Academic journal article ABA Banking Journal

When Deposit Insurance Was Verboten

Academic journal article ABA Banking Journal

When Deposit Insurance Was Verboten

Article excerpt

The 1930s were a time of increasing government involvement in banking. Some of what developed has long since gone away. A good example was covered in the Journal's September 1933 cover story, "Banking by Code: Fair Competition in the Public Interest Has Long Been the Aim of American Banking." ABA President Francis Marion Law, president of Houston's First National Bank, traced steps that the industry itself had taken over time to promote fair competition. The occasion of this defense was passage of the National Recovery Act, part of the emergency legislation created to get the U.S. back on its feet.

[ILLUSTRATION OMITTED]

Later in the year, as published in the Journal's November edition, ABA negotiated a "Bankers Code of Fair Competition." Managing Editor William R. Kuhns, wrote:

"... the Code is the greatest opportunity banks have ever had to superintend their own business, to put into effect rules and practices that will make banking strong and to maintain banking service on a high plane. The result should be very helpful to recovery."

Probably the code's "greatest use and import," he noted, was in connection with the start of operations of the Federal Deposit Insurance Corporation on Jan. 1, 1934.

ABA and many bankers had opposed the foundation of federal deposit insurance, which some states had tried on their own. Kuhns summarized this longstanding opposition:

"Bankers have objected to the idea because it is not fair to depositors. …

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