Bismarck daily tribune. [volume] (Bismarck, Dakota [N.D.]) 1881-1916, 1913-09-21
BY A. q. sr,ckNEy.

BY A. 8. sTickNEY.
The following article appears in
this mornings St. Paul Pioneer
Press:
The reserve provisions of the bill
impose Unnecessary and crushing in
terest burdens on all the national
banks outside, Of the Central Reserve
cities of New York city, Chicago and
St. Louis.
The difficult problems III banking
relate to the cash reserves. Given
the means. aud the capacity to nain'
tain adequate reserves and the sue
cessful money loaner car do the rest
The cash reserves Of a banking
: system, which hes been developed
along the natural laws, consist. Of a
sufficient amount Of free gold OF
other lawful money to meet all de-
mands OF depositors for actual mon
ey. Such reserves absolutely free
from all legal restraints, available at
all times and in all emergencies, are
essential factors in developing bank
credits which are disable as a med
ium Of exchange in commercial trans
actions. ~
1t is evidently impossible to con
duct the banking business without q
sufficient amount of such free money.
The national bank at the time Of the
cOmptroller's report, June H. 1913,
hel dthe aggregate amount Of $152,'
477,271, including national bank notes
equal to about two per cent Of tleir
deposit liabilities Of absolutely free
money. which seems to be sufficient
except III constantly recurring emery.
encies which the pending federal re-
serve currency bill proposes to pro-
vide for by making available the
hoard OF the United States treasury
and a part of the l0ckeJ-up. ~so.called
reserves. In addition to the 2 per
cent of free reserves, they hold lock-
ed up, by law In their reserve chests,
the enormous sum Of SSlG, GC2, 65S OF
gold, silver and greenbacks, equal to
an average of II IL per ceat of their
deposits. This enormous amount OF
lOcked-up money Is known in the
law as the illegal reserves" and Is
legally untouchablc as long as the
bank is pursuing its legitimate func'
ton Of issuing its credit for the use
of commerce. The law provides that
as soon as any bank pays out any
part of its locked-up reserves it shall
stop discounting Or issuing credits
until the used money is restored to
the lookup.
Not Reserved for Use.
While these locked-up sums are
called reserves, the legal limitations
upon their use deprives them of one
essential quality of real reserves.
viz, freedom Of use. This locked.up
money IL not reserved for use when:
ever the e%xigencies of banking re.
quires the disbursement of actual
money, but In effect it amounts to a
margin Of safety for depositors
against losses from unfortunate loans
or other 1hnishaps which beco!ne s
available in liquidation.
In effect, the present national bank
ing laws authorize the formation of
banks to accept deposits and loan
their credits on conditions that they
provide, in addition to their capital,
as : further margin of safety, GER
tain percentages of their deposits in
cash locked up in their own vaults.
The banks in the central reserve cit
ts,Newe York, Chicago and St. Louis.
must thus lock up cash equal to Is
per cent, banks in reserve cities,
cash equal to IL IL per cent, and the
country banks. cash equal to 5 per
cent. of their respective deposit lia-
bilities. These margins must be kept
good under penalty OF forced liquila-
ton. Now. as the volume and value
Of productions increase, a CORE.
spending increase in bank credits is
required to carry them from original
production through the processes OF
manufacturing and transportation to
ultimate consumption. but under the
law the banks cannot increase their
credits without first increasing their
cash margins: IF central reserve
bank increases 1.-THE volume Of its
credits, say. $5OO,009, it must first
procure and lock up in it's margin
chest rs per cent. or $125,000 of gold,
silver or legal tenders; for the same
increase of credits III q bank In a re.
serve city must procure and lock up
$751; 600, and a country bank must pro.
cure and lock up ,$25. 900. This is the
rub. How to maintain and provide
the constantly increasing margins Is
the crux Of, the banking business.
&c unty's Stock Of Money.
From statistics collected by the Ma
tional Monetary commission, it ap.
pears that at the close of business
April 25, 1903, the whole stock Of
money, including national bank notes