THE CHICAGO 'BAJtK.E'R
Founded in 1898
Number 21
CHICAGO, NOVEMBER 20, 1909
Volume xxvii
Outlook for Banking and Currency Legislation
the banking fraternity, and to eliminate any illegal alliance between the bank management and speculative ventures, which, more than all other causes combined, has been responsible for bank failures in the past.
But soundness of bank management alone is no specific against the recurrence of a currency famine similar to that of 1907. If the currency of the country is insufficient for the legitimate needs of the season, the soundest of bank assets will prove inadequate to conduct the business of the country. Any unusual demand for funds may cause signals of distress to be raised somewhere, at one time perhaps in the East, at another, in the West or South. If the currency of the country, on the other hand, becomes inflated, the managers of our banks are clothed with no police power to prevent the inevitable riot of speculation and inflation of prices, which may perhaps form the storm clouds which usher in a panic.
Our defective currency laws have in part contributed to bring about both the panics of 1893 and 1907. The evils have been repeatedly pointed out, but we do not find it easy to remedy them. I am compelled to believe that the apathy of the banks concerning matters of currency legislation has had much to do with the half-heartedness with which congress has always taken this matter up. The trouble has been the bankers have been divided among themselves in opinion, in regard to proposed legislation. The banker, above all men, should be fitted by study and experience, to point the way out. When the banking fraternity agree among themselves upon a sound and practical currency measure, and do courageous missionary work in building up public sentiment along lines which they are perfectly able and should be perfectly willing to defend, the time will not be far off when congress will hear their cry, and enact such currency legislation as will not call for constant apology, but will instead install a currency system sound under all conditions and responsive to the needs of trade.
Congress is a very busy body, a very unwieldy body, and moves very slowly in legislative matters, and usually moves, when it does move, under the pressure of public demand, or at the behest of a very adroit and formidable lobby. Congress has no very clear views itself on the currency question, and looks with some hesitancy upon suggestions emanating from banking quarters, knowing that in many sections of the country, a popular prejudice exists against the interference of the banker in currency discussions, nourished by the belief that the interests of the banker and the interests of the plain people on currency matters are necessarily antagonistic. This belief is founded upon the absurd notion that the banker has a constant interest in making money scarce and dear, while the people have a constant interest in making it plentiful and cheap. The fallacy that banks make lean profits in flush times and enormous profits in hard times, should have been too long dead for the ghost to walk. But the banker is still the bogey man in some legislative halls, even at this late hour, and the 'criticism which has been heaped upon him has in many instances af-
J. P. Huston of Marshall, before Group 5, Missouri bankers, on the chief topic of the day in financial circles
partment. Suffice it to say that the personnel of the examining force has been improved, examiners at large have been appointed, to the end that more frequent examinations are made when it appears that a bank is conducted at all loosely, and the examinations thus made are more
J. P. HUSTON Marshall, Missouri
thorough and searching than ever before. Bank directors have had a shaking up which has sadly jarred many of them, and we are beginning to find that the day of dummy directors is past, and these sometimes abused gentlemen are coming to a rapid realization of their responsibilities. The comptroller is also working in very close touch with the heads of the banking departments of the various states, as well as with the various examiners appointed by the clearing houses. In our own state the bank commissioner, with a competent corps of examiners, is making the examinations more thorough year by year, and is co-operating with the comptroller to the end that any juggling of assests between a national bank and a state institution may be quickly uncovered.
It is not too much to say that the reforms instituted by the clearing houses have been radical, and we feel justified in the observation that the banks are full abreast of the times in their recognition of their obligation to the public, and in their desire to strengthen the esprit de corps of
The legislative problems of the near future, which will most vitally affect the welfare of the banks may be divided into two classes—legislation making changes in our banking laws, and currency legislation. Legislation on banking matters is largely restrictive, and constantly tends to strengthen the supervisory powers of the state and nation. The individual bank may perhaps stand alone and resist the effects of unwise legislation, although ill-advised changes in banking laws may result in diminished earnings, and a decreased efficiency in power to serve the business community. No amount of forethought, however, no quality of individual initiative, no degree of preparedness, will avail to protect the bank from evils which |j may result from vicious or ill-advised cur-rency legislation.
As defects appear in the administration of our banking system, brought to light as they usually are, by financial disturbances, measures are at once taken to remedy them. No sane man can defend the business methods of such financiers as the Heinze-Morse-Thomas group of bankers, as he can not defend the Walsh manner of banking in Chicago, or the Bigelow style of banking in Milwaukee, both of an earlier date. It is to the credit of the banking system, as heretofore administered that all these violations of the banking code were checked early enough to prevent the loss of a single dollar of the depositors’ money. Nevertheless, these and other breaches of trust in high places have done much to render the public suspicious ancl uneasy, and the inevitable publicity did much to aggravate the nation-wide disturbance, of which the Heinze-Morse-Thomas failures were the immediate precipitating cause.
Taking lessons from the panic of 1907, the bankers of the principal reserve cities took prompt and energetic measures to curtail reckless banking methods, and to forestall the bank failures in the future. Clearing house examiners have been appointed in all the important cities, and the sound banks of those centers have at last gained control over the local situation, which has hitherto been lacking. Prior to 1907, when the control of a city bank fell into speculative hands, and looseness of management became apparent, the neighbor banks could only look on askance at such developments, and await the expected result. When the expected result materialized, the bankers were all blamed in a general way for the happenings, and for a time they must all rest under the stigma of general suspicion. This is all changed now, and when a clearing house bank is suspected of departing from safe methods, it is possible for the clearing house committee to immediately inform itself of the true situation. If anything is wrong, a change of management can be made, and thus perhaps a really sound bank may be kept off the breakers. We are beginning to find that it is much better to lock the stable door before the horse is stolen, than after.
The comptroller of the currency has also greatly improved the character of the examinations made by the department. My time is too limited to dwell upon the many reforms which the comptroller has instituted in the routine of his de-