than the total capital stock of the banks. In the desire to establish a guaranty fund nothing must be done to in any way weaken the Federal reserve system.

In order that the Federal reserve bank surplus shall always be maintained unimpaired the Shallenberger bill provides that after all expenses and dividends to stockholders shall have been paid by the Federal reserve banks, one-half of the remainder shall be added to the bank's surplus and one-half to the guaranty fund. I submit that this is a sound provision, as it will steadily build up both the Federal bank surplus and the guaranty fund from a source that will be no burden either upon the reserve banks or the member banks who make the earnings possible.

The Steagall bill provides that a third contribution of two hundred millions to the Federal guaranty fund is to come from the member banks of the Federal system; one hundred and thirty millions based upon demand deposits and seventy millions upon time deposits.

These three amounts of one hundred and fifty, two hundred, and one hundred and sixty millions, make up a total initial sum of five hundred and ten millions, authorized for the Federal guaranty fund as provided in the Steagall bill. This amount is more than six times the total net losses to depositors in national banks on proven claims, from 1862 when national banks were first established up to 1930.

It may be urged that so large a guaranty fund as five hundred millions would not be required to insure depositors against loss, but we are faced with the fact that in the last three years of panic and deflation, more than a billion of deposits have been put in liquidation in failed member banks. Reports so far available show that only about 50 per cent is being realized from failed bank assets since 1929, so tremendous have been the depreciation in values of the assets of the failed banks. This would indicate that the initial fund provided by the Steagall bill is not excessive.

The Shallenberger bill (H. R. 8989) does not propose to draw on the Federal Treasury or the present surplus fund of the reserve banks for its insurance fund. It would raise three hundred millions in two years from the member banks to be insured. It provides that after the initial payments for the first two years the banks shall annually contribute to the insurance fund one-tenth of 1 per cent of their demand deposits and one-fourth of one per cent of their time deposits. This assessment would raise from demand deposits twenty millions annually and from time deposits twenty-five millions based upon the present deposits in member banks of about twenty billions of demand and ten billions of time deposits. The combined levies would add four hundred and fifty millions to the insurance fund in 10 years. If three hundred millions is paid into the guaranty fund by the Federal reserve banks and the Federal Treasury as provided in the Steagall bill, the banks can be relieved of that levy in the Shallenberger bill.

The Shallenberger bill makes the following disposition of the profits from the Federal reserve banks. After dividends and expenses are paid, one-half of the remaining net profit is to be paid into the surplus fund of the reserve banks and one-half into the insurance fund. What this amount will be can not be accurately estimated.

e net earnings of the reserve banks has been $523,000,000 y earnings show tremendous variations. For example, 1920, when speculation ran rampant and borrowers the reserve banks net earnings were $149,000,000. In Forced liquidation set in, earnings dropped to eightyand in 1924 earnings were only $3,000,000. Again, in ys of 1928 and 1929, earnings of the reserve banks thirty-two and thirty-six millions of dollars annually in 1930 to about eight millions and growing less each Notwithstanding this great variation in annual net sum total of net profit over a period of 10 or 20 years s add substantial sums to the surplus and insurance he Federal reserve banks.

nitial guaranty fund of $500,000,000 and annual addimillions a year as provided in the Shallenberger bill an insurance fund of a billion dollars can be accumua guaranty fund will restore absolute confidence in the Nation. It will stop hoarding and double deposits, and ly multiply bank profits.

Mr. Chairman, that if to the provisions of your bill shes an initial guaranty fund of five hundred millions, dd the provisions of the Shallenberger bill requiring ents into the guaranty fund by assessments against deer with one-half the net earnings of the Federal reserve ederal guaranty fund would be fortified against any ions caused by bank failures in the future.

f depositors insurance to the banks must not be such as nt endanger their solvency or be an unfair burden upon The requirement of special assessments to pay deposes of great losses caused by a deluge of bank failures e of the breakdown of the State guaranty laws.

at in Nebraska the banks would never have protested _nnual assessment of one-tenth of 1 per cent or a charge insure a million of deposits. The Federal Reserve he Comptroller of the Currency can administer a Fedy or insurance fund for the protection of depositors dsafely.

e to the banks for this insurance must be so reasonable efits derived from it more than compensate the banks

nt of the assessment for insurance in my bill meets ment. No other assessment against member banks is It is only one-thirtieth of what banks pay for deposits ay 3 per cent per annum on time deposits. The payment of the net profits of the reserve banks is a source of Federal guaranty system that the State guaranty sysnied.

n Federally insured banks will double in a few years if have outlined. Such a law will stop bank runs. It will ding. It will not of itself prevent bank failures. That mplished by proper supervision and honesty and ability of bankers.

A depositors guaranty or insurance law will insure the citizen that when he puts his money in a bank established under the laws and supervised and controlled by the Government of the United States, he shall never lose it.

The CHAIRMAN. Mr. Cable, this subcommittee will be pleased, I am sure, to hear any statement you desire to make on the subject

under consideration.

STATEMENT OF HON. JOHN L. CABLE, REPRESENTATIVE IN CONGRESS FROM THE STATE OF OHIO

Mr. CABLE. Mr. Chairman and members of the committee, I thank you for the privilege of appearing before this committee and offering a few suggestions in the matter of guaranteeing the payment of deposits in banks.

This committee has, by its part in the enactment of certain laws in the Seventy-second Congress, accomplished a great deal of good throughout the country. At the same time I feel there is nothing more vital and closer to the people of the United States than the subject of protecting the life savings they deposit in banks, and which in recent times have been lost or jeopardized by bank failures. The bills that have been considered by the committee, the honorable chairman's bill, the bill of Governor Shallenberger, and others, require State banks to become members of the Federal reserve sys tem in order to participate in the benefits of a law guaranteeing bank deposits. If such is the wish of the committee, State banks should be given at least five years in which to become members of the Federal reserve system, and, in the interim, should, by payment of premiums, be entitled to the benefit of the insurance provision of the proposed law.

I wish chiefly to recommend that the proposed act create an independent insurance company, chartered by the Federal Government, rather than supervised entirely by and a part of the Federal reserve

system.

This idea of guaranteeing bank deposits is not a new one. The New York Legislature as far back as April 2, 1829, established what was known as the safety fund system, which provided that every bank whose charter should be granted or renewed in the State of New York should pay into the banking fund one-half of 1 per cent of its paid-up capital each year, until 3 per cent of the capital stock of the contributing banks had been accumulated. The fund was to be used to pay the debts of the bank, which included the bank's obligations to its depositors,

The panic of 1837 caused many banks to fail, and the New York law became inoperative. But the various depressions have, from time to time, brought to the front the consideration of guaranteeing bank deposits. From 1907 to 1917, laws were enacted by eight States, namely, Oklahoma, Kansas, Nebraska, Texas, Mississippi, South Dakota, North Dakota, and Washington, providing for guar anty of bank deposits, some voluntary, some compulsory.

In Noble State Bank . Haskell (219 U. S. 104), and Shallenberger, Governor r. First State Bank (219 U. S. 114), the Supreme Court held that the assessment of State banks for a depositors" guaranty fund is within the police power of the State and does not

ed banks of their property without due process of law m the equal protection of the law.

case, Abie State Bank v. Bryan, governor (282 U. S. t, speaking through Chief Justice Hughes, upheld the in assessment upon several hundred banks in Nebraska se of protecting depositors in failed banks.

is too small a unit for the practical operation of a guaranty system; a crop failure in one State might fund, and at the same time all the other States might 3. If the fund were contributed from all over the isk would be widely distributed and therefore would ately small.

oma act was repealed in 1923; the Kansas act was re9; the Nebraska act, in 1930; the Texas act, in 1927; ington act, in 1929. The Mississippi, South Dakota, and acts were not repealed, but they were so modified as operative. The fact that the bank-deposit guaranty ently did not work in those States is no proof that ld not work if banks throughout the entire United › protect their depositors through a national insurance orporation.

n the "Business Week," appearing in the Literary Di2, 1932:

a cooperative principle which helps to reduce risk by spreading supplying some incentive to greater safety.

ason why it should not be applied to the protection of bank

it has failed where applied locally proves no more than that for a single community alone to insure itself successfully r fire. It must, of course, be applied on a national scale so he risk widely over diverse conditions, and be coupled with nforcing uniform standards of banking practice.

ing statement on the guaranty of bank deposits, entitled ty of State Bank Deposits," was written by John G. printed by the University of Kansas in July, 1929. hroughout the entire United States to-day a partial aranteeing or insuring bank deposits. I refer to the nship boards of education, counties, States, and even s. Approved bonds are required before these moneys ited in a bank. Why should there be a distinction befunds and money of a private individual deposited r safekeeping? There might be a slight distinction money is deposited. But as to funds deposited for safewe should have some system of guaranteeing to the we do to the political subdivisions, the safe return

u men may recommend should be in the nature of urance fund, rather than a part of the Federal reserve erwise, all State banks either would have to become the Federal reserve system, or, in my opinion, they ed out of business.

you will, the attitude of a depositor who walks into nks. There he sees a sign, "Through the United States ve system this bank guarantees repayment of all money e." Then he walks into the neighbor bank across the

street, where there is no such guaranty because that bank either did not choose to become a member of the Federal reserve system or could not qualify. This depositor naturally will place his money in the bank where he feels his savings will be protected by the guaranty system, irrespective of the management of the bank.

An insurance company would not issue a fire-insurance policy on a burning house. So too, a bank should not be permitted, until it puts its house in order and qualifies, to become a member or subscriber to an insurance fund for the protection of bank deposits, A 100 per cent guarantee is not necessary. In fact, such a complete guarantee would encourage laxity on the part of bankers, as they would be inclined to make loans which their ordinary good judg ment would tell them were unsafe. They would feel that they could do this, because the depositors' money they would be lending would be completely insured. The guaranty or insurance should cover only 50 per cent of the deposits. Depositors should be fully protected by such a guarantee, as liquidation of assets in the past has netted depositors dividends averaging 50 per cent of the deposits. A 50 per cent guaranty would place a continuous burden of good management upon a banker, and that, coupled with local pride, would compel him to maintain a careful and conservative management of his bank. Depositors would, however, be assured prompt payment of their deposits by a provision similar to the one in my bill, H. R. 10201, that when à receiver is appointed and the assets appraised, the insurance corporation-I call it the Federal Guaranty & Insurance Corporation "-could lend to the receiver, on the assets of the bank, amounts of money in addition to the 50 per cent guaranteed.

The bill would work this way: If a bank should fail, as soon thereafter as a receiver is appointed and qualified and the depositors have proved their claims, the amount of these claims would be cer tified to the Federal guaranty and insurance corporation, and 50 per cent of the amount of the legal deposits would promptly be turned over to the receiver, who in turn would promptly pay a 50 per cent dividend to the depositors.

There would also be an appraisal of the assets of the bank, and, secured by the bank's assets, a loan made to the receiver in such amount as the corporation should deem reasonable and safe, but not in excess of the 50 per cent guaranty. In that way the depositor would receive the 50 per cent guaranteed by the insurance corpora tion, and shortly thereafter an additional dividend, the amount of which would depend upon the value of the assets of the bank. The business of the commercial depositor would not be affected by a bank failure: other depositors would have funds at once for living expenses,

A guaranty fund, independent of the Federal reserve system. should be created. Many State banks might not wish to becotie Federal reserve member banks, or might not be able to qualify. If the Committee should report out a bill permitting only member banks of the Federal reserve system to participate, other banks, cluding nonmember State banks, could not participate and might therefore suffer irreparable loss,

The double ability of stockholders fails as a guaranty of bank deposits. Our experience has been that only 16, of the additional