New-York tribune. [volume] (New York [N.Y.]) 1866-1924, 1893-03-07
THE FUNCTION or TIE RESERVE.


Common sense is a quality of which bank
presidents stand greatly in need. The Ia"
that the Treasury reserve is lower than ~ mas
been, and lower than under ordinary c!rcum-
stances it ought to be, has led some DahN
officers into recent expressions in which com
mon sense was not the most conspicuous qual-
III II is refreshing to find the following re-
marks by Mr. Williams, president OF the Chem
icaI Bank. published in Bradstrects':
do not look for anything startling In case the
Tr.osurv gold reserve falls below 300 100000 when
banks reserve falls temporarily below the oheq"ro
limit calamItos results do not necessarily loIio"'
think the popular uneaness Is not entirely warranted
The purpose OF having such reserve Is 10 pro'iue io
lust such possibilities. or course any great or siadeh
drop might njuriOusly affect financial interests
have firm belief that Secretary Carlisle Will TAKE sue"
measures rs will prevent the possibility Of such drop
In the reserve.
What Mr. Williams calls popular uneasiness
on this point has found expression chieiiy III
the excited statements of some bankers, when
arDeang To the Government for instant issues
If IFS bonds. Another bank president. whose
name is not given, is also quoted by BRAD
streets" thus:
The siuarIon has improved greatly. owing to The
vcrs fact that tie pressure thus fnr cNpr'hoeu "S
bccn wlih,tood with as little trouble as II has. THIS
create, n belief that the position Of the currency WI"
be- rrmc!ed and aids In averilng the possibility OF
crisis or panic In fact. do not apprejcnd any such
result
The opinions quoted coincide with those ex-
messed by Mr.. Walter BagehCt. whose WHIT
incs On finances have acquired classic author
ity in England. In "Lcmbard Street" page
bo iusluS putN
of maintaining reserve in ordinary tunes ana
putting it out freely in times OF need, he says {:
TIL, seems like saying. first that the reserve
should be- kept and then that II should not be- kept
Int there Is no puzzle IN the matter tt" ultimate
banking reserve of country tby whpnsOcvcr h'p')
is not kept Us II show but for certain essential
uurpo..s aud one OF those purposes Is the meeting
d,mani for cash cauci by alarm within the country
II \ not unreasonable tat our ultimate treasure IN
particular cases should hc lent: on N" contrary. We
kept that treasure for the reason that In par
ucIlar cases It should BE- lent.
Elsewhere he ccnsurcs the American system
Of legal limit. and says page $3.50:
II Won say that the bank shall always hold one
third Of is liabilities reserve. sou say In fact that
rts onc,hrd shall always be useless. for out OF II the
bank cannot make advances cannot give extra help
cannot do what have seen the holders Of the III
help for In the American system; It's very essence
and principle are faulty.
lie also quotes the following description by
Mr.. ITarman, of the Bank Of England. of the
manner in which tho panic of 1925 was
stopped:
We lent II by every possible means and In modes
we had never adopted before. We made advances on
deposit Of Ills Of exchange TO an immense amount:
Ia on
safety Of the bank. and we were not on some occasions
over nice seeing the dreadful state In which the
public were. rendered every assistance In our
power After a day or two Of this treatment the en-
tire panic subsidized and the City was quite calm.
These quotations describe accurately the
proper function of the ultimate reserve in this
country which is held by the Treasury. II is
not held for show, but for use when conditions
arise which threaten the soundness OF the paper
currency. Ii is kept only that it may be paid
out freely and in large amounts, whenever
there is real need and danger. Any notion that
it must in such a time be kept intact, or else
the whole monetary fabric will collapse, tends
to deprive the 10O.000,0O0 reserve of any
use whatever and TO force the keeping of a
secondary and in itself adequate reserve for
emergencies, which can be drawn upon freely
when need arises.
The duty of Secretary Carlisle is difficult
one, and he should have the earnest support
of all Americans, and especially of intelligent
business men. The first important assistance
which all can render is To stop regarding or
speaking of the 100000 900 reserve as a
sacred thing which cannot BIO touched without
disaster. Ii exists for the express purpose Of
preventing disaster by being paid out freely
on demand whenever anybody wants gold in
stead Of notes. Its proper function is to re-
tire notes from Immediate Use, whenever so
many are outstanding that anybody is afraid
of them, and by such retirement from use to
strengthen the demand for the remainder
There is not the slightest occasion for alarm
if Secretary Carlisle should Judge that the re-
serve ought to be used freely for the purpose
to which il was devoted, far enough to deter
mine whether such use of it will not meet tho
demand for gold, sweep away apprehension
and enable the Treasury to replcnish its stock
Of gold without an issue of long term bonds.