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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.




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