The Washington herald., 1917-07-02
HOLLAND LETTER
The Biggest Daily
Financial News Feature of
the Country's Best Newspapers.

Depositors in every national bank
should view with qualification the ef-
feet of the new law respecting re-
serve requirements. 1t would seem
to be dry and technical matter not
OF any special interest to depositors.
But when they understand that this
new law REQUIRES they will realize
that, so far as reserves are concerned.
deposits will be amply protected. Fur
thermore. they will understand that
bankers who in the past have found it
not difficult to dodge the reserve re-
quirements under the old national
banking law. will be compelled to
give up certain practices which, al
though they were unofficially toler-
ated by the Washington authorities.
were, nevertheless. regarded as un-
sound in principle.
Heretofore banks have been able
under the law TO keep a part of their
reserves in their vaults. Now, cash
which is in the vaults of banks. is
not to be counted in making reserve
compilations. Already some of the
New YORK banks have withdrawn
their reserves from their vaults and
placed the money with the Federal
Rererve banks.
Hereafter the u per cent reserves,
or a larger amount IL it be deemed
exredient, is to be kept in the Fed
eral reserve bank OF each district.
Gradually, almost imperceptibly.
many national banks, when the old
national banking Law was in effect,
adopted practices which enabled them
to count as part OF their reserves
money which the law did not permit
to be reckoned for that purpose. Some
years ago one of the large American
banks found II almost impossible,
without considerably increasing its
clerical force. TO count and then sepa-
rate the notes of various kinds which
came into the bank in the form Of de-
posits. The larger part of these notes
were those issued by national banks,
and II was not lawful TO count ma
tional bank notes as a part of the
reserve. Nevertheless, national bank
notes were thus counted, and the
Washington authorities were not in
ignorance Of that fact A bundle Of
notes. amounting in all. say, to SO
0NO or more. 1t was found by many
tests. was likely to contain about 81
per cent OF legsl.tender commonly
called greenbacks. These were avail
able for reserve purposes. The re-
mGinder OF the buncEe was male up
Of national bank notes and other bills
which, Under the law. could not be
CScd in compiling reserves Blu. the
mere physical labor entailed IN sepa-
rating national bank notes from other
bills. and setting these notes apart
was found to be very great, entail
ing considerable expense.
Therefore. the bank dumped the
whole bundle into it's reserves, al
though 6 per cent OF the bundle was
made up Of national bank bills.
Under the new law nothing but the
kind Of money which the law author
ICES to be used in compiling reserves
can be deposited with the Fe6era.
banks. Furthermore. no bank can keen
part of its reserves in it's own vault,
Every bank must OF course keen an
amount of cash on hand, which Il is
likely each day to have use for. But
no bank needs to keep on hand larger
amount than the sum which exper-
ieace shows should be maintained for
daily transactions.
With the reserves exclusively MAIN
tanned hereafter in the Federal Re-
serve banks. every desositor can feel
sure that his deposits are amply pro-
tected and that IL any crisis occurs
in the affairs of his bank, his de-
posits are secured.
In some parts of the country clear
ing house associations have permitted
banks to make settlements of their
debts to the clearing house through
the use Of national bank notes. This
custom has long prevailed in some
parts of the West and throughout the
South, but 1t was not tolerated in New
York. Boston or Philadelphia. The
clearing house associations of those
cities and OF some others would
recognize nothing but legal tender or
gold as money qualified for payment
of debts to the clearing house.
In some parts of the West, and Il
is understood in many parts of the
South, banks were accustomed To
count national bank notes on hand as
part Of their reserve, and this prac-
tice was not confined to those sections
It was adopted by a number of hank,
OF New York. although explanation
was given Of that practice by stating
that 1t was physically impracticabIe'
almost impossible. to separate and
isolate national bank notes from other
paper money of the kind which could
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