Evening star., 1933-03-06
ROOSEVELT'S AIM TO PREVENTS
MONEY EXPORT AND BOARDING
Inability of Banks to Pay OF on Short
Notice Does Not Mean Institutions
Are Unsound-Must Invest Funds.

The primary purpose Of President
Roosevelts four-day bank holiday is
to prevent the export and boarding Of
gold and silver.
The step was taken to protect all
bank depositors. 1t became necessary
because a minority group Of depositorS,
fearful of the future, were withdraw
ing their deposits and boarding the
currency, or converting the currency
into gold and boarding the gold. II
this trend had not been checked by
the President. the banks in a short
while would have been forced to close
themselves or they would have been
obliged to pay out all currency in ex-
istence in this country.
In such a situation the great ma
iority of bank customers. those who
had confidence in their bankers and
their country and did not withdraw
their deposits, would be wiped out and
the banking system would collapse. The
Presidents action is designed to pre-
vent such a calamity
The fact that bank, on short no.
tice, cannot pay of its depositors in
cash does not mean that the institu-
tion is unsound. To be of any real
service to the community. q bank must
be something more than a mere re-
pository for cash. On the basis of the
cash entrusted to its care, it must
supply the credit which Is the life blood
OF our modern industrial system. With
out this credit the commercial world as
We know it today could not exist.
Credit Ratio 10 to1.
Generally speaking. a bank extends
to the community approximately $40
of credit for each 81 on deposit. This
is the reason bank deposits, in normal
times. aggregate approximately $50
600, 100000, although the actual amount
of currency in the country Is only about
S5,0C0,000 600. The difference is repre-
sented by the value Of the land. indus
tries and businesses to which the banks
have extended credit in the form OF
loans
Assume for purposes Of illustration
that a bank deals conservatively in
home mortgages only Mr.. A. comes to
the bank and deposits 81 900. The next
day Mr.. B. comes in seeking q mort
gage loan Of $3.50 on his home II the
property is worth 81 500. the bank will
advance him $3.50 of the 81 900 deposit
ed by Mr.. A. and accept mortgage as
security. In other words. the bank has
invested Mr.. AS money Out Of the
interest paid by Mr.. B the bank will
make its profit and pay Mr.. A. his inter
est on the deposit
II the bank dealt similarly with 900
depositors. it would heve $3.50. 1000 in
actual cash in Its vaults but it would be
obligated to pay the depositors 81 900 =
600. 1t all the depositors demanded
their money at the same time. 1t is OBJ
vious that the bank could not pay of
for 1t would be impossible to liuuidate
the mortgages 1t had accepted as Sc
curlty for loans at a moments notice.
An institution operating along such
narrow lines would be the safest kind
OF benk. but even it would have to
shut down II its depositors yielded to
panic.
Banks get into trouble in boom times
when they invest their depositors money
unWlsely in unSound securities which
shrink in value during depression.
Because some banks have done this.
however, does not Justify the people in
losing faith in all their banks.
Need Exchange Medium.
With the banks closed it is essential
That some medium of exchange be pro-
V1ded. To prevent great hardships, pay
rolls must be met and some substitute
for money provided so the people can
purchase food and the other necessi-
ties.
To meet this requirement. 1t is ex-
pected that the Secretary of the Treas
ury Will authorize the use OF clearing