The times. [volume] (Washington [D.C.]) 1897-1901, 1900-11-26

1T seems plain to the Comptroller tina,
any law upon this subject should make a
distinction In the nature of the restric-
tions upon directors who are not officers
which will not involve as much OF delay
in the making of leans to them as in the
making of leans to the executive officers
of a bank, since the latter have the great
er opportunity and latitude for improper
methods in the use of trust funds.
The Comptroller gives herewith a
copy of the bill introduced at the last
session of Congress by Hon. Marriott
Brosius, Chairman of the Committee on
Banking and Currency, which has had his
careful consideration, and the passage of
which. with some additions. he earnestly
recommends. This bill has been drawn
so as to ensure a greater degree of safety
in loans to directors and officers with
what is believed to be minimum of in
convenience to such officers consistent
with the safety of such transactions. 1t
properly recognizes the distinction in the
relations of directors to bank ard those
sustained by executive officers.
1T will be noted that the provision
made by this bill for the fixing of a line of
credit for each director in advance re-
duces to minimum the Inconvenience of
the greater supervision proposed. After
such line of credit has been fixed by
the board of directors for an individual
director, he will be no more hampere1
within that limit under the proposed law
than he is at present.
The General Cash Reserve.
THE question of those laws which affect
the right of one national bank to consider
as cash resource deposit in another
national bank called its reserve agent, is
&c ,v,,-n 1,-nr 4 hn
most fundamental principles of safe bank
ing. The extent to which the reserve of
one bank can safely be represented by
what is practically loan to another
bank, instead of by cash in its vaults, is
a 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
1898, when there are widespread with
drawals 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 en-
tire banking system.
The reserve banks, as rule, recog-
nizing the instability of bank balances.
must loan large proportion of their mon
ey on call. To secure sufficient call loans
and the injurious results of that practice
are easily understood.
1T is only by loaning money on specu-
latiye securities that the banks are en-
abled to pay the high rates of interest on
bank-deposit balances which form the at
traction to the country banks for the de-
post OF SO much larger portion Of their
funds in New York than is needed for the
clearance of exchange. During the sum-
mer OF 1899 there occurred a marked dem
onstration of the evil effects of this prac-
tice upon the legitimate business of the
country. At that time there was a
marked nlackening in the demand for mon
ey in the interior of the country, and the
banks CT that section found it difficult to
safely AN their funds. As result. the
interest paid by Eastern reserve agents
upon dc post balances attracted an i'm
mense 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 collaterals were
there obtained Immediately created
speculative movement in stocks which
was carried on with a constantly rising
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
ANu thS bohho vi thS u uTdW
upon their balances in New York AID to
order the shipment of large amounts OF
currency as against these balances. 1t is
to be noted that at the time these de-
Eiands took place the business of the
country was in prosperous condition,
with tendency toward an increase in
general prices and in the wages of labor.
There was no lack of confidence in the
country and nothing which indicated
panic conditions, and yet this demand by
the banks of the West for the shipment
of currency on deposit with reserve
agents resulted in Il panic upon the stool;
exchange of New York, which instantly
became a grave menace to the entire
business of the country.
In the abnormal demand for money
created by this panic on the stock ex-
change the ordinary credits to the legiti-
mate business and commercial enter
prises OF the country were necessarily
curtailed by the banks, and unquestion-
ably great damage would have been done
to such interests had not the Secretary
of the Treasury, seeing the possibility of
evil to the country at large, interfered
to prevent rapidly increasing stringency
in the money market.
ut 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
reserve cities, and that at certain sea-
sons of the year abnormally large bal
ances of idle funds may be attracted to
different parts Of the country, following
higher interest rates. But il is suggested
that public policy demands that banks of
the country should not be allowed to de-
post with other banks SO large portion
OF that fund which in theory is regarded
as sacredly devoted 10 the protection of
the interests of the deoositors. They
should be compelled to hold larger por-
;ion of this fun in cash in their vaults,
SO that it can always be devoted to its
proper use 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 ex-
IRENE 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 available to enable them to meet
the demands of their depositors. While
restrictions placed upon the power of
banks to count as banking reserve so
large portion of money on deposit in
reserve cities will not have the effect OF
preventing speculative transactions in
money centres. il will not have tendency
to encourage them to so great an tytent
as does the present law, at risk at times
to the best interests of legitimate husi-
ness, and at the cost of weakening the
banking system as whole by creating
too great disproportion between the ag-
gregate cash resources and aggregate de-
post liabilities"
The Comptroller repeats the recommen-
dation made by his predecessors that the
present law should be so amt nded as to
provide fixed salaries for bank examiners,
to be paid from a fund collected from
the banks, to take the place of the fee
system now in force The amount allowed