The Birmingham age-herald., 1913-01-19
mestic situation. when under stress, by
means of its international relations
Going to Europe for Help

mestic situation. when under stress, by
means of its international relations.
Going to Europe for Help
When the panic of 1907 broke upon
the banks of the United States. they
strained every resource to obtain gold
from abroad. and succeeded by great
sacrifices In bringing in about s100.-
900, 600 in the course Of 50 days of
which sS5,000,000 came from London.
The Bank of England. which bore the
brunt of our demand, raised its dis
count rate three Tines within week
from 4la TO : per cent, not with any
expectation of checking the outflow
sto this country. but to set in emotion
the forces that would replenish its
stock The Bank CT Germany within
10 days advanced its rate from 5M To
I Il per cent. The Bank of France al
ways strong and less exposed to direct
demands. contented itself with advane-
ing the rate from az to 1 per cent
Through these institutions the influence
spread over Europe. each institution
charged with responsibility for a coun-
try's reserves taking similar action. In
this way. although the burden of sup
plying gold for the United States fell
directly upon the Bank of England II
was rapidly redistributed over the en-
tire nancial world
The Bank of England gave a wonderful
OF It's aDllltN TO fecOup Itself
On October %, when the bank rate was
first advanced from ~ per cent, the bank
held e3o.42o,0oo of gold, and the per-
certage of reserve was 30 15-16. On De-
cember 26. after the flood had passed, II
held e29. $4,000. and the percentage of
reserve WAS As. go No wonder the London
Economist reviewing the record in Its
number of March Ii, 1908, said The
crisis showed. much to the relief of ex-
perienced bankers that the raising of the
bank rate is effective device as ever
1t was in attracting gold"
1t is a humiliating record for us and
convincing proof of the inferiority of our
reserve system that the Bank of England
carrying a reserve of only s150O0O000 for
all the bank credits of England was
able to furnish relief to the United States
which seld a reserve of over $500, ,00a. 900
in government vaults and more than that
scattered i'm its banks. That is the su-
periority of consolidated banking re-
serve over a government reserve, which
belongs to nobody in particular, plus
banking. reserves which the banks dare
not use. q
Bankers Divided Responsibility Fatal
A division of responsibility for the gold
reserve is fatal to effective control With
1000 bankers in the United States the
interest of each one in the gold reserve
Is too remote to be of any influence on his
business policies. What Is everybody's
business is nobody's business in looking
after a gold reserve.
An organization which is definitely
charged with the responsibility is above
these local influences; ii is not doing bus
mess primarily for profit. and 1t has the
rational and international view 1t does
not get all of Its information after the
fact. II does not wait for an outburst of
panic before bringing corrective forces
into play. It sees the symptoms OF trouble
long before they are apparent to the
mar absorbed in local conditions, and
shapes its policy accordingly.
The arguments against giving the note
issuing power to all of the banks, with
the understanding that they shall MAIN
tain individual reserves, applies in a mod
ifed but important degree against divid-
ing the responsibility with numerous local
associations. The weakness of the bank
ing situation now is clearly in the want
OF leadership and lack of organization in
every period of stress. That weakness
cannot be effectively remedied by Gre
ating a lot of independent currency asso-
ciations which will have no relation to
each other The only thing that can be
said in mitigation of such plan is that
in time of peril they will probably act
together. but why not provide for this
cooperation and regulate 1t? A fear of
the domination of New York city is the
chief motive for providing Independent
association, but If New York is certain
to assume leadership anyway what Is
gaiE ed? BY dividing the country into in
dependent districts the pre-eminence of
the New York district will be established.
There is but one way to create a leader
ship that will rival that OF the New York
banks, and that is by including all of the
banks of the country in one organization
II a number of independent currency
associations are created there must be
some superior authority. some common
supervision over them. The Aldrich-Vree-
land act recognizes this and vests 1t
all in the Secretary of the Treasury.