Seventeen Talks on the Banking Question / Between Uncle Sam and Mr. Farmer, Mr. Banker, Mr. Lawyer, Mr. Laboringman, Mr. Merchant, Mr. Manufacturer

by Charles N. Fowler

Fourth: To do a note issue business.

This step taken, no bank in the United States, with the rarest exception, can afford to remain out of the system, and the result will be to bring the banking business of the United States into one harmonious whole. The present conglomerate condition will be wiped out. Holding companies, which are probably the most prolific source of business iniquity and a curse to the country, generally will cease to mark American banking as a game of jugglery and sharp practice wherever the managers of double-headed or triple-headed banks are inclined that way. Furthermore, unless this is done, you will in the future as in the past, know little or nothing of the true condition of the banks of this country as a whole. For what can you know about the true inwardness of a bank, which is composed of three distinct institutions: a national bank on one block, with the stock of a trust company located on another block, and the stock of a savings bank located on still another block, and the stock of the two institutions lodged in the strong box of the national bank. The managers of the national bank may be of the very highest character, and of unquestionable and absolute integrity, and they might manage their business just as well as if there were no laws at all. But laws are made for the lawless, not for men of this class. Laws are made to compel the greedy, the over ambitious, the foolish and the unscrupulous to toe the line, and maintain certain standards, which have been established by the highest class of men of the banking world.

You can readily see that a national bank, under national supervision, with two other institutions under its control, which might be under state supervision, or under no supervision at all, could engage in practices that no upright man would stand for; and practices, too, that usually result in terrific losses, and consequently breed panics.

These powers having been granted to the national banks, the law should then compel the separation and complete segregation of all these various accounts, as they are all distinct in their nature or character, economically speaking. Part of them are active capital, and belong to the commercial fund of the country, while the others are passive capital, and belong to the investment fund of the country.

It may be objected by some self-satisfied, selfish, ignorant and unpatriotic banker, who is doing all of these things now in some way with ample or even more than satisfactory profits, that the combination of these different forms of the banking business is theoretically wrong. But let it be distinctly understood and observed, and remembered, that we are not dealing with a theory now. Nor are we organizing something new. We are dealing with an actual, serious and most dangerous fact, and that is, that the banks of the country are now doing all these things in a conglomerate way, largely unsupervised and uncontrolled.

Our unit of banking, the individual, independent bank, should have its parts coördinated, unified and brought into a system, and under one common supervision and control. That supervision should not be political, but should be a supervision of the banks by the banks in the interest of the people and the banks themselves.

Now we are also dealing with another most dangerous fact. It is this: First, the national banks are carrying cash reserves amounting to 17 per cent. The reserves of all the other banks amount to only 5 per cent; and, excluding the mutual savings banks, the reserves of all the remaining banks amount to only 7 per cent. The cash reserves of the banks of the United States should under no circumstances fall below 15 per cent, and under some circumstances they should amount to at least 30 per cent. Second, the reserves, such as they are, are all broken up into small fragments, and scattered broadcast over the land.

The result is that our reserves lack the element of true reserves, and are robbed of their efficiency, which is essential to commercial safety. The highest degree of efficiency and utility of reserves can only be secured by a centralization of 50 or 60 per cent of our cash reserves, or say 10 per cent of our individual deposits, and 5 per cent of our time deposits or savings accounts. In this way, we shall centralize and mobilize about $1,250,000,000 of our gold, which now exceeds $1,850,000,000.

It will be observed that the reform here proposed is in perfect accord with the evolution of all our Anglo-Saxon law. It is merely putting into statutory form the present universal practices of the country which have grown up as a result of those new conditions which are peculiar to ourselves, and compelling conformity with those great economic laws that cannot be violated or disregarded without suffering the consequent penalty. Again, it is the only way that each bank can be compelled to carry its share of the burden of our commerce, and furnish its share of insurance to the business interests of the country, so far as sufficient and uniform reserves will do it.

The second great reform, then, that is essential is also in perfect harmony and accord with the most approved practices of the banking world.