Evening star. [volume] (Washington, D.C.) 1854-1972, 1908-04-15

present law. they can keep on deposit
with their reserve agents has always
been available, even in stringency or
panic. for the purpose of enabling their
customers to continue to pay their debts
by the use of drafts drawn by the banks
on their reserve agents, which are paid
through the clearing house. even when
payments A medium Of exchange is thus
created that is available for all practical
purposes.
In Case Of Emergency.
1T is. of course, intended that in an
emergency the banks should take out
circulation against the bonds, but it Is
self-evident that in so doing. when they
send the bonds to Washington for this
purpose. they would have to deplete their
legal reserves by the amount of the bonds
which they had previously counted as
reserve. and the circulation they would
receive would not count as reserve In
order, therefore, to secure the circula-
ton they would have to dep1ete their le
gal reserves by the amount of the bonds
surrendered; and IL their circulation were
exchanged for gold or legal-tender money
they would be exactly in the position
they were before they took II out. ex-
legal reserves by 10 per cent of the
amount of the bonds pledged. as they
could only receive 30 per cent of their
value in circulating notes.
The withdrawal Of money from the
reserve and central reserve cities by the
country banks to increase their lawful
money on hand to meet the requirements
OF this measure would cause such
drain on the centers as would necessitate
very heavy curtailment of credits and
reduction of loans In our Judgment
were the banks in the reserve cities and
central reserve cities compelled to put
themselves in condition to meet the re-
quirements of the proposed law January
them of the country banks at that time.
1t would be impossible for them to do 50
without holding on to their money
through the fall. preventing the regular
and natural expansion of credits for
the movement of the crops. which al
ways takes place at that time.
The result of this might produce a
condition of affairs not dissimilar to those
which we experienced last fall. Further.
I'm our judgment, it would weaken the
whole by distributing instead of concen-
trating them. The distribution of them
at present is not only extravagantly
wasteful. but is one of the chief sources
of weakness in our system. In no other
banking system known to us does such a
serves exist. In all others systems, when,
owing to business expansion. money be-
comes scarce the cash reserves of the
bank are concentrated at the financial
centers for display of strength. which
inspires confidence and prevents panic.
With us every bank by withdrawing Its
cash reserves from the centers and hoard
ing them in it's own vault, weakens the
system at the centers and diss1pates Its
strength What we require is concentra-
ton of cash reserves and not wider dis
tribution Of them, because the strength OF
the entire system is always measured by
the reserves carried at the centers.
Section IL Of Aldrich Bill.
Section II of the Aldrich bill provides
that no national banking association
shall invest any part of its funds Or de-
posts in the stocks or other securities OF
any corporation or association, any or
the officers or directors of which are offi-
GERS or directors Of such banking associa-
ton So far as investing In the stocks
of such corporations is concerned. national
banks are under the existing law prohib-
tied from making such investments. The
courts have repeatedly defined the WORD
securities as used in this section OF the
bill. to include promissory notes and bills
of exchange. and this Interpretation would
practically prohibit bank from doing
business with any company In which any
of its directors were Oficers or directors
No objection can be raised to preventing
money from the banks that employ them.
This has been a great source of evil and
loss and should be prohibited. But to pre-
vent loans to directors or to corporations
in which they are interested Is to deprive
the banks OF the direction and counsel OF
the principal men Of affairs in every COM
munity. the very men who from the
knowledge their position gives them are
best fitted to direct the affairs OF the
banks and give sound advice to their ex-
- -
national bank in the country has been
formed with a view to securing the busi-
ness controlled by its individual members
as we'll as that Of the corporations with
which they are connected. The business
of the national banks has been built up In
this way.
such men and no others can direct and
advise bank management. They cannot
be expected to subordinate all their other
interests to acting as bank directors. The
cure their influence. their direction and
their advice. They act practically with
out remuneration. and II they are to be
barred. as the proposed law would bar
them, the standing of the directorates of
our national banks will be reduced to that
of utter incompetency, or to what would
be equally as bad. to a set of dummies"
who would be put on the boards in all
probability to represent the interests of
the very men of affairs whom the law
would thus prevent acting for them
selves.
THE Aldrich bill being avowedly for
temporary use only to bridge over until a
comprehensive banking and currency sys-
tenn Is determined upon, and there being
such a wide divergence OF opinion In Con-
gress respecting the measures to he adopt
ed. we would strongly recommend that the
whole subject should now be referred to
a competent commission for inquiry and
report to the next Congress. Such COM
Sin cod Of aho-e,
of the Senate and the House of Repre-
sentatives, business men and bankers.
economists and constitutional lawyer, all
Of recognized ability and nat onal reputa.
ton.