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C l e a r in g

H ou se

L oan

Ce r t if ic a t e s

AND SUBSTITUTES FOR MONEY
USED DURING TH E PANIC OF

1907

WITH SUGGESTIONS FOR AN EMERGENCY CURRENCY
BASED UPON SUCH LOAN CERTIFICATES

BY

JAMES 6. CANNON

DELIVERED BEFORE
T H E

F IN A N C E
N

ew

Y

ork

F O R U M
C it y

M a s c b 80, 1910







T H E T R O W PRESS
N E W YO R K

C l e a r in g

H o u se

Loan

C e r t i f ic a t e s

1907

Mr. Chairman and Gentlemen:
I am to speak to you this evening on the subject,
“ Clearing House Loan Certificates and Substitutes for
Money Used during the Panic of 1907.”
The Panic of 1907 differed, as every panic does, from
its predecessors, and one of its most notable characteris­
tics was the sharp, quick and decisive clogging of Inland
Exchange. This condition of affairs was more pronounced
during the late panic than in any of the previous disturb­
ances, because of the growth of our industries and the
changing mercantile conditions which compelled large and
constant remittances to our central reserve cities. A
study of panics shows that they generally result from
overtrading and inflation, which are checked by some un­
toward circumstance, such as the failure of an important
bank or banking institution in one of the large money
centres, notably in New York, and the distrust thus cre­
ated in the minds of the people breaks the bubble of infla­
tion. The panicky condition thus brought about is not
immediately felt throughout the country, but its ripples
gradually spread like those caused by the dropping of a
pebble in water.
In 1907, the bankers of the country, having had experi­
ence in previous panics, recognized what was coming, and
took immediate steps through their respective Clearing
House Associations to ward off the detrimental effects of
the financial disturbance in this City; hence there sprang
into existence, within forty-eight hours, through these
sources, a large volume of Clearing House Certificates.
Because these Loan Certificates were not interchangeable,
and were in only a very few instances received on deposit
by banks outside of the immediate city or vicinity where
issued, the operations of the banking interests of each lo-




Clearing House Loan Certificates

cality were confined almost exclusively to itself, thus clog­
ging Inland Exchange and preventing the free circula­
tion of the credits of the country through the drafts that
are usually drawn by one money centre upon another.
Clearing House Loan Certificates, therefore, filled a more
important place in the panic of 1907 than in any previous
panic in which they had been used in this country, and it
seems to me that by studying to some extent the condi­
tions under which they were issued, we can gather many
useful lessons in finance, and perhaps can point the way
to a solution of some of our currency problems.
Clearing House Loan Certificates are instruments
which represent temporary loans made by the banks
banded together as a Clearing House Association, to the
individual members of such association, upon collateral
acceptable to a Committee of bankers appointed for the
purpose of passing on and holding such collateral. The
certificates bear a stated rate of interest, and are available
to the banks only for use in settling balances due to the
other members of the same association. As Clearing
House balances are normally payable in cash, these certifi­
cates render available for other purposes an amount of
cash equal to the total of certificates issued.
Clearing House Loan Certificates were first issued in
this country in 1860. From that time until the panic of
1893, their use had been strictly confined to the settlement
of balances between the banks. In a few instances, how­
ever, in the South, during the panic of 1893, and to a con­
siderably greater and more general extent in the recent
disturbance through which we have passed, instruments
known variously as Cashiers’ Checks, Clearing House
Checks, Clearing House Scrip and Certificates of In­
debtedness, specimens of all of which I will show you,
were issued and circulated freely as money in the com­
munities in which they were made available. Some of
these instruments were issued in such a way as to circum­
vent any existing legislation on the subject, while others
could undoubtedly have been justly subjected to a tax, but
taking into consideration the exigencies under which they
[Page 4]




Clearing House Loan Certificates

were issued, and the further fact of their immediate re­
tirement as soon as the conditions which had called them
forth had passed, I believe no right thinking man would
condemn either the purpose or the act.
The Charter of the Bank of England directs that no
currency shall be issued except upon the deposit of a like
amount of gold coin with the Issue Department, and yet
upon three occasions in its history, conditions have been
deemed sufficiently critical by its Governors to cause them
to temporarily disregard that provision of the Charter,
and issue enough currency, secured by other available
collateral, to meet the immediate requirements of business.
This currency was in each instance retired as soon as con­
ditions again became normal, and it may be added that on
all three occasions the consent of Parliament to this ac­
tion was subsequently obtained. So it will be seen that
under certain circumstances, in England, as well as in this
country, the disregard of established customs has been
deemed justifiable. Personally, I believe that any form
of currency issued in a time of financial stress, under
Clearing House supervision, properly safeguarded to in­
sure its redemption at its face value when the necessity for
it has ceased to exist, should be recognized as a valuable
possibility, and should not be subjected to adverse
criticism.
During the few months immediately subsequent to the
panic of 1907, I obtained from every Clearing House in
this country, specimens of the various temporary instru­
ments issued by them to relieve their local situations, as
well as copies of the resolutions under which they were
issued and all the facts in connection therewith, including
the date of issue, the length of time they were used, the
aggregate amount put out and the maximum amount out­
standing at any one time. From these certificates, I have
selected such as seem to contain unusual or distinguishing
features and have had lantern slides made from them,
which I now propose to show you, pointing out these dif­
ferent features as we go along:




[PageS]

Clearing Home Loan Certificates
N

ew

Y

ork

C it y

I shall first show you a copy of the Loan Certificate
issued by the New York Clearing House Association, as
most of the Certificates (as distinguished from checks)
very closely resemble this, and in the larger centres, in
many instances, they were identical.
I might state in this connection that in the aggregate
$101,000,000 of these certificates were issued during the
panic. The date of the first issue was October 26th, 1907;
the date of the first cancellation was November 14th, 1907;
the date of the final issue was January 30th, 1908, and
the date of the final cancellation was March 28th, 1908.
The greatest amount of these certificates issued to any
one bank was $17,000,000, and the smallest $250,000.
The time elapsed from the first issue to the final cancel­
lation was 22 weeks, or 154 days.
A

ugusta,

G a.

Issued in denominations of $1, $5, $10 and $20.
Secured by collateral 50% in excess of the amount
issued. Meeting held Nov. 2nd, 1907, authorized the
banks to give their notes to three appointed Trustees, due
July 1st, 1908, secured by collateral as above, payable at
any time in the interim with Clearing House Certificates
or lawful money. Payment of each check guaranteed on
back by the banks composing the Clearing House Asso­
ciation. $5 certificate shown.
B a l t im o r e , M

d.

To be issued up to 75% of the collateral deposited and
to no bank in excess of 30% of its capital. The
smallest percentage of certificates to capital that has come
to my attention. $10,000 certificate shown.
[Page 6]










Clearing House Loan Certificates

B u f f a l o .,

N. Y.

_In form practically the same as at New York. This
differs from other issues only in the omission of the name
of the bank to which they were issued, the identity of the
certificate with the collateral being preserved by means of
the certificate numbers, a record of which was confiden­
tially kept at the Clearing House. By this means no at­
tention was drawn to the banks which found it necessary
to use them.
C a n t o n , O h io

Canton is a centre of manufacturing interests of con­
siderable magnitude, and, therefore, required large
amounts of cash for pay rolls which was not available. A
consultation was held between the banks and their manu­
facturing clients with the result that pay checks were
agreed upon. One general form was used, as shown on
the screen, in three denominations, $5, $10 and $20, and
each bank provided its customers with a supply of these.
The checks were made payable to “ Bearer ” through the
Canton Clearing House Association only and had to be
signed by an authorized person connected with the firm
or corporation issuing them. These checks, however,
were found unsatisfactory, partly from the fact that when
small purchases were made with them the tradespeople
were obliged to make change with cash, which soon de­
pleted their supply. Subsequently, therefore, clearing
house checks or cashiers’ checks, as shown, also payable
to “ Bearer,” through the Clearing House only, in
amounts to $1, $2, $5 and $10, were issued. These
checks had no collateral security back of them and were
accepted purely on the responsibility of the issuing bank.




[Page 7]

Clearing House Loan Certificates
C h ic a g o ,

III.

Chicago, in 1907, issued certificates for the first time in
its history. A Committee reported in favor of them in
1893, but before they could be made ready for issue, con­
ditions had improved to such an extent that they were un­
necessary. Their Clearing House Loan Certificate was
in the same form as at New York and so it is needless to
show it. Early in November, of 1907, provision was
made for the deposit of these certificates by any bank, and
the issuance therefor, of Clearing House checks in de­
nominations of $1, $2, $5 and $10, in amount equal to
the face value of the certificates so deposited, in favor of
the depositing bank. So the checks were secured by cer­
tificates, and the certificates by collateral. These checks
were all made payable through the Clearing House and
were drawn on National Banks. They were thus drawn
in order to avoid any complications that might arise out
of provision of the State Law for a prohibitive tax on
circulation issued by the State Banks.
C in c in n a t i, O h io

Only Cashiers’ checks were issued at Cincinnati, se­
cured by collateral to an amount 20% to 25% in excess
of the amount issued. An interesting incident in con­
nection with their issue, was the fact that the newspapers
of that city published a list of merchants, numbering in
excess of three hundred names, who had expressed their
willingness to cash these checks, and in several instances
a premium of as high as five per cent, was offered for pur­
chases made and settled by means of these Cashiers’
Checks. Thus the merchants did what they could to
stimulate the confidence of the public in these checks and
so helped the situation along.
[Page 8]










Clearing House Loan Certificates

C l e v e l a n d , O h io

Clearing House Loan Certificates and Clearing House
checks both were issued at Cleveland, the latter being
issued against the deposit of the former, as at Chicago,
but the Loan Certificates in Cleveland, unlike those of
Chicago, were not used for settling balances at the Clear­
ing House, which was their function generally throughout
the country, but solely for the purpose of securing the
issue of Clearing House Checks.

D

enver,

C ol.

Cashiers’ Checks issued in amounts of $5, $10 and $20
by the individual banks, on the deposit of acceptable col­
lateral with the Finance Committee of the Clearing
House. A Registrar was appointed to register and sign
all checks before issue, and the banks, by agreement, each
issued $50,000 of these checks, in order to make the ac­
tion unanimous. The checks were handsomely litho­
graphed, to lessen the chances of counterfeiting, and on
the reverse side contained a picture of the state capitol, as
will be seen on the slide.




[Page 9]

Clearing House Loan Certificates
D

es

M

oines ,

I owa

As will be seen, this check states that in addition to
being secured by approved collateral in the hands of the
Clearing House Committee, the credit of all the Bank
members of the Clearing House was pledged for its pay­
ment, which pledge was covered by a resolution to that
effect. Few certificates issued stated that fact, though
literally all the member banks of every Association which
took action in the matter of issuing certificates were so
pledged.
D

etroit ,

M

ic h .

Clearing House Loan Certificates were issued in De­
troit, but no Clearing House checks. Large pay rolls
were handled to some extent through the issue by the in­
dividual banks of their Cashiers’ Checks in amounts of
$5 and $10 for that purpose. A considerable measure
of relief was afforded, however, through the procurement,
by some of the large manufacturing concerns, of Cana­
dian cupency, from banks across the river, in exchange
for their checks payable through the Detroit Clearing
House, such currency, by reason of Detroit’s frontier lo­
cation, readily passing current with the public.
F

abgo ,

N. D.

A Trustee was appointed by the Fargo Clearing House
Association to receive collateral and issue certificates to an
amount equal to only 50% of such collateral deposited.
This percentage represents as large a margin of collateral
as was required by any Association that issued certificates
during the Panic of 1907. This is practically the only
Clearing House Association which issued certificates in
small amounts, viz: $5, $10 and $20, as well as in the
larger amounts, most Associations having issued Cashiers’
or Clearing House checks for the smaller amounts.
[Page 10]










Clearing House Loan Certificates

F

ort

W

ayne,

I nd.

Trust Company members of the Clearing House were
not allowed to issue checks direct. Loans, secured by col­
lateral in amounts passed upon by the Committee, were
made, when desired, by the bank members, and checks
drawn by the Trust Companies against such loans, were
paid with Clearing House checks. Thus the Trust Com­
panies were enabled to use these checks in about the same
manner as were the banks. The Clearing House Loan
Certificates were used both in the payment of balances and
as security for Clearing House checks, as at Chicago.




[Page 11]

Clearing House Loan Certificates

G r a n d R apids , M

ic h .

The Grand Rapids Association had prepared and ready
for use, although the situation in that City did not reach an
acute enough stage to require their issuance, a rather
unique form of certificate. This form, as will be seen, em­
bodied a demand promissory note upon its face, which
provided for the placing of collateral with the Association.
It further provided that in the event of the note not being
paid on demand, the maker consented to the sale of the
collateral thereto. If the proceeds of such sale were in­
sufficient to pay the face of the note, the maker agreed
to be answerable for the deficiency, thus placing prac­
tically the entire assets of the bank back of the note. The
reverse side contains the Clearing House Loan Certifi­
cate, in form similar to those of other associations. I
show this form in two views as being a distinct departure
from anything I have seen of like character.

[Page 12]
















Clearing Home Loan Certificates
H

arrisburg .,

P a.

Besides Clearing House Loan Certificates, the Harris­
burg Association issued what it termed “ Certificates of
Indebtedness ” stating, as may be seen from the illustra­
tion, that the Association was indebted to the bearer in the
sum of $1, the payment of the same being guaranteed by
the members of the Harrisburg and Steelton Associations,
but only through the Harrisburg Clearing House. The
reverse side shows printed in four languages (English,
Polish, Hungarian and Italian) the words: “ This check
may be deposited, but will not be paid in cash.” This was
undoubtedly intended to meet the requirements of a di­
versified population.
K

a n sa s

C it y , M

o.

The Kansas City Association issued both certificates
and checks, and each were secured directly by collateral.
In this respect their action differed from that of most other
associations which issued both these forms of instruments,
since generally the checks were secured by the deposit of
certificates, which in turn were secured by collateral. The
checks issued by Kansas City were among the finest, in
design, turned out by any association in the country, hav­
ing been lithographed by the Union Bank Note Company
of that City. In form they are not unlike many others
that have been shown, and I exhibit both the front and
reverse side merely that you may see what fine specimens
they are.
L

it t l e

R ock, A

rk.

The Certificates issued by the Little Rock Association
were again different in form from any others, as will be
seen. The chief distinction that entitles these certificates
to our consideration is the fact that they carried interest
at the rate of ten per cent., an unusually high rate of in­
terest, although it is not so stated on the certificate.




[Page IS]

Clearing House Loan Certificates

Los

A

ng eles ,

Ca l.

Both Clearing House Loan Certificates and Circulating
Scrip, the latter corresponding to the Clearing House
Checks used by other associations, were issued in Los
Angeles. Originally, printed checks were used for circu­
lation, as shown, but later, fearing counterfeiting, litho­
graphed checks were used, which, like those of Kansas
City, were very handsome. As will be seen, especially the
reverse side closely resembles the engraving on our Na­
tional currency.

[Page 14]










Clearing House Loan Certificates

O m aha, N

e bb .

Here is an illustration of the Clearing House Certificate
used in Omaha. The word “ Cancelled ” has been written
across it with acid, which has eaten away some of the
paper. Omaha banks also were at liberty to issue their
own Cashiers’ checks in amounts of $1, $2, $5, $10 and
$20, after they had deposited collateral with the Manager
of the Clearing House, to an amount 25% in excess of
the total they desired to issue, and he had stamped across
the check, “ This check is secured by collateral approved
by the Loan Committee of the Omaha Clearing House
Association, deposited with its Manager as Trustee.”

P

h il a d e l p h ia ,

P a.

The Clearing House certificates issued in Philadelphia
were almost identical with those of New York, and, there­
fore, require no special comment. The Philadelphia
Banks also issued what were known as Pay Boll checks.
These checks were prepared by the American Bank Note
Company, in convenient amounts for the payment of pay
rolls. Before these checks could be passed through the
Clearing House, it was necessary that they should be cer­
tified by the bank of issue, and each institution was di­
rected and required to set aside a “ Pay Roll Account ”
for each depositor to whom such checks were issued,
against which all such pay roll checks should be charged
when paid.




[Page IS]

Clearing House Loan Certificates

P o r tl an d , O re .

This association issued both certificates and checks. The
certificates were in ordinary form, while the checks dif­
fered from others only in that they bore the date of Feb­
ruary 1st, 1908, as the limit of their usefulness. These
checks, too, were in rather elaborate form as will be seen
from the illustration.

[Page 16]










Clearing Home Loan Certificates

S t . J o seph , M

o.

A lithographed certificate was prepared in St. Joseph,
like the one shown on the screen. The comparative ease,
however, with which these certificates could be imitated,
made it seem inadvisable to use them, so they were never
issued. They did, however, issue Cashiers’ checks which
were received and used by the public with general satis­
faction.




[Page 17]

Clearing House Loan Certificates

St .

L o u is ,

M o.

The form of the loan certificates used in St. Louis was
identical with the style employed in other large centres.
The banks did, however, issue Cashiers’ checks, of which
I shall show you three, each one being slightly different in
form. The first, that of the Third National Bank, is
made payable to H. Haill, Auditor, thus requiring an en­
dorsement. The second, that of the National Bank of
Commerce, is made to John Smith, or bearer, requiring
no endorsement. The third, that of the Mechanics Ameri­
can National Bank, is made simply to bearer. It will be
noted, too, that this check is countersigned, whereas the
other two are not.

[Page 18]










Clearing House Loan Certificates

St. P aul, M

in n .

Valid only when registered by the Northwestern Trust
Company.

S alt L

ake

C it y , U

tah

Neither the Clearing House Certificates nor the Clear­
ing House Checks possess any unusual features, and are
simply shown in passing.




[Page 19]

Clearing House Loan Certificates

San F

rancisco .,

Cal.

The Clearing House Loan Certificates issued in San
Francisco possessed no unusual features. The specimen
of the Clearing House currency herewith shown was
printed originally on safety paper, but it was soon dis­
covered that this grade of paper would not stand the wear
and tear of general usage, so lithographed certificates
on bond paper were substituted, the first issue being re­
called. This currency was issued against the deposit of
Clearing House certificates, and was used by the San
Jose Clearing House Asssociation as well as by San
Francisco.

[Page 80]










Clearing House Loan Certificates

S avannah, G a .

Clearing House checks issued in Savannah were stated
on their face to be payable on or before March 1st, 1908,
about four months from the date of issue.

S eattle, W

ash.

As indicative of the character of the business of Seattle,
it was especially mentioned in the set of resolutions passed
by the Association authorizing the issue of certificates and
checks, that on drafts fully secured by lumber, wheat and
canned fish, the Committee would issue checks to the ex­
tent of 75% of the face value of the collateral. The
banks in that city had large balances in Chicago and New
York, upon which, on account of the clogging of Inland
Exchange of which I have already spoken, they were
unable to secure cash. They, therefore, gave their checks
against these balances to the Committee, and when they
had been collected and placed to the credit of the Commit­
tee, said Committee issued checks against such collections
to the full amount of the same.




[Page 21]

Clearing House Loan Certificates

Sioux

C ity , Io w a

Issued only Clearing House certificates which were due
ninety days from their date, October 28th, 1907, and all
were retired before maturity.

S o u t h B end, I n d .

A specimen is shown herewith of the South Bend Asso­
ciation check, which differs from other checks of the same
character only in that it is payable to “ Any Associated
Bank, or Bearer.”

[Page 22]










Clearing House Loan Certificates

S pokane, W

ash.

By resolution, $2,200,000 of these checks were issued, at
Spokane, and they were distributed among the various
Clearing House banks in proportion to their deposits.

T acom a, W

ash.

The Clearing House check here shown, one issued in
Tacoma, contains no special features, but on its reverse
side is the regular endorsement of the First National
Bank, of Pasco, Wash., indicating that it had wandered
away from Tacoma. There is no doubt that much of the
temporary currency issued by the larger Clearing Houses
of the West served as money for the time being in the
smaller surrounding cities.




[Page 23]

Clearing Home Loan Certificates

T

opeka,

K

an.

The Banks of Topeka agreed to put up $25,000 each in
approved commercial paper, against which scrip to the
extent of 75% of the collateral deposited should be issued.
Only a total of $42,000 was put out, however, and this was
all retired by January 1st, 1908, having been in circulation
only about two months. It will be seen that this check,
according to the statement on its face, was payable in ex­
change, which meant that it would be paid with a check on
some other city.

W

ic h i t a ,

K

an.

Neither the Loan Certificates nor the Clearing House
checks issued at Wichita contained any unusual features,
and I show them merely in passing.

W

h e e l in g ,

W . V

a.

The certificates used at Wheeling, West Virginia (al­
though no specimen is shown), bore no interest, but in lieu
thereof were returned through the Clearing House on the
day after receipt, with an exchange charge of ten cents
each, added.
[Page 24]










Clearing House Loan Certificates

As stated, during the two or three days remaining in
October, 1907, after the New York Clearing House As­
sociation had taken action, the Clearing Houses of the
country, with practical unanimity, met and made provi­
sion at least for the issue of some form of instrument that
would aid in relieving the existing conditions. A few
clearing houses, prominent among which was the Associa­
tion at Washington, D. C., found no occasion for action
at all but quite generally provision was made so that in
case of necessity there would be no delay in getting the
machinery started and in a very large majority of cases,
the situation was sufficiently trying to cause the immediate
use of such Certificates. These instruments bore rates of
interest varying from five per cent, to ten per cent., and
in one instance, twelve per cent., and were issued for from
fifty to eighty per cent, of the collateral deposited to
secure them.
It is practically impossible to estimate the amount of
these Certificates outstanding at any one time. Suffice it
to say that in excess of two hundred and fifty millions of
them, in the aggregate, were issued during the panic by
the various clearing houses of the country. In addition
thereto some of the railroads and a few of the larger in­
dustrial corporations issued checks of various denomina­
tions, which were used in making payment of wages to
their employees during the period of extreme stringency,
which checks passed current for the time being.
Taken as a whole, these instruments served well the
purpose for which they were issued, and once again the
utility of them as an emergency measure was demonstrated
in a practical way, and on a scale the magnitude of which
had never before been approached.
Clearing House Loan Certificates create an elasticity in
the assets of banks. In times of financial stress what the
banks require are assets that are readily convertible into
cash, and which will pay depositors as well as afford a
basis for the creation of new loans. At such times banks
need expansion in the right direction and not contraction.
In an address which I delivered at Columbia University,




[Page 25]

Clearing House Loan Certificates

in December, 1907, in the midst of the panic, I stated I
believed that in the adaptation of the Clearing House
Loan Certificate we had a solution of the currency prob­
lem in this country, and the more study I have given to
the subject the more I am convinced of the soundness of
my contention. We do not need more fixed currency in
this country, but we need flexibility in what we have to
meet emergencies such as arose in 1907. Any currency
issued in such an emergency should be promptly retired as
soon as its usefulness has ceased.
In times of panic or extremely tight money the banks
need something that will enable them to convert their fixed
assets into liquid assets, without calling upon borrowers
for payment of their loans, and with these new liquid assets
furnish further credit to their customers. In such times
the demands of occasional as well as all other borrowers
upon the banks are very large. It is really the purpose
of Clearing House Loan Certificates to allow the banks to
take to the Clearing House their fixed assets and convert
them into a medium of exchange between themselves, thus
allowing the extension of further credit, which credit is
utilized by their depositors through the Clearing House.
Add to this function one more and we shall have all that
is needed to meet any emergency that may arise, viz: A
currency to take the place of that which is hoarded. The
hoarding of money always accompanies panics. This
feature was especially noticeable during the late panic,
because the use of such a large volume of Clearing House
Loan Certificates between the banks in settlement of bal­
ances served to drive currency out of circulation among
the banks.
Panic always produces fright, not only among the pub­
lic at large but also among the banks themselves, and if
at such a time we could have a safe currency which would
fill in the gap temporarily and thus allay that fear, we
should have solved the problem, as far as the banks are
concerned.
The reserve balances of the country banks are, as a rule,
kept in the large money centres, and upon these centres
[Page 86]




Clearing Home Loan Certificates

the out-of-town institutions depend for their excess re­
quirements of currency. Besides the withdrawals from
the money centres by the country banks, there is the hoard­
ing of currency by the public, to which I have already
alluded, which currency would ordinarily flow back and
forth in the banks. This is especially the case as soon as
the slight premium on currency which generally accom­
panies panicky conditions makes its appearance. This
situation necessitates heavier withdrawals from the banks
for pay rolls, and the conditions thus created are a serious
menace to all the banking institutions of the country. If
we could evolve a plan that would come quickly to the aid
of such a situation, a great service would be rendered.
I have made a careful study of the currency payments
of one large institution in this City, from October 26th,
1907, to January 4th, 1908, which was the acute period of
the panic. During these seventy days, this institution paid
out $15,863,000 of currency. By currency I mean gold
coin, silver and gold certificates, etc., etc. Of this amount,
$5,113,000 was shipped out of town to its correspondents,
and $10,750,000 was paid out over the counter. Of this
latter amount $6,360,000 was for pay rolls, and the bal­
ance, $4,390,000 represented payments to Trust Com­
panies, Savings Banks and the miscellaneous customers
of the institution. I cite this as an illustration of the mag­
nitude of the calls that are made upon the banks during
times of panics, and the absolute necessity for some method
of converting the fixed assets of our institutions into liquid
assets.
In order to provide for this emergency currency which
is so greatly needed at times, I would have the Clearing
House in each of the Sub-Treasury cities, viz: Baltimore,
Boston, Chicago, Cincinnati, New Orleans, New York,
Philadelphia, St. Louis and San Francisco, incorporated,
recognized by law and prepared to do business with the
United States Government. I would have a United
States Emergency Currency printed in large quantities
and held under adequate safeguards at each of these SubTreasuries. I would permit the Treasurer of the United




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States, upon proper application, to receive Clearing
House Loan Certificates of the Associated Banks in any
of these cities, as collateral security, and advance 50%
of the amount of such certificates deposited, in Emer­
gency Circulation, to such Association. Such circulation
should bear 6%, so that it would be retired at once
when no longer required. This circulation would thus
cost the banks 12%, as they would be obliged to
pay 6% on the full face value of the Loan Certifi­
cates deposited with the Sub-Treasuries as collateral
for the issuance of this kind of currency. The Clear­
ing Houses in these Sub-Treasury cities could make
rules and regulations for apportioning this currency
among their members. I would have this United States
Emergency Currency retired by the deposit of lawful
money with the Treasurer of the United States, just as
National Bank circulation is now retired. Experience
has shown that this can be readily done, because after every
panic through which this country has passed, there has
been a great reaction and money has become extremely
easy. There would, therefore, be no difficulty in the banks
securing the funds necessary to redeem this currency.
It may be said that by confining the issue of Emergency
Currency to Sub-Treasury cities, we would be legislating
in favor of certain sections of the country, but I am sure
that the banks in these sections would be better able to
care for the needs of the country at large, than if we had
one central bank in one city which would issue currency
to its depositing banks throughout the country.
In this list of Sub-Treasury cities are included the three
Central Reserve cities of the United States, viz: New
York, Chicago and St. Louis. Of the two hundred and
fifty million dollars of various instruments designed to
temporarily take the place of cash, which I previously
stated^ were issued during the panic of 1907, these three
cities issued $157,265,000, or more than 60% of the entire
amount, while the amount issued by the nine Sub-Treas­
ury cities was $206,254,000, or more than 80% of the total
of these instruments put out, which shows conclusively
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Clearing House Loan Certificates

that if these cities were given the privilege referred to,
the whole country would share in the benefits of the issues.
You can have no better collateral for a currency such as
I have suggested than Clearing House Loan Certificates,
issued under proper safeguards and carrying, as they do,
the joint guarantee against loss of all the members of the
Clearing House issuing the same. Of course, I am
aware that this would mean a change in our laws, and the
injecting into our currency of another kind of money, but
it would be secure beyond peradventure, its retirement
would be provided for promptly, and when outstanding in
the hands of the public would be covered by ample col­
lateral or by lawful money of the United States deposited
against its retirement. I venture the prediction that the
people of this country will never permit its circulating
medium to be monopolized by one institution, no matter
how good it may be, but they will always demand a circu­
lating medium issued by the Government, or under care­
ful governmental supervision and approval. This being
the case, why not adapt ourselves to our present condi­
tions, rather than endeavor to force upon the country a
new set of laws, injecting into our banking system some­
thing entirely foreign to us.
This United States Emergency Currency which I have
mentioned must be issued by the United States Govern­
ment to be of service to the whole country. In consider­
ing this feature, we must remember that up to date the
National Banks have had a monopoly of the note issuing
power, and some provision should be made in times of
stress and panic to take care of all the banking institu­
tions of the country. As membership in our Clearing
House Associations is not confined exclusively to National
Banks, but includes State Banks and Trust Companies,
in an Emergency Currency, as outlined by me, these in­
stitutions would all be benefited.
I would include in the act of incorporation of the Clear­
ing Houses in the Sub-Treasury cities a provision that
Clearing House Loan Certificates should be issued at such
tiinwf as in the wisdom of the members of the association




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Clearing House Loan Certificates

they were needed, and thus provide a flexible currency for
crop moving periods or other times of monetary tightness.
We must always bear in mind that an Emergency Cur­
rency of any kind, in order to be effective, must be quickly
retired and cancelled, and must not be permitted to remain
outstanding to cause the further inflation of our already
too much inflated currency. By providing for its retire­
ment by the deposit of lawful money another great safe­
guard would be thrown around it.
You will remember that during the last panic, the mer­
cantile interests of this country stood like a rock, and there
were very few failures. Of the collateral held against
Clearing House Loan Certificates issued in this City dur­
ing that period, including substitutions, the total of which
was $453,000,000, $330,000,000, or 72.92% consisted of
Commercial Paper, and $123,000,000 or 27.08% was made
up of stocks, bonds and short time railroad and other simi­
lar notes. This being the case, an Emergency Currency
of the character I have mentioned would certainly seem to
meet the requirements of the mercantile community.
In practical operation the scheme would work some­
thing like this: A merchant would borrow from his bank,
say, $200,000 on his single name paper. The bank would
give him credit on its books for that amount, less the dis­
count, upon which he would be at liberty to draw through
the Clearing House. His bank could take this paper to
the Clearing House and receive therefor Clearing House
Loan Certificates to the amount of $150,000, the New
York Clearing House, for instance, requiring a margin of
33-^% on its certificates. Upon notification by the mer­
chant that he would need money for his pay rolls, his bank
could provide for his wants in this respect by requesting
the Clearing House Association to deposit the $150,000
of certificates with the Sub-Treasury and receive therefor
$75,000 in Emergency Currency, which in turn could be
handed to the merchant for his use. This same method
could be pursued with all borrowers who needed assistance
whether merchants or bankers.
In times of very active money, and in panicky periods,
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Clearing House Loan Certificates

both bankers and merchants are willing to pay a higher
rate of interest to take care of their obligations, but as
soon as the stress and storm are over, and money returns
to its customary channels, lawful money could be de­
posited with the Sub-Treasury and the Emergency Cur­
rency retired. In the meantime the merchant’s collections
would be made, his paper taken up at maturity, and the
currency would thus have served the purpose for which it
was created.
This would seem to me to provide a safe Emergency
Circulation, having behind it, first: the credit of the indi­
vidual institution and its collateral, as passed upon by a
committee of bank officers, second: the fact that a large
margin of collateral is required before the certificates are
issued, third: the circumstance that the bank members of
associations by which certificates are issued agree among
themselves to assume their pro rata share of any losses that
may occur through their issuance, which practically
means that all the assets of all the bank members of the
Clearing House Association are pledged to the payment
of the certificates it issues, fourth: the fact that the Gov­
ernment is asked to advance only 50% of the face value
of these certificates, and fifth: the certainty of the prompt
retirement of the Emergency Currency with lawful money
of the United States.




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