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AGRICULTURAL INQUIRY
HEARING
BBFOBB THE
JOINT COMMISSION OF AGBICULTUBAL INQUIRY
SIX T Y -SE V E N T H CONGRESS
FIRST SESSION
UNDER
S e n a te Concurrent Resolution 4
IK THREE VOLUM ES
V olum e 2
AUGUST 2, 3, 4, 6, 8, 9, an d 11, 1921
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AGRICULTURAL INQUIRY
HEARING
BE FO RE TH E
J O IN 'f COMMISSION OF AGBICULTUBAL INQUIRY
S IX T Y -S E V E N T H
CON GRESS
FIKST SESSION
UNDER
Senate Concurrent ResQlution 4
IN T H R E E V O L U M E S
Volume 2
91341
W ASHINGTON
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CNITED STATES CONGRESS.
Joint Commission of Aobicultdbal I nquiby.
UBT OF COMMISSION.
8 I D N E I A N D ER SO N , Minnesota,
HOUSE MEMBERS.
OGDEN L. M IL L S, New York.
F R A N K B . F U N K , Illinois.
H A T T O N W . SU M NERS, Texas.
P E T E R G. T E N E Y C K , New York.
Chairman.
SENATE MEMBEBS.
IR V IN B L. LENROOT, Wisconsin.
A R T H U R C APP ER, Kansas.
C H A R L E S L. M cN A R Y , Oregon.
J O S E P H T . ROBINSON, Arkansas
P A T H A R R ISO N , Mississippi.
C lt d b L. K i n o , Economist.
I r v i n g S. P a c l l , Secretary.
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AGRICULTURAL INQUIRY.
TUESDAY, AUGUST 3, 1621.
C ongress op th e U n ite d S ta t e s ,
Joint C ommission of A gricultural I n q u ir y ,
Washington, D. C.
The joint commission met, pursuant to call of the chairman, at
10 o’clock a. m., in room No. 70, Capitol Building, Representative
Sydney Anderson (chairman) presiding.
The C h a ir m a n . The commission will come to order. The com
mission this morning will hear Hon. John Skelton Williams, former
Comptroller of the Currency.
Mr. Williams, the commission is investigating, among other things,
the causes of the present condition of agriculture; ana the banking
and financial resources and credits of the country, especially as
affecting agricultural credits. The commission assumes that as
Comptroller of the Currency you are familiar with the policies that
have been adopted during the past 18 months, and that you will be
in position to give the commission information upon which it can
recommend a definite policy with reference to agricultural credits in
particular. The commission will be glad to hear you develop the
matter in any way that you desire to present it.
STATEMENT OF HON. JOHN SKELTON WILLIAMS, FORMER
COMPTROLLER OF THE CURRENCY AND MEMBER OF THE
FEDERAL RESERVE BOARD.
Mr. W il l ia m s . Mr. Chairman and gentlemen of the commission,
the value of testimony depends not only upon the character of the
witness and the study which he may have given to the particular
subject which is under discussion, but also to a large extent upon the
practical experience of the witness; and with the permission of the
commission, I should therefore like to state briefly what my experi
ence has been during the past quarter of a century.
For more than 30 years (except during the past eight years which
I have spent in Washington as First Assistant Secretary of the Treas
ury and as Comptroller of the Currency) I have been a director, vice
president, president, or chairman of trust companies and banks, both
National and State, not only in the South, but also for a considerable
portion of this period in Baltimore and New York City. Twenty years
ago I was president or chairman of the trust company section of the
American Bankers’ Association, and member of the executive council
of the American Bankers’ Association.
More than 25 years ago I became president of a railroad company
in the South, and three or four years later planned, organized, and
was president of the Seaboard Air Line system, operating approxi
mately 3,000 miles of railroad. I parted with my interests in that
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property in 1904 and retired from its management, but about three
years later when the property got into difficulties following the panic
of 1907,1 was urged to return to a participation in its affairs, aiding
in its reorganization, which was probably the most successful ever
carried through for a railroad of that size, the floating debt creditors
being paid in full without assessment upon stockholders, and the
credit of the company fully restored. I retired from membership in
the board of directors ana executive committee of the company a
few months before coming to Washington in 1913.
Eight years ago, in 1913, I accepted from President Wilson and
Secretary McAdoo the office of First Assistant Secretary of the
Treasury, and by the President was designated Acting Secretary of
the Treasury in the absence of Secretary McAdoo.
I declined the office of the Comptroller of the Currency when it
was first offered to me, but later on when it was tendered a second
time I accepted, and as comptroller had supervision over more than
8.000 national banks with 20,000,000 depositors and twenty-three
billions of resources; I was also ex officio member of the Federal
Reserve Board.
When the railroads were taken over by the Government in 1917,
in addition to my other duties^ I was appointed by Director General
McAdoo2 Director of the Division of Finance and also Director of
the Division of Purchases, and as such arranged, under Director
General McAdoo’s direction, loans and advances of many hundreds
of millions of dollars to the railroads; also supervised the purchases
of about 12,000,000,000 worth of supplies and equipment for the
300.000 miles of railroads in the United States. In March, 1919, I
resigned the offices of director of finance and purchases, which were
held by me without remuneration, and those positions were sub
sequently filled by two able men, Congressman Sherley, former chair
man of the Appropriations Committee of the House, becoming
director of finance, and Henry B. Spencer, former vice president of
the Southern Railway system, becoming director of purchases, at
salaries of $25,000 per year, which were not large for the skill and
responsibility involved.
I was also during the year 1918, by appointment of President
Wilson, a member of the Capitol Issues Committee, and as such
approved or rejected applications for the issuance of several billions
of dollars of new securities. Those services were also rendered
entirely without remuneration.
My appointments to public office have been three times confirmed
by the United States Senate, practically unanimously each time.
Upon the termination of my term as Comptroller of the Currency
in 1919 I was reappointed, and my nomination was favorably passed
upon by the Senate Banking and Currency Committee; but action
by the Senate was prevented by a filibuster in the closing hours of
the session. My renomination as comptroller was sent by the Presi
dent to each succeeding session of the Senate. The Senate Committee
on a strictly party vote refused to report favorably, but made no
unfavorable report, although I urged them earnestly to make a
report either favorable or unfavorable so that the Senate might act
on it. This the chairman of the Banking and Currency Committee
also refused to do. A member of the federal Reserve Board who
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saw Chairman McLean on the subject informed me immediately after
his interview that Senator McLean agreed that I had made a good
comptroller and said that he had nothing against me, and that as
far as he was personally concerned, he would be willing to report
the nomination favorably and have it confirmed, but tnat he nad
promised some one outside of the Senate that he would not do so,
and was therefore restrained from favorable action; but that if the
gentleman to whom he had given his promise would release him he
would make, in behalf of fyis committee, a favorable report.
I think it only proper, gentlemen, that you should know plainly
why my nomination was not reported or acted upon in the Senate.
I am prepared to submit correspondence to corroborate the state
ment I have just made if it should be questioned or denied by anyone
Let me say at the outset that my criticisms are not and never
have been directed against the Federal reserve system, but against
the administration of that system. My admiration for the system
and for the men who created it has been expressed continuously
publicly and privately, and I ask to insert in the record the follow
ing extracts from my address at Washington in April, and from my
more recent address at Augusta, Ga.
Before the Peoples’ Reconstruction League at Washington April
15, 1921, I said:
The theory, conception, and purpose of the Federal reserve system are as near
perfection as the human mind can produce. I am earnestly sincere in declaring
that it was one of the most potent means for saving this country and the world dur
ing the war, and that without it hideous disaster would have come upon us. I can
recall numerous occasions during these past few fateful years when without the aid
of the Federal reserve system rum would have been inevitable.
But no machinery can operate successfully indefinitely without intelligent super
vision and direction:
Regardless of whatever flaws there may be in its administration, our Federal re
serve syBtem has, in the past, saved our country from conditions far worse than those
which we are now enduring, and I believe that with the reversal of certain policies,
and by the adoption of a constructive program the Federal reserve system coula
nowaid enormously in restoring lost confidence and in inspiring hope and ajustifiable
optimism.
*
There has, in my opinion, been an indefensible withholding of credit in many
of the producing sections of the country when sorely needed. I stated frankly at a
meeting of the Federal Reserve Board not many weeks ago that a high ratio of reserve,
indicating useless impounding of funds in reserve banks, under existing conditions,
when money is so baaly wanted for the vital purposes of agricultural and business
of all kinds, is a thing for the board to be ashamed of, rather than to boast of.
At Augusta, Ga., I said in a speech, July 14, 1921, before the
board of commerce and Georgia Press Association:
The Federal reserve act is the finest tool for commercial protection and construc•tionever put into the hands of a Government and people. I believe that by awkward
and inefficient handling it has been used to injure where it was intended to guard,
and to encourage and protect what it should have restrained and prevented.
I will also add that I know of no present or past member of
the Federal Reserve Board who has worked harder to defend the
Federal reserve law from the attacks of men within and without
the board who would impair or multilate it, than Secretary McAdoo,
Secretary Glass, and myself, assisted at times by Mr. Hamlin. I
refer here especially to the efforts which were made in 1915 to dis
establish four of the 12 banks, and also to the efforts which were
made from within the board to reduce the capital of the Federal
icserve banks by one-half. I also joined heartily with Secretary
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McAdoo in insisting that the Federal reserve system should be started
promptly in November, 1914, despite the gloomy prophecies which
were made by a certain element within the board who urged delay
and predicted that if the banks should open at that time they would
have to close within a few months.
I understand, Mr. Chairman and gentlemen, that I have been
asked to appear before you because of certain public speeches which
I have made recently in which I have discussed the federal reserve
system and its administration. If it is agreeable, and permissible
for me to do so, I should like to present for your record three of
these public addresses which have dealt with the Federal reserve
system, one address being made in Washington, in April, and a
recent address in Augusta, Ga., and one-----Representative M i l l s (interposing). Just one minute. It is not
my understanding, Mr. Chairman, that Mr. Williams has been called
before this commission because of any public utterances which he has
made. It is my understanding that he is called before this commis
sion by the request of one Member of Congress especially, and various
other Members of Congress, because of his knowledge of the general
credit situation. It is not mv understanding that this commission is
particularly interested in the charges which Mr. Williams made
against the Federal Reserve Board, and therefore it seems to me
that the introduction of speeches in toto, containing a lot of irrelevant
matter, should not be permitted in this record.
The C h a i r m a n . The chairman thinks that whatever statements
are to be made here should be made in such a way as to be subject to
examination and cross-examination, and that if the comptroller
desires to bring to the attention of the commission the matters con
tained in his speeches, the matter should be read into the record,
rather than inserted into the record, so that there will be opportunity
for cross-examination.
Senator H a r r i s o n . Mr. Chairman, I do not think there is any doubt
that one of the reasons why Mr. Williams' is before the commission is
because of these speeches he has made. When he was called I under
stand the rule or policy of the commission was that he was to discuss
these things that were contained in the resolution adopted by the
Senate and House. If these speeches cover that subject matter, it
seems to me it would be admissible.
Representative M i l l s . They cover a lot of other things.
Senator H a r r i s o n . I do not know what they cover. I have n o t
read them.
Representative M i l l s . They do cover a lot of other matters, and if
those matters go into the record, it will necessitate a great deal of
investigation on the part of this commission.
Representative T e n E y c k . What are the matters that do not p e r
tain to the general conditions of the country ?
Representative M i l l s . We would have to read the speeches, and
that is the reason why I think it is objectionable to put any matter
into the record in this wholesale fashion, without any opportunity to
know what is going into the record.
Senator H a r r i s o n . You have been more fortunate than I , to b e
able to read the speeches.
Representative M i l l s . I have been able to secure only one.
Senator R o b in s o n . A s a matter of fact, I think the speeches have
all been printed in the Congressional Record.
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Mr. W i l l i a m s . I d o n o t t h in k a ll o f t h e m h a v e .
Senator R o b i n s o n . The Augusta, Ga., speech has, and I think one
other.
Mr. W i l l i a u s , It was only my purpose to introduce three, which
it seems to me bear on the subject we are discussing. The speeches
a r e the one delivered at Bangor, Me., a year ago; one delivered in
Washington in April; and one delivered at Augusta, Ga., about two
w e e k s ago.
Representative F u n k . D o those speeches pertain to the workings
o f the Federal Reserve Board ?
Mr. W i l l i a m s . Very directly.
The C h a i r m a n . The only objection I see to the introduction of
these speeches is that the members have not read them, and will
not have ample opportunity for cross-examination on what is in
them. If there are portions which bear directly on the matters in
which the commission is interested, it seems to me it would be more
in accordance with proper procedure that those portions of the
speeches should be read in, with such additional comment as Mr.
Williams wants to make, and with opportunity for cross-examination
with respect to those statements which are made.
May I ask you, Mr. Williams, if it is your intention to comment
on the material already in those speeches and to amplify it in any
wot I
M r . W i l l i a m s . I t h o u g h t w e w o u l d s a v e t im e b y in t r o d u c in g t h e
s p e e c h e s , a n d I w ill h a v e v e r y l i t t l e t o s a y a b o u t t h e m , a s i t is m y
f e e l i n g t h a t t h e y w o u l d s p e a k f o r t h e m s e lv e s .
The C h a i r m a n . So far as I am concerned, I think the commission
is entitled to have full cross-examination with respect to the matter
that is presented here for consideration, and I personally, am not
willing tnat matter should go into the record in tne form of speeches
made at various places in the United States, without the opportunity
o n the part of the members of the commission, including myself, to
examine into the facts upon which the claims are made, or tne facts
o n which the statements made by the witness in those speeches are
based.
Representative T e n E y c k . What is the difference whether he reads
them, or speaks here, or puts the matter into the record? Each
man has a right to read over the matter and cross-examine him, and
bring him back for cross-examination, if desired. If the witness
feels disposed to put it in here in typewritten form, or printed form,
I see no reason why it should not go in, and later on bring him back
for cross-examination, if desired. But instead of sitting here and
listening to the three speeches, it seems to me they should go in.
Representative M i l l s . But there are a lot of things in those
speeches that will not go into this record, and that I assume Mr.
Williams will not ask to go in. I admit there is a great deal of ma
terial in the speeches that should go into the record and is relevant,
but there is a great deal ‘that is not relevant. And this commission
ought to have an opportunity to pass on what is relevant and what
is not relevant.
Representative F u n k . We would consider only that part in each
of those speeches that is relevant; if there is other ana extraneous
matter in the speeches, we will ignore it.
Representative Mili^s. But can we ignore it in justice to the people
against whom charges are made ? And they will say that we have
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AGRICULTURAL INQUIBY.
allowed these speeches to go in, and they will desire an opportunity
to refute these statements, and we will be investigating everything
except agriculture. I think this commission should have an oppor
tunity to pass on what is going into the record. I have only read
one of the speeches, but I should like to read the other two.
Senator H a r r i s o n . Why could we not put them into the record,
and then after we have read them we could strike out that part
which is not relevant ?
Representative M i l l s . If you allow that one speech to go in, I
should like to examine M r. Williams on everything that is contained
in the Augusta speech, and we will be here for a week, I warn you,
and that for 90 per cent of the time we will be talking about and
investigating matters that do not pertain to agriculture.
Senator H a r r i s o n . In order to get somewhere with it, Mr. Chair
man, I move that the speeches be admitted into the record, with
the opportunity of striking out everything that is not pertinent
before they are printed in the hearings; and that the witness can
then elaborate on the proposition.
The C h a i r m a n . Senator Harrison moves that the speeches be ad
mitted into the record with the understanding that all matter not
relevant to the subject under consideration be eliminated before
printing.
Representative M i l l s . May I ask how we shall proceed to deter
mine whether the matter is relevant ? Shall we proceed to consider
the speeches and vote upon the various sentences ?
Senator R o b i n s o n . A s a substitute for the motion of the Senator
from Mississippi, I move that the speeches be admitted into the
record.
Senator H a r r i s o n . I withdraw my motion.
The C h a i r m a n . The motion of Senator Harrison is withdrawn, and
Senator Robinson moves that the speeches be admitted into the
record.
Representative M i l l s . M r . Chairman, I make a point of order that
under a rule adopted by this commission the matter of what was
relevant to the terms o f this inquiry was left to the decision of the
Chair upon objection of any member of the commission, and it is
obvious that under that rule you can not admit speeches which the
Chair himself has not read.
Senator R o b i n s o n . Mr. Chairman, in reply to the statement of the
gentleman from New York, and discussing the point of order, I call
attention to the fact that this commission has never precluded itself
from admitting anything into the record that the commission regards
as admissible m evidence, and that the commission has never given
the Chair arbitrary power to exclude or admit testimony which the
commission itself desires to admit into the record.
The C h a i r m a n . The Chair is of the impression that the proper
practice should be that if objection is made.to the admission of testi
mony the Chair should rule, and if the Chair should rule that it was
not admissible in evidence, that his decision is then subject to appeal
to the commission and subject to the decision of the commission.
Senator R o b i n s o n . That is true; that is the practice in all the
committes of the Senate and the House.
The C h a i r m a n . If the point of order is made by Representative
Mills that the whole matter now submitted for the record is not in
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9
order the Chair will sustain the point of order, and the Chair will
now put the question whether-----Representative S u m n e r s (interposing). Mr. Chairman, before the
question is put I want to suggest for the consideration of the com
mission that perhaps a good way out of this situation would be for
the commission to receive these speeches and have the commission
at a later time decide whether or not they shall be incorporated into
the record.
Senator R o b i n s o n . I am willing to do that.
Representative S u m n e r s . It seems to me that would obviate the
difficulty now confronting us.
Senator R o b i n s o n . The difficulty about that is that the purpose of
Mr. Williams in offering these speeches is to condense his own testi
mony here, and I take it that the witness himself would like to know
what part is going in, to the end that he may offer to read parts that
he desires to have considered and which may be excluded by the
action of the commission. I do not know what particular matter in
the speeches might be objectionable, or whether any part is. The
gentleman from New York has stated that parts of them are objec
tionable to him.
Representative M i l l s . They are not objectionable to me, Senator,
but tney are irrelevant to the matter before this commission.
Senator R o b i n s o n . That is what I mean.
Representative S u m n e r s . My suggestion grew out of this thought,
that when Mr. Williams shall have concluded his testimony an ex
amination of the speeches may be made, and it will then be apparent
what part of the speeches supplement his testimony. It does- not
make much difference now one way or the other.
The C h a i r m a n . The difficulty is just this, Mr. Sumners: Of course,
if these speeches are admitted to the record, then the various charges
made in those speeches become normally the subject of further in
vestigation by the commission, and that means that those who are
attacked by Mr. Williams ought to have full and complete oppor
tunity to refute any charges that are made. Representative Mills’s
idea, I take it, is to restrict the scope of the investigation to the
matters that are clearly within the purview of the resolution under
which the commission is acting.
The question now seems to be upon the ruling of the Chair that
these speeches are not admissible, Snail the Chair be sustained i
Representative T e n E y c k . Mr. Chairman, I feel that here is
testimony to be presented in printed form. I, for one, do not want
to have it go abroad that we are endeavoring to restrict the investi
gation as to any particular subject; I think it will hurt the influence
of the commission later on. And I feel that these speeches ought to
be taken just as the witness presents them, and the commission
always has the power to act in any way it wishes to afterwards.
Senator H a r r i s o n . We shall not give any consideration to any
part of it, except that part which pertains to the subject matter
contemplated in the resolution under which we are acting.
Representative M i l l s . But you will have in your record charges
against individuals and institutions, and you will have given no
opportunity to those individuals and institutions to refute those
charges.
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AGRICULTURAL INQUIRY.
Senator H a r r i s o n . I am perfectfully willing to strike out of the
record any part of those speeches that do not pertain to the subject
matter under consideration here.
Representative M i l l s . When do we have that opportunity?
Senator H a r r i s o n . After we have read the speeches.
Representative M i l l s . Then we shall solemnly sit here and m a k e
motions to strike out?
Senator H a r r i s o n . I think we should read the speeches.
Representative T e n E y c k . I think we should read all of the
testimony that is presented here, in order to make up an intelligent
report.
R e p r e s e n t a t i v e M i l l s . I t h in k w e s h o u ld r e a d th e t e s t im o n y t h a t
is p e r t in e n t t o th e m a t t e r w e a r e in v e s t ig a t in g .
The C h a i r m a n . The question is, Shall the decision
of the Chair be
sustained ?
Senator H a r r i s o n . The point of order was made, and as the matter
now stands it is a question whether the Chair shall be sustained on
his ruling.
The ( S i a i r m a n . The question is, Shall the Chair be sustained?
Those in favor of sustaining the Chair will vote aye and those o p
posed will vote no.
(Thereupon a viva voce vote was taken.)
The C h a i r m a n . The noes seem to have it.
Representative M i l l s . I ask for a roll call.
The C h a i r m a n . The clerk will call the roll.
Thereupon the clerk proceeded to call the roll. Senator Lenroot
was not present.
Senator Capper voted aye; Senator McNary
voted aye; Senator Robinson voted no; Senator Harrison voted n o ;
Chairman Anderson voted aye; Representative Mills voted aye;
Representative Funk voted no; Representative Sumners voted n o ;
Representative Ten Eyck voted no.
The C h a i r m a n . On this vote there are 4 ayes and 5 noes. The
decision of the Chair is not sustained, and the speeches will be ad
mitted to the record, as follows:
T a s k T it a n ic — S t r e n g t h S u p r e m e — F a it h I n v i n c i b l e .
[Address of John Skelton Williams, Comptroller of the Currency, before the annual convention of the
Maine Bankers’ Association at Bangor, Me., June 28, 1920.]
Mr. President, members of the Maine Bankers’ Association, ladies and gentlemen:
My father’s elder brother, who was an officer in the Confederate Army, was severely
wounded and captured by Union troopsin 1865. When he was j»roled and sent home,
he told his son, then a small boy, “ Remember always, my son, if you meet anywhere
a member of the Eleventh Maine Regiment, to treat him as you would your brother.”
He said many times afterward that he had resigned himself to die until he fell into
the keepingof that regiment, the men of which were not only brave soldiers, but kindly
and chivalric gentlemen, and had saved his life. Therefore gratitude and warm
feeling forMaine is a kind of tradition in my family. My kinsman, to whomthe charge
was given, was talking to me about it a few days ago, when I mentioned that I was
coming here; and he said to me, “ I’ve been looking 50 years for opportunity to do
something for a Maine man, but all the men fromthat State I’ve met were much more
likely to do something for me than to need my help. They seem to be mighty well
able to take care of themselves.” So the family debt to your State and people not
only remains unpaid, but is increased heavily by the honor you have done me in
asking me here, and by the many delightful ldnanesses of which I am the grateful
recipient. Your invitation and reception are alike graceful, gracious, and generous,
confirming the high and warm estimation for you I already had formed from contact
with your honored president of the Maine National Bankers’ Association. I knew an
association which cnose such a leader and representative must share his quality. It
is easy to know strangers when you know what kind of a man they admire and honor.
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My official contact with Maine banks and bankers, let me add, has illustrated and
broughthome to me the experience of mv cousin in looking for a Maine man to help.
They seem to be mighty well able to take care of themselves. Your State has tne
remarkable record of no failure of a national bank since the system was established
57vearsago. That absolutely clean score is a higherand better eulogy of the character
and qualitv.of the men who conduct your banks and of their predecessors than any
voids of mine could express. It is the conclusive and convincing evidence of sturdy
honestyand that finest sagacity that sees straight and true because it fearlessly con
sidersand facesfacts and the real meaning of experiences. My observation is that most
business troubles come from forming conclusions and purposes and trring to approve
thembv making hard facts malleable and inflexible logic flexible. I also congratu
late you cordial! / upon the excellent record of your State banks—only one failure
being reported in Maine during the past 10 years. In another State some distance
off there were 10 State bank failures in one year, in 1919.
Uaybe your Puritan ancestry and traditions harden you to the habit of recognition
of actualities of right and wrong, and you inherit from New England women, famed
the world over for careful housewifery, the instinct for cleanliness. Talking here
franklyamong ourselves, I may say that perhaps I get from a strain of New England
bloodinmy own veins, that same instinct. It taught the New England women, long
beforethe scientists gave us the germ theory, that thoroughness in housekeeping ana
housecleaning was an essential virtue, that slovenly ana careless habits meant dis
asterand disgrace. If you could stand where I do officially, you would realize the
distressingand dangerous consequences of absence or suppression of that instinct.
It is not quite true in banking that a chain is only so strong as its weakest link. It
» truethat a speck of foul method or malfeasance in a banking institution especially
oneapparently successful, spreads through the territory like a'spot of rot in an apple,
that when one bank begins to forget to throw out garbage ana to leave trash in the
comm, it becomes a center of infection. To put it in a homely way, one of my
fractions is to be absolutely sure that the rotten spots are cut out and that there are
so dangerous, overlooked dust heaps in the corners, or under the furniture. The
housekeeperwho does that task in the home may be a bit disturbing at times, but she
makes a clean, wholesome, safe house. Compliance by the Maine bankers with the
Puritanstandards and habits of thought, and obedience to the New England instinct
aeemtobe proved by the condition ofimpregnable granitesolvency befitting the State
ofmuchgmnite. If we were blessed with luce conditions everywhere, the division of
insolvent banks in the comptroller's bureau would have nothing to do and we would
beridof one office at least.
Weare not so far from that now. A few years ago if any man had predicted that
*ith 8,000 national banks in this country, more tnan a year would pass without a
dollarof loss to a depositor among them, he would have been dismissed as a dreamer of
idledreams. Yet, if Maine can show the record of no national bank failure in 57
yean, why can not the entire country do it? I am optimist enough to hope that men
nowhere will live to see the time when a bank failure anywhere in the United States
will beathing unthought of. We are told it used to be so in Chinaafter the establish
mentofthe system of chopping off with an ax the heads of all officers of a failed bank;
butamuch better way of prevention is to make sure that the officers have heads and
keeptheir heads about them and their eyes open.
Efficiency and fidelity have already reached so high a point that the record of the
national banks for immunity from failure for the 22 months’ period from January 1,
1918, to the close of the last fiscal year, October 31,1919, embracing 10 months of the
trialsof warand 12 months of the strain of the reconstruction period, was thirty times
or3.000 per cent better than the average for the 40 years prior to the year 1913.
With more careful management, stricter adherence to law, and closer supervision,
ournational banks have within the past six years reached the highest point of pros
perity, and their net earnings in this period have shown a greater increase than during
theentire 40 yean prior to the year of 1914.
It will also interest you to know that the official reports show that the national
banksof the country now have on their books more than 20,000;000 deposit accounts,
u comparedwith somethinglees than 7,700,000 ten years ago, an increase in the decade
ofover 150 per cent.
The apprehension which was at one time expressed that with the inauguration of
theFederal reserve banks there might be a subsidence in our national banks was quite
unjustified, for the records show that the annual increase in the paid-up capital of the
national banks of the country during the past six years has averaged approximately
100per cent more than the average annual increase in the 50 years prior to the year
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You will judge—and judge correctly—from the record which I have the honor of
placing before you that I am an optimist on American banking. I frankly avow
myBelf to be one, not only on banking, but on everything else with which the American
people are concerned. The more I read of our history the more firmly established
my optimism becomes. I believe human nature improves, although the betterment
is'so gradual as to be imperceptible at times, except as we compare the standard
methods, customs and conditions of now with those of two or three thousand years ago.
But we have the faculties of holding the advancements we make, of learning from our
own mistakes, of making disasters into blessings, of impressing our civilization and
thought on those who come among us.
Another wave of bank wrecking and smashing in this country ought to be as impossi
ble as another Civil War. Thus far, under the guidance and by the blessings of God,
we have ripened through the variations of stormand sunshine without rotting. From
the very beginning we have had waves of radical and revolutionary sentiment which
have startled the people of successive generations. A11have subsided and each hasleft
us some residuum of real good. Wave after wave of immigration has come upon us
and assumed threatening proportions, but we have absorbed, assimilated, used and
improved all. It is true, in a measure, that the radicalism of to-day is the conserva
tism of to-morrow, and equally true with us, that the forces which seemed to mean
destruction in one generation have become powerful implements of construction in
the next—as the old Spanish proverb has it: ‘‘ God writes straight upon crooked lines.”
I think attentive consideration of our progresswill provethat what we have regarded
as violent radicalism has followed the pushing outward of our frontiers, that the newly
come people and the pioneers have tended always to restlessness and revolution. As
the churches, the methodical and conservative influence of the business man, and
prosperity and stability of thought have reached them, they have steadied to sub
stantial and valuable citizenship.
Not to flatter you here, but to be in accord with the facts and to do plain justice,
I may repeat the familiar reference to the vast part NewEngland’s morality ofthought,
reverence for law and usage, political power, financial power, social power have nad
in this wonderful work. You have had your times of extreme radicalism when you
were the outposts of a new civilization brought to a strange country. Witch burning
was religion gone mad, the blue laws were morality made frantic by logic, followed to
the absurd extreme of disregard of facts of human nature. Shay’s rebellion was the
conception of liberty and equality perverted to insane uprising. But history proves
that our Constitution, which brought order from chaos and made an effective Nation
from a loose association of jealous and undirected communities, was given ub by the
pressure and labor of the business men of the country led by our master business man,
George Washington. The fierce struggleover the adoptionof that great chart ofgovern
ment was largely between the nonprofessional doers of things and the professional
thinkers of thoughts and dreamers of dreams. It is within the bounds of strict truth
to say that Boston and Mount Vernon gave the Constitution life after great minds
conceived it, and that our Virginia Chief Justice Marshall appointed by your President
Adams made it effectual and efficient.
The Puritans who occupied New England, the people of different forms of worship
and political training who landed in Virginia and on the southern coasts, both repre
senting all the strata of society, were alike the living examples of the same great prin
ciple that the easy way is not the best way always, that for the things in life really
worth having, for the ambitions and purposes worthy of manhood and womanhood,
piicc must be paid in danger, in pain and sorrow, in deprivation and labor. They
could not create or transmit a perfect race. They did establish here a race in which
that principle lives, generation after generation, sometimes apparently dormant, but
ever deathless, ready to awake to activity at the touch of occasion or the coming of
emergency.
That principle is power, driving power, controllingpower, spreadingand permeating
power, governing sometimes sternly, sometimes softly as the coming of the dew or the
spreading of the morning light. It is the foundation which has given us safety after
many mistakes and failures on which we have rebuilt after many disasters.
Because I see the evidence of it in every chapter and crisis of our varying history,
because always the storms and waves of heresies, lunacies, crimes, and grievous
error sweeping overit and beating upon it have left it enduring as your Pilgrim Rock,
I am an optimist on America. In Virginia we celebrated 13 years ago the three hun
dredth anniversary of the landing at Jamestown. This year vou celebrate the three
hundredth anniversary of the landing at Plymouth. Study our history closely,
Btep by Btep, from these two arrivals at points on our coast separated by so many
hundred miles, of voyagers in many outward aspects so widely different, in the under
lying essentials of character, fiber, instinct, and ultimate purpose so splendidly alike,
so closely akin.
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11 was in obedience of an old, long-known lawof humanity that you in New England
went beyond us in developing wealth, commerce, and productive power. That law
is that the greater and more complex the obstacles ana difficulties that beset man,
the hardier he becomes, the faster he learns from neressity to utilize every oppor
tunity to make the best of what he has. Because nature was kinder and conditions
were easier, the South lingered in the path of material progress and let supremacy of
wealth and population slip from her. You here, in New England and the Middle
States, took the scepter and throne of financial control. Your stubbomess and un
wavering fealty to the idea of a'permanent and mighty Union was, probably, the most
powerful factor in maintaining the Union and crushing secession. Your capital was
one of the potent factors in rebuilding the South and reestablishing a great section
which was dismantled, and to the eyes of the pessimist and those of little faith looked
to be ruin—to be more hopeless, than any country of Europe seems now.
The South was taught by the adversities of war as your people before you were
taught by the adversities of nature. The South has acquired strength from struggle
msyou did, as the brave and strong have ever done, and is now your friendly and eager
rival in building our common country to unprecedented ana unparalled greatness
and power—I hope, too, to such majesty of thought and consecration of purpose as
will accomplish vaster work for. humanity than any nation has ever dreamed.
That is my hope, my belief. It is not for us to look with contempt or indifference
upon any people. Considering where we stand now in the world, we have ample
reasons for exultant pride; but with the pride in our power must be overwhelming
sense of the responsibility that power fastens upon us winch we may not escape, which
manhood and honesty and our own welfare forbid us from attempting to avoid.
We have the right to look to the future with confident hope; but as we look back
ward, our pride and hope muBt be glorified by deep humility and earnest gratitude
to the power that has made and preserved us a Nation. Some residents of South
Cuolina say the people of that State go stark, raving, crazy regularly about every
33 yean. It seems to me sometimes that many other States of the Union have about
the same record. There is hardly a crime or a lunacy of which we have not been
guilty at one time or another. Maybe we have been saved by the fact that always
some of us—some of our powerful men and States—have maintained sanity, so that
we did not all go wild at the same time. When Massachusetts, while your State was
yet part of it, and most of New England blustered of seceding, along 1812, other States
stood steady. Ten years later, when Virginia. Ohio, and Kentucky were threatening
defiance of the Government and withdrawal from the Union. New England and the
Kiddle States decided that the Union was good enough to endure.
So we have come through these 300 years since your Pilgrims landed and these
hundred and forty-four years since our independence was declared. Radicalism,
unrest, revolution have risen on our frontiers as we have spread outward and onward,
have caused dismay and affright and subsided. The waves of immigration which have
come upon us and aroused gloomy forebodings and developed dark presages of disaster
have all settled presently to peace and harmonious unity with the mighty mass of
stability and strength. States and sections have threatened dissolution and ruin and
lived togive examplesand evidences of the sturdiest patriotism, tobecome immovable
forces of conservatism. History tells us all this of the past. The visible facts give us
assurances of the future of the Nation.
I can find in the facts no confirmation of the opinion, sometimes expressed, that we
have grown rich by squandering our capital, exhausting our natural resources. The
truth seems to me to be that we have not yet taken the cream from those resources.
We are finding continually new ways to multiply them. We get from coal, from oil,
from gas, from cotton seed—which we used to throw away—from animals we kill for
food, a thousand new useful products and by-products undreamed of a generation ago.
We have in reserve within our own borders 80,000,000 horsepower of water power
yet untouched and undeveloped and ready to give us light, heat, and driving force
equivalent to 640,000,000 tons of coal a year perpetually, which is more coal annually
than we have ever yet produced in any one year. We have learned how to take from
air, from the sea, from the unconsidered waste or desert lakes, the means of keeping
our soil perpetually replenished.
And now are we prepared to provide for utilizing all this for ourselves and doing
the port becoming the strongest of the nations in the rebuilding of nations, the read
justment of the world, the hastening of a time of ordered peace and more progress,
safety and happiness for humanity than the world ever has seen?
Let us turn now for a while to the figures which tell us something of our present
financial position. Looking back over certain important features and aspects of
our banking record we may perhaps read more clearly the prospects for the immediate
or near future of money conditions and the banking outlook upon which all other
business interests *o ifreatl d pend.
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AGRICULTURAL INQUIRY.
Until the Spanish-American War we were regarded by the older countriee of Europe
with rather supercilious disdain, and more or leas as an experiment in government.
Perhaps all the powers but Germany began to realize after that event, and the rapidity
withwhich the climax came, that we were tobe reckoned with. Nowwe are conceded
by all to be the mightiest, strongest, and richest nation of the globe—the balance wheel
of tie world.
Our industrial and financial growth has broken all records in the history of progress.
Hardly 20 years have passed since England exceeded us and led the world in the
production of steel, iron, and coal—the foundation stones of industrial wealth. This
country is now mining yearly more coal than was produced in the whole world as
late as 20 or 25 years ago, ana our present output already is more than twice that of
Great Britain—andwith the water powerand the limitless oil shales of the West torein
force and conserve our stores. In 1918 our furnaces turned out nearly twice as much
pig iron as all the rest of the world produced in 1897, and our production of steel in
1918 was three times as great as that of all other countriee of the world combined
just 20 years before.
In 1919 the foreign commerce of the United States amounted to $12,000,000,000,
exceeding by more than $5,000,000,000 the total foreign commerce at the time of the
outbreak of the European war, in 1914, of Great Britain, until that time*the greatest
commercial nation on the globe, while our exports of merchandise last year were two
and a half times as great as the maximum exports ever reported by Great Britain at
any time in her commercial history.
Our growth in banking power has fully kept pace with ourindustrial and commercial
expansion, and at this time it is estimated at $50,000,000,000, or more than three times
the total banking power of the whole world in 1890. It is amazing but nevertheless
true that the banking power of the United States has grown more in these past seven
years than in the entire century and a quarter which elapsed from the adoption of
the Constitution in 1789 down to the year 1913.
We have been swiftly transformed from a debtor nation, owing to the rest of the
world, as we did in 1914, some four or five billion dollars, represented by securities
and debit balances, into the world’s greatest creditor, holding the demand obliga
tions of foreign Governments for more than $10,000,000,000, in addition to several
billion dollars due to our merchants, bankers, and investors by the banks and business
men of the most solvent nations of Europe and South America.
The total resources of the national banks of issue of the leading countriee of the
world—including the Bank of England, the Bank of France, the Bank of Italy, also
the great national banks of Spain, of the Netherlands, Belgium, Norway, Sweden,
Denmark, Switzerland, Rumania, the Imperial Bank of Japan, the Reichsbank of Ger
many, and theAustro-Hungarian Bank—nowaggregate, at tnenormal ratesof exchange,
approximately $51,000,000,000; but at the exchange rates which prevail at this time,
the combined resources of all of the national banks of these 14 leading countries of
Europe and Asia are worth in American money less than $12,000,000,000, which is
about one-half of the resources of the national banks of the United States alone,
exclusive of the resources of our Federal reserve banks, about $6,000,000,000, and of
our State banks and trust companies whose resources amount to over $26,000,000,000
additional. This means that tne assets of these foreign banks show a depreciation in
value, as compared with the normal exchange rate of nearly $40,000,000,0000.
While taking the leading part in the commercial, the banking, and industrial affairs
of the world, our people, rich and poor alike, have also distinguished themselves for
high altruism, and have now the deep satisfaction of having given away for the relief
of human misery and human suffering—and in aid of our own and our allies’ fighting
men in these several soul-stirring years through which we have just passed^—sums
vaster than any people have ever before raised and contributed in so short a time for
the relief of mankind. During these past three years we have poured out to the
hungry, the sick, and destitute abroad through the American Red Cross and one or
two other like agencies alone nearly as much as the whole of the resources of the
great Bank of England a little while before the beginning of the World War in 1914.
The tremendous impetus which was given to industrial development here by theEuropean war and me insatiable demand arising from the absolute need for
American products of all kinds, food, equipment, and munitions, regardless of cost,
brought about a price inflation and expansion, resulting in unprecedented increase in
wages and profits which sound economists believed could not continue without lead
ing ultimately to explosion and collapse. Through many months past the best
thought of statesmen, economists, and financiers has been directed toward the prob
lem of replacing our business ana industrial interests on a solid and enduring basis.
The deflation and subsidence in prices are prodeeding by orderly and satisfactory
steps and methods. If we will continue to act on wise counsel ana keep clear heads
ana steady hands, we can and will avert a panic or crisis like those « hich have in the
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past followed periods of wild prosperity and excessive business activity. The fact
that deflation is gradual, marked, by occasional pauses, is the beet possible evidence
that it will proceed safely. A process of change involving many billions of dollars,
a hundred millions of our own people, and, less directly, all the nations of the earth
must be smooth, slow, and steady to avert a crash.
We need the prospective of history to enable our people to realize fully their splen
did fimnml achievements of the past six years. It was the United States of America
which not only provided all of the money needed to mobilize, equip, and feed its
own Army and Navy of 4,000,000 men, of whom 2,000,000 were fighting 3,000 miles
from home, but this country also, by its financial aid to England, France, and Italy
prevented the defeat of the Allies. They would have been unable to continue the
war but for American money, so liberally and promptly put at their service. I
remember vividly the earneststatement to me by tne then British ambassador, SpringRice, soon after we entered the war, that if our country should not continue its finan
cial assistance and maintain in the money markets of the world the price of sterling
exchange, the Allies would be obliged to surrender. He warningly added, “ It will
be our time to go first, but yours next.
In the three yean from our entrance into the war this country raised for itself and
its allies thirty-seven and one-half billion dollars, about one-third by taxation and
two-thirds by the sale of bonds and short-time notes. Present indications are that
within the first two years fromthe signing of the armistice, this Government will have
reduced its debt from the highest point by two, if not three, billion dollars. In other
words, we will, in two years have paid off an amount almost equal to the total debt
of the United States at the close of the Civil War, then at the highest point since the
formation of our Government.
The total amount of Liberty bonds and Victory notes placed by this country was
•bout twenty-one and one-half billion dollars, the balance of the Government debt
being made up of short-term certificates of indebtedness. The records of our national
banks show that at the beginning of May, 1920, the amount of Liberty bonds and
Victory notes owned by them, plus the amount upon which they were making loans,
was only $1,940,000,000.
If we assume that the State banks and trust companies of the country hold an
equal amount of these securities for investment and as collateral, it would appear
that the aggregate amount of Liberty bonds and Victory notes nowowned by investors
upon which no money is being borrowed in the banks, reaches the huge total of
$16,000,000,000. This vast sum. therefore, represents savingB of the American people
which they have invested in Government securities during these past three yean
exclusive of the enormous investments which they have made in the same period in
other securities and enterprises.
I believe that the banks of our country, both national and State, are now fully pre
pared to meet any strain or shrinkage in business. The Federal reserve system, with
out which it would have been impossible for this country to have financed itself or
the Allies, and without which the war would have been lost to us—involving miseries
which baffle imagination and would have been protracted through generations—is
operating smoothly and most efficiently, with the gathered and accumulated experi
ence of the past five and one-half years.
I am happy to be able to say to you that I see no clouds upon the horizon to justify
fears of a financial cyclone, but we can not count upon enjoying fair weather forever.
There will necessarily be some stiff breezes, perhaps some stormy weather, but none
that we can not safely endure by adjusting our sails and holding firmly the helm. He
is a foolish captain who fails to reef when weather signals and barometer tell of squalls
coming.
Much has been said in the newspapers recently of alleged scarcity of money and
credit, and grave fears and doubts nave been expressed regarding the ability of the
banks of the country to furnish the funds which will be required in the next few
months for the movement of the crops. The popular idea is that the money needed
for crop movement may be obtained only by loans and accommodations from banks,
natinngl and State. I am not in a position to give you full figures as to State banks
and trust companies, but I have figures in regard to the national banks, which I think
throw much light upon the present situation.
The loans and discounts of the national banks of the country at the time of the last
reports from all banks, just a year ago, amounted to something over $11,000,000,000
as compared with about $7,000,000,000, of loans and discounts in State commercial
banks and private banks; $3,000,000,000 of loans and discounts in mutual and stock'
savings bangs, and $4,000,000,000 of loans and discounts in the trust companies. As
the loans and discounts in the national, banks therefore represent so large a proportion
of the total, I think we may be justified, in assuming that the figures as to the national;
banks are typical of general banking conditions.
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AGRICULTURAL INQUIRY.
An analysis recently made of the loans and discounts of all the national banks of
the country, as reported at the time of each call for the past 50 years, brings out the
difference shown between the third call for statements of condition, vsually in June,
and the fourth call, usually in September or October. This interval is the active
period of crop moving, supposed to be the critical time of the year. For the past
60 years the bans ana discounts of the national banks have shown between the sum
mer and autumn calls the following average annual percentages of increase for each
of the five decades:
Per cent.
From 1870 to 1880, average yearly increase in loans and discounts..................... 1. 5
From 1880 to 1890, average yearly increase in loans and discounts...................... 2.3
From 1890 to 1900, average yearly increase in loans and discounts.......................... 4
From 1900 to 1910, average yearly increase in loans and discounts...................... 2. 2
From 1910 to 1920, average yearly increase in loans and discounts...................... 1.5
It is also worthy of note that in years of financial panic or special money pressure
the loans and discounts of the national banks instead of increasing in this particular
period of the year have usuallv shown an actual contraction. For example, in the
year 1884, between June 20 ana September 30, there was a reduction in loans and dis
counts in the national banks of 1.9 per cent. In the panic year 1893, between July 12
and October 3, there was a shrinkage of 8.8 per cent. In 1896, between July 14 and
October 6, there was a decline in loans and discounts of 4 per cent. In 1914 between
June 30 and September 12, there was a shrinkage of 0.5 per cent, and in 1918, the last
year of the war, Detween June 29 and September 1, there wasashrinkage of 0.4 percent.
The present indications, unfortunately, are that some of the principal crops of the
current year are likely to be less abundant than in 1919, and as prices are also showing
a declining tendency, the amount of money necessary to move the crops this year
should be proportionately reduced.
The primary function of the reserve banks as originally designed was to provide an
agency which could furnish credit and currency in times of financial emergency, or in
periods of the year when additional funds were necessary for the movement of crops or
to meet the legitimate demands of expanding business. Until the creation of the
Federal reserve system, and until Secretary McAdoo, just before this system was in
augurated, deposited Government money m the banks to help move the crops, the
only means the bankshad forproviding funds forspecial emergencies wasby borrowing
through loansand rediscounts ofotherbanks which might happen tobe bettersupplied,
or by drawing upon their reserves, principally carried with tne national banks in the
reserve cities. For some years prior to 1914 there had been no opportunity for increas
ing the circulating currency by issuing more bank notes because of the scarcity of the
old issues of Government bonds, nearly all of which had been retired, except those
which were already deposited as security for bank circulation.
Let us now consider the extent to which the banks, on their part, have met the de
mands upon them by borrowing money fromother banks. The records of the comp
troller’s officeshowtnat the total borrowings of all the national banks of the country for
the 50-year period prior to 1913, both on notes rediscounted and on bills payable,had
never exceeded at the time of any call for reports of condition $100,000,000; the maxi
mum of 100 millions being reached at the time of the fifth call in 1907 for reports of
condition, after the panic in October of that year. By November, 1908, tne total
borrowings of all the national banks on notes rediscounted and bills payable had been
reduced to 39 millions. In the summer of 1913 the aggregate of notes rediscounted
and bills payable again went up, this time to $108,000,000 at the time of the August
call. In 1914, afterthe outbreak of the Europeanwar, the total amountof bills payable
and rediscounts of all national banks reached $162,000,000—the highest that had ever
been recorded prior to the inauguration of the Federal reserve system.
During the year 1915, after the opening of the Federal reserve Minks, the maximum
borrowing of all the national banks was 105 millions, at the time of the September
call. In 1916 the highest borrowing of the national banks on notes rediscounted and
bills payable was $91,000,000, in September of that year.
The records showand it is worthy of note, that the national banks of the country did
not avail themselves of the discount facilities of the Federal reserve system to my
material extent until the first Liberty loan was placed in the summer of 1917—two
and one-half yean after the opening of these banks.
In the year 1917 the first and second Liberty loans were placed, reaching a
total of nearly $6,000,000,000, but the maximum borrowings by national banks at
the time of calls that year, including all advances from the Federal reserve banks
were reported, in December, at $741,000,000. In 1918 the third and fourth Liberty
loans aggregating over $11,000,000,000 were floated, and the borrowings from the
Federal reserve and other banks at the time of the December call, in 1918, had in-
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creased to $1,380,000,000. The Victory notes for $4,500,000,000 were placed in 1919,
and the borrowings oi the national banks from the Federal reserve and other banka
advanced from 1,380 million in December, 1918, to the then maximum of $1,911,000
inDecember, 1919, of which the far greater part was borrowed on notes secured by the
warbonds.
It is also distinctly reassuring to contemplate how comparatively small has been
theexpansion, which the placing of these huge bond issues nas involved, in the loans
anddiscountsmadetotheir customersby the national banks duringthe period in which
the Government was thus marketing and collecting the proceeds of $21,500,000,000
of Liberty bonds and Victory notes, and several billion dollars additional of short
term certificates of indebtedness. Although these vast transactions were carried
through in a time of extraordinary business activity, yet the increase in the loans
and discounts of the national banks, exclusive of rediscounts, in the three years be
tweenMay 1, 1917, and May 4, 1920, was only about $3,500,000,000—leas than 15 per
centofall Government securities placed in thi3 period.
At the present time the total amount of money which all the national banks of the
country are borrowing on notes rediscounted and bills payable, from the Federal
reserve banka, and from all other banks, is only about $2,000,000,000. As these
national banka now, themselves, own only about $1,000,000,000 of Liberty bonds and
Victory notes and are holding, as stated, approximately one billion additional as col
lateral, it is apparent that, if by any means the Government should take over or re
deemthe $2,000,000,000 of Liberty bonds and Victory notes owned and held as collat
eral by national banks, these banks would be able to discharge practically all their
loansobtained fromthe Federal reserve banks and fromall other banks. _ These figures
areindicative of the strength of the banks at this time, but there is neither need nor
probability that the Government will redeem its bonds in the immediate,future save
fy purchases in the open market, and through the operations of the sinking fund, as
provided by law.
Thestriking feature of the situation is not that the banks of the country should have
becomeasmuch indebted tothe Federal reserve banksas they are, but that they should
have been able to handle these gigantic transactions during these past three years so
easilyand so comfortably, with ao little inflation, and with such comparatively small
borrowings, when we consider the unprecedented size of the bond issues whicn were
•oldand collected for through our banks, both National and State, from 20,000,000
buyers.
It will probably be surprising, and certainly reassuring, to the public to know that
it the time of the last call for statements of condition, the 4th of last month, 4,596
national banks, out of a total of 8,000, reported that they were not borrowingone dollar
fromtheir Federal reserve hanks either through notes rediscounted or on bills payable;
thetotal number so borrowing being less than 42} per cent of the whole.
TheGovernment financingis nowpractically completed and the Nation is reducing
insteadof increasing the public debt. With the declining tendency in the prices of
commodities, now visible in many directions, with the quieter tendency in many
dases of business, there are cumulative reasons for expecting a gradual and healthy
reduction of the indebtedness now due by the member banks of the country to the
Federal reserve banks and an early return to more normal financial and industrial
conditions.
Inview of the apprehension which has been expressed as to a possible shrinkage in
bankdepositsbetween the summer and autumn calls, incident to the harvesting of the
oops, it may be interesting to you to learn first, that in the amount of deposits held
bynational banks for other national banks in the past half century there has been an
increase between the times of the summer and autumn calls for reports of condition
almostas frequently as there has been shown a shrinkage. Increases are reported in
22yeareandreductionsin 28. Secondly, theindividual depositsin the national banks
™thecountry for the put 50 years have far more frequently increased than thev have
declined during the period while banking resources have been drawn upon to furnish
thecrop-moving fund. In 30 years of this period the individual deposits of national
banksactually increased, and m only 20 years of this time did they show a decline.
For reasons which I have endeavored to explain to you here in some detail, the
probabilitiesare that the demands upon the banks for funds for crop moving purposes
thiayear will be less than last year and less than for several years past. But if this
anticipationshould not be fulfilled, and if the member banks should make larger calls
thanever upon the Federal reserve banks, these will be abundantly able to meet any
legitimate demand for which human foresight may provide.
Ihave shown you that the largest amount the national banks of the country ever
borrowed in any one year through rediscounts and bills payable prior to 1913 was
91341— 22— v o l 2-------2
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$100,000,000. Without reducing their reserve limits whith, under the law, the Fed
eral Reserve Board has the right in its discretion to wai\e, the Federal reserve banks
showed last week an unused lending power of more than $700,000,000, and by reducing
the gold reserve requirements by only 10 per cent on deposits and on notes this addi
tional lending power could be increased to two and a halt billion dollars which, added
to the $2,000,000,000 already loaned (mostly on war issues) would bring the total
lending power of the reserve banks up to about four and a half billion dollars, or 45
times as much as the maximum amount which the national banks of the country
(comprising a vast majority of the membership of the reserve system) ever borrowed
at any one time prior to 1913, as disclosed by the official records, and far more than
they are likely to avail of for a great many years to come.
The aboundingprosperity and strongcondition of the businesshouses of this country
generally are vividly illustrated by the official record of yearly commercial failures as
compiled by the mercantile agencies. These reports tell us that the number of busi
ness failures in the United States for last year, 1919, was actually thesmallest in about
40 years, or since the year 1881, despite the fact that the total number of business
houses has more than doubled in that time.
Furthermore, the percentage of business failures to the total number of business
houses in the country for the year 1919, following in the wake of the greatest war in
all history, was the lowest reported for any year since the Civil War, and the total
liabilities of the failed business concerns in 1919 were also the lowest, with one ex
ception, of any year since 1882. These figures are encouraging and are reflected in
the reduced losses accruing to the banks, and in the unprecedented prosperity of
these banks—for the records prove that our national banks nave enjoyed a far greater
increase in net earnings in the past six years than in the entire 40 preceding years.
In conclusion, I have the pleasure of saying to you that so far as can be foreseen
now with known conditions, from the actual figures of the present and study of the
past, the banks of the United States are at this time amply provided to meet any
imaginable emergency. .Not only the cash and other resources in sight, but the
character and methods of our banting community and fraternity give me confidence.
I think our bankers are not only sure of the machinery of the system, but surer than
ever before of their own institutions, of their associates and connections, near and
far, and of the country. I have something of the feeling of that good New England
housewife, of whom I spoke a while ago, and after whom you seem to have patterned
so faithfully and loyally, when she could look about her satisfied that her house was
in order.
Gentlemen, let me thank you again for the honor you did me in asking me here; for
the pleasure you have given me with the opportunity to be among you; forthe patience
with which you have heard me. I confess to being a proud enthusiast on our Ameri
can banks; and when I begin to think of them, write of them, or speak of them, it is
a little difficult for me to find a stopping place. I am ready to stop nowin a moment.
I do congratulate you Maine men particularly, on the great record of your own banks,
both State and National. Then I congratulate you as citizens of the Union, on our
eneral financial condition, and on the magnificent showing of our National and
'ederal reserve banking systems especially. Our country, through many tribula
tions and dangers, has come from poverty, extreme weakness and obscurity to wealth,
power, and the foremost place among the nations, to strength and power and greatness
beyond the conception of the most ardent dreamer who landed on these shores three
centuries ago. “ Thank God and take courage,” they would have said. It is for us,
too, to thank God, to enlarge our courage, to & our faith in America and the American
people, to feel we are on granite foundations, to realize that we have the huge strength
to do the huge tasks before us and to set our bices to them and go right on.
f
Address of John Skelton Williams, formerly First Assistant Secretary of the Treasury, Comptroller of th e
Currency, and ex ofl^clo member of the Federal Reserve Board, and Director ol Finance and Purchases
of the United States Railroad Administration, before the convention of the People’s Reconstruction
League, at Washington, D . C., Apr. 15,1921.]
“ W
hat
Co n g r e ss S h ould D o .”
Mr. Chairman and members of the People’s Reconstruction League, it is no mere
form of words when I tell you that I thank you for inviting me here to speak. I am
glad of the opportunity, because eight years of experience and observation behind
the scenes in tne financial department of our Government have taught me much and
formed for me thoughts and opinions which, if time allowed—fortunately for you it
does not—I could pour out here before you through many houra. I venture to hope
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that dome of these thoughts, results of what may be callcd expert training, may be
useful, at least so far as to suggest further thought among my fellow-cituens.
I amasked to speak on “ What. Congress Should Do.” There is a Federal law which
requires the Comptroller of the Currency to include in hiRannual reports to the Con
gress such recommendations as he may think desirable for the improvement of our
bankingand currency system, or to increase the safety of the depositors and holders
of national bank notes and other creditors of our national banks: and ia obedience to
that lawI have had the honor of submitting, in my annual reports as comptroller, for
thepast seven vears, many such recommendations, some of which have been enacted
intolawand others are still waiting.
I shall begin my address by adding in advance one declaration of whit I think
Congressshould not do. As Tam out of office and desire to stay out, you will acquit
meofselfish motive when I express my strong belief that Congress should not abolish
theoffice of the Comptroller of the Currency, as it is asked to do. Having held that
post fromFebruary, 1914, to March, 1921, I am peculiarly well qualified to judge of
its importance in our banking system, on the integrity and ability of which our sta
bility and general prosperity so greatly depend. But more of that presently.
SECRETARY OP AGRICULTURE 8IIOULD BE EX OFFICIO MEMBER OF FEDERAL RESERVE
BOARD.
Oneof the things that in mv opinion Congress should do is to make the Secretary of
Agriculture, ex officio, a member of the Federal Reserve Board, and I would give him
authority to deputize an Assistant Secretary of Agriculture to represent him at meet
ingsof the board which he may be unable to attend. This I believe to be desirable,
eventhough it involve a reduction in the number of appointed members. The Hon.
E. T. Meredith, of Iowa, was one of the ablest and most useful directors of the Federal
Beserve Bank of Chicago until he resigned to enter President Wilson’s Cabinet as
Serretaryof Agriculture. If he had been a member, ex officio, of the Federal Reserve
Boardduring the pist critical year, while he was Secretary of Agriculture, his services
ontheboard would have been invaluable. The Secretary of Agriculture is, or should
he, aman who knows closely and thoroughly the needs and condition of the farmer*,
theoriginal producers, the real mainsprings of our activities and sources of ourstrength.
Weareat a moment of reaction—reaction in this case, in the right direction. “ Back
tothe farm*’ has meaning far wider than the return of individuals from the cities to
thefurrows and fields. It means that the strongest and most earnest intellect of the
countryis being directed to the farm, and the farmer, and their requirements, and has
been aroused to the truth that unless there is fair opportunity and reward for the
investment, intelligence, and labor of the man and woman on the farm, the halting
ofour progress and the collapse of our power are inevitable.
The agricultural interests—quiet, generally steady, inarticulate, scattered and
unorganized and sometimes wasting strength, and losing cause by misdirected out
breakand protest vainly vehement—has not had the power, or the consideration to
whichits importance entitles it." That unhappy fact-is being realized now as never
beforeinthree-fourths of a century. We see the curious and apparently contradictory
condition that now when the citv and town population, the first time'in our historv,
outnumbersthe country population, the welfare of the farmeris studied more zealously
and its promotion sought more diligently than when the farmers outnumbered the
nrbanresidents five to one. The cities have been taught by strokes of adversity that
they can not fatten and thrive while there is starvation and poverty on the farms.
Thereforethe presence of a direct representative of the farming people'in the supreme
council of the nation’s financial management would be in exact accord with the trend
of present-day political philosophy and economic doctrine.
MIN ENTITLED TO MAIN CREDIT FOB FEDERAL RESERVE ACT, WHICH IS DESCRIBED AS
“ THE GREATEST PRODUCT OP FINANCIAL AND POLITICAL GENIUS THE WORLD HAS
KNOWN.”
If a real farmer or a man in real sympathy with farmers, and having practical
knowledge of their situation, had been on the Federal Reserve Board, perhaps his
influence and representations might have saved that body from some of the errors
intowhich, in my opinion, it has been led, or has strayed. As you know, the Reserve
Boardforms and directs the policies and management of the Federal reserve svstem.
Thatsvstem, I believe, to be the greatest product of financial and political genius the
worldhas known, and the men who had the largest part in its creation and develop
ment were: President Woodrow Wilson, William G. McAdoo, Secretary of the Treas
ury; Carter Glass, later Secretary of the Treasury; and at the time of the passage of
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the Federal reserve act chairman of the Banking and Currency Committee of the
House of Representatives; and Senator Robert L. Owen, then chairman of the Bank
ing and Currency Committee of the United States Senate.
WITHOUT FEDERAL RESERVE ACT THE W AR WOULD HAVE BEEN LOST.
The theory, conception, and purpose of the Federal reserve B ystem are as near per
fection as the human mind can produce. I am earnestly sincere in declaring that it
was one of the most potent means for saving this country and the world during the
war, and that without it hideous disaster would have come upon us. I can recall
numerous occasions during these past few fateful years when without the aid of the
Federal reserve system ruin woula have been inevitable.
But no machinery can operate successfully indefinitely without intelligent super
vision and direction. The finest watch must be examined, corrected, oiled, and
cleaned sometimes. I think one mistake of the Federal Reserve Board, of which I,
officially, was a member, was in leaving the Federal reserve machine to operate to
too great an extent automatically, regardless of special and exceptional circumstances
and changing conditions. By that mistake farming communities and farmers and
business men and others in all parts of the country have, suffered, in my opinion.
I am jealous as any conservative business man must be of intrusive interference by
Congress, or any political power, in commercial or financial affairs. Yet it seems to
me some wrongs have been done and some unnecessary hardships inflicted by lack of
regulation of the machinery, such as Congress could require and enforce, and by some
changes make certain.
HOW MONET RATES IN NEW YORK CITT ARE ARTIFICIALLY HADE AND MAINTAINED.
A primary purpose of the reserve system is to provide for the ebb, flow, and dis
tribution of the country’s supply of money to meet the legitimate needs of the people
and of commerce. Generally, that purpose has heen fulfilled admirably. Some
times it has been impeded or prevented and troubles have ensued in consequence.
For instance, when abnormally high rates for money for speculative or other pur
poses have been made and maintained in New York, the natural result has been to
draw money from sections where it was needed for productive and constructive
work to where it could earn extraordinary profits from the necessities of speculators
and promoters. The fanner, merchant, or manufacturer in the West and South,
and also elsewhere found money scarce at the 6 per cent, 7 per cent, and 8 per cent
rates he could afford to pay, because New York was offering from 10 per cent to 30
per cent. This tends to defeat the wise and beneficent purpose of the system.
1 used my official powers to investigate this subject as thoroughly as possible and
made some astounding discoveries. The daily rates for call money, meaning money
loaned on stock and bond collateral, to be called at will, are fixed daily by from five
to eight members of the New-York Stock Exchange, men also actively concerned
in the purchase and sale of stocks, meeting informally at the exchange or consulting
over telephones. They are responsible to nobody, under no direction. Their casual,
hasty decisions not only affect the prices of money and stocks there—frequently
meaning disaster or gain to hundreds of individuals and interests—but tend strongly
to determine the movement and prices of money and incidentally, to a greater or
less extent, of wheat and other commodities—for more than a hundred million peo
ple.
Perhaps it may be difficult to prevent this fixing^ of the daily money rate, and
adoption of it, by all the banks in the financial capital of the countiy. The State
of New York makes the sky the limit for interest on demand collateral loans for $5,000 or more. I respectfully suggest to the Congress that these burdensome and some
times destructive rates could be largely, if not entirely, prevented by an amend
ment to the Federal reserve a-1 which should provide that no Federal reserve bank
shall loan money to a member bank which charges its customers as interest on any
of its loans a rate in excess of what Congress may regard as a reasonable maximum
rate. Many of the most successful banks in the country—both large and small—
adhere closely to the interest rates fixed by law, and prosper while doing so. _ It
has been suggested that the passage of such an amendment would result in the with*
drawal from the Federal reserve system of many State banks and trust companies,
which would refuse to accept such restrictions, but my answer is that I believe the
system would be stronger and better off without those banks which think they can
not exist or prosper without exacting usurious and unconscionable rata, for money.
1 also believe that even without such a law, active, vigilant, intelligent administra
tion o f the Federal reserve system machinery could prevent or limit such conditions
and methods, which so greatly impair its usefulness and diminish its value.
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“ BUREAUM ANIA” AKD THE “ CIRCUMLOCUTION OFFICE.”
Talking on this subject I shall be forced to speak bluntly. I do not know that it
isnecessaryforme to followthe recent example of another Comptroller of the Currency
to regale and entertain you with colloquial conversations quite as vivid and pic
turesque as those he employed so brilliantly, so successfully. But it is proper for
aman talking to, and for, men who dig their livings from the ground to call a spade
aspadewhen necessary.
I believe Congress should so amend the Federal reserve act as to make it not only '
fool proof and crook proof, but immune from the disease which I coin a word to des
cribe as “bureaumania. ” That is the mania so prevalent here, in Washington, and
at every other seat of Government, for trusting the official machinery to work auto
matically, insisting on inflexible routine, refusing to recognize or imagine that the
shifting and changing of conditions may require departure from established rules
and precedents. It is not a new trouble. Dickens description of the “ Circum
locution office” in London, written 70 years ago, reads like a photograph of one of
ourdepartments. Every civilized Government has been and is hampered in every
emergency by “ bureaumania. ” Victims of it lose initiative, human sympathy, ana
thecapacity for human interest in any event or person. Their thought is compressed
in fixed uniform molds, each exactly like all the others. Emotions are diluted un
til hardlya trace of them remains, and faculties are congealed and atrophied.
BANKS CAN NOT BE EFFICIENTLY SUPERVISED B T A “ DEBATING S O C IE T Y ."
Early in my .tenure of office I learned that the national banking system Can not
beproperly watched, regulated, and governed from Washington merely by traditions,
fixedrales, form letters, and “ respectfully referreds.” Eight thousand bankB repremt eightthousand, moreorless, different personalities and conditions to be dealt with.
Withsome of them the blunders of honest men must be corrected and ill consequences
averted with generous and gentle consideration. With othere arrogant defiance and
disregard of the law, crookedness, or culpable carelessness must be met by stern
rebuke, and, when necessary, prosecution. In my judgment attempt to operate this
vastcomplex system either automatically or by a debating society of seven benevolent
gentlemen, through usual bureaucratic methods, and without the direction of a vigor
ous, thinking, understanding personality familiar with facts and problems outside
official information, would be injurious certainly, disastrous almost inevitably.
That this evil of “ bureaumania” that would threaten our national banking system
lasalready impaired the value of the Federal reserve system I believe strongly—my
belief based on practical experience and the results of actual experiment. Using my
privilege aa an ex officio member, one of a total of seven members, of the Federal
Reserve Board, I have filed protests as strong as I could make them ^gainst failure
touse the board's power to correct or modify the wrongs and evils which I thought
Icouldsee very distinctly. I regret to say that my remonstrances and appeals seemed
tocreatein the majority of my fellow members the mood of an old gentleman aroused
rodely from a nap. They were more querulous than interested, seemed to be more
intent on constructing a snarling retort than on considering whether there was need
of reformor correction. They had started the machine to work, strictly in accord
withthe law, and apparently considered their duty to be to let it work along, regard
less of what havoc or injustice it might cause or what unforeseen conditions might
demandsome tightening up here or loosening there, slowing down, or oiling.
EARNEST PROTESTS AGAINST BOARD’ S FAILURE TO USE ITS POWERS TO CORRECT PRESS
ING EVILS PASS UNHEEDED.
The ensuing correspondence was voluminous—more than 100 pages of typewritten
natter. They seemed to me to dodge and evade the main issue by making complaint
that the Comptroller of the Currency’s examinations of banks were too frequent or
tooinfrequent, too rigid or too lax. As to that they were promptly referred to the
official records for complete vindication of the methods and policies of the comp
troller’s bureau under my administration. The official figures B h o w e d them that in
thematter of immunity from failure, in growth, in earnings, and in service rendered,
the record under the last administration was by far the best in the history of the
national bankingsystem. For example, the percentage of losses to depositors to total
deposits, last year was the smallest in about 40 years, except only the fiscal year 1919,
•hen there was not one dollar’s loss to any depositor in any national bank in the
United States, although the number of depositors was approximately 20,000,000 and
thesumtotal of their deposits about $16,000,000,000.
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It is obvious that the question of the examination of national banks was quite
irrelevant to the giave matters of which I complained in my correspondence with
the board, such as (a) the perilous swiftness of the process of deflation; (b) the artificial
diversion to New York of hundreds of millions of dollars, sorely needed elsewhere;
(r) the huge sums advanced to certain banks for use in promotions and speculations,
and (rf) the excessive and burdensome interest rates imposed upon so many banks
in the West and South. The rate charged at one time by a Federal reserve bank,
-under regulations approved bv the board, in one exceptional case to a small bank
in a farming section amounted to more than 80 per cent per annum.
These things seemed wrong to me from my standpoint, as an ordinary working
American business man, temporarily intrusted with certain official powers and
duties. The majority of the board apparently was very much more concerned over
my duties than their own, and judgingfrom a recent letter from the board it saturated
itself with some kind of a vague suspicion that I was trying to “ establish a record ”
at its expense—as if I was a candidate for something. It aid not seem to. awake to
the possibility that I might be very seriously intent upon doing something to revive
and nelp the business of the country and make our recovery as quick and painless
and comfortable as possible. In this same letter I am informed, to my great aston
ishment, that the board does not perceive or comprehend the constructive sugges
tions I had so consistently urged, but it complains that I have attacked or criticized
the board of which they appear to be acutely sensitive. If that were true, it seems
to me that the ciiticism should have caused thought rather than resentment, amend
ment if that were found to be justified, or definite contradictions if the facts and
figures would si stain it. The truth is, I have offered a series of suggestions and
recommendatiors, results of study and of conditions, some for the boaraitself, others
to be put before Congress and for which the board’s approval was urged.
MEW YORK RESERVE BANE LENDS AT 6 PEB CENT TO MEMBER BAN K, CHARGING CUS
TOMER AT SAK E TIME EQUIVALENT OF 200 PER CENT PER ANNUM ON LARGE LOAN
FOR SIX MONTHS.
I am giving this outline of inside events to support my contention that Congress
should take action to provide against negligence, lack of ability, or stubborn disre
gard of the needs and rights of the public by the board or any future board. As rn
illustration, I knew that certain New York banks were borrowing from the Federal
reserve bank, which means from the people of the United States, millions of dollars
at 5 per cent to 6 per cent, and lending it at from 10 per cent to 50 per cent, and
sometimes higher still. In fact, among others, I gave them one instance, an extreme
case, where a certain large bank last summer borrowed money from its reserve bank
at about Gper cent per annum, and about the same time loaned a customer, the head
of a large manufacturing enterprise, $1,000,000, well secured by collateral, of which
loan about $E00,000 was passed on to correspondent banks (without liability to the
selling bank) at about 12 per cent per annum, and $590,000 of the loan retained on
a basis of interest and commission which yielded the lending bank about 200 per
cent per annum, on its net outlay, the whole loan being paid in full in six months.
When that 200 per cent transaction was referred to in a meeting of the reserve board,
pne member, to my amazement, was disposed to condone or defend it on the ground,
as be expressed it, that “ the 1anks all charge such rates, more or less.” I resented
bis imputation upon the banks of the country, and I am happv to say that his opinion
■can not be sustained, for the vast majority of our banks, of which I am informed,
conduct their business on a very different plane, and would not be guilty of exacting
fcucli extortionate rates of interest as I have here referred to, which might well bring
the blui-h of shame to Shylock’s cheeks.
BOARD CAM MOT ESCAPE NATURAL CONSEQUENCES OP POOR ADMINISTRATION OP A
OREAT SYSTEM.
In a letter to the board, February 19,1921, in commenting upon the exaction of the
200 per cent per annum interest from a customer by a member bank to which the
reserve bank was at the same time lending at about 6 per cent, I said:
1‘Is not this incident anotherstrongargumentin favor of the recommendationwhich
I have recently made to Congress that banks obtaining accommodations from reserve
banks should be prevented from charging their customers more than a reasonable and
moderate advance above the rates they pay to the reserve banks?
•
•
*
•
*
*
*
*
‘ ‘ Every business manknowsthat theinevitable, logicalresultsof such unscrupulous
extortion as these here brought to your notice is ruin for the victim of them. The
crash which the banka exacting sucn tribute—with the unconscious assistance of the
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Federal reserve bank—created to conserve and protect our commerce and finances—
did so much to precipitate, might have been far-reaching. It might have thrown
thousands of employees out of work, forcing distress on their families and destroying
their power to buy from our merchants ana manufacturers and pay their rent to real
estate owners. It would have added very seriously to the dangers to our welfare
already existing.
‘ 'The Reserve Board can not with impunity condone or sit silently by while its
funds are being_used for wrecking purposes. It may make itself, it seems to me,
partieeps criminis, accessory before and after the fact.”
Furthermore, the 200 per cent transaction referred to above was a time loan, andin
direct violation of the usury laws, even in the State of New York, But the penalties
provided by statute were not enforceable by the Comptroller of the Currency. Action
in such caseshas to be brought by the borrower, but as the victims in usurious transac
tions are generally reluctant to bring proceedings against banks for fear of being shut
off from further credit, offenders ordinarily go unpunished. In my last annual report
I again urged an amendment to the bank act, which I had recommended in several
previous reporte, to authorize and direct the Department of Justice to bring suit
against offending banks guilty of usury—and I think the amendment should also
include all banks which are members of the reserve system—upon information fur
nished either through the Comptroller of the Currency or other sources. Such a law
vigorously enforced would be of inestimable value to the country.
CERTAIN MEMBER BANKS BORROW HEAVILY FROM RESERVE BANK WHILE LENDING
LARGE AMOUNTS TO THEIR OWN OFFICERS FOR SPECULATIONS IN STOCKS AND BONDS.
In formal communications I made it quite clear to the Federal Reserve Board that
certain favored institutions, to which a certain prominent Federal reserve bank had
banded out enormous sums of money, were employing their funds largely in the pro
motion of speculations of divers kinds, and I called attention to various instances
where the executive officers of certain large debtor member banks were borrowing
heavily fromtheir own banks for theirspeculative ventures and hazardous promotions
and were also obtaining money from other b a n k B to which the Federal reserve bank
was advancing large sums. The reserve bank making these huge, and often, improvi
dent, loans was itself borrowing, at times, heavily from other Federal reserve banks,
far and near.
In my last annual report to the Congress, in urging an amendment to the national
bank act, to prevent bank officers from borrowing from their own banks, I said:
'‘Cases fromtime to time come to light where important banks to which are intrusted
millions of dollars of the funds of depositors are found lending the funds of the bank
in large sums to practically all their senior and junior officers—president, vice presi
dents, cashier, and assistant cashiers—and while they are extending these large and
excessive accommodations to their own officere, directly and indirectly, largely for
speculative ventures, the banks are themselves borrowing heavily from the Federal
reserve bonk of their district.”
HUGE LOANS GRANTED ON EASY TERM8 TO BIG MEMBER BANKS CONSPICUOUS FOR
SPECULATIVE OPERATIONS, WHILE SOME OTHER MEMBER BANKS SUFFER AND PAY
KXTORTIONATE RATES.
Another phaseof theseloansmade by member banks to insiders, onstocks and bonds,
is what has been called the “ family” rate, charged by certain banks to their own offi
cers, and officers of other banks who may be expected to reciprocate, and which rate
is materially less—sometimes less than half—the rate charged other lees favored
customera. It is quite impossible to justify practices prevailing in some of the banka
which have re eived, at easy rates, the largest indulgences from the reserve system,
while smaller banks have been skimped, and taxed unconscionably on the far less
advances grudgingly doled out to them.
More than a year ago, on January 28, 1920, I warned the board, by letter, against
concentration of the funds of the Federal reserve system for use in speculative opera
tions and promotions, and expressed my strong disapproval of certain conditions to
which I specifically directed their attention.
In another letter to the reserve board under date of February 19, 1921, I said:
“ The manner in which certain New York banking institutions have borrowed
enormous sums from the Federal reserve bank of New York at rates of from 5 per
cent to 7 per cent and have taken advantage of the necessities of needy borrowers, in
toying times, by ‘accommodating’ them with time money at rates, in some instances
as high as 30 per cent per annum, and in at least one instance about 200 per cent per
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annum, is, in my opinion, uneconomic, unsconscionable, and barbarous, and I am
not willing, as far as I am concerned, to have such operations pass unnoticed or with
out protest.
“ Our reserve board will not hereafter be able to escape heavy public censure on
the excuBe that it was not advised of the details of such transactions.”
BE8ERVE BOARD AND RESERVE BANKS SHOULD EXERCISE CLOSER SUPERVISION AND
CARE IN DISPENSING FUNDS OF RESERVE 8Y8TEU.
The Federal Reserve Board,' as I understand, claims that it is not within the duty
or the power of either the board or the officersof the New York reserve bank to prevent
this abuse and misuse for extortionate private gain of the faciliteis for safety and
convenience of all the people, provided by the Government. I say that if the authority
does not exist, it should be provided by act of Congress. I knowenough of the practical
facts of banking to know that it is also always possible for a bank to restrain a borrow
ing customer^—big or little—who is borrowing more than his share or using what he
borrows for purposes improper or detrimental to the public welfare. But the instances
1 have cited, in my correspondence with the board, prove that the board and the
reserve banks should be given specifically the power, if they lack it, and they should
be specifically required to use it.
But it is useless and foolish to contend that our Government is impotent to forbid
diversion of money supplies it provides so liberally, through the issue of its Federal
reserve notes and otherwise to maintain general prosperity, to hinder t^at prosperity
and enable powerful individuals to fatten their purses without risking a dollar of their
own. It is indisputably true, as I have stated, that banks have borrowed heavily
from Federal reserve banks and used the funds so obtained to promote speculative
undertakings of their own officers, as well as for customers—sometimes by the use of
“ dummies —to amounts far in excess of prudent limits, or even the limits fixed by
law. I contend, and shall continue to contend, that the duty of the Federal Reserve
Board or the directors of the Federal reserve banks is to call imperative halt on such
dangerous and unlawful habits, and if that duty, for any reason, is neglected, Congress
should find others to assure its performance.
BOARD APPROVED “ PROGRESSIVE ” INTEREST POLICY UNDER WHICH AS HIGH AS 87}
PER CENT PER ANNUM INTEREST W AS CHARGED MEMBER BANK B T A FEDERAL
RESERVE BANK.
Many weeks ago I urged the board very earnestly to suspend, in all districts, the
so-called “ progressive” interest rates wluch were working serious hardships upon
many small banks which could least afford the exactions imposed. My attention
had Deen called to a little national bank in the cotton section of Alabama, which, in
September, 1920, in the height of the cotton-moving season, was straining its resources
and credit to aid its community and assist its customers, 85 per cent of them fanners
and cattle raisers. That country bank was charged by its reserve bank under the
“ progressive” plan from 6 per cent to 87} per cent per annum. The average rate
which it paid the last two weeks in September for the advance of $112,000 was about
45 per cent. The excess interest above 6 per cent which was charged this small
banlc for that two-weeks’ period was equivalent to more than 7 per cent dividends
on the bank’s capital stock for a whole year. I do not know how many other cases
of extortionate interest charges there were, but there were others, and there should
be none.
The record shows that on February 4, 1921, in a letter to the board referring to the
extortionate interest rates charged by reserve banks to member banks in certain
districts, I said:
“ If you care to call for them, the records of the reserve banks, I am advised, will
provide you too many instances of the exaction of these amazing and ruinous rates.
COMPTROLLER’ S MOTION TO LIMIT RATES CHARGED MEMBER BANKS BY ALL RESERVE
BANKS TO 10 PER CENT VOTED DOWN B Y BOARD.
“ I trust that the board may determine that a safer, sounder, and more humane
policy will be to lend member banks as much as discretion will allow at rates in no
event in excess of 10 per cent per annum (as was contemplated in the resolution
which I had the honor to offer recently in the board, but wnich was voted down at
the board meeting of the 2d instant), and when that line has been reachedrefuse them
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farther accommodation—certainly not impose upon them interest rates which are
merely aids to suicide. ”
•
•
•
•
•
•
•
“ The practical meaning of this is that the bank” (which had been charged the 87i
per cent per annum interest) “ was driven to choose between permitting the ruin of
dependent customers on the one side, and on the other side putting itself in serious
danger while trying to save its clients of having surplus and perhaps capital wiped
out by the exorbitant interest charges exacted by the reserve bank.
“ Tne superinterest charged this little bank, in excess of 6 per cent per annum for
the two weeks ending September 30 last, was b o exorbitant that if kept up it would
in lees than a year have eaten up the bank’s entire capital and surplus ana rendered
it ineolvent.”
The board claimed that the “ average” interest charged by the reserve bank on
all loans to all member banks in the district referred to was not high, but this is a
poor consolation to those member banks from which were exacted killing rates, which
certain victims in some districts expired in paying, as, for example, in Colorado and
in Texas. It should be said to their credit that certain Federal reserve banks, in
cluding the reserve bank of Atlanta, had, formally or informally, urged the board
in the summer of 1920 togive thempermission toadopt more liberal policies, especially
with respect to loans on Liberty bonds, but their requests were refused, the board
alleging technical objections.
I am gratified to be able to add that the “ progressive” plan in the Atlanta district
under which the 871 per cent interest charge was made, was suspended two weeks
•iter the governor of tne board had received my letter of October 18, 1920, in which
I had urged general reconsideration and revision of “ the plans and policies which
have aided in bringing about deflation.” I had also warned the governor in the same
letter that “ if this is not done speedily I am fearful as to the consequences which
nav ensue.”
When my motion, however, to abolish the “ progressive'’ interest rate in the other
districts in which it was then still in force, or limit it to 6 per cent per annum, was
refused by the board in February, I sought to provide that in no case shouldareserve
bank under that plan charge a member bank interest exceeding 10 per cent per
annum. But this motion was also rejected. The “ progressive” interest plan as it
has been operated in some sections exactly defeats one of the chief and best purposes
of the Federal reserve syBtem, which is to prevent congestion of money at the centers
and scarcity in the agricultural districts when needed to gather and move crops. I
thought the suggestion for a suspension or modification or reasonable limitation of the
progressive rate in all districts, as well as in those where it had already been discon
tinued, was distinctly constructive. I think now that Congress should enact an
amendment to forbid such exactions resulting from misunderstandings or bad judg
ment or lack of sympathy with the plight of Bmall banks and those they serve.
I am bound to say that so far as I can judge from the correspondence,*neither the
burdens put on small banks in the agricultural districts nor the enrichment from
Government funds of the big banks in the centers, interested the majority of the
Federal Reserve Board so much as the alleged too frequent or too infrequent exam
inations of banks by the comptroller’s bureau, mv own motives in raising these
annoying questions, the names of persons to whom 1 had given copies of mv remon
strance, and the tremendous issue as to whether or not I should be furnished with
copies of stenographic reports of certain meetings of the board, which'minutes the
board has apparently decided to keep secret and, as they have stated solemnly,
“ under seal.”
TDCE WASTED IN TRIVIAL DISCUSSIONS IN BOARD MEETINGS; IMPORTANT MATTERS
OVERLOOKED OR 8IDETRACKED.
I was about to forget the other great disturbing question—the number of board
meetings I did and did not attend. I confess my absences from the board (but not
from the comptroller’s office) were frequent, although I probably averaged two or
three such meetings per week. I really felt that I could employ my time more usefullv than in attending board palavers and in listening to discursive discussions,
beginning nowhere ana ending in precisely the same place, conducted by eminent
gentlemen. Probably our board is not exceptional in this weakness. The New
York Herald only yesterday, in opposing editorially the addition of another member
of the Cabinet, described perfectly the situation as I sometimes found it.
The editorial aavs: “ Any man, though he be asteamengine for work and a wonder
for achieving results in the world of affairs, knows how perfectly hopeless it is to get
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anything worth while done by a large committee. The beginning and the end of it;
functioning is nearly always talk. Pretty much everything in between is talk. De
cision is postponed for conversation, and accomplishment is sidetracked by debates.”
A great statesman gave us the axiom, “ Battles have been won by fools and cowards,
but never by a debating society.” I am so much of an iconoclast and 83 thorough';
broke to the nabit of tryipgto do somethingpractical that even eminence does not mal c
futility interesting.
The intensity of the intellectual activities of these board convocations may be
judged from the fact that on February 14,1921, I received a notice that the board on
February 10, 1921, four days previous, had decided to take action and make a report
relative to a somewhat energetic and, I thought, important communication I had
addressed and forwarded to it, froma distance of about 25 feet, on December 28,1920,
44 days previous. The conclusion reached by this solemn consultation was that I be
asked orrequired to supply the board with names of parsonsto whom I hadgiven copies
of my letter, so that the executive committee might be in a “ position” to “ formulate
its report” to the board.
COMPTROLLER UROES PUBLICITY FOR CORRESPONDENCE REGARDING BOARD’ S POLICY
AND MANAGEMENT.
What on earth the names or numbers of persons to whom I had given these copies
had to do with the board’s process of incuDation, or how such information possibly
could effect the quality or auantity of the hatch, I never have been informed, although
I very earnestly demandea in two separate letters to have it explained to me. My
clear inference from all the circumstances was that if the board had not caught rumor
that eyes other than mine and theirs had seen my communication the keen interest
they began to manifest in the subject would not have been aroused. Let me add
that in a letter to the board, March 1, 1921, I said frankly:
“ I will be glad to have the whole of my correspondencewith the board made public,
deleting such names or references as may cause individual hardships or injury.”
I had also said in a previous letter, “ To maVe public this information 1 believe
would be distinctly salutary and beneficial,” and I believed the public entitled to it.
but the board shrank, apparently in dismay, fromthe suggestion. I also told the 1:oird
that I would gladly forward to each person who had received from me copies of the
letter about which they expressed so much concern (where publicity might embaraea
or injure others names haa been deleted before giving out the copies of the letter)
any answer or explanation or defense the board might have to present, but at this
offer they also shied.
BOARD 8UMMON8 AID OF NEW YORK RESERVE BANK OFFICIAL TO “ LO B B Y ” FOR IT AT
CAPITOL.
Instead of giving the public the benefit of the facts set forth in the correspondence
the board, I hear, sent a hurry call to New York for a certain high official of the New
York Reserve Bank who was supposed to have a large acquaintance and influence
with United States Senators, ana this gentleman, I am informed, spent five days or
more at the Capitol, in the latter part of February—in plain language—“ lobbying,”
for the board, and endeavoring to find out what Senators had “ seen” the correspon
dence, in order to make quiet and ex parteexplanations of mattersforwhich the board
had been seriously criticised, and as to which 1 had urged publicity and op ,-n dis
cussion, wh:ch the board had refused.
It is my judgment that conditions and features of management contained in that
correspondence were of special interest to Members of the Senate and the House of
Representatives by which the Federal reserve system had been created as well as of
vital concern to the public. Communications I laid before the board on February
19 and 26, 1921, would also be instructive in this connection—likewise my letter to
the board of March 26, 1921.
Comprehensive statements from the Comptroller of the Currency giving facte with
in his official knowledge, and asking attention to serious and alarming conditions in
the bumness world were before the Federal Reserve Board, and the comptroller's
definite recommendations unacted upon after 44 dayB. At the expiration of that
time, more than twice as long as is required for the productive activities of the ordinary
hen—the board, suddenly aroused, bestirred itaelf and responded with demand to
know who else had read the comptroller’s letter, that it might “ formulate a report.”
Even the gravity of the occasion could not hidethe humorous aspectsof the perform
ance.
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BOARD WARNED IN OCTOBER, 1920, TO REVISE POLICIES TO MEET NEW AND CHXNGED
CONDITIONS A N D ADMONISHED AS TO FEARFUL CONSEQUENCES OF NECLECT.
In all seriousness, gentlemen, I am impressed with the necessity for Eome amend
ment to the Federal reserve act which will awaken the board from the inertia and
stiffness and concentration on trivialities that are symptoms of “bureaumania.”
The subject on which I wrote in October last, and again in DecemLer, and which
developed faint reaction in February, was of vital importance. I had begun in
October to beseech forit the board’s attention. On the 18th of that month I pointed
out that the decline in prices, facilitated by the policies of the Board, had become too
rapid. I itemized some of the appalling shrinkages of values, for instance, loss of
1500,000,000 in wheat, to which 500 0C0,CC0 or more is to be aided since that time;
front one to two billions in com, a billion in cotton. I used these words at that time:
“The plans and policies which have aided in bringing about deflation in the great
staple commodities should be at once taken up for consideration and revised as far as
maybe necesB&ry to meet present and changed conditions. If this is not done speed
ily, I am fearful as to the consequences which may ensue.”
ThreedayBlater, on October 21, 1920, I addressed a communication to the Secretary
of the Treasury, who is also the chairman of the Federal Reserve Beard, presenting
argumentswhich seemed to me to be impelling, urgingthat semeconstructive measures
of relief be adopted to steady the situation and ease the further shrinkage in values,
whichlas since then taken place with such ruinous results. In that letter I said, in
part:
“T1estrain upon the business fabric of the country is, in somerespects, unparalleled,
andI do feel that the time has come for the exercise of such falutary and constructive
po*ere as may be at our command. * * *
‘ The situation * * * has become more aggravated of late, and unless relief
canbe found an increase in bank failures, I believe, will be inevitable.
“The revival of the War Finance Corporation would, provide in my judgment, a
much-needed steadying influence at this time ”
My remonstrances, however, went unheeded, but the War Finance Corporation
wasrevived as a result of action by Congress about five months later and against the
earnest expostulations of the chairman of the Federal Reserve Board.
WASKIKOa REPE A TED IN DBG EMBER AND BOARD AGAIN URGED TO ADOPT EFFECTIVE
MEA8URE8 OF RELIEF.
Bythe end of December two more months had gone. Reports reaching me from all
Part* of the country increased my concern.' It was then that I wrote the letter of
December 28. In this I reviewed, repeated, and amplified what I had said before,
adding that shrinkage of additional billions had come since October. I tried to
demonstrate that the welfare of the world depended upon the welfare of this country,
andthat the fate of this country, for the near future at least, depended largely on the
policies of the Federal Reserve Board, controlling the financial levers. In the letter
ofDecember 28 the following paragraphs, I think, may be interesting to you just now:
“Since my letter to you was written, commercial, industrial, and financial con
ditionshave become steadily worse and the further shrinkage which has taken place
tincethe middle of October amounts to billions of dollars.
“1feel more strongly than ever that the welfare of the country calls for the adoption
ofsomewhat more liberal policies on the part of the Federal Reserve Board ana the
Federal reserve banks, whose powers are now more widely recognized and acknowl
edgedthan ever before.
“It is my strong belief that it is within the power of the Federal Reserve Board at
thistime, by the adoption of new, wise, liberal, and sound policies and the announce
ment of such policies, to instill a feeling of confidence and hope and to check the
apiritof demoralization which, unless arrested in time, may lead to disaster. * * *
“Events, developments, and conditions warn us to remember that a stoppage too
mdden may be disastrous as an explosion, that an unyielding barrier thrust into the
path of a runaway machine may only hasten wreckage and assure a smash which
skillfully regulated guidance might prevent.
“Two months of actual experience which have elapsed since my letter to you of
October 18,1920, was written tend to intensify rather than diminish my fears for the
immediate future. I am as confident of the safety and development of American
business, society, and government as the most enthusiastic optimist, but it is our part
tostrain every nerve and apply every resource of labor, thought, and self-sacrificing
patriotism to avert an interval of disaster, or to make it brief and easy as may be
possible. * * *”
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TREASURY IN PREVIOUS YEARS MKT CRISES RE80URCEFULLY AND PREVENTED DI6ASTEB
B Y SWIFT, CONSTRUCTIVE ACTION.
In that same letter I had reminded the board of the constructivework of Secretary
McAdoo in previous crises in the following language:
“ During the past several years I have seen many occasions where the action of the
Treasury Department has distinctly prevented financial panics.
“ I have witnessed other occasions where the mediation and timely action of the
Treasury Department has ameliorated many serious and dangerous situations and hat
been an important factor in checking grave losses to the business interests of the
country.
“ At other times the same influence has been exerted to aid directly in the stimu
lation and encouragement of our commercial and industrial interests.
“ The part which the Treasury took in the'formation of the cotton pool in 1914 is
one illustration. Another illustration wasthe action of the Treasury in organizing the
War Risk Insurance Bureau, which made possible the continuance of our export
trade in the early days of the war when cargo insurance was unobtainable elsewhere.
“The action of the Treasury in making practicable the emergency currency lav
and in facilitating and expediting the issuance of that currency in tne summer and
autumn of 1914 averted a financial catastrophe and prevented chaos. These illus
trations could be multiplied if need be, but you are doubtless as familiar with them
as I am."
BOARD URGED TO RESTRAIN PROFITEERING B Y MEMBER BAN KS BORROWING FROM
RESERVE BANKS AT 4 } TO 7 PER CENT AND LENDING TO CUSTOMERS AT 20 TO 200
PER CENT.
The excessive rates which were being exacted by member banks to which the
reserve bank of New York was in some instances lending lavishly, were also alluded
to in the same letter, as follows:
“ Member banks should be given to understand that the board disapproves and will
not countenance the excessive rates which have been in vogue in New York City
and which are higher than the rates charged by banks in any other country in the
world. Such rates, in my opinion, have been very damaging to the commercial
and financial interests of the country, and I submit that it would be well for the
board to establish regulations to prevent the reserve banks from lending money to
member banks at 6 per cent to be passed on to customers at extortionate rates. The
effect of such a regulation, I believe, would be most helpful and salutary.
“ The records of this office show numerous instances of banks which have gotten
large sums of money fromthe reserve banks to be loaned in Wall Street forthe purpose
of profiting by the difference in interest rates.
“The official reports also show that in addition to the money which the New York
banks were lending on call in New York for account of their correspondents and
customers, the national banks of New York City this time last year had on deposit
to the credit of their correspondent banks in all parts of the country approxiamtely
$900,000,000 more, while tne total sum which the New York national banks were
were lending, directly and indirectly, to all other banks throughout the country was
considerably less than one-fourth of that sum. * * *
“ The important thing is to find and apply proper remedies. Perhaps there has
never been atime when the business and industrial interests of the country were more
deeply dependent upon a sound, wise, and courageous administration of our banking
and financial system than at the present moment.”
RESERVE BANKS SHOULD NOW REDUCE RATES TO 6 PER CENT MAXIMUM.
In the same letter among the measures and changes in policy which I urged upon
the board were the following:
First. Reduction in the rate of interest charged by Federal reserve banks on the
loans to member banks secured by liberty bonds from 6 per cent to 7 per cent to a
uniform rate of, say. 4J per cent, as it was clear that the policy of the reserve banks
toward loans on Liberty bonds, besides working hardships on borrowers, was de
pressing the market value of the bonds and the credit of the Government.
Second. Suspension or modification of the “ progressive” rate in the three Federal
reserve districts where it still prevailed, to 6 per cent per annum. Instances can be
cited where banks had been charged 20 per cent, 30 per cent, and 40 per cent, and
in one exceptional case as high as 87$ per cent. I brought to the attention of the
board specific instances of sufferingand the lack of money and credit scarcity in many
different sections of the country, and said:
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"Such facta and conditions as have been brought bo vividly before us can not be
met withtheories or removed by explanations and should not be dealt with by vague
surmises and promises or unconsiaered experiments. They demand definite and
energetic action, even if precedent must be disregarded, accepted rules suspended
orwaived, and new plans and methods devised.
“The people have entrusted their welfare and interests to those of us who have been
honored with public office of any degree and in any department of the Government,
supposing us to be fitted for our task by knowledge, intellect, and character. Our
plain duty is to act as promptly and as independently of usual habits of thought as
may be necessary to find ana apply remedy.
INEQUALITIES IN LOANS GRANTED BY RESERVE BANKS, SOME GOT LAVISH
OTHERS DENIED CREDIT.
LOANS,
“While there appears to be this scarcity of money and of credit in the great agri
cultural and producing sections of the West and Northwestand in the South and South
west, we find that individual banks in New York City are borrowing from the reserve
system, in a number of cases, more than $100,000,000 each and sometimes as much as
$145,000,000 is loaned there to asingle bank, twice as much as the total loans some of
the reserve banks have been lending recently to all the member banks in their dis
tricts. * * *
“The inequalities and injustice in the distribution of these funds become apparent
when we analyze the uses which big favored banks in the East sometimes make of
themoney they borrow from the reserve system.”
A few weeks later, on January 17, 1921, in again urging the board to some conatractiveaction for the relief of the situation, conditions in many parts of the country
havingbecome still more desperate, I said:
‘11cannot see that any formerexpansion of values, however artificial or exaggerated,
wouldmake an excuse for us if we aided in or by inaction allowed such rapid and ex
treme shrinkages as would mean general collapse and ruin. Perhaps tne supreme
teatand finest achievement of statesmanship is in Baving the people from the worst
consequences of their own mistakes. In this present situation the vast majority of
thoseon whom the ruin would fall are those in no way responsible for the conditions
thatcaused it.
“I do not think we would prove ourselves fit for the important work entrusted to
ail we stood content to remind thousands suffering from hunger and cold that some
Wfiteere and speculators and a few others produced and many partook of a surfeit
year. The gain in prices may have been fantastic and largely on paper, but the
las, coming so swiftly, produces very real distress for hosts of good people, including
womenana children. We can not cure or palliate destitution by philosophizing orexplaining or proving that it comes obedient to the laws of political economy.”
WARNINGS
AND REMONSTRANCES,
GIVEN TIME AND AGAIN, PASS UNHEEDED BY BOARD,
WITH DIREFUL CONSEQUENCES.
Fourteen months have elapsed since my letter to the board of January 28, 1920,
withreference to which, in a letter to the governor of the board of February 19, 1921,
concerning the unequal distribution of the funds of the system and the large loans
whichwere being extended to certain favored member institutions, I had said:
“I pointed out to you that the New York reserve bank was, at that time (January,
1920), lending an amount nearly six times its own capital, that iBto say six times the
capital of the reserve bank of New York to * * * one member institution, and
Iahowedyou thatthe money whichtheNew York reserve bank had loaned to * * *
oneborrower on December 31, 1919, amounted to nearly twice as much as the aggre
gate amount of loans and discounts which the Federal Reserve Bank of Dallas was
lending at that time to all of its member banks in that great district, embracing the
entireState of Texas and part of the States of Louisiana, Oklahoma, New Mexico, and
Arizona.
“It appears that in order to make these huge loans to those institutions the New
York Federal reserve bank had found it desirable to rediscount or borrow. About
thetime of my letter to you of January 28, 1920, over $118,000,000 from seven other
Federal reserve banks, including among others, the reserve banks of Dallas, Chicago,
and Atlanta, whose resources available for their own member banks were to that
extent lessened.”
8ix months have nowpassed since I took the liberty of giving my warning of October
last to the Secretary of the Treasury and to the board, and of urging so earnestly a
revisionof policies.
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Four months have gone since I supplemented that warning in an earnest and
elaborate presentation of the situation. The suffering throughout the country had
meanwhile become greatly intensified. In that subsequent letter I had_advocated
reduction of interest rates and increased extension of credit for urgent business needs
to the limits consistent with prudence and the equitable distribution of our available
resources.
Instances illustrative of the widespread distress in the West and South, and in the
fiast as well, and argument for sucn a policy of forbearance and consideration for
borrowing banks, as would enable them to give like treatment to individuals, was
drawn as strong as my ability permitted. It seemed to me something was wrong
somewhere and somehow, when with an actual shrinkage in values of our commodi
ties within a year of twelve to eighteen billion dollars, four or five favored member
banks in New York City were borrowing from the Government’s reservoir of money
and credit as much as four or five thousand member banks in the West and South
were borrowing from five Federal reserve banks, embracing in their respective dis
tricts 21 great States.
“ A V E R A G E ” RATES CHARGED ARE DELUSIVE, SOME GORGED, OTHERS 8TARVED.
The board, with its knowledge of these huge loans'to certain New York City banks,
claims there was, “ on an average,” no restriction of credit, etc.; but again it must be
pointed out that it is a poor consolation to starving families to be assured that taking
into consideration food wasted in riotous living and luxury, the “ average” amount
consumed in their community is fair. Of such “ averages” as these we may well
exclaim, “ What crimes are committed in thy name.” The purpose of the Federal
reserve act is not to secure satisfactory “ averages”—we already had tolerably good
“ averages”—but to secure a fair distribution and equitable allotments to each and
every one.
1500,000,000 FROM OTHER SECTIONS, ENTICED BT FANCY INTEREST RATES, FOR LOANS
IN WALL STREET.
I was further painfully impressed by the evidence of the official records that at the
beginning of August, 1920, in crop moving time, the national banks in New York City
were lending for correspondents on so-called “ Wall Street” loans for stock specula
tions and operations, more than $500,000,000 coaxed from banks everywhere in the
country by the high rates speculators would pay. This was more than the Federal
reserve banks of Minneapolis, St. Louis, Kansas City, Dallas, and Atlanta were lending
to their 4,000 or more member banks.
This document, my letter of December 28, 1920, to the board, was long, elaborate,
carefully prepared. I tried to make the statements of conditions, as I saw them from
my inside view, vivid and energetic and the suggestions for improvement clear. The
reaction I got, after 44 days, was that I had written something, not to be acted upon
but to be reported on—when the board knew how many persons had seen my letter,
and what their names were. The board was to determine, not how to do something,
but, perhaps, how to formulate reasons for not doing it. “ Whatever was required to
be done,” says Dickens, “ The circumlocution office was beforehand with all the
public departments in the art of perceiving how not to do it.”
BOARD SAYS SHRINKAGE IN VALUES “ SOMEWHAT ANALOGOUS TO PUNCTURING BALLOON
TO LET OUT G A S.”
COMPTROLLER REPLIES SENSIBLE MEN BRING DOWN BALLOONS
BY CAREFUL HANDLING OF VALVE ROPES AND BALLAST.
After a preliminary incubation of two weeks, the governor of the board had also
written me in a general way on January 13, some comments on my letter of December
28, defensive of board policies and the status quo, but without acting upon the recom
mendations in my letter, and he stated that the views expressed in his letter were also
those of other members of the board. He impressed me as being rather more intent
on rasping me, if possible, than on acting to meet the unhappv conditions existing,
but did remark that the process of deflation was “ somewhat analogous” to what takes
place “ when a balloon is punctured and the gas escapes.” Taking this as a text, I
urged that sensible men bring down balloons by careful handling of valve ropes and
ballast, not by driving a hole in the bag and precipitating collapse and destruction.
That had been the gist of my entire complaint and plea. It was impossible so far as
my experience went, to fasten the minds of the board on that point. I never have,
to this day, secured a definite denial of any material statements I have made or a
solid reason for opposing any of the suggestions or recommendations I ventured to
offer.
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While in the earlier period the board was very helpful in facilitating an orderly
decline, its subsequent obtuse refusal to recognize changed conditions, and to revise
its policies accordingly, though fully warned and urged to do so, has, in my opinion,
tousethe board governor’s simile been “ somewhat analogous” to puncturing a balloon
and producing a ruinous and needless crash, which wise management could have
averted. This was no fault of the Federal reserve act, but of its administration, for
without the Federal reserve system conditions would l:e infinitely worse than they
are, despite its faulty administration. The most perfect machine which genius can
invent, or ingenuity construct, may be ruined by ignorance and mismanagement.
WISE EXERCISE OP POWERS BY RESERVE BOARD COULD HAVE MADE SHRINKAGE MORE
UNIFORM AND GRADUAL AND SAVED COUNTRY “ FROM MUCH OF THE DISTRESS AND
RUIN THROUGH WHICH WE HAVE BEEN D R A G G E D ."
All this has been cited to illustrate the need of some action bv Congress in the
interest of farmers, of the laboring men, and the business men of the whole country,
tomake the vastly important Federal Reserve Board a more elastic, more initiative,
sympathetic, and responsive body than it is; to put it in more direct contact with the
public, and to fix its responsibility. There is no time or need here to consider details
of such legislation. Among our 532 members of Congress there is brain power enough
todevi* simple remedies for an obvious situation. I believe firly that the board by
its power to regulate and increase or reduce the supplies of funds and the interest
charges for money could have saved us from a fall so precipitate and smashing, and
frommuchof the distress and ruin through which we have been dragged, it coula have
madetheshrinkage of values more gradual and uniforminstead of violent and sporadic,
could have helped strongly to keep the circulating currents of commercial at more
evenflow, so that the losses of each producer might be offset by reasonable reduction
inthe cost of what he must consume.
LOIU) LEVERBULME DECLARES “ TOO RAPID DEFLATION”
AND UNEMPLOYMENT.
HAS BROUGHT STAGNATION
Theseviews and apprehensions, which I expressed in urging the bosrd, during the
put six months, to constructive action and to a revision of its policy of contraction
Wore it was too late, were shared by able and clear-thinking men far and wide.
Thefatal consequences of its folly or inertia,, or both, have been far-reaching. Lord
LCTerhulme, one of the largest and most successful manufacturers in the British
Empire, a man of broad vision whose interests are world-wide, recently declared in
*binterview, as reported in our newspapers, that:
“The process of too rapid deflation is undoubtedly the cause of the present, un
employment and trade stagnation.”
Continuing, the interviewer said:
“The prices of commodities rose to the extreme limit during the war, and their
reduction was a prime necessity, but the fall has been too sudden for adjustment.
This deflation has been accomplished through the banks calling in loans which,were
usedto finance stocks at high prices, and the effect of the forced realization of these
Mockshas been to drive down prices of commodities below the cost of production.
“Under these circumstances, manufacturers are not likely to go on producing at a
loss, and have consequently been compelled to shut down their factories.”
Our country being now the principal creditor nation of the world, its financial
policies, as is clearly recognized, have a world-wide effect.
REED TOR W ISE COUNSEL, EXPERIENCE, KNOWLEDGE OF BUSINESS, COURAGE, AND
SYMPATHY WITH PUBLIC NEEDS.
Welearnby experience, and should provide that the Federal reserve boards of the
futureshall luve less of the characteristics of the automatic bureau and more of the
activitiesand spirit of the wide-awake business man. I believe it desirable fromthe
«tondpoint of the public, and of the commercial interests of the country that the mem
bershipof the board should include at least one man of wide business experience, out*
aideofbanking. The six members at the time of my resignationincluded, in addition
totheComptroller of the Currency, two college professors, two bankers, a lawyer, and
anewspaper man from Poughkeepsie. A Chicago business man of signal ability and
exemplary character whose counsel would have been of great value, especially in our
recent experiences, was refused by the Senate when nominated by the President
•evendyears ago.
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ENLIGHTENED STATESMANSHIP SHOWN B T BANK OF FRANCE IN LE88ENING VIOLENCE
OF CRISIS.
The enlightened statesmanship with which the management of the great Bank of
France met this world crisis and tempered its strain and shock for its people m ay be
judged by a statement made by the governor, of the Bank of France in his recently
published annual report. In referring to the existing financial and commercial
crisis, he said:
“ We have welcomed, whether bv means of rediscount or by direct discount, all
paper whose creation responded to the legitimate needs of commerce and production.
By this liberal policy, to which we have remained and always will remain faithful,
we expect to support with all our power the activities of widely varying business
enterprises which in France are needed to lessen the violence of the crisis.
In striking contrast was the plan discussed by an “ important official ” of the Federal
Reserve Bank of New York, with a heartlessness which even amazed Wall Street, and
of which I shall speak again presently, which called for “ putting on still more pres
sure, thus cleaning up the after-war mess in a hurry and getting it over,” though it
should involve “ many forced failures;” but the “important official” referred to com
placently concluded that it seemed best to stick to the present set course without
increasing or reducing pressure, “ despite the criticism” which it was admitted was
“heard from all quarters for lower interest rates and withdrawal of pressure to force
payment of outstanding loans.’’
Aa is natural and proper, I offer my suggestions of what Congress should do chiefly
within the limits of my own direct experiences. Along the same line I have embraced
in my annual reports, including the last, a number of suggestions for legislation to
cleanse and strengthen our national banking and Federal reserve systems. Among
these is included the measure to give the Federal reserve banks, under proper safe
guard, more latitude and power to render aid in an emergency, to member banks than
is permitted under the law as it now stands. Other important changes in and addi
tions to existing laws which my observation convinces me are needed are set forth
clearly in my last report to Congress, submitted not many weeks ago; but these are not
of special interest here.
1 have attempted to indicate briefly how the Federal reserve system might have
been used, in my opinion, to lessen the difficulties with which our agricultural in
terests have been beset so s:yely, and how it may be used in the future. It is not
yet too late for the board to face about and help.
GOVERNMENT EXPENDITURES ENSUING YEAR CAN AND SHOULD BE REDUCED TO
<3,000,000,000 AND EXCESS-PROFIT8 TAX 8HOULD STOP.
Turning now to more general matters, let me say that from such study as I have
been able to give the subject, and based upon my experience and observations, 1
believe it possible for the ensuing fiscal year, beginning July 1, for the present admin
istration to reduce the total expenses of the Government, including interest and a
reasonable sinking fund on the public debt, to approximately 13,000,000,000, and in
reducing receipts raised by taxation, I believe a way should and can be found to do
away with the burdensome and complicated excess-profits tax. We have been
engrossed in fighting and winning a great war and in handling the immediate effects
and results. The time for setting our house in order after the fray has come. _ I was
an American before I was a Democrat, and like every other man whose ambition is
to be a good citizen, I hold the welfare of people and country far nearer my heart
than any party or political advantage.
_
Therefore, I hope most sincerely that the present Congress and administration will
complete the work of retrenching expenses and reducing taxes thoroughly and
promptly.
BUSINESS WORLD GETTING DOWN TO BEDROCK.
p r o d u c t s ; in r e t a il d e a l e r s ’ p r o f it s
READJUSTMENTS IN STEEL AND IRON
in w a g e s , y e t t o c o m e .
and
Before closing I will, if you will indulge me a little longer, say a few words as to
present business and financial conditions, and the outlook. We are now indisputably
closer to. bedrock than we have been for years, and we have it within our power to
hasten the time when farms, factories, mills, mines, and railroads shall again go
forward at full speed.
.
For generations past the market for steel and iron has been regarded as the tnermometer of trade. The prices for these underlying basic commodities h a v e been
regarded as an index of general condition of business. At the present time this wno'
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entirely true, for in the great depression which now exists, the most acute perhaps
that wehave experienced in this generation, owing to the heat artificially applied to
thebulbof the steel thermometer, steel and iron prices are still registering about 100
per cent above the prewar basis. These artificial prices are adding enormously,
directlyand indirectly, to the cost of living and I believe firmly are doing much to
block the road to business resumption and prosperity. They must be reduced
radically.
The exclusive profits still being exacted by some middlemen and retail stores
areabo unfair and are delaying the needed increase in consumption and in produc
tionwhich must precede better times.
Likeall who tnink and honestly hope for the welfare and happiness of our race,
1anearnestly in favor of decent hours and liberal wages for the working man ana
of afairer division of the joint products of capital and labor. But in making these
adjustments there are great economic laws of which it is necessary for us to take
cognizance. It is hopeless to attempt to force a railroad, or any other joint-stock
cwporation or business enterprise to continue to operate at a heavy loss and to pay
o* das of employees $8 or $10 a day if there are hosts of men well qualified ana
uxious to do tne same work for $5 and $6 a day.
PRINCIPLE O F 8-HOUR DAY AND EFFICIENCY OF LABOR ADVOCATED.
1aman,earnest advocate of the principle of the 8-hour day, which has necessarily
tobemodified under some conditions, but I am equally strong in insisting that serv
icerendered shall be efficient and thorough. Let me also add that it ought to be
clearto any thinking mind that it is far better for manufacturers and business men
ofall kinds to keep their mills and factories going even if they have to operate at no
profit, orat a small profit. _It is also sound policy and common sense for tne working
s ' to accept such reduction in wages as may be necessary to enable his factory to
<$erate rather than to precipitate a strike or a lockout and earn nothing at all.
The 12,14, and 16 hour dayB, 7 days in the week, which it has been charged have
t«en, up to now, exacted by some great corporations, are intorerable and inhuman.
Rsht years ago, as Assistant Secretary of the Treasury, my duties included super
visionof the Bureau of Engraving and Printing, employing then about 4,000 workers,
>adunder my instructions the director of the bureau arranged for operatives whose
rok was particularly monotonous and wearing to have a number of rest periods of.
sy, 10 minutes each, at intervals during the day, without requiring them to work
overtime for time so taken. He subsequently reported to me that as a result of that
planthe efficiency and output of that department was increased about 15 per cent—
owework performed in less time.
Regardless of whatever flaws there may be in its administration, our Federal reserve
systemhas, in the past, saved our country from conditions far worse than those which
*earenowenduring, and I believe that with the reversal of certain policies, and by
d* adoption of a constructive program the Federal reserve system could now aid
aainoudy in restoring lost confidence and in inspiring hope and a justifiable opti
ng
B O A R D U N DER EXISTING CONDITIONS SHOULD VIEW WITH SHAME RATHER
THAN PRIDE BIG RESERVE RATI0 8 .
There has, in my opinion, been an indefensible withholding of credit in many
wtheproducing sections of the country when sorely needed. I stated frankly at a
peetingof the Federal Reserve Board not many weeks ago that a high ratio of reserve,
udifiting useless impounding of funds in reserve banks, under existing conditions,
*uen money is eo badly wanted for the vital purposes of agriculture and business of
Jtinds, was a thing for the board to be ashamed of, rather than to boast of.
Thetime has come, in my judgment, when the rates of Federal reserve banks in all
autrictoshould be reiducea to a maximum of Cper cent per annum.
UTE ON BANK LOAN S SECURED B Y LIBERTY BONDS SHOULD BE REDUCED TO 4 } PER
CENT.
On United States Government bonds purchased and subscribed for at par upon
*hichthe banks are nowlending the original subscribers, the discount rate to memns banks should be reduced to 4J per cent, with a proviso that the member bank
®*11reduce the rate to its customer to not exceeding 5 per cent..
91341— 2 2 —
vol
2------ 3
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UNUSED LENDING POW ER OF FEDERAL RESERVE BANKS NOW FIFTEEN HUNDRED
MILLION DOLLARS— TEN TIMES AS MUCH AS ALL NATIONAL BANKS OF THE COUNTRY
EVER BORROWED AT ANY ONE TIME BEFORE 1914.
Prior to the inauguration of the Federal reserve system, according to the official
reports, the maximum amount of money which the national banks of the United
States had ever borrowed at any one time on their bills payable and rediscounts
was not over $150,000,000. I know it will be of genuine interest to every man in
this assembly to know that our 12 Federal reserve banks at this time have an unused
lending power of approximately fifteen hundred millions dollars, or 10 times as much
as the maximum amount which all the national banks of the country ever borrowed
at any one time on their bills payable or rediscounts prior to the European war.
Under such conditions as these, there is no reason why every farmer and business
man in this country of good credit should not be able to obtain all the money needed
for their conservative business wants—at least so far as the domestic requirements
of our own country are concerned. Obviously the question of funds for foreign trade
while the world is upset as it is at this time is another problem yet to be solved.
Of course, you do not expect, and I do not intend, that I pour out onyou any theories
of government or general program of legislation, domestic and foreign. 1 presume
you have agreed on legislation you will ask in favor of the organized fanners and work
ingmen of the country. I have tried to give you for your consideration and mental
digestion some of the thoughts brought to me by contact with conditions.
POLICY DISCUSSED B Y “ HIGH OFFICIAL1’ TO PUT ON
STILL MORE PRESSURE*’ AT THIS
TIME RESENTED AS A ' “ .MASSACRE OF B U S IN E S S ."
Precisely in point with what 1 have been saying and as illustration of what I may
call callous, if not the brutal, attitude of some of our officials, let me read you a para
graph or two from the New York financial article printed in the newspapers the day
before yesterday.
The writer of the article said:
“ From a talk I had to-day with one of the important officials of the Federal reserve
bank here it appears that there is a consensusof opinion among the different governors
of the Federal reserve banks favoring a continuation of present policies despite the
criticism heard from all quarters for lower interest rates and withdrawal of pressure
to force payment of outstanding loans. There are three general policies whicn might
be adopted, it was pointed out.
“ One would be to ease up on interest rates, but that policy, with the heavy inflow
of gold, it was argued, might result in a renewal of dangerous speculation and inflation.
Another policy might be adopted that would result in putting on still more pres
sure, thus cleaning up the after-war mess in a hurry and getting it over. But if that
course were adopted, it was pointed out, ‘ we would be a Tong time in picking upthe
pieces caused by the many forced failures.’
“ By far the best plan, it wasargued, wasthe one nowbeing followed, which permits
continuous, but moderate liquidation."
It must be noted that the only objection mentioned by the “ important official”
of the Federal reserve bank quoted, to the plan for “ putting on atill more pressure.”
was not the cruel injustice, the disregard of every principle for which the Federal
reserve measure was created, which it would involve, but the probability that they
“ would be a long time in picking up the pieces,” i. e., the dead bodies “ caused by
the many forced failures.”
One policy “ might’ ’ cause renewal of dangerousinflation and speculation. Anothei
would mean acute panic forced by unskillful or indifferent management or wanton
mismanagement of the machinery ably devised to give relief and prevent panics.
It is proposed to check disease, and give the doctors and nurses surcease from troubles
and responsibility by killing all the patients in the hospitals—a plan actually undei
discussion being to restore business to general sound condition by a preliminary
massacre of business.
The now prevailing method is supposed to be a compromise between these two, and
we are told there is a consensus of opinion among the governors of the Federal reserve
banks to let it continue. The suggestions offered by the “ important official’ ’ of the
Federal reserve bank quoted above are, I assume, a reflection of the attitude of the
board, for which I can conceive of no excuse. Apparently it has not occurred to the
boardthat it may be possible by anxious and alert vigilance and careful responsiveness
to daily situations and varying sectional requirements, to avoid either of the alter
natives described above—delirium on one side, death on another, or a sleeping sick
ness, as at present.
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The man who put an automobile on the road with steering gear set'and let it run;
or the doctor who failed to adapt his treatment to stimulate or retard heart action,
as conditions indicated, would be liable to indictment for murder.
The policy outlined in this newspaper paragraph, as obtained froma Federal reserve
bank official, is precisely that against which I war, and against which I hope all of us
will war. It is the policy of setting the steering gear and letting her go; of applying
the same treatment to high fever and paralysis—the “ bureau" method of hard ana
fixed rules.
The Federal reservesystemwas not intended to be worked that way. It presupposes
attention, intelligence, flexibility of thought in those who operate it, tne capacity
to feel and understand and to value the welfare of the country and of each of the
individuals composing it as more important than official dignity, pride in an adopted
policy, or blind and slavish allegiance to rules by those who first create them, and
then abjectly worship them.
“ LIQUIDATION NEEDS TIME IF DISASTER IS TO BE PR EV E N TED ,” SAID PROF. LAUOHLIN.
The method mentioned by the “ important official’ ’ of the Federal reserve system,
as quoted by the New York financial writer, is directly contrary to common sense,
fair dealing, and the most elementary principles of economics. In painful contras t
with certain board theories and practices, are the mature conclusions, not only of
leadersin business, but the ablest thinkers, and teachers of economics. For example,
Prof. J. Laurence Laughlin, of the University of Chicago, adistinguished and accepted
authority, nine years ago, in discussing the subject of banking reform, made the
following statements, which in the interest of the country, I respectfully submit,
it would be well for our reserve board to ponder, inwardly digest, and act upon:
“ A crisis comes because credit has been unduly expanded in a period of prolonged
prosperity; in an optimistic spirit men have entered into transactions beyond their
actual means, as is shown when the test of actual payment is exacted, and in a time
of fright collateral as well as goods falls in price. In such a situation liquidation
needstime if disaster is to be prevented.
“* * * the great need is some means—whatever it may be—which will enable
* bank to make loans to a client, who can thereby be saved from failure and from
tasty and ruinous liquidation.”
Contrary to this sound, practical and humane doctrine the “ important Federal
teerve bank official” announced that a plan actually under discussion, conscienceItss though it be, contemplates “ putting 011 still more pressure,” and it appears
that the only argument he mentions against that policy, is not the cruelty and suffer
ingwhich such a plan would entail, but “ the long time” which would be consumed
in "picking up the pieces,” which he frankly tells us “ the many forced failures.”
i. e., financial ruin of thousands of firms, corporations, and individuals—would in
volve. Bradstreet’s Mercantile Agency reports that there had already been in the
United States in the six months ending on the 1st instant 8,607 failures, an increase
of 5,775 over the same period a year ago. Now it is suggested to put on “ still more
pressure” and “ force” many more failures.
FEDERAL R E SE R V E SYSTEM INTENDED FOR GOOD OF THE WHOLE PEOPLE, AND SHOULD
BE ADMINISTERED IMPARTIALLY.
I believe, gentlemen, the Federal reserve system was intended and should be
used for the good of the whole people. I also believe the rural sections and agri
cultural interests have not been given the share of advantages and benefits they
should have had and have suffered from that denial. I know that legislation can
aid enormously in assuring to those sections and interests their fair share, and can
make our banks stronger and safer even than they are, which would be good for
all of us.
I am here to say what I think, and to share with you what I have learned and to
assure you that I shall never neglect an opportunity to use voice, energy, and in
fluence. and any knowledge or ability I have, for the purpose of having the protec
tion and benefit of our wonderful Federal reserve system—designed and constructed
forall—bestowed equally and impartially on all.
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S il k S h ir t s a n d B u b b l e s .
(Address of Joihn Skelton Williams before the Augusta Board of Commerce and Georgia Press Association
at Augusta, Ga., July 14, 1821.)
ITon. John Skelton Williams spoke as follows:
“Mr. Chairman, members of the Augusta Board of Commerce, farmers of Georgia,
members of the Georgia Press Association, ladies and gentlemen, addresses of this
kind, according to immemorial custom, are served like a Chinese banquet, hind part
before. We begin with the dessert of compliment and oratorical confectionery, put the
spice and pepper in the middle, and wind up with solid intellectual food, in case we
have any to offer.
“ It is not, however, merely complimentary or conventional when I say I thank you
for the honor you have done me in inviting me here, for I appreciate most deeply your
invitation to talk to the imperial powers of the Empire State, an empire in territory,
in wealth, and in power, conducted on the highest principles of democracy.
“ I thank you for asking me here not only because I feel gratified by the personal
courtesy but because 1 believe 1 have something to say that should be said. Having
no political purpose, no ax to grind, as you people say, I suppose I can talk rather
more freely than those who are more or less entangled with parties or factions or
individuals.
“My employment through the last seven years as Comptroller of the Currency of the
United States has given me exceptional opportunities for knowing the inside and the
outside of our commercial and banking operations and conditions, the moving spirits
and influences, and has imposed on me the duty of making special study of them,
divested as I am of the interests and alliances which sway the judgments of men.
“We are now passing and have been passing through the same processes that have
followed every great war. In my opinion we have been subjected to unnecessary
hardships and losses by failure to use properly the means provided for avoiding or
ameliorating those hardships. We will recover completely and triumphantly, but
there have been delays, dismays, and disasters from methods and policies which I
believe to have been unnecessary, erroneous, and inexcusable, and neither political
party can charge the other with responsibility for these grave errors, because the men
in authority upon whom the responsibility primarily rested were, I believe, affiliated
in equal numbers with both parties.
“ Newspapers and magazines and much of our daily conversation have been filled
with the period of extravagance among the people. We have read columns, and many
of U8have listened for hours to talking of the silk shirts of the workingmen and the fine
automobiles the fanners bought during the flush times. Both those much-discussed
classes may comfort themselves with the knowledge that if they were unwise and lack
ing in foresight, they were not more so than many, if not most, of those supposed to
be the seers and high priests of our finance and the special repositories and sources
of business wisdom. The silk shirt was on the man’s back, and the automobile was
on the big road or plainly in view in the barn, but the millions invested in wildcat,
impossible, or fraudulent enterprises and schemes are out of sight on the pages of books
locked in safesand vaults orshut in safe deposit boxes in the shape of paper with pretty
pictures and printingand bearing large figures and not worthwhat was paid the printer
to make them. The difference is that, while the money spent by the workman and
farmer went to help the dealers and manufacturers, and was their own, the invest
ments in worthless so-called securities oftentimes built nothing, developed nothing,
and frequently, if not generally, belonged to other people, who were maae to foot the
bill.
“ Recklessness in expenditure and investment amounting almost to madness is
one of the greatest of the many evils attending and following war. It has never been
fully explained, as far as I know, but it seems like a psychological reaction of human
nature to emergencies. Poorer men go to silk shirts or other corresponding indul
gences, and those better off to bubbles, apparently spontaneously and automatically.
‘ ‘ Exactly two centuries ago, after two decades of long, general, and deadly European
war, there was a period of riotous waste among the people, and frantic speculation
which culminated in the notorious South Sea bubble, one of the most famous scandals
of history. Kings of the world’s foremost countries involved themselves, and even the
Prince of Wales himself was forced to resign fromthe presidency of a bubble company.
Contemporary history tells us of nobles, dukes, bootblacks, and criminals elbowing
each other in the London streets about the offices where stock might be bought at a
high premium, in wild competition to secure some; of ladies of the highest rank com
promising their characters that they might win the favor of a few shares. It was a
swindle often repeated since, familiar to some of to-day from recent instances in
Boston and elsewhere, the simple scheme of usine the money paid in for new stock
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to pay dazzling dividends on the old, but in the South Sea days the Government of
Great Britain became a partner, adding new frenzy to the mania and for the time
displacing the Bank of England itself in showering its confidence on the agents of a
crazy dream and a fraud ridiculously barefaced.
‘‘The official reports of the debates of the British Parliament of 1721 reveal that the
ruin became widespread, tens of thousands of families, once prosperous and respected,
dispaced, bankrupt, and destitute.
To check the speculative mania in those days.it became necessary for the King
and Parliament, by proclamation and otherwise, to call a halt to the schemes and pro
motions which, in the language of the official record of those days, were described as
‘pernicious projects and undertakings, first set on foot and promoted by crafty knaves,
thenpursuedby multitudes of covetousfools, and at last appeared to be, in effect, what
their vulgar appellation denoted them to be, namely, bubDies or mere cheats.’ Con
tinuing, me official report declares: ‘By these extravagant and unwarranted practices
many unwary persons were defrauded and impoverished and a few busy upstarts
enriched, to the great detriment of domestic trade.’
“Among the corporations and flotations which two centuries ago were specifically
mentioned in the parliamentary debates were such as a company for the purpose of
carrying on ‘an undertaking of great value, but nobody to know what it iB;’ another
'for erecting salt pans in Holy Island, two million sterling;’ for ‘importing walnut
trees from Virginia, two million sterling;’ ‘for insuring to all masters and mistresses
.the loss they snail sustain by servants, three million Bterling;’ for the ‘transmutation
of quicksilver into amalleable fine metal; ’ for ‘ buying and fitting out ships to suppress
pirates.1 etc. The famouB company for extracting sunshine from cucumbers does
not appear on the list, but the worst of them all are but little more absurd than some
of the enterprises in which our people of this day were putting their money a year or
two ago.
“Incidentally this country gained vastly from the destruction abroad, because
many people of fine heritage, abilities, and ambitions were driven to seek to mend
their fortunes in the new land of Virginia, and their descendants have peopled and
blessed all the older States of our Union.
“ I cite this matter to illustrate that what we are seeing and feeling is no new thing
under the sun, and as a comforting assurance that we are no worse and no more sub
ject to crazes and paroxysms than our respected forefathers, who ruined themselves
with considerably more rapidity and completness than we do, and with less provo
cation or excuse.
“ Coming down another hundred years, we find more of the same conditions we
lave known in the last four years, only very much worse in proportion to our size and
wealth. In 1821, following the Napoleonic wars and our war with Great Britain,
thiscountry and Europe were feeling the results of a debauch of imaginary prosperity.
Seven years after we had made peace with His Britannic Majesty and six years after
Waterloo we were in the depths. Until about 1820 anybody could sell anything at
any price. Wildcat banking was the rule and conservatism the discountenanced
exception. The crash and panic that came were as inevitable as the operation of
any law of nature. Newspapers of those days were filled with advertisements of real
estate bought at fancy prices in boom times, for which buyers could not pay, and
of farms and homes seized for debt improvidently contracted. The older Ameri
can States in their turn contributed to the frontier States, as they had been con
tributed to by the old country, swarms of active and enterprisingpeople who had
been swept from discretion by the frenzy of the time and compelled to seek in new
surroundings the fortunes hoped for and missed. As is the case always in such ren
ditions, a few who had kept their heads and taken advantage of the follies of their
neighbors, or whohad been lucky enough to close out at the right moment., profited
enormously and piled up fortunes enormous in that day, but in the cities the appeals
forcharity were incessant, and New York and Philadelphia saw bread riots.
“ Fifty years later, after our Civil War, after duplication of the whirl of reckless
■pending, came duplication of the crash, and the panic of 1873 shook the world.
Complete recovery from this did not come for many years.
“ Now we are less than three years from the armistice of November 11, ] 918. We
have come through the period of lavishness in far less time than was required for the
fever to exhaust itself after most of the other modern wars in which we ha\e been
concerned. The inherent wealth of our country is so enormous, the energy and
intelligence of our people so unlimited, and our prestige among the nations of the
world is so high, tha„t with a wise use of our opportunities, an intelligent and coura
geous handling of our financial machinery, ana an unselfish leadership on the part
of our business and financial leaders, it is entirely possible for us to get back speedily
to prosperity and good times. However, one of the most important opinions I am
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here to express to you is that we are not recovering as rapidly and as smoothly is
we should nave done, and as our great Federal reserve system was intended to enable
us to do. I further declare the opinion that the partial failure is not the fault of the
Federal reserve system itself, but is the fault of the administration of that system
by individuals who have not measured up as they should have done to the great
responsibilities imposed upon them. I know this opinion is founded on facts. I
believe I can convince you that it is fully sustained by the evidence. a I formed that
opinion from close knowledge of the situation and developments acquired by me offi
cially and accurately while I was comptroller. I expressed my views as strongly
and clearly as I could put them into words, both orally and in ‘writing, during the
past 18 months or more, and I believe that if my remonstrances had been heeded
and my admonitions given the consideration to which I considered them entitled,
coming from a member of the reserve board, untold loss and suffering might have
been avoided.
“ Perhaps it is too late now to correct the very serious mistakes that have been, m
I think, made, or to avoid or cure the natural and inevitable consequences. It is
not too late to try to point out Bome of- those mistakes, especially when there is oppor
tunity to do so before the ruling powers of a powerful Commonwealth. The local
press and the farmers of anv community can and should be powerful in guiding its
thought and directing its action.
"AH progress of the human race and of individuals is based on understanding of our
blunders. My hope is to expose and explain blunders that have been made, to trv
to make them b o thoroughlv understood that they will not be repeated or continued.'
“ The Federal reserve act is the finest tool for commercial protection and construc
tion ever put in the hands of a Government and people. I believe that bv awkward
and inefficient handling it has been used to injure where it was intended to guard,
and to encouragc and protect what it should have restrained and prevented. I believe
it has been weakened and misdirected bv the ‘bureau disease,’ a disease which I
have described heretofore as ‘bureaumania,’ to which too often those intrusted with
authority seem to become subject. It is so much easier to hold and regard policiea
and rules when once adopted as final, fixed, and unalterable, rather than to undertake
the labor of studying their workings and effects and deciding on modifications and
changes. It is so much more self-satisfying to accept our own opinions as the supreme
fruit of wisdom than be at the trouble of analyzing and amending them in the light
of results and to fit changing conditions and circumstances.
"I question nobody’s motives. The dismal, cold fact, as it seems to me, iBthat
the Federal reservie act, which was designed to provide a system of banking and
currency supply, pliable and elastic, adaptable to the variations of seasonal and sec
tional requirements and of supply and demand and commercial development, became
stiff and inelastic, consequently oppressive and injurious where it should have been
helpful, and dangerously lenient where it should have been repressive.
“ A valiant little country bank in Alabama, striving and straining to help its farmer
customers, needed $112,000 to meet the needs of its community in crop-moving time,
the latter part of September, 1020, and that little bank was charged for the use of that
money for about two weeks by its Federal reserve bank an average rate of about
4 per cent—not 4 per cent per annum, gentlemen, but about 4 per cent per month
on an average; in fact, the rate charged for a portion of that money was actually
87} per cent per annum.
“ I have studio 1the reports of the interest rates charged by the Government banks
of all the other civilized countries of the globe -England, France, Italy, Scandinavia,
Japan. China, and you may als> include Germany and Austria, and all others—and I
think the record* will show, ge'itlemn. that the rates which certain small banks in
Colorado. Kansas. Texa?. Louisiana Alabama, and other States were charged by their
reserve banks, in certain exceptional cases, amounted to from two to live times as
much as the rates charged by any Government bank in any civilized country on the
globe (ientlemen. these amazing rates are brutal, wholly without excuse. The
Federal reserve system should be made to refund in every instance every dollar of
interest e -acted in excess of 10 per rent, if not. in excess of 6 per cent.
“ More than six months ago I urged the Federal Reserve Hoard to abolish entirely
these grossly excessive rates which were being imposed under what was called the
‘ progressive interest plan,’ and offered a resolution to make the rate of interest 6
per cent, but my resolution was voted down. I then offered another resolution that
the rate of interest should not exceed 10 per cent in any instance, but this resolution
was also disapproved by my colleagues.
“ Writing to the board, under date of February 4, 1921, I said very plainly:
“ ‘The more I have looked into this subject the more I am convinced that the pro
gressive rate, as it has been applied in certain districts, is wholly indefensible, and I
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believe that the reserve banks and this board would be very severely criticized if
the rates of interest which have been exacted upon this plan by some of our reserve
banks should be made public. I do not believe we are ever justified in pursuing a
policy which can not be approved by a sound public opinion.’
“ It is due to the Federal Reserve Bank of Atlanta that I should tell you that officers
of that bank earnestly pleaded with the Federal Reserve Board a year ago for per
mission to adopt, in certain respects, more liberal policies than those laid down for
them bv the board, but their supplications were unavailing.
“ While small banks in the farming districts were being taxed in this manner, great
banks in New York were being supplied with practically unlimited amounts of money
at 5. 6, and 7 per cent. The official record will show that while the reserve bank
collected $2,100 (equal to 8 per cent on the bank’s entire capital stock for 12 months)
froma little bank in your adjoining State of Alabama for the use of about $112,000 for
twoweeks in crop-moving time a year ago, a big bank in New York, whose funds were
largely employed in speculative operations and deals, for the same cash consideration,
or, sav, $2,100, was given the use of about $800,000 for the same time.
“Tie policy of the Federal Reserve Board and of certain reserve bank authorities
seemed to be that if certain big banks wanted anything, why let them have it promptly
and no questions asked; but if a little bank or a'farmer needed funds, comb him well;
make him give up everything he has as security, and then make the directors, as well,
guarantee the loans for all they are worth. This policy was carried so far that I have
beeninformed recently of anational bank in the Southwest claims that it was not saved
but was broken by the exactions of a reserve bank, and its directors are now planning
to bring suit against a Federal reserve bank demanding that they pay its depositors
infull. The prodigality with which certain big banks disposed of the funds so unstintingly loaned them by certain reserve banks may be illustrated by a loan of $500,000
toafisheries company made by a big northern bank which came to my notice. When
I inquired what the security for the loan was, I was informed that the collateral was
fish. And when I asked where the fiah were, I was informed officially that the fish
had not been caught at the time the loan was made, but that they were supposed to
be swimming in the oceans thousands of miles away: but that the corporation had
promised to go fishing, and if they caught any fish, pack them and can them and then
put them in warehouses and then deposit the warehouse receipts as security for their
loin, which, when I last heard from it, had not been paid or reduced.
“Of course, much of the money loaned by the reserve banks was used for the legiti
matepurposes of trade and commerce, but entirely too large a proportion of it was also
used for the promotion of all kinds of speculative schemes, and many millions bor
rowed from the New York reserve bank was employed by the borrowing banks to
promote speculative schemes of the executive o'ficers of prominent banking institu
tions in that city, to whom in various cases specially low interest rates, commonly
spoken of as ‘ family’ rates, were sometimes charged.
“ In other cases banks which were borrowing fromthe Federal reserve bank at (1per
cent took advantage of the necessities of their customers, and in some instances
charged them 20, 30, and 50 per cent per annum on good security, and I have before
me one case where a bank which was borrowing several million dollars from the
Federal reserve bank at 6 per cent charged its customer, the head of a large manufac
turingcorporation, the equivalent of about 200 per cent per annum interest on the net
amount of money which the bank itself advanced to the borrower. That loan was
KCured by collateral and repaid within six months. For six months’ use of about
1250,000 the reserve bank charged the member bank approximately $7,500. About
the same time that the member bank borrowed at 6 per cent from the reserve bank
it loaned its customer approximately $250,000 net—exclusive of a portion of the loan
whichit passed on to the correspondents without indorsement—ana for the accommo
dation exacted, in interest and commission, the sum of approximately $250,000 for
a loan repaid within six months, the interest rate being the equivalent of about 200
percent per annum. In other words, the rate of interest per annum which that partic
ularbane exacted fromits unfortunate customer was about 33 times the rate of interest
whichit paid to the Federal reserve bank for the money at the time the loan was made.
Ia there any honest man in the entire United States who will seriously attempt to
defend that transaction?
"The directors of the New York reserve bank include men of high character and
excellent ability, and I do not believe that they would have approved of some of its
methods and policies if they had been kept fully informed by the officers in active
chaise.
“ You have noticed the uneasiness and well-nigh unprecedented depression in the
security markets and in financial circles. This, my friends, is, in my judgment, in
nosmall measure the natural result of acollapse of public confidence and the suspicions
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aroused by the operations of some of the men at the head of some of our big institu
tions, who have shown themselves unworthy of the trust which has been reposed in
them. The public have the right to demand, and will demand, that the heads of
the great banking institutions of our country, to whom are intrusted the savings and
property of millions of business men and other depositors, shall be. men of the highest
integrity, whose first thought and duty shall be the protection of the interests com
mitted to them, and whose time and thought and energy must not be dissipated or
absorbed by their fantastically Wild speculative ventures and promotion schemes,
of too many of which it might be truly said as Horatio Walpole said of the South Sea
bubble in his day, that it was ‘weak in its projection, villainous in its execution, and
calamitous in its end.’
“ My attention was recently directed to the case of a certain prominent high execu
tive official of a certain large banking institution, to which he should have given all
his time and thought and energy, but who was also a director in some 30 or 40 other
corporations, a majority of which had already been crippled or come to grief. The
shrinkage which has already taken place in the securities of less than half of those
corporations from the top prices at which their stocks were sold in the past to the
prices prevailing now amounts to about as much as the combined capital of all the
banks and trust companies in New York City, or, say, from a quarter to a half billion
dollars.
“ Such instances as these emphasize the importance of the recommendations con
tained in my last annual report to the Congress, that the active officers of large banks
should not be permitted to ne directors in other corporations.
“ The noval theory, which, unfortunately, appears has been acted upon sometimes
in the past, that proper selections for bank executives, presidents, and vice presi
dents are active speculators and stock jugglers, on the one hand, or expert publicity
men and ‘tooters’ whose main functions are to prepare press statements or attend
bankers’ conventions and maneuver the appointment of committees, who adroitly
shape resolutions and policies for such conventions to adopt, has received a rude
setback during the past year, and the importance of having men of the highest in
tegrity, ripe experience, and sound views, both on the ethics and economics of bank
ing, is, I am happy to observe, recognized now more thoroughly than ever before
in our history.
“ I have no hesitation in telling you that,, as far as I am able to see, the decent and
conservative banking element in New York City, as everywhere else, regards just aa
I do, and as I know you do, the operations ana methods of certain big speculators,
all the more dangerous because of the prestige given by their official positions, who
have marie playthings of the funds of other people, and the performances of acci
dents and sons of somebody who have used the wealth and power intrusted to them
to defy the moralities and decencies. When the stockholders understand how their
confidence has been abused there will be radical changes in the personnel of some
of our big banking institutions.
“ If this was not the richest and strongest country the world has ever known, with
its big element of the best people, immeasurable power of production, and natural
resources, we would face to-day disaster by a comparison with which the disaster
following the explosion of the South Sea bubble would appear trivial, despite our
admirable banking system intended to make disaster impossible.
“ Yet while this orgy of usury and speculation was raging in New York many of
you here had the experience of going to your local banks for money with which to
pick or hold your cotton or to carry your paper through the dull season, and of being
told of the difficulty of getting money through the reserve bank, and of the limita
tion being put on the small borrowers. Seeing these things as I do, nobody on earth
can convince me that there is not something wrong, a perversion of purpose some
where. I do not mean to suggest that the New York banks, for instance, were handed
out money without security. I do mean that they could and should have been
admonished and restrained by the Federal reserve administratore precisely as the
village man or the country farmer, even with ample assets, is advised and restrained
by village and small-town bankers when showing a disposition to be too speculative
or extravagant. These things, aa all of you know, occur every day.
“ I heard much talk while I was a member of the Federal Reserve Board about
forcing the farmer to sell his wheat, or the cotton planter his cotton, or the cattle raiser
his live stock, the wholesaler or retailer their stocks of goods, but I must tell you
frankly that I do not recall a single occasion during the past year or two of deflation
when the board ever discussed seriously the importance or desirability of requiring
the big banks in New York City, some of which were lending millions of dollars to
their own executive officials on highly speculative securities and to big syndicates
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inwhichthoseofficials wereactively interested and which those banks had been carry
ingformonths and sometimes for years to liquidate a portion of these loans, in order
that by sodoing those banks might have more money to supply the legitimate use of
tradeand commerce.
“Eighteen months ago, while this speculative orgy was under full headway, I
addressed a written communication to the Federal Reserve Board, protesting against
the extent to which the funds of the system were being used in tanning the fires of
speculation, and I pointed to one instance where the Federal reserve bank of New
\ork was lending to one institution about $130,000,000, twice as much money as the
Federal reserve bank of Dallas was lending to all of the 1,000 member banks in that
peat district, embracing the State of Texas and parts of the States of Louisiana,
Oklahoma, New Mexico, and Arizona. It was also shown that the New York reserve
bankwas lending to that particular institution at one time an amount equal to nearly
sixtimes the total capital of the Federal reserve bank of New York. The significance
ofthis may be better appreciated when we remember that for many years a national
bankwas forbidden to lend to any one borrower more than 10 per cent of its capital
Mock. In my written remonstrance I said:
‘“This is a concentration of the funds of the system with one debtor bank * * *
which, in my judgment, is not only not justified but distinctly dangerous, and I feel
itmyduty to registermy strong dissent froma continuance of such conditions asthese.’
“In my letter to the board of January 17, 1921. I pointed to the extraordinary fact
that the Federal reserve bank of New York was lending to one particular institution
in that city at one time last year more money—in one in B ta n co more than twice as
much—than the seven Federal reserve banks of St. Louis, Kansas City, Minneapolis,
Dallas, Richmond, Atlanta, and San Francigco were lending to all of the member
banks, both National and State, in any of those seven respective districts.
“IsJsosaid in thatsameletter:
“ ‘It is entirely true that I wish to go on record * * *. I wish to be recorded
definitelyaahaving done my utmost to urge our board tosaving or palliative action and
consideration for the troubles of the public, and thereby at least nee myself from the
censurethat will fall on us with crushingforce if we omit any possible effort to mitigate
presentand real suffering or to avert disaster, although the consideration of personal
exculpation is, of course, slight and negligible in comparison with my main purpose
andhope, which are to obtain from the board some prompt and effective action for
relief.’
"Neither I nor any other local banker can regulate the conduct of our business by
unreasoning iron-clad, inflexible rules. We can not lend without limit to every man
»4poffers security, or require $2 of gilt-edge security for every dollar we lend. We
consider, if we are at all fit for our jobs, such matters as the moral hazard and the purpoaefor which the money is to be used. We do not lend without B t i n t to the richest
customer if we know he is gambling beyond the safety line, while denying the man
whois trying to build something useful or productive, or to enlarge the trade of the
community and promote its prosperity.
“The intent of the framers of the great Federal reserve law was that the syBtem
shouldbegoverned and conducted on those plain, common-sense principles applicable
toboth the village and small-town and big-town banker.
“One of the primal and most vital purposes was to prevent congestion of money at
thecenters for use in gambling orexactions fromgamblers and speculators when funds
are needed for moving or carrying crops, or for development and for the conduct of
productive enterprises. I say that broad and noble purpose has been hindered, per
verted, and in a large measure reversed by the attempt of a majority of the members of
the Federal Reserve Board to maintain and enforce rules and policies, unnecessarily
bard, inflexible, and unvarying.
“I have been and amvery much in earnest about this. For a long time past, as the
recordswill show, but especially during the past 18 months, I poured in remonstrances
and protests and also prophecies as to what would happen if my warnings were not
beeded, and most of these prophecies, I amsorry tosay, nave been verified by unhappy
events and unnecessary troubles for the people and our business. I gave facts which
could not be disputed, deductions which could not be refuted, pointing to inevitable
consequences. The correspondence would frighten you to look at. It covered hun
dreds of pages of writing paper. I was met with responses which certainly were not
answers which, to my limited intelligence, seems to be absolutely apart from the im
portantpoints which I was trying to have considered, dealing laboriously with matters
ofdetail sonmn.ll that I do not think I amdiscourteous when I describe themas trifling.
Indiscussions in board meetings in which I sought to urge vital reforms for the welfare
ofthe people so largely committed to our care, some astonishing and dismaying replies
wereelicited.
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“When I remarked that serious failures might occur unless a certain course of action
was taken, one member remarked with a cynicism and heartlessness which I was
unable to comprehend, ‘ Let them fail.’ Since then the same idea actually has been
published in newspapers as a suggestion discussed by an important official of a certain
prominent Federal reserve bank.
“The writer of the newspaper article to which I refer said:
“ ‘ Froma talk I had to-d^y with one of the important official? of the Federal reserve
bank here it appears that there is a consensus of opinion among the different gover
nors of the Federal reserve banks favoring a continuation of present policies despite
the criticism heard from all quarters for lower interest rates and withdrawal of pres
sure to force payment of outstanding loans. There are three general policies which
might be adopted, it was pointed out.
" ‘One would be to case up on interest rates, but that policy, with the heavy inflow
of gold, it was argued, might result in a renewal of dangerous speculation and inflation.
" ‘Another policy might be adopted that would result in putting on still more
pressure, thus cleaning up the after-war mess in a hurry and getting it over. But if
that course was adopted, it was pointed out, we would be a long time in picking up
the pieces caused by the many forced failures.’
“In commenting upon that article I took occasion to point out that it was not the
cruel injustice or disregard of every principle for which the Federal reserve measure
was created which, it seems, prevented the immediate adoption of the policy of further
pressure, but it was because of the ‘long time we would ne in picking up the pieces
caused by the many forced failures.’ ft was perhaps to lessen the troubles of the
doctors and nurses by killing all the patients in the hospital -a plan actually under
discussion being to restore business to. generally sound condition by a preliminary
massacre of business.
“The deflation policies of the past 12 months have borne thqir fruit. The mercan
tile agenda* tell us since October last there have been about 14,000 business failures
in this country, an increase of not far from 10,000 failures over the same period last
year. I can not forbear drawing a parallel between such policies as these and the
attitude of the Treasury Department in the Comptroller’s Bureau toward the business
interests of the country in tne critical months following the outbreak of the European
war. In the autumn of 1914, when the stock exchanges'in the principal cities of the
country had been closed as the result of the European crisis, a number of national
banks in the big cities arbitrarily raised the rates of interest on their loans which were
generally secured by bond and stock collateral from the prewar rates of 2 or 3 per cent
to 8, 9 and 10 per cent, and also to as high as 12 per cent. Some national l)anks, how
ever, in the same cities refrained from charging, in any instance, more than 6 per cent
per annum. The Treasury Department, through the Comptroller's Bureau, had fur
nished to the national banks in New York, Chicago, St. Louis, and Philadelphia
emergency currency to the extent of more than $200,000,000 upon which these banks
were paying 3 per cent per annum interest. By November 1 the money situation had
greatly improved, but the stock exchanges were still closed and there wa» no market
for securities and no way open by which the owners of securities could sell them to
piv thoe banks who had raised the rates of interest on their loans. As Comptroller
of the Currency 1 sent telegrams to national banks in New York and other big cities
asking them to inform me as to the maximum interest rates which they were charging
on loins and inquiring in event the rate should be in excess of 0 per cent when a re
duction to fi per cent might be expected. As a result of tho3e telegrams nearly all the
banks addressed which were charging more than fi per cent promptly reduced their
interest rates to tint figure. But in Xew York there were three large banks, one of
which had received from the Government over $10,000,000 of emergency currency
on which it was paving 3 per cent, which refused to reduce their rates. This latter
bank in replying registered a formal protect agiinst what its officers referred to as an
attempt to force upon them a policy which they did not approve. The president of
that lunk said in his letter:
“ ‘We judge there is a sentiment bv debtors not of prime standing or with prime
collateral, and we feel that they should not assume that, they are entitled to the same
treatment by banks when they know the way they can easily have their notes reduced
to <>per cent or can pay.’
“ In answering that communication as Comptroller of the Currency, I replied as
follows:
“ ‘ You suggest that debtors not of prime standing and not with prime collateral
“ should not assume that theyare entitled to the same treatment by banks, when they
know the way they can easily have their notes reduced to 6 per cent or can pay.”
“ ‘ In such’times as these through which we have been passing I consider that the
weaker concerns and those who may not have been in possession of abundant resources
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should have lieen treated with special consideration and forbearance, and to levy
against and exact from them excess or unjuFt internt rates cirr.ply lecaise they were
under unparalleled conditions, unable to help themselves if not defensible.
In all kindness let me remind you that the usury laws are framed more for the
protection of the weak than of the strong, who can take care of themselves, and 1am
?nrethat you will agree with me that it is neither gocd policy nor good ethics, in times
like these, to take advantage of the weakness or misfortune of a bank’s clients and
customers. If some of those borrowers should have been forced to the wall and com
pelledtosacritice their collateral, the consequences, in the delicate conditions throi'gh
which we have been pacing, might have been unfortunate and serious.’
" The bank which refused to reduce its rates of interest a’soprotested warmly against
the comptroller's publication of the list of banks which were charging not more than
*>per cent per annum interest. In answer to that protest as comptroller. 1 said:
" 'May 1 sugpe^ that, if it was improper or unjust or unethical or unbusinesslike
toexact excessive interest rates, the fact that such a policy is kept from the public
doe?not make it right: nor is it the publication of such facts that constitutes the wrong.
Al ank should not make, nor take part in, transactions which will not bear the light
diy.
" ' If a bank is willing to have it known that it is charging one rate of interest but is
shamed or unwilling to have it known that it charges another rate, there must be
something al.out the other rate which challenges criticism or calls for an explanation.
Nothingisgained by concealingsuch operations fromthe public: and under conditions
like these, it is no part of the business or the proper function of this office to do to,
directly or indirectly.'
■■In commenting on the correspondence published in the comptroller's report to
'ongreasin 1915. i said:
' 'The effect of the action of the comptroller’s office at that time was as abovestated,
animmediate reduction in the high rates of interest which were being charged by a
numberof banks in the larger cities to a uniform rate of 6 per cent, which other banks
therehad adhered to through the crisis. This result inured greatly to the benefit of
><>noweis on collateral who had been obliged to pay the high rates dictated by the
(•anks. as the stock exchanges being closed, they had no possible way of reading
ipontheir collateral except by ruinous sacrifices.’
“It seems to me that these references to the work of the Treasury Department in
'■heearly days of the European war are not out of place at this time.
( "1 have been -wholly unable to understand the point of view of some of my colWagnes as matters affecting the welfare and well-being of the country came up for
maderation from time to time in board meetings and conflicting views developed.
"For example, I was wholly unable to sympathize with the theory referred to by
meminent member of the board upon one occasion who alluded to, with what seemed
tometobe a certain degree of approval, the theory that ‘It is better to be unanimous
thanright,’ which was certainly a striking parody on Henry Clay’s famous declara
tion: ‘I had rather be right than President.’
"Stenographic reports were taken of certain important discussions within the
boardshortly before I retired, and at the time the record was made the governor of
the board stated before the board that he would furnish copies of the proceedings
tomyself and to another member who was retiring about the same time. Subse
quentlyhe changed his mind, denied making the promise, and notified me that the
recordof the meeting referred to would be kept under seal, and the promised copy
hasnever been supplied. If he really thinks he made no such promise his memory
has become dangerously feeble. The records of those meetings, if they have been
preserved intact, may be interesting some day to an investigating committee.
“The Federal reserve system, despite its faulty administration, in Bome respects
has been of tremendous service to the country; but from the very outset Secretary
McAdoo and the more liberal elements of the board had to combat and oppose the
reactionary faction which fought for the centralization rather than the democratiza
tionof banking power.
“Inthe latter part of 1915, while the European War was raging and world finances
»erein a delicate condition, three or four members of the boardmade a determined
effort to secure the closing up of 4 of the 12 Federal reserve banks, their efforts to
doso being finally defeated as a result of Secretary McAdoo’s appeal to President
"ilaon and the enecitve action of the Attorney General.
“I think it will surprise you to know that wain in the early part of this year the
governor of the Federal Reserve Board, whohails fromyour adjoining State, proposed
*t aFederal Reserve Board meeting, and informally advocated, the disestablishment
orremoval of the only two Federal reserve banks located south of the States of Vir
ginia and Missouri, namely, the Federal reserve bank of Atlanta and the Federal
reserve bank of Dallas. I can not conceive what his purposes were, but in a letter
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which I had occasion to address him under date of March 26,1921,1 said to him verr
plainly:
“ ‘I am convinced that the proposition to close those banks and to attach the sixth
and eleventh districts to other districts would work a grevious and unpardonable
injury to a vast section of our country, and furthermore that the agitation of such a
plan at this time will result only in harm.
‘“ The 12 Federal reserve banks as at present established have, I believe, vindi
cated fully their right to exist, and if properly supervised and administered they can
be of untold value to our country and to tne world, both nowand in the years to come.
I earnestly hbpe that they may never become the footballs of politics or the instru
mentalities of unscrupulous or designing interests of any kind.
‘“ I trust any effort to close up reserve banks and centralize further the money of
the country may be as abortive now as were the efforts to this end in 1915, in which
I vividly recall you joined, and which attempt was frustrated finally by action of the
White House and of the Attorney General. It is far more important at this time to
provide the reserve banks which we have with wise supervision and management
and to have them function efficiently and adequately than it is to agitate for their
disestablishment, removal, or increase.’
“ Facts which I have tried to give you briefly, and a multitude of others, were put
before the board by me with names, dates, figures, times, places, and circumstances,
sustained by official reports on file and accessible, but it seems that I failed to make
at the time the desired impression upon my colleagues.
“ I know of no way of dealing with what I regard as wrong but to fight it with, all
the fair means I can command, and with both fats, and to go on fighting. I confess
that as this fight progressed I had but little hope except that in some way the battle
might go before the people direct or through Congress. Experience had taught me
to nope for little from tne board itself. During the difficult uphill work of rooting
out evils which had crept into our national banking system, all the more dangerous
because they had been made respectable by long acceptance and uninterrupted
usage, I had little or no help from the majority of the board or evidence of their
sympathy. Struggling against tremendous political, social, financial, and journalistic
powers in my efforts to rescue an important bank in Washington from mismanagement
that had degraded it in certain respects to the plane of a pilfering bucket shop, and
which had been openly violating nearly every provision of the national bank act or
decent banking, and which I was endeavoring to convert into a useful, decent, and
legitimately prosperous institution, I had the loyal, unwavering, and energetic
support of Secretary McAdoo, but distinct indications of what 1 regarded as a dis
creditable lack of sympathy upon the part of certain board members. Their motive
for their attitude I will not discuss. Striving to cure the disease of usury, which was
not only oppressing and injuring the people but bringing the banks into disrepute.
I had reason to know that President Wilson and Secretary McAdoo were supporting
me cordially, but a majority of the members of the Reserve Board gave no sign or
word of accord with my purpose, which was performed nevertheless, and the proprietv of which time and conditions have fully vindicated.
“ The heart-breaking and purse-breaking collapse in prices of farm products and other
commodities were referred to in the board in terms of satisfaction, as indicating the
success of its policy of deflation, and in response to my appeals of more than six months
to apply the brakes and secure a more orderly recession in values, their response was
as expressed by the governor of the board, to the effect that a balloon was merely being
punctured to let the gas escape. Mv reply on this point was that wise and sensible
men should trv to bring a balloon laden with human lives and fortunes safel> to earth
by the intelligent use of valve ropes and ballast, not by precipitating a sudden and
ruinous crash.
“ Some months before my retirement as Comptroller of the Currency and ex oflicio
member of the Reserve Board I was impressed with the exposed position of certain
important institutions, and feared that in an emergency it might ne difficult, if not
impossible, for them to provide a sufficient amount of eligible paper to enable them
to obtain the help they might need from the reserve banks in the event of a run upon
them, and I therefore recommend to Congress in my annual report that in an emergency
but. under proper safeguards, securities other than Government bonds and business
paper not now eligible, which might include, for example, warehouse receipts for com,
wheat, cotton, and merchandise, might become necessary in order to prevent failures
and avert a financial crisis. The majority of the members of the Reserve Board of
both political parties opposed my recommendation, and it was then that one of the
speakers in doing so said in effect, with a heartlessness which to me was incompre
hensible: ‘ Let ’em fail. Their condition is the result of their own mismanagement,
and they can take the consequences of it.’ I remonstrated that the failure of an im
portant banking institution would not only bring ruin to the culpable officers, but
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would mean wreck and disaster to many depositors and shareholders, and might, also
lead to widespread trouble elsewhere, but these considelations failed, apparently, to
arousethe interest or concern of my distinguished colleagues.
“Upon another occasion when certain policies were being discussed in the Federal
Reserve Board, which were being opposed on the ground that they might result in
forcing the failure or retirement from business of many small State banks throughout
the country, a certain member of the board, who has never been conspicuous for a
knowledge'of banking or an adequate comprehension of the difficulties which the
country has had to face in the past year, spoke up and said in effect that ‘if this plan
means the failure of the small State banks, that need not stop it; in fact, if we can’t
retrid of the small State banks by any other method, it might be as well to get rid of
themthat way’—that is to say by their failure. It was the same statesman and mem
berof the board who a few weeks later condoned the action of a large bank in a big
city which had been discovered to have charged a valued customer the equivalent
ofabout 200 per cent per annuminterest on a loan of several hundred thousand dollars
forabout six months, with the remark that ‘all banks charge those rates more or less.’
Hisimputation upon the character and methods of the banks of the country I resented
instantly, for a large majority of our banks are operated decently, honorably, and
efficiently, and most of them would not countenance for a moment such interest rates
asthosewhich I deprecated, and which a colleague on the board sought to condone or
justify.
“In the early days of my administration as Comptroller of the Currency I took
some pains to determine what the experience of the national banks had been in the
natterof loans to farmers. I knowit will be gratifying to you to know that the mana
gersof hundreds of country banks stated to me that the eventual losses on their loans
tofarmers had been strikingly small, a mere fraction of 1 per cent of their aggregate
loans, and that although the fanner is not always prompt in meeting his notes at
maturity, the farmer’s loans are about the best ana safest the banks make, despite the
bet that it was principally the farmer who was usually required to pay the highest
nteof interest and who suffered most from the excessive interest charges.
“While the Federal Reserve Board has been, during the past year, preaching and
urgingdeflation with Buch vengeance it is interesting to note there has been no defla
tionin die salaries paid to the officers of the 12 Federal Reserve banks, especially to
bigt o n k B . For example, in 1916 the salaries paid all officers of one reserve bank
tggregated $93,000/ while the amount paid for officers’ salaries for the same bank in
1920wasover $400,000, and for 1921,1 understand, there has been still furtherinflation
iaofficers’ salaries. The total pay roll of the Federal Reserve Bankof NewYork, in the
psiodof acute deflation from 1919 to 1920actually increased $778,000in that one year.
“1will not tire you at this time to give you illustrations of the extravagance and
*wte which have characterized certain features of the management of the reserve
system. Perhaps there may be reasons why four officere of one reserve bank are al
lowed to draw salaries exceeding the aggregate salaries paid the President of the
UnitedStates, the Vice President of the United States, the ( hief Justice of the United
States, and to Gen. Pershing, or why one officer of a reserve bank is given a salary
vfcileoff duty and on a 12-months’ leave of absence exceeding the aggregate salaries
paidtothree United States Senatorsforthe sameperiod. It also seems to me ridiculous
wrareserve bank to employ at a salary exceeding that paid to a United States Senator
« the editor in chief oi many important newspapers in big cities, a man for whose
employment an urgent argument was made by the reserve bank employing him that
hewas needed to touch up and give literary style to the press statements which the
bank had occasion to give out from time to time, although high-priced men were
already employed in the bank’s publicity department who were supposed to be fully
competent for such work.
, “These high salaried officials of the reserve bank, men not particularly conspicuous
eitherfor talent or constructive achievement, have luxurious tastes. You probably
sawin the newspapers that plans were filed in New York by the reserve bank there
lastThursday for a temple of banking in New York City to co3t, including land, it is
estimated, $16.000,000—probably more than the combined cost of the White IIouBe
ud Treasury Building at Washington, and the State capitols of a dozen States of the
Union. This building with its luxurious and lavish appointment of marble and brass,
itsauditoriums, gymnasium, club quarters, restaurant de luxe, and objects of art will
makeSolomon’s temple of old Beemquite cheap by comparison.
“Not caring to be left behind, I am told the governor of the reserve board, some
months ago, made quiet inquiries looking to the purchase of the expensive Metro
politan Club Building in Washington, sometimes referred to as the Millionaires'
Club, with a view to converting it, if obtainable, into the Washington headquarters
mthe Federal Reserve Board and their employees. I hope these negotiations have
fallenthrough.
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‘‘The reserve board can authorize a $10,000,000 or a $30,000,000 bank building
when it pleases, but you can not get a $50,000 post-office building or a customhouse
or courthouse—however badly it may be needed—without passing a bill through
both Houses of Congress.
‘1While members of the Cabinet and other important Federal officers are limited in
their traveling expenditures (exclusive of transportation) to $5 per day, officers and
employees of the Federal reserve banks, I am advised, have been permitted to spend
on their traveling expenses several times as much as the highest officials of the Govern
ment. But I will not weary you with further evidences of looseness or extravagance
at this time.
“All this is history. What has been done can’t be undone, but we can prevent it
from being done again. We can stop it from continuing to be done—we, the people,
masters in the last analysis and when it comes to the final showdown. That is why I
am here and welcome and thank you for this opportunity to put the case before you,
directors of public opinion and men and women who mold public opinion and make
it irresistible. I say that the losses and the ruin .which have attended the drastic
shrinkage and deflation of values have been accentuated and made unnecessarily
hard tohear by the stubbornly unwise and unwisely stubborn course of a majority of
the members of the Federal Reserve Board. This will be borne out by the testimony
of men of affairs, statesmen and bankers in this country and abroad. One of Eng
land’s foremost thinkers and economists in discussing a few months ago what he
describes as the extremely sudden slump which was overtaking the business world
said:
“ ‘What, then, are the common denominators which best account for the univer
sality of that disaster now impending over the new year? I have pointed out one,
namely, the deflation of credits and currencies. It is enough to say that if this inten
tional and malevolent destruction of credit is followed to its logical conclusion men's
hearts may well fail them everywhere for the days that are at hand.’
“The effects of the Federal Reserve Board's policies and criticism of them have been
world-wide. To illustrate, a Tokyo, Japan, newspaper in April, 1921, in discussing
trade between the United States and China, mentioned an instance of machinery
which had been bought in the United States by a Chinese firmon a four months' draft,
and then—
“ ‘When the Federal Reserve Board called in credits, the firm was told that they
would have to pay cash on delivery. This almost threw them into bankruptcy.’
“The newspaper adds significantly:
“ ‘The Chinese memory is a long one.’
“I say to you, gentlemen, that the process of deflationhas been accompanied by loss
and suffering ana danger which could have been avoided or greatly ameliorated by
intelligent study and comprehension of the facts and of developments and consistent
compliance with the teachings of such study. I say, and the record proves, the board
was abundantly warned by the leaders of public opinion from many parts of the
country, by able Members of both Houses of Congress, and by me as Comptroller of the
Currency and ex-officio member of the board, on divers occasions of the necessity for
the revision of their policies before the resulting losses should become irreparable.
For example, on the 18th of October last I pointedout to the board some of the appall
ing shrinkages in values which had already taken place; for instance, the loss of
$500,000,000 in wheat, of two billions in corn, of a billion in cotton, and I used these
words at that time:
“ ‘The plans and policies which have aided in bringing about deflation in the great
staple commodities should be at once taken up for consideration and revised as far as
may be necessary tomeet presentand changed conditions. If this is not done speedily
I am fearful as to the consequence which may ensue.’
“ Three days later, October 21, 1920, in a letter to the Secretary of the Treasury, who
was also chairman of the Federal Reserve Board, I said:
“ ‘The strain upon the business fabric of the country is in some respects unparalled,
and I do feel that the time has come for the exercise of such salutary and constructive
powers as may be at our command. * * *
“ ‘The situation * * * has become more aggravated of late, and unless relief
can be found an increase in bank failures, 1 believe, will be inevitable.’
“All these remonstrances, however, appear to have fallen on deaf ears. I nowsay
to you, my friends, that if the policies and methods hitherto governing the course of
the reserve board are continued the purpose of assuring proper distribution of the
available currency of the country to meet the needs of the people and of legitimate
business will be defeated in large part certainly, perhaps entirely, but I believe that
if the public understands the situation it will make its opinions and demands felt at
Washington so strongly that the administration of the system will be revised and we
will have a reserve board whose members will have an understanding of the needs of
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thecountry and of all parts of it, as the local banker understands the needs of his own
community and is sympathetically helpful to each great section as the local man is to
his neighborhood and withiQ his own territory. That is what we want and what we
will havewhen the real conditions are understood.
“It is reported that the board has become much agitated over recent exposures and
criticisms of its mismanagement, although I am now hopeful of better results from
certainnewelements recently introduced into its personnel. I have received a num
berof personal warnings, including a letter a few aavs ago froma gentleman of promi
nence more or less in touch with the situation, who wrote concerning the board’s
uncomfortable position:
‘“ I have found a disposition initially to belittle your exposures, then to condemn
you, and now to destroy you bv “ propaganda,” and it is of the utmost importance
thatthefacts as you have stated them should be gotten clearly into the comprehension
of every business man, farmer, and laborer in the country.’
“I might also add in this connection that the governor of the reserve board, at a
meeting of the board which I attended shortly before my resignation, forgetting the
proprieties, angrily threatened to defend himself with ‘poison gas’ in the event I
shouldcontinue my attacksand exposures of board methods and policies. Concerning
histhreat to use ‘poison gas,’ I said to the governor of the board in a letter of March
26,1921:
“‘I promptly informed you thatasfaras I and my administration of the comptroller's
officewere concerned or my relationship with the board, I had nothing whatsoever to
conceal, and that you were quite at liberty to go ahead and publish anything you
pleased, so long as you confined yourself to tne truth. In fact, I rather urged publicity
for our correspondence. I also informed you, in the presence of the board, that
whatever methods of attack you might adopt, I should certainly not use “ poison gas”
orany other plan or method not consistent with honor or fair play, and I should not
expect you to adopt unworthy methods of attack. However, I am, of course, abund
antly ready for any attacks from you or anyone else, whatever form they may take;
andyour threat of “ poison gas,” etc., impresses me merely as an evidence of despera
tionon your part, which I beg to assure you gives me notthe least annoyance or con
cern. My only regret will be the damaging reaction on you.’
“At another time I may have something to say concerning efforts made to suppress
information concerning Federal Reserve Board matters.
‘‘This is practically the message I have to give you. I am trying to be useful to
youandto tne country by pointing out the weakness, as I see it, in a system controlling
literally the heart’s blood of our commercial life and prosperity, a weakness which is
eatirely curable in a structure designed and entitled to endure.
"1 amanxious to have you think over what I have said, the merest bare outline of
what I could say, and to nave the results of your thinking on a matter touching the
Uatoneof you, yourhomes, andfamilies passedon to your Representativesin Congress.
“We are living in a kina of era of good feeling, and this is not a party matter. As
it happens, the needs of Democratic cotton growetB of the South and of the Repub
lican wheat growers of the West are the same, and the country is awake as never
beforeto the truth that there can be no prosperity in this country unless the fanners—
the great producers of wealth and buyers and consumers of commodities—are pros
pering. If the last five years have done nothing else, they have taught that. You
nay feel that in the South as you are, and Democrats as many of you are, you have
apowerful say in directing matters of internal policies.
“But what I would like to impress on you would be incomplete if I did not go
further. You people—you editors and farmers here in Georgia—may as well realize
nowthatyou will nave to think not only foryour owncounties and States and country,
butfor the world. All I can learn from the past and from the intimate study of world
conditions forced on me by the position I held, and can discern in the present, give
me not a vision of enthusiasm but a deliberate conclusion based on irresistible facts
and realities. That conclusion is that the United States must be for generations to
come the dominant financial power of the world, and therefore the umpire for the
world. We can not avoid it. Our financial and commercial resources will develop
toan extent hitherto undreamed. Our banks and bankers and people will view an
ever-widening horizon, not only of opportunity, but of duty and responsibility.
To put this subject in its very lowest and most practical and prosaic aspect, your
thoughtsmust follow your cotton bales, because the buyers of those bales are in Eng
land, France, Belgium, Germany, Japan, China, and Africa. On their ability to
buy and pay for wnat you make m your fields here your prosperity largely depends.
The nations are now woven and knitted together by the strongest threads of mutual
interest and interdependence, so that nothing but the destruction of civilization can
diaever them. You must meet and deal with the facts as they are. Those facts
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are that the United States, especially you cotton makers, are vitally concerned in
the restoration 01 the world’s peace and growth (or increase of its own wealth and
development, and that the world is dependent on the power, the wealth, and wisdom
of the United States for restoration. Therefore, in doing your part to make this
superb Federal reserve system of ours do its best work and ful‘’Uits highest purposes
you will be doing service not only for your own country and yourselves, but for
humanity, for people of all lands and tongues.
“ I am an optimist. I am taught by history and observation to trust confidently
to the American people toretrieve their ownmistakes and correct faults and strengthen
weak places in their own Government and to find their way, sometimes after many
divergencies and errors, the right, the generous, and noble course.
“ Looking back 200, 100, or 50 years, I am forced to believe that we have learned
much, and with wonderful speed, because 50 years is supposed to be but a short
time in the life of a people. We are thinking more broadly and on higher planes.
It is the business of those who have had special opportunity to learn of the internals
of our life, or any part of it, to communicate their knowledge to the people as oppor
tunity offers, and the duty of the people is to assimilate and weigh and consider
what they hear and to give the results of their thought tongue and action.
‘ ‘ I have tried to outline some of the difficulties, it seems to me, I have seen in what
now is the most important agency of our Government. I shall leave believing that
I have not spoken in vain. My look backward, my knowledge of our people, and
observation of present conditions combine to teach me to look forward with strong
faith and brilliant anticipation. I believe we will make progressin the next 50 years
along all lines of thought, discovery, development, and endeavor far surpassing the
progress of the 50 years just past. I see much reason to believe that our country
has met gloriously its last great emergency, has come bravely and with honor through
this last great cnBis. I hardly dare dream of what we shall be and do, because I
know what we are and are doing reach so far beyond the visions and most brilliant
hopes of the great and far-seeing men who founded and freed and established our
country. I do dare, however, believe and humbly trust that with continued guid
ance of the Almighty Power our preeminence in the world will become secure and
acknowledged without war or wrong to any people, will be accepted gratefully and
gladly by all people, because it will be usea always to make the world and its nations
better and happier and to lead humanity forward to fulfillment of its vast, myste
rious—I believe, magnificent—destiny.”
The Chairm an. Mr. Williams, you may proceed.
Representative M i l l s . May we have copies of those speeches
to-day, Mr. Williams ?
Mr. W illia m s . Yes, sir.
In the autumn of 1919 we were in the midst of a whirl of specu
lation, not only in public securities of all sorts but in commodities.
As Comptroller of the Currency I was sincerely concerned over the
situation, and urged upon my associates in the Federal Reserve
Board the importance of a conservative course. I did not agree
with them that the wisest method of restraining speculation was
simply to advance money rates.
Tne Chairm an. What period are you talking about now ?
Mr. W i l l i a m s . In the autumn o f 1919. I felt that there should
be a greater discrimination exercised on the part both of the mem
ber banks and of the Federal reserve banks in the extension of
credit. More than 18 months ago, on January 28, 1920, I filed a
remonstrance and protest with the Federal Reserve Board against
the manner in which the funds of the Federal reserve system were
being concentrated in the East and loaned with what seemed to
me to be an unjustifiable prodigality for speculative purposes.
Senator R o b in s o n . Under what date was that?
Mr. W i l l i a m s . January 28, 1920. In my letter I directed the
board’s attention to a concrete instance where the Federal reserve
system was lending, directly and indirectly, to a certain banking
institution in New York City about $ 1 3 0 ,0 0 0 ,0 0 0 . I said in my
letter------
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Representative Mills. Mr. Chairman, I move to strike out the
testimony with reference to the loan granted to a specific institu
tion, on the ground that it is irrelevant and immaterial to the pur
poses of this inquiry.
Senator H a rriso n . Mr. Chairman, he has not named any par
ticular institution. H e says in the East, and in New York City.
That may be very relevant if he is going to show in other agri
cultural sections that it was not loaned proportionately at all. It
seems to me it is very relevant, if that is what he is leading up to.
Mr. W illia m s. Mr. Chairman, right there, departing for a moment
from the line I was pursuing, and in connection with Senator Har
rison’s statement, I would like to read this memorandum:
On pa»e 222, volume 1, of the comptroller’s annual report for
1920 will be found a statement showing the principal items in the
assets and liabilities of the national banks at the time of the autumn
call each year from 1913 to 1920, classified according to central
reserve cities, other reserve cities, and country banks.
The following comparison gives the figures as to the banks in the
three central reserve cities o f New York, Chicago, and St. Louis as
compared with the country banks; that is to say, with all national
banks outside of the reserve and central reserve cities.
The comparison is made for September 8, 1920, and shows in
one column the rediscounts and bills payable, and in another the
loans and discounts, and in another the total assets exclusive of
rediscounts.
This statement shows that the central reserve cities at that time
had in rediscounts and bills payable $896,000,000, and the country
banks had $596,000,000.
Representative M i l l s . What date is this ?
Mr. W illia m s . September 8, 1920. The rediscounts and bills
payable for the central reserve cities was $896,000,000, and for the
country banks, $596,000,000.
Representative F u n k . Mr. Williams, are you sure of that date,
1919; wasn’ t it 1920?
Mr. W illia m s . Yes; 1920.
The C hairm an. What is the page and the report you are referring
to?
Mr. W illia m s . Page 222 of volume 1 of the report of the comp
troller for 1920.
Senator H a r r is o n . And what cities?
Mr. W illia m s . New York, Chicago, and St. Louis. Would you
like to see the report, Mr. Chairman, showing those figures ?
The Ch a ir m a n . Y ou m ay proceed. I will have it in a minute.
Mr. W illia m s . The total loans and discounts as of that date in
the central reserve cities amounted to $3,695,000,000, rediscounts
and bills payable being about 24 per cent of loans.
Representative M i l l s . What were those figures, the $896,000,000
and the $596,000,000 ?
Mr. W illia m s . Rediscounts and bills payable. Shall I proceed,
Mr. Chairman ?
The Ch a ir m a n . Yes; go ahead.
Representative Sum ners. It seems to me, before the witness
begins, Mr. Chairman, that in giving these figures, if he desires to
follow some system, that it would be well to have the statement of
91341— 22— v o l. 2-------i
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50
the witness come uninterrupted by interrogation, and that tho
figures he incorporated in his statement in that manner.
The Chairm an. Go ahead.
Mr. W illia m s . The total loans and discounts for the three central
reserve cities of Chicago, New York, and St. Louis, as of the date
mentioned, amounted to $3,695,000,000, showing that an amount
equal to 24 per cent of them was rediscounted or borrowed. The
total assets' exclusive of rediscounts, were $5,471,000,000, tne ratio
of borrowed money being 16 per cent .of their assets, excluding
rediscounts.
In the “ country” banks tho rediscounts and bills payable were
$596,000,000, out "of a total of loans and discounts of $5,853,000,000,
or 10 per cent; the total assets exclusive of rediscounts were $9,958,000,000 in the country banks, the ratio of borrowed money to
total assets being 6 per cent.
On September 12, 1919, the national banks in the three central
reserve cities of New York, Chicago, and St. Louis held $497,000,000
of rediscounts and bills payable and the country banks $437,000,000;
the loans and discounts in the three central reserve cities of New
York, Chicago, and St. Louis were $3,144,000,000, rediscounts and
bills payable being 16 per cent of total loans, excluding rediscounts.
The country banks had in loans and discounts $4,759,000,000, the
amount of rediscounts and bills payable being only 9 per cent o f
total loans and discounts.
Of these rediscounts and bills payable, I should estimate about
90 per cent were gotten from the Federal reserve banks. This state
ment shows that in the autumn of 1920, although the “ cou n try"
national banks were carrying $2,158,000,000 more of loans and
discounts than the national banks of New York, Chicago, and S t.
Louis, yet the banks in the three big cities were being accommodated
principally by the Federal reserve banks, with $300,000,000 m ore
than the country banks, which had become so heavily loaded in
their efforts to care for their communities.
Mr. Chairman, may I insert the tabulation in the record ?
The C h a ir m a n . Without objection, it m a y go in.
(The tabulation referred to is as follows:)
Statement showing the borrowings, by rediscounts and bills payable, of the national banks
in New York, Chicago, and St. Louis, as compared with the borrowings of the “ country'’
national banksfor Sept. 8, 1920, and Sept. It, 1919.
[Report of Comptroller of the Currency for 1920, p. 222, Vol. I.J
[In millions.]
Redis
counts
and bills
payable.
R atio o f
Total
redis
assets,
counts
exclusive and b ills
of redis payable
counts.
to total
assets.
Total loans and discounts.1
I
Sept. 8,1920:
Central reserve cities (New
York, Chicago, St. Louis).
Country banks...................... .
Sept. 12,1919:
Central reserve cities (Now
York, Chicago, St. Louis).
Country banks.......................
S896 |$3,695, — 24 per cent, rediscounted___
15,471
16
596 ! 15,853, — 10 per cent, rediscounted
9,958
ft
497 [ 13,144, — 16 per cent, rediscounted___
5,695
8 .7
437 14,759, — 9 per cent, rediscounted.......
9,167
4 .7
i Nearly all with Federal reserve banks.
Percent.
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Mr. Chairman, shall I proceed now with my narrative ?
The C h a irm a n . Yes; unless there are some questions at this
point.
Representative M il l s . Y ou are ju st giving the figures for one
month?
Mr. W il l ia m s . I gave them for September 8, 1920; and I also
gave them for September 12, 1919. I think I gave all of them.
Shall I proceed now with my narrative, Mr. Chairman ?
The Ch a ir m a n . Yes.
Representative M il l s . Will you give those same figures for June,
1921 ?
Mr. W il l ia m s . I can get them for you.
Representative M il l s . Well, will you, and give the same per
centages?
Mr. W il l ia m s . I can get them for you, if you desire them.
Representative M il l s . W ill you get them, and give the same
percentages ?
Mr. W i l l i a m s , Yes; if the commission desires them. Shall I
proceed?
The Ch a ir m a n . Yes.
Mr. W il l ia m s . I was about to read from a letter which I addressed
to the Federal Reserve Board on January 28, 1920. I said in that
letter:
Is it not a little disconcerting, not to say alarming, to find that the Federal reserve
bank of New York had loaned or rediscounted for t h e ---------on December 31, 1919,
an amount equal to nearly six times the capital of the Federal reserve bank of New
York—about 250 per cent of the capital and surplus of the Federal reserve bank of
New York—and that more than one-seventh of all the bills discounted for all members
ind all those purchased in the open market at the end of December, 1919, were for the
benefit of th e ------—?
These figures also show that the Federal reserve bank of New York was lending to
liie-------- at the close of December, 1919, an amount in excess of the total loans
ud discounts made as of December 26, 1919, to all of their member banks by either
the Federal reserve banks of St. Louis or Minneapolis or Kansas City or Richmond or
Atlanta and about twice as much as the aggregate of all loans and discounts and
purchased pai>er held at that time by the Federal reserve bank of Dallas.
The C h a ir m a n . Right there, Mr. Williams, would it not be fairer
to compare loans and discounts with resources than to compare
absolute figures with New York and absolute figures for other
districts ?
Mr. W il l ia m s . May I suggest, Mr. Chairman, that it might be
easier for you to comment on the statement after it is concluded;
perhaps some of your inquiries may be answered as I proceed. I
shall be very glad, however, to answer any question that comes up.
The C h a ir m a n . I am asking you if it would not be fairer for you
to make that comparison instead of the one that you are making.
Mr. W il l ia m s . I am making some other comparisons as I go along.
The C h a ir m a n . If that is your answer to the question, I am
satisfied.
Mr. W il l ia m s (reading):
The----------not only borrowed back the entire amount of its reserve balance, but
is also borrowing from the New York reserve bank a further sum equal to about
four times the total capital of the Federal reserve bank of New York. Frankly,
tie you not surprised that the officers of the reserve bank of New York should
approve these transactions?
Governor, this is a concentration of the funds of the reserve system with one debtor
bank, conspicuous for its speculative operations and promotions, which, in my judg
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ment, is not only not justified but distinctly dangerous, and 1 feel it my duty to
register my strong dissent from a continuance of such conditions as these by writing
you, as I am doing, aB an ex officio member of the board.
Representative M i l l s . N o w , Mr. Chairman, I renew my motion to
strike out that portion of the testimony which Mr. Williams has just
read, as irrelevant and immaterial under the terms of the resolution
appointing this commission.
Representative F u n k . Mr. Chairman, a number of times we have
had complaints made here by people representing the agricultural
interests that they have been discriminated against in the matter of
accommodation by the Federal reserve banks. I think this state
ment is very pertinent in view of the complaints or charges which
have been made.
The C h a i r m a n . I think if objection is made to this testimony it
must be in the form of objection that the chairman can pass upon
and decide and which can be appealed from, rather than in the form
of a motion to strike out testimony.
Representative M i l l s . Mr. Chairman, I did not object—although
I knew perfectly well what Mr. Williams’s testimony was going to be,
because it appears elsewhere—at the time he started to give it,
bccause I thought the commission should have an opportunity to
know the nature of the testimony. In presenting my objection it
seems to me there is no recourse left to me except a motion to strike
out.
The C h a i r m a n . In order to bring the matter before the commis
sion, I will put the matter to a vote, and in voting those who favor
striking out the testimony will vote aye, and those who favor not
striking out the testimony will vote no.
(The question was thereupon put by the chairman on viva voce
vote.)
The C h a i r m a n . The motion is lost.
Representative M i l l s . Then let mo ask you, Mr. Williams, whether
you are not giving absolute figures there, without any reference what
soever to the assets of the Federal reserve banks in question, with
out any reference to the assets of the borrowing bank, and without
any reference to the deposits carried by the New York banks with
their Federal reserve bank, as compared with the deposits carried by
the banks in other cities ?
Mr. W il l ia m 8. I will give some other figures later on, Mr. Mills.
Representative M il l s . But you have not to date, have you ?
Mr. W il l ia m s . They nre in this statement.
Representative Mil l s . But you have not to date, have you; those
are absolute figures that you have given ?
Mr. W il l ia m s . Yes; in the paragraph which I have just giyen, I
made a comparison between the capital of the Federal reserve bank
in New York and the percentage of its capital and surplus which was
borrowed by one institution.
Representative M il l s . Now, will you please explain to this com
mission what the basic line is ?
Mr. W il l ia m s . I see several members of the Federal Reserve Board
present here, including the governor. 1 should prefer that they
answer that question; that that question be answered by members
of the Federal Reserve Board.
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53
Representative M i l l s . I think I should have an answer to the
question. The witness is appearing here as an expert, and he should
be able to tell what the basic line is.
Mr. W illia m s . I do not know on what principle the basic line is
nowbeing figured at New York; the basic line has varied in different
districts.
Representative M i l l s . In what way has it varied ?
Mr. W il li a m s . I should prefer to have that come from the board
members themselves. I am appearing here, not as a member of the
boardnow.
Representative M i l l s . You are appearing as an expert.
Mr. W i l l i a m s . No; I do not understand that I am appearing hen*
is an expert. I understand that I am appearing here as the former
Comptroller of the Currency. I would prefer that the members of
the Federal Reserve Board answer that question, rather than have
mego into such details of their administration.
Representative M i l l s . I am not asking you to pass on the admin
istration; I am asking you to define what is meant by the basic line.
Mr. W i l l i a m s . I d o n o t k n o w w h a t th e b a sic line is at th e p resen t
time in e a ch o f th e 12 reserv e d istricts.
Representative M i l l s . I am asking y o u
w h a t th e term
“ b a sic
line” means.
Mr. W i l l i a m s . Y o u ask me what the term “ basic line” means?
Representative M i l l s . Yes; w h a t d o e s th e term “ b a sic li n e ”
mean?
Mr. W i l l i a m s .
The term “ basic line ” as here applied means the
“line” or amount of loans which the several Federal reserve banks
regard as the “ line of rediscount,” which could be properly appor
tioned from their total resources to each member in each district.
Representative M i l l s . In other words, the Federal Reserve Board
attempts to define, generally speaking, what each member bank in
a particular district is entitled to borrow from its Federal reserve
bank!
Mr. W il li a m s . In conjunction with the Federal reserve banks o f
thevarious districts.
Representative M i l l s . Exactly.
Mr. W il li a m s . Yes, sir.
Representative M i l l s . N o w , do vou know whether in attempting
to determine that variation, or the allocation to each particular
bank—whether any formula was adopted ?
Mr. W il li a m s . I think there were several formulae adopted.
That is a matter of detail which I would prefer should be answered
bythe members of the Federal Reserve Board.
Representative M i l l s . D o you, or do you not, know whether
formulae were adopted ?
Mr. W illia m s . Y e s; they were established on certain bases.
Representative M i l l s . W h a t was the basis for the establishment
of those formulse ?
Mr. W illia m s . I would have to look up the record for that. Tho
basishas been changed from time to time.
Representative M i l l s . Generally speaking, what wore the e le ®ents that entered into that basis ?
Mr. W illia m s . I decline to answer that. The secretary of tlm
ward is present, and you can get that information from him, if you
desire it.
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Representative M i l l s . I am trying to get it from you; I am not
trying to tie you down to any particular percentage; but I am asking
you what particular elements went into the formulae that made the
basic line ?
Mr. W i l l i a m s . I understand several elements entered into it. But
I would desire not to discuss that, when the members of the board are
present and can answer. It was not my duty to prepare those formula.
Senator R o b i n s o n . Were those formulae in writing?
Mr. W i l l i a m s . My recollection is they were prepared by the re
spective Federal banks with or without the approval of the board.
Now, I assume that the board approved the formulae in the several
districts.
Senator R o b i n s o n . Were they reduced to writing, Mr. Williams!
Mr. W i l l i a m s . Presumably they were, and they can be furnished
to your commission.
Senator R o b i n s o n . Did the board keep minutes of their pro
ceedings when they made these formulae, or do you know about tnat?
Mr. W i l l i a m s . The basic line was established in different Federal
reserve districts and they varied.
Senator R o b i n s o n . Y o u have not possession of the records of the
minutes of those meetings where action was taken establishing the
basic lines ?
Mr. W i l l i a m s . N o ; I h a v e n o t.
Representative M i l l s . Did they take into consideration different
eloments in different districts ?
Mr. W i l l i a m s . Y o u ca n ask th e m th a t; I assu m e th e y d id .
Representative M i l l s . D o you mean to say you h a v e no knowledge
of its
Mr. W i l l i a m s . I a ssu m e th e y d id .
Representative M i l l s . Have you any knowledge of it ?
Mr. W i l l i a m s . I assume they did, but whether they did or not,
those bases varied.
Representative M i l l s . I am asking you whether you have any
knowledge of it; that, it seems to me, you can answer by yes or no.
Mr. W il li a m s . I d o n o t k n o w w h a t th e y are a t th is tim e .
Representative M i l l s . I am asking you whether you have any
knowledge-----Mr. W i l l i a m s (interposing). I had knowledge at the time it was
desirable for me to have knowledge, in a general way. I did not
follow the details of the basic lines in detail. I knew of it in a
general way.
Representative M i l l s . I will now ask you whether, in fixing the
basic line for the various districts, the elements taken into considera
tion were the same ?
Mr. W i l l i a m s . I do not understand that they were the same.
I think there were variations in the different districts. That is my
impression.
Representative M i l l s . What elements would normally b e taken
into consideration in fixing those basic lines?
Mr. W i l l i a m s . I would prefer not to answer that question. The
gentlemen familiar with the details are in the room, and can answer.
Representative M i l l s . Let me ask you— I think it is important
to know what the basic line is-----Mr. W i l l i a m s (interposing). The governor and secretary of the
Federal Reserve Board are present.
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55
Representative Mills. I would like to have Mr. Williams explain
what the basic line is. He has told us, in a general way, just the
method used in determining what proportion of the funds of the
Federal reserve bank the member DanK of a particular district is
entitled to. Now, I would like to know what elements would be
considered in determining-----Representative S umners (interposing). Mr. Chairman, I submit
that the question has been asked a half dozen times by Mr. Mills,
and the witness has given the answer he desires to go into the record;
and I submit that further time should not be taken up in this manner.
Senator R obinson. I make the further point that there is a record
of this matter easily obtainable.
Representative M ills . I withdraw the question, in view of the fact
that the witness declines to answer it.
Senator H a r b i s o n . H e d efin ed it.
Representative T e n E y c k . I desire to bring out this point: The wit
ness is trying to define his position. If, later on, the board desires to
justify what they have been doing, and bring to us the basis on which
the basic line is determined, we would be glad to hear from them
what the basic line is. But I believe what the witness is riving us to
day is his general idea of the basic line of the credit of we country.
Representative M i l l s . Mr. Williams, is it not a fact that on
November 15, 1920, the date to which you have referred, the banks
to which you refer m New York-----Mr. W i l l i a m s (in te rp o sin g ). M a y I in te rr u p t y o u ? I d id n o t re fe r
to that d a t e .
Representative M i l l s . Well, on the date to which you did refer.
Mr. W i l l i a m s . All right.
Representative M i l l s . The banks in New York had borrowed only
142 per cent of their basic line, whereas the member banks, not inclndmg the merely five largest borrowers in the case of the New York
district, and of the Richmond district, had borrowed 120 per cent of
their basic line ?
Mr. W i l l i a m s . Y ou are w r o n g ; y o u are d iscu ssin g o n e d a te , a n d I
am d iscu ssin g a n oth er, as I u n d e rsta n d it.
Representative M i l l s . What is your d a te ?
Mr. W i l l i a m s . I am discussing December, 1919; you are dis
cussing November, 1920.
Representative M i l l s . Y o u are right. Your letter to the board is
dated what ?
Mr. W i l l i a m s . January 28, 1920.
Representative M i l l s . And the letter that I am referring to is th e
letter d a te d January, 1921.
Mr. W i l l i a m s . I do not know what you are referring to, Congress
man.
Representative M i l l s . Y o u have had considerable correspondence
with the board ?
Mr. W i l l i a m s . I have had a good many letters; yes, sir.
Representative M i l l s . And you have made this same charge a y e a r
lateri
Mr. W il li a m s . Can I end the narrative I was making first of th e
autumn of 1919, before wejget into 1920 ?
Representative M i l l s . Yes, surely.
The C h a irm a n . I would like to ask a question with reference t o
the basic line: At the time that you assumed that these basic lines
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were approved by the Federal Reserve Board, do you know whether
they were or not ?
Mr. W i l l i a m s . I do not recall the details. Congressman.
The C h a ir m a n . Y o u were a member o f the Federal Reserve Board
at the time these basic lines were established ?
M r. W i l l i a m s . I w as.
The C h a ir m a n . But you do not know whether the basic lines were
approved-----Mr. W i l l i a m s (interposing). I recall that the basic lines as es
tablished were a subject of discussion; whether they were passed upon
in the caso of each district I do not know.
Representative M i l l s . Will you refresh your recollection before you
appear before the commission to-morrow and let us know ?
Mr. W i l l i a m s . I have not been asked to appear before the com
mission to-morrow. You can get that from tne board.
Senator H a r r i s o n . Probably th e board could get it easier than
you could.
Mr. W i l l i a m s . They could. They have declined to give me in
formation I have asked for, and reminded me that I am no longer a
member of the board. ,
The C h a ir m a n . Y o u were a member of the board at the time these
basic lines were established ?
Mr. W i l l i a m s . Were established and discussed.
The C h a ir m a n . Very well. You may proceed.
M r. W illia m s '. To continue my letter to the Governor of the
Federal Reserve Board of January 28, 1920 [reading]:
I trust you will find time to make a careful analysis of this situation. With such
facts before us * * * as I have here undertaken to bring to your attention, our
responsibility becomes serious and very real. I think it would be well to apprize
the board of this situation.
That is the end of the quotation from my letter to the governor
of the Federal Reserve Board.
I hear the board has tried to produce the impression that my
figures were not correct, although they seem to have carefully
avoided specific denials of them. 1 therefore beg leave now to present
the following table of figures drawn from official statements of the
Federal Reserve Board as published on pages 96, 97, and 98 of the
Federal Reserve Bulletin of January, 1920.
I have a statement showing the total of all bills discounted and
loans made, and also bills purchased by six Federal reserve banks;
also showing rediscounts and bills taken from other reserve banks
by these six reserve banks as of December 26, 1919.
This shows the Federal reserve banks of Richmond, Atlanta, St.
Louis, Minneapolis, Kansas City, and Dallas.
The information called for is, in the first instance, the number of
member banks in the district, December, 1919; the second item is the
total bills discounted and loans made, including those discounted
for other reserve banks; the third item is the bins bought in open
market, including bankers’ acceptances bought from other reserve
banks; the fourth item is loans to other reserve banks through bills
discounted or purchased from them o f bankers’ acceptances, included
in items 2 and 3; and the fifth is the amount borrowed from other
reserve banks.
In that total we find that the number of member banks in the
Richmond district was 584; in the Atlanta district, 427; in the St.
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Louis district, 536; in the Minneapolis district, 921; in the Kansas
City district, 1,039; and in the Dallas district, 958.
The total bills discounted and loans made, including those dis
counted for other reserve banks, were in the Richmond district,
$109,000,000; in the Atlanta district, $90,000,000; in the St. Louis
district, $78,000,000; in the Minneapolis district, $70,000,000; in the
Kansas City district, $87,000,000; in the Dallas district, $54,000,000.
Bills bought in open market, including bankers’ acceptances bought
from other reserve banks, in the Richmond district, $16,000,000; in
the Atlanta district, $16,000,000; in the St. Louis district, $37,000,000;
in the Minneapolis district, $14,000,000; in the Kansas City district,
$20,000,000; in the Dallas district, $8,000,000.
Loans to other reserve banks through bills discounted or purchased
from them of bankers’ acceptances, included in items 2 ana 3, in the
Richmond district, $5,000,000; in the Atlanta district, $5,000,000;
in the St. Louis district, $29,000,000; none in the Minneapolis dis
trict; in the Kansas City district, $10,000,000; in the Dallas district,
$6,000,000 .
The fifth item, borrowed from other reserve banks, in the Rich
mond district, none; in the Atlanta district, none; in the St. Louis
district, none; in the Minneapolis district, none; in the Kansas City
district, $13,000,000; in the Dallas district, none.
Representative M i l l s . What is the date of that ?
Mr. W i l l i a m s . December 26, 1919. On the right of this table I
have a column showing the amount loaned by the New York reserve
bank as of December 26, 1919, to one banking institution in New
York City, including its acceptances bought; that item at that time
was about $130,000,000.
I will leave this statement, Mr. Chairman, if you desire it for the
record.
The C h a i r m a n . Without objection it mav go into the record.
(The statement referred to is here printedf in full, as follows:)
Statement showing total o f all bills discounted and loans made and also bills purchased
by six Federal Reserve banks; also showing rediscounts and bills taken from, other reserve
banks by these six reserve banks, as o f Dec. 26, 1919.
[In millions of dollars.]
Federal reserve bank of—
Rich
mond.
1. Number of member banks in district
December. 1919.....................................
2. Total Mih discounted and loans made
(ineluding those discounted for other
reserve banks)......................................
3. Bills bought in open market (including
bankers’ acceptances bought from
other reserve banks)............................
4. Loans to other reserve banks through
bills discounted or purchased from
them of bankers' acceptances included
5. Borrowed from other reserve banks.......
Atlanta. St. Louis.
Minne
apolis.
Kansas
City.
Dallas.
584
427
536
921
1,039
958
109
90
78
70
87
54
16
16
37
14
20
8
5
None.
5
None.
29
. None.
None.
10
13
6
None.
Amount loaned by New York reserve bank December 26, 1919, to one banking
institution in New York, including its acceptances bought, 1130,000,000.
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Mr. W i l l i a m s . The amount loaned, as I say, by the New York
reserve bank to one institution was $130,000,000.
The figures which I gave regarding the huge borrowings about the
same date by the institution to which I have referred are added in a
separate paragraph at the bottom of the above table.
The official reports show that the reserve bank of New York had
loans and discounts outstanding, exclusive of acceptances at the time
indicated, to the borrower to which I refer, amounting to over
$118,000,000.
This is more than twice as much as the Federal reserve, bank of
Dallas was lending on bills payable and rediscounts to all the banks
in that district. In fact, it was $64,000,000 more than the. Dallas
reserve bank was lending to all its member banks combined in that
entire district, including the State of Texas and parts of Louisiana,
Oklahoma, Arizona, ana New Mexico.
It was $48,000,000 more than the Federal reserve bank of Minne
apolis was lending to all the member banks in that district.
It was $40,000,000 more than the St. Louis bank was lending to
the banks in that district, including the principal part of Missouri,
the State of Arkansas, and parts of Illinois, Indiana, Kentucky,
Tennessee, and Mississippi.
It was $31,000,000 more than the Kansas City reserve bank was
lending to the member banks in that district. It was $28,000,000
more than the Federal reserve bank of Atlanta was lending to all of
its member banks in Georgia, Florida, Alabama, and parts, of Louisi
ana and Tennessee; and $9,000,000 more than the Federal reserve
bank of Richmond was lending to all of its member banks in Virginia,
North Carolina, South Carolina, Maryland, District of Columbia,
and parts of West Virginia.
A further analysis (3 the situation at that time shows that two of
the Federal reserve banks in the East on December 26, 1919, had
augmented their own resources by rediscounting with or selling
acceptances to other reserve banks to the extent of over $97,000,000.
The only bank in the West which at that time had rediscounted or
sold acceptances to other reserve banks was the Kansas City bank.
The C h a i r m a n . What is the date of this statement?
Mr. W i l l i a m s . December 26, 1919.
Representative M i l l s . Of course, you do not know for what pur
poses the loan was made to that particular institution, do you ?
Mr. W i l l i a m s . T o what institution ?
Representative M i l l s . Y o u have referred to a loan of $130,000,000
to one institution ?
Mr. W i l l i a m s . I have analyzed the investments of that institution
to some extent.
Representative M i l l s . You do not know the purposes of the loan?
Mr. W i l l i a m s . I know what was done with the money to a large
extent.
Representative M il l s . With that $130,000,000?
Mr. W i l l i a m s . I suppose it was used in their general funds. You
can hardly separate the funds of an institution of that sort and say
what was done with them. Suppose one-tenth of its assets are loaned
for purely legitimate business, and that nine-tenths are loaned for
speculative purposes, you can harldy segregate the assets and say
that a certain amount of money borrowed was not used for specu
lation and was used for legitimate business.
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Resuming, Mr. Chairman, the only bank in the West which at that
time had rediscounted or sold acceptances to other reserve banks was
the Kansas City bank, the amount being $13,000,000, and the banks
which furnished this money at that time to the eastern banks were
the Federal reserve banks of Richmond, Atlanta, St. Louis, Kansas
City, Dallas, and San Francisco, as well as the Federal reserve
banks of Chicago and Cleveland. The Federal reserve bank of
Kansas City had taken nearly $10,000,000 of acceptances from other
banks which nearly offset its $13,000,000 of rediscounts with them.
The New York reserve bank at that time was not furnishing funds to
anyother bank either by rediscounts or by the purchase of acceptances
from them.
Representative S u m n e r s . What was the character of business of
that concern, Mr. Williams ?
Mr. W i l l i a m s . In the statement which I just read I gave it.
Representative S u m n e r s . I withdraw the question. I was out of
the room for a few minutes.
Senator H a r r i s o n . Did he state ?
Mr. W i l l i a m s . I sa id :
Governor, this is a concentration of the funds of the reserve system with one debtor
bank, conspicuous for its speculative operations and promotions, which, in my judg
ment, is not only not justified but distinctly dangerous, and I feel it my duty to register
ay strong"dissent from a continuance of such conditions as these by writing you, as
I amdoing, as an ex officio member of the board.
Representative H a r r i s o n . Do you know what per cent of those
loans were all speculative ?
Mr. W i l l i a m s . Well, in communications which I imagine it will
not be desirable to bring into a public hearing those facts were
analyzed pretty thoroughly.
Tne C h a ir m a n . Did you propose any action on the part of the
Federal Reserve Board ?
Mr. W i l l i a m s . Did I propose any action on the part of the Federal
Reserve Board to remedy the situation ?
The C h a ir m a n . T o control the situation.
Mr. W i l l i a m s . I d id .
The C h a ir m a n . When ?
Mr. W i l l i a m s . At that time.
The C h a ir m a n . Did you make any motions at that time-----Mr. W i l l i a m s (interposing). I communicated with the governor of
theboard.
The C h a ir m a n (continuing). Relating to any action on the part
of the Federal Reserve Board ?
Mr. W i l l i a m s . I wrote the letter to the governor of the board and
asked him to bring it before the board.
The C h a ir m a n . But you did not as a member of the board make
any motion proposing any action by the board ?
Mr. W il l i a m s . I several times urged that the matter be given
attention, but I do not recall that I made a formal motion to that
end, as I felt I had done all that could be incumbent upon me under
the circumstances.
The C h a irm a n . In what way do you think the Federal Reserve
Board could have acted at that time to correct this situation within
its legal powers ?
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Mr. W i l l i a m s . I think it was well within its legal powers—I had
urged the board to make an examination on its own account of that
institution. And I did that repeatedly.
The C h a ir m a n . Had you made any examination of the bank ?
Mr. W i l l i a m s . I had not. It was not under my supervision,
except as a member of the board indirectly.
Tne C h a ir m a n . This was not a national bank ?
Mr. W i l l i a m s . It was not.
Senator H a r r i s o n . Well, did they make the examination ?
Mr. W i l l i a m s . They did not, as I understand it. They sent one
or two of their men into the institution along with the State examin
ing force, and they stayed there a few days and retired.
Representative M i l l s . What do you contend that these figures
show?
Mr. W il l i a m s . May I ask what your question is ? What figures ?
Representative M i l l s . What do you contend that these figures
show, is my question.
Mr. W i l l i a m s . I will answer that. These figures show that this
is a concentration, as I say in my letter:
This is a concentration of the funds of the reserve system with one debtor bank
conspicuous for its speculative operations and promotions which, in my judgment,
is not only not justified but distinctly dangerous.
Representative M i l l s . Well, do they show that ?
I th in k th e y d o .
Representative M i l l s . If you do not make any relative comarison, but simply take actual figures and make a comparison of
ew York City with Dallas, Tex. ?
Mr. W i l l i a m s . May I inquire, Congressman, whether you have
seen my correspondence with the board with regard to this insti
tution ?
Representative M i l l s . I have not.
Mr. W i l l i a m s . Well, I think it would answer a good many ques
tions that suggest themselves to you, if you care to look at it.
Representative M i l l s . I am speaking of the general figures. I am
not speaking of this particular institution. Do you think that in
comparing what you contend is an undue concentration of money
in New York City it is fair to take absolute figures and not compare
relative figures in taking Dallas and New York City?
Mr. W i l l i a m s . I think you will find my correspondence with the
board does deal-----Representative M i l l s (interposing). That is not before this com
mittee.
Mr. W i l l i a m s . Well, I imagine your committee can get the por
tion of the correspondence with reference to it. You can get that
from the board.
Representative M i l l s . Am I to understand that you do not care
to answer that question ?
Mr. W i l l i a m s . May I inquire exactly what your question i s ,
Congressman ?
Representative M i l l s . I ask you whether in comparing the amount
of money loaned by the New York reserve bank with the amount of
money loaned by the Dallas bank it is fair to take absolute figures
rather than relative figures ?
M r. W i l l i a m s .
E
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in q u ir y .
Mr. W il li a m s . Well, please bear in mind that mv communications
were addressed to the Doard, which was in full possession of the
absolute as well as the relative figures, and there could be no ques
tion of their not being informed on that point.
Representative M i l l s . You are now testifying before a committee
that has not got the relative figures, Mr. Williams.
Mr. W i l l i a m s . Well, the committee can obtain them, if you
desire them, I assume, Congressman.
Representative M i l l s . But you simply want to give the absolute
figures?
Mr. W il l ia m s . Well, as far as I am concerned, you can have any
figures—or as far as I am pdvised, you have access to all of those
figures. And the board in considering my correspondence had before
it both the absolute and the relative figures.
Representative Mills. Will you say this, Mr. Williams, that for
this committee to get a correct picture of the situation it should have
the relative figures as well as the absolute figures ?
Mr. W i l l i a m s . I think it would be well for the committee to get a
great deal of information which it is not my province to lay before it.
Representative Mills. All right.
Senator H a r r i s o n . May I asK you this: I have forgotten just how
the Federal reserve act reads. Does it sanction by law the Federal
Reserve Board to rediscount paper that is purely for speculative
purposes?
Mr. W i l l i a m s . It can not.
Senator H a r r i s o n . Without them acting in direct violation o f
thelaw ?
Mr. W i l l i a m s . W ell, of course, the Federal reserve act provides
that paper, business paper of a certain kind, is eligible for rediscount.
Italso provides that member banks may borrow from reserve banks
upon the security of Government bonds. There is no provision of
the Federal reserve act, however, as it stands at present, which
would prevent a speculative bank, if it chose to do so, from borrow
ing $10,000,000 of Liberty bonds from an individual and pledging
those bonds as collateral with the Federal reserve bank and obtaining
$10,000,000 and loaning it to its president or the vice president of
the borrowing bank for their own speculative operation.
Senator H a r r i s o n . I just notice section 13 of the Federal reserve
act. Is this the provision that you had in mind [reading!:
But such definition shall not include notes, drafts, or bills covering merely invest
ment? issued or drawn for the purpose of carrying or trading in stocks, bonds.' or olher
investment securities, except bonds and notes of the Government of the I’ niied
Slates.
Mr. W i l l i a m s . I think that some of the questions which will
naturally suggest themselves to yourself, Mr. Chairman, and other
members of the committee, will be answered as I proceed.
Representative M i l l s . Except I simply want to point out now to
the chairman of the committee the dangers which arise from allowing
this, kind of testimony to go in. We now have your absolute asser
tion that §130,000,000 were loaned for speculative purposes to a
bank which is not named.
Mr. W il li a m s . I did not say that that $130,000,000 was loaned
for speculative purposes.
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Representative M i l l s . Well, the inference is clear, and the bank
is not named; and there is no means for this committee or anyone
else ascertaining whether that statement is true.
Mr. W i l t ja m s . Well, please let me correct you if you undertake to
quote me. I did not say that that $130,000,000 was borrowed for
speculative purposes. I did say that the institution to which I
referred had been conspicuous for its speculative operations.
Shall I proceed, Mr. Chairman ?
The C h a ir m a n . Proceed.
Representative M i l l s . Isn’t it also true that that particular insti
tution to which you refer was one of the largest lenders for the pur
poses of exporting grain and other farm.products to Europe at that
time?
Mr. W i l l i a m s . I do not know what amount it had in foreign •
business or in exporting corn or wheat or anything else. I don’t
know what the figures were.
R e p re s e n ta tiv e M i l l s . Y ou a n a ly ze d th e figures, y o u said.
Mr. W i l l i a m s . I did not say tnat I analyzed those figures. 1
analyzed—well, if you wish to have it, the analysis which I made is
a matter of record, Congressman, and it is in tne possession of the
Federal Reserve Board, and as far as I am concerned, I have not the
slightest objection to the Federal Reserve Board laying before this
committee any communication which it has received from me at any
time on any subject.
Representative M i l l s . But you decline to state whether that par
ticular institution is one of the largest lenders for the purpose of ex
port trade ?
Mr. W il li a m s . I imagine that it is, and also engaged in many
other activities.
Representative M i l l s . Well, that answers m y question.
Mr. W il li a m s . A further analysis shows that at the end of Decem
ber, 1919, the amount which the Federal reserve bank of New York
was furnishing on loans and rediscounts and through the purchase of
its acceptances to one banking institution in New York City, was
about $130,000,000.
'
This amount furnished by the Federal Reserve System to one
New York institution exceeds by $68,000,000 the total amount of
loans and discounts plus “ bills and acceptances purchased ” in the
open market, by the Federal reseve bank of Dallas. It exceeds by
$46,000,000 the bills discounted and acceptances and bills purchcased
by the reserve bank of Minneapolis; and is $15,000,000 more than the
aggregate of all loans and discounts and bills and acceptances held
on December 26, 1919, by the Federal reserve bank of St. Louis.
Advances made by tho reserve bank of New York to that one institu
tion on December 31,1920, through rediscounts and acceptances, etc.,
also largely exceeded the total amount of money whicn was being
loaned on December 26, 1919, to all of the member banks in their
respective districts on rediscounts or on bills and acceptances pur
chased by the Federal reserve bank of Atlanta or Richmond.
I have also asserted, and the official figures will prove, that many
millions of dollars of the funds of that particular debtor institution
were being used and employed in loans to executive officials of the
borrowing institution and to syndicate enterprises in which they
were heavily interested.
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Representative M i l l s . D o you consider that relevant to the pur
poses of an agriculrural inquiry ?
Mr. W il li a m s . It is not for me to say. I consider it relevant; but
it is not for me to pass upon that, Mr. Congressman. It is for you
and the committee to pass upon that.
Senator H a r r is o n . Mr. Chairman, it is certainly relevant. They
are not lending for agricultural purposes. They are lending to
executive officers in a bank which was conducting a speculative
business.
Mr. W i l l i a m s . The records show conclusively that the Federal
reserve bank advanced money liberally and practically continuously,
in flush times and hard times, to certain large financial institutions
in New York City which were notorious for their speculative activi
ties, and that these institutions loaned many millions of their funds
to their own executive officers and other officials and to the syndicates
and enterprises in which these officers were heavily interested.
These loans which were in many cases classed as “ demand loans”
continued to be carried along at low or moderate rates of interest
while other customers of the bank engaged in legitimate business
had their loans peremptorily called and payment insisted upon to an
extent which brought ruin and failure to some and crippled others.
Loans to their own officers and their special enterprises or syndi
cates were in some cases studiously camouflaged or concealed. These
abuses were brought by me to the attention of the Federal Reserve
Board, but, as far as I know, no remedial action was taken.
The C h a i r m a n . May I ask you a question there, some of these
banks were national banks, I take it ?
Mr. W i l l i a m s . The one that I have just been discussing, to which
this large loan was made, was not a national bank.
The C h a i r m a n . Well, I supposed that you were now discussing
thegeneral situation with respect to loans made by New York banks.
Mr. W i l l i a m s . Yes.
The C h a i r m a n . Some of these banks were national banks, were
they?
Mr. W i l l i a m s . They were.
The C h a ir m a n . Ana as such they were subject to examination ?
Mr. W i l l i a m s . They were.
The C h a ir m a n . Examination by you as comptroller ?
Mr. W i l l i a m s . Thev were.
The C h a ir m a n . Did you take any action as comptroller to correct
the situation to which you have referred ?
Mr. W i l l i a m s . I did, earnestly.
The C h a ir m a n . In what way ?
Mr. W i l l i a m s . By having the examiners appear before the boards
of directors of the banks, call their attention to the matters subject
to criticism, and urge reform.
The C h a ir m a n . Well, you took no action except to urge refdrm
upon these banks ?
Mr. W i l l i a m s . Well, I could not deny them credit. The Federal
reserve bank had' the right, if it cared to exercise it, to decline or to
curtail the granting of credits to them if they could be found to be
using the funds obtained for speculative purposes. That was not
my function.
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The C h a ir m a n . Y o u think the Federal Reserve Board had t h e
power, and it should have exercised it to restrain banks from engaging
m lending money for speculative purposes ?
Mr. W i l l i a m s . I think, Mr. Chairman, that when the attention of
the Federal Reserve Board is called to a dangerous situation, or let
me say this: We will take a hypothetical case. If the Comptroller
of the Currency should call the attention of the Federal Reserve
Board to a bank that is borrowing excessively, whose operations are
highly speculative, and whose loans to its own executive officers
amount to millions of dollars, it seems to me that in a case of that
sort it becomes the duty of the Federal Reserve Board when it is so
advised by the Comptroller of the Currency, to take the matter up
with the Federal reserve bank of the district and apply such remedies
as may be in order.
The C h a ir m a n . Well, what remedies do you think would b e in
order—refusal to discount eligible paper to these banks ?
Mr. W i l u a m s . I think that the Federal Reserve Board could
certainly say to the bank, “ Unless you restrain your speculative
activities we will not continue to make advances to you.”
The question came up several times in the board, and I was charged
with inconsistency in urging that there be an amendment to the
Federal reserve act which would enable the Federal reserve banks to
help a big bank out of trouble if it should need aid and should not
have a sufficient amount of eligible paper to put up for the advances
which must be furnished. It was claimed that while I apparently
took the position that there should be a restraining hand held upon
member banks, yet I was in favor of letting down the bars under
certain contingencies.
I do not want my position now to be misunderstood. It is my view
that the banks should be restrained before they came to the breaking
point; that speculative activity should be held under. But it is also
my view that if a large bank, through the mismanagement of its
officers, gets into a strained position and finds that it is loaded up
with speculative securities ana has not a sufficient amount of eligible
paper to meet the demand upon it, there ought to be some way by
which that bank can put up securities which are not eligible to
obtain money from the reserve bank to enable it to avoid suspension.
The C h a ir m a n . If a bank gets into unsound circumstances through
a matter of mismanagement or making bad loans, that is a matter
with which the comptroller should deal, is it not?
Mr. W i l l i a m s . The comptroller had no supervision over the bank
which we were discussing here.
The C h a ir m a n . You nave detailed some general conditions here
and said that they were general conditions, and not now referring to
any particular bank you said that these were general conditions which
existed in the city of New York.
Mr. W i l l i a m s . Excuse me, Congressman, I did not say they apply
to all banks, because they do not. The great majority of banks in
New York are well managed and well run. I am happy to testify
to that.
The C h a ir m a n . Well, you have described certain general conditions.
Mr. W i l l i a m s . No; they are not general. Those are special
conditions.
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The C h a irm a n . Y o u were referring to other banks than the par
ticular bank to which you referred a moment ago.
Mr. W i l i ja m s . To certain banks, not all the banks.
The C h a ir m a n . You said some of those banks were national banks.
Mr. W i l i ja m s . Some of them.
The C h a irm a n . N o w , if those banks were national banks, and they
were mismanaged and taking bad loans, then it was up to you as
comptroller to deal with that situation, was it not ?
Mr. W i l l i a m s . Not in the way in which I have suggested. I could
not extend them credit.
Representative M i l l s . What were your functions and duties as
comptroller ?
Mr. W i l l i a m s . In what respect ?
Representative M i l l s . In respect to the examination of banks.
Mr. W i l l i a m s . My function as Comptroller of the Currency was to
see that the banks were properly examined. That was one of the
functions of the office, to see that the banks were properly examined
by examiners.
Representative M i l l s . And if you found improper conditions, what
does the law charge you to do ?
Mr. W i l l i a m s . The comptroller has not the power to correct all
unfavorable conditions with which he has to contend, and I have
repeatedly in my annual reports asked Congress to enlarge the powers
of the comptroller in certain respects so he can deal with those con
ditions.
Representative M i l l s . Mr. Williams, you and I do not seem to be
able to get a question answered. I asked you what your powers were,
not what you thought they should be. Under the law, what power
does the law give you to deal with bad conditions of a bank revealed
byyour own examination ?
Mr. W i l l i a m s . W e ll, what kind of conditions ?
Representative M i l l s . Assuming that a b a n k has speculated with
its funds up to a point where you consider that its credit is impaired,
what power does the law give you ?
Mr. W i l i j a m s . Well, do you mean the credit impaired, or its sol
vency impaired ?
Representative M i l l s . Well, its solvency impaired, let us sa y .
Mr. W i l l i a m s . Well, if its solvency is impaired, if the banK is in
solvent, the comptroller can appoint a receiver.
Representative M i l l s . Well, now, assume that it has not reached
the point of insolvency, but that you consider that through specu
lative activities it has impaired its solvency, though not actually
reached the point where it is insolvent ?
Mr. W i l l i a m s . It is one of the functions of the,comptroller’s office
to make a careful examination of the national banks, and after the
examination to assemble the boards, if conditions warrant the assem
bling of the board of directors, and to call their attention to the
weaknesses which exist in the bank and to the wrong methods
which are being pursued and the violations of the banking act, if
there are any.
Senator R o b in s o n . Did you do that in connection with the
national banks that were examined and found to be deficient ?
Mr. W il li a m s . I did.
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Representative M i l l s . And if they disregard that warning, what
is the duty of the comptroller ?
Mr. W i l l i a m s . If tney persistently disregard his admonitions, if
the bank continues to violate the banking act, he can report the case
to the Department of Justice, as I had occasion to do not very many
months ago in the case of one particular national bank, and that case
is now with the Department of Justice, and in that particular case
the Department of Justice is now making its investigation with a view
to receivership and the winding up of the affairs of the bank, if
necessary.
Representative M i l l s . Did you do it with the case of the New
York bank to which you refer?
Mr. W i l l i a m s . Did I do w h a t?
Representative M i l l s . Report the matter to the Department of
Justice?
Mr. W i l l i a m s . I did not, because I thought it could be handled
otherwise. In a number of cases—I do not care to be too specific
now—but in many cases of national banks—and we will not con
fine ourselves to New York—where we find that they have suffered
actual loss, the comptroller calls upon the directors to charge them
off.
Representative M i l l s . N o w you have referred to a bank which has
made loans-----Mr. W i l l i a m s (interposing). Let me say that the bank which I
recently recommended to the Department of Justice to place in the
hands of the receiver was not a bank'in a large city.
Representative M i l l s . May I ask you this question: You have
referred to a bank which made loans to its officers. That was not
the same bank to which you referred when you referred to the
1130,000,000, was it?
Mr. W i l l i a m s . That is answered, if you will let me proceed with
my narrative here.
Representative M i l l s . Will you answer that question ?
Mr. W i l l i a m s . There are several banks which made loans to their
officers which are referred to in this statement.
Representative M i l l s . Is the bank that you referred to with
reference to the loan of $130,000,000 the same bank?
Mr. W i l l i a m s . That is one of them.
Representative M i l l s . That is one of them ?
Mr. W i l l i a m s . Yes; that is one of them.
T h e C h a ir m a n . H ow m a n y tim es a y e a r d o e s th e la w req u ire an
e x a m in a tio n o f n a tio n a l b a n k s ?
M r. W il l i a m s . T w ic e .
The C h a ir m a n . 3Vere the banks of New York examined twice
during the year 1920; that is, the national banks?
Mr. W i l l i a m s . Not all of them. There was one large bank which
was examined twice in New York during the year 1920,1 think. That
was the largest bank in the city. Its resources, I think, were approxi
mately 20 per cent of the total. It is a difficult thing in New York—
it has been a difficult thing, to examine all the banks twice in the
conditions through which we have been passing in the last year or
two. We have been making very thorough examinations of the
banks. These examinations have lasted sometimes from one month
to five months. And we have felt that it was best to c o n c e n tr a te
the attention of the force upon the cases that most needed attention,
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just as if there should be a fire, we would use the water for the house
that is burning.
The C h a irm a n . What proportion of the banks in New York City
were examined twice during the year 1920 ?
Mr. W illia m s . I just stated that I think that one large bank
was examined twice, and I think the proportion of that bank’s
resources to the total was about 20 per cent. But the examinations
of the other banks were so complete and so thorough that they
lasted sometimes from one to five months. And I will also add
that in addition to the very thorough examinations which were
made, that we called upon those banks in New York City to furnish
one additional complete report of conditions, beyond what was
called for, beyond what was required under the statute.
The C h a ir m a n . Were there any banks in New York that were not
examined at all during 1920?
Mr. W i l l i a m s . None th a t I recall.
The C h a ir m a n . Y o u are now under the impression that all of the
banks in New York were examined once during 1920?
Mr. W i l l i a m s . Substantially—in New York City.
Senator R o b in s o n . You mean, of course, national banks, do
you not ?
The C h a ir m a n . I mean national banks. I am referring to na
tional banks.
Mr. W i l l i a m s . Yes.
The C h a ir m a n . There was only one of the national banks in New
York C ity t h a t was examined twice ?
Mr. W i l l i a m s . Yes; there was only one of the national banks in
NewYork City that was examined twice, and that bank represented
ibout 20 per cent of the resources, if I recall, of all the banks.
Representative M i l l s . Now, M r. Williams, you assume to criti
cise tne management of the Federal reserve bank in New York in
the matter of making loans to member banks. I ask you whether,
if the New York Federal reserve bank, providing paper eligible for
discount is presented, would have the right to deny credit to a
particular bank ?
Mr. W i l l i a m s . Would they have the right ?
Representative M i l l s . Yes.
Mr. W i l l i a m s . Well, I want to say this, that banks all over the
country, whether they have the right or not, are denying credit to
customers who present eligible paper. Whether they have the
right or not, they are doing it.
Representative M i l l s . Well, assuming that the member bank-----Mr. W i l l i a m s (interposing). I have no doubt that the banks
in New York have refused eligible paper from time to time when
presented. I don’t recall any particular cases, but there is nothing
mthe law that requires a member bank to take every loan that is
offered to it.
Representative M i l l s . No; not assume-----Mr. W il li a m s . It is supposed the bank will be run with some
intelligence and discretion. The system would go to wreck and
ruin on any other hypothesis.
Repesentative M i l l s . Assuming that the member bank had not
exceeded the ratio to which it was entitled, and" presented to the
Federal reserve bank eligible paper, would the Federal reserve bank
be justified in refusing it ?
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Mr. W il li a m s . It might certainly be justified in refusing it. It
would be its bounden duty to refuse to take paper under certain
conceivable conditions in that bank- with which the Federal reserve
bank could acquaint itself.
Representative M i l l s . Well, now, let me ask you: I suppose you
refer to the conditions which you have referred to, that a Dank was
engaged in a speculative activity. In so far as individual loans are
concerned, the Federal reserve Dank has no means of determining
to whatpurpose the money advanced is going to be used, has it ?
Mr. W il l i a m s . Oh, yes; it has.
Representative M i l l s . How?
Mr. W i l l i a m s . The small banks are called upon to state what
the money is used for time and again in different parts of the coun
try. The officers of the bank'are called up to the reserve bank
and are asked: “ What are you going to do with this money?” Not
only that, but they are sometimes not only required to leave with
the bank the bills discounted, but to put up a great deal of addi
tional collateral from time to time, which I think is a very question
able practice.
Representative M i l l s . But do you not know that with the amount
of business transacted daily by one of the large New York banks
with the Federal Reserve Bank of New York City, that it is abso
lutely impossible, as a practical matter, to tag every cent that is
loaned to a bank ?
Mr. W il l i a m s . Well, there is a great deal of difference between
tagging every cent that is loaned to a bank and familiarizing one’s
self with its operation.
Representative M i l l s . I am not asking you that. I am asking
you for specific loans. It seems to me that I am occasionally entitled
to a direct answer.
Mr. W il li a m s . Now, what is your question ?
Representative M i l l s . I am asking you whether, with reference
to specific loans, taking into consideration the very many transac
tions during the course of the day in New York City, whether it is
practical for the New York City Federal Reserve Bank to identify
the purposes for which each particular loan is intended ?
Mr. W i l l i a m s . It may not be practical to identify the purposes
for which each particular loan is intended, but I regard it as the duty
of a reserve bank to inform itself in a general way in regard to the
purposes for which the money which it nands out to member banks
is used.
Representative M i l l s . Well, now, you admit that in so far as the
specific loans are concerned, that it is not a practical proposition----Mr. W i l l i a m s . It is practical for some specific loans.
Representative M i l l s . But you contend that it is the duty of the
Federal reserve bank in New York City to familiarize itself with the
general condition of member banks ?
M r. W i l l i a m s . I d o .
Representative M i l l s . Do you know that it was not done ?
Mr. W i l l i a m s . Well, I assume that if the New York Federal Re
serve Bank, Mr. Mills-----Representative M i l l s . Well now, Mr. Williams, I am not interested
in your personal Assumption. I am asking you a question, whether
you know that it was not done ?
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Mr. W il li a m s . It is”my belief that it was not done.
Representative M i l l s . It is your belief that it w as not done ?
Mr. W il li a m s . Yes; that they did not familiarize themselves as
prudence would have required them to do, with the purposes for
which the money advanced by the Federal reserve bank was used.
Representative M i l l s . That is an opinion of yours ?
Mr. W il l i a m s . Yes, sir.
Representative M ills. That is not a statement of fact ?
Mr. W i l l i a m s . The answer states precisely what it means. I think
some of your questions may be answered if you will let me finish the
narrative which I am making.
Representative M i l l s . Go ahead.
Representative Ten Eyck. Mr. Williams, what recourse has a
national bank against the reserve bank if the reserve bank refuses
to loan or discount its loans ?
Mr. W i l l i a m s . Well, the national bank can apply to the Federal
Reserve Board, and if any manifest injustice is clone to them they
can bring it up to the board.
Representative Ten Eyck. But if the Federal Reserve Board de
nies that any specific loan can not be had, on account of it being
large, or for any other purpose whatever—if the Federal Reserve
Board decides that they can not have it, what recourse has the
national bank to force that loan ?
Mr. W i l l i a m s . It can not force it.
Representative M i l l s . Let me ask one other question. What con
trol has the Federal Reserve Board got over the action of the indi
vidual bank in so far as individual loans are concerned ?
Mr. W illiam s. I think that my answer could be illustrated, if you
nil let me proceed further with the narrative.
Representative M i l l s . I will not ask you another question if you
will answer that one before you proceed.
Mr. W i l l i a m s . What is tnat?
Representative M i l l s . What control the Federal Reserve Board
as a board has over the individual reserve bank in so far as individual
loans are concerned?
Mr. W i l l i a m s . If the Federal Reserve Board finds that the Federal
reserve bank is in the hands of inefficient or incompetent men it
can remove its officers or refuse to approve their salaries.
Representative M i l l s . But short of that it d o e s not attempt to
control?
Mr. W i l l i a m s . It can exercise a moral suasion which would be
very effective.
Representative M i l l s . But it does not attempt to control the
individual loans of the individual banks?
Mr. W i l l i a m s . Well, if the Federal Reserve Board should have
knowledge of any rotten condition in any particular bank, and should
find that that particular bank was being heavily favored by a reserve
hank anywhere, I think it would be the duty of the reserve board
to take action.
Senator R o b i n s o n . It could in any instance of th at character refuse
to discount paper?
Mr. W il li a m s . Certainly.
Representative M i l l s . The board itself could compel the refusal ?
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Mr. W i l l i a m s . The board could say to the reserve bank: “ We
don’t want you to loan any more money to a certain institution
which we believe is in a highly extended or precarious position,
until their methods are reformed. They are violating the Federal
reserve act, and you should go slow.” The board can say that if
they wish to.
Representative M i l l s . Yes; but supposing the Comptroller of the
Currency has found that they have not violated the Federal reserve
act, because I assume that he would have reported it to the Depart
ment of Justice if there had been any violation of law, could the
Federal Reserve Board go to the New York bank, for instance, and
say, “Do not discount paper of an individual member bank?”
M r. W il li a m s . Suppose that a member bank should be loaning
all of its capital and all of its surplus to its president, and that he
was engaged in highly speculative operations.
Representative M i l l s . Yes.
Mr. W i l l i a m s . And he should want to borrow more money, and
the Federal reserve bank should be advised of those conditions, that
the officers of the bank were sucking up its resources, I think it would
be the duty of the Federal Reserve Board to call that bank to account
and to require them to limit their loans and to collect them.
Representative M i l l s . But under what authority of law can they
require an individual reserve bank to limit its loans to a particular
institution ?
Mr. W i l l i a m s . The reserve bank does not have to lend money
ad libitum.
Representative M i l l s . No; it does not, but on what authority of
law can the Federal Reserve Board say to a Federal reserve bank,
“ You shall not lend any money?”
Mr. W i l l i a m s . On tne theory that it is in the hands of an incom
petent management, and unless you handle this bank in the way it
should be handled we will remove you.
Representative M i l l s . In other words, if the Federal Reserve
Board is satisfied that the officer of a particular reserve bank is
incompetent, it has the authority to remove him ?
Mr. W il li a m s . It has, directly or indirectly.
Representative M i l l s . But it has not got the authority under the
Federal reserve act to say to any particular reserve bank, “ You
shall not discount paper of any”-----Mr. W i l l i a m s (interposing). It has the common-sense authority
to say to a bank that is running wide open to be careful and go slow.
That does not have to be in the Constitution or the Federal reserve
act.
Representative M i l l s . Well, it is not in the Federal reserve act,
is it?
Mr. W i l l i a m s . Well, it is implied in the act, as I have interpreted
the act.
Senator H a r r i s o n . D o they not make suggestions sometimes about
certain loans ?
Mr. W i l l i a m s . Well, about certain policies they do make sugges
tions ; yes, sir.
The C h a ir m a n . Mr. Williams, you referred hypothetically to the
existence of rotten conditions in the bank. How does the Federal
reserve bank become cognizant of these conditions?
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Mr. W i l l i a m s . Well, I don’t want to be too particular about a
bank, but if the Federal Reserve Board should be advised that it is
common talk that a bank somewhere in the West, we will say, is
very much extended, and that its officers are speculating, and that
it is in an unsafe condition and sucking up the funds of the Federal
reserve system to an unwarranted extent, I think it would be the
duty of the Federal Reserve Board to admonish the bank to be
careful in regard to that member institution, whether it should be
a State member bank or a national member bank.
The C h a ir m a n . D o you think the method of procedure by the
Federal reserve bank for getting advice as to the condition of mem
ber banks is to listen to gossip on the streets, or do they get their
information in some other way ?
Mr. W i l l i a m s . Well, there are some things that are pretty clear.
The C h a ir m a n . Well, isn’t it a matter <3 fact that the Federal
reserve banks get their information as to the condition of member
banks through the reports of the comptroller?
Mr. W illiam s. Only as to national Danks.
The C h a ir m a n . Only as to national banks?
Mr. W illiam s. Not as to State banks.
The C h a ir m a n . Then, if you do not make the examinations
required by law in the city of New York of these national banks, the
Federal reserve bank of New York would not be in a position to
know about the conditions of these banks from your examination ?
Mr. W i l l i a m s . Oh, yes; the Federal reserve bank could.
The C h a ir m a n . Through your examination ?
Mr. W illiam s. The copies of my examination, as you probably
know, are filed with the Federal reserve bank of New York.
The C h a ir m a n . A copy of your examination ?
Mr. W illiam s. Yes.
Representative M i l l s . All of it ?
Mr. W i l l i a m s . When called for.
Representative M i l l s . But the comptroller’s examination does not
get to them ?
Mr. W i l l i a m s . Whenever asked for.
Representative M i l l s . But he does not furnish of his own accord
the information which he obtains ?
Mr. W i l l i a m s . It is the custom to furnish them with the bulk of
the report. There is a certain confidential section which is furnished
to the Federal reserve bank when the Federal reserve bank asks for it.
Representative M i l l s . What is there to inform the Federal reserve
bank that such confidential section exists ?
Mr. W i l l i a m s . It does not exist in all examinations.
Representative M i l l s . How does the Federal reserve bank know
that it does exist in a particular case ?
Mr. W i l l i a m s . They can ask for it if they choose.
Representative M i l l s . Is there any particular reason why the
comptroller should not give complete information ?
Mr. W il li a m s . It has been the custom to give complete informa
tion whenever it is asked for.
Representative M i l l s . Is there any reason why this should not b e
furnished, and why it should have to be asked for?
Mr. W il li a m s . Well, I think perhaps there may be an argument in
favor of not making that too public. I don’t know whether the
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reports of the comptroller which are sent to the Federal reserve banks
are seen, except occasionally, by the principal officers of the Federal
reserve banks. My understanding is that they are generally turned
over to some underling. Some of that information is of very strictly
confidential character, and it is thought best that it should be
handled with extreme care.
Representative M i l l s . Supposing that the information which is
furnished the Federal reserve bank-----Mr. W i l l i a m s (interposing). They are frequently matters of
opinion of the examiner.
Representative M i l l s . May I ask you this, Mr. Williams: Sup
posing the information furnished the Federal reserve bank does not
disclose conditions that are in any way unusual, whereas the informa
tion which is furnished to the Comptroller of the Currency, and which
he does not pass on, does furnish information which would put the
Federal reserve bank on guard, who is to blame if the Federal reserve
bank does not take action, the Comptroller of the Currency for his
failure to furnish the information, or the bank for failure to ask for
information which it does not know exists ?
Mr. W i l l i a m s . If a particular national bank under the supervision
of the Comptroller o f the Currency has occasion to ask for pretty
large accommodations, we will say largely exceeding its basic lines,
it seems to me that it behooves the Federal reserve bank in cases
of that sort to ask the Comptroller of the Currency for the special
information, and to get such additional information as would natur
ally suggest itself to an intelligent bank.
Representative M i l l s . Well, let me ask you: Where the Comptroller
of the Currency gets information which puts him on notice that con
ditions which he considers unsatisfactory exist in a certain bank
which is a large borrower from the Federal reserve bank, would you or
would you not consider it his duty to furnish that information to the
Federal reserve bank ?
Mr. W i l l i a m s . He frequently does it.
Representative M i l l s . Well, wouldn’t you consider it good practice
to do so ?
Mr. W i l l i a m s . Certainly.
Representative M i l l s . And if he failed to do so could he afterwards
claim that the Federal reserve bank had been negligent in not getting
that information ?
Mr. W i l l i a m s . Well, the Comptroller of the Currency’s reports
furnished to the member banks are usually very complete and
comprehensive.
Representative M i l l s . I have assumed a case in which they were
not.
Mr. W i l l i a m s . Well, I think that your question answers itself.
If the Comptroller of the Currency knows of a dangerous condition
in a bank and fails to advise the reserve bank of those dangerous
conditions, knowing that it is handing out money in large quantities
to that particular bank, why he fails in his duty.
Representative M i l l s . A id do you consider that under those cir
cumstances it would be his duty to disclose those confidential reports
which are not normally furnished ?
Mr. W i l l i a m s . The report itself, Congressman—I don’t know
whether you have ever seen a report of the Comptroller of the Cur
rency, a report of examinations, have you ?
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Representative M i l l s . N o .
Mr. W il li a m s . Well, you will find that the reports which the
comptroller gives to tne member banks are sufficient, as a rule,
to enable the member bank to form a very fair conclusion as to the
condition of the bank.
Representative M i l l s . I am assuming a case where the information
generally furnished was not sufficient.
Mr. W il li a m s . It ought to be.
Representative M i l l s . But the confidential memorandum which
be does not furnish unless asked for did disclose an unsatisfactoiy
condition. Now, who would be to blame if that information was not
given the Federal reserve bank?
Mr. W i l l i a m s . The comptroller. I think I can answer that with
aplain statement that it is the duty of the Comptroller of the Currency
to furnish the member banks with such information as may enable
them at all times to form an intelligent idea as to the condition of the
member bank as far as the information in the possession of the
comptroller goes.
May I finish this narrative ? I think some of these questions may
be answered as I go along.
The C h a ir m a n . I would like to ask one question or two if I may
on these speculative propositions.
You refer to the fact that the member banks in New York loan
large sums for speculative purposes. I have heard it stated that the
country banks, some of them, kept quite large balances in New York
which they directed loaned for speculative purposes. Is that correct ?
Mr. W i l l i a m s . I have never heard of it. When you say “ for specu
lative purposes” you don’t mean for investment for the country
banks, do you ?
The C h a ir m a n . What I am getting at is that I understand that
the country banks keep lar'ge balances in New York which they
direct to be loaned on call. Am I correct about that ?
Mr. W i l l i a m s . Y o u are.
The C h a ir m a n . D o v o u think the same rule ought to be applied
tothese same country banks with reference to these speculative loans
that you suggest should be applied in New York?
Mr. W i l l i a m s . Unquestionably.
The C h a ir m a n . How would you go about applying the rule as to
the country bank ?
Mr. W i l l i a m s . We try to do it as each bank is examined.
May I proceed? I think that some of these questions may be
answered if I may proceed.
The C h a ir m a n . Did you find when you examined the banks in
the fall of 1919 that both city and country banks were loaning large
sums on call ?
Mr. W i l l i a m s . I d id .
The C h a ir m a n . Did you take any action at that time as •
comptroller ?
Mr. W i l l i a m s . I ce r ta in ly d id . I th in k m y a n n u a l r e p o r t deals
with th a t s u b je c t in e x te n so .
The C h a ir m a n . Y o u recommended some action by Congress in that
respect ? Is that what I am to understand ?
Mr. W il li a m s . Well, the conditions we will set forth in the report
quite elaborately. I shall come to that presently.
The C h a irm a n . Very w e ll.
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Mr. W i l l i a m s . Loans to their own officers and their special enter
prises or syndicates were in some cases studiously camouflaged or
concealed. These abuses were brought by me to the attention of the
Federal Reserve Board, but, as far as I know, no remedial action was
taken. In this connection I quote as an illustration the following
extract from my letter to .the governor of the Federal Reserve Boara
under date of January 12,1921, in regard to a loan of about $6,000,000
made by two banks, heavy debtors of the reserve system, to a specu
lative syndicate in which the presidents of the two banks were heavily
interested. In that letter I said:
Our examining force is constantly discovering new means and methods whereby
the officers and directors of banks seek to camouflage or conceal their heavy borrowings.
Among these devices which we have recently encountered are:
First. Such “ family” corporations as the -------- through the instrumentality of
which-------- borrowed about $10,000,000 from th e --------- in addition to other large
loans obtained directly and indirectly.
Second. Dummy loans such as that by which director-------- obtained, in the name
o f-------- (his employee) some $3,500,000 from that bank.
Third. Private “ syndicate” loans such as th e -------- syndicate loan in which the
president of the-------- had an interest of about one-fourth, and an officer of the--------smaller interest, and to which syndicate th e-------- loaned $3,547,897, and the--------loaned $2,350,000, the interest of the bank officials in neither case being disclosed to
the lending bank, until it developed as a result of investigation by the national bank
examiner.
The C h a ir m a n . May I ask you there whether you think the power
of the Federal reserve bank to rediscount paper ought to be used for
the purpose of compelling compliance with the law on the part of
national banks, or whether that is the duty ol the comptroller ?
Mr. W i l l i a m s . I do.
The C h a irm a n . Y o u think that the power of the Federal reserve
bank should be used for that purpose ?
Mr. W i l l i a m s . I d o .
The C h a ir m a n . That it ought to be used to compel good manage
ment on the part of the banks ?
Mr. W i l l i a m s . I do. [Continuing reading:]
I feel confident that these secret methods by which the officers of the banks make
use of the funds of the institution can be no more approved by you than they can be
by this bureau.
Senator R o b i n s o n . Well, in connection with the question just
asked by the chairman, may I point out paragraph (h) of section 11
of the Federal reserve act denning the powers and duties of the
Federal Reserve Board. It is as follows [reading]:
To suspend, for the violation of any of the provisions of this act, the operations of
any Federal reserve bank, to take possession thereof, administer the same during
the period of suspension, and when deemed advisable, to liqudate or reorganize such
bank.
By that section it is given the power to absolutely suspend all
operations of a Federal reserve bank for any violation of the Federal
reserve act.
Mr. W il l i a m s . Absolutely.
The C h a ir m a n . Yes: b u t n o t a member bank.
Senator R o b i n s o n . No: but it is given certain powers over the
member banks specifically. By paragraph (a) the Federal Reserve
Board is charged with the duty of examining the accounts and making
report upon the same of the member banks. It is given certain
further powers in connection with loans to member banks, and it is
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given genera] supervision over all Federal reserve banks, which, of
course, implies supervision over the dealings of the Federal reserve
banks with the member banks; otherwise that power would be
nugatory and of no effect.
M r. W i l l i a m s . They have the complete power of examination of
all member banks, National or State.
Senator R o b i n s o n . And they have the power to suspend a Federal
reserve bank for an unlawful transaction with a member bank.
Mr. W i l l i a m s . Yes.
Representative M i l l s . D o y o u contend that any Federal reserve
bank is violating the provisions of this act ?
Mr. W i l l i a m s . I have not made that complaint.
The official record shows (p. 531, Federal Reserve Bulletin, May,
1920) that in the month of January, 1920, at the very time that the
Federal Reserve Bank of New York was making huge loans with
such prodigality to certain big institutions in New York City for
speculative purposes the New York Reserve Bank was itself, during
tnat month, borrowing heavily from at least seven other Federtu
reserve banks by rediscounts and the sale of purchased bills. Its total
borrowings for the month of January, 1920, exceeded $175,000,000.
The C h a ir m a n . May I ask if that includes bills purchased by other
Federal reserve banks at their own request on their own account ?
Mr. W i l l i a m s . I don’t know what that amounted to, Mr. Con
gressman.
The C h a ir m a n . But that figure would include such bills ?
Mr. W i l l i a m s . I presume that $175,000,000 of acceptances and
bills discounted by the Federal Reserve Bank of New York, as shown
in the official bulletin, would include paper of that character.
Representative F u n k . Just a moment there, Mr. Williams. Am
I to understand that due to the fact that the New York Federal Re
serve Bank borrowed money from other Federal reserve banks, that
because o f that fact these other Federal reserve banks would be
limited in their ability to take care of their customers ?
Mr. W i l l i a m s . Obviously I think it would be fair to assume— .
at least we should hope that it would be fair to assume—that if a
Federal reserve bank is lending money to the Federal Reserve Bank
of New York it is because it can spare the money at the time and
that it is not cribbing or cramping its own member banks. I am
not expressing an opinion on that particular feature of the case now.
Representative S u m n e b s . Well, now, Mr. Williams, if as a matter
of fact the other banks of the system had $175,000,000 to spare and
New York could use it, what bad effect upon the country as a whole
would have resulted from that transaction ?
Mr. W i l l i a m s . Not necessarily any ill effect.
Representative S u m n e r s . No\fr, then, what conclusions ought the
commission to draw from the statement of that fact? What does
it bear on ? What does it suggest ?
Mr. W i l l i a m s . It gives this information, that the New York
reserve bank not only lends at times to the other banks, but also
that it borrows and is the beneficiary of the advances made by other
Federal reserve banks.
Representative S u m n e r s . Is that a matter to be indorsed, a
matter to be permitted in the future ?
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Mr. W i l l i a m s . I think it is in accordance with the purposes of the
system that one bank that needs money should borrow from the
other banks—or that one bank that has a surplus of money should
lend money to the banks that need it.
Representative S u m n e r s . What I am trying to get at now is this:
The statement is made to the commission I assume for the purpose
of enlightening the commission with reference to the matters under
investigation, and I was trying to find out just what that is supposed
to-----Mr. W i l l i a m s . I am simply trying to bring out the fact that the
Federal reserve bank in New York, while at times loaning largely
to other banks, also had occasion to borrow from other banks.
Representative S u m n e r s . That is not peculiar to the banks of
New York, is it?
Mr. W i l l i a m s . Not necessarily.
Representative S u m n e r s . I believe that at this particular time
the New York bank is loaning rather extensively to the very banks
that it perhaps was borrowing from at that time.
Mr. W i l l i a m s . Quite possible.
Representative S u m n e r s . N o w if as a matter of fact, however, the
banks that were loaning to New York— assuming that those loans
were used for speculative purposes—thereby denying their own com
munities the money which their legitimate industries require, they
themselves would be subject to criticism.
Mr. W i l l i a m s . Unquestionably.
Representative S u m n e r s . Yes.
Representative M i l l s . May I ask you: Those figures do not
necessarily show borrowings entirely, do thev ?
Mr.. W i l l i a m s . These are bills discounted and purchased paper,
as I understand them. And acceptances.
Representative M i l l s . Well, let us assume, for instance, that
deposits in large amounts were being withdrawn from the New York
bank or banks, isn’t it conceivable that in order to meet the drain
on its reserve fund it would transfer acceptances to other banks!
Mr. W i l l i a m s . It w o u ld , naturally.
Representative M i l l s . S o that that figure which you give may
not necessarily represent money borrowed entirely by the New York
bank for the purposes of rediscounting New York paper?
Mr. W i l l i a m s . Not necessarily.
Representative M i l l s . It may represent-----Mr. W i l l i a m s (interposing). It may be money borrowed by
member banks to meet the withdrawing of deposits, as you suggest.
Its total borrowings for the month of January, 1920, exceeded
$175,000,000, and the banks from which it was thus getting money
included the Federal reserve banks of Atlanta, St. Louis, Dallas,
San Francisco, Chicago, and Cleveland, and Boston, and shortly
before from Richmond.
I will now invite your attention to certain testimony given by
Gov. Harding before the Banking and Currency Committee of the
House of Representatives on June 1 in regard to the amount of
agricultural and live-stock paper held by the 12 Federal reserve
banks.
Congressman Wingo in making inquiry concerning credits granted
to the farmers through the Federal reserve banks concluded a state
ment with the following question [reading]:
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So that the fact your Federal reserve note volume went up does not indicate that
the farmer had an increase in loan privileges?
Gov. H arding . There are some other figures that enter into it.
Mr. W ingo . What are those figures?
Representative M i l l s . What page are you reading from ?
Mr. W i l l i a m s . Gov. Harding s testimony on June 1. It is page
18, Congressman, the middle o f the page.
Shall I proceed?
Representative M i l l s . Yes.
Mr. W i l l i a m s (reading):
So that the fact your Federal reserve note volume went up does not indicate that
the fanner had an increase in loan privileges?
Gov. H arding . There are some other figures that enter into it.
Mr. W in g o . What are those figures?
Gov. H ard in g . The paper that can be identified as farm paper, held by the Fed
eral reserve banks on the 30th of April, this year, $230,000,000 as against $106,000,000
on April 30, 1920.
Mr. K in g . Does that include the packers’ credits in Chicago?
Gov. Ha r d in g . Oh, no. The paclcers’ credits are entirely separate.
Mr. W in o o . Do you contend it is a fact that the farmers tliis year had bigger credits
than last year?
Gov. H a r d in g . I do.
Mr. W in o o . Does not that indicate that last year when we were facing this extraor
dinary situation, you granted less credits then than you admit now the farmers were
entitled to?
Gov. H a r d in g . N o ; it does not. The Joint Committee on Agriculture wanted to
know about this and we looked it up. The credit is always bigger than we can prove,
because all we claim as agricultural and live-stock credits are the credits over 90 days.
Now I have that in my head very clearly. In 1920, up to the 14th of December, the
12 Federal reserve banks had discounted $1,981,000,000 of agricultural and live
stock paper—known to be such because it had a maturity date longer than 90 days—
as against $721,000,000 in the year 1919, which does not show any curtailment of farm
credits.
May I ask you to follow me, Congressman, and if I make any "
mistake, please correct me, because I have not read this since written
by the stenographer.
(Continuing reading:)
Mr. B r a n d . How much at the same time did you let other folks have?
Gov. H a r d in g . What was the question?
Mr. B r a n d . What were your loans to other people at the same time?
Gov. H a r d in g . The loans to other people were curtailed in many cases.
Mr. W in g o . Do you mean to say the manufacturers and merchants had a curtail
ment in their loans last year?
Gov. H ar d in g . Not until very late in the year.
Mr. W in g o . I say, in April, May, June, and July the manufacturer and merchant
had a very large increase in credits, made necessary by the fact business was dead
and they were being compelled to carry inventories and pay rolls and had to have
money; they were not getting money in from their business and had to have it from
the banks.
Gov. H arding . They did not have a very large increase of credits to the Federal
reserve banks.
Mr. W in g o . They got the volume that was denied to the farmer.
The Ch airm an . They were largely the denial of credit by the member banks.
That is the end of the quotation.
I do not know where Gov. Harding got his figures. The official
figures set forth in the Federal Reserve Bulletin report that the total
Amount of “ bills discounted” and “ acceptances” bought by all the
Federal reserve banks for the 12 months of the calendar year 1920
which had a maturity of over 90 days aggregated only $351,864,000
instead of $1,981,000,000 as stated by Gov. Harding in his testimony
on page 18. The official bulletins also show that the total amount
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of bills discounted and acceptances bought having a maturity o f
“ over 90 days,” which were discounted or bought by all the Federal
reserve banks in the calendar year 1919, amounted to $129,717,000
instead of $721,000,000 as stated by Gov. Harding on page 18 of his
testimony.
Perhaps Gov. Harding may have some explanation for this aptarent discrepancy of a billion or two, and if he has I presume he will
umish it to your committee.
Representative M i l l s . But in any event, according to your figures,
the credit granted to farmers was almost twice as much in 1920 as
it was in 1919?
Mr. W i l l i a m s . I am discussing that later, Congressman.
Representative M i l l s . Isn’t that true ?
Mr. W i l l i a m s . It was much larger.
Three or four times during his testimony on June 1, Gov. Harding
drilled into the committee the fact that “ agricultural” and “ live
stock” paper held bv the Federal reserve banks had increased from
$106,000,000 in April, 1920, to $230,000,000 in April, 1921. Inci
dentally, let me observe that as the “ agricultural and live stock
paper” held by the Federal reserve banks in December, 1920, was
over $246,000,000, the fact that in April the amount outstanding was
$230,000,000 indicates a contraction of $16,000,000 in agricultural
and cattle paper between December, 1920, and April, 1921.
Representative M i l l s . Wait a minute, you are going too fast there,
f
M r. W illia m s.
Mr. W i l l i a m s .
Let me finish my statement.
Representative M i l l s . Let me have those figures again, will you
please?
Mr. W il l ia m s . I will give you this statement again. Incidentally,
let me observe that as the “ agricultural and live stock paper” held by
the Federal reserve banks in December, 1920, was over $246,000,000,
the fact that in April the amount outstanding was $230,000,000
indicates a contraction of $16,000,000 in agricultural and cattle
paper between December, 1920, and April, 1921, at the very time
that the farmers urgently needed additional help for the planting
of their new crops.
Representative M i l l s . But in June of this year we find that it
has gone up to $157,875,000 for agricultural paper and $76,258,000
for live stock.
Mr. W i l l i a m s . I haven’t those figures.
Representative M i l l s . S o that in June, 1921, we find that there
is a larger amount outstanding in the way of agricultural credits
than at any other time since January, 1920.
Mr. W i l l i a m s . Well, I was just calling attention to the fact that
from December, 1920, to April, 1921, there was a shrinkage of
$16,000,000.
Representative M i l l s . And from April to June there is a very
material increase.
Mr. W i l l i a m s . There is another comparison, however, which is
far more important, and that is the proportion of “ agricultural” and
“ cattle” paper to the total amount of bills discounted and purchases
by the Federal reserve banks. On page 17 of his testimony I note
the following statement [reading]:
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Mr. W i x g o . You have already denied that; but I am talking about what the
banker did down there. I am trying to get down to the (act and to place the responsi
bility and to draw out the facts. Now, it is a fact—and if you do not know it, I think
if you will just sit down and take isolated banks, you will find the loans to the farmers
were actually curtailed. A great many banks did not think of coming to the Federal
reserve bank for rediscounts and those that did come came with limited demands; yet
at the same time the volume of the Federal reserve notes increased. Now who got
the credits that were denied to the actual farmers?
Gov. H a r d in g . The farmers got them.
Mr. Winoo. I have just called attention to the fact that they did not get them.
Gov. Habding . I think there is 43 per cent of the population of the country that
is classed as farm population. Some farmers did not get credits, but other farmers
were dealt with more liberally by the banks.
Mr. W in g o . You say this farmer got that which that farmer was denied [indi
cating]?
Gov. H a r d i n g . It is possible.
Mr. Wingo . I have not been able to find any bank in the United States in the
cotton and wheat belt where they were granted an extraordinary line of credits over
and above what was customary; but, on the contrary, I find they adopted that policy
of curtailment of loans all through the cotton and wheat belt.
Gov. H arding . There are about 30,000 banks in the United States. I know some
of them are skin-flints and some are very liberal.
Mr. Wingo . I am talking about the wheat belt and cotton belt. The farmers out
there were not given even the normal credits. You say other farmers were given
what those farmers were denied?
Gov. H arding . Yee.
Ur. W ingo . N ow , do not the records of the banks show that a good many people—
you had the Federal reserve notes going up in volume and had the wholesale prices
going down, trade was stopped, and were not a good many merchants given addi
tional credits for carrying over their inventories because there was not any trade and
money was not coming-in? I know personally of cases where that is true.
Gov. H ard in g . Possibly.
Mr. W ingo . Did not the merchants get that volume, and was not that responsible
far the curtailment of credits to the formers?
Gov. H arding . AH I can tell you of the increase of Federal reserv e notes is that we
can tell what the increase was by districts.
Mr. W in o o . What I am getting at is that this volume of Federal reserve notes
increased and wholesale prices went down. I am not talking about it as a banking
proposition, but looking at it from the standpoint of this committee. It indicated
that the fanner was denied these credits. Just leave out who was to blame for it; just
admit your contention that the banker did not want to make his customer mad—and
there is a lot in that—it is a fact that a good many'merchants and manufacturers in
that doll time—and I am not criticizing them—got credits and that swelled the volume
of notes when, at the very same time wholesale prices were going down and the farmer
wasdenied credits and his produce was tumbling in price, too.
Now. gentlemen, Gov. Harding boasts of the liberality shown by
the Federal reserve banks to the purchasers of agricultural and cattle
paper which amounted, he says, in April, 1921, to $231,000,000. I
ask vou to consider that this aggregate amount of agricultural and
cattle paper apparently made by the class of population which Gov.
Harding says represents about 43 per cent of total population, is
some millions of dollars less than tne amount of money which the
Federal reserve system has from time to time handed out, I might
say, almost casually, to two certain banking institutions in one of
our large cities. The records show that in January, 1920, one Federal
reserve bank was lending to one banking institution in New York
City, conspicuous for its speculative activities, more than twice as
much as aU the Federal reserve banks held, at that time, of “ agricul
tural” and “ live stock” paper. [See p. 307. of the Bulletin for
March, 1920.]
Representative M il l s . What date was that?
Mr. W ill & ms . January, 1920.
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AGRICULTURAL INQUIRY.
The C h a ir m a n . I did not hear your statement at the beginning,
Mr. Williams. Do I understand you to say that the agricultural
paper held by the Federal reserve Danks diminished during the year
1920?
Mr. W i l l i a m s . Oh, no; it increased.
The C h a ir m a n . Very largely increased, did it not ?
Mr. W i l l i a m s . Yes, ves.
The C h a ir m a n . Would that indicate a disposition on the part of the Federal reserve banks to curtail loans to agriculture ?
' Mr. JiViLLiAMS. Well, the proportion of it was pitifully small com
pared with the total amount of loans.
The C h a ir m a n . On that question, do you think that the figures
with reference to rediscounts of agricultural and live stock paper
represents fairly the amount of credit that was extended to agri
culture ?
Mr. W il l ia m s . Well, I would prefer that you should get that
information from the reserve banks, the Federal reserve banks.
The C h a ir m a n . I am asking these questions of you now. You
were a member.
Mr. W i l l i a m s . I do not say that it represents by any means the
maximum amount that was credited to farmers and agriculturalists
by member banks.
The C h a irm a n . Then it would be hardly fair to make a compari
son on the basis of those figures, would it ?
Mr. W il l ia m s . Well, I am discussing the proportion of the re
sources of the Federal reserve bank system which were employed in
loans on 90-day paper to farmers and cattle raisers.
The C h a irm a n . But you say that those figures do not represent
the actual amount of loans which were given to agriculture ?
Mr. W i l l i a m s . I do not know what proportion of their funds was
loaned on agricultural paper by the member banks. What I said
was, or what I intended to say was, that the money obtained by
member banks from the Federal reserve banks on agriculture and
cattle paper by no means represents the total amount of money
loaned by all the banks of the country to farmers.
The C h a ir m a n . Are y o u u n d e r th e im p ression in gen era l th a t in
p r o p o r tio n t o a ctu a l reserve d e p o sits o r m p r o p o r tio n t o b a s ic lines
th e a c c o m m o d a tio n e x te n d e d b y m e m b e r b a n k s in th e c o u n t r y was
less th a n th e a c c o m m o d a tio n e x te n d e d b y th e c it y b a n k s t o their
b o rr o w e r s ------Mr. W il l i a m s . Well, an hour or two ago I read into the record a
table-----The C h a ir m a n (continuing). During 1920?
Mr. W i l l i a m s . I read into the record a table, Congressman, an
hour or two ago, which showed that the loans and rediscounts obtained
by the central reserve city banks was far in excess—I think I showed
that, although the total amount of money loaned by the country
national banks was very much more than the total amount of loans
made by the central reserve city banks, yet the paper rediscounted
or borrowed by the central reserve city banks was about $300,000,000
more than the bills payable and rediscounts of the country banks.
Representative M i l l s . Well, now, M r. Williams, have you made
any estimate on the proportion of agricultural credit made by the
reserve banks other than in the central reserve cities to their total
credits ?
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AGRICULTURAL INQUIRY.
Mr. W illia m s . I am discussing here, Congressman, matters bear
ing upon the statements which were made Before the Banking and
Currency Committee on June 1 of this year by Gov. Harding, of the
Reserve Board.
Representative M il l s . Yes; and you are injecting some new mat
ter 0 1 your own.
Mr. W il li a m s . I was confining myself to that general subject,
Congressman. I am dealing with the statements which were made
before the committee on June 1 and matters pertinent thereto.
Representative M i l l s . But you just read into the record your fig
ures 88 to one or two New York banks and pointed out that their
loans exceeded the total amounts granted by these other banks.
Mr. W il l ia m s . The statement 1 made in the record in that con
nection was this: The records show that in January, 1920, one Fed
eral reseffve bank was lending to one banking institution in New York
(Sty, conspicuous for its speculative activities, more than twice as
much as all the 12 Federal reserve banks held at that time of “ agricul
tural "and “ live-stock "paper. (P. 307 of the Bulletin forMarch, 1920.
Representative M i l l s . Yes; now, I am asking you whether you
have made any study of the proportion of agricultural credits out of
total credits granted by the banks of Richmond, Chicago, St. Louis,
Minneapolis, Kansas City, Dallas, and San Francisco at anv time ?
Mr. W i l l i a m s . I have not a detailed statement here which would
give you that information. I have studied the subject generally,
and I should be very glad to lay before you a statement showing the
total amount of agricultural and cattle paper rediscounted by tne 12
Federal reserve banks for each month of the calendar year 1920, if
you wish ifc.
Representative M il l s . Are you familiar with the figures given
by Gov. Harding in his speech of last September ?
Mr. W i l li a m s . I am not familiar with that speech.
Representative M il l s . Well, in that speech Gov. Harding gave
the following figures, as of September 3, 1920: That of the total
bills discounted Dy the Federal Reserve Bank of Richmond, 27 per
cent was the estimated amount granted in support of agricultural
products.
Mr. W i l l i a m s . Naturally. It is an agricultural district.
Representative M il l s . Atlanta, 23 per cent; Chicago, 48.3 per
cent; St. Louis, 22 per cent; Minneapolis, 65.6 .per cent; Kansas
City, 59.8 per cent; Dallas, 50 per cent; San Francisco, 58.7 percent.
Mr. W i l l ia m s . If the $230,000,000 of agricultural and cattle
paper which Gov. Harding referred to so frequently in his testimony
on June 1, is any index at all of the total amount of money ad
vanced to agriculturists and cattle raisers by the banks of the coun
try, there is abundant ground for their lamentable complaints of
discrimination and contraction.
The C h a ir m a n . Y ou just said that there is a fair basis for-----Mr. W il l ia m s . I have not expressed an opinion on that.
The Chairm an. I would like to have you do so.
Mr. W il l ia m s . I don’t know what the proportions are. Con
gressman Mills has just read certain percentages. I don’t know
what the actual figures were or what the proportions were at that
time. I am not familiar with the speech. I don’t know that I
have ever seen it, and I therefore can not discuss it.
91841— 22— VOL 2------ 6
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AGRICULTURAL INQUIRY.
The Ch a ir m a n . Y ou know whether these figures of rediscounts
of agricultural paper represent fairly the amount of credit given to
the agricultural sections of the country, or whether they do not?
Mr. W illia m s . W e ll, I have given you Gov. Harding’s statement,
in exact words, in regard to that.
The Ch a ir m a n . I am asking you. I am not asking Gov. Harding.
I will ask him when we get him on the stand. I am asking vou now.
Mr. W il l ia m s . I will tell you very frankly that the banxs of the
country have loaned many times that amount themselves, but the
point is that while the banks have accommodated the farmers—the
member banks have accommodated the farmers—they have been
unable, it appears, to get back from the reserve banks, anything
like the proportion of rediscounts that the big banks in the central
reserve cities have obtained and which is shown in the tables in
this record.
The Ch a ir m a n . What particular time are you referring to in
making that statement? I ask that question because the situation
changes very rapidly.
Mr. W il l ia m s . I do not recall the date. I am looking it up. It
is in the record, Congressman, and you can refer to it there.
Shall I proceed ?
The Ch a ir m a n . Are you under the impression, Mr. Williams,
that the loans and discounts of the Federal Reserve Bank for New
York now are higher than they were in December, 1919?
Mr. W illia m s . That the loans of the New York Reserve Bank
are higher now ?
The Chairm an. Yes.
Mr. W il l ia m s . Why, I notice that there has been a contraction
of a billion dollars in the loans of the Federal reserve system in the
last 12 months. I imagine that the reserve bank of New York has
also greatly contracted.
The C h a ir m a n . Are you under the impression that the redis
counts of the country banks have contracted since December,
1919-----Mr. W il l ia m s . I shall give you as I proceed, Congressman, some
definite figures on that subject. I would rather not g i v e i m p r e s s i o n s
in a desultory way, if it is agreeable to you.
Representative T e n E y c k . Mr. Williams, have you information as
regards the percentage of discounts in April, 1920, on agricultural
paper that actually went to the farmer direct—discounting loans on
their products owned by the farmer, and the amount that went to
the merchants and dealers that dealt in farm products ?
Mr. W il l ia m s . I have not those at hand, Congressman. They
could be obtained. I assume the Federal Reserve Board c o u l d
obtain them. I am not able now to obtain information from the
Federal Reserve Board. I have been notified that not being a
member of the board they would not supply me that data.
Representative T e n E y c k . It would be very interesting to see
how the farmer was protected in comparison with dealers wno dealt
in his products.
Mr. W i l l i a m s . I showed you a few minutes ago—I think I sh ow ed
he percentage of their total loans which were rediscounted by the
national banks in three big central reserve cities was over 24 per cent,
and that the total percentage of their loans rediscounted by all tne
country banks was only about 10 per cent.
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The Chairman.
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of what date ?
Mr. W ill ia m s . I think it was some date in 1920.
September 8, 1920. It is in the record, though.
I think it was
Representative M i l l s . Do you propose to give the figures for 1921
showmgthe contraction?
Mr. W illia m s. Yes.
Representative M il l s . Y o u do ?
Mr. W illia m s . Yes, if you will let me proceed.
Representative M il l s . Now, before you leave Gov. Harding’s tes
timony, it seems to me that you might include just one other thing.
I refer you to page 11 of the testimony of Gov. Harding before the
committee. Gov. Harding had referred to agricultural paper dis
counted on April 30, 1921, of $231,000,000, as compared with
$66,000,000 on April 30, 1919. The chairman asked him [reading]:
The C h a i r m a n . Have you anything to show what the same class of loans is in the
member banks in that same connection?
Mr. W illia m s . Is that the top of the page ?
Representative M i l l s . That is the middle of page
ding’s testimony. [Continuing reading:]
11
of Gov. Har
Gov. H ar d in o . No, we have not. But this just gives an indication, don’t you
aee? We know this; we know that 40 per cent of the member banks are not redis
counting at the Federal reserve banks at all, and the 60 per cent which are redis
counting at the Federal reserve banks are rediscounting amounts suff cient to make
npthe percentage of rediscounts to total loans of all member banks to about 15 per cent.
From which one can make some sort of an estimate of the difference.
Mr. W i l li a m s . I don’t know whether his figures are correct or not.
I have not studied them.
Representative M i l l s . But as long as you have read part of his
figures into the record I think it would be well to have that read into
me record also.
Mr. W il l ia m s . Well, the whole testimony is available, Congress
man. It is published in an official document and is available to
every one.
Representative Sum ners. May I ask a question?
The C h a irm a n . I think we ought to recess at this time.
Mr. W i l li a m s . May I finish just one further statement,
Congressman ?
The C h airm an . Yes.
Representative S um ners. I can ask the question I have in mind
when we resume our session this afternoon. I will defer it until that
time.
Mr. W il l ia m s . If the $230,000,000 of agricultural and cattle paper
which Gov. Harding referred so frequently to in his testimony on
June 1 is any index at all of the total amount of money advanced to
agriculturists and cattle raisers by the banks of the country, there is
abundant ground for their lamentable complaints of discrimination
and contraction. The total of $230,000,000 which he boasts that the
reserve banks were lending a month or two ago 011 “ agricultural”
and “ cattle paper” was about what this country spent m five days
for war purposes during the latter part of 1918, and is less than our
people paid in taxes on an average every three, weeks last year.
The Congressional Record of Monday, July 25, 1921, tells us that
the value of all farm property in the United States in 1920 was over
177,000,000,000, including live stock valued at about eight billions,
farm implements and machinery at more than three and a naif billion.
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AGRICULTURAL INQUIRY.
The value of our farm products is estimated anywhere from ten
to twenty billion dollars per annum. These figures snow how pitifully
small by comparison is the amount doled out on “ agricultural ana
cattle paper” by the Federal reserve system, whose total loans and
discounts at the beginning of this year amounted to approximately
S3,000,000,000, or more than 12 times as much as tne maximum
amount of “ agricultural ” and “ live-stock ” paper ever held by all the
Federal reserve banks at any time, as shown Dy the Federal reserve
official bulletins.
I submit the following tables for insertion in the record. Will we
take up those tables when we resume the hearing this afternoon,
Congressman ?
Tne C h a ir m a n . If you will. The commission will now take a recess
until 2 o’clock.
(Thereupon, at 12.30 o’clock p. m., a recess was taken until 2 o’clock
p. m. of tne same day, Tuesday, August 2, 1921.)
AFTER RECESS.
The committee resumed its session at 2 o’clock p. m., pursuant to
the taking of recess.
The C h a ir m a n . Mr. Williams, you may proceed, if you will, please.
Mr. W il l ia m s . Mr. Chairman and gentlemen, at the point at which
I left off this morning I was about to insert certain tables. I will now
present them. Here is a table showing the total amount of agri
cultural paper and live-stock paper held Dy all Federal reserve banks
on the last Friday of each month for the years 1920 and 1919, by
months, showing the aggregate for each year.
Representative M il l s . I f you are putting that in the record, let
me inquire where those figures were obtained ?
Mr. W il l ia m s . They were obtained from the Federal Reserve
Bulletin.
Representative M il l s . You do not include the figures for 1921?
Mr. W il l ia m s . I am coming to those.
I will now insert a table showing, separately, the amount of agri
cultural paper and live-stock paper nela by the Federal reserve banks
on the last Friday of the first five months for the years 1920 and
1921, by months. As compiled from the Federal Reserve Bulletin,
I give the first five months as the only ones accessible to me for 1921.
The C h a ir m a n . Without objection, the tables will be inserted in
the record.
(The tables submitted by Mr. Williams are here printed in full as
follows:)
Total amount o f agricultural live-stock State paper held by all Federal reserve batiks on
the last Friday of each month for the years 1920 and 1919 (being paper with over 90
day maturity).
Total agricultural and
live-stock State paper.
Month.
1920
February........................
March..............................
April................................
May.................................
June................................
Total agricultural and
live-stocK State paper.
Month.
1920
1919
$56,800,000 $58,900,000
67.000.000 63.800.000
74.600.000 67.200.000
77.000.000 66.700.000
140.600.000 58.900.000
167.900.000 68.200.000
1919
$202,500,000 $63,500,000
216,200,000 57.800.000
224.300.000 60.100.000
240.600.000 55.400.000
November..................... 241.500.000 52.500.000
December...................... 246.900.000 51.000,000
September.....................
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AGRICULTURAL INQUIRY.
Taklt thalting separately amounts o f agricultural and live-stock paper held by the IS
Federal retort banks on the last Friday o f each month for first fire months o f the years
1920 and 1921 (being paper with over 90-day maturity).
[In millions of dollars.1
Agricultural 1
paper.
1021
14a 8
136.6
140.9
Live-stock
paper.
1920 , 1921
23.2
30.1
29.3
88.2
83.6
81.6
I
1920
33.6
37.0
45.3
Agricultural
paper.
; 1921
April..........
May............
1 149.2
j 152.7
.
1920
44.3!
63.5 !
Live-stock
paper.
1921 I 1920
81.1
76.7 1
61.9
77.1
Mr. W il l ia m s . I will now read from page 18 of Gov. Harding’s
testimony before the Banking and Currency Committee on June 1,
1920:
In 1920, up to the 14th of December the 12 Federal reserve banks had disc ousted
11.981.000.000 of agricultural and live-stock paper, known to be such because it bad
imaturity date longer than 90 days, as against 9791,000,000 for the year 1918, which
doesnot enow any curtailment of farm credits.
I now submit a table showing the total amount of bills discounted
andacceptances bought by each Federal reserve bank, in even thou
sands, during the years 1919 and 1920, having “ a maturity of over
90days.” These figures are given by quarters. The total, according
tothese figures, for the year 1920 would! be $351,884,000, and for 1919,
1125.717.000.
Representative M i l l s . Where were those figures obtained ?
Mr. W il l ia m s . Compiled from the Federal Reserve Bulletin.
I will now submit a table showing the total amount of bills dis
counted and acceptances bought by each Federal reserve bank during
Uieyears 1920 and 1919. These figures were obtained from the Fed«al Reserve Board: For January,Tebruary, and March, 1920, from
P»ge 531 of the Bulletin for 1920; for April, May, and June, 1920,
bran page 871 of the Bulletin for 1920; for July, August, and Sep
tember, from page 1232 of the Bulletin for 1920; ana for October.
Horember, ana December, from page 234 of the Bulletin for 1921.
Please note that it appears from these figures—as to the reliability
rf which I can only say that they came from the Federal Reserve
Bulletin; I have no'means of checking them otherwise—that the total
“nount of paper appears to have been $351,000,000 for 1920.
The total amount of bills discounted and acceptances bought by
e*ch Federal reserve bank for the years of 1919 and 1920 shows,
for the year 1920, of all paper discounted and acceptances bought,
*88.535,000,000. That is the total of all paper bought and accept
ances discounted, as compared with $351,000,000 of agricultural and
cattle paper.
I think it is only fair, however, that we should call attention to the
■act, and should emphasize it, that the average maturity of the loans
anddiscounts and acceptances was very mucn shorter than for agritaral and cattle paper, and that would make the comparison for all
puls discounted ana acceptances naturally very much larger. But
inasmuch as Gov. Harding has given those figures, I thought it proper
to give the figures which I have here from the Bulletin, and I give
themto you for what they are worth.
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AGRICULTURAL INQUIRY.
The C h a ir m a n . That would involve the question of the volume of
the credit?
Mr. W i l l i a m s . Exactly.
(The last two tables submitted by Mr. Williams are here printed
in full as follows:)
Amount o f bills discounted and acceptances bought by each Federal reserve bank (in even
thousands) during the years 1919 and 1910 having a maturity o f over 90 days.
1920
1919
$41,596,000
123.479.000
80,628,000
106.181.000
*26,726,000
46.098.000
19.005.000
33.888.000
351,884,000
125,717,000
Total amount o f bills discounted and acceptances bought by each Federal reserve bank
during the years 1920 and 1919.
January, February, March (p. 531, Bulletin 1020)......................................
April, May, June (p. 871, Bulletin 1920)......................................................
July, August, September (p. 1232, Bulletin 1920).......................................
October, November, December (p. 234, Bulletin 1921)..............................
1920
1919
120,635,000,000
19.509.000.000
22.733.000.000
25.658.000.000
*16,941,000,000
20.198.000.000
21.018.000.000
23.812.000.000
88.535.000.000
81.997.000.000
Mr. W i l l i a m s . On page 6 of the printed copy of his testimony on
June 1 before the Banking and Currency Committee of the House of
Representatives, Gov. Harding said [reading]:
The effect of advanced discount rates of the Federal reserve banks was merely to
slow down the rate of expansion. There was no curtailment of credit on the part of
the Federal reserve banks, nor was there any contraction of the currency. As a matter
of fact, the loans and invested assets of the Federal reserve banks increased from the
middle of January,. 1920, until the 5th of November, 1920, a steady and gradual
increase all the way along by about $400,000,000.
That statement is misleading. In the first place, there was a cur
tailment of credit on the part of the Federal reserve banks ,in many
directions and there was not “ from the middle of January, 1920,
until the 5th of November, 1920, a steady and gradual increase all
the way along by about $400,000,000.”
On the contrary, the official records show that on January 31,
1920, the total amount of loans, rediscounts, and acceptances held
by the 12 reserve banks amounted to two thousand seven hundred
and thirty-six million dollars, and that this increased to two thousand
nine hundred and eightv-nine million on February 28, 1920. During
the month of March, when the demand for credit, especially among
the small banks, was particularly active, the total amount of dis
counts, bills payable, and acceptances held by the 12 Federal reserve
banks was reduced to two thousand eight hundred and sixty-eight
million. This advanced to two thousand nine hundred and fotry-two
at the end of April and by the end of May was reported at two thou
sand nine hundred and thirty-nine million. On June 30, the total
had been contracted to two thousand eight hundred and fifteen
million, contrary to Gov. Harding’s statement that there was a
continuous increase. On July 31, the amount reported was two
thousand eight hundred and thirty-seven, which was increased on
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AGRICULTURAL INQUIRY.
August 31 to two thousand nine hundred and seventy-four. On
September 30 the figures were three thousand and six million, and
on October 31 stood at three thousand one hundred million, shrinking
one hundred and twenty-five million by November 30, and on Decem
ber 30, the amount was two thousand nine hundred and seventy-nine
million, which was just ten million less than was reported on February
28,1920, 10 months before.
There has been so much loose talking about the expansion of
credit during the year 1920 that it seems to me desirable that we
should have the correct figures before us. The above figures do not
include United States Government bonds held for investment by
the Federal reserve banks in which the fluctuations were* not large
one way or the other. United States securities held January 30,
1920, were three hundred and four million, as compared with two
hundred and eighty-seven million on December 30, 1920.
It should also be understood that some of the banks to which the
laigest credits were given employed the funds not altogether in
domestic trade and commerce, but some of the "funds obtained from
the reserve bank were sent to the uttermost parts of the world and
» large part of them have not gotten back.
A statement published in December last under the auspices of
the chamber of commerce of the State of New York estimated that
the frozen credits and orders for goods canceled or held up in our
dealings with foreign countries amounted to approximately
11.000,000,000. The losses on those transactions have been enor
mous. This one billion is exclusive of the huge amount of canceled
orders and congealed credits and accounts in our domestic trade.
Representative M i l l s . But the fact is, is it not, that with some
%ht fluctuations, the total earning assets of the Federal reserve
ranks increased from approximately $3,000,000,000 in January,
1920, to a maximum of $3,303,000,000 in November, 1920?
Mr. W i l l i a m s . I will give you the figures here which I have drawn
fromthe Official Bulletin.
Representative
M ills .
Well, I have the official figures here, by
Mr. W i l l i a m s . I will read them out by months as I have them.
I iive shown you that there was no material change in the amount
of United States Government bonds held. Now, I will read the
%ares as to:
Bill* dueounted and bought, and acceptances.
Sw. 30,1919....................................................................................... $2, 715,000,000
Dec. 31,1919........................................................................................ 2,768,000,000
la. 31,1920......................................................................................... 2, 736, 000,000
Feb. 28,1920........................................................................................ 2,989,000,000
31,1920........................................................................................ 2,868,000,000
APr. 30,1920........................................................................................ 2, 942,000,000
» y 31,1920 ........................................................................................ 2, 939,000,000
Juae30,1920........................................................................................ 2,815,000,000
July31,1920........................................................................................ 2,837,000,000
Aug. 31.1920 ........................................................................................ 2,974,000,000
Sept-30,1920 ....................................................................................... 3,006,000,000
Oct. 31,1920......................................................................................... 3,100,000,000
*ov.30,1920........................................................................................ 2,975,000,000
December, 1920.................................................................................... 2,979,000,000
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AGRICULTURAL INQUIRY.
I think that is about December 30.
Representative M i l l s . You question the correctness of Gov.
Harding’s statement? Now, is it not a fact that the loans and in
vested assets of the Federal reserve banks reached their maximum
along in January, 1920?
Mr. W i l l i a m s . Well, they were pretty close to their maximum in
February, 1920-----Representative M i l l s . I should say, November, 1920.
Mr. W i l l i a m s . I say, in February, 1920, there was $2,989,000,000.
Representative M i l l s . And that got up to-----Mr. W i l l i a m s . And they were contracted to $2,868,000,000 in
March. They got up to $2,942,000,000 in April, $2,939,000,000 in
May, and went back in June to $2,815,000,000.
Representative M i l l s . And by November they had gotten up to
$3,300,000,000?
Mr. W i l l i a m s . Weli, I am speaking now of the bills discounted and
acceptances bought. There was very little variation, as I have
shown you, in the war obligations held.
Representative M i l l s . But you question the accuracy of his state
ment?
Mr. W i l l i a m s . Yes; I said that his statement, which I read, I would
regard as misleading, in asserting that there was “ a steady and
gradual increase all the way along Dy about $400,000,000.”
Representative M i l l s . He says, “ loans and invested assets.”
Now, as a matter of fact, the official figures which I have before me
show that his statement is absolutely correct, that they did reach
their maximum in November, 1920, and that they did show an in
crease of $400,000,000 during the months specified.
Mr. W i l l i a m s . The statements which I nave just given you show
that they went up and down all during that period.
R e p re s e n ta tiv e M i l l s . Y ou h a v e g o t in d iv id u a l item s, w h erea s he
w as d ea lin g w ith th e to ta l.
Mr. W iix ia m s . No; I was giving you the total, as I understand it,
from the Federal Reserve Bulletin, exclusive of Government bonds,
and I have shown you that in Government bonds there was very little
variation one way or the other. In fact, there was a reduction, I
think.
Representative M i l l s . Well, that would tend to make his state
ment stronger, would it not?
Mr. W il l i a m s . No; I do not understand it so.
The C h a ir m a n . I do not think I quite got the gist of your state
ment. Do I understand that what you are claiming is that the loans
and discounts based on Government paper decreased during this
period from January 1,1920, to January 1,1921 ?
Mr. W il l i a m s . United States securities held on January 30, 192C,
were $304,000,000 as compared with $287,000,000 on January 1, 1921,
or say, December 30, 1920.
The C h a ir m a n . And during that period there was-----Mr. W i l l i a m s . There was very little variation one way or the other;
it was negligible.
Now, here are the figures of the Federal reserve system as reported
July 20, 1921, compared with July 23, 1920. In that period gold
reserves rose from $1,983,271,000 in 1920 to $2,508,298,000 in 1921There was a contraction during that period in the bills discounted and
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89
AGRICULTURAL INQUIRY.
bills bought, according to the reports available to me from $2,823,450,000 to $1,710,056,000. The Federal reserve notes outstanding
July 23, 1920, were $3,118,205,000, and on July 20, 1921, were re
ported at $2,564,613,000.
Representative M i l l s . When has that contraction taken place ?
Mr. W i l l i a m s . During these 12 months.
Representative M i l l s . Oh, no; Mr. Williams.
Mr. W i l l i a m s . I sa y , it h a s ta k e n p la c e in th is p e rio d .
Representative M i l l s . Oh, yes; but when did the contraction
really begin? Will you give tne figures for January, 1921, and for
January, 1920?
Mr. W il li a m s . I w ill b e v e r y g la d t o h a v e th e m p u t in to th e re c o r d .
I h a v e n o t g o t th e m here.
Representative M i l l s . D o
you not know, as a matter of fact, that
the real contraction has taken place-----Mr. W i l l i a m s . I read you the figures showing the amount out
standing at the end of eacn month.
Representative M i l l s . Yes; but has not the real contraction taken
place since the first of this year ?
Mr. W i l l i a m s . The heaviest part of it; yes.
Representative M i l l s . And not during the year 1920 ?
Mr. W i l l i a m s . Principally in 1921.
Representative M i l l s . Is it not a fact that during the whole of
1920 there was an increase in the amount of Federal reserve notes in
circulation ?
Mr. W i l l i a m s . But an increase in the amount of Federal reserve
noted in circulation is not necessarily a criterion of the expansion of
the currency. I would like to make that plain. Federal reserve
notes are very frequently issued against gold.
Representative M i l l s . But you gave the Federal reserve notes
circulation as of July, 1920, and. as of July, 1921 ?
Mr. W i l l i a m s . Yes.
Representative M i l l s . N o w , I will ask you whether that circulation
did not reach its maximum in January, 1921 ?
Mr. W i l l i a m s . I have not th e figures available. You can put
t h e m in the record, whatever the facts may justify. I do not recall
th a t.
The amount of Federal reserve notes outstanding is no criterion as.
to the amount of money in circulation, for Federal reserve notes are
largely issued in exchange for gold retired from circulation.
The following figures indicate, to some extent, the contraction of
credit which has taken place since December 31, 1919, as far as the
national banks of the country are concerned:
On December 31, 1919, deposits in national banks were $17,866,000,000.
On April 28, 1921, deposits in the national banks were $14,851,000,000, a shrinkage of $3,015,000,000 in that period.
Representative S u m n e r s . Mr. Williams, where d id that money go ?
W i l l i a m s . That is quite a large question.
Representative S u m n e r s . I will not interrupt you if you do not
care to discuss that now.
Mr. W i l l i a m s . The banks were unable to meet this shrinkage by
a reduction in their loans, for we find that on December 31, 1919,
loans and discounts were $11,786,000,000, and on April 28, 1921,
Mr.
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.
AGRICULTURAL INQUIRY.
loans and discounts were $11,367,000,000, a reduction of only
$419,000,000.
The banks obviously needed help from the Federal reserve banks
to enable them to meet such a decline as took place in their deposit
but the 12 reserve banks now tell us that on December 26,1919, their
bills discounted and bought in the market amounted to $2,779,000,000, and on July 20, 1921, $1,710,000,000, showing that they have
within this period contracted credits, $1,069,000,000.
Representative S u m n e r s . Mr. Williams, when you say that they
have contracted credits, do you mean that credit was desired ana
was arbitrarily denied, or that the credit was not desired ?
Mr. W i l l i a m s . Well, the letters which come to me and information
which I receive from many different directions, indicate that there
was a great deal of credit that was desired and was denied.
Representative S u m n e r s . Are you going to deal with that feature
later?
Mr. W i l l i a m s . Probably.
Representative M i l l s . Have you any objection to the figures
going into the record at this time as to some of the intervening dates ?
Mr. W i l l i a m s . I a m not a member of this committee, Congress
man, and it is not my business to pass upon that.
The C h a ir m a n . If Mr. Mills desires to put in the intervening
figures showing what the situation is from month to month, I do not
think there should be any objection.
Mr. W i l l i a m s . I certainly have none.
The C h a ir m a n . Certainly. What we wish is the facts.
Representative M i l l s . I have them from month to month. It
seems to me this would be the appropriate place, and I would like to
read into the record the following figures:
On the 15th of January, 1920, the total loans and earning assets of
the Federal reserve banks amounted to about $3,000,000,000. This
was increased, until the-----Mr. W i l l i a m s . May I suggest that if we are making a record it
would he better, instead of saying “ about” to give the exact figures
I have endeavored to give the exact figures, which I have gotten
from the Federal Reserve Bulletin.
Representative M i l l s . I have only the approximate amounts here,
and it appears that they are the approximate amounts.
Senator R o b i n s o n . Where were these figures obtained ?
Representative M i l l s . These figures were obtained from tho
governor of the Federal Reserve Board. It may be more appropriate
to wait until the governor appears.
On the 5th of November they amounted to $3,400,000,000.
On January 15, 1920, the circulation of Federal reserve notes out
standing was $2,800,000,000, approximately. They increased until
it reached the peak on December 24, 1920, of $3,400,000,000.
Representative S u m n e r s . Those are excerpts from a statement
made by the governor of the Federal Reserve Board ?
Representative M i l l s . Yes; from a statement.
I will present the detailed figures, which I have here, Mr. Chairman,
to be inserted at this point. The statement is as follows:
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, /
/Ar
"<
vlom m " / 6 u # i > i
{In thoniymrln of d ollM s.l
i f f l i n i 'i w w T t i n - r r - i
Boatfttt.
N nr York.
Minn* Kfttms
Rich
llDd.
mond. Alton la. ChJoafo. St. Louis. tpolli. Ctty7 DaBiu. PnmcSno. Total.
p5Br Ctara-
7,821
261,815
1,798
6,008
2,708
4,586
20,578
2,796
8,377
2,110
8,674
19,671
888,867
6S»U2
82,9(3
57,887
68,446
20,046
8,471
71,886
17,182
7,784
35,688
8,812
88,965
408,146
ToUlcoldbald by banks
Oold with Federal reserve agents.
Gold redmptfcm (Dud.
63,373
181,044
15,656
286,758
508,388
86,000
60,190
134,428
8,681
64,475
185,604
4,514
22,748
38,028
8,258
14,057
58,882
5,588
81,978
280,213
35,292
19,990
48,572
3,820
16,111
20,081
3,258
37,808
88,807
8,317
11,888
14,751
2,881
58,638
142,882
8,418
‘■SMB
£
Total gold i ____________
Legal tender notes, silver, etc.
200,072
16,525
882,056
72,921
203,249
3,118
254,503
6,233
60,025
4,424
79,478
7,008
357,478
16,803
72,382
12,699
39,400
903
74,727
3,967
28,428
5,772
205,918
3,032
2,477,806
153,405
a
Total reserves.............................
Bills discounted: >
Secured by United States Govern
ment obligations........................
All other.........................................
Bills bought in open market...............
276,507
904,977
206,367
260,826
73,449
86,486
374,281
85,081
40,303
78,694
35,200
208,950
2,631,211
31,904
53,935
7,905
212,999
236,970
11,616
84,043
39,317
3,390
54,259
98,005
1,228
29,658
74,280
2,036
35,063
65,754
962
106,366
218,535
2,306
32,556
54,597
104
7,757
65,977
24,181
55,319
20
10,470
49,674
no
45,121
114,623
1,459
Total bills on hand......................
United States bonds and notes.............
United States certificates of indebted
ness:
One-year certificates (Pittman Act)
All other..........................................
93,744
555
461,585
3,270
126,750
1,627
153,492
843
105,974
1,233
101,779
10,142
327,207
4,490
87,257
1,153
73,734
145
79,520
8,868
60,254
3,979
161,203
305
1,832,499
36,610
18,936
36
52,776
9,531
26,780
612
21,799
13
7,260
14,564
1
36,112
55
11,568
225
5,480
51
8,320
26
2,400
9,880
215,875
10,551
Total earning assets.....................
Bank premises.......................................
3 per cent redemption fund against
Federal reserve bank notes...............
Uncollected items..................................
All other resources.................................
113,271
3,716
527,162
5,375
155,769
529
176,147
2,174
114,467
2,051
126,4SG
752
367,864
3,878
100,203
627
79,410
657
96,734
2,659
66,633
1,883
171,389
560
2,095,535
24,861
772
50,190
377
1,864
141,927
2,587
700
45,878
259
1,239
50, SO#
777
363
43,379
447
511
19,280
680
1,786
66,642
1,890
523
28, V7S
495
275
15,119
111
916
3Sf 728
491
236
21,848
2,554
494
34,385
2,420
9,679
557,162
13,088
444,923
1,583,892
409,502
491,971
234,156
234,195
*16,341
215,907
135,875
218,222
128,354
418,198
5,331,536
Total resources.
742,103
*
b
n
674,377
1,126,986
31,136
1Includes bills discounted for other Federal reserve banks, vl», Boston, 110,450; New York, 131,015; total, 141,465.
o
o
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CO
CO
Resources and liabilities o f the Federal reserve banks at close o f business July 6,1921—Continued.
Federal reserve bank o f.,
Boston. New York. Philadel
phia.
Cleve
land.
Rich
mond.
Atlanta. Chicago. St. Louis.
Minne
apolis.
Kansas
City.
to
Dallas.
San
Francisco.
Total.
LIABILITIES.
Capital paid in ..................................... .
Surplus...................................................
Reserved for Government franchise tax.
Deposits:
Government....................................
Member bank—reserve account__
All other........................................
To*al liabilities.
26.896
59,318
17,100
8,613
17,564
2,737
11,047
22,263
1,633
5,322
11.026
1,679
4.097
8,708
2,584
14,259
30,536
2,006
1,122
7,409
651,727
11,907
1,923
100,065
3,652
136,991
775
856
54,176
469
1.873
43,807
355
6,622
229,515
2,253
109,740
1,210
4,512
9,114
3,553
7,303
1,335
4,346
9,330
1,587
4,222
7,113
7,325
15,207
2,145
102,103
213,842
42,065
1,623
60,952
783
1,844
41,929
605
2,615
71,455
529
1,867
42,312
378
1,734
109, OSS
6,965
31,026
1,651,757
27.371
8,011
112,868
671,043
103,218
141,118
55,501
46,035
238,390
63,358
44,378
74,599
44,557
117,787
1,713,152
254, Ititt
0*4.615
224,513
254,854
120,202
149,636
454,379
1(M, 739
59,613
78,633
45,398
241,165
2,671,916
a, 509
40,901
951
28,006
93,662
3.162
9,827
42,370
660
16,133
43,711
912
5,606
33,828
992
9,438
12,977
720
17,450
50,190
3,126
6,370
25,975
857
5,364
13,087
1,242
14,518
33,956
1,253
4,362
21.569
1,133
6,630
26,229
1,710
133,303
438,455
16,718
a
444,923
1.5&3.892
409,502
491,971
234,156
234,195
816,341
215.907
135,875
218,222
128,354
418,19S
5,331.536
s
Total deposits..................................
Federal reserve notes in actual circu
lation ..................................................
Federal reserve bank notes 111 circula
tion— net liability..............................
Deferred availability items...................
All other liabilities................................
7,911
16,342
2,272
Ratio of total reserves to deposit and
Federal reserve note liabilities com
bined, per cent....................................
Contingent liability as indorser on dis
counted paper rediscounted with
other Federal reserve banks..............
Contingent liability on bills purchased
for foreign correspondents.................
65.8
41.8
50.6
44.2
40,658
268,401
14,232
833,937
149,322
254,109
684,615
51.4
11,140
19,875
2,336
38.8
60.0
10,450
41,465
2,624
1,568
1,152
3,808
1,504
864
1,536
832
1,472
60,914
242,295
17,782
275,821
20,967
126,748
6,546
158,577
8,941
491,648
37,269
125,056
20,317
61,392
1,779
86,144
7,511
49,079
3,681
295,726
54,561
3,014,824
342,908
224,513
254,854
120,202
149,636
454,379
104.739
59,613
78,633
45,398
241,165
2,671,916
FEDERAL RESERVE NOTES OUTSTANDING
AN D IN ACTUAL CIRCULATION.
o
o
In actual circulation.
eg
Distribution o f bills and United States certificates o f indebtedness by maturities.
?r
Within 1 16 to 30
15 days. , days.
. .. . _ i
Bills d iscou n ted ............................................
2
W
>
f
M E M O R AN D A .
Outstanding...........................................
Held by banks.......................................
►
O
Bills bought In open m arket.......................
United States certificates of indebtedness.
1,049,879 I
19,311
4,228
I 31 to 60
days.
169,610 !
6,708 I
4,700 1
, 61 tO 90
| days.
280,130 |
3,434
20,959
Over 90
days.
223,550 ^
78,194 j
1,683 | .................. i
39.483
157,057 '
Total.
1,801,363
31.136
236.426
i-h
X
<
c
C*4
3
K
Jiesources and luibilitie* o f the AWr»W renerve bank* at close o f business July 9, 10X0,
[In thousands of dollars.)
Federal reserve bank of..
Boston.
New York.
Philadel
phia.
Cleve
land.*
Rich
m ond.
Atlanta.
Chicago. St. Louis.
M inne
apolis.
Kansas
City.
Dallas.
Ban
Francisco.
TotaL
RESOURCES.
Oold and gold certificates.................... .
Gold settlement, Federal Reserve
Board..................................................
Gold with foreign agencies....................
11,600
82,217
1,156
10,117
2,398
8,067
24,250
3,488
7,207
496
5,311
12,620
168,990
36,716
8,142
83,980
40,932
45,320
8,922
60,057
9,146
19,940
5,465
4,220
4,015
62,924
13,272
8,951
5,242
4,812
3,011
25,832
5,353
5,971
2,900
44,087
5,131
402,760
111,581
Total gold held by banks............
Gold with Federal reserve agents.........
(•old redemption fund.................
56,458
119,620
17,285
207,129
281,827
35,979
55,398
91,790
15,452
79,320
149,550
1,921
27,803
43,029
5,963
16,302
50,566
6,278
100,446
167,547
32,629
17,681
46,374
5,217
15,030
32,278
31,683
36,795
4,248
14,182
25,555
8,589
61,788
100,171
9,411
683,220
1,145,102
142,994
Total gold reserves........
Legal-tender notes, silver, etc.
193,363
6,900
524,935
106,846
162,640
230,791
1,580
76,795
73,146
1,366
300,622
8,632
69,272
7,331
47,330
170
72,726
1,630
48,326
1,342
171,370
757
1,971,316
136,877
200,263
631,781
162,862
232,371
76,896
74,512
309,254
76,603
47,500
74,356
49,668
172,127
2,108,193
Total reserves.
Bills discounted: *
Secured by Government war obli
gations............................................ .
AU other..............................................
Bills bought in open market *................
101
*544,229
303,454
15-1,181
146,759
39,662
11,429
114,910
63,432
50,800
45,488
58,344
52,959
61,611
4,297
118,917
319,503
54,457
49,243
59,053
3,268
8,031
70,418
2,612
47,092
62,590
2,616
26,110
50,763
655
49,567
103,290
46,146
1,296,350
1,265,243
372,591
Total bills on ha n d......................
rn ited States Government bonds.......
I'nitexJ states V ictory notes..................
United Slates certificates of indebted
ness.........................................................
202,078
560
1,001,864
1,457
50
197,850
1,386
229,142
833
110,052
1,233
118,867
114
3
492,877
4,477
111,564
1,153
81,061
116
112,298
77,528
3,966
199,003
2,632
2,934,184
26,793
69
'21,695
79,214
31,776
23,322
12,260
15,06-1
39,642
17,239
8,492
12,940
8,365
11,333
281,942
Total earning assets.......................
22-1,338
1,476
1,082,585
3,763
231,012
592
253,307
1,155
123,545
752
134,648
590
536,996
2,116
129,956
89,669
556
134,105
730
89,859
906
212,968
232
3,242,988
13,734
68,718
161,762
64,65$
81,273
60,5M
29,481
113,467
46,256
24,402
61,825
44,650
40,301
797,347
1,072
282
3,100
1,422
1,300
M
871
145
451
187
573
1,820
461
523
282
416
51
916
586
171
665
326
12,293
3,822
496,149
1,884,413
460,618
569,122
262,385
239,904
964,114
254,486
162,594
272,133
185,840
426,619
6,178,377
I'ncollecied items and other deduc
tions from gross deposits......................
5 per cent redemption fund against
Federal reserve bank notes.................
A11 other resources....................................
Total resources.
o
>
so
*•I
r.
s
a
93,015
73,123
35,910
Bank premises.......................................
o
222
22
1
10
6,220
100
866
8,866
1
201
$
M
«C
a
w
'Includes bills discounted (or other Federal reserve banks, viz: Boston, <35.994; New York, 136,096; Philadelphia, <54.494; total, 1126,584.
>Includes bankers’ acceptances bought from other Federal reserve banks without their indorsement: Boston, <4,918; New York, *10,014; !San Francisco, <10,008; total, <24,940.
eg
fT
<o
09
o
Jiesounes and liabilities o f the Federal reserve banks at close o f business July 9, 1920—Continued.
Federal reserve bank of.........................
LIABILITIES.
Capital paid in .......................................
Surplus...................................................
Government deposits.............................
Duo to members—reserve account.......
Deferred availability items...................
Other deposits, including foreign gov
ernment credits...................................
Total gross deposits.................. ..
Federal reserve notes in actual circu
lation ...................................................
Federal reserve bank notes in circula
tion—net liability...............................
All other liabilities.................................
Total liabilities.............................
Ratio of total reserves to net deposit
and Federal reserve note liabilities
combined, per cent.............................
Boston.
New York. Philadel
phia.
Cleve
land.
Rich
mond.
Atlanta. Chicago. St. Louis.
Minne
apolis.
Kansas
City.
San
Dallas. Francisco.
Total.
7,532
12,351
52
118,186
52,560
24,675
51,308
612
738,232
113,276
8,326
13,069
3,691
106,197
52,646
10,161
13,712
295
143,114
59,395
4,873
8,067
3,404
59,876
47,219
3,788
7,050
882
49,837
23,334
13,290
23,917
750
261,308
73,863
4,257
5,884
1,011
63,598
39,233
3,279
5,178
410
46,169
18,599
4,312
8,395
1,281
82,481
58,143
3,757
4,152
1,060
57,343
27,986
6,389
11,662
2,471
113,363
28,180
2,658
173,456
23,974
876,094
3,434
165,968
2,949
205,753
1,673
112,172
1.265
75,318
5,799
341,720
1,841
105,683
1,212
66,390
2,229
144,134
1,132
87,521
6,993
55,159
151,007 2,505,216
287,332
871,467
252,418
320,621
126,380
141,362
547,917
128,639
79,116
98,651
82,074
244,971
13,784
1,694
496,149
37,487
23,382
1,884,413
19,409
1,428
460,618
17,108
1,767
569,122
9,987
906
262,385
11,359
1,027
239,904
32,031
5,239
964,114
8,820
1,203
254,486
7,512
1,119
162,594
15,088
1,553
272,133
7,121
1,215
185,840
51.1
39.8
46.0
52.2
43.2
39.8
39.8
40.7
39.2
41.1
39.8
24,972
5,507
31,672
25,013
15,653
12,767
11,000
784
576
1,904
752
432
768
132,009
145,770
5,629
4,408
■
141,362
126,380
594,022
46,705
547,917
146,458
17,819
128,639
80,249
1,133
79,116
103,682
5,031
98,651
94,639
164,745
15,919
1,839,704
594,434
3,180,948
10,581
190,287
42,542
2,009
426,619 6,178,377
48.4
43.1
M EM ORANDA.
Contingent liability as indorser on dis
counted paper rediscounted with
o
Contingent liability on bills purchased
for foreign correspondents..................
FEDERAL RESERVE NOT^S OUTSTAND
ING AND IN ACTUAL CIRCULATION.
Outstanding...........................................
Held by banks.......................................
In actual circulation....................
o
1,16ft
6,089
1,280
1,312
297,007
10,275
287,332
993,186
121,719
871,467
265,498
13,080
252,418
332,587
11,966
320,621
126,584
416
736
86,125
4,051
82,074
16,217
276,695
31,724
.244,971
3,454,488
273,540
3,180,948
Distribution o f bills and United States certificates o f indebtedness by maturities.
eg
.
?r
Bills bought in open market..............................................
United States certificates of indebtedness...........
Within
15 days.
i
1,437,411 1
. 105,303 1
26,705 |
16 to 30
days.
31 to 60
days.
285,693
486,603
6,600
19,400
67,968
163,173
61 to 90
days.
272,743
36,147
36,533
Over 90
days.
79,143
192,704
Total.
2,561,593
372,591
281,942
a
£>
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95
AGRICULTURAL INQUIRY.
The C h a irm a n . Proceed, Mr. Williams.
Mr. W il l i a m s . At this point may I refer to the suggestion which
I understood Congressman Mills to make at the morning session?
If I misunderstood him, I hope he will correct me. I understood
him to say that it was not the duty or function of the Federal reserve
bank in New York to inquire o f the borrowing banks there what
they did with their money which they borrowed-----Representative M i l l s . Oh, no; I did not say that. I suggested
that, m view of the great number of transactions carried on through
the course of the day between the Federal reserve banks and one of
these large New York banks, as a practical matter, it was almost
impossible for them to ascertain in each individual case for what
purpose the money so obtained would be used.
Mr. W i l l i a m s . I have in my hand a circular sent out by the Fed
eral reserve bank of Richmond under date of July 23, 1921, in which,
under the head of “ Advances on the new cotton crop,” there ap
pears to be a reference to a ruling of the board. This statement is
printed in capitals, and says [reading]:
Under a ruling of the board embodied in its announcement Federal reserve banks
are authorized in the present urgent and abnormal situation to discount for their
member banks paper owned and indorsed by nonmember banks when offered and
indorsed by the member banks. Such paper must be in the form of notes, drafts, or
bill* of exchange issued or drawn under the terms of the Federal reserve act and the
regulations of the board “ for the harvesting and orderly marketing of the coming
cottoncrop,” and must be accompanied by asignedstatement by the maker or drawer,
either on the paper itself or on an attached slip, that the proceeds have been used
orareto be used for harvesting or marketing the new cotton crop.
That seems to be a very specific requirement.
Representative M i l l s . What are you reading ?
Mr. W i l l i a m s . This is a circular issued by the governor of the
federal reserve banks of the Richmond district.
The C h a ib m a n . I think we might put in that whole circular.
Mr. W i l l i a m s . The next paragraph says [reading]:
The Federal reserve bank of Richmond reseves the right and the authority now, as
heretofore, to determine the limit of credit which may be reasonably and with pru
dence and safety extended to anv bank under any conditions and to determine the
acceptability of the paper offered.
I understood the suggestion to be made at the morning meeting
that paper offered in New York should be or is almost automatically
taken if it is eligible.
Representative M i l l s . Y o u entirely misunderstood me, if you got
any such impression from what I said.
Mr. W i l l i a m s . I am glad to be corrected.
Representative M i l l s . I said that I assumed that the New York
bank would and does follow sound banking practice in that matter.
Mr. W il li a m s . What I have quoted is from a reserve b a n k circular
dated July 23, 1921.
The CttAiBMAN. I suggest that the entire circular be insert d in
the record, and in order that the record may be complete, I have
here a copy of the Federal Reserve Board’s statement which is re
ferred to in the Richmond bank’s statement, and I would like to
have that inserted also.
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96
AGRICULTURAL INQUIRY.
(The circular of July 23, 1921, submitted by Mr. Williams and the
statement of the Federal Reserve Board submitted by the chairman
are here printed in full, as follows:)
F
ederal
R
eserve
Bank
of
R
ic h m o n d .
FINANCING THE NEW COTTON CROP.
J uly 23,1921.
To the members o f the Federal reserve bank o f Richmond:
A conference waa held in Washington on July 19, between the Federal Reserve
Board- and the governors of the Federal reserve banks of Richmond, Atlanta, St.
Louis, Kansas City, and Dallas to review the credit situation in the districts served
by these banks and determine what further credit assistance would be needed and
could reasonably be extended in harvesting and marketing the growing cotton crop.
We inclose a copy of the announcement of the board at the conclusion of the con
ference.
As the outcome of this conference, we are issuing this general letter to our members,
defining the attitude of this bank toward cotton loans and cotton paper, with special
reference to the growing crop, involving probably further extension of credit both for
the making and the orderly marketing of the crop.
MAKING AND HARVESTING THE CROP.
It is the opiniou of this bank that whatever additional advances may be legitimately
needed for cultivating and harvesting the crop should be freely made by member
banks, in their discretion and with protection. Paper created for the puipose is
eligible for discount under the act, and it would be poor business policy to withhold
credit for these purposes. Acceptable paper of this nature, offered with specific
explanation of the purpose for which it was created, will be taken in addition to a
line of credit already granted.
MARKETING.
Notes, drafts, and bills of exchange secured by staple agricultural products, or
other goods, wares, or merchandise, when drawn for agricultural, industrial, or com
mercial purposes, but not for investment or speculative purposes, are eligible for dis
count under the act.
Under this provision it has always been the position of the Federal reserve bank
of Richmond, governed by the regulations of the board, that notes secured by proper
warehouse receipts for cotton, the warehouses being responsible and independent
of the owner of the product, are eligible for discount when drawn under the condi
tions above quoted and running not longer than 90 days from the date of discount
The provisions of the act are sufficiently broad and liberal for the orderly mar
keting of cotton or other agricultural products, and the resources of the Federal
reserve banks are ample and available when used for that purpose.
When, however, having discounted paper secured by staple agricultural products,
or other goods, wares, or merchandise, it becomes evident that the purpose of the
owners is to hold them off the market indefinitely, or for a predetermined price,
there being a market to take them, then such paper ceases to be eligible for discount
by Federal reserve banks, although it may still be a proper investment for member
banks.
RENEWING PAPER.
Federal reserve banks may not, therefore, under the law become parties to any
understanding or agreement to renew paper or to carry it beyond the time specified
by the act. At the same time, all paper is not necessarily'ineligible because it is
renewal paper.
LINES OF CREDIT.
Under the act Federal reserve banks are not limited in the amount of eligible paper
which they may discount for a member bank except as to the limit of paper bearing
the signature or indorsement of any one borrower (which is well known to members);
the “line” is left to the discretion, judgment, experience, and prudence of the
Federal reserve bank. There is, therefore, no fixed line for any member bank, but
section 4 of the act requires that the board of directors of Federal reserve banks “ shall
administer the affairs of the bank fairly and impartially and without discrimination
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AGRICULTURAL INQUIRY.
97
in favor of oragainst any member bank or banks, and shall, subject to the provision
ofthe lawand the orders of the Federal Reserve Board, extend to each member bank
mich discounts, advances, and accommodations as may be safely and reasonably
made, with due regard for the claims and demands of other member banks.”
The endeavor has always been made to extend accommodation to a member bank
according to the measure of its necessitiest and the application of this policy in this
district will be illustrated further on in this letter.
The inquiry is occasionally made whether a certain class of discounted paper can be
omitted froma bank’s regular line. As stated above, and as will be hereafter shown,
thereis no “ regular line” for any bank, but under the act all “ discounts, advances,
and accommodations’’ to a bank must be taken into account “ with due regard for
the claims and demands of other member banks.”
' No paper may be discounted without the indorsement of a member bank. It is
liable for all paper discounted in any event, and that liability must be taken into ac
count, as well as its equitable share of the resources of the reserve bank.
In order to measure the relative amount of accommodation extended to each mem
berbank, and for the equitable application of graduated or progressive discount rates,
provided for in section 14 of the act, as amended, a “ basic line’’ was fixed. This line
was determined upon the only fair and logical basis; that is, upon the lending power
contributed to the Federal reserve bank by the reserve deposit and capital subscrip
tion of each member bank. Even under that definition, no limit to the amount of
advances to any bank was fixed. It was simply provided that a graduated rate when
applied should be applied to the amount loaned beyond this “ basic line. ”
The Federal reserve bank of Richmond has never applied the progressive rate, the
application thereof being left to each reserve bank, subject to review and determi
nation by the board. The “ basic line” has only been used by this bank as a yard
stick, to show a borrowing bank what “ line” it might be legitimately entitled to
receiveand what relative proportion of the reserve bank’s resources it was using. The
discount rate of this bankhas never been above 6 per cent.
Judgment, experience, and knowledge of the conditions surrounding a bank, and
thereserve position of tne Federal reserve bank itself, therefore, determine the line
which may be safely and reasonably given any bank, with due regard to the claim
ofother banks.
alleged
c r e d it r e s t r ic t io n
in
the
cotton
states.
Criticisms of the credit policy of Federal reserve banks are still current and even
ampant. They are possibly most frequent in the South, and more liberal credit has
beenurged for southern agricultural interests. The five reserve banks in the cotton
Statesare lending their members $457,000,000, which is 26 per cent of the loans of the
entirereserve system. The total loans of these five reserve bante to their members ex
ceedtheir reserve deposits by $192,000,000, whereas the reserve deposits of the other
■evenreserve b a n k B exceed their loans by $118,000,000.
If loans to farmers are restricted, it is not done by the reserve bankB, nor is it the
resultof any policy adopted by the reserve banks. The act and the regulations of the
boarddefine the character ana terms of paper which may be taken by reserve banks.
Theylend the money to their members, ana they discount the classes of eligible paper
offeredby their members. The greater portion of the money loaned in this district is
tiedup with agriculture in one way or another.
The two cotton States of this district are North and South Carolina. Virginia grows
very little cotton. This bank is lending to members in North Carolina $25,000,000,
which is 411.7per cent of their reserve deposits. It is lending to South Carolina
members$21,000,000, which is 525.5 per cent of their reserve deposits. In addition to
thisthemember banks of these two Slates are borrowing$13,000,000 fromotjier banks,
whichobtain the funds fromthe Federal reserve banks. Measure t.hiaby the situation
withthesevenreserve banks outside of the cotton States, which have reserve deposits
exceedingtheir loans by $118,000,000. The volume of loans tothese twocotton States,
$46,000,000 directly by the Federal reserve bank of Richmond and $13,000,000 from
otherbanks, can be further gauged by the statement that it is more than half the maxi
mumamount which all the national banks of the country ever borrowed at any one
time prior to 1914, or before the Federal reserve banks were established. This bank
is Lendingto some of its member banks ten to fifteen times the amount of their reserve
depositsin order to meet their apparent necessities.
91341—22—vol 2
7
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98
AGRICULTURAL INQUIRY.
ADVANCES ON THE NEW COTTON CROP.
Under the conditions hereinbefore set forth, and under the terms of the Federal
reserve act and the regulations of the board, the Federal reserve bank of Richmond
will make further advances for making and gathering the growing crop, and will dis
count for its members eligible paper secured by warehouse receipts for new cotton at
80 per cent of the market value at the time loans are made, to be kept good, and will
discount acceptable trade acceptances of mills for cotton purchased ana intended for
consumption and bankers’ acceptances based on new cotton and made under the
regulations.
Under a ruling of the board embodied in its announcement, Federal reserve banks
are authorized in the present urgent and abnormal situation to discount for their
member bankB paper owned and indorsed by monmember banks when ofiered and
indorsed by the member banks. Such paper must be in the form of notes, drafts, or
bills of exchange, issued or drawn under the terms of the Federal reserve act and the
regulations of the Board “for the harvesting and orderly marketing of the coming
cottoncrop,” and must be accompanied by a signedstatement by the maker or drawer,
either on the paper itself or on an attached slip, that the proceeds have been used or
are to be used for harvesting or marketing the new cotton crop.
The Federal reserve bank of Richmond reserves the right and the authority now,
as heretofore, to determine the limit of credit which may be reasonably and with
prudence and safety extended to any bank under any conditions, and to determine
the acceptability ofthe paper offered.
The reserve banks of the cotton States canadequately provide for the gatheringand
orderly marketing of the new crop with the full cooperation of all member banks.
To make this aid thoroughly effective, member bankB will be compelled to take mea
sures to provide for the small cotton producer, both in completing his crop and in
order that he may not suffer by having to sell his cotton immediately upon gathering
it shquld there not be a satisfactory market at the time. The proceeds otsuch ad
vances on new cotton should be used to liquidate current indebtedness where pos
sible in order to give vitality to credit. It should be obvious that business can not
move and be kept moving unless cotton is sold as the market will take it.
Respectfully,
G e o r g e J. S e a y , Governor.
Borrowings o f member banks, by State*.
Ratio o f
borrow
ings to
reserve
deposits,
June 30,
1921.
Borrowings,
June 30,I1B1.
Reserre de
posits,
Jane 30,1021.
Maryland........................................................... 129,417,000.00 <27,177,59114
West Virginia....................................................
1,186,000.00
5,291,021.18
District <n Columbia.........................................
4,852,000.00
3,252,78a 31
V irg in !*
............
43.316.000.00 43,648,131.13
North Carolina.................................................. 27, *70,000.00 25,505,154.03
South Carolina.................................................. 23.877.000.00 21,248,570.59
$14,263,400.03
7,063,883.45
6,683,612.05
14,544,562.92
6,104,550.26
4,043,402.51
Borrowings,
Deo. 31,1S20.
Total........................................................
130,518,000.00
126,123,26a 38
Percent.
190.5
74.9
18.7
300.1
411.7
525.5
52,703,519.22
238.9
Numbero i banks borrowing June 30,1921, 393.
Number of banks not borrowing June 30,1921, 225.
Total bills discounted by Federal reserve banks July IS, 19tl.
Bills dis
counted.
Rinhmnnd............... , . . . .............. ... ,
..........................
St. Louis..................................................................................................................
ITanfftafHty
n »iu .
..........
'
............................
Reserve
deposits.
1122,429,000
100,821,000
81,608,000
78.366.000
74.426.000
152,027,000
43.696.000
58.792.000
67.946.000
42.960.000
457,650,000
265,421,000
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AQBICtJUtTRAIj INQUIRY.
99
Fortaut of the growing cotton crop by the Department of Agriculture, July 1 , 19tl,
by district*.
B a la .
Richmond.................................................................................................... 1,416,000
Atlanta........................................................................................................ 1,841,000
St. Louis...................................................................................................... 1,517,000 •
Kansas City.........................................................................., ...............
555,000
Dallas.................................................................................................... 3,017.000
San Francisco.........................................................................................
81,000
Total estimated crop..................................................................... 8,433,000
F ederal R
eserve
B o ar d — St a t e m e n t
for t h e
Press.
[Far release in morning papers, Wednesday, July 20,1921.]
In view of the vital importance of the problems incident to the harvesting and
marketing of the coming cotton crop, the Federal Reserve Board to-day held a con
ferencewith the governors of the Federal reserve banks of Richmond, Atlanta, St Louis
Kansas City, ana Dallas, the banks located in or brought in closest touch with the
member banks in the cotton States, for the purpose of reviewing the credit situation
in these States and determining what further credit will be needed to facilitate the
harvesting and orderly marketing of this crop.
At the present time the five reserve bankain question are lending to their members
$457,000,000, or more than 26 per cent of the loans of the entire system, the Richmond
bankborrowing from other reserve banks $20,000,000, and the Dallas bank borrowing
$16,000,000 for that purpose. The total loans of these five reserve banks to their mem
bers exceed their reserve deposits by $192,000,000, whereas the reserve deposits of
theother seven reserve banks exceed their loans to their members by $118,000,000.
The amount now loaned by these reserve banks to their members is four and onehalf times the amount borrowed at any one time by ajl the national banks of the
country prior to 1914, or before the establishment of the Federal reserve system.
The Federal Reserve Board and the governors of the Federal reserve banks announce
that the Federal reserve banks, in addition to credits already extended, are able
tad stand ready to extend further credit for the purpose of harvesting and marketing
the coining crop, in whatever amount may legitimately be required, either directly
totheir member banks or under a ruling now issued by the Federal Reserve Board,
indirectly to nonmember banks acting through the agency and with the indorsement
ofamember bank. These loans will be made Dythe federal reserve banks upon notes,
diaftB, and bills of exchange issued or drawn in accordance with the terms of the
Federal reserve act and the regulations of the Federal Reserve Board, for the harvesting
orderly marketing of the coming cotton crop.
Inorder, however, that these rediscount facilities of the Federal reserve banks may
bemade fully effective, it will be necessary that member banks in the cotton States
placetheir loaning facilities freely at the disposal of cotton producers and dealers in
theirrespective localities with the knowledge and assurance that the Federal Reserve
Boardand the Federal reserve banks recognize the urgency of rendering all proper
instance to these important interests dunngsuch abnormal times.
Mr. Meyer, managing director of the War Finance Corporation, who attended the
conference, reviewed the activities of the War Finance Corporation in making loans
for financing cotton for immediate and future export. Gov. Strong, of the Federal
Reserve Bank of New York, and representatives of certain New York member banks,
werealsoinvited to the conference to discuss the necessity or advisability of having
various commercial banks through the country establish a fund for the purpose of
makingloans upon cotton. In view of the conclusions reached by the conference as
totheability of the Federal reserve banks effectively to take care of all of the legiti
materequirements of the cotton interests, it was felt that the establishment of such a
fond at this time is neither necessary nor advisable. Gov. Strong stated, however,
thathe had received assurances from a number of important banking institutions in
NewYork City that if the facilities now offered by the Federal reserve banks and the
WarFinance Corporation should prove to be inadequate, they will cooperate in the
establishmentof a cotton-loan fund in whatever amount the situation might demand.
Washington, D. C., July 1 9 ,19tl.
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100
AGBICULTUBAL INQUIRY.
Mr. W il l ia m s . Mr. Chairman, I should like at (his point to read a
>ortion of a press statement which I gave out as Comptroller of the
Currency on July 31, 1920:
{
Those inclined to pessimifetic views as to our financial situation probably do not
know, or do not appreciate, the immensely significant fact that our Federal reserve
banks have at this time an unused lending power of $750,000,000, and that if occasion
required the board could, by waiving reserve requirements on deposit and notes
only 10 per cent, increase the unused lending power to two and one-half billion dollars,
which is twenty-five times as much as all the national banks of the country (which
constitute a large majority of the membership of the reserve system) were ever bor
rowing at any one time on bills payable and rediscounts prior to 1913, the maximum
of such borrowings at any time up to 1913 having been only $100,400,000.
In the face of such figures and facts as these the fear expressed in some sections
that there may not be money enough available to move the crops seems manifestly
absurd. It will be recalled that in 1913, before the establishment of the Federal
reserve system, the stringency and uneasiness which prevailed at crop-moving time
was instantly relieved by the announcement of Secretary McAdoo that the Govern
ment was prepared to deposit $50,000,000 of cash in the banks in the South and West
to help move crops. The Federal reserve banks can at this time, as I have shown
above, based upon their present gold reserve, supply fifteen times as much as the
$50,000,000, which was so effective in 1913, wholly without waiving or reducing theii
reserve requirements.
It is also reassuring to know that this unused lending power of the Federal reserve
banka is twice as great as the aggregate amount of all the emergency currency issued
in. 1914 upon the outbreak of the European war, involving the greatest financial crisis
in the world’s history: Such figures as these ought to be sufficient to allay fears enter
tained by pessimists as to the financial condition of the country at this time.
With a sane settlement of present labor troubles and the restoration of the old-time
efficiency of labor, and the stabilization which it is hoped the forthcoming rate decision
of the Interstate Commerce Commission, together with more scientific administration
and less stock juggling in railroad management will bring about, the business outlook
for this country will be extremely bright.
I will also add that there is not and has not been, in my judgment, the least justifica
tion for the excessive and burdensome interest rates, running up to 10,12, and 15 per
cent and higher, which have been exacted by some of the banks in New York City,
the principal financial center of our country. New York is the only city of conse
quence in the world where such interest rates exist and are tolerated. They do not
prevail in London or Paris, Berlin or Rome, Peking, Hongkong, or Tokyo, or in any
of the leading cities of our own country, San Francisco, St. Louis, Kansas City, New
Orleans, Atlanta, Dallas, Chicago, Minneapolis, Cleveland, Richmond, Baltimore,
Philadelphia, or Boston.
These excessive interest rates and the publicity given them have increased the un
easiness in financial circles and have been a contributing cause rather than a conse
quence of the upsetting of security values, and of the excessive and unjust rates which
corporations ana others have been required to pay for money in recent months. The
banks which have charged their customers these excessive rates—at times as high as
15 per cent or more—have themselves at the same time been liberally accommodated
with millions of dollars by the Federal reserve banks at average rates of considerably
lesi than 6 per cent.
Upon the publication of that statement, a portion of which I have
read, I was informed that the Federal Reserve Board received a
communication from some officer of the Federal reserve bank of New
York protesting against my press statement. The following corre
spondence ensued:
Here is a letter which Gov. Harding, of the Federal Reserve Board,
addressed to Mr. Jay, chairman of the board of the Federal Reserve
Bank of New York, and furnished me a copy:
A u g u s t 4,1920.
Your letter of the 3d instant, relating to the statement recently
made by the Comptroller of the Currency, was brought to the attention of the Federal
Reserve Board at the meeting this morning. The comptroller does not agree with
the views expressed in your letter. He stated that his statement was made entirely
upon his own responsibility and that it was not shown to any member of the board
D e a r M r. Jay:
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before publication. He takes the position that he was making merely a statement
of fact and that there is nothing in his statement to justify the conclusions that the
boardis contemplating reducing reserve requirements.
A representative of tne Wall Street Journal telephoned me about 2 o’clock yesterday
■iterooon and stated that a rumor was current in financial circles in New York that
the board was about to reduce reserve requirements to 30 per cent. I answered the
inquiry in die following words: “ The board has not considered such a proposition
at all.”
As the rates of interest charged on call loans, you may remember that the board
sometime ago replied to a Senate resolution on this subject and attached to its letter
amemorandumprepared at its request in your office. The minutes of the board show
that the draft ot the reply and the memorandum were considered by the board at a
meeting at which the comptroller was present, and there is no record of any objection
on his part. It is not clear, however, from the comptroller’s statement that his
reference was made entirely to call loans.
Inaccordance with his request a copy of your letter has been sent to the comptroller.
Very truly, yours,
----------------- , Governor.
Mr. P i e r r e J a y ,
Chairman Federal Reserve Bank,
New York City.
Here is a letter which was addressed by me on the same date to
Gov. Harding:
4, 1920.
Mr. Jay’s letter to
A u gu st
Mt D e a r G o v e r n o r :
you of ye3terday.
I thank
you for bringing to m y attention
As neither the action of the Federal Reserve Board nor the comptroller’s office are
robject to review by reserve bank directors, I am sure you will excuse me from com
menting upon Mr. Jay’s letter further than to note his obvious embarrassment in
blowinghot and cold with the same breath, and to express some regret that he should
tpparently feel it incumbent to maintain, so consistently, an attitude of petulant and
ill-advised criticism towards this bureau.
Sincerely, yours,
Hon. W. P.
J o h n S k e i /t o n W
il l ia m s .
G . H a r d in g ,
Governor Federal Reserve Board.
T r e a s u r y D e p a rtm e n t,
Washington, August 4, 19t0.
Mt D e a r G o v e r n o r : Since my note to you of this afternoon I have had the pleasure
ofreceiving from you a copy of your letter of even date to Mr. Jay.
In your letter to Mr. Jay you say, inter alia:
You may remember that the board some time ago replied to a Senate resolution on
this Bubject (interest rates) and attached to its answer a memorandum prepared at
itsrequest in your office. The minutes of the board show that the draft of the reply
*ndmemorandumwere considered by the board at a meeting at which the comptroller
was present, and there is no record of any objection on his part.”
I think you will also recall, Governor, that the board, in transmitting to the Senate
the “memorandum” which you referred to as having been prepared in Mr. Jay’s
office, wasscrupulously careful not to adopt, as its own, the conclusions and arguments
of the Jay memorandum, and I am also sure that you will remember that my own
positionas to high interest rates in New York City for many months past has been an
entirely consistent one.
In my letter to you ofrthis afternoon I spoke of Mr. Jay blowing hot and cold with
thesamebreath. As an illustration of this I invite your attention to the two following
^*n|raphsfromMr. Jay’s letter toyou of August 3. In referringto my pressstatement
“The effect of this is to create an impression that there is an abundance of credit
andtoembarrass the efforts of this bank and its member banks who are intelligently
anddiscriminately cooperating with us to bring about a reduction of the less needed
credits.”
Mr. Jay there charges my statement as being too optimistic. A few paragraphs
l«er he tacks and says that the effect of my statement is not “ to decreasehut rather
toincrease uneasiness,” his language being as follows:
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“At a time like the present, when prices are falling and we are entering a season
when credit usually is somewhat tense, such a presentation to the public temper by
one of the highestnnancial officials oi the Government, however much he seeks to
allay uneasiness of showing the immense potential lending power of the Federal Re
serve System, does not tend, in my opinion, to decrease Dut rather to increase un
easiness. ”
Personally the subject hardly seems to me to be worthy of further attention from
the board, but, as Mr. Jay’s letter was read at to-day’s meeting, perhaps it may be
well for you to submit to the board, to its information, this letter, with my note of
this afternoon.
Sincerely, yours,
John S kelton W illiams .
Hon. W . P. 6 . H arding ,
Governor Federal Reserve Board.
A ugust
6.1920.
Mr. P ierre Ja y ,
Chairman Federal Reserve Bank, New York, N. Y.
Harding brought to my attention day before yesterday a
letter just received from you in which you indulge in what seems to me quite unwar
ranted criticism of my press statement of Saturday.
Upon receiving from Gov. Harding a copy of your letter, I wrote him a note, of
which I beg leave to hand you, with this, a copy. On being furnished by him sub
sequently with a copy of his reply to you of August 4, I sent the governor another
note of which I also hand you, with this, a copy for your information.
As I am entirely satisfied as to the timeliness and complete propriety of my pub
lished statement, it is needless to discuss it. But I think it may be in order for me to
state that my own views on the subject are confirmed by numerous voluntaiy expres
sions of commendation which this office has received from various directions, from
men of soundest judgment.
For example, the president of one of the largest national banks in the country—
whose bank is not a hundred miles from your office—in indorsing strongly my press
statement, also said emphatically that the banks in exacting the interest rates which
I criticized were pursuing a "short-sighted policy, based on ignorance"—rather
stronger language than that used by me. Another man whose large experience em
braces the presidency of a New York national bank, wrote:
That circular letter you are giving to the press under yesterday’s date is fine, very
fine. Splendid. I congratulate you in doing just the nght thing at the right time.
I will add in conclusion that a member of the board in referring to your extraor
dinary proposal that “some agreement may be reached with the comptroller whereby
farther statements of this nature may be avoided ” humorously suggested that per
haps you will have your counsel prepare such a contract or agreement and send it on.
I may also add that it has not been many days since you wrote Washington another
letter of what I regarded as cavilling criticism of my recent address before the Maine
bankers, concerning which address a national bank director and a leading manu
facturer wrote me on August 2,1920:
“ I have read your speech to the Maine bankers and I am taking the liberty of
writing you a few lines to show you how much I appreciate same.
“ I think it is the clearest explanation of the present situation that I have seen
from any source,” etc.
Again regretting the carping attitude toward this bureau evinced by your com
munication, usually conveyed indirectly, I remain,
Yours, very truly,
D ear M r . J a y : G ov .
J ohn S kelton W illiams .
Here is a letter which I wrote to Gov. Harding*on August 9, 1920,
which I should like to place in the record.
Representative M i l l s . These are very illuminating, these letters,
but what have they got to do with agricultural credits!
M r. W i l l i a m s . Do you address your question to me ?
Representative M i l l s . Yes.
M r. W i l l i a m s . That is a question for the commission to determine.
Representative M i l l s . No; I want it for my own information.
I do not see their relevancy.
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108
Mr. W il l ia m s . That is not a qusstion for me to determine; I am
not a member of the commission.
Representative M il l s . Will you point out for me the connection 9
Mr. W il l ia m s . If you can not see it I can n ot point it out.
Representative M il l s . Can you see it?
Mr. W il l ia m s . I think they are pertinent to the subject we are
discussing, but I can not vote on the commission.
Representative M il l s . I wish you would enlighten me.
Mr. W il l ia m s . If you can not see it, I am sure I can not en
lighten you.
Representative M il l s . Y ou obviously see the connection, or else
you would not read the letters.
Mr. W il l ia m s . I think I will le t them speak for themselves.
Representative M il l s . Y ou decline to enlighten m e t
Mr. W il l ia m s . Unless you can see it, I think it would be hopeless.
Representative M il l s . Then we will concede it is hopeless, and
proceed.
Mr. W il l ia m s (reading):
T r e a s u r y D e p a rtm e n t,
Washington, Avgust 9, 19t0.
Hon. W. P. G. H a r d i n o ,
Governor, Federal Reserve Board.
M y D e a r G o v e r n o r : I inclose with this a blank form which I mailed on the 5th
instant to national banks in New York City, requesting information in regard to
loans, interest rates, bank balances, etc.
I respectfully suggest that, in my judgment, it would be well if the Federal Reserve
Board would request similar information as of the same date, July 31, 1920, from the
member State banks and trust companies in New York City, in order that we may
obtain a correct picture of the New York banking situation as of one date.
Personally I think it is wrong, under the circumstances, for New York banks and
rot companies to be permitted to borrow hundreds of millions of dollars from the
Federal reserve bank at average rates of 6 per cent per annum or less and then loan
that same money to their customers and the public at rates sometimes two or three
times as high as those charged by the New York reserve bank. It may be claimed
that the New York banks arepermitted by the New York State law to charge, 15, 20,
or 25 per cent for money. That may be true, but the Federal reserve bank of New
York has the right to say that it will decline to loan at 5 per cent or 6 per cent to mem
ber banks for the purpose of enabling them to extort 15 per cent or 25 per cent from
the unfortunate borrowers of the same funds.
Representative
M i l l s . Y ou
are referring to call money rates, I
Mr. W i l l i a m s . Yes.
Representative M il l s . Just wait a minute, M r. Williams. Let
me ask you what effect the denial of credit to a bank or trust company
by the Federal Reserve Board would have by way of lowering call
money rates ?
Mr. W il l ia m s . I think it would put the rates down to 6 per cent.
Representative M il l s . H o w ?
Mr. W il l ia m s . I think that if the member banks could not get
funds from the reserve bank while charging their customers 30
per cent, and could get accommodation when holding their rates
down to 6 per cent, they would veiy gladly charge the lower rates.
Representative M i l l s . D o not interest rates increase in propor
tion with the scarcity of funds available.
Mr. W il l ia m s . No; they do not in other States where usury laws
are observed.
Representative M il l s . In other words, the more money there is the
higher the interest rates ?
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Mr. W illiams. No.
Representative M ills . Are you under the impression that a bank
that was charging 15 per cent on call loans would charge 6 per cent
if it could not obtain any money from the Federal reserve bank
otherwise I
Mr. W illia m s . I do; I am sure of it.
Representative M i l ls . In other words, the less money it had to be
loaned the lower its interest rates would be ?
Mr. W illia m s . No, that is not logical.
Representative M i l ls . Well, it does not seem to me it is logical,
and yet why is not that the very thing you are suggesting ?
Mr. W illia m s . It is contrary to the practice in other parts of the
country.
Representative Mills . You are suggesting that if we restrict the
credit of the bank it will automatically lower rates ?
Mr. W illia m s . Decent interest rates are maintained in other
States of the Union where they do not have the same freedom to
charge excessive rates that they have in New York State. That is
the experience of the other States of the Union.
Representative M i l ls . It would seem to me that the more you
restrict the credit of a bank the more it would be inclined to raise
its interest rates. Must not that follow ?
Mr. W illia m s . I have recommended to Congress, in my annual
report as Comptroller of the Currency, legislation which would pre
vent a member bank from charging a customer more than so much
in excess of the rate which it pays to its reserve bank. I think that
is a fair and right principle and ought to be followed.
Representative M ills . Let us assume that a given trust company
should loan a certain amount of money on call loans, and that you
diminish the credit of that institution with your Federal reserve
bank-----Mr. W illia m s . How do you mean “ diminish the credit 1 ”
Representative M ills . That you do not allow them to discount
their paper.
Mr. W illia m s . Then they would not charge these high rates.
Senator R o b in so n . It means that in order to get the credit they
would accept a lower rate of interest)
Mr. W illia m s . Yes, sir.
Senator R o b in so n . They could well afford to do so.
Mr. W illia m s . These banks that were charging 15, 25, and 3 0 per
cent were getting the money at 3, 4, and 5 per cent.
Representative M ills . That is, assuming, of course, that they were
getting the money that was loaned on call entirely from the Federal
reserve bank.
Mr. W illia m s . Not at all. It means assuming they were getting
it from their depositors who deposited it with them, and their cor
respondents who deposited it with them.
Representative Mills. I can not escape the conclusion that restrictingcredit would have the very opposite effect.
Mr. W illia m s . It may be illuminating to you to know that in the
other States where they do not have that privilege that they have
in New York they maintain fairer rates of interest.
Representative M ills . Is it not this true, that the tighter the
money market the higher the interest rate ?
Mr. W illia m s . Not necessarily.
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AGRICULTURAL, INQUIRY.
Representative Mills. All right.
The Chaibm an. May I ask you a question there? Is it your idea,
then, that the supply and demand of money on the call market has
no effect whatever upon the interest rate ?
Mr. W illia m s . It ought not to have the effect of putting the rate
np to above 10 per cent.
The C hairm an. As a matter of fact, does it not?
Mr. W illia m s . It does, because in New York there is no law to
prevent it, and the regulations of the Federal reserve system do
not prevent it. I recommended the other day an amendment to the
Federal reserve act which would prevent it.
The Chaibm an. Well, let us get at what the facts are, if we can.
If they need correcting, then we will be glad to have you recommend a
method of correcting them. As a matter of fact, under the laws of
die State of New York, the call money rate is established by the supply
of money and the demand for it ? Is that correct ?
Mr. W illia m s . To a certain extent. Public opinion has something
to do with it. I might mention, incidentally, that since my state
ment which I have just read, of July 31, 1920, was put out I do not
think the call rate in New York has gone above 10 per cent at any
time. Prior to that it was ranging around, sometimes, 15, 20, 25,.
and 30 per cent. I think the force of public opinion has cut down
interest rates. There was no reason why they should have gone
above 10 per cent, anyhow.
Representative M i l ls . You attribute that entirely to your cir
cular?
Mr. W illia m s . N o , I do not. You may give as much credit as you
please to m y statement.
The C h airm an . I am simply trying to get at the facts.
Mr. W illia m s . I recommended to Congress when I was Comptroller
of the Currency that there should be a limitation upon the rate of
interest which a borrowing bank should be permitted to charge;
whether it is 1 per cent or 2 per cent above the rate which they pay
I am not prepared to express an opinion on at the moment, but
certainly a bank receiving large accommodations from the Federal
reserve system should not be permitted to charge 15, 20, 25, and 30
per cent.
The C haibm an. Let m e ask you this question. Do you think it
would tend to curb speculation on the stock market if the rates for
money were kept at a low point ?
Mr. W illia m s . What do you mean by a “ low point?”
The Chaibm an. Well, we will say about 4 or 5 per cent, or 6 per
cent.
Mr. W illia m s . The interest rate is not the only factor that con
trols speculation. We saw a year ago-----The Chaibm an. I understand that, but let me have an answer to
that question, whether you think the maintenance of a low rate of
interest for call mohey would have the effect of lessening speculation.
Mr. W illia m s . Why, that question answers itself. You do not
have to ask me that question, with all due respect, Congressman. The
maintenance of a low rate can not diminish speculation.
The Chaibman. Then do vou think that-----Mr. W illia m s. I think tnat a decent rate should be maintained,
whether speculation is rife or not. I think there are other necessary
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elements that enter into speculation besides the interest rate. I hare
called the attention of the public, in the last few months, to en in
stance where as much as 200 per cent was charged—the equivalent
of 200 per cent was charged in New York.
Representative M ills . Did you tell the public all the circumstances
surrounding that loan ?
Mr. W illia m s . They can get them if they want them, from the
Federal Reserve Board or anyone else.
Representative M ills . You did not tell them though?
Mr. W illia m s . I told them the salient facts.
Representative M ills . A s I remember it, in your Augusta speech
you described that loan as having been made for industrial purposes,
did you not?
Mr. W illia m s . No; I do not think I did. It was to the head of an
industrial corporation. It was a personal loan, as I understand it.
Representative M ills . Did not that raise the inference that it was
intended as an industrial loan?
Mr. W illia m s . Not necessarily at all, as I see it.
Representative M il l s . D o you n ot think it would have been fairer
to the public, perhaps------Mr. W illia m s . I think I did say —did I not say that it was upon
stock collateral ?
(Mr. Williams stated explicitly in his Augusta speech as to this loan: 1‘ That loan
was secured by collateral." The speech is included in this record.)
Representative
fully.
M ills .
No, no;
I
read your statement very care
M r. W illia m s . D o you think
Representative M ills . N o ; I
that loan was justified ?
think it was bad business on both
sides, ifyou want to know my opinion.
M r. W illia m s . I agree with you .
Representative M ills . But I think it would have been fairer to
the public if you had told them all the facts, instead of leading
them to believe that a bank was holding up an industrial corporation.
That is the point I mean to make.
Mr. W illia m s . W e differ on that.
Senator H a r r is o n . But we are glad the witness and the Congress
man have gotten together on something.
Representative S u m n ers. I want to ask you a question when Mr.
Mills is through.
Representative M ills . G o ahead, while I look this up.
Representative Su m n ers. When the interest rate is running along
about 15 to 30 per cent is not that rate availed of more by those who
are speculators and are willing to take a gambler’s chance than by
the people who need the money for the ordinary commercial neces
sities o f a community ?
Mr. W illia m s . I think that kind of speculation should be
curbed-----Representative Sum n ers. The point I am making, however-----Mr. W illia m s . But, unfortunately, the high rates were not paid
only by speculators, as I understand the situation. I understand
that some veir excessive rates and commissions of one kind or
another were during that period charged to others than those you
would class as speculators.
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Representative T en E y c k . Let m e understand if this is your idea,
that there should be fixed by law a rate of interest to be charged on
call loans, the same as we in New York State now have a maximum
rate of interest that savings banks may charge for loans on mort, which is 6 per cent.
W i l l i a m s . I think there should be a limit on the maximum
which may be charged on call loans. In most of the States of the
Union there is that limit.
Representative T e n E y o k . New Y ork State has that limit on
mortgages now ?
Mr. W illiam s. Yes; and 1 think it ought to apply to loans of
other character. I do, unquestionably.
Senator H a r r i s o n . It might be interesting to you to know that
there is pending in the Senate legislation affecting the War Finance
Corporation, which provides that the amount to be charged by a
bank on an amount advanced by the War Finance Corporation shall
be fixed at 2 per cent more than the War Finance Corporation
charges for its loan to the bank.
Mr. W illiam s. I think that is very wise.
Senator Robinson. Does anybody here think that a Government
•gency should fix a rate of interest at which money may be procured
through the Federal reserve system and leave the borrowers of that
money to charge any rate that the exigencies of the situation may
enable them to collect) Upon what tneory would you give that
power to any organization—lending it money at, say, 6 per cent, and
permitting it to loan it at 30 per cent ? What theory does that rest
on!
Mr. W illiam s. I can say, none.
. Senator Robinson. It seems to me a reasonable suggestion that
iftheGovernment is going to fix, for the protection of a member bank,
*lowrate of interest at which it may have its paper discounted and
procure money to loan to others, there should be some protection to
<heborrowing public.
Ur. W illiam s. This loan that he [Representative Mills] spoke of
“arty broke the back of the poor man who had to pay it. A few
after that, as I am informed, he had to make adjustments
*t avery great sacrifice to himself.
Senator Robinson. Does any legitimate business interests pay 20
percent interest ?
Mr. W illiam s. It ought not to.
. Representative M ills. This is the statement you made: “ Charged
its customer, the head of 8 large manufacturing corporation, the
equivalent of about 200 per cent per annum interest.
Mr. W illiams. That does not say they charged the manufacturing
wrporation, but thib customer.
Representative M ills . Does not that statement raise very squarely
theinference that this was a loan for manufacturing purposes ?
Mr. W illia m s. By no means. If it had intended that it would
we said “ manufacturing company.” On the contrary, I said,
T
the head of a m anufacturing com pany. ”
Representative M il l s . D o you n ot think the insertion o f the words
of a large m anufacturing com pany ” is m isleading ?
..Mr. W illiam s. N o ; I do n ot. I think it conveyed precisely the
idea that was intended to be conveyed, th at it was the head o f the
company and n ot the corporation.
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AGRICULTURAL, ENQUIRY.
Representative Mills. Do you not think it would have been a
little fairer and have given a more correct picture if you had stated
it was a loan for a highly speculative purpose ?
Mr. W illia m s . I do not understand it was such. My understand
ing was that it was stock of his own corporation which this poor man
was forced to hypothecate.
Representative M i l ls . You do not understand that he was specu
lating at all at the time ?
Mr. W illia m s . I had never met the man.
Representative M ills . Don’t you know the facts ?
Mr. W illia m s . I knew nothing about his speculations; I knew that
he was borrowing on the stock ofnis own corporation, ana the equiva
lent of the rate of 200 per cent per'annum appears to have been
exacted of him.
Representative M i l ls . You do not know the particulars of the
transaction ?
Mr. W illia m s . What particulars ?
Representative M ills . Surrounding this particular loan ?
Mr. W illia m s . I know som e of th em ; I gave the salient facts. I
do n ot know w hat particulars you refer to.
Representative M i l ls . Y o u do not know
that it was a speculative
loan ?
Mr. W illia m s . I do not know that it was any more a speculative
loan than many other loans where large owners in corporations are
forced to borrow. I do not know the man that borrowed the money.
I have never met him, and know nothing about him except what I
see in the press. But I do know the details of that loan, and I
stated the details correctly in my address, as I understood them.
The C hairm an. What was the amount of this loan you have just
been referring to ? •
Mr. W illia m s . I think if the Congressman will read precisely what
I said he will get the facts.
The C hairm an. The matter has come up, but I would like to have
the facts in the record just as they are.
Mr. W illia m s . I think if you will read from my address the unvar
nished facts will appear.
The C hairm an. Mr. Mills, will you read the copy of that part of
Mr. Williams’s speech which refers to this transaction, so that we
may have the whole thing in the record ?
Representative M ills (reading) *•
1 have before me one case where a bank which was borrowing several million dol
lars from the Federal reserve bank at 6 per cent’ charged its customer, the head of »
large manufacturing corporation, the equivalent of about 200 per cent per annum
interest on the net amount of money which the bank itself advanced to the borrower.
M r. W illia m s . I regard that as a fair statem en t of th at case.
The C hairm an. Was any part of this loan sold by the bank to
any
other bank, do you know ?
Mr. W illia m s . A s I understand it, Mr. Chainhan, that particular
loan was for about a million dollars, and about one-half of it was
passed on, without the indorsement of the bank, to other banks or
lenders, leaving about one-half with the particular bank to which I
refer. And as its share of the commission which was exacted that
particular bank, as I understand it, collected about $250,000 from
the maker of t^e note, so that it was required to pay over to him
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only about $250,000 net, for $500,000 notes that were paid in full in
six months.
Shall I proceed, Mr. Chairman 1
The Chairman. Yes; proceed, Mr. Williams.
Representative Mills. May I iust proceed with this one particular
(ase one step further? Do you Know, as a matter of fact, what rate
of interest was actually charged in this particular case ?
Mr. W illia m s . You mean within a fraction of 1 per cent?
Representative M ills . No; not within a fraction of 1 per cent.
Mr. W illiam s. It was about the equivalent of 200 per cent on the
amount loaned; on the amount of $250,000, as I understand it. In
other words, the customer-----Representative M ills (interposing). Is it not a fact that-----Mr. W illia m s (interposing). Let me state this, to make it clear:
I understand, without looking up the records—my recollection is that
die money was used for about six months; was paid within six
months, and that the bank collected about $250,000 for interest
and commission, and the customer had the use of about $250,000.
Two hundred and fifty thousand dollars on $250,000 is, obviously,
100 per cent for one year; for six months it would be 200 per cent
per annum.
Representative M ills . Would you be inclined to disagree with the
statement if I stated that the commission was 25 per cent—the com
mission charged by the bank to the customer, and by means of par
celing out the loan the bank actually received 200 per cent on that
part of the loan which it took, so that the rate charged the customer
was not 200 per cent, but 25 per cent, and that you nave been misled
in your statement of the facts by accepting the profits of the par
ticular bank ?
Mr. W illia m s . No; I do n ot think I have been m isled.
Senator H a r r is o n . Where did you get your facts from ?
Mr. W illia m s . From the sworn statem ent of the bank.
Senator H a r r is o n . And you do not know where the Congressman
got his facts from ?
Mr. W illiam s . N o, sir.
Representative M ills . Would you be willing to check up on this?
Mr. W illiam s. I am not Comptroller of the Currency, I am very
pleased to say.
Representative M ills . But you are very sure that the 200 per cent
represents the interest charged and not the profit to the bank?
Mr. W illiam s. Perhaps I can make that clear in a few remarks,
if you wish me to take up the time in doing so. My recollection is
that there were a number of notes given, aggregating $1,000,000;
that the bank which made those loans passed on approximately
1500,000 of the notes, which were in smaller denominations, I assume,
to a number of other banks, without its indorsement—without its
indorsing them—not liable in any way for them. My recollection is
that the banks which took these loans got 6 per cent per annum inter
est, and, if I remember correctly, approximately 3 per cent commis
sion. TTie bank, on the residue of the $500,000, which the bank
retained itself, got about $250,000 for interest and commission,
making about 200 per cent per annum, for six months.
Representative M ills . Exactly. So that my statement is correct,
that the bank—what we may call the lending bank—made a profit oi
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200 per cent, but the borrower paid 25 per cent for a loan of
$ 1,000,000 ?
Mr. W i l l i a m s . No ; not by any means. The borrower paid on the
$500,000, if I remember correctly; he paid 6 per cent per annum
interest and 3 per cent commission-----Representative M i l ls (interposing). A s a m atter o f fact, he
wanted $1,000,000, and he paid $250,000 to g et it ; is th at n ot so)
Mr. W illia m s . Approximately so, I understand.
Representative M i l ls . Which is 25 per cent.
Mr. W illia m s . Yes; flat, plus 6 per cent per annum interest, and,
as I understand, equal to between 60 per cent and 70 per cent on the
whole amount gotten by the borrower for six months, or 200 per cent
on the net amount the bank loaned on its own account-----Representative M i l ls (interposing). And thereafter the bank par
celed out the loan to other banks)
Mr. W illiam s. Hie bank, I think, parceled out the loan. 1 do not
know whether before or after or during the time of the loan.
Representative M ills . But it parceled it out)
Mr. W illia m s . The bank, without risk to itself, parceled it out.
Representative M i l ls . I am not defending the bank, but 1 am
bringing out the fact that he did not pay but 25 per cent, and not 200
per cent.
Mr. W illia m s . I do not understand it that way.
The C h airm an. Y ou may proceed, Mr. Williams.
Mr. W illia m s . Shall I resume where 1 left o ff)
The C h airm an. Yes.
Mr. W illia m s . I am reading a letter addressed to Gov. Harding
under date of August 9, 1920 a portion of which 1 read a while ago.
Continuing, that letter says:
You and I both know that commercial banks in many parts of the country have
been seduced by these unnatural interest rates in New York City into sending funds
away from home to be loaned in Wall Street at these exorbitant rates. One effect
of this has been to cripple and cramp their merchants at home at the same time that
further funds are accumulated in New York for use in oil speculations and unneces
sary promotions, as well as for the use, sometimes, of those who may have a legiti
mate need for the funds and are required to pay the exorbitant rates.
I am afraid that these excessive interest rates are exercising a tendency to drag
us back to the old unscientific and abnormal conditions that existed before the Fed
eral reserve banks went into operation. I believe it lies within the power of the
Federal Reserve Board to keep, the interest rates in New York City down to a basis
of about 6 per cent. I think there are very few banks in New York which would
not willingly put out all the call money they had to loan at 6 per cent, instead of 12
per cent or more, if they thought that by charging higher rates they would shut them
selves off from accommodations by the Federal reserve bank.
For the Federal Reserve Board to request from the member State banks and trust
companies in New York City the same information which the comptroller’s office
has asked for from national banks may not be a popular move—with the banks—
but I believe that it would be a right move, and a wise and helpful move, and would
be the means of getting to the board much information on loans and interest rotes
which, in my judgment, it ought to have and which it does not now possess. At
any rate I feel it my duty to submit to you and the board for earnest consideration
this suggestion.
Faithfully yours,
John Skelton W
il l ia m s .
P. S.—I note from yesterday’s New York World that it has been suggested that
the New York State superintendent of banks should institute a somewhat similar
inquiry as to the profiteering of some of the trust companies, etc.
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I ll
Mr. Chairman and gentlemen, I should like now to read into the
record a memorandum which I submitted for the minutes of the
Federal Reserve Board under date of August 26, 1920. 1 do not
recall whether this memorandum, as requested by me, was inserted
in the records of the board, or not. I assume and hope that it was
recorded. If it is not in the records of the board, 1 assume also that
it was probably left off by mutual consent. But I think—it is my
impression that this memorandum did go into the records and minutes
of the board. Anyhow, it was presented. [Reading:]
Memorandum for minutes of Federal Reserve Board, August 26, 1920.
Ur. Williams stated that he thought it would be beneficial to the general situation,
ud would also be a relief to holders of Liberty bonds who are complaining of the serious
shrinkage which has taken place in this premier security, if the Federal reserve banks
should put into effect without further delay a 4J per cent interest rate to apply to
loans on Liberty bonds made prior to the time when the reduced rate should become
effective, along lines which were suggested by Gov. Harding some weeks ago. The
subject was discussed informally, but no motion was made.
Ur. Williams also said he thought the time was very near when the board should
reviseand reduce from 7 per cent to 6 per cent the discount rates in New York and the
other districts which the 7 per cent rate now exists in. He said he thought that the
credit situation could be adequately controlled by the exercise of wisdom and judg
ment by the officers of the reserve banks with a 6 per cent rate; and that in his opinion
the continuance of the 7 per cent rate was harmful for many reasons.
Ur. Williams called attention to the drastic liquidation which has already taken
placein the past six or eight months in leading commodities including cotton, wheat,
com, rice, silk, wool, learner, etc.,' the shrinkage in some cases amounting to over 50
per cent. He also stated that prices of standard securities, including United States
Government bonds, high-class railroad bonds and shares, ana other securities, had this
simmer reached the lowest level they had touched in half a century, and expressed
thenew that such additional liquidation as is needed could be brought about without
theexaction of interest rates as nigh as those which have prevailed.
Ur. Chairman, if there is no objection, I should like to read into the
tecord thi« one-page press statement which I gave out under date of
September 11, 1920, m regard to interest rates in New York. 1 can
oner leave thin statement or read it.
Hie C h a irm a n . I think you had better read it.
Mr. W illia m s (reading):
S e p te m b e r
11, 1920.
0TATBM SN T B T THE COMPTROLLER O r THE CURRENCY.
Aleading New York paper, in its financial columa to-day, criticises the statements
nude this week by Senator Owen relative to the excessive interest rates which have
beencharged b y certain banks in New York City during the past year, and says that
bankers “ point out that when Senator Owen charges that $500,(XX),000 has been loaned
»trates up to 30 per cent he is speaking without the record.” Continuing, the press
utidesaTs:
“ That nigh figure obtained on the stock exchange for about 10 minutes one afternoon
the middle of last November and probably as much as 91,000,000 was loaned at that
rite.”
Hat criticism by the unnamed “ bankers” is misleading, and in justice to Senator
Owenit is proper to say that the Senator’s public statements on this subject, as printed
in the press dispatches which have been brought to my attention are substantially
comet, and in view of actual facts are moderate and conservative.
During the past year the burdensome and oppressive interest rates to which the
senatorrefers have been exacted, not in “ one or two possible insignificant instances,”
•sans New York paper expressed it, and not, as to the “ high figure,” as another paper
npnsnd it, “ for about 10 minutes one afternoon the middle of last November,” but
inthousands of instances, at numerous times, and upon call loans aggregating hundreds
ol millions ol dollais.
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AGRICULTURAL INQUIRY.
The information on this subject called for as of August 5, from all of the New York
City banks, has been supplied by nearly all of them and is now being compiled:
but in anticipation of a more complete statement which will be available later, it
may be interesting to the public to know that the amount of demand loans, upon
which two or three of the banks, only—exclusive of various others which were charging
the same rates—were exacting 20 per cent or more per annum interest, in some instance
as high as 25 and 30 per cent, was on November 13,1919, about $50,000,000; on Novem
ber 14,1919, about $40,000,000. The new call loans at the rate of 25 per cent per annum
made by one of these banks at the end of 1919, on December 29, 30, ana 31 aggre
gated about $20,000,000. On January 2, 1920, these same two or three banks were
Fending at 18 per cent, 20 per cent, and 25 per cent interest about $75,000,000; on
January 3, 4, and 5, at 18 per cent interest from $60,000,000 to $70,000,000; on Feb
ruary 6, 1920, at 20 per cent and 25 per cent interest, over $40,000,000; on February 9,
1920, at 20 per cent interest, about $40,000,000.
As late as the end of June it appears that interest as high as 14 per cent per annum
was beinp demanded by these banka on millions of dollars of call loans.
These illustrations are from the official records of only two or three of the thirty odd
national banks in New York City, but they are sufficient, I think, to show the unfair
ness and incorrectness of the criticisms of Senator Owen’s just condemnation of the
excessive interest rates which for some time past have been a distinctly disturbing
factor in the business and financial situation.
I am pleased to confirm the statement I made some time ago that although the
aggregate amount upon which unjust and oppressive interest rates have at times been
exacted by some banks is very large, a majority of the national banks in New York
City have made a comparatively small proportion of their loans at these indefensible
rates.
Senator C ap p er. Mr. Williams, you have given us some very
interesting facts as to the excessive rates charged in New York to the
big business interests. Have you any information as to the rates
charged agricultural and live-stock interests throughout the West?
Mr. W illia m s . Senator Capper, I made quite an exhaustive study
of usury throughout the South, West, and Northwest about six years
ago as Comptroller of the Currency, and presented the facts wbich I
developed in one of my annual reports as Comptroller of the Currency.
1 have not made any other similar study in tne last year or two.
Senator C ap p er. Did the fact that the New York business interests
were paying high rates for money tend to deprive the farmers and
stockmen of the West of money ?
Mr. W illia m s . Unquestionably.
Senator C apper. The game was too fast for them, as I see it.
Mr. W i l l i a m s . Yes, sir.
Now, Mr. Chairman and gentlemen, I should like to read into the
record—I do not want to tire you—but I should like to read into the
record two press statements which were given out by me as Comp
troller of the Currency, one under date o f October 18, 1920, and tne
other under date of October 22, 1920, relating to the high interest
rates in New York City. Shall I read them ?
The C hairm an. I trunk it better to have whatever goes in read.
Mr. W illia m s . All right. They are public statements which 1
have given out; there is nothing private about them. [Reading:]
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Office
of
Comptroller or Currency ,
Monday, October 18,19t0.
Hie Comptroller of the Currency gave out this statement:
“ N
“
ew
u n j u s t if ia b l e
Y o r k Ca l l M o n e y R a t e s H i g h e s t
in t e r e s t e x a c t e d
on
dem and
in
the
W
orld,
l o a n s a g g r e g a t in g
b il l io n s a n
ACTIVE CONTRIBUTING CAUSE OF EXORBITANT RATES FOR NEW CAPITAL CHARGED
CITIES, RAILROADS, INDUSTRIAL, AND OTHER PUBLIC AND PRIVATE ENTERPRISES,
AND FOR THE HUGE SHRINKAGE DURING THE PAST Y E A R IN ALL SECURITY VALUES—
‘ RENEWAL’ RATES FIXED DAILY B Y SMALL ‘ COTERIE’ OF STOCK EXCHANGE BROK
ERS GOVERN INTEREST CHARGED ON BROKERS LOANS IN NEARLY ALL NEW YORK
BANKS.
“ In a statement given to the press on July 31, 1921, I expressed the opinion that
there was no justification for the excessive and burdensome interest rates ‘ running
up to 10,12, and 15 per cent and higher, which had been exacted by some of the banks
in Xew York City, the principal financial center of our country.’
“ It is no part of my business to discuss now the morality or the ethics of these
transactions. It is my imperative duty to take close cognizance of them so far as
they may have effect on the general banking and commercial interest of the country.
I realize-clearly the inestimable and indisputable value to our own country and the
world of the great money center popularlv known as ‘ Wall Street’ ; and have no pur
pose or wish to stir prejudice against it, or to do or say anything to impair its useful
ness or to injure any institution or individual connected with its activities. I do
intend, strictly in the line of official duty, to put before the public and the newspapers
iacts of which* both are uninformed and to point out evils already existing and dangers
threatened because of those facts.
‘‘ In the statement of July 31 I called attention to the fact that New York was* the
onlv city of consequence in the world where such interest rates existed or are tolerated,
and I expressed tne belief that the exaction of these rates, and the publicity given
them, had increased the uneasiness in financial circles and had baen an active con
tributing factor rather than a consequence in the upsetting of security values, and
that they had operated to force railroads and industrial corporations to pay burden
some and costly rates in providing fresh capital for the industries and business of the
country. I alsj pointed out that the banks which had been charging their customers
these excessive rates, ‘ at times as high as 15 per cent or more, have tnemselves at the
•me time been liberally accommodated with millions of dollars by the Federal
werve banks at average rates of considerably less than 6 per cent.’
“This press statement was vigorously attacked in the columns of the New York
papers in interviews with various anonymous bankers and financiers, who refused,
iwwever, to permit their names to be used. One leading journal, for example, quoted
bankers as saying:
'“ It is unfair to attempt to defame the whole New York banking community just
because of one or two possible insignificant instances of abuse.’
‘'Another leading New York paper declared that the high rates quoted on the
■tock exchange applied only to ‘ a small amount of money, relatively speaking. ’
“ The investigation whicn I have made since my public statement on this subject
completely confirms the views expressed and proves that they were, if anythin-*, too
conservative.
“ In order that the public might be fully informed, and know the exact facts in
regard to the money situation in New York, the national banks in New York City were
requested by the Comptroller of the Currency, under date of August 5,1920, to furnish,
under oath, a report of the number and amount of all demand loans secured by bonds
ud stocks made monthly by them between October 1, 1919, and July 31, 1920, upon
which they had exacted interest in excess of 6 per cent per annum. The banks,
generally, including the largest bank in New York City, complied with the request,
rot three banks demurred, claiming that it would be impracticable for them to furnish
the data called for as to various loans made by them at excessive interest rates by
months as requested. They were, thereupon, requested to furnish information as to
the loans maae by them for about eight aavs in each month since October 1, 1919,
these eight days including, generally, the high money periods in each month. It
■houldbe understood, therefore, that in the statement which'follows, three of the larger
bankahave included only a portion, and not all, of their loans made at the high rates.
“ The banks were requested, in submitting their statements, to count as a new loan
wch change in the interest rate on their existing call loans. If a loan, for example,
ahould be made for $100,000 to a brokerage firm by a certain bank at 10 per cent, and
91341—22—vor, 2----- S
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the rate changed five times in 30 days, this loan would be regarded as six loans with
an aggregation of $600,000. Therefore, these demand loans embraced in this state
ment should be considered as running from one day upward. It should also be ex
plained that, in the case of one of the three banks which reported its loans for onlv
a portion of the period, call loans are included which were made by this one bank
for outside banks as well as for itself. These outside loans sometimes amounted to
more and sometimes to less than the call loans made by the bank for its own account.
“ The sworn reports to this office show that during tne period from October 1,1919,
to August I, 1920, there were made by the national banks in New York City more
than 4,000 loans at rates of 15 per cent, 20 per cent. 25 per cent, and 30 per cent per
annum, and that the amount of these loans, including only a portion of those made
during this period at the above rates in three of the largest biuiks, aggregated over
$600,000,000.
“ The records also show that the total loans outstanding upon which interest at
15 to 30 per cent was being charged by a portion of these banks on 42 different days,
for whicn reports were received from them, aggregated over $1,100,000,000. It will
be remembered that in my statement of July 31 the banks were charged with making
loans at 10 per cent, 12 per cent, and 15 per cent. The actual facts, therefore, in
view of the loans made at 15 per cent, 20 per cent, and 30 per cent, indicate that my
statement was extremely conservative.
“ The records also show that the amount of loans made during the same period at
rates in excess of 10 per cent and up to but not including 15 pier cent amounted to
over $1,400,000,000, there being over 11,000 of such loans.
“ In addition to the above the aggregate of the loans upon which a portion of the
banks reported that they were charging, on 81 different days, interest in excess of
10 per cent, and up to but not including 15 per cent, was about $900,000,000. The
‘ brokers’ or ‘ street’ loans upon which the New York banks, during the period re
ferred to, were charging more than 8 per cent per annum and up to 10 per cent, reach
in the aggregate some billions of dollars additional in amount and tens of thousands
in number.
“ It should be understood that these loans—except in the case of one bank—repre
sent the money loaned by the banks for their own account, and the figures do not
include the loans made for their correspondent banks.
“ As a result of persistent inquiries among the banks, brokers, and stock-exchange
authorities, this office is now, for the first time, able to inform the public as to how the
so-called ‘renewal ’ rate is made from day to day in the New York call-money market,
and the extent to which this money rate is observed by the New York banks in making
their charges on ordinary Wall Street or brokers’ loans.
“ Under the New York banking law, it is lawful for a lender to charge any rate of
interest which may be agreed upon with the borrower on a demand loan for $5,000 or
more secured by stocks, bonds, or other securities. This provision of the New York
statute enables lenders to escape penalties for usury which exist in most of the other
States.
“ Prom information furnished this office, through different sources, it appears that
every business day a coterie of brokers, members of the New York Stock Exchange,
get together for consultation on the floor of the exchange, or by telephone, and deter
mine what, in its view, is the proper rate for the renewal of all street or brokers’ call
loans for that day. As soon as the rate is agreed upon the president of the stock ex
change is notified, and the rate is posted on the floor of the stock exchange at, say,
11 o’clock.
“ This rate is then sent over the ‘ ticker’ to all the banks in New York City and these
banks thereupon mark up or down, as the case may be, the rate of interest upon practi
cally; all their Wall Street or so-called brokers’ loans. Some banks take the pre
caution to notify their customers by card, sent by mail or otherwise, of the change in
interest rate on their loans, while other banks do not. They claim that the posting
of the renewal rate on the floor of the stock exchange serves automatically to raise or
lower the rate of interest on this character of loins, held by all the New York bank*,
for themselves or their out-of-town correspondents, and their customers are charged
the rate so pasted, unless they make special arrangements with the bank to the con
trary, or pay the loan.
“ In the questionnaire sent by the Comptroller of the Currency to all the national
banks, under date of August 5, 1920, each bank was asked the following question:
“ ‘ Hasit been the practice of your bank, during the past six months, to mark up
or down, from day to day, according to the fluctuations of the New York call money
market, the interest rates on demand or call loans, secured by bonds or stocks, made
to borrowers who are not depositors in your bank?’
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115
“ In reply to that question every national bank in New York City, with two or
three exceptions answered ‘ Yes,’ and two of these stated that they, too, under certain
conditions also charged the ‘ call money’ rate
“ It is fair to say, however, that nearly all of these banks, with a few prominent
exception, stated that it had not been customary with them, in making advances in
rates, to increase the rates on demand or call loans made to their own regular cus
tomers who kept deposit accounts with their banks and that these regular customers
were treated differently from the ordinary brokers or Wall Street borrowers. It is
also worthy of note that demand loans, secured by stocks and bonds, made by banks
to their own officera and to the officers of other banks, are also generally exempted
from the high interest rates.
“ It is also fair to state that the reports in this office show that despite the huge
volume of loans made at fancy rates, less than one-half of the national banks in New
York City reported that the demand loans made for their own accounts at rates of
15 per cent or more aggregated for each bank over $10,000,000 between October 1,
1919, and July 31,1920.
“ In their reports to this office of September 8, 1920, the national banks of New
York City reported that they were lending on demand, on bond and stock collateral,
over $348,000,000.
‘‘ The national banks in New York City also reported that on August 1, 1920, the
•mount of money which they were loaning on demand, on bond and stock collateral,
in New York City for account of customers and correspondents was $524,000,000.
“ It is fair to assume that the trust companies and State banks in New York City
were lending on demand on stocks and bonds as much as the national banks.
“ The stock exchange authorities state that the posting of the ‘ renewal’ rate on the
floor of the stock excnange does not make it compulsory with the banks to. charge
such ‘ renewal’ rate. Attention, however, must be called to the fact that nearly
every national bank in New York City has admitted that when the rate is posted, the
rates changed on ‘ broken’ or ‘ street’ loans are changed to conform to the prevailing
call-money rate and the only alternative for a borrower is to pay his loan or be charged
the posted or current rate. As nearlyevery bank in New York charges the so-called
'renewal’ rate on what are known as Wall street or ‘ brokers’ ’ loans, it would be vain,
obviously, for a borrower to hope to obtain the money in New York at a lower rate by
■hitting his loan to some other bank.
“ Despite the statement of the banks generally that the interest rates on brokers’
loans are raised or lowered simultaneously with the fluctuations in the New York call
money market, many instances of apparent discrimination were developed which
Aowwide differences in the rates charged on demand loans equally well secured. For
example, when the ‘ renewal’ rate for a certain day within the last 12 months was
posted on the stock exchange at 16 per cent, the report of one particular New York
tank showed that on that date this bank was charging on loans for itself and corre
spondents 7 per cent on $4,900,000; 8 per cent, 9 per cent, 14 per cent, and 15 per cent
on $1,428,000; 18 per cent on $750,000; 20 per cent on $42,100,000; 25 per cent on
13,550,000; 30 per cent on $900,000.
“The coterie of brokers who fix the ‘ renewal’ rate, which appears to have such
binding force upon the banks in New York City in the case of brokers’ loans does not
limit its activities to loans, but these brokers also execute orders for stocks and bonds
on the floor of the exchanges. Inquiry of the stock exchange as to the number of
brokers who are usually concerned in the fixing of the money rate, brought the reply
that there were, as a rule, ‘ four to eight or more,’ the stock exchange being usually
represented b y either the president or ‘ one or more’ of its governors, in the consul
tations where the rate is fixed.
“ On November 10, a year ago, this brokers’ committee announced that the renewal
rate on call loans would be 12 per cent. The following day, November 11, they raised
it to 14 per cent. On November 13 the rate was raised to 16 per cent; November 14 it
dropped to 14 per cent; on November 21 it was made 8 per cent, although other loans
were made as low as 6 per cent. On December 18 it was 6 per cent; December 23 it
**s raised to 10 per cent; on the 29th to 12 per cent; on the 30th to 15 per cent and re
mained at that rate until January 5, when it was lowered to 10 per cent. On January 31
the renewal rate was 12 per cent, the next day, February 1, it was advanced to 18 per
cent, dropped to 14 per cent on February 2: advanced to 17 per cent on February5,
and remained at 17 per cent- until February 9, when it was reduced to 14 per cent.
On February 17 it was 6 per cent, raised again on February 26 to 10 per cent and con
tinued at 10 per cent until March 4, when it was reduced to 9 per cent. On April 16
the renewal rate was again 10 per cent. In May the highest renewal rate was 9 per
cent. In June the rate was 9 per cent from the 25th to the 30th. July opened with
a 10 per cent renewal rate. It was lowered during the month, but returned again
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to 9 per cent on the 16th, 17th, and 27th. I t is gratifying to note that since the pub
lication of the comptroller’s statement of July 31 regarding excessive interest rates,
the ‘renewal’ rate does not appear to have been advanced again as high as 10 per cent.
“ It seems clear from the figures submitted that the amount of demand or call loans
in the national and State banks and trust companies in New York City, plus the
loans placed by them for their correspondent banks, which are affected bv the rate
fixed by this committee of the stock exchange, probably exceeds $1,000,000,000. As
I pointed out in a previous statement, on this basis an advance in tne ‘renewal’ rate
from 6 per cent to 18 per cent for one day would add $360,000 to the net profits of the
lending banks for that day. In the first pirt of January of this year, for example, the
15 per cent 'renewal ’ rate exacted for six successive davs meant, on this basis, a net
interest profit of about $3,000,000 or more for those six days.
“ The raising or lowering of the ‘renewal ’ rate on the exchange is frequently accom
panied bv upward or downward movements in stocks and securities; and those
responsible for the fixing of the rate therefore have the opportunity, whether exercised
or not, of profiting largely by operations on the stock market, which iB often and
directly affected by the call money situation. I do not, of course, undertake to say
that this informal ‘money committee’ does take improper advantage of their fore
knowledge; but there are critics who severely censure the existing arrangements.
Certainly all prudent and thinking business men will agree that there is danger in
the concentration of such opportunity and power in the hands of a few persons. Temp
tations to use this power lor individual profit must arise, and human nature is not
changed by high position in the financial world.
“ Mr. Lincoln’s axiom that God never made a man good enough to be intrusted
with unlimited power over another man may be supplemented with the suggestion that
no four, or six, or eight men are strong and pure enough to be intrusted with unlimited
power over the finances of a great country without direct responsibility and accounting
for [their acts to the public or some other potent and intelligent authority. Power to
fix money rates for all, or nearly all, of tne banks in New York City, and to change
them daily, is a grip on the heart of our commerce. It permits such interferences as
fallible human judgment, whim, or interest may direct with the natural and orderly
movements of money, the lifeblood of business. Many of us complain bitterly when
we fear that the two Houses of Congress, State legislatures, or State or Federal adminis
trators, acting in the open, and after debate and public hearings, have interfered with
natural laws of trade. We condemn radical writers and speakers who advocate such
interferences and regard them as public enemies. Yet the matter of arbitrarily fixing
money rates at the money center, possibly reversing the natural and healthy flow,
and affecting, directly or indirectly, billions of dollars of security values and otter
property, is left to a small and varying number of private citizens without official
responsibility, deciding in a moment and in secret.
“ The evils and dangers of such methods could be recited indefinitely. They reach
to the remotest comers of the Union and its possessions, and touch harmfully every
class of people. The direct tendency is to reverse one of the fundamental purposes of
the Federal reserve act, which is to promote orderly distribution of money through
the country to meet the needs of commerce and agriculture. Excessive interset rates
offered in New York artificially draw money away from outside communities through
their.banks, and often leave legitimate enterprises starved or pinched, while feeding
speculative movements which may be adding nothing to real industrial or commer
cial wealth.
“ I reiterate the statement previously made that the excessive rates on call money,
arbitrarily fixed and tolerated in New York, in my opinion have been a potent
influence in depressing seriously the prices of all investment bonds and standard
shares, the shrinkage in which in the past 12 months has amounted, including the
depreciation in Liberty bonds, to several billion dollare.
It is no part of the function of a Government official to moralize on speculative
operations. My attention is demanded when such operations produce co n d itio n s
retarding the development of the country and endangering the stability of its blio
ness. Corporations, individuals, and investors generally are drawn away bom legiti
mate investments in new enterprises and in the shares and bonds of existing enter
prises by the prospect of 10 per cent to 20 per cent interest.
“ The effect of these rates is seen when the general managers or executives of rail
roads or other large corporations visit New York to raise money necessary for
redemption of retiring loans or for the extension and promotion of new business;
The bankers and bond houses solemnly point to the high rates paid for *call mon®y
and corporations whose credit abundantly justified a 5 per cent or 6 per cent interest
basis, have been forced to pay 7 per cent or 8 per cent or 10 per cent on loans fo r one
year, three years, or five to ten years; and are sometimes persuaded by the bankei*
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through whom they obtain the funds that they are doing well to get money even on
such terms, because money on call has been advancea often artificially to 12 per
cent or 15 par cent or 20 per cent, for a few days at a time.
“ The sophistical argument that a high rate for call loans is a justification for a long
time loan at 8 per cent, 10 per cent, or 12 per cent by a strong and solvent corpora
tion is transparent, but many excellent corporations have, during the past 12 months,
been forced to accept loans at exorbitant rates of interest for terms of years which
will inevitably, in some cases, prove a serious embarrassment and handicap in their
future operations.
"The same cause that cripples and hampere a great railroad system or a municipal
government also deprives and injures or ruins a country storekeeper, a small farmer, or
the owner of a large or little manufacturing enterprise.
"The argument that these high money rates prevent panics by enticing call money
from banks and others in die interior to New York will not bear analysis. The facts
are that much of the money drawn from the interior and loaned on call in New York at
fancv rates would, but for the temptation of the high rates and the fear which they
instill as to the future of the security market, be used by investors and banks and cor
porations who have those idle funds in the purchase of standard railroad and other
bonds; which would thus furnish funds to the New York market normally and natur
ally.
"The high rates for call money in New York have thus shut off a large part of the
investment demand for securities, which during the past 12 months, largely because
of these disturbing conditions, have been forced down to the lowest prices reached in
40 years.
“ It is m y belief that if the call money rates in New York had been maintained
at 6 per cent, or at the maximum rates which are charged in other money centers,
is 1 believe could have been done with a reasonable degree of cooperation upon the
put of the New York banks, the unprecedented shrinkage in security prices in the
past 12 months would not have taken place and the apparent loss of billions of dollars
ib values would have been avoided.
“ My hope for the present is that, with the public in possession of the facts, senti
ment will be strong enough to bring about reforms. Money rates should not be raised
or lowered or manipulated arbitrarily or in secret. New York bankers and financiers
have tremendous responsibilities to die general public, and all can be induced to real
izeand respect them, as some honestly and conscientiously do now. Bankers through
out the country should have impressed upon them that they owe direct and distinct
duties to their customers and communities, in preference to earning excessive and
questionable profits for stockholders, and themselves by pouring money into New
fork for interest exactions, which inevitably must injure or destroy somebody. The
best banking is the broadest and most foreseeing—that based on the conviction that
the real, permanent, stable profit in business is in building up, encouraging, and
developing in their respective spheres,- not in starving the productive elements of
communities in the hope of grabbing luge profits from the speculative.
“ Reports showing the extent to which, as referred to in my statement of July 31,
banks in New York City and elsewhere have during the past year been obtaining
funds from the Federal reserve banks at rates varying from 4J to 6 per cent and have
loaned these funds in New York at the excessive rates referred to, running in some
instances as high as 20 per cent, 25 per cent, and 30 per cent, are now being compiled.
A statement concerning these transactions will be made later.”
O ctober 22, 1920.
Billion
D o lla r s
of
New Y o rk
A
ADDITIONAL EXAMPLES
CHARGED— INTEREST
SIX MONTHS ENDING
WITH SAME PERIOD
COLLECTED.
Loans
r t if ic ia l l y
C on stan tly
A ffe c te d
by
R a te s
F ix e d .
OF LOANS ON WHICH 20 PER CENT AND 25 PER CENT ARB
AND DISCOUNT COLLECTED BY NEW YORK NATIONAL BANKS,
JUNE 30, USD, WAS ABOUT 1100,000,000, WHICH, AS COMPARED
IN 1917, IS AN INCREASE OF ABOUT SAO,000,000 IN INTEREST
Criticisms on the statement given out by this office for the newspapers of Monday
last seem to me to be rather vague and feeble as well as anonymous. I hoped they
would be strong, illum inating, and constructive. I am constrained to believe that
they do not express the thought of the bankers of the country or of New York, who
certainly are men of ability, with intelligence and courage to speak clearly and frankly
*fcen they wish to speak.
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AGRICULTURAL INQUIRY.
One of the functions of this office is to do all possible to maintain and increase the
good will and confidence of the public in the banks of the country. To that end
continual labor, frequently troublesome to all concerned, has been applied to make
sure that the management and conduct of all banks should be such as to deserve good
will and confidence. Following along that same line, I think it right to reiterate
some expressions included in the statement referred to, but unfortunately omitted by
many newspapers which published portions of it. These are, that there is no purpose
in tins office to stir or cater to any prejudice against that great and useful part of our
financial system popularly known as “ Wall Street” ; that there was and is no purpose
to hold up the New York City bankera or any other bankers for special condemnation.
It is my duty to discover and oppose what I believe to be evils ana dangers threatening
or impeding the business of the country. There has been no attack on individual
or individual interests. The criticism from this office has been against a system and
method. The first step toward correction of any wrong must be discovery and
exposure.
Statements of the existence of extortionate interest rates in New York, affecting
the operations of the whole country, made by me some weeks ago, were met by sneer
ing denials through newspapers. Thereupon it became necessary to present con
firmatory specifications ana evidence. This has been done. Anonymous and
indefinite denials are not contradictions. Statements of facta and figures, sworn to
by the banks themselves, can not be met by excited rhetoric or general denunciation,
or unstained accusation of improper motive.
In my previous statement I showed that the aggregate of these demand of call loans
secured by bonds and stocks handled by the New York banking institutions for their
own account and for account of their correspondents, upon which interest rates vary
ing from 7 per cent to 30 per cent have been charged, has probably averaged through
out the past year more than $1,000,000,000.
The assertion by anonymous critics that the exorbitant interest rates were rare and
applied to insignificant sums will not weigh against official reports made to this offire
under oath. We find, for example, one national bank declaring that loans made by it
in the period covered by my statement at rates in excess of 10 per cent per annum,
aggregated $448,000,000, including $186,000,000—1,426 loans—at rates of 15 per cent
and over. On a certain day withm this period another bank reported that, on loans
for itself and correspondents, it was charging 15 per cent on $55,895,000, and 18 per
cent, 19 per cent, and 20 per cent on $3,600,000 additional. The same bank admitted
exacting on another day 18 per cent on $57,183,000, 20 per cent on $1,400,000, and
25 per cent on $14,055,000. On three days early in January the amount on which
this bank was charging 18 per cent exceeaed $63,500,000.
Another New York national bank reported that it was charging on a certain day on
loans made for its account 16 per cent on $23,500,000, while two days previously it
was loaning at 14 per cent $27,100,000, and at 16 and 18 per cent $315,000 more;
another day this bank reported that loans at 17 per cent to 20 per cent exceeded
$17,000,000. On December 31 last the same hank made 11 new loans for over $2,000,000
at 25 per cent, and on January 2 it made 53 new loans aggregating $10,000,000 at 15
per cent in addition to some millions already out at 15 per cent.
Still another bank reports that on a particular date during the past year it was
charging on loans for its own account 25 per cent on $2,150,000,13 per cent on $300,000,
15 per cent on $10,000,000. On another date the same bank was charging 22 per cent
on $2,000,000 and 11 per cent to 16 per cent on $8,200,000 additional, with other loans
at the same time bearing 7 per cent, 8 per cent, 9 pier cent, and 10 per cent. This
particular bank has through this period been lending, as have other banks, many
millions more at exorbitant rates for correspondent tanks. The foregoing figures
relate to only 4 of the 34 national banks in New York City, and they are matters of
record.
It is of interest to the public that most of those New York banks, a few of whose
loans are given above, wnild lending at these very indefensible rates, sometimes 25
per cent and 30 per cent, were being accommodated at the same time at 4} per cent
to 6 per cent by the Federal Reserve Bank of New York with sums as great at
greater than their loans recited above. They were therefore, occasionally charging
borrowers 20 per cent to 25 per cent more interest than the rates they paid the reserve
bank.
The amount actually collected for interest and discount by the 34 national banks
in New York City for the six months ending June 30, 1920, exceeded all previous
records, and amounted to approximately $100,000,000, which was nearly $50,000,000,
or nearly 100 per cent, in excess of similar receipts for the corresponding period in
1917.
In February last the “ renewal” rate in New York City for the whole month aver
aged above 10 per cent. This was more than double the normal average for call
money.
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AGRICULTURAL INQUIRY.
While nearly every national bank in New York City has admitted that its rates
on the so-called “ street” or “ brokers’ ” loans are marked up or down automatically
from day to day, according to the fluctuations of the call money rate, yet reports from
some bwiks show a marked discrimination, and that they exact on some of the wellsecured loans rates considerably in excess of the so-called daily “ renewal” rate, while
other banks adhere quite closely to that rate.
As to the large amount of call loans held by national banks for account of corre
spondence—over $500,000,000—it may be of interest to state that the New York banks,
for their services in handling these loans, make varying chargee—sometimes a frac
tional commission is charged; sometimes, in view of the deposit balances carried, no
charge is made, while at other times die New York bank and its outside corre
spondents divide evenly the interest collected in excess of 6 per cent per annum.
New York, as I have stated before, is the only city of importance in the world
where such interest rates as these exist or are tolerated. They have, in my opinion,
been most costly to the entire country and can not be justified on any basis of
economics or ethics.
The plainly, indisputably proper course is change of policy and reformation of
abuses which have come almost imperceptibly, not loose and wholesale criticism of
the man trying to heave the lead line and give warning of shoals. The point is not the
qualities or intensions of the official, b u t whether the shoals are there. My work is
to report them and prove where they are. My strong faith is that the bankers of the
country will find and apply cure for the evil that has been shown. They have on
them now some of the heaviest and most difficult responsibilities which ever rested
on a financial body. The welfare not only of their own country, but of the world,
depends in a great measure on their wisdom and character. 1 believe they will meet
the test. The most important part of the comptroller’s work is to help them, as he
may. There is no better way to help than to detect and point out obstacles and
penis in their path toward performance of the tremendous work they have to do.
The C h a i r m a n . H o w did the amount of money loaned on call rates
at the time of this statement compare with the amount loaned
previously, in December previous, for instance I
Mr. W i l i j a m s . 1 have not the figures at hand, Mr. Congressman.
The C h a i r m a n . Were the amounts larger or smaller ?
Mr. W i l l i a m s . I do not recall, Mr. Chairman.
The C h a ir m a n . It seems to me that might be an interesting matter
to determine.
Mr. W i l l i a m s . I sh a ll b e v e r y g la d to co m p ile , s o fa r as th e in fo r
mation a t m y c o m m a n d p erm its, a n y in fo r m a tio n th e co m m is sio n
may d esire.
The C h a i r m a n . I think it is important to know whether, in Jan
uary, 1921, money was being withdrawn from the interior for New
York by these high rates, or whether the pressure from the interior
was causing the withdrawal of the funds from New York; it is very
pertinent to this discussion.
Mr. W i l l i a m s . Yes, sir.
Representative S u m n e b s . At that time, were the New York banks
biddinghigh for money ?
Mr. W i l l i a m s . I am pleased to say that after my statement of
July 31, 1920, was given to the press, and was given publicity, I do
not think that the New York call rate has at any time been above
10 per cent.
Representative S u m n e b s . Yes; but my question is at the time of
these high call interest charges, were the New York banks bidding
high for money from the banks throughout the country 1
Mr. W i l l i a m s . 1 have in mind one bank whose correspondents
throughout the country—one banking institution whose corre
spondents throughout the various parts of the country sent on to that
bank for them to loan out approximately $100,000,000 at the high
r*tes prevailing in New York City. As to exactly how much of that
money came from each State, 1 do not know.
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AGRICULTURAL INQUIRY.
Representative S u m n e r s . -D o you know what the arrangement was
between the loaning bank in New York and the correspondent bank
that furnished the money ?
Mr. W i l l i a m s . A s I recall, the arrangement differed with the dif
ferent banks in New York City; some banks there arranged to loan
the money for their correspondent banks on a basis which enabled
them to divide a portion of the excess interest rate which they ob
tained, while others, as I understand it, loaned and gave their cus
tomers the benefit of the full interest rate; in other cases there were
commissions charged for placing loans in Wall Street.
Representative S u m n e r s . Was there a condition obtaining in New
York at that time different from that which obtained in other sec
tions of the country which caused that community to bid higher for
money than other communities were bidding ?
Mr. W i l l i a m s . I think that very largely the conditions in New
York were the result of the speculative mania which was prevailing
at that time. Commodities and securities were going up rapidly
and people were making such large profits in this or that commodity
or stock that they thought that they could afford to pay the high
rates for money out of their profits, but when things went the other
way it was like a two-edged sword.
Representative S u m n e r s . Wljen the banks ascertained that high
rates of interest would be paid, did the banks, separately or through
concerted action, create a condition under which high rates wornd
have to be paid ?
Mr. W i l l i a m s . When the Federal Reserve Board put up the rate
to 7 per cent in the New York district, it is my information that the
banks in New York City raised the minimum rate on a large portion
of their call loans to 7 per cent. I voted against the increase to 7
>er cent in New York and other districts. I thought it was wiser to
imit the credit by other methods than by putting the rate at that
figure. I was also opposed to excess rates which were charged at
times in other districts.
Representative S u m n e r s . I s it your opinion that if the banks were
limited in the amount of interest which they could charge they
would not be able to draw out from the industries throughout the
countrvmoney for speculative purposes ?
Mr. W illia m s . I think it would be better for the whole country if
there was that limitation everywhere.
(
Representative Sumners. Whereas the speculative interests would
suffer from inadequate funds, while industry throughout the country
would be adequately supplied; is that your idea?
Mr. W i l l i a m s . Precisely.
Mr. C h a ir m a n . I should like to read now a letter which I ad
dressed to Gov. Harding, of the Federal Reserve Board, under date
of October 18, 1920. The several documents and letters which I
have read, I think, indicate that I deprecated the excess interest
rates which were being changed and the methods which were being
employed in certain ways. This letter relates to the credit situation
at that time. [Reading:]
O cto ber 18, 1920.
I attended the two hearings held in your office last week,
given to the fanners and to cotton manufacturers and merchants, and was much
impressed with the representation* made by the delegates and by the United State*
My D e a r G o v e rn o r:
Senators who led in the discussion.
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121
In my opinion, the declines which have taken place in commodity values in the
past six months have been due primarily to the operation of natural causes, ttnd
these declines in orderly manner have been facilitated by the policies pursued by the
Federal Reserve Board during this .period. The recession from the unnatural prices
which prevailed in the case of so inany commodities was desirable and inevitable,
and it was proper that the Federal Reserve Board should have endeavored to have
this decline proceed gradually, rather than b y withholding all restraints, making
possible later on a collapse and disaster.
The decline which has taken place in the prices of leading commodities in the past
few months has probably been without precedent in the commercial history of this
countzy; and the extent of this shrinkage in value, as expressed in dollan, has been
appalling. It will require exceedingly skillful handling on the part of our bankers
and business men to prevent the shock of this decline from precipitating numerous
failures in business and banking and widespread uneasiness and disturbance.
The shrinkage in the value of wheat, as applied to the entire crop, represents about
$500,000,000; tne decline in corn from one to two billion dollars additional, as applied
to the entire crop; while the amount which the cotton growers would receive for their
crop on the present basis of 20 centB a pound as compared with 40 centSj the price at
which cotton was quoted a few weeks ago, represents an apparent decline in values
of another billion dollars. Wool is now nardly salable at more than one-third of last
winter’s price; while leather is quoted at only 40 per cent to 50 per cent of what it
was bringing a few months ago. The price of raw silk in Japan has declined to about
20 per cent of the price at which it was sold in March. In both Japan and Louisiana,
the value of the nee crop has been cut in two. These figures indicate an economic
upheaval which must be faced and handled with all the skill and wisdom we can
command.
The plans and policies which have aided in bringing about deflation in the great
staple commodities should be at once taken up for consideration and revised as far
is may be necessary to meet present and changed conditions. If this is not done
speedily I am fearful as to the consequences which may ensue.
As a first step in this connection I respectfully urge that the Federal Reserve Board
take up forthwith the consideration of the ruling and regulations which have been
interpreted as preventing the well-secured paper of cotton factors, who need the
money in connection witn their advances for agricultural and commercial purposes,
from being eligible for rediscount with reserve banks. If the board does not feel
justified in asking for a reversal of the interpretations which have been put upon its
mlings in this connection by some of the Federal reserve banks, I urge that we sus
pend for the present these regulations of the board which justify this discrimination
on the part o f the reserve banks. It seems to be generally admitted that the most
that can be said against such paper is that its eligibility is doubtful. I respectfully
urge that the people and sections that are suffering so greatly at this time do given
the benefit of the doubt, if doubt there be.
Faithfully, yours,
John S kelton W illiam *.
Hon. W. P . G. Harding,
Governor Federal Reserve Board.
Mr. Chairman, on October 21, 1920, I addressed a letter to the
Secretary of the Treasury-----Representative M i l l s (interposing). M r. Williams, before you go
on, I would like to ask you a question. 1 was not here during your
entire discussion of these high money rates. If it oould be shown
that during the year 1920 money was being withdrawn from New
York City, your argument would fall to the ground ?
Mr. W i l l i a m s . Not necessarily so. How much was there before,
how much was withdrawn, and what were the conditions? It
depends on the conditions.
Representative M i l l s . If it can be shown that the whole tendency
during thiB period money was-----Mr. W i l l i a m s (interposing). That is a complex statement, Con
gressman. In order to answer that you must know the conditions,
present and past.
Representative M i l l s . If it could be shown that money was flow
ing from New York, instead of to New York, during 1920, would it
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not tend to show that the high money rates did not have the effect
which you attribute to them f
Mr. Williams. I think that in your absence I pointed out that in
1919 money rates went up to 30 per cent.
Representative M ills . I did not mean to discuss that now.
Mr. W illiams. In 1919 they went up to 30 per cent; in the early
part of 1920 they varied from 15 to 20, to 25 per cent. Since the
time my press statement was given out—in July, 1920—they have
never, I believe, been above 10 per cent. I think there were moral
conditions which exercised a restraint.
Representative Mills. As a matter of fact, then, during 1920,
when the real serious situation began, call money rates had not had
any effect so far as drawing money from New York is concerned ?
M r. W illia m s . In 1920?
Representative Mills. In 1920.
Mr. W i l l i a m s . In 1919 they were up to 30 per cent there, and
they also went up to 20 per cent, I think in the early part of 1920,
ana up until June—I think the rates were in excess of 10 or 15 per
cent up to June, 1920. In the latter part of 1920 there was an easing
of the money market there.
Representative Mills. The real depression began in the lattei
part of 1920; in the last six months of 1920; is that not so ?
Mr. W illia m s . In the last six months of 1920 ?
Representative M ills . Yes.
Mr. W illia m s . You mean the fall in values ?
Representative Mills. The fall in values ?
Mr. W i l l i a m s . Yes; in June they were low, and in the latter part
of July there was a heavy collapse in commodity values. In the
spring of 1920 the silk market collapsed, I think, to about 20 per
cent of its high value.
Representative Mills. The peak of the prices was reached during
May; but, generally speaking, the great drop in prices was during
the last six months of 1920: is that not so?
Mr. W ilu a m s . Principally.
Representative Mills. During that period the call money rate in
New York had no influence on the flow of money to or from New
York?
Mr. W illia m s . I think I did.
Representative Mills. Y ou don’t believe it did ?
Mr. W illia m s . I think it did.
Representative Mills. But I understand you to say there were low
rates during that period ?
M r. W illia m s . N o ; I did n ot say low rates; I said lower than they
had been, b u t not low rates.
Representative Mills. Now, if it could be shown that money was
•flowing from New York rather than to New York, would you care to
modifyyour statement ?
Mr. Williams. No.
Representative Mills. All right.
Mr. W illiams. Mr. Chairman, on October 21, 1920, I addressed
this letter to the Secretary of the Treasury [reading]:
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O ctober 21, 1920.
I trust that you will accept my experience of more than a
third of a century in practical banking and finance as some justification for my
venturing to express to you, unasked, the nope that you will give serious consideration
to the petition which I see from the newspapers has been, or is to be, sent to you and
to the White House in behalf of the revival of the activities of the War Finance
Corporation.
I beg leave to hand you with this a copy of a letter which I addressed, under date
of October 18, to Gov. Harding, of the Federal Reserve Board, which briefly sets
forth my views as to the seriousness of the present financial and economic situation.
1 also beg leave to hand you, with this, a copy of a letter which 1 received to-day
fromex-Gov.------------------, o f-------- , now president of a successful national bank in
that State.
It is my distinct belief that much good could be accomplished at this time by
reestablishing the War Finance Corporation, of which you are chairman.
1trust that you will not take this expression of my hope in this connection as being
inany way a criticism of your action in suspending the operations of the War Finance
Corporation at the time that you acted some months ago. Since then conditions have
changed radically and I feel strongly that these changed conditions would abundantly
justify the use of your power to recall the corporation into life. The emergency that
cawed its creation had subsided apparently. Now that emergency has returned or a
newone arisen, and revival of the means so successfully used in the past seems to me
to be required.
The shrinkage which has taken place in the prices of leading commodities since the
time when you decided to suspend the operations of the War Finance Corporation,
tome six or eight months ago, is estimated at from three to five billion dollars. This
represents a commercial upheaval which must give up pause and call for solemn study.
As I see the situation, the corporation would not interfere with the laws of trade
oreconomics or of supply and demand. To the contrary, it would aid in assuring the
just and healthy workings of those laws and restrain interference with them and
obstruction of them by speculators taking advantage of the necessities of owners of
commodities or forcing prices upward or down by methods sometimes used. All of
nt know how large combinations of capital may, when so minded, cause artificial
fluctuations in the market—fluctuations based on buying and selling which mean
m actual transfer of the things purporting to be bought and sold.
If the corporation should control conditions to the extent of giving help as needed
mm to allow prices of some commodities suffering most severely to be fixed by actual
transactions between -producers, or owners and consumers, the law of supply and
demand could'and would work smoothly and accurately, and much of the cause for
nmdon and complaint would be removed.
u buyers know, nowever, that the ability of owners to hoid up prices justified by
conditions depends on fast diminishing resources and powers of resistance, their
Mural tendency is to refrain from buying until they can dictate terms. On the other
hand, if buyera know that the powera of resistance are strong they will pay what they
fairly can afford, preferring moderate profits to inaction. The corporation would
promote fair bargaining on the basis of reasonable returns to all parties.
My observation and information are that the War Finance Corporation would
prove immensely helpful in finding markets for American products which are now
mSering moat heavily, not only in allied countries but also in neutral countries,
and through some of these neutral countries, such as Holland, important markets
poold be developed in Germany and Austria. This would give employment to labor
inenemy countries and would help those countries pay the indemnity due the Allies.
Whether or not you agree with me, I do believe that you will give the subject the
earnest thought demanded by the tremendous importance to our own people and the
people of the world and by your great power and responsibility.
The shrinkage in our leading commodities during the current year, to which I have
referred, has ranged from 25 per cent to 75 per cent from prices of less than a year agos
Thi* shrinkage as expressed in dollars amounts not to millions or hundred of million,
but to billions of dollars.
The strain upon the business fabric of the country is in some respects unparalleled
and I do fed that the time has come for the exercise of such salutary and construc
tive powers as may be at our command. A leading bank president, who called at
the Treasury this week, tells me that an executive officer of a New York bank men
tioned to him the other day that he had already been placed on the creditors’ com
mittee of 30 different business houses or corporations which had been unable to stand
up under this unprecedented shrinkage in values.
Dear Mr . Secretary :
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A large wholesale jobber, when askei a few days ago how business was, replied that
there was no business: that orders which he had not shipped were being canceled;
that goods which he had shipped were being returned; and that upon the invoices
of other goods which had been shipped and disposed of he was now being called
upon to make rebates.
In many foreign ports American goods are congesting port facilities, the consignees
having been unable to obtain credit and funds necessary to release them. The situa
tion with many of our national banks has become more aggravated of late, and unless
relief can be found an increase in bank failures, I fear, mil be inevitable.
The revival of the War Finance Corporation would provide, in my judgment a
much needed steadying influence at this time.
I trust that you will pardon these volunteered suggestions, realizing that they are
intended to put before you views from my angle of observation and are inB]rired by
loyal and sincere purpose to be of service to the country, the administration, and
yourself in this momentous situation.
Very sincerely, yours,
Hon. D. F. H ouston ,
The Secretary of the Treasury.
John S kelton W illiams .
Representative S u m n e r s . Mr. Williams, I want to ask you at
some time during your testimony as to what date you fix as approxi
mately the date when the policy of the Federal reserve system tended
to bring about the condition of what has come to be known as
deflation.
Mr. W i l l i a m s . Y o u mean when the pressure should have been
relaxed ?
Representative S u m n e r s . No, sir; what date do you fix as the
date when they began ,what we speak of as deflation upon member
banks to force liquidation on the part of their customers ?
Mr. W i l l i a m s . It would be a little difficult to answer that ex
actly, Congressman. I urged that the pressure be relaxed in October,
and in August-----Representative S u m n e r s (interposing). October and August of
last year ?
Mr. W i l l i a m s . A year ago, in those two letters. I think i f there
had been a revision of policies in October last, that the subsequent
economic history of the country would have been different.
Representative S u m n e r s . Can you give approximately the date
when the policy began which you urged shoula be reversed?
M r. W i l l i a m s . I s h o u ld lik e t o th in k th a t o v e r a little .
Representative S u m n e r s . Put it in the record at this place,
if you
will.
Mr. W i l l i a m s . All right.
(The statement referred to is as follows:)
In my opinion it may be fairly said that the so-called “ deflation” or “ contraction’
oliciee of the Federal Reserve Board were started in the latter part of 1919 or the
rst part of 1920; at least I think the record will show that the board began then to
exert its influence in that direction, in certain parts of the country, if not generally.
I have stated, clearly and repeatedly, that the curbing efforts of the board and
of the reserve banks were, for part of the time in the past two years, distinctly help
ful and beneficial in restraining inflation and in stablizing values. But when tne
upward movement was halted, and the downward rush of prices set in, the Federal
Reserve Board, whether from inertia or from an inability to comprehend the meaning
of events and the radically changed conditions, distinctly failed in the supreme trial.
The lack of sympathy displayed by the hoard, and its apparent impotence to meet
courageously and resourcefully a situation demanding instant and sagacious action
was in my opinion unpardonable.
I am convinced that if the Federal Reserve Board had heeded the urgent sug
gestions, recommendations, and warnings contained in my clear-cut letters and mem-
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oranda of August 9, 1920, August 26, 1920, October 18, 1920, October 21, 1920, and
December 28,1920, and had revised its policies and methods to meet and respond
to the great changes which had already taken place and were going on in the world
of business and finance, that it could, as I sain in my Washington address on April
15,1921, “ have saved us from a fall so precipitate and smashing, and from much of
the distress and ruin through which we have been dragged. It could have made
the shrinkage of values more gradual and uniform instead of violent and sporadic,
could have nelped strongly to keep the circulating currents of commerce at more
even flow, so that the losses of each producer might be offset by reasonable reduction
in the cost of what he must consume. ”
_
On December 28, 1920, in advocating a liberalization of policies, I had said, inter
alia:
“ Events, developments, and conditions warn us to remember that a stoppage
too sudden may be disastrous as an explosion, that an unyielding barrier thrust into
the path of a runaway machine may only hasten wreckage and assure a smash which
skillfully regulated guidance might prevent.
“ Two months of actual experience which have elapsed since my letter to you of
October 18, 1920, was written tend to intensify rather than diminish my fears for the
immediate future. ”
The Reserve Board, however, refused to act favorably upon the urgent recom
mendations for more liberal policies made by me as a member, and also ny manv of
the best minds in the financial and business world, and the great decline in values
Tent on. I am happy to note, however, that the board moved, presumably, by the
force of an aroused public opinion, has been at last compelled to change, and to put
into effect lower interest rates and more liberal measures which if tney had been
adopted at the time that I urged them upon my colleagues, would, I believe, have
aved the country from a large part of the losses and suffering so needlessly forced
upon it.
. I ask permission to quote here the following extract from a press statement given
cut from the White House by the President under date of July 29,1921:
‘‘Perhaps the most important development has been the action taken by the Fed«nl reserve banks in reducing discount rates. This action is calculated to relieve
the stagnation of business, and at the same time it gives authoritative recognition
of the improvement in credit conditions justifying the policy of reduced rates. ”
In connection with the urgent recommendation which I made in October, 1920,
tothe Secretary of the Treasury, who was also chairman of the Federal Reserve Board,
that the activities of the War Finance Corporation be resumed, I quote the follow
ingfrom the President’s statement of July 29,1921:
The renewed activity of the War Finance Corporation is not to be measured
amply by the resultant restoration of confidence or by the amount, of its advances.
Its intervention in aid of the export trade and in making advances to carry Ameri- •
cin agricultural products, pending or awaiting export, has been, according to many
evidences received, an inspiring and heartening factor in the whole agricultural
ntuation. ”
Representative S u m n e r s . N o w , I understand that the statement
has been given out—if I am not correct I would like to be corrected—
recently given out by the Federal Reserve Board to the effect that
during this year the rediscounts of agricultural paper have increased
about 100 per cent. If that is not correct, will some gentlemen
please correct me? Now, could it be possible that the pressure
imposed last year had such a detrimental effect upon the prices of
uricultural products as to make it impossible for the producers of
tnose products to pay their debts out of the prices received for their
sale?
Mr. W il l i a m s . I think there was a n undue pressure.
Representative S u m n e r s . And the fact that the pressure was put
on, it is claimed by some people, as it was put on last year, is the thing
that is responsible for the fact that that rediscount of agricultural
paper was found to be double this year. Do you have a judgment
on thatpoint!
Mr. W illia m s . Well, there is an apparent increase in agricultural
and live-stock paper discounted with Federal reserve banks. That
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is to say, paper running over 90 days. The paper which found its
way into the Federal reserve bank—the agricultural and live-stock
paper which found its way into those banks—was a comparatively
small part of the total live-stock and agricultural paper outstanding.
A recent bulletin of the Department of Agriculture, if I remember
correctly, placed the value of farm property in this country at about
$77,000,000,000; and my recollection is that the value of live stock
was about $8,000,000,000, if I remember correctly. I am not sure
of those figures, but somewhere around there—six and one-half or
eight billion dollars, I do not recall which. The amount of money
which the Federal reserve banks have taken of agricultural ana
live-stock paper is pitifully small compared to the value of the live
stock and agricultural interests of the country.
Representative S u m n e r s . That seems to be one of the difficulties
of the proposition in dealing with the remedial features, and 1 want
to ask some questions as to policy before you complete your tes
timony; but ii you prefer to procede with tne historical features, I
will come to that later.
M r. W i l l i a m s . T h a t is fo r y o u t o sa y , sir.
R e p re s e n ta tiv e S u m n e r s . P e rh a p s it w o u ld b e w ell to a s k th e .
q u estion s later.
Representative T e n E y c k . Mr. Sumners has asked that question
and Mr. Williams has replied, and I would like to ask a question at
this time, if I may. The commission is interested in amounts that
$re discounted for country banks, and the amounts of discounts
allotted or given on agricultural and live-stock paper; but we are
more interested in the flexibility and the ease with which the farmer,
who is the actual producer of food products, can borrow, and the
amounts of money which are allotted to him particularly, rather than
to the merchants and commission houses wno handle his products.
Now, along that line, I want to get your idea: Is it possible to dis
tribute the reserve fund to the country banks so that the farmer will
be able to borrow in proportion to the value that agricultural products
bear to other industrial products of the country?
Mr. W i l l i a m s . It should not only be possible, but it seems to me
it is our solemn duty to see that a larger proportion of the funds of
the Federal reserve system reach the agricultural and the live-stock
interests. Now, the figures which I gave this morning, if I remember
correctly, showed that in the national banks of the three central
reserve cities—New York, Chicago, and St. Louis— their bills payable
and rediscounts amounted to, m September, 1920, I think it was,
about 24 per cent of their total loans and discounts, whereas the re
discounts and advances made to the country banks was only about
10 per cent, so that in the three large cities the percentage was two
ana one-half times as great as the country banks.
Representative T e n E y c k . And the discount given to the country
banks was not used entirely for agricultural and live-stock purposes ?
Mr. W i l l i a m s . Certainly not.
Representative T e n E y c k . It was used for merchandising pur
poses?
Mr. W i l l i a m s . It was used partly for merchandise.
Representative T e n E y c k . And for manufacturing concerns in
those districts ?
Mr. W i l l i a m s . Of every sort.
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Representative T e n E y c k . For manufacturing concerns in those
districts of every sort ?
Mr. W il li a m s . Yes.
Representative T e n E y c k . Would it be possible to work out a
scheme whereby the fanning industry of the country will get a pro
portionate share of the reserve funds in time of need in proportion to
the valuation of the products that they give to the world ?
Mr. W i l l i a m s . WeD, that is a large proposition entitled to the best
thought that we can give it.
Representative T e n E y c k . That is a ll.
Representative S u m n e b s . Mr. Williams, in that connection, do you
recognize the fact that country communities, because they are served
by small banks, do not have great banking facilities, and in a time
like this of extraordinary demand by the agricultural interests for
credit, that the avenues of approach to the farm are not ones that are
easy toprogress along?
Mr. W i l l i a m s . 1 think that. there are a good many things that
suggest themselves here and there where the system could De im
proved. A s to the farmer, I think that one evil from which he has
suffered greatly has been the practice in some Federal reserve banks
of requiring tne small country bank not only to put up its eligible
paper, 100 per cent of eligible paper for 100 per cent of rediscounts or
advances, but to put up 150 per cent or 200 per cent dr 250 per cent
so as to make the Federal reserve bank bombproof and ironclad and
all that sort of thing. I think that is all wrong. I think that the
Federal reserve banks should take some risk in the interest of the
community and for the public good.
Representative F u n k . I s that same requirement made o f other
lines o f industry ?
Mr. W i l l i a m s . Not that I know of.
Representative F u n k . Only against the agricultural paper?
Mr. W i l l i a m s . Well, I don’t know to what extent; I think it is
principally in the country districts. 1 may be mistaken, but there
we gentlemen in the room who can give you more information than I
can on that subject.
The C h a tk m a n . Where was this 150 and 250 per cent collateral
required?
Mr. W i l l i a m s . Well, I have in mind a case in the Southwest at this
time where a bank claims that it was gutted by the actions of the
Federal reserve authorities in requiring excessive collateral for the
money which it was advanced. I do not know the merits of the case.
I merely happen to recall one instance where the member bank put
up—I don’t know whether it was 150, 200, or 250 per cent.
The C h a ir m a n . Of course, it would seem-----Mr. W i l l i a m s (interposing). But it was not the theory of the act.
I think in some districts they avoid those excessive demands. I
think in the Cleveland district, if 1 am not mistaken, the bank takes
such paper as it is willing to discount for 100 cents on the dollar,
and it does not require 50 per cent or 150 per cent margin.
Representative M i l l s . But where thev do require the 150 per cent
that would apply just as much against the manufacturer or the mer
chant as it would against the farmer ?
Mr. W il li a m s . W h a t is th a t ?
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Representative M i l l s . In a district where they do require excessive
collateral it would apply just as much against the manufacturer or
the merchant as it would against the farmer ?
Mr. W i l l i a m s . Well, I don’t know. I am not in sufficient touch
to say whether the farmer is singled out or whether the manufacturer
is singled out, or how it is, but I do know that in some reserve banks
the small banks are required to put up a very large margin of collateral
before they are permitted to have discounts from the reserve banks
Representative M i l l s . But you don’t want the committee to
understand that that is applied to farmers only ?
M r. W i l l i a m s . N o .
The C h a ir m a n . What I
would like to know is, whether this plan
of requiring 150 per cent collateral was a general plan applied in some
Federal reserve districts as against all Danks, or whether it was
simply an individual case where the bank required 150 per cent
collateral?
Mr. W i l l i a m s . I think it is rather common in some reserve dis
tricts, and in some other reserve districts it is very rarely resorted to.
The C h a ir m a n . Well, now, in what district do you tmnk it is very
common ?
Mr. W i l l i a m s . I am not in a position to discuss that. The
members of tl\e Federal Reserve Board can give you that information.
The C h a ir m a n . If you think it is a common practice in some of
the districts, you must have some idea as to what districts it is prac
ticed in.
Mr. W i l l i a m s . I know that I gave you one instance in the
Southwest.
T h e C h a i r m a n . I n th e D a lla s d istrict ?
Mr. W i l l i a m s . In the Dallas district.
The C h a ir m a n . Yes. That was one instance.
M r. W i l l i a m s . Y e s , sir.
R e p re s e n ta tiv e M i l l s . B u t y o u are sp e a k in g fr o m h e a rsa y , n o t
fr o m actu a l k n o w le d g e ?
Mr. W i l l i a m s . I am reasonably sure o f my ground.
Representative M i l l s . Well, your knowledge is not sufficiently
detailed and accurate to permit you to state where this practice
prevails ?
Mr. W i l l i a m s . I know that the practice prevails in some districts
and I suggest, if you wish detailed information on it, that you get
it from the Reserve Board.
Representative M i l l s . But you do not know what districts ?
Mr. W i l l i a m s . I would prefer not to discuss that matter. It is
not under my supervision at this time.
Representative M i l l s . Well, do you or do you not know whether
it exists in such districts ?
Mr. W il l i a m s . Well, if I do know I prefer that you should get the
information from the Reserve Board.
Representative M i l l s . But you decline to state whether you
know?
Mr. W i l l i a m s . Why should I state whether I know or not?
Representative M i l l s . Because the committee is interested. '
Mr. W i l l i a m s . Well, then, I will tell you where you can g e t the
information first hand.
Representative M i l l s . No.
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Mr. W i l l i a m s . It is a rule of evidence that you should get infor
mation first-hand rather than second hand, where you can.
Representative M i l l s . But if a man is testifying from facts, I
would like to know whether he is testifying from actual knowledge
or hearsay.
Mr. W m iA M S . As far as that information is concerned, I should
like you to gain the information from those who can testify as to
that matter from their own knowledge.
R e p re s e n ta tiv e M i l l s . W e ll, I s h o u ld lik e t o k n o w w h a t w e ig h t to
a ccord t o y o u r p a rticu la r te stim o n y .
Mr. W i l l i a m s . What particular testimony?
Representative M i l l s . That these excessive demands are made
in certain districts.
Mr. W i l l i a m s . I tell you I heard it on what I believe to be good
authority, and I tell you where you can get that information con
firmed or denied.
Representative M i l l s . But your information is hearsay?
Mr. W i l l i a m s . But it is sufficient to permit me to form con
clusions.
Senator R o b i n s o n . Where can the information be obtained?
Mr. W i l l i a m s . From the Federal Reserve Board.
The C h a ir m a n . Well, Mr. Williams, it seems to me that if youknow where cases of this kind have occurred you should state.
Mr. W i l l i a m s . I know second hand. I prefer that you should
get it first-hand.
The C h a ir m a n . I know, but I am saying that I think that if you.
know where cases of this kind have occurred, that you ought to tell
the committee where they have occurred in order that the committee
can make the necessary investigation.
M r. W i l l i a m s . I su g g e st th a t y o u c a n m a k e th e n e ce ssa ry in
v e stig a tio n .
The C h a ir m a n . We can not proceed on general statements, Mr.
Williams.
Mr. W i l l i a m s . I suggest that you get the information from the
Federal Reserve Board/
The C h a ir m a n . I think it is fair to the Federal Reserve Board and
fair to the committee that you give information that you can in
detail so the thins can be run down by us and by them.
Mr. W i l l i a m s . I will be glad to come back before the committee
if the Federal Reserve Board tell you they know nothing about it.
The C h a ir m a n . Well, I have expressed my opinion about what
you ought to do. Proceed.
Mr. W i l l i a m s . I will read you a letter, with your permission,
which I addressed to the governor of the Federal Reserve Board
under date of December 28, 1920.
Senator C a p p e r . May I suggest that you made a very forceful
appeal to the Secretary of the Treasury for the resumption of the
functions of the War Finance Corporation? I am curious to know
what response you got to that.
Mr. W i l l i a m s . I think it was a water haul.
Senator R o b i n s o n . Y o u mean he d id not reply to your letter?
Mr. W i l l i a m s . No; I mean that the functions of tne War Finance
Corporation were not resumed at that time.
91341—22—VOL 2----- 0
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Senator R o b i n s o n . Did Mr. Secretary Houston make a reply to
that letter ?
Mr. W t t .t .t a m b- I don’t think he made a direct reply to that letter.
I think that his acknowledgment of the receipt of my letter took the
shape of a copy of a letter which he had written to some one else
ana which he sent me. I don’t think the letter itself was ever
acknowledged, except in that way.
Senator C a p p e r . The War Finance Corporation has since resumed,
and rather justified your stand taken by you there ?
Mr. W i l l i a m s . Yes; I think it was a most excellent move when it
resumed.
My letter of December 28, 1920, is as follows [reading]:
Hon. W. P. G.
H a r d in g ,
Governor Federal Reserve Board, Washington, D . C.
D e a r G o v . H a r d i n g : In a letter which I wrote you on October 18,1920,1 directed
attention to the terrific shrinkage which had taken place in the value of nearly all
commodities and materials since the early months of this year and since the Federal
Reserve Board adopted the policies which have governed the reserve system during
the past 12 months, and I urged the importance of taking proper steps toward pre
venting unnecessary demoralization, loss, and panic'and to promote stabilization.
In the opening of my letter I said:
“ In my opinion, the declines which have taken place in commodity values in the
past six months have been due primarily to the operation of natural causes, and these
.declines in orderly manner have been facilitated b y the policies pursued by the Fed
eral Reserve Board during this period. The recession from the unnatural prices
which prevailed in the case of so many commodities was desirable and inevitable,
and it was proper that the Federal Reserve Board should have endeavored to have
thin decline proceed gradually rather than by withholding all restraint, making pos
sible later on a collapse and disaster.
“ The decline which has taken place in the prices of leading commodities in the
past few months has probably been without precedent in the commercial history of
this country, and the extent of this shrinkage in values, as expressed in dollars, has
been appalling. It will require exceedingly skillful handling on the part of our
bankers and business men to prevent the shock of this decline from precipitating
numerous failures in business and banking circles and widespread uneasiness ana
disturbance.”
After giving concrete facts and figures to illustrate the unprecedented shrinkage
which had taken place in values, I said:
“ These figures indicate an economic upheavel which must be faced and handled
with all the skill and wisdom we can command.
“ The plans and policies which have aided in bringing about deflation in the great
staple commodities should be at once taken up for consideration and revised as far
as mav be necessary to meet present and changed conditions. If this is not done
speedily, I am fearful as to the consequences which may ensue. ”
Since my letter to you was written, commercial, industrial, and financial conditions
have become steadily worse; and the further shrinkage which has taken place since
the middle of October amounts to billions of dollars.
I feel more strongly than ever that the welfare of the country calls for the adoption
of somewhat more liberal policies on the part of the Federal Reserve Board ana thr
Federal reserve banks whose powers are now more widely recognized and acknowl
edged than ever before.
It is my strong belief that it is within the power of the Federal Reserve Board at
this time, by the adoption of new, wise, liberal, and sound policies and the announce
ment of such policies, to instill a feeling of confidence and hope and to check the
spirit of demoralization which, unless arrested in time, may lead to disaster.
It is plain to every one that the business depression from which this country has
been suffering has become world wide; and it would be unreasonable for us to expect
a very early return to normal conditions.
On the other hand, the collapse in business and in industry has been so sudden and
so drastic that the decline in the prices of some products can not be expected to go
much further; and in the absence of an explosion or general collapse, it will be only
a question of how long we may expect to drag along on the bottom, and when the
turn for better times will come.
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H e dominant position which this country holds now as the world’s chief creditor
and principal reservoir of capital and credit means that this country is likely to have
for some years to come a greater influence upon the industrial and financial condi
tions of other countries than these other countries are likely to exert upon us. BUt,
however, that may be, the countries of the world are probably more mutually inter
dependent at this time than ever before. It was probably the slackening in our
purchases of silks and other Japanese products which precipitated the commercial
and financial crises in that empire last spring. Although the withdrawal or curtail
ment of American credits in South America has been an important factor in bringing
about the depression in business, and the shrinkage in values in those countries, it
ms inevitable that prices must sooner or later recede to a more normal basis.
The Federal Reserve Board saw plainly a year ago that this country was living in
a delirium of high prices, extravagance, and luxury. Production had been curtailed;
while consumption had enormously increased, and the creation of new capital and
savings was proportionately reduced. It was realized that the brakes should be
applied, for otherwise inflation might run mad with a resulting explosion in business
ana finance from which it might take us many years to recover, despite the salutary
and saving power of our banking and currency system, It was, therefore, wisely
decided that an effort should be put forth at that time to curb the extension of credit
for luxuries and nonessentiale, while giving full and proper protection, as far as possible,
to formers and all industries and enterprises engaged in the production of the “ essen
tials. ” On this point the board was practically unanimous.
This restriction of credit it was hoped would restrain extravagance and luxury and
increase the production of commodities and materials which were most needed by the
people, the prices for which had soared to unjustifiable heights.
Tne policy adopted by the Federal Reserve Board a year ago was successful in aid
ing in bringing about an orderly deflation. The skyward movement of prices was
halted, and tne price tendency for many commodities was duly reversed. The
downward movement, slow at first, however, became precipitate during the summer
and the early autumn months.
Events, developments, and conditions warn us to remember that a stoppage too
sudden may be as disastrous as an explosion; that an unyielding barrier thrust into die
path of a runaway machine may only hasten wreckage and assure a smash which
skillfully regulated guidance might prevent.
Two months of actual experience which have elapsed since my letter to you of
October 17, 1920, was written tend to intensify rather than diminish my feare for the
immediate future. I am as confident of the safety and development of American
business, society, and Government as the most enthusiastic optimist, but it is our
pvt to strain every nerve and apply every resource of labor, thought, and self-sacrincing patriotism to avert an interval or disaster, or to make it as brief and easy as may
be possible.
It is poor comfort to the man or woman with a family denied modest comforts or
pinchea for necessities each week to be told that all will be, or may be, well next
year or the year after. Privations and mortifications of poverty can not be soothed
or cured b y assurances of brighter and better days some time in the future. Our
hope and purpose must be to forestall and prevent B u fferin g and privation for the
people of to-day, the children who are growing up and receiving now their first im
pressions of life and their country.
I am far from believing in a paternalistic Government; but I also think there are
emergencies when the powers of Government may very properly be used and ought
to be used for the purpose of stabilizing business and averting financial panics when
they threaten, and preventing commercial crises.
War forced our Government to become not only paternalistic, but possessive and
controlling in its relations to commerce. Bitterly as we may resent paternalistic
policies and resist continuance of them, we must realize the facts. Those policies
trere adopted suddenly, even violently, in emergency. They have developed,
inevitably, an emergency of peace more threatening in some respects than that of war.
Sudden and violent abandonment of governmental direction; influence, and assistance
would be like seizing a vast and intricate and delicately adjusted machine, operating
it at high pressure in new conditions and for new purposes, and then dumping it, dis
organized, disarranged, and out of gear, leaving its former managers to readjust it and
run it as they can.
During the past several years I have seen many occasions where the action of the
Treasury Department has distinctly prevented financial panics.
I have witnessed other occasions where the mediation and timely action of the
Treasury has ameliorated many serious and dangerous situations, and has been an
important factor in checking grave losses to the business interests of the country.
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At other times the same influence has been exerted to aid directly in the stimulation
and encouragement of our commercial and industrial interests.
The part which the Treasury took in the formation of the cotton pool in 1914 is one
illustration. Another illustration wae the action of the Treasury in organising the
War Risk Bureau, which made possible the continuance of our export trade in the
early days of the war when cargo insurance was unobtainable elsewhere.
The action of the Treasury in making practicable the emergency currency law and
in facilitating and expediting the issuance of that currency in tne Bummer and autumn
of 1914 averted a financial catastrophe and prevented chaos. These illustrations could
be multiplied, if need be, but vou are doubtless as familiar with them as I am.
Opinions differ as to what should be done at the present time to ease conditions
and inspire hope. Among the practical things that would help it iB my judgment
that the Federal Reserve Board would be justified in reducing the rate of interest
which is being charged by Federal reserve banks on the loans of member banks
secured by Liberty bonds, from the present rates of 6 per cent and 7 per cent to a uni
form rate of, say, 4J per cent. The owners of these bonds do not ask the Government
to buy their bonds to Bave the holders from loss, and it hardly seems right under
present conditions to tax these borrowers for interest on money borrowed from the
reserve banks to 1} per cent or 2} per cent more than the bonds yield, especially when
this interest so collected goes back to the Government indirectly.
I also think it would be well under present conditions either to suspend or to modify
the operation of the progressive interest rate to member banks which, in order to save
their customers and clients from disaster, have received from the reserve banks larger
advances on eligible paper than their pro rata portion of the reserve bank’s resources.
Six per cent interest is enough to charge under present conditions. Mv attention
was called recently to a member bank in the West (whose loans were principally to
farmers') which had been charged by the reserve bank of its district as high as 19}
per cent on some of the loans whicn it had taken in order to accommodate need)
customers.
I am receiving constantly letters and bitter complaints alleging restrictions of credit
in different parts of die country, not only from farmers but from ou er business interests.
For example, in a recent letter from the president of a successful national bank in
the third Federal reserve district, he said:
“ In the industrial world the consequences of high interest rates and curtailed credit
is not less unhappy. Last night I was talking with a man running a furnace near
---------, Pa., who has values in stock and plant of over $400,000, owes only $60,000 on
his plant and $52,000 on his stock. He has 10,000 tons of iron at Buffalo and although
he has orders from a reliable firm for every ton of his pig iron he can turn out, he can’t
borrow the money from the bank at the rate of $7 a ton to release and ship the ore
to his furnace. He has orders for all the product he can turn out and yet can’t get
credit to carry on a legitimate business.
“ This condition grows out almost exclusively of a frightened condition due to a
policy of restricted credit and excessive interest rates.”
On the other hand. I know that it has been the general desire and aim of the Federal
Reserve Board and tne Federal reserve banks to care for the legitimate demands of the
farmers and other borrowers; and to prevent, as far as practicable, the imposition
of hardships anywhere.
Nevertheless, the present emergency is bo acute that I can not avoid the conclusion
that a more liberal policy than is now being pursued would be justified. While
there is a very neat scarcity of credit in various parts of the country, we find that the
reserves of the Federal reserve banks are now actually higher than they were a year
ago, averaging 45.1 per cent for all the 12 reserve banks on December 23,1920, against
44.8 per cent for the corresponding week in 1919.
These banks have an unused Tending power at this time (without reducing the
reserve requirements) of about $700,000,000; and by waiving or reducing their require
ments as to reserve by only 10 per cent, their lending power could be increased to
about $2,500,000,000.
The business interests of the country, agricultural, manufacturing, commercial,
■and all other have, during the past year, sustained a strain and have endured a shrink
age in values which have been unparalleled in the commercial and economic history
of any country
The decline in prices, multiplied by the volume of commodities now on hand or
produced during the past season, discloses an apparent shrinkage in values that is
staggering. A decline of $1 per bushel, for example, in the three and one-fourth
billion bushels of the com crop would amount to, say, three and one-fourth billion
dollars. The shrinkage in cotton values from 40 cents to about 15 cents per pound on
] 3,000,000 bales,together with the shrinkage which has taken place in the same period
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AGBICUMTUBAL 1 IH U IH .
ill cotton seed, shows an estimated loss of about $2,000,000,000 more. The difference
between the present price oi wheat and the price which the fanner expected to get
for the crop accounts for another billion and a half. The shrinkage in the value of
the stocks of wool, hides, leather, fun, silkB, and sugar runs into billions of dollars.
My estimate is that the shrinkage in values in this country from the highest prices
of 1919-20 to the low of to-day in the year’s products of our fields, mines, factories
mills, and forests, plus matenals left over from the previous year, will amount to,
somewhere from twelve to eighteen billion dollars, practically as much as the total
amount of our liberty bonds now outstanding, or, as another illustration, property
values in this country which have apparently melted away in the past 12 months,
represent a sum far greater than the total gold supply of the whole world at this time.
The significance of these figures and of these terrific losses may be better imagined
when we recall that the total wealth of this country in 1900 was estimated at only
188,000,000,000.
The orders for goods which have been canceled in the past few months and the
goods which have been thrown back on the hands of the sellers—both as to domestic
and foreign business men—amount, it is understood, to many hundreds of millions
of dollars. Bills of exchange drawn on foreign countries against shipments are being
returned protested, while the shipments lie rotting or deteriorating in foreign har
bors—the Orient, South America, Cuba, and elsewhere.
I was told recently that an officer of a prominent bank had stated that he had
already been placed in the creditors’ committee of 30 different business houses or
corporations which were unable to meet their obligations.
Pitiful tales come to me from national bank examinera in different parts of the
country. The chief examiner from the Kansas City district told me .recently that
in parts of his territory the most heartbreaking tragedies were being enacted—
farmers turned away from their farms, their cattle and implements sold, and ruined
families becoming wanderers on the face of the earth.
The same examiner informed me of cases where farmers are being pitilessly sold
oat, and stated that in sections of the West the scarcity of money is such that their
Horses are being sold sometimes as low as $3 apiece, ana purchased by impoverished
neighbors who kill them and feed their flesh to their hogs and obtain some reim
bursement b y selling the hide of the horse.
I am also reliably advised that in parts of the South the scarcity of money is so
great that farm mules are being sacrificed at foreclosure sales at 10 cents on the dollar
of their value a year ago, and that to raise cash other property is being thrown over
board in the same proportion.
In Wyoming I am told that there are millions of pounds of wool which the wool
powers are quite unable to sell at this time and that in other parts of that State there
u an abundance of cattle feed but that the cattle have disappeared.
In sections of Oklahoma it is reported that some farmers have abandoned their
cotton fields because they can not raise enough money to pay the labor cost of picking,
and that growers who have abandoned their own cotton fields where they have raised
an indifferent character of cotton, are making $1.75 a hundred pounds for picking
the cotton o f neighbors who have produced cotton of a grade which will bring a better
price than their own. I am also credibly informed of farmers in the West, where
there is no wood or coal and no money to bring in fuel, who have actually been burningtheir corn for fuel in their extremity.
The governor-elect of North Carolina told me last week that the situation in his
■ection is so lamentable that three citizens of one county, with hope destroyed and
nerves shattered, unable to struggle longer with desperate conditions, had ended
their lives b y suicide. A few days ago a former member of Congress from Georgia,
the president of a well-run and successful national bank in that State, apparently
tmable to stand the Rowing misery which he beheld around him, aU» ended his
life in the same direful manner.
I have given instructions that, as far as the authority of this office will permit, the
hanks under my supervision shall be urged to use in these critical times every proper
means to prevent m e selling out of honest debtors at sheriffs' sales and the ruin of
their families by extending them time and by giving them, wherever practicable,
the opportunity to hold on to their farms and their fanning implements, to the tools
of their trade or to the equipment of their business, whatever it is; and that these
debtors be given a chance to recoup and to redeem their indebtedness and get again
on their feet.
The member banks thus called on to give time and to show consideration to debtors
will naturally demand and expect from the reserve banks consideration and forebearance, and, in the language of the poet, can properly say to their reserve banks,
‘The mercy I to others show, that mercy snow to me.”
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Such facto and conditions as have been brought go vividly before us can not b e
met with theories or removed by explanations and should not be dealt with by vague
surmises and promises or unconsidered experiments. They demand definite and
energetic action, even if precedent must be disregarded, accepted rules suspended
or waived, and new plans and methods devised.
The people have intrusted their welfare and interest to those of us who have been
honored with public office of any degree and in any department of the Government,
supposing us to be fitted for our task by knowledge, intellect, and character. Our
plain duty is to act as promptly and as independently of usual habits of thought as
may be necessary to find and apply remedy.
While there appears to be this scarcity of money, and of credit in the great agri
cultural and producing sections ol the West and Northwest and in the South and
Southwest, we find that individual banks in New York City are borrowing from the
reserve system, in a number of cases, more than $100,000,000 each; and sometimes
as much as $145,000,000 is loaned there to a single bank—twice as much as the total
loans some of the reserve banks have been lending recently to all the member banks
in their districts.
The records show that at the time of the last call for reports of condition of the
banks, about the middle of November, one bank in New York was borrowing over
$134,000,000, or about $20,000,000 in excess of what the Federal reserve bank of
Kansas City was advancing to the 1,091 member banks in the tenth Federal reserve
district covering the States of Kansas, Nebraska, Colorado, Wyoming, and parts of
Missouri, Oklahoma, and New Mexico.
Another banking institution in New York was borrowing at the same time from the
Federal reserve bank about $40,000,000 more than the aggregate which the Federal
reserve bank of Minneapolis was lending to its 1,000 member banks in the great
States of Minnesota, North and South Dakota, Montana, and part of Wisconsin.
Another individual bank in New York was borrowing from the reserve bank at
the time of the last call about $30,000,000 more than the Federal reserve bank of
Dallas was lending to all the national banks in that district including the State of
Texas, and parts of Louisiana, Oklahoma, New Mexico, and Arizona, while still
another banking institution in New York had gotten loans from the New York re
serve bank which approximated in amount the total of the loans made by the Federal
reserve bank of St. Louis to the 569 member banks in that particularly important
district, including the whole State of Ai'kansas, parts of Illinois, Indiana, Kentucky,
Tennessee, and Mississippi, and the larger part of the State of Missouri.
The Federal reserve bank of New York was also lending to one of its member banks at
the same time $20,000,000 more than the Federal resetve bank of Richmond was lend
ing to all the member banks in the fifth reserve district, including the States of Mary*
land, Virginia, North and South Carolina, and the larger part of West Virginia.
An important question is how far the enormous sums which the reserve system is
lending to the banks in the large cities are being used for the protection and promotion
of legitimate business and how far these funds are being employed in speculation or for
the selfish interest of the officere and directors of the borrowing banks and for the con
cerns in which these officers are specially interested.
The inequalities and injustice in the distribution of these funds become apparent
when we analyze the usee which big favored banks in the East sometimes make of the
money they Ixjrrow from the reserve system.
My attention was recently directed to a certain large bank which was borrowing
more than ■ - ■ million dollars from the reserve system and which at the same time
was lending to its own officers and directors and to their affiliated interests between
------ - and-------- million dollars.
It was also developed that this same bank, to which the Federal reserve bank was
lending more than-------- million dollare, had loaned to its chief executive officer
and his family more than-------- million dollars; and that the loans, which this par
ticular bank had made to ite chairman, president, vice president, and one director for
their personal operations and for their-------- affiliated companies, aggregated more
th a n ---------- m illion dollars.
Briefly, the official figures tell us that four banking institutions in New York City,
at the time of the last call, were borrowing from the reserve system an average of over
$118,000,000 each—or practically as much money as the Federal reserve banks of
St. Louis, Kansas City, Minneapolis, Dallas, and Richmond, all combined, were
lending to more than 4,000 member banks in 21 States in the Union, comprising more
than one-half of the entire area of the United States. If our reserve system has the
funds to lend in such huge sums to the banks in New York, for such uses, is it not
difficult to understand why money should be so scarce in the interior where the real
wealth of the country is being so hugely produced, and where money is so distressingly
needed?
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The money scarcity in the interior of the country has been greatly aggravated, as
I have already explained publicly, by the artificially fixed interest rates in New York
City, which nave had the effect of withdrawing money from legitimate business in
various parts of the country to be loaned at fancy rates in Wall Street.
The reports to this office show that at the beginning of August last, when money
was being needed for crop-moving purposes, the national banks alone in New York
City were lending in New York on call for account of correspondents and customers
over $300,000,000, which is a greater sum than the Federal reserve banks of Minne
apolis, St. Louis, Kansas City, Dallas, and Atlanta were lending to the more than
4,000 member banks in those five Federal reserve districts.
It is also worthy of note that while the reserve system has been lending these huge
sums to the banks in New York City during the past 12 months at average rates of
probably less than 6 per cent, these same borrowing banks have been lending to other
Sorrowers at interest rates greatly in advance of those paid the reserve banks—many
millions being sometimes loanea, as 1 have heretofore shown, as high as 20, 25, or
30 per cent.
In my judgment, it would be well for the Federal Reserve Board, in extending
these huge accommodations to banks, to stipulate that the banks borrowing from the
reserve banks shall not exact from customers interest in excess of some rate or margin
to be determined, which will leave not more than a reasonable profit to the member
bank.
Member banks should be given to understand that the board disapproves and will
not countenance the excessive rates which have been in vogue in New York City
and which are higher than the rates charged by banks in any other country in the
world. Such rates, in my opinion, have been very damaging to the commercial
and financial interests of the country, and I submit that it would be well for the
board to establish regulations to prevent the reserve banks from lending monev to
member banks at 6 per cent to be passed on to customers at extortionate rates. The
effect of such a regulation, I believe, would be most helpful and salutary.
The records of this office show numerous instances of banks which have gotten
large sums of money from the reserve banks to be loaned in Wall Street for the pur
pose of profiting by the difference in interest rates.
The official reports also show that in addition to the money which the New York
banks were lending on call in New York for account of their correspondents and cus
tomers, the national banks in New York City this time last year had on deposit to
the credit of their correspondent banks in all parts of the country, approximately
1900.000,000 more, while the total sum which the New York national hanks were
lending, directly and indirectly, to all other banks throughout the country was con
siderably less than one-fourth of that sum.
Existing banking conditions and practices at this time are. of course, in many
respects extremely unsatisfactory and hard to excuse or explain. The important
thing is to find and apply proper remedies. Perhaps there has never been a time
when the business and industrial interests of the country were more deeply dependent
on a sound, wise, and courageous administration of our banking and financial system
than at the present moment.
Thus far tne banks under the supervision of this office have made a wonderfully
gratifying showing and we have been able by the utmost watchfulness and care to
prevent many failures and to save many a bank that was headed in the wrong direction.
I am informed that in the past 60 day^ from 95 to 100 banks under State supervision
in 20 different States have failed. During the same period less than one-twentieth
of that number of national banks have been placed with receivers, but I am apprehen
sive as to what the developments of the next few weeks may be unless some positive
steps are taken to ameliorate conditions and.to safeguard the situation, and I believe
that this can be done.
This is a time for cool heads, resourceful brains, and strong, courageous hearts. It
is time for all of us to abandon the ordinary motives and throw aside the prejudices
of party, class, and section, even to disregard our own direct interests in unitea, faith
ful effort for quick and comfortable restoration of normal and healthy conditions and
improvement on old conditions. For myself, as one Democrat, I intend to cooperate
cordially and loyally, in and out of office, with every real endeavor of the new ad
ministration to those great ends. I believe all thinking and patriotic people of my
political opinions and affiliations will share and be governed by that purpose, although
lacking perhaps my exceptional opportunities at the present time for knowing tne
gravity of the situation and the urgency of the demana on our Americanism. Our’s
is a Government of the people.
The crisis we face oners an extraordinary opportunity for demonstration of our
opacity for self-rule and ability to extricate ourselves triumphantly from danger and
complicated difficulty. If Government and all citizens, Democrats and Hepubli-
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AGRICULTURAL INQUIRY.
cans, capital and labor, fanners and manufacturers, bankers and merchants, will
work together with that really intelligent selfishness which realizes the value of and
necessity for mutual concessions and helpfulness and the surrender of some immediate
gain for permanent and general betterment of all, we can solve the problem within a
few months.
We have wealth, brains, peace, stability, endless producing power, unlimited stores
and storehouses of raw material. If we mil use these with the generous patriotism
and allegiance to each other and our country that gave us victory and honor, with
the help of God, in the war, we will with the Bame help conquer the ill results of war
with rapidity and completeness which will astonish us.
We gave the lives, blood, and limbs of our young men and poured out our money to
winin Europe. I am confident that you must feel as I do, that if we will now sacrifice
prejudice, greed and the sordid selfiumess that is the densest stupidity, we will win
at name against the evils that now beset us, at loss infinitely leaB, and with greater
celerity.
I earnestly hope that the board in considering the problems which are before ui
may find ways and means to alleviate the evils which exist, and with its great influfluence and power take immediate action to aid in bringing about an early restoration
of sound ana healthy conditions, new growth and renewed prosperity. On my part
I believe there is abundant justification for this hope.
Faithfully, yours,
John Skelton W illiams .
Representative Muxs. Now with reference to that letter. Tou
gave again—referring to the discount figures and loans to member
banks—absolute figures and not relative figures, did you not ?
Mr. W illia m s . TTes. I was giving it to the federal Reserve
Board, though, which had both.
Representative M ills . Now you cited the five largest borrowers
in New York City.
Mr. W illia m s . I cited five large borrowers. I do not recall
whether they were the largest or not. They may have been.
Representative M i l ls . Now, isn’t it a fact that while at that time
those banks had borrowed 142 per cent of their basic line, all member
banks, not merely the five largest borrowers, in the Richmond district,
had borrowed 121 per cent of their basic line?
Mr. W illia m s . I don’t know.
Representative M ills . In the Atlanta district, 211 per cent; in the
St. Louis district, 117 per cent; in the Minneapolis district, 126 per
cent; in the Kansas City district, 115 per cent; m the Dallas district,
110 per cent.
At the same time the five largest borrowers in the Richmond
district were rediscounting 271 per cent of their basic line; the five
largest borrowers in the Atlanta district were rediscounting 327 per
cent of their basic line; in the St. Louis district, 152 per cent; in the
Minneapolis district, 263 per cent; in the Kansas City district, 196
per cent; and in the Dallas district, 167 per cent. Isn’t that the fact 3
Mr. W illia m s . I don’t know whether your figures are correct or not
Representative M ills . Y ou have seen those figures before, have
you not ?
Mr. W illia m s . Not that I recall. Where do you get them?
Representative M ills . I will ask you whether your letter of De
cember 28 was ever answered by the Federal Reserve Board. .
Mr. W illia m s . It was, and I have the answer before me, and I do
not find your figures that you read out in that answer.
Representative M ills . D o you find any figures of that kind in that
answer?
Mr. W illia m s . No; I do not. What do you say the Richmond
district was ?
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a g r ic u l tu r a l in q u ir y .
187
Representative M ills . I haven’t got their answer before m e. I
haven’t seen it.
Mr. W illia m s. Well, the figures which you read out were not before
me.
Representative M ills . Did they give you any figures ?
Mr. W illia m s. 1 have the letter before me.
Representative M ills . Did they give you any figures as to the basic
line of borrowings ?
Mr. W illia m s . I received this letter, and I answered it, and with
the permission of the committee 1 shall read my answer and this letter
I received, both.
Representative M ills . Have you any objection to putting the
answer of the Federal Reserve Board into the record ?
Mr. W illia m s . None whatever.
Representative M ills . I suggest that that be put into the record.
The Chairm an. Y o u are referring now to the letter of March 16?
Representative M ills . N o ; 1 am referring to the answer to M r.
Williams's letter of December 28.
The Chairm an. Well, the figures which you give are in the letter.
Mr. W illia m s . Will you read those figures and see if I can follow
them. 1 have certain figures here, but I do not find the figures which
you read just now.
Representative M ills . These are the figures for the five largest
borrowers in the Richmond district, 271 per cent.
Mr. W illia m s . 1 find all members o f the Federal reserve district
of Richmond, 121 per cent.
Representative M ills . Yes.
Mr. W illia m s . I don’t know whether the letter contains the figures
which you give.
Representative T e n E y c k . Wouldn’t it be better to have him read
the answer to his letter now into the record ?
The C h airm an. I have no objection to his reading it.
Mr. W illia m s . I have no objection.
Representative T e n E y c k . I think it ought to go in in its proper
place.
Mr. W illia m s . Yes; I haven’t the slightest objection. It is for
the committee to say.
The C h airm an. I think we had better get it all in.
Representative M ills . I will not pursue this inquiry any further if
you read that letter into the record.
Mr. W illia m s . 1 have not the slightest objection to its going in.
The C h airm an. The letter speaks for itself. I suggest that the
reply of the governor of the Federal Reserve Board to Mr. Williams’s
letter, under date of January 13,1921, be read into the record. With
out objection it may go in.
Mr. W illia m s . In connection with the letter which I have just
read it might be well to read the following memoranda. [Reading:]
J anuary 3,1921.
Mr. Co m p t b o l u b : The board is about to take up question of salaries.
Reepectfully,
W. W. H oxton , Secretary.
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AGRICULTURAL INQUIRY.
And then this further memorandum.
[Reading:]
Ja n u a r y 3 ,1 9 2 1 .
Mr. Comptroller: The meeting has been called by the governor who has matters
to present of which I have no knowledge.
Respectfully,
W. W. Hoxton.
The C h airm an . Are these letters addressed to you ?
Mr. W illia m s . Yes; letters between myself and the board.
The C h airm an . Very well.
Mr. W illia m s . Relating to the letter which has just been read
[reading]:
Ja n u a r y 3 ,1 9 2 1 .
Memorandum for Gov. Harding.
1 have just received notice of a special board meeting. If merely matters of routine
are coming up I would like to be excused owing to pressure of work on this office but
if any matters of special importance are to be considered, please advise.
J. S. W.
And here is a letter dated January 6, 1921.
[Reading:]
My D ear G overnor : In our informal chat this afternoon you asked me why I
did not bring up at a board meeting the subject of my letter to you of the 28th ultimo
and the recommendations which it embraced. I replied that I will be glad to take
the matter up with the board and go into full details at any time it may suit your con
venience.
I reminded you that I had requested that the letter should be brought to the atten
tion of the board and that I had been watching the docket so that I might be present
when the subject should come up for discussion. I have seen no reference to the
matter.
I also reminded you that when I was notified of a special meeting on Monday, think
ing that possibly this matter might be considered, I sent in a note to you in tne board
room in order to ascertain the subject for which the- special meeting was called; and
that in reply to my note to you I received a note from the Secretary that the board
was about to consider the subject of salaries. I am not advised as to whether or not
the subject of my letter has thus far been mentioned at any board meeting, but if you
will let me know when the board may care to discuss the subject, which in my judg
ment is an exceedingly important one, I shall be glad to arrange to be on hand.
Sincerely, yours,
John S kelton W ii.m a m r .
Hon. W. P. G. H ardino .,
Governor Federal Reserve Board.
Gov. Harding writes to me on January 7, 1921, as follows [reading]:
Replying to your communication of the 6th instant, I
would state that an informal conference of board members was held in my room yes
terday afternoon, and it was decided that in as much as you had deemed it proper
to express your views in writing that I should prepare a written reply which would
express the viewB of all members of the board, other than yourself, ana that when the
reply is ready for delivery to you, a formal meeting of the board will be held to discuss
both your letter and reply thereto. As soon as certain statistics which I have asked for
are ready, I will prepare the reply to your letter and submit it to Secretary Houston
and tiie appointed members of the board. I may add that I share in the view which
1 have heard you express on several occasions in times past that there ought to be no
distinction between the ex officio and appointed members of the board, but it seems to
me that in the method you have chosen in presenting your ideas to the board, you,
yourself, are creating such a distinction.
Very truly, yours,
W. P. G. H ardino , Governor.
Hon. John S kelton W illiams ,
D ear M r . Comptroller :
Comptroller of the Currency.
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130
And I wrote the following memorandum on January 10, 1921
[reading]:
Memorandum for Gov Harding:
Just received verbal notice, from messenger, of board meeting now convening in
your office (purpose of meeting not stated). If any special matter of importance is
coming up will arrange to attend, but if merely routine matters are to be discussed
would like to be excused, as I am occupied with some important work just now.
J. S. W.
And then the following [reading]:
J a n u a r y 10, 1921.
Delivered the original of attached memorandum to Mr. Eddy, who after looking
into the matter, reported that only routine matters were being considered by the
board at the meeting referred to.
A. B. C.
And as the result of the board’s receipt of my letter, without dis
cussing the subject in a meeting at which I was present, as far as I
recall—although I held myself ready at all times to attend the meeting
if called—I subsequently received on January 13,1 think it was, that
letter which I have here, and to which I referred, and which it is the
desire of the commission, I understand, shall be read into the record.
The C h a ib m a n . Yes.
Mr. W illia m s . That letter is as follows [reading]:
F
R
O f f ic e
ederal
eserve
of the
B oard,
Governor,
Washington, January IS, 19S1.
Mr. C o m p t r o l l e r : This is a formal acknowledgment of receipt of your letter
of December 28, 1920, which was written on official stationenr'of the office of Comp
trollerof the Currency, signed by yourself individually and addressed to me as governor
of the Federal Reserve Board.
I am informed that you sent a copy of this letter to other members of the board.
It is not altogether clear whether you are writing in your individual capacity, as a
member of the Federal Reserve Board or as Comptroller of the Currency, but as you
refer in several places in your letter to instructions which you have given as Comp
troller of the Currency ana to information that you have received in that capacity, I
w n e that it will be proper to regard your communication as one from the Comp
troller of the Currency.
I assume also that your object in addressing a written communication to the board
is to make a record of your views, for if it had been your purpose merely to have the
board consider the matter of changing discount rates, you could, in your capacity
as a member of the board, have had the subject put upon the docket at any tune or
you could have brought it up informally at any meeting of the board.
This reply to your letter represents the views of the Secretary of the Treasury, who
is chairman of tne board, as well as those of Messrs. Platt, Hamlin, Miller, Wills, and
myself. For the sake of brevity, I shall make use in this letter of the pronouns “ we,”
"our,” and “ us,” it being understood that these pronouns refer to the members of
the board above named.
It seems to us, in the first place, that you have overlooked the underlying causes
which have brought about the conditions which have aroused your sympathies and
concern. In the wake of the world-wide inflation which was caused by the war, there
followed, some months after the armistice, a period of reckless extravagance, recordbreaking prices, speculation, and general disregard of sound financial and economic
principles. It was recognized by prudent and well-informed men everywhere that
such conditions were abnormal ana could not continue. As early as August, 1919,
the continuous expansion of credit and the constantly advancing cost of living became
objects of grave public concern and the United States Senate addressed a communi
cation on the subject to the Federal Reserve Board on August 5, 1919. Shortly after
ward the President in an address to Congress called attention to the dangers of the
situation. As late as the 17th of May last, the Senate adopted a resolution directing
the Federal Reserve Board “ to advise the Senate what steps it purposes to take or
to recommend to the member banks of the Federal reserve system to meet the exist
ing inflation of currency and credits and consequent high prices, and what further
steps it purposes to take or recommend to mobilizo credits in order to move the 1920
crops.”
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The board, after repeated warnings had proved ineffective, deemed it necessary to
resort to the well-tried method of advancing discount rates and approved moderate
advances for all Federal reserve banks late in the year 1919. In January, 1920, it
approved a shaip advance in rates for all banks and in May, 1920, approved the rates
which are now in effect. Meanwhile it became evident, early in the year 1920, that
the world had entered into a period of reaction. One of the earliest and most striking
manifestations of the fact that general readjustments were in process was the collapse
of the silk market in Japan early last spring. About that time it became evident that
there had been a sudden and violent revulsion of sentiment in the United States
against the unnatural levels which had been attained by prices, which had begun to
mount at a time when circumstances over which the Federal Reserve Board had no
control prevented the Federal reserve svstem from exercising its important function of
regulating the flow and volume of credit. Shortly after the break in the silk market,
large importations of wool to the United States coming at a time when the domestic
wool clip was ready for market resulted in a slump in the price of wool and m the utter
demoralization of the wool market. Sugar had been advanced by speculative manip
ulation until it reached a price which checked domestic consumption and virtually
stopped exports to Europe while stimulating imports into the United States from prac
tically every sugar producing country in the world. Then followed a drastic decline
in the price of sugar.
Imports of rubber and coffee increased in like manner until
the accumulated stocks became so great that the markets broke under their weight.
The domestic production of other great staples—cotton, corn, wheat, rice, and tobac
co—proved to be greater and the demand for them less than had been expected and the
prices of these commodities have experienced a drastic decline, due to the operation
of the economic law of supply and demand.
We recognize that the violent readjustments have caused much hardship and great
pecuniary loss, but we are convinced that the readjustments which have taken place
were inevitable and could not, even under the stimulus of inflation, have been long
deferred. It is our confident belief that but for the precautionary measures taken
several months ago, general conditions to-day would be far worse than they, are and
that the prospects of stabilization and revival would be much more remote. We wish
to emphasize the fact that this process of drastic readjustment has been world-wide
and that the effects have been most severe in those countries where the inflation of
bank credit and currency has been most pronounced. We believe that as far as this
country is concerned the crisis has been passed and we are of the opinion that the
policies which were carried into effect by the Federal Reserve Board have prevented
one of the greatest financial cataclysms of modem times.
We do not agree with you that in order to relieve existing conditions “ precedents
must be disregarded, accepted rules suspended or waived, and new plans and methods
devised,” particularly if those new plans and methods are fundamentally unsound.
We believe your suggestion that the Federal Reserve Board reduce the rate of interest
charged by Federal reserve banks on loans of member banks secured by Liberty bonds
to a uniform rate of 44 per cent is essentially unsound.
You say that “ the ownen of those bonds do not ask the Government to buy their
bonds to save the holders from loss, and it hardly seems right under the present condi
tions to tax those borrowers for interest on money borrowed from the reserve banks
1} to 2} per cent more than the bonds yield, especially when this interest so collected
goes to the Government indirectly." Entirely apart from the question whether
these bonds were sold to a patriotic public at rates of interest lower than they should
have borne, the Federal reserve banks are certainly under no moral or legal obliga
tion to protect the bondholders from loss of interest and the discount policy of tne
Federal reserve system can not be adjusted to suit the convenience or relieve the
necessities of individual holders.
Many billions of these bonds have been pud for in full and the effect, in the present
circumstances, of a Federal reserve bank discount rate of 4} per cent on paper secured
by Liberty bonds would be to induce a temporary and artificial ease in the money
market, which could not be sustained, because the lending power of the Federal
reserve banks has its limitations, and which might result in a temporary revival of
the speculative spirit which was so strongly in evidence 14 months ago and which
had such an unhappy effect upon the commerce and business of the country.
You suggest that the progressive rate which is in operation in three Federal reserve
districts should be suspended or modified. As you know, the board did not insist
that the progressive rate be applied in any district but permitted those Federal reserve
banks which desired to put it into effect to do so. It apparently has worked well in
the St. Louis district. When first applied, the Federal reserve bank of St. Louis
had a reserve, exclusive of rediscounts, of about 21 per cent. Its reserve is now over
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141
48per cent. The Federal reserve bank of Atlanta some weeks ago, with the approval
of the board, suspended the progressive rate and put into effect a flat 7 per cent rate.
In no district has the application of the progressive rate resulted in a general discount
rate as high as 7 per cent. The high rate to which you refer in your letter applies
only to a small portion of the advances received by that particular member bank
bom the Federal reserve bank, and the average rate charged that bank on all redis
counts at the Federal reserve bank is less than the contract rate permitted by law
which the bank is charging its customers.
You evidently appear to accept at their face value the complaints which you receive
fromdifferent parts of the country alleging restrictions of credit. Our experience has
been that these complaints as a rule do not bear analysis and we would suggest that
you follow up the statement made in a letter received by you from the president “ of
a successful national bank in the third Federal reserve district ” to the effect that a
furnace man doing business not far from his locality, who makes an excellent financial
showing, has 10,000 tons of iron in Buffalo, for each ton of which he has orders from a
reliable firm, and yet he can not borrow money from his bank at the rate of $7 a ton
to release and ship the ore to his furnace. We believe that there must be some other
facts in this connection which have been overlooked or omitted, for if the furnace
man is so deserving of credit and he has been so flagrantly ill treated, being denied
credit by his bank, it seems strange that your correspondent, the president “ of a
successful national bank ” doing business near by, does not himself offer to come to
the furnace man’s relief.
Apparently you hold the view that the decline in prices has been caused by restric
tion of credit on the part of the Federal reserve banks and by the member and non
member banks of the country. Your own reports show that there was a marked
increase in the loans of all national banks between September, 1919, and November,
1920, and the rediscounts of Federal reserve banks for member banks increased
steadily until November 5, 1920, when they reached the highest point in the history
of the system. Since that date there has been a moderate reduction in the loans
and discounts of Federal reserve banks, due mainly to seasonal liquidation. It is
significant, however, that the most rapid decline in prices took place before November
a, while the loans and advances made by the Federal reserve banks were constantly
increasing and the volume of Federal reserve notes outstanding was still expanding.
It seems clear to us, therefore, that the decline in prices was due to economic causes
and can not be ascribed to restriction of credit or to contraction of currency.
You refer to the fact that the combined reserves of all Federal reserve banks are
now actually higher than they were a year ago and urge this as an argument for “ a
more liberal policy.” The improvement in the reserve position of the Federal reserve
banks has had a reassuring and stabilizing effect and we hope that the reserves will
continue to improve for some time to come. We attach no significance to your state
ment that the Federal reserve banks “ have an unused lending power at this time
(without reducing Die reserve requirements) of about $700,000,000; and by waiving
or reducing their requirements as to reserve by only 10 per cent their lending power
could be increased to about $2,500,000,000.” You have made this statement pub
licly on two or three occasions during the past six months, and while we do not ques
tion your motives in giving publicity to tne statement we regret your action in doing
•oand feel that the effect has been harmful, for it undoubtedly has given rise to false
acpectationa and probably has caused holders of commodities, which could have been
liquidated several months ago at prices much higher than those now prevailing, to
hold on in the hope that the board would adopt a policy of inflation m an attempt
to sustain or advance prices.
You refer to the great shrinkage in values which has taken place during the past
year, estimating the amount at somewhere from twelve to eighteen billion dollars, Dut
vou do not refer to a corresponding expansion of values which took place earlier. We
hold that the shrinkage which has taken place is somewhat analogous to that which
occun when a balloon is punctured and the gas escapes.
We are surprised at the references you make to the dealings of individual banks in
New York City with the Federal reserve bank there, and particularly at your attempt
to show that a few large banks in that city have been receiving undue favors at the
hands of the Federal reserve bank. Your statements are calculated to mislead the
uninformed, for you say that about the middle of November, one bank in New York
was borrowing about $20,000,000 more than the amount the Federal reserve bank of
Kansas City was advancing to 1.091 member banks in the seven States or parts of States
embraced in its district; that another New York bank was borrowing at the same time
about $40,000,000 more than the amount which the Federal reserve bank of Minnea
polis was lending to its 1,000 member banks, and that another bank in New York
Citywas borrowing $30,000,000 more than the Federal reserve bank of Dallas was
lending to all national banks in its district (making no reference to advances to State
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member banks). You say also that another New York bankfhad received advances
from the Federal reserve bank oi New York equal approximately to the total loan s
made by the Federal reserve bank of St. Louis to its 569 member banks, and again
that the Federal reserve bank of New York was lending to one of its member b an k s
$20,000,000 more than the Federal reserve bank of Richmond was lending to all m em
ber banks in the fifth Federal reserve district.
These statements, if made public, would lead no doubt to much unjust criticism o f
the Federal reserve bank of New York, which had made the loans, and of the Federal
Reserve Board which had not prohibited them, but they are far from giving all the
facta in the case. In the first place, you take no account of the banking power of
the Federal reserve bank of New York as compared with the Federal reserve banks
of Richmond, St. Louis, Minneapolis, Kansas City, and Dallas nor do you think it
worth while to state the amount of the capital and surplus of the five banks referred
to and what their reserve balances are. You probable know that all Federal reserve
banks have a theoretical basic or normal discount line, which is based upon the reserv e
balances carried by the member banks plus the member banks’ stockholding in the
Federal reserve bank. You do not state, what you doubtless know, that there are
many member banks in the Federal reserve district of Richmond, St. Louis, Minneaolis, Kansas City, and Dallas which have rediscount lines at their Federal reserve
anks many times in excess of their basic lines and relatively greater than any line
ever given by the Federal reserve bank of New York to any of its member banks.
In order to correct any wrong impressions which you may nave or which m ay be
received by any who may read your letter, we call attention to the following table
which shows the basic lines, borrowing from the Federal reserve bank and ratio of
such borrowings to basic lines of five Targe New York City banks and all member
banks in six Federal reserve districts, as of November 15,1920. The five New York
City banks named in the table are undoubtedly the banks referred to in your letter.
E
Basic line.
Borrowings
irom Federal
reserve bank.
Per « m t of
borrowings to
ba«ic lin e.
National Cltv Bank...........................................................
Guarant vTrust C o............................................................
Chase National Bank......................................................
National Bank of Commerco.............................................
First National Bank..........................................................
$104, PW. 000
*9,8*8,000
62,053,000
59.174,000
41,881,000
fl23,81?, 000
118,125,000
97,150,000
102,746,000
05,000,000
11*
131
1G7
171
1*6
Total.........................................................................
357,920,000
50R.8S9.000
142
123,555,000
101.057,000
121
211
117
126
115
110
794,835,000
130
All members in the Federal reserve district of—
Richmond....................................................................
Atlanta........................................................................
102,188,000
St L oui?............................................................................
Minneapolis.......................................................................
Kansas C itv......................................................................
Dallas.................................................................................
81. 913.000
121,648,000
85,145,000
12$,355,000
91,703.000
T otal...............................................................................
611,012,000
172,658.000
142,927,000
107.520,000
147.11®.000
You will notice that in the Atlanta district the percentage of borrowings of all mem
ber banks to their basic line is 211, which is greater than tnat of the New York City
bank which shows the largest percentage of borrowings to basic line. You will observe
furthermore that the average percentage of borrowings to basic lines of the five New
York City banks on November 15 was 142, while the average percentage of borrow
ings of all member banks in the six Federal reserve districts of Richmond, Atlanta,
St. Louis, Minneapolis, Kansas City, and Dallas on the same date was 130. It
should be borne in mind that the borrowing banks in these districts constitute prob
ably not more than 60 per cent of the total members, so if only borrowing banks are
considered their percentage of borrowings to basic line would be much greater than
that shown in the table, which relates to all member banks.
Another statement in your letter is calculated to give a wrong impression. You
say “ it is also worthy of note that while the reserve system has been lending these huge
sums to the banks in New York City during the past 12 months at average rates of
probably less than 6 per cent, these same borrowing banks have been lending to other
borrowers at interest rates greatly in advance of those paid die reserve banks—many
millions being sometimes loaned, as I have heretofore shown, as high as 20, 25, or 30 per
cent. ” If member banks have been borrowing since the rates were raised last January
from their reserve bank at less than 6 per cent, it has been on paper secured by Treaa-
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ury certificates, some of which have borne 5} per cent and some 5J per cent interest.
These loans constitute, however, only a moderate part of the total loans and the averite rate paid by these five banks to the Federal reserve bank does not differ essentially
fromthe average rate paid by all member banks in the second Federal reserve district,
which was about 6J per cent in October, November, and December of the past year.
Wedo not deem it worth while to discuss the call-loan rates. The high rates cited by
youhave not been recorded for nearly a year. The board several months ago replied
toa resolution of the Senate on this subject and pointed out that these rates are per
mitted under the laws of the State of New York. If there is any question as to their
legality the responsibility for such rates, as far as national banks are concerned, rests
with you as Comptroller of the Currency and not with the Federal Reserve Board.
Normally the discount rate of a Federal reserve bank should not control the rates
it which member banks loan money to their customers. In many States the Federal
reserve bank rate is so much lower than the contract rate permitted by law that the
Federal reserve discount rate, as a matter of fact, does not control the rates at which
customers are accommodated by member banks. No Federal reserve bank has a
i»t rate or an average rate higher than 7 per cent for any class of paper. In 6 States
the legal rate of interest is 8 per cent and in 8 States that rate is permitted by con
tact; in 11 States a contract rate of 10 per cent is allowed, and in 10 States a 12 per
cent rate is legal by contract. Four States, California, Maine, Massachusetts, and
Rhode Island, permit any rate to be charged under contract, and in New York any
ate agreed upon in writing is legal on collateral demand loans of $5,000 and over.
We believe tnat the theory that discount transactions should yield a profit to
member banks is a fallacy which owes its wide credence in part to the fact that the
Federal reserve banking system, which has some of the attributes of a central bank*
mgsystem, is comparatively new, and partly to the abnormal times through which
welave passed, the inevitable effects of which are now being experienced.
In working out of the expansion occasioned by war financing, we believe that
member banks should become accustomed to rely mainly upon their own resources
normally, in order that when seasonal or emergency demands do arise the reserves
of the Federal reserve banks may be available to meet those demands and sufficient
toprevent the emergencies from developing into panic conditions.
We do not agree with you that it would be wise to encourage further expansion by
reducing rates, and it should be remembered that there are about $24,000,000,000 of
Government obligations available to member banks as collateral for loans eligible for
rediscount by Federal reserve banks. Based upon the experience of other countries,
itis evident that if the limit of expansion should be reached in this country a condi
gn of depression infinitely more serious and more widespread than that now existing
mold follow.
You state that your attention has recently been directed to a certain New York
tankwhich was borrowing more than-------- million dollars from the Federal reserve
talk, “and which at the same time was lending to its own officers and directors and
totheir affiliated interests-------- million dollars, or approximately as much money
u the Federal reserve bank of Kansas City was lending to all the member banks,
State and national, in that district. It was also developed that this same bank,
to which the Federal reserve bank was lending more than -------- million dollars,
had loaned to itB chief executive officer and his family more than-------- million
dollars; and that the loans, which this particular bank had made to its chairman,
president, vice president, and one director, for their personal operations and for their
22affiliated companies,' aggregated more than-------- million dollars.”
This might give the impression to some that the Federal reserve bank of New York
(andincidentally, the Federal Reserve Board) was negligent in making large loans to
abank in this condition. The fact is, however, that the loans made by the Federal
neerve bank to this particular bank, which is a national bank—although you do not
■y so in your letter—are undoubtedly eligible and good. Being a national ban.,s
thisparticular member bank is under your supervision as Comptroller of the Currencee
While the Federal reserve bank of New York has the right, under the Federal reserva
act, to examine member banks, it has been the practice to accept the examinatiosl
and reports of the comptroller’s examiners. The board reposed confidence in thnre
examinations and felt that an independent examination by an examiner of the Fedeyk
reserve bank would be an unnecessary duplication of work and expense.
We are surprised that such developments should have taken place in a national bank
under your supervision and wonder why it is that your examiners did not discover
ud report these conditions at an earlier date. While it is true that values may have
declined since the date of the previous examination^ the practice of making such
laige loans to insiders is a bad one, regardless of valuations. At the request of several
m*mben of the board, I wrote you a few days ago asking when these dangerous ten
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dencies had been first discovered, and we had hoped, for the Bake of the record of
your office for vigilance and efficiency, that they might have developed only since
the date of the previous examination. In your letter of the 12th instant, however,
you Btate that “ conditions in this bank grew progressively worse between the time of
the examination in October, 1919, and the examination in August, 1920." and point
out that the discount lines of several corporations in which officers and directors of
the bank were interested were increased between the dates of these two examinations.
Allowing for these increases, it still appears that it was the practice of the bank, as
far back as October, 1919, to lend large amounts to officere and directors and to their
affiliated interests, although you state in your letter of December 28, 1920, that your
attention “ was recently directed ” to these conditions.
Very truly, youre,
W. P. G. H a r d i n g , Govemur.
Hon. J o h n S k e l t o n W i l l i a m s ,
Comptroller o f the Currency.
Mr. W t t .t .t a m h ; Upon receipt of that letter I addressed the follow*ing communication to the govtemor of the Federal Reserve Board
[reading]:
J a n u a b y 17, 1921.
Hon. W. P. G. H a r d i n g ,
Governor Federal Reserve Board.
D e a r G o v . H a r d i n g : I have the pleasure of acknowledging receipt of your letter
of the 13th which I have read with tne attentive care demanded by the tremendous
importance of the subject under consideration. Let me urge that all technicalities
and discussions of actual or supposed delinquencies or errors, by any of us, are at this
time immaterial, comparatively. Apportionment of blame, if there be any, for
present conditions may well be postponed and left for the historians and coroners
sitting on dead events to wrangle over. We are living and responsible officials with a
task to do and a problem to work out involving the welfare of millions of our fellow
citizens who have trusted us and of countless other millions of our fellow human
beings in other lands. ^ It seems to me to be oar plain, imperative duty to go at this task and problem with
our whole souls and with all the abilities and force we have, consecrated to, and
concentrated on, the purpose of averting a catastrophe, and hastening restoration of
safe and comfortable conditions with the very least possible hardship and suffering
to individuals, classes, or countries. There are times when a masterly inactivity is
in order; there are othera when active aid or intervention in threatening situations
may mitigate loss and suffering and avert disaster.
Your comparison of the financial process through which we have been going to the
deflation of a balloon is peculiarly happy and appropriate and carries directly to the
point I am trying to impress on you and my other colleagues on our board. Instead
of driving a hole into the bag and crashing to earth in wreck and ruin, we should handle
the valve rope and ballast with anxious and ever-alert care to effect a safe landing on
good and solid ground. Our Bolemn duty, as of coune, you realize, is to conduct the
operation regardless of political, sectional, or individual feelings, of pride, of opinion,
prejudices, preferences, and even of precedent and historic accepted rules and forms.
Our entire Federal reserve system is an arrival at wisdom and utility by abandon
ment of precedent and of methods and rules formerly approved by the business and
financial world through many decades. In instances cited in your letter to me and
in mine to you, craw and failure have been prevented by intelligent disregard of
precedent. The Constitution of this Republic is the result of the purpose of thoughtful,
faithful, forward-looking men to devise new ways of curing and averting old evils.
The genius and inspiration of our people are toward the same end. I am eager to have
us hold fast to that which is good provided it can be made to fit actual and present
conditions, while refusing to De fettered and hampered by precedents, customs, or
rules which seemed perfectly sound before the development of steam and electricity.
In my letter of December 28, to you, as you may recall, I referred especially to
action along this line by the board itself, I said:
“ The policy adopted by the Federal Reserve Board a year ago was successful in
aiding in bringing about an orderly deflation. The skyward movement of prices was
halted and the price tendency for many commodities was duly reversed.’ ’
In tny press statement of July 31, 1920, to which you subsequently referred, I also
said:
. “ The action of the Federal reserve banks in restricting extension of credit for nonessentials and luxuries and in encouraging increased production in commodities most
seeded has been distinctly beneficial and has, it is believed, been a material influence
in reducing the high cost of living far and wide.”
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•
The record seems to show that we are all agreed on the necessity and propriety of
releasing our thought from trammels of precedent and custom while seeking ways for
relief and safety with the least possible loss. That being true, it is for us to give
thoughtful and respectful attention to every suggestion from a respectable and respon
sible source, with the earnest hope of finding an idea that may be valuable in aiding
ns to serve our people and Government rather than with impulse to discover a flaw or
pretext for criticism or condemnation. Therefore, I ask you to read more carefully
what I did myself the honor to present, in my letter of the 28th, regarding the rate of
interest charged by Federal reserve banks to member banks on loans secured by
Liberty bonas. You describe this as “ essentially unsound’’ and as reason for your
objection say:
‘ ‘Many billions of these bonds have been paid for in full, and the effect in the
present circumstances of a Federal reserve bank discount rate of 4$ per cent on paper
secured b y Liberty bonds would be to induce a temporary and artificial ease in the
money market which could not be sustained, because the lending power of the Fed
eral reserve banks has its limitations, and which might result in a temporary revival
of the speculative spirit which was so strongly in evidence 14 months ago and which
had such an unhappy effect upon the commerce and business of the country.”
Perhaps my suggestion was not clearly expressed. Evidently, and much to my
regret, you have misinterpreted it. I asserted the opinion that tne board “ would be
justified in reducing the rate of interest which was being charged by the Federal
reserve banka on the loans of member banks secured b y Liberty bonds from the pres
ent rates of 6 per cent and 7 per cent to a uniform rate of, say, 4 } per cent.” Cer
tainly I did not intend to suggest that the doors be thrown wide open and reserve
banks accept all loans offered secured b y Liberty bonds and discount them at 4}
per cent. I do not think my language can be construed fairly as meaning any policy
of that kind. If you will be kina enough to recollect, you will confirm the assertion
that in my conversations with you I have advocated reduction of the rates of interest
oo loans secured by Liberty bonds already owned and in the bank. I have contended
that this would be a grateful relief to the banks and to their customers who have
borrowed for legitimate and constructive purposes, and an encouragement to the
patriotic people who have bought Government bonds and find them now valued far
Delow par. I am quite sure your own memory and more careful perusal of the part
of my letter to you referred to will convince you that I never nave suggested or
ttvned the policy of taking all loans that might be offered secured by Liberty bonds
it lower rates or any rate.
As all of us know, there is a line between making money easily obtainable for those
needing it fo r purposes useful to the country and its commerce and able to offer fair
ncurity on one side and on the other side putting it within easy reach of those who
would waste and misuse it. That is the line of Bafety. There is a line, also, between
conserving ou r capital and resources for the use and stimulation of legitimate produc
tive business and locking it so tightly, with high interest rates, or otherwise, as to
pualyze or cripple all business. As I understand our functions and responsibilities,
*e are seeking and feeling for these lines. If I am not as much mistaken in your
position as you seem to me to be regarding mine, you favored, last summer, a very
material reduction in rates of interest on loans secured by Liberty bonds. You urged
onme the hardship that the rates then charged on such loans inflicted on one prominent
national bank in the sixth Federal reserve district which has been conspicuously
libera] in purchases of Government bonds. You doubtless remember the formal resolu
tion of the board of the Federal Reserve Bank of Atlanta passed in July last, urging an
arrangement by which there would have been a reduction of the interest rate on
member bank loans secured by Liberty bonds already held by the bank. And I am
rare you will also recall your telegram to the Atlanta Reserve Bank in July, 1920, over
your own signature, expressing approval of their plan, including the 4J per cent rate
on member bank loans secured"by Government bonds, and that you said to the Atalnta
bank, in port, that you ‘ -believe board is likely to approve plan substantially as out
lined in your telegram, but it will probably be several days before matter is definitely
decided.” The difference between us appears to be that you have concluded that
the policy I understood you formerly to approve and advocate is ‘ ‘ essentially unsound’ ’
while my thought and observation have taught me to believe it thoroughly sound and
necessary, within the limitations I have described.
.Regarding the progressive rate now in operation in three Federal reserve dis
tricts, I know, of coune, as you say, that “ the board did not insist that the progres
sive rate be applied in any district, but permitted those Federal reserve banks which
desired to put it into effect to do so. ” Nevertheless, I can not conceive that the
board intended to acquit itself of responsibility and divest itself of further power in
91341—22— v o l 2------10
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making the adoption of the progressive rate optional. Surely we can not sa n ction ,
or permit, the starting of an apparatus and look on with calm indifference an d as
sumption of helplessness if it should begin to run wild and automatically make h a voc.
When the progressive rate begins to operate so as to compel the member b a n k s in
Borne districts who are doing their best to care for the interest and welfare o f their
customers as well as themselves to pay to the Federal reserve bank interest on a
portion of their loans as high as 50 per cent or 75 per cent per annum, or h igh er, it
is about time, in my judgment, for the Federal Reserve Board to intervene and re
duce the rates.
I must make my respectful protest against any policy which permits the im posi
tion by Federal reserve banks on member banks of any such rates as those show n in
the memorandum which I received from the board, dated January 5, 1921, showing
that one national ban t in Alabama had, a few months ago, been assessed u n d er the
“ graduated plan” a rate of 80 per cent in excess of the normal rate, in one ex cep
tional case; and where another bank in Mississippi had, in November last, been
charged by its reserve bank as high as 22 per cent, and a bank in Colorado, dealing
principally with farmers, an interest rate as high as 22} per cent per annum, on the
so-called ‘ ‘ progressive” plan.
You say in your letter:
“ Apparently you hold the view that the decline in prices has been caused b y re
striction of crecut on the part of the Federal reserve banks and by the member and
nonmember banks of the country.”
With all due respect, allow me to say that I see no basis for this deduction, especially
in view of the clear-cut and categorical statement made by me in my letter to you '
of October 18, 1920, and quoted again in my letter to you of December 28, 1920, in
which I said:
“ In my opinion, the declines which have taken place in commodity values in the
past six months have been due primarily to the operation of natural causes; and
these declines in orderly manner have been facilitated by the policies pursued b y the
Federal Reserve Board during this period. The recession from the unnatural prices
which prevailed in the case of so many commodities was desirable and inevitable,
and it was proper that the Federal Reserve Board should have endeavored to have
this decline proceed gradually, rather than by withholding all restraint, making
possible later on a collapse and disaster.”
Commenting on my statement that the reserve bankB have an unused lending
power, without reducing the reserve requirements, of about $700,000,000, and that
Dy waiving or reducing their requirements as to reserve by only 10 per cent their
lending power could be increased to about two and one-half billion dollars, you say:
“ You nave made this statement publicly on two or three occasions during the past
six months, and while we do not question your motives in giving publicity to the
statement, we regret your action in doing so and feel that the effect has been harmful,
for it has undoubtedly given rise to false expectations and probably has caused holders
of commodities, which could have been liquidated several months ago at prices much
higher than those now prevailing, to hold on in the hope that the board would adopt
a policy of inflation in an attempt to sustain or advance prices.”
You, of course, do not question the absolute correctness of my statement, but I
understand you to have regarded it as inopportune to give the facts to the public
as I did. With all due modesty I must say it is my opinion, and I may say, my
conviction, which I will also add is supported by the views of many of the best and
most experienced bankers and business men in the country, that the promulgatioL
of that statement at that time was of much value to the country and probably aided
in preventing a more sudden smash and collapse in values than has taken place.
You speak of my reference to the very great shrinkage in values which has occurred
during the past year, and your comment is that I have omitted to refer “ to a corre
sponding expansion of values which took place earlier.”
Let me try to impress on you again that I am not seeking a debate on abstract
questions and woula regard recriminations, attempts to irritate or injure individuals,
or exchanges of charges and countercharges as beneath the dignity of a vast condition
with which we must deal. We look with proper contempt on officers and rulers
who have lost empires b y ignoble squabbles at the climax of battles. I am trying
by entirely frank methods to bring a W it courageous, prompt, effective action after ■
honest, conscientious facing of facts and study of all possible plans and propositions.
In my view as a general proposition the more the intelligent people and leading forces
of the country are told of the realities of their affairs and situations the more prac
tical wisdom and help we will get for our work. A policy of secrecy in public affairs
is hardly ever justified except by actual state of war.
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And I can not see that any fonner expansion of values, however artificial or exag
gerated, would make an excuse for us if we aided in, or by inaction allowed, such
rapid and extreme shrinkages as would mean general collapse and ruin. Perhaps
the supreme test and finest achievement of statesmanship is in saving the people
from tne worst consequences of their own mistakes. In this present situation the
vast majority of those on whom the ruin would fall are those in no way responsible
to the conditions that caused it. I do not think we would prove ourselves fit for
the important work intrusted to us if we stood content to remind thousands suffering
bom hunger and cold that some profiteers and speculators and a few others produced
and many partook of a surfeit last year. The gain in prices may have been fantastic
and largely on paper, but the loss, coining so swiftly, produces very real distress for
hosts of good people, including women and children. We can not cure or palliate
destitution by philosophizing or explaining or proving that it comes obedient to the
laws of political economy.
Any sms or faults, real or supposed, of mine or any other person are now immaterial.
I am no more concerned by tne suggestion of neglect of duty in the matter of the
NewYork banks than I am in your remarks on my omission of the word “ comptroller ”
after my name in my letter to you. Such matters do not interest me at this moment.
I hope you will pardon me for confessing that to me they seem trivial. In my view
aUof us should be more intent on reaching a definite conclusion and applying reme
dies for the troubles existing and the worse threatening than in making points of
argument and innuendo among ourselves when we differ. Yet, as the New York
buks' matter has been brought into the record, by me merely to illustrate conditions;
by you to suggest that I was responsible for the conditions I described, it is necessary
for ine to state the facta here.
The figures I gave in my letter were obtained from official records of the Federal
Reserve Board, and I do not understand that their accuracy is questioned. You
submit, however, a table showing “ borrowings from Federal reserve banks” by five
certain banks in New York as compared with the borrowings of all member banks in
sixreserve districts. _The figures which you give as to the borrowings by the member
banks in these six districts differ from the figures which were furnished me by the
board, because, as I understand it, the figures embraced in your letter now include
rediscounts and contingent liabilities of the banks and those furnished me by the
board and used by me I now understand from you were exclusive of rediscounts.
Nevertheless, these differences are negligible for the purposes of this discussion.
I think I should, however, call your attention to the fact that in reporting the
borrowings from Federal reserve banks by certain New York City banks you appear
to have omitted the “ acceptances” of these banks which were discounted by the
NewYork Reserve Bank which, if added to the sum total, would materially increase
theaccommodations granted to these New York banks. The amount of acceptances,
etc., which your table omits aggregates over $30,000,000 and would increase the
accommodations of one of the New York banks to $134,545,000 and of another to
1128,496,000. It therefore appears that each of these two banks had obtained from
the reserve bank at New York considerably more money than all of the member *
banks combined in either the Minneapolis Federal reserve district or* the Dallas
Federal reserve district, or the Richmond Federal reserve district at that time.
It also appears that there were at least four individual banks in New York City of
whose paper the New York bank had taken in each case an amount in excess of the
total loans and rediscounts made to all the member banks in the Dallas reserve district,
which embraces the State of Texas and parts of the States of Louisiana, Oklahoma,
Arizona, and New Mexico.
You Bugeest that my statement to the effect that the New York City banks were
being lenthuge sums of money during the past 12 months at average rates of probably
less Qian 6 per cent while they in turn were lending to others many millions of dollars
at 20 per cent, 25 per cent, or 30 per cent is calculated to give a wrong impression,
and you state that if member banks have been borrowing since the rates were raised
lastJanuary at less than 6 per cent it has been on paper secured by Treasury certificates
some of which have been drawn 5} per cent and some 5} per cent. The point im
presses me as distinctly trivial, if you refer to the fraction under 6 per cent at which
the New York banks nave been obtaining money. If the banks in New York had
been paying for the funds even 7 per cent it is my opinion that the rates of 20 per cent,
25 per cent, or 30 per cent which were charged by some of those to which the New
Yon reserve bank was lending most largely at times were wholly indefensible, but
as I have set forth my views on this particular aspect of the case very fully and pub
licly, and have discussed the subject again in my annual report, it is hardly worth
while to go into that matter further at this time.
You say:
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“ We believe that the theory that discount transactions should yield profit to the
member banks is a fallacy which owes its wide credence in part to the fact that the
Federal reserve banking system, which has some of the attributes of a central banking
system, is comparatively new,” etc.
In this view I cordially concur, and there is nothing in my letter to you which would
suggest a contrary opinion; at the same time I venture to suggest that the execution
or imposition of excessive or high rates by Federal reserve banks not only occasions
actual loss to member banks whose eligible paper may have been discounted by them
at rateB less than those exacted by tne reserve banks but the announcement and
promulgation of high rates may have a very damaging psychological effect upon the
business community.
In the conclusion of your letter you refer to a certain New York bank to which I
had directed your attention, to which the reserve bank had loaned more than
$100,000,000. I had pointed out to you the excessive loans which this bank was mak
ing to a group of its officers and to their allied interests which impressed me as being
excessive ana unwarranted.
In reply to these suggestions, you say:
“ We are surprised that such developments should have taken place in a national
bank under your supervision and wonder why it is that your examiners did not dis
cover and report these conditions at an earlier date. ”
May I in all kindness remind you that in my letter to you of January 12 (which
you had received before you wrote me your letter of the 13th instant with the state
ment I have above quoted) I showed that the national bank examiners criticized the
officers of the bank referred to for various unsatisfactory conditions which they dis
covered at the time of the October, 1919, examination; and a report of that examina
tion, showing the heavy loans to officers and their allied interests and other matters
of criticism, was, I understand, submitted in due course to the Federal reserve bank
at New York.
My letter to you of January 12 also informed you very clearly that between the
time of the examination of October, 1919, and the examination of August, 1920,
conditions in the bank had grown progressively worse; and as a result of the report
made by the examiners in August, 1920, this bank has charged off losses aggregating
approximately $10,000,000.
During the period from October, 1919, when the bank was so properly criticized,
and August, 1920, when the bank examiner returned for another examination, the
New York Federal reserve bank was lending that particular bank, as I understand
it, huge sums of money continuously, and the reserve bank was in position to inform
itself at any time it saw fit to do so as to the concentration of loans, the character
of the bank’s business, and all other matters of criticism, and to be governed accordindy in making its loans.
The concluding paragraph of your letter says:
“ Allowing for these increases, it still appears that it was the practice of the bank,
as far back as October, 1919, to lend large amounts to officers and directors and to
their affiliated interests, although you state in your letter of December 28, 1920,
* that your attention ‘ was recently directed’ to these conditions.”
Do you think it quite fair to convey the impression by your statement that the
matter of excessive loans was a subject which only recently received the attention
of this office, when I had informed you explicitly in my letter of January 12 (which
you had already received and read) that the attention of the management was in
October, 1919, directed to the large proportion of capital and surplus which was
employed in loans to officers and directors ?
May I, as apropos of your criticism, remind you that as long ago as January 28,
1920, I brought earnestly to your attention the case of another banking institution
in New York City to which the advances by the reserve bank of New York had been
particularly heavy. I pointed out to you in that letter (which I requested you to
bring to the attention of the board) that “ the Federal Reserve Bank at New York
had loaned or rediscounted for th e -------- on December 31, 1919, an amount equal
to nearly six times the capital of the Federal reserve bank of New York; about
260 per cent of the capital and surplus of the Federal reserve bank, of New York
and that more than one-seventh of all the bills rediscounted for all member banka
and all those purchased in the open market at the end of December, 1919, were for
the benefit of that particular institution.”
In that same letter I said:
“ These figures also show that the Federal reserve bank of New York was lending
t o -------- at the dose of December, 1919, an amount in excess of the total loans and
discounts made as of December 26, 1919, to all of their member banks by either the
Federal reserve banks of St. Louis or Minneapolis, or Kansas City, or Richmond,
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or Atlanta, and about twice as much as the aggregate of all loans and discounts and
purchased paper held at that time by the Federal reserve bank of Dallas.”
I took the liberty at saying to you then that—
“ This is a concentration of the funds of the reserve system with one debtor bank,
conspicuous for its speculative operations and promotions, which, in my judgment,
is not only not justified, but distinctly dangerous, and I feel it my duty to register my
strong dinent bom a continuance of such conditions as these, by writing you, as I am
doing, as an ex officio member of the board. I trust you will find time to make a care
ful analysis of this situation. With such facts before us concerning the company’s
condition as I have here undertaken to bring to your attention, our responsibility
becomes serious and very real. I think it would be well to apprise the board of this
■toation.”
I have several times during the past year urged upon the board the desirability of hav
ing a thorough examination of that deb tor institution made, either by the examiners of
the board or by the examiners of the New York Reserve Bank, for it seemed to me we
were on notice as to the “ unconservatdve” methods of that institution and of its
officere.
I also took some pains to analyze for the board’s information, certain conditions
whichwere revealed in an examination of that institution by State banking authorities,
and I have brought to the board’s notice certain loans amounting to millions of dollan
secured largely on speculative stocks which were obtained by the president of that
member bank to which the New York Reserve Bank’s accommodations had been bo
particularly heavy, from banks under my supervision, and I also called your attention
to a particular loan of about $7,000,000 made by three member banks, including the
institution of which that borrowing official is president, to a syndicate in which ne is
heavily interested. Reports in possession of the board show that this particular
banking institution was lending many millions of dollars in slow and doubtful loans
to its own officers or to syndicates or corporations in which officers of the banking
institution were interested at the same time that huge advances were being gotten
tram the New York Reserve Bank.
I should not have referred here to this instance and to the concentration of loans
to its own officers and their allied interests by this heavy debtor of the New York
Eeeerve Bank were it not for the “ wonder” you express as to why examiners under
ny supervision did not discover and correct certain conditions in a national bank
npon which you comment in your letter, in regard to which the record showB admoni
tions or warnings were duly jgiven by this office. As far as 1 am advised, no inde
pendent examination of the institution to which the reserve bank has been making
these huge loans (and which is not under the comptroller’s supervision) has as yet
been made b y the board or the reserve bank of New York.
Please do not take this as a criticism of the bowd for omission to examine or act,
for I prefer (after bringing the matter before you in tEe past as I have done) to assume
that you have gotten sufficient assurances (of which I have not been informed) to
■tisfy you that matters in that institution are now quite as they should be.
I may add in conclusion as to that particular banking institution that its accomnodations from the Federal reserve bank at New York at the time that I brought the
matter to your attention, a year ago, aggregated (including about $9,000,000 in accept
ances) $127,418,000.
For the purpose of comparison it appears from the Federal reserve official bulletin
that the total amounts o f loans and discounts outstanding about the same time, or,
on January 2,1920, to all of the member banks in their respective districts (aggre
gating some five or six thousand banks) were as follows:
Federal Reserve Bank of—
St. Louis........................................................................................... $60,858,000
Kansas City....................................................................................... 88,176,000
Minneapolis....................................................................................... 71,380,000
Dallas................................................................................................. 67,135,000
Richmond.......................................................................................... 108,448,000
Atlanta............................................................................................... 88,724,000
San Francisco.................................................................................... 74,237,000
That one institution (whose loans were so largely employed in speculative under-’
takings) was borrowing tit that time from Hie New York Reserve Bank practically as
much money as the aggegrate amount which the two Federal reserve banks of Minne
apolis sad Dallas were lending to all their member bankB in the States of Minnesota,
north Dakota, South Dakota, Montana, Texas, and parts of Michigan, Wisconsin,
Louisiana, Oklahoma, New Mexicc, and Arizona.
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AGRICULTURAL INQUIRY.
As far as 1 am concerned, no one need trouble to read the somewhat detailed a n d
necessarily lengthy observations regarding the New York banks, evoked by criticisms
of my official conduct toward them, which seem to me entirely irrelevant and w hich
I hope I have proved to be unwarranted. The really important question for us is
whether we can do something to end or alleviate the great depression in the business
of the country which is obvious and in danger of growing worse unless we lead in
some policy of relief and encouragement.
If anybody anywhere can suggest such a policy either in line with the suggestions
I have ventured to make, or entirely different but promising improvement I -will
give it the most careful and conscientious study and, if at all possible, my most cor
dial approval and cooperation. For one, I am not content with the present condi
tions and outlook. I can not be while I know so many innocent people are suffering
and the number of sufferers, in all ranks of life, increase; while our country is forced
to stand seemingly helpless to give to other countries and people the aid which our
inherent strength and comparative immunity from the destruction of war entitled
them to hope from us.
Your letter indicates some skepticism as to the reports of embarrassments and suffer
ing which reach us at Washington from various sections of the country and to some
of which I referred in my letter to you of the 28th ultimo. Perhaps your skepticism
may be justified in some instances, but on the other hand we sometimes find actual
conditions more extreme than have been represented.
I am informed by a chief national bank examiner that in one State in his district
there have been 37 State bank failures since the 1st of November last, and that he
hears other State bank failures are impending and their closing temporarily deferred
because of a shortage of State examiners to place in charge of them. I am happy
to inform you, however, that in that particular State and in that entire district, em
bracing three States and parts of several others, there has been no national bank
failure for more than three yeaiB, although a number of failures have been directly
prevented as a result of extraordinary exertions and action on the part of our examining
force.
As one indication of the demoralization existing in general business, let me direct
your attention to an official statement given out, within the last 30 days, under the
auspices of the chamber of commerce of the State of New York, probably the mast
important commercial body in the country, stating that owing to the cancellation
and attempted cancellations of contracts, merchandise with an estimated value of
$3,000,000,000 is now choking warehouses, and on steamers, and on piers and in rail
road cars, the ownership of which is disputed; and of this vast mass of merchandise
it is reported that about $1,000,000,000 worth is lying in foreign lands, a large per
centage of which may ultimately find its way back to this country, to depress still
farther our own glutted markets, where consumption because of mght and general
demoralization has already reached such an extremely low level. “ Meantime,” said
the report, “ litigation is increasing on all sides.”
Investigations and reliable reports indicate clearly to my mind that it will be neces
sary for tne Federal reserve system to relax in the matter of credit extension and pro
vide their member banks more liberally with funds, and on a fairer basis than is
sometimes charged on the “ progressive” plan, in order to enable member banks in
the agricultural districts of the West and South, the Southwest and Northwest to
supply the fanners with the wherewithal to make their crops for the ensuing season.
Despite the impoverishment and money scarcity now existing in so many parts
of the country, the Federal reserve banks, as a whole, are now, as the official records
show, abundantly supplied with funds. In fact, their unused lending power, which I
referred to in August last as $750,000,000, has now increased to about $1,200,000,000
and a reduction or waiver in reserve requirements of not over 10 per cent on deposits
and notes would now bring their total unused lending power up, at thin time, to more
than $3,000,000,000.
It is entirely true that I wish to go on record, as have other members of the board
repeatedly from time to time in the past in presenting their views in writing as impor
tant subjects have been considered. I wish to be recorded definitely as having done
my utmost to urge our board to saving and palliative action and considerationfor the
trouble of the public and thereby at least nee myself from the censure that will fall
.on us with crushing force if we omit any possible effort to mitigate present and real
Buffering or to avert disaster, although the consideration of personal exculpation is,
of coune, slight and negligible in comparison with my main purpose and hope, which
are to obtain from the board some prompt and effective action for relief.
After writing you on December 28,1920,1 thought it desirable to furnish copies of
that letter, confidentially, to the chief national-bank examiners, who are in daily
touch with the banking and business situation, who are all men of large experience,
of high character, and exceptional ability, and whose opinion upon the subject should
be valuable.
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AGRICULTURAL INQUIRY.
The replies which I have received aid in confirming my conviction as to the correct
ness of the viewB which I expressed to you in my letter, despite the fact that my dis
tinguished colleagues on the board appear not to be in accord with them. For your
information and for their information, however, I will take the liberty of giving you
the following excerpts from some of the replies which have come into me from chief
examiners in this connection for such consideration as you may think they deserve.
The chief examiner in one of the great agricultural districts said:
“ The feare you expressed as to what the results would be unless policies which aided
in the unprecedented deflation should be revised to meet the present changed condi
tionshave been more than realized, in that conditions have grown and are still growing
steadily worse. Failures of banks and business houses within the last 60 days have
been going on at an alarming rate, and reports indicate that this will continue unless
prompt action of some kind is taken. Many pitiful occurrences such as you describe
have taken place, and as far as it applies to this section your presentation of the case
is not in any sense exaggerated.
“ The best means for remedying the situation are not clear, but your recommendation
that a Federal reserve bank rate of 44 per cent on loans secured by Liberty bonds and
a 6 per cent rate on commercial and agricultural paper, it is believed, would afford
some real relief. * * *
“ Your letter is regarded as most timely.”
The chief examiner for another district, where manufacturing and commercial
interests predominate, said:
“ It is a timely communication, soundly based upon the fundamentals of existing
conditions, and offers constructive suggestions for the prevention of the prostration of
onr business life, for the minimization of losses to our manufacturers, merchants' and
famera—who in the main are innocent and patriotic bystanders—for the maintaining
of our international financial position through the keeping of our own house in order,
and for the continuance of confidence of the public in the Federal reserve bank and
the continuance of its control of our credits—necessarily relinquished during the war—
for which it was designed. * * *
“ No more opportune time could exist for the adoption and announcement of wise
policies. * * *
“ New and additional credits will have to be made to borrowers for legitimate purposes.
Onrmills will have to run and our crops will have to be grown, but tne credits for such
purposes should be within reason and on the basis o f proper costs. Those credits
should be available for the whole country alike and at about the same rates. If there
isa larger demand in one section than can be supplied from that section the central
reserves should be available, if the demand is a legitimate one. If it is not legitimate,
there.is no reason to meet it. * * * The reserves of one section should not be
available for credits extended in that section for speculative ventures when there is
adearth of funds in another section for legitimate enterprises * *
Another particularly well-informed chief examiner in an important and extensive
district writes:
“ I do not think that you have put it too strongly in advocating that the Federal
reservesystem must deal with conditions as they are, recognizing that there is inflation,
abuses, and admittedly disproportionate credit extension, but that the action taken
by the Federal reserve banks means, so to speak, life or death to the various financial
communities, and remedies must be suited to each case with fullest consideration of
present strength or weakness. * * *
"I believe the facts, as you have presented them, if set before representative men
who have the interests of the entire country at heart, should make them feel it their
luty to urge and secure whatever remedial legislation may be necessary, so that one
section could not have such unusual accommodations while others, particularly rural
communititee, are facing a fight for existence. It is situations such as these that are
provocative of the socuu unrest, giving the agitator and the political montebank a
basis for great exaggeration.”
I respectfully ask that this letter be considered at the next meeting of the board,
which, in response to my inquiry of the 14th instant (following the receipt of your
letter of the 13th, replying to mine of the 28th ultimo), you informed me is to be held
to-morrow.
Very sincerely, yours,
J ohn S kelton W
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The C h airm a n . Mr. Williams, may I ask you how long will it take
you now to present the matters you have in mind ? I want to give
you every opportunity to present everything that you think would be
of value to tne commission.
Mr. W i l l i a m s . Well, I think I could get through in a couple of
hours.
The C h a ir m a n . If it would take a couple of hours, I think we had
better take a recess until to-morrow morning. Without objection^
the commission will stand in recess until 10 o’clock to-morrow
morning.
(Whereupon, at 5.15 o’clock p. m., Tuesday, August 2, 1921, an
adjournment was taken until 10 o’clock a. m. of the following day,
Wednesday, August 3, 1921.)
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AGRICULTURAL INQUIRY.
W EDNESDAY, AUGUST 3, 1921.
CONGRESS OF THE UNITED STATES,
J o in t C o m m is s io n o f A g r i c u l t u r a l I n q u i r y ,
Washington, D. C.
The joint commission met, pursuant to adjournment, on yesterday,
at 10 o’clock a. m., in room 70, Capitol Building, Representative
Sydney Anderson (chairman) presiding.
T h e C h a ir m a n . T h e c o m m is s io n w ill c o m e t o ord er.
Mr. Williams, you may proceed.
STATEMENT OF HOV. JOHff SKELTOJT WILLIAMS, FORMER
COMPTROLLER OF THE CURRENCY—Resumed.
Mr. W illia m s . Mr. Chairman and gentlemen, in looking over my
papers yesterday afternoon after the dose of the session, I found that
there was one table to which I referred which I had not handed over
to the official reporter. I shall do so now, with your permission, and
read the same.
T h e C h a ir m a n .
If
th ere is n o o b je c t io n , y o u m a y p r o c e e d .
Mr. W i l l i a m s . This is a brief table showing the total amounts of
"agricultural paper” and “ live-stock paper” held by all Federal
reserve banks on the last Friday of each month for the last five
months of the years 1921 and 1920.
T h e C h a ir m a n . D o e s th a t s h o w a n in cre a se o r d e cre a se d u rin g
th o s e fiv e m o n th s ?
Mr. W i l l i a m s . That shows an increase from May, 1920, to May,
1921, of I should say about 60 per cent; from $140,000,000 to $229,000,000. The percentage of increase is very handsome. The actual
increase is not so impressive. These figures may go into the record,
may they, Mr. Chairman?
The C h a ir m a n . Yes; without objection they may go
(The table of figures referred to is as follows:)
in .
Total amount* o f agricultural and live-stock paper held by all Federal reserve bonis on the
hut Friday o f each monthfor the last 6 months o f the years 19tl and 19i0.
[Taken from Federal Reserve Bulletin.]
1921
January.......................... 1229,000,000
March.............................
230.200.000
222.500.000
1920
(56,800,000
67.100.000
74.600.000
1921
1920
$230, 300,000
229,400,000
1100,200,000
140,6001000
155
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AGRICULTURAL, INQUIRY.
Mr. W illia m s . The figures in this table, Mr. Chairman, rather
remind me of the percentages of increase which were shown a few
years ago in certain parishes in the diocese of Virginia. The annual
report of the bishop showed that certain small parishes were showing
enormous increases, some 100 per cent and some 150 per cent ana
some 200 per cent, while the nourishing parishes in the large cities
showed increases of only 5 or 10 per cent. Some one was struck by
the comparison and investigated to get at the real facts, and he
found the explanation. It appears that in some of those remote con
gregations there would be one year, perhaps, reported one com
municant; the next year it would be two, and the percentage of in
crease was placed at 100 per cent, without the actual figures. In
another case there would be two communicants, and it would be
increased to three, and the increase would be 50 per cent. These
increases of the advances to the agricultural districts remind me very
much of those parishes.
It is true that the figures show an increase from $140,000,000 to
$229,000,000 from May, 1920, to May, 1921, but how pitifully small
those percentages are, compared to the total loans to the business
interests of the country; and how small they are when compared to
the total loans and discounts made bv all the reserve banks.
The $229,000,000 amounts to hardly as much as this Government
spent in the closing days of the war in five days. The total loans of
the national and State banks of the country, I suppose, amount to
$30,000,000,000 or $40,000,000,000. And when you consider the
help extended through the reserve banks on agricultural and live
stock paper, and compare this $230,000,000 with all the loans in all
the banks, of $40,000,000,000, you realize that the farmers and live
stock raisers are not drawing very heavily on the banks, or if they are
drawing upon them their drafts are not being honored.
Representative F u n k . Can you give us that situation in the
total amount rediscounted by the Feiaeral reserve banks ?
M r. W illia m s . The figures which are available to me and which
are drawn from the Federal Reserve Bulletin, and which I have just
placed in the record, show a total of $229,000,000 of agricultural
paper and live-stock paper having a maturity of over 90 days.
Representative F u n k . What was the total amount outstanding
during that time of all kinds of paper ?
Mr. W illia m s . That is in the record already. I will have to look
it up in order to give that to you.
Representative F u n k . I wanted to get it in here in order to get
the contrast.
Mr. W illia m s . At yesterday’s hearing I called attention to the
fact that—I think it was in November, 1920— the total loans and
rediscounts and acceptances purchased by the 12 ‘Federal reserve
banks aggregated about $3,000,000,000; so that the agricultural
paper ana live-stock paper represented about 8 per cent, or scarcely
8 per cent, of the total accommodations granted by the Federal
reserve banks, which is a very small percentage, if that is all, when we
consider the value and invested capital in agriculture and live stock;
and the fact that it is claimed that 43 per cent of the population
of the country are engaged in agriculture.
The C h airm an. Y o u gave the figures of $ 3 ,0 0 0 ,0 0 0 ,0 0 0 as repre
senting the total discounts ?
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AGRICULTURAL INQUIRY.
Mr. W illia m s . Loans, discounts, and acceptances, as I recall it.
The C h a irm a n . A s of what date!
Mr. W illia m s. November, 1920. I think it was about the maxi
mum at that time.
The C h aibm an . That total, however, has been very much reduced
at the time of this compilation of $229,000,000.
Mr. W il li a m s . I would like to put into the record another table,
Ur. Chairman, There has been considerable contraction, but I
would like to put into the record another table, which answers that
question.
The C h a ir m a n . Very well.
Mr. W i l l i a m s . I have the statement here. I have taken this
from the New York Times. It shows that on July 20, 1921, the gold
reserve was $2,508,298,000, as compared with July 23, 1920, when
it was $1,983,271,000, an increase in the gold reserve of $500,000,000
or $600,000,000 in a year. Bills discounted and bills bought, how
ever, between July 23, 1920, and July 20, 1921, instead of showing
an increase during this period of deflation and contraction show
*1,710,056,000 on July 20, 1921, and $2,823,450,000 on July 23, 1920,
&contraction of a a billion dollars, or more than a billion dollars;
about $1,100,000,000. The Federal reserve notes outstanding on
July 20, 1921, were $2,564,613,000, as against, on July 23, 1920,
13,118,205,000. The total resources on July 20, 1921, were $5,216,780,000 as against on July 23, 1920, of $6,075,124,000.
May I place this table in the record, Mr. Chairman ?
The C h a ir m a n . Yes; without objection it may go into the record.
(The table referred to is as follows:)
Comparative figure*, Federal reserve system.
July 20,1021.
July 23,1920.
S2,508,298,000
1.710.056.000
2.554.613.000
5.216.790.000
$1,983,271,000
2.823.450.000
3.118.205.000
6.075.124.000
Mr. W illia m s . I should call attention, however, to the fact that
the amount of Federal reserve notes outstanding at any particular
period is no criterion of the amount of money in circulation, for the
federal reserve notes are largely issued in exchange for gold acquired
and placed in the vaults of tne reserve banks.
The C h a ir m a n . I just wanted to get the figures, if I could, in
connection with this $229,000,000 oil agricultural paper which, I
takeit^was of some date in June.
Mr. W illia m s . That is shown on a table which is in the record.
, The C h a ir m a n . The figures for total loans and discounts, includ
ing acceptances for the same month; have you that figure?
Mr. W i l l i a m s . It is on this paper, Mr. Chairman, to which I will
caUyour attention, with your permission.
The C h a ir m a n . All I want to get is the June figure; the total loans
and discounts for all Federal reserve banks in June.
Mr. W i l l i a m s . In May, 1921, it was $229,000,000, and in May,
1920, it was *140,000,000, of agncultural and live-stock paper.
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AGRICULTURAL INQUIRY.
The C h a ir m a n . What I want is the total loans and discounts.
Mr. W i l l i a m s . That is in another table. I d o not have that table
before me.
The C h a ir m a n . The figures that I have before me show the total
loans or assets of the Federal reserve banks at the end of June, 1920,
as $2,229,000,000.
Mr. W i l l i a m s . I have not those figures at hand.
The C h a ir m a n . I just wanted to get that into the record s o that
we would have the comparison for the same month.
Mr. W i l l i a m s . Yes; but I have not those figures, Mr. Chairman.
Senator L e n r o o t. The charge is being made constantly that the
agricultural communities are being discriminated against in the
matter of accommodation for loans; what is the significance of these
two tables which you have just read with reference to that charge?
Mr. W i l l i a m s . The significance of these tables is that they repre
sent a painfully small proportion of the total loans and discounts;
that the advances on agricultural and cattle paper represent a very
small proportion and nave for the last year or two represented a
very small proportion of the credits granted by the Federal reserve
banks to tne business of the country.
Senator L e n r o o t. Oh, 1 understand that; but does it indicate
that there was any deflation or contraction of that amount during
that time ?
Mr. W i l l i a m s . Assuming that all paper over 90 dayB is classed as
agricultural paper, it has increased during the year to the extent of
probably $100,000,000, but the $100,000,000 increase represents a
very small proportion of what the farmer had to have to maintain
himself.
Senator L e n r o o t. The question goes back then to whether the
farmer was receiving what he should have had prior to that time,
rather than to any question of deflation as against the farmer ?
Mr. W i l l i a m s . S o far as the paper is concerned which is discounted
by the,Federal reserve banks?
Senator L e n r o o t. Yes.
Mr. W i l l i a m s . N o w , it would require a further investigation to
find out whether the farmers’ credits have been deflated on the
whole or not. It is conceivable that while the farmer may be
getting, or may have been getting, $100,000,000 more—or, rather,
while $100,000,000 more of larmers’ paper was being rediscounted
this spring than at a certain time last year by the Federal reserve
banks for the farmers, yet it may be that the farmer may have been
required to pay up his loans and actually may have gotten less than
he did before, because the member banks necessarily loan to the
farmer large sums of money which they do not obtain from the
Federal reserve banks.
N o w , as I sa y , w e c a n o n ly m a k e su rm ise as t o w h a t th o se a ctu a l c o n
d itio n s w e re u n til w e ca n g e t th e fa c ts fr o m th e p a rtie s in terested .
Let m e illu stra te : We w ill s a y a ce rta in c o u n t r y Dank w a s lo a n in g
$ 1 0 0 ,0 0 0 to fa rm ers a y e a r a g o , a n d co n tin u e d t o h o ld th a t p a p e r o f
th e fa rm e rs; su p p o se th a t tn e c o u n t r y b a n k , o w in g t o re strictio n s
a n d red ta p e o n th e p a r t o f th e Federal reserv e b a n k , h a s b e e n averse
t o u sin g its fa r m p a p e r f o r its r e d isco u n ts. The figu res in th a t b a n k
w o u ld s h o w th a t th e m e m b e r b a n k , th e c o u n t r y b a n k , h a s b e e n
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AGBHTCTLFUKAL INQUIRY.
borrowing on other paper from its Federal reserve bank; perhaps on
lib e rty bonds, which it subscribed to, and has not been using its
farmers’ paper to obtain rediscounts. We will now suppose that
pressure was brought to bear upon the borrowing bank to sell its
Liberty bonds. Its reserve bank may*have said: “ We will not"
carry them for you any longer; get rid. of them.” So the country
bank sells $50,000 worth o f Liberty bonds on which it had been
borrowing from the Federal reserve bank, and gathers together
$50,000 of agricultural and cattle paper and succeeds in persuading
the Federal reserve bank to rediscount that paper, and complies
w ith the red tape requirements and regulations. That case would
show that there has been an increase o f $50,000 of farm paper with
the Federal reserve bank, while the farmer has not got 1 cent more
o f accommodation.
»
Senator L e n b o o t . In other words, if the banks did not present
their agricultural paper to the Federal reserve bank, the failure to
loan upon them, ii they are not presented, was not the fault of the
Federal reserve bank, but the fault of the banks themselves in those
cases; on the other hand, the general policy of deflation adopted by
the Federal Reserve Board, uthough agricultural discounts might
have been increased, might have required the banks to call in the
loans in accordance with that policy, although the loans might have
bran increased; is that correct!
Mr. W i l l i a m s . Yes, sir. I will also call attention to this aspect
of the case. Some Federal reserve banks require the member banks,
not only to put up the face value of the discounts {granted to them
in farmers’ paper, or other eligible paper of one kind or another,
and in some cases they have required the member bank to put up
a margin of 50 per cent, or 100 per cent. That has been bitterly
protested by member banks in some parts of the country. You can
readily see that if that custom is followed, the member banks would
borrow all the money they could borrow on Liberty bonds, in order
to loan to the farmers, but might hold the farmers’ paper, if they
have to give such excess collateral.
Now, lh ave in mind at this time a country bank in the Southwest
w h ic h claims that it was ruined by the exactions in that respect of
its Federal reserve bank; that the Federal reserve bank required
them to put up all of their paper in order to get such accommodations
a s w e re accorded them, until they finally had to suspend, and 1 am
told that suit is now threatened by the directors of the bank that
failed—that was forced to suspend—against the Federal reserve
bank authorities to require them to pay the depositors of the closed
bank dollar for dollar. I am not familiar with the merits of that
c a s e . That can be ascertained through the proper sources, I am
s o r e , by the commission. You can mid the facts, even though I
am not conversant with them, from others.
But you can very well see now it may be that the country banks
find it impracticable to get money on agricultural and farmers’ paper,
if they are required to put up a heavy margin on the one side, or if
the rod tape is too great on tne other nand.
Representative M i l l s . Isn’t this the ground you covered yester
day, M r. Williams ?
Mr. W i l l i a m s . I did not cover it yesterday.
Representative M i l l s . Y o u did not go over this ground yesterday f
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AGRICULTURAL INQUIRY.
Mr. W illia m s . N o , sir; I did not go over this matter yesterday.
Representative M ills . Y o u did not touch on the question o f
excessive collateral ?
Mr. W illia m s . The record is made up of what was covered yester
day. My recollection is I Sid not cover this aspect of the case.
Representative M i l ls . 1 ju st cam e in now , b u t I was under the
impression th at yesterday you discussed the question of excessive
collateral.
Representative Su m n ers. Mr. Mills, if vou will pardon the sug
gestion, what the witness has just stated was brought out b y &
question of Senator Lenroot.
Representative M ills . 1 just came in, but I thought the subject
of excessive collateral was covered.
• Mr. W illia m s . We are discussing now, farmers’ paper. 1 do not
want to impose upon the time of this commission, if 1 am discussing
something in which they are not interested.
Representative M ills . That was not the purport of my question.
I wanted to find out whether we had something new here, or whether
we are covering something we had covered yesterday.
Mr. W illia m s . I think it is new.
Representative M ills . You state now then that there are a number
of cases in which excessive collateral has been required ?
Mr. W illia m s . Yes, sir.
Representative M ills . Will vou give us the instances ?
Mr. W illia m s . The Federal Reserve Board can give you the
instances. I have given you one, but the Federal Reserve Board
can give you as many instances as you may want.
Representative M ills . Are you m position to give us any o th er
instances ?
Mr. W illia m s . 1 think it is a rule of evidence that you do not
take second hand evidence, if you can get evidence at first hand.
Representative M ills . I am not interested now in whether the
evidence is second hand or first hand evidence. Do you know of
any other instances ?
M r. W illia m s . I do not know w hat you have to do w ith m y
knowledge o f the case. 1 have a good deal of knowledge on this
subject, h u t I am sure this com m ission has not the tim e to give me
to go over it.
Representative M ills . D o you care to answer that question,
whetheryou have knowledge of any other instances, or other cases V
Mr. W illia m s . Yes; I do. But I prefer to let the information
come from the Federal Reserve Board.
Representative M ills . D o you know of other cases ?
Mr. W illia m s . I do.
Representative M ills . Will you give them ?
Mr. W illia m s . I prefer that the board should give them.
Representative M ills . D o I understand you decline to give them
to this commission ?
Mr. W illia m s . Under the circumstances, I do.
Representative M ills . Y o u have made the broad statement that
there has been excessive collateral required by Federal reserve banks
in a number of districts.
Mr. W illia m s . Yes, sir.
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AGRICULTURAL INQUIRY.
Representative M ills . Will you name the reserve banks that
have required excessive collateral ?
Mr. W il l ia m s . I respectfully refer you to the adm inistration
of th e system , the board and the governors of those banks.
Representative M ills . Y o u have made a serious charge.
Mr. W illia m s . I stand by that charge.
Representative M ills . Y ou have made a serious charge; do you
decline to substantiate it ?
Mr. W illia m s . I call for the evidence from the board.
Representative M ills . Do you decline to substantiate the charge ?
Mr. W illia m s . I have tola you where to get the evidence. If
you can not get it there, then I am prepared to answer.
Representative M ills . Are you not aware that yesterday, pur
suing this same line of inquiry, that you admitted you had no such
knowledge—no knowledge of the banks requiring excessive col
lateral, and that it was hearsay on your part ?
Mr. W illia m s . I stand bv every statement I have made, and if
you can disprove anything I have said, you are at liberty to do so,
so far as I am concerned.
Representative M ills . D o you want the commission to under
stand that you are testifying from hearsay, or that you have actual
knowledge ?
Mr. W illia m s . I am telling the com m ission where they can get
the actual facts.
Representative M ills . I am asking you whether you are testifying
from hearsay, or whether you have actual knowledge?
Mr. W illia m s . I have knowledge which I think is authentic.
Representative M i l ls . D o you decline to tell the commission—;—
Mr. W illia m s . I was not present when the reserve bank required
of the member bank 50 per cent or 100 per cent collateral; to that
extent it is not first-hand information.
Senator L e n r o o t. May I ask, Mr. Williams, anything that does
exist, is that a matter of record with the Federal Reserve Board ?
Mr. W illia m s . It is.
Representative M i l ls . Unless we examine every case, how are we
to find out the cases where excessive collateral has been demanded ?
Mr. W illia m s . Y ou can ask the board.
Representative M ills . But you decline to tell us-----Mr. W illia m s . I told you where you could get the evidence first
h and.
R epresentative M il l s . Y ou decline to give it to us?
Mr. W illia m s . I do not have it in detail, and you can get it from
th e board.
Senator L e n b o o t. D o the members of the board admit that there
been excessive collateral demanded?
Mr. W illia m s . I think they will admit it.
Senator L e n b o o t. If they do not admit it, are you prepared to give
us certain instances ?
Mr. W i l l i a m s . I am prepared to give certain instances if they do
not admit it.
Senator L e n b o o t. If they deny th at there was excessive collateral
demanded, you are prepared to substantiate it?
Mr. W illia m s . I am, and I will.
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AGBIOTJIiTUHAIi INQUIRY.
Representative Ten E tok. Mr. Williams, referring back to the line
of questions Senator Lenroot asked you, I would like to know, as
regarded the two hundred odd million dollars which was loaned or
discounted of agricultural and live stock, whether or not a great
proportion of that was not loaned to the dealers in agricultural pro
ducts and live stock, and only a small proportion was loaned directly
to the fanners who actually produced the food ?
Mr. W i l l i a m s . That is co n c e iv a b le .
Mr. T en E tck . N ow, the reason I ask that is this: That if the
purchaser of live stock is loaned monev to buy it with and the farmer
is not given money to hold it with, tnen the farmer is put at a dis
advantage, and really the lending institution has done an injury,
instead of doing good?
Mr. W i l l i a m s . That is conceivable.
Representative M i l l s . Does the Federal Reserve Board ever loan
directly to anyone ?
Representative Ten E tok. I said, “ discounted.”
Representative M i l l s . Does the Federal Reserve Board ever dis
count individually to anyone ?
Representative Ten E tck . I am not taking the position that they
are to blame; I am on this commission to get information and try to
help to frame a report and make recommendations recommending
legislation which will solve the difficulties.
Representative M ills. Surely, Mr. Ten Eyck, you do not want to
ask a question which assumes facts that do not exist. Your question
assumed that the Federal Reserve Board makes loans; the Federal
Reserve Board does not loan to individuals.
Representative Ten E tck . I will ask Mr. Williams if it is not true
that that is liable to happen, and if it did not happen under certain
conditions. Mr. Williams has just given us a table-----Representative Sumneks (interposing). The loans by the Federal
Reserve Board are supported by the paper of the individual.
Representative Muxs. It is the paper of the member banks.
Mr. W i l l i a m s . It is not the paper o f the member banks, always.
Representative Ten E tck . Mr. Williams has just told us that
two hundred and odd million dollars was loaned on agricultural and
live stock paper, and I just asked him if it was not loaned to the
.dealer in live stock ana agricultural products, rather than to the
farmer himself ?
Representative M i l l s . Y o u mentioned it as being borrowed from
the reserve bank. I do not want to be technical, but the reserve bank
does not loan to the individual.
Representative Ten E tck . That is the purport of mv question.
Senator H arbison . It is paper that is put up with the Dank.
Representative T en E tck . I said, paper of live stock and agri
cultural securities, referring to the figures given previously.
Representative Funk. Mr. Williams, the complaint has been made
here all during these hearings that agricultural as a class has beep
discriminated against, and tne intimation has been put out that this
condition is the result of some policy of the Federal Reserve Board.
Now, this commission would like to know, if you have knowledge of
any action which would produce a discrimination against agricultural
paper.
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AGRICULTURAL INQUIRY.
Mr. W illia m s . I w on d er i f I m ig h t be p e r m itte d to p r o c e e d w ith
the introduction o f certa in co rr e s p o n d e n c e , a n d th en ta k e th is u p
later on ?
Representative F u n k . Y o u can proceed on that if you like, but I
want your views on that before you close your testimony.
Mr. W illia m s . Very well.
Representative S u m n e r s . I would like to ask one question, and if
it is to be covered by correspondence, I will not ask that the question
be ansn^ed at this time. And this question is not directed in a
spirit of criticism, but to tir to ascertain the facts, and if thp diffi
culty has arisen from a maladministration of a system, that is one
question, and if there is need of additional legislation, that is another.
Now, a great many people have complained to me, fanners and people
inthe agricultural sections, that in the period of reaction whicn took
place following the war and the adjustment following that period
that at the very time when the markets of the world were not pre
pared to absoro the agricultural commodities, including live stock,
coming on the market, and the producers of those commodities needed
help most to prevent the crowding of those commodities on the mar
ket and thereby breaking the market, that at that critical time, in
1920, and’ perhaps in 1919, either direct or indirect pressure was
exerted upon the member banks to force the payment of the debts
owing by the farmers; that that, in time, compelled them to turn
loose their commodities in quantities in excess of the ability of the
consuming market to absorb, and that, in turn, broke the prices to
apoint where they had to get rid of their Liberty bonds that they
had up with the banks, ana that they were not able to produce the
crop of 1920—or, put it this way, that they were comDellea to produce
4e crop of 1920 at very high relative expense, other commodities
M having come down in proportion to agricultural commodities,
ind that for that reason tney had to increase their loans. Their
Liberty bonds were gone and their farm commodities would not
bring a price sufficient to pay their debts. Now, do you know any
thing with reference to whether or not such a policy; whether through
necessity or in the exercise of judgment, was put into effect by the
Federal reserve system ?
Mr. W i l l i a m s . I think that it would be highly desirable in this
connection, and as an answer to your very pertinent inquiry, for this
commission to obtain from the Federal Reserve Board copies of all
circular letters which have been sent out by the 12 Federal reserve
banks to their member banks during this period of deflation, in order
to find out precisely the kind of pressure that has been exerted. I
know that that feeling which you described is very widespread.
Representative S u m n e r s . You may proceed.
Representative M ills. 1 want to ask you some questions, Mr.
Williams.
Mr. W i l l i a m s . Very well.
Representative M i l l s . Did you not approve the policy of the Fed
eral Reserve Board during the year 1920 up to October, 1920?
Mr. Wttt.tamb- I did not.
Representative M i l l s . Did you not, in your letter of December 28,
which you introduced in evidence yesterday, specifically say that you
approved of the policy of the Federal Reserve Board in putting on
tne brakes ?
91341—22— VOL 2----- 11
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AGRICULTURAL INQUIRY.
Mr. W i l l i a m s . I do not know whether you were present yesterday
when it was read or not, but I inserted in the minutes and in the
record a statement of protest filed by me in August, two months prior
to the date of which you speak.
Representative M i l l s , but up to August you approved of the
policy of the board ?
Mr. W i l l i a m s . I d id not, altogether.
Representative M i l l s . May I nave your letter of December 28 ?
Representative S u m n e r s . Primarily, I am not concerOd about
who approved of it or who did not approve of it; I am concerned about
the policy and what was responsible for the conditions of the country.
Senator H a r r i s o n . High officials sometimes change their minds,
do theynot ?
Mr. W il li a m s . I may say in this connection, I was opposed to
the high rates allowed, and if the minutes of the meetings are cor
rectly recorded, and I assume they are, they will show that. For
instance, I was opposed to the establishment of a 7 per cent rate in
New York. I felt that if the establishment of any higher rate was
justifiable, the proper conditions could be brought about better on
a 6 per cent basis than on a 7 per cent basis. There are certain
features of my correspondence which speak for themselves.
Here is the letter for which you asked, Mr. Mills. [Handing paper
to Representative Mills.] I think you will find on the first page the
matter you refer to.
Representative T e n E y c k . 1 want to ask another question here.
Is it possible to legislate in a practical way that the agricultural paper
discounted by the national banks in the various locations be given,
especially on food products, preferential treatment?
Mr. W il li a m s . Tney should b e given at least equal treatment,
Congressman. 1 shall be prepared, if your patience holds out, to
offer some suggestions for amendments to the existing laws, before
I conclude.
Representative T e n E y c k . That is fine; that is what we would
like to have.
Mr. W i l l i a m s . Shall I proceed, Mr. Chairman ?
The C h a ir m a n . Yes; you m a y proceed.
Mr. W i l l i a m s . I should like to read the following letter, which I
addressed to the Federal Reserve Board under date of February 4,
1921. [Reading:]
F
Hon. W. P. G.
H
ebruary
4, 1921.
a r d in g ,
Governor the Federal Reserve Board.
G o v e r n o r H a r d i n o : In my letters to you of December 28,1920, and January
17, 1921, I called attention to the manifest injustice and hardships inflicted upon
member banks of the Federal Reserve System bv the imposition of tne so-called “ pro
gressive” interest rates and on the 25th ultimo I offered a resolution in the board that
such rates be suspended in all districts where they are still in force. Action upon this
resolution was deferred from time to time and when a final vote was taken on the
2nd instant—“ that is to say, on the 2nd of February, 1921”—after the resolution
had been amended by me to prevent the charge of interest in excess of 10 per cent
under this progressive plan, it was voted down.
The more I have looked into this subject the more I am convinced that the pro
gressive rate as it has been applied in certain districts, is wholly indefensible, and I
believe that the reserve banks and this board would be very severely criticized if the
rates of interest which have been exacted upon this plan by some of our reserve banks
should be made public. I do not believe we are ever justified in pursuing a policy
whkh can not be approved by a sound public opinion.
D
ear
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AGRICULTURAL INQUIRY.
I have before me statements of one of the national banks under the supervision of
this office located in the State of Alabama upon which the exactions for intereet by
the reservebank olits district have been particularly oppressive. The bank I refer to
is the-------National Bank o f---------, Alabama. It has a capital of $25,000 and a sur
plus of $12,500, and has tried hard to serve the people of that town and section. Its
loans and discounts at the time of the November 15,1920, call aggregated $299,000, of
irhich over 85per cent were to farmers, agriculturists, and live-stock raisers, and nearly
all of the balance to merchants, mercantile corporations, and firms.- The bank is
performing an essential and needed service in its community. In order to enable it to
respond to the urgent needs of its customers and clients, this bank during the cotton
season called upon its reserve bank for accommodations and its loans in the height of
the season went up to something over $100,000, or say, 2} to 3 times its capital and sur
plus. The money, however, was urgently needed to take care of the pressing needs of
the community.
I also have before me a statement rendered to this particular bank by the Federal
reserve bank of Atlanta showing that for the two weeks ending July 31, 1920, the
bank was charged for its accommodations as high as 31 per cent per annum intereet
on the progressive plan. Two months later when the advances to the bank had
increased to $115,000, during the height of the cotton movement, the rate charged
by the Federal reserve bank of Atlanta to this bank went as high as 87J per cent
per annum.
For the two weekB ending September 30, 1920, the bank was borrowing an average
of $115,211. Two weeks’ interest upon this sum at the rate of 6 per cent per annum
would have been $298, but the records show that for its accommodations for theee
two weeks this bank paid the Federal reserve bank of Atlanta for interest $2,189,
running all the way up from 6 per cent to 87} per cent per annum. That means to
say that this little bank paid in intereet in exceee of 6 per cent per annum for those two
weekB $1,891, an amount equal to more than 7 per cent per annum dividends on ils
entire capital stock for a whole year.
The average rate for its accommodations these two weeks was about 45 per cent per
annum, or at the rate of $56,914 per year for the use of $115,211 borrowed to loan to
itrpatrons.
The practical meaning of this is that the bank was driven to choose between per
mitting the ruin of dependent customers on the one side, and on the other side putting
itself in serious danger while trying to save its clients of having surplus and perhaps
capital wiped out by the exorbitant intereet charges exacted by the reserve bank.
The superinterest charged this little bank, in excess of 6 per cent per annum for the
two weeks ending September 30 last, was so exorbitant that if kept up, it, would, in
less than a year, have eaten up the bank’s entire capital and surplus and rendered it
insolvent.
The records show numerous cases where banka in other districts have been given
accommodation for 2, 3, 4, or 5 times their capital, at interest rates which amount to a
mere fraction of the rates charged this bank. In fact, our records will show where a
reserve bank loaned banks in New York City during those very two weeks in Sep
tember lump sums of $800,000, and collected from them interest for the use of $800,000
leas than the struggling bank in Alabama was charged for the use of $115,000 for that
same period. To several of these New York banks the reserve bank shoveled out more
than $100,000,000 apiece at 5 per cent to 7 per cent interest, several times their capital
and surplus, about the same time the little bank in Alabama was being charged 87}
per cent.
This particular instance is, I believe, the most extreme that has thus far been
brought to my notice; but many other banks, in at least four Federal reserve districts,
where the progressive rate has been in force, have been required to pay rates which
I am satisfied the public would regard as shocking, and which in my own opinion are
wholly indefensible.
Sucn a policy, it seems to me, is like the treatment of an ailing patient with drugs
which may give momentary relief while inevitably destructive of life if kept up.
Following the certain development of such a situation to its ultimate results, the
reserve bankB will find themselves in possession of quantities of miscellaneous live
stock and farm implements, the final securities on whicn many of these loans are based,
along with broken and liquidating member banks. The depositors of the banks
“ accommodated ” at such unlivablerates would suffer losses very serious to them, and
many acres of farm land would be idle because those who use them now would lack
the means to cultivate them.
If you care to call for them, the records of the reserve banks, I am advised, will
provide you too many instances of the exaction of these amazing and ruinous rates.
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I trust that the board may determine that a safer, sounder, and more humane policy
will be to lend member banks as much as discretion will allow at rates in no event in
excess of 10 per cent per annum, as was contemplated in the resolution which I had
the honor to orfer recently in the board, but which was voted down at the board meet
ing of the 2nd instant, ana when that line has been reached refuse them further accomo
dation, certainly not impose upon them interest rates which are merely aids to sui
cide.
I.will be obliged if you will submit this letter to the board at its next meeting for
consideration.
Faithfully, yours,
John Skelton W
Representative
M ills .
What is the date
of
il l ia m s .
that letter ?
Mr. W il l i a m s . February 4, 1921.
R e p re s e n ta tiv e M i l l s . N o w , w ill y o u p lea se e x p la in w h a t the
p ro g re ssiv e ra tes w ere, an d w h ere th e y w ere e sta b lish ed ?
Mr. W i l l i a m s . They were establishe'd in four different districts
on different bases. The Federal Reserve Board will give you the
precise basis on which they were established.
Representative M i l l s . When were they established ?
Mr. W i l l i a m s . The records will show that.
Representative
M ills .
Will you tell me the approximate date ?
Mr. W i l l i a m s . I think most of them Were established in the spring
of 1920.
Representative M i l l s . In the spring of 192Q?
Mr. W i l l i a m s . In the spring ot 1920.
Representative M i l l s . What was the theory of the progressive rates ?
Mr.
W illia m s .
I prefer you should get that from the Doard.
Representative M i l l s . Were you present at the meeting when it
was decided to approve the progressive rates ?
Mr. W i l l i a m s . I did approve of the theory of some increase on
excessive loans, but it never entered my mind, in discussing the
question of progressive rates, that any such increases as those exacted
subsequently would ever be considered for a moment or ever be
tolerated, or if the rules ever produced such rates, that they would
not be immediately modified.
Representative M i l l s . Were you present when the question of
permitting progressive rates came up?
Mr. W i l l i a m s . I was in favor of progressive rates within reason
able bounds.
Representative M i l l s . In other words, you were agreed with the
other members of the board, in the spring of 1920, that progressive
rates should be permissible ?
Mr. W i l l i a m s . It was not my duty to pass on the progressive
rates. When I found out the basis on which the progressive rates
were being applied, I protested immediately, and as vigorously as I
could.
Representative M i l l s . But what I want to find out is, when the
progressive rates were agreed upon in the spring of 1920, whether it
met with your approvalT
Mr. W i l l i a m s . It would not have met with my approval had I
known how it was to be applied.
Representative M i l l s . It probably would not have met with th e
approval of the other members of the board. But the point is, were
you present when the principle of the progressive rates was approved ?
Mr. W i l l i a m s . When I found out the gross injustice that was being
done, I urged that the progressive-interest plan be immediately
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AGRICULTURAL INQUIRY.
165
abolished, but the other members of the board voted against my
resolution.
Representative M i l l s . That was in February ?
Mr. W il li a m s . Yes, sir.
Representative M i l l s . In February, 1921 ?
Mr. W il li a m s . Yes; but following my protest against the contrac
tion policies of the board made in October, the progressive rate in
the Atlanta district was abolished—a few weeks after my October
letter.
Representative M i l l s . As a matter of fact, you did approve of
the progressive rates ?
Mr. W i l l i a m s . I never intended to approve any plan that was
susceptible of such distortion.
Representative M i l l s . But you did vote for the plan ?
Mr. W i l l i a m s . I did not imagine for a moment that it could be so
distorted.
Representative M i l l s . I am not going into your motives and rea
sons for voting for or against it; but the fact is, you did vote for the
plan?
Mr. W i l l i a m s . When I found it was being so abused, I tried
immediately to have it abolished.
Representative M i l l s . But you did vote for it ?
Mr. W i l l i a m s . I did approve of the legislation which gave the
right to put in a reasonable plan. I never thought the plan would
be made to operate as it did-----Representative M i l l s (interposing). A plan was adopted putting
in the progressive rates ?
Mr. W i l l i a m s . Yes, sir.
Representative M i l l s . And you voted for that plan ?
Mr. W i l l i a m s . Y o u m a y assum e th a t I d id ; I h a v e n o o b je c t io n
to th at.
Representative M i l l s . That is what I mean.
Mr. W i l l i a m s . I do not recall whether I was present at the par
ticular meeting of the board which took that action, but you may
assume that I was. But if I did vote for it I never contemplated for
an instant that it could be so distorted and abused. The main point
is, when I found out how it was being mismanaged I tried imme
diately to do away with it.
Representative M i l l s . Y o u have frequently made use of this one
horrible example in all of your speeches ?
Mr. W i l l i a m s . I h a v e m a d e use o f fo u r o r fiv e ex a m p le s.
Representative M i l l s . But you have made use of this Alabama
case in all of your speeches ?
Mr. W i l l i a m s . I h a v e m a d e use o f i t ; y e s, sir.
Representative M i l l s . In the two speeches which you put into
this record ?
Mr. W i l l i a m s . I h o p e so.
Senator H a r r i s o n . It is a good case to illustrate with.
Representative M i l l s . Ana you did use it as an example in your
speeches ?
Mr. W i l l i a m s . I said it w a s th e m o s t e x tre m e ca se b r o u g h t to m y
attention.
Representative M i l l s . Y o u know, as a matter of fact, that the
Federal Reserve Board did not approve of this particular case ?
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166
Mr. W i l u a m s . I know that the Federal Reserve Board iaiied to
approve of my resolution attempting to-----Representative M i l l s (interposing). That is not an answer to my
question, and you know it.
Mr. W i l l i a m s . I hope they did not approve of it.
Representative M i l l s . Do you know, as a matter of fact, that they
did not approve of it ?
Mr. W i l l i a m s . Y o u ca n ask th em th a t.
Representative M i l l s . I am asking you whether you know, as a
matter of fact, that they did not approve of it?
Mr. W i l l i a m s . I ca n n o t re ca ll w n e th e r I e v e r h e a rd w h e th e r they
A p p rov ed o f it, o r n o t. 1 d o n o t s u p p o se th e y d id . I ca n n o t im a g in e
h o w a n y san e m a n co u ld a p p r o v e 01 it.
Representative M i l l s . Do you or do you not know that a refund
was ordered in this particular case ?
Mr. W i l l i a m s . I do not. I know that Gov. Harding testified that
certain reserve banks—or a reserve bank, I do not recall which— had
been authorized to make refunds of the rates in excess of 12 per cent,
I think. That was several weeks after I urged that it be done. I
do not know whether my remonstrance had anything to do with it.
Representative M i l l s . But you do know that it was done ?
Mr. W il l i a m s . I do not know whether it was done. I know
Gov. Harding stated it was authorized to be done.
Representative M i l l s . That would indicate that he disapproved of
he disapproved of this action as heartily as you did ?
Mr. W i l u a m s . Not necessarily.
Representative M i l l s . Not necessarily?
Mr. W i l l i a m s . No, sir; because when I moved to do away with
such rates as were doing an injustice, it was voted down by the other
members of the board.
Representative M i l l s . And you did not make that motion until
after they had been in effect 10 months?
Mr. W i l l i a m s . I made that motion promptly after I found out the
abuses which were being practiced unaer its operation.
Representative Mills. And after they had been in effect 10
montns ?
Mr. W i l i ja m s . You can find the dates from the records; I do not
know how long it was.
Representative M i l l s . Nine months?
Mr. W i l l i a m s . I do not know how long it was.
Representative M i l l s . Do you say. it was as long as nine months ?
Mr. W i l l i a m s . I do not know how long it was.
Representative M i l l s . It was at least a half year after they were
in effect?
Mr. W i l l i a m s . I know it was in October when my letter urging
a revision of policy was sent, and they were also in effect in July,
in the Atlanta district.
Reprasentative M i l l s . And you protested in February, 1921 ?
Mr. W i l u a m s . It <liH not come to my attention until then. The
reserve banks knew of it; I did not know of it.
Representative M i l l s . So for eight months these progressive rates
were in effect, and you did not see any reason to protest ?
Mr.
W ilu a m s .
That is not stated fairly, Congressman.
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167
Representative Muxs. I will withdraw the question, and put
another.
Mr. W i l l i a m s . All right.
Representative M i l l s . Y o u did not protest as to the progressive
rates until they had been in effect eight months ?
Mr. W il l i a m s . I protested as soon as I found out about it. I
was ignorant of it, and-----Representative M i l l s (interposing). And that was eight months?
Mr. W i l l i a m s . I p ro te s te d v ig o r o u s ly an d in e ffe ctu a lly f o r aw hile.
Representative M i l l s . And during all that time, you testified
yesterday, you were receiving complaints from any numDer of banks
and individuals as to this so-called deflation, were you not?
Mr. W i l l i a m s . I have received a great many complaints in re
gard to the hardships'which the borrowers of the country had to
endure. If you will permit me, I will bring out some of those.
Representative M i l l s . I will, if you will answer my questions.
If you will answer my questions, we will progress a great deal more
rapidly. Now, don’t you believe, if the conditions throughout the
summer, which you have mentioned here, were typical as to the
conditions which existed in those districts where the progressive
rates were in force, that those conditions would have been called to
your attention prior to February, 1921?
Mr. W i l l i a m s . N o t n ecessa rily.
Representative M i l l s . Do you not think that if such conditions
as are exhibited by that particular instance were typical and had
existed during those eight months, that they would nave come to
your attention as Comptroller of the Currency and in constant con
tact with all the banks of the country?
Mr. W i l l i a m s . I am very glad to answer that very question
quite specifically. I did not know of these outrageous rates which
were being charged in some districts until I called upon the board,
I think it was in January, for a memorandum showing the opera
tions of the progressive rates in certain districts, and they gave me
&brief memorandum showing a number of instances, and showing this
case; and my first information about this case came to me in re
sponse for general information.
Representative M i l l s . Have you got that memorandum, M r.
Williams?
Mr. W i l l i a m s . Not with me. The board can furnish you a copy
of it.
Representative M i l l s . Have you got a copy of it ?
Mr. W i l l i a m s . I do not know. But the board can furnish you a
copy of it.
Representative M i l l s . Have you got it ?
Mr. W i l l i a m s . I may have it, but I do not have it in this room.
Representative M i l l s . If you have it, will you put it in the record ?
Mr. W i l l i a m s . If I have it, I will be pleased to do so. I suggest,
if it is in order for me to do so, that the board be requested to furnish
the commission with a copy of the memorandum.
Representative Mills. If you have not got it, I shall ask them for it.
Mr. W i l l i a m s . If I h a v e it , I w ill p r o d u c e it.
Representative M i l l s . I should like to have that memorandum,
Mr. Williams, while you are still on the stand.
Mr. W il l i a m s . I d o n o t h a v e it w ith m e.
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AGRICULTURAL INQUIRY.
Senator L e n r o o t . Mr. Williams, you approved the principle of
the progressive rates; I am not speaking of the details?
Mr. W i l l i a m s . I did, on the theory that they would be reasonably
exercised.
Senator L e n r o o t . I mean, you approved of the principle of the
progressive rates at the time it was adopted ?
Mr. W i l l i a m s . I was in favor of some progressive rate, but I was
not in favor of it as adopted and as exercised.
Senator L e n r o o t . Please answer my question. You did or you did
not approve of the principle of the progressive rate at the time it was
adopted.
Mr. W i l l i a m s . Yes, sir.
Senator L e n r o o t . You did that, I suppose, because you believed
that discounts beyond a certain rate should be discouraged, and would
be discouraged by the application of a certain rate ?
Mr. W i l l i a m s . Yes, sir.
S e n a to r L e n r o o t . N o w , is it y o u r o p in io n , in v ie w o f w h a t has
tra n sp ired , th a t it w o u ld h a v e b e e n b e tte r to sh u t o ff rediscounts
a fte r th e lim its h a d b e e n re a ch e d ?
Mr. W i l l i a m s . It is not, Senator. However, in the light of past
experience, it is my judgment that the progressive rate should not
apply above 10 per cent, in any event.
Senator L e n r o o t . Very well; then I will put it this way: When
discounts are limited to 10 per cent, after the limit of 10 per cent has
been reached, then all further discounts should have been stopped ?
Mr. W i l l i a m s . Not necessarily. I can conceive of instances where,
in order to save a bank, it would be necessary to extend it very much
more than the amount on which the 10 per cent rate would apply, and
that is done in mamr instances.
Representative M i l l s . What do you mean by the basic rate ?
Mr. W il l i a m s . In the various districts—you are catechising me
now; you know what the basic rate is as well as I do.
Representative M i l l s . I want your idea of what the basic rate is.
Mr. W i l l i a m s . In a general way, the basic rate or rediscount line
is considered to be the proportion of the resources of a reserve bank
which each member bank is entitled to borrow, based on its capital,
surplus, resources, or other factors.
Representative M i l l s . Thank you.
The C h a ir m a n . I would like to ask you a question, Mr. Williams,
in regard to the progressive rate: My understanding is that the pur
pose of the adoption of the pregressive rate was to make possible
greater aid to some of the member banks, which it was not possible
to give them under the regular rate procedure; in other words, some
of the reserve banks have claimed that some of the large borrowers
were absorbing all of the ability of the reserve banks to make loans,
and that the only way to stop that absorption and permit loans to
be made to other member banks was to fix a rate with penalties
attached to it, and thus diminish the larger borrowings of the larger
banks; is that the principle?
Mr. W il l i a m s . That is not the principle in my mind, Congressman.
I have contended always that the exercise of a wise discretion was
much better and wiser than progressive interest rates, and I think
that is still true.
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169
The C h a irm a n . That was the underlying principle of the pro
gressive rate, was it not ?
Mr. W i l l i a m s . I can not say that it was. The underlying prin
ciple was torestrain borrowers from seeking to obtain larger discounts.
The C h a ir m a n . That would naturally apply to the banks which
were borrowing the larger sums ?
Mr. W il l i a m s . Naturally; and it would also restrain others who
had not borrowed excessively from going beyond a certain limit. I
will say that at the same time, as I understand, this little bank in
Alabama was paying 87^ per cent because it was'borrowing four or
five times its capital-----The C h a ir m a n (interposing). Do you know whether, after the
adoption of the progressive rate, the number of borrowing banks in
the districts where it was applied were increased or decreased ?
Mr. W i l l i a m s . I do not have those figures at hand. As I was
saying, about that same time another small bank in a district in the
East, which was brought to my attention, was found to be borrowing
some seven or eight times its capital, as I recall the figures—seven or
eight times its capital—at 6 per cent.
Representative T e n E y c k . I would like to ask a question about
the call loan rates. When the rates increase abnormally it has a
tendency to bring in money from the country banks to obtain that
interest; in other words, tne country banks are liable to send their
money in to New York to loan, instead of loaning it in their own
localities ?
Mr. W i l l i a m s . I think perhaps you are connecting that with what
has happened in New York in the increase in the money market
there; tne advancing money market there has brought in money
from the country districts.
Representative T e n E y c k . Would that not cause that condition
to exist in New York to some extent?
Mr. W i l l i a m s . If it prevailed there to any extent; but the pro
gressive rate did not apply to the New York district, as I understand
it. They applied a 7 per cent rate to the New York district, and that
was very disconcerting.
Senator H a r r i s o n . .Why was a discrimination shown, if it did
not apply to the New York district?
Mr. W i l l i a m s . I understand that the New York bank did not
want the progressive rate there, and the board was governed in that
instance by their request.
May I continue, Mr. Chairman?
Representative S u m n e r s . If you will pardon me, I want to ask a
question.
Mr. W i l l i a m s . I think some of these questions will be answered
in my discussion.
Representative S u m n e r s . I want to ask a question that I do not
think will be answered in vour general discussion.
Mr. W i l l i a m s . Very well.
The C h a ir m a n . The Chair can not control the members of the
commission, if they desire to ask questions.
Mr. W i l l i a m s . Excuse me; there is no disrespect intended, and I
only thought it might facilitate the proceedings if I were allowed to
go on.
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AGRICULTURAL INQUIRY.
The C h a ir m a n . The Chair would be very glad to facilitate the
hearings, but the Chair can not prevent the members of the com
mission from asking any questions they desire, or to indulge in any
cross-examination, if they desire.
Representative S u m n e r s . With reference to these progressive rates,
in order that we may have the record on that point at this place, it
seems that the principle of these rates was indorsed by the board
and the Comptroller of the Currency, and then later it found con
gressional indorsement; but the criticism is with reference to the
method of application, as I understand the situation?
Mr. W i l l i a m s . Yes, sir.
Representative S u m n e r s . That is what I want to inquire about.
You said a moment ago that you thought, under certain conditions,
in order to save a bank, it would be advisable to extend to the bank
a larger rediscount privilege than ordinarily would be warranted.
The tning I am concerned about is saving the folks, as well as the
bank. 1 suppose it is necessary to save the banks in order to protect
the interests of a community. But I am wondering whether a condi
tion could not be developed, either by a change in administrative
policy, or by new enactment, under which, when a community’s
necessities exceed the ability of the little country bank to meet, that
some consideration could lie given to the necessities of the people,
without regard to whether or not those necessities were reflected in
the demands of the bank for credit.
Mr. W i l l i a m s . That is a matter, is it not, Congressman, which
calls for the exercise of wise discrimination and discretion on the
art of the reserve bank authorities in each district? It can be
andled by the right sort of men.
Representative S u m n e r s . Y o u may proceed.
Representative M i l l s . M r. Williams, I have before me here copies
of the minutes of the various meetings of the board with reference
to the progressive rates, which I would like to read to you with a
view to refreshing your recollection as to the action taken.
Mr. W i l l i a m s . Yes, sir.
Representative M i l l s (reading):
E
Meeting February 9, 1920. Counsel directed to prepare bill covering board’s
recommendation in 1919 report re progressive rate after governor had read from the
draft of the annual report the recommendation as to legislation. Also, special meeting
was ordered for February 10 to consider the text of the board’s 1919 report. Mr.
Williams was present and action was unanimous.
At that meeting you approved the principle of the progressive
rates?
Mr. W i l l i a m s . We are not contending about that.
Representative M i l l s . Meeting of May 11, 1920, is as follows
[reading]:
Meeting of May 11,1920. Letter May 5 from the chairman of the Federal reserve
bank of Dallas, recommending for the approval of the board a plan for making
effective the graduated discount rate amendment to the Federal reserve act. Unani
mously approved, Mr. Williams present.
Is that correct ?
Mr. W i l l i a m s . I
d o n ot know .
I
a ssu m e it w as.
I
d o n o t recall
th e m eetin g .
Representative M i l l s . This does not refresh your recollection ?
Mr. W il l i a m s . N o .
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Representative M
ills
in q u ir y .
171
(reading):
Meeting of May 28,1920. Telegram 26th from the chairman of the Federal reserve
bank at Atlanta, submitting for tne approval of the board plan for making effective
graduated discount rates at that bank. Upon motion, duly made and seconded, it
ms voted to approve the plan as submitted, with the exception that surplus of the
Federal reserve bank should not be prorated among the member banks and be
included in the circulation of the basic line of each member bank. Mr. Williams was
present at this meeting and the action was unanimous.
Mr. W i l l i a m s . That is not in conflict with anything I have said.
Representative M i l l s . I was under the impression, and if so, I am
glad to have it corrected, that you have stated that while you
approved of the principle of the progressive rates, you would not
approve of the specific plans for putting them into effect ?
Mr. W i l l i a m s . 1 sta te d th a t I d id a p p r o v e o f th e gen eral p rin cip le,
but th a t I h a d n o id e a th a t th e abu ses s u ch as d id d e v e lo p w o u ld
develop in th eir p ra ctica l o p e r a tio n ; th a t w h e n 1 le a rn e d o f th e
workings o f th e p la n , as d e v e lo p e d , I en tered m y p r o te s t v e r y
prom ptly.
Representative M i l l s . It now appears that you not only approved
of the principle but approved of the specific plans of the several
banks.
Mr. W i l l i a m s . Let me say this, that if any member of the board
had told me the next minute after I voted for this plan, as you say I
did, if they had said, “ This has been in operation in the Atlanta dis
trict, and has caused, in its operation, the payment of 87£ per cent,”
1 would have moved and voted to rescind the action of the board
immediately.
Representative M i l l s . But the fact is you approved specifically of
the plan submitted by the Dallas bank and the Atlanta Dank.
Mr. W i l l i a m s . I was recorded as present at the meeting. I do not
remember the occasion when those particular plans were voted on.
Representative M i l l s . But you are not prepared to say that this
is not correct, are you ?
Mr. W i l l i a m s . I am not disputing it. I am satisfied with it, if
the records show it. As is very well known, I was not present all
the time at all the meetings. This made no impression on me.
Having approved the principle of the legislation which would enable
the banks to put this into effect, I assume that I voted with the rest
of the board on the plan that came from the respective banks, not
knowing there was to be this hardship in its operation.
Representative M i l l s . But if any error of judgment was made in
that plan, you shared with the board that error in judgment?
Mr. W i l l i a m s . I may have; but I did not share in the error of
judgment in the workings of the plan, because I protetsed promptly
ana vigorously.
Representative M i l l s . Here is another meeting Treading]:
Meeting June 8, 1920. Letter June 1, from the chairman of the Federal reserve
bank of Dallas, advising that it will be the policy of that bank not to apply the propesrive discount rates m effect at the bank to drafts to which are attacned bills of
lading covering grain actually sold and placed in the process of shipment. It was
voted to approve the action of the Federal reserve bank of Dallas. ' Mr. Williams was
present ana action was unanimous.
Mr. W il li a m s . None of those statements that j’ou have read state
that Mr. Williams was present when the vote was taken. But I
assume I was.
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172
Mr. Chairman, may I ask at this point whether you were able to
obtain from the board the record of the meetings which I attended
from the time of the organization up to March 3, which I took the
liberty of requesting you to obtain, if possible?
The C h a ir m a n . I h a v e not seen the statement, Mr. Williams, but
I understand it is here.
Mr. W illia m s . In view of the statements which have been made
to the effect that I attended the meetings rarely, I should like to
have that record go into the record here of this commission, if agree
able.
Representative M i l l s . 1 have another meeting here, of April 17,
1920-----The C h a ir m a n (interposing). I have that statement here now,
Mr. Williams. I have a statement here which I think covers the
information which you asked for: perhaps not in the detail in which
you wanted it. I understand that the records of the board only
show that you were present at the beginning of a meeting, and
then show when you retired from the meeting. This table shows
the number of meetings when you were present all of the time;
the number of meetings when you were present a part of the time;
and the meetings when you were absent.
Mr. W i l l i a m s . Yes.
The C h a ir m a n . And the number of meetings held each year
down to the date of this communication, which is dated Marcn 2,
1921.
Mr. W i l l i a m s . Will it be agreeable to the commission to include
that in the record here ?
The C h a ir m a n . Without objection the statement will be included
in the record. The Chair hears no objection.
(The statement referred to is here printed in full, as follows:)
Record of attendance by Mr. Williams ai meetings of the Federal Reserve Board from
the dale of organization, Aug. 10, 1914, to and including liar. £, 1911.
Year.
Pres
Presentfull ent part
time.
time.
1914.....................
1915..................... •
1916.....................
1918.....................
Ab
sent.
Total
meetings
held.
Pres
Pres
ent full ent part
time. tim e.
Year.
A b
sent.
Total '
meetlnir
bd d . ..
106
171
122
2
11
24
51
86
132
224
219
1919...................
1920...................
1921...................
59
104
8
34
9
26
72
16
lit
*10
38
31
66
135
T ota l..........
713
138
430
1,281
n
Reference is invited to a former memorandum giving a record
of Mr. Williams’ attendance at meetings of the board from October
1, 1920, to February 25, 1921. During that period 71 meetings
were held, at which Mr. Williams was present during the entire
meeting 13 times, during part of the meeting 20 times and absent
entirely 38 times.
Representative M i l l s . I have here the meeting of April 17, 1920
[readmg]:
Meeting April 17, 1920. Telegram dated April 16, from the chairman of the
Federal reserve bank of Kansas City, submitting for approval of the board a plan
of graduated discount rates to be effective Saturday, April 17, 1920. Mr. Moehlenpah moved that the plan be approved as submitted by the Federal reserve bank
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AGRICULTURAL, INQUIRY.
of K una City. Mr. Miller moved to amend by omitting the exemption of member
banks’ notes secured by Treasury certificates, Liberty bonds, and Victory notes
actually owned by the borrowing member banks on April 1, 1920. The motion to
amend was lost and the original motion prevailed, Mr. Miller not voting. Mr.
Williams was present at this meeting and action was unanimous, except that Mr.
Miller did not vote.
So that it appears now that as early; as April, 1920, a plan for
the establishment of progressive rates in the Kansas City district
was approved by the board with you present and voting.
Mr. W il li a m s . There is nothing inconsistent in those rec6rds with
what I have stated.
Representative M i l l s . S o that instead of 6 months which we were
discussing, your protest did not come until 10 months after the
rates were in force ?
Mr. W i l l i a m s . May I ask when those rates began to take effect?
Representative M i l l s . In this particular case April 17, 1920.
Mr. W i l l i a m s . Does the record show in each district?
Representative M i l l s . It does in the Kansas City district.
Mr. W i l l i a m s . Would it not be well to show when each plan
took effect?
Representative M i l l s . I am simply reading the minutes as they
appear here. Mr. W i l l i a m s . In each of the four districts ?
Representative M i l l s . I am simply reading the minutes as they
, stand here. It appears from these that the rates in the Kansas
City district were put into effect as early as April, 1920, so that
your protest did not come until 10 months after they were put into
effect.
Mr. W i l l i a m s . It ca m e as soon as I knew how they were being
operated.
Representative Mills. Here is another meeting, of April 27, 1920
[reading]:
Meeting April 7, 1920. Telegram dated April 26, from the governor of the Federal
reserve bank of Kansas City, recommending for approval of the board modification
of the graduated rate plan in effect at that bank. Approved. Mr. Williams was
present at this meeting and action was unanimous.
Now I don’t know whether it is worth while putting them all in.
I would like to call your attention to the meeting of August 31, 1920,
which was four months after these rates had been in effect.
Mr. W i l l i a m s . May I insert right there that I was not advised
by the board, or otherwise, of the excessive rates which were being
charged under the operation of that method until January, I think
it was January, 1921. If I had had the remotest suspicion that any
such rates were being charged I should have called upon the board
for a statement.
Representative M i l l s . N o w in the meeting of August 31, 1920,
which is some months after these progressive rates were in effect:
The governor stated that the Federal reserve bank of Atlanta had asked him whethe
or not the Federal Reserve Board would look with favor upon the suspension by tha
bank, of its progressive discount rates for a period beginning now and ending January
Upon motion, it was voted that the governor advise the Federal reserve bank of
Atlanta that the board would not at present look with favor upon the abolition of the
progressive discount rates, but that, if requested to do so, it would give consideration
to such abolition if coupled with a request for the establishment of a 7 per cent rate
on rediscounts of commercial paper. Action was unanimous. Mr. Williams was
present.
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AGRICULTURAL, INQUIRY.
Mr. W i l l i a m s . May I inquire whether when the governor read
this resolution before the board he gave the board any information
whatsoever as to how the progressive rate was working and the
extortionate interest rates which were being charged. Does the
record show?
Representative M i l l s . I am reading the complete record.
Mr. W il l i a m s . Does it show that ?
Representative M i l l s . N o .
Mr. W i l l i a m s . Then I will assert that it is my belief that no such
information was given to the board to enable them to pass upon it,
and I, for one member of the board, had no idea that it was working
that way.
Representative M i l l s . But the fact remains that on August 31,
1920, when the bank in the particular district of which you complain
most requested that it be allowed to discontinue the progressive
rates, you, with other members of the board, declined to authorize
them to discontinue it.
Mr. W i l l i a m s . Because I did not have information which ought
to be laid before the board in that connection, in my opinion.
Representative M i l l s . Well, now, M r. Williams, do you not think
that as a member of the board charged with very important duties,
that after these progressive rates had been in effect four months it
was your duty to have ascertained how they were working?
Mr. W i l l i a m s . W ell, now, I am very glaa you asked that question. >
You think it was the duty of the governor of the Reserve Board to ‘
ascertain how they were working ?
Representative M i l l s . I am asking you a question, and it is not
answered by your asking me one in return.
Mr. W i l l i a m s . W e ll, did the governor know it ?
Representative M i l l s . We are not discussing that question.
Mr. W i l l i a m s . Did the other members of the board know it ?
Representative M i l l s . We are not discussing that question. I
will ask them that question, if you want me to, when tney appear
before this commission.
Mr. W i l l i a m s . Y o u have stated that you do not believe the other
members of the Reserve Board, if I remember correctly your asser
tion, would have approved of these high rates, or the 87 per cent rate,
or whatever it was. Now, did they know it ?
Representative M i l l s . N o ; I said they did not approve of the
particularly horrible example that you have been citing all over the
country. I am asking you now whether, as a member of the Federal
Reserve Board, charged with very important duties and having ap
proved the progressive plan, whether it was not your duty four
months after it had been in effect to know how it was working ?
Mr. W i l l i a m s . It was not as much my duty as it was the duty of
other members of the board to inform themselves on that particular
matter, on that particular point.
Representative M i l l s . I am not asking what the comparative
duty was.
Mr. W i l l i a m s . Y o u may reach your own conclusion on that. I
have no objection to it.
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R ep resen tativ e M i l l s . Y ou d o n o t th in k it w a s y o u r d u t y ?
Mr. W il li a m s . Well, you may think it was not my duty, as ypu
please.
Representative M i l l s . Well, whether it was your duty or not, you
had not informed yourself as to how it was working on August 31 ?
Mr. W il li a m s . When the matter was brought before the board, as
you state, by the governor, the information on that subject was not
presented, and the vote was not taken in the light of all that data
which should have been supplied.
Representative M i l l s . Well, you plead ignorance?
Mr. W i l l i a m s . Perhaps it was negligence on my part when the
matter came up not to nave insisted tnat the record should be fur
nished to show precisely how the progressive rate was operating.
Perhaps it was.
Representative M i l l s . I do not propose to offer all of this record
at this time, but I do think that when the governor of the board
comes in it would be proper to offer these particular minutes in evi
dence, M r. Chairman.
The C h a ir m a n . Very well. Mr. Williams, you may proceed.
Mr. W illiams. On February 7, 1921, I wrote the following letter
[reading]:
T reasu ry D
epartm ent,
Washington, February 7, 1921.
Hon. W . P. G . H a r d i n o ,
Governor the Federal Reserve Board.
D e a r G o v . H a r d i n o : I have your letter of even date acknowledging mine of the
4th in regard to the hardships imposed by Federal reserve banks on member banks
under the operation of the so-called ‘ ‘ progressive” plan.
Representative M i l l s . What date is this letter that you are now
reading, M r . Williams ?
Mr. W i l l i a m s . February 7, 1921.
Representative M i l l s . D id you receive an answer to yours of
February 2 ?
Mr. W i l l i a m s . I d o n ’ t k n o w w h e th e r I h a v e it w ith m e o r n o t.
If there w a s a n an sw er I re q u e st th a t i t b e in se rte d in th e r e c o r d .
The C h a ir m a n . Well, we have to fin d out whether there was or
not.
Mr. W i l l i a m s . I don’t recall.
Representative M i l l s . Y o u do not recall whether there was or
not?
Mr. W i l l i a m s . I do not, but I assume that there was, and I ask
that it be inserted in the record.
Shall I proceed, Mr. Chairman ?
The C hairman . Proceed.
Mr. W i l l i a m s (continuing reading):
In the case of the Alabama bank to which I called your attention, the Federal
reserve bank of the sixth Federal reserve district has charged, as I showed you,
interest as high as 87$ per cent or an average of about 45 per cent for the last two weeks
in September. My point of view is that under no circumstances can such a rate as
that be justified in any district. If the bank is entitled to credit it should be accom
modated at rates certainly not in excess of 10 per cent per annum; and the thought of
87} per cent or an average of 45 per cent should not, in my mind, be entertained any
where.
The records, of course, show that on application of the Atlanta bank the Federal
reserve board approved the suspension of the progressive rate for that district at a
meeting in November. But the progressive rate is still in operation, I am informed.
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AGRICULTURAL INQUIRY.
in three other districts with several thousand member banks and in one of these
districts. I understand, that computations are made on the same basis as in the Atlanta
reserve district—which resulted in the exaction of a rate in the case mentioned which
even a pawnbroker could not justify—87J per cent.
I agree, cordially, with your view that “ no matter what the demand for loans may
be in any particular community, I do not believe that a member bank is justified in
assuming tint it can obtain an unlimited amount from the Federal reserve bank
or in acting in a way which mikes it, in effect, a broker for the Federal reserve bank
in placing loans. ”
Representative M i l l s . M r. Williams, I did not quite get that
sentence. Would you mind reading it again?
M r. W i l l i a m s [rea d in g ]:
I agree cordially with your view that “ no matter what the demand for loans may
be in any particular confmunity, I do not believe that a member bank is justified in
assuming that it can obtain an unlimited amount from the Federal reserve bank or
in acting in a way which makes it, in effect, a broker for the Federal reserve bank in
placing loans.”
That is the sentence ?
Representative M i l l s . Yes.
Mr. W i l l i a m s (continuing reading):
But this can be prevented by the exercise of intelligent discretion by the reserve
banks without resorting to such rates as these we are discussing.
You also are correct in your statement that “ the legal rate in Alabama is 8 per cent.”
The report of condition of November 15, 1920, however, of the national bank in Ala
bama referred to in my previous letter, shows that the “ average rate” o f interest
in this bank’s sworn statement is the average rate which it was charging about
the very time that the reserve bank was exacting a rate as high as 87} per cent
and an average rate for the last two weeks in September of over $100,000 borrowed at
about 45 per cent, or nearly six times as high as the bank was collecting from its
customers.
The reports of condition of the national bank were submitted to the Atlanta reserve
bank at the same time that they were submitted to this office, so that the reserve
bank was, in this way, kept informed as to its deposits, loans, discounts, and borrow
ings and other operations of the member bank to which it was granting loans.
I sincerely hope that the board may take prompt action to prevent in the future
the exaction of any such interest rate by any reserve banks operating under the pro
gressive plan, or any other plan, as is shown in the case of this small bank in Alabama,
for I can not believe that such rates meet with your approval or with the approval of
our colleagues.
Yours, very truly,
J oh n Skelton W
il l ia m s .
Representative M i l l s . When did this Alabama incident take place ?
Mr. W i l l i a m s . The letters which I have read refer to the last two
weeks of September, 1920.
Representative M i l l s . So that if the action o f the board on August
the 31st had been different and the request of the Atlanta bank to
discontinue progressive rates had been granted, this incident never
would have nappended, would it ?
Mr. W i l l i a m s . It is hoped so.
Representative M i l l s . Now, do you think it is quite fair for you
to stump the country criticizing-----Mr. W i l l i a m s (interposing). I object to your statement. I have
not stumped the country. I referred to it in two speeches, one in
Washington and one in Georgia.
Representative M i l l s . Well, do you think it is quite fair for you
in two speeches which have received wide publicity to cite this hor
rible example resulting from the action of tne Federal Reserve Board,
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177
criticizing them, without disclosing to the public that you shared the
responsibility for this particular incident no longer than three weeks
before it happened ?
Mr. W il li a m s . I think that my position was entirely fair and
consistent.
Representative M i l l s . Well, have you in any speech which you
have made disclosed the fact that on August 31 you declined to allow
the Atlanta bank to discontinue the progressive rate ?
Mr. W i l l i a m s . I had no idea that it was being abused in that way
or would be abused in that way. That incident had not happened
at that time, and presumably no such rate had been charged up to
that time.
Representative M i l l s . Have you ever disclosed that you shared the
responsibility with every other member of the board ?
Mr. W i l l i a m s . It was not my—I was not a director of the Federal
reserve bank, which was directly concerned in that transaction. 1
did not know of the transaction. Perhaps other members of the
board did or did not. I don’t know whether they did or not at that
time—they could not have known of that transaction. They perhaps
knew of other rates which were being charged, but that transaction
had not taken place at that time.
Representative M i l l s . But you have assumed to criticize the Fed
eral Reserve Board for its progressive rates, and you have cited this
as the horrible injustice which arose under the Federal reserve.
Mr. W i l l i a m s . N o w , let us b e fair about that. In my speech to
which I have referred already, and in my correspondence I said that
was an exceptional case, and the most extreme tnat I have seen, and
you know that.
Representative M i l l s . Yes; but you cited it as an example of
what happened under the progressive-rate system.
Mr. W i l l i a m s . Yes; and that was perfectly true, and several
months after that when 1 tried to abolisn the whole progressive sys
tem it was voted down.
Representative M i l l s . But have you ever in any public speech
stated that you shared the responsibility for the Alabama case with
the other members of the board ?
Mr. W i l l i a m s . I do not consider that I did in the same measure.
Representative M i l l s . But you did vote against discontinuing the
progressive rate in the Atlanta district, did you ?
Mr. W i l l i a m s . I d id n o t k n o w th a t th e ra te w a s g o in g t o b e a b u se d
in that w a y .
Representative M i l l s . But you did vote for that, did you not ?
Mr. W i l l i a m s . I don’t know whether I did or not.
Representative M i l l s . The minutes show that you were present,
and the vote was unanimous. Will you question tnose minutes ?
Mr. W i l l i a m s . We will assume that they were correct, but the
secretary of the meeting will tell you and the records which have been
introduced to-day will show that I was present during the whole of
some meetings and during a portion of some meetings. I don’t know
whether at that meeting I was present when that vote was taken or
whether I was not, but if the minutes show that I was present I am
willing to considered as being present.
91341—*-22— vol 2------ 12
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AGRICULTURAL INQUIRY.
Representative M i l l s . And assuming that you were present and
voted affirmatively, do you think it is fair to criticise your fellowmembers of the board without telling the public that you participated
in that action ?
Mr. W i l l i a m s . I see nothing unfair in what I have done or said.
Shall I proceed, Mr. Chairman, with the correspondence ?
Representative S u m n e r s . Of course the history of this thing is
rather important, but to be candid about it I am more interested in
trying to find some relief for the present situation. In the letter just
read, Mr. Williams, vou say that you agree with the writer of the letter
that these country banks ought not to act as brokers for the Federal
reserve bank. I am wondering if we could get some suggestions,
even if requiring additional legislation under which these agricultural
communities, which, by reason of the fact that they do not require
reat credit under ordinary conditions, and therefore have small
anking facilities, could find some route around their little country
banks in the presence of a great crisis such as agriculture now con
fronts under which the individual man who has good credit, good
basis for credit, would not be ruined merely because the ordinary
demands of the community have not developed big financial insti
tutions to take care of the emergency ?
Mr. W i l l i a m s . Mr. Chairman and gentlemen, there has never befen
a time in this so-called period of deflation when the resources of the
Federal reserve banks were not sufficient and abundant for all
legitimate purposes and could have greatly eased up conditions in
agriculture and in business. In the address, which I understand was
introduced yesterday, which I made at Bangor, Me., a year ago, I
jointed out* that at that time when the reserves were at about the
owest point they had ever been, that the Federal reserve banks had
an unused lending power, at that very time, of about $700,000,000
which was four or five times as much as the maximum amount of
bills payable and rediscounts which the national banks of the country
had ever had occasion to make at any time prior to 1913. And 1
call attention also to the fact that at this tune of great pressure,
when banks in many parts of the country still claim that they have
been, up to a very recent date, unable to get accommodations they
need, and when money is still tight in many communities, especially
farming communities, the Federal reserve banks have an unused
lending power of about two and onc-half billion dollars, which is
about sixteen times as much as the maximum amount that the
national banks of the country have borrowed at one time on bills
payable and rediscounts prior to 1913.
Representative S u m n e r s . Well, now, if as a matter of fact the
system does have unexpended resources, but the agricultural com
munity has in it banks which are, I believe you call it, extended—
I have in mind a community whose total banking capital, surplus
and undivided profits, is $500,000, and they have loans outstanding
of three and one-half million dollars, which community is a community
composed of small farmers, nearly all of whom own their farms, but
the banks have not been able to extend further loans because, at least
they claim, that they have not been able to get money on account
of their extended situation—is there anything that can be done
under the present system or under any additional legislation which
you would suggest, that would enable an individual farmer who has
f
f
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179
perfectly g o o d b a sis fo r h is loa n s, to p r o c u r e th e m o n e y w h ich h is
necessities re q u ire ?
Mr. W illia m s . From the Federal reserve bank ?
Representative S u m n e r s . If we have not the authority now, if we
havenot the law now, if we have not the machinery now, what sug
gestion can you offer under which accommodation of that sort can
bemade?
Mr. W illia m s. D o you mean to enable the farmer to deal directly
with the Federal reserve bank ?
Representative S u m n e r s . I do not care where he gets his money.
Heis out there in the country where his banks are already extended,
but he has a perfectly good basis for loans, and he is suffering, and
thecommunity is suffering with him, and the country is suffering to
that extent.
Mr. W il li a m s . Well, if he does not happen to have a well managed
or sympathetic bank in his own town or nearby which will grant
himthe accommodation I would try some other near-by bank, and
if the bank claims that they have not the funds, I should suggest
that the fanner might discuss the matter with the member bank,
urgingupon it that nis paper is eligible, and that it can obtain redis
count from the reserve bank.
Representative S u m n e r s . But the banker comes back at him and
says: “We have loans out now of three and one-half million dollars
ud we have only a capital and undivided surplus and profits totaling
1500,000.”
Mr. W i l l i a m s . That is a very large problem, Congressman, and if
you wish me to do so I shall give some thought to this particular
epect of this problem, and discuss it with you later.
Representative S u m n e r s . That is a c o u n t r y -w id e p ro b le m .
Mr. W il li a m s . It is a very important problem.
Representative S u m n e r s . Yes.
Mr. W i l l i a m s . Mr. Chairman, shall I proceed ?
The C h a ir m a n . Proceed.
Mr. W i l l i a m s . On the 28th of December I addressed an earnest
»ppeal to the Federal Reserve Board urging that something be done;
toat in the very critical conditions that existed there should be a
relaxation and modification of their deflation policies, as I had done
® the communication in October, and in pursuance of the policies
*hich I had suggested in August. My letter to the Federal Reserve
Board of December 28 was not brought up for general discussion at
ward meetings at which I was present. I mentioned the matter to
Cov. Harding upon one or two occasions and asked him whether this
subject was coming up for a general discussion, and was advised that
thematter would receive the attention of the board. I assume that it
lr»s discussed in “ caucus” rather than in open board, but the cor
respondence and memoranda which I placed in the record yesterday
along with the letter of December 28, 1920, show the situation at
that time. I finally heard from Gov. Harding. I received a letter
fromthe governor in January, on the 13th of January, 1921, I think,
*hich was introduced in yesterday’s proceedings, but the board did
?°t »ct upon the very definite suggestions which I had made in my
ktter. Those suggestions were taken up some weeks later, as will
*ppear from the correspondence which I will introduce.
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AGRICULTURAL INQUIRY.
Some days later on, however, the Federal Reserve Board learned,
it appears, in some way, that copies of my letter of December 28 had
been sent to certain Members o f the United States Senate or others,
and they evinced a very lively desire to ascertain the names of every
person to whom I had furnished copies of that communication.
In that connection I addressed this letter to the Federal Reserve
Board on February 14, 1921 [reading]:
Hon. W. P. G. H arding ,
Govcrncr, the Federal Reserve Board.
D ear G ov . H ardinq : I am this morning in receipt of a letter from Secretary
Hoxton, of the executive committee of the Federal Reserve Board, stating that at
a mooting of the committee held on the 10th instant a motion was passed asking that
I furnish the board ‘‘ with the names of those persons to whom you (I) have given
copies of your (my) letter of December 28, addressed to Gov. Harding, so that the
executive committee may be in a position to formulate its report to the Federal Re
serve Board, as contemplated in the action of that body at its meeting on February 8,
1921.
The resolution of February 8, to which I understand this refers, is as follows:
I. Memorandum dated February 7, from the chairman of the Federal reserve bank
of New York, transmitting the following excerpt from the Whaley-Eaton Service in
its issue of February 5:
“ Copies of a letter said to have been written by Comptroller of the Currency Williams
to Gov. Harding of the Federal Reserve Board have been circulating araon^ a few
Congressmen and the facts in this letter of such alleged authorship are responsible for
the resolution introduced by Representative Baer, the Non-Partisan League Member
of the House, in which it is stated that the average loans from the Federal reserve
system to four banks in New'York City amount to as much as the St. Louis, Kansas
City, Minneapolis, Dallas, and Richmond reserve banks combined are lending to
4,000 member banks in 21 States. The letter hafl been shown to representatives of the
various agricultural oiganizations having offices in Washington and they are being
urged to demand an investigation. It is stated that Gov. Harding replied to this
letter, but we have seen no copies of that reply. This affair is back of tne story that
Mr. Williams was contemplating resigning, a report which Mr. Williams has ridiculed."
Sir. Miller moved, in view of the above, that the matter be referred to the executive
committee to prepare a statement for submission to the Federal Reserve Board, said
statement to be drawn with a view to making it public, should such a course be found,
in the opinion of the board, to be necessary.
You will remember that when you brought this subject to the attention of the
board last week you asked whether it would be agreeable to me to furnish the board
with a list of those persons to whom I had given copies of my letter to you of December
28, last. In reply I told you very promptly that if the board desired it done, it would
give me much pleasure to send to each of those to whom I had furnished copies of mv
letter of December 28 a copy of your reply of January 13, 1021, or of such furthei
answer as you or the board might care to make. I alBo informed you that the copies
(other than those delivered to members of the board I of my letter referred to had been
given confidentially, and with the distinct understanding that they were not for
publication, and that I had taken the precaution to write upon each"copy (without
exception as far as I recall >the narneof tne person to whom, in confidence, it. was given.
As I understand the situation the substantial correctness of the statements con
tained in the letter of December 28 has not been and can not be challenged. There
fore, I can not imagine why it should be necessary for you to know the names of the
persons to whom I had given, confidentially, copies of this letter, in order, as your
resolution claims, that the executive committee “ may be in a position to formulate
its report to the Federal Reserve Board.”
I snail, of course, be glad to do anything I can to help the board get itself “ in a
position to formulate its report,” but the names of the persons to whom I have sent
copies of my letter to vou can not, as far as 1 can see, affect or qualify, one way or
another, the facts which in my letter I have brought to the board's attention.
If any of the persons to whom I have handed the letter have disregarded my confi
dence and given it circulation or publicity, it has been done without my knowledge
or approval. I do not know to whom any one of the comparatively few people who
have received the copies have exhibited them. My information in this connection
is substantially confined to the statement which you laid before the hoard as having
been printed by the “ Whaley-Eaton Service.” I do not know who has been circu
lating the letter “ among a few Congressmen ” as state! in the Whaley-Eaton Service.
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181
Of the 435 Members of the House of Representatives, I do not believe there are as
many as two who have received from me copies of that letter.
Id’ my letter to you of lanuary 17 I informed you explicitly that I had furnished
copies of the letter*to you to the 12 chief national'bank examiners: and for your infor
mation, and hoping that their views might be regarded as entitled to weight, I em
braced in my letter to you on January 17 extracts from some of the replies which I had
received from different chief examiners expressing their strong concurrence in the
position which I have taken in the matter. I also sent a copy of the letter to the
Secretary of the Treasurv, the chairman of our Reserve Board, and copies were sent
to each member of the Reserve Board, including Vice Gov. Platt, Mr. Hamlin, Dr.
Miller, and Mr. Wills, hoping, by doing this, to secure for the letter a greater degree
of attention than otherwise might be accorded it.
I also gave copies to one or more Assistant Secretaries of the Treasury and to a few
Members of the United States Senate who have had occasion to discuss this subject
with me. and who were deeply concerned in the situation. In addition to the fore
going I have furnished copies in confidence to a few of my personal friends and
perhaps two or three others who might not be included in that circle. I should add
that in the copies referred to certain names and figures were deleted as clearly indi
cated in the copies. Frankness requires me to say that I hear that an official or
officials of the American Cotton Association have written to at least two Senators
inquiring whether the statements ascribed to me by the “ Whaley-Eaton Service”
were made by me and whether they are correct. This inquiry has been referred to
tne and I feef compelled to answer in the affirmative, although I have no knowledge
of how the Whaley-Eaton Service obtained its information. The Cotton Association
undoubtedly is in possession of general statements contained in my letter to you of
December 28, 1920. Whether the entire correspondence between you and myself
on this subject is to be given publicity, as has been suggested, is a matter within the
discretion of the board or the executive committee. I shall certainly not oppose it
if the board thinks it desirable.
In fact I will say in conclusion that as far as I am concerned, I have not the slightest
objection to the b6ard acting favorably upon the proposal which was made by one
of our members a few days ago when this question came up that the board publish
mv letter to you and also the board’s reply of the 13th ultimo. I will now go further
and state plainly that it is my personal belief that my letter of the 28th of December
contains some information of an important character, to which I think the public
entitled, and t-hould have before it. In fact, to make public this information I believe
would be distinctly salutary and beneficial.
I hope that you may feel justified in explaining to me more fully why the executive
committee feels that it can not be “ in a position to formulate its report” without
having before it a list giving the names of the persons to whom I have furnished, in
confidence, copies of my letter to you of December 28.
Very truly, yours,
John S kelton W illiams.
On that same subject I addressed the following letter to Gov.
Harding under date of March 1, 1921 [reading]:
T reasu r y D epartment , Comptroller
op the
Currency ,
Washington.
I have your favor of the 2fith ultimo in which you tell me
that after I left the meeting of the board that day, you were “ directed by the board
to ccmmunicate with you (me) and renew the request that you (I) let the board
have a list of these names at your early convenience or express definitely your (my)
unwillingness to do so.” The “ names” referred to are those of the persons or indi
viduals to whim 1 may have furnished copies of my letter to the board of December
28 last
No complete copies of that letter, I believe, were given out to any one; I assume
your request also refers to any copies of the letter which may have been given out
with certain names deleted (for the purpose of preventing identification of banks
referred to ) in the letter.
To dispel all doubt and relieve any possible pangs of suspense, I answer promptly
that I will not furnish the board with the names of any other persons than those I
have already given you to whom I sent copies of the letter of December 28 (deletions
»s shown in copies furnished the other members of the board) and 1 append my reasons
for refusal.
(1) The matter of my disposition of those copies is absolutely irrelevant to the
main and only point in this connection properly under discussion and before ub for
consideration.
D ear Go v . H a r d in o :
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(2)
I am not infoimed what lire is intended to he made of the list referred to. My
letter to you of the 14th ultimo furnishes you all the information on this subject that
I rare to give. I will not give further facilities for having thoee to whom I have rent
a written and recorded document signed by me on my official and personal responsi
bility, approached personally, without anv knowledge or presence, by persons of
whoee capacity, information, or responsibility I may know nothing. A moment’s
thought will convince you or any man of ordinary experience, that a formal document
of importance if only to its author, should not te subject of traverse, by an opponent in
private, unchecked’, and unrecorded conversation, without opportunity for the pro
ponent to know and rebut allegation or argument against his position, However unjust
or injurious to him. I learn from your own statement to me, Governor, that my appre
hension of the use that might be made of the list is not fanciful. You are my authority
for the fact that you personally sent for or saw one person you had reason to believe
had Been my letter and proceeded to undertake on ex parte statements to reverse
judgments he had based on it. I am left ignorant not only of what you said to him, but
of his identity which you declined to tell me.
I do not think the board quite'realized that it was asking me to put myself and my
case at the mercy of thoee obviously hostile to my opinions and suggestions and of
some whose fondness for myself is not exactly enthusiastic.
These two reasons appear to me to be convincing and conclusive.
As I have stated to you and to the board in my letter of February 14 and otherwise,
in writing and in conversation, I am entirely willing to have the discussion in the
open, ana all my letters to the board or to you and any replies that have been made
or may be made spread before the public, deleting names or references where these
may seem desirable for the protection of others. The large problems discussed in this
correspondence is the public’s vitally important business. In my view, the public
is entitled to know all about it. My experience tells me that straight-forward frank
ness and open dealing in all matters of public concern are the surest way to the gen
eral confidence that- is the foundation of safety. For my part, I know of nothing in
tbis matter or anywhere in my official life that I wish to hide.
If this view is not shared by the board 1 reiterate now my former offer and pledge,
to convey to each of the persons to whom I gave copies referred to of my letter of
December 28, any reply or rejoinder the board, or anybody in its behalf, may prepare
all comments or remarks on the subject by me to be in writing and copy thereof to be
transmitted to the board. Years of hereafter and disclosure are to come. The more
clearly every act and motive of ours is put in permanent record and the less casual or
loose conversation or secret discussion we have, the better for ourselves, the business
community, and the country
Mere knowledge of the persons who have seen my letter of December 28 or the
deleted copies o f same can be of no imaginable advantage, although I told generally
of their character and relationships. If tne board wishes to reach them with actual or
intended communications to offset, counteract or explain what I have written, the
way is open. If the relationships among us are such that any of us may pretend to
suspect that I would not faithfully keep my promise—and I do not feel any would
really feel such suspicion—I certainly can not be expected to submit my case to
hostile presentation not to be recorded or put before me.
I hope I have made my position clear. I will be glad to have the whole of my
correspondence with the board made public, deleting such names or direct references
as may cause individual hardship or injury. I will be glad to give to the persons who
received the copies of my letter of December 28 deleted, any reply the board may
wish to make. For reasons given before and for the further reason that the names of
the persons who received my letter of December 28 can have no possible bearing on
the merits of this case or the truth or untruth of my assertions and deductions, I respect
fully decline to furnish the list requested. Let me add in conclusion that I have not
yet received the explanation invited in the closing paragraph of my letter to you of
February 14,1921, in which I said, “ I hope that you may feel justified in explaining
to me more fully why the executive committee feels that it can not be ‘ in a position
to formulate its report’ without having before it a list giving the names of the persons
to whom I have furnished in confidence copies of my letter to you of December 28.”
Sincerely yours,
John S k elto n W ilu am s, Comptroller.
Hon. W. P. G. H arding,
Governor Federal Reserve Board.
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Mr. Chairman, I will now read a letter into the record which 1
wrote to Gov. Harding under date of February 19, 1921.
Eepresentative F u n k . Well, now, Mr. Chairman, if the letter
which Mr. Williams is about to read is of the character and covering
the matter that the last letter covered, I do not think it serves the
proposes of this commission.
Mr. W i l l i a m s .
It is not.
Representative F u n k . I take it that this commission is not inter
ested in a back-yard quarrel. If this witness has some facts as to
the action of the Federal Reserve Board in restricting credits to
agricultural business we want to know it, but I, for one, am not
interested in back-yard quarrels.
Mr. W illia m s . What you refer to as a back-yard quarrel, may I
say respectfully, Congressman, is giving publicity or furnishing
members of the United States Senate ana House of Representatives
with copies of a letter which set forth facts and conditions which I
thought vitally affected not only the farming interests, but the
whole business interests of the country.
Representative F u n k . That may be true, but what do we care
whether the governor or some member of the Federal Reserve Board
criticizes you for sending letters to members of the Senate, and asking
their names ? That does not help us in this inquiry. We have spent
15 or 20 minutes in listening to you read a letter in which you set
forth your quarrel with the governor of the Federal Reserve Board.
That does not help this commission in its inquiry at all.
Mr. W i l l i a m s . It related to furnishing to the United States Senate
and the House of Representatives copies of letters which dealt
with important public matters.
Representative F u n k . Well, give us the letters. Give us the
facts. Tell us what the board has done or has not done; that will
be helpful to this commission in its investigation.
Mr. W i l l i a m s . I w ill do so.
The C h a ir m a n . What is the date of the letter which you are n o w
about to read, Mr. Williams ?
Mr. W i l l i a m s . February 19, 1921.
[reading:]
The letter is as follows
T reasur y D epartment,
Comptroller of the Currency ,
Washington.
Hon. W. P. G. H ardinq ,
Governor Federal Reserve Board.
Dear Governor H arding : In my letter to you of December 28, 1920, in dis
cussing the uneven distribution of loans and credits and, what seemed to me, to be in
certain instances, excessive loans by the New York bank to particular banks in New
York City, I said:
An important question is how far the enormous sums which the reserve system is
lending to the banks in the large cities are being used for the protection and promotion
of legitimate business, and how far these funds are being employed in speculation or
for the selfish interests of the officers and directors of the borrowing banks and for the
concerns in which these officers are especially interested.
“ The inequalities and injustice in the distribution of these funds become apparent
when we analyze the uses which big favored banks in the East sometimes make of the
money they borrow from the reserve system. ”
I now think it proper to bring to the attention of the board the following case which
luu come to my notice since my letter to you on this subject. I have reason to believe
there are many other banks to whom the New York reserve bank was lending far
larger sums than the particular bank referred to was borrowing from the reserve bank,
who also loaned to this unfortunate borrower at unconscionable rates—as the New
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AGRICULTURAL INQUIRY.
York reserve bank or the board, can ascertain if you see fit to make inquiry. This
instance, however, will illustrate how loans made to member banks by the New York
reserve bank are sometimes used.
The New York Oitv bank referred to, whose report is before me, states that its bor
rowings from the Federal reserve bank for the nine months from February, 1920, to
October, 1920, both inclusive, averaged approximately $5,000,000 for each of these
months. This is equal to about 70 per cent of the capital of the borrowing bank—
certainly not an unjustifiable amount if the funds obtained were properly used. In
fact the borrowings from the reserve bank by this particular bank nave been commendably light.
I he bank reports that its rediscounts, including acceptances with the New York
reserve bank which in May amounted to $2,741,936—were paid off by June. Its
average bills payable, however, in the month of May were only $1,290,322; and for the
month of June, these borrowings from the reserve bank increased to an average of
$3,891,813—the increase for June over May being $2,600,000.
This additional $2,600,000 need not have been borrowed from the reserve bank at
that time but for two certain loans which the member bank made to ostensibly two
borrowers under date of June 14, 1920, for $1,000,000 each—particulars in regard to
which I shall now give you.
The member bank reports that the $3,891,813 borrowed from the New York Federal
reserve bank for the month of June was obtained at 6 per cent per annum interest.
But in lending the funds to one of the bank’s customers the member bank collected
for interest and commission on $1,000,000 loaned by a dummy loan to its customer
(note made to the real borrower’s secretary) interest and commission equivalent to
about 20 per cent per annum for 5 months and 10 days.
For the other loan the bank appears to have charged on the net amount loaned the
equivalent of about 200 per cent per annum.
It appears that the customer, Mr.-------- , gave his note, secured by collateral and
»ayable 12 months after date, for $1,000,000. The bank allotted participations in this
oan to eight correspondent banks for sums aggregating $475,000, leaving the member
bank’s net commitment on th e-------- loan $525,000.
f
The C h a ir m a n . This is the instance that you referred t o yesterday,
is it?
Mr. W i l l i a m s . Yes. [Continues reading:]
The bank received a check from Mr.-------- for a cash commission of $260,000, so
that the net amount advanced by the lending bank was only $265,000 on this par
ticular loan.
In addition to the 26 per cent cash commission, Mr. -------- , the borrower, was
required to pay 6 per cent per annum interest, and the loan was paid off in 5 months
and 10 days.
In allotting participations in the $1,000,000 -------- loan to eight correspondent
banks, it appears that the correspondent banks received 6 per cent per annum interest,
plus a cash commission of 3 per cent, the New York member bank retaining 23 per
cent cash commission in addition to 6 per cent per annum interest and allotting to
the correspondent banks which participated with it only 3 per cent cash commission
in addition to 6 per cent per annum interest.
The net results of this transaction, it appears, were as follows:
Member banks’ average borrowings from the New York Federal Reserve
Bank in June, 1920................................................................................. $3,891,813
Amount of this bank’s participation in loan on -------- stock before deduct
ing $305,750 cash commission------------------------------------------------------ 1,525,000
Net amount loaned to Mr.-------- and his secretary after deducting $475,000
participation allotted to eight other banks, and also after deducting
$305,750 cash commission received from Mr.-------- , in addition to 6 per
cent per annum interest, for the loan made to him direct on his own
note and on the loan made on the “ dummy” note of his secretary....... 1,219,250
Interest and commission collected by New York member bank for making
the aforesaid net loans of $1,219,250.......................................................
344,416
These figures, therefore, show that this particular bank borrowed this net amount
of $1,219,250 from the Federal reserve bank of New York at 6 per cent per annum, and
loaned it or the equivalent to its customer for 5 months and 10 days at the rate of
about 63 per cent per annum.
Or if we consider separately the dummy loan of $1,000,000 made to Mr.-------secretary or stenographer (all of which it appears was loaned by the member bank)
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185
and the 1525,000 participation in the $1,000,000 loan made to M r.-------- direct and
retained by the member Dank, it will be seen that this bank received, in interest and
commission on its participation in the $1,000,000 direct loan to Mr.-------- , the equiv
alent of about 200 per cent per annum interest for the 5 months and 10 days that the
loan was outstanding.
And on the dummy loan to M r.-------- ’s secretary it received in commission and
interest the equivalent of about 20 per cent per annum for the same period 5 months
and 10 days.
If we consider the-------- loan separately it appears that the member bank borrowed
fromits reserve bank the net Bum of $265,000 at 6 per cent per annum for 5 months and
10days, at a cost of $7,066, and loaned the same amount, net, $265,000, to Mr.-------- ,
collecting from him for its use for 5 months and 10 days, the sum of $259,750, which is
equivalent to about 200 per cent per annum interest.
In other words the member bank paid the reserve bank $7,066 for the use of $265,000
for 5 months and 10 days and collected from a customer for accommodating him with
a loan of like amount, the sum of $259,750, thereby making a net profit of $252,684 on
the transaction.
The final result of the two loans was that the national bank here referred to paid
the reserve bank for interest on $1,219,250 (net amount kept of both loans) approxi
mately $52,513, and exacted from its customer for the same amount of money (part of
which was for the direct loan to Mr.----- and part for the dummy loan) the sum of
1344,416, or a net profit on the two transactions of $511,903.
It is worthy of note that the extortion practiced on this particular customer by this
bank and by other banks with which he was dealing at that time were active factors
intaking them close to disaster, if current reports on this subject are correct.
Is not this incident another strong argument in favor of the recommendation'which
I have recently made to Congress, tnat banks obtaining accommodations from reserve
banks Bhould be prevented from charging their customers more than a reasonable
and moderate advance above the rates they pay to the reserve banks? In this instance
money borrowed from the Federal reserve bank actually was being used in cruishing
animportant citizen, the head of great enterprises.
Every business man knows that the enevitable, logical result of such unscrupulous
extortion^ as these here brought to your notice, is ruin for the victim of them. The
crash which the banks exacting such tribute—with the unconscious assistance of the
Federal reserve bank—created to conserve and protect our commerce and finances—
did so much to precipitate, might have been far-reaching. It might have thrown
thousands of employees out of work, forcing distress on their families and destroying
their power to buy from our merchants and manufacturers and pay their rent to real
estate owners. It would have added very seriously to the dangers to our welfare
already existing. The Reserve Board can not with impunity condone or sit silently
by while its funds are being used for wrecking purposes—it may make itself, it seems
to me, particeps criminis, accessory before ana after the fact.
In my letter to you of December 28,1920, I called your attention to the manner in
which certain banks in New York City were borrowingnuge sums of money, not merely
to supply legitimate demands of business and commerce or in order to enable them to
accommodate correspondent banks in the interior, but for the purpose of promoting
(peculations and market manipulations; and I brought to your notice a number of inrtances where institutions borrowing most heavily from the New York reserve bank
were making enormous loans to their own officers and to the officers of other member
banks for the promotion of their individual speculations. I called your attention to
one particular instance where a large bank, debtor to the New York reserve bank for
more than $100,000,000, was lending to its head officer and to the members of his im
mediate family about-------- million dollars, or more money than this member bank
was lending to all of its national bank correspondents throughout the entire country.
I also called your attention to another banking institution in New York City, to
which the Federal reserve bank was lending more than $100,000,000, which was ad
vancing huge sums to various speculative syndicates, in which its own active officers
were largely interested, and in a letter I pointed out to you the methods which were
being used to camouflage and conceal the actual interest of the bank’s officers in these
speculative syndicates which were absorbing such large sums supplied by the reserve
bank of New York.
In my letter to you of January 12,1921, in discussing this aspect of the situation, I
■aid:
“ I feel confident that these secret methods by which the officers of the bank made
Me of the funds of the institution, can no more De approved by you than they can be
by this bureau.”
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In the letter which I wrote you on January 28, 1920, more than a year ago, I called
your attention to the fact that the funds of the reserve bank of New York were being
largely used, or misused, in lending enormous sums to a certain banking institution in
New York City which had become conspicuous for its speculative operations and
which was already being much criticised ny conservative bankers I pointed out to
you that the New York reserve bank waB, at that time, lending an amount nearlv six
times its own capital, that is to Bay, six times the capital of the reserve bank of New
York to that one member institution, and 1 showed you that the money which the
New York reserve bank had loaned to that one borrower on December31,1919, amounted
to nearly twice as much as the aggregate amount of loans and discounts which the
Federafreserve bank of Dallas was lending at that time to all of its member banka in
that great district, embracing the entire state of Texas and ports of the states of I-ouisiana, Oklahoma, New Mexico, and Arizona.
It appears that in order to make these huge loans to those institutions the New York
Federal reserve bank had f ound it desirable to rediscount or borrow, about the time of
my letter to you of January 28. 1920, over $118,000,000 from seven other Federal
reserve banks, including among others, the reserve banks of Dallas, Chicago and
Atlanta, whose resources available for their own member banks were to that extent
lessened.
I said to you in my letter of January 28, 1920, to which I have referred: “ This is
a concentration .of the funds of the system with one debtor bank conspicuous for its
speculative operations and promotions which, in my judgment, is not only not justi
fied, but distinctly dangerous and I feel it my duty to register iny strong dissent from
a continuance of such conditions as these, by writing you as I'am doing, as an ex
officio member of the board.”
That was more than 18 months ago.
Representative M i l l s . What was the date of that letter?
Mr. W i l l i a m s . January 28, 1920.
Representative M i l l s . January 28, 1920?
Mr. W i l l i a m s . Yes.
Representative M i l l s . Just read that again, will you ?
Mr. W i l l i a m s (reading):
I said to you in my letter of January 28, 1920, to which I have referred:
“ This is a concentration of the funds of the system with one debtor bank con
spicuous for its speculative operations and promotions, which, in my judgment,
is not only not justified, but distinctly dangerous and I feel it my duty to register
my strong dissent from a continuance of such conditions as these, by writing you as
I am doing, as an ex-officio member of the board. ”
I also said in that same letter: “ With such facts before us * * * as I have
here undertaken to bring to your attention our responsibility becomes serious and
very real. ” and I asked you to bring the matter to the attention of the board.
I have additional reasons now for believing that the funds advanced during the
past year by the reserve bank of New York to that particular institution and also
to other banks in that district have been used to a wholly unjustifiable extent for the
promotion of stock deals and syndicate operations upon which extortionate interest
and commissions have been exacted ana in many of which syndicate deals and
operations the officers of this heavy debtor institution have been directly and in
directly interested.
The Federal Reserve Board and the reserve bank of New York are empowered by
law to make examinations of all member banks and I have several times urged upon
you the desirability of having such an examination made of this leading debtor of the
Federal reserve system, either by the examiners of the board or by the examiners of
the Federal reserve bank of New York, in order that the New York reserve bank, at
least, might have an intelligent understanding of the condition and operations of that
institution and of the purposes for which the huge sums of money which it was lending
to that member bank were being used. The importance of having such data is too
obvious for discussion here.
Thus far, however, as far as I am informed, no such examination has ever been
undertaken by the board or the New York reserve bank, although I learn, indirectly,
that one or two of the board’s examiners or the reserve bank’s examiners have ac
companied the State examiners on certain occasions in their examinations.
Meanwhile, I hear indirect reports which indicate that the member institution
above referred to during the past year has been making large loans on time for specu
lative or other ventures for which it has charged, in certain instances, as high as 60
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187
per cent per annum interest (or money at the same time it was obtaining funds from
the reserve bank at 5J to 7 per cent per annum. You can ascertain whether these
reports are correct or whether they are exaggerated.
A New York man, usually well-informed, recently referred to an instance where
it was reported the head of a large manufacturing concern which employed thousands
of men, found himself in need during the past year of $5,000,000 for which he offered
abundant collateral; but upon appjying to the New York banks was forced, in order
to get funds, to pay cash commissions of about $1,000,000 in addition to 6 per cent
per annuminterest for the loan which was repaid in less than six months—the money
beingobtained, I understand, largely from member banks which were borrowing from
the reserve system at 6 per cent. I do not think such rapacity should be tolerated.
I again repeat the recommendations which I ha\e made on several previous occa
sions that the examiners of the board or the bank o f-------- be authorized and directed
to make such an examination of the affairs of a certain leading debtor of the reserv e
bank of--------as may be necessary for a proper understanding of its methods and prac
tices and operations, and also to develop to what extent the fundB for this institution
are being used or have been used for the promotion of the speculative undertakings
and syndicate operations of its own officers and directors and of the officers of other
member banks which are also borrowing heavily from the reeen e bank o f -------- .
The manner in which certain New York banlang institutions have borrowed enor
mous sums from the Federal reserve bank of New York at rates of from 5 to 7 per cent
and have taken advantage of the necessities of needy borrowers in trying tur.es by
accommodating them with time money at rates, in some instances as high as SO per
cent per annum, and in at least one instance about 200 per cent per annum, is, in my
opinion, uneconomic, unconscionable, and barbarous, and I am not willing, as far as
I am concerned, to have such operations pass unnoticed or without protest.
Our reserve board will not hereafter be able to escape heavy public censure on the
excuse that it was not advised of the details of such transactions. Such examinations
as I urged the board to undertake more than a year ago would. I believe, have brought
to light methods and practices calling for drastic action and remedy, and in my judg
ment it would have been the duty of the board if it had possessed a knowledge of the
facts which it can now obtain if it desires them, to have refrained from granting enor
mous loans to institutions continuing or proposing to continue such operations as
some of those to which our attention nas more than once been directed.
Aa I have pointed out on other occasions the records of this office show that the
artificially fixed money rates in New York City have had the effect of drawing to New
York City from all parts of the country many hundreds of millions of dollars which,
fromthe standpoint of the public welfare, could be better employed if they had been
permitted to remain in their own respective communities to" be loaned there for
legitimate business, and within the legal rates of interest permissible in the several
States.
The reports of this office show that on December 29,1920, the national banks alone
in New York City, held, for account of correspondent banks in all parts of the country,
an aggregate of approximately $800,000,000; while the total amount of money which
fdl the national banks in New York City were lending to their correspondent banks
inall parts of the country, directly and indirectly, amounted to less than $280,000,000.
Official records also show that in addition to the deposit balances carried in New
York national banks for outside banks, the local New York hanks were lending in
Wall Street, for outside customers and correspondents, hundreds of millions of dollars
drawn thither from all parts of the country to take advantage of the high interest
rates, maintained there partly, it has been alleged, for the express purpose of entic
ing money from other sections. My Annual Report for 1920 Tp. 144) snows that the
loans made by New York City national banks for account of all correspondent banks
on May 4, 1920, amounted to more than $600,000,000.
The official reports indicate that the total amount of money which the national
hanks in New York City have to the credit of their correspondent banks in all parts of
the country, plus the funds which the New York national banks have loaned m Wall
Street for account of their correspondent banks in all sections of the country, exceeds
in the aggregate the total amount of money advanced to all member banks either on
bills payable or on rediscounts by all of the Federal reserve banks, excepting only the
Federal reserve bank of New York, but including the 11 reserve banks of Boston,
Philadelphia, Chicago, Cleveland, Richmond, Atlanta, Dallas, St. Louis, Minne
apolis, Kansas City, and San Francisco, with more than 8,800 member banks. These
figures impress me as being significant and worthy of the study of the board.
I understand that the records also show that very recently four banking institutions
in Sew York City were found to be borrowing from the New York reserve bank about
three times as much money as all the national banks of the country, more than 7,500
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had ever borrowed at any one time on their bills payable or on rediscounts, \rior to
the inauguration of the Federal reserve system.
I am told that the claim has been made in behalf of the New York banks that the
money which they borrow from the reserve bank of New York is largely for the purpose
of meeting the demands made upon them for accommodation by banks, merchants,
and individuals in other parts of the country, but an analysis of the situation' does
not support this theory.
The reports of January 31, 1920, show that the total amount of money loaned b y
all the national banks in New York City to all borrowers outside of the Eastern States
amounted to only $743,000,000, of which one hundred and five millions were loaned
in the New England States, one hundred and Bixty-nine millions in the Southern
States, two hundred and ninety-one millions in the twiddle States, forty-two millions
in the Western States, thirty;four millions in the Pacific States, and something over
one hundred millions in foreign countries, our insular possessions, and Alaska (see
p. 214, 1920, annual report).
On the same date the money deposited in the national banks of New York City by
other banks in all parts of the country aggregated $896,000,000.
R e p re s e n ta tiv e M i l l s . W h y d id y o u p ic k o u t th a t p a rtic u la r d a t e ?
Mr. W i l l i a m s . We did not have those figures available for all
dates. It is only about once a year that I think we got it.
Representative M i l l s . You only have them for one date a year ?
Mr. W i l l i a m s . I th in k so.
Representative M i l l s . Well, it is in your report, isn’t it ?
Mr. W i l l i a m s . Yes.
Representative M i l l s . Well, are you not familiar with your o w n
report ?
M r. W i l l i a m s . I th in k it is o n c e a y ea r.
Representative M i l l s . Y ou are not sure ?
Mr. W i l l i a m s . Why, yes; I can not say whether we may not have
at one time called for it in January and another time in December,
but I think we have it only once in 1920.
Representative M i l l s . Will yoi; glance at your reports and s e e if
you have the figures for more tnan one date ?
Mr. W i l l i a m s . The report is of January 31, 1920. Well, this is
the report for 1920. I think that is the last, without looking it u p .
Representative M i l l s . Y ou are giving figures for January, 1920.
Mr. W i l l i a m s . Yes; and this is the report for that year.
Representative M i l l s . But I am asking you for the whole year.
You nave given oneparticular date.
M r. W i l l i a m s . W e ll, I th in k th a t is th e o n ly r e p o r t w e h a d fo r
th a t yea r.
R e p re s e n ta tiv e M i l l s . W ill y o u m a k e sure ?
Mr. W i l l i a m s . I think that is so. There is page 214, Mr. Mills.
You can find it yourself. I did not have time to look through the
whole report, but I think that is correct. If not conrect, I will be
glad to put in any other figures.
The C h a ir m a n . Was there any similar report made, or any similar
call made for information in January, 1921 ?
Mr. W i l l i a m s . I sent out in February, 1921, a call to the national
banks requesting them to advise me the amount of money which they
held for account of depositors in each particular State of the Union.
And I would respectfully suggest to the committee that if they
should be able to get that information from the comptroller’s office
it would be exceedingly illuminating to them. I resigned as comp
troller before the reports which I called for were received and com
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piled. I do not know whether they have been compiled or not, but
if they have not been compiled I desire to say to this committee that
I think the information which they contain will be very helpful to you.
The Chaibm an. Was this call that you refer to now a call for the
same information that is contained in the report of January, 1920?
Mr. W illia m s . In part. This particular information which I
called for in February had never been called for in that precise form
before.
The C haibm an. Will you state now just what the questionnaire
asked for ?
Mr. W illia m s . I would suggest that a telephone request to the
Comptroller of the Currency would furnish you with the blanks in the
form in which they were sent out. I don t know whether I have a
copy here or not. But I think it would be interesting to the com
mittee.
The C h aibm an . I thought you could tell us what it contained.
Mr. W ilu a m s . I can tell you what it calls for. It requires the
banks to show the location of their principal depositors. For ex
ample, if that is compiled it would snow how much of the money,
how much of the individual deposits in the New York banks are for
account of individual depositors in the West or in the East or in the
South or in New York State itself.
The C h aibm an . Was this particular call confined to New York
banks?
Mr. W illia m s . I think that was a general request. My impression
is that it was for all banks, certainly all reserve city banks. There
are about sixty odd reserve cities, and my impression at the moment
is that it was for all banks. It was either, I think, for all banks or
for all city reserve banks, but I think it was for all banks.
(The blank form is here inserted in the record, as follows:)
(Treasury Departm ent, C om ptroller of the Currency, Form 2137-B, Feb. 18-21.)
O f f ic e
of t h e
T reasu ry D
Co m ptroller of
epartm ent,
the
Cu r r e n c y ,
Washington, D. C., February 25,1921.
To the president or cashier:
Sir : Y ou are requested to forward to this office, in accordance with the provision
of section 5211, TJ. S. R. S., a special report on this blank form showing the geographical
location by States of your depositors, the number of accounts of depositors located
in each State, and the aggregate deposit balances, exclusivie of bank deposits, at the
dose of business on Monday, February 21, 1921.
In reporting balances to the credit of individuals, the State in which the depositor
resides or in. which his checks are usually dated should be credited with the balance.
In instances where deposit balances of firms or corporations are subject to the order
of an officer or employee of the firm or corporation, which maintains several accounts,
the State in which the office or place of business is located, of the officer or employee
authorized to draw on such accounts should In this report be credited with such de
posit balance.
Respectfully,
J n o . S k e l t o n W illia m s ,
Comptroller of the Currency.
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190
Statement th/owing deposit balance! in national bank*, according to the location of the
depositor, rendered by the.................National Bank of ................. . at of Monday,
February 11, 1911, in response to request from Comptroller of the Currency dated Feb
ruary 15, 1911.
States.
T o tal, N ortheastern
N umber
of deposit
accounts
Aggregate
deposit
balances.
N um ber
of deposit
accounts.
Sta te s.
Aggregate
deposit
balances.
— — — — — — —
T o ta l, Middle States.
T otal, Eastern State s.
— — — — — — —
T otal, W estern States.
T otal, Southern States.
i
I
— — — — — — —
.
1
J
!
L*
T o ta l, Pacific S ta te s ,
T otal, United States
I ................................... . of the above-named bank, do solemnly swear that the
(President or cashier.1
above statement, to the best of my knowledge and belief, is true, and fully and cor
rectly sets forth the information called for by the Comptroller of the Currency in his
request of February 25, 1921.
(President or cashier.)
Correct.—Attest:
[To be attested by not less than
three directors otlier than the
officer verifying the report.]
[Place for official seal to be
affixed by officer before whom
acknowledged. See act of Feb.
26, 1881. Notary must not be an
officer or director of the bank.]
.................................................
.................................................
.................................................
Directors.
State of..............................................................
County of..........................................................
Sworn to and subscribed before me this....
day o f .................... 1921; and I hereby certify
that I am not an officer or a director of tftis bank.
Notary Public.
—This report must be sworn to by the president or cashier (oaths made by
other officer will not suffice), attested by not less than three directors, and forwarded
to the Comptroller of the Currency with the least possible delay.
N
ote.
Representative M i l l s . Where will I find your figure of $800,000,000 on deposit in this report ?
Mr. W i l l i a m s . (Reading:)
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191
The reports of January 31,1920, show that the total amount of money loaned by all
the national banks in New York City to all borrowers outside of the Eastern States
amounted to only $743,000,000.
You will find that on page 214, 1920, annual report.
Representative M i l l s . I found that.
Mr. W il l ia m s . N o w , what is the other one you want ?
Representative M i l l s . Y ou gave some other figure of 800 million
and some, I think.
Mr. W i l l ia m s . (Reading:)
On the same date, the money deposited in the national bankB of New York City by
other bankB in all puts of the country-----
Representative M i l l s . Y ou have included eastern States there?
(Reading:)
Mr. W i l l i a m s .
The money deposited in the national banks of New York City by other banks in all
parts of the country aggregated $896,000,000.
Representative M i l l s . Y ou showed two sets o f figures.
I use the same figures I have given here.
Representative M i l l s . In the first item, in other words, you have
excluded the Eastern States, and in the second you have included
them?
Mr. W i l l i a m s . In the first statement I have given figures b y dis
tricts.
Representative M i l l s . In the $896,000,000 item you have included
all Eastern States ?
Mr. W i l l i a m s . It gives it in detail by divisions.
Representative M i l l s . N o w wait a minute. Will you please read
that statement again.
Mr. W i l l i a m s . (Reading:)
Mr. W i l l i a m s .
The reports of January 31,1920, show that the total amount of money loaned by all
the national banks in New York City to all borrowers outside of the Eastern States-----
Representative M i l l s . Yes.
Mr. W i l l i a m s . Outside of the Eastern States. That word “ out
side” was emphasized, was put in caps.
Representative M i l l s . Yes, outside of the Eastern States.
Mr. W i l l i a m s . Amounted to only $743,000,000.
Representative M i l l s . Yes.
Mr. W i l l i a m s . Of which one hundred and five millions were loaned
in the New England States.
On the same date the money deposited in the national banks of
New York City by other banks in all parts of the country aggregated
$896,000,000.
Representative M i l l s . Yes.
Mr. W i l l i a m s . I made that distinction there very clear.
Representative M i l l s . So that in the first figure you have excluded
the Eastern States.
Mr. W i l l i a m s . I am stating that very positively.
Representative M i l l s . But in th e second figure you h a v e included
Eastern States.
Mr. W il l i a m s . Yes, it is precisely as given in the report.
Representative M i l l s . Exactly; Dut do you think it fair when you
are using the figures as a basis of comparison to.exclude as important
an item as the Eastern States ?
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Mr. W i l l i a m s . It is fair if you state precisely the basis on which
the comparison was made. I don’t know whether the details which
were accessible to me enabled me to do anything else.
Representative M i l l s . Well, now let us hear your conclusion.
Mr. W i l l i a m s . (Reading:)
Therefore, we find that the balances carried in New York Citv banks by other
banks alone, exceeded the aggregate of all loans made by all New York City national
banks to all borrowers in all other parts of the country outside of the Eastern States,
including banks and everybody else.
That is very explicit.
Representative M i l l s . Exceeded by how much ?
Mr. W i l l i a m s . Exceeded. It did not show by how much.
Representative M i l l s . N o w , let us include the Eastern States and
let us see what the result will be.
Mr. W i l l i a m s . I have not the figures.
Representative M i l l s . Y o u have them in your report. Now, in
clude the Eastern States in your items and see what the result will be.
Mr. W i l l i a m s . What figures do you want?
Representative M i l l s . I want you to use exactly the same figures
for tne same items. In other words, if you are going to include
Eastern States in one item I want you to include them in the other
item and see what result you reach.
Mr. W i l l i a m s . Let me call your attention to the fact that in one
case I give the deposits from banks only, but the loans are to both
banks and all individuals. These reports of which I speak and for
which I called would have enabled us to make a comparison on
approximately the same basis. The information had not Deen com
piled, and therefore I could not use it.
Representative M i l l s . Well, now, you have assumed to make a
comparison in which you have included Eastern States in one item
and excluded them in the other. I ask you to include Eastern States
in both items, and then give us the figures.
Mr. W i l l i a m s . Suppose you state precisely what the comparison is
that you want.
Representative M i l l s . I want you to include the Eastern States
in your first item. If you will give me that paragraph of your letter
I will do it myself. If you will give me your letter and your report
I will do it.
Mr. W i l l i a m s . Suppose you get exactly what you want.
Representative M i l l s . May Ihave the copy of your letter ? Now,
if we include the Eastern States it will appear that the total money
loaned by all the national banks in New York City to all borrowers
would amount to 82,489,000,000. On that same date money depos
ited in the national banks of New York City by other banks in all
parts of the country aggregated $896,000,000. So that the loans and
discounts made by New York banks exceeded the deposits of all
other parts of the country.
Mr. W i l l i a m s . D o you call the Eastern States “ all other ports of
the country ? ”
Representative M i l l s . Yes.
Mr. W i l l i a m s . W h y not-----Representative M i l l s . Now, let me finish my statement.
M r. W il l i a m s . G o ah ead .
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Representative M i l l s . The loans and discounts made by New York
banks exceeded the deposits of all other parts of the country by
$1,593,000,000.
Mr. W il l ia m s . The statements that I have asked for would give
the deposits from other parts of the country to the credit of individ
uals and others in New York City national banks. That amount, 1
think, would probably add to the <896,000,000 carried in New York
national banks by banks from all over the country somewhere from
one to two billion dollars. As I think it is very desirable that the
committee should have a complete picture of the case, I would re
spectfully again ask that that information be gotten, so that you may
have the correct picture.
Representative M i l l s . I think we ought to have a complete pic
ture. We would be more apt to have a complete picture ii we com
pare items that can be compared, and hot exclude any one particular
item.
Mr. W i l l i a m s . Shall I proceed, Mr. Chairman ?
The C h a ir m a n . Proceed.
Mr. W i l l i a m s . (Continuing reading letter of February 19, 1921:)
If ire assume that the money sent on to New York from other banks was used for their
outride accommodation, it is clear that the New York City national banks were using
til the funds they obtained from the reserve banks for their own local purposes, ana
this money was not being sent away to relieve the needs of the rest of the country, as
has been suggested.
It is also interesting in this connection to note that the official figures show that on
July 31 last the New York City national banks had received from their correspondent
banks and were lending from them, largely in Wall Street loans, the sum of $524,000,000.
Some of this money may have been used for loans to outsiders, but presumably the
great bulk of it was loaned in New York City.
Representative M i l l s . Y ou say presumably. Do you state that
fromyour own knowledge, or is that an assumption!
Mr. W i l l i a m s . 1 have reason to believe that it is correct.
Representative M i l l s . On what do you base that ?
Mr. W i l l i a m s . On general information.
Representative M i l l s . On general information ?
Mr. W i l l i a m s . Yes; from information obtained as Comptroller of
the Currency, and otherwise.
Representative M i l l s . Well, now, wait a minute. Is that accurate
information based on examinations of national banks ?
Mr. W i l l i a m s . That is my judgment based upon the information
whichhas been accessible to me. I don’t know why you want to be so
technical about that matter.
Representative M i l l s . Because we have had this trouble all
through, Mr. Williams, that I have wanted to know when you were
expressing an opinion or when you were stating a fact, and you have
been unwilling to tell me when you were speaking from personal
knowledge or whenyou were merely expressing an opinion.
Mr. W il li a m s . Well, I have submitted to questioning on several
matters which I regard as trivial, upon which you enlarged. I am
willing for the committee to pass upon the relevancy and pertincncy
and importance of those particular matters which I regard as quibbles.
Representative M i l l s . I want to know when you are stating facts
and when you are stating opinion. That is what I want to know.
Mr. W il li a m s . If you wdl follow me closely, you will find out.
91341—22— VOL 2------ 13
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Representative M i l l s . Unfortunately I have been following you
closely but I have not been able to find out. Now will you state
whether you are statins a fact or an opinion ?
M r. W i l l i a m s . Of w n a t?
Representative M i l l s . Of this $500,000,000.
Mr. W i l l i a m s . [Reading:]
Some of this money may have been used for loans to outriders, but presumably
the great bulk of it was loaned in New York City.
That is my judgment based upon information which has been
available to me.
Representative M i l l s . That is an opinion, then ?
Mr. W i l l i a m s . An opinion, based upon facts, yes. [Continuing
reading:]
In addition to drawing funds to N6w York City from other sections by the allure
ment of high interest rates and otherwise, let me remind you that at times during the
past year, in fact almost continuously through the year, the New York Federal reserve
bank has gotten from other parts of the country by rediscounting its bills and accept
ances considerable sums of money from nearly all the other Federal reserve bancs,
includingamongothers, the reserve banks of Dallas, Kansas City, Richmond, Atlanta,
and San Francisco, as well as the nearby reserve banks.
The board took exception to my including Richmond in that list.
In looking the matter up I found, that the loans at that particular
time were not made directly to the New York reserve bank by the
Richmond bank, but were made to Boston, and Boston loaned to
New York, and I also found that about that time, or not very far
from it, the reserve bank of Richmond did actually loan or redis
count for the reserve bank of New York. [Continuing reading:]
Furthermore, it is well known that the banks in New York City hold on deposit
hundreds of millions of dollars belonging to individuals, corporations, and others in
all parts of the country.
Representative M i l l s . Before you proceed further I would like to
examine you a little as to this proposition of New York rediscounts
as indicating the drawing of funds to New York. Now in the first
place, during the year 1920 isn’t it a fact that deposits were being
withdrawn from New York to other parts of the country?
Mr. W i l l i a m s . During what year ? .
Representative M i l l s . 1920.
Mr. W i l l i a m s . I prefer you to consult the official figures and see
that.
Representative M i l l s . Well, you are assuming, and so make a
statement, that through rediscounts money was being drawn to
New York.
Mr. W i l l i a m s . I asserted that.
Representative M i l l s . Now in making that statement you-----Mr. W i l l i a m s (interposing). I also made a statement that there
was over $500,000,000 being loaned in Wall Street for other banks.
Representative M i l l s . N o w in making that study of the drawing
of the funds to New York, haven’t you taken into consideration the
movement of deposits ?
Mr. W i l l i a m s . Oh, yes.
Representative M i l l s . Well, now, will you please-----Mr. W i l l i a m s (interposing). I took into consideration the facts
as they existed, whether relating to the movement of deposits or not.
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195
Representative M i l l s . Well now, will you tell m e whether that
study did not reveal that during the year 1920 deposits were being
withdrawn from New York ?
Mr. W illia m s . Well, some deposits were being withdrawn from
New York, and other deposits were being lured there by the high
interest rates which were being paid.
Representative M i l l s . Yes.
Mr. W illia m s . The high interest rates to which I refer apply with
good deal of emphasis to the latter part of 1919, when interest rates
in New York went as high as 30 per cent.
Representative M i l l s . Yes, we went into that yesterday. Now
is it not a fact, however, that your study revealed that during the
courseof the year 1920 some $1,000,000,000 was withdrawn in deposits
fromNew York banks ?
Mr. W il li a m s . If you wish me to give you actual figures on
matters which I am not discussing I shall be very glad to get them.
Representative M i l l s . But we are discussing them. You are
assuming to discuss the movement of money to and from New York.
Mr. W i l l i a m s . Yes; and I give figures to prove it.
Representative M i l l s . Anal assume that vou would not come here
and discuss'that subject without having made a study of it.
Mr. W i l l i a m s . Yes.
Representative M i l l s . N o w , I am asking y o u whether it is not a
fact that the deposits during the year 1920 in New York City were
diminished by some $1,000,000,000?
Mr. W i l l i a m s . It is a fact that from December 31, 1919, there
was a heavy falling off in deposits, not only in New York, but in all
the banks of the United States—in all parts of the country.
Representative M i l l s . Well, now, M r. Williams, I am asking you
this question-----Mr. W il li a m s . I am not prepared to say offhand the relative-----Representative M i l l s . This is not offhand. You have studied it,
Mr. Williams ?
Mr. W il l i a m s . Well, I can give you the information if you want
it. I am not prepared to state at this moment, without looking at
the records, what the relative falling off in each one of the different
districts was, or in each of the 60 division reserve cities, or each of the
8,000 country banks.
Representative M i l l s . All right. Now assuming that I am cor
rect, and that deposits were being withdrawn from New York City,
wouldn't that account for these so-called discounts that you have
mentioned ?
Mr. W i l l i a m s . They were being withdrawn from other banks as
well as New York; ana other banks were not able to draw money by
offering the high rates of interest which were possible under the laws
in New York State.
Representative M i l l s . Mr. Williams, you are just as well able as
I am to understand a question. Now, will you not please listen to
this question and answer it? If it is a fact that $1,000,000,000
worth of deposits, more or less, were withdrawn from the city of New
York during the course of the year 1920, would not that largely
account for the rediscounts with other 'Federal reserve banks by the
New York Federal reserve bank ?
a
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‘ M r. W i l l i a m s . I f th ere is a h e a v y w ith d ra w a l o f.d e p o s it s in any
s e c tio n o f th e c o u n t r y it w o u ld su g g e st th e p r o b a b ility o f increased
d isco u n ts an d b ills p a y a b le fr o m th o se b a n k s.
Representative M i l l s . And if I am correct in my statement that
there was a withdrawal of deposits, that would account for these
discounts ?
Mr. W i l l i a m s . If there was a heavy withdrawal of deposits from
New York of $1,000,000,000, or any other large amount, and the
loans are not proportionately reduced, it would be only natural that
the New York banks should reinforce themselves by rediscounting
with the reserve bank. Does that answer your question ?
Representative M i l l s . A s well as I expect it will be answered.
Mr. W i l l i a m s . All right.
Representative S u m n e r s . The fact that the deposits in the New
York banks at a given time decreased, unless it is ascertained what
happened in the banks of the country at large, would not necessarily
indicate a shift in the money from New York to some other place?
Mr. W i l l i a m s . Well, now, if you want to know, another pertinent
fact to which I have not referred heretofore, I believe, let me suggest
to you that a statement given out under the auspices of the Chamber
of Commerce of the city of New York last autumn, I think it was,
indicated that there were approximately $1,000,000,000 of frozen
credits or canceled orders in foreign countries, largely arising from
the business of this country with other countries. I also call attention
to the fact that certain institutions in New York City made very
heavy loans in connection with their foreign trade, amounting to
tens of millions of dollars, and that a great deal of that money was
then and has been tied up in those foreign countries. I have felt
that the extent, under the circumstances, to which money was sent
abroad during the past 18 months was hardly justified.
Representative M i l l s . D o you apply that same criticism to the
exporting of agricultural products ?
Mr. W i l l i a m s . I am not speaking of the money which was directly
connected with the exportation of our own products, but I am
speaking more especially of the funds from this country which were
transferred to foreign countries in connection with operations of
our banks in those foreign countries.
Representative M i l l s . For what purposes?
Mr. W i l l i a m s . Well, that is a large proposition. I will not go
into detail. I do not think it would be well for me to discuss publicly
all the details of some of those transactions. I should be very glad
to give the committee more information on that subject in executive
session, if they want it.
Representative M i l l s . Generally speaking the foreign credits
were lor the promotion of our export trade, were they not ?
M r. W i l l i a m s . W h a t ?
Representative M i l l s .
I say, generally speaking the foreign
credits granted were for the promotion of our export trade ?
Mr. W i l l i a m s . N o , I won’t say what proportion was for our export
trade and what proportion was for our import trade.
Representative M i l l s . I do not quite get that.
M r. W i l l i a m s . I s a y , I d o n ’ t k n o w h o w m u c h o f i t w a s in c o n n e c
tion w ith o u r im p o r t tra d e a n d h o w m u ch o f it w a s in co n n e c tio n
w ith o u r e x p o r t trad e.
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Representative M i l l s . Y o u mean, we granted credit to foreigners
on goods sold to us ?
Mr. W illiam s. T o foreign branches of American banks; large sums
of American credits were used in connection with that business.
Representative M i l l s . In any event, it was for the promotion of
foreign trade ?
Mr. W illia m s . Of foreign trade, yes.
Representative M i l l s . And you think that was a mistake ?
Mr. W illia m s . I don’t say that foreign trade is a mistake. I
think foreign trade may be conducted on a sane basis or an insane
basis.
Representative M i l l s . You think that the credits given foreign
ers in order to promote foreign trade during the last year were
excessive ?
Mr. W illia m s . In certain particulars they were, as some institu
tions have found out to their sorrow.
Representative M i l l s . You mean that the credit of our foreign
debtors was not good ?
Mr. W il li a m s . I think that money was loaned with a prodigal
hand in some foreign countries which ought not to have been loaned.
Shall I proceed, Mr. Chairman ?
The C h a ir m a n . May I ask you if you think in general-----Mr. W il li a m s . May I get tnrough with this letter now, or do you
prefer to question me now ?
The C h a ir m a n . I want to get through with that letter just as
quickly as you do. I want to know whether you think that the
efforts of the banks of New York to promote foreign trade of the
country during 1920 and 1919 were ill advised?
Mr. W il l i a m s . I think that the banks of New York have performed
magnificent service both in domestic and foreign trade, as a rule.
I take pleasure in testifying to that fact, but I also think that there
have been particular eases where there has been gross mismanage
ment in the handling of funds.
The C h a ir m a n . I understood your statement was to the effect that
there had been an actual exportation of credits amounting to about
a billion dollars.
Mr. W i l l a i m s . A what ?
The C h a ir m a n . An actual exportation of credits;
Mr. W i l l i a m s . No, what I stated was that the Chamber of Com
merce of New York put out a statement showing that in connec
tion with the period of deflation and halting of world business about,
I think, three billion dollars of business was tied up by frozen loans
or cancelled orders, or inability of consignees to accept goods, or
refusal of goods, and about one billion dollars of that involved for
eign trade, including huge credits in foreign countries, which were
no longer available.
The C h a ir m a n . A billion dollars for what purpose ?
Mr. W i l l i a m s . Presumably in connection with foreign trade.
How much of it was in connection with loans or advances I do not
know.
The C h a ir m a n . Do you mean capital advances ?
Mr. W i l l i a m s . Well, I imagine principally in connection with the
movement of goods.
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AGRICULTURAL INQUIRY.
The C h a ir m a n . All r ig h t.
Mr. Williams.
Mr. W i l l i a m s (reading):
Proceed with your letter, if you
w ill,
Furthermore, it is well known that the banka in New York City hold on deposit
hundreds of millions of dollars belonging to individuals, corporations and othere in
all parts of the country. Among other large balances from the outside which are
earned in banks in New York City are the funds of oil companies, coal companies and
transportation companies. The freight and passenger fores paid by farmers, mer
chants and business men in all parts of the country, instead of being permitted to re
main in their local banks, are largely drained to New York City for deposit in banks
there under the direction of New York financiers who so largely exercise control,
through stock proxies, rather than by real ownership, over the railroad properties.
1 must also again remind you that the official recoras show that the Federal Reserve
Rank of New York was lending, not long since, to six or seven big banks and trust
companies in New York City, whose funds were heavily employed in all kinds of
speculative deals and ventures, including many in which tneir own officers were
heavily interested, about as much, or more money than the seven reserve banks of
Minneapolis, Richmond, Kansas City, St. Louis, Dallss, Atlanta, and San Francisco
were lending to the more than 5,000 member banks, covering about three-fourths of
the territory of the entire country.
You claim as an ameliorating condition that there are several districts where the
member banks have borrowed a higher percentage of what you call their “ basic lin e "
than the New York member banks have borrowed; but allow me to remind you
that the “ basic line” in those other districts have been reduced and that the “ basic
line ” in New York greatly raised by the huge sums of money drawn away from the
districts of the West, the Central West, and the South, and to some extent from New
England and piled up in New York City because of the enticing interest rates main
tained there at a heavy cost to the whole country as I have heretofore shown in p u b
lic statements.
Let me here suggest that if the banks, individuals, and corporations in other parts
of the country would keep their money at home ana use it tnere. instead of sending
it to New York for interest considerations, the member banks in those other s e c
tions could pay off, largely or entirely, all the loans to reserve banks and create far
easier and healthier money conditions generally than we now have.
I have shown you, Gov. Harding, in this letter and other recent letters, that the
reserve bank of New York has been lending funds at 5 per cent to 7 per cent per an
num to member banks which have then passed them on to customers at timee at
such outrageous rates as 50 per cent and 75 per cent per annum or more—while the
Reserve System in other parts of the country has actually charged member tanlcs,
in exceptional cases, for tne use of money, Borely needed, by farmers and business
men, as high as 50 per cent and 75 per cent per annum—while the member banks
paying th'jse exorbitant rates to the reserve bank are prohibited by law from charg
ing their customers over 8 per cent.
I p >inted out to you one instance where a small national bank in the cotton section
wa* charged by its reserve bank an average'rate of about 45 per cent per annum for
abmt two weeks’ use of $112,000 in the crop-moving Beison. A national bank ex
aminer also brought to my attention the case of another struggling country bank in
Louisiana which was, at that time, being penalized at the rate of 41 per cent per
annum for reserve deficiency which, the examiner stated, was coating this small bank
abo.it $1,500 monthly. He also brought to my attention another bank which, before
the suspension of the so-called p ogressive rate in that district was being required
to pay upon necessary accommodations a penalty of from $900 to $1,000 weekly above
the normal 6 per cent rate.
I do not believe that rules and policies which bring such results as these can be
successfully defended. The so-called “ progressive” rate system has now been happily
abolished in half of the districts in which it has existed and I earnestly urge that it
be done away with in the other half without further delay. I do not believe that
it should be allowed to continue another day. The penalties for reserve deficiencies
which have recently been relieved to some extent should be still further revised and
brought within tolerable limits.
The high rates charged by the reserve banks are being given as an excuse for all
kinds of unconscionable rates which are being exacted from the customers of banks.
I beg leave now to urge an immediate reduction of rates in all districts to a 6 per cent
basis except on Liberty bonds and a reduction of the rate on loans secured by Liberty
bonds now in the banks which were subscribed for at par, to 4} per cent. With the
Federal reserve banks carrying a reserve of 50 per cent or more and with an unused
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leading power of about $1,500,000,000, or ten times as much as the maximum amount
which the national banks of the country ever borrowed at any time prior to 1914, I
do not think we can justify ourselves under existing conditions in charging on loans
secured by Liberty bonds already in the banks, 1} per cent more than the bonds bear.
A reserve of 50 per cent in such times as these, is, in my opinion, as I have franklytold the board not long s:nce, not a thing to boast of. I recall that there were banks
in some puts of the country which subjected themselves to severe criticism and public
censure in the early part of this administration because of the high reserves they in
sisted on maintaining when the business of the country needed the use of the money.
Measures should also be adopted to prevent member banks from charging their
customers for accommodations granted them, as has been done in some instances,
from five to ten times as much interest as they themselves pay their reserve banks—
which means a profit of 500 to 1,000 per cent.
Such facts as I have laid before you must be kept in view in considering and
dealing with this deeply important subject. Nothing will be accomplished by ignor
ing and passing lightly by such realities as I have endeavored here to bring to your
attention. I have given plain, straight figures, which I hope everybody can under
stand.
It seems to me that one of the chief basic principles, one fundamental purpose of
the Federal reserve act is being violated. The law of gravitation, by which the
larger and heavier mass draws to itself and absorbs all the smaller and lighter objects,
is as strong in finance as in nature. The brains and will of man and the powers of
nature itself are employed continually to defeat or regulate this tendency. The
Federal Reserve System, directed by brains and courage, will promote the orderly
and timely diffusion of capital to meet needs, as is intended. In the absence of such
direction the small funds and accumulations everywhere in the country must be
drawn more and more to New York and put at the service of those who, sometimes,
use the power so given, as in instances I have related, to destroy instead of building,
to kill rather than revive and stimulate.
I will thank you to submit this letter to the Federal Reserve Board for its informa
tion and consideration.
Yours, very truly,
Jo h n S k e lto n W
il l ia m s .
P. S.—As bearing upon the suggestion that the New York banks borrowed from the
reserve banks to accomnoiate borrowers in other sections, I ask attention to the
following instance:
The official figures show that one large New York banking institution on Decem
ber 29. 1920. held on deposit for other banks in all parts of the country the sum of
over $129,000,000.
This same ba:tk abo reported thit there were, on the same date, loans outstanding
(largely Wall Street loans) which it had placed for account of its correspondent banks,
amounting to over $107,000,000.
The amount of money which this banking institution was lending on direct loans
and reliscoimts to other banks in all parts of the country (including $8,600,000 in
New York City) was only about $33,500,000.
The total amount which this bank was lending on the same date to all other borrowers
in the entire United States outside of New York State, as of the same date, amounted
to about $95,000,000.
Therefore the balances from other banks carried by this bank practically offset all
loans made by this bank in the entire country, outside of New York State; and to the
$107,000,000 of loans which it placed for its bank correspondents, located all over the
country, is to be added large additional amounts sent on to New York by its customers
and corporations residing in other parts of the country to be loaned in New York.
Under these circumstances, the suggestion that the money which this bank was
borrowing from the Federal reserve bank on December 29, 1920, about $100,000,000
was being used to accommodate borrowers in other sections of the country can hardly
be sustained.
J. S. W.
The C h a ir m a n . Mr. Williams, may I ask you now liow long it will
take you to complete your statement ?
Mr. W i l l i a m s . Mr. Chairman, may I inquire how long you will
probably desire to question me about it I
The C h a ir m a n . W h y , that is within the control of the members of
the committee, and not in the control of the chairman.
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AGRICULTURAL INQUIRY.
Mr. W i l l i a m s . I have engagements at a distance from here to
morrow, and I shall have to leave to-night. If we do not get through
to-day, I should ask you to call me at some other time convenient to
your committee, and I shall try to attend.
The C h a ir m a n . I was very much in hopes that we would g e t
through by now, but as I said before, I want to give you every oppor
tunity to present everything that you wish to present.
Mr. W i l l i a m s . I think I can finish this afternoon, Mr. Chairman.
The C h a ir m a n . It seems to me that a good deal of matter which
is extraneous to the purpose of the commission is going into the
record, which undoubtedly will extend the hearings at very great
length, if they are going to be gone into on the other side. I was in
hopes that tne testimony soula be confined to matters which relate
directly to the policy of the board during the last 18 months, and the
policies which ought to be adopted.
Mr. W i l l i a m s . I think I can finish this afternoon, if it is agreeable
to you to hear me.
The C h a ir m a n . Very well, the commission will stand in recess
until 2 o’clock this afternoon.
(Thereupon, at 1 o’clock p. m., an adjournment was taken until
2 o’clock p. m. of the same day, Wednesday, August 3, 1921.)
a fte r recess.
At 2 o’clock p. m. the commission reassembled, pursuant to the
taking of recess.
The C h a ir m a n . Mr. Williams, the typewritten copy of the testi
mony will be available here the day following the day when the
testimony is taken, and it will be available to you.
Mr. W i l l i a m s . Thank you, Mr. Chairman. Shall I proceed ?
Representative M i l l s . M r. Williams, I want to cover a few points
in this letter of February 19. You remember that you .referred to a
particular bank which, in June, was borrowing on an average of
$3,891,813 from the Federal reserve bank in New York City?
Mr. W i l l i a m s . Yes; and I think I stated that that was a very
moderate line for that bank.
Representative M i l l s . Do y o u happen to know what its resources
with the Federal reserve bank were at that time ?
Mr. W i l l i a m s . I do not: I imagine that they were full. I took
occasion to state that I thought the amount which the bank was
borrowing was small, compared with other banks.
Representative M i l l s . Assume that it had deposits amounting to
some 814,000,000 with the Federal reserve bank at that time, do
you think that the Federal reserve bank in New York City would
have been justified in refusing to rediscount paper to the extent of
$3,000,000?
Mr. W il l i a m s . I did not criticise the reserve bank for the amount
of money it was loaning to that bank. On the contrary, I stated
that I thought it was moderate.
Representative Mills. They would not have been justified in
denying them that credit at that time, would they?
Mr. W i l l i a m s . I would need a little more information than that
bare fact before I answer.
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AGRICULTURAL INQUIRY.
Representative Mihjs. Assume that they were only borrowing
$3,800,000, and had assets of $14,000,000; do you not think that the
Federal reserve bank was justified in letting them have that amount?
Mr. W il li a m s . For proper purposes.
Representative M i l l s . Assuming they were justified in letting
themhave the money, how was the Federal reserve bank to blame in
any way for subsequent action of that bank—their doing something
which you criticise as improper, and I agree with you ?
Mr. W il li a m s . You agree with me that it was improper action ?
Representative M i l l s . Very clearly. Now, how could the Federal
reserve bank in any way have controlled it ?
Mr. W il li a m s . If it was made before the Federal reserve knew
anything about it, it is obvious they could not have controlled
it, under such circumstances as that. If, however, a bank is in the
habit of making speculative loans, engaging in syndicate operations
of all sorts in which its principal officers are participating, and does it
during a series of weeks, ana months, and years, in such an event
as that it behooves the Federal reserve bank to exercise some restrain
ing power.
Representative M i l l s . That is a fact, and for all we know they
were exercising that power. Now, let us stick to this particular
instance and have an explanation made of it. You do not think that
the Federal reserve bank of New York could be blamed for this par
ticular transactioh? Much has been made of this instance, and I
want to know if you think the Federal reserve bank of New York
could be blamed for this particular transaction ?
Mr. W i l l i a m s . I do not know what knowledge it had, if any, of
the facts of that loan. If the New York reserve bank was aware that
that loan was being made under such conditions as this, and on such
terms, it should not have extended the credit to the bank that was
making the loan.
Representative M i l l s . For that specific purpose?
Mr. W i l l i a m s . Yes, sir: for th a t specific purpose.
Representative M i l l s . But from all you know, you absolve the
New Tork reserve bank from any blame, so far as this particular
transaction is concerned ?
Mr. W i l l i a m s . I am not passing on that question.
Representative M i l l s . D o you know that it is in any way to
blame?
Mr. W il l i a m s . I am not passing on that question. I have not
sufficient facts at the present time to justify me in expressing an
opinion on that subject.
Representative M i l l s . Have you any knowledge to lead you to
believe it was in any way to blame ?
Mr. W il li a m s . T n a t is a ra th er h y p o th e tic a l q u e stio n .
Representative M i l l s . I do not think it is a hypothetical question;
I think it is a very direct question.
Mr. W il li a m s . I w ill s a y th is, i f it w ill g iv e y o u a n y sa tisfa ctio n -----Representative M i l l s (interposing). 1 am not lo o k in g for satisfac
tion; I am looking for the facts.
Mr. W il li a m s . I th o u g h t y o u w o u ld b e sa tisfied w ith fa cts .
Representative M i l l s . I will be satisfied with facts, if you will
give them to me for a change-----Mr. W illia m s (interposing). What do you mean by “ for a change ” ?
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Representative M i l l s . Because I have had great difficulty in get
ting them from you for the last few days.
Mr. W i l l i a m s . Y o u h a v e h a d n o th in g b u t fa cts .
Representative M i l l s . However, go ahead, i f you will answer my
question.
Mr. W i l l i a m s . If the Federal reserve bank of New York had any
reason for thinking that the loan was made for that purpose, they
should be blamed For advancing money for that purpose.
Representative M i l l s . Very well. Now, do you know whether
they nad any such information ?
Mr. W i l l i a m s . I do not.
Representative M i l l s . N o w , let me ask you whether, short of
putting an examiner in the bank to pass on the individual loans made
by the member bank, whether the New York reserve bank would be
in a position to determine whether that bank was making proper
loans or not, at proper rates of interest, dealing with individual cases
now ?
Mr. W i l l i a m s . When other reserve banks in other districts receive
applications from member banks, especially country banks, for loans
and advances, they have a way of finding out for what purpose the
money is to be used.
Representative M i l l s . D o you think, from your knowledge of the
situation in New York City, that it is practicable for a New York
bank to ascertain in every individual case of paper rediscounted for
what purpose that money is to be used ?
Mr. W i l l i a m s . I think it is possible and practicable for them to
ascertain in a general way the character of the loans, the character
of the business of banks to which they are loaning scores of millions
of dollars, if not hundreds of millions of dollars.
Representative M i l l s . Don’t you also know, as a matter of fact,
they do ascertain in a general way what is the character of the busi
ness and purpose ?
Mr. W i l l i a m s . Then if they do ascertain in a general way what is
the character of the business, I am at a loss to understand why cer
tain credits were given to certain banks under certain conditions,
when funds were being used for all sorts of speculations and being
loaned to the officers themselves.
Representative M i l l s . N o w , let me ask you, if there were any
improper loans to officers, if it was not your function as Comptroller
of the Currency to see that those loans were paid up ?
Mr. W i l l i a m s . No; I had no authority under tne law, as Comp
troller of the Currency, to prevent a bank from loaning its own offi
cers money. I have repeatedly requested or suggested a law from
Congress to restrain the banks from loaning to its own officers, but
thus far the suggestion has not been acted upon.
Representative M i l l s . If Congress has not seen fit to pass a law
to prevent the loaning of money by a bank to its own officers, on
what authority would the Federal reserve bank deny such a loan ?
Mr. W il l i a m s . Common sense and prudence.
Representative M i l l s . Let me ask you if as Comptroller of the
Currency you have used your influence with any banks to see that
such loans were cleared up ?
Mr. W i l l i a m s . I have.
The C h a ir m a n . In what way ?
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AGRICULTURAL INQUIRY.
Mr. W illiam s. By having the national-bank examiner appear
before the board of directors and giving them information on which
they could act intelligently, and also in other ways, by correspond
ence direct sometimes. Also, in some cases, having the directors of
the banks come to Washington for hearings.
Representative M i l l s . While you think that the law permits such
loans to be made, if the Federal reserve bank discovers that a loan
has been made to an officer, do you think that it would be justified,
on its own initiative, in denying further credit until that loan was
cleared up ?
Mr. W il li a m s . It depends on the character and size of it and the
frequency of such loans.
Representative M i l l s . Assuming it was a large loan, amply se
curedby Liberty bonds, what would you say ?
Mr. W i l l i a m s . I should say that the president of a bank, if he
wanted to borrow the entire capital of that bank, should be restrained
sofar as the Federal reserve bank can restrain him.
Representative M i l l s . And you think, without authority of law,
until that loan is cleared up, they should deny further credit ?
Mr. W i l l i a m s . My theory is that all national banks are to use
certain discretion; they should not shovel out millions and millions
of money, without discretion; we presuppose the exercise of a certain
amount of prudence.
Representative M i l l s . I have asked you if the Federal reserve
bank would have been justified, under those conditions, in saying
they would deny further credit ?
Mr. W i l l i a m s . I think it would be justified in diminishing or
restraining loans to its own officers.
Representative M i l l s . Supposing it had done that, would it then
have done its entire duty ?
Mr. W i l l i a m s . It depends on the conditions. I can conceive
that sometimes what might be regarded as a large loan would be
justified, but I think those banks should not, as a rule, loan to their
officers, especially in a sum equal to or larger than the amount of the
capital of the bank, which is sometimes done.
Representative M i l l s . But you think, when the law does not
forbid it, then the officers should exercise a discretion-----Mr. W i l l i a m s . Yes; unquestionably.
Representative M i l l s . I i the law says a loan may be legal-----Mr. W i l l i a m s (interposing). Yes; a loan may be legal and rotten.
Representative M i l l s . Assume it is not rotten.
Mr. W i l l i a m s . It may be unfair; it may be a larger proportion
of the bank’s resources than should go to any one interest.
Representative S u m n e r s . Is it your position that merely because
the thing is not prohibited, that not necessarily is it approved ?
Mr. W illia m s . Certainly.
Representative M i l l s . Now, you have assumed to criticize the
New York reserve bank because it did not examine a particular
institution at your request; that bank was examined by the State
banking department, was it not?
Mr. W i l l i a m s . I assume that it was; I know that it was examined
at certain times; I do not know how often it was examined.
Representative M i l l s . It was probably examined as often by the
State banking department as you would nave examined it?
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AGRICULTURAL INQUIRY.
Mr. W i l l i a m s . I d o not know. I think the national examinations
are more frequent than the State examinations.
Representative M i l l s . If the Federal reserve bank had its own
examiners accompany the State bank examiners, would not it have
done all it could do ?
Mr. W i l l i a m s . It would not.
Representative M i l l s . Why not ?
Mr. W i l l i a m s . I speak as the result of experience. I do not think
that the presence of one or two officers with the State bank examiner—
in the case to which I assume you refer—they acqompanied the State
examiner for a few days and got a very imperfect view of the con
dition of the bank.
Representative M i l l s . How do you know that ?
Mr. W i l l i a m s . I do know.
R e p re s e n ta tiv e M i l l s . H ow d o y o u k n o w ?
W i l l i a m s . I know because I have made inquiries.
R e p re s e n ta tiv e M i l l s . D o y o u k n o w h o w lo n g th ose exam iners
w ere th ere ?
Mr. W il li a m s . I think I have stated in one of my letters that they
. Mr.
wese there a few days.
Representative M i l l s . The mere fact that you have stated it in
one of your letters does not-----Mr. W i l l i a m s (interposing). That was based upon m y knowledge
of the fact.
Representative M i l l s . Do you know when they were there ?
Mr. W il li a m s . At what time ?
Representative M i l l s . At the examination of this institution ?
Mr. W i l l i a m s . At what time ?
Representative M i l l s . The time referred to in your letter.
Mr. W il li a m s . At the time referred to in my letter I stated %
they
were there a few days.
Representative M i l l s . D o you know that to be a fact ?
M r. W i l l i a m s . I g o t it re lia b ly . I sta n d fo r i t ; if it is to b e ques
tion ed , I ca n c h e ck it u p .
Representative M i l l s . Where d id you get the information ?
Mr. W il l i a m s . I stand for it. I regard it as reliable.
Representative M i l l s . Y o u were not present then during
the
examination ?
Mr. W i l l i a m s . N o , sir.
Representative M i l l s . Then it is hearsay ?
Mr. W il l i a m s . N o ; it is not hearsay; it comes from one who knew.
I stand for it.
Representative M i l l s . H o w d o y o u know he knew ?
Mr. W il li a m s . He is a m a n o f ch a ra cte r w h ose sta te m e n ts c a n be
relied u p on .
Representative M i l l s . D o you know, as a matter of fact, that any
thing heard from a third party is hearsay, and not-----Mr. W i l l i a m s (interposing). Not if a man participates in it.
Representative M i l l s . But if a man sees a murder committed-----Mr. W i l l i a m s (interposing). I do not care to discuss these tech
nical question with you.
Representative M i l l s . I know you do not care to discuss it.
Mr. W il li a m s . That is a very technical point.
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Representative Mills. It is not a technical point, Mr. Williams,
but it is a very important one.
Mr. W il li a m s . Then it is shown by the written record, and you
bare access to those records, and you can get the number of examiners
who were present at that examination.
Representative M i l l s . We will get it.
Mr. W illia m s . All right; get it.
Representative M i l l s . What I want to know now is what you
knowabout it.
Mr. W illia m s . If those statements are inaccurate; if they are
incorrect, I should like to know it. I do not believe they are.
Representative M i l l s . I think that when a man makes serious
charges against institutions and individuals, that he has no right
to resent it when asked upon what he bases those charges.
Mr. W il li a m s . I told you I base it upon the fact that there were
examiners there for a few days, and they did not stay for the whole
time. If you deny that, then I will give the evidence.
Representative M i l l s . I do not deny anything; and you base
that report upon a statement you received from a third party ?
Mr. W il li a m s . I base it, Congressman, upon information which I
have received, which is sufficient for me; whether or not it is suffi
cient for you is not material to me at this moment, because you
have the opportunity of checking it up, which I have not.
Representative M i l l s . What I want to know is whether you
are testifying from your own knowledge, or from information you
have received from a third party.
Representative S u m n e r s . I want to submit to the Chair that it
is perfectly apparent that the witness could not have been present,
in all human probability, at the examination of this bank. The
witness has stated that on the statement and testimony of a man
whom he regarded as reliable he has given this statement. He has
stated that four or five times, and Mr. Mills can not, I assume,
procure any additional facts from, him on that point.
Representative M i l l s . I do not know whether I can or not, but
I am entitled to try.
Representative S u m n e r s . I submit the witness has answered
four or five times.
Representative Mills. I would like to ask Mr. Williams if he will
give me the name of his informant ?
Mr. W i l l i a m s . I will not; I decline to do that, under the cir
cumstances, at this time.
Representative M i l l s . You decline to give the name of your
informant to the commission 1
Mr. W il li a m s . Yes; and if you can disprove it, I want to know
it.
Representative Mills. I am not anxious to disprove anything;
I am anxious to get the facts.
Mr. W il li a m s . There are more important matters than that
particularly technical matter.
Representative M i l l s . I know, and you know perfectly well
that 1 tried yesterday to exclude these matters and confine you to
agricultural credits, and that I was overruled. It is not by my wish
we are going into all these charges that you have made, I can as
sure you.
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Mr. W i i .t j a m s . I told you where you can have your answer, and
I think there is no question you can have your question conclu
sively answered.
Representative M i l l s . N o w , you have made the statement here
again that the “ head of a large manufacturing concern which em
ployed thousands of men found himself in need during the past
year of $5,000,000 for which he offered abundant collateral; but
upon applying to the New York banks was forced, in order to set
funds, to pay cash commissions of about a million dollars in addi
tion to 6 per cent per annum interest, for the loan which was repaid
in less than six months;” do you make that statement of your
own knowledge, or from hearsay!
Mr. WiLLiAtts. On the strength of the statement of a responsible
man from New York, from whom I got it, and from who-n I quote.
Representative Muxs. Do you know whether he knew it of his own
knowledge or not ?
Mr. W il li a m s . I im a g in e th a t he d id n o t sp e a k lig h tly .
Representative M i l l s . Well, was he giving you gossip, or did h e
actually know of this particular transaction ?
Mr. W il li a m s . He usually knew what he was talking about. I c a n
inform you where you can probably find out whether there is a n y
basis for that statement of the gentleman, if you desire to know.
Representative M i l l s . But all you know about it is that some man
told you that such a thing had happened ?
Mr. W i l l i a m s . A very responsible lawyer in New York, who has
never been in official life, so iar as I know.
Representative M il l s . But you do not know whether he himself
had personal knowledge of this particular transaction?
Mr. W il l i a m s . I d id n o t c a te ch iz e h im as t o h is k n o w le d g e .
Representative M i l l s . Nor as to the source of his information ?
Mr. W il l i a m s . I d id n o t ; I w a s sa tisfied t o ta k e h is s ta te m e n t.
The C h a ir m a n . Are you willing to say who gave you the informa
tion; who you got the information from?
Mr. W i l l i a m s . If it is d e n ie d , I a m w illin g .
Representative M i l l s . Of course; it is impossible to deny it; no o n e
knows of this transaction, and there is not sufficient information
here to identify it; it can not be denied or controverted. There is
nothing so unusual about a loan of that size in New York City.
The C h a ir m a n . In order that the commission may get the f a c t s
about this matter, I am going to ask you who gave you the informa
tion upon which that statement is based.
Mr. W i l u a m s . I suggest that if you inquire of the officers of the
institution which has oeen referred to here, they can throw some
light upon it.
The C h a ir m a n . I do not think that answers m y question.
Representative M i l l s . N o w , you say “ the manner in which certain
New York banking institutions have borrowed enormous sums from
the Federal reserve bank of New York at rates of from 5 to 7 per cent
and have taken advantage of the necessities of needy borrowers in
trying times by 'accommodating’ them with time money at rates,
in some instances as high as 50 per cent per annum, and in at least
one instance about 200 per cent per annum, is, in my opinion, un
economic, unconscionable, and barbarous, and I am not willing, so
far as I am concerned, to have such operations pass unnoticed or
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without protest.” Do you know any instances, of your own knowl
edge where that was done ?
Mr. W tt.u a m s - I have reason to believe it was done, and I think
if you wish to find out some other cases where excessive rates were
charged to such borrowers, if you will look at the records you would
develop it.
Representative M i l l s . I am asking you whether you know of it of
your own knowledge.
Mr. W il li a m s . I have knowledge sufficient for me, to justify the
statement which I have made.
Representative M i l l s . D o you know of any other instances ?
Mr. W il li a m s . I could furnish other instances, if it were necessary,
I think.
Representative M i l l s . Will you furnish other instances ?
Mr. W i l l i a m s . The comptroller’s office contains the sworn state
ments sent in by national banks in New York as to excessive interest
rates. I refer you to those files. I have not access to them at the
present time.
Representative M i l l s . Y o u have no knowledge at the present time
of any other instances ?
Mr. W i l u a m s . I have knowledge where you can get the information.
Representative M i l l s . You have made the statement; have you
any knowledge of other instances?
Mr. W i l l i a m s . I refer you to the files of the comptroller’s office,
onthe strength of which I have made the statement.
Representative M i l l s . But I am asking you whether you have any
9pecinc knowledge to-day of the other instances of that character.
Mr. W i l l i a m s . I refer you to the files of the comptroller’s office,
and the sworn statements sent in by the national banks as to the
excessive rates of interest which they have charged on some of their
loans. Through the comptroller’s assistance you can get replies
to the questions you have asked me.
Representative M i l l s . But outside of the two instances cited in
this letter, you have no knowledge of any other instances to-day ?
Mr. W i l l i a m s . The files of tne comptroller’s office will furnish
theinstances.
Representative M i l l s . But to-day, I am asking you, you have no
knowledge of other instances ?
Mr. W i l l i a m s . When there are files on record to which you can
refer, I am not going to tax my memory to give you instances, when
jou can go to those files and get them yourself.
Representative Muxs. Then without taxing your memory you
couldnot answer the question and give other instances ?
-Mr. W i l l i a m s . I decline to answer, beyond referring you to the
files, the source where the information can be obtained—the best
source of information.
Representative M i l l s . In other words, you refuse to give us evi
dence ofyour own charges, but you ask us to find it for you ?
Mr. W i l l i a m s . No; I refer you to the official records.
The C h a ib m a n . If you will give us, Mr. Williams, sufficient infor
mation upon which to ask for specific records, we will ask for them.
Mr. W i l l i a m s . Mr. Chairman, if you will ask the comptroller to
furnish you the sworn statements sent in to the office from the
national banks in August, 1920, I think it was, showing the loans
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upon which they charged excessive rates of interest, I think they
will give you much data.
Representative M i l l s . Y o u mentioned that last spring, as I
recollect it, there was some $700,000,000 available credit, did you
not ?
Mr. W i l l i a m s . I have not the records before me to which I re
ferred in order to make the reference, if I made such a reference.
You have the letter before you.
Representative M i l l s . I do not know whether it was mentioned
in this letter, or not, but I recollect on two or three occasions you
mentioned the figure of $700,000,000 available.
Mr. W i l l i a m s . Oh, y o u m e a n in reserve b a n k s ?
Representative M i l l s . Yes.
Mr. W i l l i a m s . Yes; I made that statement in the address at
Bangor, Me., in June, 1920, that the Federal reserve banks had an
unused lending power of $700,000,000 or more.
Representative M i l l s . Did you mean by that statement that that
unused lending power was not being made use of by the deliberate
policy of the J eaeral reserve banks ?
Mr. W i l l i a m s . No; I made the statement for what it was worth,
that if there was need for more money, the Federal reserve banks
were in position to furnish it, and there need be no fear about abun
dant money for the movement of the crops. My statement .was made
in June, just before the usual crop-moving time.
Representative M i l l s . Y o u did not mean to make the statement
that the Federal Reserve Board was hoarding that $700,000,000 ?
Mr. W il l i a ms. Was hoarding it?
Representative M i l l s . Yes.
Mr. W i l l i a m s . No; I d id not.
Representative M i l l s . That is all.
Mr. W i l l i a m s . Shall I proceed, Mr. Chairman ?
The C h a ir m a n . Yes; you may proceed, Mr. Williams.
Mr. W i l l i a m s . I desire to read, Mr. Chairman, a letter written by
me under date of February 26, 1921, to Gov. Harding, of the Federal
Reserve Board. [Reading:]
W a s h in g t o n ,
D.
C., February 26, 1921.
Hon. W . P. G. II ardin’ o ,
Governor Federal Resen e Board.
D kar G o v . H ardinu : My letters to you of January 17 and February
matters which 1 regard of much importance, are still unanswered.
19,. 1921, on
At to-day’s meeting of the board you claimed that there were certain inaccuracies
in my letter to you of the l!Hh instant and I informed you 1 would be happy to have
you advise me promptly of any errors or mistakes that you might think you have
discovered in that communication, and that I should be most pleased to correct them
if your contentions could be sustained. 1 now again urge that you point out to me
promptly all inaccuracies, if any there be, which you may think exist.
You called attention to the following paragraph on page 8 of the letter:
“ In addition to drawing funds to New York City from other sections by the allure
ment of high interest rates and otherwise, let me remind you that at times during
the past year—in fact, almost continuously through the year—the New York Federal
reserve bank has gotten from other parts of the country by rediscounting its bills and
acceptances considerable sums of money from nearly all the other Federal reserve
banks, including among others the reserve banks of Dallas, Kansas City, Richmond,
Atlanta, and San Francisco, as well as the nearby reserve banks.”
You claimed that that statement was capable of an interpretation which would
mean that the New York reserve bank was borrowing “ almost continuously” through
the year from every one of the reserve banks mentioned.
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I informed you that that was not my meaning, and was not a fair interpretation of
the statement. Mv meaning was that the New York reserve hank “ at tunes during
the paet vear—in fact, almost continuously through the year—has gotten from other
parts of me country by rediscounting its bills ana acceptances considerable sums of
money bom nearly'all the other Federal reserve banks, including among others from
time to time the reserve banks of Dallas, Kansas City, Richmond, Atlanta, and San
Francisco, as well as he nearby reserve banks.” The insertion of the words “ from
time to time" will make my obvious meaning clear, I think, even to the most captious
critic.
Let me also add that the only just criticism of the statement to which you called
attention is that it was too moderate. I will now amend the paragraph in which I say
that the New York reserve bank was, during the year, obtaining funds from other
reserve banks by rediscounting its bills and acceptances “ almost continuously” and
make it read “ continuously.” From the official figures furnished me by the reserve
board, and I understand given weekly to the public, it appears that from January 1,
1920, to January 28,1921, the funds which the New York reserve bank obtained each
week from othe rreeerve banks by rediscounting bills and selling “ acceptances” were
as follows.
Then follows a list by weeks, beginning with January 2, 1920.
Representative M i l l s . Does that table show the bills rediscounted
by the New York bank for the other districts?
Mr. W il li a m s . This table does not; this table is bills rediscounted
and acceptances sold by the New York reserve bank to other reserve
banks.
Representative M i l l s . And it does not show the bills rediscounted
by the New York bank for other banks?
Mr. W il l i a m s . No.
The C h a irm a n . Does that table include bills sold to other reserve
banks ?
Mr. W il li a m s . I think it does include bills sold to other reserve
banks. This was obtained from a memorandum furnished me by
the Federal Reserve Board, and the captions, I think, are quoted
verbatim from that memorandum furnished me, which was returned
to the Federal Reserve Board. They can give you any additional
information that you want. This is a statement made by me of
facts which I deduced from a memorandum which was furnished me
by the Federal Reserve Board.
The C h a irm a n . Do you think that the sale of bills from one bank
to another, amount to the same thing as the borrowing of the first
bank from the second bank ?
Mr. W i l l i a m s . Not necessarily. If the New York bank loads up
with acceptances to accommodate its customers and finds that it has
need to cash in on those acceptances and writes out to some other
bank and asks them if they want to take them off their hands, that
is one thing; if the Chicago bank writes to the New York bank and
tells them, “We are looking for acceptances; can you accommodate
us by selling us some of your acceptances ?” that is another thing.
Tne C h a ir m a n . This statement makes no distinction, however,
between-----Mr. W i l l i a m s (interposing). This statement does not. I asked
them to furnish me that, ana they advised me that I was not at that
time a member of the board, ana would not furnish it.
Representative M i l l s . They have not denied you any information
that was available to any other member of the public, have they ?
Mr. W il l i a m s . A member of the public ?
Representative M i l l s . Yes.
91341—22— v o l 2------14
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Mr. W i l l i a m s . They denied me the information as to the number
of meetings I had attended. Still, that is a small matter, and I do
not care about that.
Representative M i l l s . But you do not mean to say that the Federal
Reserve Board has denied you any information that was available
to the public ?
Mr. W il li a m s . I think they have denied me information which
should be furnished me as a former member of the board, of matters
which occurred during the time I was a member of the board.
Representative M i l l s . They have not denied you any information
that would be available to an)' other member of the public ?
Mr. W i l l i a m s . If I had not been a member of that board?
Representative M i l l s . Yes.
Mr. W i l l i a m s . I am not discussing that.
The table is as follows [reading]:
Week ending-
B ills re
discounted
and accept
ances sold
by New
\ ork re
serve bank
to other
reserve
banks.
1920.
J a n . 2 ...........
J a n . 9 ...........
J a n . 16..........
Jan. 23..........
Jan. 30..........
F e b . 6 ...........
Feb. 13..........
Feb. 20..........
Feb. 27.........
Mar. 5...........
Mar. 12..........
Mar. 19..........
Mar. 26..........
A pr. 2............
Apr. 9............
A pr. 16..........
Apr. 23..........
A pr. 30..........
May 7...........
May 14..........
Week ending —
B ills re
discounted
and accept
ances sold
by New
Y o rk re
serve bank
to other
reserve
banks.
Week e n d in g -
reserve
banks.
1920.
$32,357,000
29.943.000
100,317,000
68.606.000
75.649.000
72,077, 000
68.389.000
58.213.000
55.308.000
73.374.000
88.826.000
23.203.000
34.096.000
4.341.000
2.371.000
2.371.000
2.371.000
2.371.000
2.371.000
2, 371,000
May 21..........
May 28..........
June 4 ...........
June 11.........
June 18.........
June 25.........
July 2............
July 9............
July 16..........
July 23..........
July 30..........
Aug. 6 ...........
Aug. 13.........
Aug. 20.........
Aug. 27.........
Sept. 3 ..........
Sept. 10........
Sept. 17........
Sept. 24........ .
Oct. 1........... .
B ills re
discounted
and acceptances sold
b y New
Y o r k re
serve bank
to other
1920.
$2,371,000
2.371.000
2.371.000
2.371.000
1.355.000
5.394.000
14.926.000
24.940.000
24.940.000
32.451.000
32.551.000
29.122.000
41.013.000
33.459.000
40.923.000
74, 425,000
54.664.000
25.354.000
13.404.000
9,862,000
Oct. 8...........
Oct. 15..........
Oct. 22..........
Oct. 29..........
Nov. 5...........
Nov. 12.........
Nov. 19.........
N ov. 26.........
Dec. 3............
Dec. 10..........
Dec. 17..........
Dec. 23..........
Dec. 30..........
$15,794,000
28.870.000
49.305.000
61.362.000
59.583.000
57.736.000
32.049.000
24.502.000
16.038.000
14.323.000
6.917.000
6.917.000
6.917.000
1921.
J a n . 7 ...........
J a n . 14..........
Jan. 21..........
Jan. 27..........
4,273,060
2,263,000
11,747,000
51,828*000
You alBO stated at to-day’s meeting that the Richmond bank should not have been
included among the five banks named as having furnished money to the New York
reserve bank by rediscounting its bills and acceptances. In looking over the par
ticular period to whirh 1 referred, I think that apparently the Richmond bank should
be omitted from the list of those furnishing money during that period directly to the
New York reserve baak. But your own official re *ords will show that the Richmond
bank did in the year 1920 furnish money in the manner stated to the reserve bank of
Boston—over $5,000 000—and during that same month the reserve bank at Boston was
furnishing funds to the New York reserve bank—over $3,500,000. Under such circum
stances I think, you will see that the point you make as to Richmond is too trivial
for further comment.
Then a few months after that I learned the Richmond bank had
been also loaning direct to New York through the purchase of bills.
(Continuing reading:) Another criticism which you advanced was that in my letter
of the 19th instant I should have mentioned the reserve carried by the member bank
in New York City, which increased its bills payable in June last by something over
$2,000,000 about the same time that it made a loan of $1,000 000 to a customer on
stock collateral liberally margined, upon which it charged an extortionate commis-
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211
sion and which, taking; into consideration the payment of the loan within less than
six months, and the allotment of participations in it to correspondent banka—at a
greatly reduced commission—figured out an interest charge of about 200 per cent
per annum on the net amount of that loan retained by the member bank. In fain,
it was ensgested in the board meeting that the member bank could have made the
loan of $1,000,000 by drawing down its reserves, if it cared to do so, without borrow
ing. In my opinion that suggestion is not even a palliative, as the bank by such ac
tion wjuld have subjected itself to the double criticism of running below the reser\ e
it is required by law to maintain and impairing its ability to make loans to oth<r
customers at decent rates for legitimate business, while at the same time exacting an
unconscionable interest and commission from the unfortunate borrower upon whom
the charge was imposed.
At to day’s conference complaint was made that I had not directed attention to the
fact that the New York bank at times during the year had rediscounted loans for
other banks.
1amadvised that it is true that for a period of not over five-twelfths of the year 1920
the New York reserve bank was rediscounting for other reserve banks, but during
the entire year the New York reserve bank was obtaining money from the other
reserve banks as shown above. It was suggested by some one in the meeting to-day
that perhaps the New York reserve bank was buying and furnishing to other reserve
banks bills and acceptances as an accommodation to these lending banks rather than
as an accommodation to the New York bank; but with the knowledge I happen to
have of the situation I am not inclined to give very great weight to the theory.
Gov.--------of one of the reserve banks, impressed me as particularly unhappy over
what he construed as an implication in my letters to you, that the reserve bank of
-------had not kept itself properly infonned as to the condition and operations of
certain member banks in the-------- district to which it had been particularly liberal,
if not "prodigal ” in granting loans, or if it was informed had perhaps not acted with
the wisdom and discretion expected of it. The senior officer of this particular member
bank to which the-------- resei ve bank was dispensing funds so lavishly had admitted
to this office, as the record shows, and as you were promptly advised when this state
ment was made, that this same bank had itself been granting loans as he expressed it
"with reckless prodigality.” In discussing the use which this same bank made of
the funds which they had borrowed from the reserve bank, Gov.-------- 's aim seemed
to be to evade all responsibility so far as the reserve bank was concerned, apparently
seeking to justify his evasion with the assertion that the chief national bank examiner
did not give him notice of the conditions which existed in that bank. The chief
examiner of th e-------- district has furnished me a memorandum as to the extent to
which the Federal reserve bank o f-------- was placed on notice as to conditions in the
bank referred to at the time of the examination in October, 1919. Supplementary
to my letter to you of January 12, 1920, on this same subject I ask your attention to
the following extracts from the memorandum furnished by this examiner.
Representative M i l l s . Mr. Williams, do you think there is any
thing to be gained by going into this particular controversy which
you hadwith the Federal Reserve Board andwith the governor of this
particular reserve bank ?
Mr. W illia m s . It has a very direct bearing on the whole propo
sition in my judgment.
Representative M i l l s . Don’t you see it is perfectly impossible for
the charges which you make ana the facts wnich you seek to bring
out to be met unless names are given and the particular institutions are
dealt with, which is not at all the function of this commission ?
Mr. W illia m s . Perhaps when I get through you will get more
information on that point.
Representative M i l l s . What is there to be gained by this com
mission going into the question of whether you disclosed all of the
facts in your original examiner’s report to tne governor of this par
ticular reserve bank, or whether the facts were not disclosed until
seven or eight months later by a further examination and report which
it did not stamp ? How is that going to help this commission in
dealing with the question of agricultural credits ?
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M r. W i l l i a m s . This matter deals with other subjects besides
that?
Representative M i l l s . Well, I am asking you as to that particular
subject of controversy.
Mr. W i l l i a m s . It is a matter of judgment, Congressman. You
have your opinion.
Representative M i l l s . And it is your honest opinion that you are
contributing something of value to the subject of agricultural credits
by asking this commission to investigate those particular transactions
of a New York national bank?
Mr. W illia m s . May I answer that by stating that at yesterday’s
conference I presented a statement which showed that the New
York, Chicago, and St. Louis national banks were being furnished
with accommodations through bills payable and rediscounts amount
ing to about 24 per cent of their total loans and rediscounts, while at
the same time the country National banks, whose loans and redis
counts were much larger, were being furnished with only about 10
er cent ? I think the matters which I have been touching upon here
ave a very direct bearing upon the question of the fair andproper
distribution of the reserves of the Federal reserve system among the
large banks and the country banks and the question of supplying the
necessary funds for agricultural credits.
E
Representative Mills. I am not going into that question. I am
asking you as to the particular transaction, which you are about to
discuss— that particular controversy with reference to two reports
made by your Dank examiners, one made in 1919 and one in August,
1920.
Mr. W i l l i a m s . I will say this, that for the protection of the bank
the memorandum embodied in this letter relative to the bank’s loans
should be omitted, and I am not going to read that.
Representative M i l l s . That is all I am questioning—if you omit
that.
Mr. W i l l i a m s . I do; I am omitting that memorandum.
[Reading:]
These (acts, showing the condition of the bank in 1919 at the time of examination,
and the character of the business which the bank was then carrying on-----
Representative T en E yck. Wait a minute. I would like to know
whether that is a reference that might be useful for the commission
whereby we could help the agricultural industry. I want to be
assured that something is not being suppressed here that will not,
indirectly or inadvertently, lessen the information that we desire.
If we can be assured of that, I am willing to have it cut out.
The C h a ir m a n . The Chair has not seen the letter.
Mr. W i l l i a m s . I would state that that deals more with the internal
condition of a pretty large bank which has been, it is true, a bene
ficiary of loans through the reserve system.
Mr. T en E yck. That is perfectly satisfactory to me.
Mr. W i l l i a m s (reading):
These facts, showing the condition of the bank in 1919 at the time of examination,
and the character of the business which the bank was then carrying on were promptly
placed before the-------- reserve bank in 1919 and in the light of subsequent events
were clearly sufficient to put the Reserve bank on notice especially when the borrow
ings, which prior to October, 1919, had been intermittent became continuous and
increased. From January 1, 1920, the bank was steadily borrowing large sums, the
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monthly average of which increased from-------- million during January, 1920, to
■------million in May, 1920, and to about--------- million in September, 1920, nearly
every month showing an increase over the preceding month.'
Hie facte of these increasingly large borrowings were daily available, not to this
bureau but to the-------- Federal reserve bank, and are presumed to have been or at
least ought to have been the subject of careful consideration and discussion when the
bank referred to requested, as it so frequently did, further advances.
It isalso worthy of note that the examiner’s report of October, 1919, which the--------reserve bank had before it early in December, 1919, showed that the loans which this
bank at that time was making to its chief executive officer and his immediate family
and to------- amounted to a sum which is more than twice the aggregate of all loans
which this member bank was making as of the date of the November 15,1920, call to
aO of its national bank correspondents throughout the entire country. These facts
woe furnished to and are in possession of the Federal reserve bank o f -------- .
Had the-------- reserve bant, with its intimate knowledge of the Bteady increase
of this member bank’s borrowings from the reserve bank, brought the matter to the
attention of this office and suggested the advisability of an examination to get at the
character of the loans or investments which made necessary these heavy drafts upon
the reserve bank, an examination would have been made promptly.
The records show that the bank at the time of the August, 1920, examination, despite
the warnings and admonitions of the Federal Reserve Board as to the restriction of
credit for nonessentials and for speculative purposes, greatly increased their loans on
highly speculative securities, such as the--------- loans and the loans (including the
KKsulea dummy loan) of over $5,000,000 to -------- who, besides being a director in
the------- Bank, was also, at the time of the 1919 examination, a director in the Fedtral Reterre Bank o f New York-------- and its eligible paper on hand November 16,
1920 ■
The Chairm an . Was this the same bank that you referred to this
morningand yesterday ?
Mr. W illiam s . This is one of several banks which have been
referred to particularly. This is not the State institution which has
beenreferred to from time to time.
The Ch aibm an . I know, but your testimony this morning referred
to some bank that loaned a million dollars or three million dollars, or
something of that kind.
Mr. W il lia m s . This is not that bank.
H e Ch a ibm an . This is another bank ?
Mr. W il lia m s . Yes. [Reading:]
as shown by this report of condition, a copy of which was sent to the reserve bank
of------- , was less than-------- or scarcely--------- per cent of its deposits outstanding at
that time. The chief examiner has also recently mentioned to me the case of another
lame bank in -------- whose heavy borrowings from the---------bank had been criticized
by him, but the president, I am told, proceeded to justify himself on the theory that
his loans, althougn large, appeared to be satisfactory to the reserve bank, and indicated
that that approval was enough for him.
_At to-day’s conference, as far as I could discover, no adequate or reasonable explana
tions were forthcoming from governor-------- or anyone else as to the generally unsatis
factory conditions along several lines, to which I felt it my duty to direct attention in
my recent correspondence with you. The time of the meeting was largely taken up
with trivialities and with ineffectual efforts to find some ground for directing criticism
against the administration of this bureau, especially the chief examiner’s office
in --------. Much stress was laid upon the omission of the examining force to examine
each of the national banks in New York City twice during the year.
In answer to this criticism, let me call your attention to the fpct that while every
bank in New York City did not receive two examinations during the year, the examina
tions which they did receive were particularly thorough, painstaking, and effective,
and involved much additional time on the part of the examiners. The statements
made with such emphasis and feeling at to-day’s meeting, by someone, that none of the
national banks in New York City were examined twice in the year 1920 is simply
untrue; the records show that a considerable proportion of the national banking capital
of that city was subjected to two thorough examinations in the year named.
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I think that the large institution which was examined twice repre
sented about 20 per cent of the banking capital of that city.
The C h a ir m a n . That large percentage of banking capital that you
say was represented there—was that in one bank ?
Mr. W i l l i a m s . Yes; as I hare just stated. [Reading:]
The unusual difficulties attending general business during the past year and the
large number of insolvencies among business houses, especially during the past six
months of the year, made the work of the examiners particularly exacting. In one
large bank which was the subject of discussion to-day the examination was begun on
August 27 last, and the difficulties which were experienced in tracing down various
important transactions and operations delayed the completion of the investigation,
which involved several special hearings accorded to five or six officers of the bank
before the comptroller ana a searching inquiry into many matters of vital importance
to the bank.
The work upon this bureau during the year was increased by the nationalization
of several large State banking institutions, involving some 15 or 20 branches, all oper
ated as separate banks. The burden was further increased by the necessary absence
for six months in South America of the chief examiner of the district on official work
in examining the foreign branches of one of the large New York national banks. The
working force of the office was required to meet additional strain by examinations
made of certain large foreign banks and securities companies in this country not
formerly required of this force.
That the hanks in the New York district, however, were not neglected and did
receive the attention which they needed from this bureau is indicated by the fact
that since the beginning of my administration as Comptroller of the Currency, more
than seven years ago, there has not been a single failure of any national bank in the
Federal reserve district of New York which has involved one dollar’s loss to any de
positor.
Representative M i l l s . D o you attribute that to your examinations,
or to the soundness of the banking methods of those banks ?
Mr. W i l l i a m s . I think the examining methods have contributed
very largely to the soundness of the banking methods.
Representative M i l l s . But is not that very creditable to the
soundness of the banks in New York City?
Mr. W i l l i a m s . I think it is very creditable. I intended to make
a reference here as to whether the medicine had worked or not—to
an anecdote which is told of Lincoln, when certain critics complained
that Gen. Grant was drinking entirely too much whisky. His reply,
as you all recall, was, “ You had better find out what kind of whisky
he uses and go and buy some of it yourself.” I think the kind of
“ liquor” which has been given to tlie banks in New York by our
examiners seems to have had curative qualities.
Representative S u m n e r s . Mr. Williams, in that connection then,
so far as the general supervisory and administrative policies of the
regional bank in that district are concerned, I understand you are
not criticising them ?
Mr. W i l l i a m s . Well, yes; I am frank to state that I do not think
the New York Federal reserve bank has been administered to the
best advantage of the district.
Representative S u m n e r s . During the time these extraordinarily
large loans you have referred to were being extended to certain in
stitutions, were other institutions able to offer securities of equal
soundness denied relatively the same accommodations by the bank ?
Mr. W i l l i a m s . I do not know of any privation among the banks
in New York City. I do not recall any complaints of that sort.
[Reading:]
The attention of the examining force from time to time was devoted to the work of
saving a number of banks in different parts of the district, which, through mismanage
ment of their officials, had become involved in serious troubles; and I am happy to
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report that the3e efforts were in evenr case successful. One particular instance with
which the New York reserve bank officers are familiar, necessitated about two months
of the almost undivided time of a resident New York examiner, who subsequently,
durin® the absence of the chief examiner in South America, was the acting chief of
the district and who gave this more urgent matter precedence over the work of exam
ining the banks in'New York City to which he had been especially assigned, and
which otherwise he would have examined.
I think I should state at this time that in looking over Gov. Hard
ing’s testimony before the Banking and Currency Committee on June
1,1 find that Gov. Harding has strayed into making a very inaccurate
statement in connection with that particular institution. I shall
probably, at the proper time, before the proper committee, correct
some of the statements made by Gov. Harding at that time and give
the facts in the case.
In this connection I think it is also pertinent to say that the exam
iners attached to the comptroller’s bureau have sometimes been very
much embarrassed and annoyed by interference from the examiners
attached to the reserve system. On that point I wish to read just
here a letter which I addressed to Gov. Hardmg, under date of August
13, 1921, before resuming the reading of this letter of February 26,
1921, as this letter refers to this particular subject of cooperation
between national bank examiners and Federal reserve examiners in
handling national banks.
The C h a ir m a n . I think we had better have one letter at a time.
Mr. W i l l i a m s . Very good; I will read it after I get through with
this. It refers to this particular point. [Reading:]
As you well know, the examination of the large New York City banks with their
affiliations and ramifications including, as they do, foreign-exchange departments,
which are practically separate entities, necessitates skilled examiners ana assistants
who have Seen specially trained for this work, and such examinations can not be
satisfactorily made by untrained men. Examinations such as those that have been
conducted m the New York banks, involving, in individual cases, sometimes two,
three, or four months’ time by examinere, are of infinitely more value than the pro
fonna examinations, however frequent, such as have been made heretofore. Although
duringthe past year the banks in New York City did not all receive two detailed exam
inations from examiners, all were required to make and send to this office one more
report of their condition and operations than was actually required by law or than
they were ever required to make under any previous administration.
The tremendously increased efficiency of national bank examinations under the
present comptrollership is evidenced not only by the diminished failure? of banks
under most trying conditions, but also by the voluntary action by clearing-house
associations in a number of important cities which have given up their clearing-house
examinations because of, as has been frankly stated, the highly efficient character
of the examinations of our national bank examiner?.
The governor of the reserve bank of New York at to-day’s meeting of the board
stated that the information contained in the confidential reports of national banks in
the New York district were withheld from the New York reserve bank. I informed
him in reply that his statement was incorrect, and I told him that the officers of the
reserve bank were a long time ago specifically informed that they or their duly author
ized representatives would be permitted access to the confidential reports of the exam
iners. I now confirm that statement, for I have personal knowledge that such author
ity was given them. Chief Examiner Smith, with whom I have conferred on the
subject, also tells me that there is no foundation to Gov. Strong’s statement above
quoted. The chief examiner likewise informs me that although the reports of exami
nation of New York banks are always sent to the Federal reserve bank under sealed
cover and marked “ confidential,” he knows that these reports are consulted at their
pleasure by other officers of the bank, and the chief examiner has from time to time
discussed the contents of these reports with the officers of the bank, who have often
had the reports before them when banks were being discussed with the chief examiner.
Gov. Strong also stated to the board that it was his understanding that the reports of
examination were sent to tho reserve bank upon the express undertatnding that they
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should be accessible only to himself and to Chairman Jay. I asked him to repeat bis
statement, and upon his reiterating that such was the case I asked him, in your pres
ence, whether he had been observing that confidence, to which he said he had been
pledged and which he said had been made a condition of the bank’s receiving th e
reports. With some hesitation, he admitted that he had not observed the agreement
he claimed to exist.
I will also add that the cooperation and aid which this bureau and its examining
force have extended to the reserve bank of New York is illustrative of our attitude in
all other districts, and of this there is abundant evidence, although these other districts
have been more appreciative of the cooperation given.
A letter from tne chairman of the board of one of the leading and most successful
Federal reserve banks, and himself a man of particularly high standing, which was
received some time ago, said:
!■• • • permit me to say, without any attempt of praise or flattery, that on the
rostrum and in private conference I have uniformly maintained that the present
comptroller has done more to raise the standard of national banking in this country
and to secure more efficient examinations of the banks under his jurisdiction than any
of his predecessors. Not every administration of the comptroller’s office has been so
alert as the present one to correct abuses or to head off dangerous tendencies and
practices.”
You presided at to-day’s conference to which I have referred, and Governor---------- ,
of the-------- reserve bank, was present by invitation, as I understandit, to explain, i f he
could, criticisms of the Federal reserve bank of-------- , which it is claimed are involved
in my recent correspondence with you. I can not forbear expressing my amazement
at wnat impressed me as being excessive forbearance on your part as chairman in
permitting Governor-------- to assume the attitude which characterized his appear
ance before us. He challenged the correctness of official figures which are given to
the public by the board, furnished me by the board, and, relying on their correctness,
used by me in my correspondence with you. I refer particularly to the inter-reserve
banks’ dealings in bills discounted and acceptances as shown in the board’s w eekly
reports from January 2, 1920, to January 28, 1921. I also understood him to state
to the board with much vehemence that in the matter of giving out statements to
the public in connection with th e-------- bank’s operations or this controversy he
would do as he pleased, regardless of any views or instructions from the Reserve Board.
His angry statement that he ‘ had no time to waste ’ on the discussion of certain su b
jects which were brought up in the conference also impressed me aB being distinctly
discourteous to the board and its members. However, such matters are merely in c i
dental and concern you more than they do me.
My surprise at what impressed me as the meekness with which the defiance and
asperities of governor-------- were received by the board, to which he is supposed
to be subordinate, is increased by recollection of the rather different attitude taken
toward myself, a member of the board, equal in authority with any other member
who is not an officer. I have endeavored to be uniformly courteous and deferential
while performing what seemed to me to be the high duty of calling attention to serious
evils and dangers. It is a cause of deep regret to me that my well-meant labors in
pointing out what seemed to me to be defects and weak places in our system and
policies, and possible errors of administration, appear to have caused resentment
rather tnan desire for information or purpose for reformation.
It also seems to me that more interest has been developed and expressed in the
perrons to whom my copies of my letters may have been given than in the question
whether the statements were accurate and the errors indicated could be corrected
if they existed. What I have said was in plain black and white and expressed as
clearly as my ability permits. So far as I can recall, no progress has been made, if
attempted, toward disproving what I have written.
Imperative demands for names of those to whom I have given facts and figures have
no more to do with the real issue than have the nibblings at unimportant details and
efforts to suggest that I have not performed my official duties promptly. Hie whole
and only point is whether the assertions I have made are correct, and if they are cor
rect, whether anything is to be done to right existing wrongs.
I see no excuse for ill temper. My assumption has been that we are mature men
intrusted with vastly important duties and capable of discussing them, and our per
formance of them, and candidly and calmly. I have been somewhat disappointed to
find myself regarded, appwently, as hostile to the board or some of its members, and
the target for unjust criticisms and observations unhappily close to limits beyond
which I can permit no man to go anywhere or under any conditions. Having tbis in
mind I could but marvel at the submission of the board to G ov.-------- ’s angry and
mutinous attitude and language. It appeared to me like that impatience of and dis
regard for constituted authority of which we hear so much as threatening the peace of
society.
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This aspect of the matter, however, is strictly your affair as presiding officer. I feel
that I am within my rights and within the proprieties in alluding to it and remarking
on the difference between the reception of my courteous representations supported
by carefully gathered facts, and the uncomplaining acceptance of G ov.-------- ’s de
cidedly, and I judge intentional discourtesy and declarations of indifference to the
board’s directions and dignity.
Youn, very truly,
J o h n S k e l t o n W il l ia m s .
Representative M i l l s . Well, now, Mr. Williams, the law requires
two examinations a year, does it not ?
Mr. W il li a m s . Yes.
Representative M i l l s . So that if two examinations were not made
the law was violated ?
Mr. W il li a m s . The provisions of the law were not strictly com
plied with; a certain amount of reason was exercised. It may be
that the water in a reservoir is intended to protect all portions of the
city, but if there should be a big fire in one district we would use more
of the water for that district, although it might not be its pro rata
portion. I found that there were banks in certain parts of the country
which demanded closer attention, and it was more important to give
them two and sometimes three or four examinations than certain
banks at which the examining force had already spent five months in
making one examination that year.
Representative M i l l s . Y o u stated in that letter that you found
unsatisfactory conditions in a particular institution in October, 1919,
and you suggest that the New York Federal Reserve Bank should
have requested you to make an examination of that institution, and
had it done so—
Mr. W i l l i a m s . If they desired it.
Representative M i l l s . And had it done s o you would have made
an examination.
Mr. W i l l i a m s . I think if I had been running the Federal Reserve
Bank of New York and I had before me a copy of the October, 1919,
examination of that bank, furnished me by the Comptroller of the
Currency, and that particular bank should De increasing its borrow
ings from ten or twenty to fifty or one hundred millions, I would
make it my duty to find out wnat the conditions were in that bank
to which I was being asked to make these huge advances, whether
the comptroller made the report or not.
Representative M i l l s . You think you would have requested the
comptroller to make another examination ?
Mr. W i l l i a m s . Or I should have ascertained from the bank whose
report I had before me whether these matters of criticism which the
comptroller had complained of were being rectified and corrected or
whether things were getting worse. If I were handing out blocks of
fifteen, twenty-five, or fifty millions of dollars, obviously I would.
Representative Mills. When did you next examine this institutioai
Mr. W illia m s . The next examination of the institution to which
I assume you refer was begun in August, 1920.
Representative M i l l s . And how often was it examined in 1920?
Mr. W i l l i a m s . In 1920 the examination lasted about five months.
Representative M i l l s . But it was only examined once ?
Mr. W i l l i a m s . Obviously, you could not examine it three times if
every examination lasted five months.
Representative Mills. I am asking you whether it was examined
more than once.
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Mr. W i l l i a m s . It was examined for about five months in 1920.
Representative M i l l s . It was examined once in 1920?
Mr. W i l l i a m s . Continuously for five months.
Representative M i l l s . And the law provides it shall be examined
twice?
M r. W i l l i a m s . Y e s.
Representative M i l l s .
And the comptroller’s office found what it
considered unsatisfactory conditions 10 months before?
Mr. W i l l i a m s . It found conditions which it thought were sufficient
to put the New York bank on guard if that bank should have occasion
to call on them for excessive amounts of money or large loans.
Representative M i l l s . But you, the very officer of the Government
who is charged with the responsibility of examining national banks,
did not reexamine that bank for 10 months ?
Mr. W i l l i a m s . Perfectly correct, and thoroughly justified in that
course.
Representative M i l l s . And you assume to criticize another officer
for failing to request you to perform the duty with which he is
charged ?
Mr. W i l l i a m s . N o , not at all. The reserve bank which was
dispensing these huge sums to that bank, if it had exercised what I
regard as the proper prudence, would have informed itself as to
whether these matters of criticism were being corrected, regardless
of any examination and report by the comptroller’s office.
Representative M i l l s . N o w , I want to go back to the question
of that questionable loan, the 25 per cent loan which we have talked
so much about. When was that loan first called to your attention 1
Mr. W i l l i a m s . Y o u mean the loan referred to sometimes as the
200 per cent loan ?
Representative M i l l s . Yes, and which we finally decided was
25 per cent.
Mr. W i l l i a m s . How do you make the 25 per cent ?
Representative M i l l s . Let us not go over that again. We have
sufficiently identified the loan in our minds. When was that first
called to your attention ?
Mr. W i l l i a m s . In the summer of 1920 some reference was made
by the chief national bank examiner in New York to a loan which
he had found in that bank upon which excessive rates of interest had
been charged. I did not know what the details were, but the loan
was mentioned to me as excessive.
Representative M i l l s . Then it was first called to your attention
in midsummer, 1920?
Mr. W i l l i a m s . Yes. I thereupon sent out, in August, 1920, a
questionnaire to that bank and to other banks in New York City,
requesting them to give me information in regard to loans upon
which excessive interest was charged. The table was quite a com
prehensive one. It applied both to call loans and to discounts and
time loans. It called upon the banks, as I recall, to state the amount
of money upon which they were getting in excess of 12 per cent for
each particular month of the year.
Now, I am perfectly willing to go into this in open session-----Representative M i l l s . No; I do not want you to go into that
whole matter; I just wanted to ask you when you first called the
attention of the governor of the New York bank to this questionable
transaction.
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Mr. W illia m s . The committee is certainly entitled to the informa
tion. I hesitate a little about giving facts which may reflect upon
individuals who claim that certain things were done without tneir
full knowledge. I am perfectly willing to tell the committee the
whole facts, if you want them.
Representative M i l l s . I am asking you a very simple question.
When did you first call this particular transaction to the attention
of the governor of the New York reserve bank?
Mr. W illia m s . May I speak to the chairman a moment on this
question ?
(Mr. Williams thereupon conferred privately with the chairman
and Representative Mills.)
Representative M i l l s . I will withdraw the question.
Mr. W il li a m s . I stated, Mr. Chairman, I was perfectly willing to
go into this in executive session. I think the committee is entitled
to know everything I know. I hesitate to proceed further, unless it
is the desire of the committee, on that particular point.
The C h a ir m a n . The question is withdrawn.
Representative M i l l s . M r. Chairman, I offer in evidence a report
prepared by a subcommittee of the Federal Reserve Board, and
adopted by the board, in answer to M r. Williams’s letters of February
21 and 28, which I would like to have inserted in the record at this
point.
The C h a ir m a n . Without objection, it will be inserted in the recc rd.
(The report submitted by Representative Mills is here printed in
full, as follows:)
F e b r u a r y 28, 1921.
To the F ederal R eserve B o ar d :
The executive committee has carefully reviewed the various letters which have
been addressed by the Comptroller of the' Currency during the past 12 months to the
Governor of the Federal Reserve Board, all of which letters were brought promptly
upon receipt to the attention of the board and were given such consideration as they
seemed to merit. The errors of statement and the erroneous inferences and con
clusions have already been pointed out in replies made to these letters and in dis
cussions with the comptroller at board meetings and need not be reverted to in this
report.
An analysis of the comptroller’s letters and of the facts brought out at recent meet
ings of the board at which the comptroller was present reveals, however, a very
serious situation which the Federal Reserve Board can not ignore. _ The Comptroller
of the Currency admits that he has violated the laws of the United States in not
examining a considerable number of national banks, including banks in New York
City, at feast twice in each calendar year, as required by section 5240, Revised
Statutes, United States. In one case cited by the comptroller in his letters of Decem
ber 28,1920, January 12,1921, and February 19, 1921, had he obeyed the law condi
tions which he states are very serious might have been in a large measure avoided.
The comptroller has attempted to shift the responsibility for these conditions party
upon the Federal Reserve Board and more particularly upon the Federal reserve
bank of New York, and his claim that the Federal reserve bank of New York should
have corrected the conditions complained of through its power to refuse discount
accommodations falls to the ground when the facts, even as stated by him, are
examined.
In the case of bank in question the comptroller’s own examiner reported to him in
October, 1919, certain conditions and transactions which, while perhaps not in direct
violation of law, yet were not consistent with good banking practice and clearly
required careful scrutiny from time to time of the bank’s methods of doing business.
These criticisms were not contained in the regular report of the examiner, copy of
which was furnished the Federal reserve bank of New York, but were inserted in
theso-called ‘ ‘ yellow sheet, ’ ’ a supplementary and confidential report. ' This ‘ ‘ yellow
sheet” was never sent to the Federal reserve bank of New York, nor did the report
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which was sent point out the conditions of which the comptroller now complains.
Thia examination was made on October 3,1919.
It ia pertinent to inauire in what manner did the comptroller discharge his plain
duty with respect to this bank. Did he place it upon the special list of frequent
examinations? No. Did he follow up the criticisms of his examiner by making an
earlv examination during the following year, 1920? No. Did he call the attention
of the Federal Reserve Board or of the Federal reserve bank of New York to the
conditions existing in this particular institution? No. On the contrary, he failed
to make another examination until August 27, 1920, an interval of more than 10
months, and in the report of this second examination hia examiner stated to him that
the conditions previously complained of had grown steadily worse during the interval.
Did the comptroller at once call thia serious condition of affaire to the attention of the
Federal Reserve Board or to the Federal reserve bank of New York? No. He said
nothing about it to members of the Federal Reserve Board until December, 1920, and
the records show that the report of August 27,1920, was not sent to the Federal reserve
bank of New York until January 7, 1921, after a lapse of more than four months.
The comptroller now claims that the Federal reserve bank of New York should
itself have corrected these serious conditions, of which it had never been informed
and of which it had never been put on notice, by an arbitrary exercise of its power to
refuse discounts to the bank in question. Such a plea of confession and avoidance
scarcely deserves being dignified by a reply. But this is not all—under the laws of
the United States, as above pointed out, the Comptroller of the Currency is required
to have every national bank examined at least twice in each calendar year (and
oftener if considered necessary). In the case of the bank in question the comptroller
violated this law and in fact examined this bank but once during the year 1920. An
examination made early in the year 1920 would quickly have revealed that the
conditions complained of in October, 1919, were becoming wane, and presumably
they could have been instantly corrected.
In his letter addressed to the board under date of February 19,1921, the comptroller
calls attention to a loan which was made by another national bank in New York City
during the month of June last, and points out that this bank, which was borrowing a
moderate amount from the Federal reserve bank of New York, made the loan at a
very exorbitant rate of interest, if the commission charged be included as an interest
charge. The comptroller did not, however, bring this matter to the attention of the
Federal Reserve Board until after the loan had been repaid and, in fact, not until his
letter of February 19,1921, was written. It develops that the Federal reserve bank of
New York was not advised of this circumstance by the Comptroller of .the Currency
until the governor of that bank heard the comptroller refer to it in a discussion whicn
was had in the board room on Saturday, February 26,1921, yet the comptroller takes
the position that the Federal reserve bank of New York was negligent in not blowing
of this transaction and that it should have prevented it without any knowledge what
ever of it by the exercise of its power to refuse discount accommodations to the bank.
The responsibility for these conditions, therefore, is directly upon the Comptroller
of the Currency and has never for a moment been shifted from his shoulders. He has
largely contributed to these serious conditions by his failure to perform properly the
duties of his office and by hia direct violation of the laws of the United States. In his
greed for statistical information he has exercised his powers to the limit, if, indeed, he
nas not transcended them, but he has deliberately failed to obtain and to report facts
of the highest importance regarding the credits and operating methods of certain
national banks. The only excuse for his failure to carry out the law which has been
offered by him is that his chief examiner at New York City had to be sent to South
America and that his examining force was overworked and that he could not make
two examinations of the bank in question.
Your committee is of the opinion that the comptroller should have at once increased
his examining force, and it is certain that the board, which has never failed to cooperate
with him, would undoubtedly have given prompt approval to any such request in
order that these serious conditions might have been promptly remedied. Further
investigation has, moreover, revealed the astounding fact that of all the national
banks in New York City only 17 were examined twice during the year 1919, and that
apparently not more than one national bank in New York City has been examined
twice during the year 1920, as required by law, and that bank is not the one whose
condition is made the subject of complaint by the comptroller in his letters to the
board. The Federal Reserve Board lias always acted promptly and favorably upon
requests made by the Comptroller of the Currency for additional examinere.
As bearing upon the question of the examination of other banks than those in New
York City, a letter recently received from the Federal reserve agent at Chicago con
tains animadversions upon the value of the reports of examination of national banks
in the Chicago Federal reserve district, and your committee recommends that an
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immediate investigation be undertaken in all Federal reserve districts as to the
thoroughness and efficiency of national bank examinations.
Whatever may be the duty or responsibility of Federal reserve banks as to regulating
the internal affaire and banking practices of the national banks through the power to
refuse discounts, as claimed by the comptroller—and as to this your committee may
later file a report based upon its consideration of this subject—it is evidence that such
a power can not be exercised effectively without the most thorough cooperation of
the comptroller in order that the Federal reserve banks may know all that he knows.
This is a condition which roost certainly does not exist at the present time. The
abstracts of reports sent by the comptroller to Federal reserve banks most certainly
do not reveal all the comptroller knows as to the condition of the banks examined, ana
the Federal reserve banks could certainly not be charged with responsibility for the
internal conditions of the national banks unless and until the so-called ‘ ‘ yellow sheet ”
is transmitted promptly and regularly to the Federal reserve banks, and until examina
tions are made as frequently as the law requires.
Your committee has already cited one conspicuous case where important information
bis been withheld from the Federal reserve bank of New York by the Comptroller of
the Currency. It has cited other cases involving practically all of the national banks
in New York City when the comptroller deliberately put it out of the power of the
Federal reserve banks of New York with its present examining force to secure much
needed information as to banking conditions and practices by failing to observe the
lawBof the United States which require not less than two examinations in each calen
dar year. Only recently, as above stated, the Federal Reserve Board has received a
letter from the Federal reserve agent at Chicago seriously impugning the efficiency of
examinations made by the national bank examiners in that district. If thorough in
vestigation as above recommended be made of the methods and efficiency of national
bank examinations and of the value of the reports of these examinations, and it be
found that the charges preferred are well founded, it is the opinion of your committee
thatit will be necessary to institute regular examinations by the Federal reserve banka
themselves, thus duplicating the examinations now made by national bank examinees
under the direction of the Comptroller of the Currency. Such a duplication of exami
nations would be very expensive and would Beriously interfere in many cases with
the routine operations of tne national banks and inconvenience their customers and
the public, and it is believed that Congress would quickly intervene and wipe out all
examinations made by direction of the Comptroller of the Currency or that it would
at least place the whole matter of examinations exclusively under the control and
jurisdiction of the Federal Reserve Board and the Federal reserve banks. In such
circumstances the Federal reserve, banks being both lenders and examiners, would
always know what the comptroller now knows out what he does not always reveal—
the conditions and practices of the national banks—and could govern themselves
accordingly.
The foregoing report was submitted by your committee to the Federal Reserve
Board at the meeting held on the afternoon of February 28, and was read by its chair
man to ths board at that meeting. In view of the statement of the Comptroller of the
Currency that his letter of February 26,1921, which was delivered by the comptroller
to the secretary of the board at the same meeting, answered in detail every criticism
contained in tne foregoing report of the committee, the report was referred back to the
committee for such revision as might be deemed necessary in view of the statements
contained in the comptroller's letter above referred to.
Your committee by unanimous vote now resubmits its report to the board, with
the statement that it has examined carefully the letter of the comptroller, dated Feb
ruary 26, 1921, and that it finds nothing in the comptroller's letter to justify any
change therein. On the contrary, it feels that this letter confirms the statements
made in the report.
In the comptroller's letter of February 26 he called attention to some of the remarkd
made by the national-bank examiner m his report of the examination made of the
— ;— National Bank of New York, as of October, 3, 1919, which statements he
claims were clearly sufficient to put the Federal reserve bank on notice, and then
proceeds, on pare 5, to set up the extraordinary defense that if the Federal reserve
hank had asked him to have another examination made during the early part of the
year 1920 that the examination would have been made promptly. 7 his is a clear
admission (1) that his examining force was adequate to make any necessary examina
tions, and (2) that he did not consider that the report of the examination of October
3,1919, which he claimed.should have been a danger signal for the Federal Reserv e
Bank of New York, disclosed conditions that required hum to have another examina
tion made at a time when it should have been made if the law was to be complied
with.
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It appears to the committee that the comptroller is also evasive in his statement
on page 6 that ‘‘ a considerable proportion of the national banking capital of New York
City was subjected to two examinations during the year 1920. ” lie says that " the
statements made by someone" that none were examined twice in 1920 “ is simply
untrue,'’ and defends his charge of untruth by stating that "a considerable proportion ’
of the national banking capital v.-as examined twice. The facts as ascertaired by your
committee are as follows: The chairman of the board of directors of the Federal Reserve
Bank of New York states, in a letter dated February 10,1921, that the Federal Reserve
Bank of New York received reports of t'.vo examinations of only 17 of the 29 national
banks in the Borough of Manhattan during the year 1919, and that during the year
1920 it did not receive a second report of any of these banks. lie states, further, that
he understands that a second examination of one of the larger national banks in the
Borough of Manhattan was undertaken in the late autumn, but that the report of this
examination has not yet been filed with the Federal Reserve Bank of New York.
As hasalready been stated, the only excuse which has been offered by the comptroller
for his failure to have two examinations made of the particular national bank in New
York City whose condition is the basis of his criticism of the Federal Reserve Bank of
New York is that his chief national-bank examiner in New York City had to be sent to
South America and that his examining force was so overworked that two examinations
of the bank in question could not be made.
In his letter of February 26, on page 6, the comptroller again refere “ to the nec
essary absence for six months in South America of the chief examiner’ ’ of the New
York Federal reserve district. Let us examine further into the facts. T h e------National Bank was examined as of October 3,1919. Certain conditions and tendencies
were revealed as a result of this examination which the comptroller now thinks should
have put the Federal reserve bank on notice. The chiet national-bank examiner
of the New York district did not sail for South America until June 26, 1920. (See
jetter of Comptroller of the Currency to the board, dated June 22, asking for an
increase of salary for Messrs. Smith and Mulloney to cover increased expenses while
•in South America.) Your committee is at a loss to understand why the examina
tion of this particular bank was not made in March or April, 1920, which would have
given the cnief national-bank examiner an opportunity of completing the exami
nation before sailing for South America on June 26.
It also develops that the only examination of t h e -------- National Bank which
was made during the year 1920 was of August 27, 1920. The chief national-bank
examiner of the New York district did not return to New York from his South
American trip until after the 1st of January, 1921. It is evident, therefore, that
the absence of the chief national-bank examiner did not interfere with the examina
tion of this bank beginning August 27. Thus it appears that no examination of this
bank was made during the first half of the year 1920, while the chief examiner was
in New York, that an examination was made during the absence of the chief exam
iner, and yet the claim is set up that it was impossible to make two examinations
because of the examiner’s absence during the last half of the year and that an ex
amination would have been made promptly at any time had the Federal Reserve
Bank of New York requested it.
Your committee desires to point out, further, that no limitations are placed by lav
upon the power of the Comptroller of the Currency to employ an adequate examining
force. National-bank examiners are not paid out of specific appropriations made by
Congress. They are appointed by the comptroller upon the approval of the Secretary
of the Treasury and tneir salaries are approved by the Federal Reserve Board. The
board has never failed to approve the recommendations which have been made by
the comptroller for the compensation of his national-bank examiners, and the respon
sibility for neglect or failure to secure an adequate number of examiners in order that
the plain requirements of the law as to frequency of examinations may be complied
with rests solely upon the Comptroller of the Currency.
In conclusion, your committee desires to express its regret at the necessity of filing
this report, but when an ex officio member of the board criticizes the board and one
of the Federal reserve banks under its supervision for the existence of serious con
ditions in a member bank under his own supervision and seeks to hold the Federal
Reserve Board and the Federal reserve bank solely responsible therefor, it appears
to the committee that it is the solemn duty of the board to point out clearly that the
sole responsibility did and does rest upon the Comptroller of the Currency for his
failure to obey the law.
W. P. G. Hardixo.
E dmund P latt.
D. C. W ills.
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I hereby certify that the foregoing report waB brought up for action at a regular
meeting of the Federal Reserve Board, held on Wednesday, March 2, 1921, at which
all members of the board were present except the Secretary of the Treasury.
The report was adopted and order filed by vote of all members present, except the
Comptroller of the Currency, who refrained from voting.
W. W. Hoxton,
Secretary of Federal Reserve Board.
The Chairm an. Proceed, Mr. Williams.
Mr. W i l l i a m s . While reading the letter which I read last, there
was some reference to the aid which was given by certain Federal
reserve examiners in straightening out the affairs of a certain small
member bank in New York State, in which the credit for the work
done was apparently given to the Federal reserve bank and its
examiner in New York. I shall give the facts in that case at some
other time, if the committee will permit me, but in that connection
I will read this letter which I wrote to Gov. Harding on January 13,
1921, relating to the interference of the reserve banks in the North
west with two country national banks in that section [reading]:
W ash ington , January IS, 19tl.
inclose with this aletter received from Chief National Bank
Examiner Brown of the Minneapolis district, dated December 10, which explains
itself.
It appears that Oscar A. Carlson, apparently an examiner for the Federal reserve
bankof Minneapolis, has taken upon himself the responsibility of closing two national
tanka in that district, wholly without authority bo far as m y information goes. Chief
National Bank Examiner Brown, whose letter I inclose, is one of the ablest, most
experienced, and most reliable men in our service. Chief Examiner Brown advises
that in a letter from National Bank Examiner Buckles, the latter writes as follows:
“ I am told by the officers cf the bank that Carlson suggested closing the bank and
one of the officers suggested that they should communicate with me first, to which
Carbon is reported to nave responded, ‘ To bell with Buckles; I will look after that. ’ ”
I respectfully ask tnat this matter be investigated immediately by the board.
Perhaps it may be well to have Mr. Carlson report to Washington. Chief Examiner
Brown will be here next week.
This office has been doing everything humanly possible to maintain the solvency
ofall national banks, to aid them in everyway, and to prevent unnecessary suspensions.
If this employee of the reserve bank of Minneapolis has assumed to usurp the authority
of the directors of the bank and of this office—and it seems from his own written state
ment to the chief examiner that he has done so, for in his letter to Chief examiner
Brown he says, “ I found it necessary to close up the banks at Opheim and Cut
Bank,”—I am sure you will agree with me that prompt and vigorous action on the
part of the board is called for.
Sincerely, yours,
My D ear G o v e r n o r : I
John S kelton W illiams .
Hon. W . P . G . H arding,
Governor Federal Reserve Board.
I retired from the office of Comptroller of the Currencv before I
received a complete report on that incident, but I think that is per
tinent in connection with the other incident to which I referred.
I shall now read, with your permission, Mr. Chairman, a letter
which I addressed under aate of March 26, 1921, to Gov. Harding
[reading]:
R ichmond, Y a ,
March 26, 1921.
Hon. W. P. G. H a rd in g ,
Governor Federal Reserve Board, Washington.
H a r d i n g : In my letters to you of October 18, December 2S,
January 17, February 19, and Februaiy 20, 1921, written in my then official capacity
** Comptroller of the Currency, I directed your attention and that of the Federal
Reserve Board to the dangers of certain then existing policies and regulations of the
Federal Reserve Board and of the Federal reserve banks, and I urged that prompt
steps be taken to revise policies then in force and to remedy ills and mitigate and curb
1 )eab G o v e r n o r
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Buffering which, influenced more or less by the actions and rulings of the board, had
become extensive and was spreading.
My several letters referred to were clear, plain, and unequivocal, and demanded
action. The statement and arguments in my lengthy letter of January 17, 1921, and
subsequent letters, as well as in a number of previous'letters, are still unanswered, and
I do not believe you can truthfully refute or explain away the important »tatements and
complaints which I have thus laid before you. You and your other colleagues on the
board, instead of addressing yourselves to a correction of the trouble which had become
an active cause of intense suffering among the masses of the people, now proceed, u
I stated in my letter of March 2 to evade the main issue and try to cover your retreat
by attacking my administration of the comptroller's bureau.
Even there your main or only basis of attack appears to be the charge, from my
standpoint flimsy and fallacious, that the examining force under my supervision did
not make as manv examinations of national banks in the year 1920 as the law directed.
Your charge has been, I believe, completely answered in my letter to you of February
26 and in my oral statements before tne board, in which I had the satisfaction of show
ing you that, although for good reasons, during the year to which you referred the
number of bank examinations made was a small fraction—perhaps 10 per cent—less
than called for by a strict interpretation of the law, yet the comptroller’s bureau
actually obtained from the banks under its supervision—examined and abstracted
about 8.000 more reports of their condition—about 20 per cent more than the law
required, or than were ever gotten under any previous administration.
Despite your carping criticism, the official figures show that in safety and immunity
from bank failure, m growth and in net earnings, the record of the banks for the seven
years they have been under my supervision has been by far the best since the beginning
of the national banking system 57 years ago.
I can not feel that retirement from office relieves me of duty, incumbent on every
citizen, of exposing evils and dangers in the administration of our Government of which
I happen to know and entering my protest against continuance of them. Nor does it
relieve me from the duty or estop me from the right of defending my record as an
official, of which I am proud and believe I am entitled to be.
I can only regret, on their own account, that members of the board whom I had
held in sincere regard should join in approving a report which is not only patently
unjust but is built upon flimsy pretexts, the shallowness of which were, as I have
stated, fully exposed and explained by me in letters and oral statements before that
report was voted on by the board. This is proved by the record of the committee’s
meetings, which minutes, I am informed, the board has ordered to be kept secret.
The report I referred to here is, I assume, the report which Con
gressman Mills has placed in the record, and which I am pleased to
nave in the record, as it is answered. I would state also that that
report was also answered by me orally before the board at the meet
ing, I believe, at which it was adopted, a stenographer being present
and supposed to have taken down a verbatim report of the proceed
ings. Gov. Harding, before the stenographer was first brought in,
assured the committee that copies of that report would be furnished
to the two retiring members of the board—Mr. Wills and myself. I
understand that Gov. Harding has since then claimed that he did not
give that assurance, and at any rate he has failed to respond to my
request that a copy of that report be furnished.
The C h airm an . In that connection, let me ask you if the board
did not subsequently take action which, in effect at least, prohib
ited giving copies of this report to members of the board or anybody
else.
Mr. W illia m s . When I raised the question at a subsequent meet
ing that the report had been promised one or more memlbers of the
board, it did raise the point which you refer to, that the board could
control it despite the governor’s promise, or whatever promise he
might have made.
Representative T e n E y c k . I would like to know what report Mr.
Williams says was denied.
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Mr. W i l l i a m s . That was a stenographic report of the meeting of
the Federal Reserve Board on February 28, 1921, a copy of which I
several times requested and should still like to have.
Representative T e n E y c k . Mr. Mills, when did y o u file that ?
Representative M i l l s . I have not filed any such report.
Mr. W i l l i a m s . That is not the report. I referred to the commit
tee's report as the one which you filed. I would like to have the
stenographic report of the reserve board’s meeting on February 28.
Representative T e n E y c k . What I am getting at, Mr. Williams,
is this: I may not have been present, but I do not now recall that
Mr. Mills maae a request to file a report.
Mr. W i l l i a m s . Just a moment ago he put in a report.
The C h a ir m a n . Mr. Mills asked to have inserted in the record a
report of a committee of the Federal Reserve Board with reference
to difficulties which arose with respect to examinations and the fur
nishing of the reports of those examinations to the Federal Reserve
Board.
Representative T e n E y c k . I thought that was the report you
referred to this morning that was withheld for a while.
Mr. W illiams. Continuing the letter of March 26, 1921:
The far more serious complaints touching board policies and reserve-b&nk supervision
and management which it oecame my duty to lay before the board in writing never
have been refuted or explained away by you or by the board, either orally or in
writing, and stand essentially unchallenged.
In my letter to you of February 26, 1921, which was read before the board in my
presence, I said:
“ At to-day’s meeting of the board you claimed that there were certain inaccuracies
in my letter to you of the 19th instant, and I informed you I would be happy to have
you advise me promptly of any errors or mistakes that you might thinlc you have
discovered in that communication, and that I should be most pleased to correct
them if your contentions could be sustained. I now again urge that you point out
to me promptly all inaccuracies, if any there be, which you mav think exist. ”
I again call upon you to indicate to me any inaccuracies which you may suppose to
exist m any communication which you have received from me. The official records,
as a matter of fact, will prove that in registering my dissent as to unwise policies I
have, from consideration for my former colleagues, been perhaps too conservative
and have understated rather than overstated the matters complained of.
It was with genuine regret that I found it necessary to differ on important matters
'with my colleagues on the board, but I have never been able to indorse or accept
the doctrine quoted, seemingly with a large degree of approval, during a debate on
board policies several months ago by a certain eminent member of the DOftrd at that
time, that it was “ more important to be unanimous than right.”
In my letter to you of March 2 I asked that you furnish me with a transcript of the
stenographic report of our meeting of March 2 containing my statement before the
board. in which I pointed out glaring errors contained in the report of your commit
tee, which report, I understand, was submitted and approved at the board meeting
of March 2. the vote approving same having been passed after 1 left the meeting.
You replied under date of March 3, saying that I “ will be accorded exactly the
same privileges with respect to the stenographic minutes of yesterday’s proceeding
that will be given to any other member of the board.” You also stated the board,
however, adhered to the position it took yesterday, that no copies or transcripts of
the proceedings or any part of them should be given out.” I ask that you inform
me precisely what the privileges” are to which you refer, which you say will be
accorded to me to the same extent they are accorded to other members.
A t the board meeting in Februanr at which the official stenographer was first brought
in—I think it was the meeting of February 26—
I now think it was the 28th, however [reading]—
the clear and definite understanding upon which the meeting proceeded was that
each member of the board, including tne two members whose membership on the
board would soon cease—Mr. Wills and myself—would be furnished with a verbatim
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copy of the stenographic report of themeeting. As soon as it wasagreed by resolution,
passed unanimously, that the minutes shouldbe stenographically reported, and before
we proceeded to tne subject for which the meeting had been called, you definitely
stated to the board that tne two retiring members should be furnished with a copy of
the transcript, and upon that assurance we went ahead. All members of the board
except the Secretary of the Treasury were present and by their silence acquiesced in
your statement. Your promise having thus been accepted without objection by any
one, I can not imagine that you or these gentlemen wno accepted and united in that
promise would deliberately disregard and annul it. It would have been competent
for you at any time during the meeting to move that the meeting adjourn or that a
furtner stenographic report of the meeting be suspended, but I respectfully Bubmit
that your promise, accepted in good faith, that you would furnish the report to the
retiring members, is essentially binding in honor and in morals, and I would dislike to
suppose that you would disregard your obligation as a mere “ scrap of paper.”
I note your statement that it probably will be two or three weeks from the date of
your letter, March 3, before the work of transcribing the stenographer's notes will be
completed. The delay is rather unusual, aud it is now more than three weeks since
March 3, but I can not believe that you would finally fail or refuse to see to the fulfill
ment of the promise.
At one of the last board meetings which 1 attended you declared that, you regarded
my recent letters remonstrating against board policies and urging changes, as “ attacks”
upon the board, and you angrily threatened, to quote the language employed, to reBort to the use of “ poison gas” in the event 1 should continue what you construed as
my “ attacks.”
The C h airm an . Mr. Williams, I hardly think that is material or of
any particular interest. I am perfectly willing that you should read
any part of the letter that does not have some bearing-----Gov. H a r d in g . Mr. Chairman, if personalities are to enter into this
thing I demand that my reply be filed. I am unwilling that these
things should come up before this audience and be disseminated over
the country, because there are distinctly two sides to it. I deny that
I ever maae any such promise. It has been denied before. If these
personalities are going into this record I want my reply to go into
the record.
Mr. W illia m s . Mr. Chairman, I am going to ask permission to
read Gov. Harding’s reply of April 4, 1921. I have it before me and
intend to read it in.
The C h airm an . I suggest that the commission is not particularly
interested in that phase of the proposition.
Mr. W illia m s . Mr. Chairman, I was reading there a statement
where I stated that Gov. Harding had threatened, in the event I
should continue my attacks, to use poison gas. He denies, as I
understand it, something else-----Gov. H a r d in g . I deny that, too, Mr. Chairman. What I said, and
it will be substantiated by every member of the Federal Reserve
Board, was that I was not after trouble or warfare. I wanted to
fight these things out and work out the problem before us. I told
Mr. Williams that I was not afraid of him, that if he wanted to fight
I would fight him; that I would fight fair if he wanted to himself,
but if he wanted to use poison gas I would fight him that way. That
can be substantiated by six members of the Federal Reserve Board.
The C h airm an . Proceed, Mr. Williams.
Mr. W illia m s (reading):
At one of the last board meetings which I attended you declared that you regarded
my recent letters remonstrating against board policies and urging changes, as “ attacks”
upon the board, and you angrily threatened, to quote the language you employed, to
resort to the use of “ poison gas” in the event I should continue what you construed as
my “ attacks.” I promptly informed you that as far as I and my administration of the
comptroller’s office were concerned or my relationship with the board I had nothing
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-whatsoever to conceal, and that you were auite at liberty to go ahead and publish
anything you pleased so long as you confined yourself to the truth. In fact, 1 rather
urged publicity for our correspondence. I also informed you, in the presence of the
board, that whatever methods of attack you might adopt I should certainly not use
“ poison gas” or any other plan or method not consistent with honor and fair play,
and I should not expect you to adopt unworthy methods of attack. However, I am of
course abundantly ready for any attacks from you or anyone elae, whatever form they
may take; and your threat of “ poison gas,” etc., impresses me merely as an evidence
of desperation on your part, which I beg to assure you gives me not the least annoy
ance or concern. My only regret will be the damaging reaction on you.
During the discussion in the board you insinuated with some gusto that you might
desire to call the attention of the public to the dreadful fact that the national banks in
Washington, including a particular bank in that city which, in the past, had been
conspicuous for its disregard of the provisions of the national bank act and the regu
lations of the comptroller’s office, practically all received two examinations dunng
the past year, while a number of New York City national banks were examined only
once, and you also stated, in a significant tone, that the national bank in Washington,
above referred to, had been requested by the bank examiner to furnish a list of its
loans to ‘ ‘public officials.” I do not know why you should assume to assail the action
of the examiner in requesting such a list as he did during the progress of his examina
tion, openly, of the vice president of the bank with whom, it has been suggested,
you have been, directly or indirectly, conniving in your eager but futile efforts to
find something for which to criticize this bureau. You know very well, or are supposed
to know, that the Federal reserve act expressly prohibits national banks from making
loans to national-bank examiners. You also know, or had the means of knowing,
that the national bank in question prior to the passage of the reserve act had not only
made numerous loans to national-bank examiners, but had also made many loans to
various other ‘ ‘public officials” connected with the Treasury Department and others,
which, to express it most mildly, were of doubtful propriety, if not positively wrong,
including loans to Assistant Secretaries of the Treasury and to one or more former
Comptrollers of the Currency, under whose supervision the bank operated. Under
these circumstances it was not only proper but the duty of the bank examiner, in
in the course of his examination, to determine whether or not improper loans, now
expressly forbidden by statute, had ceased.
It is worthy of note in this connection that the particular bank in Washington which
seems to be the subject of such solicitude on your part was during many months in
1920 borrowing millions of dollars of money from the Federal reserve system at 6 per
cent or lees, at the same time that it was lending millions in Wall Street at the high
interest rates which prevailed there. The excuse that the money borrowed from the
reserve bank was needed to buy United States certificates is too palpable to need
comment in view of the amount of demand Wall Street loans held by the bank, at that
very time, on which it was collecting fancy rates of interest.
Your criticism that my examinations of New York banks were too infrequent and
lax is sufficiently answered by the record, which shows that among the millions of
depositors in the national banks in the New York district not one of them lost a dollar
by the failure of any national bank in that entire district during the seven years that
I held the office of Comptroller of the Currency.
In connection with the discussion, or threat, or announcement, from you, referred
to earlier in this letter, I can not but observe a statement in a New York newspaper a
few days ago, since my resignation from the Federal Reserve Board, to the effect that
a plan is on foot to bring about the disestablishment or removal of the Federal Reserve
Bank of Richmond.
I do not know what support such a movement may receive from the Reserve Board.
As a member of the original organization committee, and as a member of the Federal
Reserve Board for more than seven years, I take the liberty of stating at this time
that in my judgment the experience, of the past seven years abundantly vindicates
the action of that committee in establishing the bank in Richmond. Furthermore,
the record will show that the administration of the Federal reserve bank of Richmond
has been one of the most creditable of any of the reserve banks; and in the judgment
of the beet informed men in the section which the bank is serving so efficiently, its
removal would be indefensible.
Allow me also here to confirm the views which I expressed at the meeting of our
board several weeks ago in opposition to the suggestion that you offered informally
on that occasion, with your apparent approval, looking to the d if establishment of
the Federal reserve banks of Atlanta and of Dallas. 1 am convinced that the propo
sition to close those banks and to attach the sixth and eleventh districts to other
districts would work a grievous and unpardonable injury to a vast tection of our couu-
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try, and furthermore that the agitation of such a plan at this time will result only in
harm.
The 12 Federal reserve banks as at present established have, I believe, vindicated
fully their right to exist, and if properly supervised and administered they can be
of untold value to our country and to the world, both now and in the years to come.
I earnestly hope that they may never become the footballs of politics or the instru
mentalities of unscrupulous or designing interests of any kind.
1 trust any effort to close up reserve banks and centralize further the money of the
country may be as abortive now as were the efforts to this end in 1915, in which I
vividly recall you joined, and which attempt was frustrated finally by action of the
White House and of the Attorney General. It is far more important at this time to
provide the reserve banks which we have with wise supervision and management
and to have them function efficiently and adequately than it is to agitate for their
disestablishment, removal, or increase.
In view of the accumulated reserves in the 12 Federal reserve banks, whose unused
lending powerat this time. I understand, is about $1,500,000,000. orten times as much
as the national banks of the United States ever borrowed on bills payable or redis
counts at any time prior to 1914. and the pressing need for funds for legitimate busi
ness from so many sections of the country, I hope the board may, without further
delay, relax its credit restrictions and make it easier for the farmers, merchants,
miners, manufacturers, and other business men to obtain their legitimate require
ments. the bank accommodations upon which our progress and prosperity so largely
depend. As the records will show, I have been urging upon the board for many
months past the necessity for some relaxation.
It is pertinent here to remind you of my letter to you of January 17,1921, in which,
replying to your blunt suggestion that what had happened was simply “a balloon"
haid been “punctured ” and that the gas or hot air had thereby escaped, I said:
“ Instead of driving a hole into the bag and crashing to earth in wreck and ruin,
we Bhould handle the valve rope and ballast with anxious and ever alert care to
effect a safe landing on good and solid ground. Our solemn duty, as of course you
realize, is to conduct the operation regardless of political, sectional, or individual
feelings, of pride, of opinion, prejudices, preferences, and even of precedent and
hitherto accepted rules and forms.”
These remonstrances were apparently unheeded by the board.
A month later, in a letter in which I protestedagainst practicesand policies which I
believed were not only iniurious to the public but were bringing discredit upon the
board itself, I said, inter alia:
“ I have shown you. Gov. Harding, in this letter and other recent letters, that the
reserve bank of New York has been lending funds at 5 percent to 7 per cent per annum
to member banks which have then passed them on to customers, at times at such out
rageous rates as 50 per cent to 75 per cent per annumor more, wlule the reserve system
in other parte of the counry has actually charged member bankB, in exceptional cases,
for the use of money, sorely needed by farmers and business men, as high as 50 per
cent and 75 per cent per annum, while the member banks paying these exorbitant
rates to the reserve bank are prohibited by law from charging their customers over
8 per cent.”
The gross inequalities in the charges made by the Federal reserve banks under the
regulations approved by the Federal Reserve Board are well illustrated in comparing
the loans made to a small member bank in the Philadelphia district with a capital of
$25,000, which was allowed to borrow more than eight times its “ normal ” or “ basic
line ” at 6 per cent per annum. With the case of a small member bank in Alabama,
also with $25,000 capital, which was “ accommodated” during the last two weeks in
September, 1920, with loans aggregating about $112,000, sorely needed in connection
with the movement of the cotton crop, and was charged for a portion of the money
more than 80 per cent per annum, or an average interest rate for the two weeks’ period
of about 45 per cent per annum for the $112,000.
The interest paid out to its reserve bank in excess of 6 per cent per annum, by this
little member Dank for funds borrowed to help its customers for those two weeks,
amounted to more than a whole year’s dividend at 7 per cent on the bank’s entire
capital stock.
In my opinion, under all the circumstances, the Federal reserve banks should be
required to refund to their member banks all interest which they have collected from
them in excess of 7 per cent per annum—if in fact they should not refund all interest
charged in excess of 6 per cent per annum. It is my understanding that the Federal
reserve banks of Richmond, Philadelphia, and San Francisco have never charged
their member banks for interest more than 6 per cent per annum. This I consider
distinctly creditable to the management of these three reserve banks.
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Seven per cent, I believe, is about as high as has been charged during the past year
by the central bankB of issue in any civilized^ country; I can see no justification for
our exceeding that rate here, where money is supposed to be more plentiful than
anywhere else on earth, especially in view of the huge earnings reported by all of the
reserve banks, whose profits for the past year were far in excess of 100 per cent on their
paid in capital.
And I can see no justification for the action of the board in voting down the resolu
tion offered by me some weeks ago to prevent the imposition by reserve banks upon
member banks of interest in any case in excess of 10 per cent, or for the board’s rejec
tion of my further proposition to limit, for the time being, the rates charged by all
reserve banks to 6 per cent—the maximum rates ever charged by Philadelphia, Rich
mond, and San Francisco. The record of the three banks referred to prove that infla
tion, so far as the reserve system is concerned, can be curbed by sound and proper
management without resort to the absurd interest rates imposed by reserve banks
under authority of the board, in certain other districts, in one exceptional case going
m high as 87J per cent per annum.
I regard as unfortunate the omission or neglect of the board or of the reserve bank
of New York to keep properly informed—after repeated warnings from me—as to
the use which was being made during the past year or so of the hundreds of millions
of dollars which were being dispensed with lavish hand to certain member institu
tions which had already acquired an unenviable reputation because of the specula
tive character of their operations, and the speculations of their principal officere,
who were using for their numerous deals funds gotten from the New York reserve
bank by their own institutions, as well as funds borrowed by other member bankB
fromthe reserve bank.
I assume that if the New York reserve bank had known, as it should and could have
known, at the time it was lending these speculative institutions huge sums—sometimes
toone borrower an amount equal to several times the capital of the New York reserve
bank itself—of the use made of the money so advanced, it would have exercised a
more restraining hand. At least I hope it would have done so—for you now have
unimpeachable evidence and admissions that funds of certain institutions in New
York City which had been the principal recipients of these big loans from the New
York reserve bank were dispensed with “ reckless prodigality.”
Not only were the funds of the New York reserve bank being thus employed by
certain members of the system in feeding the fires of speculation, at a time when
retrenchment was a duty, but the record shows that the resources of other reserve
banks were being at times heavily drawn upon in enabling the New York reserve
bank to provide the member banks referred to with these vast sums for speculative
meg
Myletter to you of February 26,1921, shows in detail from week to week for the year
1920, the extent to which the New York reserve bank was obtaining funds from other
reservebanks by "bills rediscounted” and “acceptances sold” to these other banks,
theaggregate on January 16, 1920, being over $100,000,000 and as late as October 29,
1920, over $60,000,000. The official record also shows that although the New York
reservebank was obtaining funds continuously through 1920 from otner reserve banks,
it was rediscounting for otner reserve banks for less than five-twelfths of the time in
thatyear. Has Gov. Strong ever sent to the board the information I urged him at the
meeting of February 26 to produce, as' to what proportion of the acceptances trans
ferredby the New York reserve bank to other reserve banks in 1920 were primarily for
the accommodation of the New York bank? I should like to see it. There is no
reasoQwhy this information should be kept secret.
AsComptroller of the Currency 1repeatedly urged upon the Congress the importance
of legislation which should prevent national banks from lending to their own officers:
but these recommendations have not yet been acted upon. The reserve board and
thereserve bank of New York, onthe other hand, had the power to exercise a restrain
inginfluence in regard to excessive loans from member banks to their own officere, or
otner loans for other speculative purposes, by keeping informed as to the extent of
suchabuses and by putting on the brakes when applications for new loans were made
tothe reserve bank.
I have brought to your attention, as an example, one instance where the president
of onemember institution in New York was borrowing for himself and for enterprises
in which he was immediately interested—some of his loans carefully camouflaged—
“ anymillions of dollars fromthree member banking institutions in New York City, to
each of which the Federal reserve bank of New York was lending more than
* 100,000,000 .
I also directed your attention to the case of a certain member bank—to which the
Federalreserve bank was lending more than--------millions—which was lending to its
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own chief executive officer and his immediate family more than the bank over which
he presided waslending to all of its national bank correspondents throughout the entire
country. The Comptroller of the Currency has nopower under the lawasit nowstandi
to prevent such loans; the Federal reserve bank in extending credit to the bank re
ferred to, could have limited the amount of money which the borrowing banks could
lend to their own officers for speculative or other purposes.
Officers of the Federal reserve bank are supposed to have some cognizance of such
matters, especially when the speculative operations of the officers of their member
banks has become common talk, as in this case, and they are expected to be governed
accordingly in granting accommodations. Furthermore, the officers of the reserve
bank of New York should have brought such situations as these to the attention of the
directors of the Federal reserve bank of New York, who, I do not believe approve of
such methods and operations, and who, presumably, would have taken prompt steps
to effect remedies if they had known of them.
In calling your attention 14 months ago—January 28,1920—to the fact that the New
York reserve bank was lending an amount equal to more than five times the capital
of the Federal reserve bank of New York to one particular institution in that city I
urged upon you the board’s “serious and very real” responsibility, and said:
This is a concentration of the funds of the reserve system^with one debtor bank
conspicuous for its speculative operations and promotions, which, in my judgment, is
not only not justified, but distinctly dangerous, and I feel it my duty to register my
strong dissent from a continuance of such conditions as these, by writing you, a« I am
doing, as an ex officio member of the board. I trust you will find time to mak<> a
careful analysis of this situation.
“ With such facts before us concerning the company’s condition as I have hereto
fore undertaken to bring to your attention, our responsibility becomes Berious and
vety real. I think it would be well to apprize the board of this situation. ”
Despite this warning, followed up by repeated recommendations from me that the
board or the reserve bank of New York make an independent examination of that
large debtor of the reserve system, no independent examination has ever been made
up to this time, as far as I am advised, although I understand that one or two repre
sentatives of the reserve bank of New York accompanied the State examiners on
their examinations for part of the time.
Why the board and the New York reserve bank should be ready to make inde
pendent examinations from time to time of smaller banks, but should shirk or stand
aloof from examination of this particular debtor institution, the speculative char
acter of whose operations stands out so clearly in the record—see my letters to you
January 28, 1920, and February 28, 1921—I, of course, am unable to say.
Resuming the general subject of our correspondence, I think it proper at this time
to refer to a statement made in my letter to you of February 14, 1921, in which I
said:
“ As far as I am concerned I have not the slightest objection to the board acting
favorably upon the proposal which was made by one of our members a few days ago
when the question came up that the board publish my letter to you and also the
board’s reply of the 13th ultimo. I will now go further and state that it is my p ersonal belief that my letter of the 28th of December contains some information of an
important character, to which I think the public entitled and should have before
it. In fact, to make public this information I believe would be distinctly salutary
and beneficial. ”
I also quote the following extract from my letter to you of March 1, 1921:
‘‘I hope I have made my position clear. I will be glad to have the whole of my
correspondence with tlie board made public, deleting such names or references as
mav cause individual hardships or injury.”
At several board meetings when the question of giving publicity to this correepondeace was discussed the board was informed clearly by me tliat while the letters referred
to were not written with the intention of giving them publicity, and that while it was
not, at the time they were discussed, my intention to make them public, I yet re
served complete freedom of action in regard to them and should use my discretion as
to whether or not I should at any time give publicity to the letters or any of them,
deleting such naine3 or references as in my judgment it might be proper to omit for
t'le protection of others.
I shall be pie used to have you present this letter at the next meeting of the Federal
Reserve Board and have it made a part of the record, but in view of the intention
I understand you recently expressed—-while I was a member of the board—of assuming
responsibility of withholding from the board any letters, however important, which I
might have occasion to address to you officially as the governor of the board, which
for any reison might not be presented directly to the board by me, in person, I shall
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take the precaution to forward to each board member, including ti e Secretary of the
Treasury and the Comptroller of the Currency, copies of this communication. More
over, please be advised that I shall give t'lis letter such further circulate n and pub
licity as may, in my discretion, at any time seem desirable or for the public good.
Yours, very truly,
J ohn S kelton W
il l ia m s .
Mr. Chairman, I ask that there be inserted in the record the letter
from Gov. Harding to me of April 4, 1921.
Gov. H a r d i n g . A word there, Mr. Chairman, on a matter of per
sonal privilege. That letter that Mr. Williams has just read does not
contain any new matter for the information of this commission. H e
merely quotes from previous letters that he has written. But he also
’ves that letter a decided personal tinge that none of the previous
tters had. He has read that letter here in a public meeting. That
may go to the press. All right. He has made public most of the
statements in tnere already. Now, my reply to that letter, dated
April 4, which he now wishes to introduce, is a carefully studied reply
Mid answer to a great many of these charges which have been made
in the course of the cross-examination that has been going on by the
members of this commission, and I respectfully ask, iust as a mere
matter of fair play, that I be given the privilege of reading that reply
myself. I will promise not to interject a single word or make any
explanatory statement—just to read the reply.
Representative S u m n e r s . I think there should be no objection t o
that, M r. Chairman. It will go in the record, anyhow.
Mr. W i l l i a m s . I think it is entirely fair, Mr. Cnairman, as far as I
&mconcerned. I wanted the letter in the record.
The C h a i r m a n . Without objection, Mr. Harding will proceed and
read the letter.
Mr. W i l l i a m s . Mr. Chairman, I would like to state that I did not
make a formal reply to Gov. Harding—to his letter of April 4, 1921.
I consider, though, that it was practically replied to in an address
which I made in Washington 10 or 11 days later, on April 15, 1921,
beforethe People’s Reconstruction League, in which I dealt with mat
ters which were brought out in his letter. Copies of that address
were sent to each member of the board. I should also like to have
the opportunity before I close of commenting upon certain portions
of Gov. Harding’s letter which is about to be read.
S
STATEMENT OF HOlf. W. P. 0. HARDING, GOVERNOR FEDERAL
BESEBVE BOARD.
Gov. H a r d i n g (reading):
F ederal R
eserve
B oard,
Washington, April 4, 192!.
Mr. John S k e l t o n
W
il l ia m s ,
Cart of Richmond Trust Co., Richmond, Va.
S ir: I acknowledge receipt of vour letter of March 26, 1921. I note that you have
token“the precaution to forward to each board member, including the Secretary of
theTreasury and the Comptroller of tho Currency, copies of this communication.”
pe«u»eof the inference, which is clear, and berauso of the terms in which your letter
ucoached, the other members of the board have requested me to advise you that they
tnwtdecline even to acknowledge the communication which you have addressed to
individually.
Asthechief active executive officer of the Federal Reserve Board, I acknowledge
yonrletteraddressed to me as governor onlv because of the necessity of placing a flat
Contndiction of its misstatements and half truths upon a record composed largely of
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letters with respect to which you have “ reserved complete freedom of action” and
about which you might use your “ discretion as to whether or not I (you) should at
any time give publicity.”
You charge that the “ statements and arguments” in your letter of January 17,1921,
are "still unanswered” and that the serious “ complaints (in your various letters)
touching board policies and reserve bank supervision and management * * _*
never have been refuted or explained away * * * by the board either orally orin
writing and stand essentially unchallenged.”
It seems from a review of the real facts that the gravity of your “ complaint,” if it
may be dignified as a complaint, is not, as you state, that the Federal Reserve Board
has in the past willfully failed to answer your “statements and arguments,” or that
it has failed in its public duty to give due weight to matters of public interest whether
proposed by you or any other perron, whether in public or private life, but rather that
the other members of the board, in the exercise of their best judgment, have not
agreed with your arguments or opinions not voted their approval of motions made by
you embodying those opinions.
In other words, your letters of October 18, 1920, December 23, 1920, January 17,
1921, February 19,1921, and February 26, 1921, were long and confused expressions
of your views on various subjects. TTiey contained no definite program and, while
charging the board with certain responsibilities, made no specific recommendations
except as noted herein. Apparently, those 1' tters were intended not as a serious
attempt to persuade the Federal Reserve Board of the meritof the views they ex
pressed, or to procure any formal action, but as a means of making a record duringthe
waning days of your tenure of office of ignorant, inaccurate, and misleading statements
which you might, in your “ discretion,” at some time hand tothe public with a purely
sentimental and fictitious appeal to their sympathies and false hopee—not to their
reason and better judgment. Your present letter of March 26 tends to corronorate
these conclusions since it is ingeniously drafted, not as a fair unprejudiced exposition
even of the record, as both you and the Federal Reserve Board knowit, but as a biased
presentation of facts and fancies which fully ignore the actual disposition which has
been made of the issues under consideration.
It is B o l e l y to anticipate any misunderstanding that might result from your efforts
that the Federal Reserve Board has instructed me to dignify your letter by a reply.
Certainly you yourself must be fully aware that it is not true that the “ complaints”
you have made still “ stand essentially unchallenged” or “ unanswered.”
What are the facts? In your letter of October 18, 1920, you offer but one remedy
for the conditions which it sets forth, namely, a ruling that cotton factors’ paper is
eligible for rediscount. At that time, however, under advice of counsel that cotton
factors’ paper is ineligible for rediscount under the termB of the law and that it did
not have, and has not now, the power to rule otherwise.
In your letter of December 28, 1920, you reviewed at length the reasons that
prompted your belief that a lower discount rate was at that time desirable and took
occasion also to refer to certain irrelevant circumstances (reviewed at greater length
in your later letters) with respect to which you offered no remedies and made no
recommendations whatsoever. Up to that time you had never offered a resolution
looking to a reduction in the rediscount rates and even then had your real intention
been to procure such action rather than merely to “ make a record ” you might have
done so at any time in the usual method, available to every member of the board,
including yourself—a formal motion at a board meeting. There never has been a time
when the Federal Reserve Board evidenced any disposition not to give careful and
courteous consideration to suggestions and recommendations made to it by any of its
members in the usual course. It was only when the Federal Reserve Board insisted
that you crystallize, in a definite recommendation, the many various views expressed
in your letters that you made the motions quoted below at a meeting of the board on
February 25, 1921. That was, of course, after you had written and sent each one of
the letters above referred to, except that of February 26, 1921.
As you may remember, however, it was unanimously agreed at the meeting of Feb
ruary 25, 1021, to postpone discussion of action upon your motions until 10 o’clock on
the morning of February 26.
The first motion was as follows:
“ Moved that in view of all conditions, including the success of the 6 per cent rate
in the Richmond, Cleveland, Philadelphia, and San Francisco districts, the Federal
Reserve Board request all the Federal reserve banks, effective March 1,1921, to adopt
a maximum discount rate of 6 per cent. ’ ’
It was the sense of the meeting that the action contemplated by this motion should
not be taken at that time and that it should not be taken without reference to the
judgment of the boards of directors of the several Federal reserve banks. It was
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accordingly moved and voted that this motion offered by you should be laid upon the
table.
The second motion which you made was as follows:
“Moved that the Federal Reserve Board requests the abolition as of March 1 of the
progressive rate in all those districts where the progressive rate ip now applied.”
It was the sense of the meeting that the action contemplated by this motion should
not be taken at that time and that it should not be taken without reference to the
judgment of the boards of directors of the Federal reserve banks concerned. It was
accordingly moved and voted that this second motion offered by you should be laid
uponthe table.
The third motion which you presented was as follows:
“ Moved that effective March 1, 1921, the Federal reserve banks be requested to
establish a rate of 4J per cent upon member banks’ loans secured by Liberty bonds
in cases where the Liberty bonds were purchased originally by the member banks at
par, such loans to be made on condition that the borrowers shall make reasonable
reduction every 60 days, it being understood that the Federal reserve banks shall not
giantsuch loans at said 4} per cent rate when they are applied for to obtain newmoney
not needed for essential purposes, or not needed to prevent the borrower from being
driven to the necessity of selling bonds costing him 100. The above 4J per cent rate
shall alsoapply to discount by reserve banks of notes madeby the customersof member
banks when secured by Liberty bonds which were paid for at par and which belong
tothe borrowers as original subscribers. ’ ’
In view of the fact that this third motion was clear-cut, it was acted upon at once,
anddefeated by the vote of every member present other than yourself.
The votes taken by the Federal Reserve Board with respect to the motions which
youmade were unfavorable to those motions at that time not because they originated
with you but because each member of the board present, in the exercise of his free
andhonest judgment, believed that the action proposed by you would not then have
remedied the serious conditions to which you referred ana might then have resulted
inconditions even more serious and more pitiable than those which you described.
That action by the board with respect to your motions was a complete and definite
disposition of the concrete questions presented in the letters under consideration.
Since your attendance at the board meetings was irregular after October 1, 1920
(theminutes show that of the SOmeetings held between October 1,1920, and February
25,1921, vou were present during the entire time at 18 meetings, during a part of the
timeat 18 meetings, and absent at 44 meetings), it may be mentioned for your infor
mation that the rate policy of the Federal reserve system was a matter of frequent,
careful, and fairly continuous consideration by the board during that period, as, in
fact, it always has been. Your motions when presented, therefore, did not raise a
newquestion as far as the other members of the board were concerned.
While it is difficult to pick out of the disordered mass of statements and details in
your various letters any concrete or constructive suggestions other than those just
reierred to, so much of your space was devoted to a recital of the practices of certain
of the larger banks in "New York City that the natural presumption was that you
intended to place before the board an issue with respect to tne management and opera
tionof those banks. But even this issue was so beclouded that it would have been
difficult for the board or for the Federal reserve bank of New York, even if they ad
mitted the accuracy of all of your statements (which they positively do not), to de
termine very clearly what course of action you would have had them pursue in the
circumstances.
You have referred, among other things, in several of your letters to the fact that
certain member banks which were borrowing large sums of money from the Federal
reservebank of New York were making large loans to their officers or directors, or to
institutionsin which those officers or directors were interested, or which were lending
moneywith“recklessprodigality” orat “ excessive rates” ofinterest to their customers.
In the case of the one particular member bank which is made the basis of most of
your charges, the report of the examination evidencing the facts upon which you
basethosecharges was not delivered by you to the Federal reserve bank of New York
until January 7, 1921, some months after the examination was begun and after you
badwntten your letter of December 28, 1920, addressed to me. The previous exami
nation of that bank was. as you know, made in 1919, more than 10 months previous
to the examination begun in the fall of 1920, and did not present any information
calculated to put either the Federal Reserve Board or the Federal reserve bank of
NewYorkupon notice of the conditions which you now charge existed throughout the
year 1920. If the 1919 examination had evidenced such conditions, there can seem
toben o justification for your having failed for 10 months to institute a second exami
nation(adelay which you are awareresulted in your violating the laws of the United
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States, sec. 5240, U. S. R. S.) or to take any of the corrective steps which you actually
did take after the examination made in the fall of 1920. You state in your letter of
March 26, 1921, in referring to the large loans of this bank to its officers, that “the
Comptroller of the Currency has no power under the law as it now stands to prevent
such loans” and that the “ Federal reserve bank in extending credit to the bank
referred to could haVe limited the amount of money which the borrowing banks could
lend to their own officers for speculative or other purposes.”
The Federal Reserve Board has maintained and tne Federal reserve bank of New
York has maintained that it is not the duty of either the Federal Reserve Board or
the Federal reserve bank of New York to control the internal management or policies
of banks coming within the jurisdiction of the office of the Comptroller of the Currency
by means of arbitrary restrictions of credit. The only possible corrective step which
the Federal reserve bank of New York could have taken, even had it been aware
of the facts subsequently reported in the 1920 examination, is that which you have
now affirmatively stated in your letter of March 26, 1921, that is to withhold credit,
butTit is believed that you yourself did not seriously think that that would have
been the proper procedure for the Federal reserve bank to take. In fact, you wrote
a letter to me suggesting the importance of “prompt consideration * * * to the
matter of amending the Federal reserve act so as to make it possible for the reserve
bankB in an emergency to render aid to and perhaps prevent tne suspension of banka
whose eligible paper represents but a small proportion of their deposit liabilities. ”
On January 6, 1921, at a personal conference in your office you showed a copy of
your letter of December 28, 1920, addressed to me, to an officer of the Federal reeene
bank of New York and in referring to the particular national bank under consideration
you stated to him that you intended to recommend to Congress an amendment making
possible the rediscount of paper now held to be ineligible in order to permit of even
further extensions of credit that might be necessary to protect innocent depoeiton
and creditors of such bankB as this particular one which you cited as an illustration
of the necessity of the amendment.
It is clear from your letter of January 5, quoted above, and from your discussion
subsequent thereto that you realized the dangers which would result from the suspen
sion of any large bank in New York City and that you were anxious to provide means
for the further extensions of credit to such a bank. The inference in your subsequent
letters and finally your statement in your later letter of March 26, 1921,_ that the
Federal reserve bank of New York should or could have corrected detaijs of the
management of this bank or any other bank which might be making excessive loans
to its officers or which might be charging excessive rates of interest, by refusing to
extend further credit, were entirely inconsistent with your own expressed ideas and
with the ideas and convictions of all of those most familiar with the scope and purposes
of the Federal reserve act.
Furthermore, the Comptroller of the Currency is charged with the responsibility
of the examination and supervision over national banks. That responsibility rests
upon him and him alone. It is not believed that if the managementof any national
bank is guilty of any abuses or indiscretions that there is any reason in law or policy
that the Federal reserve bank should undertake to correct that mismanagement in
the manner which you have suggested. You know, or should know, that if a Federal
reserve bank were to attempt to direct or control the affairs of any mismanaged mem
ber bank by declining arbitrarily to make further loans the result would be anaggrava
tion rather than a lessening of the dangers caused by the mismanagement and pight
readily precipitate the conditions which you and all of us would deplore, conditions
that might cause the greatest suffering and hardship on an innocent public. These
are matters which were fully discussed at length in the board meetings of February
26 and 23, when all of those present expressed their views to be contrary to your own.
A failure on the part of the board to agree with you or a failure to alter its convictions
can not now properly be charged as a failure to “ answer” or a failure to “ challenge”
your “ complaints. ” ’
It is interesting to note in this connection that although you deny the power of the
Comptroller of the Currency under the law to prevent such loans as those under dis
cussion, nevertheless, you did take steps, subsequent to the last examination of the
bank in question, which it has been understood were most effective in eliminating
fromthe assets of that bank most of the loans that were criticized and which have been
responsible for a rather drastic change in the policies of the bank. For that action
you are to be commended, but your failure to act sooner can not now be made the
basis of an argument that the Federal reserve bank should have done so by the extra
ordinary method you have since suggested, unless, indeed, it is assumed that the
Federal reserve bank was upon notice of a gross neglect of your conduct of the duties
of the office of the Comptroller of the Currency.
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You inquire in your letter of March 26, 1921, whether the Federal reserve bank of
~S'ewYork has ever sent to the board the information you urged Gov. Strong at the
meeting of February 26 or 28 to produce, that is, what proportion of the acceptances
transferred by the Federal reserve bank of New York to other reserve banks in 1920
wereprimarily for the accommodation of those other banks and what for the accommo
dation of the New York hank. You say, “ I should like to see it. There is no reason
vhy this information should be kept secret.” You are advised that the letter of the
Federal reserve bank of New York, prepared upon my request made at a meeting
which you attended, relative to the question of acceptances and to various other
questions presented in your letters and considered at that meeting, has been duly
received by the Federal Reserve Board and a copy transmitted to the Comptroller of
the Currency for his information and in order to complete the official records of his
office.
You can not be unmindful of the fact that you no longer have a right to ask for or
expect information contained in official correspondence between the Federal Reserve
Board and one of the Federal reserve banks. I will, however, inform you, with
reference to the one question which you now raise, that is, with reference to the pro
portion of acceptances transferred by the Federal reserve bank of New York to other
rederal reserve banks for its own accommodation, that less than one-seventh of the
transfers which you stated in one of your letters represented continued borrowings
by the Federal reserve bank of New York were sold by it for its own accommodations.
All of the rest of those transfers were made upon the specific request or order of other
Federal reserve banks and were not to accommodate the Federal reserve bank of New
York, as you stated. This is further evidence of only one of the many ignorant and
misleading statements contained in your correspondence on this whoie subject.
ItappearB, therefore, that contrary to your expressed belief that the Federal Reserve
Board has positively not let your “serious complaints touching l card policies and
reserve bank supervision and management * * * stand e88cntiaJly._U®challenged,” every recommendation which you have made to the board was formally
acted upon by it in authorized session. * The rest of your correspondence is either
trivial, irrelevant, or susceptible of-no definite constructive interpretaticn unless it
bean interpretation which challenges the conduct of your own office as Comptroller
oftheCurrency and not the administration of either the Federal Reserve Board or the
Federal reserve bank of New York.
Before concluding, the Federal Reserve Board desires to refer to a few other state
mentsin your letter of March 26,1921, which are not of very great moment but which
cannot pass unnoticed. It is denied that any of the members of the Federal Reserve
Boardhave ever stated with reference to Federal Reserve Board policies that it was
"more important to be unanimous than right” and you must know no member ofthe Federal Reserve Board ever made such a statement. It is denied also that I
everstated to the board “ that the two retiring members should be furnished with a
copyof the transcript” of the meeting of February 28, to which I assume you refer,
or of the subsequent meeting of March 2, 1921. (No stenographer was present at
the meeting of February 26, 1921, as you will remember.) An-examination of the
records of tne meetings of February 28 and March 2, 1921, shows conclusively and
beyond any question that each other member of the Federal Reserve Board present
stated that no transcript of the stenographer’s report of the hearing should be made
lor any board member, former board member, or for any other purpose, and that
while I personally stated that you would be accorded the courtesy of an inspection
of the record in my office, another member of the board stated that it should not be
obligated even to that extent, that it should reserve the privilege of determining
therights of former membera with regard to the report whenever the question should
trbe. Any proper motive that you may have with respect to the stenographer’s
minutes of those meetings may be satisfied by the privilege of inspecting the records
inmyoffice, the same and only privilege that the present members of the board have
with respect to such records. That is the privilege that I advised you in my letter
of March 3, 1921, would be accorded you.
Inconclusion, the Federal Reserve Board feels constrained to say that your action in
distributing privately copies of certain of your official letters addressed to me as gov
ernor of the Federal Reserve Board involved in this correspondence and in subse
quently refusing to give to the board the names of the persons to whom you pent
such letters concerning credit matters of the most confidential nature, convinces it
of the futility of discussing with you questions of “ honor and fair play,” a subject
referred to in your letter of March 26, 1921.
Respectfully,
W. P. G. H ardixo, Governor.
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Mr. W i l l i a m s . Mr. Chairman, I should like to have the privilege
of making a few comments upon the letter which has just been read
by Gov. Harding.
Representative M i l l s . M r. Chairman, I understand that Gov.
Strong desires the same privilege that was granted to Gov. Harding
to read a communication in answer to specific charges made against
the present management of the Federal reserve bank.
Tne C h a ir m a n . At this time?
Mr. S t r o n g . I b e g your pardon?
The C h a ir m a n . Do"you want to read a letter at this time ?
Mr. S t r o n g . Mr. Chairman, I think in view of the character of
the correspondence which Mr. Williams has read that it is desirable
that replies to some of those letters should be read. Only one letter
has been written by me on the subject of this correspondence, and I
think it covers all of it. I would ask the privilege of reading it, if
the committee could spare the time.
The C h a ir m a n . Without objection Mr. Strong may read the letter,
so we may have the correspondence all in one place.
Mr. W i l l i a m s . Mr. Chairman, may I state that I know nothing
about the letter that is to be read myself. I don’t know to whom it
is addressed or to whom it refers.
The C h a ir m a n . May I ask. Gov. Strong, whether you know if this
lettdi- was brought to the attention of Mr. Williams in any way?
Mr. S t r o n g . I don’t know whether it has been brought to the
attention of Mr. Williams, Mr. Chairman.
Gov. H a r d i n g . Isn’t that the letter that was sent to the Comp
troller of the Currency ?
M r. S t r o n g . Y e s.
Representative T e n E y c k .
May I ask whether there was any
letter written before the letter that this one is a reply to ?
, The C h a ir m a n . This, I understand it, is a reply written by Gov.
Strong to an inquiry made by Gov. Ilarding.
Mr. S t r o n g . That is right, sir.
The C h a ir m a n . Regarding some of the letters which Mr. Williams
has presented, the reason for reading it now, as I understand it, is
that it is contemporaneous with the time of these other letters.
Representative Ten E y c k . I am not questioning the reading of
the letter. The only question I have to raise is whether we are
bringing out information from an outside source now that has not
been brought up by the testimony that we have already heard.
Mr. S t r o n g . It relates entirely to that, Congressman.
Representative S umners. Is your letter with reference to the same
subject matter which has been presented to the commission ?
Mr. S t r o n g . Entirely; yes.
Mr. W i l l i a m s . Gentlemen, as I have stated just now, I know
nothing about the letter that is to be introduced. I don’t know
whether it has ever been mentioned to me directly or indirectly.
Gov. H a r d i n g . Mr. Chairman, I will state that it is the very letter
that he expressed a desire to have a copy of.
Mr. W i l l i a m s . When did I express a desire to have a copy of it ?
Gov. H a r d i n g . In your letter of March 26 you said you should
like to see it. You say in your letter:
Has Gov. Strong ever sent to the board the information I urged him at the meeting o f
February 26 to produce, aa to what proportion of the acceptances transferred by the
KewYork reserve bank to other reserve banks in 1920were primarilyforthe accommo
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dation of the New York bank? I should like to see it. There is no reason why this
information should be kept secret.
Mr. W i l l i a m s . That is the letter which contains information
which you declined to give me details of ?
Gov. H a r d i n g . That is the very letter that you expressed a desire
to see.
Representative T e n E y c k . I think if this letter in question was
referred to by the witness who is on the stand now, it is pertinent to
go in the record.
The C h a ir m a n . It has been referred to, and as I understand the
correspondence, Mr. Williams expressed a desire to see this particular
letter.
Mr. W i l l i a m s . Mr. Chairman, I think we had better have this
record straight on that point. I think it would be well to read my
letter. Gov. Harding has stated that I made some reference to some
letter from Gov. Strong. I should like to read my letter in which I
made the inquiry, if it is the one to which he refers.
Gov. H a r d i n g . Mr. Chairman, Mr. Williams in his letter of March
26,192 1, inquired whether Gov. Strong has ever sent to the board ‘ ‘ the
information I urged him at the meeting of February 26 to produce,
as to what proportion of the acceptances transferred by the New
York reserve bank to other reserve banks in 1920, were primarily for
the accommodation of the New York bank. I should like to see it.
There is no reason why this information should be kept secret.”
Mr. W i l l i a m s . I should be very glad to see the letter, Mr. Chair
man, and as far as I am concerned. I nave no objection to it.
Representative T e n E y c k . The only reason I brought the matter
up, Mr. Chairman, was that I did not want to have new subjects
brought into the discussion.
The C h a ir m a n . I understand this has relation entirely to the
matters which have been discussed by Mr. Williams in the letters
which he has read.
Mr. S t r o n g . Entirely, yes.
The C h a ir m a n . Without objection Mr. Strong’s letter may be read
into the record at this place. The Chair hears no objection. You
may proceed, Gov. Strong.
STATEMENT OF HON. BENJAMIN STRONG, GOVERNOR OF
FEDEBAL RESERVE BANK OF NEW YOBK.
Mr. S t r o n g . The letter is dated March 16,1921, addressed t o Gov.
Harding o f the Federal Reserve Board. [Reading:]
D e a r Gov. H a r d i n g : The Federal reserve bank of New York begs to submit here
with, in accordance with the verbal request of the governor of the Federal Reserve
Board to Gov. Strong, certain facts and comments with reference to the matters dis
cussed by the Comptroller of the Currency in his various letters tothe Federal Reserve
Board under dates of December 28, 1920, January 17, 1921, February 19, 1921, Feb
ruary 26, 1921, and February 28, 1921, but particularly with reference to his letter
dated February 26, 1921.
These various letters aggregate 51 cloeely typewritten pages, and contain, in almost
confusing detail, what seems to be the views of the Comptroller of the Currency upon
many unrelated dissociated matters. In the earlier letters of the comptroller there
are long discussions of his own views upon general economic and social conditions
in the United States, which, in his opinion, seem to prove “ that the welfare of the
countrycalls for the adoption of more liberal policies on the part of Federal reserve
Board and the Federal reserve banks.” He then argues from the many complaints
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AGRICULTURAL INQUIRY.
which he has received of the “ restrictions on credit,” that the Federal Reserve Board
should “ reduce the rate of interest which is being charged by Federal reserve
banks on the loans of member banks secured by Liberty bonds from the present rate*
of 6 per cent and 7 per cent to a uniform rate of, say, 4J per cent.” “ The present
emergency,” he says, “is so acute that I can not avoid tne conclusion that a more
liberal policy than is now being pursued would be justified. While there is a very
great scarcity of credit in various parts of the country, we find that the reserves of the
Federal reserve banks are now actually higher than they were a year ago.”
To support his contention that a more liberal policy is justified, he states that
“ these banks (Federal reserve banks) have an unused lending power at this time
(Dec. 28, 1920) without reducing the reserve requirements of about $700,000,000,”
and that by reducing reserve requirements bv onlv 10 per cent “ their lending power
could be increased to about S2,500,000,000.’’ The “ pitiful tales” which come to
him from national-bank examiners in different parts of the country are among the
reasons which prompted his recommendation of a more liberal policy on the part of
the Federal 'Reserve Board and the Federal reserve banks.
I n h is le tte r o f l)e « 'e m b e r 28, 1920, h e refers to th e fa ct that h e h a d g iv e n i n s t r u c
tion s “ th at so far as th e a u th o rity o f th is o ffice w ill p e rm it, th e b a n k s u n d er m y s u p e r
v is io n shall lie u rged to use in th ese c ritic a l tim e s e v e r y p rop er m ean s to p r e v e n t
th e se llin g o u t o£ h o n e st d e b to rs at s h e r if fs Bales a n d th e ru in o f th eir fa m ilie s l>v
e x te n d in g th e m tim e an d b y [jiv in g th em , w h e re v e r p ra ctic a b le , th o o p p o r t u n it y
to h o ld o n to th e ir farm s a n d th e ir fa rm in g im p le m e n ts, to th o tools o f th eir tra d e, o i t o
th o e q u ip m e n t o f th e ir business, w h a te v e r it is, an d th at these d eb to rs b e g i v e n a.
c h a n c e to r e c o u p a n d t o re d e e m th e ir in d e b te d n e s s a n d g e t again o n th eir fe e t .”
He
c o n tin u e s th a t “ th e m em lxtr banks, c a lle d o n to g iv e tim e a n d to sh ow c o n s id e r a t io n
to d e b to rs, w ill, n a tu ra lly , d e m a n d an d e x p e c t from th e reserve b a n k s c o n s id e r a tio n
a n d forbea ra n ce, a n d , in th e lan gu age o f th e p o e t, c a n p ro p e r ly sa y to th eir r e s e r v e
ba n ks ‘ T h e m e rc y I to others sh ow , th at m e rc y sh o w to m e .’ ”
H e a d d s th at “ s u c h
fa cts a n d c o n d itio n s * * * d e m a n d d e fin ite a n d en e rg e tic a c tio n e v e n if p r e c e
d e n ts m u st b e d isreg a rd ed , a c c e p t e d rules su sp e n d e d or w a iv e d , a n d n e w p la n s a n d
m e th o d s d e v is e d .”
These matters are referred to in some detail in order to illustrate the general frame
of mind in which the Comptroller of the Currency began his correspondence with the
Federal Reserve Board—a plea to that board foi a*liberalization of its discount policies
which, in his opinion, was demanded in order further to remove the restrictions on
credit, and thereby to save the people of the country from disaster and ruin which
would result from the allied “ restriction on credit.”
Subsequent to this original issue and throughout his various letters to the board, he
compares the discount policy of the Federal reserve bank of New York with that of
the Federal reserve banks in other sections of the country, not by any comparison of
the respective needs and resources of those different parts of the country, but by a
comparison of absolute figures entirely unrelated to the respective lending powers of
the Federal reserve banks which he undertakes to compare. He calls attention, for
instance, to the fact that about the middle of November, 1920, one bank in New York
had borrowed over $134,000,000 from the Federal reserve bank of New York, while,
at the same time, the Federal reserve bank of Kansas City was advancing to 1,091
member banks in its district about $20,000,000 less than this one bank in New York
was obtaining from the Federal reserve bank of New York, lie also refers to the fact
that another banking institution in New York was borrowing at the same time about
$40,000,000 more than the aggregate which the Federal reserve bank of Minneapolis
was lending to its 1,000 members in the great States of Minnesota, North and South
Dakota, Montana and part of Wisconsin.
He continues to cite several instances in which single institutions in New York
were obtaining sums larger than groups of member banks in other sections of the
country were receiving from their respective Federal reserve banks, and then states,
by wav of recapitulation, that ‘ ‘ the official figures tell us that four banking institutions
in New York City at the time of the last call were borrowing from the reserve system
an average of over $118 000 000 each, or practically as much money as the Federal
reserve banks of St. Louis, Kansas City, Minneapolis, Dallas and Richmond, all com
bined, were lending to the more than 4,000 member banks in 21 States of the Unicn,
comprising more than one-half of the entire area of the United States.”
I apologize for calling upon the committee to hear this once more.
(Continuing reading:)
In making all of these comparisons, however, the comptroller refers’ to absolute
figures and refrains from stating what proportion of its own assets were being loaned
by the Federal reserve bank of New York as compared with the proportion being
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loaned by the Federal reserve banks in the interior ol the rountrv. Those are ques
tions which are fully covered in convincing force by the Federal Reserve Board in
its letter of January' 13, 1921, addressed to the comptroller, in reply to his letter of
December 28. 1920.
In that letter the board states, among other things, that while the five largeet bor
rowers in New York City, so frequently referred to by the Comptroller of the Cur
rency as borrowing huge sums from the Federal reserve bank of New York, had
borrowed actually only 142 per cent of their basic line on November 15, 1920, the
period referred to by the Comptroller of the Currency, nevertheless, all member
ranks fnot merely the five largest borrowers as in the case of the New York district)
in the Richmond district had borrowed 121 per cent of their ba^ic line, in the Atlanta
district 211 per cent, in the St. Louis district 117 per cent, in the Minneapolis dis
trict 126 per cent, in the Kansas City district 115 per cent, in the Dallas district 110
percent. At the same time the five largest borrowers in the Richmond district were
rediscounting 271 per cent of their basic line, the five largest borrowers in the Atlanta
district were rediscounting 327 per cent, in the St. Louis district 152 per cent, in the
Minneapolis district 263 per cent, in the Kansas City district 196 per cent, and in
the Dallas district 167 per cent. In other words, the five largest borrowers in each
of those districts located in that part of the country in which the Comptroller of the
Currency states conditions to be so alarming were’ borrowing relatively much more
than the five largest borrowers of the New York federal reserve bank, which the
Comptroller of the Currency cites as being profligate in the granting of credits. The
comptroller has consciously endeavored to create the impression that the large city
banksin New York were being granted credit by the Federal reserve bank of New
York in amounts out of all proportion to credits granted in the interior of the coun
try, while he should have, and must have known, that these sums, though larger in
absolute figures were* relatively much smaller than the amounts being borrowed by
the larger banks in these interior districts. The impression which he has tried to
convey is one that he, because of his official position and because of his familiarity
with the statistics concerned, must know to be absolutely false and misleading.
Mr. W i l l i a m s . That statement of yours is false, Gov. Strong. If
you make that deliberately it is a falsehood, sir.
Mr. S t r o n g . Mr. Chairman-----Mr. W i l l i a m s . Mr. Chairman, I ask you to require the witness to
keep within the bounds of courtesy and decency.
The C h a ir m a n . I suggest that if there is any objection to anything
that is being read it is proper to address the chair and object to it. In
view of several things tnat have already appeared in the record, I
doubt if there is anything to criticize in what nas just been read.
Mr. W i l l i a m s . Well, I denounce it as a deliberate falsehood on the
part of Gov. Strong.
Mr. S t r o n g . Mr. Chairman, this interruption suggests the oppor
tunity that I might make a request of the committee, and that is,
if it is proper for me to ask it, that the Comptroller of the Currency
be required to make oath as to the correctness and accuracy of the
statements which he has made, whether he has stated the truth, the
whole truth, and nothing but the truth, and that shall include the
statements made in the various public statements and correspondence
and public addresses that he has submitted for this record. I shall
be very glad to do the same.
The C h a irm a n . Well, the Chair thinks that it is not feasible to
follow that policy at this stage of the game. The question arose once
with the commission, and it was determined that the witnesses would
not be put under oath, and that unless the commission itself deter
mines otherwise, the policy then determined upon will be the policy
of the commission.
Mr. S t r o n g (continuing reading):
The comptroller asks, ‘‘If our resen'e system has the funds to lend in such huge
*umato the banks in New York for such uses, is it not difficult to understand why
money should be so scarce in the interior, where the real wealth of the country is
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being so largely provided, and where money is so distressingly needed? ” In answer
to his own inquiry, he says that the money scarcity in the interior of the country has
been greatly aggravated, as I have already explained publicly, by the artificially fixed
interest rates in New York City, which have had the effect of withdrawing money
from legitimate business in various parts of the country to be loaned at fancy rates in
Wall Street. This allegation will be discussed later on in this letter, but it should
be stated now that the challenge that artificially high interest rates in New York City
have the effect of withdrawing money from legitimate business in various parts of the
country to be loaned at fancy rates in Wall Street, even if true, is one which might be
corrected by a Federal reserve bank only by granting further credit, not by restricting
existing credit, as the comptroller seems to imply that the Federal reserve bank of
New York should have done.
Even the comptroller must realize that this is not only inconsistent with the general
recommendations which he made to the Federal Reserve Board to reduce discount
rates and to liberalize credits, but also that it would tend to do the very thing he delores—increase interest rates in New York—City, for if the Federal Reserve Bank of
ew York should refuse to extend credits to those of its member banks which have the
largest resources and which are the heaviest borrowers from it, the scarcity of credit
available to the customers of those banks would of itself do more than anything else
to create a wild and possibly disastrous increase in interest rates.
In his letter of January 17, 1921, addressed to the board, the comptroller refers
again to the fact that interest rates of 20 per cent, 25 per cent, and 30 per cent charged
by member banks in New York City, to which the Federal reserve bank was lending,
"were wholly indefensible.’’ But even if it could be admitted that the rare in
stances which the Comptroller of the Currency has quoted indicate that the general
level of interest rates in New York has ever been at such figures as those which he
quotes, nevertheless, the only possible action which could be taken by the Federal
reserve bank of New York, and the only action which the comptroller has rather
vaguely suggested that it should have taken, is a restriction of credit to those very
banks whose shortage of lending power has made such rates possible.
All of these allegations of excessive interest charges, excessive loans to officers, and
other evidencesof mismanagement onthe partof certain NewYork City banks towhich
the Federal reserve bank ofNew York is lending credit are obviously intended by the
comptroller to indicate that the Federal reserve bank of New York, contrary to the
very liberal policy upon which the comptroller himself has predicated his whole
correspondence with the Federal Reserve Board, should have restricted its loans.
But the comptroller knowB, or should know, that such abuses on the part of national
banks, if existing, come solely within his juiisdiction as Comptroller of the Currency,
as chief of that bureau of the Government which is charged with the execution of the
supervisory laws governing the operations of national banks. It hardly seems possible
that any governmental official who has been connected with the Federal Reserve
Board for die period that Mr. Williams has should suggest, not directly, for he has
never made a direct suggestion to that effect, but inferentially, that the Federal
reserve bunk of New York should correct the details of the management or misman
agement of its member banks by a drastic policy of shutting off credit when, as be
well knows, that action might precipitate the veiy “crash” which he, in his letter of
February 19, alleges that the member banks, charging excessive rates of interest,
“did so much to precipitate.”
Furthermore, it can not be believed that one so jealous of his prerogatives as Comp
troller of the Currency and of the exercise of the powers in that field over which Be
has had jurisdiction, can seriously mean that abuses over which he alone has had
jurisdiction should be controlled or directed by means of an arbitrary shutting off of
credit by the Federal'reserve bank. Such a policy could only endanger the depositors
of the institution to which credit was refused as well as the entire financial community
without necessarily having the corrective influence which it intended.
Reverting now in particular to the comptroller’s letter to Gov. Harding, dated
February 26, 1921, it appears, as we hope to show, that the criticisms alleged in that
letter are due to his ignorance of the operations of the Federal reserve banks and of
banks generally, and that his inaccuracies and inaccurate conclusions likewise arise
fromsuch ignorance, all of which could have been readily corrected had the comptrol
ler informed himself by inquiry either of the Federal Reserve Board or of the officers
of this bank.
Without attempting to deal with inaccuracies which are manifestly unimportant,
the board’sattention is respectfully directed to the followingspecific points:
' The comptroller states:
“You called attention to the following paragraph on page 8 of the letter:
“ ‘In addition to drawing funds to New York City fromother sections by the allure
ment of high interest rates and otherwise, let me remind you that at times during the
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past year, in fact almost continuously through the year, the New York Federal reserve
bank has gotten from other parts of the country bv rediscounting its bills and accept
ances considerable sums of money from nearly all the other Federal reserve banks,
including amongothers, the reserve banks of Dallas, Kansas City, Richmond, Atlanta,
and San Francisco, as well as the nearby reserve banks.'”
You are aware that the Federal reserve bank of New York occupies no different
position to the other Federal reserve banks than does a commercial bank to other
members of a clearing house association. The Federal reserve bank of New York,
through the gold settlement fund, is every day effecting settlements of balances with
all of the other reserve banks arising from transfers of Government balances, from the
sales or repayments of certificates of indebtedness, collection of income, and other
taxes, payment of Government disbursements, including interest on the public dfebt,
likewise those arising from the collection system operated for the member banks, and
fromthe constant flow of deposits back and forth between the different sections of the
country.
Had the comptroller understood the operations of the Federal reserve system, tio
would have realized that the sales of acceptances to which this paragraph of his letter
referred were not “ luring funds to New York by high interest rates,” (which rates in
one place he criticizes as ‘ ‘artificial ”) but these transactions in fact were necessitated
by the almost constant withdrawal of funds from New York to other sections of the
country, which movement has characterized the banking situation for the past year
or more. These withdrawals of funds from New York result in heavy withdrawals of
thegold reserves of the Federal reserve bank of New York through the gold settlement
fund to other reserve banks, and sales of acceptances to other reserve banks when
mide at the instance of this bank are for the purpose of offsetting these withdrawals
ofitsgold reserve. The deposit withdrawals are exhibited particularly in the deposits
of the New York cleraing-nouse banks which, in January, 1920, were $5,372,000,000,
and at the present time are $4,297,000,000. Our investigations indicate that not only
are deposits being withdrawn from New York for use in the interior of the country,
but that the New York banks are being called upon to make large loans through the
United States to industrial and commercial concerns, as well as to the railroads and
the interior banks, the last mentioned we are told are frequently made in order to
enable those interior banks to repay what they owe to their local reserve banks.
The comptroller’s letter includes a tabulation of bills rediscounted and acceptances
«o!d by the New York reserve bank to other reserve banks, by weeks, for the period
fromJanuary 2, 1920, to January 21,1921, inclusive, this being cited as evidence that
this bank has been a continuous borrower from the other reserve banks during that
period. The comptroller waB obviously ignorant of the facts which could readily
have been ascertained by him had he made inquiry either of the Federal Reserve
Board or this bank. As you know, it has been the practice of the Federal reserve
bank of New York to purchase acceptances for other reserve banks which had funds
to invest practically ever since the Federal reserve system was established. The
greaterpart of all bills sold to other reserve banks comprises, in fact, purchases of that
character, rather than sales of bills made on our own initiative in order to improve our
reserve position. The official figures of the bank disclose that between the period
January 2, 1920, and February 11, 1921, this bank purchased and allotted to other
Federal reserve banks, at their request, a total sum of $883,678,000 of bankers’ accept
ances. such purchases occurring practically every week throughout the entire period
Within that same period of 50 weeks, there were only 12 weeks when this bank had
occasionto sell bills to other reserve banks for the purpose of improving its own reserve
position, the total of such sales aggregating $137,664,000. In other words, less than
one-aeventh of the bills listed in the comptroller’s letter were sold for the purpose of
correcting our reserve position, all of the balance being sold upon orders from other
reserve banks at their request.
Butthe comptroller’s statements are misleading, inaccurate, and evidence ignorance
not only in whit they include but in whit they omit to include. During this same
period the Federal reserve bank of New York had occasion to rediscount commercial
paper or notes secured by Government obligations with other reserve banks for the
purpose of improving its reserve position to an aggregate amount of $375,000,000,
whereas the other reserve banks rediscounted such paper with us during this period
for the purpose of improving their reserve position for an aggregate amount of
$478,630,000.
The comptroller emphasizes in his letter that during this period the Federal reserve
bank of New York was continuously borrowing from other reserve banks. There is
inclosedwith this a chart showing the periods during which this bank was indebted
<oother reserve banks for money borrowed and acceptances discounted (as distin91341— 22 —
vol
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guishcd frompurchased on order) and the periods during which the other reservebanks
were indebted to us for money borrowed here. In this connection it should be pointed
out that very much of the credit pressure that has been exerted upon the commercial
banks and trust companies in this city, and in turn uponthis bank, during the pastyear
or more, has resulted because of movements deliberately undertaken and promoted
in various pirts of the country to withhold produce from the markets, and later, when
the inevitable period of liquidation arrived, as in the latter part of last year, because
of the fact that borrowers in all sections of the country, including even the commercial
banks themselves, have been forced to withdraw funds from New York and to borrow
money in Ne.v York in order to carry commodities which then became unmarketable
without serious loss to the owner.
Representative F u n k . What do you mean by that ? Who de
liberately withheld produce from the market ?
Mr. S t r o n g . That is a large subject, sir. Do you wish me to go
into it now ?
Representative F unk. Well, I would like to have your views on
that. You have made a very emphatic statement.
Mr. S t r o n g . I would be very glad to go into it. Do you wish me
to do so now ? I would like to continue to read the letter, if I might,
sir.
Representative F u n k . Very well, if you will mark the passage and
take it up later.
Mr. S t r o n g I will do so. [Continuing reading:]
When I appeared before the Federal Reserve Board on February 26 to discuss the
allegations contained in the various letters of the comptroller, I stated, and the mem
bers of the board confirmed, that the principal amount of bankers’ acceptances in
cluded in the comptroller’s figures were those purchased upon orders received from
member banks. The comptroller’s subsequent statement that “ with the_knowledge
I happen to have of the situation I am not inclined to give very great weight to that
theory ’’ is merely another evidence of his desire to make the facts conform to precon
ceived conclusions without a proper consideration of the facts themselves.
Referring to the reports of examination of a certain national bank in New York
City, the comptroller makes the followingstatement:
“ Gov. Strong impressed me as particularly unhappy over what he construed, per
haps very properly, as an implication in my letters to you, that the reserve bank of
New York naa not kept itself properly informed as to the condition and operation of
certain member banks in the New York district to which it had been particularly
liberal, if not prodigal, in granting loans, or if it was informed, had perhaips not acted
with the wisdon and discretion expected of it: The senior officer of this particular
member bank to which the New York reserve bank was dispensing funds bo lavishly,
has admitted to this office, as the record shows, and as you were promptly advised
when this statement was made, that this same bank had itself been granting loans,
as he expressed it ‘with reckless prodigality.’ In discussing the use which this same
bank made of the funds which they had borrowed fromthe reserve bank, Gov. Strong’s
aim seemed to be to evade all responsibility so far as the reserve bank was concerned,
apparently seeking to justify his evasion with the assertion that the chief national
bank examiner di'u not give him notice of the conditions which existed in that bank.
The chief examiner of tne New York district has furnished me a memorandum as to
the extent to which the Federal reserve bank of New York was placed on notice as
to conditions in the bank referred to at the time of the examination in October, 1919.
Supplementary to my letter to you of January 12, 1921, on this same subject, I ask
your attention to the memorandum furnished by this examiner.
The facts in respect to the examination referred to are as follows:
An examination of the bank in question was made by the department as of October
3, 1919. The report of that examination was filed with this bank several weeks later.
The next report of examination was made as of August 27, 1920, or nearly 11 months
later. The facts disclosed by the last examination were brought to the attention of
the Federal Reserve Board in a letter written by the comptroller on December 28,
1920, and the report of that examination was filed with the Federal reserve bank on
January 7, 1921, or four months after it was started.
The report of October 3, 1919, was examined by Mr. Jay and Mr. Case, when it was
filed. At the end of that report was included a schedule under which the examiner
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is^reciuired to “list all items of criticism.” Under this heading the following are
*‘ 1. Exceu loam.—Unintentioned and promptly reduced.
“2. Deficient reserve.—Temporary and promptly made good.
“3. Eitimated lots.—Promptly charged off.
“4. Bonds borrowed.—Exceed limit section 5207; used as collateral. Officers claim
lo cany Liberty loans.
“5. Loans on own stock.—Loans to clerks to buy stock which is held by----------Securities Co.
“6. Real estate loans.—Including $100,000 acceptances.
'*7. Excessive interest charged.—Some loans at 8 and 9 per cent.”
The report likewise contains a recapitulation of estimated losses, which includes
$1,884,000 of loans as slow, $1,037,000 of loans as doubtful, with a probable loss, but
the amount not estimated, and a total of estimated losses or bad debts of $1,000,000,
which it is noted was charged off at the close of the examination.
I am referring to the report of 1919.
[Continuing reading:]
The examiner credits the bank with a capital of $10,000,000, surplus of $10,000,000,
undivided profits of $10,363,000, reserve for depreciation of $1,000,000, reserve for
taxes$2,818,000, and states that thesecurities owned by the bank have amarket value
which is $3,690,000 in excess of the book value. On page 3 of the report, under the
caption “ State general character of loans,” the examiner replies “ Good—exceptions
noted.” As to whether loans appear to be well distributed, the examiner says,
“Generally well distributed; two excessive; larger lines listed.’^ In reply to the
question “ State reason, if any, why bank should not declare a dividend at end of
current dividend period, and whether last dividend was legal,” he replied, “ No
reasonwhy dividends may not be declared; last dividend legal.” The facts as to this
reportwerefully reported to you by Mr. Jayin his letter of February 16,1921, at which
timehe did not have access to the so-called ‘ ‘yellow sheets,’ ’ containing tbe confiden
tialreport made by the examiner to the comptroller, which ie not filed with this bank
unless reasons arise to call for it. Since then the writer has seen that confidential
reportsand finds in the copy furnished him that it discloses no reason for questioning
the condition of the bank, but indeed confirms the conclusion in the general report
that the bank’s condition was not unsound. In reply toinquiry as to whether the
bankis solvent, it says that it is. Replying to the inquiry as to the character of the
management, the report says “safe.”
It now appears that when the comptroller’s examiners made the August, 1920,
examination of the bank, conditions were disclosed which were not regarded as satis
factory.
I will now take the liberty of omitting three lines which I believe
it would be unwise to read. And I think the comptroller will agree
vith me. I will show it to him. [Continuing reading:]
Thisis the report which was filed with us January 7,1921.
It also appears that the comptroller now contends that what was contained in the
Wjwrt of October 3 constituted a sufficient notice to the Federal reserve bank of con
ditionsin the bank in question to justify us, or require us, to discontinue extending
credit to that bank. Another examination of the report of October 3 confirms the
beliefof the officers, entertained at the time when it was filed, that it gave no notice
ofanyunusual conditions in the bank justifying such an extraordinary policy as that
■uggeeted by the comptroller. But even if the condition of the bank bad been dis
closed to be unsatisfactory by the report of October 3, we reiterate that the evils of
mismanagement which might have caused those conditions should be corrected, not
by the Federal reserve bank, nor by the Federal Reserve Board, but by the Comp
trollerof die Currency. In fact, if a Federal reserve bank were to attempt to correct
the internal management of any mismanaged member bank by declining to make
furtherloans, the result would be an aggravation, rather than a mitigation, of the dan
gers caused by that mismanagement, with possible disaster to innocent depositors
andcreditors.
Thecomptroller seems to feel that in some way he may avoid some part of the re
sponsibility imposed upon him by law by sharing it with this bank. The facts are
thatwehave never assumed any part of the responsibility that rests by law upon the
comptroller. He is charged with the examination of national banks and supervision
ofbanting. For a long time, when the reserve banks were first organized, he declined
tofurnishus with the reports of examination, and it was only after considerable delay
*nd the most urgent representations by the governors of the reserve banks that he
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finally consented to furnish them, and even then under conditions which withheld
certain confidential information which was only made available to us upon request,
and by calling at the office of the examiner.
The comptroller here again displays ignorance of the operations of the Federal re
serve system and its relations with its members. His complaints are based uponthe
assumption that when a Federal reserve bank makes a loan to a member bank, the
proceeds of that particular loan may be traced to some particular application by the
borrowing member bank, which is, of course, not the fact. Member banks, par
ticularly the large ones in New-York City, every day have a great variety of trans
actions, making loans and having loans repaid, purchasing and selling foreign ex
change, and possibly securities, receiving and paying deposits. The net result of a
great variety of transactions is either a surplus reserve on deposit with us, or a de
ficiency in that reserve. In the former case they reduce their loans with us. In ti e
latter case they increase them.
In order to ascertain the particular application made of funds borrowed from the
reserve bank by member banks, it would be necessary for us to have representatives
continuously in every borrowing bank—a wholly impracticable suggestion, implying,
as it does, that the daily business of a member bank should be conducted either by
a Federal reserve bank or, possibly, according to the comptroller’s view, by the
Comptroller of the Currency. We believe that the responsibility for the conduct of
the business of the member banks rests with the directors and officers of those banks;
that the responsibility for the supervision of those banks, for seeing that their business
is in a safe condition and that it is conducted according to law, rests with the
Comptroller of the Currency; that the function of the reserve bank is to supply these
banks with credit; that we should do so in the form of loans which are authorized by
the Federal reserve act and which will be repaid because they are good; and that the
extension of credit to member banks shall be conducted fairly with due regard to
the necessities of all member banks in the district.
In general the volume of credit extended, in our view, is regulated principally by
the rate charged . The situation developed by the war, as well as the particular cir
cumstances as to certain banks, have, and possibly always will necessitate, the
officers of this bank making inquiry of banks which appear to be borrowing undue
amounts, and, where justified, in restraining them from calling upon us too heavily.
This we have always done since the borrowings of member banks have become so
large. For the last two years or more regular meetings have been held at the bank,
to which officers of member banks from all over the district are invited, when these
matters are discussed and the views of the officers of the bank carefully explained.
In addition to these regular meetings, the Federal reserve bank has a staff of em
ployees whose sole duty it is to visit different member banks throughout the district
m an effort to discuss and explain the scope and purpose of the various functions of
the Federal reserve system. In the case of the banks in New York City, they are
questioned personally, and it has frequently been thought advisable for reasons of
general policy to ask them to reduce their aggregate borrowings. Action of that
character by the officers of this bank, however, has never been regarded as bank
supervision such as would relieve the Comptroller of the Currency of his responsibility
for the condition of member banks, and has never been intended as a corrective
influence over the management of the detailed operations of these banks. As the
comptroller well knows, when it has been discovered either by us or by his exam
iners that banks have gotten into a dangerous condition, we have tried by every
means in our power to correct the conditions, not by restricting credit that might
force a bank failure, but by such loans as we believe necessary to save the bank from
failure. In no case have we failed of doing so.
I also wish to call the board’s attention to the fact that exercise of the supervision
which the comptroller apparently regards as a part of our duty would be a most un
wholesome and unjustified method of administering the affairs of this bank. At
the present time all national banks are examined by national bank examiners, all
State banks are examined by State examiners, and all of these institutions in New
York City of both classes, which are members of the New York Clearing House Asso
ciation—being practically all of the important banks and trust companies—are like
wise examinod by_ the examiners of the New York Clearing House Association. To
exercise the detailed supervision of these banks which the comptroller considers
to be our function, would involve still a third examination, which, in the case of
the larger institutions, would mean that for a very large part of the time their busi
ness would be subjected to the expense and inconvenience of almost continuous
examination. Furthermore, we would have no occasion to deal with those banks
which were not borrowers, or not borrowing enough to justify inquiry, but which
might happen, by bad management or otherwise, to get into a dangerous condition.
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Referring again to the case of the particular national bank in question, the board’s
attention is directed to the fact that the law requires the Comptroller of the Currency
to make two examinations every year of every national bank. He claims that the
report of October 3 informed us of conditions in that bank which required us at least
to inquire as to whether further credit could properly be extended. If the condi
tions disclosed by the report of October 3 were of such a character, then, indeed, the
duty rested upon the Comptroller of the Currency to make another examination in
the spring of 1920, as required by law, and he did not do so until the end of August,
1920. Indeed, were the conditions so serious as he implies, it would seom to have
been his duty to put thj bank on the special list for special examinations in addi
tion to those_regularly required by law, whereas he did not even make those which
the lawrequired him to make.
The facts are that nothing in the report of October 3 justified any special caution
in dealing with the bank in question and the comptroller himself must have known
that because so recently as January of this year he had disclosed the conditions verb
ally to one of the officers of this bank, especially cautioning him that he must treat
the information as confidential and not disclose it to his associates in the Federal
reserve bank because he wished it to be brought to the bank’s attention through the
Federal Reserve Board. Had he believed that the report of October 3 had already
put us upon notice as to those conditions, there would have been no occasion for his
cautioning the officerof this hank that he should not mention it to his own associates.
I shall not refer to the memorandum furnished to the comptroller by the chief
examiner of this district, quoted on page 4 of the comptroller s letter of February
28,1921. The items therein listed as being criticized for one reasou or another we fail
to find, upon au examination of the statement, to be of a character such as to justify
our conclusion that the bank was in an unsound condition, and if that was the case
it was manifestly the duty of the comptroller himself to correct the practices which
resulted in those loans anil to have promptly brought that specially to the attention
of the Federal Reserve Board.
On page 5 the comptroller implies that the increase in the borrowings from the
Federal reserve bank during the year 1920 was in itself sufficient notice of conditions
inthe bank to justify our being on notice of the conditions about which he complains.
The comptroller obviously is ignorant of or overlooks the fact that the great increase
inloans in the New York banks during that period were originally due to the placing
of the Victory loan in the spring of 1919, as well as to continuous heavy borrowings
upon certificates of indebtedness by the United States Government.
The comptroller fails to state in connection with the borrowings of the bank in
question that at the time of the examination the bank owned $112,729,000 of United
States Government securities, all but $1,170,000 of which were war loans, and that
$40,000,000 of the $48,312,000 of borrowings to which he refers were made for the
purpose of carrying these bonds. He also failed to state in the third paragraph on
page 5 of his letter that the loans to the chief executive officers of the bank and to
theirimmediate families, and to the securities company allied with the bank, while
aggregating a-sum more than twice the aggregate of all loans which this bank was
makingas of November 15,1920, to all of its national bank correspondents throughout
thecountry, were, in point of fact, of this character: $15,299,000, all secured, of which
$13,443,000 were secured by Liberty bonds and Victory notes, the remaining
$1,856,000 being secured by other collateral not criticized by the examiner. Over
one-half of these loans were made to the securities company associated with the
bank, which relationshipis sanctioned by law. The board’s attention is also directed
to the fact that the loans to the executive officers of the bank were principally made
upon the security of Liberty bonds and Victory notes. Of the total of $4,439,833.22
of such loans reported, $4,118,000 are reported as secured in that way.
The comptroller’s letter states:
“Had the New York reserve bank, with its intimate knowledge of the steady in
creasesof this member bank’s borrowings from the reserve bank, brought the matter
to the attention of this office and suggested the advisability of an examination to get
at the character of the loans or investments which made necessary these heavy drafts
uponthe reserve bank, an examination would have been maile promptly.”
In general, the borrowings of the bank in question from this bank were upon the
secunty of Government bonds or certificates of indebtedness, and it was well under
stood by the officers of this bank, by the Federal Reserve Board, and by the public
generally, that the increased loans of national banks in that period were brought about
u the result of Government borrowings. Nothing in the relations of that bank to the
Federal reserve bank justified any other conclusion. On the other hand, the comp
troller himself had received a report from his examiner which he claims drew his
attention to unsatisfactory conditions. Had he obtained such material, it was
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obviously his duty to bring it to the attention of the Federal Reserve Board or to thic
bank. The facts are that tnere was nothing in the report of October 3 which justified
any suspicion of unsatisfactory conditions, and it is therefore believed that such con
ditions were not brought to the attention of the comptroller officially until the exam
ination of August 27, 1920. Even then no action was taken by him to bring themto
our attention until more than four months after the examination was started.
The comptroller on page 5 states:
"The records show that the member bank mentioned at the time of the August,
1920, examination, despite the warnings and admonitions of the Federal Reserve
Board as to the restriction of credit for nonessentials and for speculative purposes,
greatly increased their loans on highly speculative securities, such as the--------loans
and the loans (including the so-called dummy ’ loan) of over $5,000,000 to Director
--------, who, besides being a director in the-------- National Bank, was also at the
time of the 1919 examination a director in the--------Bank of New York, and its
eligible paper on hand November 16, 1920, as shown by this report of condition, a
copy of which was sent to the reserve bank of New York, was less than $34,000,000,
or scarcely 9 per cent of its deposits outstanding at that time.”
It would appear from this statement in the comptroller’s letter that he has relied
tor justification of his failure to examine this bank as required by lawupon the assump
tion of authority by the Federal reserve bank to make examinations of member banks
for the purpose of supervising their business and restricting credit granted to essen
tial and nonspeculative purposes, in a manner not contemplated by law. The officers
of this bank and of other reserve banks have frequently discussed these matters with
the Federal Reserve Board. We have never assumed to examine member banks
(the board is aware that we have not undertaken to and has not expected or required
us to do b o ) and have relied upon the examination made by the Comptroller of the
Currency and by State authorities. The disclosure of the conditions complained of
in the above quotation was not made in the report of examination of October 3 and
could not have been disclosed except by further examinations, which the comptroller
failed to make until August, 1920. He now seeks to escape his responsibility by
placing it upon us.
As to the last part of page 7, in which the comptroller states that confidential reports
of national-bank examinations in this district are available to us when desired, it is
a fact that upon application to his examiner’s office we are permitted to see them.
You will, however, realize that unless the confidential reports of the examinations of
all national banks are filed with us conditions revealed by such reports as to any
particular bank will not come to our attention unless something in the limited report
which is filed with us discloses such conditions. The Comptroller of the Currency
has always refused to place that information in our hands voluntarily, and since it
appears that his complaints in his letter of February 26, 1921, are baseid chiefly upon
tne report of the bank under consideration, as of October 3, we must deny that any
thing in that report placed upon us the responsibility to ask permission to see the con
fidential report. It should be said that even the examination of the confidential
report, which I made when in Washington last month, disclosed nothing to indicate
a condition in the bank under review which was dangerous.
I regret very much that the comptroller makes references in his letter to my attitude
at the meeting of the Federal Reserve Board on February 26, which might suggest
from what he writes that I was lacking in respect to the board. If, in any way that
is true, I now apologize. The statement of which the comptroller complains was
prompted by the fact that it was disclosed at that meeting that he had continued, in
violation of the direction of the board, to send copies of his letter of December 28,
1920, addressed to the board, and of a most confidential nature, to some pereon or
pereons outside of his office, and that he reserved the right to continue to do so. This
violation of propriety and evidence of his disloyalty to his associates prompted the
reply of which he complains in his letter. If responsibility is to be found for the con
sequences of impatient disregard for constituted authority, it would appear to rest
with the Comptroller of the Currency, who has sent copies of a letter relating to most
confidential matters outside of his office without the knowledge or authority of his
associates in the board.
I have before me a letter addressed to you by the Comptroller of the Currency
relating to a Stats institution which is a member of the Federal reserve system in this
city. Inquiries are being made for the purpose of ascertaining whether it is desirable
to communicate with the board in respect to that matter, and, if so, a separate letter
will be sent at a later date.
In conclusion, it appears to be evident that under the laws of the United States
the Comptroller of the Currency is charged with the full responsibility of the exam
ination of and supervision over national banks organized and operating under the
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termsof the national banking act. That responsibility rests upon him and him alone
andneither the Federal Reserve Board nor the Federal reserve banks are authorized
or expected in any way to infringe upon the duties and prerogatives of the office of
the Comptroller of the Currency. National banking institutions have repeatedly
beenheldtobe private corporations, organized by private individuals under tne terms
of Federal Statutes, and, while their constitutional justification is that they may be
usedfor the public purposes of the Treasury Department when required, nevertheless
thegreater majority of their powers are private powers, as distinguished from public
powers, which are exercised by each national bank as an individual corporation
owned bv private shareholders and managed by officers appointed by a board of di
rectors elected by those shareholders. It is not believed that even the office of the
Comptroller of the Currency should be expected to control the management of any
national bank in all of its details, but whenever the management of any of these asso
ciations violates the law in any of its practices, or is guilty of such mismanagement
that the interests of the public become endangered, the correction, if any, must.be
madeby the office of the Comptroller of the Currency, and not by the Federal reserve
bankof which the national bank is a member. That responsibility is imposed upon
the Comptroller of the Currency by law and is one which can not be assumed by a
Federal reserve bank, even if it were willing and anxious to undertake the taBk.
Finally, I desire earnestly to urge upon the Federal Reserve Board the importance
of an early determination by Congress as to whether—
1. The office of the Comptroller of the Currency shall be abolished or continued;
2. If it is abolished, whether these duties may not be performed by the Federal
Reserve Board;
3. If the office is not to be abolished, whether it may not be made subordinate to
the Federal Reserve Board; and
4. If not made subordinate to the Federal Reserve Board, whether the Federal
reserve banks should not have all information which becomes accessible to national
bankexaminers at once that the examination is made.
Very truly, youra,
B e n j. S t b o n o ,
Governor.
Hon. W. P. G. H a r d i n o ,
Governor Federal Reserve Board,
Washington, D . C.
STATEMENT OF JOHN SKELTON WILLIAMS— Continued.
The C h a ir m a n . All right, Mr. Williams.
Mr. W i l l i a m s . Mr. Chairman, I shall not comment upon that
letter at this time. If there is anything that seems to deserve con
sideration or attention from me I will take the liberty of communi
cating with you after having an opportunity of looking over the
letter, which I understand now goes into the record.
May I comment upon Gov. Harding's letter, which was read by
thegovemor a while ago?
The C h a ir m a n . I know of no reason why you should not comment
upon it.
Mr. W i l l i a m s . I mean to say, you are not proposing to adjourn as
yet?
The Chairman . No; I want to finish with you to-night if I can.
Representative Ten Eyck. Just one question. There is one thing
I would like to have Mr. Williams take up before he closes his testi
mony here. This morning he said he was going to make recommenda
tions in relation to some of the changes that might be beneficial and
assist the farming industry of the country, and I want to be sure that
that goes in before he closes his discussion. That is all.
Mr. W il li a m s . I have before me Gov. Harding’s letter to me of
April 4, 1921. In the second paragraph of his letter he says:
As the chief active executive officer of the Federal Reserve Board I acknowledge
yourletter addressed to me as governor only because of the necessity of placing a Hat
contradiction of its misstatements and half truths upon a record composed largely of
etterswith respect to which you have reserved complete freedom of action, etc.
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That is in the nature of a general denial, but it is not a denial of the
specific charges which I have made, or rather, it furnishes no proof
' ” ‘
'
' ' '
which is embodied in my corcharges and complaints, and a
;ctual.
On the second page of his letter, in the opening paragraph, he refers
to five letters which he had received from me from October 18, 1920,
to February 26, 1921, which he describes as “ long and confused
expressions of your views on various subjects.” I am quite prepared
to leave the character of those letters to the intelligence of tnis com
mission, and not to accept Gov. Harding’s views as to their style or
merits. He says:
They contained no definite program and, while charging the board with certain
responsibilities, made no specific recommendations except as noted herein.
They did contain a definite program, and the recommendations
speak for themselves.
He refers to some of the recommendations in the course of his letter.
His letter is obviously inaccurate in that respect, as will be shown by
the record.
I inserted at yesterday’s meeting a memorandum filed by me with
the reserve board as far back as August, 1920, and later again in
October, 1920, which not only made a specific suggestion looking to
the liberalizing of credits, but also urging a general revision of Federal
Reserve Board policies, and a letting up o f the policy of contract ion
from which the country had already suffered so much, and from which
it was in danger of suffering more if continued.
I am taking the liberty of commenting upon these passages for the
reason that I did not think it worth while at the time to make a
formal acknowledgment of this letter, but contented myself with
sending to Gov. Harding and to each member of the Federal Reserve
Board a copy of an address which I made in Washington about 10
days after the receipt of his letter, which I considered answered his
letter pretty effectually.
He also makes a general statement in the first paragraph of page 2
referring to my letters “ as a biased presentation of facts and fancies
which fully ignore the actual disposition which has been made of the
issues turner consideration.” Well, of course there is no evidence
to sustain that, and that charge is entirely and wholly unsupported.
He says in the next paragraph:
Certainly you, yourself, must be hilly aware that it is not true that the “ complaints”
you have made still “stand essentially unchallenged” or “ unanswered.”
My statement is not only true as of that time, but it is still true as of
this date. He has not succeeded in disproving a single statement
made by me in the series of letters addressed to nim and which have
gone into this record.
At the bottom of page 2 he again claims that I made no definite
recommendations. The record disproves that completely, and I will
not take up your time discussing his charge.
At the top of page 3 he claims that I made no motions tending to
an improvement o f conditions until February 25. My letter to him
of February 4, introduced into the record to-day, shows that such a
resolution offered by me on February 2 was voted down by the
board.
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He complains of my omission to attend board mootings more
regularly. I think the records will show that I attended an average
of from two to three meetings a week during the whole period that I
was Comptroller of the Currency and ex-officio a member of the
Federal Reserve Board; often more frequently.
In paragraph 3, on page 4, he says:
But even thisissue was so beclouded that it would have been difficult for the board
or for the Federal reserve bank of New York, even if they admitted the accuracy of all
of your statements (which they positively do not), to determine very clearly what
course ofaction you would have them pursue in the circumstances.
Well. I think that my recommendations were clear enough for a
man of average intelligence. I am sorry the governor did not
understand them.
He says further along:
In the case of the one particular member bank which is made the basis of most of
your chaiges, the report of the examination evidencing the facts upon which you base
those charges, was not delivered by you to the Federal reserve bank of New York until
January 7, 1921, some months after the examination was begun and after you had
written your letter of December 28, 1920, addressed to me.
I do not think it was quite fair for him to make it appear that I
failed to bring the facts of that case before the board until January
7, 1921. Gov. Harding himself knows perfectly well that I invited—
I may almost say I urged—him to attend a hearing with the executive
officers of that very bank about the middle of November, 1920, where
matters relating to their operation and conditions were being dis
cussed. He was unable to attend for some reason or other, at least
he did not attend, and I made it my business to inform him particu
larly in November of the progress of conditions with that institution
so as to keep him well informed. I regret that he should omit that
important fact.
He states that the information given him in regard to a particular
bank “ did not present any information calculated to put either the
Federal Reserve Board or the Federal reserve bank of New York upon
notice of the conditions which you now charge existed throughout the
year 1920.”
That statement of his is very conclusively and completely an
swered and disproved in the record. I also call attention to the fact
that the detailed page of criticisms which were omitted from the
record to-day, for obvious reasons, dealt conclusively with that aspect
of the case.
On page 5, the second paragraph, he says:
The Federal Reserve Board has maintained, and the Federal reserve bank of New
York has maintained, that it is not the duty of either the Federal Reserve Board or
the Federal reserve bank of New York to control the internal management or policies
of banks coming within the jurisdiction of the office of the Comptroller of tne Cur
rency by means of arbitrary restrictions of credit.
Now of course that is a pretty broad subject. My position is that
it is the duty of the Federal reserve banks to exercise a wise discern
ment and discrimination in extending huge loans to banks which are
misusing their funds or are engaged m heavy speculative operations,
or which are otherwise subject to criticism. I do not believe it is
the theory of the Federal reserve act that money should be handed
out to any member bank automatically as long as they furnish
eligible paper. I do not believe that it is the thought of Congress or
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of the people that any bank shall get as much money as it pleases as
long as it nands out so-called “ eligible” paper.
The C h a ir m a n . Well, is it your judgment that the policy adopted
and carried out by the Federal Reserve Board and bank of New York
was not wise and applied with proper discretion ?
Mr. W i l l i a m s . I think that the policies of the Federal reserve
bank of New York in this respect are not wise, as I understand them
to be set forth by Gov. Harding in his letter, and also in the Ion?
report of Gov. Strong to the Federal Reserve Board which was read
to-day. I understood from those reports which you all heard, that
the reserve bank of New York does not consider that it is a part of its
duty to keep itself informed in regard to the operations and conduct
of the business of its large member banks with a view to regulating
its advances and extensions of credit according to the member banks
operations and methods and general conditions.
The C h a ir m a n . I think we ought to clearly understand that
proposition. My understanding of the position taken in that letter
was that the Federal reserve bank of New York did not think that it
would be wise to undertake to regulate the management, the internal
management of the banks by restrictions of credit, not that it did not
think it was wise to keep itself informed as to the general operations of
the bank or the general character of its borrowings.
Mr. W i l u a m s . It is my view, taking a purely hypothetical case,
that if the Federal reserve bank has a large member bank whose
funds are being employed principally in wild speculations and in
excessive loans to particular interests, especially its own officers, the
reserve bank should be more guarded in extending credit to such
bank than it would to another bank doing a purely commercial com
mercial business and not engaged in huge speculations.
The C h a ir m a n . Do you think that there should be a stricter rule
of credit applied to a bank which loaned money for speculative pur
poses than is required of one that is engaged solely in commercial
transactions ?
Mr. W i l l i a m s . Absolutely, and it is my judgment that the theory
of the Federal reserve act is the upholding and promotion of com
mercial business of the country rather than speculation.
Representative S u m n e r s . Mr. Williams, what degree of inspection
and investigation do you think the Federal reserve bank should
exercise in order to ascertain the character of the activities of the
member banks ?
Mr. W i l l i a m s . That is a matter which calls for the exercise of a
sound discretion and wisdom and experience and ability on the part
of the supervising officers of the Federal reserve banks, and the same
kind of wisdom and discretion which is used and exercised by the
management of the most successful member banks. When an indi
vidual member bank, whether it be a national bank or a State bank,
finds some particular borrower or customer is running wild and is
engaged in all sorts of reckless speculations and disregarding the fun
damentals of prudence and discretion, why the member bank calls
that man down and limits its extension of credit to him. And I
think the same rule should be observed in the dealings between the
Federal reserve bank and the member bank, to a certain degree.
The C h a i r m a n . Are you familiar with the methods adopted by
the Federal reserve bank of New York to keep itself advised as to
the operations of member banks ?
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Mr. W i l l i a m s . Well, I can not say that I do know the extent to
which they keep themselves advised as to the condition of member
banks. I should judge that they did not keep themselves very well
advised as to the condition of some banks, because I would regret
to think that if they were advised as to how the money which thev
were handing out was used, they would continue to pass it out witn
such prodigality.
The C h a irm a n . Are you familiar with the methods which they
have adopted, or which they used in keeping themselves informed
as to the operations of the banks borrowing from them ?
Mr. W il li a m s . I am familiar with the internal condition of some
of the large banks to which they have made the largest loans.
The C h a irm a n . I wish you would answer the question. It is a
perfectly simple one. I am asking you if you were familiar with
the methods adopted by the Federal reserve bank of New York to
keep itself advised as to the condition and the practices of the banks
borrowing money from it 1
Mr. W i l l i a m s . I am advised as to some of the methods and devices
which are employed. One, I should say, is to have access to the
reports and examinations which are furnished to those banks by the
comptroller’s office. That is one primary and fundamental method
of being informed. Even though the comptroller’s office should
furnish to the reserve bank of New York only .one detailed report of
examination a year, that one report would give the bank a basis
upon which to make intelligent inquiries when any excessive loans are
asked for by that bank.
The C h a ir m a n . Are you under the impression that intelligent
inquiries were not made of the borrowing banks ?
Mr. W i l l i a m s . I should judge from the way in which credit has
been extended to some of the banks as to whose internal workings
I am advised, that the reserve bank did not inform itself, or if it did
inform itself, if it was advised, I think that it should not have granted
the huge credits which were passed out.
The C h a ir m a n . Y o u are basing that judgment entirely on the basis
of the loans granted, on your knowledge of the conditions of the
banks rather than your knowledge of tne method adopted by the
bank to keep itself informed.
Mr. W i l u a m s . Yes; I know partially the method, but I can not
say that I know all the methods that they employ to keep themselves
informed. I do not pretend to.
Shall I proceed, Mr. Chairman ?
The C h a ir m a n . It just occurred to me that in making the sort
of criticisms that you are making it might be wise to familiarize
yourself with the methods that are adopted by the Federal reserve
Dank.
Mr. W i l l i a m s . Well, I do not think that refers to the question
that I am discussing particularly. I say that under conditions which
I have pointed out, if the bank had been informed, I should have
expected them to have adopted a more conservative course.
The C h a ir m a n . Well, the whole question here is whether the
Federal reserve bank of New York, or elsewhere, should be guided
by a general policy, or by the character of the transactions of the
bank.
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Mr.
W illia m s . G o v .
Harding says, on page 5:
On January 6, 1921, at a personal conference in your office you showed a copy of
your letter of December 28, 1920, addressed to me, to an officer of the Federal reserve
bank of New York and in referring to the particular national bank under consideration,
you stated to him that you intended to recommend to Congress an amendment making
possible the rediscount of paper now held to be ineligible in order to permit of even
further extensions of credit that might be necessary to protect innocent depositors
and creditors of such banks as this particular one which you cited as an illustration
of the necessity of the amendment.
It is entirely true that I recommended to Congress and recom
mended to theFederal Reserve Board that there should be an amend
ment to the Federal reserve act which would make it possible for the
Federal reserve banks to extend credit to large banks or other banks ia
an emergency upon a class of paper which is not now eligible for redis
count with those banks. And I am still firmly of the same opinion
The C h a ir m a n . May I ask you there, whether the policy which
you suggested could be adopted by the Federal Reserve Board
without legislation ?
Mr. W i l l i a m s . N o ; it could not, without a violation of the law.
I am told that it has been passed around or suggested that the reserve
banks in emergency would disregard the law and lend on whatever
they pleased, or whatever they thought they would be justified in
lending on, to a bank in trouble, but I think it very much better to be
governed by the law and to lend in accordance with the provisions
of the law.
It has been suggested that that position is inconsistent with my
suggestion that there should be a discrimination in loans to banks.
There is no inconsistency. Even if a bank has been mismanaged
and has been allowed more money than it ought to have been given
by the Federal Reserve Board, and should get into trouble, I should
certainly be in favor of the reserve banks using every effort to prevent
disaster by lending the bank more money, u necessary, if they can
do so lawfully ana properly, but I think that by discrimination and
greater watchfulness these Danks can be prevented from getting into
tnat extended condition. And that is exactly what I have been
urging, that they should be so managed,, and that the Federal reserve
banks should pay them such attention as will make it unlikely that
they will get in that extended condition. It is well known that there
are many perfectly solid banks that would be unable to-resist a run
or to meet a run if they were dependent upon the rediscount of the
amount of the eligible paper they have. They have other paper
that is good but not eligible, and my thought is, and my recommenda
tion to Congress is based upon, the utilization in an emergency of
other securities which would enable a bank to stand a run.
The C h a ir m a n . Who would that emergency be determined by ?
Mr. W i l l i a m s . Who would the emergency be determined by ?
The C h a ir m a n . Who would that emergency be determined by,
and what standard would be used in determining it?
Mr. W i l l i a m s . I have made specific suggestions along those lines
in my report to Congress. I think that the Federal Reserve Board
might be given the right, the authority, in an emergency to make
paper not now eligible, eligible; to accept securities which can not
now be accepted as a basis for loans bv a reserve bank to a member
bank. In tne emergency of 1913, as Comptroller of the Currency it
became my duty to pass upon some three or four hundred millions of
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miscellaneous securities of all sorts which were deposited with various
currency associations as the security for the emergency currency
which was issued at that time. We accepted not only Government
bonds, but other securities, municipal bonds, first-class railroad bonds,
and many other securities which the Federal reserve banks have no
right to lend upon as the law now stands.
The C h a irm a n . Could this emergency, in your view, be declared
with respect to the affairs of the particular bank, or with respect to
the condition of the country as a whole?
Mr. W il li a m s . I think that the law should be amended. That is a
matter of detail, but I think it should be so general that the board
could authorize a Federal reserve bank to take advantage of it.
Gov. Harding further remarks in his letter:
The inference in your subsequent letters and finally your statement in your later
letterof March 26, 1921. that the Federal reserve bank of New York should or could
havecorrected details of the management of this bank or any other bank which might
hemakingexcessive loans to its officers, or which might be charging excessive rates of
interest, by refusing to extend further credit, were entirely inconsistent with your
own expressed ideis and with the ideas and convictions of all of those most familiar
withthescope and purposes of the Federal reserve act.
It is not at all inconsistent. It is entirely in accord. I would
try to prevent reckless expansion before the bank became strained,
andif the situation should Decome dangerous, if it were possible to do
so I would try to save it by lending it more money on proper security.
On page 6 Gov. Harding says:
Furthermore, the Comptroller of the Currency is charged with the responsibility
of the examination and supervision over national banks. That responsibility rests
uponhimand him alone.
Well, the comptroller has not the power to enforce methods and
policies which would, in my judgment, deal successfully with serious
situations which sometimes arise. I have made certain recommenda
tions to Congress in that connection. But the reserve bank to which
the member bank comes for loans has the power to say: “ Unless you
conduct your bank in a decent and lawful manner and on conserva
tive lines we will not lend you money. ” The comptroller has no
such authority as the board, and the board could exercise that
authority, in my judgment, in a very salutary way.
In the third paragraph on page 6 Gov. Harding says:
It is interesting to note in this connection that although you deny the power of the
Comptroller of the Currency under the law to prevent such loans as those under dis
cussion. nevertheless, you did take steps, subsequent to the last examination of the
bankin question, which it has been understood,were mosteffective in eliminating
fromthe assets of that bank most of the loans that were criticised and which have
beenresponsible for a rather drastic change in the policies of the bank.
Well, that was to a certain extent by moral suasion. The Federal
reserve bank itself has even greater power in certain contingencies.
Gov. Harding says, on page 7—ana I am nearly through the letter
now—in reference to my request for information in regard to the
proportion of acceptances which had been sold by the Federal reserve
bank of New York at th erequest of member banks:
I will, however, inform you, with reference to the one question which yoa now
Taiae—that is, With reference to the proportion of acceptances transferred by the
Federal reserve bank of New York to other Federal reserve banks for its own accom
modation—Qiat less than one-seventh of the transfers which you stated in one of your
lettersrepresented continued borrowings by the Federal reserve bank of New York
weresoldby it for its own accommodation.
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The information which I had hoped to elicit was not only the
proportion of acceptances which were sold to accommodatc the New
York bank, but also the amount of bills discounted as well. The
bills discounted presumably were all for the accommodation of the
Federal reserve bank of New York. But that information appar
ently has not been furnished.
The C h a ir m a n . I think that information was in th e letter read
by Gov. Strong.
Mr. W illiams. I do not understand that it is furnished separately
as to bills discounted and acceptances. If it is, I should be pleased
to see it in the record.
On page 7, again Gov. Harding says:
It appears, therefore, that contrary to your expressed belief the Federal Reserve
Board has positively not let yoar “ serious complaints touching board policies and
reserve.bank supervision and management stand essentially unchallenged. ” Every
recommendation which you have made to the board was formally acted upon by it
in authorized session.
The recommendations as to liberalizing credits and reducing inter
est rates were “ acted” upon eventually, it is true, but negatively,
they were turned down. I find no essential statement which I made
as to its accuracy, which can be challenged.
In the next to the last paragraph, on page 7, Gov. Harding says:
Before concluding, the Federal Reserve Board desires to refer to a few other state
ments in your letter of March 26,1921, which are not of very great moment, but which
can not pass unnoticed. It is denied that any of the members of the Federal Reserve
Board have ever stated with reference to Federal Reserve Board policies that it was
“ more important to be unanimous than right.”
Now he makes a technical denial of that language. My statement
was this, I did not say that a member of the board “ stated” that it
was “ more important to be unanimous than right.” My statement
was:
I have never been able to indorse or accept the doctrine quoted seemingly with a
large degree of approval during a debate on board policies several months ago by a cer
tain eminent member of the board that it was more important to be unanimous than
right.
That was my statement, and it is true.
I think, Mr. Chairman, that that pretty •vfell covers every statement
which it is worth while for me to notice in Gov. Harding’s letter of
April 4, 1921, and which, as I stated before, was, as I thought, pretty
fully covered by my address at Washington about the middle of
April, a copy of which was sent to every member of the Federal
Reserve Board at the time.
Mr. Chairman, I would like to introduce into the record this edito
rial force from the Manufacturers Record of May 5, 1921, if there is
no objection.
The C h a ir m a n . I wish to say that I think the policy of inserting
material into the record, statements made by persons who do not
appear before the commission and whom the members of the com
mission therefore have no opportunity to cross-examine with respect
to the basis for the suggestions or the charges or the opinions wnich
they express, is a very, very doubtful policy. I think it is of very
doubtful propriety to insert this particular editorial. However, I
have no objection to it, as it is directed to the United States Senate
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and the House of Representatives, and I presume that the members
of those bodies will know how to deal with it.
Mr. W illia m s . The editorial is as follows [reading]:
To Membert of the United State» Senate and Howe o f Representatives:
You have seenthe chaos created in business by the drastic deflation brought about
through the determined action of the Federal Reserve Board during the last 18
monthsto 2 yean. You have seen your constituents suffer losseswhich are staggering.
Youhave seenadecline in the value of output of farm, factory, and mine products and
ofsecuritiesduringthe last 12 or 15 months to the extent of 125,000,000,000 or more, or
anamount inexcess of the cost of the warto this country.
Moreover, the money expended in the war helped to create activity and give em
ployment to many people, but the I03S of $25,000,000,000 in value of products and
securities has been wiped out of existence.
You see over 500,000 railroad cars hong idle on the tracks. You see the whole rail
roadsituation in despair because of the lank of business, and the reasons for this you
must necessarily face and investigate to the limit of your ability, in the interest of
the Nation’s business life, for there are millions of men walking the streets in idleness
because work can not be had, and the idle body and the empty stomach create a very
bolshevistic feeling in a brain which is not engaged in productive work.
Even though the new administration may be able to change this situation and stim
ulatethe business interests of the country by a loosening up of the drastic restrictions
oncredit, our future welfare demands a verv careful study of the causes of the present
troubles in order that the future may be safeguarded.
By reasonof this fact we are taking the liberty of inviting your Berious consideration
tosome of the statements recently made by Mr. John Skelton Williams, former Comp
troller of the Currency, and member of the Federal Reserve Board, in regard to the
operations of that board. The statements made by Mr. Williams prompt us to ask, Is
thereany Senator or Representative who will excuse oroverlook the things upon which
Mr. Williams has turned the light in his recent address before the People’s Recon
struction League?
The points made by Mr. Williams in his speech prompt us, therefore, to ask every
Member of the Senate and House of Representatives the following questions based
entirely upon Mr. Williams’s statements and which we take for granted are correct,
is hestates them on his official knowledge.
No. 1. Do you defend the exaction (by a reserve bank) of interest as high as 87Jper
cent perannum from a small countrybank, 85 per cent of whose loans were to farmers?
No. 2. Do you defend the exaction of about 200 per cent per annum interest which
wascharged last summer for about six months on a large loan to a manufacturer by a
memberbank to which the Federal reserve bank of his district was lending money at
6percent per annum or les3?
No. S. Do you defend the plan which an “ important official ” of the Federal reserve
bankof New’York says was under consideration of “ putting on still more pressure to
clean up the after-war mess in a hurry and £et it over,” even though it involved
“manyforced failures” and “ a long time in picking up the pieces?”
No. 4. Do you defend the huge loans made to certain individual banks conspicuous
for their speculative operations and the speculative operations of their officers while
numerous banks and other merchants and farmers were being starved or deprived of
credit greatly needed?
No. 5. Do you defend the absurd excuse offered by the Federal Reserve Board that
the“average” rate was all right when favored banks were borrowing millions at 5 and
®percent, while other banks were being charged in some cases all the way from 7 per
cent to87 per cent for funds sorely needed?
No. 6. Do you defend the action of the board in rejecting the resolution offered by
Mr. Williams, then comptroller and a member of the board, that in no case should a
memberbank be required to pay (to a reserve bank) in excess of 10 per cent per annum
interest; the comptroller’s resolution to limit the interest rate to 6 per cent having
•I*#been voted down?
No. 7. Do you approve of having the reserve banks, which are already earning over
100percent per annum, add to their profits by exacting 6 per cent or 7 per cent per
•nnuminterest on loans secured by Liberty bonds, whicn only pay 3} per cent ana 4J
percentinterest and which, in many cases, were subscribed to at par with the definite
•■urance that they would be carried at 4J or 4J per cent per annum interest?
No. 8. Doyou defend the methods bv which from five to eight brokers on the New
YorkStockExchange artificially fixed from day to day the rate of interest on hundreds
ofmillions of dollars of call loans, thereby enticing to New York for speculative uses
fandssolely needed by business men and farmers in other sections of the country?
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No. 9. Do you think the Federal Reserve Board justified in boasting of a high ratio
of “ reserve” indicating, under existing conditions, a useless impounding of the funds
of the system, when business men and farmers are suffering ana complaining as they
still are going, of the lack of funds for essential needs, the unused lending power of
the reserve banks at this time being $1,500,000,000?
No. 10. Do you defend the board’s apathy and inertia, its refusal, duringthe past
six months, in the face of repeated and emphatic warnings to revise its deflation
policy, so as to ease a shrinkage which, in the absence of measures of relief which it
could, have aided in providing, has become a disastrous collapse?
No. 11. Do you think the management of the eminently respectable gentlemen
sitting, or “setting,” on the Federal Reserve Board during the past six months prior
to March—two college professors, two bankers, one lawyer, and a Poughkeepsie news
paper man, who, in addition to the Comptroller of the Currency (wno differed with
them radically) constituted its membership and controlled our financial levers—has
been particularly successful in this period?
No. 12. Or do.you think that more liberal policies, advocated by leading’ thinkers
and successful men of all classes in our own and other countries, including among
the latter former Chancellor of the Exchequer McKenna, now head of one of the
world’s largest banks; Lord Leverhulme, one of Britain's greatest manufacturers and
business men; and the statesmanlike governor of the Bank of France, would, if they
had been pursued by the board, have been more successful and might have saved
us billions of dollars of losses and untold suffering? _
No. 13. Do you believe that a system, however wise in many respects it may be,
should give to any seven men the m o 3 t autocratic power ever given to an equal number
of men in the world's history, over the financial, and thus over the entire business
operations of a great country, such as the United States?
No. 14. Do you not believe that, regardless of what has happened and the change
that may take place under what will probably be a much wiser administration of tne
Fe leral Reserve Board than that of tne last few years, there should be some change
which would enlarge the membership of the boara by an adequate representation of
the industrial, commercial, and agricultural interests of the country?
No. 15. Do you not believe that an organization having such limitless power over
the welfare of the Nation, despite all the protests that may be made to the contrary,
should hold its meetings open to the public so that the people of the entire country
might know the reasons advanced for any action taken, and the vote of the members
thereon? If, for instance, it had been known to the public that the Comptroller of
the Currency was constantly, vigorously protesting against the methods of deflation,
it is not conceivable that the Federal fteserve Board would ever have been allowed
to carry out the plans which have brought such poverty to millions of people.
No. lfi. I)o you believe that any financial organization, controlled by the Govern
ment or by private financial interests, should have the right to turn on or turn off
the supply of credit at its will, and deflate or inflate the products of the country
with an autocratic power such as never before existed in the world?
These are questions which the country at large i
@FedFRASER