Credit Reformation

• Author: William Ingle
• Published date: 01 January 1916
• Date: 01 January 1916
• DOI: http://doi.org/10.1177/000271621606300109
• Subject Matter: Articles

97

CREDIT

REFORMATION

BY

WILLIAM

INGLE,

Chairman

of

the

Board

and

Federal

Reserve

Agent,

Federal

Reserve

Bank,

Richmond,

Va.

In

the

presence

of

conditions

in

this

country

approximating

the

normal,

money

or

currency

cares

for

just

about

four

per

cent

of

the

average

daily

amount

of

its

business.

Credit,

in

open

account

or

credit

instruments

such

as

checks,

notes

and

bills

of

exchange,

liquidates

the

remainder,

either

immediately

or

at

some

future

date.

Seriously

disturb

this

usual

relation,

and

for

any

reason

impose

upon

business

a

settlement

in

cash

of

10

per

cent

of

its

volume,

and

we

have

panic,

whether

severe or

mild

being

dependent

upon

conditions

developed

from

the

use,

or

more

prop-

erly

the

abuse,

of

credit.

While

credits

in

one

form

or

another,

aggregating

an

enormous

total,

are

granted

by

sellers

to

purchasers,

the

banks

of

the

country

are,

shall

we

say,

the

impersonal

agencies

which,

in

undertaking

the

responsibility

of

collecting

free

capital

into

reservoirs,

loan

it

to

that

part

of

the

business

public

needing

accommodation.

The

measure

of

ability

of

any

bank

to

extend

credit,

generally

speaking,

is

the

net

liability

of

such

bank

to

its

depositors.

Withdraw

deposits

in

any

material

degree

and

a

bank

is

required

to

demand

payment

of

outstanding

loans

or

reinforce

its

cash

by

borrowing.

In

normal

times

and

in

local

situations,

either

remedy

is

usually

available,

but

when

times

are

out

of

joint,

as

for

instance

when

over-expansion

of

credit

becomes

all

too

apparent

and

is

evidenced

in

country-wide

conditions,

this

ability

either

to

collect

maturing

obligations

or

to

borrow

in

order

to

meet

deposit

withdrawals

is

seriously

abridged

or

altogether

lost.

As

actual

cash

reserves

held

by

the

banks

hardly

average

more

than

seven

per

cent

of

their

deposit

liability,

it

is

easily

seen

that

a

relatively

small

demand

for

the

payment

of

deposits

in

actual

lawful

money

must

so

deplete

their

resources

as

to

compel

suspen-

sion

of

payments,

something

which

has

occurred

several

times,

making

it

imperative

to

resort

to

extra

legal

and

unsound

practices,

tolerated

simply

as

a

matter

of

immediate

necessity.

The

under-