Yorkville enquirer. [volume] (Yorkville, S.C.) 1855-2006, 1914-02-20

our battle born, blood sealed bond-se-
cured note issue, which is relentlessly
restricted by the amount Of stand
ing government bonds. Our present
national bank note circulation, although
it was created as an expedient Of war,
marked a tremendous advance over
the multifarious hodge-podiye Of state
bank notes which had preceded 1t. But
as the system was devised primarily as
means Of floating government bonds,
which were according to the terms of
the law the only available basis for
note circulation, the amount Of the
notes outstanding has ever since de-
, pended upon the quantity and value OF
the outstanding government debts
When, as in Mr.. Cleveland's admins
tration the treasury had surplus and
the Federal debt was reduced by the
purchase Of bonds in the open market,
the note circulation was correspond
ingly contracted. But when in Mr.
Cleyeland's second administration the
treasury was confronted with deficit
and had to borrow several hundred
millions, the note circulation automat-
ically increased again, in other words,
from the adoption Of the national bank
ing system Of the present time the
amount Of notes outstanding has been
determined only by the governments
borrowing needs and not at all by the
needs of business. 1t has increased
when money was already redundant,
and it has decreased when money was
scarce and it has been utterly unable
to respond to any Of the seasonable
changes in currency demand.
The inflexibility Of ledger balance or
deposits" resolves itself into a ques-
ton Of reserves and depends upon
two particular features Of our reserve
arrangements that are practically
without counterpart in other important
countries. The first is the rigidity Of
our reserve laws, and the second is the
lack of any bankers bank or similar
institution with ample reserves Of
lending power from which the banks
can replenish their own reserves when
necessary.
Flexible Reserves.
In this country the amount Of credit
which could be created in the form Of
deposit accounts has depended strictly
and inflexibly upon the amount Of the
cash reserves for our national banking
law and the banking laws of most Of
the states has prescribed that a banks
deposits must always be covered to a
certain proportion by cash held in the
banks vault. When deposit balances
have been created to this limit, not
only can no more credit be granted in
the form Of such balances, but even
these cash reserves cannot be drawn
upon or utilized without a more than
equal reduction in the loans Whenever
the cash held by bank has fallen to
the prescribed minimum, the bank
cannot legally continue to extend ac-
commodation or meet its obligations in
cash. 1t cannot issue more notes un-
less it has additional government bonds
to deposit for their security, and 1t
cannot enlarge it's ledger balances un-
less it has additional reserves. Nor can
it even pay cash without transgresslng
the law by trespassing upon the legal
ly required reserve. No matter what
may be the stress Of an emergency,
there are no legal means for relinquish-
ing these requirements, and so in mo-
ments Of great sensitiveness and anx-
iety the reserve laws act as legal
spokes which are apt suddenly to be
thrust into the wheels Of credit and to
bring the whole machinery Of business
to an abrupt standstill. We have great
ly needed, therefore, such revision
of our banking laws as would render
the reserve requirements pliable and
the reserves Of possible use.
A Bankers Bank.
In the second place we have felt the
lack Of a central reservoir of cash
and credit, available to all banks in all
parts of the country, from which they
could replenish their own reserve when
depleted. Just as every community is
best served when its individual men,
bers, instead Of keeping their surplus
cash in private boards, deposit 1t in a
common bank, and so make it mutual
ly available for all whenever and
wherever it is needed, so the country
will be best served when the banks in
stead Of boarding their surplus cash in
separate boards, keep it with g. COM
mon institution, from which 1t can be
distributed and made mutually avail
able to whichever banks and which
! ever localities may stand at the mo
ment in greatest need. In other words,
the banks Of the country in their turn
require a bank of their own in which
they can deposit and from which they
can borrow, just as the individuals and
firms Of any locality need and depend
upon such an institution. II our bank
reserves had been flexible and usable
and easily replenishable from q COM
mon reservoir in 1907, the banks all
over the country would not have taken
fright when a single trust company
failed. There would have been TO gen.
eral bank suspension, no general in
| terruption OF domestic exchange, no
general collapse Of domestic exchange,
no general collapse Of credit and trade.