The Cecil Whig. [volume] (Elkton, Md.) 1841-current, 1874-11-07
THE FUNCTIONS OF BANKING.

THE ENGLISH SYSTEM BETTER THAN THE
MISUNDERSTANDING THE RATE OF DIS
COUNT -BENEFICIAL RESULTS OF THIS
DEVICE.
Cor. Of ". Y. Tribune.
The admirers of American banking, !
think, may derive considerable benefit from
study of the English system; for while
the system is not perfect, it is so near per.
lection as to be in striking contrast to our
own. Banking is essentially the same the
world over; but the extent to which is
carried the habit of lending borrowed or
deposited money, is matter of the most
munity. Banks and bankers receive de-
posits of money upon the understanding
that these may be withdrawn at any moment
without notice; and, as experience has
shown that only a small portion will actually
be withdrawn, large portion is lent at
interest for stated periods, and sone is used
in buying securities that have ready sale.
If, therefore, from any cause, a large por-
ton of the deposits should be demanded at
once, suspension and failure must neces-
sarily ensue, unless there has been practiced
considerable conservation. Banking stimu-
lates business, and if carried on recklessly
and without due regard for the time when
deposits may be in general demand, encour-
ages speculation and the extension of bust
ness beyond proper and safe limits. In
justice to their depositors and to the whole
business community, bankers should keep
a fair reserve on hand, and have no right
to place the deposits in 90 Wild Cat adven-
lures, that may result in great gain and
therefore may prove disastrous. Some
failures last Fall, notably that of Jay
Cooke & Co., show a wonderful disregard
of the rights of depositors and of the
plainest principles of banking.
The financial tornado that burst upon
England with the failure of Overend, Cur
ney & Co., May 1, 1866, was met and
checked by the nerve and decision of the
Governor and Directors of the Bank of
England, in advancing at once and without
f1nching one half of it's reserve. l may
note here the words of the Governor, in
regard to the failure of that firm, as bear
ing upon our own banking habits: "The
downfall of Overend & Quincy, and of
many other houses, must be traced to the
policy which they adopted of paying inter-
est on deposits on call, while they were
themselves tempted to invest the money so
received in speculations in Ireland or in
America, or at the bottom of the sea,
where it was not available when moment
of pressure arrived" The policy of the
Bank of England in our panic of 1873 is
we'll remembered. Our decline of prices
attracted bullion in large quantities, and
to stop the flow the Bank advanced its dis
count rate steadily, week by week, until it
reached, we think, ten per cent, when the
drain ceased. There is never in England
enough money to do all the business, with
out drawing some from the Bank; hence
its movements have, necessarily, to be fol-
lowed by the other banking institutions,
they, however, keeping fraction per cent
get as much business as they can do. Of
course, the keeping of large reserve
means small dividends, and the stockhold-
ers of the Bank complain that other joint
stock banks depend upon it for aid in time
of need, while they lend more than so per
cent of their deposits at interest all the
time.
If our banks had the power to change
the rate of interest as selfshness or public
policy dictated, this power would be found
beneficial to all. Suppose the New York
Clearing house Association to meet once a
week and fix the discount rate for city banks,
its action would be followed in some mea-
sure by all country banks. An advance
would warn large operators throughout the
land and check wild adventures. At present
the illegal interest charge varies to the
keep lending at I per cent people say that
the high or low outside rate has reference
only to stock operations, and think it OF
no consequence to legitimate business.
! ty, those buyers who need it least drop off
| A second advance causes more loss OF
buyers, and the process of advancing be-
comes a sitting process, by which those
buyers only who need the commodity most
are left to purchase. Money may be con.
sidered a commodity, and the rate of in
terest its price. The same sitting process
may be applied. Last Fall, merchants who
could obtain discounts did so without need
ing them, merely because per cent was
| the only price and the money might posi-,
bly, be needed. If the price had been Ii
per cent much less m oney would have been
kept idle, and more left to meet the press
| ing engagements of those who could afford
| to pay this rate. The steady advance to
such figure would have gradually and
without shock caused a very beneficial cur
taiment of business, and made the panic
much less severe. Our currency being OF
definite amount and not used in other
countries, an advance of interest would
probably be not so effectual as the English
advances are found to be; but we may con-
clude that upon a specie basis such power
as the Bank of England possesses, if con-
ferred upon our banks, would operate to
check wild speculation, to sift out the less
needy borrowers, to attract money from
other countries, and to prevent, or ut least
cure, commercial crises.
|
BEECHER on PRAYER.