The degree of stability that can be achieved by deposit guaranty applies to runs on banks rather than to financial crises. Crises depend upon more comprehensive causes than the confidence of depositors in their banks, and are brought about by such means as cyclical industrial movements, wars, earthquakes, rainfall, and so forth. Yet a favorite argument for deposit guaranty has been the prevention of panics. Panics are precipitated by want of bank "accommodation"; loans on which the maintenance of existing business or the completion of projected business depend, cannot be secured. Against such a situation, deposit guaranty offers no protection. If a bank has reached its legal limit of loans, the guaranty of deposits does not remove that limit. In fact, as will appear below, the deposit guaranty may cause overexpansion and speculation, and promote the development of industrial and financial panics. It does, however, prevent runs on banks, or at least make them less panicky, and may, therefore, prevent the closing of sound banks by runs and in this way add to the general credit stability.
Some of the most remarkable failures of guaranteed banks in Oklahoma scarcely disturbed the general business confidence. Depositors were quite indifferent about getting their deposits before the bank closed, and those withdrawn were immediately redeposited in other banks in the same city. Where deposit guaranty is in effect, the ordinary confusion and rush attending a bank failure are absent, for the depositors know that their deposits are safe and that no advantage is gained by hurried demand on the bank.