The citizen. [volume] (Berea, Ky.) 1899-1958, 1913-10-02

of gain, may easily allow its re-
serve to get low, or IL may make
loans that are not properly secured.
They thus endanger not only the
safety Of their own depositors but
the safety of depOsitOrs in all the
banks throughout the country that
have been sending their reserves to
its care. An urgent and une xpect-
ed demand on the part of its de-
positors for their money may come.
The bank cannot pay them what
they ask. The bank must fail I'M
less something comes to its relief.
Other banks in New York may help
II with their reserves which have
been more carefully guarded. The
Treasurer of the United States might
let the bank have some of the
government funds which lie idle in
the vaults at Washington. Both of
these things have happened and
disasters thus avoided but they can
not be depended on and are not a
part of the system, provided by law
suppose the bank fails. Then other
banks which have been depending
on IL fail. The shock may extend
to a setwork of banks turnout the
country. DepOsitOrs all along the
line will suffer loss. They may DE
paid in the end but they have lost
the use of their money at the time
they need ii the most This is the
present defect in matter of safety.
Now let us see how the present
system meets the needs of the Dor
rover. In times when things 60 well
he finds IL easy tn make a loan or
renew an old one. The banks wish
To loan. ID is their business and
theS<inake their profit by it. But
what shall we say of times when
banks are failing or crops are bad.
That is when the farmer, manufac-
turer, the merchant needs to renew
old loans or make new ones. They
go Ia their bank for the accommOda-
ton. Perhaps everything is at stake.
They would be willing To pay al
most any rate of interest. But they
are told they cannot have the money
they need. The banker must "call
in his loans as he terms it, to safe
guard his depOstors as best he may
He cannot renew old loans or make
new ones. He cannot issue any pa
per money in the form of bank notes
as he would like to do to help his
customer and perhaps his friend
This could only be done by deposit
ing government bonds and he has no
money to buy them with. The
would-be borrower must stop his
business in whole or in part. In
either case he must extend the
disaster Ia "A network of other in
dustries. The banker regrets it but
cannot do otherwise. II is the sys-
TEN that is to blame. We say the
currency is inelastic. The supply
of money cannot be- increased to
meet this emergency. Just when il
ought To he able To stretch little
II contracts. III the process describ-
ed above is widespread We call il
a financial panic. and we suffer a
period Of four or five years of hard
times Everyone knows what that
means. There are countries where
these things do not occur. II is
believed they are not necessary in
our own country. The cause has
been located in our banking sys-
TEN and we are seeking to remedy
How does the new currency bill
propose to remedy these defectsi
For many years back there have
been suggestions and plans offered
both by bankers themselves, by &C.
onomlsts and by legislators. Every
plan proposed has provided some
better way of handling the cOun-
try'S reserves than that of the big
city banks, and some easier way of
increasing the supply of currency
than by issuing bank notes on the
security of government bonds. The
bill that was proposed in the last
administration provided for IA single
central reserve association to be 10
Gated in the business center and
controlled by a board selected by the
banks in il, with branches in other
places. Thus all the reserves of the
country would be under one
management and could be placed
here or there as they were needed.
A weak spot in the banking sys-
TEN would therefore be mended at
once and not allowed TO break. Thus
would the safety of depositors be