The Washington herald., 1908-02-11

along the entire line of loans. it is easy
TO see that the banks. instead OF losing
bv the operations OF this bill, would Sc
cure inordinate profits But nothing of
the kind would, or could, happen. If the
rate of interest in any community or
state was 6 per cent at the time the
notes were issued, there could be no
change OF rates growing out OF the issue
Of the notes, unless reduction should
take place, following the law of supply
and demand. 10 which | have alluded.
Clearing House an Example.
1T is asserted by directors that the
government should not exact from the
banks a pledge Of definite securities, but
that it is perfectly safe to accept the
general credit and assets of the banks as
security. ! think II is sufficient answer
to this to say that the banks do not fol-
low this rule IN their dealings with each
other. The various clearinghouse asso-
Citations DO not accept the credit OF indi-
vidual banks, or a claim against thelf
general assets. as security for advances
in the issue Of clearinghouse certificates.
They require "a pledge Of carefully Sc
lected securities upon which they adj
vance IS per cent of their value, and they
follow the most rigid rules in enforcing
payments do not see why the banks
should expect the government OF the
United States to accept from them dit-
ferent and less valuable securities than
those that they require i'm similar transac-
lions between themselves.
1t is also claimed that the holding or
the prescribed securities will reduce the
loaning power Of the banks to the extent
10 which securities are held. This claim
bresupposCs that there is a fixed sum
available for loans to borrowers. and that
this amount is equal 90 the entire loani
able resources of the banks. l assume
that no bank officer would consider Il
prudent 90 invest the entire amount OF
the capital and deposits Of his bank IN
/ loans upon one kind Of commercial paper
Banks known 90 have this character OK
| investments would not have the conf
deHce ofIhc public. That every bank
should h%te varied investments, with a
certain proportion of liquid assets. Is a
rule OF universal application. II certain
amount OF convertible securities reduced
the luaning capacity Of bank, That
capacity is reduced % q greater extent
/ by its reserves and 10y the amount OF its
deposits in banks and other financial iusti-
d
part OF the funds On frst-Class bonds
upon a or per cent basis. it involves
"A greater loss 60 continue deposits in
other banks AT per cent and stu
greater loss In holding "A portion OF its
funds as reserves which pay no interest
Banks Dare Not Use Reserve.
There is another objection which per-
haps deserves some attention II IS said
that the bill could not be carried into ef-
feet, as banks would have 10 take money
from their reserves for the purchase Of
the necessary securities. and that this
would involve the use OF 500 Of reserve
money to obtain So in notes Of an inferior
character. This criticism has heretofore
been applied, and with equal force, to
} transactions involving the purchase Of
United States bonds for basis OF note
issue II is quite certain that 10 national
bank has purchased United States bonds
al amy time iu the last twenty-five years
that il has not Paid more for the bonds
than 1t has received in notes. and it Is
also equally certain that none of these
/ purchases were made with money taken
/ from the banks lawful money reserve.
/ No bank would be permitted, either by
/ law or by the exercise of sound judgment
/ TO invest any part OF its cash reserves in
| any kind Of securities in times of panic.
/ or, in fact al any other time
No Imitation of Securities.
1T has been objected 10 the provisions
/ of the bill that it would have the effect Of
Iunduly and unnsturally increasing the
market value Of the securities which are
/ to be deposited under its provisions. II
was the purpose Of the committee 20 des-
ignate classes Of securities IA volume SO
large that a criticism Of this kind could
not be fairly made. There are now out
standing State and municipal bonds which
might be deposited under the provisions
| OF the bin 90 the amount Of 5000 10000,
/ and, judging by our past experience, THIS
amount will be rapidly added to by the
/ issue Of new securities OF the class OF
railroad bonds described. competent au-
/ thoriues estimate that there are al least
/ s. 000. 600 600 outstanding. This would make
! $i000o0o0 600. as against possible maxi
mum purchase of $500 0oo000. 7 do not
think that these purchases, even 20 the
/ full amount. would materially affect the
prices Of the securities.
10 be issued that they are wildcat and
ns0und This criticism may De fairly
characterized as absurd. For the safety
/ Of the u0te-hOlder we have first and
most important, a pledge of the credit,
/ resources, and revenues of the United
/ States, which guarantees their cOnverti-
bility. Second. we have "a specific pledge
OF collateral5 Of the highest character.
with value in excess Of the amount OF
notes issued. Third. we have a prior lien
upon all the assets OF the bank through
which the notes are issued. There is no
I hank paper money I'm existence which has
more guarantees Of safety and soundness
than the bank notes provided for by this
measure.
If elasticity fin volume OF currency is
necessary in times OF financial distrust,
as we believe II is. the bill reported by
the Finance Committee answers this de-
mand The fact that fl has the opposi-
tion of a certain class of bank managers
is an evidence TO my mind that these Off
GERS do not really desire elasticity, but a
continual and unlimited expansion with
the expectation Of constantly increasing
gains,
"a survey Of the entire field from the
standpoint of experience and result must
lead us to the conclusion that while there
is no necessity for the immediate recon
stTuCtion of our monetary system. there
is an imperative demand for some pro-
vision for additional notes 10 be used in
emergencies.
BeprecHtes Bank Speculation.
1T has been discovered that many ma
tional banks have been directly OF IN
directly furnishing capital for speculative
ventures Some Of them have beer
largely engaged in promoting or under.
writing questionable business schemes
All of these operations are clearly outside
of the scope OF legitimate banking and