In addition, and almost inevitably, the law at once became the football and tool of political parties. To make the law work successfully, high-handed methods were resorted to and criminal bank officials were left unpunished. The evils from its political administration were much reduced, however, when in 1913 the State Bankers' Association secured representation on the State Banking Board.
The law was hastily drawn, without precedent to guide, and enacted by a new legislature, in a new state, without debate, and put into operation in an unduly short time—all in the midst of a financial panic when judgment was warped by public clamor. The result was a poor law, difficult of execution, and requiring many amendments.
The state had been and was in the throes of speculation and bank officials were active in speculative ventures; the real estate boom and the oil boom were led or facilitated by the bankers. Bank credit was unduly extended on tenuous security. The state was new, was growing at unprecedented rates into great agricul tural, oil, and lumber wealth. Speculation, venturesomeness, and dishonesty were rampant; banks do best when nurtured in a more conservative soil. Bank morals were very lax.
There was a high concentration of risks. The guaranty sys tem was in operation in only a single state, which outside its oil production was almost wholly agricultural, and as a result a crop failure such as fell upon the state in 1911 shook the bank ing structure with great severity. Besides, there was a great con centration of bank credit in Oklahoma City. Had the guaranty system been nation-wide there would have been prosperous states, areas, and industries to compensate for the defaulting states, areas, and industries, and the financial world would have had a more even tenor.
Popularity of the System The Oklahoma system was from the first very popular. Until 1911, the state banks increased fast in number and deposits, while the national banks declined in number and increased their deposits but slightly. The crop failure of Ica 1, however, precipi tated a financial crash; the speculative boom collapsed and dragged many banks into insolvency. The assessments to pro vide and maintain the guaranty fund became very onerous. Reduced to a percentage of the average capitalization of the banks for these years, the guaranty system cost the banks rather more than 3 per cent annually. The heavy burden in 1911 and
1912 led to the desire for escape from the guaranty system, an escape which nationalization offered to those banks that had sufficient capitalization. Hence practically all the larger banks and those in the large cities became national banks, leaving with in the guaranty system only those banks that had too small a capitalization to become national banks.
The Kansas System Owing to the general popularity of deposit guaranty, and par ticularly to the pressure brought by banks of Kansas near the Oklahoma line, which felt a migration of deposits to the guaran teed Oklahoma banks, the Kansas legislature (Republican) in 1909 enacted a guaranty law. Some of the salient features of the Kansas plan are these.
The system is voluntary; any incorporated bank, a year old and having a io per cent surplus paid up and unimpaired, may join, but before admission it is subjected to a rigid examination by the State Bank Commissioner, and as evidence of good faith it is required to deposit $500 in cash or in national, state, or municipal bonds for every $100,000 of deposits. The state does not attempt to pay depositors cash immediately Upon default of the bank, but issues certificates of indebtedness bearing 6 per cent interest. It then liquidates the bank and applies the pro ceeds in payment of the outstanding certificates. These certi ficates are regarded as a good investment and are particularly sought after by the banks as a means of getting new customers.
Provision is made for contributions to a fund large enough to cover the ultimate losses, for immediate payment of deposits is not made. The law fixes the annual assessment at per cent of the average daily deposits, less capital stock and surplus; this exemption fosters higher capitalization and the accumulation of surplus. These annual assessments continue until the fund reaches $500,000, when they cease. Thereafter special assess ments of per cent may be made to replenish the fund when it is depleted by payment of losses—not more than five such assess ments, however, being made in any one year. The fund is held by the State Treasurer. Any bank is permitted to withdraw at will, but it must pay its quota of the assessments to cover losses occurring within the succeeding six months.