The Washington times., 1907-11-30
WHY BANKS REFUSE
TO PAY WITH CASH
Money in a Nutshell
By Frank c. Harper
NUMBER 4,

house checks-to wit. his own check
with substantially a ci airing house in
dorsement. And Mr.. Brown Is tndlg-
nant WITH more reason than Mr.. Smith,
but even yet there is so netting to be
said on behalf of the bark, IL IL Is SOL
vent and acting in good faith, as pre-
sumably II is.
Mr.. Brown and the rest OF US insist
stOutly chat tho bank Is bound IN law
to pay every cent of our deposits and
everybody elss's deposits, except time
deposits on demand. And this Is true
enough. But the law is contradictory
and in consistent IT intends that me
bank shall pay, but II does not intend
that more than Is per cent Of US shall
ask IL TO pay at any one time. That
is the percentage of deposits that the
law requires the banks IN Tive larSer
cities to keer IN their vaults IN cash
more than half of this may under the
law be kept not IN the banks own
vaults, but on deposit in banks IN what
are known as the central reserve cluefL
chief OF which are New York and Chi
cage.
Thus tie law permits the bank 10
place outside OF its reach and beyond
It's immediate control rs TO - per cent
Of deposits, the loan Of which Is the
only compensation the bank gets for
acting as custodian for U.s. II anything
happens to cause one-half Of tbs banks
depositors. or even one-third Of them,
70 demand their money simultaneously,
the bank faces crisis, even though
II be IS solid as Gibraltar. II must
borrow money from other banks 10 meet
the demands Of its dePositors. IN the
meantime notifying its borrowers 20 pay
OF their loans as soon as they fall
due. These borrowers, II pressed too
hard, and not allowed TO renew IN part
may go TO the wall. and thus a general
and disastrous business collapse be
started in which the depositor will be
hurt as much as anybody
When the banks are all run-in upon
by either alarmed small depOsitors or
UascrupulOus big ones, as some times
happens. one cannot depend on the
others TO aid Il TO pey OF its depositors
until II has realized on its loans and
discounts. but all must refuse 20 pay
cash on demand or risk precipltatine
commercial and Industrial paralysis. The
device Of clearing house certificates and
wage-Checks is no more or less than
the banks standing between their Dor
rOwers and alarmed depositcrs who
heard cry OF fire" and did .7ot wait
to learn whether Il was q false alarm
or rot. In 1899 frcTn May 10 September
37S millions of deposits were withdrawn
! from national banks alone and twice
as much more from other banks. main
! ~ for boarding purposes. II can be de-
pended on the Withdrawals were enOr-
nous this present autumn before the
banks began TO resist them. II is ex-
asperating 20 the dePositor % be paid
IN some other way than that which he
IS accustomed 10, but II his purpose Il
not TO hoard, the clearing house check
Will serve him Just as well as the cash
I The question IS therefore this: Should
We denOunce the banks for paying US
by their joint checks, which have bought
/ just as much work or food or clothinl
as the cash. or should we admit thai
| they have simply put into operation q
device by which they apparently car
prevent the fleeing frenzy OF panic
! from c7uEtng the shutdown OF mills
mines, and factories, and widespread
bankruptcy.