The daily morning Astorian. [volume] (Astoria, Oregon) 1883-1899, 1898-01-04
BANKING SYSTEM.


A bank makes profit by investing ~
capital IN the aumo general way a. an
other bislnGes insaturion The profit I
mado by discounting that ls by buyinI
the riR1a tiiiiy securcdD 10 receive monei
IN ihe future. ana paying for this nEh
by creating "a liability on W. resources u
I pay taie borrower on demand. II give
tho borrower IrnnediaFe meanh Of pay
moni. lefe the profit 1ine profit 70 ih'
bnnk Glready settled by the discount
operation In tho same whether me bant
lssueq ~ demand pabniiy 70 the bor
: rover In the form of iis notes or In th'
| form OF deposit account 70 his credit
T'bls ezplnins Why the richest city bank
! DO q profitable business without ipuine
J sny notes Tbey adapi Themselves 20 theii
/ constituents w3iO DO not Wish notes, bui
/ who win 10 pay entirely by checks oi
drafts. n Is quite othrrwlsc IN r,fr1 do.
tic,s there the small borrower calls for
notes. seldom using deposit accounts. II
the smaller banks in rural districts cam
not EASILY progdc note lssda', then they
are mt on from dfsc0untlng; hence the Ia
mani that snch DISTRICTS ore poor IN bank
lny facilides
In cn'ct. banks take the value Of mar
kettble goods ms e1pregsed IN terms Of
money and credit them 10 the borrower
account. enabaEg him 70 pay his obliga-
tions by transferring bhis credit vita
checks. bils. etc. In short hanks are
coming property INTO means Of payment.
thereby enabling one form Of Troper;y TO
De- exchanged direcuy against another
form c.sh rosssryt-s are provided for caEes
Of dlslrust or panic, A c0nmcrcnl honor
deyclopes. the need Of cassh dlmlnishcs. An
Increasing per capita circulation II evi.
drnco Of deterioration In cOmmerciai
progress and Intelligence. In thls manner
Independently OF bank notes. banSs are
proWdlng. through their deposi, liability,
media of exchange by whidh. In fact. over
- per cent of the transactions Of the
cDuniry are nov carried on.
Tho present system Of issuing notes on
the basis OF United States bonds results
IN an lnolastic system (which does not ex.
p.tnd correspondingly 20 he demand for
notes. In the face Of developing industry
In thhs country. uho national bank circu.
lation dlnlnishsd from S3il .53o.Zjs. on De.
ccnbcr %. 1879 to si22ssosi on october
?. isa0. and yet Mere had been large in
crease IN the capital OF national banks
and an extraordinary expansion % ~
deposits Moreover any bond security Of q
high character Yields a low rate Of Inter
ort. ami IN a tlms OF stringercy. when
borrowers need loans and the market rate
OF interest is high. there Is no induccmen'
10 buy thess bonis to increase circulation.
Hence under the present system. when
notes would be most ne'-ied.. II h least
profitable TO issue them. The system OF
requiring special part OF the resources
Of bank. therefore 10 30 Invested In
Uulted States bonds while an obvious
source Of safety 10 the note holder acts
to prevent the notes from increasing in
response to increasing loans and trans
tions.
The commission believes that. instcad OF
requiring special part OF the resources
of a bank to be set aside IN the form OF
bonds Cof any kind as a security for inc
notes. they should be secured by all the
resources Of tAe hank; thai the notes
should be protected, finst. by a guaranty
fund OF per cent on their outstanding
circulation; second, by prior Hen on all
the resources Of the bank; and. thirdly
by a prior lien on the stockholders la
hnty II l. nos proposed TO cnange i'm
mediately from the present 10 the new
yytstem Up TO an amount equal TO . per
cent Of the capital stock OF the bank.
notes issued by Il shah not exceed the
value OF United States bonds reduced by
computation TO a per cont. basis. Addi'
tional notes may be issued without fur.
ther deposit OF bonds. Five years after
tho paStSige of the proposed act the
before issuing notes In excess thereof
shall be reduced each year by one-hfth
OF the q per cent of clpital above men
toned. and thereafter any bank may at
any time withdraw any bonds deposited
In excrss Of the requirements. Every
bank shn pay a tax at the rate Of per
cent per annum, payable monthly, upon
the amouat OF notes outstanding beyond
co per cent and up to 50 per cent, and
tux Of per cert. on those beyond 50 per
cent and up Ito 100 per cent. The total
issues shall never exceed the amount OF
its paid-up and unimpaircd capital.
Notes secured als thus 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
moss of the country, and that business rs
the thing which gives life and value 20
all securities - government. municipal
railway and Individual obligations. Should
an the resources OF the banks ever 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 government bonds, would become
valueless. THE banks are bound together
for the security of these notes to accom-
pliah the same purpose that the deposit
OF bonds is intended to accomplish, name
~. t, guard against loss through the mis-
fortune or bad management Of single
hanks. and thus save the holder of the
bank note the need of aScertaining the
standing OF any bank. The objection uhat
is sometimes made that the larger banks
in the great cities would not issue notes
because of an apprehended liability for
other banks is shown by statistics to be
groundless. TIE largest bank failures
occurred In 1893; but had all the banks
of the country then issued notes up to
80 per cent Of their capital, the amount
OF their assessment to make good the
ascertainel deficiencies OF that year up 10