For much of Indian Territory’s existence, banks were unheard of in the Indian nations. One reason was that cash was often scarce, and residents of the Territory relied on the barter system or lived on credit until the crops came in or a government payment was disbursed. These funds were then turned over to the local mercantile to pay off the debt that had accumulated during the growing season.
Because of this, merchants often took on the role of banker in Indian Territory’s early towns. The mercantiles provided banking services to the cattlemen, farmers and other settlers in the area. At first, they simply allowed people to store cash in their safes since lawlessness and theft was always a problem.
Then the merchants began to offer loans, accepted deposits and kept records of accounts, and even made payments for individuals on their own checks. Some merchants, such as Homer Spaulding in Muskogee and C.E. Foley in Eufaula, even issued their own currency called “scrip.” It was used primarily to purchase goods in the issuing store, but other people around town would accept it for payments as well.
There were no legal means to establish a bank in Indian Territory until 1890, but in that year towns such as Muskogee, Ardmore, McAlester and Tahlequah saw national banks established. This became possible because Congress extended existing banking laws to Indian Territory and Oklahoma Territory that year. Banks in Oklahoma Territory were as scarce and loosely managed as the Indian Territory banks.
A financial panic in 1893 caused many depositors to lose their funds, causing a distrust of banks in the Twin Territories. The difficulties of the 1893 Panic were still on the minds of bankers and politicians as the Twin Territories approached statehood. Then in October 1907, another banking panic occurred just before statehood. Everyone said something needed to be done to protect depositors’ money.
Addressing this need was a high priority for Charles Haskell after he was sworn in as Oklahoma’s first governor. Calling for laws that would protect depositors, Haskell pushed for a general banking bill from the state legislature. It was called the Oklahoma Bank Guarantee Law. This law created a Bank Guaranty Fund which consisted of a levy of 1 percent of average daily deposits from state banks.
In the next few years, as banks failed or were closed, the Bank Guaranty Fund ensured that no depositor lost a dollar. The Bank Guaranty Fund only continued until 1923, but it would serve as a model for other states and eventually for similar federal legislation.
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