Yorkville enquirer. [volume] (Yorkville, S.C.) 1855-2006, 1914-01-06
bank. Thirdly, it may, under certain

bank Thirdly, it may, under certain
restrictions re-diScount the CONNER
cial paper Of such banks. 1t may also
deal in exchange, bullion, loans, Unit
ed States bonds, municipal obnga-
tions, etc., in open market. Fourthly
it may receive from the Federal re-
serve board notes Of issue similar to
existing national bank notes. But the
security it will give for these may be
the rediscounted commercial paper al
ready mentioned, in which a certain
margin is fixed to secure the United
States treasury from loss.
From this one sees the scope OF the
new banks. In them the member
banks pool their reserves, so that In
time of commercial tension each may
be aided according to it's necessities
That no Individual bank may victim
ize it's associates through imprudent
speculation, strict inspection OF each
is provided for and the taking over by
the Federal bank Of the admimstra- :
ton of any member in case OF need.
ITO appreciate this provision one
must consider the object of a bank
reserve. Some think that this is PR
marily to stave off a run. This is quite
untrue. Of course reserve may De
used for such q purpose to nmiteu
extent. But a run upon bank is
lawless proceeding.
"If the bank is solvent it should be
protected; if it is not, or even II IL l.,
only doubtfully solvent, 1t has no rlght
to exhaust it's reserve by paying GER
tain creditors in full, to the detrlmen.
of others. It's duty in such case is
to close it's doors, call in the eXamln-
ers, and, if it is solvent, reorganlze'
If not, go out Of business.
..rho ,aaI ohjaot nf the reserve Is TO
protect the solvency Of the bank
against unforeseen depreciation in the
value of it's assets. For example, we
have seen in England consols fall from
above par to about II. Some institu-
tions are so strong that they have
been able to write off the depreciation
in their holdings out Of their ordinary
profits: others have had recourse to
the reserve for this purpose. Ihose
that could do neither have failed.
"If the depreciation is but tempor-
ary. as in commercial crisis, a strong
reserve is a guarantee that Whatever
NAV be the loss on assets, the panK
will come through unharmed. Again
a bank may be weak in reserve, ana
vet solvent, If it be given time to real
ize its assets. In the great panics such
have been saved by institutions OF
strong reserve coming to their relief.
But this has been a sort OF hnanclai
charity Others, that might have peen
saved, have been wrecked for the lack
"The Federal reserve bank provides
relief for all members that deserve II,
and by it's system Of inspection takes
care that no member shall be under
serving. Secondly, it provides for an
increase Of currency, when this is
most necessary. The old national
banks had to deposit United States
bonds to secure their notes. The re-
suit was that they could have any
amount when money was not In de-
mand. for they could then increase
their bond holdings. But when money
was needed they could not do this,
and so they were brought to a stand
still.
"The Federal reserve bank can put
commercial paper into the United
States treasury as security for cur
rency. In the normal times OF in
creased demand for money, e. e., the
spring trade, or the moving Of crops
this system can not but work we'll. In
abnormal times, as in crisis arising
from r-trading, it will have to be
watched.
"However, if the new system be
carried out Loyalty, if inspection be in
tellieently rigorous, it will be great
check upon over-trading.