Evening star., 1898-12-05

] OF their tlNttCniE.
They also show that. compared with
| the raiC OF loss To the New England de-
| pnsitor through the preference of the note
| holders in cases of Insolvency the issues OF
uncovered notes betting either 100 per cent,
\ ~ Tcr cent or 6n per cent OF the capital.
| Tho dcpositor in the eastern states will lose
| a rate ~ nearly two and onc-half times
| Hs great, the dCpostpr In the southern
| states al y rate nearly three times as great:
| trc drNrsitor In the Pacific states at a rate
f''ir times "a great. the depositor In the
n'iaal" states at rate over four and one
/ h't limos as great, and the almost oblit-
Grated drpoSitor In the western states at
| ts'e over seven times as great
In the bank note issues of foreign coun-
! tries IN case Of insolvency" says the con-
/ ;roilcr. the note holder would 1t Is under
| stood, enjoy no preference over the deposit
| holder. They would share ratably in the
assets To give the credit which enables
| the notes Of these great banks to circulate,
| restricted by stringent laws as they are, no
injustice To depositors such as is proposed
in thcse plans for the United States Is neces-
sary. In one country only. Canada. are the
| note holders preferred over the depositors
| i'm case OF Insolvency. The note-issung
banks OF Canada are but thirty-eight In
number. with u combined circulation of
about Sssoo0 COO
| Summary of Views.
The controller calls attention as a sum-
mary of his views upon the proposed plans,
| to these propositions:
Il AS fundamental proposition. any
| bank note system depending for security
| upon the commercial assets of banks and
sanctioned by government should be in
| herently fair in its relation to the depos-
it-holding creditors and the note-holdins
creditors of an insolvent bank.
-. No system is inherently fair which
creates preference of the note holder over
the deposit holder in the distribution of the
assets of an insolvent bank
''3. In none Of the older countries to the
We are referred as tending to justify the ex-
pertinent in this country, is the note holder
hy the law preferred over the deposit holder
IN case of insolvency of banks of issue.
Canada. with It's thfrty-eight central banks
of issue. as compared with 5000 scattered
national banks in this country. furnishes
the only exception to this rule.
II The necessity of the preference under
any such system in this country to give
security and credit to the notes demon
Sfrates that it Is the deDositors of the
country. and not the banks. upon whom the
great weight of the guarantee of the note
issue must fall.
-, y fairer system would provide that
when receiver took charge of an in
solvent bank he should not first pay into
the general redemption fund held by the
government amount derived from the
assets of the bank sufficient to nay the
note holders In full before paying anything
to deDOsitors. but he should pay into the
fund that pro rata share of the proceeds
derived from the assets which should go to
the note holders, not preferred creditors
but as creditors in the same class az de-
pnSifOrs
The tax upon the solvent banks for the
currency privilege should not. then. be lin
tied to not exceeding per cent per annum
of their annual note issue. or in any other
amount. bur should be made sufficiently
large to provide for the deficit whatever
II should prove to be.
's, If under such a system. owing to
causes to which We have referred, the tax
upon tho solvent banks would be so large
as to render the issue OF such currency
Improbable and unattractive to the banks.
II would be a demonstration of the radical
| difference in the environment and condition
| OF our banking system as compared with
the more centralized and older system of
| Europe. 1t would he a demonstration of
the fact that under the proposed legisla-
| tion. while the banks would take the profits
upon the circulation. the depositors would
| take the bulk OF the losses.
A Grave Injustice.
1t would be conclusive demonstration
| Of what we believe TO be the fact that
under our banking system as at present
| organized, the absolute safety of notes Sc
| cured only by commercial assets and is
sued TO the extent proposed in these plans
can be secured only by resort to a grave
injustice upon depositorS which cannot be
| icy
-. Such a system of uncovered notes as
l.'-S Pi PipD'Scu proNldlng iOr q preference of
the note holders over other creditors would
interfere radically with the more important
| functions of national banks 10 which the
note-lssuing function is secondary and sub
| ordinate.
This would be against public policy and
would operate against banking in the small
| er communities, and in the western. south
| efn and central portions of our country
| y The government of the United States
| IS not In such straits. in connection with
| us present currency system. as to compel
| II 10 enter into plan of currency changes
| bE which it in effect sells extended and
| valuable currency privileges to the national
| banks Of the country In exchange for as
slStance from them in meeting its present
| soFeFnmental currency obligations payable
| in gold,
| - If the present conditions of govern
| mental currency demand reforms, to secure
| which VIII entail cost, it Is better for the
! government as the representative of all
| tho people and under all the circlInostances
! connected with our banking system to nav
| an ascertalned and exact cost direct than
| 20 enaeaVor to evade it by granting exten-
! SiNe currency privileges to banks which Of
/ necessity must reimburse themselves from
/ the community and the depositor class for
| any cost which they incur in assuming the
| burden Of gold redemption or maintaipino
| the credit of their notes.
| Elasticity In Currency
| The controller then discusses the ouas
ton of the elasticity needed in bank cur-
I 'i-4iNi-iS d'pii tiit great eidStlcltV
| OF the check and draft circulation of the
| country.
| In this connection and as embodvine hfs
! re"ommendations on this branch of his re-
| port, he says: ms
| FIRST The existing bank note svs.ern
! hstsHd upon deposit of government bonds as
| security, shouid not now be abandoned
| second. FOR the purpose of allowing elias
| tiity TO bank note issues to protect the
| banks and the community in time of panic
| q smal amount OF uncovered notes in adj
! dltion TO the secured notes. should he an
! 'horlzed by law under the following Ilrni-
! talions: They should be subjected TO so
| heaVy tax that they could not be issued in
| normal times for the purpose of profit but
| Gould be available in times of enlergency
Inc tax should be SO large upon the solvent
| issuing banks as to provide fund which
| IN connection with the pro rata share of
| the assets Of an insolvent bank, would be
| suHcent to redeem the notes in full with
| oul necessitating any preference of note
| hoiders over depositors of any insolvent is
suing bank. The tax should be so large as
! t. force this currency into retirement as
soon as the emergency passes.
| Such a currency could be used only to
| lessen the evil effects Of the too rapid liuui-
/ dat ton of credits which are collaDsng under
| q inanciai panic, but could not be profitablv
| used as basis of business speculation and
| imitation. II should be to the business com
! mUnity what the clea carti6cotae