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4444
,i)61,ratie
/
Am ES, EMER1CH & CO.
TELEPHONE RECTOR 24-02
5 NASSAU STREET
INVESTMENT SECU Rril ES
NEW YORK
CHICAGO-NEWYORK -MIL-WAUKEE
October 1, 1925
it!
enjamin
rong, Esq., Governor,
deral eserve Bank,
3 Lib ty Street,
New Y rk, N. Y.
De r Sir:
If possible, I would like to make
an appointment to see you for a few moments at
your convenience.
The purpose of my call will be to
extend through you an invitation to Dr. Schacht,
whom I understand is expected in this country
next week.
Will you kindly let me know what
hour would be most convenient for you?
Very truly yours, .
RSB:J4
'
/
r;
TELEPHONES
li01.131t0 MC C 01{Elr &
imp CORTLANOT
C
DEALERS IN COMMERCIAL EXPEL/
31 NASSAU ST.
NEW YORK
THE ROOKERY
CHICAGO
SO CONGRESS ST.
BOSTON
..HOLSROOK
EDW'
CLA
,CE T COREY
EDWARD D. PAGE
NEWYORIK August 21st, 1914.
Yr. F. N. B. Close, Vice Pres't,
73v2 1914
BB-ED TO
AUG
Bankers Trust Company,
'OFFICE ,?f
New York City.
Dear Sir:-
Confirming the writer's conversation of
this afternoon, we would say that our sales of Com-
mercial Paper for the month of July were 63 7/100 %
of our maturities, and our sales, from August 1st to
and including the 21st are slightly in excess of 14%
of the amount of maturities through our office thus
far this month, with a fairly large volume of maturities for the remaining ten. days of August.
This is
not the season of the year, as stated to you, when
Merchants liquidate, depending on their receipts which
came in later
in
the year to do so.
Yours very truly,
CTC -G.
-
),V..e 016
.vi
-/i
CABLE ADDRESS: SABA NEW YORK
CHICAGO CORRESPONDENT
HARRI S,FORBE S & COMPANY
HARRIS TRUST AND SAVINGS RANK
PINE STREET COR.WILLTAIVI
BOSTON CORRESPONDENT
N. W. HARRIS sc co.. (xNe.)
NEWYORK
August 21, 1914.
Attention Mr. Mott
Bankers Trust Company,
16 Wall St., Y. Y. City.
-
Gentlemen:
Referring to your request for information
in regard to the amount of maturing Municipal Bonds
between now and including the first of January, we
wish to say that we have, after careful consideration,
found no method by which we can ascertain this information in anythinr- like accurate form, but we are pre-
senting for your consideration figures which, for the
reasons as explained verbally by the writer to /Ir.
Mott, we believe are as-comprehensive as anything
which can be compiled on short notice.
If we can be of any further service we will
be pleased to have you call upon us.
Very truly yo rs,
HPB-T
Endl
PER.
VVT rTNANCING OF STATES, COUNTIES AND
ALITIES WITEPT TERRITORIAL
LIYITS OF THF UNITED STATES
1904
Chronicle
t250,754,946
1905
185,060,025
197,719,077
1906
201,743,346
301,
1907
227,643,Z08
301,048,503
1906
515,797,549
1909
559,440i60
355,364,466
363,630,786
1910
324,360,955
1912
3ao,w8,181
596,859,646
386,551,828
1913
403,246,518
406,477,402
$3,023,137,605
$5,389,657,358
1911
Boni Buyer
t286,708,269
3,O1
454,115,716
599,046,083
t.91.
'0711.31''t(176
44!
I ff7-47433-9-k to-eik
WI,
2_4
1/49
-
'TJ-4-vdL-c
BONDS MATURING SEPT.
L, 19L4 to JAN. 1, 1915 INCLUS-
IVE, OF STATES, COUNTIES AND MUNICIPALITIES 71ITHIN THE TERRITORIAL LIMITS OF THE UNITED STATES
FROM STATE & CITY SUPPLEMENT OF.THE COMMERCIAL & FINANCIAL CHRONICLE FOR MAY 30,
1914.
(N.B.)
It is estimated
that
one-third of the
municipalities which have bonded indebtedness are listed in
this issue of the Chronicle; but the total debt shown is
probably 60% of the total outstanding indebtedness of all
states and municipalities in the United States. Most of
the small municipalities for many years past have been issuing serial bonds, which are retired oit of annual. tax revenues.
Counties and
Municipalities
Alabama
4118,000
Arizona
38,500
Arkansas
151,000
California
Colorado
State
No Sinking Fund
Serial
1,219,980
ALL Serial
Straight Sinking
172,400
Fund
Connecticut
457,693
Delaware
64,000
Florida
74,920
Georgia
237,440
W
tl
0100,000
Illinois
Serial
5,295,000
(Chicago p1,711,000)
Indiana
485,000
Iowa
465,000
Kansas
519,000
Serial and Sinking Fund
Sinking Fund
65,240
Idaho
W
500,000
Straight Sinking
Fund
Serial
Serial and
ing Fund
Sink-
Counties and
MunicipaLities
Kentucky
100,000
Maine
153,400
Michigstn
550,000
Minnesota
659,000
Mississippi
170,840
Missouri
166,030
Montana
72,320
Nevftda
fund.
07,800
41,000
5,666,000
Massachusetts
(Boston 02 ,145,000)
Netraska
Straight sinking
0148,000
Louisiana
Maryland
State
Fund.
525,000
Fund.
Serial and Sinking
Fund.
Straight Sinking
Fund.
Serial.
Straight Sinking
Fund.
New Jersey
899,860
Ti
105,180,000
(New York City 0102,000,000)
Ok1ahoma
282,000
91,980
If
U
Serial and
New Mexico
New York
Ohio
TI
?V
TT
57,000
272,000
North Dakota
Both.
Straight Sinking
195,500
New Hampshire
North Carolina
Mostly Serial.
Straight.
"
Serie1 and Sinking
Ti
TV
it
It
"
*
Straight Sinking
Fund.
SeriaL and Sinking
Fund,
3,061,320
327,591
SeriaL and Sinking
Fund.
Counties and
MTEITIFailTigs
O
Oregon
State
§ 96,152
Straight Sinking
Fund.
3,894,000
Mostly Serial.
Straight Sinking
t)
Pennsylvania
Rhode Island
South Carolina
South Dakota
52,800
1.33,900
Serial and Sinking
Fund.
47,500
Tennessee
717,000
Texas
757,630
Utah
Fund.
It
/, 400, ono.
IT
Mostly Sinking Fund.
Serial and
Sinking
Fund.
32,400
Straight Sinking
Fund.
Vermont
74,000
Virginia
959,000
Mostly
Washington
509,000
Serial and Sinking
Fund.
West Virginia
tisconsin
Wyoming
TT
TT
Straight Sink
ing Fund.
85,000
TT
TT
IT
Mostly Serial.
407,000
62,900
Straight Sinking
Fund.
TOTAL
GRAND TOTAL
p135,285,286
t2432,800
$133,018,086
* New York City - Of this amount $82,000,000 are due on or
before January 1, 1913 'being Revenue Warrants.
The Oity has $5,000,000 in cash on hand towards
paying off the above. The remaining t77,000,000
are payable out of the taxes which have teen
anticipated.
Of
the $102,000,000425,000,000
Is issued in the form of short-time notes
in anticipation of the sale of long-time
corporate stock.
c)
Cl
RWR
August 21, 1914.
June 13, 1921.
PERSONAL
My dear Mr. Forbes:
We have only within the last few weeks been able to conclude the
final accounting of the expenses of the various Liberty Loans, and determine
to what extent, if any, expenditures made by the organization could not be
reimbursed by the Treasury under existing law, or rules of the Department.
We find that the total amount of such items that cannot be reimbursed is
$2,535.97.
Of this sum, the Federal Reserve Bank is able to absorb 0,229.74.
The remainder, $306.23, I have paid personally.
The Liberty Lean Committee passed a resolution, agreeing personally
te assume certain charges, up to a limited amount, which as I recall was ;1,00401.
If the members of the committee care to pay their respective shares of this sum,
the amount of each committeeman's proportion will be 03.55.
Had these operations been conducted since the passage of the Volstead
Act, it would not have been necessary to ask the committee to make any contribu-
tion.
Yours very truly,
Allen B. Forbes, Esq.,
58 William St.,
New York, N. Y.
BS : MM
HARR I S,FORBE s
BOSTON C ORRESP ONDEN T
COMPANY
MARRS El, FORMS S
CRICA-C 0 CORRESPONDENT
Se COMPANY
FINE s TREE T C Oit WILLIASI
11A-1211IS TRUST AND SAVINGS BAN.
NEwYoux
June 14, 1921.
Benjamin Strong, F.sq.,
federal Reserve Bank of New York,
2quitab1e Bldg.,
.I.City.
JUN 1 5 1921
Li dear Ben:-
I have your letter of the 13th inst. in regard to the deficit of the Liberty Loan Committee Fund and
take pleasure in enclosing my check for U3.55, my share
of the amount.
I note with reminiscent interest your pathetic
last paragraph but cannot,afteli all, feel
the Act to which you refer was not in force during the
strenuous days of that campaign.
regretful that
Very truly yours).
AB'
(ID:C.
Jur. 15, 19.
dear Mr. Forbes
tbk,ak you l'or the remitLnce of 4',V5.55
eaalosed in your favor of June T7.
Yours vary truly,
Ilan B. F:)rbel, Esq.,
St.,
El t1Ii
New York, N. Y.
C.
(6%, ag,0
/
,5:117,a7/%4Kee<CY"-ee4
August 24-1914.
E 1475.
Mt. B. Strong, V.Pres.,
Bankers Trust Co.,
New York City.
,AUG 2 5 1914'
REFERRED TO
OFFICE
Dear Mr. Strong:
Referring to the memorandum sent us
by your institution in regard to paper that we have
outstanding our recent sales and so forth, we are
very pleased to advise you that the amount of paper
maturing with us from July 28th to August 14th inclusive represented slightly under 14 percent of the
total amount outstanding on our books, unmatured at
that period.
#
Our sales for the same period represented
about twnety percent of our normal volume, but it is interesting to note that the orders secured are daily increasing in volume, and cover a broader territory.
Of course, this business is being done
principally with small interior country banks in all
sections of the country. Of our total outstandings,
unmatured, less than seven percent of the maturities
are after January 1, 1915.
In regard to the total amount now outstanding unmatured, we prefer not to give you this
information, but are very pleased to furnish you the
foregoing, which we think will answer your purposes.
With best wishes, we are
Very truly yours,
Dictated by
W.G.Heath
UK
AUG F`,7
PIA
fr
oetta--0.v
E. NAUMBURG & CO.
BANKERS
0 STON
H ICA GO
PH ILAD E LPH IA
HARTFORD
14 WALL ST,
NEW YORK
Aug. 21, 1914.
F. N. B. Close,Esq. Vice Pres.)
Bankers Trust Co.,
E.Y.City
Dear
air:
In accordance with your telephonic conversation with
the writer this morning, we are enclosing you herewith the slip
which you were kind enough to send us, and which you assured us
would be considered absolutely confidential and that our name
would not in any way be disclosed as having supplied the figures
in question.
You asked us in case we had any suggestions ,bearing
upon the situation,to write you our views.
Some of this data
the writer gave you through the telephone, but we can say in
addition that in 1907 the situation was improved in the first
place by the fact that Mr. James T. Wbbdward, President of the
Hanover National Bank started the ball rolling by buying a
little paper from the various brokers at high rates,
Then some
of the other banks in this city and elsewhere followed suit, and
the situation was relieved.
appears that Mr. Woodward
Thus
was a public benefactor, and we think now that if a few of the
New York banks and trust companies: would buy a limited amount of
paper from the various brokers at whatever they considered the
proper rate, and this fact was duly advertised through the
salesmen of the various brokerage house8 throughout the country,
then the country banks would follow suit, and the money stringency
would be greatly relieved.
it
endeavor,
Wishing you success in your more than praiseworthy
believe us,to be,
Yours
V1WN/
very truly)
'
tel,4i,ee,e'
HATHAWAY, SM ITH , FOLD S
CHARLES HATHAWAY,
HOWARD C. SMITH ,
CHARLES W. FOLDS.
CO.
NEW YORK,
45 WALL SI-.
COMMERCIAL PAPER
-./UR B.HOLDEN,
_,RREST RAYNOR,
BOSTON.
60 CONGRESS ST.
CH I CAGO.
137 SOUTH LASALLE ST.
ST. LOUIS.
408 OLIVE ST.
STEWART S. HATHAWAY,
PH I LADE LP H IA.
45 WALL STREET
ROBT B.WOODWARD.
SPECIAL.
421 CHESTNUT ST.
PITTSBURGH,
FIRST NATL.BANK BUILDING.
SAN FRANCISCO.
NEWYORK, October 5, 1914.
HCS.J.
eL
IC.
e_
Lr. Benjamin Strong, Jr.,
OCT - 7 1914
C/0 Bankers Trust Company,
New York City.
Dear ben:
I have been meaning to send you copy of a letter I recalved a couple of weeks ago, but delayed doing so. In your
figuring on the banking situation the enclosed may be of interest
to you.
Yours very truly,
a
FIRST NATL BANK BUILDING.
Copy Extract of Letter
from Mr. Geo. E. Hume, Tr
urer
American Central Life Insurance Company
-Indianapolis, Indiana.
September 10, 1914.
"While I was in Chicago, I had some
talks with bankers there, who seemed somewhat discouraged because of the steady withdrawals of country
bank deposits.since the war.
One Banker told
me that he had lost over Six Million Dollars ($6,000,000.)
of this class of deposits, much of which had gone into
increased reserves in country banks and into payrolls
paid out to banks through their correspondents in Cities
like Cleveland and Detroit, and that very little of these
payrolls had found their way back into the banks.
In other words, that small hordings were sapping the
reserves in the larger banks, making the financing of
any considerable enterprises diffiqult, if not impossible.
We propose within the next ninety days to increase our
deposits in Chicago and elsewhere, considerably, with the
thought of counteracting this withdrawal insofar as we are
able."
QueAAL?,
HATHAWAY, SMITII, FOLDS & CO.
CHARLES HATHAWAY.
HOWARD C. SNI ITH
LES W FO LD S ,
CF
Al
UN B.HOLDEN,
COMMERCIAL PAPER
FORREST RAYNOR,
STEWART S. HATHAWAY,
A prirWA LL STREET
ROST B.WOODWARD,
SPECIAL.
NEW ,YsOn IL_
Sr.
BOSTON.
60 CONGRESS Si.
CHICAGO,
137 SOUTH LA SAU-E ST
ST. LOUIS,
408 OLIVE Si.
PHILADELPHIA.
421 CHESTN UT ST.
PITTSBURG,
FIRST NATL.BANH BUILDING.
4*
HCB.J.
SAN FRANCISCO.
NEWYORK
FIRST NATI_ BANK BUILDING.
,
October 15, 1914.
OCT 16 1914
Mr. Benjamin Strong, Jr.,
C/O Bankers Trust Company,
New York City.
My dear Ben:
Referring
to my brief on the standardization of commercial
paper and the rediscount market which I gave you some time ago, I
showed my memorandum to one of our brightest salesmen and received
a reply from nim commending it very strongly but expressing surprise
that I do not recommend the registration of paper. I am now enclosing
for your sight a copy of my reply to him on this subject, which may
interest you personally.
I know that my views are rather different from those entertained by the Bankers and other Trust Companies and it is in no sense
an attitude of unfriendliness but I am trying to analyze what the
borrowers and the loaners would really get out of registration and it
seems to me that the balance of argument is against it as the enclosed
letter will indicate
to you.
Yours very truly,
October 16, 1914.
L. A. Eddy, Jr.,
Syracuse, New York.
Dear Eddy:
Your letter of the 12th reached mis duly and in reply would say
that 1 have not been particularly enthusiastic over the registration of
paper. The only advantage that I can discover from such registration
would be the closing of one door to the rascal who endeavors to make a
secret issue Gf paper, while many other doors are left open. On the
other hand, there are numerous physical and other difficulties which
would result from the registration of paper *hien, to my mind, would
more than counterbalance any advantage thus arising.
Physically, if every note that was sold had to go to a registering office in a large city before it went into the hands of the
broker or the bunk, a certain amount of time would elapse, and if at
a subsequent date there was occasion to change the denominations or
marurities of any such notes, the necessary readjustmentsand:corrections
of record that would follow und the consequent delay would seriously
interfere with the progress of trade. The cost of such labor would,
of course, by an additional burden on the borrower from which he weld
receive no commensurate return, and in fact the whole thing as far as
labor is concerned, would produce nothing beyond the verification of
one single item on a statement; leaving all other* still °ken.
From a credit poiet of view,- you know country bankers well
enough to know that if the record of the debt of a concern was at all
times open to the knowledge of the world, this knowledge would be abused
by competitors and in the case of a business that had large fluctuations
between its high and low points of borrowing, would be the cause of undue fear and trepidation on the part of those bankers not fully cognisant with the business and its ability to liquidate, and thus improperly
restrict a credit. If the amount of paper registered were not made public there certainly would be nothing to ba gained by the registration.
106/14.
MR. L. A. EDDY, Jr.,
-2it Wit3 purely to avoid such abuses on one side and troubles on the other
that I devised the idea of having a standard form which should be certified to by an accountant without his making public the actual figuros
beyond the annual statement. I believe that the outline which I gave
you would cover all the advantages which could be secured by the regis-
tration of paper.
As to the other part of your letter, If you feel that a larger
amount than 25;=: of the paper now standing would meet the strenuous qual-
ifications that are laid down, you pay a very gratifyingly high trib-
ute to the conservative financial methods of the American business MOM
hope you are right and to whatever extent you may be able to verify
your statement I shall be most happy to know.
1 will gladly talk with you again when opportunity offers.
Yours very truly,
REQUIREMENTS FOR
STAMMIMME
COMMERCIAL PAPER.
In developing requirements
for a standard grade, we must
recognize that the requirements must vary with the different lines of
business, and it would probably be necessary to classtft them under
heads somewhat as follows:
Manufacturers,
Jobbers, Retailers, Refiners, Importers or
Commission Merchants, Warehousemen and Cotton Factors, Tanners and Manufact
urers of Chemdcals, Textile
Manufacturers, and others.
In order however to
indicate what
I mean
by Standard Requirements,
I will select only one class, namely, the average wholesale merchant or jobber,
and follow that through in a rough way without attempting to develop all
the
details.
Form of Note.
The note is in the usual fora now known in this country, drawn to
the order of the maker and endorsed in blank, payable at
a specific
time (not
over seven months) and at a specific place.
It shall bear a certification on the and signed by a Certified Public
Accountant, to read somewhat as follows:
ne
the
certify
that on the dote of our
required standard A was complied
examination"...
with in all respects.
(Signed)
Certified Public Accountants."
Items of Standardisation.
There is open for the inspection of
(not over fifteen
months old) accompanied
or the home office of the
nature of the business.
buyers a certified
balance sheet
with the home State of Incorporation
firm, the Officers and Directors
or
Partners, and the
REQUIREMENTS FOR STANDARD GRADE
In developing requirements for a
standard grade, we must
recognise that the requirements must wary with the different lines
of
business, and it would probably be nesessary to classify them under
heads somewhat as follows:
Manufacturers, Jobbers, Retailers, Refiners, Importers or
Commission Merchants, Warehousemen and Cotton Factors, Tanners and Manufact..
urers of Chemicals, Textile hanufacturer,
In order
I will
,nd others.
however to indicate what I moan by Standard
Requirements,
select only one class, namely, the average wholesale merchant
or jobber,
and follow that through in a rough way without attempting to develop all the
details.
lajcp_ALEsia.
Thu note is in the
64141
usual form now known in this
order of the maker and endorsed in
over seven months) and at
It shall
a
blank, payable
country, drawn to
at a
specific time (not
specific place.
bear a certification on
the end signed by a Certified Public
Accountant, to read somewhat as follows:
ne
certify that on the dote of our examinatione.
the required standard A was complied with in all respects.
(Signed)
Certified Public Accountants."
There is open for
(not
over
the inspection
of buyers a certified balance sheet
fifteen months old) accompanied with the home State of Incorporation
or the home office of the firm, the Officers and Directors or Partners, and the
nature of the
business.
In giving his certificate, the Accountant shall cover the
following items, but is not required to make them public.
Relation of notes and open accounts payable to cash
and accounts receivable; or
Average monthly maturities against average monthly
collections.
As to prier liens.
Net assets to total debts.
Average earnings.
Average dividends or withdrawals of partners.
Bank accomodations.
Merchandise notes outstanding.
Insurance.
Contingent liabilities.
AOscriotion of Above Items.
The amount of notes payable plus accounts payable does not
exceed the cash balances and accounts receivable for goods sold and not
past due and maturing within six months plus 25% of the merchandise account.
The average monthly maturities of notes and accounts payable
does not exceed 60% ef the average monthly collections for the past twelve
months, the balance of the 40% being allowed for interest and running,expenses.
There is no claim holding a prior lien over and above the
notes of this issue.
The total net assets of the sentient are not less than 120%
of the total indebtedness excluding any mortgage on realty owned directly by
the concern, which mortgage does not *waved 60% of a conservative appraised
value made within two years.
Average earnings over a period of three years are not
lass than 8% per annum on the-average net value of the business, excluding any value of good will or patents.
Cash dividends of a corporation or cash withdrawals of
a partnership do not exceed thit net earnings of
the
business figured on
a three year period, except that a special dividend or special withdrawals
may have been paid out of the surplus, provided the above standards of
assets to debts are still maintained.
The borrower is to establish agreed bank credits at its
own bunko of discount, for a
total amount not lees than 70% of the total
current note indebtedness plus merchandise bills over 30 days old, the
amount ti
Oa--
figured on the total average indebtedness of
the previous
year.
NO
notes given in payment of merchandise accounts are
outstanding against
the
concern.
Acceptances for foreign purchases
however are not to be included in this category.
Insurance up to 80% of the fair ownermhip value of merchandt
Ise and real estate is carried, unless the concern has developed an
insurance
fund of its own equal to 150% of the reserve required of Insurance Compantes
Under the laws of the State of New York.
Contingent liability, if any, is recorded and does not
exceed 75% of the surplus current revolving assets in excess of current debts,
but if the
current debts are less than the standard called for under No. 1,
the contingent liability is increased by that
difference.
The unmatured life of the note does not exceed *even
months.
Certified Public Accountant.
The Clearing Houses of the Reserve and Central
Reserve Cities shall prepare a list of Certified Public Accountants
acceptable to them, and the certificate is to be made by one of those
=mug in the list.
The object of the above is to establish a standard of
paper that can liquidate itself to a mecterate liquidation of business in
-
normal Or ordinarily strenuous times.
In short, paper conforming te such a standard represents the
financing of goods in trade as truthfully as English Acooptances, theingh
the trade is not written on the face of the note.
Ead any .such standard been applied to the Clailin paper in the
past, the Condition of that business must have been known.
I do not believe that the requirement of publicity so called
for, would involve the revelation of the proper secrets of the business
or open them to unfair competition.
Should all the information which the Accountant is to certify
to be made public, then a serious danger of this nature might follow, and it
Is for this reason that I have suggested that the Acoountant only certify
that the requirements are fulfilled.
It may be suggested that these requirements would not be sufficient
to make a concern independent of banks and unimpeachable
as to its credits
under conditions as they exist to-day, but I take it that no standard cats.
possibly be evolved that may not fall in times of social or political
cataclasm.
4111,...11
These ideas make no pretense of being final or complete,
are only given to indicate lines which might be followed up.
Careful study and consultation is essential to make them complete,
and safe.
Preliminary suggestions for the development
of a rediscount market in the United States,
applicable to existing_hElIntylapnditions.
Seitfimber 3 1914.
In studying the question of developing a general re-
discount market
in the United States for the purpose of
producing individual flexibility in banks, similar in results
to those of the London discount market,
certain facts and
conditions must be borne in mind.
First we must accept the fact,as you have very properlf
said,that development must be along natural lines and experience
can only serve to guide and
We cannot hope to tear down existing
and then build
and adapt the
cousins have
natural developments.
established business methods
safeguard these
We must unify
entirely new to suit our ideals.
old.
It is accepted for granted
worked out
the
that our British
most efficaoious system of credit
discounts and reserves and we should study them. to properly
determine what is
best.
Let us first note the fundamental differences that
exist,and must continue to exist for some time to come, between
the English and American Markets:
let.
The number of joint stock banks generally doing
business with the Bank of England are very few
in
number (twelve
I believe) and are all large units with branches.
The numbe:r of banks that can discount with our new Reserve
large,exceeding 5,000, and of all sizes with
probably 84 of the whole with deposits of under 01,060,000.
The management of the English banks is compact and close; the
management of the American banks is disjointed and individual
Bank is very
and scattered over vast territories with varying interests.
2.
2nd. On the Bide of the borrowers as merchants and
manufacturers probably more than 75% of the englishmen's
business is foreign to their shore.
With the exception
of food stuffs and cotton probably more than 75% of the
American business is within our awn shores.
3rd. Therefore the basis of English discounts acceptances - is mostly foreign, while the basis of American
discounts is mainly domestic.
It may be asked; Why not
get our American merchants on an acceptance basis as in England?
The answer to this is that you cannot do this until you abolish
the custom of allowing discounts for prompt cash payments and
the abolition of that would not be advisable in a country
growing like ours where the bigger and more stable merchants
must use just such methods of controlling their weaker and
younger customers in growing communities.
Furthermore the
interjection of a bank or banks between buyer and seller
which must follow an acceptance scheme would seriously weaken
present relations of a nature to the disadvantage of both.
4th. The basis of English credits is the standing
of the accepting house located in London, the origibal borrower
does not count in the banking world.
The basis of the
American credit is the standing and demonstrated ability of the
individual merchant or manufacturer.
In England single name credit does not extend beyond the
borrowers own bank.
In the United States the individual credit
is very broad.
5th. In England mercantile credits are obtained through
bills representing sales of merchandise generally accepted for
a commission and gathered together by running brokers and by
them sold to bill brokers and discount houses, and from them
perhaps sold again to the joint stock banks who deal with the
Bank of England.
Under certain conditions the discount
houses may deal direct with the Bank of England,
3.
Every change of ownership in a bill involves a new endorsement, each endorser being careful to limit the amount of his
endorsement of any one name as well as the total sum of his
In the United States credits are obtained
endorsements.
by means of straight promissory notes which on their face show no
sale of merchandise but which in fact are i4arge majority of
cases less in amount than the sum of ninety days'
purchases plus
ninety days' sales, which might be outstanding under the
English
system.
6th. As to the question of risk to the bankers:
acquainted
I am not
with the losses in England and the percentage they
average amount outstanding, but if rumor
and newspaper reports are correct they are at least occasional.
beer annually to the
In the United States I can fairly say that in twenty years'
experience in dealing in single named credits I have known but
one failure that VMS not cp-used by some form of dishonesty or
misrepresentation, and. the loss on that one failure
As to the dishonest borrowers they
form a very
of the whole and while the average
annual
was only 3 1/2% .
infinitesimal part
percentage of loss
against average annual outstandings is substantially impossible
to determine exactly, I think it does not equal one mill on one
dollar.
I take it that the average british
manufacturer is
merchant and
no more honest than our American of like standing
and therefore I am willing to claim from the
point of view of risk
there is substantially no difference.
Location of the consumers of discounts
7th.
countries:
te
have seen that
in the two
in England with its system of joint
stock banks and branches the large sums of cash and therefore the
discounts all
accumulated
in London, substantially in one place.
In America the consumers of commercial paper
are scattered all
4.
over the country in small units, namely,the small
country banks
and in large city banks. I should say there are between 2500
In times of easy money the smaller country
and 3000 buyers.
banks send their money to the city institutions and take 2%
on balances and at these times most of the buying is by city
institutions.
country man then
When money rates run from 4 1/2% and upward the
withdraws his balances and invests in paper at
a satisfactory rate and the city institutions allow their holdings
to mature..
The question of the collection and distribution of these bills
comparatively simpl in London because of the small area and the
4kis
small number of buyers, tho' the regulation of the volume is the
.:*esult of a
very delicate machinery, resulting
from a combination
of the bank rate and the call rate and exchange sandthe bill broker
is the instrument. through whom regulation is affected.
In the United States there is noproper regulation of volume
because the buying forces are so widely scattered with divergent int
The american notebroker is the only pipe line or go
i;erests.
Jetween to carry money from where it acoumulates to where it is
::eeded.
The English bill broker
by endorsement
guarantees the note
he sells and consequently limits the amount he can take of any one
name not hesitating to divide the account with other brokers.
The American does not guarantee his sales and is therefore in a
.)osition to control the entire output of a given name in a given
market, omitting only discounts at a ooncerns own banks, and he can
therefore follow closely the operations of the borrower and if he
receives cooperation from the concern's banks of deposit he can pla
an important part in safeguarding the financial interests of hi4
client.
The large city banks have in recent years learned the advant
this cooperation, but unfortunately it is not as general as it
should be.
5.
Another point of difference between England and the United
States is that when the English
bank wants to increase its
cash holdings it can either sell some part of its portfolio to 4
bill broker
with its endorsement or rediscount with
England.
Such a bank also generally has made call loans to bill
the Bank of
the final operation however in the
event of the broker not getting call money elsewhere is the same
as the first, viz: rediscount in the Bank of England.
One point must be borne in mind,England by her variation in th,
brokers and it may call these,
discount rata combined with
her
international exchange regulates the
flow of gold to and from her borders.
Unless we develop this
country as a center of international exchange we cannot hope to
4cyptc d c,cv, o4Lou
SC4
regulate the general
rate.
currency
reserve:,\by means of a
discount market
What we can do however by such a market is to throw
material influences
against
the
hoarding of currency in
the small
100 al banks. t40:4604c4-47
4eitcLuq-e-- caatV'ziail
elst(04
414s, gt*eee flexibility to the English money market,
both time and call,whioh is the crying need of our American system,
the United States, when a bank has once bought paper it
usually has no market for resale and cannot count on getting the
proceeds before maturity of the note.
In a few exceptional
cases the stronger note brokers have been known to buy back paper
from a bank without endorsement, but that is only in exceptional
cases and never in times of generally tight money.
Without discussing the pros and cons of acoeptancesfrs:
single named
paper which should be dealt
with
separately, let us
see what is the logical and natural way to develop a general
discount market and the first point of discussion is whether or
not an endorsement on eaoh change of ownership is essential to
suoh a market.
If we were to undertake to build up a discount
market on the endorsement plan it means that we must first create
e considerable number of incorporated discount houses, each with
a high quality
large capital whose endorsement must be of such
that it must be accepted as substantially perfect by all
the
6.
smaller country banks throughout the country as well as in the
big cities.
Accepting the English theory that a guaranteeing or endorsing
house may safely endorse tih times its capital if properly
distributed and figuring that the "bought paper" in the United
States amounts to 1,000 millions, this would involve a new capital
investment of 100 millions in such corporations. This would
also result in the general disappearance of the wonderful single
named credit of our manufacturing and commercial institutions and
Its replacement by the credit of these new institutions.
The control of the whole credit of our commercial houses
would then fall into the control of the few large endorsing
If on the other hand we take the present
organizations.
American system with some
modifications,the machinery for a
discount market already exists just as soon as our reserve bgnks
begin to operate.'
The note
broker is present to handle the trading back and
forth that a discount market calls for.
All that is needed is
a certain standardization of quality in paper to make it open for
pediscount in an open discount market.
in either of two ways:
This can be accomplished
lst, by the establishing of certain qualifications on the
part of the maker which would insure a good note, accompanied
by a certificate from a proper authority that the qualifications
had been fulfilled.
2nd. By the endorsement of the bank originally purchasing the
note.
I have not before me the new law but my recollection is that
the limitation imposea by the law on amount of endorsement of any
one bank is sufficient to assure the payment even of a bad note
by the endorsing bank.
7.
-
As to the qualifications of the maker I think this can
be readily
established.
A year ago I made a
study of developing
qualifications in paper to insure a safe investment for savings
banks of New York State in this class of security.
I mean thereby
qualifications which if adhered to would make the paper good
without relying upon the judgment of the bank officer making
the purchase.
I do not suggest that paper failing in one or
more of these qualifications is necessarily unsafe or risky or
that all safe paper will fulfill these standards, but simply that
any paper which does fulfill these standard requirements must'
necessarily be safe.
For your guidance I am appending a list of qualifications
I suggest and I am of the opinion that 25% of the paper now outstanding is capable of meeting them.
As to the other good and
sound paper that by the nature of its business could not fulfill
these standards and would be to an extent subject to the judgment
of a banker, that could be covered into the rediscount market by the
endorsement of the
purchasing bank.
The whole of this scheme does not attempt to go beyond the
region of that class of paper whicli is supposed to be the most
risky,namely: single named uncollateralized notes.
Definite classes of colleteralized paper could be added to the
rediscount standards which would broaden the field of operations,
but in developing this,further study on my part is necessaryAnother calss of proper per for rediscount should be acceptances
arising out of foreign transactions which it is hoped the new law
will develop, provided of course proper safeguards are thrown
around these
In fact this whole sketch make no pretense at completeness
or finality.
-
8.
I have prepared it rather hurriedly to give you a suggestion
of natural lines that I believe could be safely followed.
The whole scheme should be submitted to rigid scrutiny from
various points of view and then revised and tuned up as weaknesses
This is only the opening overture, but I am prepared
develop.
at any time to take up and discuss the details from the point of
view of one who has handled single named paper for a period of
years.
The great problem is how to keep the innumerable small country
banks from hoarding their money in times of stress and thus
increasing the pressure in the big cities. I think the method
outlined will tend to do that without upsetting and diminishing
the rational and safe borrowing power and credit of our sound indus-
trial institutions.
64-
BOSTON C OAHE SPONDEE,
HARRIS , FORBE s & COMPANY
ILARRIS,POHSES
PINE STREET C OR -WILLIAM
coatTtaxs- (nsrc.)
CHICAGO CORR E SPORDENT
1TARAT. TRUST AND RAVINGS RANK
NnwYouK
LLOYD W. SMITH, PRE SIDKNT
October 23, 1925.
My dear Governor Strong:-
hen I glanced around
the table last night and noted the comparatively
few bond men present among the many bank men, I
could not help but feel that you had paid the
house of Harris, Forbes & Company quite a marked
compliment in the invitation which you had extended to me to be present.
On behalf of Harris, Forbes & Company, I
wish to express our appreciation of being permitted
to hear the general discussion and to get a little
more clearly in mind the first-hand information in
Germany with regard to their financial situation.
Sincerely,
Benjamin Strong, Esquire,
Governor,
Federal Reserve Bank,
New York, N. Y.
OFFICE-
30VEM0R'S
RECEIVED
V.,1 23 n2,5
2
,2;
roy
7t.-OFN"-L
Octobt,r 26, 19Z5.
Deer Mr. Stewart:
4r. Case haa handed me your note of this date.
There ia nothing that I cen write you t once in
reply except to aey that Dr. :Ichacht is himself ewniting some
word from Germany in reply to his cables, of which you will be
promptly advised.
I beg
7-,o
reoftin,
Very Lruly yours,
John 11. Stewart,
q/o Mesors. Hembleton
Co.,
45 TAchange Pince, New York.
K.LS
50,-2,25
0 CABLE ADDRESS "HAM BLETON"
LI EB ER'S }.CODES.
-VS6,57
W. U. T E L.
BALTIMORE
NEW YORK
io so.CALVERT ST.
43 EXCHANGE PLACE
zettlY t_°?1
October 27th, 1925.
Benjamin Strong, Esq., Governor,
Federal Reserve Dank,
33 Liberty Street,
New York, N. Y.
Dear Ir. Strong:
I thank you for your note of
October 26th, and note that you! will .vise us
as promptly as possible when Dr. Schacht has
had adv ices from Germany.
Thanking you for your courtesy,
I cm
Very ruly yours,
-141
31
G
.11
4,)
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////41
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CABLE ADDRESSES
WILLIAM P. BON BRIGHT & CO.,
LtJN DON
NEW YORK
LONDON
INC0NPORATED.
PHI LADELPHIA
BOSTON
BONBRIGHT
1 4 WALL STREET
PHILADELPHIA
BOSTON
DETROIT
DETROIT
NEW YORK
Benjamin Strong, Jr., Esq.,
16 Wall St.,
New York City.
J412 1
January 19, 1914.
1913
My dear Ben:
I enclose herewith a letter from Howard Rcdgers, who
wrote our comparisOn of the Federal Reserve Act, which we sent
out in bulletin form and copy of which I enclose herewith in
case you have not seen it.
I think, well put together.
think of the enclosed.
at your convenience.
It is exceedingly instructive and,
I would like to know what you
Run through,it and give me your comments
This fellow Rodgers is a cousin of Star
Childs, and he is a good deal of a student and sometimes shows a
good deal of foresight.
Yours very truly,
FCW*A*1
Enc.
3.
SINGLE SERVICE PACKAGE CORPORATION OF AMERICA
71 BROADWAY
NEW YORK
WI)
,
?ALL
7tZ4.,t
,e. Z
ZZtace,
,
ft,
767 //
71, y,
TANGO OR CONTANGO?
Under the Federal Reserve Act most of the National. Banks in the
Reserve and Central Reserve Cities must dance, whether they like it or not.
They,face the loss of all their reserve deposits amounting to several hundred millions, and must contribute also to the capital for the Federal
Reserve Banks.
On the other hand to remain outside of the system involves
an appalling loss in the value of Government Bonds held to secure circulation.
These banks must decide before February 21st, 191 ,otherwise they
may lose their present reserve deposits thirty days thereafter.
The country banks, having no reserve deposits to lose may perhaps
take the full year to decide whether they will join the system.
give some opportunity to obserlire its workings.
This will
It may possibly be costly
for these latter banks to delay in settling the question.
some business and may antagonize public sentiment.
They may lose
The State Banks and
Trust Companies, however, have a reasonable excuse for postponing action.
The laws of several States, for instance, New York and Iowa, must be first
amended in order to permit their banking institutions to hold stock in the
Federal Reserve Banks.
The Banks should carefully note that after a sufficient number have'
entered the system it will be perfectly simple and easy to amend the law so
that they cannot get out.
For this the National Bank Act affords a prece-
dent where it provides that the Banks can take out new circulation freely,
but cannot retire same to exceed in aggregate 0,000,000.00. per month for all
the banks in the country.
In a corresponding manner the amount of capital
that can in future be retired from the Federal Reserve Banks may be limited
to a negligible figure.
Having reached this stage another two line amendment may permit the
Reserve Banks to receive individual depos.its from any one and the process
will be complete.
have practically
out of business.
The Federal Reserve Banks with their branches will then
bsorbed the operations of the member banks and put them
The stockholders of these banks will be the heavy losers.
-:
1 :-
To indicate that these possibilities are not exaggerated may be
cited the recent statement of the Secretary of the Treasury who is the head
of the Federal Reserve Board, that they had now created new banks upon which
it was impossible to have a run as the deposits could not be withdrasn, and
the statement of the President that "the bankers were not pn trial, but had
been convicted".
The bankers, upon the whole
in their attempts to
appropriate methods.
influence
have recently made a vary poor showing
Congress and public sentiment by proper and
They have permitted undeserved criticism and censure. to
*pass uncontrovarted or even unchallenged, and for fear of being classed as
obstructionists sill probably supinely permit a gross seizure of property
committed to their care by shareholders and their depositors.
For their
neglect they will suffer severely in the future.
The New York State Banks and Trust Companies have now the opportunity of a lifetime.
They should ultimately withdraw their deposits from
the local National Banks, keep their cash reserves strong and in their own
vaults.
They should also keep their assets in more convertible form.
It
may become necessary to make their collections direct. and to form their
own Clearing House, as Congress will probably attempt to apply further restrictions to the members of such association.
Under the law as it stands
today it is somewhat hazardous for large enterprises to do their banking business with the new system and further burdensome and highly unsound changes are
chance
already proposed with a fair
for adoption.
Meanwhile, the New York National Banks have no alternative but to
dance now or to suffer the heavy cost entailed by postponing a settlement of
the question of whether or not to join the system.
TANGO OR CONTANGO?
---- 7 ------- 0--
-: 2 :-
CABLE ADDRESSES
WILLIAM P. BON CRIGHT & CO.,
LONDON
NEW YORK
LONDON
INCORPORATED.
PHILADELPHIA
BOSTON
BONBRIGHT
14 WALL STREET
PHILADELPHIA
DETROIT
(BOSTON
D ETRO I T
aikk
FEB
NEW YORK
January 27, 1914.
4 1913
Benjamin Strong, Jr., Esq.,
16 Wall St.,
New York City.
Dear Sir:
Mr. Walcott was called away from the
city
today by
the death of his aunt and requested me to hand you the enclosed
communication
from
Mr. Burton
with his sincere thanks, and ad-
vise you that he would have taken pleasure in seeing you personally with it but for his sudden departure from the city.
Yours very truly,
S
JBL*A
Enc.
.
C. Walcott.
S'..*..444-1 -a_
A
A-4-4J
LE GRAND HOTEL
ei.7
HOULGATEs/MER (CALVAD0S)
t
?r /91-4
DDURAZZO. PROP.,
TEL.N?3,
rt/T-
Zz'N
1--,,L-1(
J
t
CA,.
(4-
_
WILLIAM P. BONBRIGHT
CO.,
INCORPORATED.
WILLIAM P RONBRIGHT
CO.
437 CHESTNUT STREET
14 WALL STREET
NEW YORK
LONDON
11";
HOlVDRIGHT
PHILADELPHIA
CO.
ROSTON
55 Corromr.e. Smucarr
DETROIT
1512 Po.. SUILDINO
PARIS
NATIONAL BANKING SYSTEM
OF THE
United States
UNDER THE
Federal Reserve Act
BANKING AND CURRENCY SYSTEMS
OF
ENGLAND
FRANCE
CANADA
GERMANY
It
National Banking and Currency System
OF THE
United States
UNDER FULL OPERATION OF THE
Federal Reserve Act
AS ENACTED DECEMBER 28, 1918
The Federal Reserve Act apportions the duties of the National Banking
System among three principal bodies. These are the Federal Reserve Banks,
the Federal Reserve Board and the Member Banks.
FEDERAL RESERVE BANKS
The Act provides for not less than eight nor more than twelve Reserve districts in the Con-
tinental United States, in each of which a Federal Reserve Bank with its branches is to be
These outlines of the currency systems of five of the most important countries of the world
have been compiled from original sources where accessible, supplemented by studies of standard
reference books, together with recent private correspondence and cables. The currency systems in operation are the result of the interpretation through precedent and custom of extensive
legislation; these summaries are intended to present only the most important features for
purposes of comparison, and within these limits we believe them to be accurate.
subscribing banks are known as Member Banks. Each Federal Reserve bank must have a
minimum capital of $4,000,000. If the bank subscriptions are insufficient, the public and later
the United States may subscribe. No individual subscription shall exceed $25,000.
Only the stock held by banks that join the system has voting power. This latter stock
cannot be sold, transferred or hypothecated. Shareholders in Federal Reserve Banks are liable
equally and ratably, and not one for the other, to the extent of the par of their subscriptions
in addition to the amounts subscribed.
Dividends are cumulative but limited to 6% per annum. Any excess earnings go one-half to
establish a surplus fund, and one-half to the United States until a surplus of 40% of the capital
is created. Then all the earnings in excess of the 6% dividend go to the United States. The
shareholders have no interest in the above surplus, as in the event of liquidation-of the bank or
when shares are surrendered by retirement of a bank from the system, any surplus above the
par value of the stock and accrued dividends will go to the United States.
Federal Reserve Banks are each to be governed by a Board of Directors of nine members
January 1st, 1914.
established.
The capital of these banks is to be obtained by subscription, under penalty of forfeiture of
charter, from the National Banks, of 6% of their capital stock and surplus funds. Banks
under State charters may subscribe under certain regulations to produce conformity. These
selected as follows:
Three of Class AChosen by the Member Banks and may be bankers.
Three of Class BChosen by the Member Banks, shall be actively engaged in some commercial, agricultural or industrial pursuit.
Three of Class CChosen by the Federal Reserve Board. One of these shall be the Chairman and the Federal Reserve Agent. No director of Class B or C shall be an officer,
director, employee or (if of Class C) a stockholder of any bank.
The Federal Reserve banks can receive deposits only from member banks, from the United
States and for exchange purposes, solely, from other Federal Reserve Banks; but they can deal
in nearly all forms of bills of exchange, domestic and foreign, rand in commercial paper provided this matures within' ninety days and is not issued for the purpose of carrying bonds
(except U. S. bonds) or stocks. Agricultural and cattle paper running six months may be
dealt in to an amount to be fixed by the Federal Reserve Board.
The Federal Reserve banks may issue currency notes which are to be obligations of the
United States and to be receivable by all the banks in the system and for taxes, customs and
Copyrighted 1914
William P. Bonbright Sc Co,
Incorporated
public dues. These shall be redeemed in gold on demand at the Treasury in Washington or in
gold or lawful money at any Federal Reserve Bank. These notes are to be issued at the dis-
cretion of the Federal Reserve Board, to the Federal Reserve banks through their Federal
Reserve Agents. Each Federal Reserve bank must at all times keep on deposit with its agent
collateral to the amount of its issued currency notes, this collateral consisting of the commercial
MEMBER BANKS
paper that said bank has re-discounted for member banks and bearing the endorsements of the
member banks. The Federal Reserve banks shall pay interest on their note issues at rates to
be fixed by the Federal Reserve Board. These notes are a first lien upon the assets of the
Federal Reserve banks.
Federal Reserve Banks shall maintain gold and lawful money reserves of 35% against
deposits, and against currency notes in circulation, a gold reserve of 40%. To provide for
redemptions at least 5/40 of this gold reserve for currency notes must be on deposit with the
U. S. Treasurer in Washington.
Federal Reserve Banks may also issue notes against a deposit of Government bonds with
the U. S. Treasurer in the manner heretofore provided for the National Banks but without
limit as to amount.
FEDERAL RESERVE BOARD
The entire system of Federal Reserve banks is to be in charge of and controlled by a Federal
Reserve Board sitting in Washington. This board is to consist of seven members including the
Secretary of the Treasury, who is to be Chairman, the Comptroller of the Currency, both exofficio, and five members appointed by the President and approved by the Senate, not more
than one from any district. At least two of these latter must be persons experienced in banking
or finance, but none can be an officer, director or stockholder in any bank, nor a member of
Congress. One shall be designated by the President to serve for two, one for four, one for six,
one for eight, and one for ten years, and thereafter each member so appointed shall serve for a
term of ten years unless sooner removed for cause by the President. From the five appointed
members the President shall designate the Governor, who is to be the active executive officer,
and a Vice-Governor.
The Federal Reserve Board has the following powers:
To require one Federal Reserve Bank to re-discount the discounted paper of another at a rate
fixed by said Board.
To examine Federal Reserve Banks and Member Banks, and to require statements and
reports from them.
To publish each week a detailed statement showing the condition of each Federal Reserve
Bank and a consolidated statement for all Federal Reserve Banks. This is mandatory.
To suspend all reserve requirements, but subject to a tax graduated upon deficiency in
reserve.
To regulate and supervise the issuance of the Federal Reserve currency notes.
To change in any manner the classification of reserve and central reserve cities.
To suspend or remove any officer or director of any Federal Reserve Bank. The compensation of the officers, directors and employees of the Federal Reserve Banks is
also subject to the approval of the Federal Reserve Board.
To write off doubtful or worthless assets of any Reserve Bank, and to suspend, liquidate
or re-organize any such bank.
To require bonds of and to make regulations for the Federal Reserve Agents.
To grant by special permit to National Banks applying therefor, when not in contravention
of State or local law, the right to act as trustee, executor, administrator or registrar
of stocks and bonds under such rules and regulations as the Board may prescribe.
To exercise the functions of a Clearing House, to require Reserve Banks to do the same for
Member Banks and to fix the charges made by Member Banks to their patrons for
checks thus cleared.
To employ and appoint all attorneys, clerks and assistants without regard to the Civil
Service Act.
To levy a semi-annual assessment on the Federal Reserve Banks in proportion to their
capital and surplus to cover the expenses of maintaining the Federal Reserve Board.
There is also created a Federal Advisory Council consisting of members appointed one
by each Federal Reserve Bank. This Council is to meet in Washington at least four times each
year and oftener and elsewhere if deemed advisable.
This Council has power:
To confer with the Federal Reserve Board on general business conditions.
To make oral or written representation to said Board.
To ask for information and to make recommendations upon the general affairs of the
system.
The 5% fund deposited with the U. S. Treasurer as a redemption fund for circulating
notes can no longer be counted as part of the reserve of National banks. Provision is made for
the gradual assumption by the Federal Reserve Banks of the present National Bank currency
secured by U. S. bonds, the process being distributed over twenty years, and beginning December
23, 1915. The bonds and circulation so transferred must not exceed $25,000,000 per annum.
After a transition period extending over thirty-six months, the reserves are to be as follows:
5% against time deposits.
Country Banks-12% against demand deposits.
of which 4/12 are to be in the Bank's own vaults.
5/12 are to be on deposit with the Federal Reserve Bank of its district,
and the balance in either or both of the above places.
Under the National Bank Act the provision is 15% total reserve, of which at least
6/15 must be in vault and the balance of 9/15 may be on deposit in any Reserve City.
Reserve City Banks-15% against demand deposits.
5% against time deposits.
of which 5/15 are to be in the Bank's own vaults.
6/15 are to be on deposit with Federal Reserve Bank in its district,
and the balance in either or both of the above places.
The National Bank Act requires 25% total reserve, of which one-half must be in vault
and balance may be on deposit in Central Reserve Cities.
Central Reserve City Banks-18% against demand deposits. 5% against time deposits.
of which 6/18 are to be in the Bank's own vaults.
7/18 are to be on deposit in the Federal Reserve Bank of its district,
and the balance in either or both of the above places.
The National Bank Act requires 25% total reserve, all to be in vault.
If the above reserves required to be on deposit with the Federal Reserve Banks are drawn
upon by a Member Bank, said bank can make no new loans nor pay any dividend until the
amount is restored.
No Member Bank shall keep on deposit with a non-member bank a sum in excess of 10%
of its own capital and surplus.
National Banks with a capital and surplus of $1,000,000 or more may establish foreign
branches with the approval of the Federal Reserve Board.
National banks not in Central Reserve Cities may make loans secured by improved and
unincumbered farm lands within their district, but such loans shall not be made for longer than
five years, nor for an amount exceeding 50% of the actual value of the property. These loans
may aggregate 25% of the capital and surplus or one-third of the time deposits of the bank.
Every Director of a Member Bank who participates in or assents to any non-compliance
with or violation of the Federal Reserve Act (other than failure to join the system) shall be
held liable in his personal or individual capacity for all damages which said bank, its shareholders, or any other person shall have sustained in consequence of such violation.
The stockholders of every National Bank are now held individually responsible for all contracts, debts and engagements of the Bank, each to the amount of his stock therein at the par
value thereof in addition to the amount invested in such stock, without provision that such
liability shall be equal or ratable and not one for another.
Other than the usual salaries or reasonable fees paid by the Member Bank for services
rendered to said bank by officers, directors and employees, no officer, director, employee or
attorney of a Member Bank shall directly or indirectly receive any fee, commission, gift or
other consideration for or in connection with any transaction or business of the bank under
penalty of $5,000 fine, imprisonment for a year or both.
In addition to examination by National bank examiners and the Federal Reserve Board,
Member Banks are subject to visitorial powers by Congress or a committee of either House.
In 1913 there were in the United States 7,488 National Banks with aggregate
resources of $10,876,852,343.00.
Outside of the National Banking System as reported to Comptroller of the Currency, were:
$4,143,052,802.00
14,011 State BanksResources
5,123,920,197.00
1,515 Loan and Trust CompaniesResources
182,785,398.00
1,016 Private BanksResources
5,225,485,443.00
1,978 Savings BanksResources
18,520 Banks with Resources of
$14,675,243,840.00
Bank of England and British Banking System
00
The Bank of England was organized in 1694 to assist William III in raising funds to prosecute
the French War. It has had the practical Monopoly of note-issuing power in England and
Wales since 1844.
Capital, £14,553,000.
Governed by a Board of twenty-four Directors, and a Governor and Deputy Governor.
Bankers in the English sense, namely discounters of short time paper, are not admitted to the
Board, but this does not exclude financial leaders in other branches of banking.
Canadian Banking System
The Bank of England is not under Government control, but acts as banker and fiscal
agent to the Government. The State has no share in its profits. The Bank pays for its exclusive note issue privilege about £200,000 per annum, but it receives fees of approximately the
same amount for managing the National debt, and for managing exchequer bonds and bills,
and Treasury notes.
In 1844 the Issue Department and Banking Department were separated. The Banking
Department transferred to the Issue Department £14,000,000 of securities including about
£11,000,000 Government debt due the Bank; also such gold and bullion not immediately
required, and received notes in return therefor. No notes below £5 are issued. Notes are legal
tender except at the Bank. Notes have always been paid in gold. The Issue Department has
never exercised its legal privilege of maintaining its note reserve partially of silver to the extent
of one-quarter of its gold holdings.
The original issue of notes can be increased by putting out notes equivalent to two-
thirds of the notes of other banks retiring from business and secured by assets taken over from
such banks. This provision has increased the note issue based upon securities to a total of
£18,450,000.
Otherwise notes can only be issued against gold deposited by the Banking
Department. The Issue Department has now outstanding £52,324,535 in notes of which the
Banking Department holds £22,716,900.
The Bank Act has been suspended on several occasions of financial emergency (in 1847,
1857 and 1866), when the Government authorized the Issue Department to issue notes to the
Banking Department without a deposit of gold in exchange. The Bank can not derive any
profit from these increased issues, as this profit must go to the Government.
The Bank of England holds extensive deposits of other banks and carries practically the
entire reserve of the British banking system, but pays no interest on these deposits.
The Bank of England has long had complete monopoly of the note issuing power within
sixty-five miles of London.
By the Act of 1844 the existing circulation of the country private and joint stock banks
in England and Wales, was allowed to continue but not to increase. If a bank ceased to issue
notes it could not again resume the issue and if the number of partners in a private bank exceeded
six this power of issue was lost. In 1844 the outstanding circulation of this character was
£5,153,417 for 207 private banks and £3,478,230 for 72 joint stock banks. In 1908, according to Conant, only 12 private banks had outstanding, notes of £482,744, and 14 joint stock
banks had an issue of £912,308. These notes have no legal tender quality.
Including the joint stock banks the total banking resources of Great Britain are about
£1,100,000,000 Sterling. During recent years there have been many consolidations of provincial with London banks, so that now some of these joint stock banks are very large, Lloyds'
Bank, for instance, having assets of approximately £76,000,000. The English joint stock
banks carry cash resources of about £170,000,000 which include funds with other banks, especially with the Bank of England, against deposits of £840,000,000 or about 20%, but rely upon the
Bank of England to obtain re-discounts.
Scotland and Ireland have banking systems of their own, but also look to the Bank of
England for assistance in emergencies.
The Canadian Banking System is based upon the law of 1870, which has since been
amended in details. It consists of several large 'banks each having numerous branches in
the various cities and towns. The shareholders have full ownership and control; the Government has no participation in the profits of these banks. Notes can be issued up to the
amount of the capital stock and are a first lien upon all assets. Notes can also be issued above
this limit against a deposit of gold or Dominion notes in the Central Gold Reserves. Since
1908 additional issues up to 15% of paid up capital and reserve funds are permitted under
a special tax, not exceeding 5%, to be fixed by the Governor in Council.
In 1912 twenty-five banks had
Paid up Capital
Note Circulation
Loans and Discounts
$112,588,537
102,011,848
1,080,760,051
A redemption fund consisting of 5% of the note issue is deposited with the Government
as an insurance fund. If a bank fails its notes bear 5% interest until redemption. If the 5%
fund is insufficient the remaining solvent banks are assessed for any deficiency towards paying
the notes of a failed bank in full. The Banks are not required to maintain a specific reserve
against note issues.
Notes have no legal tender quality or Government guarantee.
Redemption is in "specie."
Notes are cleared and redeemed at leading commercial centers: Halifax, St. John, Charlottetown, Montreal, Toronto, Winnipeg, and Victoria and such other places as may from time to
time be designated by the Treasury Board. This Currency is very elastic, varying 15% to
20% per year in volume. No bank notes are smaller than $5.00.
Dominion Notes, issued by the Dominion Government; against these twenty-five per
cent. reserve is held, of which 15% must be in gold, 75% in Dominion Bonds, and balance in
securities guaranteed by British Government. All over $22,500,000 must be covered by an
equal amount of gold. This was temporarily exceeded in 1907 to meet the financial crisis but
the excess was later retired.
0
Bank of France and French Banking System
The Bank of France was founded in 1800 by Napoleon.
It has had monopoly of note-issuing power in all France since 1848. Notes are full legal
tender.
The entire capital of 182,500,000 francs is in private hands. The Government appoints the
Governor and both Deputy Governors, also the Director of each branch. There must be at least
one branch to each Department of the country, but this minimum has been largely exceeded.
The bank manages the treasury operations without charge. The Government par-
ticipates in the revenue of the Bank only through certain taxes and not through any interest
in the shares or the surplus profits. Fifteen regents and three auditors compose the General
Council, elected by the two hundred largest stockholders.
Issue of notes is regulated by law, but the limit has been repeatedly raised by legislation.
The limit was 350,000,000 francs in 1848, and is now 5,800,000,000 francs by the law of February
9, 1906. Present issue outstanding is 5,697,038,000 francs.
Notes are issued against discounted bills, loans made upon gold or silver bullion, or upon
public funds, and other securities, or upon loans made to the State.
The Bank has the option to redeem its notes in either gold or silver. A tax is paid on note
issues (one-eighth of the rate of discount upon uncovered circulation with minimum annual tax
2,000,000 francs) with an additional tax if the rate of discount is above 5%. This additional
tax is three-quarters of the excess over the 5%. The note issue of this bank is its most important function, being now 5,697,038,000 francs, as compared with 671,547,000 francs of general
deposits.
The Bank does an extensive savings deposit business and carries individual deposits payable on demand. Small balances as low as 500 francs ($100) are invited. No interest is paid
on demand deposits.
The leading joint stock banks of France, of which the largest is the Credit Lyonnais, have
deposits and credit accounts of about 3,500,000,000 francs, against which they have cash resources
of about 10% reserve. These banks depend upon rediscounts from the Bank of France, which
can be made to practically an unlimited extent, to meet any emergency.
0
Imperial Bank of Germany and German Banking System
The Imperial Bank of Germany was founded in 1875, using Bank of Prussia as a basis. It
has now nearly a monopoly of note issue, as it has assumed the circulation of most of the other
banks.
The Stock is in private hands.
The Bank is managed wholly by the Government.
General Administration is under the Chancellor of the Empire, with four curators.
The Board of Directors has direct administrative authority and is named by the Imperial
Government. A Central Commission of fifteen members and fifteen alternates is chosen by
the shareholders. This commission has supervision over some of the business details.
The Bank's employees are construed to be Government employees and are pensioned by the
state.
Surplus profits are divided thus: 3I2% dividend to stockholders, then 20% of remainder to
accumulate a surplus fund up to 60,000,000 marks; the balance is divided: 25% to stockholders
and 75% to the Government.
The Bank pays no interest on deposits. Bank Notes are not legal tender. Formerly none were
issued below the denomination of one hundred marks. Since 1906, fifty and twenty mark notes
have been issued.
The reserve against Bank notes consists of cash or its equivalent. This may be money having
currency in Germany, gold and Imperial Treasury bonds.
The authorized circulation must have one-third reserve in the above cash. The limit of
issue may be exceeded and be untaxed if 100% cash reserve is maintained upon such excess.
Two-thirds of the circulation not covered by cash must be protected by bills of exchange
not exceeding three months, but these are merely general assets. Bank Notes have no prior
lien. Redemption is in "coin" at the main office in Berlin. Branches may decline to redeem.
The limit of authorized circulation was first fixed at 250,000,000 marks, plus the circulation
of other banks within the Empire assumed by the Imperial Bank. By law this limit has been
increased, making a total in 1906 of 472,829,000 marks uncovered.
The above legal limit may be exceeded by paying a tax of 5% per annum upon the excess
of uncovered notes. This has been done repeatedly in 1881, 1882, 1889, 1890, 1893, 1895 and
1896.
Total circulation outstanding: 1913.
. .1,929,366,000 marks.
1912. ...1,939,120,000
1911
.
.
.
.1,701,960,000
Government Treasury notes of 120,000,000 marks are in circulation against an equal amount
of gold deposited. These correspond to our "gold certificates."
The Imperial Bank does a large re-discount business for other banks.
To make room for the circulation of the Imperial Bank the note issues of the various German
States were retired in 1875, by issuing Treasury Bonds of the Imperial Government.
By the law of 1875 the local banks of Germany, over which the authorities of the different
German States had exercised more or less control, were brought under the same rules as the
Imperial Bank, and they were compelled to comply with the new law or abandon the issue of
circulating notes. Through this stringent regulation the local banks have steadily abandoned
the issue of their own notes, so that in 1908 only four local banks, namely, the Bank of Baden,
Bank of Bavaria, Bank of Saxony and Bank of Wurtemburg, continued to issue notes.
There are now many joint stock banks in Germany that do a commercial business and
engage in corporation financing and the flotation of securities. These banks furnish a large
amount of paper for rediscount to the Imperial Bank. Some of these banks are of large importance, with resources of between one and two billion marks, the Deutsche Bank of Berlin alone
having over one billion eight hundred millions of marks in resources.
1
0
INVESTMENTS OF BANKS THROUGHOUT THE UNITED STATES IN PUBLIC
UTILITY BONDS
The Annual Reports of the Comptroller of the Currency to Congress show the bond invest-
ments of all banks reporting during the last three years as follows U. S. Government and
"other bonds, stocks, etc.," not classified further excepted:
Public Utility Bonds
Railroad Bonds
Municipal Bonds, etc
1911
1912
1913
$550,200,000
$603,500,000
$721,300,000
1,602,100,000
1,200,900,000
1,631,600,000
1,273,500,000
1,530,200,000
1,240,000,000
1913 compared with 1912
Public Utility Bonds
Railroad Bonds
Municipal Bonds, etc
Increase 19.5%
Decrease 6.2%
Decrease 2.5%
1913 compared with 1911
Increase 31.1%
Decrease
Increase
4.5%
.3%
0
@FedFRASER