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Federal Reserve Bank of St. Louis
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Jan. 191 h.
1911,
p • 3 -39. Statistics of Gua:-ant
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Vol. 6, February l91, p.
. Tr 'LA of 1.)endinL bills, mentions i. )ropos
interest earia: deosits under the protectic.n
'Llara.it7 Fund.
Anuther reference to saTe or-J7_osal re niter ct Leat -
y 191y,
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. tie10
re bills that
passed: to increase clarics cfeKaminrs,
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Federal Reserve Bank of St. Louis
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Federal Reserve Bank of St. Louis
Notes on The Texas Bankers Record
re de )osit .uarent:y 'r Texas
-
pare 6
Vol. 12, July 1923, fro- resolutions adolteo at mectin of 'ruaranty FunC, 3onkers,
on June 12. "BF IT REsolved, that we ex.)ress to Cormissioner J. L. Chapman cnd
his oxaTniners our hearty endorsement and ai)proval of his course aFainst weak and
incompetent bankers, and also that we commend him for the
examinations that
he has now in vorue, believin that the L;ood 'ankers can afford to endure a ri -id
examination in order that the weak and insolvent banker may be subjected to a
prop.„r supervision."
Same issue and pate. Comment teat it is propose( to issue a monthly publication under the name of the Guaranty Fund Bank', to be sent to every , uaranty f,-d
bank in the state, carry'n department nel6 and other items of :,ar icular interest
44:: it shoeld
to those bankers.
(QUERY. Was this ever started? If so, -ienticn
appear a a futu-e issue of The Texas Bankers Record.>86.44,
Au:ust 1923, P. 29. Item quote here in full. "STATE P
S AFDASSESS=S.
Austin--State Guaranty Fund banks must pay assessm:nts to the guaranty fund on all
'dally avcra e deposits' and no c)eposits are exempt fro- assessment unless
specifically provided by law, the attorney :eneral ruled in any opinion tb Bank
Commissioner Chapman July 26. The opinion was rendered in connection with sever&
disputes over amounts guaranty fund banks must nay to the state fund.
The le .al department held in another opinion that share holders of guaranty
fund banks are liable for a 100;,: assessment in case of failure althourll a voluntary
assessment may have been paid. Depositors of an insolvent guaranty fund bank who
fail to file claims within 90 days after failure of the institution are not
entitled to participate in the guaranty fund, the opinion further held."
•
Vol. 13, September 1923, p. 15. Rxiocrts Rives a statement from J.L. Chapman,
rezardin, "The Separation Bill". Became effective August 14, 1923, with I.
Chapman appointed by the governor as BankinC Commissi ner of Texas, efective
that da' . BainL; Commissioner will supervise banks, banks and trust companies,
sand saincs banks and trust companies. Buildiw: and Lo. n Associations,
Cr-operative Savings and Loan Contract companies, and accumulative investment
culq)anies to be under supervision of the Insurance Commissioner. Those associztions now forbidded to use words, bank, banker, banking, or avino; and reTireu
toy, "Under the Supervision of the Insurance Commissioner of Texas."
. 29-30.
Replirtt court case on "Claims Payable and Not F
Da e
apreme Court decision in 251 S. . 497, Nay ;),
See decision).
.
October 1923, p. 27. Gives material from annual report totheGove:..
. 31st, 1923.
(..
Chapman, Bankir Commissioner, f9t year ended
7)or_t_ cnrrot he 1._ocntrcl, 1-sorrol.-olirme r
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Federal Reserve Bank of St. Louis
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,Some thoughts on The Guaranty System of
Vol. 14, September 1924, pp. 9-11. '
Securing Deposits", by R. L. Thornton, Pres. Yercantile Bank & Trust, Dallas.
"The first Ili years of its operation in Texas passed with only negligible losses.
The system encouraged both competent and incompetent kimicxxx mento enter the
banking xylti business and he system grw to some 942 Guaranty Fund State Banks.
They sprang up in most every small community. Then came the crash long to be
remembered and caused an assessment against the good and solvent banks of some ten
millions of dollars. Then, as usual, an examination began in order to find why
and the condition of the sytem.
It is my judgment and op,i.nion, based upon a pretty close up view and study of
its operations, that the sytem created too many banks aid too few Bankers. Many
mer4 had engaged in the banking business, because the Guaranty Fund would assest
them in getting dep6aits, but the test shod that, while that was to some extent
true, it did not endow them at the same time with the ability and experience
necessary to handle and properly condAct the business of banking. So, failure after
failure occurred. It also showed that manyunscrupulous men had entered the busibess
for numerous reasons, the pri-cipal one of which was that the pdblic was protected
by the good and solvent banks and offered a splendid opportunity to embezzlers
andi pilferers. Much of this was done, and most of the men who did it are free today
for the reason that public sentiment is the best law enforcing officer. Where
and when the depositors were paid the p bide lost interest and the good and solvent
banks paid off. Indeed, it is as easy to convict a man for stealing a razorban0
hog as it is for the wribngful wrecking of a Guaranty Fund Bank. In fact, it is
much easier, and there are none who know this better than the inside bank wrecker."
Pp. 9-10
"..under the Guaranty Fund System, the Bat Board puts the bank
nd plan...It's the only system of
into business and it accepts the Guaranty
guaranteeing known where the party assuming the risk has no choice in selecting
the risk and it's my judgment that any company, individual or system that bbng
follows that practise will surely fail ..." (p. 10).
Same issue, p. 261 reprints editorial from Saturday Evening Post of August 9.
Usual claim that guaranty of deposits is unsound and is bound to fail.
liztatmx
October 1924, pp. 9-14. "A Few Comments on The Guarant Fund System by Texas
Bankers." Summarises and quotes from comments from bankers on Thornton's article.
Content: congratulations and approval.
Same issue. "This Man Advocates the Repeal of The Guaranty Fund Laid in Texas,"
by W. C. Page, Presidebt of the First State Guaranty Bank of Somerville. Talk
before the Guaranty Fund Bankers. Recommends also increase in required minimum
capital, lower limit on maximum loan to any one firm or bus'lless, and lower
maximum on real estate. (pp. 15-16).
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Federal Reserve Bank of St. Louis
.11
Notes on The Texas Bankers Record
- re deposit guaranty in Texas
page 8
Vol. 14, continued. October 1924, p. 28. Quote from Jas. B. Forgan's
autobiography re his visit to President Theodore Roosevent to discuss deposit
guaranty.
November 1224, pp. 10-11. "How About Af Absolute Repeal of the Guaranty Law?"
Photostated as_typical of bankers' opinions. See phoAtat.
by Z. D. Bonner.
Same issue. "Answer This--hat Stall We Do lath the Guaranty Fund?" by B.C.
Roberts, Prwaident Wharton State tank & Trust Co. Had formerly written article
favoring the plan. Now wants repeal, after assessments have abounted to 40% of
the capital stock of the bank. (pp. 13-)J4).
December 1924, pp. 9-10. "Do You Find The Guaranty Fund Assessments To Your L4 king?'
by Joe E. Lawther, President Liberty State bank, Dallas. "he Guaranty Frd Law
is a cloak behind which the dishonest State Banker takes refuge. Experikcne of
the past several years has shown that it is next to impossible to convist a
dishonest State Banker or even to have an indectment brought against him, because
the indict and Lriat have to be procured and had in his own county before his
friends whom he has favored from time to time and who have lost nothing because
of his dishonesty, they being paid by the State Guaranty Fund. A Hishonestly
inclined State Banker would think twice before he decided to misppropriate the
funds of his bank if he knew that his depositors would lose by his act and would
therefore demand his indictment, trial and convistion." (p. 9).
Same issue, noes Conversion Increase Deposits" (pp. 11 and 13). Reports
survey of 33 banks that had converted from State to national, Vi.t 20 replying.
All showed increases in deposits.
January 1925, p. 28. Adds two more banks to survey of 0.evious month, also with
Also editorial prediittRE°118t18n by legislature.
teilosMs.
r •ruts,ir J."
't • as•
nnouncesretirement of J.L. Chappan as Commissioner, with s tatemen t
by him that system is in better shape, with more stringent examinations, etc.
Same issue, p. 41, announces appointment of Chas. O. Austin as successor.
4.Q
•
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April 1925, pp. 9-11. "The Commissioner Writes An Important Letter To All State
State
See photostat.
Bankeys."
Same issue, p. 30. Lists 30 banks with applications for national bank
charters approved or on file. Numerous other lists, not so long, in later
issues: in May issue, pp. 32-33, list of 25.
August 1925, editorial, "Bank Liwidation in Texas," p. 28. "...Commissioner
of Banking Austin recently issued a statement that there are now in Texas 147
state banks in various stages of liquidation, and the affakrs of each are under
the careful charge of liquidating scents. The oldest of these cases is that of
a bank which closed its doors in June, 1919, six years ago. The 147 include
those banks thich have failed since that time, except where a final disposition
ConVnues wit:. statement Mkt Commissioner
has already been made of the assets."
has 21 liquidating agents, with one many in many cases handling affirs or a dozen
or more banks. Hopes to clear up most of the cases soon.
Vol. 15, September 1925, p. 43. In discussion of legal problems of banks.
"'Though the District Court and Court of Civil Appeals held a money transaction
of one state bank with another to be protected by the guaranty fund law (259 S.W.
670), yet the Supreme Court of Texas (272 S.W. 775) denied such guaranty fund
protection. A loan on interest was made by one state bank to another, but the
money could not be repaid at the proper time, when the amount was entered by the
debtor bank as a non-interest bearing deposit, a few days before the bank was
taken over for liquidation. The grounds held to keep the money out of the guaranty
fund were (1) that the alleged depositor bank had knowledge of insolvency of the
transaction did
other bank before the change to deposit form and (2) that such a
the
on
books.
not create a deposit, however entered
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•
Federal Reserve Bank of St. Louis
Notes on The Texas Bankers Record
- re deposit guaranty in Texas
-
page
9
Vol. 15, September 1925, continued. p. W. Also in legal problems section.
"The Supreme Court of Texas has held (270 S.W. 1004) that a time-certificate
od deposit, interest bearing if left for six months, and surrendered before due,
with amount entered by the officers of the bank as an unsecured, non-interest
bearing deposit, did not come within the protection of the guaranty fund. The
bank was in an insolvent condition at the time and the certificate was not due
and the six months period had not expired. The transaction was in 1921. Part
of the opinion is to this effect: At the time when the certificate holder anJ
the officers of the bank attempted to change the character of the deposit, the
insolvency and contemplated insolvency had already fixed the status of the
creditors of the bank as to which funds they could look to for payment, and the
status of the holder of an interest-bearing time deposit certificate was such
(article 486) that he coild not participate in the guaranty fund, and any attempt
at that time to chaage the relation of the creditor toward the guaranty fund came
too late, and must be treated as a ffaud on that fund and therefore void. The
Act of 1923 provides that no certificate of deposit, whether bearing interest or
not that shall have been Changed to a non-interest bearing and unsecured deposit
within 90 days prior to the closing of a state bank shall be insured under the
guaranty fund. This opinion reverses the law sigtax statement as to non-interest
bearing deposit within the guaranty fund, in the April (1925) Record, and so
overrules the case there noted (267 S.W. 996)."
January 1926, p. 11. "Commissioner Austin Says Guaranty Fund Pl an Will Become
Inoperative." See photostat.
Same issue, p. 24. Lditorial qupting from and sum rizing Commissioner's statement.
411
June 1926, pp. 36-38. "Out State Banking System, by Chas. 0. Austin, Commission,r.
See photostat.
Augyst 1926, pp. 37-38. In legal problems.
" he guaranty fund, protecting depositors thereunder in State banks, is liable
only for the amounts of deposits so protected, and this liability does not include
interest. 278-5w. 425, January 5, 1926."
vol. 16., October 1926, p. 44A
In legal decisions section.
"The Supreme Court of Texas wrote a very direct, short opinion recently (278 Sw.
1101), to the effect that is very pithily shown by the opinion, as follows: 'The
deposit in this case tromin its inception was an interest-bearing deposit, and
while by the expiration of time it may have ceased to bear interest for such
additional time as the money was left in the bank, yet the interest agreed upon
for the specified time was compensation for such time as the money was left in
t/he bank under the contract. The hharacter of the contract was never changed.
1 he certificate was not subsequent to the time it ceased to bear interest
presented to the bank and a new deposit contract created. It is clear therefore
that the deposit was not a noninterestObearing deposit.' "
December 1926, p. 27. Reports that repeal of guaranty law will be urged at next
legislative session and will proba.ly pass. ComTissioner reports that less than
75 banks are under guaranty fund system, over 800 had changed to bond banks.
•
Februany 1927, p. 13. Reports passage of real bill on Feb. 2. Notes that most
of banks had withdrawn under privilege granted by law in preceding session.
"...only 27 remained under the guaranty fund plan and these were certain small
banks which were unable to make the necessary bond to protect depositors."
March 1927, p. 44. Reports signing on repeal bill by governor on Feb.11.
14-15. "A Popular Dirge 'TO Guaranty Fund is Dead' Long May It
April 1927, pp.
Nothing new re reasons for failure of srtem.
Rest," by Paul D. Page.
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Federal Reserve Bank of St. Louis
All
Notes on The Texas Bankers Record - re deposit guaranty in Texas
410
, III
- page 10
Vol. 17. June 1928, p. 13. Address of Pres of Bankers Asso. refers to repeal
Also notes that "Banking Commissioner
of law and part played by Asso. officers.
James Shaw, has ... caused to be charged off in bad assets...assessments in the
Guaranty Fund, an amount i- excess 04 six million dollars."
Vol. 18.
June 1929. Excerpt from Bank Commissioner's address. See photostat.
Vol. 19. May 1930. Excerpt from artine.
See Photostat.
Vol. 20. June 1931. "The Commissioner Speaks Up," by James Shaw. Has one paragraph on handling of giaranty fund. "As you well know, it has been my greatest
desire to see the Guaranty Fubd liquidated and the funds to go back to those
entitled to them; but it has been a pretty hard job--we have had an uphill fight
all the way--tied up in law suits of various kinds, but I think we/ have about
got the troubles ironed out. There is hassfwhich has been ontrial in Austin,
affecting the Guaranty Fund, known as the McEiir vs. The Farmers State Bank of
Kemp, and all of the issues in the case, apparently, Dave been ironed out and an
agreed judgment has been entered in the court there, which we hope may clear up
the whole situation. Of course, it is a big job; it took twenty-five years to
build up what is left of the Guaranty Fund, and it can not be handled in a short
time; the audit that would affect it as of ayear sgo wouldn't cover the case todv,
because it has been liquidated--we have paid the depositors down from $950,000.00
to $117,000.00 at this time; but if you will just be patient, I believe that within
the next six months, at any rate, unless we have further litigation, which* hope
we will not, the Guara ty Fund ought to be a thing of the pant, where we can all
forget it." (p. 45).
•
Vol. 21. June 1932. "An Address by the Commissioner, by James Shaw. Refers to
bill in Congress proposed to guarantee deposits of Federal Reserve member banks-and after describinE sources of fund "this fund to again revive the pipe dream
of guaranteeing bank deposits--that pernicious system whereby the incompetent and
unscrupulous banker is placed on an equal footing with the one who has built up
a good name and a sound institution where depositors need no other protection than
the capital of the bank itself, backed by the honor and integrity of the men behind
it. ...after our experiences in Texas, I know that any banker who went through the
Guaranty Fund period as a member will shudder to think of putting up funds in this
manner again." (p. 24).
•
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Federal Reserve Bank of St. Louis
•
Excerpt from The Texas Bankers Record, Vol. 12, January 1923, pp. 16-17
from address "Should State Banks Publish Magazine Exclusively?" by Frank
L. Tiller, Active Vice-president Rosenberg State Bank, Rosenberg, before
recent meeting of State Bankers in Galveston.
”
The banks that are members of the Guaranty Fund are co-partners,
mutual insurers, so to speak, to the tune of about nine millions of
dollars paid into the Guaranty Fund so far, not to mention what they
may be assessed for failures in the future. Therefore, the interest
of each of the members of the Guaranty Fund is dependent on the interest
of each and all of the other members.
Great Work for Such a Publication
•
"There is a great work that can be accomplished in our State banking
system through a publication solely in the interest of State banks. Such
a publication could be used to arouse the interest and enthusiasm and
rally the strength of the Guaranty Fund Bankers, and should constantly
inform them of the status of all matters vital to their particular
interest. Among the matters which this publication could keep before
the minds of the state bankers is the needed change in the statute which
requires that an assessment be made against the members of the Guaranty
Fund to guarantee the payment of all non-interest bearing and unsecured
deposits of the Guaranty Fund Banks, and which statute gives these banks
no voice whatever in passing on the qualifications of the persons whc
are to be responsible for the success or failure of the banks that are
members of the system. The nature of the liability of these banks may
be likened to that of an insurance company, save that in the case of tI:0 ce company there is the right to refuse to assume the risk after
a satisfactory investigation; while in the case of the banks that are
members of the guaranty fund no such right is given. Another statutory
provision which should be changed, which as it now stands works even a
greater hardship on the guaranty fund banks, is the one placing the
administration of the Guaranty Fund law in the hands of what is essentially
S political board. As we all know, the membership of the State Banking
Board is composed of the officers of State Treasurer, Attorney General,
and Commissioner of Insurance and Banking; the State Treasurer and the
Attorney General being a majority of the Board. As ye know, also, the
office of both the State Treasurer and the Attorney/General are elective,(
and these officers are responsible to the voters of the State for their
positions, and not to the members of the guaranty fund. In deciding matter;
therefore, involving the interests of the guaranty fund system as against
the interest of any one man or set of men controlling the voters of a
community, it is but natural to expect that a decision be made more favorable to such man or set of men than to the interest of the Guaranty Fund
System. Should not these statutory provisions be so amended as to permit
the members of the Guaranty Fund System to have at least an equal voice
with these politicians on our State Banking Board?
Mistakes of Politicians and Incompetents
"Due to the conditions I have just set out, incompetent and unworthy
bankers have already gotten into the ranks of the guaranty fund bankers,
or banks have already been allowed charters to operate in towns not financially strong enough to support a bank or to support an additional
bank without crippling the bank or banks already in that tcwn. The Guaranty
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Federal Reserve Bank of St. Louis
-2Excerpt from The Texas Bankers Record, Vol. 12, January 1923, pp. 16-17 (cont.)
Fund Banks have felt very materially--to the extent of about nine millions
of dollars, in fact--the effect of the mistakes of these politicians on
our banking board; with two additional bank failures within the last two
weeks. Of course, the failures for which we have been paying during the
recent period cannot be laid to the acts of the present banking board,
but are attributable to the mistakes that were made by previous boards.
In any event, we should take warning from these experiences and not delay
longer our endeavors to bring about such changes as will at least lessen
these evils, if they cannot be cured entirely. And by what means can
such work be carried on more effectively than through the columns of a
publication solely in the interest of state banks?
"It rests entirely with the members of the Guaranty Fund System as
to whether or not these evils are corrected; for there are in Texas 983
State banks as against approximately one-half that number of National
Banks; and the guaranty fund banks are decidedly in the majority.
•
•
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Federal Reserve Bank of St. Louis
•
p. 30 from
Excerpt from The Texas Bankers Record, Vol. 13, June 1924,
g, Austin.
of
Bankin
sioner
Commis
"Economic Conditions" by J. L. Chapman,
Bank Failures
•
"We say to you, Gentlemen, confidently, believingly, that at this
to have
time surely there will be very, very few closings, and we hope
e crop,
averag
an
even
or
crop,
good
none through the summer; then with a
after
that
say
here,
me
Let
gs.
closin
we see no necessity for any more
have
I
g,
of
Bankin
ment
Depart
twenty-one months experience with the
that of
changed my mind considerably. I thought when I came to Austin
ed to
inclin
still
am
I
fail.
must
banks
necessity, occasionally, some
or
three
along,
all
banks,
some
when
time
believe there will never be a
minds
the
in
get
to
want
I
t
though
the
but
four per year, will not fail,
Bulletin of
of the bankers, in line with my article in the Guaranty Fund
the speculator, and
May, is, if you can exclude the looter, the defaulter,
r bank to close
the incompetent banker, it will not be necessary for anothe
good supervision and
in five years in Texas, provided, ofcourse, you have
up to you bankers is:
reasonably rigid examinations. The question then
you allow us to
Are you willing to stand rigid examinations, and will
are guilty of slight
remove such bankers who are inclined to speculate; who
We have removed perdefaulting, and bankers who are really incompetent?
d two last week and the
haps twenty in the last fifteen weeks. We remove
we undertake to remove
work is going steadily and surely on, but often when
an inclination to slight
an official who is weak, or speculative, or has
directors of the bank,
defaulting, we meet a rebuff on the part of the
if we remove him, the destating that he is a drawing card and they fear
; that if they need to
posits will slip away, or that he is a money getter
it. They make all sorts of
borrow money, he knows how to find and obtain
speculative bankers, and others
excuses to hold on to these incompetent and
a great deal of trouble,
who are tinged with dishonesty, and it gives us
often times, to get them removed.
Examinations
on very rigid exami"While on this point, another question: We put
not from the weak
cry,
a
heard
have
nations the past eight months and we
ally, but
especi
ism,
critic
under
is
banker so much, and the banker who
too
are
'You
say:
They
s.
banker
that cry is coming from our good
suspicion,
above
wife,
's
Ceasar
like
are
you
exacting.' As a good banker,
er, you will please
therefore, they say: 'Mr. Commissioner, Mr. Examin
weak bankers.'
and
etent
incomp
the
pass us up and go along and find
twelve months I was
"Now, Gentlemen, I pursued that course the first
s who were above suspicion,
with the Department and left untouched you banker
only attempted to go after
also those I thought were in good condition, and
or three of my good banks,
the bank in band condition. I found that two
suspicion, had almost
that were supposed to be like Ceasar's wife, above
my best force to keep them
gone to the bad, and it took the efforts of
•
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Federal Reserve Bank of St. Louis
-2Excerpt from The Texas Bankers Record, Vol. 13, June 1924, p. 30 (cont.)
•
from failing. I also found that when I would instruct my examiners to
very rigidly examine the weak banks, or the banks that had been under
criticism, and not be quite so hard on the better banks, the examiners
were too much inclined to look upon all of you as good bankers and give
you only a casual examination, therefore, during the past few months, we
have put on rigid examinations on all banks, regardless of their seeming
good condition or former good standing with the Department, believing that
the good bankers can endure the rigid examinations better than to let the
weak bankers go by default. In other words, Gentlemen, you good bankers
can stand it and the bad bankers should have it, so the work will continue until the last weak bank is reorganized, assessed, capital restored,
or closed. It is the uniform policy of this Department to keep the banks
open and not close them, but Gentlemen, we have nursed some of them and
carried them through on narcotics, hoping that when the crisis is over
they would survive, and in many instances we have won and placed such
banks in an enviable position at this time, but occasionally, a few have
fallen by the wayside, and being desirous that my work should be permanent, that it might be enduring, I am endeavoring in every way possible
to clarify the situation and cleanse the system and hand to you at the
expiration of my term January 1st, the cleanest set of banks any Commissioner has been able to deliver to his successor. With fair crops,
Gentlemen, and your co-operation, it will be done. What say Ye?"
•
•
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Federal Reserve Bank of St. Louis
•
Excerpt from The Texas Bankers Record, Vol. 12, June 1923, pp. 70-71 from
talk "A Message from the Department" by J. L. Chapman, Commissioner of
Insurance and Banking, Austin.
"The.Guaranty Fund has paid out, during the last twelve months,
$967,413.00 and the Liquidating Departments has collected and paid out,
as dividends to the contributing banks, $1,183,000.00. We have reasonable assurance of collecting and paying, by August, $300,000, and
certainly with a good fall, we can pay a million more.
"During the past twelve months we have had only ten banks to close,
that really failed. About one and one-fourth per cent of the whole
number, and today the banks are in stronger position than for three years.
But very few, less than one half of them, have failed on account of
economic conditions; and as the weak and inefficient bankers, tog ther
with the dissipator and defaulter are rapidly being eliminated, we hope
to soon purge the system of all t - e objectionable elements that tend to
weaken and embarrass our system. Strenuous efforts and cooperation from
the good bankers and with continuous supervision, already in vogue,
carried out to completion, within a year, failures should seldom occur."
•
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Federal Reserve Bank of St. Louis
THE TEXAS BANKERS RECORD
June, 1923
Sizth. Ammucz: MG,eting Sh.te Bnnk. SecEon
L. E. Bain, Waco, Chairman
HE meeting was called to order by L. E. Bain, Chairman.
THE CHAIRMAN: The house will come to order. It
is very gratifying indeed to see such a large attendance,
and so nearly on time. I am going to be by my remarks
like I was by my daughter, who brought me a problem
in algebra one time, and she said: "I do not think I can
do this problem, or not all of it." I said: "You go as far
as you can, and I will do the rest." That is the way I am
going to be about our problems this afternoon. We have
some splendid speakers, and all the problems that are not
solved by the speakers, I will solve them afterwards. So
let us wait and see what we get from them.
We are very fortunate in having, for the first time in
the history of the State Bank Section, a report from the
general liquidating agent, with whom we have had more
or less experience. I heard a fellow give the liquidating
agent a new name the other day. They called him the
"mathematical liquidating agent." He said he got it
from a soldier in the army, who said he was bothered with
"mathematical cooties." He was asked: "What do you
mean by mathematical cooties?" He said: "Well, they
add to my trouble. They subtract from my pleasure.
They divide my attention, and they multiply the assessments." (Applause). We have a live wire gentleman in
our liquidating department. If you do not know Mr. Peterson you have missed something. His heart is in the work,
and he is capable, and when that is said, all is said. I
have great pleasure in introducing to you Mr. W. L.
Peterson. (Applause).
cent of that has been returned to the banks who were assessed. That in dollars and cents amounts to $1,436,000.
I might state at this time that we have established beyond a doubt that the assessed banks will sooner or later
receive at least 35 per cent of the $9,168,000. This includes the fifteen per cent already received. We have had
the assets of each and every failed bank thoroughly appraised by local and neighbpring state banks, and we know
whereof we speak when we give you that assurance. If
the present wave of prosperity in the oil field district continues, and if they have good crops in the agricultural
sections for the next two years, we undoubtedly will pay
you 40 or 45 per cent of the $9,168,000.
Of the $9,168,000 it might be interesting to you to know
that $5,360,000 went to pay the non-interest bearing and
unsecured deposits of the oilfield banks. I want to tell
you, however, that the oil field I banks are liquidated as
satisfactorily as are the failed banks in the agricultural
sections. From January 1, 1923, up to the present time,
we have lost six state banks, and it will be necessary for
the Commissioner at a not far distant date to levy additional assessments, aggregating approximately $750,000,
to pay these non-interest bearing depositors. Do not be
discouraged about that, though, gentlemen, for we believe that you will eventually receive a salvage of at least
fifty per cent of that amount.
Now I want to take a few minutes of your time to tell
you about our organization. At the present time we are
liquidating forty-three active and twelve semi-active liquidations or failed banks. Directly in charge of those
banks are twenty-four special agents. It will be apparent
to you that they have in certain instances consolidated
two or more liquidations, under the supervision of one
special agent. This has been done for the purpose of
economy during the dull summer months. In the fall, of
course, it will be necessary for us to employ additional
men. The various failed banks have for convenience sake
been divided into districts. District No. 1 comprises all
By W. L. Peterson, Austin, General Liquidating Agent, of the failed banks in the oil field section. District No. 2
Department of Insurance and Banking.
comprises all of the failed banks in North and Northwest
Texas, and one or two failed
R. PRESIDENT, Ladies and Gentlemen: It is an trict No. 3 comprises all thebanks in the Panhandle. Disfailed banks in South and
extreme pleasure to me to have the privilege of Southeast Texas. You
appearing before the state bankers of Texas, in have nothing to say aboutwill notice, gentlemen, that I
West Texas. With one excepconvention assembled, for the purpose of accounting to tion there are no failed banks in West
(Applause.)
them for the conduct and activities of the liquidating de- The Commissioner has appointed threeTexas.
liquidating examipartment for the past eight months. In doing so I shall ners, and they have been placed in a supervisory
capacity
attempt to confine myself to facts and figures which can in charge of the three districts.
be confirmed and verified by the records on file in the
The duties of a special agent are manifold, and I want
Austin office. In that respect I shall try to he unlike a
young man about whom I heard in Austin the other ifily, to say to you, gentlemen, that the twenty-four special
who approached a stranger and engaged in conversation, agents that are now with us are working like Trojans to
and was telling him how many bass he had caught on a save every dollar possible for the guaranty fund banks.
certain fishing trip a few days before. Th.? bass season They receive their instructions through a series of special
does not open until the first of June. After listening to letters which have been prepared by the Commissioner and
myself, and when a new special agent is appointed he is
the young man's story the stranger finally said: "Young
man, do you know who I am?" He says: "No." The handed a series of letters, in order that he can be made
stranger said: "I am the game warden." The young man acquainted with all the instructions that have been given
paused for a minute and said: "Well, do you know who I in the past. The special agents are required to render a
on the 15th and last days of each month to the
am?" He said: "No." The young man said: "Well, I report
Austin office, in which is given a list of all collections
am the damnedest liar in Austin." (Laughter.)
made during the period covered. This
includes also
The guaranty fund law of Texas was enacted by the all of the constructive work done report
during the period
thirtieth legislature, and became effective on January 1, covered. By constructive work we mean
placing a note in
1910. During the first ten fiscal years of .the operation a more solvent condition, where it is impossible to
collect
of the law, which was up to November 1, 1920, there were it in cash.
seventeen assessments, aggregating $880,000, levied
The liquidating examiners hav€ been placed in charge of
against the member banks. Up to the present time $570,- the districts,
in
000 of the $880,000 has been returned to the contributing that the special order that we may know at all times
agents are funnt'on
ptoperly it is
banks through the medium of dividends. In other words, the duty of the special
to travel from liquida65 per cent of the total assessments for the first ten years tion to liquidation, makeexaminer
examinations, and to
of the operation of the law have been returned to the mem- determine whether or notperiodical
the special agent is conductber banks.
ing the liquidation as he should. The examination of a
Then from November 1, 1920. to January 1, 1923, fifty- failed bank is not at all similar to that of a live bank. In
assessments,
aggregating $9,168,000, were levied fact, it usually requires at least:two weeks to officially
seven
against the member banks. Up to this time fifteen per examine a failed bank. In beginning an examination of
T
Ldating State Banks
Page Forty-eight
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Federal Reserve Bank of St. Louis
June, 1923
THE TEXAS BANKERS RECORD
one of these liquidations our liquidating examiners are
instructed first to select a committee of neighboring or local state bankers, to assist him in appraising the assets
of the liquidation. This appraisement is made on a report prepared for that purpose, and is mailed to the office at Austin, after it has been signed by both a committee and the examiner, and the same is filed in our permanent records at Aust.n.
The force in the Austin office is very competent. Under
the very able leadership of our Commissioner our machinery is working smoothly, and I think our section is
well equipped to render splendid results Our assets consist chiefly of notes, individual stockholders' assessments,
and real estate. As to the notes, we are doing everything
we know how. We are using every means at our command to collect these notes in cash, and where we cannot
do that we are doing the next bent thing—we are placing them in more solvent co idition by obtaining more collateral. Where a debtor simply will not show good faith
and will not do his dead level best to pay, we are placing
his obligations in the hands of attorneys for collection.
Through this medium we have collected thousands of dollars for the guaranty fTind. Needless to say, we do not
place it in the hands of no attorney if it is a foregone
be abso'utnly worthless.
conclUsion that a judgme
In regard to stockholders' assessments. I want every
banker present to know that we are g:ving those assessments preferred attention. The bankers have up to
the pfesent time had a wron(1. impress'on of our activities
in that direction. We have inairTurated a campaign to
collect every assessment in cash by January 1. 1924, and
failing in that we are tak'ng solvent notes. If a stockholder is unwilling to give us a satisfactory note, or is unwilling to pay his stockholders' assessment in cash, we
are pacing the same in the hands of an attorney, to be reduced to judgment. As I said awhile ago, however, where
it is a foregone conclusion that a judgment will be uncollectible, we are not incurring that expnnse.
In regard to real estate. we have sold at least one-half
of the real estate in the failed banks of Texas. In the oil
fields we have sold at least three-fourths of the real estate. As a striking example of this. I w:11 tell you that
in the last few days we sold a building formerly occupied by the Security State Bank & Trust Company of
Eastland for $95,000. Yanv bankers questioned whether
we would ever receive $75.000 for that building. There
has been a noticeable wave of prosperity in the last few
months in the oil fields, and we certainly have taken advantage of the opportunity to dispose of our real estate
at advantageous prices.
In the past six months we have collected $49,000 from
surety companies, on account of defaulted bonds of state
bank officials. In addition to that, we have filed $85,000
more claims with the surety companies, and within the
next few months the largest part of that will be collected.
During the inflation period from 1917 to 1921 many of
those state banks showed enormous book profits. As a
consequence of that, they paid handson e income taxes.
Needless to say, any income taxes paid by a bank which
afterwards failed, were erroneously paid. The fact that
they afterwards became insolvent and closed is prima
facie of the fact that the taxes were erroneously paid.
Conceiving that to be true, we some time ago employed
a firm of income tax accountants. Up to the present time,
although we have barely started, we have filed refund
claims with the Federal Government aggregating $40,000. We think that we will in due time recover at least
$100,000 from that source and return to you bankers who
have carried these burdens.
During the fall months last year collections were not
coming in satisfactorily. We realized that in the office.
After our November collections showed up poorly, Mr.
Chapman told me that we would have to change our system. He suggested that we divide the state up into districts and place a man in charge of each district. We did
so. We at the same time poured out letters to the special
agents, telling them what to do. trying to inspire them in
every way. Whether or not our efforts in this direction
were successful I will leave to you to be the judge, when
I tell you that in September last year we collected $151,000, in October $89,000, in November, $69,000. Those
were the fall months. Then we put in our new system,
and in December we collected $128,000, January $138,000,
February $134,000, March $118,000, and in April $167,000. and from all present indications we will have a bigger
month in May than we have ever had before.
Now, what has caused this catastrophe? Having served
in the liquidating department for the last eight months,
having dug in the mire, so to speak, having seen into the
pitfalls and the snares, I desire to give you my impression as to what has caused this.
First in importance, I should say that outright thievery,
corrupt, illicit and illegitimate banking practices are to
blame. Second, I should say that economic conditions are
responsible. Third, I think that reckless, injudicious advances of credit are to blame. Some of you may question
the correctness of the first important cause as given by
me. I tell you, however, ladies and gentlemen, that something must be done to stop these corrupt practices of
high financing an the part of state bank officials. (Applause.) By proper cooperation we can stop it. You may
say, "Why doesn't the Department stop it?" I tell you
that nobody can stop it until we can prosecute and make
examples of some of those who have ruined these banks.
(Applause.) Up to the present time we have been severely handicapped for lack of funds, but now we have a
fund of $8,000 or $10,000, with which, if you will permit
us to use it, we will prosecute and make examples of a
number of these culprits. I will tell you where these
funds come from. When a bank fails we assess for all of
the non-interest bearing and unsecured deposits. We
have to do that. We cannot anticipate anything else. For
various reasons claims are not filed withing ninety days.
Other claims are contested for other reasons. We have
now accumulated a balance in funds of that kind amounting to about $257,000, and although the law does not contemplate or direct that we do so, we place these funds on
an interest bearing basis. This interest has accumulated
now a fund of $8,000 or $10,000. I wish that every state
hanker present, who thinks it all right for us to use that
$8,000 or $10,000, which we get through that source, to
prosecute these culprits, would raise his right hand. If
there are any of you who think we should not use that
money for that purpose, but should retiirn it to the assessed banks, I wish you would raise your hands. (The
response was unanimously in favor of using the money
to prosecute.) Gentlemen, we will put some of those
scoundrels in the penitentiary. (Applause).
After having served in the liquidating department for
the past eight months, having dealt almost exclusively
with rotten assets, I think I am in a position to sound a
note of warning to you state bankers who continue to allow your customers to speculate on your funds, and to
make maximum loans. Gentlemen, the liquidating department does not wish any more business on its books. It is
different from your banks. However, if you do not des'st from allowing your customers to speculate on your
funds, we will get you there sooner or later. As to the
loan limit, in nearly every failed bank there are five or
six loans that tell the story. A 25 per cent loarriimit may
be law, but it is economically unsound. I advise each and
every one of you to hang around a 10 to 15 per cent limit.
I thank you. (Applause).
THE CHAIRMAN: I am sure you now know that I did
not over estimate Mr. Peterson in my introduction. Mr.
Peterson, We enjoyed your remarks. They were helpful
and instructive. Our next subject is one of prime importance to bankers, one we all have to deal with, as well
as the liquidating department, and we were fortunate
indeed in having Judge T. H. McGregor, of Austin, to
select this topic as his subject—"Banks and Taxation."
It is a great pleasure to introduce to you Judge McGregor.
(Applause.)
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Federal Reserve Bank of St. Louis
15Enks and Teountion
By T. H. McGregor, Lawyer, Austin
ENTLEMEN of the Texas Bankers Associatiun:
They tell me this is a ball room, and I suspect that
it is, because I am conscious that I am not as graceful here as I might be in the court house, or in a high
G
Page Forty-nine
.N.ovember, 1924
THE TEXAS BANKERS RECORD
How About
An Absolute Repeal
1-; Z. D. BONN ER, Vice-President
Commercial National Bank
San Antonio
of the Guaranty Law?
(Mr. Bonner was Deputy Bank Commissioner under Mr. Gill.- Editor's Note.)
HE enormous losses sustained by the state guaranty
fund system, through the operation of the guaranty
fund law, within the past six years, causes the most
optimistic to pause and reflect; to ponder the problem
whither are we drifting.
The question to be considered, as I see the problem,
after many years of experience, as a State Banker; as
loudly proclaimed it would do, when the law was enacted.
Experience has demonstrated that it has riot. The thing
that has rendered the currency panic impossible, or improbable, is the Federal Reserve Act, the machinery for
obtaining an elastic supply of credit, from which act the
State Banks benefit, indirectly through their National
Bank correspondents, without however paying any of the
cost of its maintenance.
To the second proposition, it is true that for the first
ten years, there was an unusual growth of State Banks,
before it became apparent the enormous cost of the Guaranty law, but since that time, State institutions have not
shown any greater growth, if as great, in proportion,
than National Banks. That it has not done this is well
demonstrated by the fact that the National Banks competing with State institutions, continue to enjoy a large
and profitable business; that such banks without the guaranty feature have more deposits than the state institutions,
and it seems to me that this is ample refutation of the
original claim that the people demanded this legislation
for their protection. Banking is done strictly on confidence, as every banker knows. The fact that the assessments are more than the traffic will bear, is borne out
by the fact that we have not in Texas a really big, reserve
city, State bank; certainly nothing to compare with our
large Reserve City National banks, and the reason this is
so is not because the National laws otherwise than the
guaranty fund law, are more attractive, but purely and
simply.that the cost of the guaranty fund assessments
to a large city bank is more than the traffic will bear.
Figure it out; take a state bank with say twenty million
BONNER
Z. D.
dollars in deposits. It would be liable to an assessment
a member of the Department at Austin, and subsequently of 2% of these deposits
each year, or $400,000.00, to be
as a National Banker, are these:
paid as an outside loss over and above its 9wn losses,
1. Has the Guaranty Fund law stabilized the banking dividends to its stockholders, and profits. Every banker
business, and rendered panics impossible?
knows that there is simply no such profits as this in the
2. Has it caused an unusual growth in State Banks, banking business. It simply cannot be done.
because of the attractiveness of the Guaranty feature?
That the public does not demand this law of its banks,
3. Has it produced a more rigid application of the law, is demonstrated beyond dispute by the experience of a
more stringent examinations, and a greater condition of very large number of State institutions that have Nationalized their business within the last five years. I make
solvency?
assertion that a publication of the Statements of
Has
it enabled its members to make more money, the
4.
banks, before Nationalizing, and now, will show,
these
and therefore, be stronger and more healthy institutions,
they
have not lost deposits, but in most cases have
that
more solvent, and more profitable institutions for stockgained in deposits, which is indisputable evidence that a
holders?
depositor does not demand of his bank, this guaranty •law.
5. Can it survive; will the remaining state institutions, The RECORD should obtain the names
of these banks,
continue from year to year, to pay the enormous cost and with their permission, publish
their statements beinvolved?
fore Nationalizing, and now, for the enlightenment of
6. Is the law fair or equitable; is it fair or equitable the Bankers, and as a demonstration of this fact.
to transfer a loss from parties at interest, to innocent
And now, to the Third proposition. Has this law propeople who are in no way responsible?
duced more rigid application of laws, and more stringent
Let us examine these propositions in their order. First, examinations. I think this is answered by the liquidation
has this Guaranty Fund law stabilized banking; and has dividends received from the closed state banks within the
it rendered runs on banks impossible, as its proponents so past few years. The bank I am associated
with, formerly
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Federal Reserve Bank of St. Louis
November, 1924
•
THE TEXAS BANKERS RECORD
was a state institution, and we paid out, in thirteen months, other banks, who have no part or
parcel of interest in the
35
of our Capital stock, in assessments; and of this parties at interest. I maintain that Bill
Jones, stockholder
amount, totalling over $54,000.00, we have received back in. a bank in South Texas, should not be called upon to
a little over 20c' • and do not expect to receive back more
make good the loss of Bill Smith, in North Texas, simply
than 35
of the total paid out. Think of a large number
because Bill Smith is a depositor in some State Bank,
of closed banks, that will not average liquidating more
but did not use the proper precaution in selecting his
than 35 cents on the dollar; that the average loss on
banker. Banking is a private business,, engaged in for
every one in their case runs 65 cents out of every dollar. profit, just like any other kind of business, and there is
and this after wiping out entirely the total capital and
no more reason to guarantee the bank customer from loss
surplus. This, I believe, is caused by the policy of than there is to guarantee the investor in oil stocks from
"nursing" along, because of the hesitancy of closing a loss. It is unjust, unfair, and does not possess any charbank and making an assessment, many "sick" members acteristic of equity.
The Laborer is worthy of his hire. That adage is just
of the guaranty fund system. Experience is the best
demonstrator of a fact, and I believe this has been demon- as true now as centuries ago. The conservative banker
strated entirely to the satisfaction of every banker in should enjoy the fruits of his labors; the incompetent,
reckless, speculative, and crooked should be driven out of
Texas.
To the fourth proposition, I answer no. On the con- business; and such a banker will be so driven, in any game
trary, if the members of the system charge off their of fair competition, where each alike takes his own losses
losses caused by these assessments, their profits will be and profits.
Let us then repeal this law, so that the deserving banker
considerably less. BUT, were it not for the Guaranty
lass, and the assessments made thereunder, it would be may build his bank stronger and yet stronger, and enjoy
possible for a state bank to make more money than a Na- the fruits of his labors, and not be compelled to live, as
my friend Thornton says "the life of a cripple."
tional Bank. The Federal Government is now taking from
the National Banks, the last perquisite of the system, in
NEW RANK PROPOSED FOR HOUSTON
that the Treasury Department has announced its intention
of retiring all National Bank circulation, beginning next
Houston—Application has been made to the Comptroller
February, and ending in 1930. I honestly believe that for charter for the City National Bank, with a capital
were it not for the guaranty law, many National banks stock of $200,000. It is understood the capital stock was
would then change to the State system, and that there fully subscribed more than two monthse ago. Jacob
would be built up in this State, a great and magnificent Embry, a national bank examiner, probably will head the
system of State controlled institutions. But certainly, new institution.
Other plans have not been announced.
state institutions are not now more profitable to their
respective stockholders; neither are they stronger nor more
solvent, than their National competitors.
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To the fifth proposition, I say that I do not believe the
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paternalistic
by the experience of other states where this
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legislation has been tried out. The expense of these
losses upon the well conducted, innocent banks, is proving
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It is frequently seen now, statements from guaranty
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books, for approximately half the banks capital stock—
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carrying this sort of thing as an asset, when at least
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sessments are yet to come, within the next five years.
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Our stock contains unusually handsome
and then some, to the payment of these assessments.
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And now, let us consider the equities of the thing. It is
Longines, Elgin, and others. They are
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stockholder in some other part of the state, who has no
for your examination without obligation to
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interest in the matter, and who most likely never heard of
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either the bank or the people. Is it fair to take the loss
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cause he is "easy" with his credits, and a "good fellow,"
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Federal Reserve Bank of St. Louis
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WAWA
THE
TEXAS BANKERS RECORD
Official Publicalion ofthe Texas Bankers
,C•
Association
40n
Volume Fourteen
DALLAS, TEXAS, APRIL, 1925
Number Eight
Devotea to the Banking, inaustrial anci Cbmmercial interests of Texas
,
4 ...fieteavAweepepopeokwivA-AwkiveepedweiveeeeiveeimpeAvveeivovekwevAvveteeiteA.Awevo.wegoefeivivA":
•
The Commissioner Writes
An Important Letter
By CHAS. 0. AUSTIN, Commissioner of Banking, Austin.
To All State Bankers
HIS DEPARTMENT is receiv- should we have failures which we do surprise to any person having access
ing a number of letters daily not now anticipate. To the best of to the Bank Examiners' reports and
asking for advice as to whether my knowledge and belief at the pres- most of them should have been no
its best for state banks to remain in ent time all of the banks about which surprise to the public at large for the
the Guaranty System, transfer to the the department has had any seri- reason that the banks have been
Bond Plan, or to take out National ous concern have closed and are now notoriously insolvent and generally
charters. The great volume of work in process of liquidation. Most of discussed in the communities where
which we are endeavoring to handle these failures were banks known to they existed for many months prior
and mostly growing out of the old this department to be absolutely in- to their closing. Most of the banks
liquidations pending in the department solvent for a long time, but which ap- which have been on special examinafor several years, makes it impossible pear to have been kept open with the tion in the department for some time
to write separate letters in reply to hope that they might work out their past have already been reorganized,
these inquiries; hence, I am taking own salvation. Bank failures do not or, are in process of being reorganized
this method of communicating to all develop over night, but are usually by the payment of cash and the
of the banks at once, trusting that the the result of conditions well known elimination of bad assets, or by the
statements herein made will serve as and fully recognized for a long time establishment of a new bank to take
sufficient answer to the letters of before the crisis develops. None of over the good assets and assume the
those who have written, and will be the failures which have occurred so deposits of the failing one, and in
of sufficient information to any of far this year should have been any cases where this is done, the reorganization is accomplished withthose contemplating sending
out any cost whatever to the
personal representatives to the
Guaranty Fund.
department for information
concerning these subjects. PerIt seems entirely reasonable
The 41st Annual Convention of the
sonal calls are of course alto believe that we are not goways welcome, but the bankers
ing to have any more serious
failures or heavy assessments
should remember that the time
which we give in personal
on the Guaranty Fund in the
interviews could in many innear future, and inasmuch as it
stances be better employed in
appears the member banks
carrying on the work of the
have already become liable for
will be held in
department.
their heaviest assessments, it
occurs to the writer that it
Guaranty Fund
not be out of place to sugmay
This fund is in a very subgest to the banks they view
stantial and satisfactory conthe situation with calmness
dition. The permanent fund
and deliberation and not be
exceeds four million dollars,
hastily induced to act in a way
one-fourth of which is on hand
RICE HOTEL, Headquarters
that might later bring down
in cash in the Treasury, and
upon their heads the criticism
the remaining three-fourths on
Make your Hotel Reservations NOW!
of the public with whom they
deposit with the member banks
are doing business.
A. D.Simpson, National Bank of Comsubject to our check any time.
Bond Security Plan
The volume of deposits submerce, Chairman Hotel Committee.
A small number of banks
ject to assessment is ample to
have made application to be
take care of the situation even
T
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Federal Reserve Bank of St. Louis
Texas Bankers
Association
HOUSTON
May 19, 20, 21, 1925
Page Nine
THE TEXAS BANKERS RECORD
•
1
converted into the Bond Plan, and
they are being admitted as fast as
their papers can be examined and
approved.. Most of the bonds so far
filed have been executed by individual
sureties.
The strength of these
bonds and financial worth of the
sureties signing them have been
astounding to the officials of this department, and leads us to the conclusion that where banks are in a
position to file good personal bonds,
they are far more acceptable than
surety bonds. It is no unusual case
for banks filing $25,000 bonds with
sureties qualifying for more than a
half million dollars. One $50,000
bank filed its bond with sureties who
can qualify for more than seven and
one-half million dollars. These instances only emphasize the wonderful
strength there is behind most of the
State banks in Texas. The rates proposed by the surety companies hereto-fore have been outrageously high,
and in some instances the companies
have demanded personal indemnity
from the directors or stockholders of
the banks. A bank that can make a
personal indemnity that will satisfy
the company demanding such can
make a personal bond that will satisfy
this department and thereby save the
premium, and it is suggested that they
do this.
This department is advised today
that one of the strong surety companies is now seeking this business
and will write these bonds at a maximum premium of two per cent on the
capital, and a minimum of one and
one-half per cent, and without any indemnity whatever from officers, directors or stockholders, but purely upon
the merit of the bank's financial condition.
It appears reasonable to expect that
in the near future the surety companies will be competing for this business, and that rates will come down
to a reasonable basis. In view of the
great strength shown by the statements and the examinations of those
banks which have already applied for
transfer to the Bond System, I am
prone to say that I think the surety
companies could write the bonds of
good banks for a rate of fifty cents
en the hundred dollars of the capital
stock of the bank, and make a good
profit. At any rate, the suggestion
is one I offer to those surety companies which have been writing public
depository bonds on a few recklessly
managed banks which have been paying as high as six and eight per cent
or public deposits. If the surety companies have lost money on the deposi-
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Federal Reserve Bank of St. Louis
tory business in Texas, it is their own
fault and they are not entitled to any
sympathy, for the very fact that the
banks which have been seeking these
bonds have been paying exorbitant
rates of interest on these public funds
has in itself been proof of their weakness.
In this connection, I have no hesitancy in saying that in my judgment,
next to incompetency of management,
public funds have been the source of
more bank troubles in Texas than any
other cause.
You are advised that there is now
pending before the Supreme Court of
Texas a proceeding in mandamus to
compel the Banking Commissioner to
accept United States bonds, municipal
bonds or school bonds from the banks
in lieu of personal or surety bonds,
and such United States, municipal or
school bonds to be the property of
and part of the assets of the depositing bank.
If this mandamus proceeding is decided in favor of the bank which has
filed the application, it will enable all
the banks to take their own bonds, or,
if they do not own any, to purchase
bonds and deposit them with the Commissioner in lieu of any other form of
security and thus avoid the necessity
of having their directors and stockholders become surety, and also avoid
the expense of paying the premium
for surety bonds.
National Charters
- I shall not undertake to advise
banks upon the question of whether or
not they should take out National
charters, as this is a matter to be
determined solely by their stockholders.• It is immaterial what system of banking a bank is operated
under if it has a strong organization
and capable and competent management. No system of banking offers
per se to its depositors any greater
degree of safety than is reflected by
the ability and conservatism of its
management, neither does any system
of banking offer any easy road to
large profits. Banking is not a business out of which stockholders should
expect to reap big profits, and any
attempt upon the part of a bank's
management to realize such results
must be made at the expense of safety,
both to the stockholders and depositors.
The State bank seems to be the
popular institution with the majority
of citizens in many localities and the
many applications and inquiries which
are now coming into this Department
with respect to the probability of the
inquiries being able to organize new
April, 1925
Guaranty Fund banks in those communities where some of the State
banks have gone into another system,
indicates to the writer's mind the
imminent danger of a flood of new
banks being organized which will result in intense competition and unsettled banking conditions in such
communities. What we need, in my
judgment, is fewer and better banks
and not more, but as long as the
Guaranty Fund System is the law in
Texas, the people will demand Guaranty Fund banks, and if the applicants for these new charters have
proceeded according to law, are of
good moral character and standing,
and can satisfy the State Banking
Board of their ability to run a bank,
the probability is that this Board will
be compelled to issue charters to them
in most instances. In my opinion
banks that have built up their business under any particular system or
law, should very carefully consider
the possible consequence of changing
into some other system or under some
other law.
Our state bankers should not overlook the fact that there are more state
banks in the United States than all
other classes combined, and that the
resources of these institutions exceed
those of other systems by many billions of dollars. Many of the greatest financial institutions in the country are state banks and in some states
not only are most of the banks operating under state system, but the largest banks in those states are state
institutions.
The State Banking System of Texas
has come to stay, and all of the irresponsible, uninformed gossip mongers in the State cannot destroy it.
It may be true that some of the requirements and conditions of the law
should be changed, but these changes
will be made in time when the bankers
who have been operating under the
State System have demonstrated they
are capable of running the banks
themselves without artificial support.
We in the department who are giving our time and energies with the
hope that we may be able to render
the public and the banks a valuable
service, feel strongly that conditions
are growing better and better day by
day and that we have seen the worst,
both respecting the number of failures
and the size of assessments. We also
confidently expect to be able to make
substantial progress in liquidating the
remainder of the assets of the old
failures and pay dividends in the next
few months, and we feel we will be
able to obtain better liquidation from
THE TEXAS BANKERS RECORD
January, 1926
Commissioner Austin Says
Guaranty Fund Plan
Will Become Inoperative
A repeal will naturally
result, says
CHARLES 0. AUSTIN
Commissioner of Banking
Austin
TATE banks of Texas today are
in the soundest condition in their
history," said the Hon. Charles
O. Austin, State Banking Commissioner, in an interview on December
29, and before the Forum of the
American Institute of Banking in an
address in Dallas recently.
One of the biggest jobs in the hands
of the State Banking Departthent now
is the liquidation of failed banks, Mr.
Austin asserted. To emphasize the
magnitude and complexities of this
task, he cited the fact that there are
159 banks in liquidation, 3,000 lawsuits and judgments, and more than
125 attorneys at work in these cases.
"Some of the banks in liquidation,"
he added, "have been on the books
of the department eleven years, and
more than 100 have been on the books
from two to five years."
"We have suits pending in virtually
every District Court in Texas, in every
Court of Civil Appeals, in some Justice courts, and we have the Supreme
Court snowed under," Mr. Austin declared. "It took six months to make
up the docket of lawsuits and we
don't know that we have all of them.
"For the first time in the record of
the department audits were made this
year in the liquidation of banks. The
auditors went to work in March and
have completed the audit of only
about forty per cent of the banks in
liquidation," he asserted.
Mr. Austin stated that in his judgment the biggest reason for so many
bank failures in Texas during the last
decade is the lack of proper examination, and the indisposition of officials
to prosecute those persons who violate banking laws. He urged the repeal of the suspended sentence law
passed by Congress, because, he said,
Federal courts in Texas are too lenient on offenders.
One of the big problems to be met
when Mr. Austin assumed his duties
as Commissioner was the examination
and classification of the weak banks.
Many banks were found to have their
S
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Federal Reserve Bank of St. Louis
capital impaired twenty-five, fifty
or seventy-five per cent, and, he added humorously, some with capital
impaired as much as two hundred per
CHAS. 0. AUSTIN
cent. When this classification had
been completed, Mr. Austin declared
that he put into practice the principle
employed in making soap from hickory ashes and bacon rind, with which
he said he had become intimately acquainted in his younger days.
"The old soap-makers knew that
the good came to the top and the
had went to the bottom," he said.
"We therefore put all the banks in
the cauldron and tapped it from the
bottom. The banks in the worst condition were dealt with first."
Naturally, the showing of some
banks demanded that they be closed.
This is in the line of duty, of course,
but the kind of duty that has the
more romantic appeal is that of the
rehabilitation of banks where possible.
Mr. Austin declared that trusted employes of the department had thoroughly studied the conditions of a
large number of weak banks, and, reorganization had been successful in
the case of forty-four of them.
Mr. Austin said that his opinion is
that the guaranty fund plan for protecting depositors would become
inoperative within the next year or
so because state banks are changing
to the bond plan as fast as they can
make proper bond and satisfy Commissioner Austin's department. He
expects the next legislature to repeal the guaranty fund law.
Under the new law enlarging the
scope of the bond system of guaranteeing deposits, Mr. Austin reports,
a large number of State banks have
changed from the guaranty fund plan
to the bonding idea. They have been
changing at an average of one a day
and there now are 484. banks using
the bond system of protecting deposits, leaving 358 in the guaranty
fund, with the latter being reduced
each week, according to the Commissioner.
In discussing the changes, Mr. Austin said his concern has been to prevent the weak banks being left in the
guaranty fund system through the inability to make the bond; and to prevent such a condition more than fifty
banks have been reorganized and
made stable with the work under way
in a few banks still remaining. The
reorganizations have been effected
without any disturbance of the business of the old banks and without
any alarm to the public, he said.
Most of the weak banks were made
that way through depreciation in
cattle prices or slump in real estate
values, with only a very few hurt
by criminal acts of officers or employes. These have been reorganized
as rapidly as possible with all dead
timber cut off and leaving the banks
fresh and vigorous. In that way they
are not a strain on the State banking
system whether bond or guaranty
fund banks, Commissioner Austin
points out.
State banks in the drouth stricken
area for the most part are in much
better condition than they were a year
ago, Mr. Austin reports.
Page Eleven
THE
TEXAS
June, 1926
BANKERS RECORD
of mere detail. If we are now at a
turning-point in our financial history,
let us see to it that the road we take
shall lead us steadily onward so that
in working for ourselves, we are working for our communities as well. Let
our efforts make possible reasonable
and satisfactory dividends to our
stockholders, but, more than all, may
it be our lot to have satisfied customers, who are aware of the difficulties under which we are laboring,
and who appreciate our efforts to
make our banks safer and better because they realize that in so doing
we are working for them as well
as for ourselves. (Prolonged applause.)
THE PRESIDENT: I desire to take
just a moment here to render thanks
to Ray for that very excellent address.
—This is the Seventh Inning; the Convention will be at ease for about half
a minute; that does not mean leave,
but does mean get up and stretch and
make yourselves comfortable.
(Recess)
THE PRESIDENT: It is a peculiar
pleasure to me this morning, as a
National banker to be able to pay
tribute to an outstanding banking man
in Texas. This man has undertaken
one of the hardest tasks that has
ever confronted a banker, and he has
gone through with it in fine shape,
revolutionized almost the system, and
I commend him very very heartily for
his excellent work in the State Banking System, and I take pleasure in
presenting him to this audience—Hon.
Chas. 0. Austin, Commissioner of
Banking. (Applause.)
Our State Banking System
By HON. CHAS. 0. AUSTIN
Commissioner of Banking
Austin
R. PRESIDENT, Ladies and in the main, sound, safe, and sane,
Gentlemen of the Texas Bank- and provided for the establishment of
ers Association: It is a peculiar banks that might afford the people
pleasure to me to be with you of the state safely co,nducted instituthis morning, the first occasion tions with which to deposit their monthat I have had to appear before the ey and which might extend credit
general public since I accepted the within the circumscribing regulations
place of Commissioner of Banking. In of the law where it was proper and
order that there may be no misunder- sound policy that credit should be
standing and no misquoting by the extended. At the same time, the
press hereafter, I have thought it best law was sufficiently liberal to afford
to reduce to writing what I have to to those who might invest their money
say in the main, because I have found in the capital stock of banks a reasonthat a man in a public position, es- able expectancy of profit, according
pecially when that position has to do to the degree of intelligence with
with anything pertaining to the bank- which the business zpight be coning business, should be extremely cau- ducted.
Chief among the few weaknesses
tious as to what he says, and it is a
good idea to have a record to pull of this law were the provisions perupon the fellow who undertakes to mitting the organization of small
misconstrue or misrepresent your banks with less than twenty-five thousand dollars capital and the failure
statements hereafter.
It would be interesting to know just to provide for safeguarding the iswhat was in the minds of the mem- suance of charters to banks. During
bers of the Texas legislature when the first few years of the State Bankthat body enacted the bill in 1905 ing System's existence the granting
which constitutes the foundation and of charters was solely in the control
main structure of what is now com- of the Secretary of State, whose ofmonly referred to as the State Bank- fice naturally had little interest in the
ing Law of Texas; just what hopes matter other than that of getting as
and ambitions they may have had for much income as possible by way of
the development in this state of a charter fees, the chartering of corgreat system of State banks which porations being one of the chief duties
might become a large and powerful and functions of the State Departfactor in the credit machinery of the ment at that period. Thus, from the
nation. The original act creating Et beginning of the System to about
system of State banks, and predi- January 1, 1910, or approximately
cated upon. the constitutional amend- four and one-half years bank charters
ment of 1904, was in a manner of were granted with great freedom and
speaking a digest of the better part laxity; naturally too many banks were
of the banking laws of some of the organized. The first failure of which
other states which had long before there is any record occurred less than
created systems of State banks. This 20 months after the banking laws
act contained much of a constructive went into effect, and the next failure
nature and would have needed very less than two years after the law belittle by way of revision or amend- came effective. There were 11 failment to have made it almost if not ures in the third year of the life of
quite the best banking law upon the the law, and 20 in the fourth year,
statute books of any state of the showing that the organization of
United States of America. The regu- banks under the new law had been
lations respecting the organization, carried on hastily and ill-advisedly.
conduct, and supervision of the banks There is no record of the loss susorganized under its provisions were, tained by depositors in these failures;
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Federal Reserve Bank of St. Louis
in fact these early records are so incomplete that nothing definite can be
ascertained therefrom.
As evidencing the speed with which
banks were organized, the records
show that the bank holding the 572nd
charter, issued under the law of August 2, 1905, failed or went out of business September 1909, and bank N6.
500 was closed by the Banking Department as insolvent 49 months after
the law under which it was created
had gone into effect.
In 1909 the Legislature passed the
Guaranty Fund Act which went into
effect January 1, 1910. All State
banks were forced to go into the
Guaranty Fund or its corollary, the
Bond System. Most of them chose
the Fund Plan, and thus and then began the greatest period, of expansion
and bank promotion which has ever
been known in Texas.—Eureka!—
Gloria in Excdnis!—We had discovered the golden wand and by its magic
touch all men were made good.bankers
and the public afforded an equal degree of protection against the mistakes of the incompetent and inefficient as well as the crimes of the
thief and embezzler.
From 1910 down to a very recent
date it was quite the popular fashion
for men who were out of jobs or who
had failed in some other business to
organize Guaranty Fund banks and
offer the public the same degree of
safety afforded by the old, well-established, conservative banker of
ample capital and experience. The
speaker ventures the assertion that
more banks have been organized in
our state to furnish salaries for jobless men than to meet any necessity
for banking facilities. (Applause.)
Banking is one business in which too
treat competition breeds sure disaster,
but the job hunter cannot be convinced of this and so the demand for
charters goes merrily on.
During the first few years of its
history the Guaranty Fund ran
smoothly and with only a nominal
June, 1926
loss, but as time began to develop
losses in poorly managed banks and
expenses and improperly paid dividends began to consume the capital,
failures became of frequent occurrence and unusual and alarming numbers.
Between January 1, 1910, and December 1, 1919, exactly 20 Guaranty
Fund banks failed and the resulting
loss to the member banks was approximately One Million Dollars—not
a bad record for 10 years.
From January 1, 1920, to January 1,
1926, there have been 150 failures, of
which 52 were reorganized by the
Banking Department with no loss to
the Fund.
Since its establishment the Guaranty Fund has paid to depositors of
failed member banks the sum of $17,072,902, and at this time has about a
Quarter of a Million Dollars! liability
to pay, which has just recently accrued. When considering these figures, the strongest advocates of the
Guaranty Fund System are bound to
conclude that there is a weakness
somewhere in the scheme itself or in
the administration of the law. The
speaker's idea is that both of these
suggestions are well founded, that a
system which requires a sound and
safely conducted bank to underwrite
the judgment and integrity of a bank
that is conducted by inexperienced
and unsafe men is economically unsound. (Applause.) At the same
time the speaker believes a vigorous
and forceful policy of enforcing the
law and strict requirements respecting the manner in which many of our
banks have been conducted would have
operated to prevent, to a very large
extent, the enormous losses suffered
by the Guaranty Fund since its. establishment. The existence of the law
has in itself invited weak and vicious
banking methods. A number of banks
have built up their business almost
solely through the exploitation of the
protection afforded the depositors by
the Guaranty Fund. Many bankers
have engaged in reckless, and unsafe
business methods of banking, upon
the theory that if their banks should
get into trouble the Guaranty Fund
would come along and contribute
enough fresh capital to absorb their
losses. A number of dishonest bankers have systematically stolen from
their banks year after year and used
the funds for personal transactions
and speculative deals, knowing that
if their banks failed the Guaranty
Fund would pay the depositors and
there would be no demand upon the
part of the depositors that these dishonest officials be punished. No
stretch of the imagination is required
to assert that the Guaranty Fund as
it has been 'administered in Texas
has been a constant premium upon
dishonesty and criminal recklessness.
and carelessness in the management
of some of the banks.
During the existence of the State
Banking System in Texas there have
been chartered 1,494 banks. Of this
number there remain 814, of which
160 are still in the Guaranty Fund
and 654 in the Bond Security System.
88 of our State banks have Nationalized since January 1, 1925, and among
•
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Federal Reserve Bank of St. Louis
THE TEXAS BANKERS RECORD
_
those have been several large and
prosperous institutions, including one
which was the largest bank in the
system. It is not likely that any one
of the 88 banks that have Nationalized would have left the State system
had it been able to carry on a banking business without being a member
of the Guaranty Fund or the Bond Security System. There is nothing so
inherently attractive about the Na-
CHAS. 0. AUSTIN
tional Banking Law as to make any
set of men engaged in the banking
business desire to operate under a
National charter rather than under a
State charter, if the State laws are
good and there is confidence in the
manner of administration of the Banking Department. Every informed
banker in the state is familiar with
the fact that in the entire United
States there were on April 6, 1925,
twenty-one thousand odd State banks
with aggregate resources of 36 billions of dollars, as against eight
thousand odd National banks with aggregate resources of 23 billions of dollars. In other words, the resources
of all of the State banks in the United
States are something like 13 billion
dollars in excess of the resources of
all the National banks in the United
States. It is shown by statistics issued by the Comptroller's office that
the ratio of resources of State banks
in the United States is constantly increasing at a higher rate than of the
National Banks.
The speaker has often contended
and now reiterates that the proof of
a bank's soundness is in its management, and charters under one banking
system or another have very little to
do with the success or failure of any
banking institution. There should be
no favoritism or prejudice as between
State and National banks in the minds
of the public or of the stockholders of
these respective institutions. Every
bank should be measured in the public
mind according to the character, ability, and financial success of its man-
agement; and by management is
meant not only officers and dirntors,
but also the stockholders who own
ond control the business. The speaker is not disappointed that the number of State banks has been decreasing in the last year and a half rather
than increasing, but on the other hand
he feels that a reasonable decrease in
the number of these institutions
makes for better and sounder banking
in our state. He believes in fewer
and better banks. He believes the
country should have as many banks
as are necessary to handle the legitimate banking business of the people,
and as may be profitably conducted.
But he does not believe that banks
should be established for the purpose
of furnishing employment to men who
have been complete failures in every
other business in which they have engaged, nor for the purpose of community boosting or satisfying rival
factions existing in any locality.
There has been too much disposition
in Texas to consider banking a private business and to look upon a
bank as an instrument created for
the purpose of benefiting the personal
fortunes of the officers and directors
rather than as an instrument of service charged with the public good.
The transition from the Guaranty
Fund System to the Bond Security
Plan made possible by the Act of
1925, has resulted in more than 650
banks making the change, without any
disturbance among their depositors or
in their daily business. The Banking
Department has been confronted with
the necessity of adopting a policy that
unsound banks could not be permitted
to go out of the Guaranty Fund and
thus leave their depositors inadequately protected in the event of failure.
And, it has therefore been very careful in approving the condition of the
banks that have changed from one
plan of securing depositors to the
other. However, the management of
the Department is not infallible and
it may possibly have made mistakes
and if so such will certainly develop
in the future.
Of the banks remaining in the Guaranty Fund at this time, it is anticipated most of them will have transferred to the Bond Plan within the
next twelve months. It is possible
that a few of them will fail. The
Banking Department has pursued a
vigoreus policy of housecleaning and
has reorganized a great many banks
overnight in such a way as to avoid
publicity and disturbance in local
business conditions. Few of the reorganized banks have had any trouble
and it is hoped the lessons of the
past will serve to guide their respective managements along the paths of
safe and sound banking in the future.
Approximately 20 millions of dollars
have been saved to the Guaranty Fund
in the last fifteen months through the
reorganization of banks that were
wholly insolvent. With the beginning
(if 1925 there were more than 200
State hanks in an insolvent or failing
condition. Think of that. The Department proceeded to reorganize and
otherwise clean these banks up with
the greatest vigor and haste, realizing
that the Act of 1925 would permit
Page Thirty-seren
TliE TEXAS BANKERS RECORD
the good banks to get out of the Guaranty Fund and leave these crippled
institutions in a position where they
could not help themselves, with failure as the ultimate end and the consequent collapse of the Guaranty
Fund itself. The amount of capital
put into reorganized banks has been
approximately 2 million dollars.
It is interesting to note that the
814 State institutions now operating
have a total capitalization of $35,514,200 and total deposits of $241,506,487. The 160 banks remaining in
the Guaranty Fund at this date have
aggregate capital of $5,431,500 and
deposits in the sum of $29,656,889.
In the entire history of the banking
law in Texas only 2 bond security
banks have failed; one of them was
reorganized and depositors were paid
in full. The other failed a few weeks
age and the depositors will be
paid in full and very likely the Casualty Company will sustain very little,
if indeed any loss whatever on its
bond. The bank was stolen out by an
officer, as has very often been the
case.
The most discouraging condition
which confronts the Banking Department today is the low state of public
morals existing with rcspect to enforcing the criminal laws against defaulters and embezzlers from banks.
(Applause.) The Banking Department at present has more than 30
such cases where the thefts range
from $2,000 to $150,000 and has not
so far been able to get one of the
accused convicted. Grand juries will
not indict in many instances, in others
the court officials themselves hinder
and delay the trials, and juries will
not convict.
The general condition of the banks
has greatly improved, and is continuing to do so daily—especially in the
case of banks out of the Guaranty
System and which have been relieved
of assessments. Where banks have
gone out of the Guaranty System and
into the Bond Plan there has been a
great renewal of interest in the affairs by directors. These officers are
beginning to recognize the responsibilities of their positions, and especially where they are sureties on the
bond are they taking a personal interest in what their executive officers
are doing. Where directors direct
Page Thirty-eight
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Federal Reserve Bank of St. Louis
trouble rarely develops with a bank.
It is the one- and two-man bank
where the greatest troubles arise; the
one-man banker is the greatest menace to the business, and laws should
be framed to eliminate him entirely.
We badly need a rewriting of our
entire banking law—both civil and
criminal; and this work should be
done by men who understand the
meaning of banking terms and words
as used in the statutes, and at the
same time men who are broad enough
to legislate for the whole body of
the people and not merely to benefit
their own little banks or other personal interests. Self interest is the
curse of the age—it is a very part
of humanity—but it should be kept
out of the legislative halls. Mr.
President, I thank you and the audience for the attention given me. (Prolonged applause).
THE PRESIDENT: Gentlemen of
the Convention,—there is a man and
a Commissioner of Banking. (Applause).
THE PRESIDENT: This completes
our program for this morning. This
afternoon at two o'clock, in this room,
the Trust Section of this Association
will hold its annual meeting. Mr.
Guy Price, who is the Chairman of
that Section, has a brief announcement to make concerning it. I will
recognize you now, Mr. Price.
MR. GUY PRICE: Mr. President,
Ladies and Gentlemen,—Some rather
apt reference has been made this
morning to the ever increasing obstacles to a bank's earning a reasonable amount of money. A bank is
nothing other than a merchant, and
we now have an added service—that
of the trust service—that affords us
a detour around several of those
closed avenues of earnings. Trust
service when rendered by a competent
fiduciary is far superior to the uncertainty of the best individual. It
is coming and coming fast. The sections of the North and East and on
the Pacific Coast, where this service
has been developed, have found from
actual experience that it is the most
profitable branch of banking service,
and there is no reason why our communities should not enjoy these benefits. Trust service is something like
an orchard; the soil must be broken,
June, 1926
seeded and cultivated to maturity before you can hope to have returns.
There is only one way to do that,
and that is to get to work and work.
We have a meeting this afternoon at
two o'clock, for which a program has
been arranged which we hope will be
very interesting in the development
of this branch of banking, and you
are all urged to be with us. I thank
you. (A pplause).
THE PRESIDENT.
: The Secretary
his a telekram, which he will read.
THE SECRETARY: This telegram
was sent to the President, Texas
Bankers Association, Galveston, Texas, and reads as follows: "Your telegram House Banking and Currency
Committee received. MacFadden Bill
sent to conference yesterday. Conferees were uninstructed. Your telegram
will be brought to attention of conference which meets today."
(Signed) J. L,. McFADDEN.
THE PRESIDENT: That concludes
the program for today. Tomorrow
morning at ten o'clock we are going
to start like we did this morning—
right on the dot.
The Convention thereupon adjourned until May 27th, at ten o'clock
a. m.
HE WILL PAY "NOr'
W. W. Dees, cashier of the First
State Bank, Holland, recently urged
rather strongly that a certain customer pay a little note. Here's the reply, verbatim:
3-15-26 Holland Texas
Dear Sir I must drup fue lines this
morning what I due you all I will
be oup ther Thursday Paid I an Sick
god Flu Be so kinge and I Be oup
thare Windsday or Thursday I am
going Please you all I wont paid that
not Wandsday for sure
At the bank, hanging in the balance
is considered better than dropping in
the red.
•
Marine Bank & Trust Company
NEW ORLEANS
Capital and Surplus $3,125,000.00
4 Member Federal Reserve System
We are fully equipped to handle accounts of Texas Banks and Bankers which will
receive the personal attention of our officers. Foreign Exchange bought and sold.
We will be glad to give daily quotations on Cotton, Lumber, and other foreign bills.
L. M. POOL. President
JOHN DANE. Vice-Pres. and Mgr.
J. A. BAND!, Vice-President
Bond Dept.
W. T. MARFIELD, Vice-President
W. J. PILLOW, Cashier
WM. P. O'NEAL, Vice-President
G. HUBER JOHNSON, Asst. Cash.
A. J. CROZAT. Asst. Cash.
FRED BRENCHLEY, Vice-Pres. and
W. D. KINGSTON, Trust Officer
Mgr. Foreign Department
J. H. WEIL. Asst. Bond Officer
—
'June, 1929
THE TEXAS BANKERS RECORD
as I assumed the duties of the audit was such a voluminous affair
'office of Commissioner, in September, it was thought best to wait until it
1927, I requested the Banking Board was sure that the work would not be
to pass a resolution authorizing the in vain. The Guaranty Fund operCommissioner to refund to member ated about eighteen years and of
banks that had legally retired from course it is no small affair to liquithe system their pro rata interest in date it. It is going to take further
the Fund. You all know that suits patience on the part of you long sufwere filed which have tied up the ferers.
When the Guaranty Fund
liquidation of the Fund, but I am ad- Law was passed it was thought to be
Goodwin,
Judge
Solicitor
a panacea for all financial ills, and .)f
vised by
for the Banking Department, that in course it was not even dreamed that
the
of
afall
litigation
it would ever be liquidated, consehis opinion
fecting the Fund will be out of the quently no provision was made for the
the
and
Fund
fall,
ought
expense of its liquidation. I am goway by this
to be liquidated by January the first. ing to be compelled to retain a small
inare
bankers
who
you
percentage of each bank's over asI promise
terested in the Guaranty Fund that sessment to take care of this auditis
it
as
humanly
possible
soon
ing and distribution expense. A
just as
to refund you your money that I will statement of that expense will go for•
ward to each of you with the remitdo so.
There is a fund that many of you tance of your share of this fund. Of
bankers are interested in that is the $900,000.00 to be distributed,
called "Over Assessment in the Guar- nearly $600,000.00 is held by me, and
anty Fund," and after consultation is on deposit in first class State
with the Attorney General he advised banks in Texas at two and one-half
the Banking Board that that fund per cent on daily balances, so besides
could be distributed to the bankers your principal I have in excess of
interested. Some weeks ago at a $20,000.00 accumulated interest. The
meeting of the Banking Board a reso- other $300,000.00 is lying in the
lution was passed authorizing the
State Treasury in money, and has
Commissioner to refund this $900,- been for two years and of course has
000.00 to you bankers. In order that drawn no interest.
you may understand clearly what this
I again assure you that I am just
fund is, let me say that the $900,000 as anxious as you are to find out
represents an accumulation of funds what the Guaranty Fund is worth as
through your having been over as- an asset to you, so that the accounts
sessed in past years, to pay off Guar- carried on your books can be elim. anty Fund depositors in failed banks. inated, and the Guaranty Fund made
For instance, a Guaranty Fund bank, a thing of the past and forgotten.
say with one half million dollars gross
I trust that some of these city
deposits would fail. An assessment bankers on this program will talk
oneof
banks
against you member
to you upon the subject of "Investhalf million dollars would be levied ment Trusts." This, as you know, is
and drawn. As the claims against the a comparatively new departure in
failed bank were filed, the Depart- financing in the United States. The
ment would investigate them, and in original intention was to select a
many cases, claims that were filed as number of well distributed stocks
Guaranty Fund claims were disal- and use the aggregate as a basis
lowed and defeated, and in the end for issuing trust certificates to infrom five to fifty thousand dollars vestors. The idea as I see it was
of the money drawn from you to pay good, because it gave investors parGuaranty Fund claims would be left ticipation in widely diversified seunused. There is no question about curities, and minimized the loss hazthis money being yours, and it will ard. The investment trust, however,
be paid back to you just as soon as has opened up a wide field for
the accounts can be audited, provided speculation, and is now being used to
of course that the funds are not tied accumulate money for speculative
up by further litigation. It will be purposes.
probably the 1st of August before
is progressing satisfactorily
these funds can be remitted to you, atTexas
this time and is accumulating
for the auditing is a very tedious wealth
that must seek investment.
task. To give you an idea of the As wealth
accumulates the need for
audit that is necessary, let me say
companies becomes more and
that there were approximately ninety trust
apparent. It is gratifying to
failed banks in which these over as- morethe
activity that is manifest
sessments occurred and there are over see
of Texas,
nine hundred former Guaranty Fund among the trust companies
is going to .
banks interested in this fund. The and the business that ought
to deover assessment in each of the ninety them. Trust business
banks has to be pro-rated among the, velop into a large department of
•
nine hundred banks, and you can banking in Texas during the next dec•
readily see that that operation is a ade and you bankers who are convery tedious one. The auditors in the templating entering this field should
department have been working on the begin laying your plans and studying
audit for the last four weeks and I this particular branch of banking. It
am advised by them that it takes over is a field all to itself and requires a
a day to each of the ninety liquida- great deal of technical knowledge to
tions. Some of you will wonder why handle it as it should be handled. In
this audit has not already been made. this day of small profits to banking
The reason is that several suits were institutions it is necessary that new
filed affecting the Guaranty Fund, channels be developed for additional
and it was problematical as to who business. The trust field is certainly
really owned this over assessment in one of the best opportunities bank
the Guaranty Fund. Inasmuch as the ers have for developing new business.
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
-.111111.- .1111...
Jan_
..111116..
Where
Investment is
Profitable
HREVEPORT is situated
in one of the richest sections
of Louisiana. Timber and
the agricultural possibilities
attracted the first settlers.
Later the discovery of oil and
gas added an impetus to commerce. Factories, packing
plants, and bottling works
have located here because of
the advantages.
We want more industries to
locate here. Capital invested
in Shreveport will bring compensation to the investor and
added prosperity to the community. We keep in close
touch with the financial
situation and are ever watchful of our client's interests.
Invest your capital here and
let us help and advise you.
Commercial
National
Bank
SHREVEPORT
LOUISIANA
"Since 1886"
THE TEXAS BANKERS RECORD
The
If-
By
ELDRED McKINNON, President
Republic Bank & Trust Co.
Austin
AVING received many letters of inquiry about the
status of the Guaranty Fund
situation from bankers all over the
State, I deemed it best to write this
article, giving a short summary of the
matter, and thus facilitate answering.
This being a new question to arise
before the Courts of our State, it
has necessarily brought about many
angles and presents a new solution for
the courts and lawyers.
Some time ago a meeting was held
in the city of Austin, Texas, composed of bankers who had been officers of Guaranty Fund Banks. At
that meeting, the situation as it
stood at that time was discussed by
the bankers present, and it was finally
decided that a committee of twentyone bankers be appointed to be known
as an executive committee, and a subworking committee composed of seven
•
bankers was elected from that cornmittes as follows:
Ernest Tennant, president, Dallas
Bank & Trust Co., Dallas, chairman;
Eldred McKinnon, president, Republic Bank & Trust Co., Austin, vicechairman; R. L. Thornton, president,
Mercantile Bank & Trust Co., Dallas;
W. C. Drew, president, Trent State
Bank, Goldthwaite; R. F. Siddons,
president, First State Bank, Hillsboro; P. B. Timpson, president, Houston Land & Trust Co., Houston; W.
R. Wiseman, president, Commonwealth Bank & Jrrust Co., San Antonio.
Page Twenty-four
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Federal Reserve Bank of St. Louis
JT
May, 1930
uaranty
Fund Situation
Some facts of particular interest to
State banks which have money
tied up in the Guaranty Fund or j
"over-assessments" account
Since the organization of the above
named committee, several meetings
have been held in conjunction with
the Banking Commissioner and the
State Banking Board. Every effort
has been made by the committee to
get matters adjusted and about all
that has been accomplished is to get
more than $600,000 of what is termed
as the over-assessment fund, returned
to the banks interested. In addition to
this, drafts for more than $300,000
were issued by the Banking Board on
the State Treasurer to the banks for
the balance of the fund, but these were
not paid on account of injunction proceedings.
For the information of the bankers
interested, there is now pending in
the District Court of Kaufman County, a suit instituted by Mr. Hare,
representing depositors of a failed
bank, against James Shaw, Banking
Commissioner, and the State Banking
Board to enjoin the Banking Board
from paying out to interested banks
$306,000 known as "over-assessment."
The judge of that court issued a
temporary injunction, restraining the
State Banking Board and the State
Treasurer, Mr. Hatcher, from paying
out such fund pending the final disposition of the suit mentioned. The
court at Kaufman is now in session
and thil suit is liable to be called at
any time for trial. After the granting of the temporary injunction in
the above case, Mr. Hare amended
his petition and brought into the suit
that portion of the Guaranty Fund
claimed by the banks that have retired from the system, nationalized
or converted to the bond system.
From this, you will see that this suit
involves practically all of the interest
claimed by the State Banks in the
Guaranty Fund.
Should the above referred to injunction suit be sustained and the
Board permanently enjoined from
paying out the fund known as "overassessment," the effect of such judgment would be to render the $600,000
over-assessment heretofore distributed
to the banks illegal and no doubt the
banks would have to refund this
money or it would be deducted from
any interest they may have in the
Guaranty Fund. A judgment denying
their right to recover their proportionate share of the $306,000 would
necessarily involve the proposition
that they were not entitled to the
amount already paid them on account
of over-assessments.
There is also pending a suit brought
by the Winters State Bank, Winters,
Texas, of which John Q. McAdams is
president, against the State Banking
Board for the recovery of approximately $10,000, which said bank
claims is due it for the reason that
the charter of the bank expired and
for about a year it operated without
a charter, but continued to pay assessments levied by the Banking
Board to replenish the Guaranty Fund.
This suit is still pending in the courts.
Recently, the Attorney General instituted seventeen suits against various State Banks to recover a two per
cent assessment levied against them
on their average daily deposits for the
year ending November 30, 1926. In
those suits, he also seeks to recover
from the same banks the 75 per cent
assessment carried on the books of
the banks to the credit of the State
Banking Board. The amount involved
in these suits is, I understand, approximately $150,000. If these suits
are lost, it will necessarily reduce the
amount d the interest of the banks
in the Guaranty Fund to that extent.
The important nature of all this
litigation is obvious. It should receive the immediate attention of all
the bankers interested, and it is the
opinion of the committee that competent attorneys should be appointed
THE TEXAS BANKERS RECORD
at once by the bankers as a whole, in
order that an opinion can be procured from the Supreme Court, finally
settling the Guaranty Fund situation
so that the Banking Board can proceed to liquidate it without endangering it by damage suits.
In view of the fact that the Texas
Bankers Association Convention will
be held in Fort Worth, Texas, on May
13, 14 and 15, a committee composed
of R. L. Thornton, P. B. Timpson and
Eldred McKinnon, appointed by the
full committee to select attorneys, has
decided to defer action until that
time, hoping some afternoon during
the convention to call a metting of all
Guaranty Fund Bankers attending
the convention and decide what is best
to be done, after hearing recommendations from the committee.
It is hoped that all bankers interested in this matter will read this article and will make it their special
business to attend this convention and
this special meeting.
Respectfully,
ELDRED McKINNON,
Member of the Committee.
INSURANCE FOR EMPLOYES
A comprehensive plan whereby employes of the Mercantile-COmmerce
Bank and Trust Company of St. Louis
are provided with retirement annuities, life insurance, sickness and disability benefits has been announced
by John G. Lonsdale, president of the
institution. The program became effective on Febr'uary 1. The plan,
which is said to be the first of its
type placed in operation by any bank
west of the Mississippi River, is similar to provisions set, up by the New
York Stock Exchange, the Union
Trust Company of Detroit, the Eastman Kodak Company, the Cleveland
Railway Company and others.
The cost of the protection afforded
by the plan is to be met jointly by the
bank and its employes. Each employe
is provided insurance, with provisions
for sick benefits, and stipulated pay-
May, 1930
ments in case of permanent disability.
The age of retirement is fixed at 65,
the retirement annuity being based
upon the number of years in service.
An employe must have had two years
of service before being eligible to
join.
In designing the plan, representatives of Mercantile-Commerce consulted with many authorities and put
into it the best features of other retirement and insurance agreements.
The Metropolitan Life Insurance
Company was selected to underwrite
the provision of the program, with
the exception of the group insurance,
which was underwritten by the Equitable Life Assurance Company.
NEW PRESIDENT AT TAYLOR
Taylor—S. G. Gernert, for a number of years vice-president and cashier of the First National Bank of
Taylor, was recently made president
of that institution. He succeeds F. H.
Welch, retiring president, who is
leaving the banking business because
of failing health. F. H. Welch succeeded his father, J. C. Welch, who
was one of the founders and the first
president of the bank. Mr. Gernert
has been with the institution for a
number of years and will now be
active manager of the bank. Alfred
Weidenbaum, formerly assistant cashier, is the new cashier of the institution.
HATCHETT ELECTED
Mineral Wells—Claude Hatchett,
cashier of the First National Bank of
Santo, was recently elected as president of the Palo Pinto Bankers Association at a meeting held here in the
Baker Hotel. J. I. Encke, cashier of
the Strawn National Bank, was elected secretary-treasurer, while N. A.
Jenkins, vice-president and cashier of
the First National Bank, Mineral
Wells, was elected vice-president.
BILL MACHADO ELECTED
W. B. Machado, vice-president of
the Hibernia Bank & Trust Company
of New Orleans, was elected president of the Louisiana Bankers Association at that body's Annual Convention held in Shreveport, Louisiana, April 22-23, 1930. Mr. Machado
has long taken active part in the
affairs of the Association, serving
W. B. MACHADO
as vice-president during the past
He is widely known among
year.
bankers and business men throughout
the state and nation. He has many
friends in Texas who will be pleased
to learn of this honor. Bill Machado
has been a familiar figure at Texas
bank meetings for a number of years.
W. L. Ward of Baton Rouge, was
elected vice-president; G. R. Broussard of Abbeville, was re-elected
secretary; G. F. Provost of Mansfield, treasurer; and L. 0. Broussard
of Abbeville, was elected chairman
of the executive council.
SWEENEY HEADS BANKERS
Illsvusirm
ORIGINATORS
SUCIU
UNDERWRITERS
US
DISTRIBUTORS
Complete Brokerage and invesiment So-vice
Lorenzo EAnderoon&Co.
Suite 303 Republic Bank Building
Home Office
. . St. Louis
Page Twenty-six
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Federal Reserve Bank of St. Louis
DALLAS, TEXAS
Members New York Stock Exchange
Greenville—At the close of the recent meeting of the North Texas
Bankers Association, held in this city.
A. E. Sweeney, president of the First
National Bank of Ladonia, was elected
president of the Association. W. I.
Bartley of Cooper is the secretarytreasurer of the organization.
Mr. Sweeney is well known in the
North Texas section, and the Association under his guidance will continue to do fine and profitable things.
THE MISSISSIPPI BANKER
.77
THE FAILURE OF THE GUARANTY FUND
IN TEXAS
By W. A. PHILPOTT. Jr., Secre'ary Texas Bankers Association
After Seventeen Years Experience and a Loss of $20.000,000 the Lone Star State Has Repealed
the Statute Under Which Depositors in State Bans Were Guaranteed Against Loss. The Plan at
First Seemed to be a Success but it Encouraged Laxity.
The ancient aphorism to the affect that there
are no substitutes for sound banking principles
still holds true to fact. The absolute failure .in
Texas of the guaranty system for the security of
bank depositors adds more strength to the truism.
Governor Moody on Feb. 11 signed a bill with an
emergency clause, which repeals the law in its
entirety, and the state banks of this great commonealth are once again unstrangled and unshackled
and free to stand, each on its own base.
Laws cannot guarantee sound banks or produce
strong bankers; and it has taken the good people
of Texas seventeen years to find it out. The paragraphs to follow, propose to trace, in the briefest
Possible way, the sad experience Texas has had
with guaranteeing bank deposits. Such a resume
xould not be attempted by any banker, in Texas—
j
particularly any state banker. Most of them have
charged off assessments to the guaranty fund until
they are pink in the face: and they are perfectly
willing that "the dead past bury its dead." In the
recent District Meetings of the Texas Bankers'
Association, Feb. 12 to 22, very few bankers men
tioned the passing of the guaranty fund system.
There were no addresses on the subject. With them,
the law is (lead and buried deeply beneath some
costly and precious experiences. These bankers
are happy—so happy they do not desire to talk
about it. But to the story:
Capitalization Was Too Low
The state banking law of Texas was passed in
1905, and the best parts of existing state banking
laws in other states were digested in its preparation. With few amendments, it was and remains
THE WHITNEY-CENTRAL BANKS
Capital and Surplus, $6,600,000.00
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DOMESTIC AND FOREIGN, TOGETHER WITH UNEXCELLED FACILITIES FOR THE HANDLING OF
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YOUR BUSINESS
NEW ORLEANS, LA.
e
s..
J'erk_WArig(4e.treifft.sj
THE MISSISSIPPI BANKER
19
importance.
- "C'ine of the best state banking laws in the country. fund's accomplishments and growing
Then came the depression, the hard times, the
Chief among its weaknesses, was the section perdeflation, the failures, beginning in 1920. In six
mitting the organization of banks with a capitaliyears, or up to Jan. 1, 1926, there were 150 failures
zation of $10,000. The early records of the bankof guaranty fund banks in Texas, fifty-two of which
ing department are hazy, but evidently there was
were reorganized by the, department without loss
much speed in the organization of banks, as many
to the fund. The good and solvent banks of
as 600 having been created during the first two
Texas during that time paid to the depositors of
years. With such a number of ill-advised instituWithin
failed banks upwards- of $17,000,000—and there were
tions there was considerable trouble.
many more failures in sight. Guaranty fund assesstwenty months one good-sized state bank had
ments (as much as 2 per cent per year of the averfailed; eleven closed the third year; and twenty
year
after
the
age
t.
fourth
the
law's
enactmen
November deposits, the high season) eliminatduring
ed dividends, consumed surpluses, and in many inThe dear people were aroused. Although there
are no records of the losses sustained by the de- stances impaired capital stock. Then the state
bankers awoke from the beautiful dream, which
positors, these must have been considerable; and
•
pictured the guaranty fund as a magic wand. Their
then someone said "there ought to be a law!"
The Texas Legislature in 1909 passed the Guar- stockholders began to ask about dividends, and all
anty Fund Act, which became effective on Jan. 1. the sound and conscientious state bankers in Texas
1910. It was opposed by practically all the out- lost considerable sleep, giving serious thought to
the perplexities and the problems of the guaranty
standing and far-seeing bankers, both state and
fund. Still more failures and accentuated assessnational. in Texas at that time. It is interesting
ments loomed ahead. Many of tilt, wiser ones surat this date to read some of the flaming arguments
their state charters, secured national charrendered
in
law
back
against the
1909, arguments and phophesies which the years have sustained and fulfilled. ters, took their loss, and started with a clean
slate..
But here was the law and all state banks—some
A Cry for Relief
150 of them—were forced into the guaranty fund
The cry for relief was so widespread and the
plan, or its corollary, the bond system. Only sixty
pinch so universal that the Legislature in 1925
banks became bond banks. Then began the period
the law, permitting state banks to convert
amended
4, wildest promotion, the greatest bank expansion
ixas had ever seen. Fartunately, there were a
number of very strong men in the Banking Commissioner's chair, else nothing could have stopped
the organization of banks. The passage of the
law was the signal for every fellow out of a Job,
whether or not he had had banking experience,
to open a bank and offer the depositing public
the same degree of safety afforded by the old, wellestablished, conservative banker, with ample capital and seasoned experience.
PROMPTNESS
Thought It a Grand Scheme
Everything ran merrily on with the guaranty
fund for the first ten years. Banks were organized in every town and hamlet until the peak of
more than 1,000 banks was reached. Every one
hung out the sign "Guaranty Fund Flank" and was
allowed to advertise the statement that no depositor had ever lost a dollar in a guaranty fund bank
in Texas. From Jan. 1, 1910. to Jan. 1, 1920, some
twenty guaranty fund banks failed in Texas, with
resultant loss to member banks who paid the
depositors of only about $1,000,000—not a bad record
ter ten years. There were honest and good men
\Om believed in the plan. Bankers of recognized
lity insisted that the guaranty fund system was
the greatest piece of constructive legislature ever
..nacted in the country. They pointed to its record
at ten years. They preached the plan at bankers'
conventions. They expanded with pride over the
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Federal Reserve Bank of St. Louis
Realizing that banks and bankers value
prompt attention to their requirements, quite
as much as accuracy,
The Commercial
National Bank
& Trust Co.
has so perfected its methods that promptness
has become characteristic of the service it
renders to correspondents.
THE MISSISSIPPI BANKER
20
to a bond plan—a provision not in the original act,
which compelled the bank either to contribute to
guaranty fund or to protect its depositors under
guaranty bond provision. The 1925 amendment
provided that a bank could be relieved of guaranty
fund liability by furnishing a bond the size of its
capital stock, either a personal or surety bond, to
be approved by the commissioner. There was a
scramble by the guaranty fund banks to "get from
under." Of the 850 guaranty fund banks at the time,
all were quickly converted, except twenty-four,
whose affairs were too weak to be permitted to
change. Before the guaranty fund was repealed
by the present new law several of the few remaining fund banks failed and the rest were too weak
to stand assessments, so that some time will elapse
before the depositors will be paid.
Since the state banking law was passed in 1905,
there have been chartered about 1,500 state banks.
Of this number 850 remain today, out from under
the guarani)
, fund yoke, each standing on its own
bottom, each eagerly glad that the past is behind.
more than 100 have taken out national charters,
the one and only reason being to escape the guaranty fund liability. The guaranty fund plan in
Texas has cost the good, well managed and solvent
state banks approximately $20,000,000. It's a rather dear experience.
Most fortunate for the state financial system was
the appointment in 1924 of Charles 0. Austin. one
of the ablest if not the ablest banking Commissioner Texas has had. Commissioner Austin found
his branch of the government had inherited at the
beginning of 1926 more than 200 state banks in an
insolvent or failing condition. He set about with
greatest vigor and haste to reorganize and otherwise clean out these institutions and he reduced
the crippled, the lame and the sick list 95 per cent
in a few months' time. The rigorous campaign,
one of the greatest ever attempted by any banking department, saved the guaranty fund. approximately $20.000,000 and saved Texas many additional bank failures.
Reasons for Failure
The grievous experience of Texas with the guaranteeing of bank deposits should forestall the passage of a similar law in any other state, for all
time to come. Here are a few of the many, many
important reasons why the guaranty fund plan has
failed in Texas:
1. The plan makes for too many banks and too
few bankers. The incompetent, the inefficient.
the reckless, the venturesome, and the careless.
are attracted to banking: because they know their
reckless and unsafe methods will be protected by
the guaranty fund, which will at the proper time
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Do not confine the use of our services to the handling
of your bank account.
Our Banker friends should feel free to call on us for
services of every description—personal and otherwise.
INTERSTATE TRUST AND
BANKING COMPANY
Canal Street, Corner of Camp
NEW ORLEANS
'THE MISSISSIPPI BANKER
furnish new capital and absorb the community's
loss. The dishonest, the incompetent, the reckless
in bank management have leaned heavily on the
guaranty fund in Texas.
g. The system does not increase deposits or build
a hank. One hundred years of banking experience
has proved the best and dependable banking principles: honesty, sufficient capital, experience, ability. built up and performed by the officers, directors and shareholders of the bank. Guaranteeing
deposits might aid the uninformed and ignorant
temporarily, but not permanently. It tells the perit seeks to protect to ask no questions, do not
investigate, make no Inquiry, put your money here,'
it's safe. It smothers the desire for inquiry—a
desire which must be exercised, else every business, every individual must fail.
3. The plan makes it impossible to prosecute
hank wreckers and inside crooks. Generally the
hanker is a prominent citizen. He may even specu•
late with his deposits. His bank closes and the
good and solvent banks of the state pay his depositors. His' former customers are his friends and
neighbors. They have their money. Why should
lie go to the penitentiary? Therefore he is not
indicted. Scores of such instances have happened
in Texas. Only one will be cited. A bank pres-dent and a broker friend looted the bank until its
quidating assets were nil. He and the friend
the depositors of the closed batuii. received dollar for
dollar from the guaranty fund. Shortly thereafter
the ex-banker returned to "face the music." What
was it? A public reception and a welcoming demonstration! -lie was a popular man. The state failed
after repeated trials to get an indictment against
him in his home county where the law prescribea
he must be prosecuted.
4 Such an unsound system of banking weakened
the financial structure of the state. Texas needed
two systems, state and national. to stand the usual
strain of those ever recurring cycles of business
depressions. The very foundation of future prosperity and development of any commonwealth is
shaken by such an economic fallacy, and is. never
stronger than its financial system.
A Failure After a Fair Trial
The guaranteeing of bank deposits has been given
a fair trial in Texas, over a period or seventeen
years, during boom times and during depres•sions.
It has cost the stockholders of the good banks of
Texas $20,000,000. It is economically unwound; it
is unfair; it will not work.
These are not my opinions or conclusions. They
have been absorbed from the keenest banking minds
In Texas. They are the present day convictions of
men who do not jump at conclusions or render snap
judgments.
DIVERSIFICATION WILL PAY
The all-cotton farmers, tlw all-wheat farmers, the all-truck farmers, the
all-hog farmers, are not farming on a safe basis. If there is anything in the
trite saying,"Do not put all your eggs in one basket'. it certainly applies to
farming.
A safe and sane rule is
plant all that can be fed to folks and livestock,
including chickens, and then the remainder of the farm to those commodities
which look like they will pay best.
It' all farmers did this. we would !WNW have an over-nroduction of cotton
in this section, and our main cash crop would always be a paying one.
Let's get started in the right direction, and now is the time to do it.
Hogs, cows, chickens, and plenty to feed them will put money into the
pockets of those farmers who grow them in their seheine
diversifivation.
The Banks of Mississippi can aid materially in this program.
The First National Bank of Laurel
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Federal Reserve Bank of St. Louis
2;
"The Bank of Service"
LAUREL,MISSISSIPPI
Fr ei
•
BA,1S =0e7,D DEDUCT 'S
venue,
12-(J General. Couesel, Bureau of I,ternai
jel Toxas are entitled to a deduction in co-putine their 7
the amounts paid into the depositors' guaranty fund.
-
BUREAU CFITEP,NAL HE ErUE
General Counsel's Lemorandum 6474
CFA-EST,--An opinion is requestod relative to the proper action to be taken
in connection with certain requests for the rcopenin- of claims for refund of
inco-e tax filed in 1 - chalf of ins lvent State 1:anks located in the State of T --ee.
Theserequess arc based on the ccntenti, n that there should be allowed as a
deductionflio,- gross incowe the amounts assessed against the bianl:s to .ea4 nt'n fl-e
dre- ositors' eeranty fund. The claims which were timely filec', -7-re ---ct-e
acc‘rdance eitil Solicitor's Mcmorandem 377 (C.F. TV-2, 7",.
In he requests for the reopening) of the claims reliance is nlac e on
decisioe f the United States Board of Tax Appeals in First State Bank of
Brackettville (9 ).T.21., 1,75J, in which it was held that the amount collected 1:
the State of :exas from the bank for the maintenance of the do sitors' guarant
fund wa deductible as a business expense. That decision 'as nonacquiesced in
by the Coemissioner (C.R. VII-1, 37).
In F4rst SLaL,e Bank of Weimar v. Corlmiss'oner (lo B.T.A., 396, nonacquiescencq
C.. VII-2, 47), the Board reached the same conclusion as in the case of tie First
State Bank of Bracketaille. In both oases pertiticns for review were filed in she
dnited States Circuit Coard of Appeals, Fifth Circuit. Upon further consideration
of the issues 'esented inthc two 4,peals, motions for dismissal of the appeals
were filed, at the nstance of the Govornment, on Nov. 12, 1929, and the appeals
dismissed by order of the court.
In view of the action taken by the Government in connection witu tdue uwo
q)peals, it is the opinion of this office that in cases where an application for
reopcnin - a claim for refund has been made by a Texas State bank which contributed
to he depositors' guaranty fund of that state and such application is based in
whole or in part on the decisions of the Board referred to above, the claim - be reopened and allowed to the extent cov - red by the Board's decisions. The
reopening and allowance should be made only if the requirements of Treesuby
Solicitor's Memorandum 3$19
Decision h235(c.. VIT-2, 76) have been fully
lith
this
conform
opinion.
is hereby -,oCified to
•
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Federal Reserve Bank of St. Louis
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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Federal Reserve Bank of St. Louis
M4147
7/22
Removal Notice
7KHLWHPLGHQWLILHGEHORZKDVEHHQUHPRYHGLQDFFRUGDQFHZLWK)5$6(5 VSROLF\RQKDQGOLQJ
VHQVLWLYHLQIRUPDWLRQLQGLJLWL]DWLRQSURMHFWVGXHWR copyright protections.
ŝƚĂƚŝŽŶ/ŶĨŽƌŵĂƚŝŽŶ
Document type: Journal article
Pages
Removed:
Author(s): Priddie, T. P., Jr.
Title:
Texas Guaranty Fund Has Paid $10,000,000
Date:
November, 1923
Journal:
Journal of the American Bankers Association
Volume:
URL:
Federal Reserve Bank of St. Louis
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Federal Reserve Bank of St. Louis
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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): Philpott, W. A., Jr.
Title:
The Failure of the Guaranty Fund in Texas
Date:
March, 1927
Journal:
American Bankers Association Journal
Volume:
URL:
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Stat
CW:jk
January 16, 1956
MEMORANDUM
TO:
Dr. Cramer
nOM:
Clark Warburton
SUBJECT:
Report of work for week ended January 13, 1956
Reports of work of the staff of the Banking and Business Section are attached.
Leave - Annual - Jeanette Karp, 1/9; Sick - Mrs. Berg4uist - 1/9-1/10; 1/13,
Mrs. Payne - 1/9-1/10.
From Austin, Texas
Monday, Tuesday and Wednesday forenoon worked at the Texas Department of
Banking transcribing data regarding claims and dividends paid in failed banks
that participated in the deposit guaranty system. Wednesday afternoon, Thursday, and Friday forenoon were also spent at the Department of Banking making
notes and transcribing useful data from other sources: chiefly the folder of
statistics mentioned in my report of work for last week, and two of the volumes
referred to as the "audit" of the fund. One of these two volumes dealt with
dividends that had been paid, or scheduled for payment in 1930 and early 1931,
prior to the genera: audit in the summer of 1931, to banks participating in
the system. Those 'dividends" represented partial refunds to the participating
banks of the assets of the fund remaining after repeal of the law. The other
one of these two volumes dealt with the court order issued later in 1931, after
the audit of the fund, and the payments made in conseuence thereof. The other
four volumes of the "audit material were all carbon copies of the audit report itself (i.e., duplicates). The Bank Commissioner permitted me to borrow
one of these copies to take back to Washington to use there. It has a great
deal of material that will be useful in analyzing the problems involved in
closing the fund, and in understanding the meaning of the amounts ordered
by the court to be paid to various groups of banks.
Friday afternoon and Saturday forenoon were spent at the library in the
Historical Center at the University of Texas, and the State library and
archives, making notes on additional banking journals and other materials
that we had not found available in Washington. Found one report of the
Banking Department from which I would like to have seven pages photostated.
On Monday, I had lunch with Prof. Charles L. Prather, head of the Department of Finance at the University of Texas, and three of his associates.
He was interested in our study, but did not have suggestions for sources of
information that I had not explored.
Expect to be in Jackson, Mississippi on Monday and probably Tuesday, then
to be on our way back to Washington.
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Federal Reserve Bank of St. Louis
Stat
CW:jk
January 10, 1956
I
(
MEMORANDUM
TO:
Dr. Cramer
FROM:
Clark Warburton
SUBJECT:
Report of work for week ended January
6, 1956
Reports of work of the staff of the Banking and Business Section are attached.
From Austin, Texas
Monday - holiday. Tuesday and Wednesday - traveling from Las Cruses,
New Mexico, to Austin, Texas. Travel time (one of the two days) in excess of
travel time from Oklahoma City to Austin by railroad to be regarded as compensatory leave (subject to approval) for work on Saturday.
Thursday and Friday were spent at the Texas Department of Banking.
spent consi erable time with me Thursday morning inspecting cld
Bengston
Mr.
records in storage to see what might be found dealing with the guaranty fund.
Besides the six volumes of audit material at time of the closing of the fund,
which he had written about, there were numerous journals and ledgers, two
huge volumes listing the individual claims other than that of the guaranty
fund and in most cases the claim of the fund in each failed bank together
with the dividends paid, and several file cabinets of materials dealing with
the liquidation of the failed banks. The journals and ledgers are not very
useful, because they record daily receipts and disbursements which would take
many months for compilation into annual summaries, if this could be done at
all. This is also true of the liquidation materials for the individual failed
banks. The two volumes listing the claims and giving the dividends paid are
usable and I will take off data from them next week. There was also a folder
of statistics regarding the guaranty fund, and one on the status of all
guaranty fund liquidations as of December 31, 1932 (at time of final disposition of the fund) containing useful material. Thursday afternoon I checked
the list of failed banks and failure dates in the latter folder with the
list we had built up from the published Bank Commissioner's reports to 1922
(not published subsequently) and the Federal Reserve list of failed banks
for later years. Found quite a few banks on the Department list that were
not on our list. Friday, I made up a set of worksheets listing all the banks,
for entry of the data from the Department records, and entered the amounts of
"withdrawals" or payments from the guaranty fund, which were given in a list
in the folder of statistics.
Saturday, I spent a full working day at the library of the University of
issues of the
Texas, where I found a thesis on the guaranty system, a year
an issue
and
,
Washington)
in
available
(not
monthly Guaranty Fund. Bulletin
While
obtained.
previously
not
had
we
that
report
of the Bank Commissioner's
me
enable
did
they
data,
additional
of
amount
these did not provide a large
early
its
in
fund
the
regarding
material
our
In
to fill in some missing figures
on
book
journals,a
banking
Texas
some
including
materials,
years. Some other
of
(none
report
r's
Commissione
Bank
the
of
issue
another
and
the Texas system,
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Federal Reserve Bank of St. Louis
-2-
these available in Washington) are in a separate Texas historical library that
I did not reach while it was open in the forenoon on Saturday. This library
is not open evenings, so I will visit it after finishing at the Department of
Banking. None of the University libraries are open on Sunday, so the only
work I am doing today (January 8) is to write this report.
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Federal Reserve Bank of St. Louis
Stat
CW:jk
January 3, 1956
MEMORANDUM
TO:
Dr. Cramer
FROM:
Clark Warburton
Report of work for week ended December 30, 1955
SUBJECT:
From OhLahama City
Monday - holiday. Tuesday, about half the day was spent in completing
worksheets of data for Oklahoma, including transcription to workaheets of
totals for guaranty fund warrants issued and paid each 4uarter that I had
run up on adding machine tapes at the Bank Commissioner's office the previous
week. Other half of day spent in reviewing the Texas report prepared by Helen
Thompson and the statistical materials previously collected.
Wednesday, Thursday, and Friday - on compensatory leave for time worked
weekends and evenings at Oklahoma City (all day Saturday and Sunday, December 10
and 11, evenings of the week of December 12-16, and Saturday, December 17. See
second, fourth, and last paragraphs of report of work for week ended December 17.
(Compensatory leave subject to approval).
Will probably spend about a week in Austin. Though the Bank Commissioner
has said that most of the records of the guaranty fund have been destroyed, he
has a six-volume audit of the fund prepared at the time the law was repealed.
I hope that this will provide the needed data regarding the receipts of the
fund from assessments, and the losses in failed banks since all losses are
believed to have been met. To transcribe these datu (if they are in the audit)
and to make use of material which I hope to find at the University library
(journals and bulletins axm not available in Washington) or office of the State
bankers' association will take several days. A week at Austin will extend my
trip several days beyond the January 6 date of my travel authorisation. Because of this, and to have specific authorisation to return via Jackson,
Mississippi, it seems to as desiraole to have an extension of my travel order.
Reports of work of the staff of the Banking and Business Section are attached.
Annual leave - Miss Thompsou - 12/27, Mrs. Shea - 12/27-12/30, Miss Morton 12/27-12/28. Official leave - Miss Thompson - 12/28-12/29, Mr. Golembe 12/28-12/30. Sick leave - Miss Karp - 12/30. LWOP - Mrs. Payne - 12/27.
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Federal Reserve Bank of St. Louis
October 27, 1965
Hon. J. M. Falkner
Banking Commissioner
do John B. Regan
State Office Building
Austin, Texas 78701
Dear Mr. Falkner:
In January 1956 I spent two weeks in Texas, mostly
at the Department of Banking, collecting information about the
operations of the Texas Depositors' Guaranty Fund under the law
enacted in 1909. It was then contemplated that the results of
our study of this Fund, along with studies of deposit guaranty
systems in other States, would be published in book form. This
has not been done.
Enclosed is a copy of my report on Deposit Guaranty
in Texas, which was completed in June 1958, and is in final form
except for editorial and minor revisions if publication of the
group of studies should be undertaken at a later time.
In connection with the study of the Texas fund,
Mr. Bengtson, Deputy Billnking Commissioner, loomed me a copy of
volume 2 of a report on the fund, which I promised to return,
as indicated by the enclosed statement dated aimmary 13, 1956.
This report is being returned to you lindPr separate cover.
Cordially yours,
Clark Warburton, Chief
Banking and Business Section
Division of Research and Statistics
-1
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Erpartnirtit of Banking
Austin 14, XeXtU3
H. L. BENGTSON
DEPUTY
BANKING COMMISSIONER
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Federal Reserve Bank of St. Louis
January 13, 1956
Received from R. L. Bengtson, Deputy Banking Commissioner
of Texas, Volume 2 of the Report of the Depositors' Guaranty
Fund compiled under judgment in Cause No. 48965 and as ordered
y the State Banking Board resolution April 17, 1931,
enacted in House Bill 835, consisting of 551 pages. This copy
is to be returned as soon as it has served its intended purpose.
°16?)14‘ naha4,
Clark Warburton
Chief, Banking and Business Section
Division of Research and Statistics
Federal Deposit Insurance Corporation
Washington 25, D. C.
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stat
CW:jk
March 4, 1958
MI*. W. A. Puipott, Jr.
6ecretary, Texas Immkers Association
P.O. Box 356
Dallas, Tema
Dear Mr. Philoott:
mr moles, is due you for a letter Wadi we mailed yesterday
inquiring about material relating to the TWOS lepeeltors'
Guaranty 'Um& More than a year ago you replied to the same
inquiry. Semelhow we had forgotten that we hid. already written
to you repirdimg this matter. Please disregard my recent
letter dated, February 28, 1958.
Very truly yours,
Sdison H. Cramer, Chief
Division of Research and Statistics
Cw:jk
Stat
February
as usli
Mr. WO A. Philpott, Jr.
Secretary, Texas Bankers Association
P.O. BOK 356
Dallas, TOMS
Dear Mr. Philpott:
Ne$ amehee'W' years we home bememagedistemeghteelky on is study' of
the various Stole eistmes of deposit inoomemos ermesoety that opemehod
prior Is establishenet at the reilaaal Deposit Uwe=Ise Corpoiatice. We are
use attempting to camplete these studies and are weilledeg shether 701/ might
have cosiois materials to which we hive sass refersesse but hove met boss
able Is Issate.
The Oarsoty tw4 Bulletin WISS published at Dallas by the Mom* Iried
Bankers, Inc., beginrdng in August 1923 and running into 192k or 1915.
have not been able to find copies of this bulletin in the Library of
s,
but a representative of this Division Who visited Austin in Amory,!Was
found the ismss published in 1923 smiths ammery issue in 1924. 14oul4 you
have later issues in the files of the Tens Bankers Association, or would
you know of espies available elsewhere?
As you know, the inpartment of Bseldes has not published any annual re,ports since that fer the year ending; Ammon 31, 1922. However, in the Texas
Record, oeieber 1923, pegs 27, there is a reference to the a:20AMthelanking Commissiomer submitted to the Oevereer for the year ended
Amos* 31, 1923. Our representative was unable to find eny copy at this re.
port in the State library or in the library at the University of Texas.
4ould you have a copy of this report, or or NW later reports of the Bank
Commissioner to the Governer (up to the ciente' of the guaranty fund in 1932)
in the files of the Tomas Sainkiers Association?
If you should bore my of the shone er other material relating Is the
financial status of the Mae depositors' sparsely fund for years sibosopost
to August 31, 1922, meth as receipts !loathe xesplar assessments, reeeipbe
from special assessments, or paymentsIsdepseiters of tailed banks, we
would be most grateful indeed if you caladium** thee available to us an loan.
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Federal Reserve Bank of St. Louis
Very truly yours,
alisee i. Cromer, Chief
Division of Research and Statistics
DEPARTMENT OF ECONOMICS
•
THE UNIVERSITY OF OKLAHOMA
NORMAN • OKLAHOMA
April 11, 1956
Dr. Clark Warburton, Chief
Banking and Business Section
Division of Research and Statistics
Federal Deposit Insurance Corporation
Washington 25, D. C.
Dear Dr. Warburton:
•
Thank you for returning the material on
state banking in Texas, and I hope it may
have been of some small help to you. I am
looking forward to seeing a copy of your
completed study, and know it will be the
definitive work in the field.
Thanks also for sending the $2.16 in stamps
to cover the mailing expense. This was not
at all necessary, but I will not clutter up
the records by insisting on returning it to
you.
With kindest personal regards,
Sincerely,
W. N. Peach
Professor of Economics
WNP:erb
•
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Federal Reserve Bank of St. Louis
Stat
CW:
JK
April
3, 1956
Professor W. N. Peach, Chairman
Department of Economics
The University of Oklahoma
Norman, Oklahoma
Dear Professor Peach:
I am returning to you under separate cove
r and by registered
mail the material you so kindly forw
arded to me in February. I
have found this material most useful,
particularly the notes on
the minutes of the State Banking Boar
d which I did not see at the
Bank Commissioner's office on my rece
nt trip. Enclosed herewith
to reimburse you for the mailing expe
nse is $2.16 in stamps.
Again, my thanks for your cooperation in
our effort to locate
as much information as possible regardin
g the Texas deposit guaranty
fund. I will see that, at such time as
our study is published, a
copy is sent to you.
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Federal Reserve Bank of St. Louis
Very truly yours,
Clark Warburton, Chief
Banking and Business Section
Division of Research and Statistics
d:evp
BUT
Feibruary 21, 1956
Professor W. N. Neadh, Chairman
Department of Ecomenics
The University of Oklahoma
Norman, Oklahoma
Dear Professor Peach:
I want to thank you very such for sending me yew notes ea
banking history in Texas and for your letter's of the 6th mad 13th.
I will have the materials registered when I return them to you.
This week I an completing a review of court decisions involvinG,
the deposit gmerenty law, as published in South Wester* Reporter. At
the Bank Commissioner's office I examined a report on the final liquidation of the fUmi, sod two other largo reports regarding the affairs of
the fund that proseisi the final report. I did not mehe a check of
records available at the Travis County Court, as these documents were
Obviously espies of reports prepared for the court, the earlier ones
as notarial for the use of the court in arriving at its final decision
ant the other as a report on the closing of the feed in conformity
with the decision.
The question of how much weight should be given to such
factors as over-chartering and inadequate supervising, on the one hand,
and to depressed conditions in agriculture and the immoral depression
of 1921, on the other hand, in appraising the circumstances leading
to the "failure of the systea is one of the very difficult problems
in preparation of our report--not only in Texas, but ales in other
States. I find it difficult to give such credence to the argoment-thmmih it had vigorous support from mon with first-hmmt imtormation
on how banks is being cooducted-.that deposit insursmee itself led
to excessive chartering and loose and unsound bankimg, for the reason
that similar camditions existed in several States that did not have
deposit guaranty.
Next week, unless my time is preoccupied with current matters,
I Shen examine your materials carefully. In making use of them, I
will keep in glad your comments on the second page of your letter.
Again thinking you for your great courtesy in making these
materials available to as, and for the comments in your letters.
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Federal Reserve Bank of St. Louis
Very truly yours,
Clark Warburton, Chief
Banking and Business Section
Division of Research and Statistics
DEPARTMENT OF ECONOMICS
•
THE UNIVERSITY OF OKLAHOMA
NORMAN • OKLAHOMA
February 13, 1956
Mr. Clark Warburton, Chief
Banking and Business Section
Division of Research and Statistics
Federal Deposit Insurance Corporation
Washington 25, D. C.
Dear Mr. Warburton:
•
Thank you for your letter of February 1, 1956.
Your letter arrived the day we had packaged the
materials we talked about, and I decided to send
them as they were, and to write separately in
answer to your letter. I have enclosed in the
package the materials I have relating to receipts
and disbursements of the guaranty fund, and have
commented on their reliability in the letter. It
is disgraceful that full reports on these matters
are not available, but that happens to be the case.
I hope some of the materials will be helpful to you.
Through an oversight, the materials were mailed to
you without registering them. When you send them
back to me, I would appreciate it if you would
register them. Someday I hope to be able to complete
this study.
With kindest regards,
Very truly yours,
W. N. Peach, Chairman
Department of Economics
WNP:erb
•
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Federal Reserve Bank of St. Louis
DEPARTMENT OF ECONOMICS
•
THE UNIVERSITY OF OKLAHOMA
NORMAN • OKLAHOMA
February 6, 156
Kr. Clark Warburton
Division of Research
Federal Deposit Insurance Corporation
Washin2;ton 25, D. C.
Dear Yr. Warburton:
I am enclosing the materials on the Guaranty Fund System of Texas,
which we discussed during your recent visit. As we indicated at
that time, I have enclosed part of my notes which probably will
not be of direct value in connection with your study but we thought
you might be interested in some of then.
I am enclosing a reprint of a statement by Thomas B. Love which
was printed in the Congressional Record. Mr. Love played a leading role in the establishment of the state bankinir, system in Texas
in 1905 and was the first commissioner of insurance and banking.
1Mr.Love, as indicated in his statement in the Congressional
Record, firmly believed that deposit insurance had been successful'
77-777as, an understandable attitude in view of the important role
he played in establishing and administering the system. I caution
against acceptance of his figures as revealing the total cost of
the Guaranty Fund System. As you doubtless arc aware, the issuance
of charters for state banks in Texas during th= first decade or so
after the system was established in 1905 was perhaps more scandalous
in scope and relative damage than the recent insurance scandals in
that state. Texas has had a colorful financial history. I have
been told that one of the devices used by young men in that state
to acquire the hand in marriage of a lovely and wealthy young lady
was to get a few dollars together and establish a bank, of which
he might become president. The Guaranty Fund System evaded (avoided)
much of its responsibility to insured depositors by arranging for
the absorption of failed state banks by national banks (existing
and newly chartered for the purpose), which new banks accepted
full responsibility for the liabilities of the failed banks.
Similar arrangements were frequently made for banks about to fail.
There is on deposit at the Court at Travis County a lengthy report
on the final liquidation of the Guaranty Fund System in 1932. Unfortunately, I postponed examination of this record.
41
41/
I am enclosing a short article which I wrote on the Bank Deposit
Insurance Company of Texas. I think I mentioned that I stumbled
on the complete records of the Board of this company and the people
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Federal Reserve Bank of St. Louis
February 6, i;56
Mr. Clark Warburton - 2
in the State Banking Department gave me permission to use them.
I hope some of these notes may be helpful to you. You are welcome to use any of them you wish. In most instances the sources
are indicated. The notes were in many cases compiled from
original records. I can assure you they are substantially correct.
The only hesitation I have is that if you wish to use any materials
from some of the interviews in the notes, please give me an opportunity to edit the remarks. Sometimes they are verbatim from the
person interviewed, but common decency might suggest rephrasing.
Some of the people are still alive and hold important positions
in banks.
It was a pleasure to meet you on your recent visit.
personal regards,
With kindest
Sincerely,
•
. I . Peach, Chairman
Department of Economics
WNP:erb
Enclosures
•
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Federal Reserve Bank of St. Louis
Stat
CW:jk
February 1, 1956
Professor W. N. Peach
University of Oklahoma
Norman, Oklahoma
Dear Professor Peach:
You will be interested to know, I am sure, that I found much
more
original data regarding the experience of Texas with deposi
t guaranty
at the Bank Commissioner's office at Austin than I had antici
pated in
view of his previous report that many of the records had been destro
yed.
The material I found that will be particularly useful in our study
relates to the final winding up of the guaranty fund and to the
results
of li4uidation of each of the banks which failed while the law
was on
the statute books.
However, there was one matter about which I am particularl;/ anxiou
s
to obtain further information that was not obtainable at the
Bank Commissioner's office. This relates to the receipts and disbursement
s of
the guaranty fund between the last published report and the statem
ent of
the funa appearing in the materials relating to its termination.
As you
perhaps recall, the last published report of the Commissioner of Insura
nce
and Banking pertaining to banking was for the year ending August 31,
1922.
I have found no annual statement of the receipts and disbursements of
the fund nor of the balance of the fund at the end of fiscal years
subsequent t that date; and the statements of the condition of the fund
appearing in the documents regarding its termination are as of a date early
in
1931. Consequently, if you should have available in your collection
of
materials regarding banking history in Texas any data relating to
the
receipts, disbursements, or balance of the fund, or to assessments
collected from the banks for fiscal years or dates later than August
31,
1922, I should be most grateful indeed if you could send them to
me.
If you still wish to bundle together all the materials you have relating in any way to the guaranty fund, I should be very grateful.
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Federal Reserve Bank of St. Louis
Very truly yours,
Clark Warburton, Chief
Banking and Business Section
Division of Research and Statistics
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Federal Reserve Bank of St. Louis
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January 26,
1956
Mr. H. L. Bengtson
Deputy Commissiamer
Department of Benklag
Austin 14, Texas
Dear Mr. Bengtson:
Mr. Clark Warburton has returned from his trip to
several States that formerly had deposit guaranty systems
in cveration. He has told me about the material that he
obtained from your office. On behalf of the Corporation,
I want to thank you for your splendid cooperation in making it possible for him tc obtain sc much information about
the Texas fund.
Very truly yours,
Fdison E. Cramer, Chief
Division of Research and Statistics
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December 30, lfl
:r.
L. ,,engston
De-)uty Co :Assioner
De7)art.rie t of Banking
Austin 1
1 4, Texas.
Dear
r. 2,eng8ton:
17
In my letter of December i said I ho?ed to
be in Austin at the begimnin of next week. I will
probably arrive on Wednesday, and be able to call at
your office that afternoon or Thursday morning.
Very truly yours
Clar!: Uarburton
if.visio!. of aesearch and statistics
iecember 17, 197,7,
L. Benr;ston
bewty J mmissioner
Department of Banking
Aust n 14, Texas
r. Lenz,ston:
Dr. Cramer, in his letter of November
, wrote you that I planned to be in Austin
approxinaately the second week in Decenber to see
what material might be available reFardin- the
former deposit guaranty systerl of Texas.
I have found it desirable to s-lend
morc time than I had anticilated in Oklahoma.
Consequently, I will net re,f7ich Austin until te
first wee,
: in anuary, honin7, to be there at the
beginning of the weak.
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Very truly yours
Jlark ;;arburton
ivision of Research ad
Statistics
1,ederal Deposit Insurance jorpi
13r4tartnirut of Banking
Austin 14, Oexus
November 25, 1955
H. L. BENGTSON
DEPUTY BANKING COMMISSIONER
Mr. Edison H. Cramer, Chief
Division of Research and Statistics
Federal Deposit Insurance Corporation
Washington 25, D. C.
Dear Mr. Cramer:
•
We note from your letter of November 21st that Mr. Clark
Warburton who is in charge ofyour studies of previous
experience with deposit insurance is making a trip to
the Southwest to see what material might be available
for such studies and plans to be in Austin the second
week in December.
We shall be glad to have him call by this office and
will be pleased to assist him in any way possible with
respect to the former guaranty fund system of this State.
Yours very truly,
ctt‘
Deputy Commissioner
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&member 21, 1955
Kr. H. L. Bengtson
Deputy Banking Commissioner
Departmmnt of Banking
Austin 14, Texas
Dear Mr. Bengtson:
Heference is made to our previous correspondence
regarding the availability of material on the Texas experience
with the guaranty of bank deposits.
As mentioned in my letter of September 28, Mt. Clark
Warburton who is in charge of our studies of previous experience
with deposit insurance, is making a trip to the Southwest to see
Mat material may be available for these studies. He plans to
be in Austin approximately the second week in December.
Mr. Warburton is very much interested in reviewing
the material to which you referred in your letter of September 23
and vill advise you at a later date the exact date he expects to
arrive in Austin. Any assistance you may be able to extend to
Mr. Warburton Mould be very much appreciated.
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Very truly yours,
Edison H. Cramer, Chief
Division of Research and Statistics
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Stat
September 28, 1955
Mr. R. L. Bengtson
Deputy Banking Commissioner
Department of Banking
Austin 14, Texas
Dear Mr. Bengtson:
Thank you very much for your letter cf September 23.
We had not guessed from your former letter that the audit
material on the Texas guaranty fund would be so voluminous.
We will communicate with ycu again before the member
of our research staff whc is working on these studies visits
your office to see what material may be of value tc us.
Very truly yours,
Edison H. Cramer, Chief
Division of Research and Statistics
Etpartmnit of Banking
•
Austin 14, Xexao
H. L. BENGTSON
September 23, 1955
DEPUTY BANKING COMMISSIONER
Mr. Edison H. Cramer, Chief
Division of Research and Statistics
Federal Deposit Insurance Corporation
Washington 25, D. C.
Dear Mr. Cramer:
•
Further referring to our exchange of correspondence relative to the records of the Texas guaranty fund, you are
advised that the audit of said fund composes approximately
six volumes, each of which is rather voluminous, and it
would be rather difficult to release them from the office
or have photostatic copies made thereof.
We seemingly have no information or records of the various
biennial reports to which you make reference and know of
no source from which they can now be obtained. As a matter
of fact, this guaranty fund is more or less forgotten, and
apparently those in charge thereof while in existence
maintained very little statistical information. It will
therefore be necessary that even we in this office do
some exploring to even assist you in the information desired.
However, should your man call on us, we shall do everything
possible to make the records available to him for such
information as he might be able to use.
Yours very truly,
/(4
Deputy Commissioner
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Stat
September 20, 1955
Mr. H. L. Bengtson
Deputy Banking Commissioner
Department of Banking
Austin 14, Texas
Dear Mr. Bengtson:
Thank you very much for your letter of September 16 vith respect
to the records now available regarding the Texas depositors' guaranty
fund.
We have a list of the banks that failed during the period the
fund was in operation, and considerable information an the amount of
deposits in the various banks that were paid by the guaranty fund, obtained in part from the reports pertaining to banking of the Commissioner
for Insurance and Banking and in part from data collected a number of
years ago by the Federal Reserve Committee on Branch, Group and Chain
Banking. We want to check and complete this information, so far as possible, particularly with respect to recoveries from liquidation of the
assets of the banks that were used either to pay depositors directly or
to apply on claims paid by the guaranty fund.
We would assume from your letter that we might obtain some of
the information we desire by having a member of our staff call at your
office to review the records, and we are planning an doing this within
the next few months. However, before doing so we will want to obtains.
copy of Mr. Lindeman's thesis, and also to review carefully all the data
we have collected or can readily obtain through correspondence.
Would it be possible for us to borrow a copy of the audit of the
fund that was prepared at the time of the repeal of the guaranty law/
Or if you have only one copy that you would not like to loan, could you
have a photostat copy made for our use?
We are now checking the reports pertaining to banking of the Commissioner of Insurance and Banking (prior to separation of the departments) to be sure that we have obtained all the information possible
from them. There are three of these reports, listed below, that ve have
not been able to borrow frolt the Library of Congress or elsewhere in
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Federal Reserve Bank of St. Louis
-2-
Washington, nor from the Texas State Library at Austin. Would you
have a copy of these reports that we could borrow for a short time?
Third Biennial Report of the Commissioner of Insurance
and Banking for the years 1909 and 1910, pertaining
to banking.
Third Annual Report following the Third Biennial Report
of the Commissioner of Insurance and Banking for the
year 1912-13, pertaining to banking.
Annual report of the Commissioner of Insurance and Banking
for the fiscal year ending August 31, 1915, pertaining
to banking.
We understand that since the separation of the departments of
insurance and banking there have been no published reports of the department of banking, and that the last published report pertaining to
banking was for the year 1920-21. Could you tell us whether there are
any unpublished reports, similar to those previously published, pertaining to the years from 1922 to the closing of the guaranty fund
after repeal of the guaranty fund law; and if so, whether such unpublished reports could be made available to us?
We appreciate very greatly your cooperstion in helping us to
obtain information regarding the operation of the Texas depositors'
guaranty fund.
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Very truly yours,
Edison H. Cramer, Chief
Division of Research and Statistics
Brpartnwitt of Banking
•
Austin 14, Oexas
H. L. BENGTSON
September
16, 1955
DEPUTY BANKING COMMISSIONER
Mr. Edison H. Cramer, Chief
Division of Research and Statistics
Federal Deposit Insurance Corporation
Washington 25, D. C.
Dear Mr. Cramer:
We apologize for the delay in responding to your letter of September 1st relating to information concerning the former depositors' guaranty fund of the
State of Texas.
•
A cursory check of the records of this office reflects no information as to
the complete accounting of the guaranty fund, and it would appear that all
records are not available for such purpose. You no doubt are aware that the
insurance and banking departments composed one state agency at one time, and
when those two departments were separated about the year 1925, it is likely
that some of the records which should have been retained by the Banking
Department were transferred to the Insurance Department, but nevertheless,
they seemingly have no records pertaining to the guaranty fund, and since
the Banking Department proper has moved two times since the year 1932, it
further appears that some of the records pertaining to the guaranty fund have
been lost or misplaced and possibly disposed of during the moves. Consequently,
we do not have any information that would give a complete audit of the guaranty
fund operation, although the writer recalls a student of The University of Texas
by name of Oscar Lindeman who is now assistant vice president of the Texas Bank
and Trust Company, Dallas, Texas, writing a thesis on the subject of "The
History of the Insurance of State Deposits in Texas by State Agencies" in 1948,
at which time Mr. Lindeman did secure some information relating to the guaranty
fund operation, and it is likely that through said thesis you might be able
to secure some information that might be of value for your tabulation.
Other than that, we have only a copy of anaudit which was prepared as of the
repeal of the guaranty fund law which, of course, consisted only of the cash
available at that time and the creditors as they existed then. It does not
reflect the total receipts and disbursements of the guaranty fund by years.
It is likely, however, that we could obtain the number of bank failures during
its period, but since all those records are now past history, it will, of course,
involve considerable time to accumulate such information.
We exceedingly regret that we do not have all of the available records for
such purpose, but should you see fit to have a man call by this office for
a review of such records as we might have, we shall be glad to furnish him
all available information as might serve your purpose.
•
Yours very truly,
/49(
Deputy Commissioner
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rRtIg
SUM
September 1, 1955
Mr. S. K. Falkner
Banking Commissioner
Austin, Temas
Dear Mr. Falkner:
Soon after the beginning of Federal deposit insurance,
ve begmn to collect information on the imperious of various
SUM* vith deposit guaranty. Our studies of these State systems
were mot brought to completion at that time. They have recently
been resumed, and, we are nov preparing resorts on each at them
vhich we plan to complete for publication.
We hove found comparatively little pahlielMilimtermation
Shout the psrstons and financial results of the limas depositors'
gaarist, fun&
home same data from reports of the Commissiomer .
of
Banking pertaining to banking, prior to 1923, and
theilig:::irj'il
I t by Mr. Thema 3. Lome printed in the Comgressional
Maori iiir 933.)
(
ilkovould new like to make two inquitaes about the possibility of Obtaining additional information. nhrst, do you know
of any studies of the Texas depositors' guaranty system that have
boss made slime 1935, such as reports for officials of the State
or for the Imesiaturs, or studies by university professors or
graduate studamte
/
Secomt, could records of the(puaranNflun)rder that period, which we presume may nov be in archives or storage, be available for the use of a member of our staff who might cone to Austin
fOr this purpose? We would like very much to obtain sufficient
infermetion to emsible us to prepare a tabulation, by years, of the
receipts and dieburemments of tiltuarartir irl, and also a tabulation at the failed banks by
of fall
shoving such items
as their total deposits, the claims allowed for guarantee, payments
fres the guaranty fund, and recoveries from liquidation of the
assets. If the resords are evellehles we might wish to have the
pertioas we would use in asking such tabulations placed on microfilms so that vs mould have lbe detailed work done by our staff
here.
Very truly Yours,
(Sig
idison H. Cramer, Chief
DiVi4101 of Research and Statistics
=limp
OWAX
August 29, 1955
Miss Adele Mitchell, Loan
Librarian
Texas State Library
Austin, Texas
Dear Miss Mitchell:
Mrs. Brandt, Assistant Archivist of the Texas State Library,
has suggested that ve write you concerning Reports of the Commissioner
of Insurance and Banking which we have been unable to obtain at the
Library of Congress or elsewhere in Washington.
This Division is making a study of the history of deposit
guaranty in Texas and we would like especially to examine the
Commissioner's reports pertaining to banking for the years 1907-1916
and 1923-1927. We were able to obtain these reports from the Library
of Congress for the years 1917-1922.
Would it be possible for our Library to borrow the Reports
of the Commissioner of Insurance and Banking, Pertaining to Banking
for the years 1907-1916 and 1923-1927?
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Federal Reserve Bank of St. Louis
Very truly yours,
(Signed) Edison H. Cramer
Edison H. Cramer, Chief
Division of Research and Statistics
TEXAS STATE LIBRARY
GOVERNED BY THE
TEXAS LIBRARY AND
HISTORICAL COMMISSION
ARCHIVES DIVISION
HIGHWAY BLDG.
AUSTIN 11
SEYMOUR V. CONNOR
ARCHIVIST
WITT B. HARWELL
ACTING STATE LIBRARIAN
MRS. B. BRANDT
ASST. ARCHIVIST
August 24, 1955
Federal Deposit Insurance
Corporation
att. Mr. E. H. Cramer, Chief
Division of Research and Sta—
tistics
Washington 25, D.C.
Dear
•
Cramer:
This is in answer to your letter of August
12, addressed to Dr. Connor, who has resigned
his position with this Department.
We have been informed, that the Reports of
the Co=issioner of Insurance and Banking, 77071927, are on file at the Texas State library,
Capitol, Austin, Texas, and would suggest, that
you write vIss Adele TTitchell, Loan Librarian,for
further information. We are sorry, that our limited staff made it impossible for us to check the
file for you.
Sincerely yours,
AVAW7
,rs. B. Brandt
Asst. Archivist.
•
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HARVARD LAW SCHOOL LIBRARY
•
LANGDELL HALL, CAMBRIDGE 38, MASS.
LIBRARIAN
September 16, 1955
hr. Edison L. Cramer
Chief of the Division of Research and Statistics
Federal Deposit Insurance Corporation
Washington 25, D. C.
Dear Sir:
hiss Rutti Heddon of the State Library of Massachu—
setts requested that we send you the following item:
•
Texpa.Board of Insura nce Commissioner.
Annual report of the Commissioner of
Insurance and banking for the year
ending August 31, 1915.
Inotice, however, that other items she requested,
and which we were unable to supoly, referred to the
section pertaining to banking. The above item pertains
to insurance, and I thought I had best check with you
to make sure it is what you want.
Until I hear from you as to whether you want the
above item, I will hold it for you. I will also con—
tinue my search for the Texas items other than the
above( "3rd bien. report" and "3rd anhual report") .
The Mississippi Biennial report ... 1914-15 we def—
initely do not have.
Very truly yours,
Adward J. Bahder
Asst. Ref. Librarian
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Stat
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September 20,
1955
Mr. Edward J. Bander
Asst. Reference Librarian
Nerwrd Law School Library
Langdell Rail
Cambridge 38, Massachusetts
Dear Mr. Bander:
Thank you very much for your letter of September 16,
regarding banking reports in Texas and Mississippi.
The reports of the Texas Commissioner of Insurance
and Bankipg, for which we are searching, are those pertaining
to banking. If the volume you have for the year ending
August 31, 1915 pertain3 only to insurance, we would not be
Interested in borrowing it from you.
Very truly yours,
Crame3r
(SIgned) Edison H.
Edison H. Cramer, Chief
Division of Research and Statistics
/
///
,,o-4/~ii
cVa/lXec4
1
September 16,
1955
Yr. Edison H. Cramer
Chief of Division of Research
and Statistics
Federal Deposit Insurance Corporation
Washington 25, D.C.
My dear Mr. Cramer:
Our Mississippi Banking Department collection of Reports
starts with that for 1918-19. We are sending you under separate
cover, for an interlibrary loan of two weeks, the Mississippi
Biennial Banking Report for 1922/23.
•
Our set of Texas Department of Insurance and Banking Reports
begins with the 4th Annual Report following the 3rd Biennial
Report. The next report we have is the 41st Annual for the year
ending August 31, 1916.
The Federal Reserve Bank and First National Bank, and the
Boston Athenaeum did not have the other reports, but Miss Abbie G.
Glover of the Insurance Library Corporation has a copy of the
Texas Annual Report of the Commissioner of Insurance and Banking
for the fiscal year ending August 31, 1915. but this copy does not
circulate.
I finally located a copy of the Texas Report for the year
ending December 31, 1915 at the Harvard Law School Library. (These
reports were recently sent to them by the Harvard Graduate School
of Business Administration.) They think they might have one of
the other Texas Reports and will send you the ones they have, on
Interlibrary loan.
Very truly yours.
ac.00197"44
Dennis A. Dooley
State Librarian
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September 20, 1955
Mr. Oscar C. Lindemann
Assistant Vice President
Texas Bank and Trust Company of Dallas
Main at Lamar
Dallas 2, Texas
Dear Mr. Lindemann:
Mr. H. L. Bengtson, Deputy Banking Commissioner in
Texas, has written us that you prepared a tnesis a few years
ago on the history of the insurance of State deposits in Texas
by State agencies. We would like to see chis thesis in connection with our study of the operation of the Texas depositors'
guaranty fund. Would you have a copy that we could borrow, or
would the library of the University of Texas have a copy that
we might borrow on interlibrary loan?
Very truly yours,
Cramel:(Signed) Edison H.
Adison B. Cromer, Chief
Division of Research and Statistics
•
TEXAS BANK & TRUST COMPANY
DALLAs 22, TEXAS
September 23,
0. C. LINDEMANN
1955
ASSISTANT VICE PRESIDENT
Mr. Edison H. Cramer, Chief
Division of Research and Statistics
Federal Deposit Insurance Corporation
Washington 25, D. C.
Dear Mr. Cramer:
Your letter of September 20th asking for my thesis
on the insurance of bank deposits in Texas is most
welcomed.
I will be happy to supply you with a copy of the
thesis, which is being sent in a separate package.
•
There are several copies in the Library at the
University of Texas, but I doubt whether they would
be available for your use. You are quite weloome,
however, to mine with the reservation that you
please return it to me when you have finished using
it as it is the only one remaining.
The information included in the thesis was gathered
primarily from the State Banking Department records
in Austin and the University Library. Might I
point out, as you probably already know, the program
was extremely expensive for Texas Banks and we, as
bankers, deeply appreciate the confidence that has
been instilled in banking by the Federal Deposit
Insurance Corporation.
Should I be able to be of additional help, I should
be pleased to have your request.
Very truly yours,
O. C. Lindemann
Assistant Vice President
OCL:ah
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0
OY
October 23, 1939
Mr. H. L. Bengtson,
Liquidating Supervisor,
Department of Banking,
Austin, Texas.
Dear Mr. Bengtson:
We wish to thank you for your letter of October 4, regarding
information which we wish to obtain from the records of the guaranty fund.
We hope arranp-ements can be made for the services of some one in the
Dallas office of this Corporation for the lenth of time necessary to
itoraximim obtain the information we desire.
•
We have no desire to make or request a complete audit of the
guaranty fund. The first two items mentioned in our letter of September
29 referred to statements which were published in the annual reports of
the Commissioner of Insurance ancitanking up to 1922. We had assumed that
similar statements would be available in the records of the Department
for later years, though no annual reports have been published by your
Department. The first of these, the annual financial statement of the
fund similar to the statement on page 68 of the report of the Commissioner
of Insurance and Banking for the year ending August 31, 1922, we are very
anxious to obtain. The second of the two statements, referring to the
assessments for the guaranty fund and refunds to the bank assessed brought
up-to-date as of the close of the guaranty fund, may not be necessary for
our purposes prowled we obtain the information listed under item 3 in our
letter of September 29. We should like to have all of the information
outlined under item 3 in our letter, though it is not necessary for this
information to be furnished us in the precise form in which we describe it.
If annual statements of the fund or statements of the affairs
relating to each bank which provide the information we desire are available
in the files of the guaranty fund or State Treasurer, photostatic copies
can probably be made more cheaply and with less inconvenience to you than
copies by a clerk or typist. We will, or course, meet the cost of
photostating.
In the event that our office in Dallas has no one available
for assignment to the task of taking off such information as we need from
the guaranty fund records, do you know of anyone whom we could employ for
this purpose? The person employed should be sufficiently qualified so that
no undue burden of supervision will fall upon you or other officials of the
Department of Banking.
Very truly yours,
111
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Federal Reserve Bank of St. Louis
Donald S. Thompson, Chief,
Division of Research and Statistics.
Fred C. Branson, Commissioner
J. T. McMillin, Deputy Commissioner
TEXAS
A. G. Adams, Jr., Departmental Examine
H. W. Agnew, thuilding & Loan Supervise
0
DEPARTMENT OF BANKING
AUSTIN
October 4, 1939
Mr. Donald S. Thompson, Chief
Division of Research and Statistics
Federal Deposit Insurance Corporation
Washington, D. C.
RE:
Guaranty Fund File
Dear Mr. Thompson:
Your letter of September 29th, addressed to Hon. Z. Gossett,
Banking Commissioner, has been referred to the writer for attention and
reply.
We wish it were possible to accommodate you with respect to
the information regarding the operation of the Guaranty Fund in Texas.
According to the information you desire, this will apparently necessitate
a complete audit of the Guaranty Fund from the time of its origin, and
due to the diminished office force, it will be impossible for us to
furnish such information. It will probably require the services of
someone on full time basis to obtain all this information, and we doubt
seriously that the same could be obtained in less than a month or two.
The records have been so scattered that it will take quite a little time '
to locate all of them, and furthermore, it is possible that it would be
necessary to obtain some of the inforwation througlthe State Treasurer's
Department, inasmuch as they are the custodian of all the funds of the
Guaranty Fund. However, if you desire to designate someone to secure
this information, we shall be glad to make the records available for
such purpose, only with the understanding that they will not be removed
from the Department.
This Department is always willing to cooperate with the Federal
Insurance
Corporation, and are willing to lend our cooperation
Deposit
inasmuch as it appears to be an unusual request we
but
matter;
in this
could not devote our entire time thereto.
Should you or any of the Corporation's representatives want to
call on this Department in order to make a survey as to just what the
records consist of, we shall be glad to discuss the matter thoroughly, and
after ascertaining the enormous amount of work involved, it is possible
that you would not desire all the requested information.
Yours very truly,
s) H. L. Bengtson
•
Liquidating Supervisor
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September 29, 1939
Mr. Z. Gossett,
Banking Commissioner,
Austin, Texas.
Dear Mr. Gossett:
Five years ago this Division collected some material relating to
guaranty of bank deposits in various States prior to the creation of the
Federal Deposit Insurance Corporation. it was impossible to complete our
study at that time and we are now attempting to obtain further information
regarding the various State funds.
We find that our information regarding the operation of the
guaranty fund in Texas is incomplete. Would it be possible for you to
furnish us with the material described below? We shall be glad to supply
clerical or stenographic assistance or reimburse you for expense incurred in
compiling the material or having copies made if this should be necessary.
1. Annual financial statements of the depositors' guaranty fund since
1922 similar to the statement on page 68 of the report of the Commissioner
of Insurance and Banking for the year ending August 31, 1932, pertaining
to banking.
2. The "statement of assessment for guaranty fund, amount collected
and amount of dividends, percent of dividends and left unpaid August 31,
1922" (given on pages 69-72 of the Commissioner's report mentioned above),
brought up to date as of the close of the guaranty fund.
3. A table showing the location and name of each guaranteed bank
which failed together with the following information for each bank:
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a.
b.
c.
d.
e.
f.
Total deposits at date of failure;
Guaranteed deposits;
Deposits paid by guaranty fund or from special
assessment on guaranteed banks;
Loss to guaranty fund or special assessment on guaranteed
banks (that is, amount paid by fund or special assessment not repaid from liquidation of assets of the bank);
Deposits not guaranteed
In savings department
i.
ii. Other deposits not guaranteed
Recoveries by depositors on deposits not guaranteed
i.
On savings deposits
ii. On other deposits not guaranteed.
Very truly yours,
Donald S. Thompson, Chief
Division of Research and Stati tics
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CUtaja
October 18, 1939
aliOhANDUA TO ULi, NICHOL8k
Pe "ILAVO had some correLpondence with the bepartsant of Bankia6 of lexas regarding the transcription of
inforsmtion which we wish to obtain pertaining to the operation of the guaranty fund ia that tate. It ap2ears
prlb.hle that we shall find it aacessury to assign someone
to trite the information off from the guaranty fund records,
Ia there anyone In the field staff of the Corporation who could be assIgned to the task of obtaining the
InforvItion we desire from the records of the Tex** guarbaty
rune It any be desirable first to row.:uest •aleone in the
Dallas office to find out what kinds of records 4,re in the
films of the guaranty fund and the bitate Treasurer und to
recommend how the information can best be obtained and to
eatizate the tiie re(..uired.
Copies ,f the correspondence with the loxes Depart.gent of Panking are attached.
Donald S. Thompson, Chief,
Division of hasecrch and Statistics.
110
MR. R. FRANCIS SIDDONS, Jeputy Banking Commissioner of Texas:
Sanuary 16, 1934
Miss Helm:
are very much interested in the financial setup of the
funds.
Mr. Siddons: That information I have is mosAy what was gathered as one
of a committee of seven.
Icrankly I hardly know what happened myself. (Asked what we
had for a base to start from and was shown Mr. Love's report
He failed to tell you how much the baris had contributed at
that time. However, the guaranty fund wound out in better
shape than anybody thought it was going to.
:ihen this law was nar)ealed we had about this condition.
(hen the law was changed one of the firsL steps was to permit
the banks to go under a bend plan. Most of the banks ran to
cover as quickly as possible. There were approximately 100
bans that did nct avail themselves of the bond plan.
•
In .leptember (29), 1926, a bank at Longview, Texas, closed.
It was a Tetty good sized bank, something like .4,000,000
deposits. L'he fund had gone down to where there were so few
to draw on that it about killed the fellows that were still in,
.uat caused the repeal of the law.
Together with this bank, there were seven other banks whose
deposit' hL:d it not been ii2aid because there were no funds
avaiable or coming in out of this assessment fund.
Miss Helm:
Jid you issue certificates when banks closed or pay in cash
right away?
Mr. Siddons: ;:hen a ban- closed they figured up the deposit liability and
whatever was necessary to pay the depositors they assessed
the member banks for a sufficient mnaant to liquidate tliat
deposit liability. Cf course thcre would be claims that
wo.id not be allowed when they came befc,re the court. ,hen
there was the case of „?5b,000 of the assets that was not
to retire tnat particular deposit liability,
assessed,
it was left in an over assessment fund.
•
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Federal Reserve Bank of St. Louis
Page 2 - ivr.
iddons - :exas.
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;oing back to where we were. This made the seventh bank
whose deposits were not paid.
They had available moneys to pay the deposit liability of
that bank, ,i;548,000.
The payment we had
made to accumulate the capital of the corporation was largely
intact.
This over assessment fund of ,P916,00°
.
was intact.
Ahe was an accumulation out of the general assets by collections, 47°0,000.
T:hey wereafraid to pay out money out of the over assessment
fund. It was being used as a political football. The
accumulation amount to around 42,700,000 and the question
was to whom did this money belong.
For two or three yaars they had a bunch of us country boys
on a cannittee. Then they had another committee of a little
smarter boys than we were, and they kept that deposit around
and never did anything with it.
In lY28 we were all called to Austin. They started to do
the same thing over but there was one country boy that was
tired of being made a figure head.
(I am the country boy
I have been referring to.)
•
i will make one statement, however. Had there been a minimum
assessment from beginning to end, building up a proper
reserve, the guaranty fund would have been a success in Texas
today.
3uarante
;ass Helm:
in the final analysis is guarantee of assets.
want to know if this is the case (referring to La.. Love's
figures), if what you had in your banks was three-fourths
of your assessments, held by the banks, fiainst which they
drew.
,s. Jiduons: • • . •
i.
darburton: Yom said something about the capital stock.
wr. _Addonla:
•
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Federal Reserve Bank of St. Louis
eserve is what I should have said. It was intended that
this fund grow until it reached 45,000,000 and there was a
time that it was 45,0°0,00°.
Assessments were not always met praditly.
along frocl one year to another.
:11Ek,/ were carried
Fap.
,e 3 - Mr. .3iddons.
:ass helm:
About ]iow many years did you pay two per cent?
Mr. ,Addons: From 1921 on the maximum was assessed.
could everywhere.
•
•
They got all they
•
Javings in Texas was small. Have grown in recent years.
SavLngs deposits :II Texas until four or five years ago were
just almost nil.
Miss Helm:
About your reports. das there a space in which you did not
publish annual reports? 4e have from 1917 to 1922.
(He will send statements of condition if they have wit
already ben sent.)
•
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Federal Reserve Bank of St. Louis
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Federal Reserve Bank of St. Louis
A
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Federal Reserve Bank of St. Louis
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Federal Reserve Bank of St. Louis
2.
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:7017,, 17,
2,
Fie171:
;..,_;1:3_
Loc.,
cr3_ of ti.e
Texz s:
Thim1cs
rittad?
T.-L.—Ad id:2 -Ho
or
of
Pe'r'041_TI:/rnta:
When did Tex.
truilble?
11)ont 1921 ..nd 1972. The Fund collarzed in 1975 ,
The banks beL;1_1 fithdra7A%-. L fev4 of thera kner
could chan6e fro2 the Guarant Fune to the Guar,
:nty 7,1f1
and they did not advertise it.
)
ass Helm: Tas it hard to ;et the Law repealed?
Texps:
Texas:
The last banks that failed before the ref,eul (Lid not ,s-et Lhelr
money back.
ass Helm: You, in South Dakota, had a different experience.
vas passed by the Legislature.
Your law
(r. Peterson is located right on the line between Texas and Oklehe.. .)
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Federal Reserve Bank of St. Louis
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7_1
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nrv,
S
'erso-cIll, I
The riL;ht
no
v.:22y .- '71.(-oral.le to Deosit Insur'nee rid ith
of -i_iperv
Irolcr
'or reserves
oa71.c
-lot be s-stcce,J:62u1. -1t1, the
"
ve th1(,- trr,uble.
Lhat shop:..a he chen,ed UAL
He ,,-treF, ed reserves.
bot the
•
Fun?
t d( 1 of iAteroLt
it o_-.1
. 7he
the 1 .)
lh ,t L-,
77-S -e con,ld not
cee at th t tile ho'.': e lot of little 2-tz.te Prnks could go into
:he Federal Reserve, so Ll'c St -L Lev
,l'naed end passed
to bridge over the tile until edjust:Jents cou1,
2 be made to
:rotect those smrll State Bpnks because at that time anything
thpt looked like q ruan,ntLi of
-ould help.
rproltF
By the time that Law was i_assed, :r. Cendlin wes on the job
'or that territory .nc' - orkr-90-t r Is ruling, uhereby they
rc-CIA all L,ct it. -1,
h
„. This 1-esulted ;n
3FndlLnts pledge of over e9,000,000 debenturrs 'or
E- --07 in rnexr ,--,
.vet tho:e
The Governor and Cry,ijjoner _.,2ccyrAended that the
into the FDIC a' . r.',
73L.ndli,1 got these debentures pledged.
Our group has one very good ;Jan, -ho :till belon_s to it. He
is e „ood customer wih plent.v behind his 1). Yc. He thinks
that the TIC Ill he t,o-) 0(1!2- for him but I think he
is -Iron,.
This recent SLato t
Aft
:Is
bridge.
Dan F. Lydick ,.ok be led. He,
of
he rest of w, went dolp-I and got the C,evernor to sign it.
•
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Federal Reserve Bank of St. Louis
•
(-11.1t1-1 Pfornfr.
Those notes 7ore ju7t like notes in the 1:),.-cr,ceris pouch. They
were JITTOMiSC3 to pay and
meEm much!
S far as he FDIC •as cdhcer,ed in Texas, there was a lot
or opposition in Texas in the beginning. He has just told
how the Lav originated. Aftcr the ruling by the Federal
Reserve Board that debentures be recognized as capital by
for Federal Reserve membership the same ones who succeeded
in getling that ruling coiled e meeting of the apte benkers
in Texas at which time the State Guaranty Fund was r- ,r-cticolly
abandoned.
How much pressure was brought to bear on these bens in
Texas to make them join?
-one phatsoever.
Dan Lydick had a good, sound bon(
7 with :;,100,000 capital,
in Fort Worth, Texas ,-hich vas too small Lc) 1Prnit his
bank to go into the Federal Reserve. It was life and death
to him to be able to say his deposits were insured.
ton:
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Federal Reserve Bank of St. Louis
The ,
1 5,000 limit as to the size of deposits insured is very
necessary. With a few changes or adjustments that, no
doubt, will be made, I believe the FDIC plan should succeed,
by the hl..11ding up of a reserve during the good times and
kr:,eri_ng the limit of.e5,000 - are important.
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Federal Reserve Bank of St. Louis
•
'at t'r.
Syst-
7]-ker: It vas a steppinz stone to
ass :e17.1: The peo:le thon 71,d, faith
It (7id .iot work to
lid - lot. Ilrve
s:
L.
,
if they
Yes, -e did.
Zis
.
'lave bf,en t
ithdr-alrn
e knc- it -pc-Ad'preate
yon have a big deficit in 7,exas whe
Thud?
'es, we had a deflcit. I don't
hcw much. In some instalc
they could not Fay the depositors in full.
Mr. Baker: If you. ill re le .ber
C,reer, the lrzt 1, v 3 of
happened during a period of failures in the oil fields and that, IF
precipitated the bankruptcies. Te had ribc,it
do7el.
'
- ilures in 5
Dr 6 oil fields, caused by crooked bankers largely, and thPt callc
P deficit in the Fund.
•
uri
Could it be that quite some time before you closed
7-ere setting dangerous?
. Greer: Yes.
• 3,Aer: The danger to the Guaranty Fuad was caused very largely by our loose
method of supervision at that tie. 7e had to learn. Te were
pioneers and in granting charters we granted them without any investigation as to the need for the bank or as to the cal'ability o'
the people who were going to run that bank. If they had the money
and if the stockholders seemed to be good then the charter was granted,
regardless of the need in the community and whether or not thp rpoyle
in charge were experienced in banking.
You can take a list of the
should not have had a charter.
•
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Federal Reserve Bank of St. Louis
I 7-as in a national bank at that ti e and converted to a state bank.
That I say would appl; to national bank exa.-nincrs as well ,
P .s stat
The exa:nintgrWA that time were superficial. They were lot thoro,%,„
and they did not compare anymore with the examinations we have today
in the state system or national system than if it were a cliff(
process altogether.
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ith
•,....,re!ter 01:1 7.•,rt-1,1:,.1.t.y
the ot'ler r1j.
1
Tie 7;
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of
institIltions eem,1-el cover 1.1,7
•. `rhe abolition of -Cae Guarp,nty }'-o.nd saved t'ie
of 0-1- .iikS were revived, .._.;ot he1r in their fee! ;7• -t-id the
syste.-:i. 01 i
best condition it ever 1^,ras been in.
S tod
Li
The b-n1,?:;-; 1-)Pve 1ot
•
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Federal Reserve Bank of St. Louis
,
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ofl :IOiC
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it bat they
whrt to do
nd dont -L
tr. .7.4
' -.7.s ere ,.;1.aoto hve di
.
b!-.* 71 :: 10Lned the Government e.bnt
o-r*
eric.-r-,--1 ne'r'n -i±
F.11"---
Ice
P'
0
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—hil' t
EOri-.05(3
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7
1:)07.7C7.
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c-,-edItYole Lo
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one other
I 11.vc
.. .And Is your superviion.
1),./.3 for 1-.11<-.s:
Here Le one t1711:nL;
. I 1A-ve the Aate b
I ,
''1ve te Feder?1 —ose1-ve
!1-1(a 6J11-. 11.:1g me.
T. I. C•,
c•
1. 7. T. C.
•
ccw:_ng Jlon
11 :iens, that arlsaneielts ‹hould be made 7hcre1o:7
:),n7i7s should Lave fewer
nattci
nd exa:Ainers. It arollses
the suspici.-n o-.7 .the 1-ublic.
alout a 7.eek to exa-,1';le
In1r_ my sloe, 0.1000,000 ,lerosits. I think one excaLn,-tion a
:ear is enou21.
Don't you think two (?)?
- oard of Directors should exami:,.c t',1e, banks twice a
roc•_.r.: I thinL the b
year and ,le.ke it very thoro%h.
for 1,0 a- President of the TC7':, 7;-,akers Assocl
,;1„
's of Tex:s are very
••
—e consider it so_7„.id
and are very uc
_Lea6ed a. ',ht. ,irly it is nor: bell_ coiqucleri
—e -^urther soy
!,hr-t it has accoaplished 1-hat it was intended to accc
_.estorel confidence on n Ye depotAtil_ lublic and the banking
1-011)11c ifa ,:ener. 1 nd e
that it 'rl:E forestalled any lossibIlit
,(1
of runs (
tastitiltinns, because it hos been instrumentr'l
In creating soun:ler
c
a-1c3 nccr, CO ervnti.n' fl
oll
Mot
hotie reo'le of
f1
4 t.
)0a
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Federal Reserve Bank of St. Louis
•
cs
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Federal Reserve Bank of St. Louis
lifaevp
MAT
August 12, 1955
W. Seymour Connor, Archivist
State Library
Austin, Texas
Dear Mr. Connor:
This Division is making a study of the history of deposit
guaranty in TOZSO and we would like especially to examine the reports
of the Commissioner of Insurance and Banking and/or Bank Commissioner
for the years Maria( which the system was in operation (1909-1927).
We have been able to locate Annual Reports of the Commissioner
of Insurance and Banking PertainiI4 to Bankinit, for the period 19161922. For the period:prior to 1916 the Annual Reports which we have
been able to locate pertain to insurance only. Were separate reports
pertaining to banking published by the Department of Insurance and
Banking for the years 1909-1915?
Subsevaent to 1922 legislation vas enacted separating the
two departments. Since that date we have been unable to find any
reports of the Department of Banking. Were such reports published?
Are reports of the Commissioner pertaining to banking available
at your State Library, either in published or unpublished form, for
the periods 1907-1916 and 1923-1927? If so, would it be possible for
our Library to borrow them from you?
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Federal Reserve Bank of St. Louis
Very truly yours,
Edison H. Cramer, Chief
Division of Research and Statistics
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Federal Reserve Bank of St. Louis
z
FROM
ST.t.T
WI CON
fir-
1-r-18 1(.* 1934
:on. E. C. Dralid,
Texts St:te Be-nk Commissioner,
c/o Nationul Conference of State
Supervising Officials*
Lord Ealtimore Hotel*
Baltimore*
Dear Mr. Brrnd:
In conwiction rfith our ctudies of the
banking laws and their operation In the etttes which
have in the past had deposit insurance or guaranty lams,
it would be of valuable assisttace if one of the sembore of this Division could have a personal int(irview
with you while you Lre in this neighborhood.
Tour firsthand knowledge of the situation in Texas would shed light on how the various parts
of the law oportted.
Will you please advise us as to when
and where this Interview mg, be had, either hero in
Washington or in Baltimere• As the tilae is so short a
telegrtm uent collect to the Statistictll Division*
Foderrl De?osit Insumnoe Corporttion* Wa:4hington*
D. C. would be appreciLted.
Very truly youri *
'.411:1(14 M.J.Pos.Jr.
Mortimer J. Fox* Jr.,
Chief Statisticikin.
,*
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Federal Reserve Bank of St. Louis
OcLoL)cr LP, 111Z4
Mr. Sam 11. Greer, President
Tea Bankers Association,
AOSTICKU Bankare Association Convention,
Willard Rotel,
Vaahington, D. C.
Dear Mr. Oreori
Lt conucction with our studios of the ham—
lug lass and thLir °per:ILL-A in the states which have in
the past had depot:At incurguce or guaranty laws, it would
be of valuable assistauce If one of the members of this
Division could have d personal Interview with you *tile
you are in Aashington.
lour firsthaw! knwiledgu of the aitus'iun
in Texua would ahwd 1i4ht on how the various pkrt4 of the
law operated.
The office of t;', FederA. Depit .14w).T,r1ct
Corpov.tion are looattvd in Utiu Nutioru,1 ?rces 1111-ia4,
Araich is just across the street from t:..o MAlar;
Our roun mamta. is 4BB and our teleiguxte numbtr is District
1240, ;...xtannion ilk.
iho would appreciate your gx4-atIng us )a intcr—
view &nd advising us when and where it tarty bt,
Very truly yours,
Ski, Jr
Mortimt.r J. Foy, Jr.,
Chief StatisC,cihh.
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Federal Reserve Bank of St. Louis
STAT.
3ovembor
2H,
Mr. . C. Brand, Comnissioner,
Department of %Mini:,
Austin, Texas.
Dear Mr. Brandt
We were worry mot to have an cn-,,,ortunity to
talk with you while you were at the Banxeral Convention
in Washini4Jn. Your deputy, kr. Siddems, stated that
yr.-,u
would be glad to furnish such information. as we
desire.
le have in our possession a record of the Depos
itors.
Guaranty Fund of Tema
to In25 whieh les r-uraished
by kr. Thmns 3. Love. This record does met r.onta
in a
statement of the expenditures of the Fund, or of
tN1 assessments w. ch were Aid by the hanks.
In 1925 with the change in the law the Fund
cseeed to have been ,
:ie'leted. Were certificates issued
to de000itors in banks which closed in 1926 and later?
Ran a final 3ett1ement of the ?laid ewer been made?
If there exist any other printed reports
.,3ncorniric, the otleration of the Gyarant ,ofep
ositjumd
in Textv, we would be very glad if you could r4ritimUS
1441iira copy of the some together with the last
published
re,-,ort of the Dwain( DepertnmA.
Very truly yc.urs,
Corti or J. rox, Jr.,
Chief -tatistician.
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Federal Reserve Bank of St. Louis
,.TAT.
B.
December 13, 1054
Kr. E. C. Brand, Comatissioner,
Department of Banking,
Austin, Texas.
Dear Kr. Brandt
We have received no reply to our letter
of tovemher 28. As we fear that it may
have been lost
in the mail, we are enclosing s copy of
the same.
We are very
atley that we are maklng
If it is not possible to
at once, will you please
agroph two of our letter
anxious to complete the
of the state guaranty fund,.
furnish all of the information
answer the questions in :41rof Novemtwr 281
We are enclosing an atr wail stamped
envelope, and we shall wpreciate a repl
y ea soon as
possible.
Very truly yours,
(Signed) M,J.
Mortimer J. Vox, Jr.,
Chief Statistician.
3nclosuroa.
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Federal Reserve Bank of St. Louis
12th janunry 1935.
!,1r. Guy ii. Heath, Departmental lAcaminer
5tate Banking Department
ratstin, Texas
ear Mr. Heath:
I am attaching hereto copy cr letter under date of November 28, addrcssed to Mr. 117-and by the Corporation, requesting iformation pertainin to the old luaranty
and also a copy of their request for a reply to same.
I presuoe from the reading of the letter that Mr. Siddons
comitted himself to furnish this information, and that
the letter was referred to him for attention upon its receipt. rowever, if you can and will do so, I will appreciate it if you will forward any or all of the information
requested to me for transmittal to the iushint;ton office.
Very truly yours,
L. J. Davis,
Jupervisint: Zxaminer.
Lnclosures
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Federal Reserve Bank of St. Louis
22nd January
1 9 3 5
Keath, Departmental %xaminer
:Ante qanking Department
Austin, Texas
Dear nr. Heath:
This acknowledges receipt of your letter of
January 21st, enclosing information which I
reques!,ed in connection with the old :)tate
Guaranty Fund, for which I thank you.
Very truly yours,
L. J. Davis,
3upervising Exaniner.
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Federal Reserve Bank of St. Louis
nen:
erAT
October 1, 19:4
Mr. Linton J. Dqvis, Aoting Supervising Exuainer
Federal De?oAt Insurance Corporation,
Fedeva Rervc Bank Building,
Dull, Te):Js.
Dear sirs
The lizt of lioensv-,I h:•nxs in Texhc, not
aeabors of the Federeil Deposit In.,ur,nce Corporation
but insured under the state plan has been rooeived.
Thank yea for attending to this matt‘r.
Yours very truly,
Mortimer J. Foy, Jr.,
Chief Statisticibm.
••
"
„
C)
R. F. SIDDONS
DEPUTY COMMISSIONER
DEPARTMENT OF BANKING
AUSTIN, TEXAS
GUY H. HEATH
DEPARTMENTAL EXAMINER
JNO. F. MADDOX
LIQUIDATING SUPERVISOR
J. A. PRATT
BLDG. & LOAN SUPERVISOR
E. C. BRAND
COMMISSIONER
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Federal Reserve Bank of St. Louis
Tanutry
i, 1935
L. J. Davis, Supervising Examiner
.1dera1 Deposit Iasurance C
Dallas, Texa
Dear Sirs
Receipt is acknowledfed of y Jur letter o
with ',Lica was enclosed cooy of let
oL. tae
November 23.
re furnLahing yoa
For your information
tofore been _Iiressed
copies, in duplicate, of lett
tJ tle histcxy of bc-44s
t.) Honorable Thomas B. Love wi
and their operation unlr'r the
d. We are supplementing
this with e record,
the receipts bad eiscate,
is there are a few minor
bursements of the Y'
its 1
adjustments yet
tne fiial settlement
anecti
of the filed banks have
of the Fund bec
t a f
not been fins
unts to be receivoi from tais
source may be con
re advi
ficatee were not issued to de:Aosei i.
wkiica c
E6, and later. There are no priatcn ould gi
bay informLtion with reference to
Guaranty Fund.
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Federal Reserve Bank of St. Louis
Rona
MUT
January 2.1., 1931
Mr. L. J. Dovis, Supervising Xxaniner,
Moral Deposit Insurunce Corporation,
Moral Reserve Bknk Building,
Dallas Texas.
Dv,
.r Mr. Davis:
Thank you for the information co/learnt/1g
the state guaranty fund in Texas which wee contained in your
letter of January 22. This will be of assistance to us in
our study.
Ar. Siddons was in Washington last week
and explained that his delay in writing to us vas oesassioned
by the fact that he expected to be here. He has promised to
make available to us as such of the information held by
their departaant &I! is possible with their present steff.
This, we hops, will give us all that we desire to obtain.
Very truly yours,
Vortiaaer J. Fox, Jr.,
Chief Stntiaticiani
FH:WM
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Federal Reserve Bank of St. Louis
STA?
February 6, 19$11
Mr. R. F. Sides, Depity Commissioner,
Department ef
Austin, Texas.
Deer MN Siddanat
Our delay in sending to you the detailed
tables which we discussed while you were in Washington
has bees occasioned by our attempt to arrange figures
which would be somparable in all of the eight stAtea,
which guaranteed bank deposits.
Within the course of a week we should be
able to send to you our questions carefully deflnad so
as to oc:casion you no undue effort in furnishtng us the
InformAtion we roNvire.
We would, however, be very glad to receive
as on as is soureeleet a copy of the present Toms
law for guaranty of task deposits, whioh you proulsed to
obtain for us.
Very truly yours,
kortilaer J. Fox, Jr.,
Chief btatisticiam4
FH:W M
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Federal Reserve Bank of St. Louis
6TAT.
g.2.
November 28, 1.:54
Mr. E. C. Brand, Cowlissionpr,
Departl.,ent of Banking,
Austin, Texas.
Dear Zr. Brands
We were sorry not to havQ an opportunity to
talkwith you while you were at the 'Alka.:.erel Convention
2.iddoq, stated that yt-fu
in Washcrwt%)n. Your deputy,
would be glad to furnish surh inforntion as we desire.
We have in our possession a record r:,f the Deposito-st
Guaranty Fund of Texas 1.1,) to 1325 which was furnished
by Mr. Thomas B. 4,ovc. This record does net contain a
Atte:want of the ex:enditurce of the Fund, or of tl-e assesasante 'Cie were aid by the banks.
In 3.025 with t'ne change in the law the Fund
seemed to have been depleted. Tore certificates issued
to depositors in banks which closed in 19:6 and later?
Ras a final 3ettlement of the Fund ever been wade?
If there oxist- any other rinted re',orts
oncerninc the o,leration of tle Guaranty of Deposit Fund
in Texas, we would be very clad if' you could furnish us
with a cody of the saes together with the last oublished
re,)ort of the Banking De4 artic it.
Very truly yours,
Mort!. or J. Fr.x, Jr.,
Chief 7tat1stician.
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
FIAT
(Jef...nr 1,, tv4
Ur. W. A. Philpott, Jr., -;ocrestk.ry
Textte Bankers Associal„ion,
AmeriCan Bkinkers Association Convuntion,
Willard Hotel,
Washington, D. C.
Dear Mr. Philpotts
in connection vith our studies of thc bunking lawu
thlr oAtmtion in thtt states Which hnvu in
the puct wd dcix)wit inurrueft or cuarsny laws, it - ould
be of vnlukt.ble as:;tstnm:e if ono of the members of this
Dividon could huve 4 personal interview with you while
fou arc in Wushington.
Your firsthand icnonlwige of the situation
in Texas would shed light on hoc thi. various ,)artr of the
law operated.
The offices of thc: Federal Deposit Incur: nee
Corporation are locntrel in the Natieuul ?rest Builiing,
Whisk' is Jut across the street from tho Willard Botta.
Our room number it 4325 and our telephone number is District
1240, Extenaion
We would appreciate your grunting un an interview and advising us when and where it may be had.
Very truly yours4,
•
j.
-.;t•
Norti4r:r J. Fo, Jr.,
Chief 1.;tatisticinn.
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
,A\
UNION BANK & TRUST COMPANY
•
4 E. LYDICK,PRESIDENT
J. C. GRIFFITH, VICE PRESIDENT
C. M. PEARCE.,CASHIER
D. B. GILLILAND,ASST CASHIER
FORT WORTH,TEXAS
October 16, 1934
Mrs. Lethel h. Basted
3014 D
e,
vv• I
nas rwton, D. C.
Oear Mrs. Bastedo:
Our mutual friend, uolonel Cato Sells, called on me
yesterday and read to me a considerable portion of a letter you had
written him which had to do with the insurance of deposits, and asked
me to reply in detail to that phase of your letter, for the reason
that i have been in the banking business in Texas for thirty-eight
years, and naturally most of the time being in a state bank, am
familiar with the insurance of deposits and especially the Guaranty
of Deposit law formerly upon the statute books in Texas, which law
was later repealed.
The Guaranty of Deposit Law as provided by statute
in Texas operated upon the assessed feature for state banks only.
• It provided first, as i recall, that an assessment of 2 per cent
on the total non-interest bearing and unsecured deposits of its
members could be made each and every year if needed. 1-4'or the first
ten years of the operation of this law, the assessment was negligible.
Ly recollection is the whole ten years did not cost over possibly
one-half of one per cent tota7 for the ten years.
Then there came to Iexas the oil boom—Ranger, Burki3urnett, Eastland--and the promoter came along with the oil boom.
ihe promoter bought banks that had large deposits by reason of the
oil boom, and immediately stole the banks from the inside, and they
failed, one right after the other, and the assessment became so heavy
in time on banks that it was necessary to repeal the law because the
assessments were slowly dragging down the good banks. I recall a
bank of which I was president just prior to the repeal of the law, and
the last forty-five days before that bank was relieved of the assessment feature, the failures cost the bank on an average of five hundred
dollars per day in assessments.
I have often thought that had the national banks in
Texas been members of this Guaranty Deposit system, the assessments
would not have been one-half of the amount to the state banks, and
had the plan been nation-wide, the failures would have have been
negligible to the entire banking system.
411
This Guaranty of Deposit plan in Texas, called by
Fund elan", by reason of liquidations of the
"Guaranty
the
statute
closed banks over a period of possibly ten years, has not caused the
banks a great loss because the liquidations have paid back a great
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
mrs.ERB--2
portion of the assessments made. The banks who paid the assessments,
however, have lost the interest on their money for ten years.
My thought of the matter is that another thing that could
have very materially helped the situation during the time the Uuaranty
?und elan was in existence would have been to limit the amount of guaranty to five thousand dollars, which is the present plan of the Federal
Deposit Insurance Corporation, and this, to my mind, is one of the most
important elements of the present-day insurance, by reason of the fact
that big business interests are able to and capable of selecting proper
depositaries, but the little man, with a deposit up to, say, five
thousand dollars, needs the protection. In this respect, it is to be
hoped the Pederal Deposit insurance Corporation will not change that
feature of its present set-up.
Of course i do not want to convey the impression that
during the oil boom in Texas the state banks alone suffered from
crooked bank manipulations, because the crooked bank manipulator
during the oil boom bought control of the national bank as well as
the state bank in various oil localities, but in the final analysis,
the state bank did catch the brunt of the failure, because in a number
of instances, when it was inevitable that the national bank was going
to fail by reason of having been robbed from the inside, quite frequently the state bank in the same town had also been bciught and was
al
• also robbed from the inside, and prior to its failure, the nation
d
all
assume
bank
state
bank would be sold to the state bank, and the
state
the
fter,
Therea
the deposit liability of the national bank.
bank failing, the Guaranty Fund, of course, would be charged to pay
off all of the deposits.
411
The oil boom has long since passed, and the laws of
thened that now
the state banking system of Texas have been so streng
incompetent
remove
fit,
the Commissioner of Banking may, if he so sees
s,
desire
he
if
may,
persons from the management of banks; he also
also
may
bank
al
nation
refuse to permit a consolidation, just as a
national banks
refuse; and insofar as getting a charter for state and
r, in Texas,
charte
a
obtain
To
y.
as well, it is nearly an impossibilit
ity
necess
a
that
shown
be
must
for a national or state bank now, it
ced
convin
firmly
am
I
doubt.
a
of
exists and that beyond any question
the present set-up
in my mind, in so far as Texas is concerned, if
t insurance CorporaDeposi
l
Federa
as to the insurance feature of the
both national and
Texas,
in
banks
all
tion had been in existence, and
red the storm; and
state, had been members, the plan would have weathe
and national banks,
most assuredly had it been nation-wide, both state
one account been
and the limitation of five thousand dollars for
have suffered as
not
would
Texas
of
included, the state bank system
It did.
it
That gets me down, now, to the present Federal .Depos
Insurance Corporation.
ed
I am in favor of, and think the average man is entitl
e i think the
to, protection When he puts money in a bank, becaus
r to allow
charte
a
issue
they
when
ments,
govern
national and state
and protect
r
people to solicit deposits, should protect that charte
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
Mrs. ERB--3
the people who avail themselves of the privilege of the use of
that charter--to-wit, the depositors.
I do think that the limitation of five thousand
dollars is very ample and that larger business is able to take
care of itself and needs no protection.
Ihe objection of bankers as a whole would be to
increasing this limitation.
The state banks of Texas and of other states
as well object to that clause in the Banking Act of 1933 which
sooner or later (I think 1936) forces the state bank to join the
teederal Reserve System. That is the most objectionable thing,
in so far as the state banks of the United States are concerned,
which is voiced against the Act.
The small state bank feels that the Federal
Reserve System is for the large bank and not for the small bank.
The small state bank has established its satisfactory correspondents, and from time to time, if and when it needs to borrow, it
has its contact arranged and can make its borrowings from its
correspondents; if that particular correspondent does not seem
to meet the bank's approval, it may change to some other satisfactory bank. On the other hand, if the state bank is forced to
join the E,'ederal Reserve and carry all of its balance with the
Federal Reserve bank, then it automatically loses its borrowing
power with the city correspondents, having moved its balance from
the city correspondent; and if the Federal Reserve should see fit
not to extend credit, the bank has relinquished its city correspondents and could not, in good grace, call on them for assistance.
In this particular instance, i recall about five
years ago a country bank in which i had some friends sent some
paper to the Federal Reserve Bank at Dallas for about twenty thousand dollars. The bank sending the paper had a large balance on its
books which was being checked out by a farmer who was buying some
land. The Federal Reserve Bank sent back some seven thousand dollars of the paper, stating that upon looking at the country bank's
balance as carried by the vederal Reserve, it would reflect that
they did not need that much money to keep their reserve up. Of
course the Federal Reserve Bank of Dallas did not know the bank
had a check out against them, and the little bank came to me overnight and borrowed the money sufficient to take care of their needs.
In view of the fact that i have quoted the Federal Reserve Bank of
Dallas,
will now quote the fact that the bank was the First National
Bank of urandview, Texas.
There are 92 state banks in Texas Which have refused
to join the Federal Deposit insurance uorporation, and i dare say
that ninety-five per cent of those are refusing by reason of the fact
that there is in the law the provision that they must be forced to
join the eederal Reserve System in 1936, and those banks simply will
not go into the Federal heserve System. They are just afraid.
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
•
Mrs. ERB--4
bumming up the Whole matter, i would say the
.vederal Deposit Insurance corporation should be made permanent
with the amount insured not to exceed five thousand dollars, and
with the Act amended so that no state bank would be forced to
join the ruederal Reserve System. nith this done, my thought is
that nearly all of the objections to the Act will fade away.
Yours very truly,
Dan '
•
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
ydic .
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https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
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Federal Reserve Bank of St. Louis
•
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1141A
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All banks in Ztats
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.7 ore :f Fuaranty fund
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depos
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account
Assessiaallts
Deposits
Rate of
Amount of
d
on
assassin nt assessm ts
ts( 2
wüoh
perocint of levied 5
assessrae ts depob it
were
based IV
77
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Al
STATISTICAL DATA REGARDING DEPOSIT GUARA TY FIT7i;
I. COVERAGE AND A SSESSMENTS Bet9AzIpbers of guaranty fund
=-111-Mova
(State reports)I
banks in Stat
Number
Year
Number
(including loan
& trust
cI mpanies
f9ocf
4841-
icr / 0
Oci
q
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45X(c.
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5101z,5
'7063
70,611
97o
64,L.5444
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
Total
deposits
Total
capital
&coo t
Total
deposits
Number!"
Total
capital.
account
37,051
. -7g8/
i7go
91
Total
capital
account
59,484
53,07Y
0,-271
11,a51
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55,044
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To al
depositp
Assessments
Deposits
Rate of
Amount of
on
assessment assessmsnts
2
which
percent of levied
assessme ts depositm
were
based 3
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TEXAS - INSOLVENT BAY.KS REOPENED, TAKEN OVER, OR DEPOSITS ASSUMED BY
ANOTHER BA'K
1 WITH PAYMENT FROM GUARANTY FUND
•
Information from reports of Commissioner of Insurance and Balking
Farmers and Merchants State Bank of Waco - closed March 17, 1915
"NOTE.--The non-interest bearing and unsecured deposits of this bank
were paid by the First NatiLnal Bank of Waco under a contract entered into
by the Commissioner of Insurance and Banking and the State Banking Board
on the one hand and the First National Bank on the other, providing that
the amount so advanced by said bank should be repaid from time to time out
of the proceeds of the liquidation of the insolvent bank, and any deficiency
ultimately existing would be paid to the First National Bank by the State
Banking Boardout of the Depositors!. Guaranty Fund."
Report of Commissioner of Insurance aid Banking for the year ending
August 31, 1916, Pertajning-to Banking, p. 18.
Guaranty State Bank,Breckinridge - closedMarch 26, 1921
"Guaranty State Bank, Breckinridge, was taken over by Brechenridge
State Bank and Trust Company, therefore no financial statement as of
August 31, 1921."
Report of Commissioner .. for 1921, p. 38
Citizens State Bank, Alvin - closed Jan. 11, 1917
"Closed January 11, 1917, and ssets sold to the Farmers State Bank
of Alvin."
"...without loss to ceditors or guaranty fund."
Report of Commissioner.. Bor 1917, p. 18.
First State Bank, Donna
- Closed March 14, 1921
"The First State Bank, Donna, was taken over by the Gtaranty State
Bank, Donna, therefore no financial statement as of August 31, 1921."
Report of Commissioner .... for 1921, p. 39.
Temple State Bank, Temple
Closed May 3, 1921
"Temple State Bank, Temple, was taken over by the Guaranty State Bank,
Temple, therefore no financial statement as of August 31, 1921."
Report of Commissioner
1921,. p. 41
Denison Bank and Trust Company, Denison
Closed July 15, 1921
"The Denlisn Bank and Trust Company, Denison, was taken over by the
Central State Bank, Denison, therefore no financial statement as of
August 3L, 1921."
Report of Commissioner... 1921, p. 41.
NOTE. For following banks Report of Commissioner, 1922, has statement-"The sum of (amount) was withdrawn from the Guaranty Fund for the purpose
of paying off the non-interest bearing and unsecured deposits." Most of these
banks are shown by the Fed. Res. Committee schedules to have been reopened or
taken over.
Date closed
Amount
Page of report
First State Bank, Keller°-' Oct.19, 1921
$25,000'
44
First State Bank, Oakwood
Dec. 28 "
33,814..'
94
Woodville State Bank Woodville Jan.341"1922
25,500•!,
56
First State Bank, Bronte
Jan. 11 "
30,000
'
1
58
n
Golden State Bank, Golden
Jan. 17
7P500'''
El Pas)BaAc & Trust Co, ElPas0 Mir. 14 ft
63
129,614•0Vr
Traders State Bank, Cleburne i!--- Apr. 14 il
200,000
'
64
iii:444
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STATE BANKS CLOSED TN TEXAS, 1909-1939
From notes of Professor W. N. Peach dated 2/14/41
(haat
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Federal Reserve Bank of St. Louis
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. Gliatts.1,
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TABLE 1
Year
I
' NUMBER AND DEPOSITS OF STATE BANKS IN TEXAS CLOSED BECAUSE OF FINANCIAL
DIFFICULTIES, JANUARY 1, 1910,TO FEBRUARY 11, 1927
Total
number
of failed
banks
Failed banks entailing obligations on the fund
Number
Deposits
Number sus
Deposits in
(inil-^,
,/ pended per
closed banks
m/dollars)
166 active
per $100 of debanks
posits in active
banks
Reopened
with no
obligation
on the fund
1910
1911
1912
1913
1914
1915
.80
3
1916
1917
1918
.05
1919
,0 I
1920
1921
30
1922
1923
I0
1924
1925
1926 ,
/?
3
1927.11
'5"
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117_1 2
-
3
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Tablet. CAUSES OF SUSPENSION OF STATE BANKS, 1921-1930 AS REPORTED
ON SCHEDULES PREPARED BY COMMISSIONER OF BANKING IN TEXAS FOR THE
FEDERAL RESERVE COMMITTEE ON BRANCH, GROUP, AND CHAIN
BANKING
Number of Cases
Primary
Contributing
Cause
Cause
Total Number of Suspensions, 1921-1930
188
Dishonesty on part of officers or employees:
Defalcation
33
24
1
123
Excessive loans to the management and collapse
of speculative booms with which banks were
associated:
Regional economic disaster and collapse of
prosperity in specific industries:
Losses due to unforseen agricultural or
industrial disasters such as floods,
drought, boll weevil, etc.
Decline in real estate values
-0-
16
Managerial incompetence, inadequate earnings,
and excessive competition:
Incompetent management
135
39
Insufficient diversification
-0-
26
135
39
Failure of affiliated institution or
correspondent
11
-0-
Other causes
10
70
Causes not readily classified above:
Heavy withdrawals
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