The news-democrat. (Providence, R.I.) 1906-1909, 1907-12-16

port or Comptroller or the Currency VIII
liam b. Ridgey was sent to congress to-
day. In II he says.
Early In the year conditions In the
United States and abroad evidenced the
probability OF contraction OF business In
general and tightness OF the money mar
ket. but the extraordinary conditions de-
veloping IN October were not foreshown
10 an appreciable extent In the banks
reports as a whole up to Aug. %. 1t is
stated that there was steady increase
in the volume of loans and discounts
from s4.s66O45. .295 on Nov. IL. 1906, to
s467S.5s3, SOS on Aug. %. 1907, the total
increase being s312.bSS,67S. This In
crease was due I'm part TO the fact that
Bio banks. with authorized capital OF s34,-
$4,000. were chartered during the year.
hut mainly TO the increase In business OF
the older associations. Since the date OF
the corresponding report In 1906 (Sept
q, tho banks increased their investments
i'm United States bonds on Aug. %, 1907
10 $3.50. .297. .440. a net increase OF s31,500.-
130. Lawful money held by the banks
on Aug % aggregating $701. .623 523, con-
sisting OF s531 75o In specie and $780,
5i57s2 I'm legal tenders, exceeded the
amount held in September. 1906, by S16,-
6i1.121 In addition to lawful money. the
banks held on Aug. p, S33,bb4,657 In
notes OF other banks, fractional currency
etc.
Individual deposits. representing over
80 per cent OF the banks liabilities,
reached the maximum In the history OF
the system on May 20. 1907. when they
amounted TO s4.322, ,Ss0.l4l. The amount
10 the credit OF depositors on Aug. 22
was si.S19, ,os5.402. a decrease OF 1854
s39. The gross increase in deposits dur
ing the year was sz,i. .065.436; tno gross
decrease s177.96s.344. leaving the net in
crease Sl19.097. 092.
CENTRAL BANK.
OF Central bank OF issue and re-
serve" he says: The conditions which led
10 the panic OF October and November.
1907 were not due TO the failure OF a few
individual banks. They were not due TO
the lack OF confidence OF the people In the
banks. but more 10 a lack OF confidence or
the banks i'm themselves and their re-
serves Banks have been fearful that the
reserve system would break down, and In
consequence II has broken down, and the
reaerve deposits have been only partially
available. They were also fearful that not
sufficient currency could be supplied TO
meet the demand. and as they all made
the demand at once, there has not been
sufficient currency. The result has been
a currency famine.
The remedy for this state OF affairs Is
TO improve the reserve system so that
kept in a bank where they are surely and
certainly available. We must impart to
our currency system some element OF
elasticity, so that when there comes Il
sudden demand for currency II can be
supplied in bank notes, without depicting
the supply OF reserve money.
These two most desirable changes can
be best accomplshed--in fact. they can
only be satisfactorily accomplished
through the establishment by the gov
ernment OF a central bank OF issue and
reserve. This is the system which has
been adopted and found to work most
satisfactorily In the great commercial
countries OF Europe and Is the one
that gives the surest promise OF satisfac-
tory operation In this country.
Such a bank would not only solve the
two great problems OF our banking sys-
TEN, but Il would also provide the ma
chinery for conducting the treasury
operations i'm their relations to the banks
with the least disturbance.
CHIEF WEAKNESS.
The chief weakness OF our present ma
tionaI banking system Is the provision In
regard to reserve deposits, which piles re-
serve on reserve. In reserve cities and
central reserve cities, without requiring
sufficient amount OF actual cash reserve
on hand. AS we have seen in the present
crisis, when real emergency arises
these reserves are not reserves at all,
because they may in day become una
vailable.
II will be an Improvement to add TO the
proportion OF reserve 10 be held In cash
by the country banks and the reserve city
banks, but the proper solution OF the diffi-
Guilty il to increase the amount TO be held
in cash by all the banks and require all
the reserve deposits TO be kept with a
central bank organized for that purpose.
~ t..e al, N
or even Is per cent In the country banks
would not help n bank very much when
Il had any large demand for Its deposits
What such a bank needs Is safe reserve
IN cash and further reserve with bank
where Il is surely available. at any time
in currency. This would be the case Will
reserve deposits I'm n central bank. Fur
ther than this. the depositing bank could
be sure that at any time, as long as II
was solvent IL could go 10 the centra
bank and get any amount of cash needed
on the notes OF Its customers or .othei
rood security. with such a bank TO de-
pend on no solvent bank need ever have
any fear OF its ability to meet all de-
mands
The present banking law pr,scribes Z
minimum reserve OIL deposits In centra
reserve cities-New York. Chicago ant
81. I.ouis-of 25 per cent.all OF whicf
must be In the vaults OF the bank, II
lawful money. The reserve cities are
required 10 keep % per cent reserve. one
holf OF which may be on deposit In the
central reserve cities. Banks IN all Other
cities are required to keep 10 per cent
Of reserve OF which three-fifths may be
on deposit with reserve OF central re-
serve cities. all three classes OF banks
being given credit for Their per cent. re-
demption fund as reserve. Whenever
there n a disturbance among the banks
and any impairment Of confidence. this
system is always a source OF weakness
instead OF strength This is what may
make a panic among the banks before
there ls even any decided uneasiness
among their depositors. The banks realize
upon what n small margin they depend
and each one. in seR-defense. is compelled
not only 20 collect It's loans. but withdraw
its deposit reserves.
Under this reserve system. deposits ol
100000 in country. or nonreserve city
banks, would call for a cash reserve q
be kept I'm their vaults OF but 100000
They could carry and count - reserv'
eeoooos. On 6epc~is with reserve city banks
sr-1.aon rcoervo city banks WOuld be re-