Lastly, in connection with the general safeguarding of the credit extended by the state banks a word must be said about deposit guarantees. A few of the states have introduced measures involving the mutual guarantee, or what is called "insurance," of bank deposits. Such schemes involve contributions by each bank, in proportion to total deposit liabilities, to a fund administered by state authorities and used to pay depositors of failed banks where the liquidation of the assets does not permit payment in full. Deposit-guarantee schemes are not, however, sufficiently common to warrant reference to them as a characteristic feature of state banking control.

In addition to the seventy-five hundred national banks and eighteen thousand state banks and trust companies there are scattered over the United States a large number of private bankers. One type of private banker is found among the unassimilated alien populations of our larger cities. The foreigner unable to speak English prefers to intrust to one of his own countrymen such banking business as he needs to have transacted. This has been especially true of the Russian-Jewish and of the Italian immigrants in large cities like New York. These bankers coupled with their banking business the selling of steamship tickets, money changing, and a retail foreign exchange business. In a distressing number of cases they proved to be unvarnished villains, defrauding mercilessly their ignorant cornpatriots. But they have latterly been subjected to wholesome regulation in the states where they were at all numerous, and many of them, especially in New York City, have been completely driven out of business. As a class, however, they have been an insignificant factor in the whole banking situation.

Examinations

Guarantee of deposits

Private bankers

Much more important have been the large investment banking firms like J. P. Morgan & Co., Kuhn, Loeb & Co., Speyer & Co., and similar firms. While these firms are primarily in the investment banking field, they have been an important factor in the "money market" through the carrying of active accounts for their clients, through their operations in the security markets, through their control of some of the largest banks, and through their extensive operations in the field of international exchange. They come only to a slight extent under governmental supervision, and it must be said that strictly as bankers little criticism is ever leveled at them.

Lastly, a word must be said about commercial-paper brokers. Under our system of numerous independent banks many businesses outgrew the possibilities of the banking facilities of their own localities. Hence large firms had to go elsewhere. This coupled with the widespread use of single-name paper supplied the logical basis for the development of the commercial-paper brokerage business. Commercial-paper brokers handle the paper of large firms, selling it on a commission basis to banks all over the country. To a certain extent they thus assist the free flow of bank credit. They rarely indorse paper they sell, but the successful carrying on of their business requires them to examine carefully the paper of their clients, and to a certain degree to stand sponsor for it. There have been, however, a number of colossal failures, in which, through their purchase of paper from brokers, banks all over the country were involved.

It is thus apparent that up to the establishment of the Federal Reserve System there was in the United States no banking "system" in a real sense. We had simply a congeries of scattered banking elements connected socially perhaps through membership in the American Bankers Association, but virtually isolated in a business sense except for loose voluntary arrangements within narrow limits for exchange, collection, and occasional lending purposes. The shortcomings of this system were pointedly set forth in the Report of the National Monetary Commission. This report enumerated 17 serious criticisms to which brief consideration will now be given.

Investment bankers

Commercial paper brokers