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NELSON ALDRICH
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Monetary Cants:saw

MISCELLANY

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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.

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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

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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



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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

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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.




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