Two things seem to have been present in all of these various institutions: ample coin reserves, which ranged from 20 to 33 per cent, to meet any demand for credit redemption and perfect freedom in changing bank credits from the form of book credit to the form of note credit, and the form of note credit to the form of book credit, according to the desires and needs of the customers of those banks.
As a result of interchangeability of book and note credits, a bank could always protect its coin reserve, for if the customer was just as well satisfied to take the bank's notes, instead of coin, or its reserves, it must be apparent to all of you that the cost to the bank would only be from one-sixth to one-fourth as great, and that the bank would have several times as much credit to loan, and at the same time be in a much stronger position.
Let me illustrate what I mean by calling your attention to what happens over in New York every fall. Let us suppose that the New York banks owe the country banks, say $500,000,000 and that the country banks call for it from July to January for the purpose of moving the crops. The banks of New York with the right kind of a currency system would not need to disturb the situation in New York at all because they could send their correspondents their credit notes, or cashier's checks, for $500,000,000. You see the New York banks would simply convert a deposit credit subject to check or draft into a note credit. The amount of the debt would remain the same, the amount of the reserves would remain exactly the same; but, instead of the country banks continuing to keep the deposits subject to check at the banks, they would take the notes which would serve their purpose, because they could in turn send the notes into the corn and cotton fields, to help harvest and gather the crop; and, just as soon as the notes had served their purpose, they would be returned to the country banks and by them in turn sent on to the New York banks, and would have been reconverted into book credits. Not a single dollar of actual money would have been used in the whole transaction, and yet the country would have been served just as well, as though every bank note sent out had been a gold certificate.
On the other hand, if the New York banks should continue to be as they are today compelled to ship the $500,000,000, they would have to call loans and shift conditions until they could scrape up $500,000,000 with as little injury as possible to their customers and send it west; nearly every dollar so sent out is reserve money of some form, gold certificates, silver certificates and United States notes. Now mark this, the credit notes cost the bank only the interest on the reserves behind the notes; but when the banks ship out their reserves, the cost must necessarily be four or five times as much, to say nothing of the injury they have done to the business conditions in New York. And so this same principle runs on throughout all of our banking business today from one end of the country to the other.
Mr. Merchant: Well, Mr. Lawyer, your entire argument goes to demonstrate with mathematical certainty that the country banks would never have any occasion whatever to send to New York for currency, as they would create their own currency by converting bank book credits into bank note credits to meet all ordinary demands, a fact that not only accentuates, but proves more conclusively what you are saying, and reinforces your argument.
Should we be fortunate enough to secure a right kind of banking system in this respect, we could almost double our bank reserves, that is, make them twice as large, and yet make two or three times as much profit on that part of the banking business, growing out of the substitution of credit notes for reserves, and at the same time be vastly better able to protect the balance of our business from disturbance due to the fact that we are compelled to use reserve money for currency purposes. This now seems to me a very simple matter when you once have grasped it.
Mr. Banker: In this connection I want to call your attention to this fact, and I want to note that it is a very important fact which was so obvious in connection with every single statement of capital, specie, circulation and deposit, that has been given, when referring to the banking systems before the war, and that's this: that the note issues did not begin to average one-half the authorized amounts, proving conclusively that the currency of these banks invariably adapted itself to the exact needs of the people.
| Notes Outstanding. | Possible Issue was. | Per Cent of Possible Issue. | Specie Held. | Deposits. |
| Louisiana | ||||
| $11,579,000 | No limit except 33% Coin Reserve | $12,115,000 | $19,777,000 | |
| Ohio | ||||
| $9,057,000 | $10,000,000 | About Par | $9,057,000 | $11,697,000 |
| Indiana | ||||
| $5,753,000 | No limit but 12½% penalty for failure to redeem in coin | $1,917,000 | $1,186,000 | |
| Iowa | ||||
| $1,439,000 | $2,096,000 | 70% | $389,800 | $2,851,000 |
| Virginia | ||||
| $9,821,000 | $14,725,000 | 70% | $2,943,000 | $7,729,000 |
| Missouri | ||||
| $4,037,000 | $10,998,000 | 38% | $3,666,000 | $3,434,000 |
| Suffolk System | ||||
| $44,000,000 | $131,000,000 | 30% | $10,058,995 | $41,208,000 |
Can anyone doubt, after noting these figures, that the note issues of the various banking systems kept as perfect pace with the requirements of trade, as checks and drafts do? Certainly it is perfectly evident that the bank notes came and went precisely as all bank credit should.