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Guaranty of Bank Deposits.

From the Report of the Comptroller of the Currency for 1921,

pp. 187-193.

Oklahoma.

In 1908, the year following the admission of Oklahoma into the Union of States, the legislature passed, and the governor approved, an act for the protection of depositors in banks of that State through a guaranty fund created by assessments upon the banks, based upon their average deposits.

The popularity of this legislation was manifested in the liquidation and reorganization as State banks of 30 national banking associations in 1908 and 52 in 1909. From 1910 to 1921, inclusive, 51 additional national banks in Oklahoma liquidated for the purpose of reorganizing as State banks. Of the total number of national banks liquidated for the purpose in question 36 subsequently re-entered the national system by conversion or reorganization, leaving the net loss to the national banking system of 97.

In May, 1908, there were in operation in Oklahoma 494 State banks with capital of $6,640,000, total deposits of $21,212,000, and assets amounting to $29,645,000. On the same date there were 309 national banks with capital of $12,212,000, deposits of $44,705,000, and assets of $70,517,000.

On June 30, 1921, there were 622 State banks with capital of $15,551,000, deposits $146,789,000, and assets of $180,235,000. The number of national banks was 359, capital $24,168,000, deposits $239,997,000, and total assets of $318,428,000.

Failures of Oklahoma State banks.-During the existence of the guaranty system up to November 1, 1921, there have been closed some 95 banks, the capital at date of closing, exclusive of 8, the amount of capital of which was not reported, aggregated $1,935,500, and deposits guaranteed, in the sum of approximately $11,050,000. It is reported that there has been collected from assessments on the banks of the State and placed to the credit of the guaranty fund, approximately $3,645,000, collections from assets of failed banks $1,931,000.

The law provides that if at any time the depositors' guaranty fund shall be insufficient to pay the depositors of failed banks, the banking board shall have authority to issue certificates of indebtedness, known as "Depositors' guaranty fund warrants of the State of Oklahoma," in order to liquidate the liabilities to depositors. The warrants bear 6 per cent interest from the date of issue and are a first lien upon the depositors' guaranty fund when collected, as well as a first lien upon the

capital, surplus, and undivided profits of each and every bank operating under the banking laws of the State to the extent of the liability of any such bank to the depositors' guaranty fund.

When a bank is closed the general policy of the banking department has been to provide for the organization of a new bank, giving to it the assets of the closed bank thought to be collectible, and the deficit paid to the new bank to protect the deposits, the banking board endeavoring to realize upon the assets so turned over to the bank.

The closing of 42 of the 95 banks was due to a decline in the value of the assets, poor management, and slow loans, inability to realize on loans, injudicious investments, and shrinkage in deposits. In 34 cases closing was due to criminal acts on the part of officers, including embezzlement, misapplications, or use of the banks' funds in speculation for private gain. In 19 cases the cause of closing is not of record here

From the incomplete data at command it would appear that of the closed banks some 66 were taken over by other banks, reorganized or placed in solvent condition and authorized to continue business, and that 16 banks liquidated or are in the process of voluntary liquidation.

Reports have been received to the effect that from November 1, 1920, to November 30, 1921, 44 banks in Oklahoma have been closed.

Within the past few weeks 56 applications have been received in this office for the conversion or reorganization as national banks of State banks in Oklahoma.

Texas.

The law providing for the guaranty of deposits in the banks of Texas became effective in 1910, and gives the banks the option of adoption of one of two plans: First, deposit of acceptable securities with the banking department, and, second, contributions to the guaranty fund, assessments therefor being based upon the volume of average deposits.

In a communication from Commissioner Hall, of the Department of Insurance and Banking of Texas, it is stated:

There are 1,022 State banks in operation in Texas, all of which, with the exception of 35, are guaranty-fund banks. These 35 banks are bond-security banks. They are required to file with the department a bond to the amount of their capital stock for the protection of their deposits, unless such deposits exceed six times the amount of capital stock and surplus. In that event additional bond is required for the amount of the excess above six times the capital stock and surplus. We are discouraging, and in fact refusing to permit the organization of bond banks, inasmuch as the bond furnished does not furnish ample or ready protection to the depositors in the event of failure of the bank. Since the guaranty-fund law became effective 51 State banks have been officially closed by the department. Thirty-five of these banks were closed within the past 12

months. For the protection of the noninterest-bearing and unsecured depositors of these 51 banks, the guaranty fund has paid out $5,151,736. The condition of the guaranty fund on June 30 last was as follows: Cash on hand in State treasury ..

$584,472.54

Demand deposits in banks to the credit of State banking board..... 1,827,072.02

Total amount of guaranty fund

2,411,544.56

From the data submitted by the commissioner in relation to the 51 banks that have been closed it appears that their capital at date of closing was $2,515,000, surplus and other profits $356,911, all other liabilities $15,327,406, deposits guaranteed $9,215,473, liabilities not guaranteed $5,823,943, deposits paid from the guaranty fund $5,151,736, liabilities paid from sources other than the guaranty fund $5,377,729, contributions (assessments) to the guaranty fund $180,643. The salvage in so far as the shareholders are concerned was nominal, the amount being approximately $75,000, distributed among the shareholders of seven of the banks, the shareholders of the other banks receiving nothing.

The failure of 13 banks was due to criminal acts of officers, etc., 34 to losses, of which 6 were on account of cotton loans, I was due to drought, and 3 not accounted for. The following statistics relative to the number, capital, total deposits, and aggregate assets of Texas State and national banks in 1910 and 1921 are of interest:

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In 1909 an act providing for the guaranty of deposits in the banks of Kansas became effective. In advice of date of October 21, 1921, Bank Commissioner Foster stated:

The aggregate amount paid in on assessments by the banks of the State to the guaranty fund during the entire time the guaranty law has been in effect prior to June 30, 1921, was $657,691. The amount of withdrawals from the guaranty fund for deposits paid to creditors of failed guaranteed banks prior to that date was $28,700; the balance in cash to the credit of the fund was $628,991. In addition to the cash there are bonds in the guaranty fund to the amount of $1,135,622 to guarantee payment by banks of future assessments. We may say, however, that there are a number of failed banks in which it is not yet determined how much will have to be paid from the guaranty fund, but it may aggregate between $300,000 and $400,000.

From information furnished by Commissioner Foster it appears that during the operation of the guaranty law up to June 30, 1921, five guaranteed banks with combined capital of $95,000, surplus $42,945, and guaranteed deposits of $827,080 failed. In three instances failure was caused by criminal acts of officials; one due to the failure of a large debtor, and one loss sustained upon worthless paper placed in the bank by one of the officials. In the same period there were 11 failures of "unguaranteed" banks, the combined capital of which was $300,000, surplus and other profits $66,600, and deposits of $1,980,000. In five cases failure was due to criminal acts on the part of officials, one to speculations of officer, three to injudicious banking and inabilty to realize upon real estate and other paper, one to failure of a large debtor, and one was closed as the result of internal dissensions.

There follows a comparative statement in relation to Kansas State and national banks in 1909 and 1921:

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The depositors' guaranty law went into effect in Nebraska in 1911, and in a communication from the department of trade and commerce of date October 24, 1921, it appears that the total assessments since the inception of the guaranty system amount to $4,253,151, the drafts on the fund to pay depositors of failed banks to July 1, 1921, amounted to $1,981,691, and the balance in the fund on that date $2,312,746. The difference of about $40,000 is accounted for in adjustments and dividends which receivers of failed banks have returned to the guaranty fund. From an abstract of the receivers' reports as of April 1, 1921, it is shown that there have been 20 failures of State banks since 1911, with deposits at date of closing of $4,349,524. The recent failure of a large State bank will make necessary a special assessment for the benefit of the guaranty fund.

Herewith is submitted a comparative statement in relation to Nebraska State and national banks as of 1911 and 1921:

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To a request of the Comptroller for information in relation to the working of the depositors' guaranty law of the State of North Dakota, State Examiner Lofthus in a letter of date November 20, 1921, stated:

In addition to assessments already made there is a liability of each State bank for its proportionate share of losses to the depositors' guaranty fund caused by banks closed up to the time that conversion or dissolution takes place. Of course it is impossible at this time to ascertain such probable losses. It will be necessary for the depositors' guaranty fund commission to figure the maximum loss, which in no event can exceed its proportionate share of the total liabilities of the depositors' guaranty fund resulting from the closing of such banks.

No official information was submitted with respect to the number of failures of State banks in North Dakota, but from commercial and other agency reports it appears that 60 State banks in North Dakota have been closed since 1915, of which 33 were closed during the last year. Information relative to State and National banks in North Dakota in the years 1915 and 1921 follows:

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The State of Washington adopted the guaranty-fund system by act of legislature of 1917, the law having been amended in 1921. The guaranty fund is created by assessments against member banks of 1 per cent of the total amount of annual average deposits, eligible to guaranty banks. Of the 300 banks of the State approximately 120 are members of the system, membership under the law being optional. The amount

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