The New York herald., 1873-11-29
THE CURRENCY.
Comptroller Knox On the Ma
tiOnaI Bank Reserve.
GOVERNMENT CERTIFICATES
No Other Change in the Currency Act
Recommended.

HEsALn;-
The advocates OF free banking law are also ad-
yocates OF the repeal OF the chief restrictions
the National Currency act, and particularly OF the
proyision which requires the keeping OF q certain
amount o. money ls, as , reserve rye against liao
managers OF the banks are the best
judges OF the amount Of money to be
loaned ana the amount TO be held on hand for
the protection OF their creditors, and not the
Legislature which enacts the law or the oflcer
who executes it that the government should be
careful to protect the bill holder from loss, but the
depositor or other creditor may safely he allowed
10 protect himself. They further maintain that
commodations. to legitimate business interests,
which, consequently, sufIer on account OF
instances this may be true, but such
laws are not passed SO much for the benefit Of
those persons VINO conduct their business on
sound principles as for that class or association OF
persons which has but little experience in the
method or transaoSng legitimate business. II the
law be correct IN principle il win be found not TO
interfere with the rights OF those persons who un-
deYstand she true theory OF business, but it's ten
sency win be 70 prevent abuses on the part OF
prudent and careful man would avoid.
Any ASSOCIATION OF persons may organize bank
nnder the provisions OF the National Currency
II private citizens wish to transact business IN
accordance with their own Judgment they can
avail themselves o. me privilege by conducting
game corporations under an act OF Congress
which imposes restrictions designed for the
public good, who shall object The privi-
iege is open to both and each can decide without
prejudice or hindrance A private bahker s0lcits
anu obtaius business on the strength OF his good
name, and it is well understood that the finds
placed IN his hands are 10 be used at his discretion.
the oepositors relying upon his business sagacity
and Judgment; but Ii corporations desire TO organ
tze under the authority and seal OF great nation
care should be exercised that the authority obtained
shah not be abused.
IL is said that the restriction in reference to re-
serve should be removed from circulation, for the
reason that the circulation is already sale beyond
q peradventure. This is undoubtedly true, Tor the
security OF the circulation rests not alone upon
She bonds which are deposited, but also upon the
total assets OF the bank the personal liability Of
the shareholders, and, finally upon the guarantee
Of the government that in any event the face
Gi the note shall be paid. The absolute certainty
OF the iuli payment OF the notes Is therefore
assured But the question Is not whether a reserve
shall be held which shall insure the payment merely
Oi the note, for that Is unnecessary, but what
amount OF reserve shall he held by the banks to in
sure the prompt payment OF all their liabilities
The percentage of reserve could be fixed relatively
TO the capital II the amount OF the liabilities were
IN all cases proportlOnate to the amount OF capital
which, as is well known, is not the case The ques-
Non is NOT what percentage should be held upon
capital upon deposits, or upon circulation. but
what amount OF reserve should be held 10 proteCt
the demand liabilities OF the bank, and the experl
ence OF years alone can determine that proportion.
The National Currency act requires that the
country banks shall hold six per cent the redemp-
banks 2b per cent OF their liabilities in cash. max
ing an aggregate OF cash reserve OF from l3 to
per cent Tne balance OF the reserve required to
be held by the country banks may be on deposit
with the banks in the redemption cities: and the
balances in the redemption cities may be on de-
post IN the city OF New York.
THESE large accumulations in the redemption
cities and IN the banks Of the city OF New York
are, to large extent, invested in call loans. the
banks IN the redemption cities and in the city OF
New York having no resource like the joint stock
penks o. England into which to place their surplus
markets oil the world into c0ip if occasion shall
qnlre and II can hardly be doubted that II the
sessed In ca loans By their ety
had peen invested in funds convertible into cash
upon demand during the late panic, the disastrous
results would have been largely avoided.
Tpe CRISIS was caused in great degree by the
sdehire OF the country banks TO withdraw their
balances from the city banks first, because in the
month OF September the amount on deposit with
the city banks was needed for the legitimate pUr-
poses OF trade; and secondly because the country
banks, foreseeng and fearing the return OF the ex
perlence OF previous years. thongnt II safer TO with
Draw their balances at once. When the reserves or
the city banks became alarmingly reduced by the
drafts OF their country correspondents, the only
resource left to the city banks was to convert their
eau ioans amounting 10 some Soo.ooo, ooo; bat
associated banks, and the latter found the next
morning at the Clearing House that. although a
portion OF their liabilities had been reduced by the
payment OF call loans, they were in the aggregate
no richer in currency than on the previous day.
Ssp1y s9spsnslSa Sapss Sss s s
.anS6ssed in government certificates, the drafts
upon the city banks would have been proportion
ately less and the surplus Juno OF the city banks
had likewise been held in such certificates the
avails OF such certificates would have been quietly
Withdrawn from the Treasury and the banks
would have found themselves possessed of ready
means with which to supply the demands OF their
dealers.
facilitate the withdrawal OF legal tender notes for
speculative purposes but the Assistant Treasurer
In New York could hardly fail TO be advised of the
deposit OF large amounts OF money with himself for
ulegltlmate purposes, and provision OF law
similar to the one already in force, ioreiting the
amount Of money on deposit and directing the
prosecution OF such offenders, would enectually
prevent such transactions
The same certificates could also be issued to a
large extent as safe investment for laboring men
end Others requiring a safe investment for earn
fngs IL such certificates were issued in amounts
of 500 they would at once be recognized as the
safest possible temporary investment ana the
government would soon ascertain by experience
what proportions OF such certificates could be
safely invested in the six per cent bonds oil the
United States, thus saving the interest upon the
1nnds in which the earnings OF the laboring man
were invested, and comforting permanent benefit
upon its humblest citizens.
The rule requiring reserve was adopted by the
voluntary action OF the Clearing House Association
Of the city OF New York previous TO the passage OF
the National Currency act. At meeting of bank
ocers representing AZ OF the 40 banks or the city
Of New York, held at the rooms OF the Clearing
House Association in March. 1865 IL was agreed
ITO keep on hand at all times an amount Of coin
equivalent to not less than go per cent Of net
deposits OF every kind which shall be made to In
clude certified checks and other liabilities, except
circulating notes. deducting the daily exchanges
received from the Clearing House.n
Ths resolution was adopted five years previous
70 the passage OF the National Currency act, and
ts pnraseology Is not unlike the provisions OF that
MI III reference TO reserves to be held by the
nauonal banks OF New York city. The resolution
0lu not provide for reserve on circulation for the
reason tnat the circulation OF the city banks was
81 tnat time redeemabe at par in coin, so that no
action was necessary In respect to the reserve to
be held upon circulating notes.
FROM that time 10 the passage OF the National
Currency act the resolution was generaly or
served, and since the passage OF the act neither
the New YORK Clearing House Association nor the
Clearing House Association OF any city has rel
quested the repeal OF such restrictions. on the
contrary. the New York association has repeatedly
refused TO modify the rule by agreeing that ma
tional bank notes, which by the law can 6e used in
payment OF debts to each other, may be SO en-.
pl0yed.
The National Currency act requires that the ma.
tional banks "shal at all times have on handD the
reserve required In lawful money, and the advo.
Gates OF repeal OF the reserve laws insist that
under this provision, the national banks are aoso
lutey prohibited from using these reserves at any
tune. The provision requiring that Reserve shall
be keps ON hand at all times was intended TO pro
tect the deposit0r, and to keep the bank In funds
ieI the purpose OF responding to the demands o
evident