The Dallas daily herald. [volume] (Dallas, Tex.) 1873-1887, 1884-08-14

a proper UNDERSTANDING OF us CAUSES
will suggest
VALUABLE SAFEGUARDS FOR THE FU-
TURE.
Its course of action, if fairly recorded,
would become most valuable refer
ence in similar periods hereafter. To |
comprehend its full and final effects is |
important to us all. AS the physician is
called upon in ordinary periods to deal
with ordinary troubles, but must be
prepared in times of epidemic to
deal wisely with extraordinary cases,
dealing with the body polite must be
ready to act well not only in the ordi-
nary course of banking affairs, but also
in the extraordinary periods. when
mems fears and unreason are epidemic.
Upon our wise action in such emergen-
cies, our own safety and the
material welfare of the whole
people largely depend. 1t is
not possible for this association IN es-
tablish firmly the true line of action
upon which such crisis should be met,
to establish IL so that all men shall know
that it is the right line of action, and so
that all banks of our land, acting upon
this single line, can
MOVE AS A UNIT
TO meet and overcome the threatened
danger? In other words, are we not
able to agree upon true remedy for a
financial panic, and so agreeing, can we
not act consistently in its application?
1t is undeniable that MS bankers we
have duty in this matter.
The preservation OF our own interests
and a proper regard to the trusts we as
sumo towards the commercial commu-
NIFTY, both emphasize it. If we consider
Tor moment the function of bank,
this will appear still more plain. A bank
Is the medium through which all, or
nearly ALL the commercial movement Is
effected. BY the machinery of credit
nlne-tenths or more Of the transfers Of
property and products are accomplished,
and in these credits the bank finds its
profit to. deal. The bank is convon-
lent and
ECONOMICAL MEDIUM,
ana upon it the commercial and indus
trial system comes at last to depend. Ii
cannot in 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
Irlne in affirming that the true remedy
FOR panic is of two-fold character:
Flrst-The maintenance, in all ord-
nary times, of adequate cash reserves
Second-A liberal use of the cash re-
loans.
The National Bank act fixes the mini
mum OF reserves for banks located i'm
Tue so-called redemption cities at . per
cent. of their deposits, One-half of which
may be redeposted with approved New
York City banks, and thus it comes that
New York banks are the final holders OF
an important part of all
OUR BANK RESERVES.
Ln
OF New York, a full reserve i'm legal
money of % per cent. is by the law re-
CURED. 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. 1t does not furnish
the proper sense of strength and secur-
lty To the banks themselves when the
hour of trial comes. The result of eX-
perience is the final test of every theory
and every action, and guided by this
test the minimum of . per cent. is too
small. larger ratio should be yolun-
tarily adopted.
The maintenance Of adequate cash re-
serves is, however, but the negative or
passive side of this remedy. II has an
active side, and this active or positive
side Is found when, in the hour of panic
and fear, the accumulated cash reserve
~ freely used in generous but iudiciOus
loans.
The opposite course has seemed tho
more popular, viz: II gradual depletion
OF the cash reserves in times of peace and
quiet, followed by sharp contractions in
the
MOMENT OF PANIC,
and this course has received tho solemn
sanction of the law. The National Bank
Act approves this injurious and danger
Gus policy. In express terms IL forhidS
any national banking association
making any loan or discount whenever
the legal reserve shall fall below the es-
tablished minimum, and il 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-abiding 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 ii.
An eminent writer has truly said:
"LENpING CURES rANICs,
while non-lending, or niggardly lending
aggravates them. With the advantages
ages, too-but to lessen them as much
as we can we must keepa great store of
ready money available, and advance
out of II very freely in periods of panic
and In times Of incipiont alaru." In the
panic of lS96, the Bank of
England, after vainly endcayoriug
TO protect itself for a con-
siderable time by refusing to make
loans, suddenly changed its action, and
thereafter IL did as was stated in the eV-
idence taken before n committee Of the
House of Commons: During its con.
tinuance," said MIR. Harmon, Governor
of the bank ut the time, eve lent hy
every possible means, aud in modes that
"we never had adopted before. We took
Sin stock as security; we purchased eN.
'chequer bills; we made advances ON
"eXchequer bills; we not only discount
"od outright, but we made advances ON
"deposits of bills o. 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
"our power"
The New York banks, as a body, are
the ultimate or final holders of the casl
reserve. They bear to the
RANKS OF the COUNTRY
arelation similar to that Of the Bank oI
England In Its relations to tho British
banking system. AS has already beer
seen, experience has taught the Bank nj
England its true duty and its path nj
safety. II always lends in panic ihor,
freely than In ordinary times. Its re-
fusal In time of financial alarm /,
make advances ON customary securitic,
would shake the whole financial fahri,
10 the ground. Two things, however
distinguish IL from any bank or body o
banks In this country;
First power to raise the rate o
interest without limit.
Second-Tho power TO issue its owl
notes.
The act of 1911, II is said, restricts tn
latter power, but this restriction ha
been several times Violated, aud all tn