[Volume XXV
THE CHICAGO BANKER
THE FARMERS’ AND MECHANICS’ NATIONAL BANK
OF PHILADELPHIA, PA.
427 CHESTNUT STREET
Capital .	.	$2,000,000.00
Surplus and Profits 1,270,000.00
Organized January 17, 1807
Dividends Paid . $12,637,000.00
OFFICERS :
Howard W. Lewis, President
Henry B. Bartow, Cashier	John Mason, Transfer Officer
Oscar E. Weiss. Assistant Cashier
ACCOUNTS OF INDIVIDUALS, FIRMS, AND CORPORATIONS SOLICITED PRESENT NUMBER OF STOCKHOLDERS 930
Your
Chicago Business
will receive prompt, careful and intelligent attention if intrusted to the
STATE BANK OF CHICAGO
ESTABLISHED 1879
Capital, ONE MILLION DOLLARS Surplus (earned) ONE MILLION DOLLARS
Active and reserve accounts of state banks and bankers especially solicited
H. A. Haugan, President	Leroy A. Goddard, Vice-President
John R. Lindgren, Cashier	Frank I. Packard, Asst Cashier
‘Henry S. Henschen, Asst. Cashier	Henry A. Haugan, Ass. Cashier
Samuel E. Knecht, Secretary	William C. Miller, Asst. Secretary
Lessons of the Panic
There are three lessons to be learned from this panic.
i.	Reserves. Our national bank legal reserves form a wonderful system of "mutual props.״ And as a system it is truly one of the greatest banking absurdities of the civilized world. Take a typical case. Here is a national bank in Fargo, sav. It must have a reserve of 15 Per cent. But it may keep 6 per cent in its vaults and deposit 9 per cent in the reserve cities. Accordingly it deposits most of its reserve in St. Paul. St. Paul must have 25 per cent reserve, counting of course your Fargo deposit. But St. Paul may keep i2J/2 per cent in St. Louis, Chicago, or New York. Accordingly about half— say 10 per cent is deposited in New York. Now you will notice that your Fargo reserve is also a St. Paul reserve. How can the same dollar be a reserve in two different banks at the same time ? Common sense says it cannot be. Nothing can be a reserve that you have not actually got in your possession. And yet the law permits the dollar to count in two banks, yes, we may even state, in three banks at the same time. But some fine day in October, when the word is passed down to you that St. Paul cannot let you have your reserve because St. Paul cannot get it from New York, you realize that your reserve is a little like the shell game at the country fair. Now you see it and now you don’t. On such occasions we see the dependence of the Dakota bank on Wall Street, as referred to before, and we see Wall Street itself the victim of a wrong system.
So much for the wording of the law. If the law would state clearly that the reserves are to be 6 per cent, 1234 per cent and 25 per cent, as it clearly means, those amounts to be held in the vaults of the banks, and should leave the question of deposit in other banks entirely to the individual banks, the whole question would be greatly simplified. If these reserves ?re not large enough, or are too large, is a question which could then be settled on its own merits. It now confuses the entire public. One point is
Individual Deposits in New York and Brooklyn
(In millions of dollars)
Year.	In-	De-
Bank.	1906.	1907.	crease.	crease.
National........ 653-3	600.8	___ 52.5
State............ 323.7	336.9	13.2
Savings.......... 921.1	962.6	37.5	___
Loan and Trust.. 790.8	840.4	58.6	___
2,692.9	109.3	52-5
And yet, while stealing the business of the national banks, the burden of two-thirds of the entire money reserves is carried by7 the national banks.
Money Reserves
(Millions of dollars)
Bank	1906	1907
National .........................227-S	234-6
State ............................ 54.6	65.9
Savings ........................... 6.4	6.4
Loan and Trust............................33.4	56.8
As mentioned before, in the period 1900-1907, state banks and trust companies expanded their total liabilities by 5,000 millions. At the same time they increased their cash reserves $171,-000,000, or less than 3J/2 per cent. And during this time national bank notes expanded $440,000,-000, with not much gold back of them. Yet gold is the test of solvency in the world’s markets. Hence we see what a colossal house of cards we had been building. And, as Conant well says, we had no ,‘central refuge," as our neighbors all have.
Compare ourselves with foreign countries and see where we stand as regards the coin reserves held.
20 Europ. Bks. $3,567,600,000 $1,120,400,000 $2,525,000,000 i. e. 54% of demand liabilities.
137 U. S. Nat’l
Bks-------	$517,900,000 $5,898,000,000	$464,400,000
i. e. 7% of demand liabilities.
Enough has been said to indicate clearly our tremendous expansion of credit in the last few years. When the crop moving demands of last October came on, the system broke down and the periodic smash-up happened.
II. General causes:
1.	Depreciation of gold, due to increased production, and consequent rise of prices, and enlarged volume of credit. Gold production now $430,000,000 per year, having quadrupled in the last few years.
2.	Bad currency.
3.	Credits transferred from liquid capital to fixed capital.
4.	Too many “undigested securities” on the market.
5.	Speculation and peculation. Great corporation fines by courts.
6.	Overdevelopment of trust companies, with high interest and low reserves.
7.	High tariff and big immigration, leading to “overproduction and underconsumption.’’
HI. Direct causes:
1.	Credit expansion.
2.	Crop moving.
Credit expansion is the point on which I desire to focus attention for a moment.
Never had the country seen such an increase in bank deposits. Individual deposits in national banks rose in
1896 to $1,668,000,000;
1900 to $2,458,000,000;
1907 to $4,323,000,000.
"From 1904 to 1906 expansion of deposits in the United States amounted to $2,000.000,000. National banks in reserve cities, in some cases, were offering interest and every known inducement to other institutions for money loans which might be carried as reserves to support a credit expansion that ultimately became dangerous." While this situation of the national banks is bad enough, it is made infinitely worse by the unparalleled increase in the number of banks and trust companies organized under state laws, and with lax reserve requirements. These institutions by offering big inducements to depositors steal the business of the national banks. As evidence of this fact, compare the banking institutions of New York and Brooklyn, and see where the business is going.