The full text on this page is automatically extracted from the file linked above and may contain errors and inconsistencies.
NELSON A:Cli Monetary Ccmmissim MISCELLANY • A PROPOSALS FOR STRENGTHENING THE NATIONAL BANKING SYSTEM. II SUMMARY The bond-secured notes have not been a serious element of weakness, 634. — The present practice of paying interest on bankers' deposits, the fundamental cause of inelasticity, 637. — And also of the lack of any reserve of lending power in our banking system, 638. —,Regular redemption of notes alone would not ensure elasticity, 642. — Evils which may be attributed to the bond-secured notes, 645. — A plan for the substitution of an asset currency of limited volume, 646. — Proposal for the modification of the present method of paying interest, on bankers' deposits, 650. — Summary of the proposals in this and the preceding article, 654. CURRENT discussion of banking reforms in the United States shows a noteworthy advance over that which followed the crisis of 1893. Attention was then concentrated upon monetary questions the solution of which was urgently required, and the defects of our credit machinery, in the absence of comprehensive analysis of its working, were too exclusively attributed to the bond-secured bank notes. As a consequence, the improvement to be derived from some other method of issue was generally exaggerated. It is now coming to be recognized that the organization of credit rather than currency arrangements is, as was recently observed by Senator Aldrich, the fundamental banking problem, both in legislation and in practice. Certainly in those countries in which checks have become a well1 For the first article, see the issue of this Journal for February, 1910. 634 THE NATIONAL BANKING SYSTEM 634 . nigh universal medium of payment, bank notes, tho still a convenient instrument of credit, exercise an insignificant influence upon its organization. Experience with our own bond-secured notes affords ample and instructive confirmation of this view. It would be difficult to find any specific instance since the establishment of the national banking system when the notes have exerted an appreciable influence upon the credit structure or more than a very moderate influence upon the volume of credit granted to borrowers. Banking operations would have taken virtually the same course throughout the period even if the banks had possessed no right of issue and had only been able to extend credit in the form of deposit accounts. Some other method of issue may indeed increase somewhat the power of. the banks to meet severe financial strain, but it will not remove any positive element of weakness now inherent in their organization or methods of business. To most readers this view — of the harmlessness of the bond-secured notes — will seem to require very definite and convincing proof. For this reason it will be needful to analyze the effects of changes in the volume of circulation of ,he flat' ,nal banks since the establishment of the system. This analysis will at the same time prove to be a useful and even indispensable introduction to the discussion of the particular legislative proposals for a change in our method of issue which are to be brought forward. Each of the short periods of severe strain through which the banks have passed since the establishment of the national system have been preceded by two much longer periods, one of depression and one of business activity and general economic advance. ,nal banks . in the volume of eircu!ation of ,he nat'.- since the establishment of the system. This analysis will at the same time prove to be a useful and even indispensable introduction to the discussion of the particular legislative proposals for a change in our method of issue which are to be brought forward. Each of the short periods of severe strain through which the banks have passed since the establishment of the national system have been preceded by two much longer periods, one of depression and one of business activity and general economic advance. During these long periods every possible variety of 636 QUARTERLY JOURNAL OF ECONOMICS movement in the issues of bank notes has been wit— nessed. Before the crisis of 1873 the circulation had been practically stationary for some four years, and indeed that was the situation regarding the. total supply of money in actual use.' During the' ten years to 1884 there were no pronounced flue, tuations, tho the tendency was slightly downward. From 1884 to 1891 circulation was rapidly retired; then came a slow upward movement which continued. until 1900, followed by a far more considerable in-crease which has continued to the present time. Alike in periods of depression and of business activity the circulation has increased, decreased, and been stationary. This failure of the notes to expand and contract in response to changes in business requirements has been often enough pointed out, but it has not been. observed that the changes which have occurred in the volume of the notes have had practically no effect upon the condition of the banks. Throughout the entire period of some forty years and quite without reference to changes in the circulation, the banks have alternated between two well-defined situations. During years of business depression their money holdings have been well above reserve requirements everywhere except in New York. On the other hand every period of business activity has witnessed the rapid expansion of loans and consequently of deposits until the reserve ratio was brought down very close to the minimum required by law. Thereafter, throughout the remainder of each period of good times, loans and deposits have followed veryI The Act of July 12, 1870, provided for an addition of fifty-four million dollars to • the total circulation, but this increase was almost exactly offset by the coincident retirement of the three per cent certificates which were largely held by the banks. being. Ivallalule for reserve purposes. a THE NATIONAL BANKING SYSTEM 637 closely changes in the available supply of money in the banks. The last complete trade cycle may with advantage be taken for illustration. Aside from seasonal variations (which are of no importance for the present purpose) the New York banks at all between 1894 and 1907 were working very close to. the twenty-five per cent requirement of the law and the clearing house rule. The banks elsewhere were well above reserve requirements during the first four years of the period; then came a rapid decline in the reserve ratio notwithstanding a large increase in cash holdings. After 1901 there was no marked change in the ratio of reserve to deposits; tho it may be noted in passing that in 1902 and in 1906 it was less than in 1907, just before the crisis. During this, as well as in former periods (and, it may be added, at the present time), there has been no reserve of lending power anywhere among our banks except in years of depression, when there was the least likelihood of it being needed. II This unsatisfactory situation has been widely recognized and has been generally attributed to the inevit ale inelasticity of the bond-secured bank notes.. A careful consideration of the forces at work, however, will show that its causes lie far deeper than currency arrangements, and that they are of a nature which renders their removal a matter of the utmost difficulty. When business is generally inactive a relatively large part of the total money supply is held by the banks, on account of reduced requirements for cash: for wages and other payments commonly made 638 Q '.-1 RTERLY JOURNAL OF ECONOMICS those forms of the purchasing medium which pass readily from hand to hand. For this reason and because of the restricted demand of borrowers for loans, the banks in general have ample funds in excess of reserve requirements. In New York, however, as in the money centres of other countries, tlie. demand for loans is at all times of practically indefinite proportions. Through the purchase of paper from note brokers and by means of stock exchange. leans the New York banks can at all times fully employ their resources if they are willing to make sufficient ecncessions in rates to borrowers. This they are under the urgent necessity of doing as a consequence of the pract7ce of paying interest on bankers' deposits. at the fixed rate of two per cent, regardless of conditions in the loan market. To the effect of this practice is to be attributed the small surplus reserve held by the New York banks in years when the banks elsewhere find it impossible to employ all the funds which they are prepared to lend. But this practice of paying interest on bankers' deposits, as it now obtains, has other and more far-reaching consequences. It is an important cause of the failure to maintain• a reserve of lending power in periods of business, activity and the fundamental cause of the failure of the currency to contract in periods of depression. The bond requirement is in comparison an influence of slight, moment. It is commonly believed that the banks make every effort to keep out their notes simply because they have been obliged to lock up slightly more than their equivalent in government deposits, as it now obtains, has other and more far-reaching consequences. It is an important cause of the failure to maintain. a reserve of lending power in periods of business activity and the fundamental cause of the failure of the currency to contract in periods of depression. The bond requirement is in comparison an influence of slight moment. It is commonly believed that the banks make every effort to keep out their notes simply because they have been obliged to lock up slightly more than their equivalent in government bonds yielding a low rate of return. This is indeed one influence at work, but by no means the only one. Even tho this obstacle were removed through the substitution of some form of asset currency, interest of paying interest on bankers THE NATIONAL BANKING SYSTEM 639 on bankers' deposits would still prove an inducement sufficiently strong to prevent contraction. And further: it is this practice which makes it possible to keep out the bond-secured notes in periods of depression. Were it discontinued the banks would be utterly unable to prevent contraction, however strong their disinclination might be. During periods of inactive trade the amount of bank notes sent to Washington for redemption invariably reaches large proportions.' The city banks are chiefly responsible for this movement. Some-. thing like half the notes are sent in by the New York banks alone, which, when rates for call loans are persistently below two per cent, are naturally desirous of reducing bankers' balances swollen by the receipt of idle funds from all quarters. But the redemption of the notes does not secure contraction. All the banks,— more particularly the country banks and those of the smaller cities, — make haste to re-issue notes, thus set— ting free an equivalent amount of money, which in the, absence of local demand is shipped to the money centres for the sake of the interest to be had from the city banks. There is a sort of endless chain, the work-. ing of which can only be interrupted by the discontinuance of the present practice of paying interest on bankers' deposits. Were that inducement removed,. our bond-secured notes would prove to be susceptible to a considerable measure of contraction. Even if the banks continued to re-issue their notes as regu— larly as at present, contraction would still take place., An equivalent amount of money would be locked up, in the banks, since they would reap no advantage. 1 During the year ending with October, 1907, national bank notes to the amount of only $237,000,000 were sent to Washington for redemption. In 1908 the total WatiWel $382,000,000 and for the year ending with October, 1909, it was $489,000,000. 640 QUARTERLY JOURNAL OF ECONOMICS from sending it to the money centres. Moreover, even if it were sent thither the pressure on city banks to force a demand for loans by the offer of low rates would be removed and they would doubtless maintain a higher reserve level. This consequence of the payment of interest on deposits is quite independent of any particular conditions upon which the right of issue may be made to depend. If, for example, notes could have been issued during the last three years without any bond requirement, there is every reason to believe that something like the present volume of notes would be in circulation. The same possibility of keeping the notes out would have been present, and the inducement, tho slightly less urgent, would have been quite sufficient for the purpose. Finally, it may be noted that even if the banks had possessed no right of issue whatever, the situation would not have been essentially different. The aggregate supply of money in the country would then have been somewhat smaller, tho not by the full amount of the notes, since there would have been a somewhat greater amount of gold within the country. Only such slight accumulation of funds as may be due to this difference in the total money supply can be properly attributed to the system of note issue. This failure of the currency to contract during periods of inactive business is after all a comparatively unimportant matter. At such times serious difficulties are not likely to appear under any banking system, however imperfect. A certain amount of unnecessary and unhealthy speculative activity on the stock exchange is indeed made possible, but its results, tho unfortunate to many individuals, are not serious enough to deserve much public concern. THE NATIONAL BANKING SYSTEM 641 Turning now to periods of trade activity, we shall find that here also none of the serious imperfections in our banking system are to be attributed to the bondsecured notes. At the outset loans everywhere are increased, except in New York, where there is at no time any considerable margin of idle credit. Indeed, the loan account of the New York banks is rather more likely to be reduced than to increase. Outside banks withdraw money to meet local requirements, and as rates advance purchase paper more liberally from note brokers. A considerable number of banks also, especially those of the other cities, lend in the New York call loan market as soon as rates rise well above the two per cent return on balances.' Unless checked by premature trade reaction the general expansion of loans has always continued until the banks reached the limits set by the reserve requirements of the law. When periods f business activity happened to coincide with those in which the total money supply of the country was increasing, the upward movement of loans was particularly prolonged and considerable, since the banks always acquired some share in the increased stock of money. The taking out of additional circulation has therefore at times contributed to the enlargement of the foundation for credit expansion, but, owing to the limited supply of government bonds, prices have always responded to any widespread demand on the part of the banks, thus automatically checking any very considerable expansion in the iwoips nr tha nn+1.: 114.-.v.nevgrar oIrnrs thn tha nirnon- increasing, the upward movement of loans was particularly prolonged and considerable, since the banks always acquired some share in the increased stock of money. The taking out of additional circulation has therefore at times contributed to the enlargement of the foundation for credit expansion, but, owing to the limited supply of government bonds, prices have always responded to any widespread demand on the part of the banks, thus automatically checking any very considerable expansion in the issues of the notes. Moreover, even tho the expansion of loans has in some measure been made possible through the increase of the notes, it has not been in 1 Between January, 1908, and August, 1909, the loans of the New York banks increased from $1,126,000,000 to $1,333,000,000, but during the following eight months to May, 1910, they were reduced to $1,183,000,000. 642 QUARTERLY JOURNAL OF ECONOMICS the slightest degree a result of any peculiar quality possessed by the notes on account of the bond requirement. Notes issued under quite different conditions would have had precisely the same effects if issued in equal quantity, and there is every reason to suppose that they would have been issued in even greater quantity. If, for example, the banks had been allowed to issue an asset currency, and the limit on the total issue had been above the amount of bond-secured notes actually put out by the banks, it is demonstrably certain that the volume of notes and consequently the amount of credit granted to. borrowers would have been greater during each of our successive periods of business activity. No system of redemption, however regular, can check the expansion of credit either in the form of notes or of deposits when the loans of the banks are being generally increased. The demand for loans and the willingness of the banks to lend are the sole determining factors so long as public confidence remains undisturbed. The redemption of such credit instruments as checks and drafts is certainly speedy and continuous, but it does not serve to prevent the expansion of credit in the form of deposits when all the banks are increasing their loans. It does restrict the expanding of credit by a single bank or by the banks of a single locality, at least when borrowers use the proceeds of loans to make purchases at a distance; but when all the banks of the country are in question regular redemption simply means larger exchanges of credit instruments between the banks, either directly or through clearing houses. Exactly the same results will follow the regular redemption of bank notes, with the further qualification that the additional money always ,1 7'HE NATIONAL BANKING SYSTEM 643 are required when employment is regular and wages of high could be provided by the banks by means one notes. The banks would then be shielded from and would thus be able to incause of reserve loss, legal crease loans still further before reaching the minimum. If the banks had had the power to issue as an asset currency an amount of notes greater than that of the bond-secured notes which have been actually in circulation, it is certain that this right would have been exercised long before the close of each of the successive periods of business activity during the last forty years. The loans of the banks have always kept pace with increases in money holdings, even when these were being rapidly enlarged. Thus between 1897 and 1907 the cash holdings of the banks increased from $388,000,000, to $701,000,000, but the expansion of loans and consequently of deposits was even more considerable, so that the reserve ratio at the end of the period was far less than at its beginning. That additional loans would have been willingly absorbed by borrowers is also clear. In this country of enterprising population and vast undeveloped resources the demand for loans is of practically indefinite proportions, except during years of extreme depression. On the other hand, it would hardly be maintained that the healthy progress of this country has at any time suffered from inadequate credit expansion not infrequently the reverse has been true. It is extremely doubtful also whether under any feasible plan of asset currency there would be any considerable quantity of notes available for emergency purposes. Some limit on the amount which might be issued by the individual banks would be a necessary feature of the safeguards designed to 644 QUARTERLY JOURNAL OF ECONOMICS protect note holders from loss. Assuming that this limit would not be dangerously high, it is possible and even probable that in the course of a long period of almost uninterrupted prosperity, such as that between 1897 and 1907, most of the banks would have issued their entire quota. A few banks managed with unusual foresight might perhaps retain their notes for emergencies, but at the best the asset currency would be likely to prove a resource of very limited value in time of crisis. For somewhat analogous reasons no change in the method of issue can be relied upon to enable the banks to meet seasonal requirements for currency, such as those for crop moving purposes. During the period (which might extend over a number of years) taken to expand the circulation to the limits fixed by law, no difficulties would be experienced. The situation would resemble that during years of inactive business in the past. Crop moving needs have at such times been met without difficulty, becaust the banks had ample funds in excess of reserve requirements. But after the banks had put out all their notes there would be a renewal of the difficulties with which we have been made familiar in the past. Temporarily idle funds would be attracted 4,, r‘.1r nnv1+ vela -VIr I them i t.PrPctt. tn hP QPtiiired minus fixed by law, no difficulties would be experienced. The situation would resemble that during years of inactive business in the past. Crop moving needs have at such times been met without difficulty, becaust the banks had ample funds in excess of reserve requirements. But after the banks had put out all their notes there would be a renewal of the difficulties with which we have been made familiar in the past. Temporarily idle funds would be attracted to the money centres by the interest to be secured for bankers' deposits. The winter and summer months would witness a plethora of money in New York while moderate withdrawals in the early spring and more considerable withdrawals in the autumn would again become a characteristic disturbing factor in our banking operations. The necessity of fully employing the funds secured through interest on deposits would continue to prevent the maintenance anywhere in our system of any reserve of lending years) taken to expand the circulation to tile THE NATIONAL BANKING SYSTEM 645 power. This fundamental cause of weakness would be practically certain to wreck hopes of improvement from changes in our system of issue alone. Why then, it may be asked, make any change, if the bond-secured notes have done so little positive harm, if slight improvement is to be gained and positive danger may be incurred by a change of system? The answer is two-fold. In the first place, even tho the bond-secured notes have never been issued in such quantities as to cause serious trouble,. there is at least a possibility that they may have that effect in the future. If the government should be obliged to put out a large issue of bonds, the basis for a further and possibly excessive issue of notes would be provided. In the second place, it is undesirable that the bond policy of the government should be hampered by considerations of the effect of the purchase or sale of its securities upon the circulating medium. With the note issue entirely disassociated from the bonds the independent Treasury might easily be made a far less disturbing factor in the money market than it has often unavoidably been in the. past. When, as at present, the Treasury has merely a working balance, it is a comparatively harmless. institution. It is only when there has been a large surplus that its influence has been baneful. Between 1901 and 1907 the government surplus would doubtless have been expended in the purchase of bonds, if that could have been done without depriving the banks of the basis of their circulation. The unhealthy intervention of the Secretary of the Treasury in the money market would have been happily unnecessary. The simplest way to remove the danger of an overissue of the bond-secured notes and also to minimize. •r• 646 . QUARTERLY JOURNAL OF ECON0.111CS the defects of the independent Treasury system would be to deprive the banks of the right of issue altogether. But there are econo mic reasons of weight against so drastic a remedy, an d practical difficulties of a political nature would seem to be insurmountable.. It would be necessary, in common fairness to the banks, to increase the rate of interest on the two per cent government bonds by at least one per cent, so that they might be disposed of to investors without less. Further, if the notes were retired, their place would be taken by nearly an equivalent amount of gold; thereby only could the level of prices in this country be maintained in that relation to prices elsewhere which our international trade conditions have established. A costly medium of payment gold) woukl have to be substituted for an inexpensive medium (bank notes). If the gold foundation of our monetary fabric were inadequate there would be good reason for such a change; but the amount of gold in the country is now ample for every purpose, and is certain to be enlarged as a result of increasing gold production, unless a great increase is made in some of the other kinds of money now in circulation. For these reasons it would seem inexpedient to deprive the banks of the right of issue, unless it should prove impossible to devise currency arrangements free from dangers of their own and without the defects, inherent in the bond-secured notes. III With such distinctly moderate objects in view, the following proposals for an asset currency are submitted. It must be repeated, however, that no material strengthening of our banking system is THE NATIONAL BANKING SYSTEM 0 647 to be expected while the present practice of paying interest on bankers' deposits continues. Certain provisions necessary to protect note holders from loss have been made so familiar in previous discussions of an asset currency that they require' no detailed consideration. The necessity that the notes: should be made a prior lien on assets is everywhere recognized. In addition, a guarantee fund of Eve per cent is essential, not so much to protect note holders from ultimate loss as to prevent the discount on the notes of failed banks which would appear if payment were deferred until assets could be liquldated. But both the prior lien and the guarantee. fund would have most undesirable consequences: if no limits were placed upon the amount of' notes. which the individual banks might issue.. It would be unfair to the depositor that his bank should' be permitted to extend an indefinite amount of credit in a form which would have a preference in the distribution of assets. Moreover, if the note issue were equal to a considerable portion of the total assets, failures might subject the guarantee fund to heavy losses, the burden of'which would fall upon the other banks. It has commonly been proposed, therefore, that an asset currency should be limited' to the capital of the banks. But this Unlit, would permit at once the very large increase of nearly three hundred million dollars over the amount of notes now in circulation. Moreover, in the case of some banks, especially those of small size and those of recent origin, it would 1 1 _ in a form which would have a preference in the distribution of assets. Moreover, if the note issue were equal to a considerable portion of the total assets, failures might subject the guarantee fund to heavy losses, the burden of'which would fall upon the other banks. It has commonly been proposed, therefore, that an asset currency should be limited to the capital of the banks. But this limit would permit at once the very large increase of nearly three hundred million dollars over the amount of notes now in circulation. Moreover, in the case of some banks, especially those of small size and those of recent origin, it would permit an issue dangerously large in proportion to total assets. For reasons already mentioned it does not seem desirable to grant the banks as a whole a. power of issue which would make possible any im-648 QUAR7'VRLY JOURN AL OF ECONOMMS: mediate increasee, in the volume of notes. If the' right of issue were limited to seventy per cent of the capital of the banks it would permit an issue almost exactly the same as that which we have at present.. A far better basis for- limitation of issue, however; is the napital and surplus of the banks. Measured' in this way, the ratio would be,not seventy per cent on capital, but forty per cent on capital and surplus. It would be far better to take capital and surplus rather than capital alone, because surplus usually increases with the life and growth of business of the banks. The_ assets of such banks are likely to be large with reference to the liability of share holders. Forty per cent of capital and surplus, therefore,, is likely to be a smaller portion of the total assets of the banks than seventy per cent of capital, and consequently there is less likelihood that in case of failure the resources of a bank would prove insufficient to meet the notes. As a further precaution no bank should be granted the right of issue until after it had been in business for some two or three years, long enough to test the character of its management. Finally, since the notes would• be a form of credit pure and simple, they should be protected by the same ratio of reserve that is required against deposits, thus restoring a provision of the National Banking Law which was repealed, by inadvertence rather than by intent, in 1874.1 This requirement would a far more comprehensive The Act of June 20, lt374, as passed was a fragment of The banks were to be required measure relating both to banking and the greenbacks. five per cent redemption to hold all of their reserves in vault, but as a partial offset, the purposes, and no reserve fund authorized by the act was made available for reserve two provisions were retained, was required against circulation. In conference the last , while the bill was being altho the requirement with which they had been associated should hold all their repassed through the two houses, — namely, that the banks n. For further details. serves, — was deleted in deference to hostility to contractio System, pp. 105-107. me_ the writer's History of Crises under the National Banking THE NATIONAL BANKING SYSTEM 649 tie up a certain amount of money in reserves, but as the banks would probably convert some part of their undivided profits into surplus in order to be able to take out additional circulation, no contraction in the money in actual use would be likely to result. There remains for consideration one further provision necessary to complete this proposal for a change in our method of note issue. The bondsecured notes are taxed either one or one-half of one per cent, according to the issues of bonds which have been deposited as security by the banks. Notes issued under the conditions which have just been outlined could easily bear the heavier burden of a two per cent tax. By this simple means revenue more than sufficient to place the two per cent government bonds on an investment basis would be provided without increasing the burdens of general taxation. Notes issued under these conditions would provide an absolutely safe circulating medium. Note holders could not by any pessibility suffer loss, and while there would be room for slow growth along with that of the capital and surplus of the banks, the danger of over-issue would be wholly eliminated. If it should be found that these notes were kept out as persistently as the bond-secured notes, no new element of weakness would be introduced, and some of the disadvantages of the present system would be removed. It would be no small gain to have severed the entangling alliance between government bonds and currency. Moreover, it should be observed that the proposed issue is of a nature to permit without difficulty such further modifications as experience with its working may suggest. It is indeed unlikely that the policy of holding notes in reserve to meet seasonal or emergency requirements would be adopted 650 QUARTERLY JOURNAL OF ECONOMICS by a sufficient number of the banks to make the notes an elastic medium. If, however, this should prove happily a mistaken prediction, the amount of notes which each bank might issue could be made greater without difficulty, and to the general advantage. It would be a simple matter also to grant the banks the power to issue an additional heavily taxed circulation upon terms which would make certain that it would be exercised only in emergencies. From what has been said on previous pages, it would seem to follow that so long as the present practice of paying interest on bankers' deposits continues, a currency to n-eet extraordinary occasions can only he secured in this way. But against an emergency circulation of any kind lies the serious objection that it would weaken still further the already inadequate influences tending to restrain excessive credit expansion in periods of active business. It is to be feared that bankers would rely too exclusively upon the taxed notes, and that, altho they might do something to ameliorate financial disturbances, they would increase rather than diminish the likelihood of their occurrence. IV An asset currency such as has been outlined above would without doubt have the desired quality of elasticity, if the payment of interest on bankers' deposits were entirely discontinued. Thirty or more years ago there was a very widespread sentiment among bankers against the practice, but any pronosal for its discontinuance would now meet with xx ueis,LLZII.I Witt 1,, /11,1 11.11.461.1 V ameliorate financial disturbances, they would increase rather than diminish the likelihood of their occurrence. IV An asset currency such as has been outlined above would without doubt have the desired quality of elasticity, if the payment of interest on bankers' deposits were entirely discontinued. Thirty or more years ago there was a very widespread sentiment among bankers against the practice, but any proposal for its discontinuance would now meet with violent and general opposition, and its adoption could only be secured through legal enactment. Moreover, however effective for the purpose, so THE NATIONAL BANKING SYSTEM 651 drastic a remedy would have other consequences which make its adoption not only inexpedient, but also upon the whole undesirable. If banking in this country were conducted by a few hundred banks, each having numerous branches, loanable funds would be readily transferred from place to place in response to variations in the requirements of borrowers. No payments for bankers' deposits would be needed for the purpose, and they would be contrary to the interests of the several banks. But with our numerous independent local banks, that inducement is requisite to secure even the imperfect utilization of such funds of the several banks as may be in excess of local requirements. Tho motives of business convenience would in any case lead the banks to keep some balances with the banks of the money centres, their amount would be insignificant in comparison with that which has been secured through the offer of interest. These balances are undesirably large, as was pointed out in the first part of this article; but they should be reduced by measures which would enable the banks to employ safely additional funds at home at more profitable rates than the two per cent received from the city banks. The extreme remedy of a complete prohibition of interest on bankers' deposits would be a hardship to all classes of banks, and would involve the wasteful locking up of funds in the vaults of each of the many thousands of banks in the country outside the money centres. Doubtless the individual banks would lend directly a larger portion of their funds than at present, but in so doing, they would probably be tempted into making undesirable loans at home, and greater investments in the loan markets of New York and of the other large cities. 652 QUARTERLY JOURNAL OF ECONOMIC The utilization of the entire resources of the banks is not consistent with absolute safety under any system, because of the need of some reserve of lending power to meet emergencies. But only as a last resort should a measure be adopted which would prove an insurmountable obstacle to the employment by some banks of the more or less permanent surplus funds of other banks through deposits with city agents. Fortunately the ill effects of the present method of paying interest on such deposits can be diminished, if not entirely removed, without cut ailing any undesirable curtailment of the employment of banking resources. It is not necessary in order to make conditions favorable to an elastic currency that the city banks should hold no bankers' balances, or only those required in connection with the domestic exchanges. It is only necessary to prevent the movement to and from the money centres of the temporarily idle funds of the country banks, those which will be certainly needed by them after a very short interval. The present method of paying interest on bankers' deposits gives the city banks a highly irregular lending power which is of advantage neither to them nor to the community, because there are no variations in business requirements which coincide with the seasonal variations in the amount of funds at the disposal of the city banks. If there were an end to temporary accessions of funds from the country in the winter and early summer months, the gverage as well as the maximum loan account of the city banks would indeed b(i.somewhat reduced, but it is probable that profits would not be diminished to any appreciable extent. It is even possible that they would be increased, since rates for loans, especially the call loan rate, THE NATIONAL BANKING SYSTEM 653. • would be maintained at a higher level, and the interest to be paid outside banks would be reduced. A very simple modification of the present practiceof paying interest on bankers' deposits would do much to check this unhealthy seasonal movement, of money in and out of the money centres. It isonly necessary that instead of daily balances, the minimum balance kept in the course of a considerable period be taken as the basis for reckoning the interest to be paid to depositing banks. This period should be one of sufficient length to cover an entire movement of money in and out of the banks. Six months would seem to be the most natural and effective term for the accomplishment of the purpose in view. This method of reckoning interest would clearly be of advantage to the city banks, and would tend to greater stability in dealings upon the stock exchange. It would also give elasticity to the currency, because the country banks could then gain no advantage from keeping out all of their notes at all times. That practice would only succeed in building up balances with city banks which could not be maintained for the entire six months' period. The return received by the country banks would indeed be somewhat diminished, but not beyond what was expedient for them and for the community. There would, however, be reasonable ground for complaint in particular cases if the interest return were to be reckoned upon the basis of the minimum. balance during a six month period. The course of payments -may momentarily bring down the balance of a country bank with a city agent to an abnor- 1 11 - _1 the stock excnange. it wow(' WW1) givee1ctr3uit1t y to the currency, because the country banks could then gain no advantage from keeping out all of their notes at all times. That practice would only succeed in building up balances with city banks which could not be maintained for the entire six months' period. The return received by the country banks would indeed be somewhat diminished, but not beyond what was expedient for them and for the community. There would, however, be reasonable ground for complaint in particular cases if the interest return were to be reckoned upon the basis of the minimum balance during a six month period. The course of payments -may momentarily bring down the balance of a country bank with a city agent to an abnormally low point, and a considerable reduction of the interest return owing to such a chance occurrence would be obviously inequitable. To meet this situa- 654 QUARTERLY JOURNAL Of ECONOMICS tion, the basis of interest should be the minimum' weekly, fortnightly, or even monthly balance during the period of six months. On account of the very slight change proposed in present practice regarding interest on bankers' deposits, its fundamental importance is perhaps in danger of being overlooked. To the writer it promises more far-reaching results than any of the other proposals with which this paper and that which preceded have been concerned. Only in case some such change is made does it seem possible to secure an elastic currency by the substitution of an asset note issue for our bond-secured notes. By its means some reserve of lending power will be ensured, and at the same time the character of banking operations in ordinary times will be influenced for the better. Remove the accumulation of temporarily idle funds from the city banks, and the call loan may perchance lose some of that false glamour of liquidness which has been perhaps the greatest bane t(,) sound banking in this country. Within narrow limits it is of course true that no other kind of loan can be liquidated so quickly. For this reason it has been especially well suited to the employment of funds only momentarily in the possession of the banks. But the easy facility with which such loans can be slightly increased or diminished has probably contributed more than anything else to foster a trust in the indefinite liquidness of call loans which every emergency in our history has shown to be absolutely without foundation. Let me now summarize the series of proposals: which have been brought forward in this and the preceding paper. The establishment of true savings departments by the national banks, with seg7 THE NATIONAL BANKING SYSTEM 655 regated deposits payable at notice, which might be invested in mortgages, was advocated as a means of enabling the banks to employ a greater part of their funds at home. Some diminution in the amount of the balances in the banks of the money centres would follow, thus reducing the strain upon them in emergencies. Further, as the present reserve against deposits could be safely reduced upon those demand deposits which would be converted into time deposits, the money thus set free would enable the banks to increase the ratio of reserve against their remaining demand deposits. A cash reserve of ten per cent was accordingly suggested for country banks. As a further means of strengthening reserves, a plan for two classes of banks, local banks and reserve agent banks, was outlined to take the place of the present three classes. Both classes of banks might be established anywhere, but those choosing to become reserve agent banks would be required to have a minimum capital of five hundred thousand dollars, and would be obliged to carry a cash reserve of twenty-five per cent. Provisions to render more certain the use of reserves in emergencies were then outlined. The banks should be allowed to go below reserve requirements upon the payment of a fine, sufficiently onerous to ensure the maintenance of reserves in normal times, but not so high as to prevent their use when really needed. In addition, it was urged as absolutely necessary that reserves should be pooled or equalized, whenever clearing house loan certificates are issued, in order to prevent that working at cross purposes among the banks, which has been the principal cause of suspension of cash payments in the past. The proposal for an asset currency made in the 656 QUARTERLY JOURNAL OF ECONOMICS present paper is so framed as to ensure safety, and a very moderate increase in the total circulation in the future. In itself it is not expected to strengthen our banking system materially; but by securing the geparation of the circulating medium from the government bonds, it would enable the government to avoid the accumulation of a large surplus in the Treasury in the future. The change in note issue, however, if accompanied with the proposed modification of the present practice of paying interest on bankers' deposits by the city banks would give a considerable degree of elasticity to the currency. At the outset the opinion was expressed that a central bank was at best a doubtful remedy for our financial ills, and that less revolutionary means gave more certain promise of improvement. Some readers, I hope, will have found the proposals which I have brought forward adequate for the purpose. But even to those who are convinced that only by means of a central organization of some kind can the fundamental defects in our system be removed, these proposals should not be unwelcome.' Their adoption would create no obstructions to the establishment of a central bank, and most of them would clearly tend to increase the likelihood of successful results from its operation. The establishment of savings departments by the national banks, in so far as it would strengthen our system as a whole, would lessen the calls upon the central bank for assistance in emergencies. Similarly, the proposals designed to strengthen the reserves of the banks, and to render them more willitur to make use of them. could not tne tunciamentai ctetects in our system De removeu, these proposals should not be unwelcome.I Their adoption would create no obstructions to the establishment of a central bank, and most of them would clearly tend to increase the likelihood of successful results from its operation. The establishment of savings departments by the national banks, in so far as it would strengthen our system as a whole, would lessen the calls upon the central bank for assistance in emergencies. Similarly, the proposals designed to strengthen the reserves of the banks, and to render them more willing to make use of them, could not fail to lighten the burden upon the central institution. it is significant that the proposals of some of the most earnest opponents of a central bank of the European type, such as Congressman C. N. Fowler and Mr. Victor Morswetz, include provision for the centralized control of our banking system. rHE NATIONAL BANKING SYSTEM 657 Some of the plans for a central bank do indeed provide for the concentration of the entire banking reserve of the country, but so complete a reversal of existing practice would seem to be altogether unlikely to secure general favor. The requirement that reserves be equalized when clearing house loan certificates are issued would probably be found unnecessary if a central bank were established. It is essential to the successful working of a central bank that clearing house balances, at least in the important cities, be settled through transfers on its books. Clearing house loan certificates, therefore, would become unnecessary, and consequently also the equalization of reserves. The proposal regarding note issue would not be inimical to a central bank plan, but rather the reverse. It would not be an obstacle to the grant to the central bank of a special privilege of issue, a right that might well prove more advantageous than a complete monopoly of this power.. The bank would be relieved of the burden of taking care of the bonds now held by the banks against circulation. Moreover, it would make it far more easy for its management to resist the pressure for accommodation when for any reason the further expansion of credit should be deemed inadvisable.. Finally, the proposal regarding interest on bankers' deposits loses nothing of its importance. Indeed, its importance is perhaps enhanced. The most difficult problem which confronts central banks, and the one which they have to face most frequently, is the control or restraint of the central money markets in the various countries in which they have been established. To exert any effective restraining power over the credit situation in New York would certainly be more frequently necessary, and more dif- 11. IFIta;-• 658 QUARTERLY JOURNAL OF ECONOMICS ficult to accomplish, if the other banks continued to receive large temporary accessions of funds from outside banks. In the issue of this Journal, for May, 1909, I set forth at length the peculiar difficulties with which a central bank would be confronted in this country, Primarily on account of the absence of branch banking, it was contended that methods which had proved effective in European countries were not certain to have similar results with us. It has now become more generally recognized that if our banking system is to be strengthened by means of a central bank, the character of its operations, far more than the form of organization, mast be carefully worked out, and that while European central banks may furnish valuable suggestive material, they cannot serve as models to be more or less exactly reproduced. On the other hand, the proposal to establish a central bank, or at least some kind of centralized authority, has been received with far greater favor than most persons familiar with our financial history would . have anticipated. Some of the objections raised in my earlier article have been met in the subsequent discussion of the subject, but the various plans which have been brought forward are not free from those of most serious import. There is also a common tendency to rely wholly upon a central bank to remove the defects in our banking system. But since the effects of the operations of such a bank in this country are more or less, uncertain, it would seem to be the part of wisdom as a preliminary measure to strengthen our system by the adoption of such other changes as are not incompatible with the operations of a central bank. The burden placed upon it at the outset should be made light, and its activ-- THE NATIONAL BANKING SYSTEM 659 ities should be allowed to develop themselves along: lines which experience with its working may suggest. With these modest purposes in view, it is, my intention in a subseque:At paper to return to the consideration of the central bank problem. I shall attempt to suggest a plan for a central bank or central organization with limited functions and responsibilities, which will meet the difficulties which have impressed me perhaps more strongly than other' writers upon this important subject. 0. M. W. SPRAGUt. HARVARD UNIVERSITY.. I tc-4,A1 s ;• et 2ae•C. -P1/1.0 4 Lerfte a W shingto $ D. C., Satcdrday, December 2,1911 The Commission met at 11 o'clock, a. m., pursuant to the call of the Chairman. Present: Messrs. AL:1/11CH (CHAIRMAN), BURROWS, BUR- TON, WEEKS, BONYNGE, PADGETT, and BURGESS. In the absence of the Vice-Vlairman, and as a quorum did not appear, no formal business was transacted. The Chairman was authorized, however, to appoint a sub-committee to consider the details of the Codification of the National Banking Laws, with Suggested Changes, prepared by the Comptroller of the Currency, and to report the result of their examination to the Commission. The Chairman appointed on this sub-committee Mr. BURTON (CHA1KHAN), Mr. WY,EKS, and Mr. BURGESS. At 12 o'clock meridian, the Commission adjourned until 10 o'clock a. m„ Monday, December 4, 1911. ..... -2. Washington, D. C., December 4, 1911. The Commission met at 10 o'clock, a. m. Present: Messrs. ALDRICH (CHAIRMAN), VREELAND (VICECHAIRMAN) GETT BURROWS, MONEY, BURTON, lArDiES, BOUYNGE, PAD- and BURGESS. Mr. Burtoh moved that seven members of the Commis- sion should constitizte a quorum for the transaction of business. The motion was secondedby Mr. Burgess and unanimously adopted. Directors of the National Reserve Association. Mr. Weeks suggested that the provisions of the plan in regard to directors of the National Reserve Association be changed as follows: That the Board of Directors shall consist of thirty-seven to be composed of (1) Seven ex officio members, one ex officio member being added to those already provided for in the plan. This additional ex officio member might be an additional deputy governor or some member of the Cabinet. (2) Fifteen directors to be elected as provided by paragraph 15. (3) Fifteen directors, one from each district, to be elected as provided in paragraph 17. Under this suggestion, paragraph 16 would be dropped. This suggestion was discussed at length and laid aside for further consideration. The Commission thereupon, at 11:30 o'clock; a, m., took a recess until 2:30 o'clock, p. m. AFTER RECESS. The Commission reassembled at 2:30 p. m. Present: Messrs. ALL:RICH (CHA1 -11AN), VREELAND (VICE- d1AN), =ROWS, MONEY:, PRITRY3E, BUPTON, WEEKS, BONYNGE, GHAIT4 PADGETT, BURGESS; and PRINCE. At the suggestion of Mr. Boange it was unarimously agreed that the Revised Edition of the :;liggested Plan for . Monetary Legislation be made the basis of discussion. The C*Iairman stated that it was his idea -- if it should meet with the approval of the members of the Commission -- that with respect to provisions in the plan where there was no special objection; immediate steps be tiaken to place those provisions in the hands of two ex- perts, one or two from the office of the Comptroller of the Treasury Department and one from the Department of Justice, in order that the language of the proposed monetary law might be properly framed. The Chairman further stated that at the morning session it had also been decided that in the ab:Jence of a quorum, all. decisions reached would be tentative, and that any oarticular provision might be reconsidered on the re- quest of any member of the Commission. Upon motion of Mr. Weeks it was agreed that the 4.. minutes of ;:,fie meetings of the Commission be rricie full and complete -- something similar to the 'ay the record is kept in the Journals of the Senate and the House of Representatives. The Commission thereupon proceaded to further exa:aine and discuss the proposed plan and the following subjects were considered: With rspect to the amount of autorized capital of the National Reserve Assocition whi3h would be paid in under the twenty per cent provision -" Dividends to be paid only on paid-in capital. Mr. Aldrich stated the necessity for a provision that dividends shall only be paid by the National Resurve Association upon capital which has been paid in. Length of Charter. A proposition by Mr. Bonynge that the time of the length of the charter be made less than fifty years was not accepted. There was considerable discussion as to whether any provision should be made whereby the charter might be altered, amended, or repealed by Congress, but no conclusion was reached upon this point. Minimum Capital. The subject of minimum capital was ext con- sidered, and while no definite conclusion was reached, the opinion was general that some amount -- probably $1002 000,000 should be provided as the minimum with which the National Reserve Association might commence its operations. Contingent Fund fcr Impaired Surplus. Subject fully discussed. sion reached. No definite conclu- Suggestions made that in no event should fund be used for liquidation or otherwise to stockholders, but should go to the United States Government; that fund shoula not be a part of the book value of the stock; that the fund should not be more than 3 per cent nor less than 1 per cant; that the percentage should be less than in the casa of ordinary bank losses. Upon motion or Mr. Padgett it was agreed that a provision shoqld be placed in the draft of the bill cov,2-ing . the subject of a contingent fund in the following, anguage: wWhen the surpli)s reaches 20 pef cent, a fund not exceeding $2,000,000, or the equivalent of 1 per cent of the capital may be retained by the bank as undivided profits to meet unexpected losses; and, upon the final dissolution of the bank, shall go to the Government, and shall not be included in the book value ')f the stock, or go to stockliolders iA any contingeLcy." Holding Maori; Stock of Eanks which arc members of the National Les2rve Association: Subject fully discussed on the basis of a proposition made by Professor WiltIman of the Northwestern University. Decision reached to pass matter until Com- mission should have an opportunity to examine Professor Wildman's propocon. Bonds: Mr. Padgett (after rtJ.ding section 75 of the Levisd Plan) inquired whether it was contemplated to put au excise tax oa the bonds provided for in that section --they are to be perpetual. Mr. Al — ich info. med it applies to the boads wherever they are and the Reserve Association is to pay that alL t-he time indepenthmtly of the ownership of tl- e bonds. i Aloproximate Mr. ffeeks suggested whether the capital should not be stated at $400,000,000 instaad of $300,000,000, and was informed by the Chairman that the hvised Plan was only a framework cr memorandum and that when the law was drafted a change in the amount, in his opinion, should be made; that there is a minimum limitation but no :flaxi- Capital of Subscrioing Banks: The Chairman stated th,l.t on accont of criticism he had heard poioibly the - rovision for a minimum capital of $25,000 might be too high. Mr. VrE:eland stated that he had heard no objection to it. Trust Companies: The Chairman was of the opinion that in view of sug- -7. gest ions frou the Trust Section of the American Bankers Association, the minimum of $25,000 should be applied also to trust companies . MX. Burton stated that he desired to consider the question of the limitation of kie capital of trust companiz.s more fully, but he thought that there should be a minimum. Mr. Padgett stated that there was no limiGation in the laws of l'ennessee as to the capital trust companies should have. Payment of Balance of 20 per cent subsc:iption: Mr. Vreeland inquired as to the time of the payment of the balance of the 20 per cent subscription provided for in section 1. The Chairman stated that his understanding was that no demand would be made for the balance of the subscription, unless there were large losses as against credit or impairment of th sociation. capital of the Reser-ye As- Mr. Vreeland thought that ,The subsorning banks werc being made liable for ifiore than twice the amount of their stock by this provision. The Chairman stated that as he unde stood it banks could not call for the additional 10 pc- r cent subscription for the 'Ali -pose of incruasing capital. The discussion of the investment by banks of their cpital in real estate was participated in by Mes::1's. Aldrich, Burton, Weeks, ard radgett, 4 .he conclusion being reached thu-.. large investments of this kind on the part of banks should not be made. -8 Transfer of Shares of the National Reserve Asf;ociation Stock, Mr. Burton in commenting on section 3, relative to the transferring of the snares of the capital stock of the National Reserve Association, stated that no law would be constitutional whida provided that they could not be transferred under particular conditions. Mr. Padgett called attention to the fact that the provisions of the Revised Plan mel-ely prescribes the mode of transfer. Bonynge agreed with Mr. Mr. Burton as to the unconstitutionality of attempting to provide th,t no transfer could be made. Paid up Capital Stock. Mr. Padgett made the following suggestion for the amendment of section 4, which Was agreed to: That the words "paid up" should be inserted before the word "capital" wherever it appears with reference to the payment of dividends. For instance, where it is stated that they shall receive 4 per cent dividends the text should read "4 per cent dividends on paid-up capital stock;" and at the point where the words "after stockholders receive 5 per cent," should be inserted the words "paid-up capital stock." The purpose of this amendment is that there may be no question of construction as to whether dividends are to be received on the subscribed stock or the paid-up stock. Dividends of Stockholders shall be Cumulative:(Section 4) IN r j.10. Mr. Burton inquirt.d as to tne meanirc of this provision and Mr. Padgett was of the opinion that the matter Should be expressed more definitely. Tha CotIrman stated that his undestanding was that the purpose of the provision is to gualantee t3 subscribing banks 4 per cent on their investment out of the earnings of any given year; after the 20 per cent. SUGGEM'IONS. By Mr. Burton: That, in his opinion, it is not best to place the surplus of the N:4.-tional Reserve Assocition beyond 20 1Jef. cent. By Mr. Aldrich: That some provision should be made for the 1- esoration of tlw surplus when imp:tired. By Mr. Burgess: That it would he well in the final draft of the bill to provide a definite limitation to the ealnings of the Naicnal 'Eeserve Allsoeiation. By Mr. Bonynge: That some }rovision ought possibly to be made compeLing state banks to f.,itenish a lit of the owners of their stock, in order thut members of the Elesel.ve Assocition may be protected. By Mr. Aldrich: That a provision should be made pro- hib..ting loaning on National Reselve Association stock. By Mr. Aldrich: A provision should be incorporated in the final draft of the bill Vklt no bank shall be admitted to membership in the National Reserve Association that owns stock in any other bank, nor shal) it hold stock in any other bank after it oecomes a memoer of the Reserve Association. By MI. Alrich: Provision shoul6 he nide whereby state banks shall have not less Lhan $24,000 capital actually paid-in. By Mr. Aldrich: Provision for temporary orTanization of the Nional Reserve Association should be r.ide by a CommisLion, consiting, possibly, of the Secretary of the Treasury, i.he Secretary of Commerce and I,00f, and the Comptroller of the Currency. This COMMiSSiOD to decide until a permaftent cL-ganization is effected, the question of the limitations of the territory of the district a:1d local associations. The Cummission theLeapon adjou:ned at 5 o'clock p. m., until 10:30 o'clock, a. m., Tuesday, December b, 19i1 Washing,ton, D. C., Tuesday, Decemb(.r 5,1911, The Commission met at 10:30 o'clock a. m. Present: Messrs. ALPhICH (CHAIRMAN), ITRE'sq,AND (VICE- aHAI.KMAN), BURROWS, MONiY, BlJTON, VIIKS, BONYYGE, PADGETT, BURGESS, and PRINCF. It wls decided that thee should be no change made in the provisions of the Revised Plan that the combined capital and surplus of the members of each local association shall apyreFate not less than $5,000,000. Mr. Aldrich suggested that a preliminary apportionment of the associations providd for in section 5 should be made by directors of the Reserve AssociLtion after a permanent organizaticn was effected. Mr. Burton was of the opinion, in which all present concu. red l that the provisions of section 71 exempting f the National Reserve Association from state and local taxation should not be ch:.nged. Mr. Aldrich suggested "*A- ...t provision be inde that no 1 real es-cate should be held by the Reserve Association, except for banking purposes. Mr. Aldrich also suggested that the amount of real estate held by the association should be limited. Mr. Padgett suggested that the language be qualified by inserting the words "for banking purposes." Mr. Weeks stated that the National Banking Law made ample provision as to real estate holdings by National banks, and suggested that a provision along similar lines be drawn to apply to tl-, e National deserve Association. This was unanimously agreed to. 24. Mr. Padgett suggested that it should be provided that the directors should submit to the President a fair number of names from which to select the governor of the Reserve Assoction. After some discussion of this proposition, it was agreed to add after the word "list" in line five the v;ords "not less than three in number." paragraph was agreed to. As flerlded, the 1 e") 8 . In connection with the election of thre-fil*ths of the Board of Directors of the local associaicns, Senator Burton raised the question whether the vote Should be cumulative or "en bloc." There was some discussion on this point, but the lancuage in the pararraph was not chanFr,ed. The Commission the 'eupon took a recess until 2:30 p. in. AFTFE RECS. The Commission reassem'oled at 2:30 p. m. Present: Messrs. ALPFTCli (rHAIPMAN), IT'LAND (VI(T- CIT,'IT7A11), BURROVS, MOIrrY, BUT:201i, 1141ES, BONYNGE, and PADGF7T. 9, 10, and 11. It was areed to pro're that the number of director's of branches sYould he fixed by the by-laws cf iach branch, but that there should not be less than twelve. One-half of this board shali be elected by tIle boards of the local associations, and the other half n..Lr'L: by the stock and part by representative vote. 21 and 22. Agreed to without cliange. %as amended as follows, and as amended, was agre(-d to. The:e shall be an auditing committee to be elected by the Board of Directors from amon7 its number (excluding the members of the Executive Committee) of which the Secretary of the Treasury shall be Chairman. This Com- mittee will make a public report at least once a year. shall have authority, not onl. It to audit the books of the National Reserve Association, but of the branches. 14. Mr. Burgess suggested that the Secretary of Agriculture be added to the ex officio members of the board. No action was t ken on this suggestion. 24. Mr. Bonynge suggested that it be provided that the term of the Governor shall be ten years and that he be reelird.ble for aprointment for another term. He also thought that it should be provided that the Deputy Gove:nors should he reelii7ible another term. or aprointment for These suggestions were agreed to. 25. Mr. Bonynge suggested tha-,, the IrInager of the branch should be a resident of the district in which the branch is loeated. This was agreed tot and this pararraph was amended by inserting in the second line aftcr the word namiinted" the words " -rcm the district." L... 26, Mr. Padgett sugiTested that after the word "duties" in the first line the following words be inserted "the lernth of service to be subject to removal." This ame-,- dment was agreed. to. 28. Referring to the third paraf7raph of section 281 Senator Al_rich suggested that the Secretar , of the Treasury, the Secretary of Commel'ce and Labor, and the Comntroll er of the Currency be authorized tn provide the preliminary organization of the National Reserve Association, and to divide the country into fifteen districts. Mr. Padgett suggested t . at it should be -orovided that the country shA]l be dirided according to geo7r and. commercial conditions and also with regard to existing These suggestions weye agreed to. banking facilities. 29 1 30, 31, 321 331 and 34. ,hout change. Agreed ;:o WiT. - The Commission theL'eupon adjourned until 10:30 blelock, a, m., Wednesday, December 6, 1911. Washington, D. C., Wednesday, Dec. 6, 1931. Oa The Conlmission met at 10:30 a. m. Present: Messrs. ALDPICR (CHAIRMAN), BURROWS, MONEY, : BURTON, BONYNGE, PADGETT BURGESS, and PRINCE. Purchase of Coin or Bullion: Section 35 was taken up and agreed to down to the first period. With respect to the second part, it was the opinion of Mr. Bonynge and Mr. Burgess that the word "gold" should be struck out, in order that either gold or silver might be purchased, their view being that the mention Of gold included silver by implication. The Chairman said that his understanding was the provision as it stands would not prevent the bgying of silver bullion, but merely provided the manner in which it may be purchased, that is, in the open market. He also stated that it applied only to domestic exchanges. Mr. Burton thought that if the section us were amended it should be by some such expression as the following: "or silver when required in the settlement of exchanges in foreign couttries." Mr. Prince was in favor of letlAng the paragraph stand unamended. Mr. Padgett preferred to have it stand as it was unless the words "of gold and silver coin" were inserted. W. Money was of the opinion that the paragraph should be left as it appears in the Revised Plan t unless the right to buy silver were mentioned specifically. -16 Mr. Bonynge favored the suggested amendment of Mr. Burton. It was finally agreed to allow section 35 remain unamended. Rate of Exchange between the East and the West: A general di;:icusion was had on this subject and the Chairman was of the opinion that after the final report of the Commission had been made it might be desirable to consider the subject more fully and specifically. During the session of the Commission Hon. Lawl.ence 0. Murray, Comptroller of the Currency, appeared to complete arrangements for inviting State Bank Supervisors and National Bank Examiners before the Commission for the purpose of consultation on the question of bank examinations. The Chairman lwith the approval of the Commission, requested Mr. Murray to communicate with Mt. J. L. Mohundro, Chairman of the Association of Supervisors of State Banks, inviting them to appear on Thursday, December, 14, 1911, and to make the necessary arrangments for the attendance of the National Bank Examiners. It was also decided to invite two or three of the leading bankers of the country to be present at the same time the State Superviso:s and National Bank Examiners appeared, the selection to be made by the Chairman. The Commission thereupon took a recess until 2 o'clock, AFTER RECESS. The Commission reassembled at 2:30 p. in. Present: Messrs. ALDRICH (CHAIRMAN), VRFTIATD (VICE- CHAL4MAY), BURROWS, MONEY, BURTON, WEEKS, BOYYNGE, PAPGETT, BURGESS, and PRINCE. 36. It was agreed to insert after the word "necesulry" in the fifth line the words "in the discretion of the Secretary of the Treasury." Mr. Vreeland and Senator BL tonraised tila question as to the meaning of the words "cash balance." Does it include trust filnds? It VAS agreed that it was desirable to look into this language and also find out from the Secretary of the Treasury how many trust funds there are in the TfQ4sury and whether they are kept separate from the general funds of the Treasury. 37, 38, 39, and 40. Agreed to without change. 41. There was considerable discussion as to whether the language in this paracraph carried out the intention of -18Senator Aldrich, namely, to make the rates of discount of the National Reserve Association superior to the usury laws of the several states. Mr. Vreeland suggested that the paragraph be amended as follows: "Tut National Rese:ve As- sociation shall have authority to fix the rates of discount from time to time, which, when so fixed, shall be published, and shall be uniform throughout the United States." The paragraph, as thus amended, was agreed to. 42. This paragraph was amended by striking out in line three the words"to a limited amount," by inserting a "comma" after the word "bank" in line four; and by substituting the word "acceptors" for the word "houses" in the same line, and a8 amended was agreed to. 43. This paragraph was amended by inserting a "comma," after the word Monde" in line two, and b4 substituting thw word "alsonfor thelvord "as" in the same line. As thus cuonded s the paragraph was agreed to. 44, Was agreed to. 45, This paruLraph was amended by subutituting for the word "subscribers" in line two the words "subscribing -19banks", and by striking out in line four the words "in England, France, or Ge:manj," and by striking out the word "other" in the same line. As taus amended, the 1 )ura- gro.ph was agreed to. 46, 47, 48, and 49. Agreed to without change. Whei-eupon the Commission adjourned to 10:30 o'clock, a. in., Thursday, December 7, 1911. Washington, D. C., Thursday, December 7, i911. The Commission Present: Messrs. at 10:30 a. In. DRICH (CHAIIII.A1), VREELAYD (17CE- (IIIIRMAN), BURROWS, MONEY; BURTON, WEEKS, BONYNCTE, PADGETT, BURGESS, and PRINCE. 49. This paragraph, which was agreed to just as the session adjourned last evening, was reconsidered. At the suggestion of Mr. Burgess and after some discussion, it was agreed to substitute the Nord "subscriber" fur the word "mAional" In line three of the first paragraph, and to strike out the word "national" in the third line of the second paragfaph. Mr. Weeks suggested that it be provided that instead of 20 per cent, the maximum amount of stock held by any -20 one bank should be fixed at 10 per cent. No Agreamen was reached on this suggeo-Lion. Mr. Burton asked if the question had ever been considered of allowing national Danko to establish branches abroad. Mr. Aldrich replied that ii you permit a bank to do business outside of the United States through branches it might involve the bank in liabilities and des-Groy its solvency by reason of its foreign operations. The Chair- man ma stated that paragraph 49 in relation to the organization of foreign banks would have to be elaborated in great detail; that the provisions of lam- would have to fix the amount of capital, etc. methods. of doing business, etc., It might be referred tc the Comptroller of the r7urrency to work out the details in reporting to Congress on the 6th of Ianry. I. might be stated that the detailed organization of these foreign banks would be submitt,u repoft. 50. Bonyngc suggested tra.-,, sections 59 and b0 should not be made pa:t of the plan, but should be reported se. oarately. The Chairman opposed this suggestion and stated that he greatly preferred incorporating these two paragraphs in the plan and report. After some dis- cussion, the sentiment seemed to be that these subjects should be included in the plan. -21Paragraph 50 was passed over for the present and the Chairman asked the members of the Commission to study the pamphlet recently issued by the Monetary Commission containing date secured by the Comptroller of the Currency in regard to Savings Deposits of Banks and the desire of beaLks t oe permitted to loan on real estate. At 12 o'clock, meridian, the Commission took a recess until 2:30 p. m. dOk. AP TE 7 "IECESS . The Commission met at 2:30 p. m. Present: Messrs. AL7DRICH ( CHIARIAN), BURROWS, MONEY, BUI:TON, BOTTYGE, PADGETT, BjRGESS, and PRINCE. 51. Mr. Burgess and Senator Burton raised the question as to the wisdom of making the notes of the National Reserve Association available for the reserves of banks. After some discussion this question, at the request of Mr. Burgess, was passed over. 52. Agreed to. 53. Was passed over at the request of Mr. Vreeland in order to examine further into the length of time time deposits must not be allowed to be withdrawn before the -22 time specified without 30 days' notice. 54. Was passeu over for further discussion and consideration. 55. It was agreed to amend the past two lines of this paragraph to read as follows: "a tax shall be levied at the rate cf 1-1A per cent per annum." It was further agreed th_lt the provisions of paragraph 68 should be transposed and consolidated with those of paragraph 55. 56. Agreed to. 57, 58, and 59 on the subject of reports were passed over untiathe conference with. the Comptroller of the Currency and the State Bank Supervisors. 60. tgreed to. 61. In the next to the last line of this paragraph it was pointed out that the word "proportionately" would have to be worked out to a definite figuresin the act. With this suggestion, the paragraph was agreed to. 62, 63, and 64 agreed to. 63, 66, 67, 68, 69, 70, 71, and 72 agrecd to. 68. As before stated, this paragraph is tretwosed and incorporated in para_zruph ab. 33. Referring to this paragraph, it was agreed at the sugi-7estion of M. Padgett to add the following lantage at the end: or for failure or refusal for 30 days La comply with any of the provisions of this act. pension from a local associatIon shoul A sus- op e ate as a 1;us, Ision from the privileges of the National Res-rve delAosociation." Wheeupon the Commission adjorned unitl 10;60 a, m., Friday, Decembe'r 3, 111. We a/ •••• ..• Washinton, D. C., Fricay, December 8, 1911. The Commission met at 10:30 a. m. Present; Messrs. AL:Di,ICH (CHAIINAN) EELAND (VICE- CHAIRMAN), BURROWS, MONEY, BURTON, WEEKS, BONYNGE, PADGETT, BURGESS, and PRINCE. 73, 742 and 75. A discussion took place regarding the pararaphs relating to United States bonds, but no changes were made in them. 14, 15, 16, 17, and 18. The Cbu.irman asked Mr. Weeks for his proposition recording the directors of the National Reserve Association. Mr. Weeks stated his proposition verbal) y anti later in writing as follows: Ex Officio Directors: The Secretary of the Treasury, the Secretary of Commerce and Labor, the Secretary of P.gricultJ.re, the Comptroller of the Cur:-ency, Governor, and Deputy Governor. Fifteen directors as elected in parar:raph 15. Fifteen directors as elected in paragraph 15 from. the business interests of the country. TILE la.r.t fifteen shall not be at the same time directors in other banking institutions. Consideration of these proposed changes was po::•;t:poned until Vie session of the Commission on Monday. -25During the session of the Commissicn Hon. Lawrence 0. Murray, Comptroller of the Currency, Judge Oldham and Mr. Quinn of the Treasury Department, almeared to perfect arranr;ements for the dra-rting of the bill to be submit ted to Congress. Tnese gentlemen agrecd to cooperate with the Commission in drafting the bill. At .he suggestion of Mt. Murray it was agreed to invite Hon. lielibert Knox Smith, Commissioner of Corporations to act with them. Mesors. Bonynge and Padgett we 'e appointed as a committee to render such E.s5istance as ma:- be necessary. The Secretary was authorized to -orocure rooLis and all rceded clerical and other assistance to work under the direction of the gentlemen in chare of the preparation of the bill. At twelve o'clock meridian, the Commission adjourned until Mon(lay, December 11, 1911, at 10:30 a. m. -26The Commission met at 10:30 a. in. Preeent: Messrs. AL iICH (CHAIRMAN), VRE:eLAND (VICE- CHAIRMAN), BURROWS, MONEY, BUI,TON, WEEKS, BONYNGE, P!IDGETT and BURGESf3. . The Chairman stated hie view with regard to the features which would be included in the Commission. .eit3' final report ef He stated that it should be aeplicaole to conditions in the United states and be someCeing in wilinh the American people would be interested. In a eeparate report of elsewhere as an appendix, the -e might be a treatment of foreign experiences. The : was general discussion of tlee fea+elres to be -e included in the report and the mutter was ]eft in the hands of the Chairman. Mr. Padgett suggested te_a.t a joint resolution oe introduced in Congress providine that tlia Commission shceild file its final report by Jewary 22nd. No action was taken on this suggestion. Mr. Burgess raised the question of adjournment for the Holidays. Sentiment seemed to be tleat those vie° wanted to be away shoald have t'ee erivilege, while those who were remainine in the city shoull assist in the preparation cf the report. At this point, Dr. Andrew who had come feom the conference of the committee in charge of the drafting of the bill, stated t7lat the Committee desired to know with Whom the certificate of organization should -vc filed. It was agreed by the Commission tha such certificate shoulu be filed with the Secretary of State. 35. Mr. Aldrich raised the question as to whether it is necessary to state in this act thar he Government funds deposited in -the Ruseve Association shall be held to be money in the Treasury of the United States. This sug- gestion was referred to the Comptroller of tIle Currency and his Committee, who are drafting the language of the statute. It was agreed to strike out the words "cash balance" in line 2 ani 7,c) insert in lieu thereof the words "general funds," an also to strike out Me follcw:iag words "except that whn necessary the Gclnment ma desinate national banks for that purpose in cities where there is no branch of the National Reserve AsBociation." 2. The question was raised whether barks in the colonial possessions of the United States cou'd become subscribing banks of the Reserve Association. It was agreed not to touch upon this luestion in the statute in terms, but the first sentence of section 2 was amended to red as follows: "Alt national banks, and all panics an0 trust com- panies chartertAl by a State, which comply with the requir-ements for Inembership hereinafter set forth (Secs. 60-6d) may subscribe to the capital stock r)f the I\Ttional Reserve Association. -28In the ninth line of this section, it was also agreed to insert the word "paid-in" after tha word "minimum", and to insert the following clause after the words 9252000," "and a trust company having a minimum capital of 9100,000 1". (1) It was agreed to provide in the first section that before completigg the organization of the National Reserve Association at least $10020002000 of capital must be paid in. 28. The question was raised as to the expenses of the Commission which shall provide the preliminary organization of the National Reserve Association, and it was agreed that the expenses of the Commission shall be advanced by the Government and be re-paid by the National Reserve Aslociation. In this connection, it was also agreed that this Commission in admitting subscribing banks, must see that no banks or trust companies are aftitted, who do not comply with the provisions of the act Le to miaimum paid-in capital. Whereupon the Commission tcok a recess until 2:30 p. m. AFTER RECESS. The Commission met at 260 p. m. Present: Messrs. LDRICH (CHADMAN), VREFIAND (VICE- CHAIHMAN), BURROWS, MONEY, BURTON, WEEKS, BONYNGE, PADGETT, AN -29and BURGESS. 49. , After a lengthy discussion as to just what pro- ri74 ers ahould be included in the statute as to the incorporation of foreign banks, as for instance, whether the maximum capital, say $1,000,000, should be fixed, whether those banks should make reports to the Comptroller of the Currency and he governed generally by such provisions of the olicable, etc., etc., Nation%1 Banking Act as are found ap. It was agreed to refer this matter to a sub-committee, consisting of Mr. Weeks and Mr. Bonynge, to prepare a draft of incorporation and report the same to the Com- mission. 53. This section was taken up and after a full discussion was agreed to without amendment. At the suggestion of Mr. Vreeland, the Commission proceeded to take up those provisions of the plan that had previously been considered and passed over. (1) It was agreed to provide in the first section that the length of the charter should be fifty years, but that Congress should reserve the rigri to alter, revise, and amend the charter at the end of each ten year period. Mr. Vreeland called attention to the last sentence of this section, which reads as follows: "Fifty per cent of 30 the subscriptions to the capital stock of the National Reserve Association shall be called in cash; the balance of the subscription will remain a liability of the subscribers, subject to call." He said that he thought it desirable the statute should state the circumstances under which the additional fifty per cent subscription could be caned. No formal language was agreed upon, but it was agreed to instruct Mr. Murray and his colleagues to so draft the statute that this additional subscription could only be called when necessary to meet the obligations of the National Reserve Association, 28. Mr. Vreeland suggested that there ouch: to be some general language of inaruction to guide the Commission Which is provide the preliminary organization for the National Reserve Association. After full discussion of this suggestion, it was agreed that it should be provided in the statute that the fifteen branches of the National Reserve Association should be located as follows: 1 in the New England States; three in the Eastern States; three in the Southern States; four in the Middle Western States; and four in the Western and Pacific Coast States. Thereupon the Commission adjourned until 10:30 a. m., Tuesday, December 12, 1911. " 7ATIOTTAL A TO A !:1) RT'RVrW RA7Y DvR PP TAT, T, TI.k FTR -7 FT OT" 7R CT 4TR 7 S. - coOoo rhw York City Ranks are the natural depositories for much of iole or surplus money cf the Country. Rut there was created by the ati,nal Rank Act of 1864, a monetary discrimination in favor of large cities, - especially 'Iew York, - which has grown to great proportions. Ii order to a clear understanding of the matter, it is better to quote so much of the law as is referred to, from the United States Revised Statutes. wFvery national banking association in "77rom Sec. 5191. "either of the following cities: Albany, Raltimore, Roston, "Cincinnati, Chicago, Cleveland, Detroit, Louisville, "ilwau"kee, 7.7$:=w Orleans, New York, Philadelphia, Pittsburg, Faint "Louis, San Francisco, and Washington, shall at all times "have on hand, in lawful money of the United States, an amount "equal to at least twenty-five per centum of the apTregate "amount of its notes in circulation and its deposits; and "ever:/ other association shall at all times have on hand, in "lawful money of the United States, an amount equal to at "least fifteen per centum of the aggregate amount of its notes "in circulation, and of its deposits." "Three-fifths of the reserve of fifteen per "Prom Sec. 5192. "centum required by the preceding section to be kept, may "consist of balances due to an association, available for the "redemption of its circulating notes, from associations apt "proved by . he Comptroller of the Currency, organized under "the act of June three, eighteen hundred and sixty-four, or "under this Title, and doing business in the cities of Albany, "Baltimore, Roston, Charleston, Chicago, Cincinnati, Cleveland, "Detroit, 'Louisville, P"ilwaukee, New Orleans, New York, Phil"adelphia, Pittsburgh, Richmond, Saint Louis, San Francisco, "and rashington." "Each association organized in any of th."Prom F:ec. 5195. "cities named in section fifty-one hundred and ninety-one may "kep one-half of its lawful money reserve in cash deposits "in the city of New York." '1! subsequent enactment, ordinary Reserve Cities must have at leaFt 60,000 population, and Central Reserve Cities 200,,00. 11•:?,40111 to regliire rt-rf.rves ,,u.dc so An.„ndrents have hcr.n ! maintained against deposits only, ard also unti.r which In Itnent years, cretral -T , ,ec. Cv:icaFo told !7t. ncuis haw:. becomc ilk,! ey York, (7 reserve cities, thoir banks keepinr their entire Reserves on hand in Charleston lind 141 ichmc.rd clitsed tv be r scrvc; cities, and crcoklyn, :lavannah, TIourton, D Yana 'cims, St. 7a1A., City, :7t. Joseph, Mnculn, :,)maha and Portland, Ore. hnvE hccme ordinary Reserve cities. ( it is to the p-rmil;IcIve claunes in t“Ictions !1 d2 and 5195 that attention is especially directed. !4 :Action 511)2 reserves revircd to be, kept on hand, by hanks in villaces and smallf,r cities througholzt ccuntry, ar.:, reduced to 6%; the remilining );% may consist of "balances* or letosits f . national banks in any of tho 27 resorve cities. tly et-ctirm 5195, th,4 rt.ist ryes of Irtas in 24 orelinfiry reserve cities rellairGd to bu kept on hand, arg. reduced to ing 12 1/2, may consist of *cash ln 1/."- ; the remain- deposits* in national lank , Cities of 1 w York, Chicaro, or St. ',outs, instt:ad of in the 10W 46 fOrnerly, 1 York The low practicalli sc's 6,261 banks no :ntry, wY:)1; ml.!A k64sr ana fc.vns of tht ec, A , ,-Aistinz in small eqs, 4ews (,r 1 tn laful mu/14 ,y against ycur deposits; you shall not luan Any i.ortion of thia to :/our customers, but you mai./ d.i;osit hs of it with 7iat1onal Panks in any of the reserve citiAn, Incil)ding ?:00* York. 11k.1sl;s to J1 ban:.s in 24 Restrve It rut kftrp a re- so-rye of 25/ in lac.fhL ,ncl4y vainst yo3r dot it; you shall nut loan J , any portion of this to : uo r:11;1mers, but yot. may make "cash osits* of one-half of it with laticncil Ranks in the Cities of l!wk York, Chicarc Th- ,ords mblances" in !'-c. 5192 Ilnd "cash qr6 treatwi I. ,, Jcirii*.s" in flc. nori.%rtm.nt -Lnd - unks (Ls hhvinr• f rn,rrfD menninr, WO #410 the latter being Rh41ances" also. Sec. fl2 induces banks in villages and small cities to place up to three -fifths of their Reserves at interest with banks in Reskrve Cities,-hich may loan 757 of same. 30c. 61V5 operates as a similur device for banks in 24 Reserve Cities, which may deposit one-half of reir 25A, reserves at intt rest I , rianks in ley/ York, Chicaco, or it Ticias, which ma' loan 7b: of same. rutiox4Ing fitsurtoi urt4 tabliifttfld from Abr,tract of lieuorts L( CtiitiOn of 40:1ona1 flanks on Feb. IFtsued by Lt Comptroller ofmt. .1urrency. , ..;4A:a..:). 15X Res rVo required Les ttiut i;und with the Treasurer cf tl.,e United states, iticitided by 7maw 1 Cash held 7,4v2,606.50 Ilb,4o5,1j6.55 116 Tnindo,r 1.A4 dei.osits in 411 (27) Reserve Cities. Li 24 46,106,:,579.V6 C;;;L.n. Aesscrvb la3,076,11.4.;.b6 ', c‘s Redemf,tion "wad, 441.11,07,64.1.61 rash held .•••••••115,5,4,046.44 ..0.••••••••••.•Wel•w. Remainder as deroeits in New York, Chicago and :3t. 7 1667,7ii3.17 Total belonyine to bank Reserves dftposlted in nil (7) Retry.. 11,0- tn ::=hruary CriMinntiOn 406 tb ivrislOri of this Kreat and coutinuing of money, from ed.., mar* points where lz.t. rrohibits its use, to the few roints whore free use of 75/ 18 , ptimitted. The total donits by ;.:,261 Countr? ; agents in all (V) "iieserves Cities inciinc ..7,162,101.03, anks with their reserve York, &mounted to be14g :44,:1i,,053,721.1U in widition to thtlir reserve The total thIposits by 251 banks of 24 ordinary "Reserve" deposits. aLd `;t. ,w Cities with 07.,ir reserve art-nts in !. amounted to 164,d73,40.77, bbing $61),1u,6C7.60 in additiun to t1-1,Ar Rtiserve deposits. "Rescrve" defosits are not separately acccunted for Iv; Ranks holdinr same, being included with other deposits du c to "atinal qanks. The totals "7)11, to ot.r 'fati()nal nanks" by Ranks of Central Eeserve Cities were as fcliows:- 289076,7A,0.2 New Yorh pity, Chicago, rt. 21,F07,001.3 f AV*V. y banks of 24 etear Pa,rerve r!ities, Z-5:',J 1 n- 6b,W1/.49 ' 11. The Pro).orti(in due by New V( / 7: by Chicaro lAanks about 12 3 4 --by rt. cf 24 ordinary "Reserve" rities thcut , helm- about -' TAwis 'lanks about 4;', and by 7,anks j "Reserve" flefosits wore presumably in Like proportion, namely 0 New Yrrk City abcut $66,000,r) (%--1caro about Louis abut 16,000,C00.-- rt. ,G,000.-- 24 ordinary "Reserve" Citits about ,,..37,000,90(.;. Poston lational Panks had on deposit with 'Reserve" agents ; in New York 1 14,626,10J.6b of wMch $25,162,107.66 belonged to their Philadf-11,hia banks had reserves. agents in 'ew York of .lich'11,10 , Terein is accounted for :26,71i1,030.56 with their Reserve .5 -4.- belonged to their res6rVes. -indue money power of van trtet especially, which Mr. nryan and his followers mistakenly attributc to the so-called 'Trill% of 167,- " and a monol,o1 , ' of ck,ld. anti ot.h.ir ex- 'ihe 1'1u:0:soya of Kttr4cting "Pesiervo," 're- b;, c',4sriTe Uaticnal Rank reposits tc 1i princis.ally almiled of by last; that. a scor It is open exch4m;t 17; , ca . 0 11./esi; by demanti Le virl,n1 almr csfr;t1i zi.c11-.r A to - end ,arke 7 ) t( bkricur oobaticn 40011111111111MMIMB frcm, colAin6inr, borrower fluret Lhov t'hut Tt.cnf'y ig t.O'ImCvntly clocrtrlitir,d in 647b.111. nystwr, - wite!it tv:;IftAnf7 thr. acTL1( New Ycrk by thiir , cf at the Wert anel rnlIth, are likisvisc rivh rat.; rt,s, rV•s ucccuLtcd for. bankinf; sylfttm in cane of Thc ctiLIA.11.1;; pwric tr 41cr.ttir- ttintref, re,•I , amt tr-ror t te ready to csypay cn Thise ratt inntituticnc. upcn the al)j.111 tc r t. 1e iTcn , I. rtlay, cr r. 1^ u ff‘r, Av 'fort: -4anktt te C v torrower6 full to the iml.sra%t voiuni* cf tcliat• rc1c, in irilb€rvetts cf # . trte 25: are Wit ii. roaaonabit und :fL.tekt Intact in stodd th*4refore , 0.otect1on cwainct e;neii;tncif e, J ,ort1o,n vi!latover s?'cri, he lonlied in rail 1arnA2d. tvH 1Lf. sla617-r, 4 ef bankF t'Eri.1;r?-1wIt Tht. crAintry tr 7-,lninqvr qnd inau7'try r“rt upon a 1tcro4sAd; ever,/ tt6ad1cr baait; . ndk "v, ccean cf rr.ori-j 'ti#t tr4tf: Trvrts, JusitIce, any , t:n :tf n1;r cr Recl, r1t1', sirt5n.wal ierrgetncy, ;!nd r:ot mt nd , ws,ich zire (Ipos ld to nglfare, he thor, Equal Ri&ht5, ano e5 l=nnent0. U. F. Trououry statistics stie., thAl fm.noy in ,zro. 01;tt1do this TrIAPUry, per `Alma LUCC 1870 • — zi7Z, or 17.50 and thiJ ficures cf td. !rot tr,.1vm4 : population, as f(llows: :180 1890 • • 1omj*roll m r cvnfirm NOil.ne:ancA indica- 1Alt 41.41, ctn in dirtr11 11 ion, tre charge. , ablc wit?, 41111Lefirunrity in tluply. 22.62 n4.'17 "ORIA7I7PD"CPITAT,. Our Country is great in area, population, productions, and a7gregate wealth. impartial laws. Unequal distribution of wealth must ever result under Rut glaring inequalities since our civil war, are mostly traceable to unequal or defective laws. After a 1,tried of deRut frosperity must con- pression, it is said prosperity has returned. tinue to be unequal and partial, so long as the :'4it1onal /iankilT Taw promotes a partial and unjust distribution of lawful money. In [rupor- tion to its undue concentration in large cities, it is the foundation and suprort of illegitimate and speculative undertaings. During many years, such concentration has stimulated the growth 9y its aid their false and multirlication of business corporations. or watered capitalizations have been floated; Trusts, Combines and Monopolies effected; ccmpetition by mnn of small means made impossible; the results of labor, industry, and invention increasingly absorbed in few hands; and the people at large subjected to unnatural ccnoitins of tribute and industrial servitude. Yet prominent men who are unable or unwilling to realize the truth, are proclaiming all this to be a natural economic development. Some classes of corporations, as Ranks ana Insurance Companies, are under rigid supervision State or National. watered shares. These can have no Others, organized to promte transportation, communi- cation, illumination, and other constant necessities to family and busin ss life are not thua controlled. bonds issued by these are F7reat1y The shares, and somctimes the at red. Thy this distinction b tween creatures of Taw9 The just purpose of all business corporations shculd be, to enable the honest co-operation of many, with limited liability, in ‘nteri:rises too large for the resources of one or a few. %ad they bppn all alike rigidly held to honest capitalization, the lai4 of demand and .aso. suv[1',' would have regulated their incr, There wciild h;tve hen fevier cc.rforations, slower development, and fewer creat fortunes; but pliblic justice and equal "it, would have been maintained. Artificial persons s'hould n.lver have b6exi 14,r-;itt#$d tu ars!Tle or usurp riFhts and privil.yr,ich natt,r;t1 pernons however numf., rousl assc:ciated, can never exercise; fur creator is thereby made seccild- ary and tributary tc the creature. 703gisiatcrs are acquiescrt and pliant; sometimes r pecial levislation they aid corlorate manipulators tc attain their emis, as when in 1098, the T,egislature and Governor of the state of York repealed a just restriction in the rtock Corporation Law, to enable the rew York Central Railroad to issue W. )0,000,000. of its bonds in payment to owners of 150,000,0 Lake ',More shares. Y. C ntral itself , carries : 50,0i.',0,000. tater included in its share cakitalization. 1 Island" years ago 1.a1d a ch;an loci, rm . norins: "R ock dividend in stock to its share bides pa4ing its usual cash aivinenus, it div16ed on t1-.•, doubled cavitalizstln, iqf more in stock. American railroads have every 07(.re been and are ykt "financed" to a false and inordinate ccst. "Pcor's :'anual" great dislrocrtion of railroad stcch and bond lfiflAtE te in Liii.f.-Irent of rtates, at the clost, of 16j7 as follows:— New York, 71ew Jttratli, Pennsylvania, relaware and !'aryland, '127091. per mile of sini7le tracr.; Ohio, "ichiKan, Indiana, Illinois, and ';.isconsin, Ab l oOd. pc,r Public sentiment low- rbmilined piesivt, t'Catie,- multitudes belig:Nbd "water" a nt4cesmar: tldjunct of railroad construction, for , "devlovm. ,ntlf of the Ccl:ntry. Put increasinp ?mr'—rs hre findlnr, tht, "devii-up-m-,nt" of the countr:; instead. rerry, /4.8, rald Inriustrial combinaticns and corlc- rations have fcllowed t h. railroad lead, :Ind ;Ir'e ochstantly availinr , of tl7e lib irty of false capitalization in immf,nse sums; arf, Like4int- #4nableid by superahunu ant rriontr and r,tock rxelAne m.,thoos to fioat !hqir issues upon the public. Tb roat bvtl, of the reople, not incorporated , merchants, tradesmen, farm ws, , all kinds, maio ard baIarliid men and indivhicial '. orhers of , , mutt toil for dollars, end live frug ally, if they would accilt,V,!e for "ralny days" or thoir deciinin yirars; and he who counterfeits qollars ftict,s inri sonment. Fqual riehts and om,orturitits vndfr Ls vernInd that incor IA)rated persons should long since have been limited to the !lir just method of ncquirinc capital and incoTe tt,erefrom. Iltit there in a Tlick and specitl pAth for cororate maniculatcrs, by printea 193vpt pirlutin Tlrvivd "c.1" and "dcllars", withx:ot jurt basis in nic:I y r contriutel, and which are . 14 'Sr" -Ath,t1 vroct ,eding is rot even cbt, ttnin mn-y rmler false prf:ttnces. On the ocntrary tey who secure rrreat , friellth thereby are honored for theiefinfinc ial" ability. True cvital is 01, friend and ally of E lator of every class% and t frade; but false cnAtal, thus fastenea upcli ocrivrqtiong, If it'*. opyressor; fcr hcdy cr cnpital seekinr, inocme has bt ,en incrtased tlt ,etby. ?rodlivil luxury on th*. ore hlnd, pinq h$J-j.med coniiitions cf livinc rInd of I'ores in the world on , tiel otr, are alike ,romoted by smula. malifTn practice. Vhat mearinq bkts v.iberty 80 long 48 a special 1.ath exists, for tilt, lbsrptim of wealth 1y q fractional part of the porulittion? And the procert actively ;oes or. hort is the tnd to be' The evil -hie+ thus •debases '',Ihm-rty and American Citizenship, JP "iti^ral in it,s score and oper ., ations, and the.refcre requires , ittlonal ' I :t Ion. Vmryine and fsvorinr7 laws of certain Stat es ftre c(.11nthntlY availed of. As witional authority controls the creation cf for mls cf mtoney, like authorit7 shoJid control the crea tion of forms , elTital; to the f fnd. th;,:t both may only be rtc.41,ired by ji.rs: Tvtoos, be of 1,niform -4- significas for illt. rol Jt distrihutinn of lAwf- 1 nouey, and lilst ireues of cori,o) rato, s'lares loncip, ars vitally n-!(14csw..:. to th.e rentrftl 4nd may well oonstitutd A lfart, part:! D3F1A . , -----oo0oo 7f1w York ! tock 7 -xchz., a i.Av:Itpciation cf 1,100 7 , mtimbers, is a trsat attd neCeSsar-; fzlc!tor in V:// ircmisecs. . It is Irinc1iAA1 mark4t fcr corvorate isel;tr in t„%u Unitta! rtatils. find err c.ncy and . rices beftrq ti po.tcp1s. Its irc;t1r.4st 11, 1 There they in lctrriLr t?!("/ volume of "recuritifos" for which it is the markr,t. thprefrrp alunys been P. bectssary tn i1uin he it has pint for marketing wattred issues, And cf late for adjusting cnriorato shares and bonds to u basis cr less, by acid#A "water". 0 -nnpin A reat conduit therforf- , rfw kx_ falsia tckent of capitnl for money. Its transactions h,ave Frown ytar ty year, with the increasing volume of idlo money. cess of money centered in The ex- 100vi York banking liv!titutiQns, by paymt-nt of . interwst thereon, is its life blood. That •(crti ,s eont071•:.utus ropt of the capital by Ihich its members arp severally enabled to "carr?", in loans obtained frol to., the immcnsb amount of stocks and tonds being lealt in by tho ,ir customers on margins. -- -00000 P. 1. The full designation of the commerce Court should be "Commerce Court of the United States." This ac- cords with the designations of the other Courts of the United States. It would be more dignified and more in cordance with the usual ac- practice for the designation on the seal and in pleadings to be "Commerce Court of the United States." Page 21, Lines 15 and 16. The words "this provision" should be "this Act", because the specific provision referred to relates merely to free transportation of passengers, and hence,strictly speaking, does not prohibit. Page 39, Lines 14 to 19. Hu -hes amendment ought either to be stricken out altogether, or the words "line or" in lines 17 and 18 be stricken out. In case it is retained in its present form, the rider in the first corrected copy should be attached and inserted. Page 37, Lines 9 to 11. This provision for preference is so broad as to be without value to anybody. It virtually requires that the Com- mission shall give preference to all cases,for practically all the cases before the Commission are rate cases. The theory of the expedition provision should be that a special situation exists when rates are advanced and when the Commission suspends such advance without investigation. In such cases there is special reason for expediting the cases. The provision could properly read after that in line 9 "in any case where the Commission suspends the operation of a schedule as hereinbefore provided' and strike out in lines 10 and 11 the words "questions concerning rates" and insert "the matter". Page 43 This provision was in the Hepburn Act, in order to protect claims not previously presented. It should not be reenacted, beca;„zse that portion of the section has been in force since 1906. .1 • isp .••••••••.- w COMMITTEE ON FINANCE, U. S. SENATE. LETTER MAIL. tuneAtimi 1-uy U.S. S. Axe, PLAN FOR FAERGENCY CIRCULATION. to That, in addition to the circulation authorized by existing law to be issued Immisiongal banking associations upon deposits of United states bonds, the Comptroller of the Currency way issue circulating notes, to be known 2A secured bank-notes, in an amount not exceeding the amount of the paid-up and unimpaireG capital of the hank, to any national banking association depositing with the Treasurer %f the United States of his designated agent as hereinafter provided an amount in law/ money of the Unit- ed States equal to fifty per cent of the currency notes to be thus ilsued; Trovided that the Comptroller of the Currency may designate and fix the proportons of gold coin, United states notes, or other lawful money which shall be required to be deposited under this section in order to obtain secured bank-notes; and nrov_ided !urther, that nothing herein contained shall be construed as compelling the Comptroller to issue such secured bank-notes if for any reason, relating to the condition of the bank making application for such notes, the general state of the circulation, or the foreign exchanges, he shall deem such action to be inexpedient. The deposits made with the Treasurer or his agents under this section shall not be counted as prmt of the reserves required to be held against deposits, and nothing herein contained sill modify existing laws requiring reserves against deposits. That every associttion taking out secured bank-notes under the provisions of this act, shall at all times kelp and have on deposit in the Treasury of the United States, in lawful money of the United States, as prestribed by the Comptroller of the Currency, a sum equal to fifty per centum of its circulation actually outstanding, to be held and used for the redemption of such circulatiol and when the secured bank-notes of any such associations, assorted or unassorted, shal be presented for redemption in sums of one hundred dollars or any multiple thereof,to the Treasurer of the United .states or any of his agents designated for the niircose undar this act, the same shall be redeemed in gold coin at tho oquest of the holder of the notes while such coin is avail- able from the amount deposited with the Treasarer. All notes so redeemed shall be transmitted to the Treasurer of the United States an& charged by him to the respective associations issuing the same, and he shall notify them severally, on the first day of each month, or oftener, at his discretion, of the amount of such redemptions; and whenally association shall amount to the sum of five hundred dolever such redemptions for (2) lars, such association so notified shall forthwith deposit with the Treasurer of the Uni %d "tates a sum in lawful money of the United •tates as prescribed by the Comptroller of the Currency such as shall make tee amount of lawful money so deposited equal to fifty per centem of the secured bank-notes outstanding. And all secured bank-notes of national banks, worn, defaced, mutilated, or otherwise unfit for circulation, shell when received by any assistant treasurer at any designated depository of the United states, be forwarded to the Treeserer of tee United States for rede:iption as previded herein. And when such redemptions have been so reimbursed, by restoring to fifty per centam of the secured bank-notes actually outstanding the sum deposited with the Treasurer, the secured bank-notes so redeemed shall be forwarded to the Comptroller of the Currency and shall not be reissued except upon the deposit of lawful money, s pre- scribed by the Comptroller of the Curreney, with the Treasurer of the United F;tetes in the amount of fifty per centum of the secured bank-notes thus issued; Provided, that each of said associations shall reimburse to the Treasury the charges for transportation, and the costs for assorting such notes; and each of said associations shall also severally reimburse to the Treasury the cost of engraving such plates as shall be ordered by each association respectively; and the amount assessed upon each association shall be in proportion to the circulation redocesed, and be charged to the fund on deposit with the Treasurer: That, for the purpose of constituting a Bank-Note Guaranty ?Lind for ensuring the prompt papeent in full of the secured bank-notes of failed banks, there shall be levied by the Comptroller end collected by the Treasurer upon the secured bank-notes issued under this act a tax, which shall be computed at the rate of four one-hundredths of one per centam, for each quarter pert of a month, as nearly as may be as fixed by the Comptroller of the Currency, upon all the secured bank-notes issued under this act and in c77-eulation outside the bank to which they may have been issued, exceedine in anount the amount of the cash on deposit under this Pct with said Treasurer. The Comp- troller may require returns for each learter part of a month of the outstanding secured bank-note circulation of any or all national banks and the Treasurer shall collect for the benefit of the Bank-Note Guaranty Fund, fro: the lawful money on deposit as security for secured bank-notes the teens levied under this section, and any such taxes due and unpaid shall be a paramount lien upon such deposit of lewful money. The Comp- troller of the Currency may, in his discretion, levy rn6 the Treasurer shell in such case collect the tax herein prescribed upon ell the secured bank -notes is7lied to nny (3) national banking association in excess of the lawful money held in the Treasury as security and not returned to the Treasury for redemption. Banks making deposits of lawful money in the Treasury under this section and receiving secured bank-notes shall, for four years after the passnge of this act, leave in the custody of the Treasury five per centum of the 1Pwful money deposited and upon which secured bank-notes have been issued, whenever they may withdraw or reduce their circulation, said sum to be credited upon future payments of tax under this section, and interest shall be allowed and credited from the monies in the Guaranty Fund at the rate of four ner cent per annum upon the taxes which have not actually become due and payable, under regulations to be prescribed by the Comptroller of the Currency. When the proceeds of the tax herein provided for, actually accrued and in the custody of the Treasurer of the United :7tates, shall amount to more than five per centum of the whole amount of secured bank-notes in circulation, after the deduction of any amounts paid for the redemption of the notes of failed banks or for interest allowed for lawful money held in the Guaranty Tuhd, hereinbefore provided, the rate of said tax shall thereafter, beginning with the first fiscal year after such fact shall be officially ascertained and announced by the Comptroller of the Currency, be reduced to one-fiftieth of one per centum for each quarter part of a month as fixed by the Comptroller upon the excess of secured bank-notes in circulation above the amount of lawful money deposited as security, and the proceeds of said tax, thereafter collected, in excess of the amount required to maintain said Guaranty Fund at five per centum of the secured bank-notes in circulation, as ascertained and fixed by the Comptroller of the Currency, shall be paid into the Treasury at the close of each month as n miscellaneous receipt. The secured bank-notes issued under the provisions of this act shall be a paramount lien after the deduction of taxes due to the Government, upon the lawful money the amount of deposited with the Treasurer of the United 'latest but any deficiency in of a failed lawful money held by said Treasurer for the redemption in full of the notes bank shall be made up from the guaranty fund hereinbefore provided. Said guaranty fund the notes of shall have a lien upon the assets of the failed bank for the amount of with the Comptroller, said bank outstanding in excess of the deposit of lawful money distribution of said assets. and such lien shall share ratably with other claims in the redempThe lawful money held to secure secured bank-notes shall all be applied to the tion of such notes, unless the amount held is in excess of the outstanding secured (4) bank-notes of the bank , when the excess shall be paid into the assets of the bank for the benefit of ot 1. er cre(ii tors. Secured bank-notes issied under t o r—ovisions of this act shall, upon the demand of the holCer, be redeonle.(1 inr. 1.9 , , sued. oi n by the bank to which they shall have been is- 1#11/Vvikva t/lict;( )Alvt - • . ., 411111111.1111 ir 4). 73826 January 1.3, 1911 73826 1 Vreelaat, Vic.e ohdrman, - ?rational "onet—i.rv ^ear 4, - wasn 0"" had informally -dith ol ,(1, ) i roit and oti, 60 be E..bie Lo diecuus Dr,0 re of 9'?e Comission the ideas which I have beer fornulutirip Your P.',s'nce from t: rerd .tyld ci monetary ilinebs have alade it impousible for me to disci;so t.1th mai,ter freely with L.ou as I intended. purro!ie las to call a neetinv: of the ;o-niscion early this melt rirrrr)Se for 1,- fore of 1:),era z genc!riii own plRn for re!..lecti,1 I no:r 1n at it aill be n.leuc:;ary for ue to 1, !uve for the sonth today and tliat 1', will not be possible for the members of th '0 n1:-i.on ie called for "II:slay morninc:, v t.o confer I11:ot' :..s,;(..d that a me.!tin viii not be course, fo,- me to be nrcv(.ns, bill. I frLi be i;lud if • srmt to thr. pre- t e slwes.1o,ss . ‘01.(Th 7 sonl you hereiith. . T hrtve .)e. -)n for 3or.1itt cleari7 or 1,1,e opinion tat I .could be nociry tr :;ocle toniva plan us the sion -n1 nrifinien. I, of ccnroo, do :lot exp.ct the in, Ledi‘Ate up- uubject of (J.uous- _ 7382E, proval of 1,1. o Co) llpon it. be tt.i.ken t si on or th itt. any fo retal."c T f011y bOne io onal one 0-ta -4. Trim pi:in nu.: -est *Id is ( pers ii . ons. re,le qt.:3 of ri,}m.riged Qond ! Wtil An 3ler tJle car- It try, ory:.tn izations or the coun f- n-nish to the co:.1.1orci:t1 bt!.sis ior criticlsm and 3 subject, dho itr nod considerin2 :,111.1 tat n1 1)ril l ... :TLS ON ';/. ALDRICH , r nun. 44,, a •L--- , tva.,t4 tki 1 • 0,.4._4 \-; re):) • ‘. 3 7382EJ Washictu e -anuar; 16, 1211. , .1.11.1.•1 r:orlfermtty with the tr/ ,'nstion !:Ict!tin- of tl:.! '..1_.10.1. :70!ioLfr: Co.dmiosio , i havo prepared an outline , . c...,: . : for scion of or naLional 1):lking t,atativ plo,n for ,:7: revs t;c) the (;onraios ion . bank1: J, 1 onal e s in aim In jl, re!3,)onsivo to t-w de:tnds of ,aodern :,111 ();:%I.;:lion :!os givtin Lo Altdy .'i3 ii bject ir:.esistibl:, to '.11,! (.;onclion tLat our pro3ent Kas, I bo1ie7e, ir nerly half ./as . contur:f uco and hcfs onv, ti1s comoletely und.er . proicallz 1,,:lc'.;,1„;d, ro :;tre:.8 and in AR: prest_ce of hnusitai (6qa(1.11ds ut,on is rnsources, fouLd inudequatc zu,d jr nr e-en unc ei e or- (:o.P,ionu of .;:sinucu. di . otted heroviith arc Lie resvlt of :roars of 3' - ostio,, k cl.t. tlitt; m..11;,;cct, arol ar .71- ich I ..rA.Nrc i1433 of i::lorna,ion i' ] light cf: liv UI 31O1 hac vst,at ,knd needs and the both oar own 72red formul%tod in the 9ri4e':,ioes of fort.iL:n TP 7 'i;}1t in 4L I1vin 7s Lhe preen. 1 :?.,/ 1 tta obsolete, ane, of t.) in Lc"C eJ„n oe JO d0Jbt, there i3, L'--11 1 no .rgliaent, th reLu.rd Lo rooui h l.c) be .,s1'1 4, ii thin r, be ollr %1:,1 4,3 UU , casc,i;. ulat be o./r aim t- 0 ;1134r..1.nenl, as ,o.,81.1)1e. liberalize tuic v)..00!nt i. c.omplish It should .;.ct, and to . 1J14, 11 :*f.,Jauros .te -re iumed e!,nent1H1, ratl'or - forrailla4.c cs.n., plan 1.1.cl a . (;laity for' elodurnizinc the ! el:;,.ri6e 011- nrcocrit I In t' ft t prim inal needs , ',A3 obvious 1;1 tt.t ory..: of the l!it)100, for 1-The .un-Ification of our 1.,(71,t present banking inst itutions into one conwreLonsive elstem. In ether empltries we have found that ryterves are concentrated and • 710.6 used freely in &tn.! , a4.1vctich where needed. uncer our fault'; q:s-r,em reaervi- s Ltre Lio sow tered a:3 ! to be uns,Valla"!:;lo, in time of trouble eithr fcr prrposes of assistance ov riefense. / Ylte rr!sult of our 17:Lw 1ts seen to create made of r eat nulaber of ail. :overnod re t:!1-eir e to//31.z•.•..4, .le gent reco,7:ni unclnr by its oytn be for --,Vo , 4- ars cf cleo es:;ity of ,r eater r:ooperat 1. on, the'.' powerless to effect it. if can as t 8o amend Ole present, nal:ion:a karmirkxx 7- urkini.r. act ) the f orrFtI on of ar. Ets7:5o ciat ion of nAl the - ountry to moet these noed s, toward solvin,2; tlie problem tion bankin- systc!:: units , c!a0.1 ivy] int,rosts a 1312i-t11 is before us. of r7ono a leni! -z-ty . If in ,tridi- :.)re-,.rlde a more ':oientifie basis for 'ounk note circultion, so that the volume of circulation of bn.ieve, ents of a satisfactory solution. be responsive ',o The mc,t tho trio : re, ...i.ire- In adfltion to that, if :Je can , aid in creatirw a discount maret in this fountry similar to the discount markcts in Europe, so that the most liquid portion of our bank funds not of necessity be forced to sucL a lare fIct;ree as a' prent the ilakin; of -all loins upon 3to k -rxclunge collAteral l "olit -rill. instead be a, ::Llable for te n edu or comaaer, eial vie &a 11'!!;, -ve io broadened our blrIcir, meth ods as to bring incalculable benefit to t.hc comnercial life of the country. I believe tl,a.t the r•onclusions wi.ich I nresent hereyith meet ooe conlitions, and that the or;niziltion which it ia prnpo!ied to create insure the 'benefits which •,./e s ek. without running any risk of creating a fin. -Lnci al inF3 tit, , . IT ion r n.t,n hr r.-ori;rolled ambitious Trionetar7 interests by or dominated b7r polifjc al infinenee. we hztve fonnd much t1-iat is adnirable in the orylrat:i.en of 7 rious ; r,overmaent, banks , : of :::rope, none of them if.; appileabio to our needs here. To .7ood ,-- esulte which they obtain can, I beiieve, be 'reacliteit without the ereation of such a central bank. I feel Ahat -1* 7382C — the plan ':.rhicl-L i :ropoed 5 roaches those results without being open to tile objections whicli tAiaJ ael.l be brought a.:;ainst such an in on. . I reco.;nize the fact 1-,1!:.:.t plan in the taok of tile Coir7 a.ftor ith,j oct las been formulik.tion of u. derinitc (8.1.1 he :1.-complished only tidIed w1 4 h c no in l parl:.s of country. .4i,ofti-ertIii1 certadinly modify and ic.prove T here 1.u.t he plan velleh I now subril., for at ion, which, in its main l'eatures, in my opinion, ts do ails. co:wider. 1)c nc- e rmoBary reaviirenents, mabe found.• of value to the on ill the nec2: t;ar.7 work of ronstrvetion. , : NFLSON W. K,DRICII, m (t '' • •tlOdl ..0 Corual.os on. \ oat) revu,. • CHARTER AID LOCATION. It is proposed to charter the jserve,Association of America, • which will be th e principal fiscal age of the cpvernment of the UnitE,d states. 'hQ.authorized E40fital of the 'Reserve Assoc6L7 14^- 14- L --414 ' "" iation shall behrec hu dred mil]Mn dollars. The length /bf its charter shall be fifty years. The head office of the Lso- ciation shall be in Washington, D.C. , 73[ 26 1 The country shall be divided irto fifteen/istrict s, and a ranch of the i Reserve Association sYILL1 be located in each /s- trict. The Reserve Association and its Branches shall be exempt from State and local taxation, except in respect to taxes upon real estate owned by it. CAPITAT. 00. Only national ^o, anks of the classes hereinafter provided for may subscribe tion. to the ca)ital stock of the Reserve A , ,pocia- A national bank having a minimum capital Of at least twenty-five thousand dollars, may subscribe to an amoun t of crpital stock of the Reserve Association equal to twent per 0,2nt of the stock of the subscribing national bank, and not less, and each of such subscribing banks shall become a member of a / 6)cal Osociation as hereinafter provided for. Fifty per cent of the subscriptions to the capital stock of the Reser ve Association shall be called in cash; the balance of the subscriptions will remain a liability of the stockholders subject to call. Shares of the capital stock of the Reserve Association will not be transferable, and under no circumstances may they be owned by any corporation, other than the subscribin g national bank, nor by any individual, nor may they be owned by any national bank in any other amount than in the propo rtion here )rovided. In the case of a national bank ir7Ssing its capital after it once becomes a subscriber to the stock of the Reserve Association, the nation 1 bank shall thereupon / Subscribe for an aCditional amount of the capital stock of the1?ese7:ve Association equal to twent . per cent of the national 'bank's increase of capital, paying therefor its then book value, but only one-half of this ad6itiona1 subcription will be called in cash, as hereinbefore provided. In the event of a national bi,nk which is a holder of the cai:ital stock of the Reserve Association decreasing its ca.ital, it shall surrender a proportionate aunt of its holdings of the capital stock of the Reserve Association; or if a nation.1 hank goes into liquidation 'Qim:14o—mwptr—'40eltqmm!..Anwr , , atomteanetil,iiii-it shall surrender all of its holdings of the capital stock of the Reserve Association. The capital of the Re- serve Association so surrendered shall be cancelled, and the national bank thus surrndering stock in the Reserve .Asociation shall receive in payment therefor a sum equal to the then book value, as shown on the balance Lheet of the Reserve Association, of the stock so surrendered. EARNINGS AND DIVIDENDS. ••••••••••••••• The earnings of the Reservr.1 Association shall be distributed in the following manner: 7182Ci 'After the payment of all expenses and taxes the stockholders / shalt receive four per cent. Further earnings shall be divided, one-half to go to the su us of the Eeserve Association until that surplus shall amount to twenty per cent of the )aid in capital; e , /.„ • one-fourth to ro to the Governmerq, and one-fourth to the stock/ holders; but when the stockholders' dividends shall reach five per cent they shall receive no uCiditional distribution. After the stockholders receive five per cent the earnin;7s shall be divided, one-1:A.f to be added to the surplus of the Reserve Association and f. one-half to g0 to the Government. After the stockholders receive five per cent per .Lrinum and the surplus of the Reserve Association amounts to twenty per cent of the paid in capital, all excess earnings shall go to the Governolent. stockholders shall be cumulative. The minimum dividends to the LOCAL A .3 ''OCIATIONS r' OF NATIONAL BANKS. \--pi.All subscribing banks shall, be formed into associations of national banks to be design, as Localksociations. Every Local Association shal . comoosed of not less than ten banks, / and the copibined cal4tki1 and surplus of the members of each Local 7 Association shan anregate not less than five million dollars. All t'rieAJocal Associations shall, be iT,rouped into fifteen divisions, to be called Astricts. The territory included in the Local Assocations &Ian be so apportioned that every national bank will be located within the boundaries of some eocal Every siThscribinE national bank shall become a ';:lember of the Local Assoc_ation of the territory in which it is situated. -1382E) DIRECTORS OF LOCAL 9 -(‘f ASSOCIATIONS. •"" Each vocal Asociation shall elect annually a hoard of directors in the foilowini7 manner: The nwfoer of th directors may be detrmined by the by- laws of the Local Associations. Three-fifths of that number stall be elected by ballot cast by the representatives of the banks that are members of the Local Association, each bank having onerepre- setative, and each representative one vote, without the size of the bank. reference to Two-fifths of the whole number of directors of the Local Association shall be elected by these same representatives of the several banks that are members of the /ssociatio n, but in voting for these additional directors each representat ive shall be ent.Ltled to as many votes as the bank which he represents holds shares in the Reserve Association. shall be no proxies. At such elections there The authorized representatives of a bank,as herein provided, must be either the president, vicqpresid ent, or cashier, of the bank he represents. OF DIRECTORS BRANCHES theleocal Asociations shall be ip As heretofor provided, all l s, and each of these divisions shal grouped into Mtetn division t e shall be located in eadhi6istric be designated aielstrict. Ther 11 ranches ' Association. Each of the f-i-ft-Oen afranch of the Reserve /, directors and Association shall have a ,board of , of the Reserve 4.7 g manner: s shall be elected in the' followin , those director / Association shall board of directors of eachX cal The ard b, /5 of directors of the Branch elect by ballot one member of the / s manner there will thus be elof the Reserve Association. In th ion Br nch of the Reserve Associat ected as many directors of t in the 7)istrict in which that as there may be Local Associ is located. In addition to that Branch of the Reserve Associkt'on number of the directors equal to two number there shall be elected a th Associations in the District Where thirds of the number of Local al directors shall be elected in th Branch is located, such addition .' following manner: There shall be chosen by the 20 banks composing each Local ve or proxy holder. In choosing Association a voting representati shall be entitled to as many such voting representative each bank rve Association. The voting votes as it holds shares in the Rese l Associations which form a representatives of the several Loca office of the Branch and elect an District shall then meet at the ds s of the Branch equal to two-thir additional number of director the Local Associations; that is, of the number elected cirectly by of Local A,sociations composing equal to two-thirds of the number tative at such election shall the District. Each voting represen number of shares in the Rehave a number of votes equal to the s composing the Local Assoserve Association held by all the bank ciation which he represents. The first business of the board of the/ nch, 4a as thus constituted, shall be to add to its numliers by the election of an additional num'eee of dir ectors equal to one-third the number of tOcal 4eociations situat ed in the Astrict. Suc h additional directors shall fairly rep resent the industrial, conmercial, agricultural and other intere sts of the District, and shall not be ofrf Oke- baniss,.. /-i-, I ,.icers o ,,, i A.eft.. t . Le.J0....„--v1,41-61 ., ee / 4 .. eA,...i The manager of,' . the Bra nch shall be ex officio a member of the board of directors of the Branch, and shall be chairman of the board. 73825-, 21 The board of directors of a /ranch of the Reserv e Association will, thus be composed fie, of/47; eFirst, 5 group of directors equal in number to the num:ber of Local Associati ons comeoeing the pistri ct, and this group shall be elected by the directors of the Local Ass ociation, each director having one vo te0 Second a group of dir * ectors equal to / two-thirds of the foregoin; group, and ele cted by stock representati ona, r- ird6 a group of dieect ors equal in number to one-third of the first group, representing the industria l, conmercial, agricultural and other interests of the ristrict, and elected by the votes of the first two groups, each director thu s voting having one vots Fourt l the manager of the Branch shall be ex officio a member of the board of directors of the Bra nch, and shall be Chairman of the board. Ill 22 7382EJ All the meTlibers of the board of directors of the Branch except the ex officio men7)er, shaki, at the first meeting- of the board, be classified into tee classes, and the terms of office of these thr-e classes / s years. TIlereafte': m 11 be, respectively, one, two, and three Tiers of the board shall be elected for a term of three yearsii DIRECTORS ----- OF THE RESERVE T IOT ASSOCIA- . Lfr The five oard of the Reserve Association hall censist of tors, and it shall be composed in the fullowinr manner: First six ex officio members, the/6overnor of the Reserve Association, who shall be 6 -lair-Ian of tl'Y loard, two 7 7.eputy Gi 4 overnors of the Reserve Association, th' ',ecretary of the Treasury, the Secretary of Comaerce and Labor, and the Comptroller of the Currency0 Second0 fifteen Pirectors to be _lected one by the board of directors of each Branch of the Reserve Association. TheL, be elected by ballot, each member of the 7ranch board havinr one voter ) s Third, twelve c) irectors, who shall be elected by voting representatives, one representing the banks embraced in each ristrict. Each voting; representative shall cast a numbr of votes equal to the number of shares in the Reserve Association held by _11 the banks in the District Which he represents0 Fourth4V 7661.ret as thus constituted shall select twoJere 1 / m" additional members, Who shall fairly rep resent the industria l, commercial, agricultural and other interests of the country, and who shall not be officers of banks. E I /6 4.41( 4 ,4 7 tiAA • At the first meeting of the ;..trd all the members of the joa rd, except the ex officio members classes, and the terms of all be classified into three ice of these three classes shall be, respectively, one, two, and three years. Thereafter members of the Board shall be ele cted for a term of three years. No member of any nation al orState legislative body shall be a iirector of the Tipser ve Association, nor of any of the nranches, nor of any local /ss ociation. 73826 23 The directors of the Reserve Association shall annually elect an ixecutive Committee , and such other commit tees as the by-laws of the Reserve Associati on may provide. The licecutive ommittee shall consist of nine member s, of which the flovernor of the Reserve Association shall be ex off icio Oairman and the two 06puties and the Comptroller of the Cur rency ex officio members. The ixecutive dommit tee elan have all the authority which is vested in the Board of Directors, except such a s may be specifically delegated by the Board to other committees or to th.: Executive Officers. • 7 , 31 Another class of national banks shall be au'thorized, Which shall be in effect national trust companies,o be/designated by some alp/ propriate nane and to exprclse all the fugct ions and have all the / , a 4rriv1leges dlAich 4 are given to trust companies by the laws of the various States. 1 r Th se national institutions shall be subject, like other national banks, to inspection and examination by the National Governmcnt. There shall be no change in the percentage of reserve required by lawto be held against demand deposits by national banks, except as otherwise provided herein, but the deposit balance of any national bank in the Reserve Association shall be counted as a part of its legal reserve. / r te . PREPARER'S INSTRUCTIONS Jacket No. Req. No. Department Preparer Title INSTRUCTIONS: Measure Type • -4 o l There shall he a hoard of f0Upervision elected by the 4 ard of . irectors from among its number, of which the Secretary of the Treas ( 1 ur:f shall be ex officio airman. 7362. EX-.CUTIV7, OFFICES OF THE 14 c. R ASSOCIATION. 400' The Secutive 4ficers of the Reserve/Association shall cone , sist of a governor, two erut,, Governors ecretary, and such the by-laws. subordinate officers as may be provided ernor and Deput , GPvernors shall belse_ United States, from The/6ov- cted by the ?resident of the a list submittei ly the 5oard of Directors. The 0overnor shall be subject to remova1b7 the President of the United / States for cause. The term of office of the yLputies shall be seven years, but the two Deputies first appointed shall be for terms of four years and seven years, repectively. In the absence of the hovernor or his inability to act, the Deputy who is senior in point of service shall act as Governor. RXCUTIV OF 3RANCH 14]S. -Eac-;1 Aranch shall have a manacr and a deputy manager. They shall be appointed by the Goirrnor of the Reserve Association with the approval of the 7xecutive Committee. The powers and duties of the manager and deputj manager and of the various committees of the 4ianches shall be prescribed by the by-laws of the Reserve Association. FUNCTIONS OF THE LOCAL ASSOCIA- TIONS. 7382C e' /4d e-44 Any member of a Local tociation may apply to AilmOsociation for a guaran4 of the qommrcial paper which it desires to rediscount at the ranch of t Any such bank receiving Reserve Association in its Wistrict. ? ,,guarant from a tocali / 4ssociation shall pay a commission to the Associati n, tg be fixed from time to time l . by letboard of dl: Itorlt The guaranty of the members of theja Association, in the event of. loss, shall be met by the members of -e-t-ditheessociation in the proportion to the ratio Which their capital and surplus bears to the aggregate capital and surplus of the Local Associatfon, and the commission received for such guarant , after ti--le payment of losses and expenses, shall be distributed aLong the several banks of the Local Association in the same proportion. A pcal/ssociation shall have authority to require additional curity from any bank offering paper for guarant to grant the application. se- , or may decline 4 1 The total amount of guarantifs by a iocal Association to the Reserve Association Shall not at any time exceed the aggregate ' capital of the banks forming the guaranteeing Association. A ott FUNCTIONS ....'- OF THE RESERVE er...... ASSOCIA- ' 4 . 0 #.1". 3 T I ON. soww.0- All of the privileges and advant4es of the Reserve Associa/ e tion shall be equitably extendrd to, everynational bank of any .of the classes herein defined, who shiall subscribe to its proportion of the stock of the Reserve Associ4tion and shall otherese conform to n, the requirements of this Act. The Government of the United States, and those national banks owning stock in the Reserve Association, shall be the sole depositors in the Reserve Association. All domestic transactions of the Re- serve Association shall be confined to the aovernment and the subscribing banks, with the exception of the purchase or sale of Government or State securities, or securities of foreign governments, or of gold coin or bullion. The Government of the United States shall deposit its cash balance with the Reserve Association and thereafter all receipts of te the Government shall be derosited with the Reserve Association, or C4e (when necessary) with such national banks as the Government detig- A natelfor that purpose in cities where there is no 7ranch of the Re/ serve Association. All disbursements by the Government shall be made through the Reserve Association. The Reserve Association shall pay no interest on deposits. ,!Y The Reserve Association may rediscount notes and billsiarising • / . A out of commercial transactions, for and with the endorsement of any bank having a deposit with it. Such notes and bills must have a maturity of not more than twenty-eight days and must have been made at least thirty days prior to thydate of rediscount. The amount so rediscounted shall in no/ci exceed the capital of the bank applying for the rediscount. The aggregate of such notes and bills 73826 27 bearing the signature or endorsement of any one person, company, cor- A../ . id por tion or f rm, rediscounted for any one bank, shall at no time exAtEi cap tal and surplus of said bank. ',I. The Reserve Association may also rediscount for any depositing bank notes and bills arisipg out of commercial transactions, havtt 2'i ,; e ing more than twenty-eight days pl the paper ; must be guaranteed by the Local Association of wh1'iie bank asking A : for the rediscount is a m2mber. A Whenever in the opinion of the ovr.rnor of the Reserve Associa;.r / 110 tion the public interests require, such opinion to be concurred in ir by the/xecutive qommittee of the Reserve Association and have the l A definit9-approval of the Secretary of the Treasury, the Reserve Association may discount the direct obligation of a depositing bank, endorsed by its Acal Asociation, provided that the endorsement of the rocal 4sociation shall be fully secured by the pledge and de- posit with it of satisfactory securities, Which shall be held by the Local Association for account of the Reserve Association; but in no such case shall the amount loaned by the Reserve Association exceed two-thirds of the actual value of the securities so pledged. The rate of discounat, which elan be unifor thr m oughout the United States, elan ,bp_ i fixed from time to tim ' e by the Executive Comittee pf the Reserve psociatimand duly Publis hed. _ foe The Reserve Association may, whenever its own con dition and the general financial conditions warrant such invest ment, purchase to a limited amount from a depostting bank accept ances of banks or houses of unquestioned fi4ancli responsibili ty. Such acceptances ,/ must arise from connerciAl ransactions and hav e a maturity not exceeding ninety days, an must be of a charac ter generally known in the market as prime bills. Such acceptances shall also bear the endorsement of the depositing bank sellin g the same, which endorse, . ment must be other than that of thd-ad'ceptoi.-/ The Reserve Association may invest in United States bon ds and In short term obligations4lhat is, obligations having not more than one year to run iof the United States, or of any State, or of cortain foreign gov ernments to be named in the Act. • 73pr, 28 The Reserve Ass ociation shall have power at home and abroad to deal in gold coin or bullion, to gra nt loans thereon, and to contract for loans of sold coin or bul lion, giving, when necessary, aoentable security for their repaym ent. The Reserve Association shall have power to 4.. / purchase from its depositors, and to sell, with or without its tndorsemert, cnecks or bills of exchange payable, in ngland, France, or rlermany, and in other foreign countries as the hard of the Reserve Association such . 0These bills of exchange must arise from commercial uay decide. 0 / transactions and be of a maturity not exceeding AJAgrety days, and shall bear the signatures of at least three responsible parties, of which the last one shall be that of a depositing bank. 7382E, 29 The Reserve Association shall have power to open and maintain , banking accounts in foreign countrles, and to establish agencies in foreign countries, fcr the purse of purchasing and selling and collecting foreign billexchange, and it shall have authority to ./ buy and sell, through. e6ch agencies, prime foreign bills of exchange arising from commercial transactions, running for a period not exAt-e, the signatures ofeesponsible ceedin,: ninety days, and bearing parties. DOMESTIC EXCHANGES. It shall be the duty of the Reserve Association or any of its Branches, upon request, to transfer any part of the deposit balance of any national bank having an account with it, to the credit of any other bank having an account with the Reserve Association. If a deposit balance is transferred from the books of one Branch of the r Reserve Association to the books of another pP anch, it may be done by mail or telegraph upon terms to be fixed from time to time by the Stecutive eommitte. e--117--- --i" W- ft-----Ft—r—fl---14-1" .90 F . 7382C-; NA TIONAL BANKS. 30 In addition to the rights now 'co nferred by law, national banks shall lee L'thorieed to accept ccmmercial paper drawnthen, having /. f not more than )644.tict77— ei:trs to run, properly secured, and arisin g out of commercial transactions. The amoupt of such acceptances shal] not exceed one-half the capita l of the accepting bank. a'se National Anks shallA have aut hority to establish branches in A the cite or town in which the y are located. The organization of '')::Tks to conduct business in foreign countries shal] be authorized. The stock of such banks mae be held by national banks. The bank so organized nay have an office in the United States, but shall not compete with national banes for domestic business rot necessarile related to the business being don e in foreign countries. There shall be established a new class of national banks to be known by a specifically des ignated name. i3uo1l banks ele.e have sayInes departments and may ake prcperly secured loans cn rea l estate; such loans to be restricted to a certain proportion of the aggregate time and savings deposits in the bank. The reserve requirement in such banks will be less aga inst seiJincs and time dep osits than against demand deposits. 13 • 1 . 6-4--4-46.-L.4.1 41-.J.....6 C-11-4-4 REPORTS wws° a report, showing the prinThe Reserve Association sill make ency to the Comptroller of the Curr cipal items of its balan0 yheet, / In addition public. These reVte shall be made a week. once cothe Comptroller of the Currency full reports shall be made to national called for each year from the incident with the five reports banks. ers in regard to the conAll reports of national bank examin and eafter be made in duplicate, dition of national banks shall her fiReserve Association for the con one copy shall be filed wlth the t,-cers. dential use of its 4ecutive &fi e make a weekly report to **Alational -banksA shall hereafter their showing the principal items of the Comptroller of the Currency be available for the use of the balance sheet, such reports to Association. xecutive )efficers of the Reserve A NOTE ISSUES. ther issue, beyond the amount There is hereafter to be no fur National banks by national banks. now outstanding, of bank notes r present note issue, but whenever may, if they choose,, maintain thei , 174 1,` I. ;Cc. r r issue it will permanently retires any pa t of its existing a bank A; , ''' ,.3 4/ ii.. 0 _ /A ,reissue// 11. •A I- , render its right sur A 7382C 33 The Reserve Association must, fOr a period of one year, offer to purchase at :5 (a price not less than par and accrued interest) the two per cent bonds now held by national banks and deposited to secure their circulatinr. notps. The Reserve Asso4; tr elation shall take over these bonds with* existing currency privilege attached and assume responsibilit/for the redemption (upon presentation) of outstanding notes secUred thereby. The Reserve Association Shall issue, on the terms herein provided, its own notes as fast as the outstanding notes secured by such bonds so held shall be presented for redemption, it being the policy of the United States to retire as rapidly as possible, consistent with the public interest:ay bond secured circulation, and to substitute therefor notes of the Reserve Association of a character, and secured and redeemed in the manner, provided for in this j ict. The Reserve Association agrees to hold, for a period of not less ,, /0 olk.... than ten, years, the bonds so purchased, or any Government security , — which may be exchanged for them by refunding or otherwise. The Reserve Association, however, shall have the right, with the approval of the Secretary of the Treasury, after two years, to dispose annually of $50,000,000 of the bonds held by it to secure circulation. The Government reserves the right at all times to purchase at par from the Reserve Association, through the trustees of the postal savings bank or otherwise, any or all of such bonds so held. If the GOvernment should adopt the policy of issuing at a higher rate of interest than two securities e t ..tytvr.,,,, 4 ; ce .t , i j2=erz osocia e tion shall have the right to exchange - 'jaw-took fa, we.wiemilrimrs for , vi any bonds bearing interest at a rate not exceedin g three per cent but in that event the amount of annual taxes to be paid on notes based upon such new securities than be as much grea ter as the in; terest rate of the new securities &Ian exceed two e per cent. tA i 73826 To illustrate: 34 — If the Government should decide hereafte r to issue a two and one-half per cent bond, the rate of taxation on currency issued by the Reserve Associat ion thereon would be one per cent, instead of one-half of one per cent as on the existing twos, and upon a three per cent bond the rate of taxation would be one and one-half per cent. In addition to the authority to issu note e s to replace any national bank notes outstanding at the time of the organization of the Reserve Association, it shall have the right to issue additional circulating notes as follows: The whol e or any part of the first 0.00,000,000 of such additional note s shall pay to the Government an annual tax of three per cent; abov e $100,000,000 and not more than $200,000,000 may be issued at an annu al tax of four per cent; above $200,000,000 and not more than $300,000,000 may be issued at an annual tax of five per cent ; all above $300,000,000 shell pay an annual tax of six per cent. s. 738-)r 35 All note issues of the Res erve Association mus t be covered to the extenCt at least one-third by gold or other lawful money, and the remaining portion by bonds of the United States or bankable commercial paper as herein defined, or both. (It dhould be provided either that the Deserve Associati on may also hold in its reserve foreign coin, or that the Treasu ry will issue gold certificates against foreign coin.) The notes are to constitute a fir st lien upon all the assets of the Res erve Association, and adequate pro vision must be made for their immediate redemption in lawful mon ey on presentation at the head off ice of the Reserve Association or any of its Wanches. The notes of the Reserve Associ ation shall be received at par in payment of all taxes, excises and other dues to the United States , and for all salaries and other debts and demands awing by the United States to individuals, corporati ons or associations, except obl igations of th Government which are by their terms specifically pay able in gold, and for all deb ts due from or by one national bank to another, and for all obligatio ns due to a national bank. The Reserve Association shall aL once, upon application an without charge for transport ation, forward its circulating notes to any derositing bank against its credit balance.