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vos 7", 7^. - 3.-", ; iVe 1 A - o 7,7 F:.! L 11.;.CLI - o0,. 67-,-eirsry : DT_ 1nT 01.1.:, 3 .3p ' 02n osucTev-01- .7Ter'n,,a(17.77, .2:71 7:7077 H Visit 3 -r. PIt. TT nil-' 110-r 7.1tz 1-1* , 4. 7.171stl-c ("es eS -E e e E$ ...lc -t Rit Harjes 1.71 C. 17 c 1`4-'" t 7i Chr.s. d_e ; e 16 I c'-1 .r 114 0 F' 1 t F.7 t 'or.c'o. r:n = " 0.0'ca J;-.)17:12Tc tTc UC 9L:20 aelmoalea% LTCYC -7 ..zz.) tT or-j r.)_ t_ ed.t.:.ats VLS C * -7!7_:;-. -1 r, ..777 4 CC ".;-; T...7:0 =7. SOT...I.:To:0 s !X: *:: : - - - ::oTri.17 0 .1 : -- eaaTj _ '2 2 a r1.1.1 -775.31) eirg ao=-Tc-i .zzi-E)=7.;0 - ., 0 'T...11C' i.:E lOT- :8 Tu.esda_IL, :Larch nn a Sir 7-isi-Gs 17olden Io-d. TO Tdartley 1:n0 TUDCh ZaiL17- Tea - Co. , 0hurston Dinner J :.()-J21, 12 ('--vosvenov Gdns 9 Visitt 2-15 .7d.7,rarclIT.olden., :2easeSinr:son - - A:30 Tea 8:30 SS Devel-e-m,-. S-hiVC- Dinner - Torn 2eaclinp; 10th: - 1:50 Lunch .. 0: SLuUrcif-77, 7isits r:hristo.pher :_Tnr:ent C -.:01co.ut - . '_'ea _..r_abassan.o _age Dinner. Sir :Y-..77:01affn Savo: :otel .7T.TCh 11th: r i 1:: 8:00 Sunda .7. (London 'lleari:,-- 72,f-ers; for -dent .:7i7"ch 12th:. ,41, -4 an0 Tritton C ' 13tli Visits Sir Charles Ideds, 7o717 IT I. ..-I. 7. rrnmblinP.7 1....1:,, 8:15 T-', .Luesda7 , _-,,-;:J; :77ill_nr . _ ..,_.......- ._4.... r- , _.--11=c.7....,.,or 07"`":;I:f` .1: 1 - I.,: -...-l--- -e. .cch ioC t. 1:50 1._ 7:A5 - . Lunch Froo'cn nab, St Jn 5:00 7is1l 6:C0 7isit C-nt-AD 'all, _Z . Diaper Lor-J,A.w Clfice Sir D5=-2(' Hol(len (.71=1.cirl A 7y h 10:30 1:30 . 7isit . T-Tenry Bell, Tlo:7s M.1.-.1c71 ith, 71ote1 Ii S!7.-voy or 2C:.1 16th: :r lir 7 Tunch _ . ' , 7 . 1:50 . g 117'1,z'_CS .r; . 1:00 8;0C ilnaor i0 bunaq, rl q:1-1 r!' e-ic F. . _ , .:COt i 011( Conan7 Tritton, zl'inens _ clUttnu- a . 8: . : TLIner tf (Aro C.At;?..1.J Gron-'ell nl 371o7rls Bank . Lune of Tea - Schupter, Er-8 C2J7 can Ilcce 2a1-1.our Ion::_on f.".r. Lo._11)1_117 Sir Lie. _ry in Schus-Lor :ort,oscue 71.'_:.nnory oj _-_::"17rid Court 7itzr-ervld, !:_.1-lec 1,.7,7- CA_is, Irrlcric':: T;i1.1,h .L. 0-.7fice :-)_1- -_-_)1r- rtc;-con,. .. . - Lo--0 7".i-uchonor ^- Sh=,zhfi 64 -.1.11;1.7.1bf. Gate G r 4katirrdP..77,_.Ir_arch 25th: 7-is fl le, C 7 8:Or! 1Y. 9:00 1:s! Lrtnch . _ - niverick at Ciro 8:00 1,:ondcy, Larch 27th: Schuster S- ir 2 1.2f.-.32 Lora 2,evols-,,o7.ce Ho:117T Lell S-7.inner, T ir ir _.oert . TuescT. h: C aiti 64/A- 1 : 3^ _ . Clifb i's)5,n.v? 6-a24 tr-, V tilpral.A. .7- 5 , . , 8:Co _ 29th: 5.."-, CJ-,..)tf- in 2r. Lunch . . 2e.c. TN-1-1,r 2 'P uflo Savoy 177314 giula Thni-sda 110 7,0t11: ' Friday, Feb. 11th, 1916 CI' Arrived at Falmouth late in the afternoon of February a 10th and left today for London arriving at two o'clock A.L:. Ibk 6Allyaik Onuoct Saturday, Feb.l2th, 1916 1. le(f. A. M. Called on on ) itt 't(< Blnckett who gave me a very warm welcome. A we scu sion-ab4u-t-Ge-ad444-eitia-ovar-heate- -tilq1_ A.,") 4rranged to have some further visits upon my return from France. Lunched with Mr. Harris and Captain Symington. After lunch picked up Mr. Lowery of the Embassy and we all trifi cam', it ti motored to Aldershot whore we saw theAGerman prisonerScamp) now practically empty, the prisnnerc having been moved to some less exposed position. Aarme-tiTr5T-tismur#=un encampment tukdosh appeared to be miles in extent. The roads were badly cut Ili and muddy due to constant transport. Passed an aviation plant where aereoplanes are manufactured and saw numerous aereoplanes being tested. P.M. Dined with Shiverick and` 44 Lieutenan of the American 2 Army,from the Embassy and Mr. Harris. 01411' Afterward Mr. Harris and I went to the theatre and later joined Captain Symington, Shiverick and the Lieutenant at Ciros for supper. in the afternoon about my nose e610Q405 a h4(.44/1,144.4 iti ',Iet!.-.6.. Saw Doctor Hunter Tod 51(Auc;--. .. ? 0.)_ 0 stite 1 aiLintm bineett, . 3 SundayFebruarz 13th, 1916 fpw Visited with Chandler Anderson in the hotel, then we took a short walk through Hyd Ar together. 9).,( a. if- 144 ea ate Atv Park and later lunched et It; 0-ryt,-7c ;-7 402 Cat e.4.7177T This afternoon not feel. ng quite up to the mark, declined the invitation o f Iwir. Hakris to go motoring and put in the 4.-auft working out plans for tomorrow. All Elaboration of conversation with Basil 1. Blackett: February 12th, 1916 Blackett stated that the Bank of Eng:and had paid the Government for all guaranteed bills which the Bank had purchased under the terms of the Government's offer and that at that date there was about h30,000,000 sterling unliquidated. The account had, at one time, been somewhere from t100,000,000 to 1,120,000,000 sterling and those remaining unliquidated were largely bills that had arisen out of enemy transactions, the acceptances of the German bank agencies in London, etc. Later conversation with the Bank of England dis- closed payments were being made only very gradually--1 judged somewhere from 1350,000 to L150,000 every day or two. account for the Government. The Bank of England manages the Blackett also informed me that the Government itittlevntt!' was -going thead on its dollar exchange account, the exchanges really having been slightly favorable and enabled some accumulation of exchange. He strongly favored shipping gold to Holland, or ear-marking gold for Dutch account but confiscating all securities coming out of Holland which bore evidence of German ownership or origin. Said that Lord Cunliffe was opposed to shipping or ear-marking gold for Dutch account. strongly that the matter should be corrected. Blackett felt He thought we ought to establish close relations with the Bank of England, and that an arrangement for ear-marking gold between the two banks should be concluded as soon as possible. There were, however, many serious problems ahead in the matter of the London money market. For one thing, he was sure that the relations between the Bank of England and the London Joint Stock Banks would require thorough readjustment. The joint stock banks were getting too big for the Bank of England and their effort was rather to pull away from the Bank's influence. He thought possibly the whole joint stock bank situation would require overhauling, possibly by legislation. Said that Holden was dead in London--exceedingly unpopular and an obstructionist. 4141!1. He also felt that Federal Reserve Banks could Terform great service by holding sovereigns instead of having them melted down. notes We discussed the currency/situation at great length. He seemed sound in his ideas, that they should be retired after the war. Said that the currency notes had performed great service in driving gold out of private circulation and into the reserves of the joint stock banks. He estimated that-B- 30,000,000 sterling of the notes in circulation had taken the glace of a like amount of gold now held by the joint stock banks. Figures later furnished me by hr. Tritton of Barclay & Gomparly indicate that B26,000,000 would be a correct figure. Blackett stated that the adoption of the Compulsory Service Act had given great courage to the 1:ation, particularly the Government. It had solidified the Cabinet and in every way strengthened the Government's hand. He deprecated the agitation about the strikes particularly the strike of the Welsh coal miners. Said that it was due to the feeling of the coal miners that their employers were making great profits out of the war and in which they did not share; although, as a matter of fact, labor was now gett'ng a very good share of the war profits. That the difficulty with labor was its vote to curtail the development of skilled labor now so largely required. The recent vote of the labor unions was, in fact, a vote of confidence in the Government and highly encouraging to everybody. Speaking of the progress of the war, Blackett said that he was convinced that the war would be decided ahead of the on the Western front, but that there was a long and difficult task Allies, one that entailed great sacrifice of men and money. 4 Sunday u Feb. 13. ompoorm0 ttAll aixttarn Saw Doctor hunter god, about my nose, Addy, ?t4T ahniCe9 I.:onday A.J. Feb. ,14. Called at the Uffioe of llorgan (;renfell & Cc, and talked with Ur. Morgan and ..r. Grenfell. 'Received a cable from the office indicatin tnat everythin a letter from dilliaacenzi m LK London or karch 7th. was quiet. Also received statihr th:lt he would be in 1 Called On ;i_r. Lambie at mile Agency / i of the Canadian bank of Como roe, and also baN his Assistant ib kanager. I then cal lea upOn Sir Ed4ard Holden and spent about half an hour witn him. Called twice to see Lr. Bell, the Lloyd's Sank, -but missed him; also called for Colonel Hunsicker who was out. Called at tie American Embassy wnerc 1 met Captain Symington but missed Ambassador rage who Lunched with Symir Hotel. After lunc learned that pas n and Captain q,uekemeyer at the Carlton went to the French Consul General and orts Aroal,1 first, have to Le viscid by t_e United States C nsul General. wnere my pass ;as enraged. From there to the U.S. Consul rt was visod anu 1 nod a very .dleasant visit 5 2. with Mr. Skinner, to whom I presented 0714 dtrz letter of taudet, cietite40 introductionA arranging to see him again a d have dinner upon may return to London. df trt. Captain Savy kr. Skinner g ve me a card to liftre(k_ f44,44-rerd 6Pec g Much facilitated the vi ee of passports. Dined that evening with 1Lr. Shi erick, Captain 4tieke- mlyer, Captain Symincton, Liss CuFitiss, and aer party at the Savoy Hotel. luesday. Leb.15. In the morninc had pho4ographs taken for further pass- port use and from tnere to tne French Consul c eneral who verified my passports. From there to Lae Aerican Embassy, waere I spent about ojie and one half hours with Ambassador eatt et, kage--I alcoArranged \-- with Captain 6;,mington to,., --up 141 FiceiatAst 1- complete set of enlistment posters at a cost of..-earemt From the Embq.ssy I went to Lord heading's Chambers, in ,,he Royal Law Courts, Strand, where I had lunch and spent about half an hour with him in his office and afterwards listened for a snort time to the trial of a case over which he was 3. presidinE, Returned to tue hotel and at four o'clock had tea wit iss Devereux, where we Uiscussed arrangements about Trench hospital ieryices. U After tea, saw Doctor Hunter Tod and had my nose treated, LAI. lqiward Holden came for dinner spent at seven o'clock ednesday. Feb.1 e evening. griet 4t( g . Took the 8.50 train from Chring Cross expecting connect with the 11 o'clock boat for Dieppe, to A violent storm prevented the boat leaving so we spent that day and night in _.olkstone, at the hotel Pavilion, leaving at 7 o'clock Thursday morning r Paris. -.....410MNOVIOWN27MWALMWAIMMMMII. iriursda,y Feb .y? . The stea-Ter "Sussex", upon which we travelled across tne L;h4nnel left at 7 o'clock and-the crossing was an extreme- / ly ,bu::h one - at the worst 1 ever experienced, Dieppe 1..::.30 and arrived in Paris at 7 o'clock in the evening cing direct to the Hotel 1:itz, Dined with ...r. 'Harris at the hotel, took a snort walk and then went to bed. 4. r t. 4 ft--6014° tA0; darje8 would be in Paris or ..onday. Then went ovrr to the A si,aisor. de Blanc and made some purchases. 1.Let and had lurch with him at the caft de Paris. to the American Hospital at neuilly. showed us all over the e tablishment. contribution. From tnere c led on . Phillips liTom there went Let Dr. Du bousset who I cave him a POO Sergent, Governor of the Bank of rrance and arranged to see him immediately upon my return from Cannes. Saturday 2eb.19tn. Spent the balance of the evening packing for the Left for Vannes on the 8.15 train taking trip to Cannes. 4e reached dinner at the Gare de Lyun with Mr. Harris. Cannes next day at about 1.30 P.M., kr. Stillman and Mr. uhristianuon beint, at the station to meet us. Monday and Tuesday at Cannes. train on on the 2.46 Spent Sunday, Mr. Harris ret-rned to Paris (lesdity. Sunday Feb.20ta. Sunday afternoon/1dr. A.illan took us for a beautiful riae by automobile to one of i he old Larurian foxtified castles and town sit4ated on the peak of a N:u-untain some (2g. ) regnt., miles north east of Canvas. ..;.oLua,y ity4 del/ Made an all day trip to Monte Carlo calling upon Tuc.: at apartmQnt. etabra6:- -) Tuesday 1?eb.ZZnd. After seeing Mr. Harris off cr Art '.41j train, took dt-z 4 a long automobile tri;; north west of Cannes throuFh the town A of ireijuse arnica, nearly two thousand years aco,was an importi.:nt homan colory of 300 000 to 600,000 infrabitants. (abyeth,1/4-- Visited 60M of -4,11c old .,,an remains. , Wednesday Feb. 23rd. Left on the CAristianzon .46 train with Mr. 6tillman and Ix. arriving Thursday morning. &67it GT, MI= Thursday reb. 24th. Arrived from Cannes at 8 A.M. After breakfast,,r. Edouard Vidoudez of tile Banque Suisse et Francaise, 20, La Fayette, called. After he left I called at Morgan, H ofrk dc Company for mail, Ur. Harjes being out tie irtw_71, From there ca /04402. upon LewandoWski and read a very interesting talk for abo three quarters of an hour. btoppeu at tree Grande kaison /1/4. kaciiitiv blanc,, and then lunched with cur. Phillips at the Ritz. 40.44 lunch called at the Banque de France. was nome ill witn a bad cold. Found that k. Ser An interpreter introduced . Pallain who received me with great cordiality, and mediately upon my arrival presented me 7ttcal a silver med r, engraved upLn it. The medal was to commemorate redth anniversary of the establishment of the ance. Had a very interesting talk with him, and intment to meet him again on Saturday at two e1-1-co- CIS Is) h a memo of our program. e France. He is to snow me through From there called on iessrs. Morgan, r C. 2 Harjes & Co, and had a nice chat with Ob. and saw V/. . .'rom there called at Lloyd's Bank Graves and also had a lonc talk with their ,.,anager, Mr. ToXlmin. Returned to t quarters of an hour with ..r. Stillman. and s.r . As I was Arranred to see kr. Harjes leaving -r. Ernest Mallet came in. before lunch tomorrow. Harjes. Stillman at the Ritz. notel and spent three Dined with -r. Harris DIAR Y. L iebruary 1C:6U called (Al _onsieur hibot, who as particular- child was much interested with our new banking system, and I arranged to lunch with 4e and Lir. Harjes some day next week. heturned to the hotel to say good bye to lair. Stillman and then took dinner with ilLr. Phillips and iz.r. Graves and went to the show. .or r Saturday, Feb. 26th. After conversation witn Pallain it developed that it would prove inadvisable to proceed very far with interviews with other bankers until after the Banque de France had considered the plans we have in mind. Eemained in the hotel with Captain Symington this morning, and immediately after lurch kept an appointment with ansieur Pallain at two o'clock at the Banque de France. The Secretaire Gene- ral and head of the Discount Department joined us in the interview, c.onducted throuch ar interpretor, and we discuss- ed at length the memorandum oubmitteo, which was translated twice to M. Pallain, who weht over t.ne prograratAparagraph by paragraph. It was strongly emphasized on tac part of M. Pallain that our present discussion was tentative and confideptial sJbject to such disposition as mivht be made by the directors of tne Banque de France. Tne entire programme seemed tc n-eet with his 911a-oval and that of associates. He inquired most particularly as to whether we would desire discounts, which I stated was rot the case, the iederal Bank 2 being a reserve institution nolding reserves of otner banks and unless wider unusual i-04-04,fh4C.0.8 such as wars, financial crises, etc, would not contemplate endorsing bills. The jeneral purliose of our elan was elaoorated, and it was ex- plained that the entire conversation was tentative, subject to the approval of directors and officers of our bank, and by the Reserve Board upon my return to New York - particularly, that unless unusual circo:Lstanoes mod it necessary, it was highly improbable that any arranFemerts could be completed and pot irlo oprazion until after conclusion of ine war. To this they all assented but later on in cur conversation M. Pallain empasized his view that tne sooner an arrongement of this kind could be orouEht about the more advantageous it aould be for the interests of both countries. ae explained that whatever information was furnished us in regard to banks and banking conditions, or bills, would be :ni thout responsibility to the Banque de irance nor would tney hold us in any way financially,or in any other way) responsible or such F,e t information as we furnisned tnem. I stated it was quite improbable that similar arrangements would be made elsewhere than in London and Paris, at the outset, for some time)alThat satisfactory tively howimpossible our plans at would though it was the developt. present time to if state posi- arrangements could be made, it would be for the purpose of sLabilizing exchange, vcld s.lipments, etc. Pallain in- quired whetner this meant that the money employed here would remain indefinitely. I eyolaieed to him that deposits would be made and purchases of wills effected in the marxets where exChange rates rendered it most desirable and profitable, and that there would accordingly be aroitrage in tne various markets where our :113i.::C3fil was conducted. I also stated to him very,. explicitly that while profit was a consideration, it was quite subordinate to safety and that war poliCy would co/fine us very definitely to tae purcriase only of bills of the very hic;nest Trade and ich :tern undoubted. desired to know the character of information we would find it neces- 'Nu L 5 me soL,eiihat thrown: the Banque de .-orance, particularly that where the notes cf the Banque de portion of the France are printed, and where I was asked to siL n a reLister provided for visitore. It wns four o'clock when 1 left the bank and too late to ,Lake further callb. and Captc.in &.!.yles dined with me in the evening. rAide6 t'Arr .1.111.11.166 Sunday .ieb. 27th. At 10.30 called, and Lexando%iski,Lomptoirm by tube to ihontmartre, vial tiny z on top of the hill. the new and -From there we returned unch at the bititA40.040- restaurant on tne . Ccm.:,ander Symington :after 1117:ch walked to the Invalides klseum, ophies and lapoleon's tomb. The museum was P.M. met Captain Logan and Captain Symington, A call from Yr. Cromwell. Dined with'M. Phillips ent to see a little show in the Capucines theatre Monday, February 1th: Called this morning at Morgan, Harjes X Company to get my mail and found that Yr. Harjes had not 'rot returned. Stopped to see Fr. Slalle of the Equitable Trust Company and had a long chat with him about conditions under which the Trust Company was conducting its business here. From there went to La Rues with Mr. Phillips and Mr. Graves to lunch with the members of the Monday Lunch club, consisting of Captain Mason, 1. r- V Mr. London, Mr. Thaekftew, Mr. Monahan who represents the Mr. American Radiator Company here, Captain Sayles of the Embassy and three or four other mericans who .re in business in 2aris. It wPs a very interesting m.eting and these men all exnlained the difficulties with which they were now confronted in developing the credit end of commerce between the United States and France. Aft ,r luncheon did some shopping with 1r. Phillips and then called on Baron de Neuflize. Later on went through two or three of the stores and markets to get a little idea as to the activity of business and the prices of meat, butter, eggs, (Coal $30, per ton; etc. Butter doz; per Lamb rind veal from 5F:-5c to 7:':$0c; pi/. 1/11 pound 1F:35c; Ham 8O per lb; Eggs 600 per chicken 1OF for a good big roasting chicken down to so much clok piece. The:- sell a part of a chickonat a time. cheese like roquefort 1F: 35c per 1/2 pound. apples fR 2F: each. Fine Fancy eating These prices wore obtained in the best general market in Paris, viz., Poulin's). vo Tuesday Ifeb. 29tn. Called on Mr. harjes and received only a cable from New York. Mr. Harjes had again been called out of the city in connection with his uainuiance. de Jfrance to see From there to the Banque Sergent but he was out. Then called on Rouselli at the Credit Lyonnais, hc. d a very pleasant chat with him and arranged to take lunch together tomorrow, (Wednesday). Lunched at lieidelbch's h,.zoe with D. and Kadame neidelbach, a relative of Madame Eeidelbach and tne Paris partner of Coudert Breterz, ;thcze 24.-A? lx nacre I un,3erstood to be the latter impressed me as being exceedingly , well posted aLd & ii.teresting talker. Had ci.Aite a chat with i.. Heidelbach after lunch, generally in regard to conditions in 2rlicc, L,Lu and bankers. J tiAt, iAle;,.1cd1; different banks Prom there went to the Comptoir and spent one 7.7)44 and one half hours Paul Boyer. ...rsueu Ly sLica-weteu.4 0-4-4-4( general Uanager of the bank, 44' LewandoAski called in the head of his Port- folio Department, toLet:Ier with the attc-, conducted V the American Correspondence, and the clerk in chuxce of tne settlements at the Clearing House. They explained fully and very clearly the operation of the discount department, the collection of checks and the operation of the Clearing House of which the following are the main points: Credit and Discount Department. fiery limited dis- . the managers of branches within the city cretion is iven to of saris. They are given certain fixed lines of discount \frI9111 which they may not exceed without authority from the head office. rine supervision of tneir authority is very close. bomewnat greater discretion is given to managers of the branches in the Provinces. However, the supervision is very close and maximum lines uf credits are fixed. most of the bills which they now discount are domestic - largely those drawn by manufacturers, jobcers and commission houses. To some extent also bills of jobcers drawn on retailers and even retailers on their private customers. Prior to the outbreak ?..5000° of the war it was not uncommon for jr bank to handle-WW-bills -40 They have in their portfolio Department alone in a month. Tnese bills come to the head Office from all the 450 clerks. brancnes with certain exceptions, and are collected by the me exceptions/of course being agencies in the head Office. rrovinces. Except in time of a creat crisis, such as the war period, the Comptoir never melts its kortfolio, but insteau of collecting many of tie bills itself tarouc-h its own a- gencies or by messengers throughout the city it finds it much cheaper to turn them over to the Banque de irance, three, four or five days prior to maturity and obtain an immediate credit there. The Banque de irance makes a minimum discount charge of 5 days at Lhe bank rate even though the bill has nom;. 5,-.. This compensates the Banque for col- lecting the bills. Just now there is a dearth of bills and such institutions as the Gomptoir and Credit Lyonnais use a good deal of their funds in snort government obligations wnich run for three, six arms twelve months - tnree months 000- "),'" being at 4% Ord six months 5 discount. Triey principally purchase the six months bills which can be disposed of at aallaq uuTT1 jr /al !(,e alkuu A7auq. U"..1 anbunq an aouratg sT srnmrs Rpraa do Slt UOTVSWIOJUT JOJ jjuls jo sqladxa 1nOqr aTaul saawolsno 4 suluow sr aul lunoosTp .waul 01 sTuy luaw2Jrciap sru uaaq -pTtnq 4Tpaal luaulandaq .hut aaaul. tun. S11 sauaS puu sT paJneunw Rq daa3f Raatt ou!. aul of uaila asToaad uoTluwaojuT lusIxa Jo juT1TqTA JTaTT1 sluawusTTqulsa puu 2uTaTnbuT oluT aul awloranuo Jo aTaUl ssauTsnq suoTlraado aaaum r TRIA91.1:).1 RuV TTTq T3TU# sawoo 3yorq ao)(pTrdun TTTq st p tin qumr uoTluallv pup ST palou sr un uoTlnoTpuT Jo aul aaTrap pur -aoqdaoon eons sr slsTxa uT 'uopuorr s)Turq imuojut Trsta ST? sTari DTI S/SOICi op qou RJaro smq of asTar XidwTs uaum auo 111T3 azTTraa uo as,os leuTrqs uT aaauy sr ou TTT1 s!loTqorsuraT ua=)plaq a71 sxurq uT saNTasulaul iatrvel ssau.ifram Jo slT ST) GITITct aul aaTrews pur :Cam uro XTTraauai op os ln au1 aToldwoo ao 1Tpaao sTuuuoRq vs tiltOTTs aallaq aqra Ja)T0.1(1 SUM/ punoan uum lr atm anbung ap 211T.ITTIbUT .zoo air '90(174.1,0' SaT1TUrt1.10drTO ol x. 13 au apral put: receives a small commission. sometimes tney deal between 416- each otner direct. transactions such inese brokers deal in a variety of securities, foreign exchange, bills, etc., and,' gathered, were not particularly responsible. The business of the private banks is somewhat different in That is to say, that they make advances on pension. advance for considerable periods - they three or six months - fa against bills as collateral, the obligation of borrower A being' in each instance 30 cloys up to three months with a general understanding that there will be little difficulty 4 about renewals. The large. private bankers, known as haute it barque, are also considerable buyers of bills. clearing House. This is of comparatively recent development and has only about taelve members, .fi e being: the most important and responsible banks used, compared to bank notes, cbecks are so little tnat when the war broke out the operations of the Clearing douse were entirely abandoned and will not be resumed for nother month. They have two -4" %fa clearings daily and the average turnover throuch Lne Clearinv douse of such institutions as the Comptoir and Credit Lyonnais will run from 700 to 8b0 million francs per month only a trifling amount of co.rse compared witn the American clearing House operations. the custom is to send the checks to the Clearing house, ruch as we do, and settle the balance by an order on the Banque de France, which is debited and credited to the respective accounts of the institutions that are either credited and debited at 1..ne Clearini- house. Ihey have only admitted very strong institutions as instances nave arisen where some of the weaker unes nave given orders on the hanque de .Prance which have not been honored. It is customary to send buck checks which nave been found to be N.G. early in tyre day prior to a certain hour, the i.es iork practice. similar to It is the general belief here that the lass are n,t sufficiently rigid to enable prompt prosecution of those who improperly use cnecks and that has deterred the use of the check system. At the present time all of the b::.nks and bankers of Paris are collecting checks Air by hand at considerable expense and incor.venience particular. ly as their clerical farce has been almost depleted by the war, anu have been largely made up by women clerks. Country checks. to that in The practice here is quite similar London, with certain variations. I think it may be said that checks are handled b, four methods: 1.- Given immediate credit wiere the customer is undoubted but charginv the customer interest at bank rate,plus 1% to 11-1/4%, for the period allowed for collecting, wilich would vary from 1 to 3 days. 2.- Giving deferied credit, in which case the accoeLt is credited with the amount of the check and the customer charged with interest at bank rate plus some addition in c:,,Le 1"- e drari5 :,ufricient to pinge upon the amount. 3.- Credit upon "advice of payment" which means that the customer is not permitted to draw, and if he does check gill not be paid until "advice of payment" is received. 6 4.- Giving imiediate credit by red check on the Banque de Prance for a check .;hich tne customer does not expect will be paid until the following day, in which case the check deposited is a white check. This is simply another method of extending credit and the custorne'r is charged bank rate plus a com- mission p( chart e/ for collecting, check,: first metnod described is rather a rare occurrence. The operation of re-discountinL bills with tne Banque de.lerance is apparntly closely associated with the general system of settlements between banks, only two or three of the larger b;i_nks apparently not availin- of the facilities of the Banque de France for converting their portfolios when needed. It is quite apparent .that Trench banks rely upon tie balance at the Banque de Prance as reserve to a much Lreater extent than was even prevalent in the United states, (1 II-14,11,101 under our old banking law, between banks and reserve city banks. After leaving -. Lewandoeiski, I called for iii. harjes at 5.6C Lut found he had left. his secretary called Pallain who had endeavoured to reach me by telephone earlier in the day and 1 was advised by him that my memorandum had been favorably considered, practically in its entirety, and he hoped, if it was convenient to me, to see me tomorrow to discuss matters. Upon reaching tne hotel he telephoned that he would call upon me between 8.60 and 9 o'clock this evening. harjes also telepnoned advising he would cll at the hotel about 7.ZiO this evening. MEM F Tuesday, February 29th: (gist of conversation with L. Pallain in the evenini; durdng his call at the a Ritz Hotel, Paris) 1insieur Pallain called at 8:30 with an interprAktir to report the outcome of the meeting of the regents of the Banque de France in respect to posible arrangements to be concluded between the Federal Reserve Bank of New York and the Banque de France at the conclusion of the war. he stated that the matt hac been submitted to the regents, all of whom were present, and that in all respects the memorandum was satisfactory. He de- tired, however, to point cut one matter w)nich would have to be handled with considerable delicacy, ard that VT: ?F the subject of credit information. It had be.,:rn the invariable practice of the Banque de Prance never to give official informs,tion in regard to credits, believing that the bank was required to act with entire impartiality and to strictly avoid anything which might appear to injure the credit of any party. He expected t'd-at the bank would be able to met this situation by pointing out to us various channels of inquiry through which reliable information could be obtained, and in case the information obtained through such sources was not sufficiently complete or seitisfactory the Banque de France would wlfist us in obtaining the information and give us informally and unofficially certain of their views in regard to credits. He thought, in such cases, if we had a representative here the question could be readily dealt with by having our representative visit the Banque de France. I also understood from him that the sources of information suggested by the Banque de France would be reliable and for which the Bangs de France would vouch. Of course, the Banque de France allows no interest whatever upon deposits but would be moet pleased to have our account carried there and would place their facilities at ourelreAire disposal. The Banque also thought that we might be of some service in New York,perticularly in the mateer of exchange' We discuesed the subject at great length, Y.oneieur remaining for about two hours, and I think he thoroughly understeed that the arrangement dircuseed could Drobably not be put into operation until after the conelueion of the war. That at the outset it probably would rot neceseitate our appointing a personal representetive here and that the groeth cf the business which we might trarenct here would depend ufee the experience we gained as it gradually developed-that it would depend particularly upon the charanter sine reliability of eee credit tejetertam information we were able to obtain throuc;h our correepondente. He eleo understood that a part of the errengement would eonest cf our establishing accounts with banks and bankers elsewhere in Paris, in the course cf time, where we would receive intereet on balances. Ucneieur Iallain was ruoet emphatic in his asruronces that the arras_ Bement was a most welcome one end the sooner it was brought about the better satisfied he would be and that 'this was the ueanimour view of the regents of the Banque. I was not qeite sure that he under- stood tee reasons for deferring action until after the conclusion of the war nor did it seam deeirable to raise the question of neutrality. Tr_ a subsequent conversation with .-earon de Rothschild Vednesday P .ilreh 1) at which Harjeo was de present and at Baron/Rothschilds residence, the theory of the law was quite fully explained and I also took pains to explain that while the present moment might seem opportune for acoumulating francs on account of the rate of exchange, there were dP"It't.A t Intfi t erIVI other ArP4a+sevelsetits which would make it imposrible for us to conclude arravgemente now. We thought, however, that the experiences of the past eighteen moeths demonstrated the it of perfecting plans in advance in the event of new omergenciee arising, and that we preferred to conclude our eereral understanding of the character of the arrangement at the present time co that with the aperoach of the conclusion of the war NOP might eo conduct our operations to furnish eag eutIk a steadying effect upon the exchanges. This of course had some bearing or the question of gold shipments, al! of which was 4 apparantly clenr to Baeolotheehiid and he seemed to endorse the sugeortion very positively and warmly. At the conclusion of nee interview wite e. Pallain, it war understood that considera Ie time must be ellOd for discuseion of these matters rafter my return, as it involved the interests of twelve separate banks and of course was subject to the consideration of the 'Federal :reserve hoard in e!ashington. agreed that the matter would be kept alive oy correspondence tetween us from tine to tie and whenever occasion arose for taking the mee'er up actively, 2 would promptly advise him and possibly virit Paris again. We Elaboration of various conversations with Lonsieur Pallain and associates; Baron de Rothschild, and other Paris bankers which I was unable to dictate while in Paris. Prices: Some slight indication of the degree to which the prices of necessaries have advanced is given elsewhere in the diary. Food, coal, gasoline, etc., has shown tremendous advance in nrices partly due to lack of domestic production; partla to lack of shipping facilities, but to a very considerable extent due to lack of transportation within France itself. At the time I was in Paris the railroads were Inlfale to transaort foodstuffs from the seaboard to Paris in sufficient quantities to relieve the urgent demand there. I gathered that this was due, to some extent, to the lack of ademaate handling facilities at the ports. Real estate and rents: Considerable distress has arisen by reason of the (aeration of the moratorium in respect of rent payments. Tenants uuder this law oan appear before a Tribunal and show cause why they should be temporarily relieved of some of their obligations for paying rent and frequently this relief is granted, and the result is that real estate prices are absolutely paralysed, .nd real estate owners in considerable distress. A large part of tho investments of in real est te is Ix insurance companies and other investment companies and corporations are in mortgages and real estate, and with rents not being paid, real estate ovmers are unable to pay interest - --The whole scheme seems to have been badly handled, and while possibly designed originally for the relief of families where the men were at the front, advantage is now being taken of it by all classes of rent payers and the effect is thoroughly bad. Taxes. I was informed at the Banque de France that tax collections are about 60% of normal. Foreign drawn bills are now practically a negligible quantity Bills: in the banks, and the volume of inland bills has been greatly reduced below normal although the discounts at the Banque de France show an increase of 100% over the amount twelve months ago, which is a very good indication of increase in domestic business, as bills are drawn for all varieties of coranercial trans- actions in France down to amounts of 10, 25 and 50 francs. The retail stores in the Rue de la Paix, Avenue d'L Retail business: Opera, etc., which may be regarded as dealing in specialities are doing only a ndleinal business. customers. While most of these stores are open one sees very few The stores that I visited such as the Grande liaison de Blanc, Doucet, Rogers & Ga ct Liaapin & Webb Ltd..and a few others were deserted. I believe I two the only customer in them at the time. the large deaartment stores like the / On the other hand, Maison de Lafayette etc., are so Crowded that one can hardly pass through the aisles. It all indicates economy as those A.g stores all do a very large bargain counter business, and the bettor classes are now dealing with these establishaents on account of their lower prices in preference to the higher cla s stores The officers of the Baraue de France and Baron de Rothschild Finance: gave me a good deal of interesting informaticn generally in regard to the finances of the country. I was informed that the Banque de France has an arrangement with the Government by which the Banque is promised payment of its advances to the Government prior to the payment of any other Government indebtebess and out of by the Government the first general loans alaced purposes. for refunding and other This represents a prior claim running from 6,000,000,000 to liko, 8,000,000,000 francs, that being the extent of the Government's borrowin: from the Ban ue de Prance. It was estimated from the 13,500,000,000 francs of the Benue's note issue, about 5,000,000.000 francs have been hoarded or held in reserves of then banks. Baron de Rothschild thought that the Banque de France could easily sufport an issue of Pram 25,000,000,000 to 30,000,000,000 francs, Meautimiftemanosx be ng about double the present issue, or say a. margin of 12,000,000,000 to 15,000,000,000 francs for further use. Eonsieur Pallain said that the Banque had already shipped 20,000,000 pounds sterling of its gold to the Bank of England, and under the existing arrano.ement had agreed to ship 12,000,000 pounds sterling in addition. The peasants had turned in about 250,000,000 pounds sterling in rosponso to the appeal of last year, and Baron de Rothschild estimated that there was still hoarded from 450,000,000 to 500,000,000 poinds sterling-this being the estimate of the Government and the Banque de France. Pallain and Rubineau told me that when the crisis arose, the policy of the Banque de France was to rediscount without limit, and I gathered from What they told me tic of the scenes during the first few days that it was Pallain, Rubineau and the Secret:Are Generale who really saved the day for the French banks generally as they took in bills, literally, in bales. The Ban,ue still has a large account of 'frozen" bills figures for which appear in the annual re)orts. I asked Rnbinson, the head of the discount department, to describe how he would define or detect a finance bill which wns ineligible for discount at the Barone. Be A.c3:nd up a piece of paper as ono would a bank note to detect whether it was a counterfait said that it was really a matter of instinct and experience. -r not, The Banque alwaye requires three obligations, of which two must be French and one, the acceptor. They do not discriminate against finance bills. The only bill which they absolutely decline to discount is a bill drawn on a foreigner on a foreigner and domiciled in Frzoice even though the endorser is French. They consider that such bills are drawn for the benefit entirely of foreign business, and simply , A domiciled in France for the pureose of getting the lower rate of discount prevailing in that market. The Banque de France discounted a tremendous volume of English bills, largely to meet the contingencies of French banks in co looting Robins= said that in one day his department had collected as the bills. many as 100,000 items in 'earls, involving the use of over 1,000 messengers. I believe his regular staff in the discount department, in addition to the The officers of the Banque told me that messenger service, is 450 to 500 men. thy felt that the big banks imposed upon the Benue de France in dumping these collections upon them. The Banque de France is undoubtedly the hub of the whole financial system and both the other banks and the nubile generally have unlimited confidence in it. The Regents of the barque, by reason of their position, have great influence and, as is the case with the Bank of England, they are largely drawn from the banking houses which in London are considered to be merchant bankers. The so-called finance banks have recently had a very with the exception of the Credit Lyonnaise and the Comptoir National d'Escampte The so-called Hautbanque. or private bankers, has been driven into the beckground by the operations of the finance banks, and as a class they have managed their affairs more carefully and conservatively than such institutions as the Societe Generale etc. The strongest of the so-called Haatbanques are de Fothschild, Hoetinger, Mallet Freres, H e & Company, de Neurize & Company, and I shauld say that Morgan, Harjes ;, Company, in rating, stand right alongside de Rothschild. A number of the privte banking houses are under ma puma suspicion of German ae:filiations. to de Rothschild. I should say that this does not apply at all These private bankers are men of very great caution, and while they have occasionally hendled some things that did not turn out very well, such for instance as the Banque le Union Parisionne, etc., they are on the whole I had a long talk "Lc regarded as being of very high grade and in good condition. with Baron de Rothschild regarding gold payments by the Ban'ue de France. Ho thought there wee no question in re -.rd to their maintaining gold payment any exterior obligation no matter what the outcome of the war. t The Banque de France could, if utcessary, give up over 000,000,000 of its gold but of course Ile said that when they did not -:.ant to do so until pressing neceAilty arose. he and his associates were asked to draw the bills for the Crusooredit he and the other bankers were quite unwilling to do so unless they were p,otected by a pledge of gold. They could not get it directly from the Banque de France, Monsieur Pallain being unwilling to make a commitment that would appear in his etatement, but that Dmsleur Ribot gave them the Government's guarantee to furnish gold if excleosgo could not be had and which they considered to be just as good as the }ledge of the Banque de France. There are certainly eene eerie= situations to face in regard to investments of the French people, and to sonv. extent French banks, in foreign securities such as those of Brazil, Turkey, Russia, Servia, Mexico, etc. Of doubtful and possibly warthlese slow liquidation. There is a lot staff in the nation which will be of very The big banks, like the Credit Lyonnais°, Comptoir National d'Escompte, etc., are carrying about 50 cash reserves. The Government is now borrowing very large sums, the figures being given in a separate memOrmidum, on bills running three, six and twelve months, the rates being 5' for the six and twelve months. for three months and The amount of this short debt is much too large and they are hoping to quickly reduce it by a new loan which may enbody the same litorary features as now prevails in many of the municipal lane. The French loans, however, seem to h ve been better handled than the English as they Lre all selling at a premium. Monsieur Ribot seems to be broad minded enough to pay the going rate so as to keep a good. market for additIlinsa Imo". Political foelin All discussion of the attitude of the United States toward the war must be carefully analysed as one is liable to be deceived by the essential politeness of French/L:0n and their desire to avoid giving offense They will with great suavity assure rou that they th roughly undgrstand the difficulti of our roeition -- that probably it would be injurious to their own interests to have us become involved in the war-that they were too dependent upon ns for suiTlies etc. This, however, is not their real unZorijing feeling-they all believe that it would shorten the wer to have us cone in. That we are taking altogether too many affronts from Gemeny, and that if Germany should win this war we wool d face serious trouble vith her later. The ran who discus sod this with the greatest frankness was nnsieur Roiselli of the Credit Lyonnais who is &.n Italian by 1),rth, educ eted. in banking in London, and does not labor ender the handicap of Prenoh politeneen ate. When he ex;lained that the french had sone underlying feeling plerust the United States. I asked him whet he would do if he were Tresident nr the United States, and had the situation to doe?. with. Ee intinated that he might follow the same course that the president had but he eid not thin{ in saying that that ho expressed the views of the Frenchrer. That sere night at a dinner tRosellij which Li% ilarjes Ct'NV me, there were present about one dozen bankers. he/ wont over the discussion we had, with those present speaking entirely in French and which I could not follow. that I had asked him at lunch. Be wound up by asking the sane evestion With one accord and Inherently tley replied that they would declare war ageinet Germany.. There °coned to be no doubt in the minds of any of them. I disoc-vered 'hat there is a very strong feeling of suspicion and uneasiness towards England and the English management of affairs I judge it is based urn their belief that England is endeavoring to dominate the situation in financial matters, and a very strong feeling that France has little to gain by the war and much to lose--that England will turn the outcome of the war to her own advantage. There seems to be a considerable and very active cabal directed against Joffre by L f011awers. Clemenceau and their This matter took the form of to rol:Imittee of Investigation by the Chamber of Deiuties into Joffre's conduct of tl:c VaT. I had oppor- tanity to react their report which was bitterly critical of Joffre's whole programme, end giving. credit for what had been done principally to Galion!" and Castanau. Among other thins in the report was the statement that the total French lower, to the date of the report, some months ago, amounted to 3,200,000. In this figure were, of course, included many wounded who have since roturhed to the front. I have subsequently learned that during the battle of Verdun a serious blunder WaS made by a French generil in the early etage of the battle who comaately lost hie head, became panic stricken and sabsecuently insane°, cAptured 1n0 Frenc7i. The Gen3ans cot thrc*h the rrench lines, gl:ne, most of w,..leh had been neLrli destroyed. The disaster was so sericqs that Elie French Government again contemtlated moving all records to rordeaax. General retaine at last sacceeded in repairing the damage before it became a disaster. This has been con(letely our2rossed from the French public but it is more or loss the suject of gossip privately. The guns beet included most of the big cans that had been removed from the fortress of Verdun and remounted, many of which however had been badly worn with use and destroyed by exploding the breeches before being abandoned. I was informed that when General retain took charge at Verdun ho found that that part of the French env, which is very large, was Yorth of the River reuse and would have been absolutely destroyed had the Germans broken through, as there were only three bridges available for a retreat. The General in charge of that section was immediately removed and General retain constructed no ltell than fifty bridges for use in case of an emergency. He is today the popular hero in France. When the disaster above referre0 to occurred t3e Cayo element thou&ht they would be strong enough to launch their attack on Joffre and a committee retort was submitted to the Cabinet with the dememd that Joffre be removed and the conduct of the army be put under the direction of a committee of the Chamber. rUch to ttri' chagrin the Cabinet voted down unanimously the resort wie.h the exception of the one neither who 1.troduced it, and for the tine being at least the Cayo Cabal is dead. "hare is no doubt that the war losees in men in France are far in onceee of current estimetes-that France has reached and passed tete arex of her strength and that such more of the brunt of holding the Western line will now rest upon England wlich has recently acded forty miles to its own line so as to release the men of The French army for Crops: Ver6un defense. Geeerally ei)eaking, the estleeetee of Freneh crops are only from one-half to one-third of neemal. They are tronendonely dependent u: on the rest of the world, for food supplies, particularly moat and grain. The French peasant, however, is moot successful ie eaisirg chickens and the supply of chicken eeere to be inexhaustible, they having advanced less in r.ricc than any other food. Labor: There if much urcerteinty and uneasiness as to what will harten to the industries of the country after the war. The French derond to an unusual degree upon skilled labor which is developed by the arrrentice system. Young men who have been taken two years or more out of the shore where they have been learning the trades have lost an inrortant period of their education and may not be content to return to that employment. Phyeically they are being tremendously imrroved by the service; thet is, kept in the °Ten air, living upon simple food and away from the cafe life which is debilitating. American credits: All the bankers with whom. I talked wore meet anxious to see tho American "Oars?S e::tend credit !Jere generously. This is treated There would be no with at more length in another part of my diary. jealousy or exec-sin:lee if all co7mereial credits, for the present at any rate. could be transferred to ALIerican banl:s. They are illing to make any sacrifice to give adequate security, and are really looking to American bankers foi support and encouragement. .'hey are naturolly sus icious and timid, and legotiatiens area delayed and difficult on that account, but once their confidence is established, the American ranks could get unlimited leariness James Stillman! France and their own ters. hvvi rot dietrtel t 1 eubatance of ray conversations with Mr. Stiilman for various wcnsonc but will make notes of the same on returning to the office. r.r. ?rarer, Supplemental to conversation with67.19117XX Secretary of American Embaesy in aria : 21*. Fftner told me that I would be interested in a conversation he had ith Howard Taylor who. a few mo:Ithe before, had stopped in Paris on his way back to America from Germany, Said that when Taylor was in Berlin some of the leading Berlin bankers haa a private meeting with him and told him that Germany was headed for financial destruction-that the rest of the world would go down with them financially. and urged him, upon reaching Paris to see Baron de reuflize and endeavor to persuade him to have a meeting of the French bankers so as to start a movement among bankers to bring about peace discussions. Fe gave Fraser the inrression that Germ= bankers wore in a groat state of excitement and distress over the German financial situation. Baron de Neuflizo was understood to have consulted some members of the French Government and upon their instructions is said to hz:ve re lied that if Germany wanted irfomation as to what the French demanded before discussing peace he might say that they demanded the return of the lives of 1,000,000 Frenohmitul. [Stop, marked after"1,000,000 Frenchmen'] [Remainder of this is as follows:] Supplemental to Sir Edward Holden memo: In discussing personalities Holden spoke very slightingly of several important people in London. Said that Kitchener was a complete failure, had been entirely supplanted and would be eliminated were it not that he was so much the popular idol. Said that his (Holden's principle competitor in London was Llgyds Bank Limited, and which he thought had no head. Bell was not much of a banker, and Vassar-Smith had arisen from a very small beginning. competition. Said mean things about him and that he had indulted in unfair It is only fair to say that Bell, while he mentioned no names, intimated tiia that he felt that Holden was guilty of exactly that. Holden also said that Barings had lost their standing to some extent in London on account of the large extent of their German business as well as on account of some South American business which had turned out badly. Lord Revelstoke was unpopular, cold, and vindictive, and a very much overrated man. He also spoke rather slightingly of Lord Reading and the aDunt of trouble he had had with him about various matters; and, spent a long time abusing Lord Cunliffe. Bank of England meml: One day Montagu Norman asked me if I could throw any light on something that had just come to their attention. It seems that aimmediately after retiring from the President's Cabinet Garrison had called upon Spring-Rice and had had a long talk with him about the policy of the British Government in taking German securities off the steamers which were coming to America through Duthh houses, and urged him to impress upon his Home Government the inadvisability of pursuing the present course on account of public feeling in the United States and seemed to be very positive that the British Government was making a mistake. I told him I could make no explanation unless Garrison had been retained as a lawyer to represent some German houses in New York. The Guaranty Trust Company was mentioned as being a much interested party. [Inserted in the carbon copy, after account of February 29, 1914, are ten pages of elaboration of various conversations, which Strong utilized in his rewritten MOPC account, plus two pages, entitled "Memorandum regarding commercial credits", wtth the notation in Strong's handwriting "Harje Memo", which is copied below so that there will be at least two copies of his material.) Harje Memo Memorandum regarding commercial credits. It is recognized that the creation of a large volume of commercial credit, under which long bills will be drawn in dollars by American exporters, for acceptance and discount by American banking institutions under credits guarangeed by French institutions, would have the effect of relieving the market of offerings of exchange and of relieving the demand for dollar cable transfers. The longer the drafts run the longer the account will be postponed, and consequently the more time afforded for arrangement of large Government or other loans in America. The difficulties en- countered in arranging commercial credits with the bills to be drawn by American sellers of goods, are in part as follows: 1 Unfamiliarity of American exporters and bankers with this business; 2 The difficulty of affording satisfactory guarantees to American bankers for the credits; 3 The risk imposed upon the French importer of paying high prices for dollars to reimburse the credits at maturity; 4 The necessity which now arises for the French banks, which guarantee these credits, to take their own liquid securities (Government bonds etc.,) out of their portfolio, which they are reluctant to do, necessitating the French importer buying the bonds and consequently obtaining no additional credit. It is suggested that some of these difficulties could be obviated by the following programme: The French Government authorize the issue of a bond or certificate which the Government would advance or loan to banking institutions and bankers for a consideration, such bonds to be payable in dollars ( in gold) at [COPY] 2 three, six, nine or twelve months, and to be pledged as collateral to the guarnntys given to the American banks. As to the American institution which accepts the drafts and has recourse against the bond as collateral, the bond would simply be the obligation of the French Government to pay so many dollars in gold at maturity. The bond should stipulate that the Government would undertake to furnish, say through the Banque de France, at ma urity, exchange in dollars at the rate of the day, either on which the credit was opened or on which the drafts were accepted so that the French importer would be certain of cover, and French banks certain of receiving cover at a rate of exchange which would not involve loss on the goods imported. It is recognized that to make such a plan effective in large volume the present method of drawing must be abandoned as the few institutions on both sides now arranging these credits will soon reach their limit, and it does not offer a sufficient variety of names on bills for the American market. The plan could not be handled by a group of syndicate, but should be handled as a business custom. This change should be brought about by a working arrange- ment between the Government, the banks and the customers of the commercial banks, with the object of educating French importers to get bank credits for their imports, and of arranging as long drawings as American institutions are willing to grant. each instance the French bank should ascertain which American bank the American exporter is accustomed to deal through and, if possible, arrange the commercial credit through that bank where the exporter is already well known. In Tb.ur4-aj..., March 2nd: This morning called at Lloyds Bank to say au revoir to Mr. ; Graves and Lir. Taman. :Jr. Graves told me that there were between 116 and 118 different Chambers of Commerce which issue small denomination currency. He is getting up a conrlete set of clean samples, of each denomination, issued by each Chamber. It will take about two months to make tre this collection, and when it is complete he will send it to me in :erica. From there went over to Morgan, Harjes re Company and made an appointment with Jr. Harjes to lunch 1 with me. Called upon Monsieur Rossior of the Banque Suisse et Francais°, of which ho is 54444.4est, and had a very interesting tare in regard to the bill ousiness--going through his bill re-ister and credit files. Picked up Aarjes for lunch at Henri/s, and from there went to the American Clearing house where I was introduced to the sister of the Queen oe _Belgium who was there to attend a meeting of the ireeLors. Mao reet the Chief Juctice, Interior and the Servian leinister to France. House in ne Minister of the Left the Clearing Lee to keep my appointment e-ith Monsieur Pallainajleonsieur s.ctoe Rubin,. and the Secretaire Generale, f'Ascussing the subject of bills, methods, finance, etc., concerning which I will later dictate a separate memorandum. I then called uoon Monsieur Sergent, and had a very pleasant talk eith him. Iallain presenter From there returned to the hotel. 'e with another medal which had been issued some time ago by the Banque de :ranee and also with a copy of his work upon the correspondence between de Talleyrand and Xing Louis as ell as a first press _roof of the new ten franc notes to be issued by the Banque de France. Scent the rest of the afternoon with Phillips and in the evening took dinner with Harjes at the Hotel Crillon meeting Monsieurs Pallin, Governor of the Banque de Frence; Bethenod, President of the Credit Lyonnais; Edouard. iloctelin, President of the Bancue do Faris & Des Pays-Bas, the Banque Franoaise et Italienne and also the I'Chemins du Noir; Paul Boyer,General Manager of the Credit Lyonnais; Baron C.e Neuflize of de Neuflize P Company; James Rosselli of the Credit Lyonnais, and Ernest I:allet of Lallet Freres. Friday, :.larch 3rd: Went to the Embaesy at ten oteleek aid met Mr. Fraser who ea.:_ arranging a diplomatic passport and mail pouch for me to take to London Saw Aelbassador. Sharplieat for just a moment. Harjes & Company and saw Prom there went to :::organ, Harjes who was arranging about having 7ea feivIAA-a passports X. visaed for m conversation we had in credits, which he pro as I pointed cut to hi From th the -eacttrr. o flee, who I found h in Paris who was in c telegraph Thackra of office west to meet B partner at Ho:rils. :natio passport from his son. Returned t the Credit Lyonnais h the telephone. He cam Bethenod, President o- what I at'eted in res r had said something abo Gu with 14.2aei-eg dollcrsA tramp through the Latin quarter visiting the Icole de Beaux Art where I purchased samples of some dinner cards which are now being painted by ati-ts who are practically being supported by the sale of those cards in the United States and'which sell for about fifty cents. Some of tkv these artists earn as hich as 1000 to 1500 francs for painting a portrait. leturning to the hotel I received a call from :.r. Harjes who stopped in to say good bye and to express his gratification at my visit and its outcome. :sir. Phillips made s. Logan and Captain Sayles dine with me at the Cafe de Faris, and we all spent the evening together. Saturday ::arch 4th: Took the 7:50 A. train from Saint Lazarre station for Dieppe. A man from Er. Harjes' o :rfice met us at the sta,ion to see about our luggage, accom.lodations etc. thing done for our comfort. Had a fine compartment reserved and everyArrived at Dieppe at 10:45 expecting that the bo t would sail some tile between noon and one o'clock. The train conductor was the same one we had when en route to 'Paris, spoke English fairly well and (for a co:sideration) was arranged. undertook to see that everything He certainly did- -our luggage checked without opening for custols inspection and our passports visaed without waiting. The exhibition of Monsiuer Ribot's letter proved to be an open sesame with all of the Frenchmen. .::co were able to leave our passports with the Special Commissioner while we had lunch at the Grand Hotel. The pass- ports were not generally to be examined until two o'clock and the boat sailed at four. It was raining and storming at the time and it looked like a bad crossing. Sucqbeded in obtaining a very comfortable cabin to ourselves on the boat, well located az dships. At lunch met a es young French Captain who was on General - staff, and formerly a Lieutenant in the cavalry, but who was now doiJg staff duty owing to 10 'living been wounded. business. He was on his way to London upon some diplomatic Likewise met at the dock the British Captain of the r Intelligence Department who rescued me from the crowd and gave instructions to the officer on the steamer to see that I received every courtesy upon arrival at Folkestone. We left Dieppe at 4:10 P. slept about half way across the channel, awoke. I ". _nd it was nretty dark when I Shortly afterward all lights on the boat were extinguished and the trip was finished in darkness. o'clock. Reached Folkestone at about nine They had arranged to examine our passports, along A.th a few others, in the smoke room of the ste,:.-ner annoyance. .11ich avoided all delay and A young English officer took us off the boat, arranged to have our baggage marked by the customs without inspection and saved ns considerable bother. Got soe coffee at the station, secured a co - partment on the train to ourselves and finally reached London. The train left Folkeston at 11:40 and 7e reached London at three o'clock Sunday morning. Sleft until noon Sunday. Sunday, ..larch 5th: Lunched .J.th Shiverick L.nd Captain Quekemyer at the Savoy hotel and spent the rest of the afternoon writing mail. In the evening dined with Ch. ndler Anderson. Monday, 11/...rch Gth: Called at the American Embassy the first thing and delivered the mail -,-)ouch together with a packet entrusted me by Hr. Frazer. Lir. Bell, Secretary at the Embassy, ex,Jained that my Embassy Passport would also have to be surrendered, and Burrell delivered it by hand in the afternoon to Captain Symington. parch 6th continued: Had a chat with Captain Symington, and before leaving Ambacsador Page came in. After a little talk he invited me to dinner tonight. I then left for Dorgan, Grenfell Pc Company's office where I found LL Grenfell, Jack Morgan and airC-Aseeer.-Slith. EXplained to Jack and Grenfell, in a general way, theischeme which we had in mind for the Federal Reserve system stating that it was in every way confidential; that whatever we undertook would, in all probability, be subject first to an agreement of comity with the Bank of England as I considered it ould be unwise for our system to enter into this market in any way which might be regarded by the Bank of England as antagonistic to their plans or interests. I also felt that our business would necessarily have to be conducted through a nuaber of the large joint stock banks as well, both in London and Paris, and that I would feel better satisfied to undertake the establishment of business relations without the appointiaent 0 an agengy; provided, that we could make some working (-64 t0,-1. 4 Tiri, arrangetent with :Ir. Morgan's firm in these two cities. Jacktoappeared be mach inter an English banke , tf:rk\ spii-tem in regar has been fully ex Jack at his house two and that Ir. of the Bank of E hen he would be Grenfell Compa Sir Edward Holde to the Trearury. I Fre6. Arl.anged to dine Tuesday night with Fairfax, and from BAbright ,c'2 Company's office went into Lloyds Bank to see 11.. Bell who gave me a very interesting hour. Showed me through the bank and gave me considerable information in regard to the way they ran their branch system and also the handling of checks etc. The understanding was that I would call back some other day this week and he would give me all the time I reruired. I exTlained to him that I had just received Vassar-S:ith's invitation to dinner for Wednesday night stmt an hour or two before that. He undertook to say that he would see Vassar- S ith this evening and arrange to postpone the dinner until next week. From there returned to the London City & Midland Bank and found that Sir Edward Holden had not et returned from the Treasury J Returned to the hotel andlet Miss Devereux, migun Mr. Shiverick, and arranged with the former as to what she should do to get hospital France. Dined at SL15 with Ambassador Page. him was delightful and most interesting. work My evening with Mr. and Mrs. Page rind a Miss Tracy were the only ones there, and after dinner Ambassador Page an0 I s ent an hour in his dining room alone, and he was good enough to tell me a great deal about the situation w7rich probably no one else could have done so well or with such comrlete knowledge. Tuesday, March 7th: Spent the morning dictating mail etc. Grenfell Then went to Company L.tacl had a long talk with Jack :'organ. Torp-an, discussed at considerable length the neceFsity for developing the progra-me of the Federal Reserve Bank here through the Bank of England with which he heartily agreed. It is undoubtedly a fact that extensive operations by our system, in this market, might run suite counter to the policy the rest of the afternoon dictating unti :icl writing letters.to the family :Ave o'clock .:hen Lord Churston called for tea and staid until seven o'clock. He is in te Guards but on reserve. Sends his 7-.4 mornin s doing military duty and afternoons attending to his duties representing Messrs Haligarten & Company. with Jack Morgan at his house. At eight o'clock dined At the dinner were Mrs. Morgan, Lord and Lady Bryce, Lady Silversmith of Belfast, lass Grenfell and 1.Ir. Morgan, After dinner/Lord Bryce, Smith and I had a long chat Vivian. Sslith. in Jack's library. Lord Bryce g ...ve me a very interesting statement of what he understood to be the English opinion in regard to American attitude toward the war. Walked home with Smith and on the way stopped at a curious little club, largely- frequented by the hunting fraternity and which, even Thursday, Larch 9th: twelve o'clock was pretty well crowded. Thu_ sday, Llarch 9th: 0 Called at :organ, Or nfell We partnere out. Company for mail and found From there stopped at the London City Midland Bank and had a chat with Sir Edward Holden, ascertaining that there would be about fiftee I would be expecte to eighteen for dinner Friday night, and that to say something. Chairman LI the absence of Lord Aldwyn. Grenfell 101iN Vapar-Smith will act as Returned to :Aorgen, Company and had a long talk with Jack .::organ about the Bank of England arrangeraents. expressed the opinion very strongly that the only feasible end dignified arrangement for the Federal reserve system trm:i. a go to weR4oa4.1.u.um.....- business here wqgld be directly with the Bank of England, just Ito etc a4;14. as had with the Bank of France in Paris. The Bank of England had bought bills in large volumes at different ties for the Banque de 1r, Ace and for the Reichsbank. odi) Of course they4mose pretty slow to enter into an arrangement of this kind, but that thea were obvious advantages for the Bank of England as well as for the 2ederal Reserve system, and he felt that both he, Grenfell and Lonta7u Ilorman would be able to facilitate making en arrangement which would be satisfactory to us, as all three were lost friendly toward te development of cooperative relationship betveen the two institutions. tonight. He has invited Cunliffo to dine kith ltor and Grenfell Lord Cunliffe, just now, is very deeply engrossed in the work of the ba.lk and in looking after the finances of the Government, and it would be quite difficult for him to give the necessary time to discuss the matter in detail--that he was tempera'entally very slow to act and would recuire time to thilik the matter over before reaching any conclusion. I told Jack that my between here the had Government on me onethat hand, ini,..uirieo convinced the the relationsof now existing England and the 11. Joint Stock Banks were such that I considered it highly inadvisa- ble for us to attempt any arrangement with the Joint Stock Bankers or Discount Houses or any others until we had thoroughly investigated the situation first with the Brink of England. That I was prepared to return home without any understanding at all as to our business here unless the Ban:: of England displayed enough interest to Five the matter careful consideration. Y(3 certainly did not antagonistic want to undertake business arrangements that would be zattgaltbut what in any way t &the efforts of the Goverment and the Bank of England were designed to bring about. That the whole arrangement, anyway, would. 1:,robably not be put into operation until the conclusion of the war but that -e (Id not propose, if it could be avoided, to be caught unprepared again and have situations developf that would be exnensive or possibly disastrous to the interests of both countries, when that could be avoided by reasonable foresight. It was quite clear to me, from what he said, that his views and my own regar7ing the desirability, of such an arrangement as I had desc-libed to him were in entire accord. I Arranged to call t3morrow morning and have a word with him, it being the last oportunity before he sails. Returned to the Ritz :ith Lr. Stettinius who is hoping to sail on the "ITew York" the twenty-fffth. Immediately after lunch James Simpson of the Bank of Liverpool called and we had a short but very satisfactory chat in regard to conditions over here and conditions in Liverpool. He says that, in his opinion, English Joint r)ck Banks have nor'' been in better condition than at the present time, with ossibly one or two exceptions, and with the excePtion0, He load feelsofthat the Government bonds short Govern lent aBills. course, thatand they L.ro carrying very large Government should tmedmiximmt7 defin*tely recuest the banks not to attempt to market these securities until after the conclusion of the war, as the banking institutions should not be absorbing investent funds fro: the market while the Government is placing loans--particularly as the Government has informally advised the banks that it will see that no injury arises to any of the banks by reason of their holdings of Government securities. There is an understanding in regard to the discount of short bills by the Bank of England and advances upon the securitirof Goverment bonds which in itself should be amply sufficient to Protect any bank against exhausti demands. He also expressed exactly the view that Ihold in regard to the traCe situation after the war. Ger.'iany will have sr)me hard problems to face, but that when the war stops --it should actually STOP, and not be continued in te form of a trade war with the object of destroying Germany totally. ThfA agreements will live to be entered into which will have the effect,in a greater or 7essc degree, of continuing Germany as a co petitor of England and the Allies, although,qf cc urse. her econcylic condition may not enable Cirrp,p/tkon her to make this 0444444en effective 'or some years. Any other e'vate of affairs would lead to a renewal of the4ery conditions which gave rise to the present war. Speaking of the Bank of 911.0014,1E40 Liverpool which has about forty million sterling of MOSOXWOO, It was in excellent shape. The outbreak of the war found them with only Z16,0003100 of enemy paper in their :)ortfolio, all of which 1(1 been provided for notithstanding their own customers were liable for much of it and that he felt quite sure that the large German ban;:s were not going to repudiate their engageraents, and cellor of the Exchequer, McKenna and Sir Edward Holden at the Savoy In the course of an interesthig discussion, Sir Edward. Holden made a statement which indicates the d5itude of the English Joint Stock Banker, in regard to gold pay..ients. The Manager of one of their branches advised him that an American lady claiming to be the .dauhter Schwab presented a cheque for Z3,000 and demanded insistent The Manager demurred and the lady became ixttommont and rather of Mt. Charles gold. indignant,declining, however, to explain for what purpose she desired the gold. The Manager undertook to reouire her to close her account and take bank notes. Edward Holden. After so:e discussion she was referred to Sir Inas.luch as she had threatened to report the matter to LT. Schwab, and in a way which would cause a good deal of discussion in regard to English finance and the solvency of their banking institutions, Sir Edward saw the lady and with a little gentle persuaIt seems that sion induced her to explain the reason for her demand. she had received a letter from an American stating that the United States would shortly be drawn into the war and that there would be a gold panic--that it was desirable for her to get a store of gold in hand for her own protection while there was still a chance to do so. Sir Edw rd pacified her and finally persuaded her that it was quite unnecessary for her to act upon the advice of her friend. Likewise, in my talk with Mr. Simpson, he expressed the same criticism of the Bank of England which has been much in my mind. Their reserve Percentage is now 27. They hold in their Banking Department nearly thirty-three million sterling government securities and ninety-three million sterling other securities. He is unable to understand why, during the past months, when the market has been quiet and liquidation has been possible, the Bank has not been able to reduce its position. so as to make a str-nger showing by liquidating accoun t A Cr other. securities and decreasing its deposits, thereby increasing proportion of gala to other liabilities. 1 OAXtse... GUart. 'Friday, March Called 10th: at Morgan, Grenfell & Co., for mail and had a short 7isit with Vivian-Smith and Grenfell. Grenfell stated that he, Jack Morgan and Lord Cunliffe had dined together the previous evening,and had quite a discussion in regard to the Federal 2eserve Bank matter. That Lord. Cunliffe seemed quite interested, and come time during the early part of next week hoped to have matters so arranged that I could have ample time with him for a thorough explanation of the program. Then called upon Sir Christopher Nugent, at the Union Dis- count Comany of London, Limited, who was very glad to get the message from L'.r. Jay, and asked me to remember him most kindly upon my return to New York. I had quite a talk with him about the bill teitot.r and about the London market. business as conducted by his fie says that the volume of bills is seriously curtailed by the war situation, and of course the Discount Comaany has fQlt it somewhat as it reduced their turnover. Prior to the war much too great latitude had been allowed the large acceptance houses like Kleinwort 'izatt., co., - Shroeder Co., at al, who sometimes had from 15 to 20 ._pillion sterling in the market, and as they never made a statement, no one knew what their capital was. The Bank of England, on the other hand, did require the private acceptors to make a statement to them of oarital, responsibilit7, etc., and unless they could get such a statementathey took a very limited amount of bills from those and 14A, Avow(' houses, declining\from time to tim2/when it suited them to 1410-to the brokers that they were taking no more of that name at the present moment. This generally had the effect of bringing recaltrant 2Nta(-aodeptors to the lies4 as the bank desired. we did not under- tE.t:e to discuss the business in detail (arranging to do so at a 411 mature date) I did ask him about the a an illustration of his remark that of finance billactszd,_ it was a very indefinite term' he broulit out a batch of new Russian bills, of which they had just purchased a cuantity, that were in the form of finance bills but considered as having a commercial basis, and which would be accepted at the Bank of England. Zhey were all, without exception, bills drawn by Russian banks and banking institutions on Eialish and Scotch banks llany of thorn, if not all, were endorsed and banking institutions. erg with recourse by Barings, who were arrarently the intermediaries in A They were id tical in character ete., with the bills negotiation g., /anat. drawn 4- T- `f dhrrs, Bonbright & Company caedits. Sir Christopher said they were finance bills in form butawery drawn to enable Russia to pay for e heavy purchases i:i England 144'5 and conseTuently -aere regarded ae sound. ts, He showed. me Jai.ite a large batch of acceptances drawn by various concerns on the E,alitable Trust Company of London, and accepted by them payable at Lloyd's Bark, or some other bank in London, and the same from the Farmers Loan & Trust Company. He said that it was their policy to get ail drawees in England, Scotland and. gales etc., to accept their bills payable in London and have them drawn on London, which was mite possible here as most of Val", provincial banks had London offices- He also showed me some drafts drawn by the General Rubber Company of Brazil which were accepted by an agent in London payable at one of the large banks, and which he criticized somewhat as being really one name paper, although it bore a good endorsement. He thought that the General Rubber Company of hew York or the United :Oates Rubber Company should appear on the bill, and that it should be drawn and accepted under a bankers credit. 41 of going to show me is portfolio. At my next call he is Ho said that the rates for such bills as he showed me this morning would run from 5:4 to bk; and wanted to kno;i if we would not like to take a block of one half million sterling at that rate--it was, of course, most tempting. He also said that they occasionally had bills come in drawn in dollars on good American concerns, and would like to knot: whether he mould be free to send those through to New York for offer to the Federal ..aeserve Bank. I told him he certainly would be, and recoriv.iende that he inform himself Quite thoroughly in advance regarding names which we took, and Which I nromised to give him either now or immediately after returning home. Ho is very anxious to do business for us in London, and I have arranged to take lunch with him on Friday next at the bank, stopting somewhat in advance of one o'clock. He is also going to take tea with me some afternoon at the hotel. Sir Chr'sto- pher Nugent ire reused me as being one of the :,lost likable and active of the men I have dealt with here, and is most anxious to possible information. -ive me all :r. Frazer, of th,.. Guaranty Tyust Company's London office, called while I was there. He is one of the of The Union Discount Company, and both he tnd Sir Christopher asked me to explain somewhat in detail the operations of the new Federal I'eserve Sstem which I did. Loth stated that the,; wore satisfied from my description that we were handling our bill business along sou.,d lines, and strongly recommended insisting upon information in regard to capital and wealth of the private acceptors and also urged that it *maid be increasingly important that we should develon Xrawings instead of Prom open there accounts I returned in ourtodomestic Morgan, conneree. Grenfell 414 say goodbye to Jack ::organ. Company to He told me, in more detail,the substance of his cownirsation with Lord Cunliffe. They apparently discussed the program, which I had explained to Jack, at considerable length. Lord Cunliffe appeared to 'ue attracted by it, and Jack said to me he thourht it would be a. mistake for us to contemplate having any other agent than the Bri.n17 of2ngland, and that we shoule. endeavor to. get them to buy bills for us. I asked him what possibility he thought there was of our making such an arrangement, and he stated that not only did he think it WV.E possible but quite probable, if handled right, as Lord Cualiffe had suggested that they might be willing to buy bills for us end have the Bank of j;t.g.3.:..nii. guarantee them. Mat, inasmuch ac the Bank of England had never lost money in its business. such an arrangement would be far better than any contemplated, and on this hint fret:. Jack I think we may be able to do something. If we do not perfect an arrangeent with the Bank of England, it will undoubtedly be necessary to make a number of different arrangelLents over here with various concerns- -both bauks and discount companies. Jack Morgan is particularly enthusiastic about concluding an arrangement of this character and says that he, Grenfell and Montagu llorman will make a determined effort to bring it about. In all of my conversations I have made it clear that under present conditions I hardly, saw how anything could be definitely concluded until after the war, and I think that is thoroughly understood. I then took luncheon with Fred ',7olcott at the Berkeley-- those present being Admiral Lord T:arrenden and Lady Warrenen, Ai". and Mrs. GuinneLs of 1107 York (Ladenburg, Thalman. t Co) and another lady whose name I did not catch. After luncheon the Ad'eiral, Fred elle,. I had a lone talk about the loland matter in which Wolcott is acting for the Rockefeller Foundation, and later 7oleott and I had a ehat about the situation over here--the English feeling about America etc. ;Tolcottle data and observations in regard to Poland and Germany are of immense interest, and in some ways startling in disclosing the frankness with which German army men are willing to talk about their affairs. Met Captain Symington at five o'clock and went to Ambacsai7.or Peze's house for tea. F:om there returned to the hotel, dictated Fp_e mail and then went to the Savoy Hotel to dine with the London Clearing Bankers. !Ai'. Vassar-Smith presided, and t-ose :)resent were as follows: J. H. Tritton, Barclay & Company, Ltd. Sir Gordon Nairne, ,. Leaf, Bank of England Deputy Chairman. London County Westmineter Bank, Ltd. Sir 2dward. Holdefi Bart., Chairman London City :I Jidlnd Bank, The .F.11Lt Honorable Lord Inchcape, .C.M.G., - K. C.I.E. Ireeident, Institute of Bankers and the National Provincial Bank of England, Vassar-Smith, Deputy Chairman, Ba-Z!:eree Clearing House and. Chairman of Lloyds Bank Limited. RiLht Honorable Lord Faber, President of the Association English Country Bankers, and of Blackett'e Bank Sir Felix Schuster, Bart. Governor, Union of London and Seith's Bk. Sir Charles Aadis, Hong Kong s. Shanghai Banking Cor'oratiOn. London Clearing Bankers diancr continued: R. Whalley, Deputy Chairman, Parr's Bunk Ltd., A. A. Talloch, Manchester & Liverpool District Banking Co., Ltd., C. C. Cassels, Bank of Montreal, Henry Bell, GeL-ral Zanager Lloyd's Bank Ltd., Sir John lurcell, Chan., national Bank Sir J. rortescue Flannery, Bart., w. Walter S. ::. Burns, 1. Chaplin Coutte J. Beaumont lease, , Ltd., London re South Western Bk. London Joint Stock Bank, Ltd. r Company Deputy Chairman Lloyd's Bank Ltd., R. Martin-Holl-nd, Hon. Seely., Ba-,:.:ers' Clearing House, Martin's Bank Ltd., J. F. 7. Deacon, dilliams Deacon's Bank Ltd., T. H. Whitehead, Chartered Bank of India, Australia J. Hoe Simmon Bank of Liverpool Ltd. ,nd China. After a toast to the King, and to the President of the United States, 1:.r. Vassar-Smith proposed my health and made a very complimentary sreech, referring :particularly to the work of organizing the Federal Reserve Bank of Sew York and to the svetem as a whole, and expressed the good will of the London bankers etc. In response, I exoreesed my thanks for the courtesy extended me by the Clearing House banters and particularly for the hospitality they had individually extended to me on my visit at a time when they were overburdened with viork and anxiety. I referred to the wonderful display of Arength and resourcefulness made by the British Be-_-,'Ikthg system in the crisis Of 1914 and since. Ex:aained the difficulties of the prompt pay- ment of our debts ahen payment was required, reminding them of the old saying that the borrower is the servant of the lenaerywhich eid not amply to the borrower who did not find himself able to pay the debt promptly at maturity, whereupon the lender promptly became the servant of the borrower. I stated that I would feel unab3e.-D-4=44Pre'-r to accept the hotTitality which they were extending to me were I not willing to make a brief reference to the present situation in England. That one could not helve but be impressed :.ith the signif:- c:nce of all these young men, possibly some of them their sons, in uniform, many of them leaving for the front. 3y person.1 view was that they were enlisted in a stra-gle in which they might h -7.7! to sacrifice their Jives in the defence of institutions created by English speaking peonle of this country for the benefit of all English 'Doeaking peo-de of the world. That these English institu- tions were a British inheritance of the peorlo of the United States and that upon their Peruanency depended our security and happiness. That some ihmerioans had been guilty of viqiting this country and indulging In views Aid criticism of the Za7ricaa 3overnnent and its attitude toww.cd the war---that I felt no good could mesiblz, come from such statoiente being publicly made or privately repeated. That our Ldministration had faced a most difficult situation and whether we agreed or disagreed with its course, we certainly reserved the ri-ht exercised by all En8lishmen, of criticizing the Government but should exercise that right at home and not abroad. I went on further to say that my brief stay here had disclosed to me the ti fact that in some respects conditions, public opinion, and the difficulty of creating a solidified sentiment at home, were not tl. rouEhly understooe in EnLrland.---that t here w ere nearly a fifty le 1!:lion people in the United States who were not ascimilated, ilia ?Adel 11. Cu4,.-- whokne.d not even definitely adopted the Anglc-Saxon languagefetc., as part of their political cree end social life. They had come to America to ouisue wealth eed happiness by the same processes Americans had eueloyed or the past fifty years; that is, diligently developing the resources of a great undeveloped country. that ever si.ece the I stated leeiican Republic haa been fo-Inded it had been unnecessary to developqa foreign policy except in three matters. One, thet ee had sec5:ed1;i7 regarded the aelvice of Coerce Waohingten to avoid foreign entanglements which he believed -oald prove a menace to the unity of the new nation. bound together by, slender ties. That we had developed a strong sentiment in regard to the so-called ..)__....r 1 Monroe T)octrine pronounced by oar Monroe at a time vihen the )11.th American states were strueglin or their freedom, and when he felt that interference bri foreign natioes inould preve a menace to our T.IE.Lioli% itAt7, lestly, that we had recently developed rather a hazy :lotion, under t'ee leaderehip of !Ir. Hay, th7t the people of the United States shou:id enjoy e-ual rie-hts of trade with other natio: s in China, ::accept in these matters we had no foreign policy and likewise no Leternational financial policy. Our preoccupation in the profitable development of oar (:n. national resources had not only kept us out of foreign gkeance, but had led to our being simPly a borrower 3.n the cheeTest mnTkets of the eorld. ( It was the responeibility of the lenders to study a.21:1 understand American credits. OP That our people had not familiarized themselves with either 404 national A iedustrial,bank credits in foreign lands; In fact, expressed generally, neither in internatioeel politics nox international finance had we ever developed a cense of international responsibility. Quite suddenly, when the 3uropean war broke out on the first of August 1914, and it aeeeared that ehe United Statee heel. become an international factor, both politicelly and financially, of supreme importance, and !-,ossibly of deciding impoetance, it could not be expeeted that a peolple of the character I hed just described, and so lacking in experience in foreign matters, would realize their ne. importaece--that a nee coeeciousness eas certainly developing In the emerican peoele. poesibly net us yet .olitieelly but certainly in commercial and financial matters. It was herd to appreciate the extent to which good fortune had favored the interests of the United states. Immediately prior to the outbrea"- of the war there rested in first hands, unsold, one of the largest grain croes over raised. It doubled in value in a few eTeeks. 'ift of such magnificence as no nation had ever received. opened the phssiblbity o trade. A The war a come Leto derangement of the chreenelo of We had just coneaeted the Panama C=al giving us the l opportunity to protect oue trade on either hemisphere, and Sr. :ilson's administration had just passed a bill whic'a effected the most con lets and fundamental reform in our banking laws since the days of elexander Lamilton, thus ensuring a stabler money rate during periods of uncertainty in financial matters. The new banking lawh regAired no emelanation as I had found that the bankers of London were peculiarly well i)osted as to ita provisions ann meaninfe, but in one respect, I felt th,it they might not realize what it had developed indirectly. The reduction in the minimir: reserves reeuired by law for the national banks had JbWmemite, released nearly five hundred millions ofFoola. had turned in elr favor, Since the exchanges :re leed imported, net, over your hundred millions of gold. and in addition ee had the resources of the 2eserve Beeks which controlled over five handred and fifty million of gold prnetically untouched. This enormous ae'ition to the fundamental wealth of the country and upon which the entire banking credit structure rested, preseuteE the possibility for credit e:Teasion of such vest reonortions that it lee.e inevitable that the bankers of the Unita Ct.tes would seek foreign fields for the employnent of their funds - So far this emploreent had been peincipally directed - ?fret, to the repurchase of enor-ous amounts of American securities; Secoed, making loans to foreign iations and banThs exceeding one theus:end million dollars; eeee Third, to the financing, reorganization and development of an ineustry and commerce gro:n up over night in conneceion rith the war. The influence of the chi rze in our banking situation had lee to e-Lravec.ant ete_:tements being made by the noee-eapers, and by sonic public men, in regerd to our position in international commerce and. finance. It seemed quite likely that we roal0 hove cheap money for -eme yeers to come. We eld not, however, have the facilities of b machinery 'Ith 7:%ich to :r. kc tlis credit L. (911444 available with Znglish bks, Land thct such banking machinery must f boodevoloped a3 rapidly as it could be. Our advantav .ould -,:e ;heap money and theirn the mach4_nery and facilities. 7i:,-.t it shoul,' be a f-ir competition, ,1,11 that they mu at not be deceived into thinking that the Teight or influence of chep money could fail to be felt. Mils war might entail treendous sz.crifices upon the English peoole, inoluaing the bankers, nn0 if it involved :.he surrender of some part of the worlds banking to go-,. York, at least we wig believed that it would be surrendered upon f' it tf:rms, ad fair compatitio. , and_ that SO AO of 4B felt try .t if this ,:;rest saorifice 1/49 had 'i..o be :wade, Bn`L -nd, ahich h.4.1 e-V-blishe-ld the stz,ndard of commercial hoaor and banking integrity throughout t',.e world, would rather relinc:aish tcis great trust into the hands of those who spoke their owe language and wIlo believcd in the cr-,:e 1 stiitutions, and had, I hoped, the s..-le high ideals of honor .nd integrity. That they mast not be dockeived vith rer_rd to public sentiment.-there wvz :, great deal of talk that the United states L:ad t manage.:. Ge,.Ins--the answcw to that 7.-evernent was war to EIL,:;0 in this cosmopolitan copulation, one half f19 yet hardl y acsimilated, there had. been launched the most thorcngh propaganda to LnfIaeuce public opinion that the worle_ had ever witnetleed, and it haC proved the :ost dismal and ignovinius of failures. Possibly the cx-,lanation Was that the :,nF:lo stock in the United S,A!tes wooke the same I;Inglish language as those Preuent, and they stil referred to England as the lother Country. Saturday, :.iarch 11th: 40 Spent an hour with Sir Felix Schuster, cnd after lunch played squash with Captain Symington. In the evening dined at the Savoy, and later vent to zee "Tonights the 0i7ht". Sunday, March 12th: Spent Cho best Dart of the nlorning in bed, dictated some mail, -rd tben lunched --nth Captain Symington s,t the Naval and Military nub. In the afternoon took tea with l!r, it Mrs. Tritton (Barclay t Cempany) end afterwards played squish with Captain. ymington. In the evening dined at Circa with Lieutenant Quoeznyer and Lir. Shiverick. Loaday, :'arch lath: Stopped at idorgan, Grenfell Ac Corwany for mail and fram there called on Sir Charles b dia and :Ai-. Jones of the :(Toag Hong Shanghai Bankinfr Cororation. Sir Charles t5 lnitm keen about the develo:pent of oar bill market which ho thi.in is noce?sar-.7 nn.d should be pranoted. He believos thr.t How YO71X must carry some pert of the load for financing -;:he morles commerce owl particularly thee-:Says it would be of groat value to them to hvve their enaorsofnents recogilizaa the Federal Reserve BankiOof New York..401ke i.e very mach suI-)rised at our Government's attitude regarding the ChinePe loh pari:icu1ar1;7 in view of Lr. Hay's dipltuacy relative to the open door in incisuch Germapy id u party to the (11 power loan, he believes At will be difficult to carry out this business, efter the eenclusien of the rar,with Germany as a partner. He tilkikm that the United States should interpose no objeoLion to iacecie 'm baa::ers takiag an active 'art in this fa= of Govern:ient finance. He rece:-;nizen Viet there are di:Aculties n a rolicy which might later involve t'ae use of the big stick, but China 1: such an imperetant field of corniercial development that he believes we will find it necessary to undertake business of that character if we wieh to e-tablish ourselves in the Orient. Sir Charles has lived a good while in the East, end I believe hia to be an authority on these mattere. Then called upon Sluth,iostern Bank Ltd. r. H. i. Hambling of the London 60 He is in fevor of transferring the bill business to Mcre York to assist the exchanges and as a means of getting large credits, eud states that he has so urged. there returned to Morgan, Grenfell From Company and had a chat with 11r. Grenfell end Vassar-Smith about the money market and Bank of EnglrLnd preotice. trio, ourse, allows no interact on by borrowing money from the ements as not explained to no ey regarC. it, particularly in function of the bank. ng the rate. In This is discussed , t is described as the "Liner ur execueive committee, aAd where all features of the situation are discussed. meeting this is c. regular order of bueiness aad most ILIportant semetimes, 1,eing the sole item of discussion. laid before the whole court I At the Thursday The matter 7s then ..ad a decision reached. . Only most Infrecuently le a decision arrived a: that effects a change taboos* - -At/WI Yr..tq at-Me AAA2ometimes the-1;e4tleeititty-aad Thursday meetil;.ss. The rate is Trade effective ort fre(aently 7 the bazu borrowing in the maret which I ourL:ise/taires he form of operatic) is u7:1-_-ouril. brokers, aha sometimes lirect transactions ith the Joi_t =_Iock Banks. This i e doubtless one ressotl erlzr the bell:/e P.eporit account has been soma hat inflated during the recent months. The Intelligence (Liformation or statistics l) Ltpe_rtent is not very fully developed and not as fully developed as Grenfell 1:111....ks it should be. Ee se.ys thet the Bamue de Pr_nee undoubtedly has to exteneive depertment of this c-_-1,;.racter, particularly as to doelestio credits, as they stand ready to take French bills anO, do ta:.: thc,:l from banks of the time ,7..nd precticlLy without limit. Grenfell is under the ine7rossion, as I sTe, t: at the Credit Lyonneise has :.he most e::tensive intelligence depextment of arty of he baLks, with possibly the l'eutoehe sank The Beilque (le Trance, secoAd. of course, he,s access to all of the i :formation held by the big french banks. Crenfell has made c.n a2,,ointm,m:. for three otclock ea gees day (tomorrow) 7;ith 10711 Cunlifie. Ho tells lee that Lord Cunliffe is very reserved, diffidentobnt nevertheless quite positive in his views. Grenfell i.s ho::eful that e7ter e few i-lterviews that eome satisfactory arrangement can be reache3. The -tau is to hE:ve a 7,reliminary talk with Lord Cur3iffe. then a libetiug between Lord aunliffe, liontagn Norman, Gronfell and mynelf to Fo into matters more in detail. Vie discussed at eerie length the :aestioa of the level of interest rter. The high rates prevailing now being more -r lee.: artificial and created by the banks and the eovernnent. I called his attention to the 7)ossi- biliLy that this was attracting balances, :_nd investment in bilis and that if the exchanges started wrong in from .4..i /Allythe ill with(lraw all of these balances end invest _eats, fall, and might be expected to make the exchange situation worse. He thought there dz).r something to this and that it shou'd et am rete be coneidered. ae are to diCOUCS it further --;:en we meet Lord Cnuliffe. 2etarned to the hot3l, and. ('ictnted mail.i( Schuster called :A, six o'clock and remained until 7:45. Sir Felix lie dis- cussed at great length tnc policy of the Gavennn.ent and other beaks. He was strong in condemning the policy of borrowing so such (443 million sterlihg) on short bills, and said that in his oninion the Crovorment wust find a way to fund the war exnensee on permanent stocks. He thought that the banks were carrying too much in Gavernnent loans, as well as tho public, and that mes the one eak spot in the banking situation here. I asks me the policy of the bank in regard to the market. him to toll He said that on r_re occasions tho bank went directly to the Joint Stock Banks and burrowed their surplus fund at interest in order to stiffen money rates. Generally, however, they employed a broker who borrowed. Urge subis in the narket on collateral, the bank in turn AL, bfilrowinvoney from him. Both operatic infleted the ba,lk's deposit account, raised money rIrtes, but weakened the technical positioei. of the bank. He dimessed at groat length possible methods of unravelling the extended credit situation, feeling ctrongly., as I did, that the positio:1 of the Bank of Sng.)find, the Joint Stock Bans, and the Government, depended in the last analysis upon the ability of the Government to fu,id their borrowings into I as7.ced him how he felt about the level of interest long lo as. I rates, and 'Ile said that he thought large balexces here just now were a leenaee, partieulerl New York. if echenge on London should fall at He was not sure, however, that generally speaking a lower level of interest In London weulll be a good thing. there was just now a dearth of good bills for the investment of funds at 4 the banks, and of course a low level of interest rates always pro64. -HereAe--- mated. bad banking. ar2=1,1=g. 4:1At to :7artin's Bank Ltd., and had lunch with some of the directors of the bank. Tere nr Vrederiek 7artin, sittirl et .ii right Comrany, also At the table Merton Jr., Holl nd, and 2reaerie7e JackEon of l'eudel;4 Guinness 1.reden5)urg, Maim= Company, Ur. Chaplin of Couets & Compnny, flerhert Balfour and one or two others. Tie had C. very on r;:; ?_ discussion of conditie::s here, but nothing of Leportanee is coliection with my trip. Prom there sto pod in to sec sir 13dward HolEen and learned about ?ueeday night's sinner, which ho e.aplaitled to me :ould be :attended by a number of the members :).f his staff at the bank, 7.-n!l, a number of the financial editere of the la/ge 1,..expapers here, iecussion wt,r_! anderstood be rr,Tecral and cunfidential. ThAcalleil upOn Mr Felix Schaefer, and discussed the forcim exchage situation at considerable lenct11, also the cuestion of dollar credits. to believe that the Government ree,lireents poi hLve been fully tf:_keu eEre of fcr the period for the -novenent of cotton. He is inclined teivierr.remlet exchange time ahea,d--probahly covering Ye tliiets that the English banks will be obli'ed to rlinanish a part of the acceptance business to Nei, York :where bills will undoubtefily 7vIvit.lte nnder the influence of easier -aone71*, but says that the English bankers will naturally bo rellact!.nf to lot the business go--thot it is not only matter of :,,ride but cyr r.rofit. Dined with 4±. and T;713. Page, those presoLt being the ;hili an .1mbaseador his wife, Lady Dawkins, LIrs. Sullivan, an Americ!..n lady, and Col. Srluiros the ni-itar7 at ,71nd Uobort Benson wham I had formerly known. luosdr,17, 14t:reil 14th: Called at Koren, Grenfell n Company-4,c star just a cord v.ith Grenfell, a:ranging to return at three o'clock to keep the L11.pointraent 1,ith Lord. Cunliffe. Vassar-Smith. branch system, ITTOin there cr=1.1ed on 2r. Bell end Dell ontli:led to ine theNishheme of management of the a ol.erations of their bo[.re of directors, any the Ce=ittee syt;te7r. Board. me Reports etc., the employ, ent of their ) clerks and the maaag.e. ent of their buildings. 1.1r. Rarric, one of Ho i:: sailing tomorrow -their &irectors, or.-'le in b- request. or thc United Stites to be Bone about, two months, .216 erpeets to look meikp in New York. Bell says th t 11e, is e very rich mrn, connected with one of Lh:, lame shippin directors. li"S, r .1d ono or their ac,ive After a long chat, I arr.nged to return there to- sorrow betz:cen 10:50 and 11:00 . to continue liscussinc natters. I asked :Ir. Bell about the Hong An g F.. Shanghai TJ'Ir:-:!n the Cliarteree Bank of Indimi. Australia Bzzik, Cor'lopitin; Chinn; tIlr, golonial ,,zia the Yokoho),- ..3pecie Dn:Or. B."(.):C; SHArGHLI BAtI/NG 001:201-1;,TIN: his bat would take any amount of 04 bills Ath their acceptance endorewfient if offered.. said Undoubtedly A-1. not heeitate to take a half Mallon sterling in one batch, and considers them about the best in the market. Very com- peteat vinePellent, Sir Ch:,rles Ldiis. a very coAoet-ht An excellent ooard of directeIs who tz"-t tle ta,;013 al.feirs JJa. In active interest ',rid they .,re entiustea with co .c;ielora- tie try Qsocticns by the Eritish rtat the Chinese Goverwients. OF I:JJIA, s' NI CHINA: Not as large as the Hong Long & Shanghai Banking Corporation, but most conservatively and ably managed. class as theWSBCorporation, and It is in the same Bell, of Lloyds Bank LonOon, would not hesitate to take their bills for any amount offered. Of course, when the war first broke out, there was some suggestion of German influence in the management which was promptly remedied. I recall Sir Charles Addis telling me that while at first the war interrupted their business, he thought it was now within 90;i; of normal. They had no trouble with bills coming through from the cast whatever. The trade there seemed to keep up astonishingly well notwithstanding the heavy freight rate. That apparently the consuming power of the people there was unlimited. ire should pay some regard to the disparity of size. COLO:M.1 BANK: This bank operates e:clusively in the Mast. old institution and has It is a very ono busi:less for many years Ath Lloyds Bank which is its principal banking connection in London. :For some years before his death, my old friend Sir E. Broaie Hoare was Chairman of the Board and it has always been managed most conserve ively. 2.500,000; Reserve 4A00,000 sterling. It is re7arded as a small bank, end small ficures should be taken into account. Considered A-1 in all respects. Quite recently they have tal:en a new Chairman, a Canadian, who of is the .uite energetic anC. on endeavoring to bring the busineec bank up to larger figures. It would be well to tLhe this tato account, and renew the inquiry later, after the new man has had experience and is better known in the city. ith rec. rd to their figures, lit. Bell said he woula not hesitate to take their bills freely. yammal SPECIE BANK: This bank is ably managed in London, and generally well regarded but on account of the Japanese character it is most difficult to get a goorl_ line on their operations in comparison with what can be ascertained about Eastern, American or Continental banks. They are very secretive about their methods. The Yokohama Specie Bank represents the Bank .of,japan in foreign countries, and at times has large sums to loan in the London market which Fives them a standing and influence of some importance. sit undoubtedly use their cre freely. They Their operations are so closely related to those of the Japanese Government, the Bank of Japan, .litsuifand other permanent Japanese interests that it may be said, roughly, that they re just as good as the Japanese Govern- ment so far as their obligations go. With due allowance for the management of the bank etc., Lloyds Bank would t::ke their bills with fair freedom, and Bell feels that the London market 4°41. generally maintains the same attitude towards their credit. - They always fiFare close on terms etc. After going over the foregoing matters gibers 7:ith Bell, he showed me a portion of the bank's portfolio. I intend to look into more thoroughly later on in the week. Their short money (so called) was in the shape of seven day loans to bill brokers on bills, many of which I recognised, and a considerable ntraber consisting of the Hong Kong Shanghai Banking Corporation, from the East and bearing that bank's endorsement. The principal amount in the short loans book was represented by advances on short time securities of the India Govern-lent and short-time bonds of the India Govemlent, always guaranteed by N./ the India Govermaent, as well as4.1-014.4 bonds, consols, etc. These seven day lons .re secured by what they call "floaters". That is the type of security that is circulating in the market. The tavunce being made seven days, the brekemcalling prior to the expiration of seven days to ascertain if they may have a renewals. The account, at present, igjcomparatively small one as the market is bre of bills and of borrowings of this type. The brokers are generally getting 5% at least on these bills and borrowing say at 44;4---if the market went against them and, the boa -s ger° called they would -melt" them at the bank. From there I looked over the department vJhere they keep a record of the employes of the bank . It requires about 40 clerks to do this iiork viiich covered a force of 7500people. 40;J of the emnloyees of this bank are in the war service. This W they anticipate will be increased to 50, and a total of 80;1; of those that are eligible, the rest being regarded probably as indispensable to the bank. The bank continues full pay to the z.en during their absence ,and calls those filling in their places AA.A.Wit V as "temporaries" of which there are now +.W, - women. 1.1r. Bell explained to me at great length the most interesting feat Ore of their business in regard to advances to their correspondents and customers, just how they are handled through the branches,ete. From there I went to the Brooks' Club and had lunch with Jr. Hungerford ;:ollen, Sir Horace Aunkett, Captain Symington, Captain Hall of the Intelligence 1-spart:aent (Secret of one of the London Journals. ervice) and It was a most interesting luncheon, and Sir Horace Plunkett showed me a confidential report he had made to the Government, following a recent trip through the middle "est, rerding conditions there, which impressed me as being a most intelligent and fair report. He seeed to think that public ()Pinion throughout the United States was improving towards En571nd for various reason which we discussed--the principal one being the care which the Goverment here was exercising not to perTAt criticism to appear in the press, and to encourage friendly and intelligent discussion of that sulject. went directly to 1._organ, Grenfell to the Ban Prom luncheon Company and with Grenfell of England, meeting Lord Cunliffe and spenc.ing from 3:10 o'clock until 5:00 o'clock with him, having tea also. Lord 400 imp relishes a joke, and likes Cunliffe iuoressed me most favorably, to make one. He joshed me when I came in and said that he understood that I had attended a dinner of the bankers the other night, making a speech that had_ hypnotised them a bit and that now they were taking me through their banks and showing me their books. He .;anted to know why I had not let him ::now in advance of my coming over. I thought he was reproaching me, and when I started to explain th,t I did not think my trip was of sufficient import nee to advice him in advance, he said he would like to have knon it as he rroulr live had me taken off the steamer and pushea through to London in short order without all the fass and delay that I was subjected to. Ater some general discussion, I explained the bare outline of our situation with reference to operatio_s over here. Said that it was impossible to say when it could be undertaken, or ble to undertake it. hen it would be advisa- Explained the relationshio of our bank to the Government and the necessity of observing a course which would not implicate our :Government in anything that might be held to be nn-neutral. :hat my nereenal view had been that the mere e:Astence of a state of war in urope should not be allowed to defer or to suspend the soeratiOn of the Federal Reserve Act, tf-U".:90 which was really 404 V9e,e. to meet emergency situations; in fact, just such situations as would arise in times of war and imperil our or position. That were it not for some cuestion s of this character, it seemed as though the present, or any rate next fall, would_ be a favorable oportunity to start our 1, or operations. e realized,hhwever, the extent to which present conditions imesed responsibilities on the Bang. of England, and that they were, so to speak: headuarters, and that our plans should naturally be shaped with due regard to the local conditions here, in which the Bank of :rigland controlled, not only as a matter of comity but in order that our transactions night be more effective in the future through being conducted harmoniously with headauarters. Lord Cunliffe asked me to explain exactly that our business contemplated, and I repeated to him the language of that portion of the Act referring to our foreign business; pointed out that we had a choice of methods--we cold do our business through the Joint Stock Banks entirely, or, we could appoint an agent anAl deal directly with the bill brokers and nossibly by that method our operations would be little Irnown in this market but necessarily we would hve to assume entire responsibility, or, we could co duct our busineEv: through the Bank of England. I personally felt that the business shout d develop gradually and that we should be able to establish such an intimate relationship with whatev9r correspond- eon ent "gn ,i0Tixtple e arpointed as would warrent tluoie accepting o:aeh in purchasing bills in our behalf without reservation or separate ina.uiry. But, to conduct this business either through an agent or with the Joint Stock Banks would put us out of touch with al ngland and that we might not, in such case, develop the relations of co-operation that 1 hoped would exist with the Bank of England, and therefore, rather than conclude any arrangement at the present time, if the Bank of England was not interested, I would prefer to go home and 40, lor leave the whole subject open. I .loo ea-alained to Lord Cunliffe that the matter had not yet been discussed ith the Joint Stock Banks, an that it was difficult to start business. when ae could actually I had felt Etroigly during the past eighteen or nineteen months that seriotii losses were involved to Of both Eng2nd and the United States by the complet ley-Lich threatened a suspension of international gold and that in the interests of both countries we certa able to work out some lan for co-operation in these Lord Cunliffo said that he agreed with me a and was anxious to see that matter in better shape. how I felt abcut the -future. I pointel out to him were still difficulties ahead--principally those to from the v o kum E of cotton and grain bills coming f fall, and that pl.as to meet that situation should be in advance. I also pointed out to him that both Engl United States had incurred ;great losses and unnecess gold Shipments for many years. That our rather unc money market under the old banking system shad been m of a menace to both of us in tines of difficulty, an sort of co-operation which could only grow out of ex mutu-1 confidence should enable us to miniaize these losses, hut the first step in that directions was fo which held the sur lus funes (dust now the United St invest some portion of them in this market. That t 'Reserve Banks could afford to co that better than any other as lit their funds cost them nothing, _nd it Tould be some time before th their credit facilities were needed at home. Lord Cunliffe, as Mr. Grenfell had warned me, is very slow to make up his mind, and always wants a few days in which to thiik things over, par ticularly if they his experience. Order .ro important and a little outside the line of He said that, of course, the Bank of 7ngl nd did not allow Interest on balances but that the Bank was really a law unto itself andI means coul; beto found to that overovne that of En land difficulty which iaterprelted mean, the Bank would borrow our money rather than hold it as a guaranteed deposit. He also said that the B_nk of England discriminated very rigorously as to the paper it bought or discounted and cons° uentl, in dealing. with the Bank of Enland, rates would not be as high on any naper they might buy for us,under such an arrangement, as we might realize through the bill brokers and the Joint Stock Banks. But, the paper would be undoubted.andeax.r4e4.. He saw difficulties in the 7.ay of acting for us, in the purchase of bills, and then, much to my surprise, said that they could all be overcome- -that the suggestion a)pe led to him as having *ouch merit, and of course if the Ban-r. of England acted for us they would guarantee all the paper purchased for us and be responsible for its pay gent, that they had never lost money on bills, and would not expect us to. e shipped to America. He wanted to kqow if he hills would have to I told him that ultimately I thought that would be the case, where the bills ran for some time. If we were putting out short money,that could not be done. If an arrange- 1146,eaent was concluded before the war ended, we probably would not want the bills shipped owing to the rick of loss etc. Finally he said that th thought the best plan, at the outset, would be to have the bills held in "pension". It was understood, he said, that the matter would reruire thou-ht, and he wanted to consult ith r. Montagu roman and with the Deputy Governor, but on the whole, I am most favorably impressed with his attitude)which was :ost friendly, anfl_ at the conclusioA of the general discussion)roufrhly outlined above7.4e had coffee and cigars and a general discussion about the war. Lord Cunliffe undertook to josh me a good deal about the trip over here and of having stirred the bankers up and setting all their ears wagging. He said that at the Clearing meeting that morning they had all been talking about my speech at the dinner on Friday night, and I uould sot help but draw the conclusion that while he was only 4oking, he would have been a little better pleased had I written lim in advance of my coming. I ex' lained that I had felt right along that my trip wai, making a good deal of trouble for everyone concerned, alai that Rad I notified them in advance, i, Lo,i, _lot help bul; to have been construed as an invitation to facilitate my trip which I did not want to trouble them to do. On the whole, I believe there will be little dif'iculty about coming to an anderstanding regarding an arrangement. After leaving Lord Cunliffe, I went to the Ldadralty by appointment to meet Capt. in Hall of the Intelligence Bureau. He is a most interesting man, and showed me a ltot of data he had in regard 1111 to the German &Duvet Service, and told me of some of their experiences 1111.n running it down. R He is particularly anxious to find out about early record in the United States from whom he had credentials ;:hen he came over. is apparently a very R important member of the German Secret organization, and one of those who is responsible for the attempt to implicate the Federal Reserve Captain banks. said that if I would let hil kno: when I was leaving, he would see that everything was smoothed out. Dined in tae evening with Sir 2dward Holden, and t'ose present were as follows: r. A. Sir Edward Holden, Baronet, Chairman London City te Midland Bank, Ltd., Sir George Paish, The Statist, .. Kiddy, liorning Post, ir. H. .. Palmer, Mr. E. Financial TimeS. Woolley, . London City & Midland Bank,Ltd., Mr. 6. H. Hackett, F.J.I., Mr. Norman Hoiden, B.A., and LL.B., Camb., Hyde, r. Ur. 2 Yorkshire lost, Loader' City t: Ili land Bank Ltd., IVDermott, Railway Hews, - Daily Graphic, Mr. C. A. Reeve, B.L., eamb., (Barrister at La Inner Daily Telegraph, Teumle) , . T. Powell, LL.B. and B.Sc., Lona., (Barrister at Law, Inner Temple) Financial News, S. B. :.:array, London City & Midland Bank Ltd., . er The Standard, Benham, Ur. J. L. :ladders, . London City & Midland Bank, Ltd., Lawson, Ur. H. Cassie Holden, B.A. and LL.B., Cambridge= (Barrister at Law, Inner TemPle) Mr. Hugh Chisholm.il.L., Oxon.,(Barrister at Law,MIddle Temple) Mr. The Times Hirst, Tadham . Coll. ,Oxon, (Barris- ter at Law, Inner The Economist Temple) The dinner was given by Sir Edward Holden for the purpose of enabli:x me to meet the financial men of some of the more important publications of London. I sat next to Sir George Paish. al.: and made a long talk about his tri Sir to the United States, and spoke in a very complimentary and friendly way about our friendship, and the help I had given him on some matters in new York. He asked if I would talk a little bit about the Federal Reserve System which I did, and on Sir Edward's invitation the meeting developed into a general "cuiz party -- everybody asking questions. The last speaker, 1.7z. Reeve, made the astonishing suggestion (and I believe it was in all neniosness) that he believed it was a great mistake to lave English speaking people separated into two political orgalizations--that we ought to get under one roof again. financial That the Reserve Bank System was really the Bank of Bngland, and that if we 0 would only promote the right kind of relationshi,. we ought to be able to consolidllte the English and im-rican system, and in some way at or other work out a complete cord. but was roundly cheered. This caused come amusement, I did not find the gentlemen present at the dLiner particularly well posted in red;: _rd to the American financial system. Sir EL:ard stated at the outset that it was understood that this meeting was private, and the discussion confidential. Then I spoke, I stated that I would rely noon Sir Edward's commitment, and therefore 77ould feel at liberty to speak with more freedom that otherwise I would. 1 p :ednesday, Larch 15th: Called at Ilorgan, Grenfell P.L, Company for wail and found a cable from the office urging that there was no immediate necessity for my immediate return to New York. From there called upon jr. Henry Bell who showed me through the bank's (Lloyds Bank Limited) portfolio of English bills. Those consisted of a very large amomet of bills running, however, in small denominations, practically all of them representing the drafts of houses dealing in various kinds of merchandise. accepted by the buyers, end in some cases by the buyer's banks. It also included twenty-one dcy bills which are deeT,rn by a bank agency in the provinces upon the head office in London, and which are sold to customers for the purpoce of meeting obligations due in London and payable under a trade custom in t.7enty-one days. T;:r, Bell told me that the volu_e of bills I saw was not more than 10;) of what would be normal in format times. These bills were almost without exception payable at the offices of London banks and bankers, it being the custom throughout the provinces to accept bills payable at London institutions; in other words, to domicile the bills in London for convenience in handling and collection. When the hills are payable in the provinces they are sent by the London bank to the respective branchee for collection from eight to ten days in advance of maturity. Inland bills ..re invariably is by the inland bank to the city bank, and failure of the London bank to receive advice of the drawing would result in telegraphic inquiry, a good deal of r- Not dissatisfaction with some reflection on the credit of the drawer. This is not always true of bills drawn on the city, where by custom, the banks are usually willing to construe the acceptance of the bill by the customer as instruction to pay the bill and charge to the account. Bel/ seemed to think that a large volume of the domestic commerce was settled by the use of bills. Sir relix Schuster, however, in my recent talk with him took a contrary view. He thought altogether too small a pro- portion was settled in that way and that England had over developed the practice of permitting open book accounts to run for long periods. That this was particularly true of the retail trade. I noticed some bills in the nortfolio, drawn for the purpose of settling accounts for the repair of shins---accepted by the Acuelt-, ship owner and -saeopired by the ship builder. In some cases, bills Col it-A, were there representing s portion of the ship built by some shippinik company. In some cases these bills are secured by a bond on the vessel, insurance, etc., and in other oases no security given where the credit of the acceptor is regsrded as sufficient. The great volume of the small bills appearing in the portfolio of a bank like Lloyds are sent in by branch ,anagers from their various branches. They live a very comprehensive system of checking these bills and credits, which is ingenious and seems to be effective. Each branch runs a register of each customer's accoun-, carried in a small cheaply made book, in vertical colnrins. One register which is prepared, say on a Saturday night, and the other on a Wednesday night. This book keeps: the balance, the turn-over for the previous year, the overdraft, the advances upon security, how much is secured and what it consists of, and the authorized limit together with any excessive advances over the limit, end a column for remarks explanatory thereof. Each branch manager is authorized to go up to a certain limit without special advice, and is then authorized .within reasonable limits to exceed this amount for which he must mate special axnlanetion. One copy of this book goes to the home office every week, aw4-Ttr-e-thre-ke-4,- while the first is beiag returned to the agency overt/ week, so that each week the barix conreletes a record and examination of all advances by each agency, and the ageney receives in return a complete report with comments oa each transaction -- -the books alternating back and forth between the main oellce and the branch. I was surprised to find the extent to which loi=ns ere extended on overdrafts --the great majority of loons were of that cherecter, many of them without any security and in no case were liability aereements or notes taken by the bank, it beimg understood that the debtor and creditor latationshi") between the bank and its customer expressed a sufficient liebijity to enable the bank to recover. A good many of these advances on overdrafts were covered by security in the shape of stocks, bonds or even a lien upon a freehold or leasehold property --in some et-LSOB by goods, particularly in the Liverpool district where reach merchandise is taken .ems. and covered by warehouse certificates. In the Ldvence Department of the honk were very comprehensive records of all the agencies and of ell the credits. bills, etc., in loose leaf files and apparently very ' :ell kept. The Advance Department has men of for g experience who are checking up this work constantly and who either go to the various agencies to make inspections, or send for the meenagere to come to London and report. The entire list of accounts of each agency, together with the lines established are revised every year. Much dependence seems to he placed upon the general raoutation and character of the customer. The officers of the Arnie, and the men in the departments heving charge of these matters,('iselay a. surprising familiarty with the character of the bills in their portfolio; the business done by the drawer and acceptor in each instance, -nd the history of each account which, of course, exteade back in ::lost cases for a long period of years. They do, however, impose great confidence on the men in the Advance Department whose Lesiness it is to check these transactions and keep themselves informed of the kird of business done by the drawer and acceptor. The drawer is usually a customer of the bank although the acceptor may at times prove also to be a customer. One interesting illustration of the care eith which this business is watched developed in co-election with some bills drewn by some lumber concerns. 7hey freouently will receive a bill drawn by lumber manufacturer "A" on lumber merchant "B", and likewise receive a bill drat a by "B" upon "A" which superficially would indicate that they are giving accoimnodation notes to each other. This is lot the case, however, the emplanation being that 'A" is an importer of mahogony from Central. America while "B" is an importer of white pine from the United States -- they are both general dealers in lumber although each has certain specialties tht he imports, consequently they are buying and selling, from nd to each other, emd as a matter of custom they never draw for 1 the net difference of the account but always for the fall amount of each account. This is regarded by the bankers as a sounder method that -would be eith the settlement of not differences. 2.1r. Bell showed me the 'ay all of the records of these transactions ihore kept, and the general callclusie_ to be drawn was that the big English banks trust their clerical force e.ad the judgement of their men in creCit matters to a mach greater degree than we do our L.len at home. They put responsibility upon them and look for results. Lir. Bell also showed me the de?artment in -.Lich the budget ie kept, and the surplus call money -- principally seven day money les loaned or .here the loans were called. All depart- ments of the bank sent their figures to the nisi' in this depart :lent who haa to 1_ ow every day by a certain her what foreign drafts were likely to co.:Le in; what debits end credits would likely arise through the agencies; ',,hat loans matured; what nee loans were to be made; :chat the result of the clearings would be; ane, then he based his opinion upon these iiguros and advised the short money brokers 4he.- they came in whe6her heir loans -eculd be renewed, ;.gust be paid, or whether they could have additional funds. He never e.zpec Led to come :ithia afore than 200,000 to 530,000 pounds of an eJLact celeulation as so many unexpected items came through; but, the balance at Le B-nk of EngIJ-nd which :light run from Tye, nix or eight million sterling always took care of the The bank has $ committeesof its directors which fluctuations. supervises every department, including the clerical force, etc., 4111i These coaAttees, on which the Chairman and Deputy Chairman always serve, meet weekly, commencing at ten o'clock and lasting until about taelve o'clock, each meeting taking from fifteen minutes to half an hour. The entire board. then assembles and receives resorts from the various committees, and take final action on all business. All loans exceeding £15,000 are submitted, the general statement of the bank is submitted, and I gathered that only in exceptional cases does the Board overule the recommendations of the committee. The directors are very diligent in attending to their duties and seem constantly to be running in and out of the ban'-. From Lloyds bank I went to the Savoy Hotel, met Alfred Shephex for lunch and spent the afternoon. Nothing except that he told me the Scotch investment companies had licuidated a very considerable amount of their american investments- -one of his companies, and not a very large one, having recently sold no less that 217)0,000 sterling. The Scotch companies all along have felt a preference for American securities and invested heavily in them. After leaving Shepherd, I played squash with Captain Symington. He introduced me to a !Ir. MarbWg of Baltimore who was, as I recall it, formerly our ambassador to Austria. aviator and recently had a fall losing his leg. Hi- son is an 1:e said that he had ,Ist recently returned from France and, while I did not agree with him, he thought that trance was "busted". Lows anything about it. I do not think he Olkir At eight o'clock I went to Boodle's Club to dine with Vassar-Smith 1111 and associates. Those present were Sir E. Seymour King, a /Ir. Clayton, cotton merchant of Liverpool and London,/.21r. Pease,Depu4y Chairman of Lloyds Bank, Mr. Henry Bonn and one or two others whose names I did not get. At the dinner there was a good deal of discussion about our :Jew banking system and a great many tLuestions asked about it. Sir Se-,:vour King located me as the son of his old friend, and after dinner he was so anxious to talk over old times that I had no opportunity to chat pith the others at all. I promised to take dinner with him next Thursday at eiAt o'clockat his house. all of the gentlemen that I meet in London are deeply interested in American political affairs and evidence the greatest anxiety to see our politics so develop that we may be able to clve them support either now or after coaclusion of the war, but particularly now. There is .ueh difference of opinion as to whether it will be an advantage or disadvantage for as to be involtod in the war, but they all agreed,that it aoule, bring the war to a speedy conclusion, and that is what they all want. Thursda7, :r:..-rch 16th: se 0 fir. Shiverick called shortly after breakfast time, and iramediately after I called upon Ambassador Page. I explained to -h him exactly what the object of my visit was, and what progress I had made, as well as the cuestior,s of neutrality involved. stating the proposition as fully and clearly as I knew how. Ile thought I was pursuing exactly the right coursp and said in his opinion, V ea AW 4.41414.11144/2'1"' net. Could n -ti-rtad French and English banks. e " fe-t, gf4 7the jarrangeLlents made with the I then discussed with him the subject of Dutch exchange, and his suggestion, with which I heartily agreed, was to take this up with absolute frankmers with the authorities here and tell them just what our position was. L.rabassador Page is clear headed, does not pretend to understand the technique of the business, but his judgement is fair and straightforward. )' / v/ Lunched with Vivianp.anith at the Royal ExchangeAvdth the directors of an insurance company of which he is chairman. Those present being, :.;:reilvict) Hambro*Rbr, Kimberly, and two or three others whose names I did not catch. Brown of Brown Brothers ,1; Company, The conversation was entirely about the war, particularl;; the submarine matter, and the same interest in our politics was nisplayed which seems to be in the mi.ids of everyone over here and some anxiety to see matters develop in their favor. liter lunch called at the Guaranty Trust Co :ipany and had a short talk with Mr. Wyse. From there called upon Sir Christopher iiugont with whom I had a very lo g and interesting talk about bills. 40% He showed me a batch of Z150,000 just received from the Eruitable IR Trust Companr-Z50,000 of them wore drawn by the Bank of California on one of the London Banks--the balance of them were, without e : :ception, commercial bills, principally cotton, drawn on the very beet London banks. Lloyds, Union of London Barclay rim. Brandt Among other names I saw Smiths BarLI, Gylnn, Mills, Currie, Co., Parr's Bank, London City E: LIidlcnd Bank, Hambro, Sons, and a number of other good. names, almost all of the London and Scotch banks including the Bank of Liverpool. He had purchased them at 52, discount, and will iprobably turn them over at 5 or a little less with the endorsement of the Union Discount Company. They were already endorsed by the Ecuitable Trust Company, and a better lot of pa-2er one could not want. He sai,' just as 1:obineau of the Banrue de Prance said, that the only way really to tell a finance bill was to feel it with your fingers to see if it was a counterfit or not, as one would a bank bill--there is no set rule, law, policy, doctrine--nothing to govern el:cept LIstinct, judgement and experience. 7.n.ny bills that looked like finance bills are only exchange bills, and go without difficulty ,41c the Bank of England. I was interested to note in the records submitted to no a few discounts, advances and overdrafts, at k, and quite a few at 51.e.% but the vast majority at 6, . In nornol times the rates on this business would run from W to 4,-3 with the bulk at 3J to In normal times, a very large volume of the bills which freely circulate in this market, are bills of brokers, bankers etc., many of them American bills which are regarded as prime. hfte,and. he thought the market generally depended a good deal upon their knowledge of the kind of business conducted by the drawer and acceptor. concern like They wonid know, for instance, thct a he Bankers Trust Company would not draw finance bills- -such bills as might be drawn by the Bankers Trust Company being of course, without e::ception, drawn for exchange in order to cover their position, meet the recluirements of their customers, etc., which was regarded as quite legitimate so long as not carried to excess. Almost all of the bills that I examined were drawn to order, endorsed by the drawer in blank, payable to the Ecuitable Trust Company, and endorsed in blank by the E(uitable Trust Company office, they having a London office and a signing officer here. Sir Christopher said that the volume of bills coming forward from he United St tee was now so small that he was not even sending his c'aily telegram to institutions that had formerly remitted bills to the Union Discount Company. He wrought it was clue to the very low money rate7tiVt./.., steadier rate of exchange and the conseuent carrying of bills by American institutions which found it more profitable to Jo so than to discount-them. spoke very highly of the Bankers Trust Company and the way its business was done, End of Kent personally--in fact, everybody here knows him favorably. He From there I returned to the hotel and net r. William Mackenzie of the Alliance Trust Company 01/4- Dundee, Scotland, at four o'cloc and spent the afternoon :ith him, then taking dinner and spending the evening ith him. He has '.one what apparently many others, situated as ',he Alliance Trust Company is, have done. Instead of selling American securities, has borrowed large sums in the United States on their American securities and brought the money over here, paying off the loans gradually out of income tions, etc. , Vl liquida- As...-thee-trart, Comrany funds are practically all invested 4,11.4,yie,riefilaztd ill-4;0x tgrata4)t 0-1.0ertin-ther-wri/fr --ir-tre tQAcievidAmtte :ind go out of business, qv tkul 5:4-fi 'Oh He said that he, his Company and associates, have brought over £500,000 sterling in one way or a'lother and prepared to bring more it is proves necessary. Late in the afternoon Sir Felix Schuster called and invited me to t:ke di-nner with him 72uesday evening to meet a lir. Abrams who is in charge of the finances of the Indian Conmull, and who Sir :'elite says is, in his opinion, today, the greatest authority on currency in the Empire. Sir Felix is anxious for me to spend some more time in his bank and I have proraised to go there nd look things over with him again. the rest of the evening ,ith dinner he left at about 10:30. Spent r. :Mckenzie, and shortly after 2ridaz, March 17th: 41 Stopped at Ilolzan, Grenfell Company and picked up the to mail and sent a cablgiLls. Jay that I was sailing on April first. Hali a chat with Grenfell about Dutch exchange. He asked me to t:ke the first opportunity to talk this matter ovex with (4,crin, Montagu Norman who was dealing with this subject for the Bank of 2ngland for the past three months. From -ere I went to the Union Discount Company and had lunch with Sir Christopher Nugent, Sir "Albert Balfour, and Mr. Alliam 7. Brand. Most of the luncheon was devoted to discussion of the bill business and of the Federal Reserve Bank system; the Yzobabilities of heavy foreign travel by Americans after the war was over, and California where Sir aobert Balfour (head of Balfour Company) has large business interests. TAlliamson They all agreed that the so-called -Inland bi-l" now rose more out of the transactions between manufacturers, wholesalers, jobbers, etc., than out of dealings with the retail trade.---the retail trade now being conducted on a cash basis or on book accounts. Sir Christopher Nugent was interested to ascertain whether we could deal with them in buying bills, and I explained that we could but that feature of our business had not been developed, and it was ancertain when we would start. 7ent with to the London Joint Stock bank and had a visit with ::r. Brand Goer. In the course of dicussion of their business he explained that the Inland bill while to some extent discounted by the drawer) with the Joint Stock Banks, in a vast number of cases holders of bills, that is the drawers, negotiated them with the bill brokers and discount companies which cuoted slightly better rates than the Joint Stock Banks, carried them Dither on call or seven days, and enabled the bill brokers -nd discount houses to make a slight turn or interest, shaver of ,discount houses frecuently oarrying them for a month say, and then selling them as two months paper or less to the Joint Stock Banks or bill buyers. I returned to see _r. Grenfell, and discussed at greater length the :utch exch nge problem which he said was an import and pressing problem, and that he would be glad to talk it over at any time and particularly wishing that I would discuss it with Liontagu :Torman. He said that the accepting houses had reduced their business very considerably--that there had been discrimination against them partly because many of then were of German origin, doirw. German business, and partly because their credit had been somewhat affected by reason of the volume of acceptance credits which they had granted prior to the war, and which were somewhat embarrassing Alen the war broke out. This business had been taken over to sole extent by the big banks but he did not think it was sound for big banks of deposit to extend acceptance credits Shen it was uncertain how the business would develop in the future. The Joint Stock banks had undoubtedly made a drive against the acceptance houses to get their business particularly Holden. , and "ith some success) At the outset it was rather generally ti 411. understood that the acceptances of Morgan, Rothschilds and Baring would be generally handled by the market, the others not so freely. The Bank of England had not discriminated. judged this was covered, as to the houses of German affilliions, by th terms of the Government guarantee. He said their firm had rather reduced their acceptance business, and had never discounted a bill. That they were lenders,on call, to the bill brokers on bills. The bill brokers always being liable for the advance and it being generally understood that if the lender so desired they would endorse the bills. 7hen the bill brokers z,elted their po_tfolio at the bank, the: _ailed a letter o: liability but did. not endorse each bill althou=gh they coul( be required to do so. The Bank of England did not go into the market to buy bills in London in a large wa7 at all- - that aroused antagonism in the city, and as a matter of fact, in normal times, the Bank of England was handicapped by its inability to get a .IcitatelittittittAlq eit.0 they might hold. They, however, had separate branches where this provision did not apply, and these branches in the Provinces discounted rather freely and were not even governed by the bank rate. They =urnisned the bank ;:ith a considerable amount of bills and a good portion of its revenue. The bank was p .id by the Govern meat for various services which it performed for the Govern gent, including the printing and issuing of notes, but that after all the bank was not run /)rinarily for profit and did not care to show much over 10,J earned on the stock. However, the profits to cone el:tent, were set aside in special reserves or by some such method. 411 iti 11 of my discussions of bank methods in London and particularly my discussion with Goer, indicate that they follow custom and precedent almost entirely, and as Sir Christopher Nugent afternoon expressed it, "if they followed strictly Adlaw fairti4 statute, there would be no occasion to c:Liea hire high in these London banks, the object of having the highly paid official who would exercise his judgment tia_GAI-maag. in the service 5t ftif; to violate /NIA &it," 7n44,0/(040 Kkvo 4144to r - when it was desirable and good bus hers to Co SO". From Grenfell's office called on Captain Hall at the adiniralty 13TAI;dr, and had tea with him. .416.6--erlis+er , two of Lord Derby's daughters, and a friend, who were at that time canvassing the Admiralty for subscriptions to the Irish Relief Fund (this being St. Patrick's day)calls-lawkwo.. - After I returned to the hotel, Captain Symington and Shiverick called. Saturday, _:arch 18th: Slept late, and lunched with Captain Symington and 4111 .04 Shivorick at the Strand. In the afternoon went to the Alhambra and later to the Army Exhibition to see the EOCA.44-01.01, of 1$0r trenches lir. Montagu Norman sent his car for me and I took dinner alone with him at his house. spent the evening discussing the position of affairs in France; the British Government's Short borrowings and funding operations; New York exchange, and the Dutch exchange. Ifdid not think that Mr. Norman took a very optmistic view of the French Position, although he seemed inclined to agree with me that no one cou36 tell what would be the effect of the war upon the industrial life of the nation, upon which everything depended, As to the English position, anethe Government's short borrowings, and the currency note issues, he expressed very much the same feeling that I have felt--that the ease with which OILL-1 this great mass of Govel-n_lent short loans ter& C, 4 rtakiktkf - had been absorbed in circulation would lead to a lot of political quackery and financial heresies.3esnecially with reP.ard to fiat currency or silver issues. He thought the great danger, if it existed, as he thought it did, was to be apprehended from Parliament's failure to recognize that the currency notes must be retired in due time by the issue of an interest-bearing obligation. He was not particularly apprehensive about the short borrowings of the Govern ment, believing that if the market locataa4.eti to reject them it would result in accumulation of great balances with the Joint Stock banks, which would keen these deposits with the Bank of England, and the Bank of England could then take care of the Government situation. am not inclined to agree .ith this view. I It nuts too groat a strain would reduce its reserve percentage, and to cause uncomfortable feelings about the gold reserves Ibticularly if New hISP York exchange were adverse. He was very positive in feeling that the That principal and most important problem was the New York exchange. no means should be overlooked for keeping the exchange steady and normal. As to the general level of interest rates in London, he rather agreed with me that the high rates which now nrevailed tended to accvmmulate balances from New York, and bills in New York portfolio undiscounted led to some menace in case exchange should decline , New York on London, as the tendency would be to withdraw these He felt, however, that any radical changes towards lower rates would be unsettling. That the soundest policy was to maintain the position without changes be people were accustomed to these rates, and a sudden lowering of Vungs rates to(Llevel which could not be Permanently maintained would be unsettling. We discussed the .lueution of the GoTern.nent's borrowings, and I explained my own view of the unwisdom of conceding anything to those who believed that the income tax on Government bonds should be eliminated or limited. He explained, his view to me, that a compromise would be preferable by putting a limit upon the Normal income tax,deducted at the source, until a year or two after the war was over. making the bonds so issued say at fixed interest, free of income tax for three, four or five years and thereafter at a higher rate of interest subject to both normal and surtax. This may prove a wise compromise, and tend to a larger flotation than could be otherwise be arranged. The last war loan which lays 4-kJ gross only nets about 5U to the holder, and of course less than that when the holder pays a surtax. He inclines to a three, four or five year 4, bond, free of tax and running thereafter for a long period, say 50, 40 or 50 years at 5c/70 subject to tax. It is a .ii:fieult question and one which must be worked out at an early date, as the Government is Au/A now obliged to issue about one million sterling short loansA in excess of those retired, and the account is getting too large. all over the question of Dutch exchange at some length. to him the We went all I explained which would undoubtedly be taken in America. That arrangement with Holland which Holland and Crrect-Britlan generally vy found feasible. He said there was no doubt about the British IGovernment insisting upon the efficacy of the blockade, 'Int I think he was inclined to agree with me that the only efficacious blockade would be one extending along the frontier between Holland and Germany instead of in the channel and the North Sea, and that the way to treat with these matters was by agreement between Great Britian and Holland. I pointed out to him that in some ways the existing blockade appeared to distinctly violate the rights of neutrals, but he said, as expected him to say, that those were matters which would have to take their course--that this was a life and death struggle, Germany had abandoned all rules both as to the conduct of the war and the rights of neutrals, and that England could not afford to relax the rigor of the blockade. 1.1±. Norman pointed out that no objection was made by the Government to the export of gold from the United States to Holland where it was plainly shown to have no connection with enemy transactions. say so, This I insisted was a fiction, and while Rh he Old not I believe that he agrees you can no more ear-mark gold than you can ear-mark securities or goods, under the conditions that now prevail as to Dutch--German trade. The whole situation is most complicated but ought to be worked out by an agreement that the exchanges will be allowed to operate freely, and the control of the movement of gold and securities be dealt with by an agreement between Great Britian and Holland. He seemed to think that the existence of a discount in Holland on dollar exchange would prove a deterrent Holland. the sale of German securities directly through I am inclined to disagree with him on account of the rvA tit large discount on Dateh exchange in Holland which gives the Dutch trader the o rortunity to make a large profit so long as he is willing to extend some credit to Germany a 41 and this is particularly true where German sedurities can be purchased by Dutch bankers and Dutch-held American securities sold ,- in New York against them. It present5the opportunity for a rrofitable arbitrage, in which Dutch bankers are skillful, and the speculative features are reduced to a minimum. The only risk involved being the Unconvertibility of German slamped American securities until after the war. The discussion was inconclusive but interesting. Sunday, Llarch 19th: Slept late and played squash with Captain Symington before luncheon. Lunched at the hotel and later attended the afternoon service, with Mr. Shiverick, at Westminster. Took' tea at the Carlton, and later, Shiverick, Symington and I dined at the Prince's Restaurant. Monday, Larch 20th: Company for mail and had a Called at Morgan, Grenfell few words with Grenfell. Theltalled upon Mr. Leaf of the London County &%stminster but he was out. Barclay & Company and he was amt. Called on Mr. Tritton of Called to see R. Martin Holland but he had not yet reached the city but I had a talk with his partner Mr. Martin, arranging to meet Mr. Holland later 137 appointment. Lunched at Prince's and returned to the hotel. Holland called me up and later came over for tea. Mt'. rie spent a couple of hours discussing operations of the Clearing House, and country check collections. His story is about as follows: (see next following page) LONDON CLEARING HOUSE OPERATIONS AND COUNTRY CHECK COLLECTIONS. Practically all banks in the United Kingdom appoi r of the clearing banks or bankers as their collection or agents. The clearing banks consist of the following Bank of England clearing in addition on the charge side Barclay and Company Ltd. 54, Lombard Street, E. The Capital and Counties Bank Ltd., 39, Threadneedle St., Glyn, Mills, Currie C; Co., 67, Lombard St., B.C. Lloyds Bank Ltd., 72, Lombard St., E. C. London County and jestminster Bank Ltd. 41, Lothbury, E. C. London and Southwestern Bank Ltd. 170, Penchurch St., D.C London City ei Midland Bank Ltd., 5, Threadneedle St., London Joint Stock Bank Ltd. 5, Princes Street, E. Martin's Bank Ltd., 68 Lombard St., E. C. National Bank Ltd., 13, Old Broad St., B.C National Provincial Bank of England Ltd. 12, Bishopsgate St., B Parr's Bank Ltd., 4, Bartholomew Lane, Union of London and Smiths Bank Ltd. 2, Princes Street, B. Biggerstaff, W. and I. (clear thru Parr's Child & Company, Cocks, Biddulph and Company, making seventeen all told. TT " Bank o " Martin So, it may be said that al reaching London, no matter upon what banks they may be d through one of the three departments of the London Clear The clearings begin at various hours , according to depar earliest being the Saturday Metropolitan clearing which opens at 8:45 -...., and the latest being the 5:20 certain days succeeding bank holidays. clearings are: . . settlement, on The three classes of Town; colAprising checks that are payable 1 within a certain district and which nay be roughly described as the old city of London, although it does not follow exactly the line of the city. 2 Metropolitan; which is the :etropol- itan district of the city of London surrounding the old city; 3 Country; which covers checks drargietapowgiliptiwks in the -Txxxix United Kingdom outside of the town and important districts (including, of course, branches of banks) tie checks being handled The to. aa clearings fre settled on Scotland, gales and Ireland. on the bboks- of by a transfer onithe Bank of England on the day of *clearing. The .:etropolitan clearings are settled by a transfer on the books ,A) of the Bank of England the day following clearing, and the Country clearing is settled by a transfer on the books of the Bank of England on the third day following the day of clearing. These checks when cleared Jr°, of course, delivered to the respective clearing banks which make payment for the banks in the Provinces or in the city or in the iletropolitan district which do not clear directly, and the settlement is adjusted either the same day, the following day or three days later, making allowance for checks that :.re not good. ,Ccpet, The principle of the Clearing House operation is to.. Akre 4, Cu aqui cL, all checks which are drawn upon the sixteen banks, or their branches, that are members of the Clearing House, and known as clearing 4i61 bankers, and to dzaw all checks payable by banks for which those sixteen banks have agreed to clear, for settlement throujh the London Clearing House, and as described above, these are settled upon three time bases, depending upon wherp they are payabl 1 7.. 1±. Holland tells me that in the old days many banks and their .1 branches in the Provinces made a charm for handling checks drawn on them and remitting cover, likewise the London banks made a similar charge; in fact, many of them still do. The amount is trifling, rarely over Gd per item, but this charge has largely been abandoned by the provincial banks as one of the results of the numerous consolidations of banks throughout the empire, so that now, practically She only banks which make charges on checks are the Scotch banks and some of the Irish banks. On these checks the London banks likewise make charges to their customers. I questioned him particularly as to the float, and Whether any c-° existed. He said that in a few °Pc?ial7 oases, principally insur- ance companies, which by custom were given immediate credit on checks payable in the provinces, it was not customary for any bank to give credit to its customers until the three day time had elapsed, and of course no interest was allowed on items in transit. It will be seen that this method of clearing, which allows time to got a return on every check handled by the London Clearing House, no matter in what part of the Kingdom payable, except on a few remote points in Ireland, together with the scheme of settlement by transfer on the books of the Bank of England, makes it impossible that any float be created at all. Mr. Holland likewise said that there were other clearing centres operating like London, such as Ilanchester, Liverpool etc.-Mese, however, operating in a more limited territory. 1:r. Holland proposes to collect a complete set of all forms used, not only in London but also the country banks, in connection with their check items,and then goo 8' them and explain them to me. He has already left with me the rules of the Clearing House, and its annual report. Dined in the evening with Mr. Grenfell at his house, Mr. Gaspard Farrar of Baring Brothers, and Mr. Montagu Norman of the Most of the evening was spent Bank of England being present also. in discussing American and English politics. Our American politics is the siu)ject of lively discussion just now. We also had some discussion in regard to the possible political effect of the issue of currency notes, as yell as the situation in :,merican exchange this fall. I rode home with Montagu Norman who seemed to agree with me that a good round Government loan to reduce the volume of short borrowings would be most desirable. Tuesday, :larch 21st: Pla, ed squash with Captain Symington and then stopped in at Morgan, Grenfell and Company for mail. From there to Mr. Bell's office at Lloyds Bank and spent about one hour going through his department for auditing and examining agencies. of about 35 inspectors doing nothing else. They have a staff The care with which these investigations are conducted much exceeds the care with which our National Banks are examined, and Probably state banks in New York. They have four different forms for rerorting examinations of different classes. Every branch is examined at least once a year, and the inspectors live in various parts of England accessible to the various atir# f of their respective districts. Very elaborate sets of questions are included in the forms indicating that a very searching scrutiny Is pursued of each manager in running his office. These insnectors are an important influence in the bank as it is largely based upon their reports that the managers or assistant managers are p_-omoted 01 renoTed. In the case of Lloyds Bankithey cover 900 branches where apparently the main control is divided over three departments; 1...the Staff Department; 41Pg Department. 411L 2...Advance Department; 3...Inspection It is undoubtedly a fact, however, that the general officers of these big banks are unable to exercise very intimate control with their branches and branch managers, and must rely upon the routine grind of a machine. The bookkeeping seems to become very complicated by reason of the inter-branch transactions all of which are reported to the Head Office and go through the Head Office books. The striking thing about the branch system here is the ease with which they conduct their business at long range, and the degree to which it entails trusting the men who are managing the various offices. At 1:30 I went to the Bank of England to keep a luncheon appointment with Lord Cunliffe. He was engaged when I got there and I had a short visit with Montagu Norman, discussing at some length again the ouestion of Dutch exchange. He was under the impression that we had already made arrangements in New York to receive gold --or account of the Bank of Netherlands. All the cables, correspondence, etc., in regard to this matter are, of course, in the hands of the authorities here, and the matter is a very active Pressing question at this time. I have taken the position right along that while they might, by their blockadek-which could in some resrects be regarded as legal,--) be able to arrest goods going both ways, and securities as well, nevertheless when an indebtedness arose by an American to the Dutch, or in fact to a German citizen, particularly the former, that debt was going to be paid one way or another. They night be able to interfere with the oeration in some way by arresting geld shipments and make it more expensive to Americans to pay these debts--nevertheless they would be paid. stand was that, on principle, we musty 4g-old received in Our New York ear-marked for Dutch account was a perfectly legal transaction and that we would not decline to receive it. Their dispute really was with Holland so far as the securities were concerned, and that I was not able to pass on the question as to whether agreements entered into between England and Holland would violate our rights, but that once the debt arose we were entitled to pay it. and I think that It is a difficult and complicated question, Norman agrees that the only way to deal with it is by direct negotiation with the Government. He laughed when I told about my letter received from Boissevain & Company, which had of course been opened by the censor and tmediately reported to the proper authorities in charge of that matter. At 1:30 I lunched with Lord Cunliffe and the directors of the Bank of England in the Court (Directors Room). The conversation was generally on the subject of the German submarine matter. After luncheon, Lord Danliffeltook me all through the bank; in the vaults where they keep their uurrlies of notes, gold coin, etc.; through the coin rooms where coins are weighed, and into the Printing Division where the notes etc., are printed, as well as the Cashiers Departlentet5etc. Afterwards I Brent about one hour with him in his office discussing the plan for an arrangement with the Bank of England for the plimmusa purchase of bills and a close ,orking relatio_ship after the conclusion of the war, or earlier if circumstances made it desirable. Lord Cunliffe, who apparently requires time to think things over and to inform himself, was a little timid in getting up to the point of discussing what was in his mind on this subject. -.pith some little hesitation, and after describing the difficulties which he had encountered in the early months of the war, he finally said that the arrangement which I had outlined to hkand Grenfell appeared to him to be quite feasible, and A that he was prepared to say that it could be Put into operation whenever we desired to start our business on this side. He would like first to consult with a few of his associates, probably not all of them, and ultimately have a minute made as a matter of record. He said that the Bank of England had never acted with any American bank, as it -ould be difficult if not impossible to select one bank out of the large number of National and State institutions, as the bank's representative in New York. That the Bank of England would like to have the arrangement reciprocal --they to buy bills for us in this market, for the payment of which they would be responsible, and we to buy bills for the Bank of England in New York with e-nal responsibility upon us. We should also have an arrangement for mutually ear-marking gold and generally for the handling of gold shipments -- avoiding gold shipments and avoiding re-coinage of our respective gold coins. He said that the Bank of England in acting for us would discriminate most carefully as to the bills which it bought, and that we should not expect the highest rate on such paper --rates such as would be quoted to us were we dealing through the Joint Stock Banks. The arrangement at the outset should be known only between ourselves, as the Joint SteJk Banks might raise a great howl about it. The ouestion of interest on balances, he said, need not trouble us as the Bank of England would find a way of meeting that situation, but at the outset he thought it might be desirable to say that any balance not invested in bills was held as earmarked gold. Lord Cunliffe was apparently willing to leave it suite to our discretion as to the purchase of bills as long as we were willing to assume a responsibility similar to what they were doing for the payment of bills. He quite clearly understood that the arrangement might not be Itimmt feasible until after the conclusion of the war-at any rate until the whole question of the neutral character of this business was thoroughly discussed on our side, and that the present discussion was tentative and ,subject to action when I returned home. At his request, I told him that I would prepare a memorandum when I returned home which could be made the basis for such formal action as the Bank of England would care to take in the matter, and if it were necessary I would return again. He emphasized the fact that he was most anxious to conclude his term as Governor of the Bank, and whenever this was ut into operation it might be under the management of his successor but that he would still be a member of the Court, and available for advice in the matter. Lord Ounliffe has undoubtedly consulted Gronfell and Norman, and I gathered from his statement that he and those of his associates with whom he has consulted see the wisdom of close working relationship between the Bank of England and the Federal Reserve Banks with the view of emerciaing reasonable control over the exchange, and over gold shipments. They have aaparently discussed this in the past but have felt unwilling to make an arrangement with any ono American bank, and would not care to have their business distributed among a number, so that the organization of the Federal Reserve Banks, corresponding in their functions with the Bank of England, gives them an opportunity to make an arrangement, the desirability of which they had already recognized. While Lord Cunliffe seemed at first; hesitant about making any definite statement which would appear 4 to commit the Bank of England, when we finally discussed the matter more freely, he disclosed quite positively that it appealed to him strongly as a scientific and feasible method of creating a 'buffer" between the two countries, and one which was only feasible by a close relationship between the two institutions. He urged quite strongly, that nei*her the Bank of England nor the Federal Reserve Banks place definite lines or limits upon the amounts of the various bills to be purchased. His position was that the Bank of England was good for any obligations they might ever make to us, as ours would be to them, and once we undertook operations together we should handle them with confidence and courage. One cannot come into contact with the management of the Bank of England without gaining great confidence in its solid, conservative management. Of course the minute that the Bank of England nuts its endorsement on bills purchased for our account, the question of credit information becomes one of minor importance. The Bank of England watches the market very closely and keeps close tabs on the amount of acceptances being put out by the various accepting concerns. I am inclined to think that it might be desirable for us to carry a few complimentary accounts it in some of the larger Joint Stock Banks for the purpose of having available various sources of information about credits, but out best course would be to develop this gradually after operating solely through the Bank of England. Lord Cunliffe made it quite clear that he wanted to see me again before I left for home, and it is understood that I will take the first opportunity to have a look at their methods of handling bills which it was arranged would be shown me by one of their men who is particularly familiar with that department. Lord Cunliffe sent me back to the hotel in his automobile at about quarter past four o'clock, and at the hotel I met Willard Straight and a Mr. Perkins (brother of Jim Perkins of the City Bank). Straight I.4.94-4elnr-vdthrmr-Vnft- oplainod the object of his visit here which was to look over the ground preparatory to making London connections for the American International ii!maikilAf Corporation. I promised to help him with such information as might prove of value to him and he is to stop again this afternoon for tea. Later Mr. Wolcott called to advise me that he was going to France to see Ribot and some of the French bankers in regard to another French credit similar to the ones already arranged. They had mentioned fifty million as a possible amount. I told him that I thought these credits in their present form ArVec 1enniai7 that the bills should be drawn on American banks, by American exporters, and by that means they would create a variety of American names on bills. The bills would disclose more closely their commercial character and that the market would not be glutted with too much of one kind of paper. American exporter was the one extend credit. Besides that, the making the profit, and the one to He said that he agreed with me and he thoigbt the French bankers did also but that it was difficult to arrange. I also told him that it was inadvisable and impossible for the Federal Reserve Banks to buy these bills as rapidly as they were made. That the way to arrange it was to have the bills placed on the market through brokers as had been done by Brown Brothers, and furthermore, the Federal Reserve Bank could not take part in negotiating credits of this kind. Dined in the evening at Sir Feli.7. Schuster's home, the party consisting of Sir Felix and Lady Schuster, their two daughters 1* who are eh :A-ming 7oung ladies,both very much interested in 40 various forms of relief work- -one of them at present working in 41 the India office. Also Sir Seymour and Lady Xing, and. Sir Lionel tt4, Abrams of the India Council. ftt There was very of matters of local interest here. _e discussion Sir Lionel Abrams being much interested in the .subject of our currency reform at home aagt47 tA-- 4.-eft we discussed at considerable length. He is regarded as a great expert on currency matters, particularly in the East, but I did not thiAk him particularly well informed in American effair7 of that character. He, as well as Sir. Felix and Sir Seymour agree that the English currency system is too inflexible apt and that the situation as to currency was saved temporarily by A the issue of currency notes by the Government, 414* that this was more or less dangerous expedient. Sir Sernour was of the opinion that it would have the effect of releasing gold from circulation, which had been used by the Bank of England for settlement of debts to the United States ana elsewhere. I thought they all agreed that the Bank of England would, some day, be forced to exnand its nower of note issue so as to meet the demands of trade, and accumulate more gold. The discuesion brought out the fact that the Bank was strenuously opposed to the issue of currency notes apparently on the ground that it was an invasion of the bank's monopoly. 'Ct till Saturday, ::arch 18th: I 7`v _ Tit ,44114. *41 C. .ington and Mr. Slent lEte, and lunc to the Alhambra In the afternoon went the Strand. Shiverick at of the .1(ralla Exhibition to see the the Army 14 later to trenches. dinner his car for me and I took Norman sent Mr. Montagu discussing je spent the evening house. him at his alone with Government's Short in .trance; the British of affairs the position the New York exchange, and funding operations; borrowings and took a very think that 1:r. Norman I did not Dutch exchange. although he seemed inclined op*Iistic view of the French nosition, effect of what would be the could tell that no one to agree with me which everylife of the nation, u-_ion the industrial the war upon end the Government'r s to the -_]n5-lish -position, thing derended he exrressed very and the currency note issues, short borrowings, with which have felt--that the ease feeling that I much the sane i,rite loans and curre-ic7 mass of Govem.:Ient short this groat would lead to a lot of political circulation absorbed in had been fiat esoecially with recLro to financial heresies ouackery and it the great danger, if He thought currency or silver issues. from larliament's did, was to be anprehended thought it existed, as he due notes must be retired in i,he currency failure to recognize that He war _ot obligation. interest bearing time uy the issue of an of the Governabout the short borrowings annrehensive particularly to reject them it would market pretended that if she ment, believing Joint Stoclgreat balances with the accumulation of result in the the Bank of aigland, and denosits with which would keen these situatton. then take care of the Govern-lent England could Bank of it -outs too great a strain this view. agree with am not inclined to