The Washington times. [volume] (Washington [D.C.]) 1902-1939, 1907-12-16
CONTINUED from First Pagel

AConlinutu from ElrSL rage
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casions, and give the relief needed be
before the provisions of the act ever
we're really in operation.
ANY measure Of this kind, however.
to be of any assistance in this emerg
eney must be adopted very promptly.
The conditions which led 20 the panic
were not due TO the failure of a few
Individual banks. They were not due 10
the lack of confidence of the people in
the banks, bur more 10 a lack Of con
hdence of the banks IN themselves and
their reserves. Banks have been fear
ful that the reserve system would break.
down, and in consequence Il has broken
down, and the reserve deposits have
been only partially available. They
we're also fearful that not sufficient
currency could be supplied 10 meet the
demand. and as they all made the de-
mand at once. there has not been SUM-
eient currency. The result has been
currency famine.
THE remedy for this state OF affairs
is TO improve the reserve system so
that the reserve deposits OF the banks
can be kept In a bank where they are
surely and certainly available. We
must lmpart TO our currency system
some element OF elasticity. so that
when there comes a sudden demand for
currency q can be supplied In bank
notes. without depicting the supply OF
reserve money.
Central Bank the Remedy.
These two most desirable changes
can be best Accomplishment fact they
can only be satisfa ctorily accomplished
through the establishment by the Gov
eminent of a central bank OF issue and
reserve. This is the system which has
been adopted and found 10 work most
satisfactorily ~ the great cOmmercial
countries Of Europe, and is the one that
gives the surest promise OF satisfactory
operation N this country.
Such a bank would not only solve
the two great probl ANS Of our bank
Ing system. but IL would also provide
the machinery fer conducting the
Treasury operations in their relations
TO the banks with the least disturbance
The chief weakness Of our present
national banking system is the provis
ion in regard to reserve deposits, which
piles reserve on reserve, In reserve
cities and central reserve cities, without
cash reserve on hand. AS we have seen
IN the present crisis, when a real
emergency arises these reserves are
not reserves at all, because they may
III a Gay ptNOAllt ulldNhlldDlt-
1t viii be an Improvement TO add
70 the proportion OF reserve TO be held
in cash by the country banks and the
reseTVa city banks. but the proDer So
luton OF the difficulty is 10 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. The in
crease in cash reserves from s to 10
on even IS per cent in the country banks
J. 4.
when IT had any large demand for it's
deposits.
What such a bank needs is a safe
reserve In cash and q further reserve
with a bank where IL Is surely avail
able, &c any time. in currency This
posts In central bank. Further than
this, the deposting bank could be sure
that at any time. as long as II was
solvent. il could 90 TO the central bank
and get any amount Of cash needed on
the notes OF its customers or other good
security With such a bank 20 depend
on, no solvent bank need ever have
any fear Of its ability to meet all de-
mands.
Under Present Conditions.
The present banking law prescribes
minimum reserve on deposits in cen
trail reserve cities-New York. Chicago.
and, st. Louis-of Is per cent. all OF
which must be IN the vaults of the
bank. IN lawful money. The reserve
cities are required to keep IS per cent
reserve, one-half OF which may be on
deposit in the central reserve cities
Banks in all other cities are required
to keep Is per cent OF reserve, OF which
three-hfths may be on deposit with
reserve or central reserve cities, an
three classes OF banks being given credit
hEsf- X n % q INT Ion I'D
Whenever there Is a disturbance
among the banks and any impairment
OF confidence, this system a always a
source OF weakness Instead OF strength.
This Is what may make a panic among
the banks before there Is even any de-
cided uneasiness among their deposi-
tors. The banks realize upon what a
small margin they depend, and each
one, In self-defense, is compelled not
only to collect its loans, but withdraw
its deposit reserves.
Under this reserve system, deposits
of $40 O0O. 600 In country, or nonreserve
city banks, would call for a cash re-
serve TO be kept in their vaults OF but
5000, 600. They could carry and count as
reserve 10000. on deposit with reserve
city banks. These reserve city banks
would be required TO have in their vaults
cash TO the amount OF only SIP, 500, and
might deposit Sf12. 900 in central reserve
cities. who. in turn, would have to have
on fi--!d q per cent or DuL SIo,lL1 IN
cash.
A Low Percentage.
1T will be seen that the country bank
keeps but 6 per cent on hand in cash.
and OF the country banks reserve de-
posits the city banks keep but IA per
cent on hand in cash. There is. there
fore, but ~ per cent in cash, or $40, $50,
kept unlOaned anywhere against tits
deposit Of 100000 In the ountry
banks or this but S14O,625 Is out
side the country banks own vaults
II. therefore. there Is a reduction
in the deposits OF the county
banks OF $4,000 out Of 100000, or
only III per cent, it calls for more cash
or reserve money than has been kept on
hand for the whole 100000 in the re-
serve banks.
rs it any wonder, then, that the de-
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