Grand Forks herald. [volume] (Grand Forks, N.D.) 1916-1955, 1919-10-07
BANK RESERvESAN AND SOLvENcY

ceTtsjn defenders Of the Observation-Disclosures Bank
Of Fargo in the press and elsewhere have maintained that
the steps taken to close up the bank because or alleged ir-
resularities in the handling OF its affairs is due to political
animus on the part OF members OF the state banking
board. particularly the sttornsy ganeral. In, support OF
this they assert at the tins the bank was closed and for,
some days prior to that time the banks reserves had been
At or ahovs the sum required under the banking laws Of
the state. namely. Is per cent OF tho deposits. The bank
they ray. was In the position regularly required to meet
demands upon It and thAt therefore there was no lawful
reason tor the steps which were taken.
The Herald ts not undertaking to make any decision
IN this bank case. It Is engaged in presenting the news as
1t, develops and In making such comment thereon as the
circumstance seem to warrant. It does not attempt to
state what the taets are tn advance Of reliable Information
on the subject dtscuasad. 1t has no knowledge beyond
what has developed in connection with the official investi-
gatibp as to the resources, liabilities and reserves of the
bank, but it wishes to make clear something which ought
to he thorouEhly understood. namely. that the amount OF
a banks reserves are no indication Of its solvency.
Banking laws. stats. and national. require that a bank
shall maintain q certain portion Of tho amount of its de-
posts In the form Of reserves. = part Of which may be
deposited with other banks such az are approved for this
purpose BY the authorities. The reason for this is clear.
If a bank were permitted to loan all Of its deposits 1t
would be impossible for it to meet the daily demands which
are made upon it for cash Checks could not be cashed
without waiting the collection of money from outside,
which would be decidedly ineonvenient to the business
public. 1t Is taken for granted that all of the depositors
will not want their money at the same time. They have
placed it in the bank for safe keeping and as q matter Of
convenience, and they expect to check against it from
tine to time, usually leaving a substantial balance. Many
years Of experience have shown that if during ordinary
conditions Of business q bank has ready available about Is
per cent Of its deposits 1t will be able to meet the daily
demands which arc likely to be made upon it. Therefore,
thu banking laws provide in substance that . bank may
loan on notes or other approved securities about SIS per
cent Of Its deposits, and that it must keep the other Is per
cent where it can be reached without delay.
1t is quite obvious that a bank may have its is per
cent IN reserve and still be insolyent- A condition might
arise under which all the other funds had been lost or
sauaudered and in that case the Is per cent would repre-
sent its entire assets. In other words the bank, although
having the legal amount Of reserves, would be insolpent
and should be closed UP. Whatever may be the facts as to
the amount OF reserves held by the nerican
thorities for closing, as we understand them, had not
to do with the reserves. but with the other IS per cent. It
was charged that the loans were made largely on security
which was either valueless or Of doubtful value. Hence,
the statement that at the time of the closing the bank had
sufficient resources on hand to comply with the law is en-
tireiy beside the question.