The sun. [volume] (New York [N.Y.]) 1833-1916, 1898-02-11
Rates or Interest Under Wildcat
Banking.

The advocates of a currency reform which
shall permit banks to issue currency upon
the security Of their own assets alone, have
abandoned their efforts to persuade the
public that such q reform will not be for
the benefit of the banks. They now concede
that it will greatly increase the profits Of
those institutions, but they also Insist that
these increased profits will be shared with
borrowers by allowing n reduction in The
rates of interest on their borrowings. Thus
the Times, of this city, said yesterday:
"In the money contrcs. where money Is cheap. the
issue of notes on the basis OF assets would yield
small returns, but In the country districts, where high
rates prevail, the margin Of profit would be 30 good
that the banker could trei oTord to make fair d..
tfsiom trith borrowers bv reducing the interest rate
on loans. 1t is perfectly safe to assume that any
privileges which the law might confer on bankers or
banking institutions troutd be Juliu shared bv Gus.
toners Of the banks. Nobody would or could have q
monopoly of the banking business In any locality,
and competition would reduce the profits of banking
to q minimum. As rule, in fact, the prompt solvent
borrower would obtain JourJJths Of the profit of
bank note issues"
The assumption which the Times here
makes, is the reverse of safe. 1t will be a
new thing in tho history of banking for
bankers to lend money ut less than the
highest rates they can squeeze out of the
borrower. Besides, IL four-ffths of the
profits of issuing currency are to be sur
rendered to borrowers the remaining fifth
will not pay for the trouble and risk Of
the issue. Nevertheless, the Times proceeds
to say. in support of its argument:
prior to the war, before the Government went into
tho banking business. and when all paper money was
issued by the banks. loans trerc obfainablc at o per
cent. in almost any Tdrt Of the country, horerer re-
mote from the money centres, and this was directly
due to the fact that bankers found a prom. in note
Issues and shared it generously with their customers"
This assertion Is not only untrue, but 80
contrary to the truth that nobody would
venture to make it who was not completely
ignorant of the country's financial history,
and who did not assume that other people
were as ignorant as himself. In this State
the legal rate of interest was z per cent. per
mum not only prior to the beginning Of
the war, but for nine years afterward.
The usual rates of discount for mercantile
paper We're from 8 to 10 per cent. and in.
tercst on bond and mortgage ON real estate
was z per cent. In Chicago, Cincinnati, ST.
Louis, and other Western cities the rate of
discount was usually 10 per cent. and fire.
quently more. Loans on bond and mort
gage at S per cent. were thought to be
cheap. In California money lent at / per
cent. a month and often for more. In the
country districts of the West and the South
a borrower was lucky if he did not havc to
pay more than IL per cent. and a commits
sion besides. To say, therefore, that "prior
to tho war loans were obtainable at 6 per
cent. in almost any part of the country,
however remote from the money centres"
and to promise a recurrence of the same
blessing If banks shall again be allowed to
issue currency on their own assets alone, is
trading upon public credulity.