The evening times. [volume] (Grand Forks, N.D.) 1906-1914, 1909-11-10
Senator Aldrich Points Out the
Material Difference in Eu-
ropean System
DISCOUNT RATE USED FOR
PROTECTION IN TINE OF PANIC
This Process Serves to Bring in Large
Quantities Of Gold which Builds up
the Reserve-Extend Credit From
Reserve to Their Borrowers.

Kansas City, Mo-, Nov. 10.-Reiter-
ating his declaration that neither he
nor the monotery commission, of
which he is the head, has any pet
scheme of financial reform, Senator
Aldrich last night insthis city dwelt
at some length upon some of the ad-
vantages of the European banking
systems over the customs in the
United States.
He spoke after a dinner given by
the clearing house association at the
Baltimore hotel. Senator William
Warner of Missouri introduced the
Rhode Island senator.
Mr.. Aldrich. found in the reserve
system the most striking characteris-
tic of the European. banks. He said
that the central banks of England,
France and Germany, the Bank of
England. the Bank of France and the
Reichs bank, hold all the resources
of all the banks of their respective
countries.
He pointed out that there is no
legal requirement rendering it neces-
sary for the foreign banks to keep in
their vaults so large a percentage as
is necessary in the United States and
that the subordinate banks regard
money in the central institution just
as available for their reserve pur-
poses as IL it were In their own
vaults.
He said that the foreign hanks do
not hold as till money" sum great
er than three or four per cent of their
liabilities, while in the United States,
the average is ten per cent. The
London banks. however, have either
in. their! own banks or in the Bank
of England, fourteen or fifteen per
cent Of their deposits, the deposit in;
the central bank being just as avail
able to. them as is the money they
retain.
In addition. these banks loan large
sums to discount houses subject to
call on short notice which they re-
gard as another source of reserve.
Another item of still greater i'm
portance, he said, was the CONNER
cial paper held by tn secondary banks.
This papr is receivable at the Bank
of England and 1t is considered by
the bankers as by far the most. i'm
portant portion of their reserves.
What was true in England was as
largely true in France and Germany.
In this way the banks amass a credit
at the central bank which is in itself
reserve and they thus are enabled
to loan from four to ten times the
amount that they could loan under
other conditions.
Lax Methods.
Mr.. Aldrich dwelt upon the fact
that the European laws make no re-
quirement either as to the amount of
the reserves or of their publicity. The
percentage is left to the wisdom of
the bankers. He said that the Credit
Lyonaise, the greatest private bank
ing in stitution in the world, kept
practically no money in its vaults.
depending entirely upon the Bank of
But, on the other hand, the reserves
seventy-five per cent of its liabilities,
not only rendering 1t exceptionally
strong, but making it sure bulwark
self how the great central banks pro-
Mr.. Aldrich replied:
"They advance the discount rate
as they did the other. For what? To
attract gold from other countries,
which has the effect of building up
their reserves. This process is al
ways successful. In 1907 the Bank
of England advanced the rate to
seven and one-half per cent, and that
step brought gold from twenty-five
countries.
l asked Mr.. Campbell, the then gov
ernor Of the bank, what he would
have done If he had not secured the
gold. He replied, we would have put
the rate up to ten per cent and that
would have brought gold out of the
earth
What else do they do? They ex-
tend credits literally to everyone who
is solvent and who has right to bor-
row. Instead Of shutting their doors
and stopping the extension of credits,
and refusing to give credits to their
customers they do these two things:
They protect their own reserves, and
they extend credit literally to every
one who deserves 1t and who wants It.
That is the whole secret of the method
by which these great banks take care
Of and regulate the affairs of these
great countries. in cases of probable
trouble"
Contrasting this system with the
rigid methods of the United States,
Senator Aldrich said:
II think this statement will afford
q sufficient suggestion to you to show
that we certainly ought to consider
very carefully the question whether
our banking system in that respect
should not be reconstructed.
'"I have no doubt myself that the
opinion which In everywhere ex-
pressed In Europe, that our system
= barbarious, u correct. It certainly