New-York tribune. [volume] (New York [N.Y.]) 1866-1924, 1910-12-05


Seventh-A disposition TO h0"
savings bank as unit.
In reference to the first motive i''',
.o,,en view obtains that the savings paiiA
is largely an investment institution
,h., a hank with lis attendant cash iapii'-
ties. Hence that dividends should De oaSo
so1.,,, unon income. regardless OF inc
market value of investments ana sfo"''o
ac-osits II ia To correct this dangerous
misconception that the writer has oe'u.ed
ca r,ueb attention TO the subject Inc
fallacious attitude of the banks Is eAei'ip,
aad nv the fact that. shortly AFTER tpe
nanic of 1907, they persuaded the L%si''''
,,ro =, ahroea,e the old law. founded upon
the fundamental law of banking anu 0,
t,,Si,ess which demanded a serui-annuai
report of their condition, based upon
market values. and substitute the arnort-
cation law, permitting them to appraise
their bonds 70 all intents and purposes al
cost. Presumably the superintendent Oh
Ranking have not favored the change, foF
they have ayaiIed themselves OF tneir
privilege also to demand a pefio'0oi
port based upon market values
The +sr,,, ..,r1stee" is confusing. in thal
It leads TO the inference that the duties
trustee do not differ from those OF tne
,rustes If an estate. II should be rernem-
bered that Il Is the business of the latter
n nav ~ the life tenant all income earned
and 10 preserve the principal for the re-
n,ainderrnan. TO whom he is responsible
merely for securities not essentially Ior
+b.i. cash vaJue at the time of receipt OF
purchase. On the other hand, the para
v-fr1cy=
to keep the invested principal of each and
a,-.r,- denositor as if IL were Cash-for de-
posits are a cash liability-to the best OF
his knowledge and belief intact, and De
ready. however remote the contingency TO
mako cash payment in full to each and
every depositor, upon reasohaoie' II W
upon immediate, demand
The second motive logically follows upon
the hvpotbesis that no surplus IS required
to protect the real estate mortgage invest
rnent, which is equivalent to saying that, III
investments were confined to the real estate
mortgage It would be safe TO conduct the
trustee savings bank without any surplus
al al. This proposition is preposterous.
No investment is so good that it cannot de-
preciate in value. Bearing in mind that
bonds have suffered large decline, since
We have no assurance that We have reached
bottom. is it conservative for a large and
Icing established savings bank, which has
had abundant time to build up proper
surnI,1s. to maintain that & TO per cent
ratio is adequate? If our predecessors
had been satisfied with such a ratio, where
would we be to-day?
With respect to the third motive. TO the
of Banking the figures speak
for themselves, and, inasmuch as 1T is a
question of surplus rather than cash re-
serve il is his entrance which is first 10 be
rather than that of the de-
pcsitor-
So far as the fourth motive goes, if need
he IL would be better for the smaller
banks to reduce their rate TO per cent.
and die a natural death through the vol
uDtarv withdrawal OF deposits, than 10
commit financial suicide by inviting the
action of the Superintendent of
Banking.
AS to the fifth motive. If there is any
question as TO the propriety of the invasion
OF the savings bank field by the trust COM
panies. there may be like question as 20
the method of competition which the saw
ings banks adopt.
Addressing ourselves TO the sixth mo-
tive ii is praiseworthy ambition 10 desire
To excel in the accumulation of deposits,
provided they are legitimate 1t should
not be forgotten, however, that the size of
a savings bank IS not measured by the
amount of deposits. but by the number of
depositors.
With regard to the seventh motive. your
editorial clearly shows the blunder in the
assumption that we can run our savings
banks as units This grave n1isapprehen-
sion exists in our general banking system
today Its fallacy was exploded in the
panic of 1907
The predicament in which we find our
selves has been brought about over series
Of years by combining attention TO income
III on investments, and not sufficiently heed
Ing the fluctuations of the investments
themselves nor expanding deposit liabilities
Not many years ago we were thinking OF
the rate from ~ to 8 per cent,
because many a bank was not earning the
larger rate. The moment that per cent
was earned the banks paid IT. ignoring two
impressive facts. first, that the same high
money rates which facilitated new pur-
cEases upon a higher income basis, 1. e. at
lower prices, thus increasing income, COIN
were operative in causing a de-
cline in the market value of past purchases |:
as you so aptiy put it, that the in
crease in the dividend was attracting He
Ultimate new deposits and unduly swelling
OLD deposit liabilities. AS conservative
banking proposition, 1t would have been
better 10 have paid 4 per cent in the past
with small income but an ample surplus
than to pay per cent to-day with an am
pie income but a small surplus.
After all has been said, it is defective
law. aiding and abetting unsound banking
that prescribes extra dividends after the
accumulation of moderate fixed maximum,
surplus. but fails to restrict regular divi-
derds until a fixed proper minimum has
been reached.
JOHN HARSEN RHoADES.
New York. Dec. 3, 1910.
PUBLIC SCHOOL ESSENTIALS.