The ranch. [volume] (Seattle, Wash.) 1902-1914, 1907-11-15
THE FINANCIAL SITUATION.


The practical suspension of currency payment
on the part of most of the banks of the principal
cities of the West no doubt came as rude shock
to most Western farmers and business men. While
everybody in the West knew that New York was
having quite severe financial trouble it had not
been supposed that it would affect Western inter
ests to any extent. The action of the New York
banks suspendng currency payments there, how
ever brought trouble to us in the West very
quickly. We will endeavor to give our readers
a working idea of the situation at the present
time
Banks in small towns and villages do not, for
obvious reasons, care to carry any large surplus
of cash in their safes. Whenever, therefore, they
accumulate more cash in their safes than they
need for the ordinary conduct OF their business
they send the surplus to bank in some conve-
nient nearby city, Seattle for example. The Seat
tie bank pays them small interest on this sur
plus cash and stands ready to send it back to
the country bank whenever the latter calls for
it, by letter, phone, or telegraph
Banks in cities like Seattle and Spokane, in
turn keep their surplus cash in the larger banks
in the same city, or in Chicago, New York,
and when they need this they call upon the banks
with which they have it deposited.
The Chicago banks in the same manner SEM
this surplus cash to their correspondent banks in
New York City.
When business is running along in normal
Way the money flows back and forth between
these different banks it is needed to meet the
business transactions of the country. The coun-
try banker finds that his cash on hand is running
lower than it should to meet the demands of his
customers so he calls up the Seattle bank in
which he has his surplus deposited and tells 1t
to send out by express five thousand or ten thou
sand or dollars in cash. The Seattle bank
in turn calls for some OF its surplus cash from
the bank in Chicago with which it is deposited,
and Chicago calls from New York. This is the
best and safest way for the banks to handle
their cash.
For some weeks past there have been panicky
conditions in New York These conditions grew
worse until people became frightened and began
to draw their money out of the banks and store
it away This caused several small banks Ill
New York to close their doors, not because they
were not sound financially, but because they did
not have enough cash on hands to stand rum
The closing of these banks frightened more people
and the situation grew daily worse until the
banks of New York and Chicago got together
and determined to refuse to pay out money but
instead to pay demands for cash In clearing mousse
certificates checks and drafts
Consequently, when bank in Seattle or Spo
kane drew against it's deposits in New YORK
or Chicago bank, they did not get the cash whlch
they had been accustomed to getting, but were
merely credited with that amount against the
clearing houses in these Eastern cities On the
other hand, when the country banks IN turn,
drew against the banks OF Spokane, Seattle'
Portland and Tacoma, the banks or the west
ern cities had to pay out their cash. sltua
ton of this sort would soon have lowered very
materially the reserves on hand In the western
banks, all the Northwestern and western
cities were finally compelled to adopt the clear
ing house certificate plan to protect themselves
and their depositors. These banks would have
had sufficient money on hands to meet all de-
mands from their depositors, but they were not
in position to pay out money to the country
banks in cash, and then get only clearing house
credit from the larger cities when they attempted
to supplement this withdrawal by calling In their
deposits in the East.
There is nothing about the financial situation to
cause the slightest alarm. There are few who
know better than the readers of The Ranch the
splendid crops which were produced in the
Northwest this year and the topnotch prices
which the farmers received for them. Business
of all sorts in the cities better and the