Page:Popular Science Monthly Volume 27.djvu/519

Rh arising from the failure of individual banks to redeem their notes. As to the nature and extent of such losses, they already have a much better basis for estimating them than was available to life or fire and marine insurance companies in their inception. A perfectly trustworthy "table of experience" is supplied by the record of the losses to depositors in national banks for the last twenty years; these, as before stated, have been only one twentieth of one per cent per annum. This interval covers two periods of panic and consequent depression, and may be presumed to have included most, if not all, of the vicissitudes of the business. If from abundant caution the estimate of probable loss should be put at tenfold that which past experience with the national system has shown, and the present Government tax on currency be added, we should have a total of one and a half per cent on the volume of currency to cover losses and expenses. The premium out of which to pay this charge would be the interest on the excess of the average amount of currency in circulation over the reserve required to be held against it, or say from three to seven per cent, varying with the state of the money market and the location of the banks. This certainly offers an ample margin.

The idea is not altogether novel even in its application. It was adopted in the case of the various branches of the State Bank of Indiana, and worked satisfactorily. Slightly modified, it is applied by the guarantee companies, which, for a much smaller premium, guarantee employers against the fraud and insolvency of their servants. The suggestion may be somewhat startling to bankers, who, as a class, are proverbially and properly conservative, but the soundness of the principle which underlies it has been demonstrated by long experience and is constantly finding wider application. Bankers daily risk, without thought of fear, far larger sums than such an insurance of currency would involve upon guarantees that are much less stable, that is upon the indemnity furnished by insurance companies, which, both as regards sums at risk and premiums charged, conduct their business on comparatively small margins. Should the liability seem too great if extended commonly to all the banks, geographical districts might be created with redemption centers, the mutual guarantee of the banks not to extend beyond the limits of their districts.

Objection may be taken that such a system of currency would increase the profits of banking. That it would do so, in some degree, is probable, but it is not in the interest of that business that the suggestion is made. The public have the deepest interest in the avoidance of perturbations or disturbance in the currency supply. If the principles presented be sound, and their application correct, it would seem to be clear that the existing banks could continue their present circulation, and guarantee it, with safety to themselves and their note holders; and that thus might be accomplished the desideratum of paying off the Government bonds, when the time comes, without