Evening star. [volume] (Washington, D.C.) 1854-1972, 1914-08-05
Some $4,000 Banks
in This Country.

AZ AnA' SouJ' reserve in its
own vaults This situation has made the
transference of money to places where
it has been bitterly needed extremely
difficult. There was no central supply
to which a hard-pressed bank might
turn for assistance. In cases of stress.
other banks became fearful and insisted
upon keeping such cash as they might
have in their own vaults. Creditors Of
the affected bank were refused payment,
distrust spread rapidly through the coun-
try. and panic. with its needless loss
and sacrifice, was in full swing.
Six bitter panics have borne home the
conviction that some banking machinery
must be established by law whereby
idle money reserves may be quickly
thrown into a threatened bank in time
to check the faring up of a panicky
feeling among the people. Where one
large bank suspends payments-although
its investments may be ample and of
the finest quality-other institutions be-
come involved and the psychology Of
panic destroys ruthlessly in the interest
of self-preservation.
1t is unthinkable, however. that a run
upon all the banks in the country could
start at the same time Such an occur
renee if possible at all. would break
down any system of banking yet devised.
On the other hand. while one or a dozen
banks are being hard pressed by their
depoSitors for cash, plenty of idle money
for their rescue is scattered through
thousands of unaffected banks in the
country. Commercial paper. bonds and
other investments completely covering
all their Indebtedness and giving ample
protection to their depositors may be re-
posing in the vaults of the banks upon
which the runs are being made, but if
there is no way in which they may turn
these Investments into cash or obtain the
loan Of cash upon them, the banks must
suspend their payments at the first de-
pletion of their reserves.
With the suspension of payments, an
unTeaSoning fear seizes upon the public
and grows rapidly. Other banks feel that
they must hoard what cash they have to
save themselves. Further, they go about
strengthening their reserves. Call loans
are demanded. money is called from re-
serve agents, and new loans are refused.
Distrust clogs business everywhere. and
frenzy to realize cash values strains
credits to the breaking point.
The calling of loans forces merchants
manufacturers and spectators 10 sell
their hold
Calling in of Loans ,nss for
Forces Sale of Holdings. ,Ss n a ever ssI
get pfOuuctiOn Is restricted
and business generally shrinks.
This difficulty of obtaining cash in
times of strain has developed with it a
companion defect-that of general
Tightening Of credit when the financial
outlook is at all dubious. As though at
a common signal, the banks and the peo-
pie begin drawing in cash and boarding
it until there is little left for the +inar
mr. Ifrt h,,p{
done must be done on basis of future
payments. To a certain extent the COM
munity goes back TO the primitive meth
DDS Of barter.
BY the second prime defect-that of
imrnobile commercial paper-is meant the
lack of market in the United States for
the redlscountlnS of amply secured
short-time loans arising In the course of
business transactions. Commercial pa
per forms large part of the Investment
of all banks. If 1t We're possible 10 turn
these investments into cash with the rise
of any unusual demand for payment
among its depositors, bank would be
able generally to quell any run in its
beginning and soon TO restore confidence
In the absence of any such market how
ever, TINS paper must lie in the bank un-
~ maturity. useless i'll the days of emer-
bCGGy.
lur currency system has been charged
WITH being one OF the chief causes OF the
" et,Aness of our system This charge is
now generally admitted to have beer
oVefemphasized. Our troubles have been
more ones Of credit than of cash To an
extent however. the ineIasticity OF GU,
currency las contributed to the weak
ness Of our system.
United states currency may be divided
INTO TWO main classes-that nut out by
our government and that issued BY the
national banks. The money put out BY
the government consists of gold coin
which derives its purchasing power from
UF.4rO ND
which il contains. the stamp of the gov.
eminent merely guaranteeing this weigh,
ami ruenesS, and, roughly speaking
promises q pay gold. Compare tively lit.
ne gold coin is in circulation. Most OF the
country's gold supply is in the vaults Of
the Treasury. where 1t is held as guar
antec OF the governments promises Il
pay gold. and in the vaults of the coun
Uy's banks.