New-York tribune. [volume] (New York [N.Y.]) 1866-1924, 1903-08-12
LOANS AND DEPOSITS.
H. B. Fonda Discusses the Relation the Loan
Item of Banks Bears to Course of Values.

H B. Fonda, we'll known banker. said yes
terday, regarding the bank statement:
Will YOU permit a statement of facts which,
though well known in banking circles, appears
to be little understood by the great majority
of people whose views go to make up public
sentiment?
In discussing the phenomenal decline in Stock
Exchange securities attention is daily directed
in the financial columns Of the press to the re-
Iatlon the loan item OF the New-York Clearing
House banks bears to the rise and fall in values.
namely, a decrease in loans being regarded as
a bull argument; conversely, an increase IN TINS
item is commented on unfavOrably, and securi-
ties are pressed for sale.
We are told that before public confidence is
restored banks must report loans less than de-
posits. This Is not likely to be the case with
our New-YOrk banks. for the reason that their
combined capital and net profits now stand at
$240.0O0.0OO. which, added to the net deposits
Of 1912, 100000. and circulation S44,OOO.OOO, as
reported the week ending August 8, gives a COM
bined loanable fund of S1,196,OOO.OOO, while a 70
per cent cash reserve is required on but the net
deposits of $912, 000, 900. 1t readily be
that loans can increase good many millions
before the 20 per cent reserve is encroached
upon
According to last weeks statement. loans were
but $425,OO0 more than deposits, and the sur
plus reserve amounted to more than SZOOOo,OOO,
which take care of considerable increase
in loans or decrease in cash before the % per
cent reserve is touched.
With money ruling at per cent, it is not I'M
reasonable that large trust companies should
call in their loans. and deposit proceeds in the
interest, the banks reloaning.
1t is futile to discuss seriously the vagaries
OF the weekly panK statement ana leave OUT OF
consideration the great trust companies, whose
deposits are at least two-thrds that Of the
banks, to say nothing of the nome Clearing House
banks. both here, in Brooklyn and in Jersey
City.
Trust companies throughout the country do
enormous commercial business, and
called on regularly, with the banks. to supply
funds in the fall In many cases they keep
their main accounts in trust companies here,
our trust companies must furnish their full
quota of assistance. This will not appear in
the figures Of the Clearing House banks, for
the reason that when money can be loaned
call al better rate than per cent trust COM
panies reduce their bank balances, and make
their own loans, so that the funds they supply
their correspondents come more from their call
ing in Of loans than their Withdrawals from
the banks.
AS the West and South draw on the banks
here for harvest purposes our deposits will de-
cline, but if a % per cent reserve is maintained
loans will show a reduction Of but IS per cent
Of this decline, and deposits will remain pro-
portionately greater
Many are led to believe that banks loans
are it's barometer, and that the president shapes
his course with his eye fixed solely on this
Item, whereas loans are subservient to deposits
and deposits increase or decrease loans are
made or called.
The decline in security values does not neces-
sarily affect the banks loans for as a loan is
paid another loan is made paper discounted, or
securities bought. The loan item, as IL appears
in the weekly statement, is made up not only OF
loans, but Of discounts. securities bought real
estate held and government bonds to secure
both circulation and deposits. In fact, the loans
proper OF some of our largest institutions cut
but small figure in the statement.
Another thing that should not be lost sight of
IS the fact that the liquidation which has taken
place for the last few months has affected time
loans much more than call loans, for the reason
that Stock Exchange houses are carrying nearly
all of their loans on time and as the securitv
to these loans is liquidated the loan must either
be paid with interest to maturity, with a CORE
spending loss to the borrower, or the broker
must borrow stock to take the place of the
securities sold.