The Birmingham age-herald., 1907-12-18
LETTERS TO THE EDITOR.
On Imitation of Deposits.

To the Editor of The e-Herald
 It was a pleasure to read in The Age Herald this morning your reprint of Mr Alex T. London's letter to The Post as so few men these days seem to com blne the intelligence to see the truth with the courage to speak it. howsoever dis agreeable the truth may be.
 MT. London's criticism of the imitation of deposits, (which are liabilities of banks payable on demand in gold in exchange for a customers note of more or less doubtful value, payable on some future day) hits the nail squarely on the head. The banker who hasn't sense enough to realize this is unqualified to manage his own money, much less somebody's else, and is proper candidate for a writ of de lunaco inquirendo.
 Is it not curious, when one considers present conditions, and the babel of voices raised to correct them, that not once have we heard a proposal tending to restrict powers already granted to banks? On the other hand, how many alleged fnancers are loudly proclaiming that if we give national banks more greenbacks, for that is what United States bank note is, or permit them to loan on real estate, or the right to usurp the functions of trust companies, or any other old liberty not now enjoyed, all of our troubles will be ended, that day and forever.
 We are cited to English and Canadian currency as illustrations of what we should have. Granted that methods suited to the peculiar temperament of those peoples would also work well in America, I would suggest that with the exception of a very small part of it's note issues, (which, by the way, are backed by the government securities), every note of the Bank of England has behind it it's full value of gold As to Canada, an examination of it's bank state ments prove MT. Londons proposition as well as explains the reasons for it's own success. The ratio of deposits to capital in Canada is less than four for one. In other words our cousins there are will ing to put up a sufficient sum of their own money to reasonably secure the other fellows, and are satisfied with the fair profit that results.
 Turn. if you please, to the statement of reserve city national banks and note the ratios there existent Huge deposit lines built up, not by money received over the county, but from proceeds of loans, the whole supported by slender capital that does not amount to drop in the bucket when the slightest furry comes along. More than this, and still more disgraceful, is the fact that most of them, not satisfied with the profit that follows the use of their own and GUS toner's funds. will rediscount their best paper. often to amount of their own cap ital, for the purpose of extracting still more profit, and at the sacrifice of the security of their customers.
 A better way to carry out MT. Lon- don's suggestion, is to limit bank loans to a certain amount of capital. Then what deposits are received above this ratio must be held intact in cash. I am not prepared to state what this ratio should be, but l am strongly of the opinion that no bank can, with safety, loan in excess of four times its capital and surplus. Such a limitation enforced would result in either more banks, or tht ohtS chJOyih6 aiic eiNNsS's he'Si "ieh the public would have to put up their own money as the public deposited theirs increasing their capital as they wished to increase their loans.
 An extension of Mr. Londons prin- ciple is also required. Our present re- serve laws rest upon an absurd and un- scientific basis no effort being directed to consider the character of the com ponent parts of the deposit item. wheth- CT commercial, savings, or those of other banks, and the proportion of each. Yet manifestly the reserve required against each form of these deposits must of neces- sity vary greatly.
 To. illustrate the way national banks now operate: The bank act permits Vne national bank to keep three-fifths of it's reserve. if located in non-reserve city, on deposit with a reserve city bank, of which there are some sixteen cities so designated. I believe, while reserve city banks may in turn deposit one-half of their reserve In a central reserve city bank. as New York, Chicago and St. Louis are designated.
 Now an examination of the statements of these so-called reserve city banks, both on August 22 and December 8, the dates of the last two calls, will show very few