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Collection Title

Nelson W. A!dac
Series/Volume

Shelf/Accession No.



xd

NELSON ALDRICH




tioiletalf conzhssian

MISCEL1M




\
I ON

MONO. SEC.

TABLE OF CONTENTS.
Page.
Scope of the report.
.
Banking :eatures of crisis of T 907
Investigaton of foreign banking systems.
Relation of European experience to American conditions............
Principal objects of the proposed. plan
•••'"— (1) Concentration of reserves.
(2) Elasticity of the note issue.
(3) Restriction of business to commercial
(4) Ccxmlination of the banking system
(5) Leadership ill the money market.
C(x)perative character of the reserve assi)ciation.
Operation and adequacy of the proposed plan.
. •• • • •
The concentration of reserves.
Evolution of present currency conditions.
The system of note issue
( ) The requirement of minimum reserves.
( 2 ) Special taxes on deficiencies in reserves.
(3) Special taxes on excess circulation
(4) Legal status of the notes.
Resources of the reserve association for meeting periods of pressure..
The concentration of reserves.
.•
(2) Authority to grant rediscounts
(3) The power of note issue
(4) Changing the rate of discount.
(5) . Authority to deal with foreign banks
().Dealing in ',foreign bills
Facilitatingliomestic exchange.
Advantages of the proposed plan to the business community..
(1) The better distribution of capital.
(2) Stability and uniformity in discount rates. ..
(3) The encouragement of commercial banking
(4) Competition in foreign markets.
(5) Security against panic
Guaranties of management in the public interest. ............
(I) The democratic form of organization of the reserve association.
(j The participation of the Government in the management of
the association
(3) The limitation of the profits of the
(4) The reArictions upon the character of business permitted...
(5) Position of responsibility at the head of the financial system.
(6) Pnblicit v of the operations of the association

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MONITOR
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BANKIG EFORM
NOT INTEREST
OF SPECULATION
Mint Director Says National
Reserve Association's Purpose Should Be in Aid of
General Business
TO END BANK RUNS
WASHINGTON, D. C.—George E. Roberts, director of the mint, says that the
country's banking system must be reformed in the interest of general business and not in the interest of speculation. He disagrees with James J. Hill
that the National Reserve Association,
the proposed plan of reform, should accept stock exchange collateral as security
for loans, and says the association should
only loan on commercial paper arisrng
out of day-to-day trade transctions.
"I think the organization of the National Citizens League is oneof the most
promising signs of the times looking to
banking and currency reform," said Mr.
Roberts.
"This movement got its first impetus
from the panic of 1907. Everybody knev
while that panic was on that somethi
banking sys
WAS wrong with our
There are two things that art r
mental itLbankirg: the banks s'
f 4
always- retisly

1„.tomparm4eimaku :
to loan for
h
-rent needs of their custob
some reasonable rate. In view (,
experience in the past those two cf,
tions may seem to make a very la',
contract, but in every other importan
country of the world those conditions
are met. There is plenty of proof that
a properly organized banking system
can meet them.
"There is an end to bank 'runs' whenever it is known that the individual
banks will be adequately supported, and
the amount of credit required to handle
the current exchanges can always be
supplied. Of course, no banking system
can undertake to furnish all the credit
that may be wanted for speculation or
extravagant construction, but it can and
should furnish all that is needed to
6 move the crops and make the current
exchanges of trade.
"Our system broke down in 1907, when
great• railway systems could not get,



eN

al
Says
NationViU
s
ociation'
of
Ile
sitless
-RUNS
ATS-1(

Aia

RobC.—George "F,. the
that
D.
re111111t, says
must bebusithe
1
system general
ing
specula
interest of
interest of J.
in the with James
Nwociation,
agrees Reserve
should acional
reform,
srity
t
ecu
plan of
collateral as should
association
change
gns
paper ari
says the
d commercial
tr•nsctions.
on
trade
the -Naoanly.ation of
the most
-to-dayrg
ione of
the
looking to
Leagne
lir.
'Lena Les lie times
reform," said
signs of
currency
impetus
anti
its first
movement got Vserybody
somethi
100'I.
panic of was on that
fk
g sy
panic
at
with 0Vtr that are
Tong
things banks f0
two
1)1e,
are
IrLbankiv g:
retit:f

r -4 4 kia




uauu
—auy to loan for
-cent needs of their custou
3 some reasonable rate.
In view c
experience in the past those two cc
tions may seem to make a very lai
contract, but in every other importan
country of the world those conditions
are met. There is plenty of proof that
a properly organized banking system
can meet them.
'There is an end to bank 'runs' whenever it is known that the individual
banks will be adequately supported, and
the amount of credit required to handle
the current exchanges can always be
supplied. Of course, no banking system
can undertake to furnish all the credit
that may be wanted for speculation or
extravagant construction, but it can and
should furnish all that is needed to
move the crops and make the current
exchanges of trade.
"Our system broke down in 1907, when
great railway systems could not get
/5
money for their pay rolls; the movement of such staples as cotton and
'2
wheat came to a standstill and hun1
8
dreds of thousands of wage-earners
were thrown out of employment.
4
"Every consideration demands that
the country be safeguarded against a
repetition of this experience. It is more
than a banker's problem or merchant's
problem; it involves stable , markets for
the farmer and steady employment for
2 the wage-earner. It is more important
to wage-earners Allan any other single
4
question, more important to farmers
than a year's crop, more important to
all classes than any disposition of the
tariff or trust questions can possibly be.
4 It is now up for action and ought to
have right-of-way over every other
6 issue until it is settlell by a comprehensive and final treatment.
"There is no wide disagreement among
the friends of banking reform. It is
agreed that our system lacks unity and
cohesion and reserve powers. There is
general confidence that our banks are
solvent, but no confidence in a crisis
that they will be Ale to maintain cash
payments or grant needed accommodations. The banks feel their own helpit
lessness, and their struggle to keep up
their cash reserves and reduce their
loans do even more to demoralize the
situation than the actions of the public,
"What is wanted is some responsible
organization. with reserve resources
which command complete confidence,
that will stand back of the individual
banks and support them when help is
needed by taking over some of their
3 assets and advancing cash thereon, Experience elsewhere has demonstrated
that the demands upon such an institution can be effectually controlled by
raising the discount rate. That is the
general principle to which the rest of
the world has come, and it is now commonly accepted in this country. The
,only disagreements seem to be over the
details of tbis organization.
"I see no reason to fear that such an
organization will be controlled in the
interest of a locality or clique. The
controlling board will be chosen from all
sections of the country, with proper
checks and safeguards, but the most important safe4oard is a regulation as to
the character of paper that shall be
handled.
"I see that Mr. Hill argues that good
bonds should be accepted as collateral.
No doubt the bonds of good railway
and industrial corporations are a safe
securjty for lottos, but there is practi5 cally no limit to the supply, and the
7
'2 only real danger that exists, that the
.1 organization might be used for stock
operations or promotion schemes, lurks
unpti. il ,
oi
in the 11841 of this class of tolateral.
"Warehouse receipts for wheat ant.
1, co oitli a re co m ri ilodit N.tseri ‹
oft
cottonese t )f n ir tier e ,8
.
8"11)11
A- mustb
11.1 eyondbe sol find the
0
a Ye
loi').
Paul. If th.
(J•••• •

tendant, wishes position. Tel. Lilian('
4543-.I. MARIE ZURCHER,. 6744 Thomas
blvd.. Pittsburgh, Pa.
4
ATTENDANT—Young woman attendant
wishes position with party traveling to Paeine coast ; will work for expenses. MISS
JENNIE L. 'lomat:. 329 North 1.117„11 at.,
Mount Vernon. N. Y.
2
A TTE N DA NT—Trained A merican desire;;
position IIP attendant and eompanion to
elderly lady; experienced; reference. MISS
LILLIE HARBOURNE,. 273 144ncoln st..
Flushing. N. Y.
CLERICAL—biri (17) WISIIPS.
110Niti011 as
—
office assistant. ANNA XRUB1, 1541 Ave.
A. New York city.
1
COMPANION AND MAID to elderly or
young lady; nnderstands dressmaking,
mending. care and dressing of hair, etc.
ROSE JEANETTE KENNEDY. care Wm.
J. Brown, 34 South High st., Mt. Vernon.
N.Y.
6
COOK—American woman wishes position to do plain cooking in family of
adults; kind home preferred to high wages.
HELENA KAVANAUGH, 238 Atlantic ave.,
Brooklyn, N. Y.
31
__
iffM0N ST lt ATOR and saleswouth
ex pert, desires position with good house;
willing to travel; Al references. V, M.
SHEPA RD, 145 lnion a ve.. Saratoga
Springs. N. Y.
DRESS
-MA failt" experienced, excellent
.1
fitter, conscientious, satisfactory, wishes
position; best references. MRS. S. Alt_
ruAoA, care Reid, 218 W. 128th at., New
York.
.
4
DRESSMAKER, 7 .veiiisr experience, cutting, fitting, remodeling, desires work; references. MRS. E. GARDNER, 16 West. 31st
at., New York.
—
HOTEL STENOGRAPHER. experienced,
desires position in Boston or elsewhere;
references. MISS WHITAKER, 179 Franklin at., Buffalo, N. I.
4
HOUSEKEEPER—Lady desires position
as housekeeper, companion or secretary;
has taken responsible charge of gentleman's
'.ome aid children; highest references.
155 J. KNOWLTON, Fulton, N. Y. Gen.
%eq.
2
'IlSEWEEPFIR would like position in
fimily or institution;
P. C. iLLAW. 34 Ormond p)
•



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31.11•10'..5Sth st
.'ATE ifECRETARt---- Miven yea.
-,osition; capable and efficient; excepal references; prefers Philadelphia or
‘
vy York. L. W. REEVE, 4807'Regent at..
,eat Philadelphia. _
1
REFINE
-I) YOUNG GIRL wishes. position, secretary, companion to elderly lady;
cheerful, obliging; typist; experienced; references. wittimu,.3137 Fairfax ave., Westchester, N. Y.
31
_
SEAMSTI1ES8—Neat, reliable colored
woman „wishes plain machine sewing few
days Weekly; moderate pay. MRS. F.
JOSEPH. 119 E. 100th at.. New York. 31.
_
14EalittSTRYISS desires employment;• plain
sewing, darning or buttonholes. BELLA
SHOEMAKER, 1949 N. 13th st., Philadel6
phia.
_
STENOGRAPHER, experienced. desires
position, private secretary preferred; references furnished. HILDA SNYDER4 452 K
Walnut lane.. Germantown, Philadelphia.
:3
Pa.
STENOGThaillElt and typewritgr, young
woman. thoroughly capable SIMI eXperieneed, rapid and accurate wishes high class
position In New York city. E. PATTEIt`3
SON, 162 E. 115th st.. New York.
STENO(fftAPIIElt ANT) TYPhiCilITER—
Young lady, nearly 18, desires position in
vicinity of Newark, N. J.. or (iewntown In
New York city ; Is accurate and painstaking
III her work. neat and ladylike in appearance. OLIVE 1111.13KRT, 87 Quincy ay..
Arlington. N. .1,
3
ti E MIT book keiii•er, some
experienee, hard worker, moderate salary
to begin. KAPLAN SCHOOL. 1731 Pitklu
ave.. Brooklyn, N. Y. Phone 660 Enst New
York.
4
STENoiTIRAPHER of several years' experience. thoroughly competent and reliable,
desires position; will go to Kenosha or Milwaukee, WIN. MISS MARY ALIcm 0141YER. 24:i Frank ave.. Racine. Wis.
3
_
STENOGRAPHER, first-class, desires position; German and English diction, translations; experienced in 'Import, advertising.
111R11rance; had charge of department.
ELISE M. CORDSEN. Suffern, N. Y.
tirCENOGitAPHER-TtPIST desires position where Jim services of a capable, experienced and trustworthy stenographer
will be appreciated; moderate salary; referenees. .GEwrituDE FOX, 195 Adelphi st.,
Brooklyn, N. Y.
--TOTOlt---Yonng lady, graduate of Parker
Collegiate Institute. wishes 'position to
tutor in elementary subjects, LOD. Prinich
awl German. Address M. PRESSPRICH,
256 79th st. Brooklyn, N. Y. Phone 3421-.1
Bay Ridge.
VISITING GOVERNESS (French), linguist, seeks morning position; would take
children walking; references; apply by
letter only stating • particulars. MISS E.
BT7RKY. 2o7 W. 24th st:, New York city. 4
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411.




1 RH

MONO. SEC.

The formation of clubs and societies for the serious study
of economic questions is a hopeful sign of the times.
Modern economic conditions have developed new problems of vast importance which are pressing upon the
American people for solution. Among these none is more
important, with reference to the future development and
welfare of the country, than that which is submitted to
the National Monetary Commission. The question of how
best to secure a comprehensive organization of our financial institutions and a thorough reconstruction of our
monetary system is one of vital interest to the people of
every class and every section.. There can be no wise or
permanent legislation, no final solution of this problem,
that is not supported by intelligent public opinion. Enlightened public opinion must be based on the final judgment of thoughtful men who have thoroughly investigated
this great question from the practical and theoretical

•

point of view.
We are living in a new economic era, brought about
by the march of civilization; by wonderful improvements
in methods of transportation and the transmission of
intelligence; by important changes in business and industrial methods; and by remarkable discoveries in the arts
and sciences.
The wonderful transformation which has taken place in
every direction in recent times has added greatly to the
responsibilities of bank managers. In our complex economic life credit forms a more and more important
element in the successful development of communities
and States. As in the earlier days, every successful
bank manager is brought into close and confidential
.
telatiOriS 'With the men upon whose activities and influence the welfare of every community depends. His
advice and assistance are solicited for the promotion and
support of every industrial enterprise, and his counsel is
asked with reference to the investment of the savings and
earnings of the people he serves.
In respect to their important responsibilities in this connection the great mass of the bank managers of the United
States leave nothing to be desired. In no other country
do we find their equals in the uniform courtesy and intelligence with which their business is transacted. They are
vigilant in safeguarding the interests of their stockholders
as well as their customers. Nowhere else do we find the
same skill in the technique of the profession. The practical details of the business of a bank are conducted here
with a facility and rapidity quite unknown wtsifie the.,
United States. Everyone who has attempted to transact
the simplest business in a foreign bank—cashing a check,
for instance—will confirm this statement.
We may safely assume, therefore, that so far as concerns the personality of bank managers, their conduct of
the routine affairs of their banks, and their personal relations to customers, depositors, or borrowers, there is no
demand for new or improved conditions.
Notwithstanding the possession of these admirable personal qualities, the bank'managers of the United States
find themselves unable to meet the new and serious duties
and responsibilities which are imposed by the momentous
physical and financial changes which have taken place in
recent years.
•••
4

*

a

4

•




- United States. Everyone who has attempted to transact
the simplest business in a foreign bank—cashing a check,
for instance—will confirm this statement.
We may safely assume, therefore, that so far as concerns the personality of bank managers, their conduct of
the routine affairs of their banks, and their personal relations to customers, depositors, or borrowers, there is no
demand for new or improved conditions.
Notwithstanding the possession of these admirable personal qualities, the bank'managers of the United States
find themselves unable to meet the new and serious duties
and responsibilities which are imposed by the momentous
physical and financial changes which have taken place in
recent years.
The inability of bank managers to meet these changed
conditions is due in a large part (I) to the limitations and
restrictions imposed by antiquated or obsolete laws with
reference to the treatment of reserves; in part (2) to a
defective, inelastic, and unscientific system of note issues;
and (3) to an entire absence of cohesion and cooperation on the part of banks in what are now their more
important functions—those in which the public has the
deepest interest.
The necessflry cooperation of banks for mutual protection and support at critical times is rendered impossible
n
by unwise, artificial restrictions. This lack of cooperatio
in times of pressure, exceptional or otherwise, transforms
Individual banks from a condition of independence to one
of complete isolation and dependence. In emergencies
they are without the power to serve successfully the interests of either their stockholders or the public. The situation in this respect is illustrated by the fact that the
country banks now entirely depend for assistance to
enable them to meet unusual demands upon their resources
upon their correspondents in reserve or central reserve
cities; and, in the last analysis, the banks of the entire
country expend for their support upon the financial institutions of New York, with their vast accumulations of
capital.
Unfortunately, for reasons which it is not necessary for
me now to recite, in times of severe stress all these agencies
fail or prove inadequate. We are confronted, therefore,
with the fact that the banks and the business of the country
have no reliable resource upon which they can depend at
l
all times for the protection of vital interests. Exceptiona
demands made upon the banks for credit, arising from an
expansion of business or otherwise, and the regular recurring movements of lawful money from one section of the
country to another, are disturbing elements of more or less
importance, liable to lead to widespread distrust, resulting
at times in a general suspension of cash payments and




2 RH
MONO. SEC.
the complete disruption of all exchanges.
In the losses and paralysis incident to general bank
suspensions, the banks themselves are not the only-In fact, they are not the principal—sufferers. Banks, if
properly managed, are usually able to take care of themelves. Not infrequently they pass through the trials of a
panic with increased earnings and unimpaired resources
I do not mean by this state ment that the intelligent bank
Managers of the United States on this account look with
believe
indifference upon a panic or panicky conditions.
the intense strain to which the bankers of the United
'States were subjected in 1907 taught them i a practical
lesson which they never will forget and that they are now
earnestly seeking with one accord some resource which
shall at all times be available to sustain their own credit
and that of the communities they serve.
The Widespread disastrous results of the panics following bank failures in 1873, 1893, and 1907 affected all
classes. In each of these car es we had an entire or partial
'suspension of all productive industries, a shrinkage •in all
values, a reduction of wages and loss of employment, with
irreparable loss to wage earners, an arre ,t to all progress,
ifide:ice, and a loss of
a destructive •impairment of co,
estige fat the country. Fanners and other producers
were not able to secure the nece:;sary facilities either for
holding or marketing their products, and business men of
all classes were unable to meet their current obligations.
Usually there is no opportunity for the great mass of the
people to prepare for these emergencies, as the transition
ifrom prosperity (real or apparent) to depression and panic
usually takes place without warning.
It is utterly impossible for any man to measure the extent of the losses and the injuries (direct or indirect) to the
productive forces of the country which have arisen from
our defective monetary system. In the exuberance of
youth, nations as well as individuals are likely to be indifferent to the evil results which are sure to follow
a profligate waste of vital forces. At such times a
fe'ling seems to exist that the evil results of a continued
infraction of natural laws can be safely ignored. Were it
not for our unrivaled natural resources, and the characteristic energy of our people, which have given us an unprecedented prosperity and a rapid growth in wealth, in spite
of all obstacles, we should have long since found the defects
-rable.
to which I have referred into1,
Our great natural advantages have enabled us to go on
suffering losses that would have ruined any other country.
Every intelligent man who has observed the unsatisfactory
character of our banking practices and who has had an
appreciation of their destructive results must have been
filled with wonder and amazement that a great people
should have so long submitted to such crude and expensive methods.
It must be apparent that the entire public is vitally interested in everything that pertains to the strength and
safety of our financial institutions. They are the principal ereditors of the banks as the number of depositors in
financial institutions is greater than the number of persons employed 'in all the useful occupations in the United
tStates.
In considering the universality of the public interest in
the cause of monetary reform, I am constantly reminded
of the striking statement made by Sir Robert Peel in
opening the discussion on the English bank act of 1844.
With reference to that proposition, he said:
There is no contract, public or private—nq engagement, national or individual—unaffected by it. The enterprises of commerce, the profits of trade, the arrange,
;,
thp domestic relations of life, pecuniary




—
sons employed 'in au tne useitti OtCUjJaLtJ1* ILL
States.
In considering the universality of the public interest in
the cause of monetary reform, I am constantly reminded
of the striking statement made by Sir Robert Peel in
opening the discussion on the English bank act of 1844.
With reference to that proposition, he said:
There is no contract, public or private—nq engagement, national or individual—unaffected by it. The enterprises of commerce, the profits of trade, the arrangements made in all the domestic relations of life, pecuniary
transactions of the highest and the lowest amounts, the
command of money over the necessities of life, are all
affected by the questions submitted by me for your consideration.
The questions which were involved in the provisions of
the act of 1844 were very simple compared with those that
confront us to-day. There was then practically but one
question considered, that affecting the character and
extent Of the note issues of the Bwik of 'England. We
have to deal with a great variety of questions, all far
outweighing in magnitude that involved in the legislation
to which I have referred.
Great and continued successes create in the people a
natural condition of inertia, which produces an unwillingness to consider reforms involving a solution of difficult
problems. With the conservative character of our business men and bankers, who dread all radical changes, and
the extreme difficulty of securing an agreement on the
character of adequate legislative remedies, the work of
monetary reform in this country has moved slowly. The
experience of other countries in this respect has been
different from ours for reasons which it is not difficult to
understand.
It is true that a generation passed from the time of the
bullion report to the passage of the act of 1844. But
since the adoption of that legislation the evolution of
monetary methods in England, France, and Germany has
been rapid. This progressive movement was not retarded
or prevented by unwise legislative requirements. The
1 issue of notes by banks of issue was the only subject of
rigid governmental supervision. There were no laws
regulating banking methods or prescribing the character
or extent of reserves. The joint-stock banks in each
country were governed by the general corporation laws.
The changes which have taken place by usage and as the
result of experience in each one of these countries in the
last 50 years have been revolutionary in their character.
With a new and distinctive evolution in banking methods
and practices everywhere outside of the 'United States,
we have had no important changes whatever since the
g-enactment of the national banking. laws.
We have as a people during this period suffered from
-expensive, and profitless discussions with reference
''bitter,
to tile tesumption of specie payments, the issue of Government notes, and the free coinage of silvEr. But it has not
been i)ussible to modify existing laws oi to change our
banking methods and practices to make them conform to
those universally successful elsewhere in securing an
efficient organization of credit and the prevention of
panics.
k.AA%.

AA.




3 RH
'03S "ONOW
I have referred to the magnitude of the interests in,
volved iii the solution of this ploblem, to the resources,
the ‘vealth, and the remarkable development and growth
of the country financially and physically. To-day the
banking- 1---iotirces of the United States are greater than
dier commercial nations of the world
thos(: of all f1
combined. Any consi ruciive Is'gisiation must provide not
only for th(2 necessities of to-day, but must have reference
to 012 future needs ti1(1 dcvelAnnent of this great nation.
In 10 N'cars the number of our banks and the banking
resources of the conutry have more than doubled. In the
same 1xiod the hits,iliess of the counlry in many lines
has trebled and quadrupled. Imagination fails us if we
undert:ike to make 1.11 CtititTlat',1 of the incr.base in our
ba.nking resources and the extent of our industrial developtftstit within the next g-sitiera.tion, hut principles must be
laid down and machinery provided that will properly
take care of an' possible increases.
Having alluded ill this it perfet manner to some of the
defects of our system and their consequences, I now propose to call your attention to some of the phases of the
remedial legislation proposed.
realize ----and I am quite sure you, who have given the
the magnitude, the complex,
su1)i.2ct attention,
and jut Ticate characz,er of the questions involved. I never
stand before an audience like this for the purpose of treating any of the phases of this great problem without feeling..
that I ought to apologize for what must be, inherently, the
unsatisfactory character of mv discourse. It is utterly
impossible for me or any man in .111 address limited in time
as this must be to do more than barely touch upon some
of the great fundamental questions which are involved in
the cause of monetary rAorm.
About a year ago I was requested by inv fellow members of the Monetary Commission to prepare a tentative
plan of monetary legislation for submission as a basis for
discussion and criticism. In accordance with this request
fanuary.
a plan was submitted to die commission in .
Lately I have S1il)lllit..tC(l '1 revision Of tiu plan, undertaking to deal with three important phases of (Ire subject not
covered definitely in the original plan.
I have considered the provisions of this plan earnestly
and sincerely, haying always in view the best interests of
this great country, the character of its institutions, and the
needs and requirements of its people in every section. I
careful study of the
have considered it in Cue lig-lit
experience of the other commercial nations of the world—
experience which has for us lessons dint are invaluable.
have submitted it to.lhe Commissiciu and Llw inierican
people with confidence, because I have a profound conviction that it furnishes a workable and sound basis for the
successful solution of great problems. It is, however,
presented to the members of the Commission for gieir
be
criticism and action, and not as the last word that can
said on tlw subject.
I have alluded to the enforced lack of cooperation of
••‘• 4 1— ,,riin:11 defects of

r

•




_
aluable.
experience which has for u, lessons that are inv
an
I have submitted it to the Commissign and the Americ
nd convicpeople with confidence, because I have a profou
is for the
tion that it furnishes a workable and sound bas
is, however,
successful solution of great problems. It
n for t-iteir
presented to the members of the Commissio
d that can be
criticism and action, and not as the last wor
said on the subject.
cooperation of
I have alluded to tl!e enforced lack of
principal defects of
banks in critical times as one of the
only effective remedy
our system. I am satisfied that the
ter organization of
for this defect is to be found in a bet
ons of banks for
credit secured through the associati
functions. These
definite purposes and with di,tinctive
tion and assistance.
must be associations for mutual protec
pete for the usual
The central association must not com
business of discount and deposit.
satisfied of the necesThe banks of the country are fully
nges that have taken
sity of closer cooperation. The cha
ng-house organization is
place in the character of cleari
house associations were
evidence of this. The clearingchecks and to facilitate
originally organized for clearing of
ir district. Since 1873
the exchange of the business of the
ned to include other and
their powers have greatly broade
the use of clearing-house
more important fields, through
on in other important
loan certificates and cooperati

experience 01 1 ne

respects.
or even adapt to our
I realize that we can not adopt
l bank of the character
use in the United States a centra
great commercial nations
of the central institutions of the
racter of their organizaof Europe. The form and cha
character of our institions are not compatible with the
ope without exception
tutions. The central banks of Eur
joint-stock banks in their
compete for business with the
r or less extent. This
respective countries to a greate
required by law. It is of
competition is in some cases
force of public opinion and
course true that through the
s and not as a result of
the evolution of banking system
utions have assumed very
legislation, these central instit
n those exercised by comimportant functions other tha
to any student of the
mercial banks. I need not say




4 RH
'MONO. SEC.
subject that it is now the recognized function of the Bank
of France, the Bank of Etigland„ and of the RAchsbank
not only to take care of the reserves and -Lo extend assistance to the joint-stock banks in their respective countries,
but they are expected to maintain at all times the public
credii as well.
We can not afford to overlook the prejudices of the past
or the present. We can not, for instance, have a bat k
like the second bank of the United Stai.es. One of the
.
principal objections to that institution was the charge of
personal and political favoritism to individuals in itg
manag.,ment. We must afford no opportunity for a
repetition of transactions of this character, and the new
organization must, therefore, do business with the banks
.alone; it must be their agent, not generally, but for certain specific and &Ailed'purposes.
We must consider carefully the diversified interests of
all sections and communities, the broad general interests
of the country at home and. abroad. The international'
,
aspects of the question are perhaps quite as imporant as
those that relate to our domestic affairs. They are even;
more important to the great mass of the producers of the
country who are directly interested in our exports.
The organization I have suggested is a cooperative
union of all the banks of the country—not an organization)
to do a general banking business, but a federation of
banks with functions clearly defined. Its purposes are
strictly limited to two functions. One of these functions
is to hold a portion of the cash reserves of the banks of
the United States, with provisions for their mobilization
and use for specific purposes. The other is a grant of
power for the issue of circulating notes under strict governmental regulation. Everything else is incidental and
collateral to these two main objects, and the business of
the Reserve Association is absolutely confined to these,
with the exception of the Government's relations to it as
a depositor and the receiving and paving out of Government funds.
One of the most difficult problems that confronted me
in preparing the outline of a plan for monetary reform was
to provide a form of organization with the limited powers
I have described that would fit into and supplement sound!
banking and bminess conditions without disturbing any;
that would meet the wants of every section and of all our
people without the pos ibility of control by political influ,
ences or by individual'; or combinations in Wall Street or
elsewhere.
I have iiisi-tcd frr in the beginning that the question
must be kept out of politic. It is a business question
pure and simple, vita:1y affecting all the people of the
country, and politicians have no right to use it or to atte:npt to u: it for the benefit of any party or individual.
-,e
If the thoughtful and patriotic people of the country will'
let tile gent:etnen who are tryirg to thrust this question
into polit:cs, p,
..r.-5c,nal or cthenvic,e, who are for party or
personal advantage atte:nptii:g to arome public prejudice




must be kept out of politic,;. It is a
business question
pure and simple, viLa:ly affecting all
the people of the
country, and politicians have no right
to use it or to attempt to me it for the bcneilt of any party
or individual.
If the thoughtful and patriotic people of
the country will'
let the gent:emen who are trying to thru
st this question
into politics,
or otherwise, who are for party or
personal advantage attempting to arouse
public prejudice
against a plan which they have never read
or in regard to
which they have not absorbed enough kno
wledge to comprehend its meaning, understand emphatica
lly that it is a
business question to be settled outside of
politics and in
the public interest,criticisms cf a certain kin
d will promptly
cease. I realize as fully as anyone can
that intelligent
criticism is invaluable in a great conctruc
tive work like
that we have on hand, and we have not only
welcomed but
sought advice and criticism of this kind fro
m every source.
We are earnestly seeking frank expressions
of opinion from
thoughtful men all over the country. If this
problem is
to be solved successfully it must be treated
purely from a
nonpartisan standpoint. If it is made
the football of
politics it will meet the fate of all reform
s that have gone
before.
We can all recall years of doubt and unce
rtainty, when
the public mind was distracted and publ
ic opinion divided
with reference to questions of currency
and coinage, questions settled only after a generation of
costly political discussion which could have been avoide
d if the questions
had been treated from the standpoint of
economics rather
than of politics.
The fear is expressed in some quarters tha
t the selection
of the governor by the President from
a list submitted
and the provisions making the Secretary of
the Treasury,
the Secretary of Commerce and Labor, and the
Comptroller of the Currency ex officio members of
the board of
directors of the reserve association, might
lead to an
attempt to control the organization for poli
tical purposes.
I believe that the participation of these offi
cials in the
management of tke institution to the limited
extent prescribed is necessary to secure a proper recognit
ion of the
vital interest which the public has in the man
agement of
the association.




5 RH
MONO. SEC.
It is, of course, a corporation with private stockholders, but it is proposed to make it the principal fiscal agent
of the United States and the depository of its funds,
The more important powers of the organization and it
principal powers are of a public character. It is not
only the custodian of the Treasury balances, but the
principal reason for its existence is found in its ability at
all times to sustain the public credit. Neither the President nor any of the officials named, from the inherent
character of the institution, could possibly use any of its
functions for personal or political purposes.
The plan I have suggested provides for the organization
of all the banks in contiguous territory into local associations, of local associ-Aions into district associations, and
the district associations into t'e Reserve Association,
Eaeh di strict association is to have a branch of the national
association. These separate organizations are analogous
to our political divisions Lito counties, State3, and the
United States, and each have distinctive functions quite
unlike in their character, and t.-e form of all is based upon
the idea of securing self-govern.nent to each. In the local
association the individual bank is the voting unit. A
majority of the individual banks, vs ithout reference to their
size or to their holdings of stock in the Reserve Association, elect three-fifths of the directors, and a majority of
stock interest elect t 0-fifths. While the controlling
interest is in the hanis of the majority in number, a
majority in stock holdings receives a smaller representation. Tiais form of organization aid method of election is,
so far as I am aware, quite novel in representative government. It is more democratic in form, more liberal to
minorities than others that I know of. I believe that it is
a fair arrangement. If advantage accrues to any, it is, of
course, to the small banks, because they can,if they please,
elect a majority of the directors in every local association
in the United States.
The next step is the organization of all the districts
into a central reserve association.
In the organization of the National Reserve Association we provide (I) that each of th districts, without
reference to its size or location, shall elect one director;
(2) that a majority in stock holdings shall elect a smaller
number, as in the case of the local association; and (3)
that these two classes together may elect a certain number of directors, representing fairly the agricultural, industrial, and commercial interests of the country.
In order to remove any possible danger that some combination of individuals or corporations in some section—
New York, for instance —might obtain control of the
National Reserve As'ociation and use it for their selfish
purpose, I have provided that not more than three of the
directors of the second and third classes and not more than
four in any event shall be selected from any one district.
I fully realize that this provision is not in one sense
equitable when we consider the great disparity in the
size and importance of districts.
By this provision, for instance, New York could have
but 4 directors out of 39. This is a trifle more than one/EMI




National Reserve Association and use it for their selfish
purpose, I have provided that not more than three of the
directors of the second and third classes and not more than
four in any event shall be selected from any one district.
I fully realize that this provision is not in one sense
equitable when we consider the great disparity in the
size and importance of districts.
By this provision, for instance, New York could have
but 4 directors out of 39. This is a trifle more than onetenth of the whole. But New York City alone has 20
per cent of the banking capital and 26 per cent of the
banking resources of the United States. Take the whole
eastern section, the New England and Eastern States as
classified in the comptroller's report, together: Under the
plan they would be entitled to 12 members of the board
of directors out of 39, or 31 per cent of the total. But
these States have 5o per cent of the banking capital and
6o per cent of the banking resources of the United States.
Under this plan the States of the Middle West would have
41 per cent of the representation and but 25 per cent of
the banking resources. The Southern States might have
31 per cent in representation and but 14 per cent in banking resources.
This seems, on its face, to be unfair to New York and to
the East, but, so far as I am concerned and so far as
my judgment of the situation is concerned, I should be
willing to have every one of the directors elected from the
city of Chicago. They have only to deal with banking and
business questions of vast importance, it is true, but I
should be willing to trust representative bankers in any
community to see that the law was fairly and impartially
administered. This organization is analogous to that of
clearing houses, and I have never known politics or differences of opinion growing out of the size of a bank or its
location to enter into the selection of the management of
a clearing-house association. The clearing-house banks
of all of our communities work together harmoniously for
the general good in times of ordinary business and in times
of stress without reference to their size or importance.
Personally I believe, in a broad way, in the solidarity
of the interests of all the American people. If the people
of Illinois are prosperous, the influence of your prosperity will be felt throughout the length and breadth of
the land. If your industries are depressed, if production
stops upon your farms and in your mills, that depression
is felt everywhere in New England and in the South as
well as here. But, notwithstanding this, no plan can be
adopted or ought to be adopted that does not take into
consideration the prejudices, if you please, as well as the
nterests of the various secions of the country.




H

MONO. SEC.
I am constantly reminded of the fact that the principal
obstacle in the way of the acceptance of the proposed plan
is the fear of its'dorhination by Wall Street. It must .be
apparent from an examination of the provisions of the
plan that in order to control the various associations,
"
r. including the Reserve Association, it will be necessary
Practically to control a majority of the 26,000 banks of the
United States with their banking resources of 21 thousand
millions of dollars. The banking capital of the country
is, in round numbers, 2,800 million dollars. Taking the
selling price of bank stock into consideration and the
advance which surely would follow an attempt to pur•. chase control, it would he s2.fe to say that a control of the
banks of the country would cost more than 2,500 milliP
dollars. No scheme could be possibly enacted into law
which would not make a combination or purchase of this
kind illegal. The magnitude of the operation, if there
were no other reason, makes the execution of this plan
absolutely impossible.
It might he pertinent to inquire what this supposed
combination of capital could do with the associations
.
'
if it could control atm. In order to affect local interests in t'-e West, for instance, it would have to control not only the central organization but every local
and district association, with their local self-governing
boards. The district organizations alone exercise the
functions of discount and rediscount and the amount
of such rediscounts in any one locality is limited by the
capitalization of local banks. It might, with the control
of the national association, be able to fix the rates of
discount, but these rates must be uniform throughout
the United States, and no advantage could be secured
by this power. No profit of any kind could inure from
the transaction, as the dividend rate to shareholders is
fixed, and any additional profits would go to the Government. It is impossible to see from any reasonable standpoint why anyone should want to take, if they had the
power, the responsibility of controlling these organizations.
I believe that the plan as submitted undoubtedly
answers every requirement of the conditions I have
laid down, that its control should be absolutely beyond
the reach of any political influence or sectional combination; but I say, with the utmost frankness, that if any
better scheme oi plan to secure these results can be
devised I am sure the National Monetary Commission
would adopt it.
In tbe plan as originally presented I suggested that
national banks should be the only stockholders in the
Reserve Association. But as a result of careful investigation I have made up my mind that it is important
(I think I may say it is necessary) that State banks and
-,4rust companies should also be admitted to membership
upon equitable terms.
By the provisions of the plan as now presented State
banks and trust cpmpanies are admitted to all the advantages and privileges of membership in the National Re.-




_
national banks should be the only stockholders in the
Reserve Association. But as a result of careful investigation I have made up my mind that it is important
(I think I may say it is necessary) that State banks and
-,4rust companies should also be admitted to membership
•

AA

4.k.1%.

toacaa•

4.4.J

lib ..•••••••...7

upon equitable terms.
By the provisions of the plan as now presented State
banks and trust cpmpanies are admitted to all the advantages and privileges of membership in the National Reserve Association upon conditions that I believe are
acceptable to the representatives of those institutions.
'I These conditions are—
(i) That they shall hold the same percentage of
reserves against their demand or other liabilities that is
required of national banks in the same locality.
4
s .
•
(2) That State banks must tionforth to the capitalization requirements of the national banking laws that
, ame locality. That trust
apply to national banks jn the :•
.
companies must conform to ar: plan of capitalization
recommended by the trust company committee of the
104

• r•

Ir

4

American Bankers' Association.
(3) That all subscribing State banks and trust companies must submit to the examination.; that are author....
ized orrrequired by t14 plan.
(4) That all subscribing State banks and trust companies, as well as national banks, shall make regular
reports of a specified character to the Reserve Association.
We have prescribed standards of reserves-, of examinations, and of reports that will be applicable alike to all
federated institutions of the same class, whether acting
under National or State charters. ilbelieve that the proposed system of thorough examinations by local expert
examiners insures better results in the ascertainment of•
actual conditions than can now be obtained ththugh
either the National or the States requirements. The publicity- of condition secured by the required reports must
of
prove, as a basis . public confidence, a great advantage
to all well managed institutions. It is true that -many
, ,people do not now understand the technical details of
.ation is
bank reports, but when their frequent Piiblic
'
re'quired those specially interested. as stockholders or
depositors will in time be able to understand their siguificance,'and I believe we shall have through this publicity
one of the most effective guarantees of solvency in condition and wisdom in management that can be devised..
We do.not propose to attempt to change or interfere with
the business of these institutions authorized by State laws.




V.

7 RH

MONO. SEC.

As I have already stat
ed, one of the principal
defects of
our banking system
grows out of the artifi
cial and unscientific treatment of
reserves required by ou
r banking
* laws. There is univ
ersal agreement that
a portion of a
blink's assets must be
kcpt at all tunes in liq
uid form to
enable it to meet prompt
ly its demand obligatio
ns. With
us a certain percentage
of its liabilities are requ
ired to be
kept in actual cash and
another portion on depo
sit with
reserve agents.
In ordinary times with
drawals of balances are
equalized
by new deposits, but ba
nking institutions must
be prepared at all times to me
et exceptional demand
s, and all
well managed financial
institutions have a se
condary
reserve of commercial pa
per and other quick
investment
assets that should be re
adily convertible into
cash. In
this country we have had
but little serious disc
ussion with
reference to the proper ch
aracter and extent of
bank reserves. In other countr
ies reserves are regula
ted, both
as to character and exte
nt, by the judgment an
d custom
of managers of banks and
not by legislative provis
ions.
One trouble arises largel
y from the absurd limi
tation
prescribed by the nation
al banking law—a limita
tion that
has been generally foll
owed by legislation in th
e States—
that not only prevents a
bank from giving credit
or discounting the paper of its
customers, but forbids th
e use of
the reserve for the purpos
es for which it was create
d whenever and so long as the aggr
egate of cash and balanc
es falls
below the prescribed legal
percentage. The effect of
this
paralysis is disastrous in
times of stress. Not on
ly is
extension of relief to custom
ers prohibited, but no me
thod
is provided of protecting or
replenishing the reserves.
In every other commercial
nation deposits by joint
stock banks in a central ins
titution are held by cust
om to
be equivalent to a cash re
serve, and this balanc
e can
always be increased upon
reasonable demand by
redis- count of commercial paper
of a recognized standard
. In
other countries in times of
stress or anticipated tr
ouble
credit is liberally extended
to all solvent customer
s who
have the necessary collat
eral, and the reserves
of the
banks are freely used, prot
ected, and increased in
the
manner I have described.
You are all familiar with
our experience in 1907
.
Before and during the general
suspension individual ba
nks,
almost without exception, ou
tside of the great cities to
ok
every means to increase the am
ount of their cash reserv
es,
as they naturally believed thi
s course was necessary
for
self-preservation. This gene
ral increase in the reserves
of
the banks from the Atlantic to
the Pacific accentuated, if
it did not create, panicky cond
itions.
It is clear that in times of pres
sure the scattered cash
reserves in the possession of in
dividual banks are practically useless and ineffective
for any of the purposes for
which reserves are created.
We propose to remedy the defe
cts to which I have
alluded by providing that the ba
lance of any bank with
the Reserve Association shall be
counted as a part of its
legal reserve. To increase th
ese balances whenever
T1Precen
.,
•

•




casn
reserves in the possession of individual
banks are practically useless and ineffective for any of
the purposes for
which reserves are created.
We propose to remedy the defects to
which I have
alluded by providing that the balance of
any bank with
the Reserve Association shall be counted as
a part of its
legal reserve. To increase these bala
nces whenever
necessary, to protect and replenish these
reserves, the
Reserve Association may rediscount comm
ercial paper
for individual banks. Commercial paper, as
defined by
the plan, includes all notes and bills of exch
ange issued
or drawn for agricultural, industrial, or comm
ercial purposes, and not for carrying stocks, bonds, or othe
r investment securities.
Paper of this description having not more than
twentyeight days to run may be discounted for individu
al banks.
If having more than twenty-eight days and not
exceeding ninety days to run the rediscount may be mad
e for
individual banks with the guarantee of the local asso
ciation. But in times of panicky conditions or when
serious
trouble is anticipated the direet obligations of indi
vidual
banks, with the guarantee of the district association,
may
be discounted, secured by a pledge of undoubted coll
aterals. By this process the loaning power of the bank
for
whom the discounts were made is restored or increased
by
an increase of its balances available for reserve purposes
.
This will enable the banks of the country to adopt the
policy which has been successful in every instance for
half a century for the prevention of panics in the commercial nations of Europe. This policy contemplates the
liberal granting of credit by the banks in times of pressure
to every customer whose standing entitles him to receive
it. There is no suspension or paralysis of accommoda
tion to customers, but rates of discount are increase
d
sometimes to a very high figure.

• a— •—.AMY. elm

ker


Federal Reserve Bank of St. Louis, One Federal Reserve Bank Plaza, St. Louis, MO 63102