Ashland tidings. [volume] (Ashland, Or.) 1876-1919, 1914-01-19
TWO BANKING SYSTEMS.

The national banking system has
lasted 90 years. 1t is 81 years since
the original law was passed and i9
years since a great impetus was Civ
en- to the system by levying a pro-
hibitive tax upon the issues of state
banks.
The fact that this tax had to be
levied in order to force banks into
the system and drive out the state
bank notes is sufficient to refuta the
very prevalent impression that the
national system was created in or
der to provide notes that were worth
their face and would circulate any
where. We had been through a
period of red dog" and wildcat
banking, and emerged therefrom,
and, while some states Jagged be-
hind, most of them had excellent
bank systems, and their notes circu-
lated freely until taxed out of exist
ence.
The purpose of the national bank
law was to force market for gov
ernment bonds by inducing banks to
loan large portion of their capital
to the government. 1t served that
purpose, and it also supplied uni
form bank circulation OF indubitabia
soundness. But, with the cessation
OF the governments financial needs.
and with the vast expansion of the
commerce of the country, serious de-
fects in the system have been the
subject of frequent complaint for ~
or 80 years. The currency has
lacked elasticity, and this elemen;
could not be supplied while the
notes were secured by bonds. There
ras also been great timidity abcu;
allowing thousands of banks to issue
notes against their general assets.
The resources of the banks have been
scattered through separate concerns,
now numbering more than 1000, and
could be pooled or used cooperative
ly only through the reluctant action,
in great emergencies, of the volun-
tary clearing houses.
The new banking system meets
both of these difficulties. 1t pro,
vides an asset currency. but this is
issued under direction of the tederaI
reserve board through the federal
reserve banks to the member banks
The notes are secured by ample re-
serves, by the commercial paper
against which they are issued, by a
first lien on all assets of the issuing
bank, and by other means. or their
absolute security there can be no
possible question. Being issued
against commercial paper, the circu-
lation will expand as business ex-
pands.
Fears of redundancy and initiation
nave lbHoicu lhS lSuShiplloH piO
vision closely resembling the practice,
IL not the statutory requirement, in
Canada, regarding which almost
nothing has been said in the discus
sion. Section II provides that mo
federal reserve bank shall pay out
notes issued through another, under
penalty of tax of 10 per centum, Z"
but the notes shall be promptly re-
turned for credit or redemption to
the federal reserve bank through
which they were originally issued. "
Under this provision il would be i'm
possible here as It is in the Domin-
ion to keep in circulation notes in
excess of the requirements of actual
business.
The resources OF all the banks will
be concentrated in eight to twelve
federal reserve banks. which will re-
discount the paper of their members,
The government control of the sys-
TEN Is not greater than tnat existing
in the leading countries of Europe
and as the five members of the fed
eral reserve board, apart from the
secretary of the treasury and the
comptroller of the currency, will
hold office for ten years. one retir.
ing every two years, IL is impossible
that there should be any partisan
influence in the administration o
the system. The existence Of fed
eral advisory council chosen by tn,
federal reserve bank would expos,
and defeat any such attempt, were 4
made.