The workingman's advocate. [volume] (Chicago [Ill.]) 1864-1877, 1869-11-13

KRNFD.
(coHTINUED.)
In April, 1888, the State Of New York
kpassed . General Banking Law, allowing any
number Of individuals to associate together
and establish bank, provided they furnish
Ia capital Of not less than 800 900. To Sc
cure the public from loss by the issue OF
/ bank bills under this law, the banks deposit
1 with the Comptroller an amount in bonds
J and mortgages, or State stocks, equal to
/ the amount of bank-bills which they are
authorised to issue. The bills are then
! countersigned BY the Comptroller. VI any
: bank fail to redeem its bills, the Comptrol-
( Ter lie empowered 10 sell their bonds, and re-
deem the bills with the proceeds.
4 This mode Of supplying the public with
1 money Ia deemed by many q very safe one.
Still, during the first six or seven years in
which this new system was in operation,
tbir;y-fOur banks, failed, and did not redeem
their notes at par. Some paid only twenty
i've or thirty cents on the dollar. Others
paid per centage varying from thirty to
ninety four cents. OF forty banks closed
BY the Comptroller, only six redeemed their
1 circulation at par. At the time Of the
| COmptroller's sale of the securities given for
the redemption Of their bank-nOtes, the
\ forty banks had a circulation Of 81 ,233, 374
\ The circulation of the six banks of which
! the notes were finally redeemed at par by
the Comptroller amounted to $l20, 1923,
leaving balancekof tcirculation Of 81 49,
645, which was compromised at rates vary
ing from twenty-five to ninety -four cents on
the dollar. Doubtless a large amount of
these notes were bought up by brokers at a
much greater discount than that at which
they were eventually redeemed by the Comp
troller, so that the public lost probably from
$1,000 to $500, 900, besides the losses of
depositors which do not appear.
IL may be said that the securities placed
with the Comptroller were not the bonds OF
the State Of New York, but those or other
States (; that these States failed to paw their
interest, and consequently their bonds de-
preciated greatly below their par value, and
were not good security. True but at the
moment they were taken by the Comptroller
they were deemed good security for the re-.
dempton of the bank notes. Ii must be re.
membered, too, that in 1887 the bonds OIL
the State Of New Y Jrk, bearing an interest
Of six per cent, sold ut about thirty per
cent. below their par value. The securities
pledged with the Comptroller at the pre-
sent time are Of the same nature as thope
then pledged. IL the interest on money
should now rise as high as then obtained on
loans of bank notes, the bonds Of the State
would again depreciate as muHh az in 1887,
The same loss of confidence in the ability Of
the State to pay its debts would exist, be-
cause rates OF interest at two, three, and four
per cent. a month so rapidly increase the
Indebtedness Of the people, that their --ealth
is soon transferred to few capitalists, who
are enabled to control the rate of interest,
and consequently the market value of State
bonds and property. As long as money can
be obtained on good securities at six OF
seven per cent. interest per annum, the
bonds Of the State, bearing six per cent
interest, will command at least their par
value. But only so long as banks and CAPT
talists choose to keep the rate OF interest al
low as SIX or seven per cent, will these
State bonds continue cafe for the redemp-
ton Of the bank-billS.
We will now see by whom the security IT
this banking capital is furnished, and by
whom the interest upon it is paid. Ia order
to provide capital for bank, the individual
who desires to establish the institution must
buy State bonds to secure tie bank notes
which he intends to issue. He invests $780,
600 in bonds, on which the people pay him
SIX per cent. interest. Although bis money
is invested, yet he receives 100000 in
bank-notes, cOunterslgnel BY the Comp
troller, upon which be is authorised to
bank. Adding q few thousand dollars in
specie to his bank notes, he opens an Office
Of discount and deposit, loans out the
100000 in bank-notes, which be received
from the Comptroller, and perhaps $780,
900, or $l5O,000 more received from the
people in deposit, on which be pays no in
terest. He charges interest on all the money
be lends. If the people should call upon
him to redeem bis bank notes, and pay their
deposits in epecie, be would probably not
have more than 10000, 81, 1000, or $780,
900 in specie; and if there should be run
upon the bank, this would not meet the de-
mand for single day. The banker would
be compelled to suspend specie payments.
What would then secure the remaining in
debtedness Of the b1nk except the Endorsed
notes Of the people, and the State bond, for
which tile people are responsible ? The
banker ia not liable beyond the capital in-
vested. He lends his money on securities
furnished by the property Of others. The
object Of this Banking Law was the security
of the bank notes. This object, as we have
shown, has not been realized. The people
have not only lost 100000 or $500 900 by
the failure Of the banks to redeem their
notes, bat the depoSitors aiso have lot large
amounts. Deposits ia public banking in-
sLitution, ought to be as secure as the bank
notes circulated bot for this no provision
is made BY the law. Bsnk-rs, under the
sanction of the General banking Law, OBJ
tain inter est from the people on two or three
times more property than they actually own.
This Law, as also all other laES granting
banking privileges, creates fictitious capI.
tai for which the people are compelled to
pay interest i've or six times greater than
they can afford to pay for TeIl capital and at
the same time justly reward labor. 1t has
operated to enrich bankers and capitalists,
instead of operating for the benefit Of the
people
me-