Reply #12: BANKS: Deposits Guaranteed (flashback to 1933)

[ozymandius]

From Time Magazine about the horribly evil practice of (gasp!) insuring deposits:

Through the great banking houses of Manhattan last week ran wild-eyed alarm. Big bankers stared at one another in anger and astonishment. A bill just passed by both houses of Congress would rivet upon their institutions what they considered a monstrous system of guaranteeing bank deposits. Such a system, they felt, would not only rob them of their pride of profession but would reduce all U. S. banking to its lowest level. They saw their deposits which they had spent a lifetime to build up and protect with their good names confiscated by the Government to pay for the mistakes and dishonesty of every smalltown bankster.

The deposit guarantee bill was not part of President Roosevelt's legislative program. He was. in fact, lukewarm to it. Secretary of the Treasury Woodin had frowned on many of its features. One of its authors was Virginia's Carter Glass. But Senator Glass had accepted the guarantee clause only as the cheapest and safest price he had to pay to the radical majority of Congress for passing the rest of his cherished bank reforms. The bill's other author was Alabama's Henry Bascom Steagall, smalltown lawyer and chairman of the House Banking & Currency Committee who spoke for the "little bank" crowd. The measure went through the House 262-to-19 and not one "nay" was raised against it in the Senate. Minor differences in the two drafts were being composed in conference.

Despite this evil-smelling State record Congress was determined to clamp a similar system down on all Federal Reserve member banks, make it optional with nonmember State banks. It was this arbitrary method of forcing big banks to stand sponsor for little banks that outraged Manhattan bankers. Big State banks in New York talked covertly of seceding from the Federal Reserve System rather than submit to such a levy. Even big national banks might exchange their Federal charters for State charters to escape from the Reserve. Such a withdrawal on a large scale might well wreck the whole Federal Reserve System and end an era in central bank history. On the other hand friends of the deposit guarantee loudly claimed that it would tend to drive all nonmember State banks into the Federal Reserve and create one national system, as no bank could do business outside the Government's magic circle of deposit insurance.

Read more: http://www.time.com/time/magazine/article/0,9171,745617-1,00.html#ixzz0mCVOn8gO