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F.D. 12A.3 9


Federal Reserve Bank


District No. 2
Correspondence Files Division







'vett, i.,/pti Ds, 0 'ao RA7 4 ())


577eo,u6 'S

Poo -r

"Jim issw) "si

"'se_ . - 7fr, e Mai
on FA. 09C-7


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.


hatar Hotel when you reach t
and we ca- then arrange a

etter call me up at

Yew Willard in the morning


ithfully yours,

Benjamin Strong,Jr., Esq.,
New Willard Hotel,


Dictated by Senator Root just as
he was lea-Ting his office, and
signed by his secretary.

the Pow-



February 7, 1914.


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.



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


Fa hfully yours,

Benjamin Strong, Jr.,,Esq., President,
Bankers Trust Company,
16 Wall Street,
New York City.



January 8, 1914.

f<cE v esip
JAN 1 0 1914


Dear Mr. Strong:

I am obliged to you fo your kind note of December

I hope P sident Wilson will appoint a good

Federal Reserve Board but I am very much afraid.

ery sincerely yours,

Strong, Esq.,
Bank s Trust Company,

16 ,all Street,
New York City.




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.




December 23, 191

My dear Mr. Strong:
I have to acknowldege an

of December fifteenth regard

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.


Benjamin Strong, Esq.,
Bankers Trust Company,
New York City::


incerely yours,

joii the


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


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


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


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

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


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



'*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.


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.


Our cyst=

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


New York City
St. Louis
Central Reserve el:ties

New Orleans
Fort Worth

San Antonio
CedPr Rapids


St. Paul
Kansas City,Kan.
Kansas City,Mo.
St. Joseph....
Salt Lake City
Los Angeles
San Francis op

Reserve Cities

4206,098 14


On Hand

4289,463 11,'.

$ 17 468 14
2 000

3 058
1 726
24 704

425,650 34

432,397 1;

57,066 3.;

$ 20 974 14



$ 3 506 14


1 058

2 046
18 807

320 14

18 056 T.;

17 030 /4


6 025
2 703

5 579
4 785
3 02514
2 468
1 683
1 162

2 489 3.;

2 408
1 499
1 464
6 14111
5 718

486 34

2 332
3 072

2 077
1 957
6O46 1;
5 156
2 508
5 118

2 957 1;

2 471 142

4 512





1 162

325 14

5 468
3 726
1 044
518 14

4 990
1 199
4 086 14

323 16;

6 092

4 648

3 799
1 071




95 14

2 046

486 Y.




1 033
633 14


536 14

4 264

1 296

5 897
1 02634


1 191 14



2 848 14

5 061
1 019
1 209

7 520
1 127
1 818

2 459

4 051 14

6 473 14


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



$141 952 1.;




I'm Hampshire
Rhode Island



.;1 1 876 M

1 111
6 748 M
1 230
3 123




45 004M


14 066
New York
7 720
New Jersey..,
20 253
553 M
1 650
District of Columbia
344 306 M
3 536 M
1 996
West Virginia

North Carolina


North Dakoti.

South Dakota,

3 551

New Mexico


581 /I


. ...... .

2 989 11



212 M

447 M
7 418
1 555
2 320


12 518


3 440

4 734

141 1I

14 704 M
10 574
15 854

418 M

7 795
2 786


571 M

2 332


4 545

6 087 /I

3 752
1 631
5 568
1 344 LI
5 150


705 M

5 348
2 674

1 360

348 M

581 M

98 549 Id








3 726
5 469
1 464
342 189 M
1 402 M
1 298
2 806
3 230 M
1 718









A 243

2 321 M
1 035
3 511



2 437




504 M
236 M


4 020 II

2 102
627 M
2 243



3 879

:2 858 LX
9 096 M
5 246
8 925

,16 131 11


2 418
1 444

1 442
765 M
5 100
1 885


3 959 II

057 M

067 532/1
5 832 M



707 M
557 M

2 393

1 592 M
1 007



10 666
32 796

1 113

South Carolina

2 800 11
1 908

Deficit On Hand

19 356 LI
962 /I

0149 037 M 0262

°25 283 M
5 608 M
5 328


6 929


382 M


930 ,I


757 M
3 466
717 M
2 907
-16 674 M
3 027 11


1 639
4 365



233 M



l0 822M
0113 940 M


15 M
15 M

0 is m


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.



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.


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

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

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



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.



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

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 ?


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


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.


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




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.


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
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


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


their reserves in order to meet the demands of hoarding country

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
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


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

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,


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

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

Sen. Root


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

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


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

by Senator Owen.

Very truly yours,


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,

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.


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,

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



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


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,

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


if there were not a, single loan

on stocks in this country, the offering of such securities upon the




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?


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

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,

Lelepti:-Tro,Otzt-43:754;#7- Cortalete
Acts thEatvg;f.. .D3118'
mr,-ersig laq,:..-1.dc
chanztelf., 7 7:1P-A. e


rono,/,...., -.nate;

atd December;-g, 1910:



ifte mazer


1.1;ft Iona= Ettkilfiett



.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


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


-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


o that V ,

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







.gea to ask fol.

oi7 tb.9




f3,1:04 that: -Zi 'ea left iiteosjP.Le.

. amount spenttr---.1veilerts.


is on, -of

0-7 atrtervili,atle:-.i. 'The NatIonai
arV, seo they Rode


sr'-fiz, f,17-a-ad

that abolit
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
tLne Arlo -teem
increase,S. pertaipz,- P4-2/401P4Z,7161fiatft 412.1221t

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, yj,sittattratis,4:4- 412itterl.tat-4


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



The amolmt paid b.,.

exparte bas never to lq kno-aeilee, arid so
OW33.. in

will %eve



-!'"I'D.,4.:Nir Wit 7411/4i. may _.feel willine to

frt. -341.3,y



7tOmellr', ;



or, Invert,: Asia
have be -etas -to

use. The In laid out Werly
3, OGO 000 ,C.):10

is sinkil,y a basis..:'3X1C1


of thOir


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

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
i'rom data which. 713 has accees!ble




Cr? lc ;,7,7

fri ft


veil feel an-,:icely




him fur aztjthilIc, neat vt,11-

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.
His estimate is $7,000,000,000.
I would use that figure with some
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 -


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

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,



(I I




74Cniteb -States





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.



47' cmo Al(












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

"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.
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
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.



SENATE #4160.


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
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
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
The Auditor for the State and other Departments
shall receive and examine all accounts of expenditures of
the commission.


SENATE #4160

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

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


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.


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.
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

(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
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
y a finding of the commission, in the one case,the the InterUpon
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
,..etition to the Attorney General, who shall have the right to
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.
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
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.





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.
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;
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

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
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 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; t



-1frciteA ,.2)tates Senate,


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,




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,


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



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

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


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

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

With kind regards.
Yours sincerely,


S en ate,

December 20, 1913.

Mt. Benjamin Strong, Jr.,


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,


7-000RE E. BURTON.




December 18, 1913.

Mr. Benjamin Strong, Jr.,


Bankers Trust Co.,

16 Wall street, New York


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,



11niteA States S en ate,




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

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

I cannot too strongly state how much he has aided me.
Very sincerely yours,



'NniteA ,States Senate,

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



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.


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,


Farm 168

Al4 j







Q115 W 23

)---) 3










tate0 Senate,


Dedember 8, 1913

Mr. Benjamin strong, Jr.,
Bankers' Trust Co.,
New York City.
my dear Mr. Strong:

9 t- ^ 1



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


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


2initeA States Senate,

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,




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


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
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


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


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

that would seemingly

tie the hands of Democratic legislators concerning a problem

which had not been before


the ieople, that they un:uestionably

knew nothing about, and that could not possibly have been considered
in relation to its value to
who wrote the plank.


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


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

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


bank, for the people,

for a moment, might have read

without consideration of the
This is
the other version.


a small

part of the question, however, for what really concerns the


is whether a central bank is the thing that should be established
in this

country, or some other banking system:

and I ask my


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


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


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

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


financial matters of the country.

Secretary of the Treasury, who



the man who

that he could, of his

aproints him, is given such power

regional bank, or of all


is not elected by the 1,eople and

whose personality is unknown to them when they

volition, incollusion with




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


such as has never been seen in the history of the world.

deal about

We hear a great
this matter of



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


But it


House bill assumed its final

either directly



and given to understand,

indirectly, that whatever

system, must


must be borne

those who testified before


offer as to whet this country might need, or as



they had to

what might be a

take into consideration


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


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


might be



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


As soon



how luickly a central bank

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



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


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


of benefit to

2211gxaxx that only the truth shall be put before them as the result

ocINT432ilgtlons, xxitxtInwarigxwatxraminittxtxxinatImixgx±xxickx

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,

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


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

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.


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.



Announcement was

made far end wide that 180 men, through a system of interlocking


controlled 39 billion

 this country.

dollars immulueskof

the wealth

Wes the attentions of the people called to the



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?


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 ?



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
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,


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



But on account


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


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
strength of its membersmcdadrmake reasonably safe.

than the


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
vrlues in cotton that they are obliged to as af\proi,ortionate

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



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


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, the
Federal Reserve Bank of St. Louis

South as well as in other parts of the country,

and they

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

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
Federal Reserve Bank of St. Louis

of any supel-ior power whatsoever

with the same facility,


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.


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

It is to meet four

may be said to

times a year, so that its

he somewhat intermittent,


even though letters and

various information may be forwarded to the Federal board between
Can it be expected




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


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

arteries of



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

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



such connection in comparison with the
the board of a central bank, that is



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

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


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

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

ln" recognized ar being economic


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


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


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

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,
ld could buy bills and hold them, and dis;.oso of them, in an
Federal Reserve Bank of St. Louis

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
Federal Reserve Bank of St. Louis

with the Bank of France would never have considered



dealing with it in such

It would naturally be opposed


to doing so in any event, for if our regional banks had eight offices
doing bus i ne s si in keris


would recognize them only as


French banks and would naturally


disposed to help them out
operations of the eight branch

not feel

In following the

of difficulty.

of regularly


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


banks by

for the conservative
the weakest link

as they would know that the



standing, it

As a matter of fact,


bankers to judge

the chain, And particularly

regional bank could be forced

to take ± over the weakest in effect, should
so demand.



political board

condition would probably

already have developed before any necessity arose for


the gold.

It seems that great stress is laid upon the system of

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

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.

a banker might consummate a

The day after an examin-


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


officer of the bank in effect, and would lose his entire point of


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


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 ?


with whom they

borrowings would unquestionably

undertook to

have to be made

to the full amount that the member banks were required to



reserve in regional banks before they could obtain any credits upon

which to do their

daily banking


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


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 ?


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.


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

With the insurance feature incorporated in the bill,
probability that the capital of a regional bank

there is a real


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.

Page 2,

Line 25.

In a regional reserve system it will very
likely be necessary to readjust districts

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
-.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


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

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


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


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


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
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


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

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.


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--' ,


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
that they made with the GoVernment when they took their oath


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
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



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

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


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


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 ?


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




is hereby empowered to adopt and pro-

mulgate rules and regulations governing


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

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 -


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 ?

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

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.,


for if the banks are limited to their


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


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.
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

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,


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.


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


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,


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

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,

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




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.


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

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



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

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


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



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-

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

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


One-half of one per

month will rarely exactly adjust accrued dividends.
The stock of the bank is to be subscribed at par.


banks are organized in the districts having large banking capital,

banking quarters, an exensive


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


therefore start with its

that every


Federal reserve bank will


at the



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 ?


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 aurelus.
Federal Reserve Bank of St. Louis

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


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.


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.


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.


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.

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

In 1907, the distribution of the general fund at the
time of the nanic was the subject of Congresuional inquiry. Going

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

Lege 28, Lines 18


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

.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
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


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

(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
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.


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

-'?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


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.

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

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
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 the door to the ,,limination of lawful money reserves by the
Federal Reserve Bank of St. Louis

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


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

: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



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


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

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

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


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


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


and effectively, than would be -ossiblo in the case of 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
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


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,
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



ans-,Iler the


,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,
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.


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



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

competition for bills often and usually offer different rates of

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.



such a system be made to serve a uniform Air ose in connection with
International, 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

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

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



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


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


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
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
fineness, and the protection ofitc liw.gtzwil thereby,
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.
Page 37,

Federal Reserve Bank of St. Louis


with a ten

or cent. sold reserve, or with none at all ?



nutural and necessary safeguard against either an over-issue of bank
notes or a reduction in their credit value, is the judgment of the

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.


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 -


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

notes ready


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.


erties, after having



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
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
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.



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

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



the Federal reserve agent, who is also chaireeen of the board of
regional bank.
pep2e 41, Lines 173 - 24

Page 42, Lines 1 - 5.


This is only a continuation of the dual
power of the Federal reserve agent and
ohairman of the board.


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
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



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.

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


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

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



exchange woula go to a preium, reeaiing ehipeat o

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
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.

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


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
Instead of having an inexpensive and efficient aystem
of clearing, we would Lave two eyeteme, neither of 4bich would be


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


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
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



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

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,


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

e 47, Lines 14 - 17.
Lines 22 - 24.

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



It simply makes such deposits of less value to bankers, and consequently they will not be able to pay as good rates to their

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,



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
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, 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




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


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



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
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
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


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.


Page 51, See. 20/


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.


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



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,


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



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.


any such basis, unless an entirely separate



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



obligated for

larger sum,

at which these drafts are made


of its capital and,

that segregated capital

at any


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.



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


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,




Federal Reserve Bank of St. Louis, One Federal Reserve Bank Plaza, St. Louis, MO 63102