The Indianapolis journal. [volume] (Indianapolis [Ind.]) 1867-1904, 1902-11-15
THE BOSTON BANK FAILURE.

The closing of the Central National Bank
OF Boston is the first event OF the kind
that has happened for some time. 1t will
cause surprise because il comes in period
OF general prosperity and apparently with
out any disturbing conditions, and for that
very reason 1t may also cause some alarm
in financial circles. The dispatch announc-
ing the closing of the bank says its failure
is understood TO be due TO excess of loans
and a lack of quick assets These two
causes combined might cause the failure
OF any bank, ard the question naturally
arises, how many more banks are either
in the same condition or rapidly approach
ing IL? II used to be thought that the
banks Of Boston were more conservatively
managed than those OF most cities, but
latterly some Of them have got in the way
of making large loans to spectators on
mining stocks and taking the stocks as
collaterals. 1t will probably be found that
the Central National has engaged in this
sort of business, and. if so. its failure is
not surprising.
1t is significant that at the very time
when the American Bankers Association
at New Orleans was discussing the ques-
ton of asset currency and some of its men,
bers were making strong arguments in
favor OF the system, the failure of large
bank, the first that has occurred for a
year or more. is attributed 10 excess of
loans and a lack of quick assets. These
would be the weak points of any asset cur
rency system. The right to issue circulat-
ing notes based on assets would tend to
imitation, and this. in turn, would tend to
promote speculation and the loaning of
money on inconvertible securities. The
value of bank assets as a security either
for circulation or loans or as a safeguard
in time of danger consists in their quality
of instant convertibility. Assets that are
not thus instantly convertible are a dan
gerous kind for a bank to carry. They
may be good in the long run or they may
not, but no bank can afford to stand a
long run or long wait TO realize on its
assets. Under an asset currency system,
with every bank authorized TO issue cur
banks would accumulate assets which,
when the pinch came would prove to be
inconvertible. Then they would fall as
this Boston bank has. for lack of quick
assets.
If this failure is due to exceptional condi-
tons or bad management there is nothing
alarming in it. but If il is symptomatic OF
general conditions it should serve as a
warning. More than one financier has re-
Gently sounded a note of warning against
carrying too much sail and fostering con-
ditions which. pushed too far. may result
in reaction and panic. Controller of the
Currency Ridgely limited at such warning
in his address at New Orleans. After re-
ferring to the rapid increase of actual
wealth and the enormous volume of bust
ness the country was doing he said:
In spite of all this. the banking and
financial situation is looked upon with con-
siderable apprehension. We cannot dis
guise the fact that with reserves running
down. not only in the reserve cities, but In
all the banks of the country, the situation
Is serious and requires close attention and
careful handling. Now is the time for eau
ton and care in bank management IL is
IN times such as we have been having for
several years that banks get into trouble
What becomes later bad line of credits is
apt TO be made in prosperous years not
when times are dull and business bad
The pace we have travelled for the
past hve or six years has been a rapid
one The signs are not lacking that 4,
should be moderated before we are too far
| spent. There is yet time and with pru-
dence and care we should be able to avoid
any lasting ill-effects. / do not believe
that the strain is more than we can safely
stand up to this point, but ii is time tC
| pause and consider.
The speaker did not contend that there
were any visible signs of danger in the
present situation or outlook. but he thought
IL good time to take an account of stock
and perhaps to SLOW down" a little. This
and financiers thinking