It had been the practice of country banks, while firmly
maintaining local rates, to keep the bulk of their resources on
deposit with city banks at two per cent. This practice now proved
to be a fatal entanglement to many institutions. There were
instances in which country banks were forced to suspend, though
cash resources were actually on the way to them from depository
centers.*
* Out of 158 national bank failures during the year, 153 were in
the West and South. In addition there went down 172 state banks,
177 private banks, 47 savings banks, 13 loan and trust companies,
and 6 mortgage companies.
Even worse than the effect of these numerous failures on the
business situation was the derangement which occurred in the
currency supply. The circulating medium was almost wholly
composed of bank notes, treasury notes, and treasury certificates
issued against gold and silver in the Treasury, coin being little
in use except as fractional currency. Bank notes were essentially
treasury certificates issued upon deposits of government bonds.
In effect, the circulating medium was composed of government
securities reduced to handy bits. Usually, a bank panic tends to
bring note issues into rapid circulation for what they will
fetch, but in this new situation, people preferred to impound the
notes, which they knew to be good whatever happened so long as
the Government held out. Private hoarding became so general that
currency tended to disappear.
Pages:
138
139
140
141
142
143
144
145
146
147
148
149
150
151
152
153
154
155
156
157
158
159
160
161
162