Los Angeles herald., 1909-11-10
ALDRICl1 FAvORS
RESERVE SYSTEM
u. S. SENATOR GIVES ADDRESS
ON FINANCIAL REFORM
EXPLAINS BANK METHODS USED
IN EUROPEAN COUNTRIES
Declares Foreign Institutions Hold
but 8 tr 4 Per Cent as IT'LL
Money" While United States
Keeps 10 Per Cent
Try Associated Press.

KANSAS CITY, Mo-, Nov. a.-Reit-
Grating his declaration that neither ne
nor the monetary commission mad any
pet scheme of financial reform, Sena-
tor Aldrich tonight in this city dWelt
at some length on some or the al
vantages of the European banking sys-
TENS over the systems in the United
States.
He spoke after a dinner given by the
Clearing House association, at the
Baltimore hotel Senator William war
ner of Missouri introduced the Rhode
Island senator
Mr.. Aldrieh says he found in the re-
serve system the most striking char-
acteristic of European banks. He said
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. lie
pointed out there is no legal require
ment making it necessary for foreign
banks to keep in their vaults so large a
percentage of deposits as is necessary
in the United States, and said the SUD
ordinate banks regard money in the
central institution just as available
for their reserve purposes as If 1t were
in their own vaults. He added that
foreign banks do not hold as till
money" a sum greater than three or
four per cent of their liabilities, while
in the United States, the average is
ten per cent. The London banks, how
ever. have either in their own vaults
or in the Bank of England fourteen
or fifteen per cent of their deposits. In
addition. these banks loan large sums
to discount houses subject to call on
short notice which they regard as an
other source of reserve.
Another item of still greater i'm
portance," he said "is commercial pa
per held by secondary banks. This
paper is receivable at the Bank of
England and is considered by bankers
far the most important portion of their
reserves"
What is true in England is largely
true in France, and Germany In this
way the banks amass a credit at the
central bank, which is in itself re-
serve, and they are thus enabled to
loan from four to ten times the amount
they could loan under other conditions.
Mr.. Aldrich dwelt on the fact that
European laws make no requirement
either as to the amount of reserves
or of their publicity. The percentage
! is left to the wisdom of bankers. He
! said the Credit Licennaise, the greater
private banking institution in the
world, kept practically no money in
/ it's vaults, depending entirely on the
/ Bank of France in case of large de-
/ mands on 1t. But, on the other hand,
| reserves of the central bank amount to
seventy per cent of its liabilities. not
| only rendering it exceptionally strong,
but making 1t a bulwark for other
| French banks.
Asking himself how the great GEN.
trail banks protected themselves in
! times of stress, Mr.. Aldrich replied:
Raise Rate for Protection
"They advance discount rate as they
/ did the other day For what? To at
| tract gold from other countries which
/ has the effect of building up their re-
| serves. This process is always sue
! cessful. In 907 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, then governor of
the bank, what he would have done
/ If he had not secured the gold. He re-
/ piled, 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 every one who
/ is solvent and who has a right to bor-
row. Instead of shutting their doors
| ana stopping the extension OF GREATS,
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 it and who wants
! it,
"That is the whole secret of the
| method by which these great banks
! take care of and regulate affairs of
! those great countries in cases of prob
! able trouble"
! Contrasting this system with the
/ rigid methods of the United States
| Senator Aldrich said
u think this statement will afford
| sufficient suggestion to you to show
| we certainly ought to consider care
! fully the question whether our bank
/ ing system in that respect should not
! be reconstructed.