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

teen counted as cash by the banks Of the
country was not, in fact, at all times avil-
able to enable them 10 meet the demands
OF their depositors While restrictions
placed upon the power of banks TO count
a banking reserve so large a portion or
money on deposit In reserve cities will
not have the effect of preventing specu-
iative transactions in money centers, it
will not have a tendency TO encourage
them TO so great an extent as does the
present law, at a risk at times to the best
interests Of legitimate business and at the
cost of weakening the banking system as
a whole by creating too great a dispropor-
ton between the aggregate cash resources
and aggregate deposit liabilities
Ii is to be remembered that far as
the ability of the banks to serve the pub
lie is concerned it will not be materially
impaired by smaller balances in reserve
cities. The banks. of necessity, must fur
nish exchange, and viii accordingly keep
the balance with correspondents necessary
for such purpose. The permission given by
the law to the bank TO count as a part of
their cash reserve a balance with their
reserve agent is primarily for the purpose
oS convenience and profit for the banks,
and not for the convenience of the public
in any of its relations to the bank.
The controller believes that under the
present law regarding reserve cities too
great latitude is now given the banks in
connection with the use OF the reserve,
the primary object of which is the pro-
lection of the depositors of the banks, and
he recommends that amendments 10 the
laws be passed requiring that larger pro-
portion of the reserve should be kept in
cash in the vaults of the bank. Consider
ing the banking system as a whole the
present ability of banks to use credits with
reserve banks as a basis of loans creates
too great an extension of aggregate de-
posit credits as compared with aggregate
cash resources, which, in times of liquida-
ton and financial panic, increases the ne
cessity upon the banks of demanding pay
ment of loans from the community and
adds to the decentralization of business in
increasing
restrictions upon the right of banks To
count deposits with reserve agents as casn,
a firmer and safer foundation will be built
under the deposit credits of the country.
and 1t is the belief of the controller that in
times of liquidation the greater strength
of the banks will more than compensate
them for the loss of the small amount of
interest on a portion of their balances
which may be due to change in the pres
ent law.
1t is therefore recommended that Sec
ton 5192 of the Revised Statutes OF the
United States be amended so that under It's
provisions but one-fifth, instead OF three
ffths, of the reserve of 10 per cent. required
by law to be kept by banks not reserve
agents may consist of balances due TO re-
serve banks. and that Section 5195 of the
Revised Statutes of the United States,
which authorizes banks in smaller reserve
cities to keep one-half of their lawful
money reserve in balances in central re-
serve cities, be repealed.
The controller repeats the Recommended
ton made by his predecessors that the
present law should be so amended as to
provide fixed salaries for bank examiners,
to be paid from fund collected from the
banks, to take the place of the fee system
now in force. The amount allowed an ex-
aminer for the examination of smaller
banks is not sufficient to compensate him
for the time necessary in many cases for
an extended examination. The present
system encourages to too great an extent
superficiality in examinations, and inter-
feres greatly with the proper and wise
apportionment of time of examiners among
the different banks.
Among other recommendations the con-
troller strongly urges laws regulating in
ternational and intercolonial banking as
distinguished from domestic banking, and
prints in appendix the result OF investi-
cations into banking conditions in Porto
Rico. Hawaii and the Philippines.