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NELSON ALDRICH uie ..Appagynocioreglorm...egagpoo,p Monetary Cants:saw MISCELLANY .r.erowlc,rwr • 'I p - _Lr 111 - A NEW NATIONAL BANKING AND OURRPSCY SYSTql! FOR THE UNITED STAT1S. BY m.c.H.--aK, 'Y,0G, TEXAS. We have a oountry whose exports of merchandise, including agricultural products, for the ton years ending with 1907, exooedod imports of such 5081 million Dollars; exports of silvor for the sam period exoeeded imports 218 million dollars, making a total excess of exports of silver and morohandiso over imports 5279 millio n Dollars. To off-set this large amount for the samo period we had an excess of gold imports over exports to tho amount of 226 millions of dollars; stated differently, this country has exported tho products of our soil and labor on an average of 501 million dollars yearly more than we received an equivalent in wealth. How this trade balance has bean settled is a question wo do not now have to determine, the startling fact is that we must produce .and send out yearly 500 million dollar s of wealth to keep our balance on tho right side of the lodger. To do this it will be n0000r,ary to keep all our energies going, ovory hand working, every wheel turning, and any serious interruption would be disastrous. We have the natural resources and capital, the intell ectual labor, and moohanioal appliances necessary. The other twc requisites for groat prosperity arc transportation and medium of exchan ge. Those make comneroe. The problom of transportation and medium of oxchan -e are so intimat -ly associated as to be almost oomplomentary. Transportation without medium of exchange is useless, medium of exchange withou t tranc,rortation equally so. They must both be present at the nano tiro an. 3.73 most offoctivo when under tho nal_ao direction or control, w- ot.1,‘)r In the raising and marketing of vegetables, tho manufacture and ealo of clothing or with a John Jacob Astor or a Stephen Girard or Standard Oil Company; however under present conditions of comnorce, this is possible only for a few. The soonomio rules governing both are similar, both 3hould be adequate, 'cafo and at the command of every oneo on equal terms without discrimination. It is equally the duty of the government to suror- • vise , and o ntrol them both. The regulation of the transportation problem will not bo on- larged upon here, but only the question of supplying and contrelling an adequate, safe medium of exchange. With agricultural products amounting yearly to over n000 taxxims million dollars in value to be exchanged for manufactured products for use and consumption, it certainly is the duty of the government to consider tho needs of the agricultural interest an well as that of the manufacturing and banking intoronte. The volumn of trade or commerce is limited by the amount of the medium of exchange just the same as by tho transportation facilities and it is just as necessary to have the modtum of exchange distributed throughout the country as it is to have the moans of transportation. The medium of exchange may be either; let, Monoy that is the substance or product by which values are measured or in the torms which relative values are stated; or 2nd, Ourronoy such as other products with guaranteed values, government notes, banks notes and bills of exchange individuals notes and chocks, etc. The greatest commertbial countries having settled upon gold as the best measure of valuos we must be content to use gold as such measure, and for the purpose of exchange and settlomont of b. 1..ncos, until some genius shall rfvo um a measure of value, liko horsepower for mechanical energy, Ohms & Watts for electrical onorgy. It may ho in terms of human enorgy a day's work or the like. as L:oney has two functions (1) standard of value (2) Modium of e:r.chan,7a. Having adopted tho measure of value and th quantity of such unit of the money for exchange, all currency and orodit instruIts must ho rodeemablo in such monoy. To fazilitato and accomplish , r. cult of such redemption, it is nocooary to have banks and clear) ing houses. The reoent panic and resulting reduotion in tha production o wealth and deprosion of business, has domonstratod that our pronont banking system is inadequate to moot the demands of our growing com7erco. Think for a moment, of this country which had at tho time of tho panic 1432 million dollars in gold (the moncy of r)demption) 550 million in guarantood silver dollars, 118 million dollars in guaranteed subsidiary coin, 915 million of dollars in guaranteed U.S. notes and bank notes, and 13099 million of dollars of deposits, most of which wore subject to check, and then not having any available medium of exchanre. Our present banking system is so inadoquate that it requires a lrge deposit aocount from all concorns doing an extensive business with resulting large reserves to be maintained by tho banks, which must ' in time of groat prosperity fail from lack of any money other than that necessary for the reserve required law; or in th case of this panic by a run on a few perfectly solv.nt banks of comparative maall significonce to so reduce the reserve an to stop all business. This same result could at any time be offoctod by a low financiers with a desire to influence the markets. This is not only true, but under present conditions, it is in the power of a few bankers in Now York to lay tribute or prevent any great industrial or other enterprise being launched, or oven the government from withdrawing and usinr, its own funds, without first asking thoso powers that be. Tho govorrment cannot sell its own bonds without getting those sane powers to undorwrite and distribute them. Thoy havo absolute control of al' the free money in this country and can and do use it for their own aggrandisoments and for the concerns with which they are connocted, to the exclusion of the balance of the country. In constructing a plan for a good banking system, we must keep well in mind the purroso it is intended to servo and the lesons oxrori-moo has taught us about money and its uses. Oommerc::: donandn a banking system which will at: all tines 71urr17 ar sufficient quantity of credit currency. Thc subjects of corrnorc valuable enough to be a basis of credit and extensive enough to justify men of the highest talent to devote their whole time and interests to a banking system for its use only. The profits from furnishing commerce with a currency are sufficient to justify the investment of large ca7ital as a basis for the isnuanoe of such currency and for thoao reasons it is nocos - ary to have amanking system with a credit currency ontirely Separatod from investment banking or money , brokorago or monov lending. Tho prinoinle haf bo )1 partially recognized in tho limitation of our nrosent National Banks for Bidding, loans on real ()state but this doos not go far enough. ::r.Adam Smith's statemont that it is not the province of a bank to lend a person his capital is nearer correct. Investment banks and money londlrs should bo called on to furnish capital, comnercial banks the currency to engage in co=erco. For instances, if 1 wish to buld a factory or buy a farm, I should call on an investment ban': for such part of capital not on hand. If I raise produce, or manufacture objects of cam 'orce, I should 2.11 on co=orcial bank:, to aid me in the exchange of my nroducts for 0. those for :^y own consumption. If ono should wish to build a home he should borrow from investment banks or money lenders. Tho contractor or builder frar commercial banks. Tho whole cur •rmoy furnished ivy tho commercial banks should be at the command of each part of the country at the same time, ,-.nd should as if by gravitation go to tho place of greatest need without loss of time or oxPenso. This an only be done by the establishnont with numerous branches -)7 with panks, of large banksAin close ralTionehip wtth larre central bank. If untramgeled money and currency will always go to point of groatost profit. counlod with safety. It caniot bo forced in any other mannor and for that rea- on any proposed system must be profitable or it cannot be inaugurated. The only true basis for a credit curr ncy for co-Irierce is commercial credit enga, od in commerce itself, i.o, credit used in production of rav materials, their exchange or change into articles ready for consurption, th 1 manufacthro of products and their sale or :1, , other words, the oxchango from producca to consul-10r, not the objects of commerce, they must bo considod only as a basis of credit. The whole pur7olo and the economic value or the credit instrument being to until tho value suspond the payment of actual value of the product exchanged can be A offoot against that consumed and tho difference paid in money. Suppose tho people of a single county wore to produce all the raw materials, manufacture all tho things used in lach county, owned all the moans of transportation, with doctors, lawyers, preachers, mer (3317.nts, artists, otc, usual to civilization and had but one bank, that that bank had unquastimed orodit with power to issue its notes redoomablo on domand in gold. It would roqutro onl quantity of gold for the coorce of such a vary small oommunity. Tho manufaoturor producr, merchant, or trader, contractor or bu'lder could make arrang e-Ionts with the bank . :or a lino of credit, than give checks on tl o b2nk ' r la1io, mat')rial, otc, if the chocks were deposited in the bank to the credit of payee or holder, the brl.n': 'maid chargo one person, and credit tho other. If the payee o- holder wished money for his chock r to bank would give its note or currency for the chock, this monoy would either be hold by pay:)o or onr,nt with merchant, doctor, lawyer , otc, -rho would in turn deposit it or pay a debt to the bank,In either ,-,aso all the exchanges necesary could and would ho made by book-keeping only, and wit ouL tha use of actual money. '.111' can be done in one county can be dons in the whole country by a system of banks intimately assooiatod and with prop or clearings. credit To cause thexcurronty to be at the command of every one entitled to its use, it will be necossary to prohibit theso banks from lending its credit currency to any stockholder of ouch bank to any firm or corporation in :111.ch ouch 3tockhollor the interested. Norsho uld they by any subt)rfuro or mutual understanding with stockholders of other banks be allowed to secure loans. To accomplish tho benefits sug ested in the foregoing the following is an outline of the plan for t]--) co nrcial banking system for the United :t,cit03: . lot.- Ol)iring house bank with fifty branches, one branch in eac::: oloaring house district, the capital to be 250 million dollars, Carit-7 to be fully paid and in the vaults at all times (oxoopt as horoafter shown) ono-hundrod and fifty million dollars must be in golf fifty million may be in U.S. Silver Dollars, or silver certificates fifty million may ho in U.. notes (gr'Thenbacks). This clearing house bank to be the depository of all U.. Govornment funds and must, until they are retired, mainta in the U.:. groonbacs and all U.S. silver coinage and silver certificates at par. Aoh of the banks oranizod under this act shall koop on deposit with the clearing houso bank funds sufficient to redeem its notes preelontod to cl,,arinr houee. . This bank must not roceivo deposits from any other sourco. The clearing houso bank shall bc; allowed to buy and soil for* oign oxdhange, loan fluids to other banks organized under this act, and to rediscount or buy the paper belonging tr such bank. Th,) cloo.ring hourw bank shall have its principle of-ice of 1-,1hington and shall be governed by a Board, three of in the Ci4 whom shall 1),, Comptroller' of the United Statoa (tho Comprtvol'or's office to be changed to three Po-sons whose terms shall be twelve y.)ars each one anpoint)d overy four years). Those comptrollers of United States shall have tho right to fix the rate of discount charged other banks anC to fix tho amount of notos to ho issued by said clearing, houso bank. Should the rodemntion of its own notes or of silver dollars, silver certificates. or groom.-backs roduco the amount of gold in the vaults below the amounts required by mital stock such amount mu, be made good and returned to vaftlts -.t -Tithin tine given by comptrollers. B Ilko of issue discount and duppt denosit. Those shall ho branch banks with fivo-hundred-thousand dollam canital for each clearing house district in which it maintains a branch. Or individual banks with 500.000.0O sapital in citios 7. ith over or in citios with loss thaa 20,n00.ftft inhabitants 20,000 inhabitants may have a capital of 259,000.00. The capital shall be paid up and in the vaults three-fsu-nn in gold, ono-fifth in silver dollard and silver cortifica4.os ono-fifth in U. ;. not os. Thoso banks shall have tho right to receive) donnFJits fro- any source and to discount co-71ercial panel- only, shall not dirlonunt secur -)d on real estate, stocks, bonds, etc, Thoso banks shall hoon on deposit with the clearing houso bank sufficient funds to rodoom prnrintly its notes nrosontod thereat and may lz on as much as of its canital ,Tith such bank. Should at any time the cash in its vaults and rith the cler.rin;; haaso bank ho loss than the amount of the required capital stock, this fact shall ho promptly communicated to the U.. .Comptrollor and tho amount made good within five days or such furt' lp timo as may be given by the comptrol]or. Thos .) bank Alall not be allowed to loan mony or to discount the parer 02 a7ly stockholder of ;uch bank or to any firm or corporation ir Alich such stockholder is intoraltod. All bankr, organized under this act shall be mildnamod::an on allorad to issue notes payablo on demand, !Ilich lhall bo rodoemod this doman(1., and which must ho taken by any other bank organized undr on in the act at nar, and -7orwarded to the cloaring houso for rodompti follow.ing anount. First amount equal to capital stock without paymont of any tax. , Second, an- additional amount oqual to 5051 of capital stock uron paying a tax of 15. 9 , Third, An ad(Ational amount equal to 507, of the capital OtO0k upon raying a tax of net, Fourth, An aditional amount equal to W, of tho capital stock upon paying a tax of 4. Fifth An additional amount equal to bO of the capital stock upon paying a tax of 6%. 'A.xth, An additional a. xy7nt equal to 50% of the capital , stock upon paying a tax of Tho notes shall ho uniform and nrintod under direction of tho comptroller' dorattnant and furnished to bank at cot in donomi- L5.00 and multiples. nation of : The notes can be mad Payable to tho ordor of payoo at noto time of issuo or mado no aftnrward by insorting payoots namo in and cancolling ft boar(;r1 From tho tax recoivod from noto issues a fund oqual to F(74:of A capital stock of all banks shall ho hold by tho Comptrollor's Donartment for the prompt cttlinttnn redemption of the notos of failed banks. Balanco to go into the general revenues of tho govornmont. Tho notes issued by tho banks to ho a first lion upon all the asets of the bank, including liabilities of stockholders. ach bank shall make a daily report to the Comntrollert Department showing tho amount and numbors c) its notWissuod tho amount and numbors of the notes cancelled, to7othor with a su:nary of assets and liabilities and shall make such othor roports an roquirod by t ) Comptroller. Provision M117 be maZo for rif:id and frequont exaniziation of a:1 banks by Comptrollor's Dopartmmt. Provision must be made allowing National Banks to con- nolidato and form banks vrith branches. Silv)r dollars, silver cortifioatos and U.. notes (greenbacks) should ho rodoemod and retired whenevor the comptrollers doom it safe. In the moan time, all roissuos of either greenbacks or silvor certificates shall be in denominations of cum dollar ealth and shall bu considorod and subject to same laws as subsidiary coin. The purposes and adv.inta; o of the large clearing house bank -; would be: lst, unify and give quick oloarinr, for currency issuod by all banks, operating a constant check on over issue and maintaining the currency at par; 2nd, To enable the U.S. to go out of the banking bminos3 and to to withdraing gold from circulation to maintain a reserve to rrotoot its greenback and nilvor coinage. , 3rd, To be freo from rithdrawals occasional ignorant anonri individuals depositors. 4t!i, To enable banks away from cor=orcial contors to furnish a-ple currency by soiling its rapers to the clearinL; house banks, and in cano of a run on snail banks to have some bank able to take over all tho assets of the small bank if necos ary. 5th, To have a bank uith a credit sufficient to bo a "rorld's bahk, and to obviate tho necessity of trading through London and in time to become oloaring house the American, if not the whole world. Tho purpose of limiting the capital or the oth ,r banks is to force banks with a much larger oapital to ostablish branches in several clearing house Districts. For instance, take a bank :rlth rron nt carital of '3,000,000.00, it could orf7anize under this law rith a o pital of ?1500,00000 rith surplus of 4,500,00n.00 in one clearing hauso District or could organize /-1,1 have nine branches 500,000.00 for each. In the first instance it could issue notes amounting to 250,000.00 without tax;additional •'250,000.00 paring 11 tax;additional icnno t occ.00 payinE , tax. In the second instance, it could rithnut t az additional issue notes for ^2,5rT,Onn.00 ,500,00000 upon paying l tax;additional • 2,500,000.00 upon paying eo tax. ;Mould 1.ho present banking interest be reluctant to establish Ipranohes yet a bank rith 500,000.00 will be able to furnish all the currency neodod in any place, by either rediscounting or ceiling itd parer to the clearing houso bank. Thi, bill will put upon the banks the burden of getting and ; maintainin i gold reserve adequate for their cur •ency circulation. 42 czL 1 At, , cLAA( ,ewez 7 r. onin aK,6( Pet?,a1E116; 1 t rj -f /1/1 ' (7.7 7/; t / t:14,V4 Qf ,geed 1 ‘‘eitti; //7 t e 4Aire, rez C 44I Cteii? . I-14 y ea( ' 14.1e,6 474 , C9/. rzfr rt ; a ."71opete?e‘f< 4fer f "f'z alt , .4 iiitle .e4teybot,, (e ; / I e 1/2 if-7,22,,76 oe", //f7 . 0 0 %Ye,9J- C4 r d .2ev- 7 J2 x ,9o .2ele.ify/ x e eftre A - te( ,t3 7 4r/ .9( A1-(Xt-ete ,L37 43ef,.Z17 9ey Afe 4r7 tz?e -V fli: ) -&d; 1 1r -e,e4e cres2-cz.c ece 7 5 ./ 77 / . 112 72 (f V-7 ",*e e- -eeeezek-.7 4eziZe7,1)/1; e - Ooeleeeiefrf,---hyte 719•,fore 922 p -0_1 ' 1 • / / cJg -eff 91z-lzffey3") `3/-/Z// k -fral i Z zikrae?' // a / 2/,fP1 A I' 017 /V/ z4,1,46 _r kg sto l'61'(er-P9 * 02- WP9Z/ .1/ , cVr-sr d',4" 9P eXf9 YAP 'z f PillF9h A>I ' fait (:)vo •tc2 .7./ - 1) /6e /'C/J2 ',f c•zet• (},-e ny' ; rriZ 7 / /(Q /9v 2,1-e 44117 J z -I /'79 //,,• pc' . 4 1 21Y • Z1.1)/7'Z/ 4i/ erF1(,-Pi M11." fiV nTnTIT immIANcr. lommeroiR1 insurance rates aro established or a 1:Jasts of losseq sustained for q viven 1:er1ort by rhicb we are enabled to nafoly gua:rantee a portion of the risk involved in businocm ontexprisf:s. 'Equally as orao- ticul are ratos based on th- lossos of depositors for the forty-five years experience under the National BanX The lu.o.sitin beinz to indemnify the ultimate :.:ayment of dr?i,orAtF4 in N:ttional Rai-Jzs, the oost or tax requir ed Is iiroperly b, ised on the atTrogato de;o31tc3 as the fund to be seoured• rtatistios show the avorage annual loil9 lel,ositors for 1010 forty-five yoar to nontir.med have been prf).cticrilly one willion snnully, ?-hLle tho higheist lons in any one year 7:1r, 1 four 111LLOflin 1807. Thel tIv-Jr;tgo lcqsec3 d'IrtnEr tho past fifteen yorArs, was n p800,000.00, .hilo tho pit twolve yarq avorar re about ft,500,000,00, -2— with thr)ne a17i . 7.ef; it trl to af3rounil an 'Armal txc7lIffin1.mt tm 1,rovi:1.0 onrrillionq 1)= aniae. At tho 0:1_o8 gate depwlitrt i , to tro of ti 1 LcV11 'year the aggre— 1Ut1io.m1 BailKf,! ria8 aboqt eight hurdred , mil:icn 'and a tx of one—ftrtri of 071e :2 1r cent prodliceg , one rillion 81.x hundrel loll r8; a tax of one—fourth lirocluce8 tv . o million. It muF:t e nutulAlly e--:Dete. that rith th18 1)1An offv!ctive ther;) cre the dei'oRitm, rcy41lt an etoniir of NOiton,,-A1 nk9, R9 we%1 a corre81,W,1n,17 inorro in the t4x - fund ;It Aoorcllqe Owtr in— 11W3 rate for a to the r.)1.-1 oqtloA8- mont of new I b.n:c oo.ltIlg thLo tho t in prror t1 guavAnte 1 1J Ott ,•T len+, thi8 en the Pyrriont of thr ftr!;t , 181e8:7ment 51nd the az;8988ment he continued until the flund rf)Rcho9 five qher if. may bo discontinuert, ”endinp' derdletion by los9eg, then agrin rf-111m170.. With 1;rovis1or that th,govermlent hag a 1:rovt, led by the banks as ar)1 ir protoction, it practically agmtmes no risic, and with this as-..urance to the do-uogitor wo lyrovide for such safety afll. ftability thit irednetion in the logs rate to one—twentieth of one 1,cr cent is Drnictd. Proi)ogerl a7FIndments to tIle National T3arik Ant: f;ection 1. be r thnt all Wtional Bankg ,uireci. to maintnin their circIllation to thrl Ylaximun. Section 2. orted Ft Provides that there ghall bfi department with the title of THE NATIONAL RANK DEPOSIT (UARANTFT T)Ta'AliTMNT, ! hich shall be under , 7 the direct supervigion anci eontrol of the Coritroller of the Currency, the object of which shall be to pro— vide a flinei for the ultinate payment of del)ogits in -4 all National anks, at rTeRent lhartered, or may her-r)fter orcran1g,,3d, Section 7. This fund to -De ovovidort for by an annual tax of ono-fifth of oril pr:r cont on the dopositR of all National Rans on their aggregate ariount for th, nr, -Aeeding year, and th:J -) : cn the organimation of National Brt*c; thir aRResqmont Rhal l on their ocobined. Rnd Turraus. based Also, tit th semi-annalal iiity on iond seollrod oirc laation shall be herefter do11, 3ter al):;lied for t,i Yt benefit of this depnrtment. Seotion 4. connected Provii.es tht tie Ie!)iirt(nt, al4 exi)enRef-; 1l other ,-3xpenRes4 incident to tho oiroul'Ition of N, itional flank9, 'l1 othArwiRe ITovtled for, Wel/all be ',paid out of this "'Inlet. Section Provie,ls that whenevlr ther is accumulRted in THT 4ATIO4AL 'RANK 1Y7PO nIT GUARANTET1 D7PAPTM1 :NT annnal asseRsments, fr:ceortin five million dollarR in ano“nt, the annual ancle ssment shall he die- -5— 7. continateil until thi., funi ig 7-(Yl13r1 to fiv, , 1, ir 4110 (nTroal. tix R}val oe 'eiirw, it heinr7 . 1.c, 11:7,7p 1 , the intrrt of f isaot to prcvlie :a 7)frquanc.Int fund of fly() .r11111r)n P.e0tiOr 6, Pro"i1.or tAqt thfl ltroller , Int,loy..1.7md to inlroF;t thn gmirantee of the IiIrrenny , ln TTnitorl Statie bonrim or other bo-1 1 by the ;Jni.twi S+., 1.te.3 by piircho f--kt or to -11 F3rie t Ue Fellrc.r.'anteed r;itep,, rtrftteR, inter:)8t V!(11?Lr1 tho7'f3on to .the evrol it of t.11,--) srctior '7. the Untt, ,-", St%t•-39 ) "Ptiovirttr; the Treasurer of , 1) +Mr. curIto! -I.lar, of all fltnde receiv.ri, or )OflriM _ourcliameri 1.eoartrient, qub— ject to witlicirarifIls by the (lorlDtroller of the lury.'onny t ae the ilesqlty may reluire for the 1;a:rnent of NrItion— al I39.n1; hereinqfter Seetion 3. ProvileR that any National 71. ink - in liTildfltior, who ha q Drelrionsly corp)11.3r1 Pith the • —6— is provisions of this =lot, anq for whom a receivt;r ing -1 apointerl, 3h111 be prooeildd , .inr!t under exif.;t 7 rlu-, 1ncy mew, tn 711r laws, and the lomptroller of t.1 )xfirqtion of discretion, at the c. after Day dividends on ronths there— 17)pr0vd clains of d000si— tors of the bank in lirinid ,Ition out of the funr1r1 in THE NATIOWA, TAN. PITTOPIT MTP4Y,TEE Tri:PAPTMTNT, anq , T;ithir two yrarF 1illYday all clr1.mf7 of depositors In P.111, ()1st of tYle 1 ment of 9q01 liIr fo' 4. .11ng a full agsitrm— i,uyc adjustment with the re— ceiver, but no National BITIX non in the inr1s of a receiver, nor flny greaitor, other thun irie749at0r, shall Dartioifatl in thir fun. Section 1. Prol'il.os th:it in the evint of the voluntary liT;ithttion )1 Pfl tri 1;;ink "71() has , 7 paid into the NATIOMAL 9 7TY nEP053IT (711JATP1 7WART— ) MENT one or more %Innual qsc33sm,- nt!l, that they shall be entitled to receive from the Cormtroller of the Currency R lividend of fifty per cent of their aggregate -7_ Payment9 after deduoting thgAr proportion of R11 1nRlea and expen9e9, The follow _ng amendment has been agreed to by the conferees on the 7ruent Deficiency Bill! "The anotmenf for printing and binding for Congress is hereby made available for the printing, under provisions of existing law and the rules of the Senate and House of Representatives relating to public printing, as public documents of such of the publications of the National Monetary Commission as the commission may designate. And the superintendent of documents Is hereby authorized to order reprinted, from time to time, such public documents of the National Monetary Commission as may be required for sale;" This amendment accomplisLes t} roe things: 1. It directs the Public Printer to print as a public Nationl Fonetary Commis- docuplent any of the publications of th sion that the Commission ma:i designate. 2. The cost of printing such documents is charged to the Congressional allotment for printing and binding. 3. It authorizes the uperintendent of Documents to reprint for sale, without limit as to quantity, all of the publications of the Conmission. The Special Report from te Banks of the United ;.11,tes was printed as Senate rocullenL 10.225 on December 21, 1909. , The Histor: of 3ankinc; in (3anada, by Breckenriuge, ;as print; ed as Senate Document No.32 on January 28, lc.)10. The rigesL of F:Aate Banking Laws, by Welldon, was presented in the Senate on Fe -:uax not 6 as,qenate Document No.353, but has et been received from the printer. Dr. Kinley's b . ok, The Use of Credit Instruments in Payments ) in the United States, is read:.- for printing, and two statements for the press have been issued in regard to it, to be released for publication, respectivel:/, on February 19 and 22. 2 PL ONO. SEC. The wonderful transformation which has taken place in every direction in recent times has added greatly to the responsibilities of bank managers. In tie cOmplex economic life e.sur...tintes-credit forms a more and more important element in the successful development of communities and States. As in the earlier days, every successful bank manager is brought into close and confidential relations with the men upon whose activities and influence the welfare of every community depends. His advice and assistance are solicited for the promotion and support of every industrial enterprise, and his counsel is asked with reference to the investment of the savings and earnings of the people he serves. In respect to their important responsibilities in this connection the great mass of the bank managers of the United States leave nothing to be desired. In no other country do we find their equals in the uniform courtesy and intelligence with which their business is transacted. They are vigilant in safeguarding the interests of their stockholders as well as their customers. Nowhere else do we find, the same skill in the echnique of the profeSsfon. The practical details of the lousiness bank are conducted here with a facility and rapidity quitie unknown outside tli,e United t States. rEveryloge w,litr- has attempted to transact the simplest business ift, a:foreign bank—cashing a check, for instance—will confirm,this statement. ' It We may ,safely •assume, therefore,.that so far as concerns the personality, of bank managers, their conduct of the routine affairs of their banks, arid theli personal relations to customers, depositors or borrowerS, there is no demand for new or improved conditions. Notwithstanding the possession of these adriiirable personal qualities, the bank managers of the United States find themselves unable to meet the new and'serious duties and responsibilities which are imposed by the momentous physical and financial changes which have taken place in recent years. , We are living in a new economic era, 'brought about by the march of civilization; by wonderful improvements in methods,of transpartatiOn and the trans__ mission-Of intelligence; , by important changes in business and industrial methods; and by remarkable discoveries in ,. . . the arts and sciences. The inability of batik managers to meet these chan4ed, , . ---, , / 'conditions is due in`parth (t) to the limitatidns a'nd 'restrictions imposed by Atiquated,or .obsolete ,laWs With reference to the treatment of reserves,, in part'() to a defectiye, , inelastic,'and 'unscientific Systeni 44 ndfe issues; 'aiiditliit , , hugei:lart (3) to an entice wet* of ,coheSion and cooperN ation on the part of b,aftiks . what are flaw their more In important tunctions—those in which the piibliC has the deepest interest., . ,, ,,,, ., . 4, , The)sooperation of baits'for,mutual protection and suppoR at critical time iS'Anclered impOssible by unwise mod artificial restrictions. . This lack of cooperationAniar forms individual lziksm.tirnef preT:stire,• ' .,Tional, W or Other- isq froth ro didgii-Orilidepeilde e /one of complete isation and dependence. In eme s they are without the power to serve successfully the interests of either their stockholders or the public. The situation in this respect is illustrated by the fact that the country banks now entirely depend for assistance to enable them to meet unusual demands upon their resources upon their correspondents in reserve or central reserve cities; and that—exams, in the last analysis, the banks of the entire country depend for their support upon the financial insti7 tutions ,of New York, with their vast accumulations of capital. Unfortunately, for reasons which it is not necessary for me now to recite, in times of severe stress all these agencies . fail or prove inadequate. We are confronted, therefore, c,%_ , • •• . .I,, . .1 . —;.- e •hc• r•••1111-st rIT Ii I it ..... or otherwise trom a °cram°, dependence. In emetgrtqIcIes they complete isAtion andare without the power to serve successfully the interest. of either their stockholders or the public. The situation in this respect is illustrated by the fact that the country banks now entirely depend for assistance to enable them to meet unusual demands upon their resources upon their correspondents in reserve or central reserve cities; and that-siteetrs, in the last analysis, the banks of the entire country depend for their support upon the financial insti7 tutions sof New York, with their vast accumulations of capital. Unfortunately, for reasons which it is not necessary for me now to recite, in times of severe stress all these agencies fail or prove inadequate. We are confronted, therefore, with the fact that the banks and the business of the country have no reliable resource upon which they can depend at all times for the protection of vital interests. Exceptional demands made upon the banks for credit, arising from an expansion of business or otherwise, and the regular recurring movements of lawful money from one section of the country to another, are disturbing elements of more or less importance, liable to lead atztines to widespread distrust, IIMIRIEffikeelj 0-ty in a general suspension ofor ments and the co slete disruption of all exaanges. In the losses and paralysis witieirtriv incident to general bank suspensions, the banks themselves are not the only— in fact, they are not the principal—sufferers. Banks, if e to take care of themproperly managed, are Not infrequently selves. stfenger-wer4they pass through the trials of a panic with increased earnings and unimpaired resources. I do not mean by this statement that *tarot- the intelligent bank managers of the United States on this account viuthenimentiti,t.,.. I .1 conditions. I believe the intense parnewl panics or panic/ strainAlweogie(which the bankers of the United States . . httel-tto-roms. in 1-907 taught them a practical lesson which _ e ""444,1;9 seekin w they never will forget and that they are nowA aitaKe which shall one accord some resource of e communi" to sustain their own credit and the-Treditv ties they serve. results of the panics following bank i0f4ASirAll°The disastrous failure fl 1873, 1893, and 1907 wer4i-wide3preati.-a4+01. affected all classes. In each of these cases we had an entire or partial suspension of all productive industries, a shrinkage in all values, a reduction of wages and loss of employment, with irreparable loss to wage earners, an arrest to all progress, a destructive impairment of confidence, and a loss of prestige for the country. Farmers and other producers were not able to secure the necessary facilities ,,for holding or marketing their products, and business men of all classes were unable to meet their current obligations. Usually there is no opportunity for the great mass of the people to prepare for these emergencies, as the transition from prosperity (real or apparent) to depression and panic usually takes place without warning. et %4 A., \ Zi. •1 YJ MONO. SEC. REPORT OF THE 'NATIONAL MONETARY COMMISSION.. To the Congress.: The National Monetary Commisison, created by sectiom ,r7, 18, and to of "An act to amend the national banking laws," approved May •30, 1908, submits herewith its report. Section 18 of the act gave authority and instructions to the commission as fdllows: It shall be the duty of this commission to inquire into and report to 'Congress, at the earliest date practicable, what changes are necessary or desirable in the monetary system of the United States or in the laws relating to banking and currency and for this purpose they are authorized to sit. during the sessions or recess of Congress, at such times and places as they may deem desirable, to send for persons and papers, to administer oaths, The cointo summons and compel the attendance of witnesses. " mission shall have the power, through subc:munittee or otherwise, to examine witnesses and to make such investigations and examinations, in this or other countries, of the subjects committed to their chairs as thoy shall deem necessary. '- In accordance with these instructions we have under- . taken in as thorough and scientific a manner as possible' to investigate banking and currency conditions in this and other countries. These investigations have been pursued by three methods: (1) By oral evidence taken in this country and abroad by representatives of the commission; (2) through the preparation of papers and monographs by expert authorities; and (3) through a series of written inquiries directed to all National and State banks and trust companies, to national-bank examiners, State Supervisors, clearing-house managers and others. In the summer of 1908 representatives of the commission visited England, France, and Germans', the three countries of Europe in which conditions most closely resemble our own, examining their banking arrangements, methods, and practices by personal interviews with the officers of the leadin institutions. Since 'then representatives of the commission have also visited the leading banks of Canada, Scotland, Switzerland, Italy, and Sweden, conferring likewise with their officers and extmorganization ining at first hand their method' .arrangements for dealing with reserves, note issue, coin mercial paper, and other banking factors. The questions and answers of the European and Canadian interviews have been published in two volumes, which we belieVe contain more accurate and concrete information in regard to the actual practice of banking in these countries than has ever been printed before. More recently the commission has conducted a series of hearings in different parts of this country for the purpose of obtaining opinions of people, representing different regions and occupations, as to desirable changes in our banking laws. Such hearicgs have been held in New York, Chicago, St. Paul, Miui71--, Kan.apolis, San Francisco, Seattle Los Angeles, sas City, St. Louis, and Washington, while meetings of the .a.b.41,icago d of the AmerWestern Economic So..iety i ican Bankers Association and its affiliated organizations ...444..New Orleans, which have been devoted exclusively to c 'i„---the diwussion of monetary legislation, have been utilized by the commission as a means for securing opinions of professional economists and of bankers, respectively. In examining the printed literature of banking at the beginning of our investigations we were struck by the paucity, both in Europe and in America, of material dealing with other phases of the subject than the history of the circulation privilege. It was practically impossible to find, at least in English, any satisfactory account of the operations of European banks other than note-issuing banks, any penetrating examination of the great credit institutions or of the organization of credit in other countries, while the literature of banking in the United States was confined for the most part to accounts of the obsolete State banking systems which existed before the Civil War and to the history of national banking legislation. Until our banking authorities had freshly analyzed the processes and functions of%banking institutions and cut loose from ••• P-tJt /2 In examining the printed literature of banking at the beginning of our investigations we were struck by the paucity, both in Europe and in America, of material dealing with other phases of the subject than thy history of the circulation privilege. It was practically impossible to find, at least in English, any satisfactory account of the operations of European banks other than note-issuing banks, any penetrating examination of the great credit institutions or of the organization of credit in other countries, while the literature of banking in the United States was confined for the most part to accounts of the obsolete State banking systems which existed before the Civil War and to the history of national banking legislation. Until' our banking authorities had freshly analyzed the processes and functions of,banking institutions and cut loose from the traditional methods of banking of half a century or more ago, it was not to be expected that the discussion of banking reform would be in other terms than those current in the earlier period. It was a singular fact that most bankers, economists, and legislators who had written upon banking had discussed banking questions in much the same language and from much the same point of view as English authorities who debated banking reform in England during the decades before the act of of its 1°44- The commission, therefore, at the inception world's best experts in labors enlisted the services of the a fresh examination of banking in the leading countries as it is conducted to-day. Leading financial editors, bankers, Government officials, and university professors in Europe and America, and min in the Orient, were employed to prepare papers on what banks actually do and milli* their real varieties, functions, and mutual relations Mo. The commission has thus collected and published monographs upon banking in England, France, Germany, Canada, Switzerland, Italy, Sweden, Belgium, Mexico, Russia, Austria-Hungary, Holland, and japan, as well as the United States, which, because of their scope and authority, possess, we believe, enduring scientific value. By means of special statistical inquiries framed upon a uniform plan and directed to the leading banks of Great Britain, France, and Germany, we have collected more complete statistical information with regard to the banks of these countries than has ever been collected before, while, by a series of special reports from all national and State banks and trust companies in the United States, the commission has been able for the first time to present reports from all of the banks in the country upon a uniform basis. Several special inquiries have been sent to national banks through the Comptroller of the Currency in regard to certain particular phases of banking, and in this way, for example, the opinions of all national banks have been solicited in regard to the advisability of extending their power to lend upon real estate and to open savings departments. _4441 MONO. SEC. Y2 J In the prosecution of its various inquiries and in compiling its data, as well as in the drafting of its proposals the commission recognizes the value of the assistance which it has received. It would be impossible to enumerate all of the bankers, economists, editors, Government officials, business men, and banking and commercial organizations that have generously and patiently cooperated in the work, and it would seem invidious to attempt any selection for special thanks. The list of contributors to the publications of the commission speaks for itself, but we are glad to express our obligations to many others who have rendered equal service in other ways. he b kin xpe cc of nyeCks system. • pDEFECTS IN METHOD OF NOTE ISSUE. 7 Of our various forms of currency the bank-note imam-. is the only one which we might expect to respond to the changing needs of business by automatic expansion and contraction, but this issue is deprived of all such qualities by the provisions of existing law which make its volume entirely dependent upon the amount of IJnited States, bonds deposited with the Treasury. M DEFECTS IN RESERVE ARRAWIEMENTS. t antiquated federal and %tate laws prohibit the use of bank reserves and restrict the lending power of banks at times when, in the presence of unusual demands, reserves should be freely used and credit liberally extended to all deserving customers. e have no provision for the concentration of the cash reserves of the banks and for their mobilizgion and use . I wherever needed in 'times- of troubleI rkxperience has \ shown that the scattered. cash reserves of our Inks are '\ useless for purposes of assistance or defense at such times,. .. Our banks also lac1 73Tacuate means available for use .__€)t r ' at any time to replenish the(reserves or ificTease their loaning powers when necessary to meet normal or unusual demands. III. DEFECTIVE BANK COOPERATION. .r We lack means to insure such effective cooperation on ‘ the part of banks as is alanaksteiy- necessary to protect their own and the public interests in times of stress or crisis. =There is no cooperation of any kind iwthiiiiu_ørn J1 lottioikoistaidge among banks outside of the clearing-house cit CWhile clearing-house organizations of banks have been able to render valuable services within a limited sphere for local communities, the lack of means to secure their cooperation or affiliation in broader fields makes it impossible to use these or similar local agencies to prevent panics or avert calamities affecting the country at large. These organizations have, in fact, never been able to prevent the suspension of credit institutions in their own localities in cases of emergency. f.-4) 1,14Waaxgjap,effective egoney tire country imakeh—aNeres.mosisfiary- facilities for making domestic exchanges between localities aateli-tlee44frits, or which can prevent disastrous disruption of all such exchanges in times of serious trouble. _Alit have no instrumentality that can deal effectively with the broad questions which, from an international standpoint, affect the credit and status of the United States as one of the great financial powers of the world. In times of threatened trouble or of actual panic these g..as,•• localities in cases of emergency. J %.J VI" IA 6-4) effective.areney cove in 4hIc4fljje cauntry Actilimatilzuficomis.ammierscary- facilities for making domestic exchaw_s_ between,localities asel-leet4ems, or which can prevent disastrous disruption of all such exchanges in times of serious trouble. -411.1.e have no Instrumentality that can deal effectively with the broad questions which, from an international standpoint, affect the ,credit and status of the United States as one of the great financial powers of the world. In times of threatened trouble or of actual panic these questions, which involve the course of foreign exchanger and the international movement/ of gold, are even more important to us from a national than from an international standpoint. • . INEQUALITY IN BANKING FACILITIES. ) • — hose influence an e ur svstp lacl an rtm m de 4ect e in curl a oyta le ess\of"Ate an co trv. We have no effective agency that can surely provide twitieekote banking facilities for different regions promptly and on reasonabl9 terms to meet the ordinary or unusual - demands for'eredit or currency necessary for moving crops or for other legitimate purposes. The is a marled lack of equality in credit facilities between different sections of the country, reflected in less favored communities, in retarded development, and great, disparity in rates of discount. i t NARROW RANGE OF DISCOUNT MARKET. The lack of commercial paper of an established standard, issued for agricultural, industrial, and commercial purposes, available for investments by banks, leads to an unhealthy congestion of loanable funds in great centers and hinders the development of the productive forces of the country. The narrow character of our discount market, with its limited range of safe and profitable investments for banks, results in sending the surplus money of all sections, in excess of reserves and local demands, to New York, where it is usually loaned out on call on Stock Exchange securities, tending to promote dangerous speculation and inevitably leading to injurious disturbances in reserves. This concentration of surplus money and available funds in New York imposes upon the managers of the banks of that city the vast responsibilities which are inherent in the control of a large proportion of the banking resources of 4111 the country. Othall 3 YJ MONO. SEC. 10 The absence a broad discount market in our system, taken together with the restrictive treatment of reserves, creates at times when serious financial disturbances are anticipated a condi-iion of dependence on the part of individual banks throughout the country, and at the same time places the farmers, planters, and others engaged in productive industries at a great disadvantage in securing the credit they require for the growth, retention, and distribution of their products. • HFTERO ENBITY or AMBRIC_ANII VNKING. Wit AWSly e..4.4, ti 1'4 1 1 , ) h .4.4.44 r10401 standard with regard to capital, reserves, examinations, and the character and publicity of reports of banks in the different sections of the country. VII. RESTRICTIONS UPON NATIONAL BANK FACILITIES. I ,r We have no American banking institutions in foreign. countries. The organization of such banks is necessary for the development of our foreign trade. The provision that national banks shall not make loans upon real estate restricts unwisely their power to serve farmers and other borrowers in rural communities. VIII. THE INTERFERENCE OF THE TREASURY. The provision of law under which the Government acts as custodian of its own funds results in irregular withdrawals of money from circulation and bank reserves in periods of excessive Government revenues, and in the return of these funds into circulation only in periods of deficient revenues. Recent efforts to modify the Independent Treasury system by a partial distribution of the public moneys among national banks 41.0bata in unavoidable discrimination and favoritism in the treatment of different banks. ORGANIZATION. k5 Ther-eiagexiera1aigrement a.rnrtg- intelfigent-sttedents ef-the-sobject-tilat tarernerty these defects it is necessary toa-prialdile..a.rrimprelienive reorganization of credit and.a thcercugla_recunstrilcticha-ef banking systents-aa44ailet44eds. With this report we submit a bill which, if enacted into el/P.444" (/** 1LAe law, will, we believe, seeemp+isiT-titeme-remato. LC.47 -d) 4 It is proposed to incorporate the National Reserve AssoA/4" 4 4 ciation of the United States with an authorized capital equal to 20 per cent of the capital of all subscribing banks, of which one-half shall he paid in and the remainder shall remain a liability, subject to call under the provisions of section 3 of tile bill. It is also provided that before the reserve association can commence business '..:•,`Ioo,000,000 of capital must be paid in cash. All National and State banks and trust companies conforming to the provisions of the bill with reference to capitalization and reserves are entitled to subscribe to stock and become members of the association. The shares are not transferable and can not be owned otherwise than by a subscribing bank or in any other manner than in the proportion named. It is proposed to group into local associations all subscribing banks located in contiguous territory. All local associations are to he organized into district associations, in each of which shall be located a branch of the National Reserve Association; and the district associations, which shall be so arranged as to include all the territory of the United States, are combined to form the National Reserve Association of the United States. These separate associations are analogous in their organization to thaiiiiiiameme-iti our political divisions, into coun4• - - „,,A .1-•T Tri:tr‘ri V It is proposed to group into local associations all subscribing banks located in contiguous territory. All local associations are to be organized into district associations, in each of which shall be located a branch of the National Reserve Association; and the district associations, which shall be so arranged as to include all the territory of the United States, are combined to form the National Reserve Association of the United States. These separate associations are analogous in their organization to tbaserna-vect-in our political divisions, into counties, States, and the United States. Each has distinctive functions quite unlike in their character and each has representative self-government. In the local association the individual bank is the voting unit. A majority of tiosse, without reference to their size or their holdings of stock in the reserve association, elect three-fifths of the directors, and a majority in stock interest elect tWo-fifths. This method of electing directors is, we believe, quite novel in corporate government. It is more democratic in form, with more liberal representation to minorities than any method in general use. It gives an advantage to the smaller banks, which can not only elect a majority of directors in the local associations, but can through these control the management of the branches and of the national organization. FUNCTIONS. The principal function of the local associations is to c.xezeisiii-t-sutUeFitai—gikiesobs guarantee, upon application, the commercial paper of individual banks which may be offered to the branches for rediscount, as provided in section 27 of the bill. The local association may, and in most cases would, require from the bank making the application satisfactory security for the guaranty. Local associations are authorized in serious emergencies to guarantee the direct obligations of subscribing banks with adequate security, in accordance with the provisions of section 28 of the bill. A local association may decline to give the guaranties provided for under either of these sections. Local associations may also, by vote of threefourths of their board of directors and the approval of the National Reserve Association, assume and exercise the powers and functions of a clearing house. They are required also to perform such services in facilitating domestic exchanges as, in the opinion of the National Reserve Association, the public interests may require. 4 "NTJ MONO. SEC. The boards of directors of the district branches, not less than i 2 in number, are elected in the following manner: First, one-half by the local associations, each association acting as a unit without reference to its size or importance; second, one-third by the local associations, each association in this case having a number of votes equal to the number of shares in the National Reserve Association held by the banks composing such association; third, one-sixth are chosen by the directors of the first and second class to represent other than banking interests. ----Each branch shall have a manager, who shall be a resident of the district, appointed from the district by the governor of the National Reserve Association, with the approval of the executive committee of the association and the board of directors of the branch. The manager of the branch is to be ex officio a member of the board of directors and its chairman. The functions of the branch organization are important. First, they hold the cash reserves and the balances of the banks of the district; second, they exorcise the powers of rediscount and discount for banks located in their districts; third, they are required to redeem upon presentation in gold or lawful money the circulating notes of the association, and to distribute such notes to individual banks on application; fourth, they are required by transfers of balances through branches or local associations to facilitate domestic exchanges between different parts of the country. The board of directors of the National Reserve Association is to be elected in the following manner: The bill provides that the entire country shall at first be divided into 15 districts, with a branch in each district. Of the directors of the National Reserve Association, 46 in number, 2 of the first class, who, shall be residents of the district, are to be elected by the directors of each branch. One of the directors elected by each branch must fairly represent the agricultural, commercial, industrial, and other interests of the district, and can not be an officer, nor, while serving, a director of a bank, trust company, insurance company, or other financial institution. Nine directors in addition to the thirty of the first class are to be elected by the branch directors acting through voting representatives, each of whom shall cast a number of votes equal to the number of shares in the National Reserve Association held by the banks in the branch he represents. Not more than one director of this class may be chosen from one district, and this director must be a resident of the district from which he is elected. There are to be seven ex officio members of the board of directors, namely, the governor of the National Reserve Association', who is to be chairman of the board, two deputy governors, the Secretary of the Treasury, the Secretary of Agriculture, the Secretary of Commerce and Labor, and the Comptroller of the Currency. The executive officers of the National Reserve Association shall consist of a governor, two deputy governors, a secretary, and such subordinate officers as may be authorized. The governor is selected by the President of the United States and the deputy governors are elected by the board of directors. The board shall choose from among its number an executive committee, consisting of nine members, of which the governor and the two deputy governors and the Comptroller of the Currency shall be ex officio members. The board shall also elect from among its number a board of examination, of which the Secretary of the Treasury shall be ex officio chairman. This distribution of power and control furnishes the assurance that the general interests of the country and of all communities will be conserved as well as the inter- uvpuLy governors are eiected, by the board of directors. The board shall choose from of among its number an executive committee, consisting two depnine members, of which the governor and the shall uty governors and the Comptroller of the Currency ers. The board shall also elect from be ex officio memb the among its number a board of examination, of which be ex officio chairman. Secretary of the Treasury shall the This distribution of power and control furnishes ry and assurance that the general interests of the count the interof all communities will be conserved as well as Associaests of the shareholders, as the National Reserve of organization, is brought into tion, through this form nt and close relations of responsibility to the Governme alf of the directors the people. The provision that one-h agrielected by the branches shall fairly represent the shall not cultural, commercial, and other interests, and utions, be connected with banks or other financial instit into insures the infusion of representative business men will have every motive to act the governing board, who in the public interest. the assoFurther restraint upon the administration of imposed by the prociation on narrow or selfish lines is rnment vision that four of the highest officials of the Gove board and g are made ex officio members of the controllin t that the governor shall be selected by by the requiremen the President of the United States. ses of In providing for the creation for specific purpo ization it has been the aim this new representative organ its distribution of the Monetary Commission to follow in al structure and to of powers and control our government organizations coordinate independent local and district al cooperathrough an effective central agency for mutu specific function. It is in this respect, as well as in its ve Association tions, that the plan of the National Reser central bank on differs radically from the conception of a es of authority are democratic European lines. Its sourc ing individual and not autocratic. Instead of overshadow its controlling forces are banks, it is their representative; upon and grant individual banks who impose policies powers to its managers. ,•, MONO. SEC. 5 YJ Under the plan submitted by the commis sion, each bank, without reference to the ratio of its ownership in the reserve association, is made the control ling unit in voting power. The National Reserve Association is made the channel through which local banking institutions exercise their federated powers. The organization is not a bank but a cooperative union of all the banks of the country, with very limited and clearly defined functions. It is in effect an evolution of the clearin g-house idea, extended to include an effective central organization. This federation of banks is prohibited from doing a general banking business, and its strictly limited functions are clearly defined. First, it holds the cash reserv es of the banks of the United States with provision for their use only for specific purposes; second, it is grante d the power to issue circulating notes, under strict governmental regulations; third, through the maintenance of its own reserves and the character and extent of its resources it is required to sustain the credit of the banks and of the country under all circumstances. All of its operat ions are confined to or are incidental or collateral to these purposes, the only exception being the transaction of business connected with it as the fiscal agent of the Government of the United States. In times of trouble it takes individual banks from a condition of helpless isolation and dependence and places • them in a position where their integrity and independence is assured. The Reserve Association furnishes to all banks an unfailing source of support in times of need. It does not revolutionize existing institutions; but affords the most effective agency for their protection. It is outside of and supplemental to the existing system and not a competitor in any sense with existing banks. In its ownership and domestic business it is confined strictl y, as we have shown, to banks and the Government. It provides for an equality of privileges and advantages to all banks, great and small, wherever located. Its dominating principle is cooperation and not centralization. Its organization is of a form and character that will effectually prevent the control of its operations by political interests, local or national. For obvious reasons the National Reserve Association is required to keep its assets in liquid form and its rediscounts, discounts, and investments are confined to shorttime paper or Government securities. The National Reserve Association is given ample power to protect its own reserves, in order that it may be able at all times to exercise its most important function that of sustaining the commercial and public credit of the country. For the purpose of strengthening its own reserves it may, first, attract gold from other countries by an advance in its discount rate; second, purchase and borrow gold and give security for its loans, including the hypothecation of Government bonds; third, by its transactions in foreign bills of exchange. Short-time foreign bills have been found to be one of the most effective means of replenishing a gold supply and of preventing the exportation of gold at critical times. NOTE ISSUE'S. That our present system of bank-note issues based upon Government bonds is defective and that a change in the manner and character of issues must Ja_ke place at an early date is admitted on every hand.: This change must take place in the near future from natural causes, as there are now outstanding less than two hundred millions of United States bonds with the circulation privilege attached not owned by the hankg 1,,.1.1 4 • „,„.., NOTE ISSUES. That our present system of bank-note issues based upon Government bonds is defective and that a change in the manner and character of issues must _take place at an early date is admitted on every hand.,; This change must take place in the near future from natural causes, as there — are now outstanding less than two hundred millions of United States bonds with the circulation privilege attached not owned by the banks and held for circulation purposes. These bonds are largely of a class which it would not be profitable for the banks to buy as a basis for circulation, and Congress, at its last session, inaugurated the policy of issuing bonds without the circulation privilege. It must' be,evident from these facts that to hnswer the increasing demands of the country for currency the adoption of,sortie other_basis for notsLissues will soigLiv.aurLuirv,„-a i Our bond-secured currency has all the qualities of ultimate safety, and its prompt redemption is guaranteed by the United States, but it is not, as our experience has amply shown, responsive, either in expansion or contraCtion, to the ever-changing conditions and demands of business. We propose that while the national banks shall have the right to retain their existing circulation all new issues shall be made by the National Reserve Association. We propose that the authority now exercised by seven or eight thousand national banks shall be vested in this cooperative association of all the banks. We propose to relieve the United States from the obligation to redeem all outstanding national-bank notes based on bonds which are taken over by the reserve association. The association is required to redeem at any of its branches, upon presentation, such notes and all notes of its own issue in gold or its equivalent. All outstanding notes must be covered by gold reserves, as required by section 41 of the bill, or by United States bonds or by commercial paper, which must conform to the standard established in the bill. The reserve association is required to maintain a reserve of not less than so per cent against all demand liabilities, including all new issues of notes, as well as those issued in place of the outstanding national-hank notes. The notes constitute a first lien upon all the assets of the reserve association, including its holdings of Government bonds. MONO. SEC. Y6 J As safeguards against undue inflation of note issues it is proposed: First, that no notes shall be issued whenever 3 and so long as the gold cover falls below 33,: per cent. the amount Second, that a graduated tax shall be paid on of deficiency whenever and so long as the reserve against all liabilities falls below 50 per cent. For each zY, per cent of such deficiency of reserve a tax of i34 per cent is levied. To illustrate, with the reserves at 40 per cent it per cent on would require the payment of a tax of excessive note issues. Third, by the provision that whenever notes are issued in excess of :i.19oo,000,00o, and such excess issue is not fully covered by gold or other lawful per cent shall be levied on the excess. money, a tax of We have assumed in fixing the terms of this limitation that the normal amount of bank notes to meet business requirements is approximately the amount now outstanding—S700,00o,000 and we have allowed for the natural expansion of S200,000,000 for seasonal or crop-moving demands. Notes issued in excess of twelve hundred million dollars, not fully covered by gold or lawful money, shall pay a tax of 5 per cent. It will be seen that we have provided three effective limitations upon the inflation of note issues. We have imposed upon the National Reserve Association the duty of maintaining at all times a parity in value of its notes with the gold standard established by the act of March 14, 1900. The imposition of this duty will, in our opinion, accompanied as it is by ample authority to protect its gold reserves in the manner we have elsewhere explained, effectively remove for all time the possibility of a suspension of gold payments by the association or by the Treasury. It has been insisted in some quarters that we should provide that all notes should be redeemed and all reserves held in gold, and gold alone. Th gold standard act of 1900 settled finally—at once and forever, in our opinion— the question of the standard of value in this country. Prior to that time we had made silver certificates available for the reserves of national banks. By the act of , 1900 we made gold certificates also available as reserve money. Standard silver dollars and United States notes are legal tender and available for this purpose. Every dollar of currency which the United States has issued, or for which it is responsible, is to-day of equal value with the gold dollar. We are pecieet4y certain that the American people will never consent to any change in this respect. Practically all the silver certificates are now in circulation in the form of notes in small denominations. Gold certificates are certainly equal to gold. There can be no fear, we assume, that the Treasury of the United States will not honestly hold the dollars which are pledged for gold certificates. The system of note issue we propose will not meet the approval of those who believe that the Government of the United States should retain to itself the right of note issue and should not accord this important privilege to banks. This privilege is given to the principal financial agent of the Government and is exercised under Government control and supervision, with restrictions and limitations of such a character as will, in our judgment, make inflation impossible. By the provisions of the bill all profits which may arise from note issues will be paid to to the United States. While it may be contended that the issue of money of • any kind is a distinctive function of sovereign power, the exercise of this authority directly by governments has, as shown by the experience of the world, inevitably led to disastrous results. We have provided, by the system proposed, for the *.-- banks. This privilege is given to the principal financial agent of the Government and is exercised under Govern-, ment control and supervision, with restrictions and limitations of such a character as will, in our judgment, make inflation impossible. By the provisions of the bill all profits which may arise from note issues will be paid to to the United States. While it may be contended that the issue of money of • any kind is a distinctive function of sovereign power, the exercise of this authority directly by governments has, as shown by the experience of the world, inevitably led to disastrous results. We have provided, by the system proposed, for the ultimate security of the notes through a pledge of bonds of the United States, gold, commercial paper, and the credit and assets of the National Reserve Association, and have insured immediate convertibility into gold or its equivalent upon presentation at any branch of the association. In fact, we have adopted every provision that the experience of the world has shown to be necessary in establishing a basis for sound currency. We have provided that the reserve association, through its branches, shall at once upon application, and without charge for transportation, forward the circulating notes of the association to any subscribing bank against its credit balance. We assume that there will be but few banks in the United States—certainly none in central communities—that will be more than 24 hours away from a positive source of supply of notes for use for crop moving or other purposes. With thiS provision in operation, there can be no Currency famine in any section of the cottntry. GOVERNMENT BONDS. One of the most difficult problems wi.11 which the commission had to deal was the question of what provision should he made for the outstanding 2 per cent bonds owned by national banks held by the Treasury as a basis for their circulating notes. The recent sales of the 3 per cent bonds issued for Panama Canal construciion and the market prices of these securities establish the fact that the credit of the United States is now approximately on a 3 per cent basis. This places the credit of the United States, as evidenced by the selling price of its obligations, above that of any of the other commercial nations. If the credit of the country is to be maintained at this point, as it seems likely that it may be, 2 per cent bonds, without the ciren-rating privilege, would have a market value approximating 67, and any legislation preventing their further use as a basis for bank circulation would entail enormous losses upon the.banks. When we consider that the refunding act providing for the issue'of these 2 per cent bonds practically compelled the banks to purchase them, it would be manifestly unfair for the United States to impose upon the banks the severe losses which would follow their disuse for circulation purposes. MN MONO. SEC. Y7J These equitable considerations will undoubtedly have weight with the Congress, but it is equally bound to guard against any loss of revenue or credit that would be involved in refunding these bonds into threes. We therefore propose that the National Reserve Association shall purchase, at not less than par and interest, the 2 per cent bonds held by national banks, and take over with the purchase the right to issue notes to an equivalent amount to the bank notes now outstanding, such new notes to be issued and redeemed in the manner elsewhere provided. It is proposed that the Secretary of the Treasury shall, upon application of the reserve association, exchange the 2 per cent bonds purchased for 3 per cent bonds of the United States payable after 50 years. The National Reserve Association is required to hold such bonds during the period of its corporate existence, subject, however, to a right to sell at the option of the Government not more than 550,000,000 in any one year after five years. Tl-e reserve association is, however, required to pay an annual franchise tax equal to i;E per cent on all the bonds so purchased and exchanged. The effect of these provisions, taken together, is that the United States will be able to fund seven-ninths of the national debt at a net interest charge of per cent, and the national banks will be enabled to avoid the risks of being obliged to sell their bonds at a great sacrifice. This plan seems to the commission to be equitable alike to the Government and to the national banks, and places upon the National Reserve Association the obligation to save both parties from the embarrassment and losses which might arise from any other disposition of this mass of Government securities. We have made no provision for the purchase of 2 per cent bonds not held by national banks as a basis for circulation. The amount of such bonds outstanding at the present time is about S4o,000,000, and as the national banks have one year after the organization of the reserve • association within which they can sell them at par to the association, it is apparent that the holders of these outstanding bonds would have ample time to dispose of their holdings at par to national banks. REDISCOUNTS. Section 39 of the bill provides that the deposit balance of any subscribing bank in the National Reserve Association and any notes of the National Reserve Association which it holds may be counted as a part of its required reserves. In order to protect or replenish these reserves and increase the loaning power of individual banks the National Reserve Association is authorized, through its branches, to rediscount commercial paper for subscribing banks. Commercial paper that can be used for this purpose is defined in the bill as notes and bills of exchange issued or drawn for agricultural, industrial, or commercial purposes, and not including notes or bills issued or drawn for the purpose of carrying stocks, bonds, or other investment securities. Commercial paper of this description having not more than 28 days to run may be discounted for individual banks. If having more than 28 days and not exceeding 90 days to run, the rediscount may be made for individual. banks, with the guaranty of the local association. The National Reserve Association may discount the direct obligations of individual banks, with the guaranty of the local association, amply secured by a pledge of collaterals of unquestioned value, whenever, in the opinion of the governor of the association and the exe- purposes, and not including notes or bills issued or drawn for the purpose of carrying stocks, bonds, or other investment securities. Commercial paper of this description having not more than 28 days to run may be discounted for individual banks. If having more than 28 days and not exceeding 90 days to run, the rediscount may be made for individual. banks, with the guaranty of the local association. The National Reserve Association may discount the direct obligations of individual banks, with the guaranty of the local association, amply secured by a pledge of collaterals of unquestioned value, whenever, in the opinion of the governor of the association and the executive committee of the reserve association, concurred in by the Secretary of the Treasury, a serious emergency exists or the public interests require. RATES OF DISCOUNT. The bill provides that the National Reserve Association shall fix its rates of discount from time to time, which, when fixed, shall be published, and shall be uniform throughout the United States. In view of the great disparity which now exists in discount rates in different sections of the country, serious doubts have been expressed as to whether this provision could be made effective. It can not be expected that an equality of com. mercial rates under all conditions and for all classes of can be secured at once by such legislation. business With this provision adopted the tendency would be toward a gradual equalization of rates at all points. It is apparent to the commission that we must provide that all the advantages and benefits which may accrue from the organization of the National Reserve Association, including an absolute uniformity in its discount rates„ . should be :extended alike to every bank in every section. The greater uniformity and steadiness of rates and better opportunities of employment of capital which should follow the adoption of the legislation we propose will prove, we believe, an advantage to the banks of the United States if we can judge by the experience of the joint-stock banks of other countries. These banks in France, England, and Germany, with bank rates much lower than current commercial rates in this country and an approximate equality of other rates, are eaabled, on account of the advantages to which we have referred, to pay dividends that are at least equal to those paid by the banks of the United States. If bankers can he assured of constant employment of loanable funds at steady rates they could accept lower rates in many cases than those which are now current. An approximate equalization of rates would be of great benefit to the people in sections of the country ‘vhere productive forces are only partially developed. This process of equalization has already commenced, and we are fast becoming a homogeneous people in our industries and operations, and we look forward to the time when, with the adoption of the provisions we have suggested, the farmer or the planter of the South or the farmer or miner of our intermountain States \vill be able, with the same class of credit or securities, o obtain the money requisite for his purposes at as low a rate as that current in other sections for Si nilar loans. YJ MONO., SEC: RE.‘1,-EsTATE f.o.\ Ns. Section 4o provides that national banks ma' loan nbt more than 30 per cent of their time deposits upon improve d and unencumbered real estat:, such loans not to exceed so per cent of the actual value of the property; which property shall he situated in the vicinity or in the territory directly tributary to the bank. This - privilege is not extended to banks acting as reserve agents for other banks or trust companies. EXAMINATIONS AND REPORTS. We have provided as far as possible for a uniformity of requirements with regard to capitalization, reserves, examinations, and reports of all banks and trust companies who shall be members of the association. With reference to reserves, the bill provides that the same percentage of reserves shall be required of all subscribing banks in the same locality on demand deposits. Provision is made for a reserve upon time deposits, which are defined in section 39, and all Natiotial and State banks and trust companies must keep the percentage of reserve on time deposit therein r:quired. Section 45, 46, and 47 of the proposed bill contain requiiteMents:for e-xatninatiOns'and reports. that are applicable alike to all subscribing institutions,, whether operating under National or State charters. The reports of National bank examiners for national banks and State bank examiners for State banks and trust companies are made. available and acceptable whenever possible for the. use of the National Reserve Association, provided that the standard of such examinations shall in all cases meet the requirements prescribed by the association. The association is.also given the right,'at any time, to examine or cause to be examined by it own representatives any subscribing bank. Through these provisions it will be possible to avoid numerous and expensive duplications of examination, which are not only troublesome butt unnecessary. All sub4ribing banks are required, under regulations to be prescribed, to make reports of their condition monthly, or oftener, showing the principal items of their balance sheets. The publicity of conditions secured by the required ex.aminations and reports will prove, as a basis of public confidence, a great advantage to all well-managed institutions. We are living in an age when publicity, v‘ . reference to the management and condition of, public and quasi public institutions, is everywhere demanded. Publicity with reference to the condition of financial institutions has vital interest for the great mass of our people. EARNINGS AND DIVIDENDS. While the shares in the National Reserve Association are owned, and can only be owned, by the banks who' furnish all of its capital, the fact that important privileges of a public character are granted to the association led the commission to proyi:lethat its not earnings, after the payment of a dividend not exceeding 5 per cent to the shareholders, and the aetumulation of a surplus not exceeding 20 per cent of the paid-in capital should be paierto the, Government in the form of taxes upon its franchise. RESERVES. Perhaps the most important defect in our monetary system is to be found in its unscientific treatment of the. reserves of individual banks. We have described the character of this defect, and, in our opinion, the provi„inn... (If the nronnsed bill will furnish an effective and commission to provide•that its not earnings, after the payment of a dividend not exceeding 5 pep cent to the shareholders, and the aetumulation of a surplus not exceeding . 20 per cent of.the paid-in capital should be .pairiei the, franchise. Government in the form of taxes upon its RESERVES. Perhaps the most important defect in our monetary system is to be found in its unscientific treatment of the. reserves of individual banks. We have described the character of this defect, and, in our opinion, the provisions of the proposed bill will furnish an effective and logical remedy. We propose that all or any portion of* the cash reserves of the banks which are now required .by 'law to be held in their vaults rimy be deposited with the reserve association, and when so deposited shall be cotinted' as a part of their legal reserve. This will result in the transfer of money deprived of potency' and defensive power to a condition of vitality and effectiveness. It is proposed that the reserves thus concentrated 'Ay be used by the reserve association, through its branches, for the assistance and support of any bank or section when needed. The reserves of any subscribing bank can be . replenished at any time by th, discount or rediscount of .! commercial paper in the manner elsewhere described.. This involves the use of assets which otherwise would not: be available for this purpose to strengthen, whenevernecessary, the loanittg power of the bank. This Will enable the banks to adopt the policy of providing that simultaneous strengthening of reserves and liberal extension of credits which has been successful in every instance for half a century in the prevention of panics in the commercial nations of Europe. In those countries there is no suspension or paralysis of accommodation to customers, but rates of discount are at times increased concurrently to a very high figure. The plan provides not only for a concentration and mobilization of cash reserves, but for a decentralization of control by means of the powers over distribution granted to local and district associations. •i • YJ 1MONO. SEQ.. BROADER DISC()UNT MARKET. The eonnnissiun believe that the various provisions of . the bill for establishing a broader discount market will prove of great advantage to the- people of the entire country. The provisions upon which we rely. to accomplish this purpose are, first, the establishment of a standard of commercial paper issued for agricultural and other purposes, which is made available for rediscount at the branches of the reserve association. The establishment of this standard will create a strong tendency to make the instruments of commercial credit conform to these requirements; second, it allows national hanks to the extent of one-half of their capital to accept properly secured drafts drawn upon them, drawn perhaps with documents attached,: against cotton, wheat, or other products in transit or in warehouse; third, it gives a new and wider market to domestic bills of exchange drawn on foreign countries and based on transactions in American products, or to pay for our purchases abroad; fourth, it authorizes the National Reserve Association to buy and sell in foreign countries prime hills of exchange, many of which would be of American. origin. These various proyisioh give a national and international currency to notes, acceptinces, and bills.of exchange based on the agricultural and other products of the United States. • The methods by which our domestic and international credit operations are now conducted are crude, expensive, and unworthy of intelligent people. The 'annual value of the products of our industries is estimated at thirty-five thousand million dollars. If to this vast sum is added the cost of transportation and distribution, we can realize that the movements of these products through various stages from the producer to the consumer requires the use of an enormous amount of credit and cash. To form a greater estimate of the magnitude of our credit structure, we should add our accumulations of wealth and capital to the sums used in connection with our foreign trade. It is the function of a sound monetary system to take care of these vast operations without friction in such a manner as will promote the prosperity of a great people. The unimportant part which our banks and bankers take in the financing of our foreign trade is disgraceful to a progressive nation. We export of domestic products two thousand million dolraA annually,' and our annual imports amount to fifteen hundred million dollars. Very much the larger portion of this international trade is financed by and pays tribute to foreign bankers. Take one illustration: Last year we exported about six hundred and fifty million dollars in value of cotton; it was largely financed by 6o or 90 days bills drawn on Liverpool, London, Paris, or Berlin. This business was practically all done by foreign banks or bankers. The banks in the South and perhaps in New York were enabled to collect a commission on a part of the business en route, but the lion's share of the profits accruing from the transactions, millions of dollars in amount, were paid to European financiers, and this large sum was in the last analysis paid by the cotton planter.. The disabilities from which our producers suffer in our foreign trade apply largely to domestic transactions. The man who raises cotton in Mississippi or cattle in Texas, or the farmer who raises wheat in the Northwest can not usually find a market for his obligations in Chicago, New York, or London, because the bankers of these cities have no knowledge of his character and responsibility. We propose to remedy this condition in large part by the use of the standardized commercial paper we have described, and also by the use of acceptances of local banks of drafts drawn by a farmer or planter whose responsibility is known to the bank and who may have deposited with it security on his products. This commercial paper and the acceptances would have currency in any market iti the world and could be promptly transformed into 11(1e available for increasing the loaning S and 1, power of a depositing batik at any time. • MN ._. • . I i) -, i 40 ...._ ......_ - al )• 1.1-1, ,; P. ) )41 ..-Wp n" , t .J . • 1 1.1 ,,..,1 0,- w-,.., :1 ,- 7 , ...'y 1-:, 1 11 1 , 1, vi, ,S t "/AA 0 -- 13 , 4 9 P"'"'"?:' -1"•---A P 0-12v•S /• 2 : / 4i ,7" , 47 7 0,I 1 ( ', '021 t:iii) fr-vvyrra_rAP i ,14 ‘, ? , . / -irr-tor-rperi 0s -,--,--x c 3 , , cy ,/ I 9 1-4- fyi-ri-o eye ••..;?, -6 -19-I-191 '427v •-• -727-17)./ 4 ? ,-0--1P# ,„7IzsinIn/ . 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' , l-lr-V-1, Itor -C- to. eft "i4 0 4 . 74 re..--41K.X t4,1,1-Ja.' 40 ,et et tfr . r, -. -e ...c.... -AA 1 )1e).. Mti7tAc r. 0 6-c- tyt-et...IA-. • era0 - • a l , Art-ti. /10. , 4.• 9 1,... -4tiv,77:: . i et ii.A. c L ...,,_ datti-c,, kr _ _,. 6- _ 4..,_),.....), J, , it:A.: ,1--friva..,', (1,14,„, c„,*,,,,, C 4 0-- t%/Li-.cc., %e, t i% c (De......i - )1.41A -1 ) . , ./,,4tl' , : ,r.• , ;; , t r,. t,.,., LA '77t_rt.--4..... c)N.Q.At-f- LE? I r.,a ' ' 1 -e SI ev. 41Y- 4 '06%.44 r •14 , c e' ( "AALIP . 11 01 1 .. 1 .11.11MWOMOIMIA $.).- '.--3% k ) \ O'•i 1 t 111.111111111.11111111111& I . kJ . 4, Cts—rcl,*; „ Cir”) rk. P.,4•046.,,-.41141.4.004.4.1.10041#.4.4. • ry— ti—ve aPc,f) 1,11 1 :7 U.„ APPENDIX A. NUMBER AND CAPITAL OF STATE BANKS AND TRUST COMPANIES CLASSIFIED ACCORDING TO POPULATION OF LOCALITIES. [Compiled from The Bankers' Directory.) New England States. Num, ber of banks. Amount of capital. Eastern States. Number of banks. Amount of capital. Southern States. Numbar of banks. Amount of capital. Middle States. Numbet of banks. Amount of capital. Western States. Num, ,n1of. 113er a Amount of capita1. Pacific States. Num, i er1:Ls. t ) n . Amount of capital. Island possessions. Numbet of banks. Total United States. Numher of banks. Amount of capital. Amount of capital. STATE BANKS. (Including stock savings banks.) POPULATION 3,000 AND LESS. It.inks of and above $25,000 l,c,s than S.25,000 6 z $254,500 6.000 170 49 2 60.644 33 II $6.567,090 1,183 596,880 1.964 542,28 9,395 24,624,718 1,829 2,389 $ 0,476,050 6 30.358.583 495 1,691 $14,618,000 399 20,257,865 256 $15,622,461 3,218,869 4,082 6,350 $139,827,49e 79,062,915 10,936.000 5,973,000 32 81 f,783,000 1,686,350 63 65 7,716,600 1,748.800 478 34,100,40c 473 14,485,339 419 696 58,932.944 28,593,94c 209 402 1450420003; 26.086,913 5,188 7,921 378,280,877 148,229,107 200 110 12,614,410 x8x 8o 16,371,675 432 81,140,644 11,878,6i5 POPULATION OVER 3,000 TO 6,000. , I ,,ntks of and above $5o,000.. IA,: than $50,000 2,618,500 285,000 182 x82 11,046,300 x68 4.731,545 132 POPULATION OVER 6,000 TO 50,000. i. It inks of and above $100,000 than $roo,000 5 4 1,580,909 171,400 40 4,163,100 38 0 1,941,70 8 5,490,000 420,000 78 69 105 218 14.080,800 183 9,380,042 279 48,865,300 /9 5.776.125 94 5,5691 250 5,901027 54 143 24,146,225 11,007,900 II 90 1,310,000 3,132,000 72 67 12,309,410 2.960,898 3 $1,342,500 1,566,000 49 54 39.403,666z 3.541,011 500,000 38 POPULATION OVER 50,000. Ranks of and above $200,000 1.es, than $2oo,000 4 Total State banks conforming to national bank standards as regards capital 2. Total State banks not so conforming 09 11 321 167 62,213.990 8.599,705 1,489 2,458 32 3,563,600 71 $‘574,550 4 0 '7,325.4 9 658.044 85.419 70 , 5,240 98 7.985,745 44,637,432 45,591,821 8,882,650 1,234 2,943 141,150.096 56.222,133 538 1,900 17,711,000 26,642.215 442 75,052.137 11.469,578 28 6 1,497,500 80,000 17 24 482,000 340.200 22 6 916,760 95,600 583 4 1,842,500 TRUST COMPANIES. POPULATION 3,000 AND LESS. Banks of and above $25,000 L.,,s than $25,000 30 T.580,000 , POPULATION OVER 3,000 TO 6,000. flanks of and above $5o,000 than $50.000 15 920,000 4 100,000 49 4 6.370.625' 69 5.041.450 35 100,50e: 41 922,430 14 2,439,600 420,000 8 12 600,000 271,809 5 5 10200,000 125,000 1,213,890 18 22 4,083,300 1,058,100 4,450.000 1.956,500 38 27 20.060,380 2,239,055 83 6o 1 26,060,440 3,517,7551 4 POPULATION OVER 6,000 TO 50,000. Banks of and above Illoo,000 • I.-,than $100,000 25 27 153 3,375,o00 1.280.4003 29.009.625 120,000 107 100 229 20.7951. 4, 222, 785 108 87 19,652,700 3,926,000 18 3' 3,225.000 POPULATION OVER 50,000. 'tanks of and above $2oo,000 I than $200,000 1. Total trust companies conforming to national bank standards as regard capital .. Total trust companies not so conforming 16717-II. To face page 50. 1 , 48 18 118 49 27,716,100 1.740.057 33.591.100 3.120,457 205 112 439 123 183.698.394 12,655.826 222.642.244 ;2,961,245 63 99 310 310 1.4540300 7.550.982 0,865.319 .3,681,,ur 1/7 59 288 ,166 . 75,6 97,833i 4.596,600 99,187,633 9,022,600' 11 29 54 9 6 8.757.066 3,78 8,390 3 1 1,000,000 57,500. 271 482 1,592,459 1,939,230 344 3 1 345,077,007 30,739,020 1,000,000 1,295 455,203,736 57.500 805 46,149,384 Work of the National Citizens' League for Endorsement of the Principles of Monetary Reform, Jan.1v11-Oct.,113. Shortly after the Washington meeting of the National Boar(', of Trade, Yr. Storrow, Mr. Rueh and Mt. Warburg proceeded to Chicago in order to take the necessary steps fcr the organization cf te Citizens' League, with which they had been charged. Some prelim- inary letters had been written to Chicago financial and business leaders, and on April 25, 1J11, the comnittee had its first meeting with ; some of these Chicae c leaders, which seemed to develop intc a pronounced frost. When things locked desperate, Mr. Harry A. Wheeler. c member of the Chicago group, rose and said he would do sme telephoning. After a. while he returned and said that if after lunch they would reconvene he would promise them a represenative meeting composed of the right people. After a luncheon at the Uommercial Club, at which a large nJm- ber of Chicago leaders were present, and which 7,1w. Warburg addresset, t. :]ey met adain, unC_ this Lie,e secureu full success. . The Chicago hosts promised to take the matter in hand en0 the League was bcrn then and there. Preliminary organization took):daae *.Ta.y 11 and final organizaticn June E. The question scon arose as to how to secure the funds required for sc vast an undertaking. The plan contemplated that local committee memberships in the League should be started all ever the country; that an educational campaign cn the largest scale should be undertaken, involving the writing of pamphlets and the furnishing of a contant stream of lierattire for the daily press and weeklies. Mr. Jam es fl. Farwell was chosen as the head of the League, but it took quite a while to decide upon the executive head. consultatione were had with enator Aldrich, and finally Professor J. Laurence Laughlin cf the Univ ersity of Chicago was secured to undertake the task, kind asecciated with him as expert in publicity Mr. A.D.Welton. In N.Y. the special comittee was under Mr. I.T.Bush. Cooperation between Chicago and New York proved to be a very hard thing to bring about. Chicago had been picked as the head office of t.e League because it was obvious that they could not secure any hearing on the part of the country at large if the doctrine was to . come from New York. The country as a whole had to get behind the plan; and New York had to stand in the background if the battle was to be won. However, in order to raise the funds it was necessary to draw heavily on New York, while at the same time at all hazards a prepcnde- ance of contributions from New York was to be avoided lest the charge might be raised in case of a Congressional investigation, which was bound to follow, that the whole League was being financed by the Money Trust. For this same reason it was necessary, that the membership should be cne of imposing numbers, even thoughthee memberships themselves might only contribute fees cf negligible importance. The New York banks responded sfalendidly with a full quota; but it was more difficult to raise the proportionate share in cities outside N.Y., although it, too, finally ;as accomplished. Am amount of cver #800,000 was rats- ed and pinced in the hands of the Chicago committee. The services of quite a number of econoticts were secured, some because the promoters of the League were confident that they were in sympathy with the principles for which the League was fighting; other: were retained because it gave the League an oportunity of educatirt.; them. As always in national organizations, some districts worke(3 extra- ordinarily well, others extraordinarily poorly. On the whole the inter "44)4 'Mew. -11tr , , iP 71 - y)27 75 "di' • 7" IP' - Y1 "Z-z/ j 1 ao--)4,---1--d- P 1 1 4 , 7'7 '64 / j 077 7 ) 1 /V _ _fW \f/ ztz G. RUSSELL LEONARD SHORTHAND REPORTER. NOTARY' 71S-731 CHICAGO OPERA MOUSE BLOCK CHICAGO IP G. RUSSELL LEONARD SHORTHAND REPORTER 727-733 CHICAGO OPERA HOUSE BLOCK CHICAGO 1 YR. HERBERT D. MILES: Mr. Chairman and Gentlemen: When I heard those two lo-ad crashes this afternoon it occurred to me that they symliolized the loud crash of the Aldrich afterplan that Mr. Frame announced this morning, and this noon when the Gentleman from Missouri spoke. While of course that nlan is ,,ot perfection, and a will undoubtedly be modified, either a Democratic or Republican congress will ementually pass something of that nature, I feel that in these demolishments of it there is a lack of understanding of international finance, and international ebb and flow. We get sometimes a cer- G. RUSSELL tain erroneous view caused by looking at the subject only from a home standpoint. Vr. Frame questioned first the desirability of local associations, then the desirability of the fifteen branches, then the desirability of time acceptances, and then the desirability of the Whole thing except in times of stress. It is impossible not to make a pun, and say he left nothing but the frame." It is a good deal like living in a tent instead of living in a first class building, and having a varied, temporary, unstable sort of organization, Which would not he of any use in time of stress. The gentleman from Missouri, if I understood him correctly, desired that the government should enter the 2 banking field in the purchase and sale of commercial paper. Now of course the next step to the purchase and sale of commercial paper is,in case of some of it not being paidjtaking on the groceries or drygoods or what not I that it represents. That is socialism, I think, for the 7overnment to take on the grocery and dry,7oods business when the paper is not met. ernment can enter into that. I do not think the gov- Btet I would respectfully say that the gentleman from Missouri got the cart before the horse when he talked about the government control of the finances of the country being fundamental. G. RUSSELL the opposite. It is just We are the laughinr stock of Europe be, cause of our gold reserve being held in our treasury, and being absolutely paralyzed for use when it is needed, as it was in 1907. I think that the"fundamentai'is,that the /Told reserve of the country be protected, held by the banking interests of the country, and I think that the banking interests of the country are as honest and as capable in this country as they are in any country of Europe where the sane thing is done. I think that it is a mistake to talk so much about control. I can not under- stand just what control means in this case. I know what it means in a railroad, I know what it means in a business, but J. P. Morgan himself could not borrow five cents from the National Reserve Association. They absolutely can not 3 loan one penny to anybody. business. They are not in the lending They buy and sell commercial paper with or without the guaranty of the local association, according to its terms. There is a clause where under specified emergencies they can lend money. Of course they could .74/ , always lend wie4 gold. But in that specified case they could loan on seventy-five per cent, of the collateral; it has to have the approval of the Secretary of the Treas• ury, and there are a great many other restrictions that hedge it in that way, and that is the only case in which the Reserve Association can lend one penny to fiTody. a G. RUSSELL Now if they can not lend a penny to anybody,'t 'in the lh world would anybody care about being in control fqMR. FOLK: Mr. Chairnian and Gentlemen: Pardon me just one moment, Mr. Kinley and the gentleman who speaks of my suggestion as beinr; aocialistic in that it would take the government into the b;ankinw business. correct. I think he is in- His idea is for the banks to take all the pow- ers of government insofar as finance is concerned and administer those powers themselves. My idea is simply that the banks should control, not the government having control; but that the government should control those things that pertain to the government. For instance you would have this Yational Reserve Association control antirely all the banks by the Alyad- 4 cal agency of the government. What is the objection to allowing the government to appoint the directors of tne National Reserve Association, - a national department? Why should any one oppose that idea? It must be that the be and men appointe, wili/derriocratic,/they wilj administer the :l affairs of this Association for the best interests of the entire country. Now most of them will be bankers. want to say a word as to that. I There has been some sug- gestion made here as to the character of the banking business and those engaged in it. It has been my exper- ience that there is no class of men in this country more R public minded, of hii.'her ideals, than the bankers of this , nation. I would be willing to trust them, but I would be unwilling to trust any class of men with functions that pertain to the government. Does the gentleman say it is socialism to allow the banks to go to the banks of the National Reserve Association and get money on securities? Now a bank that has security can go to a bank and get money. Is that social ism? If so we have already gone into socialism, and un- der the authority of "r. Aldrich, the father of tne bill. YR. MILES: I suggested that it was socialism for the government to buy and sell paper, to go into business, as it were, and have to take on stocks ')f groceries and dryqoods and what not when t4ay could not pay. I think 5, if you are willing so far to concede that you are wrong in having the government go into the banking business, the matter is not of sup-eme importance whether the government, so called, appoints the directors of the Reserve Association or not. I think, however, that there is a much larger chance for wire pulling where the government appoints four pc five, or whatever the number may be, of directors, and especially is it important, because 727-733 CHICAGO OPERA HOUSE BLOCK bankers must train all their lives to handle the business right. There area great :nany small men in this country, and a great many small men in i*:olitics, as you know, and it is rather a dangerous thing to have wire pulling in an or,ranization. R. FOLK: Let me correct you a moment just in one plane. I did not say I was wrong about the government going into the banking business, because I at no time suggested that the government cfo into the banking business. The suggestion I made is that the President appoint the directors of the national department of finance. It is not contemplated that the qovernment shall ,q,c) into the banking business except to the extent of discounting for the banks certain classes of securities, and the Aldrich plan contemplates that. MR. MILES: They have got to purchase those securities at a discount. It is essentially a purchase. YR. FOLK: That is imfrate, ial. TO COAX THE A lED CASH. 'he Postal Saila a Bank Urged an the Sohalo of a Problem. To The...914: I do not remember to have seen a str nger argument in favor of the postal bank than the news item in The Star yesterday under the headin "Uncle Sam's Private Banker." Certain y for every person who will purchase a postoffice order as a method of security for his funds, there must be a dozen others who simply hoard their money by hiding it in out-of-the-way places, etc. Now it is to attract this money and this money alone that the postal savings bank is advocated. It is not the purpose to pa more than one-half the rate of interest paid by privately managed banks, so that in no sense will the postal bank or depository be a competitor of our present banks. In fact it will be an aid rather than otherwise as it is intended to redeposit postal ,avings in banks in the immediate vicinity of ttiostoffice whence they arc received. A. CA NIPBELL I • -.e I r jtrefrele: • zz-zge44„,i0 , , „ e ,,,, ,Z,t ae,d 1 4r2e At,1/62,6eXI eeffekkt, ifa--sz i -)--e- ‘ ., e(,4- a--e_te, __e_r a4re. Gare, 424 a z d?X -1/•e--/4-2 el-dce --4r‘ f 4ee 2/,-„, I have no printed matter which would throw light upon our Branch methods, but I enclose • copy of this Bank's last Annual Report, which will show you the extent to Which we have opened Branches. There are three ways in which our business has been extended: (1) By the opening of Branches. (2) By the opening of Sub-brandhes which, in the course of time are often converted into full Branches. (3) By the aoquisition of the business of other Banks. Referring to these in order: (1) We are constantly on the look out for favorable opportuni- ties of opening new branches. We have now opened several offices in the commercial centre of Liverpool, and it is worth noting that the opening of an office even within a very few hundred yards of the Road Office of the Bank has brought um a great deal of froth business, very largely of the borrowing kind, not so much as the depositing kind. In the Shopping centre of the City we have also one or two breathes, and we find that these are not only used by tradesmen in the immediate neighbourhood, but by ladies and other residents in the suburbs of Liverpool Who find it convenient to be able to draw money When they come into the City to Wasp. The greater number of our branches are placed in the suburbs of Liverpool, and our general experience is that they do best when they are placed in main thoroughfares Which are shopping centres. By opening branches in Liverpool alone, we have got together deposits and credit balances on current a000unts amounting to about Si million sterling. We have also opened brothen at some distance from Liverpool, and we find that although these grow satisfactorily, they do not grow se quickly as those in Liverpool itself. Taking all the branches, however, that have been opened as entirely new Offices, we are very well satisfied with the growth of the business. 2 . (2) Sub-branches are frequently opened in our country districts at small centres Where it would not pay to open a branch every day, or to keep a permanent staff. We lease a room and open on two or three days a week, When the business is attended to by Clerks from the parent branch. The only book kept at the Subbranch is a Gash book - all the ledger work being done at the main branch. In course of time the business of the Sub-branch may grow sufficiently to justify its conversion into a main branch, When it is opened daily under a separate Manager and Staff. (3) An important method of development among Brigl ish Banks generally is to acquire the existing business of anoth er Bank. In this way we have taken over a private Banki ng business not a hundred yards from our Head Office, which has always had about 2* millions of creditor balances belonging to depositors or current account customers, and which, to a large exten t, employs this money in loans to the business community. We have also taken over a Joint Stock Bank Which had one office not far from this office, and we absorbed that business into our Head Office. We have taken over a private Bank in the Lake District, which you will see described in our Report as our Northern Distr ict, and we last year took over a Joint Stook Bank on the borders of Lancashire and Yorkshire, which you will see described as our Craven Bank District. In all these amalgamations we hardly lost an accou nt, and the effect of the amalgamation has always been to stren gthen, and generally further develop the business taken over. Most Banks in Angland, When they absorb another business, treat the Offices of the business taken over exactly like fresh branc hes of their own. For various reasons we have found it desirable to keep the country businesses Which we have purdhasod, as distinct districts, with a District General Manager at the head of each, but this introduces a little complication in the eentrel of the districts. The method of controlling the branches is as follows: Bach branch has a Manager and a clerical staff. The Junior members of the staff are frequently changed, but the Managers and the Senior members oannot be transferred from Offic e to Office so 3. often, because this would interfere with the connections of the branch. Ranh Branch Manager has accorded to him power to make advances to customers up to a certain specified limit in any one case (R400 - £500 - R1,000). reduced or taken away. If he abuses this power it is Advances beyond those limits have to be sanctioned by Head Office, Which is done by sending to Head Office an application form containing full particulars of the customer, the security and other details connected with the proposed advance. A proper record in kept at Head Office, and at the branch, of all advances sanctioned or declined, and the Inspectors' Department at Head Office keeps a close watch upon the returns received from the branches, to see that the individual advances do not exceed the limits sanctioned. These limits are revised at stated periods not exceeding 12 months. A similar supervision is kept over bills discounted, Which form some portion of the accommodation given by the Bank. In addition to this constant supervision, surprise visits are paid by the Inspectors to each branch, on uncertain dates, for the purpose of balancing all books and counting the cash and bills, and in addition to this about once a year there is a complete inspection of each Branch, When every circus: stance affecting the business is investigated, the condition of the book-keeping, premises, progress of the business, and every advance or discounted bill are gone into and reported upon to the General Manager. Any points in the Inspection Report which call for reproof or enquiry are scheduled and the schedule is sent to the Branch Manager, Who has to return it with his reply. In this way a thorough supervision of the business of every branch is obtained. The creditor accounts at the branches are of three kinds: (1) Aotive current accounts upon which commission is charged in respect of the total payments passing through the a000unt, while on thp other hand interest is allowed at about below Bank of Ragland Rate for the time being upon the daily balance standing at credit of the account. (2) Accounts where the turn-over is not large enough to justify a charge for commission, but on which interest is allowed as before. L 4z. /4-0 4.4.4:4;4 (.47,-,..-er-.71 ir 4.01Etr....• 01• • pt.( i& 4 . (3) Accounts which are purely deposit a/Cs, where no cheque book is issued for use by the customer. These receive the dewsit rate of interest which is, in this district, 10 below Dank Rate for the time being, but in our Northern and CvAven Districts is usually a fixed rate of about 20. With regard to the profits of the Branch business in a suburban district, we usually find that as soon as the branch has got about E30,000 of customers' balances in its hands, it begins to pay, whether those balances are employed in loans to other customers of the branch, or whether they are sent to Head Office for employment in the business centre of Liverpool. In the case of the branches in the City, it would require a larger amount of deposits to cover expenses, but, as a rule, the City branches derive their profits more by lending out money supplied to them from Head Office than by obtaining and employing credit balances belonging to their customers. I have said nothing about Savings Bank business although a large number of the purely deposit accounts might be regarded as coming under this category. In ingland, however, Savings Bank business is of rather a different class to the business done by Banks like the Bank of Liverpool. The result is that although a few of the Joint Stock Banks have opened Savings Bank Departments, with satisfactory results, the Savings Bank business of the Country is almost entirely confined to: - 1nd %, (1) Post Office Savings Bank, Which allows and invests its money in Government funds, t • Depositors having the guarantee of the Government. (2) Trustee Savings Banks, Which allow 20, and invest their money in Trustee Securities, and are under Government supervision, but are not guaranteed by the Government. (3) The Yorkshire Penny Bank Which allows 20 to the Depositors, and has gained a large business in competition with the Post Office and Trustee Savings It invests its money in Trustee investments, Banks. mortgages, &o. and professes to run not for profit but It is, however, a as a Philanthropic institution. keen competitor for deposit with the ordinary Banks in the Districts Where it operates. (4) Building Societies, Benefit Seoleties, Cotton Mills and other takers of deposits who employ a very large In this amount of the savings of the artisan class. group the rates of interest vary very much, but range probably from 2* to 5% per annum. 5 . I am not sure whether anything I have said will be of much value to you, seeing that the conditions of Banking business in our respective countries are not ident ical. In particular I imagine that we have in ingland less interference on the part of the Government than you have, and can follow more freely any policy that commends itself to us. Of course, expansion is kept within reasonable bonds by the neces sity for keeping down the number of branches trading at a loss, and also by the competition of other Banks, but, looking at the matter generally, it is essential in this country for a Bank to open branches if it wishes to maintain its business and connections. More and more as amalgamations occur, the Banking business of the country is concentrating in the hands of a few great Banks with large numbers of branches.