. A
bank in giving security to a government does so voluntarily and
does not share the benefits derived from the transaction with a
"brother" banker, while this law compels one banker to become
security for others, who reap as much benefit as he does, and
often more. Besides, the government's money is really a loan
rather than a deposit, and, as such, legitimately demands special
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Federal Reserve Bank of St. Louis
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JOURNAL OF POLITICAL ECONOMY
security; there is nothing to prevent any large private loaner
from exacting a corresponding security from his bank.
We think the court makes a still more fundamental mistake
when it declares that "there is no danger of any general and
unnecessary withdrawal of deposits" from a guaranteed bank in
"eras of depression and discontent." The plain implication is
that the Oklahoma law is going to prevent financial panics in
that state, and most advocates of the law have no hesitation in
positively and loudly crying this prediction from the housetops.
Again we must differ from the statement of the learned judge.
Experience shows that lack of confidence in banks is usually the
result or culmination of a panic rather than the cause. Even then
"runs" are usually confined to banks whose management warrants
special suspicion; sound banks are rarely closed by runs. Furthermore, the growth of reckless banking stimulated by this law and
the undermining of the underlying security of all the "guaranteed" banks in the state, which we shall presently show is likely to
result from it, will ultimately increase bank failures to an alarming extent. It may be predicted that, if this law is left on the
statute books of the state, Oklahoma will soon give the world
some startling examples of "high finance" and eventually experience such a panic as few states of like wealth have ever
witnessed. And when that panic comes, of what avail will be
the present paltry guaranty fund? Will not a fund ten, or even
twenty, times as large be required to reimburse all innocent
depositors? One fundamental mistake made by most advocates
of the law has been the assumption that because the average
losses under the national banking system during a period of 43
years have only been about 1-26 of I per cent. of the average
deposits,. a similar assessment will be sufficient to meet all the
losses of exceptional years. They seem to forget that most of
the past losses have been bunched together during a very few
brief intervals. How large a tax would have been required to
pay the losses in 1893 or 1907, or even a single million-dollar
failure, such as has already occurred in Oklahoma? This law
does not contemplate building up from year to year a fund
large enough to meet such occasional contingencies, but simply
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Federal Reserve Bank of St. Louis
DEPOSITORS' GUARANTY LAW OF OKLAHOMA
77
keeps the fund approximately equal to i per cent. of the total
deposits at any one time, because, as it is claimed, there will be
no more panics in Oklahoma. Another fact, already noted, must
be remembered in this connection. The guaranty fund is redeposited in the banks and loaned out. In times of panic or general
financial stringency it would be very difficult if not impossible
to convert these loans into cash. On the other hand, would it
not be unwise to tie up in a general fund sufficient actual cash to
protect depositors in times of panic?
The friends of the Oklahoma law, in their contention that
panics will be averted, are laying great emphasis on the fact
that there have been only two small bank failures in the state
since the law went into operation. As if that proved anything!
More than one state without a guaranty law has had as good,
or even better, record during the same period. And .yet the
greatest publicity possible has been given to one of these failures,
viz., that of the International State Bank of Coalgate. seemingly
for political purposes. It was heralded all over the country that
here was a bank failure where all depositors were paid immediately, and that the public confidence was so great that some
farmers preferred to wait until their crops were harvested before
taking the trouble to call for their money. This case looks
suspicious on its face. If public confidence was so great, what
closed the bank? . A fair examination of the facts in this case
shows that the widely advertised Coalgate failure was a miserable
fiasco, and would seem to justify the following statement made
by its president, Dr. L. A. Connor:
I will never believe anything else but that my bank was closed by Bank
Examiner Smock on telephone orders from Gov. Haskell, for no other purpose than to make a demonstration of the _depositors' guaranty law for the
Democratic Convention at Denver.
The pretext given for closing the bank was the statement that
the president, cashier, one director and two other stockholders
owed the bank about $19,000, which they could not pay on the
demand of the commissioner. Yet these same notes appear to
have been held by the bank at the time it was accepted by the
same commissioner and a certificate of guaranty issued to it.
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The comparative bank statements submitted to the grand jury
proved that the bank was actually in a better financial condition
when it was closed than it was when opened. There was over
$17,000 in the bank when it was closed, and this, together with
outstanding notes that apparently could have been collected,
would have been sufficient to pay all claims, but the receiver
apparently made no attempt to collect any notes. From the
testimony given before the grand jury by Commissioner Smock
himself, it appears that the bank was really solvent when it was
closed, and this body, after thorough investigation, completely
exonerated the officials of the bank. Furthermore, the solvency
of the bank would seem to be corroborated by the fact that less
than $600 of the guaranty fund was required to satisfy all
depositors, and that without collecting a single outstanding
debt. Mr. Smock reported to the grand jury that he was satisfied that the bank was solvent and did not wish to close it, but
after a telephone communication with the governor he was
again sent to Coalgate and finally closed the bank. It is also
significant that Mr. Connor was a Republican. All these facts
seem to indicate that Mr. Connor's opinion, quoted above,
had a good basis. How absurd, therefore, to herald this Coalgate failure throughout the land as a striking proof of the beneficent effects of the Oklahoma law!
This law, instead of making deposits permanently safer,
tends to decrease the underlying security of all state banks in
several ways. There is absolutely nothing in the law that even
proposes to increase or strengthen the primary security underlying all deposits, viz., capital, surplus, undivided profits, reserves
and stockholders' liability. On the contrary, we have seen that
the law has already led to the reduction of capital in numerous
cases of reorganization and to the organization of many new
banks on the minimum legal basis. If human nature is the
same in Oklahoma as in other states, the same policy will undoubtedly be followed in regard to reserves and surplus. The
chief motive that induces bankers to increase these funds beyond
the legal limit is the feeling that this policy will attract additional
patronage to their banks and protect them against unforeseen
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Federal Reserve Bank of St. Louis
DEPOSITORS' GUARANTY LAW OF OKLAHOMA
79
contingencies. But when everything possible is done to
make all
banks look alike to depositors, what motive has the banker
for
longer pursuing this policy? It will simply mean loss to
him,
without any compensating gain; he will therefore reduce
his
reserve and divide the surplus as profits among the stockholders.
If this policy is pursued much further than it already has
been, it
will require a good many assessments on the banks to
offset
this decrease in their underlying security. "What shall it profit"
the banks if they gain the whole fund and lose their own character and primary security? The advocates of the law boast
that smaller reserves will suffice under the guaranty fund and
that the bankers will derive great benefit from this fact. They
seem to forget that a general cutting down of reserves means a
tremendous loss in underlying security.
The Oklahoma law fails to discriminate between cash and
credit deposits. Most people overlook the fact that 85 to 90 per
cent. of all bank deposits are really created by loans. The business man gives his note to his bank and gets in return the credit
of the bank, which is negotiable. The Oklahoma law, therefore,
mainly protects creditors of banks, who become such by reason
of loans made to the banks, either by themselves or others, and
these creditors or depositors can only be such on account of
existing loans. It is manifestly unjust to compel the banker to
pay cash into a guaranty fund to protect credit depositors, and
in turn not protect him against loss in his loan department.
This law attempts to put all banks on a basis of exact equality.
"The man who has spent a lifetime in building up an honorable
reputation is sacrificed for the sake of making some poor, incompetent, dishonest banker exactly equal to him." We contend
that it is morally wrong to compel one banker to pay for the
losses, mismanagement and defalcations of another. The advocates of the law retort that all existing restrictions upon banking
compel the innocent to suffer for the guilty. They point to the
fact that honest bankers are compelled to keep reserves at a loss
and pay for enforced examination. These restrictions, however,
really protect the honest banker and not the other fellow; without a guaranty law each banker stands on his own merits. It
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should be strongly emphasized that no guaranty law can really
make all bankers equal, and we predict that no such law can
permanently be executed.
Another question arises: Who will pay the tax? It is a mistake to assume that banks will pay it out of net profits. The tax
becomes an item of the bank's expense, which is certain to be
included in their general expense account. Consequently the
scheme, "really means coinsurance of deposits, and the depositor
must, in the last analysis, pay for the protection extended. You
can no more have your deposits insured free of cost to you than
you can have your buildings insured at the expense of some one
else." Why not frankly admit this fact and place in the law a
clause compelling the depositor to pay at least a part of the tax at
the time he places his money in the bank? And if such a clause
were inserted, how long would the law stand on the statute books?
The influence of the law upon the relative deposits in the
state banks, and the national banks operating in the state, is very
difficult to determine accurately, as so many other factors enter
into the problem. There seems to be good reason, however, for
believing that the widely circulated reports of gains in state
banks and losses in nationals have been greatly exaggerated.
Some even assert, and apparently with good reasons, that many
of these reports have been "cooked" for political effect. One
important basis for possible manipulation has been the $5,000,000
school fund recently given to the state in cash by the federal
government, most of which was deposited in state banks in the
name of the Secretary of the School Land Board and not considered as a state deposit. One thing is certain, i. e.. that even
the various reports, made by the friends of the law themselves.
have differed quite widely. while the reports made by the opponents of the law show still smaller gains by the state banks than
any of those made by its friends. On the whole it may be considered that the total individual deposits in state banks have
gained, and possibly national banks may have lost, but to no great
extent. It was claimed that the law would bring out vast
quantities of hoarded money and it has since been asserted that
it has actually had that effect. Reliable reports seem to indicate
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DEPOSITORS' GUARANTY LAW OF
OKLAHOMA
Si
that some hoarded money has
been brought out, but that
the
amount has been greatly exaggerated.
Some money has also
been sent to Oklahoma banks from
other states, but here again
the amount seems to have been
exaggerated.
The foregoing study of the
operation of the Oklahoma
law
forces us to the general conclusion
that no such law can be
permanently successful without the most
drastic government supervision, but if such supervision can be
enforced, no assessment
is necessary. This, to our
mind, is the gist of the whole
matter.
What is really needed is a
strengthening of the motive for
honest;
conservative and efficient banking rather
than to let down the
bars for dishonest and reckless
bankers by creating a feeling
of
false confidence in all banks,
by removing the need for
using
discriminating judgment in selecting our
bankers, and by attempting the impossible task of
making all banks equal. The
true
line of development is to
create as searching and
effective
a
system of bank supervision as
possible. Much progress has
already been made in this
direction, and this has been a
great
factor in securing the
magnificent past record of our
national
banking system. Let an alert
public opinion continue to
draw
the lines still closer, and our
deposits will be as safe as anything
can be where safety is
conditioned upon the exercise of
good
judgment as it is in the extension
of bank credit.
W. C. WEBSTER
UNIVERSITY OF
NEBitASKA
NCOLN, NEn.
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Federal Reserve Bank of St. Louis
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Federal Reserve Bank of St. Louis
4
F
NOTES
THE DEPOSITORS' GUARANTY LAW OF OKLAHOMA
A REPLY
My attention has been called to an article, written by W. C.
Webster, that recently appeared in your valued journal. The stateif this article are so erroneous and foreign to the facts that
I feel that it is my duty as bank commissioner of the state of Oklahoma to correct them.
It is not my purpose to argue the merits or demerits of our
guaranty bank law. I feel quite sure, however, that it is your
desire to give your readers the real facts pertaining to all business
matters. Taking this view, I feel perfectly justified in addressing
to you this reply.
I will take up Mr. Webster's charges in their order.
r. I beg to say that under our amended Guaranty Banking Bill
provision is made for a system of annual assessments on the average
daily deposits of the state banks.' The amount of assessment,
regulated in detail by the law, may never in any one year exceed 2
per cent. of the average daily deposits. These provisions, in my
judgment, remove the most objectionable feature of the old law.
This assessment is to continue until a guaranty fund shall
have been created equal to 5 per cent. of the total deposits of the
state banks; after which only such assessments will be made as are
necessary to keep the guaranty fund growing in proportion to the
deposits. If, for any reason, the guaranty fund on hand, together
with the 2 per cent. assessment, should prove insufficient to pay the
depositors of failed banks, the state banking board is empowered
to raise additional funds by the issue of a 6 per cent, interestbearing certificate secured by a claim upon the 2 per cent, assessment to be made the following year.
2. It is true that the attorney-general of this state rendered
an
opinion in which he said that the deposits were guaranteed by the
'The section of the amended banking law of Oklahoma which deals
with
the assessment is reprinted at the end of this reply.
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Federal Reserve Bank of St. Louis
461
462
JOURNAL OF POLITICAL ECONOMY
state of Oklahoma, though in a limited way. Acting upon this
opinion, some few of our banks did advertise as above; but today,
so far as I know, there is not a state bank in Oklahoma advertising
the guaranty of its deposits by the state. The recent legislature
passed a law which provides:
No bank shall be permitted to advertise its deposits as guaranteed by the
state of Oklahoma, and any bank or bank officer or employee, who shall
advertise their deposits as guaranteed by the state of Oklahoma, shall be
guilty of a misdemeanor and upon conviction shall be punished by a fine
of not exceeding five hundred dollars or by imprisonment in the county
jail for thirty days, or by both such fine and imprisonment in the discretion
of the trial court.
3. Mr. Webster says that the guaranty fund is redeposited in
the banks and kept loaned out by them. Of these funds 50 per
cent, has been invested in state warrants bearing interest at the
rate of 6 per cent. The balance is kept in banks subject to check..
The interest on the investments has more than paid the expenses
of administering the office of the state banking board, to whose
hands these funds are intrusted. Under our present law, 75 per
cent. of the guaranty fund is to be invested in such securities as
those in which the state invests its own money, and 25 per cent.
is to be kept in cash.
4. Mr. Webster states that the Oklahoma law has not closed
the door of hope against the reckless and incompetent banker, but
has actually opened it much wider than before; and that the state
today seems to be entering upon an era of "wild-cat banking"
which, if not checked, will ultimately result in financial disaster.
In this connection I beg to say that no man is permitted to take
official control of a bank in this state until he gives references as
to his moral and financial standing as well as to his business
qualifications. I do not mean to say by this that we have no dishonest bankers in Oklahoma, but I do mean to say that our state
bankers will compare favorably in this respect with the national
bankers in this or any other state. As to "wild-cat banking," I
think that it is only necessary to call your attention to the fact
that, as revealed by the national and Oklahoma state call of February 5 (we make calls on the same days as the national calls), the
national banks held 36.8 per cent. reserve while the state banks held
49.3 per cent., which shows the state banks to be financially stronger
than the national banks. So far as I have been able to find out,
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Federal Reserve Bank of St. Louis
NOTES
463
there is not another state in this Union whose banks can show
reserves equal to this. If this does not show conservatism in a
wonderful degree, it does not show anything.
It has been charged frequently by men who are ignorant of the
facts, or who wilfully, knowingly, and premeditatedly misrepresent
them, that the state bankers of Oklahoma, in order to get business,
were paying exorbitant rates on time deposits. In this connection,
I wish to add that national banks are being converted into state
banks almost daily. Examinations show in all but two instances '
that the national banks are paying 4 to 7 per cent. on time deposits,
while under our guaranty law a state bank is not permitted to pay \
a greater rate of interest than 3 per cent. on deposits left for a I.
less length of time than six months, and 4 per cent, on deposits
left longer. I am pleased to say that the state bankers almost
without exception are complying strictly with the ruling of this
department in this respect.
Again, Mr. Webster says that the mania for starting new banks
is not confined to the towns. He states that in the little village of
Harrah, which has about one hundred and fifty inhabitants, two
banks have been established, and that their total deposits are less
than fifteen thousand dollars. I have sworn statements in this
office, by the Harrah State Bank and the State Bank of Commerce
(under call of February 5), showing deposits of about fifty thousand dollars. This is a fair sample of the reckless statements made
by Mr. Webster. He further states that men of doubtful character
are allowed to organize banks in Oklahoma and that one of the
new banks was started by a man who had just been released from
the state penitentiary. This statement is so absolutely ridiculous
and utterly false that it does not deserve notice on my part; and I
am quite sure the intelligent readers of your journal will not give
it the slightest credit. He openly charges that saloon-keepers and
disreputable men generally are permitted to go into the banking
business in this state. This is another of his reckless statements
unsupported by facts.
He refers to two state-bank failures. There has not been a
single state-bank failure in Oklahoma since this law went into
operation. The guaranty fund has never suffered one dollar. He
refers to the closing of the International Bank at Coalgate and
tries to make the public believe that it was done for political purposes. H. H. Smock, the bank commissioner at that time, is as
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464
ECONOMY
JOURNAL OF POLITICAL
had
found anywhere. He certainly
loyal a Republican as can be
He
y.
part
ic
crat
Demo
the
would aid
no desire to do anything that
benot because it was insolvent, but
closed the bank at Coalgate,
and
t
by permitting the presiden
cause it had violated the law
, in spite of the efforts of the
bank
cashier to use the funds of the
the
ything in his power to bring about
commissioner, who did ever
with
ce
otherwise to secure complian
replacement of the money and
officials of a bank can neither
the law. Under our laws active
such
funds, and officers who so use
directly nor indirectly use its
bank
the
of
eny. The directors
funds are deemed guilty of larc
itude to the bank commissioner
grat
at Coalgate expressed their
. It was not a matter of the
for closing the doors of the bank
violating the law, that caused
bank's condition, but purely one of
al steps. I desire to say that
the commissioner to take such radic
where the bank refuses to
this will be done in every instance
comply with this feature of the law.
people overlook the fact
Yet again, Mr. Webster says that most
deposits are created by loans.
that 85 to go per cent. of all bank
ement. It will, at least,
I am really glad that he made this stat
how absolutely ignorant
show the intelligent bankers of America
not borrow money to
he is of the banking business. Men do
office will show that not
keep it on deposit. The records in this
this way. I believe that
25 per cent, of our deposits are created in
in Oklahoma in this
I am justified in saying that what is true
respect is true in other states.
do our fair young
I am quite sure that you have no desire to
e; and I sincerely
stic
state and her great business interests an inju
you saw fit to
that
city
hope you will give this reply the same publi
untruthful
most
the
as
rd
give Mr. Webster's article, which I rega
guaranty
our
nst
agai
ed
and slanderous that has ever been penn
law and the state of Oklahoma.
A. M. YOUNG
BANK COMMISSIONER
STATE OF OKLAHOMA
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TORS' GUARANTY
EXTRACT FROM THE AMENDED DEPOSI
LAW OF OKLAHOMA
ARTICLE II
against the capital
"SECTION 2.—There is hereby levied an assessment
organized or existing
stock of each and every bank and trust company
ing a Depositors'
creat
of
se
under the laws of this state for the purpo
NOTES
465
Guaranty Fund equal to five (5) per
centum of its average daily
deposits
during its continuance in business as
a banking corporation. Said asses
sments shall be payable one-fifth during
the first year and one-twentieth
during each year thereafter until the
total amount of said five (5)
per
centum assessment shall have been
fully paid; provided, however,
that the
assessments heretofore levied and
paid by banking corporations
or trust
companies now existing shall be
deducted from and credited as a
payment
on said five (5) per centum asse
ssment hereby levied. The aver
age daily
deposits of each bank during the prec
eding year prior to the pass
age and
approval of this act, shall be taken
as the basis for computing the
amount
of the first payment on the levy hereby
made. One year after the
passage
and approval of this act, and annu
ally thereafter, each bank
and trust
company doing business under the laws
of this state, shall report -to
the
Bank Commissioner the amount of its
average daily deposits for
the preceding year, and if such deposits are
in excess of the amount upon
which
the first or subsequent payment of
the levy hereby made is comp
uted, each
bank or trust company having such incr
eased deposits shall immediat
ely
pay into the Depositors' Guaranty
Fund a sum sufficient to
pay any
deficiency on said first or subseque
nt payment, as shown by such
increased
deposits. After the five (5)
per centum assessment hereby levie
d shall
have been fully paid up, no addit
ional assessments shall be levied
or collected against the capital stock
of any such bank or trust comp
any,
except
emergency assessments hereinafte
r provided, to pay the depositors
of failed
banks, and except assessments
as may be necessary by reason
of increased
deposits to maintain such fund
at five (5) per centum of the
aggr
egate of
all deposits in such banks and
trust companies doing business
under the
laws of this state. Whenever
the depositors' guaranty fund
shall become
impaired or be reduced below said
five (5) per centum by reason
of payments to depositors of failed
banks, the State Banking Board
shall have
the power, and it shall be their
duty, to levy emergency assessme
nts
against the capital stock of each
bank and trust company doing busin
ess
in this state sufficient to restore
said impairment or reduction belo
w
five
(5) per centum; but the aggregat
e of such emergency assessments
shall
not in any one calendar year exce
ed two (2) per centum of the aver
age
daily deposits of all such banks
and trust companies. If the amou
nt
realized from such emergency asse
ssments shall be insufficient to pay
off
the depositors of all failed bank
s having valid claims against said
Depositors' Guaranty Fund, the State Bank
ing Board shall issue and deliv
er to each
depositor having any such unpa
id deposit, a certificate of inde
btedness for
the amount of his unpaid deposit,
bearing six (6) per cent. interest.
Such
certificates shall be consecutively numb
ered and shall be payable upon
the
call of the State Banking Boar
d in like manner as state warr
ants are
paid by the State Treasurer in the orde
r of their issue out of the
emergency levy thereafter made; and
the State Banking Board shall
from
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JOURNAL OF POLITICAL ECONOMY
hereinbefore provided against
year to year levy emergency assessmenis as
and trust companies doing
ns
corporatio
banking
all
the capital stock of
ss with the
business in this state until all such certificates of indebtedne
as the
rapidly
As
paid.
fully
been
have
accrued interest thereon shall
ComBank
by
the
upon
realized
and
liquidated
are
assets of failed banks
expense
the
of
payment
the
after
first
applied
be
shall
same
the
missioner,
of liquidation to the repayment to the Depositors' Guaranty Fund of all
money paid out of said fund to the depositors of such failed bank, and
shall be applied by the State Banking Board toward refunding any emergency assessment levied by reason of the failure of such liquidated bank.
'
Provided, further, that seventy-five (75) per cent. of the Depositors
state
in
fund
said
of
benefit
the
for
invested
be
Guaranty Fund shall
be
warrants or such other securities as state funds are now required to
invested."
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Federal Reserve Bank of St. Louis
II
A REJOINDER.
Mr. Young, in the above reply to my recent article, seeks to
discredit my fundamental arguments by asserting that certain statements of mine were erroneous, but I fail to see that he has proven
his case in a very convincing manner. He has pointed out certain
amendments in the Oklahoma law and certain changes in banking
conditions in that state that have been made since the time I wrote
my article; but these very changes show clearly the truth and force
of my criticism of the original law and the conditions arising under
its operation. I am pleased to note that the scales are beginning to
fall from the eyes of the arch-defenders of this law, to such an
extent that even they are obliged to admit its defects and the dangerous tendencies. set in motion by its crude and radical provisions,
by proceeding so promptly to amend it. Indeed, it is to be hoped
that the amending process will soon proceed much farther, until
the original law will scarcely be recognized in its changed form.
I regret exceedingly that the pressure of other work, and the
temporary inaccessibility of the data used in preparing my first
article, render it impossible for me to make my rejoinder as convincing as it might otherwise be; but, at the invitation of the
editors, I will consider very briefly the points raised by Mr. Young.
So .far as I can see, most of the apparent discrepancies between my
statements and his arise from their difference in date, and none of
them alter materially the force of my criticism of the original law.
I have read a copy of the law as now amended and find that Mr.
Young's first and third statements are substantially correct. The
NOTES
467
greatly increased assessment provided in the amended law is a
practical admission of the correctness of one of my contentions,
viz., that the guaranty fund provided at first was utterly inadequate
to serve the intended purpose. I am pleased to note this prompt
recognition of the necessity of a much larger fund, but I still doubt
whether even this fund, consisting as it confessedly does of only
25 per cent. cash, will prove permanently effective. In times of
great and general financial stringency it will probably be very
difficult to realize on the securities in which the remaining 75 per
cent. of the fund is to be invested.
As far as Mr. Young's second statement is concerned, I am
pleased to note.that the Oklahoma legislature has so promptly
attempted to stop the iniquitous misrepresentations that were being
made by unscrupulous bankers concerning the nature of the
guaranty of bank deposits. This amendment only emphasizes the
correctness of my original statement concerning the misleading
representations that were being made by bankers to secure deposits.
Mr. Young's attempt to controvert my statement that the Oklahoma law tends to promote "wild-cat banking" seem:, to me extremely superficial. He says that on February 5 the state banks
held 49.3 per cent, reserve as compared with 36.8 per cent, for the
nationals. This proves absolutely nothing concerning the relative
soundness of the two kinds of banks. Both percentages are far
above the legal requirements, and these abnormally large reserves
seem to indicate temporary stagnation in financial business in the
case of both kinds of banks, rather than greater relative soundness
of the state banks. Every good banker knows that the quality of
the loan is a much more important factor in determining financial
solvency than any large excess or reserve over the legal requirements.
Mr. Young says that "the state bankers almost without exception are complying strictly with the ruling of this department" in
regard to the rate of interest paid on deposits. He does not
specifically deny, however, the charge made in my recent article that
this ruling is being evaded by bankers personally paying the difference betwen the legal rate and the higher rates actually paid. I
can only repeat that I have the written statements of several
prominent and reliable persons in Oklahoma that this ruling of the
Banking Board was quite generally evaded by state bankers in
the manner described. I will also say that my statement that unscru-
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468
JOURNAL OF POLITICAL ECONOMY
pulous, dishonest, and inexperienced men have been granted bank
charters by the state authorities was based upon letters received
from various prominent and reliable men well acquainted with the
conditions in Oklahoma. Anyone sufficiently interested can easily
ascertain whether I had a valid basis for my assertions by writing
to almost any prominent and reliable person in Oklahoma, who is
not directly interested in upholding the new banking law. Of
course this is a vital point, on which there would naturally be a
great divergence between the statements of the friends and opponnents of the law.
What Mr. Young says concerning the closing of the International Bank at Coalgate does not detract "one jot nor one tittle"
from my main assertion, viz., that this episode was loudly heralded
throughout the country as an example of the beneficence and
efficiency of the Oklahoma law in averting the usual bad effects of
bank failures, whereas, as Mr. Young himself says, the bank was
really solvent. It would be utterly futile to attempt to deny that
the Colgate fiasco was so heralded, and was used for political purposes during the late presidential campaign—everyone knows this.
Whether or not the bank was actually closed with these ends
deliberately in view, is another question concerning which the
gods disagree. Mr. Smock did not want to close the bank; many
circumstances connected with the affair seem to indicate that he
was practically forced to do so. In spite of Mr. Young's denial,
there are many who still believe that the bank was closed for political effect.
Mr. Young is evidently seeking in vain for a climax to his caustic criticism of my recent article, when he says that my statement
that 85 to 90 per cent. of all bank deposits are created by loans
ignoshows "the intelligent bankers of America how absolutely
rant" I am "of the banking business." This is really amusing. I
will simply retort that I am quite willing to risk the doom of being
consigned to the oblivion of ignorance by the above assertion. I
was simply repeating a generally recognized truism when I called
attention to this percentage of credit transactions in the banking
business today. I am sure that every intelligent banker, at least
outside the state of Oklahoma, will recognize that I did not exaggerate in this statement.
In conclusion I will say that I can readily understand how my
recent article may have aroused the wrath of the arch-defenders
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Federal Reserve Bank of St. Louis
NOTES
469
of the new Oklahoma law. Indeed it would have been very strange
if some champion had not risen in his might and sought to discredit
my fundamental arguments in some such manner as that used by
Mr. Young. I think, however, that my indictment will still stand
clear in the minds of all persons interested in sound banking principles, until my fundamental arguments are offset by much more
convincing criticism than that voiced in the above reply by the
Bank Commissioner of Oklahoma.
W. C. WEBSTER
THE UNIVERSITY OF NEBRASKA
WASHINGTON NOTES
THE TARIFF BILL IN THE SENATE
SENATOR ALDRICH'S MAJORITY
ABANDONMENT OF COST OF PRODUCTION
THE PHILIPPINE TARIFF
THE TREASURY AND THE REVENUE
The completion of the tariff bill by the Senate in committee of
the whole, about the middle of June, and the lack of developments
in the course of the discussion show how completely the leaders in
the upper chamber had, before the measure was reported, perfected
their plans for carrying it through. During the discussion of the
bill in committee of the whole--the really crucial period in its history, while in the Senate—such changes as were permitted proved
to have been of the slightest. No amendment has been specifically
forced upon the controlling clique, the leaders having had throughout a substantial majority on their side. In practically every instance where the Finance Committee, headed by Senator Aldrich,
had determined to secure the passage of a given clause or a rate,
it has been able to control at least forty votes. The opposition, on
the other hand, has seldom been able to show more than thirty
votes, although occasionally two or three more have been registered.
Other members of the Senate have been either paired or absent.
Nominal changes from the draft of the bill as reported by the Senate Finance Committee have however been numerous. These
changes may be grouped in three classes: (I) modifications intended
to cut down duties shown to be excessively exorbitant, while still
leaving the rate prohibitive or highly protective; (2) alterations
intended to change the wording of some clauses in such a way as
to adjust them to court decisions, rulings of appraisers, and changes
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Removal Notice
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Document type: Newspaper article
Pages
Removed:
Author(s):
Title:
Oklahoma's Bank Guaranty Experiment Since 1907 Ended by Court Ruing
Date:
October 23, 1934
Journal:
The American Banker
Volume:
URL:
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Federal Reserve Bank of St. Louis
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Federal Reserve Bank of St. Louis
Notes o
•
and
thE BAN:. DEPOSIT GUARANTEE JOURNAL, Official organoof the Oklahoma tate
Bankers Section, and described as a monthly magazine devoted to the
bank dep sit guaranty law
on THE STATE BANKER, Official organ of the State Bankers Association of
Oklahoma.
(Unbound file examined in Oklahoma City--borrowed from the executive secretary of
the Oklahoma Bankers Association)
BANK DEPOSIT GUARANTEE JOURNAL
(Data re receipts, expenditures, and balance of fund
shown on worksheet - not here)
Vol. 1. No copies in fie.
Vol. 2. Only two numbers (5 and 9), May and September 1910, in file. Hay issue has
report of failureof Oklahoma State Bank at Durant, and pins to hay:, it taken over by
new management, with expectation that stockholders will be assessed but that it will
notbe necessary to draw on guaranty fund (p. 10).
Sept. issue reports decision of State Supreme Court that bank guaranjty fund
does not apply to claims of surety companies on their bonds for public funds, reversing decision of district court. (p. 20). Article, "The Demand for Bank Deposit
Guaranty,- by Gov. Shofroth, of Colorado, favors deposit guaranty, with arguments
of general character (pp. 38-39).
Vol. 3. January 1911, pp. 12-18. Reprints text of report of Bank Commissioner for
period frm 11-1-1908 to 12-15-1910. Pp.18-19, describes U.S. Supreme Court decision
re constitutionality.
•
•
Feb. 1911. "The strength of the guaranty law lies in the strictest enforcement
its safe guards. Prosecute the criminal bankers, weed out the incompetent ones, and
the guaranty fund will grow instead of dwindle." (p. 8)
Facts re guaranty fund from mesige of retiring governor Haskell, "the first report
on the condition of theguaranty fund in eighteen months." (pp.26-27). See worksheet.
Reprints decision of U.S. Supreme Court re constitutionality. (pp. 28-30).
Mar. 1911. "Of course state bankers don't enjoy paying the emergency assessment of
one per cent but there is a silver linirg to the cloud. This assessment will clean
up all the claims against theguaranty fund and leave about a quarter of million
dollars in the fund, in addition to se-.urities from defunct banks that till net the
guaranty fund about $100,000...
The failureof the Columbia Bank
Trust Company, of Oklahoma City, and the
mis-management of the Oklahoms Trust Company of Muskogee seem to have been at the
root of all the trouble of the bank deposit guaranty law of the state. No more
Nortons and Jones will be allowed to do a banking business in Oklahoma. A closer
supervision of banks and a closer scrutiny of bankers will rcdue to a minimum
assessments againit the state banks.
The best state bankers in Oklahome believe that no further emergency assessments
will be levied against state banks in many years to come. No speculator or promoter
with unsavory reputItidliensiwi 1 be allowed to engage in the banking business in
Oklahoma. The responsibility of administering the banking affairs of the state now
rests squarely on the shoulders of the Governor and his appointees, which conditions
will make for better banking." (pp. 5-6).
"In compliance with the new law Bank Commissioner J. D. Lankford devised a new form
sheet which was approved b4 Governor Cruce. It is concrete in form and is nothing
more or less than a certificate of deposit, showing that the assessment has been
transferred to the guaranty fund. The amount in all the banks will draw 4 per cent
interest." (pp. 12-15). Refers toplan of issuing statements every three months and
expectation that they would be made public, (p. 13) and to forthcoming report of
committee of the state bankers' association on the condition of the fund. (p. 13).
Article, "A Statement to Oklahoma State Bankers," by E.B. Cockrell, after resig-
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Federal Reserve Bank of St. Louis
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Notes on BANK DEPOSIT GUARANTEE JOURNAL and STATE BANKER - Oklahoma - page 2
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3
nation as Bank Commissioner. "Had it not been for the operations of two men whose
• spectlations cost the Guaranty Fund nine-tenths of the amount the Fund has been
depleted, the losses would have been a mere bagatelle, and as banking history proves
that such disastrous failures only occur once or twice in a lifetime, there is every
reason to believe that when we recover from the effects of the financial aeronautics
of the two men above referred to, we will be able to build up a Guaranty Fund without
any more special assessments." (p. 30).
Report of special asessment of 1 percent effective "Saturday morning" (March 4, 1911),
SAil 5T-s14: Text of new State banking law approved Feb. 11, 1911. pp. 32-35).
'1RePers to failure of Planters & Mechanics State Bank of Oklahoma City (p. 25).
"A Strong Defense of the Bklahoma Guaranty Law," by I. H. Nakdimen, President
Sallisaw Bank & Trust Company, pp. 29-51.
1
Refers to publication in book form of
report on theColumbia failure to be sentto each state bank.
May 1911. "Governor Cruce Defends the Oklahoma Guaranty Law," pp. 57-59. Conclucling
paragraph. "There hasbeen some reckless banking in Oklahoma, just as there has been
in every other statein theunion, but it will be the effort of the present banking
board to place the dishonest banker where he properly belongs, in the state penitentiary. Unburdened of dishonest bankers, stripped of its incompetent ones, the
Oklahoma bank guaranty law will continue to live and be a benefaction to the thousands
of trusting depositors in Oklahoma who corn it their savings into thekeeping of state
banks operating under the law." Signed Lee 6ruce.
•
June 1911. Lists natianal banks, formerly state banks, against which suits bave been
instituted to collect guaranty fund assespments. (pp. 17-1°).
Gives address of J. C. McClelland, vice president of the ,Tradesmen's State bank of
Oklahoma City and member of the State Banking Board, beforestatebaraers section of
the O.B.A. May 23. (pp. 31-34). "The condition of the banks in the state of Oklahoma
at the time the guaranty law went into effect was most deplorable, and there were a
numberof bakkstahich were allowed to come under the wing of protection of the guaranty
fund that should never have b--n admitted." (p. 32). Reports that when present board
came into office there was $36,293 on deposit where it was subject to check, and
$1091000 on deposit where it couldnot be checked out without causing immediate closing
of two banks. (p. 31). Pr6misectquarter1y reports ofguaranty fund. (p. 34).
Pp. 55-59. Gives Governor Cruce's speech before State Bankers Section, May 23rd.
Stressed need to get rid not only of dishonest but also incompetent bankers.
July 1911, p. 19. Reports ruling by Bank Comaissioner LaWord that state hank could
not merge or convert into national bank without actually paying off all its liabilities,
Pp. 21-23. Statement of fund, in text form. (See worksheet re fund).
August 1911, p. 5. Comments that most of fund expenditures has been to Oklahoma City
banks--bankers outside the city paying a million dollars to depositors of banks in
th at city.
September 1911, pp. 1/4-15. Reports filing of suit against sotckholders of the
Columbia Bank ad Trust Company, failed two years earlier.; and pp.23-24 indictment
of president and cashier of Night and Day Bank, Oklahoma City.
°ether 1911.
•
Q uarterly statement of fund, third quarter of 1911, p. 29. (see workshee'
Dec. 1911. p. 19. Reports avaxialum interest on deposits fixed by Comaissioner Lanford,
on bank balances, 2 %; time deposits of not less than six mos., 4%; time deposits not
less than 90 days, 3%; savinas deposits, 4%.; checking accounts other than public
funds, none; public funds, 3%, which is minimum prescribed by law.
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Notes on BANK DEPOSIT GUARANTEE JOURNAL and STATE BANKER
Vol.
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uklahoma
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page 3
4. Jan. 1912. Statement of fund, pp. 37-58. (see worksheet).
Feb. issue. Nothing of special interest.
March issue. Not in file.
Apr. 1912. Reports decision of State district judge that national banks succeeding
state banks are liable for assessments unnsie rt date of conversion. Likely to be
appealed to federal courts. (p. 29).
Also reports condition of fund (pp. 45-46)
and temporary. restraininz order
May 1912, pp. 54-55. Repoi/ts mandamus action against State Banking Board, for
Hilkon-Hale state bank, successor to Night and Day bank, for failure to pay
$200,000 of emergency certificates issued in June1911 although claims against other
statebanks had been paid. Successor bank claimed it had paid all depositors . Banking
board claimed law gave it discretion as to time of payment, within current year.
dune 1912., pp. 37-40. Bank Commiisioner Lankford's talk beforebankers association,
May 11, stressing his work in improving bank supervision.
July 1912. Nothing of special interest.
August issue. Not in file.
Sept. issue. Urges amendment to eliminate possibility of heavy assessment (p. 6).
Oct., Nov. and Dec. issues. Not in file.
Vol. 5. Jan', 1913 issue. Not in file.
•
Feb. 1913. Summarizes special report by Commissioner to Senate on condition of fund
Gives text of proposed
since effective date. (see worksheet)., pp. 10-11.
guaranty law in Michigan (pp. 27-32).
March, April, May issues. Not in file.
June is:lae. Nothing of special interest.
July issue. Nothing of specia interest.
August 1913. Reports suit filed by Oklahoma Attorney General to recover back
assessments to guaranty fund from banks that nationalized, for totalof $646,452,
by 112 banks. Notes that some previous suits have been sustained by federal courts.
Pp. 26-27.
Sept. 1913. Nothing of special interest.
Oct. 1913, pp. 10-12 and 55-57. Summarizes new State banking law of Oklahoma.
fund
Nov. 1913. Editoria! re report of Commissioner showing over $600,000 of warrants or
outstanding under new law, and requirement that banks deposit additional securities
whenever fund is impaired beyond collateral already on deposit, th us making them
"gilt edged" and salable. Apz)roves. Also nptes that board has been able to restore
nineteen banks to solvency without loss to the fund. Pp. 2-3.
In same issue summary of condition of fund (p,11). See worksheet.
•
Dec. 1913. Address of Bank Commissioner Lankford at State bankers Convention, ec.9,
stressing need for fewer andbetter banks (pp. 27-29). Reports fibrst annual meeting
of the State Bankers Association, Dec. 9. Association organized in March in compliance
with new state bltna law, under which each state bank shall be a member, with
of .ers
councilemt
executive
o conduct business of association and also to make recoimmendations
for appointment of members of the banking board and commissioner. (Pp. 30-31)
Same issue. pp. 36-57, reports proposed preDvision 66r depositors guaranty fund
in Federal currency bill (i.e. Federal Reserve Act).
Vol. VI. Jan. 1914. Talk, "The Guaranty Law," by A.E. Stephenson, president Central
State Bank, Enid, at State bankers convention, Dec. 9, chiefly urges State banks to
keep their reserves in qualified State banks, instead of national, because of reduced
cost for deposit c:uara ty (i.e. because banks in which deposited would pay assessment).
Opp. 24-26). Commissioner's talk Mb Statebank examiners stressing need for good
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examinations (pp. 36-37).
Federal Reserve Bank of St. Louis
'Notes on BANK DEPOSIT GUARANTEE JOURNAL and STATE BANKER
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Vol. VI, continued.
Feb. 1914. From editorial, p. 5. "There is no denying that state banks in Oklahoma
have had to pay an enormous price for the protection of the Guaranty Law, much more
than would have been necessary if the state had had an example to follow in framing
the law. The mistakes that were made can be seen muchmore clearly after they are
past and states that are now consideraing such legislation should be able to frame
a measure of this kind that would successfully safeguard the banks from the pitfalls
to which the administration of the Oklahoma law were subjected. There are two essential
requisites for such a law tobe successful. Ihe first is to prevent unsafe banks
getting into the system. This is a most difficult problem. But if the Proper steps
are trken beforethey are admitted to the system, by a real examination ofthe conduct
of the bank, past and present, a great many banks might be either forced to clean
house or liquidate. The second is to keep them safe by a system of rigid supervision.
There is one thing that should be impressed on every legislature that is consideraing
a new banking law, and that is that there is no enonomy is employing cheap men to
conduct a department with so great responsibility as the banking department. Make
the salary of the head of the department large enough to compensate the most capable
men in the state. It is the biggest job in the state and the compensation should be
eommensutate therewith. If these two things could have been accomplished Oklahomc
would not have sustained the losses she did."
Same issue, pp. 6-71 Summarizes prposed guaranty law in Kentucky.
Same issue, pp. 10-11. Condition of fund (see worksheet)
•
March 1914. Not in file.
April 1914. Nothing of special interett noted, except reference to effort 66 passe
guaranty law in Arkansas.
May 1914. Nothing of special intrest. This is obviously last issue of the Bank
Deposit Guarantee journal , though no mention of this i4he issue.
THE STATE BANKER
Vol. 1. No. 1, June 1914. First paragraph of editorial comment, p. 3. "For several
months the Executive Council of the State Bankers' Association of Oklahoma has been
considering the establishment of an official organ, to be publishedin the interests
of the State Banks of Oklahoma, and an arrangement has been made with A. G. Marrs to
edit and manage the publication of this journal, which has been given the title of
The State Banker, a publication devoted to the interest of Agriculture, Commerce, and
Finance in Oklahoma. Mr. Marrs had, for the last two and a half years, been editor
of the Bank Deposit Guarantee Journal, published at Vinita and Tulsa. That publication will be discontinued."
July 1914. Nothing of special interest.
It
11
11
H
August 1914
IT
ii
11
Sept. 1914
11
11
11
Oct. 1914
Each issue contains several par4graphs,
at ends of articles, etc., re benefits
of deposit guaranty; but there is less
mews re fund than in predecessor 4ournal.
Nov. 1914. Refers to recent report of Treasurer of the Banking Board showing slight
gain, a little Wier t1 .5,000, infindebtedness of the Guaranty Fund. (p. 3).
Same issue, p. 33. "The Oklahoma Supreme Court has upheld ouf Banking Board in
some very important cases. There most recent favorable decision, and one in which
all the justices concurred, was the case in Creek county where the county commissioners
brought action against the Banking Board, and the Farmers and Merchants Bank of
Sapulpa for county funds on deposit in their bank at the time of its failure, in
amount over 0_06,000. This decision gives the Banking Board the complete power of
determining the validity of any claims against the Guaranty Fund, and their decision
as to whether or not any claims are protected by this fund is final. The Bank
Commirsioner and Banking Board are part of he executive branch of the State GoVernSuit against them cannot terefore e maintained without consent of the State.
ment..."
•
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Oklahoma
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Vol 1 - continued
Dec. 1914. Reports meeting ot State Bankers Association, with legislative
recommendations (see summary in notes on Oklahoma Banker for Dec. 1914), pp. 14-16.
Reprints article by Z. Clark Diokenson, of University of Chicggo, in recent issue
of the Chicago Banker., pp. 26-29 (relates chiefly to Nebraska, about same as in
Quarterly Journal).
Jan. 1915. Refers to two important court decisions., both on Jan. 5.
One by U.S
Supreme Court upholding Oklahoma decision re power of Banking Board on claims-follows summary in Nov. 1914 issue re State supreme court decision (see above).
Other by Oklahoma Supreme Court re suit against 112 national banks (see notes on
Aug. 1913 issue above), holding that the nationalized banks were liable for the
full 5% assessment, but not liable for its payment all at once, but for payment
each year just as though they had remak3;d sate banks, with payment of arrearages.
(p. 6). Full text of this opinion given on pp. 34-38
Feb. 1915. Gives text of proposed adendments to banking law, pp. 26-30
11
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Mar. 1915.
approved
"
21-23, followed
by comments of Secretary of Asso,. thereon.
Same issue, p. 31, gives court opinion, Syllabus 3990, in J.D. Lankford, Sta.e Bnkk
Co:i.osioor, Plaintiff in Error, vo. OharTen
Schroo7ler, Dofondent in Error, with
no mention of the judge or court, noted as reversed with direction, error from
Oklahoma county.
April 1915. Summarizes provisions of an Illinois bill for deposit guaranty (pp. 4-5).
Qu tea fruil Thornton Cooke's "Journal of Economics" article on Mississippi deposit
guaranty experience (pp. 15-17).
41/v 1a 1915. Nothing of special interest, court decision on a usury case given.
(\VARA 1915, pp. 11-14. "Address of Hon. J. D. Langford, Bank Corn, of
Oklahoma Delivered
Before the National Association of Supervisors of State banks at Uakland,
California,
May 27th, 1915."
Referred to pioneer characterof the law, and difficulties met.
"The Guaranty feature of this Law is compulsory, and almost immediately
after passage
of the Act, which was an Emergency Measure, it became effective, with only
a superficial
and inefficient examination of banks having been made.
And right at this point, you gentlemen will, as Supervisors of the
Banks of this
country, quickly recognize the great, and near fatal error made by the
athorities
not first demanding a most thorough and exhaustive examination of both banks
and
bankers, before permitting them to operate under the Guaranty System.
Twelve months
of grace should have been given, in which to clean up, during which period
there
should have been frequency of examination, and investigation of the
character, habits,
and financial responsibility of officers, directors, and principal borrowers." (p.
11).
"Oklahoma pioneered in this beneficial law, which was fundamentally right
in its
beginnirv, and correct in the main--but it should be remembered that she is
a young
State, only a little over seven years of age. Banks in one-half of the
State had been
conducted wholly without supervision or regulation. That mistakes should
have been
made, both as to its provisions and practical operation, causin: some disappoi
ntment,
is not therefore strange, for she led the way in haste, and during an era of
speculation which ran riot in the State, followed by reactionary liquidation."
(p. 13).
July 1915.
Aug. 1915.
•
Not in file.
Nothing of special interest.
Sept. 1015. Editorial notes that records show few convictions of bank
officials, and
that guaranty law is partly resnonsible, jurors not convictin:- when
depositors have
had no loss. State banking Department not tobe censured, for it
has had no attorney,
but recently an assistant Attorney General has been placed in charge
oflegal work for
the Banking Dept. and expects to devote his entiretime to it. (pp.
16-17).
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Federal Reserve Bank of St. Louis
Notes on BANK DEPOSIT GUARANTEE JOURNAL and THE STATE BANKER
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Oklahoma
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page 6
P. 9.
Vol. 2- continued. Oct. 1915. 1,Statement of fund or third quarter 1915 (worksheet).
Pp. 16-17. Editorial comments on statement, include following:
"The State Banks, during thepast three months, have taken up with cash, warrants
that were otherwise secured to the extent of 4;,547.89. With the money collected:
from the assets of failed banks being applied on the outstanding secured warrants,
and with the state banks gradually taking up more warrants with cash in lieu of
depositing security with the Banking Board, it will not be long before all the
warrant indebtedness of the Guaranty Fund will be heldby the state banks themselves."
(pp. 16-17). Comments that very Attie has been collected from national banks
following the State Supreme Court dedision re the 5% assessment, but thinks no Federal
issues are involved and that as soon as attempt is made to carry it to Federal courts,
assessments past due and continued regu ar assessments can be collected. Also notes
that with a competent special attorney devoting his time tolegal work of the Dept.
and two experienced ba examiners engaged in collections of assets of failed banks,
outlook is better than in the past. ' (p. 17).
Nov. 1915.
Dec. 1915.
•
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Reports amendment of section of law re State Bankers Association (pp. 6-7)
Not in file.
Jan. 1916. Address of P.O.Dings, Treasurer State Banking Board, summarizes quarterly
reports of fund for the year 1915 (p. 21-25). See worksheet. Notes that over four
million dollars of warrants have been issued, with amount now outstanding about
$679,000, of which the state banks themselves own $488,000. Refers to the warrants
as "the only 6 per cent investments I know of in the state that you can buy at par
that is absolutely good." (p. 22). States the Board has a million dollars worth of
assets of failed banks, and that collections will be improvedvith the increased legal
assistance. (pp. 22-23). Talk by assistant Attorney General J. I. Howard (pp. 58-40)
notest at his position was created by the lastlegislature (p. 58). Also notd: that
legislature empowered Attorney General to take exclusAre charge of prosecution in
criminal actions against violaters of baking laws. (p. 39).
Also in same issue,
"Guaranty F/und Warrants" by J. L. Pryor.(pp. 42-44). Asks question whether the item
"Secutities with the State Banking Board" carried as an asset is such or a liability?
"...I venture the assdrtion that should an examiner find in my case a note that had the
,lopearance of being as slow as he knows my securities with the State Banking Board are
bound to be, he wonld require me to charge itoff though I might be able to prove to
him that it wo-ld be paid years before my Guarantee Warrants." (p. 42). Also
"Why should we carry these warrants and pay ourselves interest on them when we must
pay the interest ourselves to ourselves? Is it to fool ourselves or to foil the
people? We may fool ourselves but be assured we cannot fool the people." (p. 42).
Suggests that the bank corn issioner should order the Securities With State Banking
Board be charged off, then let Board declare dividends from collections which would
be placed back in the surplus of the banks. (p. 45).
February-March 1916. "State Banking Department News" (p. 18). First parggraph.
"Experience has shown the Department that at least ninety per cent of the bank
failures can be traced directly to the fact that some confidential officer of the
bank has violated his trust and has usually been guilty of embezzling the funds of
the bank."
April-May 1916. Calls attention of Jankers to provision of law re making reports
End penalty fodnoldoinE so--in view of fact that this penalty has for the first -L
been imposed on two banks (pp. 7-8).
•
Vol. 3. June-July 1916. In State Banking Department news notes that seventeen cases
against bankers are pending. (p. 19). Summarizes condition of fund and experience
since beginning in editorial (pp. 20-21). Following data from this editorial:
42 failures since passageof Act with deposits aggregating $8,037,988.
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Federal Reserve Bank of St. Louis
Notes on BANK DEPOSIT GUARANTEE JOURNAL and THE STA_E SANKER
Oklahoma
-
page 7
vol. 3 June-July 1916- continued.
Data re fund and failed banks continued
At time taken charge of, cash on hand and assets readily converteC, $4,020,193
Balance to pay depositors advanced from Depositors Guaranty Fund
4,017,795
In al cases where not enough cash on hand in fund to pay depositors,
Banking Board warrants were sold and cash used for this purpose
Collected on assets taken over by Bank Commissioner to this time
1,631,909
(excludes assets immediately converted into cash after taken charge off)
Now on hand assets of failed banks (including 4200,000 real estate) 1,500,000 approx.
Banking Board Warrants outstanding at this time
638,380
To secure and guaraee paymentof these warrants state banks have on deposit
with the Banking Board State bonds and warrants amounting to
765,179
Claims outstanding against national banks formerly State banks
over 500,000
•
August-September 1916.
Change in warrant indebtedness of fund duri- quarter (p. 19)
October-November 1916. List of national banks against which suits filed, with
amount due from each to the guaranty fund (pp. 14-16). Aggregates show 589,953
for five per cent assessment, $26,122 pro rate share o#outstanding warrants, and
475,352 special assessments, with total of 4691,427.
Note, No more issuesof Vol. 3, with Vol. 4 beginning in Jan. 1917
of Jan. 8, 1917
Vol. 4. January 1917. Reports U.S. District Judge Cotterall tg decisiont,that no
constitutional question was involved and U.S. district courthad no jurisdiction
in the suits against national banks formerly state banks.(p. 24). State of
fund for fourth quarter of 1916 (p. 26)--see worksheet. Summary for year by
Treasurer Dings of State Bank Board to state bankers association--see worksheet (p. 53)
•
Feb. 1917. Not in file,.probably not issued as Marcfs no. 2 in volume
numbers of succeedinF itsues bbcame bi-monthly":
4. From
'Alrch 1917. Quotes legislative reco=endationsof bank commissioner in fifth biennial
report. Nothing re guaranty fund. Recommendd increased salaries for examiners.
(pp.11-14).
(Egpreggnted as
Much attention paid to lossea connected with certificates
maptixica
houaton
kfit daposits)ofCommonwealth Trust Co. or Texas, but no mention of resulting failures.
May 1917.
July 1917. Biographical numuer, giving brief biograhies and pictures of presa:_t
and former members of Bankinu Board, Commissionrs, offices of bankers assos.,atd
examiners.
'
)
eptember 1917.
"ovember 1917.
Nothing of special interest.
11
11
II
11
vol. 5. January 1918. convention number, but gives only transcripts of speeches,
as t ey are given in full in pamphlet, "Proceedings of the FiNL. Annual Convention,
of The State Bankers Association of Oklahoma, at Oklahoma City" Tuesday, Dec 11th,
1917", sent to all the statebanks.
Statement of fund for last quarter of 1917
(p. 49)--see worksheet
:iarch 1918. Pp. 19-26 discusses exemption of guaranty fund warrants from taxation,
under act of 1913, and Supreme Court decision that this is not affected by provision
of constitution prohiuiting legislature from passinr laws exempting certain of
property from taxation, No. 8844 in Sypreme Court of State decided Jan. 29, 1918.
Oklahoma county had assessed warrants owned by banks.
•
May 1918. Nothing of special interest.
of Oklahoma Bankers Association.
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Federal Reserve Bank of St. Louis
This is last issue in file at office
Fil
Algainamined in Oklahoma City (borrowed from the
8LREorTkEB2KOPHO
NOTES ON The Oklahoma Banker - re deposit guaranty
Page 1
Vol. 1 - No 1, July 1909, and 5-4, Sept. and Oct. not in bolid file; also Dec.
•
Nov. 1909, p. 145, reportsresolutions of eastern group, State Bankers Section, for
purpose of divorcing the State Banking Ststem andGuarantee Law from Politics;
That State Banking Bowdbe abolished and managemet and control of guaranty fund
be placed in hands of Bank Commisioner; that fund be re-deonsited in the banks in
ratio of contribution, with no interest paid; that expense ofoperating fund be paid
by the State; and that any bank liquidating be able to tak over as an asset 90 %
of theunused portion of the fund contributed by the bank.
p. 198
Jan. 1910. "Bank Guarantee" by G. N. Fuller, Stecker State Bank. Approves--noting
"nice adjustmett of the affairs of the Columbia Bank & Truct Co." in contrast with
results of bank failures in otherStates.
March and April 1910, mimmimm not in bound volume.
of Vol 1
Other issues-nothing of importance
re deposit gtaranty.
Sept. 191Q
Vol.2, pp. 60-64, "More Columbia Matter." Letter to Governor from executive
corn ittee of Oklahoma Bankers Association, with replies giving data. State State
Banking Board is checking up on accounts composing the guaranty fund and report will
be published at usual time. (QUE:Y. Should attempt be made to fin d file of such
reports at Capitol?) Gives statement of Bank Commissioner Young re the bank and its
liquidation filed with the judge of the district court, as of March 8, 1910. (pertinent data placed on worksheet,.back side.)
•
..t
Dec. 1910, p. 169. Reports proposed formation of the National Bank Auains
Company,
to be incorporated under laws of Dist. of Col., to guarantee bank deposits, with
ppecial semi-an ual examinitions. Presidentof company to be Mm. B. Ridgely, former
comptroller of theCurrency.
pp. 199-200
Jan. 1911
Reports agreement of Banking Board with bankers asso. to have an audit
A
of the guranty fund, a d that audit will be doneby Arthur Young & Co.
Same issue, p. 206. Reports U.S. Supreme Court decision re constitutionality.
March 1911, p. 276. Reports 1 percent specia assessment forgutranty fund.
Same issue, pp. 275-76: statement of retiring Commissioner re condition of fund.
...a special assessment... will be required to carry out the agreements of the
Banking Board with the 2:en who have re-organzed two failing institutions, thereby
preventing a much larger assessment to pay depositors the cash over the counter."
(p. 275). (NOTE. These must be the Sapnlpa and Muskogee banks).
The article
reporting the assessment (p. 276) has following comment on this: "This act has
given rise to a serious lega' question: Can the banking board use the gugranty
fund for any other purpose than to pay the depositors of a fai'ed bank?/Attorneys'
have been akked by some of the banks regarding this phase of the question. The
issue involved is a purely lggal one, no one questioning that the banking board
did what it thought best under the circumstances and did it with a view of savins
the state bankers further heavy assessments." (pp, 276-77).
Same issue, p. 279. Reports completion of audit, and announcement ofgovernor that
a report of the condition of the fund will be made quarterly. (NOTE. Can a file of
these quarterly reports be found at the Capitol?
Same issue, p. 285. Gives text ofnew baking law carrying out leading recommendations by the Oklahoma Bankers Association.
•
May 1911, p. 550. Reports publication of augit report, with quotation from the Daily
Oklahoman noting that it repotts that essential records had been destroyed, concluding,
that this indicated maladministration of the, law and "connivance to conceal the trail
of rascality associated with that failure.Tolumbia Bank & TrusQ.
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Federal Reserve Bank of St. Louis
NOTES ON THE OKLAHOMA BANKER
-
re deposit guaranty
-
page 2
Vol. 2. June 1911, p. 385. Reporting talk by J. 3. McClellond, mehber
of the
State Banking Board at state bankers section of Oklahoma Bankers Associati
on.
Referring to fund when present board assumed charge (board members had been changed),
stated then on hand only '.36,292 in the guaranty fund in cash subject to check, and
,109,0-Y) on d31-)osit where it could not be checked out without causing
the immediate
closing of two banks, comprising all the fund which ever purported to be cash.
•
Vol. 3. Auguit 1911, p. 44. Article on statement of guaranty fund, apparently first
ofprUmised quarterly reports. Pertinent data--see worksheet showing statement
s as
token from The Oklahoma Banker.
(NOTE. Later statements published in Bankeri not
referred to in these notes if data shown on that worksheet).
April 1912, p. 231. Refers to opinion of Federal district court reassessm
ents levied
on hank before nationalization, but not paid--decision due by bank, rendered
''ar. 13.
June 1912, pp. 293-94. Reports court conviction of Abner Davis, Night and
Day bank
for excessive loans to Putnam real estate interests.
Vol. 4.
July 1912, pp. 5-6. Le'ter from Sec l y to membrs of Asso. re recommended
changes in guaranty law. Bank Commissioner Langford hecommends limitation of assessment to 1/5 of 1 percent in a year, with balanceof deficit paid by State. Suggests
Oklahoma p an mightprovide for examinations by examiners oftheguaranteed banks, and
that membersofbanking board should be bankers, with membership optional.
August 1912. Recommendations of State Bankers Section similar to above.
•
vol. 5. Dec. 1913, p. 179. Refers to further litigation re payment of assessents by
nationarbanks that were state banks at tie of levy of 5 percent of assessments
"without recourse" according to State Attorney General.
Vol. 6. AuguFt 1914, p. 57. Quotation from treasurer of State banking board in
statement for quarter ended June 50. "When the new banking law became effective
on the6th day of March, 1913, the board was given power to issue legal banking board
warrants. An attempt was also made by the law to create a market for these warrants,
but this provision turned out tsbe of no practical value, and this is one of the
serious weaknesses of the present law. It has so happened that the department has
been reasonably lucky in finding and creating its own market without too great delay."
Also quotes from report re haidling of banks in difficWties. "...the provision
legalizing the issuanceof warrants, in spite of the defect mentioned, has enabled the
department pretty thoroughly to clean the state of rotten institutions. In fifteen
months following the date the law became effective the department has closed eighteen
insolvent banks. Besides these we had as many more banks that we were able to clean
by assessments, so that altogether we have cleaned up between two and three banks
a
month in thislength of time."
"With approximately forty insolvent banks on our hands all at tone time it was hard
to know where to begin. When it was possible to collect we levied assessments. When
it was not possible we did the only thing we could. We closed the bank and made a
deal with some other bank to handle the warrants and the good assets and assume the
deposits. In practicallylevery such case we have been able to get a liberal cash
bonus for the bus'ness of the defunct institution."
Dec. 1914, p. 165. Reports meeting of state bankerdand recommendations re law,
which included more authority to board and commissioner in handlinr. banks with
impairad capi..al, that guaranty fund certificat(s be made security for public funds,
that sinking fund be created to take care oflourstanding warrants of fund.
•
Jan. 1915, pp. 218-222. Prints decision of Supreme Court of Oklahoma of Jan 6 on
suit of Attorney General against 112 national banks for payment of the unpaid balance
of theoriginal 5 percent assessment levied when fund was established. Held must pay,
but to be appealed to U.7.Supreme Court.
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Federal Reserve Bank of St. Louis
0
NOTES ON THE OKLAHOMA BANKER
vol. 6.
0 vol. 7.
Vol. 8.
vol. 9.
vol. lo
March
1915,
-
re deposit guaranty
pp. 278-80.
-
page 5
Gives text of revisions of bankin- laws passed.
Nothinc of importence re guaranty fund noted except statements (see wor4sheet)
It
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Vol. 14. Mare; 1923, p. 56. Editorial re Bill no. 445, now "a dead issue", which
would have licuidated the fund's indebtedness and continued the fund, and the
protmbility of repeal. States that Oklahoma Bankers Association nor its Secretary
has taken any position on these issues, leaving that to the State Benkers Association.
June 1923, p. 19. In talk by President to Oklahoma Bankers Association a brief
mentin of the State Bankers Asoociation cr:,)ated for State L:.1:s exclusively
primarily becauseof the Bank Guaranty Law, which was repealed at last session of
legislature. As a State banker himself recommends that State bakers come back to
the Oklahoma Bankers Association. (Most State banks had continued to belong to both).
Same issue, p. 30. "Reviewof the Banking Laws," by Thomas B. Paton, of the
knerican Bankers Association, before the Oklahoma Bankers Association. Refers to
efforts of the ABA to fight bank guaranty laws in a numberof States, and briefly
reviews thelaws--voluntary or compulsory--in force in seven States (with one of
Refers to article
the latter dead because all banks have withdrawn--Washington).
by Mr.Wikoff, of Oklahoma, published in the journal of the ABA "showing the pernicious
effect of thebank guaranty law in Oklahoma."
_14
Talk by E. T.Bynum, newly appointed Banking
Vol. 15, Sept. 1923,
Commissioner. Refers to repeal of law, after postwar deflation had resulted in
disaster. "The liquidation of the remaining assets in the guaranty fund, and the
collection of all legitimate claims and unpaid assessments should proceed with as
much economy, expedition and efficiency as the resources of the banking department
make possible. Whether the State itself should make good these losses to depositors.
is a question soon to be passed upon by the voters." (p. 13).
•
Oct. 1923, p. 17, short article on activities of Banking dept. Notes that 1:85,fte
has been collected from the March 11 assessment, but that 36 percent of the State
banks have not paid this assessment, holding back until there are disbursements
from the amounts on hand, Commissioner has been advided by attorney for the State
Banking Board that no disposition can be made of the funds until a temporary injunction
applied for by the Government can be disposed of.
-16
Dec. 1923, p. 15. Report on convention of State Bankers Association, at which M.J.
Shannon, member of Banking Board, said money in guaranty fund could mot be paid out
until dissolution of an injunction filed by the Government asking for priority of
settlement for government funds in failed banks. Also, that warrants end securities
placed in hands ofthe Department could not be taken down and returned until a fried'
suit was filed and the Supreme Court of the United States had ordered the Board to
rLturn them.
Vol. 16, Dec. 1924, p. 13, subhead under main head of report on annual convention of
State Bankers Association, "Considerable Information woncernini the operation of the
guaranty fund was obtaiadd." But none 4ven in the report, except a general reference
in talk by Bank Commissioner Mothersead repeal of the law, obligations still outstanding with how these woilld be paid still a Question, and tthat not all the fa:lures
shouldbe attributed to the operations of theguaranty law of by incompetent management.
(p. 18).
Vol. 17, Nos. 1-5, August-December 1925. Nothirr notek re depositguaranty
VOLUMES AFTER 1925 NOT EXAMINED.
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Federal Reserve Bank of St. Louis
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Federal Reserve Bank of St. Louis
_
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https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
•
Vol. 7, Apr. 1911, p. 67. Notes change in character of state banking board, from
governor and three state officers to governor and two members appointed by
(presumably bankers).
Oklahoma
June 1911, p. 53. Editorial approving decision of tankers to continue to support
deposit guaranty law. Pp. 65-67. "Address on Guaranty Deposits, by Lee Cruce,
Governor of Oklahoma at bankers convention. Emphasized need for indictment and
convistion of dishonest bankers, and intention of rigorous enforcement of the law.
Pp. 64-65. "Conservatism of our Guaranty Fund," by J. C. McClelland, member State
banking board. Says when netoard came in only $36,292.97 in fund subject to check
and $109,000 which could be c Aced out only by causing the closing of two banks.
Decided at once to levy 1 percent assessment. Refers to need for good supervision.
"The conservation of the guaranty fund must, in the end, depend wholly upon the
vigilence ahd discretion exercised by the board and commissioner in regulating and
g 6
controlli
(n
p.
t4
h.
e banks, and, more especially, the sort of men who are allowed to .
with back bankers running
li
organize or buy banks. Good banking will never be realized
banks."
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Federal Reserve Bank of St. Louis
Notes on Mid-Continent Banker
and Commerce Monthly
•
Re deposit guaranty in Oklahoma
- page 2
Vol. 8, Feb. 1912, p. 56. Refers to court case of State Banking Board v. The
People's National Bank of Kingfisher. Bank had changed to national after levy of
assessment, and banking board sued torequire payment.
June 1912, pp. 59-60. "State Banking Laws of Oklahoma," by J. D. Lankford, Bank
Commissioner, address at meetirg of bankers' association. Refers to very large
number of applications for bank charters, stating that commissioner should have
discretionary powers to refuse charters when banking facilities in community are
adequate.
Also refers to difficulty of obtaining convictions for defalcations.
Vol. 9, Jan. 1913, p. 32. "Guaranty Law Eats Up Bank Dividends. Four-Year Trial
Makes Oklahoma Bankers Clamor for Change."
Refers to condition of fund--in debt
though banks have paid nearly two million--and to levy of emergency assessment; and
proposal from some bankers that State should become guarantor. Slio'y of bankers'
association says about 200 State banks have not paid an earned dividend in three
years. Larger banks have been bec meing national; and assessment yields only about
two-thirds of what it would have yielded 18 months earlier. State banking board is
pursuing suits to collect from national banks that had been state banks.
Feb. 1913, p. 7. Reports amendments to guaranty law recommended by State bankers'
legislative committee, chiefly: limit annual a ssessment to 1/5 of 1. percent; no
assessment when und reaches $1 million; fund to be kept entirely in the respective
banks; deposits otherwise cured and certificates representing borrowed money not
to be insured; banking board and commissioner to have discretionary power re issuance
of chareers and guaranty certificates; specific punishments for violations of the
banking laws.
With Oct. 1913 issue, journal became (succeeded by) The St. Louis Banker
Nov. 1913, p. 33. Summarizes statement of guaranty fund for third quarter
Dec, 1913, p. 44. Oites ruling of attorney general that banks refusing to deposit
the 1 percent are violating law and commissioner has right to close the bank.
Vol. 10, Mar. 1914, p. 37. Summarizes last quarterly statement of guaranty fund.
Vols. 11, 12,',3
Vols. 14-22.
Nothing noted.
Not received from Library of Congress.
Vols. 23-25. for 1927-1929.
•
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Federal Reserve Bank of St. Louis
Nothing noted.
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Federal Reserve Bank of St. Louis
II. OKLAHOMA
Oklahoma was the first to try the guaranty of bank deposits
plan and
the first to abandon it. It was put into effect here in 1908 and was compul
sory for all banks under state charter. Each existing state bank
was required to deposit with the guaranty fund securities equivalent to
1 per
cent of its average daily deposits as surety for payments of assessm
ents,
and new banks the equivalent of 3 per cent of their capital. Regular
annual
assessments were fixed at the rate of 1/5 of 1 per cent of
average daily
deposits of the banks until the fund should reach 2 per cent of
their total
average daily deposits. At first special assessments were callable
in such
amounts as might be needed for the immediate payment in full
of depositors in failed banks; later these were limited to 1/5 of 1 per cent
and to
the years 1914-16, with none thereafter.
An important aspect of any guaranty or insurance plan is the conditions under which risks are admitted to its protection. Under the
Oklahoma
banking law the State Banking Commissioner had no discretion
as to
granting new charters, it being mandatory upon him to issue
certificates
to all persons fulfilling the technical legal requirement for organizing
a new
bank. The guaranty law provided that all existing state banks were
to be
especially examined as to their fitness before being admitted to the
guaranty. In actual practice the time allowed for this was too short
and the
system went into operation without any effective application of
this provision, becoming virtually a blanket insurance for all state banks
indiscriminately. Therefore there was no real limitation, selection or
official
control as to the character of the banks creating risks against the
guaranty
fund. This was especially significant in view of the fact that the
state was
on the verge of a reckless speculative boom in land, building
and oil
schemes when the plan was adopted.
A Boom for State Charters
Before this law went into effect there were in Oklahoma
and Indian
Territories, which were combined in 1907 as the State of
Oklahoma, 370
8
•
state chartered banks. In June of 1908, the year of the application of the
guaranty law, the number had jumped to 494, and by June, 1910, rose to
685, an increase in three years of 315, or 85 per cent. These increments
came from new state charters granted and from conversions to state jurisdiction by national bankers who feared the loss of deposits to state banks
as a result of the prejudicing of public confidence in favor of the guaranty
institutions. During the same period state banks in the nation as a whole
increased in the ratio of only 22 per cent; that is, under the zone of the influence of this guaranty law in Oklahoma, state banks increased almost four
times as fast as elsewhere.
Altered Bank Structure
The net result of these shifts Was to alter the banking structure between
1907 and 1910 in Oklahoma to a marked degree. In 1907 there were besides
the 370 state banks with deposits of $16,300,000, national banks to the
number of 294 with deposits of $48,300,000, or a total of 664 units with
deposits of $64,600,000. By 1910 the 685 state banks had deposits of
$48,000,000 and there were now only 215 national banks with deposits of
but $38,900,000. This was a total of 900 units with deposits of $86,900,000.
These changes meant an aggregate gain of 236 banking institutions of both
kinds, or 35 per cent, and of $22,300,000, or 34 per cent, in deposits. As
between the two classes of banks they meant a rise of $31,700,000 or over
194 per cent for deposits in banks under state charter, and a drop of
$9,400,000, approximately 19 per cent, in deposits in national banks, which
also decreased by 79 institutions, or 27 per cent. The ratio of the number
of national banks to all banks in the state fell from 44 per cent to less than
24 per cent, while the ratio of their deposits to the total fell from approximately 75 per cent to 44 per cent.
It is also to be noted that, despite the substantial increase in total deposits, the average deposits per bank of all kinds declined from $97,200 to
$96,500, indicating a trend toward a larger number of smaller institutions
competing for business. Furthermore, the number of persons in the state
per bank was decreased from 2,100 in 1907 to only 1,800 in 1910.
Summarized, these changes meant at this stage that there were many
more state banks, more banks all told, a great shift of deposits to the banks
under guaranty, smaller average deposits and fewer people per bank than
before the guaranty plan was adopted.
Following this initial boom of state banking under the guaranty law,
there was some recession in the number of banks under state charter and
an increase in those under federal charter, but the general picture was not
changed. During the period from 1910 through the depression of 1920-21,
the mid-year numbers of state banks in Oklahoma ranged from 638 down
to 553, with an annual average number of 590, while the number of na[9
•
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Federal Reserve Bank of St. Louis
•
tional banks ranged from N6 up to 34e, with an average of 318. The number of all banks ranged from 876 to 964, with a mid-year average of 908.
Thus the preponderance of state banks over national banks and the increase in total number of units in the state remained.
Bank Failures Under the Guaranty Plan
During the first eleven years of the operation of this guaranty plan in
Oklahoma, that is from 1908 leading up to the depression years 190-21,
54 state banks with deposits of $7,790,000 were suspended and only 2
national banks. This period opened with a three year boom followed by a
collapse in 1912 and 1913, succeeded in turn by the period of war prosperity that ended in 190. In the unsettled four years 190 through 193,
state banks to the number of 68 with deposits of $13,000,000 were closed
and only 7 national banks. Although in 1923 the guaranty plan was abandoned, disaster continued to beset the state's banks and in 1924, 58 more
state institutions with deposits of about $8,500,000 went under;in this year
18 national banks were suspended.
Thus during the period of the guaranty plan and its immediate after
effects 180 state banks failed, or 35.6 per cent of the average number in
operation, while only 27 of the non-guaranty national banks failed, or a
ratio of 7.6 per cent of their average number.
•
Financial History of the Plan
The financial troubles of the guaranty plan in Oklahoma began early
in its career. In the first year of its adoption two banks closed, but their resources proved sufficient to cover depositors' claims. These were met at
once from the guaranty fund which was later fully reimbursed from the
liquidated assets of the banks.
However, the second year brought a crisis. Three bank failures occurred with liabilities of $3,000,000, of which $2,800,000 was due depositors
of a single institution whose deposits had made a mushroom growth of
more than 700 per cent in only eleven months under the hotbed stimulation of guaranty banking. The guaranty fund, however, had not yet had
time to accumulate sufficient strength to meet such heavy claims. At the
time of this failure there was only $300,000 in hand. A special assessment
of 3
/
4 of 1 per cent was levied on the solvent banks and a state loan of
$450,000 was arranged. This tided over the crisis until the suspended institution's assets were liquidated. This failure alone cost the other state banks
over $580,000.
From the viewpoint of the public the guaranty plan in Oklahoma during the first twelve years of its operation had the outward appearance of
success. The depositors of the 62 member banks that failed during this
period were paid in full, the deficiencies between their liquidated assets
(10)
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Federal Reserve Bank of St. Louis
and deposit liabilities eligible to guaranty being made up from the sums
collected from the solvent banks through regular and special assessments.
In 1914 concern was caused by a deficit of $800,000 that appeared in the
fund as against outstanding obligations, but by 190 this was wiped out
by income from assessments and there was $75,000 in the treasury with a
$275,000 assessment due. The State Bank Commissioner's reports during
this period spoke in glowing terms of the soundness and fairness of the
plan.
The Burden on Sound Banks
S
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Federal Reserve Bank of St. Louis
From the viewpoint of the banks, however, these twelve years had
meant a heavy burden on the sound institutions to make good the shortcomings of the unsound banks. During 1908-1919 Oklahoma state banks
paid assessments into the fund in the amount of over $3,000,000 to cover
the deficiencies between the assets of the banks that failed and the sums
they owed their depositors. These assessments amounted to an annual levy
of about 3 per cent on the average capital stock of the state banks; during
1908-12 the levy was at the rate of 5 per cent.
The specific burden falling on an individual bank varied in respect to
its capital in accordance with the ratio of its capital to its deposits on
which the assessments were based.It is recorded that in a four year period
one bank with capital of $10,000 paid assessments of $1,300, another of
$15,000 capital paid $3,000 while another of $30,000 capital paid assessments of no less than $20,000.
Thus, for the state banks as a group the burden was heavy, and as
among the members its distribution was inequitable and without any
relation to their abilities or moral obligations to pay, since the faults that
led to these penalties were committed not by them, but by other banks in
respect to whose chartering they had no voice and over whose activities
and methods they had no control. It was notorious that many unfit persons were permitted under the state law to enter banking, and that improper practices were followed by many of the institutions that failed and
whose shortages were paid for by the confiscation, through the guaranty
fund, of a large part of the earnings of sound banks and honest bankers.
The prosperous conditions generally prevailing during the greater part
of the first twelve years of the guaranty plan enabled the banks to support
the burdens it imposed, but in the thirteenth year, that is, 19N when the
first post-war depression began, conditions changed sharply. They produced the emergency of a severe depression which the plan was theoretically devised to meet, but it failed completely under the test. It proved to
have been a fairweather device that quickly went to pieces in the first
storm.
In 1920, when falling agricultural prices undermined the position of
the banks' customers and credit structure, eight state banks failed. In
11)
1921 ten more went under. In 1922 another 37 closed, bringing the total
for these three years to 55 banks with deposits of about $9,000,000. In
this same period among the non-guaranty national banks in Oklahoma,
averaging 366 in number as compared with an average of 573 state banks,
only 2 failed.
The Financial Breakdown of the Plan
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Federal Reserve Bank of St. Louis
This sudden rise in failures produced chaos in the financial condition of
the guaranty fund. In March 1920, the assets of the fund in cash and
assessments due totalled $350,000. A series of thirteen failures beginning
at this period consumed this sum and necessitated the issuance of depositors' guaranty warrants to the amount of $2,196,000, representing the
amount of claims which the fund could not meet. With the fund in this
position, there came the failure in 1921 of another bank with deposits
alone of $1,732,000, followed by the collapse of several other smaller institutions. Under these conditions the plan became inoperative by force of
necessity.
By 1922 the liabilities of the fund amounted to about $3,350,000 in the
form of depositors' guaranty certificates bearing interest of 6 per cent, or
over $200,000 annually. Total deposits then in state banks subject to
assessment were about $156,000,000,from which the yield under the maximum impost of 1/5 of 1 per cent per annum fixed by the law would be but
$312,000, leaving only $112,000 to apply against the principal of the debt
after payment of the interest charges. This meant that it would be more
than twenty years before existing obligations could be liquidated, provided assessable deposits remained at this level and there were no more
failures to cast added obligations on the fund.
Enforced Abandonment
Neither of these essential requirements was to be fulfilled. In 1922
there were 37 more state bank failures with deposit liabilities of about
$7,500,000, and in 1923 another 13 failures with some $3,500,000 in deposits. Also there was a rapid decrease in the number of state banks
through liquidation and conversion to national charter, which was permissible upon discharge of pro rata liabilities under existing indebtedness
of the fund.As a result of these changes the number of state banks dropped
from 622 in 1921 to 486 in 1922 and 445 in 1923, while their total deposits
fell by 1923 to approximately $74,000,000.
Under these circumstances the guaranty plan in Oklahoma was abandoned and the law was repealed in 1923. During its fifteen years on the
statute books the plan cost the state banks in assessments $3,700,000. The
unpaid depositors' claims at the time of its repeal were about $7,500,000,
which amount was subsequently somewhat reduced by liquidation of the
[12 I
assets of failed banks. How pressing was the need of relieving the banks
from the burden of the plan and its obligations was expressed by the Oklahoma Bank Commissioner, who said: "If the law had not been repealed it
is doubtful if there would be very many solvent state banks in Oklahoma."
Psychological Effects
•
In addition to the foregoing statistical and financial facts relating to
state banking in Oklahoma under the guaranty of deposits plan, the experience of bankers within the shadow of its operations also presents an
essential aspect of its inherent weakness. This has to do with what might
be called the psychological defects of its conception and operation. Arguments in favor of the plan placed considerable emphasis on its psychological virtues. It was held that public confidence would be created in the
banks under the guaranty system. In actual result the effect on the public
mind was to create not sound confidence in banking but rather a sense of
false security and lack of discrimination as between good and bad banking.
It was generally assumed by the public, for instance, that deposits in
any state bank were guaranteed by the state, although the law specifically
indicated that this was not true and made it a misdemeanor, punishable
by fine or imprisonment, for any bank to advertise that its deposits were
state-guaranteed. All the law did was to prescribe the collection and administration of assessments against state banks on a basis which it was
assumed would produce a sufficient special reserve or insurance fund to
protect depositors against loss through bank insolvencies. In case at any
given time sums in hand or collectible were not sufficient to meet the current obligations of the fund, interest bearing warrants were to be issued,
but these were in no sense liens on any of the resources of the state. They
could be liquidated in order of issue solely out of future income as it accrued to the fund from the assessment rates against the state banks or the
liquidation of the assets of failed state banks.
Despite these facts a special sense of security, as of reliance on the
state itself, was manifest on the part of the public toward the guaranty
banks. By aid of this popular misconception, according to the practical
competitive experience of bankers in the state, many incompetent or reckless, or even demonstrably fraudulent operators were able to command
public confidence and patronage. Unrestrained by safe and conscientious
banking methods, principles and scruples, operators of this type were frequently enabled to gain substantial competitive advantages over more
careful bankers, both state and national, by reason of large earnings and
liberal policies toward customers made possible by the speculative and
temporarily successful uses under conditions of prosperity to which they
put the funds entrusted to them. In the long run this added to the number of bank failures.
[ 13)
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Federal Reserve Bank of St. Louis
.="--
Such results of the guaranty system as these operated to weaken the
banking structure and were undoubtedly an important factor in causing
the situation that finally destroyed the guaranty plan itself.
Summary
Summarizing, without attempting to draw any rigid causal relationships from the foregoing facts, the following statements are fully justified:
1. During the regime of the guaranty plan in Oklahoma, the increase
in the number of state chartered banks increased the condition there of
over-banking, which is unquestionably a major cause of banking weakness
and trouble.
2. The actual and relative number of bank failures was very much
greater among the guaranty state banks than among the non-guaranty
national banks practicing in the same environment.
3. The scheme failed to show any of the basic qualities of a practical
insurance plan. Even though very heavy financial levies were exacted
from the contributing institutions, and although several years of relatively prosperous conditions attended the first period of its operations
and gave it a head start, the first major test found it without adequate
reserve. The burden of assessments that would have been actuarially sufficient to maintain the fund on a sound and solvent basis would have made
banking under it impractical.
4. An essential deficiency of the plan from an insurance point of view
was that no adequate control could be exercised by either its participants
or administrators over the type or practices of banking institutions admitted to it as risks. It was thus analogous to a fire insurance scheme that
would admit without discrimination or restrictions manufacturers of explosives or storers of gasoline or other inflammable materials on the same
rate and basis as class A fireproof office buildings.
5. Finally, during the period of false security engendered in the public
mind by the supposed protection given their deposits by the state through
the plan, there was actually an increase in unsound banking practices so
that banking weakness rather than strength was fostered during its existence and the security of deposits became less rather than greater.
•
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Federal Reserve Bank of St. Louis
T IIl
N
l< "1' I
\\'
1 V k N
11 \ N 1< FR
Duct mher. too°
THE BANKERS ACCIDENT COMPANY
DES MOINES,
-
IOWA
OFFICERS AND DIRECTORS
(
II
NI \ I( I I \
I
, It , sid,•rit
(.. (.. III \ I 1.12,
F. L. MINER, President
E. C. BUDLONG. 2dVice- Pres.
J. A. KIZER, Sect
Agency Manager
N. T. GUERNSEY, General Counsel
D. W. SMOUSE. Medical Director
E A. SLININGER, Treas.
Asst. Cashier Peonies Savings Bank
E. C. FISHER. Auditor
ALL FORMS OF ACCIDENT AND HEALTH INSURANC
E WRITTEN
Profitable Agency Arrangements Made With Bank Officers or Emplo
yees
Guaranty Law in Oklahoma Still "On Trial" Says
"The Outlook"
When the new state of Oklahoma adopted a law
gt:arantt dug the diposits in state banks, with a propostd assessment pro rata on all the state banks to
itke good any l,'sses. two predictions were made:
_Abe advocates of the principle involved predicted that
d epositors would always feel secure, and that
thus
runs on even (1( nibtful Lanks would be avoided; the
,pponents of the law said that it w4)tild encourage
"wildcat- Lanking. told that good banks would not
long. consent to be fined in order to pay for the wrongd4.ing id mismanaged banks.. To some extent, at
least. both these predictions have been justified by the
evAnts following_ the failure of the largest state bank
in Oklahoma. the Columbia Dank and Trust COMpanv, of ()klahoma City, a town of 50.030 population.
This institution had been pointed out as the most conspicuous example in Oklahoma of busine:s success
under the guaranty deposit law. The growth of the
hank was phenomenal; its deposits increased from
S365,686.01. Septembk r 2,3, 1908, tO $2,806,00S.(11. Sept ember I. 'woo.
This expansi,m gave rise to gossip
alm,lit "wildcat" methods ill the bank's management
.
It is not denied that the 5200.000 capital stock of the
bank Was greatly impaired by heavy loans upon
doubtful securities. Two months before its closing
the hank was examined by the state and reported to
be in good condition; the manipulation of its funds
is
said to have taken place during the thirty days immediately preceding its failure. Und(r ordinary circum
stances there would have been great excitement
and
perhaps panic among the depositors, but in this
case
nothing- of the kind took place. The decision to
close
the bank was reached on Sunday, and when the
bank
‘..-as opened next morning there ‘vere not more
than
nc hondrol and fifty persims outside the entran
ce.
floill men and w,mien were in line. and
there was
much bantering; and good-natured talk among
them.
In hill' au hl ,nr after the doors. were opene
d the sidewalk was clear, and in the immediate neigh
borhood
there was nothing to indicate that anything
unusual
had happened. But when it came to
a question of
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Federal Reserve Bank of St. Louis
a,-c-sing the losses upon the other banks, the law did
not work so smoothly. At the time of the failur
e the
guaranty fund contained $380,000. of which $5o,00
0
was in the defunct bank and by levies the
sum was
increased to $693,000. The state banking board
apparently did not have enough funds to pay all claims
as rapidly as they were presented, and it adopt
ed the
policy of paying first the local individual
depositors
,who had small sums in the bank. Other
state banks
had reserve funds in the bank that failed,
and they
resented the idea that they must pay money
in the
form of a special asessment besides that
already paid
into the general guaranty fund before
they could
recover their own deposits. Although they ultima
tely
paid an emergency levy of three-quarters of one per
cent as a .compromise instead of the 2 per cent
levy
demanded by the state banking board, the dissati
sfied
bankers declared their intention to organize, in
order
that they might defend themselves in the
courts
against the state banking board, if. in the future,
other
assessments seem excessive or unjust. It is now
understood also that it is quite possible for an appeal to
be taken to the federal courts—which had former
ly
'been regarded as impracticable. The questi
im is now
being asked with emphasis in Oklahoma, "If
the failure of a single bank in prosperous times Si)
clouds the
future of the guarantee of bank deposits, what
would
happen in times when money rates are high
and public confidence low?' It is conjectured that
in a period
of great financial strain, a dozen
banks, instead of
one, might fail in the course of two or three month
s.
and that the two or two and a half millio
n dollars
available for the guaranty fund might
be less adequate for the control of the situation than
was the
$693,000 in the recent failure. A bank that
would be
crippled by delay in receiving its reserv deposi
e
t
might topple if compelled to pay the 2 per cent before
getting its reserve: and with a dozen insolvent banks
.
with numerous reserve patrons, the financial situat
ion
might become perilous.
THE OLDEST BANK IN THE UNITED STATES
(CHARTERED BY CONTINENTAL CONGRESS,
1781)
THE BANK OF NORTH AMERICA
NATIONAL BANK
PHILADELPHIA, PENNSYLVANIA
CAPITAL
- $1,000,000.00
SURPLUS 2,250,000.00
UNDIVIDED PROFITS, OVER
324,000.00
DEPOSITS NOV., 1909
- $ I 5,000,000.00
President
Cashier Asst. Cashier
Assistant Cashier -
H. G. MICHENER
- SAML. D. JORDAN
W. J. MURPHY
- R. S. McKINLEY
SOLICITS THE ACCOUNTS OF BANKS, FIRMS, INDIVIDUALS AND
CORPORATIONS
The Northwegtern Banker
$2.00 Per Annum
DES MOINES, IOWA, DECEMBER, 1909
20 els. Per
Copy
The Guarantee That is Not a Guarantee
Oklahoma Guarantee Fund Exhausted and Only Part Columbia Bank's
Large Deficit Paid
Theories amount to nothing in the face of facts. and State Treasurer
Menefee was the second largthe most ardent supporters of Oklahoma's guaranty
est stockholder ill the bank
law think they must have been struck by a cyclone State Treasurer Menefee was a borrower from 25,000
the bank
since the failure of the Columbia Ilank.
20,000
State Treasurer Menefee was the heavie
st deThe Times of 1 )klalnima City presents some facts
positor in the bank—about
and figures which make ini,dity interesting reading-.
435,000
Bank Commissioner A. M. Young's
post-mortem
l'he failure I,f the fallacy in the first round e\ceeds lit state
ment setting forth the mortal remai
ns of the deits completeness the most rabnl predictions of i ts ,p
funct Gllumbia Bank and Trust Compa
ny, shows that
ponents.
the total deficit as the result of the
bank failure will
reach the enormous figure of appro
Read the folliiwing Ill •,) ialC11111‘ It is mighty ill
ximately $800,000.
teresting and if any reader of the linker has been This is in line with previous forecasts of The Times.
The statement shows that the entire
bet ween two opinions" we think it will bring
state guaranty
fund has been thrust into the bank in an
the halt to a stop and
SCI tiitlll Ill Ill
till. titIt 1,mard.
but away front anything \\ hich smacks of so called
"guaranty."
Columbia Bank Facts.
Probable deficit
$ 8,000,o00,00
Liabilities remaining
Bank guaranty fund used
All cash on hand including. remains 0:
guaranty fund
State and school land Illimcy on deposit
at time of failure -estimated
Individual deposits at time of failure.
Indi idual deposits yet unpaid
)(posits In ont bank at time of failure...,
)..!t
so3,7.25.00
1,123.83
435,000.00
L 11'5,74742
4t, 11)07
1.293.385-73
[tank deposits yet unpaid
262.209.o t
Remaining assets
1,199,(x)l.00
Estimated value of these assets, twenty five
cents on
the dl dlar
Estimated liability of stockholde
rs--collectable
$ 25,00e
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Federal Reserve Bank of St. Louis
effort to
liquidate it, with the exception of $1,123.83,
and that
$621.1175.41 of the bank's liabilities is
yet,outstanding,.
Of the state guaranty fund $503,725.25
has
Ity combining the state guaranty fund with been used.
the assets
of the bank, Young makes it appear that
he has liquidated $2,48Q.372.52 of the bank's liabili
ties.
The statement shows that State Treas
urer James
Menefee was a stockholder of the
bank, a creditor of
the bank and that he had favored the
bank with deposits of state money aggregating almos
t half a million dollars.
The statement is a meager one. settin
g forth a comparative statement of the bank's liabili
ties at the present time in comparison with its liabili
ties a month ago
when the state took charge.
Commissioner Young says:
No state officer was in any way indebted to
the
Columbia Bank and Trust Company except
Menefee, who owed two notes of $10,0oo each, James
neithet
of which was (Inc. However, one of them
has since
S
8
THE NORTHWESTERN
been paid and the other one secured by additiona,
collatt.ral."
Mr. I oung sets forth the complete list of stockholders together with the amount of their stock. This list
follows:
\ . L. Norton, Oklahoma City, $117,40o; D. M. Phileter, Bristow,
lips, Oklahoma City, $1,0oo; J.\\,
$5oo; Al. R. Sturtevant, St. Louis, Mo., $1,0cx); I. C.
Davis, Oklahoma City, $10,000; 11. 11. Smock, Oklahoma City, $10,000; . D. liouston, Oklahoma City,
$1 1,0oo; i. 1. Blaise, Tulsa, $1,00o; F. C. Baldwin,
Bartlesville, $200; 1). C. Stewart, Bartlesville, $2,ocx.),
F. W. Tidball, Bartlesville, $2,000; E. C. Audibert,
Bartlesville, $1,000; J. P. Murray, Oscura, N. M.,
$1,000; \V. C. Raymond, Bartlesville, $700; P. C. Ilugan, Parsons, Kan., $200; R. E. Cies, Bartlesville,
$5oo; James A. Menefee, Guthrie, $25,000; A. \V. Baxter, Bartlesville, $1,000; Howard Webber, Bartlesville, $2,500; Frank L. Maier, Lima, Ohio, $2,500,
,Boone D. llite, Anadarko, $3,000; Ivan L. Reeder,
Oklahoma City, $1,000; Geo. B. Harmon, Tulsa,
$2,000; Sanford Brooks, Oklahoma City, $1,000; E. J.
Maier, Lima, Ohio, $2,500.
Commissioner Young sets forth the present liabilities of the bank as follows:
Individual deposits
$49,319.67
Savings deposits
3,554.85
Certificates of deposit
89,530.44
262,200.01
Bank deposits
96-54
Cashier's checks
2,947-60
Certified checks
4,017.30
Outstanding drafts
$411,675.41
Total
In addition, the commissioner quotes other liabilities of the bank as follows:
$ 20,000.00
Oklahoma county treasurer
50,000.0)
Guaranty fund, paid
School fund
140,000.00
Total
Amount due state guaranty fund
$210,000.00
$503,725.25
Totals
$713,725.25
Thus should Young be able to wipe out the remaining liabilities of the bank, to pay the state deposits
yet unpaid, and which he sets forth as "other liabilities," and to reimburse the half million dollars of the
state guaranty fund, which has been jammed into the
"rathole," 1:e would need a grand total of $1,125,400.66.
To perform this appalling task, Young lists a total
of $1,763,200.62 worth of material, which is represented as having a monetary value as follows:
$ 145,560.00
Bonds and other securities
Due from banks
1,123.8.
)
Real estate
4,433.38
957,818.06
Bills receivable
7,7oo.00
Real estate loans
Furniture and fixtures
19,i07.86
Overdrafts
63,857.50
Totals
$1,999,600.6,,
Mr. Young also reports that W. L. Norton, president of the defunct institution, and others, have assigned to the state banking board additional securities as follows:
Negotiable notes
$ 240,600.00
Bonds delivered and guaranteed
124,000.00
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Federal Reserve Bank of St. Louis
BANKER
Oklahoma City real estate
Oil producing properties, appraised at
December, 1909
10,000.00
183,000.00
Total
$ 563,600.00
To this add the bank's assets now in my
hands
$1,199,000.03
Grand total
$1,763,200.03
"This makes the total assets available for the final
payment of all claims $1,763,200.63. It will be observed that a shrinkage of $037,799.97 in total assets
could occur before any final loss on any fund would
occur.
"In addition to this, the stockholders are liablc for
an amount equal to their stock."
In setting forth his assets the commissioner offers
no idea of their probable value. It is supposed that
he has listed the miscellaneous notes of "Tom, Dick
and Harry," which are known to be in the bank urder
the heading of "bonds and other securities."
Conservative bankers usually refer to this character
of securities as "waste basket" paper. The marketable value of this character of assets when held by a
broken bank is very low.
Under the heading "due from banks," which sum is
placed at $1,125.83, it is 'supposed that Mr. Young lists
his cash on hand. This sum represents what remains
of the "half million dollar guaranty bank fund."
The "real estate" held by the bank as an asset is not
explained by the commissioner, but if it had have been
highly marketable property it is likely that it would
have been realized upon prior to this time.
Under the heading of "bills receivable," it is likely
that Mr. Norton has listed such assets as most banks
refer to as "loans and discounts."
Many of these items are known. Among them is
a loan of $100,000 on the plant of the late Oklahoma
City Packing and Provision Company, in the southeastern portion of the city along the river. This company is now in the courts and its plant is not in operation. A committee of Oklahoma City business men
recently appraised the plant at $38,000. Thus this
$doo,000 could not have a higher value than thirtythree cents on the dollar and the paper could probably not be sold for twenty-five cents on the dollar.
Another huge loan of the Columbia Bank, classed
as an asset, and which it is supposed that Mr. Young
has classed as "bills receivable," is a second mortgage of $25o,000 on a tract of land five miles from the
business center of Oklahoma City. Conservative
bankers would not float the loan, on the "second
mortgage" at ten cents on the dollar. It is supposed
that Mr. Young has classed other junk of this same
character in this- "junk fund."
Practically all of this paper has been offered to the
bankers of Oklahoma City, and to bankers of Missouri
who have been in Oklahoma City during the present
month, but no purchasers have been found.
Should Mr. Young be unable to secure more than
twenty-five cents on the dollar, for this million and a
half's worth of securities, the total deficit as a result
of the bank's failure would surpass the six hundred
thousand dollar mark.
In completing the statement, Mr. Young says:
"James Menefee, state treasurer, had on deposit
$189,00o, secured by bonds and other collateral, which
has been sold and the state treasurer paid in full.
"Inasmuch as the amount due the treasurer of the
THE NORTHWESTERN
BANKER
9
State banking board, which was .$75,000, was secured
Was he the only
by collateral and surety company bonds, and was ing board who owedman belonging to the state bankthe Columbia? If the others did
romptly paid, I have not included this in my state- not, why don't they
say so?
ment.
One report had it that State Treasurer Menefee
"In view of the fact that the amount due the state owed certain banks
that Norton was interested in the
school land fund ($190,000) on September 28th, was sum of SEVE
NTY-FOUR THOUSAND DOLsecured by collateral and surety company bonds, I LARS!
have nut included the debt or the collateral in my
And, according to the statement of those who
know
statement.
Mr. Menefee held TWENTY-FIVE THOUSA ,
ND
-It will be observed that the small balances due are DOLLAR worth
S
of stock in the Columbia!
largely those which adjust themselves by balancing
Menefee also owns stock in other banks—it
is said,
accounts, so that final liquidation is nearly accom- $22.0
00 worth.
plished of this large institution in the short space oi
In 19o5 the Fort Cobb Mercantile Company,
of
one month.
which Menefee was manager and principal
stock"The public will understand that this is an approx- holde
advan
r, took
tage of the bankrupt law. When
imate preliminary statement and not the final detail
ed made his campaign for nomination as state treas he
statement which I will give later.
urer
he was known to be a borrower of small amounts
"The total expense of handling this bank has,
with
exceeded $2,500. When it is remembered that not which to defray his expenses.
the
Now, let's strike a balance.
expense of liquidating a national bank of this
magniWhen
Menefee took the oath of office as state treastude (deposits $2,900,000) under similar circu
would have amounted to not less than $5o,0mstances urer he was in debt.
That was November 16, 1907, twenty-three month
say nothing of the great inconvenience of 00.00 to
s
having ago.
funds tied up indefinitely. I am sure that the
And in that time he was able to save enough
xvill appreciate the promptness with which thepeople
money
busi- out of his salary of $3,000 a year to
ness has been dispatched."
buy $25.000 worth
of stock in the Columbia and estimated
In closing, Mr. Young compliments the peopl
$22,000 in
e of other banks.
Oklahoma City for uniform courtesies,
he compliAnd he was able to borrow $74
ments Governor Haskell, the members of
,000
the state
Who wouldn't be state treasurer? !
banking board and other state officers, as
Nye]] as the
Seventy-four and twenty-two and
members of his office for their untiring effort
twenty-five are
s.
one hundred and twenty-one—ONE
One of the facts set forth in Mr. Young's
HUNDRED
statement AND TWENTY-ONE THOUSA
the bank's available assets is the item of
ND DOLLARS!
$19.o
ft
0o
And
r
in twenty-three months.
--/fixtures. It is improbable that the state will
be able
Besides, he had to live, and out of his living
to realize a dollar from this item. The
in addiBank and Trust Company usually estimated Columbia ticn to that he has been able to sport an automobile.
Now, isn't that going some?
of its fixtures at $27,000. Recently those the value
fixtures
nd, now listen to this:
which were not permanently attached ti, the
Mr. Menefee deposited more state mone
building were sold to the Central State Bank. bank
y in the
It is Colurnb;a Bank than he had in all
supposed that this bank paid $8,000 for the
the
other
banks of
fixtur
and that it secured a title to all the fixtures which es the state.
are
Almost $5oo.000 of the state's money was
movable. For these reasons it is anticipated
in the
that the Columbia.
$19,000 item will be a total loss.
And Mr. Menefee owned $.2.coo worth of
Another fact in connection with the bank
the stock,
which
called into question Saturday concerns the liabil was and was a heavy borrower at that bank.
ity of
The Times doesn't profess to know very
the stockholders. Under state laws, state officia
much about
clare that they can hold all stockholders liable ls de- the laws of the land—not even as much as some of
for
the
the
men who made the laws. but it does occur
full amount of their stock. The stockholde
to The
however, that they will carry this quest rs declare. Times that Governor Haskell would certainly be justiion
to
the
fied in calling a snecial session of the
courts for settlement before they will
legislature to—
pay. It is
IMPEACH MENEFEE!
pointed out, however, that should the state
will in the
The state's money was in the Colum
courts it may be able to collect less than
bia.
twenty-five
The guaranty fund money was
I housand dollars in this fashion, thus rendering
in the Columbia.
little
Menefee put it there: Menefee was a
material aid in clearing away the huge liabil
stockholder,
ities yet Menefee was a borrower!
outstanding.
Is that a cnse of a state officer—elected
Speaking editorially regarding some furth
by the peoof this failure and the state treasurer's er phases ple. and granted a public trust—using the emoluments
conne
ction of his office for personal
with it, The Times says under the heading,
aggrandizement, or is it a
"Impeach mere incident?
Him:"
Will the people—THE REAL PEOP
Governor Haskell says he never owed the
LE—stand for
Columbia. ouch officers?
Governor Bellamy says he never owed the
ColumThey should be impeached!
bia.
The Times asked many times, WHO DID?
With the facts recited above in mind.
The Times asked Bank Commissioner
the follow
Young. and ing
Governor Haskell answered for him.
ad of the Oklahoma State Bank of
Walte
rs, which
Now the governor says that he "unde
appears in a local paper. is amusing to
say the least.
ure* Menefee had two notes of $to.0 rstood" Treas- If
such advertising catches the citizens
00 each in the
bank.
of Walters
they must be "easy" sure enough. In
writing an ad
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Federal Reserve Bank of St. Louis
()NT
N
\\
\
1;.\Nl<VR
n I
THE MERCHANTS' NATIONAL BANK
of CEDAR RAPIDS, IOWA
Capital
-
Surplus
-
$200,000
200,000
OFFICERS
P. C. FRICK, Vice-President
JOHN T. HAMILTON, President
JOHN S. BROEKSMIT, Cashier
JAMES E. HAMILTON. Vice-President
EDWIN H. FURROW, Ass't. Cashier
The Live, Commercial Bank of Cedar Rapids
99
Losing Faith in the "Guaranty
Some press comments on the recent failure of the Columbia Bank & Trust Co. of Oklahoma City whose depositors were "protected"
by the Guaranty.
/rc
4:6f)
The tremendous crash in Oklahoma when the
Columbia Bank & Trust Co. failed for $3,000,000 has
focused the eyes of the banking world on that state,
as it was the first to adopt a guaranty law. How the
crash and its consequences are viewed by Oklahoma
bankers 1, of much interest just now.
-A dispatch sent from Tulsa a few days ago by the
Associated Press says:
"Tulsa, Okla., Oct. 22.—With but one dissenting
voice, the members of Group 4, of the state bankers
section, representing sixty banks in the eastern part
of the state, denounced the state banking board for
its methods in dealing with the affairs of the Columbia
Bank & Trust Co. of Oklahoma City, at a meeting
here Thursday. They also demanded that the state
bank examiner issue a statement regarding the condition of the bank. The guaranty law was declared a
failure.
"Resolutions were adopted recommending that the
state banking board, as it now exists, be abolished;
that the guaranty fund be redeposited wtih the banks
from which it originated and no interest be paid on the
money so deposited; that the expense of maintaining
the guaranty law be met by the state, and that when
a bank liquidates it shall have the right to take over
as assets the unused ratio of the guaranty fund contributed by the bank."
,
The following letter dated at Guthrie was recently
be
published in The Walters Journal and contains some
rather drastic comments on the failure:
"Guthrie, Okla., Oct. 21.—No wonder many of the
state bankers howled when called upon for emergency
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Federal Reserve Bank of St. Louis
assessments for the defunct Columbia Bank & Trust
Co., of()klahoma City, and in some instances refused
to pay until the representatives of the banking board
assured them that after the depositors had been paid,
the next returns from the bank's assets should be used
in refunding the emergency guarantee assessment.
-fames E. Menefee is state treasurer. He was also
a stockholder in the Columbia Bank & Trust Co., having $25,000 worth of stock. The Columbia was the
favored state bank, the pet of the administration. Its
state deposits were $43r,000, of which $192,000 was
school land money deposited by Commissioner Cas
sidy-; $5o,000 bank guarantee fund deposited by Menefee, treasurer of the banking board and stockholder
in the Columbia, and $189,000 deposited by Menefee,
state treasurer and stockholder in the Columbia.
"September 23, 1908, the Columbia Bank & Trust
Co. had only $362,336.61 of deposits of all kinds. Then
it became the pet bank of the administration. Menefee
acquired stock and when it failed a year later it had
more state money on deposit with it than it had had
with deposits of all kinds a year previous.
"But the Columbia paid dearly for this favoritism.
Politicians secured loans on their unsecured notes and
the bank failed.
"Besides being a stockholder in the Columbia and
state treasurer, Menefee is a member of the state bank
jug board. George Bellamy, lieutenant governor,
another member of the state banking board. He Is
interested in a string of five banks. He gouged the
state banking board for $155 a month in addition t.!
his salary as lieutenant governor until the press 1)1
Oklahoma, democratic, republican and independent.
made such protests that the banking board cut off the
salary and Attorney General West has served notice
November, 1909
HE
NORTHWESTERN
BANKER
... DIRECTORS...
C. F. ALDEN
LAFAYETTE LA
MB
G. E. LAMB
S. R. SHAMBAUG
H
T. M. GOBBLE
DANIEL LANGAN
L. C. EASTMA
N
C. B. MILLS
J. H. INGWERSE
N
The officers of
this bank
are never too busy
to answer
questions or to
reply
to
letters. It is their ai
m to make
the bank of real ser
vice to its
friends and patron
s.
1 M. INGWERSEN.
President
C F. ALDEN. L. LAMB.
C B MILLS.
Pine Maiden,*
W w COOK,Cashier
1 L 00115505. ruse
Gunk,
PEOPLES TRUST
& SAVINGS BANK
CLINTON,IOWA
Capital
Surplus
- $300,000.00
- 235.000.00
An Up-to-date. Conse
rvative. Commercial and
Savings Bank that
Makes • Specialty of
Collections and Bank Accou
nts
an
arii
A4404,144444.4.4Large
4•444st
44.44
Bank
4....in...0.
Clini
00000
on 0,00.0000000.
Counly
that he will sue Bellamy
to recover the $2,300 he ha,
received.
"Because Menefee would
his salary Bellamy quietly not stand with Bellamy
the inside of the Columb tipped off much concernin,
ia
Menefee had $35,000 in sto Bank & Trust Co., alai
ck and $20,000 worth of un
secured notes; that one of
Men
county had also secured goo efee's friends in Cadd
diately found use for much ofd loans. Menefee imme
the money he had dep
os
ited with the Bellamy string
arer. But Bellamy, throug of banks as state treash Haskell, secured deposits
Of school land money as
rapidly as state funds wer
Nvithdrawn. Has
e
kell is also a member of
the state
banking board, as well
as
school land board, Commis the dominant factor of the
sio
its the school land money, ner Cassidy, who depos
owing his place to Haskell.
"No \yonder the state ban
about the inside of the Col kers are asking questions
pany and the use of the umbia Bank & Trust Comstate guarantee fund."
AN EXPENSIVE LUX
URY.
The Daily Oklahoman, com
menting on the recent
change of the Farmers State
Bank of Oklahoma City
to a national bank gives an ide
a of what it costs to
help pay losses under the gua
rantee law in Oklahoma.
No wonder the Farmers State con
A lot more of them will be doi verts into a national.
ng the same thing after
this Columbia Bank & Trust
Co. failure. The "Oklahoman" says:
"Since the state bank guaranty
law became operative more than a year ago thi
s bank has paid into the
state bank guaranty fund Si0,00
o. Of this amount
$4,000 was paid when the recent
levy of three-fourths
of one per cent was made upon
the
care of the Columbia Bank and Tru state banks to take
st Company failure
and $3,200 initial assessment was
passed by the first state legislaturepaid when the law
went into effect."
LOSING FAITH IN "GU
ARANTY."
The failure of the Columbia Bank
and Trust Company, of Oklahoma City, is said
by Examiner Young
,t) be the result of the attack on
"-tly the recent National Banker the guarantee system
s Ass
In a statement issued recently, ociation.
in which he seeks to
reassure the public, Mr. Youn
ers have referred to the gua g says that some bankranty plan as a "wildc
system and that the Columb
at"
ia has been referred to
as
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Federal Reserve Bank of St. Louis
What We Do:
Accept bank acc
ounts and pay
Interest on ave
rage balances.
Pay 4 per cent
Interest on Savings Accounts,
compounded
semi-annually.
Make collections as econom
ically as any
bank in Iowa. Ac
cept accounts
subject to cheque
.
We welcome an opp
ortunity
to serve you in an
y department of the bankin
g business
an example of its operat
ion. This, he said, aro
used
,,ther Oklahoma bankers
who attended the convention
and caused them to withdr
lite Columbia upon their retaw their reserve deposits in
there were sixty such withdrurn from Chicago. He says
awa
The diminution of the dep ls in a few days.
panied by any local "run," osits, although unaccomreached the danger point
and the bank found itself
unable to obtain funds fro
other banks.
m
The failure has created
muc
h excitement, as it is
the first notable instance
failed to sustain confid where the guaranty law has
enc
any institution. Enemie e among the depositors of
judgment has been vindics of the law feel that their
find excuse in the usual ated, while friends of the law
circumstances referred to by
the bank examiner.
The state board of ban
meet the demands of dep king has sufficient funds to
ositors.—ITasting.,s News.
HOW IT REALLY
WORKS.
The failure of a big bank
in the overboomed state
Oklahoma has put up to
of
the bankers of that sta
te
question of the bank gua
ranty in a very practical the
The bank in question was
way.
pated its resources, and themismanaged. and had dissicall on the bank is enough
to more than consume
the fund provided for
the purpose. It is hinted that
an
cent on deposits may hav extra assessment of Iy4 per
to clean the slate. Thi e to be resorted to in order
s
on two banks in Sioux would mean an assessment
Fal
banks in Oklahoma are ls of about $31,000. The
threatened assessment, getting ready to fight the
and a merry time is
in Oklahoma.
cooking
The charge against the sta
it would encourage reckle te guaranty law was that
ss battling. The
experience seems to bac
Oklahoma
k
up this view.
which failed has been
organized less than The bank
was one of the produc
a year. It
posits of nearly three ts of the new law. It had demil
as men said would he the lions. but was mismanaged
cause the directors wer case under the new law, bee
Now pay day has come willing to take long risks.
and the boosters for
deal do not think so
the new
well of it as they did
. There is
getting to be much
lit
will be more reckless igation and fighting and there
ban
Oklahoma gets throug king and more failures before
h
In South Dakota we with it.
passed a sort of a law
on this
i'iIl
21
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subject, but the new law amounts to nothing, and no
bank in the state is under the protection. The law was
passed simply to fulfil in a half-hearted way the platform promises which were made. It is true, however,
that no bank :n this state has failed, which shows that
it is 'better to compel bankers to do business on business principles and not to encourage them into wild
methods of business on the promise that no one can
lose.
We suspect that Oklahoma has bit off more than it
can chew on its patent hank guaranty law.—Sioux
Falls Leader.
BANK GUARANTY LAW UNDER FIRE.
The first gun signifying danger has been fired in the
original home of the bank guaranty law. From Oklahoma City comes the news of the failure of the Columbia Bank & Trust Co. The state bank commissioner
steps up with alacrity to show how beautifully the bank
guaranty law works, but he finds that the deposits oi
the failed bank amount to $3,000,000, while the whole
gosh darned total of the guaranty fund is only $302,000,
• and to make matters worse, $50,000 of this fund is on
deposit with the broken bank. Here is a complication
which Mr. Bryan did not figure upon. It is the irony
of the fate or the revenge of natural law upon mush
room philosophy, that one-sixth of the protecting fund
that was to make a millennium for depositors is wiped
out by the first failure. The boot straps break before
the man even starts to pull. If one-sixth of the total
fund is deposited with a hank which has been running
only a year and fails, it is no sign of any judicious care
in the selection of the state's depositaries. Is the balance of the fund safe? The wiping out of the fund,
however, does not in the least disconcert the bank
commissioner any more than the discovery that the
failed hank's deposits are ten times greater than the
fund. He immediately calls upon all the banks for a
contribution of 2 per cent of their total deposits. An.1
now the worms turn. The banks refuse to pay the
assessment, claiming that the assets of the failed bank
must first be exhausted. This is a pretty way to treat
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Federal Reserve Bank of St. Louis
depositors who thought that any old bank or youti.;
bank was good enough under the guaranty law. That
was the argument used in the campaign. The state of
things that everyone who knew anything about the
subject predicted would result, is coming about. Populistic fooling with economic law is sure to tap the
whirlwind.
The present situation leads to some sober reflections.
Suppose the times were not as good as they are beginning to be. Supose twenty or twenty-five banks failed
one after another. If the failure of one bank wipes
out the total guaranty fund and needs 2 per cent of
all the guaranteeing banks' deposits, twenty failures
would take 40 per cent and every depositor in every
guaranty bank would rush for his money. But too
late; because these banks would all shut down at
once, before the depositors could make their checks
out. That is what will come some day in Oklahoma
and in every other state where this wild heresy haA
been taken up.
But if this first instance of the operation of the
law
is carried on without other failures, and the guaran
tee
ing banks, however grudgingly, are forced to furnish
the money to pay up in full, we shall hear much glori
fication among the friends of the law. Our correspond
ent in Kansas City wires its that the depositors arc
being paid off as fast as their accounts can be verified.
"The payments were being made all day yesterday.
and are going on today. The depositors are being put
to no more trouble than they would be to change frt fin
one bank to another unexpectedly at any time. If thiA
payment is carried out successfully, it will show that
the law is a practical one, and such laws will be en
acted all over the country." This is the judgment of
a sound banker in the Southwest who is stoutly op
posed, of course, to the idea. The deposits in this
instance were large. We hear that they were gained
in one year by offering big interest, and that the man.
agement was, to say the least, not conservative.
It is an illustration of what can be done by reckless
promoters who may start banks, build up large dc•
posits, quickly loan out the funds to friends, and then
No. I
NAL
JOU
OF THE
AMERICAN BANKERS ASSOCIATION
•
VA A-1,p
rt.
The Guaranty of Bank Deposits
By FRANK J. WIKOFF
President Tradesmens National Bank of Oklahoma City, Oklahoma
Oklahoma's Experience with the Law Enacted by Its First Legislature. At. the Outset
When Times Were Prosperous the Plan Seemingly Worked Well and Attracted Business from Neighboring States. During the Years of Its Apparent Success Nothing
Could Shake the Faith of the Average Citizen. Danger of Unlimited Guarantees
liE year 1907 will be remembered as a time in which the
utter inadequacy of our former currency system was acutely
demonstrated. Banks all over the
country were temporarily closed
from lack of ability to get currency
to meet the needs of commerce. A
national election was coming on
and, in keeping with his practice,
William Jennings Bryan announced
the paramount issue of that campaign to be the guaranty of bank
deposits.
Oklahoma was just achieving
statehood. and her first legislature
and governor under statehood
enacted and put into effect a complete. mutual, compulsory and unlimited guaranty of deposits law.
The Indian Territory half of the
new state, which had just been taken
in, contained many banks which had
been under no supervision, and
these, together with all the state
banks in the Oklahoma Territory
half of the state, were quickly examined and put into the system.
The theory advanced at the time
was that while a mutual guaranty
, 'iy a small number of banks might
a large number would succeed
law of averages. This furthe
on
nished the prevailing argument for
a compulsory law.
f
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Federal Reserve Bank of St. Louis
The law from the start was
treated as something of a political
asset, and party interest, as well as
discussion between the state and
national interests, occasioned much
contention. In the towns and
small cities a great many national
banks converted into state banks to
get in. In a very few instances in
large cities state banks converted
into national to escape it. The law
provided for two-fifths of 1 per
cent. annual assessments against all
the deposits of state banks to create
the fund, with authority on the part
of the Banking Board to levy special assessments, not exceeding twofifths of 1 per cent. in any one year
in addition if found necessary to
replenish the fund. The board was
created by appointment by the governor of three bankers from a list
of nine submitted by a state bankers
association, which was provided for
by law. The bank commissioner
was to be chosen from three names
submitted to the governor by the
association. This latter provision
was of doubtful constitutionality
and wa.s repealed in 1915. At the
time of its enactment there were 494
state banks and 309 nationals in the
state. By the close of 1910 there
were 695 state banks, while the nationals had decreased to 229. At
1
the present date there are about 500
state banks and about 420 or 425
nationals, but the figures arc changing daily.
The year 1908 was prosperous;
all went well, and the system became
popular. Deposits flowed into the
state banks from all over the country, particularly from along the border in the adjoining states of Kansas
and Texas. These banks, to stop
the exodus, asked their legislatures
to enact guaranty laws, with the
result that Kansas, in 1909; Texas,
in 1910, and Nebraska. in 1911, did
so, making them, however, optional
instead of compulsory, surrounding
them by safeguards, and, following
the principle underlying safe suretyship, made it difficult to get in and
easy to get out, instead of easy to
get in and difficult to get out, as in
Oklahoma.
Common interest caused country
state banks to keep their balances
with the state banks in reserve
cities, and the Columbia flank and
Trust Company, a state bank in
Oklahoma City, quickly grew to be
the largest in deposits in the state.
Its president was an oil man from
Bartlesville, ambitious to own banks•
but with no great ability as a banker.
In October, 1909, it was closed, and
the guaranty fund promptly paid its
•
deposits of over $2,000,000 by making special assessments and issuing
warrants.
This was followed by a general
depression in 1910, poor crops
throughout Oklahoma and the
Southwest, and the end of a real
estate boom in Oklahoma City,
causing three or four more failures
of large state banks in the city and
several smaller ones throughout the
state. Before general recovery began in 1914, there had been a total
collected into and paid out of the
fund of over $4,000.000, and there
were outstanding warrants against
the fund, in the hands of banks
which had liquidated failed banks,
of nearly a million dollars. The
war period coming on, with greatly
increased deposits and general prosperity, early in 1920 the fund got
out of debt and had a small balance
on hand.
Withdrawals Begin
•..
July, 1922
JOURNAL OF THE AMERICAN BANKERS ASSOCIATION
2
\ hen its official statement early
in 1920 showed a balance, with all
outstanding warrants paid, which
was the first time this condition
existed in over ten years, our own
institution, then the largest state
bank in the state, decided to withdraw, and was converted into a national bank by paying its current
assessment due March 1 of each
year. Few others of any consequence, however, converted until in
1921, when deflation got under
way, and state banks began to fail
rapidly. These failures were probably attributable to the fact that,
during war prosperity, sirmll state
banks, under the guaranty system.
had gained great deposits and attempted to take care of large lines
of credit. In many instances the
banker had been unaccustomed to
handling large affairs, and the guaranty law had put into his hands
funds he did not acquire on his own
merits and had not earned the ability or experience to handle. In most
cases their difficulties came from
large credits extended to heavy
operators in either oil, grain, cotton
or cattle.
Conversions now came thick and
fast, but with each succeeding case
the fund getting deeper and deeper
into debt, the getting out was more
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Federal Reserve Bank of St. Louis
difficult and costly. To leave the
system a bank had to pay its pro
rata share of outstanding indebtedness, and there were instances in
which a large state bank, on converting, paid over $30,000 to get
out. Even then it is not certain
that all lawful liability is discharged.
To insure the fund against banks
escaping their full liability, either
by converting or becoming insolvent, the law provides that each.
bank must always maintain good
securities in the hands of the
Banking Board equal to 1 per cent.
of its average deposits. On conversion these are, of course, forfeited
if the bank does not pay its liability.
If its debt to the fund exceeds its
securities pledged, many good attorneys contend that the Banking
Board can compel continuing payment of assessments after conversion until the balance of its pro rata
portion of the debt is paid.
The problem now seriously confronting the Oklahoma lawmakers,
in view of the fact that it took
nearly ten years and the flush period
of the war, with the number of state
banks in much greater proportion
than at present, to clear up an indebtedness of less than a million
dollars, is how a plan can be devised and how long a time will it
take, with the number of state banks
greatly reduced and with confidence
in the law much shaken, to pay off
a net indebtedness of over $5,000,000.
The Banking Board issued warrants to other banks willing to
accept them, either through proc-
What the Law Is
"While called a guaranty of
deposits law, it really is insurance, in which the premiums are
paid by the insurance company
instead of by the beneficiaries,
and the good bear all the losses
while the bad, who cause them,
often profit instead of lose by the
transaction. No insurance scheme
has ever been successful with all
the risks written at the same rate,
and history discloses an uninterrupted line of mutual flat rate
insurance failures.
"This also raises the question
of whether it is sound,- either
economically or morally, for the
beneficiary of insurance to carry
no part of the risk and bear no
part of the cost."
esses for reorganization, the forma-
tion of a new state bank, or for the
sake of saving this situation in their
community, until over $2,500,000 of
such warrants had been issued.
Banks continued to fail, and the
commissioner became unable to find
institutions which would take the
warrants to liquidate them. The
law originally intended that the
warrants should be issued directly
to the depositor, each for his respective deposit, and that they
should be paid serially in the order
in which issued, and the depositor
could use them as he pleased. The
earliest administrations, however,
wishing to demonstrate the efficacy
of the guaranty law, chose to pay
the depositors in cash by organizing
a new bank which would take the
warrants and assume the deposits.
This practice was followed, therefore, as long as it was possible.
After it became impossible, the commissioner began appointing liquidating agents and the board declined to issue warrants against the
guaranty fund to depositors until
as much as possible had been paid
out of the bank's assets.
$3,000,000 in Obligations
At the present time, under this
plan, considerably over $3,000,000
of obligations to depositors . exists
against the guaranty fund for which
no warrants have been issued, making a total indebtedness of around
$6.000,000. The board has on hand
considerably over that sum in nominal assets from failed banks which
has some value, but probably not
totaling an average of fifteen cents
on the dollar. This situation developed a singular phase of human
nature. So long as depositors were
promptly paid it was utterly impossible to punish the crooked state
banker; on the contrary, he was well
regarded locally, usually considered
some sort of martyr, and in a few
instances was greatly praised, particularly by the farmers, for having
caused a large sum of money from
the guaranty fund to be distributed.
liberally in the community.
As soon as the guaranty fund
ceased to promptly pay the depositors of a failed bank, a clamoring
for grand juries and demands for
•
•
Jay, 1922
JOURNAL OF THE AMERICAN BANKERS ASSOCIATION
•-istic punishment of everybody
Inected with the bank, arose.
A threatened failure at Okmulgee
was temporarily averted by merging
it into another state bank there,
supposed to be in stronger condition. Shortly thereafter the merged
institution had to be closed. A
grand jury was convened and about
a dozen men connected with the
banks merged were indicted, the
Governor of the state and Bank
Commissioner included. The latter
resigned and left the state in haste.
His present whereabouts is reported
to be unknown by officers holding
the warrant.
Public Had Faith
During the years of its apparent
success, nothing could shake the
faith of the average citizen in the
law and its efficacy. Especially was
this true in the smaller places. No
bank was ever closed except by the
commissioner, or by voluntary act
of its officers. Nothing could produce a run and no published statement of conditions, regardless of
iow bad a showing it made, seemed
to arouse the least anxiety in the
minds of depositors.
But now, since it has failed to
work, every state bank is under a
cloud, and in many communities a
struggle is going on equal, almost,
to that produced by panicky conditions. Hundreds of state banks in
Oklahoma, as well and careftilly
managed as any in the country, are
struggling with this condition,
brought about by lost confidence in
the system. Having businesses
built inevitably, in large measure,
on faith in the guaranty law, it will
take years of patient effort to rebuild them on the foundation all
other successful businesses are built
upon. (In making this statement
it is assumed that all intelligent
people agree that the banking business, like any other business—after
all else is said and done—depends
for its success and safety almost
wholly upon the ability and integrity of the men who manage it.)
In very many cases this dilemma
is being solved by nationalizing.
Everyone knows that at the time of
nationalizing a bank must be safe
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Federal Reserve Bank of St. Louis
and sound or its conversion would
not be permitted. In a great many
communities, however, local conditions do not warrant this course.
and so several hundred state banks
must necessarily remain in the system and fight it out as best they can.
I do not mean by this to infer that
under normal conditions national
banks or bankers are safer or better than state banks and bankers,
but that the unlimited guaranty law
brings about conditions which result in disaster to a banking system,
seems almost proven by the fact that
during the period of fourteen years
the guaranty law has been in operation in this state, less than a dozen
national banks have been closed, and
unless the two in the state now in
the hands of the Comptroller—one
a large one at Ardmore, and the
other a very small one at Hastings
—fail to reopen and cause considerable loss, there have been no losses
to speak of to depositors in national
banks in the whole period on the
other hand, there have been more
than a hundred failures of state
banks, and the losses the guaranty
fund has actually paid, together
with existing indebtedness yet to be
paid by present and future state
banks or lost by depositors, are
over $10,000,000.
3
anty law, organized state banks in
the same communities, acquired deposits as readily as any bank, ran
with apparent success for several
years, were taken charge of by the
Bank Commissioner, and the failures cost the guaranty fund considerable sums. In fact, it has
developed, under its workings, that
the community in general has little
interest in, or concern about, the
character of the management in
banks: all state banks were of equal
standing, and the most liberal
banker got the business. When. as
a result of too great liberality, his
bank fails, his careful and competent competitor across the street
who, by reason of his conservative
methods lost the business, has to dig
tip from his hard-earned profits and
help my the loss; in short, it puts
a premium upon reckless banking
and conservatism is at a discount.
Banking in Politics
It puts the banking business into
politics, and at this time the guaranty laws is a bone of contention in
a political campaign for the election
of state officers and a legislature.
In every legislature since its
enactment, new devices and provisions of law have been proposed and
many enacted which are solely for
Induces Failures
the protection of the guaranty fund.
To illustrate why an unlimited as from time to time the weak spots
guaranty of deposits law induces in its fabric have developed. Few,
bank failures, there are instances in if any, laws have been proposed or
this state in which men ran state passed having for their object the
banks for several years prior to the extending of or improving the field
guaranty law and made no progress of usefulness of the banking busifrom sheer inability to get deposits ness as such, or the protection of
on their own merits who, immedi- the conservative hanker and stockately after the passage of the guar- holder.
The bankers, however, secured
one amendment in 1915 for their
protection. It provides that only
Present Problem
one-fifth of 1 per cent. may be levied
The problem now seriously confronting the Oklahoma lawin any one year, and does away with
makers, in ‘iew of the fact that
power to levy special assessments.
it took nearly ten years and the
It provides also that if the fund
flush period of the war, with the
number of state banks in much
ever accumulated a sum on hand
greater proportion than at presequal to 2 per cent, of the average
ent, to clear up an indebtedness
deposits, no further levies could be
of less than a million dollars, is
how a plan can be devised and
made except to restore it to that
how long a time will it take, with
amount. As the fund has never had
the number of state banks greatly
a net balance but once in its hisreduced and with confidence in
the law much shaken, to pay off
tory, this provision has never funca net indebtedness of over
tioned. As this levy will not yield
$5,000,0007
enough to pay the interest on the
4
JOURNAL OF THE AMERICAN BANKERS ASSOCIATION
indebtedness, it is evident that un- This menace caused the provision
less the law is changed the debt will of law to be enacted which gave the
never be reduced.
Bank Commissioner power to fix
While called a guaranty of de- the maximum rate of interest
posits law, it really is insurance, in permissible to be paid upon a
which the premiums are paid by guaranteed certificate of deposit,
the insurance company instead of and while this mitigated the evil,
by the beneficiaries, and the good many of the losses have since
bear all the losses while the bad, been occasioned through the
who cause them, often profit instead banker's carrying on this practic
e
of lose by the transaction. No in- extensively, by means of side
surance scheme has ever been suc- or partnership arrangementsdeals
in
cessful with all risks
written at the same
rate, and history
discloses an uninterrupted line of
mutual flat-rate insurance failures.
This also raises
the question of
whether it is sound.
either economically
or morally, for the
beneficiary of insurance to carry no part
of the risk and bear
no part of the cost.
A large part of
the element of
weakness would be
eliminated if interest-bearing deposits were excluded
entirely from the
benefit of the law.
The guaranty law
not only induces
men to go into the
banking business
who otherwise
would not attempt
it, but such men
immediately begin
to find ways to use
the law as security
on which to borrow
money through the
means of certificates of deposit.
GEO. F.
BAKER
which any necessary rate was paid
above the lawful rate.
Granting that guaranty of deposits laws are defensible, why
should interest-bearing deposits be
guaranteed? The only logical argument for any guaranty of deposits
is to prevent disturbance of business
through periodic shattering of copfidence, and to prevent hoarding.
It is not necessary to guarantee interest-bearing bank balances or time
certificates of deposit, which are in
truth nothing but
promissory notes,
in order to serve
these purposes.
The attempt to do
this is probably
responsible
for
more than half of
t h e unfortunate
results in Oklahoma.
This article was
written at the request of the Committee on State
Legislation of . the
American Bankers
Association, n o t
with any intention
to censure or the
expectation of aiding to solve the
Oklahoma sit u ation, but merely
with the hope that
in relating these
experiences som e
light may be
thrown on the pathway of those who,
in other states, are
facing the demands
of politicians and
panacea-makers for
unlimited compulsory mutual guaranty of bank
Paul Thompson
deposits laws.
George F. Baker's Gifts
Within recent weeks public an- York
nouncement has been made of two years Hospital, in which he has for
important gifts by George F. Baker, this taken an active interest. With
$500,000 and a previous unconchairman of the board of directors ditiona
of the First National Bank of New has l gift of $250,000 the hospital
established the George F. Baker
York City. The first was a donation Endow
ment Fund.
of $1,000,000 to the Metropolitan
Mr, Baker was Treasurer of the
Museum of Art in the form of an Ameri
can
endowment fund. The second was from 1875 Bankers Association
to 1894.
$500,000 to the Society of the New
Between 1910 and 1920 the pop-
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Federal Reserve Bank of St. Louis
July, 1922
illation of the United States increased 14.9 per cent., while the
acreage of improved farm land increased only 5.1 per cent. The proportion of people living in the country has shrunk in 20 years from 60
per cent. to 48.6 per cent. The tendency to shift from the country to
the city seems to be steadily progressing.—F. H. NEWELL
•
OKLAHOMA_ BANKER S AsSOCIATION
611
PRESIDENT
COLCORD
BUILDING
TELEPHONE CENTRAL 0-5304
FORD SIMMONS, ARDMORE
VICE PRESIDENT
OKLAHOMA CITY
R. Y. EMPIE, OKLAHOMA CITY
73102
July 22, 1965
Mr. Clark Warburton, Chief
Banking and Business Section
Division of Research and Statistics
Federal Deposit Insurance Corporation
Washington, D.C. 20429
Dear Mr. Warburton:
•
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Federal Reserve Bank of St. Louis
Your letter to Mr. Gilliland concerning the address
by Eugene P. Gum was received this morning.
Mr. Gilliland is away on vacation until the latter
part of the month.
I have located a copy of Mr. Gum's address on
"How the Bank Guaranty Law Failed in the State of
Oklahoma." This copy is enclosed for your use.
There is no charge for the copy and it will not be
necessary for you to return it.
Sincerely,
(Mrs) Virginia Self
TREASURER
0. W. LAMB, M USKOGEE
EXECUTIVE SECRETARY
JOE T. GILLILAND
10 tilt M O
El• !;11
it,o•li• or %% o w l,' bv illt11i!
Ti lit Ins
•11.. 1,,TI lilt 1%t.ruititimt pat.1
thEli O leo
.1.! • 1 ,1.!•1
i....neet ant veil and ii
S111111. 11“;:l:•'.1! olima,..o.g)).. 1..1.; to go down in his
to ;oat :moth I ii.I
tit I.; ;le wonild work liardo•r I.
l'ill:t iTit iii 01.01 Ill- (i•,i I. 1,;1••:, !1.
111,11 \\
,1 1,, 11,:,1‘,
r-;iTiI
Ii steal.
it,. hank to Ii ;1k. oriel ed
yea
i e.
I it rtam II. tiostt he had in
for 1211
s
Thu man ittl \Viii
ink
.11;•1: till'
1,11. %X
.1111 t•t
Ill IlallkUr ;11111 tlit•
lost nothing. Thi hottest hankerkansa• I.
:hem both.
this Ca,eern,,r Alle n said: "‘V I..
rro,,k,•,1 spi eitiaa.r• till. I A beam: to
uiniti...1
under the
the depositor call
it is Iugh time the legislatiire was taking a hand.The sooner we learn !hurt.
CiTtaill VC. ilit,1111.
c%I1S III till' land that eannot be cured by lugislaii‘ ,
enactment the: better off we it ill u
oti can't legislate Ito:11.'1y into a crook !nu:gullv and charaoter is
the foundation in tehit•It all equity must rest, \Vithout it all la‘vs polaraiitteing the rights on the 1.....nole
iliitt tall And \Aw e- constitution
become a se rap ot
ioatour. \\ he tiiii attempt to guarantee dupos:t•
ha \ c taken a‘vai 'Font the good bank its long hilt nil
right too MIMI nun protteet on the -terling i hat:oiler
it.. personnel and ..ailneeted it 140 lilt' t N1.1“11aG ,11
Cot ,i1111t 1111S.1111111:Ml•
ulator ()iterating tinder th
,
system who IN 11111A I" take ad‘aniage iii
the leizal
eit protection iii ha% .ildillt.tatClY poked
under his nose.
Warns Colorado of Peril
The guar:tidy systuni was inangurated in Oklahoma, Kansas, !Xuhraska, North Dakota. South 1)akota, \Vyoming. Tuxas and Nlississippi. I am told
all hiavi Itliiui in he ‘vaY'
- 1.1( except t‘vo• lml I am
not here to discuss their merit. or demerits.
If you
expect such a bill tip he intrialtictal in your Colorado
legislature I ho1ie. you hankers it IT marshal vont
forces against it. It will hi a millstone. around yon:
neck a:, evell aN till'
of the depositors, for in tit.
end their liisscs it'll exceed their wont,. Keep Y“1.•
Imliking department pure. employ plenty of (auntit.
tent examiners, liai unotio.;11 to get them. examine Irt.
put spine in your de 'nand for
( t.:
(91e,,mage cnlisl.Iiiifltiiili. where. the field e•
.
1 1.1:111
inadequate, leu slow in issuilig charters, observing the
neeessit. as well as the ability and character of the
personnel, linemen graft, it any.. and send your
crooked hankers lo the penitentiary. Encourage hankers to !mild their •afet
iii eharacti.r that cannot he
C'rumbled.
l'em have intich iii bc thankful for; you have a
line association, a good president, and one of the best
secre.taries in .‘inerica. l'ou are a part of a creditor
nation. Nearl iine-hali of the gold reserve oi the
\voile' is locked up in our Federal leseiee va ult,. Nexe.
York dictates many of the financial policies ..f tile.
world. Ittit we should remundier that true greatness
does not consist in material it
or political pow( r.
hutii; our faith in otir institutions. the integrity eit
our cite/unship. the thrift, industry and e.coniany
all(' lilt.
cooperation, iii VVCry I/1(10MM'
Soul
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Federal Reserve Bank of St. Louis
How the I3ank guaranti]-Lau)Failed in the
State of Oklahoma
.YX
‘1111141:.-s
1. 11 1 1. III Fitki.
\s-ato
1.424
INL, I III'
A•rii.. ‘113 11\G ro "I
1111.0.
oit.tta)
11011.1* K.
\ I i..\( Ii''. 01. A
\‘‘
EF pl
:
. pos./Ts
By EUGENE P GUM
Secretary, Oklahoma Bankers Association
t
II t• .111•et
I 01,1st lila, I
ht. not misunderstood
on the position I take on this important subject. I
must use ireepiently the term state hanks as they may
relate. to the stilneet of the guarantee fund with no
intention to embarrass Ilium, for I ilitVe a very wholesome regard for thein. hilt to bring to your attention
the evils of a system that places a preminin on carelei., as \yell as trooked lianking. lit any business
carelessness is foolish, in banking it is fatal. Ii there
is any brisines tinder the sun that must be kept pure
and mulefiled in order to preserve the business integrity oi the natitm it is the Inisiness of banking.
There is plenty of room ill this land for both the
state. and national systems of banking. CoOperation
between the two is constructive, the lack of it is
destructive.
The law vitalizing
suddenly at the ha Ilth
oi 142.1. and I aN31.1rt'
state house door and
the guaranty of deposits died
iii the legislature, in the spring
you no crepe was hum; on the
no flags ordered at half mast.
The only r«plient setigui
i ih grave. where is thy
victory; oh death, eherk
ill y sting?" Now I uuui
free to release my multi, red con% ictions on a subject about which yon art so %it:thy concerned. The
state banks wen r iponsible ior the repeal of this
la W and ‘01111: I d id not eu,l
here instructed. I behest. that most of the state banks of Oklahoma will
concur in what I have to say about the system.
in 1898, tiovernot Leady, a populist of Kansas,
called a special session of the legislatnre for the
of passing a hits guaranteeing bank deposits.
The bill passed the senate and only lacked four votes
of passing the house. The agitation was a reflection
of the panic of 1893 that nearly depopulated the state
of Kansas. The prosperity that soon visited the great
wheat state put an end to the boron for a guaranty
law at that time.
Becomes a Law
The demand but NlIt h a la is Was next raked to the
surface by C. N. Haskell. now a national character,
who attempted to read the guaranty of deposits into
the constitution (4 the state of Oklahoma when the
convention was held in the fall of 1907. Failing in
this he outlined a bill of this character, laying it
through the help of some of his political leaders, in
the lap of the first legislature. It was introduced in
the house December 5. passed the house December 17
and a few days later passed the senate, was signed at
once by the governor and became a law February
14, 1908.
While the Democrats assume responsibility for the
law because they were in control, Haskell was the
power behind the throne. Debate against the bill Was
frowned on with impatience. It was urged that there
could be no panic witlumt a shaken confidence
and
confidence cannot be seriously impaired as long as
deposits were guaranteed. The fallacy of this
argument is established hy the. fact that the guaranty fund
was utterly helpless in its effort to divert the deflation that followed the World War, not only so but
even this so-called bulwark was swept away on the
crest of the depression like a leaf on the surface of a
rising tide, and a depleted fund with an unpaid deficit
of over $12,0E0,1/00 is the answer to that argument.
Result of Panic of 1907
Here let us pause to take just consideration of the
causes that contributed to the passage of the act.
The fright occasioned by the panic of 1907 when a
considerable amount of the clearing house script was
still passing for money laid the foundation. Back of
it was this colorful background.
in an improbable equality, thinking to obtain it if
necessary by legislative enactiii
Don't think me disloyal to iny adopted state. I am
proud of her. Today she ranks with the best, but
such is true of your state or any other in its early
settlement. Will the time ever come ‘v hen political
leaders will have the courage of their convictions and
not let their judgment be warped by the call of the
comment ballot? Socialism, radicalism, anarchy, is
continually pounding away at the very foundation of
our constitutional liberties.
'Here let me pause long enough to fling you a challenge. If you Colorado bankers don't devote in the
'Timing year, a little of your•money. your time and
your talent to checking the insidious inroads of this
red serpent it will slime upward and over the very
brow of this commonwealth. Proud as I am, I bow
my head when I think of the record of the notorious
Jack Walton, but I raise it again Nk hen I recall the
edict of the voters of Oklahoma when they wrote
across the political firmament that no swashbuckling
usurper shall 111011111 the state's militia, trample down
the Constitntion and ride rough shod over the sacred
rights of a free people.
Purport of Original Act
The original act called for a tax of 1 per cent of
the as erage daily deposits in all state banks to constitute a gnaranty fund and should it become exhausted it was to be rebuilt by special assessments,
but there was no limit on the amount of assessments
and no provision made to take care of the fund. In
1909 the law was amended providing for an assessment
of 5 per cent of the deposits, 1 per cent to be paid in
the first year and one-fourth of 1 per cent each year
thereafter until the 5 per cent had been paid.
In 1913 the legislature reduced the assessment to 2
per cent of the deposits and the last amendment reduced the assessments to one-fifth of 1 per cent annually and no more, but provided for all extra assessment for the years 1014-15-16 of one-fifth of 1 per cent
of the average daily deposits, The 1919 amendment
also provided that if the fund was inadeqquate to nice:
the demands on it the banking board could issue warrants hearing 5 per cent interest for the unsatisfied
claims of the depositors and redeem them with future
assessment accumulations. These warrants were secured by a first lien on the capital, surplus and undivided profits of each bank in the system.
In 1911 a further change in the law allowed banks
to pay their assessments in cashier's checks, or drafts,
the same not to be cashed until the need required it.
To secure their liability to the fund each bank was
required to deposit with the banking board bonds or
warrants equal to 1 per cent of their deposits, with a
minimum of $500. No deposit was guaranteed that
drew interest at more than the 4 per cent fixed by the
commissioner, and no bank could organize after the
passage of the act without paying into the fund 3 per
cent of its capital before charter was issued.
Youth is impulsive, daring and determined, quick
to see an evil, rushing headlong into the quagmire of
remedial legislation, waiting impatiently for the ultimate consequences that can only be determined
through the test of years. Oklahoma was young—
her population, gathered in a day as it were from all
parts of the globe, a homogeneous group, pungent with
the odor of radicalism, with all to win and as James
Brice said. "nothing to lose except their chains."
They must be always on the frontier of human endeavor replacing what is old and accepted with that
which is new and untried. Such people often believe
Banking Board Created
The original banking board consisted of the governor, the lieutenant governor, the president of the
—2—
-3-
Ca
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Federal Reserve Bank of St. Louis
C.
board of agriculture, the state treasurer. and auditor.
The people got tired seeing the fund kicked around
like a political football, so secured an amendment in
1913 creating a banking board consisting of three state
bankers appointed by the giivernor from nine names
submitted by the State Bankers Association: this taking the fund out of politics.
Many big stat: bankers were opposed to the law.
but assnmed a passive attitude because oi the popularity of the movement at the time. relying on their
belief that the law would be declared unconstitutional.
No sooner had the law gone into effect than it v+atested in the courts by an injunction filed by the Noble
State Bank in the Logan County District Court, al
leging that the legislature had no right to modify the
terms of its charter and ask it to pay the debts of a
third party without compensation or dile process of
law. The injunction was denied and on appeal Chief
Justice 'Williams sustained the decision of the lower
court and later the Supreme Court of the United
States upheld the constitutionality of the law.
It must be remetnbered the Oklahoma fund in its
incipiency was in politics, and politicians fearing the
enmity of the proletarians allowed some banks to
operate that were practically insolvent.
J. C. McClelland, member of the banking board
in 1911, said: "The condition of the banks at the time
the guaranty fund went into effect was most deplorable and a number of banks were allowed to come
under the wing of protection that should never had
been admitted. They are a source of constant care
and vigilance."
6
Costs Good Bankers Heavily
During the first twelve years of the guaranty fund
experimentation 57 shipwrecked banks sent an S. 0. S.
to the guaranty fund for life preservers. This cost
the good bankers, whose seaworthy crafts were floating in quiet waters, over $2.500,000.
It is charged, how accurately 1 cannot affirm, that
the International State Bank of Coalgate was closed
by orders of C. N. Haskell to demonstrate the welloiled machinery of the law just a few days before he
was to appear before the national Democratic coii.
vention at Denver to nail down a guaranty plank ill
the national platform. The facts remain the bank
should have been closed and many more that should
never have been furnished protection by the law.
The charge that a guaranty law is an attractive
bait swallowed hook, line and sinker by grafting
politicians and conspiring crooks who seek to exploit
honest bankers through the guaranty route for the
satisfaction of their unscrupulous methods, seems to
be clearly demonstrated by many instances in the
banking history of Oklahoma.
First Big Failure
The first big failure that shook the guaranty fund
like an earthquake occurred when the Columbia Bank
& Trust Co. of Oklahoma City, closed its doors on
September 21, 1909.
The history of this mushroom is as interesting as
a novel, but time forbids details; suffice it to say,
the bank was headed by W. L. Norton. The deposits,
—4--
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Federal Reserve Bank of St. Louis
through the influence of the guaranty fund and political manipulation of public moneys, increased over 700
per cent in eleven months, emphasizing the vitality
of Thornton Cook's remarks when he said. "The guaranty fund was not responsible for the failure, but was
responsible for the magnitude of it." The bank was
loaded with Norton's worthless oil paper: among his
other ccmtributions to the failure was his personal
note to the amount of $211.5n3.o9 and many thousands
loaned to oil companies in which he was interested.
In fact. Norton was an oil plunger. Let me say parenthetically—Tom Hartman, president, Producers
National Bank of Tulsa, has developed a new definition for an oil well. Toni says "an oil well is a hole
in the ground owned by a liar, and an oil lease is a
government reserve surrounded by a few United
States senators."
The depositors made claim for $2.1410.000. The
guaranty fund only contained $303.000 and $50,000 of
hat was deposited in this bank, but of course, it was
because it was guaranteed. Governor Haskell
look supreme command and ordered the bank opened
the next morning.
It cannot be said that Haskell was spineless. T.
Bruce Robb, in his prize essay on the guaranty of
bank deposits, says: "He was a man admired yet distrusted by many of his friends, feared and hated by
his enemies."
The small depositors were paid first. One hundred
nineteen city banks were allowed to select paper due
the bank for their balances. If they complained they
were told, according to N1r. Robb's version. "to go
home and carry your account with this bank as an
asset in your staatement and count it a part of your
legal reserve."
The closing of the bank did not cause a ripple on
the financial surface at Oklahoma City, though it
called out a special assessment of three-fourths of 1
per cent. Sonic credit is due the fund for this lack
of demonstration. It is difficult to say how much.
The Wilkin-Hale Bank recently failed in Oklahoma
City when the guaranty fund was helpless to assist
and no disturbance was experienced. During the six
weeks following the failure the national banks in
Oklahoma City had an increase in deposits of 17 per
cent, while the state banks experienced an increase
Of 58 per cent.
Assessments Reach $3,250,000
Attorney General \Vest ordered a grand jury investigation of Norton, and Haskell ordered the investigation stopped on the pretext that it would impair
the liquidation of the Columbia, but the real purpose
was generally thought to be for the protection of
his pet political hobby under the disguise of a sound
economic
ssu,28
policy. This failure cost the banks of the
state
3.
Robb estimates the total assessment of the average
state bank in Oklahoma for the first twelve years to
be 36 per cent of its capital. The banks having paid
in during this period $3,250,000 in assessments. In
four years one bank of $10,000 capital paid in $1.30t)
in assessments; one of $15,000 capital paid in $3,000 in
assessments; one of $30,000 capital paid in $20.000
in assessments.
The law wouldn't allow state banks to pay more
than 4 per cent oil deposits. From March 1, 1908, to
November 16. V.h19, there was an increase of 192
state hanks, or 41 per cent, and a decrease Of 92
national banks, or 30 per cent, which shows the psychological t Ifect of the law, coming as it did on the
heels of the panic of 1907.
Nationalize to Escape
Many national banks overestimated the fund as
a "deposit getter" and rushed into the system through
denationalizatiim; as soon as the fund liecame depleted many of them renationalized to escape the
and the increasing submit
burden oi the as
of the deficit. The larger banks were the first to
nationalize and claimed they were not responsible bit
any 01 the. assessments ;titer they nationalized. Tilt
Supreme Cowl sustained them in this contention.
When the system began to wtter the money in
the fund was used to purchase paper of banks thought
to be in a failing condition. This financial pulmoter
proved inadequate to revive the victim and as the
practice was beyond the intention of the law, it ha,
long since been abandimed.
•
Deficit of $800,000
In September. 1911, there was an $4s00,0o0 deficit
in the guaranty fund. Nlarch 1, 1920, this was liquidated and there was $75,0(N) in the treasury with all
assessment due of $275,0l0.
At first glance the system might seem to be succeeding, but succeeding like the father who has
Spent his accumulations paying the debts of a wayward son. Listen to the testimony of Cs. L. Benson,
a prominent Oklahoma banker:
"When the guaranty law went into effect I owned
the Farmers State Bank of I hddenville. I found all
the advantages to IA! disadvantages. 1 couldn't trace
any increase in deposits to the guaranty law. The
assessments were becoming increasingly burdensome.
The fund finally failed. They wanted to enforce three
assessments of 1 per cent each. 1 have always run
a bank that was considered safe without a guarantee
I was tired of paying the debts of unscrupulous mel.
who relied oil this fund for deposits they couldti..
otherwise get. The defunct fund was heralded through
the papers. became a boomerang and caused men to
take their money out of state banks. I was forced
to nationalize to protect myself. If I had to go back
under a guaranty system 1 would close my doors and
walk out."
Effect of 1920 Deflation
ha, gone over the wheel since 1920.
water
Much
Deflation killed much initiative, destroyed business
activity and wrote its record in human anguish.
Banks failed with increasing rapidity. Many of the
larger state banks nationalized because they saw
failure of the guaranty system written in letters of
fire.
During the short life of the system 177 state banks
failed, 138 consolidated with other banks, 266 were
converted to nationals. There are now 389 state
banks in Oklahoma. The banking board warrants
outstanding amount to $1,336,149.27. The banking de-
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Federal Reserve Bank of St. Louis
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partment claims $3,510.01!0 of assets of failed banks
it donbtful value with which to meet these warrants,
and an unpaid deficit of over $12,000.000.
Realizing the hopeless condition of the fund, an
otemiit was made to pass a bill in the 1923 legislature hanging this burden on the people by a tax levy.
lint this method was found to be unconstitutional and
imfair. The state banks could limit assume it without
wiping out their moneyed capital, and destroying the
entire state bank system. The people of Oklahoma
do not expect them to pay it. The question is, who
owes it and how will it CS er be liquidated? The
whole difficulty harks back to the "guarantee of de..
posits." It would have been better for banks if there
had been no guaranty law, for they have spent $3,729,937.48 in assessments trying to demonstrate its
silecess and failed. It %%mild have been as well or
better for the public, for it took banking off the high
plane of integrity, placing it on the low level of enoutraging graft in banking. These facts were spread
liefore the public through the papers until an unfair
prejudice. was created against state banks, causing
many go4id ones to fail after the fund was exhausted,
thus costing the depositors inure than they ever profited by the lass.
Opportunities for Crookedness
s B. Mothersead, present acting bank commissioner, said: "I am aware of the weakness of the
law. It affords opportunities fia- crookedness and a
temptation for incompetents to engage in the business.
Too much liberality of the board in granting charters,
the unethical competition aiming bankers, aside from
the political influence that would naturally be associated with a law of this kind, I do not hesitate to
say that the principle of guaranteeing deposits so far
as tried out, in toy judgment, has been a failure, not
only in Oklahoma. but elsewhere."
/r. Bynum, who preceded Mr. Mothersead as bank
commissioner for Oklahoma said.: "At first I hoped
to help preserve the law, but on sober reflection and
a prolonged discussion with the president of the State
Ikankers. Association. I felt it would have to go. It
was a fond delusion, too long cherished, hut was financially unsound and morally indefensible."
Those who favor the law contend it will succeed
like insurance. It cannot be compared to life insurance, for all men must die, but all banks do not fail.
It cannot be compared to fire insurance, for no company would long survive if it had to protect all fire
risks in the state at a uniform rate far too low to pay
the established loss ratio. While I do not think so,
a gnaranty of deposits scattered all over the United
States might succeed where unsound banks were rejected. all carefully examined, and a rate charged commensurate with the risk, but this rate would be prohibitive.
Fair Weather System
Facts have shown the guaranty of deposits to be
a fair weather system. During fair weather banks
don't fail; a system that won't protect amid the storms
of adversity is worthless. If the banks paid the debt
in such extremities it would exceed their combined
capital, If they added the price of this protection
—7—
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