The Topeka state journal. [volume] (Topeka, Kansas) 1892-1980, 1909-11-10
Discusses Currency Question Be-
fore Kansas City Audience.
THE RESERVE SYSTEM
OF European Banks Is Explain
ed by the Senator.
How Situation Is Affected by
Advancing Discount Rate.

Kansas City, Nov 1O.-Reiterating
his declaration that neither he nor the
monetary commission of which he is
the head. has any pet scheme of finan-
cial reform, Senator Aldrich last night
in this city dwelt at some length upon
some of the advantages of the Euro
pean banking systems in the United
States.
He spoke afterxa dinner given by the
Clearing House association at the
! Baltimore hotel Senator William
Warner of Missouri introduced the
Rhode Island senator.
The reception of Senator A1drich
was all that could have been desired.
There had been much speculation as
20 whether the Rhode Island senator
was not in the enemy's country, but he
found in his reception and in the ap-
plause which greeted his speech that
| there were many thumbs up.
Mr.. Aldrich found in the reserve
system the most striking characteristic
CT the European banks, he said. He
said that the controlling banks of
England, France and Germany, the
Bank of England, the Bank of France
end the Reichs bank hold all the re-
sources Of all the banks of their re-
speetive countries.
| He pointed out that there is no legal
requirement rendering it necessary for
the foreign banks to keep In their
vaults so large percentage as is
necessary in the United States, and
said that the subordinate banks regard
money in the central institution just
as available for their reserve purposes
as If it were in their own vaults.
| The foreign banks, he said, do not
hold as It'll money a sum greater
than or per cent of their liabilities,
while in the United States the average
Is 10 per cent.
An Item of Importance.
The London banks, however, have
either in their own vaults or in the
Bank of England IA or 3 per cent of
their deposits, the deposit in the CEN
trail bank being just as available to
them as the money they retain. In adj
dition, these banks loan large sums to
discount houses subject to call on
| short notice, which they regard as an
other source of reserve.
| Another idea of still greater import
ance was, he said, the commercial pa
per held by the secondary banks. This
paper is receivable at the Bank of
England and it is considered by the
bankers as by far the most important
portion of. their reserve.
What was true in England was
largely true in France and. Germany.
IT 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 con-
Gitions.
Make No Requirements.
Mr.. Aldrich dwelt upon the fact that
the European laws make no require
ment either as to the amount of the
centage is left to the wisdom of the
bankers. He said that the Credit
Lyonnais, the greatest private banking
institution in the world, kept practical
| ly no money in its vaults, depending
> entirely upon the Bank of France il
the case of a large demand upon it.
| On the other hand the reserves of tho
-l.Central bank amount to about rs per
cent of its liabilities, not only render
| ing it exceptionally strong, but making
it a sure bulwark for other French
! banks.
4 Asking himself how the great centra
3 banks protected themselves in times OF
stress Mr.. Aldrich replied:
"They advance the discount rate as
they did the other day. For what? TIC
, attract gold from other countries
i which has the effect of building ur
0 their reserves. The process is always
I successful
I'm 1907 the Bank of England ad-
vanced the rate to III per cent, and
that step brought gold from twenty
e two countries. asked Mr.. Campbell
II the then governor of the bank wha.
: he would have done if he had not Sc
cured the cold. He replied: We would
: have put the rate up to 10 percent, and
that would have brought gold out of the
earth
!. They Extend Credits.
What else do they do? They ex-
tend credits literally to everyone who
is solvent and who has right to Dor
| row. Instead of shutting their doors
and stopping the extension of credit.
and refusing to give credits to thei,
! customers, they do these two things
| They protect their own reserves AM
they extend credit literally to every
one who deserves it and who wants it
'HThat is the whole secret of tn,
: method by which these great bank:
Z take care and regulate the affairs o
= those great countries in cases of prob
e able trouble
: Contrasting this system with tn.
. rigid methods of the United States
Senior Aldrich said:
l. st think this statement will afford :
y sufficient suggestion to you to show
that we certainly ought to conside
. very carefully the question whether on
= banking system in that respect should
= not be reconstructed.
!. 1T have no doubt myself that th'
II opinion which is everywhere expressed
in Europe, that our system is bar
barous is correct 1t certainly il
u against the experience of modern bank
- ing everywhere else
al Senator Aldrich did not go further
y but It was evident to all that he fount
u in the European reserve system fea
lures which. in his opinion. are superio
= TO ours He spoke especially of the con
- 1deuce engendered by the foreign