The herald., 1897-10-29
OFFICE OF THE HERALD,
Los Angeles, Oct. Is,

The Hon. James II. Eckles Comptroller
OF the Currency. has on more than one oc-
cason given forcble expression to his
views relative to the advisabiity of bank
consultations in many of the large cities.
In California where the competition be-
tween rival institutions is carried to the
extent of banks performing gratuitious
services and undertaking tasks that often
put them in the position of depriving pro-
fessional men of the fees they would charge
I for similar work If the banks did not do it
for nothing. there is room for the appi-
cation Of the remarks made by Mr.. Eckels,
which are quoted below. partly condensed,
from paper contributed by him to the
Bankers Monthly. He says:
In the report of the Comptroller OF the
Currency submitted to Congress in De-
cember 1894. attention was called to the
fact that nothing was more noticeable In
national banking circles than the tendency
of banks to either reduce the amount OF
capital stock employed or to withdraw
from the system. The cause for this after
a period of rapid increase in both number
and capital, was found in their reduced
earnings without a corresponding reduc-
ton of expenses. The average percentage
of net earnings on capital and surplus
since 1896 when the act of Congress became
operative requiring the banks to report
earnings and dividends, to 1894. had been
SO per cent, and of dividends &C per cent,
while during the year in question 1t
amounted to but 5.6 per cent of net earnings
and per cent of dividends. This was
the smallest percentage ever paid and the
earnings less than in any year. excepting
1878 and 1879.
The reduction drawn from such condi-
tions VS. that the banks in places where
banking facilities had been extended be-
yond the needs of the volume of business
transacted if they remained active banks,
would necessarily be obliged to reduce ex-
penses or else subject the shareholders to
assessments. Two methods presented
themselves. Either reduction of capital
or a consolidation of banks. If the re-
duction could be accomplished without loss
of business, or creating distrust its re-
suit would be satisfactory. On the whole
1t was then the opinion of the writer that
consolidation was preferable and that opin-
ion has not changed since the writing OF the
report of that year. 1t has rather been
strengthened. An investigation Will show
that in communities, and especially in not
q few Of the cities of the countries, the num-
ber of banking institutions have been null
tiplied beyond the legitimate demands of
the trade and commerce thereof. Profits
are sought by several banking corpora
tions when one strong bank only could
be able to make them. The consolidation
of rival concerns in such localities would
not only add largely to their available
banking capital, but at the same time re-
duce a large proportion of expenses, with
attendant benefits.
The point however, to be most consid-
cred is that it would eliminate from finan-
cial operations unhealthful competition
between rival institutions. Whatever may
be said about sitting competition between
manufacturing or commercial houses, 1t
is certain that there is such thing as
unwise competition between banks, which
finds its fruition in ultimate loss and dis
aster to both individual and local inter-
ests. 1t finds expression in a desire on
the part of banking officials. in many in
stances, to make showing of dividends for
stockholders at any cost. Thus it not in
frequently happens that money is kept out
on a hazard, having in view the gain of
large temporary interest rates, and the
hope that somehow the venture embarked
upon by the borrower will prove success
full and the principal be returned. Bank
ing of this character in the end always
proves a failure. 1t breeds speculation and
spectators, with attendant consequences.
1t causes the general public to lose conf
To-, he tn, Qro1 yxtt O.
sultant effect Of embarrassment to all lines
Of business.
The truth Is that many commercial
banks in recent years have drifted away
from legitimate commercial banking for
the reason that they have found thmselves
confronted with the so-called commercial
banks, born outside of any apparent COM
mercial needs. They have been compelled
through giving free exchange and pay
ments of large interest rates on deposits
to look to other means of meeting eX-
penses and earning dividends. The chan
mel into which they have thus either drifted
or have been driven has been dangerous
and In many cases disastrous one.
tits to the end that conservatism may be
earning capacity to bank stocks be brought
about that shareholders should seek, when
ever necessity requires 1t, the strengthen
Ing of the banks in which they have hold
ings by union with others. In such pan
would be found greater safety to all, bet
ter banking methods, fewer bank failures,
steadier dividends and less assessments
upon bank stocks.
The shareholders, however. must largely
take hold of this movement, because Of
ficers, directors and employees it is known
are many times unwilling to reinquish the
position and emoluments attendant upon
the places held. The shareholders justiica-
ton will be found in the knowledge of fail
ure of his stock to pay dividends. the fire.
quent losses charged off, and the stock as
easements paid. These things all argue that
either there is not field to be occupied by
the bank in which he is interested, or 1t is
badly managed. In either case the wisdom
of the situation is to take such steps as will
cause a different state of affairs and bring
to him proper return.
In every union of banks just and equit-
able basis of settlement can be arrived at
between the shareholders interested. II
may be through sale outright of the assets
Of one bank to the other, through proper
apportionment of the new capital stock
or through the liquidation of the one by
the other. The first step is to arrive at a
point where the advisability of it is patent
nd thn ;,,+o +ir,,