failure these
securities shall be sold and the proceeds used for the settlement of
their claims.
In all of these provisions, the protection of note holders against
loss in case of failure has been an influential consideration, and in
the cases of the prior lien and the safety fund, the only one. The
prevention of inflation may have entered into consideration in the
other cases, but among the states mentioned the regulations of France
and Germany alone are efficient in this direction, since they alone
prohibit note issues against investment securities. The above
mentioned regulations of England and the United States tend rather to
promote, than to prevent, inflation, since they require the holding of
investment securities against note issues.
The limitation of the aggregate amount of notes that may be issued is
a common legislative regulation. In the United States the limit set is
the amount of the capital stock, and in France it is an arbitrary
figure from time to time changed as the needs of the bank seem to
require. As a safeguard against inflation, the value of such
limitation depends upon the basis of the issues. If it is investment
securities, as in the case of the United States, limitation to a low
figure, not in any case to exceed the capital stock, is desirable,
since such limitation keeps the inflation within such bounds that the
banks themselves may be able to withstand the effects of it by selling
upon foreign markets, without great and perhaps without any loss, the
securities in which their capital and surplus funds are invested. If
the basis of issues be commercial paper, such limitation is
unnecessary, since inflation in such a case is improbable, and
pernicious, unless it be placed above the point which the volume of
issues is likely in ordinary cases to reach.
(_c_) _Other Means of Safeguarding the Interests of the
Public._--Experience has shown that publicity is a valuable safeguard
against bad bank practices, and legislation has, therefore, provided
for it by the requirement that statements of banking operations shall
be published from time to time. The national banking act of the United
States and many of our state banking acts, for example, provide for
the publication five times a year of bank balance sheets, drawn up
according to prescribed forms.
The inspection of banks by public examiners and the requirement of
detailed reports to public officials are also provided for in our
federal an
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