, 1873-10-08


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INTEREST ON DEp0s1TH.
We print elsewhere an extract from Afr. Dage-
hota book OIL "Iombarl Street" which ro-
counts tito proceedings ut mootlng Of tho pro-
prietorB Of tho Dark Of England, held shortly
aftor tho London panic Of 1866. This meoting
was called ostoneibly for tho purpose Of deolar-
ing tho half- yearly dividend, but tho chief point
Of interoat WAS the discussion of tho oxpedionoy
Of paying interest on deposits. It had novcr
boon tho practico OF the Bank OF England to pay
interest on deposits, but thoro WIS no forma1
ru1o prohibiting It, At this meeting, Mr..
Moxon, ono OF tho propriotors, submitted
q proposition that tho Bank should hence
forth pay intoroBt OH dopoalts, giving Us reason
for change Of policy in this respect that tho
Bank was foregoing largo profits which 1t might
otherwise enjoy. In reply, tho Governor of tho
Bank declared that moro dangerous innovation
could not be made. ''Tho downfall OF 0verond
l. durney, aud Of many other houaos," ho said,
''must 10 traced to tho policy which thoy adopt
ell Of paying interest on deposits at call, while
thoy were themselves tempted to invest tho
money so received in spoculations in Ire
land or in America, or at tho bot
tom Of tho Hea, where 1t waB not avail
ablo when moment Of pressure arrived" Tho
united sentiment Of tho mocting, with the o1-
ccption of tho gentleman who proposed tho
innovation, concurrod with that OF tho Cover
nor. and the question MAS not even put to d vote
for luck Of soconder to the motion.
There is no doubt that the policy of paying no
interoat on doposits-which has never been de-
parted from by tho Bank OF England-has en-
ablod 1t to rideover tho financial storms in which
the largest private banking institutions Of Lon
don that 1ave taken the opposite tack have boon
wrecked. It iB truo in America as vol as Eng
land, that the practice Of paying interest on
call loans attracts largo line Of deposits
from country banks aud the small
or financial Institutions in dull times.
10 make these intorost-bearing deposits
profitable, 1t is necessary for bank to aook
wider latitude OF investment than It would other
wise be Obliged to risk. II commercial .papor
does not offer in sufficient quantity, 1t must ad-
vance to stook-brokors, or railroad bonds, and in
their capital employed. Whenoyor trade do
manda it. or whenever monetary stringenoy s
brought about, these call deposits are called in.
Invested In class Of securities that arc not in
Btantly convertible, the banks that carry tho
largo line Of deposits, attracted by tho paymont
OF interest, arc the first to 60 by tho board,
They find Themselves unable to meet tic de-
mandH made upon thom, and arc forced to suB-
pond. It Was tho practice Of paying interest on
call deposits that compelled the Union National
aud the Third National Banks Of this city to
close their doors. It is tho samo practice which
has placed dozen Now York banks In q virtual
state Of suspension, alnco thoy do not pay in
currency tho deposits which arc demanded.
So fur "a private bankers arc concerned, this
lesson Ia ono for their own consideration and
that OF their customers who ace 1t to do buBi-
neas on thls basis. With the National Banks
this Is another mattor. There is q necessity that
tho National Currency act should bo 80 amended
as to prohibit tho National Banks from paying
interest on deposits. Tho National Banks
aro quasi protogoa Of tho Govern
nent. AZ suoh, they command addi-
tional confidence among tho people, and it
is the duty OF tho Government to hodge them in
with such restrictions as the common considera-
tions Of safety euggost. A prohibition Of tho
paymeut Of intorost on call deposits is one Of
these. II the country banks, in idlo tlmos, de-
sire to take interest on deposits from Jay Cooke,
who invests their money in moonshine railroads, or
from Henry Clowa, who raos it to holp Wlll street
brokers kite stocks and bring on q panic, 1t ia
their own affair. But If tho Government UNDER
takes to intorforo with banking at all, It should
provide that tho institutions doing business un-
dor It's protection should not jooparlizo tho
funds Of I'LL dopositors by paying intarost on .
largo line Of Gull loans, which may force thom to
suspend at any time when thoro is an unusual
Rtringenoy in tho money market.