The Indianapolis journal. [volume] (Indianapolis [Ind.]) 1867-1904, 1900-11-26

would Indicate improper distribution of
loans something which infractions OF the
present provisions in the case of many
banks DO not necessarily indicate.
The greater ratio borne by banking re-
sources to banking capital in the larger
communities. as compared with like ratio
in smaller communities, IS responsible for
the defective and unequal working OF the
present provision.
The average ratio of resources to the
average capital of the fory-four national
banks in the city OF New York is as 1l-5
Is to 1; OF the sixteen national banks in
Chicago as AZ Is TO /; of the six national
banks in St. Louis as So Is TO /: of the
266 national banks in other reserve cities
as is to /; while I'm the 400 country banks
the ratio is but as 6.1 is to i.
The law limiting loans to 10 per cent. OF
the capital wnen applied To the 3,4OO
banks of the smaller communities or the
country. as a whole, would allow the loan
ing OF 155 per cent. of their total assets 10
one Individual. As compared with this, the
banks of the city oil New York, on the
average. could not loan over hfty-seven
one-hundredths of per cent. OF their total
assets TO any one Individual; the hanks
OF Chicago not over seventy one-hun-
dredths per cent. of their total assets; the
banks of ST Louis not over III per cent
Of their Total asets; the banks OF other
reserve cities not over LILO per cent. or
their total assets.
In other words, the proportion of their
assets which TIC country banks Of the
United States can loan, in STREE compi-
ance with Section 500, to one individual,
IS forty-six one-hurdredths of / per cent
greater than in 266 reserve cities, thirty
five one-hundredths of ! per cent greater
than in 81. Louis, over twice as great as in
Chicago. and nearly three times as great
as in the city of New York.
This provision, as ii stands at present.
constitutes an incentive to the making OF
loans the larger in proportion TO the total
assets of banks in smaller communities,
rule lar
safe are the most difficult to secure, while
liz the larger business centers or the coun-
try, where commercial conditions create
a certain demand both from banks and
borrowers for large and safe loans, It's
effect Is the reverse 10 such an extent as
to be injurious.
ALL ON THE SAME FOOTING.
The controller states that in his judg-
ment the present provision, when prop
erly altered, should allow the banks of
larger communities TO have more nearly
the privilege OF loaning a given per cent
of their total assets to one individual.
which now belongs. under a strict compli-
ance with the present provision, to the
banks of the smaller communities. From
this privilege they are debarred by
law. He suggests that after the words, In
Section $780, "shall at no time exceed
stock OF such association actually paid
in the following words:
Provided That the restriction of this
section as TO the amount of total Liabilities
TO any association of any person, or of
any company. firm, for money borrowed
shall not apply where a loan in excess of
one-tenth part of the capital stock shall
be less than per cent of the total assets
OF said bank at the time of making said
loan Said loan shall be at all times pro-
tected by collateral security equal to or
greater In value than the excess In the
amount of said loan over one-tenth Of the
capital stock"
A strict penalty enforceable by the con-
troller should then be provided for infrac-
lions OF the amended section by the officers
o. banks to enable the controller to sue
cesSfully enforce general and strict COM
pliance with its terms.
The suggested amendment will make Sec
ton 800 just and equitable in its relation
to all national banks and to all commune
ties OF our country, large and small, which
u Is not at present. 1t would not lessen
the amount which the smaller banks can
now loan in compliance with the section as
IL stands at present AT the same time 1t
would not allow the larger banks to loan
than 10 per cent of the capital, unless such
loan, in addition to being secured for the
excess, would not amount TO a greater
per cent. of the total assets than is con-
sistent with the safe distribution of loans
and the resultant protection to depositors.
Section 800, thus amended, Will not inter-
u, Ol
banks in the larger communities to meet
the legitimate requirements of business in
these commercial centers. 1t will enable
the controller, by its enforcement, to pre-
vent any undue concentration OF loans and
conserve their general distribution. Under
the section thus amended the capital of
a bank will be protected, inasmuch no
loan in excess of the 10 per cent. limit can
then be made, except upon proper collat-
eral security. The penalty clause VIII
enable the controller not only to limit the
size, but to enforce the securing of ex-
cessive loans.
GENERAL CASH RESERVE.
The question of those laws which affect
the right of one national bank to consider
as a cash resource deposit in another ma
tional bank, called it's reserve agent, is
one of great Importance and involves the
most fundamental principles of safe bank
ing. The extent to which the reserve CT
one bank can safely be represented by
what is practically loan to another bank
instead of by cash in its vaults is proper
subject for consideration at this time in
view of the financial experiences through
which this country has passed during the
past few years.
In times of financial crisis, such as 1881
when there are widespread Withdrawals
In currency not only in reserve cities but
throughout the country, the reserve cities
are subjected TO a strain which endangers
the stability of the entire banking sys-
tenn.
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