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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 c1 O—t 17 t z 4r) 4 Lir-t, 4 L - -11 ••• 4.) v 14 xf. Atdtet l ,4 IGic 7$ e.~%. 1 4.-• i-t) t . k 2a ---,7d1 3 C Cr- 6 3?:4 376 , Pie $IdrnngrnInLiruIdJdn glitifiljaftoltben 3allre 1900 II. Itialltrub echiter `Boltb. OgIbutarkt. girtbitbanken. `)flit eitniqn Veber, :qrnolb, ,Cecb t, etffericb, ernjt vo(1 biter i nht e Cr. eix r _ •,•••" ^ ,S7):1.1pp; C:ITO -Si-ENGLER, DIIIIECTs,J; Oa. 1 ". • Er New • 3'02 hird Ave, CLIPPING FRO(,'! ,OSTeN MONITOR ,1 4 1 L/ 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) • 1 t t ( 1 Jew 0 ); 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 • ic 0 4. *. 1 18 s, In te c.. ii •11 le Y, rto 'i1 ii itl 1- 41, 4 ••• 11 s, Ic Is 11 C. C. - ts te r NEVI) / 7 011 1( ? • Try e Want Ad DNITOR ? G TWO 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