The citizen. [volume] (Berea, Ky.) 1899-1958, 1913-10-02
EVERY MAN WANTS TO KNOW
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make loans but only national banks
issue bank notes which form so
large feature in the currency of
our country.
The present bill, as national
measure, aims chiefly to alter the
system of national banks although
il makes il possible for the state
banks 10 take advantage Of the
plan. II passed the new bill will
take the place Of the one which
created the system in the days Of
the Civil War and which has sever
al times been amended.
Two things have come to be re-
cognized as necessary in any good
system of banking. They may be
summed up in the two words which
are So much used in all discussions
Of this question, namely. safety and
elasticity.
BY safety we mean the ability of
bank to pay to deposition at any
time and in full all the money which
he has entrusted to its care. This
requirement is mainly matter Of
keeping proper reserve fund TO
protect the deposition.
BY elasticity we mean the ability
of bank To increase its note issues
So that ii may be able to renew a
loan or to make a new one when
asked to do So by responsible men.
II Is mainly matter of being able
Ia adjust the amount of the currency
Ia the demand, sO that accommoda-
tion may be given To borrowers ut
all times under all circumstances.
II is not enough that bank or mer-
chant has property, there must be
ready money. and more ready money
at some times than AT others.
How does the present system of
banking meet these two prime re-
quirements Of a currency plan1 The
national law now in force requires
every national bank to keep on hand
a certain amount Of money called a
reserve fund with which To pay
depositors when they call for the
money they have left in its care.
This sum does not equal the whole
amount of the deposits as they ap-
pear on the books of the bank, for
experience has shown that all of
the deposits are not likely to be
called for at one time and the bank
makes its profit by lOaning every
thing that il does not need to keep
on hand. Thus banks located in
country sections are required by
law To- keep reserve fund of If
teen per cent of the amount of their
deposits; banks located in the cities
are required to keep twenty-five per
cent as the nature of the city bust
ness is likely to call for more money
than the business of the country
section.
The law as il is at present al
lows the country bank to keep part
of this reserve on deposit in the
city bank where il draws interest.
The city bank in turn may keep
part of its reserve ia the larger
cities. So the reserves pass from
the multitude of small towns to the
banks of about forty large cities
called cities of reserve and the re-
serves of these pass in turn 60
about four of our largest cities of
which the chief is New York I'm
that city many of the banks are To-
Gated on the famous Wall Street
which thus becomes the money
center of our country.
II can thus readily be seen how
the money supply of the country
gets under the control of a few men
who come to exercise great power
and are not at present enough I'M
der responsibility to any one for
the use which they make of il. The
result above described. comes about
in a natural way and to the interest
of both sides. The men in the
large centcrs of trade wish to draw
to those points all the money they
can for it is their business to loan
il for profit. The banks in the
smaller places are equally anxious
to send all the money they can spare
to places where il bears interest
rather than have il lie idle in the
vaults. There is nothing necessarily
wrong in all this but in the nature
of the case il results in harm. II is
the system that is to blame rather
than the men.
Let us see the results that may
follow. One Of these large New