Evening star. [volume] (Washington, D.C.) 1854-1972, 1912-12-01


GEORGE NJ. REYNOLDS.
country. to say who may and who may
not have credit. and what they shall pay
for it. I believe l would know if there
were such monopoly of credit, be-
cause the bank with which 1 am con-
nected is the largest bank in the coun-
try outside of New York. and is one
of the thirteen banks holding a fourth
of all the money in the $4,000 banks.
Banking Power Centralized.
No such money trust exists. but 1
want to say most emphatically that the
American people are doing all they can,
through Anticipated banking laws, to
promote such monopoly. We have no
central bank in the United States. but
We have a greater centrallZatlon OF
banking power than have European
countries, where the centra! bank sys-
tenn is highly developed. The popular
fear of the growth of money trust
is the result of Capitalization OF
banking power in the large cities.
which is bound to become greater and
greater under our present banking
system.
The growth of large banks and the
building up of banking communities OF
interest" has been more pronounced since
the panic of 1907. The great banks of
New York in the fall of that year. de-
spite their command over the liquid FUNDS
of the country, were unable to prevent
money panic in a time Of peace and pros
perity. ;.
It was this painful realization of the
defenselessness of our banks. when under
fire, that accelerated the movement to-
ward powerful banking coalitions. Inc
several groups of big banks controlling
IN, 1T n
try. through stock ownership, or inter-
locking directorates, have been greatly
strengthened in the past four years. not
because of any design to form money
trust but to the end that the banks
could protect themselves in future panics.
Believed to Favor Stock Speculation.
Our banking system now tends to de-
velop a money trust 1t is not the
fault of the banks. but of the system
Our system forces the reserve funds of
the banks into a few large banks in the
central reserve cities: and it then forces
these holding banks to invest
their resources largely in loans on stock
exchange collateral, instead of in COM
mercial discounts. The captains of
finance, engaged in the flotation of new
ventures. are bank customers as borrow
ers on the securities which these fiota-
tons bring into the market. The system,
therefore, WHICH lOICcS lllc IcSeINe-Iolu-
ing banks to seek stock exchange loans
in preference to commercial loans, di-
rectly benefits the captains of finance
who are popularity supposed to be men,
bers Of the alleged money trust
Spectators and other borrowers on
stocks and bonds pay the lowest rates
for loans in this country. Business men
pay higher rates. In Europe. where they
have scientific banking systems, the low
er rates are paid by business men, the
higher by SPECTATORS.
The big banks of the financial centers,
holding hundreds of millions of reserves
for thousands of smaller banks. must
keep these reserves liquid. that is, in
such shape that they may be convertible
into cash at a moments notice, to meet
the demands of the depositing banks for
funds. The big banks cannot invest the
bulk of their resources in commercial dis
counts. as is the European practice, be-
cause we have no broad. liquid market in
this country for such discounts The
exchange. And so the banks must,
whether they like it or not. foster specu-
lation at the expense Of business.
Credit Pyramid Built On Gold.
Our bank reserve system is faulty All
money lying in bank vaults is idle money.
bank. therefore, keeps no more money
on hand than it needs to insure it's ability
to meet the expected demands of its de-
positors for cash. The larger the pro-
portion of money in the resources of a
bank the more must the bank charge its
customers for credit, in order to pay
for the carrying of this idle money in it's
vaults.
A sound banking system is built up on
foundation of the precious metals
especially gold, the money of interna-
tional commerce. The efficiency of a
banking system is largely measured by
its canaCltV to provide with absolute
safety for payments between the people
with a minimum of the precious
metals Every country must invest a
certain part of it's wealth in the machin-
cry of exchange, and it is economy to
keep this investment as small as posi-
BILE consistent with the highest efficiency.
The structure of credit is delicate
as 1t is wonderful. Enormous credits
against property are built upon a founda-
ton of a very little cash and great
deal of public confidence. Our sixteen
thousand million dollars of bank credits
on a foundation of fifteen hundred million
dollars cash in the banks is entirely safe
SO long as there is confidence in the
banking system. The credit structure
would not collapse. it did in 1907, if
confidence were not shaken.
Barbaric Struggle for Cash.
The banking system of England is built
on a much smaller proportion of cash
than is ours, but it does not periodically
collapse, as does ours, because the Eng
lish people have great confidence in their
banking system. They do not rush mad
ly to their banks in times of financial
stress, as We do, for the purpose of con-
verting property into gold.
No banking system can Withstand a
mad scramble for gold. OF the S125,O 900
600 900 of wealth in the United States.
only $500, 100000 is in the form Of gold