New-York tribune., 1911-11-29

| IUdnfldi iIOuDifN ll lflf itIf fi e, TOO. nDf
Great Britain learned the lesson then while
the United states did not. but vent on
noundcring as str Il Il doiug. boz - wholly
unscientidc system The necessity Of re-
form has been agreed or by an students
of the subject. but the great obstacle in
the path Of that reform has been the dit-
hcuty Of dissociatinG the question from
politics. az well as disposition I'm many
quarters from time to time to 20 slowly
rather than risk a repetition Of tho United
States Bank experiences In that respect
consequently, the times have not brought
one OF the greatest changes that the banks
could wish
81 Panic Finds Banks Stronger.
The next time OF trial for the banks
came In 1851 when there was another I
suspension Of specie payments This time. I;
however. the consequent depression IN tbs y
financial and business worlds was not so
long continued. For one thing. wildcat |,
banking was not such an evil now. anf
the position OF banks generally was far
stronger than In the panic OF 1887. The
crash OF 1897 had taught the public 20 re-
quire better security from ths banks os,
issue. and ono result was what has como |
. TO be known I'm the history Of banking IN
this country as the New York safety fund
system
The Improvement in banking that led -
the far better weatherlng of the panic OF
1851 IS in no small part to be credited 70 the
initiative i'm correct banking which New
York thus took. Massachusetts also pro-
duced a system making for the same end'
OF safety OF banknotes that contributed
notably 10 the good cause. The desidera~ !
, tum had come 10 he certainty of re-
demption Of notes or bills, by the issuing
bank now that there was no United States.
Bank 20 exercise restraining II not cory
. rectve influence.
The New York safety fund system pro,s
yided for the deposit with the state oSs
federal and state securities which were ~
be sold in the event OF the banks fsilursl
and the proceeds applied to the paymenti
Of the banks debts. Many states adoptedl
this system. but it's greatest triumph canal
when in the early 6Vs. II was incorporatedi 4
into the law creating the national banking;
system, OF which II still continues 10 toruo'
the basis.
The Clearing House was four years old
at the time Of the 81 panic. In its frst
year average daily cleartngs OF $1,000 @o'
were effected. The corresponding ngure IN
these days is twenty times or SO larger.
But even more important than the enor-
nous increase in tho amount OF business
which the Clearing House does-the ag-
gregate rejecting the growth Of the city
as a commercial and financial centre--are
perhaps the functions It came 10 develop
OF sustaining the interests Of the member
banks by establishing rules OF practice
which individual banks might not be able
to maintain and OF conserving the general
credit OF the community by the issue ~
loan certificates in times OF panic, when
there is an unusual demand for means Of
payment. financial panic being due 80 a
scarcity of currency.
How the Certificates Operate.
These certificates take the place Of in.
| creased note issues where free banking cN-
! lists as is not the case here. and are based
/ on securities. so that the cash which the
securities represent remains at the disposal
| Of the banks for the use OF their custom
ers. The entire credit OF the associated
banks is pledged for the redemption Of ths
certificates. The interest charge Is pur-
posely placed high TO make It an sd-
vantage to the borrowing banks 70 redeem
them as soon as possible. and the certn-
Gates rarely have lasted more than few
months They We're tried first in 1850 and
! have figured prominently in all the psnios
since then.
The amount Of Clearing House certi6s
Gates issued IN the panic Of 1893 was tii.A
10000. and In the panic OF is07-the last ons
that New York has had-the amount vss
$40, 900 600 The first in the latter instance
were issued I'm October. 1897. and the lass
were returned IN the following March. This
highest amount outstanding at any ons
time was $sS,42o.O0o. Thirty-two Of the ettys
two banks in the Clearing House AssocisA
ton availed themselves OF this aid. This
largest loan TO a single institution vss
sl7. 100000 and the smallest was $1,000
There are nearly one hundred clearing
/ houses IN the United States, but by fsSs
the most important OF all IS tho New Yorts
institution. which also has been the model
after which all the others have bseD FASH
ioned. The development Of this poteus,
agency in the financial machinery 70 its
high state OF efficiency is not by te~
placed at tho top or the list OF all the
achievements in banking that this city has
given the nation In the seventy years under
review.
The next important development was tbs
establishment OF the national banking sys-
tenn, which grew up in the years is6S-lsSs.
! The country had long been crying for ala
. antidote for the evils OF currency infiauons
due first to United States banknotes ana
then 10 state banknotes. which lacked se-
| curity or proper examination. A paper
dollar had come To be worth good deal
less than a gold dollar. getting as far
down in the scale as 6 cents. The eXi-
gencies OF the Civil War had led the gov
/ ernment 10 issue greenbacks, as the legal
, tender notes came 10 he called. on q stu
pendous scale. and the result was a COM
plete driving OF gold money out OF the
country. leading to suspension OF specie
. payment
Safety Fund system
The wildcat banking which followed m.
careless banking laws which some OF ,hs
states enacted did not have IT, counter
part it Is true. in this state. but AZ ths
same time it's evil effects were felt here.
Instead Of permitting banks 20 issue cur
rency without security back 81 H. As not
few OF the states did thc Empire State
stuck To its safety fund system. which
guaranteed the redemption Of circulating
notes and also provided competent super
vision OF banks by the state. and this
states course I'm The interest OF correct
/ banking had so commended itself that ths
example al length came 10 be followed by
not a few of the more important states.
speaking financially and commercially. 4
not politically.
But 1t went even further, and recon-
-. To a..