The herald. [microfilm reel] (Los Angeles [Calif.]) 1893-1900, 1898-12-07
MUNICIPAL BONDS AS BANK RE.
SERVE INVESTMENTS
NATIONAL BANKS CONDITION
The Comparative Stability of Securi-
ties-Pathetic Appeals of Insur-
ance Men-Dividend Notes
OFFICE OF THE HERALD,
Los Angeles, Dec. Q, 1888.

When banks reserves are large, how
shall such funds be invested? This question
is ever before the bank official and on its
solution depends to some extent the pros
perity of the institution as reflected in divi-
dend payments Mr.. +. NJ. Campbell, who
read all excellent paper before the Indiana
bankers association few days since in
answer to this query, took the advanced
ground that municipal bonds formed the
best outlet for surplus reserves. His re-
marks, says the New York Financier, are at
tracing some attention in financial circles,
and even those who assume to critcise his
deductions are put to the test OF offering
a better solution. Mr.. Campbell in his adj
dress pointed out in support of his views the
very small percentage of loss attaching to
municipal bonds through failures of COM
munities issuing them to meet their obi
cations. He also cited the fact that such
bonds fuctuate even less in price than gov
ernments, and were to be preferred not
only on that account, but because they
yielded a higher income. Their instant con-
vertibility into cash was referred to and in
Q general summing up Mr.. Campbell paid
high tribute to this class of securities as
an investment and recommended them as a
substitute for correspondent balances. One
drawback which will present itself immedi-
ately to those who dissent from these
views is the lack of specific center for the
sale of municipal bonds in formal manner
that is, the lack of an exchange where daily
quotations or transactions are recorded OF
course, there are dozens of reputable dealers
who are ready to buy blocks of bonds on
short notice, and at fair price but the
question of their real value is a matter of
individual or private judgment. In other
words the bid price is not competitive one,
except that the buyer may offer higher
figure in hope Of obtaining an issue as
against possible unknown competitor. This
view may not be correct, but we imagine
that bank wouldlprefer an exchange quo
tation to a private offer. As. Mr.. Campbell
asserts, municipal bonds are convertible
into cash, but once they began to be alb
sorbed into bank reserves, does it not follow
that the very fault he finds with govern
ments because of depreciation due to the
pressure of banks to unload in time of panic
becomes applicable in the same degree to
muncipals? The crises affecting banks are
generally common in origin and of wide ex-
tent territorially. Therefore, if financial in
stitutons suddenly find demand which
calls for idle reserves, they take the same
measures for protection, and this involves
that fluctuation of which complaint is made
AT the same fine it must be said that
between some methods for the disposal of
idle reserve and the employment of excess
funds in the purchase of municipal securi-
ties the latter is far superior. Banks IN
large centers and with active accounts, of
course, could not adopt Mr.. Campbel's sug-
gestion Smaller institutions might do so,
but until municipal bonds attain the dignity
Of listed securities-and that they will ever
reach this position except in the case OF large
communities is doubtful--his remarks are
limited in application to a restricted class
of institutions.
In the very nature of their business, some
banks depend for accommodations on their
balances, and as collections go hand in hand
with reciprocal accounts the saving on one
hand would be offset by the severance of
profitable relations on the other. For all
that however, Mr. Campbell speaks for
class of banks which will echo his senti
ments. A general adoption of them, we are
afraid, would defeat the object in view by
establishing fictitious price for the securi-
ties recommended, and lead to serious con-
fict with institutions which invest the
money of their depositors as the law di-
reefs, and at price sufficient to yield fixed
average return.