The times dispatch. [volume] (Richmond, Va.) 1903-1914, 1912-12-01

TO keep the credit machinery going
then our reserve system suddenly die
iptegrates into q many reserve sys-
tenn. with resulting financial collapse
The $4,000 banks OF the country
make the New York banks the Keepers
Of tie ultimate banking reserves N
fair weather. but when a storm comes
and these accumulated reserves IN
New York are needed for the general
. defense, then the $4,000 banks tear
down the central reserves. and eacn
one tries 20 weather the storm with
what little it has snatched from the
emergency fund. The system Is
panic breeder.
The national banking law. by its
provisions for the redepositinS OF re
serves. makes New York the holder OF
the ultimate RESERVES. Country oahNs
can keep three-ffths of their reserves
in the form OF credits at central re-
serve city banks. Reserve city banks
can keep half their reserves in the
same form In other words, a coun-
try bank. with $4,000 idle reserves
can put $4,000 OF these reserves at
work by depositing them with re-
=
banks and reserve city banks keep no
more idle money in their vaults than
IS absolutely required. The idle money
drifts to the central reserve banks.
Our Reserve system CoiIapses.
As a result OF this system of rede-
posting reserves, the national bank
statements show reserves greatly IN
excess OF actual cash holdings he"
serves of $3.50. 900, 600 are now shown
with less than slo00Oo0,o00 Of cash.
The country banks report reserves OK
more than $500. coo, 600, but more than
half Of these reserves are in the form
OF credits at reserve banks In the
same way the reserve city banks show
reserves of nearly s50e,OOO,oo", but
only about half of these are cash in
hand The rest are credits az centrai
reserve banks.
While the official returns OF the ma
tional banks show reserves of Il per
cent against deposit liabilities, the
actual cash reserves are less than Ia
per cent.
This system OF redepOsiting reserves,
without any foundation of a great pub
tic single-reserve upholding the whole
structure OF credit. collapses whenever
the country banks and reserve banks,
in a time of panic. attempt 10 convert
their credits 81 the central reserve
banks into cash in hand.
AS soon as the country banks at
tempt to draw down any large part or
their $3.50. 600, - deposits at the re-
serve banks. and the reserve banks
turn to the central reserve banks (New
nd I.nllfE-hllf
the end. New York;. our system falls.
The New York national banks, the
holders of tn eultimate reserves, car
~ net deposits for other banks of
$500. 900. 900. and any general attempt
on the part OF interior banks, in a
money panic, to draw cash against
these deposits, must inevitably result
in disaster.
No Reserve Laws in Other Countries.
We have stringent cash reserve
laws. not only for all national banks,
but for many State banks. No other
banking country requires its banks TO
keep cash reserves. But we have
money panics and they do not. IN
times OF stress. our banks stop paying
cash and stop loaning, intensitylng
distress In ether countries the
banks meet financial storms by paying
cash freely and loaning freely.
In oener banking countries. with
the single reserve system. where
money panics axe unknown. ana
where there are no violent, business
disturbing fluctuations In interest
rates, no Importance is ATTACHED TO In
dividual money reserves. The chief
reserves II foreign banks are the sec
ondarv reserves - liquid resources
which can be quickly sold or redis-
counted at the central reserve reser-
voir These secondary reserves are
largely discounts based on Soo-1s soon
10 be consumed. The discounts are
highly liquid. because the consumption
Of the goods iiquidates the loans.
Our secondary banking reserves arc
chiefly call loans on Investment securi-
ties y great mass Of these loans can
not be nquidated without creating a
stock exchange panic. Ana the very
, fact that the central reserve banks OF
New York must create q mass of stock
exchange loans. for lack OF any otner
large secondary reserves basis. in It
self unduly promotes speculation in in
vestment securities 70 the detriment
. Of productive industry
OUTS Is the Only HdlaOD DdSAHb lt1
banking credit system primarily on
stocks and bonds
Co-o1erative Central Reserve Needed.
Our many-reserve system has broken
down under every great strain. In
, the panics Of 20. 90 and 1907. mich
cost Us untold millions OF dollars, our
scattered reserves were poweriess to
uphold the structure OF credit In the
pinch, the thousands OF smaller banks
/ could not use their own little hosrds
OF cash they had grabbed out OF the
centrl reserve banks. because tho
law forces every bank not only 20
build up a reserve. but 20 keep II In
tact a. all hazards
The cash our banks must mold for
emergencies must not be used TOT
emergencies Thus says the law.
With q great single-reseTve. where
loans based on industry could always
he reGiscounted by the banks. the panic
of 1907 wou- never have occurred.
We have enough gold in the banks
AMPLY - -pnoii the structure OF