Los Angeles daily herald., 1875-08-28
The Financial Situation.

y
bank of the Pacific coast has closed its
doors; closed them, no doubt, upon an
empty vault, and as was to be expect
ed the excitement engendered by the
startling intelligence caused all the
banks in the metropolis to temporarily
suspend business, though the prospect
is now brighter The Bank of Cali
fornia has been regarded as the safest
depository in existence, and the high
repute of its president, together with
the exaggerated public opinion as to
the mammoth operations and wonder
full resources of the institution, only
served to intensity the distrust. A
money panic is the most absurd of all
popular follies, but at the same time
the most irresistible. Philosophise as
we may, when confidence in the finan-
cial institutions of a city or country
has been once shaken, the most pro-
found wisdom cannot always avert the
evil consequences of run upon the
banks. Our dispatches afford faint
idea of the rush yesterday morning.
The reopening of most of the banks
leads to the hope that the excitement
has not reached point beyond all
control, and that to save themselves
from complete wreck the bank Off
cials have resorted to a desperate REM
edy-a remedy which is of a very
doubtful character, and which does
not seem to have added to the distrust
already prevalent. They have done
this with the hope that when the situ-
alton is better understood the people
will act with more deliberatiOn and
allow time for repayment of deposits.
Whether they can succeed in entirely
allaying the popular fear remains to
be seen. 1t will most likely be follow.
ed by general suspension of specie
payment, and the consequences Of that
are well understood. This great ca
lamity, coming at time when it could
only have been caused by reckless mis-
management, should lead to an inqui-
ry into the entire financial system of
the State. Throughout our Common
wealth prosperity reigns. Never in
the history of the State has there been
a more satisfactory condition of af-
fairs, and but two days ago all looked
forward with hope and confidence to
the future. In the midst of clear
sky this avenging stroke of lightning
has descended, and the most astute IL
nancier must be dumb with amaze
ment. The possibilities of general
panic naturally causes an investiga-
ton into the banking system of this
State, and that investigation reveals
some startling facts. In looking over
the laws of California we find that |
banking corporations have been al
most wholly freed from restrictions,
and released from any supervision
over their affairs. This is not the case |
anywhere else in the world. Wherev-
er banking is known, the law compels
a regular publication of the condition
of the institution, and generally pro-
vides for a regular inspection of the |
books of the corporation by some pub
lie officer. Nor does the public care
stop here. Wherever a mixed curren-
cy is known, the law compels the re-
tention in the vaults at all times Oh a
certain proportion of the cash liabili-
ties in coin. The lowest reserve COM
patible with safety has been found to
be twenty-five per cent. The laws of
Massachusetts and Louisiana, in which
states the banks were more stable than
elsewhere in the United States before |
the war, required a reserve of thirty
three and one-third per cent. In CAL
ifornia there is no limit whatever, and
a bank which owes one million dol.
lars may not have one dollar of coin
in its vaults. Such system must ne
cessarily lead to speculation and disas-
ter. All history proves that bank Of
ficials will be tempted by gain to over
step the bounds of prudence, unless
the law provides penalty for such
rashness. Some of the ablest think
ers consider that the present system of
finances at best is radically defective;
and they are certainly supported to a
great extent by the periodic panics
that visit all countries; but it needs
nothing beyond common sense to at
ouce comprehend the danger of a free
banking system, without any legal
check to the abuse of the privilege Of
handling other peoples money. No
sworn statements are published by the
joint stock banks of this State, so that
any analysis of their condition is i'm
possible. Their capital and dividends
are all that the public are allowed to
see. Whether they owe ten or hun
dred millions, or whether they have
any cash whatever to meet their liza
bilities, remains to be seen. The
sham semi-aunual dividend of six per
cent.declared July 1st by the very bank
which Wednesday closed its doors,
certainly does not warrant the suppo-
sition that an accurate statement of
the banks now can be had; and if had
that it will not increase the excite
ment. The paid up capital stock of
the leading joint stock companies of