[Volume XXVII
THE CHICAGO BANKER
6
100 YEARS OLD IN 1910
This is the oldest bank in the United States west of the Alleghany Mountains. In February, 1910, it will be 100 years old, having been in continuous existence since 1810. It has passed through four wars and the many severe financial panics of this country, and has never failed to protect its depositors. It conducts a general banking business; makes loans and receives deposits, issues letters of credit and makes collections on all parts of the world, tj It desires to extend its connections with banks in all parts of the United States, and invites propositions for the collection of its business. Ц It offers its services to banks and bankers as a collection Agent and Reserve Depositary.
Capital and Surplus $5,400,000.00
J. D. AYRES, Assistant Cashier GEO. F. WRIGHT, Auditor
J. M* RUSSELL, Assistant ^Cashier
OFFICERS
Tl\e
W. F.lBICKEL, Cashier
Rank of Pittsburgh
I״✓ N at ion al JBL AsS vs o ci a l ion w
WILSON A. SHAW, President HARRISON NESBIT, Vice-Pres.
mium of 5 per cent, as possession of banknotes enabled the purchaser to come into control of the government bonds held as security for the issuance of bank notes.
This is a most extraordinary experience. When the expenditures for the Panama canal grew to large proportions, the issuance of bonds therefor excited tears that there might be an over-supply. The country’s remarkable growth of business mitigated or delayed this apprehension, and not until within the last year has there been a lack of confidence in floating the 2 per cent bonds and maintaining a reasonable premium thereon.
This condition has perhaps been accelerated by the depletion of the government’s surplus, for many government deposits, were put upon the market at a loss, since there was no immediate prospect that the government’s surplus would soon become so large as to warrant an increase of its deposits with the banks. Added to this was the conviction that the government did not properly protect the credit of these bonds, which should have been done, inasmuch as the banks had invested in bonds even as recently as the last panic, paying high premiums thereon of 8 per cent or 9 per cent in order to provide further issues of banking currency to relieve the monetary stringency. The banks felt that it was due that adequate financial plans should have been formulated that might not only safeguard prices, but would prevent a general fear that they might go below par.
What a striking change a period of 20 years has brought in the public mind as to scarcity of bonds in the one case, and in more than plentiful supply in the present instance.
There are some bankers who advocate a great central bank that shall have the sole right to issue of currency. There will be strong objections to this among the friends of the national bank who do not believe in concentrating this power to a single control, and it must be taken into account that there are over 7,000 national banks authorized to do business, and this privilege cannot be ruthlessly cancelled without disturbing to a serious degree the confidence of business men and investors. The several amendments to the national banking act have made it more and more applicable to the necessities of our way of doing business, which is strikingly different, in its initiative and independence from that of any other country.
The American goes it alone, so to speak, in his own affairs and he does not wish to be circumscribed in his banking privileges any more than in his other business enterprises. In fact, he wants to deal direct with the bank and not through the medium of private bankers, as it is so generally practiced in other lands.
Some prominent financiers recommend that the government guarantee a small profit to the stockholders of a central bank. I am as opposed to the guaranty of profits as I am to the guaranty of bank deposits.
Some of the advocates of the central bank system recommend that its currency issue be based upon 30 to 35 per cent specie and the (Continued on page 28)
customers, without admitting or disclosing its insolvency.
This plan has received widespread attention from many prominent bankers, who cordially express approval of its simplicity, feasibility and safety. The clearing house bank would afford unusual opportunities for investment by foreign or domestic bankers in the commercial paper of the country. It is a favorite mode of investment by Europeans, and in time of idle capital would be utilized largely.
One of the most prominent financiers of New York, in discussing this matter, said that large banks of the country would take advantage of this opportunity to invest more of their surplus capital in commercial paper, and less on the stock exchange.
There seems to be a deep-seated desire among some financial writers, who would destroy, root and branch, the national banking system, without stopping to consider the widespread disaster which such a hastily ill-considered movement might involve, and to ignore its good service. The people at large are not clamoring for the repeal of the national banking law. They are only asking for broader lines of financial accommodation that shall meet the growing needs of the business.
To me there are strong indications that in discussion of currency reforms, I would not be surprised if the democrats entirely relaxed their opposition to the national banking system and became most zealous advocates of its retention.
Previous to the issuance of government bonds for Panama canal purposes, the scarcity of these bonds for banknote issue had already been felt, even to such an extent that the currency of failed banks was bought up at a pre-
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for. From this board of directors, a resident council shall be chosen, together with its officers, who shall control and direct the affairs of the bank.
The United States government shall have no participation or dictation, save that in general supervision, but the secretary of the treasury, the treasurer, the comptroller and other appointees shall act as advisory to the board of directors.
Any shareholder of the bank shall have the privilege of re-discounting its business paper in proportion to its holdings and bank balance, but shall not, in the aggregate, exceed ioo per cent of its capital and surplus.
This bank shall be a government depository, but perhaps not exclusively so. It shall be authorized to act as a reserve agent for any bank with which it does business, and especially be a reserve agent for the national banks of the three central reserve cities, New York, Chicago, and St. Louis. It shall be authorized to deal in foreign exchange.
Some exception may be taken to investing this bank with the right to deal in foreign exchange. I would, however, call your attention to the enormous and growing international business that requires the use of large sums of credits. Even in New York, there are difficulties at times to place exchange favorably or with much uniformity. And in the future, it seems to me that while transactions might involve hundreds of millions of dollars, there should be some great financial source, whereby in the interim of business negotiation, the rate of exchange could be fixed and secured, payable at some future date.
It shall discount approved loans offered by its shareholders at not exceeding 85 per cent of its face value, the balance remaining on deposit until maturity and payment of said loans. This would insure an income that would provide a fair dividend on the stock.
In order that there may be facilities for ample expansion to relieve extended financial distress, the secretary of the treasury shall be authorized to accept as collateral for the issue of national bank currency to this national clearing house bank, “on approved commercial notes and securities, indorsed by the previous discounting bank, and guaranteed by the national clearing house bank,” to an amount not exceeding 75 per cent face value, and at a rate of not more than 3 per cent per annum with a limit of credit of six months, the balance, 25 per cent, to be paid back to the discounting bank on maturity and payment of the loans.
This kind of security is accepted as a safe basis for loans by the Bank of England, the Imperial Bank of Germany, the Bank of France and other continental banks. This plan would give all the facilities and advantages of a great central bank. I would limit the aggregate of such loans by the government to the clearing house bank not to exceed 50 to 60 per cent of its paid up capital.
No bank with the facilities offered by the national clearing house bank could reasonably excuse itself from providing currency for its