The Dallas weekly herald. [volume] (Dallas, Tex.) 1873-1885, 1884-08-21


dealing with the bpdy p1litic uisi lr
ready Ia art veil not mily Ia The mhi
nary course NJ banking affairs, bat also
| h. The extraordinary periods, When
mems ronrs aud nnrousOn are rIilriilr'
| l'pun our wise action in such oneraen-
ci6-, our own safety ANA w.,
people largely depend, n II
not possible far this association Ia cs-
| tnhish lirmly the true line Of action
upon which such crisis should bc met,
| "a establish II M that all men shall know
that II IN the right line at action, and 50
hat all banks of oar land, acting upon
| this single line, can
| MOVE A. 4 UNIT
| TO meet and overcome the threatened
dangery In other words, are We not
able 10 agree upon true remedy for u
| financial panic, and 50 agreeing, can We
| not act consistently In its appliration'
II In undcniable that AZ bankers We
have u duty In this matter.
The preservation oi our own interests
and u proper regard tn the trusts we AS
sumo towards the commercial commu-
nifty, both emphasize IL. IL we consider
for moment the function OF bank,
| this will appear still IN re- plain. bank
| liz the medium through which all, or
nearly MI, the commercial movement II
effected. by the machinery of credit
| uine-lsnths or more of the transfers OF
property and products are accomplished,
| and in these credits the bank find its
profit To deal The bank Is conven-
| lent and
ECONOMICAL MEDIUM,
and upon II the commercial ana indus
| trial system comes ut last 10 depend. II
cannot in a moment find any substitute
| therefor. If this Is closed CONFUSION
ensues, confidence is lost and disorder
and panic begin.
| am not setting forth any new doe
trine i'm affirming that the true remedy
| for n panic IL of Il two-toid character:
First-Tho maintenance, In all ordi-
nary times, of adequate cash reserves.
Second-A liberal,usc of the cash re-
| serves in times OF panic by Judicious
loans.
Tho National Bank act fixes the mini
| mum of reserves for banks located In
| the so-ralled redemption cities at - per
cent of their deposits, one-half of which
may he redeposited with approved New
| York City banks, and thus II comes that
| New York banks are the final holders oi
an important part OF all
! OUR BANK RESERVES.
| For National banks located in the city
of New York, full reserve in legal
money of - per cent. is blythe law re-
quired. Experience, | think, proves
| that if applied to the New York banks
as the holders of the final reserves, this
minimum Is too small. II is not an adj
equate cash reserve. II does not furnish
| the proper sense of strength and secur-
| ity to the banks themselves when the
| hour of trial comes. The result OF ey-
perionce is the final test Of every theory
and every action, and guided by this
test the minimum of - per cent. is too
small. a larger ratio should DO Volun-
tarily adopted.
| The maintenance of adequate cash ro-
serves is, however, but the negative or
passive side of this remedy. 1t has an
| active side, and this active or positive
side is found when, in the hour of panic
and fear the accumulated cash reserve
is freely used in generous but judicious
loans.
! The opposite course has seemed the
more popular, viz: gradual depletion
of the cash reserves in times of peace and
quiet, followed by sharp contractions in
MovENT OF PANIC,
and this course has received the solemn
sanction of the law. The National Bank
Act approves this injurious and danger
Gus policy. In express terms ii forbids
any national banking association
making any loan or discount whenever
the legal reserve shall fall below the es-
tablished minimum, and it authorizes
the Controller, with the concurrence of
the Secretary, to appoint receiver to
wind up the affairs of any such
association which shall fail to make good
its legal reserve within thirty days
after notice. If, when the limit of re-
serve is reached, law-ahiding bank
officers refuse to lend, and if commercial
panic and distress are thereby aggra-
waited, let those who suffer lay the re-
sponsibility upon the law, and not upon
| the bankers who obey it.
An eminent writer has truly said:
"LrNpING CURES rANIoS.
while non-lcnding, or niggardly lending
aggravates them. With the advantages
of credit we must take the diSadvant-
ages, too-but to lessen them rs much
rs we can we must keepa great store OF
ready money available, and advance
out of it very freely in periods of panic
and in times If incipient alarm" In the
panic of 1876, the Rank OF
England, after vainly endeavoring
to protect itself for a con
siderable, time by refusing to make
| loans, suddenly changed its action, and
thereafter it did as was stated in the ev-
dence taken before a committee of the
House of Commons: "During its con
tinuance," said Mr.. Harmon, Governor
of the bank at the time, eve lent by
every possible means, and in modes that
"wo never had adopted before. We took
"in stock as security; we purchased eX-
"chequer bills; we made advances on
"exchequer bills; we not only discount
led outright, but we made advances on
''deposits of bills of exchange to an i'm
"mense amount, in short, by every pos
'sible means consistent with the safety
"of the bank; and we were not, upon
"some occasions, over nice. Seeing the
| dreadful state in which the public
"were, we rendered every assistance IN
The New York banks, as body, are
the ultimate or final holders of the cash
reserve. They bear to the
BANKS OF THE COUNTRY
relation similar to that of the Bank of
England in its relations to the British
banking system. As has already been
seen, experience has taught the Bank OF
England its true duty and it's path of
safety. 1t always lends in panic moro
freely than in ordinary times. Its re-
fusal in time Of financial alarm to
make advances on customary securities
would shake the whole financial fabric
to the ground. Two things, however,
dist inguish it from any bank or body of
banks in this country:
First--The power to raise the rate of
interes, without limit.
Seconi-The power to issue its own
notes.
The act Of 1914, it $ said, restricts the
latter power, bat this restriction has
been several times violated, and all the
| world knows it will be again violated
when occasion shall demand.
BY raising the rate OF interest in ord
nary times it checks the demand for
loans and RECEIVERS u falling reserve.
nY IT'S UI.Ti NATE POWER
to issue notes beyond legal restriction
it lends in time of panic without fear:
With us an absurd usury law takes
away tho power of control over the re-
serve, which an elastic rate most eff
fectually furnishes. And to the ulti-