Evening star. [volume] (Washington, D.C.) 1854-1972, 1909-11-10
HINTS CENTRAL BANK
Senator Aldrich Makes Speech
on Monetary Conditions.
NO PET SCHEME TO URGE
But Contrasts Financial System
Here With Those in Europe.
RESERVE FEATURE DISCUSSED
Advance in Interest as Means Of
Protecting Central Institutions
in Emergencies.
RESERVE FEATURE DISCUSSED

| KANSAS CITY. Mo-, November 1O-Re-
iterating his declaration that neither he
nor the monetary commission, of which
| ne is the head. has any pet scheme Of
| financial reform, Senator Nelson w. Al
| drich last night dwelt at some length on
/ some OF the advantages Of the European
| banking systems over the system in the
United States. He spoke after a dinner
| given by the Clearing House Association.
Senator William Warner Of Missouri in
trOduced the Rhode Island senator.
| Mr.. Aldrich found in the reserve system
the most striking characteristic OF the
European banks, he said. He said the
central banks Of England, France and
Germany Ohe Bank of England, the
Bank Of France and the Reichs Bank
| hold all the resources of all the banks OF
their respective countries.
Large Percentage Not Required.
He pointed out that there was no legal
requirement rendering it necessary for
| the foreign banks to keep in their vaults
| so large a percentage as was necessary
| in the United States and that the SUBJ
| ordinate banks regarded money in the
central institution just as available for
their reserve purposes as IL 1t were In
their own vaults.
ne SdlO the Foreign D3nKS OlO not nOlO
as "till money a sum greater than or
4 per cent of their liabilities, while In the
United States the average was 10 per
cent. The London banks, however, had
either in their own banks or in the Bank
Of England IA or Is per cent Of their de-
posits, the deposit in the central bank
being just as available to them as was
the money they retained.
In addition these banks lent large sums
| to discount houses, subject to call on
lob, vAaA
other source of reserve. Another item Of
still greater Importance. he said. was the
| commercial paper held by the secondary
! banks. This paper was receivable at the
Bank of England and was regarded by
| the bankers as by far the most important
/, portion of their reserves.
Credit at Central Bank.
What was true in England was as
| largely true in France and Germany. In
this way the banks amassed a credit at
the central bank, which was in itself a
! reserve, and they thus were enabled to
lend from four to ten times the amount
that they could lend under other ccndi-
tions.
| Mr.. AIdrich dwelt upon the fact that
the European laws made no requirement
either as to the apount OF the reserves
or of their publicity. The percentage
was left to the wisdom Of the bankers.
/
greatest private banking institution in the
world. kept almost no money In It's vaults
depending entirely upon the Bank of
France in the case of large demands.
But on the other hand, the reserves Of
the Central Bank amounted to about IS
per cent of it's liza Utilities not only render
ing 1t exceptionally strong. but making
ii sure bulwark for other French
banks.
Scheme Of Protection.
Asking himself how the great central
banks protected themselves in times OF
stress. Mr.. Aldrich replied:
"They advance the discount rate as
they did the other day. For what? To
attract gold from other countries. which
has the effect of building up their re-
| serves. This process is always success
full.
I'm 1907 the Bank of England ad-.
| vanced the rate to ~ per cent. and that
step brought gold from twenty-five coun-
| tries. I asked Mr.. Campbell. the then
governor of the bank, what he would
have done If he had not procured the gold
He replied, We should have put the
| rate up to 10 per cent. and that would
have brought gold out Of the earth
What else do they do? They extend
credits literally to every one who is
solvent and who has a right to borrow.
Instead of shutting their doors and stop
ping the extension OF credits and refusing
do these two things: They protect their
own reserves and they extend credit
literally to every one who deserves it
and who wants II.
That is the whole secret of the meth
cd by which these great banks take
care Of and regulate the affairs of these
great countries in cases Of probable trou-
ble."
Contrast Of Methods.
Contrasting this system with the rigid
methods of the United States, Senator
Aldrich said:
II think this statement will afford a
sufficient suggestion to you to show that
VIC certainly ought to consider very care
| fully the question whether our banking
system in that respect should not be re-
| constructed.
| IT have no doubt myself that the opin-
| ion which Is everywhere expressed In
| Europe that our system is barbarous is
correct. 1t certainly Is against the ex-
perience of modern banking everywhere
else
Senator Aldrich did not 60 further. but
he spoke. especially Of the confidence en-
gendered by the foreign method.