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About The commoner. (Lincoln, Neb.) 1901-1923 | View Entire Issue (Aug. 2, 1901)
rVTnr '-? ?- y " ?" 'a f-r The Commoner. Our Banking Policy. The "United States Investor, one of the leading financial publications, in a recent isBue has printed an interesting article concerning "Our Banking Policy." The Investor points out that "our national banks are able to sail along on a pretty even keel in smooth water, but just at the time when wo want most -to rely on them they are rather apt to fall short of the necessi ties of the institution." The Investor article is in part as follows: If we were asked what constitutes the real de fect in our present banking method, we should answer that It lacks largeness, using this term In a quantitative sense. We are The Funda- rapidly acquiring largeness in a mental Defect. quantitative sense, hut are not sure that the country has as yet profited very much from that fact. A slnglo bank in New York possesses over $130,000,000 of de posits today, but very Mkely the best interests of the community would be subserved if it pos sessed only a small fraction of that amount. Largeness in banking in a quantitative sense is unquestionably a very desirable thing, provided it is the natural outgrowth and accompaniment of largeness in the quanitative sense. Great banking floes not consist in getting a vast . amount of wealth together in the shape of deposits, and lend ing it in large amounts in an arbitrary fashion. It consists in handling the funds committed to your charge, be they great or small, with honesty, intelligence, and in a manner to build up and strengthen the' material interests of the entire 'community. If greatness in banking consists in taking great chances, then certainly American banking Is entitled to be called great. But if it consists in acting with disinterestedness, with a shrewd knowledge of human nature, with a quick understanding of what is actually needed to ad vance the material interests of the community in a permanent manner, with an eye sharp to per ceive the opportunities to furtlter this last men tioned end, with a breadth of vision that will not be bound by purely local and temporary condi tions, American banking is still far from being entitled to the designation "great" Away From Sound Principles. All this has been exemplified time and again. Perhaps the gravest defect in connection with our banking has been the tendency to conduct banks on about the same principle on which we con duct an ordinary private busi ness enterprise. Banks are of course to be governed by all the economic consid erations that influence the merchant and manu facturer. But their obligation does not end here. A merchant may fail without entailing widespread disaster, but it is hardly possible for a bank to do so. The merchant has only to think of him self and the few people to whom he may owe money, but the bank has to thinrc, or at least ought to fhink, of the effect its actions will have on tho entire community. This is an obligation, however, which the banks ignore to quite an ap palling extent. Many of'them are started in just exactly tho same spirit that actuates the creation of private business enterprises,, and are conducted with an eye purely to the interests of the few people who may bo actually concerned in their management. They solicit tho money of tho com munity -it large, and proceed to use this money In a way to advance their own interests and those tl, their particular friends; and if public interests are advanced in any measure, it Is a mere inci dent. J3very financial panic sends a swarm of institutions of this class to ruin. We need not stop to recall how many of them toppled over in 1893. Such incidents as the present Seventh Na tional bank affair are getting to be altogether too frequent. Instances of this kind are apparently not on tho decrease, but are actually Increasing. Of course, we understand that a good deal of al lowance should be made for banking in a now country, such as this has been up to a compara tively recent period; and wo are ready to mako such allowances. It would bo gratifying, however, if wo could begin to see some marked Indications that we were at last getting down to a largo and scientific, not to say disinterested, kind of bank ing. Wo do not fall to recognizo that there are a host of national banks In tho United States today that are models of banking proprietythat is, so far as they can be under a law which contains fea tures that must, ovor strike the economic mind as absurd but notwithstanding this fact, tho main drift seoms to be away from, instead of In tho direction of, sound and stable banking. Another feature which, to our mind, Indicates that banking in the United Slates is drifting away from safe moorings is the Speculative modern doctrine that banks ex- vs. Commercial 1st more for tho purpose of Loans furthering large stocks market deals, than for the purpose of primarily effecting mercantile transactions. Tho old idea of a bank was that-.of a financial institu tion which stood ready to discount the notes of its customers, issued for the purpose of transact irg the commerce of the world. That is still jargely the lunction of American banks, but thore is nevertheless a manifest tendency in certain quarters to regard this as a more or less archaic form of banldng. A very large part of the busi ness of the banks in the great financial centres now consists of loans on stock market collateral; end many banks frankly declare, that that is the kind of business they most like to transact; to bo too solicituous for the comfort of mercantile borrowers is regarded as a bit of old-fogyism; and there are some banks that are not over-anxious to have mercantile accounts (especially If they are not more than moderate in size)' kept with them. It is to this tendency that we may trace in very largo measuro the enormous increase in the volume of stock market speculation in re cent years. Now the dangerous feature of this policy- is, that tho banks in making and looking after their stock market loans are a good deal more influenced by the mere stock market quota tions on the securities which constitute tho col lateral for the loans, than they are by the real facts in connection with the industries against which these securities are issued. One reason why they are so much inclined to make loans of this sort, in preference to purely mercantile loans, is that they can realize on their assets so much more quickly. Their principal care is to keep their stock market loans properly margined. Now It is well enough known by the community at large, and it is probably equally clear to the banks, that a very largo part of the stock market securities against which they lend their money so freely represents "water," pure and simple; that is, there are no tangible assets back of them in the shape of plant and supplies, and very little of intanglblo assets in the way of earning capacity. But that is a matter which the banks who do this business do not feel called upon to take very much into account, as these securities have a ready market, and all that's necessary for the banks to do is to margin them sufficiently to admit of their getting out without loss in the event of a drop in tho stock market. The theory is beautiful; in actual opera tion it does not always work as well as might be desired. The objection to too great a prevalence of this kind of banking is twofold. In the first place, it incites overspeculation in the stock mar ket, and is therefore the mother of financial pan ics; and in the second place, it is likely at any mo ment to cripple the legitimate mercantile busi ness of the country by the withdrawal of loanable funds necessary to its proper conduct. No one who has kept an eye on the financial situation in recent years can question the fact that tho policy we havo boon describing Inevitably works in th direction of overspeculation in tho stock market This point could bo amply illustrated by tho case of tho National City bank of Now York. (Wo may parenthetically say that wo allude to this institu tion so frequently becauso it is tho largest bank in tho United States, and becauso It is one of tho leading exponents of tho dangerous tendencies In American banking which it our aim to point out.) This bank, as wo havo before pointed out, had a great deal to do with fostering tho great boom iu copper shares a few years ago, and tho part which it is universally credited with playing In connection with tho panic of May 9 of this yoar is another instance of tho thing wo havo in mind. A3 regards tho likelihood of hardship from this policy (viz., of loaning whenovor posslblo on stock market collateral) to tho real mercantile business of the country, thore is no occasion for us to say anything at this time; tho danger Is too cbvious to escape any one's notice This tendency to mako banking a more ad junct of the stock market Is bound to impose a very severe strain on tho morals Misuse of of those who havo the banks in Bank Funds, charge The new policy brings tho managers of tho banks Into too closo Intercourse with Wall street, and makes them too susceptible to the influence of the "get-rich-quick" theory. Tho managers of an old com mercial bank wore hardly likely to bo carried off their feet by any temptation to misuse tho hank's funds in carrying out private commercial ven tures. Thoy were not in a position to carry through such ventures, requiring much time and special knowledge for their consummation. But it is altogether different with stock market schemes. As regards these, tho managers of a bank can sit In tho back parlor, and, by using tho bank's funds for their private purposes, mako vast sums of money without any effort at all. That Is, they very readily think they can, and thoy very frequently try their hand at tho game. Of course, as a matter of fact, they are fully as likely to come to grief, and to send their bank to ruin, as they are to come through successfully; but experi enced, bank presidents and directors are quite as apt to bo carried off their feet by the curse of stock gambling as any one else. Our plea Is, that if thoy confined themselves a little less exclu sively to making stock market loans for their banks or at any rate if they were a little less dis posed to take the view that banks exist mainly to further speculation the temptation to misapply other people's money to their own unlawful ends might not be quite so hard to overcome. With this reflection we must leave tho subject for the timo being, though wo had hoped when we began that the space at our command would admit of our saying a number of things regarding the present tendencies in. banking which we find we shall havo to reservo for another occasion. The Pope on Women's Clothes. The pope has recently manifested a preference in regard to ladles' apparel over and above the strict regulation in regard to ladles who are re ceived by the Holy Father at the Vatican. A niece of the pope was about to be married, and her distinguished relative took so great an interest in her trousseau as to stipulate that the young lady should only have white, blue or black gowns, add ing that these were the three colors most becoming to young girls. "Gray and broWn," remarked His Holiness, "are only suitable for old women, and I do not like any other colors." Possibly the pope prescribed white because it is the symbol of purity, blue because it is the color dedicated to the Virgin Mary, and black because it Is the time honored hue of dress for outdoor wefar for Spain and Italy. From the Pall Mall Gazette. i i