The Marion daily mirror. (Marion, Ohio) 1892-1912, 1911-11-21
NEED FOR REFORM PRESSING
European Countries Not
Subject to Our Recurring
Panics.
Says National Reserve AS
soc. Will Take Money Sys-
tenn Out of Wall st.

great International financial firms to-
day in pleading for banking reform
and panic insurance before the Amer
lean Bankers convention.
Mr.. Warburg said that the great
weakness OF American banking as
compared with European banking.
lay in the dangerously large use os
stock exchange collateral as the
basis for bank loans instead of the
use, as in Euope, of commercial pa
per arising out of the normal day-to-
day movement of goods from pro-
ducers to consumers.
The main assets of bank" he
said, ought not to be stocks and
bonds. nor loans on stocks and bonds
but commercial paper But a bank.
the deposits of which may be with
drawn on demand at any time. must
have assets which can be reduced 70
bank credits within the quickest time
and with the smallest possible loss.
Commercial paper and bank accep-
tances form the main asset of Euro
pean banks. These bills have the
widest possible market. where mill
lions are exchanged daily with mar
gins of 1-16 per cent. or lis per cent
in the interest rate without scrutlniz-
ing the paper when the bargain Is
struck.
| THE mobilization of the promls-
sorry note. the system which enables
Europe to transform bills into bank
credits as quickly as staples or secur-
ities. Is the explanation of Europe's
success where we fail II bank
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promssory notes which have no free
market, the consequences must needs
be that when deposits are withdrawn
heavily. or when there Is a strong
commercial demand for money, that
stock exchange loans must be called
and holdings of securities must be
sacrificed. these being the only avail.
able liquid assets.
This means great economic waste
and often calamity, for it is an alb
solutely perverse system that expects
II normal investment demand, in
times, moreover. when money is
scarce, to be able TO supply a suffi-
cient sum to satisfy all the immense
commercial demands of the entire
nation. Moreover, it follows, that
prices of securities have to be so far
reduced that at bargain. or some
times bankruptcy prices, an abnor-
NAL demand for securities at home
or abroad must be stimulated
"This method is not only wasteful.
but as the past has shown us, it Is
most dangerous modern system
must provide for means for banks TO
rely upon their ability of marketing
their bills receivable, which represent
the trade and commerce of the whole
nation. In a modern system this can
be done without appalling losses,
there being no question of sacrifice
of capital In selling securities, but
only a question of difference in rate
of interest IN selling paper. More
over 1t can be done without creating
a panic; since gradual liquidation Of
commercial paper means reduction
of the volume of all commerce and
trade
"Contemporaneou financial history
furnishes us constantly with illustra-
tions showing the superiority of the
European system. During the Mo-
rocco crisis war scare developed in
France and actual boarding of gold
lbegan; the Withdrawals from the de-
post banks were at given moment
alarming. But there followed no
panic. The Banque de France Issued
notes freely the French banks col
lected their holdings OF foreign pa
per, ald Tie general confidence III
the PanQuc de Frances power to
cope with the situation overcame the
fright without the horrors that would
have ensued with us.
"Whcn France, for reasons Just eN-
lplained and as means or poltlcai
pressure, withdrew from Germany
more than 1000 million marks thar
temporarily had been invested there,
when English and Russian govern
ncnt money were called back, Ger
n ny had TO face very severe
sti ain. What would have become OF
Germany without the Reichsbank
WMhout the confident reliance that
the Reichsbank would be able to
meet the situation and without its
ability to act, suspension would nave
been inevitable.
I'VE had no war.fcare III lsuh anu
the country was flll OF gold pul
rates OF so per cent and 100 per ceh'
could not bring money, pecause "pi
system-or rather lack or system
had killed our own confidence I'm our
own credit. We have no credit sys-
tenn. but discredit system.
mot infrequently one hears the re-
mark: If il be true that the Ma
tional Reserve association VIII dem
ocratize our system and turn tn'
banks call money into the Dill mar
ket TO large extent taking II away
from Wall street. why should the lat'
ter favor the new law!'
"The answer Is plain This over
flow of money which In times Of east
Hoods New york. and which in times
Of need, is Withdrawn with such We
hemence that II causes violent CON
yulsions, is no blessing, put source
OF danger to that city Wniie oul
present system makes New YORK tn'
undoubted money center ana eiVe'
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