Evening Star Newspaper, February 28, 1933, Page 5

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The benefits of Federal insurance for time deposits in banks, which would be provided under the terms of legisla- tion he now is sponsoring in the Sen- ate, was outlined last night by Senator Vandenberg, Republican, of Michigan. Speaking in the National Radio Forum, arranged by The Star and broadcast of a coast-to-coast network of the National Broadcasting Co.. the Michigan Senator, explaining his plan, declared it would breed the confidence necessary for the normal functioning of banking which must underlie eco- nomic_recove declared, “other rectiperative blessings will follow as day follows night.” Along with the insurance feature. Sen- ator Vandenberg said the Glass bank- ing bill should be enacted into law. Greater Protection Sought. Senator Vandenberg emphasized at the outset that the plan he sponsors “avoids the traditional infirmities which always have attached to a general guarantee of all bank deposits.” | He would create within the Federal Reserve System a “time deposit in- surance fund,” ch would pay any time depositor 75 per cent of his de- pesit within 30 days of the clesing of ny insured ban The resources of this insurance fund would come from an annual tax of one: deposits in Federal Reserve System member banks, plus annual premium by non-member banks wishing to par- ticipate. In addition, a share of the earned surplus of the Federal Reserve System would be put in. Summed up. he cited the benefits as greater protection for depositors; in- creased liquidity for the banks, and a deterrent both to hoarding and to building up deposits in the Postal Sav- ings System. | Text of Address. | _ The text of Senator Vandenberg's ad- dress was as follows: Ladies and gentlemen: I discuss to- | night the proposal which I have sub- | mitted in the Senate to provide Fed- eral insurance for time deposits in banks. Some such measure may prove to be the power that can break the grip of this depression. The stabilization of normal banking, for the benefit both of depositor and borrower, may well have this far-flung effect. Here sre three simple reasons: First: The total credit needs of nor- mal business are greater than any emergency credit that can be borrowed from the Federal Government. Eco- nomic reccvery finally must come through a renewal of commerce in its natural channels‘as distinguished from artificial channels created by Govern- ment. These needs are dependent upon normally functioning banks. Second: The total employment re- quired to put all our people to work is greater than any Government spend- ing can provide. Private business must gerve this ultimate function. But, With this confidepce established, he | THE again, private business must have nor- ally functioning bank resources. Third: Most of our normal business is done in credits and clearances, and not in actual currency. For example, total American clearances in 1929 were 713 billion dollars, while our maximum currency supply was less than five bil- lions In other words, our ‘“money problem” is less a problem in volume of currency than in the velocity of its turnover in normal trade and nor- mally functioning banking. ‘Thus, this banking function is found at the base of every economic contem- plation. Therefore, since public confi- dence is the indispensable key ta nor- mal banking. our most far-reaching challenge is the creation and mainte- nance of justified and enduring confl- dence in this behalf. Successfully es- | tablished, other recuperative blessings will follow as day follows night. Of course, “canfidence” has many facets. It never can be divorced from collateral influence like confidence in the stability and sanity and solvency of government—confidence in the inf rity of money—confidence in the valis ity of contracts. These factors are i nored at our peril. The mere sugges- tion of infidelity to them breeds jeop- iy. They defy any panacean subs I am happy to state my own conviction that Congress will desert | ncne of these dependable founcations. Confidence Must Underly. But underlying everything must be mass ccnfidence in the institution of banking itself. This confidence must bs a justified reality—the substance, not the shadow. The existing virtues of banking must be emphasized. The weaknesses must be corrected. The public character of banking responsi- bilities must be acknowledged more than ever in behalf of the depositor. Here is the key to our whole situation, EVENING ighth of 1 per cent upon all time | because he is democracy’s greatest ca| italist. If Congress successfully legis- lates with him in mind. it will serve | 11 thesé pyramiding advantages to hich T adverted in the beginning of this discussion. One aid to this end would be con currence by the House of Representa tives in the so-called Glass banking bill which is sponsored by the distin- | guished Virginian, who is the highest American legislative authority upon this subject. | Thus would we progressively | improve the banking structure and contribute to the confidence for which we strive. Thus would we substantially divorce bank resources and stock specu- | 1ation. We would separate investment banking and commercial banking. We would increase the scrutiny of public control. We would facilitate speedier liquidation dividends in the unhappy event of bank closings. We would sanc. tion State-wide branch banking by per- mit of each State itself—thus offering at least two new and vitally useful services, namely, adequate banking fa- cilities for otherwise bankless communi- ties, and the opportunity of banking consolidations as a successful prevent- |ive of banking failures. All of these | considerations trend toward banking health and American happiness. | But my particular proposition night is that this healthy banking | should be, like any other healthy per- son, eligible for insurance, and that this insurance under appropriate limita- tions should be warranted by the Gov- ernment of the United States as a matter of sound public policy and as a final invitation to our unadulterated confidence. I shall submit that this in- surance, if feasible, can become the surest means to accomplish all of these objectives which we have been discuss- ing—to end hoarding, releace cyrren relax and multiply credit, stabilize trade, facilitate new business. buifd mo- rale, -and break the vicious circle from which we would escape. I hasten to T LES Del Monte, leomia STAR, WASHINGTO acknowledge that the thing is easier said than done. But I shall argue that the presumptions favor its success, pre- cisely as the necessities favor its con- sideration. General Guaranties Fail. . T discuss a new stabilization for “time deposits”—as distinguished from other deposits—and their Federal insurance supported' by co-operative contribution. To forestall prejudice, let me immedi- ately point out that this proposition avoids the traditional infirmities which always have attached to a general guar- antee of all bank deposits. Wherever a general guaranty has been tried it has failed, and usually with accumulated deficits and disappointments for the de- positors themselves. I refer to State experiments in Oklahoma, Nebraska, North and South Dakota, Washington, Kansas, Texas and Mississippl. Any general Federal guaranty would reduce sound banking to a dead level with reckless blnkm, and would charge the resultant mortality either to the sound survivor or to the public treasury. There could be no permanent advan- tage in embracing this repudiated prin- ciple. But I declin~ to concede that the in- firmities of a general guaranty make it impractical to contemplate a more lim- ited but scarcely less effectual protec- tion for bank deposits in that partic lar sector where banking touches our | mass citizenship in largest degree — | namely, in savings and certificates. This is the sector where contagicus uneasi- ness sometimes generates—often need- lessly and without justification, and often in response to idle, empty gossip, if not to actual Communist propaganda. It is the sector where the itest 80- e heels of verted if mass confidence were not needlessly disturbed. In other words, if these ‘time deposits” are protected, our ac- tual problem is conquered. On the | other hand, by confining the new pro- tection to “time deposits” the infirmi- ties of a general deposit guaranty are cffectively avoided. Therefore, I am suggesting that a ‘Time Deposit Insurance Fund” be cr ated within the Federal Reserve Sys- | tem: that these “time deposits” be made “contract deposits” in literal fact instead of idle name, and the “In- surance Fund” shall pay any “time depositor” 75 per cent of his deposit within 30 days of the closing of any insured bank. I submit this would be the beginning of the new confidence which is our first necessity. Resource Is Annual Tax. ‘The resources of this “Insurance PFund” would come from an annual tax of one eighth of 1 per cent upon all the “time deposits” in the member banks in the Federal Reserve System, plus ap- propriate annual premium by non- | member banks wishing to participate. A share of the earned surplus of the Federal Reserve System would also an- nually contribute. Whether this pros- pectus is actuarily sound would have to be probed by acid test. I only sketch the presumptions in its favor. Suffice it to that if this system had been in operation for the 17}, years of Federal Reserve experience from 1914 to June, 1932, which includes two years of heaviest mortality, the fund | would have been 2': times sufficient to pay all the net losses. Here are the | rough figures: Total losses in Federal Reserve member banks, $1.800,000,000; | average of “time deposits.” 42 per cent, | or $750,000,000; average liquidation re- | covery, 55 per cent. Therefore, if the | Insurance Fund paid 75 per cent, its net loss for 17!, years would have been 120 per cent of $750,000,000, or $150.- ‘000.000. Meanwhile its receipts would have been in the neighborhood of $375,000.000. I recogn! that man D. C, TUE SDAY. new contingencies would enter present actuarial computations. I would want any conclusive opinion to await these considered findings. ~But I ~insist that the tentative balance sheet en- courages & belief that such a system is well calculated to afford the cheapest purchase of “confidence” in the history of our institutions. I ask you to note the implications of this tentative formula: Pirst: by insuring only 75 per cent of only “time deposits,” the bank is left completely responsible for all its other deposits (which would have been 58 per cent of its resources during the pe- riod here surveyed), and the individual depositor is left with a 25 per cent re- sponsibility to choose his bank wisely. This escapes the major menace which wrecks a general guaranty; yet it serves the major economic and social need which pleads with us for a new ele- ment of reliable protection. The se- curity of demand deposits, under such circumstances, would take care self automatically. Will Loosen Credit. Second: By requiring that “time de- posits” shall become actual “contract deposits” without privilege of waiver, nearly half of the need for complete banking liquidity from day to day is obviated: and this fact, plus the fact that there no longer is any incentive for mass hysteria, will loosen credit and put the banks in position more freely to serve the needs of their com- munities One of the chief vices of present banking practice is this fact that “time deposits” are all actually “demand deposits” and banking liquid- ity has had to restrict itself accordingly. ‘This is one unavoidable reason why borrowers have found it difficult to w. ‘Third: By insuring “time deposits” all incentive to hoarding ends. Hoard- ing is as dangerous as it is understand- able. ~ Probably $1,500,000.000 is in hoarding today. This is currency. In banks it would create something like 15 billions of credit money. words, this would produce controlled inflation. Put differently, it would produce safe but effectual reflation in natural course. When hoarding ceases and confidence returns, the resources of the Nation will be equal to all of our national necessities. Fourth: Federally insured “time de- posits” would eliminate the justifica- tion for a competitive postal savings system which now sterilizes $900,000,000 and withdraws it from normal indus- trial and agricultural use. At least it would eliminate 75 per cent of the ne- cessity for Government bonds as col- lateral when these postal savings are redeposited in regular banks. This would immediately unfreeze some $650,- 000,000 of present banking resources. There are numerous other technical ip Guaranteed LA FRANCE UPHOLSTERING 2509 14th St. NW. Col. 10172 In every corner of the world, both here and overseas, wherever you find joy in life, tis always “Luckies Please” You'll enjoy their mellow-mildness .appreciate their character Fine tobaccos at their delicious best —that’s Lucky Strike. 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To sum up, such a formula could initiate a®new era of American confidence; permanently fore- close hoarding; relax credit; stimulate the use of money and credit-——which de- fines trade; would permit us to think |and act constructively and optimisti- | cally for tomorrow: indeed, it might be | the impulse needed to move us off the | dead center of stagnation and start us upon our way to those “happy days” that were featured in a recent cam- paign theme song. If my original premise was correct— namely, that basic confidence is the Nation’s need—then my conclusion is Justified that Congress can best serve the emergency by abandoning discus- sions that shatter confidence and by pursuing this most fundamental of all institutional sources of confidence. Cites Banker’s Approval. A prominent banker wrote me last week as follows: “I believe that such a law as you propose would create in America almost over night the renewed confidence which can swiftly start us on the upturn.” | He may or may not be right. Frankly, |1 do not believe that our convalescence ages that cannot be cured by some easy patent medicine. I decline to join it Quantities 30c Modess | With | Coupon | Limit 2 te Customer * Oce.. Fresh Delicious 25 60c Flit. 60c Dethol. .. $aillette, Blue—s's @ Gillette, Regular—5's .. @ Durham Duplex—5 s :Antoltrop—S'u S sisnis ®Gem—S5's ... @ Ever Ready—5's ..... e pictures of th 25¢ Cascarets 60c 25c¢ Lavoris . . Zonite 75¢ Squibb’s Mineral $1.25 Vaginal | = On Sale at NORTHWEST Morgan Bros. Pharmacy 42;; Wriounnliu Ave. N.W. Sugar’s Drug Store 35th & O Sts. N.W. Morgan Bros. Pharmacy 30th & P Sts. N.W. Dupont Pharmacy 1905 Mass. Ave. N.W. 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I pretend no of this sure-cure propaganda for our |finality in the scope or detail of my own good. I disclaim any dogmatic rec- | suggestion. I merely submit a forward- ommendation that we would be at|looking philosophy of action, and ask rainbow’s end simply because we 1n—[£hlt we determine open - mindedly sure time deposits in our banks. I |whether it is feasible and sound. disclaim any notion that it can be done | Our American dedications must be to “over night”—to quote a phrase from | confidence in ourselves and in our in- the previously noted letter. It can be |stitutions. Confidence must be deserved done only after careful scrutiny of the |in order to be stabilized. I believe in whole project, with an eye to ex‘ra ac- | America. It is in deep economic dis- tuarial hazards induced by present tress today. But it has been in dis- times, and with an adequate arrange- | tress before. Yea, in at least five prior ment to extend the insurance privilege | perfods in our history, the fathers went on a reasonable basis to banks that are down into the valley of the economic not members of the Federal Reserve 'shadow just as deep as we have gone. system. But f‘Ch ;ria };J\‘u cllmlxc}? l'i‘tlh tr;‘:vl Nevertheless, I am entirely persuaded | Sunrise, brighter and happler than that it can bé done: and that it 1s 8 | SIing ) P Yious Amcrion e - e. o not dot - e e Hoss 15,00 decen- | Fepetition of this history. I Lslieve in tralized cash-and-credit’ “service sta- |MY country. T believe in its destiny tions” up and down the Nation—touch- I believe in its leadership and in its ing, as 1t does, noi only these 15,000 banks, but also the 40,000,000 depositors therein—touching, zs it does, the roo source of that national ‘‘confidence” which is the well-spring of tomorro hopes and aspirations. “The President’s Research Committee on Social Trends recently observed that | people. |~ I believe in its recuperative resources. I believe in its future. In our banking relationships, I would try to make th resources and this future as secure as the Government itself. Shrine Potentate in Cuba. HAVANA, February 28 (#).—Earl C experimentation” because of the social | relations crowding within governmental | nrijjs jmperial potentate of the Mystic influence and control. ‘These enter- | ghrine arrived in Havana &l : yesterday &nses may be bold without being fool: Tokvia. Tt i S e e They may be novel without being insane. I have entered only upon one ' companied by Mrs. Mills. 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