21
BANKER
THE C H I C A G ü
October 3, iço8]
Alexander Gilbert on Vital Issues
the danger which threatened to involve the business interests of the country in confusion and disaster through the inability of many stock exchange houses to borrow money to meet maturing-obligations and to effect the daily clearances at the stock exchange clearing house, you would have thought the bankers of New York recreant to their trust had they failed to prevent, if possible, such an occurrence. The failure of a number of prominent banking houses at that moment would have so intensified the panicky feeling and fear which had taken possession of the people, that the credit system of the country would have been shaken from top to bottom. The money which New York banks poured into Wall Street during that exciting time was. not to promote stock speculation or to take advantage of high interest rates, but to protect the business interests of the country against threatening and alarming dangers.
Just a word or two about guaranty of deposits.
The guaranty principle is all wrong. If it does not put a premium on bad banking, it surely lessens the incentive to wise and conservative banking, and it lessens the caution of depositors in the selection of their banks. It enables the banker who desires to build up a large deposit line for speculative purposes to accomplish his purpose through the assurance that he can give his depositors that they are guaranteed against loss, and inasmuch as his only purpose is speculation, he can induce deposits by payment of high interest rates, all of which will work injury to the maintenance and development of sound banking. Practically there can be no such thing as voluntary or optional guaranty of deposits.
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A central bank possibly after a few years of successful trial would pave the way to the abandonment of our bond-secured theories.
A. B. A. Convention
demands of country correspondents by shipping currency against balances. To have fully honored the demands that were pouring in from all sec-
ALEXANDER GILBERT New York City
lions of the country would have dissipated our banking reserve in a fortnight.
If you could have stood where I stood and been conscious of the gravity of the situation, and
Alexander Gilbert, president of the Market and Fulton National of New York, at the American Bankers Association convention, on Thursday morning, spoke on “Vital Issues.” He said in part:
You will pardon me, I am sure, if I take advantage of my presence here on this occasion to refer to a matter which has been brought home :0 me by numerous invitations received during the past six months, to attend bankers’ conventions held in the West for the purpose of correcting a wrong impression that seems to have taken root in the minds of Western bankers, that we Eastern bankers, more especially the bankers of New York during the panic, suspended cash payments, and refused accommodation to our out-of-town correspondents in order that we could loan our money in Wall Street at prevailing high rates of interest. It is difficult for me to believe that this impression prevails to any serious extent. 1 am prepared to believe that there are bankers scattered throughout the country who really believe it. There were quite a number of untrue, unwise, intemperate speeches made during the last session of Congress by members of both houses, charging the same offense against the New York banks. I am not here to apologize for anything the New York bankers did during the panic, for when the truth is known as generally in the West as in the East, it will be recognized that the checking and subsequent control of the panic of 1907, was due not alone to the prompt action of the New York Clearing House, but to the fact that the clearing house banks of New York constitute the most powerful and conservative banking influence in the country. They were prepared for the panic of 1907—they saw it coming.
New York bankers have been severely criticised because they did not more fully respond to the
Bank Commissioner Pierre Jay tells American Bankers the Proper
Treatment of Savings by State Banks and Trust Companies
by law, the investment of savings deposits in a majority of states is without legal regulation, and consists for the most part of commercial paper representing ordinary business risks.
Since, then, a very large proportion of our wagerearners are obliged, for lack of other agencies, to deposit their savings in such institutions, it seems proper to trace briefly the origin of the savings deposit and to inquire whether it does not differ in its nature and in the purpose for which it is deposited from the deposit of the merchant, which is merely a margin for the loan which the bank has made him, or from that of the non-borrower who deposits in order to use the credit of the bank in paying his bills.
The earliest savings banks, in both England and the United States, were organized by benevolent persons who offered, as trustees, to invest the money of those who, through lack of experience, were unable to invest it themselves. There was no connection between the savings deposit and a loan, nor did the depositor wish to make use of the credit of the bank in any form whatever. The money was placed in the bank for safekeeping and investment. These informal institutions were soon given the sanction of law in both countries: "and the investments authorized for trustees of savings banks in Great Britain and in our eastern states are substantially the same as those approved for trustees appointed under wills or by the courts.
In these uncapitalized banks, therefore, savings deposits not only are invested as trust funds but are everywhere regarded, morally, as
fundamental, namely, the absolute safety of the funds deposited.
The agencies at present receiving savings deposits in this country and the states in which they are to be found, appear to be the following:	.
1.	Uncapitalized or “Mutual’ Savings Banks with investments regulated by law. In the New England and Middle States with occasional banks elsewhere.
2.	Capitalized Savings Banks with investments regulated to some extent by law. Most savings banks of this class also receive commercial deposits. In Ohio, Michigan, Iowa. Texas, Louisiana, Nebraska, California, Montana, Colorado, Wyoming and Idaho.
3.	State Banks and Trust Companies with investments of savings deposits regulated by law. In Vermont, New Hampshire, Connecticut, Rhode Island and Massachusetts.
4.	State Banks and Trust Companies with investments of savings deposits not regulated by law. In almost every other state.
5.	National Banks, none of whose investments are regulated by law, except that they may not invest in real estate mortgages. In every state.
It will be seen, therefore, that outside of the states included in the first and second groups, and to a considerable extent even in those states, the savings of the country are deposited in classes of institutions which were never intended to be used as savings banks, viz.: state banks, national banks and trust companies. And furthermore that as the investments of these institutions are substantially unregulated
One of the most remarkable achievements of the last hundred years is the accumulation, largely by wage-earners, of a fund of some $12,000,000,000 by wage-earners in the savings banks of the world. The vastness of the amount and the innumerable army of depositors both indicate the absolute necessity of the savings bank in our modern industrial life. The prosperity of a country may almost be measured by its savings deposits, and that nation or state which neglects to make adequate provision for the savings of its wage-earners has laid a heavy handicap on its development and prosperity.
About two-thirds of this immense fund have been accumulated in the European countries, where government and municipal, as well as trustee, savings banks have reached a high stage of development. A study of the various European systems brings out two points which may be appropriately mentioned here; first that they are generally established or authorized by national legislation, and second that as the funds are generally invested in the credit of a nation or a municipality their safety is unquestionable, and could be imperilled only by dishonest or negligent management.
In the United States, on the other hand, we have never had national legislation on the subject, but it has been left to each state to decide what agencies it shall establish to care for the savings of its citizens. The result is that while some states have made admirable provisions, others have made none at all, and all too feu have approached the question from the stand point which the foreign systems recognize as