The Washington herald., 1914-08-16
NATIONAL BANK
NOTE SECURITY
Governments Credit Not In
volved- Question Of Issuing
Liability Against Liability.
WHEAT AND CORN LOWER
New York Banking Firm Requests
Legislation to Assist Railroads in
Present Predicament.


Present Predicament.
II the Federal Reserve Board or the
Comptroller of the Currency authorizes a
temporary reduction of reserve require
ments in the case of the national banks
il would be quite a different matter 10
allowing national banks to count national
bank notes as part of their reserve That
would be invoking a special provision In
. the statute. and, besides, the question OF
reserve is largely a matter of opinion. II
is SOUND argument that reserves are there
to be used when an emergency arises
But to count national bank notes IN
national bank reserves, while II may
amount to the same thing for the tine
being, Is said by bankers to be an IN
sound principle. National bank notes are
the obligations Of the banks themselves
and are secured only by the banks own
credit and the credit of the government
In the present agitation the govern
ment's credit is not involved. II is simply
a question of whether one form OF prom
Use to pay should be secured by another
form OF promise to pay.
II is a general practice in banking that
a certain class Of banking institutions can
count as reserves only the obligations OF
a higher standard of note issuing institu-
tion. This is why the national banking
law stimulated that the national banks
must hold as reserve specie or legal ten
der: that is, the issue Of the govern
ment.
National banks hold peculiar place IN
the cuuntry's circulation. Not like the
gold and silver certificates which are Sc
cured dollar for dollar by metal. nor the
United States legal tender notes. which
are secured by a substantial gold reserve
fund. they have behind them, Tor the
most part. only the credit OF the govern
ment in the shape Of its bonds Inc
metal security behind the other notes has
q stable value but how the security be-
hind the national bank notes. 'notwlth-
standing its tirst-Class credit, is liable u
Iuapairment was demonstrated in the de-
cline in the price Of government oonos
last wear. This goes TO show how danger
0us would be any project which resulted
in pyramiding obligations upon oase
which is liable to depreciation under ao-
verse circumstances.
The following table shows the different
classes Of currency in circulation at the
present time, with the security behind
each issue:
Currency.
,-,, -.4su+.. .Ssss 50 $50
silver crrtifcztes- tsssle'o
United States notes. gold. .....-.-.--- 80 osioLe
Treasury notes 1890 neutrality-suspicious.. ZisoO
NATIONAL BANK NOIES-
Lawful money and United States bonds. I5sS' "a
EMERGENCY CURRENCY.
CommeTcisI paper and security. H5e@"s
Foreign Exchange Market.
Prices for securities. cash on delivery,
are being made in London and Paris and
British consols were sold freely at 50 for
cash as compared with ssh for account
when the London Stock Exchange closed,
which is a very slight recession under
the circumstances. Bills of exchange
are being discounted freely in London
Demand sterling bills yesterday were
quoted at 495 to 4.96 in New York and
cable transfers at 4.99. The foreign eN-
change market has been helped by the
deposit of gold for the Bank of England
at Ottawa, Canada, which saves buyers
OF sterling bills the cost of sending gold
to London which is always figured as
part of the cost when sterling is at
premium in New York no matter whether
the gold is actually sent or not.
Wheat and corn were lover yesterday
on account of better weather in the corn
belt and lack of cargo room for gram
exports The British government is try
ing TO stimulate the grain movement by
assuring vessel owners and shippers that
the way is clear across the North At
lantic.
outside Of a limited circle of bankers
the talk of floating a French war loan OF
$40, 900 coo as a starter was not well re-
ceived Business men hold that the
United States has no money to spare for
fighting other peoples wars and that
the only conditions on which loans TO
other countries at war should be made
should include a proviso that all the
money be spent for supplies in this coun-
try That is the sort of a loan China
had to take not long ago and 1t is
good kind under existing conditions. The
countries at war need things we have 10
sell and having the money on this side of
the Atlantic before shipping the goods
would help our domestic trade.
The issue of emergency currency to the
banks under the provisions Of the amend
ed Aldrich- Vreeland bill has worked we'll
and a few spectators who began o
hoard currency obviously have lost the
interest on their money for their pains.
1t has curtailed the use Of clearing
house certificates and those now current
soon will be retired
Reduction OF Reserves.
THE proposal to reduce at this time
the required specie reserve against de-
posits from % per cent to IS per cent is
inimical to our best interests" said a
banker yesterday.
He continues: THE Federal reserve
system. believe, cannot be set in full
operation much before October !. When
II goes in operation. the law will reduce
the required reserve from . per cent to
IS per cent. The strongest institutions,
however, will reduce their reserve only
gradually, if they reduce II at all. ! do
not anticipate that even the reduction in
required reserve will release much specie.
Certainly the S15O.GOO.OOO which would be
theoretically released by the seyen-point
reduction in reserve will not be distribut- !
ed in full, and l believe only a small
part will be released.
This is no time to tamper with specie
reserve. If strong reserves were eyer
needed. they were needed now.
while there are large stocks of gold