Evening star. [volume] (Washington, D.C.) 1854-1972, 1905-10-12

even the interior banks frequently find
themselves with surplus funds on hand
which it is impossible to put out at their
home offices. To leave larger amounts than
necessary on deposit with their reserve cor
respondents is very distasteful to the off,
GERS because of it's telling effect against
profit and loss account at the semi-annual
period The first eXpedient to prevent this
used to be considerable purchase of COM
mercial paper at financial centers This.
however, was not very satisfactory, as buy
ing commercial paper requires the greatest
expert knowledge, and there were and are
now very many losses in it. The bond In
vestment plan, while it paid a smaller rate
of interest, was actually more profitable be-
cause the loss feature is almost nil. A high
class bond had a market value at all times,
and there were always banks, estates and
trustees who were willing to take them
They paid on the average perhaps / per
cent lower interest than commercial paper
but they were more profitable in the end.
Statistics Gathered.
1T has been known for a good many
years that the bank investment in high
class bonds was enormous but it was diff
cult to obtain exact figures. The figures
were not included in the bank returns to
the controller of the currency. and neither
the figures in possession of the state banks
nor of the trust companies We're at all
complete. Finally we took the trouble to
gather statistics on the subject and sent
out inquiries to 1000 banks-in fact, to all
the institutions in the country with capt.
tai of over $4,000 There was gratifying
response.
In investment. A high-class bond always
has a cash value on the market. and when
the banks are able to put their surplus
funds into that sort of a reserve It makes for
the stability of the banks and consequently
for the stability of business throughout the
country. 1t is a sort of reserve back Of
the reserve, and it largely decreases the
chances of panic.
at is also interesting to note. and this is
fact not generally appreciated by the out
slider, that the government bond plays no
part In this sort of investment. The great
requisites for the banks in the sort of in
vestment / speak of ara safety. converti-
bility and income producing qualities. Now,
the government BOND has the first two
requisites. 1t is absolutely safe and 1t is
always convertible. but it pays such small
rate of interest that it is not to be COM
pared to the high-class railway bond as an
income producer.
This tendency to put a percentage of as
sets in high-class bonds as a second reserve
is most favorable for continued prosperity
in this country. because just so much of the
resources of banks are in this way anchored
safely and kept out of channels of over
imitation of commercial credit by banks,
which overinfation is really at the bottom
of all pancs."
The question of more elastic currency
will be strongly urged on the government
by the Bankers Association. 1t is held
that the Canadian system. which in turn
is modelled on the Scotch would very near
ly meet the requirements of business in
this country, and a strong effort will be
made to turn the attention of Congress to-
ward this matter during the coming ses-
sion.