Nashville union and American. [volume] (Nashville, Tenn.) 1853-1862, 1857-09-23
From the NeV York Post Of Wednesday.
FLUCTUATIONS IN BANK LOANS-A CHIEF
CAUSE

The chief cause of sudden and excessive fluctua-
ton in our city bank loans is traceabe to the pay
ment of interest deposits. At certain seasons of
the year, money ,,aecumulates in the country mar
kes, where there is call for its transient use The
rivalry Ofthe banking business in New York induces
the offer Of interest balances and the aggregate
amount which city banks have in this
way from the country, sometimes reaches twenty or
more millions Of dollars, which they pay an
average rate Of four per cent. interest. This being
subject to daily draft is loaned out son call and
mostly on livestock exchange at six or seven per cent
When the country banks want use their balances,
they draw without notice, and then comes the ne
cesslty Tor the city banks to call in their transient
loans.
But this is not all. Country Bank officers have
learned to be very shrewd at a bargain. They Of
ten make the right to OUerdrQr one of the conditions
OF keeping an account with city bank. Some of
the new banks especially offered this bait as well
as higher rate of interest," TO induce them TO leave
their old correspondents; and they are now under
obligations to allow overdrafts, which in the pres
ent stale of the market, must be at the expense of
their home dealers We know of a recent instance
Of Connecticut cashier changing his account, be-
cause he was offered five per cent interest his cur
rent balances, with the right to overdraw to the
extent Of fifty thousand dollars.
1t Is then, not only the balance of twenty millions
that Is subject to immediate check, but as many
millions more as may be added by this privilege of
oyerdraWlng. The result is that the huctuatiOn of
the whole country, as far as our foreign band &C
count goes, is thrown upon New York. The heavy
balances of other cities and of towns in every State
IN the Union, added TO this mass Here is the
ground work Of much mischief in our banking sys-
tenn 1t is one of the direct causes of loss embar-
rassment and depreciation of property under which
we are now offering. The sudden contraction of
loans, necessarily following the reduction of de-
posts, has created panic, destroyed confidence, and
made negotiation impossible.
The stock exchange comes in as the chief instru-
ment Of cur commercial misfortunes on this head.
1t Is there only that the banks and the securities on
whcich they are willing to make their demand loans
Our merchants get but small proportion oft hav-
ing only commercial paper to offer collateral and
this IS not Immediately convertible into cash in all
states Of the market. But there smore speciousness
than truth in the assumption that it is the stock ex
change, and not commerce. that pays the loan when
It IS suddenly called in, for the stated discount line
follows the market, rising and falling with it though
at little interval Of time The Banks consider il
safe to keepa certain contingent resource in this
shape If this is used up on one day, the discount
line falls, that it may be renewed possible.
1t is therefore faacy to suppose that the REGAL of
loans from the stock exchange does not effect COM
merce.
The only cure for this evil is to abolish demand
loans; and the only way to get rid of demand loans
Is to cease paying interest on deposits.