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Federal Reserve Bank of St. Louis
PAMPHLETS AND ARTICLES REGARDING
GUARANTY OF BANK DEPOSITS IN
EIGHT STATES DURING 1908-1930
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PAMPHLETS AND ARTICLES REGARDING GUARANTY OF BANK DEPOSITS
IN EIGHT STATES DURING 1908-1930
Contents
"Four More Years of Deposit Guaranty", by Thornton Cooke
Excerpt from "The Collapse of Bank-Deposit Guaranty in Oklahoma
and Its Position in Other States", by Thornton Cooke
"Guaranty of Bank Deposits", Federal Reserve Bulletin, Sept. 1925
"The Guaranty of State Bank Deposits", by John G. Blocker
"Guaranty of Bank Deposits in Eight State4 by A. B. Butts
"The Guaranty of Bank Deposits", A Report of The Commission on
Banking Law and Practice
The Guaranty of Bank Deposits, by the Economic Policy Commission,
American Bankers Association
"The Guaranty of Bank Deposits", by Arthur Alvin Smith
Other references
NOTE
For copies of some short articles, see binder entitled "Deposit
Insurance: Bibliographies and Journal References".
For articles pertaining to specific States, see the binders for
those States.
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IT
"Deposits Guaranteed." If he has gone inside he has
found the same advertisement on the stationery. Bank
deposits in these states are protected by funds raised by
special taxation of the banks and administered by the
state banking boards. The system,established in Oklahoma as an outgrowth of the panic of 1907,and followed
with variations in the three other states mentioned, has
for its objects the.distribution among bank stockholders
generally, of losses that have heretofore fallen upon the
depositors of failed banks, and as consequences, the
prevention of individual distress, the prevention of
panics by maintaining the confidence of depositors,
and the increase, due to such confidence, of the volume
of deposits and the usefulness of banks. This experiment, unparalleled, except for the New York episode
of three-fourths of a century ago, was discussed by the
present writer in these columns four years since.' The
progress of the experiment since that time now warrants
further conclusions, and it is proposed now to review the
incidents of the intervening period.
At the time of the former study, the question of the
validity of the Oklahoma, KanAtts, and Nebraska deposit guaranty laws was pending in the Supreme Court
of the United States. The Texas law had not been
attacked, its, opponents being willing, apparently, to
abide by the results of litigation over the laws of the
other commonwealths.
The three laws attacked were all upheld on the principle that such taxation was not the taking of private
property for a private purpose, but was the taking of
private property for a public purpose, and a valid
exercise of the police power of the states. It was held
that the state undoubtedly had the authority to lay
1 Quarterly Journal of Economics, vol. xxiv, pp. 133, 327; reprinted in Sen. Doe..
No. 659, 1318t Cong., 3d Session, Appendix B.
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down such conditions precedent to the conduct of the
banking business. "In short," said the court, "when
the Oklahoma legislature declares that free banking
is a public danger, and that incorporation, inspection,
and the above described co-operation [the provision of a
guaranty fund by taxation] are necessary-safe-guards,
this court certainly cannot say that it is wrong."
This litigation had been conducted with bitterness
on both sides and its termination was a relief. While
the legal problems were much the same in the various
states, the financial and administrative questions have
differed, and the experiences of the various states require
separate consideration.
I. OKLAHOMA
The first results of the guaranty legislation in Oklahoma had some. appearance of success. The state
banks gained rapidly in number and in business, while
many national banks surrendered their charters and
reorganized under the state law, the business of the
remaining national banks keeping barely steady. For
more than three years now the current has been the
other way and the Oklahoma experiment is found to
have cost the solvent state banks in five years more than
two million dollars. Bank after bank has failed.
Banks in large numbers have left the state system to
enter the national system for the purpose of escaping
the heavy assessments levied under the state law. The
remaining state banks have now forced through a new
law limiting more closely the annual assessments for
the guaranty fund, and have been compelled to take
Noble State Bank v. Haskell, 219 U. S., 104, 31 Supreme Court Reporter, 188;
Shallenberger v. First State Bank, 219 U. 8. 114, 31 Supreme Court Reporter. 189;
Assaria State Bank v. Dolley, 219 U. S. 121, 31 Supreme Court Reporter, 189; Abilene
National Bank v. Holley. 33 Supreme Court Reporter No. 10, P. 409.
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matters, as far as possible, into their own hands. Such
a result was forecasted in the articles in this Journal
•three and four years ago.
The Oklahoma laws of 1907 and 1909 provided for
the accumulation of a guaranty fund of five per cent
of the deposits of the state banks, out of which the
depositors of failed banks should be paid the amount
of their deposits as soon as banks closed, no matter
whether the fund had reached the five per cent maximum or not. In case the accumulations in the fund
should ever be insufficient to pay the deposits of any
failed bank, interest bearing warrants were to be issued
to the depositors. The conclusion from a study of the
situation in 1909 was that any plan that provided for
payment of depositors immediately upon the closing of
the banks must fail, unless as a matter of simple luck
failures should be very few until a large fund could be
accumulated.I The luck has been the other way.
The Oklahoma crops of 1910 and 1911 were poor. The
crops of 1912, tho on the whole good, were not sufficient
to restore the former level of prosperity. The year
1913, except in the cotton raising counties, has been
unfavorable. The real estate boom that had been
going on in many Oklahoma towns collapsed in 1910
and the succeeding years. Since the date of our former
study, therefore, the state of Oklahoma has not enjoyed
even average prosperity for the working out of the
experiment of deposit guaranty.
No fewer than twenty-seven banks, with about
$7,000,000 of deposits, have failed since the establishment of the guaranty system, or have been liquidattd
With the aid of the guaranty fund,'and at least two
others have required assistance from the guaranty fund.
These failures, however, cannot be attributed to the
1 Quarterly Journal of Economics. vol. 'sly, p. 340.
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adverse agricultural conditions. Only three national
banks have failed in Oklahoma during the same time.
Many of the state bank failures must be due to recklessness and incompetence.
It will be remembered that the first guaranty law of
Oklahoma was enacted immediately after the creation
of that state, which includes what was formerly Oklahoma territory and also what was the Indian territory.
The territory of Oklahoma had had a banking law and
bank inspection while the Indian territory had not. It
resulted that a great many banks that had never been
supervised were thrown under the jurisdiction of the
banking department of the state of Oklahoma. It was
announced 1 that all were examined before the guaranty
law went into effect, but this proves not to have been v
literally true. Results indicate also that the examinations were in many cases superficial and inefficient. The
report of the Bank Commissioner about that time
states that a large number of banks were technically
not in harmony with every provision of the laws.2 It
was, however, felt by the state authorities that it would
be unwise, and certainly it would have been unpopular,
to put these banks out of business. Their deposits
were, therefore, guaranteed and they remained a menace
to the guaranty experiment. It is now said in Oklahoma that 75 of them were actually insolvent. This
assertion cannot, of course, be verified; it illustrates
the bad feeling caused by losses and consequent heavy
assessments upon the solvent banks.
Perhaps the most unfortunate condition of all has
been that for much of the time the state banking department was regarded as a part of a political machine.
The department seems to have considered it necessary
1 First Annual Report of the Bank Commissioner, p. viii.
Ibid.. p. ix.
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to make a showing of success for the guaranty law, which
was a political measure. When it was no longer possible
to keep a bank open it was deemed essential to pay the
depositors at once even if prudence would have dictated
that time be taken for exact investigation of the situation. At the same time the Banking Board feared
the political effect of levying on the solvent banks
assessments sufficient to cover all failures as they
occurred. It was believed, and was probably true
that, if the limit of assessments, two per cent of deposits
per annum, should be levied, the state banks would
literally rebel. While the courts would undoubtedly
have decided that the banks must pay the full assessments, in practice such assessments could..,, not have
been enforced. If the six hundred state banks had
combined to resist such assessments, court decrees
would not have amounted to much and the political
prestige of Governor Haskell and his Bank Commissioners would have suffered irreparable injury.
Again, there have been more than a few cases of outright dishonesty in the administration of the banks.
The present Bank Commissioner of Oklahoma has said
that the heaviest losses of the past few years could have
been avoided if more careful scrutiny had been given
to the records of those who sought permission to
organize and operate banks.' In a recent conversation
this Commissioner, Mr. Lankford, told the writer
that he had removed twenty bank officers and prosecuted sixteen others during his term.
Some rascals come into every new country and every
new state at its settlement. That there have been
bad men in Oklahoma banks will not surprise those
who remember how Oklahoma was first settled by
horsemen who lined up at the K,ansas or the Texas
1 Proceedings of the Oklahoma Rankers' Association. 1912. p. 91.
•
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border and at a signal rode for the choice claims, nor
those who remember that for years the Indian territory had not even a territorial government, justice
being administered by the Indian tribes or by infrequent
federal process. Good men predominated, of course.
The wonder is that bad men have been so few and are
being got rid of so fast.
Now a record of nearly thirty bank failures in five
years, with almost all of them coming in three years,
has not been equalled in the United States for a long
time, the most recent parallel being perhaps the experience of some western states during and after the panic
of 1893. The comparison holds good with respect to
some of the Oklahoma failures. The greater number
were simply a result of collapse after rapid settlement
and exploitation, followed by a period of agricultural
adversity, in a state where the records and the capacity
of bankers were not closely investigated, and where
bank examinations were in too many cases ineffective.
These are not the cases, however, that have cost the
guaranty fund any great part of the two million dollar
loss.
It will be instructive to consider certain failures and
see how they affected the guaranty fund, or have been
affected by it. In November, 1910, the Creek Bank
Trust Company of Sapulpa failed. This was a crooked
failure and one of the officers was sentenced to the
penitentiary. September 10, 1912, there was another
failure at Sapulpa, the Farmers and Merchants Bank,
which one of the State Banking Board told the writer
was the worst mass of filth he had seen in Oklahoma
banking. Two of the officers were in jail for some time
for failing to produce some of the books.
The Citizens Bank of Mountain Park failed in April,
1911. The last report of the Bank Commissioner says
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that twenty-five thousand dollars of the notes held by
the failed bank represented fraudulent transactions of
the officers, who had been arrested and were then under
bond awaiting trial.'
The Bank Commissioner took charge of the Night
and Day Bank of Oklahoma City, June 7, 1911. This
was one of a chain of Night and Day Banks operating in Memphis, Tennessee, Kansas City, Missouri,
and Little Rock, Arkansas. Another bank in Hot
Springs was also in the chain. Abner Davis, President of the Oklahoma City institution, was convicted in the United States Court at Memphis, in
October, 1912, with five others, for misuse of the mails
in the furtherance of fraudulent bank schemes. He
went to old Mexico, and there was a rumor that he was
thrown into jail there for some other reason. The
following amusing incident is here set down for any
bearing it may have on the quality of some Oklahoma
examinations a few years ago. A banker who was then
a state bank examiner in Missouri tells the writer that
he was in Oklahoma City to gather some information
bearing on the Kansas City institution, and that one
of the Oklahoma examiners was assisting him by looking over the books of the affiliated Oklahoma City
bank. The Oklahoma City examiner came back to
the hotel and told the Missouri examiner that everything must be all right, that Abner Davis had $30,000
on deposit in the Night and Day Bank of Oklahoma
City. The Missouri examiner told him he had better
go back and look again and make a thoro investigation of that account. The Oklahoma examiner insisted, however, that he was correct. When the bank
closed a short time later it developed that the $30,000
was not a credit, but was an overdraft, and that the
1 Third Biennial Report of Bank Commissioner, p. :iv.
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examiner had been deceived because the amount had
been carried on the books in black ink instead of red.
This bank finally cost the guaranty fund about
$400,000. The efforts of the Banking Board to save
the bank by guaranteeing its assets to successive
purchasers are told below.
The Farmers State Bank of Tushka was closed in
September of the same year. It cost the Fund $26,000
and the cashier committed suicide as soon as the State
Bank Examiner took charge.'
The First State Bank of Pryor lost its capital of
$30,000 and $30,000 besides, but the stockholders made
good the loss to depositors. This failure, therefore,
cost the guaranty fund nothing.
The administration of the banking department
during this time of numerous bank failures has been,
of course, a matter of extreme difficulty. The law
contemplated, and politics demanded, that the depositors be taken care of at once. Yet with failure after
failure coming, and with the banks rebelling against
the intolerable assessments, it seemed necessary to
resort to most astonishing expedients. The provision
of the law applicable was the following:
"If the amount realized from such emergency assessments shall be insufficient to pay off the depositors
of all failed banks having valid claims against said
depositors' guaranty fund, the State Banking Board
shall issue and deliver to each depositor having any such
unpaid deposit, a certificate of indebtedness for the
amount of his unpaid deposit, bearing six - per cent
interest." 2
Instead of closing insolvent banks, however, and
issuing such warrants to depositors, the State Banking
1 Ibid., p. ivilL
I Banking and Trust Company laws
Bet% 2. Italics are the writer's.
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QUARTERLY JOURNAL OF ECONOMICS
Board resorted to all kinds of schemes to keep the
insolvent banks running, hoping against hope that they
might be restored to solvency or that actual collapse
might be avoided until the fund could be replenished
sufficiently to take care of the depositors. For these
reasons the Board borrowed money in Oklahoma and
elsewhere. issuing warrants therefor against the guaranty fund. In the opinion of the writer authority for
such warrants existed nowhere in the law either specially
or by implication. Further, the Board has bought
securities from banks in a critical condition in order
to provide such banks with cash; has made deposits
in other fsuling banks: and has frequently induced
one bank to take over the business of an insolvent
bank by guaranteeing to the solvent bank the assets
of the insolvent bank. Such efforts to postpone the
evil day do not often succeed. They are far more apt
to be a throwing of good money after bad, and such
procedure has becn. bitterly criticised by the solvent
state boa+ Irr-; vrbs./ believe that their assessments to
meet failures nave been greatly increased by the temporizing policy of the Banking Board.'
The f.r..4. great test of the Oklahoma guaranty law,
it will be rerziernbered. came with the failure of the
Coiwnhta Bank.k Trust Company of Oklahoma City
Late in 1909. That still remains the greatest failure
that has occurred in Oklahoma banking, both from the
point of view of the amount of deposits involved and
from the point of view of lckss to the guaranty fund.
In the former study of the guaranty of bank deposits
it seemed necessary to criticise the procedure of the
Oklahoma Banking Department in beginning to pay
depositors without any adequate inquiry into the extent
of the failure. It now appears that the department
Proceedings of the Oklahoma Bankers Association, 1912, p. 77.
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was even more reckless than was then supposed, and
that it did not even first prove the amount of notes and
securities on hand, much less their value. The result
was that when an attempt was made to take a proof
some three days after the failure there was a discrepancy between the books and the notes of more than
$70,000. It proved impossible to locate the discrepancy, because essential records, including the discount
ledger and general cash journal, had absolutely disappeared. So far as the writer is aware they have
never been discovered.
A sale of certain securities to Cobe and McKinnon of
Chicago was arranged for the sum of $300,000 and up to
January 30, 1911, $248,000 had been received from
Cobe and McKinnon by the Banking Board. Cobe and
McKinnon, however, were at that time claiming large
sums from the Banking Board on account of the failure
of title to certain items which they had included in their
bid. On the other hand, the cost to the Banking Board
of releasing from liens and from possible bankruptcy
proceedings such notes and securities as it had actually
delivered to Cobe and McKinnon had been $194,000, or
within $54,000 of the whole amount the Board had
received.' The writer is informed that litigation over
the claims of Cobe and McKinnon is still pending. This
one failure has cost the Oklahoma banks $600,000.
Almost worse than the actual loss have been the suspicions and recriminations aroused by the incidents of
the failure and the liquidation.
In January, 1911, the Banking Board made a sale
of 460 shares of stock of the Night and Day Bank of
Oklahoma City to C. J. Webster and his associates
with the agreement that the $46,000 paid in by Webster
should be considered an asset of the bank, which, with
Report on Oklahoma State Guaranty Fund by Arthur Young and Co., p. 73.
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QUARTERLY JOURNAL OF ECONOMICS
surplus and profits, should be kept in a separate account
known as an "indemnity account," to be used from
time to time to indemnify C. J. Webster and his associates against any loss of any kind whatever due to
impairment of capital or insufficiency or insolvency
of notes or other securities or against any discrepancy
in the accounts. The sum of $60,000 was left on deposit
by the Banking Board as additional security to Mr.
Webster, and the bank was kept running. Later the
bank was taken over by the Wilkin-Hale State Bank
of Oklahoma City, the Banking Board taking all doubtful assets not accepted by the Wilkin-Hale State Bank
and paying the latter the difference between the liabilities assumed and the assets taken. This difference
was paid largely in warrants which were themselves
only paid this year. The cost to the Banking Board
in liquidating the Night and Day Bank had been, to
January 1, 1913, $366,000.'
The Planters and Mechanics Bank of Oklahoma City
was allowed to run long after its desperate condition
was known. This was one bank from which the Banking Board purchased certain securities in an effort
to keep it going. As early as July, 1910, the Banking
Board was depositing money in it, and was buying
securities from it, in an effort to strengthen its reserve.'
The bank was not closed, however, until April 6, 1911.
Bankers expect the failure to cost the guaranty fund
about $300,000.
At Durant, the Banking Board deposited $25,000
in the Guaranty State Bank as security against any
loss it might sustain in liquidating the Oklahoma
State Bank.
Third Biennial Report of the Bank Commimioner, p. v.
I Report on Oklahoma State Guaranty Fund by Arthur Young and Co., p. 77.
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At Muskogee,the Alamo State Bank took over certain
assets of the Oklahoma Trust Company, and assumed
certain liabilities. Later it was reported that the
Alamo State Bank was itself not in a condition to
continue business without additional capital. The
Union State Bank was therefore organized to take over
the business and to it the State Banking Board paid
$40,000 as a part of its capital, the Board holding the
shares as security for its advances.' The load has
proved too heavy for the Union State Bank and it has
just been closed (September 13, 1913).
At Sapulpa and Ochlelata new banks were organized
to assume the deposit liabilities of failed banks, under
guaranty of assets by the State Banking Board. At
Oklahoma City in a recent case the Banking Board
issued a large amount of warrants to enable a failing
bank to continue in business under a new management.
This case was in the mind of a banker who said in substance at the meeting of the State Bankers' Section
of the Oklahoma Bankers' Association last May:
"There will be a meeting of the Executive Committee
after the close of this session. I want the state bank
examiners who are present to remain for that meeting.
I want them to explain how it is possible for a bank
under their jurisdiction to fail for $140,000."
This bank illustrates some vicious tendencies of bank
deposit guaranty unsupported by the strictest control
of bank organizations. Its president was a man who
years ago established a small bank in OklahomaCity and
so failed to win the confidence of the community that he
finally went out of business. Under the guaranty
system he went into business again on a much larger
scale. He obtained deposits f about $300,000, and
Report on Oklahoma State Guaranty Fund, p. 91.
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it has cost the Banking Board about $190,000, less
salvage, to save the depositors.
Still another Oklahoma City case took $30,000 out
of the guaranty fund. It is astonishing what a heavy
proportion of all the losses has occurred at Oklahoma
City. An Oklahoma City banker estimates the losses
to the fund in his own city at $1,670,000 (the exact
cost depends on the result of the liquidations). This
may be high, but at any rate approximately three
dollars out of every four the fund has lost have been
lost in Oklahoma City, the metropolis and now the
capital. The effect of unfavorable economic conditions
has been cumulative upon those banks at the capital
that from recklessness or inexperience have not been
able to keep clear of bad paper, or in one case perhaps
have not tried. It has been already pointed out
that an inevitable effect of a state-administered system of deposit insurance, or guaranty, is that the state
cannot limit the size of single risks. Nor can it avoid
the "conflagration hazard" by fixing a maximum of
risk that it will assume in a single locality.
The cases described sufficiently illustrate failures and
liquidations. They are a sorrowful story, even tho
not all failures were dishonest and not all liquidations
wasteful. The procedure of the Banking Board in
many cases where banks were in difficulty seems to
the writer outs* the law as it existed before the last
session of the legislature. The law contemplated
that the Banking Board should pay the depositors
after failure, not that the Board should try to avert
failure by depositing money in failing banks, buying
their securities or guaranteeing their assets. How
competent business men could do such incredible
things can be explained in only one way. To repeat,
these expedients were resorted to under the pressure
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of real or supposed necessity, that of preventing the
actual closing of the banks in such numbers as to break
down the guaranty system. The writer was present
this year at the meeting of the State Bankers' Section
of the Oklahoma Bankers' Association. One of the
new members of the State Banking Board nominated
by the State Bankers themselves arose and said that
he had formerly been of the opinion that the effort to
keep insolvent institutions going was wrong, but that
since becoming a member of the State Banking Board
and having an opportunity to look at things from the
inside he was not sure that there had been any other
way. He was of the opinion, however, that it would
be no longer necessary to postpone the closing of insolvent banks, because the new Oklahoma law adopted
this year provides for smaller maximum assessments
than. before, and so seems to contemplate a condition
wherein the issue of warrants to pay depositors of failed
banks may be regarded as for the present the normal
method of making such payment.
This brings us to a consideration of Oklahoma legislation since the article in this Journal three years ago.
In 1911, there was an amendment of the guaranty act
providing that trust companies should not have the
benefit of the act and providing that the guaranty
fund, when collected, should be deposited with the bank
by which it was paid, and that a special certificate, or
certificates, should be issued therefor to the Bank Commissioner, such certificates bearing interest at 4 per cent
per annum. Changes made by the act of 1913 have been
very important. The state banks had found intolerable a condition under which they had been assessed
four and one-half per cent of their deposits in five years,
and they told the politicians that if they would place
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QUARTERLY JOURNAL OF ECONOMICS
the State Banking Board in the hands of the bankers
themselves, the bankers would serve without salary.
The act, therefore, provides for the organization of the
State Bankers' Association with one representative
from each bank. This association nominates three
persons from whom the Governor is to choose the Bank
Commissioner and nine persons from whom the Governor is to select three other members of the Banking
Board. The Commissioner and the three other members so selected are the Board. This is the first instance
in America of conferring upon a Bankers' Association
the power of making nominations for public offices.
The three members of the Banking Board selected
by the Governor from the nominees of the Bankers'
Association are John J. Gerlach, A. D. Kennedy, and
W. F. Barber, all recognized as sound and experienced
bankers.
Under the act of 1909,the Banking Board had authority to levy emergency assessments up to two per cent
of the average daily deposits, but the Board had never
dared to make emergency assessments exceeding one
per cent. It is now provided that the regular assessments of one-fifth of one per cent of deposits shall not
be exceeded except in the fiscal years 1914, 1915 and
1916, when the assessments may reach two-fifths of
one per cent. Oklahoma State bankers are inclined
to regard this as a great improvement in the law.
It may be doubted, however, whether any law which
diminishes the amount of taxation permissible for the
replenishment of an insolvent fund can be regarded as
an improvement. It is significant that the permanent
guaranty fund to be accumulated is now reduced to
two per cent of deposits instead of five, altho practically neither amount could be reached for years, if
ever.
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The new law follows the Nebraska law in not collecting the assessments until they are needed. Nebraska
banks enter the amounts of the assessments on their
books to the credit of the State Banking Board. Oklahoma banks pay with cashier's checks, not bearing
interest, and the checks are to be held by the Banking
Board till needed. It is not an element of strength in
any insurance scheme to leave the collection of premiums
until a loss occurs. One supposes that cashier's checks
are taken instead of book credits in the belief that
bankers objecting to assessments would pay their own
cashier's checks, when they might possibly refuse to
pay drafts by the Banking Board against a guaranty
account set up on the bank's ledger. To secure its
liabilities to the Depositors' Guaranty Fund, every
state bank is now required to deposit with the Board
bonds or warrants equal to one per cent of its deposits,
but not less than $500 in any case. Some banks have
refused to do this, but have not yet been closed for
refusing.
Guaranty Fund Warrants can now legally be issued
to any concern that will take them instead of merely
to depositors of failed banks, as the law read before.
That is, the Board can borrow money and so pay
depositors in cash. State bankers, therefore, say that
they have funded their debt. To make a market for
the warrants, they are made legal security for public
funds and for any deposits which foreign corporations
are required to make in the office of the State Treasurer.
Further, they are made non-taxable for any purpose
whatever. Any bank may deduct its holdings of
Depositors' Guaranty Fund Warrants when returning
its capital for taxation. Such are the means employed
to bolster up the paper of the guaranty system.
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QUARTERLY JOURNAL OF ECONOMICS
The criminal provisions of the banking laws were
greatly strengthened because it had been found in
practice almost impossible to obtain convictions for
bank wrecking. Juries are sympathetic because, up
• to date, no depositor of a state bank has lost any money;
and since no one in the community has lost anything
the atmosphere is not favorable to the administration
of punishment.'
These constantly recurring losses in Oklahoma City
and elsewhere, aggregating $2,000,000, have made it
necessary to assess the state banks an average of one
per cent per annum on their deposits, a total of about
$1,750,000. Yet the fund owed in June some $418,926.56 of unpaid warrants with only $35,000 on hand.2
Now one per cent of deposits is from four to seven per
cent of the capital of the average Oklahoma state
bank, depending on the season. Such a recurrent drain
in lean crop years has become unendurable. To bring
this home, the following table gives special instances
told the writer, the names of the banks affected being,
of course, omitted.
In four yea= one bank with $50,000 capital paid $13,000 in assessments
a
a
50,000 "
a
10,000
50,000 a
15,000 *
10,000a
a
a
1,300 a
a
15,000 a
a
3,000 "
5,000 "
2,255 "
a
30,000 a
20,000 "
•
a
B.C Burnett,'Not Guilty,' —"After asomewhatstrenuous trial B.C.Burnett,
one of the officers of the failed Sapulpa Bank, was declared not guilty. The bank was
in bad shape about three years and was permitted to remain open by the banking board
to reduce the Guaranty Fund liability, which was done. The verdict of the jury is
in line with several other verdicts which established the belief that it is practically
impossible to convict a banker on a loss to the Guaranty Fund. however, the Burnett
case was not tried under the new law passed by the last legislature which is far more
explicit and stringent than the old one." Oklahoma Banker, vol. IV, p. 370.
In Kansas the situation is very unlike this. There•banker accused of crime is
thought to have very little chance with a jury,
I Letter from the Bank Commissioner.
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Federal Reserve Bank of St. Louis
DEPOSIT GUARANTY
87
The manager of the first bank in the table said to the
writer: "That $13,000 would look good now, if I had
it in my surplus account." The last bank in the table
has since found it necessary or desirable to merge with
another institution.
Many bankers have not been satisfied to wait under
such crushing burdens for the enactment of legislation
limiting the emergency assessments for the guaranty
fund. From January 1, 1910, to April 21, 1913, 101
state banks in Oklahoma entered the National System.
A few banks had already taken this step by the opening of 1910. Only 7 more followed in that year,
altho the liquidation of the Columbia Bank and Trust
Company and the emergency assessment levied in
connection with that failure were bitterly resented.
In January, 1911, the decisions in the guaranty cases
were announced and in March, a further emergency
assessment of one per cent was made. During 1911,
therefore, no fewer than 65 banks nationalized. The
movement continued all through 1912, when 21 banks
left the state system. There has been no sign of a
weakening of this tendency this year, 8 banks having
nationalized up to April 21st.' Many thought to
escape assessments already levied, but the courts hold
that national banks are liable for aisessments levied
upon them before their nationalization and while they
were yet state banks. It is announced that suits will
be filed to collect such levies. These 101 banks have
a total capital of more than $3,500,000, and the loss to
the state system is very considerable. Besides the
banks that have converted or reorganized, 10 banks,
to the close of 1912, have consolidated with existing
national banks. Twenty-eight of the 101 banks
nationalized and 3 of the state banks that consolidated
3 Letter from the Comptroller of the Currency.
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QUARTERLY JOURNAL OF ECONOMICS
with national banks had themselves been conversions
from the national system. One of the most striking
incidents of the early years of the Oklahoma experiment
was the large number of banks that left the national
system and entered the state system because of the
increase in deposits that was observed to accrue to
state banks. It is interesting to see how many of these
and how many of the other state banks found the burden
of guaranty assessments intolerable.
According to the reports of the Bank Commissioner,
some 50 other state banks left the state system between
January 1, 1910, and January 11, 1913, by liquidating
or by consolidating with other state banks.
It must not be thought that all state banks have nationalized that could do so. The Bank Commissioner's
report published last December shows 113 state banks
with capitals of $25,000 or more,all of them,that is,large
enough to enter the national system. Doubtless some
of them were otherwise not in condition to nationalize,
but many, or most of them, could have done so if their
officers had believed the change advantageous. Of
course the little banks with capital of $5000 to $20,000
cannot ordinarily nationalize without raising more
capital than it is convenient for their stockholders to
supply, or more than their business requires. Many
banks remain in the state system, and many new state
banks are organized, despite the guaranty taxes.
The reports of the Bank Commissioner show that
from January 1, 1910, to November 26, 1912, 114 state
banks were organized with $1,987,000 capital. New
banks were organized at almost as rapid a rate during
the first half of the present year. There is a craze to
"start banks," and they are being organized in excess
of economic need. The Bank Commissioner said a
year ago that there were on file more, than 300 appli-
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Federal Reserve Bank of St. Louis
DEPOSIT GUARANTY
89
cations for state bank charters.' In view of the ease
with which new banks obtain deposits, their deposits
being guaranteed, the numerous applications for charters were regarded as a public danger. The Commissioner, without authority, had denied some applications,
and the legislation of this year has put the issuance
of bank charters entirely in the discretion of the Commissioner and the Banking Board. This provision is
liked by the bankers, who see danger in the organization
of numerous weak banks. Certainly no one will quarrel
with rigid investigation of every applicant for a bank
charter. His experience, ability, and integrity should
be established conclusively. But when a man of experience, ability, and integrity desires to establish-a bank in
a given locality, is it for any public officer to deny him
the right to do so? If the organization of the bank
would be a business mistake, and an unprofitable
venture, has not our country grown and prospered by
allowing its citizens the privilege of making their own
ventures and their own mistakes? The same considerations apply to the fixing by the Bank Commissioner of
the maximum rate of interest on deposits. This is
done in Kansas and Oklahoma. The object is the
prevention of reckless overbidding. The result is a
"fixing of prices," an interference with the freedom of
contract, such as has been thought unwise in modern
times.2
I Proceedings of the Oklahoma Bankers Association, 1912, p. 87.
I The maxima fixed by the Bank Commissioner of Oklahoma are:
3% on accounts of banks, insurance companies, etc.
3% on certificates of deposit 90 days or more.
4% on certificates of deposit 6 months or more.
4% on savings accounts.
No interest on checking accounts, except 3% on public funds.
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!TEMPI IN ROUND AMOUNTS FROM OKLAHOMA BANK STATKMENTR
,tiwt, banks,
Number of Inioloi
I 'I.pititl
Sin-plum
Dill' to losilloo ....
1 nilivid'lel deposits'
Dm froin banks
Cash.
Nahanni banks
.Number of banks .
Capital
Surplus
.
1)tie to banks
Individual deposits'
U. 8. Deposits
Due from banks
Clash
rob. to, 19011
Neg. 111, IWO
662
10,767
695
11,570
1,386
5,6W2
54,756
25,129
4,025
,27:1:11
64
580'
476
18,032
7,529
2,078
4,537
49,775
20,659
4,007
P.O. 14,1008
Nor. 16,1000
Jon.31,1910
Jon. 7, 1911
312
12,215
3,063
4,416
38,298
1,789
14,801
5,878
220
10,070
2,674
'219
9,W27
2,736
7,166
43,112
229
10,745
2,925
11,161
47,651
770
20,934
5,625
lihl
1 (Deludes trust companies.
I Does not include cashier's and certified checks.
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Federal Reserve Bank of St. Louis
!mi.81, 1910
668
10,679
1,079
4,142
49,928
17,670
4,092
Jon 7, OM
8,203
41,617
765
16,657
4,968
693
15,260
4,7S1)
P.O. 10, 1911
April 4, 1918
606
9,079
1,126
2,251
42,629
14,217
3,057
028
9,841
1,163
392:343691
12
3:3
13
8(71
P.O. Si), 1011
Apra 4, 1913
12,9
28
1:
51
3,279
7,503
53,094
1,083
17,973
5,24:3
I Includes cashier's and certified checks.
314
13,720
3,632
10,329
67,329
1,225
25,210
6,610
Aug. 9,1913
596
8,867
1,162
2,124
40,181
11,779
2,614
Avg. 9, 1913
14,?32630
3,9:13
8,855
67,753
996
21,165
6,247
8
......, 1:11 re
• • e• .....
1
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4
ia.1 UR
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WiltaYORWIMICIMOWiMirtIPPeilibl
121
'
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cn
'.-...: ;.
a 5"
DEPOSIT GUARANTY
91
The state system, beginning with 470 banks and
$25,000,000 of deposits in 1908, when the guaranty
legislation went into effect, grows rapidly in number of
banks and in business for three full years, until the
state banks number 695 and the deposits amount to
$60,000,000. Even the failure of the Columbia Bank
and Trust Company in September, 1909, does not stop
the organization of new banks and the conversion of
national banks into state institutions. The national
banks fall off nearly 100 in number, and the deposits
of those remaining show only a normal growth.
The national banks, however, begin to gain in numbers and deposits a year before the state banks begin to
lose, in fact while the latter are still gaining. There
were 219 national banks in January, 1910, and 326 in
August, 1913. Their deposits grew from $50,000,000 to
$76,000,000. So many state banks left the state
system, and so many liquidated or failed, that the 695
of January, 1911, fell to 596 in August, 1913, while
deposits decreased from $60,000,000 in the former year
to $42,000,000 in the latter. Part of the growth of the
state system from 1908 to 1911 partook of the nature
of a craze. Another part was due to the inflation of
loans. Much of it was sound, legitimate growth,
which, as the table shows, has been maintained. There
are 126 more state banks in Oklahoma than when the
guaranty system went into operation, and their deposits
are $17,000,000 greater. Subsequent developments
have not invalidated this conclusion stated four years
ago: "Given assurance (of the safety of deposits) which
it considers adequate, the public will make greater use
of banks and more banks will be established."
In spite of all the failures, the people of Oklahoma
have not lost faith in deposit guaranty as there administered. People have left deposits in banks that they
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QUARTERLY JOURNAL OF ECONOMICS
knew would fail. After failure many depositors have
to be reminded, some of them repeatedly, to call and
get their money. One of the members of the Banking
Board. who was in Sapulpa when a bank failed there,
says that a dog fight in the street would have drawn a
bigger crowd. The people have experienced no losses
from the state bank failures of the last five years. They
refuse to worry over failures present and to come. It •
is not good for a community that under its banking
system the depositor takes no thought whatever for the
safety of his deposit.
Many bankers would like to see the guaranty law
rrpealed, but recognize that repeal is for the present
hopeless. Meantime they want the state to pay part
of the excessive losses they have sustained in assessments for the fund. The Bank Commissioner favors
having the state pay any losses in excess of the regular
annual assessment of one-fifth of one per cent. He
says banks would get better results in the courts if the
tax-payers had a direct interest in the enforcement of
the banking laws.' One of the members of the Banking
Board issued a circular letter this year, in his private
capacity. stating that the Governor of Oklahoma, Mr.
Cruce. had recommended that the state should help in
defraying the extraordinary expense the guaranty system had brought upon the banks. The circular called
upon the banks to inaugurate a campaign for such relief.
Is this to be the end? Will the state of Oklahoma
decide that the guaranty of bank deposits is impracticable, discontinue the guaranty fund, and assume its
liabilities? There is little discussion of such an outcome now, but obviously the state must in some way
stop the terrific drain on its banks. The boldest optimist cannot hope that the drain will cease of itself.
ers' Association, 1912. p. 91.
I Proceedings of the Oklahoma Bank,
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DEPOSIT GUARANTY
93
Recurrent failures and rumors that some other banks
are unsound in a year when short crops make collections
slow indicate little chszice for the guaranty fund
to
pay its debts and gain a working balance. After collec
ting assessments of $1.778,849.36 from the begin
ning of
the system in 1908 to May 1, 1913, the State Banki
ng
Board had warrants outstanding June 1 of $418,
926.56,
with only about $35.000 cash on hand.' Abandonm
ent
or reconstruction, there are no other ways. Which
of
these courses will be followed depends on which takes
the popular fancy. and that in turn depends on which
has the most attractive advocacy. Prediction is futile
.
The plan has failed, to repeat, because the loss experienced has far outrun the theoretical ratio. The
reasons of the heavy losses, as they have been narrated
in the foregoing discussion, may be here summarily
restated: (1) The Banking Department was for a long
time in politics. (2) Unsound banks were admitted and
guaranteed at the outset. (3) The record of bankers
has not been properly traced. (4) There has been procrastination in closing insolvent banks and timidity in
the face of losses. (5) Economic conditions have been
somewhat adverse. (6) The guaranty of deposits has
relieved depositors of all necessity for care in selecting
banks.
The first four of these reasons are not arguments
against deposit guaranty, because they arise from conditions that can be corrected. Politics can be measurably eliminated from the administration of state
banking departments. The records of men who wish
to organize banks can be found out. Reasonably
efficient bank examinations can be had, and weak banks
can be closed without the wasteful temporizing that we
have seen in Oklahoma. Can any guaranty plan,
1 Letters from Hon..1. D. Lankford, Bank Commissioner.
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QUARTERLY JOURNAL OF ECONOMICS
however, withstand seasons of bad crops, and can
any plan, otherwise adequate, maintain the interest of
the depositor in the soundness of his bank? It is by
these tests that the guaranty principle must stand or
fall. A heavy presumption arises against the principle
because of the failure of its application in Oklahoma.
We cannot insist upon this presumption, however, until
we have compared Oklahoma with the other states,
whose guaranty systems have so far not collapsed. In
the course of such comparison we may conjecture
whether Oklahoma depositors would have retained
interest in their banks if the law had provided that m
the event of failures depositors should be paid only after
the affairs of the banks had been wound up.
II. KANSAS
At the time of our discussion four years ago, the
enforcement of the Kansas Guaranty Act had been
temporarily enjoined. The injunction was dissolved
by the United States Circuit Court of Appeals, and
operations under the Act were resumed in 1910, altho
it was not until 1911 that the case was finally decided
by the Supreme Court.
Participation in the guaranty is optional with the
banks, and only one guaranteed bank has failed.
That was the Abilene State Bank, which was closed in
September, 1910, wrecked by the defalcations of its
cashier, who is now in the state penitentiary. The
Kansas plan wisely provides that depositors shall not
be paid until all assets, including the stockholders'
liability, have been realized upon so far as possible, and
the affairs of the bank wound up. In the meantime,
certificates of indebtedness are issued to the depositors.
In the Abilene case certificates amounting to $46,809.75
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Federal Reserve Bank of St. Louis
DEPOSIT GUARANTY
95
are held by the creditors, or rather in most cases have
been sold to the other Abilene banks. The other banks
were satisfied to take them in order to get the business
of the depositors of the failed bank, particularly as the
certificates bear six per cent interest.
The assessments for the Kansas Guaranty Fund are
very small. One twentieth of one per cent per annum
is levied on the amount of deposits of each participating
bank, less its capital and surplus. This encouragement
to the provision of a substantial capital and the accumulation of a good surplus is wise; and the framers
of the law fixed small assessments, believing that since
losses were only payable after final liquidation, it would
be unnecessary to build up a large fund soon. Besides
the regular assessment, however, four emergency
assessments can be levied any year, making a total of
one-fourth of one per cent.
A fund has now been accumulated of $111,159.54
and the banks have deposited $355,977.10 in municipal
bonds, school bonds, and the like to guarantee the pay• ment of future assessments. Such deposits are required
in the amount of $500 of bonds for every $100,000 of
deposits.
Rather more than half the state banks take advantage of the possibility of having their deposits guaranteed, which is virtually to insure them in the State
Guaranty Fund. The figures in June of this year stood
as follows: 1
Number
Guaranteed Banks
Unguaranteed Banks
, 472
446
Capital
$9,979,800
8,327,500
Deposita
$71,040,906
42,707,937
Some changes have been found necessary in the law.
The provision excluding from the guaranty deposits
Letter from the Bank Commissioner.
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QUARTERLY JOURNAL OF ECONOMICS
bearing interest, and excluding from participation in
the plan banks paying more than three per cent interest
on any class of deposits have been found too stringent.1
The law now provides that all deposits not otherwise
secured shall be guaranteed. It provides further that
the Bank Commissioner shall fix for each county a
maximum rate which the banks in that county may pay
on deposits. The Commissioner has fixed rates varying from three to five per cent,since the Kansas counties
differ widely among themselves in resources and capital./
Any bank officer who shall pay interest in excess of the
rate fixed by the Commissioner, or on different terms
than he prescribes"shall be deemed to be reckless, and
may be removed from office as provided by law." 3
The rate on certificates issued to depositors in case of
insolvency remains six per cent, in the case of deposits
that bore no interest. In other cases, the .warrants
bear the same rate the depositor was to receive under
his contract with the bank. As the law stood originally,
the holder of a three per cent certificate of deposit would
receive six per cent after the failure of the bank.*
Banks whose entire deposits are guaranteed, either by
the Bank Depositors' Guaranty Fund of the State of
Kansas or by a surety company, are now relieved from
giving further security for public deposits, except the
deposits of the state itself.5
It will now be well to examine the relative progress
of the state and national banks in Kansas during the
1 see Quarterly Journal of Economics, vol.:sit% p. 351.
2 William Allen White says in The Real Issue —" KarIllin, like Gaul, is divided
into three parts." These parts correspond to the Commissioner's classification of
3, 4, and 5 per cent counties.
Laws of Kansas, 1911, chap. 61, secs. 1 and 2.
Ibid., chap. 62.
Ibid. chap. 63.
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97
DEPOSIT GUARANTY
time it has been possible for the state banks to have their
deposits guaranteed.
BANK ORGANIZATIONS
State Banks Organized State Banks Nationalized
Number
Two years ending Sept. 1, 1910 128
Sept. 1, 1912 56
Capital
Number
$2,173,000
1,061,000
4
5
Capital
'
$79,500
100,000
NATIONAL BANKS ORGANIZED
(Including Conversions of State Banks)
Year ending Oct. 31, 1909
Oct. 31, 1910
" Oct. 31, 1911
" Oct. 31, 1912
Number
Capital
5
5
4
2
$315,000
165,000
120,000
55,000
ITEMS FROM BANK STATEMENTS IN ROUND AMOUNTt3
Stafs Banks
Sept. 29, 1909
Sept 4, 1913
Number of banks
Capital
Surplus
Deposits
Cash and due from banks
819
$15,810,000
4,957,000
97,217,000
36,528,000
928
$18,995,00
7,717,000
118,170,000
42,023,000
Nor. 16, 1909
Aug. 9, 1913
206
$11,992,000
4,887,000
83,785,000
651,000•
28,960,000
213
$12,312,000
6,149,000
88,255,000
1,031,000
31,088,000
Nationa/ Banks
Number of banks
Capital
Surplus
Deposits
U. S. Deposits
Cash and due from banks
The increase in the number of state banks is striking.
The guaranty system may have been an influence in the
organization of some of the new banks, but rarely the
moving cause. Deposits are not guaranteed until
banks are a year old. Most of the new banks in Kansas,
as well as in other Western states, are small institutions,
so small that they could not have entered the national
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QUARTERLY JOURNAL OF ECONOMICS
system. The typical capital of a new bank continues
to be $10,000, altho, of course, state banks are chartered
occasionally with much larger capital. Deposits in
national banks increased fully as much as in state
banks between 1909 and 1913, and, by proportion
more, altho in the meantime the largest national bank
in Kansas had moved a few hundred yards into Missouri.
Many of the national banks and a few of the state
banks have insured their deposits in the Bankers'
Deposit Guaranty and Surety Company of Topeka, a
corporation originally formed largely to counteract the
influence of the state guaranty law, which was expected
to attract business to state banks. The Company is
not pushing the deposit insurance feature of its business, however, altho it has never had a loss. It
understood to insure the deposits of about 100 banks,
practically the same number it insured three or four
years ago.
It is significant that the number of banks participating in the Depositors' Guaranty Fund is increasing.'
The fact that they cannot participate for a year after
they are organized means that the banks now coming
into the scheme have decided, after opportunity to
consider the matter, that the guaranty of their deposits
by the state fund will increase their deposits somewhat,
or make their deposits rather more stable, or both. It
is not that the sign "Deposits Guaranteed by Bank
Depositors' Guaranty Fund of the State of Kansas"
draws business in quantity from the other banks, as it
did in Oklahoma in the first year or two of the experiment. It is that occasionally a deposit comes in from
a man who, the cashier knows, would not have patronized the bank if its deposits had not been under
guaranty. Or a deposit remains for a time whose
1 Letter from the Bank Commissioner.
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Federal Reserve Bank of St. Louis
DEPOSIT GUARANTY
99
owner would have made haste to use it in the days when
every bank lived to itself alone.
If any system of insuring deposits in a fund administered by the state is to endure, it should have some of
the features of the Kansas guaranty plan. The allowance for capital and surplus and the payment of
depositors at the final liquidation only are admirable.
It is unwise that the Guaranty Fund should be limited
to $500,000, for there are many single banks in Kansas
with deposits larger than that sum, and half a million is
too small a reserve for $70,000,000 of risks. It is still
more unwise that the assessments while the fund is
being accumulated should be only one-twentieth of one
per cent per annum. That rate is theoretically good,
but it builds up the fund far too slowly.
Further comments on the Kansas scheme can best be
made after a study of Nebraska and Texas.
III. NEBRASKA
now fifteen years since a national bank failed in
Nebraska. It is eight years and more since a state
bank failed, and then the depositors lost only $2,000.
"In Nebraska," writes Mr. E. R. Gurney of Fremont,
a keen observer,"we have a population of mixed races,
a very large percentage, however, running to foreign
born. These foreign people are hard working, economical and almost always good pay. Their notes in most
any bank can be approved. Moreover, our state has
reached an age where stability is the rule, and more
than all other circumstances, is the fact that we have
had a capable and vigorous administration of our State
Banking Department for something like fifteen years
past. Our banks, therefore, are sound from the standpoint of the assets and also from the influence of supervision."
It is
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It is true that in many Western states, the foreign
born farmers are regarded as more certain payers than
the Americans. Less venturesome, they are sometimes
better risks for the banker, even if, or probably because,
they are satisfied with modest results. If they develop
a country less rapidly than Americans develop it, their
progress is steadier and their notes in bank are not subject to so many vicissitudes.
What Mr. Gurney says of the Nebraska Banking
Department is also true. The Secretary of the Board,
Mr.Royse, has done such excellent work that the changing state administrations of ten years have wisely kept
him continuously in office.
The time when the Nebraska deposit guaranty act of
1909 was to take effect had not arrived when the United
States Circuit Court enjoined the state officials from
putting it into operation. The Act was upheld by the
Supreme Court, however, with the Oklahoma and
Kansas statutes, and the first assessment was collected
July 1, 1911.
The legislature had made a few amendments in April,
but the working plan was essentially that adopted in
1909. There were four semi-annual assessments of
one-fourth of one per cent of average deposits. The
last of these was paid January 1, 1913. Further
assessments are one-twentieth of one per cent semiannually, as originally provided; New banks still pay
one per cent of their average deposits the first year. It
is now provided that when the Guaranty Fund reaches
one and one-half per cent of the deposits of the state
banks, assessments shall cease until the fund is depleted .
below one per cent of deposits. To correct an ambiguity,
the act of 1911 provided that no bank which.had paid
the assessments and otherwise complied with the banking laws should be required to give any further security
4
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DEPOSIT GUARANTY
101
for public deposits. This is different from the Oklahoma plan, where special security is given and deposits
specially secured are not within the guaranty.
The only important amendment adopted this year
permits the investments of a bank to equal ten times its
capital and surplus, instead of eight times, which
was
the limit fixed in 1909.
The original act of 1909 prohibited private banki
ng
and required the thirteen private banks to procure
state
charters or discontinue business. It made the guara
nty
scheme obligatory upon all state banks. These provi
sions are unchanged.
Where economic conditions are settled and banking
stable, it is not to be expected that changes in the banking laws will effect a marked change in the dispos
ition of
accounts. Nevertheless, the reports of Nebraska
banks
since the United States Supreme Court decisi
on (January 3, 1911) make an interesting study. Impor
tant
items from the reports of state and national banks
a
year before and just after the decision are here presented
in comparison with the reports of August, 1913.
ITEMS FROM BANK STATEMENTS IN BOUND AMOUN
TS
Slate Banks
Feb. 11,1910
Feb. 17,1911
Number of banks
664
Capital
$12,362,000
Surplus
2,245,000
Deposits
77,991,000
Due from banks
18,726,000
Cash in banks
4,452,000
Depositors' Guaranty Fund
Aug.18,1913
668
$12,729,000
2,427,000
74,105,000
19,960,000
4,476,000
710
$14,380,000
3,264,000
94,194,000
22,924,000
4,889,000
811,000
Naliona1 Banks
March 19, 1910
March 7, 1911
Aug. 9, 1913
227
$14,810,000
6,035,000
121,283,000
1,060,000
29,479,000
10,726,000
237
$15,695,000
6,784,000
119,087,000
1,035,000
33,006,000
10,477,000
241
$16,270,000
10,319,000
128,663,000
1,241,000
34,103,000
11,682,000
Number of banks .
Capital
Surplus
Deposits
U.S. Deposits
Due from banks
Cash in bank
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For a year before the decision was announced state
banks had been nationalizing, some of them undoubtedly for the purpose of escaping the assessments.
Thirteen state banks took out national charters in 1910,
and 11 nationalized in 1911.1 On the other hand, new
state banks were organized pretty freely, with an eye
to the prestige of guaranteed deposits. Nationalization has now ceased, for there was not an instance in
Nebraska in 1912; but the organization of state banks
continues.
BANK ORGANIZATIONS
State Bank" Chartered State Banks Nationalised
• Number
Nov. 16, 1909 to Nov. 10, 1910
Nov. 10, 1910 to Dec. 5, 1911
Dec. 5, 1911 to Nov. 26, 1912
IN
24
27
Capital
$420,000
492,000
775,000
Number
Capital as
State Banks
13
11
0
$630,000
4133,000
0
NATIONAL BANKS ORGANIZED
(Including conversions)
Year ending Oct. 31, 1910
"
Oct. 31, 1911..
"
Oct. 31, 1912
Number
Capital
20
12
1
$880,000
1,195,000
2.5,000
On account of nationalizations and liquidations, the
state banks lost ten in number between the February
and June reports in 1911, at the time the guaranty law
was going into effect,and their deposits fell off more than
$2,000,000. From March to June of that year the
national banks increased by eight, and their deposits by
$1,400,000. Since that time the state banks seem to
have been somewhat preferred. The table shows that
they have gained forty-two in number and $20,000,000
in deposits in two years and a half, while the increase
Letter trout the Deputy Comptroller of the Currency. April 23, 1913.
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DEPOSIT GUARANTY
103
for the national banks is only four in number and about
$9,500,000 in deposits.
It would seem that some of the state bankers now
see a little benefit arising from the guaranty scheme.
When it was first projected they were bitter over any
plan that would tax them to pay the losses of other
bankers. There have been no losses, however, and
gradually a few extra deposits have come in, — not
deposits of large amounts, but here and there $2,000 or
$3,000 from people who would not have been expected
as depositors, at least as depositors in a state bank
without the guaranty. Most of the state bankers have
now dropped their active fight on the guaranty plan,
and more than a few seem pleased with the way it is
working. They are advertising the guaranty on their
checks and deposit tickets, and making the most of the
system they formerly opposed.
The figures show that the national banks, while not
growing so fast as the state banks, have suffered no
drain. The national bankers say that the deposits
that have left them for the guaranteed state banks have
been scarcely perceptible. In a state where no national
bank has failed in fifteen years, it would have been
surprising to find that state bank guaranty had made
national bank depositors uneasy.
The virtual acquiescence of the state bankers is due
in part to the fact that no money has been taken out
of their banks. The assessments are merely set aside
as deposits to the credit of the State Banking Board.
The bankers regard this account as a special surplus,
and so, in a sense it is; but it is a common surplus, and
when it is drawn upon (for Nebraska cannot always
escape failures), there will be disappointment and
possibilities of trouble. The failure to collect assessments, to get the taxes out of the hands of the taxed
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banks, still seems a defect in the Nebraska law, altho
the bankers like it.
Another defect is the provision for paying depositors
as soon as a bank fails, or as soon as the receiver has
calculated how much cash he must draw from the
guaranty fund to supplement the cash in the failed
bank. The failure of the Oklahoma plan was due to
this same provision as much as to any one cause. A
series of failures would require immediate large expenditures from the fund, and make emergency assessments
necessary. But a series of failures would come, if at
all, at a time when all banks were hard up, and when an
emergency tax would be a burden and perhaps a danger.
The Nebraska plan is good in that it has accumulated
a fund of nearly $1,000,000. It is bad in that it leaves
this fund with the very banks that have it to pay, and
in that it promises to pay deposits immediately on
failure.
It is to be observed, however, that under the administration of the Nebraska banking department the
promise to pay depositors immediately on failure seems
not to have caused reckless banking. And, as bearing
on the existence of a need of deposit guaranty or
insurance, the fact that deposits in state banks are
guaranteed is found to influence deposits somewhat,
even in a state where bank failures have for years been
unknown.
IV. TEXAS
The deposit Guaranty Act of Texas has never been
attacked in court. It has been in operation since
January 1, 1910, and the results must be called favorable so far. The fiscal year of the Texas banking
department ends August 31st. No bank failed at all
the first year. One failed the second year, two the third
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DEPOSIT GUARANTY
105
year and three between August 31, 1912, and the present
date (October 9, 1913).
Taking the failures in their order, the Harris County
Bank and Trust Company of Houston suspended
August 7, 1911, and the examiner uncovered forgeries,
false entries, and paper placed in the bank for fraudulent
purposes. The president left before he could be apprehended. The guaranty fund was drawn on for $111,649.90 and an emergency assessment for that amount
was levied on the guaranteed banks. In 1912, however,
a 50 per cent dividend was paid to creditors, and half
the assessments returned to the banks.'
The Paige State Bank, capitalized at $10,000, was
taken over by the banking department early in 1912,
because the president had placed $19,000 of worthless
paper in the bank. The guaranty fund was called upon
for 813,697.90.3
The last bank that has cost the fund anything is the
First State Bank of Kopperl. It was closed December
6, 1912. Then it was discovered that S. J. Spotts, the
president, had been previously convicted of violation
of the National Bank Act, and had served a term in a
Federal prison. Spotts was found in Los Angeles, was
brought back to Texas for trial, and on a plea of guilty
was sentenced to four years in the state penitentiary.
The deposits of the bank were $16,000 and in paying
them $8,000 was used from the guaranty fund.3
The three banks that failed subsequently were liquidated without calling upon the fund.* The guaranty
fund has, therefore, paid only $133,347.80 on account
1 Report of Commissioner of Insurance and Banking, 1911-12, p. 19.
Ibid., p. 21.
Ibid., p. 19.
Telegram from W. W. Collier, Commissioner.
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of failed banks in about four years, and has recovered
more than $55,000 of that amount. The showing is
considered excellent, and new banks have been organized in large numbers to keep up with the rapid growth
of the state. For the fiscal year 1911, 109 state banks
and trust companies with capital of $2,522,000 were
authorized to begin business. The next year the number was 77 with $3,169,000 capital, but 8 of these were
trust companies with $100,000 or more capital each.
The 8 had together more than half of the total new
capital of the year. The typical new organizations
were still banks with the minimum capital permitted,
$10,000. In the fiscal year 1912, 23 state institutions
with $1,110,000 capital were incorporated.1
The Texas banking report for 1913 is not yet at
hand, but new organizations must have been numerous,
for the number of state banks and trust companies
increased from 709 in June, 1912, to 776 in April, 1913.
For comparison,the statistics of national bank organizations are here set down. The new banks include conversions of state banks. The data as to the new banks
are for the years ending October 31st, and as to the
conversions, for calendar years.
NATIONAL BANKS ORGANIZED
1910
1911
1912
STATE BANKS CHANGED TO
NATIONAL BANKS
Number
Capital
14
21
16
$1,875,000
1,255,000
2,650,000
Number Capital as National Banks
2
4
6
$140,000
215,000
425,000
Obviously bankers are not afraid to organize under
the state system and remain in it, and yet a considerable
amount of capital is being invested in national banking.
A comparison of bank statements tells much the same
1 Report of the Commissioner of Insurance and Banking, 1911-12.
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DEPOSIT GUARANTY
107
story of satisfaction with both systems as administered
in Texas, the state system being apparently somewhat
preferred.
ITEMS IN ROUND AMOUNTS FROM TEXAS BANK STATEMENTS
State banks
Number of banks
Capital
Surplus
Due to banks
Individual deposits
Due from banks
Cash
National banks
Number of books
Capital
Surplus
Due to Banks
Individual deposits
U. S. Deposits
Due from banks
Cash
Nor. 16.1909
502
$ 16,114,000
1,475,000
6,541,000
43,328,000
18,051,000
5,324,000
Now. 16, 1909
519
$ 42,393,000
19,551,000
38,744,000
164,618,000
1,137,000
59,693,000
22,314,000
April 4, 1913
776
$ 29,451,000
5,806,000
7,664,000
86,485,000
27,556,000
9,281,000
April 4, 1913
514
$ 49,625,000
25,592,000
52,209,000
209,411,000
2,043,000
80,167,000
26,535,000
It appears that since the enactment of the guaranty
law, the state banks have increased fifty per cent in
number and their deposits have doubled. There were
five more national banks in 1909 than in 1913, but
individual deposits in national banks have increased
twenty-five per cent and if we could make the comparison after the cotton is marketed this fall, a still larger
growth would appear.
Nominally it is optional with Texas banks whether
or not they shall have their deposits guaranteed. Any
bank may, if its directors prefer, file annually with the
Commissioner of Insurance and Banking "a bond,
policy of insurance, or other guaranty of indemnity"
equal to its capital stock, or, if it is a private bank,"in
Includes Trust Companies.
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4111ARTERLY JOURNAL OF ECONOMICS
an amount to be fixed by the Commissioner." This
option has not proved attractive, however. A bond
or policy procured from a bonding or an insurance
company is expensive, and it is embarrassing to ask
friends, customers, or even directors, to make the bond.
Furthermore, a bond with individual sureties has little
effect in attracting or reassuring depositors. In'1909,
only 42 banks had elected to furnish bonds. In 1912,
the number was only 53.
It has not been found necessary to change the original
guaranty law materially. It still provides for an initial
assessment of one per cent of deposits, and for subsequent assessments of one-fourth of one per cent per
annum, with power to levy emergency assessments,
not exceeding two per cent in any year, in case the fund
is diminished. Assessments are to cease when the fund
reaches $2,000,000, The fund is now, October 9, 1913,
$778,824.1
The legislature this year, following the example of
Kansas and Oklahoma, has provided that the State
Banking Board shall refuse charters for new banks where
there is not public necessity for them.
Much of the credit for the apparent success of the
guaranty system in Texas is accorded to Mr. B. L. Gill,
who was Commissioner of Insurance and Banking from
January, 1911, to this summer.
Texas, with its rapid economic development and its
hundreds of new banks, subject to all sorts of vicissitudes, can scarcely hope always to get off so luckily in
failures. The organization of a great many banks
during a time of rapid settlement and development has,
in other states, been followed almost always by losses
to a considerable number of banks and by some bank
failures. A good fund is being accumulated in Texas,
1 Telegram from the Commiasioner.
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DEPOSIT GUARANTY
109
however, and the banking department seems to be
efficiently organized and administered. The state
banking system is getting into position to withstand
some rather heavy shocks, if they come. If they do
not come too soon, the Texas guaranty plan will probably survive. This prediction could be made with
some confidence if the law were amended to provide for
payment of depositors only upon the final liquidation
of failed banks; but no such amendment is now being
urged.
V. GENERAL ARGUMENTS AND CONCLUSIONS
It is now evident that the cause of the Oklahoma
bank failures was not deposit guaranty alone, but
guaranty plus ineffective examinations, insufficient
scrutiny of the previous records of bankers, and unfavorable economic conditions following the period of settlement and rapid growth. This is shown by the fact that
in the other states where deposits are guaranteed
failures have been few.
The guaranty system has given opportunities to
some reckless and criminal bankers in Oklahoma, but
it has not turned honest bankers into rogues there, or
in the other states we have studied. Deposit guaranty
is not stockholders' insurance. Stockholders must lose
their whole investment before the guaranty fund suffers
any loss, and there is, therefore, not even a financial
incentive for a good banker to become a rascal. He
may be tempted by guaranteed competition into an
unwonted, perhaps unwise liberality, but not to a
dangerous extent, if we can judge by the present
experience of Kansas, Nebraska, and Texas.
It remains to consider what are the best methods of
guaranteeing deposits and whether, in fact, such
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guaranty is desirable at all. It is unnecessary here to
repeat the arguments stated at some length in the previous article; but one suggestion then advanced should
be withdrawn. Deposit insurance by private corporations was mentioned as a possible solution of the problem. But this is now evidently not the solution that
is to be used, if the problem is found to be worth solving.
While such corporations could select risks and limit
their size and distribution, and while there is an example
in Kansas of the successful operation of such a company,
it is obvious, nevertheless, that if deposits are to be
guaranteed or insured on any considerable scale, it will
be through the banking departments of the states or
conceivably of the United States. The efforts to organize other deposit insurance companies and put them in
operation have not met with success. The Kansas
example remains solitary.
The stimulus to reckless banking is not the chief
danger to the success of deposit guaranty. Kansas,
Nebraska, and Texas have so far repressed such tendencies. A greater danger has just been mentioned, the
impossibility of limiting the size of single risks or avoiding the concentration of risks in single localities.
Whether this danger will prove fatal to the success of
the plan, depends largely on the size of the fund accumulated by the time the big losses occur. The Oklahoma fund is insolvent now. Texas is accumulating a
$2,000,000 fund, Kansas a $500,000 fund, and Nebraska
a fund of one and one-half per cent of deposits, say
$1,500,000. Each state should considerably advance
the limit now fixed on its fund, and Kansas, at least,
should increase its assessment rates. There would then
be some probability of establishing reserves large
enough to take care of as many failures as can reasonably be expected in these states under present day
conditions.
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DEPOSIT GUARANTY
111
Another danger, social rather than financial, is the
real or supposed necessity of accompanying the establishment of the guaranty system with grants of almost
despotic power to the state banking departments. The
guaranty of deposits is so powerful an inducement to
depositors, legislators believe, that for fear of its misuse
by the incompetent or unscrupulous the banking
departments are empowered not only to regulate and
supervise banks, but to say what rates of interest they
shall pay, and whether the citizens shall establish more
banks. In some states both these powers are exercised.
This may be "medieval," but, as in the question
whether deposit insurance should be provided by the
state or by private corporations, it is sufficient to recognize the irresistible tendency in many forms of industry
toward state control. If the state can fix railroad rates,
no doubt it can fix rates of interest on deposits. If it
can regulate banks, no doubt the power to fix their
number and forbid new organizations regarded as
superfluous will be upheld. Doubtless the part of
wisdom lies in trying to guide this tendency instead of
fighting it.
The vital question is whether the public needs greater
assurance of the safety of its deposits than can be
afforded by the resources of a single bank in a single
town. Any reader who may be interested will find the
writer's views stated carefully in the article before
referred to.' Even in states where banking is soundest
the bare possibility of failure, and the knowledge of the
blight it would bring to business plans and to household
life, keeps many people from the banks. They cannot
be absolutely sure. They cannot detect the few cases
of unsoundness, some or all of which escape bank
examiners, business men among the customers, and the
1 Quarterly Journal of Economies, vol. xxiv, pp. 373 et seq.
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QUARTERLY JOURNAL OF ECONOMICS
directors themselves. There is, therefore, even in the
most prosperous days, a good deal of hoarding, and,
what is worse, a failure to use the modern labor-saving
machinery of exchange. Some additional business
comes to guaranteed banks even in states of settled
economic and social conditions, like Kansas and
Nebraska. The scheme would not have been tried
but for the vivid memory of the distress caused by the
suspension of cash payments in 1907. Once in force,
the plan seems to bring satisfaction to some depositors.
The plan does not spread. Many other state legislatures debated it in the first few years, but less is heard
of it now. South Dakota, as we anticipated, has left
its plan unused.1 It would take many failures close
together, or a pretty general suspension of payments,
to bring about the adoption of the plan now where it is
not already in force. If Congress provides an effective
method of mobilizing reserves and providing ready
credit on farmers' paper, little will be heard of guaranty
for some time.
This is not to say that Kansas, Nebraska, and Texas
will discontinue the plan. Unless it is causing losses and
weaknesses underneath the surface, and the writer
Cannot find that such is the case, there is not likely to be
much agitation for repeal in these three states. In
some of them, at least, guaranty funds will be accumulated sufficient to permit of the continuance of the
system. Whether the plan will gradually be adopted
in other states depends on the force of the present
social tendency to distribute more widely, by legislation,
the good and evil of life. Workingmen's compensation
is analogous. The tendency underlying this legislation
and the guaranty legislation seems to the writer exceedingly strong. If this is so, a state here and there will
Ibid., vol. iniv, v. 360.
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DEPOSIT GUARANTY
113
from time to time supplement its service of bank regulation and supervision by enabling, if not requiring, the
banks to effect insurance in a state-administered fund
for the benefit of depositors.
Such insurance is more needed in some localities than
in others and should be optional with the banks. If
an old bank with large deposits is satisfied to rest on the
reputation it has been years in building, it would be
wrong to make it pay taxes or premiums to provide for
the depositors of other banks. It is safe to say that
once such legislation is in force, there will be banks to
take the insurance or accept the guaranty. The state
for the present will be doing enough for depositors
when it enables those who are not sure of the stability
of banks to do business with banks whose deposits are
insured.
The insurance should not be paid or the guaranty
redeemed, until, as in Kansas, the assets are finally
liquidated and the bank wound up. To try to pay
when the banks close is to attempt the impossible.
Economy and social policy alike favor the Kansas plan,
for the delay stipulated in payment will keep the depositor from such carelessness in choosing his banker as has
been seen in Oklahoma. This is true even if the
depositor believes that other bankers would probably
cash his guaranty fund certificates in case his own bank
failed.
The fund must be large, — not less than two per cent
of deposits and larger than that in states where there
are several banks with deposits many times the average.
Other features desirable in deposit guaranty legislation
have been sufficiently discussed in the foregoing pages.
Bank failures have not been the chief defect in American banking. The immobility of reserves and the lack
of proper mechanism for the seasonal expansion and
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QUARTERLY JOURNAL OF ECONOMICS
contriction of credits have been far greater. Mobilizing the reserves and providing elastic credits will solve
many problems. Our banking system, nevertheless,
will remain individual, and our banks numerous and
independent beyond anything known abroad. The
possibility of failures will be ever in the thought of
many, and occasional failures will be inevitable. How
to minimize the resulting social and financial loss will
remain a problem worthy of the efforts of banker and
economist.
THORNTON COOKE.
FIDELITY TRUST COMPANY,
KANSAS CITY, MO.
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Removal Notice
7KHLWHPLGHQWLILHGEHORZKDVEHHQUHPRYHGLQDFFRUGDQFHZLWK)5$6(5
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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
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•
626
SEPTEMBER, 1925
FEDERAL RESERVE BULLETIN
during July and with 4.44 cents last August.
Danish kroner advanced from 22.30 cents per
krone on August 1 to 25 cents on August 31,
and for the month averaged 23.30 cents, compared with 21.37 cents for July and 16.21 cents
for August, 1924. Norwegian kroner advanced
from 18.16 cents on August 1 to 20.82 cents on
August 31, and averaged 18.80 cents, compared
with 18.07 cents for July and with 13.87 cents
for last August. Swedish kroner and Swiss
francs maintained about the same levels above
parity as for several months past. Netherlands
florins, Spanish pesetas, and Canadian dollars
showed little change. The Polish zloty declined from 19.20 cents per zloty on July. 1 to
18.05 cents on July 29; by August lit rallied to
18.90 cents and then declined to 16.77 cents on
the 22d, but rose to 18.21 cents on the 31st.
South American exchanges showed slight
advances, while Far Eastern currencies showed
little change.
FOREIGN EXCHANGE RATES
[In cents]
August, 1925
Exchange
Par
value
Sterling
486.65
French franc
19.30
German reichsmark 23.82
Italian lira
19.30
Netherlands florin 40.20
Swedish krona
26.80
Swiss franc
19.30
Canadian dollar_ _. 100.00
Argentine peso
96.48
Shanghai tael
66.85
July, 1925
July,
1924,
Aver
Low High Low , High age -age
485.43
4.66
23.80
3.58
40.14
96.84
19.37
100.01
90.90
76. 59
485.81
4.74
23.80
3.77
40.30
26.84
19.42
100.07
91.93
78. 29
485.44
4.46
23.80
3.35.
40.04
26.80
19.40
100 00
91.60
76. 18
4116.12
4.75
23.80
3.80
40.18
26.91
19.42
100.11
91.89
76.92
48.5.96 437.04
4.70 5.12
23.80
3.67 4.30
40. 10 37.94
26.86 26.60
19.41 , 18. 19
100.03 99.26
91.75 74. 12
76. 56 ' 71.67
i
GUARANTY OF BANK DEPOSITS
•
Since Oklahoma, within a month after its
admission as a State, and while the panic of
1907 was running its course, enacted its
guaranty law in the confident expectation that
a guaranty system would prove effective in
preventing the recurrence of panics and bank
failures, seven other States have followed its
lead-Kansas in 1909, Texas in 1910, Nebraska in 1911,' Mississippi in 1914, South
Dakota in 1915, and North Dakota and Washington in 1917. Outside of this territory the
area of recurrent agitation and controversy in
recent years over the proposal to guaranty
deposits would embrace perhaps a dozen
States, including those in which political parties have from time to time pledged themselves
to secure deposit insurance legislation, those
in which bills to provide this sort of insurance
have been introduced at a special session of the
legislature called to draft and enact such a bill,
and in general those in which bank deposit
insurance under State supervision and control
has constituted the subject of legislative inquiry, of popular agitation, and of official
recommendation.
It is nearly a century since New York State
initiated its experiment with a safety-fund
law, covering deposit liabilities along with all
other debts of banks-although the plan was
devised particularly for the protection of note
holders rather than of depositors. This early
law was similar in some of its provisions to the
guaranty laws enacted in recent years, and it
is perhaps not surprising that the experience of
New York under it should have been very like
I Law enacted in
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Federal Reserve Bank of St. Louis
1909, but suspended by injunction until 1911.
that of the several States under their guaranty
laws since 1907. Under the New York law
no failures of safety fund banks occurred for
a period of some 12 years. Then in the course
of a few months, on account of a rapid succession of bank failures, obligations piled up
against the fund considerably in excess of its
immediately available resources. Recent experience under guaranty laws has been quite
similar in several States. Generally the laws
have seemed to work well for a period, winning
popular favor by providing for prompt discharge of all deposit liabilities of failed banks.
Generally the laws have been commended from
year to year by the State bank commissioners
or superintendents in their annual reports as
providing precisely the guaranty originally
intended; and generally, also, in the past three
or four years, as in the early forties under the
New York safety fund law, bank failures have
piled up obligations against the funds in excess
of resources immediately, or in some cases, as it
would appear, ultimately available under the
law,with the result that those administering the
fund have resorted to borrowing,as was the case
also under the New York law, or to the issue
of certificates of indebtedness to depositors.
In this early historical instance one further
parallelism to recent experience is found in
the competition which develgped between the
old chartered banks operating under the
safety fund law and the banks organized
under New York's free banking law of 1838
which provided a bond-deposit security for
note issues, and did not require banks organized
under it to participate in the fund main-
SEPTEMBER,1025
FEDERAL RESERVE BULLETIN
GOLD IMPORTS INTO AND EXPORTS FROM THE UNITED
STATES
[In thousands of dollars]
Seven months
ended July-
1925
July
June
1925
1924
IMPORTS FROMEngland
France
Germany
Netherlands
Canada
Mexico
Argentina
China
All other
4
2,943
358
2,84!
485
4,818
6,564
2
10,085
18,899
3,330
898
1,096
120
7,058
124,132
10,101
4,819
34,499
28,477
3,286
8,463
3,476
27,824
10.204
4,426
50,871
245,077
122
207
108
2,922
82
1, 147
6,004
Total
EXPORTS TOEngland
France
Germany
Netherlands
Canada
Mexico
Argentina
Colombia
Uruguay
Venezuela
British India
Hongkong
Australia
All other
Total
Net imports
Net exports
100
31
233
104
3,640
900
1,532
4,416
6,712
6,160
1,339
67,039
4,318
2,594
6,349
5,460
2,000
802
2, 160
56,334
6,870
26,925
7,003
195,353
5,788
GOLD
INTO
AND EXPORTS
BRITAIN
FROM
GREAT
6 months ended June-
1925
1,101
June
May
1925
£42,493
2,007,411
128,389
33,531
3,304,605
6,176
69,476
28,378
,e217,101
2, 148,854
129,208
6,360
141,451
7,250
£100,990
2,075, 275
1,057,094
2, 182,385
7,492, 775
4,271,331
590,456
73,018
19, 135,035
16,923
725,408
100,328
5,620.459
2,650, 224
17,843, 324
21, 263,665
750
839,756
37,650
32,319
87,554
6, 444
2,000
76, 216
11,862
1,025,565
64,812
2,630
77,999
7, 586
14,018
634,305
355,8,58
55,001
s,846,310
1, 330,975
239,038
940,211
172, 121
132,584
25,074, 170
14,086
658,833
1924
108
IMPORTS FROM212
4,182
144,482
GREAT BRITAIN
Total imports of gold into Great Britain
during June were £5,620,000, almost double
the figure shown for May. Of the June total,
£3,305,000, or 59 per cent, came from
the Transvaal, as compared with negligible
imports from that country during May,
and £2,007,000, or 36 per cent, from the
Netherlands, as compared with none during
May. Imports from Russia, which during
May. were £2,149,000, or 81 per cent of the
total, declined during June to £34,000. Total
exports of gold during June were £1,616,000, a
decline of somewhat more than £1,000,000 as
compared with May. Exports to British
India declined from £1,026,000 during May
to £840,000 during June; to Switzerland,
from £654,000 to £76,000; and to the United
States from £356,000 to none. Net imports
were £4,004,000; as compared with £16,000
for the previous month.
For the six-month period ended June, 1925,
total imports were £17,843,000, compared
with £21,264,000 for the similar period of last
year. Imports from the Transvaal declined
from £19,135,000 to £7,493,000, a decline of
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Federal Reserve Bank of St. Louis
IMPORTS
899
1,862
240,895
2,286
£11,642,000. Imports from the United States
rose from £17,000 to £4,271,000; from Russia,
from no imports to £2,182,000; and from the
Netherlands, from £87,000 to £2,075,000.
Total exports for the 1925 period were £17,879,000, compared with £34,460,000 in 1924,
a decline to slightly more than one-half of the
earlier figures. Exports to the United States
declined from £25,074,000, or 73 per cent of
the total, to £956,000; and to Egypt, from
£1,331,000 to £340,000. Exports to British
India rose from £5,846,000 to £9,512,000; to
Switzerland, from £132,000 to £1,126,000;
and to Russia, from no exports to £381,000.
Net exports for the six months of 1925 were
£36,00.0, compared with £13,197,000 for the
six months of 1924, or about 0.03 per cent of
the amount shown for last year.
France
Netherlands
Rhodesia
Russia
Transvaal
United States
West Africa
All other
Total
£600
87,005
1, 198,294
EXPORTS TOBelgium
British India
Egypt
France
Netherlands
Russia
Straits Settlements...
Switzerland
United States
West Africa
All other
Total
Net imports
Net exports
533,760
419,758
114,274
9, 512,352
339,529
97,920
682,908
380,648
61,309
1, 126, 116
956,358
43,642
4,564,090
1,616,455
2,634,393
17,879, 146
34,460, 209
4,004,004
15,831
35,822
_
13, 196,544
FOREIGN EXCHANGE
Sterling exchange during the month of
August averaged slightly lower than duringJuly,
and fluctuated within a narrower range. French
francs averaged 4.69 cents per franc, showing practically no change from the July
average and comparing with an average
of .5.46 cents for August of last year.
Belgian francs averaged 4.53 cents per franc,
compared with 4.62 cents during July and 5.02
cents a year ago. Italian lire averaged 3.66
cents during August, compared with 3.67 cents
SEPTEMBER,1925
FEDERAL RESERVE BULLETIN
tamed by the old chartered banks for the
guaranty of their debts. A somewhat similar
condition has developed under the guaranty
laws enacted since 1907, with State institutions
operating under cover of a guaranty fund in
active competition with national banks operating within the State but entirely outside of
the guaranty system.
Guaranty of bank deposits appears to have
become a subject of popular agitation in the
years following the panic of 1893, particularly
in Nebraska and Kansas as an item on the
Populist program of reform legislation,. persistently urged as a remedy for the evils of
bank failures. It is noted that the Kansas
Legislature, convened in special session by a
Populist governor in 1898, failed to enact a
deposit guaranty law by the narrow margin of
only four votes. Experience of the same evils
again in the period following the panic of 1907
gave rise to agitation for the same remedy, and
it may be noted that the widespread prevalence
of bank failures during the past three or four
years has once more given rise to agitation in
several States for this remedy for losses by
depositors of failed banks.
Governors of two States in January of this
year included in their annual messages a recommendation that legislation be enacted guaranteeing depositors in State banks against loss.
Governor Erickson of Montana,in his message,
expresses the opinion that the time has come
in Montana "when some sort of legislation is
demanded that will 'protect the depositor and
at the same time be just and fair to the
banker," and he quotes the platform upon
which he was elected as pledging the legislature "to make a study of the laws relating to
the guaranty of bank deposits now in operation
in several States and to the speedy enactment
of a law that will insure bank depositors from
losses through bank failures." Governor Hunt
of Arizona, also, in his message last January
as in his message two years ago, urges the advisability of legislation for protection of the
depositor. And deposit guaranty bills have
recently been introduced in the legislatures of
Minnesota and North Carolina.
ESSENTIAL SIMILARITY OF STATE PLANS
On examination of the text of State guaranty laws, printed in another section of the
BULLETIN, essential similarities will be noted
in respect to the character of the guaranty
provided in the laws, the basis of assessment
of banks for the benefit of guaranty funds, and
the larger aspects of administrative control.
58633-25t-3
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Federal Reserve Bank of St. Louis
627
In no instance has a State assumed direct
liability for payment of deposits in failed banks
except such liability as may under the provisions of the particular statute be implied in
the administration of the law. On the contrary, the guaranty is strictly limited and
conditioned upon assessments to be levied
upon the banks. The State functions through
a designated agency in an 'administrative
capacity only—levying and collecting assessments, taking custody of the fund, approving
claims of depositors, paying those claims out
of the fund, and as may be provided in the
law borrowing on the credit of the fund,issuing
certificates of indebtedness to depositors,taking
over closed banks, liquidating their assets, and
winding up their affairs; but in no case contributing to the fund out of the proceeds of tax
levies or of borrowing on the credit of the State.
Banks have accordingly been required to
preserve a nice discrimination of phrase in
their advertising. They have been required
to display conspicuously in their places of
business an official certificate advertising that
they have complied with the guaranty laws of
the State, and they have been permitted to
advertise freely to the effect that depositors
are protected by the depositors' guaranty
fund of the State, but not—on penalty of fine
or imprisonment—that depositors are protected by the State. In case maximum assessments permitted under the law to be levied
upon solvent banks are insufficient to pay the
proved claims of depositors in failed banks, or
interest charges on account of funding or
deferment of these claims, the fund eventually becomes insolvent without recourse to
the State. Proposals to provide out of general
tax levies or special bond issues for liabilities
accumulated against a fund in excess of its
resources have been in several instances consistently voted down, and it has been made
clear to depositors—who may have given
little consideration to the saving clauses of the
statute and to the precise wording of advertisements and posted official certificates—that
liabilities accumulated against a depositors'
guaranty fund administered by the State are
not liabilities assumed by the State for the
protection of depositors. The validity of the
guaranty is in no case determined by the
solvency and good faith of the State, or even
by that of the participating banks, but only
by the solvency of the fund under the specific
provisions of the law.
As set up in these laws the deposit insurance
scheme is in bare outline one for levying assess-
628
FEDERAL RESERVE BULLETIN
ments upon all participating banks to build up
and maintain a fund out of which to pay the
losses of depositors in failed banks—a Stateadministered flat-rate insurance scheme covering the deposit liability of banks. In five
States—Oklahoma, Nebraska, Mississippi, and
the two Dakotas—participation in this insurance has been made compulsory for all State
banks; in Kansas and Washington participation is voluntary; and in Texas it is optional
with a bank to operate under either a guaranty
fund or a bond security system.
Without exception—to note another general
similarity of the laws—assessments are based
upon deposits under a percentage rate designated in the law. Presumably the rate authorized to be levied is sufficiently high to cover
the risk of loss to depositors. This risk over
any considerable period of time is not easily
determined under any conditions, and the
conditions prevailing in the group of pioneer
States which initiated the experiment in deposit insurance were far from being favorable
for arriving at a fair estimate of it. It would
appear, from experience under the guaranty
laws, that the risk was in fact generally underestimated. The small percentage of loss to
depositors in national banks—estimated to
have averaged only one-twentieth of 1 per
cent over a period of 43 years—was accepted
as indicating that the cost of deposit insurance
would not be burdensome, but this assumption left out of account such important factors
as concentration of losses in certain periods,
the size of individual risks covered, and special
local conditions which could not be represented
in any general average for the country as a
Whole.
A maximum rate which may be levied upon
solvent banks in any one year under regular or
special assessments is commonly designated in
the statutes, and, further, a maximum amount
for the fund, with provision that assessments
shall be discontinued when the fund has accumulated to this amount, and shall be resumed
and continued thereafter as may be required
to bring the fund back to the designated maximum.
INITIATION OF THE EXPERIMENT
It is noted that a proposal to include- in the
State constitution a provision guaranteeing
bank deposits had been presented to the banking committee of the Oklahoma Constitutional
Convention in 1906 and had been rejected in
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Federal Reserve Bank of St. Louis
SEPTEMBER, 1925
the committee by a vote of 7 to 6 on the ground
principally that it was legislative in character.
Oklahoma became a State on November 16,
1907. Its first legislature convened on December 2, and on December 17, acting upon the
urgent recommendation of the governor, it enacted a guaranty law.
This statute set up a fairly complete scheme
of deposit insurance, and one which has been
adopted with modifications in each of the seven
States which have since legislated along this
line. Specifically it created an administrative
board and provided that this board should
levy an assessment against the capital stock of
all State banks equal to 1 per cent of average
daily deposits to be paid into a fund for the
guaranty of deposits; it provided that depositors in failed banks should be paid immediately in full, using the quick assets of the
insolvent institution and drawing upon the
fund in such amount as might be required; that
the board should levy special assessments to
cover deficiencies in the fund and bring it back
to 1 per cent of deposits; that payments out
of the fund should constitute a prior lien on
the assets of failed banks, and that recoveries
in liquidation of these assets should be paid into
the fund, and—to the amount of any excess
accumulation over 1 per cent in the fund—
should be paid back to the banks in proportion
to any special assessments which may have
been levied upon them.
It was provided further, as it has been in the
statutes of several other States, that national
banks might participate in the State guaranty
plan, with the privilege of withdrawing in case
the Federal Government set up a fund guaranteeing deposits in national banks. Under this
provision, 97 national banks were examined,
and 57 of these signed contracts to comply with
the law, but were compelled to withdraw on
order of the Comptroller of the Currency under
a ruling of the Attorney General that national
banks could not legally participate. Some of
these banks surrendered their charters in order
to reorganize as State banks under the fund.
National banks,it may be noted, have not been
permitted to participate in any State plan.
Amendments in 1909 raised the amount of
the fund from 1 to 5 per cent of average deposits, the accumulation above 1 per cent to be
by annual assessments of one-fourth of 1 per
cent over a period of 16 years. In 1913 the
amount of the fund was reduced to 2 per cent,
but this statutory maximum proved to be
of small practical consequence since the fund
SEPTEMBER,1925
FEDERAL RESERVE BULLETIN
629
!lid not in fact at any time nearly approach thorized to "negotiate or otherwise dispose of"
such certificates to be known as depositors'
its limit.
A. much more important provision of the guaranty fund warrants of the State of Oklaoriginal law was that making banks liable for homa, "at not less than par value, in such
assessments—additional to the 1 per cent manner as it may see fit to facilitate liquidation
levied to create the fund—in such amounts as of failed banks."
These modifications of the law—both the
might be required for the immediate payment
in full of depositors in failed banks. In the law limitation of annual assessments to a designated
as amended in 1909 a limit was put upon these percentage of deposits and the consequent auadditional assessments by providing that they thorization of interest bearing certificates or
should not exceed 2 per cent in any one calendar warrants to cover balances of claims in excess
year, and in 1913 assessments were limited to of current assessments permitted—were of
one-fifth of 1 per cent annually until the fund fundamental importance. It could not fairly
should amount to 2 per cent of deposits, and be assumed that assessments restricted to onethereafter to such amounts, not exceeding one- fifth of 1 per cent of average deposits a year,
fifth of 1 per cent, in any one year, as might would be sufficient in the long run to . pay
• be required to maintain the fund at 2 per cent, depositors' losses, even under the provision
with the provision that during the fiscal years which in effect permitted the board to discount
ending in 1914, 1915, and 1916 the State future assessments to the limit of its credit.
banking board might levy an additional one- Interest charges on any accumulated indebtedness would in fact diminish the resources availfifth of 1 per cent each year. .
The provision that depositors in failed banks able for the payment of losses and the experiwere to be paid immediately in full the amount ence of the State may be anticipated by observof their proved claims, leaving the fund to ing that such charges were in the end a large
benefit by such recoveries as might be realized factor in rendering the fund inoperative.
in subsequent liquidation of the assets of such
EXPERIENCE UNDER THE OKLAHOMA LAW
banks, was retained in the law to the end. The
fund rather than the depositor was to do the
The number of State banks on December 11,
waiting involved in the process of winding up a
bank's affairs, and consistently with this plan 1907, just prior to approval of the act, is given
the original law authorized special assessments as 468, and in the interval of 60 days between
from year to year in such amounts as might be approval of the act and levying the 1 per cent
required. The restriction of these assessments assessment, these banks were examined under
under the amendments of 1909 and 1913 neces- an order of the bank commissioner that "those
sitated a further modification of the law to indi- whose condition or past record did not justify
cate the procedure to be followed in case the a continuation in business" should disconproceeds of the authorized special assessments tinue receiving deposits and be liquidated.
should be insufficient for immediate payment Under the time limitation imposed by the act,
in full of all depositors. Accordingly, it was however, the completion of any effective examprovided in the 1909 amendments that in such ination of hundreds of widely scattered instieventuality the State banking board should tutions was clearly an impossible task for
issue to depositors certificates of indebtedness the newly organized banking department.
for the amounts of their unpaid deposits, the Commissioner Lankford, who served as comcertificates to bear interest at 6 per cent, and missioner from 1911 to 1919, in one of his
to be payable serially in order of issue on call reports comments as follows on this initial
of .the board out of subsequent emergency procedure: "It is a well-known fact that the
levies. These were to be continued at 2, per Oklahoma bank guaranty law was seriously
cent from year to year until all certificates wounded at its very inception, in that unbusiwere aken up, principal and interest. The nesslike methods were adopted in placing the
esrWicates, it was believed, would be practi- system in operation. Nothing more fatal to the
cally equivalent to cash, and they would enable success of this law could have been devised
the boardto spread payments on account of than the method of spreading over all banks in
the State a blanket insurance."
exceptionally large losses in any year öe
The three or four years immediately follow_Teriod of several years until assessme,nts should
—la
ca -Tfr:C"-Tii the law as finally amended, ing enactment of the guaranty law were
FeifActirrrg assessments after 1916 to one-fifth for Oklahoma years of reckless speculation
of 1 per cent of deposits, the board was au- 'in land values, building projects, and oil-
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Federal Reserve Bank of St. Louis
FEDERAL RESERVE BULLETIN
630
field development schemes. Population was
increasing rapidly. Data from the Department of Agriculture Yearbook, as quoted by
Dr. T. B. Robb in his account of the Oklahoma
system, indicate that the years 1906, 1907, and
1908 were years of bumper crops,that yields fell
off in the two years following, and that 1911
was a year of crop failure. It is conservatively
estimated according to Doctor Robb that "the
inflated values of 1910 had shrunk nearly 50
per cent by 1912 and 1913." The value of
building permits issued in Oklahoma City is
given as being well above $5,000,000 in each of
the years 1909 and 1910, and as having diminished to $175,000 in 1913. Many banks were
caught in the collapse of 1912 and 1913. The
following table giving the number of bank
failures in the years 1909-1920 and the amount
of capital and deposits of the failed institutions
has been made up from reports of the State
bank commissioner, and the amount of assessments each year under the guaranty law is made
up from a table prepared by Doctor Robb,'
who estimates these assessments over the 12year period to be equivalent roughly to an
annual levy of 3 per cent on capital stock, or
36 per cent for the whole period, and for the
four years 1908-12 to 5 per cent of capital stock
each year.
STATE BANK FAILURES IN OKLAHOMA AND ASSESSMENTS UNDER THE GUARANTY LAW
Year
1908
1909
1910
1911
1912
1913
1914
1915
1916
1917
191i
191g
1920
Number of
fail111139
3
2
8
4
16
5
5
1
2
3
5
8
Capital
$230,000
55,000
203,000
1 65,000
414,000
105,000
75,1300
10,000
20,000
150,000
90,000
155,000
Deposits
ASSPC9ments
91, 575,000
205,000
1,058,000
1 372,000
1, 745,000
398,000
312,000
40,000
85,000
1,199,000
800,000
1, 585,000
$198,836.63
327,387.68
285,433. 44
800, 537. 52
511,054.04
201,824.66
148,084.00
161,817. 29
89,963.85
133,355.69
208,800.00
231,962.00
301,658.00
'Two institutions only.
Even with these heavy assessments the 6
per cent warranted indebtedness of the fund
increased rapidly. Governor Cruce is quoted
as recommending a general tax levy in 1913
to cover this indebtedness, but no such Provision was made, and by September of 1914,
according to Doctor Robb, the amount of the
'The guaranty of bank deposits, by Thomas Bruce Robb, Ph. D
p.74.
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Federal Reserve Bank of St. Louis
SEPTEMBER,1925
indebtedness exceeded $800,000. Conditions
changed materially, upon the advent of the
World War-in Oklahoma as in other Statesand in his biennial report for 1915-16 Commissioner Lankford reported that the law
"founded on the great principle of fairness,
equity, and justice" was working with entire
satisfaction both to the depositor and the
banker." The warranted indebtedness of the
fund had been reduced to $666,000 and there
was a net balance of nearly $154,000 in the
fund. Two years later, in 1918, he could
report that all depositors in failed banks had
been promptly paid in full. This did not
mean that the fund had gotten entirely out
of debt, but the amount of outstanding warrants had been in fact materially reduced, and
by 1920 this indebtedness was entirely paid
off, with the fund showing a small cash balance. Evidence of increasing confidence in
the integrity of the banks was found, according to the commissioner, in the"phenomenal"
increase in deposits. "Doubt and apprehension," he writes, "has given way to a feeling
of good will and security."
Nevertheless, within a very few months the
situation was completely changed. A succession of bank failures, occurring in consequence
of the disastrous collapse of credit and values
in 1920, brought upon the guaranty fund once
more an accumulation of liabilities, and this
time an accumulation for which resources in
hand or prospectively available under the
fixed one-fifth of 1 per cent assessment upon
deposits were quite inadequate.
The guaranty system became inoperative
in the fall of 1921. A condition characterized
by State authorities as one of practical insolvency had developed, and for a period of
some 18 months following the system continued
inoperative, until on March 31, 1923, the act
formally repealing the guaranty law became
effective.
In some of its aspects the story is a repetition of that covering the earlier experience.
Mr. Thornton Cooke notes, for example, the
following important factors in the situation:
That comparing 1919 with 1920 the value of the
Oklahoma wheat crop fell off from $107,000,000
to $73,000,000; of the corn crop, from $94,000,000 to $42,000,000; and of the cotton
crop, from $209,000,000 to $96,000,000.
According to reports of the Comptroller, 10
Oklahoma State banks failed in the fiscal year
ended June 30, 1921, and 37 and 13 in the two
years following, respectively. Developments
in 1921, as summarized by Mr. Thornton
-
SEPTEMBER,1925
Cooke, were as follows: "The Farmers State
Bank of Ada, closed in January, cost the
guaranty fund $50,000. Both banks in Kiefer
closed on the same day and cost the fund
$424,000. * * * The Oklahoma State Bank
of Guthrie closed in October cost the fund
$589,000. Warrants for $2,196,000 were issued
in 1921 to cover the deposits of 13 banks; and
then the Bank of Commerce of Okmulgee
failed November 1, with deposits of $1,732,540.
* * * Seven other banks failed about the
same time whose deposits, added to those of
the Okmulgee institution, made $2,316,000.'
In March, 1923, when the law was repealed,
the assumed liabilities of the fund included
interest-bearing warrants outstanding, and in
addition there were the unpaid deposits in
banks which became insolvent in the period
from October, 1921, when the system became
inoperative, to March, 1923. On the warrants
outstanding no interest had been paid since
their issue and the amount still outstanding in
1925 is given by the State office as $1,330,000.
The unpaid deposits totaled approximately
$6,000,000, and it is stated that no provision
has been made for the payment of these deposits except in such amounts as are realized
from liquidation of the assets of the particular
banks. The fund has on hand a small cash
balance, given recently as $79,000. Unliquidated assets of banks which failed during the
life of the guaranty fund having a nominal
value of approximately $3,000,000 were left in
the hands of the banking department. Ultimate recoveries on these assets are expected
to be "very small." The interest-bearing
warrants outstanding are largely held by State
banks, and these banks stand to lose both principal and interest on their investment. It is
noted, however, that the warrants are widely
distributed and that there will be no serious
concentration of loss in individual banks.
During the life of the guaranty law, from
February of 1908 to March of 1923, State banks
paid into the fund assessments totaling $3,729937; a total of $2,195,137 was realized from
liquidation of the assets of failed banks taken
over by the department, and approximately
$6,000,000 was paid out to depositors.
In February of 1920 aggregate deposits in
the 606 State banks exceeded $170,000,000.
By June of the year following, although the
number of banks had increased to 622, aggregate deposits had fallen off to $139,000,000.
Reports for June of 1922 give the number of
1 Quarterly Journal of Economics, March, 1923, p. 112.
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Federal Reserve Bank of St. Louis
631
FEDERAL RESERVE BULLETIN
banks as 486 and the amount of their deposits
as $76,000,000, and corresponding figures for
June of 1923 were 443 for the number of banks
and $71,000,000 for deposits. Assessments
at the statutory rate of one-fifth of 1 per cent
on average daily deposits, with deposits running in the volume shown for 1922 and 1923,
could not yield more than $150,000, and this
amount would clearly be insufficient to provide even for the interest charges on any
volume of indebtedness which would necessarily be assumed in providing for the $6,000,000 of unpaid deposits, making the most
liberal allowance for the value of quick assets
immediately available in the failed banks.
Certificates of indebtedness issued under these
conditions would have had little value, and
depositors naturally preferred and have been
allowed to take their chances under independent
liquidations of the assets of the particular
banks,, since the guaranty of the fund could
have no real validity.
In the period from November 1, 1908, to
December 31, 1914, according to the State reports, 187 State banks converted into national banks. In the six calendar years, 1915
to 1920, inclusive, only six such conversions
are reported and 16 national banks joined the
NUMBER OF BANKS
700
DEPOSITS -IN MILLIONS OF DOLLARS
1350
OKLAHOMA
NUMBER OF BANKS
DEPOSITS
0 State
.0= In State Banks
0 Nat anal --111—In Hat,onai Bank
r
—
500
300
250
,o
300
- 150
100
100
CO 0
01 0) CO
N NNN N
0) 0
) 0) 01 0
)
0
) 0) 0) Cr) a) a) 0) Ce)
State system. The report of the comptroller
for the year ended October, 1921, shows only
two conversions of State banks into national
banks in that year. The breaking away from
the State system came principally in the
year following, during which 72 State institutions took out national charters. In 1923 the
'Is
632
FEDERAL RESERVE BULLETIN
number of such conversions fell off to 9 and
in 1924 to 2. Changes in the number of State
banks and in the amount of their deposits from
year to year during the guaranty period are
illustrated by the accompanying chart, on
which are shown corresponding data for national banks. Throughout this period, it may
be noted, a large proportion of the State banks
have been small institutions operating with a
capital of less than $25,000, the minimum capital required for a national bank. There were
386 such institutions in a total of 623 State
banks operating under the guaranty law in December of 1920.
SEPT/3)1,1BM 1925
more than five such assessments in any one
year. The number of banks participating and
the amount of the depositors' fund as given in
the State reports are as follows:
Number of
banks
Depositors fund
Year
Total
1912
1914 _
1916
1918
1920
1922
902
939
987
1,044
1, 113
1,094
Participating
457
499
539
604
676
703
Total
$527,838
679,568
1,065,566
1,876, 722
Cash
$117,537
191,005
733,430 1
Bonds
$410,301
488,563
1, 143, 292
VOLUNTARY PARTICIPATION
Under the laws of two States—Kansas and
Washington—participation in the guaranty
fund is optional. Under the Kansas law only
banks with an unimpaired surplus of 10 per cent
and generally only those which have been actively engaged in business for at least one year
have been permitted to qualify for participation
in the guaranty fund. These safeguarding provisions of the law were intended to prevent extension of the guaranty to unsound institutions,
and that they were fairly effective may be inferred from the fact that only three banks came
on the fund in the first 10 years of its operation.
A bank entering the system is required to
deposit bonds or cash in lieu of bonds, as evidence of good faith, in the amount of $500 for
every $100,000 of its average deposits eligible
for guaranty, deducting from such deposits the
amount of its capital and surplus. The bonds
or cash so deposited are to be carried in its
assets under the heading "Guaranty fund with
State treasurer." In addition the bank is required to pay one-twentieth of 1 per cent of its
average deposits (less capital and surplus) to be
credited to the bank depositors' guaranty fund,
and to pay also an amount equal approximately
to its proportionate share of money in the fund
after 'deducting losses. Participating banks
are assessed annually one-twentieth of 1 per
cent of average deposits less capital and surplus,
but not less than $20 as a minimum assessment,
until the cash fund amounts to approximately
$1,000,000 (not including cash deposited in lieu
of bonds), when assessments are to be discontinued. Whenever the cash fund is reduced
below $500,000 additional assessments of onetwentieth of 1 per cent must be levied to pay
losses matured and claims payable, but not
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Federal Reserve Bank of St. Louis
In reply to inquiries recently submitted to
the Kansas banking department it is stated
that the number of participating banks in
May, 1925, was 649. The Kansas law does
not require immediate payment in full of
deposits in failed banks. When any bank is
found to be insolvent, the bank commissioner
takes charge of its affairs and issues certificates
upon which dividends are paid as the assets
of the bank are liquidated, the fund being
drawn upon for any balances left unpaid after
the resources of the bank have become exhausted. In May of the present year the
department had in hand 60 estates of failed
banks in process of liquidation, and the amount
in the fund included only a balance applicable
to the payment of certificates issued on account
of one failed bank, and it is stated that one
or possibly two assessments would be required
to complete payment on this estate. According to the last State report, 20 State banks,
including 16 institutions participating in the
guaranty fund, failed in the two years ended
September 1, 1922. As only three banks had
come on the fund prior to 1920, it is apparent
that a large proportion of the 60 estates now
in process of liquidation in the department
represent failures during 1923 and 1924.
Experience under the only other voluntary
system,that of Washington,is briefly as follows:
The law was enacted in 1917, and by June of
1921 the number of participating banks had
increased to 120, with deposits eligible for
guaranty totaling $71,000,000. There had
been no failures, and assessments from year
to year had built up a fund of $525,000. On
June 30, 1921, the Scandinavian American
Bank in Seattle failed with guaranteed deposits amounting in round numbers to
SIOPTEM DER, 1925
$9,000,000. All banks in the system immediately withdrew, taking their losses as prescribed by law. Amounts realized on the
assets of this bank to a recent date totaled
$5,115,000; assets not yet liquidated had a
book value of $3,681,000; the amount of cash
on hand in the fund was approximately $25,000; and the amount due on outstanding warrants, not including interest, was $2,537,000.
It is stated that any balance due on these
warrants after liquidation of the Scandinavian
American Bank will never be paid, "as there
will be no source from which the money can be
obtained." The last assessment was levied in
December of 1921. Depositors in the failed
bank have been paid the amount accumulated
in the fund and such amounts as have been
realized from liquidation of the assets taken
over.
OPTIONAL PARTICIPATION
In February Texas modified its guaranty law
by enacting legislation under which banks are
permitted to shift over from the State's guaranty fund system to its alternative bond-security system. The act declared an emergency to
exist in.that many banks desired to make this
change. Upon initiation of the Texas system
in 1910 banks were permitted to elect between
these systems, and the option has been presented to banks which have organized from
year to year during the guaranty period.
Very few banks had, in fact, elected to deposit
security bonds, the number of such banks as
given in the State report for 1922 being only
33 in a total of some 900 State institutions.
Since February, however, a very considerable
number of banks have shifted over to the bondsecurity system. Temporarily something in
the nature of a "rush away from the guaranty
fund" is reported to have developed, in the
course of which many banks withdrew from
the fund and deposited bonds. It may be
noted that, while 33 State banks had taken
national charters in three years ended October
31, 1924, a large proportion of the State
institutions-330, or approximately one-third
in 1922-are operating with a capital of less
than $25,000 and are therefore not eligible for
nationalization. Changes in the number of
State banks and in the volume of their deposits
during the guaranty period are indicated in the
following table, which gives corresponding data
for national.banks:
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Federal Reserve Bank of St. Louis
638
FEDERAL RESERVE BULLETIN
Number of Deposits (in thousands of dollars)
banks
Year
„ Na8""' tional
1910
1914
1920
1921
1922
1923
1924
533
789
908
937
905
881
867
519
519
561
653
559
569
576
National
State
27,573
52,219
211,460
163,694
156,793
156,409
176,393
145,249
174,033
524,544
365, 372
495,388
532,309
594,402
By May 1, 1925, the number of banks participating in the guaranty fund had fallen off
to 617. Undoubtedly the decrease is accounted for primarily by defection to the
bond-security system. On this date noninterest bearing, unsecured deposits protected
by the fund, totaled $115,000,000. The amount
of deposits in banks which have failed during
the guaranty period is given as follows:
From Sept. 1, 1910, to Sept. 1, 1920
Year ended Sept. 11921
1922
1923
1924
From Sept. 1, 1924, to Apr. 29, 1925_ _
$881,500
3, 998, 441
4, 277, 587
1,917,708
1
I 420
4,029,351
Theoretically, it is stated in reply to recent
inquiry, the banks have been assessed and
depositors have been paid in these amounts.
In the 10 years ended September 1, 1920, a
total of $571,000 was realized upon the assets
of failed banks, and in the period from September 1, 1920, to December 15, 1924, a total
of $2,717,845. Cash on hand in the fund on
May 1, 1925, amounted to $968,556, and there
was $3,085,889 on deposit in banks subject to
check of the State banking board. Under the
Texas statute assessments are limited to a
maximum of 2 per cent of deposits in any one
year, and no authority has been granted for
levying emergency assessments. Banks are
required to contribute one-fourth of 1 per cent
to the "regular or capital fund" until it
amounts to $5,000,000. On May 1 assets of
failed banks in the hands of the commissioner
totaled $23,196,892. The liability of the fund
to depositors on account of failed banks totaled
$181,052, covering losses in two recently failed
institutions for which assessments had not
been levied. There were no unpaid warrants
or certificates outstanding and never had been
any. Administrative practice in paying off
634
FEDERAL RESERVE BULLETIN
depositors, it is explained, has varied under
different administrations, the records showing
that from 30 days to 9 months have elapsed in
individual cases before beginning to pay
depositors.
It will be apparent that the Texas law has
imposed heavy burdens upon participating
banks. These burdens have been carried by
the banks, but the recent breaking away from
the fund system may be interpreted as one
effect of the high costs of this sort of insurance.
NEBRASKA EXPERIENCE
In Nebraska, as in other guaranty States•
assessments on account of failed banks have in
recent years imposed heavy burdens upon participating banks. During the guaranty period
to the end of 1924 assessments (less refunds)
and amounts paid to depositors in failed banks
have been in the following amounts:
Assessments
1911-1919
1920-1924
$2,367,280
7,694,042
Paid to depositors
$239,390
8,730,645
Assessments levied in the single year 1921
excluded total assessments during the nine years
1911-1919, and amounts paid to depositors in
this year totaled $2,741,719. Assesments and
payments continued in large amounts in 1922
and 1923. Fifty-seven State banks failed in the
three years ended June 30, 1923, and it appears
that approximately that number of other
banks were known to be on the verge of
failure. Under these conditions State bankers
became interested in the administration of
receiverships, and in ways and means of tiding
over weakened banks into a condition of
assured solvency. In recognition of their interests, a law which became effective April 7,
1923, created a guaranty fund commission
composed of State bankers, and authorized
an assessment, not to exceed one-fourth of 1
per cent of deposits in any one year, to be
paid into a bankers' conservation fund. Banks
found to be in a weakened condition were to
be turned over to the new commission which,
utilizing the conservation fund, was authorized
in its discretion to operate such institutions as
going concerns, without regard to their solvency. Some 57 receiverships, with liabilities
aggregating approximately $10,000,000, were
taken over by the new commission, and as a
result of putting "good collectors" in the
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Federal Reserve Bank of St. Louis
SEPTEMBER, 1925
banks and of adopting improved methods it
is asserted that material savings have been
effected by which the guaranty fund has
benefited. In an address before Nebraska
State bankers in April, 1924, the secretary of
the commission stated that assets in the hands
of the commission included "everything from
a 20-ton safe down to pen points," every
article being "for sale at the right price."
Among other assets the commission had in
hand "around 200 farms to sell," and it was
also extensively engaged in litigation, with
"about 1,500 cases in the courts."
It is stated in reply to inquiries submitted
to State authorities that depositors in failed
banks have been paid in full, and that in May
of the present year there were no outstanding
liabilities of the fund to depositors. Deposit
credits to the account of the guaranty fund
carried in the 922 participating banks totaled
$2,689,340, and guaranteed deposits in those
banks exceeded $250,000,000. Certificates issued on the security of the assets of failed
banks were outstanding at 6 and 7 per cent
interest, in the amount of $1,705,699, but the
fund was sufficient to pay these certificates in
full and leave a balance of $1,000,000 in the
fund. Assets in failed banks not yet liquidated, however, at this time totaled $11,000,000, and it will be apparent that the cost
of deposit guaranty in Nebraska to date will
be determined largely by the amount of recoveries realized under the administration of the
Bankers' Conservation Commission on this
large volume of unliquidated assets.
CONDITION
OF
GUARANTY
FUNDS IN
OTHER
STATES
Deposits in Mississippi State banks on December 31, 1924, totaled $143,000,000. To
April, 1925, a total of $3,162,748 guaranty
certificates had been issued, of which $1,940,766
were outstanding in June of this year. It is
estimated that six or seven years will be required at the present rate to retire these certificates. Assessments during the ten years
1915 to 1925 totaled $1,395,979, and amounts
paid to depositors in failed banks during this
period totaled $1,766,769. Approximately
$429,384 had been realized from the assets of
failed banks. The amount of the guaranty
fund was $338,825, and the State board held
approximately $2,000,000 of assets of failed
banks, valued at $742,000. Complete liquidation of failed banks has required in individual
cases from three to seven years.
635
FEDERAL RESERVE BULLETIN
SRPTEMBER, 1925
Guaranteed deposits in North Dakota State
banks on March 14, 1925, amounted nearly to
$86,000,000. In the eight years 1917 to 1924
participating banks had paid assessments totaling $1,274,000. Complete settlements had
been effected in the case of two failed banks
by the payment of $169,156, and 10 per cent
dividend payments to depositors in 58 closed
banks had been made totaling $212,710. The
number of participating banks is given as
504; the amount in the fund as $915,505, and
the amount of outstanding certificates of indebtedness as approximately $21,000,000. No
estimate, it is stated, can be made of the
amount of guaranteed deposits in failed banks.
Recoveries realized on the assets of closed
banks have amounted approximately to
$200,000. Assets in the hands of receivers
totel approximately $35,000,000 and are estimated to be worth not more than 40 per cent
of this value. Under present arrangements a
very long period of time would be required to
provide out of assessments for claims admittedly valid against the fund.
The 1925 Legislature of South Dakota repealed its guaranty law, the repeal to become
effective January 1, 1926. A petition has,
however, been filed that the repeal act be
submitted to a referendum vote at the next
general election in 1926, and pending this
referendum the original law continues in effect.
In June of the present year 432 banks were
operating under the law; depositors in some
15 failed banks had been paid in full, and claims
had been filed for payment of depositors in 142
other closed banks. Guaranteed deposits
in participating banks totaled $122,000,000.
Unpaid guaranteed deposits in failed banks
totaled $34,000,000. In the 10 years 1915 to
1924, inclusive, participating banks paid assessments totaling approximately $3,000,000,
and nearly this amount had been paid out to
depositors in failed banks. Assets of failed
banks not yet liquidated in the hands of the
State board totaled $44,000,000. Unpaid
warrants or certificates of indebtedness were
outstanding in the amount of nearly $27,000,000, with interest payable to the amount of
$5,000,000. To date it is stated none of the
banks had been completely liquidated.
a decided drift out of the national into the State
system has developed immediately following
the institution of a guaranty plan, it may be
inferred that national bankers have at least
anticipated if they have not in fact experienced
difficulty in holding their volume of deposits
unprotected by the fund. And similarly a
drift out of the State system following any
period of a concentration of bank failures, may
fairly be associated with the guaranty scheme.
Of course, any accumulation of liabilities
which has tended to impair the solvency of the
fund has tended to impair not only the competitive but also the actual value of the guaranty. If 1920 be taken as a critical year in
recent banking experience, it will be found that
with some exceptions State systems in the
guaranty States have in the guaranty period
down to 1920 shown, as compared with the national system, higher percentages of increase
both in number of banks and in amount of deposits, and that in the period since 1920 the
national system has grown more rapidly than
the State. Rates covering these two periods
are given in the accompanying tables. Detailed evidence appears to be conclusive that
deposit insurance and the condition of the
guaranty funds has been a real influence affecting these rates.
PERCENTAGE CHANGE IN NUMBER AND DEPOSITS OF
STATE AND NATIONAL BANKS IN GUARANTY
PERIODS.
Percentage change during guaranty period
State
Guaranty
period
5S623-25t
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Federal Reserve Bank of St. Louis
4
1920 to end
of period
tiN
ona-ai
bS_tatke.'
"' ',banks banks banks
I
In number of banks
Oklahoma
Kansas
Texas
Nebraska
Mississippi
South Dakota
North Dakota
Washington
1907-1923
1909-1924
1910-1924
1911-1924
1914-1924
1915-1924
1917-1924
1917-1921
70
17
43
23
70
8
58 -24
22 -21
15
17
3
16
11
17
-27
-6
-4
-8
-1
-23
-27
-3
28
(9
3
-7
17
-17
-10
8
In amount of deposits
COMPETITIVE VALUE OF DEPOSIT GUARANTY
Some drift of banks and of deposits, as
between State and national systems, has been in
evidence from year to year in the guaranty
States. Such changes have not, however,
been confined to these States, and many accidental influences other than deposit insurance
must be taken into account. When, however,
To 1920
Oklahoma
Kansas
Texas
Nebraska
Mississippi
South Dakota
North Dakota
Washington
0.4 per cent.
1907-1923
1909-1924
1910-1924
1911-1924
1914-1924
1915-1924
1917-1924
1917-1921
97
25
67
318
308
224
38
50
53
145
261
79
124
107
34
48
-58
-27
-17
-12
-14
-37
-42
-19
2
-3
13
-26
52
-15
4
-10
636
FEDERAL RESERVE BULLETIN
Following is a condensed summary of the
guaranty laws in the different States, prepared
by the board's counsel. A more complete
summary of these laws appears on pages 641668 of this issue.
CONDENSED SUMMARY OF GUARANTY LAWS
OKLAHOMA
(Law repealed Mar.31, 1923)
Institutions included.—Every bank and savings
departments of trust companies.
Participation.—Compulsory.
Character of deposits guaranteed.—Deposits of
failed banks, but no deposit otherwise secured, nor any
deposit on which a greater rate of interest is allowed
than is permitted by the rule of the bank commissioner.
Basis and rate of (a) regular and (b) special assessments.—(a) One-fifth per cent of average daily deposits
annually until guaranty fund amounts to 2 per cent of
average deposits of the banks; thereafter such 2 per
cent shall be maintained by assessments from time to
time but such assessments shall not exceed one-fifth
per cent of the average daily deposits in any one year.
(b) One-fifth per cent of average daily deposits during
fiscal years ending in 1914, 1915, and 1916, in discretion
of banking board.
Method of payment of depositors.—Funds from
guaranty fund or by sale of guaranty fund warrants
issued by the banking board.
Powers of State board or commissioner.—Supervise
and control the guaranty fund and adopt all necessary
regulations not inconsistent with law for the administration of such fund. Such board may also issue
warrants when the guaranty fund is insufficient to pay
depositors of failed banks and may levy special assessments in fiscal years ending in 1914, 1915, and 1916.
The bank commissioner is authorized to take charge
of and wind up the affairs of insolvent banks.
Disposition of guaranty fund.—Paid to banking
board in cashiers' checks which shall be held by such
board until in its judgment it is necessary to collect
the same.
Maximum assessment in any one year.—One-fifth
per cent and in fiscal years ending in 1914, 1915, and
1916 an additional one-fifth per cent special assessment.
Rate of interest on outstanding warrants or certificates of indebtedness.—Six per cent.
NOTE.—The State of Oklahoma, in addition to the
contributions to the guaranty fund, as set out above,
required each bank to deposit with the banking board,
as security for its liabilities to the guaranty fund,
certain securities (enumerated in the act) in an amount
equal to 1 per cent of its average daily deposits, and
no bank might deposit less than $500 of such securities
with the board.
KANSAS
Institutions included.—Any bank doing business in
the State with an unimpaired surplus of 10 per cent
of its capital and any bank authorized to do business
in the State after the passage of the act which shall
have been actively engaged in business for one year
and having such surplus.
Participation.— Volu ntary.
Character of deposits guaranteed.—All deposits not
otherwise secured; but the guaranty shall not apply to
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em.1111.1110.
Federal Reserve Bank of St. Louis
L
SEPTE.NIBER, 1925
a bank's obligations as indorser upon bills rediscounted,
to bills payable, to money borrowed, from its correspondents or others (any deposit on which a greater
rate of interest is paid than the rate approved by the
bank commissioner shall be considered money borrowed), or deposits or credits obtained by fraud or in
violation of law or evidence of debts fraudulently
issued.
Basis and rate of (a) regular and (b) special assessments.—(a) One-twentieth per cent of average guaranteed deposits less capital and surplus, minimum
assessment $20 annually. (b) When the guaranty
fund falls below $500,000 additional assessments may
be made to pay losses that have matured and become
claims payable on demand against the guaranty fund.
Not more than five such additional assessments of
one-twentieth per cent shall be made in any one year.
An initial assessment of one-twentieth per cent of
average deposits eligible to guaranty less capital and
surplus is made on banks entering this system at its
inauguration, and banks entering later are required to
contribute their proportionate share of money then in
the guaranty fund after all losses have been paid.
Method of payment of depositors.—Bank commissioner shall at earliest moment issue to each depositor
a certificate upon proof of claim. Any balance due on
such certificate after assets of bank have been realized
and all dividends declared shall be paid by checks
drawn on the depositors' guaranty fund. If the guaranty fund is not sufficient to pay all depositors of the
bank, the special assessments provided for having been
made, then the depositors shall be paid pro rata and
the balance due shall be paid when the next assessment
is available.
Powers of State board or commissioner.—The bank
commissioner is authorized to levy assessments each
year until the fund is $1,000,000, and thereafter, if the
fund falls below $500,000, he is authorized to levy
additional assessments, not exceeding five in any one
year, in sufficient amounts to pay losses that have
matured and become claims payable against the guaranty fund. The commissioner is also authorized to
take charge of insolvent banks and wind up the affairs
of such banks and to issue certificates to depositors
upon proof of claim. The commissioner is also authorized to examine banks failing to pay assessments, and
if such banks are insolvent to liquidate them and if
solvent to cancel their certificate as guaranteed banks.
In case of violations of the act the commissioner is
authorized to require compliance and if compliance is
not had to cancel the certificate of membership of the
bank.
Disposition of guaranty fund.—The guaranty fund
shall be deposited with the State treasurer subject to
the order of the bank commissioner.
Maximum assessment in any one year.—Not more
than five assessments of one-twentieth per cent each
of the average guaranteed deposits less capital and
surplus shall be made in any one year.
Rate of interest on outstanding warrants or certificates of indebtedness.—Six per cent unless a contract
rate exist on the deposit, then the certificate shall bear
the contract rate.
NOTE.—The State of Kansas, in addition to the
contributions to the guaranty fund as set out above,
requires each bank to deposit and maintain with the
State treasurer as an evidence of good faith certain
securities (enumerated in the act) to the amount of
$500 for every $100,000 or fraction thereof of its
average deposits eligible to guaranty less capital and
surplus.
SEPTI1
BER,
FEDERAL RESERVE BULLETIN
1925
637
panies heretofore incorporated under the Texas banking law or hereafter incorporated.
Participation.—Compulsory.
Banks may elect
whether they will secure their depositors by the guaranty-fund system or the bond-security system, but such
depositors must be secured by one or the other of such
systems.
Character of deposits guaranteed.—All deposits,
provided, however, no deposit upon which interest is
being paid or contracted to be paid; no deposit secured
in any way; no certificate of deposit, whether interest
bearing or not, that shall have been changed to a noninterest-bearing unsecured deposit within 90 days prior
to the closing of the bank by the commissioner; no deposit of public funds, whether interest bearing or not;
and no deposit made by a creditor for the purpose of
converting a loan held against the debtor bank into a
noninterest-bearing unsecured deposit shall be protected or insured by the guaranty fund. Cashiers'
checks, bank drafts, or exchange issued against or
arising from bona fide unsecured noninterest-bearing
deposits shall be protected under the guaranty fund.
Noninterest-bearing certificates of deposit issued by
State banks and trust companies are not protected or
insured by the guaranty fund.
Basis and rate of (a) regular and (b) special assessments.—(a) One-fourth per cent of daily average deposits not including United States, State, and other
public funds otherwise secured annually until fund
amounts to $5,000,000. (h) If the guaranty fund is
depleted so that it falls below $5,000,000 or below the
amount of the guaranty fund on January 1 preceding,
or in event of emergency at any time, the banking
board is authorized to require the payment for the current year of 2 per cent of the average daily deposits,
or such part thereof as is necessary to restore the fund
to the maximum above named or to its amount as of
January 1 preceding, or to meet the emergency. An
initial deposit of 1 per cent of the average daily deposits is required of banks entering the system at the
time of its inauguration, and banks formed since that
time and entering the guaranty fund are assessed 3 per
cent of their capital and surplus, subject to adjustment
on the basis of their deposits as provided for banks
already existing at the end of the year.
Method of payment of depositors.—Depositors shall
be paid in full out of the cash in the failed bank or
trust company that can be made immediately available
and the remainder shall be paid out of the depositors' guaranty fund.
Powers of State board or commissioners.—The
State lbanking board shall have control and management of the depositors' guaranty fund and shall have
power to adopt rules and regulations for the management of such fund and shall have control and supervision of all State banking corporations and trust companies. The bank commissioner is authorized to wind
up the affairs of any State bank or trust company
which shall become insolvent and shall voluntarily or
by law come into his hands. The board is also authorized to levy special assessments, as set out above.
Disposition of guaranty fund.—Twenty-five per cent
of each guaranty fund payment shall be paid to the
State banking board in cash and shall by it be deposited with the State treasurer for safe-keeping.
The remaining 75 per cent of each such payment shall
be paid by each bank crediting the State banking
TEXAS
board with such amount as a demand deposit subject
Institutions included.—Every corporation hereafter to check upon the order of the board. The board shall
incorporated under the laws of Texas with banking and keep at all times 25 per cent of the amount of the guardiscounting privileges and banking and trust com- anty fund on deposit with the State treasurer.
NEBRASKA
Institutions included.—Every corporation engaged
in the business of banking.
Participation.—Compulsory.
Character of deposits guaranteed.—The guaranty
fund is for the protection of depositors, but no money
deposited in any bank upon any collateral agreement
other than an agreement for length of time to maturity
and rate of interest shall be guaranteed by the depositors' guaranty fund. No claim of priority in the assets
of a failed bank shall be allowed which is based on evidence of indebtedness in the hands of or issued to a
stockholder, officer, or employee of a failed bank which
represents money obtained by such stockholder, officer,
or employee for the purpose of effecting a loan to such
failed bank.
Basis and rate of (a) regular and (b) special assessments.—Banks organized since April 4, 1919, are assessed 4 per cent of their capital stock and thereafter
are subject to the same assessments as banks organized
after the enactment of the act. Banks organized after
the passage of the act are required to pay 4 per cent
of their capital and this payment together with the
first two semiannual assessments must equal at least
1 per cent of the average daily deposits of such banks
as shown by their first two semiannual statements.
(a) All banks which have completed their initial payment of not less than 1 per cent shall be assessed ,21IF
per cent of their average daily deposits exclusive of
public money otherwise secured, semiannually, until
the guaranty fund reaches the sum of 144 per cent of
such deposits. When the fund is depleted below 1
per cent of said deposits the necessary assessments
may again be levied. (b) If the guaranty fund is reduced to less than 1 per cent of such deposits the department of trade and commerce shall levy a special
assessment of not exceeding 1 per cent of said deposits
for 1923 and thereafter not exceeding M per cent of
such deposits in any one year.
Method of payment of depositors.—Upon proof shall
be paid immediately out of available cash in hands of
receiver, and if the sum in the hands of the receiver is
insufficient the amount needed shall be certified to the
department of trade and commerce and drawn by it
from the guaranty fund and forwarded to the receiver
for payment to depositors and holders of exchange.
Powers of State board or commissioner.—A guaranty
fund commission is created for the purpose of assisting
in conserving and administering the guaranty fund and
providing a more complete supervision of State banks.
The act provides in detail for the taking over and
managing of banks in an unsafe condition and for the
winding up of the affairs of such banks as it is impossible
to save. The court in which a receivership is pending
may authorize the receiver to issue and sell receivers'
certificates in amount not exceeding the amount required to supply the deficiency for the payment of
depositors in the failed bank.
Disposition of guaranty fund.—Banking corporations against which levies are made shall set apart,
keep, and maintain in such banks the amounts levied
against them payable to the department of trade and
commerce.
Rate of interest on outstanding warrants or certificates of indebtedness.—Rate of interest shall be fixed
by the court.
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Maximum assessment in any one year.—Two per
cent of average daily deposits; but this limitation not
applicable to first payment to the guaranty fund required of any bank which shall hereafter elect to secure
its deposits in the depositors' guaranty fund.
NOTE.—The laws of Texas provide also for the security of depositors by means of security bonds taken
out by the banks in favor of such depositors, and it is
optional with the Texas banks whether they will
secure their depositors by means of the guaranty-fund
system or by means of the bond-security system, but
they must secure their depositors by one or the other of
these systems. Only the law relating to the guaranty
fund system has been considered in the above.
MISSISSIPPI
Institutions included.—Every bank organized and
existing under the laws of Mississippi.
Participation.—Compulsory.
Character of deposits guaranteed.—All deposits not
otherwise secured and all cashiers' checks, certified
checks or sight exchange issued by banks operating
under the guaranty fund act. The guaranty shall not
apply to a bank's obligations as endorser, upon bills
rediscounted, nor to bills payable nor to money
borrowed from its correspondents or others, nor to
deposits bearing a greater rate of interest than 4 per
cent per annum.
Basis and rate of (a) regular and (b) special assessments.—An initial assessment of one-twentieth per
cent of the average daily deposits eligible to guaranty
less capital and surplus is required of banks entering
the guaranty fund. (a) One-twentieth per cent of the
average guaranteed deposits, less capital and surplus,
annually until the fund amounts to $500,000, when
such assessments shall be discontinued. Minimum
assessment, $20. (h) Should such funds become
depleted the superintendent of banks shall make additional assessments from time to time as may be necessary to maintain same, but not more than five such
assessments of one-twentieth per cent each may be
made in any one calendar year.
Method of payment of depositors.—Payments to be
made in manner determined by superintendent of
banks.
Powers of State board or commissioner.—The superintendent of banks is authorized to examine banks
applying for membership in the guaranty fund and if
such banks are found to be solvent and properly managed and after they have made the deposits required
by the act to issue to such banks certificates stating
that such banks have complied with the act anti that
its deposits are guaranteed by the guaranty fund. The
superintendent is authorized to levy the regular and
special assessment as set out above. The payment of
depositors of failed banks out of the guaranty fund is
put under the control of the superintendent.
Disposition of guaranty fund.—The State treasurer
shall hold the guaranty fund subject to the order of the
superintendent of banks, and when the guaranty fund
amounts to $10,000 or multiples of $10,000 he may at
the option and order of the superintendent of banks
invest the fund in certain securities (enumerated in the
act), and whenever the demands upon the fund exceed
the cash on hand the State treasurer shall by order
of the superintendent sell or hypothecate such of the
bonds as he may deem necessary or expedient.
Maximum assessment in any one year.—Five assessments of one-twentieth per cent each.
NOTE.—The State of Mississippi, in addition to the
contributions to the guaranty fund as set out above,
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SKPTEMBEE, 1925
requires each bank to deposit and maintain with the
State treasurer as an evidence of good faith certain
securities (enumerated in the act) to the amount of
$500 for every $100,000 or fraction thereof of its average
deposits eligible to guaranty less capital and surplus.
SOUTH DAKOTA
Institutions included—Every bank engaged in the
business of banking under the laws of South Dakota.
Participation.—Compulsory.
Character of deposits guaranteed.—All deposits not
otherwise secured shall be secured by the guaranty
fund but such guaranty shall not apply to a bank's
obligations as indorser upon bills rediscounted, nor to
bills payable, nor to money borrowed from its correspondents or others. Banks which have fully complied with the provisions of the guaranty fund act
are not required to give any further security for the
purpose of being a depositary of public funds, but
such funds shall be secured in the same way private
funds are secured.
Basis and rate of (a) regular and (b) special assessments.—(a)One-fourth per cent of the average daily
deposits less the amount of deposits not eligible to
guaranty, annually, until the fund amounts to 134
per cent of the average daily deposits. When the
fund reaches 13. per cent of the average daily deposits assessments shall cease until the fund is depleted below 1 per cent of such deposits, when the
necessary assessments may again be levied at X per
cent per annum until the said fund reaches 1
per
cent of the average daily deposits.
Any bank hereafter organized shall pay into the
depositors' guaranty fund an amount equal to 4 per
cent of its capital stock, and the commission is authorized to adjust the assessments on such banks so that
the first two assessments together with such 4 per
cent will place it on an equal basis with other banks
heretofore admitted.
Method of payment of depositors.—The amount
necessary to pay the guaranteed depositors and holders
of exchange shall be certified to the commission, which
shall draw out of the guaranty fund the required
amount and transmit it to the superintendent of
banks to be paid to the depositors and holders of
exchange. If the guaranty fund is not sufficient to
pay such claims the commission shall issue a certificate
of indebtedness in favor of the bank, payable on the
1st day of March next succeeding the date of issue,
out of the first money accruing to the guaranty fund.
Such certificates may be sold and the proceeds used
to pay deposits which are legitimate claims against
the guaranty fund. In the discretion of the commission such certificates may be issued payable to
the depositors for the amount of their approved
claims.
Powers of State board or commissioner.—It shall
be the duty of the commission to pass upon the qualifications of banks for admission to the guaranty fund
and such commission is authorized to levy assessments and issue certificates as explained above. If
any bank after due notice fails to pay over or credit
any assessment to the depositors' guaranty fund, the
superintendent of banks is authorized to take possession of its affairs and liquidate its business.
Disposition of guaranty fund.—Banks assessed shall
set apart, keep, and maintain the amount so levied
against them, payable to the depositors' guaranty
fund commission on demand.
Rate of interest on outstanding warrants or certificates of indebtedness.—If issued in favor of the
SRETEMBEII. 1925
bank to be sold by the superintendent of banks and
proceeds paid to depositors, not more than 7 per cent,
but if issued payable to the depositors for the amount
of their claims, 5 per cent.
NORTH DAKOTA
Institutions included.—Every corporation, except
national banks, whose business in whole or i n part
consists of the taking of deposits or buying and selling
exchange, shall be subject to the provisions of this
act, and trust companies doing a general banking business separate and apart from the writing of surety
bonds and other general business, and building and
loan associations receiving savings deposits shall also
be subject to the provisions of this act.
Participation.—Compulsory.
Character of deposits guaranteed.—All deposits for
which money or its equivalent, and for which full
value has been received by the bank wherein such
deposit is made shall be guaranteed, but the guaranty
provided for in the act shall not apply to a bank's
obligations as indorser upon bills rediscounted nor to
bills payable, nor to money borrowed from its correspondents or others, nor deposits otherwise secured,
nor deposits upon which compensation in any manner
or form or by whatever device has been promised or
paid in excess of the rate of interest as limited in this act.
Basis and rate of (a) regular and (b) special assessments.—(a) One-twentieth of 1 per cent of the average
daily deposits annually until the fund reaches 2 per
cent of the average daily deposits, when the assessments shall cease until such time as the guaranty fund
is depleted below 13 per cent of the average daily
deposits, when the necessary assessment may be again
levied at one-twentieth of 1 per cent per annum until
the fund again reaches 2 per cent of the average daily
deposits. (b) The commission is authorized to levy
additional assessments of one-twentieth of 1 per cent,
but not to exceed four such additional assessments
shall be made in any one year. New banks admitted
to the system shall pay in an amount equal to 3 per
cent of their capital, and the assessments on such banks
shall be so adjusted that the first two assessments,
together with the 3 per cent payment,shall equal at
least one-half of 1 per cent of the average daily deposits
as shown by the first annual statement. National
banks that have reorganized as State banks shall set
apart and credit to the depositors' guaranty fund such
amount as will place them on an equal footing as
respects such fund with other State banks.
Method of payment of depositors.—The secretary of
the commission shall issue certificates of indebtedness
to the persons entitled thereto for the amount of all
accepted deposits. If there are not sufficient funds
in the guaranty fund to pay such certificates, such
certificates shall be payable out of such fund pro rata.
To the extent of the deposits accepted and allowed as
guaranteed the commission shall be subrogated to all
the rights of the guaranteed depositors to participate
in the assets of the bank and as such assets are collected they shall from time to time be distributed pro
rata among the holders of certificates issued to the
guaranteed depositors until full payment is made to
the holders of the certificates.
Powers of State board or commissioner.—The
commission shall have the supervision and control of
the guaranty fund and shall have power to adopt all
necessary rules and regulations not inconsistent with
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FEDERAL RESERVE BULLETIN
law for the management of such fund. (1) The corn
mission is authorized to examine at any time bank
admitted to the guaranty fund. The act provides in
detail for the taking charge of banks in bad condition
by the commission and if necessary the winding up o
the affairs of such banks. The commission is author
ized to levy assessments as set out above. If a ban
fails to pay any assessments as provided in the act, th
commission is authorized to liquidate it as in the cas
of insolvent banks.
Disposition of guaranty fund.—Assessments levie
on banks shall be set apart, kept and maintained i
such banks payable to the depositors' guaranty fun
commission on demand, and shall constitute th
depositors' guaranty fund.
Maximum assessment in any one year.—Five assess
ments of one-twentieth of 1 per cent each of th
average daily deposits.
WASHINGTON
Institutions included.—Any corporation organize
under the laws of Washington authorizing the organize
tion of banks or trust companies, except mutua
savings banks, and engaged in the banking business
this State.
Participation.—Voluntary.
Character of deposits guaranteed.—Deposits no
otherwise secured, but the guaranty provided for
this act shall not apply to a bank's obligations as a
indorser upon bills rediscounted, nor to bills payabl
nor to money borrowed from its correspondents
others, nor deposits of public money in excess of i
capital and surplus. The guaranty of the guarant
fund shall extend to public funds of, or under the co
trol of the State, of any county or municipality withi
the State deposited in guaranteed banks to an amou
equal to but not in excess of the capital and surplus
such bank if the custodian of such fund shall elect
deposit the same under the guaranty of such fund.
Basis and rate of (a) regular, and (b) special asses
ments.—Contingent fund.—(a) An assessment of on
tenth of the deposits eligible for guaranty the precedi
year, for 1921, and each year an assessment shall
made of not exceeding one-tenth of the average deposi
eligible for guaranty for the preceding year until t
contingent fund shall equal 3 per cent of all deposi
eligible for guaranty in all member banks.
Guaranty fund.—(a) Each guaranteed bank sh
each year deposit to the credit of the guaranty fu
board, upon notice from such board, for the curre
calendar year, an amount equal to 1 per cent of
average deposits eligible for guaranty for the precedi
calendar year. (b) Should this fund be impaired
losses or otherwise the board may in its discreti
levy an assessment of not exceeding one-half per ce
of the deposits eligible for guaranty for the precedi
year.
Method of payment of depositors.—The exam'
shall, as soon as possible, issue to each guarante
depositor, upon proof of claim, a warrant, drawn up
and payable out of the guaranty fund, for the amou
of the depositor's claim, which warrant, if there Le
not sufficient money in the guaranty fund to pay the
same, shall bear interest at the rate of 5 per cent per
annum from date until called.
Powers of State board or commissioner.—The board
shall have power to adopt reasonable rules and regulations governing the admission of banks as members_of
40
FEDERAL RESERVE BULLETIN
he fund and defining the duties of member banks not
nconsistent with law. The board shall pass on applicaions of banks for membership in the fund. The board
s authorized to levy the assessments authorized above.
The board is authorized in certain cases to cancel the
membership of banks.
. Disposition of guaranty fund.—The board is authorzed to designate guaranteed banks as depositaries of
oneys in the guaranty fund and in the contingent
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Federal Reserve Bank of St. Louis
SEPTEMBER, 1925
fund or to invest the contingent fund in such securities
as are eligible for postal savings funds. The act also
provides that when member banks have been advised
of the amount which they shall deposit to the credit
of the guaranty fund board they shall credit such
amount to its account at once.
Rate of interest on outstanding warrants or certificates of indebtedness.—Five per cent if there is not
sufficient money in the guaranty fund to pay them.
1r J.piaarok
THE UNIVERSITY OF- KANSAS
SCHOOL OF BUSINESS
Bureau of Business Research
The Guaranty of State
Bank Deposits
BY
John G. Blocker, M.B.A.
KANSAS STUDIES IN BUSINESS
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Federal Reserve Bank of St. Louis
No. 11
July, 1929
j. .-1
:ir,
BUREAU OF BUSINESS RESEARCH
KANSAS STUDIES IN BUSINESS
No.11
The Guaranty of State
Bank Deposits
BY
JOHN G. BLOCKER, M.B.A.
July, 1929
The School of Business
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University of Kansas
Lawrence
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Printed by the Department of Journalism Press
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Federal Reserve Bank of St. Louis
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CONTENTS
Foreword _
SECTION I
EARLY GUARANTY LAW DEVELOPMENTS
The Arguments
The "Safety Fund System"
The Populist Movement
The Guaranty Laws
7
8
8
10
SECTION II
CHARACTERISTICS OF THE GUARANTY LAWS
The Guaranty Laws in the Courts
Institutions Participating
Character of Deposits Guaranteed
Deposit Requirements
Assessments
Administration
Investment or Custody of Guaranty Fund Reserve
Methods of Paying Depositors in Failed
Guaranteed Banks—
Oklahoma, North Dakota, South Dakota
Kansas, Mississippi, and Washington
Nebraska—The Bankers' Conservation Fund
Texas
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20
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SECTION III
RECENT HISTORY AND PRESENT STATUS
OF GUARANTY DEPOSIT FUNDS
Oklahoma
Kansas
Nebraska
Texas
Mississippi
South Dakota
North Dakota
Washington
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26
30
38
40
42
45
46
SECTION IV
CONCLUSIONS
Insurance Principles Involved
Effect upon Banking Practices and Policies
Effect upon Deposits and the Business of Banking
Recent Bank Deposit Guaranty Proposals
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fok
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Foreword
In 1921 the Hart, Schaffner & Marx second
prize was awarded to a book by Professor
Thomas Bruce Robb entitled "The Guaranty
of Bank Deposits." At that time the eight.
states that have experimented with laws
guaranteeing bank deposits still had these
laws effective on their statute books. The
depression following 1920 and the consequent
numerous bank failures that have played such
havoc with all the guaranty systems were
events of the future. Today all the laws are
either repealed or practically inoperative. It
is therefore a timely task to present the experiences of these systems, especially of the
years since 1920.
July 1, 1929.
Jens P. Jensen.
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SECTION I
Early Guaranty Law Developments
The guaranty of state bank deposits is now primarily a historical issue while recently it was a
fiery topic in magazines, in newspapers, and upon
the street corners in cities of midwestern states.
The idea of guaranteeing bank deposits came on
the waves of the Populist movement in Oklahoma,
Kansas, and nearby states.
J
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The Arguments. It was argued that since insurance could be obtained on nearly all types of property, the principle of distribution of risk should be
applied to bank deposits for the benefits of depositors. Each bank could contribute to a common
fund to be administered by the state, from which
depositors in failed banks could be paid. This
plan would distribute the effects of bank failures,
which were concentrated in periods of depression,
over long periods. Many panics and bank runs
were caused by loss of confidence of the depositors.
Guaranteeing the deposits would insure confidence. Moreover, if the banks were to bear the
risk collectively, the conservative bankers would
tend to check the actions of the reckless bankers.
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Then, too, hoarded money would .be drawn into
circulation, and money would be more plentiful—
one of the objects sought by the Populist group.
It would bring money into the state that would
otherwise be deposited in other states, which
among other things would increase business for
the banks of the state. Deferring the analysis
of these arguments until later, the results of the
agitation are briefly presented.
The "Safety Fund System." The earliest attempt at guaranteeing bank deposits was an act
passed by the New York legislature, April 2, 1829.
This law established the "Safety Fund System"
which provided that every bank whose charter
should be granted or renewed should pay into the
"bank fund" /
1 2 of 17( of its paid up capital each
year until 37, of the capital stock of the contributing bank had been accumulated. The fund was to
be used to pay "the debts" of the failed banks belonging to the system. The system was designed
and planned primarily for the protection of note
holders but it was interpreted as applying to all
debts of a bank, including the deposits. The panic
of 1837 caused many bank failures which depleted
the fund and suspended its operation. This experiment was soon forgotten and it probably had no
influence in molding the guaranty laws 75 years
later.
The Populist Movement. During the Populist
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days guaranty laws were heatedly discussed in
every political gathering in the west-central
states. The agitation was stimulated by a series
of crop failures in the years following 1887 and by
the national depression following the sectional
one in 1893. Seventy-five state banks suspended
operations in Kansas in the six year period of
1892-1898, and 32 national banks closed their
doors between 1890 and 1900. The banking interests of the neighboring states suffered in about
the same degree. The members of the Populist
party believed in legislation as the remedy for adverse economic conditions. They advocated, among
other things, guaranty of bank deposits as a
means of relief for the existing low prices and the
many bank failures.
In Kansas, Representative F. P. Gillispie introduced the first guaranty bill in 1897, and the next
year John W. Breidenthal, a Populist bank commissioner, advocated a guaranty law in his report.
Before giving up his office in 1898 Governor
Leedy called a special session of the legislature
and a guaranty law proposal passed the state senate and lacked only four votes of passing the
house. Parallel agitation for such legislation
occurred simultaneously in Oklahoma and Nebraska. Better crops and more prosperous times
after 1897 silenced the Populist demands in politics for nearly ten years.
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Federal Reserve Bank of St. Louis
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The Guaranty Laws. The panic of 1907 revived
and crystallized the demand for guaranty laws and
the bill introduced in the legislature of Oklahoma
on December 5, 1907, was passed on December 17.
The Oklahoma law compelled all state banks to
join the new system and the depositors of failed
banks were to be paid immediately after the
banks' affairs had been wound up. Upon these two
features the discussion concentrated when the
legislatures of other states later considered guaranty proposals.
The panic and the enactment of the guaranty
law in Oklahoma brought the idea again into Kansas politics. Governor Hoch, a Republican, called
a special session of the legislature on January 16,
1908, to consider the matter, but the guaranty bill
presented was not passed. During the next political campaign both the Democratic and Republican
parties included guaranty proposals in their platforms. Under the leadership of the new Republican governor, Stubbs, the legislature meeting in
March, 1909, passed the Kansas bank deposit
guaranty law.
Such distrust of financial institutions existed
in Texas that not until 1904 was the constitution
amended to permit state banks. The guaranty idea
entered politics in 1908 when the Texas state
Democratic organization added such a proposal to
its platform; but so much wrangling occurred in
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the legislature that a second extra session of the
legislature was necessary before the bill was
finally passed in August, 1909. After 1908 the
demand for guaranty of bank deposits was
heard in Iowa, Tennessee, North Dakota, South
Dakota, Montana, Nevada, Washington, Colorado,
Missouri, Wisconsin, Arkansas, Florida, Georgia,
and Mississippi. In all but five of these states the
proposed bills met defeat. Guaranty laws were
passed in Nebraska in 1909; Mississippi, 1914;
South Dakota, 1915; North Dakota and Washington, 1917.
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SECTION II
Characteristics of the Guaranty Laws
Before narrating the experiences of the states
with their guaranty funds and before entering
upon a critical discussion of the deposit guaranty,
it is desirable to examine the laws themselves. In
every case solvent state banks contributed regular and special assessments to a common fund,
known as a guaranty fund. When a participating
bank failed, money from the fund was used to
pay the depositors. The fund was drawn upon
only to cover any difference between the depositois' claims and the amount realized from the
liquidation of the insolvent bank's assets. In no
case did the state guarantee payment of the depositors, assume any of the liabilities of the fund,
or attempt to meet any of the debts through general taxation. The state acted solely in an administrative capacity.
In Table I on pages 32 and 33 is given a condensed summary of the important characteristics
and provisions of the deposit guaranty laws of
the eight states. The various provisions of these
laws will be discussed briefly.
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The Guaranty Laws in the Courts. The Oklahoma and Kansas laws permitted national banks
to become members of the system and many national banks in both states elected to comply with
the laws in order that state banks would not have
an undue advantage. But the membership of national banks was short-lived. Attorney General
Bonaparte ruled that a national bank had no right
to submit to state regulation. He decided that
the Oklahoma law required a bank to guarantee
the obligation of a third party, and this privilege
was denied a national bank by the national banking laws. Attorney General Wickersham took the
same position for national banks in Kansas.
The constitutionality of the guaranty laws was
contested in Oklahoma, Kansas, and Nebraska.
On January 2, 1911, the U. S. Supreme Court
reviewed two Kansas cases in connection with
the Oklahoma and Nebraska cases, and handed
down a unanimous opinion,' upholding the constitutionality of each of these state laws.
Institutions Participating. In five of the eight
states which maintained guaranty systems participation of all state banks was compulsory. The
Kansas and Washington laws made membership
voluntary, while the Texas law allowed state
banks to elect membership in the "depositors'
guaranty fund" or to guarantee deposits under the
'Noble State Bank v. Haskell, 219 U. S. 112, 116-117.
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"depositors' bond security system." Under the
latter plan each state bank had to file annually
with the commissioner of insurance and banking
a bond, policy of insurance, or other guaranty of
indemnity in an amount equal to its capital stock
for the benefit of the depositors. Whenever the
deposits of a bank exceeded six times its capital
and surplus, additional security must be filed,
equal to the amount of the excess.
The Nebraska, Texas, South Dakota, and Mississippi laws provided that every state bank and
savings department of trust companies were included in the privileges of the funds. In Oklahoma trust companies were excluded from the
protection of the fund in 1911. In Kansas any
bank having an unimpaired surplus of 10% of its
capital and having been actively engaged in business for one year could become a member. The
Washington law contained the same provisions
and in addition excluded mutual savings banks.
The North Dakota law included building and loan
associations receiving savings deposits in the compulsory membership.
Character of Deposits Guaranteed. In all the
state guaranty laws the deposits guaranteed were
those of individuals and not of correspondent
banks. Deposits otherwise secured were not covered. Neither did the guaranty apply to a bank's
obligations as indorser upon bills rediscounted, to
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bills payable, or to money loaned to officers. It
was stated specifically in most of the laws that deposits, on which a higher rate of interest was paid
than the rate approved by the bank commissioner,
should be considered money borrowed and consequently not guaranteed. The case of Burnaman
V. Peterson,2 illustrates this point. The court decided that "where the bank commissioner has issued a rule to the effect that the maximum interest rate on savings accounts, entitled to protection
of Bankers Guaranty Fund, shall be 47
0 compounded semiannually, the receipt by a depositor
of 4(A interest credited quarterly excludes the deposit from protection of the Bankers Guaranty
Fund."
Deposit Requirements. Reference to column 5
of Table I discloses that all of the eight states required deposits in the form of cash or securities
from member banks. There were two types of deposits, each required for a different purpose.
The Oklahoma, Kansas, Texas, Mississippi, and
Washington guaranty laws required the banks,
upon joining their systems, to deposit cash or securities as evidence of good faith and assurance
that the regular and special assessments would be
paid when demanded. The requirements were 1%
of average daily deposits in Oklahoma, Texas, and
117 Kan. 612; 232 p. 1047
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Federal Reserve Bank of St. Louis
[ 1.5]
Washington and I/2 of 1% in Kansas and Mississippi.
A second type of deposit was required of banks
organized after the guaranty laws had gone into
effect, in all the laws except those of Kansas, Mississippi, and Washington. The requirements were
3% of capital stock in Oklahoma and North Dakota; 3c/, of capital stock and surplus in Texas;
and 4(4 of capital stock in Nebraska and South
Dakota.
Assessments. The requirements regarding regular, special, and maximum assessments are given
in columns, 6, 7, and 8 of Table I. The income of
the guaranty funds was strictly limited by assessments made upon the member banks. In all the
states except South Dakota both regular and
special assessments were levied.
The regular assessments were collected semiannually in Nebraska and annually in the seven
other states. They ranged from 1/20 of 1e/, of
average daily deposits in Kansas to 1% in Washington. Special assessments were provided for
the purpose of handling emergency situations
arising in periods of depression. These assessments ranged flom 1/5 of 1f/f of average daily
deposits in Oklahoma to 2% in Texas. Every guaranty law provided for a maximum rate of assessment in any one year and assessments were to be
discontinued when the designated limit was
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Federal Reserve Bank of St. Louis
•
[16]
_...•1•1166
reached. The maximum varied from 1/5 of 1% of
average daily deposits in Oklahoma to 2% in
Texas.
In Washington, in addition to the depositors
guaranty fund, which consisted of an annual
credit on the books of each bank equal to 1% of
the total amount of average daily deposits of each
member bank, there was created a contingent
fund from which were to be paid the expenses incurred by the guaranty fund board and any losses
by the fund sustained through the failure of any
member bank. It was to be built up to 3% of all
deposits eligible for guaranty in all member banks
by an annual assessment not to exceed 1/10 of
1y, of average daily deposits eligible for guaranty
for the preceding year.
11)
Administration. The administrative body for
the handling of the guaranty fund varied. In
column 9 of Table I, the personnel of the administrative boards is given. The board or commission
in charge of the guaranty fund levied and collected the assessments, assumed custody of the
fund, received and approved claims of depositors
of failed banks, paid claims, took over closed
banks (either directly or indirectly through receivers) and liquidated the assets, paid claims of
creditors of the fund, issued certificates or warrants of indebtedness, and published periodic reports concerning the status of the fund.
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Federal Reserve Bank of St. Louis
[17]
Investment or Custody of Guaranty Fund Reserve. As shown in column 10 of Table I, several
plans were in vogue for retaining the guaranty
fund until distributed to depositors of failed
banks. In Nebraska, North Dakota, and South
Dakota the member banks themselves were allowed the custody of the fund. The state banking
board or commission notified each bank of the
amount of its assessment and the bank then set
aside this amount and held it payable to the board
on demand.
The plan adopted in Kansas and Mississippi required the state treasurer to collect the assessment from the member banks and deposit the
funds with the state depository banks, subject to
the order of the bank commissioner. Oklahoma
had the same general scheme in part; 75% of the
fund was invested in securities and 25% was held
by the banking board as a ready fund.
The third method combined the other two. In
Texas and Washington a portion of the assessments was deposited with the state treasurer and
the remainder was credited to the banking board
or commission on the books of the bank liable for
the assessment.
Methods of Paying Depositors in Failed Guaranteed Banks—Oklahoma, North Dakota, South
Dakota. According to the method followed in
Oklahoma, North Dakota, and South Dakota, in
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Federal Reserve Bank of St. Louis
[18]
case of insolvency the bank commission took
charge of the bank and immediately distributed
the available cash among the depositors. If this
was not sufficient to pay depositors in full, the
guaranty fund was drawn upon. The commission then liquidated the assets of the failed bank
and reimbursed the guaranty fund as far as possible. If the guaranty fund, together with the
maximum asSessments, was insufficient to pay
the depositors, the banking board issued interest
bearing certificates of indebtedness to the depositors. These warrants or certificates were often
sold to the public, which practice was a species
of borrowing money on the credit of the guaranty
fund to pay depositors. The certificates were to
be redeemed serially when subsequent assessments should have replenished the guaranty fund.
S
Kansas, Mississippi, and Washington. In these
three states a slightly different plan was used.
In case of insolvency the bank commissioner took
charge of the bank. As soon as possible he issued
to each depositor an interest-bearing certificate.
When the assets of the failed bank had been
liquidated, the certificates were paid off. If enough
money was not realized to cancel the certificates,
the state treasurer paid the balance from the
guaranty fund. If the guaranty fund was not sufficient to pay the guaranteed deposits of any failed
bank, after the special assessments had been
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Federal Reserve Bank of St. Louis
[19]
1
made, the bank commissioner paid depositors pro
rata and the remainder was paid when the next
assessment was available.
Nebraska—The Bankers' Conservation Fund.
Since the Nebraska system of guaranty of bank
deposits is still operating and the machinery for
paying depositors is more complex than that of
any other state, a more detailed account is given.
The law provides that the guaranty fund commission may make an estimate of the amount necessary for the proper functioning of the commission,
not to exceed $15,000 in any one year and this
amount will be assessed against state banks based
on their average daily deposits. Each member of
the commission receives not more than $10 per
working day and his actual expenses.
If the department of trade and commerce is convinced that a bank's capital is impaired or that
it is insolvent for any reason, it takes possession of the property and assets and places the
bank in charge of the guaranty fund commission,
which takes an inventory and determines whether
the bank should be liquidated or operated as a
going concern. If the latter plan is adopted and
if the majority of the stockholders will agree to
assign their stock temporarily to the commission,
the bank is operated as a going concern by the
commission through the regular officers and directors of the bank. The bank may succeed as
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Federal Reserve Bank of St. Louis
[20]
S
a going concern and may be returned to the owners; or it may be hopelessly involved and the commission may decide to liquidate the assets and a
receiver will be appointed.
For the purpose of preventing the closing of
banks and conserving the guaranty fund, a working fund known as the bankers' conservation fund
was created. This fund belongs to the banks contributing and is kept by the banks until demanded
by the secretary of trade and commerce. The assessments maintaining this fund must not exceed
1/4 of 1 y, of the average daily deposits of each
bank in any one year and the fund must never
exceed 1/3 of 1 y, of the average daily deposits of
said bank at any one time.
When the guaranty commission is operating a
bank as a going concern and needs working capital, the department of trade and commerce levies
an assessment upon the bankers' conservation
fund for the amount needed. The money is given
to the guaranty fund commission to be used as
a deposit in the bank being operated. The bank
can be closed or returned to its owners only after
the money borrowed has been returned to the
bankers' conservation fund with interest at 5%
per year.
If the guaranty commission decides that a certain bank should be liquidated, a receiver is appointed and the process is begun. The receiver
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Federal Reserve Bank of St. Louis
[21]
may issue receiver's certificates in an aggregate
amount not exceeding the amount required to
supply the deficiency for the payment of depositors in any failed bank. The court decides the rate
of interest that the certificates will carry. The receiver's certificates may be issued either before or
after the amount needed to pay depositors has
been drawn from the guaranty fund. If the certificates are issued prior to the drawing of money
from the guaranty fund, the money derived from
the sale of the certificates is used to pay depositors. If the certificates are issued after the depositors have been paid from the guaranty fund, the
certificates would equal in amount only the assets
remaining in the receivership and the money received from their sale would be used to reimburse
the guaranty fund.
Texas. The Texas system of paying depositors
in failed banks was unique in that it did not provide for the issuance of interest-bearing certificates. When a bank became insolvent, the bank
commissioner took over the bank and began to
liquidate it. The depositors were paid at once out
of the bank's available cash. The guaranty fund
was drawn upon for the remainder until the guaranty fund was depleted. When the bank's assets
were finally liquidated, the guaranty fund obtained the receipts.
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Federal Reserve Bank of St. Louis
[ 22 1
SECTION III
Recent History and Present Status of Guaranty
Deposit Funds
In discussing the experiences of the guaranty
fund administrators and participants the states
are treated separately in the order of their adoption of the guaranty laws.
Oklahoma. Oklahoma, the first state to adopt a
guaranty law, was also the first to admit its failure. The law went into effect on February 14,
1908, and on May 21 of the same year the International State Bank of Colgate closed its doors.
Deposits in the bank at the time were $36,744.93
and the depositors were paid at once, $24,843.73
being taken from the fund, for which it was fully
reimbursed from the liquidated assets of the bank.
The first failure to shake the fund was that of
the Columbia Bank and Trust Company of Oklahoma City on September 21, 1909. This bank had
experienced
a "mushroom" growth, the deposits
•
having increased over 700% in eleven months.
The depositors claimed $2,800,000 while the guaranty fund contained only $300,000, $50,000 of
which was deposited in the failed bank. Governor
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Federal Reserve Bank of St. Louis
[23] .
Haskell borrowed about $450,000 and a special as4 of 1% to meet the crisis.
sessment was levied of 3/
of the state $582,283.
banks
the
This failure cost
On September 30, 1914, the fund had a deficit
of $807,475.09 but by March 1, 1920, this had
all been liquidated and there was $75,000 in
the treasury with an assessment due of $275,000.
Professor Robb estimates 3 the total assessment of
the state banks in Oklahoma for the first twelve
years to be 36% of the average capital stock of
the banks. The banks paid in assessments during
that period $3,250,00. In four years one bank
of $10,000 capital paid $1,300; one of $15,000 paid
$3,000; and one of $30,000, $20,000. The World
War and the consequent increase in state bank
deposits gave the system the appearance of complete success.
The prosperous condition of the fund changed
abruptly when agricultural prices fell sharply and
precipitated the depression of 1920 and 1921.
Thirteen banks failed and guaranty certificates
amounting to $2,196,000 were issued. Then, on
November 1, 1921, the failure of the Bank of Commerce of Okmulgee, with deposits of $1,732,540,
broke down the system and destroyed all hope of
resuscitating the fund. Soon seven more banks
failed.
'Robb., T., "The Guaranty of Bank Deposits."
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Federal Reserve Bank of St. Louis
[24 1
—1_
Thornton Cooked pictures the condition as follows:
'
TABLE II
Condition of Oklahoma Guaranty Fund, 1922
$2,196,000
Certificates already issued
One half deposits of other failed banks
(a conservative estimate of the loss) $1,158,000
Liabilities of the fund
3
•
$3,354,000
This liability would draw 6% interest or
$201,240 annually. The total deposits subject to
assessment for the fund were only $156,000,000
and the maximum assessment of 1/5 of 1% would
net $312,000 annually, which would leave only
$110,760 to apply on the principal each year. It
would be nearly twenty years before any payment
could be made on the Okmulgee deposits, assuming
no more bank failures and no more conversions
of state banks into national banks. The assets of
the Okmulgee Bank were divided among its creditors. In 1922 there were 32 bank failures with
deposits amounting to $7,230,000. Immediately
state banks began to apply for charters as national banks. In 1921, 45 state banks; in 1922, 59;
and in 1923, 17 entered the national banking system.
It is estimated that many banks were assessed
as high as 30% of their capital in a single year.
'Cooke, T., "Collapse of Bank Deposit Guaranty in Oklahoma and Its Position in Other States," Quarterly Journal of Economics, November, 1923.
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Federal Reserve Bank of St. Louis
[25]
The Democratic party in power in 1923 tried to
"re-affirm faith in the principle of guaranty of
bank deposits." An attempt was made to vote
bonds to cover the $12,000,000 of unpaid claims,
but it was blocked by the farmer-labor-banker
group. The guaranty law was repealed March 31,
1923. The Oklahoma bank commissioner said: "If
the law had not been repealed, it is doubtful if
there would be very many solvent state banks in
/Oklahoma today." The guaranty system cost the
state banks of Oklahoma $3,647,486.42 during its
15 years of operation. On-February 19, 1929, the
indebtedness of the fund, represented by outstanding warrants, amounted to $1,297,000.
Kansas. The Kansas guaranty fund system enacted in 1909 was optional as to membership, but
most of the larger banks and the new banks
joined. Below is a report from Kansas,5 showing
the number of banks belonging to the system on
the specified dates:
(
TABLE III
Comparison of Guaranteed Banks with Those not Guaranteed
June, 1913
August, 1923
No. Deposits
No. Deposits
Banks guaranteed
472 $71,040,906 691 $181,088,518
Banks not guaranteed .446 42,707,937 381
63,412,082
All state banks
918 $113,748,843 1072 $244,500,600
5Cooke. T., "Collapse of Bank Deposit Guaranty in Oklahoma and Its Position in Other States," Quarterly Journal of Economics, November, 1923.
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Federal Reserve Bank of St. Louis
[26]
Prior to 1920 only 2 guaranteed banks failed
and depositors were paid $83,050 in full; 108 guaranteed banks failed between 1920 and 1926, and as
the failing member banks were suspended, certificates bearing 6% interest were issued to depositors.
4
Below appears a modified report of the state
bank commissioner for the year 1926, showing the
condition of the guaranty fund, as of January 1,
1927:
TABLE IV
•
Liabilities
Total guaranty certificates outstanding
($10,644,244.05), less ($4,484,902.08)
in certificates
Additional liability—accrued interest on
guaranty certificates (estimated)
Additional liability on unfiled claims of
member banks admissible to guaranty
$6,159,341.97
Total liabilities
$8,827,171.97
Deductions
Cash on hand to credit of failed guaranteed banks not disbursed in dividends
($681,853.98), and estimated recovery
from assets of guaranteed failed
banks not in course of liquidation
($1,641,500.00)
700,000.00
1,967,830.00
2,323,353.98
Net liability of guaranty fund
$6,503,817.99
Guaranty Fund Assets
Cash on hand available for paying
losses ($210,679.24) and bonds securing guaranty fund pledged by mem_
ber banks (904,153.34) _
$1,114,832.58
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J—_
Federal Reserve Bank of St. Louis
[27 1
It will be noted that the guaranty fund was
hopelessly involved with a net liability of $6,503,817.99, less assets of $1,114,832.58. To complete
the breakdown of the system a number of guaranteed state banks brought suit in the state supreme court in order to determine their liability
to the guaranty fund. The court handed down an
opinion April 10, 1926, limiting the liability of the
member banks to the amount of bonds or cash
they had on deposit in the guaranty fund.6 Immediately the guaranteed banks began to withdraw
from the fund and forfeited their bonds to an
average amount of $1,600.00 each. On July 10,
1928, there were only 40 banks paying their assessments.
The guaranty law provided that the banks
should be paid in full in the order in which they
were finally liquidated. On April 7, 1928, the state
supreme court directed the state bank commissioner to sell the bonds remaining and to pay depositors. The question involved was the order in
which depositors should be paid. There were 26
banks fully liquidated but there was only money
enough to pay in full the depositors of 9 banks,
basing priority on date of liquidation. The tenth
and eleventh banks were held to have liquidated
on the same day so they divided what was left
'State Supreme Court Decisions, Kansas, Commercial and
Financial Chronicle, May 8, 1926,
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Federal Reserve Bank of St. Louis
[28]
•
0
after the first 9 banks had been paid in full.
Holders of guaranty certificates of other failed
banks received nothing.
According to the records of the bank commissioner, February 18, 1929, the certificates outstanding, in the hands of depositors in failed
banks, totaled $13,595,249.19. Dividends had been
paid to these depositors to the extent of $6,419,935.64, leaving a net liability of the guaranty fund
of $7,175,313.55.
During the 20 years of existence of the guaranty fund in Kansas there were 204 failures, of
which 134 were of guaranteed banks. The number
of guaranteed banks failing each year is given below:
TABLE V
Failure of Guaranteed Banks
Years
Number of banks failing
1910-1919
1
1919
1
1920
2
1921
8
1922
15
1923
25
11
15
1926
33
1927
19
1928
3
1929
1
Total
134
Five of the 134 guaranteed bank failures pit,
their depositors in full out of their own assets.
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Federal Reserve Bank of St. Louis
1 29 1
Depositors in 29 banks have been paid in full and
in 2 banks have been paid partially from the guaranty fund. The total amount of money paid from
the guaranty fund during its life was $2,683,572.82.
At the time of the repeal, March 14, 1929, 31
state banks were active and had paid all their assessments up to that time. Bonds and money totaling $24,000, deposited by these banks with the
state treasurer as security for payment of assessments, will be returned.
Nebraska. The guaranty law of Nebraska was
held up for two years by a federal suit to test its
constitutionality, but became operative July 1,
1911. The first nine years of the Nebraska experiment were normal in the banking business with
few failures. Assessments were levied amounting
to $2,367,000 and only $239,330 was required to
pay depositors in failed banks.
The system was on the verge of collapse in 1920
and 1921 when banks began failing on account of
the drop in agricultural prices. In 1921, 25cate
banks failed and 22 more in 1922. T)...) situation
was saved by the action of th- otate bankers by
organizing the State A 0- xultural Loan Association and sellin- .,,,ock and association notes to
membe,w.tilKS to the amount of $2,000,000. The
—eeds of the stock and note sales were used to
pay off depositors in failed banks and the assets
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Ir
Federal Reserve Bank of St. Louis
[30 7
of the failed banks then became the property of
the association. By 1923 the losses had become so
great that the loan association was incapable of
meeting them. The legislature created the Guaranty Fund Commission with power to operate
crippled banks as going concerns or to place them
in receivership for liquidation. By 1924 depositors in failed banks had been paid $8,730,645.
The banking crisis seemed past by 1926. Every
depositor in every closed bank had been paid in
full. The guaranty fund commission was operating 38 banks as going concerns and the loss yet
to be sustained was estimated at $6,000,000.
The average daily deposits of the 839 state banks
were $265,430,844, on which the maximum assessment of 6/10 of 1% would yield $1,592,585. It
was thought that these assessments together
with the sum realized from the assets in the hands
of the commission would permit the payment of
all losses within three years.
Another crisis threatened the guaranty fund
in 1927, when the bankers lost faith in the value
of the guaranty fund certificates and refused to
invest in them further, which left no means of
raising money except through regular and special
assessments. The situation grew steadily worse.
By January 3, 1929, 135 banks were in the hands
of the Guaranty Fund Commission with unpaid
deposits approximating $25,000,000; of which
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Federal Reserve Bank of St. Louis
[31]
TABLE I — Important/tures otOState Guaranty Laws
2
1
4
3
Present stains
Law passed
State
OKLAHOMA
I
Dec. 17,
1907
_
Participation
Repealed
March 31,
192t
Compulsory
Repealed
March 14,
1929
Voluntary
—
March 6,
I 909
KANSAS
!
March 25,
1909
Not repealed
but inoperative
Compulsory
TEXAS
Aug. 8,
1909
Repealed
Feb. 11,
1927
Optional
whether banks
select guaranty
olan or bond
security
MICR,
MustsSIPPI
March 9,
1914
Not repealed
but inoperative
Compulsory
SOUTH
DAKOTA
March 13,
1919
Not repealed
but modified
Compulsory
Nouns
DAKOTA
March 10,
1917
Not repealed
but inoperative
NEBRASKA
Vt AMIING•
TON
March 10,
1917
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Federal Reserve Bank of St. Louis
Repealed,
effecti ve
June II,
1929
,c„ns"Isnes,
.
1
,
Voluntary
[32]
5
Delimit at surety for
of a„,,,,,,,,,,,
6
Regular assessments
7
8
1 i MU NI ISMS.WIli
M.
Speal
ci assessmentsII
Deposit with board securities equal to IrA of averAnnually I /I °f I r/°' of 1 /5 of I% of average daily &posits, mini- average daily
deposits un- age daily deposits in
mum 5500.
3% of til fund shoul.d reach 2% years 1914-1916 none
pay
to
banks
New
daily 4ePosits after 1916
average
of
capital stock to guaranty
fund
1% of
Deposit with treasurer Annually I /20
cash or securities to the average guarantc depos- Additional assess$500
of
d cur- ments if fund should
.
for every its, less capital
amount
$100,000 of deposits, less plus, until fun should fall below $500,000
capital and surplus
reach 01,000,00,
9
on
iandal
guaranty
Administratl
10
Cnstody of g uaranty
fund
I /S of 1%, of avertloanily yed:rposits in State banking board
'angey
71% in state warrants or
similar securities; 25'4
held as cash reserve by
board
Not more than 5 assessments of 1/20 of Bank commissioner
I% in any one year
Held in state depository
banks subject to order of
bank commissioner
Guaranty fund commis- Fund in custody of banks
sion, secretary of corn- subject to payment on dese.i...ily 1 /20 of ,„,_ If fund should fall
3/5
exceed
not
Must
depotmerce and one member mand to conseni„inn,
10,1 1% of
!"'
A
.
New banks pay 4% of of average daily sieposits .bc not exceeding
ya of .1% of daily &- from each of seven bank- (See text for bankers
its'
their capital stock to fund until fund should reach of
aoY
In
ono
7e.r
ins districts appointed by servation fund)
I r/o of daily de- PosIts
when opening for business 1''i% of deposits
the governor
posits in any one year
25°4, of each assessment
,In case of depleted
Deposit with board 1%
&posited with state treas4 °f I% °s fund or emergency, Must not exceed Vir
1
of •verage daily &posits Annually /
d,.. State banking board
undeposits
daily
average
memurer. 71% in custody ot
levy
might
preceding
daily
2'4
board
.
amage
of
year
of
banks subject to payment
bership. Neu' banks pay til fund should reacn of average daily &- posits
$5,000,000
demand
and
on
posits
stock
caMtal
of
3r/c
surplus to board.
emergency
in
1%
of
1/20
4 ex- Must not exceed 5
Deposit cash or securities Annually
Held in state depository
with treasurer to amount average daily deP", les' IR. SHRSHBRBII of assessments of 1 /20 State sumrintendent of banks subject to orehir c,f
f_
r
, in .nY of 1% in any one banks
of $500 for every WO,- capital and surplus until I ii 20 o•r IC
state
treasurer
T
year
000 of deposits, less cap- fund should reach $500,- one.
000
ital and surplus
Guaranty commission,
Annually V, of 1% of
Must not exceed V, superintendent of banks Fund in custody of bank,
average daily deposits un.
of average and 3 persons selected
New banks pay 4% Of 61 fund shos''l reach No special assessments of Ir
Ject "" "Yns.'n.t °n 'daily deposits in any governor and reco mmencapital stock when oPeo- 1!:i% of dep, ,its; reas- ma" In c°nm""mn
state
bankers
by
ded
.
year
one
business
should
ing for
turned when fu ff
sociatiLn
fall below I%
Depositors' guaranty-fund
I% of
Annually 1/20
of Fund in custody oanks
In emergency 4 ex- Most not exceed 5 commission "'nosed
f b
d
. cif sobimen t on demann'
of assessments of 1 / 20 R°vermic'
int
assessmes
tra
un- ,
New banks pay 3% of average daily
si"2%
'10 PaY
e,
Dakota,
of
North
Bank
one
ach
,,„
o
f
should
I
d
rA;
fun
n
til
any
of
I% in any
to
capital stock to guaranty
commission
end
m
by
po
oth
apinted
1
,'"
'
ers
and
of average dad!, deposits, one year
year
fund
governor and recommenwhen assessments cease
ded by banks
's below Ii
unti
GutsW fund, ann
credit on books of banks
Guaranty land not to
Guaranty fund, a credit
of I% of average daily
2% of aver- Guaranty fund board corn- on books of each mem
/
exceed 11
Extra assessment not ag, da•iii y deposits.
posed of governor, state
Deposit with treasurer se- deposits.
to
P"'ubi'ct
I /- Contingent fund not examiner, and 3 other'
b r bank
curities to value of $1,000 Contingent fund annually exceeding 'a "-f -',,
went
on demand.
o exceed I /10 of I% members appointed by
for every 8100,000 or de- 1 /10 of 1% o, average of deposits
Contingent land, a cash
uncash
in
governor
deposits
dedaily
of average
daily
posits
fund held by state treasposits
til reaching 3% of deurer
posits
[33]
number 61 were in receivership under court orders
calling for $10,000,000 to effect liquidation; and
74 were being operated by the commission as going concerns, representing deposits to the amount
of $15,000,000. Pursuant to court orders no receivership certificates have been issued for more
than a year, and the amount outstanding at this
time is approximately $167,000.
Governor Weaver, in his legislative message
January 3, 1929, stated that "the Guarantee Fund
. . . has present and prospective liabilities above
present assets of from sixteen to twenty million
dollars; that the present income from assessments
on banks is approximately one and one-half million dollars; that most of these liabilities are, or
will soon be, reduced to judgment, and the judgments will draw interest at 7%, which on a basis
of twenty million dollars makes an annual interest
charge of $1,400,000; that with any appreciable
reduction in this income either from further bank
failures, nationalization of some of the present
state banks, or seasonable declines in deposits, the
income will meet the interest charge only, and no
funds will be available to pay the principal; that
under such a situation the Guarantee Fund cannot afford protection for present depositors
against any future losses."7
'Weaver, A. J., "The Governor's Message," Nebraska
House Journal, 1929.
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Recently 587 banks have joined in a suit to restrain the collection of a special assessment from
the state banks on the ground of unconstitutionality. The original law was attacked unsuccessfully
on the ground that it was unconstitutional. The
courts declared that under its police powers the
state could regulate a corporation by taxing it for
the payment of depositors. However, the court did
not pass upon the question as to who should pay
the assessment—the bank corporation itself or the
shareholder. The banks are attacking the act upon
the assertion that "the assesment of one half of
one per cent against the shareholder cannot be
collected from the corpor.cron and that it cannot
be collected from ale shareholder for the reason
that the sh..eholder's interests cannot be assessed
for the benefit of a depositor in any other bank
cnan his own as it would be unconstitutional as to
the shareholder." If the courts hold the special
assessment unconstitutional and the regular assessment is not increased, the law is doomed. The
regular assessment of 1/10 of 1% brings approximately $250,000 annually, while the special assessment of /
1 2 of 1% brings in $1,240,000 annually.
The amount paid in through the regular assessment of 1/10 of 1% would cover only one-fifth of
the current interest charges.
Even before 1927 there was a group of hostile
bankers. To them the Nebraska system was a liv-
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ing failure, dying by inches, and dragging into the
grave with it the profits and surpluses of the solvent Nebraska state banks. To quote from the
Analysis of the Guaranty of Deposits in Nebraska,
by the Minnesota Bankers' Association, October
10, 1926: "The cost to each bank depends, of
course, upon the ratio of its deposits to its capital.
While the average assessment is 7% of the capital
of Nebraska banks, many banks are paying 10%
while in some cases it runs at high as 25% on the
capital of the bank. At the present rate of 6/10
of 1 c/
( any bank with deposits 10 times its capital
pays 6% on tho- capital each year to the guaranty
fund. One banker stave., that when his bank has
paid the assessment for 1927, it N7;11 have paid into
the fund an amount greater than its ealAtal stock."
The following table shows that until 192.1 the
total assessments paid to the guaranty fund were
never more than 2.2% of the total of capital stock,
surplus, and undivided profits of all of the Nebraska state banks. After 1921 abnormal conditions caused a decided increase in assessments.
The percentage of assessments to total capital investment in Nebraska state banks increased to as
much as 6.7% in 1921 and was over 3% every
year between 1921 and 1928, hovering near 5%
in most of these years.
What will Nebraska do with the state bank deposit guaranty law? In its present condition it
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•
7
TABLE VI
Percentage of Total Assessments Paid to Guaranty Fund
by Nebraska State Banks to the Total Capital Investments in These Banks for the Years
1911 to 1929
Capital stock, surplus.
and undivided profits
Year
Total assessments Percentage of
paid to guaranty 2,C,.11,n1, 115
capital 111% CSI fund
Merit
1911
1912
1913
1914
1915
1916
1917
1918
1919
1920
1921
1922
1923
1924
1925
1926
1927
1928
$17,134,008.66
18,602,383.89
19,479,801.72
21,463,151.65
23,523,919.21
25,802,915.55
29,365,323.69
_ _ 31,401,671.26
_ _. 36,0'79,610.51
_ .. _ 38,266,672.87
. ._ 34,705,961.68
... 33,244,250.31
. 32,883,200.50
,,_ 32,814,742.68
. _ 30,373,372.29
30,364,580.87
. 29,053,971.06
.. 27,976,756.09
$176,863.36
406,858.07
271,806.68
140,647.34
144,684.92
'-- 421,471.81
219,904.49
318,028.79
802,476.74
639,243.
2,317,807.70(
1,971,579.92 i
2,046,320.39 i
1,004,860.01)
1,616,329.85
1,672,338.75
1,653,206.76
885,412.60
1.
2.
1.4
.7
.6
1.7
.8
1.
2.2
1.7
6.7
5.9
6.2
3.1
5.3
5.5
5.73.2
$16,709,842.11
Total
cannot endure and the legislature will either have
to repeal the law or change its form. Some of the
more feasible plans suggested are given below:
(1) Full payment of the state of the guaranty
fund obligations through the usual property tax.
(2) Payment by the state of half the losses
with arrangements for the banks to defrety the
other half.
(3) Increase of the special assessment from 1/2
of 1% to 1%.
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(4) Some plan that will permit the banks to
pay the losses over a period of years through a
sinking fund in addition to the regular assessment.
(5) Retractive legislation that will eliminate
the payment of interest on deposits in receivership
banks together with an increased regular assessment to apply on accrued losses.
(6) Selling to the state by transfer, farms and
other properties valued at approximately six million dollars, still carried by the Guaranty Fund
Commission as assets of failed banks and turning
such property over to the state school fund, the
proceeds from the sale to the state to go to the
guaranty fund to apply on payment to depositors.
In February, 1929, a questionnaire was sent to
the bankers of Nebraska and 510 answered it.8
One of the questions was:"Do you favor repealing
the law as a whole?" There were 317 votes for repeal and 169 against the repeal. Most of the patrons of national banks favor repeal, whereas the
90,000 depositors in closed state banks do not
want the law repealed. Of the bankers answering
the questionnaire 487 want the state to pay the
loss and 23 want the banks to pay it.
Texas. In the Quarterly Journal of Economics,
November, 1923, Thornton Cooke stated that not'Stephens, D. V., "Nebraska Guaranty Law Test," American Bankers Journal, February, 1929.
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4,7
withstanding the severity of losses, Texas had
found the only way to keep the guaranty of bank
deposits if there was any. The state was up to
that time collecting adequate premiums to cover
the guaranty and was maintaining a considerable
reserve. In 1927, however, the law was repealed.
Some 750 state banks entered the guaranty
plan and things went well for ten years. From
January 1, 1910, to November 1, 1920, 19 guaranty
banks failed and $881,594.85 was withdrawn from
the fund to pay depositors. This meant an average loss of $50.00 a year to each of the 1,000 or
more member banks during this period. The plan
became very popular and was heralded as a great
success.
Depression and hard times came in 1920 and in
the six year period, 1920 to 1926, 150 guaranty
fund banks failed in Texas. Some 52 banks were
reorganized without loss to the fund, but the solvent banks were forced to pay about $19,000,000
of which $4,000,000 was recovered from assets of
failed banks. The solvent banks were assessed as
much a year as 2% of average deposits. Stockholders and depositors in solvent banks became
aroused because of the decreased dividends and
earnings, and many bankers gave up their state
charters and became national banks.
The legislature amended the law in 1925 and
permitted state banks to obtain relief from guar-
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anty fund liability by furnishing a bond to the
amount of their capital stock. Immediately all the
banks, with the exception of 24, left the guaranty
fund; 654 banks changed to the bond plan and 88
became national banks. These 24 were too weak
financially to furnish the bond required by the law
passed in 1925 or they too would have left the
system.
J. E. Roberts, liquidating supervisor of the fund,
made the following statement, February 16, 1929:
"The Guaranty Fund became insolvent September
29, 1926, and 9 banks, with total deposits of $900,000.00 have not been paid. There are several cases
in the Supreme Court at this time involving the
fund. If the cases are decided favorably to the
creditors of the institutions it will mean that the
creditors will receive about 75%; if unfavorable
the creditors of these 9 institutions will get about
507. Since the repeal of the Guaranty Fund law
on February II, 1927, the state banking system is
getting in a much better condition, and one of the
largest national banks in Texas has come into
the state system, and several more are contemplating taking out a state charter."
Mississippi. The Mississippi guaranty law
proved to be a replica of the Kansas law in regard
to regular and special assessments and bank deposit requirements. The state banking law creating a banking department was passed March 9,
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1914. While the banking law became effective immediately, the guaranty feature did not become
compulsory until May 15, 1915. During the interval banks so desiring could protect their deposits
after paying the assessments and after subjecting
themselves to a rigid examination.
Between 1915 and 1920 only 7 banks failed and
the highest levy was 1/5 of 1% of deposits in
1916. In 1921 and 1922, 14 state banks failed and
the maximum assessment was levied each year.
By April, 1925, a total of $3,162,748 guaranty certificates had been issued and $1,940,766 were outstanding in June of that year. Assessments during the ten years (1915-1925) totaled $1,395,979
and the amount paid to depositors in failed banks
totaled $1,766,769, the difference being the amount
realized from the assets of failed banks. Thus,
there was a deficit in the guaranty fund in June,
1925, of $1,940,766. It was estimated that it would
require six or seven years at the present maximum assessment rate to retire these certificates,
assuming no more bank failures.
On February 15, 1929, Mr. J. S. Love, superintendent of banks, wrote: "While in January, 1927,
it did not appear that the deficit in the Guaranty
Fund had become so great that the guaranty certificates then outstanding could not be paid in less
than fifteen years, however, since that time we
have had four bank failures in Mississippi, which
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has increased the deficit in the guaranty fund
about a million dollars, and we are now of the
opinion the fund is in arrears an amount that will
take at least fifteen years, under the present assessment to retire these certificates now outstanding. The bankers of the state have at last waked
up to the situation and I am advised a defined
move will be made at the 1930 session of the legislature to get the law repealed. The bankers are
convinced that the guaranty of deposit law is unsound in principle and believe that no project based
on unsound principles can survive."
Soutli Dakota. The success of the deposit guaranty laws in four other states and the failure of
several banks aroused such enthusiasm favoring a
deposit guaranty that the legislature of South Dakota passed such a law in March, 1915. The proposals of a committee appointed by the South Dakota Bankers Association were largely accepted
in the 1915 law.
Until June 24, 1921, there had been only 3 state
bank failures and the system was widely recognized as a success. Five more banks failed in 1922
and a year later 22 banks in all had closed their
doors. On June 30, 1923, the guaranty fund had
fallen to $94,000 and depositors in failed banks
had been paid within thirty days. Between 1922
and 1924, 139 banks failed and the fund became
insolvent. When the legislature met in 1927, 297
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or
111,
state banks had failed under the operation of the
guaranty fund law, of which 244 remained closed;
only 325 state banks were operating; and over
$54,000,000 of certificates of indebtedness had
been issued to depositors. The annual income of
the guaranty fund was less than $300,000. With
the indebtedness of $54,000,000 (it was estimated
that the liquidation of assets of failed banks would
reduce this amount by 30% to 50%) and an annual
interest increase of $2,500,000, the situation was
hopeless.
The 1925 legislature repealed the guaranty law,
effective Jan. 1, 1926, but a petition was filed that
the repeal act be submitted to a referendum vote
at the general election. In 1926 the South Dakota
voters rejected the repeal by a small majority.
Governor W. J. Bulow being the first Democratic
governor for more than twenty years, and having
made his campaign on a platform retaining the
law, found it necessary to recommend legislation
to appease the holders of the uncashed certificates.
*
The new banking legislation guaranteed deposits
by increasing by 50(A the liability of the stockholders and gave the state bank commissioner
almost absolute control over the banking system.
The old law of double liability is retained so
that the banks practically have treble liability.
The assessment basis was retained in order to
raise the fund. Each state bank must pay an-
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4
nually 14 of 1 4 of its average daily deposits before any dividends or distribution of profits to
the stockholders can be made, until the sum
realized, together with accruals and earnings of
the fund, amounts to a sum equal to the par value
of the capital stock of the bank.
•
The assessments are paid to the guaranty fund
commission treasurer who turns the money over
to the state treasurer. The latter invests the
funds in securities selected by the assessed bank
with the approval of the commission. The accumulated fund (assessment plus the earnings on such
funds) remains the property of the stockholders
of the respective bank unless the bank becomes
insolvent. After the fund is paid up the income
from it increases the earnings of the bank. In
case of insolvency or liquidation, the guaranty
fund of such bank is used, if necessary, to help
pay obligations to creditors of the bank. If any
money remains after paying all obligations, it will
be paid to the stockholders by the guaranty fund
commission.
The new law also provides for increased powers
of the guaranty fund commission which have been
enlarged to pass upon every application to engage
in the banking business, its action to be final; to
pass on the qualifications and fitness of all officers
appointed by the board of directors of any bank;
to examine the general condition and operation
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of any bank, and from time to time to liquidate
banks or remove officers as it deems necessary;
and to control the separate guaranty funds of the
several banks. Persons in other states, retaining
interest in the deposit guaranty idea, are watching closely the new law in South Dakota.
North Dakota. North Dakota began the practice of guaranteeing deposits in 1917 and experienced three years of smooth sailing before the
system hit the rocks of the depression of 1920 and
1921. Between November 15, 1920, and December
31, 1928, 322 state banks closed their doors. The
assessments on the 337 participating banks since
1917 had brought in $1,957,679.31 and this was
enough to pay only 10y, on the claims of depositors in 201 of the 322 closed banks. By December
31, 1928, the outstanding certificates and claims
eligible to guaranty amounted to $25,072,302.00;
$1,662,894.91 has been paid in dividends. The
guaranty fund contained only $170,379.81. Of
course there were book assets in the hands of receivers amounting to $33,007,183.57 but it was
estimated that only about 35% would be realized
for application on claims eligible to guaranty.
There is no provision for interest and none due.
Since the maximum assessment on the state banks
brings in only about $140,000 a year, there seems
to be no hope of ever paying the principal. There
was some agitation to have the State issue bonds
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to pay off depositors of closed banks, but the measure was defeated at the polls in 1928 by a vote of
24,755 for and 218,270 against.
Washington. The experience of the state of
Washington can be briefly told as the system endured for only 4 years. When the guaranty law
was passed, March 10, 1917, about 39% of the
state banks joined the system, which was optional.
In 1920 there were 116 state banks and 4 branch
banks operating as guaranty banks, but all except
2 of these institutions were small. The total deposits subject to protection were approximately
$65,000,000 but almost one half of the protected
deposits were in two banks.
There were no failures of guaranteed banks until July 1, 1921, and an amount of $320,908 was
credited to the fund during the 4-year interval.
Then the Scandinavian-American Bank of Seattle,
the largest bank in the system, failed July 1, 1921.
The guaranty board assessed member banks 1/2
of 1% and banks were asked to turn over the 1%
already credited to the fund on their books, so
there was about $500,00 available in the guaranty
fund. A levy of 1/10 of 1% for the contingent
fund added about $50,000 and a special assessment
of 14 of 1% brought in about $250,000. The
assets of the Scandinavian-American Bank netted
75% of the total deposits. Ten percent of the deposits of this bank was paid from the guaranty
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or
fund, so the depositors received 85y, of their deposits.
The failure of this great bank broke down the
system. Since the law provided that banks could
withdraw by giving notice in writing to the secretary of the guaranty fund board six months in advance and upon payment of all assessments and
obligations, all member banks withdrew from the
system and the law became inoperative before
January 1, 1922. A bill repealing the guaranty
law was passed in January, 1929, and became a
law June 11, 1929.
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•
SECTION IV
Conclusions
Deposit guaranty has failed in the eight states
that have tried it and has cost the member banks
much money in the form of assessments. Probably the idea of insuring bank deposits will sometime again be introduced in a new form. Therefore, the experience of recent years should be
analyzed and understood.
Insurance Principles Involved. The guaranty
of bank deposits is a species of insurance whereby
each state bank contributes to a common fund,
administered by the state, and from which are
paid losses to depositors in failed banks. Since
bank failures tend to concentrate in scattered
areas and in periods of depression, it was thought
that such insurance would distribute the shock of
the losses over a wider area and over a period of
time.
No satisfactory insurance plan can be prepared
except upon analysis and thorough study of the
risks. A classification of the risks and the assignment of appropriate premium rates to each
group according to the risks involved are necessary. Data of losses in past years must be avail-
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able as a basis for predicting future losses and
for determining the required premiums. Insurance does not necessarily eliminate risks. The
territory in which an insurance scheme can operate must be sufficiently large to distribute the
risks adequately. Reserves must be created to
meet abnormal losses of any period in order to
distribute such losses over a period of time.
The deposit guaranty plans have met only a few
of the requirements of insurance. No adequate
analysis of bank losses over a period of time was
made in any of the eight states. Consequently
the yearly premium rate was the result of a more
or less expert guess as to the anticipated losses.
No attempt was made to classify the risks and to
charge rates accordingly. The assessments were
percentages of the total deposits and in every
state the percentage of assessments was uniform
for all banks although some banks were much
better risks than others. Of course in every
state there was supervision of banks, but it was
not as complete or as effective as the inspection of
risks by insurance companies. Insurance companies unable to inspect their risks adequately
must charge additional premiums to cover moral
hazards and indeterminate risks. Deposit guaranty cannot succeed unless the supervision by the
state is very minute and efficient or very high
assessments are levied to build up reserves.
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The states were not large enough, as insuring
areas, to permit adequate distribution of the risks.
They were primarily agricultural with no other
industries of comparable importance. During
agricultural depression all the states suffered
and all the banks, having most of their money
loaned in agricultural enterprises, were affected.
In proportion as all the banks prospered or suffered losses simultaneously, depending upon agricultural conditions, the guaranty required a
larger reserve fund. The losses of failed banks
were too many and too heavy in any one period
for the solvent banks to repair through contemporaneous assessments. The fact that more than
80y, of all bank failures in 1924 and 1925 were in
the 15 agricultural states indicates the heavy concentration of risks. Had the guaranty been applied in states having diversified industries or had
the plan embraced the United States as a whole,
the wider distribution of the risks might have
produced more satisfactory results.
The deposit guaranty insurance was assessment
insurance. The regular assessments were small,
and special assessments were levied only when
adverse business conditions caused abnormal bank
losses. No adequate large reserve funds were
created to meet any unusual demands on the
funds. The result was a mal-distribution of the
money in the guaranty fund. The depositors in
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the banks failing early received the amount of
their deposits in full from the fund while those
in banks closed at a later time received nothing
from the fund. The breakdown of the guaranty
of state bank deposits has not necessarily proved
that deposit insurance is not practical. The
schemes were not built upon sound insurance principles.
Effect upon Banking Practices and Policies. It
is impossible to settle definitely whether or not
guaranty laws stimulate recklessness in banking
practices and the formation of too many banks
but on these matters some opinions are of interest. The argument that, when bankers are
thrown together in a guaranty scheme, the conservative banker will watch and restrain the reckless is apparently without merit. Each banker
desires to conduct his business in his Own way,
and he does not freely exert pressure upon his
fellow bankers to alter their business practices.
No case can be proved in which one banker has
attempted to prevent another banker from pursuing a reckless course simply because they were
both members of a guaranty system.
Most bankers admit a tendency toward the formation of too many banks and the reduction of
all bankers to the same level in the eyes of the
public when the guaranty law is in operation. Mr.
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W. A. Philpott " said: "The plan makes far too
many banks and too few bankers. The incompetent, the inefficient, the reckless, the venturesome,
and the careless are attracted to banking." Mr.
F. W. Simonds 1" stated: "- - - - It tends to penalize prudent banking and to encourage reckless
practices by reducing in the public mind all bankers, honest and dishonest, efficient and inefficient
to one common level." And Mr. Roy Bone," who
was bank commissioner of Kansas through most
of the grief of deposit guaranty, said in a recent
letter: "In my opinion it is fundamentally unsound and tends to encourage reckless banking
and enables incompetent bankers to build up deposits which they could not otherwise obtain."
Many others writing on the subject have the same
opinion.
The eXtent to which the states having guaranty laws are "over-banked" is difficult to estimate. Mr. Philpott stated that Texas has entirely too many banks. In 1926 Kansas had one
bank for every 1,440 people while in New England
there was one bank for every 7,300 people. To
establish infallibly a causal relationship between
"Failure of the Guaranty Fund in Texas," American
Bankers Assoication Journal, March, 1927.
1""Collapse of State Guaranty of Bank Deposits Movement," Commercial and Financial Chronicle, Dec. 25,
1926.
"Letter written July 10, 1928.
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the guaranty law and the excessive number of
banks is probably not possible. But, so far as
such relationship exists, the results are not in
doubt. The formation of too many banks is a
detriment to any community because it results in
wasteful competition, in excessive investment in
bank buildings and equipment, in losses of earnings to stockholders, and in many cases to stockholder assessments. It is not shown conclusively
that the guaranty law has increased the number
of bank failures in any state. Mr. Thornton
Cooke 12 denies this connection: "It must be borne
in mind that insurance of deposits is not the cause
leading to bank failures in Nebraska. In the
neighboring state of Missouri, where supervision
is excellent, but deposits are not guaranteed, 22
state banks have been closed so far in 1921. In
1920 and 1921, 19 Nebraska state banks closed
their doors. There have been failures in states
that have never adopted deposit guaranty. Although many banks have failed in Arkansas, Missouri, and Colorado the number was fewer than
in neighboring states of Kansas, Oklahoma, and
Nebraska. It is impossible to offer strict proof
"The Nebraska Deposit Guaranty Fund," Quarterly
Journal of Economics, November. 1921; "Collapse of
Bank Deposit Guaranty in Oklahoma and Its Position
in Other States," Quarterly Journal of Economics, November, 1923.
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that guaranty of bank deposits had anything to
PP
do with the difference
Effect upon Deposits and the Business of Banking. The spur of additional profits won many
bankers to favor the guaranty laws. They thought
that guaranteeing deposits would attract depositors to their banks. The additional deposits would
be drawn from national banks, from banks in
other states or from "sugar bowls" and other secret hiding places where hoarded money is kept.
There probably was an increase in deposits in the
guaranteed banks; just how much, it is impossible
to say. There was a substantial amount of money
hoarded in the middle-western and northern states,
due to the fear of loss from the many bank failures which were constantly occurring. Without
doubt a large portion of it went into the guaranteed banks. However, as soon as the guaranty
funds were threatened with insolvency the deposits in guaranteed banks decreased below their
pre-guaranty days.
After the laws had been in operation for a time,
it became apparent that many people erroneously
believed that the state actually guaranteed the deposits. State banks were allowed to advertise
that their deposits were guaranteed but the advertising was restricted in the laws. The Kansas
Guaranty Act 13 provided: "Any bank guaran"Banking Laws of Kansas.
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teed under this act which shall display any card
or other advertising tending to convey the impression that the deposits of the bank are guaranteed
by the State of Kansas, either directly or indirectly, shall disqualify the bank from further participation in the Bank depositor's guaranty fund,
and forfeit its bonds deposited with the state
treasurer for the benefit of such fund." In spite
of this prohibition, many guaranty fund banks in
Kansas advertised and had printed on their
checks: "The deposits of this bank are guaranteed
by the depositors' guaranty fund of the State of
Kansas." The Bank of Commerce of Okmulgee,
Oklahoma, used a sign, "The State Guarantees all
Deposits in This Bank" and a great many banks
used other possibly misleading signs such as "Deposits Guaranteed."
Then, too, some money came in the states with
guaranty laws from neieboring states. No estimate has been made but it probably was not a
large amount. Most people, especially business
men, do their banking near home and the fact that
neighboring states have guaranty laws would be
a small attraction to them.
The deposits of national banks in guaranty
states did not decrease much, if any. Mr. C. M.
"Thornton Cooke, "Collapse of Bank Deposit Guaranty in
Oklahoma and Its Position in Other States." Quarterly
Journal of Economics, November, 1923.
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Harger says, concerning Nebraska:1 "Despite the
fact that every depositor in a failed bank has his
money in full, the 170 national banks have deposits of $200,000,000 while the 893 state banks
have only $285,000,000. Even in towns where
state and national banks come in competition the
business does not flow in one direction, usually.
being fairly well divided." And concerning Kansas,16 Mr. Harger writes: "In the average town
are banks, both guaranteed and not guaranteed,
both having their normal deposits, frequently the
non-guaranteed banks having the lead. Some
banks which have posted notices that they would
withdraw from the fund report that it has made
no noticeable difference in their deposits. If any
banks were aided, it was those of small capital
and resources in rural communities."
It is not doubted that when guaranty laws are
in force, it is more difficult to convict bankers
who have committed criminal acts in wrecking
their banks. Since the depositors have their
money they see no reason for ostracising their
neighbors and friends who have been operating
the failed banks. Regarding the conviction of
bank criminals, Mr. V. Rosewater"writes: "De"Nebraska Licenses Its Bankers," American Bankers
Association Journal. January, 1927.
""Kansas Guaranty Law Faces a Serious Crisis," American Bankers Association Journal, May. 1926.
"V. Rosewater, "Deposit Guaranty, Its Operation, Results, and Lessons," Bankers Magazine, March. 1926.
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it)
serving passing mention is the reversal in attitude
of the public. Ordinarily the bank wrecker is the
most odious of criminals. But it is rarely that
the culprit responsible for wrecking a guaranty
fund protected bank is convicted because the depositors haven't lost a dollar."
Recent Bank Deposit Guaranty Proposals. A
few advocates of the deposit guaranty laws have
recently urged the advantages and strong points
of the schemes before the legislatures of several
states, in spite of the disastrous results encountered in states where such laws were passed. In
January, 1925, Governor Erickson of Montana
and Governor Hunt of Arizona urged the advisability of legislation for the protection of depositors in their respective states. A bill for the guaranty of deposits was introduced in the legislature
of Iowa in 1927 and similar bills were urged recently before the legislatures of Minnesota and
North Carolina. On December 3, 1926, it was
announced that Representative Howard of Nebraska planned to introduce a bill providing for
federal guaranty of deposits in national banks.
The measure was designed along the lines of the
Nebraska system. A similar federal guaranty
bill 1" was introduced in the House by Representative Brand of Georgia on December 6, 1926. The
'"Bill Introduced in Congress for Guaranty of National
Bank Deposits," Commercial and Financial Chronicle,
December 25, 1926.
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Federal Reserve Bank of St. Louis
[57]
latest proposal '" was a bill introduced in the 1927
session of the House of Representatives advocating a federal guaranty of deposits of bank members of the Federal Reserve System. The bill provided for an appropriation of $50,000,000—the
sum to be gradually reimbursed out of the amount
received by the Treasury as a franchise tax on
the federal reserve banks.
In spite of such proposals, the guaranty of bank
deposits in its original form is a thing of the past.
More valuable to both depositors and stockholders will be some closer supervision that will aid
in preventing bank failures rather than attempting to repair the damage after it has taken place.
•
•
ltb"Deposit Insurance Again," The Bankers Magazine, January, 1928. '
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Federal Reserve Bank of St. Louis
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The Bureau of Business Research of the
University of Kansas has the following personnel:
FRANK T. STOCKTON, Director
JENS P. JENSEN, Associate Director
HENRY F. HOLTZCLAW
EMIL B. DADE
Advisory Committee
9
The following number of the Kansas Studies in Business have been issued:
1. THE CREDIT AND COLLECTION POLICIES
OF KANSAS RETAIL CLOTHIERS
2. EMPLOYEE TRAINING IN KANSAS DEPARTMENT STORES
3. CHAMBERS OF COMMERCE IN KANSAS
4. CREDIT AND COLLECTION POLICIES OF
KANSAS RETAIL LUMBER DEALERS
5. DECENTRALIZATION IN GROCERY JOBBING
6. RETAIL CREDIT BUREAUS IN KANSAS
7. RADIO CREDIT SALES IN KANSAS
8. THE WICHITA GRAIN MARKET
9. THE KANSAS TAX ON INTANGIBLES
10. TAX EXEMPTIONS AS MEANS OF ENCOURAGEMENT TO INDUSTRY
11. THE GUARANTY OF STATE BANK DEPOSITS
S
I
The price of these bulletins is 50 cents each.
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