The Indianapolis journal. [volume] (Indianapolis [Ind.]) 1867-1904, 1898-02-26
BANK FEATURE OF PLAN
REVIEW OF PORTION OF THE MON
ETARY COMMISSIONS BILL.
If Enacted 1t Would Result in In
sequeDt Benefit to the Public.
snecial 10 tho 1ndlanapolis journal.

Special to the Indianapolis Journal
WASHINGTON, Feb. 25.-The effect OF
the plan of currency reform prepared by
the monetary commission in increasing the
ability of the banks TO extend accommoda-
tions to the public is the subject of some
interest computations ia the New York
Bankers Magazine for February. 1t APP
pears that, upon a capital Of 100000, there
is an increase of loaning power, above the
power under the present national banking
law, amounting to $5S,956 The primary
cause of this is the fact that the banks are
required under the present law to sink their
capital i'll the purchase of United States
bonds at a premium, that they actually
receive back less notes to be loaned than
the amount originally invested. The capt.
tai which might be loaned in the community
is transferred to the person or corporation
from whom the bonds are purchased, prob
ably in New York or some other money
center, just as the original holder trans
ferred the capital from his own community
to the keeping of the United States for
army supplies and munitions of war. The
essential feature Of the plan Of the COM
mission is that all the capital. with the ex
ception of q small proportion for five years.
is kept at home for loans within the COM
munity. The bank is able to loan the orig
inal capital, except the portion required for
reserve funds, and is able to loan also an
amount Of notes up to SO per cent. of the
capital, subject to only small deductions
The computation of the Bankers Magazine
is based on the assumption that under the
present law q national bank would take out
only the minimum required circulation
which, upon a capital of $4,000 would be
So, 500 The result would not be very differ
ent If the whole capital were invested in
bonds. 1t is also pointed out that banks
with capital OF $4,000, which are permit
ted by the plan Of the commission, would
be able with this capital without taking ac-
count of any deposits, to make loans
amounting TO $S6,773. This says the Mag
azine, would appear to be sufficient adj
vantage to induce every sound bank in the
country to put itself under the supervision
OF the national banking laws" The obvious
effect of this increased loaning power will
be to make money easier in sections where
it is now hard to get and to reduce interest
rates by means of the wider margin afford
ed to the banks and the competition which
the new system would be likely to develop.
The effect of the plan of the monetary
commission on the banks, as set forth in
detail in the Bankers Magazine, is as fol-
lows:
THE Increase in Loaning Power and Con-
Sequent Benefit to the Pubic-Heretofore
the benefit to be derived from bank circula-
ton based on the plan Of the commission
mas peen considered from the standpoint of
the bank. The rate assumed for bank
loans, 8 per cent, is a high one, and does
not prevail throughout the country, though
tnere are some localities and sections where
the rate Is even higher. The banks also
nave TO pay all the expenses connected with
the issue and redemption and transporta-
n dn-
pend too entirely upon the demand for ac-
commodatlon on the part of the public 1t
mas been the complaint that the national
banks pan under present law, do not satisfy
this demand. 1t will now be seen how, un-
der the plan OF the commission, the power
of the banks to meet this demand is in
creased. AT present a bank win SlUJvslO
capital can loan only its capital and such
deposits as it may have in excess of the
legal reserve required to be kept. The
power to loan deposits will remain, under
the plan or the commission, the same as
comparison.
Under present law a national bank with
100000 capital is obliged to deposit bonds of
the par value of SIS 600. Assuming that the
bank deposits fours of 1907, these bonds will
at present prices C12.5) require the invest
ment OF $2S,l2 Of Of, its capital. 1t has remain
ing Ior loans $l,SIs. On the $4,000 bonds
II can issue circulation of $4,000, less re-
demption fund of 81 l25, leaving $21. 375.' The
toli amo4 th the bank can loan Is $50 $50
required to deposit bonds of the value OF
SIS, 600 calculated on basis of 8 per cent.
As has been seen, to procure these bonds
the bank will have to invest S26O44 of its
capital, leaving $685. On these bonds it
issues circulation of $4,000, less 5-per-cent.
redemption fund of $780, leaving $23 $50. It
can also issue. without tax $4,000, less 5-per-
cent. redemption fund and 5-per-cent guar
anty e$S5Oo), leaving So. So 1t can also issue.
with 2-per-cent. tax, $40, 900, less 10 per cent
$4,000, leaving $4,000. This makes the to-
tai amount available for loans $l47 206, and
the total increase of loaning power $53 956
or over so per cent. In addition, the bank
has the privilege of issuing $lJ,vC0 more CIR
will never be done with much, IL any ex-
pectation of profit to the bank, but at times
1t VIII be availed OF for the benefit of the
public"