The Indianapolis journal. [volume] (Indianapolis [Ind.]) 1867-1904, 1898-12-26
CERTAIN MISCONCEPTIONS Ex-
planned BY WALTER EVANS.
Trouble with Early Banking system
Done Away with by the PROPOSED
Reform Bank-NOte System.
Special to the indianapolis Journal.

leSentatlVe Evans has been a strong sup
porter of the recommendation of the Indian
apolis monetary commission and other
measures which promise to put the gold
standard into law and make it acceptable
to the people by means of an elastic bank
ing currency. He said to-day: Il think
much of the distrust regarding a banking
currency which exists in the West. as the
result of unpleasant experiences before the
civil war, would be removed by careful con-
sideration of the facts. In the first place,
it is obvious that conditions have very much
changed since the days of wildcat banking
fifty years ago. The West was then unde-
veloped and business enterprises of all kinds
were subject to the risks and uncertainties
which attend the founding of new COM
munity. Even the most careful bankers are
compelled, under such conditions, to take
some risks. if they do business at all. which
would not be taken in an old and settled
community. Speculative banking has been
the characteristic of the development of
nearly every country without regard to the
provisions for the issue of bank notes A
case in point is the panic in Australia re-
Gently as 1893, when land values were
doomed to an extravagant extent and money
was loaned on focks and herds which could
not be repaid on demand. Unsettled lands
were appraised at $40 per acre which could
not be sold when the bubble burst for S..
The note issues of the Australian banks did
not cut any figure in this expansion of bank
ing credits. The whole issues of notes have
rarely exceeded $50, 100000, and the principal
currency of Australia is gold coin. Specula-
ton was carried on by means of deposits
and loans, the deposit accounts of the
Australian banks amounting in 1898 to more
than $3.50 900 eco"
us any safeguard against such specula-
ton provided in pending bills?"
Yes, there is an important safeguard in
the very nature of the proposition that bank
notes shall rest on commercial assets Few
banks have got into trouble which have
stuck to this class of securities whether
they have issued their credit in the form of
notes or in the form of deposit liabilities
payable by check. The trouble begins, not
when they change one form of liability for
another, when both are substantially the
same, but when they sink their assets in
land mortgages or enterprises which do not
promise immediate returns. These are not
commercial assets, and are not permitted to
be carried in the regular course of business
by the national banks of the United States.
Notes or credits resting on commercial as
sets rest on the broad basis of the whole
negotiable wealth of the country and the
combined credit of nearly all the manufac-
with the banks A broader basis for credit
could hardly be conceived. The subject was
we'll disposed of in the preliminary report
of the monetary commission in the follow
ing passage:
SECURED NOTES SAFE.
Notes secured as herein provided cannot
fail to be safe, because, being based upon
all the resources of all the banks issuing
them, they are based upon the whole bust
ness of the country, and that business Is the
thing which gives life and value to all Sc
curities government, municipal, railway and
individual obligations. Should all the re-
sources Of the banks ever so shrink in value
as not to be ample security for the amount
Of notes that could be issued under this
plan, then all other securities, even govern
ment bonds, would become ValueeSS.' +"
But Notwithstanding this broad security,
national banks sometimes fail, with impaired
assets, was suggested.
Certainly was the reply. People die
and houses burn down, notwithstanding they
are insured, but this does not break the In
surance companies 1t is simply matter
of calculation, based upon experience, to de-
termine what is the average survival of the
life of a building and what is the average
life of d banking institution. If the holder
of the obligation Of a bank looked to the
bank only for security he would in few
cases-very rarely-suffer loss But substan--
TALLY all the bills which are being urged
upon Congress on this subject by the advo-
Gates of sound money propose that the losses
in the case of individual banks shall be dis
tributed over all the banks of the system,
just as the death payments of a year are
distributed over all the premiums of a life
thoroughly worked out by experts, and it
has been demonstrated that tax OF a frac-
ton of per cent, as low as one-eighteenth
of 1 per cent, levied annually upon the cir
culation of the solvent banks would pay all
losses to noteholder. The government now
collects a tax of l per cent. upon circulation,
which brought into the treasury to June
So 1897 $81, All, 1884. The drafts for losses upon
this amount if notes had been issued upon
commercial assets instead of United States
bonds and had shared ratably with other
creditors in the assets of the banks, would
have been only little more than S5,GO0OOO
in thirty-three years, and would have left
surplus of 100000 in the custody of the
treasury to guard against future losses"
You regard the notes issued upon COM
mercial assets, then, as absolutely Secured!'
Il do not think any one who gives serious
consideration to the subject can have the
slightest doubt upon that point if the ma
tional banks all go into the system The
notes of national banks secured upon gem
eral assets and by a safety fund raised by
small tax en- circulation, if properly limited
in amount would never for one moment fall
below par, no matter how bad the failure
of the issuing bank, because they would be
redeemed on demand from the safety fund
in the treasury The treasury would then
have lien upon the assets of the failed
bank for it's ratable proportion according TO
the amount of notes redeemed. The notes
a different character from those based upon
bonds moreover, in the fact that they would
come back rapidly to the banks and the
treasury for redemption. When received at
the treasury they would be charged against
the gold deposit made there by the issuing
bank and notice would at once be given the
bank to make the fund good. A refusal or
unreasonable delay would lead the controller
to order the bank to be closed The more
frequent presentation of the notes than I'M
der the present system would thus subject
the sovency of the bank to constant test of
redemption in coin on demand This is the
infallible test of sound banking, because it
requires that the assets shall be kept in such
liquid form that they can be quickly con-
Verted into cash.
THE PROPER ASSETS.
"A bank which keeps its assets in this
FORM and does not sink them in enterprises
incapable of yielding immediate results,
cannot suffer serious losses. Quick redemp-
ton is one of the essential requirements of
all well-considered projects on this subject.
There was no way of securing quick re-
demption by the old wildcat banks. They
were not under a uniform national system.
and in many cases there were no require
ments fer redemption. A batch OF notes
would be printed in one State and sold at
a discount in cash in some distant State,
with the purpose of keeping them in ciTcu-
lation far away from the issuing bank.
The worst of these wildcat banks, by the
way ..- not base their note issues upon
commercial assets and never had any such
assets They were allowed 70 issue them
on bonds, just as under the national bank
ing system but the bonds were State and