The next demand for guaranty of deposits was occasioned by the panic of 1907, which broke October 22. When Oklahoma be came a state on November 16, 19o7, an effort was Made to put deposit guaranty into the Oklahoma constitution, but the at tempt was killed in committee. On December 17, however, the bank guaranty law, to go into effect in sixty days, was passed as the second act of the first legislature. The frontier is "pre eminently the land of sanguine radicalism and experimental legislation," and more subject to what Brice has called " legisla Live temerity" and extreme "confidence in the power of the state" than the older and more conservative states. The idea of guaran teeing deposits proved very popular and was at once seized upon by the political parties as political capital. It was adopted by the Democratic Convention at Denver, in 1908, as a plank in the na tional platform, and in Kansas the same year the Republicans bolted their own national platform and declared for deposit guaranty. In 1909, deposit guaranty laws were passed alike in Kansas and North Dakota, Republican states, and in Texas and Nebraska, Democratic states. The political nature and execution of the laws have been to a large degree responsible for the poor working of the plan.
The Oklahoma System By the Act of December 17, depositors of defaulting Okla homa banks were to be paid at once; and to provide a fund in advance to meet such contingent payments, assessments were levied against all state banks and trust companies equal to r per cent of their average daily deposits. This fund, when depleted by payments, was to be repleted by special assessments to which no limit was set. By the amendment of 1909 the fund was fixed at 5 per cent of the average daily deposits and was to be gradually accumulated by contributions of per cent per year. In 1913 the extra assessments in any one year were limited to 2 per cent.
The present status of the law is that the annual assessment shall be 3 per cent of the average daily deposits and no more. Extra assessments were abolished in 1916. In case the fund proves insufficient at any time to meet the losses, the unsatisfied depositors are given certificates of indebtedness bearing 6 per cent interest, or the certificates are sold on the market and the proceeds used to pay depositors. These certificates are called and paid as soon as the legal annual assessments recoup the guar anty fund. They are a first lien against the assets of each bank operating under the law to the extent of the bank's liability to the guaranty fund, and are exempted from state and local taxes. They are considered a good investment and have found a ready market. Since 1909, 75 per cent of the fund may be invested in state warrants and similar securities, the remainder being held by the State Banking Board. Banks may pay their assessments
by non-interest-bearing cashier's checks, and these checks may be held by the board until the funds are needed, thus giving the contributing bank use of the funds until really wanted by the board.
To secure its liability to the fund, the bank is required to de posit collateral securities equal to i per cent of its deposits. The State Banking Board, which handles this fund as well as the general supervision of the banks, was at first composed wholly of political appointees; but in 1913 the banks succeeded in getting control of appointments to the board to the extent that three of its five members are now chosen from a list recommended by the State Bankers' Association. When a bank defaults, the State Bank Commissioner takes charge and determines whether it is solvent or not; if he finds it insolvent he liquidates it. Deposi tors are paid from the available cash and from the guaranty fund; the proceeds from the liquidation are paid into the fund, but if insufficient to replete it, certificates of indebtedness are issued to the unsatisfied depositors or are sold to the public at large for funds to pay depositors. Deposits that are otherwise secured are not guaranteed, nor are deposits guaranteed on which a greater rate of interest is paid than that fixed by the Bank Commissioner (4 per cent in 1918), nor are deposits of trust companies protected any longer.
Unfavorable Conditions in Oklahoma For certain reasons, conditions have not been favorable for experimentation with deposit guaranty in Oklahoma. For one thing, despite the fact that the banks of Indian Territory, which became part of Oklahoma upon its admission to statehood, had never had state supervision, and those of Oklahoma Territory not perfect supervision, they were forced into the guarantee system with a very superficial examination as to their solvency and practices. Political expediency rather than financial fitness weighed too heavily as credentials for entering. The risks were, therefore, not selected with caution from the very first.
Then, too, national banks, although permitted to join by terms of the law, were denied the right to join by opinion of the Comptroller of the Currency and the Attorney-General, on several counts. To enter the system, therefore, national banks had to surrender their national charters and become state banks. This was expensive and bothersome and was done reluctantly. The large banks were national banks and were in the larger cities; the state banks were of varying sizes and more scattered. The law, therefore, affected areas differently.