The Indianapolis journal. [volume] (Indianapolis [Ind.]) 1867-1904, 1898-12-05


lutionary as TO bring about the most in
OF the country
The controller then fully discusses the
claim that there is an adherent moral right,
Irrespective of public policy, to Refer a
note holder over a deposit holder in the
distribution of the assets OF an irsolvunt
bank, and denies that such right exists Aft
er reaching this conclusion the controller
then asks: If, then, there is no inherent
moral right TO establish preference of the
nOte-holding creditors CT an nsolvent bank
az against the deposit-holding creditors in
the distribution of the assets of an insolvent
bank, the question arises, does public policy
demand, In the interest of the common good,
that such a preference should be given in
order TO establish bank-note system which
wiz EIve banks such a profit that to Sc
cure it they will relieve the United States
treasury OF the burden Of gold redemption
end afford the country a circulating medium
having alleged advantages over that now in
usey He then states: In order to determine
this question actual data at command must
ba examined critically in order to under
stand the nature and extent Of the wrong
done the depositor class by this preference,
and the consequent effects Of this wrong
upon the community at large and itS BUSH
ness"
WHERE THE BURDEN FALLS.
The controller then presents a series of
tables which indicate more exactly upon
what class Of depositors the real burden If
this preference VIII fall with almost crush
ing weight. These tables give. approximate
RAbPCS~0
plans would result to depositors from the
preference of notehOlders over deposit hold
ers in case of insolvency. based upon the
showing made by the 1s5 insolvent national
banks whose affairs have been finally closed
during the existence Of the system.
For the purpose Of these tables it is as
huIned IN the case of each class of tnSolV-
ent banks that their officers would have
made the same proportionate losses upon
the commercial assets in which the notes
issued were invested that they actually did
upon the assets i'm which the deposits and
capital of the banks were invested. To the
good assets of these different classes of in
solvent national banks, as shown by the
records of this office. has been added the
amount which would have been realized
from the unsecured notes issued If loaned
or invested with the same rate of loss as
was made upon the money invested In the
actual assets From the assets thus in
creased there is subtracted 50 per cent. of
she preferred note issues proposed Ito Wit,
the par of the notes less the per cent. re-
Qcmption fund held by the government,
which leaves the amount which would then
so TO the depositorS and other unsecured
creditors. This amount, in terms of per-
centage Of their total claims, is then COM
pared with the percentage of their claims
actually received, and the loss which would
be caused by the preference is thus APP
proximately disclosed i'm the difference.
The tables give these results bearing upon
the interests of depositors in banks accord
Ing to geograp hcal sections and according
10 the following classlfications of capital:
$4,000, 100000, $20O0O0 100000, $4,000. and
banks with a capital exceeding $4,000.
These tables which are elaborate and
stance, they show that the depOsitors of A
1nsolvent banks, having a combined capital
with cash dividends paid depositors of ST.
1856 $50, or 71.61 per cent, situated in the mid
die States CT Ohio. Indiana, Illinois, Michi-
gan, Wisconsin, Minnesota, Iowa, and Mis-
souri,, would have lost, by preference of the
note holders with 100 per cent. issue, SO 20
per cent more than under the present
Esxyzf nFo ar nc of niXinannGs
with an 20 per cent. note issue 81 per cent.
mere, ABS per cent. of their dividends;
and with so per cent. issue. 1882 per cent.
more, or 1926 per cent of their dividends"
HOW SECTIONS WOULD SUFFER.
They also show that as compared with
the rate of loss to the New England de-
posltor through the preference of the note
holders in cases of insolvency, the issues of
uncovered notes being either 100 per cent,
50 per cent or 60 per cent q the capital,
the depositor in the Eastern States will lose
at a rate of nearly two and one-half times
as great; the depositor in the Southern
States at rate nearly three times great;
the depoStor in the Pacific States at rate
four times as great; the deposition in the
middle States at a rate of over four and
one-half times as great and the almost OBJ
liberated depOSitor in the Western States at
rate over seven times as great.
The controller then states that from the
tables whiefr we have given it is evident
tEat from the depositors in smaller ma
tional banks of from $4,000 to 100000 cap
ital, and from the depositors of the newer
sections of the country, the greater amount
OF the cost of this radical experiment in
currency must be collected. Thus upon
those deDositors least abe to endure loss
must the heaviest losses fall" He further
states: Those locations where deposits are
the smallest and therefore where there
would be the greatest incentive to the talk
ing out of increased circulation, are those
where the depostors would suffer the most
severe losses, because of this unjust prior
lien of noteholders upon the assets OF IN
solvent banks The measure will stimulate
IN still greater degree the tendency of the
money of the country to flow to the great
money cenTees, where to fewer institutions,
as time aHd competition progress, would
pass the .nstpagetlacSt and control OF the
savings and capital of the country. We
cannot agree to the wisdom Of any measure
which accelerates tie Capitalization of cap
ttal in the great cities, and by separating
ln location hose who lend from the many
who use money will encourage the growth
of commerce only in the form which has
q tendency to crush out general business
I'm the bank-note issues of foreign coun-
tries in case of insolvency" says the con-
froller, the noteholder would, II IS I'M
derstood, enjoy no preference over the de-
post 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 pro-
posed in these plans for the United States
Is necessary. In country only. Cam
ada, are the noteholders preferred over the
depositors in case Of insolvency. The note
issuing banks of Canada are but thirty
eight in number, with a combined circuia-
ton of about $3S 600. COO"
The controller states that he cannot ac-
cent as safe any deductions drawn from the
bank-nOte system Of these few central insti-
tutions OF eastern Canada which would tend
TO justify the application of the laws gov
ernfng that system to the $500 national
banks Of this country.
SUMMARY OF HIS VIEWS.
The controller calls attention, as sum-
mary of his views upon the proposed plans,
to these propositions:
'sFfrst-As a fundamental proposition, any
bank-note system depending for security
upon the commercial assets Of banks and
sanctioned by government should be inner
entIv fair in it's relation to the deposit-hold-
ing creditors and the note-hold1ng creditors
of an insolvent bank.
Second - No system Is inherently fair
which creates a preference or the note
holder over the deposit holder in the dis
fribution OF the assets. of an insolvent bank.
..Third-In none of the older countries, to
the success of whose uncovered note systems
we are referred as tending to Justify the eN-
pertinent in this country is the noteholder
6y the Law preferred over the deposit holder
IN case of insolvency OF banks of issue.
Canada. with it's thirty-eight central banks
of issue, as compared with 5000 scattered
national banks in this country, furnishes
the only exception 10 this rule.
'tFOurth-The necessity of the preference
under any such system in this country 10
give security and credit to the notes demon
sfrates thai it is the depositors or the coun-
try and not the banks, upon whom the
great weight of the guarantee or the note