New-York tribune., 1874-05-08
pFPJLOUS FINANCIAL SURGERY.

|
gained
| PFRILOUS FIN1NCIAL SURGERY.
There appears to be prevalent impression
that if the law did not require the National
banks to keep reserve no reserve would be
kent. This is an entire mistake. Banks keep
q reserve of cash, or what passes for cash,
because they have large outstanding debts
which they have agcecd to pay in cash on de-
mand. The provision in the National Bank
act recurring ut all times fixed percentage
of the liabilities to be kept in greenbacks as Il
reserve, is an absurdity. 1t is essential to the
utility of banking that the reserve, and the
whole reserve, should be at the service of the
bank. Last September it became necessary
| for the banks to use their reserves, and they
did use them in spite of the law. The re-
moval of the legal requirement does not IN
! the slightest degree affect the vicissitudes of
business and credit which make the mainte-
nance of a reserve or in other words OF stock
of money, essential to the very existence OF a
| bank
| The great defect of banking in the United
! States. rs it has been carried on for the last
| fifty years, is that the reserves kept in Ordi-
nary times are not large enough. The conse-
ouence has been that in extraordinary times
the banks have invariably been forced to sus-
pend payment. We fully agree, however, with
those who maintain that public opinion, and
the obvious interest which every bank has in
maintaining not only its credit but its very
existence, will insure the maintenance of an
adequate reserve quite az effectually as any
provision of law. The law should require, at
least in the cities, the publication of weekly
statements, such as are now issued by the
New York banks and the great banks of En-
gland and France. in order that the public
NAV iudge of the degree of security afforded,
the probable course Of the money market, &C.
After this, the banks and those who have deal
ings with them may be left to act on their
own Judgment and at their own risk. The
Senate Finance Committees latest bill par
tally repeals the requirement of a reserve
against circulation but leaves undisturbed that
for the protection Of depositOrs, but with this
essential change-that henceforth no part of
the required reserve of country banks shall be
kept in banks of the redemption cities, and no
part of the reserve of banks in redemption
cities shall be kept in Newly ork.
The meaning of these new restrictions may
be better understood by an analysis of some
statistics given in the last published report of
the condition of the National banks on the
9th of February. At that date the outstand-
ing circulation of 1,7i9 country banks was
$685., 900, for which the reserve required
by the new bill is five per cent, consisting of
legal-tender notes deposited in the United
States Treasury, being $11,750,0O0. The same
banks held $274,0O0.O00 in deposits, for which
q,
sisting of specie or legal-tender notes kept in
their own own vaults, being $41,1OO,OOO. But
the fifteen per cent required Is not an aver
age sum, but minimum, below which
the reserve cannot fall without subjecting the
banks to tho inconvenience, if we suppose
tho law is to be obeyed, of ceasing to dis
count. We must therefore increase the aver
age sum in specie and legal-tender notes to
be kept in the vaults of this class of banks to
at least $5OO000OO, making total of $61 75O, 900
to be obtained by these banks and kept rs o
reserve against their circulation and deposits.
Now the total amount of specie and legal
tenders held by them at tho end Of February
was only $46,50O,0O0. They would therefore be
required to withdraw 900 Of the amount
they had deposited in redemption cities.
The redemption city banks would be much
more seriously affected. Their circulation is
S76,OOO,OOO, of which five per cent is $3,SOOOOO.
Their deposits, after dcducting $4,000, 900
withdrawn by the country banks, would be
S1S5, 100000, of which 25 per cent would be
$46,25O,OO0. But this being q minimum, we
may estimate $60,OO0,OOO as the average re-
serve to be kept on the suDpostion that the
proposed law is to be obeyed. The banks of
this class would, therefore, have to furnish
Sl5,0OO,000 for the country banks, $3,sOO,OOO
for the United States Treasury, as reserve
against circulation, and S6OOOO,OOO for their
average reserve against deposits; being in all
$7S,SOOOOO. They actually held less than
S37,OOOoOO in specie and legal tender. The
rest they would be compelled to withdraw
from New-York, where they had $3i,OOO,OOo TO
their credit. and from those to whom they
had made loans. At this point we find bust
ness obstructed, aud severe and usoloss con.