Daily Arizona silver belt., 1907-11-23
BANKS AND BANKING AND HOW
 THE REGENT PANIC WAS STARTED

ed by states is 15 per cent, it being argued that reserve of this amount is ample for all normal demands. The laws restricting the reserve of trust company are not so stringent. Hence the state of affairs which made the re- cent complication in New York possi- ble.
 A bank is business institution for the purpose of making money. It is like drug store or a grocery. Instead of selling medicine or canned goods, it uses money as it's commodity. Most of the money that it uses is deposited by its depositors. It is simple proposition when stripped down to its main facts; if the bank pays you 3 or 4 per cent interest on your money, it must employ that same money so that it will earn more than is paid for the use of it. The bank must pay the expenses of running the business, which includes cost of building in which it is located, the salaries of it's employees; and there must be some profit for the people who have bought its capital stock. Hence the problem of the bankers is to em- play the bank s funds so that they will earn the largest possible amount of money. Thus it happens that the de- posits, instead of reposing peacefully in the vaults of the bank, are out in the busy world doing things. They may be helping other banks, building railroads, developing cities and communities, erecting buildings, promoting business or aiding commerce and credit in some constructive way
 Depositors' Money Tied Up
 You can now understand why bank should be willing to keep only as much actual reserve on hand as the law re- quires, for the cash on hand in the vaults is not working and is not earn ing. This naturally leads to the situ- ation which grew out of the recent Wall street panic, when a perfectly solvent bank or trust company was unable to meet the demands of the depositors. This is why: The bank or trust com pany, in its desire to have its money earn as much more money as possible, invested, for example, that money in high class securities, or loaned the money on collateral consisting of gilt edge stocks and bonds. It did not reckon on a big, almost unanimous, de- mand on the part of the depositors for the immediate return of their deposits. It happened that for some time the stock market had been getting worse and worse and prices were constantly going down. Even the highest tclass se- curities were affected. Money then be- came scarce. People wanted to get hold of their money. All of a sudden it developed that a great many people wanted to get deposits out, and actual cash was scarce. For the banks to sell their large blocks of high-class securi- ties at the prevailing market prices would mean to sacrifice them. Yet at any normal time these securities would yield much more money than the insti- tutions needed.
 Thus it happens that while a bank or trust company may own ample se- curities and have ample resources it cannot get hold of the actual cash with out a great sacrifice, and it closes its doors until market conditions are nor nal and the people return to natural state of confidence.
 One result of the New York panic has been the organization of a movement to safeguard the deposits in the trust companies. Since the trust companies had freer hand than the banks in the conduct of their business, they took bigger risks and sometimes jeopardized the money of the people. One plan is to make them members of the clearing house association. Thus they would get the same unity of action in time of trou- ble that is enjoyed by the banks, which stand together, each one helping the other. A run on one of them means a run on all the banks of the association. During the recent crisis the banks came to the aid of the trust companies, be- cause big failure among the trust companies, after the closing of the Knickerbocker Trust company, would have precipitated a disaster.