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Friday, Feb. 11th, 1916

Arrived at Falmouth late in the afternoon of February

10th and left today for London arriving at two o'clock A.L:.


6Allyaik Onuoct

Saturday, Feb.l2th, 1916


A. M.

Called on on


itt 't(<

Blnckett who gave me a very warm welcome.


scu sion-ab4u-t-Ge-ad444-eitia-ovar-heate- -tilq1_


4rranged to have some further visits upon my return from

Lunched with Mr. Harris and Captain Symington.

After lunch picked up Mr. Lowery of the Embassy and we all




motored to Aldershot whore we saw theAGerman prisonerScamp)
now practically empty, the prisnnerc having been moved to
some less exposed position.


encampment tukdosh appeared to be miles in extent.

The roads

were badly cut Ili and muddy due to constant transport.

Passed an aviation plant where aereoplanes are manufactured
and saw numerous aereoplanes being tested.

Dined with Shiverick and` 44 Lieutenan

of the American


Army,from the Embassy and Mr. Harris.

Afterward Mr. Harris and

I went to the theatre and later joined Captain Symington,
and the Lieutenant at Ciros for supper.
in the afternoon about my nose


a h4(.44/1,144.4



Saw Doctor Hunter Tod



0.)_ 0 stite

aiLintm bineett,



SundayFebruarz 13th, 1916

Visited with Chandler Anderson in the hotel, then we
took a short walk through Hyd

a. if-


ea ate


Park and later lunched
et It; 0-ryt,-7c

;-7 402

Cat e.4.7177T

This afternoon not feel. ng quite up to the mark,

the invitation o f Iwir. Hakris to go motoring and put in the
4.-auft working out plans for tomorrow.


Elaboration of conversation with Basil 1. Blackett:

February 12th, 1916

Blackett stated that the Bank of Eng:and had paid the Government
for all guaranteed bills which the Bank had purchased under the terms of the
Government's offer and that at that date there was about h30,000,000 sterling

The account had, at one time, been somewhere from t100,000,000

to 1,120,000,000 sterling and those remaining unliquidated were largely bills

that had arisen out of enemy transactions, the acceptances of the German bank
agencies in London, etc.

Later conversation with the Bank of England dis-

closed payments were being made only very gradually--1 judged somewhere from
1350,000 to L150,000 every day or two.

account for the Government.

The Bank of England manages the

Blackett also informed me that the Government


was -going thead on its dollar exchange account, the exchanges really having

been slightly favorable and enabled some accumulation of exchange.
He strongly favored shipping gold to Holland, or ear-marking gold
for Dutch account but confiscating all securities coming out of Holland which
bore evidence of German ownership or origin.

Said that Lord Cunliffe was

opposed to shipping or ear-marking gold for Dutch account.
strongly that the matter should be corrected.

Blackett felt

He thought we ought to

establish close relations with the Bank of England, and that an arrangement
for ear-marking gold between the two banks should be concluded as soon as

There were, however, many serious problems ahead in the matter

of the London money market.

For one thing, he was sure that the relations

between the Bank of England and the London Joint Stock Banks would require
thorough readjustment.

The joint stock banks were getting too big for the

Bank of England and their effort was rather to pull away from the Bank's

He thought possibly the whole joint stock bank situation would

require overhauling, possibly by legislation.

Said that Holden was dead in

London--exceedingly unpopular and an obstructionist.

He also felt that

Federal Reserve Banks could Terform great service by holding sovereigns

instead of having them melted down.
We discussed the currency/situation at great length.

He seemed

sound in his ideas, that they should be retired after the war.

Said that

the currency notes had performed great service in driving gold out of private
circulation and into the reserves of the joint stock banks.

He estimated

that-B- 30,000,000 sterling of the notes in circulation had taken the glace
of a like amount of gold now held by the joint stock banks.

Figures later

furnished me by hr. Tritton of Barclay & Gomparly indicate that B26,000,000

would be a correct figure.
Blackett stated that the adoption of the Compulsory Service Act
had given great courage to the 1:ation, particularly the Government.

It had

solidified the Cabinet and in every way strengthened the Government's hand.

He deprecated the agitation about the strikes particularly the strike of the
Welsh coal miners.

Said that it was due to the feeling of the coal miners

that their employers were making great profits out of the war and in which
they did not share; although, as a matter of fact, labor was now gett'ng a
very good share of the war profits.

That the difficulty with labor was its

vote to curtail the development of skilled labor now so largely required.
The recent vote of the labor unions was,

in fact, a vote of confidence in the

Government and highly encouraging to everybody.

Speaking of the progress

of the war, Blackett said that he was convinced that the war would be decided
ahead of the
on the Western front, but that there was a long and difficult task
Allies, one that entailed great sacrifice of men and money.


Sunday u

Feb. 13.

ttAll aixttarn
Saw Doctor hunter god, about my nose, Addy,

?t4T ahniCe9

I.:onday A.J. Feb. ,14.

Called at the Uffioe of llorgan (;renfell & Cc, and talked

with Ur. Morgan and ..r. Grenfell. 'Received a cable from the

office indicatin tnat everythin

a letter from dilliaacenzi
m LK
London or karch 7th.

was quiet.

Also received

statihr th:lt he would be in


Called On ;i_r. Lambie at mile Agency


of the Canadian bank of Como roe, and also baN his Assistant



then cal lea upOn Sir Ed4ard Holden and spent about

half an hour witn him.

Called twice to see Lr. Bell,


Lloyd's Sank, -but missed him; also called for Colonel Hunsicker
who was out.

Called at tie American Embassy wnerc 1 met

Captain Symington but missed Ambassador rage who
Lunched with Symir

After lunc

learned that pas

n and Captain q,uekemeyer at the Carlton

went to the French Consul General and
orts Aroal,1 first, have to Le viscid by t_e

United States C nsul General.
wnere my pass

;as enraged.

From there to the U.S. Consul

rt was visod anu 1 nod a very .dleasant visit


with Mr. Skinner, to whom I presented



letter of

taudet, cietite40

introductionA arranging to see him again a d have dinner
upon may return to London.
df trt.

Captain Savy

kr. Skinner g ve me a card to

liftre(k_ f44,44-rerd



Much facilitated the vi ee of passports.

Dined that evening with 1Lr. Shi erick, Captain 4tieke-

mlyer, Captain Symincton, Liss CuFitiss, and aer party at
the Savoy Hotel.
luesday. Leb.15.

In the morninc had pho4ographs taken for further pass-

port use and from tnere to tne French Consul c eneral who
verified my passports.

From there to Lae Aerican Embassy,

waere I spent about ojie and one half hours with Ambassador

eatt et,
kage--I alcoArranged

with Captain 6;,mington to,.,


141 FiceiatAst


complete set of enlistment posters at a cost of..-earemt
From the Embq.ssy I

went to Lord heading's Chambers, in


Royal Law Courts, Strand, where I had lunch and spent about
half an hour with him in his office and afterwards listened
for a snort time to the trial of a case over which he was


presidinE, Returned to tue hotel and at four o'clock had
tea wit

iss Devereux, where we Uiscussed arrangements about

Trench hospital ieryices.


After tea, saw Doctor Hunter

Tod and had my nose treated, LAI. lqiward Holden came for dinner

at seven o'clock
ednesday. Feb.1

e evening.

griet 4t( g


Took the 8.50 train from Chring Cross expecting
connect with the 11 o'clock boat for Dieppe,


A violent storm

prevented the boat leaving so we spent that day and night in
_.olkstone, at the hotel Pavilion, leaving at 7 o'clock Thursday morning

r Paris.


iriursda,y Feb .y? .

The stea-Ter "Sussex", upon which we travelled across
tne L;h4nnel left at 7 o'clock and-the crossing was an extreme-

ly ,bu::h one -


the worst 1 ever experienced,


1..::.30 and arrived in Paris at 7 o'clock in the evening

cing direct to

the Hotel 1:itz,

Dined with ...r. 'Harris at

the hotel, took a snort walk and then went to bed.






darje8 would be in Paris or


Then went ovrr to the


si,aisor. de Blanc and made some purchases.


and had lurch with him at the caft de Paris.
to the American Hospital at neuilly.

us all over the e tablishment.


From tnere c

led on

. Phillips
liTom there went

Let Dr. Du bousset who

I cave him a POO
Sergent, Governor of

the Bank of rrance and arranged to see him immediately upon
my return from Cannes.

Saturday 2eb.19tn.

Spent the balance of the evening packing for the

Left for Vannes on the 8.15 train taking

trip to Cannes.

4e reached

dinner at the Gare de Lyun with Mr. Harris.

Cannes next day at about 1.30 P.M., kr. Stillman and Mr.
uhristianuon beint, at the station to meet us.

Monday and Tuesday at Cannes.
train on

on the 2.46

Spent Sunday,

Mr. Harris ret-rned to Paris


Sunday Feb.20ta.
Sunday afternoon/1dr. A.illan took us for a beautiful

riae by automobile to one of i he old Larurian foxtified
castles and town sit4ated on the peak of a N:u-untain some

(2g. ) regnt.,

miles north east of Canvas.


ity4 del/
Made an all day trip to Monte Carlo calling upon






Tuesday 1?eb.ZZnd.

After seeing Mr. Harris off cr

'.41j train, took

dt-z 4

a long automobile tri;; north west of Cannes throuFh the town

of ireijuse arnica, nearly two thousand years aco,was an
importi.:nt homan colory of 300 000 to 600,000 infrabitants.

Visited 60M of



.,,an remains.


Wednesday Feb. 23rd.

Left on the

.46 train with Mr. 6tillman and Ix.
arriving Thursday morning.




Thursday reb. 24th.

Arrived from Cannes at 8 A.M. After breakfast,,r.
Edouard Vidoudez of tile Banque Suisse et Francaise, 20,

La Fayette, called.

After he left I called at Morgan, H

dc Company for mail, Ur. Harjes being out


From there ca


upon LewandoWski and read a very interesting talk for abo
three quarters of an hour.

btoppeu at tree Grande kaison

blanc,, and then lunched with cur. Phillips at the Ritz.

lunch called at the Banque de France.
was nome ill witn a bad cold.

Found that k. Ser

An interpreter introduced

. Pallain who received me with great cordiality, and

mediately upon my arrival presented me 7ttcal a silver med

engraved upLn it.

The medal was to commemorate

redth anniversary of the establishment of the


Had a very interesting talk with him, and

intment to meet him again on Saturday at two e1-1-co-



h a memo of our program.

e France.

He is to snow me through

From there called on iessrs. Morgan,



Harjes & Co, and had a nice chat with


and saw



.'rom there called at Lloyd's Bank

Graves and also had a lonc talk with their

,.,anager, Mr. ToXlmin.

Returned to


quarters of an hour with ..r. Stillman.

and s.r .

As I was

Arranred to see kr. Harjes

leaving -r. Ernest Mallet came in.
before lunch tomorrow.


Stillman at the Ritz.

notel and spent three
Dined with -r. Harris




called (Al _onsieur hibot, who

as particular-

child was much interested with our new banking system, and
I arranged to lunch with 4e and Lir. Harjes some day next

heturned to the hotel to say good bye to lair. Stillman

and then took dinner with ilLr. Phillips and iz.r. Graves and

went to the show.


Saturday, Feb. 26th.

After conversation witn

Pallain it developed that

it would prove inadvisable to proceed very far with interviews with other bankers until after the Banque de France
had considered the plans we have in mind.

Eemained in the

hotel with Captain Symington this morning, and immediately

after lurch kept an appointment with ansieur Pallain at
two o'clock at the Banque de France.

The Secretaire Gene-

ral and head of the Discount Department joined us in the
interview, c.onducted throuch ar interpretor, and we discuss-

ed at length the memorandum oubmitteo, which was translated
twice to M. Pallain, who weht over prograratAparagraph
by paragraph.

It was strongly emphasized on tac part of M.

Pallain that our present discussion was tentative and confideptial

sJbject to such disposition as mivht be made by

the directors of tne Banque de France.

Tne entire programme

seemed tc n-eet with his 911a-oval and that of


He inquired most particularly as to whether we would desire
discounts, which I stated was rot the case, the iederal Bank


being a reserve institution nolding reserves of otner banks
and unless wider unusual i-04-04,fh4C.0.8 such as wars, financial

crises, etc, would not contemplate endorsing bills.


jeneral purliose of our elan was elaoorated, and it was ex-

plained that the entire conversation was tentative, subject
to the approval of directors and officers of our bank, and
by the Reserve Board upon my return to New York - particularly,
that unless unusual circo:Lstanoes mod

it necessary, it was

highly improbable that any arranFemerts could be completed

and pot irlo oprazion until after conclusion of ine war.
To this they all assented but later on in cur conversation

M. Pallain empasized his view that tne sooner an arrongement
of this kind could be orouEht about the more advantageous

it aould be for the interests of both countries.

ae explained

that whatever information was furnished us in regard to banks

and banking conditions, or bills, would be :ni thout responsibility to the Banque de irance nor would tney hold us in any
way financially,or in any other way) responsible

or such


information as we furnisned tnem.

I stated it was quite

improbable that similar arrangements would be made elsewhere
than in London and Paris, at the outset, for some time)alThat state positively how our plans would present
though it was impossible at the developt.time to if satisfactory

arrangements could be made, it would be for the purpose of
sLabilizing exchange, vcld s.lipments, etc.

Pallain in-

quired whetner this meant that the money employed here would
remain indefinitely.

I eyolaieed to him that deposits would

be made and purchases of wills effected in the marxets where
exChange rates rendered it most desirable and profitable, and
that there would accordingly be aroitrage in tne various
markets where our :113i.::C3fil was conducted.

I also stated to

him very,. explicitly that while profit was a consideration, it

was quite subordinate to safety and that war poliCy would
co/fine us very definitely to tae purcriase only of bills of
the very hic;nest Trade and

ich :tern undoubted.


to know the character of information we would find it neces-




me soL,eiihat thrown: the Banque de .-orance, particularly that

where the notes cf the Banque de

portion of the

France are printed, and where I was asked to siL n a reLister
provided for visitore.

It wns four o'clock when 1 left the

bank and too late to ,Lake further callb.

and &.!.yles dined with me in the evening.


Sunday .ieb. 27th.

At 10.30
Lexando%iski,Lomptoirm called, and
by tube to ihontmartre, vial tiny

z on top of the hill.

the new and

-From there we returned

unch at the bititA40.040- restaurant on tne


Ccm.:,ander Symington

:after 1117:ch walked to the Invalides klseum,

ophies and lapoleon's tomb.

The museum was

P.M. met Captain Logan and Captain Symington,

A call from Yr. Cromwell.

Dined with'M. Phillips

ent to see a little show in the Capucines theatre

Monday, February 1th:

Called this morning at Morgan, Harjes X Company
to get my mail and found that Yr. Harjes had not 'rot returned.
Stopped to see Fr. Slalle of the Equitable Trust Company and

had a long chat with him about conditions under which the Trust
Company was conducting its business here.

From there went to

La Rues with Mr. Phillips and Mr. Graves to lunch with the
members of the Monday Lunch club, consisting of Captain Mason,
1. r-


Mr. London, Mr. Thaekftew, Mr. Monahan who represents the
American Radiator Company here, Captain Sayles of the Embassy

and three or four other mericans who .re in business in 2aris.
It wPs a very interesting m.eting and these men all exnlained
the difficulties with which they were now confronted in
developing the credit end of commerce between the United States
and France.

Aft ,r luncheon did some shopping with 1r. Phillips

and then called on Baron de Neuflize.

Later on went through

two or three of the stores and markets to get a little idea as
to the activity of business and the prices of meat, butter, eggs,
(Coal $30, per ton;




Lamb rind veal from 5F:-5c to 7:':$0c;

pi/. 1/11 pound 1F:35c;



per lb;

Eggs 600 per

chicken 1OF for a good big roasting chicken down to so much
clok piece.

The:- sell a part of a chickonat a time.

cheese like roquefort 1F: 35c per 1/2 pound.
apples fR

2F: each.


Fancy eating

These prices wore obtained in the best

general market in Paris, viz., Poulin's).


Tuesday Ifeb. 29tn.

Called on Mr. harjes and received only a cable from
New York.

Mr. Harjes had again been called out of the city

in connection with his uainuiance.
de Jfrance to see

From there to the Banque

Sergent but he was out.

Then called on

Rouselli at the Credit Lyonnais, hc. d a very pleasant chat
with him and arranged to take lunch together tomorrow, (Wednesday).

Lunched at

lieidelbch's h,.zoe with D. and Kadame

neidelbach, a relative of Madame Eeidelbach and tne Paris
partner of Coudert Breterz, ;thcze

24.-A? lx


I un,3erstood to be

the latter impressed me as being exceedingly


well posted aLd & ii.teresting talker.

Had ci.Aite a chat with

i.. Heidelbach after lunch, generally in regard to conditions
in 2rlicc, L,Lu

and bankers.




different banks

Prom there went to the Comptoir and spent one

and one half hours
Paul Boyer.

...rsueu Ly



general Uanager of the bank,

LewandoAski called in the head of his Port-

folio Department, toLet:Ier with the attc-,



the American Correspondence, and the clerk in chuxce of tne
settlements at the Clearing House.

They explained fully and

very clearly the operation of the discount department, the
collection of checks and the operation of the Clearing House
of which the following are the main points:
Credit and Discount Department.

fiery limited dis-


the managers of branches within the city

cretion is

iven to

of saris.

They are given certain fixed lines of discount


which they may not exceed without authority from the head

rine supervision of tneir authority is very close.

bomewnat greater discretion is given to managers of the
branches in the Provinces.

However, the supervision is very

close and maximum lines uf credits are fixed.

most of the

bills which they now discount are domestic - largely those
drawn by manufacturers, jobcers and commission houses.


some extent also bills of jobcers drawn on retailers and even
retailers on their private customers.

Prior to the outbreak

of the war it was not uncommon for jr bank to handle-WW-bills


They have in their portfolio Department alone

in a month.

Tnese bills come to the head Office from all the

450 clerks.

brancnes with certain exceptions, and are collected by the

me exceptions/of course being agencies in the

head Office.

Except in time of a creat crisis, such as the

war period,

the Comptoir never melts its kortfolio, but insteau

of collecting many of tie bills itself tarouc-h its own a-

gencies or by messengers throughout the city it finds it
much cheaper to turn them over to the Banque de irance, three,
four or five days prior to maturity and obtain an immediate
credit there.

The Banque de irance makes a minimum discount

charge of 5 days at Lhe bank rate even though the bill has

nom;. 5,-..

This compensates the Banque for col-

lecting the bills.

Just now there is a dearth of bills and

such institutions as the Gomptoir and Credit Lyonnais use a
good deal of their funds in snort government obligations
wnich run for three, six arms twelve months - tnree months


being at 4% Ord six months 5


Triey principally

purchase the six months bills which can be disposed of at



jr /al





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4Tpaal luaulandaq




S11 sauaS puu sT paJneunw Rq

daa3f Raatt





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DTI S/SOICi op qou RJaro



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XTTraauai op os ln au1 aToldwoo ao 1Tpaao sTuuuoRq vs
tiltOTTs aallaq aqra

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receives a small commission. sometimes tney deal between

each otner direct.
transactions such

inese brokers deal in a variety of
securities, foreign exchange, bills,

etc., and,' gathered, were not particularly responsible.

The business of the private banks is somewhat different in
That is to say,

that they make advances on pension.
advance for considerable periods -


three or six months -

against bills as collateral,

the obligation of borrower

being' in each instance 30 cloys up to three months with a

general understanding that there will be little difficulty

about renewals.

The large. private bankers, known as haute


barque, are also considerable buyers of bills.
clearing House.

This is of comparatively recent

development and has only about taelve members, .fi e being: the

most important and responsible banks
used, compared to bank notes,

cbecks are so little

tnat when the war broke out

the operations of the Clearing douse were entirely abandoned
and will not be resumed for

nother month.

They have two



clearings daily and the average turnover throuch Lne Clearinv douse of such institutions as the Comptoir and Credit
Lyonnais will run from 700 to 8b0 million francs per month only a trifling amount of co.rse compared witn the American
clearing House operations.

the custom is to send the checks

to the Clearing house, ruch as we do, and settle the balance

by an order on the Banque de France, which is debited and
credited to the respective accounts of the institutions that
are either credited and debited at Clearini- house.


have only admitted very strong institutions as instances
nave arisen where some of the weaker unes nave given orders
on the hanque de .Prance which have not been honored.

It is

customary to send buck checks which nave been found to be
N.G. early in tyre day prior to a certain hour,
the iork practice.

similar to

It is the general belief here that

the lass are n,t sufficiently rigid to enable prompt prosecution of those who improperly use cnecks and that has
deterred the use of the check system.

At the present time

all of the b::.nks and bankers of Paris are collecting checks


by hand at considerable expense and incor.venience particular.

ly as their clerical farce has been almost depleted by the
war, anu have been largely made up by women clerks.
Country checks.
to that in

The practice here is quite similar

London, with certain variations.

I think it may

be said that checks are handled b, four methods:

Given immediate credit wiere the customer is undoubted but charginv the customer interest at bank
rate,plus 1% to 11-1/4%, for the period allowed for
collecting, wilich would vary from 1 to 3 days.


Giving deferied credit, in which case the accoeLt is
credited with the amount of the check and the customer charged with interest at bank rate plus some
addition in c:,,Le


e drari5 :,ufricient to pinge upon

the amount.

Credit upon "advice of payment" which means that the
customer is not permitted to draw, and if he does
check gill not be paid until "advice of payment" is



Giving imiediate credit by red check on the Banque
de Prance for a check .;hich tne customer does not

expect will be paid until the following day, in
which case the check deposited is a white check.
This is simply another method of extending credit
and the custorne'r is charged bank rate plus a com-

mission p( chart e/ for collecting, check,:
first metnod described is rather a rare occurrence.
The operation of re-discountinL bills with tne Banque

de.lerance is apparntly closely associated with the general
system of settlements between banks, only two or three of
the larger b;i_nks apparently not availin- of the facilities

of the Banque de France for converting their portfolios when

It is quite apparent .that Trench banks rely upon

tie balance at the Banque de Prance as reserve to a much
Lreater extent than was even prevalent in the United

under our old banking law, between banks and reserve city

After leaving -. Lewandoeiski, I called for
iii. harjes

at 5.6C Lut found he had left.

his secretary called

Pallain who had endeavoured to reach
me by telephone earlier
in the day and 1 was advised by him
that my memorandum had

been favorably considered, practically
in its entirety, and
he hoped, if it was convenient to
me, to see me tomorrow to

discuss matters.

Upon reaching tne hotel he telephoned

he would call upon me between 8.60 and
9 o'clock this evening.

harjes also telepnoned advising he would
cll at the
hotel about 7.ZiO this evening.



Tuesday, February 29th:

(gist of conversation with L. Pallain
in the evenini; durdng his call at the a
Ritz Hotel, Paris)

1insieur Pallain called at 8:30 with an interprAktir to
report the outcome of the meeting of the regents of the Banque

de France in respect to posible arrangements to be concluded
between the Federal Reserve Bank of New York and the Banque
de France at the conclusion of the war.

he stated that the matt

hac been submitted to the regents, all of whom were present, and
that in all respects the memorandum was satisfactory.

He de-

tired, however, to point cut one matter w)nich would have to be
handled with considerable delicacy, ard that VT: ?F the subject of

credit information.

It had be.,:rn the invariable practice of the

Banque de Prance never to give official informs,tion in regard to

credits, believing that the bank was required to act with
entire impartiality and to strictly avoid anything which might
appear to injure the credit of any party.

He expected t'd-at the

bank would be able to met this situation by pointing out to us
various channels of inquiry through which reliable information
could be obtained, and in case the information obtained through
such sources was not sufficiently complete or seitisfactory the

Banque de France would wlfist us in obtaining the information
and give us informally and unofficially certain of their views
in regard to credits.

He thought, in such cases, if we had a

representative here the question could be readily dealt with
by having our representative visit the Banque de France.

I also

understood from him that the sources of information suggested
by the Banque de France would be reliable and for which the Bangs

de France would vouch.

Of course, the Banque de France allows no

interest whatever upon deposits but would be moet pleased to have
our account carried there and would place their facilities at
ourelreAire disposal.

The Banque also thought that we might be

of some service in New York,perticularly in the mateer of exchange'
We discuesed the subject at great length, Y.oneieur

remaining for about two hours, and I think he thoroughly understeed that the arrangement dircuseed could Drobably not be put
into operation until after the conelueion of the war.

That at

the outset it probably would rot neceseitate our appointing a
personal representetive here and that the groeth cf the business
which we might trarenct here would depend ufee the experience

we gained as it gradually developed-that it would depend
particularly upon the charanter sine reliability of eee credit
tejetertam information we were able to obtain throuc;h our

He eleo understood that a part of the

errengement would eonest cf our establishing accounts with
banks and bankers elsewhere in Paris, in the course cf time,
where we would receive intereet on balances.

Ucneieur Iallain

was ruoet emphatic in his asruronces that the arras_ Bement was a

most welcome one end the sooner it was brought about the better
satisfied he would be and that 'this was the ueanimour view of
the regents of the Banque.

I was not qeite sure that he under-

stood tee reasons for deferring action until after the conclusion of the war nor did it seam deeirable to raise the question
of neutrality.

Tr_ a subsequent conversation with .-earon de

Rothschild Vednesday


.ilreh 1) at which

Harjeo was


present and at Baron/Rothschilds residence, the theory of the
law was quite fully explained and I also took pains to explain

that while the present moment might seem opportune for acoumulating francs on account of the rate of exchange, there were
dP"It't.A t Intfi

t erIVI

other ArP4a+sevelsetits which would make it imposrible for us to

conclude arravgemente now.

We thought, however, that the

experiences of the past eighteen moeths demonstrated the

of perfecting plans in advance in the event of new

omergenciee arising, and that we preferred to conclude our
eereral understanding of the character of the arrangement at
the present time co that with the aperoach of the conclusion of
the war NOP might eo conduct our operations to furnish eag eutIk a

steadying effect upon the exchanges.

This of course had some

bearing or the question of gold shipments, al! of which was

apparantly clenr to Baeolotheehiid and he seemed to endorse
the sugeortion very positively and warmly.
At the conclusion of nee interview wite e. Pallain,

it war understood that considera Ie time must be ellOd for discuseion of these matters rafter my return, as it involved the

interests of twelve separate banks and of course was subject to
the consideration of the 'Federal :reserve hoard in e!ashington.

agreed that the matter would be kept alive oy correspondence

tetween us from tine to tie and whenever occasion arose for
taking the mee'er up actively, 2 would promptly advise him and
possibly virit Paris again.


Elaboration of various conversations with Lonsieur Pallain and associates; Baron
de Rothschild, and other Paris bankers which I was unable to dictate while in Paris.


Some slight indication of the degree to which the prices of

necessaries have advanced is given elsewhere in the diary.

Food, coal, gasoline,

etc., has shown tremendous advance in nrices partly due to lack of domestic
production; partla to lack of shipping facilities, but to a very considerable
extent due to lack of transportation within France itself.

At the time I was

in Paris the railroads were Inlfale to transaort foodstuffs from the seaboard to

Paris in sufficient quantities to relieve the urgent demand there.

I gathered

that this was due, to some extent, to the lack of ademaate handling facilities
at the ports.

Real estate and rents:

Considerable distress has arisen by reason of the

(aeration of the moratorium in respect of rent payments.

Tenants uuder this

law oan appear before a Tribunal and show cause why they should be temporarily
relieved of some of their obligations for paying rent and frequently this relief
is granted, and the result is that real estate prices are absolutely paralysed,
.nd real estate owners in considerable distress.

A large part of tho investments


in real est te is Ix insurance companies and other investment companies and
corporations are in mortgages and real estate, and with rents not being paid,
real estate ovmers are unable to pay interest - --The whole scheme seems to have

been badly handled, and while possibly designed originally for the relief of

families where the men were at the front, advantage is now being taken of it by
all classes of rent payers and the effect is thoroughly bad.


I was informed at the Banque de France that tax collections are

about 60% of normal.

Foreign drawn bills are now practically a negligible quantity


in the banks, and the volume of inland bills has been greatly reduced below
normal although the discounts at the Banque de France show an increase of 100%
over the amount twelve months ago, which is a very good indication of increase
in domestic business, as bills are drawn for all varieties of coranercial trans-

actions in France down to amounts of 10, 25 and 50 francs.

The retail stores in the Rue de la Paix, Avenue d'L

Retail business:

Opera, etc., which may be regarded as dealing in specialities are doing only
a ndleinal business.


While most of these stores are open one sees very few

The stores that I visited such as the Grande liaison de Blanc,

Doucet, Rogers & Ga


Liaapin & Webb Ltd..and a few others were deserted.

I believe I two the only customer in them at the time.
the large deaartment stores like the


On the other hand,

Maison de Lafayette etc., are so

Crowded that one can hardly pass through the aisles.

It all indicates

economy as those A.g stores all do a very large bargain counter business, and
the bettor classes are now dealing with these establishaents on account of their
lower prices in preference to the higher cla s stores

The officers of the Baraue de France and Baron de Rothschild


gave me a good deal of interesting informaticn generally in regard to the finances
of the country.

I was informed that the Banque de France has an arrangement

with the Government by which the Banque is promised payment of its advances to the
Government prior to the payment of any other Government indebtebess and out of
by the Government
the first general loans alaced


for refunding and other

This represents a prior claim running from 6,000,000,000 to

liko, 8,000,000,000 francs, that being the extent of the Government's borrowin: from
the Ban ue de Prance.

It was estimated from the 13,500,000,000 francs of the

Benue's note issue, about 5,000,000.000 francs have been hoarded or held in
reserves of

then banks.

Baron de Rothschild thought that the Banque de France

could easily sufport an issue of Pram 25,000,000,000 to 30,000,000,000 francs,
Meautimiftemanosx be ng about double the present issue, or say a. margin of

12,000,000,000 to 15,000,000,000 francs for further use.
Eonsieur Pallain said that the Banque had already shipped 20,000,000
pounds sterling of its gold to the Bank of England, and under the existing
arrano.ement had agreed to ship 12,000,000 pounds sterling in addition.


peasants had turned in about 250,000,000 pounds sterling in rosponso to the
appeal of last year, and Baron de Rothschild estimated that there was still

hoarded from 450,000,000 to 500,000,000 poinds sterling-this being the estimate
of the Government and the Banque de France.

Pallain and Rubineau told me that

when the crisis arose, the policy of the Banque de France was to rediscount
without limit, and I gathered from What they told me tic of the scenes during the

first few days that it was Pallain, Rubineau and the Secret:Are Generale who
really saved the day for the French banks generally as they took in bills,
literally, in bales.

The Ban,ue still has a large account of 'frozen" bills

figures for which appear in the annual re)orts.

I asked Rnbinson, the head

of the discount department, to describe how he would define or detect a finance
bill which wns ineligible for discount at the Barone.

Be A.c3:nd up a piece of

paper as ono would a bank note to detect whether it was a counterfait
said that it was really a matter of instinct and experience.

-r not,

The Banque alwaye

requires three obligations, of which two must be French and one, the acceptor.
They do not discriminate against finance bills.

The only bill which they

absolutely decline to discount is a bill drawn on a foreigner on a foreigner
and domiciled in Frzoice even though the endorser is French.

They consider that

such bills are drawn for the benefit entirely of foreign business, and simply


domiciled in France for the pureose of getting the lower rate of discount prevailing in that market.

The Banque de France discounted a tremendous volume

of English bills, largely to meet the contingencies of French banks in co looting

Robins= said that in one day his department had collected as

the bills.

many as 100,000 items in 'earls, involving the use of over 1,000 messengers.

I believe his regular staff in the discount department, in addition to the
The officers of the Banque told me that

messenger service, is 450 to 500 men.

thy felt that the big banks imposed upon the Benue de France in dumping these
collections upon them.

The Banque de France is undoubtedly the hub of the whole financial

system and both the other banks and the nubile generally have unlimited
confidence in it.

The Regents of the barque, by reason of their position,

have great influence and, as is the case with the Bank of England, they are largely
drawn from the banking houses which in London are considered to be merchant

The so-called finance banks have recently had a very

with the exception of the Credit Lyonnaise and the Comptoir National d'Escampte
The so-called Hautbanque. or private bankers, has been driven into the beckground by the operations of the finance banks, and as a class they have managed
their affairs more carefully and conservatively than such institutions as the
Societe Generale etc.

The strongest of the so-called Haatbanques are de Fothschild,

Hoetinger, Mallet Freres, H


& Company, de Neurize & Company, and I

shauld say that Morgan, Harjes ;, Company, in rating, stand right alongside

de Rothschild.

A number of the privte banking houses are under ma puma

suspicion of German ae:filiations.
to de Rothschild.

I should say that this does not apply at all

These private bankers are men of very great caution, and

while they have occasionally hendled some things that did not turn out very well,
such for instance as the Banque le Union Parisionne, etc., they are on the whole

I had a long talk

"Lc regarded as being of very high grade and in good condition.

with Baron de Rothschild regarding gold payments by the Ban'ue de France.


thought there wee no question in re -.rd to their maintaining gold payment
any exterior

obligation no matter what the outcome of the war.


The Banque

de France could, if utcessary, give up over 000,000,000 of its gold but of course
Ile said that when

they did not -:.ant to do so until pressing neceAilty arose.

he and his associates were asked to draw the bills for the Crusooredit he and the
other bankers were quite unwilling to do so unless they were p,otected by a pledge
of gold.

They could not get it directly from the Banque de France, Monsieur

Pallain being unwilling to make a commitment that would appear in his etatement,

but that Dmsleur Ribot gave them the Government's guarantee to furnish gold if
excleosgo could not be had and which they considered to be just as good as the }ledge
of the Banque de France.

There are certainly eene eerie= situations to face in regard to investments of the French people, and to sonv. extent French banks, in foreign securities
such as those of Brazil, Turkey, Russia, Servia, Mexico, etc.
Of doubtful and possibly warthlese
slow liquidation.

There is a lot

staff in the nation which will be of very

The big banks, like the Credit Lyonnais°, Comptoir National

d'Escompte, etc., are carrying about 50

cash reserves.

The Government is now

borrowing very large sums, the figures being given in a separate memOrmidum, on
bills running three, six and twelve months, the rates being
5' for the six and twelve months.

for three months and

The amount of this short debt is much too

large and they are hoping to quickly reduce it by a new loan which may enbody the
same litorary features as now prevails in many of the municipal lane.

The French

loans, however, seem to h ve been better handled than the English as they Lre all
selling at a premium.

Monsieur Ribot seems to be broad minded enough to pay the

going rate so as to keep a good. market for additIlinsa Imo".

Political foelin

All discussion of the attitude of the United States

toward the war must be carefully analysed as one is liable to be deceived
by the essential politeness of French/L:0n and their desire to avoid giving


They will with great suavity assure

rou that they th roughly

undgrstand the difficulti of our roeition -- that probably it would be
injurious to their own interests to have us become involved in the war-that they were too dependent upon ns for suiTlies etc.

This, however,

is not their real unZorijing feeling-they all believe that it would
shorten the wer to have us cone in.

That we are taking altogether too

many affronts from Gemeny, and that if Germany should win this war we
wool d face serious trouble vith her later.

The ran who discus sod this

with the greatest frankness was nnsieur Roiselli of the Credit Lyonnais
who is &.n Italian by 1),rth, educ eted. in banking in London, and does not

labor ender the handicap of Prenoh politeneen ate.

When he ex;lained

that the french had sone underlying feeling plerust the United States.


asked him whet he would do if he were Tresident nr the United States, and
had the situation to doe?. with.

Ee intinated that he might follow the

same course that the president had but he eid not thin{ in saying that that
ho expressed the views of the Frenchrer.

That sere night at a dinner

which Li% ilarjes Ct'NV me, there were present about one dozen bankers. he/

wont over the discussion we had, with those present speaking entirely in
French and which I could not follow.

that I had asked him at lunch.

Be wound up by asking the sane evestion

With one accord and Inherently tley replied

that they would declare war ageinet Germany..

There °coned to be no doubt

in the minds of any of them.
I disoc-vered 'hat there is a very strong feeling of suspicion and

uneasiness towards England and the English management of affairs

I judge

it is based urn their belief that England is endeavoring to dominate the

situation in financial matters, and a very strong feeling that France has
little to gain by the war and much to lose--that England will turn the
outcome of the war to her own advantage.

There seems to be a considerable

and very active cabal directed against Joffre by L

Clemenceau and their

This matter took the form of to rol:Imittee of Investigation by

the Chamber of Deiuties into Joffre's

conduct of tl:c VaT.

I had oppor-

tanity to react their report which was bitterly critical of Joffre's whole
programme, end giving. credit for what had been done principally to Galion!"

and Castanau.

Among other thins in the report was the statement that

the total French lower, to the date of the report, some months ago, amounted
to 3,200,000.

In this figure were, of course, included many wounded who

have since roturhed to the front.

I have subsequently learned that during

the battle of Verdun a serious blunder WaS made by a French generil in the

early etage of the battle who comaately lost hie head, became panic stricken
and sabsecuently insane°,
cAptured 1n0 Frenc7i.

The Gen3ans cot thrc*h the rrench lines,
gl:ne, most of w,..leh had been neLrli destroyed.

The disaster was so sericqs that Elie French Government again contemtlated

moving all records to rordeaax.

General retaine at last sacceeded in

repairing the damage before it became a disaster.

This has been con(letely

our2rossed from the French public but it is more or loss the suject of
gossip privately.

The guns beet included most of the big cans that had

been removed from the fortress of Verdun and remounted, many of which however
had been badly worn with use and destroyed by exploding the breeches before
being abandoned.

I was informed that when General retain took charge at

Verdun ho found that that part of the French env, which is very large, was
Yorth of the River reuse and would have been absolutely destroyed had the
Germans broken through, as there were only three bridges available for a

The General in charge of that section was immediately removed

and General retain constructed no ltell than fifty bridges for use in case
of an emergency.

He is today the popular hero in France.

When the

disaster above referre0 to occurred t3e Cayo element thou&ht they would be
strong enough to launch their attack on Joffre and a committee retort was

submitted to the Cabinet with the dememd that Joffre be removed and the
conduct of the army be put under the direction of a committee of the Chamber.
rUch to ttri' chagrin the Cabinet voted down unanimously the resort wie.h the
exception of the one neither who 1.troduced it, and for the tine being at

least the Cayo Cabal is dead.

"hare is no doubt that the war losees in men in France are far in

onceee of current estimetes-that France has reached and passed tete arex of
her strength and that such more of the brunt of holding the Western line
will now rest upon England wlich has recently acded forty miles to its
own line so as to release the men of The French army for


Ver6un defense.

Geeerally ei)eaking, the estleeetee of Freneh crops are only from

one-half to one-third of neemal.

They are tronendonely dependent u: on

the rest of the world, for food supplies, particularly moat and grain.


French peasant, however, is moot successful ie eaisirg chickens and the
supply of chicken eeere to be inexhaustible, they having advanced less in
r.ricc than any other food.


There if much urcerteinty and uneasiness as to what will harten

to the industries of the country after the war.

The French derond to

an unusual degree upon skilled labor which is developed by the arrrentice

Young men who have been taken two years or more out of the

shore where they have been learning the trades have lost an inrortant

period of their education and may not be content to return to that employment.

Phyeically they are being tremendously imrroved by the service; thet is,

kept in the °Ten air, living upon simple food and away from the cafe life
which is debilitating.

American credits:

All the bankers with whom. I talked wore meet anxious

to see tho American "Oars?S e::tend credit !Jere generously.

This is treated

There would be no

with at more length in another part of my diary.

jealousy or exec-sin:lee if all co7mereial credits, for the present at any
rate. could be transferred to ALIerican banl:s.

They are illing to make

any sacrifice to give adequate security, and are really looking to American
bankers foi support and encouragement.

.'hey are naturolly sus icious

and timid, and legotiatiens area delayed and difficult on that account, but

once their confidence is established, the American ranks could get
unlimited leariness

James Stillman!

France and

their own ters.

hvvi rot dietrtel t 1 eubatance of ray conversations

with Mr. Stiilman for various wcnsonc but will make notes of the same on
returning to the office.

r.r. ?rarer,

Supplemental to conversation with67.19117XX Secretary of American Embaesy in

aria :
21*. Fftner told me that I would be interested in a conversation he had

ith Howard Taylor who. a few mo:Ithe before, had stopped in

Paris on his way back to America from Germany,

Said that when Taylor was

in Berlin some of the leading Berlin bankers haa a private meeting with him

and told him that Germany was headed for financial destruction-that the
rest of the world would go down with them financially. and urged him, upon
reaching Paris to see Baron de reuflize and endeavor to persuade him to

have a meeting of the French bankers so as to start a movement among
bankers to bring about peace discussions.

Fe gave Fraser the inrression

that Germ= bankers wore in a groat state of excitement and distress over
the German financial situation.

Baron de Neuflizo was understood to

have consulted some members of the French Government and upon their instructions is said to hz:ve re lied that if Germany wanted irfomation as to what

the French demanded before discussing peace he might say that they demanded
the return of the lives of 1,000,000 Frenohmitul.

[Stop, marked after"1,000,000 Frenchmen'] [Remainder of this is as follows:]

Supplemental to Sir Edward Holden memo:

In discussing personalities Holden

spoke very slightingly of several important people in London.

Said that

Kitchener was a complete failure, had been entirely supplanted and would be
eliminated were it not that he was so much the popular idol.

Said that his

(Holden's principle competitor in London was Llgyds Bank Limited, and which he thought
had no head.

Bell was not much of a banker, and Vassar-Smith had arisen from a very

small beginning.

Said mean things about him and that he had indulted in unfair

It is only fair to say that Bell, while he mentioned no names, intimated tiia

that he felt that Holden was guilty of exactly that.

Holden also said that Barings

had lost their standing to some extent in London on account of the large extent
of their German business as well as on account of some South American business
which had turned out badly.

Lord Revelstoke was unpopular, cold, and vindictive,

and a very much overrated man.

He also spoke rather slightingly of Lord Reading

and the aDunt of trouble he had had with him about various matters; and, spent
a long time abusing Lord Cunliffe.
Bank of England meml:

One day Montagu Norman asked me if I could throw any light on something that had just come
to their attention.

It seems that aimmediately after retiring from the President's

Cabinet Garrison had called upon Spring-Rice and had had a long talk with him about
the policy of the British Government in taking German securities off the steamers
which were coming to America through Duthh houses, and urged him to impress upon his
Home Government the inadvisability of pursuing the present course on account of
public feeling in the United States and seemed to be very positive that the
British Government was making a mistake.

I told him I could make no explanation

unless Garrison had been retained as a lawyer to represent some German houses in
New York.

The Guaranty Trust Company was mentioned as being a much interested party.

[Inserted in the carbon copy, after account of February 29, 1914, are ten pages

of elaboration of various conversations, which Strong utilized in his rewritten

account, plus two pages, entitled "Memorandum regarding commercial credits", wtth
the notation in Strong's handwriting "Harje Memo", which is copied below so that
there will be at least two copies of his material.)

Harje Memo

Memorandum regarding commercial credits.

It is recognized that the creation of a large volume of commercial credit, under
which long bills will be drawn in dollars by American exporters, for acceptance and
discount by American banking institutions under credits guarangeed by French institutions, would have the effect of relieving the market of offerings of exchange and of
relieving the demand for dollar cable transfers.

The longer the drafts run the

longer the account will be postponed, and consequently the more time afforded for
arrangement of large Government or other loans in America.

The difficulties en-

countered in arranging commercial credits with the bills to be drawn by American
sellers of goods, are in part as follows:

Unfamiliarity of American exporters and bankers with this business;


The difficulty of affording satisfactory guarantees to American bankers for
the credits;


The risk imposed upon the French importer of paying high prices for dollars
to reimburse the credits at maturity;


The necessity which now arises for the French banks, which guarantee these
credits, to take their own liquid securities (Government bonds etc.,) out of
their portfolio, which they are reluctant to do, necessitating the French
importer buying the bonds and consequently obtaining no additional credit.

It is suggested that some of these difficulties could be obviated by the
following programme: The French Government authorize the issue of a bond or certificate which the Government would advance or loan to banking institutions and
bankers for a consideration, such bonds to be payable in dollars ( in gold) at



three, six, nine or twelve months, and to be pledged as collateral to the guarnntys
given to the American banks.

As to the American institution which accepts the drafts

and has recourse against the bond as collateral, the bond would simply be the obligation of the French Government to pay so many dollars in gold at maturity.


bond should stipulate that the Government would undertake to furnish, say through
the Banque de France, at ma urity, exchange in dollars at the rate of the day,

either on which the credit was opened or on which the drafts were accepted so that
the French importer would be certain of cover, and French banks certain of receiving
cover at a rate of exchange which would not involve loss on the goods imported.

It is recognized that to make such a plan effective in large volume the present
method of drawing must be abandoned as the few institutions on both sides now
arranging these credits will soon reach their limit, and it does not offer a
sufficient variety of names on bills for the American market.

The plan could not be handled by a group of syndicate, but should be handled
as a business custom.

This change should be brought about by a working arrange-

ment between the Government, the banks and the customers of the commercial banks,
with the object of educating French importers to get bank credits for their imports,
and of arranging as long drawings as American institutions are willing to grant.
each instance the French bank should ascertain which American bank the American
exporter is accustomed to deal through and, if possible, arrange the commercial
credit through that bank where the exporter is already well known.


Tb.ur4-aj..., March 2nd:

This morning called at Lloyds Bank to say au revoir to Mr.

Graves and Lir. Taman.

:Jr. Graves told me that there were between

116 and 118 different Chambers of Commerce which issue small denomination currency.

He is getting up a conrlete set of clean samples,

of each denomination, issued by each Chamber.

It will take about

two months to make tre this collection, and when it is complete he

will send it to me in :erica.

From there went over to Morgan,

Harjes re Company and made an appointment with Jr. Harjes to lunch

with me.

Called upon Monsieur Rossior of the Banque Suisse et

Francais°, of which ho is 54444.4est, and had a very interesting tare

in regard to the bill ousiness--going through his bill re-ister and
credit files.

Picked up Aarjes for lunch at Henri/s, and from

there went to the American Clearing house where I was introduced to
the sister of the Queen oe _Belgium who was there to attend a meeting
of the


Mao reet the Chief Juctice,

Interior and the Servian leinister to France.

House in

ne Minister of the

Left the Clearing

Lee to keep my appointment e-ith Monsieur Pallainajleonsieur


Rubin,. and the Secretaire Generale, f'Ascussing the subject of bills,

methods, finance, etc., concerning which I will later dictate a
separate memorandum.

I then called uoon Monsieur Sergent, and had a

very pleasant talk eith him.
Iallain presenter

From there returned to the hotel.

'e with another medal which had been issued

some time ago by the Banque de :ranee and also with a copy of his
work upon the correspondence between de Talleyrand and Xing Louis

ell as a first press _roof of the new ten franc notes to be issued

by the Banque de France.

Scent the rest of the afternoon with Phillips

and in the evening took dinner with Harjes at the Hotel Crillon meeting
Monsieurs Pallin, Governor of the Banque de Frence; Bethenod, President

of the Credit Lyonnais; Edouard. iloctelin, President of the Bancue do

Faris & Des Pays-Bas, the Banque Franoaise et Italienne and also the
I'Chemins du Noir;

Paul Boyer,General Manager of the Credit Lyonnais;

Baron C.e Neuflize of de Neuflize P Company;

James Rosselli of the

Credit Lyonnais, and Ernest I:allet of Lallet Freres.
Friday, :.larch 3rd:

Went to the Embaesy at ten oteleek aid met Mr. Fraser who


arranging a diplomatic passport and mail pouch for me to take to London
Saw Aelbassador. Sharplieat for just a moment.

Harjes & Company and saw

Prom there went to :::organ,

Harjes who was arranging about having 7ea
feivIAA-a X.
passports visaed for m

conversation we had in

credits, which he pro

as I pointed cut to hi

From th

the -eacttrr.

o flee, who I found h

in Paris who was in c

telegraph Thackra of

office west to meet B
partner at Ho:rils.
:natio passport from

his son.

Returned t

the Credit Lyonnais h
the telephone.

He cam

Bethenod, President o-

what I at'eted in res r

had said something abo

with 14.2aei-eg dollcrsA

tramp through the Latin quarter visiting the Icole de Beaux Art where I

purchased samples of some dinner cards which are now being painted by

ati-ts who are practically being supported by the sale of those cards
in the United States and'which sell for about fifty cents.

Some of


these artists earn as hich as 1000 to 1500 francs for painting a portrait.
leturning to the hotel I received a call from :.r. Harjes who stopped in

to say good bye and to express his gratification at my visit and its

:sir. Phillips made

s. Logan and Captain Sayles dine with me

at the Cafe de Faris, and we all spent the evening together.

Saturday ::arch 4th:

Took the 7:50 A.

train from Saint Lazarre station for Dieppe.

A man from Er. Harjes' o :rfice met us at the sta,ion to see about our
luggage, accom.lodations etc.

thing done for our comfort.

Had a fine compartment reserved and everyArrived at Dieppe at 10:45 expecting that

the bo t would sail some tile between noon and one o'clock.

The train

conductor was the same one we had when en route to 'Paris, spoke English
fairly well and (for a co:sideration)
was arranged.

undertook to see that everything

He certainly did- -our luggage checked without opening

for custols inspection and our passports visaed without waiting.


exhibition of Monsiuer Ribot's letter proved to be an open sesame with
all of the Frenchmen.

.::co were able to leave our passports with the

Special Commissioner while we had lunch at the Grand Hotel.

The pass-

ports were not generally to be examined until two o'clock and the boat
sailed at four.

It was raining and storming at the time and it looked

like a bad crossing.

Sucqbeded in obtaining a very comfortable cabin

to ourselves on the boat, well located az dships.

At lunch met a


young French Captain who was on General

- staff, and formerly a

Lieutenant in the cavalry, but who was now doiJg staff duty owing to


'living been wounded.

He was on his way to London upon some diplomatic

Likewise met at the dock the British Captain of the


Intelligence Department who rescued me from the crowd and gave instructions to the officer on the steamer to see that I received every
courtesy upon arrival at Folkestone.

We left Dieppe at 4:10 P.

slept about half way across the channel,



_nd it was nretty dark when I

Shortly afterward all lights on the boat were extinguished and

the trip was finished in darkness.

Reached Folkestone at about nine

They had arranged to examine our passports, along a few

others, in the smoke room of the ste,:.-ner


.11ich avoided all delay and

A young English officer took us off the boat, arranged to

have our baggage marked by the customs without inspection and saved ns
considerable bother.

Got soe coffee at the station, secured a co -

partment on the train to ourselves and finally reached London.


train left Folkeston at 11:40 and 7e reached London at three o'clock
Sunday morning.

Sleft until noon Sunday.

Sunday, ..larch 5th:


Shiverick L.nd Captain Quekemyer at the

Savoy hotel and spent the rest of the afternoon writing mail.


the evening dined with Ch. ndler Anderson.
Monday, 11/...rch Gth:

Called at the American Embassy the first thing and delivered
the mail -,-)ouch together with a packet entrusted me by Hr. Frazer.


Bell, Secretary at the Embassy, ex,Jained that my Embassy Passport
would also have to be surrendered, and Burrell delivered it by hand in
the afternoon to Captain Symington.

parch 6th continued:

Had a chat with Captain Symington, and before leaving Ambacsador
Page came in.

After a little talk he invited me to dinner tonight.

I then left for Dorgan, Grenfell Pc Company's office where I found LL
Grenfell, Jack Morgan and airC-Aseeer.-Slith.

EXplained to Jack and

Grenfell, in a general way, theischeme which we had in mind for the

Federal Reserve system stating that it was in every way confidential;
that whatever we undertook would, in all probability, be subject first
to an agreement of comity with the Bank of England as I considered it
ould be unwise for our system to enter into this market in any way
which might be regarded by the Bank of England as antagonistic to their
plans or interests.

I also felt that our business would necessarily

have to be conducted through a nuaber of the large joint stock banks
as well, both in London and Paris, and that I would feel better satisfied to undertake the establishment of business relations without the
appointiaent 0 an agengy; provided, that we could make some working
(-64 t0,-1. 4 Tiri,

arrangetent with :Ir. Morgan's firm in these two cities.

Jackto be mach inter

an English banke


spii-tem in regar

has been fully ex

Jack at his house

two and that Ir.

of the Bank of E

hen he would be


Sir Edward Holde
to the Trearury.


Arl.anged to dine Tuesday night with Fairfax, and from

BAbright ,c'2 Company's office went into Lloyds Bank to see 11.. Bell who

gave me a very interesting hour.

Showed me through the bank and gave

me considerable information in regard to the way they ran their branch
system and also the handling of checks etc.

The understanding was

that I would call back some other day this week and he would give me
all the time I reruired.

I exTlained to him that I had just received

Vassar-S:ith's invitation to dinner for Wednesday night stmt an hour
or two before that.

He undertook to say that he would see Vassar-

S ith this evening and arrange to postpone the dinner until next

From there returned to the London City & Midland Bank and

found that Sir Edward Holden had not

et returned from the Treasury

J Returned to the hotel andlet Miss Devereux, migun Mr. Shiverick, and
arranged with the former as to what she should do to get hospital

Dined at SL15 with Ambassador Page.

him was delightful and most interesting.


My evening with

Mr. and Mrs. Page rind a Miss

Tracy were the only ones there, and after dinner Ambassador Page an0 I
s ent an hour in his dining room alone, and he was good enough to tell
me a great deal about the situation w7rich probably no one else could

have done so well or with such comrlete knowledge.
Tuesday, March 7th:

Spent the morning dictating mail etc.

Then went to

Company L.tacl had a long talk with Jack :'organ.



at considerable length the neceFsity for developing the progra-me of
the Federal Reserve Bank here through the Bank of England with which he
heartily agreed.

It is undoubtedly a fact that extensive operations

by our system, in this market, might run suite counter to the policy

the rest of the afternoon dictating

:icl writing the family

:Ave o'clock .:hen Lord Churston called for tea and staid until

seven o'clock.

He is in te Guards but on reserve.

Sends his


mornin s doing military duty and afternoons attending to his duties
representing Messrs Haligarten & Company.

with Jack Morgan at his house.

At eight o'clock dined

At the dinner were Mrs. Morgan, Lord

and Lady Bryce, Lady Silversmith of Belfast, lass Grenfell and 1.Ir.
After dinner/Lord Bryce, Smith and I had a long chat
Vivian. Sslith.

in Jack's library.

Lord Bryce g me a very interesting statement

of what he understood to be the English opinion in regard to American
attitude toward the war.

Walked home with Smith and on the way

stopped at a curious little club, largely- frequented by the hunting

fraternity and which, even
Thursday, Larch 9th:

twelve o'clock was pretty well crowded.

Thu_ sday, Llarch 9th:


Called at :organ, Or nfell

We partnere out.

Company for mail and found

From there stopped at the London City


Bank and had a chat with Sir Edward Holden, ascertaining that there
would be about fiftee


would be expecte

to eighteen for dinner Friday night, and that

to say something.

Chairman LI the absence of Lord Aldwyn.


Vapar-Smith will act as
Returned to :Aorgen,

Company and had a long talk with Jack .::organ about the

Bank of England arrangeraents.

expressed the opinion very

strongly that the only feasible end dignified arrangement for the
Federal reserve system trm:i.

a go

business here wqgld be directly with the Bank of England, just
Ito etc a4;14.


had with the Bank of France in Paris.

The Bank of England

had bought bills in large volumes at different ties for the
Banque de 1r, Ace and for the Reichsbank.


Of course they4mose

pretty slow to enter into an arrangement of this kind, but that

thea were obvious advantages for the Bank of England as well as for
the 2ederal Reserve system, and he felt that both he, Grenfell and
Lonta7u Ilorman would be able to facilitate making en arrangement

which would be satisfactory to us, as all three were lost friendly

toward te development of cooperative relationship betveen the two

He has invited Cunliffo to dine kith ltor and Grenfell

Lord Cunliffe, just now, is very deeply engrossed in

the work of the and in looking after the finances of the

Government, and it would be quite difficult for him to give the
necessary time to discuss the matter in detail--that he was tempera'entally very slow to act and would recuire time to thilik the matter

over before reaching any conclusion.

I told Jack that my

between the Government on one hand, relationsof England and the
ini,..uirieo here had convinced me that the the
now existing

Joint Stock Banks were such that I considered it highly inadvisa-

ble for us to attempt any arrangement with the Joint Stock Bankers
or Discount Houses or any others until we had thoroughly investigated the situation first with the Brink of England.

That I was

prepared to return home without any understanding at all as to our
business here unless the Ban:: of England displayed enough interest

to Five the matter careful consideration.

Y(3 certainly did not

want to undertake business arrangements that would be zattgaltbut
in any way t &the efforts of the Goverment and the Bank of England
were designed to bring about.

That the whole arrangement, anyway,

would. 1:,robably not be put into operation until the conclusion of

the war but that -e (Id not propose, if it could be avoided, to be
caught unprepared again and have situations developf that would be
exnensive or possibly disastrous to the interests of both countries,
when that could be avoided by reasonable foresight.

It was quite

clear to me, from what he said, that his views and my own regar7ing
the desirability, of such an arrangement as I had desc-libed to him

were in entire accord.

I Arranged to call t3morrow morning and

have a word with him, it being the last oportunity before he sails.
Returned to the Ritz :ith Lr. Stettinius who is hoping to sail
on the "ITew York" the twenty-fffth.

Immediately after lunch James

Simpson of the Bank of Liverpool called and we had a short but
very satisfactory chat in regard to conditions over here and conditions in Liverpool.

He says that, in his opinion, English Joint

r)ck Banks have nor'' been in better condition than at the present

time, with

ossibly one or two exceptions, and with the excePtion0,

He feels that the Government
bonds and short Govern lent very
course, that they carrying aBills. large load of Government
should tmedmiximmt7 defin*tely recuest the banks not to attempt to
market these securities until after the conclusion of the war, as

the banking institutions should not be absorbing investent funds

fro: the market while the Government is placing loans--particularly
as the Government has informally advised the banks that it will
see that no injury arises to any of the banks by reason of their
holdings of Government securities.

There is an understanding in

regard to the discount of short bills by the Bank of England and

advances upon the securitirof Goverment bonds which in itself
should be amply sufficient to Protect any bank against exhausti

He also expressed exactly the view that Ihold in regard

to the traCe situation after the war.

Ger.'iany will have sr)me hard

problems to face, but that when the war stops --it should actually

STOP, and not be continued in te form of a trade war with the
object of destroying Germany totally.

ThfA agreements will live

to be entered into which will have the effect,in a greater or 7essc
degree, of continuing Germany as a co petitor of England and the
Allies, although,qf cc urse. her econcylic condition may not enable
her to make this 0444444en effective 'or some years. Any other

e'vate of affairs would lead to a renewal of the4ery conditions
which gave rise to the present war.

Speaking of the Bank of

Liverpool which has about forty million sterling of MOSOXWOO, It
was in excellent shape.

The outbreak of the war found them with

only Z16,0003100 of enemy paper in their :)ortfolio, all of which

1(1 been provided for notithstanding their own customers were

liable for much of it and that he felt quite sure that the large
German ban;:s were not going to repudiate their engageraents, and

cellor of the Exchequer, McKenna and Sir Edward Holden at the Savoy
In the course of an interesthig discussion, Sir Edward. Holden made a

statement which indicates the d5itude of the English Joint Stock
Banker, in regard to gold pay..ients.

The Manager of one of their

branches advised him that an American lady claiming to be the .dauhter
Schwab presented a cheque for Z3,000 and demanded
The Manager demurred and the lady became ixttommont and rather

of Mt. Charles

indignant,declining, however, to explain for what purpose she desired
the gold.

The Manager undertook to reouire her to close her account

and take bank notes.
Edward Holden.

After so:e discussion she was referred to Sir

Inas.luch as she had threatened to report the matter

to LT. Schwab, and in a way which would cause a good deal of discussion
in regard to English finance and the solvency of their banking
institutions, Sir Edward saw the lady and with a little gentle persuaIt seems that

sion induced her to explain the reason for her demand.

she had received a letter from an American stating that the United
States would shortly be drawn into the war and that there would be a
gold panic--that it was desirable for her to get a store of gold in
hand for her own protection while there was still a chance to do so.
Sir Edw rd pacified her and finally persuaded her that it was quite
unnecessary for her to act upon the advice of her friend.
Likewise, in my talk with Mr. Simpson, he expressed the same
criticism of the Bank of England which has been much in my mind.

Their reserve Percentage is now 27.

They hold in their Banking

Department nearly thirty-three million sterling government securities
and ninety-three million sterling other securities.

He is unable to

understand why, during the past months, when the market has been quiet
and liquidation has been possible, the Bank has not been able to reduce its position. so as to make a str-nger showing by liquidating accoun t



other. securities and decreasing its deposits, thereby increasing

proportion of gala to other liabilities.

1 OAXtse...

'Friday, March Called at Morgan, Grenfell & Co., for mail and had a short

7isit with Vivian-Smith and Grenfell.

Grenfell stated that he, Jack

Morgan and Lord Cunliffe had dined together the previous evening,and
had quite a discussion in regard to the Federal 2eserve Bank matter.
That Lord. Cunliffe seemed quite interested, and come time during the

early part of next week hoped to have matters so arranged that I
could have ample time with him for a thorough explanation of the

Then called upon Sir Christopher Nugent, at the Union Dis-

count Comany of London, Limited, who was very glad to get the
message from L'.r.

Jay, and asked me to remember him most kindly upon

my return to New York.

I had quite a talk with him about the bill

and about the London market.

business as conducted by his


says that the volume of bills is seriously curtailed by the war
situation, and of course the Discount Comaany has fQlt it somewhat
as it reduced their turnover.

Prior to the war much too great

latitude had been allowed the large acceptance houses like Kleinwort
'izatt., co.,

- Shroeder

Co., at al, who sometimes had from 15 to 20

._pillion sterling in the market, and as they never made a statement,

no one knew what their capital was.

The Bank of England, on the

other hand, did require the private acceptors to make a statement to
them of oarital, responsibilit7, etc., and unless they could get
such a statementathey took a very limited amount of bills from those
houses, declining\from time to tim2/when it suited them to 1410-to
the brokers that they were taking no more of that name at the present

This generally had the effect of bringing recaltrant

2Nta(-aodeptors to the lies4 as the bank desired.

we did not under-

tE.t:e to discuss the business in detail (arranging to do so at a

mature date) I did ask him about the
a an illustration of his remark that

of finance billactszd,_

it was a very indefinite term'

he broulit out a batch of new Russian bills, of which they had just

purchased a cuantity, that were in the form of finance bills but considered as having a commercial basis, and which would be accepted at
the Bank of England.

Zhey were all, without exception, bills drawn

by Russian banks and banking institutions on Eialish and Scotch banks
llany of thorn, if not all, were endorsed

and banking institutions.

with recourse by Barings, who were arrarently the intermediaries in
They were id tical in character ete., with the bills
negotiation g.,






Bonbright & Company caedits.

Sir Christopher said they

were finance bills in form butawery drawn to enable Russia to pay for

heavy purchases i:i England


and conseTuently -aere regarded ae sound.


He showed. me Jai.ite a large batch of acceptances drawn by various

concerns on the E,alitable Trust Company of London, and accepted by

them payable at Lloyd's Bark, or some other bank in London, and the
same from the Farmers Loan & Trust Company.

He said that it was

their policy to get ail drawees in England, Scotland and. gales etc.,

to accept their bills payable in London and have them drawn on London,

which was mite possible here as most of Val", provincial banks had
London offices-

He also showed me some drafts drawn by the General

Rubber Company of Brazil which were accepted by an agent in London
payable at one of the large banks, and which he criticized somewhat
as being really one name paper, although it bore a good endorsement.
He thought that the General Rubber Company of hew York or the United

:Oates Rubber Company should appear on the bill, and that it should be
drawn and accepted under a bankers credit.



going to show me

is portfolio.

At my next call he is

Ho said that the rates for such

bills as he showed me this morning would run from 5:4 to bk; and

wanted to kno;i if we would not like to take a block of one half million
sterling at that rate--it was, of course, most tempting.

He also

said that they occasionally had bills come in drawn in dollars on
good American concerns, and would like to knot: whether he mould be

free to send those through to New York for offer to the Federal
..aeserve Bank.

I told him he certainly would be, and recoriv.iende


he inform himself Quite thoroughly in advance regarding names which

we took, and Which I nromised to give him either now or immediately
after returning home.

Ho is very anxious to do business for us in

London, and I have arranged to take lunch with him on Friday next at
the bank, stopting somewhat in advance of one o'clock.

He is also

going to take tea with me some afternoon at the hotel.

Sir Chr'sto-

pher Nugent ire reused me as being one of the :,lost likable and active

of the men I have dealt with here, and is most anxious to
possible information.

-ive me all

:r. Frazer, of th,.. Guaranty Tyust Company's

London office, called while I was there.

He is one of the

of The Union Discount Company, and both he tnd Sir Christopher asked
me to explain somewhat in detail the operations of the new Federal
I'eserve Sstem which I did.

Loth stated that the,; wore satisfied

from my description that we were handling our bill business along
sou.,d lines, and strongly recommended insisting upon information in

regard to capital and wealth of the private acceptors and also urged
that it *maid be increasingly important that we should develon

Xrawings instead of open accounts in our domestic conneree.
Prom there I returned to Morgan, Grenfell

say goodbye to Jack ::organ.

Company to

He told me, in more detail,the substance

of his cownirsation with Lord Cunliffe.

They apparently discussed

the program, which I had explained to Jack, at considerable length.
Lord Cunliffe appeared to 'ue attracted by it, and Jack said to me
he thourht it would be a. mistake for us to contemplate having any
other agent than the Bri.n17 of2ngland, and that we shoule. endeavor to.

get them to buy bills for us.

I asked him what possibility he

thought there was of our making such an arrangement, and he stated
that not only did he think it WV.E possible but quite probable, if

handled right, as Lord Cualiffe had suggested that they might be

willing to buy bills for us end have the Bank of j;t.g.3.:..nii. guarantee

Mat, inasmuch ac the Bank of England had never lost money

in its business. such an arrangement would be far better than any
contemplated, and on this hint fret:. Jack I think we may be able to
do something.

If we do not perfect an arrangeent with the Bank of
England, it will undoubtedly be necessary to make a number of different arrangelLents over here with various concerns- -both bauks and

discount companies.

Jack Morgan is particularly enthusiastic about

concluding an arrangement of this character and says that he,

Grenfell and Montagu llorman will make a determined effort to bring it

In all of my conversations I have made it clear that under

present conditions I hardly, saw how anything could be definitely

concluded until after the war, and I think that is thoroughly understood.

I then took luncheon with Fred ',7olcott at the Berkeley-- those

present being Admiral Lord T:arrenden and Lady Warrenen, Ai". and Mrs.
GuinneLs of 1107 York (Ladenburg, Thalman. t Co) and another lady whose

name I did not catch.

After luncheon the Ad'eiral, Fred elle,. I had a

lone talk about the loland matter in which Wolcott is acting for the
Rockefeller Foundation, and later 7oleott and I had a ehat about the
situation over here--the English feeling about America etc.


data and observations in regard to Poland and Germany are of immense
interest, and in some ways startling in disclosing the frankness with
which German army men are willing to talk about their affairs.
Met Captain Symington at five o'clock and went to Ambacsai7.or

Peze's house for tea.

F:om there returned to the hotel, dictated

Fp_e mail and then went to the Savoy Hotel to dine with the London
Clearing Bankers.

!Ai'. Vassar-Smith presided, and t-ose :)resent were

as follows:
J. H. Tritton,

Barclay & Company, Ltd.

Sir Gordon Nairne,
,. Leaf,

Bank of England

Deputy Chairman. London County

Westmineter Bank, Ltd.

Sir 2dward. Holdefi Bart., Chairman London City :I Jidlnd Bank,
The .F.11Lt Honorable Lord Inchcape,

- K. C.I.E.
Ireeident, Institute of Bankers and the National Provincial Bank of England,

Vassar-Smith, Deputy Chairman, Ba-Z!:eree Clearing House and. Chairman of Lloyds Bank Limited.

RiLht Honorable Lord Faber, President of the Association English
Country Bankers, and of Blackett'e Bank
Sir Felix Schuster, Bart.

Governor, Union of London and Seith's Bk.

Sir Charles Aadis, Hong Kong s. Shanghai Banking Cor'oratiOn.

London Clearing Bankers diancr continued:

Whalley, Deputy Chairman, Parr's Bunk Ltd.,

A. A. Talloch,

Manchester & Liverpool District Banking Co., Ltd.,

C. C. Cassels,

Bank of Montreal,

Henry Bell,

GeL-ral Zanager Lloyd's Bank Ltd.,

Sir John lurcell,


national Bank

Sir J. rortescue Flannery, Bart., w.
Walter S. ::. Burns,

1. Chaplin


J. Beaumont lease,



London re South Western Bk.

London Joint Stock Bank, Ltd.


Deputy Chairman Lloyd's Bank Ltd.,

R. Martin-Holl-nd, Hon. Seely., Ba-,:.:ers' Clearing House,
Martin's Bank Ltd.,
J. F. 7. Deacon,

dilliams Deacon's Bank Ltd.,

T. H. Whitehead,

Chartered Bank of India, Australia

J. Hoe Simmon


Bank of Liverpool Ltd.


After a toast to the King, and to the President of the United States,
1:.r. Vassar-Smith proposed my health and made a very complimentary

sreech, referring :particularly to the work of organizing the Federal

Reserve Bank of Sew York and to the svetem as a whole, and expressed
the good will of the London bankers etc.

In response, I exoreesed

my thanks for the courtesy extended me by the Clearing House banters
and particularly for the hospitality they had individually extended
to me on my visit at a time when they were overburdened with viork
and anxiety.

I referred to the wonderful display of Arength and

resourcefulness made by the British Be-_-,'Ikthg system in the crisis

Of 1914 and since.

Ex:aained the difficulties of the prompt pay-

ment of our debts ahen payment was required, reminding them of the
old saying that the borrower is the servant of the lenaerywhich eid
not amply to the borrower who did not find himself able to pay the
debt promptly at maturity, whereupon the lender promptly became the
servant of the borrower.

I stated that I would feel unab3e.-D-4=44Pre'-r

to accept the hotTitality which they were extending to me were I
not willing to make a brief reference to the present situation in

That one could not helve but be impressed :.ith the signif:-

c:nce of all these young men, possibly some of them their sons, in
uniform, many of them leaving for the front.

3y person.1 view was

that they were enlisted in a stra-gle in which they might h -7.7!


sacrifice their Jives in the defence of institutions created by
English speaking peonle of this country for the benefit of all
English 'Doeaking peo-de of the world.

That these English institu-

tions were a British inheritance of the peorlo of the United States
and that upon their Peruanency depended our security and happiness.
That some ihmerioans had been guilty of viqiting this country and

indulging In views Aid criticism of the Za7ricaa 3overnnent and its
attitude the war---that I felt no good could mesiblz, come

from such statoiente being publicly made or privately repeated.


our Ldministration had faced a most difficult situation and whether

we agreed or disagreed with its course, we certainly reserved the
ri-ht exercised by all En8lishmen, of criticizing the Government but
should exercise that right at home and not abroad.

I went

on further to say that my brief stay here had disclosed to me the


fact that in some respects conditions, public opinion, and the
difficulty of creating a solidified sentiment at home, were not
tl. rouEhly understooe in EnLrland.---that t here w ere nearly fifty

1!lion people in the United States who were not ascimilated, ilia ?Adel 11.


whokne.d not even definitely adopted the Anglc-Saxon languagefetc.,

as part of their political cree end social life.

They had come to

America to ouisue wealth eed happiness by the same processes
Americans had eueloyed

or the past fifty years; that is, diligently

developing the resources of a great undeveloped country.
that ever si.ece the

I stated

leeiican Republic haa been fo-Inded it had been

unnecessary to developqa foreign policy except in three matters.
One, thet ee had

sec5:ed1;i7 regarded the aelvice of Coerce Waohingten

to avoid foreign entanglements which he believed -oald prove a menace
to the unity of the new nation. bound together by, slender ties.

That we had developed a strong sentiment in regard to the so-called
..)__....r 1

Monroe T)octrine pronounced by

oar Monroe at a time vihen the

) American states were strueglin

or their freedom, and when he

felt that interference bri foreign natioes inould preve a menace to
our T.IE.Lioli%

itAt7, lestly, that we had recently developed rather a

hazy :lotion, under t'ee leaderehip of !Ir. Hay, th7t the people of the

United States shou:id enjoy e-ual rie-hts of trade with other natio: s
in China,

::accept in these matters we had no foreign policy and

likewise no Leternational financial policy.

Our preoccupation in

the profitable development of oar (:n. national resources had not

only kept us out of foreign gkeance, but had led to our being simPly
a borrower 3.n the cheeTest mnTkets of the eorld.


It was

the responeibility of the lenders to study a.21:1 understand American

That our people had not familiarized themselves with either

national A iedustrial,bank credits in foreign lands; In fact, expressed generally, neither in internatioeel politics nox international
finance had we ever developed a cense of international responsibility.
Quite suddenly, when the 3uropean war broke out on the first of
August 1914, and it aeeeared that ehe United Statee heel. become an

international factor, both politicelly and

financially, of supreme

importance, and !-,ossibly of deciding impoetance, it could not be

expeeted that a peolple of the character I hed just described, and

so lacking in experience in foreign matters, would realize their
ne. importaece--that a nee coeeciousness eas certainly developing
In the emerican peoele. poesibly net us yet .olitieelly but
certainly in commercial and financial matters.

It was herd to

appreciate the extent to which good fortune had favored the
interests of the United states.

Immediately prior to the outbrea"-

of the war there rested in first hands, unsold, one of the largest
grain croes over raised.

It doubled in value in a few eTeeks.

'ift of such magnificence as no nation had ever received.

opened the phssiblbity o


The war

a come Leto derangement of the chreenelo of

We had just coneaeted the Panama C=al giving us the

opportunity to protect oue trade on either hemisphere, and Sr.

:ilson's administration had just passed a bill whic'a effected the

most con lets and fundamental reform in our banking laws since the
days of elexander Lamilton, thus ensuring a stabler money rate

during periods of uncertainty in financial matters.

The new

banking lawh regAired no emelanation as I had found that the
bankers of London were peculiarly well i)osted as to ita provisions
ann meaninfe, but in one respect, I felt th,it they might not

realize what it had developed indirectly.

The reduction in the

minimir: reserves reeuired by law for the national banks had

released nearly five hundred millions ofFoola.
had turned in elr favor,

Since the exchanges

:re leed imported, net, over your hundred

millions of gold. and in addition ee had the resources of the

2eserve Beeks which controlled over five handred and fifty million
of gold prnetically untouched.

This enormous ae'ition to the

fundamental wealth of the country

and upon which the entire

banking credit structure rested, preseuteE the possibility for
credit e:Teasion of such vest reonortions that it lee.e inevitable

that the bankers of the Unita Ct.tes would seek foreign fields
for the employnent of their funds


So far this emploreent had

been peincipally directed - ?fret, to the repurchase of enor-ous
amounts of American securities;

Secoed, making loans to foreign

iations and banThs exceeding one theus:end million dollars; eeee

Third, to the financing, reorganization and development of an
ineustry and commerce gro:n up over night in conneceion rith the

The influence of the chi rze in our banking situation had

lee to e-Lravec.ant ete_:tements being made by the noee-eapers, and by

sonic public men, in regerd to our position in international commerce
and. finance.

It seemed quite likely that we roal0 hove cheap

money for -eme yeers to come.

We eld not, however, have the

facilities of b

machinery 'Ith 7:%ich to :r. kc tlis credit

L. (911444

available with Znglish bks,

Land thct such banking machinery must
boodevoloped a3 rapidly as it could be.
Our advantav .ould

;heap money and theirn the mach4_nery and facilities.

7i:,-.t it

shoul,' be a f-ir competition, ,1,11 that they mu at not be deceived

into thinking that the Teight or influence of chep money could fail
to be felt.

Mils war might entail treendous sz.crifices upon the

English peoole, inoluaing the bankers, nn0 if it involved :.he surrender of some part of the worlds banking to go-,.

York, at least we


believed that it would be surrendered upon f' it tf:rms, ad fair


and_ that SO AO of 4B felt try .t if this ,:;rest saorifice


had 'i..o be :wade, Bn`L -nd, ahich h.4.1 e-V-blishe-ld the stz,ndard of
commercial hoaor and banking integrity throughout t',.e world, would

rather relinc:aish tcis great trust into the hands of those who spoke
their owe language and wIlo believcd in the cr-,:e 1 stiitutions, and

had, I hoped, the s..-le high ideals of honor .nd integrity.

That they

mast not be dockeived vith rer_rd to public sentiment.-there wvz :,
great deal of talk that the United states L:ad t


Ge,.Ins--the answcw to that

7.-evernent was

war to EIL,:;0



cosmopolitan copulation, one half f19 yet hardl y acsimilated, there

had. been launched the most thorcngh propaganda to LnfIaeuce public
opinion that the worle_ had ever witnetleed, and it haC proved the

:ost dismal and ignovinius of failures.

Possibly the cx-,lanation

Was that the :,nF:lo stock in the United S,A!tes wooke the same I;Inglish

language as those Preuent, and they stil referred to England as the
lother Country.

Saturday, :.iarch 11th:


Spent an hour with Sir Felix Schuster, cnd after lunch

played squash with Captain Symington.

In the evening dined at the

Savoy, and later vent to zee "Tonights the 0i7ht".

Sunday, March 12th:
Spent Cho best Dart of the nlorning in bed, dictated some
mail, -rd tben lunched --nth Captain Symington s,t the Naval and

Military nub.

In the afternoon took tea with l!r,


Mrs. Tritton

(Barclay t Cempany) end afterwards played squish with Captain.

In the evening dined at Circa with Lieutenant Quoeznyer

and Lir. Shiverick.

Loaday, :'arch lath:

Stopped at idorgan, Grenfell Ac Corwany for mail and fram

there called on Sir Charles b dia and :Ai-. Jones of the :(Toag Hong
Shanghai Bankinfr Cororation.

Sir Charles t5 lnitm keen about the

develo:pent of oar bill market which ho is noce?sar-.7 nn.d
should be pranoted.

He believos thr.t How YO71X must carry some pert

of the load for financing -;:he morles commerce owl particularly thee-:Says it would be of groat value to them to hvve their enaorsofnents

the Federal Reserve BankiOof New York..401ke i.e very

mach suI-)rised at our Government's attitude regarding the ChinePe loh
pari:icu1ar1;7 in view of Lr. Hay's dipltuacy relative to the open

door in


Germapy id u party to the


loan, he believes At will be difficult to carry out this business,
efter the eenclusien of the rar,with Germany as a partner.


tilkikm that the United States should interpose no objeoLion to

iacecie 'm baa::ers takiag an active 'art in this fa= of Govern:ient

He rece:-;nizen Viet there are di:Aculties

n a

rolicy which might later involve t'ae use of the big stick, but
China 1: such an imperetant field of corniercial development that he

believes we will find it necessary to undertake business of that
character if we wieh to e-tablish ourselves in the Orient.


Charles has lived a good while in the East, end I believe hia to
be an authority on these mattere.

Then called upon
Sluth,iostern Bank Ltd.

r. H.

i. Hambling of the London 60

He is in fevor of transferring the bill

business to Mcre York to assist the exchanges and as a means of

getting large credits, eud states that he has so urged.
there returned to Morgan, Grenfell


Company and had a chat with

11r. Grenfell end Vassar-Smith about the money market and Bank of
EnglrLnd preotice.

ourse, allows no interact on
by borrowing money from the

ements as not explained to no

ey regarC. it, particularly in

function of the bank.

ng the rate.


This is discussed

, t is described as the "Liner

ur execueive committee, aAd

where all features of the situation are discussed.

meeting this


c. regular order of bueiness aad most ILIportant

semetimes, 1,eing the sole item of discussion.

laid before the whole court


At the Thursday

The matter 7s then a decision reached.


Only most

Infrecuently le a decision arrived a: that effects a change taboos*
- -At/WI Yr..tq at-Me AAA2ometimes
the-1;e4tleeititty-aad Thursday meetil;.ss.
The rate is Trade effective
ort fre(aently
7 the bazu borrowing in the maret which I ourL:ise/taires he form
of operatic) is

u7:1-_-ouril. brokers, aha sometimes lirect transactions

ith the Joi_t =_Iock Banks.
This i e doubtless one ressotl erlzr the bell:/e P.eporit account has

been soma hat inflated during the recent months.

The Intelligence

(Liformation or statistics l) Ltpe_rtent is not very fully developed
and not as fully developed as Grenfell 1:111....ks it should be.


se.ys thet the Bamue de Pr_nee undoubtedly has to exteneive depertment of this c-_-1,;.racter, particularly as to doelestio credits, as

they stand ready to take French bills anO, do ta:.: thc,:l from banks

of the time ,7..nd precticlLy without limit.

Grenfell is under

the ine7rossion, as I sTe, t: at the Credit Lyonneise has

:.he most

e::tensive intelligence depextment of arty of

he baLks, with

possibly the l'eutoehe sank

The Beilque (le Trance,


of course, he,s access to all of the i :formation held by the big
french banks.

Crenfell has made c.n a2,,ointm,m:. for three

otclock ea gees day (tomorrow) 7;ith 10711 Cunlifie.

Ho tells lee

that Lord Cunliffe is very reserved, diffidentobnt nevertheless
quite positive in his views.

Grenfell i.s ho::eful that e7ter e

few i-lterviews that eome satisfactory arrangement can be reache3.
The -tau is to hE:ve a 7,reliminary talk with Lord Cur3iffe. then a

libetiug between Lord aunliffe, liontagn Norman, Gronfell and mynelf

to Fo into matters more in detail.

Vie discussed at eerie length

the :aestioa of the level of interest rter.

The high rates

prevailing now being more -r lee.: artificial and created by the
banks and the eovernnent.

I called his attention to the 7)ossi-

biliLy that this was attracting balances, :_nd investment in bilis

and that if the exchanges started wrong in




ill with(lraw all of these balances end invest _eats,


and might be expected to make the exchange situation worse.


thought there dz).r something to this and that it shou'd et am rete
be coneidered.

ae are to diCOUCS it further --;:en we meet Lord

2etarned to the hot3l, and. ('ictnted mail.i(

Schuster called :A, six o'clock and remained until 7:45.

Sir Felix
lie dis-

cussed at great length tnc policy of the Gavennn.ent and other

He was strong in condemning the policy of borrowing so

such (443 million sterlihg) on short bills, and said that in his
oninion the

Crovorment wust find a way to fund the war exnensee

on permanent stocks.

He thought that the banks were carrying too

much in Gavernnent loans, as well as tho public, and that mes the

one eak spot in the banking situation here.

I asks

me the policy of the bank in regard to the market.

him to toll
He said that

on r_re occasions tho bank went directly to the Joint Stock Banks

and burrowed their surplus fund at interest in order to stiffen

money rates.

Generally, however, they employed a broker who

borrowed. Urge subis in the narket on collateral, the bank in turn

bfilrowinvoney from him.

Both operatic

infleted the ba,lk's

deposit account, raised money rIrtes, but weakened the technical
positioei. of the bank.

He dimessed at groat length possible

methods of unravelling the extended credit situation, feeling
ctrongly., as I did, that the positio:1 of the Bank of Sng.)find, the

Joint Stock Bans, and the Government, depended in the last analysis
upon the ability of the Government to fu,id their borrowings into
I as7.ced him how he felt about the level of interest

long lo as.

I rates, and 'Ile said that he thought large balexces here just now
were a leenaee, partieulerl
New York.

if echenge on London should fall at

He was not sure, however, that generally speaking a

lower level of interest In London weulll be a good thing.


was just now a dearth of good bills for the investment of funds at

4 the banks, and of course a low level of interest rates always pro64. -HereAe---

mated. bad banking.

ar2=1,1=g. 4:1At to :7artin's Bank Ltd., and

had lunch with some of the directors of the bank.

Tere nr Vrederiek 7artin,

et .ii right

Comrany, also

At the table
Merton Jr.,

Holl nd,


2reaerie7e JackEon of l'eudel;4


1.reden5)urg, Maim=

Company, Ur.

Chaplin of Couets & Compnny, flerhert Balfour and one or two others.
Tie had C. very on r;:; ?_ discussion of conditie::s here, but nothing

of Leportanee is coliection with my trip.

Prom there sto pod in

to sec sir 13dward HolEen and learned about ?ueeday night's sinner,
which ho e.aplaitled to me :ould be :attended by a number of the members

:).f his staff at the bank,

7.-n!l, a number of the financial editere of

the la/ge 1,..expapers here,


wt,r_! anderstood

be rr,Tecral and cunfidential.

ThAcalleil upOn Mr Felix

Schaefer, and discussed the forcim exchage situation at considerable lenct11, also the cuestion of dollar credits.

to believe that the Government ree,lireents poi
hLve been fully tf:_keu eEre of fcr

the period for the -novenent of cotton.

He is inclined

teivierr.remlet exchange

time ahea,d--probahly covering
Ye tliiets that the English

banks will be obli'ed to rlinanish a part of the acceptance business
to Nei, York :where bills will undoubtefily 7vIvit.lte nnder the

influence of easier -aone71*, but says that the English bankers will
naturally bo rellact!.nf to lot the business go--thot it is not only
matter of :,,ride but cyr r.rofit.

Dined with 4±. and T;713. Page, those presoLt being the

;hili an


his wife, Lady Dawkins, LIrs. Sullivan, an

Americ!..n lady, and Col. Srluiros the ni-itar7 at


Uobort Benson wham I had formerly known.

luosdr,17, 14t:reil 14th:

Called at Koren, Grenfell n Company-4,c

star just a

cord v.ith Grenfell, a:ranging to return at three o'clock to keep the
L11.pointraent 1,ith Lord. Cunliffe.


branch system,

ITTOin there cr=1.1ed on 2r. Bell end

Dell ontli:led to ine theNishheme of management of the

a ol.erations of their bo[.re of directors, any the

Ce=ittee syt;te7r. Board. me Reports etc., the employ, ent of their

clerks and the maaag.e. ent of their buildings.

1.1r. Rarric, one of

Ho i:: sailing tomorrow

-their &irectors, or.-'le in b- request.


thc United Stites to be Bone about, two months, .216 erpeets to look

meikp in New York.

Bell says th t 11e, is e very rich mrn, connected

with one of Lh:, lame shippin

li"S, r .1d ono or their ac,ive

After a long chat, I arr.nged to return there to-

sorrow betz:cen 10:50 and 11:00


to continue liscussinc natters.

I asked :Ir. Bell about the Hong An g F.. Shanghai TJ'Ir:-:!n

the Cliarteree Bank of Indimi. Australia


Chinn; tIlr, golonial

,,zia the Yokoho),- ..3pecie Dn:Or.


SHArGHLI BAtI/NG 001:201-1;,TIN:

his bat would take any amount of
bills Ath their acceptance endorewfient if offered.. said
Undoubtedly A-1.

not heeitate to take a half Mallon sterling in one batch,
and considers them about the best in the market.

Very com-

peteat vinePellent, Sir Ch:,rles Ldiis. a very coAoet-ht
An excellent ooard of directeIs who tz"-t
tle ta,;013 al.feirs


In active interest

',rid they .,re entiustea with co .c;ielora-

tie try Qsocticns by the Eritish rtat the Chinese Goverwients.




Not as large as the Hong Long & Shanghai Banking Corporation, but most conservatively and ably managed.

class as theWSBCorporation, and

It is in the same

Bell, of Lloyds Bank

LonOon, would not hesitate to take their bills for any amount

Of course, when the war first broke out, there was some

suggestion of German influence in the management which was promptly

I recall Sir Charles Addis telling me that while at first
the war interrupted their business, he thought it was now within
90;i; of normal.

They had no trouble with bills coming through from

the cast whatever.

The trade there seemed to keep up astonishingly

well notwithstanding the heavy freight rate.

That apparently


consuming power of the people there was unlimited.
ire should pay some regard to the disparity of size.


This bank operates e:clusively in the Mast.
old institution and has

It is a very

ono busi:less for many years Ath Lloyds

Bank which is its principal banking connection in London.


some years before his death, my old friend Sir E. Broaie Hoare was
Chairman of the Board and it has always been managed most conserve ively.

2.500,000; Reserve 4A00,000 sterling.

It is

re7arded as a small bank, end small ficures should be taken into

Considered A-1 in all respects.

Quite recently they

have tal:en on a new Chairman, a Canadian, who of the bank up to larger
anC. endeavoring to bring the busineec is .uite energetic

It would be well to tLhe this tato account, and renew

the inquiry later, after the new man has had experience and is
better known in the city.


rec. rd to their figures, lit. Bell said he woula not

hesitate to take their bills freely.

This bank is ably managed in London, and generally well
regarded but on account of the Japanese character it is most
difficult to get a goorl_ line on their operations in comparison

with what can be ascertained about Eastern, American or Continental

They are very secretive about their methods.


Yokohama Specie Bank represents the Bank .of,japan in foreign

countries, and at times has large sums to loan in the London market
which Fives them a standing and influence of some importance.


undoubtedly use their cre



Their operations are so

closely related to those of the Japanese Government, the Bank of
Japan, .litsuifand other permanent Japanese interests that it may
be said, roughly, that they

re just as good as the Japanese Govern-

ment so far as their obligations go.

With due allowance for the

management of the bank etc., Lloyds Bank would t::ke their bills

with fair freedom, and

Bell feels that the London market

4°41. generally maintains the same attitude towards their credit.


always fiFare close on terms etc.

After going over the foregoing matters gibers 7:ith
Bell, he showed me a portion of the bank's portfolio.
I intend to look into more thoroughly later on in the week.
Their short money (so called) was in the shape of seven day loans
to bill brokers on bills, many of which I recognised, and a
considerable ntraber consisting of the Hong Kong

Shanghai Banking

Corporation, from the East and bearing that bank's endorsement.
The principal amount in the short loans book was represented by
advances on short time securities of the India Govern-lent and

short-time bonds of the India Govemlent, always guaranteed by

the India Govermaent, as well


bonds, consols, etc.

These seven day lons .re secured by what they call "floaters".
That is the type of security that is circulating in the market.
The tavunce being made

seven days, the brekemcalling prior

to the expiration of seven days to ascertain if they may have


The account, at present, igjcomparatively small

one as the market is bre of bills and of borrowings of this type.
The brokers are generally getting 5% at least on these bills and
borrowing say at 44;4---if the market went against them and, the
boa -s ger° called they would -melt" them at the bank.

From there I looked over the department vJhere they keep

a record of the employes of the bank .

It requires about 40

clerks to do this iiork viiich covered a force of 7500people.

40;J of the emnloyees of this bank are in the war service.


W they anticipate will be increased to 50, and a total of 80;1; of
those that are eligible, the rest being regarded probably as
indispensable to the bank.

The bank continues full pay to the

z.en during their absence ,and calls those filling in their places

V as "temporaries" of which there are now



1.1r. Bell explained to me at great length the most interesting feat Ore

of their business in regard to advances to their correspondents
and customers, just how they are handled through the branches,ete.

From there I went to the Brooks' Club and had lunch
with Jr.

Hungerford ;:ollen, Sir Horace Aunkett, Captain

Symington, Captain Hall of the Intelligence 1-spart:aent (Secret

of one of the London Journals.

ervice) and

It was a most interesting luncheon, and Sir Horace Plunkett
showed me a confidential report he had made to the Government,

following a recent trip through the middle "est, rerding
conditions there, which impressed me as being a most intelligent
and fair report.

He seeed to think that public ()Pinion

throughout the United States was improving towards En571nd for
various reason which we discussed--the principal one being the

care which the Goverment here was exercising not to perTAt
criticism to appear in the press, and to encourage friendly
and intelligent discussion of that sulject.
went directly to 1._organ, Grenfell

to the Ban

Prom luncheon

Company and with Grenfell

of England, meeting Lord Cunliffe and from

3:10 o'clock until 5:00 o'clock with him, having tea also.




relishes a joke, and likes

Cunliffe iuoressed me most favorably,
to make one.

He joshed me when I came in and said that he

understood that I had attended a dinner of the bankers the other
night, making a speech that had_ hypnotised them a bit and that

now they were taking me through their banks and showing me their

He .;anted to know why I had not let him ::now in advance

of my coming over.

I thought he was reproaching me, and when

I started to explain th,t I did not think my trip was of
sufficient import nee to advice him in advance, he said he would

like to have knon it as he rroulr live had me taken off the
steamer and pushea through to London in short order without all
the fass and delay that I was subjected to.

Ater some general

discussion, I explained the bare outline of our situation with
reference to operatio_s over here.

Said that it was impossible

to say when it could be undertaken, or
ble to undertake it.

hen it would be advisa-

Explained the relationshio of our bank to

the Government and the necessity of observing a course which
would not implicate our :Government in anything that might be held
to be nn-neutral.

:hat my nereenal view had been that the mere

e:Astence of a state of war in urope should not be allowed to
defer or to suspend the soeratiOn of the Federal Reserve Act,
which was really 404 V9e,e. to meet emergency situations; in fact,

just such situations as would arise in times of war and imperil
our or


That were it not for some cuestion s of

this character, it seemed as though the present, or

any rate

next fall, would_ be a favorable oportunity to start our




e realized,hhwever, the extent to which present

conditions imesed responsibilities on the Bang. of England, and

that they were, so to speak: headuarters, and that our plans
should naturally be shaped with due regard to the local conditions here, in which the Bank of :rigland controlled, not

only as a matter of comity but in order that our transactions

night be more effective in the future through being conducted
harmoniously with headauarters.

Lord Cunliffe asked me to explain exactly that our
business contemplated, and I repeated to him the language of that
portion of the Act referring to our foreign business; pointed out

that we had a choice of methods--we cold do our business through
the Joint Stock Banks entirely, or, we could appoint an agent anAl
deal directly with the bill brokers and nossibly by that method
our operations would be little Irnown in this market but necessarily

we would hve to assume entire responsibility, or, we could co duct
our busineEv: through the Bank of England.

I personally felt that

the business shout d develop gradually and that we should be able

to establish such an intimate relationship with whatev9r correspond-




e arpointed as would warrent tluoie accepting o:aeh in purchasing

bills in our behalf without reservation or separate ina.uiry.


to conduct this business either through an agent or with the Joint
Stock Banks would put us out of touch with


ngland and that

we might not, in such case, develop the relations of co-operation
that 1 hoped would exist with the Bank of England, and therefore,

rather than conclude any arrangement at the present time, if the
Bank of England was not interested, I would prefer to go home and


leave the whole subject open.


.loo ea-alained to Lord Cunliffe

that the matter had not yet been discussed ith the Joint Stock
Banks, an

that it was difficult to

start business.

when ae could actually

I had felt Etroigly that seriotii losses were involved to
nineteen months during the past eighteen or

Of both Eng2nd and the United States by the complet
ley-Lich threatened a suspension of international gold

and that in the interests of both countries we certa
able to work out some

lan for co-operation in these

Lord Cunliffo said that he agreed with me a
and was anxious to see that matter in better shape.
how I felt abcut the -future.

I pointel out to him

were still difficulties ahead--principally those to
from the v o kum E

of cotton and grain bills coming f

fall, and that to meet that situation should be
in advance.

I also pointed out to him that both Engl

United States had incurred ;great losses and unnecess

gold Shipments for many years.

That our rather unc

money market under the old banking system shad been m

of a menace to both of us in tines of difficulty, an

sort of co-operation which could only grow out of ex

mutu-1 confidence should enable us to miniaize these
losses, hut the

first step in that directions was fo

which held the sur lus funes (dust now the United St
invest some portion of them in this market.

That t

'Reserve Banks could afford to co that better than any other as


their funds cost them nothing,

_nd it Tould be some time before th

their credit facilities were needed at home.

Lord Cunliffe, as

Mr. Grenfell had warned me, is very slow to make up his mind,
and always wants a few days in which to thiik things over, par ticularly if they
his experience.


.ro important and a little outside the line of

He said that, of course, the Bank of 7ngl nd

did not allow Interest on balances but that the Bank was really
a law unto itself and means coul; beto mean, that the Bank of En land
difficulty which I iaterprelted found to overovne that
would borrow our money rather than hold it as a guaranteed deposit.
He also said that the B_nk of England discriminated very rigorously
as to the paper it bought or discounted and cons°


in dealing.

with the Bank of Enland, rates would not be as high on any naper
they might buy for us,under such an arrangement, as we might
realize through the bill brokers and the Joint Stock Banks.


the paper would be undoubted.andeax.r4e4..

He saw difficulties in the 7.ay of acting for us, in the

purchase of bills, and then, much to my surprise, said that they
could all be overcome- -that the suggestion a)pe led to him as having
*ouch merit, and of course if the Ban-r. of England acted for us they

would guarantee all the paper purchased for us and be responsible
for its

pay gent,

that they had never lost money on bills, and would

not expect us to.
e shipped to America.

He wanted to kqow if

he hills would have to

I told him that ultimately I thought that

would be the case, where the bills ran for some time.

If we

were putting out short money,that could not be done.

If an arrange-

1146,eaent was concluded before the war ended, we probably would not want

the bills shipped owing to the rick of loss etc.

Finally he said

that th thought the best plan, at the outset, would be to have the
bills held in "pension".

It was understood, he said, that the

matter would reruire thou-ht, and he wanted to consult



Montagu roman and with the Deputy Governor, but on the whole, I
am most favorably impressed with his attitude)which was :ost
friendly, anfl_ at the conclusioA of the general discussion)roufrhly

outlined above7.4e had coffee and cigars and a general discussion
about the war.

Lord Cunliffe undertook to josh me a good deal

about the trip over here and of having stirred the bankers up and
setting all their ears wagging.

He said that at the Clearing

meeting that morning they had all been talking about my speech at
the dinner on Friday night, and I uould sot help but draw the
conclusion that while he was only 4oking, he would have been a
little better pleased had I written lim in advance of my coming.
I ex' lained that I had felt right along that my trip wai, making a

good deal of trouble for everyone concerned, alai that Rad I notified
them in advance, i, Lo,i,

_lot help bul; to have been construed as an

invitation to facilitate my trip which I did not want to trouble
them to do.

On the whole, I believe there will be little dif'iculty
about coming to an anderstanding regarding an arrangement.
After leaving Lord Cunliffe, I went to the Ldadralty by
appointment to meet Capt. in Hall of the Intelligence Bureau.

He is

a most interesting man, and showed me a ltot of data he had in regard

to the German &Duvet Service, and told me of some of their experiences

1111.n running it down.


He is particularly anxious to find out about

early record in the United States from whom he had

credentials ;:hen he came over.

is apparently a very


important member of the German Secret organization, and one of those
who is responsible for the attempt to implicate the Federal Reserve


said that if I would let hil kno: when I was

leaving, he would see that everything was smoothed out.

Dined in tae evening with Sir 2dward Holden, and t'ose present
were as follows:

Sir Edward Holden, Baronet,
Sir George Paish,
r. A.

Chairman London City te Midland
Bank, Ltd.,
The Statist,

.. Kiddy,

liorning Post,

ir. H. .. Palmer,

Mr. E.

Financial TimeS.



London City & Midland Bank,Ltd.,

Mr. 6. H. Hackett, F.J.I.,

Mr. Norman

Hoiden, B.A., and LL.B., Camb.,



Ur. 2

Yorkshire lost,

Loader' City t: Ili land Bank Ltd.,


Railway Hews, - Daily Graphic,

Mr. C. A. Reeve, B.L., eamb.,
(Barrister at La
Daily Telegraph,

T. Powell, LL.B. and
B.Sc., Lona., (Barrister
at Law, Inner Temple)

Financial News,

S. B. :.:array,

London City & Midland Bank Ltd.,



The Standard,


Ur. J. L. :ladders,

London City & Midland Bank, Ltd.,


Ur. H. Cassie Holden,
B.A. and LL.B.,
Cambridge= (Barrister at Law, Inner
Mr. Hugh,

Oxon.,(Barrister at
Law,MIddle Temple)

The Times

Hirst, Tadham
Coll. ,Oxon, (Barris-

ter at Law, Inner

The Economist


The dinner was given by Sir Edward Holden for the purpose of
enabli:x me to meet the financial men of some of the more important
publications of London.

I sat next to Sir George Paish.

al.: and made a long talk about his tri


to the United States, and

spoke in a very complimentary and friendly way about our friendship,
and the help I had given him on some matters in new York.

He asked

if I would talk a little bit about the Federal Reserve System which
I did, and on Sir Edward's invitation the meeting developed into a
general "cuiz

party -- everybody asking questions.

The last speaker,

1.7z. Reeve, made the astonishing suggestion (and I believe it was in

all neniosness) that he believed it was a great mistake to lave
English speaking people separated into two political
orgalizations--that we ought to get under one roof again.


That the

Reserve Bank System was really the Bank of Bngland, and that if we


would only promote the right kind of relationshi,. we ought to be
able to consolidllte the English and im-rican system, and in some way

or other work out a complete cord.
but was roundly cheered.

This caused come amusement,

I did not find the gentlemen present at

the dLiner particularly well posted in red;: _rd to the American

financial system.

Sir EL:ard stated at the outset that it was

understood that this meeting was private, and the discussion confidential.

Then I spoke, I stated that I would rely noon Sir Edward's

commitment, and therefore 77ould feel at liberty to speak with more
freedom that otherwise I would.



:ednesday, Larch 15th:
Called at Ilorgan, Grenfell P.L, Company for wail and found

a cable from the office urging that there was no immediate necessity
for my immediate return to New York.

From there called upon jr.

Henry Bell who showed me through the bank's (Lloyds Bank Limited)
portfolio of English bills.

Those consisted of a very large

amomet of bills running, however, in small denominations, practically all of them representing the drafts of houses dealing in
various kinds of merchandise. accepted by the buyers, end in some
cases by the buyer's banks.

It also included twenty-one


bills which are deeT,rn by a bank agency in the provinces upon the

head office in London, and which are sold to customers for the
purpoce of meeting obligations due in London and payable under a
trade custom in t.7enty-one days.

T;:r, Bell told me that the

volu_e of bills I saw was not more than 10;) of what would be

normal in format times.

These bills were almost without exception

payable at the offices of London banks and bankers, it being the
custom throughout the provinces to accept bills payable at London
institutions; in other words, to domicile the bills in London for
convenience in handling and collection.

When the hills are payable

in the provinces they are sent by the London bank to the respective

branchee for collection from eight to ten days in advance of

Inland bills invariably


by the inland bank

to the city bank, and failure of the London bank to receive advice
of the drawing would result in telegraphic inquiry, a good deal of

Not dissatisfaction with some reflection on the credit of the

This is not always true of bills drawn on the city,

where by custom, the banks are usually willing to construe the
acceptance of the bill by the customer as instruction to pay the
bill and charge to the account.

Bel/ seemed to think that

a large volume of the domestic commerce was settled by the use of

Sir relix Schuster, however, in my recent talk with him

took a contrary view.

He thought altogether too small a pro-

portion was settled in that way and that England had over developed
the practice of permitting open book accounts to run for long

That this was particularly true of the retail trade.
I noticed some bills in the nortfolio, drawn for the purpose

of settling accounts for the repair of shins---accepted by the
ship owner and -saeopired by the ship builder.
In some cases, bills
Col it-A,
were there representing s portion of the ship built by some shippinik


In some cases these bills are secured by a bond on the

vessel, insurance, etc., and in other oases no security given
where the credit of the acceptor is regsrded as sufficient.


great volume of the small bills appearing in the portfolio of a
bank like Lloyds are sent in by branch ,anagers from their various

They live a very comprehensive system of checking

these bills and credits, which is ingenious and seems to be

Each branch runs a register of each customer's accoun-,

carried in a small cheaply made book, in vertical colnrins.


register which is prepared, say on a Saturday night, and the other
on a Wednesday night.

This book keeps: the balance, the turn-over

for the previous year, the overdraft, the advances upon security,
how much is secured and what it consists of, and the authorized
limit together with any excessive advances over the limit, end a
column for remarks explanatory thereof.

Each branch manager is

authorized to go up to a certain limit without special advice,
and is then authorized .within reasonable limits to exceed this

amount for which he must mate special axnlanetion.

One copy of

this book goes to the home office every week, aw4-Ttr-e-thre-ke-4,-

while the first is beiag returned to the agency overt/ week, so
that each week the barix conreletes a record and examination of

all advances by each agency, and the ageney receives in return a
complete report with comments oa each transaction -- -the books

alternating back and forth between the main oellce and the branch.


was surprised to find the extent to which loi=ns ere extended on

overdrafts --the great majority of loons were of that cherecter,

many of them without any security and in no case were liability
aereements or notes taken by the bank, it beimg understood that
the debtor and creditor latationshi") between the bank and its

customer expressed a sufficient liebijity to enable the bank to

A good many of these advances on overdrafts were covered

by security in the shape of stocks, bonds or even a lien upon a
freehold or leasehold property --in some et-LSOB by goods, particularly

in the Liverpool district where reach merchandise is taken .ems.

and covered by warehouse certificates.

In the Ldvence

Department of the honk were very comprehensive records of all the
agencies and of ell the credits. bills, etc., in loose leaf files

and apparently very ' :ell kept.

The Advance Department has men of

for g experience who are checking up this work constantly and who

either go to the various agencies to make inspections, or send for
the meenagere to come to London and report.

The entire list of

accounts of each agency, together with the lines established are
revised every year.

Much dependence seems to he placed upon the

general raoutation and character of the customer.

The officers of

the Arnie, and the men in the departments heving charge of these
matters,('iselay a. surprising familiarty with the character of the

bills in their portfolio; the business done by the drawer and
acceptor in each instance, -nd the history of each account which,
of course, exteade back in ::lost cases for a long period of years.

They do, however, impose great confidence on the men in the Advance
Department whose Lesiness it is to check these transactions and
keep themselves informed of the kird of business done by the drawer
and acceptor.

The drawer is usually a customer of the bank although

the acceptor may at times prove also to be a customer.


interesting illustration of the care eith which this business is
watched developed in co-election with some bills drewn by some
lumber concerns.

7hey freouently will receive a bill drawn by

lumber manufacturer "A" on lumber merchant "B", and likewise receive a bill drat a by "B" upon "A" which superficially would
indicate that they are giving accoimnodation notes to each other.
This is

lot the case, however, the emplanation being that 'A" is

an importer of mahogony from Central. America while "B" is an

importer of white pine from the United States -- they are both

general dealers in lumber although each has certain specialties

tht he imports, consequently they are buying and selling, from
nd to each other, emd as a matter of custom they never draw for 1
the net difference of the account but always for the fall amount
of each account.

This is regarded by the bankers as a sounder

method that -would be eith the settlement of not differences.
2.1r. Bell showed me the 'ay all of the records of these transactions
ihore kept, and the general callclusie_ to be drawn was that the

big English banks trust their clerical force the judgement

of their men in creCit matters to a mach greater degree than we
do our L.len at home.

They put responsibility upon them and look

for results.
Lir. Bell also showed me the de?artment in -.Lich the

budget ie kept, and the surplus call money -- principally seven

day money les loaned or .here the loans were called.

All depart-

ments of the bank sent their figures to the nisi' in this depart :lent

who haa to 1_ ow every day by a certain her what foreign drafts
were likely to co.:Le in; what debits end credits would likely arise
through the agencies; ',,hat loans matured; what nee loans were to

be made; :chat the result of the clearings would be; ane, then he

based his opinion upon these iiguros and advised the short money

4he.- they came in whe6her

heir loans -eculd be renewed,

;.gust be paid, or whether they could have additional funds.


never e.zpec Led to come :ithia afore than 200,000 to 530,000 pounds

of an eJLact celeulation as so many unexpected items came through;

but, the balance at Le B-nk of EngIJ-nd which :light run from

Tye, nix or eight million sterling always took care of the

The bank has $ committeesof its directors which


supervises every department, including the clerical force, etc.,

These coaAttees, on which the Chairman and Deputy Chairman always
serve, meet weekly, commencing at ten o'clock and lasting until
about taelve o'clock, each meeting taking from fifteen minutes to
half an hour.

The entire board. then assembles and receives

resorts from the various committees, and take final action on all

All loans exceeding £15,000 are submitted, the general

statement of the bank is submitted, and I gathered that only in

exceptional cases does the Board overule the recommendations of
the committee.

The directors are very diligent in attending to

their duties and seem constantly to be running in and out of the ban'-.

From Lloyds bank I went to the Savoy Hotel, met Alfred Shephex
for lunch and spent the afternoon.


except that he told me the Scotch investment companies had licuidated a very considerable amount of their american investments- -one of

his companies, and not a very large one, having recently sold no
less that 217)0,000 sterling.

The Scotch companies all along have

felt a preference for American securities and invested heavily in

After leaving Shepherd, I played squash with Captain


He introduced me to a !Ir. MarbWg of Baltimore who was,

as I recall it, formerly our ambassador to Austria.

aviator and recently had a fall losing his leg.

Hi- son is an
1:e said that he

had ,Ist recently returned from France and, while I did not agree
with him, he thought that trance was "busted".

Lows anything about it.

I do not think he


At eight o'clock I went to Boodle's Club to dine with Vassar-Smith

and associates.

Those present were Sir E. Seymour King, a /Ir.

Clayton, cotton merchant of Liverpool and London,/.21r. Pease,Depu4y

Chairman of Lloyds Bank, Mr. Henry Bonn and one or two others whose
names I did not get.

At the dinner there was a good deal of discussion about
our :Jew banking system and a great many tLuestions asked
about it.

Sir Se-,:vour King located me as the son of his

old friend, and after dinner he was so anxious to talk over
old times that I had no opportunity to chat pith the others
at all.

I promised to take dinner with him next Thursday

at eiAt o'clockat his house.

all of the gentlemen that

I meet in London are deeply interested in American political
affairs and evidence the greatest anxiety to see our politics
so develop that we may be able to clve them support either
now or after coaclusion of the war, but particularly now.
There is .ueh difference of opinion as to whether it will be
an advantage or disadvantage for as to be involtod in the
war, but they all agreed,that it aoule, bring the war to a

speedy conclusion, and that is what they all want.

Thursda7, :r:..-rch 16th:



fir. Shiverick called shortly after breakfast time, and
iramediately after I called upon Ambassador Page.

I explained to -h

him exactly what the object of my visit was, and what progress I
had made, as well as the cuestior,s of neutrality involved. stating
the proposition as fully and clearly as I knew how.

Ile thought I

was pursuing exactly the right coursp and said in his opinion,


ea AW 4.41414.11144/2'1"' net.


French and English banks.




gf4 7the jarrangeLlents made with the
I then discussed with him the subject

of Dutch exchange, and his suggestion, with which I heartily
agreed, was to take this up with absolute frankmers with the
authorities here and tell them just what our position was.
L.rabassador Page is clear headed, does not pretend to understand

the technique of the business, but his judgement is fair and


Lunched with Vivianp.anith at the Royal ExchangeAvdth the
directors of an insurance company of which he is chairman.


present being,



Kimberly, and two or three others whose names I

did not catch.

Brown of Brown Brothers ,1; Company,

The conversation was entirely about the war,

particularl;; the submarine matter, and the same interest in our
politics was nisplayed which seems to be in the mi.ids of everyone

over here and some anxiety to see matters develop in their favor.
liter lunch called at the Guaranty Trust Co :ipany and had a short

talk with Mr. Wyse.

From there called upon Sir Christopher iiugont

with whom I had a very lo g and interesting talk about bills.


He showed me a batch of Z150,000 just received from the Eruitable


Trust Companr-Z50,000 of them wore drawn by the Bank of
California on one of the London Banks--the balance of them
were, without e : :ception, commercial bills, principally cotton,

drawn on the very beet London banks.

Lloyds, Union of London

rim. Brandt

Among other names I saw

Smiths BarLI, Gylnn, Mills, Currie,

Co., Parr's Bank, London City E: LIidlcnd Bank, Hambro,

Sons, and a number of other good. names, almost all

of the London and Scotch banks including the Bank of Liverpool.
He had purchased them at 52, discount, and will iprobably turn

them over at 5

or a little less with the endorsement of the

Union Discount Company.

They were already endorsed by the

Ecuitable Trust Company, and a better lot of pa-2er one could
not want.

He sai,' just as 1:obineau of the Banrue de Prance

said, that the only way really to tell a finance bill was to
feel it with your fingers to see if it was a counterfit or
not, as one would a bank bill--there is no set rule, law,
policy, doctrine--nothing to govern el:cept LIstinct, judgement
and experience.

7.n.ny bills that looked like finance bills

are only exchange bills, and go without difficulty


Bank of England.

I was interested to note in the records

submitted to no

a few discounts, advances and overdrafts, at

k, and quite a few at 51.e.% but the vast majority at 6,



nornol times the rates on this business would run from W
to 4,-3 with the bulk at 3J to

In normal times, a very large volume of the bills which
freely circulate in this market, are bills of brokers, bankers
etc., many of them American bills which are regarded as prime.
hfte,and. he thought the market generally depended a good deal

upon their knowledge of the kind of business conducted by the
drawer and acceptor.

concern like

They wonid know, for instance, thct a

he Bankers Trust Company would not draw finance

bills- -such bills as might be drawn by the Bankers Trust Company
being of course, without e::ception, drawn for exchange in
order to cover their position, meet the recluirements of their

customers, etc., which was regarded as quite legitimate so
long as not carried to excess.

Almost all of the bills that

I examined were drawn to order, endorsed by the drawer in
blank, payable to the Ecuitable Trust Company, and endorsed in
blank by the E(uitable Trust Company office, they having a
London office and a signing officer here.

Sir Christopher

said that the volume of bills coming forward from

he United

St tee was now so small that he was not even sending his c'aily

telegram to institutions that had formerly remitted bills to
the Union Discount Company.

He wrought it was clue to the

very low money rate7tiVt./.., steadier rate of exchange and the

conseuent carrying of bills by American institutions which
found it more profitable to Jo so than to discount-them.
spoke very highly of the Bankers Trust Company and the way
its business was done, End of

Kent personally--in fact,

everybody here knows him favorably.


From there I returned to the hotel and net

r. William Mackenzie

of the Alliance Trust Company 01/4- Dundee, Scotland, at four o'cloc

and spent the afternoon :ith him, then taking dinner and spending
the evening

ith him.

He has '.one what apparently many others,

situated as ',he Alliance Trust Company is, have done.


of selling American securities, has borrowed large sums in the
United States on their American securities and brought the money
over here, paying off the loans gradually out of income
tions, etc.



As...-thee-trart, Comrany funds are practically

all invested 4,11.4,yie,riefilaztd

ill-4;0x tgrata4)t 0-1.0ertin-ther-wri/fr --ir-tre

tQAcievidAmtte :ind go out of business, qv tkul 5:4-fi 'Oh

He said that he, his Company and associates, have brought over
£500,000 sterling in one way or a'lother and prepared to bring

more it is proves necessary.

Late in the afternoon Sir Felix

Schuster called and invited me to t:ke di-nner with him 72uesday

evening to meet a lir. Abrams who is in charge of the finances of
the Indian Conmull, and who Sir :'elite says is, in his opinion, today,

the greatest authority on currency in the Empire.

Sir Felix is

anxious for me to spend some more time in his bank and I have
proraised to go there

nd look things over with him again.

the rest of the evening ,ith
dinner he left at about 10:30.


r. :Mckenzie, and shortly after

2ridaz, March 17th:

Stopped at Ilolzan, Grenfell
Company and picked up the
mail and sent a cablgiLls. Jay that I was sailing on April first.

Hali a chat with Grenfell about Dutch exchange.

He asked me to

t:ke the first opportunity to talk this matter ovex with

Montagu Norman who was dealing with this subject for the Bank
of 2ngland for the past three months.

From -ere I went to

the Union Discount Company and had lunch with Sir Christopher
Nugent, Sir "Albert Balfour, and Mr. Alliam 7. Brand.

Most of

the luncheon was devoted to discussion of the bill business and
of the Federal Reserve Bank system; the Yzobabilities of heavy
foreign travel by Americans after the war was over, and
California where Sir aobert Balfour (head of Balfour
Company) has large business interests.


They all agreed that

the so-called -Inland bi-l" now rose more out of the transactions between manufacturers, wholesalers, jobbers, etc., than
out of dealings with the retail trade.---the retail trade now
being conducted on a cash basis or on book accounts.


Christopher Nugent was interested to ascertain whether we could
deal with them in buying bills, and I explained that we could
but that feature of our business had not been developed, and
it was ancertain when we would start.

7ent with

to the London Joint Stock bank and had a visit with ::r.


In the course of dicussion of their business he explained that
the Inland bill while to some extent discounted
by the drawer) with the Joint Stock Banks, in a vast number of

cases holders of bills, that is the drawers, negotiated them
with the bill brokers and discount companies which cuoted
slightly better rates than the Joint Stock Banks, carried them
Dither on call or seven days, and enabled the bill brokers
-nd discount houses to make a slight turn or

shaver of

,discount houses frecuently oarrying them for a

month say, and then selling them as two months paper or less
to the Joint Stock Banks or bill buyers.
I returned to see

_r. Grenfell, and discussed at

greater length the :utch exch nge problem which he said was an

and pressing problem, and that he would be glad to

talk it over at any time and particularly wishing that I would
discuss it with Liontagu :Torman.

He said that the accepting

houses had reduced their business very considerably--that
there had been discrimination against them partly because many
of then were of German origin, doirw. German business, and

partly because their credit had been somewhat affected by
reason of the volume of acceptance credits which they had
granted prior to the war, and which were somewhat embarrassing
Alen the war broke out.

This business had been taken over to

sole extent by the big banks but he did not think it was sound
for big banks of deposit to extend acceptance credits Shen it
was uncertain how the business would develop in the future.
The Joint Stock banks had undoubtedly made a drive against the
acceptance houses to get their business
particularly Holden.


and "ith some success)

At the outset it was rather generally



understood that the acceptances of Morgan, Rothschilds and
Baring would be generally handled by the market, the others
not so freely.

The Bank of England had not discriminated.

judged this was covered, as to the houses of German affilliions,
by th

terms of the Government guarantee.

He said their firm

had rather reduced their acceptance business, and had never
discounted a bill.

That they were lenders,on call, to the

bill brokers on bills.

The bill brokers always being liable

for the advance and it being generally understood that if the
lender so desired they would endorse the bills.

7hen the

bill brokers z,elted their po_tfolio at the bank, the:

_ailed a

letter o: liability but did. not endorse each bill althou=gh they

coul( be required to do so.

The Bank of England did not go

into the market to buy bills in London in a large wa7 at all- -

that aroused antagonism in the city, and as a matter of fact, in
normal times, the Bank of England was handicapped by its inability to get a .IcitatelittittittAlq eit.0 they might hold.

They, however, had separate branches where this provision did
not apply, and these branches in the Provinces discounted
rather freely and were not even governed by the bank rate.


=urnisned the bank ;:ith a considerable amount of bills and a

good portion of its revenue.

The bank was p .id by the Govern

meat for various services which it performed for the Govern gent,

including the printing and issuing of notes, but that after all
the bank was not run /)rinarily for profit and did not care to
show much over 10,J earned on the stock.

However, the profits

to cone el:tent, were set aside in special reserves or by some

such method.


11 of my discussions of bank methods in London

and particularly my discussion with

Goer, indicate that they

follow custom and precedent almost entirely, and as Sir Christopher Nugent

afternoon expressed it, "if they followed

strictly Adlaw fairti4 statute, there would be no occasion to

hire high

in these London banks, the object of

having the highly paid official who would exercise his judgment
tia_GAI-maag. in the service


to violate


&it," 7n44,0/(040 Kkvo 4144to

r -

when it was desirable and good bus hers to

Co SO".
From Grenfell's office called on Captain Hall at the



and had tea with him.

.416.6--erlis+er , two of Lord

Derby's daughters, and a friend, who were at that time canvassing the Admiralty for subscriptions to the Irish Relief Fund
(this being St. Patrick's day)calls-lawkwo..

After I returned to the hotel, Captain Symington and

Shiverick called.

Saturday, _:arch 18th:

Slept late, and lunched with Captain Symington and


Shivorick at the Strand.

In the afternoon went to the Alhambra

and later to the Army Exhibition to see the EOCA.44-01.01,

of 1$0r


lir. Montagu Norman sent his car for me and I took dinner

alone with him at his house.

spent the evening discussing

the position of affairs in France; the British Government's Short
borrowings and funding operations; New York exchange, and the
Dutch exchange.

Ifdid not think that Mr. Norman took a very

optmistic view of the French Position, although he seemed inclined
to agree with me that no one cou36 tell what would be the effect of
the war upon the industrial life of the nation, upon which everything depended,

As to the English position, anethe Government's

short borrowings, and the currency note issues, he expressed very
much the same feeling that I have felt--that the ease with which

this great mass of Govel-n_lent short loans ter& C,



had been absorbed in circulation would lead to a lot of political
quackery and financial heresies.3esnecially with reP.ard to fiat

currency or silver issues.

He thought the great danger, if it

existed, as he thought it did, was to be apprehended from Parliament's
failure to recognize that the currency notes must be retired in due
time by the issue of an interest-bearing obligation.

He was not

particularly apprehensive about the short borrowings of the Govern ment, believing that if the market locataa4.eti to reject them it would

result in accumulation of great balances with the Joint Stock banks,
which would keen these deposits with the Bank of England, and the
Bank of England could then take care of the Government situation.
am not inclined to agree .ith this view.


It nuts too groat a strain

would reduce its reserve percentage, and

to cause

uncomfortable feelings about the gold reserves Ibticularly if New

York exchange were adverse.

He was very positive in feeling that the

principal and most important problem was the New York exchange.
no means should be overlooked for keeping the exchange steady and

As to the general level of interest rates in London, he

rather agreed with me that the high rates which now nrevailed tended
to accvmmulate balances from New York, and bills in New York portfolio
undiscounted led to some menace

in case exchange should decline



York on London, as the tendency would be to withdraw these
He felt, however, that any radical changes towards lower rates would
be unsettling.

That the soundest policy was to maintain the position

without changes be

people were accustomed to these rates, and a

sudden lowering of Vungs rates to(Llevel which could not be Permanently
maintained would be unsettling.
We discussed the .lueution of the GoTern.nent's borrowings, and I

explained my own view of the unwisdom of conceding anything to those who
believed that the income tax on Government bonds should be eliminated or

He explained, his view to me, that a compromise would be

preferable by putting a limit upon the Normal income tax,deducted at the
source, until a year or two after the war was over. making the bonds so
issued say at fixed interest, free of income tax for three, four or five
years and thereafter at a higher rate of interest subject to both normal
and surtax.

This may prove a wise compromise, and tend to a larger

flotation than could be otherwise be arranged.

The last war loan which

lays 4-kJ gross only nets about 5U to the holder, and of course less than
that when the holder pays a surtax.

He inclines to a three, four or

five year 4, bond, free of tax and running thereafter for a long period,
say 50, 40 or 50 years at 5c/70 subject to tax.

It is a .ii:fieult question

and one which must be worked out at an early date, as the Government is

now obliged to issue about one million sterling short loans in excess of

those retired, and the account is getting too large.
all over the question of Dutch exchange at some length.
to him the

We went all
I explained

which would undoubtedly be taken in America.


arrangement with Holland which Holland and Crrect-Britlan generally


found feasible.

He said there was no doubt about the British

IGovernment insisting upon the efficacy of the blockade, 'Int I think
he was inclined to agree with me that the only efficacious blockade
would be one extending along the frontier between Holland and
Germany instead of in the channel and the North Sea, and that the
way to treat with these matters was by agreement between Great
Britian and Holland.

I pointed out to him that in some ways the

existing blockade appeared to distinctly violate the rights of
neutrals, but he said, as

expected him to say, that those were

matters which would have to take their course--that this was a life
and death struggle, Germany had abandoned all rules both as to the
conduct of the war and the rights of neutrals, and that England
could not afford to relax the rigor of the blockade.
1.1±. Norman pointed out that no objection was made by the

Government to the export of gold from the United States to Holland
where it was plainly shown to have no connection with enemy transactions.
say so,

This I insisted was a fiction, and while Rh he Old not
I believe that he agrees you can no more ear-mark gold

than you can ear-mark securities or goods, under the conditions
that now prevail as to Dutch--German trade.

The whole situation

is most complicated but ought to be worked out by an agreement that
the exchanges will be allowed to operate freely, and the control
of the movement of gold and securities be dealt with by an agreement
between Great Britian and Holland.

He seemed to think that the

existence of a discount in Holland on dollar exchange would prove
a deterrent

the sale of German securities directly through
I am inclined to disagree with him on account of the
rvA tit

large discount on Dateh exchange in Holland which gives the Dutch
trader the o rortunity to make a large profit so long as he is
willing to extend some credit to Germany a


and this is particularly true where German sedurities can be
purchased by Dutch bankers and Dutch-held American securities sold

in New York against them.

It present5the opportunity for a

rrofitable arbitrage, in which Dutch bankers are skillful, and
the speculative features are reduced to a minimum.

The only

risk involved being the Unconvertibility of German slamped
American securities until after the war.

The discussion was

inconclusive but interesting.

Sunday, Llarch 19th:

Slept late and played squash with Captain Symington before

Lunched at the hotel and later attended the afternoon

service, with Mr. Shiverick, at Westminster.

Took' tea at the

Carlton, and later, Shiverick, Symington and I dined at the
Prince's Restaurant.

Monday, Larch 20th:

Company for mail and had a

Called at Morgan, Grenfell
few words with Grenfell.

Theltalled upon Mr. Leaf of the London

County &%stminster but he was out.
Barclay & Company and he was amt.

Called on Mr. Tritton of

Called to see R. Martin Holland

but he had not yet reached the city but I had a talk with his
partner Mr. Martin, arranging to meet Mr. Holland later 137 appointment.

Lunched at Prince's and returned to the hotel.

Holland called me up and later came over for tea.


rie spent a

couple of hours discussing operations of the Clearing House, and
country check collections.

His story is about as follows:

(see next following page)

CHECK COLLECTIONS. banks in the United Kingdom appoi
Practically all


of the clearing banks or bankers as their collection or

The clearing banks consist of the following

Bank of England clearing in addition on the charge side
Barclay and Company Ltd.

54, Lombard Street, E.

The Capital and Counties
Bank Ltd.,

39, Threadneedle St.,

Glyn, Mills, Currie C; Co.,

67, Lombard St., B.C.

Lloyds Bank Ltd.,

72, Lombard St., E. C.

London County and jestminster Bank Ltd.

41, Lothbury, E. C.

London and Southwestern
Bank Ltd.

170, Penchurch St., D.C

London City ei Midland
Bank Ltd.,

5, Threadneedle St.,

London Joint Stock Bank Ltd. 5, Princes Street, E.
Martin's Bank Ltd.,

68 Lombard St., E. C.

National Bank Ltd.,

13, Old Broad St., B.C

National Provincial Bank
of England Ltd.

12, Bishopsgate St., B

Parr's Bank Ltd.,

4, Bartholomew Lane,

Union of London and Smiths
Bank Ltd.

2, Princes Street, B.

Biggerstaff, W. and I.

(clear thru Parr's

Child & Company,


Cocks, Biddulph and Company,
making seventeen all told.


Bank o



So, it may be said that al

reaching London, no matter upon what banks they may be d

through one of the three departments of the London Clear
The clearings begin at various hours


according to depar

earliest being the Saturday Metropolitan clearing which opens at
8:45 -...., and the latest being the 5:20

certain days succeeding bank holidays.
clearings are:



settlement, on

The three classes of

Town; colAprising checks that are payable


within a certain district and which nay be roughly described as
the old city of London, although it does not follow exactly the
line of the city.



which is the :etropol-

itan district of the city of London surrounding the old city;

Country; which covers checks drargietapowgiliptiwks in the

United Kingdom outside of the town and important districts
(including, of course, branches of banks) tie checks being handled
The to. aa clearings fre settled
on Scotland, gales and Ireland.
on the bboks- of
by a transfer onithe Bank of England on the day of *clearing.

The .:etropolitan clearings are settled by a transfer on the books

of the Bank of England the day following clearing, and the Country

clearing is settled by a transfer on the books of the Bank of
England on the third day following the day of clearing.


checks when cleared Jr°, of course, delivered to the respective
clearing banks which make payment for the banks in the Provinces
or in the city or in the iletropolitan district which do not clear

directly, and the settlement is adjusted either the same day, the
following day or three days later, making allowance for checks that not good.

The principle of the Clearing House operation is to..
Akre 4,

Cu aqui cL,

all checks which are drawn upon the sixteen banks, or their branches,
that are members of the Clearing House, and known as clearing
bankers, and to dzaw all checks payable by banks for which those
sixteen banks have agreed to clear, for settlement throujh the
London Clearing House, and as described above, these are settled
upon three time bases, depending upon wherp they are payabl



1±. Holland tells me that in the old days many banks and their


branches in the Provinces made a charm for handling checks drawn
on them and remitting cover, likewise the London banks made a
similar charge; in fact, many of them still do.

The amount is

trifling, rarely over Gd per item, but this charge has largely
been abandoned by the provincial banks as one of the results of
the numerous consolidations of banks throughout the empire, so
that now, practically She only banks which make charges on checks
are the Scotch banks and some of the Irish banks.

On these

checks the London banks likewise make charges to their customers.
I questioned him particularly as to the float, and Whether any


He said that in a few °Pc?ial7 oases, principally insur-

ance companies, which by custom were given immediate credit on
checks payable in the provinces, it was not customary for any

bank to give credit to its customers until the three day time had
elapsed, and of course no interest was allowed on items in transit.
It will be seen that this method of clearing, which allows time
to got a return on every check handled by the London Clearing

House, no matter in what part of the Kingdom payable, except on
a few remote points in Ireland, together with the scheme of
settlement by transfer on the books of the Bank of England, makes
it impossible that any float be created at all.

Mr. Holland

likewise said that there were other clearing centres operating

like London, such as Ilanchester, Liverpool etc.-Mese, however,
operating in a more limited territory.

1:r. Holland proposes to

collect a complete set of all forms used, not only in London but
also the country banks, in connection with their check items,and
then goo 8' them and explain them to me.

He has already left

with me the rules of the Clearing House, and its annual report.

Dined in the evening with Mr. Grenfell at his house, Mr.
Gaspard Farrar of Baring Brothers, and Mr. Montagu Norman of the
Most of the evening was spent
Bank of England being present also.
in discussing American and English politics.
Our American politics
is the siu)ject of lively discussion just now.

We also had some

discussion in regard to the possible political effect of the issue
of currency notes, as yell as the situation in :,merican exchange
this fall.

I rode home with Montagu Norman who seemed to agree

with me that a good round Government loan to reduce the volume of
short borrowings would be most desirable.

Tuesday, :larch 21st:

Pla, ed squash with Captain Symington and then stopped in

at Morgan, Grenfell and Company for mail.

From there to Mr. Bell's

office at Lloyds Bank and spent about one hour going through his
department for auditing and examining agencies.
of about 35 inspectors doing nothing else.

They have a staff

The care with which these

investigations are conducted much exceeds the care with which our
National Banks are examined, and Probably state banks in New York.
They have four different forms for rerorting examinations of different classes.

Every branch is examined at least once a year, and the

inspectors live in various parts of England accessible to the various
atir# f

of their respective districts.

Very elaborate sets of questions

are included in the forms indicating that a very searching scrutiny
Is pursued of each manager in running his office.

These insnectors

are an important influence in the bank as it is largely based upon
their reports that the managers or assistant managers are p_-omoted 01

In the case of Lloyds Bankithey cover 900 branches where

apparently the main control is divided over three departments; 1...the

Staff Department;


2...Advance Department;


It is undoubtedly a fact, however, that the general

officers of these big banks are unable to exercise very intimate
control with their branches and branch managers, and must rely
upon the routine grind of a machine.

The bookkeeping seems to

become very complicated by reason of the inter-branch transactions
all of which are reported to the Head Office and go through the
Head Office books.

The striking thing about the branch system

here is the ease with which they conduct their business at long
range, and the degree to which it entails trusting the men who are
managing the various offices.

At 1:30 I went to the Bank of England to keep a luncheon
appointment with Lord Cunliffe.

He was engaged when I got there

and I had a short visit with Montagu Norman, discussing at some
length again the ouestion of Dutch exchange.

He was under the

impression that we had already made arrangements in New York to
receive gold --or account of the Bank of Netherlands.

All the cables,

correspondence, etc., in regard to this matter are, of course, in the
hands of the authorities here, and the matter is a very active
Pressing question at this time.

I have taken the position right

along that while they might, by their blockadek-which could in some
resrects be regarded as legal,--) be able to arrest goods going
both ways, and securities as well, nevertheless when an indebtedness
arose by an American to the Dutch, or in fact to a German citizen,
particularly the former, that debt was going to be paid one way or

They night be able to interfere with the oeration in

some way by arresting geld shipments and make it more expensive to
Americans to pay these debts--nevertheless they would be paid.

stand was that, on principle, we musty


received in


New York ear-marked for Dutch account was a perfectly legal
transaction and that we would not decline to receive it.


dispute really was with Holland so far as the securities were
concerned, and that I was not able to pass on the question
as to whether agreements entered into between England and Holland
would violate our rights, but that once the debt arose we were
entitled to pay it.

and I think that

It is a difficult and complicated question,

Norman agrees that the only way to deal with

it is by direct negotiation with the Government.

He laughed when

I told about my letter received from Boissevain & Company, which

had of course been opened by the censor and tmediately reported
to the proper authorities in charge of that matter.

At 1:30 I lunched with Lord Cunliffe and the directors
of the Bank of England in the Court (Directors Room).


conversation was generally on the subject of the German submarine

After luncheon, Lord Danliffeltook me all through the

bank; in the vaults where they keep their uurrlies of notes, gold
coin, etc.; through the coin rooms where coins are weighed, and
into the Printing Division where the notes etc., are printed, as

well as the Cashiers Departlentet5etc.

Afterwards I Brent

about one hour with him in his office discussing the plan for an
arrangement with the Bank of England for the plimmusa purchase of

bills and a close ,orking relatio_ship after the conclusion of
the war, or earlier if circumstances made it desirable.

Lord Cunliffe, who apparently requires time to think
things over and to inform himself, was a little timid in getting
up to the point of discussing what was in his mind on this

-.pith some little hesitation, and after describing the

difficulties which he had encountered in the early months of the
war, he finally said that the arrangement which I had outlined

to hkand Grenfell appeared to him to be quite feasible, and

that he was prepared to say that it could be Put into operation
whenever we desired to start our business on this side.


would like first to consult with a few of his associates,
probably not all of them, and ultimately have a minute made as
a matter of record.

He said that the Bank of England had

never acted with any American bank, as it -ould be difficult if
not impossible to select one bank out of the large number of
National and State institutions, as the bank's representative in
New York.

That the Bank of England would like to have the

arrangement reciprocal --they to buy bills for us in this market,
for the payment of which they would be responsible, and we to
buy bills for the Bank of England in New York with e-nal
responsibility upon us.

We should also have an arrangement

for mutually ear-marking gold and generally for the handling of
gold shipments -- avoiding gold shipments and avoiding re-coinage

of our respective gold coins.

He said that the Bank of England

in acting for us would discriminate most carefully as to the
bills which it bought, and that we should not expect the highest
rate on such paper --rates such as would be quoted to us were we
dealing through the Joint Stock Banks.

The arrangement at the

outset should be known only between ourselves, as the Joint
SteJk Banks might raise a great howl about it.

The ouestion

of interest on balances, he said, need not trouble us as the
Bank of England would find a way of meeting that situation, but
at the outset he thought it might be desirable to say that any
balance not invested in bills was held as earmarked gold.


Cunliffe was apparently willing to leave it suite to our discretion
as to the purchase of bills as long as we were willing to assume a

responsibility similar to what they were doing for the payment
of bills.

He quite clearly understood that the arrangement

might not be Itimmt feasible until after the conclusion of the

war-at any rate until the whole question of the neutral character
of this business was thoroughly discussed on our side, and that
the present discussion was tentative and ,subject to action when
I returned home.

At his request, I told him that I would

prepare a memorandum when I returned home which could be made
the basis for such formal action as the Bank of England would
care to take in the matter, and if it were necessary I would
return again.

He emphasized the fact that he was most anxious

to conclude his term as Governor of the Bank, and whenever this

ut into operation it might be under the management of his

successor but that he would still be a member of the Court, and
available for advice in the matter.

Lord Ounliffe has undoubtedly consulted Gronfell and

Norman, and I gathered from his statement that he and those of
his associates with whom he has consulted see the wisdom of
close working relationship between the Bank of England and the
Federal Reserve Banks with the view of emerciaing reasonable
control over the exchange, and over gold shipments.

They have

aaparently discussed this in the past but have felt unwilling
to make an arrangement with any ono American bank, and would
not care to have their business distributed among a number, so
that the organization of the Federal Reserve Banks, corresponding
in their functions with the Bank of England, gives them an
opportunity to make an arrangement, the desirability of which
they had already recognized.

While Lord Cunliffe seemed at first;

hesitant about making any definite statement which would appear


to commit the Bank of England, when we finally discussed the
matter more freely, he disclosed quite positively that it

appealed to him strongly as a scientific and feasible method of
creating a 'buffer" between the two countries, and one which was
only feasible by a close relationship between the two institutions.
He urged quite strongly, that nei*her the Bank of England nor the
Federal Reserve Banks place definite lines or limits upon the
amounts of the various bills to be purchased.

His position was

that the Bank of England was good for any obligations they might
ever make to us, as ours would be to them, and once we undertook
operations together we should handle them with confidence and

One cannot come into contact with the management of the
Bank of England without gaining great confidence in its solid,
conservative management.

Of course the minute that the Bank

of England nuts its endorsement on bills purchased for our account,
the question of credit information becomes one of minor importance.
The Bank of England watches the market very closely and keeps
close tabs on the amount of acceptances being put out by the
various accepting concerns.

I am inclined to think that it

might be desirable for us to carry a few complimentary accounts it

in some of the larger Joint Stock Banks for the purpose of having
available various sources of information about credits, but out
best course would be to develop this gradually after operating
solely through the Bank of England.

Lord Cunliffe made it quite

clear that he wanted to see me again before I left for home, and
it is understood that I will take the first opportunity to have
a look at their methods of handling bills which it was arranged

would be shown me by one of their men who is particularly familiar
with that department.

Lord Cunliffe sent me back to the hotel

in his automobile at about quarter past four o'clock, and at the

hotel I met Willard Straight and a Mr. Perkins (brother of Jim
Perkins of the City Bank).

Straight I.4.94-4elnr-vdthrmr-Vnft-

oplainod the object of his visit here which was to look over
the ground preparatory to making London connections for the
American International ii!maikilAf Corporation.

I promised to help

him with such information as might prove of value to him and he
is to stop again this afternoon for tea.

Later Mr. Wolcott

called to advise me that he was going to France to see Ribot and
some of the French bankers in regard to another French credit
similar to the ones already arranged.

They had mentioned

fifty million as a possible amount.
I told him that I thought
these credits in their present form ArVec 1enniai7

that the bills should be drawn on American banks, by American
exporters, and by that means they would create a variety of
American names on bills.

The bills would disclose more closely

their commercial character and that the market would not be
glutted with too much of one kind of paper.
American exporter was the one
extend credit.

Besides that, the

making the profit, and the one to

He said that he agreed with me and he thoigbt the

French bankers did also but that it was difficult to arrange.


also told him that it was inadvisable and impossible for the
Federal Reserve Banks to buy these bills as rapidly as they were

That the way to arrange it was to have the bills placed

on the market through brokers as had been done by Brown Brothers,
and furthermore, the Federal Reserve Bank could not take part in
negotiating credits of this kind.
Dined in the evening at Sir Feli.7. Schuster's home, the

party consisting of Sir Felix and Lady Schuster, their two daughters


who are eh :A-ming 7oung ladies,both very much interested in

various forms of relief work- -one of them at present working in


the India office.

Also Sir Seymour and Lady Xing, and. Sir Lionel


Abrams of the India Council.

There was very

of matters of local interest here.

_e discussion

Sir Lionel Abrams being much

interested in the .subject of our currency reform at home aagt47

4.-eft we discussed at considerable length.

He is regarded as a

great expert on currency matters, particularly in the East, but
I did not thiAk him particularly well informed in American
effair7 of that character.

He, as well as Sir. Felix and Sir

Seymour agree that the English currency system is too inflexible
and that the situation as to currency was saved temporarily by

the issue of currency notes by the Government, 414* that this was

more or less dangerous expedient.

Sir Sernour was of the

opinion that it would have the effect of releasing gold from
circulation, which had been used by the Bank of England for
settlement of debts to the United States ana elsewhere.


thought they all agreed that the Bank of England would, some day,

be forced to exnand its nower of note issue so as to meet the

demands of trade, and accumulate more gold.

The discuesion

brought out the fact that the Bank was strenuously opposed to
the issue of currency notes apparently on the ground that it was
an invasion of the bank's monopoly.

'Ct till
Saturday, ::arch 18th:


7`v _




.ington and Mr.

Slent lEte, and lunc

to the Alhambra
In the afternoon went
the Strand.
Shiverick at
of the
the Army Exhibition to see
14 later to

and I took dinner
Norman sent his car for me
Mr. Montagu
je spent the evening
him at his house.
alone with
the British Government's Short
of affairs in .trance;
the position
New York exchange, and
funding operations;
borrowings and
1:r. Norman took a very
I did not think that
Dutch exchange.
although he seemed inclined
op*Iistic view of the French nosition,
be the effect of
could tell what would
that no one
to agree with me
which everylife of the nation, u-_ion
the industrial
the war upon
end the Government'r
s to the -_]n5-lish -position,
thing derended
he exrressed very
and the currency note issues,
short borrowings,
the ease with which
feeling that I have felt--that
much the sane

loans and curre-ic7
Govem.:Ient short
this groat of
would lead to a lot of political
absorbed in circulation
had been
esoecially with recLro to
financial heresies
ouackery and
danger, if it
He thought the great
currency or silver issues.
be anprehended from
thought it did, was to
existed, as he
notes must be retired in
i,he currency
failure to recognize that
He war _ot
interest bearing obligation.
time uy the issue of an
short borrowings of the Governannrehensive about the
them it would
market pretended to reject
that if she
ment, believing
with the Joint Stoclaccumulation of great balances
result in
aigland, and the
denosits with the Bank of
which would keen these
of the Govern-lent situatton.
England could then take care
Bank of
it -outs too great a strain
agree with this view.
am not inclined to

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