Show Banker Talks on f the Money Trust k h Georg M. M Reynolds Chicago financier Financier Tells of Concentration Concen Concen- of Nations Nation's Wealth in Ultimate Reserve Banks I SAYS PRESENT SYSTEM AIDS BIG SPECULATION Compares es American Plan With That In Other Nations and Moralizes on Recurrence of Panics in the United Stat States fly GEORGE GEORGD l M. M REYNOLDS resident or 01 U ino 6 Zulu ana IO com com- National Bank of Chicago o. THIRTEEN r banks In New York and L 1 I Chicago o carried In their va vaults u at nt a a. recent date In cash cash- cash cash- In three Chicago banks and L In ton New York banks All the rest of the 2 2000 banks In tho tha I country curled carried only a a. little more than These thirteen greatbanks great greatbanks banks In other othor words hold one-fourth one of ot the banking reserves of ot tho the nation Tho The concentration of ot cash In the eastern eastern east east- ern financial center Is eVen een more The banks of ot Ne New York rork normally carry In vaults aults cash r Bor This Is third one-third of ot all nIl tho the monc money mone In lri tho banks of the whole country coun coun- try It Is seventh one of or all the money In the country country ln In the banks In public treasuries and in the hands of ot tho the peo peo- pie S This huge piling up of cash In tho the great great s-reat banks of the financial centers gives rise to the tho popular belief of tho the existence of ot a m money ney trust Many good Americans believe that l a n few tew b banks with this great groat store of or cashIn cash cashIn In their vaults have s secretly Joined t to together gether to monopolize the credit of or tho the country countr to sa say who may nn and who may S h si 1 h 1 t. t iiI u L U. U SJ pay for It I believe I would know lenow If It there were such ascii a monopoly of or credit because the bank with which I am am connected connected con con- m Is the largest bank in the countr country country coun- coun tr try outside of New York and Is one ono of or orthe the tlC thirteen banks holding a 3 fourth of or e all 11 the monc money in the banks Jin I n KT Power 1 i. i Xo No such money trust exists but I want to sa say most emphatically that the tho t. t American people are doln doing all the they can through antiquated laws las to promote such a L monopoly Wo Yo have no noa a central bank in the United States but butS S wo We have o a L greater centralization of 4 banking power powe- than have European t countries where t the te c central bank tern lem is highly developed Tho The popular fear of ot the growth of or a a. money trust i is tho result of ot a a. centralization of or oft t banking power In the largo large cities which is bound to become greater and greater under our present banking s stern s 's tern tem 1 The growth of if large banks and tho up o up communities o of 1 hH rest has been more pronounced since Ince the tho panic of ot 1907 The great banks s of ot New York in the fall of that year car despite their command over the thc liquid funds of the country countr were unable unable unable un un- un- un able to prevent a money panic In a time of or peace and prosperity It was this painful realization of ot the i defens of our banks when whon Under un- un f. f der del fire tire that accelerated the movement r. r toward powerful banking coalitions The several groups g of or big banks controlling controlling controlling con- con trolling institutions in various arlous parts of ot tho country through stock own ownership or Interlocking directorate have been heen greatly strengthened in tho the past f four ur years cars not because of or any de design to end nd form a A. money trust but to the that the banks could protect themselves In future panics m end Stock Speculation Our banking system now tends to develop de do- elop a Money Trust It Is la not tho the fault of ot tho thu banks but of or tho the a system Our system Batom forces tho the funds o of tho the banks into a n. Low few large banks In tho thu central res reserve cities clUes and It then forces these reserve holding banks to invest j their resources largely in loans on stock Block exchange collateral instead of or In commercial com coin mercial dl discounts counts Tho captains of or finance engaged in the tho flotation of or ne new ventures aro are bank customers as nB borrowers bor bor- rowers on en the securities which these bring into the market The system therefore which forces the re ro- ro servo holding banks to seek stock ox- ox chango change loans In preference to commercial commercial commercial commer commer- cial loans directly benefits the captains of ot finance who are arc popularly supposed to bo be members of ot tho alleged Money lon I Trust Speculators and other borrowers on stocks and end bon bonds 13 pay tho the lowest rates for loans in this countr country Business men pay P higher rates In Europe where thoy they have scientific banking systems stems the tho L L I lower rates aro arc paId paia D oy Dy BU man nien mono tho the higher by speculators Tho big banks of or the financial centers centers centers cen cen- holding hundreds of ot millions of re reserves ro- ro serves serven for fer thousands of smaller banks must keep these reserves liquid that Is Is In such shape that thc they may be convertible convertible convertible con con- into cash nt at a moments moment's notice to meet tho the demands of ot tho the depositing banks for funds The big banks cannot Invest tho the bulk of ot their resources In commercial discounts as M Is tho the European Euro Euro- pearl practice because wo we 0 have havo no i broad liquid market In this country for tor I such discounts The only big liquid loan market Is the tho stock exchange And so the banks must whether they like it or not foster speculation at tho expense expense ex ex- pense Penso of or business The rhe Credit Pyramid Our bank reserve system Is fault faulty All money lying Iring In bank vaults aults is mone money A bank therefore keeps no nomore nomore nomore more money on hand than It needs to Insure Its ability to meet the expected demands of its depositors for cash The larger the proportion of or mono money in the resources of a a. bank banle the more must tho the bank charge its customers for tor credit in order to pay for the carrying of or this Idle money In Its vaults A sound cound banking s system is built up upon upon upon on a 0 foundation of ot tho the precious metals I especially gold the mono money of or International international international inter Inter- national commerce Tho efficiency of a banking system is largely cly measured by its capacity to provide with absolute safety for tor payments ments between neen the tho people peo peo- plo pIe with a minimum uso of the precious metals Every country must invest a n certain part of or its wealth In tho the machinery ma ma- chinery of exchange and it is economy econom to keep this Investment as small mall as ns possible consistent with tho the highest ef ef- ef I The structure of or credit I Is as delicate 0 as It Is wonderful Enormous credits r its against property are built buill upon 1 a t foundation foundation foun bun I dation of a l lOn very vory little cash and antI a reit reH deal lle of oC public confidence Our I million dollars dollan of or bank cre credits on a foundation of or 1500 million dollars cash cashIn In the banks is entirely safo so long longas as there Is confidence in the banking s system tem The credit credi t structure would not collapse as it did lid in 1907 if confidence were not shaken Struggle for tor Cash Cab Tho The banking B system stem of England is built hullt on a much smaller proportion of cash than is ours but It does not pe periodically periodically pe- pe collapse as does ours ours because be ho- cause tho English people have great confidence in their banking banking- system m. m Thoy rhoy I do hot not rush madly to Ui their thir lr bank in iii times of or financial stress as we CIo de Io defer for fer tho the purpose of ot converting property into gold g No o banking system can withstand a ama amad amad ma mad scramble for gold Of tho the 1000 of or wealth in the United States only Is in tho form of gold goldcoin goldcoin goldcoin coin and bullion An Any general attempt to convert comert wealth Into gold sold must quickly quick quick- ly h result in a disastrous collapse of ot the tho credit machinery I If the tho railroads turned all their freight and passenger earnings s Into hard harl cash the they W would Ull j I empty the banks of ot money within a few tow I months month If It tho the farmers sold Zold their crops I for tor cash and hoarded the as aa fast fasl as It came camp in In they thoy would have evor every cent cont of ot money In the country countr long loner be before bo- bo fore toro they had marketed the tho products product of or ofa a single le season The barbarians of ot old had some success sue sue- cess cees in keeping keeping- their wealth In the precious pre pro cious metals but civilized ed peoples do donot donot o not secrete idle hoards of or tho worlds world's money It is a 11 humiliating fact tact that in recent years Americans aro are tho the only people who have engaged in barbaric struggles to convert property into hard cash The 1 1907 07 banking col- col lapso was the result of or a 0 barbaric stricken panic attempt of ot bank depositors depositors tors to convert their credits at nt tIc the banks bank into cash The banks could no nomore nomore more mora perform this miracle than the they could convert base metal Into fine gold The They had to stop paying cash Reserve n HOe Syi tem England France Prance and end Germany no longer have money panics because bank depositors abroad even in times of financial distress 10 ilo not attempt the impossibility of converting their wealth Into gold Tho The flank Dank of En England land and tho English lIsh banking system would collapse If IC depositors suddenly demanded gold A lo 0 system commands public confidence and prevents the collapse collapse col col- I lapse of ot credit A many reserve system tern tem MO so scatters reserves that thoy they ar are unavailable and insufficient In time of or orI need While we have a Q reserve many system tern tem in which over 01 every bank holds Its own cash reserves wo we ha have c. c as ns a n result of ot such a a. concentration of ot banking reserves In Now York as to give us the semblance of or a 3 re single serve s system stem Banking reserves are kept for emer emergencies Vo We 0 have In this country an approach to the tho ro single servo seno system during periods or of man finan financial cial elal But when tho the emergency needed to keep arises and reserves arc are the credit machinery going then thon our tn 4 11 I i I I il Into t a u n many reserve S v system tc 1 with r fh-r re- re suiting financial collapse e. e I Tho banks of th tILE thA country make malco the Now York banks the tho keepers of ot the ultimate banking reserves in fair lair fairweather fairweather weather but when a storm comes and I these accumulated reserves in New NewYork NewYork NewYork York are needed for the tho general defense de do- e- e tense then the tho banks tear down tho the central reserves an and each one tries to weather tho the storm with what little It has snatched from tho the emergency ency fund The system is a panic breeder r The national b banking law by its provisions provisions pro pro- visions for fOl the tho of re reserves re- re serves makes New Nc York the holder hoMer of or orthe the ultimate reserves es Country banks can cnn keep three-fifths three of ot their reserves reser In the tho form of credits at central rc re- re i servo city banks Reserve city banks can keep halt half their reserves in the same form In other words a country bank banle with idle hIle re reserves erves can put of these reserves at nt work b by depositing them with a reserve bank Naturally Natural the countr country banks r. r and reserve city bunks banks keep no more Idle money moncy in their vaults than Is ab absolutely absolutely nb- nb required The idle mone money drifts rifts to the central tes reserve ne banks tem System Under Test Iest As a result of this system of oC rede- rede I positing reserves tho the national bank statements show reserves es greatly in excess of or actual cash holdings Reserves Re serves of ot are arc now shown I with less than titan of cash E EThe The country hanks banks report reserves or t more than hut but more than titan half of these e reserves are arc in the forTe form of credits at reserve reser banks In the same j t OY the l' l reserve city sho show r re- re I s M of cf f n u ly 1 but only t about half of vf these are firc ca cash h In hand The rho rest are ary credits at nt central reserve banks bank I While the official returns of ot the na national national nn- nn banks show reserves of or 21 1 per pOl percent percent cent R against deposit liabilities the actual actual ac nc- ac- ac cash reserves are less than 14 per cent This system 8 ot ot i re reserves ro- ro serves without any foundation of ot a great public single-reserve single upholding the whole structure of credit collapses whenever tho the country banks and re- re servo banks In a time tune of panic at- at to convert their credits at nt the reserve sere ser e banks Into cash in Ji n As soon eoon as the tho country banks at attempt attempt attempt at- at J tempt to draw down any large part of or their deposits at nt the r re- re servo banks and the reserve banks turn to tho the central reserve banks New NewYork Nework j York ork Chicago o and St. St Louis Louis but but Inthe in inthe inthe the end New ew York our system stem falls Tho The New ew York national banks the hol holders of or tho the ul ultima serves carr carry not net deposits for other bans of ot and md an any general att attempt on the i part of interior banks in a u mone money panic I to draw r S cash against I those h i deposits u. u I uv j ua LCJ I I Laws III in Other Countries We e have ha stringent cn cash h h reserve f laws I I not only for Ot all nation 1 Dank but roe for rorI m many nany state banks banle o other banking I country requires Il Its hunks bunks to Ieee keep 1 ash cash rc reserves Eu lInt But l wo we have mone money names and they the thedo do not In times or stress tess tC S our banks stop paying nS' nS cash casu and md tn stop sLop lop loaning lo Intensifying distress In other tho the banks moot meet x ItI n- n i I i ancial storms b by paying cash freely nn and loaning loaning- freely In other banking countries with the tho single ln lo reserve s system stem where where- money panics arc unknown and where there therea are ara a re no v violent 1 o I e nt b disturbing business u s In ess disturbIng fluctuations in interest rates no importance im Im- mi- mi Is attached to In individual ual mono money reserves The chief 10 reserves or foreign banks are tho the secondary re reserves re- re serves serves liquid resources which can be he quickly sold or rc i 1 at the central reserve reservoir These Thc secondary sec see reserves are largely y discounts based on goods oo soon Iwon to b be consumed Tho The discounts are arc hl highly hl liquid because be because be- be cause the consumption of or the goods liquidates atcH the loan loans boan Our secondary banking reserves are arc chiefly call loans on investment securItIes A great mass of 01 these loans boas cannot cannot can can- not be liquidated without creating a astock astock stock exchange panic And the vcr very fact that the central reserve banks hanles of New York must create a n. mass o of stock exchange loans for tor lack of an any other large secondary reserve basis In Its it itself itself It- It s self lf un unduly uly promotes speculation in In Investment investment In- In vestment securities to tho the detriment of ot productive industry Ours OUIS is th the only nation basin basing |