Money on Relief

For five and a half years Federal Deposit Insurance Corp. has guaranteed U. S. bank depositors against loss on deposits up to $5,000. Meanwhile, deposits of commercial banks have increased from $39,562,000,000 to $51,355,000,000 and U. S. bankers have sweated trying to make the billions earn money. Stagnant business and stagnant real estate have reduced the wage that a banker's dollars can earn. To keep them from becoming unemployed he has had to hire more & more of them to the Government. Today all banks have 30% of their total deposits on "relief"--hired out to the Government at a bare subsistence wage.

No pleasant picture of dollars on relief was the annual report last fortnight of Federal Deposit Insurance Corp. Chairman Leo T. Crowley. FDIC's own figures looked good enough at first glance. In five years the corporation has had to pay out $21,000,000 to cover expenses and to make good average losses of 16% of the deposits of 252 insured banks that closed or were taken over. Meantime FDIC has taken in $167,400,000 ($124,200,000 of it from 1/2 of 1% assessments on bank deposits, $43,200,000 from its investments and profits). Result: FDIC has a surplus of $131,244,960, of which $36,043,673 was added last year.

But this surplus is no comfort to Chairman Crowley. He wrote an indictment of the present state of the U. S. banking business: for 75 years the ratio of bank capital to assets and to deposits has declined. Now the number of banker-owned dollars which protect the public's deposit dollars is at a new low--about $13 to $100.

Naming no names, Bank Overseer Crowley let off a blast against the things he believes are responsible for this condition: against the views of Federal Reserve Chairman Marriner Eccles that bank credit and investment policies should be liberalized to suit Administration policy; against banks which have increased dividends (from $187,595,000 in 1934 to $221,904,000 in 1937-38) faster than earnings warranted. In December 1934 when commercial banks' deposits amounted to $38,996,340,000, capital stood at $6,151,567,000. At the end of last year when de posits had increased to $44,991,693,000 bank capital stood at only $5,484,203,000.

None of this need worry depositors whose accounts are guaranteed by FDIC. But it is plenty to worry FDIC, which will have to make good future losses; something to worry the Government which is morally obligated to keep FDIC from ever going bust; something to worry business which has to support the Government.

Certainly no new capital is now going willingly into the banking business, which can hardly earn a living at present interest rates. Chairman Crowley proposed to prepare against future crises by boosting its rate of assessment against insured bank deposits. This would of course further reduce bank earnings, further reduce the chances of getting any new capital into the banking business.

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