The Topeka state journal. [volume] (Topeka, Kansas) 1892-1980, 1900-11-26

GERS amounted to 3255 per cent or about
indirect liabilities of directors and officers
amounted to 7.75 per cent of the total
loans and discounts of the national sys-
The COMPTROLLER then saws:
While these tables do not necessarily
indicate that national banking officers
1 ana MANY of Tnf fbes drector
loans are among the safest owned by the
the tables show clearly the great import
ance of a properly framed law placing
additional restrictions and safeguards
around these loans, in which, the exper-
ience of the banking system teaches, is
involved the greatest danger of the inn
proper and lax use of banking funds.
In formulating provisions Of law re-
stricting loans to executive officers and
them so unreasonable as to drive from
such service the active, responsible and
problem is to devise such restrictions for
the safety of the depositors will dis
while not injuring the depositors by dis
couragtng to too great an extent the as
sumption of the duties of bank director
ship by the active and responsible mem
bers of the business community.
Primarily, the law should have in view
the safety of the depositors, and it should
be recognized that their safety is much
would drive good directors from the SER
vice by the existence Of a law which does
not sufficiently restrict the opportunity
of dishonest directors to abuse the powers
of their position
any law upon this subject should make
a distinction in the nature of the restric-
tons upon directors who are not officers
which will not involve much of de-
lay in the making of loans to them as in
the making of loans to the executive Of
hcers OF bank, since the latter have the
greater opportunity and latitude for i'm
proper methods in the use OF trust funds.
SERVE
The question of those laws which affect
the right of one national bank to consider
a
national bank, called its reserve agent, is
one of great Importance and involves the
most fundamental principles of safe bank
ing. The extent to which the reserve of
one bank can safely be represented by
what is practically a 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 1888
when there are widespread Withdrawals
IN currency not only IN reserve cities
the stability of the entire banking system.
Inc reSsrve psnks as a ruIe, recogn11zl lg
a. large proportion of their money on call.
To secure Sufficient call loans they must
go to the speculative exchanges, and the
INJURIOUS results of that practice are cas-
lily understood.
It is only by loaning money on specu-
lative securities that the banks are en-
abled to pay the high rates of interest
on panEk-oeposlI paIaIIceS Whlcn form the
attraction to the country banks for the
tdeposlt Of so much larger a portion OF
their FUNDS New York than IS needed
for the clearance of exchange. During
the summer of 1899 there occurred a mark
ed demonstration of the evil effects of this
practice upon the legitimate business of
the country. At that time there was a
money in the interior of the country, and
the banks of that section fund it difficult
to safely lean funds. As a result, the in
terest paid by eastern reserve agents
upon deposit balances attracted an i'm
mense surplus to New York and other
This redundancy of money in New York
and the east and the ease with which
loans upon speculative collaterals were
there obtained Immediately created a
speculative movement in stocks, which
range of prices until the fall of last year.
AT that time the crop movement in the
west and the rising rate of interest there
led the banks of the interior to draw upon
their balances in New York and to order
the shipments Of large amounts of cur
rency against these balances. 1t is to
be noted that at the time these demands
was in a prosperous condition, with a
tendency toward an increase in general
prices and in the wages of labor. There
was no lack of confidence in the country
and Othing which indicated panic condf-
tons, and yet this demand by the banks
of the west for the shipment of currency
on deposit with reserve agents resulted
IN panic upon the stock exchange OF
New York, which instantly became a
grave menace to the entire business OF
the country.
In the abnormal demand for money Gre
ated by this panic on the stock exchange
the ordinary credits to the legitimate bust
ness and commercial enterprises of the
country were necessarily curtailed by the
banks, and unQuestionably great DANA ge
would have been done to such interests
ing the possibility Of evil to the country
at large, fnterfered to prevent a rapidly
increasing stringency in the money mar
ket
1t is to be remembered, of course, that
the exchange business of the interior
banks will always necessitate large de-
post balances in New York and other re-
serve cities, and that at certain seasons
of the year abnormally large balances
OF idle funds may be attracted to different
parts of the country, following higher in
terest rates. But 1t is suggested that pub
lie policy demands that banks of the
country should not be allowed to deposit
with other banks SO large a portion of
that fund which in theory is regarded as
sacredly devoted to the projection Of the
compelled to hold a larger portion of this
tuna IN casn IN their vaults, so that It
beyond peradventure.
In the panic of 1893 the New York banks
refused to ship currency in response to
demand from banks in the interior for a
considerable time, showing in the extreme
test of panic that the reserve which had
been counted as cash by the banks of the
country was not, in fact, at all times
mands of their depositors. While restric-
tons placed upon the power of banks to
count as banking reserve so large por-
ton of money on deposit in reserve cities
will not have the effect of preventing
speculative transactions in money CEN
ters, it will not have a tendency to en-
courage them to so great an extent as
does the present law, at risk at times
to the best interests Of legitimate business
and at the cost of weakening the bank
ing system as whole by creating too great
a d1sproporuon between the aggregate
cash resources and aggregate deposit La
bilities.
It is to be remembered that SO far as
the ability of the banks to serve the pub
lie is concerned it viii not be materially
impaired by smaller balances in reserve
cities. The banks, of necessity, must fur
nnfsh exchange, and will accordingly keep
the balance with the correspondents nee
essary for such purpose. The permission
given by law to the bank to count as a
part of their cash reserve a balance with
their reserve agent is primarily for the
purpose of convenience and profit for the
banks, and not for the convenience of the
public in any of its relations te the bank
The comptroller 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 protection