100 years of ABA Banking Journal.

2008 marks the 100th anniversary of ABA Banking Journal. On our mast-head you will see the rarely seen "Vol. C"-the Roman designation for 100, in case you've forgotten your Roman numerals.

The very first issue was actually in July 1908, but for our centennial year we will be

This section will highlight items of interest from the magazine's archives, particularly those that have a direct connection with a current practice or issue. You may find it hard to believe, but quite a few topics remain relevant, and, occasionally, are still being debated 100 years later. As a matter of fact, if it weren't for differences in writing style and references to technology, some passages could be run now and prove useful.

This first column is a little shy on illustration. In its first few years the publication accepted no ads and used photos sparingly. In future columns we'll highlight ads as well as articles, for they are an important part of our-and the industry's--history.

"Unmorality" of a deposit guaranty

One notable contrast between 1908 and now are the views about deposit insurance. The first issue of the Journal of the American Bankers' Association, as we were then known, contained an essay entitled: "Guaranteeing Bank Deposits. In Other Words, 'Robbing Peter To Pay Paul'," which gives you a pretty good clue as to the author's sentiments. The author was a Prof. J. Laurence Laughlin of the University of Chicago. A few excerpts give the flavor of the times:

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"There is no more justice in laying the depositor's losses, for which he is not responsible, upon others who are, also, not responsible for the losses, than it would be for A, who has been robbed by B, to ask that his honest neighbor C should be robbed to make up for his loss .... Similarly, the honest and efficient banks cannot in justice be asked to make up to a depositor in a failed bank losses for which the honest and efficient banks had no responsibility whatsoever.... It is unmoral."

The essay continues with these observations about the effects of a deposit guaranty on human nature in the form of bank lending:

"Every conceivable reward should exist to bring pressure on a banker to have courage in declining questionable loans. The moment such pressure is removed, the opportunity is enlarged for taking on assets, which, at first emergency, will crumple in value, and leave the depositors unsecured....

The result of such a [deposit] guaranty would, in my opinion, tend to put a premium on the 'popular' and 'obliging' banker, as against the careful and judicious banker...."

Pretty strong stuff for a first issue. The following month, the subject came up again. In this case the Hon. Leslie M. Shaw of New York, former Secretary of the Treasury, opined vigorously against the notion of a government guarantee. However, he did write that it would be feasible for a guarantee company of large capitalization.

It would be nearly 30 years before the exigencies of the Great Depression overcame the resistance to deposit guarantees.

Now, of course, FDIC insurance is a foundation block of U.S. banking. Arguments about it have moved away from moral hazard (which has proven to be a real issue at times) to what the proper premium assessment should be, as outlined by the FDIC Reform Act of 2005. It is also interesting to read the 1908 comments-particularly those of Laughlin-in light of today's subprime mortgage crisis.

"C Notes": Tidbits from BJ's Issue No. 1

* The ABA had a Savings Bank Section in 1908, which "showed a steady increase in membership." Fast forward 100 years and we come full circle with the just-completed merger of the ABA and America's Community Bankers, the successor organization to several savings institution groups.

* Plans were in place for the ABA's Annual Convention in October at the Brown Palace Hotel in Denver. The "literary" part of the program was to include an address from the president of Princeton University, one Woodrow Wilson.

* A brief note reported that the Federal Legislative Committee "have considered some ninety different bills which they have in their possession ... pertaining to banking interests." Today's count? Don't ask.

* A regular item in the early years was a list of visitors to the ABA's offices which "being so centrally located in the financial district--corner Nassau and Pine Streets--make a very convenient place for members and their friends to meet when in New York." The ABA didn't move to Washington until 1971. Members could make use of the association's stenographers and could have their mail and telegrams sent in care of the office. "The Association teLephone is also at their service."