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

more important functions OF natlohdi Ddlhs
to which the note issuing function IS Sec
ondary and subordinate. This would tie
against public policy and would operate
against banking in the smaller commune
ties, and in the Western, Southern and EN-
trail portions of our country.
"Eighth-The government of the United
States is not in such straits, IN conuection
with its present currency system, as TO
compel ii to enter into plan OF curren ~
changes by which it in effect sells EXTENDED
and valuable currency privileges TO the ma
tional banks of the country IN eXcn2nge Tor
assistance from them in meeting its pres.
ent governmental currency obligations pay
''Nint6-If the present conditions of gov
ernmental currency demand reforms, TO Sc
cure which will entail cost, 1t is better for
the government. as the representative of all
the people, and under all the circumstances
connected with our banking system, to pay
an ascertained and exact cost direct than
to endeavor % evade ii by granting extern
sive 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 maintaining
the credit of their notes.
ELASTICITY.
The controller then discusses the question
of the elasticity needed in bank currency,
commenting upon the great elasticity of the
check and draft circulation of the country.
In this connection, and as embodying his
recommendations on this branch of his re-
port, he says:
While in this country, with it's extended
system of banks and its great development
of the check and draft system. some degree
OF elasticity in bank-note issues is desirable,
II IS not essential that 1t should be an
amount so large as to make necessary for
its security an injustice upon the depositor.
and thus, by interfering with the check and
draft system, defeat one of it's own prime
objects. The general principles and regula-
tons under which such elasticity might be
obtained are not in any way inconsistent
with the principles and arguments we have
endeavored to set forth. As covering these
general principles and as a conclusion
from the views hereinbefore expressed, the
controller would make the following recon-
mendations in regard to the present laws
governing the issue of national bank notes:
"First-The existing bank-note system
based upon deposit of government bonds as
security, should not now be abandoned
Second-For the purpose of allowing
elasticity to bank-note issues to protect the
banks and the community in time of panic, a
small amount of uncovered notes, in addi-
ton to the secured notes. should be author
lied by law under the following limita-
tons: They should be subjected to so heavy
tax that they could not be issued in nor
mai times for the purpose of profit, but
would be available in times of emergency.
The tax should be so large upon the solvent
issuing banks as to provide a fund which,
in connection with the pro rata share of the
assets of an insolvent bank, would be suf-
fcient to redeem the notes in full without
necessltaung any preference Of notehoiders
over depositors of any insolvent issuing
bank. The tax should he so large as to force
this currency into retirement as soon as the
emergency passes
Such q currency could be used only to
lessen the evil effects of the too rapid liqui-
dalton of credits which are collapsing under
financial panic, but could not be profitably
used as a basis of business speculation and
imitation. 1t should be to the business COM
munity what the clearing house certificates
are to our cities in times of panic-a remedy
rent business.
The controller under the head of "Limita-
Section 500 of the national banking law by
which he will be given power to enforce
personal penalty for infractions of the
law prohibiting excessive loans, something
which the law does not at present give. He
then recommends an amendment which Will
allow the banks of larger communities TO
given per cent. of their assets to one indi-
vidual, which now belongs, under strict
compliance with the present law, to the
banks of the smaller communities.
Referring to the violations of the present
law, the controller says: "A United States
court, under the general provision of the
franchises of a bank for any violations CT
the banking act, might adjudicate the Ques-
apply. no other remedy than forfeiture of
franchise. Since the institution of the ma
tional banking system the violation of this
provision has been common: and the con-
troller, though allowing no known violation
to escape his written protest, finds great
practical difficulty in his endeavors to en-
date of the last .call by the controller for
statements of the condition of national
banks, 1,124 banks, constituting nearly one
third of the entire number of banks in the
system, reported loans in excess of the
limit allowed by Section 5000, Revised Stat
uteS of the United States"
RATIO OF RESOURCES.
The controller says: THE greater ratio
borne by banking resources to banking capt.
tai in the larger communities, as compared
is responsible for the defective and unequal
working of the present provision. The aver
age ratio of resources to the average capt.
tai Of the forty-seven national banks in the
city of New York is as IS is to 1: OF the
seventeen national banks in Chicago as 1872
is to 1; of the six national banks in St.
Louis as 7.S is to 1; of the 257 national
banks in other reserve cities as &C is to l;
while in $3.50 country banks the ratio is but
as AZ is to l.
THE law limiting loans to 10 per cent. of
the capital, when applied to the 3,255 banks
of the smaller communities of the country
as whole, would allow the loaning of 214
Der cent. of their total assets to one indi-
vldual. AS compared with this, the banks
of the city Of New York. on the average
could not loan over fifty-siX one-hundredths
of l per cent. OF their total assets to any
one individual; the banks of Chicago not
over ninety-eight one-hundredths per cent
of their total assets: the banks of St. Louis
the banks of other reserve cities not over
Isl per cent. of their total assets. In other
words. the proportion of their assets which
the country banks of the United States can
loan, in strict compliance with Section 600,
to one individual, is siXty-three one-hun-
dredthS of / per cent. greater than i'll 25I
reserve cities. seventy-four one-hundredthS
of per cent. greater than in st. Louis, over
twice as great as in Chicago, and nearly
four times as, great as in the city of New
York This provision as it stands at pres
ent constitutes incentive TO the making
of loans the larger in proportion to the
total assets of banks in smaller commune
ties where. as a rule. large loans which are
in the larger business centers of the coun-
try where commercial conditions create
certain demand both from banks and Dor
rowers for large and safe loans, its effect
ia the reverse to such an extent as to be
INJURIOUS
He then SAYS: 1.-THE habitual disregard
of the present provision by the officers of so
many banks interferes with the proper SUI
perVision of the banks by the controller, and
tends to create indifference to the other re-
strictions of the national banking law. The
failure of the present law to provide the
power to apply a personal penalty Tor the
making of excessive loans sometimes en-
harnesses the controller in endeaVoring TO
loanng, which point to the ultimate ruin of
a banking institution. AS before stated, the
present provision, when properly altered,
should allow the banks of larger communi-
ties to have more nearly the privilege or
leaning a given per cent. of their total as
sets to one Individual which now belongs,
under a strict compliance with the present
provision to the banks of the smaller COM
munities. From this privilege they are now
debarred by law.
CHANGES SUGGESTED.
1.-THE desired results can be obtained, in