In proportion as well-trained men take their places everywhere in the industrial life of the nation, will new and exact methods be everywhere introduced and improved upon, and the foundations of our commerce and credit be strengthened.

But, without reference to the broader effects of the new commercial education, more careful scientific accounting and auditing will not only reduce bank failures to a minimum, but lessen the danger of loss to banking institutions from erroneous valuations of the security offered for loans and unwise discounts. If these points be conceded, there are several important inferences that may safely be drawn from them. Probably the most important of these inferences relates to the basis upon which our bank-note currency now rests. Given a continuance of present conditions, the rapid reduction of United States bonds is a foregone conclusion. Already their price renders note issues based upon their deposit with the Treasury of little or no profit to the bank which puts them into circulation. The objection to existing conditions is greatest in the limitations placed upon the reduction of circulation which seem designed for the very purpose of preventing the attainment of elasticity in our bank currency. The national banks are in imperative need of a removal of the unreasonable limitation upon withdrawals of bonds, and of the introduction of such other minor changes as will tend to render the national banking system more responsive to business needs.

The proposal to do away with the United States bond security behind our national bank note issues, and to place them upon the same basis as the Canadian bank-bills, has often been mooted. Two classes of reasons are commonly assigned for our failure to accept the experience of other nations in regard to the conditions of issue of bank-notes. One class relates to the difficulty of properly supervising the banks themselves, and assuring their honest administration of the funds committed to their charge; the other, to the difficulty experienced by bank officers in properly judging the worth of the assets upon which the new note currency would rest. All these considerations are evidently reducible to the single one of security. In other words, let proper security be assured and there is nothing to be urged against the abandonment, at least in part, of the United

States bond deposits as a basis for circulation and the introduction of a more elastic currency system.

The banker who doubts the possibility of issuing a safe currency based on commercial assets never questions the worth of his own assets and of those possessed by institutions conducted upon similar lines. He complains of the danger of bad loans, of fraud, of unsound banking, on the part of other institutions. It is obvious that all banking within its own sphere, whether local, national, or international, should be as good as the best. If examinations are inadequate, we should see that they are made more rigorous; if doubt exists as to the value of a borrower's assets, or of the security offered, we should clear it up by demanding statements as to the condition of the borrower, or the value of his collaterals, made upon scientific lines and guaranteed by expert inspection and certification, or refuse accommodation. This is the plan now rapidly coming into vogue among large New York institutions, and there is no reason why it should not be adopted throughout the country.

I do not know of any better evidence as to what can be done by the application of expert methods in insuring the soundness of assets than that offered by Hon. James H. Eckels in a recent address before the University of Chicago School of Commerce. He said:

Since I have been at the Commercial National Bank we have bought, in four years, some $70,000,000 of commercial paper, and of that we had only one note not paid at maturity, although it was paid later; and one of $10,000 on which there was a loss of $2,000.

The benefits to be derived from an elastic currency have been so often and so well set forth that they need no recapitulation from me. Why, therefore, should we quietly put up with existing evils? Other countries are enjoying the fruits of proper currency methods in the shape of low interest rates, sound credit systems, and assured knowledge of business conditions. Yet we still lock up in unavailable bonds large portions of our banking assets, which, so far as active business is concerned, might as well be underground. With improved business practice, with proper precaution for judging collateral security, and credits, and above all with a community of young business men trained in the best methods of the new education, we may look forward to a conservative forward movement toward sounder credit, more solid banking, and more responsive currency.

Meanwhile, with regard to our national banking system, I suggest one very important preliminary change that Congress should authorize without delay, and that is, to allow the national banks to deposit, with the United States Treasury, state and municipal bonds approved by the Comptroller of the Currency, as well as bank assets, to secure one-half the currency they may issue. This would induce them to take out more notes than they find it profitable to do under the present law, which requires all their circulation to be secured by United States bonds.

These, however, are so high in price that they yield an extremely low rate of interest, and there is little inducement to buy them even by the small country banks, which bank largely on their circulation, whereas the large city banks bank on their deposits. Secretary Shaw has already taken a step in this direction by accepting state and municipal securities to secure government deposits when we have had a stringent money market, and Congress will, I think, be willing to so amend the National Currency Act as to permit of the suggested change. The effect of this half-way measure would be great and immediate; and we urgently need this widening of the foundation for national bank-note issues, in view both of the high price and of the extreme scarcity in the open market of United States bonds, and the constantly growing requirements of our rapidly growing population for currency.

In particular, bank assets should be made available in the same way as United States or other bonds for circulation, the one form of security being practically equal to the other when both are good; and of course they would not receive the approval of the Comptroller of the Currency unless they were. Bank officers all over the country should use their influence with Congress to bring about this desirable result.

In our rapidly progressive age, whatever is obsolete or unnecessary, or a hindrance to development, should be swept away like cobwebs, and whatever is most direct, time-saving, and conducive to our national prosperity and legitimate expansion, within the limits of safety and sound banking, should be adopted. Old-fogyism should not be allowed to stand in the way of needed reforms or obstruct the march of progress, either in banking or in general business, and the financial and commercial policy of the nation should

aim to leave banking, domestic trade, and manufactures, and foreign commerce, as much as possible, untrammeled by needless restraints.

Among minor matters, the present cumbersome and expensive customs of settling foreign exchange balances by shipping gold from this country to others, and vice versa, should be superseded by an international gold clearing-house. The details of this could be easily arranged by means of a gold note currency issued against gold deposits, and a mutual agreement between the large banks here and those in Europe. It has such obvious advantages that the sooner this international clearing-house method is adopted the better. It will save not only the freight and packing and insurance charges, and loss of interest on gold in transit, but the heavy loss by abrasion consequent on transportation. It will save time, risk, and uncertainty, too, by making cable telegrams take the place of gold shipments in the transmission of credits. By taking the initiative in this and the other matters suggested, we shall be foremost in the march of improvement.

HOW FOREIGN COMMERCE BENEFITS THE AMERICAN

BANKER

ADDRESS DELIVERED BY W. L. MOYER, PRESIDENT OF THE MECHANICS AND TRADERS BANK, OF NEW YORK, BEFORE THE MISSOURI BANKERS' ASSOCIATION AT ST. LOUIS, MAY, 1903.

It is safe for me to assume that there is scarcely one of us who has not frequently during his banking career been confronted by the problem of how to maintain dividends when interest rates fall, or when competition becomes so keen as to prevent the profitable use of his funds. It seems, therefore, fair to presume that any policy, pursuance of which may with safety exercise a favorable influence upon the profit account of a bank, is a welcome topic for consideration and discussion. Recent circumstances have caused me to devote time and thought to a question to which I had previously given comparatively little attention, viz., the extension of our banking system to other countries.

Before taking up this subject "How Foreign Commerce Benefits

the American Banker," specifically, it is proper to ask a question: "Upon what does a bank depend principally for its prosperity? What condition, outside of the bank itself, works for its benefit?" Without hesitation one may reply that that which is of prime importance is energetic, healthy commercial activity in the community to which the bank looks for its business. The truth of this statement will not, I think, be questioned; granting its truth, we reach the conclusion that, other things being equal, any force or circumstance that tends to develop and expand the commercial activity of a community is of vast benefit to its banks. In view of these facts and with our experience as bankers, let us try to see what can be done to attain the best results for our banks and show a sustained profit for our stockholders.

In its early days a community is the center of a sparsely settled area, where the people are engaged in agriculture, stock raising, lumbering or mining. The community has very little money, and the first business of the bank is limited to loaning its own funds at rates which, although high, are those which the borrowers must pay, having no other recourse. As the development of the neighboring territory progresses, and the wealth of the community increases, the bank becomes the custodian of its surplus funds, and by loaning them at fair rates realizes good profits and earns large dividends on its capital.

With the increasing wealth of the community, however, banks increase in number, individual lenders compete with the banks, and interest rates fall. Furthermore, the production of the community soon reaches its own consuming power, and unless there be an outlet for its surplus products, business stagnation follows, the period being one when the needs of the community are about met by its own production, with a comparatively small demand for money. This condition is disadvantageous for the bank.

But new enterprises come in, new railroads enter the territory and provide outlets for its surplus products, and increased business activity follows. While the increase in wealth in the community through the sale of its surplus in other markets offsets the demand for money with which to cultivate larger areas, and so prevents any decided rise in the interest rate, the growth in number and volume of the bank's transactions, resulting from the new commercial activity