Daily Kennebec journal. [microfilm reel] (Augusta, Me.) 1870-1975, 1900-11-26

| tive securities that the banks are en-
abled TO pay the high rates OF intercs,
on bank-deposit balances which form the
attraction TO the country banks for the
| deposit of so much larger portion OF
theirfunds IN New York than is needed
| for the clearance of exchange During
| the SUMMER Of 1879 there occurred a
marked demonstration of the evil effects
of this practice upon the legitimate busl-
ness of the country. At mat time there
was a marked sIackening in the demand
for none: in the interior of the country,
and the banks Of that section found IL
difficult to safely loan their funds. As Il
result, the interest paid by Eastern re-
| serve agents upon deposit balances at
| tr;lcted an immense surplus to New York
and other Eastern cities.
This redundancy of money in New YORK
| and the East and the ease with which
loans upon speculative coilatcrals were
speculative movement in stocks, winch
was carried on with ~ constantly rlSinb
range of prices until the fall Of last year
At that time the crop movement III me
West and the rising rate Of interest there
| led the banks Of the interior to draw
upon their balances In New York and t.
order the shipment Of large amounts Of
currency us agtinbi these balances. ~ y
to bc noted that 1T the time these de-
ma jItiS took place the business Of the
/ country WAS in prosperous condition.
with It tendency toward an Increase III
| general prices ana in The wages Of labor
There was no lack of confidence III the
| country and nothing which Indicated
panic conditions. and yet this demand by
the hauKs Of the West for the shlpmcnl
| of currency Oh deposit with reserve
agents resulted in. a panic upon the
Stock Exchange of New York. which In
stantly became grave menace 10 thc en-
| lire business of the country.
In the abnormal demand for moneF
! created by this panic on the Stock FIX
change the ordinary credits to the legiti-
| priscs 0I the country We're hece5Sdrl+
curtailcd by the banks. and unpuesil"li-
| ably great damage would have been done
| to such interests had not IN" SecretarE
/ of the treasury. seeing the possibility oI
| evil to the country at large, intcrtereu u
prevent rapidly increasing strihsehcE
| I'm the money market.
! 1t is to be remembered. Of course. tbat
| the exchange business OF the interior
banks will also necessitate large deposit
balances in New York and other reserve
| cities. and that at certain seasons OF the
| Year abnurmally large balances Of idie
| funds may he attracted TO dificrent parts
of the country, following higher interest
| rates But il is suggested that pup1t
policy demands that banks If the coun-
7, try should not be allowed TO deposit with
| other banks 50 large a portion Of thal
| fund which in theory Is regarded as sa-
| cre,iIy devoted TO the protection Of the
interests Of the deuositors. They should
F, 30 compcllcd to hold larger portion oi
this fund in cash in their vaults. 50 thar
| 1T can always he devoted to It's proper
| use beyond pcradventurc.
| In the panic Of 1898 the New YORK
banks refused To ship currency in re-
Spouse TO demand from banks in the IN
| terror for 4 considerable time showing
in the extreme test OF panic that the re-
serve which had been counted as casa
by the banks of the country was not. IN
| fact. at all times available To enable
| them to meet the demands OF their DC
poSitorS While restrictions placed llon
/ the power of banks to count as banking
| reserve so large portion OF money ON
tdcposit in reserve cities viii not have the
| effect Of preventing speculative fransac-
| tions in money centeTs. il will not have
la tendency to encourage them to SO great
an extent as does The present law, at
| risk at times to the best interests %!
Legitimate business and at the cost 81
weakening the banking system as =
whole by creating too great dispropor-
| ton between the aggregate cash r.
sources and aggregate deposit liabilities.
| it is to be remembered that s" far as
| the ability of the banks TO serve The pun
| lie is concerned it Will not be materially
impaired by smaller balances in reserve
cities. The banks, of necessity. must fur
nish exchange. and will accordingly Keep
! the balance with correspondents ncces-
| snrv for such purpose. The permission
| given by the law TO the bank 10 count ~
a part Of their cash reserve balance
with their reserve agent is primarily Tor
| the purpose Of convenience and profit Tor
the banks. ana not for the convenience Of
| the public in any Of its relations TO the
bank.
| The comptrolcr believes that under the
| present law regarding reserve cities too
| great latitude is row given the banks III
| tpIlUcfllbl WIN lIt HSi VI tit' ItH'-i 49,
the primary object of which is the protcc-
| ton OF the dcpoSitorS of the banks. anu
he recommends that amendments 10 the
| laws be passed requiring that a, larger
proportion Of the reserve should b" kept
in cash in the vaults OF the bank. Con-
sid ring the banking system as Il whok'
| the present ability of the banks TO US
| credit with reserve banks as a basis OF
loans creates Ia" great an extension "l
agSr"gatc deposit credits as compared
with aggregate cash resources, which. in
|
increases the necessity upon the banks of
| demanding payment of loans from the
community and adds to the dcmoraliza-
ton of business incident to such period
| f:N increasing the restrictions upon the
| right of banks to count deposits with re-
serve agents as cash, a iirmcr and safer
| Foundation Will be built under the deposit
credits of the country. aud il is the belief
| Of the comptroller that in times of lqui-
dation the greater strength of the banks
will more than COMPENSATE them for the
| loss uf the small amount Of interest on -
| portion Of their balances which may bc
due t. a change in tn" present law.
| II is therefore recommended that Sec
tinn 49, pf the Revised Statutes Of tho
| United States h. amended 80 that under
J its provisions but unc-iifth instead Of
| thrrr-tiftlIS uf tn" reserve Of II per cent.
required III law 10 be kept by banks not
| reserve agents may consist Of balances
| d-lr to reserve banks: and that Section
l1g5 ~ the Revised Statutes Of the United
States. Which authorizes banks in smaller
| reserve cities 10 Keep unr-hllf OF their
lawful money reserve in balances i'll cen
| trail reserve cities. be repealed.
| The comptroller repeats the recon-
mcudation made by his predecessors that
| the present law should bc SO amended us
| to provide fixed salaries for bank exam
| iners, to ~ paid from fund collected
| from the banks. to take the place of thc
| fee system now in force. The amount
allowed an examiner for the examination
| of smaller banks is net sufficient to com
| pensate him for the time necessary in
many cases for an extended examination.
| The present system encourages, to too
great an extent. SuperiiCialty in eXamina
| tons. aud intcrfcreS greatly with the
proper and wise apportioument of time OF
examiners among the different banks.
| Among other recommendations. the
comptroller strongly urges laws rcEdlat
| ing international and interColonial bank
| ing as distinguished from domestic bank
| ing, and prints liz an appendix the result
| Of inVeStiga ton into banking conditions
in Puerto Rico. Hawaii and the Philip
pines.