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2-3721 REMABTIS OF D. R. CBIS3ISGER, G07EBHE, FEDERAL RESERVE BOARD, BEFORE THE DISTRICT OF COLL7'LI A BANKERS' ASSOCIATION, MAY 2 4 , 1923. I n t h e p a s t two y e a r s i t h a s been my f o r t u n e t o be t h e r e c i p i e n t of so much c o u r t e s y and c o n s i d e r a t i o n , of h e l p f u l c o o p e r a t i o n and. generous, a s s i s t a n c e from t h e b a n k i n g community of Washington, t h a t i t i s n o t a l t o g e t h e r e a s y t o f o r m u l a t e on t h i s o c c a s i o n a f i t t i n g e x p r e s s i o n of my a p p r e c i a t i o n f o r t h e s e added t e s t i m o n i e s of s u p p o r t and l o y a l t y which come t o me t h i s e v e n i n g . I f e e l t h a t my d e b t to the b a n k i n g f r a t e r n i t y of t h e D i s t r i c t i s one of t h o s e o b l i g a t i o n s which have no d a t e of m a t u r i t y , b u t which go on a c c u m u l a t i n g a t compounded i n t e r e s t . F o r t u n a t e l y , having ceased t o be C o m p t r o l l e r , I am n o t under t h e p r o f e s s i o n a l o b l i g a t i o n to t a k e so h a r s h a v i e w of t h o s e i r r e g u l a r i t i e s which a r e i n v o l v e d i n c a r r y i n g overdue items f o r an u n r e a s o n a b l e t i m e . I f the good w i l l a c c o u n t which t h e b a n k e r s of Washington have b e e n c a r r y i n g f o r me should be p r e s s e d f o r i n s t a n t l i q u i d a t i o n , I am a f r a i d , t h a t , w i t h a l l t h e good i n t e n t i o n s and a m i a b l e s e n t i m e n t s i n t h e w o r l d , I should have t o t a k e the b a n k r u p t c y r o u t e . So I hope you w i l l go on l e t t i n g me make an o c c a s i o n a l c u r t a i l a s I am t r y i n g t o do t o n i g h t , j u s t as a s o r t of acknowledgment of t h e o b l i g a t i o n and a s s u r a n c e t h a t a t l e a s t I d o n ' t intend to permit i t to be outlawed. When your P r e s i d e n t extended t h e i n v i t a t i o n t o me t c come h e r e t h i s e v e n i n g he conveyed t h e i n c i d e n t a l a s s u r a n c e t h a t I would n o t be e x p e c t e d t o make a s p e e c h . Inasmuch a s I s u b s e q u e n t l y d i s c o v e r e d t h a t I h a d been p u t down f o r an a d d r e s s on a h i g h l y f o r m i d a b l e s u b j e c t , I w i s h him t o know h e r e and now t h a t he d i d n ' t f o o l me f o r a moment. I knew a l l t h e t i m e t h a t I would h a v e t o make a s p e e c h , and t h e b e s t t e s t i m o n y I can g i v e of my a p p r e - -2-r X - 3 7 2 1 c i a t i o n of the honor you have done me, c o n s i s t s i n the f a c t t h a t I aim h e r e , even a t the p r i c e of h a v i n g to make a s p e e c h . But I c a n ' t r e f r a i n from s a y i n g t h a t sometimes I have wondered i f we w o u l d n ' t g e t on f a s t e r with t a k i n g the government out of b u s i n e s s , and p u t t i n g b u s i n e s s i n t o government, i f you men of a f f a i r s could be induced to r e a d j u s t t h e s o c i a l a m e n i t i e s so t h a t o c c a s i o n a l l y a . v e i l - i n t e n t i o n e d c i t i z e n might h o l d a p u b l i c o f f i c e w i t h o u t i n c u r r i n g the s u s p i c i o n t h a t ha r e a l l y does i t b e cause i t i s h i s only chance t o get a f u l l - N e l s o n h o l d on an o c c a s i o n a l audience and compel i t to l i s t e n , whether i t wants t o do so or n o t . I f i n d myself s e t down f o r some o b s e r v a t i o n s about t h e d e s i r a b i l i t y of the f u l l e s t p o s s i b l e exchange of c r e d i t i n f o r m a t i o n . That means of course t h e f u l l e s t measure of c o o p e r a t i o n to a s s u r e t h e soundness of the b u s i n e s s and banking s t r u c t u r e , Now, we bankers have long taken p r i d e i n t h e c l a i m t h a t ours i s the g r e a t e s t c o o p e r a t i v e , the most h i g h l y s o c i a l i z e d b u s i n e s s i n t h e world. The man who f i r s t conceived t h e i d e a of m o b i l i z i n g the c r e d i t s , the l i q u i d r e s o u r c e s and working a s s e t s of a community, through t h e f u n c t i o n i n g of a bank, took t h e l o n g e s t s t e p toward d e v e l o p i n g a working p h i l o s o p h y and procedure in s o c i a l i s m , t h a t has ever been t a k e n . A l l the p h i l o s o p h i e s of K a r l Marx and Proudhon a r e a s a drop i n t h e bucket compared w i t h t h e tremendous s o c i a l f a c t t h a t was accomplished when the f i r s t bank of d e p o s i t , i s s u e and d i s c o u n t , was s e t u p . There i s a f a c t ; a b i g , fundamental f a c t t o which I wish i t were p o s s i b l e t o d i v e r t some of the a t t e n t i o n of those p a l e p i n k r a d i c a l s who nowadays propose t o accomp l i s h an economic r e v o l u t i o n i n the i n t e r e s t of t h e p u b l i c , by such mild and moderate p r o p o s a l s a s hanging the bankers and sending the "money t r u s t " to p e r d i t i o n # -3- x-3721 A proper exchange of c r e d i t i n f o r m a t i o n , i t h a s always seemed, to me, i s a l o g i c a l and i n e v i t a b l e development i n l i n e with t h a t p r o g r e s s i v e s o c i a l i z a t i o n which has been going on i n the realm of b u s i n e s s and f i n a n c e from the time when t h e f i r s t bank of d e p o s i t and d i s c o u n t was s e t u p . The whole s t r u c t u r e n e c e s s a r i l y r e s t s upon good f a i t h , upon mutual c o n f i d e n c e , and upon c e r t a i n r u l e s d e r i v e d from b u s i n e s s experience which j u s t i f i e s u s i n e x p e c t i n g t h a t most d e b t o r s w i l l pay, and t h a t the g r e a t m a j o r i t y of d e p o s i t o r s w i l l not a l l want to withdraw t h e i r a c c o u n t s a t t h e same t i m e . I t i s r e a s o n a b l y s a f e t o assume t h a t t h e r e a r e not many among you exp e r i e n c e d gentlemen who a r e in t h i s room, who s e r i o u s l y b e l i e v e in the guarantee of bank d e p o s i t s . Yet there i s a l a r g e c l a s s of people in the community who a r e convinced t h a t such a system could be made to work, and t h a t i t ought to be and would be but f o r the unreasoning h o s t i l i t y of the bankers. Now, i t seems to me t h a t the n e a r e s t p o s s i b l e and p r a c t i c a l a p - proach t o an e f f e c t i v e and s a f e guarantee of bank d e p o s i t s , would be found in a system t h a t would come n e a r e s t to e l i m i n a t i n g the danger of bad l o a n s . I f a l l borrowers were good, a l l t h e a s s e t s of t h e banks would be good, a l l the d e p o s i t o r s would be f u l l y secured, bank f a i l u r e s wouldn't happen, the curve of i n f l a t i o n and d e f l a t i o n would be very much f l a t t e n e d o u t , and i n s h o r t , t h e l i f e of the b u s i n e s s man and the banker would become one long* sweet dream. Quite o b v i o u s l y , t h e way to accomplish a l l t h i s i s , so n e a r l y as p o s s i b l e , t o insure t h a t the banker w i l l not make u n f o r t u n a t e l o a n s . If t h a t could be e f f e c t e d the d i s h o n e s t man would get no l o a n s , the r e c k l e s s man would be compelled to have a care about h i s a f f a i r s , t h e s p e c u l a t o r would be kept measurably under c o n t r o l . On t h e o t h e r side of the s h e e t , J*- x-3721 t h i s c o n s e r v a t i o n of c r e d i t r e s o u r c e s would make i t p o s s i b l e f o r t h e honest man, t h e man of c h a r a c t e r , and p r o b i t y , and i n d u s t r y , and s i n c e r e good i n t e n t i o n s , to get the f a i r show and f a i r share t o which he i s e n titled. There w i l l always be enough of competition among banks, enough v a r i a t i o n i n the psychology, the p o i n t s of view, the h a b i t s of mind, of i n d i v i d u a l bankers", to prevent the c r e a t i o n of a n y t h i n g l i k e a t r u s t i n moneys and c r e d i t s . The proper o r g a n i z a t i o n and i n t e r c h a n g e of c r e d i t i n f o r m a t i o n i s , i n s h o r t , simply one s t e p in the e v o l u t i o n of t h e f u n d a mental i d e a of the bank, toward a more n e a r l y p e r f e c t e s t a b l i s h m e n t i n i t s s o c i a l and economic r e l a t i o n s to t h e community. The c r e a t i o n of c l e a r i n g houses and t h e i r development has marked a long p r o g r e s s toward t h e r e a l i z a t i o n of t h i s i d e a l in banking. The c l e a r i n g house examiner system, which i s now e s t a b l i s h e d i n a c o n s i d e r a b l e number of c i t i e s , w a s a n a t u r a l development, p o i n t i n g i n the d i r e c t i o n of t h a t m o b i l i z a t i o n of c r e d i t i n f o r m a t i o n which, once p e r f e c t e d and i n p r a c t i c a l o p e r a t i o n , would be wellnigh the f i n a l guarantee of banking s e c u r i t y and t h e r e f o r e of b u s i n e s s s t a b i l i t y . I t i s i n e v i t a b l e t h a t , j u s t a s t h e r e w i l l always be some people who i n s i s t upon such f a l s e remedies a s the guarantee of d e p o s i t s , so t h e r e w i l l a l s o be people to o b j e c t most s t r e n u o u s l y t o t h e a p p l i c a t i o n of some good and e f f i c i e n t measures of c o n t r o l . There a r e many among the o l d e r bankers who can y e t remember when t h e r i g h t of t h e s t a t e to e n t e r , examine, and p u b l i s h t h e r e p o r t s of c o n d i t i o n of banks, was b i t t e r l y contested. But who, i n the i n t e r e s t of e i t h e r the borrower or t h e l e n d e r , the bank or i t s customer, would today propose t h a t examination and pub- -5- X-3721 r l i s h e d r e p o r t s 1)8 dona away with? In l i n e -vitii the growth of t h e s e i n s t r u m e n t a l i t i e s , has been the development of c r e d i t a s s o c i a t i o n s . h i s own. business. The c r e d i t man h a s coma i n t o He i s recognizee, a s one of t h e most i m p o r t a n t f a c t o r s i n e v e r y I n d e e d , t h e c r e d i t man i s t h e f i r s t l i n e of s a f e t y , behind which a l l accommodations can r e a s o n a b l y be m a r s h a l l e d w i t h s a f e t y . In h i s l o c a l , r e g i o n a l and n a t i o n a l a s s o c i a t i o n s , he h a s c o n t r i b u t e d enormously to t h e e s t a b l i s h m e n t of r e l i a b l e methods of b u s i n e s s and of c r e d i t e x tension. To a r t i c u l a t e h i s work with such a f a b r i c of c r e d i t i n f o r m a t i o n as has been s u g g e s t e d , would f a r t h e r s t r e n g t h e n t h e e n t i r e b u s i n e s s and banking s t r u c t u r e . We must always keep i n mind, and i n the d i s c u s s i o n of such t o p i c s a s t h i s we can n o t too p e r s i s t e n t l y remind t h e p u b l i c , t h a t t h e banker does h i s b u s i n e s s c h i e f l y with o t h e r people J s money. Whatever i s good f o r t h e b a n k e r , a s a measure of a s s u r a n c e and s e c u r i t y and soundness, i s good f o r t h e p u b l i c which d e p o s i t s with him. I t i s good a l s o f o r t h a t overwhelming preponderance of t h e p u b l i c which, whether borrower or d e p o s i t o r or b o t h , i s a c t u a t e d by good, sound, h o n e s t i n t e n t i o n s . I t is a l t o g e t h e r t o t h e i n t e r e s t of the banks t h a t b u s i n e s s s h a l l be k e p t sound and s a f e . I t i s e q u a l l y to the i n t e r e s t of b u s i n e s s , l e g i t i m a t e and d e - s e r v i n g b u s i n e s s , t h a t t h e banks s h a l l be sound, r e l i a b l e , and s h a l l e n j o y the confidence of the community. These t h i n g s can o n l y be p o s s i b l e i f the banker p o s s e s s e s t h e f u l l e s t and most r e l i a b l e i n f o r m a t i o n c o n c e r n i n g t h e s t a t u s of h i s c u s t o m e r s . I n t h e long r u n , the customers w i l l be t h e g r e a t e s t b e n e f i c i a r y , f o r such a system as t h i s , a p p l i e d i n m o d e r a t i o n and t h r o u g h wise c o o p e r a t i o n s , would go v e r y f a r t o i n s u r e t h e even t e n o r and s t a b i l i t y of a l l b u s i n e s s .
@FedFRASER