Evening star. [volume] (Washington, D.C.) 1854-1972, 1898-01-10
COMMERCIAL ASSETS
Proposed Basis for National Bank
Circulation.
WHAT is MEANT BY THE PHRASE
Representative McCIeary on the
Monetary Commission Plan.
NOTE ISSUES PROTECTED

NOTE ISSUES PROTE CTED
| The proposition of the monetary commits
| sion that the banking circulation of the
| country be based on commercial assets I'M
| ger proper safeguards, instead of on United
States bonds has caused some inquiry as
| to just what is meant by Commercial
| assets. The question was answered today
by Representative McCIeary of Minnesota
who is member of the House committee
on banking. and has given much study to
/ the subject.
The business or commercial assets of a
| bank. Mr.. McCleary said consist of it's
| commercial paper coming due at various
| times. The whole assets of a bank Of all
| classes, include all forms of Indebtedness
| due to the bank. The distinction between
| commercial assets and those of other class
es Is that the commercial assets usually
| represent business transactions between
| merchants and in any case consists of
| notes due within a short term. Taking. for
the sake of illustration, the reports of the
national banks of the United States on
| October ., 1891 the total assets of all class
es We're s., TO5, 1873, 707. The largest single
| item was loans and discounts" which
| amounted to s2,O51 COS, 43S The other lead
| ing items were the United States bonds on
| deposit with the treasury to secure crcula-
tlon S227 ,4SS.9JO; stocks and securities in
| the possession of the banks, SOS, S31 1853
demand debts due from other national
banks, $a5.9So, Al; due from approved re-
| serve agents the banks in the reserve
| cities where the country banks carry a por-
ton OF their funds), s297.017, S05; specie
| S:39, ,I02; and legal tender notes and GER
tlf1cateS of deposit for legal tender notes,
s149, 494a2a. 1t is the item of loans and
| discounts which constitutes the backbone
| OF the commercial assets of bank The
| other items are mostly recoverable in cash
on demand, and large proportion consist
| IN cash actually in hand"
| But how are these resources available
for the protection of note issueS?" was
asked.
| Protecting Note Issues.
| substantially all the assets Of national
banks,' was the reply, Except necessary
buildings and fixtures. which stood on Oc-
| tober ., 1897, at $40, 1884, are quick as
sets, or should be such. 1t is when they
| cease to be quick assets by becoming I'M
n arketable and losing their computed value
that bank is driven into embarras sment
The loans and discounts include the ad-
Vances made in currency, bank notes or
banking cra1its, which are represented by
the notes given by the borrowers These
notes, in most cases, are based upon actual
transactions in merchandise, which consti-
! tutes a security for the recovery of the
loan, although the merchandise is not spe-
clhcally pledged as in the case of property
represented by a warehouse receipt. Where
the loans are not based upon transactions
in merchandise, they are based upon the
credit and property of both the maker of
| the rotc and the indorser, so that if ono
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 system?' was the searching ques-
| ton next put to Mr.. McCleary. He replied
THE bank has maturing daily certain
proportion of the notes which it has dis
counted. The amount thus maturing daily
| in the United States at all the banking in
situations is estimated at $25,0D,OO. a
bank which needs to increase its cash re-
serve. therefore. has only to diminish it's
rev loans from day to day and husband
| the cash received from those which mature
AS most of these loans run for not longer
| than ninety days, the average daily col
lections cannot be less than One-ninetieth
part of its whole outstanding discounts
| and would amount in a week to about s
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 a 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-
r9ate 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 Monetary Commission Plan.
THE plan of the monetary commission
for currency reform proposes an issue
of notes not exceeding the capital stock
of the national banks, and not more than
eighty per cent except subject to a tax
of six per cent. The circulation subject
to a tax of six per cent would be issued
only in times of acute crisis and great
demand fer currency. The possible issues,
therefore, under ordinary conditions, upon
the existing capital of $631, 4SsU95. would
be $j05, 19O,3I6. Against this amount OF
circulating notes there would be total
asset: 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.
1t may be noted also that the actual spe-
Gle, legal tender notes and certificates of
deposit in the hands of the banks, with
the fund oe $1O.021 $3.50 in the hands of
the United States treasurer for the cur
rent redemption of notes, not to speak
| of other cash items, constitute 4 fund Of
about $33S, 900 600, or nearly four-fifths the
value of the notes.
You consider, then. the plan OF the
monetary commission an entirely safe one,
from the standpoint of the note holder?
I'm dealing with the question of cir
1
| the essential question is whether the
assets are Sufficient to cover the notes,
and 1t is obvious that they are many times
more than sufficient under the plan of the
monetary commission. That plan makes
the notes a first lien upon the assets. SO
| that they must he paid before any other
charges are met. The plan of the COM
| mission, moreover, provides that there
shall be kept III the treasury of the United
States q redemption fund, raised by &
tax Of five per cent upon the volume OF
notes in circulation not covered by United
| States bonds. This fund is to constitute
| "a common resource, out of which the notes
Of failed banks are to be promptly paid,
| pending proceedings by the government to
recover the amount from the assets of
the failed bank. The note holder thus
| secures the immediate redemption of the
note, without loss or delay, while the gov
eminent has not only the great sum raised
| for this purpose from all the banks. but
| the first claim upon the assets of the fail
ed bank for the amount which 1t has with
| drawn from The safety fund for the re-
| demption of the notes."
| Spanish bAdvfces From Cubn.
/ MI 1ao l,an, tn cd