Anchor

In the booming 'twenties it was normal for 600 banks to fail per year. In 1930, after a year of depression the figure vaulted to 1,350. Last week the present depression had been going only six months. But in that time business generally had fallen as far as it did in the entire year after the 1929 market smash. Significant therefore was the year-end report made by Federal Deposit Insurance Corp. last week.

In headline form the news looked bad--not only had bank failures in the last six months of 1937 almost doubled but in that period FDIC's earnings failed for the first time to cover its operating expenses. This did not reflect two important facts, however: 1) for the whole year FDIC earnings exceeded expenses by $1,000,000; 2) FDIC does not consider as earnings the assessments paid by insured banks. Besides its $1,000,000 net earnings on operations it collected $38,800.000 of such assessments in 1937. Last week FDIC's white-shocked Chairman Leo Thomas Crowley was pleased with his year's handiwork. Popping up in Baton Rouge before the Louisiana Bankers Conference, he declared: "We both have sizable sums wagered on the ability of American banks to live down the unsavory aspects of their past record and to begin a long era of sound and profitable operation."

The total assets which FDIC has in hand to wager amount to some $385,000,000, of which about a fifth has come from assessments (one twelfth of 1% per annum of total deposits) on those 13,800 U. S. banks which are now insured. In case of another crisis such as 1933, the FDIC could issue its bonds, notes or debentures to a total in one year of $975,000,000. Thus FDIC has or can raise a maximum of a billion and a quarter dollars as an anchor to windward for some 20 billion in deposits. Whether the anchor would hold in the face of a real banking storm even Leo Crowley does not care to assert, but in the 179 bank failures since FDIC began (nine in 1934, 26 in 1935, 68 in 1936, 28 in the first half of 1937, 48 in the second half), FDIC has paid out $44,000,000 to depositors, recovered 75% of it by liquidating the assets of the insolvent banks.

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