The Saint Paul globe. (St. Paul, Minn.) 1896-1905, 1901-10-17


never witnessed in any other CONNER
cial nation, because all commercial ma
tons except the United States have sys-
tens OF banks 50 connected that each
bank constitutes mutual support to each
other bank. Practically all commercial
nations except the United States have
adopted the Scotch system of branch
banks, with connecting link-a central
bank-which is the bank Of the banks
and holds the reserves of ALL
In England where this system of baElx-
ing has been most highly developed, the
Bank of England holds the gold reserve
of all the banks, and of the nation itself.
The reserves of the other banks are cred
its at the Bank of England. Under this
system, instead of all the banks scram-
bling and competing with each other for
the money to maintain their individual
reserves, the Bank of England alone
does the Scrambling with no competition.
Under this system, gold which is with
drawn from any bank is obtained from
ing for a short time in domestic ex-
changes is returned in the ordinary
course of business, through the same or
some other bank, to the vaults of the
Bank of England. Therefore practically
the sole leakage of reserve is for exporta-
ton when the conditions of foreign ex-
changes are adverse. The duty OF man
aging the foreign exchanges IS delegated
solely to the Bank of England. England
has no treaSury-no nation except the
United States has treasury
Ii you examine the statements Ol TIC
various banks of England. outside of the
statement of the Bank of England, you
will not find among their Liabilities any
Indebtedness to other banks. which
: constitutes about one-half of the lia-bili-
ties of the banks in the reserve cities of
this country, for the reason that their
country correspondents are but branches
of their own bank. his eliminates one OF
the most dangerous features or Ameri-
can banking in times of extreme panics.
Such systems of banks can, and have.
for more than half a century, exercised
the function of swapping credits with
their customers in panicS the same as IN
booms The repression exercised by the
banks during commercial crises is erect
ed through the interest rate.
tt was this system which enabled the
banks in London at the time of the Bar
rings, failure the largest single COM
mercial failure known to history, to not
only continue the exercise OF the pank-
ing function, but to increase their nabill-
ties S125 coo, 600 by assuming the liabilities
of the Earrings. In London the banK
rates advanced to per cent Tor a lew
aays-in New York the outside rate ad-
vanced to Sc per cent, and the pdnhs qult
business altogether.
THE BANKING LAWS.
Now If 10 interesting to inquire as to
the banking laws under which these s5s
tens are organized. l nave Deen uIi
able to learn that there are any Jaws
in England or Scotland especially reiallnS
/
issue of bank notes. In all respects the
banks are as free as the merchants.
Banking corporations are ORGANIZED uhoer
the same general acts as mercanllIe, HAIL
ufaeturing and other corporations Inc
American laws require certain minimum
percentages of reserve, and compel the
banks when the percentage is reached 10
do the very thing which BANKS s sho tho
exercise of the banking function The
provision of the law was intended to be
a safeguard, but upon several occasions
the observance Of the law would nave
brought ruin upon all banks. On these
oe ca sions the New York city banks have
boldly disregarded the law in respect
to the reserve, and, In defiance OF the
law have stood together for a few days
as a system.
There is no English law requiring any
reserve whatever to be held against So
called deposits. But the bank act OF 1884,
passed with great public favor, names
a minimum of reserve to be held by the
Bank of England against its outstanding
notes This act was expected to correct
everything which was wrong, and es-
peeially it was to forever prevent Specula-
lions, bank failures and panies. The
clause most relied upon fixed the gold
reserve of the Bank of England defnlLely,
as against it's circulating notes: 1t re-
quired the bank. whenever that limit was
reached, to stop discounting.
But history says that within three years
the law. instead of preventing, produced
expected to prevent, including cur
rency panic. The legal minimum OF the
reserve was reached, and, in obedience
to the law the bank stopped swapping
credits, and merchants VINO had received
loans were called upon to pay without
being permitted to, renew them. The
greatest distress followed. Merchants
could pay the loans only by selling their
merchandise. London merchants are said
to have walked the streets at midnight
offering their goods at any price. Val
ues disappeared. Consols and ex-
chequer bills were offered at enormous
discounts but could not be sold. The
most eXtravagant rates were offered
in vain for the use of money.
Finally, in the midst of universal dis
tress, on petitions signed by tens of
thousands the very ministry which had
procured the passage of the law was com
PEELED to ask the bank to disregard the
law. The bank resumed swapping cred
it's and history recites that lin ten min
utes after it was known, the panic was
ended" Merchants who had been clam
oring for discounts, as soon as they could
get them, did not need them, and the
smart ones. who had borrowed early and
Withdrawn actual money. brought back
the gold which they never needed and
begged to be relieved from the payment
of interest. An instance is recited of
0OO,OOO gold, which it, forseeing
the inevitable had borrowed ear
ly and begging the bank to relieve it
from further payment OF per cent IN
terest.
Again, in the panic of 1851, the same his
tory was repeated, except that the min
istry refused to act until the total gold
reserve in the Bank of England and its
branches was reduced to only
935S, 2oS, a trifie over $1,7e9, coo.
This was practically the total aggregate
reserve of all the banks of England at
the close of business Nov. II, 1857. ask
you, gentlemen, to think for a moment
what it would mean in this country If
the aggregate reserve of all the banks
and the United States treasury was re-
duced to 81, 100000
Starting with total reserve of only
$1,700.G00 on the night of the 18th of No
yember (the day the permission was Civ
en- to disregard the law, the bank made
new loans, that is, snapped credits, be-
sides renewals, in the sixteen remaining
days of November, amounting to $780,
100000. That is to say, with only 81 100000
reserve, the Bank of England expanded
it's loans in eighteen days $36, coo, 900, and
It's reserve increased day by dayi Fol-
lowing the example, the other banks ex-
banded their credits. Here are facts well
worth your consideration. When the
bank stopped loaning, in order to protect
the reserve, the reserve decreased; as soon
as it resumed loanfng. the reserve in
erased.
A writer says: This great crisis of
1857, far exceeding in intensity that of
1874. added another proof upon proof
that, in q great commercial crisis, the
restrictive practice will bring about uni
versal failure of merchants and bankers
and that the expansive practice is the
only one which can save both. :"
THE 9S PANIC CONSIDERED
Before making further citations of his
tory, desire to recur to the conditions
which prevailed in the panic of 1893. As
I have said, the medium of exchange
was reduced by the action of the ma
ticnai banks in refusing to swap credits
to the extent of more than $300, 000, 600.
There is no way to tell how great re-
duction was produced by the action of
thu state banks and the trust and other
companies which exercise the functions