Democratic Sentinel, Volume 1, Number 31, Rensselaer, Jasper County, 14 September 1877 — THE BANK RESERVES. [ARTICLE]

THE BANK RESERVES.

Secretary Sherman’s Statements at Mansfield Called in (juestion—Facts Hurled at Him. J. W. Schuckors, the friend and biographer of Chief Justice Chase, writes the following to the New York Herald : In his speech at Mansfield, Mr. John Sherman made certain statements, the intent of which was to create a belief in the public mind that there is a vast accumulation of unloaned and unloanable paper money at this time lying idle and unemployed in the vaults, and at the command of the national banks. “There are now deposited with the treasury,” says Mr. John Sherman, “by private corporations, banks, and individuals, $57,000,000, of which there were deposited by the national banks at the date of their last statement, made June 22, $44,500,000; and they—the national banks—have,in the cash reserves held by them, $42,500,000 more than the amount required by law, thus clearly showing,” said Mr. John Sherman, “ that there is no want of currency when demanded for the requirements of business.” . There is no mistaking Mr. Sherman’s designs in making these statements. He intended to create a belief that the national banks have in their vaults and at their command $87,000,000 of surplus unemployed money, which they are ready to loan upon adequate securities, but for which there is no demand ; $44,500,000 lying idle and unemployed in the custody of the Federal treasury, and $42,500,000 lying idle and unemployed in their own vaults. Now what are the actual facts? An examination of the condition of the national banks on the 22d of June last, as a;>pears from the Comptroller’s statement, shows that they held at the close of business on that day certificates of deposit with the Federal treasury amounting to $44,410,000. If these certificates of deposit represented idle, unemployed, and surplus funds, they assuredly would not appear among the “ lawful-money reserves” of the banks. But they do so appear, and without their appearance there the returns made by the banks on the 22d of June last would show them to be short of the reserves required by law to an amount aggregating nearly $25,000,000. It happens, moreover, that these certificates of deposit form, as we see, not only an integral part of the lawfulmoney reserves of the national banks, but are used for clearing-house purposes also, and in this respect perform a most important office. It is very doubtful, indeed, whether the $44,500,000 of United States notes, as represented by these certificates—which Mr. John Sherman seeks to make us believe are idle and sin plus funds—do not perform functions more extensive and important than those performed by any other equal sums either in or out of the custody of the banks. Undoubtedly the existence of these certificates does not warrant the belief Mr. John Sherman seeks to establish. Mr. John Sherman alleged, also, in his speech at Mansfield, that the national banks held in their “cash reserve,” on the 22d of June last, $42,500,000 “more than the amount required by law.” It would be interesting to have Mr. John Sherman point out where this $42,500,000 excess of “cash reserve” is found. The cash reserve is made up of four items—specie, legaltender notes, United States certificates of deposit, and the 5 per cent, redemption fund. On the 22d of June last the national banks held, according to the statement of the Comptroller, of specie, $21,340, 111; of legal tenders, $78,004,386; of United States certificates of deposit, $44,410,000; and of 5 per cent, redemption fund, $14,612,241 —total “cash reserves” of the national banks, $158,366,830. The statement of the Comptroller does not show the amount of cash reserves the banks ought to have held on the 22d of June last, but assuming $140,000,000 to be a correct estimate (the amount at the date of the last preceding statement of the Comptroller, April 14, 1877, was $144,700,000), and we find the amount of “cash reserve” in excess of the amount required by law to be slightly over $18,000,000, or wide of Mr. Sherman s report nearly $25,000,0001 Clearly, Mr. Sherman’s “cash reserve in excess of the amount required by law” exists somewhere else than in the banks I

One of the methods by which the inflationists are confronted with large accumulations of “ surplus paper money ” in the national banks is as follows: The banks are divided into three classes—“country” banks, “city” banks, and “New York City” banks. Under the National Bank acts the “country” banks may deposit a certain per cent, of their reserves with the “city” banks (located in Albany, Baltimore. Boston, Charleston, Chicago, Cincinnati, Cleveland, Detroit, Louisville, Milwaukee, New Orleans, New York, Philadelphia, Pittsburgh, Richmond, St. Louis, San Francisco and Washington), and in turn the “ city ” banks may deposit a certain per cent, of their reserves with the “New York city” banks. But while it is quite true that these deposits of the “country” banks with the “city” banks, and with the “Now York” banks, are technically “lawful-money lescrvcs,” it is perfectly well known that the “city” banks and the “New York ” banks loan those deposits just as they loan the deposits of their private customers. But it is only by counting these purely technical reserves as real potential reserves that the banks are made to appear stuffed with money for which they can find no employment.

An example will illustrate : On the 14th of April last 1,839 “country” bankshad on deposit with 185 “ city" banks $56,000,000, besides $48,000,000 in their own vaults, and 185 “city” banks had on deposit with 47 “New York” banks $29,000,000, besides $42,300,000 in then’ own vaults ; the reserves of the ‘ • New York” banks being at the same moment $54,900,000. Putting these several sums together and the apparent reserve would be $230,400,000. But the real reserve held by the banks on the 14th of April last at once available for the redemption of their liabilities was as follows : 1,839 country bankss 48,039,000 185 city banks 42,327,000 47 New York banks 54,911,000 2 San Francisco banks 927,000 T0ta15146,204,000 or less than one million and a half in excess of

the actual cash reserve required by law, which was on the 14th of April last $144,700,000. - Mr. Sherman cannot take refuge behind technical reserves, because there is no question about such reserves. The issue is, whether ornot, in seeking to create a public belief that there is a large surplus of money lying idle and unemployed in the oanks or at their command, ho is borne out by the facts. The foregoing analysis proves beyond doubt that he is not borne out by the facts, but that he has availed himself of his great office to mislead the people. The truth is that the national banks have no more “cash reserves,” or any other kind of reserves, than are necessary to the safe administration of their current business. There is no plethora of money either in or out of the banks ; certainly not in New York, at any rate, if it be trud— as a contemporary of the Herald stated on the morning of the Bth hist.—that the national banks of that city were employing stock-exchange brokers to borrow money for them. The credit of the national banks is strained at this very hour; and their condition, no loss than that of the country at large, witnesses the urgent necessity of a prompt expansion of the currency.