Providing structure and confidence to a banking system is
vital to any emerging economy, and Oklahoma achieved that task in
its early days of statehood by enacting a first of its kind
deposit guarantee system.
The State Bank Guarantee Law of 1907 was the forerunner of
similar laws adopted by other states and came 26 years before the
Federal Deposit Insurance Corp. was formed in 1933.
The Oklahoma law is detailed in an article by Norbert R.
Mahnken, emeritus professor of history at Oklahoma State
University, in the spring issue of The Chronicles of Oklahoma,
published by the Oklahoma Historical Society.
Mahnken describes early day banking in Indian Territory and
later Oklahoma Territory as one in which merchants provided
private banking services because there were no laws to allow for
the formation of banks.
Expansion of federal and territorial laws near the turn of the
century set the stage for the enormous number of banks at
statehood _ 883, about half of which had begun in the previous 10
years. Oklahoma has 391 banks today.
One of the first laws enacted by the new State of Oklahoma was
the Bank Guarantee Law, which effectively insured deposits in
state-chartered banks. The law created the Bank Guarantee Fund,
administered by the State Banking Board, which assessed all
state-chartered banks 1 percent of their average deposits the
When banks failed, their assets were to be liquidated and
additional money as necessary taken from the guarantee fund to
pay off depositors. The bank commissioner could make an emergency
assessment of the banks to raise money if the fund did not have
In later years, when the number and size of bank failures
grew, the banking board was given authority to issue warrants to
be paid off during years with fewer failures.
At first, national banks in Oklahoma were allowed to join, but
the U.S. Comptroller of the Currency later prohibited them from
Oklahoma's law seemed to instill confidence in depositors.
Mahnken reported that deposits in national banks declined in 1908
while state banks had a 71 percent increase in deposits. State
banks saw another 68 percent jump in deposits in 1909. Oklahoma
by that time had 915 banks, including 694 holding state
A rash of failures from 1911 to 1913 _ due to speculative
practices and closer scrutiny by examiners _ weakened the
guarantee fund to the point of collapse when World War I provided
an economic boom and a temporary reprieve.
Then came the bust of the 1920s, which was much like the
economic collapse of the 1980s, with plunging commodity prices.
The state's mining industry took a nosedive. Agricultural
problems were made worse by an infestation of the boll weevil.
One hundred banks failed from 1920 to 1923. Most of them were
small and rural, but they took a significant toll on the
State leadership problems also arose about that time. One
state banking commissioner fled the state for months. Other
political problems _ like the possibility of martial law being
declared by Gov. Jack Walton _ took precedence over banking
The guarantee fund was abolished in 1923 amid "heated debate,
with inkwells thrown in the (state) House (of Representatives)
and an open battle prevented only by the sergeant of arms and his
helpers," according to Mahnken's report. …