The Indianapolis journal. [volume] (Indianapolis [Ind.]) 1867-1904, 1904-03-13
BANK RESERVES;
THEIR MEANING

Recent large Increases I'm the surplus reserve
held by the New York banks have carried the
figures to the highest point reached in several
years and have brought prominently forward
the question Of the desirability OF a surplus
much In excess OF legal requirements. To begin
with. Wall street was well-pleased. with the
increases in the cash held by the banks. IL
was argued that this meant that rates for
money would be low. which would In turn
stimulate stock market activity. and those who
late last year, were dreading a possible stringency
in the money market found much ground for
satisfaction in the position which the banks as
sumed soon after the opening OF the year.
Reserves continued TO increase: money rates.
already low. became lower. but stock market
prices failed to keep their part of the bargain
and instead of advancing have declined from
week TO week.
Then It began to be said that the large sur
plus reserve heId by the banks was after al
OF the case has been accepted by increasing
number as the surplus mas grown from week
too large or too small, are unfavoraDle in their
effects upon the stock market. One shows hat
there is overextension. the other that there is
lack Of confidence on the part OF those who
have funds to invest. but who refrain from DO
ing so. During the past few weeks. when very
large reserves were being piled up by the banks.
boarding it by keeping it on deposit in the
banks instead OF placing IL in securities. and the
course OF the stock market and the Character
Of the trading seem to furnish ample proof OF
the correctness OF this view. The Investment
demand for stocks and bonds has fallen 20 a
very low level-so low, indeed, that commits
sion houses generally report what amounts 10
a cessation Of business and only the professionals
are left TO supply such activity (such dullness
would be a more appropriate term as the market
is showing at present.
Large reserves. It is argued. are bad for the
reason that they show a lack OF confidence on
the part Of investors. Normally money seeks
the most profitable employment which is con-
sistent with safety. and when funds are al
lowed TO remain in bank In excessive amount.
IL is a fairly safe conclusion that a feeling OF
uncertainty prevails among investors. AT present
there seems TO be little room for doubt that
such a feeling does prevail. There is practically
no Investment demand OF the general character
which represents the reinvestment OF funds
which gradually accumulte in the hands OF
capitalists both small and large, and yet there
can be no doubt that many could increase their
holdings OF securities did they see At 70 do so.
The consideration Of the question OF surplus
reserves 10 one that brings forcibly 20 the at
tention Of the investigator the fact that ex-
tremes are always harmful. The piling up OF
very large surplus reserves Is in its way Just
as undesirable as are the conditions which re-
suit in the falling OF the reserves below the
proportion which by legal enactment has been
established as a safe and prudent one 10 be
maintained between deposits and reserves-New
York Times.