New-York tribune., 1907-12-14
SHOWS BANKING EVILS.
r. 4. Vanderlip Explains FIasrs IN
American System to Students.

Frank a vanderlip, president OF the Natoii"i
City Bank. in the first of series OF lectures oh
finance before the students at COLUMBIA University
YESTERDAY discussed the various phases OF the
American banking system from the point or view OF
one who from d high position on the INSIDE mas
made careful study of the system IN use VI lIS
country MIR. Eanderlip emphasized the ineiasuc
baracter of the currency as the evils CT the
American system and declared that the ideal sys-
TEN Of banking for this country would oe a COM
bnatIon of the Scotch branch banks and the Cen
tral Bank OF Germany.
To avoid dangerous indation. said the speaker.
bank reserves must be maintained III solo or It's
equivalent. It seems TO me TO be obvious lha'
The danger which would follow the plan, Wnich
many banks follow. of counting IN the reserves 'he
credits of other banks would be extreme Sucn
action uowld break off the tnterrelaflon OF Vouuie
OF credit to the gold stock. and would open the
5oor IN an imitation which would be limited only
fy the bounds that the laws might place upon the
issue of banknotes. These limits are now marked
I,v the total interest bearing obligations OF the
United States and the total capital of the banks
Shoud the law remain unchanged II is easy 10 see
how some national disturbance might sharply IN
crease the total OF interest bearing oblisauons Gre
ate q basis for dangerous imitation, result IN eA
trsordnary exports of gold and bring our whole
financial system face TO face with a Crisis at ihe
very moment when such crisis might be most
dangerous 10 the life of the nation All new iesls-
lation should have embodied in 1t the princlpe 'a'
a bank reserve must be definitely related 10 the
stock OF gold.
.-on the other hand if boarding becomes gen
ral the entire credit fabric may fall in ruins In
der perfectly normal conditions the use OF money
shows q considerable varient- Nearly 9o per ceL'
of the people Of the United States are engaged ia
agriculture The results OF their labor are con-
.3ntrsted in the autunan's harvest That harvest
period marks extraordinary demand Tor money
as medium OF exchange. It has been estimated
that during the autumn months sSoVoV,vVO aoui-
tionai currency is in active a medium OF
,icF, there is
the remaining months Of the year The total
amount OF cash IN the vaults of the national banks
IS 500 oo0 600 The relation which the extra oe-
mand for s2OoeOoOo Of currency bears 10 the total
reserve requirements of the banks Is thus seen
O extremely important
1T would 10 be one of the most OBVIOUS
of conclusions that If banks were permitted to
issue their credits in circulating notes.
restricted properly TO safeguard the invol-
1Intary holder, the part which bank credits play
medium of exchange would be pracucaIly
uniform throughout the year, instead OF recur-
renee of such condition comes with every
zsll, where scnooo0e00 taken for this puT-
pose from the bank reserves
If the banks unable to make good some
fart of this vast withdrawal through gold imports
or through Treasury deposits the effect must be
that they must reduce their loans and deposits
until they can bring about the legal relation II
fresh supplies OF reserve money could be OBJ
tained It would mean that loans and deposits must
be reduced $500 0ooo o1 in order again establish
legal relation after the withdrawal from the re-
serve cities OF 500 oeo.eo0 OF reserve money OF
course in practice part Of the burden falls other
than national banks, and part of the reserve loss
Is made up from gold imports and Treasury de
posits. but the withdrawal Of the reserve money
invariably leads TO disturbance and frequently
crisis in the money market
Mr.. Vanderlip stated that have 70 central
banking system, times of crisis the people are
likely to become suspicious Of the banks and at
the same time the bankers become suspicious Of
zach other. This leads TO scramble for reserve
money. The result is absolute imrobility OF
reserves and disastrous state of affairs.
According the speaker, this is the situation
that confronts at present, and not so much the
much talked of private boarding.