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b a n k in g a n d ;c u r r e n c y

U. s, S E N A T E l a 13

63 d C o n g ress , j
1st Session. f

SENATE.

j D o cu m en t
j No. 117.

BANKING AND CURRENCY.
STATEMENT OF HON. ROBERT L. OWEN, CHAIRMAN OF THE COM
MITTEE ON BANKING AND CURRENCY OF THE UNITED STATES
SENATE, IN REGARD TO SENATE BILL 2639, THE CURRENCY
BILL.
J une 27, 1913.—Referred to the Committee on Banking and Currency and ordered

to be printed.

Senate bill 2639 is intended to establish an auxiliary system of
banking, upon principles well understood and approved by the
banking community, m its broad essentials, and which, it is confi
dently believed, will tend to stabilize commerce and finance, to pre
vent future panic, and place the Nation upon an era of enduring
prosperity.
N
The means by which these objects can be accomplished is, in large
measure, by mobilizing the bank reserves and providing elastic cur
rency. This is very carefully worked out in the bill by requiring
the banks to keep a larger measure of their reserves with the newly
established regional reserve banks and providing that such banks
may obtain United States Treasury notes properly secured and safe
guarded in quantities sufficient to meet any strain of our national
commerce at any time, yet at the same time without permanently
inflating the currency.
Under our present system the reserves of the banking system are
immobile and unavailabl^for commerce, and the rigid character of
the reserves in times of sticks is a source of weakness, not only to the
banks of the country and to our financial system, but to our national
commerce, often being provocative of panic and violent fluctuations
of values, upsetting in the most drastic fashion the calculation of
business men and often reducing them to unmerited ruin. This rigid
character of the reserves is overcome by placing these reserves in a
common reservoir available (by rediscounting) to any individual
bank having need for assistance in handling commercial transactions.
The issue of elastic notes to the new Federal reserve banks is a
matter of vast importance, because, in effect, it puts the power of
the Government itself behind any reasonable demand made by
our commerce and makes business conditions stable throughout the
United States and premises to establish enduring prosperity.
ORGANIZATION.

The bill proposes to organize 12 Federal reserve districts with a
Federal reserve bank in each with the right to have branches if
needed. The capital stock in such Federal reserve banks will be

BANKING AND CURRENCY.

supplied by a subscription equal to 20 per cent of the capital of
national banks and of other banks entering the system, one-half of
which subscription will be paid in. These Federal reserve banks
will have the right to establish branches, not to exceed one for each
$500,000 of the capital stock of a Federal reserve bank.
The Federal reserve bank will be controlled by a board of nine
directors, six elected by the member banks, one vote to each bank,
and three appointed by the United States. The member banks will be
divided into three groups, according to similar capital, each group
selecting two directors, one a banker and one a business man, making
for the three groups three directors who shall be bankers, three
directors who shall be business men, representing the productive
and commercial interests of that district. Three directors shall be
appointed by the Federal reserve board. One of the latter shall be
the chairman of the board of directors of the Federal reserve bank.
The chairman of the board of directors of the Federal reserve bank
is ex officio a Federal reserve agent, representing at all times
expressly the interest of the United States and having an office with
the Federal reserve bank. The three classes of directors, A, B,
and C, divide themselves into classes with terms of one, two, and
three years to start on, and afterwards three years each.
If the capital of any member bank is increased or decreased, the
subscription to the capital of the Federal reserve bank is affected
likewise.
The earnings of the Federal reserve bank are divided as follows:
An annual cumulative dividend of 5 per cent is paid on the capital,
then one-half of the surplus of the net earnings go to a surplus fund
until it reaches 20 per cent, and the remaining one-half being paid to
the United States; but when the surplus reaches 20 per qent, all of
the earnings above 5 per cent annual dividends goes to the United
States.
The Federal reserve banks are exempt from Federal, State, and
local taxation, except real estate.
The national banks are required, within one year, to subscribe
to the stock of the national reserve bank as a condition of remaining
in the national banking system.
The banks and trust companies of the various States and of the
District of Columbia are allowed to become members of the system,
provided they subscribe to a like capital, keep like reserves, submit to
like examinations, as the national banks, subject to the rules and
regulations of the Federal reserve board.
The board of directors of the national reserve bank exercises the
same powers which that board of directors of the national banks
exercises except as limited by this act.
FEDERAL RESERVE BOARD.

The 12 reserve banks are subject to the supervision of the Fed
eral reserve board consisting of seven members, the Secretary of
the Ireasury, the Secretary of Agriculture, and the Comptroller of
the Currency, and four members chosen by the President of the
Lnited Sates by and with the advice and consent of the Senate. The
salaries of these members are $10,000 each, and they serve two, four,

BANKING AND CURRENCY.

six, and eight years, respectively, when first appointed, and thereafter
each member so appointed shall serve for the term of eight years.
Of the four members appointed, one is designated as governor and
one as vice governor of the Federal reserve board.
The Federal reserve board exercises general supervisory power, and
no member of this board can be an officer or director of any bank or
banking institution or Federal reserve bank.
The general powers of the Federal reserve board are:
First. To examine the accounts, books, and affairs of the Federal
reserve banks.
Second. To require or permit one Federal reserve bank to redis
count for another.
Third. To supervise and, if necessary, determine the rate of dis
count for each Federal reserve bank, with a view to accommodating
the commerce of the conn try and promoting a stable price level.
Fourth. To suspend, if necessary, the reserve requirement.
Fifth. To supervise and regulate the issue and retirement of
Federal reserve Treasury notes.
Sixth. To add to or to reclassify existing reserve and central
reserve cities.
Seventh. To require the removal of officials of Federal reserve banks
for incompetency.
Eighth. To require the writing off of doubtful or worthless assets
of the Federal reserve banks.
Ninth. To suspend a Federal reserve bank.
FUNCTIONS OF FEDERAL RESERVE BANKS.

The Federal reserve banks having a capital of 10 per cent of the
capital of the national banks will have a primary capital of
$100,000,000 and will hold reserves after the bank is started, of
$160,000,000, which, in 14 months will go to $400,000,000. In addi
tion it will have the current funds of the United States, amounting
to probably $150,000,000 to $200,000,000; total, $700,000,000.
With these funds it will have the right to discount for member
banks and for other reserve banks quick commercial paper based on
actual commercial transactions, but not based on stocks, bonds, and
investment securities, except where such bonds are city, county,
State, or National. When the reserve of the Federal reserve bank
exceeds 33$ per cent of its total outstanding demand liabilities, it
may discount the paper maturing within 120 day., but 45 days is
otherwise the maximum time of maturity for paper discounted.
It may also discount acceptances, based on imported or exported
goods, and national banks may accept drafts or bills of exchange,
growing out of foreign commercial transactions, drawn not exceed
ing six months after sight, but no bank to accept such bills in the
aggregate of more than one-half its unimpaired capital.
The Federal reserve board may authorize a reserve bank to discount
the direct obligation of member banks upon satisfactory security
under reasonable limitations.
The reserve banks may in open market purchase or sell domestic or
foreign bankers’ bills, cable transfers, etc., deal in gold coin, invest in
Government or State bonds and purchase or sell commercial bills

BANKING AND CURRENCY.

and, with the consent of the Federal reserve board, establish agencies
in foreign countries for like purposes.
The Government deposits are to be placed with the reserve banks
under the direction of the Secretary of the Treasury, and he may
charge interest thereon. No interest otherwise is paid by the reserve
banks to depositors and the transactions of the reserve bank are con
fined to the Government and to member banks.
NOTE ISSUES.

Section 17 provides for note issues not to exceed $500,000,000, with
the addition of such amount as may be necessary to replace a like
volume of national bank notes retired, under the authority of law.
These notes are United States notes and are secured as follows:
First. By a first lien on all the assets of the reserve banks.
Second. By the double liability of member banks.
Third. By short-time prime paper of like volume as the notes, con
sisting of not less than two indorsers, one of them in every instance to
be a member bank.
As a part of this safeguard the Federal reserve banks are required
to carry not less than 33^ per cent of gold against any of these notes
outstanding and the notes are redeemable in gold either at the Fed
eral reserve bank or in the United States Treasury.
The possibility of these short-time commercial notes, the primary se
curity of such currency, proving to be protested is less under the law of
averages than one chance in ten million by actual calculation, and
this one chance in ten million of a single note being worthless is cov
ered by the immediately available assets of the entire resources of the
reserve banks, the double liability of the member banks, not mention
ing its gold reserve, which, of course, is a part of these assets, and
finally the credit of the United States. The history of the world
offers" no case where any currency note ever had behind it such a
volume of security.
The Federal reserve banks are required to carry 5 per cent of gold
or lawful money in the United States Treasury against the Federal
Treasury notes outstanding. The Federal reserve board has a right
to charge such a rate of interest upon the money furnished the Fed
eral reserve banks as may prevent inflation and stabilize the price level.
The Federal reserve bank may at any time return outstanding Treas
ury notes to the Treasury or to the local Federal reserve agent which
shall thereupon release pro tanto the collateral commercial paper
deposited with the local reserve agents. Federal reserve banks
may substitute collateral at any time for other collateral as it ma
tures. A Federal reserve bank is required to receive without charge
for exchange or collection checks or drafts drawn by a depositor of
one reserve bank upon the depositor of any other Federal reserve
bank, and transfer funds at par from one reserve bank to another,
and may act as a clearing house for member banks.
The bill provides also that a national bank giving up any part of
its circulating notes may not thereafter reissue such notes. No
new national bank will be permitted to issue national-bank notes.

BANKING AND CURRENCY.

TWO PER CENT BONDS.

Section 20 permits the Secretary of the Treasury to exchange 2
per cent bonds for 3 per cent bonds without the circulation privilege,
payable 20 years from date of issue, and exempt from taxation.
iNo national bank shall without the consent of the Secretary of the
treasury m any one year present 2 per cent bonds for the exchange
purpose to an amount exceeding 5 per cent of the total amount of
Donds on deposit with the Treasury by such bank at the time of the
passage of this act. But at the expiration of 20 years the 2 per cent
bonds shall be exchanged for 3 per cent without the circulation
privilege.
The substance of this provision is to provide for gradual permissive
retirement of the 2 per cent bonds and the bond-secured currency, if
necessary, by issuing threes without the circulation privilege. This
would seem to be a tax on the United States, but in reality this is not
true, because as these national-bank notes are retired they will be
substituted by Treasury reserve notes advanced to the banks of the
country at a rate of interest to be fixed by the Federal Reserve Board
nat would more than compensate for the interest upon such bonds.
, , Many of the banks have represented that there was a possibility of
c w per cent bonds going below par, and for that reason they regard
u as ol vital importance both to the banks holding seven hundred
minions of these bonds and to the credit of the United States that
mere should be a systematic retirement of these 2 per cent bonds
heretofore used as a basis of circulation.
the

BANK RESERVES OF COUNTRY BANKS.

PP k®, bank nf ita
banks
are «required to o establish with the
Federal
leserve
/hat**/**.
j ____ i i•
cent.

™YU Ultux x* momns
mis
nor
1
.„ , 5 1per centu must
m be increased
r ° “ uu to
uu °5 P
er

T R n „ ______ ___ V

1HE RESERVES

RESERVE CITY BANKS.

BANKING AND CURRENCY.

the Federal reserve bank or with a reserve agent in the central re
serve city for a period not exceeding 36 months.
The effect of this provision is to relieve the reserve city banks of
2*P er cent in its own vaults of lawful money reserve within 60 days,
and after certain time, as stated, the total reserve required is reduced
from 25 to 20 per cent.
CENTRAL RESERVE CITY BANKS.

The bill provides that for 14 months the national banks in central
reserve cities shall maintain in lawful money 25 per cent of their
deposits, for 12 months thereafter 22^ per cent of their deposits,
and after that period 20 per cent of their outstanding deposits; but
for a period of 60 days from the passage of this act the banks in the
central reserve cities are only required to keep in their own vaults
20 per cent of its deposits and thereafter only 10 per cent. The re
mainder of its cash deposits would go to the Federal reserve bank.
This releases for the central reserve city banks a large amount of
reserves, which would be needed by other banks for the transfer
required to be made to the Federal reserve banks. The actuaries
have worked out this table, showing that there would be no difficulty
whatever in making the readjustments proposed by the bill. 1
inclose an explanatory table. It will be observed that the country
banks are only required to keep in their own vaults 5 per cent of
cash, thus releasing 1 per cent cash under the present lawr, $33,900,000.
The nanks in reserve cities release per cent of the cash deposits now
required as reserves, the percentages going from 12£ per cent to 10
per cent ($47,000,000), and the central reserve cities go from 25
per cent in their own vaults down to 10 per cent after 60 days, thus
releasing 10 per cent ($172,000,000) in addition to the amount of 5
per cent ($86,200,000), which would be required of central reserve
city banks to be paid into the Federal reserve banks. The total cash
thus released would be about $253,000,000, while the cash required
would be a smaller sum, $168,000,000 for 3 per cent first required.
The Federal reserve banks are required by this bill to carry in their
own vaults 33 J per cent in gold or lawfful money against any Federal
reserve Treasury notes paid out by them and a like reserve against
their deposits.
Under this bill the bank examinations are very much stimulated,
in order to present the possibility of any lack of proper examination
of any banks belonging to this system.
Section 25 proposes to prevent the corruption of examiners by
ratuities and to prevent officers or directors of national banks from
emg the beneficiaries of any commission on account of any transac
tion made by the bank of which they are officers or directors.
Section 27 provides for some greater liberty in making loans on
farm lands by national banks, not exceeding, however, 25 per cent of
their capital and surplus or 50 per cent of their time deposits. This
would make a possible release lor such purposes of $250,000,000.
Section 28 provides that national banks having a capital of over
$1,000,000 may be authorized by the Federal reserve banks to estab
lish foreign branches.

BANKING AND CURRENCY.

ADVANTAGES TO THE BANKS OF THE PROPOSED SYSTEM.

The great advantage to the banks in this system is that it mobilizes
their own reserves, permits the redundant reserves to one bank to be
made available for use by other banks by being put in a common fund
available for rediscounts for the accommodation of banks needing
such assistance. It prevents a bank from being suddenly embar
rassed by a run upon the bank, as such a bank would be able imme
diately not only to use its own reserves but would also be able to
discount a large volume of its assets in the form of commercial paper
and thus meet any sudden demand. Moreover, it could negotiate
other loans by permission of the Federal reserve board, so that a
sound and stable bank could meet any unexpected demand in the
10mi- a rUn °r ex^raor<hnary financial pressure.
1his system would stabilize banking and give the honest and faithul bankers freedom from the fear of future panic,
bmce he would be able to borrow from the reserve bank when he
ecc eel it funds that he could relet at a profit, it would more than
f
kim for the 2 per cent he now receives on these reserves
i-ls Pr®®®.nt reserve agent, not taking into consideration the safeh
n£ °f his credit against a possible extraordinary demand.
ie member banks would also have the advantage of exchange
l j'^ y the Federal reserve banks and the handling of their col10ns on each other and other member banks of the system without
nfT^1Se ay!i ^ savui£ of time. They would also have the advantage
v
^
^fp^iate anJ °t their securities in times of great stress
tbo v f 1011 ° f k° * ederal Reserve Board. They would also have
and
a^C ^ beul? ahle to accommodate their valued customers
thn ann °Wrii ^m ediate neighborhood business men by furnishing
remiirna m?10(Jatlon which the moving commerce of the country
I ef* , , this way the local bank would be much more useful
a valuable to itself and its own community; would be better able
o build up its deposits and enlarge its own business, as well as to have
a business of stability, peace, and comfort.
1he member bank is permitted also some further latitude in making
loans on improved farms to the extent of 25 per cent of its capital, or
50 per cent of its time deposits.
l or three years the country banks will have the right to keep 5 per
cent of their reserves with their present city reserve banks and may
do so after three years with the approval of the Federal reserve boards,
nn a me * Hie banks ba^e complained that they would lose 2 per cent
a d v a n w L . th R e se r v e s. .This is partly true, of course, but the
vantages more than outweigh the disadvantages.
the 2°mwr™ n7Tta§e t0 l,)anks desiring to do so is the right to retire
T, •
• and receive 3 per cent bonds in lieu of them,
is is regarded as important by some of the larger banks, who have
XW ^T t hh el banhs ^would only
^ receive
2 Per cent
mightthegocapital
belowstock
par.
5 perbonds
cent upon
contributed to the reserve bank, in fact, the capital contributed would
aigely be a portion of the deposits of individual citizens upon which
ie banks probably pay 2 per cent or 3 per cent, and they would earn
•) pet cent on tins money safely uivesteu in the capital of the Federal
reserve banks.
'

k .

BANKING AND CURRENCY.

Another important advantage to the banks is the larger latitude
in handling acceptances and lending their credit under proper safe
guards. I think the national banks should also be given other
powers, such as the right to act as trustee and administrator.
The State banks and trust companies are given opportunity to come
into the system, which a great many of them will naturally desire
to do, and they are permitted to do this on the condition that they
shall have the same capital, keep the same reserves, and submit to
the same examinations and regulations as imposed by the Federal
Reserve Board on the national banks.
RESERVES.

The central reserve cities, other reserve cities, and other banks had
the following deposits (measured in millions) and required reserve
June, 1913 (Comptroller’s Report, 264), as follows:
Deposits. Reserves.
Central reserve cities..................................................................................................
Other reserve cities.....................................................................................................
Total..................................................................................................................

$1,725
1)933
3)390
7,058

$431
483
508
1,422

Reducing the reserves in the central reserves 5 per cent w'ould
release eighty-six millions; 5 per cent in the reserve cities, ninetysix millions; and 1 per cent in other banks, thirty-three millions,
making a total of $215,000,000 immediately released, which would at
once supply all the cash necessary to enable the three per cent
required to be deposited in the Federal reserve banks, which w'ould
only be 3 per cent of $7,058,000,000, or $211,000,000.
The banks had, June, 1913, the following:

Specie.................................................................................................................................. $756
Legal tenders.................................................................................................................... 188
Redemption fund............................................................................................................ 34
Total (in cash)...................................................................................................... 978

The cash requirement under the bill would only be $534,000,000
in their own vaults, as follows:

Country banks, 5 per cent of.......................................................................... $3, 390=$169
Reserve cities, 10 per cent of......................................................................... 1, 9:13= 193
Central reserve cities, 10 per cent of............................................................. 1, 725= 172
Total........................................................................................................
534

The banks have, therefore, $444,000,000 in excess of the require
ment in their own vaults, wTitli a total demand on the 3 per cent
deposits and later, plus 2 per cent, making a total of $350,000,000,
which they would be required to put into the Federal reserve banks
in reserves.
It should be remembered that these reserves placed with the
Federal reserve banks, while they could be paid in actual cash, they
will not be paid in actual cash, but in bank credits, primarily as
cash, but immediately the Federal reserve banks wrould loan these

wM
BANKING AND CURRENCY.

funds upon commercial paper, and thereupon the cash would be
returned, if desired, to the member banks in very large volume,
possibly up to two-thirds of the reserve of $350,000,000, plus twothirds of $100,000,000 of capital, leaving only one-third of cash of
$450,000,000, or a total contribution of cash or gold of $150,000,000
from the member banks to the Federal reserve banks out of the
maximum supply of $979,000,000.
It is obvious there would not be the slightest embarrassment to
the member banks to comply with the provisions of the bill in the
matter of reserves.
THE OPPOSITION.-

Some of the larger interests of the country having set their heart
upon the passage of the Aldrich bill, and having expended large
effort in educating the country in favor of the Aldrich plan, have
been discontented in two very important particulars: First, the
Aldrich bill gave control of the proposed system to the banks ot the
country, and, secondly, authorized the banks ol the country to
issue the currency to the country under this system as bank currency.
We have been unable to approve these principles of the Aldrich
bill, believing that the Federal reserve banks, having been estab
lished purely for the purpose of stabilizing the commercial and
financial operations of the people of the United States, should be
governed exclusively by the people of the United States, and in
establishing the Federal reserve board to exercise this governing
function we do not think it proper to permit private persons to have
representation upon such governing board. We think it no more
reasonable to grant this demand to the bankers than it would be to
authorize the railroads to have representation and exercise a part
of the governing power of the Interstate Commerce Commission,
which is charged with the duty of regulating the railroads. It
would, perhaps, be but little different if the beef packers should
demand representation in administering the pure-food act and regu
lating their own conduct.
In issuing the currency of the country, if this vital public function
were to be^placed in the hands of private parties so that the notes
issued and redeemed were their notes, and not the notes of the United
States, the banks could, witli great force, immediately contend that
since the issue of these notes were their notes, they would have a
right to issue them in whatever volume they desired and contract the
volume of our currency whenever they pleased. The eventualities of
such a policy being ruinous, if used in an ill-advised way, it is not wise
to establish a policy where it would be difficult for the government of
the people to control the currency of the people, by which their con
tracts and the prices of the cost of living is so greatly measured.
In these two vital principles the bill gives control to the United
States Government without banking representation in the control of
the Federal reserve board, and the notes issued are United States
Treasury notes and not the notes of private corporations. I have
insisted upon these principles being recognized in the bill, and regard
it of great importance that a complete concert of opinion has been
reached in regard to these principles by those charged with the duty
of initiating the bill in its present form.

BANKING AND CURRENCY.

I do not refer to opposition which is based upon obvious miscon
ception of banking, because the criticisms from uninformed persons
are too numerous and contradictory to justify discussion at this
point.
It has been suggested that some of the largest national banks
might go out of this system and become State banks, because of
their displeasure at not having representation on the governing
Federal Reserve Board and because they were not satisfied to have
their correspondent banks put a part of their reserves in the Federal
system, and for the further reason that they were displeased at the
United States issuing public currency and in the bill not giving the
right to the reserve banks to issue the currency of the country.
We have taken infinite pains to ascertain the grounds of these
objections and feel justified m saying that there is no reason to appre
hend that any national bank will go out of the system because of
the provisions of this bill, but that they will generally rejoice at the
opportunity afforded them of having a more stable condition in the
financial and commercial world.
It has also been objected that the retirement of 2 per cent bonds and
the issue of 3 per cent bonds would tax the United States $7,000,000
additional on the $700,000,000 of such 3 per cent bonds. The
answer to this is that the Federal reserve notes replacing a like
quantity of national-bank notes would earn more than 3 per cent
and the United States would gain instead of losing.
ABSTRACT OF FEDERAL RESERVE BANKING BILL INTRODUCED
BY MR. OWEN, JUNE 26, 1913 (S. 2639).
S e c t io n 1.

Act to be known as Federal reserve act.
S e c t io n 2.

A reserve bank organization committee established.
Committee composed of Secretary' of the Treasury, Secretary of
Agriculture, Comptroller of the Currency.
Federal reserve districts established by organization committee.
Districts need not conform to St&tc lines.
Each distnct to contain one Federal reserve citv.
Districts readjusted and new districts formed by Federal reserve
board on application of 10 national banks within district.
Districts to be numbered by organization committee.
Federal reserve bank in each reserve city organized by organization
comnnttee. Such bank to bear the name of the citv in which located.
Ihe reserve cities not less than 12.
. Organization committee authorized to emplov counsel and expert
aid to take testimony, administer oaths, and make investigation
necessary to determine the number of reserve cities to be designated.
Every national bank within district to subscribe to capital hi the
Federal reserve bank.
Subscription to equal 20 per cent of capital.
One-half paid same as subscriptions to national-bank stock.

mi M

BANKING AND CURRENCY.

Remainder subject to call when necessary to meet obligations of
Federal reserve bank as its directors prescribe.
Paid-up and unimpaired capital of Federal reserve bank not less
than $5,000,000.
Organization committee incur necessary expenses to carry out the
provisions of the act; expenses payable by United States Treasurer
on vouchers approved by the Secretary of the Treasury.
One hundred thousand dollars appropriated for payment of such
expenses.
S e c t io n 3.

Shares of stock of Federal reserve bank, $100 each.
Capital stock increased as subscribing banks increase capital or
additional banks become subscribers.
Decreased as such banks reduce capital or leave organization.
federal reserve bank establish branches in Federal reserve districts
where located under regulations Federal reserve board.
total number of branches not to exceed one for each $500,000
capital stock.
S e c t io n 4.

federal reserve b a n k .

Federal reserve bank a body corporate on making and filing with
e m p tie r of the Currency certificate in form described in sections
5154 and 5155, Revised Statutes.
t P ^ f o r m acts and enjoy privileges described in section
, Revised Statutes, except as limited by act.
Dave succession for a period of 20 years. "
e organized and conducted under control of board of directors,
card oi directors same authority as board of directors of national
.listin g law, except as otherwise provided under act.
and C COnslst n*ne members, divided into three classes—A, B,
Class A consist of three members chosen by and representative' of
stockholding banks.
das.-, B, three members, representative of general public interest of
reserve district.
Class C, three members, designated by the Federal reserve board.
Uass A chosen as follows: Chairman of board of directors of Federal
eserve >ank classify the member banks of district stockholders in
ftrvl.U a- re"er e ^ank dito three divisions. Each division contain
?ne-third aggregate banking capital of banks holding
dmilnr
reserve banks of said district and consist of banks of
of ch«innnn E
designated by number at pleasure
Federal reserve bank. At regular called directors’
meting of each national bank of district, board of directors elect by
ballot one of its own members district reserve elector and certify and
name the chairman of board of directors of the Federal reserve bank
or district. Chairman establish complete list of district reserve elecors, class A, thus named by banks in each of aforesaid three groups
and transmit one complete list to each elector in each group. Each
elector within 15 days thereafter select and certify to said chairman
from names on list pertaining to his group transmitted to him, as
aforesaid, choice for reserve director, class A. Name receiving great

BANKING AND CURRENCY.

est number of votes, not less than majority, designated by chairman
as Federal reserve director of group to which he belongs. In case of
no majority, chairman to establish eligible list consisting three names
receiving greatest number votes and transmit list to the electors
in each of the groups of banks established by him. Elector select and
certify forthwith to chairman his choice from such three names for
Federal reserve director, class A, name receiving greatest number of
votes designated as Federal reserve director, class A.
Directors, class B, selected in same manner as class A, except that
officers or directors of any bank or banking association ineligible.
Directors of class B to be representative of commercial, agricultural,
or industrial interests of district. Federal reserve board power to
remove any director of class B when it may appear that any such
director does not fairly represent the commercial, agricultural, or
industrial interests of his district.
Class C, chosen by Federal reserve board, one designated as chair
man of the board of directors of Federal reserve bank of the district
to which appointed and designated as “ Federal reserve agent.”
In addition to duties as chairman of board of Federal reserve bank,
is required to maintain, under regulations of the Federal Keserve
Board, local office on premises of Federal reserve bank of district.
He shall make regular reports to Federal reserve board and act as
official representative for performance of duties conferred by act.
His compensation fixed by the Federal reserve board. Paid by
Federal reserve bank to which designated.
The reserve organization committee in organizing reserve banks
call meetings of bank directors in districts as necessary to carry out
the provisions of act, and exercise functions conferred upon chair
man of board of directors of Federal reserve bank pending complete
organization.
At first meeting of board of directors of the Federal reserve bank,
duty of directors of classes A and B each to designate one of its
members whose term expires in one year from the 1st of January
nearest date of meeting; one whose term expires at end of two years
from said date; and one whose term expires at end of three years
from said date. Thereafter director of Federal reserve bank chosen
holds office for term of three years, but chairman of board of directors
of Federal reserve bank designated by Federal reserve board re
moved at pleasure of board without notice and his successor hold office
during unexpired term.
S e c t io n 5.

Stock shares of Federal banks not transferable nor pledgeable.
Subscribing bank increasing capital subscribe additional amount of
capital stock in Federal reserve bank equal to 20 per cent of increase;
pay therefor the then book value of shares as shown by last published
statement.
Bank applying for stock in Federal reserve bank subscribe amount
equal to 20 per cent of its capital, paying then book value as shown
by last published statement.
When capital of Federal reserve bank increased, board of directors
make and execute certificate showing increase of capital, amount
paid in, and by whom.
Certificate filed in office of Comptroller of Currency.

BANKING AND CURRENCY.

Where subscribing bank reduces its capital, shall surrender pro
portionate amount of holdings in capital of Federal reserve bank.
If bank goes into voluntary liquidation, shall surrender all holdings
in capital of Federal reserve bank. In either case shares surrendered
canceled and the bank receive therefor a sum equal to then book
value shown by last published statement.
S e c t io n 6.

In case Federal reserve bank becomes insolvent and receiver ap
pointed, stock held bv in said Federal bank canceled and balance
value after paying debts due by insolvent bank to Federal reserve
bank paid to receiver insolvent bank.
Whenever capital Federal reserve bank reduced, board directors
make and execute certificate showing reduction and amount repaid
to each bank. Certificate filed in office of Comptroller of Currency.
S e c t io n 7.
DIVISION OF EARNINGS.

Earnings of I ederal reserve bank disposed of. After payment all
expenses and taxes, shareholders to receive annual dividend of 5 per
cent paid-in capital, dividend cumulative.
One-half net earnings paid surplus fund until amount equals 20
per cent paid-in capital of such bank.
Remaining one-half paid to United States.
Whenever surplus fund Federal reserve bank amounts to 20 per
cent paid-in capital and shareholders have received dividends at rate
of 5 per cent per annum, all excess to be paid United States.
Federal reserve bank exempt from Federal, State, or local taxa
tion, except taxes on real estate.
S e c t io n 8.

Any national bank at any time within one year, with the approval
of the Comptroller of the Currency, granted all rights and privileges
subject to all liabilities of national banking associations organized
subsequent to the passage of act, when authorized by consent in
writing of shareholders owning not less than majority capital stock.
Any national bank which shall not within one year after passage of
act become national banking association under provisions of act, or
failing to comply with provisions, be dissolved, such dissolution not
to impair remedy against such corporation, its stockholders, or officers,
for liability or penalty previously incurred.
S e c t io n 9.

Any bank or banking association incorporated by law of State or
United States, with unimpaired capital to entitle it to become na
tional bank under provisions of act, may by a consent in writing of
shareholders owning not less than 51 per cent of capital stock and
approval of Comptroller of Currency, become national banking asso
ciation under former name or name approved by comptroller.

BANKING AND CURRENCY.

Its directors continue to be directors of the association until others
elected or appointed in accordance with provisions of lawT.
When any such bank given certificate that provisions of act have
been complied with, bank, its stockholders, officers, and employees
have the same powers and privileges and subject to same duties, lia
bilities, and regulations as prescribed for associations originally organ
ized as national banks under act.
S e c t io n 10.
STATE BANKS AS MEMBERS.

After passage of act any bank or trust company organized under
laws of State or the United States may make application to Federal
reserve board to subscribe stock of Federal reserve bank organized
within district.
Federal reserve board at discretion may entitle such applying bank
to become stockholder in Federal reserve bank, or at discretion reject
application.
Whenever reserve board entitles applying bank to become stock
holder, stock shall be issued and paid for under rules and regulations
in act provided for national banks which become stockholders in
Federal reserve banks.
Duty of Federal reserve board to establish by-laws for its govern
ment in - acting upon applications made by State banks and trust
companies for stock ownership in Federal reserve bank. By-laws
to require applying banks not organized under Federal law to comply
with reserve requirements and submit to inspection under regulations
provided for by act. No applying bank admitted to stock owner
ship unless it possess paid-up unimpaired capital entitling it to be
come national banking association in place where situated. Failure
of any banking association or trust company organized under laws
of any State or United States to comply with provisions of this sec
tion shall confer authority on Federal reserve board to require such
banking association or trust company to surrender stock in the Fed
eral reserve bank, receiving then booh value of said shares in current
funds, and Federal reserve bank upon notice from Federal reserve
board required to suspend designated banking association or trust
company from further privileges of rediscount, and wdthin 30 days'
notice, cancel and retire shares, making payment therefor as herein
provided.
S e c t io n 11.
FEDERAL RESERVE BOARD.

The Federal reserve board consists of three ex officio members,
composed of the Secretary of Treasury, Secretary of Agriculture,
Comptroller Currency; four members chosen by the President of the
United Statesu confirmed by Senate.
The four members chosen by President receive annual salary of
$10,000 each.
Comptroller to receive $5,000 additional compensation.
Of four appointed by President, one experienced in banking.

BANKING AND CURRENCY.

Of those first appointed, one serve two years, one four years, one
six years, and one eight years, respectively; thereafter each member
serve eight years.
One of four persons appointed by the President be governor, one
vice governor, one secretary, Federal reserve board.
Governor, subject to supervision of Secretary Treasury and the
board, to be active managing officer of Federal reserve board, subject
to removal by President upon statement of reasons.
Federal reserve board have power to levy semiannually on Federal
reserve banks in proportion to capital assessment to pay expenses for
the half year succeeding such levy, together with deficit of former
hall year.
First meeting of Federal reserve board in Washington, D. C., as
soon as may be after the passage of act and after organization of
Federal reserve banks in the several districts, at a date fixed by the
reserve organization committee.
Secretary of Treasury ex officio chairman of the Federal reserve
board.
No member of Federal reserve board continue office or act as di
rector of bank or banking institution or Federal reserve bank.
Before entering upon duties as member of Federal reserve board
shall certify under oath to Secretary of Treasury his qualification.
Vacancies in membership of Federal reserve board ffiled by Presi
dent on confirmation by Senate and for unexpired term.
. Amend section 324 of He vised Statutes United States establishing
in the Department of Treasury bureau charged with the execution
of laws passed by Congress relating to issue and circulation of cur
rency issued by national banking associations; chief officer, Comptiollei of Currency, and perform duties under direction of Secretary
ireasuiy, acting as chairman of Federal reserve board.
S e c t io n 12.

Federal reserve board possesses the following powers:
To examine accounts and books of Federal reserve banks and require
statements and reports deemed necessary.
To require or permit Federal reserve banks to discount paper of
other Federal reserve banks.
To establish weekly or oftener, as required, rate of discount manatory upon each Federal reserve bank and for each class of paper.
iJiscount not necessarily uniform for Federal reserve bank, but
a^e with view to accommodation of commerce of the country.
periodSUS?end for- Per*oc* not excee(Bng 30 days and renew* same for
act n0t exceeding 15 days the reserve requirements specified in the
rp
T S1^ ervise and regulate issue of notes of Federal reserve banks.
• 0 ad' j number of cities classified as reserve and central reserve
j|l:s l,I^der existing law in which national banking associations are
1uojcct to reserve requirements by section 21 of act.
1 o reclassify reserve and central reserve cities and designate banks
lerem situated as country banks at discretion.
1° require removal of officers of Federal reserve banks.
1 o require the writing off of doubtful or worthless assets.

BANKING AND CURRENCY.

To suspend further operation of Federal reserve bank and to ap
point receiver to perform duties, functions, or services specified or
implied in act.
S e c t io n 13.
REDISCOUNT.

Federal reserve banks may receive from stockholders deposits of
current funds, lawful money, national-bank notes, Federal reserve
notes, or checks and drafts upon solvent banks, domestic and foreign.
Upon indorsement of member bank, Federal reserve bank may
discount notes and bills of exchange arising out of commercial
transactions.
Federal reserve board have the right to determine or define char
acter of paper eligible to discount within meaning of act, not to
include, however, notes or bills issued or drawn for purpose of carry
ing or trading in stocks, bonds, or other investment securities except
notes or bills having a maturity of not more than four months secured
by bonds of United States, State, county, or municipality of United
States.
Such notes and bills eligible to discount have maturity of not
more than 45 days.
Upon indorsement of member bank, Federal reserve bank may
discount paper having maturity of more than 45 and not more than
120 days, when its own cash reserves exceed 33$ per cent of outstand
ing demand liabilities, but not more than 50 per cent of total paper
so discounted for any depositing bank shall have maturity of more
than 60 days.
Upon indorsement of any member bank having deposit with it any
Federal reserve bank may discount acceptances of depositing banks
based on exportation or importation of goods or travelers’ credits
maturing in not more than 90 days and bearing the signature of one
member bank in addition to that of acceptor.
Amount discounted at no time exceed one-half the capital of the
bank for which rediscounts made.
The aggregate of such notes and bills bearing signature or indorse
ment of any one person, company, firm, or corporation, discounted
for any bank, at no time to exceed 10 per cent of unimpaired
capital or surplus of bank.
National bank may accept drafts or bills of exchange drawn upon
it having more than four months to run, growing out of transactions
involving the importation or exportation of goods or issue of travelers’
letters of credit.
No bank may accept such bills aggregating more than one-half
face value of paid-up and unimpaired capital.
S e c t io n 14.

Upon joint application directly made to Secretary by not less than
10 national banks in one district, Federal reserve board authorize
the reserve bank of district to discount direct obligation of member
bank, secured by satisfactory security deposited with it, but not
exceeding three-fourths of actual value of security or one-half paid-up
and unimpaired capital of bank.

BANKING AND CURRENCY.

S e c t io n 15.
OPEN-MARKET OPERATIONS.

A Federal reserve bank, under regulations of the Federal reserve
board, may purchase in open market from domestic or foreign banks
or individuals bills and bills of exchange of kinds of maturities by
this act eligible for rediscount.
Shall have power to deal in gold coin and bullion at home and
abroad; to make loans thereon; to contract for loans of gold coin and
bullion, giving, when necessary, acceptable security, including the
hypothecation of United States bonds; to invest in United States
bonds and short-time obligations of United States or dependencies,
or of any State or foreign Government; to purchase from member
banks and sell, with or without its indorsements, checks or bills of
exchange arising out of commercial transactions payable in foreign
countries, such bills not to have exceeding 90 days to run and bear
the signature of two or more responsible parties, and subscribing
bank last indorser; and with the consent of Federal reserve board to
open and maintain banking accounts in foreign countries; establish
agencies there, selling and collecting foreign bills of exchange; to buy
and sell without its indorsement, through such correspondents or
agencies, checks or prime foreign bills of exchange having not exceed
ing 90 days to run, with two or more responsible parties’ signatures.
S e c t io n 16.
GOVERNMENT DEPOSITS.

All moneys in general fund of Treasury within 12 months after
passage of act, under direction of Secretary deposited in Federal
reserve banks which shall act as fiscal agents of United States.
Thereafter revenues of the Government to be regularly deposited in
such banks, and disbursements made by checks against same. Gov
ernment funds from time to tune apportioned among the Federal
reserve banks by the Secretary of tne Treasury, who may charge
interest thereon and monthly fix rate paid by the banks on such
deposits.
No Federal bank shall pay interest upon deposits except those of
United States. United States and stockholding banks shall be only
depositors of Federal reserve banks.
All domestic transactions of Federal reserve banks that involve the
deposit of accounts shall be confined to Government and depositing
banks, with exception of purchase or sale of Government or State
securities, securities of foreign Governments, or of gold coin or
bullion.
S e c t io n 17.

Issue of Federal reserve Treasury notes to amount of §500,000,000
authorized.
Notes show on face obligations of United States.
Issued at discretion of Federal reserve board solely for making
advances to Federal reserve banks.
Receivable for all taxes and other public dues.
Redeemable hi gold at United States Treasury in Washington or
Federal reserve banks. •

BANKING AND CURBENCY.

When deposited with bank for redemption to be charged off by
bank against Treasury balances or paid out of lawful money set apart
for redemption.
Federal reserve bank, upon vote of directors, may apply to Federal
reserve board through Federal reserve agent for Treasury notes.
Application accompanied with tender to local reserve agent of col
lateral security equal to amount applied for.
Collateral offered be such as mentioned in section 13 of act.
Additional security may be called for at any time by Federal
reserve board.
If Federal reserve bank pay out Federal reserve notes it shall hold
in its vaults gold or lawful money amounting to 33$ per cent thereof.
Federal reserve board may require Federal reserve banks to keep on
deposit in Treasury of United States sum in gold or lawful money
equal to 5 per cent of Treasury notes issued to them.
Such 5 per cent counted and included as part of the 33$ per cent
reserve otherwise required.
The board’s right to grant or reject, in whole or in part, application
for Federal reserve Treasury notes.
Federal reserve bank charged with the amount of Treasury notes it
may receive and required to pay interest on the amount as Federal
reserve board may establish.
Amount of such Treasury notes issued to any Federal reserve bank
to become first lien on all assets of the bank.
Federal reserve bank at any time reduce liability for outstanding
reserve notes by deposit of Federal reserve Treasury notes issued to
such bank or to some other member bank, other lawful monev of the
United States, or gold bullion, with the Treasurer of the United States.
Such reduction accompanied by corresponding reduction in
reserve fund of lawful redemption money and release of corresponding
amount of collateral deposited.
A Federal reserve bank may at discretion withdraw collateral
deposited with local Federal reserve agent for protection of Treasury
notes deposited by substitution of other collateral of equal value
approved by Federal reserve agent under regulations established by
Federal reserve board.
Duty of Federal reserve bank to receive on deposit at par. without
charge for exchange or collection, checks and drafts drawn by any of
its depositors upon any other depositor, and checks and drafts drawn
by any depositor in any other Federal reserve bank upon funds to the
credit of said depositor in said reserve bank.
Federal reserve board to make and promulgate regulations govern
ing the transfer of funds at par among Federal reserve banks^and at
discretion exercise functions of clearing house of Federal reserve
banks, and require each bank to exercise functions of clearing house
for shareholding banks.
S e c t io n 18.
No national banking association entitled to receive or issue circu
lating notes in excess of amount of such notes which it has outstanding
No national banking association reducing its outstanding circulat
ing notes thereafter entitled to receive or issue circulating notes in
excess of sum to which reduced.

BANKING AND CURRENCY.

19.
Provisions of existing law requiring national banks before com
mencing business to deliver to the United States Treasurer United
States registered bonds, repealed.
S e c t io n

S e c t io n 20.

Exchange authorized of 2 per cent United States bonds (not ex
ceeding 5 per cent of outstanding issue annually) with circulation
privilege, for 3 per cent United States bonds without circulation
privilege.
Three per cent bonds to be for 20-year period and exempt from
Federal, State, and municipal taxation, both as to income and to
principal.
In proportion as outstanding 2 per cent bonds are exchanged or
refunded power of national banks to issue circulation notes to ter
minate.
No national bank permitted to issue circulating notes or to make
use of any substitute for such circulating notes not specifically pro
vided for.
No national bank permitted without consent of the Secretary of
the Treasury in any one year to exchange 2 per cent bonds for 3
per cent bonds in an amount exceeding 5 per cent of the total amount
on deposit with the Treasurer by such bank at the time of the passage
of this act.
After 20 years holders of United States 2 per cent bonds to receive
in exchange 3 per cent bonds of like denomination, payable 20 years
from date of issue, without circulation privilege.
National-bank notes still outstanding after 20 years to be recalled
and redeemed by national banks within such a period and under
such regulations as may be prescribed by the Federal reserve board.
Notes remaining in circulation after 20 years to be secured by
equal amount of lawful money deposited in Treasury by banks origi
nally issuing them.
S ec tio n 21.
BANK RESERVES.

Within 60 days after Secretary Treasury officially announces that
& Federal reserve bank established, every national bank shall estab
lish with the Federal reserve bank of district a credit balance on the
books of the latter institution of not less than 3 per cent of its total
demand liabilities, exclusive of circulating notes, and at the end of 14
Months from date fixed by Secretary Treasury shall increase said
per cent to 5 per cent.
Such balance may be increased, but shall not fall below the amounts
aforesaid.
From and after dates set by Secretary Treasury and officially an
nounced, it shall be the duty of national banking associations now
classified as country banks, situated outside of central reserve and
reserve cities, to maintain reserve equal to 15 per cent of aggregate
amount of deposits.
Reserve shall consist of 5 per cent lawful money held in own vaults
and for period of 14 months from said date consist of at least 3 per cent,

BANKING AND CURRENCY.

and thereafter of at least 5 per cent, with ts district Federal reserve
bank.
Remainder of 15 per cent reserve may for period of six months from
date set by Secretary Treasury consist of balances due to national
bank in reserve or central reserve cities as now defined by law.
From and after date 36 months subsequent to date set by Secretary
Treasury, the remainder of the 15 per cent reserve required of coun
try banks to consist of lawful money in own vaults or balances on
deposit with federal reserve bank of district, or both.
BANKS IN RESERVE CITIES.

From and after date set by Secretary of the Treasury for incorpora
tion of Federal reserve bank, duty of national banks in such reserve
cities to maintain for 26 months reserve of 25 per cent of outstanding
deposits and for 12 months thereafter reserve of 22$ per cent.
At end of 38 months and permanently thereafter a reserve of 20
per cent of outstanding deposits.
For 60 days from date set bv Secretary for organization of reserve
in district every national bank in reserve cities to maintain in
own vaults in lawful money sum equal to 12^ per cent of its outstand
ing deposits, and thereafter a sum of lawful money equal to 10 per
cent of deposits.
The additional reserve above lawful money required in own vaults
be kept with Federal reserve bank or reserve agent in central reserve
cities for period not exceeding 36 months from organization.
1 equirement of balances of 3 and 5 per cent, respectively, of its de
posit with federal reserve bank of its district shall not be diminished.
CENTRAL RESERVE CITY BANKS.

National bank in central reserve cities for period of 14 months to
maintain reserve in lawful money equal to 25 per cent of deposits.
Thereafter for period of 12 months reserve in lawful money equal
to 22f per cent of deposits.
After 26 months reserve in lawful money equal to 20 per cent of
outstanding deposits.
For a period of 60 days after passage of act each bank to maintain
in own vaults in lawful money sum equal to 20 per cent of deposits;
thereafter in lawful money 10 per cent of deposits.
Shall be optional with such bank to keep reserve in addition to
lawful money required to be kept by them either in own vaults or
deposited with Federal reserve banks of district in which bank located.
The requirement of a balance of 3 per cent and 5 per cent respec
tively, with Federal reserve bank of district not be diminished.
S e c t io n 22.

So much of sections 2 and 3 of act of June 20, 1874, entitled “ An
act fixing the amount of United States notes,” etc., as provides that
fund deposited by national banking association with Treasury of
United States for redemption of notes, shall be counted as part of
lawful reserve as provided in act is repealed.
From and after passage of act such fund of 5 per cent in no case
counted by any national banking association part of its lawful reserve.

BANKING AND CURRENCY.

S e c t io n 23.

Every Federal reserve bank always have on hand in its own vaults
in gold or lawful money not less than per cent of outstanding
demand liabilities.
S e c t io n 24.
BANK EXAMINATIONS.

Examination of affairs of national banking associations take place
at least twice in each calendar year and oftener if Federal reserve
board direct.
Secretary Treasury at any time direct the holding of special ex
aminations.
Persons assigned to make an examination of the affairs of any
national banking association, power to call together directors of such
association, who shall under oath disclose character and circumstances
of loans or discounts as he may designate.
After passage of act all bank examiners receive fixed salaries,
amount determined by the Federal reserve board, to be reported
annually to Congress.
Expense of examination shall be assessed by Federal reserve board
upon associations examined in proportion to assets or resources at
date or during year when made.
No two successive examinations of any association made by same
examiner.
Every Federal reserve bank may, with the approval of Federal
reserve board, arrange for special or periodical examinations of mem
ber banks within district, to be conducted so as to inform Federal
reserve bank under whose auspices carried on, condition of member
banks, and lines of credit extended by them.
Federal reserve bank bound to furnish Federal reserve board in
formation demanded concerning condition of any banking association
organized in district and have power to order special examination
without notice.
Federal reserve board, not less frequently than four times a year,
may order examination of national banks in reserve cities, examina
tion to show in detail amount of loans made by each bank on demand,
on time, and different classes of collateral held.
S e c t io n 25.

No national bank to make a loan or grant gratuity to any examiner.
Bank offending against said provision guilty of misdemeanor, sub
ject to fine not more than $1,000 and further sum equal to money so
loaned or gratuity given.
Officer or officers of bank making any such loan or gratuity likewise
guilty misdemeanor and fined not to exceed $500.
Examiner accepting loan or gratuity from bank guilty of misde
meanor and subject to a fine of not more than $500 and further sum
equal to money loaned or gratuity given and forever disqualified from
holding office as a national-bank examiner.
No bank examiner shall perform any other service for compensation
while holding such office.

BANKING AND CURRENCY.

No officer or director of national banks receive or be beneficiary,
directly or indirectly, of any fee, brokerage, commission, gift, or other
consideration for or on account of any loan, purchase, sale, payment,
exchange, or transaction, made by or on behalf of national bank of
which he is such officer or director.
Person violating any provision of act shall be punished by fine not
exceeding $5,000 or term in penitentiary not exceeding three years, or
both.
S e c t io n 26.

After passage of act stockholders every national bank individually
responsible for all contracts, debts, and engagements of association,
eacn to the amount of his stock at par in addition to amount invested
in such stock.
Stockholders in any national banking association transferring shares
or registering transfer of shares within 60 days before date of failure
of any such association to meet liabilities, liable to same extent as if
no transfer made.
Provision not to be construed to affect any recourse shareholders
have against those in whose name such shares registered at time of
failure.
Section 5151, Revised Statutes, reenacted except in so far as modi
fied by this section.
S e c t io n 27.
LOANS ON FARM LANDS.

National banks not in reserve city or central reserve city make
loans secured by improved and unencumbered farm land.
So much of section 5137, Revised Statutes, as prohibited making
of such loans repealed.
Such loans not made for longer time than nine months nor for
amount exceeding 50 per cent of actual value of property offered as
security.
Such property be situated within the Federal reserve district in
which bank is located.
Such bank make such loans in aggregate sum equal to 25 per cent
of capital and surplus or 50 per cent of time deposits.
Federal reserve board have power to add to list of cities in which
national banks not permitted to make loans upon real estate.
S e c t io n 28.
FOREIGN BRANCHES.

Any national banking association with capital of $1,000,000 or more
file application with Federal reserve board for purpose securing
authorization to establish branches in foreign countries for further
ance of foreign commerce in United States and acting as fiscal agents
of the United States.
Application specify, in addition to name and capital of banking
association, foreign country or countries or dependencies of the United
States where operations carried on and amount of capital set aside
by bank for conduct foreign business at branches proposed.

BANKING AND CUBBENCY.

Federal reserve board authorized to reject such application if
amount capital proposed set aside for conduct of foreign business
inadequate, or for other reasons the granting of application deemed
inexpedient.
Every national banking association receiving authorization to
establish branches in foreign countries required to furnish informa
tion concerning conditions of branches to Comptroller Currency upon
demand, and Federal board may order special examinations of
branches at any time.
Accounts of foreign branches conducted independently of accounts
other foreign branches established by it and of its home office.
At end of each fiscal period shall transfer to general ledger profit
or loss accruing at each such branch as a separate item.
S e c t io n 29.

All provisions *of law inconsistent with or superseded by act
repealed.

INDEX TO FEDERAL RESERVE BANKING BILL (S. 2639) INTRODUCED BY MR. OWEN JUNE 26, 1913.
[Sixty-third Congress, first session.)
(References are to pages.)

Appropriation for expenses of organiza Directors, board of—Continued.
tion committee, 4.
Term of office of, 5.
Bank examiner—
Class A of, how chosen, 6, 7.
To be paid fixed salary, 35.
Class B of, how chosen, 7, 8.
Loans or gratuities to, forbidden, 36.
Qualifications of members of, 7.
Must not perform other services, 37.
Removal of members of, 8.
Board of directors. (See Directors.)
Class C of, how chosen, 8.
Branch offices—
Chairman of, how named, 8.
Of Federal reserve bank, 4.
Local office of, 8.
Number of, 4.
Expiration of terms of office of, 9.
In foreign countries, 39.
Discounts—
Capital stock—
(See Rediscounts.)
Of Federal reserve bank, 3.
Rate of, to be fixed by Federal re
Subscription to, by national bank, 3.
serve board, 18.
Liability for subscription to, 3.
By Federal reserve banks, 19, 20.
Issue of, 4.
What paper eligible for, 19, 20.
How divided, 4.
Of bank’s own paper, 21.
Increase of, 4, 10.
Dividends—
Decrease of, 4, 10.
Payable out of net earnings, 11.
Not transferable 9.
To
be cumulative, 11.
Amount to be taken by bank, 10.
Earnings—
Voluntary liquidation; surrender of
Of Federal reserve banks, division
stock, 11.
of, 11.
Cancellation of, in case of insolvency,
Surplus fund, 11.
Dividend payable from, 11.
Chairman—
To be cumulative, 11.
Of board of directors, 8.
Examination—
To be styled Federal reserve
Of national banks, 34.
agent, 8.
Of Federal reserve banks, 18.
Removal of, 9.
Special examination of national
Of Federal reserve board, 17.
banks, 35.
Compensation—
Expenses of, how paid, 35.
Of Federal reserve board, 16.
At instance of Federal reserve bank
Of Federal reserve agent, 8.
35, 36.
Comptroller of the Currency—
Examiner. (Set Bank examiner.)
To^be one of organization committee, Farm lands, loans on, by national bank,
38.
Organization certificate to be filed Federal reserve agent—
with, 5.
How appointed, 8.
To approve application for member
To be chairman of board of directors
ship, 13.
8
To be member of Federal reserve
Duties
of, 8.
board, 15.
To
make
reports to Federal reserve
To be under direction of chairman of
board, 8.
Federal reserve board, 18.
Compensation of, 8.
Deposits—
Federal reserve banks—
In Federal reserve banks, character
Organization of, 2.
of, 19.
Title of, 3.
Of Government funds in Federal re
National bank must take stock in, 3.
serve banks, 23.
Minimum capital stock of, 3.
Directors, board of—
Branch offices, 4.
Of Federal reserve bank, 5.
How incorporated, 5.
Powers of, 5.
Corporate powers of, 5.
To consist of nine members, 5.
Succession of, 5.

I in

• ill

BANKING AND CURRENCY.

Federal reserve banks—Continued.
Dissolution of, 5.
Earnings of, how divided, 11.
Assessment on, for expenses of Fed
eral reserve board, 16.
Examination of books and accounts
of, 18.
What deposits may be received by,
19.
What paper may be discounted by,
19, 20.
Purchase of bills and drafts by, 22.
May deal or invest in what securities,
22, 23.
May have agency in foreign country,
22. 23.
To be fiscal agents of United States,
23.
Government receipts to be deposited
in, 23.
Who to be sole depositors in, 23,
24.
To create reserve against notes paid
out, 25.
What to receive on deposit, 27.
What reserve to be kept by, 25, 26.
Examination of national bank at in
stance of, 35.
To give information to Federal re
serve board, 23.
May have branches in foreign coun
tries, 36.
Federal reserve board—
To name class C of directors, 6.
May remove directors of class B, 8.
To choose class C of directors, 8.
To name chairman of board of direc
tors, 8.
To fix compensation of Federal re
serve agent, 8.
May remove Federal reserve agent, 9.
To pass on application of State bank,
14.
To make by-laws governing such ap
plication, 14.
May require State bank to surrender
stock, 15.
Creation of, 15.
How chosen, 16.
Term of office of members of, 16.
Governor, vice governor, and secre
tary of, 16.
Qualifications of members of, 17.
Expenses of; assessment for, 16.
Compensation of members of, 16.
First meeting of, 17.
Secretary of the Treasury to be chair
man of, 17.
Member, not to be director in any
bank, 17.
Vacancy in, how filled, 17.
Powers and duties, 18, 19.
To require or permit rediscounts, 18.
To fix rate of discount, 18.
To suspend reserve requirements, 18.
To supervise issue of notes, 19.
To add to or reclassify reserve cities,
19.

Federal reserve board—Continued.
To require removal of bank officers,
19.
To require writing off of worthless ac
counts, 19.
To appoint receiver for bank, 19.
To determine what paper may be dis
counted, 20.
May allow discount of bank’s own
note, 21.
May allow purchase of bills or drafts,
22.
To pass on application for notes 24,
25.
May require reserve against Treasury
notes, 25.
To make rules governing transfer of
funds, 27.
To direct examination of national
bank, 34, 35.
To fix salary of bank examiner, 35.
Information to be furnished to, by
bank, 36.
May authorize foreign branch bank,
39.
Federal reserve cities—
Designation of, 2.
Number of, 3.
Federal reserve districts—
To be located, 2.
Apportionment of, 2.
Readjustment of, 2.
New, 2.
Designation of, 2.
Federal reserve notes—
Issue of, authorized, 24.
Limit of issue, 24.
Receivable for Government dues, 24.
Application for, by bank, 24.
Collateral security for, 25.
Bank to create reserve against, 25.
To be lien on assets of bank, 26.
To be redeemed in gold, 24.
Reduction of bank’s liability for, 26.
Withdrawal and substitution of col
lateral for, 26.
Five per cent fund not to be counted as
part of reserve, 34.
Foreign agencies of Federal reserve bank,
23.
Foreign branches—
Of national banks, 39.
Independent accounts to be kept, 40.
Gold coin, Federal reserve bank may deal
in, 22.
Government deposits in Federal reserve
banks, 23.
Governor—
Of Federal reserve board, 16.
To be acting managing officer, 16.
Removal of, by President, 16.
Insolvency—
Of stockholding bank, 11.
Cancellation of stock in case of, 11.
Interest—
Not to be paid on what deposits, 23.
To be paid on Government deposits,
23.

BANKING AND CURRENCY.

Lien, Federal reserve notes to be a, 26.
Loans. (See “ Rediscounts;” “ Farm
lands.”)
National banks—
Must take stock in Federal reserve
bank, 3.
Must come in under provisions of act,
12.
Dissolution of, in case of failure to
come in, 12.
What bills or drafts may be accepted
by, 21.
Direct obligations of, may be dis
counted, when, 21.
To keep reserve in Federal reserve
bank, 27.
Limiting future note issue, 28.
Forbidding new banks to issue notes,
28.
Permitting 2 per cent bonds retired,
29.
Forbidding clearing-house receipts,
etc., 29.
Retiring bank notes, 30.
Amount of such reserve, 30.
Reserve of—
Country banks, 31.
Reserve city banks, 32-33.
Central reserve city banks, 33-34.
Five per cent fund not to be counted,
34.
Examination of, 34.
Special examination of, 35-36.
Expense of examination of, 35.
Fee or commission to officer or direc
tor, prohibited, 37.
Liability—
Of stockholders, 37.
In case of transfer of stock, 37.
May make loans on farm lands, 38.
Notes. (See Federal reserve notes.)
Organization certificate of Federal reserve
bank, 5.
Organization committee—
Who to constitute, 2.
To locate Federal reserve districts, 2.
To designate Federal reserve cities, 2.
May appoint assistants, 4.
Appropriation for expenses of, 4.
To exercise functions of board of di
rectors, 9.
To organize Federal reserve banks, 2.
May take testimony, etc., 3.
President of the United States—
To name four members of Federal re
serve board, 15.
May remove governor of Federal re
serve board, 16.
Real estate, loans on, by national bank, 38.
Receiver, appointment of, by Federal re
serve board, 19.
Rediscounts—
By Federal reserve banks, 19, 20.
May be authorized by Federal reserve
board, 20, 21.
What paper eligible for, 19, 20.

Reserve—
Against issue of Federal reserve notes,
25.
Of national bank, kept where, 30.
Amount of, 30.
Of country banks, 31.
Of reserve city banks, 32.
Of central reserve city banks, 33-34.
Of Federal reserve banks, 34.
Five per cent fund not counted as
part of, 34.
Reserve organization committee. (See
Organization committee.)
Secretary of Federal reserve board, 16.
Secretary of Agriculture, to be member of
Federal reserve board, 15.
Secretary of the Treasury—
To be one of organization committee,
2.
To approve vouchers for expenses, 4.
To be member of Federal reserve
board, 15.
To supervise manager of Federal re
serve board, 16.
To be chairman of Federal reserve
board, 17.
To supervise duties of Comptroller of
the Currency, 18.
To apportion Government deposits in
Federal reserve banks, 23.
State banks—
May become national banks, 13, 14.
May take stock in Federal reserve
banks, 14.
Qualifications of, 14, 15.
Failure to comply with provisions of
law, 15.
Cancellation of Btock of, 15.
Stock. (See Capital stock.)
Stockholders—
Personal liability of, 37.
In case of transfer of stock, 37-38.
Surplus fund—
Of Federal reserve bank, provision
for, 11.
One-half of net earnings to be paid
into, 11.
Taxation, Federal reserve bank exempt
from, 12.
Treasury notes. (See Federal reserve
notes.)
Trust companies—
May take stock in Federal reserve
bank, 13.
Qualifications of, 14.
Failure of, to comply with provisions
of law, 15.
Cancellation of stock of, 15.
United States 2 per cent bonds, refund
ing, 29.
United States 3 per cent bond in lieu of 2
per cent bonds, 29.
Vice governor of Federal reserve board,
16.
Voluntary liquidation, bank going into,
must surrender stock, 11.

631*1
d C ongress }
Session \

cjfjmatf

SENATE

/ D ocument

{ No, 144

BANKING AND CURRENCY
A LETTER
FROM

THE CHAIRMAN OF THE SENATE COMMITTEE
ON BANKING AND CURRENCY

MR. JOSEPH T. TALBERT
Vice President of the National City Bank
of New York, New York City

PRESENTED BY MR. OWEN
JULY 28, 1913.— Ordered to be printed

WASHINGTON
1913

U nited S tates S enate,
Committee on B anking and Currency,
July 26,1913.
Mr. J oseph T. T albert,
Vice President the National City Bank of New York,
New York City.
D ear S ir : I am pleased to receive your comments on the pro
posed banking and currency bill, have given the matter careful con
sideration, and answer your objections at once.
I am glad that you agree to the importance of "mobilizing the re
serves,” providing “ elastic currency,” and establishing a “ discount
market for short-time self-liquidating commercial credits” growing
out of trade transactions, and your approval of these principles
which are found in the banking and currency bill introduced by me
(S. 2039) is specially gratifying.
You insist that the reserves should be in one central bank. While
the reserves are put in 12 reservoirs (of the 12 Federal reserve banks),
instead of in one bank, the reservoirs are piped together by the pro
visions of the bill, under the control of the Federal reserve board, who
can cause the reserve superabundant in one section to be transferred to
another section needing temporary assistance by requiring one
Federal reserve bank to loan to another, where the security offered by
the borrowing bank is satisfactory to the directors of the lending
bank. This provision makes the reserves in the 12 banks almost as
mobile as if the reserves were all in one bank, as you advise.
You object to a loan of currency against bonds—Federal, State, or
city. The power of the reserve banks to obtain currency from the
United States against short-time self-liquidating commercial paper
will furnish all of the accommodation the commerce of the country
may be expected to require. The power to occasionally use invest
ment securities as a basis for borrowing such currency, I think, would
be bad if it should fix a regular custom, but its occasional use might
be sometimes very serviceable.
You put a slur on the proposed members of the Federal reserve
board as “ mere politicians,” as “ political appointees,” etc. The
Federal reserve board should no more be stigmatized by the epithet
“ political appointees ” than the Supreme Court of the United States,
whose members are also “ political appointees.” It is in either case
a governmental body of the highest dignity and character—not a
partisan machine of self-serving knaves.
I remind you that the President of France appoints the governor,
the subgovernor, and the manager of every one of the very numerous
branches of the Bank of France, and yet nobody in France has ever
charged that the Bank of France was managed as a political or
partisan machine.

I
\

I is *
j 'It

I remind you that the Emperor of Germany, on the nomination
of the Bundesrath, appoints the Direktorium of nine members, the
governing body, the supreme administrative control of the Imperial
Bank of Germany, and yet nobody has ever charged that it is a
political machine. In effect both of these great governmental insti
tutions are moved solely by the welfare of the commercial and indus
trial interests of France and of Germany.
I remind you that the Bank of England has not on its directory a
single banker, broker, or bill discounter, but it is controlled by public
opinion as a great national agency and as a safeguard for the com
mercial and industrial interests of the British Empire
Your plea that the bankers should control the Federal reserve
board and the proposed reserve system would violate the experience
of England, France, and Germany and is contrary to common sense,
for the obvious reason that these reserve banks are not created to
enable you to make more money but are established to safeguard the
commerce and industry (including the banks) of the people of the
United States and to put an end to the periodic sinister expansion
and contraction of credits leading to the so-called 44bull markets”
and ‘"bear markets,” in which banks like your own have been used
as a means of promoting private interests at the public expense.
The bankers have no more right to ask to take charge of the gov
erning functions of the United States proposed to be exercised by the
Federal reserve board than the railroads would have a right to de
mand control of the Interstate Commerce Commission, which is in
tended to regulate them in the interest of public justice. The bank
ers have no more right to ask control of the Federal reserve board
than the beef packers of Chicago to demand the right to administer
the pure-food act, which is intended to regulate beef packing in the
public interest.
I confess that the bankers understand the banking business, that
the railroad men understand the railroad business, that the packers
understand the beef business, but their point of view is money
making out of their business. Their point of view is not the point
of view of the public interest, except so far as an individual may
be moved against his own interest by patriotic considerations. And
patriotic considerations have not, in the past, been found sufficient
to safeguard the public against the local, sectional, or selfish inter
ests of such private persons moved by their own natural desire to
promote their private fortunes at public expense.
You object that membership of national banks is made "‘ compul
sory in the proposed system, and at the same time the suggestion
has come from your immediate environment that the larger national
banks would refuse to participate in the proposed Federal reserve
system which you generously and justly call “ a great constructive
undertaking.”
I am myself quite willing to make bank membership permissive
and to open the stock books of the proposed reserve banks to the
general public, who will be content, as the citizens in England,
France, and Germany who own the stock of the Bank of England,
the Bank of I ranee, and the Bank of Germany are content, with a
low rate of interest upon such stock.
Your suggestion that these notes are intended to be the obligations
of the Federal reser\e banks is a serious error. They are obligations

BANKING AND CURRENCY.

of the United States Government and are intended to be such, and
the language should be made entirely unequivocal upon this point.
The words describing this currency and saving the notes should on
their face “ purport ” to be the obligations of the United States should
be changed so as to remove the equivocation which you seem to think
that word implies.
You ask me the question, “ Shall the control and domination of
the banking business of the United States, including note issues, bank
credits, and the cash reserves of the United States, be surrendered
unconditionally into the hands of a board of seven members ap
pointed by the President? ”
Surrendered by whom, my dear sir? By you and a half dozen
others who have gotten possession of this dangerous power?
I ask you, in return. “ Shall the control and domination of the bank
ing business of the United States, including note issues, bank credits,
and the cash reserves of the banks, be retained unconditionally in the
hands of certain men like yourself for mere money-making pur
poses without responsibility to the people of the United States, and
shall men like yourself exercise an invisible government over the com
merce and industry of the United States and without control?”
The issue is well drawn bv you. Either a half dozen private persons
in the United States will continue the control and domination of the
banking business, of the credit business and therefore of the com
merce and industry of the United States, or the Government of the
United States must assume so much control as is essential to safe
guarding the commerce and industry of the Nation, in the interest
of all the people, including the banks.
^ on ask me, “ Is there wisdom or safety in placing such power in
the hands of a board of seven individuals having no personal interest
in the banks?”
I ask you, in return, “ Is there wisdom or safety in leaving such
power in the hands of a like number of bankers in Chicago and New
\ork , having a personal interest but who have no personal responsi
bility to the people of the United States and who have demonstrated
their inability (if not their unwillingness) to protect the stability
of the commerce of the United States?”
The very fact the Federal reserve board has no personal interest,
hut acts from a governmental and altruistic standpoint in the in
terest of all of our people, in the interest of every branch of com
merce and industry of the United States, the banks especially in
cluded, is the best answer to your objection. It is true there are
quite a few thousands of bankers, but there are 90.000.000 people
under our flag who are not bankers.
Would you prefer that this stock of the Federal reserve banks
should be contributed by the general public and give the banks no
voice whatever in the Federal reserve banks? If so. I should be
fflad to have you say so plainly and give that as your advice. The
stock would be oversubscribed ten times and woiild come straight
°ut of the bank deposits of the country.
Your suggestion that because 1 of the 7,000 member banks does
Uot control the Federal reserve bank it would not have any interest
m contributing to the stock is singularly unreasonable. What a
member bank gets is the immediate right to rediscount its liquid
mils up to two-thirds of the reserve deposited with the reserve bank;

f
b

BANKING AND CURRENCY.

and, in addition, other accommodations by way of rediscounts in
case of need, gets currency always to supply its customers, and. in
addition, a financial roof over its head and a financial foundation
under its feet that will prevent the periodic destruction of banks
by the currency and credit panics which have swept this country
under the unhappy management of the very banks who now protest
against " surrendering, as you say, their control of the banking
business.
Under the proposed Federal reserve system, a member bank could,
by the consent of the Federal reserve board, obtain all the currency
necessary to pay its depositors in full in case of a run. What more
should a member bank want ?
At present, my dear sir, such a bank in times of panic can not get
its own deposits from you, much less the discounting of good assets.
I trust you will not deem it discourteous if I suggest that the
public appreciates your point of view better than you appreciate the
public’s point of view.
You urge that a "politically controlled bank” can not be kept
permanently " out of politics." My answer is that the proposed
bank is a government ally controlled bank, but that if the banks
themselves were permitted to control the Federal reserve board, the
National City Bank would head the list in its political activities to
get control of this Federal reserve board, and would not be moved
altogether by altruistic and unselfish purposes. We should then in
deed have financial politics in control of the board with selfish
interests behind it. We must make our choice between protecting the
people by the Government and protecting the people by the political
bankers and. being obliged to make that choice led by the experience
of the past. I am in favor of protecting the people through their own
chosen representatives.
You would greatly misunderstand my letter if you fancied for one
moment that I have any other than a friendly disposition to the big
banks of the country. I am in favor of serving them well by giving
them a system which would safeguard them against harm, against
panic, against each other, for I am told at times they eat% ach
other up.
You protest " against the unwise proposal to concentrate the regu
lation and control of credits * * * in the hands of a few poli
ticians, and ton evidently favor the policy of not "surrendering,”
but retaining such regulation and control now in the hands of a few
powerful bankers. This is a very ingenuous admission on your part
ot ti f<ict w Inch is thoroughly well understood by the country,
but a fact obviously not well understood by you. The people of the
United States aie not going to permit, any longer, a few men not
responsible to the people of the United States, to continue "to concentiate the regulation and control of credits in their own hands.”
. ^ ‘\m 80 ^ar 'n accord with you with regard to the importance of
the f ederal reverie board being above suspicion of partisanship that
I shall ad\ocate an amendment making any use of the powers of the
federal iesei\e board or of the federal reserve banks for partisan
or self-serving purposes a high misdemeanor. Yet I remind vou
that neithei the diiectors of the Bank of Fngland. controlled, as they
have been, by public sentiment (which does not permit a banker a
broker, or a bill discounter to be a member of the board), nor the

BANKING AND CURRENCY.

directors of the Reichsbank of Germany, appointed by the Govern
ment, nor the managers of the Bank of France, appointed by the
Government, conduct themselves at any time so as to be subjected to
the charge of partisan or indecent conduct. Do you have less confi
dence in the Secretary of the Treasury, the Secretary of Agriculture
the Comptroller of the Currency, and the other great and honorable
Americans who would be called to this distinguished service as mem
bers of the Federal reserve board, than you have in the managers of
the French, German, and English banks referred to?
The people of the United States will prefer to trust their own
President and officials rather than turn the functions of governing
the reserve system over to the genial and attractive gentlemen who
have charge of a few big banks of the country.
Yours, very respectfully,
R obt. L. O wen. Chairman.

63d C o ng ress |

1st Session \

n n v r a rpr>

SENATE

D ocum ent

\ No. 154

BANKING AND CURRENCY
LEGISLATION

LETTER FROM THE CHAIRMAN OF
THE COMMITTEE ON BANKING AND CURRENCY
UNITED STATES SENATE
Sixty-Third Congress, F irst Session
RELATIVE TO THE BILL

S. 2639

A bill to provide for the establishment of Federal reserve
banks, for furnishing an elastic currency, affording
means of rediscounting commercial paper, and
to establish a more effective supervision of
banking in the United States, and for
other purposes

PRESENTED BY MR. OWEN
A ug u st 6, 1913.—Ordered to be printed
WASHINGTON
1913

CIRCULAR LETTER FROM HON. R. L. OWEN, CHAIRMAN OF
THE BANKING AND CURRENCY COMMITTEE OF THE SEN
ATE, IN REPLY TO CERTAIN QUESTIONS PUT TO HIM ASK
ING THE ADVANTAGES TO THE COUNTRY BANKS OF THE
PROPOSED FEDERAL RESERVE SYSTEM.

U nited States S enate ,
Committee on B anking and Currency,
Washington, D. C., August 5, 1913.
Mr. T. P. Martin,
President Stock Yards National Bank.
My D ear S ir : I have your courteous favor asking me to point out
the advantages to a national bank in the proposed Federal reserve
system to justify contributing 10 per cent of its capital in stock and
a further 10 per cent in subscription. I gladly do so.
First, the first advantage is protection from panic, because panic
will be impossible under this system, which provides immediate ade
quate expansion of the currency to meet commercial and industrial
requirements.
Second, it safeguards a bank against an occasional local run (a
hazard to which all banks are subjected in a greater or less degrtse),
because under this system, with the consent of the Federal reserve
board, the Federal reserve bank can also loan directly to any bank
in trouble, upon collateral. This system in this way also places a
bank’s other correspondent banks in a position to extend assistance,
because the correspondent banks, in case of need, can get like
accommodations.
Third, it gives the ordinary member bank peace of mind against pos
sible artificial panics or local stringency, and enables a banker who
is engaged in trie honest and efficient conduct of his business to feel
a sense of perfect stability, knowing that no panic can injure him
so long as he conducts his business on an intelligent and upright
basis, and the bank can thus safely expand its business.
Fourth, while he loses 2 per cent on a part of his reserves deposited
with the Federal reserve bank, he is more than compensated in actual
cash returns by the advantages he can get out of the reserve system.
To illustrate with a concrete case:
The average actual reserve of the national banks for April, 1912,
was 25.39 per cent, based upon the following figures:

Capital.......................
Surplus and profits..
Individual deposits.
Loans and discounts

$1. 036. 124. 945
942, 666, 846
5. 712, 051.088
5. 882.166. 597

Theactual reserve carried by the national bankshas since 1885 ranged
between 25 and 33 per cent. The actual reserve acquired and needed
under the new system would not exceed 15 per cent, and I think 12
per cent for country banks and 18 per cent for city banks would be
large enough, and 1 will so advise. These high actual reserves have
been hitherto due to the fact that the reserves of the Nation were

BANKING AND CURRENCY LEGISLATION.

not sufficiently mobilized in a few strong reserve banks, where they
might be held available for other banks and for the commerce and
industry of the Nation; but, on the contrary, the individual bankers
have been in rivalry with each other—have been in fear of each
other, and in fear, also, of some sudden, unexpected withdrawals bv
timid depositors. This fear need no longer be entertained under the Federal reserve system, which proposes to follow the experience of Europe,
in the Bank of England, the Bank of France, and the Imperial Bank
of Germany, each of which great institutions is distinctly a great
reserve lank, with power of expanding the currency to meet the
demands of commerce. The consequence is the banks of England,
for example, do not carry over 6 per cent of reserves in cash, but do
carry considerable amounts of commercial and industrial paper,
convertible into cash within short periods of maturity.
Taking the low average of 25 per cent of cash reserves carried by the
country banks, the present bill would have the following effect upon an
average bank of SI00,000 capital and S550,000 of average individual
deposits. A bank of this description is now required to carry 6 per
cent cash in its own vaults. It actually is obliged to carry approxi
mately 8 per cent as a safe margin to keep from coming within the
prohibition of 6 per cent minimum. Of the 25 per cent average actual
reserve, 17 per cent of the deposits of such a bank might be car
ried with reserve agents at 2 per cent. That is, such an average
bank as described might carry $93,500 with a reserve agent at 2 per
cent earning $1,870 from 2 per cent on such average balances with
such reserve agents. Under the new system the average bank need
not carry over 5 per cent of its deposits in actual cash, 5 per cent
with its present reserve agents, and 5 per cent with the Federal
reserve bank.
But it would be able, immediately, to loan 10 per cent of its depos
its, now tied up in actual reserves—that is, $55,000 could be loaned
at 6 per cent, with an earning power of $3,300. It could borrow
two-thirds of $27,500 (5 per cent deposits), from the Federal Reserve
Bank; that is about $18,333 at probably 4 per cent, and lend it at
6 per cent, a profit of 2 per cent, or $366.66. This makes a net gain
of $1,796.66 on the transaction; that is, $3,300 plus $366.66 less
$1,870.
It is suggested that such an average bank, with $100,000 capital
and $550,000 deposits, would have to contribute $10,000 in cash
in taking stock in the Federal reserve bank, and you intimate
that it would be taken out of the bank’s capital. This is not really
true. It is not taken out of the capital. What is done is that the
bank invests $10,000 of its deposits in buying this reserve bank stock,
and the bank gets 5 per cent out of such deposits so invested, while,
in point of fact, it pays only 2 per cent, or, at most, 4 per cent on such
deposits, and makes an actual net profit on the transaction of from
$100 to $300 per annum, so that the net result to the average $100,000
bank would be a substantial gam by the new system over the old
system of approximately $2,000 or 2 per cent on its capital.
I should be quite willing to have the public subscribe for this
stock and make the bank subscription merely permissive instead of
obligatory. The public subscriptions would come out of the bank
deposits.
Moreover, under the new system, the 17 per cent average balances of
such a bank, amounting to $93,500, kept as reserves with the present

BANKING AND CURRENCY LEGISLATION.

reserve agents in New York, or elsewhere, in times of panic, are not
available. In such a case you can not check on your own reserve de
posits, much less borrow the money you want on good assets, yet this
is precisely what a bank can do in dealing with the Federal reserve
bank, just as an English bank can do with the Bank of England, as a
German bank can do with the Reichsbank, or a French bank can do
with the Bank of France.
The great majority of big bankers approve the principles of this bill
but would like to control the system, while all small bankers who
understand it are enthusiastically for the bill.
Another advantage which this bill gives is to permit the country
banks to loan half their time deposits, or a fourth of their capital and
surplus, on farm loans. I should be in favor, also, of giving them
other advantages, which we can do more intelligently when we
codify the national-bank act next winter.
It has been suggested that the bankers “ putting up all the money”
for the Federal reserve bank ought to control, or have important
representation, on the Federal reserve board. The banks will not
put up all the money as a matter of fact. They will merely loan
credits. The United States will put $200,000,000 into these banks
and will furnish currency to a larger amount if necessary, but the
capital the banks supply is really the capital of depositors. The
banks are purveyors of credit. They receive deposits as credits (and
pay for a part of such deposits) and charge a larger interest for the
credits which they extend (loans) out of the credits which they re
ceive (deposits), keeping the capital and surplus as a margin of safety
between them and the demand of their depositors.
But the capital which the bank will invest as stock in the Federal
reserve bank and deposit as reserves is, in reality, capital furnished
by others, by the people of the United States, through their deposits,
and the Federal reserve system, in protecting the banks against the
unstable conditions of the past, is also protecting then- depositors,
the people themselves, as well as the banks, through the governing
function of the people’s government.
The Government of Germany appoints the curatorium, the super
vising board, and the direcktorium, the managing board of the great
reserve bank of Germany, the Reichsbank. The Government of
France appoints the governor, the subgovernor, and 188 managers of
the 188 branches of the Bank of France, although the stockholders
both of the Reichsbank (the German reserve bank) and of the Bank
of France (the French reserve bank) are private citizens. In like
manner, under its charter, the Bank of England (the English reserve
bank) has its board of governors, selected by certain qualified stock
holders, but under a rule which forbids a banker, broker, or billdiscounter to be a member of the governing board, because the Bank
of England, like the Reichsbank of Germany and like the Bank of
France, is a reserve bank, expressly performing the function of
safeguarding the reserves for the accommodation of the commercial
and industrial interests of its own country.
This is precisely what we propose to do with the Federal reserve
system, to wit, safeguard the national reserves so that we may always
furnish the banks and industrial and commercial interests with the
discount of qualified commercial paper, and thus stabilize our com
mercial and industrial life. The Federal reserve banks are not
intended as money-making banks, but to serve a great national

BANKING AND CURRENCY LEGISLATION.

purpose of accommodating commercial and business men and bankers,
thus making our business activities steady, giving confidence in the
permanence and continuity of business, stability to men and corpo
rations engaged in legitimate industrial enterprises, and thus to safe
guard a fixed market for manufactured goods, for agricultural prod
ucts, and for labor. There is no more reason why the banks snould
have control of the Federal reserve system, in whole or in part, than
that they should do so in the great reserve banks of France, Germanv,
or Great Britain. Nobody has ever had the shamelessness to charge
the reserve banks of France, Germany, or Great Britain with being
used for partisan or political purposes. That suggestion has remained
to be prophesied by a few very ambitious bankers in this country
who wish to retain in their own hands the dangerous power they
have acquired to control the finance, commerce, and industry of the
United States. The vice president of a great New York bank asked me,
as chairman of the Banking and Currency Committee, this question:
“‘Shall the control and nomination of the banking business of the
United States, including, note issues, bank credits, and the cash
reserves of the United States be su rren dered unconditionally to the
hands of a board of seven members appointed by the President ?”
S u rren d ered by w h om ? My answer is, that it must be surrendered
by the few who have gained control of it at least to the extent which
is essential for the protection of the great mass of our people engaged
in commerce and industry. At present this enormous power is
measurably controlled in the hands of a half dozen men who can
shake this country to its foundation by panics whenever they please,
and they can do it so artfully and so subtly as to make ft almost
impossible to demonstrate their crafty contrivance.
If an exhaustive investigation were made of the panic of 1907 to
ascertain who were the beneficiaries of that panic, this country would
learn a much-needed lesson in finance as to the responsibility for and
the beneficiaries of panics in this country.
Let us look at this matter from the standpoint of American citi
zens and realize the importance of stabilizing our financial, commer
cial, and industrial life. It is more important than mere money
making, but money making will be enormously stimulated by sta
bility which will make our commerce expand "healthfully in every
direction.
I rejoice that nearly all the bankers take a patriotic view of this
question, and even the biggest of our bankers are showing a much
more generous spirit than they are usually credited with.
We are anxious to discuss this bill in its most minute particulars,
but the time of action has arrived, and I strongly favor supporting
President Wilson’s policy presented by him in person to the Senate
and House of Representatives in his special message at this special
session urging prompt action notwithstanding the inconvenience of
the heat of summer.
We have been considering this question since the panic of 1907,
bin e spent hundreds of thousands of dollars by the National Monetary
Commission, and published 33 volumes of advice on this problem.
i
understood. It is not complicated, and the Democracy
should demonstrate its capacity for cohesive constructive government.
Yours, very respectfully,
R obt. L. O wen.

63d Congress
1st Session.

SENATE.

HEARINGS ON BANKING AND CURRENCY.
A LETTER FROM THE CHAIRMAN OF THE SENATE COMMITTEE
ON BANKING AND CURRENCY REPLYING TO THE CHARGE THAT
THE BANKERS HAVE HAD NO HEARING BY CONGRESS RESPECT
ING THE PROVISIONS OF THE BANKING AND CURRENCY BILL.
Printed for the use of the Committee on Banking and Currency.

Mr. J ames S impson,

S eptember 1, 1913.

V ice P resid en t M arsh all F ield <£■ Co., C hicago, IU.
D ear S ir : My attention has been called to your telegram of
August 29 to a leading New York paper in which you express the
following opinion:

We think fullest exchange of opinion between framers of currency bill and bankers
absolutely Accessary in order to avoid mistakes.

Your telegram was an answer to a telegram sent broadcast by
this New York paper to the following effect:

Cooperation appears to be lacking between the framers of the administration cur
rency bill and the bankers of the country. Do you feel that the best interests of
the business men of the country would be served by a free exchange of opinions
between the framers of the bill and representative bankers? The New Y ork----would appreciate a short statement from you by telegraph upon a matter which is
of vital interest to all.

[Four days previously to this publication the Committee on Bank
ing and Currency had invited these bankers to be heard before the
committee, and they had had four previous hearings by the framers
of the bill.]
The replies to this dispatch are published from many prominent
people from one end of the country to the other—Minnesota, Texas,
Tennessee, Ohio, Wisconsin, Colorado, Indiana, Utah, Iowa, Ne
braska, etc.—showing that this misleading inquiry was sent broad
cast throughout the United States and, whether intended to do so
ei not, conveyed the impression that the framers of the currency bill
had denied a free exchange of opinions with the bankers of the
country. 1his suggestion is utterly untrue because, as stated, they
tad been heard four times, and their views were printed for committee
use. Such a suggestion, moreover, would excite hostility against
thei pending measure, on the ground that it was drawn without con
sultation and without knowledge.
O

HEADINGS ON BANKING AND CURRENCY.

Those drawing this measure have had the most abundant means of
knowledge. Congress discussed the question of currency reform very
deliberately and at great length immediately after the disastrous
panic of 1907 in passing the so-called Yreeland-Aldrich bill. The
present chairman of the Senate Committee on Banking and Currency,
who had, previously to that time, given the matter great attention,
delivered a speech of three hours on the floor of the Senate discussing
this question. This speech received the wide-spread approval of the
press of the United States.
Congress, in passing the Yreeland-Aldrich bill, provided for the
National Monetary Commission and appropriated a large amount of
money to enable an exhaustive study to be made of this great prob
lem and hundreds of thousands of dollars were expended for the
employment of experts and over 30 volumes of reports were printed,
beginning in 1910 and extending up to 1912, giving an elaborate
description of the banking system in the British Empire, in France,
in Germany, in Belgium, in Sweden, in Switzerland, in Scotland, in
Canada, in Italy, in Russia, in Austria-Hungary, Netherlands, and
Japan, as well as in the United States, and discussing various mat
ters of banking practice and reform, in connection with the American
problem.
In addition to this immensely laborious work, the House of Repre
sentatives, through the Committee on Banking and Currency, during
the last winter gave most elaborate hearings to the bankers and
banking experts of the country, including Mr. A. B. Hepburn, chair
man of the currency commission of the American Bankers' Associa
tion ; Paul Warburg, of the great banking house of Kuhn, Loeb & Co.;
Victor Morowitz; Leslie M. Shaw; Prof. J. L. Laughlin; Mr. 1). G.
Endy, chairman of the banking and currency committee of the
National Association of Credit Men, accompanied by Messrs. J. II.
Tregoe, Charles D. Joyce, and W. W. Orr, representing the National
Association of Credit Men; Mr. Festus J. Wade, president of the
Mercantile Trust Co., St. Louis; Mr. James E. Ferguson, of Temple,
Tex.; Mr. Edmund D. Fisher, deputy comptroller of the city of New
York; Mr. Ludwick Bendig; Mr. Samuel N. Wilhits, comptroller of
the city of Louisville, Ky.; Mr. William A. Nash, former chairman of
the Clearing House Association of New York; Mr. George M. Reynolds,
president of the Commercial National Bank, Chicago; Hon. Charles N.
Fowler, of New Jersey, banking expert; Mr. Andrew J. Frame, presi
dent of the Waukesha National Bank, Wisconsin; John Y. Farwell,
of John V. Farwell Co., of Chicago, director of the National Bank of
the Republic; William T. Creasy, master of the Pennsylvania State
Grange; Mr. T. J. Brooks, representing the Farmers’ Fklucational
and Cooperative Union of America; Mr. William W. Flannagan, of
New York; Mr. William II. Berry, ex-State treasurer of Pennsylvania
and a manufacturer, and many others representing the banking and
business interests of the country.
Their statements were published and comprised a volume of 744
pages. In addition to this, the Committee on Banking and Currency
also ma<Jie a careful investigation into the so-called Money Trust, the
testimony being printed in three volumes of 2,226 pages, and a notable
report of over 250 pages, prepared by the Pujo committee, Hon.
Samuel Untermeyer, counsel, showing in tremendous detail the con
centration of control of property and credits by Morgan & Co., the

HEARINGS ON BANKING AND CURRENCY.

First National Bank, and the National City Bank, of New York,
through 341 directorships in 112 corporations, having aggregate
resources or capitalization of $22,245,000,000. (P. 88, H. Kept.
1593, 62d Cong., 3d sess.)
After the reports had been made by the National Monetary Commission in 1910 the bankers of the country carried on an active
propaganda during 1911 and 1912 for the so-called Aldrich bill, which
proposed to establish a great central reserve bank, on the theory that
it would mobilize the reserves, provide elastic currency, and give an
immediate market always for qualified commercial paper.
It was currently reported that from $300,000 to 8500,000 was spent
in this propaganda. The American Bankers’ Association approved a
banker-controlled central bank. The plan was objected to by the
public opinion of the country, because of one great fundamental and
fatal defect; that is, having been proposed at great public expense
for the.avowed purpose of being a great public-utility bank, the
supreme control was given to the bankers, who would have been
guided, necessarily, under the laws governing human life, by private
interests instead of by the public welfare exclusively.
After the further investigation made by the Banking and Currency
Committee of the House of Representatives during the last winter—
1912—13—and before the new bill was actually drawn to comply with
public opinion, the preliminary draft was submitted to various repre
sentatives of the American Bankers’ Association.
They were thus consulted a second time by those responsible for the
present bill.
After the preliminary draft was actually prepared for submission to
Congress, and before being submitted, the present chairman of the
Committee on Banking and Currency of the United States Senate
spent 7 hours with Mr. Paul Warburg, regarded as one of the ablest
representatives of those banking interests and their greatest expert
on the question of bank currency. The present chairman also
spent over 10 hours consecutively in conference with the represent
atives of the American Bankers’ Association, discussing the details
of this bill, and has been in constant communication with bankers
from all over the country, as well as with leading experts on banking.
After the bill was introduced in both Houses, a further and third
hearing was accorded to the representatives of the American Bankers’
Association by the chairmen of the Committees on Banking and Cur
rency of the House and Senate, also by the Secretary of the Treasury
and also by the President of the United States. In addition, the
chairman of the Committee on Banking and Currency of the Senate
called for the opinions of over 500 bankers on the pending bill and on
the principles involved in it, and 50,000 copies of the bill were sent
out for inspection and report. The Committee on Banking and Cur
rency of the Senate has published for its use a volume of such
opinions. They have at their disposal a special library on this ques
tion of over 2,000 volumes.
I he propaganda now being carried on, led by the National City
[y,nk of New York, which has circularized the country against the
■)1 *s. obviously intended to discredit the administration and to
make it appear that the bankers have not been consulted and that
the committee is not well informed. This misrepresentation has the

k
!-'....
II

ir '■>*■
1

HEARINGS ON BANKING AND CUREENCY.

effect of poisoning the public mind and misleading public opinion.
Such misrepresentation will thus promote a private interest against
the public interest. It is an open secret that these great concerns,
like Morgan & Co., have publicity agents, to whom they pay very
large salaries and who are able to create fictitious and false public
opinion unduly favorable to the contentions of these great financial
companies.
, . „
The business men of the country need have no fear that their Kepresentatives and Senators in Congress will act unadvisedly. Ihe
representatives of the big banks of the country have been given the
most abundant opportunity to be heard. And after they had their
Chicago meeting and presented anew their old contentions ami
requested further hearings, this opportunity was immediately afforded
them by telegraph and the hearings set for 2 o’clock Tuesday, September 2.
I deem it my duty to advise you that you are being misled by an
artificial propaganda conducted in behalf of private interests, which
does not hesitate to convey to the country the false suggestion that
the administration is proceeding without adequate knowledge or
without giving a hearing to the bankers of the country.
The rank and file of the bankers of the country constitute one of
the greatest, most important, and most valuable parts of our national
commercial machinery. They have been of great value in promoting
every kind of enterprise, and one of the most useful features ol the
proposed public utility banks—the so-called Federal reserve banks
will be to give stability, peace of mind, and greater opportunity to
the bankers of the country to render patriotic service.
It is not surprising that a few men, having an enormous control of
credits of the country, should oppose surrendering to the United
States in any degree the vast power which they have heretofore
exercised, enabling them to control credits, to bull and bear the
market, to enrich or impoverish other men.
Robt. L. Owen .
Very respectfully,

BANKING AND CURRENCY LEGISLATION

LETTER
FROM THE

CHAIRMAN OF THE
COMMITTEE ON BANKING AND CURRENCY
UNITED STATES SENATE
SIXTY-THIRD CONGRESS
FIRST SESSION

RELATIVE TO THE BILL

S. 26 39
A BILL TO PROVIDE FOR THE ESTABLISHMENT OF FEDERAL
RESERVE BANKS, FOR FURNISHING AN ELASTIC CUR
RENCY, AFFORDING MEANS OF REDISCOUNTING COM
MERCIAL PAPER, AND TO ESTABLISH A MORE
EFFECTIVE SUPERVISION OF BANKING IN
THE UNITED STATES, AND FOR
OTHER PURPOSES

[Printed for the use of the Committee on Banking and Currency]

WASHINGTON
GOVERNMENT PRINTING OFFICE

COMMITTEE ON BANKING AND CURRENCY.
U nited S tates S en a t e .
ROBERT L. OWEN. Oklahoma, C h a irm a n .
GILBERT M. HITCHCOCK, Nebraska.
KNUTE NELSON, Minnesota.
JAMES A. O’GORMAN, New York.
JOSEPH L. BRISTOW, Kansas.
JAMES A. REED, Missouri.
COE I. CRAWFORD, South Dakota.
ATLEE POMERENE, Ohio.
GEORGE P. McLEAN, Connecticut.
JOHN F. SHAFROTH, Colorado.
JOHN W. WEEKS, Massachusetts.
HENRY F. HOLLIS, New Hampshire.
James W. Bellee, C lerk .
2

U nited States S enate ,
Committee on B anking and Currency,
Washington, D. C.
My D ear S ir : I have your courteous favor asking me to point out
the advantages to a national bank in the proposed Federal reserve
system to justify contributing 10 per cent of its capital in stock and
a further 10 per cent in subscription. I gladly do so.
The first advantage is protection from panic, because panic will
be impossible under this system, which provides immediate adequate
expansion of the currency to meet commercial and industrial require
ments.
Second, it safeguards a bank against an occasional local run (a
hazard to which all banks are subjected in a greater or less degree),
because under this system, with the consent of the Federal reserve
board, the Federal reserve bank can also loan directly to any bank
in trouble, upon collateral. This system in this way also places a
bank’s correspondent banks in such position to extend assistance,
because the correspondent banks, in case of need, can get like
accommodations.
Third, it gives the ordinary State bank peace of mind against pos
sible artificial panics or local stringency, and enables a banker who
is engaged in tlie honest and efficient conduct of his business to feel
a sense of perfect stability, knowing that no panic can destroy him
so long as he conducts his business on an intelligent and upright
basis, and the bank can thus safely expand its business.
Fourth, while he loses 2 per cent on a part of his reserves deposited
with the Federal reserve bank, he is more than compensated in actual
cash returns by the advantages he can get out of the reserve system.
To illustrate with a concrete case:
The average actual reserve of the national banks for April, 1912,
was 25.39 per cent, based upon the following figures:

Capital.............................................................................................................$L O36) 124, 945
Surplus and profits........................................................................................ 942, 666, 846
Individual deposits....................................................................................... 5, 712, 051. 088
Loans and discounts...................................................................................... 5, 882,166, 597

BANKING AND CURRENCY LEGISLATION.

Nation were not sufficiently mobilized in a few strong reserve banks,
where they might be held available for other banks and for the com
merce and industry of the Nation; but, on the contrary, the individual
hankers have been in rivalry with each other—have been in fear of each
other, and in fear, also, of some sudden, unexpected withdrawals by
timid depositors. This fear need no longer be entertained under the F ederal reserve system, which proposes to follow the experience of Europe,
in the Bank of England, the Bank of France, and the Imperial Bank
of Germany, each of which great institutions is distinctly a great
reserve harik, with power of expanding the currency to meet the
demands of commerce. The consequence is the banks of England,
for example, do not carry over 6 per cent of reserves in cash, but do
carry considerable amounts of commercial and industrial paper,
convertible into cash within short periods of maturity. Taking the
lowest average of 25 per cent of cash reserves carried by the country
banks, the present bill would have the following effect upon an
average bank of $100,000 capital and $550,000 of average individual
deposits. A bank of this description is now required to carry 6 per
cent cash in its own vaults. It actually is obliged to carry approxi
mate^ 8 per cent as a safe margin to keep from coming within the
prohibition of 6 per cent minimum. Of the 25 per cent average actual
reserve, 17 per cent of the deposits of such a bank might be car
ried with reserve agents at 2 per cent. That is, such an average
bank as described might carry $93,500 with a reserve agent at 2 per
cent and would have an earning of $1,870 from 2 per cent on its
average balances with such reserve agents. Under the new system
the average bank need not carry over 5 per cent of its deposits in
actual cash, 5 per cent with its present reserve agents, and 5 per cent
with the Federal reserve bank. It would lose the interest at 2 per
cent on $27,500 by this transfer of 5 per cent of its deposits as reserve
fund to the Federal reserve bank, or it would lose $550 annually
on this item.
But it would be able, immediately, to loan 10 per cent of its depos
its, now tied up in actual reserves—that is, $55,000 could be loaned
at 6 per cent, with an earning power of $3,300, a net gain over the
other system of $2,750 for an average bank of $100,000 capital, as
indicated.
It is suggested that such an average bank, with $100,000 capital
and $550,000 deposits, would have to contribute $10,000 in cash
in taking stock in the Federal reserve bank, and you intimate
that it would be taken out of the bank’s capital. This is not really
true. It is not taken out of the capital. W hat is done is that the
bank invests $10,000 of its deposits in buying this reserve bank stock,
and the bank gets 5 per cent out of such deposits so invested, while,
in point of fact, it pays only 2 per cent, or, at most, 4 per cent on such
deposits, and makes an actual net profit on the transaction of from
$100 to $300 per annum, so that the net result to the average $100,000
bank would be a substantial gain by the new system over the old
system of approximately $3,000 or 3 per cent on its capital.
" Moreover, under the new system, the 17 per cent average balances of
such a bank, amounting to $93,500, kept as reserves with the present
reserve agents in New York, or elsewhere, in times of panic, are not
available. In such a case you can not check on your own reserve de

BANKING AND CURRENCY LEGISLATION.

posits, much less borrow the money you want on good assets, yet this
is precisely what a bank can do in dealing with the Federal reserve
bank, just as an English bank can do with the Bank of England, as a
German bank can do with the Reichsbank, or a French bank can do
with the Bank of France. The great majority of big bankers approve
the principles of this bill but would like to control the system.
Another advantage which this bill gives is to permit the country
banks to loan half their time deposits, or a fourth of their capital and
surplus, on farm loans. I should be in favor, also, of giving them
other advantages, which we can do more intelligently when we
codify the national-bank act next winter.
It has been suggested that the bankers “ putting up all the money”
for the Federal reserve bank ought to control, or have important
representation, on the Federal reserve board. The banks will not
put up all the money as a matter of fact. They will merely loan
credits. The United States will put $200,000,000 into these banks
and will furnish currency to a larger amount if necessary, but the
capital the banks supply is really the capital of depositors. The
banks are purveyors of credit. They receive deposits as credits (and
pay for a part of such deposits) and charge a larger interest for the
credits which they extend (loans) out of the credits which they re
ceive (deposits), keeping the capital and surplus as a margin of safety
between them and the demand of their depositors.
But the capital which the bank will invest as stock in the Federal
reserve bank and deposit as reserves is, in reality, capital furnished
by others, by the people of the United States, through their deposits,
and the Federal reserve system, in protecting the banks against the
unstable conditions of the past, is also protecting their depositors,
the people themselves, through the governing function of the people’s
government.
The Government of Germany appoints the curatorium, the super
vising board, and the direcktorium, the managing board of the great
resefYe bank of Germany, the Reichsbank. The Government of
France appoints the governor, the subgovernor, and 188 managers of
the 188 branches of the Bank of France, although the stockholders
both of the Reichsbank (the German reserve bank) and of the Bank
of France (the French reserve bank) are private citizens. In like
manner, under its charter, the Bank of England (the English reserve
bank) has its board of governors, selected by certain qualified stock
holders, but under a rule which forbids a banker, broker, or billdiscounter to be a member of the governing board, because the Bank
of England, like the Reichsbank of Germany and like the Bank of
France, is a reserve bank, expressly performing the function of
safeguarding the reserves for the accommodation of the commercial
and industrial interests of its own country.
This is precisely what we propose to do with the Federal reserve
system, to wit, safeguard the national reserves so that we may a lw a y s
furnish the banks and industrial and commercial interests with the
discount of qualified commercial paper, and thus stabilize our com
mercial and industrial life. The Federal reserve banks are not
intended as money-making banks, but to serve a great national
purpose of accommodating commercial and business men and bankers,
thus making our business activities steady, giving confidence in the

BANKING AND CUBBENCY LEGISLATION.

permanence and continuity of business, stability to men and corpo
rations engaged in legitimate industrial enterprises, and thus to safe
guard a fixed market for manufactured goods, for agricultural prod
ucts, and for labor. There is no more reason why the banks should
have control of the Federal reserve system, in whole or in part, than
that they should do so in the great reserve banks of France, Germany,
or Great Britain. Nobody has ever had the shamelessness to charge
the reserve banks of France, Germany, or Great Britain with being
used for partisan or political purposes. That suggestion has remained
to be prophesied by a very few ambitious gentlemen in this country
who wish to retain in their own hands the dangerous power they
have acquired to control the finance, commerce, and industry of the
United States. They wrote asking me, as chairman of this com
mittee, this question:
“ Shall the control and nomination of the banking business of the
United States, including note issues, bank credits, and the cash
reserves of the United States be surrendered unconditionally to ^the
hands of a board of seven members appointed by the President?”
Surrendered by whom? My answer is, that it must be surrendered
by the few who have gained control of it at least to the extent which
is essential for the protection of the great mass of our people engaged
in commerce and industry. At present this enormous power is
measurably controlled in the hands of a half dozen men who can
shake this country to its foundation by panics whenever they please,
and they can do it so artfully and so subtly as to make it almost
impossible to demonstrate their guilty contrivance.
If an exhaustive investigation were made of the panic of 190< to
ascertain who were the beneficiaries of that panic, this country would
learn a much-needed lesson in finance as to the responsibility for and
the beneficiaries of panics in this country.
. . .
Let us look at this matter from the standpoint of American citi
zens and realize the importance of stabilizing our financial, commer
cial, and industrial life. It is more important than mere money
making, but money making will be enormously stimulated by sta
bility which will make our commerce expand healthfully in every
direction.
Yours, very respectfully,
R o b t . L. O w e n .

Mr. OWEN. Mr. President, when interrupted by the rules of
the morning hour in my reply to the Senator from Nebraska, who
denounced the banking and currency bill submitted by me as
revolutionary, and so forth, denied the petition of the Demo
crats of Nebraska praying him to support the Democratic Presi
dent in the policy of passing banking and currency legislation
at this session, I was pointing out the fact that the principles
of the bill were older than the Senator from Nebraska; that *
they were well understood in Europe and America; that they
had been thoroughly established by long experience as sound
and wise and were indorsed by the most learned scholars.
Mr. President, this morning I received a letter from Prof.
Charles J. Bullock, professor of economics in Harvard Uni
versity, one of the most learned men in the United States,
indorsing these well-recognized principles as set forth in this
bill, which I think is of sufficient importance to be read to the
Senate. The letter relates to the banking and currency bill
introduced by me—S. 2639. It is as follows:

W ashington , D. C., A u g u s t h, 1913.
Senator Robert L. Owen,
United States Senate, Washington, D. C.
My Dear S ir : I was very glad to have had the opportunity last week
of discussing witli you the general plan of the proposed currency law,
and wish to say to you that the more I have studied the plan the more
it commends itself to me.
In the first place, the idea of establishing regional reserve hanks
and placing them under the control of a Federal board seems to be
extremely good. This secures as much centralization as it is possible
and I think desirable to secure at the present time. A central bank
is out of the question; clearing houses do not seem to be good agencies
to utilize for this purpose; and the only solution seems to be the estab
lishment of regional reserve banks.
In the second place, the bill provides very wisely and I believe
effectually for the mobilization of the banking reserves of the United
States, thereby introducing some degree of unity, and therefore a very
desirable provision for emergencies into our hitherto decentralized bank
ing system.
In the third place, the bill will make our currency system more
elastic, and will do this in a way that ought to satisfy all schools of
currency reform. It seems clear that under this bill currency can not
be issued except in response to the legitimate demands of business,
and at the same time such issue is under the control of the Federal
Government, but in such a manner as to avoid all the dangers which
many of us believe attend the issue of money directly by the Govern
ment.
In the fourth place, the bill ought to widen and greatly increase the
market for first-class mercantile paper, thereby making our banks more
serviceable to the commerce and industries of the country and less
likely to be drawn into speculation in securities.
Yours, sincerely,I
Charles J. B cllock,

Professor of Economics, Harvard University.

I have read the letter to the Senate because it is one of
many commendations by the greatest scholars of the coun
try of the principles of the bill submitted by me (S. 2639) ;
and, with the consent of the Senate, I ask to place in the
ItEcoRi) a statement of the Bank of England, a statement
of the Bank of France, of the Bank of Belgium, of the
Bank of The Netherlands, and of the Bank of Germany,
till of which act as great reserve banks, intended to pro
vide accommodations to commerce and industry at all times.
Not merely sometimes, not merely when money is easy, but
when money is tight, when there is a panic on, the Bank of
England always accommodates the commerce and industries of
the English people. The Bank of France never fails to do so,
and the Bank of Germany never fails to do so; but in this
country, with our scattered reserves, with no institution charged
with the responsibility of caring for the reserves, with the ac
tual reserves forbidden to be loaned at all, with no institution
charged with the duty of protecting the commerce and industry
ot tlie country by furnishing accommodation on properly quali
fied classes of paper at all times, we are in constant jeopardy—
we are in danger of financial and commercial stringency at any
time.

This is not a new matter. I point to these illustrations and
I ask permission to put in the R e c o r d a table of inter
est charges made by these great Government banks—for
they are Government banks. The Bank of England is con
trolled by public sentiment, and there is not a banker or
a broker or a bill discounter on the governing board of the
Bank of England. The Bank of Germany is controlled by the
Government of Germany, which appoints every member of the
curatorium, a supervising board, and appoints every member of
the directorium, the managing board of the Reichbank, which
is the Imperial reserve bank of the Empire. In like manner
the Bank of France is absolutely managed by the managers ap
pointed by the President of France. He appoints the governor
of the Bank of France, he appoints the subgovernor, and he
appoints the 188 managers of the Bank of France.
It will be clearly seen by these tables that these reserve
banks hold their assets in gold, notes, and liquid paper at all
times, so as to make these reserves loanable at all times for
the exigencies of commerce.
It will be seen by the interest tables submitted that they
are used as Government banks to loan these funds at low
rates and at constant rates, with rare exceptions, when com
mercial credits are seriously impaired.
Mr. BORAII. Mr. President----The PRESIDING OFFICER. Does the Senator from Okla
homa yield to the Senator from Idaho?
Mr. OWEN. I yield to the Senator from Idaho.
Mr. BORAH. The Senator says that the Bank of England
has no banker upon the board of directors. What is the business
of the several men who are upon the board of directors of the
Bank of England?
Mr. OWEN. Merchants, business men, and men engaged in
commerce, manufactures, and industry. There are upon the
board of the Bank of England some men who possibly might
be called bankers, but as a matter of fact they are men who
are engaged in the discount-acceptance business, as the “ re
siduary legatees,” if I might use the metaphor, of mercantile
houses who have fallen heir to the handling of that kind of
business. Bankers, bill brokers, or bill discounters are not per
mitted on the board. That statement I make upon the author
ity of the governor of the Bank of England.
Mr. CRAWFORD, air. President----The PRESIDING OFFICER. Does the Senator from Okla
homa yield to the Senator from South Dakota?
Mr. OWEN. I yield to the Senator from South Dakota.
Mr. CRAWFORD. It is a fact, is it not, that the directors of
the Bank of England are elected by the stockholders of that
bank?
air. OWEN. Yes; but only a part of the stockholders vote.
The rule of voting is that no stockholder is i>erinitted to vote
who does not have £500 of stock, and in that case he is allowed
to have only one vote, even if he has £50,000 of stock. So that
it introduces the personal equation, and the Bank of England
is, in fact, controlled by public sentiment.
air. CRAWFORD. The Senator is correct in his statement
about the qualifications of stockholders who vote for directors
as to the amounts which they must hold. But it is true, never
theless, is it not, that the directors are elected by the men who
own stock in the bank?
air. OWEN. To the extent and in the manner I have
described.
air. CRAWFORD. I will ask the distinguished Senator if
there is not a very marked difference between that system and
one which depends for its capital upon the subscribers of stock,
and yet takes away from those subscribers—from the men or
institutions which furnish the capital—the right to elect the
managers and directors who control the institution which they
are compelled bv law to capitalize with their own private funds?

Mr. OWEN. Answering tlie Senator, the member banks of
the Federal reserve system elect six of nine directors, three of
them in the public interest, however; and therefore do to that
extent control the Federal reserve bank under the supervision
of the Federal reserve board; but, further, I will state that the
Bank of England does to that extent disfranchise every stock
holder who has not £500 of stock and does disqualify a stock
holder who has more than £500 of stock, except that it allows
him one vote, and one vote only.
'
Mr. CRAWFORD. The Senator is right about that, in that
one is not an elector until he has this minimum amount of stock.
But that is an act of the institution itself and not an act of an
outsider owning no stock or financial interest in it, to wit, the
Government.
Mr. OWEN. It is true with regard to the Bank of England
that it is controlled by public sentiment; but it is a law in Ger
many and it is a law in France, and that is why I gave all
three instances—to show that even when the stock was owned
by private stockholders the Government of Germany controls
the Bank of Germany from top to bottom; and in France, where
the stockholders are private persons, the Government, neverthe
less, appoints the managers of the Bank of France.
Mr. CRAWFORD. I do not wish the Senator to understand
that my attitude is not that I do not desire efficient legislation;
but I say what I do in order that the Senator may realize some
of the difficulties of the situation. For instance, in the State
I represent there are no large banks which could use these
large reserve banks, but they are compelled to furnish a sub
stantial part of the capital.
Mr. OWEN. Answering the Senator, as far as I am con
cerned I should be willing to leave the subscription to the
stock permissible and not have it compulsory, letting the public
subscribe to the stock.
Mr. CRAWFORD. The Senator is very reasonable in show
ing a disposition to make that concession; but how are these
people to know that a bill is to be changed which, as it is drawn
and presented and as it is being advocated, compels these people
to furnish this money and takes the control out of their hands?
Mr. OWEN. I will answer the Senator by saying that I only
rose to give a few brief reasons to show that this was not a
“ revolutionary ” bill; that it was following out the principles
which have been proved by experience to be essential and neces
sary to the welfare and stability of commerce and industry in
the German Empire, in France, in Holland, in Belgium, and in
England, and therefore that the principles were worthy of full
credit. This bill is subject to amendment, as any bill is, and
we should all try to make it perfect, not sit still week after week,
doing no work to perfect it. I have been giving it all my time
day and night, and other Senators, I hope, will help and not
turn aside, refusing to study the bill.I
I rose only to say that I believe the time for action has come.
The mere fact that it will take a year to consider, work out,
and put in operation this plan, if it should take so long—I do
not think it would take so long—is all the more reason why we
should not delay the consideration of the principles of the bill.
Five years ago we established the National Monetary Com
mission, in 190S, just after the panic of 1907, which was a na
tional cataclysm, an overwhelming national catastrophe. Almost
every bank in the United States suspended cash payment. It
made the United States ridiculous in the eyes of the world.
For five years the National Monetary Commission studied this
problem and made constant reports to Congress and to the coun
try in a series of volumes, which were given the widest pub
licity. For five years the country has been considering the
remedy for the terrible conditions which arose in 1907, recog
nizing the so-called Vreeland-Aldricli bill as purely a temporary
and seriously inadequate bill.

And after the National Monetary Commission had gathered
together information upon this problem from the ends of the
world and had carried on a nation-wide propaganda, they of
fered the country a bill for its acceptance. Their bill recognized
the great principles of “ mobilizing the reserves,” “ providing
elastic currency,” and a “ free discount market for quick com
mercial paper,” hut it was fatally defective in giving control of
the system to the banks of the country, in violation of the prin
ciples of the very banking systems of England. France, Ger
many, explanations of which they had submitted to the people
of the United States.
This bill was further seriously defective in providing that the
banks should issue the currency instead of providing that the
United States slibuld issue the currency. The Aldrich bill, in
effect, provided for putting the currency in the hands of private
persons. The present bill, Senate 2039, includes the well-ascer
tained, sound principles of “ mobilizing the reserves,” making
them loanable; of “ providing elastic currency,” and a “ free
market for qualified short-time commercial paper,” but it avoids
the mistake of the Aldrich bill by putting the United States in
charge of the system itself and giving the United States the
control and right to issue the currency required by the national
commerce, according to the Democratic national platform.
The principles of the bill submitted to the Senate, S. 2639,
have all been worked out in actual practice in England and have
been found wise and efficient. The statement of the Senator
from Nebraska that this proposed measure is “ revolutionary ”
has no justification. The bill merely adopts principles well
ascertained and demonstrated by long experience to be of vital
importance and of the highest efficiency. The Senator from
Nebraska himself introduced at the beginning of this extra ses
sion a bill providing for regional reserve banks, and the fact
that his constituents appealed to him to support the Demo
cratic administration in a policy proposed by President Woodrow Wilson in a special message to this .Congress, delivered by
him in person to the Senate and to the House in joint assembly,
seems to be a natural petition for the citizens of Nebraska to
make. The Senator has denied their respectful petition and
has given his reasons. And what are his reasons?
First. That the bill is revolutionary (but the country knows
better).
Second. That it would take a year to put the bill in operation,
and therefore he is not willing to consider the bill until next
winter, when it will take a year to pass it, if the Senator from
Nebraska can find those who sympathize with him in a do-noth
ing policy.
Third. He suggests that the proposal of this bill, instead of
protecting the country from panic, would promote panic, and
he gives no reason to justify any such position. The suggestion
is arbitrary and unreasonable.
Under this bill the Federal reserve banks would be in opera
tion in six months’ tim e; the bill would immediately put into the
use of the commercial world one hundred and fifty millions of
current United States public funds; would keep the current collec
tion of revenue available for the national commerce as an addi
tional national reserve; would mobilize the reserves of the
Nation and make loanable funds which are now locked up in a
strong box as reserves, the law forbidding such reserves to be
loaned to the commercial public. This bill proposes that the
reserves of the country shall be loanable to the business and
commercial interests; this bill provides for the issue of abso
lutely sound currency in whatever quantity is sufficient to meet
the demands of commerce; and this bill, following the prece
dents of all Europe, is contemptuously described by the Senator
from Nebraska as “ revolutionary,” and the arbitrary sugges
tion is made by him that it will produce panic instead of pre
venting panic.

I deem it my duty, as chairman of the Committee on Bank
ing and Currency, trusted by my associates with a study of this
question, to defend this bill against the attacks of the Senator
from Nebraska. As a Democrat, elected on the Democratic plat
form, I feel bound to respect the policy laid down by the party
itself and by Woodrow Wilson, the President of the United
States and the chosen elected head of the Democratic Party.
And more especially so when the thing he asks has been long v
studied, is well understood, and is of the most urgent impor
tance to the commerce and industry of the United States.
Only by united action can the Democracy deliver the country
from the control of the selfish special interests of the country,
and I deplore any lack of party harmony and spirit of coopera
tion and party unity.
I do not say the bill is the last word of human wisdom. I
regret to detain the Senate. I am going to take my seat in
just one moment. I only wanted to say this much because I
did think that after the President of the United States had in
person addressed both Houses of Congress in joint action as
sembled, urging that action should be taken, that request by
the administrative branch of the Government ought to receive
reasonable respect and a reasonable effort made to comply
regardless of private convenience. I want to make f s much
progress as possible by considering it, not claiming that the
proposed draft may not be wisely amended. I think it can be
amended in some particulars, and I hope it shall be amended
advantageously.
Mr. SHAFROTH. Mr. President, may I ask the Senator a
question?
Mr. OWEN. I yield to the Senator from Colorado.
Mr. SHAFROTH. Is it not a fact that in addition to the
qualification of £500 invested in stock for a director of the
Bank of England it is also necessary that he should hold
twenty times the amount of his subscription in stock in the mer
cantile business of the Empire?
Mr. OWEN. It is.
Mr. SHAFROTH. And is it not a fact also that there is not
a single banker upon the board of directors of the Bank of
England?
Mr. OWEN. That is true.
Mr. FLETCHER. May I interrupt the Senator for just a
moment?
Mr. OWEN. I yield to the Senator from Florida.
Mr. FLETCHER. I do not want to delay getting to the tar
iff bill at all; but while this subject is up I should like to sug
gest to the Senator that the proposition involved in the pending
bill is primarily a proposition to promote and increase the
facilities of commercial banks. In other words, the pending
bill is mainly a banking bill and not so much a currency bill.
As the Senator has indicated, I think, by his remarks, it is
especially suitable for the needs of commerce and industry.
Mr. OWEN. The Senator is right.
Mr. FLETCHER. I wish to suggest to the Senator that some
measure suitable to meet the requirements of agriculture ought
to be considered at an early day.
Mr. OWEN. I agree with the Senator, and such a measure
is being diligently considered now.
Mr. FLETCHER. The thought in my mind is that we can
not supply the needs of agriculture; we can not meet the
requirements of the farmers of the country, the men engaged
in the great industry which provides a larger producing class
than any other industry of the country, by any system of com
mercial banking; and that in all likelihood we shall have to
devise a plan or system separate and distinct from commercial
banking and adapt it to the needs of our agricultural interests.
I want to commend to the Senator the thorough consideration of
that question, because from what study I have given it and
from what thought I have bestowed upon it, I am about to
reach the conclusion that we shall need to provide a separate
and distinct system for financing our agricultural interests.

Mr. OWEN. Mr. President, in answer to tlie Senator from
Florida I will say tliat the agricultural credit system is a mat
ter of vast importance to the agricultural industry of the coun
try, but it involves investment securities; it involves long-time
loans which are not quick assets, which are not quickly con
vertible. It is a system peculiar to itself, which will have to be
worked out. The matter has already received a large degree of
attention, and is now in process of solution. There will be pre
sented by the 1st of December a completed bill that will suit
the needs of the country.
Mr. President, I now submit various statements of the lead
ing great reserve banks of Europe, showing the liquid character
of their reserve assets. The securities are all quickly convertible
into money, and thus are available and made mobile for the
, accommodation of commerce and industry.

Bank of England.

I ssue D epartment.
LIABILITIES.
ASSETS.
Notes Issued
£51, 241, 210 Government debt____
----------------------£11,015,100
Other securities_____
---------------------- 7, 434, 900
Gold coin and bullion.
---------------------- 32, 791, 210
51. 241. 210
51. 241, 210
B anking D epartment.
Proprietors’ capital______________________________________ £14,553,000 Government securities.
___ £17,507.945
R est_____________________________________________________ 3, 3GO, 154 Other securities_____
___ 30, 211, 089
Public deposits (including exchequer, savings banks, com
N otes________________
___ 22, 375, 490
missioners of national debt, and dividend accounts)__ 9, 936, 777 Gold and silver coin_.
___
912, 633
Other deposits___________________________________________ 49, 139, 180
7-day and other bills____________________________________
18, 046
77, 007, 157
77, 007, 157
Dated January 6, 1910.
J. G. N airne, Chief Cashier.
The above is the statement as it appears in the weekly returns.
B alance Sheet. J anuary 6, 1910.
[Arranged so that it corresponds in form with the balance sheets of the other banks given here.)
liabilities .
ASSETS.
Capital and rest_____
£17,913, 154 Gold coin and bullion and silver coin_______
£33, 703,843
Notes in circulation28, 865, 720 Government securities in both departments.
28, 523, 045
7-day and other bills
18,046 Other securities___________________________
43, 054, 989
Public deposits______
9, 930, 777
49, 139, 180
Other deposits______
105. 872, 877
105, 872. 877
[ Note .- -All per contra entries, as those of the notes of the banks held by themselves, etc., are omitted, so as to show the real position of the
accounts.)

It will thus be observed that the note issues are covered by
62.7 per cent gold.
That the public and private deposits are covered In the banking
department by 38.3 per cent of notes and coin, nearly all such re
serve being in notes, which, measured by actual gold, would make
a gold reserve of only about 25 per cent against the deposits.
It will be observed under the tables of interest rates that this

■

narrow margin has been supplemented by frequent changes of
the rate of interest to attract gold from other countries when
English commerce requires gold, and it would also appear that
in 1847, 1857, and 1867 the Bank of England was permitted to
issue legal-tender notes against commercial paper in times of
panic in order to extend needed loans, restore confidence, and
safeguard the commerce and industry of England.

Imperial Bank of Germany.

B alance S heet D ecembeb 31, 1908,
[Marks converted as 20 = £1.]
LIABILITIES.
ASSETS.
Capital and reserve______________________________________ £12, 458, 581 Gold in bars_________________________ _____ £16, 792, 075
Notes in circulation_____________________________________ 98, 771, 474 German gold coin_________________________ 21, 620, 898
Amount due on clearing and current accounts____________ 33, 244, 291
-------------------Deposits (not bearing interest)_________________________
25,167 Divisional money-----------------------------------------------------------Sundry liabilities and reserve for doubtful debts-------------720, 072
Net profits for 1907_____________________________________ 1, 537, 287
Notes of imperial treasury (Reichskassenscheinen)______
Notes of other banks____________________________________
Bills held :
Due within 15 days________________________________
Due at later dates___________________________________

£38, 412, 973
10, 594, 046
49. 007, 019
2, 876. 243
505, 105

22, 660, 590
28, 939, 529
51, 600, 119
Bills on foreign places___________________________________ 6 , 457, 493
58, 057, 61 2
L o a n s---------------------------------------------------------------------------- 8 .
796,468
Securities_______________________________________________ 19,
724.627
Value of real property belonging to the bank_____________ 2,
849,450
Sundry a ssets__________________________________________ 4.
940,348
146, 756, 872
146, 750, 872
[N ote.— All per contra entries, ns those of the notes of the banks held by themselves, etc., are omitted so as to show the real position of the
accounts.]

It will be observed that the Bank of Germany curries 50 per
cent of sold against its notes and 37.1 per cent of gold against
its notes and deposits, but the Bank of Germany can also issue
legal-tender notes against commercial paper of a qualified
class.

It will be observed that the Bank of Germany also carries a
large volume of quick assets. Thus the Bank of Germany, like
the Bank of England and the Bank of France, holds its reserves
liquid and always available for loaning for commercial and in
dustrial needs.

Bank of France.

Balance Sheet , D ecember 31, 1908.
[Francs converted as 25= £1.]
LIABILITIES.
Capital of the bank____________________________________ £7, 300, 000 Coin and bullion at Paris and atASSETS.
branches_______ £175, 401, 007
Reserve and profits in addition to capital_________ ZZZZZ 1, 700, 774 Bills due yesterday to be received the
this day_
1, 757
Notes payable to bearer in circulation (head office and
Amount
of
b
ills:
brandies)______________________________________
972, 403
P
aris------------------------------------------------£
9
,
920,
192
D rafs__________________________ __________ 11_111111 197, 914,
397
Branches--------------------------------------------- 18, 8 W . 02 0
Current account with the treasury______________________
7, 199, 491
------------------ 28,800,818
Current accounts and deposit accounts:
Advances
on securities:
Paris------------------------------------------------- £22, 780, 727
Paris______________
0, 332, 341
Branches-------------------------------------------- 2 , 721, 524
Branches__________
14, 478, 003
25, 502. 251
Dividends unpaid, etc.
1, 870, 380 Advances to Government (laws of .Tunc 9, 1857 : June 13, 20, 810, 944
18(8; Nov. 17. 1897)______________________ _______
7, 200, 000
Government stock reserve fund_______ _______________
519, 230
Disposable funds, Government stock_____________
3,
985, 254
immovable
funds,_______________________
Government stock (law of June 9,
i
)
—
—
_____
4. 000, 000
Amount appropriated to special reserve_________
330,298
Office
and
furniture
of
the
bank
and
buildings
at’
the
branches, etc_____________
1, 403, 814
242, 465, 702
242, 405, 702
accounts0 ™ '— A11 P°r contra ditrios, as those of the notes of the banks held by themselves, etc., are omitted, so as to show the real position of the

This table shows that the Bank of France carries 88 per cent
in coin against notes, the coin including both gold and silver,
however, and carries 75 per cent of coin against notes and de
posits. Its authorized issue of notes is 5,S00,000.000 francs, or
£252,000,000, which leaves a margin of over £35,000,000 ster

ling, or $175,000,000 margin of notes, besides the quick assets
which it constantly carries, just as the Bank of England does.
The need for large cash reserves in France is due to the
fact that the check system (currency) against deposits is not
developed in France as in England and in the United. States.

Bank of the ’Netherlands.

B alance S heet, March 31, 1909.
[Guilders converted as 12 = £1.]
ASSETS
L IA B IL IT IE S .
£13, 665, 502
Capital___________________________________________________ £1, 6 6 6 , 667 Coin, bullion, etc________
435, 955 Inland bills______________________________________________ 3, 514, 247
Reserve__________________________________________________
Notes in circulation_______________________________________ 22, 798, 206 Foreign bills_____________________________________________ 1 . 550, 309
Transfers________________________________________________
173, 200 Loan accounts___________________________________________ 4, 144, 246
Current accounts_________________________________________
539, 849 Advances on current accounts_____________________________ 1, 882, 021
Investm ents:
Discount on—
Capital______________________________________________
332, 662
10,521
Inland bills__________________________________________
Reserve_____________________________________________
432, 708
Foreign bills_________________________________________
3, 060
255, 721
Sundry liabilities_________________________________________
59, 598 Sundry assets, buildings---------------------------------------------------Net profit for distribution_________________________________
90, 360
25,777,416
25, 777, 416
[N ote.— All per contra entries, as those of the notes of the banks held by themselves, etc., are omitted so as to show the real position of the
accounts.]

This bank carries gold against its notes of 58 per cent and gold against notes and deposits of 57 per cent, its deposits beinj
very small.
National Bank of Belgium.
B alance S heet, D ecember 31, 1908.
[Francs converted as 25 — £1.]

ASSETS.

L IA B IL IT IE S .

£ 2 , 000 , 000 '
1 444
Capital paid up_____________________
.,2 2 ’
Resiorve fund-------------------------------------------------------------------<j(j5
Not es in circulation---------------------------------------------------------- 4’
Current
accounts-----------------------------,
_
Stamp duty, share of profits due to the Government, em
ployees’ superannuation, provident funds, dividends due,
ro
etc____________________________________________________
40, 778, 459
40, 778, 459
.Vll per contra entries, as those of the notes of the banks held by themselves, etc., are omitted so as to show the real position of the
[N
.accounts.]
n n . i« u u

ote

u | i ----------------------------------------------------------------------

8 !){ )

The Bank of the Netherlands carries 58 per cent of gold against
its notes and 57 per cent of gold against its notes and deposits.
This bank only carries a very small line of deposits.
The National Bank of Belgium carries 19 per cent of gold
against its notes and 17 per cent of gold against its notes and
deposits.
The three great banks of England. France, and Germany, as
above mentioned, practically provide the gold accommodation
needed by western European commerce, the two latter banks,
however, serving a useful local purpose.
T able I.— Rate

of discount—Humber of changes in each year at the
banks of England, France, Germany, Holland ( 18H-1909), and Belgium
(1851-1909).
Year.

Bank of England. Bank of France. Bank of Germany.
Rise. Fall. Total. Rise. Fall. Total. Rise. Fall. Total.

P . ct. P. ct.
1
1844.....................................
2
1845.....................................
1
1846.....................................
6
3
1847.....................................
3
1848.....................................
1
1848.....................................
1850.....................................
1
1851..................................... f1) <9
1852.....................................
2
1853.....................................
6
1
1
1854.....................................
1855.....................................
4
4
2
law.....................................
5
1857.....................................
6
3
1858.....................................
6
1859..................................... 2
3
1860............................
8
1861..................................... 3
8
1862..............................
2
3
1863................................
S 4
1864..............................
7
8
1865..............................
8
8
1866..............
5
9
1867.......................
3
18 .S.........................
18 <9.............................
3
4
1870.....................................
4
6
1871..................................
1872................................... 94 6s
1873................................... 11 13
1874....................................
7
6
1875..................................
51
1876................
47
1877.....................
4
3
1878..................
4
6
1879..............
5
1880..............
i
1881...........................
►
2i
4
1832.............................
3
3
1 No

P .c t. P .c t.

1
2
1
9
3
1
1
0)2
6
2
8
7
9
6
115
11
5
12
15
16
14
3
2
7

(i)
(>)
(’)1
(i)
(i)
0)
(>)
1
1
2
i
4
11
4
51
4
2
2
((')1)
4
10
10
i
14
24
2
13
12 0 )
5
7
1
105
2
1
6
2
g1

change.

P.(i)ct.
0)
(i)
1
(i)
(i)
0)
(*)1
1
1
44
i
3
3
7
4
5
2
(»)
(*>
1
2
2

P.(i)ct.
<‘)
(t)
2
(i)
(»)
<*)
(*)1
1
2
2
2
8
2
7
4
11
6
o7
(*)

1
11
1
G)
(»)
(i)
1
1
3
4
1
1
0)
(*)
3
3
1
(»)
(‘)

P.cf.
11
1
1
I
(')
(>)
(»)
1
1
2
m1
to
(*)
i
2
7
0)
(■ )

P. ct.
2

4
o)

4
3

2
2

3
2l

P .c t.

0 )1
0)
m
4

6
2

(»)
d)
4
5

(*)
(l)

2
2

T able I .—Rate

of discount—Number of changes, etc.—C ontinuedBank of England. Bank of France. Bank of Germany.

Year.

Rise. Fall. Total Rise. Fall. Total. Rise. Fall. Total,

P .c t. P .c t.
5

1883.
1884.
1885.
1880.
1887.
1888 .
1889.
1890.
1891.
1892.
1893.
1894.
1895.
1890.
1897.
1898.
1899.
1900.
1901.
1902.
1903.
1904.
1905.
1900.
1907.
1908.
1909.

4
2
4
4
4
5

3
5
3
4
5
4
7
7
3

P.cf. P . ct.
6
7 C1)
7 0)
7 0)
0
9 (')
8

61 26 1224
0)3 0) 0)3
2
6C
3
4
06
1
2
6
11
3
3
2
3
07
12

6
6

P.cf.
1
(«)
0)
(*)
0 )2
2
0)
0)
1
O)
0)
1

<>>
(>)

(l)

3
(>)
(*)
0)
.('
0)
(>)
9
(*)
Go

Y ear.
1844.
1845.
1840.
1847.
1848.
1849.
1850.
1851.
1852.
1853.
1854.
1855.
1856.
1857.
1858.
1859.

Fall. Total Rise.

P e r c t. P e r ct.

(•)

Per ct.
■ (’) 5

1
11

4
(‘)

(')
(')

(•)
(>)
(*)

(l)

<‘) 2
(*) 2
3

1 No

change.

P.cf. P.cf. P.cf.
1
1
1
(>) (l)1 (l)2 0 ) 3
(l)
3 2
5
(l)
2
(>)4 2 2
2
2
2
4
2
2
1
3
(')
4
3
1
(')1
2
1
1
2
1
3
f‘>
2
2
(l)1
1
1
2
1
3
(>>
5
<l)1 42 32
6
2
4 3
7
4
3
3
1
3
4
(»)
2
1
3
(l)
1
1
2
(>)
1
1
0)
4 3
7
(>)
5
(l)2 32 22
4
2
0
6
2
1
3
(')
115 91 105 196

P .c t.

Bank of Belgium.

Bank of Holland.
Rise.

flili

Fall. Total.

P e r ct. P e r ct. P e r ct.

(*)
(J)
(>)
(*>
(*)
(*)
(*)
(l)
(V)
(')
0)
1
3

(*)
(*)
(2>
(*)
(s)
(*)
<*)

0 )1
0)

(l)
(l)

(2)
(J)
(s)
(*)
(2)
(2)
(2)
(')
(»)
(>)
(l)

0) 0) 6 1 41
(*)
2 Operations commenced in 1851.
r'H

■ :i|
T able I .— R a te o f d is c o u n t— N u m b e r o f c h a n g e s , etc.- —Continued.
Year.

Bank of Holland.
Rise.

ilii-ti
i jii

Bank of Belgium.

Fall. Total. Rise.

Fall. Total.

P er ct. P er ct. P er ct. P er ct. P er ct.
isno...............................
1
(') 2
1801...........
1862..................
1
1883........................
4
2
18 1........
9
1865....................
I860.........................
1867......................
2
1
18C8....................................
\ l)
v1;
I860.......................................
0)
(*)
1870..............................................
8
1871..................................................
5
1872.......................................
1
1873.........................................
9
8
1874............................................
1875..................................................
i
1
1876.................................................. (>)
(>)
(*)
1877.............................................
1
1
(l)
1S78................................................ (>) 2 (■ )
187!).........................................
2
i
1880..............................................
1
i
0) 3 0)
0) '
1881.........................................
1882.............................................
5
4
1 8 1 3 ..................................................
1884..............................................
i
1
1885..................................................
i
1
1886.........................................
4
(>)
(>)
0
)
1
1887....................................
o
0)
(»)
1888..................................
(*)
(»)
(»)
m
1889.........................
v )
1890.................
4
1891....................
3
1892.................
1
1
1893.............
4
2
1
1894.................
2
1895...............................
m
l
(l)
o>
1890...........................
2
2
1
1897....................................
i
1898...
i
1
1
1899.................................
1900...............................................
3
3
1901................................................
i
1
1903......................
(•>
(»)
1903...............................................
i
11 0) 1 0) 2
1904.............................................
i
1905.............
i
i
2 m i 0)
1906.............................
3
3
2
1907........................
3
3i
2
1
1908...............
$
3
5
1 9 0 9 .........................
1
2
1
1
94
94
188
86
106
1 No change.

'■ "j

P er ct.

3
6
ft

; |i
i;.>)•jil

9
17
9
9
ji J|
10
1
2
C

2
0) 1
1
(»)
1
0) 11
2
2
(*>

0) 1
3
3

w
■1
ijj

5
i

192

ij;

H!'

abt,h

IT .—

Lowest and highest rates charged and extent of fluctuation
Hanks(1 8of5 1 -1England,
France, Germany, Holland
909)

d u rin g each g ea r

(IS ' i 'i - 1909) , a n d B e l g i u m

Bank of England.
Year.

P er ct. P er ct. P er ct. P er ct. P er ct. P er ct. P er ct. P er ct.
( ')
2}
3
3
3
21
24
0)

2
2

5
34
41
51

21
21
21
3

3
6
3
31
2
2
21
21
2
3
3

21
2
2

T able I I .—Lowest

(')
31
31
8
5
3
3
0)
21
5
51
7
7
10
8
41
6
8
3
8
9
7
10
31
3
41
6
5
7
9
6
6

(>)
1
1
5
2

1
1
0)
1
3

1
31

41
51

31
5
1
5
3
4
61
ii
i
2
31
3
4
6
31
4
3

P
3

21
0)
(*)

21
5
5
5
4

( ')
( ')
0)
5
(■)
0)
(■)
( ')
4
4
5
6
6
9
5
4
41
7
5
7
8
5
5
3
(')
(»)
6
6
6
7
5

( ')
(>)
(■)
1
P>
0)
(l )
(•)
1
1
1
2
1
4
2
1
1

n
31

i
o
(*)
31
1
1
2
1
0)
1

4
4
4

41
41

4
(*)
0)
(»)
4
4
4
4
5
4
4
(')
(>)
(>)
4

4
4
0)
( ')
4
4
4
4
4
4
4
31

5
5
5
5

1
1

Bank of France.

0)
( ')
0)
5
5

6
71
61
5
(*)
(»)
(>)
41
7”
7
9
0)

21
21
1
(>)
(>)
(>)
1
21
3
5
(i)

8
5
5
6
6
6
6

1
4
1
1
2
2
2

Bank of Germany.

Low- High- Flue- Low- High- Flue- Low- High- Flueest est tua- est est tua- est est tuarate. rate. tion. rate. rate. tion.
rate. rate. tion.
P er ct. P er ct. P erct. P erct. P erct. P er ct.

2
2
2
24
34
34
3
0 )
(»)
(>)
<*)24
3
(M
0 )
24
0)
(')
2
(l)
(>)
2
3
3
(>)
(*)
(>)
(>)
0)
(»)
34
3
(>)

3
3
3
534
5
34
(«)
(*)
0 )
(*)
444
(>)
(>)
3
(>)
0)
24
(l)
(l)3
44
44
(')
(>)
(>)
0)
(»)
(*)
4
34
(')

1
1
1
1
14
14
4
(>)
(»)
(*)
(')2

4
4
3
4
4
4
4
(*)4
3
3
3
1
3
4
0 )
3
(»)
3
4
3
0)
3
(')
3
4
3
0)
3
(>)1
3
4
14
5
14
(■ )
34
3
0)
0
34
4
(*)
3
(>)
0)
44
54
4
4
i
(»>
34

14
1
14
ll
l|

5
44
5i
54
6
5
(‘)5
5
5
544
54
54
4
5
5
4
5
5
6
7
7
444
4
5
6
7
74
64
5

1
(1) *
(1)
(1)
1
1
1

and highest rates charged, etc.— C ontinued.

1877..................... P er 2ct. P er 5ct. P er 3ct.
1878.....................
2
6
4
1879.....................
2
5
3
1880.....................
3
2*
4
1,881.....................
5
1882.....................
32 $ 6
324
1883.....................
5
3
2
188.4.....................
2
5
3
1885.....................
2
5
3
1886..................
2
5
3
1887.................
2
5
3
1888.....................
2
5
3
1889.....................
6
2§
34
1890...................
3
6
3
1891.....................
5
24
24
1892.....................
2
34
14
1 8 9 3 ............. 24
5
24
1894..............
2
1
3
1895..................
(')2 (>)4 (»)2
1896..................
1897..................
2
4
2
1N98....................
4
24
14
1899...........
3
6
3
1900..............
3
6
3
1901............
3
5
2
1902..................
4
3
1
1903..................
4
3
1X
1904..............
3
34
1905..................
4
24
14
1906.....................
6
34
24
1907....................
4
7
3
1908.....................
6
24
34
1909.....................
5
24
24

(*)
(0
(')
4
0)
(■)
C)
0)
3
3
4
4
5
5
3
3
31
41
31
31

(>)3 (‘)4
1 No change.

Bank of England.

Bank of Germany.

Low- High- Flue Low- High- Flue- Low- High- Flueest est tua- e s t est tua- est est tuarate. rate. tion. rate. rate.
tion. rate. rate. tion.

1 8 4 4 ..........................
1 8 4 5 .........................
184(1..........................
1 8 4 7 ............................
1 8 4 8 ............................
1 8 4 9 ............................
1 8 5 0 ............................
1 8 5 1 ............................
1 8 o 2 ............................
1 8 5 3 ............................
1 8 5 4 ............................
1 8 5 5 ..........................
1 8 5 6 .......................
1 8 5 7 ............................
1 8 5 8 ..........................
1 8 5 9 ............................
1 8 6 0 ............................
1 8 6 1 ............................
1 8 6 2 ............................
1 8 6 3 ............................
1864
.........
1865
.........
1 8 6 0 ............................
1 8 6 7 ............................
1 8 6 8 ............................
1 8 6 9 ............................
1 8 7 0 ............................
1 8 7 1 ............................
1 8 7 2 ............................
1 8 7 3 ............................
1 S 7 4 ............................
1 8 7 5 ............................
1 8 7 6 ............................

Year.

Bank of France.

2
1

2
2
14
2

14
24
1
2
2
1
2
2
3
3
2
1
1
4
1
3
224
24
H

/
ssiia

it;w^mmmmmjrmrnsm

"i;

B a n k of H ollan d .
Y ear.

L o w est H ig h est F lu c tu L ow est H ighest F lu ctu
rate.
rate. ation . rate.
rate. ation.

1844...............................
1845......................................
1846......................................................
1847........................................................
1848...........................................................
1849.........................................................
1850....................................................
1851...........................................
1852...........................................
1853...........................................
1854........................................
1855.................................................
1856....................................
1857.............................................
1858...............................................
1859.................................................
P 6 > .............................................
U 6 1 .............................................
1862.................................................
P 6 1 ...............................................
1864......................................................
U 6 5 ......................................................
1866........................................................
1867.............................................................
1868.............................................................
1869.............................................................
1870...............................................................
1871...............................................................
1872 ...............................................................
1873 ..........................................................
1874 ..........................................................
1875 ...............................................................
1876.................................................................
1877.................................................................
1878..................................................................
1879..................................................................
1880.................................................................
1881..................................................................
1S82..................................................................
1783 ...............................................................
1884..................................................................
1885..................................................................
1886..................................................................
1887..................................................................
1888..................................................................
1889..................................................................
1890..................................................................
1891..................................................................
1892..................................................................
1893...............................................................
1894......................................................
1895..................................................................
1896..................................................................
1897..................................................................
1898..................................................................
1899.................................................................

1 No

change.

Table II .— L o w e s t

B a n k of B elgiu m .

P er ct. P er ct. P er ct. P er ct. P er ct. P er cl.
P)

p)
p>

24
4
4
3
2J
2
2

P )3
4

1900......................
1901..................
1902...............
1904...........
1905.............
1906.................
1907....................
1908........................
1909...............................

(*)
p)
p)
v)

3 *
1

•

(l\

34
34
34
3
21

24
3
24
24

0 24

3
21

4
4

44
54
54
34
3

0)
0)
P)
P)

ft
(l)

24
24

34
34

P)
(*)
1
1
(• )

2
2

•

4
4

P)
P)

34
34
3
5

14
4
24

(• )

1 Operations

(»)
p)
6
54
54
7
6
34
34
44
34
54
6
4
4
4
4
3§
5
5

24
24
24
24

44
44
3

24
1
ill

1
24
l
24
24
14
4

)

6
44
534
6
5
6£
5
34

;

3
3

P)
(2)
(2)
(s)
(2)
(2)

p>7

3
34
34
34
3
3
24
24
24
3
3
24
24
24

24 1

3
34

n *
P)
34
3
34
24
14
14

24
!*
. 1

14
l

24
2
1

)

P)
4
4

24
4
4

3
3

4
5

■1

commenced 1851.

*
1
14

a n d h i g h e s t r a t e s c h a r g e d , e t c . —Continued.

Bank of Belgium.

Bank of Holland.
Year.

P)
P)

8
p)

<*)

54
54
5
5
3
24

(*)
p )3
3*
3
4i
3
4i
24
2i
21
3'
3
2*
4
3i
3

P)
P)
P)

Lowest Highest Fluctu Lowest Highest Fluctu
rate. rate. ation. rate. rate. ation.
P er ct. P er ct. P er ct. P er ct. P er ct. P er ct.

5
34
3
34
P)
P)
3
34
3
34
3
24
5
3
6
5
5
3
24
3
1 No change.

4
4

2
1
2
4

4
3
P)
3
P)
3
34
4
3
3

5
4
P)
4
P)
4
644
6
34

1
1
P>,1
(I),1
1
2
3

T able I I I .— R a te o f d is c o u n t, 1 8 0 —1909— T h e n u m b e r o f d a y s a t ea ch
r a t e a r r a n g e d f r o m t h e l o i c e s t r a t e to th e h i g h e s t .
B A N K OF ENGLAND.

[Lowest rate, 2 per cent; highest rate, 10 per cent.]
N u m b er
of days
N u m b er per cen t
o f d a ys. of to ta l
(to ta l=
,000).

R a te.

c e n t..........................................................................................................................
222AJperper
c e n t.......................................................................................
per c e n t..........................................................................................
3 per c e n t.....................................................................................................

3J per c e n t............................................................................................
4 per c e n t..............................................................
41 per c e n t.....................................................
5 per c e n t..........................................................................................
51 per c e n t.....................................................................................
per c e n t.........................................
01 per c e n t................................................
7 per c e n t..............................................................
8 p er c e n t..............................................
9 per c e n t.......................................
per c e n t..............................................

3,409

3,599
5,859
1,921
3,772
608
2,195
263
975
91

633
268
141

143

151
246
80
158

92
41

11264
6

23,857

1,000

[Lowest rate, 2 per cent; highest rate. 9 per cent.]
2 per cent..
2,735
2J per cent.
2,579
3 per cent..
7,828
3J per cent.
2,060
4 per cent..
4,579
4J per cent.
353
5 per cent...
2,001
5£ per cent.
120
6 per cent..
1,170
8
6J per cent.
286
7"per cent..
7] per cent.
21
8 per cent..
41
9 per cent..
16
23,857

115
108
329
86
192
15
86
5
49
12
1
2

•

T o ta l........................................................
BANK

OF FRAN C E.

1,000

IM P E R IA L B A N K OF G E R M AN Y.

[Lowest rate, 3 per cen t; highest rate, 9 per cent.]
3 per cent............................................................................................. 3,073
644
12,192
1,626
4,094
707
970
72
269
110
37
63
23,857

1
2
1,000

:|
i

B A N K OF T H E N E T H E R LA N D S

[Lowest rate, 2 per cent; highest rate, 7 per cent.]
2 per cent..
1,328
2J per cent.
5,058
3 per cent..
8,013
3$ per cent.
3,737
4 per cent..
2,167
4] per cent.
811
5 per cent..
1,823
5] per cent.
375
0 per cent..
260
f>i per cent.
150
7 per cent..
135
23,857

129
27
511
68
172
30
3

5G
212
336
157
91
34
70
16
11
6
5
1,000

ll
0

Table III .— R a t e

o f d i s c o u n t , 184 4 -1 9 0 9 — T h e n u m b e r o f d a y s a t e a c h
a r r a n g e d f r o m t h e l o w e s t r a t e t o t h e h i g h e s t — Continued.

rate

N A T IO N A L B A N K OF B E LG IU M .

[Lowest rate, 2J per cent; highest rate, 7 per cent.]
Number
of days
Number per cent
of days. of total
(tdtal=
1,000).

2] per cent.
I 3 per cent..
I 3J per cent.
! 4 per cent.,
j 4J per cent.
{ 5 percent..
5$ per cent.
per cent..
67 per
cent..

3,169
9,412
2,965
3,416
698
944
378
540
27
21,549

Table IV.— R a t e

147
437
138
159
32
44
18
25

1,000

o f d i s c o u n t , 1 8 44-1909 — T h e n u m b e r o f d a y s a t e a c h
r a te a r r a n g e d fr o m th e h ig h e s t n u m b e r o f d a y s to th e lo w e s t.
BANK OF ENGLAND.

12,192 days
4,094 days
3,073 days
1,026 days
970 days
707 days
644 days
269 days
110 days
72 days
63 days
37 days
23,857 days
BANK OB’ THE NB’ THBZRLAN'DS.

3
21
31
4
5
2
41
51
6
61
7

8,013 days
5,058 days
3,737 days
2,167 days
1,823 days
1,328 days
811 days
375 days
260 days
150 days
135 days
23,857 days.

336
212
157
91
76
56
34
16
11
6
5
1,00C

T able IV.— R a te o f d is c o u n t, 18U -1909— T h e n u m b e r o f d a y s a t e a c h r a t e
a r r a n g e d fro m th e h ig h e s t n u m b e r o f d a y s to th e lo ic e s t — Continued.
BANK

B E L G IU M .

Number
of days
cent
Rate per per
cent. of total
(total=
1, 000).

9,412 days.
3,416 days.
3,169 days.
2,965 days.
944 days.
698 days.
540 days.
378 days.
27 days.
21,549 days.

437
159
147
138
44
32
18
1,000

It will thus be seen that these great banks holding the
national reserves have been able to furnish commerce with a
very low rate of discount for nearly all the time and only
occasionally have been compelled to raise the rate to a high
point.
Those low rates illustrate the enormous value of these great
banks to European commerce and the urgent necessity for action
by the United States along similar lines.

Full text of Robert L. Owen Collection, 1913-1946 : Banking and Currency Miscellaneous Articles, U.S. Senate, Box 2, Item 3

FRASER