Grand Forks herald. [volume] (Grand Forks, N.D.) 1916-1955, 1921-07-01
PHILIPPINE AND n. D. BANKING.

4G & & $500
Over in the Philippines they have experimental with
state banking. with results similar to those attained in.
North Dakota. The Philippine government IL out 81
funds the bank is unable to meet Its obligations; the
congress has been petitioned to authorize the government
to increase its bonded indebtedness from fifteen to thir.
Ity millions.
There are important differences. The Bank Of North
= . was organized for political purposes. It was man
2 "1tn o1ficers VINO We're expected to carry out those
purposes. And those political. purposes were carried out.
That accounts for the disappearance from the nsh Of
available assets of a large chunk OF the peoples money.
we have no evidence that in the Philippines this purposs
was entertained, or that these methods were employed.
This feature. in the case of North Dakota, was in addition
to practices which were employed in both cases, and
which constituted a grave and dangerous diversion Of a
banking institution, handling trust funds, from its proper
function. E@#%
In the following article the New York Times presents
the essential facts with remarkable clarity, and packs into
a few paragraphs some OF the principles which underlie
the whole banking business.
The Times advices from Manila explain why the
Philippine National Bank needs help, although it has a
superfluity Of assets. They are frozen" a phrase which
needs no explanation to some Of our own banks. In place
of rows of desks of officers granting credits during the
war boom there were rows of desks of commodity experts
advising about the liquidation of collateral. In the Phil
ippines as in North Dakota the law required the deposit
OF public funds in specified banks, and embarrassment
has followed in both cases for the same reason. The funds
have been loaned and cannot be recalled. The accounts
show profits but they are in excess Of productive capacity
OF buildings and machinery, or in products unstable at
the prices on which the advances were made. The govern
ment is entanged because it took 20, 0o0, 900 pesos in the
National Bank stock. The governments credit of SO, oo0,-
1000 pesos ranks after the banks reserves, which are be-
low the legal standard. If the government withdraws its
deposits the bank cannot grant commercial credits, and
II the bank finances trade it cannot cash the government
drafts. The bank had Sal. 600, 900 in gold reserves in
New York, but they were withdrawn and loaned beyond
immediate recall Also the bank sold exchange which 1t
did not cover, and there was a loss on the fall.
The lkenesses and the differences between the Phil
ippine banking and our own are both reasons for giving
1t a thought. If only sugar. tobacco, hemp, cocoanut oil
and lesser commodities could be sold at old prices, the
Philippine trouble would shrink or even disappear. The
same is true of a list of our leading commodities. Here
as there excessive credits raised prices, and now there is
a demand for more credit to restore the old prices. If
only the war boom could be resurrected, the revolving
credits would revolve and the sellers market would be-
come again a buyers market. Since the banking credit
is exhausted there is a demand for government credit to
prevent liquidation as the only alternative. IL
Our case Except in North Dakota) differs from
that Of the Philippines because our bank reserves have
been regarded as trust funds and no venture was made
with them. The strength Of our banks is the strength Of
our situation. In the Philippines it is the banks which
are in trouble and the customers are the profiteers. Our
bank customers who have taken the advice Of our banks
have liquidated at higher prices, and those who have not
liquidated are trusting to slogans and government help to
remedy their mistakes" e..