The morning call. [volume] (San Francisco [Calif.]) 1878-1895, 1893-08-27
BANKS AND BANKING.

BANKS AND BANKING.
1t is the fashion. when hard times come
round, to rail at the banks, to call them
blOndsuckeIs, and to hold them responsible
for failures because they will not lend
money. An orator who, from the vantage
ground of his hind legs, denounces the
banks to a meeting of proletarians is
always sure of a sympathetic audience.
And yet, the banks are nothing more than
agencies through whose instrumentality
those who have money lend to those who
desire to borrow.
There are, in round numbers, 1900 banks
in the United States. OF these, about
800 are national banks, 5000 State banks,
and 1900 private banks. These 1900 banks
owe to their depositors and customers
moneys amounting to So. 25O000, 000 These
moneys they have loaned out to borrowers,
and with them they have loaned about
$3.50, 100000 of their own. making $780,
100000 in all, say S37 per head of the total
population. 1t is plain that the capacity
of the banks to lend does OF depend upon
their own liberallty or their desire to ac-
commodate their customers, but upon the
volume of money their depoSitors are will
ing to leave In their hands. And this,
again. depends on the temper of the people
for the time being. When confidence
prevails, men of means are willing to have
large sums in bank; when confidence
gives way to distrust, they curtail their
deposits, scatter their placements, and re-
duce the capacity of the banks to lend. 1t
is upon them, and not upon the banks,
that the socialist economists should empty
the phias of their wrath.
The gradual steps by which the banking
system of the United States assumed its
present shape are interesting to observe
When the first United States Bank was
established there were three banks in ex-
istence. all of which were profitable and
safe. The Bank of Pennsylvania paid s
and 10 per cent per annum; the Bank of
North America 10 per cent. They issued
notes which they redeemed in specie on
presentation. They made no reports to
the public. and an exaggerated idea of
their business gained currency; everybody
wanted to be banker; in 1911, when the
population was only 100000, 40 banks
were chartered. The whole country was
studded with banks, and flooded with cur
rency. and in 1914, with few exceptions, the
bohho AdfiCht diu HOLOSs FulCu buS
public could not dispense with as medium
OF exchange. passed current at discount
of 10 to 80 per cent as compared with coin.
Then the second United States Bank was
established, and succeeded in restoring
specie payments, the State banks calling
In their circulation so as to follow suit.
But the system was defective. In most
States banks were required to keep GER
tain amount of specie on hand; the specie
was bought, shown to the Inspector, and
as soon as his back was turned was
shipped away to some other bank which
awaited examination.
Several systems were tried in turn. In
Massachusetts, the Suffolk Bank plan an
swered very thoroughly. In several States
the safety-fund system was put in fore g
and broke down in the first panic. The
free-banking system of New Y ork, which
required nine-tenths of the capital of the
bank to be invested in Governme nt stock
and was the f0rerunner of the present ma
tional bank law, answered until the banks
were allowed to Substitute Stale bonds for
Government stock. The substitution made
banking again profitable, aud in 1887 the
loans and discounts Of the banks exceeded
the sum Of their deposits and capital by
$156,946,426. Tie crash Of that year was
the result. 1t might have been supposed
that people would have been sobered by
the lesson, but in 1871 more banks were
started under laws analogous to the New
\ ork free banking law, and were permit
ted TO issue circulation on the deposit of
the bonds of the States which were in
solvent. The old rule about a specie re-
serve was reasserted and evaded in the
same old way, and in 1857 a general de-
mand for currency redemption threw most
of the Western banks into bankruptcy.
When Mr.. Chase drew the national
bank act he had the advantage of all this
past experience to guide him, and he was
vastly helped by the prevailing scarcity of
the circulating medium. He moved with
extreme caution. He was we'll aware of
the dangers which lay in his path. He
wore out several copies'of bis plan which
he carried around in his pocket and sub
mitted to fnanciers. At that time it was
said that there were ten thousand different
kinds of notes in circulation issued under
laws OF the thirty-four States. The aggre-
gate bank circulation was SOP, 900, 600.
Two years later the national bank circula-
ton a1oat was about $500. 100000, most of
the old State banks having. reorganized
under the national bank act. 1t is not too
much to say that there never was in any
country safer system of banking than the
one which was then established, or one
which combined more completely the use
fulDess of the banking institutions with
the safety Of the note-holder and deposi-
tor. Experience has shown that it has
only few defects, which, however, can
easily be remedied. Loose banking had
little or nothing to do with the furry that
Is passing over. On many previous occa-
sions it was the chief factor.
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