The semi-weekly messenger. [volume] (Wilmington, N.C.) 1897-1908, 1898-12-30

amount, would never for one monen
below par, no matter how bad the
1.4lure of the issuing bank, because
they would be redeemed on deriand
from the safety fund in the treasury.
The treasury would then have a lien
upon the assets Of the failed bank for
it's ratable proportion, according to .he
amount Of notes redeemed.
The notes issued upon commercial
assets would have a different character
from those based upon bonds. more
over, in the fact that they would come
back rapidly to the banks and the
treasury for redemption. When receiv-
ed at the treasury they would be
charged against the gold deposit made
there by the issuing bank ard notice
would at once be given the ban tc
make the fund good. A refusal or un-
reasonable delay would lead the comp
troller to order the bank to be closed.
The more frequent presentation of the
notes than under the present system
would thus subject the solvency of the
bank to constant test of redemption
in coin on demand.
TEST OF SOUND BANKING.
This is the infallible test Of sound
banking, because it requires that the
assets shall be kept in such liquid form
that they can be quickly converted into
! cash. A bank which keeps its assets
in this form and does not sink them in
| enterprises incapable of yielding i'm
mediate results cannot suffer serious
| losses. Quick redemption is n Of the
I! essential requirements of all well-con-
/ sidered projects on this subject. There
was no way of securing quick redemp-
ton by the old wildcat banks. They
were not under a uniform national sys-
tenn, and In ANY cases there were no
requirements for redepmtion. A hatch
of notes would We printed in one state
inc sold at a d.4count in cash in some
distant state, with the purpose of keep
ing them in circulation far away from
the issuing bank.
9TH worst of these wildcat banks
by the way, did not base their note
| issues upon commercial assets, and
never had any such assets. They were
allowed to issue them On bonds, just as
under the national banking system, but
the bonds were state n local bonds,
which proved worthless when the pinch
came. Bonds in themselves, even when
gilt-edged, do not afford as liquid a
form of assets as commercial paper,
which is coming due and being paid
from day to day. The national banks
are able to meet their liabilities in
cash, on demand, not so much because
they have first-class bonds on deposit
against their circulation as because
they are required to keep not less than
~ peI cIll vi tUcII IldD1ilIlcS III lIlclI
reserves in lawful money or in New
York deposits"
WHAT COMPTROLLER DAWES
SAID.
But did not Comptroller Dawes
demonstrate in his recent annual re-
port that even if the notes were Sc
cured the ank depOsitor would suffer
under a system of note issues based
Upon commercial assets?"
Nothing of the Sort" was the reply.
Il am glad you have given me an op-
portunity to correct a current miSap-
prehension on that subject. The comp
troller directed his criticism to the
proposition that the notes should have
a preference upon the assets for their
full amount over all other liabilities.
He demonstrated correctly that in such
a case the. assets of some of the small
banks which have mad bad failures
would be largely absorbed for the re-
demption of the notes in full, and that
the dividends paid depositors would be
considerably reduced. But the provis-
ion which he criticised is not in anv
way essential to a sound bank note
currency, based upon commercial as
sets. The provision was put in some
of the bills before congress in order ID
give a bond to fate in regard to the
security of the notes. The prejudices
against the wildcat banks was the
cause of this provision.
Il think education has advanced far
enough on the subject, with those who
have given it any serious attention., to
convince them that the notes, if prop
erly limited in amount, would be abso-
lutely secure without a first lien. The
calculations 1 presented above, regard
ing the fraction of l per cent. required
to raise a sufficient. safety fund to
cover all losses, were based upon equal
treatment for the noteholder and the
depositor so far as the assets are con-
cerned.
ADVANTAGE OF SAFETY FUND.
1.-THE n%oteholder simply gets the adj
vantage of the safety fund, which COW
ers that portion of the value Of the
notes not covered by the dividends paid
from other realized assets. If the notes
were a first lien the tax would be reduc
I'd to the vanishing point. The whole
amount required to be made good from
the safety fund in that case from 1864
to 1897 would have been S194, 1923, or less
than $6, 900 per year. This would require
an annual tax upon the solvent banks
of one four hundred and iftieth of l
per cent, or about $22, upon a circuia-
ton og 5 $1,000, 600. The amount required
annually, if the notes were not a first
lien, in order to cover all losses would
be 1855 upon a circulation of 81, 900, O0O,
while the tax actually levied by the
government under existing law is
$4,000.
st hin it is Obvious~that a I'M
note system resting upon a solid basis
of the commercial wealth of the coun-
try would not only be absolutely secure
for the noteholder, but would leave the
rights of the depositor u~nimpaired and
impose an insignificant burden upon
the solvent banks"
There is food for thought and action