Morning journal and courier., 1882-03-07
Price Four Cents.
Banking,
The National Banking system-A Sub
stttute for 1t.

last convention of the American Bankers
Association, is quite as timely now as it was
hen:
That banking has much to do with the per-
manency OF specie payments is too well
known to need any discussion at this time
We Will therefore proceed to consider in
what manner it ever endangers the perma-
nency of them.
The points of contact lie in the circulating
notes, and In the reserves of the banks. 1t
is with the bank notes as with those of the
government; if they reduce the amount of
coin in actual use below a certain proportion
of the whole circulation, the system is bad
and needs revision but if the notes drive
coin entirely out of circulation. the system is
vicious and cannot well be justified No
system of paper money should be considered
very good which reduces the coin circulation
including the reserves, much below one-half
of the currency of the country. Under our
old forms of banking, believe that the esti-
mated specie of the country generally exceed
ed the note circulation, but with the intro
duction of the legal tender notes coin ceased
to be part of our monetary system, and so
long as we have paper legal tender of near
ly $3.50, 900 900, and bank notes issued in the
smaller denominations, we can hardly expect
coin to become very prominent in our none
tary affairs.
1ue udllOuhl DaDk1QB system IuTn1SQSS
safe circulation, which has given much salts
faction because ,of its safety and its uniform
character. But think shall not excite sur
prise in saying that, economically considered,
it does net meet all of the requirements of
proper system of banking. The banks issue
notes of the smallest denomination, and even
if there were no government notes there
would be but little use for coin, because the
banks could supply the needs of circulation
by their notes. Then the reserve for the
notes is not of specie, but of the promise to
pay of the government were it even of coin,
it is much too small to endure any severe
strain. This reserve is locked up in q city
remote from the centres of finance, whereas
it should either be held by the respective
banks, or else the reserve agency should be
located at the financial centre, and should be
in fact rs in name reserve and a redemp-
ton agency which would be an active princi-
pie in our finances. 1 shall not go into the
question of q central reserve and redemption.
1 could only repeat what have said on other
occasions.
The national banking system cannot be
considered permanent and ere long We shall
be forced to consider what shall take its
place. 1t cannot exist In its present form
more than u or Is years, for there would
not be bonds for the circulating notes unless
portion of the public debt should be made
perpetual for that purpose. This Is not at
all probable, for it IS against the sentiment of
the people of this country, and I think there
will not be such change in this respect as
will lead to permanent public debt.
Then, again, the profit on the circulation
is so small, or will be when the five and six
per cent. bonds are called IN, and say 81 per
cent bonds issued in their stead, that We
may reasonably expect that many of the
banks viii surrender their circulation, as il
will be of such small advantage to them as to
make it not desirable to remain under the
control of the general government.
1t would seem that banking holds such an
important relation TO the commercial pros
perity of the country that the policy of the
government and the people would be to ex-
tend to it every facility for proper develop
ment, and that instead of endeavoring to op-
press and weaken it they would rejoice to see
it year by year become stronger and more
permanent in its form and character; but
such has not been, and is not now the case.
do not propose to set myself up as as a
constructor of financial systems; but, in
view of the change which must soon come,
think it proper to suggest somethingi in the
way of substitute for the present system of
banking. / am not an advocate of Church
and State, neither do I favor the plan of
having the banking of the country identified
and tied up with the credit of the govern
banks and the country, to have the banks
freed from all entanglements- Toke, for IN
stance, the case of another war, the banks
would not be able to render the same assis-
lance under the present system as would be
possible If the notes were not secured by
bonds and all of the capital free to invest at
the call of the government, either by volun-
tary purchase or forced loan, In the case
of the late war, through the banking act re-
quiring the banks to deposit bonds to secure
their circulation
The national banking act might be so
amended as to make banking and the notes
as safe as they are at present, and at the
same time give the country currency which
would be more elastic in its operation. While
am not an advocate of the elastic idea, I
know that the unsecured note can be made
to meet the heavy and extraordinary demands
at certain brief seasons, such as the pay cay
at the beginning of each north in the manu-
featuring centres. much better than can ever
be the case with the notes secured by bonds.
Safety to the holders of the notes is all that
should be required, and thai can be attained
without the deposit of bones. 1 doubt if
under the present system, with the stock
holders liable for a second payment of their
stock, there ever would be any loss 10 bill
holders, even if the notes were not secured
In any event it would be very small, and can
easily be guarded against Let the notes be
issued to the banks as now, thus preventing
over issue; limit the amount to the amount
of capital, or percentage of It, the notes to
be first lien on all the assets of the banks,
the stockholders as now, liable to the amount
of stock held by them. Lay tar of say one
per cent. on the circulation as a safety fund,
out of which the notes of insolyent banks
should be redeemed in case resort to the other
means should prove insufficient; the amount
raised in this manner to be invested in gov
xle srso Of 4s.h
cease, thus reducing year by year the interest
charges of the government, while It would
constitute a fund which would IN time equal
the circulation OF the banks.
Prohibit all notes below ten dollars, and
establish at New York q bureau of redemp-
ton, and require each bank to keep al this
agency say fifteen per cent. of its circula-
ton. This would form a great central re-
serve of coin upon which drain might work
without causing alarm. An outflow would
thus be felt by all the banks of the counrTyrs
giving them timely warning that the country
had been oyertrading, and that they should
go more carefully for awhile. The prohibi-
ton of small notes would cause q large
amount of coin to circulate. which would
make large general reserve from which the
banks could draw to replenish the central re-
serve. To meet the opposition to the retire
ment of the small notes, the banks might IS
sue, in addition to their regular circulation,
small notes, to be wholly covered by coin.
1t might be well to limit the amount of
notes, SO that the maximum of paper circu-
lation should not greatly exceed the amount
of coin estimated to be In use.
This would give us a banking system
worthy of the name at once furnishing per
feet security to the holders of the notes and
at the same time meet, from an economic
standpoint, the most rigid requirements of
convertible currency.
This system would be expensive to the
banks, as it would require them TO keep
large amount of money unemployed, but
paper money should be put beyond q ques~
ton as to its convertibility, and il is doubtful
il it can be accomplished except by central
reserve so large as to remove all fear of fail
ure.
As it is the duty Of the banks to see that
their notes are always convertible into coin,
so is it for the best interests of the country
that such currency should be provided.
and at this point comes in the duty Of the
people to the banks, q duty that should not
be neglected; that is, the removal OF al I'M
necessary ana unjust taxes, so that tie banks
shall not have greater burdens than other
capital
With the legal tender notes out of the way.
and a system of banking such rs l have
sketched, there would be no question rs to
the permaneney of specie payments. We
then should be met with the question of
what kind of specie Our action in regard
to silver then becomes important for ID win
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