Argument in favor of guaranteeing deposits has been on political, moral, social, and economic grounds. The political (largely partizan) arguments may be waived, except to remark that if deposit guaranty brings greater economic and financial and therefore political stability it may be very desirable in our country, where things economic and financial unfortunately are only too often turned to bad uses by politicians. The moral obligation of a banker to pay depositors is unquestioned, but the standing policy of our bankrupt laws is to excuse the legal obligation under certain warrantable conditions; the guaranty of creditors of a banker by the state must rest, therefore, on exceptional reasons.
One such argument frequently used in favor of guaranteeing deposits is that banks are created (chartered) by the state and entrusted with great public functions, such as the issue of currency and the keeping and transfer of public funds, and that the state, in consequence of its rigid supervision of banks, clothes them with a fictitious credit and by implication warrants the public against abuse of bank credit extensions. In contravention of this argument for particularizing the guaranty of bank creditors, it may be said that government supervision does not necessarily imply a guaranty of the credit of the supervised institution, a fact which the public may be presumed to know. Moreover all corporations - not banks alone - are created by the state, and many corporations other than banks are clothed with that credit which springs from government supervision, and are endowed with such powers as make them public utilities. Furthermore the government itself takes precautions to guard any funds it may place with the banks.
On the other hand, there is in all probability no corporate activity whose soundness and stability so permeate and affect the financial, economic, and social situation as does banking. A panic halts everything and brings about unrest; and because deposit credit is so important in our national life, because government supervisors and examiners cannot fully guard against fraud, dishonesty, and poor judgment of bankers, and because depositors lack ability to pick sound banks or place their funds elsewhere and are helpless to protect themselves, the state may be justified in going further than simply to supervise; it may actually guarantee the deposits.