The Evening statesman. [volume] (Walla Walla, Wash.) 1903-1910, 1910-03-16

1907, the IdtteI UeluS cHloICcu ny d
general banking law. One of the re-
quirements of the law was reserve
of 40 per cent in specie against note
issues, which, however, could not be
used for any other business of the
bank, and was held essentially as a
guaranty of ultimate solvency. The
banks were allowed to issue notes to
twice the amount of their capital
which had the healthy effect of caus-
ing some expansion of capital to COW
er enlarged note issues. The circula-
ton expanded to an amount which was
out of all proportion and which was
consciously stimulated by the banks
by the issue of notes of small demo-
limitations. This result was provoked
more or less by the nature of the tax
on bank notes, but it's consequences
were so Glossy related to the nature
Of the assets of the banks and their
discount policy that the three sub
jects are treated in their relation to
each other.
compelled to pay taxes not on the
amount of the effective circulation, but
on the total of the authorized issue,
they were naturally disposed to en-
large the circulation as much as pos
sible, as they had to pay on the total
of the authorized issue anyway, and
leaving part of this sum idle would
have meant direct loss to them. The
banks had to keep 40 per cent. of their
circulation in specie in their vaults;
and if, for instance, 20 per cent. of a
banks ISSUE. e., it's authorized is
only 40 per cent. of its issue would
have been profitably invested, which
would have resulted in profit of
about 2 to 2 IL per cent. of the is
/ sue. The bank having to pay six
tenths of / per cent. of the entire
authorized issue to the Cantons and
one-tenth of l per cent. to the Confed-
Grafton, this would make, roughly, 1
per cent, which, taken off the profit
only to IL per cent. 1t will there
fore be readily understood that all the
banks of issue endeavored to put
their entire authorized issue on the
market, so that every taxable note
should yie,d a return; and this OBJ
ject was attained, but only at, the cost
of violation of two principles of ev
cry sound discount policy, namely, the
principle of selection of the material
for discounting and the principle of
regulation of the bank rate.
Taking up the question of the char
acter Of the assets of the Swiss note
banks, it is pointed out that the long
tive investments steadily gained ov-
er those for short terms until the ratio
of short time investments to the to-
tai decreased from 1913 per cent in
1885 to 2479 per cent. in 1895 and 49,
"a per cent. in 1904, while long-term
investments increased in the cores
ponding ratios of 64.27 per cent. of the
total in 1885, 1921 per cent in 1895,
and S0.16 per cent. in 1904. Comment
ing upon these conditions, it is de-
cIared by Doctor Landmann:
1.-THE fact must not be lost sight of
that the discount and collateral bills
designated in the foregoing tables as
short-time investments do not by
any means have that quality in the
same degree as the like assets have in
the portfolio of large central bank of
issue. A much wider range of bills
land thar elsewhere. Owing to the
fact that the banks were continually
hunting for bills, discounting became,
SO to say, democratic and according
ly the quality of the Swiss bill port
folio was not by any means of the
same standard as the discount invest
ments of the German Reichsbank or of
the bank of France The best proof of
this is furnished by the fact that while
the Reichsbank only suffered loss of
COS mark on every 1000 marks of av-
erage investment in bills, and the bank
of France lost only O02 franc on every
1000 francs, the Swiss banks of is
sue in the same year (1904) sustained,
on the other hand, an average loss of
0.51 franc per 1000 francs.
Investments in bills with collateral,
too, gradually lost their short time
character, owing to the practice of
extension carried on very extensively
w the Swiss banks of issue, and in
'eality these became longtime invest
ments, often difficult to realize on.