The morning news. [volume] (Savannah, Ga.) 1887-1900, 1898-01-10
BUSINESS ASSETS OF A BANK.
THE COLLATERAL BACK or Th''
PROPOSED NOTE ISSUES.

sets-Mr. McCleary Gives HIS Au'"'
as to the Real strength Given o."
Bank Notes Under the propose s's-
tenn.
Washington, Jan. 9-The proposition Vi
the monetary commission That ide p'..N-
ing circulation of the country '6 based 'H
commercial assets under proper s'''-
guards. instead of on United States hon"7'
has caused some inquiry as TO just "NdC
is meant by Commercial assets. i"e
question was answered to-day by hep-
resentative McCleary of Minnesota, VINO
is member of the House committee on
banking. and has given much study to 'he
subject.
The business or commercial assets OF
a bank" Mr. McCleary said, consists oil
its commercial paper coming due at va
rious times. The whole assets of a BANK
of all classes, include ali ferns OF ~
debtedness due to the bank. The distnc-
ton between commercial assets and those
of other classes is that the commercial
assets usually represent business trans
actions between merchants and in any
case consist of notes due within a short
time. Taking, for the sake of illustration,
the reports of the national banks OF me
United States, on October 8, 1897, the total
assets of all classes were $500, 1885, 707. The
largest single item was "loans and dis
counts" which amounted to $2,05i,0.@43S.
The other leading items were the United
States bonds on deposit with the Treasury
to secure circulation, 1927. $3.50; stocks
and securities in the possession of the
banks, sos, S31, 563; demand debts due from
other national banks, $1559S0. AL; due from
approved reserve agents Uhe banks in the
reserve cities where the country banks
carry a portion of their funds, 1921 0l7,-
sos; specie, $3.50 387, 7O2; and legal tender
notes and certificates of deposit for legal
tender notes $149, 494,929. 1t is the item
of loans and discounts" which consu-
tute the backbone of the commercial as
sets of bank. The other items are mostly
recoverable in cash on demand, and
large proportion consist in cash actually
on hand"
But how are these resources available
for the protection of note issues?" was
asked.
Substantially, all the assets of national
banks" was the reply, except necessary
buildings and fixtures, which stood on
Oct. 5, 1897, at $79 1854. are quick assets,
or should be such. Ii is when they cease
to be quick assets by becoming unmarked
able and losing their computed value that
bank is driven into embarrassment. The
loans and discounts include the advances
made in currency, bank notes or banking
credits, which are represented by the notes
given by the borrowers These notes. in
most cases, are based upon actual irans-
actions in merchandise, which constitutes
a security for the recovery of the loan,
although the merchandise is not specific
ally Pledged as in the case of property
represented by a warehouse receipt
Where the loans are not based upon trans
actions in merchandise. they are based
upon the credit and property of both the
maker of the note and the indorser, so
that if one proves incapable of meeting
the obligation at maturity, recourse is
had to the other"
How much real strength does this sys-
tenn give TO the bank notes issued under
such a. SYSTEM" was the searching ques-
ton next put to Mr.. McCleary. He re-
piled:
1.-THE bank has maturing daily a certain
proportion of the notes which it has dis
counted. The amount thus maturing daily
in the United States at all the banking
institutions is estimated at $25, 000,0O0 A
bank which needs to increase its cash
reserve, therefore, has only to diminish
its new loans from day to day and hus-
band the cash received from those which
mature. AS most of these loans run for
not longer than ninety days the average
daily collections cannot be less than one
ninetieth part of its whole outstanding
discounts and would amount in a week to
about per cent. of the amount AS
many of the loans are for sixty days and
for shorter terms, the actual collections
would be a much larger proportion of a
whole volume of commercial assets.
"When bank note circulation is based
upon commercial assets, the fact implies
that the whole resources of the bank are
behind the circulating notes for their ulti-
mate redemption. This means not only
that the cash for the current REDEMPTION
of the notes is constantly flowing into the
Golfers of the bank, but that in case of fail
ure the whole property of the bank is
pledged for the redemption of the notes.
The plan of the monetary commission for
currency reform proposes an issue of notes
not exceeding the capital stock of the ma
tional banks, and not more than ~ per
cent. except subject to tax of 6 per cent.
The circulation subject to a tax of 6 per
cent. would be issued only in times of
acute crisis and great demand for cur
rency. The possible issues therefore, I'M
der ordinary conditions, upon the exist
ing capital of 1851 ass, 095, would be $780,
1870, 376 Against this amount of circulate
ing notes there would be total assets
amounting to more than seven times the
face value of the notes of which the loans
and discounts alone would be more than
four times the value of the notes Ii may
be noted also thar the actual specie. legal
tender notes, and certificates of deposit in
the hands of the banks, with the fund of
$10,021 $50 in the hands of the United States
Treasurer for the current redemption of
notes, not to speak of other cash items.
constitute a fund of about $685. 100000 or
nearly four-fifths the value Of the notes.
You consider then the plan of the mon
etary commission an entirely safe one.
from the standpoint of the note holder?'
I'm dealing with the question of circula-
ton alone" answered Mr. McCleary. the
essential question is whether the assets
are sufficient to cover the notes ana 1t is
obvious that they are many times more
than sufficient under the plan of tho mon
etary commission. That plan makes the
notes a first lien upon the assets, SO that
they must be paid before any other charges
are met The plan OF the commission.
moreover, provides that there shall be
kept in the treasury Of the United states
a redemption fund, raised by tax OF : ner
cent. upon the volume of notes in circlIIa-
ton not covered by United States bonds.
This fund is 10 constitute a cornr,,, 10