Pay Off

Mayor Charles O'Brien of Peoria, Mayor W. O. Summerfield of East Peoria, Illinois' Representative Everett M. Dirksen and a thousand people crowded around the little Fond du Lac State Bank in East Peoria one morning last week. Inside, before the bank opened to the public, a scrawny bespectacled widow in a cotton dress marched up to a cage marked "CASH F. D. I. C. ORDERS HERE," posed for photographers. In her hand she held a check for $1,250, her life savings, which W. Kenneth Hayes behind the counter had just given her. "I don't know how to thank you men," grinned Mrs. Lydia Lobsiger.

Thus for the first time did the Federal Government begin paying off depositors in a closed bank under the Federal Deposit Insurance Law. Glutted with frozen paper on city real estate and business loans, the Fond du Lac State Bank closed late last May owing 1,789 depositors $241,412. A month ago its insured deposits were turned over to FDIC when the directors failed to agree on plans for a reorganization. Ninety-nine per cent of the depositors will be paid in full. Under the Temporary Insurance Plan (guaranteeing accounts of $2,500 or less), $125.000 of the bank's deposits are covered--less than 4 100th of 1% of the FDIC's present capital of $329,000,000.

Following the law, FDIC organized the Depositors National Bank of East Peoria to assume the insured deposit liabilities of the closed bank, receive new deposits, function temporarily. It will try to raise capital to reorganize the bank, return it to private management. If capital is not subscribed within two years, or if no merger with a solvent institution can be arranged, FDIC is authorized to place the new bank in voluntary liquidation, wind up its affairs. East Peoria, whose Caterpillar Tractor Co. foundry was last week closed down to prevent warfare between workers and strike pickets, has not suffered unduly from Depression. But once before, in 1927, the bank was forced to close temporarily when the cashier's accounts were short $192,000--more than 75% of the total deposits at the time. The stock-holders made up the deficit, sent the cashier to jail, reopened the bank in 37 days.

In Washington last week the regular weekly report of the Federal Reserve System revealed that its twelve member banks had written off their holdings of $139,299,000 in FDIC stock. The Federal Reserve had apparently decided that the stock could not be carried as an asset on its face value because: 1) the member banks were merely holding it for the U. S. Treasury; 2) it was subject to continual reduction through FDIC payments to depositors in closed banks. If the Federal Reserve surplus (currently $138,000,000) should be exhausted by loans under the direct loans to industry, then it may apply to the Treasury for the return of the funds it invested in FDIC.

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