New-York tribune., 1919-01-26
Steel VS.. Cast Iron Banking

ClSCA VS. N0Sh xkOfl 0d1MlIiS
The war brought great prosperity to
the banks as we'll as to the industries
of the country. This appears not to
have been due to the fairly high rates
of interest prevailing, but rather to the
enormous increase in funds loaned out
at interest. All of the banks-national.
state and others, except the savings
banks-shared in this increase, and it
was general over the whole country. In
a rough sort of way, the increase in
four years was about half. AS loans
increase so do the deposits. sDeposts
are liabilities. The total of individual
deposits reported in 1914 was eighteen
and half billions. Last July it was
a little short of twenty eight billions.
This increase in deposit liabilities
was accompanied by no corresponding
enlargement of banking capital. 1.-The
total of stock, surplus and undivided
profits for all the reporting banks was
about 81 AGO. 600, 900 in 1914 1t was a
little over $1,000, ,000, 900 last July.
mated from the calculation this change
in the relation of capital to liabilities
becomes still more striking. Thus, for
the national banks alone there was in
1914 a dollar,of capital for each So Of
deposits. while last year there was only
dollar of capital for each $3.50 of de-
posts. The total capital was only 1912
per cent of the total resources. Ten
years ago it was 1872.
The Controllers reports also indicate
how rapidly the banks have taken ad-
vantage of the lowered reserve require
ments. For last July the reserves were
very close to the new minimum, that
is to say, about 13 per cent for the
central reserve cities, 10 per cent for
the reserve cities and per cent for the
country banks. The average for the
whole country was little over 10 per
cent. This stands against about 1S per
cent before the new laws went into eff
feet. And yet even this does not fully
represent the whole change. A consd-
erable part of the legal reserves Of the
national banks (and the other members
Of the Federal Reserve system) is now
simply a book credit at the Federal Re-
serve banks. And against these re-
serves the required holdings of gold are
only 80 per cent And in addition to
all this the Reserve banks have more
than two billions of redscounted paper,
which means that in this four-year
period the total of loans really in
creased nearly ten billions, or nearly
two-thirds of the amount in 1914.
These facts have not been pointed out
to suggest that our present banking
structure is any less solid than it used
to be. SO far from that, it is probable
that banks are now, under the Federal
Reserve system, on the whole sounder
than ever. What they have lost in, the
nulk, as it were, of their bulwarks they
have gained in tensile strength. The
Change might be likened to transition
from cast iron to steel The shell which
protects the depositors (and the bor-
fowers Of the banks) is thinner than it
100, D0b IL lS dC Clce more resistant
and elastic, better fitted to stand
severe strain without breaking.
At the same time there are limits of
safety, and wise conservatism would
suggest that further Improvements" in
our banking practice might be post
poned until the new system has stood
the acid test Of an acute financial crisis.
sne high profits Of the banks now pre-
Vailing will inevitably tempt competi-
uon and the formation Of large num-
Der Of weaker banks. Although bank
Hg practice may in general be left to
sne bankers themselves, it still might be
measure of caution to set limit to
he deposits which the banks might ac-
cept IN relation To their total capital.
al the present time this, for all the
oanks. is less than five to one; but there
are ABUNDANT instances where this rea-
non is above fifteen TO one