In periods of depression and panic in the Middle West, high losses by bank depositors have occasioned legislative movements for their protection. Out of the panic of 1907 arose various plans for the guaranty of deposits, and in 1908 Oklahoma enacted a compulsory system of mutual guaranty, which was followed by guaranty legislation in the Dakotas, Nebraska, Kansas, Texas, Mississippi, and Washington. The plans so far tried are four in number:
1. Voluntary state-supervised associations of banks which collectively guarantee the deposits of the members and pay the depositors of a failed member out of a fund subscribed to by the members in proportion to their average guaranteed deposits.
2. State-wide compulsory systems requiring all state banks to pay regular and occasionally extra assessments, determined by the amount of defaulted deposits and proportional to the average guaranteed deposits of the assessed banks.
4. A system whereby some insurance or casualty company enters into contracts with the several banks to insure the depositors of those banks against loss; the premium paid by such banks to the insuring company varying, of course, with the respective bank according to the factors of risk, such as management, policy, location, financial record, and so forth. For the most part deposits are a bad form of risk, are not actuarially predictable, and require too constant supervision by the insuring company. Only two companies are known to the author that handle such insurance at present. This form of guaranty is entirely independent of state action.