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F.D. 12A.3 9 No Federal Reserve Bank csYmaiv District No. 2 Correspondence Files Division a P.49p&-/as SUBJECT I. 4-7-0 S 13(412.7-0A.1, 'vett, i.,/pti Ds, 0 'ao RA7 4 ()) C' i9ISO: 577eo,u6 'S Poo -r "Jim issw) "si "'se_ . - 7fr, e Mai on FA. 09C-7 UNITED STATES SENATE, WAS MN GT 0 N. October 22, 1914. Dear Yr. Strong: I shall be glad to see you tomori w morning, naturally about ten o'clock, but perhaps the exigencies of your visit require a different hour. You hatar Hotel when you reach t and we ca- then arrange a etter call me up at Yew Willard in the morning eetirg. ithfully yours, Benjamin Strong,Jr., Esq., New Willard Hotel, Washington,P,O. Dictated by Senator Root just as he was lea-Ting his office, and signed by his secretary. the Pow- MEMORANDA for MR.STRONG February 7, 1914. DEPARTMENT Senator Root's Secretary tells me over the 'phone this morning that if you will come to the Senate Office Building, Room 428 (Senator Root's Office) between 12 and 12:30 on Wednesday, he will arrange a meeting with the Senator at once. He states in further explanation that, except in extreme cases, Senator Root will not make appointments for places other than the Senate, and that he is not permitted to make any such engagements. J.H.L. UNITED STATE S SENATE , WAS HINGT ON. February 5, 1914. Dear Mr. Strong: I shall be very happy' to see you here on any day this week or next. If you find it convenient to come over please call up m office and specific hour /or the me secretary will arrange a inc. Fa hfully yours, Benjamin Strong, Jr.,,Esq., President, Bankers Trust Company, 16 Wall Street, New York City. D. UNITED STATES SExA.TE, WAS HING.T ON. January 8, 1914. f<cE v esip JAN 1 0 1914 REFERRED TO OFFICE Dear Mr. Strong: I am obliged to you fo your kind note of December twenty-fourth. I hope P sident Wilson will appoint a good Federal Reserve Board but I am very much afraid. ery sincerely yours, Benjam Strong, Esq., Bank s Trust Company, 16 ,all Street, New York City. Vice-President, UNITED STATES SENATE, WASHINGTON. December 23, 1913. My dear Mr. Strong: I have to acknowle e and thank you for your letter of December six eenth with the enclosed newspaper slip. Ifery sincerely yours, Benjamin Strong, Esq., Bankers Trust Company, New York City. D. UNITED ST.A.TES SENATE , ID WASHINGTON. December 23, 191 My dear Mr. Strong: I have to acknowldege an of December fifteenth regard bill. hank you for your letter the debate on the Currency It has given me pie /sure to send you a copy of the speech as you request. Very Benjamin Strong, Esq., Bankers Trust Company, New York City:: D. incerely yours, joii the (6) The ie,us of pupsr rotiaj, beiirinj the oblittioxi of the Govo4't, imet be ozzizuad in ite h13tOrio1 zk' econctic aepects, are, further0 with reai to the prtoction of the orocUt of the UoVoxtimatt itacif. D1tein on1y the Zatter faturo of thie aubct, at are the pos4btliticu under the s*-Gltas bill difficulty or dieater no ntztetII with the aooet plan caon to all the great rop nationii, of a bert note tecue un*%.r Coveiit r'oulation, but without the Oovezs% eb1iion, ould thie oiimtrt become izwolv in a foreign war, a great eonotic dioturbarzoi, or, what is more po*ible, should our credit eittut1on be subjected to the d$eturbin inluencos if a mt oon.fliot botiSon foreii tionz how iii.j the tnc1 obliation of the overiout orezo'.i b the 3wen bill affect the credit of cur Goveuznwit The bill proidee that the nc4ee oh&1l be rebIe in ld, on 4'vl, at the ?reaur Dz'nt Qf the iJntts attec, or in pid or lful rnonor at a' PoLeral re.iz,-o bc. ?he bill ponit the PaderL1 rIe flk to uuthorizo rbor ban3o to uae Iadonl roner#o notes or notu of }i e national bn] rooerViS. Under UMPS. iS,- dtti one, ezij 4rt 000nc*nio diotitnoo in thie country, or uz worlöside ttibtnoe of creLtt ioh nit react upon thic oeuiztry's oredit ectblisine, .nvolveo a &nor ae the ovi :*s oblit ion le sii to the noto3, to the tent in fkot that a ewq)&letoa of the ve've r.u1is Of tM re4onal ba - izmitte.i bry the bill nijit involv, a tu,pton of eiyxie pernte to the credit of the Qove1bt, 00 zwt. at aroeszi war, n.eeaeitatin hwjo oituie0 would ridee ratee of interet in forein oountrlee that zld asset i* tuxa qion our btnkinG yotem, requirtn the eeroiee of sverg onoible nenve, first, to retain our otore of by the United 3taW £. pldi eeoou, to the etcnt that it becrae Lvairsct to e&hle the reion bke to pay their rwte in lawful znonq; thth, to amble the oveoiamt to rusm its inwf4 peper in olt Will a sjet of issal bsms, whioh is t i*etrt fcr isetng 'ealtold sailliem of CAMINIMS16 obliantionot bo able to protect the Govemeent in such an ellergeney, and le it amb the dairy ar: aonaTese to see that etv legielatdon now 4.1110Old *SU afford *very IMMO iitiob can be devised to that oaf drain upon the old et the fleintry in eueh 4catarisona7 would be due to the IMPOSSINIX1 reyourehase of fOreim invi sante to the interruption of our forsige oolfraroe and the diotuiixne of the balanoe of international trade to the tleatisig of itreign leans in this market9 to the withdrl of forgot bank °rains now exteckl. d to this country* end to the imponities Wan our own credit *stabile/mat of the barmen of financing trade whit* is rum laroly oarried by Gold in this erneroney, would be vdthdrexn thavuda the presentation of Federal reserve mates of WI !regime." beam, no loni; as they were able to furnish gold rstesland. in payment. -,°then unable to fumitda old* prestraably they Wald ezeIalse their rlt to pay in lawful moneys The damn* for geld would thereby be tranaerrec to the united Mates, by the piesentaties of the UMW money. nile process mitAt neoessitate the fAl Lip einn Ion of the reserve raluirenentak ea to the rocional 'Warn throukhout the country. The ability of the Governsont to pay old woad be lindted to k3150.00090e0 now held in its trust fund rersealm4 and it ability to obtain old trots the regional banker. 'At progress AIN the Ow rarne;st .redoem its notes In old if the reclosial ,usponded their reborn requirements ani the GoVerowaill By had '*eit to rely %Van its ability to par*** old by the use Of its on olktigatiellir Ole whets of Amps would be aieewl. Dar old supply at hone would be subjeot to Inflow,* largelv oorreepon4ir4 to these which now arise In this country fat Ise of pante. We ll heere possibly 20,000 State institutions., vast influenced by the strain and ohosk to the oredits of the oountry, daze t a eaditiona deferibei and to the suspension of the ~erre requirements of the re4onal balks. 11111 at ones emieevor to strew:I:then their golcl reserves, and to do OD pmenting Federal reserve notee to the re4omel loft and derawl ng old for thou. Should payment be made in lawful money the demsal would be transferred to the Ooverzszent. se* Our cyst= hoarding enro Will be ttnable to OV03100/710tho irdluence of the process of the p* of State institutions Wzidb are not oubjoot to Fedoral control or to the influ&loe o* rational bank& L contrasted with this condition, if the tote e the o it10 or t central et00114, woo:melon of reeorve requiremonte could be muds vithout involvimi ereUt of the United. Aetes for the redemption of the notes, and the last ',sort of bankins practice could be safely employed before suspension of lAyment in gold would be folved upon the Government. The Milted states to slreo4onituted for the rodooption on dftliwad in MOld of n sun of gaper non doveriment. Why add to the reeter than the entire funded debt of the rti? Whg offer gr tnitcuoly the credit of the United stun it is Dot required/ I//kg erente a note issue with a redemp. ion fund hardly'more than ons-half of the umaunt whioi experience shows to be required IA 114oge, and tact attempt to evre Ito defects by the endorsement of the Ceelpieent? Report of Comptroller of the Currency, showing the c ondition of National Banks on December 3, 1907 Caah Required New York City Chicago St. Louis Central Reserve el:ties Boston Albany Brooklyn Philadelphia.. Pittsburg Baltimore Washington Savannah New Orleans Louisville.... Dallas Fort Worth Galveston Houston' San Antonio Waco Cincinnati Cleveland Columbus Indianapolis Detroit Milwatkee CedPr Rapids Moines Dubuque Des Mi#neapolis... St. Paul Kansas City,Kan. Wichita Kansas City,Mo. St. Joseph.... Lincoln Omaha Denver Pueblo Salt Lake City Los Angeles San Francis op Portland Seattle Reserve Cities 4206,098 14 56,591 26,774 Cash On Hand $180,44814 54,792 21,826 4289,463 11,'. $ 17 468 14 2 000 3 058 1 726 24 704 Deficit 425,650 34 1,797 4,948 432,397 1; 57,066 3.; $ 20 974 14 Excess Percentage Excess Cash $ 3 506 14 41) 1 058 2 046 18 807 320 14 18 056 T.; 17 030 /4 44-44 6 025 2 703 5 579 4 785 261 3 02514 2 468 1 683 1 162 170 2 489 3.; 2 408 1 499 965 23114 1 464 907 383 6 14111 5 718 486 34 2 332 3 072 2 077 1 957 655 6O46 1; 5 156 2 508 5 118 2 957 1; 2 471 142 4 512 446 2,082 91 184 197 255k 535 1 162 325 14 5 468 3 726 1 044 518 14 4 990 1 199 703 4 086 14 323 16; 6 092 4 648 3 799 1 071 832 110.3 613 115.7 272 95 14 562 176 2 046 ... 66.6 486 Y. 248 162 134 ... 2 624 922 1 033 633 14 77. 536 14 60 4 264 697 1 296 5 897 1 02634 11 115M 1 191 14 128 129 6934k 2 848 14 5 061 1 019 1 209 7 520 1 127 1 818 2 459 108 609 4 051 14 6 473 14 2422k 5 118 1 979 2 893 9 600 4 306 4 090 4 482 2 327 157 876 16 3169 048 14 $26 124 14 69.7 48.5 59.7 87.7 117.5 119? $141 952 1.; . 0 Cash Required p'aine I'm Hampshire Vermont Massachusetts Rhode Island Connecticut Cash Excess 4 .;1 1 876 M 1 111 916 6 748 M 1 230 3 123 1 10 1 5 45 004M 924 14 066 New York 7 720 New Jersey.., Pennsylvania 20 253 553 M Delaware Maryland 1 650 District of Columbia 64 344 306 M Virginia 3 536 M 1 996 West Virginia ' North Carolina 1 Kentucky Tennessee Ohio Indiana Illinois, Michigan Wisconsin Minnesota Iowa Missouri North Dakoti. South Dakota, Nebraska Kansas 3 551 Montana Wyoming Colorado New Mexico Oklahoma 4 581 /I 1 . ...... . 2 989 11 169. 103.2 1 212 M 447 M 7 418 772 1 555 2 320 58.4 145.4 112.8 82.4 96.1 12 518 1 456 3 440 4 734 4.1,48 141 1I 14 704 M 10 574 15 854 418 M 046 394 7 795 2 786 00 571 M 2 332 , r 396 4 545 2 6 087 /I 3 752 1 631 5 568 1 344 LI 5 150 32 705 M M 5 348 2 674 876 1 360 7 348 M 581 M 704 272 321 80 98 549 Id 77.9 117.2 102.2 167.7 82.3 630 6 661 65. 240 3 726 5 469 1 464 342 189 M 1 402 M 1 298 2 806 3 230 M 1 718 Idaho 45. 206.2 1 6 Utah Nevada Arizona Alaska . 829 A 243 2 321 M 1 035 3 511 23 2 1 1 45.2 38.1 61.9 91.1 2 437 6 705 0 574 55311 358 946 543 504 M 743 132 236 M 29611 555 305 730 836 4 020 II 2 102 627 M 2 243 716 2 9 6 2 12 3 879 :2 858 LX 9 096 M 5 246 8 925 ,16 131 11 Washington Oregon Ualifornia 2 418 1 444 1 442 610 765 M 5 100 684 1 885 2,414 ' 3 959 II 057 M 067 532/1 5 832 M 71.7 63.6 58.6 58.2 82.4 797 583 499 707 M 946 697 557 M 424 2 393 196 714 1 592 M 1 007 Texas Arkansas 7,7-724M 20 10 666 32 796 1 113 South Carolina Georgia Florida Alabama Mississippi Louisiana 2 800 11 1 908 Percentage Excess Deficit On Hand Cash 49.2 748 65 19 356 LI 962 /I 0149 037 M 0262 °25 283 M 5 608 M 5 328 61.6 101.5 77.6 59.6 42.4 71.6 42.5 90.3 6 929 2 1 2 2 1 ;28 39811 803 668 326 322 382 M 66.3 84.5 61.9 80.0 118.3 131.3 164.8 114.3 129.6 930 ,I 1 1 2 2 098 739 757 M 034 926 3 466 717 M 2 907 -16 674 M 3 027 11 130.4 1 639 4 365 159.9 124.3 105.7 66.9 158.8 699 233 M 432 427 133. .. l0 822M 0113 940 M 0 15 M 15 M 0 is m 76. Aim York, at tbs date of this st.atonontil shavei a derloit Aorve0 of 425460,000.; Ghlago #1,151,000.8 Sts Louis - 16,00setwo. 13 1 It seems AV ;pity: that the Chairman of the Senate Committee feels obliged to endeavor to pass his bill by stirring up sectional feeling, instead of basing his arguments upon the value of a regional bank system. Several times now in the Senote, the Senator has stated that the panic in 2907 was deliberately caueed by Vele York interests. He has never proved it, nor attempte(:;. to prove it, and the facts as hown in the report of the Comptroller pr the Currency disprove his state';lent beyond any manner of doubt. Instead of the New York bankers hoarding money, as stated by the Senator, the report of the Oometrollar shows that they were paying out their reserves, and that all of the hoarding was done by country banks and a iew reserve city banks. Fourthor, that the amount of cash piled up in the country banks in the United 3tates, over and above what they were reeuired to hold as reserve, was $113,940,000.,- four times as much as would have been necessary to have brought up the reserves Of the three central reserve cities to the amount required by law. This report of the Comptroller snows that the country banks held, in their vaults an average of 76% actual cash more than was required. The banks in Georgia had an excess of 187%, those of Alabama 169%, those of Colorado 164%, those of Oklahoma 129%, those of Texas 145, those of Oregon 159%. The each reserve required by 7ew York City at this time was $206,000,000. The country banks could have paid in over half of this amount from the excess cash held in their vaults. nil° these banks wore hoarding $113,000,000., banks in New York met demands upon them through actual payment of $25,000,000. out of their reserves. These figures do not represent the opinions of any man. They represent the facts as shown by the statistics published by'the Comptroller of the Currency of the United States, under date of B2 December 23, 1907, showing the condition of the National Banks on December 3, 1907. Part of the balances that Western and Southern banks held with New York banks were made up of loans, as they always are in the fall. On September 24, 1913, New York bankers ears loaning to the West and South 4341,000,000. The figures of the Comptroller in the report mentioned are not divided in such manner se to show the loans made to Western and Southern bankers, but their borrowings went in to make up the total leane of New York banks, the same as they do every year, and New York bankers heve stated that some country banks want co far, even, as to endeavor to make loans at that time and have the proceeds shippee in ourrency in order to build Lip their reserves in excess of the amount repaired. A few days previous to the statement published, the reserve of the New York banks was under 2. The Senator from Oklahoma also neglected to give credit to the Nev York bankers for having purchased in arope 4107,000,000. gold, at great expense to themselves, represented in. high, premiums that they paid and high rates or foreign exohange. It is to be hoped that these facts and figures vill bush forever the unwarranted statements that are being made ooncerning the panic of 1907. Now, to go back to the Currency Bill. The Senator from Oklahoma stated a long list of guarantees that were behind Pedoral reserve notes. Ile built a house of cards, and if the other principles he has stood for in connection with this bill are not more sound than his statement concerning what is back of reserve notes, God pity the people of this country if the bill is passed. The Senator bases his long list of protective features upon the principle that no bank fails except through making bad loans. If this item were the B 3 only one capable of causing the failure of a bank, he would have a better foundation for his card house. Unfortunately. banks fail froa many Other causes. In the first place, he made a beautiful computation of figures showing how little clance there as of e member bank ever Ceiling, and yet six gational betake failed in tte year 1913, one of which., the Yirst-Second National Bank of Pittsburgh, had a aeoital of $3,400,000., or $400,300. larver than tho smallest regional bank is alithorizod to have. When a bank liae that fails, the laws of chance are not of much value, although they scund well in conversatior. lanks fell through embezzlement by their officers and direetcra, through the purchase of bad paper, through the asking In order of had investments, and through the making oi bad loans. far the circulating notes of a regional bank to fall back upon the 'evcrnment, it wot,l be necessary for the bark to fail an teva its locees exceed its capital, surolua and unGivided profits, and the amount of ita capltal reoresentod by the doable liability, provided Embexalament could cause such a failure. The it was all good. ederal rssarve aeent, in his duel nosiation, might easily succeed .;r1 stealing more money from a reKional bank than tha amount necessary. Others in tha bank might also be able to do ca. The greatest real safeguard to a bunk in the employment of honorable men, for a thief In a position of trust can always find a way to steal. The regional banks would unauertionaLly be made up largely of honorable men *it haman nature le not goJng to be aaanged. trirvly because we are going to heve regional banks, and an occasional thief may be able to work A bank his way into t position of trust in a regional bank. exa inntion might disclose the fact that someone had been stealing,. but it would not do so until after the money was gene, for tank examinations cannot anticipate what it in tic mind of a thief. B 4 The open market operations authorized to the rogionel banks could in themselves produce sufficient losses to bankrupt any one of them, and there are many ways in which the surplus funds of the bank might be invested that might result in insolvency. Should such Insolvency occur, the catastrophe in the region where the bank was situated would not end with the bank itself but would unquestionably force into bankruptcy many member boobs, which would probably cause the failure of many customers of such member banks whose paper had been placed by them as collateral with the regional bank. Failure of a regional bank would not follow the lines developed by the Senator from Oklahoma, but would take the opposite route. In other words, if a regional bank failed, it would cause disaster all along the line, and its failure might not he caused primarily because of a single piece of but commercial paper which had been discounted, The eiroulationdn case of the and rediscounted by a member bank. failure of a regionalakank, would go right back on the United States Government, and, with such a system, it may be necessary to have the Government guarentee in order to have a safe note. The various ohecks upon expansion which. the Senator from Oklahoma has so carefully laid out, also go for naught when oon- sidered in the light of the way business is done and not the In the first place, the section authorizway it is talked about. ing the Federal Reserve Board to allow member banks to collet Federal reserve notes as reserve, opens the doors for expansion that passes If tile by every one of the checks so profoundly listed by him. were done, what would the commercial demands of individuals for currency have to do with the issue of these particular notes; and what would the applications of member banks for notes to supply to B5 individuals who required them for commercial demands have to do with it ? And what would the ability of the regional banks to pay out lawful money have to do with notes held as reserve ? And what would the consent of the Federal reserve agent count for, if the Federal reserve board authorized banks to hold circulating notes as reserve ? And what check would the 33-1/3% gold reserve reraired be if the Federal reserve board suspended such reserve, as it is authorized to do ? Of what value would the fixing of a rte of interest on the notes be, when the Federal reserve bank would merely be deducting such tax from funds to go to the Government and paying them to the Government in place of such funds ? What particular good can public opinion play in preventing inflation, if the Federal reserve board authorized the maintenance of reserves in regional circulating notes The question of expansion, too, does not depend amount of circulating notes that are issued. The reserve bank might not issue one single circulating note, and yet, in the uystem, tremendous expansion uould occur. All member necessarily upon the banks might ask for credits on the books of a regional bank for such items as they discOunted. A period of optimism, due to the knowledge that tremendous expansion was possible under the regional system and the feeling that apparently is trying to be spread over the country that everyone can borrow under this new system, might be encouraged until we might have a tremendous overexpansion all lines. in This over-production would be carried by °omen:dal paper eligible for discount under the terms of the bill, and such paper, after having been accepted by banks, and representing bona fide transactions, would be rediscounted with regional banks; all . B 6 in accordance with the law. Member banks, if they offoreo eligible paper,under the provisions of the law, could almost demand that it be discounted. Of what value would be the ability of regional banks to take out circulation under a condition of this kind, where no one asked for more circulation than wes out at the time, but all banke asked for credit. :weans and discounts would go vie, production would go on until the breal- came, as is always true under seat conditions, and our who:o regional bank system might fall to pieces. The statetlent of the Senator from Oklahoma that regional hank note e could not be issued unless someone wanted them would positively prevent the regional banks from nrotecting themselves in any way through the issuance of such notes. This development is a natural one, "based on human nature, and the way inflation actually occurs. The -7ederal 7308re might become BO imbued with the ideas expressed by some of those who think that all we need, in order to levs proeperity, is to have plenty of money and plenty of credit, till they might be carried away with the rest of the country until the cresla ccme. The time to study this matter is now, before any such vicious scheme is foisted upon the people, and we should not be blinded to its dengers by any recital of e chain of safeguards and a chin of exceptional checks, etc., none of which would hang together under oonditions that might easily prevail if such a bill became law. Washington, D.C., December 16, 1913. Eon. 31ihu Root, Washington, D. C. 2y dear Senator, In addition to the enolosed statement, which was dictated before I discovered among my papers the figures now to be considered, can be added the following: August 17, 1907, the cash in the Clearing Eouse banks in New By Vovember 30 this caah had been York City was 0274,000,000. reduced to 1 ,000,000.,- this including the worst period of the The greatest reduction occurred in the week at the height panic. of the panic, from October 26 to .Uovember 7, when the cash reserve The total reduction of the New York banks was reduced 030,000,000. from Auguct 17 to November 30 was 057,000,000. This represents the net reduction in cash, after figuring in all receipts by the New York banks during that period from every source, including goid from Europe. On such a showing, who can honorably say that New York banks were hoarding money during this period I' Five yearc later, in 1912, during which the business of the country had increased tremendously, the reduction in cash of the New York banks, from August 15 to December 30,was only $60,000,000., that is, from 4379,000,0e0. to 4319,000,000.; that is, such reduction of cash is a natural seaeonal movement that occurs in the fall of every year. The banks of 'New York City lived up to their every responsibility in 1907, and went far beyond what could reasonably be expected oi them, as they not only paid tremendous premiums for bringing gold into the United States for the purpose of supplying It to the country, but paid out 425,000,000. in actual °eel, from Sen. soot 2. their reserves in order to meet the demands of hoarding country banks. This seems to me a wonderful showing, and it is certainly one that should be placed before the country, after all the unfair and false criticism that has been made of the honorable banking interests of the city of New York,by those in this country who are in positions where their statements can do such harm to all of our vast interests that they should be impeached for their false utterances. Very truly yours, P.5.-The report of the Comptroller showing the deficit of cash in New York banks of $25,000,000., included many of the smaller National banks not in the Clearing Eouse, which do not carry deposits from country bankers. The figures of the Clearing Bowe banks show even a greater deficit than 025,000,000. On fovember 23 the Clearing house banks were $54,000,000. under their reserve and on December 7,046,000,000. under their reserve. These were the banks that wore actuallY shipping currency into the country, and these figures are taken from the ofiloial figures of the manager of the Clearing Rouse of the city of New York. ashington, D.C., December 16, 1913. Ron. glihu Root. Nashington, D. C. 4 deerenator, Enclosed herewith take pleasure in sen6ing you stateacnt of the leans and discounts of the Clearing touse banke of Dew York oity from ugust 3, 1907 to ;:anuary 1, 1908. Taking the data of August 17 and Lovember 30, we find that loans increased 102,000,000., which would require, on a 2$% baeis, a reserve of i25,000,000. In the: letter which I gtve you this morning, you will note that the Vow York banks held, on August 17, certain eycess of reserve and on flovember 30 a certain deficiency of reserve. Adding these two together you 4111 obtain the amount of reserve reduction that occurred in proportion to deposits. Prom this deduct 426,oco,0oo., which represente the reserve reeuired because of the inoreace in loans, and you w111 have a net decreaee of reserve shown by the New York Clearing Eouse bunks of a very lerge amount. I el sorry that I have not ce eltra copy of the figures 1 gave you Vele merning, so thet 1 can give you the exact amount instead of Lavirg. to ask you to male them up. These figures, In connection with the fact thet the actual each reserves in New York banks deoreaced somethin6 11N3 457,CeC,OCO., if 1 remember correctly the figures 1 geve you, absolutely refute eenator Bwansonte ergument au to to deficiency of reserves of iiew York banks being made up by inoreaeod loans. Sen. Root 2 Have just been reading Senator Swanson's address and find thgt it is so full of inaccuracies that it seems almost useless to consider it. In the first place, on page 392 of the Congressional Record, he states that the report made by the New York banks for that time, shows that loans made on collateral seourity which are loans made for stodk speculation on the Exchangeeamounte to 41,169,000,0a0., etc. These represented the total loans made by banks in Lew York City, and not the loans made upon the Stock chang The Senator must have guessed what these loans were for. The ordinary division of loans in the fall, between the brokers' loans made for placing money upon the Stock Zxchange and loans for other purposes, io shown in the Clearing Rouse statement that I gave you for September 24, 1913. You will note that the total leans to brokers amounted to only 64,000,000,, whereas bearly a billion dollars in loans was made for comnercial and industrial purposes. The total loans of 41,169,000,000. shown by Senator Swanson would unquestionably have to be divided up in about the same proportion, as that is the way the business of New York banks run every fall. Eis statement is absurd an untrue. At the bottom of page 392, 2nd column, the Senator states that the reserve of New York banks during the entire suspension did not go below 4215,000,000., and he reiterates this in other places. As a theater of fact, the Comptroller' report of December 3, 1907, shows that their cash in hand was 4180,000,000., which IS not important, except for proof of the inaccuracy of Senator Swanson)s .statement. At the top of the first column, page 393, be stales that the entire loans of the country were contracted 485,000,000., while Sen. Root, 3 in hew York they were increased 08,000,000., of which 054,000,000. was on call collateral loans and $4,000,000. on time collateral loans. Fe makes no statement as to where he obtained these figures, even though he refers to the Comptroller's report as fur as the totals are concerned. The increase in loans by New York banks at that tine included loans to country banks. Re then states that the amount shipped into the interior was less than the Government and other deposits made with the banks in Nov' York, which is another misstatement that is seemingly inexcusable. The records of the Treasury Department show that the banks in New York ha e a debit to the Subtrensury in New York, daring October and November, 1907, of $5,539,000. Pe further states that the gold imported by Bew York belonged to the interior, as it was their bills that were used to obtain it. Again the Senator shows his entire lack of ;,nowledge oi our monetary system. New York banks paid a premium for the cotton bills and wheat bills purchased by them during the fall of 1907 that were used to import gold. The banks throughout the country who oollected such exchange in their respective districts and sold it to New York, preferred to take the premium which existed when they were paid in New York exchange, rather t'Lan to sell such bills at the discount which would be necessary in order to cover the cost of importing This I know eositively to be true, as I personally offered to the hankers of Texas $1,000,000. of gold in exchange for $1,000,000. in cotton bills, if they would pay the cost of importing the gold, which included. interest on the money while the bills were in transit and the gold was on the water, the premium that had to be paid for the gold in London, and the cost of discounting the bills in the London gold. Sen. Root 4 discount market in order to make cash with which to purchase the gelid. A combing of the market in Texas for cotton bills that could be sold upon such a basis proved futile, and not one single bill Instead, all of those having foreign bills of could be bought. exchange to sell drawn against cotton, preferred to sell them in return for New York exchange, for two reasons; first, because of the big premium that they would receive on New York exchange, and, second, because of the currency they were receiving from the New York banks, oven though such banks, for the protection of all interests, went on a Clearing EOUSO basis as far es the public as concerned. The rew York banks, therefore, were actually paying the premiums that were involved in transferring cotton and wheat bills into gold, and they actually paid the West and south for such bills, to the According to 6enator dntire satisfaetion of those selling them. Seocoon, a man can have his pie and eat it too. In other words, he can sell his foreign bills of exchange and obtain pay for them, and Eve,t140 belong to him. The absurdity of such a statementSand the lack of knowledge displayed is almost too great to make it seem worth while to answer them. On page 399, at the top of the first column, he speaks of our exports exceeding our imports, etc., but ignores entirely the invisible balance of trade about which I spoke to you. For your information, should you wish to look it up,e4Me would refer you to the second celumn, page 400, of the matter fol?ming, presented by senator O'Gorman. These statements beer out the general conditions which existed between New York City tanks and their correspondents at that time. I will admit, however, that I have been told that some banks which applied for loans for the purpose Sen. Root 5 of obtaining currency to increase their home reserves away above the percentage reeuired, were turned down, although, unfortunetely, not enough of them were turned down at the beginning of the panic, before it was realized what might develop. in Chicago the same thing occurred. Country banks came in and endeavored to borrow money for the purpose of obtaining the proceeds in cash, with which to abncrmally increase their reserves. On page 403, in his laet statement in the second column, Senator Swanson states that the New York banks never reduced their reservesbUt $9,000,000., which is a misstatement and not in accord with the facts. In the statement I made to you this morning, I showed that they decreased 457,000,000. net, after including all the money deposited with them by the Government and others, and the gold which wes received from abroad. 7ething further would seem necessary in order to refute Senator Swanson's stetements, which have been reiterated in different form by Senator Owen. Very truly yours, cO, Washington, D. 0., December 15, 1913. Rtihu Root, Washington, D. 0. Ay dear Senator, Allow me to congratulate you upon the wonderful speech which you made on the Currency Bill. I have read it with much interest and satisfaction, as I am sure have all of those in the country who have any understanding of the subject and who have had opportunity. In a statement purported to have been given out by Senator Owen, I note that he again repeats the canard about the panic having been brought on purposely by New York interests,and adds insult to Injury by stating that 7urope forwarded us gold in order to stop the panic. Europe did not forward us gold, but the very interests that Senator Owen claims brought on the panic bought that gold in Europe and paid high premiums for it, and imported it into this country. Rurope had nothing whatever to do with it, other than to sell the gold at a very fine profit to itself. Enclose herewith corrected copy of figures taken from the Comptroller's report. In checking it back I found one or two unimportant changes necessary, due to errors in transcribing the figures. The percentage of excess clash in Kansas was changed from 85.3,4 to 88, otherwise there ws no change of moment. Very truly yours, f/1 Washington, D. C., December 13, 1913. Hon. EMI' Root, Washington, D. C. My dear Senator, Last evening I did not leave with you the report of the Comptroller which gave the percentages of reserves of the banks in New York and other parts of the country, as I felt that I could make a stronger presentation by preparing some computations the figures based on actual cash. from Take pleasure in enclosing herewith copies of such abstracts./In explanation would say that // I first figured the exact amount in cash that central reserve city, reserve city, and country banks (by States) were required to keep in their own vaults under the Law, based on their deposits, as shown in the Comptroller's report at the close of business December 3, 1907. I then took the actual cash that all such banks held in their vaults. The results show that, while New York City banks were under their reserve to an amount exceeding a26,000,000., the reserve cities as a whole were over their reserve, even though a few of them showed a shortage, and that the State banks in every State and Territory in the United States, outside of Alaska, showed an excess of cash required of 76%, or a113,840,000. These country banks could have carried an average excess reserve over requirements of 54%, and then have divided the rest up among the three central reserve cities of New York, Chicago and St. Louis, which would have resulted in making up their entire deficit of a32,000,000. Instead, therefore, of the so-called "big interests", and particularly the New York bankers, having brought on or purposely Sen.Root 2. caused the panic, as has been so kindly suggested by various members of Congress, these figures show the whole trouble to have been due to actual hoarding of money by country banks in all parts of the United States, particularly in the West and South. You will notice, in the enclosed tables, that many of the barks in the Southern and Western states carried over 100% more cash in their vaults than the law required. The banks in Georgia held 1875 more cash than was necessary; in Alabama 169%, in Texas 145%, in Colorado 164%, in Oregon 159%. These figures clearly show that, while New York was making every effort to protect the rest of the country and live up to its position as a central reserve city, the country banks were all taking more than their share; and, further, 'that they could have carried an average excess cash reserve bf over 50% and still have left enough funds for the central reserve cities to do business without friction.///' ///' It would seem to me that it is due New York City to have these figures read into the record of the United States Senate, after all of the false statements that have been made since the panic in regard to its_ position. Should you desire to obtain a copy of the Comptroller's report from which these figures were taken, you can get one from the Treasury Department. The document is No. 56, and is dated December 23, 1907, signed William B. Ridgely, Comptroller. Referring to another portion of our conversation last evening, which had reference to the sale of our stocks and bonds that are held abroad, would say that if there were not a, single loan on stocks in this country, the offering of such securities upon the Sen.Root 3. New York Stock Exchange, combined with the refusal to purchase and the consequent dropping of rates and prices that would occur, would mean fearful losses to the people of this country. It seems to be human nature and is the actual practice of thousands and thousands of individuals who awn stocks outright, to get frightened and sell them when the market goes dawn. If there were not men who had enough confidence in the institutions of the United States to purchase stock offered on the stock market at some rate, how could it be expected that the people would have any faith in what they hold? Amin, there is another class of people, including many, many thousands in this country, tho are always ready to buy stocks and bonds when rates get low enough to make the investment good. If foreign held stocks and bonds were offered upon the New York Stock Exchange, and the market were allowed to drop until the investment represented 7%, 8%, 9% and 10% interest, this class of people would begin to rurchase, and their purchases would be just as effective, as far as sending gold out of the country is concerned, as if the purchases were made by men con- nected with some of the large institutions who might wish to protect their stock from raids and endeavor to hold the market up through purchases. In their great desire to lay all the troubles and fancied troubles of this country to the New York Stock Exchange, some of our legislators go to such lengths that it makes it difficult to decide where ignorance leaves off and wilful misunderstanding begins. Assuring you that if I can be of any further service it will be a pleasure to have you call upon me, I am, Yours very truly, Ltc9D. 0, a7,ar aa4atv...' (,2gr,ots to be In Uasb.ingterr W. lento .eert.sfisi tartkosset."..o,- sad I ":davw aslcar,7 I believe w!.3.3 tt, -"441sLlitesc Lelepti:-Tro,Otzt-43:754;#7- Cortalete tosetc.te,c,_ Acts thEatvg;f.. .D3118' mr,-ersig laq,:..-1.dc chanztelf., 7 7:1P-A. e :i3 rono,/,...., -.nate; "iszticlaebT; atd December;-g, 1910: .kaitt. sztesettles ifte mazer ..2,m4elritlesi,--&=t t 1.1;ft Iona= Ettkilfiett usest - .1hYr 139 .seettin,-,f.g.lart1 as Petish capital in Vat that time that the total 5.71Vegtrient arm ...Loads were 05,000,000,000. 1. rt of'qUis fact .. ensolee CcascalseicreirL werE tbo.t 7ii of Aillericesza :aid Slt irvestore are whioh sav net available, 'IA :Ls coo_ntry, the stat5.atIes es :c.ot fa tt, .,. Ante that these 'holdingr. .are very MELeit larger. coalejae:eatio,-.. 4417,4 Invesnerate of ?ranee, 'Germany, ;Poe aggregate irle:,bably rcallopescet countrt6 d, .s great as Those of Grsi,,t Bv.Ita121." fiuotatto: Prom The above le :.ta or c:7 -peport made to me 13,-? t1ior1t' ii. riew Tok. personally 3: believe that all of the estimates h titbse maxttausi 11.4.-A,26 sz..-e :.nterican atetrwol.titois 110'14 in l'erz.....rd 1-hat of Roger 7, Tiabeas., Zit estimate ls . 1,000,000,000. eetlrlat 6 (-lila o that V ,P1X.re 7 t72 von)" causer-y.9AI. ecc. f2he enclosed copy o!=.7 the journal of. cotzerce 0.7 lgtl, Iasi; eixatal4.1 an inaomDllAtii. resume ,cf the am,:rai.t; ar short 'next Industri.al. Beticnd, -;131,E- 7-7 rIeW,762 I.J2at . .gea to ask fol. oi7 tb.9 Journal :t1.; noOtli f3,1:04 that: -Zi 'ea left iiteosjP.Le. . amount spenttr---.1veilerts. the is on, -of 0-7 atrtervili,atle:-.i. 'The NatIonai arV, seo they Rode fr-ctsdstie sr'-fiz, f,17-a-ad that abolit their etteate Yea p3aesd as 'high -se ,Sdlity:X40,0010,. I do notaierects.-14-beliove as t s Vile. lierlossIng,40?tectiseavt Vona rr.-Valliett-ho Ast.ter that subject, brit Qreferenne would be to use the -figures Which Er. Meet will submit to wiaoh I 'believe axe more nearly accurate, :; ve years zerierrAserefal Asotiw-te e te.006. 'upor. prkirifint,F mat) 1m4a:c 1/2-1.eve1erer lettere of -arealt tv the llanks abroad, sosecrat -speut by American tocrirts Itt.d,e; it :s17),(F.; tLne Arlo -teem trairei increase,S. pertaipz,- P4-2/401P4Z,7161fiatft 412.1221t Ttster 4:.46n steamer,i ale, better azawrIocletione. But -it 'would be velaef:ray this esti/bats ,n. P7 et am annual expenditure c:r. :0. Vila exialuelve of the income -of many we aithy safe to American -families who paTifignently abrosil, a2311 of the incomes 12aVf:. rrri.Sd sloaad. .11esessetteirg Of! c!rea.r:1-3.7 thin *are co,z.be yj,sittattratis,4:4- 412itterl.tat-4 tiOn. awescitu..1.17' VJe Allosepasssot f7hzu tLe __Insame tax F Jorafr,- These figures-do not Include ...wet,.. .totten08/4 made b:,-..ilxvelviers beret viblob. in the aggregate are ver4/...1aree.X1 be Poet Office Department .reoc.4,4is t5howed that remittent/Me :am wzian amomta of, Ray, le se- :71:an 1200, ;Isowed t'ne aggsesze.,; -to le -ebtive irtenrkft4it;1:.pwrt; rt1i! The amolmt paid b.,. exparte bas never to lq kno-aeilee, arid so aseertaill OW33.. in bee will %eve ELS e -!'"I'D.,4.:Nir Wit 7411/4i. may _.feel willine to frt. -341.3,y value; cor.z.lerc , estimate 7tOmellr', ; t :clearly or, Invert,: Asia have be -etas -to iketlzeated. Zent use. The In laid out Werly 3, OGO 000 ,C.):10 is sinkil,y a basis..:'3X1C1 If of thOir 7.1 a ver-. haeardous bs of -'reight bills will atwfunt to t150,000,000. .11,i7 belief be a low, rather that: a Ide'k. estimate of the percentage ie that Z5 paid tor fr,3]...&%03. Of CLAWS° ., neeIlziblo propa,11,7 on of this -Is paid to American eb,.t ners. ;" I ilave not r-ialitiCated Sal:lhingi eegard to dirs,;:i, credit transaotions between The t-Qt.1 ens of this co.zeitry an,.3 Bw-ope T-11.1.6 reproITOWAS a 7a,st fluctuatinig oredIt. LW. Sent will be are.ve-pared sa !,"--1 i'rom data which. 713 has accees!ble staski-ix ll yk.) 11,i Cr? lc ;,7,7 fri ft kir:, veil feel an-,:icely 1)4.....;.4" rafas - p- him fur aztjthilIc, neat vt,11- COPY December 11, 1913 Hon. Elihu Root, Washington, D. C. My (7ear Senator Root, Mr. Kent, of our office, expects to be in Washington tomorrow and I have asked him to hand to you certain information which I believe will be of value in answering the inquiry that you made by telephone yesterday. Complete replies to all of these questions I believe will be handed to you, therefore, tomorrow. In the meantime, through various channels I have been making inquiries along independent lines with the following results: First. "Articles by Sir George Paish in the London Statist of June 19, 1909, and December 24, 1910: He uses the returns of the excise Commissioners of England as a basis for his estimatesi which were at that time that the total investment of British capital in the United States and Canada were $5,000,000,000. In view of the fact that large holdings of American securities by British investors are kept in this country, the statistics of which are not available, it is safe to assume that these holdings are very much larger. This does not take into consideration the investments of France, Germany, Holland or other European countries, which in the aggregate probably are nearly as great as those of Great Britain." The above is a quotation from a report made to me by good authority in New York. Personally I believe that all of the estimates in regard to American securities held in Europe are high. The maximum estimate is that of Roger W. Babson:. His estimate is $7,000,000,000. I would use that figure with some conservatism. Second. The enclosed copy of the Journal of Commerce of November 19th last contains an incomplete resume of the amount of short term notes of railroad and industrial corporations due within the next three years. This estimate is unquestionably low. Friends of ours who have made rather careful compilations of figures for the calendar year 1914 inform me that about $650,000,000 of maturities occur in that year alone. I am obliged to aak for the return of this copy of the Journal of Commerce as it was taken from files that will be left incomplete. Third. The amount spent by American travelers in Europe is one of the most difficult of determination. The National City Bank advises me that about five years ago they made a study of this subject and their estimate was placed as high as $400,000,000. I do not personally believe it is as high as this. Following is extract from kr. Talbert's letter on that subject, but my preference would be to use the figures which Mr. Kent will submit to you, and which I believe are more nearly accurate: "About five years ago, after careful estimates based upon payments made under travelers' letters of credit by the principal banks abroad, the amount spent by American tourists was placed at £80,000,000 annually. Since that time American travelrhasrinbretzed perhaps fifty per-cent, owing to faster steamers and better accommodations. But it would be perfectly safe to place this estimate now at an annual expenditure of $500,000,000. This is exclusive of the incomes of many wealthy American families who live permanently abroad, and of the incomes of wealthy American girls who have married abroad. Concerning this there can be no accurate or authoritative data procured except eventually by the Government when the income tax is in operation. These figures do not include remittances made by foreigners laboring here, which in the aggregate are very large. In 1911 Hon Elihu Root - 2 - 12-11-13. the Post Office Department records showed that remittances in small amounts of, say, less than $100, showed the aggregate to be above $70,000,000 of *nternational post office money-orders." Fourth: The amount paid by Americans for freight on imports and exports has never to my knowledge, and so far as I have been able to ascertain through my own inquiries, been accurately estimated. MX. Kent will have some figures that you may feel willing to use. The in and out yearly commerce of the United States, however, is nearly $3,000,000,000. If freight payments on account of these shipments only account to 5% of their value, which, of course, is simply a basis and a very hazardous basis of estimate, the freight bills will amount to $150,000,000. My belief is that 5% would be a law, rather than a high estimate of the percentage paid for freights. Of course a negligible proportion of this is paid to American ship owners. I have not mentioned anything in regard to direct credit transactions between This represents a vast the credit institutions of this country and Europe. fluctuating credit. Mr. Kent will be well prepared to supplement the information from data which he has accessible in Washington, and I trust that you will feel entirely free to ask him for anything that will be of any service to you. With personal regards, believe me, Very truly yours, S-W [strong?] r/ (I I )i-04.---` 71- JAMES A. O'GORMAN, N.Y.. CHAIRMAN. R. THORNTON, LA. FRANK B. BRANDECIEE, CONN. M E. CHILTON, W. VA. WILLIAM E. BORAH. IDAHO, SHIELDS. TENN. COB I. CRAWFORD, S. OAK. TRUMAS J JOSEPH L. BRISTOW, KANS. LOS. MONT. CHARLES GEORGE C. PERKINS. CAL. ROBERT L. OWEN OKLA. CARROLL S. PAGE. VT. F. M. SIMMONS * C. 74Cniteb -States OMAS. COLO. FRANK,OLIVER. CLERK. ,,T.enate, COM M ITTEE ON I NTERCICEANIC CANALS. November 11, 1913. My dear Mr. Strong:I have your esteemed favor with enclosure in reference to the Banking and Currency Bill which I have read with interest. You may be sure that the view expressed therein will receive the consideration of the Committee. Faithfully yours, Mr. Benj. Strong, Jr., 16 Wall Street, New York City. /V 47' cmo Al( INTERSTATE TRADE CORMI SS I ON BILL. AMENDMENT IN THE NATURE OF A SUBSTITUTE REPORTED BY MR. NEWLANDS, CHAIRMAN OF THE SUBCOMMITTEE OF THE COMMITTEE =INTERSTATE COMMERCE, TO CONSIDER THE BILL SUBMITTED BY MR. 1NEWLANDS (S. 4160) TO CREATE AN INTERSTATE TRADE COMMISSION, TO DEFINE ITS POWERS AND DUTIES, AND FOR OTHER PURPOSES. FRANCIS G. NEWLANDS, CHAIRMAN. ATLEE POMERENE, JOSEPH T. ROBINSON WILLARD SAULSBURY ALBERT B. CUMMINS FRANK B. BRANDEGEE CHARLES E. TOWNSEND. 63rd CONGRESS. 2nd SESSION. IN THE SENATE OF THE UNITED STATES. AMENDMENT IN THE NATURE OF A SUBSTITUTE INTENDED TO BE PROPOSED BY MR. NEWLANDS TO THE BILL (S.4160) TO CREATE AN INTERSTATE TRADE COMMISSION, TO DEFINE ITS POWERS AND DUTIES, AND FOR OTHER PURPOSES, VIZ: STRIKE OUT ALL AFTER THE ENACTING CLAUSE AND INSERT THE FOLLOWING: That a commission is hereby created and established, to be known as the Interstate Trade Commission, composed of five members, not more than three of whom shall be members of the same political party, and the said Interstate Trade Commission is referred to hereinafter as "the ccmimissien." That the words defined in this Section shall have the following meaning when found in this Act, to wit: "Commerce" means such commerce as Congress has the power to regulate under the Constitution. The term "Corporation" shall include joint-stock asso.4 ciations and all other associations having shares of capital o capital stock,organized to carry on business with a view to profit. "Antitrust Acts" means the Act entitled "An Act to pr tect trade and commerce against unlawful restraints and monooolies", approved July second, eighteen hundred and ninety;also sections seventy-three to seventy-seven, inclusive, of an Act entitled "An Act to reduce taxation, to provide revenue for the Government, and for other purposes", approved August twentyseventh, eighteen hundred and ninety-four; and also the Act en.! titled "An Act to amend sections seventy-three and seventy-six; of the Act of August twenty-seventh, eighteen hundred and nine. ty-four, entitled An Act to reduce taxation, to provide revenue for the Government, and for other purposes,'" approved February twelfth, nineteen hundred and thirteen. SECTION 2. That upon the organization of the Com.. mission, the Bureau of Corporations, and the offices of Commissioner and Deputy Commissioner of Corporations shall ill cease to exist, and the employees of said bureau shall become employees of the commission in such capacity as it may designate. The commission shall take over all the records, furniture, and equipment of said bureau. All work and pro ceedings pending before the bureau may be continued by the commission. All appropriations heretofore made for the support and maintenance of the bureau and its work are hereby authorized to be expended by the commission for said purposes. it 1H SENATE #4160. non The Bureau of Corporations and the offices of Commissioner of Corporations and Deputy Commissioner of Corporations are, upon the organization of the conmassion and the election of its chairman, abolished, and their powers, author.. ity, and duties shall be exercised by the commission free from the direction or control of the Secretary of Commerce. Any commissioner may be removed by the President for inefficiency, neglect of duty, or malfeasance in office. A vacancy in the commission shall not impair the right of the remaining commissioners to exercise all the powers of the commission. The commissioners shall be appointed by the President, by and with the advice and consent of the Senate. The terms of office of the commissioners shall be seven years each. The terms of those first appointed by the President shall date fro the taking effect of this Act, and shall be as follows: One shall be appointed for a term of three years, one for a term of four years, one for a term of five years, one for a term of six years, and one for a term of seven years; and after said commissioners shall have been so first appointed all appointments, except to fill vacancies, shall be for terms of seven years each. The commission shall -elect one of its members chairman for such period as it may determine. The commission shall elect a secretary and may elect an assistant Said secretary and assistant secretary shall hold secretary. their offices or connection with the commission at the pleasur of the commission. Each commissioner shall receive a salary The secretary of the commission shall re of $10,000per annum. .ceive a salary of $5,000. per annum. The assistant secretary In case of a shall receive a salary of $4,000. per annum. vacancy in the office of any commissioner during his term, an appointment shall be made by the President, by and with the advice and consent of the Senate. to fill such vacancy, for the unexpired term. The office of the commission shall be in the city of Washington, but the commission may at its pleasure meet and exercise all its powers at any other place, and may authorize one or more of its members to prosecute any inquiry. The commission shall have such attorneys, examiners, special agents, and other employees as may, from time to time, be appropriated for by Congress, and shall have authority to fix their compensation. With the exception of the secretary and assistant secretary and one clerk to each of the commissioners, and such attorneys, examiners, and special agents as may be employed, all employees of the commission shall be a part of the classified civil service. The commission shall also have the power to adopt a seal, which shall be judicially noticed, and to rent suitable rooms for the conduct of its work. The Auditor for the State and other Departments shall receive and examine all accounts of expenditures of the commission. SENATE #4160 SECTION 3. among others- That the commission shall have power To investigate the organization, business, financial conditions, conduct, management, and its relation to other corporations, of any corporation engaged in commerce. To require any corporation subject to the provisions of this Act to furnish to the commission information, statements, and records concerning its organization, business, financial condition, conduct, management, and relation to other companies, and to require the production for examination of all documents, correspondence, contracts, memoranda, or other papers relating to the commerce in which such corporation under inquiry is engaged. To prescribe as near as may be a uniform system of annual reports for different classes of corporations subject to the provisions of this Act, and to fix the time for the filing of such reports, and to require such reports, or any special report, to be made under oath, or otherwise in the discretion of the commission. To make public, in the discretion of the commission, any information obtained by it in the exercise of the powers, authority, and duties conferred upon it by this Act, and to make annual and special reports to the Congress and to submit therewith recommendations for additional legislation. To make, from time to time, rules, regulations and classifications of corporations subject to this Act, for the purpose of carrying out the provisions of this Act. (0 In any suit in equity brought by or under the direction of the Attorney General as provided in the antitrust Acts, if the court finds for the complainant it may, upon its own motion or the motion of any party to such suit, refer the matter of the form of the decree to be entered to the commission as a master in chancery; whereupon the commission shall proceed in that capacity upon such notice to the parties and upon such hearing as the court may prescribe, and shall as speedily as practicable make report with its findings to the court, which report and findings having been made and filed shall be subject to the judicial procedure established for the consideration and disposition of a master's report and findings in equity cases. (g) Wherever a final decree has been entered against any defendant or defendants in any suit brought by the United States to prevent and restrain any violation of the antitrust acts, the commission shall have power, and it shall be its duty, upon its own initiative or upon the application of the Attorney General, to make investigation of the manner in which the decree has been or is being carried out. It shall transmit to the Attorney General a report embodying its findings as a result of any such investigation, and the report shall be made public in the discretion of the commission. (h) If the commission believes from its inquiries and investigations, instituted upon its own initiative or at the suggestion of the President, the Attorney General, or either House of Congress, that any corporation has violated any law of the United States regulating commerce, it shall submit its findings and the evidence in relation thereto to the Attorney General. For the purpose of prosecuting any investigation or proceeding authorized by this section the commission, or ito duly authorized agent or agents, shall at all reasonable times have access to, for the purpose of examination, and the right to copy any documents or writings of any corporatio being investigated or proceeded against. SEC. 4. That the powers and jurisdiction herein conferred upon the commission shall extend over all trade associations, corporate combinations, and corporations as hereinbefore defined engaged in or affecting commerce, except banks and such common carriers as are subject to control by the Interstate Commerce Commission. SEC. 5. That any person Who shall wilfully make any false entry relating to commerce in any book of accounts or record of any corporation subject to the provisions of this Act, or who shall wilfully make or furnish to said commission or to its agent any false statement, return, or record, knowing the same to be false in any material particular, shall be deemed guilty of a misdemeanor, and upon conviction thereof shall be punished by a fine not exceeding $1,000 or by imprisonment not exceeding one year, or by both said punishments, in the discretion of the court. Any employee of the commission who divulges any fact or information which may come to his knowledge during the course of his employment by the commission, except in so far as it has been made public by the commission, or as he may be directed by the commission or by a court, shall be deemed guilty of a misdemeanor, and upon conviction thereof shall be punished by a fine not exceeding $5,000, or by imprisonment not exceeding one year, or by both said punishments, in the discretion of the court. That for the purposes of this Act, and in aid of its powers of investigation herein granted, the commission shall have and exercise the same powers conferred upon the Interstate Commerce Commission to subpoena and compel the attendance and testimony of witnesses and the production of evidence, and to administer oaths. All the requirements, obligations, liabilities, and immunities imposed or conferred by the Act to regulate commerce, as amended, in relation to testimony before the Interstate Commerce Commission, shall apply to witnesses, testimony, and evidence before SEC. 6. the commissicn. That the district courts of the United States the commission alleging a failure by any corporation, or by any of its officers or employees,or by for any witness, to comply with any order of the commission SEC. 7. upon the applicaticn of the furnishing of information, shall have jurisdiction to issue such writs, orders, or other process as may be necessary to enforce any order of the commission and to punish the ; disobedience thereof. That the several departments and bureaus of the Government, when directed by the president, shall furnish the commission, upon its request, all recorde,papers, and information in their possession relating to any corporation subject to any of the provisions of this Act, and shall detail from time to.time such officials and employees to the commission as he may direct. SEC. 8. , That no corporation shall engage in commerce SEC. 9, if upon its board of directors or other managing board or is a among its officers there is any person whoboard,member of or one of the board of directors, or other managing ne officers of another corporation engaged in commerce and :arrying on a competitive business: PROVIDED, HOWEVER, That no suit or action, civil or criminal, shall he instituted to -nforce this section against any corporation having such ommunity of directors or officers which, within one year _fter the passage hereof, files with the commission, or, if a common carrier, with the Interstate Commerce Commission, a petition alleging that the business of the corporations involved is not in fact competitive, or that if competitive in any degree the community of directors or officers, or both, does not destroy or impair substantially competitive condiions as to such corporations and which petition is sustained or y a finding of the commission, in the one case,the the InterUpon filing tate Commerce Commission, in the other. any such petition the commission, or the Interstate 01Commerce Commission, as the case may be, shall proceed with all practicable dispatch to make inquiry respecting the It shall immediately give notice of the filing of the eame. ,..etition to the Attorney General, who shall have the right to The appear and oppose the granting of the order asked. hearings shall be open, and both the petitioner and the AttorAnyone ney General shall be permitted to offer evidence. engaged in The commission, or the Intermay appear and be heard. business competitive state Commerce Commission, as the case may be, may also consider whatever facts it may have discovered in any inwith that vestigation which under the law it is given the power to make. of the peIf such finding of the commission or Interstate Commerce titioner Commission be against the petitioning corporation, the commission, or the Interstate Commerce Commission, as the 1 case may be, shall fix a reasonable time, not exceeding three months, within which time the corporation may bring itself into conformity with this section; and until the expiration of the time so fixed no suit or action, civil or criminal, shall be instituted to enforce the provisions Upon notice and hearing, any such findof this section. ing may be changed, if there is a change in the conditions formerly passed upon; and the prohibition against suit or action to enforce this section shall continue only SO long as a finding of the commission, or the Interstate Commerce Commission, as the case may be, in favor of the petitioning corporation, remains: PROVIDED FURTHER, That the finding of the commission, or the Interstate Commerce Commission, as the case may be, shall have no force or effect in any suit, civil or criminal, brought under the Act of Congress entitled "An Act to protect trade and commerce against ,unlawful restraints and monopolies," approved July second, eighteen hundred and ninety. H , I That no corporation shall engage in commerce SEC. 10. if it owns, holds, or controls, directly or indirectly, the whole or any part of the capital stock or any other means of control of any other corporation carrying on a competitive business: PROVIDED, HOWEVER, That no suit or action, civil enforce this section or criminal, shall be against any existing corporation which within one year after the passage hereof files with the commission or, if a common carrier, with the Interstate Commerce Commission, a petition alleging that the business of the corporation whose stock or other means of control it owns, holds, or controls is not in fact competitive, or that if competitive in any degree such ownership, holding, or control does not destroy or impair substantially competitive conditions between such corporations, and which petition is sustained by a finding of the commission, in the one case, or the Interstate Commerce Commission, in the other; nor shall any such suit be instituted to enforce this section against any corporation organized after the passage hereof and which proposes to own, hold, or control, directly or indirectly, the whole or any part of the capital stock or other means of control of any other corporation which, before it begins business or acquires such stock of another corporation files with the commission or the Interstate Commerce Commission, as the case may be, a petition alleging that the business of the corporation whose stock or other means of control it proposes to acquire is not in fact competitive, or that if competitive in any degree the proposed ownership, holding, or control would not destroy or impair substantially competitive conditions, as between such corporations, and which petition is sustained by a finding of the commission or the Interstate Commerce Commission, as the case may be. In either case the finding of the commission or the Interstate Commerce Commission, as the case may be, may be, from time to time, changed if there is a change in the holdings or acquisition of such capital stock or other means of corporate control, and the prohibition against a suit to enforce this section shall continue only so long as a finding of the commission or the Interstate Commerce Commission, as the case may be, in favor of the petitioning corporation remains. !Upon the filing of any such petition the commission shall proceed with all practicable dispatch to make inquiry respecting the same. It shall immediately give notice of the filing to the Attorney General, who shall have the right to appear and oppose the granting of the order asked. The hearings shall be open, and both petitioner and Attorney -General shall be permitted to offer evidence. Anyone engaged in a business competitive with that of the petitioner may appear and be heard. The commission or the Interstate ,Commerce Commission, as the case may be, may also consider i[whatever facts it may have ascertained in any investigation, which, under the law, it is given the power to make. If in any such case the finding of the commission or the Interstate Commerce Commission, as the case may be, shall be against the petitioning corporation, the commission or the Interstate Commerce Commission, as the case may be, may fix a reasonable time within which the corporation shall bring itself into ! conformity with the law, and until the expiration of the time 'so fixed no suit shall be instituted to enforce the provisions instituted to of this section; PROVIDED FURTHER, That no finding of the commission under this section shall have force or effect in any suit, civil or criminal, brought under the Act of Congres entitled "An Act to protect trade and commerce against unlawful restraints and monopolies," approved July second, eightech hundred and ninety. SEC. 11. That it shall be unlawful for any corporation to own, hold, or control, directly or indirectly, the whole, or any part of the capital stock, or other means of corporate control, of two or more corporations engaged in commerce and carrying on a competitive business; PROVIDED, HOWEVER, That this section shall not apply to a corporation organized to conduct a distinct independent business, and which owns, holds, or controls the stock, or other means of corporate control of competitive corporations solely as an investment and not as a means of or for the purpose of controlling the corporations, or either of them, whose stock it owns, holds, or controls, for the purpose of destroying or. impairing competitive conditions as between such corporations; PROVIDED FURTHER, '-lhat no suit, civil or criminal, shall be instituted to enforce this section against any existing corporation which within one year after the passage hereof files with the commission, or with the Interstate Commerce Commission if the capital stock or other means of corporate control is that of common carrier corporations, a petition alleging that the business of the corporations whose stock or other means of control it owns, holds, or controls is not in fact competitive, or that if competitive in any degree does not destroy or impair substantially competitive conditions as to such corporations, and which petition is sustained by a finding of the commission or the Interstate Commerce Commission, as the case may be, nor against any corporation organized after the passage hereof and which proposes to acquire the capital stock or other means of corporate control of two or more corporations engaged in commerce, and which, before such acquisition, files a petition with the commission or the Interstate Commerce Commission, as the case may be, alleging that the business of the corporations whose stock or other means of corporate control it proposes to acquire is not in fact competitive, or that if competitive in any degree such acquisition and ownership would not destroy or impair substantially competitive conditions as to such corporations, and which petition is sustained by a finding of the commission or the Interstate Commerce Commission, as the case may be. Upon the filing of any such petition, the commission or the Interstate Commerce Commission, as the case may be, shall proceed with all practicable dispatch to make inquiry respecting the same. It shall immediately give notice of the filing of the petition to the Att ormey 'General, who shall have the right to appear and oppose the granting of the order asked. The hearing shall be open, and both the petitioner and the Attcrney General shall be permitted to offer evidence. Anyone engaged in business competitive with that of the petitioner may appear and be heard. The commission may also consider whatever facts it may have ascertained in any investigation which, under the law, it is given the power to make. The commission or the Interstate Commerce Commission, as the case may be, shall have the power to change its finding from time to time if the conditions change, and the prohibition against a suit or suits to enforce this section shall continue only so long as the finding of the commission or the Interstate Commerce Commissiontas the case may be,upon the issue hereinbeforp stated continues to be in favor of the petitioning corporation If as to any existing corporation the finding of the commissio or the Interstate Commerce Commission, as the case may be, is against the petitioner the commission or the Interstate Corn- merce Commission, as the case may be, may prescribe a reasonable period within which the petitioner shall bring itself into conformity with the provisions of this section, and no suit shall be instituted to enforce the section until the expiration of such period; PROVIDED FURTHER, That no finding of the Commission or the Interstate Commerce Commission, as any suit, the case may be, shall have any force or civil or criminal, brought under the Act of Congress entitled "An Act to protect trade and commerce against unlawful restraints and monopolies," approved July second, eighteen hundred and ninety. effect in SEC. 12. That no corporation having capital stock or shares of capital stock shall engage in commerce among the States or with foreign nations if it hereafter issues or authorizes to be issued any capital stock or shares of capit stock without requiring the same to be paid for in full at pa in money, property, or services, or contrqcted in writing to be so paid for at a fixed time by a responsible subscriber or subscribers. If any such corporation having capital stock or capital stockpurooses to accept property or services in payment of any subscription to this stock or shares of capital stock, it shall file with the commission or with the Interstate Commerce Commission,if it be a common carrier corpor ation, its petition setting forth the stock proposed to be is sued and the property or servlces proposed to be taken in payment of the same,and thereupon the commission or the Interstate Commerce Commission,as the case may be, shall make investigation of the actual value of said property or services and shall certify the same to the said corporation. Whereupon the property or services may be received in payment for said stock or shares of capital stock at the value ascertained and fixed by the Commission or the Interstate Commerce Commission, as the case may It shall be unlawful for any corporation having capital be. stock or shares of capital stock to receive any property or services in payment for stock or shares of capital stock at ay greater value than that fixed by the commission or the Interstate Commerce Commission, as the case may be; PROVIDED, That nothing herein contained shall be construed to authorize the acceptancenin payment of any stock or shares of capital stock of any property, services, or thing of value contrary to the laws of the State in which the corporation is organized. shares of Sections nine, ten, eleven, and twelve shall SEC. 13. apply to all corporations engaged in or affecting commerce, except banks and banking institutions. SEC. 14. From and after two years after the passage of this bill.it shall be unlawful for any common carrier engaged in commerce to enter into any contract for the disposal or acquisition of stocks or bonds or other securities with a other corporation or to sell or lease any property 1) any othel corporation, or to purchase or lease any property from any other corporation if, at the time, there is among the officers or board of directors or other managing board of the common car-0 rier so engaged in commerce any person or persons among the officers or upon the board of directors or other managing board of such other corporation. It shall likewise be unlawful for any common carrier engaged in commerce to enter into any contract for the disposal or acquisition of stocks or bonds or other securities with any person, partnership, or unincorporated banking institution, or to sell or lease any property to any person, partnership, or ' unincorporated banking institution, or to purchase or lease any property from any person, partnership, or unincorporated 'banking institution if, at the time, such person or any member of such partnership or any member of such unincorporated banking institution is one of the officers or one of the board of directors or other managing board of such common carrier so engaged in commerce. ! SEC. 15. That any person, copartnership, association, or corporation which shall be injured in his or its business or partnership by any person, copartnership, association, or corporation, by reason of anything forbidden by sections ten, eleven, twelve or thirteen of this Act, may sue therefor in any district court of the United States in the district in which the defendant resides or is found, without respect to the amount in controversy, and shall recover threefold the damages by him or it sustained, and the cost of suit, including a reasonable ,attorney's fee. SEC. 16. That whenever any suit or proceeding in equity is brought by or on behalf of the United States, under any of the antitrust laws, the statute of limitations in respect of each and every private right of action arising under such antitrust laws, and based in whole or in part on any matter complained of in said suit or proceeding in equity, shall be suspended during the pendency of such suit or proceeding in equity. SEC. 17. That any suit, action, or proceeding under the antitrust laws against a corporation may be brought not only in the judicial district whereof it is an inhabitant, but also in any district wherein it may be found. SEC. 18. That subpoenas for witnesses who are required to attend a court of the United States in any judicial idistrict in any case, civil or criminal, arising under this or the antiturst Acts, may run into any other district. SEC. 19. That whenever a corporation violates any of the provisions of this Act, the oflense shall be deemed to be also that of the individual directors, officers, and agents of such corporations authorizing or ordering any of such prohibited acts, and upon conviction thereof they shall be deemed guilty of a misdemeanor and punished by a fine not exceeding $5,000. or implisonment not exceeding one year, or by both said punishments, in the discretion of the court. SEC. 20. That the several district courts of the United States are hereby invested with jurisdiction to prevent and restrain violations of this Act in the manner provided by the Act of July second, eighteen hundred and ninety, entitled "An act to protect trade and commerce against unlawful restraints and monopolies." SEC. 21. That nothing contained in this Act shall be construed to prevent or interfere with the Attorney General in enforcing the provisions of the antitrust Acts or the Acts to regulate commerce. 1,,,k,41.,e. 01,4 (1; t -12/ --'EODORE E. BURTON. -1frciteA ,.2)tates Senate, WASHIN GTO N , D C. Dec.30,1913 Mr. Benjamin Strong, Bankers' Trust New York CItf.0 / 1913 My dear Mr. Strong: Your letter of the 23rd was lodged here during my absence. I shall be here until Friday night and if you and your son are coming I shall be glad to see you. be out of the city for about ten days. I wish you a very happy New Year and hope your heal th is of the best. Yours sincerely, Thb Afte T"F.ODORE E. BURTON. JfnittY%tates WASHINGTON. D. C December 23rd. 1913. Mr. Benjamin Strong, Bankers Trust Co., New 1:ork. Dear Mr. Strong: Under separate cover I take pleasure in sending a copy of the Conference print of the Banking and Currency Bill. This is the form in which it finally passed the Senate this afternoon and will become a law by the signature of the President this evening. With the compliments of the Season, Yours very truly, I am, ltnite6 -Mates Tenate, WASHINGTON,D.C. Dec.20,1913 Mr. Benjamin Strong, Jr., Bankers' Trust Co., New York City. DErt:2 3 1913 My dear Mr. Strong: Your letter of yesterday is just received. The utter hopelessness of obtaining any amendment to the bill created a certain degree of demoralization. among those who desired to improve it. I presented most of the amendments which I had prepared. to present one, however, namely, the strike out the provision on I omitted proposition to p.67, "except as thus provided, no member bank shall keep on deposit with any non-member bank a sum in excess of ten per cent of its own paid-up capital or surplus." The banking institutions, which do not intend to enter the system, are aware that this is in the bill. The object of itis perfectly plain, namely, to force all banks to become members. If a vote had been taken upon it, it would have been voted down and the democratic conferees in the Senate would have said that the vote was a mandate to them to insist on the retention of this item in the bill. On the other hand, there is a possibility that it may be eliminated in conference. I am trying to ascertain this morning from trust companies here whether any steps are being taken looking to that end. I did not ask for a vote, because I found that the number would probably zrv not be more than 25. This would have given a black eye to the proposition. On the other hand the conviction of a very large majority in the Senate is in favor of a central bank. Mr. Kent has sent me the extract from Sir Edward Holden. I shall be extremely glad to see you and your son during the holidays. My plans are somewhat uncertain, dependent upon the date and recess taken by Congress. My present plan is to be away from Monday night until Saturday morning of next week and then to remain until the 1st of Jaauary. If I am not here my secretary will be glad to see you, though I hope you may be here when I am here. New Year's day has usually been a great holiday in Washington, but the President has decided not to hold the usual reception and that will make the day less attractive. With kind regards. Yours sincerely, T -ODORE E. BURTON. S en ate, WA S H I NGTON D. C December 20, 1913. Mt. Benjamin Strong, Jr., 1241.1i. Bankers Trust Co., DEU2 31913 16 Wall street; New York City. My dear Mr. Strong:Under separate cover I am sending you a copy of the Banking and Currency Bill in the form in which it passed the Senate last evening. The measure is now be- fore the Conference Committee which will doubtless make some changes and it is expected that the bill will be finally acted upon Monday or Tuesday next. called to lines 3 to 6 on page 103? Has your attention been The following para- graph is a material modification of the bill as it came from the Senate CalICUB. Very truly yours, F. 7-000RE E. BURTON. mate, "?.!fnite6 WASHINGTON, D. C. December 18, 1913. Mr. Benjamin Strong, Jr., /4/./y. Bankers Trust Co., 16 Wall street, New York CitypEa11213 My dear Mr. Strong:This is to acknowledge receipt of your letter of the 16th inst. in accordance with which I am sending to you under separate cover several copies of the substitute banking and currency bill which I introduced in the Senate. Doubtless you have seen by the papers\ of this morning the agreement which has been reached regarding the time for a final vote on the bill. Very truly yours, B. . -)DORE E. BURTON. 11niteA States S en ate, WASHINGTON. D. C. Dec. up, 16,44;4913 Mr. Benjamin Strong, Jr., Bankers' Trust Company, New York City. My dear Mr. Strong: Your letter of yesterday is just received. In some remarks published in the Record this morning, at the end I believe, you will find a running dialogue in which numerous members of the Senate participated which will throw light upon the interpretation of the measure and upon the ideas of those who framed the bill. It may be that you will be especially inter- ested in the discussion relating to the use of Federal Reserve notes as reserves by member banks, which is at the end of the discussion. I sincerely hope that you may come over here, although I fear we may be forced to a vote at a much earlier date than has been expected; possibly in a couple of days. Er. Kent has arranged to leave tomorrow at 12:30. I cannot too strongly state how much he has aided me. Very sincerely yours, TEB OIDORE E. BURTON. 'NniteA ,States Senate, WASHINGTON.D.C. Dec .13,1913 _r. Benjamin Strong, Jr., Bankers' Trust Co., New Yoe,- City. My dear Mr. Strong: Your letter of the 12th is at hand. I will have a copy of the &cord sent you immediately. Mere were so many interruptions and so many members who revised their remarks that the speech did not appear until the Record published this morning. I would like to have you look this over and criticise it freely. I am afraid the'Deposit Guaranty" feature is bound to co in. I do not see how the bill can be sufficiently discussed during today and next week. On the other hand, there will be an overwhelming &es:.ure to dispose of the bill in the Senate. Not only is this pressure from the Administration but members of the Senate will resent any delay which will deprive them of their opportunity to go home at the beginning of next week. Can you arrange it to come here next week, if necessary? very valuable assistance and Mr. Per-in is Mr Kent is giving me also her-. I should be glad to have your assistance as well if you can come consistent with your health and other engagements. yours ve T truly, WESTE Farm 168 UNION VVilf TEL Al4 j NA cc'41A WESTERN UNION svr.z W THEO. N. VAIL, PRESIDENT RECEIVED AT the WESTERN UNION BUILDING, 195 Broadway, N. Y. AOIVIS Q115 W 23 ST WASH I gGT ON DC 13 )---) 3 crtr-E-A BENJAMIN STRONG JR BANKERS TRUST CO NEWYORK LETTER RECE I VED MY REMARKS APPEAR IN CONGRESS ONAL RECORD SENT OUT FR OM WASHINGTON THIS MORNING COPY NO DOUBT AVAILABLE IN NEWYORK WILL SEND ONE T E BuRTON T CORE E. BURTON. ,... tate0 Senate, WASHINGTON, ID O. Dedember 8, 1913 Mr. Benjamin strong, Jr., Bankers' Trust Co., New York City. my dear Mr. Strong: 9 t- ^ 1 c t: 1913 Your telegram reached me on Saturday. I regret that you cannot be here, but I fear you would hardly be doing justice to yourself in speWing any very considerable amount of time at Washington.No doubt you have already felt the strain of the pressure and long hours which you were compelled to give to the subject when here. Mr. Bailey and Mr. Kent are exceedingly helpful and are giving all their tire to the question. I should be glad if you could come and possibly circumstances may arise so that T shall really feel it necessary that you be here, in which case I will write or telegraph you. The fact is no one knows when this bill will cone up. Last Friday evenim- at 10:45, Senator Owen sought to bring it before the Senate and have action taken upon it. for a careful discussion is not at all good. I hope you are very well. Sincerely yours, The prospect ZODORE E. BURTON. 2initeA States Senate, WASHINGTON. D C. Dec. %, 1913 Mr. Benjamin Strong, Jr. Bankers' Trust Co., New vol'k City. My dear !Tr. Strong: Ihe list which you give is an excellent one and. I think will answer my intiediate use. I am hoping that you can return here. Frankly srkaking, one disadvantage is that I am so closely tied up with the sessions of the Senate that I have little time for consultation. However, I can arrange to see you. / think it hardly possible that the debate will be concluded this week. Yours sincerely, e yl 16,t/ti In order to place the question of a central bank properly before the Senate, it is essential that it be understood why a central bank he not been considered by the Democratic party at the Has the establishment of a central bank been present time. ignored because those on the House and Senate committees have been convinced that fundamentally it was wrong, and that economically it would not work in this country ? No such reasons have ever been successfully advanced, and cannot be, because they do not What, then, has caused the central bank idea to be thrown exist. The Democratic platform that was written upon the brush-heap ? In Baltimore had as one of its provisions a plank opposing the Aldrich billfor a central bank, or possibly the Aldrich bill or a central bank. No one in the Democratic party seems to know just which way the plank was intended to be drawn, and my colleague from Oklahoma felt called worthy upon, in making his presentation of the banking plan favored by him, to apologize for this lack of knowledge and to claim, but without proof, that his point of view, central bank, was the one really intended by those who drew up the platform. Upon what ground can a party which claims to desire direct primaries, even to the point of having the President of the United States namely, that the plank opposed the Ildrich bill or a elected by popular vote, uphold for one instant the forcing upon the people of a platform that they could take no part in construct- ing, that did not rest with a statement of general principles such as a plvtform is suprosed to do: ment, that the plank opposed a central but, accepting for the bank that would seemingly tie the hands of Democratic legislators concerning a problem which had not been before mo- the ieople, that they un:uestionably K2 knew nothing about, and that could not possibly have been considered in relation to its value to who wrote the plank. the country in the time taken by those The people of the United States, before whom this platform was presented, were in effect disfranchised, because, if they believed in a reduced tariff and a central bank, they were obliged to vote against either one or the other. option in the matter. They had no This being true, is it not fair and only right that the vote of the people which caused the election of our present Administration be analyzed in so far as possible, in order the to find out whether the votes cast were for a reduction in tariff or against a central bank'? I do not believe that It is necessary to do more than suggest this question, for I have no doubt that it will not be denied by Democrat or Beniiblicen that the nuestion of the tariff was the one upon which the people voted who cast their votes for the Democratic ticket. It may also be true that some voters were influenced by the plank opposing the Aldrich bill. But without regard to whether this plank opposed as well a central bank or not, the fact remains that this plank went out before the country in two ways, and more largely, as far as can be determined, in the form that did not oppose a central bank. It cannot be claimed, therefore, that the people who voted the Democratic ticket in November, 1912, opposed the central bank, even if it could be proved,- and apparently it cannot be, as only an apology is offered,- that the platform as written opposed a central bank, for the people, for a moment, might have read without consideration of the This is the other version. tariff a small part of the question, however, for what really concerns the Feople is whether a central bank is the thing that should be established in this country, or some other banking system: and I ask my /' K3 Democratic colleagues, therefore, if they do not feel that their duty calls upon them to vote for a central bank for the United States of America, provided they are convinced in their ovn minds that such that they should an institution is needed in this country, and,spot allow themselves to be swayed by any juggling of a party platform that may have been done, one way or the other, no one knows 'which, at some time during The question of a banking system in this country its prepafation. is not a party question, and should not and it is because I believe that the ultimately be based, not upon party be made a party euestion; votes for a banking prejudices or system will garbled platforms, but upon sound economic reasoning, that I have confidence in pre- central bank plan that I am sure will convince all those who have studied this great subject sufficiently to understand it, that what this country needs, in order to accomplish all of the things outlined by the Senator from Oklahoma in his presentation of the bill which he favors, is a central bank. senting a Mv confidence is the greeter because the principles involved in a central bank plan are so thoroughly recognized by those who constructed the plan favored by the Democratic committee, that they have introduced into this plan the most extraordinary means of endeavoring to have a central bank without letting anyone know it that have ever been attempted in legislation. Some of these extraordinary measures I will call to your attention in detail later, and I think you will see that the plan recommended by the portion of the Banking and Currency Committee of the Senate headed by the chairman is nothing but a central bank with some of the most vital advantages of such an institution so bound up with red tape and exiensive provisions, that it would fall down in working and bring disaster upon the country. what will prove its practical R4 You will find, upon analysis of the bill, that the Secretary of the Treasury is given a power beyond that accorded the of the United States, the King of England, or the Emperor in his relation to the President financial matters of the country. Secretary of the Treasury, who of elect the man who that he could, of his aproints him, is given such power regional bank, or of all The is not elected by the 1,eople and whose personality is unknown to them when they volition, incollusion with Germany, of own some banker, cause the failure of any them, and could bring a panic upon this country, if he wished to abase the power that he would have, such as has never been seen in the history of the world. deal about We hear a great this matter of before the examining how carefully the House went bankers and others during a long period all of in mind in this connection that the House Committee were lead to or But it form. House bill assumed its final either directly banking believe and given to understand, indirectly, that whatever system, must not must be borne those who testified before testimony offer as to whet this country might need, or as desirable into to they had to what might be a take into consideration the central bank. This being true, is it any wonder bankers who believe in 8 central bank and who know of nothing could take its place, floundered around in their testimony quostion of a that that and gave various and conflicting opinions in their attempts to think of something that might do in place of that which should be Is testimony taken under such conditions of any value ? as the Committee in the Senate on Banking might be best, and ions, even including a central and Currency had shown, desire to understand what the allowed them to freely state their through their questions, a real thought As soon bank, bankers opin- how luickly a central bank K5 Dian was developed, Even those on this Committee who seemincly still felt bound to pay attention to a party plank which was irpossible of exact construction, attempted to build a central They were in such manner that no one would recognize it. ionably divided in their own bank unquest- minds between what they felt the country needed and what they feared their platform might have said. Therefore, with patriotism in their hearts, they endeavored to the ,rinciples of a central bank do the impossible, and embodyin a mongrel institution, rent within itself by regional competitive conditions. bill reference is made to the Pujo investigation, which, on that account, needs brief consideration here. The Pujo investigation was a crime against the :eople In the presentation of this of the United 9tatc,s, not because it WPS an investigation of those interests which were questioned, but because of the manner in which it was carried on. Never before in the history of this country has a Congressional committee deliberately muzzled itself in favor of an individual who was given such powers as were passed to the counsel for that committee. Such an investigation might the country. Instead, Our people were deliberately as it was made it is a great disgrace. mislead into believing that conditions existed that were not iroved, or attempted to be proved, and that they had no means whatever of The people of this land have a right to expect ±xzx checking up. have be-n made with the greatest of benefit to 2211gxaxx that only the truth shall be put before them as the result ocINT432ilgtlons, xxitxtInwarigxwatxraminittxtxxinatImixgx±xxickx xmlutttsxa2xtkmx±xxmxticgsmicomxxx2xtalwrexxx Is it any wonder then that the people of the United States today feel tLe disgrace of such an investigation as was made by the l'ujo committee ? One man, X6 not a member of Congress, was allowed to take testimony in en unfair way that would not be allowed in any Court of any civilized country in the world. The most brutal murdered in the land, when on trial, can obtain a fairer hearing than was accorded any men who appeared before the counsel of the Pujo nommittee, even though such witnesses were supposedly there as citizens of the United States, called before their Congress in order to give information which might aid it in its deliberations, end nbt as criminals even by implication. the point No witness was allowed to answer any question beyond that the counsel for the committee desired, so that no man who appeared before that counsel was able to make a presentation of eny matter about which he was questioned that covered all of the facts, provided counsel for the committee did not wish all of the facts. One matter referred to by Senetor Owen, that developed in this committee, was the question of interlocking directorates. There are mach: there is no doubt of it. fel- the country that we have had intelocking directoretes, or it may not. But counsel for the "AA° committee did not attempt to prove a single case where interlocking directorates had worked hardship to any individual, and from the results of that hearing we do not know today, no matter what we may think, that the system of interlocking directorates as it exists in this country has worked to the detriment of the interests of the people. Inatead, figures were pieced before the country that fairly staggered those who saw them, and yet they were as far from giving a of the facts as it was possible for then to be. true conception Announcement was made far end wide that 180 men, through a system of interlocking directorates, controlled 39 billion of this country. dollars immulueskof the wealth Wes the attentions of the people called to the v/ X7 feet that many of these 180 mon had never met and were unacqueinted with each other ? Was the attention of the people called to the further fact that there were between 1,700 and 1,800 ether directors on the companies that these men were suprosed to control I? Wan the attention of the people caned to the fact that, of the companies / supposed to be controlled by these 180 men, some of them were on the directorates in the relation of one to fourteen, or one to fifteen, or one to sixteen, or one to twenty, or two to sixteen, etc., etc., and that in those comeanies they had actually no control whatever ? Was the attention of the people called to the fact that one director in a company, on e board with twenty directors, was claimed to control that board, not because he ever hed controlled the board, not because he might heve sueerior nbility to the other members, not because he might have hypnotic power over the other members of the board, but merely because he happened to be a director of some other company ? The figures put out by the counsel for the Teljo committee were proved to be wrong in many instances, and in a way that was apparently intended to mislead the people. And yet this man, who in the name of Corgress caused such false statements to be distributed to the people of this country, is even now being consulted as to weet legislation shall be enacted. He was called to aepear before the Senate Committee en Banking and Currency, after having brought disgrace upon the Congrese of the United States, and asked to give testimony concerning legislation when he had forfeited his right to be given any consideration by the representatives of the people. His fitness to consider this banking matter was shown in his testimony, when he stated thet,if the Bank of England wished to make its bank rate effective, it went out in the market and loaned money. Who ever heard of anything so absurd ? e/ K8 Loened money in the market in order to make it more scerce I Nothing further need be said ebout this matter. The investigation was full of fraud and unfairness, and it is referred to here because it seems to have had a tearing in the consideretion of the benking end currency bill, judging from the remarks of Senetor Owen in presenting the bill favored by his half of the committee. Before considering the caucus bill in detail, I will cell your attention to some of the means that have been introduced in it in order to meke it a central tank under cover, and to try to give It the effectiveness of such an institution, and will show you how ohildish and hoe futile they are, and how they cen only result in needless expense and in surrounding our system with greet and unnecessary dangers. Twelve regional banks (or noseibly eight,- the number matters not) are to be established. This is the many-headed hydra that is going to l'event the eeople from finding out wk146 the banking plank in the Democratic platform as construe," by Senator Owen has not been lived ul to. This hyrdo is to defy all those who would claim that a central bank has been established. ,If, in their efforts to bind these heads, those who dree up the bill had succeeded in making the animal as powerful for good and as economic as a central bank, I might vote for it. But, in spite of every endeavor to make the body run the heeds, success has not attended their efforts: and there- fore I oppose, In the interests of the people of the :hilted States, the establishment of this creature of myth, and would lot its bones another coming rest in peace in the centuries tcdriclftxxx a2 Arfairy story with its lessons to comIgg generations. Before considering how these twelve regional banks ere tobe drawn together, let us see what they would represent. We would K 9 probably have one in the manufacturin# district of New England; another in Ne7 York City and its surrour,dings: two in the cotton districts of the South: in the wheat and corn districts of the two on the Pacific Coast. one or possibly one or two, of more, mid,ae west; end one or No one of these regional banks could have e capital of less than $3,000,000, but altogether, based on the present National banking system, the capital is estimated to be $106,000,000. Eclually divided among eight institutions, would mean an average capital of $13,01)0,000. t But on account Lis of the division of the banking cajtP1 of this country, the regional banks in the South would have a conferatively small capital, whereas those in New York and Chicago would have a much larger capital than the average. The regional bank situated in New Orleans might have a capital not to exceed $4,000,000 or E,000,000, and yet It would be wunposed to take care of a district in which cotton is grown, all of which matures within a few months, that would have a value xf probably around 1600,000,000. Is there any necessKity of showing by actual figures how impossible it would be for such an institution to protect its district to The figures speak for themselves. any ar.rreciable extent ? Money would have to be borrowed from other regional banks every season, and along lines that are not as truly economic as those which exist today. This regional bank when borrowing '10401VIAREmoomfrom, say, the New York lumk regional bank, carry a more would credit with it because of its being a regional bank, and it would be only natural that it should find itself or less fictitious able to borrow more from the New York regional bank might strength of its membersmcdadrmake reasonably safe. than the average At present, individual banks in the South borrow of individual banks in the North, in order to market cotton. Loans are made, based upon the K 10 intimate relationships that have been established during years of mutual business. Loans made are based upon financial standing, personality, integrity and ability. The capital of the Southern banks is not sufficiently great to enable them to hsndle the immense proper vrlues in cotton that they are obliged to as af\proi,ortionate proposition. Consequently, it is only because of the close personal understandings between bankers in the South and in the North that it has been possible for them to obtain the credits necessary in order to protect ination on the part There has been no discrim- the Southern people. of the New York banks against Southern banks in demanded by the making of loans, except that sound business judgment. If uny system is established which makes such sound business judgment Are the New York unavailable, it is going to result in disaster. bankers going to be content to carry the reserves of their depositors, that they are now responsible for and will continue to be responsible for after the establishment of any regional banking system, in a regional bank in New York, knowing that such deposits may act as a base for the loaning of sums of money disproportionate to the substantial credit beck of the collateral, upon the demand of a politically constituted board in Washington ? It would not seem that any banker who appreciates his responsibility to his depositors could ,afford to take part in such a system. viciousness of this proposition would be The enhanced to a point where It might be justly claimed that 'New York bankers wer- not living up to their responsibilities if they did become members of such a regional banking system, if the deposit insurance feature of the bill passes. Bankers would know that a false sense of security would necessarily surround such a system and that dishonest and incapable men would unquestionably enter the banking business, http://fraser.stlouisfed.org/ the in Federal Reserve Bank of St. Louis South as well as in other parts of the country, and they Ku would know that many failures would result: and they could see tgat only a very amall percentage of the liabilities of the failed banks might be met from the insurance fund, at least for many years to come. They would know that badly managed and dishonestly officered banks would be established almost immediately, in order to take advantage of the insurance sentiment, and that they would undoubtedly meet with disaster before the fund was built up sufficiently to be of any appreciable protection. They would in effect be on notice that banks of that class would become members of the Southern regional bank, as well as other regional banks, that the paper taken by them would be held by the Southern regional bank, and that such paper would be turned over by this bank to the 'dew York regional bank when the latter was compelled to loan to the Southern regional bank by the Political board in Warthington. And they would know that the New York regional bank might easily meet with tremendous losses if the Southern regional bank failed because of the bud banking that the insurance feature would encourage. What right would these bankers have to deliberately jeopardize the money of their depositors, in order to take part in a system in which they did not believe, even though they.might for patriotic motives wish to be able to do so ? Why is such a dangerous and incomprehensible system necessary ? Only because the mobility that ie inherent in a central bank could not be obtained in a system of regional banks unless some such Power existed as that delegated to the Federal board, giving it authority to demand that one regional bank loan to another. It cannot be expected that eight regional banks, whose stock is owned by different interests,. whose management has nothing in common, and whose business is confined to certain homogenous commercial territory, can be made to work together through the http://fraser.stlouisfed.org/ application Federal Reserve Bank of St. Louis of any supel-ior power whatsoever with the same facility, K12 smoothness and effectiveness that would be true in the case of a central bank with branches in the regional districts. It is inconceivable that it could be true, and the reasons why it w,nnot are almost too apparent to be worthy of consideration. Mobility of reserve's does not mean bringinE them together, but ability to transfer them, without loss of time or friction, from one part of the country to another. How can there be mobility of reserves between eight distinct institutions, each one of which must maintain its own reserve in its own vault, and which are situated in distinct We have three central districts many hundreds of miles apart ? reserve cities under our present system, and in order to bring them together we are going to make eight central reserve cities. For business reasons, influenced by demand and supply and competition for profit, our three central reserve cities have been able to take care of the interests of this country under all normal conditions, even though at times there has been considerable strain. Because they have not been able to do so in times of stress, is one of the principal reasons why we need a new banking and currency system. Oen it be expected that with eight central reserve cities, a politically constituted board can take the place of demond and supply and ordinary business reasons, and erotect our commerce even in normal ti-es I It is very doubtful whether such e transfer of natural power to unnatural power would work, even with our three It is unquestionably true, however, present central reserve cities. that, in order to even approach the mobility of reserves that exist In a central bank, it is necessary to have some such binding force In the case of regional banks. This is the first of tiareegrest attempts to bind the regional banks into a central bank. 13 The second is not as dangerous, but it is more pitiful. An advisory council is to be created, consisting of one member appointed by each regional bank. This council is to take the Place of circulation in the hydra, and is to keep the Federal board in close touch with all of the business conditions that take place. It is to meet four may be said to times a year, so that its he somewhat intermittent, circulation even though letters and various information may be forwarded to the Federal board between Can it be expected meetings. stituted, that an advisory council so con- without power and without responsibility, can keep ictra: a flow of information regarding conditions between the regional banks and the Federal board with sufficient understanding to be effective? Responsibility and power is what gives the necessary impetus to the human mind to make it comprehend conditions. outside and hearing what is going on does judgment. not Standing on the induce effective Its value might be likened to that of the man outside of the ball field, who sees the ball come over the fence and realizes that someone has made a home run, but his ability to stop the runner and the arteries of save the game is not evident. information are the arteries In a central bank of trade, of actual transactions, of daily contact with the business of the country, as seen through eyes which must render decisions based upon what transpires. The pulse of all the markets is felt at all times by those in charge, and not merely four times a year. There is no doubt but that some system of business information must be adopted in order to make it possible for a Federal reserve board in connection with regional banks to be able to operate at all, but how weak is any system in information constantly before such connection in comparison with the the board of a central bank, that is 4// K14 based upon actual commercial transactions and not upon casual conversations and maybe intermittent correspondence. The establishanother ment of this advisory council, however, is merely xx attempt to give the regional system one of the strong features of a central bank. The third great attempt to meet the requirements that would be covered by a central bank is seen in the system of note issue. We are to have eight regional banks, each issuing circulating notes based upon their own standing. To be sure, these notes are to receive a fiat guarantee of the United States government,- fiat because the gold and collateral that the banks may hold ai7ainst the notes does not belong to the Government,- and such guarantee is undoubtodly necessary in the case of a regional bank system. Some of these banks are going to have extraordinary demands made upon them at times, demands that they will have to meet, the aay the law is drawn, whether they are able to do so or not, because every member bank will have the right to demand discounts Up to a certain point, if it can put 14 the collateral, and, if the bank refuses to loan, the Federal board has the right, under the bill, to demand that the loan be made. These regional banks are to loan money, not upon business principles and needs, but based upon a percentage of stock owned by its member banks. This might be called e system of compulsory credit. Nothing like it exists in any civilised country of the world, nor over has existed, so far as 1 know. There is abundant reason why the United States government should guarantee these notes under such circumstances. We cannot have the reople discriminate against the bills of certain regional banks, as they surely would do if the pumaxtas Government did not guarantee them, even though such guarantee is a flat 15 guarantee that might require the makinn of a Government loan to carry out. In the case of a central bank, however, no such guarantee would be necessary. There would be no weak sinc_nters. The reserves of Its offices in every district would al] count for the whole institution. They could be transferred from one branch to another to meet the requirements of trade, without influercing in tny narticular the reserve standing of the bank. An lttemrt to bind the regional banks into some semblance of a central bank in relation to the note issues, lies in the fact that the Federal board Is to issue all of the notes and deliver them, through its agent, to each regional bank that requires them. In the oese of a central bank, the circulatin notes would be dealt account out by the main office to its branches, andlimczybcke,,A of them. ime This would seem to be the only reason why the Federal board A centn,1 bank is to pPss over the notes to the regional banks. which is undoubtedly the reason circulating note ,roier' txammtcxxx there Asstom .) ln" recognized ar being economic A has been an attempt to coy it in res,ect to note issues: but this attempt has only been successful in name and not in eflect. One of the greatest dangers of the whole system lies in this particular feature.and the way in rhiCh those 'ho created the bill have endeavored to graft a central bank system upon the regional banks. To mrke this clear, consider the position of the chairman of a interested in its management, regional bank. He is directly _ . Ka is is, in fact, the active mnnager of a regional bank. largely responsible for the success of its operations, and its solvency must depend upon his ability and judgment. In order to bind this regional bank to the Federal board, in the regional bank system, this chairman is made the agent of such board. He has another office in his own regional bank, with possibly a vault in K 16 which he may hold gold and collateral, that, as chairman of the regional bank, he has turned over to himself as Federal agent for safe-keeping. He also has blank circulating notes in this vault, which he is authorized, as Federal agent, to deliver to himself as chairman of the regional bank, when he, as chairman, hands to himself, as Federal agent, collateral that he has accepted as chairman and that passes his judgment as Federal agent. Supeose a man in the position of chairman of a regional bank finds his institution in an insolvent condition. He would naturally be worried and fearful of the effect upon himself should the bank fail, as it would mean loss of position and loss of prestige. If he knew that in the course of a few days he had maturities that if paid would at least serve to tide him over for a while, he might be tempted to use the gold that he had under his control as Federal agent as security for the note issues of the regional bank, in order to hold up his bank. He might not have any more intent of defrauding thani is true in the case of so many who abuse trusts temporarily, with the full intention of making good later. If the gold so used did not serve to prevent the bank from going into bankruptcy, the United States government, having guaranteed the circulating notes, would be obliged to pay them, for the Feaeral reserve board, representine as it would a creature without assets or liabilities other than the gold and securities which its agents may hold for circulation, turned over by it, and bearing under the law absolutely no responsibility whatever for Its safekeeping, could not meet the notes. Sunk an occurrence might disrupt the whole regional reserve system, for such confidence as the people may have had withdrawn at once. in them would be If during the o eration of the system K17 some credit had been built up among foreign institutions, it would be lost over night. 'These three attempts to make a regional benk system accomplish the things that are basic in a central bank would seem bound to fell and they are unsound in principle. Suppose a regional bank wereealled on by member banks for loans which they desired pieced to their credit, that dep/eted its reserve and made it neces- sary for the regional bank to make good its reserve. If it applied to the Federel board for circulating notes, how could it use these notes? The members who had borrowed of the regional bank did not would undoubtedly ask for notes: they asked for credits. To be sure, theyraw drafts against these credits, and such drafts would be presented to the Federal reserve bank for payment. Gould the Federal reserve bank meet drafts drawn upon it and make its settlements in the clearings, or direct, in Federal reserve notes ? Even if it could do this, if those to whom the notes were delivered did not wish them, they could demand gold or lawful money of the regional reserve bank: so that the power to issue notes would be of no value to the bank under such circumstances. Having considered the three princieal ways in which the regional banks hevo been drawn together for the purpose of endoevoring to give them the powers of a central bank, we will now turn our attention to another Important feature of a central bank organization that there has been no attempt whatever to meet I refer to the ability of e procerly In the regional system. organized central bank to protect the gold supply of a country. ngage in foreign exchange business. They Repione1 banks may may all have balances abroad, Ana may buy bills. They may all establish branches in foreign countries. Their division of X 1.8 standing and of power extends to the vo^y last act possible in foreign exchange. And yet this is one of the most important functions of n public utility banking system. Has it been a more oversight that this imortant feature of bunking has not had attention ? Very likely not. There is more reason to sup-ose that those who framed the regional bank system could not solve the problem, and consequently let it go by default. It is not to be wondered at that they did so, for there does not seem to be any way that the regional banks could be forced to deal with each other in forei n exchange that would be fair and satisfactory to them all, or that would give them the facility and power that would be true with a central bank. Even if some plan were thought out that would aeom to make the transfer of foreign exchange either purchased or held between institutions in times of itress, in such manner ta' would enable the exchange to be used for the protection of our gold supply, or to cause the import of gold, it would still be impossible to handle ouch balances economically and satisfactorily. The manager of the foreign department in each regional bank would naturally lay his plans to protect his own institution in so far as posnible. He would have to regulate his own Situation, based Ilion his ability to buy bills, his ability to carry them and dispose of them. 'With the managers of eight different regional banks in different parts of the country doing their foreign business along such lines, they might be using the best of judgment, a far as their own banks were concerned, and yet might be working against each other in such manner that, in cane of emergency, the banks as a whole -aould he helpless. In a central bank, te manager of its foreign business could regulate his balances Et all times as the occasion demanded, http://fraser.stlouisfed.org/ ld could buy bills and hold them, and dis;.oso of them, in an Federal Reserve Bank of St. Louis K19 economic manner, and in a way that would serve to Frotect our gold supply to the greatest extent posaible. Unquestionably V:e regional banks would make great losses in forei7n exchange, if any way were found to force their foreign resources into one channel in case of emergency. It is hard to understand how it is possible for anyone who has studied the subject to favor regional banks over a central bank, for this rearon alone. The value to tae country in having a central bark that could °aerate intelligently and effectively in tc international movement of gold, is almost inestimable. In 1907 we were given to understand in this country by French bankers that the Bank of France would be glad to loan gold to this country if there werearw way that it could do so. This meant that if we had had a central bank, the Bank of Franoe would have loaned gold to it direct. rot being able to do that, the Bank of FrAnce loaned gold to the Bank of England, and we then obtained gold from London,- a roundabout and expensive method, for the Bank of France had to have It interest, which was undoubtedly reflected in the Bank of England rate, which went UD Oonld it be expected that the to 7%, and in the price of gold. Ban of France would have been any more willing to loan gold to regional banks that might have been established in this country, than to some of the great banks in New York, whose capital and standing werF(s great or greater would have been ? than that of any regional bank Which regional bank would the Bank of France have picked out to whom to make the loan of gold ? Undoubtedly the New York regional bank would have been selected, as that would have been the safest instihada the largest capital and would apparently tution to deal with. But if the :Tow York regional bank had been forced to make loans to other regional banks, the conservative men http://fraser.stlouisfed.org/ connected Federal Reserve Bank of St. Louis with the Bank of France would never have considered have K20 dealing with it in such It would naturally be opposed manner. to doing so in any event, for if our regional banks had eight offices doing bus i ne s si in keris 134QtaattWINIWoNingazikixaEaxamtx)brzabacillixt would recognize them only as competitors French banks and would naturally organized disposed to help them out operations of the eight branch not feel In following the of difficulty. of regularly it regional banks, some of which would of necessity be picayune and not of a kind that would give them any be quite natural the regional Jamt banks by for the conservative the weakest link as they would know that the strongest in standing, it French As a matter of fact, this bankers to judge the chain, And particularly regional bank could be forced to take ± over the weakest in effect, should so demand. would the political board condition would probably already have developed before any necessity arose for borrowing the gold. It seems that great stress is laid upon the system of a examinations that is to take place in keeping the regional banks up to a proper standard. would be of value. There is no doubt that such examinations But it must be remembered that an auditor can only examine transactions which have actually taken place in a bank. He can only be a human being and is not therefore possessed with zit the power of foresight to determine whet g transactions may be made in the future and rule against them. ation a banker might consummate a The day after an examin- transaction that would result in serious loss to the bank, and no system of examinations can be devised that could do more than discover the loss after it had been made. If an examiner were appointed to pass upon every transaction as it was being made, he would naturally become another officer of the bank in effect, and would lose his entire point of K21 view as an examiner, for he would be passing judgment on new transactions instead of ceoking UP old ones from an unprejudiced and impartial standpoint. )7e must not delude ourselves, therefore, with the idea that a regional bunk x can operate without loss, any more than is true in the case of any other banking institution. The system of publiolty provided would very likely jeopardize the standing of certain of V.° regional banks occasionally, for it is required that they publish, not alone the ordinary matters that bankers are obliged to advertise, but as well the If it so happened that such maturimaturity of all their paper. ties at some certain period seemed to be too far into the future, the solvency of the bank might be questioned by the general public, even though the bank was in good condition. row, if the general public did become frightened concerning the standing of a regional bank, what would be liable to occur ? The first thing that they might do would be to draw tier balances from member banks, because they would know that, under the law, the member banks cou1d not reduce their reserve with the regional bank, and that if the regional bank failed, the member bank was certain to meet with a loss and, in-any event, would have its funds tied up. With whom would member banks de business in case a regional bank failed ? Would they not be left helpless and entirely dependent upon their metropolitan oorrespondonts, as at present ? This being true, the relations between bunks throughout the country and their metropolitan correspondents must be maintained as they are today, for member banks certainly could not ex fact to obtain discounts from correspondents with whom they had not maintained sufficient balances to warrant them in asking for accommodation. The ability of member banks to ask for accommodation under such K LE circumstances would be weakened by the amount of money they had withdrawn from their metropolitan correspondents in order to place it with their regional bank. Under the law, in case of the suspension of a regional bank, all of the other regional banks would be obliged to open offices in that district. If they could do so in time to protect the community, which is doubtful, with which one of these regional banks would the member banks of the failed bank do business ? And if member banks had borrowed of the failed kallk regional bank, and had put up all of their commercial paper as collateral, how would they borrow from the new regional bank do business ? Such with whom they borrowings would unquestionably undertook to have to be made to the full amount that the member banks were required to keep as reserve in regional banks before they could obtain any credits upon which to do their daily banking business. Nothing is stated in the bill as to where a member bank would stand in case of the suspension of a regional bank, which is a presumition that a settlement would have to be made as under the present law. come to h But the disaster that would district in case of the failure of a regional bank can easily be comprehended, particularly if any large proportion of the banks in a district become member banks. to increase the confidence of depositors Would this knowledge tend in member banks ? As already stated, the power to issue circulation might not help a regional bank at all, even in case of a condition of temporary incolvency that might develop because of slow assets. In case such a condition was brought about through actual losses sustained, nothing could help the situation. There need be no comparlson made of this situation in the caaae of a central bank, because no such regional trouble could ever develop. With the insurance feature incorporated in the bill, probability that the capital of a regional bank there is a real X23 might be entirely wiped out through losses made through the extension of loans to member banks organized by dishonorable men in order to obtain debosits, through the advertisement to the public that delosits made with them were insured. Suppose, for instance, that a case such as that of the failure of Knight, Yancey & Co., of Decatur, Alabama, should occur. It has been estimated that something like $30,000,000. of forged bills of lading were issued. Should the regional bank in the cotton district be loaded up with forged bills of lading, which might easily occur, its capital could be wiped out over night. The same would be true were forged bills of lading accepted in any other regional beau, for their capital would be extremely smell in comparison with the business that would naturally go through them. Of course, if it is not exlected that these regional banks will take any arpreciable part in the business of the districts in which they are situated, this feature need not be considered: but in such case the regional banks would be of no value to the community and serve no puri.ose. This would undoubtedly be the case, in any event, for in many of the regional districts the member banks would have a larger capital than their regional bank, and they would untuestionably prefer to curry on their business themselves, in their own way, and continue their relations with their metropolitan correspondents. Of course, they wobld be obliged, if they became member banks, to curtail the value of their accounts with their metropolitan corres/ondents, which would be another reason why banks would hesitate to take part in the system. We will now consider the bill in deteil. X24 Page 2, Line 25. In a regional reserve system it will very likely be necessary to readjust districts occasionally. Should this be done, what effect is it going to have upon ti,e business of the communities ? Mile the readjustment might benefit sorie certain districts, it would unquestionably injure others. portions of the .Lolitical pull might be exercised most powerfully in order to change these districts, as has been done in many States of the United States where gerrymanders have been made by legislators that have seriously affected the rights of the people. Such a condition could not exist under ti e organization of P central bank. Te 3, Lines 8 - 12. Competition for .tie location of Federal reserve banks will inevitably arise, if it has not already. This will be peculiar to a regional bank system, where the location of regional banks may be expected to be permanent, as contrasted with the case of a central bank, where it may be exected that branches or sub-branches will ultimately be established in all cities and sections where branches are warranted. -.A.p.ek 3, Lines 17 - 23. If every one of t}.e eligible banks of the country is required to signify its acceptance, within sixty days, of the terms of the Owen bill, it may be found that a large proportion of our National banks will elect forthwith to terminate their National bank charters and withdraw from the system. The consequences will be serious and may cause disaster. Every Untional bank, upon 25 surrendering its charter, is required to deposit lawful money for redemption of its circulation. A considerable withdrawal by National banks will cause an instant withdrawal of lawful money from circulation, which may only be restored by the instant retirement of the bank notes, and as to the bank surrendering its circulation, the enforced contraction on its part may only be restored by V4 sale of its Government bonds. the immediate Tlith over 1700,000,000. of the Government's funded debt pledged to secure bank notes, there is no means of measuring the extent to which the offering of Government bonds may not only impair their morket value, but give rise to distrust and unsettle the country. There is very little probability that the organization committee can take the testimony authorized and make the examination necessary in order to determine a fair apportionment of districts throughout the country, within sizty days after the Act is tossed. National banks, therefore, will be obliged to determine whether they wish to become member banks of s regional system without knowing in what district they may be located, and it is conceivable that districts might be so determined upon that it would be very serious matter to a bank as to which district it was in. This might be particularly true in the case of banks located near the lines of dentrkation of the districts. The fact that this could be true shows on its face that a regional system cannot be vs fair a system for all banks as a centrel bank system. Page 4, Lines 11 - 17. This provision is going to increase the liability of owners of National bank stock, without their consent. When an individual ourchases National bank stock, he understands that it K26 carries with it n double liability, and no more. To him it represents s contract, authorized and approved by the G:vernment of tl:e United States. He is now to be told that this contract will not be carrio out and thet he must possibly suffer serious loss beceuse of being obliged to liquidate his bank before the termin- ation of its chertert or assume not alone the unknowe libilities that may attach to an exoerimental system of bankin, seen as has never bean tried in any country in the civilized world, but as well, his stock in effect wil: bear an additional liability to the extent of 6i of its , ar valne, plus 6 of the book value of the surplus of the bank in which he ov,ns etook. In other welds, ee will have 8 double liability unon 94590 of his stock, and a triple liability upon 6:4?, Plus a triple liability uron such further percentage of his stock as tLe proportion between the surplus of the The conditions under which the stock of the bank and it capital. reoional bank is purchased are not such as prevail in the ordinary purchase of stock, because it cannot be sold, which meo,ne a permanencentfges mentioned until the ently Increesed liability of ' bank is liquideted nxmiexfmxxxxx=exDtxpoomme. -Rae 4, Linos 18 - 2. The penalty for failure to signify acceptance of the Owen bill within sixty dais is severe. No one of the banks in the fifty reserve and central reserve cities may retain the deposited reserves of other lational banks, should it fail to formally accept the provisions of the Owen bill within sixty days 435,0J0,000. of redeosited reserves are liable of its passage. to arbitrPry shift within ninety days. by virtue of this provision. What may we expect to occur to our credit situation, should any K27 considereblo portion of these reserves require to be shifted ? The complioations involved in this Proposition are rather interesting, but, as uncertainty in business conditions ordinarily causes more friction than knee/ledge of really adverse conditions, this might be an extremely disturbing factor. For instance, suppose a National banker in a central reserve øity agreed to become a member bank In a regional syetem before the expiration of the sixty day's. Be could not figure upon bow much of his reserve deposits he might lose, boceuse he would not know how many of the banks who maintained their reserves in his bank were going to join the regional system. Such of his depositors as did join the eyetem would Lev() to withdraw a portion of their funds from his bank. Those who decided not to join the system, but instead were going to take out State charters, miEet be able to continue their belences with him, eRviee them act as reserve under the laws of the State in which the eelositors were ituated: or, such State law might not enable the State banes to count as reserve, delosits in his bank. le would hove no means whatever of determining where ee was going to stand or how bis Agein, suppose this banker deposits were going to be affected. did not wish to join the regional system, he could not even then figure out how his deeosits would be affected, for he would not know how many of his depositors might become member banks in the district regional bank, nor Low many might become State banks. If all of his correepondeasts gave up their lational charters, he might still retain his deposits, even though he refused to become e member bank. ''hen consider the position of a Uationel banker outside of a reserve city. If he went into the system and his reserve agent did not, he oul" have to find a new reserve agent during the time that the transfer of 611 reserve deposits from reserve agents to the K 28 regional banks was being cafried out. Fe might not wish to open up an account with the particular banks in his reserve city who might have signified system. their willingness to go into the regional He would then lose the benefit of his years of connection with his reserve bank, or be obliged to transfer the whole of his reserve deposits to the regional bank at once. If he reorganized his bank as a State bank, he might be able to retain his account with his old correspondent and count his funds as reserve without regardNigt to whether that correspondent joined the system Or not. This 035,000,000., therefore, would be subject to the most peculiar reserve system of possible fluctuation imaginable. No/sbanker could tell, to save his life, how to handle his funds. His only safety would lie in leimediately beginning to curtail his loans and get sufficiently strong in cash to enable him to meet any contingency that might arise. Under the central bank plan nothing of this kind could occur. May we not likewise expect the withdrawal of some portion or all of the 00,000,000. of the general fund now held by Government depositaries, following their failure to comply within sixty days ? that the -7,500 Netional banks of this country, by a without means of united action, shall decide within sixty Is it intended referendum, days whether $625,000,000. of credits in this country shell be arbitrarily shifted from one section to another, or one set of be the effect of such a requirement as is contained in the bill ? Institutions to another: illge 5, Lines 1 - 14. and what will This penalty apearently not being severe enough, it is nroeosed that any Iletional bank failing to comply with the provisions of the act within one year, shall forfeit its charter and be liquidated. K29 The only relief afforded tl the National bank so to be liquidated Is in a determination by any Court competent for jurisdietion in a suit brought for the purpose of liquidation. May it be expected that any National bank subject to the orening and hazard of such a suit, will retain its deposits ? Depositors are timid and at the first note of warning will withdraw their deposits. Such a proceeding would be the deathknell to the credit of any National bank. It is not clear that a NstionaT bank might not, under the terms of this Act, be sued at the end of the term of sixty days, if it did not signify its intention to become a member bank If a thousand suits were started at the in a regional bank. enii. of sixty days after the passage of the Act, who can estimate the result to the financial interests of this country ? eage 5, 'Lines 14 - 20. A careful xmas±2ign reading of this provision would seem to make it impossible for a director in a ertional bank who had approved the action of his bank in agreeing to become a member bank under the provisions of the Act, from chaaging his mind without serious penelty, should the regional bank prove to be a failure before it was feirly organized, or should he decide for any other reason that it was not rise for the bank of which he wss a director to become e member bank. 11-40 penalty would be esactly as great if he were one of a majority of directors to vote to become a member and one of a minority to vote against continuing as a member. If a director voted against becoming a member bank, and was outvoted, and then later the directoxyvoted to cancel their assent regardless of consequences, and this director voted against ouch cancellation, but in the minority, he would be C--' , K30 subject to penalty. There is no statement concerninp the apportionment of any loss that might occur.under this provision, and if all the directors in a bank except one refused to pay, would such director be asked for the total amount of loss incurred, or could the other directors be sued for their proportionate share ? If one-sixth of the cenital stock had been paid in before conditions developed that would make it seem wise for a Tietional bank to withdraw, the directors would be personally liable for one-sixth of the capital stock. They would also be liable for any depreciation in the value of United States bonds that the bank might be forced to sell in order to place itself in a position to retire its circulation. It might be difficult to determine whether such depreciation should be figured fromthe price paid for the bonds, the value of the bonds at the tithe the law went into effect, or the par value of the bonds. It is a provision that is so indefinite and that might cover so many things, that it is questionable whether directors of Ustional banks in this country would care to put themselves in any position where they can be aubjected to such It is unfair and not right, and is breaking the contract liability. that they made with the GoVernment when they took their oath of office. It is a moral breech of contract, without regard to whether the Courts would construe it as a legal breach of Conld not it be reasonably expected that many contract .or not. directors in Netional banks would resign rather than assume such liability ? It is proposed that eligible benks who have signified their intention to comply with the Act, subscribe to stock of the regional banks of their various districts VOLUBTAIULY (?). Should http://fraser.stlouisfed.org/ 1-ege 6, Lines 1 - 10. Federal Reserve Bank of St. Louis K 31-a they fail to do so, the organization committee may offer it to the public. Damaged goods sell at bargain prices. If the bankers don't take it, who wants it ? If the bankers did not take the stock it would unquestionably be because they did not think the system would be a success. What possible reason could induce the public to come in under such circumstances ? 1-fTe 6, Lines 18 - P4. The United States Government will take it. 2urchase of the stock by the United Stntos Government would the legislation proposed created success was fully assured. an institution of a character whose The terms of the bill indicate doubt as to the successful snlo of the and necessarily place as not bebjectionable if stock, consequent doubt of its value, the burden upon the Government Were the legislation sound, the stock would command a to buy it. ready sale and Government ownershin be unnecessary. "'age 7, Line 4. Not satisfied thnt the Government should continue to own it, it is proposed that the Secretary of the Treasury shall have power to sell it in his unrestricted, discretion, at such prices as he sees fit, not less than par, and apparently to anybody that wants it. Is this unrestricted authority warranted, when it might as readily be provided that the stock owned by the Government be sold to the highest bidder upon public offering, with no opportunity /discrimination of favoritism ? for This is another feature of the bill that odds to its liability to become a political plaything. kage 7, Lines 15 - 18. The language, "The Federal reserve board is hereby empowered to adopt and pro- mulgate rules and regulations governing 31-6- exercise of the voting power thereon (the stock) may be susceptible of exact interpretation by a competent Court. Whether the Federal reserve board may be able justly and intelligently to exercise this function will depend entirely upon the object to be served. Fere we have the formation of a voting trust, the principle of which was so severely criticized during the Pujo investigation, the findings of which have been so innocently accented by the Senator from Ok3ehoma. Without regard to the general question of voting trusts, this voting trust certainly has lurking behind it The Government, through this voting trust, might be able to absolutely control the selection of Glens A and Cless B directors on the natural formation of a regional bank. This might unseen dangers. be serious, but it is not e circumstance to the further power that There is in no place in the bill lies hidden in these words. anything that confines the limit of the amount of capital of any Suppose that every bank in a certain district complies with every provision of this act; that a regional bank be organized: that the business continues for a regional bank to any stated sum. certain period until, urdef the tricks of politics or the accident of election, some irresponsible Administration steis into public office. This Administration could, under the terms of this Act, increase tho canital stock of the regional bank under consideration, paying for it out of the Treasury of the United States, until the voting trustees representing the Government would have enough votes As the Federal to elect the directors of the A and B classes. board elects the C class directors, this Irresponsible Government would be In position to elect every director of this regional bank. Where would the abuse of this power stop if this country were Z32 infortunate enough to have en Administration that would take advat- .tege of it ? Pepe 8, Lines 5 - 8. This anpropriation Is too smal. Pape 8, Lines 10 - . No bests is stated for the establishment of branches. The provision is ',Dere and unexplained, while the power exists to estoblish any number of branches. The erovisfon in regard to their establishment is mandatory and inexact in stating their intention. One peculiar feature of this provision lies in the fact that, if any regional bank fails, all of the other regional barks must establish branches in the district of the failed bank. Which one of the regional banks would take precedence in the district of the failed regional bank, and how would member bahks know with which foreign regional bank, so to speak, they could do business ? As e matter of fact, under the law they are not seecificelly authorized to do business with any regional bank outside of their own district. -sere 9, Lines 7 - 9. -The implication of the language is clearly that the establishment of a Federal reserve bank is dependent upon stock subscriptions by the banks of a given district. In what position will thut district be if sufficient Netional banks withdrew from the Netionel system under the mandatory provisions of this Act, so that the requisite amount of capital is not provided ? Might not a district failing to subscribe sufficient stock have either a publicly or a Government owned regional bank without clientele ? .K 33 How could a bank be organized if less than five banks accepted of the system in a district, and the balance of capital were subscribed by the public and or the Government ? :age 10; Lines 14 - 17. Should a regional bank become insolvent through no fault of ite own and without in any manner violeting the law, would its succession continue for a period of twenty years ? The capital Of a regional bank might be mtirely dissipated through losses, and yet it might be able to maintain all of its reserves in accordance with law. 'old this clause prevent the Federal reserve board from - closing up the bank ? 10, Lines 19 - O. loose refer to opinion of Thomas B. 4nton in regard to the matter of jurisdiction. The lnnguage of the Owen bi31 is incomplete and would require Court construction to make certain where jurisdiction would lie. Please refer to J. DuPrett 'Mite's opinion in regard to the inconsistencies involved in State court jurisdiction. Age 11, Lines 1 - 21: This seems to be a broad provision, giving any Federal reserve bank the right to issue an unlimited amount of notes, which are not sufficiently described. What is to be the form and character of these notes ? For are they to be printed ? How are they to be redeemed ? Are they to he simply the obligation of the Fe'steral reserve bank of the district, or are they to be the obligation of the United Stntes Government ? In other words, does not this bill provide for the issue of two forms of notes by every Federal reserve bank, and is this a necessary and wise provision ? Does K 34 the limitation of the National Bank Act apply to the volume of notes so that each regional bank may only issue notes to the amount of its canital ? Does the provision of the Bank Act regarding the retirement of $9,000,000. a month anr)ly to the retirement of these notes ? This seems to be a piece of patchwork, introduced into the middle of the bill, without regard to existing law and crien to all sorts of construction. I am not even certain that there would be authority in the Bureau of Engraving and Printing to print these notes . If every regional bank were limited in the amount of notes of this character that it might put out by its capital, the total amount that could be issued by all of the regional banks, based upon the present capitalization of the 7ational banks of the country, would be $106,000,000., or roughly one-seventh of the total amount of National bank notes outstanding. There would seem to be no to refund this small portion of outstanding Netional bank notes, and it would appear, therefore, as though it might be intended that the regional banks take out the whole 700 odd million National bank note circulation. Should this be true, it would mean that if the regional banks took out such circulation in proportion to their capital, they would all have seven times as real object in arranging much circulation outstanding of this character as the amount of such capital. This would be a most unsafe condition, and one under banks could not exist very long, for they would be unable to redeem such notes as might normally be presented. If it is intended that the regional banks take xx up the whole 700 old which the millions, then, as the law is worded, any one of them could take without regard to its capital with just as authority as it could take its proportionate amount. The the whole amount proposition seems absurd., much whole for if the banks are limited to their K35 capital, it is needless, and if not limited to their capital, it is impossible. rage 11, Lines 12 - 24 2age 12, Lines 1 - 2. It is proposed in this paragraph of the bill that the Comptroller of the Currency, who is really a bureau chief under the control of the secretary of the Treasury, shall be the final authority to deoide whether a Federal reserve bank shall This vests in the head of a Department bureau powers somewhat similar to those held by the Chancellor of the commence business. German Empire. Is this the proper place in Which to vest the authority ? :ere 11, Lines 6 - 15. This provision seemingly gives the Federal reserve board full power to run every regional bank to suit itself. It could even claim the power to demand that a regional bank loan money to a member bank whose collateral had been refused because the board of directors of the regional bank did not consider it aamer collateral. Every member bank would seemingly have the right of an sta to the Federal board in case any loan which it had desired to make had been refused. All the talk about regional banks being of value to a community because that community would be in position to look after its own business in its own way, is made mere buncome by this rrovision. Those in a district might know that a certain banker was not handling his business -properly,- and, under the Insurance guarantee, such cases would arobably be numerous,- and yet the Federal reserve board, being politically constituted, might be appealed to and might require a loan to be made to the bank claiming that it was a member bank and had the right to loans if K36 it could put up the collateral, without regard to what other conditions might exist in the bank. If some strong political leader had established such a bank, he might bring very great pressure to bepr upon the politically constituted Federal board. Every encouragement to a dishonornble and incapable banker to extend his operations is bad for the public. It only means that when such a banker does fail the losses are more severe and more people are This is a vicious provision and might result in incalculable harm. Another feature of this provision is also unnecessary and involved. incomprehensible, and is undoubtedly based upon lack of knowledge of how the banking business is carried on. Every member bank is supposed to have the right to a certain proportion of the total discount that a regional bank can extend. Every loan made by a regional bank must therefore be considered in the light of what other member banks have a right to ask for,- not xx what they may desire, based on existing business conditions,- but what they have a right to ask for. A good banker always considers, when making loans, the question of whether his ability to protect the business of all his customers is being curtailed. But he realizes that, at a time when one set of customers may want a large amount of money, others may not wish any, and he is guided accordingly. Under this provision a regional banker might not be ehle to protect three-quarters of his member banks to the extent that they reauired, because he would have to save his loaning power for the other quarter who might not need it. While it is unquestionably true that, with a regional system, the great majority of member banks are going to require loans at the same time of year,- which, con- sidering the purpose for which the banking bill is being enacted, K37 is foolish,- yet there are going to be a number of institutions in each district whose business is somewhat different than that of their fellows and who may require discounts at other periods than the large majority. Even this small proportionate help to the regional bank is to be taken away from it. How could bankers be expected to place their reserves with a regional bank, knowing that their directors might be over-ruled and that bad loans might be made for political purposes upon the demand of the rage 12, Line 16 to .-age 14. Line 7. rolitical board ? This relates to the method of selecting the local board. As to the three directors to be selected by the banks, there is a distinct invitation to the organization of bank politics, without any opportunity for choice of the best men for the position. Is this a safe method for selecting two-thirds of the board which is to conduct the important business of each bunk ? The general scheme of the organization of the bank ap,ears to be to lodge in a politically appointed board, one of whom shall be a member of the President's cabinet, power to appoint a minority of directors and the chairman of the board of each Federal bank, and to so extend the powers of the Federal board over the affairs of the Federal reserve banks as to make it possible, some time in the future, for an active Senretary of the Treasury to be a dominant factor in the monetary affairs of the country. The attempt to safeguard the system with the power of removal would operate to render political board more effective. This provision contains some glaring inconsistencies that the power of the it is impossible to reconcile. In page 12, lines 22 to L15, it states specifically that Class 13 directors shell, at the tie of X 38 their election, be actively engaged in their district respectively in commerce, agriculture, and in some other pursuit. The director who is supposed to be in some other pursuit may be a banker, under the terms of this paragraph: and yet it is rather implied in the bill that this should not be. There is no question, however, but that it is intended that the first two of Class B directors shall not be bankers. Bearing this in mind end following the development of the method of election, we find that certain elector° are ap ointed, all of whom ere directors of member banks, one from that a list is made of these elector directors, copies of which are forwarded to every other director: that the elector shall then make a cross opposite the names on this list of those each; for whom he wishes to vote as first, second, and other choices. The electors, therefore, ere only authorized to vote for themselves or for electors whose names may be on the list, all of whom are bank directors. Conseluently, Class B directors, who ap-arently are not aapeosed to be bankers, must all be selected from this list. If it is intended that Class B directors shell be chosen from the directors of member banks, how is there going to be any certainty, under'the method of electing electors, that all three kinds will be upon the list: and, even if all three kinds of Cl ss B directors were represented on the list, tbier might easily not be the ones that the electors would vote for. The chances are they would not be, under the form of election, and all three of Class B directors elected under this system might be bankers, or lawyers, or doctors. As there is no one to pass upon the qualifications of Cless B directors, it would seem that if the line of procedure in the bill were carried out, whoever was elected would be able to Qualify. If two men were elected, K39 both of whom were engaged in commerce, which one would have to resign in favor of the other,- if any Dower could be found anywhere that would make it possible to pass upon their qualifiOne of these commercial direotors would have been cations ? elected by one Which group group of bankers, and another by another group. takes precedence ? .farre 13, Lines 7 - 14. This group division would of necessity give the smallest bunks the greatest voice in the selection of directors, although the largest banks would be responsible to their depositors for vastly larger sums that they would have to carry with the regional banks. TliP unfairness of this system is too evident to need further consideration, for it banks of would of certainty result in a5,000 capital and small deposits, electing a director to Pass unon the security of loans involving the deposits of institutions carrying millions of dollars in a regional bank. The deposits that one institution in the largest class might have to make with a regional bank might be greeter than all the deposits of the small banks who elect one director. - 2- :age 15, Lines a central bank. ( The Here we have a most extraordinary attempt to try and link a regional bank system up In such manner as to enable it to serve as chairman of the board of directors of a regional bank, the responsible and acting manager, the man who could be held more largely accountable for losses and failure of the bank than any other one individual, is also the principal representative of the Federal reserve board, and has two offices in the same building. As chairman of the regional board, he is responsible to himself as K40 Federal agent. As Federal reserve agent he is to have custody of the gold and collateral that he puts the board, in order to UP with himself as chairman of act as security for the circulating notes that he desires to issue as chairman of the board of directors. Many occasions might arise where it would an arently be to the interests of such a chairman of the board of directors to loan himself some of ti-e gold that he was responsible for as Federal agent, in order to temporarily tide himself over a tight place. This is the most extra- ordinary dual office that has ever been thought out by the mind of man, and it is as far from ordinary banking principles as exemplified in all existing banking systems as is possible to conceive. .age 16, Lines 6 - 14. If regional banks are organized, the organization committee will be charged with the duty of acting as chairman of the twelve board or having the powers of the Federal reserve agent as to different institutions at widely separated points. This is temporary, but nevertheless impracticable for effective organization purposes. Page 17, Lines 1 - 4. There is no provision that directors shall hold office until their successors are arpointed. i'age 17, Lines 7 - L.:. The theory of ownershi7 of stock of the Federal reserve banks by the member banks is certainly to maintain a reasonable prorortion betweon the capital of the Federal reserve bank cavital of the banks of the district. and, the Under the plan provided in this bill, an unknown amount of stock may be held either by member banks, the public, or the Government. This provision in regard to (7 C) K 41 to increasine tLe capital of the Federal res rve bank as member banks increase their carital of increase in number, is entirely illogical so long ES all of the stock is not held by the banks of the district. The ratio is lost, and the advantage of a fluctuating capital die- appears. rage 17, Lines 12 - 14. Zresumably, if the public subscribed to a large amount of Federal reserve bank stock, they might need to borrow on the stock from their banks. To the extent that the Federal reserve banks may acquire stock, either through loans of that chartcter 1r through -ourchases in the market, or for any reason, they will never be permitted to sell it. The sensible provision would have required each member bank to retain always the proportion of subscribed: but ther 65 originally should be no limitation to its selling stock subsequently acquired without relation to the original subscription. Suppose the Government acquires a large amount of the stock and desires to sell it to the National banks. No National bank will buy it, as they would not be permitted to sell it ages 18 and 19. References to the adjustment of the dividends on stock are inexact. cent. oer again. One-half of one per month will rarely exactly adjust accrued dividends. The stock of the bank is to be subscribed at par. When banks are organized in the districts having large banking capital, banking quarters, an exensive vault, stationery and supplies, and many preliminary expenses calling for the expenditure of a very large sum, will be required before the bank starts business at all, and it is a safe prediction therefore start with its that every capital Federal reserve bank will impaired at the outset. K42 If it is a fact, as above suggested, that the issue of bank notes secured by Government bonds is covered by the provision of law, limiting the note issue to the amount of cepital, how will the Fe eral reserve bank with fluctuating capital be able to handle its outstanding circulation under this provision I Furthermore, how will foreign creditors of these banks, some of which will be of oomlaeatively smEll capital, regard the credit of a bank whose caeital is liable to be arbitrarily reduced by the action of stockholders and without any control by its management ? national banks liquidating or failing within e given dietrict might automatically so reduce tlea ce-ital of the Federal reserve bank of thrt district as to seriously imeeir its creAt. The last earagraph of Section 2 erovides that no Federal reserve hank shall commence business with a subscribed coeitel of Under Section 6, however, this only lees than $3,000,0(s0. s ecifically applies to the o enine. of business. The stock of a regional bank, therefore, might be reduced through the action of Its member banks below $3,000,000., and the bank would still be able to continuo business for its twenty-year period. The Government would, of course, be authorized under the law to step in and build the stock up, but would have to turn the voting power of recta stock over to the voting trustees, which might be unfair to member banks who wore still in the syytem and who had not taken part in reducing the capital stock of their regional bank. _ego 18, Lime 9 - 15. Member banks are authorized to reduce their stock in a regional bank if it reduces its capital. The stook allotted to member banks, however, is based upon a percentage of its ceeital While a member bank, under this provision, can retire and http://fraser.stlouisfed.org/ aurelus. Federal Reserve Bank of St. Louis K43 its stock if it reduces its ea,ital, yet if it meets with losses or for any other reason reduces its surplus, it has no relief. Should a bank be re,uired to reduce its surplus, it might need all the liquid assets it could obtain, and it would seem most desirable that it should be able to withdraw its proper proportion of the money it had invested in regional bank capital. It would seem as if a bank's only relief would be to put its surplus into undivided profits before it became e member bank, for the proportion of regional bank stock that it would have to purchase, based on its surpluS, could never be recovered unless it wont into liquidation. A number of bad National bank failures in a Riven district might seriously impair the capital and credit of the Federal reserve bank, unless the law gave them a first lien for the liquidation of the discounts of the failed banks. ThPre is certainly the possi- bility that Feneral reserve banks may have some of their funds tieJ up wnen their member banks fail. This should never be possible, and is unnecessary. _Age 19, See. 7. It is proposed to make this new system of tanks the instrument for establishing an iniurance fund for the deposits of Nntional banks. By the tPrms of the bill, this fund accrues for the benefit of depositors in National banks only. This system is supposed to Invite the co-operation of State bankers. If this provision means anything and is to accomplish anything, it will be a fine instrument for keeping State bankers out of the system. It would be well to enlarge upon this feature of the bill. It is an invitation to wildcat banking. _eesumably, carried to its logical conclusion, by this rinn any bank may be as good as any other bank, so far as the safety of depositors is concerned. The viciousness X 44 of the plan lies particularly in the fact that unscrupulous and unsafe bankers attract deposits by allowing high interest rates, and, in order to make profits, embark anon unsafe enterprises with their de-ositors' funds. Ultimately, the burden of such unsound banking is thrown upon the sound benks, and would in effect be a tax unon the system as a whole and would necessarily be charged ageinst the customers of the banks. It is e scheme to distribute the losses of bad banking among the customers of good banks. The proposal in this bill is only the first step in developing a tendency which would ultimately become extremely dangerous. The language is so broad in giving to the Secretary of the Treasury unlimited power of manegement and regulation, as to make it eossible for this fund to be used without control, in his sole discretion, and In itself develop dahgerous administrative features. Supeose a bank fails today and its affairs are still unsettled at the time of another bank failure, the fund being insufficient to meet the losses to depositors in both. Snail the depositors in the bank first failing first receive the fund: or shall it be apportioned ? How shall it be a-portioned ? It seems as though the Secretary of the Treasury had legislative authority under this section. ge 20, Lines 3 - 12. It is provided that a portion of the surplus earnings and the surplus of the Federal reserve banks in lieuidation shall be applied to the purchase of the Government debt, by the Secretary of the Trersury, without any restriction. He may buy from his friends, at any price that he fixes. This is an unwarranted, Indiscreet delegation of aut ority to an officer of the Government, which even private corporations would not countenance today. K45 Page 20, Sec. 8. The provision for reincorporation of State institutions is unnecessary. The present law is eufficient. Page 23, Lines 3 - 13. This section in badly drawn. No State bank or trust company would be authorized to earticipate in the elan without the passage of an enabling act by the legislature of the State of its incorporation. (Refer to text of the bill introduced by Senator Burton for what seems to be a logical and concise method of handling this feature of the rlan.) The objections to the terms of office provided for the members of the Federal reserve board have been fully discussed. Unless the terms of office are such that to President in a single term of office, or preferably in two terms, can change the political character of the Board, the members of this board will become a Dart of the patronage system of the country, subject to the influences of partisan and political appointment, and independent character destroyed. It is eesily conceivable that an unfortunate choice in a ?resident might be made at some time in the future. He might do considerable harm with the power that he has at nresent. But, under the system of appointment of members of the Federal reserve board, together with the unexem-led and unexeleineble power that is being delegated to the Secretary of the Treasury, who would of course be an instrument of such a President, the whole banking system of this country might be disrupted,-even if the seemingly im-oseible Page 24, Sec. 10. ba.pened and the regional bank system reasonably accomplished the purpose for whicl, it is intended. 46 nage 26, Line 24. The language is bad. Members of the Federal reserve board should certify that they are eligible for arpointment, and not that they have complied with requirements for anpointment. zage 7, Line 10.. The naragraph should provide for continuing in term of office until a successor is appointed and oonfirmed. Lines 11 - 19. Sim-ly another indication of the intention to make the Secretary of the Treasury the sunreme autnority in the monetary affairs of the country. It certainly has the effect, in connection with other nrovisions referred to, of giving hi absolute unrestricted control over the dis*ribution of Federal Page In 1907, the distribution of the general fund at the time of the nanic was the subject of Congresuional inquiry. Going funds. back to the days of Andrew Jackson, "pet" banks have been a recurring cause of scandal. The present system is bad enough, and such bad features as it has will be magnified under tr.(' provisions of this bill. Lege 28, Lines 18 23. This is a dangerousl nronision, in so fur as it anilies to the advertising of the maturities of napor hold by a bank. It is inevitable that at tides such maturities will come together in finch a way that the public, not understanding the banking business, might auestion the solvency of an institution, which might result in the starting of runs on member bunks that might be hard to stop. During panioky periods, under our present system, many institutions, because of their well-known strength and the reputation X 47 of their officers for honesty and conservatism, are not subjected to runs, while at the same time their neighbors are having their deposits drarn out. Under this regional bank system, every member of the community would realize that tle strength of member banks would be seriously affected in case of the failure of a regional bank, and, instead of runs beinP confined to weak banks, they might extend to every bank taking port in the system in a district. TisShow 3 what we are subjecting ourselves to in ease the people legit to fear as to the standing of e regional bank on any ground. The neblishing of the maturities of paper, however, would have a tendency to make individuals who might study such statements and who were not familiar with banking methods, seriously wonder how a tank was going to keep on its feet ± until its paper began to mature.. .ace 28, Par. (b). The authority of the Federal reserve board to require Pederal reserve banks to rediscount paper of other Federal reserve benks has been discussed at length and should be fully enlarged upon. It indicates the weakness of the whole plan of regional banks, and in an unwarranted interferenae with the economic law of supply and It simply indicates the acceetence of the erinciple demand. of the central bank, and introduces an unworkable and unscientific method of applying the princirles of the central bank to the regional bank system. Let us consider a region that might include the banks of Texas, Louisiana, Mississippi, Alebeme, and Georgia, or large portions of these States. Annually the banks in these States are borrowing from $100,000,000. to ,,,3PLI,000,000. from New York and Chicego institutions. The regional bank in this district would 0 K4E3 have a capital not only measured by its member banks, but in reality a nart of it, so that not one dollar of oarital would be added. (Note.- It may be that opponents may attempt to answer this proposition in part by stating that the banks in these States would withdraw from New York and Chicago and other Northern reserve cities, such portion of their balances now with these banks as was necessary to meet the reserve that they would require with the Federal bank. Wbile this would undoubtedly be done to a certain extent, yet this amount would be much smaller than probably anyone realizes who has not actually figured it out: for while banks in the States mentioned, on August 9, 1913, had on deposit with reserve agents $29,V44,000., yet the reserve cities in these States held reserve deposits amounting to $T5,588,0W. on the same date, and a large part of the deposit with the regional bank for eserves would unquestionably be made up of withdrawals from the reserve from banks in the district, XX this $25,000,000. The net amount of new capital that would be brought into this district from other districts would not be worthy of consideration, in comparison with the amount of money that is needed in order to finance the crops in these States.) The deposits that the banks in these States now have in New York are not sufficient to enable them to move their crops, and they borrow from New York banks in roUnd figures $200,000,0e0. more than It would be impossible for a regional bank in such a district to look after the business of its members without borrowing from other regional banks. Instead, therefore, of this borrowing being exerted only in times of crises, it would have to such deposits. K49 be an annual operation, unless the member banks found that their regional bank could not handle their business, and continued their relations with their New York correspondents. Such relations, however, could not be as strong nor command as much accommodation if they made substantial withdrawals of their deposits for the Purpose of depositing in their regional bank. 9, Air. (c). The object of a tax is to restrain a tendency which ;ill weaken the condition of a bank. The tendency which will weaken the condition of a bank is to expand discounts or circulation. Restraint in the shape of a tax is intended to aptly to the person who is causing the tendency. By the provision of paragraph (e) the profits of the Government are taxed in order to restrain te member banks from increasing their discounts. Not only that, but presumably the manegement of the Federal reserve banks and the Federal reserve board itself will not be particularly interested in the profits of an institution in which they are not stockholders necess:rily, particularly as the tax if paid to the Government would simply mesa dividing the Government proflt into two parts, one representing dividends and the other ta:tes. The bill does not provide who shall pay the tax, who it shall be naid to, or what use shall be made of It when paid. Of course, such tax xx as might be collected from me-lber banks would represent an additional profit to the Government, if It was intende3 to be naid to the Government, or to the regional banks if it re intended to be paid to tem, or to anybody who 7 -'?as OUPOSed to receive the tax. -owever, it is not perfectly clear that any member bank would over be obliged to pay the tax, from the way the provision is worded, as apparently only such K50 member banks as are required to keep the same reserves as Fe6era1 reserve banks would be taxed, and there is nothing in the bill meexway anywhere that would seem to require menber banks to maintain any such reserve. age 29, Lines 18 - 23. Why should there be any distinction between reserve cities and central rseerve cities, end rny other cities ? The only excuse for it would seem to be the fear, or knowledge, that a regional bank system would not answer the needs of the country as a central bank would, and that consequently those who drew the bill figure that it will continue to be necessary for reserve city and central reserve city banks to carry reserves for member banks throughout the country, oven though they could not count such balances as reserves. If this is the reason, the system would seem to justify it. Under a central bank plan, however, it would not be necessary. Page 9, Lines 4 - 25 .eage 30, Lines 1 - 2. This seems to be another dangerous power to put into the hands of a political It is, of course, another atterent to follow the custom of a central. bank, and if politics could not be introduced into the make-up of the Federal board it might not be a serious matter. It would seem better to limit the power of removal to the directors of a regional bank, and allow the directors full power to select their own officers. If some powerful politician should be connected with a bank that apelied for a loan board. with a regionsl bank, and was refused for good cause, he could go over the heads of the directors of the bank who were entirely E. 51 familiar with the ability of the officer who refused the loan, and through political pull obtain the discharge of such officer by the Federal board. It is all well enough. to talk ebout such things in general as beinE not likely to hap on, but every one knows beyond question of reasonable doubt that similar things are occurring continually ,in our nolitionl life. Pege 30, Lines 6 - 9. Ain, -a board that may be politicary constituted in case of an unfortunate selection for J:resident, is given powers that might enable it to take over a Federal bank or every Federal bank, through trumped-up charges, particularly as there is apparently no one who can review its action, which seems to be final. ago 30, ,ar. (k). Here again we -aye a most dangerous power given to the Federal reserve board. It would be dangerous without any question of such a board being possible to control nolitjdally, but under the circumstances, it Should not be allowed, wit7eout regard to the unsoundness of the idea. bank's reserves became deficient. Win/ may it not impose rediscount notes with the Federal reserve bank, end use the Federal reserve bank notes as reserve ? That seems to be contemplated by the bill. Why go through the motions of rediscounting narer ? Why not use the paper as reserves ? The operation by which a member bank may restore deficient reserves through discounting should be confined to the withdrawal of lawful money from the bank, or gold, against its discounts, and tnereby the Federal reserve board, by regulteting the discount rate, cen influence its own reserve position and indirectly the reserve position of member banks. This provision opens http://fraser.stlouisfed.org/ the door to the ,,limination of lawful money reserves by the Federal Reserve Bank of St. Louis X52 member banks throughout the country. Cerrie) to extremes, the possibilities of inflntion are unlirited. All discounts with the Federal reserve banks might be represented in Federal reserve notes, lieLdch might ultimately comerise the entire cash reserves of all member banks. It is difficult to see in what dangerous directions this tendency might not develop. State banks would not be Permitted to use these notes as reserve money without passage of State enebling acts. N tional banks or member banks eermitted to do so might gradually absorb a vast amount of the circulation of the Federal reserve banks as reserve money, so that there would be a minimum retirement. That is another lossibility to be guarded against. Porte 30, ,ar. (1). This is a sort of legislative power extended to the Federal reserve board. Some Netional banks might be favored with this extreme power if State laws remitted, and others might not. If such a plan is contemplated, it should provide that all Netional banks may be vested with such Dowers not inconsistent with State laws, but so far at their membership in a Federal reserve bank is concerned, their qualifications under a State law should be subject to review by the Federal reserve board. May there not be some question as to the power of the board of directors of a banking institution to modify the nowers of a Netional bank incorporated urder the Bank Act in this broad or general way ? :ego 30, Sec. 12. eage 31. It is difficult to understand what object is served by a Federal Advisory Council. Ne Dower is extended to this body. It is pro- vided that it shall meet four times e year, or oftener if required K53 by the Federal reserve board, and the only right which the lew gives it is that of getting information and discussing matters with the Federal reserve board. It seems to be another attempt to make a central bank out of regional banks, but one that is powerless and superficial. :go 31, Lines 16 - 21. There is anparently one attempt made in this paragraph to give the Federal Advisory Council something more than an ordinary name, by authorizing it to cell for information. All of the other powers are such that the Federal board could comply through listening to conversation or receiving written memoranda, without giving them the slightest attention. But resumably it is Intended that the call for information must be answered, for, while It is not so specifically stated, it would ilemedictely cause suspicion if a call for informetion were ignored. This great power, however, that has been conferred upon the Federal Advisory Council would not practically amount to any more than the power to recommend, for if anythingwere wrong in the Federal boerd, the Information ashed for could be manufactured wholesale and the Advisory Council would have no means Aaatever of checking it up. If they accepted a false statement, however, as being true, it would certainly ada a false sense of security to those to whom they might report. Page 32, Lines 1 - 11. It is proeosed that the Federal reserve banks may only receive depocits or collections drawn upon member banks. Before the member banks could make deposits, appropriate clerks for the purpose must examine every item with reference to the ese K54 7,500 members or more, to see er?:eter it is eligible for deposit with the geaeral reserve bank. It would also be nocenseLd for every clerk in a member bank to make certain that every other member bank ueon which the items were drawnthat no wee listing for deposit was solvent, and it would be necessary as well for every teller in a Fe..ieral reserve benk to check these items up, in order to see that the banks were solvent. It would be extremely difficult for clerks in member banks, or toners in regional banks, to keep track of such failures as might occur in member banks throughout the United Stetee; but it would be even more difficult and might almost be :laid to be impossible, for them to determine which banks were insolvent that had not yet signified their intention of being oo by failing. Likewise, each teller in every Fedeeeel reserve bank must check up evcey deposit made, to see whether it wee drawn upon a member bank. An examination of the operation of the giro syetem of the Reichsbenk will Indicate what an unwarranted limitation on the business transactions of members of the Federel reserve banks this is. The Federal reserve bunks should be authorized to receive for deosit and for collection, all forms of items payable upon demend, no matter uoon whom they are drawn. Furthermore, this bill should be se drawn us to provide a convenient method for the settlement of exchanges, whether charges are made or not. The discrimination against institutions or firms which are unable, under the revisions of the law, to become members is absolutely unwarranted. Is fe intended that we shall have two syetems for the collection of checks in this country,- one for those who are fevered with membership in thia system, and another for all who are unable or unwilling to join it Millions of checks and demand Items are X55 drarn upon firms and institutions which cannot qualify for memberenip. This means that member banks must continue to collect all domestic exchange items which are not drawn upon mer::tor banks. Country bankers are complaining that their reserve balances which now bear 21, interest mu.t hereafter, under this bill, be locked up in the Federal reserve bank without interest, but that they must still maintain balances with their reserve correspondents for purrosos of credit amd the effectinc of exchange transactions. There is notAng in this section to indicate whether these items sre to be received at par or not., no is there anything to indicate whether the drafts of the ?ederal reserve banks themselves elan be received at par at other Federal reserve bans. Nor is thor anytbinj to indicate at what 'r,oint of time items payable on nrotenttion shv11. be counted fe reserve No mention in made of ccrection charges, nor when the proceeds sall be crolted, nor As therr rrly authority to imose charges. for me!rber banl,rs. If the regional bank is limited in its colloction furction to items dravn u-on member hanks, miffht it not then reouire Olering 7ouse -nrivileges in te various cities ? If se, no provijon ap-eers in tn bill giving the 7:.'ederal reserve board or the boards of the banks authority to clear through the Clearing Pouse institutions. Pace 32, Lines 12 - Ai. This discount T.revision Is unlimited, page 3:3, Lines 1 - 7. and under it regional banks could loan member tanks any amount that such merber banks might desire, uT! to the extent to which they could furnish proper collateral. Thin would, of course, make it impossible for Federal banks to figure out how much any one member hank migt be entitled to borrow, under the regulation on ,age 12, Lines 8 to 15 ( ). While such a ovision as that refcrred to K 56 ie, of course, absurd, yet if it is to remein in the bill, the rest of the act should be devised to meke it possible to Ao so. If Tomboys are to to al?owed to borrow without eny regerd whet ever to te sizo of their oseital, it could not be determined, even arproximately, to hew much they were ,ntitled, unless the regional bank wee kept informed at all times of the amount of collaterel available for discount that they had on hand. Page 31, Lines :2 - 25. This language, under such construction as might be:von by the FeeArel reserve boerd or the boerds of the Federal )serve benks, might eermit the use of funds of Federal reserve banks ler seeculation in commodities. A note secured by products in warehouse is certeinly med.() 3ligible for discount. Farmers in the South and 'Vest could use the funds of the 2eeeral reserve bonl:s for Vholding their crops for merket. The denger of eny such syetem cannot be magnified. No slice instrument for com-odity speculetion exists in uny civilized country. The pressure in agricultural sections for the use of funds in this wey would be irresistible. Not only that, but a dangerous overemployment of funds in any given locelity for this purpose mi ht well result in the necessary exercise of tLe mandetory powers of rediscount, to draw funds to that section from other regional banks. $FelYe 33, Lines 1 - 7. - This provides that the Federal reoerve banks are prohibited from diecountlng notes, drefts or bills, issued or the proceeds used, for carrying or trading in etocs, bonds, or other inveetrent securities; but on pate 34, lines 3, etc., the Foderel reserve board may, nevertheless, authorize the discount of such earer. X 57 These two sections together aeparently indicate teat the normal discount 'operation to which a member is entitled shall be confined to commodity bills, but that the Federal reserve board mey, in special cases, authorize loans unon securities. There is no Suggestion in the language of Page 54 that it is an emergency measure, nor is tere any provision that an emergency rate Eeeell aeply. As introduced in the bill, the provision is dangerous in the extreme. Abuse of this power by the Federal reserve board. would open the door to all sorts of speculative operetions for the benefit of particular banks. It does not even indicate, as it well might, that this -rivilego of discount can only be exercised in an emergency or after the full line of normel discount has been exheuste . Page 33, Lines 8 - 15. Thie provides that no Federal reserve bank may rediscount acceptances for an amount exceeding one-half of its paid-up capital stock and surplus. On Page 34, Lines 6 to 22, the liabilities of a National bank are li eted to an amount not exceeding its oeeital stook, exoeet for liabilities ther in described. (See memo. under .ago 34, Line 21 ( ). It is difficult to construe just how this will work, but presumably the total tediscourte of 8 National bank may never exceed tIo amount of its oa-ital stock. Consequently, if a member bank has in its rortfolio a large amount of bills which it desires to rediscount, and all of those bills should heve bank acceptances on them, that member bank could only rediscount those bile to the extent of one-Leif of its capital ane sur lus, instead of 10-% of its saeitel, because of the additional security of tbo ecce tanoes. Thcelimitation K50 upon the amount of acceptances to be rediscounted is an unnecessary ana unwise limitation upon the normal operetion of the acceptance and discount market. The Federal reserve board should be free to use its judgment in regard to the character of this paaer, subject to the liitation of liability and the amount of capital stock of any bank. etc. National banks are authorized to accept drafts having six months sight to run, but only drafts of that character having a maturity within ninety days of the date of discount are permitted for rediscount. pe 33, Line .age 34, Lines 21 - This provision is apparently clear and oven only to one construction, which is that National banks may assume liabilities in excess of their unimpaired capital stock for any liability incurred under the Act. As this is the only provision that limits the liability that may be assumed by National banks, except rhere it is snecifically stated, and as the borrowing of money by member banks is authorized under the Act, National banks certainly would not be obliged to consider the size of their capital If this construction when borrowing money from regional banks. Lad not been intended, the provision could easily have been worded in snob manner as to leave no room for doubt. ?age 34, Lines :3 - Page 35, Linen 1 - 3. It is very likely tlat this provision was intended to be teed in oases of emergency, and if only so used it might be valuable. On the other hand, wIth the possibility of having a K59 politically constituted Federel reserve board, it seems a dengerous power to extend, as powerful politicians might use such provision in order to carry stooks through member bunks which they miget own or control, or where they might be doing business. kage 35, Lines 4 - 8. Regulations which might be necessary in one regional district might not be workable in another. This would seem an unwarranted power to give to the Federal board, as the directors of the Feeerel reserve bank Should be in position to make their own reguletions in such matters. This provision, together with others, reduces the directors of a regional bank to mere figureeeeds. Page 35, Lines 9 - 17. It is proposed that any Feerul reserve bunk may go into the aeon market and compete with member banks for the purchase of bills. It does not even limit the charecter of the bills, as it should, to those bearing tie obligation of a member bank. It is unquestionably desirable that a FederP1 reserve bank should be authorized to conduct open market operations at rates different from its published rate of discount, but an unrestricted privilege rould give rise to e character of comeetition inviting opposition and diseetisfection on the pert of members. This necessarily would re,eaire the establishment of e large credit bureau and the exercise of judgment far beyond what would be necessary if every obligetion or investment of this cherneter bore the acceetence or endorsement of a member benk and the Federal reserve bank had a first lien upon the assets of the member banks for cleies due from them. Is it proper that bank with the right of note issue, end whose notes ere to be secured as to the Government by commercial eaper, Should be able to buy paper without restriction in the open market and use it as collaterel to its notes ? If that is the elan K60 contemplated by this bill, possibly it is wise that the Government should add its obligation to the notes of the bank. The open market operations of a Federal reserve bank should limit the paper purchased by te bank to that bearing the endorsement or acceptance of members. 'he Federal reserve bank should not be .permitted to buy commercial Paner with entire freedom. There is no question but that regional banks should be able to use their funds abroad for the rurpose of purchasing foreign bills drawn by foreign institutions upon other foreign prime banks, without the endorsement of member banks. At times this might be a most profitable and valuable way in which to carry funds abroad, in order to be in a position to buy gold, should it be possible to do so. The only doubt abcut the advisability of such authority lies in the fact that half a. dozen or more regional banks might all to buying at the same time, and together they might get too much of one nume. Of course, in the case of a central bank, no such danger would exist, as the manager would at a17 times know how much he had running, drawn on each institution. If the Federal board reeuired all the branches of regional banks to keep each other informed of the amount of paper pArchased on each. name,-which, being a valuable power, does not seem to have been extended to the Federal board, still there would always be the question as to which branch should be allowed, to take the parer when there was not sufficient in the market, at profitable rates, to go around; or, in other ,:!ords, when there was active comretition by foreign institutions as well as our regional banks for such pa-er as there was in the Market. One branch of a central bank in London, for instance, could operate for the benef6t of this country, upon instructions from the American manager of the foreign department of the central bank, much more safely, economically 61 and effectively, than would be -ossiblo in the case of brancL.es of several regional benhs. There is no opPortunity for argument et all coricerning this matter. Page 35, Lines 18 - 25. This provision sterts off wil-b tree statement "Y.very Federal reserve btnk shall have nower." Under our presort system, benkers engaged in foreive excli,ango oeerations eech lmeort or ereort gold in accordance with the merleet in -connection with their own dements for foroi n or demestic exckenge. Aone of these institutions work together or can successfully work together, except in possible ocCesional joint account operations, but each must consider every action in relation to the movement of gold baser' on his rticuler needs, which are determined 1Lrgoly, if not entirely, b/ the element of profit. This method, while effective up to a certein eoint, has always been found wanting when conditions .eve mede it advisable for the country at large to have our gold surly protected. One of the mn reasons l'hy a now bankine bill is desired is to furnis:, some protection for our gold. supply. Thet does not mean to surround it with barriers thee would ma';ee it imposeible for foreie:n interests to obtain it if we owed it to them, but to place us In a position to delay shinents until R possible turn of trade or until some crisis In °see of uneasiness in bueincse the leo le, without kno-ing why possibly, watch the shinments of gold .eith the greiteet concern, end it aggrevatos every fooling of uncerteinty as to 'he busine= outlook. This country has never been whiel is seeminE.,ly developing has pessed by. in a posi"on to protect itself, at sucll times, from an ooflor of gold; neither has it be -n in a pool ion to cause an influx of 'old u on th,_ first appearance of uneasiness, which might serve to stoe 6t ieTeedintely any feelin of fear il the business world; but, inetead, it until the condition has become too surioue for the we have had to effect of gold im7)orts to prevent great financial disturbence. Eight or tvolve regional banks, with tee authority given in this provision, tite will of necessity be obliged to opernte in spme manner as our ?Present system of indivdual banks. There is no help for it, particularly bocause importations of gold before exchange conditions warrant entail loss,and no one regional bank ie goin to assume such lessee voluntarily for the benofit of the rest. They v.111 all be exactly in the position of other individuel be,nkers deeling in forei:m exchange. They cannot work in harmony, even if they would, for the demanO3ueon them by ere goire to vary, they will all hevo different cepitel and resources, erd there is no vy tat they cen work economically and member banks effectively in conjunction wiL eech other, even if tO-e Feeeral reserve Every regional bank board were clothed rith authority to demand it. Will have to carry such foreicn balances and such foreign bills as it cen, dererdent veon a present reserve position and future erobabilities, an' anyone who might be appointee, for instence, by the Fe(erel board as a manager of the ,foroljn exchange business of all of the regional. banho, for the urpose of tryein: to make them es effective us a central bank, would. be ,,able to operate in o. position to the re,uirements of eeeh individual bank, as every effort to bring hermony out of such a eyetem and to handle the matter without regard to cost for the benefit of the whole colretry would be defeated. Eis power to ect would be subject to eight or twelve different conditions that might be existing in different regional banks and he would be in a most complicated posi-Lon. Note.- It might seem wise not to develop the above for the benefit of Senator Owen, until after he has had an opportunity tp 4 X ans-,Iler the 63 ,uestion bearing upon this subjoct. Permlpsion for Federal reserve banks to nurce revenue not of the vf.,rious political subdivisions of the country -uts the b:?.nk in direct coin etition with its me.abers in most i .7ortant class of business, &nd v11l invite onposltion and dissatisfaction instead of co-o,eration. Every bank throujlout the courtry mintains, Page 36, par (b). scrupulous care and v;ith Iride, its relations with the muniolvlity In w1Lich it has its office. TLe opertTtion of credit between municipal governments and th( b&.nks should not be interfered with. This ic aimly the firnt step in tho direction of making the Feeral reserve banks the depositary (7)-f te funds of St.tes, co7inties, cities, Furthermore, and municipalities, and should net be conntenance,1. If the Fe erel reserve ban:Ks are permitted to gradually accumulate per of this character directly, may it net later o -en the do7r to use such aper without member':, endorsement ns security for note issues ? While tere miht be no objection to to use of short revenue notes and bil,s secured by tF:sx levies as colltteral to the notes o ' the brik, if sucb municipal obligations were endorced or guaranteed by menter banl:s, it is nov rthe:ess a dangerous tendency to int oditce any form of securities to t'-e f-,soetil of the bank, vith the ,s'ibility that ]ter they may be used Ps the basis for note issues. To ylt. extent may not dangerous olitical tendencies dev-lor from this len ? Te ?esler:1 reserve Ith brnk rith a management miht well be influenced by political considerations in nsin;' its credit in the various oliticE,1 subdivisions of the country in tL1.1 way. 64 par (d). The Federal reserve board is given the power to review and determine the rates of discount fixed by the Yeer1 reserve ban17s in the vcriouo nections. The use of the word 'discount" is inaccurate. ..,:resum:h17 it applies to the rate of ro iscount by the bank. Another exm lo of lack of knowlede. Th117 in one other manifestation of te central bank idea engrafted uon a reional bank system. This may be construed as an admlsion tht the economic low sould not anply to the operations of this system, but a now character of .1tw to be devised by 2age 36, Federal reserve board. Supply and demand, which ord'.narily fixes rates and rrice, might not be satisfactory to the Federal reserve board as to some sections of ti.:e country, or, it migt determine that vien ti' e :conomic law establishes a low rate of interst at one point in the country, another point 3,000 mllos away should be given the advantage of that rte by a mandatory direction rather than by the natural flow of credit. The w*ole question of divergent rates of *jmiwaiioftobwomboom= interest cn better be left to readjustment by a natural nroaess, with some moderate limitation upon the discount privilege sitc as is provi,ded in Senator Burton's bill, rather tan by review of a central board. It in to be Presumed, from te wording of ti:As provision, that all classes of paper that regional banks are to deal in are to ho classified as to rates. There aro certain classes of paper that could not possibly be bought in ti s manner, as tie rates are subject to constant fluctuation, often during the srla day, by influences that cannot be controlled, and by competition. As no class of bills is secifically mentioned in this provision, it must unquestionably be a-,Taied to all bills that the regional banks are authorized to X 65 This would include foreign bills of exchange. The rates peid for such bills are baso-I upon the privet() discount rates preveiling in the countries upon which the bills are drawn, end also u on the demand rate for the particular kind of foreign exchenge involved at the oint of purchase. In the case of the erivate rate of discount, different banks and discou,t companies brought into buy. competition for bills often and usually offer different rates of discount on the same day. The demand rate of exchange, which is used as a base from wh:ch to figure the value of such foreign bills, fluctuates continuously during the whole course of every business day over a large ortion of the year. Can it be poseible that it is su posed that the Federal reserve board could establish rates on foreign.excl)ange and keep them stable ? Such a consideration is too absurd to be thought of for a moment- but there is no enotion that foreign bills of exchange ere one of the classes of paper that the regional banks are authorized to buy, and they are certainly not eli inated,by any wording in this clause of the bill, from being subject to fixed retes of discount. While rates of discount might be applied without any consideretion of the exchange rate, yet they would be uselens for the eurpose of ;urchasinR foreign bills of exclange, unless a demand rate of exclenge were also established, from which to figure the discount rate. Page 36, par (e). Every FeJervl reserve bank, possibly twelve in number, may be permitted to eotehlish branches or agencies in foreicn countries. There might thereby be established twelve separate agencies of 2ederal reserve Banks in all imeortant foreign cities. POP could. X 66 such a system be made to serve a uniform Air ose in connection with International excl.an.eo, either norml y o- 1-1 time of strain ? If oral reserve bourd exercises its authority and requires all twelve Federal reserve banks to utilize one agency in a forei'ln the country, again we come back to the central bunk rlan,- 8n admission of the weakness of this plan. By the provision of this narsgra h, free corn etition with American institutions is permitted tirough foloign agencies. An American firm or institution is just as fro to deal lf,ith the Feden I reserve bank, in pi er authorized by the bill, in Europe ae it sould to Nt home. Ifv number of Pederal reserve tanks establish =gencies abroad, they will be brouht together in re seme banking field in competition with each other. All of the large advantages of forelLn agencies world be loot, should this occur. Furthermore, how the bankers of :o-don regard the invilAion of their bunking field by agencies of twelve semi-Government Amecioan benks Certain1;, in dealings 7ith foreign bsnkels, the agencies of the Federal resorve banks would find that European bankers would discriminate between different agencies as to their strength. It might result in the agency of the New York b,nk getting all the business. Page 37, Sec. 15. The Secetary of the Treasury is risced In unrentricted control of over ST0',000,00e. of Government funds to be deosited with the Feeral reserve bans, of ,Nlch 0,00,(Yr. is nor on depolt with 1.0//. National ban7Ks. "e may say where it WTrill be so deposited, or whetter it shall continue to be deposited in lational banks or hold in lawful money in the Treasury. No single officer of the Government should have this Tower. As steted above, the exercise of the .eower K 67 now -.footed in the Secretary of the Treasury, whether lawful or not, is unwise. Thic will simely neke it worse. Fevoritism to localitiee is possible. The use of the Government's fundo for politionl (et lartizon vuroosas as to sections of the country la posoiblo. Do ouch conotruction could enter into the handling of the Governmeet's de ooite with a central bank. The Secretery of the Treesury would heve n power, under this revision, that would meke it eossible for him to nullify sound benking in the regional hank e and make it dengerous banking. By being in a poeition to tranefer puch larea Buns from one regional benk to another nnd from one art of the country to another, i.e could u oet all of the Arrangements of any or evory regionel bank. If the Peeerel rererve boerd would not yield to his demends because they did not agree with hi s oLinions, wi-ioh, while entirely honest might be dangerous to the country, he could ceery out hie oeiniono In s Ito of it. For instance. eupposo the Feeeral reserve board, of whIch the Secretory of the Treesury wes member, fe,ling that a certain regional bank fteirximt wee unduly inflated end t'et it oLould not be ollored to borrow from other regional benks, tut should he force to curtail ite operations, and every member of the board with the exco.tion of the eecretery of the Treasury so voted, this majority o inion could to rendered void through to eotion of the eoceetery of the Treasury in trensferrinz- balances of the Government in oteer regional banks to the regional bank under oritioiem. If thio particular eeionel bank happened to be eituutod in a district strongly of the political belief of tee Secretar; of the Treasury, greet preseure could be brouget to beer upon him. Again, if such regionel dietriet 1:apiened to be a crecis1 one, as fer as its votes K for .residont wei:' concerned, tse pressure miget even be stronger to help it out. It hes been admitted by teose favoring this bill, that the resent poser of the Secretory of the Treasury in being able to deposit money with such :jetional banke as he might see fit is subject to abuse, and it has been cleimed in some quarters that The extent of eucCe abuse, however, this ewer has been abused. at present is limited in the case of each favored institution to its capital and the security it can'nut us, and no such extraordinary amount can be placed with one bank as will ho poseiblo in the case of a. regional bank, where the Secretary of the Treasury could, if Le wised, lace $fE00,000,00. with a bank having a capital of $3,0'0,000. Every change of administration involving a largo difference in olicies, strongly effects businese. 'ow much greater will such changes of policy influence businees if any system is grafted u on thie country that will subject our v.helo banking nyntem to ection hase u on the whims of one individuel ? In order to extend the mandatory irovieions of the Act to State institutions, it provides that the funds of the ,oetel Sevings banks shall be vithdrewn from any hank which does not become a member of the syetem. State institutions, which now very largely hold -nose funds, are not today able to com ly with the provisions of the bill. State law does not eermit it, and the o oration of this bill will autometical y require the State institutions to at onee surrender their ostal Sevings deposits. 7ere it possible for a State institution to legell.y indicate its intention at this time to join the system, there might be as much justificution for this vrovision as there is for the erovis'on as it applies to National banks: but It ie uite unjustified as to institutions which have no ower at 69 estal sevings de oeits in the ttis tie e to go into the system. hawk of etate institutions are secured by aperoved collateral, which Ls been purcheeed largely by Stete inetitetions for the purpoue of securing these deposits. It is difficult to Hee what fair object is served by thiE mendete. sec. 16. 2Aforcnce can be Deride to separate memorenda regeraing the obligation of the Government being atteceed to these notes. Something, ,:'ever, can be steted in regard to the historical and economic features relating to the lesue of Government taper money. TIe claim that these notes are fiat money Lbs been combatted upon the theory .t they are secured by colleteral Ana that a redemption fund ie This is untenable. Neither the old reserve seeregeted provided. by benks nor the col eterel Bet aside for eeourity of the notes is the roperty of the Government, nor as the Government any legal title tlereto. Its obligation is a fiat obligation, unneceseary in connection with a central bank note, but necessary to cure the defects of a regionvl bent. system. The function of the Government should be limite to that recognized by all civilized countries. namely, the coinage of metal money, of, e fixed otendard of weight and tLe fineness, and the protection ofitc liw.gtzwil thereby, 4nt imposition of Areeler standards of veleee. The function of the bank should be to issue a credit inetrument, redeemable in coin of the stenderd esteblished and rotected by tee Government. If a committee of Congress today arbitrarily fixes 1009 of discounted paper and 33-1/3! Fold es safe peotection, eow do we know that ten years hence Congress may not decide that municipal and State bonds, or real estate mortgages, or eny kind of bonds, or even stocks, will afford edeunte protection, and how do we knoe but that Congress will be satisfied. http://fraser.stlouisfed.org/ Page 37, Federal Reserve Bank of St. Louis IC with a ten or cent. sold reserve, or with none at all ? 70 The nutural and necessary safeguard against either an over-issue of bank notes or a reduction in their credit value, is the judgment of the aeople who are called ueon to use it in trade. They will daily decide whether a bank note is ade uately protected by collateral, and whether it will be redeemed in gold upon presentation. The res,onsibility of maintaining the credit value of the note should rest upon the management of the bank, and thereby the public is assured, through the management, in the maintenance of parity of gold and bank notes. Page 37, Lines 4 - 5. Here is another evidence of the circumlocution necessary in order to try and give the regional bank system the safety of a central bank. The Federal reserve board, which as a body has absolutely no financial standing, is given control and custody, through its agent, of circulatin for issuance. In a central bank, of course, such notes would go In edietely into standing. notes ready te3 control of e bank of large caeitel and financial It seems a rather extraordinary res onsibility to elace u on men who may, before their appointment, have been entirely without such responsibility. Pe 38, Lines 1 - 9. It would apparently not be possible for regional banks to pay out their notes in exchange for balances against them that might occur in a Clearing House in which they might take art, or otherwise, and it eould apeear as if it would be of no value to them to be able to do so in any event, where the parties to whom the notes were offered did not wish them. Such erties, after having K 71 ree:ived the notes in settlementi of differences dne them, could immediately turn around and demand gold or lawfUl money from the bank in exchange for the notes. Such being the case, how would the note issue work in ease loans had boon made to member banks which they desired to have credited to their account and which were withdrawn by checks to third parties, WLen such eheCVs were presented for nayment et tre regional bank and at a time when the regional bank wee being forced under its renerve, because of the It must be remembered that these borrowIngs of member banks ? regional bunks have not the strength of the combined reeional banks, even if tIey can borrow from each other, for eael must maintain its own reserve, which is a. diesi ation of reserves, exactly in line with that which Is being criticized in our banking system and has caused so meth concern to bankers throughout the It would seem as though an extended explanation of how country. this would work should be made. In a central bank. all of the free reserve held by the benk would be at the disposal of any branch that micht require it, due to local stress or emergency. Page 39, Lines 19 . r14. It is clear that if regional banks received notes of other regional banks theathem that they cannot nayAout, but must Cher return them to the Treasury of the United States for redemption Such being the ease, or to the regional banks whic issued them. who is to 1Jiy the transportation charges ? The regional bank recolving the notes, or the regional bank u on whom they ere dreeen ? It would a;n-ear as thougL the notes might go to a discourt in outlying districts, unless the regional bank on whom they were drewn was obliged to pay such transportation charges. K 72 It would eeem that this metter should be covered specifically. Pace 41, Lines 1 - 7. The most careful reeding of this Section fails to disclose how te note provisions of the bill will work. Thy is it proposed that a rate of interest will be paid aeon notes is the rate celculated ? 71y is advanced by the Government ? Does it operate as a restraint, a rate of interest nrovided at all ? and if so, upon whom ? If the Government gets the surplus earnings, It certainly will afford no restreint. To the extent that the earnings go into a dere:At and insurance fund, it im;airs the value of the furd. who gets the inter st, and what becomes of it ? Ye have lore the extreme situation thot the Government is to issue its notes, for a purpose in which the Government has no direct Interest, and ()large a rate of interest upon the issue of such notes. It is difficult to underetand the theory upon which this transaction is besed. If there is any way in which this interest proposition can be worked out, it sould be charged- only ueon such amount of circulating notes as are Outstanding, otherwise unnecessary coots would he incurred. For instance, ouepose a regional bank took out 00,000 of circulating notes to dietribute among its branches,to be paid by them on demand. Probably every branch would have to carry a certain amount of the notes on hand at all times in order to meet emergencies. If the regional bank had to pay Interest ueon such notes, it would seem us though it would unnecessarily curtail their use and availability. Pate 41, Lines 14 - 17. This erovision is a further statement of the powers and responsibility of X 75 the Federal reserve agent, who is also chaireeen of the board of regional bank. pep2e 41, Lines 173 - 24 Page 42, Lines 1 - 5. a This is only a continuation of the dual power of the Federal reserve agent and ohairman of the board. V/ Page 42, Lines 18 - 23. This provision reeuires circulating notes, after preparation. to be dotosited in the Treasury and to be held "oub,ect to the order of tre Cometeoller of tle Currency for their delivery as providei by this act." Tee ect does not er eoifically give anybody authority to order the ComIltrollor of tee currency to make delivery. As efter erinting they are ceeecial y coneignel to 1.13 care, it would seem as though he should have come authority to deliver fl-em. This may not be of sufficient innortenee to ho wortry of consideration, but as it is an evident lanse it seems test to call ettention to it. Page 44, Lines 7 - 13, According to this provision it would seem ae though Federal reserve tanks could only receive on deposit from member banks, checks and drafts drawn upon depositors of the Federal reserve If this were true, such Federal reserve bank would never Vbank. any checks on deposit that were drawn upon member banks of receive other Federal reserve banks, oonseeuently it would never be in eosition to forward checks or drafts to ether Federal reserve banks, *.cordance with the latter part of this provision. On the other hand, on Page 32, Lines 1 to 11 ( ) Federal reserve banks K 74 are authorized to receive from meeber tanks cheeks or drafts upon any solvent bank in the Federel reserve systole. e:e may consider, thPrefore, that a Federal reserve bank can receive from its member banks checks or drafts oratn upon member banks of other Federal reserve banks. Thio being true, the second part of the provioion, namely, that zeeeral reserve banks may receive from other ftderal reserve banks drafts drawn by any depositor on any other :eederal reserve bank or member bank, could be taken adventage of. The natural result of this provision would be to delay the oollection of items; and one feature of our present syntem that has been very generally criticized is specifically authorized in this paragraph; namely, the roundabout routing and collection of deposit items. For inst!nce, suppose tIat member banks in a regional bank situated in Chicago should deposit items draen upon member banks in the regional hank situated in :ew Orleans. And CUODOS that tho Chicago reserve bank needed Nes York excnange, and did not need Now Orleans exchange. The New York regional bank would to authorized, on Pape 32, Line 7 ( ), to accept each deposits "stalely for excIange purposes." The Chicaeo regional tank could therefore forward these items to New York for cred-it to its ac,ount, in order to eaee New York exchange. Than, if the new York regional bank needed St. Louis exchange, it could forward each items to tle 8t. eouis regional bank. This bank, needing Chloa,o exchange more .tan Let Orleans exclange, could forward the itere to Chicatzo for ite emit. This circle might be lest up during the thole time that New Orloans excange was at a discount, ouoh a procedure might seem absurd, if it were not elactly in accordance with the way such items are being handled today and if the question of cost were not involved. For instance, If 1451. Orleans exchange were at a oiscount in Chicago, the Chicago 75 regional bank naturally would not see any reason why it should assume the loss. If New Orleans exchange were at a discount in New York, the New York regional bank would not deliberately take the loss when it needed St. Louis exchange and was authorized to use such items in order to make St. Louis exchange. Again, by should the St. Louis regional bank assume the loss, if Nez Orleans exchange were at a discount in St. Louis and Chicago exchange were at a premium. Of course, in the case of a central bank, this ouection would never arise, for the Chicago branch would forward the items to the New Orleans branch for collection, as it would be more profitable or the central bank to collect the items immetiatoly than to send them around the country from one branch to another and This is another instance of where the be out the use of the funds. regional system retains the defects of our present system, where a central bank would not. Transfers of funds, for exchange purposes, would he much more expensive between regional banks than between branches of a central bank. For instance, we will suppose that during a period when New York exchange was required by those in the West and South, in order to pay for goods purchased in the East, funds were deposited in, say the Chicago regional bank, to be transterred to New York. The Chicago regional bank would have its deposits piling up in Chicago, and its deposits in Yew York would be falling off. The Low York regional bank would be losing deposits, and its reserve might be going down. The Chicago regional bank could only make suoh transfers without shipping currency, for sash periods of time as its balances in 7Tew York would enable it to do so. The same condition would therefore etist as is true at present; namely, that Eew York El 76 exchange woula go to a preium, reeaiing ehipeat o rrency frem Chicago to New York, and later, some months or weeks, when seasonal demands changed in accordance with the actual trade currents that have been clearly outlined for years, the currency would have to be returned by the New York regional bank to the Chicago regional bank. In the cane of a central bank such transactions could be made with the greatest possible economy, for money could be deposited In the Chicago branch and paid out by the Yew York branch without changing the reserve of the central bank one dollar. The result would be that this process could undoubtedly be kept up until the exchange position turned, without any shipment of currency whatever. In other This would be true throughout the whole United .tats. words, with the regional bank system, we would rave no greater aiobility than we have under our present system, for the natural flowing of exchange would be between districts, and the only difference between our present system and the regional system would be that a larger portion of this might go through a single Aistitution in the district than direct from member banks, but the lack of mobility would exist to exectly the same extent. In the case of a central bank, of course, perfection of mobility would be reached in this matter of exchange, exactly as it would in the matter of reserves, for they go hand in hand. NOTE. Page 44, Lines 22 - 25. The opponents may endeavor to answer this latter proposition by stating that the Federal reserve board could promulgate -rules and regulations that would prevent delayed collection of items. If they do offer ary such stIggestion, you can easily show that, even if they did so, and K77 thus stopped roundabout collection, it (mid not prevent the lose that Lie regional benks would meet with in being obliged to make exchaeae that WGS at a discount. ;Tile tlea' might charge such exchae6e to their patron, yet it ie all adding an unnecessary expense that would aot exiet in tae oaeo of a central bank. Even 1.1: items were not co,lectuo and were Laneled uu exchange back and forth, the country ae a whole would have to ethnel tbe load of interest entailed, even taough it miget not appear in any indivieual risidaukatual inetance. ale can be more clearly understood in ooneidering the reavon why a oentral bank would prefer to collect at once iretead of havena itome floating arouna without collection, from ono branch to another. Page 44, Linos 17 - 21. We find, in the Section relating to note ioeuee, a provinion that the aederel reserve board aay fix charges for the co_lectione maee by Feeeral reservo banks 'hi eh ere described in aection 12, page Z2; al. provieions in regard to rules for further roaerve banks to act ae clearing agents. This ie all out of plane in the bill, and another illuetration of its poor arrangement and language, PreeumalaLy, 1,1-0 clenring functione are limitee to the handling of items between the member banks alone. If the Federal reserve banks intend to aeoume clearing furctions, they woule be incomplete and nuite ineftective ae to the convenience of the country, if those fu ctione wore limite, to iteme drawn upon meabore. Instead of having an inexpensive and efficient aystem of clearing, we would Lave two eyeteme, neither of 4bich would be 76 efficient or complete. Under existing law, it would seem as though theee operations could be carried out only at the rate of 49,000,000. e month, unless such prov..!sion were specifically repealed. Page 45, 6e0. 18. Pape 45, Lines 21 - a. Might not the Federal board seriously discommode tle banking eoorstions of e regional ''onk, through the exercise of this porer T Active managers of banks ere obliged to look ahead end fipure upon the probable future neot.s of their customers In connection with their maturing paner.i' The Yoderal rererve board wonle only son whet had transpired. They could not be kept informed of the opinions of the menspera of tho regional banks regarding the trend of business in such banYs, for Penh matters change to a certain extent daily, dependent upon tla business that develops, and the opinions of hankers aro necessarily bated upon the sub-conscious reeponing that leads to :lodgment that cannot possibly be erolained in words. To bn arc, such Tederal reservo banks could take out circulating notes enual to the &mount of tha National hank notes, but tl-cy miglyt not be able to use slch circulating rotes, for could only lut out thes notes when they were reo.uired. _Page 46, bInes 3 - 13. Presuvably the Treasurer of the United 6tates would have authority to deposit each 1a4fu1 money with the rOonal banks, even though it does not staLe so specifically in connection with such funds. it is concoivable th,9t, es this proposition 79 might work out, each regional tank would take bonds offerec by Its member banks. Such member banks might withdraw lawful money from the regional bank in order to deposit it witt the Treasurer. The Treasurer, in his discretion, might V.-en depesit such it i.e to be presumed. that he MY redepoait it,lerfnl moeey,Ces anether etring to his Thi with any regional tank. edready too powerful bow, for it would add to hie power to transte the Treasury funds iron.. one rce,ional tank to anolLor, or to itbdraw -Um from aL4 or ell, ol suer a.a=ants of lawful money deposited by Mitional banks in retiring circulation. Such funds would amount to an a.;:known portion o1 sovon -nundred odd million dollars annually. Paso 47, Linos 4 - 5. if tLese notes are isaued upon tie same terms and non&Itiono UP 7ntional bank notes, it will not be necessary for the 7ederel reserve banks to maintain any reserve against This v,ould mean that tkle capital and surplus security. that is now required of National banks before they can take out oircuJation, would be depleted 90 and tIrl Federal reserve larks Tould ultimately Itiv outstanding in this class of note snvn times the amount of their capital, provided every Pational tank onme into the system. Page 17, Lines 5 - 9.-21;-.Le provision states that UnitA '6tates OcnUs bought by a Federal resdrve banl: 46adost which there aro no etional The use o t):A word "may" bank notes "!EN: be emahang:ed," etc. in this provision undoubtedly refers back to 2ago 11, 2se. 8, L 12-El, 80 whore regional banks are authorized to take out circulation against In ttls connection any bonds deposited with the United States, it might be well to notice aFein the wording of this authority, which is es follows: "Teen deposit with the Treasurer of tte United Statos of any bonds of the United 3tates, in tte manner provided by existing la: relating to rational banks," etc., etc. The manner cf deposit cleerly refers to the oeietlne law. The kind of bonds tLat way be depocited is not roferreii to eeistinkc law, but any bonds of the Unitoe Ztates my b( co deposited. Tiis would increano the poseibiJitles of cue/. note issue from 11747,00O3C'e3. to 966,000,0e'). e 47, Lines 14 - 17. Lines 22 - 24. r, period of th:rty cape T \/// N12 is It necessary to reouire banIcs to maintain reserve aealnst depoeits which may not thature until after a The only object in making time deposits is to ottain a higter ratn of interest than eeald be :uetified by eposit, the prinoiple involved being that a banker, knowing that he Jo 4z-eine to haye tLe usc of to money for sixty or ninety days, or a Tenger period', is able to make loans extending over such periods vith similnr maturities. Fe is therefore able to pay higher rates of interPat on so h deposits. There is absolutely no eyeuse for reediting the maintenance of reserve aeainet eecl dcpeoits, for at the same time that they are roaelved, lcane may be made maturing at the 0E4.36 time or just before them, so t'eat payment of such dopecits can be arranced for tec u1.1 leneth of time before their efttarity. /hat poesible principle cen he involveL, tieretere, in renuirine banko to hold a reserve ageinet such deposits T 401tie a demen K 81 It simply makes such deposits of less value to bankers, and consequently they will not be able to pay as good rates to their customers; so that the public in reality will be lcsing a profit that they might otherwise have through the tying up of funds in reeerve unnecessarily. It would seem far more reaeorahle to require time depoeite to be invested in lcane s eonically lecturing with, or just before, such time deposits. But the banker houlo be allcwed to uce Lis :udgment in such matters, e'er it is only by doing co that he can handle his business economicelly and in a way that will give the public tie best value for its money. Page 48,-Seines - L5. gage 49, Lines 1 - 21. In the ease of s central bank, the country harks, reserve city banks, anS central reeerve cites banks, would all be on a par as far av reserve recuiremeets were concerned, with the exception of the pooeible necessity of tie country bank being reouired to maintain a slightly larger cash reserve, beesuse it could not always have a branch of the central bank in its town, from which money could be obtained if suddenly needed. The reserve city and central reserve city banks, having branches of the central Sank in their cities, would be able to obtain further cash at a moment's notice, if transactions during the day made more till money necessary than had been figured upon. In the nese of regional banks, there might he come question as to whether banks in central reserve cities and reserve cities eould always be eble to obtain money immediately, because some banke in such cases would have smell capital and curteiled fecilities. &von though this were true, however, the fact that courtry be/Ike miglt have to wait a day, K 82 before being able to replenish their till money, would seem to require that they maintain a greater reserve than bankers in reserve and central reserve cities, if there is to be any difference at all. Pw 49, 14ir,e8 22 - 2b. Thin isa most elotraordinary proviodon. Nen.ber banks are authorisedjoto deposit comoiercial paper ior one-half of the amount of the reserve to be maantained with a Federal reserve tank. This deposit 18 not in the nature of loan,loip and merober banks are to pay no interest upon it, and it amounts merely to the opezezation of a portion of their portfolio arounting to one-half of the amount of reserve that they are recnired to keep, wi.th the Pederal bank. Why should not every bank deposit paper .,:or thin purpose, and keep half oi its reserve indefinitelv in such paper Proper banking v2oulu recuire tat member banks reciscount elicib)o paper and Oave the procees placed to their credit in the 'Federal resorva bank, whicI sno. could then be eounted as reserve. Ii. ttis were done, the bans 4c)uld not carry paper a6 reoerve unless It were of sufficient value to theth to do co to justify tho payment of interest. As the provislon stands. it would actuellx redueo the eollount of cath in bank reserveo required of mouler banka. If this reeuction is justifable, t:y Lot re0aoe he percerte of rosorve required to be held Various ob:ccItions appear to the provisions on tIls pave al? to State bank roservee and deposits. It would he far wiser to ineve the reaOustment of the various State requirements to the vardeus PaFe O. K 83 State lecislaturoL, who by enabling acts, very simple in character, cur. Luile the reserve reeuiroments of the Ofatoo conforn to the reserve reouirements of this At as to those inetitations gho become meta:era thereof. Pap' 5C, Lines 10 - 13, not cal7 would pr titit 2iLtE tanks anu trust cC=1)E.LiaE fret kcEpirg tle 7 redeposit0 reserve am recuired eE prudent by various tAato la.s, but reulc. Irte thr: orfertunato effect of reetriclixt tic fo,e4a opert.tioEr of Euch t.-tAx irstiLlEtiont so tlat tley mielt Lc cf,rlous3y embari-aered In trarsaetiore reeosear, or the cor6uet of our foreign coimeree. Laree irstitutions doln. a lcrc,e isre of tle buktinees of international o7c1al.te, whichil.- a rocuired rrd necessary faciiit,! ;ro.::ilited from In connection vvith our com:,e:ce, mii;ht be abso3ut, partpatine in the plan bw tle provloions in thip section of the bill, It wolij tznect t,t, lare and small nine, bat t-i:E., influence woule, be 6tron6or upon trc, ire institution which ie por':erming serve a of the eroateSt TAIJA70, becaueo t. business rould ,-rouortionaty ht.) of groatn value to that inctItution and it -Tould eatureily be unwilling to surr-nder it, ineteicls can be citd whnr,: this yould bs sn actual prohibition o':. this c`'grt:eter. Page 50, Linea 11 - 16. The languaet here mitt be construed to prohibit a, member bark from rediscounting- bills which it had discounted for a non-member bark. F:Irttarmore, any member tank bills with the 5'eeera3 reserve bank and at the same tjme extending credit or facilitis:: to n non-memtAr bank, migtt which Is cilaL-crantin K 84 be held as violating this provision of the bill. The consevuencos of a construction of Vie paragraph applied for the purpose of forcing membership in tic association are too serious to contemplate. The benefits of this system are suoposed to be extended wlen possible to Ztate institutions. Ices this intend tbst witbin sirty days all -tate institutions, thether tbe law pe;-Lits theu. lc become rombers or not, sbell eiznify tleir intention of Lecoming members u coon as Itato 2,ar permits them to do so, one or ten years levee, and bind themselves irrevocably to tle violsEitudes of tlis plan, under penalty of being ceprived of freedom of 6oinE business with member 1,en1eY Zay not this be made tht instrument of enforcing a contest between StEte institutions end rational tanks 1 Tle unrestricte( power of construction of the meaninF of langusEs of this character, in tile and °tier instances in the bill, will naturally raise doubt in the minds of many bankers aa to whetier it is safe to submit themselves to the jurisdiction of this board. 2age 51, 1 - 9. The provision that banks in Alwika or anywhere outldo of the Oontinental United States ::.ay become members of any V/ Federal reserve district, Is an attempt to cure the defects of a regional system as to our insular possessions and territories, which would not be necessary with a. central bank. Agencies or branches could be established at these points which would meet all the requirements of each situation. It iv extremely doubtful whether it isawise provision to extend the operations of this Federal reserve regional. bank system, without restriotion, into these far distant sections. K Page 51, See. 20/ 85 This is another attempt to enforce compliance with the terms of the bill by National banke, it is unnecessary, as the other measures to enforce compliance ate amply effective. This provision will work most unfairly to banks in this country, even if all of them become member banks. Different National banks hold varying amounts of circulation in proportion to their deposits. Such circulation has been taken out under the present law. No one can determine hem soon they will be able to retire their circulation from the provisions of this bill. Nothing justifies the passage of this unfair provision, which will operate against banks which have taken out circulation, many times ageinet their better judgment, because they have felt that the country needed the extra circulating medium. Such banks are being deliberately legislated against,in favor of those who have simply taken out the amount of circulation required by law and have preferred not to run the risk of loss in overnment bonds that they would have to purchase in order to increase their circulation. Page 61, Sec. 21. This section does not seem to have been drawn with careful regard to the provisions of exlsting law with respect to bank eicaminations. As to special examinations, it places the Comptroller of the Currency under the direction of the Federal reserve board,. although he is now by law subject to the direction of the Secretary of the Treasury. As the Secretary of the Treasury, under Page 27, Lines 11 to 19 ( ) is authorized to act in opposition to any provision of this act which might curtail his existing rights, be would, under this provision, again be able to K 86 overrale the Federal reserve board if he so desired. The Comptroller of the Currency is placed at the service of the Federal reserve board and the power is apparently given to them to require such examinations. If six members of the Federal reserve board voted to have any special examination made, and the Secretary of the Treasury voted against it, he would be able to prevent the examination, as his instructions to the Comptroller would be greater authority than those of the Federal board. 'age 54, Lines 6 - 14. This language can be construed as to so restrict the dealings of business men with banks of which they are directors, as to impose great hardship upon banks in country districts. This may also prove a serious impediment to banks, V7 particularly in country districts, from obtaining the services of business men as bank directors. Page 65, Lines 5 - 16. The language here would imply that any stockholder in a National bank who sold his stock at any time, feeling dissatisfied with the management of the bank, would still be liable to the extent of 100% of the par value of his stock for the debts of the bank. Page 55, Sec. 24. National banks should not be encouraged to mae fixed investments. Their deposits are subject to withdrawal on demand, and the demand for accommodation of this character by farmers can better be met by the creation of a new class of institutions which will bring K 87 the farmers into contact with investors, rather than by employing bank capital in the making of mortgage loans. Page 56, Sec. 25. This section proposes that National banks desiring to establish branches abroad, shall set aside and appropriate a sufficient amount of capital for that purpose. upon any such basis, unless an entirely separate incorporated. I/ It is impossible to establish branches A foreign branch of a National bank, by reason of its drafts and transactions, may at times have all to the extent that it uses credit, not but a institution is considerably alone obligated for larger sum, at which these drafts are made payable. of its capital and, that segregated capital payments at any point Unless this plan contem- separate amount of capital and the lodging of this investment in unliouid form in the city in which plates the seoarate investment of a the branch is located, the co-called segregation of capital for this purpose is perfectly ineffective. Any bank which establishes a branch in a foreign country and conducts business there, should be liable, at home and abroad, for all of its debts, and all of its capital should be pledged for that purpose. Page 58-, Lines 5 - 6. We have here another provision which, while entirely groper and right in connection with the business of the United States that has to be carried on by the Secretary of the Treasury, is wrong and unjustifiable in relation to the banking system proposed. Page 59, Sec. 29. This would appear to be the most necessary and satisfactory provision in the bill. Washington, D.C., December 5, 1913. Hon. Theodore E. Bui-ton, Washington, D. C. My dear Senator, In 7,resenting the attached paLer, I wish to have you thoroughly understand that it is not my desire, intention, or exiectation that it be used by you as an address before the Senate. I took this form of presentation, as I felt that I could get into the subject personally a little deeper, and possibly with more effect, by imagining myself in the position of writing an address that I WHO, to make. In View of the debate in the Senate which occurred yester- day, that rather emphasized the necesty of passing a bill that Is not a central bank because of the plank in the Democratic Platform, I think that the matter referring to this plank should be very strongly developed, and to El point where those to whose minds the matter is brought will realize that the country, because of your remarks, will know absolutely that they are not bound by any demands of the people that we do not have a central bank. It seems to me that you have a great ocportunity to settle this contention once and for all. Should you so desire, we caneasily incorporate in this T.aper, as marginal notes for your own Information only, the partic lar places where certain things 87-ear in the bill that are referred to. One reason why it seems wise to endeavor to clip the wings of Mr. Samuel Untermyer is because Senator Ov,en, in making his Sen. Burton - 2. p,osentation, stted that Mr. Untormyer wF,s one of the most patriotic gentlemen in this country, or words to that effect, w'_ich would seem to imply that it is the ,resent intention of those in control of fle Democrc.tic program to again mploy Mr. Untermyor // to c(rry on some sort of investigation thtt may seriously disrupt business. There is undoubte,Ily a very stron, undercurrent of fear existing in the minds of businesp men, not because of any truth that might be brought out concerning business methods, etc., but because that they anticipate further misrepresentation, and consequently do not know where they stand. Mr- Untermyor used his Position as counsel for the njo committee entirely for the purpose of exploiting himself and his unustuil ability as a cross-exami ning 1Fr7Yer. Sincerely yours, -