Strength of Kansas System The Kansas law has many elements of strength not found in the original Oklahoma law. The chief advantages are the following: 1. Undue expansion of deposits is checked by limiting them to ten times the capital of the bank.
2. The rate of interest paid on deposits guaranteed by the system is limited.
3. Banks are prohibited from advertising that their deposits are protected by the state.
4. Entering banks are rigidly examined.
5. Banks must be a year old and have accumulated a io per cent surplus.
6. The accumulation of surplus and the contribution of a large capital are encouraged.
7. The Bank Commissioner has power to remove incompe tent, reckless, or dishonest bank officials.
8. The maximum time allowed a bank to correct any abuses the Bank Commissioner orders corrected is thirty days.
9. The amount of the assessment is low and is strictly limited.
io. The law is supplemented by a better, older, and more exacting system of bank supervision than existed in Oklahoma.
The Kansas act went into effect June 3o, 1909. Since then the number of guaranteed banks has increased gradually, and on June 3o, 1916, was 539 to 448 non-guaranteed. On that date the guaranteed banks had about twice the deposits of the non-guaran teed, the larger banks having joined and the newer and smaller banks being excluded by the requirement of a io per cent surplus. Only one guaranteed bank had failed to date, and this failure was due to reasons other than the existence of the guaranty law. In March, 1921, the number of banks operating under the guaranty law had reached 694 out of a total of 1,107 state banks.
The state banks of Kansas having adopted guaranty of de posits, the national banks of that state were constrained to meet the competition. Since they were denied the right to join the Kansas system, they organized in 1909 the Kansas Bankers' Deposit Guaranty and Surety Company. This company, capital ized at $500,000, is owned by bank officers of the national banks and those state banks that did not join the Kansas system. Its head office is at Topeka. It issues policies to each member bank guaranteeing the deposits in case of bank failure; the premium rates are so cents per thousand dollars of deposits up to the amount of the capital and surplus, and $1 per thousand dollars of deposits in excess of capital and surplus. About a hundred banks
took out policies. As there have been no losses, the demand for guaranty has declined, and many of the banks have let their policies lapse. The company now does a bonding, surety, and guaranty business in several lines.
Arguments for Guaranty of Deposits Argument in favor of guaranteeing deposits has been on political, moral, social, and economic grounds. The political (largely partizan) arguments may be waived, except to remark that if deposit guaranty brings greater economic and financial and therefore political stability it may be very desirable in our country, where things economic and financial unfortunately are only too often turned to bad uses by politicians. The moral obligation of a banker to pay depositors is unquestioned, but the standing policy of our bankrupt laws is to excuse the legal obliga tion under certain warrantable conditions; the guaranty of credi tors of a banker by the state must rest, therefore, on exceptional reasons.
One such argument frequently used in favor of guaranteeing deposits is that banks are created (chartered) by the state and entrusted with great public functions, such as the issue of cur rency and the keeping and transfer of public funds, and that the state, in consequence of its rigid supervision of banks, clothes them with a fictitious credit and by implication warrants the public against abuse of bank credit extensions. In contravention of this argument for particularizing the guaranty of bank credi tors, it may be said that government supervision does not neces sarily imply a guaranty of the credit of the supervised institution, a fact which the public may be presumed to know. Moreover all corporations—not banks alone—are created by the state, and many corporations other than banks are clothed with that credit which springs from government supervision, and are endowed with such powers as make them public utilities. Furthermore the government itself takes precautions to guard any funds it may place with the banks.