Full text of Banking and Currency : Hearings Before the Committee on Banking and Currency, United States Senate, Sixty-third Congress, First Session, on H.R. 7837 (s. 2639) ... in Three Volumes : Bank and Currency Hearings on H.R. 7837 (S. 2639) to Establish Federal Reserve Banks : Volume 3, Box 7, Item 4 : Part 2

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BANKING AND CUKRENCY.

2175

because it is not convenient, they are given for 6 months, and some
times they will be paid and sometimes they will be increased.
Mr. Cannon. Like the fellow who said “ If you want to have a
winter go fast, you want to give a six months’ note.” Is that the
idea? [Laughter.]
Senator B ristow. I think that is very good; yes. Those notes are
to be renewed; the bankers know they are to be renewed. This year
out in our country they are all renewed; they have to be renewed.
Now, I can not understand why a note that has a mortgage security,
upon which there can not be a loss, for there never was a man in the
section of the country where I live who lost money on a farm mort
gage if he knew enough to keep it—or if he took the farm, he would
be a good deal better off, because he could make money on it.
Mr. Cannon. That is the point. They do not take farm mort
gages, because they might have to take the security, the real estate
back of it, and it could not handle the real estate.
Senator B ristow. Suppose it was the local bank ?
Mr. Cannon. Suppose something happened that the local bank
could not redeem those notes?
Senator B ristow. D o you not think to have a farm mortgage
would be better rather than your note that sometimes the people
can not pay at all ?
Mr. Cannon. Y ou would not want to get the bank loaded up with
a lot of real estate ?
Senator B ristow. Would it not be better than to load up with the
notes of merchants?
Mr. Cannon. I do not think it should be either way; I do not think
it should load up with either thing.
,
Senator B ristow. If something happens to the bank, if some of the
notes would not be paid, if there is a catastrophe in that community,
why is the paper which is not as good preferred over paper that is
better—has better security? That is what I want to know.
Mr. Cannon. Because, as I have just said, you are likely to have
to foreclose on the security that is behind those notes, and you are
liable to have a lot of real estate on your hands, and it is not a ,
liquid asset.
Senator B ristow. Y ou think it is better to have a liquid asset,
then, even if the man could not pay it?
Mr. Cannon. A s I said, in the first place, I have no objection to
either, but I would not be in favor of making real-estate notes the
basis for circulation, or real-estate mortgages.
Senator Nelson. It might have five years to run?
Mr. Cannon. Yes.
The C hairman. Mr. Cannon, I was requested to ask you about
one point affected by this bill whether, in your opinion, the United
States should retire the national-bank notes, and, if so, why?
Mr. Cannon. Y ou mean as secured by the twos?
The C hairman. Yes.
Mr. Cannon. Well, that would depend upon whether the issue of
bank notes under this Federal reserve scheme would become too re
dundant at any time. I t would seem better to get those old bank
notes out of the way, so as not to have, finally, to go out and get that

2176

BANKING AND CURRENCY.

cleared up, and have the bank notes of the country issued through
these Federal reserve banks. That would be my reason for doing it.
Senator Nelson. Then it would be better to have one kind of
currency ?
Mr. Cannon. Yes; it would be better to have one kind of currency.
And you are liable to have a redundancy of currency if you are going
to keep the old paper outstanding—you are liable to have the Fed
eral bank currency on top of it. I should say yes it would be a good
thing to retire the old bank notes, if it can be done without loss on
the old 2 per cent bonds.
Senator B ristow. H ow would you retire it without loss on the 2
per cent bonds?
Mr. Cannon. I do not know; I have no remedy for that. As I
say, I have not given that consideration.
Senator B ristow. Y ou do not believe they ought to be retired and
these bonds thrown on the market, and let the banks get what they
could ?
Mr. Cannon. N o. I have stated here I have no remedy to suggest.
I think the committee might suggest something that would meet the
situation.
Senator P omerene. Mr. Cannon, there seems to be a good deal of
objection to some provisions of this bill on the part of the small
country banker. I mean those with a capitalization of $25,000 or
$50,000.
Mr. Cannon. Yes.
Senator P omerene. And that objection is made for this reason,
that they handle very little so-called commercial paper, as ordinarily
understood. They have paper that runs for six months or nine
months. Now, can you suggest any amendment to this bill which
would recognize the different methods of doing business as between,
for instance, a city bank like yours and one of these country banks
which would, at the same time, give him the privilege of discount,
etc., provided for in this bill?
Mr. Cannon. I suppose by that time the notes have matured, as a
rule, because they are all the time maturing where they have a lot of
paper. That is the thing; they have a lot of paper that is short of
lime.
Senator P omerene. If that is true, it would avoid the objection
largely. But they contend, for instance, in the wheat-growing belt
that the borrowing is done at one time, and the notes are redeemed,
say, late in the fall, when the crop is harvested ?
Mr. Cannon. I do not know enough about interior country banks
to go into that. But here is a country banker, we will say, who has
six-months paper. That will become 90-day paper within a very
short time. Every banker has part of his paper coming out of his
portfolio all the time. You have 90-day paper right ahead of you all
the time, besides your four, five, and six months paper; and I should
think that would work out itself in the ordinary course of events.
Senator P omerene. That is certainly true where the industries of
the community are diversified, but it seems to be contended that is not
the case; for instance, with the wheat-growing belt.
Senator Nelson. If you will allow me to interrupt you, on that
point----Senator P omerene (interposing). Yes.
Senator N elson. For instance, in our country, which is largely a
wheat-growing country, the notes are usually given early in the

BANKING AND CURRENCY.

2177

spring. The farmer has been unable to pay all of his debts out of
tne last year’s crop. The merchant is crowding him ; the agricultural
implement dealer or his help is crowding him. In the spring he gives
a six months’ note payable in the fall. The strain for currency for
moving our crops does not come until in September and October, and
by that time that paper is a 90-day paper.
Mr. C a n n o n . That is what I had m mind.
Senator N elso n . S o that it can be utilized in that way. I can see
how that can be covered in that way.
Senator P o m eren e . That avoids the objection that has been raised
here by many of our western friends.
Mr. C a n n o n . Yes; I should think that would cover the occasion.
Well, gentlemen, am I to be relieved from further questions?
Senator N elso n . Suppose where they issue notes that are given for
a year the strain did not come until the last part of the year, the
farmers generally give a note payable just after they are thrashing,
and when they commence to haul wheat to the railroad station and to
the elevator.
Mr. C a n n o n . Yes.
Senator N elso n . By that time this year note has only 90 days or
less to run. Now, then, they have harvested and thrashed and are
ready to haul the grain out, so that the banker could get that money
in time to move that crop ?
M r. C a n n o n . T h a t is th e v e ry idea.
Senator P o m er en e . And the demand is

made on New York, for
instance, later in the season ?
Mr. C a n n o n . Yes.
Senator P o m er en e . But that o n ly covers a period of two o r three
m o n th s I take it?
Mr. C a n n o n . Just about GO days.
Senator P o m eren e . S o that these small western banks could go to
the regional bank and get their accommodations?
Senator B ristow . They have got to carry it, however, for three
months or six months, while the city bank does not have to carry
it a day, unless it wants to.
Mr. C a n n o n . Oh, we take six-months notes, lots of them. We
give credit for six months. We have a large amount of commercial
paper sold on the market which is six-months paper. There is very
little four-months paper sold on the open market. Every good
banker provides his pocketbook and portfolio with paper which he
keeps ahead of him all the time; and most of the paper sold on the
market in New York, and most of the paper sold in Chicago, and
most all the notes we get from merchants, except in special cases,
runs from four to six months’ time. And, as I said a moment ago, he
will always have in his portfolio ample paper maturing this month,
next month, and the next month. Every banker ought to do that,
and if he is a careful banker he wTill keep the maturity of his paper
shifting all the time, so that he will get paper maturing all down the
line.
Senator P om eren e . I wanted to direct your attention to the cotton
section. Is it not true that the larger banks in the cotton States
make their principal pressure upon New York for loans within 90
days of the time that the cotton crop begins to mature?
Mr. C a n n o n . Yes; I should say so.
Senator P om eren e . S o that they then must have been able to have
carried the situation in their section themselves from their supply of

2178

BANKING AND CURRENCY.

money until within about 90 days, and must then call upon their cor
respondents to help?
Mr. Cannon. That is right. And I think as soon as that provision
is thoroughly known it can be handled.
Senator S hafroth. Mr. Cannon, I want to ask you what you think
of this scheme or proposition for the retirement of the national-bank
notes in a separate bill which I introduced?
Mr. Cannon. I have not seen the bill.
Senator S hafroth. I will read it to you and see what you think
about it:
That as gold certificates are received into the Treasury or any subtreasury of
the United States they shall be canceled and the gold represented by such cer
tificates transferred to the reserve fund in the Division of Redemption of the
Treasury, and in lieu of such canceled gold certificates there shall be issued
United States notes of like denominations, redeemable in gold coin at the Treas
ury or any subtreasury or mint of the United States which may be designated
by order of the Secretary of the Treasury, which notes shall be a legal tender
in payment of all debts, public and private, within the United States and its
possessions. And there shall also be issued at the same time a like amount of
such United States notes for substitution for all national-bank notes and for
the cancellation of the bonds of the United States securing the same until all of
said national-bank notes are retired.
S ec . 2. That upon the request of any national bank the Secretax*y of the Treas
ury is authorized, at his discretion, to assume the redemption of its nationalbank notes, to pay to such national bank in cash the difference between the
amount due at that date on the United States bonds securing said notes and said
notes, and to cancel said bonds. When national-bank notes, assumed as afore
said, shall be received into the Treasury or any subtreasury of the United States
they shall be canceled and retired, and in lieu thereof United States notes au
thorized by this act to the same amount and like denominations shall be issued,
paid out, and kept in circulation.
S ec . 3. That as the United States notes heretofore issued are received into the
Treasury or any Subtreasury the Secretary of the Treasury is directed to cancel
the same and issue in lieu thereof United States notes authorized by this act,
and to transfer to the redemption fund herein created a proper proportion of the
$150,000,000 of gold now held to redeem the same
S ec . 4. That a gold reserve of 50 per cent of all United States notes issued
and put in circulation under the provisions of this act shall be maintained in
the reserve fund of the Division of Redemption of the Treasury for the purpose
of redeeming the same, and the Secretary of the Treasury is authorized for
that purpose to purchase gold and exercise all of the powers granted to him by
section 2 of the act of Congress entitled “An act to define and fix the standard
of values, to maintain the parity of all forms of money issued or coined by the
United States, to refund the public debt, and for other purposes,” approved
March 14, 1900, and he is further authorized by general orders to require all
national banks to keep in their vaults as their lawful money reserve such kinds
of United States money as he may deem to the best interest of the Government.

Mr. Cannon. Good gracious! You do not ask me to pass on that
right off the bat ?
Senator S hafroth. Perhaps not. The only thing is, it is a scheme
by which the money would be uniform. The gold reserve would be
increased, and it would be so self-acting nobody would discover it
while it was going on, and at the same time it would be sounder
money than our greenback is now.
Mr. Cannon. I will read that with very great pleasure.
Senator Shafroth. I t would save the Government $14,000,000 in
interest, which it pays now on 2 per cent bonds, and it would obviate
the necessity of the issuing of the 3 per cents that were spoken of.
Mr. Cannon. I will take that with me and read it with great
pleasure.
Mr. Chairman, is that all you want of me to-day?

BANKING AND CUKRENCY.

2179

Senator P omerene. There are a couple of matters we will hear
from Mr. Cannon on later.
Senator W eeks. If Mr. Cannon has any tables or other matter
which he might have referred to or did refer to. I would suggest that
he put those tables in the record.
The Chairman. There are one or two questions I wanted to ask you.
We should be glad to have placed in the record the tables which you
have read.
Mr. Cannon. I will have some copies made and send them to you,
with great pleasure.
(The tables referred to by the witness follow:)
C o n d e n s e d s u m m a r y o f r e p o r t s as o f J u n e 4, 1913. and c h a n g e s th a t w il l he
m a d e u n d e r t h e F e d e r a l r e s e r v e a ct.

COUNTRY BANKS.
Items.
1. Loans, discounts, and over
drafts ................................
2. United States bonds and
premiums..........................
3. Federal reserve bank stock . .
4. Other investments...............
5. Due from Federal reserve
banks................................
6. Due from approved agents
(net)..................................
7. Exchanges, cash items, and
bills of other national
banks................................
8. Minor coin
9. Specie and ledger tender......
10. 5 per cent fund.....................
11. Due from United States
Treasurer..........................
Total resources.
12. Capital..................................
13. Surplus and undivided
profits.....................:.........
14. National bank notes out
standing............................
15. Due to national and State
banks and trust companies
(net).................................
16. Individual deposits and
dividends unpaid.............
17. United States deposits, pos
tal savings, and United
States disbursing officers.. .
18. Bills rediscounted and pay
able, reserves, and other
liabilities...........................
Total liabilities.

June 4, 1913.

60 days.

14 months.

36 months.

Thereafter.

$3,202,437

545,195
771?812

545,195
61,005
771,812

482,508

66,751
2,447
255,059
23,332

205!
23

107,280

178,800

250,320

367,900

296,380

224,860

66,751
2,447
178,800
23,332

1,573

5,362,114

5,328,532:

5,328,532

610,053

610,

610,053

516,953

516,

516,953

481,089

481,

481,089

101,290

101,

101,290

3,543,036

3,543,

3,543,036

33,582

76, 111

76,111

5,362,114

5,328,532

MEMORANDA.

3,609,584
3,609,584
3,576,002
3,576,002
3,576,002
Net deposits subject to reserve..
Total reserve required............... 15% 541,438 15% 541,438 12% '429,120 12% 429.120 12% 429,120
Cash reserve required................ \
207,242 5% 180,479 5% 178,800 5% 178,800 5% 178,800
205,054
266,059
178,800
178,800
Cash on hand (specie and legals).
178,800
24.575
Cash in excess of requirements..
58,817
On deposit in Federal reserve
banks:
Required.............................
3% 107,280 5% 178.800 5% 178,800
2% 71,520
Optional..............................
On deposit with approved re
310,863 10% 360,959 4% 143,040 2%
71,520
serve agents............................ i
Held by approved reserve
224.860
2%. 380
367,900
482,508
482,508
agents......................................
Excess with approved reserve
224.860
224.860
224,860
121,549
171,645
agents.....................................
23,332
Redemption fund......................

2180

BANKING AND CURRENCY.
C o n d e n s e d s u m m a r y o f r e p o r t s a s o f J u n e Jf, 1 9 1 3 , e t c . —Continued.

RESERVE CITY BANKS.
Items.
1. Loans, discounts, and overdrafts.................................
2. United States bonds and
premiums..........................
3. Federal reserve bank stock...
4. Other investments...............
5. Due from Federal reserve
bank..................................
6. Due from approved agents
(net)..................................
7. Exchanges, cash items, and
bills of other national
banks.................................
8. Minor coin............................
9. Specie and legal tender........
10. 5 per cent fund.....................
11. Due from United States
Treasurer.................. .......
Total resources.................
12. Capital..................................
13. Sin-plus and undivided
profits................................
14. National-bank notes outstanding............................
15. Due to national banks (net).
15a Due to State banks and
trust companies (net).......
16. Individual deposits and
dividends unpaid..............
17. United States deposits,
postal savings, and United

June 4, 1913.

60 days.

14 months.

36 months.

Thereafter.

$1,643,502

81,643,502

203,033
308,714

204,033
26,422
308;714

204,033
26,422
308,' 714

204,033
26,422
308,'714

204,033
26 422
308,714

55,838

91,777

162,882

233,783

231

156,360

96,991

2,457

100,054
869
242,296
8,091

100,054
869
215,874
8,091

100,054
869
167,516
8,091

100,054
869
165,199
8,091

100,054
869
162,881
8,091

3,312

2,744,654

2,674,711

2,648,964

2,623,217

264,217

251.42S

251,428

161,903
217,612

161,903
176,353

161,903
150,606

161,903
124,859

352,175

1,436,124

28.684

28,684

18. Bills rediscounted and payable, reserves, and other
liabilities............................

32,511

Total liabilities.................

2,744,654

2,674,711

2,648,964

2,623,217

MEMORANDA.

1,931,229
1.931,229
Net deposits subject to reserve..
1,851,286
1,835,539
1,809,792
Total reserve required............... 25% 482,807 20% 386,246 18% 335,031 18% 330,397 18% 325,763
Cash reserve required................ i% 237,358 10% 193,123 9% 167,516 9% 165,199 9% 162,881
Cash reserve optional__
....
242,296
215,974
Cash on hand (specie and legal).
167,516
165,199
162,881
Cash in excess of requirements..
4,938
22,651
On deposit in Federal reserve
bank, required.......................
5% 90,490
3% 55,838 5% 91,777
On deposit in Federal reserve
72,392
On deposit with approved re
serve agents............................. \% 237.358 10% 193,123 6% 111,677 4% 73,421
Held by approved reserve
96,528
agents......................................
156,360
233,783
233,783
2.457
Excess with approved reserve
22,974
44,683
40,660
agents......................................
3,575
2.457
8,091

CENTRAL RESERVE BANKS.
1. Loans, discounts, and over
drafts.................................
2. United States bonds and
premiums..........................
3. Federal reserve bank stock..
4. Other investments...............
5. Due from Federal reserve

$1,316,095

*1,316,095

89,874

89,874
18,265
250,284

42,315

65,268

58,253

179,386

250,284

6. Due from approved reserve
7. Exchanges, cash items, and
bills of other national
banks.................................

179,386

179,38

BANKING AND CURRENCY,

2181

C o n d en s ed s u m m a r y o f r e p o r t s as o f J u n e If, 1913, e tc . —

Continued.

CENTRAL RESERVE BANKS—Continued.
items.

8.
9.
10.
11.

Minor coin............................
Specie and legal tender........
5 per cent fund.....................
Due from United States
Treasurer..........................

June 4, 1913.
$264
405,628
3,972

60 days.
$264
387,363
3,972

14 months.

36 months.

$264
211,575
3,972

$264
169,696
3,972

Thereafter.
$264
151,456
3,972

4,752

Total resources..............

2,250,255

2,116,782

2,097,856

2,072,601

12. Capital.................................
13. Surplus and undivided prof
its......................................
14. National bank notes out
standing............................
15. Due to national banks (net)..
15a. Due to State banks and
trust companies (net).......
16. Individual deposits and div
idends unpaid...................
17. United States deposits, pos
tal savings, and United
States disbursing officers..
18. Bills rediscounted and paya
ble, reserves, and other
liabilities...........................
19. Rediscounts due to Federal

182,650

220,367

79,133
390,180

79,133
239,408

79,133
134,266

79,133
6,041

379,398

378,398

975,831

6,120

16,576

23,419

109,635

224,687

2,116,782

2,097,856

2,072,601

1,561,271
1,410,499
1,567,391
1,305,357
Net deposits subject to reserve..
Total reserve required............... 25% 391,848 20% 312,254 18% 253,890 18% 234,964
Cash reserve required................ 25% 387,876 10% 156,127 9% 126,945 9% 117,482
10% 156,127 6% 84,630 4% 52,214
387,363
211,575
169,696
405,628
Cash on hand (specie and legals).
75,109
17,752
Cash in excess of requirements..
On deposit in Federal reserve
i
banks:
3% 42,315 5% 65,268

1,165,050
18% 209,709
9% 104,854
4% 46,602
151,456

Total liabilities..............

....
2,250,255

2,250,255

MEMORANDA.

58,253

3,972
NEW YORK CITY BANKS.
1. Loans, discounts, and overdrafts..................................
2. United States bonds and premiums.................................
3. Federal reserve bank stock..
4. Other investments...............
5. Due from Federal reserve

*887,137

$887,137

53,227

53,227
11,970
210,880

53,227
11.970
210,880

53,227
11,970
210,880

29,596

45,791

41,075

156,851
142
147,979
2,477

156,851
142
119,058
2,477

156,851
142
106,794
2,477

210,880

Due from approved reserve
agents (net)........................
7. Exchange, cash items, and
bills of other national banks.
8. Minor coin............................
9. Specie and legal tender__
10. 5 per cent fund.....................
11. Due from United States
Treasurer...........................

......

3,171

Total resources.................

1,600,403

1,606,403

1,503,430

1,490,704

1,473,724

12. Capital..................................
13. Surplus and undivided
profits................................
14. National-bank notes outstanding............................
15. Due to national banks (net).
15a. Due to State banks and
trust companies (net)__
16. Individual deposits and dividends unpaid...................
17. United States deposits,
postal savings, and United
States disbursing officers..

119,700

176,442

48,013
262,345

48,013
160,966

48,013
90,268

48,013
4,074

280,471

705,113

3,586

156,851
142
292,518
2,477

156,851
142
2,80,548
2,477

218 2

BANKING AND CURRENCY.
C o n d e n s e d s u m m a r y o f r e p o r t s a s o f J u n e 4, 1918, e t c . —

Continued.

NEW YORK CITY BANKS—Continued.
Items.

June 4,1913.

18. Bills rediscounted and pay
able, reserves, and other

$10,733

19. Rediscounts—due to Fed-

60 days.

1$0,733

14 months.

36 months.

Thereafter.

$10,733

1,992

59,964

137,326

$10,733

1,606,403

1,503,430

1,490,704

1,473,724

1,091,493
272,876

1,091,493
218,298

986,528
177,575

915,830
164,849

821,488
147,869

270,399

109.149
109.149
280,548
62,250

88,787
59,192
147,979

82,425
36,633
119,058

73,934
32,860
106,794

29,596

45,791

41,075

MEMORANDA.

Net deposits subject to reserve.
Cash reserve:
Cash on hand (specie and legals).
Cash in excess of requirements..
On deposit in Federal reserve
bank:
Required.............................

292,518
22,119

2,477
T e n t a t i v e b a la n c e s h e e t F e d e r a l r e s e r v e b a n k o f Y e w

First year.

Y ork.

Second
year.

Third year.

ASSETS.

Cash reserve required on deposits....................................................... $42,298,000 $53,830,000 $55,000,000
Cash reserve required on note liability............................................... 33.334.000 33.334.000 33.334.000
100,000,000 100,000,000 100,000,000
Rediscounts...."..........................................................
Investments......................................................................................... 70.770.000 93.834.000 96.174.000
Total........................................................................................... 246,402,000 270,998,000 284,508,000
LIABILITIES.

Capital 10 per cent paid in.................................................................. 19.508.000 19.508.000
Genera! fund 1...................................................................................... 75,000,000 75,000,000
Required deposit of subscribing banks.............................................. 51.894.000 86.490.000
Note issue or deposit credit arbitrary................................................ 100,000,000 100,000,000

19,508,000
75.000.
000
90.000. 000
100,000,000

246,402,000 280,998,000 284, SOS, 000
1If the general fund is distributed on the basis of capital New York would get about 18.5 per cent or
$55,500,000. I have arbitrarily raised this figure to $75,000,000 assuming that New York would be favored
to that extent because of the larger amount of work it would be called upon to do as fiscal agent.

The C hairman . I wanted to ask you what you would think of
allowing the stock subscriptions by the proposed member banks to
be lowered to this point: Six per cent against the amount of the
capital stock and the surplus with one-half paid in? That would
make above $51,000,000 for the whole national-bank system, which
would be about half the present requirement.
Mr. Canno n . That is to say, your regional fund would be about
half the size?
The C hairman . N o ; their reserves would be about the same and
the Government deposits would be about the same, but the capital
would be about one-half.
Mr. Cannon . It had looked that up a little bit----The C hairman (interposing). The total capital stock of the na
tional banks is $1,056,000,000 and the reserves are $720,000,000.
Three per cent of that would be something over $50,000,000.
Mr. Cannon . Your idea is that the regional banks would have a
capital of $50,000,000?

BANKING AND CUKRENCY.

218 3

Senator N elso n . Would you mean to have 3 per cent paid in cash
and 3 per cent----The C h a ir m a n (interposing). Subject to call.
Senator N elso n . In 60 days?
The C h a ir m a n . Oh, no; 3 per cent paid in in cash during such
period of time as may be convenient and 3 per cent subject to call.
Senator N elso n . So the amount would be only 6 per cent instead
of 20 per cent?
The C h a ir m a n . Yes; I thought perhaps that would be more agree
able to the banks.
Mr. C a n n o n . Could they still handle the business and at the sam e
time come in competition with the large banks ?
The C h a ir m a n . They would not be in competition with the large
banks, because they have the opportunity to issue currency, which
the large banks have not.
Mr. C a n n o n . For instance, the First National Bank of New York
has a total capital with undivided profits of $31,600,000; the National
Bank of Commerce, $41,200,000; the National City Bank, $51,500,000; National Park Bank, $15,000,000; Continental Commercial, $30,600,000; St. Louis Bank of Commerce, $12,700,000. I just noted
those down as the sizes of the other large banks of the country.
The C h a ir m a n . The total of the system would be $720,000,000,
with $1,056,000,000 of capital. That would make somewhere near
$1,800,000,000 of total capital, surplus, and undivided profits.
Mr. C a n n o n . Y ou think that would be more likely to meet with
the approval of the national banks than having such a large contri
bution? As far as we are concerned, we would like that. We would
have to put up under this bill $1,000,000. If you could finance the
system on that basis I think it would be acceptable to the banks.
Senator N elson . Would you include the surplus, too ?
The Chairman. Oh, yes; the surplus, too.
Mr. C a n n o n . We w o u ld c e rta in ly lo o k w ith fa v o r u p o n th a t if
i t w o u ld finance th e sy stem p ro p e rly .
Senator N elson . Your capital and surplus is how m uch?
Mr. C a n n o n . $10,000,000.
The C h a ir m a n . I understand you would be content

with the
present requirements?
Mr. C a n n o n . This would certainly be very much better. We
would be content if we could get out of it some way at the proper
time.
The C h a ir m a n . Y ou w o u ld prefer this?
Mr. C a n n o n . Yes, sir; I would, if it would finance the system
properly.
The C h a ir m a n . A good many of the country banks have been
rather timid at the idea of subscribing an amount equal to 20 per
cent, whereas I think they would not mind at all subscribing an
amount equal to 6 per cent of their capital and surplus. Some of
the banks which have a large surplus would be getting corresponding
benefits in excess of what others would get, and it seemed to me it
might be more equitable to arrange it on capital and surplus. You
think, that being smaller, it would not seem----Mr. C a n n o n (interposing). It would not seem quite as if you were
putting your hand in their pockets too much.
The C h a ir m a n . I just thought I would ask you what you thought
of it.

2184

BANKING AND CUKBENCY.

Mr. C a n n o n . I sh o u ld th in k th a t w o u ld m eet w ith th e a p p ro v a l
o f th e b an k s.
Senator N elso n . But the regional bank in New York ought to
have a bigger capital than any of the local banks.
Mr. C a n n o n . It would not anyway under the present scheme.
Senator N elso n . It would depend upon what territory you took
in. I mean, counting the capital and the deposit account.
Mr. C a n n o n . Oh, yes.
The C h a ir m a n . What would you think of allowing the banks the
privilege of placing with the Federal reserve bank the amount which
now they are compelled by this bill to keep in their own vaults, leav
ing it optional with them to leave it with the Federal reserve bank
or not, as they please?
Mr. C a n n o n . Would not that weaken your reserve system a little
bit? I am afraid that would weaken your reserve system.
The C h a ir m a n . Why?
Mr. C a n n o n . Here is a bank that is some distance off from your
Federal reserve bank. Something comes up in that town, some man
drops dead, and you have a run on the bank. If all the reserve is off
at the Federal reserve bank you might have difficulty in handling
that crowd. They ought to have a substantial amount in their own
vaults.
The C h a ir m a n . They would exercise their option as to that. If
they were far removed from the reserve bank they would carry more
money, but if they were in the same city they would do as they pleased
about it. They themselves would consult their own convenience----Mr. C a n n o n . I sh o u ld be a f r a id it m ig h t w eaken y o u r reserve.
Senator N elso n . And then, Senator, as long as they do not get any
interest on their deposit with the Federal reserve bank, what is the
object of putting it there?
The C h a ir m a n . The object would be that you would have a larger
gold reserve, and therefore a greater power in the Federal reserve
bank.
Mr. C a n n o n . Y ou want to consider a little bit the effect it would
have upon the general reserves. How could you give that privilege
to a bank in a city where the Federal reserve bank is situated and
not give it to all the banks ?
The C h a ir m a n . It is not proposed to give it to all the banks, but
those in one city would exercise that right,
Mr. C a n n o n . Would not they consider that a kind of favoritism?
They can not do as they please, because they might please to put it
in and could not.
The C h a ir m a n . I f the city banks should put this money in, it
would give the reserve bank greater power to accommodate other
banks.
Mr. C a n n o n . I should want to give further consideration to that.
Senator W e e k s . Y ou do not think any country banker would de
posit any such large percentage of reserve with a reserve bank that
h e would be embarrassed in his daily business?

Mr. C a n n o n . I t does not seem to me that he would, but you can
not tell what bankers would do.
The C h a ir m a n . We are very much obliged to you, Mr. Cannon.
Mr. C a n n o n . Not at all. sir. I hope I have been of some service.
(Senator Reed presented the table facing this page for insertion
in the record.)

Statement showing money in circulation from 1860 to 1912.

in cir
Year. Gold
culation.

1860 *228,304,775
1861.. 246'400^000
1862.. 309', 697'744
1863.. 570'394,038
1864.. 644^641; 478
1865.. 689,971,860
1866.. 648,591,701
1867.. 637,126,128
1868.. 655,886,198
1869.. 640,573,364
1870.. 651,284,427
1871.. 693,616,114
1872.. 716,548,708
1873.. 728,799,412
1874.. 751,083,051
1875.. 729,101,947
1876.. 702,609,388
1877.. 697,314,883
1878.. 704,132,634
1879.. 110,505,362
1880.. 225,695,779
1881.. 315,312,877
1882.. 358,251,325
1883.. 344,653,495
1884.. 340,624,203
1885.. 341,668,411
1886.. 358,219,575
1887.. 376,540,681
1888.. 391,114,033
1889.. 376,481,568
1890.. 374,258,923
1891-. 407,319,163
1892.. 408,568,824
1893.. 408,535,663
1894.. 495,976, 730
1895.. 479,637,961
1896.. 454,905,064
1897.. 517,589,688
1898.. 657,950,463
1899.. 679,738,050
1900.. 610,806,472
1901.. 629,790,765
1902.. 632,394,289
1903.. 617,266,739
1904.. 645,817,576
1905.. 651,063,589
1906.. 668,655,075
1907.. 561,697,371
1908.. 813,244,810
1909.. 599.337,698
1910.. 590,877,993
1911.. 589,295,538
1912.. 610,724,154

Silver in circulation.

Average
United
value
States notes gold
of
United
in circula
States
tion.
notes.1

Gold certificates in
circulation.

$72,865,665
312,481,418
415,115,990
378,916,742
327,792,305
319,437,702
328,571,665
314,702,094
324,962,638
343,068,970
346,168,680
348,464,145
371,421,452
349,686,335
331,447,378
337,899,344
320,905,895
301,644,112
327,895,457
328,126,924
325,255,427
323,242,177
318,687,214
331,218,637
323,812,699
326,667,219
300,000,040
316,439,191
334,688,977
343,207,300
309,559,904
319,059,426
266,589,602
203,648,985
224,249,868
245,954,622
284,569,022
308,351,842
313,971,545
330,045,406
334,291,722
334,248,567
333,759,425
332,420,697
335,940,220
342,270,055
339,396,322
340,118,267
334,787,870
338,989,122
337,697,321

None.
None.
None.
None.
None.
None.
None.
None.
None.
None.
None.
None.
None.
None.
None.
None.
None.
None.
$15,279,820
7,963,900
5,759,520
5,029,020
59,807,370
71,146,640
126, 729,730
76,044,375
91,225,437
121,094,650
117,130,229
130,830,859
120,063,069
141,093,619
92,642,189
66,339,849
48,381,309
42,198,119
37,285,339
35,811,589
32,655,919
200,733,019
247.036,359
306,399,009
377,258,559
465,655,099
485,210,749
516,561,849
600,072,299
782,976,619
615,005,449
802, 754,199
943,435.618
943,435,618

88.3
68.9
49.2
63.6
71
72.4
71.6
75.2
87
89.5
89
87.9
89.9
87
89.8
94.4
99.2

100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100

Standard
silver dollars.
(s)
(J)
(»)
(2J
(s)
(*)
(2)
(2)
(2)
(*)
(2)
(2)
(2)
(2)
(2)
(2)
(2)
(2)
*1,209,251
81,036,439
20,110,557
29,342,412
32,403,820
35,651,450
40,690,200
39,086,969
52,668,623
55,548,721
55,527,396
54,457,299
56,278, 749
58,826,179
56,817,462
56,929,673
52,564,662
51,986,043
52,116,904
51,940,281
58,482,966
61,481,426
65,889,346
66,921,323
68,747,349
72,391,240
71,313,826
73,584,336
77,001,368
81,710,444
76,328,657
71,987,900
72,432,514
72,446,049
70,399,574

Subsidiary
silver.
(2)
(*)
(2)
(»)
(2)
(2)
(*)
w
(2)
(2)
(2)
(2)
(2)
(2)
(2)
t2)
(2)
(2)
*53,918,322
61,346,584
48,511,788
46,839,364
46,379,949
46,474,299
45,660,808
43,702,921
46,173,990
48,583,865
50,362,314
51,477,164
54,032,587
58,219,220
63,293, 704
65,469,866
58,510,957
60,350,014
60,204,451
59,616,409
64,056,920
69.065,824
76,160,988
79.235,214
85,721,228
92,726,694
95,528,343
101,437,707
111,509,624
121,777,401
124,178,165
132,331,798
135,583,731
139,421,723
145,034,198

Total cir
culation
Silver certifi National
bank notes per capita
cates in
circulation. in circulation. of national
bank notes.

None.
None.
None.
None.
None.
None.
None.
None.
None.
None.
None.
None.
None.
None.
None.
None.
$7,080
414,480
5,789,569
39,110,729
54,506,090
72,620,686
96,427,011
101,530,946
88,116,225
142,118,017
200,759,657
257,155,565
297,556,238
307,235,966
326,693,465
326,823,848
326,990,726
319,622,941
330,657,191
357,849,312
390,126,510
402,136,617
408,465,574
429,643,556
446.559,662
454,733,013
461.138.698
454,864,708
471,520,054
470,211,225
465,287,705
477,717,324
487,597,238
453.543,696
469,224,400

*31,235,270
146,406,725
276,116,170
286,889,020
295,151,410
292,876,157
289,719,714
314,132,781
332,276,164
340,880,078
340,265,544
340,546,545
316,120,702
301,289,025
311,724,361
321,404,996
337,415,178
349,746,293
352,464,788
348,598,488
330,689, *93
309,124,222
304,976,044
276,855,203
245,306,780
207,220,633
181,604,937
162,220,646
167,221,517
174,669,786
200,718,200
206,953.051
215,168,122
226,318,003
222,990,987
237,805,439
300,115.111
345,110,800
345,476,516
399.996,709
433.027,835
480,028,849
548,001,238
589,242,125
631,648,680
665,538,806
683,659,535
687,701,283
705,142,259

*0.09
4.12
7.77
7.92
7.98
7.75
7.51
7.94
8.18

8.22

7.97
7.74
7.00
6.49
6.13
6.16
6.72
6.81
6.73
6.49

6.00

5.50
6.09
4.71
4.16
3.38
2.90
2.54
2.56
2.63
2.96
3.00
3.06
3.16
3.05
3.19
3.93
4.43
4.36
4.09
5.29
5.76
6.48
7.08
7.44
7.48
7.56
7.31
7.37

Capital of na
tional banks.

*7,188,393.00
86i782; 802.00
393,157,206.00
415,472,369.00
420,073,415.00
420,634,511.00
426,399,151.00
435,356,004.00
460,225,866.00
482,606,252.00
490,266,611.00
495,802,481.00
505,485,865.00
497,482,016.00
477,128,771.00
464,874,996.00
454,498,515.00
458,540,085.00
465,639,835.00
484,883,492.00
511,837,575.00
524,089,065.00
529,360,725.00
550,698,675.00
580,733,094.42
593,848,247.29
617,840,164.67
657,877,225.00
677,356,927.00
689,698,017.50
681,812,960.00
666,271,045.00
656,956,245.00
647,186,395.00
629,655,365.00
620,516,245.00
606.725,265.00
632,353,405.00
665,340,664.00
714,616,353.00
758,315,170.00
776,089,401.00
808,328,658.00
847,514,653.00
901,681,682.00
921,019,383.66
953,963,472.81
1,004,288,107.37
1,026,440,500.00
1,046,012,580.00

Surplus of na
tional banks.

*128,030.26
2,010,286.10
38,713,380. 72
53,359,277.64
66,695,589.01
77,995,761.40
86,165,335.32
94, 705, 740. 34
101,573,153.62
111,410,248.98
120,961,267.91
130,485,641.37
133,085,422.30
131,390,664.67
121,618,455.32
116,402,118.84
115,429,031.93
121,824,629.03
129,867,493.92
135,930,969.31
144,800,252.13
146,867,119.06
150,155,549.52
159,573,479.21
175,246,408.26
187,292,469.97
198,508,794.14
214,965,633.67
228,221,530.31
239,931,932.08
246,739,602.09
244,937,179.48
246,177,563.53
247,399,567.15
246,416,688.48
246,095,552.28
250,367.691.89
262,387,647.59
287,170,337.92
335,763,730.38
375,503,102.21
399,961,534.15
420,785,055.00
504,548,213.62
549,614,684.05
568,159,292.92
603,246, 750.20
652,462,489.68
672,891,252.01
701,021,452.71

Individual de
posits of
national banks.

Number
of na
tional
banks.

32', 704; 000
*8,497,681.84
122,166,536.40
508
500,910,873.22
1,513
564, 616, 777. 64
1,664
540,797,837.51
1,642
580,940,820.85
1,643
511,400,196.63
1,617
507,368,618.67
1,648
596,586,487.54
1,790
598,114,679.26
1,940
540,510,602. 78
1,976
682,846,607.45
2,027
618,517,245.74
2,086
619,350,223.06
2,082
604,512,514.52
2,074
598,805,775.56
2,055
755,459,996.01
2,052
1,006,452,852.82
2,095
1,102,679,163.71
2,164
1,066,901,719.85
2,308
1,106, 453,118.23
2,529
987,649,055 68
2,664
1,111,429,914.98
2732
1,169,716,413.13
2875
1,235, 757,941.59
3070
1,331,265,617.08
3150
1,436,402,685.65
3326
1,485,095,855. 70
3573
1,602.052,766.59
3692
1,764,456,177.11
3784
1,539,399,795.23
3787
1,695,489,346.08
3737
1,720,550,241.03
3,706
1,639,688,393.60
3,661
1,916,630,252.25
3,607
2,225,269,813.21
3,590
3,602
2,380,610,361.43
2,623,997,521.88
3,942
2,964,417,965.82
4,291
3,152,878,796.65
4,666
3,176,201,572.89
5,118
3,707,706,530.93
5,477
3,989,582,834.59
5,833
4,289,773,899.28
6,199
4,176,873, 717.48
6,625
4,720,284,640.40
6,865
5,120,442,963.08
7,006
5,304,788,306.45
7,204
5,536,042,281.16
7,328
5,891,670,007.00
7,397

Popula
tion.

31,443,321
32;06i;000
33.365,000
34,046,000
34,748,000
35,469,000
36,211,000
36,973,000
37,756,000
38,558,371
39,555,000
40,596,000
41,677,000
42,796,000
43,951,000
45,137,000
46,353,000
47,598,000
48,866,000
50,155,783
51,316,000
52,495,000
53,693,000
54,911,000
56,148,000
57,404,000
58,680,000
59,974,000
61,289,000
62,622,250
63,844,000
65,086,000
66,349,000
67,632,000
68,934,000
70,254.000
71,592,000
72,947,000
74,318,000
76,303,387
77,754,000
79,117.000
80,487,000
81,867.000
83,260,000
83,662.000
86,074.000
87,496.000
88,926,000
90,363.000
93,983.000
95,656,000

>Specie payments suspended 1862 to 1879.
’ Nofigures available.
Total of all State banks June 14,1912, and all mutual savings banks, stock savings banks, private banks, loan and trust companies:
Capital...................................................................................................................................................................................................................................................... $964,235,780.49
Surplus.................. . ................................................................................................................................................................................................................................. 870,684,492.80
In case all banks and trust companies in the United States and the island possessions of the United States would join the different Federal reserve banks and take out their 20
per cent capital stock as provided in the act they would deposit in these regional banks the sum of $402,049,672.09.
S. Doc. 232, 63-1—VOL 3. (To face page 2184.)
Jf

Total cir
culation Year.
per capita.

$13.85
13.98
10.23
17.84
19.67
20.58
18.99
18.29
18.42
17.63
17.51
18.17
18.27
18.09
18.13
17.16
16.12
15.58
15.32
16.75
-9.41
21.71
22.37
22.93
22.65
23.03
21.78
22.45

22.88

22.52
22.82
23.45
24.60
24.06
24.56
26.24
21.44
22.92
25.19
25.62
26.93
27.98
28.43
29.42
30. 77
31.08
32.32
32.22
34.72
34.93
34.33
34.20
34.34

I860
1861
1862
1863
1864
1865
1866
1867
1868
1869
1870
1871
1872
1873
1874
1875
1876
1877
1878
1879
1880
1881
1882
1883
1884
1885
1886
1887
1888
1889
1890
1891
1892
1893
1894
1895
1896
1897
1898
1899
1900
1901
1902
1903
1904
1905
1906
1907
1908
1909
1910
1911
1912

BANKING AND CURRENCY.

2 185

(The chairman presented the following statistical table and re
quested that it be inserted in the record:)
A g g r e g a t e r e s o u r c e s a n d lia b ilitie s o f n a tio n a l b a n k s, 190S to 1912.

1909 (Apr. 28). 1910 (June 30).

1908 (July 15).

1911 (June 7).

1912 (June 14).

7,277 banks.

7,372 banks.

Classification.
6,824 banks.

6,893 banks.

7,145 banks.

RESOURCES.

Loans on real es-

$57,070,962.4f .................
$65,112,003.29 $74,831,997.28
Loans on other col
lateral security.. i $1,990,152,632.00 1,939,431,702.8£ $2,050,590,293.00 2,004,993,992.88 2,135,767,904.39
Other loans and
2,625,522,899.59 2,966,608,204.24 3,379,568,893.75 3,540,732,790.84 3,743,304,530.18
23,397,257.78
24,705,023.68 24,584,055.22 25,743,314.27
19,849,391.65
U n ite d States
732,599,187.16 740,167,972.67 748,797,808.97 754,744,891.34 783,497,976.72
State, county, and
municipal bonds. 2179,384,137.05 156,612,965.93 1 161,998,193.97 176,284,278.64 210,426,073.39
Railroad b o n d s
8507,425,613.60 351,371,083.96 298,692,105.00 361,221,071.31 384,321,275.41
Bonds of other
public-service
corporations.......
01h*e r s t ocks ,
Due from other
b a n k s and
bankers..............
Real estate, furni-

153,305,600.23

148,643,966.78 153,025,132.00

182.297.622.00

195,707,108.25

208,165,517.21

287.840.448.00

287,328,544.09

249,447,101.58

1,104,458,684.94 1,232,556,106.45 1,201,606,823.38 1,376,785,821.33 1,424,091,680.31
198,279,190.33 215,966,786.14 236,463,370.67
271,464,243.39 338.333,768.51 482,805,231.42
889,213,394.43 926,776,902.82i 865,452,856.21
37,553,793.69 62,593,847.89 42,433,572.51

Checks and other
cash items..........
Cash on hand........
Other resources__

253,009,304.09

266,625,008.70

317.477.121.00
998,061,441.05
41,090,650.76

295,215,400.32
996,142,823.46
44,654,163.00

8,714,064,400.09 9,368,883,843.13 9,896,624,696.73 10,383,048,694.31 10,861,763,877.15
LIABILITIES.

Capital stock........
Surplus fund.........
Other undivided
Dividends unpaid.
Indi vi dual de
posits ...............
United States de
posits 4............
Due to other banks
and bankers.......
Other liabilities__
Total...........

919,100,850.00 933,979,903. CO 989,567,114.00 1,019,633,152.25 1,033,570,675.00
564,045,022.80 587,132,286.31 644,857,482.82 671,946,796.68 693,990,419.08
184,656,576.85 207,944,821.08 216,546,125.10
2,849,822.39
1,130,750.07 15,144,463.48

241,554,106.09
1,851,823.47

256,837,095.57
1,622,560.16

4,374,551,208.33 4,826,060,384.38 5,287,216,312.20 5,477,991,156.45 5,825,461,163.36
130,266,023.63

70,401,818.99

54,541,349.41

48,455,641.54

58,945,980.66

1,822,853,669.00 l, 036,753,287.47 1,900,135,622.01 2,147,440,999.04 2,178,163,418.11
715,741,227.09 705,480,591.83 788,616,227.71 774,175,018.79 813,172,565.21
8. 714.064.400. HQ 0363.883.843. 1.3

3,896,624,696. 73 0,383,048,694.31 10,861,763,877.15

1Classification as of September call.
2Includes State, etc., and railway bonds held by Treasurer of United States to secure public deposits
3Includes bonds of other corporations.
4Includes deposits of United States disbursing officers.
•
N o t e .— For consolidated statement

of all banks, see text of this report.

2186

BANKING AND CURRENCY.

Aggregate resources and liabilities of State banks from 1908 to 1912.
Classification.

1908

1909

11,220banks.

11,319 banks.

1910
12,166 banks.

1911

1912

12,864 banks.

13,381 banks.

RESOURCES.

Loans on real estate........ $188,352,185 $414,820,580.12 $472,428,488.53 $489,660,852.27 $572,934,870.29
Loans on other collateral
security......................... 127,270,669 559,690,457.10 594,419,425.26 606.377,489.15 563,042,284.11
Other loans anddiscounts. 2,090.944,681 1,112,841,061.34 1,308,646,565.82 1,311,054,107.83 1,379,5S5.928.04
Overdrafts........................
29,447,901 34.316.574.20 30,972,194.87 32.322.218.37 32,860,093 94
United States bonds........
2,888,514
2,050.780.00
5,221,710.94
2,848,777.50
4,330,539.47
State, county, and munic
ipal bonds.....................
3,729,479 65.892.211.21 63,952,194.59 55,096,142.18 81,967,470.56
Railroad bonds and stock
2,698,260 75,036,949.01 69,343,008.35 75.753.959.38 71,549,647.21
Bank stocks.....................
184,385
Bonds of other public
service corporations......
50,977,866.08 44,484,912.86 52,742,087.88 53,609,977.26
Other stocks, bonds, etc.. 492,935,533 95,892,443.89 123.793.905.69 129,109,896.01 130,339,491.98
Due from other banks and
bankers......................... 549,297,603 491,961,365.43 485,361,856.14 525,822,785.89 530,161,901.29
Real estate, furniture, etc. 136,146,988 119,702,242.64 130,844,382.91 135,115,589.73 138,428,757.38
Checks and other cash
items.............................
71,251,438 75,096,440.72 105,187,734.98 77,855,345.68 77,752,380.52
Cash on hand................... 308,736.342 227,039,134.90 240,580,836.12 236,662.497.38 241,756,724.48
Other resources.................
28,754,507 10,180,096.61 22.892.480.69 17,364,546.20 18,550,760.18
Total....................... 4,032,638,485 3,338,669,134.19 3,694,958,766.81 3,747,786,296.35 3,897,770,826.71
LIABILITIES.

Capital stock.................... 502,513,303 416,059,900.00 435.822.833.58 452,944,684.44 459,067,206.81
Surplus fund............... .
217,112,085 152,639,305.36 187,571,005.45 170,566,937.42 271,373,944.18
Other undivided profits..
86,503,972 91,213,767.57 05,678,941.67 92,785,739.26
Dividends unpaid............
682,749
1,235,652.15
1,039,492.86
2,441,796.41
829,045.40
Individual deposits.......... 2,937,129,598 2,466,958,665.76 2,727,926,986.03 2,777,566,835.81 2,919,977,897.99
Due to other banks and
bankers......................... 207,432,987 158,958,549.87 129,768,527.09 144,578,103.41 142,644,643.99
Other liabilities................
81,263,791 51,799,452.77 145.748.676.58 108,108,343.86 103,878,088.34
Total....................... 4,032,638,485 3,338,669,134.19 3,694,958,766.81 3,747,786,296.35 3,897,770,826.71
A g g r e g a t e r e s o u r c e s a n d lia b ilitie s o f s a v in g s b a n k s ( m u tu a l a n d s t o c k s a v in g s )
f r o m 1 9 0 7 -8 to 1912.

Classification.

1907-8

1909

1910

1911

1912

1,453 banks.

1,703 banks.

1,759 banks.

1,884 banks.

1,922 banks.

RESOURCES.

Loams on real estate........ $1,440,061,503 $1,620,131,445.62 $1,832,097,713.03 $1,963,906,841.51 $2,087,677,677.90
Loans on other collateral
security...................... 66,624,785 232,893,152.92 226,704,806.91 205,912,380.77 240,472,906.77
Other loans and discounts. 364,362,059 177,977,493.04 233,707,955.82 243,857,140.37 259,374,577.22
1,050,343
2,266,509.26
1,906,951.03
1,595,816.33
Overdrafts.....................
1,978,070.99
United States bonds....... 13,860,545 43,566,428.18 32,082,745.00 13,226,534.10 29,031,138.45
State.county,and munic
ipal bonds................... 587,155,390 710,159,543.86 743,463,260.89 779,927,236.80 776,431,140.75
Railroadbonds and stocks 618,193,415 769,980,508.90 783,704,137.70 792,998,933.33 794,083,005.53
Bank stocks................... 24,265,271 .........................
Bonds of other public
96,554,513.65 120,134,242.69 101,139,974.97 143,565,265.60
service corporations.....
Other stocks, bonds, etc.. 343,465,167 93,009,919.88 117,727,439.77 161,976,217.67 179,809,612.84
Due fromother banks and
bankers...................... 163,616,708 218,477,832.87 214,327,121.92 242,389,433.46 258,280,430.86
Real estate, furniture, etc . 57,010,988 68,123,675.81 73,955,091.77 75,866,650.82 80,830,846.65
Checks and other cash
4,552,812.46
779,228
5,397,201.49
3,944,728.46
iterhs..........................
4,594,881.48
Cash on hand................. 43,483,533 32,697,021.94 50,880,340.23 42,408,336.78 45,452,063.85
85,604,217
2,927,330.95 45,782,436.65 22,554,993.25 21,141,671.69
Other resources..............
Total.................... 3,809,533,152 4,072,710,105.34 4,481,871,444.90 4,652,313,302.62 4,922,723,290.63
LIABILITIES.

Capital stock.................. 36,013,455 59,506, 420.00 68,320,822. 30 72,177,899.09 76,871,811.79
Surplus fund.................. 244,711,801 224,424,711.93 276,229,027.77 261,834,083.46 280,036,025.43
Other undivided profits.. 39,412,250 62,160,100.11 53,814,779.06 77,264,792.69 89,595,370.89
364,639.25
51,294.48
Dividends unpaid..........
92,707.96
262,835.16
Individual deposits......... 3,479,192.891 3,713,405,709.80 4,070,486,246.70 4,212,583,598.53 4,451,555,687.72
Due to other banks and
6,690,451.96
bankers......................
8,234,513.44
3,187,417
8,084,294.10 10,181,417.50
5,965,477.86 20,317,340.27 14,220,142.14
4,885,942.10
7,015,338
Other liabilities..............
Total.................... 3,809,533,152 4,072,710,105.34 4,481,871,444.90 4,652,313,302.62 4,922,723,290.63

BANKING AND CURRENCY.

218 7

Aggregate resources and liabilities of private banks from 1908 to 1912.
1909

1908
Classification.

1,007 banks. 1,497 banks.

1910

1911

1912

934 banks.

1,116 banks.

1,110banks.

RESOURCES.

Loans on real estate................... $19,610,740 $36,636,702.07 $22,746,018.18
Loans on other collateral se
curity ...................................... 7,521,699 21,096,873.66 13,832,195.89
Other loans and discounts........ 80,226,816 103,569,194.24 70,224,281.77
Overdrafts.................................. 1,796,144 4,616,218.90 1,646,968.46
389,190.00
609,219.30
United States bonds..................
297,157
State, county, and municipal
bonds...................................... 1,100,443 3,228,802.32 2,336,285.00
584,460.18
550,901 1,213,577.66
Railroad bonds and stocks........
205.348
Bonds of other public service
1,760,406.73 1,106,865.55
corporations............................
Other stocks, bonds, etc............ 5,821,879 6,187,297.87 5,992,780.67
Due from other banks and
bankers................................... 27,298,378 40,832,891.79 24,069,188.01
Real estate, furniture, etc.......... 6,448,497 13,026,388.49 7,482,500.61
704,623.55
Checks and other cash items__ 1,529,589 1,387,731.95
Cash on hand............................. 8,497,540 11,053,706.52 6,764,890.90
636.349 1,037,343.91 2,135,304.04
Other resources..........................

$37,536,422.83 $39,531,511.77
16,316,121.32 19,775,745.64
71,559,680.21 68,106,577.60
2,633,647.85 2,370,427.64
410,282.47
422,117.74
2,466,506.72
448,547.28

2,436,189.39
1,412,833.27

1,418,865.04
5,125,443.71

1,986,671.33
7,667,677.09

26,168,941.51 29,622,664.53
9,621,350.43 14,214,049.23
1,039,498.54
860,206.87
7,189,327.84 7,450,404.38
889,584.93 1,083,320.94

Total................................. 161,541,480 246,256,355.41 160,015,552.81 182,824,220.68 196,940,397.42
LIABILITIES.

Capital stock.............................. 21,122,836 27.726.922.00 18,899,561.74 21,872,416.34 22,348,040.33
Surplus fund.............................. 5,556,239 10.195.237.01 6,541,431.06 7,329,974.38 9,333,680.83
Other undivided profits............ 3,475,238 5,533,006.44 3,160,559.55 3,421,956.92 4,250,634.46
62,003.43
62,448.49
35,160
189,643.09
74,638.22
Dividends unpaid......................
Individual deposits.................... 126,673,158 193,263,224.31 124,644,003.22 142,277,224.21 152,494,618.90
Due to other banks and bankers. 1,561,453 3,404,236.54 1,644,318.25 1,583,296.84 1,707,139.16
Other liabilities......................... 3,117,396 6,071,725.68 5,063,230.50 6,149,708.90 6,731,645.52
Total................................. 161,541,480 246,256,355.41 160,015,552.81 182,824,220.68 196,940,397.42
A g g r e g a t e r e s o u r c e s a n d lia b ilitie s o f lo a n a n d t r u s t c o m p a n ie s f r o m 1908 to
1912.

Classification.

1908

1909

1910

1911

1912

842 compa
nies.

1,079 compa
nies.

1,091 compa
nies.

1,251 compa
nies.

1,410 compa
nies.

RESOURCES.

Loans on real estate........ $153,727,485 $377,318,280.19 $369,161,435.56 $467,531,456.44 $526,509,702.69
Loans on other collateral
821,341,681 1,222,881,129.16 1,230,282,986.02 1,289,452,721.54 1,279,983,539.16
Other loans and discounts. 404,412,308 460,550,859.39 655.016.724.24 668.650.649.78 900,350,885.96
3,786,253.54
860,744
2,111,764.82
3,916,235.40
4,397,620.37
555,303
2,224,692.43
United States bonds........
3,222,380.20
5,985,094.59
1,271,940.0)
State, county, and munic
89,639,65' 155,647,931.87 144.495.162.24 187,123,910.87 202,293,176.75
ipal bonds.....................
29,576,311 362,404,241.30 312,518,321.28 371.707.846.78 380,190,967.79
Railroad bonds and stocks
4,805,843
Bank stocks.....................
Bonds of other public168,589,933.84 159,294,782.36 212,593,716.76 208,673,579.15
468,914,756.87 541,978,126.32 341,128,520.22 421,996,627.13
Other stocks, bonds, etc.. 651,298,154 /\ 300,324,823.03
382,683,343.96
Due from other banks and
391,573,223 578,243,506.14 467,643,271.31 617,605,590.28 605.669.597.26
Real estate, furniture, etc. 97,112,461 127,216,448.81 125,486,325.05 143,081,102.71 157,188,159.03
Checks and other cash
items.............................
5,878,676 19,129,908.47 26,374,390.56 21,763,736.38 51,677,976.00
118,398,874 254,447,910.16 260,129,890.91 269,825,566.23 282.151.463.26
96,452,153 34,641,394.69 80,379,723.21 68,635,104.75 80,375,993.13
Other resources................
Total....................... 2,865,632,876 4,068,534,982.65 4,216,850,061.52 4,665,110,868.71 5,107,444,382.27
LIABILITIES.

278,408,759 362,763,223.00 367,333,556.37 385,782,933.44 418,985,771.77
Surplus fund.................... 370,145,308 351,699,101.89 432,718,233.98 400,406,067.99 424,313,939.08
Other undivided profits...
45,894,591 141,683,091.23 65,448,601.52 138,464,384.81 136,428,039.39
Dividends unpaid............
467,115
985,990.44
2,842,956.53
2,360,771.04
850,048.81
Individual deposits.......... 1,866,964,314 2,835,835,180.79 3,073,122,706.20 3,295,855,895.27 3,674,578,238.92
Due to other‘banks and
bankers......................... 163,014,678 276,753,308.05 187,141,876.31 319,368,254.43 299,938,456.82
Other liabilities................ 140,738,111 98,815,087.25 88,242,130.61 122,872,561.73 152,349,887.48
Total....................... 2,865,632,876 4,068,534,982.65 4,216,850,061.52 4,665,110,868. 71 5,107,444,382.27

2188

BANKING AND CURRENCY.

A g g r e g a t e r e s o u r c e s an d lia b ilitie s o f n a tio n a l a n d o t h e r r e p o r t in g b a n k s o n o r
a b o u t J u n e 30, 1908 to 1912.

1908

1909

1910

1911

1912

23,095 banks.

24,392 banks.

25,195 banks.

Classification.
21,346 banks. \ 22,491 banks.
RESOURCES.

Loans on real es
tate................ $1,801,751,913.00: !$2,505,977,970.46 i$2,696,433,655.30 1*3,023,747,576.34 1$3,301,485,759.93
Loans on ot / r
eollaten
security.......... 3,012,911,466.00l 3,975,993,315.69 4,115,829,707.08 4,123,052,705.66 4,239,942,380.07
Other loans and
discounts...... '. 5,565,468,763.59: 4,821,546,812.25 5,647,164,421.40 5,835,854,369.03 6,350,722,499.00
62,381,193.45
Overdrafts.........
63,735,193.87,
61,455,604.59
69,699,592.98
57,860,155.68
United S t a t e s
bonds.............
750,200,706.16 792,787,711.29 784,592,463.97 773,455,177.84; 823,266,866.97
State,county, and
muni ci pal
bonds............. ! 861,009,108.05 1,091,541,455.19 1,116,245,096.69 1,200,898,075.21 1,273,554,050.84
Railroad bonds
and stocks....... 1,158,444,501.60 1,560,006,360.83 1,464,842,032.51 1,602,130,358. OS 1,631,544,479.26
Bonds of other
public - service
466,526,687.08 478,045,935.46 550,192,266.65 603,542,601.59
corporations__
29,460,847.00
Bank stocks.......
Other st ocks,
bonds, etc........ 1,646,826,333.23 703,580,001.88 979,644,571.67 925,180,526.51 1,026,975,383.45
Due from other
banks and
bankers........... 2,236,244,596.94 2,562,071,702.68 2,393,008,260.76 2,788,772,572.47 2,847,992,843.93
Real estate, fur
494,998,124.33 544,035,541.89 574,231,671.01 616,693,997.78 657,299,660.36
niture, etc.......
Checks and other j
cash items....... t 350,903,174.39 437,892,578.11 620,469,182.00 422,688,514.06 430,101,255.82
Cash on hand..... ! 1,368,329,683.43 1,452,014,676.34 1,423,808,814.37 1,5.54,147,169.28 1,572,953,479.43
Other resources... 249,001,019.69 111,380,014.05 193,623,517.10 150,534,879.89| 165,805,908.94
Total......... 19,583,410,393.09 21,095,054,420.72 22,450,320,522.77 23,631,083,382.67 24,986,642,774.18
LIABILITIES.

Capital stock...... 1,757,159,203. Oo’ 1,800,036,368.00 1,879,943,887.99 1,952,411,085.56 2,010,843,505.70
Surplus fund...... i 1,401,570,455.80: 1,326,090,642.50 1,547,917,181.08; 1,512,083,859.93 1,584,981,106.44
Other undivided
profits............. 359,942,627.85 508,534,786.43 404,649,006.90 553,490,979.77j 581,178,042.47
Ci r c ul a t i o n
(national banks)! 613,663,963.00 636,367,526.00 675,632,565.00 681,740,513.00 708,690,593.00
5,689,184.23
94,034,846.39
20,856,304.16
Dividends unpaid
3,639,127. 75
3,310,944.76
Individual
deposits.......... 12,784,511,169.33 14,035,523,165.04 15,283,396,254.35 15,906,274,710.27 17,024,067,606.89
United S t a t e s
48,455,641.54
58,945,980.66
54,541,349.41;
deposits.......... j 130,266,023.63
70,401,818.99
Due to other
banks and'
bankers........... 2,198,050,204.00 2,484,103,895.37 2,225,380,795.62: 2,621,054,947.82 2,632,635,075.58
Other liabilities... 344,211,900.09 230,685,273.63 358,003,178.26 349,882,460.55 381,661,735.69
Total.........: 19,583,410,393.09 21,095,054,420.72 22,450,320,522.77' 23,631,083,382.67 24,986,642,774.18

1Includes mortgages owned.

2 Includes bonds of other corporations for national banks.

A g g r e g a t e lo a n s, r e s o u r c e s , c a p ita l, an d d e p o s its f o r t h e fisc a l y e a r s 1908 t o
1912, in c lu s iv e , o f b a n k s r e p o r t in g to C o m p t r o lle r o f t h e C u r r e n c y .

[In millions of dollars.]
Year.
1908.................
1909......................
1910........................
1911..................................
1912........................................

Num
ber of
banks.

Loans.

Resources.

21,346
22,491
23,095
24,392
25,195

$10,437.9
11,393.1
12^521.7
13'046.4
13; 953.6

$19,583.4
21.035.0
22,450.3
23.631.0
24,986.6

Capital.
$1,757.1
1,800.0
1,879.9
1,952.4
2,010.8

Individual
deposits.
$12,784.5
14,035.5
15.283.3
15.906.3
17,024.0

BANKING AND CURRENCY.

2 189

S u m m a r y o f r e p o r t s o f c o n d itio n f r o m 25,195 b a n k s in t h e U n ite d S ta t e s a n d
is la n d p o s s e s s io n s ( in c lu d in g N a tio n a l, S ta te , s a v in g s , a n d p r i v a t e b a n k s an d
lo a n a n d t r u s t c o m p a n ie s ), s h o w in g t h e ir c o n d itio n a t t h e c lo s e o f b u s in e s s
J u n e Ilf, 1912.
RESOURCES.

Loans and discounts :
Secured by real estate (including
mortgages o w n ed )_____________ $3,301,485,759.93
Secured by collateral other than
real estate_____________________ 4, 239, 942, 3S0. 07
All other loans___________________ 6,350,722,499.00
O verd rafts__________________________
61, 455, 604. 59
$13, 953, 606, 243. 59
Bonds, securities, etc., including pre
miums thereon:
United States bonds______________
$823, 266, 866. 97
State, county, and municipal bonds- 1, 273, 554, 050. 84
Railroad bonds__________________ 1, 631, 544, 479. 26
Bonds of other public-service cor
porations (including street and interurban railways bonds)----------603, 542, 601. 59
Other bonds, stocks, warrants, etc— 1, 026, 975, 383. 45
Banking house, furniture, and fixtures.
Other real estate owned________________________________
Due from banks________________________________________
Checks and other cash items------------------------------------------Exchanges for clearing house----------------------------------------Actual cash on hand:
238,389, 386. 74
Gold coin________________________
Gold certificates__________________
1643, 547, 090. 00
Silver dollars____________________
22, 957, 395. 00
Silver certificates________________
194, 374,169. 00
Subsidiary and minor coins----------37,738,008.29
Legal-tender n o tes_______________
253,122, 053. 00
108, 2S1, 687. 00
National-bank notes______________
Cash not classified_______________
74, 543. 690. 40

$5. 358, 883, 382.11
550, 326, 884. 44
106, 972, 775. 92
2, 847, 992, 843. 93
55, 236, 223. 74
374, 865, 032. 08

1 ,

Other resources

572, 953, 479. 43
165, 805, 908. 94

24, 986, 642, 774. 18

Total resources
LIABILITIES.

Capital stock paid in___________________________________
S u rp lu s_______________________________________________
Undivided profits______________________________________
National-bank circulation_______________________ ._______
Due to banks__________________________________________
Dividends unpaid______________________________________
Individual deposits subject to check
without notice_____________________ $8, 323, 485, 623. 53
Saving deposits or deposits in interest
or savings department______________ 6. 496,192, 707. 60
Certificates of deposit—_______________ 1, 952, 784,093. 94
Certified checks_____ ________________
135, 241, 263. 20
Cashier’s checks outstanding__________
116, 363,918. 62
United States deposits_________________________________
Notes and bills rediscounted____________________________
Bills payable, including certificates of deposit representing
money borrowed________________________ ____________
Other liabilities________________________________________
Total liabilities

1 Includes $80,479,000 clearing-house certificates.

$2. 010. 843, 505. 70
1 , 584,981,106. 44
581,178, 042. 47
708, 690, 593. 00
2, 632, 635, 075. 58
3, 639,127. 75

17, 024, 067, 606. 89
58, 945, 980. 66
21, 836, 346. 24
127, 77S, 722. 66
232, 046, 666. 79
24, 986, 642, 774.18

P rin c ip a l item s o f resources and liabilities o f S tate, savings, and priva te banks, loan and trust com p a nies, and n a tion a l banks, fr o m 1863 to 1912.

[Pro1S33 to 1872, inelufive, data7ro:n various sources; from 1873 compiled from reports obtained by the Comptroller of the Currency.]
[Amounts in millions of dollars.]

Year.

1863..........................................

Loans
Number and dis
of banks counts
report (includ
ing over
ing.
drafts).
1,466
/ M.089

1865..........................................
1866..........................................
1867..........................................
1868..........................................
1869..........................................
1870.........................................
1871..........................................
1872.........................................
1873..........................................
1874...........................
1875..........................................
1876.........................................
1877.........................................
1878.........................................
1879.........................................
1880..........................................
1881..........................................
1882..................
1883..........................................
1884..........................................
1885..........................................
1886..........................................
1887..........................................
1888..........................................
1889..........................................
1890..........................................
1891..........................................
1892.........................................
1893.........................................
1894.........................................
1895.........................................
1896.........................................
1897.........................................

e 4(j7

1,960
2,267
2,279
2,293
2,354
2,457
2,796
3,066
71,968
i 1 893
3 336
3,448
3,384
3,229
3,335

‘3,355

3'427
3', 572
3,835
4,111
4^350
4,378
6,179
6j647
7,203
7,999
8,641
9,338
9,492
9,508
9,818
9,469
9,457

8648. 6
70.7
362.4.
550.4
588.5
655.7
686.3
719.3
789. 4
871.5
1,439.9
lj 564.5
lj 748.1
1,727.1
lj 720.9
lj 561.2
lj507. 4
1,662.1
1,901.9
2j 050.3
2j 133. 6
2j260.7
2,272.3
2,456.7
2,944.9
3j 161.1
3,475. 2
3,842. 1
3,965.9
4,336.6
4,368.6
4,085.0
4,268.8
4,251. 1
4,216.0

Bonds,
stocks,
etc.

$180.5
93.4
404.3
465.2
443. 1
440.5
414.6
406.1
419.9
431.2
713.2
723.2
793. 1
807.3
841.2
865.9
1,032.9
'900.6
500.9
1 049.1
951. 2
1,030.4
952.0
1,031. r
' 999.9
1,112.1
1,111.9
1,158.0
1,042.5
1,269.4
1,354.1
1,445.3
1,565.2
1,674.4
1,732.3

Due
from
banks
and
bankers.

Specie.

$96.9

$46.1
50.7

33.3
103.0
110.7

100.0

123. 1
107.6

121.2

143.8
144.0
167.1
193.6
195.0
198.2
184.6
183.2
204.0
248.9
346.1
307.3
392.8
294.1
432.9
349.8
632.1
439.1
513.7
531.3
652.6
684.3
549.2
705.1
714.4
645.0
781.4

9.4

12.6
11.1
20.8

18.5
31.1
19.9
24.3
*27.9
«22.3
s 19.0
825.4
821.3
829.7
842.7
8100.2
« 129.5
8112.4
s 116.2
8110.2
8179.0
s 152.2
8165.1
226.4
» 221.5
221.9
217.3
262.2
210.9
283.4
246.3
251.2
297.7

Paper
cur
rency.1

Total
cash in
bank.

*$205.5
$190.0
219.3
194.5
179.9
144.0
156.6
174.1
153.3

219.7
277.6
256.4
261.8
324.2
305.0
405.5
384.8
280.6
330.5

47.6
199. 4
231.9
205.6
200.7
162.5
187.7
194.0
177.6
218.2
252.2
238.7
226.4
230.5
214.6
216.3
285.5
295.0
287.1
321.0
321.2
414.3
375.5
432.8
446.1
499.1
478.3
479.1
586.4
515.9
688.9
631.1
531.8
628,2

Capital.

$405.0
311.5
75.2
397.0
480.8
483.8
486.4
489.7
513.7
561.7
592.6
532.9
550.3
592.6
602.3
614.2
587. 7
580.4
565.2
572.3
590.6
625.6
656.4
678.0
686.7
806.8
853.7
893.3
968.7
1,029.7
1,071.1
1,091.8
1,069.8
1,060.3
1,051.9
1,012.3

Surplus
and
profits.

$4.2
54.5
79.4
93.9
109.4
126.0
132.7
143.1
155.4
215.6
199.9
254.2
261.6
260.5
237.7
246.1
260.2
292.0
310.1
347.8
379.6
362.0
393.8
460.2
493.7
531.9
584.0
619.2
650.3
689.3
682.4
699.3
694.4
712.7

Individ
Circula United
States
ual de
tion.2 deposits.3
posits.

Due to
banks.

$393.7

$100.5

$1,191.7

119.4
641.0
815.8
876.6
968.6
1,032.0
1,051.3
1,251.6
1,353.8
1,421.2
lj 526.5
lj 787.0
lj 778.6
1,813.6
lj 717.4
lj 694.2
lj 951.6
2j 296.8
2j 460.1
2j 568. 4
2j 566.4
2j 734.3
2,812.0
3,308.2
3j 422. 7
3,778.1
4,062.5
4,196.8
4,664.9
4,627.3
4,651.2
4,921.3
4,945.1
5,094.7

27.4
157.8
122.4
112.5
140.7
129.0
148.5
176.4
172.7
178.6
232.5
194.7
183.3
170.1
161.7
187.9
239.6
314.7
279.0
288.2
227.0
293.0
308.9
350.1
366.1
434.6
432.3
415.7
464.9
419.9
599.1
600.5
521.7
673.4

252.3
1,126.5
1,476. 4
1,494.1
1,572.2
1,564.2
1,510.7
1,730.6
1,770.8
2,731.3
2,890.4
3j 204.6
3j 183.1
3j 204.1
3j 080.6
3j 212.6
3j 399.0
3j 869.1
4,031.1
4j 208.0
4,221.3
4,426.9
4,521.5
5j 203.7
5j 470.4
5,940.9
6,343.0
6,562.1
7,245.3
7,192.3
7,290.6
7,609.6
7,553.9
7,822.1

$238.7
163.3
189.1
131.5
267.8
291.8
294.9
292.7
291.8
315.5
327.1
340.2
338.7
318.1
294.8
290.4
300.4
307.7
318. 4
312.5
309.2
312.2
295.3
269.2
238.0
166.8
155.5
129.0
126.5
124.0
141.2
155.1
171.8
178.8
199.2
196.6

$58.0
39.1
33.3
28.3

12.8
13.2
11.1
12.4
15.1

10.6
10.2
11.1

10.9
25.6
252.1
10.7

12.2
12.6

13.9
14.2
14.0
17.1
23.2
58.4
46.7
30.6
25.9
14.2
13.7
14.1
13.2
15.4
16.4

Total
assets.

1898.........................................
1899.........................................
1900.........................................
1901.........................................
1902.........................................
1903.........................................
1904.........................................
1905..........................................
1906.........................................
1907..........................................
1908.........................................
1909.........................................
1910..........................................
1911..........................................
1912..........................................

9,485
9,732
10,382
11,406
12,424
13,684
14,850
16,410
17,905
19,746
21,346
22,491
23,095
24,392
25,195

4,652.2
5,177.6
5,657.5
6,425.2
7,189.0
7,738.9
7,982.0
9,027.2
9,893.7
10,763.9
10,438.0
11,373.2
12,521.8
13,046.4
13,953.6

1,859.7
2,179.0
2,398.3
2,821.2
3,039.2
3,400.1
3,654.2
3,987.9
4,073.5
4,377.1
4,445.9
4,614.4
4,723.4
5,051.9
5,358.9

924.9
1,203.1
1,272.8
1,448.0
1,561.2
1,570.6
1,842.9
1,981.9
2,029.2
2,135.6
2,236.2
2,562.0
2,393.0
.2,788.8
2,848.0

285.6
274.2
300.2
328.5
307.1
379.0
378.4
376.8
383.4
394.2
507.8
407.4
414.2
443.4
435.9

687.8
723.3
749.9
807.5
848.1
857.2
990.6
994.1
1,016.4
1,113.7
1,368.3
1,452.0
1,423.8
1,554.2
1,572.9

992.0
973.6
1,024.7
1,076.1
1,201.6
1,321.9
1,392.5
1,463.2
1,565.3
1,690.8
1,757.2
1,800.0
1,880.0
1,952.4
2,010.8

732.7
761.1
882.2
955.6
1,096.9
1,273.4
1,360.9
1,439.5
1,558.9
1,645.0
1,761.5
1,834.6
1,952.6
2,065.6
2,166.1

189.9
199.4
265.3
319.0
309.4
359.2
399.6
445.4
510.9
547.9
613.7
636.3
675.6
681.7
708.7

52.9
76.3
98.9
99.1
124.0
147.3
110.3
75.3
89.9
180.7
130.3
70.4
54.5
48.5
58.9

5,688.2
6,768.7
7,238.9
8,460.6
9,104.7
9,553.6
10,000.5
11,350.7
12,215.8
13,099.6
12,784.5
14,035.5
15,283.4
15,906.3
17,024.0

809.8
1,046.4
1,172.5
1,333.0
1,393.2
1,475.9
1,752.2
1,904.3
1,899.0
2,875.4
2,198.0
2,484.1
2,225.3
2,621.1
2,632.6

8,609.0
9,904.9
10.785.9
12.357.5
13.363.9
14.303.1
15,198.8
16.918.2
18.147.6
19.645.0
19,583.4
21.095.0
22.450.3
23.631.1
24.986.6

8 National banks.
7 Number of national banks only; number of State and savings banks not reported.
8 Specie in national banks; incomplete for State banks.
9 Includes coin certificates from 1889; specie for 1902 partially estimated.

N o t e .— Since 1873 the Comptroller of the Currency has collected and published'statistics of State banks, but complete data for compiling these statistics for a number of years
thereafter were available only for those States in which the banks were required to report to some State official. For recent years the statistics are practically complete.

(Thereupon, at 5.45 o’clock p. m., the committee adjourned to meet at 10.30 o’clock a. m. to-morrow, Saturday,
October 11, 1913.)

2191

BANKING AND CURRENCY.

1Includes cash not classified.
8Includes deposits of United States disbursing officers.
<Specie funds and notes of other banks.
8From Homan’s Banker’s Almanac.
2 Includes State bank circulation.

402.2
449.1
449.7
479.0
541.0
478.2
612.2
617.3
633.0
719.5
860.5
1,044.6
1,009.6
1,110.7
1,137.0

2192

BANKING AND CURRENCY.
S A T U R D A Y , OCTOBER 11, 1913.

U n ited S tates S e n a t e ,
C o m m ittee on B a n k in g and C u rren cy ,

Washing ton, D. C.
The committee met at 10.33 o’clock a. m.
Present: Senators Owen (chairman), Hitchcock, O’Gorman, Peed,
Pomerene, Shafroth, Hollis, Nelson, Bristow, and Weeks.
The C h a ir m a n . Judge Montgomery, we w ill hear you now, i f you
please.
STATEMENT OF S. B. MONTGOMERY, OF OUINCY, ILL.

Mr. M ontgomery . It was suggested that I should be called first,
because I was appointed chairman of this committee and in view of
the fact that I was president of the Illinois Bankers’ Association,
and not because I was expected to do much of the talking. This
morning I dictated a little statement, and if it is not objectionable
I will just read it.
The C h a ir m a n . That will be all right.
Mr. M ontgomery . The committee appearing here was authorized
at the meeting of the Illinois Bankers’ Association on October 26,
1913. That convention was the largest ever held in Illinois. In
fact, double as large as the largest State convention that was ever
held. There is no doubt that interest in the pending legislation in
Congress is responsible for so large an attendance.
Senator S h a fr o t h . What date did you say it was ?
Mr. M ontgomery . October 26.
Senator S h a fr o t h . October?
Mr. M ontgomery . Oh, I do not mean October; September 26.
Senator S h a fr o t h . I thought we had not arrived at that date.
Mr. M ontgomery . No ; as president of that association I was au
thorized to appoint this committee. In doing this I thought it best
to confine myself to down-State bankers. Those selected I think
represent the various sections and localities of the State and the
different systems of banking. The resolution adopted at Chicago
provided that we indorsed and approved the Chicago conference re
port, but that has largely been modified, and I think we are here
not for the purpose of urging any part of that now. It is only the
different items we think of interest to what we call ourselves—
country bankers. The names of the members of this committee and
their banks, and location of the same, are as follows: William George,
president of the Old Second National Bank of Aurora; B. F. Harris,
vice president of the First National Bank of Champaign (both of
these gentlemen are ex-presidents of the Illinois Bankers’ Associa
tion) ; John M. Crebs, president National Bank of Carmi; H. D.
Sexton, president Southern Illinois National Bank; Ashe V. Cox,
Xenia, president of Orchard City Bank (a private bank) ; William
C. White, president Illinois National Bank, Peoria; and J. S. Aisthorpe, president First Bank & Trust Co., Cairo, 111.
In reference to Mr. Crebs, I want to say one word. He has been
for a long time in the southeastern part of the State, and for a long
time has been president of the State fair association, and is quite

BANKING AND CURKENCY.

2193

well acquainted in the State. Mr. Harris is one of the ex-presidents
of the Illinois Bankers’ Association, and is right here by me, and he
is just as big an apostle of the farmer.
The C hairman. Yes; I have had the pleasure of meeting Mr.
Harris a number of times.
Mr. Montgomery. The organization in Illinois is made up of 10
groups, covering the State, one in the city of Chicago and counties
adjoining it, and nine others down State. I was only made chair
man of the committee because I happened to be president of the Illi
nois Bankers’ Association, and not on account of my fitness. I prac
tised law a good part of my life and, besides, being a State banker,
we are not so vitally interested at present, at least, as are the national
banks.
You have heard this bill discussed from so many angles and by so
many experts that I do not feel we should consume much of your
time. We are not experts. I think the entire committee comes here
with the feeling that your committee is working conscientiously and
faithfully to make a banking and currency law that will be a credit
and help to all the people, and that includes the bankers.
We are not here attempting or wishing to defeat this bill. We
are favoring many parts of it, especially that which provides the
banks a place to go for credit when they need it. That is the great
est need of the American banking system to-day. Under the present
system at the first appearance of trouble we at once become selfish
and try to strengthen ourselves at the expense of everyone else, and
thus accentuate, precipitate, and bring on the very trouble we were
fearing. It would appear that this bill if enacted into law would
cure that trouble. At the same time we are compelled to say to you
that there exists among country bankers a very widespread and
almost universal sentiment unfavorable to some of the features of the
proposed law.
For the past month I have talked with, I might say, hundreds of
bankers, and while they are favorable to the law in the main, it is
always with the qualification that it be modified in many of its fea
tures. I shall mention only a few of these points and then ask other
members of the committee who are real bankers to express their views
to you.
First. There is a wish among country bankers that the amount they
should be required to subscribe to the Federal reserve bank, should
be reduced from 20 to 10 per cent, 5 per cent of the same to be paid in.
Second. Bankers have suggested that the Federal reserve board be
composed of seven men to be appointed by the President. The sug
gestion I am about to make, I saw in the paper yesterday, Mr. Can
non has already made to the committee. As I say, bankers have sug
gested that the Federal reserve board be composed of seven men to
be appointed by the President, but instead of the Secretary of the
Treasury, the Secretary of Agriculture and the Comptroller of the
Currency being members of the Federal reserve board, our suggestion
is that they be left off, and that the President appoint three bankers
to be selected by him.
I think that the Comptroller of the Currency would be very prop
erly one of this board, but he is so extremely busy it seems to me it
would be hard for him to perform the duties that would be required.

2194

BANKING AND CURRENCY.

Third. It seems unnecessary that there should be a requirement
for 12 regional Federal reserve banks. It would be easier to put the
law in operation with half that number.
Fourth. Another thing that would be popular with the bankers
would be that the stock should pay 6 per cent cumulative instead of 5
per cent cumulative interest.
Fifth. Another objection is the proposition to transfer items at
par without exchange. Bankers would hope that this might be
changed so that it would only be items “ drawn by ” one member
bank instead of “ drawn on ” member banks.
Sixth. The savings bank feature seems unnecessary. Many small
country banks are in the habit of accepting savings and yet the
business done does not develop very largely, and it would be ex
tremely burdensome to them to segregate their capital and their
investments and be compelled to carry on this small savings part
of their business separately.
Seventh. Bankers in our section do not understand the proposi
tion of allowing real estate loans to be made for a period of one
year only. I understand that is hardly sufficient to cover that
feature and other legislation may follow it, and that it had refer
ence to some particular locality. No loans on real estate are made
for one year in that section. The maturity is almost invariably 5
or 10 years, and so for as that section is concerned it would be utterly
useless. My colleagues on this committee will elaborate on these
objections, and others of which they may speak.
The Chairman. I think most of those objections are recognized
by the members of the committee as having force, and that the com
mittee will take some steps toward granting relief along the lines
of those objections. I will not go into the details about it, but I
think that is really the attitude of the committee.
Mr. Montgomery. N ow, shall I introduce the other speakers?
The Chairman. If you please.
Mr. Montgomery. Mr. Aisthorpe is the next speaker.
STATEMENT OF J. S. AISTHORPE, VICE-PRESIDENT OF THE ILLI
NOIS BANKERS’ ASSOCIATION, CAIRO, ILL.

Mr. A isthorpe. Gentlemen, I represent perhaps what is known as
the country banker. While in some respects not occupying the
position directly of the country banker, I am in a small city sur
rounded by what are termed country banks. They object to the
fact that this law really makes a clearing house through the reserve
bank of country checks, as we term them.
The C hairman. Checks of your depositors, you mean?
Mr. A isthorpe. Checks of our depositors—individual checks.
Now, as you know, the country banker, or at least a large per cent of
them, charge for remitting those checks.
The Chairman. That is, for remitting the proceeds of those
checks ?
Mr. A isthorpe. Yes; the proceeds of those checks. And in some
respects it is a burden upon them to do that.
The C hairman. It costs you money to run that business?
Mr. A isthorpe. Certainly.

BANKING AND CUKBENCY.

2195

The C hairman. And you have to have men employed for that
express purpose?
Mr. A isthorpe. Yes. This section is not quite understood, if it
applies to individual checks; that is, depositors’ checks drawn on the
member bank.
The C hairman. I think that is a fair interpretation of it.
Mr. A isthorpe. They object to that check being collected at par
or deposited at par and collected at par through the reserve or
regional bank, whatever you may call it.
The C hairman. There is a net profit to the country bank on that
business ?
Mr. A isthorpe. Yes.
The Chairman. And that net profit is what they wish to retain.
That is right, is it not?
Mr. A isthorpe. Yes. I do not know whether the committee really
understands the fact that that is an item of profit to the small country
bank, and it is one of the things they exist upon; while, taking it in
my city, we kick against it all the time. We do not like the charges
the way they do. At the same time it is fair that should be retained.
It does not seem fair that the city banker, the large city banker, the
reserve banks of the cities at the present time, should be allowed to
deposit in the regional bank or the reserve bank those checks and re
ceive credit at par.
The C hairman. I t was thought, I think, that the depositors of the
country banks who remitted to their wholesale merchants, for in
stance, while they do not pay directly it is believed that the whole
salers in reality charge them more for their goods in order to meet
any incidental expenses of that kind.
Mr. A isthorpe. I do not know whether they do that, because they
take it for granted it can be collected at very little expense. The
clearing houses in some of the reserve cities, of course, have a fixed
charge on collecting country checks of $1 a thousand. They do that;
but the individual merchant, the wholesaler, or jobber in the town, or
even a retail merchant, rather than go to a bank and buy his ex
change, or get a post-office order, or an express order, he will send
his own individual check.
The Chairman. That is a thing that may be illustrated by the
popular song, “ Everybody’s doing it.” [Laughter.]
Mr. A isthorpe. Everybody’s doing it; that is true. And he does
that not only because it does not cost him anything to do it, but it
also gives him time to meet that check when it is presented at the
bank. Now, if this law gives the right to the depositing bank that
is a member of the reserve bank to deposit that check at par, then it
will be sent to the member bank on whom it is drawn, and they will
have to remit at par or, rather, it is charged to their account, which
ever way you put it.
The Chairman. That is the way it is to be done under this bill.
They would not remit at all, but simply charge it to their account.
And, in like manner, their checks would be credited to them.
Mr. A isthorpe. I presume it would be charged at the reserve bank
as of the date of its receipt.
The Chairman. Oh, yes; there is no waiting. But in the same
way the member bank would be given credit when it sent in its own
checks on other banks.

2196

BANKING AND CURRENCY.

Mr. A isthorpe. That does not seem to be fair to the country banker.
In the first place, it opens the gateway for check discounting.
The Chairman. The country bank, of course, would get credit
immediately for all its checks sent in in the same way.
Mr. A isthorpe. Yes; but the country bank does not get as many
checks in proportion as the large city banks do. Of course, there are
no jobbing houses in the country towns, and they do not have checks
to handle at their end of the line like the banks in the towns where
the large retail houses and wholesale houses are located. Therefore
they wrould get no remuneration in that respect.
Senator N elson. I want to call your attention to this phraseology
in the bill on page 33. After referring to the other matter, it says:
Nothing herein contained to be construed as prohibiting member banks from
making reasonable charges to cover actual expenses incurred in collecting and
remitting funds for their patrons.

Mr. A isthorpe. Yes; that is true that it does contain that. But I
take it for granted that will be largely in the control of the managers
of the reserve bank as to what shall be done in that respect. If they
say, “ Why, no; we credit you at par on any items you send to us, and
therefore we charge you direct the items we send you,” it is a little
bit misunderstood—the language there—and I think it should be
made plain. My idea is, taking it from the small country bank,
that its check—the bank’s check—drawn on another bank should be
charged to him at par in the regional bank or the reserve bank, but
his depositor’s checks should not be permitted to be charged to his
account at all. In other words, I think the committee should amend
that section there and let it stop.
Senator Nelson. Y ou would distinguish between individual checks
and bank checks?
Mr. A isthorpe. And the bank’s checks; yes.
Senator Nelson. The check of one bank on another would be
within the rule?
Mr. A isthorpe. Yes; within the rule.
Senator Nelson. And the individual check you would exclude?
Mr. A isthorpe. I would exclude that entirely. When you stop to
think about it, gentlemen—for instance, take a retail man who buys
a bill of goods in New Orleans. I am in Cairo, 111., and he buys a
bill of goods from New Orleans. Now, instead of going into the
bank and buying a New Orleans exchange he sends his own individual
check.
Senator Nelson. On his local bank.
Mr. A isthorpe. On his local bank. Now, that check is deposited
in the regional bank in New Orleans and is deposited at par. That
regional bank sends it, of course, to me as a member of the associa
tion—the reserve bank—and I have to remit at par or, rather, it is
charged to my account. It is not a question of remitting, exactly;
it is charged to my account. Now, the bank has made no profit and
has had nothing to do with the transaction whatever.
The Chairman. I t would save you from the expense of keeping
these extra accounts.
Mr. A isthorpe. Y ou mean with the reserve agents in different
cities ?
The Chairman. Yes; keeping accounts with banks in different
cities.

BANKING AND CURRENCY.

2197

Mr. A isthorpe. I take it for granted, as far as that is concerned,
the bank will have to keep what we might call our individual ac
counts with another bank, even were this banking law in effect.
The Chairman. Doubtless they would keep accounts anyway for
the purpose of obtaining rediscounts, in case they need it.
Mr. A isthorpe. Certainly. But here is the point: You are impos
ing on the bank at Cairo, through the transfer of funds at New
Orleans, where the wholesaler there made a profit on his sale of goods
to the merchant in my town—you are imposing that burden on the
bank. I t does not seem that burden ought to be imposed. Between
the banks that is a different proposition.
The Chairman. The proposal is that your bank should be allowed
to send all of its checks at par to the Federal reserve bank, and you
would immediately get credit for those checks, and it would save you
from carrying on the miscellaneous correspondence incident to send
ing checks to the various parts of the country for collection.
Mr. A isthorpe. That is true.
The Chairman. And save you time and expense, and you get im
mediate credit, which is a positive advantage. Another advantage
is, as far as the exchange is concerned, you will not be compelled to
carry accounts in banks in various parts of the country upon which
your customers may desire exchange, but you can give them exchange
on any part of the country by your own checks.
Mr. A isthorpe. I agree with you in that; but the volume of busi
ness which is transacted is so much larger against the country bank
that the country bank can not remunerate itself from its end of the
line.
The C hairman. Y ou mean to say the income and outgo do not
balance each other?
Mr. A isthorpe. The checks do not. In our country banks, you
know, the farmer does not come in, as a rule, and deposit a check.
He generally has the money, or if it is a check it is a local check in
the part of the town in which he lives.
Senator N elson. Pardon me for interrupting you, but would it
not be fair for the local bank to charge the local customer for it?
The local customer instead of buying his draft, as he should do, to
send to New Orleans gives his check.
Mr. A isthorpe. Yes; he ought to do that; I admit that.
Senator N elson. I t is up to him. Now, the store merchant in
Cairo could go to the bank and buy New Orleans exchange instead
of sending his check on the Cairo bank, and that is what he should do.
Mr. A isthorpe. That is what he ought to do, but what he don’t
do and won’t do.
Senator Nelson. If he neglects that he should bear that burden.
Mr. A isthorpe. Not the banks; that is what I am trying to
eliminate.
Senator Shafroth. But he does it that way in order to have a
receipt right on the back of his check.
The Chairman. And it is so convenient to inclose a check in a
letter, rather than to go out and buy a draft, and be bothered in that
way, and that is why it has grown to be a universal custom. I t has
been estimated that there are 15,000,000 checks in circulation in this
country daily in process of collection. I t has become the habit of
the citizen, who consults his own convenience when he wants to pay

2198

BANKING AND CURRENCY.

an account in a distant place, to slip his own check in a letter and
send it through the mail, and that saves his time.
Senator S h a f r o t h . Some times he has to wait in line in order to
get a draft.
The Chairman. I t is not convenient to him. It may take 15 or 20
minutes, or it may take an hour to send his boy down to get a draft.
I t is a matter of convenience all around and obtains in the whole
country.
Mr. A isthorpe. The wholesaler and jobber are benefited, and the
banks have been trying to break up that practice.
The Chairman. The depositor is benefited, because it saves him
the expense of sending a man down to the bank with his check to
exchange for a bank check on that center to which he wants to remit,
and he might send a boy dowrn there and have to wait half an hour
or an hour, and it may be necessary to do that, perhaps, three or four
times a day, and he sends his own check as a matter of convenience.
Mr. A isthorpe. I admit what you say, that it is an accommodation
to the customer in that respect, but the individual bank, with this
method that the committee proposes here, is absolutely placing those
checks at a premium, in a sense. That is, it is allowing the merchants
to run their checks out, and the regional bank that is at the point where
they are received—thej' will be deposited there by the bank which
will get credit for them at par immediately, and they will be charged
to the country bank against its account, before it has had an oppor
tunity to know whether that check is good or whether, really, any
check has been drawn or not.
The Chairman. I think an item should be placed in this bill that
would bar checks of any persons who have sent through the bank
a check that is not good at the time it was made. I think there should
be a barrier placed on that.
Mr. A isthorpe. I do not think individual checks ought to be
charged to the account of the bank on which they are drawn at the
time they are deposited.
The Chairman. When they are drawn, of course, they go to the
wholesaler, and then he underwrites that check, puts his name on it,
and he is good for it. Then it goes to his bank and his bank under
writes it, and so there are two additional parties underwriting that
check before it goes to the reserve bank. Therefore there is no rea
sonable doubt about that check. Yet, there will occur a time when
some check will be found wrongfully drawn, perhaps.
Senator Nelson. If you will allow me, I do not think such a check
as we have referred to, a check by a merchant in Cairo upon the local
bank there, comes within the scope of this bill, if you will read it. I
call your attention to the language—
It shall be the duty of every Federal reserve bank to receive on deposit, at par
and without charge for exchange or collection, checks and drafts drawn upon
any of its depositors or by any of its depositors upon any other depositor—

Now, the depositors of the regional bank are not individuals; they are
the banks.
The C hairman. And the checks drawn upon a depositor would be
drawm upon a member bank.
Senator N elson. The depositors of the regional banks are only
member banks, not individuals.

BANKING AND CURRENCY.

219 9

The Chairman. That is right.
Senator N elson. Therefore this check that he describes would not
come within the provisions of this bill—
It shall be the duty of every Federal reserve bank to receive on deposit, at par
and without charge for exchange or collection, checks and drafts drawn upon
any of its depositors;

Who are its depositors ? The member banks.
Mr. A isthorpe. If you stop right there, that is true.
Senator N elson. “ Or by any of its depositors upon any other de
positor.” If you make that clear, so as to apply to the member banks,
there can not be any doubt about it.
Mr. A isthorpe. No ; that is the point exactly, sir.
The C hairman. If you would read that checks and drafts drawn
upon any of its “ depositors ” or “ member banks,” it would mean the
same thing.
Senator Nelson. “ Or by any of its depositors upon any other de
positor.”
Senator P omerene. That is, drawn by one member bank upon an
other bank.
Mr. A isthorpe. That is just the point I am trying to make.
Mr. Montgomery. That suggestion is in my paper there, just what
the gentleman said, “ drawn by ” one member bank, instead of
“ drawn on ” member banks.
The Chairman. Yes; but a check drawn upon any of its depositors
means drawn upon any of its member banks, and does not mean any
thing but that.
Senator N elson. I do not think such checks as you describe here,
checks drawn by your local merchant, on your local bank, would come
within the scope of this bill at all.
The C hairman. I do not understand how you interpret it, Senator;
I think, however, we are depriving the witness of an opportunity to
give his views.
Senator W eeks. I was going to suggest that we might take this up
among ourselves later.
Mr. A isthorpe. But here. Senator, it reads this way, “ checks and
drafts drawn upon any of its depositors or by any of its depositors
upon any other depositor.” There is too much there in the language.
I can be misconstrued. If you would eliminate all of this “ depositor ”
business, after you get down to “ it shall be the duty of every Federal
reserve bank to receive on deposit, at par and without charge for ex
change or collection, checks and drafts drawn upon any of its de
positors,” and put a period in there, then you are applying it directly
to the member banks of the reserve bank.
The C hairman. That is not the intention of the section; it is in
tended to cover private checks.
Mr. A isthorpe. I am taking for granted it is.
The C hairman. Y ou are objecting to that, and your reason is that
it deprives the country bank of its revenue.
Mr. A isthorpe. That is true.
The C hairman. And the question is, How much revenue?
Air. A isthorpe. In my bank it does not make so much difference.
I am talking to you particularly for the small banks, where I know
a large proportion of their income is derived from these charges.
The C hairman. Y ou mean their net income?
S. Doc. 232, 63-1—vol 3

-18

2200

B A N K I N G AN D CURRE NCY .

Mr. A ist h o r pe . Net income, derived from the charges they makein remitting for checks drawn on them.
The C h a ir m a n . Could they charge their depositors for checks sent
to outside parties, which come in that way, without causing un
friendly comment from their depositors?
Mr. xYisthorpe . Yes, sir. That has been discussed a number of
times among the bankers.
The C h a ir m a n . Could they not, through the banking associations,
agree they would charge a depositor a reasonable fee for checks sent
outside and which they collect for the Federal reserve bank?
Mr. A ist h o r pe . That was taken u p in the Illinois Bankers’ Asso
ciation.
The C h a ir m a n . Would not that really be right?
Mr. A ist h o r pe . They could not get any concerted action on it
at all.
The C h a ir m a n . Y ou have n o such system?
Mr. A isth o r pe . Yes; we tried.
The C h a ir m a n . Not an adequate system, because you would have
to deal with so many clearing places, so many different clearing
banks and reserve agents.
Mr. A isthorpe . The idea was to get a charge by all banks in the
State on checks drawn on them that came through other sources.
The C h a ir m a n . It seems to me the country banks could easilyy
through group arrangements, agree to make a reasonable charge upon
checks sent outside and collected at foreign points against the bank,
that that could be easily obtained and would compensate them for
their trouble in the matter, and of course return a reasonable profit.
Mr. A ist h o r pe . If you w ill ju s t sto p a n d th in k a m om ent, I do
n o t believe t h a t could be e n fo rc e d , fo r th e reaso n it is a q u estion le f t
e n tire ly in th e h a n d s o f th e reserve b a n k or th e re g io n a l bank.
The C h a ir m a n . The local deposits o f the member banks could be

arranged by group arrangements.
Mr. A ist h o r pe . It says it shall not prohibit. It is just the same
now.
The C h a ir m a n . Where two banks are in competition with one an
other, and the one gives free exchange and the other will not, of
course you have difficulty with the depositors. But if that is ad
justed by group arrangement, I should think it might be provided
for without violating the antitrust law.
Mr. A ist h o r pe . I will ask you this question: Why is it that these
checks, these individual checks, should be handled at par, and that
forced on the bank?
The C h a ir m a n . For economic conditions; for economy, to save in
handling credit.
Mr. A ist h o r pe . That is sim p ly between the bank.
The C h a ir m a n . I am not talking about clearing personal checks,
but the matter of transferring more quickly and at less expense to
the country, including the banks. I believe the banks have a right
to charge their customers for sending checks out in that way. I
think that would be a reasonable change to make.
Mr. A ist h o r pe . Would it be the intention of the committee in
framing up this section that the reserve bank shall permit that to be
done?

B A N K I N G AND CURRENCY .

2201

The C h a ir m a n . Yes; that is obviously done in this, because excep
tion is made in here. I think that is perfectly right, and I think the
country banks ought to have a right to do that if they want to. I do
not see why it can not be adjusted by group arrangement.
Mr. A ist h o r pe . All I am asking for, gentlemen, is that I think you
ought to stop at bank checks, bank drafts.
The C h a ir m a n . Yes; we have heard the argument, of course, and
we understand and appreciate the point of view you have.
Senator W e e k s . Let me ask you this question: If there is going
to be a great economic saving by the clearing of all checks—private
checks and otherwise—through the reserve banks, could it be ar
ranged so that the country banks could, as they should, as the chair
man has stated, make a charge for collecting individual checks ? Do
you not think this committee ought to recommend some kind of legis
lation which would provide for that?
Mr. A isthorpe. That is true.
Senator W e e k s . Y ou and I agree, undoubtedly, that there is a
great economic waste in the collections on domestic exchange in this
country. I recall a case some years ago which was brought to my
attention, where a concern kept an account of $20,000 in a bank.
The bank was paying interest on $10,000 of it, and $10,000 was a
free deposit. They had not made a careful examination of the cost
of collections on that account until one day somebody did make that
investigation, and it was found that the firm only had an actual
balance of $4,000, $16,000 being in the process of collection all the
time. In other words, the bank had been paying interest on $6,000
which was not in the bank at all, and the concern had no free balance
at any time during the year. Now, that is occurring everywhere, all
over the United States, and if some method can be developed to
produce a more prompt collection agency and to prevent what is an
abuse, in my judgment—that is, drawing a private check on a bank
in Cairo to pay a bill in New Orleans and requiring that check to be
sent to New Orleans and then sent back for collection "to you and then
sending it to a little bank of a town near Cairo—if that can be pre
vented it ought to be done.
Mr. A ist h o r pe . I agree with you on that absolutely; but I think
you want to make it plain in that section, so that when it comes to
the individual checks there shall be a charge, and let the reserve
bank fix what that charge shall be.
Senator S h a fr o t h . Mr. Weeks, I do not understand why there
would not be a balance there of $20,000, because when the individual
check is given it does not come back to be charged on the debit side
of the account until after it reaches there, and the bank, in the mean
time, has had the full use of that money.
Senator W e e k s . I do not think we ought to take this witness’s time
to discuss it; but let us suppose you deposited five checks of $4,000
each in your bank. One is to pay a bill in Boston, one is to pay a bill
in San Francisco, another in New Orleans, and another in Atlanta,
and the other is local. Those four checks that are going to foreign
places are going to be in process of collection several days.
Senator S h a fr o t h . Yes; but my balance remains at the bank all
the time.
Senator W e e k s . But, as far as your checks are concerned, you have
not $20,000 in the bank.

2202

B A N K I N G AND CURRENCY .

Senator S hafroth. The bank gets the benefit of the $20,000. It
does not know what my books show.
Senator W eeks. Yes; but those checks are outstanding against
your account.
Senator S hafroth. That is true; but that money remains in the
bank until the checks come in.
Senator W eeks. I do not think we should discuss that now, but we
ought to let the witness proceed.
Mr. A isthorpe. Y ou are charging up the individual checks of the
member bank to the reserve bank. Suppose, now, a customer of mine
has drawn a check of $25,000. I am not advised of it at all. His ac
count is good for it. He sends that check to Cleveland, Ohio, in some
transaction. That check is deposited in the reserve or regional bank,
and the regional bank charges it to my account and sends it down to
me. I have not had any notice of the check at all, but my balance
has been reduced. I won’t know of that check, and I may have to
remit in some way of other to make that balance good. Suppose that
is all I have in excess of the reserve requirements of the law, which
says I shall keep there a reserve balance ?
The C hairman . The effect of that is that if he were to draw that
check immediately on you you would have to remit earlier than you
would under this arrangement, and therefore you get the benefit of
the use of the money a few days longer, until you are notified to make
good your deficit?
Mr. A isthorpe. I do not think so; not in this present way.
Senator H itchcock. The provision of the law is that a regional bank
may notify a member bank to make good whenever its balance falls
below the legal reserve. If it goes below the legal requirement all the
reserve bank could do would be to notify the member bank to make
good its deficit. As the chairman says, it seems to me it would not be
in any worse plight than if the individual had come in to draw out
the cash.
Mr. Aisthorpe, we are using up your time in discussing this mat
ter. I think you ought to give some attention to this section, distin
guishing very clearly as to what it shall apply to. We will let the
matter rest.
It is your view a bank should not be charged with a check drawn by
one of its depositors; it should simply be sent out for collection?
Mr. A isthorpe. Yes.
Mr. H arris. I think that Senator Weeks, as he expressed himself
a few moments ago, expressed our view, and we are willing to take
his statement and save the committee’s time by passing on.
Mr. M ontgomery. I should like Mr. Harris to be heard next, if you
please.
STATEMENT OF B. F. HARRIS, VICE PRESIDENT FIRST NATIONAL
BANK, CHAMPAIGN, ILL.

Mr. H arris. Our chairman has told you that we are not experts,
and I want to emphasize that in my case. I am not a banking expert,
but. as he said, I have devoted most of my time to agriculture, espe
cially with respect to the banker’s relation to the subject.
Senator H itchcock. Will you please state the size of your town
and the size of your bank ?

B A N K I N G AND CUKRENCY.

2 203

Mr. H arris . The town has a population of 15,000. The bank has
a capital of $100,000, a surplus of $130,000, and deposits of about
$1,300,000. It is the First National Bank.
Senator P om eren e . Your position?
Mr. H arris . Vice president, although I am not active in the bank
in any way.
In the second place, I do not know of any way in which this bill
as it passed the House would hurt or help our bank, unless it might
affect our 2 per cents, of which we have $65,000. On the other hand,
I want you to feel that anything I have to say is in no way influenced
by the personal side, although the personal side has a right to come
in, every man speaking for the effect the bill might have on him or
his bank. So I want you to get my point of view as trying to be of
service and understand that any comments 1 make are entirely with
reference to the general public aspect of the bill.
Senator H itc h c o c k . The committee would like to know the effect
this will have upon the bank, because the witness can testify to that,
and can give the committee a clear idea.
Mr. H arris . Well, I was asked to talk on one or two points, more
especially concerning control, and I think some time will be saved
if you will let me run over that. I want to say for the bankers in
general, so far as I can speak for them, that I believe the banker
understands and appreciates better than anybody else the need, the
urgent need, for this legislation. I have not seen any bankers who
want to delay this legislation if there is any opportunity to get a
bill along reasonable lines, and I think I can say I have not seen any
banker who thinks that the bill as it passed the House is what it
should be. Further than that, I believe every good banker and every
good business man believes in supervision and regulation, but the
further we go in that direction, especially toward more or less abso
lute control—which some have said comes within the definition of
socialism—the more careful we should be.
That brings up the point on which I am supposed to talk. We
are to have a Federal board of seven men. Only one of those men is
supposed to know or is required to know anything about banking.
I t would seem to me, from the economic point of view, you ought to
have experienced men on the board, and, further, that the bankers
who contribute the capital and reserves to this bank ought to have
a reasonable minority voice; in other words, three out of seven.
There is an unfair reflection on the banker, which he resents, when
the bill says, in effect, that the President, who has the selection of
all these men, can not find, or is not to find, more than one man among
the banking fraternity who is morally fit to fill the position. That is
a thing that goes against the grain more than any other feature of
the bill.
Senator H itc h c o c k . The bill, as I recall it, does not exclude
bankers from his choice.
Mr. H arris . N o ; it does not, but the inference is that he shall not;
and’when you think of the possible political effect and all that, the
President might not be inclined to go further than he is expected to
go, because the people, to whom some of us “ appeal,” would say that
the President was favoring too many bankers.
Senator S h a fr o t h . Y ou know, there is not a banker on the board
of directors of the Bank of England or the Bank of France?

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B A N K I N G AND C U E E E N C Y .

Mr. H arris . I have heard that statement made many times, but I
think that is hardly correct in this respect, that several large banking
houses are indirectly represented----Senator S h a fr o th (interposing). Not check-paying houses; they
are investment houses.
Mr. H arris . Of course, that is a matter of information.
Senator W e e k s . Y ou would not imagine that anyTone would advovate, and you would not advocate, I presume, that any man should be
put on that board who continued to be actively connected with a
bank ?

Mr. H arris . Not for one moment.
Senator W e e k s . I do not understand that anyone would advocate
having a man connected with a private bank a member of that board.
Mr. H arris . H e sh o u ld h av e no b a n k in g connections in an y w ay
th a t w o u ld c h allen g e h is action.
Senator W e e k s . What you are

advocating is that the board shall
have the benefit of the experience of men who have been connected
with the banking business?
Mr. H arris . I consider this absolutely necessary, to have at least a
minority of the board—and, from a business standpoint, they should
be the majority of the board—men of more or less wide financial ex
perience, because they are to exercise the greatest power that has ever
been given, in my opinion, to any board.
Senator P o m eren e . D o you imagine any President would put men
on that board who were not able men, of wide experience?
Mr. H arris . I do not imagine that any man we elect President, in
so far as his own ability or knowledge is concerned, would deliber
ately appoint any such men, but those accidents do happen. What I
should say is this, three of the seven men the bill provides to be
appointed by the President—the Secretary of the Treasury, the
Comptroller of the Currency, and the Secretary of Agriculture—
should be left off, because they have all they can do if they run their
departments as they should run them; and the bill should be so drawn
that no President in his first term should appoint more than three
of those seven men. This would prevent a change in practice with
each presidential administration. I should say that three out of the
seven men should be bankers, but not connected in any way with
banking institutions.
Senator N elso n . Either as stockholders or officers ?
Mr. K arris . Not in any way, nor in any measure.
Senator S h a fr o t h . I think all four of them could be, under this
bill.
Mr. H arris . I do not imagine, when the bill reads as it does, that
any President would feel like going so far. I do not think that
President Wilson would, from the attitude he seems to hold and the
expressions he has made on the subject. I think, as President Wilson
was quoted as saying the other day, that the power to control the
credits of this country is the power to absolutely shape and control
the direction in which all our industries and all our development,
financially and commercially, shall go. That is what this tremendous
power means; and, as I have said, it is a reflection upon the bankers
that even when the President himself has the choice he is not sup
posed or required to select more than one man of banking experience,

B A N K IN G AND CURRENCY .

2205

find the rest are merely political appointees. It seems to me that the
mobilization of credit is the one thing that we should have upper
most, and that we should reduce the number of banks from 12 to
not more than 5 and 3 would be better.
Then our people feel that the subscription to the stock should be
reduced from 20 per cent to 10 per cent----Senator H itch co ck (interposing). Why do you feel that, Mr.
Harris? Will you state your reason?
Mr. H arris . When I say our people feel that, I am telling you
what they tell me, without having all their reasons at hand.
Senator H itc h c o c k . I s it because you would estimate the higher
amount too heavy a drain on the banks ?
Mr. H arris . Yes. I think when a bank is compelled to tie up,
in the first instance, at 5 per cent interest, 10 per cent of its capital,
subject to a demand for another 10 per cent, and then tie up at least
5 per cent, and possibly T per cent of its reserves without interest,
that infringes on the earning capacity of the bank. Now, that does
not apply in my case, because in the case of my bank we do not use
rediscounts; we probably would not use them under the new bill.
Our circumstances and conservative practices are such that we would
not. On the other hand, we keep about 12 to 15 per cent cash on
hand, and we keep about 20 to 25 per cent with our reserve banks.
In other words, we have from 40 to 45 per cent cash and exchange.
Senator H itc h c o c k . What benefits would you get out of the bill?
Mr. H arris . N o benefit, as I said when I began. As a matter of
fact, in the last few years I consider we have been at a great disad
vantage in being a national bank. We have 42 banks in our county,
which is an agricultural county, and the State banks take mortgages
and may do many things that we may not do. And I will say to you
frankly that, for a number of reasons, I think we should become a
State bank; and under the House bill, even if we should have to take
a loss on our 2 per cents, we would reorganize as a State bank. You
might provide that the member banks could pay for their regionalbank stock with 2 per cent Government bonds.
Senator S h a fr o t h . This bill is presumed to give you a reservoir
from which you may draw, so you do not have to keep as large a
reserve. That being true, it would release to you 18 per cent----Mr. H arris . I understand the purpose of the bill, but we do not
release now half of what we could release.
Senator S h a fr o t h . That is because you have not got this reservoir,
but if you had this reservoir to draw upon you could release it.
Mr. H arris. My bank is more conservative, perhaps, than it ought
to be, because we like to be on the safe side. I know there is the
danger, under some conditions, of a little too much expansion.
Senator S h a fr o t h . If that 18 per cent, which you have been in the
habit of using, were released so you could use it, it would be a great
thing, would it not?
Mr. H arris . Yes; for banks and the people generally; but why
am I compelled under the bill to go into this whether I want to or
not? The State banks have the privilege of going in or not as they
please. I think that is one of the worst and most un-American
features of the bill.
Senator W ef.k s . Don’t you think that legislation which will
promote commerce and create stability in banking and in business

2206

B A N K I N G AND CUBRE NCY .

generally ought to be encouraged, even if the personal equation does
not seem to be benefited ?
Mr. H arris . Yes, sir; I do. That is my whole attitude. I am not
speaking from the personal point of view, because the general in
terest is the banker’s interest.
Senator W ee k s . Of course, we can not make any progress in this
world without seeming to affect individual and personal interests.
Mr. H arris . Exactly.
Senator W ee k s . That must be taken into consideration. But if
it is going to be of marked benefit to the whole country and the
commerce of the country, without wantonly endangering private and
vested interests, you would agree that we ought to take some action,
I think.
Mr. H arris . There is no question about it. There is no direct
way of arriving at the percentage, but I think you would be amazed
to find how few national banks would go into the scheme on the
basis of the bill as it passed the House.
Senator H it c h c o c k . H ow many national banks have you in
Illinois?
Mr. H arris . We have about 600. We have about 1,800 banks of
all kinds, and they are almost equally divided. There is a larger
percentage of State banks than private and national banks. Statis
tics we have gathered show that in Illinois, outside of Chicago, 65
per cent of bank stockholders are farmers directly or indirectly in
terested in farming.
Senator H itc h c o c k . Have you any estimate of the number of
national banks that would denationalize if the bill should be passed
as it came from the House?
Mr. H arris . It is mere guesswork, but I should imagine that the
proportion would be very large.
Senator H itc h c o c k . Half of them?
Mr. H arris . Yes; 80 per cent of them; perhaps 90 per cent.
Senator H itc h c o c k . D o you think any State banks would come
into the organization?
Mr. H arris . I have not seen any State banks that would come in.
Senator W e e k s . Were you present at the Boston meeting?
Mr. H arris . Yes, sir.
Senator W e e k s . Were you present at the meeting of the country
bankers ?
Mr. H arris . I w as.
Senator W e e k s . D o you think the country bankers were embar
rassed by the influence of others in the conclusion which they
came to?
Mr. H arris . Not in the slightest. It was a splendidly attended
meeting. I do not think any city banker embarrasses any country
banker, or that the country bankers are affected by the views of the
city bankers.
Senator W e e k s . D o you not think it is a reflection upon the char
acter and ability of country bankers to assume even that their action
in such matters would be influenced by anyone?
Mr. H arris . I do, most emphatically, and I think the several state
ments that have been made with reference to that very point are un
fair, to say the least. I was in the meeting and I made only one sug

B A N K I N G AND CURRENCY .

2207

gestion—that the bankers be polled on this subject—because I
thought in that way Congress would get information that it needs
and that it could not get otherwise with reference to the percentage of
banks that would come in. But I am as sure of the statement I made
as I am of anything undetermined, that the percentage of national
banks and State banks that would come in would be so small you
would not accomplish anything at all. And even if all national
banks came in, you would have only 30 or 35 per cent of the total
banking resources of the country at that, and any system which pro
poses to make a successful currency system is not a success if you
can only get one-third of the banking fraternity into it.
Senator H itc h c o c k . D o you personally indorse the recommenda
tions made by this bankers’ convention in Boston ?
Mr. H arris. I personally indorse the recommendations and the
action they took. And, personally, I think the recommendations
made at the Chicago conference, at which I was present, were ad
mirable and remarkably conciliatory, considering all the facts in the
case.
Senator H itc h c o c k . Will you distinguish between the two?
Mr. H arris. The Chicago conference, if I keep the details fairly
well in mind—I have not read the action of either conference lately—
comprehend practically the action of the country bankers in Boston,
but went further and referred to other matters in the bill. The
country bankers in Boston had this viewpoint; I did not go into the
little meeting of the men that issued the call. Their feeling was
that they must only state before this committee the things that di
rectly concern the country bank or that would affect it on its personal
side." They said, “ We do not like the way in which this control is
affected; we do not like the compulsory feature, but we are not going
to go into that. In order to save time, we will just refer to four or
five points,” which you have seen in their resolution.
Senator H itc h c o c k . Y ou were present at this meeting?
Mr. H arris. I was.
Senator H itc h c o c k . Of the 2,000 estimated to be present, what
number do you think objected to the conclusions?
Mr. H arris. I do not think any of them, and I can give you the
test of that. I was present at the best-attended session of the con
vention, the best-attended session I have ever seen of an American
bankers’ meeting, when the whole matter was subdivided into five
resolutions, and on four of those there was not even a dissenting vote.
Senator H itc h c o c k . Have you a copy of the resolutions here?
Mr. H arris. The general purport of that resolution was to indorse
the Chicago conference. Mr. O’Neil had a resolution; Mr. Hill
had a resolution—there was only one dissenting voice on any of
those, and that was from Mr. McRae, of Arkansas.
Senator H itc h c o c k . Was there any attempt to railroad resolu
tions through?
Mr. H arris. On the contrary, Mr. George M. Reynolds and several
other prominent members of the association came forward on the
platform and said that every man who had a word to say, especially
those opposed to the action, should be given ample opportunity to
speak; and this received large applause, and to help that matter along

2208

B A N K I N G AN D C U E E E N C Y .

they adjourned for luncheon before voting on the resolution and
had an hour’s recess, and afterwards every man who wanted to say
a word had an opportunity to say it.
Senator H itc h c o c k . What was the purpose of that recess ?
Mr. H arris . They took a recess from half past 1 to half past 2.
They had not had luncheon, and the whole purpose, as stated, was to
stop any idle talk that they were trying to railroad the matter
through. Mr. McRae made statements that the facts did not justify,
and there were cries from the house of “ No,” and hissing and “ Ques
tion,” because Mr. McRae was not fair in his statements.
Senator H itc h c o c k . Was Mr. McRae given a fair hearing?
Mr. H arris . Yes; Mr. McRae was invited to the platform and
talked for 15 or 20 minutes, and once or twice when he said he was
through and the crowd said, “ Good,” that started him off again.
The chairman said, “ Mr. McRae, you may have all the time you
please.”
Senator H itc h c o c k . Did he have any sympathizers?
Mr. H arris . He voted by himself. He called for a division on the
resolutions. He said, “ I have the right to call for a division on
this resolution; it can really be divided into five parts.” So he called
for the question on the five different features.
Senator H itc h c o c k . A viva voce vote?
Mr. M ontgomery . Finally it was by a rising vote.
Mr. H arris . They first had a viva voce vote, and then they had
a rising vote, too.
Senator H itc h c o c k . H ow many voted against the resolution ?
Mr. H arris . Only Mr. McRae, of Arkansas.
Senator H itc h c o c k . Out of 2,000 people?
Mr. H arris . There were probably 2,500 or 3,000 at the convention;
the 2,000 were at the separate country bankers’ meeting Monday.
Senator H itc h c o c k . The committee wanted to talk with some one
who had personally been at the convention.
Mr. H arris . That committee, I understand, is to be here Monday.
Senator R eed . I have not heard all the testimony, but I am curious
about one matter. Is it true that the bankers applauded the state
ment that Congress was being run by Socialists, etc. ?
Mr. H arris . N o ; the statement was not made in that way. If
I can repeat the language correctly, Mr. Hepburn made this state
ment ; he defined very briefly what socialism was, and said, “ If this
definition is correct, then this bill approaches socialism.” You can
find the exact language.
Senator R eed . Y ou spoke in innuendo, and gently insinuated that
.most of the people down here were cranks?
Mr. H arris . No ; he read this statement, which you may get, and
you may draw your own inference. But he defined socialism and
then said that this bill amounted to socialism.
Senator W e e k s . What inference did you draw from his statement?
Mr. H arris . Well, having told you how I feel—that I believe
thoroughly in supervision and regulation for every form of public
or quasi-public business whatever it may be—I do feel that the bill as
passed in the House is just what Mr. Hepburn said it was. And yet
that bill would not affect me in my individual banking business; but,
:as a whole, taking the make-up of the board, the fact that the Presi

B A N K I N G AND CU RRE N CY .

2209

dent, in one administration could control that whole board by ap
pointment—
Senator R eed (interposing). Let me ask your view on this ques
tion—
Mr. H arris (interposing). I will say to you this is not a political
matter. In reaching my conclusions I should remove myself from
the banking field, just as I believe you gentlemen should remove
yourselves from the political field----Senator N elson (interposing). Allow me to make a suggestion at
this point, which, I think, would clear up this matter a little. So
cialism is divided into what they call state socialism and private or
personal socialism. State socialism is simply where the State under
takes to do a thing that many people believe ought to be done by
private parties. For instance, we are doing a lot of Government
work here in this country that comes under the head of state social
ism. The Post Office Department, the Interstate Commerce Com
mission, and the meat inspection, the pure-food law, all come under
the head of state socialism, and that was the great fad of Bismarck.
He Avas a state socialist, but socialism in its odious sense is not state
socialism; it is that other species of socialism.
Mr. H arris . Mr. Hepburn, I think, had the state socialism sense
in mind.
Senator N elson. The work done by the Government, which I have
referred to, is what I would call state socialism, and in that sense it
is not an odious term, as it is when used in the other sense.
Senator R eed. I do not know in what sense he used it. I find
that bankers, like other people, have their limitations.
Mr. H arris . There is no question about it.
Senator R eed. A banker, not more than other people, and I am
inclined to think not less, and they sometimes go off at a tangent.
I want to suggest two or three things to you, because you are a
banker.
Mr. H arris . One moment, please. I would like to be here as long
as you want me, but I am only one member of our committee, and I
do not want to take up any unnecessary time.
Senator R eed. I am taking the time, not you.
Mr. H arris . I am glad to be at your service.
Senator R eed. That the board under this bill does not possess in
any particular, or in all particulars together, as much power as the
Secretary of the Treasury now exercises as one man.
Mr. H arris . Personally I do not object to control—or, rather,
supervision and regulation, though it is control in this bill—but I do
object, as I said, perhaps before you came in, to the way in which the
board is constituted.
Senator R eed. The general board. I am calling your attention
just to this one thought, that there is a more arbitrary power vested
to-day in the Secretary of the Treasury than is vested in this board
by this bill.
Mr. H arris . Without being familiar with all the details, there can
be no question, it seems to me, but that you are wrong in that, be
cause the Secretary of the Treasury can not control credits, can not
control rates of interest, and all that sort of thing. It would be a
very easy matter, Senator, it seems to me, for a President from the
West or a President from the South, for instance, as we saw it re-

2210

B A N K I N G AND CURRENCY .

cently. There was a great demand for more money when Secretary
McAdoo----Senator R eed (interposing). You are talking about the bill?
Mr. H arris . I am talking about Avhat the board can do. You say
that the Secretary of the Treasury has more power to-day, more arbi
trary power, than the board would have?
Senator R eed . Yes; that is, more than this board will have when
this committee gets through with this bill.
Mr. H arris . That is an unknown quantity. If this committee----Senator R eed (interposing). What I mean is this: This bill per
mits certain things that are not now permitted to any department of
the Government. The question of how the bill will come out of this
committee, whether there will be legal restrictions placed upon the
whole matter, is a question; but I am speaking now just about this
exercise of arbitrary power that the Secretary of the Treasury has
under the Aldrich-Vreeland Act. He can issue $500,000,000 worth
of currency or he can refuse to issue it. He is vested with the arbi
trary power, in the case of a panic, to sit here and let the country
suffer under it, or he is vested with the power, of course, upon appli
cation and in conformity with the measure, of issuing this vast sum
of money. I am only suggesting this; I do not say it in the way of
antagonism.
Mr. H arris . I understand that. There is not any antagonism, sir,
from either of us.
Senator R eed . This charge of so-called socialism, of which our
friend spoke with the same temperance of expression that some people
use when they call bankers scalawags and pickpockets and things of
that sort, is not true, and let me say to you and all other bankers that
abuse of the character that Mr. Hepburn indulges in very seldom con
vinces a man.
Mr. H arris . If I get the sentiment of the bankers correctly, the
only hope the bankers have is in this committee, and if I did not
believe that this committee was going to do what I think they are
going to do after they have had information from all parts of the
country, I would not take my time and pay my expenses to come down
here and talk to you. I think the only hope is in this committee.
Senator P om eren e . Y ou have spoken here of the position of the
bankers generally. Have you not been impressed with the idea that
the bankers themselves can not agree among themselves as to what
ought to be done?
Mr. H arris . N o ; I have not been so impressed. You have a
splendid example that they are agreed by the action that -was taken
at the Chicago conference.
Senator P o m eren e . Have you kept in touch with the hearings be
fore this committee? We had such men as Mr. Yanderlip and Mr.
Cannon, who both said the bankers could not agree among them
selves as to what should be done.
Mr. H arris . We have that with the tariff and with ev ery other mat
ter of large importance, and some men come here representing
interests of one kind or another, and some with a selfish idea. I do
not think that means anything because the real thing you want to
get is not what Mr. Yanderlip or Mr. Cannon or I may tell you,
but what you get from a conference like the Chicago conference,

B A N K I N G AND CURRENCY .

2211

which comes down to specific recommendations from all sections and
from all classes of bankers.
Senator S h a f r o t ii . What do you think of the action of the State
Bankers’ Association of Virginia, which indorsed this bill the other
day, passing resolutions indorsing it, and then two or three weeks
afterwards condemned it?
Mr. H arris. I was present at the Virginia bankers’ convention,
and addressed that convention, and Senator Owen made the first
public address that was made after the bill was introduced into the
House. The Virginia bankers’ convention was held before the bill
was passed. It was held at the time the bill was introduced by the
House committee.
Senator S h a fr o t h . That was the first convention?
Mr. H arris . The Virginia bankers have only had one convention
this year that I know anything about.
Senator S h a fr o t h . Was there a reversal of former action?
Mr. H arris . Probably, and very properly so, I should say, for the
reason that the bill had just been introduced, and the convention
had had no opportunity to consider it aside from comments made to
them by Senator Owen. Senator Owen made his talk before the
bankers and it was made plain that Senator Owen was a Virginian,
and that Congressman Glass was a Virginian, and President Wdson
was a Virginian.
Senator W e e k s . That the authors of the bill were Virginians?
Mr. H arris . Yes; that Congressman Glass, Senator Owen, and
President Wilson were all Virginians, and it would therefore be a
very proper compliment to indorse the action because originating
from Virginians.
Senator S h a fr o t h . The present bill is very much more favorable
to the bankers than the first one.
Senator R eed. D o you think that the fact which you mentioned
a while ago in reference to the nativity of the gentlemen you named
carried the day—that sentiment ?
Mr. H arris . Yes. I tell you, Senator, you can go into a large
gathering of people, where everything goes along smoothly and
nicely and in good spirit, and you can get resolutions of that sort
passed.
Senator R eed . That is what I think about your convention in
Boston. I think that is the way it was run.
Mr. H arris . No ; the banker went there, having in mind the dis
cussion of the bill and having looked into and studied the provisions
of the bill and the effects of the bill. The bankers at the Virginia
convention knew nothing about the bill until they received knowledge
at first hand and for the first time, as Senator Owen presented it,
and his address created a favorable impression.
Senator P o m er en e . Did he misrepresent anything?
Mr. H arris . Not that I know of. I told the Senator that I had
heard a good many progressive talks, but that he had made the most
progressive talk I had heard, because he referred to the initiative,
referendum, and recall and other progressive principles, and that it
was a first-class progressive talk, and he impressed his audience.
Senator P o m er en e . I am referring to his discussion of the bank
ing and currency matter. Did any of them take issue with any of
his proposals, so far as the banking question was concerned?

2212

BANKING AND CURRENCY.

Mr. H arris. I t was not much of an argument ; they were trying
to get information. I suppose an hour and a half was used in in
terrogating him.
Senator R e e d . After all that they passed a resolution favoring
the bill, and about three weeks afterwards they took it all back.
Mr. H arris. That would not be wrong. Do you not sometimes
change your mind?
Senator R eed . That is why I have been suggesting these things to
you, because I believe you will change your mind; that this bill,
while it may have some imperfections, which we are trying to dis
cover, was not passed upon as a final proposition by this convention,
in which one of the prominent men characterized Congress as a pack
of Socialists.
Mr. H arris. D o not put it that way. I do not think Mr. Hep
burn’s statement permits that conclusion.
Senator H itchcock. I think wRat Mr. Hepburn said, Senator
Reed, was that the bill was socialistic, and gave as a reason for that
statement that it took 10 per cent of the capital away from some
banks and put it under the control of others, and if they could take
10 per cent they could take 30 per cent or 40 per cent or take it all,
and that, therefore, it amounted to a socialistic measure. I do not
think he referred to Members of Congress as being socialistic, but to
the measure as being directed toward socialism.
Mr. H arris. I think you should read Mr. Hepburn’s statement in
justice to yourself and Mr. Hepburn, and the worst impression
that you may get from reading an account of the proceedings, I think,
would be more from what Mr. Hill, of Connecticut, said. He did not
represent anybody, simply speaking individually. He offered a reso
lution, which was voted on, and that wTas an entirely separate matter.
Senator R eed . I s that Mr. James J. Hill, of the Great Northern
Railroad?
Mr. H arris. N o ; Mr. Hill, of Connecticut, a former Member of
the House, who was on the Banking and Currency Committee of the
House for many years.
Senator R eed . I just wanted to get you convinced that the Mem
bers of Congress were not such a bad lot. That sort of talk about
Congress is exactly on a par with the talk of the man who says
the hankers are the enemies of the public and all that sort of stuff.
We are trying to act on a different basis from that.
Mr. H arris. I am satisfied of that.
Senator P o m eren e . After that Chicago meeting the p a p e rs an
nounced that it was the sense at least of some of the bankers that
this hill should be so amended as that the action of the reserve board
would be subject to a veto by the bankers. Did you see that?
Mr. PTarris. No ; I did not see that.
Senator P om eren e . Y ou saw a statement in the papers?
Mr. H arris. Oh, yes. There was so much in the papers----Senator P om erene (interposing). Did it occur?
Mr. H arris . N o ; it did not. Mr. Reynolds had made a sugges
tion and, I think, he has made it to your committee, that there should
be an advisory committee. I think that has been passed up. I do
not think that is necessary, taking the seven men and giving them
the power you have given them now, but make a change as sug
gested, in the selection of the seven men.

BANKING AND CURRENCY.

2213

Senator P om eren e . Does that feeling prevail that there should be
a power of veto for the bankers?
Mr. H arris . I do not think so.
Senator P o m eren e . I should hope not, in this Republic.
Mr. H arris . I do not believe it. I belong to the banking fra
ternity, but, more than that, I belong to the agricultural fraternity.
Eighty per cent of my worldly goods is in agriculture, and I have
been devoting my time to this agricultural work among the bankers,
getting the bankers interested in these welfare matters. I think
the bankers are just as selfish and just as unselfish as any other class
of men, it’s not a question of the business, but of human nature.
Senator N elson . I would like to hear the substance of the resolu
tion that was adopted.
Senator H itc h c o c k . Yes; I think that would be desirable. Could
you not give us the substance of the resolutions of the Boston con
ference ?
Mr. H arris . The Boston conference simply indorsed the action of
the Chicago conference. Mr. Hepburn in his report told the story
of his committees, and made this reference to socialism. This was
simply his report.
Senator P om eren e . Was that all ?
Mr. H arris . That was all there was to it. Mr. Hill had an indi
vidual resolution of his own.
Senator N elson . What I was after, if you will allow, Mr. Chair
man, I want to know what the country bankers’ resolution was.
Mr. H arris . Senator Reed has the resolutions there. You will
have the whole committee here on Monday.
Senator O ’G orm an . Mr. Harris, I am going to ask you a ques
tion—
Mr. H arris (interposing). Mr. Crampton reminds me that the
American Bankers’ Association is not going to send a committee
down here. They simply indorsed the action of the Chicago con
ference.
Senator O ’G orm an . A s I understand, you have been a banker in
Illinois?
Mr. H arris . Yes.
Senator O ’G orm an . And you have been a banker for some years?
Mr. H arris . Yes, sir.
Senator O ’G orm an . Y ou have been active in a movement to
encourage the development of agriculture?
Mr. H arris . And roads and education, and so forth.
Senator O ’G orm an . It has been stated from time to time that the
attitude of the country bankers regarding the pending legislation
have been dictated by the so-called money power of New York and
Chicago and St. Louis. I would like to know whether that is true
or not.
Mr. H arris . Well, I resent that personally, and I resent it on the
part of the country bankers. I think that any suggestion toward
dictation by the city bankers would be resented even if what they
stated had some merit. I think it is entirely unfounded. There are
so many large city banks competing for country bank business that
the country banker has many opportunities to do the dictating him
self.

2214

BANKING AND CUBBENCY.

Senator O ’G orm an . Y ou state that claim is entirely unfounded
and groundless, and based on invention and ignorance?
Mr. H arris . Without any question, and the two meetings at Bos
ton, the meeting of the country bankers and then the general meeting,
where every voice indorsed the Chicago conference, would refute
that.
Senator O ’G orm an . A wdtnss came before us about a week ago,
who was the president of the bankers’ association of the State of
Wisconsin, and he stated, in substance, that everything done at the
Chicago conference was the result of a program enforced upon the
conference by influential bankers from the large cities.
Mr. H arris . I could not find terms strong enough to resent that.
Senator N elson . Was not that man present at Boston?
Mr. H arris . Yes; he was one of those present at Boston. I heard
him at Chicago and at Boston. I believe it was Mr. Moehlenpah.
Mr. Moehlenpah does not know what he is talking about. Mr.
Frame, in his own State of Wisconsin, is the only person I know of
who conducted a canvass of the situation, and only found three or
four bankers in the State who would come in under the House bill.
Senator O ’G orm an . That is not an answer to my question. My
inquiry is why those who like to indulge in inflated speech say that this
agitation by the bankers who are anxious to see salutary and wise
banking and currency measures adopted is the result of a conspiracy,
and every time the word “ conspiracy ” is used by these gentlemen
you can imagine it is in large capitals. What have you to say in
regard to that?
Mr. H arris . If I am n o t m isu n d ersto o d , I h a v e to sa y to th a t
c h a rg e t h a t i t seem s to m e t h a t w hen an y in te re st— a n d every in te re st
h a s a r ig h t to hav e its d a y -----Senator O ’G orman (interposing). Undoubtedly.
Mr. H arris . When any interest takes action or comes down here

we get the “ Stop thief ” or the “ Wolf ” cry. I read in the Post yes
terday a statement credited to the chairman of this committee, in
■which he said:
I think this Boston meeting had for its obvious purpose to work up opposition
to this bill and either to force the bankers’ views or to delay or to defeat this
bill.

That is not so, for one moment. The bankers, better than anybody
else, know the urgent need, more important than any other legislation
that can take place, for legislation on the matter of currency. They
are willing to make many personal sacrifices, both financial and in
principle, to get some workable bill on the books before this Congress
adjourns, if possible.
Senator O ’G orm an . But they tremble at the prospect of a danger
ous and unscientific system being imposed upon the people of the
country ?
Mr. H arris . They do.
Senator O ’G orm an . That is all I care to ask.
Senator W e e k s . Y ou stated you were present at both the Boston
and Chicago meetings?
Mr. H arris . I was not present during1the last half day at Chicago.
There was a two-dav session there. There has been a strong attempt
on the part of some bankers—bankers like Mr. Reynolds—to go to the

BANKING AND CURRENCY.

2 215

extreme to prevent pronounced opposition to this bill wherever they
could, and yet, as citizens, maintain their property rights, at the same
time leaving out of the question the fact that they were bankers.
Mr. A isth o k pe . I attended that Chicago conference and I can assure
you there was not anything there at all in the shape of the influence
of the large bankers. Everybody had a right to discuss the sections
as they were taken up, and to discuss them fully. I want to disabuse
the minds of the members of this committee of the idea that there
was any preconcerted program to get certain resolutions passed.
Senator R eed . Could you tell us why it was that all the leading
members of that committee happened to be men who believed in the
central banks, privately owned and controlled, issuing the currency
of the country. How did it happen that the leading spirits on that
committee were men of that class?
Mr. A i s t h o r p e . I do not understand that was the way. Probably
they were put on there because they are prominent bankers of the
United States.
Senator R eed . Bankers generally are not committed to that theory,
are they?
Mr. A tstiiorpe . The general attendance there was not of that
class of bankers.
Senator R eed . T say bankers generallv are not committed to the
theory of a central bank privately controlled and owned.
Mr. H arris . N ot a t all. That w as n o t even discussed.
Senator H itc h c o c k . Who is your next witness, Mr. Montgomery?
Mr. M ontgomery . Mr. Sexton will be our next witness.
STATEMENT OF HENRY D. SEXTON, PRESIDENT SOUTHERN
ILLINOIS NATIONAL BANK, EAST ST. LOUIS, ILL.
Senator H i t c h c o c k . Will y o u state y o u r name and banking con
nections?
Mr. S exton . Henry T). Sexton, president of the Southern Illinois
National Bank, at East St. Louis, 111.
Senator H i t c h c o c k . What is the population of East St. Louis?
Mr. S ex to n . About 75.000 population, a very large and growing
city in that State, largely built up through industrial developments.
I believe the way the town is growing we are satisfied it is goin<r to
be one of the industrial centers of the country. It is the second city
now in the State of Illinois in population.
I have discussed the question, and I want to make a statement as
to the position of country bankers on that question.
Under the national bank law in recent years we have had a great
number of very small country banks established, particularly in
southern Illinois. Now, a large part of their revenue is derived from
the exchange from their checks which they give to their customers
and forward to St. Louis and Chicago in payment of their bills. Tf
they would draw their personal checks their customers in Cincinnati
or Chicago will not take them and charge for the collection of that
check, and they prefer to make the pavment that way instead of to
the merchant in the other city. In addition to that, because they get
their accommodations there, a lot of them feel that vour proposed
method of collection or payment through the regional reserve bank is
going to affect their own power.

2216

BANKING AND CUBRENCY.

Senator P o m erene . Y ou mean that is general throughout the sec
tion?
Mr. S ex to n . The majority of those I have spoken to feel that way
about it.
Senator P o m eren e . I mean general; that they send exchange rather
than send individual checks?
Mr. S exton . Naturally so, because the bank is after that little fee,
and naturally they serve the man who favors them.
Senator O ’G o rm an . D o they appreciate the benefits that will come
to them under this system?
Mr. S exton . The banker feels that the local fellow can send his
check to the merchant in the other city; he deposits it in the reserve
bank, and the reserve bank pays it without cost, and he avoids that
cost, and in that way he will not go to his local banker and get his
exchange.
Senator P o m eren e . At the same time, the other man goes and bu y s
his exchange?
Mr. S exton . He won’t do that, then.
Senator P o m er en e . Y ou say he does it now?
Mr. S exton . He does it now; yes.
Senator.P o m eren e . And the bank is out that deposit?
Mr. S exton . We are out that fee.
Senator P o m eren e . And the deposit also?
Mr. S exton . We will always be out the deposit.
Senator P o m eren e . If a check is sent from East St. Louis to Cin
cinnati, it takes one day to go and another day to come back, and the
bank has not the use of that money.
Mr. S ex to n . It would be the same with a draft. A draft is drawn
upon a Cincinnati bank, and the Cincinnati bank is paying him in
terest until they pay it.
Senator N elson . Say I have an account with this gentleman here,
in his bank, and I want to remit to New York, and give my check to
him for $1,000, on my account, and he draws a draft on New York
and forwards it and charges me a moderate fee for that draft. That
is the modus operandi, is it not?
Mr. S exton . Yes, sir.
Senator N elso n . And that charge varies according to the state
of exchange?
Mr. S exton . That is right.
Senator O ’G o rm an . Apart from the inconvenience that the country
bank may experience, do you not think this proposed change is an
improvement on the existing practice?
Mr. S exton . It is, to the larger fellows.
Senator O ’G o rm an . Will it not be a benefit to the people who sup
port the bank?
Mr. S exton . Not if the little fellow can not make money enough
to allow him to continue in his business at a profit, if that profit
is necessary for him to continue in business----Senator O ’G orman (interposing). As a matter of fact, do you not
think that when a banker is vitally dependent upon the income de
rived from this practice, that there is little excuse for this bank
being in business at all ?
Mr. S e x t o n . I would not go into business if I could the day after,
but there are a lot of men in such places who will.

BANKING AND CURRENCY.

2217

Senator H itchcock. What places?
Mr. S exton. Banks of $25,000 capital.
Senator H itchcock. I mean the size of the town.
Mr. Sexton. The smaller towns.
Senator H itchcock. Of about what population?
Mr. S exton . About 1,000 people and under.
Senator H itc h c o c k . They need banking facilities of some kind?
Mr. S exton. I do not think so, because personally I am selfish
enough to think the less country banks there are of that kind the more
in the larger cities. We do not get active accounts, we get inactive
accounts in many of those localities.
Senator H itchcock. Where would the people in such a towrn go if
they had no bank? Would they just keep their cash and have no
place of safety for it?
Mr. S exton . Yes; if they had no bank.
Senator H itch co ck . They would have to keep it in stockings?
Mr. S exton. Yes; I guess they would.
Senator H itc h c o c k . That is the practice in Europe, and that is
one reason why I justify the country bank in making these charges.
Mr. S exton. That does not apply to my bank. My bank has a
capital of $150,000, and we have about $2,000,000 deposits. We are
practically a suburban bank in a big city, because East St. Louis is,
I might say, the manufacturing district of the city of St. Louis.
Senator P o m e r e n e . Right across the river?
Mr. S exton. Yes.
Senator K elson . I think, as a rule, if a merchant keeps an account
of any consequence with a local bank, and has occasion to buy a
moderate-sized draft, they never charge him anything.
Mr. S exton . That is practically the case in these places where there
is only one bank.
Senator N elson . Where they have a monopoly?
Mr. S exton. Where a man does not interfere with another man’s
profits. You will find it to be the case in a great many towns. I
simply made that statement because you are endeavoring under this
bill to ask these gentlemen to come in and become members of those
regional reserve banks, and that is one of the objections that they
are making at this time. I submit it for your consideration, as a
member of this committee, and as representing those men. That is
the reason for my statement.
Senator N elson. Here is one thing I want to suggest. As Senator
O’Gorman has said, this would be a great saving to the public at
large. Is there not anything we could do for those banks to com
pensate them for this in some wTay, and give them some advantage
that they have not now?
Mr. S exton . I am not prepared to answer that now.
Senator H itchcock. If they remain under the State banking sys
tem they can still continue to make their charges.
Mr. S exton. They can make any charges they want.
Senator S hafroth. State banks would lose their customers when
the national banks would clear free?
Mr. S exton. Not in all instances. You are taking away the earn
ing power, and it is up to you gentlemen to determine whether or
not it is going to induce these men to come in. There are twice as
many State banks in our section as national banks.

2218

BANKING AND CURRENCY.

Senator H itc h c o c k . D o you recommend that the provision b e
changed?
Mr. S exton . No ; T do not do that. T am not prepared to say that.
I do think it ought to be modified in some way so as not to destroy
these little banks or to prevent them from becoming members of the
regional bank.
Senator H itch co ck . What is the charge for a Chicago draft?
Mr. M ontgomery . It depends upon what territory a man is lo
cated in. The average in Illinois is between 75 cents and $1 a thou
sand. Some make a practice of charging 10 cents an item on small
items, but the average in Illinois will be from 75 cents to $1 a thou
sand. As it gets to the more southern points the rate is higher.
Senator O ’G orm a n . Has not this practice led to some exactions
#n a draft coming through banks that have exposed the system to
severe criticism?
Mr. M ontgomery . Here and there there are banks that do make
excessive charges, but it is not general, and those bad features are
being reached now to some extent, so that the inordinate charges do
not prevail so much as they did even three or four years ago.
S e n a t o r R e e d . Y ou u n d e r s t a n d t h a t t h i s s y s t e m w i l l l e a d t o t h e
a b s o lu t e t a k i n g a w a y o f t h e p r o f it s f r o m e x c h a n g e ?
Mr. M ontgomery . I am not clear as to the exact meaning of that

clause.
Senator R eed . Would there not be still a considerable amount of
local exchange; I mean local in the sense that it would not go to one
of these large regional reserve banks, but would go directly from
one bank to another, or within a radius of 100 miles?
Mr. M ontgomery . The practice is----Senator H itchcock (interposing). Do you always sell on Chicago?
You have been a banker for a number of years. Are you not a
banker ?
Mr. M ontgomery . N o ; T am not a banker.
Senator H itch co ck . If T wanted a draft, of course, I might say
I wanted Chicago or New York exchange, but are there not a lot
of checks passing from bank to bank that would not necessarily go
through the regional bank, upon which these banks would still be
enabled to make a collection? That is what I am trying to get at.
Mr. S exton . Everv bank is going to shoot it into a reserve bank
unless you make a clearing house out of it. so that you get that credit.
Take our bank. Our bank wi’l have to keep a good deal of money
in the regional bank to take care of tke checks that will flow in
there that now go to the St. Louis clearing house, which we check
up before 2 o’clock every day.
Senator R e e d . Y ou mean to say, then, that in the case of the notes
you have this system will just simply absorb all the exchange business,
bv which I mean tbe checks. What T had in mind was whether there
would not be a source of income still on checks that would be gath
ered in by these smaller banks, checks that would not go through
this method of clearing and out of which they could still get a reve
nue under this bill ?
Mr. S exton . I do not see how. Suppose the customer has a check
and the regional bank does not pay it, it would go back to the bank
and the bank would send it to the other fellow to make a collection.

BACKING AND CUEBENCY.

2219

If you send it to the other fellow he makes you a charge, which you
must charge your customer.
Senator R eed . Take this sort of a case, and I am asking the ques
tion because there have been a number of bankers before us who have
said that if this bill passes they will lose the money they make on
exchange, and the question with me is whether they would lose. I
am not very familiar with the actual workings of a bank. Suppose
a man in a small town, say 50 or 100 miles from your city, having a
bank in his own town, was to send a check to a merchant in your
town to pay a bill, and he would bring that down and deposit it in
your bank. Do you think under this bill you would invariably send
this check to the regional bank?
Mr. S ex to n . Yes, certainly; because we get a credit there an d
that takes care of the checks that come in against me.
Senator R eed . Y ou could not do that as against a nonmember
bank ?
Mr. S exton . That is just the question I was going to ask this com
mittee. I am not clear, after reading that section—and bankers I
have talked with are not clear upon it—whether or not I could send
a check through them on a nonmember bank.
Senator R eed . If the nonmember bank was not entitled to this
benefit there would still remain to the country bank a profit on that
business?
Mr. S exton . Sure.
Senator R eed . The tendency, then, would be to turn all that k in d
of business he possibly could into the nonmember banks?
Mr. S exton . I think it would. We would send them----Senator R eed (interposing). I wish some practical banker like
yourself would think about that with reference to this bill. I would
like to know if there is not a source of profit left.
Senator S h a fr o t h . Let me ask you a question. Suppose there was
a regional bank in Chicago and St. Louis, and the check was drawn
on some bank in St. Louis. You would not send that to Chicago
through the reserve bank, would you? You would have it cleared by
the clearing house?
Mr. S exton . The clearing house?
Senator S h a fr o t h . In St. Louis.
Mr. S exton . N o.
Senator S h a fr o t h . What would you do?
Mr. S ex to n . I would send it to Chicago, because that is where my
checks are going to come against my account.
Senator S h a fr o t h . Notwithstanding St. Louis is just across th e
river, you would send it to Chicago?
Mr. S exton . I would have to, because I have a balance there and
my checks would go there. Because there is no charge on them, all
the other banks would forward them there to get a credit and avoid
the charge.
Senator S h a fr o t h . Would that dissolve the clearing houses?
Mr. S exton . It looks that to me. to a large extent.
Senator R eed . Y ou now clear through St. Louis?
Mr. S ex to n . We have to, in order to protect our customers. We
are not members of the St. Louis clearing house; we can not be under
their present rules, because we are outside the State, but they permit

2220

BANKING AND CUBBENCY.

their members to clear them through banks located as we are, and we
have made a clearing arrangement with the St. Louis clearing house
by which we can clear our checks.
Senator R eed. I think Senator Shafroth must be right in regard
to local clearings. I can not imagine banks in Kansas City, which
now meet and in two hours settle their balances for the day through
their clearing house, sending those checks to St. Louis to be cleared.
Senator O ’G o bm an . Except for the reason suggested by the wit
ness, that the local bank will find it necessary to keep money in the
reserve bank to meet checks coming in.
Senator R eed . I know; but they can not afford to hold off their
daily settlements to adjust them.
Mr. S exton . They will not do that.
Mr. W h it e . May I interpose a word there? I do not think this
would interfere at all with the local clearing houses.
Senator R eed . I do not, either.
Mr. W h it e . The checks between Kansas City banks w ould be
cleared between the Kansas City banks.
Senator S h a fr o t h . Oh, yes. But how about the Wichita and To
peka banks?
Mr. W h it e . Those drafts and checks would go outside. I want to
make this statement in reference to the number of regional reserve
banks. I gather from my talks with other bankers in our neighbor
hood that they feel that the less regional reserve banks you have the
better, realizing that there must be five or six, or something like that,
covering the entire country, for this reason: That it will leave this
rediscounting between the regional banks; one will not rediscount for
the other. That seems to be an objection on the part of a great many,
which will be removed to a great extent.
Senator R eed . I want to spend a minute on that. Let us see about
that. Most bankers have said that 1 central bank would be an ideal
thing—just 1 bank instead of 12. That is a combination of all these
powers and all this capital into one place. Then they say if you are
going to divide it, do it as little as possible; have 4 and not over
5. If you have 12, they say you have got too many, and you have
weakened yourself, and yet the way we propose to tie those 12 banks
together and make each mutually of help to the other is practically
welding them into one system under one central control; but they
object. I can not see the logic of that. It seems to me, if it is right
to have a central bank with innumerable branches in the way which
has been spoken of, or to have 12 regional banks, and yet to have a
means by which each must aid the other, you are illogical when you
say that the one central bank when it is all under one power, that is
a good thing, but if you have 12 banks, each mutually helpful to the
other, that is a bad thing.
Mr. S exton . My statement is—I want to say my opinion is, you
lessen the need of aid with fewer banks. You have got to take care
of certain territory, because the people in the different territory need
aid at different times.
Senator R eed . That is very true. Suppose you had a central bank
with 12 branches in the country.
Senator N elson . Or 24.
Senator R eed . Yes; or 24. Here is the heart and center—the cen
tral bank. It has a branch out here in St. Paul. If St. Paul wants

BANKING AND CURRENCY.

2 221

money, St. Paul, through its branch, calls on the central bank for
some aid. And if you have one in New Orleans, New Orleans calls
for some aid.
Mr. S exton . Yes; I say that would be an ideal system.
Senator R eed . N ow , suppose you had 12 banks with 12 separate
organizations and an arrangement by which a central board could
direct funds to be sent from one point to another. Has not that in
it the same elements as the central bank ?
Mr. S exton . The branches are different from these regional banks,
in my opinion. They would not have the same power as a central
bank. It is simply to receive applications, make examinations of
securities, and things of that kind. You are dividing up this power
into 12 different places. My opinion is now you will need in the
neighborhood of 5. And in addition to that, I want to say this: You
are going to lessen the expense of it; you are going to minimize----Senator R eed (interposing). I do not know whether you are or
not.
Mr. S exton . That is my opinion about it.
Senator R eed . The power, after all, to direct where the money goes
is the same power. If you have a central bank with innumerable
branches, these seven men sitting there as the board of directors say
where the money shall go. If you have 12 regional banks and those
regional banks have rather broad powers themselves, but this central
board can direct the money to be sent from one to the other, they are
doing exactly the same thing there as they would if they had a
branch-bank system. Now, it seems to me that brings us down to the
question whether the organization of a regional bank is a sound one,
and not the question of numbers; and yet there has been constant talk
about the numbers.
Senator P o m eren e . This thought was presented here the other
day, that there ought not to be more than a night’s distance from
any member bank to the regional bank in that region, because if they
did need accommodations they would need them. Ought not that to
be considered when you are determining the number of regional
banks ?
Mr. S ex to n . N o ; for this reason: When this act goes into effect,
my opinion is, it is going to restore financial confidence in this coun
try; it is going to wipe out just that very thing you are speaking of.
It is going to establish confidence in the financial situation in this
country.
Senator P om eren e . I am glad to hear you say that.
Mr. S exton . I make that at a person statement. I do not think
you are going to have the need of all these regional banks; and, in
addition to that, for the very same reason I want to say to you that I
believe that 5 per cent paid in with 5 per cent on call is going to give
your regional reserve board all the money they will need.
Senator R eed . Y ou think the central idea of this bill is all right,
but you want to suggest changes in the way of working it out?
Mr. S ex to n . I want to say this to you now. This is personal. I
am, like every other banker, in favor of this currency proposition—
what I might call this asset currency. But this banking system,
starting with clearing houses, collecting checks, and all that sort of
thing—I think the banks could arrange that among the groups much

2222

BAN K IN G AND CURRENCY.

better, and they ought to do it. There is not any question that that
ought to be done. It ought to be done without any law to compel
them to do it. But you are establishing banks of discount, and things
of that kind.
Senator P omerene . Are you in love with the present system of re
serves we have in this country?
Mr. S exton . Absolutely not.
Senator S tiafroth . Don’t you think this opportunity to go to a
central bank and cash your paper in case of a run would be of ines
timable advantage to every member bank?
Mr. S exton . Not to every member bank. I will say this: You will
find that unless they change a great number of their present loans,
they won’t have that kind of paper. They can get enough, however.
Senator R eed. Let us see how that works out----Mr. S exton (interposing). That can be taken care of. You can
exchange paper with any bank that has it.
Senator R eed. Suppose your bank has $100,000 of absolutely good
paper-----Mr. S exton (interposing). I have good bonds----Senator R eed (interposing). And as long as the bank over in St.
Louis with which you do business has paper of the kind required,
and it can go down to the regional bank and get all the money it
needs, it will take care of you, won’t it?
Mr. S exton . Surely, there is no question about that.
There is one other thing I should like to say a few words about, and
that is the question of savings banks. The question of savings in
this bill is not understood at all. As the clause in the present bill
refers to bankers, it is not Avell understood by the bankers. You
see, they are conducting a business to-day so entirely different from
that, I do not know what is going to happen to them. It is going
to disturb their investments and everything of that kind. The
majority of those investments are too old; they are not the kind
mentioned in the bill. I would much prefer to see that eliminated
from the bill. It does not, however, apply to me.
Senator R eed . Suppose the bill gave you the right to establish a
savings bank upon broad and generous lines, and you were given
the option to exercise it or not. You would not object to that ? You
are a national bank?
Mr. S exton . Yes; sir; and I am also connected with a savings
bank, which is a State bank.
Senator R eed . Y ou do not object to the savings-bank proposition
being incorporated if it is optional with you to have it or not to have
it as a national bank?
Mr. S ex to n . N o ; because it does not affect me; but how is it going
to affect the man who has a savings department in his bank now ?
Senator R eed . If there were broad principles laid down, as broad
as they can safely be made, he would not have any objection, would
he?
Mr. S exton . Speaking of an amendment?
Senator R eed . That is what we are here for, to see whether it
needs amendment.
Mr. S exton . In my opinion it does.

BANKING AND CURRENCY.

2 223

Senator R eed . I s there anybody here that can give us complete
information about what is necessary to put into this bill in order to
make the savings-bank feature workable and safe?
Mr. S exton . I think Judge Montgomery, the president of our
State association, who is president of the largest savings bank in our
State, outside of Chicago, is eminently qualified. Whether or not
he is prepared to do that I do not know.
FURTHER STATEMENT OF S. B. MONTGOMERY.
Senator H itc h c o c k . Judge Montgomery, have you already been
on the stand ?
M r. M ontgomery . Yes, sir.
Senator H itc h c o c k . Senator Reed wanted to ask some questions
about how the law should be amended in order to make the bill ac
ceptable. Did you refer to that in your statement ?
Mr. M ontgomery . I did not make a statement at all; I handed
a written statement to the chairman of the committee. I just said
with reference to that that a great many small country banks have
some savings. They attempt to £jet deposits, and they do get them,
but they do not get enough to justify the segregation. I think I
said that in my paper; I have forgotten now.
Senator P om eren e . Did you in your paper suggest what changes
you thought should be made ?
Mr. M ontgomery . I suggested that the savings-bank section be left
out altogether.
Senator H itc h c o c k . Where would that leave the national banks
that now have savings departments?
Senator N elson . It would leave them just as they are.
Mr. M ontgomery . I was just about to answer that. They have
been taking savings right along.
Senator H itc h c o c k . H ow do they invest them?
M r. M ontgomery . A s they please.
Senator H itc h c o c k . There is no limit?
Mr. M ontgomery . N o, sir.
Senator P o m eren e . The most of them carry the same reserves
against their savings accounts now as they do "against others.
Senator R eed . Are they not proceeding in violation of law now?
M r. M ontgomery . Ours is a State bank. There is nothing against
it in o u r law. I have always felt that it was simply winked at.
Senator R eed . Nothing ought to be winked at in a great financial
system.
Mr. M ontgomery . I do not know; I may be wrong----Senator R eed (interposing). Now let us assume that we are going
to try to create a system here that will invite into it your State bank.
You have a State bank, you say?
Mr. M ontgomery . Yes, sir.
Senator R eed . And you have a trust department ?
Mr. M ontgomery . Yes, sir.
Senator R eed . An$ a savings department?
M r. M ontgomery . Yes, sir.
Senator R eed . N ow , if we were to tr y and make this bill so that
your bank could come in, and all similar banks in the State of Illinois,

2224

BANKING AND CURRENCY.

and so that you could legitimately carry on this business under this
system and a national bank could have the same privileges, what
would be necessary to write into this bill to accomplish that ?
Mr. M ontgomery . That is a pretty hard question.
Senator R eed . That is the question we have to solve, and you peo
ple are here to help us.
Mr. M ontgomery . Y ou mean you are going to solve the problem
of how to make this law so satisfactory that a State bank will come
into the system ?
Senator R eed . We want to make it so that all banks can come in
that desire to come in.
Mr. M ontgomery . That brings up all the objections that are
mentioned. I mentioned, I think, seven in my paper.
Senator R eed . Y ou mentioned objections to this bill. What I
want is suggestions as to what ought to go into the bill.
Mr. M ontgomery . We have a capital of $1,000,000. If we have to
put up 10 per cent and subscribe another 10 per cent to this organi
zation, it will take $100,000 from us, in the first place, and I have not
yet seen anything in the bill that tells how we will ever get it back.
We subscribe another 10 per cent, and I do not know whether we
would have to pay that or not. We have not much regulation in
our State with reference to reserves. We carry a good reserve al
ways, and we carry a great many demand loans, so as to keep our
selves safe. But we are not now under anything like as rigid laws
as we would be under this system.
Senator R eed . And therefore you would hesitate to come in ?
Mr. M ontgomery . We are running as we please, very much.
Senator R eed . Y ou do not think that is a wise thing to do in a
banking system ? You do not think that a banker ought to be allowed
to do just as he pleases?
Mr. M ontgomery . I do not think I should say we are running as
we please; that is too broad.
Senator H itch co ck . Y ou are running according to your judg
ment?
M r. M ontgomery . We are running according to our judgment and
according to the law of the State of Illinois.
Senator R eed . But that law is----Mr. M ontgomery (interposing). That is a very liberal law.
Senator R eed . I do not speak for anybody but myself, but I should
like to know what suggestions the State bankers have to make by
way of amendment to this bill which would enable them to come into
the system with all their various departments and continue to pros
per and at the same time have the system safe. Now, some of you
practical gentlemen ought to be able to tell us, and if you are not pre
pared to do it now, Judge, I wish you would write it out in the form
of suggested amendments and send it to us within the next 8 or 10
days at least.
Mr. M ontgomery . Well, I should be glad to write anything I can
that will help. I am as anxious to see this law made satisfactory and
adopted as anybody.
Senator S h a fr o t h . Mr. Montgomery, this amount that is called
for here is identically the same as that provided by the Aldrich bill,
which seemed to be very satisfactory to the bankers, was it not—10
per cent in cash on a subscription of 20 per cent ?

BANKING AND CUKKENCY.

2225

Mr. M ontgomery . I confess I do not remember. I am afraid we
are trespassing on your time. Mr. White wanted to say something,
I think.
STATEMENT OF WILLIAM C. WHITE, PRESIDENT ILLINOIS NA
TIONAL BANK, PEORIA, ILL.

Senator H itc h c o c k . Where do you live, Mr. White ?
Mr. W h it e . Peoria.
Senator H itc h c o c k . Your bank?
Mr. W h it e . The Illinois National Bank.
Senator H itc h c o c k . What is your capital ?
Mr. W h it e . $200,000.
Senator P o m eren e . W ill you give the surplus and your deposits?
Mr. W h it e . We have a surplus and undivided profits of $130,000
and deposits of about $2,000,000.
I just want to say a word in regard to this matter of a savings
department. We have about $400,000 of savings in our savings de
partment. We are a commercial bank. Our funds are largely loaned
out to local business houses, jobbers, and manufacturers.
I think there is a matter of principle involved there that possibly
you gentlemen have not thought of. I think the logical place for a
man to keep his savings deposits is in a bank that furnishes money
to the concern by which he is employed.
Senator H itc h c o c k . Y ou do it by time certificates of deposit?
Mr. W hite. We have savings books and certificates of deposit
both.
Senator H itc h c o c k . Are the savings deposits withdrawable on
demand ?
Mr. W h it e . Yes.
Senator H itch co ck . Does the State law permit you to require that
a notice shall be given?
Mr. W h it e . We are a national bank. I do not know just what the
State law is. We have followed the regular savings bank’s books,
that we can give a notice----Senator H itchcock (interposing). That is by individual arrange
ment with the depositor?
Mr. W h it e . Yes. The idea I mean to convey is this: Say there
were a thousand men working for one of the Peoria manufacturers.
If we are restricted to their deposits we have to loan those possibly
on real estate or some investment designated bv this bill. We might
possibly find it hard to take care of the manufacturer that employs
these men. I think there ought to be a good deal of latitude and
room for discretion on the part of the bank officers in loaning those
funds and not just be restricted to some narrow investment.
Senator R eed . There ought to be some restriction, ought there not,
to insure safety?
Mr. W h it e . Possibly some restriction, but I would not know what
percentage to say, or anything of that sort.
Senator R eed . Y ou recognize the fact that there are two things
every banker has to consider, I take it; one is, he wants to make
money, and the other is that his bank must be regarded as sound and
be kept sound in order for him to be successful in making money.
Mr. W h it e . That is very essential.

2226

BANKING AND CURRENCY.

Senator R eed . And the whole system, as a system, must be pro
tected so that the confidence of the people will not be shaken in the
system and thus a run produced.
Mr. W h it e . It is largely a matter of confidence.
Senator R eed . Taking these two things into consideration, what
suggestions have you to make as to amendments to this bill which will
make it a better bill along those lines?
Mr. W h it e . Well, I really think the matter of investment of sav
ings funds ought to be left largely to the executive officers of the
banks.
Senator H itc h c o c k . What do you mean by “ largely” ?
Mr. W h it e . Altogether, in fact.
Senator H itc h c o c k . Altogether. What reserve do you think
ought to be kept against those deposits?
Senator N elson . N ow , Mr. Chairman [Senator Hitchcock], if you
will allow me, I want to see the witness on that point. I think I can
clear the matter up. As a matter of fact, these national banks are not
doing a savings-bank business in the full sense of the term. The only
part of the savings-bank business they do is to pay interest on time
deposits of their depositors, either by book or by certificate of deposit.
When it comes to the matter of reserves and the investment of this
money it is not segregated from the other moneys of the bank, but is
subject to all the conditions of the national-bank law. They can no
more invest those savings deposits in other securities than they can
their commercial deposits. It is only to that extent the national
banks have been doing a savings business. It has grown up of itself.
Depositors come in and say, “ We want to deposit this and we want
to get interest on it.” This interest is paid either on certificates of
deposit or upon books, as you say. After the money comes in it is
kept with the other money of the bank, and is invested in just the
same manner as its other money. It is only to that extent they are
doing a savings business. Is not that correct?
Mr. W h it e . That is right.
Senator R eed . I understand, Senator, that this bill proposes to
legalize that form of business, and, secondly, to enlarge it and to
make it a true savings-bank department, and give it the power to take
the money not only on time deposits but give them whatever other
advantages there are.
Senator N elson . The point here is. Senator Reed, that the bill pro
poses to create a full-fledged savings bank, and the limitations under
that are distinguished from the other. In the first place, they only
require a reserve of 5 per cent. In the next place, they can invest
the money they get in almost any kind of security—in stocks and
bonds, real-estate mortgages, and permanent investments—instead of
using it for commercial and trade purposes. That is the trouble.
You can see in the small country town how difficult it is to keep up
such an institution as a part of a national bank.
Senator H itc h c o c k . N ow , I would like to ask the witness this
question: Suppose they have the alternative—suppose the law per
mitted you to have a savings-bank department on a reserve of only
5 per cent, but limited your investment strictly to savings-bank busi
ness. Suppose it also permitted you to do a savings-bank business
on the present commercial basis that you are now doing it on, pro
vided you kept the legal reserve.

BANKING AND CURRENCY.

2 227

Which alternative would you take?
Mr. W h it e . I would take" the one allowing us to make the invest
ments in a commercial way.
Senator H itc h c o c k . Then what you object to is being com pelled
to go into the savings investment, practically?
M r. W

h it e .

Y e s ; to se g r e g a te it a s a se p a r a te fu n d .

Senator H itc h c o c k . R a th e r th a n do that, y o u w ould p re fe r to keep
a la r g e r reserv e?
Mr. W h it e . T o keep a larger reserve; yes.
Senator P o m eren e . That is due, I take it, to the fact that it is what
your community requires?
Mr. W h it e . That is the commercial business generally which th e
banks are doing.
Senator R eed . Then you would be content if this bill provided, in
express terms, that any national bank could receive time deposits and
pay interest thereon, provided further it may, if it so desires, estab
lish a savings-bank department, in which event it shall have certain
rights and privileges but shall not have to keep its funds segregated.
Mr. W h it e . Yes; without having to segregate its funds.
Senator R eed . And you would go on as you now are. But if you
undertake to establish a separate department and have an oppor
tunity to do all of the savings-bank business, then you recognize
the justice of the savings-department provision?
Mr. W h it e . Oh, yes.
Senator R eed . S o, if it were left optional, and you had all the
rights you have been heretofore exercising and had it legalized, you
would be content?
M r. W

h it e .

W e w o u ld b e c o n te n t.

Senator N elson . Y ou would prefer that system?
Mr. W h it e . Yes; if you do not segregate the funds.
Senator H itch co ck . D o y o u call it a savings department?
Mr. W h it e . A savings department of the national bank.
Senator H itc h c o c k . I s there any value to you in calling it a
savings department?
Mr. W h it e . Yes.
Senator H itch co ck . Would you still want that privilege an d
maintain a commercial reserve?
Mr. W h it e . Yes.
Senator P om eren e . It attracts the sm all d e p o sito r?
Mr. W h it e . Yes.
Senator B ristow . D o you not think it would be desirable to have
permission to lend a certain percentage of those funds on real estate,
if you desired?
Mr. W h it e . I think it would be a good provision for national
banks. That is what we have been waiting for all these years, to
have some provision for making loans on teal estate.
Senator N elson . And measured b y the percentage that the time
deposits run to the percentage of commercial, would not that be
fairer?
Mr. W h it e . Yes; that would be fairer. I think it ought to be left
largely in the discretion of the bank officials.
Mr. H arris . Mr. Chairman, may I say just a word on that ques
tion? It seems to me that the purposed permitting of these savings

2228

BANKING AND CUKBENCY.

departments is another thing that helps to defeat the purpose you
want to accomplish. In other words, the whole purpose is to mobilize
everything you can. The minute you begin to segregate, then you
help to defeat the purpose you have in mind.
Another thought is this, that this is a currency measure, and the
provision for making 12 months’ farm loans represents a savingsbank feature.
Would it not be expedient to consider leaving both of these features
out of the bill and then go ahead and modify the national-bank act,
and, as I understand you will perhaps do, later give the banks all
the powers you think they ought to have? But let this bill stand
purely as a currency measure without the savings measure or any
thing of that kind. The national-bank act must be modernized,
because we will not have any national banks in this country unless it
is, aside from this bill, one way or the other.
Senator R eed . In view of the national banks saying they do not
want to come into this system, anyway, what some of us have in mind
is trying to make a bill that will take care of the national banks, the
State banks, and the loan and trust companies, and the idea now is
to create a system which will. I do not much like the idea of divid
ing the load, because sometimes it is hard to get the load through
Congress even if you take it there at once and have everybody
pushing.
Mr. H arris . The fact that most of the national banks have a feel
ing that they will have to segregate their savings capital might be
another reason why they would not want to come in.
Senator R eed . That is just why I suggested leaving that in the
alternative in the bill.
Senator N elson . I want to add just one word, and that is this:
The deposits of these small country banks of $25,000, etc., in farm
ing communities—practically one-half to two-thirds of their deposits
are time deposits paying interest. They are practically savings de
posits. Now, I live in a town where we have three banks, one of
$60,000, one of $100,000 capital, both national banks, and a State
bank with $50,000 capital. The average amount of deposits of
those three banks is about $1,000,000, and one-half to two-thirds of
the deposits in both the National and State banks are time deposits—
deposits of the farmers, on which they get interest. They are practi
cally savings deposits. But when the moneys come into the bank
they are treated like all the other funds of the bank and used for the
same purposes. Is not that practically true?
Mr. W h it e . That is the condition.
Senator N elson . And if you segregate those savings deposits in
the little country banks the commercial end of it will be the small
end, and there will not be anything left of it.
M r. M ontgomery . There is a provision here that the capital thus
set apart for uses of the savings department aforesaid shall in no
case be less than $15,000, or than a sum equal to 20 per cent of
the paid-up capital and surplus of the said national bank. Now, I
do not know exactly what that means. Does it mean 20 per cent of
the capital of $25,000 banks?
Senator H itchcock. Capital and surplus, it says.
Mr. M ontgomery . Assume i t has no surplus, f o r the sake o f the
argument.

BANKING AND CURRENCY.

2229

Senator H e e d . That language is very vague and ought to be
changed.
Mr. W h it e . It is very vague, and I do not know what it m eans.
T do not know whether it means $5,000 or $15,000.
Senator H itc h c o c k . Have you any others who desire to m ak e
statements?
Mr. M o n t g o m e r y . Mr. Crebs is the only other speaker.
Senator H itc h c o c k . Please state your name and place o f business.
STATEMENT OF JOHN N. CREBS, OF CARMI, ILL.

The C h a ir m a n . H ow large is Carmi ?
Mr. Crebs. It is a town of 3,000 inhabitants.
Senator H it c h c o c k . What bank are you connected with?
Mr. C rebs . The national bank.
Senator H it c h c o c k . And what is the size of your bank?
Mr. C rebs. $40,000 capital.
Senator H it c h c o c k . I s it the only national bank there?
Mr. C rebs. No; there is the First National.
Senator S h a f r o t h . What are the deposits and surplus?
Mr. C rebs. S u rp lu s $10,000 a n d d e p o sits now ab o u t $200,000.
Senator H it c h c o c k . Proceed.
Mr. C rebs. Judge Montgomery asked me to say a word about the
amount that the national banks were expected to contribute toward
the capital stock of the reserve banks. I told him I believed I was
better able to speak on that than any other subject, possibly because
it is the smallest part of the whole matter.
I have heard, in talking with those I have met in our section, more
on this point than any other, and I am convinced, in my own mind,
that it would be better for the banks—I do not want to put it that we
are only interested in what is better for the banks, but I can not help
but believe you would get more banks interested if the amount
required was 10 per cent instead of 20.
Senator N elson . The subscription?
Mr. C rebs. Y e s; th e su b sc rip tio n .
Senator N elson . Five cash and five subject to call?
Mr. C rebs. Yes.
Senator H it c h c o c k . I want to ask you a question there: Suppose
the small country banks were permitted to pay their part of the
capital in 2 per cent United States bonds instead of cash, and retire
their currency to that extent?
Mr. C rebs. On first thought, it seems to me, as that now stands
under the present arrangement, they might fall over themselves to
get in. [Laughter.]
Senator N elson . I guess they would.
Senator P eed . N ow , let me ask you a question. Suppose the bill
was amended so that the forced retirement of national-bank notes
was striken out and suppose the tax upon the national-bank circula
tion was cut down, then you would want to hang on to those bonds,
would you not ?
Mr. C rebs. Well, I can not answer that, because I am not familiar
enough with the situation. It is not a big enough matter with us.
Senator H itc h c o c k . H ow many United States bonds have you
for circulation purposes?

2230

BANKING AND CURKENCY.

Mr. C rebs. $40,000.
Senator H itc h c o c k . The full amount of your capital?
Mr. C rebs. Yes.
Senator H itch co ck . Y ou issue the full amount of your currency,
then, I suppose?
Mr. C rebs. Yes.
Senator R eed . H ow much tax d id you pay on those last year; do
you remember?
Mr. C rebs. N o, sir; I do not remember.
Senator S h a fr o t h . $200.
Mr. C rebs. I presume it would be.
Senator H itch co ck . Y ou think, then, that more banks would want
to come in if they were permitted to subscribe 10 per cent of their
capital?
Mr. C rebs. I think so, for the reason the small banks think it is
taking too much of their capital away from them to enable them to
feel satisfied in coming into the regional bank.
Senator P o m eren e . H ow old is your bank?
Mr. C rebs. About 15 years.
Senator P o m eren e . What advantages do you have now in being a
national bank from what you would have if you surrendered your
charter and reincorporated under the State laws?
Mr. C rebs. The main advantage I see is the fact of being a na
tional bank—the name.
Senator N elson . And the circulation privilege at present?
Mr. C rebs. I can not feel myself that there is for the individual
bank an advantage in that. It is an advantage in a general wav to
the many banks collectively, but to the individual small bank I do
not see where it is an advantage, except raising the total amount of
the figures of the bank for advertising purposes.
Senator B ristow . Y ou think you do not make much money on
your circulation?
Mr. C rebs. I do not know how we do.
Senator N elso n . What rate of interest do you get where you are!
Mr. C rebs. Six per cent is the prevailing rate.
Senator N elson . Y ou would have more advantages under the State
law. then—that is, if you became a State bank?
Mr. C rebs. The stronger the bank the more the advantage it would
be. Senator, because of the privilege of loaning as a State bank that
you do not enjoy as a national bank.
Senator B ristow . D o you have all your funds in demand there
that you can supplv?
Mr. C rebs. Indeed we do, alw ays.
Senator N elson . What class of people are your borrowers?
Mr. C rebs. Farmers, altogether. It is an agricultural district.
Senator N elson . Your loans are on farm paper?
Mr. C rebs. Yes: altogether.
Senator B ristow . What time do you usually make your notes?
Mr. C rebs. We try to make them on short time—90 days; but with
us it makes no difference. When we loan our money we have to wait
until the farmer gets ready to pay it back.

S ° n a to r B ristow . Y ou renew y o u r loans?

Mr. C rebs. Yes.

BANKING AND CURRENCY.

2 231

Senator R eed. H ow would Mr. Farmer like it for you to take his
note and discount it with another bank, and when he comes in to
settle for you to say it is in another bank?
Mr. Crebs. I presume you have reference to the reserve bank.
Conditions are changing so rapidly that it would make no difference
whatever.
Senator R eed. Provided you took care of his loan when he wanted
to renew it?
Mr. Crebs. Yes.
Senator R eed. What dividend did you make last year—what do
you generally make?
Mr. Crebs. We generally make about 10 per cent.
Senator R eed. Are you laying aside any surplus?
Mr. Crebs. We organized our bank for $25,000, and have ac
cumulated $10,000 and had an extra $15,000 surplus earnings.
Senator H it c h c o c k . In how many years?
Mr. C rebs. Just since the act enabling banks to organize at
$25,000.
Senator R eed. You have $25,000 capital now ?
Mr. Crebs. N o ; $40,000.
Senator R eed. And you made the extra $15,000 out of earnings,
did you?
Mr. Crebs. Yes. I do not think we should take this bank of mine
as a general rule, however, because it was a family affair. We have
made good earnings and paid a good deal out for clerk hire.
Senator R eed. You pay pretty liberal salaries to yourselves?
Mr. Crebs. Well; no, sir----Senator R eed (interposing). There is no objection to that. I am
just trying to get at the facts. It being a sort of a family affair,
you in that respect have not gotten down to cold business, but have
a family consideration introduced into it.
Mr. Crebs. That is true.
Senator R eed. So that your bank has done pretty well ?
Mr. C rebs. It has, yes; and will continue to do well, too, we ex
pect.
Senator R eed. Did you suspend payments in 1907 for the time
being—limit the payments?
Mr. C rebs. N o, sir.
Senator R eed. Y ou went right along?
Mr. C rebs. Yes.
Senator R eed. I find a great many of the smaller banks did that.
They did in my county. The big fellow is the man you are afraid
of, are you not, in this equation?
Mr. C rebs. I am not afraid of him. I think it is all right.
Senator N elson. Y ou do not want to assume, Senator Reed, that
we little fellows in the country are afraid of the big fellows of the
city ?
Senator R eed. I mean afraid he will make the disturbance, make
the trouble. I do not mean afraid of them personally.
Mr. C rebs. N o ; I am not afraid of them.
Senator R eed. But really, seriously speaking, you recognize there
is a danger from our banking system at present that ought to be
obviated, coming from various causes and culminating in a shortage
of currency at times through business fear?
S. Doc. 232. 63-1— vol 3----- 20

2232

B A N K IN G AND CU R R E N C Y .

Mr. C rebs . Yes.
Senator R eed . And feel that that ought to be obviated?
Mr. C rebs . Indeed, I do. I gladly welcome the prospect we have
before us.
Senator N elson . Could you get your reserve in 1907? Could you
draw on other banks freely?
Mr. C rebs . We were advised we could in the event we needed it.
Senator R eed . Y ou deposit principally in Chicago, I suppose?
Mr. C rebs. Chicago and St. Louis.
Senator H it c h c o c k . If there are no further questions, you m ay
be excused.
Mr. M ontgomery . Gentlemen, we want to thank you for our
treatment here.
Senator N elson . We want to thank you for coming; you have
helped the committee.
Senator H itc h c o c k . The committee will now stand adjourned
until Monday morning at 11 o’clock.
(Thereupon, at 1 o’clock p m., the committee adjourned until
Monday, October 13,1913, at 11 o’clock a m.)
M ONDAY, OCTOBER 13, 1913.

C o m m ittee on B a n k in g and C u rren cy ,
U n ited S tates S en a te ,

W ashing ton] D. C.
The committee assembled at 11 o’clock a. m.
Present: Senators Owen (chairman), Hitchcock, O’Gorman, Reed,
Pomerene, Shafroth, Hollis, Nelson, Bristow, and Weeks.
The C h a ir m a n . Mr. Scudder, we will give you an opportunity to
appear now.
STATEMENT OF S. D. SCUDDER, VICE PRESIDENT RICHMOND
TRUST & SAVINGS CO., RICHMOND, VA.

Mr. S cudder . Mr. Chairman and Senators, I had the pleasure and
privilege of attending the country bankers’ conference on Monday
at Boston, and I believe that their action was most sane and safe.
Senator R eed . Just a moment, Mr. Scudder.
Senator O ’G orm an . Will you state your residence, occupation, and
the bank with which you are connected?
Mr. S cudder . My name is S. D. Scudder, vice president Richmond
Trust & Savings Co., Richmond, Va.
Senator O ’G orm an . Have you been connected with that bank for
many years?
Mr. S cudder . I h av e been in th e b a n k in g bu sin ess a b o u t 20 y ears.
Senator O ’G o rm an . What is the capital of your bank?
Mr. S cudder . $1,000,000.
Senator O ’G orm an . And surplus?
Mr. S cudder . We have only recently established. We have about
$50,000 surplus. We established the bank about eight months ago.
Senator W ee k s . Y ou were selected as chairman of this delegation?
Mr. S cudder . N o, sir. Senator Owen simply asked me to come
before you, having been the only one who stood up and voted “ no ”
in the convention at Boston on the resolutions of the committee.

B A N K IN G AND CURREN CY .

2 233

Senator W e e k s . Y ou are not representing the----Mr. S cudder (interposing). No; I am not representing the coun
try bankers. The rule established at the country bankers’ confer
ence on Monday excluded any participation on my part, because
the capital of our bank is $1,000,000, and the rule established or pro
mulgated by the chairman of that conference was that no bank hav
ing over $250,000 should have any say before the country bankers’
conference.
Senator R eed . H ow long have you been in the banking business
yourself ?
Mr. S cudder . Between 20 and 25 years.
Senator R eed . Before you became connected with this bank w h a t
class of bank were you with?
Mr. S cudder . My first job was in the Bank of Montreal. Although
a n American, I had the privilege of being in the Bank of Montreal,
Canada, and from there I went to Minnesota and established a little
bank.
Senator N elson . At what place?
Mr. S cudder . At Sleepy Eye, Minn.—the State Bank at Sleepy
Eye.
Senator R eed . I didn’t suppose there was any such town in Min
nesota.
Mr. S cudder. Yes; a good, vigorous town.
Senator N elson . It is a good, lively town.
The C h a i r m a n . I think we had better come to the point.
Mr. S cudder. I was simply answering the question.
The C h a i r m a n . I know that; I was admonishing the committee
as well as the witness.
Senator O ’G orm an . I do not think it is fair to say, Mr. Chairman,
that time is being wasted. The Senator from Missouri asked a ques
tion that I think is very pertinent and enables us to place an appro
priate value on the views of this witness. I think it is well for us to
allow him to continue his experience in Sleepy Eye.
Senator W e e k s . It seems to me anything that would dispel an
illusion as to the character of Sleepy Eye had better be given.
[Laughter.]
Senator N elson . It is a good, lively town of 2,500 people.
Senator O ’G o rm an . What were your activities after you left th a t
place?
Mr. S cudder. My health became poor and I had to go to Texas. I
was given up by the doctors. I went to Texas and became a rough
rider. I got in the mortgage-banking business, representing the
Scottish-American Mortgage Co., of Edinburgh, for the State of
Texas. I loaned a great deal of money throughout Texas on ranches
and farms for the Scottish-American Mortgage Co. I also got in
the insurance business, and was appointed sole agent of the ScottishAmerican Mortgage Co. and the manager for Texas of the Germania
Fire Insurance Co., of New York. In a few years they added other
territory, so that I finally became their manager for the Southern
States, with headquarters at New Orleans. After that they moved me
to New York and I managed the Southern States for the Germania
Fire Insurance Co. from New York. An offer then came to me from
the Trust Co. of America, then the North American Trust Co., to be
come its treasurer.

2234

B A N K IN G AND C U R R E N C Y .

Senator O ’G orm a n . When was that?
Mr. S cudder . In 1900. The North American Trust Co.
Senator N eeson. Of New York?
Mr. S cudder . Of New York.
In 1904, I think it was, the Trust Co. of America amalgamated
with the North American Trust Co. and I was elected the treasurer
of the amalgamated company. I served as treasurer for the Trust
Co. of America something like five or six years, and then became in
terested in a little bank called the Jefferson Bank of New York.
That was merged with the Century Bank. While vice president of
the Century Bank I was called to Richmond and undertook the for
mation and management of the Richmond Trust Co.
Senator O ’G orm a n . Y ou were connected with the Century Bank
at One hundred and fourth Street and Broadway?
Mr. S cudder . Yes, sir; I was vice president o f that bank.
It was at the general convention of the Boston bankers that I be
came the insurgent. I will read you a short synopsis of the reason
for my vote there.
I am in sympathy with some of the suggestions made by the asso
ciation’s currency commission and believe they would be adopted by
the administration if presented in the spirit of fairness and real help
fulness. But I was not willing to lend myself to any action that will
cut the very heart out of the bill now before Congress and thus
destroy the honest efforts which are being made in Washington to
reform our financial system. I refer particularly to the entire
change asked for by the bankers’ committee as to the proposed note
issue. When all is said and done, the whole question now really
resolves itself into whether this Government shall issue and control
the currency or whether the banks shall do it. Please forget for a
moment the question as to whether it shall be a Federal reserve bank,
with a main institution located at Washington, on the idea that this
“headquarters institution ” shall serve only the 5, 7, or 12 “ artery
Federal banks” throughout the country, and not have any direct
dealings whatever with the local banks or the general public, or
whether it will be the establishment of 5, 7, or 12 Federal banks,
without any “ headquarters bank,” but with simply a controlling
“ Federal board” in Washington. There really is very little differ
ence between these two plans, although I am inclined to believe the
former would prove the more practical.
A condition and not a theory confronts us, and we as bankers are
blind if we do not reckon with it. The same condition here as it is
carried on in Canada and European countries makes it also impos
sible to seriously consider any permanent currency issue by our banks
unless such issue is practically guaranteed and entirely controlled
by our Government, as is the case at present. In Canada seven or
eight large banks do all the business, each having its branches scat
tered all over that country. Is there any community, large or small,
in the United States which would support such a system? You know
very well that any “ branch” of the largest bank in New York city
would find itself outwitted by competition at every turn by an inde
pendent local banker or bank in any given spot in the United States.
If you omit that part of the committee’s report referring to the note
issue, which the committee desires the banks to undertake instead of

the Government, you will stand a good chance to be heard at Wash
ington regarding the other recommendations submitted bv the com
mittee; but if you leave it in the administration—and remember the
people are back of this administration—will understand that the gage
of battle has been cast and your action may result in producing a
more drastic measure than should be passed.
“ Come, let us reason together ” should be the slogan of this con
vention, and not “ Come on and fight.” We are partners in the great
business of this country, and the only way any partnership can ever
permanently succeed is when both sides are conciliatory and willing
to give and take. In adopting the entire report of the bankers’ cur
rency committee we will place ourselves in the same category as the
man who wanted to argue religion, but who started out with the
hypothesis that there was no God. There can be no arguing with
such a man and there will be no arguing with us if you demand what
the people have said they will not have. The people of this country
have, through their representatives, settled the two fundamental
principles of currency reform. In no uncertain voice have they
stated, first, that they shall be no central bank in the United States
governed by the bankers themselves, and, second, that the Govern
ment shall make the note issue. Even if you do not agree with my
argument that we can not do as Canada and other foreign countries
do in respect to our note issues, wouldn’t it be wise to take our cue
from what we know to be the sentiment of the people of the United
States and act diplomatically at this time? Why should we commit
an unfriendly act against the people? To do so just at this psycho
logical moment will put us out of the line of consideration. We
bankers represent the investors of bank stocks; but the Government
at Washington represents the people of this country who have cre
ated the investor. If the people want their Government to issue
the currency, the investor should bow to this decision and cooperate
to the end that the past friendly relations may continue and redound
to mutual advantage.
I shall be glad to answer any questions, Senator.
Senator H itch co ck . You think the Government should issue c u r
rency. Why should not that currency be issued direct to individual
banks entitled to it rather than create this great machinery which is
going to revolutionize our banking system?
Mr. S cudder . Because I believe, Senator, that if the banks issued
the currency, even though the Government controlled it through a
Federal board, that a condition is more likely conceivable—an ad
verse condition—against that currency than if the Government issued
it. I for one would rather have the obligation of all of the people
than have the obligation of part of the people. And if the banks
issued the currency it would be an obligation of part of the people,
no matter how strong the bank may be nor by whom controlled.
Senator H itc h c o c k . I think you misunderstood me. I say if the
Government of the United States issued the currency----Mr. S cudder (interposing). As its own obligation?
Senator H itc h c o c k . Yes. Why should it not issue it direct to in
dividual banks where they need it and when they need it instead of
creating all this machinery which is going to revolutionize our bank
ing system ?

2236

B A N K IN G AND C U B B E N C Y .

Mr. S c u d d e r . I have no objection to your plan i f it is th e G overn
m en t’s obligation.
Senator H it c h c o c k . N ow , then, I understand you advocate Gov

ernment obligation?
Mr. S c u d d e r . I do.
Senator H itc h c o c k . If the Government under any system is to
issue its obligations so as to wipe out $700,000,000 of national-bank
notes, and had in addition some elastic currency, the total of which
may amount to a billion dollars----Mr. S c u d d e r (interposing). Emergency currency?
Senator H itc h c o c k . Yes. Do you think it is safe for the Govern
ment to do that without providing a reserve fund in the Treasury to
meet any possible demand?
Mr. S cudder . No; I should say a reserve fund is absolutely neces
sary.
Senator H i t c h c o c k . There i s no reserve fund provided for in t h i s
b ill.

Mr. S cudder . I th in k there ought to be a reserve fu n d .
Senator H it c h c o c k . Then, you criticize it on that account?
Mr. S cudder . Yes, sir.
Senator N elso n . Suppose the Government were to issue this

cur
rency as suggested by Senator Hitchcock, what would become of all
these bank reserves? How would they be gathered together and
utilized for the benefit of the system ? Could that be done under the
Government ?
Mr. S cudder . Yes, sir; that is all provided for in the bill.
Senator N elson . It is? I don’t so understand it. It is the banks
that are to do this----Mr. S cudder (in te r p o sin g ). N o ; but it is the banks— as I under
stand the S en ator’s question, the G overnm ent w ork in g through the
banks under th is system .
Senator H it c h c o c k . N o.
Senator N elso n . N o. T h e S en ator’s question w as to do aw ay w ith
the banks; have the G overnm ent issue the currency direct w ith ou t
the interven tion o f the banks.
Mr. S cudder . And without having the system o f Federal bank

reserves ?
Sen ator H i t c h c o c k . W ith ou t all that m achinery.
Mr. S cudder . I m isunderstood you, then.

Senator H i t c h c o c k . Will you state why you think that i s not
desirable or possible?
Mr. S cudder . Y ou have to have a banking system; you have to
have a method through which you can reach all the people in all the
sections of the country.
Senator H it c h c o c k . Well, could you not do that much better by
50 subtreasuries than you can possibly do it by 12 or 3 or 5 regional
banks?
Mr. S c u d d e r . The question had not occurred to me. I had not
given it a thought. You mean abolish entirely the system of reserve
banks?
Sen ator H i t c h c o c k . D o n ’t abolish an y th in g ; you h aven ’t created
it yet.
Mr. S c u d d e r . I m ean the principle.

B A N K IN G AND C U R R E N C Y .

2237

Senator H itc h c o c k . Drop that revolutionary idea and extend the
operations of the Treasury through 40 additional subtreasuries at
which the individual bank could apply for a limited amount of cur
rency when it needs it, upon the deposit of security, giving the Gov
ernment also a first lien upon all of the assets of the individual bank.
Mr. S cudder . Well, that is a new thought to me.
Senator H itc h c o c k . That allows the banks to have all their r e
serves; it takes no capital away from any of them, and gives them
this Treasury facility in addition----Mr. S cudder . With a proper reserve?
Senator H itchcock. With the Government providing a reserve
procured by the sale of bonds, the banks to pay a rate of interest
which will much more than pay the interest on the bonds, and in
addition will pile up a fund ^or, possibly, the protection against
losses, or possibly for the guarantee of bank deposits.
Mr. S cudder . I would not care to offhand give an opinion upon
that. I am reminded of what Jefferson said. Jefferson believed
that the people would always take the obligations of the Govern
ment. You remember he makes the remark that in times of great
distress or great national disaster it will be found that the simple
Treasury notes will be accepted by the people on faith.
Senator O ’G o rm a n . That is part of the plan suggested by Senator
Hitchcock. You are asked now your judgment on it, and I under
stand you have not any opinion to express?
Mr. S cudder . I have not, except the general opinion that the p eo
ple would accept such an issue. I have not had time enough to
think about the general working of such a plan.
Senator N elso n . What are the fundamental and radical things that
are sought to be accomplished by this legislation? Have you any
idea what they are?
Mr. S c u d d e r . I t h i n k t h e m o b i l i z a t i o n o f t h e r e s e r v e s o f t h e
c o u n t r y a n d t h e u t i l i z a t i o n o f t h o s e r e s e r v e s , e s p e c i a l l y i n t i m e s of
p a n ic , a n d , s e c o n d ly — w e ll, I sh o u ld s a y g e n e r a l c u r r e n c y r e fo r m
w o u ld c o v e r w h a t is in th a t.
Senator N elso n . H ow could the Government of the United States,

unless it went into the banking business to some extent, gather to
gether the reserves and utilize them in the manner you indicate?
Mr. S cudder . In the manner that Senator Hitchcock indicated?
Senator N elson . N o ; in the outline proposed in the bill.
Mr. S cudder . I consider that the present bill before Congress
covers entirely the question of the mobilization of the reserves of the
country.
Senator N elson . Could the Government do that business without,
to some extent, going into the banking business?
Mr. S cudder . I sh o u ld n o t say so.
Senator N elson . Then, if you leave this matter to the Government,
it would only leave it with the naked power to issue currency and
then supply gold reserves?
Mr. S cudder . That is Senator Hitchcock's suggestion.
Senator R eed . Let me suggest to you this thought—and I do not
know that you are prepared to speak upon it now. I have heard a
good deal here about the mobilization of reserves. It is one of these
phrases that sound well, and it implies that there is no use now made

2238

BA N K IN G AND CURRENCY.

of the reserves of the bank. This bill provides for a bank holding in
its own vaults a certain portion of its reserves, the balance ultimately
to go into the reserve bank. Of course, every bank under any sys
tem will have some reserve that it does not invade. Now, is it not a
fact that these reserves which are now redeposited in other banks are
utilized every day by the banks almost to the same extent that they
would utilize their ordinary balances deposited with other banks?
Mr. S cudder . The great trouble with the reserves of this country
is that when they are needed they are not available, because they
are pyramided; they are piled up.
Senator R eed . I understand, but are they not now utilized day by
day by the banks in this way: You are required, we will say, to
have a reserve of $200,000, and you have $100,000 in your vaults and
$100,000 deposited in New York. As a matter of fact, if you were
not required to keep any reserve at all you would have to keep about
that same $100,000 in New York for the purpose of doing business,
would you not?
Mr. S cudder . Perhaps not to the extent that is now required. I
think the requirements now are much too high.
Senator R eed . Would not the banks be required to keep substan
tially as much in New York if there were no reserve requirement
as they do now ?
Mr. S cudder . I should not think as much; no. I think our insti
tution keeps more in New York than it would keep if it were not
required to keep these large reserves.
Senator R eed . But you are a State bank. The Federal lawr does
not make you keep anything in New7 York.
Mr. S cudder . No; except only the general feeling----Senator R eed (interposing). And the State law7 does not require
you to keep anything in New York?
Mr. S cudder . No ; it does not.
Senator R eed . Then it is entirely voluntary on your part?
Mr. S cudder . I know it is, but it is regulated by the feeling o f
others and what others do. Naturally, I can not publish a statement
of my institution and be below- the others in my reserve. I should
be discredited at once if I should do so.
I say that more than is necessary is required now under the pres
ent reserve system of the country, considering the system we have.
Considering the system we have, I think we have a proper reserve
requirement, but I believe there is w7here this bill is going to brirg
more relief to this country.
Senator R eed . By cutting down this reserve?
Mr. S cudder . By cutting down the reserve and making it possible
to utilize it.
Senator R eed . I am just raising the question whether you do not
utilize it. Now, there have been one or two bankers here who have
frankly stated that they kept their reserves in New York, Chicago,
and St. Louis, and that they maintained that reserve, and yet they
use it day bv day, turning it over every few days.
Senator W e e k s . A s frequently as every 48 hours.
Senator R eed . I just suggest that to you.
Senator W e e k s . Mr. Scudder, you are treating this question o f the
issuing of circulation as a practical proposition rather than an eco
nomic proposition, are you not?

B A N K IN G AND C U R R E N C Y .

2239

Mr. S cudder . No; I am trying to look at it from the economic
standpoint as well.
Senator W ee k s . Then you believe that as an economic proposition
the Government should issue circulation, do you ?
Mr. S cudder . Under this bill; yes, sir.
Senator W e e k s . Y ou seem to criticize the convention in Boston for
having advocated something else. What this committee wants is for
the convention in Boston and all the witnesses to state their criticisms
or approbation just exactly as they feel, and if the convention in
Boston believed that it was economically sound and wise to issue bank
notes instead of Government notes it followed exactly the right course
in saying so. It is for this committee to decide whether that course
is practical and wise.
Mr. S cudder . Surely.
Senator W e e k s . But we need the opinion of everybody, and all
kinds of opinions, and then we will take that up and try to get it
into shape in the form of a practicable bill. So I do not think the
convention in Boston is to be criticized because it seemed to pass
resolutions which are opposed to what some one wants—the adminis
tration or anybody else.
Mr. S cudder . Oh, no; I was simply explaining my vote----Senator W e e k s . Your views?
Mr. S cudder . And m y view s.
The C h a ir m a n . The Chair wishes to remind the committee that
we have a large number of gentlemen who expect to be heard to-day.
Senator W e e k s . Mr. Chairman, if the committee did not expect
to ask this witness questions, he ought not to have been put on, be
cause frequently we get a great deal more out of the questions we ask
than from the statements of the witness himself.
The C h a ir m a n . The Chair has discharged his duty to the com
mittee when he reminds the committee of the facts.
Senator H itchcock. Are the members of this committee able to
stay over until to-morrow?
Senator W e e k s . This gentleman is not a member of the committee.
Here are a large number of gentlemen who have come here as a com
mittee to appear before the Senate committee. They were put down
to be heard this morning.
The C h a ir m a n . The gentleman was allotted 10 minutes, he having
said he could finish in 10 minutes, and now he has used a half hour.
I merely remind the committee of the facts.
Senator W e e k s . Y ou know, Mr. Chairman, perfectly well that no
witness can get through until the members of the committee get
through asking questions.
The C h a ir m a n . And they will not get through until they are re
minded of the exigencies of the situation, which the Chair is trying
to do.
Senator B ristow . I should like to know whether I understand the
witness correctly or not. I understood you, Mr. Scudder. in your
written statement to say that if we had a central bank governed by
the same rules that these regional banks are to be governed by, with
money issued by the Government and the bank controlled bv the
Government, as it will be under this bill, and if that Government
bank had branches, that would be a better system than to have the
various heads, such as the regional bank-----

2240

B A N K IN G A N D C U B R E N C Y .

Mr. S cudder (interposing). I said that in following out the prac
tical workings of the bill now before Congress instead of having a
simple board at Washington if the Federal board were a part of the
system it would be more practicable.
Senator B ristow . If this Federal board were in control of a bank
located here, and these 12 branches of the bank, it would be a more
practicable system?
Mr. S cudder . I do not know that you would call them branches.
They would all be on an equal footing, only that the headquarters at
Washington would be the controlling interest. I t would have the
controlling board located at Washington.
Senator B ristow . Of course, they could not be on an equal footing
with the controlling board at Washington any more than the con
trolling board of a regional bank could be on an equal footing with
them. Of course, that would not be practicable, and the controlling
board at Washington would not have authority over it. The im
pression I got from your statement was that if we could have a cen
tral board in control of the central bank here, and let the reserves be
mobilized under the control of that one institution and then scattered
through the country when required, through its agencies it would be
a more practicable system.
Mr. S cudder . I am in c lin e d to believe it w ould.
Sen ator S h a fr o t h . T h e three benefits, th at I understand you
believe th is b ill w ill con fer on banks, w ill be the low erin g o f the
reserve requirem ent; the m obilization o f the reserves in some bank
w hich is close to the in d iv id u al banks that join the system ; and,
th ird , the rig h t to take 30, 60, and 90 day paper to th is bank and
have currency issued upon the same?
Mr. S cudder . Yes, sir.

Senator O 'G o r m a n . I did not understand the witness to allude
to that before.
Senator S h a fr o t h . He did; yes.
Senator W e e k s . Are you in favor of th e b ill as i t passed th e
House?
Mr. S cudder . Yes, sir; with certain amendments that would not
destroy the underlying principle.
Senator W e e k s . What amendments do you suggest?
Mr. S cudder . Well, I should say I believe the capitalization re
quired from the different banks is a little high. I believe that 6
per cent of the capital and surplus would be a better plan than 20
per cent of the capital.
S e n a to r O ’G o rm a n . D o y o u th in k i t w o u ld be possible to g et th e
re q u ire d c a p ita l fro m each re g io n a l b a n k if y o u h a d th e stock
re q u ire m e n t fixed a t 6 p e r c e n t in ste a d o f 20?
Air. S cudder . I have not figured it out by districts. That is a

matter to be figured. It figures out in the whole United States, I
believe, all right. But you have to take each district, and you do
not know where the districts are.
Senator O ’G orm a n . Y ou have not made that calculation?
Mr. S cudder . No ; it is impossible, because you do not know where
the districts are.

B A N K IN G AND CU R R E N C Y .

2241

I b elieve t h a t 6 p e r c e n t o f th e e a rn in g s w o u ld be sm all en o u g h
in s te a d o f 5. I th in k i t is reaso n ab le, a n d I th in k th e peo p le w o u ld
s u p p o r t su ch a p ro p o sitio n .
I th in k in th e clause w h ic h re a d s :
The manager of the Federal reserve board, subject to the supervision of the
Secretary of the Treasury and Federal reserve board, shall be the active execu
tive officer of the Federal reserve board.

I suppose that would probably mean the comptroller in the Secre
tary’s department.
The C h a ir m a n . The suggestion has been made to the Chair that the
majority of these gentlemen desire to leave this afternoon. Does
the committee wish to continue with this witness?
Senator O ’G o rm a n . I think we ought to let this witness take as
much time as we need to ascertain what his views are regarding this
legislation, and when he gets through we will hear some representa
tive of the visiting bankers from Boston and ascertain what their
program is. Personally I should have preferred to have listened to
a representative of the visiting bankers from Boston first.
Mr. S cudder . May I make a suggestion, Mr. Chairman? I am
perfectly willing to come back to the committee later if they wish.
Senator O ’G o rm a n . I move that we conclude the examination of
the witness now before the committee.
(The motion was agreed to.)
The C h a i r m a n . The witness will proceed.
Senator N elso n . Y ou had better go on and state the other curative
propositions which you have. In what other respects would you im
prove the bill?
Mr. S cudder . In regard to the exchange proposition, it seems to me
that the country bankers have asked a reasonable consideration of
this proposition and that there ought to be some method by which
at least the items which are long in transit and difficult to collect—
that the bankers should be reimbursed for them, perhaps on the
basis of a time calculation, at 6 per cent interest on their money.
If a simple clause were put in, that the Federal board is authorized
to promulgate equitable rates and rules, that would cover the point.
Senator R eed . In other words, you would amend this bill so that,
as to the collection of exchange and the regulation of exchange
charges, the Federal reserve board should be empowered to make
such rules and regulations as in its judgment would be equitable and
just?
Mr. S cudder . Yes, sir.
Senator R eed . Leaving the details, not to the bill, but to the board?
Mr. S cudder . T o the board. I thin k th at could be very sa fely
done, because it is a detail o f the m anagem ent o f the business.
Senator R eed . Will you draw an amendment of that kind and

hand it to the committee, that would state your views?
Mr. S cudder . I shall be very glad to do so. That is all, gentlemen.
Senator O ’G orm a n . I should like to ask one question. Your bank
is a State bank?
Mr. S cudder . Yes, sir; a trust co m p an y.
Senator O ’G orm a n . Y ou are not compelled to enter this system?
Mr. S c u d d e r . N o, sir.
Senator O ’G o rm a n . Will you enter the system?

2 2 42

B A N K IN G AND C U R R E N C Y .

Mr. S c u d d e r . Well, I think that is a matter I would leave to m y
stockholders. Personally I should be inclined to enter the system if
there were reasonable amendments to the bill.
Senator O ’G o r m a n . Y ou believe there are amendments necessary
to satisfy you as to the wisdom of passing this bill ?
Mr. S c u d d e r . I t h i n k s o .
Senator O ’G o r m a n . D o you think a State institution ought to be
permitted to enter into this system and enjoy those advantages----Mr. S c u d d e r (interposing). I certainly do.
Senator O ’G o r m a n . One moment [continuing]. And yetT possess
opportunities for the development of their business beyond those
opportunities possessed by the national banks?
Mr. S c u d d e r . N o , sir* I do not. I believe that all should be put
on an equal footing, except as to fiduciary business.
Senator O ’G o r m a n . D o you believe that the State banks and the
State trust companies should have their State functions curtailed,
and be restricted to the business that the Congress permits national
banks to engage in?
Mr. S c u d d e r . N o ; I do not. But, as I understood it, the national
banks are given privileges which they had not before.
Senator O ’G orman . Oh, y es; and th ey have other p rivileges, but
the question is-----

Mr. S c u d d e r (interposing). I am in favor of doing that rather
than curtailing any rights given us by our own State.
Senator O 'G o r m a n . Y ou can take it as a fair assumption that the
Congress will not confer upon national banks all the powers now pos
sessed by State banks, and it has been suggested that if the State
banks are permitted to come into this system their powers ought to
be more or less uniform with the powers exercised by the national
banks, and there should be a curtailment with respect to the functions
of State banks, and at the same time some gradual enlargement per
haps of the functions of the national banks. I am asking your view
with respect to that proposal.
Mr. S c u d d e r . My v i e w i s r a t h e r a n i n c l i n a t i o n t o w a r d y o u r l a t t e r
s ta te m e n t, th a t th e n a tio n a l b a n k s s h o u ld b e g iv e n o th e r fu n c tio n s .
Senator O ’G o r m a n . Yes; and the State banks’ functions reduced

so as to conform to the enlarged functions bestowed upon the national
banks?
Mr. S c u d d e r . In what way reduced, for instance? What is in
your mind, Senator?
Senator O ’G o r m a n . Y o u know that your State banks and State
trust companies can now do much banking business that a national
bank can not do?
Mr. S c u d d e r . Yes; we c a n loan on real estate. Take that one
point. I believe in an enlargement of the national banking system.
Senator O ’G o r m a n . And you would act as trustee and executor ?
Mr. S c u d d e r . That I am not so sure about; I d o n o t k n o w that
they will want it.
Senator O ’G o r m a n . I do not know whether you have that power
or not,
Mr. S c u d d e r . I know we have that power.
Senator O ’G o r m a n . But the national banks do not possess it?

B A N K IN G AND C U R R E N C Y .

2243

Mr. S c u d d e r . The national banks do not possess it and I do not
think they want it, but I have not studied it from the national bank’s
standpoint.
Senator O ’G o r m a n . Would you be willing to have your trust com
pany in Richmond enter this system if the operations of the trust
company were confined to the business that national banks are per
mitted to engage in?
Mr. S c u d d e r . If we were to come in under any such condition as
that I would proceed to organize something that would take care
of the business that now is taken care of, which would under those
conditions be curtailed. I would not like to 9ee it done.
Senator O ’G o r m a n . D o you know whether or not the restrictions
that are contained in the proposed bill regarding the character of
paper that might be rediscounted in the regional reserve banks will
be likely to confer any substantial benefit upon the country banker?
Mr. S c u d d e r . Tn other countries----'
Senator N e l s o n (interposing). No; confine yourself to America.
Mr. S c u d d e r . Yes; I will. In other countries the initiator of the
transaction draws on his customer for the purchase price of his
goods, and that becomes at once a commercial transaction, just like
a check. I would like to see that occur in this country, the system
of two-name paper. That would help the country banker immensely,
because all the grain sold, all the cotton sold, could be turned into a
country-bank transaction.
Senator O ’G o r m a n . Have you heard the objections urged by
country bankers with respect to the character of the paper to which
they would be confined for the purpose of rediscounting at the re
gional reserve bank?
Mr. S c u d d e r . Yes; but country banks in Minnesota loan a great
deal on real estate, and under the provisions of the bill we could not
use that paper in rediscounting.
Senator O ’G o r m a n . Can you tell us to what extent, i f at all, the
country bank would be benefited by going into this system?
Senator N e l s o n . Small country banks, like the bank at Sleepy
Eye, for instance.
Mr. S c u d d e r . I do not know that a country bank, under the pres
ent wording of the bill, would have very much paper to offer for
rediscount.
Senator O ’G o r m a n . The country bank, as well as all other banks,
would be restricted to 90 days’ paper?
Mr. S c u d d e r . Yes.
Senator O ’G o r m a n . For rediscount?
Mr. S c u d d e r . Yes.
Senator O ’G o r m a n . D o y o u think that should be increased?
Mr. S c u d d e r . I think some provision should be made.
Senator O ’G o r m a n . T o what extent?
Senator N e l s o n . Six or nine months’ paper?
Mr. S c u d d e r . I think, in order to carry over the crop, nine months’
time is necessary.
Senator O ’G o r m a n . Would you object to having it increased s o
that it would mature in a year?
Mr. S c u d d e r . No, sir: I would not, up to a certain limit.
Senator O ’G o r m a n . W h a t w o u l d b e t h e l i m i t y o u w o u l d s u g g e s t
on th a t?

2244

B A N K I N G AND CU RRE N CY .

Mr. Scudder. I had not thought that over, but there ought to be
some reasonable limit on that class of paper.
Senator O ’G orman. Does it occur to you that if we had paper ex
tending nine months it would affect the elasticity of the currency?
Mr. S cudder. Yes; in case of the existing volume it would.
Senator O ’G orman. Then you would perm it it, but you would
reduce the volume?
Mr. S cudder. Oh, yes; restrict the volume.
Senator O ’G orman. T o what extent would you reduce it?
Mr. S cudder. I am not prepared to say.
Senator O ’G orman. Have you considered the subject?
Mr. S cudder. I have not, from the standpoint that you mention.
Senator O ’G orman. In a word, you think this bill contains some

commendable features?
Mr. S cudder. Some very commendable features.
Senator O ’G orman. But you think the bill as pending before us re
quires some change?
Mr. S cudder. I think it is a little raw ; yes, sir.
Senator O ’G orman. A little raw?
Mr. S cudder. Yes, sir.
Senator N elson. That is the opinion of a good many bankers, I
believe.
Senator B ristow. I understand you to say that national banks
should be permitted to loan on real estate ?
Mr. S c u d d e r . Yes, sir; some provision should be made for that.
Senator B ristow. T o what extent?
Mr. S cudder. That is a proposition, as I told Senator O’Gorman,
which I have not considered, and I am not prepared to say.
Senator B ristow. A s to how much?
Mr. S cudder. I am not prepared to say about that.
Senator B ristow. D o you think a good real-estate mortgage, con
servatively made, would be as good a security for rediscount as a
commercial note?
Mr. S cudder. I do, sir.
Senator O ’G orman. A s I understand, you say you were a delegate
at this Boston convention ?
Mr. S cudder. Yes, sir.
Senator O ’G orman. H ow many attended?
Mr. S cudder. I should think about 3,500 or 4,000.
Senator O ’G orman. They came from all parts of the country?
Mr. S cudder. Yes, sir.
Senator O’G orman. Did you know, personally, a number of those
who were present ?
Mr. S c u d d e r . Yes, sir.
Senator O ’G orman. D o you know the general reason why they
assembled ?
Mr. S cudder. Yes, sir.
Senator O ’G orman. What was it?
Mr. S cudder. It was to proceed with our annual business. We

have an annual meeting, and have had one for 25 or 30 years. I have
attended them for nearly 20 years.
Senator O ’G orman. D o you know why they took up the consider
ation of the pending currency legislation?

B A N K I N G AN D CUK REN CY.

2245

Mr. S cudder. Yes. A committee was appointed some time ago—a
committee of bankers—to consider this question and to report to
this convention.
Senator O ’G orman. A s I understand it, you were perhaps the only
delegate who voted “ no ” on some proposition regarding this bill ?
Mr. S cudder. Yes, sir; on the general proposition to adopt the
entire report of the committee, I seemed to be the only one who stood
up and was counted. I know there were others who spoke against it.
Senator O ’G orman. Did you see any evidence of a conspiracy at
this convention?
Mr. S cudder. No ; no conspiracy.
Senator O ’G orman. T o defeat or control this legislation ?
Mr. S cudder. I felt that during the morning session there was a
very friendly feeling to anybody who wanted to speak on the subject,
but that there was considerable pandemonium there. Those who
endeavored to speak in favor of the committee’s report were listened
to, but when they came to the opposition, there were interruptions
and catcalls and great confusion, and the temper of the meeting in
the morning, anyway, was—and I think everyone who was there will
bear me out in the statement—that the temper of the meeting was
very hostile to any suggestion that did not include the adoption of the
committee’s report. I rather left in disgust, at lunch time.
Senator O 'G orman. Notwithstanding the fact that you represented
the minority element there—and perhaps a very small minority—did
you see anything to create a doubt in your mind as to the earnest
ness or patriotism that was animating the membership of the con
vention ?
Mr. S cudder. N o; I got the impression that the leaders were rather
trying to rush things through.
Senator O ’G orman. That is not so objectionable, sometimes.
Mr. S cudder. And to override anybod}^ who would dare to get
upon his feet.
Senator N elson. Did you get the impression that they were not
acting in good faith?
Mr. S cudder. Oh, no; I think not. I think there was good faith.
They simply were anxious to get the committee report adopted.
Senator N elson. Did you see any signs of conspiracy on the part
of the money power?
Mr. S cudder. I think there was no conspiracy.
Senator W eeks . Did it occur to you that possibly the leaders in
the convention were following the leaders in very high authority in
trying to rush things through?
Mr. S cudder. Perhaps so.
Senator W eeks. Senator O’Gorman has just suggested a question
to me. If my recollection does not fail me, I have seen in the press
a statement that the Virginia Bankers’ Association—do you belong
to it?
Mr. S cudder. Yes, sir.
Senator W e e k s . That the Virginia Bankers* Association had at
two different meetings passed resolutions which seemed to be antago
nistic. At first there were resolutions passed which advocated the
general principles of this bill, and at a second meeting resolutions in
dorsing the currency report adopted at the Chicago conference. Do

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B A N K I N G AND C U E E E N C Y .

you know the reason for taking that action, or action which seems to
be unfriendly to the first resolution?
Mr. S ctjdder. Well, I think that a large number of the Virginia
bankers were for more conservative action, but somehow the radical
element got into the saddle and carried the point. I myself did not
get a notice to attend the Virginia bankers' convention, although I
understand my failure to get a notice was a mistake, an omission. I
do not know whether anybody else was omitted, but I did not get a
notice to go to the meeting.
Senator W eeks. Are you representing the Virginia Bankers’ Asso
ciation here to-day?
Mr. S ctjdder. N o, sir; I am not.
Mr. G eorge W. R ogers. Mr. Chairman, are you ready to hear the
country bankers now?
Senator H itchcock. H ow many representatives have you who de
sire to speak?
Mr. R ogers. F our or five.
Senator H itchcock. Have you any estimate as to the length of

time you will require?
Mr. R ogers. Probably about 15 minutes each.
Senator H itchcock. The Senate has a session at 12 o’clock to-day,
and it is almost 12 o’clock now, and I do not know whether it is worth
while to go on now to hear your representatives. We can adjourn
now to go to the Senate and hear you later.
Mr. R ogers. Senator Hitchcock, we have an appointment with the
President at half past 2 o’clock. Our time up to the time when it
would be necessary for us to leave here in order to get to the White
House at half past 2 o’clock is in the hands of the committee, but we
feet that inasmuch as. the President said lie would receive us at half
past 2 o’clock we should be there.
Senator H itchcock. Y ou could come back here at 3 o’clock?
Mr. R ogers. Probably so; yes, sir.
Senator W eeks. I move that the committee take a -recess now and
reconvene 30 minutes after the Senate adjourns, with the hope that
these gentlemen will be here at that time.
Senator H itchcock. I think we might adjourn until half past 1
o’clock and hear some of these gentlemen, and then if they do not get
through they could go to the White House and we could go on with
somebody else and hear these gentlemen when they return.
Senator O 'G orman. I desire to express the hope that all the visit
ing bankers from the Boston convention will remain here, even
though it may inconvenience them a little. I hope they will all stay
until they are heard, even though they may have to stay over until
to-morrow.
Senator N e l s o n . I feel that way too.
Senator H itchcock. We want to hear all the gentlemen who are
here to be heard.
(Thereupon, at 11.45 o’clock a. m., the committee took a recess until
1.3Q o’clock p. m.)
AFTER RECESS.

Senator H itchcock. Gentlemen, in view of the fact that the Sen
ate is in session and some of the members of the committee are en
gaged there, and in view of the further fact that the members of

B A N K I N G AN D CU RRE N CY .

2 247

the delegation representing the country bankers have an engagement
at the White House at 2.30, the committee will take a further recess
until 3.30 o’clock this afternoon.
(Thereupon, at 1.40 o’clock p. m., the committee took a recess until
3.30 o’clock p. in.)
The committee reassembled pursuant to the taking of recess.
Senator O ’G orman. Gentlemen, we will now resume the hearing.
Who is the first speaker?
STATEMENT OF GEORGE W. ROGERS, OF THE BANK OF COMMERCE,
LITTLE ROCK, ARK.

Mr. R ogers. I am the first speaker, if you please, Senator.
I appear as the chairman of the committee of country bankers.
There has been so much discussion in regard to this meeting of the
country bankers at Boston that I believe it only fair to the country
bankers and to the members of this committee to make a statement
in regard to how this meeting was organized, the purposes of the
meeting, and what it tried to accomplish. It has been questioned that
the members of the conference wTere sincere; that the so-called coun
try bankers were acting on their own initiative and in their own in
terests. I wish to assure the members of the committee that we have
not been instructed or directed by anybody except ourselves.
The movement was started by Mr. Foote in Mississippi and Mr.
Tilton in Alabama and myself in Arkansas to try to arouse the senti
ment of southern bankers as to how this bill would affect their inter
ests, and for some time we were quite active. We wrote a number of
letters and sent many letters and a great many telegrams. We had
agreed on a meeting in Boston, which had been called by Mr. Tilton.
About that time I received a letter from Mr. Gordi n Jones, of Den
ver, Colo., suggesting a meeting of the western bankers and asking if
I would join in that meeting. I wired him I would be glad to do so.
We met in Boston on Sunday and agreed that it would not be prac
ticable to have two meetings of country bankers. On Sunday night
we met at dinner, and we discussed this matter from about 7 until
II o’clock. We wanted to arrive at some common ground that we
all could agree upon. I believe that we did. I believe everyone at
that meeting was in hearty accord with the resolutions that were
offered. Mr. Tilton and myself drew a copy of the resolution which
was offered at the meeting on Monday.
That was the largest meeting of bankers I had ever attended at
that time. It was held in the ballroom of the Copley Plaza Hotel.
We did not attempt to have chairs, because the crowd was so great
that we could not sit them in that way. About a third of the room
was occupied by chairs, and the balance of the gentlemen stood.
The meeting was called to order by Mr. Gordon Jones, of Denver.
We thought it very proper that Mr. Jones should call this meeting
to order on account of the active interest he had taken. Mr. Gordon
Jones is president of the United States National Bank of Denver,
situated in a reserve city, and he is also president of seven or eight
country banks in Colorado; but I understand his interests in the
country banks are much larger than his interests in the city banks.
S. Doc. 232, 63-1—vol 3----21

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B A N K I N G AND CU RRE N CY .

Mr. Jones is the only gentleman connected with the movement who
had any connection whatsoever with a reserve or central reserve bank.
The meeting, after being called to order, elected ex-Gov. Bailey,
of Kansas, as its chairman. After a little discussion Mr. McRae,
of Arkansas, offered a motion to approve the great fundamental
principles of the bill as it passed the House and spoke upon that at
some length. He said that the object of the meeting was not to go
into details. The Senate committee did not want details, did not
want suggestions in regard to the details of the bill, he said, but the
meeting should, in his opinion, approve the great fundamental
principles of the bill and let the Senate committee work out the
details.
Unfortunately I could not agree with Mr. McRae, and I told the
meeting that if we approved the great fundamental principles of
the bill we would not do anything, and we might as well not have a
meeting; that anything to us was fundamental which materially
affected our business.
I offered the following resolutions:
A banking and currency bill is now pending in the Congress. Its speedy
passage into law is desirable. Any new financial system adequate to the needs
of the Nation must be one that country bankers, National and State, can sup
port with justice to themselves as bodies corporate, and with justice to their
customers.
Country banks, as distinguished from the banks in the fiscal centers, repre
sent in number about 75 per cent of all the banks in the United States. They
bear the burden of national prosperity in proportion to their numbers—legis
lation hostile to the welfare of American citizens, whether farmers, wage
earners, or business men. A satisfactory banking system has long been needed
by the people. Legislation upon this subject has already been too long delayed.
The efforts of administration leaders at Washington to pass this statute at a
special session is to be commended. Recognizing these facts, and having had
no opportunity to go on record concerning this legislation, a large number of
country bankers present at Boston, attending the convention of the American
Bankers’ Association, held a meeting on the 6th day of October, 1813, and the
following resolutions were presented and adopted:
First. That Government bonds have been purchased by country bankers at a
price that would be unjustified except for circulation and depository privileges
that attach to them. These bonds are now selling under par. The good faith
of the Nation and its credit must remain unimpaired. If national bank notes
are to be retired there should be exchanged for these bonds a new security that
will sell upon its own merits at 100 cents on the dollar in the markets of the
world, and banks desiring to liquidate their circulation should be given the right
to have their bonds retired at not less than their face value.

Senator R eed . Let me interrupt you a moment. “ Banks desiring
to liquidate their circulation should be given the right to have their
bonds retired at not less than their face value ” is the concluding
sentence ?
Mr. R ogers. Yes, sir.
Senator R eed . Y ou mean by that that if a national bank decides to
refuse to come into this system then special provision should be made
in order to let it out without any loss?
Mr. R ogers. Yes, sir.
Senator R eed . That is the meaning o f that phrase?
Mr. R ogers. Yes, sir; that was the understanding of the commit
tee ; that was their intention in wording it that way.
Senator R eed . In other words, if Congress now, making an honest
endeavor to take out of our currency and banking system the great
elements of danger which at times have imperiled the entire banking

B A N K I N G AND CU RRE N CY .

2 249

system, and national banks thereupon desire to withdraw, we ought
to make it as easy for them as possible?
Mr. R ogers. Senator, I am not a national banker.
Senator R eed. That is the thought?
Mr. R ogers. Just a minute; if you will allow me to answer in my
own way I will answer your question. I am not a national banker;
I have no bonds to make a profit or a loss on, and I believe that inas
much as the Government has existed for more than 100 years, and its
promises to pay have always been worth 100 cents on a dollar, they
should always be worth 100 cents on the dollar.
Senator R eed. So do I, and so does every member of this com
mittee. I want to put the proposition to you and to everybody else
who is here.
There is a sort of contract between the Government and the
national bank?
Mr. R ogers. Yes, sir.
Senator R eed. The Government says, Take these bonds and we will
allow you to issue currency upon them. The banks took them. If
the Government now was to repeal the circulation privilege, it
would seem, if they decided that was what ought to be done, un
doubtedly the Government ought to take care of these bonds.
But there was another part of that contract, and that was that
this national bank—and speaking broadly this national-banking
system—should perform the functions of banks, keep their doors
open, receive deposits, and pay out to depositors. We found out,
either from the imperfections of the system or the way the banks
have operated under it, that the system several times has broken
down, and notably in 1907, at a time when the country was in an
exceedingly prosperous condition, substantially all of the national
banks of the cities, and indeed all the banks of large cities and
nearly all the rest, practically closed their doors to their customers;
that is to say, they stopped paying out on demand.
Mr. R ogers. Paying cash; paying current money.
Senator R eed. Paying cash. When they issued anything else but
cash they violated the spirit if not the letter of the statute. So that
it has been found that the banks are unable to carry out their part
of this contract.
Now comes the Government, undertaking to modify this system
so that the banks can carry out their part of the contract. Do you
think the same reason applies for aiding them to defeat the purposes
of the Government that would, in the first illustration that I gave,
where the Government was simply going to take away their circula
tion privilege?
Mr. R ogers. N o, sir; but if the Government writes into this con
tract something that the banks can live under----Senator R eed (interposing). Oh, yes; certainly.
Mr. R ogers. They should take care of the bonds.
Senator R eed. Yes; certainly, if we write something into this
contract that the banker can live under, the national----Mr. Rogers (interposing). No, sir; if you write into this contract
something that the individual banks can not exist under, the Gov
ernment ought to take care of that proposition.

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B A N K I N G AND C U R R E N C Y .

Senator R eed. As long as the Government allows the banks to
keep this money in circulation it has given the banks all it originally
agreed to, hasn't it?
Mr. R ogers. N o, sir.
Senator R eed. Let me state it differently. The bonds were taken
by the banks with the understanding that they would be used as a
basis for circulation. As long as the Government does not interfere
with that right the Government has kept its part of the obligation,
has it not ?
Mr. R ogers. I do not think so. If the Government writes some
thing else into the national banking act which makes it unprofitable
or impossible for the banks to continue in successful operation, I think
they should fulfill their part of the contract and not penalize these
banks.
Senator R eed. That is true. We will agree to that. Then your
complaint is not—you have no complaint under this first subdivision,
provided this plan is so worked out that a bank can live and make a
reasonable profit?
Mr. R ogers. None whatever; no, sir.
Senator R eed. This, then, is dependent----Mr. R ogers (interposing). Upon the other provisions of the bill.
Senator R eed. Very well. I have interrupted you too long.
Mr. R ogers. The second paragraph of the resolutions is in rela
tion to the segregation of the savings-bank deposits.
Second. That any unnecessary restrictions placed upon the acceptance and
investment of savings deposits is unwise. The prosperity of the people depends
much upon the profitable use of their earnings. Country banks have always
encouraged thrift on the part of their customers and others resident in their
respective localities. Many millions of savings deposits have thus been created.
In rural communities there is no need for separate savings banks. Banks
doing a commercial business are now satisfactorily caring for this business.
These deposits are safely loaned out at home. There is rarely any local market
for bonds of any character. To require country banks to invest savings deposits
in any one class of securities, to forbid their use for local farming and business
needs, to divert this money from local to foreign purposes, will seriously cripple
the credit of their customers and result in the very disaster which it is the aim
of this legislation to prevent. Segregation of savings deposits, the setting aside
of separate capital, the creation of two banks under the same management and
under one roof, will place a burden upon country banks which they can not bear,
and will deny to their patrons facilities which they require and now enjoy.

Senator R eed. D o you apply that to national banks, or do you mean
to apply that to State banks which may desire to come in?
Mr. R ogers. Both.
Senator R eed. The national bank at present has no right to have a
savings-bank business, has it?
Mr. R ogers. But they have.
Senator R eed. They are doing it in violation of law, are they not?
Mr. R ogers. That is a question for the comptroller, I believe, and
not for me to answer. But they do do a savings-bank business right
now.
Senator R eed. Do you mean by that—when you say they do a
savings-bank business—do you mean that they receive money upon
time deposits, paying interest upon them, or do you mean that they
go farther than that and do a regular savings-bank business?
Mr. R ogers. I am speaking of the one I am familiar with in my
home town. They do a regular savings-bank business. They issue

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2251

a pass book, and in that pass book they require a notice of with
drawal. They do not segregate their capital or their funds; they
mingle them.
Senator R eed. If they are doing that all illegally now, they would
not have any just complaint if they were given, in this bill, a limited
right to do that which they now do without any right whatever,
would they?
Mr. R ogers. Well, if it required them to invest in securities that
were not local. We think that this money owned at home should be
used at home.
Senator R eed. Undoubtedly, but if a bank is proceeding, ultra
vires, in violation of law, and has no right to maintain a savingsbank department at all, this bill gives them a right and limits that
right; if the bill does that, it is at least a step in the direction of
what the bankers "want, although it may not go as far as you think
it ought.
Mr. R ogers. We would prefer a law that could be lived up to and
would not have to be winked at.
Senator R eed. I am inclined to give it to you, and I was just ask
ing you the question.
Mr. R ogers. I say the gentlemen who will follow me will speak on
these four different subjects which were mentioned in these resolu
tions, and each one of them has prepared himself to discuss his own
special subject.
Senator P omerene. Will you mention their names?
Mr. R ogers. Mr. Gordon Jones, of Denver, will speak on the first
paragraph, Mr. McLane Tilton, jr., of Alabama, will speak on the
segregation of deposits, and Mr. George Woodruff, of Joliet, 111.,
will speak on the third section, and Mr. David Barry, of Pennsyl
vania, will speak on the fourth section in regard to the reserves.
I want to say for Mr. Woodruff that he is thoroughly competent
to deal with the subject which has been assigned to him. He comes
here with a long experience, and with actual facts and figures. He
does a very large business of this nature, which last year amounted
to more than $90,000,000. He has with him the exact figures taken
from his books.
I made a statement when I was before the committee on a previous
occasion that the overhead cost, if the country clearing-house system
was put into effect, would eat up all the profits of the bill. I be
lieve, from the figures which Mr. Woodruff will present to you that
you will agree with me.
Section 3 of the resolutions is in regard to the matter of exchange.
That section IT of the bill should be so amended in so far as it refers to
matters pertaining to exchange. We suggest that section 17. page 33, be
amended by eliminating the last word on line 15. the first five words on line 16,
the balance of the section after the eighteenth line, leaving the last paragraph
of section 17 to read as follows:
“ It shall be the duty of every Federal reserve bank to receive on deposit at
par and without charge for exchange or collections checks and drafts drawn by
any of its depositors upon any other depositor and checks and drafts drawn
by any depositor in any other Federal reserve bank upon funds to the credit
of said depositor in said reserve bank last mentioned.”

Senator S hafroth. D o you strike out the word “ other '* in line 18?
Senator H itchcock. What is the first word stricken out?

2252

BA N K IN G AND CURRENCY.

Mr. R ogers. The word “ upon,” in line 15, and then the five words,
and then everything after line 19.
Senator S h .afroth . You omitted to read the word “ other,” and I
thought you left the word “ other ” in.
Mr. R ogers. The remainder o f section 3 is:
Exchange profits represent a large part of the total net earnings of country
banks. It is a proper charge for a fair service rendered. The bill as now
drawn will decrease the net earnings of the average country bank by not less
than 25 per cent and many of them much more. This gain will not go into the
pockets of the business men of America, but will be enjoyed solely by the banks
of the collection centers which are now making satisfactory profits. The result
of this section will be to take income from banks that can least afford the loss
and give this money to banks that are already earning satisfactory profits.
In addition to the above the bill provides a radical change in the method of
handling country items. It provides that they shall be cleared and not col
lected. To accomplish this it would require that the small country banks keep
in the Federal reserve banks an amount in excess of their legal reserve suffi
cient to care for their clearings from two to six days, depending entirely upon
the distance and time they are from the bank acting as such clearing house.

Senator R eed . Y ou say there is one man who is going to discuss
that section?
Mr. R ogers. Yes, sir. I would like to make the statement that it
was the contention of the committee that the member banks could
issue their checks on another member bank, and those would be
cleared at par by a similar process and charged to the account; that
it would eliminate entirely the enormous volume of individual checks
on various banks. These checks so cleared would undoubtedly be
good; if they were not good, the reserve, the first lien on the assets,
and other things would protect the Federal reserve bank. Mr.
Woodruff will speak at length with regard to the amount of returned
items, etc.
Section 4 of the resolutions says:
That whatever percentage of reserves is agreed upon should carry with it
the right to keep not less than one-third of such reserve with approved reserve
agents in fiscal centers. The reduction of reserve from 15 to 12 per cent is no
real advantage to the country bank. Very few country banks can do business
without having a larger amount of funds either in vault or with near-by con
nections. These connections must be maintained after the passage of this law.
The money so held by them should be counted as a part of country-bank
reserve.
(5) That the above matters include only those features that country bankers
are especially concerned with. There are others of equal importance which con
cern the larger banks in the fiscal centers. With these subjects we do not pro
pose to express an opinion, but we believe that unless this bill is amended so as
to meet the objections and recommendations made herein that very few country
banks, either State or National, can afford to become members of the new Fed
eral system. This means that the great majority of country national banks
must surrender their charters or retire from business.
The exchange and savings sections of the bill so reduce our earnings that most
country banks will show net operating losses instead of the reasonable profits
we now enjoy. We desire to do our full duty to the country, but our duty to
stockholders and customers must not be disregarded. We desire to become mem
bers of the Federal system and assist in making it the success it ought to be and
can be made. We earnestly call upon the Congress to consider this resolution as
a formal expression of opinion on the part of country bankers who realize the
seriousness of the situation that now confronts them. And, finally, we ask for
the committee that will present these resolutions to the lion. Robert L. Owen,
chairman, and the Committee on Banking and Currency of the United States
Senate for an opportunity to be fully heard in the premises.

B A N K I N G AND C U R R E N C Y .

2253

We discussed quite freely the attitude of the gentlemen who would
speak, in the event that they were questioned in regard to matters not
in the resolutions proper, and it was the consensus of opinion that
they should answer any questions to the fullest extent of their ability.
But when they give an opinion on any matter that is not covered by
the resolutions they ask that it be considered as their individual and
personal opinion and not as their opinion as the representative of the
committee. We feel that we have no right, as members of the com
mittee, to exceed the authority given us by the meeting in Boston.
Senator R eed. Y ou think that if the things that are recommended
in those resolutions are done, with the exception of the first proposi
tion in regard to bonds, and if that was made by framing this bill so
that all banks could properly come in and not be dragged to ruin or
injured seriously that the country banks represented by this commit
tee, some 2,000 in number, would then be content?
Mr. R ogers. I believe so.
Senator R eed. Generally speaking, they favor a bill drawn along
the lines of this bill, but they object to certain details?
Mr. R ogers. Yes, sir. Those details they consider vital. If the
suggestions made here meet with the approval of this committee and
finally become a law, I believe that a very large number, a majority,
of the country banks, both State and National, that are large enough
to come into the system would do so.
Senator H itchcock. Mr. Rogers, country banks generally redis
count paper at certain seasons of the year now?
Mr. R ogers. In my section; yes, sir.
Senator H itchcock. Does that not take place all over the coun
try, from information which you have?
Mr. R ogers. I believe so. I am only thoroughly familiar with my
part of the country. I know that is the fact in some parts of the
country. Practically every bank in my part of the country discounts
at those times.
Senator H itchcock. Will you explain your idea of the advantage
it is to a country bank to come into this new system, when the country
bank already has the rediscount privilege by using its city corre
spondents?
Mr. R ogers. Well, at other times—as the Senator from Missouri
says, the big city banks run out, and the little fellows want to feel
that the big banks to which they go—the retailer wants to feel that
the wholesaler can carry him, if necessary.
Senator H itchcock. N ow, would not that be provided for if the
big fellow in the cities joined the association and the country banker
stays out?
Mr. R ogers. I believe so.
Senator H itchcock. So that it is not necessary for the country
banker to come in in order to get rediscounts?
Mr. R ogers. N o, sir; it is not now, but my personal opinion is
that a bill should be framed not only for times of panic but for times
of prosperity, to take care of the banks in both times.
Senator H itchcock . D o you think that the country banks would
rediscount more under such a system as we propose than they do at
the present time?
Mr. R ogers. No ; T do not.

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B A N K I N G AND C U E B E N C Y .

Senator H itchcock. D o you think they would get lower rates of
interest on the discounts?
Mr. R ogers. No ; I do not; only to a very small extent. The differ
ence in the rate of interest would be very small.
Senator P omerene. Where do you do your rediscounting?
Mr. R ogers. New York and St. Louis.
Senator R eed. Have .you filed a copy of those resolutions?
Mr. R ogers. Yes, sir.
Senator P omerene. Did you have any trouble in 1907?
Mr. R ogers. N o, sir; in 1907 I borrowed all the money I wanted to.
Fortunately I was paying off discounts instead of borowing at the
time. But I received from the banks of New York that I did business
with cash at par to an amount three times the amount of my balance
at the time they put the lid on. That is the only time I ever shipped
any money out of New York. I only shipped money to New York
twice in the 25 years that I have been in the banking business. Once
was in 1903, when I had the money, and they had been so good to me.
I thought they needed it, and I sent what I had to them. And once,
afterwards, I got hold of a lot of $10,000 bills, and I shipped them
there, because I needed exchange.
Senator H itchcock. A lot of $10,000 bills? [Laughter.]
Mr. R ogers. Well, it was a lot for me. I had 25 or 30, and it was
a lot of them for me.
Senator H itchcock. It would be for most any of us.
Mr. R ogers. Yes, sir.
Senator S hafroth. Mr. Rogers, one of the objects of this bill in
establishing 12 regional banks is to have a reserve bank close to a
given territory in which it is included. Do you not think that the
right of the bank to keep these reserves there in a place which is
rather close to it, together with the power to get money from that
bank in times of stress, would relieve the country bank from keep
ing large reservese?
Mr. R ogers. N o, sir.
Senator S hafroth. It would not keep large reserves if it could get
plenty of money at any time, would it ?
Mr. R ogers. Banking business is a little peculiar business, and it
has been expressed in an Irish way, “ that the bank only made its
money by loaning it, and that a bank that loaned all its money never
made any money; the bank that always had plenty of money on hand
always made plenty of money.” That is on the theory that the public
knowTs what is going on inside of the bank. I do not know how, but
they do. And when they know a bank runs along and keeps plenty
of cash one hand, and can take care of its customers under any cir
cumstances, the customers go to them.
Senator S hafroth. Don’t you think the customers knowing the
country bank had joined this department and knowing this reserve
bank could give this country bank money at any time would make
such a confidence in them that it would make money for them ?
Mr. R ogers. N o, sir; Senator, I do not for this reason: If the bank
kept continually going there and continually borrowing their limit,
it would be an invitation for parties to work the country bank by
making it borrow and borrow and reborrow so that they could use
the funds in their various interests. Instead of using a bank for the

B A N K I N G AN D CU RRE N CY .

2255

handling of a commercial transaction, it would be used more to sup
ply fixed capital for business. That I do not think is a good thing.
Senator S hafroth. That would bring more income to the bank,
would it not. It would have more money out, more money at inter
est, if they used the bank for that purpose; and it would increase the
earnings of the bank, would it not, by having that much more in
terest ?
Mr. R ogers. Senator, if you will just pardon me, and the stenographer will not listen for a minute, I will tell you. Once upon a time
there was a bullfrog, and it was out in the field, and he met coming
back another frog who said he saw such a great big thing he came
away. The bullfrog said, “ What was it? ” and the other frog said,
“ It was a bull.” The bullfrog said, “ Was it bigger than I am? ”
The other frog said, “ Yes'; it was heap bigger than you,” and the
bullfrog commenced to swell up, and he said. “ Bigger than that? ”
And the other frog said, “ Yes; bigger than that.” The bullfrog
swelled up some more, and he said, “ Bigger than th a t? ” “ Yes;
bigger than that; ” and the bullfrog swelled up four or five times, and
finally he busted.
Now, that is the way with a bank that is trying to borrow itself
rich. [Laughter.]
Senator S hafroth. A s a matter of fact, the inspections which are
made by the department are intended to remedy that, are they not?
Mr. R ogers. They can not; I do not believe it is possible.
Senator S hafroth. Y ou do not think regulation can prevent bank
failures?

Mr. R ogers. Yes; I do believe that it does.
Senator O’Gorman. We will now hear Mr. Jones.
Senator B ristow. I would just like to ask one question.
Senator O’Gorman. Senator Bristow would like to ask you a question.
Senator B ristow. Mr. Rogers, unfortunately, I could not be present
when you were here before, because I was detained in the Senate,
and I would like to inquire how you use these reserves. I under
stood you to say you would have to carry the reserves anyway, that
you have now, in order to handle the business properly, even if this
new association were formed. You now have your reserves where?
Mr. R ogers. New York, Chicago, St. Louis, Kansas City, NewTOr
leans, and Memphis.
Senator B ristow. Y ou have them in those five places?
Mr. R ogers. Yes.
Senator B ristow. H ow much do you keep in those reserve cities?
Mr. R ogers. That fluctuates very widely, according to the seasons
of the year and the character of the business that is moving at that
time. In the active cotton-moving season, we try to keep the larger
part of our money in St. Louis. We sell them our domestic cotton
bills, and we ship them money against it. If we have a draft of Mas
sachusetts drawn on three days’ sight, it would take us about nine
days—from seven to nine days—to turn that into money and get it
to our credit in New York. Instead of that we sell that in St. Louis
and it makes that fund immediately available there. That is part
of it. Then, again, we have a good many cotton concerns doing
business with us that draw their drafts against the St. Louis office

2256

B A N K I N G AND CU RRE N CY .

and we discount that exchange and give them the money on it, and
allow them to use it.
Senator B ristow . About how much do you have in your reserves
as a rule ? What would be your legal requirements ?
Mr. R ogers. In our State at the present time the banks are organ
ized under the general incorporation act. They have to make a
statement to the county court once each year. There is no provision
in regard to reserves and no limitation on loans. Fortunately our
new banking law will go into effect on the 1st of January, and I
think we will then have an excellent law. That will provide 15 per
cent reserve for country banks, and a minimum of 20 per cent reserve
for any bank that desires to act as reserve agent for another bank.
Our reserve runs anywhere from 25 to 45 per cent.
Senator B ristow . Y ou have been carrying a reserve without the
law requiring you to?
Mr. R ogers. Yes.
Senator B ristow . Simply as a matter of business?
Mr. R ogers. Yes.
Senator B ristow . From 25 to 45 per cent?
Mr. Rogers. Yes, sir.
Senator R eed . Senator, won’t you ask if he had this reserve bank
at New Orleans if he could not do the same thing with them, or if
he had it at St. Louis?
Senator B ristow . Senator Reed has suggested if you had a reserve
bank at New Orleans or St. Louis, that is contemplated in this bill,
what exchange would that provide for you so as to relieve you from
carrying this amount of reserve elsewhere?
Mr. R ogers. We would have to have some account elsewhere to
handle these cotton bills, for instance. They have now in the bill
a provision which would enable these Federal reserve banks to han
dle the individual checks. They do not provide for handling do
mestic bills of exchange, which is the very much larger portion of our
business at certain seasons of the year.
Senator H itch co ck . Does it not provide that reserve banks can buy
those bills of exchange?
Mr. R ogers. Foreign, not domestic.
Senator H itc h c o c k . They can buy of member banks, can they not? •
Mr. R ogers. That would put them into the collection business, and
I did not understand that was there. I do not think so.
Senator R eed . Would it be, then, an advantage to your bank, if it
became a member of this system, if it could take these bills of ex
change for cotton to this bank and gets its money?
Mr. R ogers. N o ; because they are presented immediately on receipt
by the central reserve city bank, or the bank we send them to, and
collected that day.
Senator R eed. From you?
Mr. R ogers. N o ; from the drawee.
Senator R eed . N ow , let me understand. You advance $100,000
to a cotton dealer.
Mr. R ogers. Senator, if you will just permit me----Senator R e e d (interposing). Yes; just explain it to us.
Mr. R ogers. I had one account I made no loans to whatever. I
allowed them to check during the day, and prior to the close of busi

B A N K I N G AND CU RRE N CY .

2257

ness they deposited their drafts in round sums on the St. Louis
office. Those drafts ran all the way from $10,000, which was the
minimum in one month, to $163,000, which was the maximum. They
were discounting the drafts; that is, paying the money out the day
the drafts were deposited with us. We had already advanced the
funds. We forwarded those to our St. Louis correspondent and he
collected them that day and put the money to our credit. We made
a charge for that service of $1 a thousand. For that $1 a thousand
we had to keep in shape at all times to take care of that business.
It costs from 27 to 30 cents a thousand to ship that money from St.
Louis to Little Rock. This cotton concern figured for a long time
whether it would be more profitable to ship the money down at 27
cents a thousand than to pay us $1 a thousand. But when they went
into the proposition they found they would lose a large amount
of money by doing so. They would have to advance the money at
least one day in advance of its payment, whereas they paid it in the
St. Louis office the day after the payment. At 6 per cent interest
that two days was 33^ cents, which, added to the 27 cents, made 60
cents right there. Then they would have the disadvantage of the
mail being late sometimes or the draft coming on Saturday, and they
would have to hold it over until Monday, and they figured that was
65 to 70 cents a thousand. So, if they could not tell each day what
the requirements were, they would have to carry a large amount of
cash on hand themselves, and they figured that while the cost of the
transportation of money was only 27 cents a thousand, it was much
cheaper to them to pay us $1 a thousand exchange.
Senator R eed. I still do not understand why you could not do that
business, why you could not have those bills of exchange paid right
into the reserve bank, instead of, as you are doing now, paying them
into the bank of your correspondent.
Mr. R ogers. Senator, I believe I can tell you in straight English
what is way down deep in the heart of the country banks and what
makes them afraid of this.
Senator R eed. That is what we want to know.
Mr. R ogers. Yes. They are afraid of being dependent only upon
this one concern they would have to go to for their money. This
man—and he has got to be human; he has got to be able to exercise
some judgment as to whether this collateral there is good or not
good—if for any reason whatsoever he should have a grouch against
the bank, or any reason—if he does not feel well, or for any other
reason you don’t get the money, the bank that goes to him is busted.
Now, if one bank does not let you have it, presupposing that you are
good, you can go across the street or go over on the other corner and
say, “ Here is my average balance; here is my security; here is what
I want,” and if the average balance justifies the loan asked for and the
security is good, if one man does not take it others will. But, to get
back to this proposition, you are absolutely dependent for the ex
istence of your concern on the judgment or approval of one man.
Senator R eed. But you still could take your bill of exchange and
go to an outside bank. This is not going to wipe out the banks of
St. Louis; they will still be there.
Mr. R ogers. But you are switching the question.
Senator R eed. I am trying not to.

2258

B A N K I N G AND CU B B E N C Y .

Mr. R ogers. I am talking about loan deposits. That is my under
standing of the question you were asking. If you can not keep a
balance with the bank that will justify them in giving you accommo
dations, they are under no obligations to you whatever; but if you
do keep an account with the bank, you have a right to call on them to
take care of you when you need the accommodation. And all wellmanaged banks recognize that right and live up to it.
Senator P o m er en e . Let me suggest right there: Under this bill the
country banks would have to keep in the regional banks 5 per cent.
The other 2 it can place where it chooses. Now, you said, as I re
call your testimony, that you kept reserves, perhaps, from 30 to 45
per cent?
Mr. R ogers. At times, yes. Down as low as 20, up as high as 45.
Senator P o m er en e . If you are only pledged under the terms of
this bill to keep 5 per cent in the regional bank, you still have a very
substantial amount of reserve which you heretofore kept, and you
would be free to place it wherever you chose. You could still have
the same banking connections outside of the regional-reserve bank
that you would have had heretofore, under those circumstances.
Mr. R ogers. That is as far as I am concerned; but all the banks
in our country do not carry that large reserve. I am speaking for
the bank that carries approximately the legal reserve carried by
national banks. The 2 per cent of their deposits would not be large
enough if kept in a reserve bank to pay for the trouble of handling
the account. The account would be unprofitable to the city bank.
Therefore they can not keep them.
Senator B ristow. Mr. Rogers, if a system could be devised here,
whereby we could have the Federal reserve bank stock owned by the
public, and that should be a bank of discount and a bank of issue and
a bank of reserve, and it should establish branches wherever they
were needed, something like the reserve cities now, and under the
law any banking institution in the country that was creditable, that
presented proper securities could get its discounts at this reserve
bank, do you think that would relieve the situation so far as cur
rency and bank business is concerned ?
Mr. R ogers. Y ou are asking me a mighty big question. All I have
testified to so far was about something I was familiar with. You
are now getting a proposition that is too big for me. I would rather
you would not ask me to answer that question, as what I have spoken
of so far was where I knew what I was talking about.
Senator R eed . Let, me ask you: You say you have not told us
anything but what you knew about. What about that frog story?
Do you vouch for that, of your own personal knowledge ?
Mr. R ogers. Yes; I was there the day it happened. [Laughter.]
1 think, Senator, if in the wisdom of this Congress they should see
their way clear to divide the reserve, allowing approximately a mini
mum of one-third cash, a minimum of one-third with the Federal
reserve bank and the balance with approved reserve agents, that it
would meet the wishes of a great many, and it would eliminate some
harsh features.and would produce a great amount of good.
Senator O ’G o r m a n . If we make provision for regional banks, will
there be any need for other reserve agents?
Mr. R ogers. That is another question. I am just answering from
my particular end of the business, and the friends of mine where I

B A N K I N G AND CURRENCY .

225 9

am familiar with their business. There might not be a thing for the
reserve agents to the extent that it is going to borrow’, but it will
enable them to transact their business in the usual, ordinary, and
customary wray and to handle the general line of business and carry
a portion of those items that, of necessity, would go to a privately
owned bank as their reserve.
Senator O’G orman. These regional banks are intended to perform
every function now discharged by central reserve and reserve city
banks.
Mr. R ogers. I think it is a mistake.
Senator O ’G orman. Why can’t you continue the deposit system?
All the Government deposits will be in the regional banks instead of
the central reserve banks, as at the present time.
Mr. R ogers. Yes; but the Government deposits are a very small
part of the business of these great central reserve and reserve city
banks.
Senator O ’G orman. We will hear from Mr. Jones now7.
Senator H itchcock. One question, if you please, Mr. Chairman
[Senator O’Gorman].
Mr. Rogers, if you should go to a regional reserve bank and ask for
a discount of some paper, and the reserve bank should decline, for any
reason, good or bad, to discount it for you, you would like to have
another harbor of refuge, would you not?
Mr. R ogers. I certainly would. That is what I have been trying to
explain.
Senator H itchcock. And a bank in which you keep a line of de
posits, should you ask them for an accommodation, would feel under
obligations to give consideration to your wishes?
Mr. R ogers. They would be under obligations, because if they did
not grant the accommodations they would know I had something to
take away from them to offer as an inducement to another bank.
Senator H itchcock. That isjill.
Senator O ’G orman. Mr. Jones we will hear you now. Please
state your full name, residence, and banking connections, and how
long you have been in the banking business.
STATEMENT OF GORDON JONES. PRESIDENT OF THE UNITED
STATES NATIONAL BANK, OF DENVER, COLO.

Mr. J ones. My name is Gordon Jones; my residence is Denver,
Colo. I have been in the banking business since 1887, and as to my
present banking connections I am president of the United States
National Bank of Denver; president of five country national banks
of Colorado, one of which has a capital of $50,000 and the other four
a capital of $25,000 each, and of twTo small State banks of Colorado.
Senator O ’G orman. N ow7, will you state your views in regard to
the pending bill or that part of it to w7hich you care to address your
self?
Mr. J ones. I am glad that our chairman, Mr. Rogers, explained
away that I was no Jonah on this committee, by reason of being
connected with a reserve city bank and my participation in this call
of conference, which was absolutely voluntary on account of the
country banking interests which I hold. This call was brought about

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B A N K I N G AND C U B B E N C Y .

by correspondence with country banks scattered through some 18
States of the West and South.
Senator S h a fr o t h . I would like to have you also say, Mr. Jones,
that you attended the conference over in Europe last summer where
the question of country deposits and country banking was discussed.
Mr. J o n e s . Yes; I was a member of the American commission that
visited Europe this last summer representing our State of Colorado,
and I was honored with the position of vice chairman of the finance
committee, which was the largest and most important committee of
the European commission.
Senator H itchcock . That was investigating the question of rural
credits?
Mr. J o n e s . Rural credits; yes, sir. I am to undertake particularly
to present to you the views of the country bankers upon section 1
of their Boston resolutions and I have been delegated by them to do
so. First, I will present the contention of the country banks regard
ing the needed good faith of the Government on its own behalf and
in order to protect the small banks. At the outset it might be well
to ask, who is the country banker? One of the banks in which I am
interested is a bank in which the most active officer has no stock. He
has none because sickness and distress of a financial nature has caused
him to invest most of his means in the recovery of his own health
and to protect a small growing family. He is recognized as being a
most careful and conservative banker.
Now, in speaking of the country bank, in speaking of the officers
of that bank, he would naturally be referred to as the country
banker. But the country bank is not only the man who sits behind
the counter; it is the stockholders and directors. And the stock
holders and directors of the country banks are the local farmers,
the merchants, women, and often widows of some farmer who has
died, or children of the deceased stockholders. Now, any legislation
that affects the country banks, or the one we are pleased to term
“ the country banker” because he is holding his office, affects the
stockholder, who is the farmer, the merchant, or the widow, or minors.
Any measure th at is enacted, we feel, of itself should be sufficiently
attractive to induce banks to join, just as was the enactment of the
national banking act in the early sixties, which offered sufficient
inducements to banks to come into the national system.

I will lay down another proposition: Any measure that, intention
ally or otherwise, requires the meeting of additional requirements
other than originally provided at the time of granting charters, which
would prove oppressive to the small banks, would not be attractive,
so far as the small bank is concerned. We are impressed with the
fact that you desire to give us a fair, just, and workable measure.
In 1900 the Government refunded its 3, 4, and 5 per cent bonds
with 2 per cents. In order to establish a market for such bonds, it
granted national banks the full circulation privilege and reduced the
tax on such circulation from 1 per cent to one-half per cent, provided
they were secured by 2 per cent bonds. The banks furnished the
market. This was as near a contract as can be entered into between
a sovereignty and the people. Although the people can not enforce
it, we do not feel the Government can honorably evade it. The
country banks now find themselves the owners of several hundred

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millions of dollars of these bonds which are declining in market
value on account of the threatened removal of the circulation privi
lege and the placing of the twos on an investment basis. We com
mend that portion of the bill which provides for retiring the twos
at a fixed date, or giving the national banks the privilege of exchang
ing them for threes in installments, if they elect so to do. We do not
feel this will keep faith, however, with the bank that prefers to sur
render its charter, or those whose charters expire before the maturity
of the bonds, or the date set for their redemption. In this connection
I will touch on reasons why some banks would feel obliged to sur
render their charters of necessity, which would necessitate the sale of
their bonds. There are some small banks to whom to belong to the
Federal reserve bank would be no real benefit to them or their com
munities, but might prove a detriment to both for the reason they
would be required to take from their community a portion of their
loanable funds and invest it in the stock of a large Federal bank
located in some fiscal center and. at the same time, redeposit 5 per
cent of its own deposits in that Federal bank, neither being available
for use except in the liquidation of the country bank. While the 5
per cent deposit to be carried with the Federal reserve bank is termed
a reserve, in fact it is but an investment without interest. This
point as to reserve, however, will be elaborated upon by another
speaker who will follow me.
Now, the only real benefit the small bank may have is the privilege
of borrowing from the Federal reserve bank. There are many small
country banks that do not have the character of assets that will be
available, but the membership of such banks is not necessary to the
success of this act. That is a fact I should like to impress upon you,
that the success of this measure does not depend at all on the mem
bership of these small banks that do not feel they can afford to do so.
For such banks we submit there should be some provision for
returning to the banks 100 cents on the dollar, which the Government
originally received for their 2 per cent bonds. In fact, the Gov
ernment received a premium, and the banks have already suffered
the loss of this premium, though with some banks it has been com
pensated for by profits on their circulation by reason of the length
of time they have been operating, but with others it has not been
compensated for.
Some such banks hold these Government twos, securing their
Government deposits as well. In any plan that contemplates the
withdrawal of these deposits provision should be made for redeeming
such 2 per cent bonds in cash or exchanging a security for them that
is worth 100 cents on the dollar in the markets of the world, in order
that the banks surrendering the deposits may do so without reducing
their available loanable funds needed at home and suffer no financial
loss in the transaction. Unless these provisions are made, what will
be the effect on the banks and on the Government ? Such banks as
feel obliged to liquidate will have to market the 2 per cent bonds in
order to get the cash with which to retire their circulation, for the
small bank can not afford to hold a 2 per cent investment. Such
banks as feel they can not afford to join the Federal reserve bank
therefore stand to lose the difference between what they paid for
the bonds and what they will sell for on an investment basis, and

2262

B A N K I N G AND CU B B E N C Y .

such banks as hold Government deposits secured by twos stand to
lose an additional amount.
This is serious, and already some of our stockholders are figuring
this out; and I know of cases where stock is being offered for sale
on account of this threatened depreciation. Just before I left Colo
rado one banker had been offered stock in his bank at $50 a share
less—on account of this possible depreciation—than he had paid for
some of the stock last January, and he would not buy it because he
did not know what he would be buying, owing to this uncertainty.
We beg of you, therefore, to make proper provision for refunding
such twos outstanding as are surrendered by member banks in order
to give up their Government deposits, and by such banks as do not
feel they can afford to join and who therefore must not only surren
der their Government deposits where held but must retire their circu
lation as well. I believe it will be well for us to keep in mind that in
the refunding of the 3, 4, and 5 per cent bonds in 1900 the Govern
ment found a market for its 2 per cent bonds with the national banks,
and that the Government made about $16,000,000 by the transaction,
and has profited by a material reduction in the rate of interest since.
The effect on the Government—unless it protected these bonds from
liquidating banks that do not feel they could afford to join—would
be to see its good credit impaired; its bonds, long selling at par and
better, would soon be on the toboggan slide. What figure they will
reach, unless we have an early indication of what will be done in the
disposition of these bonds, no one can tell. In this connection, we
might call to mind that 24 per cent English consols are selling at 72
on an investment basis. Should our 2 per cents decline to 60 on an
investment basis, a small bank with $25,000 of these bonds would lose
$10,000. Other banks in proportion. That money is the money of
local stockholders—farmers, country merchants, women, trustee
ships, and minors.
Therefore we urge an amendment to the bill, as speedily as possi
ble, that will assure us and the nations of the world that this Govern
ment will keep faith with the purchaser of its securities, in order
that the uneasiness now being felt will subside and that the market
on such bonds may be restored to par or better. And we believe if
you can devise some plan to protect these bonds on a par basis they
will immediately go back to par and the Government will continue
its srood credit. If this is not done and the bonds continue to decline,
will we be required, as bankers, to charge down the book value of
such bonds, or will we be required to put up additional security in
order that the solvency and liquidity of our present national-bank
notes may be maintained?
In brief, gentlemen, we are asking that the Government keep faith
and maintain its credit. If that is done, our small national banks,
■whose stockholders would prefer to liquidate, can do so without im
pairment of their investment, and will only have to meet the addi
tional expenses incident to conversion under a State system.
In other words, we beg. for the small banker who accepts the death
penalty, that you enact no law that will render his estate insolvent.
At the same time I would not imply that I believe there would lie any
considerable number of national banks to go into liquidation rather
than join the association, but we do feel that if there is only one
small bank that can not afford to join provision should be made for

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226 3

that one. With an attractive measure, a great many banks will ulti
mately grow to proportions to justify their joining.
Here is another aspect of this optional feature of the bill that we
would like you to consider. A bank that to-day may not feel it can
afford to join may in a few years, if it may continue its national char
ter, grow to such proportions that it will want to join and can afford
to join. The larger the bank the greater the need for the facilities to
be afforded by the Federal reserve bank and the more apt the bank is
to have the class of securities that are to be accepted by the reserve
bank; and there are few of our country banks in the West that to-day
have the character of securities described and required in obtaining
accommodations from the Federal reserve bank, more particularly on
account of the time limit. Therefore many banks that at the outset
could not afford to join would undoubtedly ultimately want to do so
before their charters expired.
In talking upon the disposal of the Government 2 per cent bonds,
1 have been obliged to elaborate somewhat, and I thank you for
your patience and your courtesy.
In conclusion I would add that it has occured to us that there are
two or three ways to accomplish what we are asking regarding the
disposal of the bonds. The first is the optional feature removing
the tax or reducing the tax further on the circulating of such banks
as come in under the system, raising the tax, if necessary, on the
banks that do not come into the system if they continue their circula
tion. In other words, let us find something that invites the banks to
come in, and make it as attractive as I suggested at the beginning,
as the national bank act made it for banks to join the present national
banking system.
If the optional feature be not considered permit the member banks
to continue circulation and the Government pay par for the bonds
from liquidating banks not joining; or, third, require the Federal
reserve bank in the locality of the bank liquidating to take over the
2 per cent bonds on a par basis from the bank liquidating, and assume
the circulating privilege. There would then pass from the small
bank that can not afford to continue under the national bank system
the circulation privilege, and give its advantages to the combined
banks in the locality that can afford to go in the Federal reserve sys
tem.
I thank you, gentlemen.
Senator S hafroth . Mr. Jones, what do you think of the provision
in the bill for the substitution of 3 per cents for 2 per cents?
Mr. J ones. If I understand the provision correctly—and before
committing myself I would like to know that I do understand it cor
rectly—it now provides, does it not, Mr. Chairman, that at the ex
piration of 20 years all national banks are to be paid par for the 2 per
cent bonds, or the 2 per cent bonds are to be redeemed at par?
Senator H itchcock. That is the provision.
Mr. J ones. And the bank does not have to accept the exchange in
3 per cent bonds meanwhile unless it so elects?
Senator H itchcock. That is right.
Mr. J ones. We have no objection to find to that. We should like
to know that the 3 per cent bond, however, would be marketable at
par. Now, there may be large city banks that can afford to accept
S. Doc. 232, 63-1—vol 3---- 22

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B A N K I N G AND CU R R E N C Y .

the exchange, but you won’t find a country bank that would exercise
that privilege unless it could immediately sell its 3 per cent bonds on
a par basis; and if it can sell its 3 per cent bonds on a par basis, why
should the Government ask small banks to market their bonds for it?
In other words, each small bank accepting 5 per cent of its circulation
each year will have to turn around and market this small amount of
bonds.
Senator S hafroth. Y ou would prefer that the Government pay
these bonds at par to the banks instead of issuing the 3 per cents,
would you?
Mr. J ones. I think it would be keeping better faith.
Senator S hafroth. These bonds, I understand, do not mature until
1930, and then they do not mature as against the Government at that
time, but, nevertheless, the Government can pay them after that time.
Consequently, the bonds not maturing, the Government could not
force the banks to take cash for their 2 per cent bonds without their
consent. Now, do you think that if the Government were to offer to
pay these bonds in cash the banks would be willing to take it?
Mr. J ones. I can only answer for myself and those whom I have
heard express themselves. I believe, gentlemen, we would be glad
to-day to surrender our bonds and get cash for them and withdraw
our circulation. I believe that would be pretty nearly the consensus
of opinion, but I am not stating that as a fact. However, we should
like to continue the circulation privilege, because there is a little
benefit in it, but we do not know what we may be up against later.
Senator R eed . Let me say a word to you. I am only speaking for
one member of this committee, but I believe I know this committee
and I do not think this committee has the slightest idea of doing any
thing to break faith with any man that has an honest contract with
the Government or to repudiate any obligation at all.
Mr. J ones. I assure you there is not any such impression in the
minds of our committee to-day.
Senator R eed. I .know you are not impugning our motive, but I
am speaking with reference to this constant impression that some
thing is about to be done to ruin these 2 per cent bonds and leave
you, to use an expression that my friend from Arkansas will under
stand, “holding the sack” on the bonds. I do not think you need
waste much time with the committee on that, except to suggest a
means by which we could work the problem out.
Senator N elson. There was one suggestion you made there, the
last of the three plans you suggested, that the regional banks take
over the 2 per cent bonds and issue circulation on them. There is
something in that idea. That was a part of your theory, was it not?
Mr. J ones. Yes; and to explain that----Senator N elson (interposing). Could they not do that gradually?
Mr. J ones. Yes; but what about the bank going out of business?
Senator N elson. If they would take them off your hands at par
gradually and, as they took them off, issue circulation on them, you
would still be allowed to remain with the balance of your bonds and
gradually work them off----Mr. J ones (interposing). Why would it be necessary to take them
gradually ?
Senator N elson. We would not want to change our whole credit
at one leap.

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2265

Mr. J o n e s . The regional bank would be out nothing. They buy
these bonds. If they amount to $200,000,000 they buy them for
$200,000,000 and issue the currency immediately for $200,000,000.
Senator N elson. We would get just the same kind of credit in
effect that we have to-day, so far as that is concerned?
Mr. J o n e s . Yes, sir.
Senator N e lso n . The theory of this bill is that the banks will
gradually retire their own bonds and circulation, giving them 20
years for it, and consequently this new currency will take the place
of the retired national-bank currency. That is the theory on which
the bill is based; do you not so understand it?
Mr. J o n e s . Yes; but would it not work out just the same i f th e
Federal reserve bank carried the circulation?
Senator N e lso n . N o ; if you shifted it bodily over from one to the
other you would get the same condition you have now, only you
would have it grouped in these regional banks instead of the little
banks.
Mr. J o n e s . I predict that every member bank will continue its
circulation rather than accept 3 per cent bonds. What is the dif
ference whether they continue their circulation or the Federal reserve
bank continues a like amount? For the sake of argument say that
all the banks will come in. Would the condition be any different
whatever if the regional bank takes over the circulation?
Senator N elso n . The regional bank could discount paper and issue
currency on it, and that is what the little banks could not do. There
is the difference.
Senator P o m e r e n e . Your position seems to be that you want all
these banks to have the privilege of going in or staying out as they
see fit?
Mr. J o n e s . That is one of the alternatives we have p u t u p to y o u .
Senator P o m er en e . But that does not answer my question directly.
You want the privilege of staying out or going in as you see fit?
Mr. J ones. Yes. sir.
Senator R eed . Then, you would like to have the Government fix a
place where you could go and get money whenever you wanted to,
and not have to contribute much to it and just have it voluntary?
Mr. J o n e s . We are talking for the country banker. I do not think
the country bank would have to apply to the regional reserve bank
for money.
Senator R eed . Well, he is in the banking business, is he not? And
when we have the conditions as they are now he is liable to suffer
by reason of a general financial stringency or a panic. That is a
danger that hovers over you all the time.
Mr. J o n e s . Quite true.
Senator R eed . Now, do you not think it is worth your while to
help obviate that?
Mr. J o n e s . Y ou will find sufficient banks that will, with needed
modifications, voluntarily join to make it a success, without requir
ing the little bank that could not afford to do so to come in. That
is the fellow we are appealing for. I can analyze the statements of
many small country banks and show you that they can not afford
to come join.
Senator H itchcock. H ow many national banks have you in Colo
rado, Mr. Jones?

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B A N K I N G AND C U R R E N C Y .

Mr. J ones. I am very poor at remembering figures. Senator
Shafroth, do you recall? We have discussed that often among our
selves.
Senator S hafroth. No ; I do not remember.
Senator H itchcock. What per cent do you think would come into
the new system, if they could stay out without serious loss on their
bonds ?
Mr. J ones. I do not believe I could undertake to answer that. I
think all of our large banks will come in. I would say, gentlemen,
that our Denver bank stands ready to come in under that measure
with proper modifications. But I do not think some of the little
country banks can afford to come in.
Senator R eed. Suppose we wrere to make a third classification.
We already have the provision for the reserve city banks maintain
ing a certain reserve, and then a less reserve for what is called
country banks. Suppose there were a third classification made of
the country bank or trust company with only $25,000 of capital
and a smaller reserve required from them. Would that be of any
help?
Senator N elson. And a smaller subscription to the capital stock.
Mr. J ones. Y ou mean, to graduate the requirements?
Senator R eed. Yes: we now have two steps, and my suggestion is
to make a third step.
Mr. J ones. Y ou are asking my individual opinion?
Senator R eed. Yes.
Mr. J ones. I think every concession you can make that makes it
easier and more inviting for the banks to join without feeling that
they have to come in to save their charters, the more they will come
in and cooperate to the fullest extent.
Senator S hafroth. Mr. Jones, the report of the Comptroller of the
Currency for 1912 gives the number of national banks in Colorado as
126. There are probably six or eight more now.
Senator H itchcock. Can you tell the number of State banks in
Colorado, approximately?
Mr. J ones. We had more national banks than State banks up to a
short time ago, but Gov. Shafroth assisted to get a mighty good bill
through which united State bank organizations under a safer system,
and the State banks are growing in numbers.
Senator N elson. What proportion of your national banks do you
think are the small banks of $25,000 capital? Are there as many of
them as of the banks of great capital ?
Mr. J ones. There are a great many. In a growing country they
start with small capital.
Senator N elson. I want to follow up the suggestion of Senator
Reed; I think he was on the right track. Suppose we had these
little banks, and, instead of requiring them to subscribe and pay in
10 per cent of their capital, require them to pay only 5 per cent, and
only pay in 3 per cent of their deposits instead of 5. Would not that
help a great deal?
Mr. J ones. You would have more members.
Senator N elson. And that would make it much easier. They
would only have to contribute one-half of their capital stock; all the
other big banks have to. They would only contribute three-fifths,
or you might make it 2^ per cent, say. That would put them on

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226 7

“ easy street” as compared to this. Instead of paying in 10 per cent
of their capital they would pay in 5 per cent, and instead of 5 per
cent of their deposits, say 3 per cent. That would make a big differ
ence?
Mr. J ones . Quite a difference.
Senator R e e d . They must ultimately put in 12 per cent of their
deposits, or else hold it in their own vaults.
Senator N e lso n . They can hold the balance in their own vaults.
Senator R eed . The Senator has gone more into detail. I should
like to know what you think about that.
Senator N e lso n . Would not that be a great help to them?
Mr. J o n es . Undoubtedly.
Senator R eed . N ow , suppose we just draw this bill in this form,
gentlemen: We require the reserves that are now provided in this
bill from banks that go in, perhaps adopting the suggestion that
Senator Nelson and I have been suggesting as to smaller banks, but
as to banks that do not go in we require them to keep the same amount
of reserves as they have now.
Mr. J o n e s . Y ou are getting at something that is fairer.
Senator R eed . And maybe stop them pyramiding by putting it
in other banks.
Mr. J o n e s . If you mean to make it more inviting to those that
come in, that is along my idea.
Senator R eed . You banks have got to get in a safe position. I do
not mean you gentlemen individually, but the banking system must
be gotten in a safe position, if we can put it there. Congress owes that
duty to the country and owes that duty to the banks. Now, there is
a system here outlined; we are trying to perfect it. The first thing it
does, it reduces materially the amount of reserves that banks are now
required to carry. And there may be a further reduction----Mr. J ones (interposing). In theory; we do not believe it will in
practice.
Senator R e e d . I mean it reduces it as far as putting it into these
banks is concerned. As far as the amount they are required to keep
in their own vaults is concerned, there is a reduction. You may have
to keep it some place else. There may be further possible reduc
tions.
Now, suppose we enact this law as favorable as we can make it,
and then were to provide that as to any national bank not coming
into the system it should maintain the same reserves which it is now
required under the law to maintain, and that when a reserve was
deposited in some other bank that other bank could not redeposit it
but would be obliged to hold it so as to stop pyramiding. How would
that strike you?
Mr. J o n e s . D o you think it would be possible to follow the deposit?
Senator R eed . Oh; very easy. You simply specify in the bill that
the bank puts $100,000 into another bank and counts it as reserve,
and that other bank has to hold that money and can not redeposit it,
counting it again.
Mr. J o n e s . Senator Reed, I spent a few years as State bank exam
iner in your State, and I do not believe I could follow that deposit
and find out whether the bank was living up to the requirement or
not.

2268

B A N K I N G AND CU RRE N CY .

Senator R e e d . I think that is a very small matter of bookkeeping,
if I understand it.
Mr. J ones. I do not think it would be. I do not believe you would
ever be able to find out where that specific deposit went.
Senator R eed. Let me give you an example. I do not want to take
up your time and the time of the committee in arguing it. Let us
say there are 100 country banks depositing their balances with the
First National Bank in Denver. The bank examiner and the comp
troller know what their aggregate deposits are and everybody knows
the amount of reserves which they must have on hand in their own
vault or in the vault of the First National Bank of Denver. They
know the amount of deposits that the First National Bank of Denver
has received from this bank and the amounts received from other
banks. It seems to me it would be very easy, then, to ascertain
whether the First National Bank of Denver had taken these moneys
and deposited them some place else, only holding a reserve and treat
ing them as an ordinary deposit.
Mr. J ones. In other words, the bank may not loan it at all.
Senator R eed. N o, sir; it must have it in cash.
Mr. J ones. The bank would not receive the deposit, then?
Senator R eed. Exactly; that is what I am talking about. Of
course I think I state this rather dully. I can see it better than I can
say it. Of course we all understand that if I put a million dollars
in your bank and the law requires you to hold as a reserve 25 per
cent of it 124 per cent in your own vaults that that cash has got to be
actually in your vaults and 124 per cent in the vaults of another
bank. If that other bank then takes that other 124 per cent and pro
ceeds to loan it out or to redeposit it, it is, in fact, no longer a
cash reserve. It has ceased to be a cash reserve, and hence we have
what we call the pyramiding of reserves. Since that can be stopped—
and you do not question but what that can be stopped ?
Mr. J ones. I do not question but what you can stop almost any
bank practice by law.
Senator R eed. The bank would rather keep the entire 25 per cent
in its own vaults?
Mr. J ones. Undoubtedly.
Senator B ristow. Why so, if they have this money ? Suppose
there was a bank which had $20,000,000 deposits and it keeps
$4,000,000 or $5,000,000 there; of course that would be’within the
laW .

Senator R eed. Y ou do not seem to catch my thought, Senator.
The bank—that is, the second bank—is required to hold 12| per cent
of the other’s deposits in its own vaults.
Senator N elson. Less 5 per cent of circulation.
Senator R eed. Well, I am leaving that out for the present. It
thereupon treats that money as an ordinary deposit, holding its own
reserve against it.
Now. we could very easily provide by law that when a bank de
posited" with another bank a part of its reserve that that reserve
should no more be used in that other bank than if it held it in its
own vault. I was asking the question howTa bank would like to have
this pyramiding stopped and be allowed to stay in or out, as they
pleased, because I think you all agree that pyramiding is a dangerous

B A N K I N G AND CURK EN CY.

2269

Mr. J ones. Would you allow the first bank receiving the deposits
from the country bank the use of it at all, or prohibit them from
using it?
Senator R eed. I do not see how you allow them to use it, because
if they loan it out it would no longer be a cash reserve.
Senator H itchcock. Senator Reed, would you allow them to keep
a reserve of 25 per cent in cash to get that, the way some banks can
now? You would not have them keep all the cash there.
Senator R eed. I simply say it is—I was going to say—a farce;
it is nearly a farce to talk about a reserve of 25 per cent—cash re
serve, for instance—when you take 12| per cent and put it in
another bank and that bank loans it out or redeposits it. It may
be redeposited half a dozen times, so that in the end if trouble comes
that 12£ per cent has been passed from bank to bank and ceases to
really be a reserve within the meaning of the law.
Senator S iiafroth. I think Mr. Jones is in error----Senator H itchcock (interposing). I think Senator Reed has
misstated his own proposition.
Senator R eed. Perhaps.
Senator H itchcock. I think what you meant was to stop the bank
from sending to New York a part of the deposits which it had
received from the country bank, and you would permit that bank to
keep them all in cash, but loan out a safe proportion of them to its
customers.
Senator R eed. That would be a modification and could be adopted
under particular circumstances.
Senator H itchcock. In this bill you allow a Federal reserve bank
to loan 66§ per cent and keep 334, per cent reserve.
Senator R eed. I am talking about a plan by which these banks
can come in or stay out, if we provide what we think is a safe system.
That is what we. are trying to do.
Mr. J ones. Make it what I have said. Make it attractive for the
banks to come in, but do not penalize the banks who do not come in.
Senator Nelson. Suppose we cut the tax of a half of 1 per cent in
two? Would that not help the bonds a little? Suppose we made
it a quarter of 1 per cent, just nominal; would that not relieve the
banks of a good deal of a burden?
Mr. J ones. We beg of you to let it be known definitely, as quickly
as you can reach a conclusion, what you decide to do about these
bonds in order to prevent their further decline.
Senator N elson. We are trying to do that, but you can see how
difficult it is. They want us to go at railroad speed, but we are
using deliberation and trying to get a good bill, and we are con
stantly prodded because we are not rapid enough.
Mr. J ones. We are not very large Rankers, but we want to give
you the benefit of wThat experience we have.
Senator N elson. Y ou do not want us to go at railroad speed and
give you a bad bill ?
Mr. J ones. No ; we do not.
Senator R eed. If we had accepted some advice that has been given
us this bill would have been out of the way some time ago, and you
gentlemen would not have had half a chance; you would not have
been here to-day.

2270

B A N K I N G AND CU RRE N CY .

Mr. J ones. Senators, anything else in regard to reserves it might
be well to take up with the gentleman to whom has been especially
designated this subject wTho is to follow me, but anything bearing
on the protection of the bonds I will be very glad to answer.
Senator B ristow. You referred to one matter about which I desire
to ask you sortie questions. You said that the small banks, the
country banks proper, could not afford to come into this; that the
country banker could not afford the loss on his bonds, etc.; but that
it wTas somewhat different with the banks in the cities like Denver—
these reserve cities.
Senator N elson. Big banks.
Senator B ristow. The big banks. What advantage, under the
proposed system, has the big bank over the little bank?
Mr. J ones. The large bank feels more keenly the need of relying
upon such a system as you are providing. The small banks have
not the security, in the first place, to a great extent, so that they
can come to the regional bank under the definition as it stands now
and get help upon that security. They can get it from our city
banks. We hold live-stock loans as collateral in our bank which
represent money loaned by country banks over the West, which
have a year to mature. It sometimes takes a j^ear or more to mature
live stock from the time the farmer begins the process. Sometimes
he has to carry the loan over for another year. Such are liquid
at the expiration of the time, for the live stock is marketable. Such
country bank will always live in the hope that there will be no need
of calling upon the Federal reserve bank for 9 months after it makes
a 12-months’ loan, in order to get them within the 90-day period.
When the little banks send such paper to us we make them a 90day loan collateralized by this paper, but the 90-dav paper is in
turn secured by the longer term paper. We can discount that 90day paper with the reserve bank. The small country banker is the
man we are pleading for. He is the man who is likely to suffer.
Senator B ristow. I agree with you. I am not an expert, but I
think the heaviest burden in this arrangement falls on the small
man. Unfortunately that is his lot in life in most things, and this
is no exception to that, and he is the fellow who is here asking for a
hearing and for justice, and it is not any malign influence which is
operating upon us. I want that to be distinctly understood. I
think every member of this committee is trying to devise some wav
of relieving the banking situation of the defects that we all admit
it has, and we are trying to do it in a way to help the country most.
Now, why should we retire the 2 per cent bonds anyway? Why
not let the general banking circulation go on just as it has before and
provide for elasticity outside of that?
Mr. J ones. I would ask why.
Senator B ristow. That would not disturb the whole situation
nearly so much as this proposition would—this proposition to get rid
of the national-bank circulation.
Mr. J ones. That does not take care of the bonds of the banks
retiring from business.
Senator B ristow. Of course, that is true, but if you maintain the
circulation as it is and let the banks run on just as they are now
and not change materially this implied contract that we have with
them, and then provide means by which banks can rediscount when

B A N K I N G AND CU B B E N C Y .

2271

they desire and get additional currency on their assets somewhat
similar to this, would not that relieve the entire situation? That is,
if your bank in Denver, when there was stress, could take your
assets to the subtreasury and get money on them and relieve what
ever pressing necessity might exist, if there was any call, usual or
unusual, and let them be quickly retired under certain provisions,
would not that----Mr. J ones (interposing). Without enacting this Federal reserve
act?
Senator B ristow. Without creating this complicated machinery
and disturbing the entire banking system, which has grown up here
in half a century.
Mr. J ones. That injects an entirely new thought which is outside
the Federal reserve act. That means the Government issuing money
direct to the banks.
Senator B ristow. The Government does it now, except it is cre
ating an agency here for the purpose of issuing this money through
that agency. Why not utilize the agency that now exists and issue
it upon the same kind of collateral and the same security? What
is the use of this complicated machinery in order to accomplish that
purpose ?
Senator N elson. In other words, what the Senator means is that
instead of walking up to Uncle Sam’s counter with Government
bonds, you walk up with your commercial paper and say you want
notes for it.
Mr. J ones. I understand what he means. His proposition is for
eign to the matter which this committee has had under considera
tion, and foreign to the proposed system which I have studied.
Senator B ristow. It is an additional facility to that which now
exists to provide a means by which a bank when it needs help can
surely get it if it has proper assets.
Mr. J ones. I think it is worthy of consideration. It has been sug
gested before. I heard the suggestion several years ago.
Senator B ristow. That is not my idea. It is Senator Hitchcock’s
idea. He has been bringing it out here for almost a month.
Then there is another suggestion on which I would like your view.
There has been a suggestion made by Senator O'Gorman that we
create one Federal reserve bank instead of 12.
Senator N elson. Under the control of the Government.
Senator B ristow. Under the control of the Government, managed
by a board appointed by the President, similar to the present pro
vision in this bill, and have it a bank of discount, a bank of issue, and
a bank of reserve.
Senator H itchcock. The hour of 6 has arrived.
Senator N elson. Mr. Chairman, before we adjourn I should like
to submit a matter to the committee. I have received a letter from
Minnesota stating that a delegation of country bankers want to come
down here and asking if they can get a hearing. I want to know
what to say to them.
Senator H itchcock. If they arrive between the 22d and the 25th
they can be heard.
Senator N elson. Very well; then I can write them to come between
the 22d and the 25th.

2272

B A N K I N G AND CU R R E N C Y .

Senator H itchcock. I think we ought to know pretty soon when
they expect to be here so we can put the date down.
Senator N elson. I will wTire them in the morning. I ask the con
sent of the committee to invite them to come.
Senator R eed. I make a motion to that effect.
(The motion was duly agreed to.)
Senator S hafroth. I think you had better make the invitation for
the 22d.
Senator H itchcock. The 22d is full.
Senator Nelson. Very well; I wTill make it for the 23d.
Senator B ristow. Will Mr. Jones be here to-morrow? There are
some more questions I should like to ask him.
Senator H itchcock. This delegation will be heard further to
morrow morning if desired; and they wTill be followed by two gentle
men from New York, Mr. Perkins, of Albany, and Mr. Treman, of
Ithaca; and there are several Kansas bankers here.
Mr. J ones. At what hour shall I be here to-morrow ?
Senator H itchcock. At 10.30, please.
(Thereupon at 6.03 o’clock p. m. the committee stood adjourned
to meet to-morrow, Tuesday, October 14, 1913, at 10.30 o’clock a. m.)
T U E SD A Y , OCTOBER 14. 1913.

Committee on B anking and C urrency,
U nited States Senate.
Washington, D. C.
The committee assembled at 10.30 o’clock a. m.
Present: Senators Reed (presiding), Hitchcock, O'Gorman, Pomerene, Shafroth, Hollis, Nelson, Bristow, and Weeks.
STATEMENT OF GORDON JONES— Resumed.

Senator R eed. I s there any member of the committee who desires
to ask Mr. Jones further questions?
Senator B ristow. I was asking Mr. Jones last night when we ad
journed about the advisability of having one central reserve bank,
governed by a board similar to that created in this bill, which should
be a bank of discount, a bank of issue, and a bank of reserve.
Senator N elson. A bank run by the Government under absolute
Government control.
Senator B ristow. Yes; under Government control.
Senator Nelson. And a central bank----Senator B ristow. With branches to take care of the different lo
calities of the country. What would you think of that kind of a
system ?
Mr. J ones. A Government bank without the banks owning the
stock ?
Senator B ristow. T wo suggestions have been made: One would be
by popular subscription, like the Bank of France, and another only
the banks to subscribe.
Mr. J ones. That is a matter that would entirely change the scope
and plan of the present measure. I did not feel competent to talk
upon the present measure until after about a month’s study of the

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2273

bill. I would not feel like giving an offhand reply to another plan
unless I had gone into it carefully.
Senator B ristow. Suppose the same stock provisions that are pro
vided for in this bill should be provided for in a bank such as I have
indicated, a central reserve bank controlled by the Government, and
the stock owned by the banks, just as under this bill.
Mr. J ones. Ownership without representation?
Senator B ristow. Yes; just exactly as this is.
Mr. J ones. I do not think any plan for a bank as proposed with
out proper representation from the ownership of the bank would be
feasible or would work out satisfactorily either to Government or the
people.
Senator B ristow. If the Government should establish a central re
serve bank with branches, and the subscriptions to the stock be volun
tary by any citizen who desired to subscribe, and the Government,
through that bank, would perform all the functions that are desired
for the relief of the banking institutions of the country—let them
have money, discount their paper, etc.----Senator N elson. Issue bills.
Senator B ristow. And issue bills, and let it be voluntary with the
banks as to whether they subscribe to the stock or not; and whether
they did subscribe or not, if they had good paper and were reputable
banking institutions, they would have the facilities which the bank
afforded—what would you think of a plan of that kind ?
Mr. J ones. T hat would mean an entire reconstruction of the bill,
would it not ?

Senator B ristow. Yes.
Senator N elson. Not in its fundamentals.
Senator B ristow. Not in the principles of the mobilizing of re
serves and making the currency elastic, which are the only thing?
which have been asked for.
Mr. J ones. Requiring the banks to maintain balances with it?
Senator B ristow. Yes; any bank that desires help would, of course,
maintain a balance. It would be a bank of reserve.
Mr. J ones. A plan might be worked out along that line that would
be feasible. It is very easy, theoretically, to devise something that
would not be practicable.
Senator B ristow. Are you familiar with the Bank of France?
Senator R eed. I would like to interrupt for a moment to call the
attention of the committee to a matter which I think ought to be
settled, because I think an answer should be given one way or the
other. I have a letter here, which was just handed to me by Senator
Owen’s clerk, from the Chamber of Commerce of the United States,
Riggs Building, Washington, D. C., dated October 14. 1913, and
addressed to Hon. Robert L. Owen, etc. It states that the report of
the chamber’s committee on banking and currency has been approved
by a large majority of the constituent members by referendum vote,
and requests that the chamber be given an opportunity to be heard by
the committee. The letter is signed by Elliott H. Goodwin, general
secretary.
The question, of course, is whether we will hear them; and if so,
when can we hear them.
Senator H ttcitcock. I move that we put them down for Thursday.

2274

B A N K I N G AND CU R R E N C Y .

Senator R eed. If there is no objection to hearing these gentleman
on that date, that will be the arrangement of the day.
Senator B ristow. N ow, Mr. Jones, I want to inquire a little fur
ther of you. What are the deposits of your Denver bank ?
Mr. J ones. My bank in Denver?
Senator B ristow. Yes.
Mr. J ones. $6,000,000 deposits.
Senator B ristow. And what is the amount of your stock?
Mr. J ones $100,000, with surplus and undivided profits of a like
amount.

Senator B ristow. In the panic of 1907 did you use clearing-house
certificates in Denver or did you pay out the money?
Mr. J ones. Some of the banks put out certificates and others did
not.
Senator B ristow. Did you use certificates?
Mr. J ones. N o.
Senator B ristow. Did you limit your payments or did you pay
your depositors whatever they called for? Was there a limit on the
amount?
Mr. J ones. There was a limit.
Senator B ristow. There was a limit?
Mr. J ones. A limit as to the cash payments for 10 days.
Senator B ristow. Yes. How much of cash would you have had to
have not put any limit—just to have paid out whatever anyone
wanted? How much additional money would you have needed, in
your opinion?
Mr. J ones. I can not answer that, because I do not know if we
had not put on the lid what would have been demanded of us. But
I do not believe any bank in Denver would have had to have had any
additional amount to have met all the demands on them. In other
words, I am sure the putting on of the lid was unnecessary.
Senator B ristow. If the banks of Denver could have gone to a sub
treasury and secured the amount of their capital stock in cash at any
time they wanted it, would there have been any uneasiness on the
part of the banks as to their ability to have met their demands?
Mr. J ones. None whatever.
Senator B ristow". None whatever?
Mr. J ones. Or of the people, either.
Senator B ristow". Would not that be a very simple wray, then, to
meet an emergency?
Mr. J ones. It would be a very delightful way, if we could go to
the Treasury and get cash as fast as we want it.
Senator B ristow". Of course that takes for granted you would give
security to get it?
Mr. J ones. Yes; and w-e would have it.
Senator B ristow". Y ou wrould have it?
Mr. J ones. Provided the Government machinery would not be too
cumbersome and could give it to us as readily and conveniently as
our correspondents do when we have need.
Senator B ristow*. Can you see any dangers in a system of that
kind ?
Mr. J ones. Offhand I can not see but what something could not
be devised along that line; but it would mean an entire reconstruction,
would it not, of the present bill?

B A N K I N G AND CURK EN CY.

2 275

Senator B ristow. It would require some quite radical amendments
to it, yes; but there seems to be an impression on the part of some
of the gentlemen who come before us that it won’t do to suggest any
thing that would be a very radical departure from the bill. I think
I voice at least the views of some of the members of the committee
when I say we would like suggestions of all kinds that might be of
use to us, regardless of whether they are in conflict with the bill or
in harmony with it.
Mr. J ones. May I offer a suggestion right there, then----Senator B ristow. Yes; I will be glad to have it.
Mr. J ones (continuing). Which your questioning has led up to.
I think the present bill is entirely too cumbersome. I think the
machinery is too elaborate to make it workable, especially for the
small bank, in whose interests we are here to-day. In other words,
it may require borrowing on behalf of the banks to keep it going.
You have such a large machinery, requiring immense office buildings,
absorption of exchange, salaries, and other expenses to operate the
regional bank that to make it a success the banks might be compelled
to borrow. That would be contrary to the ideas of conservative
banking. We have all been educated that banks should borrow for
emergency only or to meet temporary demands. This bill contem
plates a large amount of deposits will be carried bjr banks called
reserves. These will not be reserves in fact, but merely permanent
investments, as I said yesterday afternoon, without interest. We can
not draw it out except in case of liquidation. The banks and the
Government deposit large amounts, and in order to keep the machin
ery going it majr become necessary to reloan to the banks. The banks
do not want to borrow except for emergencies.
Senator B ristow. If you retire the national-bank currency, the
banks have got to borrow or there will be a stringency in the cur
rency, because the currency would depend on the borrowing of the
banks.
Mr. J ones. The banks would not have to borrow if they could sell
their bonds and retire their note circulation.
Senator B ristow. But, then, Avould not that result in a contraction
of the currency if they took $750,000,000 of the national-bank notes
out of circulation?
Mr. J ones. Would it be necessary for the banks to borrow from
the Federal reserve banks in order to take out currency?
Senator B ristow. There is not any other way to get currency out.
Mr. J ones. We could build up our balances with them and demand
it in currency, couldn’t we?
Senator B ristow. N o ; the basis of the currency is 90-day paper;
that is the only basis for currency that this bill contemplates.
Mr. J ones. Could the Federal reserve banks under section 15 make
loans to commercial interests?
Senator N elson. N o ; only to banks.
Mr. J ones. I think you will find----Senator B ristow. It can discount paper.
Mr. J ones. I think you will find this section would permit them
to do so.
Senator B ristow. That is one of the controverted questions, as to
whether these regional banks are going into the open market.

2276

BANKING AND CURKENCY.

Senator H itchcock. It is agreed, I think, that the only purpose
for which a regional bank can go into the market and buy paper is
to establish the rate of discount which it has made—to force the
other banks to loan money at the rate it has established.
Mr. J ones. H ow is that, Senator?
Senator H itchcock. I say the only purpose for which the reserve
bank can go into the market and make loans or buy commercial paper
is to establish the interest rate which it has created; that is, to force
the other banks to loan at the rate which it establishes.
Mr. J ones. If it does do that, then it can issue currency against that
paper?
Senator H itchcock. Yes.
Mr. J ones. Then it will not be necessary for banks to borrow in
order for the Federal reserve banks to have assets against which cur
rency can be issued?
Senator R eed. N o ; this is what the Senator from Kansas means:
That if the $700,000,000 of national-bank notes are retired there
would then be a shortage in currency, and the banks, in order to get
money, would have to deposit their 90-day paper and call upon the
Government to issue currency against it. That was the suggestion
of the Senator from Kansas.
Senator B ristow. There is no other way of getting currency. But
Mr. Jones suggests that these Federal reserve banks could buy com
mercial paper and issue currency for it.
Mr. J ones. Yes; in order to meet the withdrawal of deposits that
may be built up, in excess of the o per cent reserve fund, for the
express purpose of demanding the currency. There would be no
other way to credit deposits.
Senator R eed. I should think that would be a very bad sort of
deal.
Mr. J ones. I am expressing myself in a personal way. We were
not delegated to talk about that, however, as representatives of the
country banks.
Senator H itchcock. They all agreed it should not be allowed to
go into the market and buy paper except possibly to establish the
interest rate.
Mr. J ones. Your bill does not say so; if they could buy it they
would come in competition with the banks.
Senator W eeks. Mr. Jones, this is not our bill; it is a bill that
has been sent to us which we are investigating.
Mr. J ones. That is the reason we are appealing to you to get it in
shape so it may be workable.
Senator B ristow. Mr. Jones, how much balance do you carry in
your reserve cities and in what cities do you have your reserve in
fact?
Mr. J ones. The United States National Bank of Denver keeps
about 20 per cent of its deposits in New York. St. Louis, and Chi
cago, divided between the three central reserve cities.
Senator R eld. H ow much in your bank as a reserve?
Mr. J ones. Usually nearly 15 per cent, and about 10 per cent more
scattered in other parts of the country, necessitated on account of col
lections, like at San Francisco and Kansas City.
Senator N elson. That is your exchange business?

B A N K I N G AN D CURRE NCY .

2277

Mr. J ones. N o ; necessitated on account of items we handle that
are cleared through those points.
Senator H itc h c o c k . It that an average amount?
Mr. J ones. I should say that is nearly so.
Senator H itch co ck . What is the total?
Mr. J ones. We generally keep 45 to 50 per cent reserve. In 1907
we closed the panic, what was called the panic, with nearly 58 per
cent reserve—not. legal; reserve but cash and all balances due from
banks.
Senator B ristow. If these regional banks should be established,
provided for in this bill, Colorado might be attached to San Fran
cisco or it might be St. Louis. In the event it was, or to New Orleans,
have you ever figured as to what effect it would have upon Denver
in the transferring of the reserves of the banks that are kept in Den
ver now to the regional reserve banks?
Mr. J ones. I believe that will be gone into by another member of
our delegation who has studied that matter and who is to follow me.
Senator B ristow. If that is the case I won’t ask that now.
Mr. J ones. I do not like to anticipate him. There are one or two
matters I would like to add to what I said yesterday covering one
or two questions asked me, with your indulgence. Answering the
Senator from Missouri, I think he was questioning as to whether it
would be possible to devise some plan to prevent the pyramiding of
deposits by prohibiting the bank receiving the deposits from the
first bank—where it originated—from reusing it. After giving the
matter some little study last night, I am confident there is not enough
cash in the country to provide sufficient reserves if such deposits were
to be held in cash by reserve or central reserve banks.
Senator N elson. Without using them?
Mr. J ones. Yes; without using them, if such banks were required
to hold such deposits in cash it would contract the currency beyond
conception and it would be wasteful and add to our present hoarding
system.
Senator R eed. At the same time, you recognize the fact that the
pyramiding of reserves impairs the actual utility of the reserves as
a reserve, do you not?
Mr. J ones. Not when things are working smoothly.
Senator R eed. Nothing is the trouble when everything is working
smoothly. That implies the absence of trouble, the very statement
of it.
Mr. J ones. That is true. I made the remark a moment ago we are
building up a big machinery to keep going all the time when we do
not need it. And, to be frank with you, I do not believe there is any
need of arguing whether the dividends should be 5 per cent or 6 per
cent. It might be wiser to figure as to the amount of assessments
that may be necessary to keep it going. I do not think under the
present plan there would be much dividends for us to quibble over,
unless you provide for the Federal reserve banks doing a general
banking business. That I would regret very much to see.
Senator H itch co ck . Where you said a moment ago a bank would
not be able to operate profitably and successfully, except by borrow
ing or rediscounting----Mr. J ones (interposing). A bank would not?

2278

B A N K I N G AND C U B E E N C Y .

Senator H itchcock. I understood you to say that under the system
which this bill proposes to establish a bank would be compelled to
rediscount pajier in order to operate profitably.
Mr. J ones. I said it might be necessary for the member banks to
become continual borrowers of the Federal reserve banks in order
that those banks might operate profitably.
Senator H itchcock. Oh, you are speaking of the reserve banks?
Mr. J ones. Yes, sir.
Senator H itchcock. I s it also true that in order that the reserve
bank might earn a dividend it would be required to adopt such a
policy as would procure currency from the Treasury? It could not
operate simply by the reserve deposits with it, could it. at a profit?
Mr. J ones. I thought that was the plan—that it should operate
upon the deposits of the Government and the deposits of the banks
and its own capital stock.
Senator H itchcock. Let us see: The law provides that it must
keep a reserve of one-third of all the money deposited with it. That
means that it can only lend out two-thirds of its deposits; do you
think that it would be able to operate at a profit when it only had
two-thirds of its deposits to lend and only had the demand for those
deposits at certain seasons of the year when banks required discounts?
Mr. J ones. We are getting into a very deep phase of the subject,
and I am confident the bankers of the large cities are more competent
to answer that than we of the country. I have been under the im
pression that the bank, to make a success, must loan its loanable
funds. To whom is it to loan its loanable funds? The intention, as
has been stated, is to reloan it to the banks. We object to our banks
becoming chronic borrowers, but they might have to become chronic
borrowers to make this a success as planned now with the great
machinery built up, unless the Federal reserve banks enter the field
as competitors of the existing banks.
Senator Nelson. Aside from that if they can not do a general
banking business, their whole discount business will simply be limited
to the demand for note issue, won't it?
Mr. J ones. It seems to me----Senator H itchcock (interposing). Before you go into that, let me
ask you this question: Besides being a stockholder in many country
banks you are a city banker, are you ?
Mr. J ones. I am so considered.
Senator H itchcock. In Denver. Now, can you give the committee
any idea of the cost of handling the business of the country banks?
You have a lot of country bank depositors, have you not?
Mr. J ones. Yes. The cost depends on how we handle the business,
as to whether we are allowed to charge their account with the items
we receive on their town or whether we must send them as funds
in transit and upon the interest paid on their balances, and as to the
average balance they carry and as to what items they send us, and
as to the territory they cover, whether within a limited area or
scattered over a large area.
Senator H itchcock. Under the terms of this bill the reserve bank
must credit the checks upon deposits.
• Mr. J ones. The gentleman to follow me has been delegated to go
into that feature.

B A N K I N G AND CU RRE N CY .

2279

Senator H itchcock. I s he going into the necessity for doing that ?
Mr. J ones. Yes; he has analyzed it for you.
Senator H itchcock. A s I understand this proposition, the reserve
bank becomes a clearing house for hundreds of banks and will be com
pelled to maintain a great force to handle the business of those re
serve banks; but if you are going to have somebody go into that I
would be glad to hear them.
Mr. J ones. Adding to the suggestion made yesterday that the
Federal reserve banks should take over the 2 per cent bonds of non
members or of such banks that prefer to give up their charters rather
than become members under the terms of the bill we would submit
that the Federal reserve banks should certainly take over the 2 per
cent bonds held by the banks that are now securing Government
deposits, because the Government deposits are to be transferred from
the banks to the Federal reserve banks. This we would like to im
press upon you, and to give you an illustration I will use my own
case: A few months ago I was notified that our bank was designated
a regular United States depository. We received a deposit under the
prevailing rules that had been established for years.
Senator N elson. H ow much was the deposit?
Mr. J ones. $50,000 was the amount we received, which I believe
was with interest at a nominal amount or without interest maybe..
Senator Nelson. One and a half?
Mr. J ones. Not at that time. We were asked to send down Gov
ernment bonds as security. Feeling we always wanted to help main
tain the market on twos, as we have always taken a pride in the
fact that our Government was floating a 2 per cent bond, we author
ized the purchase of 2 per cent bonds. They were purchased, we
paying 101| for them. They were deposited with the Secretary of
the Treasury as security for our deposit. Within o short time there
after we received notice that a new rule had been established and we
would have to pay 2 per cent on the deposit. Gentlemen, we are
paying 2 per cent on that deposit to-day, and the 2 per cent bonds
for which we paid a premium are with the Government as security.
Now, there are many other banks which hold Government deposits
on which they are paying 2 per cent, and many of which paid a
larger premium on the 2 per cents than we did. Now, these deposits
are to be removed to the Federal reserve banks, and in justice we
ask that the Federal reserve banks take these bonds on a par basis.
Senator H itchcock. Can you state what amount of 2 per cent
bonds are now held by the national banks to secure deposits?
Mr. J ones. I have not the information at hand.
Now, adding to the suggestion I made on behalf of the country
bankers yesterday to endeavor to devise some plan that does not
penalize the bank that does not feel it can afford to come in and to
make it as inviting as possible in order to build up that which the
country needs more than the banks, for the banks do not need relief
as much as the county needs it. We can protect ourselves, as has
been demonstrated, by contracting. The public always suffers more,
because we see the trouble and accentuate it and do get in shape to
protect ourselves better than the borrowing public can. I under
stand, by reading history, that at one time even religion was en
deavored to be forced bv coercion and not made attractive, and it
was never successful until it was made inviting and voluntary to the
S. Doc. 232, 63-1— vol 3-----23

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B A N K I N G AND C U R R E N C Y .

people. Now, I believe if something could be devised by which it
was made inviting and voluntary we could build up a system which
all would be glad to join.
,
Senator P omerene. D o you think there is an analogy between the
banking system and religion in this country ?
Mr. J ones. There may be an analogy between religion and any
thing else that is good for the people.
Senator N elson. Unless you assume that money is the root of all
evil. [Laughter.]
Mr. J ones. Another thing, gentlemen. We country bankers never
expect to have reprepresentation on the board, but we do believe that
there has been provided a sufficient banking representation on the
board. Now, I am speaking personally; not for the country bankers
at all. One of my reasons for it is we do not feel the machinery
will work smoothly without there are more men of approved bank
ing experience on the Federal board. We know what it is to go up
against theoretical and technical banking. If a good bank wants to
borrow from its correspondent on account of sudden need, it can
wire that correspondent it is sending sufficient securities to cover,
and the bank can get credit before the securities are received.
Senator N elson. But do not overlook how smoothly this bill
passed the House without the aid of bankers.
Mr. J ones (continuing). And we have asked, for the purpose of
protecting our capital stock there, that we be given more liberal
representation.
Senator N elson. Don’t you see how easy that could be done with
out the aid of the bankers? I mean the passing of the bill.
(No answer.)
Senator W eeks. Mr. Jones, do I understand you to say vour
Denver bank had 58 per cent of deposits in reserve at the end of the
panic?
Mr. J ones. Yes. But since I said that it has occurred to me it
might have been 52 per cent.
Senator W eeks. 52 per cent.
Air. J ones. Above 50 per cent.
Senator W eeks. H ow much did you have at the beginning of the
panic?
Mr. J ones. In speaking of reserve, I meant what we had in our
vaults and scattered over the country—actual reserve. We call it not
legal. We probably had 40 per cent.
Senator W eeks. Y ou increased your reserve 12 per cent?
Mr. J ones. Yes; I think so.
Senator W eeks. Where did you get it?
Mr. J ones. Commercial paper that was paid. We are quite a com
mercial paper buying bank and the maturity of our commercial
paper which was credited to our accounts with our eastern corre
spondents provided funds greater than demands upon us.
Senator W eeks. Then you did not reloan?
Air. J ones. We did not deny loans or renewals to local customers.
A loan that came to us from a regular bank correspondent or from a
local depositor—we did not deny them, because we knew our ground
on account of having so much commercial paper.
Senator W eeks. Y ou did not renew your loans that were bought?

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2281

Mr. J ones. We were not asked to renew outside commercial paper—
we protected our own community.
Senator W eeks. I would like to call the committee’s attention to
what happened in 190T. Here is a bank that certainly increased its
reserve more than 12 per cent. Now, the New York banks at the
beginning of the panic had $300,000,000 in reserves. If all the
country banks of the country had increased their reserves 12 per
cent, it would have taken more than $300,000,000 to have done it. In
other words, the New York banks would not have had any reserve
left if every country bank had increased their reserve as much as
did this country bank.
Mr. J ones. I beg your pardon; you do not understand the way
our reserves were increased. Our balances increased in New York
through the maturity of our commercial paper payable there.
Senator W eeks. I understand how you increased your reserve.
Mr. J ones. Our cash in vaults may not have increased.
Senator W eeks. That does not make any difference. The reserve
was increased 12 per cent by your bank. Somebody had to loan those
people who had paper maturing.
Mr. J ones. That is true.
Senator P omerene. If every bank had increased its reserve to that
extent, how much money would have been out in the hands of the
public—the pockets of the public?
Mr. J ones. How is that ?
Senator P omerene. I say, to change the question a little, if every
bank had increased its reserve 12 per cent during that panic, how
much would there have been out in actual use ?
Mr. J ones. We did not increase our cash reserve. Our cash reserve
may have been reduced, but our general reserve with other banks was
increased by reason of the maturity of outside paper.
Senator Nelson. D o you not know what they did with it? They
probably held it"?
Mr. J ones. They probably used it for the protection of their own
communities.
Senator S haerotii. The table was presented here by which it was
shown that the New York banks did not have as much reserve in the
panic of 1907 as the country banks. Very few’ banks has as much
reserve as the witness’s bank.
Senator R eed. Mr. Woodruff, will you take the stand?
We will now hear from Mr. Woodruff.
STATEMENT OF GEORGE WOODRUFF, PRESIDENT FIRST NA
TIONAL BANK, JOLIET, ILL.

Senator R eed. Mr. Woodruff, you appear as one of the representa
tives of this committee of country bankers?
Mr. W oodruff. Yes, sir.
Senator R eed. Where is your bank ?
Mr. W oodruff. My bank is the First National Bank of Joliet, 111.
Senator R eed. What is the capital?
Mr. W oodruff. $200,000.
Senator R eed. And the surplus?
Mr. W oodruff. $150,000.
Senator R eed. H ow long have you been in the banking business?

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B A N K I N G AND CU RRE N CY .

Mr. W oodruff. Ever since I was 5 years old.
Senator R eed. That is still a little indefinite, but I take it you have
been in some 12 or 15 years, at least. [Laughter.]
Mr. W oodruff. About 27 years.
Senator R eed. Y ou have been in the banking business practically
all your life?
Mr. W oodruff. I have been in the banking business practically all
my life; yes, sir. My father was in the banking business before me.
and when I was a little boy he put me in the business. I would spend
my vacations in the bank, and go to school at the same time. I have
been actively engaged as an officer of the bank for 10 years.
Senator R eed . I believe you have one particular thing you desire
to discuss, and I will thank you to go ahead with that now.
Mr. W oodruff. N ow, gentlemen of the committee, the committee
appointed by the country bankers have asked me to talk to you a few
minutes about the exchange section of the bill. So it seemed to me
it might be a good scheme for me to take it up briefly from five
different standpoints, and then I will be very glad to answer any
questions that I can. I desire to take it up first from the stand
point of the reserve bank itself, then from the standpoint of the
city bank, then from the standpoint of the country bank, and then
discuss the principle involved, and then suggest the changes that the
country bankers desire made in the bill.
Now, from the standpoint of the Federal reserve bank itself. We
have read the law over, and it seems, from the wording of the law.
that the reserve banks will be compelled under this act to accept at
par checks drawn by individual depositors upon any member bank,
and also the checks drawn by any member bank, which we will call
drafts, because that is what we call those checks drawn by one bank
against any other bank, and then in addition, of course, the bank
drafts of any bank upon any other Federal reserve association. So
there are three classes of checks or drafts involved in that provision.
From the standpoint of the Federal reserve bank, if it should attempt
to handle the personal checks, I believe it would be a very expensive
proposition.
In the first place, it would probably involve the taking over of
much of the so-called transit business bv the Federal reserve bank
from the member banks. Of course that business would consist only
of checks or transit items upon member banks, but that might be a
very large amount of business.
The reason the bankers asked me to talk was because I am a coun
try banker, and therefore interested from the standpoint of the
country banker, and also because I happened to clear a great many
of these items which come to country banks in my State. There are
about 200 country banks who send their business to me, and we
cooperate, and we make a small profit in handling the business.
We handle this out-of-town business through what we call a transit
department.
Now it is necessary for us to also have an analysis department,
because if we did not have some way of knowing whether we would
lose money or make money we would run our business at a loss.
Every bank which opens an account with mv bank—and it is also
true of reserve center banks—is listed in our analysis department,
and at the end of each month we have an analysis of all the business

B A N K I N G AND CU RRE N CY .

2283

we have handled for that bank. We figure the profits we have made
out of the handling of that business, and at the end of the month
we know how much we have made or lost.
In that connection I have the figures which I sent for the other
night, when the members of the committee asked me if I would talk
to you. I have the figures from our analysis department covering
this year’s operations, in which we have handled 799,420 individual
checks. That is the number of checks.
Senator H itc h c o c k . What time is that?
Mr. W oodruff. From January 1.
Senator H itc h c o c k . There were 799,420 checks?
Mr. W oodruff. Yes; down to the last of August.
Senator H itc h c o c k . H ow many months is that?
Mr. W oodruff. Eight months, amounting in the aggregate to
$29,900,000, I find that that cost me for overhead expenses, $12,600,
which means 42 cents a thousand for overhead expenses. Overhead
expense means the cost of the clerical help, stationery, postage, and
all of the expenses inside of the bank.
Senator H itc h c o c k . Y ou mean 42 cents per thousand checks?
Mr. W oodruff. N o, sir; per $1,000. That does not figure rent or
the expenses of the salaries of the overhead officers. The salaries of
the officers directly in charge of the out-of-town department are
figured in, but the other officers, the general officers of the bank, are
not figured in in figuring the overhead charge of the transit depart
ment. Neither is the rent.
Senator R eed . Y ou mean the president and the cashier; those
officers of the bank which you have anyway ?
Mr. W oodruff. They are not figured in. We had one vice presi
dent whose salary was figured in. An assistant cashier does the work
now and gives his exclusive time to this department.
Senator R e e d . The only thing you charge as overhead charge, a s
far as salaries are concerned, are the salaries of those men who ac
tually devote all their time to handling this particular branch of the
business? Am I right in that?
Mr. W oodruff. Yes, sir.
Senator R e e d . That is $12,600?
Mr. W oodruff. Yes, sir. Since I have been president of the bank
I have divided the bank into departments, and we have some degree
of segregation. We have our savings department and our commercial
department and our out-of-town department very well segregated,
although we do not segregate the investments, and consequently we
can divide our overhead expenses very accurately.
We find the cost of collecting that amount of business, which in
volves exchange charges and the loss of time in the mails would be
about $28,300, and I would estimate that to be about 94 cents.
Senator H itc h c o c k . 94 c e n ts p e r what?
Mr. W oodruff. Per $1,000.
Senator B ristow. What were the items of expense? This last
item----Mr. W oodruff (interposing). The last item covers the exchange
charges plus the loss of time in the mails.
Senator B ristow. That is the interest on the money while it is in
transit ?

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B A N K I N G AND C U R R E N C Y .

Mr. W oodruff. Yes. We figure $1,000 to be worth 14 cents per
day, that is, at 5 per cent interest. If you come into our bank and
cash a check on some bank that is five days away, we give you the
$1,000, as we would do whenever a man comes in and we know him.
We usually do not quibble about a matter like $1,000 if the man is
good, and we absorb the little loss. If he were a strangei we would
not do that.
It takes five days to get that back in cash. We have given him
cash for it. There would be a loss on those five days of 70 cents.
That is carefully figured in our analysis department. We figure how
long it is going to take to get that check back from actual experi
ence, and when it comes back we know how much time we lost in
collecting it; that is, we know how much money we lost, because
otherwise we could have loaned that amount at 5 per cent. We fig
ure a flat rate of 5 per cent. Sometimes wre get more and sometimes
less. We find a charge of 94 cents per $1,000 is o u r a v e r a g e cost.
Senator N e l s o n . Exchange and interest?
Mr. W o o d r u f f . Yes, sir; that is, interest and e x c h a n g e .
Senator R e e d . H o w much i s the exchange?
Mr. W o o d r u f f . We would allow about one-third as e x c h a n g e a n d
about two-thirds for loss of interest, because of time lost in the mails.
That gives you, roughly, a little idea of our experience from actual
business in handling a small amount of this business, and you can
easily figure wrhat a central reserve bank would have to consider in
handling a sum amounting to hundreds of millions of dollars. It
would amount to a tremendous expense, and in addition to that it
would be a tremendous undertaking to organize transit departments
that could even handle the business physically. We find that the
banks of this country, many of them, which have built up transit
departments have started them in a small way. Even in our little
bank down in the country, if we had to develop a transit department
and would have our volume of business suddenly thrown upon us, it
would necessitate very much loss to us, particularly from the stand
point of the organization of the department ; it would take a long
time to get that department organized.
Senator H i t c h c o c k . Y ou are clearing for about 2 0 0 State banks?
Mr. W oodruff. Yes; some State, some national, and some private
banks.
Senator H itchcock. All of Illinois?
Mr. W oodruff. Practically all.
Senator H itchcock. D o you handle all the checks that they send
out?
Mr. W oodruff. Yes, sir.
Senator H itchcock. And all the drafts made on them?
Mr. W oodruff. We would if we received any. You know there is
a difference between checks and drafts. A check is looked upon as
a personal check, a check which an individual draws against his
bank; and a draft we call a bank draft, which means that one bank
has drawn its draft against another bank.
Senator H itchcock. I want to know what you actually receive.
Suppose a bank in my town received a check from one of the Illinois
banks, would that go through your hands?
Mr. W oodruff. If the bank in your town had an account with me
and was using my bank as a clearing center.

B A N K I N G AN D CUK REN CY.

2285

Senator H itchcock. Suppose it had only an account with Chicago ?
Mr. Woodruff. It would not come near me.
Senator H itchcock. Y ou do not get all the checks on Illinois
banks ?
Mr. W oodruff. Of course not.
Senator H itchcock. The reserve bank located in Chicago would
get all the checks?
Mr. W oodruff. Yes; all the checks upon its members, because the
taw does not allow it to take any other checks. The transit depart
ments would remain as they always have, because there would be such
a vast amount of checks that would not go through the Federal re
serve bank anyway. They would divide all their transit business and
then dump in the Federal reserve bank all checks drawn upon mem
bers of the reserve bank.
Senator H itchcock. Have you any estimate of what that business
would amount to, if a reserve bank were located in Chicago and had,
say, 1,000 country members?
Mr. W oodruff. Of course, that would be a very hard thing to esti
mate, because there is no way of determining how much transit busi
ness is now handled in Chicago. I think, however, that I can give
you a formula that you could use to estimate that. I find that my
deposits from country banks amount to about a million and a half;
sometimes a little more and sometimes a little less. I find that we
clear every month a little better than twice that amount of items. If
you use that as a general rule, you will get somewhere near the truth.
The average reserve city bank probably handles about twice as
much per month in out-of-town items as is held in bank balances. Of
course that might not be true with many banks. Many banks might
have dormant balances and not be handling so many of the items.
Then in large city banks the local deposits would make the items
much greater in number. However, in our bank the monthly items
will average about twice the amount of the bank balances. That is
about the only estimate that could be made. I think that is about as
near as you could get to it.
Senator H itchcock. If the countrv balances in Chicago were
$75,000,000?
Mr. W oodruff. In such a case we would figure that there is prac
tically in the neighborhood of $150,000,000 of transit business passing
through the Chicago banks.
Senator H itchcock. That would be on the basis on which you are
doing business?
Mr. W oodruff. Yes, sir.
Senator H itchcock. This reserve bank would naturally handle not
only Illinois checks but outside checks, and therefore would it not
handle a much larger proportionate volume of business than you
handle?
Mr. W oodruff. I doubt it. The Federal reserve bank only handles
checks on its members, which would mean only the member banks
inside of that reserve district.
Senator H itchcock. Suppose it did handle in the same proportion,
which would be $150,000,000 a month, what would the overhead
charge on that be, on the same basis as yours?

2286

B A N K I N G AND CU R B E N C Y .

Mr. W oodruff. M y overhead cost, ta k in g the average all through,
is less than the overhead cost o f the average collecting b a n k ; th a t is,
42 cents per $1,000.

Senator H itchcock. What would that be on $150,000,000; that is,
in eight months? What would it be on $150,000,000? That would be
$63,000 per month, would it not?
Mr. W oodruff. That is the way I estimate it.
Senator H itchcock. What would the cost of collection, exchange,
and interest be?
Mr. W oodruff. 94 cents per $1,000 is my experience in Joliet.
Senator H itchcock. That would be about $130,000 on $150,000,000 ?
Mr. W oodruff. Of course, this $150,000,000 that we are estimating
on is, as I have explained, a very rough estimate, but it is the nearest
we can get.
Senator R eed. In making those figures you ought to take out the
one-third you pay for exchange, because, I take it, the regional banks
would not have to pay exchange.
Mr. W oodruff. We will discuss that in a moment. Answering
Senator Hitchcock, I think that amount would be $141,000. That is
the way I figure it.
Senator H itchcock. Then that would be a total of $204,000 a
month that would be the cost of operating a reserve bank in Chicago,
as far as the handling of checks and exchange is concerned?
Mr. W oodruff. Only provided we have that $150,000,000 a month.
Of course I feel that, as a matter of fact, the Federal reserve bank in
Chicago would handle more than that amount of these items.
Whether it would or not, I can not say. The bankers of Chicago
could give you more definite information on that point.
Another thing you must remember, the reserve bank will not take
all the business. It will only take the items on member banks within
the reserve district, and that makes a difference.
Senator H itchcock. What proportion of the total cost of operat
ing a reserve bank would be represented by this $200,000 a month?
What additional cost of operating can you estimate?
Mr. W oodruff. I do not quite understand what you mean.
Senator H itchcock. Would this $200,000 a month represent all the
cost of operating a reserve bank?
Mr. W oodruff. Oh, no. That $204,000 a month which you are
estimating would merely represent the cost of handling $150,000,000
of checks per month. Of course, that department is entirely separate
from the general expense of operating a Federal reserve bank. I am
only discussing the exchange section.
Senator H itchcock. Y ou are not in a position to make an estimate
except on that exchange section; to estimate what additional monthly
cost there would be in operating such a reserve bank ?
Mr. W oodruff. That would be impossible, because you do not know
how many employees you would have to have and how much space
you would have to have, and things of that kind. Of course, you
would have to have a large amount of space to have a transit depart
ment which could handle this business. It is impossible to say how
much it would cost to operate the bank. Other bankers coul(i give
you a better estimate as to their exact cost on that large business.
Senator R eed. Y ou are n ot estim atin g the cost for clerk hire alone
$200,000 a m onth ?

B A N K I N G AN D CU RRE N CY .

228 7

Mr. W oodruff. For all the expense of handling $150,000,000 of
checks. If you will pardon me for suggesting, suppose I go ahead
and come back to that, and take the next point now.
Senator P omerene. I want to ask you one question right there.
You stated awhile ago that if a customer presented his check for
$1,000 and it would require five days to collect that check, and you
gave him the money, the cost would be 14 cents a day, as I recollect
your statement?
Mr. W oodruff. That is 5 per cent on $1,000 for one day.
Senator P omerene. For instance, if I deposited $1,000 in your
bank and issued checks on it, and it required five days for the return
of those checks to vour bank for payment, you do not take into con
sideration the profits you would have on the $1,000 during those five
da vs ?
Mr. W OODRUFF. Xo, sir.
Senator W eeks. H ow much of the cost is for postage ?
Mr. W oodruff. That is a thing I can not tell you, because I have
not the detail figures. I have them at home, but I have not them
here, and I would not like to guess on that.
Senator S hafroth. Does not the gain which a bank makes on
checks drawn by its own depositors, and which would take five days
to come back to be cashed by you—-does not the gain which the bank
makes on that about offset the loss which it makes by advancing
money on checks coming in?
Mr. W oodruff. In my case, it would not compensate in any way.
Senator S hafroth. H ow about the average bank? Would it not
be about that way in the average bank not having a special clearing
department like yours?
Mr. W oodruff. Well, I doubt that very much. Of course, it is im
possible for a bank to know what checks are outstanding, and you
must remember also that many banks pay interest on these accounts.
For instance, if you deposit $1,000 with me and then you send out
a check for $1,000 that takes five days to get back—and five days is
not the average time; it is merely the time I took in that example.
Suppose it did take five days to get back. Perhaps you are getting 2
per cent on your balance during that time.
Senator S hafroth. S o the loss would only be the difference be
tween 5 and 2 per cent?
Mr. W oodruff. I doubt very much whether the outstanding checks
in the mail would compensate the banks. The bank feels it is en
titled to the balance which a man puts in. There is a very prevalent
habit on the part of individuals to draw checks before they put the
money in the banks. A man may figure it is going to take five days
to get the check back, and he may not put the money in the bank until
four days after he draws it.
Suppose I just go along and discuss these other things, and we
will have the subject in mind better.
Gentlemen, I feel that from the standpoint of the Federal reserve
bank, this will be a very expensive proposition, and will be very em
barrassing for the bank to handle. I t will be hard to build up the
organization.
I understand by this bill that the framers of the bill feel that the
reserve banks will accept these individual checks at par and will

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B A N K I N G AND C U R R E N C Y .

compel its depositors to cash them at par, allowing no exchange
charge, and that instead of sending them for collection, that they
will immediately charge them against the account of the depositor.
It does not say that in the bill, and personally I have wondered what
right the Federal reserve bank is going to have to do that. But it
seems to be the general impression that the bank will have the power
ro do that under this bill; that when it gets the check drawn against
the bank out in the country it will immediately charge that check
against the balance that is due to that bank in the country, and then
it will send it on to that bank in the country which can not collect
any exchange. Of course the check is not drawn on the Federal
reserve bank; it is drawn on the country bank, and I can not see
what right the reserve bank would have to charge it against the
account of the country bank. The impression seems to be that the
framers of the bill feel confident that the bank can do that.
Senator R eed. Suppose a man drew a check on his bank in Springfield, 111., and deposited that check with your bank in Joliet, and your
bank accepted it and then sent it to the reserve bank in Chicago,
and the reserve bank in Chicago would credit your account with that
check and charge that check to the Springfield bank’s balance. That
is your idea?
Mr. W oodruff. Yes, sir.
Senator R eed. And the check might go to the Springfield bank
and come back, in which event the reserve bank would have to hold
you responsible?
Mr. W oodruff. Yes, sir.
Senator R eed. And get the money back. Is there any other ob
jection to the system except that in regard to the cost?
Mr. W oodruff. Oh, yes. I am coming to the others.
Senator R eed. I mean to that particular transaction; would there
be any other trouble in the way?
Mr. W oodruff. I can not understand under this bill what right
the Federal reserve bank would have to charge that to the account
of the Springfield bank. The check is not against the reserve bank,
and I can not see how it can be presented for payment without being
presented at the counter of the Springfield bank. Many reserve
city banks at this time try to do that with their correspondents.
We have had reserve city banks try to do this, but we refuse to allow
them to charge checks against our account, because the checks are
payable at our counter, and consequently they must send them to
us and we will remit for them.
Senator O’Gorman. What would be the personal advantage to
you under the present system in meeting these checks at your counter
rather than have them charged against you by the reserve bank?
Mr. W o o d r u f f . N ow, I was going to explain that under another
head.
Senator O’Gorman. Does it not mean that you really have the use
of the money a little longer time?
Mr. W oodruff. Yes, sir.
Senator O’Gorman. That is the only advantage?
Mr. W oodruff. N o, sir.
Senator O’Gorman. What other advantage is there?
Mr. W oodruff. If the reserve city bank, in the example I have just
given, charges the check against us and then sends it down to us, we

B A N K I N G AN D CU RRE N CY .

2289

never know what our balance is in the reserve city bank. We may
have $50,000 on deposit and our books show $50,000 to our credit in
the reserve city bank, and we are carrying that as a reserve; and
yet, to-day that reserve city bank, many miles away, may have
$60,000 worth of checks come in to it drawn against us. They imme
diately debit our account and our account is consequently $10,000
overdrawn, and yet on our books we have $50,000 in cash in that
bank. We get a telegram stating that our account is overdrawn; and
such a case has actually happened with us. We had an account on
our books showing that we had $50,000 in the reserve city bank.
Four days afterwards we get in the items that have come through
and a notice showing that they have debited so much money against
out account without our knowledge. The correspondent bank has
had trouble with our overdraft. Perhaps some of those checks an
il ot even good checks, and we have to send them back again to the
reserve center, in which case our money has been used and our reserve
has been depleted without even our knowledge by checks that were
worthless.
Senator H itchcock. And then you may possibly have to send cur
rency on and pay the express charges on the currency sent to that
reserve center; instead of paying the money over your counter, you
may be compelled to do that?
Mr. W oodruff. That might perhaps be. Of course, we might have
to ship currency in order to make our balance good. We sometimes
have to do that, although usually we horse trade with another bank,
and as a matter of fact very seldom ship currency. That happens
to be our position in Joliet, because we are near Chicago. Now.
gentlemen, I desire to discuss this from the standpoint of the city
bank. That is the second point I have in mind.
We find it would be very profitable for the city bank, because the
city bank now has a large transit department handling this business.
It would hand over a part of this business to the Federal reserve
bank and have it credited at once and would save the loss in the mail
and also the exchange which it now pays, and, in addition, it would
save a large amount of overhead expense, because it would merely
record the items and send them to the reserve bank in one package.
From the standpoint of the city banker it would be a very good
proposition, and the city bankers could make money out of this
provision.
From the standpoint of the country banker—nearly all that I said
a moment ago in reply to the questions of the Senators applies to the
country banker. The country bank would have these items charged
against its account without its knowledge, as I have explained. Then,
it would be compelled to take these items at par if I understand the
intention of the framers of the bill correctly. At the present time
the country banks get exchange for this. There are two different
kinds of exchange, and I think that sometimes we get those two dif
ferent kinds of exchange mixed up. There is an exchange a banker
charges his correspondents on checks drawn against him, and there
is also the exchange that a bank charges people who come in to cash
checks on some other bank. There is a difference between the two
kinds of exchange. Perhaps I can illustrate that better by an ex
ample.

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Suppose a man comes into my bank in Joliet and he says, “ I have
a check on San Francisco for $1,000 that I want to. deposit,” and I
say, “All right: I am very glad to accept that on deposit,” and he
puts it in. I figure that my loss on that will be 10 days, and it costs
me 14 cents a day, and that is therefore worth $1.40 and that is only
provided I do not have to pay any charges in San Francisco. Per
haps I say to him, “ That will cost you $1.50 in exchange.” In most
small towns competition makes it impossible to make that charge,
and consequently we absorb that charge. In other towns, where
the banks have done that and have found that it ate up their profits,
they had to make a clearing-house arrangement, and therefore we
find the much-talked about clearing-house agreements in the reserve
centers. But in my town, suppose competition does not compel
me to absorb that charge, and I say to that man, “ It will cost you
$1.50 a thousand.” That is what is known as charging the customer
exchange, and that is provided for by the section on page 33 of this
bill which says that nothing in this bill shall be construed to forbid
that. That is now the kind of exchange that is practiced by the re
serve centers through clearing-house agreements.
That check goes to San Francisco and I get the money back in 10
days, and if I get it at par, all right, and consequently we feel we
have a right to make that charge.
The other kind of exchange would be wdiere a man would come into
my bank—let us follow’ out the same example. I send that check to
San Francisco. When the San Francisco banker gets that he says,
“ Well, I have got to remit down there to Woodruff this $1,000, and
New York exchange is at a premium, and I have to send him eastern
exchange. He has got to get his money East.” He says, “ I have got
to be out a 2-cent stamp*and I have got to send him this eastern draft,
and consequently I feel I ought to be entitled to an exchange charge.”
Therefore he charges me, we will say, $1 for doing it, or maybe 10
cents. Those charges vary in all kinds of ways. He makes that
charge and he remits to me. That is the other kind of exchange,
and that is the exchange the country banker is interested in. When
you send checks for collection on the country banker he wants to
charge an exchange for them wrhen he remits outside, because they
are payable at his counter. If a man walks into the bank and gets
cash, that is all right. If a man sends in by mail and the banker
has to send the money by draft, he wants to charge a little something
for doing that work.
Senator H itchcock. What is the ordinary charge?
Mr. W oodruff. The transit business is a horse-trade business. In
my transit business I have very many different kinds of charges, and
it would take a long time to explain them all to you. We have in
our transit department an alphabetical index of all banks we remit
to. On each card there is a letter or figure, and the man in charge of
that department commits those to memory. They might be X Y. and
that might mean 5 cents a letter. Perhaps some banker down the
State is friendly with us, and we say here suppose you take our
business down there. You do not care; it will come from somewhere
else anyhow. Suppose you take it and charge us 5 cents a letter, no
matter how much comes down; you only have to draw one draft,
anyhow. He says will you do the same for me, and we say yes,

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and we practice a little cooperation, and maybe we will make a
charge of 5 cents a letter. It may be that the letters X Y mean that.
And then, perhaps the letter M means 10 cents a letter, and per
haps the letters A B mean 10 cents a thousand or maybe a dollar a
thousand. A dollar a thousand is looked upon as a standard, al
though in some parts of the country it is as high as $2.50 a thousand.
But there is a minimum charge. A man will say, for instance, I
will take your business at $1 a thousand, with a minimum charge of
10 cents. A dollar a thousand means 10 cents a hundred. Suppose
a $10 check comes in, and he charges 10 cents on th a t; of course that
would figure at the rate of $10 a thousand.
Senator Shafroth. What do you think of fixing a maximum that
they can make?
Mr. W oodruff. If you will forgive me for suggesting, I would
like to discuss that a little farther along.
Now, I was discussing this from the standpoint of the country
banker. Have I made myself clear in regard to the different kinds
of exchange?
Senator S hafroth. It is clear to me.
Mr. W oodruff. The country banker feels that he ought to get paid
for that work, if that check is not presented at his counter. He
feels that the item ought not to be charged against his account with
out his knowing something about it. He feels that he ought to get
a little money for this business because everybody else does. The
express companies do not send money for nothing; the telegraph
companies do not send it for nothing; and the United States Gov
ernment makes the largest charge of all for its post-office money
orders. The Government can not afford to send that money and
remit it to different places for nothing, and the country banker feels
that the principle involved is much the same.
Senator S hafroth. It costs mone}’' to handle money through the
Post Office Department, and do you not think this system, when it
is organized, will be such that the business can be done without any
expense ?
Mr. W oodruff. I regret that I can not say that I believe that to
be true. I will touch upon that a little farther down, Senator.
Now, I want to take up the question of the principles involved.
You know here again we find two subdivisions of this question that
we want to try to get clearly in mind.
Now, there is a difference between facilitating exchange and cash
ing personal checks. I tried at the start to make that difference
plain, by calling bank checks “ drafts,” because usually in the par
lance of banking we call them bank drafts. The checks that are
drawn by banks, that are the checks of the bank itself and signed by
one of its officers, we call bank drafts, and checks that are simply
signed by individual depositors we call individual checks, and that
separates the two classes.
Now, there are two principles involved here: First, the facilitation
of exchange. That means that in this country we should make it
easy to transmit sums of money from one place to another. That
we all want, and that ought to be done, and that is a thing that is
hard to do now. We have domestic exchange premiums and dis
counts to-day, and sometimes they are very burdensome. We ought
to facilitate exchange.

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Then the other thing is the cashing or rather the clearing of per
sonal checks. That is a thing that I doubt very much should be
done. The difference is just this: If we leave in this bill the pro
vision in regard to personal checks, we help to encourage in this
country the flotation of a large number of personal checks. Bankers
differ upon that, but we believe that to be wrong in principle. We
believe personal checks were designed for the use of the community
where the maker is fairly well known, where conditions are under
stood, and where the check will get right back to the bank. They
were never supposed to be floating around over large areas, encour
aging what we call the “ kiting ” of checks, a thing that causes many
losses and a very bad situation in the banking business. If we encour
age the sending out of these personal checks a man who has no money
in the bank can pay a bill five or six days away with a personal check
and never bother about putting any money in the bank until the check
comes back. You realize that in the meantime, under this bill, a
very bad situation might be created.
A man who had perhaps $10 in the bank would draw a check for
$1,000, and would send it to some place, say, three days away. It
would come to the reserve bank, and the reserve bank would charge
that to the account of the bank upon which it was drawn. The
bank would therefore be out that $1,000 immediately, but the check
would not come back to the bank for three days, and perhaps the man
who gave the check in the first place would not bother about putting
in the $1,000 until the three days had elapsed, and the bank would
be out the use of the money for three days.
Senator R eed. And the man that drew the check would be out of
the country?
Mr. W oodruff. That occasionally happens. We hate to acknowl
edge it, but it sometimes does happen.
Senator R eed. Y ou think that is facilitating fraud?
Mr. W oodruff. That facilitates transportation to Canada, sir.
Now, we do not believe we should encourage that sort of thing.
We believe we should discourage these little personal checks as much
as we can, and limit them to small areas. We will get around that
by facilitating exchange, and now we get to the thing we should have.
Instead of allowing the very little fellow who happens to have a bank
account to draw checks and send them all over the face of the earth,
as this would tend to encourage him to do, and as is largely done
now, suppose we provide what is already provided in this bill, that
bank drafts of member banks, drawn against any other member
banks, shall be received at par, and that bank drafts drawn by any
bank against any Federal reserve bank shall be received at par.
That would make it possible for any bank draft to be received prac
tically every place at par.
Now, let us see how that would work. Suppose that John Smith,
who is a little merchant in my town of Joliet, has no money in the
bank, and he pays a bill down in Kokomo, Ind., with a personal
check. All the bad things I have been telling you about may happen
under that arrangement. Suppose we can say to John Smith, “ Now.
those checks do not go through the Federal reserve bank at par. and
consequently there is a good deal of difficulty in connection with
them when they are sent away from home.” He will be discouraged
from using those checks for long-distance payments, and furthermore

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2293

the people down in Kokomo will write and tell him they do not want
a personal check; they want a draft provided these drafts are easy
to get and are par at every place. That is what we want, and this
law amended as we suggest would make that so.
Now, suppose he does the other thing, that this law is drawn as
suggested by our committee, and he is encouraged in every way to
give a bank draft. Well, John Smith comes down to my bank, and
he says, “ Mr. Woodruff, I want to remit $1,000 down to Kokomo, and
I want a bank draft.” I can give him my bank draft, signed by my
cashier, upon any other bank that happens to be a member of my
reserve district, and it will go at par; or I can give him a draft
against the Federal reserve bank, and that, of course, would go at
par any place in America, We sometimes use New York exchange
now; usually use New York exchange for doing that. New York
exchange goes all over America, just as I figure these drafts on Fed
eral reserve banks would go all over America, but the trouble with
that New York exchange is that there is oftentimes a heavy charge
for those New York drafts, because New York exchange is at a big
premium, for instance, at certain seasons in Texas.
Under the arrangement -which we propose the exchange would
never cost much because the reserve bank would always be near at
hand, and everybody will know that those bank drafts are accepted at
par, and consequently I do not think there is going to be much chance
to make any charge to John Smith.
Senator R eed. Would you object to the bill providing that a bank
could issue drafts without charge?
Mr. W oodruff. I think that is a very good suggestion, personally.
I do not believe that the country bankers as a whole would approve
that. I am being very frank with you on this subject. I think prob
ably many country bankers would want to make some small charge,
because they think they should make a little out of that business.
Senator R eed. Let me ask you another question on that point.
That necessity for a small charge is felt most keenly by the very
small country bankers is it not?
Mr. W oodruff. Yes, sir.
Senator R eed. That is, a bank that is confined to a little local com

munity, and is one of those banks that somebody described here as a
“ one-man bank? ”
Mr. W oodruff. Yes, sir.
Senator R eed. Where one man is cashier, janitor, bookkeeper, and
everything else?
Mr. W oodruff. We have lots of those.
Senator R eed. Where a small income becomes material, and yet it
is a very good thing in a community, I take it, especially in these
little towns that have only one bank?
Mr. W oodruff. Yes, sir.
Senator R eed. N ow, would the banks object if, as to that class of
banks, the very small banks, there was permission given for a maxi
mum charge, which would be very low, for the issuing of drafts, and
the other classes of banks required to furnish the drafts free?
Mr. W oodruff. Personally, and I speak only for myself, I would
have no objection to that. But remember; do not get the two kinds
of exchange confused. Remember this is a charge for drafts that are

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issued to customers, and we are coming back to this other kind of
exchange in a minute.
Senator B ristow. Mr. Woodruff, before you leave that let me say
I am afraid you do not appreciate fully how convenient it is for a
business man, we will sav at Salina, Ivans., who has a bill due on the
1st day of November at Chicago, to draw his check on the 31st day
of October and mail it, and depend on his collections on the 1st to
replenish his account in the local bank.
Mr. W oodruff. Senator, I certainly appreciate how convenient
that is. We have that to contend with all the time. He sometimes
does not get in his collections to replenish his account, and that is the
trouble.
Senator S hafroth. That is wrong; he ought not to do that.
Mr. W oodruff. That is one of the difficulties we have to contend
with.
Senator N elson. But, Mr. Woodruff, take the case you put. The
man, instead of coming to you with his check, or drawing his check
to remit to his customer at Kokomo—if, instead of that, you would
encourage him to buy a draft from you and you charge nothing for
that draft, you would not gain anything by the operation? Your
bank would not gain anything?
Mr. W oodruff. N o, sir.

Senator N elson. If, instead of sending a check on your bank to
that customer, he came into your bank and bought a draft from you
and you charged him nothing for it, you would be making nothing?
Mr. W oodruff. That is perfectly true.
Senator S hafroth. Y ou would have the use of the money a little
longer.
Mr. W oodruff. Perhaps a day, until our draft could get into the
reserve bank. There is no doubt that I personally would make more
money by letting them draw their checks if I can keep them from
skinning me in the meantime.
Senator N elson. S o there would not be any saving in that opera
tion?
Mr. W oodruff. Not for the banker.
Senator N elson. Suppose you furnished the draft at cost?
Mr. W oodruff. A s a matter of fact we never charge for a draft to
a customer over the counter, because we consider it good business to
encourage them to do business that way. And, by making these
drafts go at par, as would be done by this bill as amended in accord
ance with the suggestion of this committee, we feel it would not be
necessary to limit the charge, because it would be known that a bank
draft drawn against any member bank or drawn against the Federal
reserve bank was free, and I think competition would curb any
charges. For competitive reasons it would be impossible to make
them. For competitive reasons we never make a charge for a New
York d ra ft; it is good business to encourage people to come into our
bank.
Senator S hafroth. What percentage of the checks drawn on your
account would you regard as having been drawn on the kiting prin
ciple?
Mr. W oodruff. That is a very hard thing to answer. We have
every day in the volume of business we handle a number of checks that
come back. To come back to the first principle I spoke about—the

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2295

Federal reserve bank—you must remember that the clerical department
necessary to handle the hundreds of returned checks that would come
back because of insufficient funds, because of improper indorsements,
because of wrong signatures, because of not being signed, because of
being dated ahead—that the hundreds and thousands of those checks
that would have to be credited back to the bank would involve, of
course, a very large clerical force, and many chances for error.
S e n a t o r O ’G o r m a n . Will you permit a question right there? Have
you any idea what is the average amount of checks cleared through
the New York Clearing House in a month?
Mr. W oodruff. N o, sir; that is a thing we tried to get at on the
start—where I estimated $150,000,000. It is hard to get at, but I
think you could get it from the officers of those reserve centers them
selves.
Senator O’G orman. Y ou have no doubt, I assume, that it exceeds
$150,000,000 a month?
Mr. W oodruff . I feel that there is no doubt that it does.
Senator O’G orman. D o you know whether the clerical force of the
clearing house there finds any difficulty in disposing of that business?
Mr. W oodruff. The clearing house. Senator, never sees those items.
They are handled through transit departments. They never go to
the clearing house. Clearing houses never touch out-of-town indi
vidual checks.
Senator O ’G orman. I have reference to the value of the business
represented bv the checks that actually are cleared in the New York
clearing house.
Mr. W oodruff. That is a thing you can easily get from the reports
of the New York clearing house, but it does not refer to this question
in any wav. There is no exchange involved there whatever. Those
are local checks.
Senator O’G orman. And consequently the item o f expense would
not be comparable?
Mr. W oodruff. It could not be compared in any way, sir.
Senator N elson. I do not understand that the New York clearing
house clears out-of-town checks.
Mr. W oodruff. N o , sir; that is the point I make.
Senator S hafroth. Every other town does that has a clearing
house, does it not?
Mr. W oodruff. N o town in America.
Senator S hafroth. Y ou mean the checks that come through the
Denver banks from outside are not collected in the Denver clearing
house ?
Mr. W oodruff. Only the checks on Denver. There is just one ex
ception to that, and that is in connection with what they call the
out-of-town clearing department operated in Boston. That has been
very successful, and I will try to remember to speak about that in a
minute.
Senator S hafroth. Are there any statistics as to the amount of
out-of-town checks that come into these various clearing houses?
Mr. W oodruff. Out-of-town checks do not come into the clearing
houses, sir; they are handled in the individual banks. When you
spoke a little while ago, Senator, of $150,000,000 a month, you based
that on $75,000,000 bank deposits in the city of Chicago. You realize,
S. Doc. 232. 63-1— vol 3----- 24

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of course, that the city of Chicago has a very much larger amount of
bank balances than that. I want to make that clear.
Senator H itchcock. I estimated that it would be $150,000,000 a
month for 1,000 banks, in proportion to the 200 banks for which you
clear.
Mr. W oodruff. I understand. That will give you a very rough
estimate, because those banks keep fairly small balances compared
with the balances they would keep in Chicago.
Senator H itchcock. Y ou think that the $150,000,000 a month
would not be a sufficiently high estimate?
Mr. W oodruff. I simply can not estimate it, because I just simply
do not know, and I am getting at it in such a rough way that I want
to impress upon you that it is not an accurate estimate. You can
get estimates by communicating with the manager of the Chicago or
New York Clearing House. I can only tell you that that is an esti
mate based on my actual experience in Joilet, and that might not
refer to New York or Chicago.
Senator H itchcock. Y ou do feel, however, that 42 cents per $1,000
and 94 cents per $1,000 for the cost of collecting interest and exchange
would be about right?
Mr. W oodruff. Yes, sir.
Senator H itchcock. Regardless of the size of the Chicago con
cerns ?
Mr. W oodruff. I think so.
Senator N elson. What is the total of the two together?
Senator H itchcock. The total of 42 and 94? It is $1.36.
Senator R eed. From which, of course, ought to be deducted any
part which is now included as exchange, which would be unnecessary
to pay under this bill, because this is supposed to de away with the
exchange charge.
Mr. W oodruff. Yes, sir.
Senator H itchcock. Let us see if it will do away with the exchange
charge. Would it not be necessary occasionally----Mr. W oodruff. Will you let me take that up in just a minute.
Senator? I want to take up these matters in logical order, if I can.
You remember we were talking about the principles involved and
we figured it would be a good scheme to facilitate exchange: that a
man would go down to the bank and pay his bills with a draft instead
of sending his personal check, and you, Senator, suggested that it
might, perhaps, be more convenient to send a check the other way,
and I called your attention to the fact that oftentimes they did
find it more convenient.
In addition to that, there comes the question of right and wrong,
and the easier wTay to do things. This same fellow, John Smith,
can come down to my bank, for instance, and get a draft for nothing,
and that settles the whole transaction. He has to have the money
when he comes down, and we know therefore there is no check kiting.
He gets the draft. The draft is sent to Kokoma, charged against our
account in the nearby Federal reserve bank, and the transaction is
finished. The only trouble John Smith had was that he had to walk
down to my bank, maybe five blocks. Is it not better to allow John
Smith to walk five blocks down to my bank and get a draft than to
let him send a check down to Kokoma and then, figuratively, make
those fellows walk all the way from Kokoma to Joilet? Actually

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they do it by mail, but figuratively, they walk from Kokomo to my
bank to get exchange on that check.
Senator B ristow. That system has grown up through the consent
and acquiescence and cooperation of the banks. And the business
men—very creditable business men—will figure at times that if they
owe a bill at a distant city they will take advantage of this accom
modation, and the house with which they are dealing in the city
understands it, and the bank with which that house has its account
understands it. The system may be used by those that are fraudu
lently inclined at times, but don’t you think that it has been useful
and convenient and that you would be depriving a great many busi
ness men of a facility which their bank had been perfectly willing for
them to exercise and of which it has never made any complaint ?
Mr. W oodruff. Senator, any change in this plan will cost me con
siderable money, but nevertheless I tell you that I consider the sys
tem wrong. That system has been built up by the competition of the
bankers and with the acquiescence of the bankers, but we do it be
cause we are in competition.
Senator B ristow. Don’t you think you ought to stand a little com
petition as well as the merchant who has to stand it?
Mr. W oodruff. Yes; but that is not the point involved. We have
plenty of competition, as has been brought out by the fact that we
are competing so strongly we allow people to do this. But I con
sider the principle wrong. Out of it grows the discontent with the
clearing-house rules. The banks, for competitive reasons, were com
pelled to go into this, and then they were forced to make these clear
ing-house agreements in order to protect themselves from loss.
Senator B ristow. We are very proud, at least some of us are, of the
banking system we have in this country. It is a great, democratic
banking system. There are thousands of independent banks, and it
is a competitive system. In most of the towns the banks are intense
competitors for business, and that is one of the things that some of
us believe ought to be maintained. That is why many of us look
with suspicion at some of the provisions in this bill.
Mr. W oodruff. I can only answer your question by saying I feel
this provision is wrong in principle, Senator, and my reasons I have
already tried to explain.
Senator S hafrotii. The principal virtue. I think, in a man giving
a check to pa}r a bill is that when he gets it back he has the signature
of the man on the back of it. That is always in his possession, but
if he has to go and trace it through drafts it is not so convenient.
Mr. W oodruff. It is not so convenient, but he can always get it:
Senator S hafroth. Certainly, that is true.
Senator N elson. His indorsement on the draft will be his receipt.
Senator S hafrotii. But the draft is not in his possession.
Senator N elson. I t goes back to the bank; it can be got from the
bank that issued the draft.
Senator H itchcock. I should like to ask a question right there.

What is to prevent a trust company not in this new system using this
facility through a member bank and thus getting its exchange free
of any charge?
Mr. W oodruff. There is nothing to prevent, sir.
Senator H itchcock. A trust company, then, in Chicago could
demand of a national bank there a check or a draft upon the reserve

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bank there, and when it got that check it could send it to San Fran
cisco where it would be worth par and the Chicago trust company
would therefore pay nothing for its exchange, although it did not
belong to the system.
Mr. Woodruff. We would not object to that, because proper fa
cility of exchange is a good thing. What we would object to is the
trust company in Chicago making an arrangement with a member
bank and then dumping all its items for collection into that member
bank and that member bank dumping them into the Federal reserve
bank and the reserve bank being compelled to handle them for
nothing.
Senator H itchcock. How can you stop that ?
Mr. W oodruff. Bv barring checks bearing the indorsement of a
nonmember. Now, if we leave the law as it is, let us see who gets
hurt----Senator H itchcock (interposing). You mean, as it is in the bill?
Mr. W oodruff. Yes, sir. Suppose we leave it as it is and see who
gets hurt. John Smith, down in Joliet, draws his check, and he pays
this bill down in Kokomo, and the Kokomo fellow goes and presents
it at his bank—deposits it. Now, under this bill he might deposit it
at par, while to-day perhaps there would be some exchange charge.
If competition is keen there may be no charge anyhow. At any rate,
he might gain a little bit there although this laAv allows the bank
in Kokomo to charge—because it says nothing shall be construed to
prohibit the bank from charging. At any rate, it is put into that
bank. The bank at Kokomo turns it over to its Federal reserve bank.
It would be a better example if I say that John Smith in Joliet
draws his check in Joliet and sends it to Chicago, and the Chicago
bank turns it into this Federal reserve bank. The Chicago bank may
perhaps attempt to charge its customer exchange, because there is
nothing in the law that will make it take that at par. It turns it
into the Federal reserve bank and the reserve bank will have to take
it for nothing. Consequently the Chicago bank gains, because the
Chicago bank is relieved of the cost of handling the check. The
Federal reserve bank immediately charges it against the country
bank. That is, of course, a hardship upon me right away, because it
is charged against me without my knowledge and is charged against
me without allowing me any exchange. Therefore I am beat out of
the exchange, and I have the item charged against me several days
before I now have it charged against me. When it comes back down
to Joliet, of course, I might add 10 cents to it, but the customer will
not stand for that and consequently I am the man that loses.
Now, suppose we made a charge, a minimum charge of $1 as some
Senators suggested here a little whole ago. Then John Smith draws
his check; it goes to Chicago; the Chicago firm deposits it in the Chi
cago bank, and they deposit in the Federal reserve bank, and every
thing is just the same. Then the Federal reserve bank sends it to me.
and I charge them $1. That dollar has got to lie absorbed by the
Federal reserve bank. I would be better off, I suppose, because I get
my dollar, but the reserve bank would have to absorb that dollar.
Suppose the reserve bank should charge the dollar back against
the depositing bank in Chicago.
The great trouble with that would be that the Chicago depositing
bank would probably not deposit very many items in the Federal

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reserve bank under those conditions, because the banks that come into
the reserve system are going to be the banks that now do not make a
very large charge; they are going to be the larger banks, the national
banks. Consequently, the Chicago bank would probably collect this
for less than a dollar; once in a while they might get down to this
one-third of 94 cents that I suggested. It could beat the price that
the P"ederal reserve bank would be quoting. But the large charges
are made bv little banks in the country, oftentimes private banks,
very seldom national banks, and almost sure not to be in this system
at all. Consequently, if you charge the dollar back to the Chicago
bank I do not believe this scheme would work at all.
That provides for both those contingencies, and when we get down
to brass tacks, it seems to me the Federal reserve bank has got to do
one of two things: They have to cut this question of individual checks
entirely out—and remember, they never can handle all the individual
checks; they can only handle those upon member banks. There are
always going to be a lot of little private banks that are not members
of this system; out in my State we have some 500 or 600 of them.
Those checks that are hard to collect would never go to the Federal
reserve bank, and we are never going to have a complete collecting
bank or clearing house. The items will always have to be divided
anyhow, and the Federal reserve bank, at best, could only take part.
Therefore, the best thing in our minds is for the Federal reserve
bank not to handle personal checks at all, but to facilitate exchange
so that a man can always go to a bank and get it. If a man wants,
for convenience, to float his check, it seems to me best to leave the
facilities as they are, and consequently there will always be a charge
made against that to keep that business down.
Senator S hafroth. H ow would it do to have these drafts among
banks collected free through the regional banks, as you suggested,
and have the maximum charge apply to the other checks only?
Mr. W oodruff. What maximum charge?
Senator S iiafroth. $1 a thousand.
Mr. W oodruff. By whom?
Senator S iiafroth. By the collecting bank.
Mr. W oodruff. I have just tried to explain that that would not
work; that no business would come through the Federal reserve
bank if you allow the reserve bank to charge $1 a thousand.
Senator S hafroth. Now, as I understood, you wanted only the
bank drafts to go through the regional bank?
Mr. 'Woodruff. Yes, sir.

Senator S hafroth. N ow, why can not there be a law which pro
vides that in all other transactions a charge of Si may be made?
Mr. W oodruff. That is, to apply to all transactions outside of the
Federal reserve bank entirely?
Senator S hafroth. Yes.
Mr. W oodruff. If that could he made to hold, there would be no
objection to that.
Senator S iiafroth. Take it as to the national banks.
Senator N elson. There would be no necessity for that, for they
could in every case go and buy a draft instead of sending a check.
Senator S hafroth. Yes; but it is a very great inconvenience. A
man often sends a check out after banking hours, or up here in the

2300

B A N K I N G AND C U R R E N C Y .

Senate Chamber. I always add 25 cents to the amount of the check;
if it is a $200 check, I make it for $200.25.
Mr. W oodruff. The average man does not take that trouble,
Senator.
Senator N e l s o n . Y o u really pay exchange on that.
Senator S hafroth. I do, in order to avoid a kick.
Mr. W oodruff. N ow, gentlemen, if you will allow me to make
just one or two more remarks, I think I am through. I suggested
that perhaps the best thing to do, in our minds, would be for the
Federal reserve bank not to touch individual checks at all. If the
Federal reserve bank must go into the collection of individual
checks—and the country bankers, of course, are opposed to the
reserve banks going into the business at a ll; but if they must go in—
then the best thing they can do is to go in on the same lines as the
present reserve city banks handle the business. They should put in
a separate department to handle out-of-town business and take all
checks at par, and handle the business just as it is handled now by
the big banks, charging exchange, handling all business, member or
nonmember; having an analysis department so they will know how
much it costs them, and charge it back to their customers. That
could be handled on the lines of the Boston clearing-house out-oftown department. They clear as cheaply as they can, and when they
get the returns back they credit the member banks.
If these banks must go into this business, the only way it could be
worked successfully would be to do that.
Now, as to the bill itself, we have suggested in our resolution that
the bill should be amended on page 33.
Then I want to call your attention to one thing we have left in:
that is on page 24, and it seems to me this clears the situation. You
will find on page 24,*under the head of “ rediscounts: ”
Sec. 14. That any Federal reserve bank may receive from any member bank
deposits of current funds in lawful money, national bank notes, Federal reserve
notes, or checks and drafts upon solvent banks, payable upon presentation; or.
solely for exchange purposes, may receive from other Federal reserve banks
deposits of current funds in lawful money, national bank notes, or checks and
drafts upon solvent banks, payable upon presentation.

Now, suppose you leave that in, in case there should ever be any
question. It would not do any harm to leave that in and after your
Federal reserve bank is organized and after its officers and directors
have taken this thing up, if they ever want to create a collection
agency or clearing house they can always do it under this section.
They may accept checks and drafts; they can take whatever they
please when the time comes.
But over here on page 33, where it says it shall be the duty of every
Federal reserve bank to take these checks, that, we think, is a great
error.
Senator N elson. If you strike out the word “ checks” on page 33
and leave it in on page 24, it would still leave it with the regional
banks to do this business and charge for it.
Mr. W oodruff. They could do what they found it necessary to do
when the time came. It is very hard for us to sit here and be sure
we are all right. Maybe we are wrong, maybe I am wrong, maybe
the framers of the bill are wrong on that. It is easy for us to sit.
here and theorize on how we can handle this business, but. after all.

B A N K I N G AND CU RRE N CY .

2301

the men that have to do that are the men who are running the banks
after the banks are created. Leave it there, and when the banks are
started if the officers feel it necessary to do that they can do it----Senator N elson (interposing). And strike out the word “ check”
on page 33.
Mr. W oodruff. On page 33, line 15, strike out the word “ upon,”
the last word. And in line 16, strike out the first five words; also
the balance of the section after line 19.
Senator N elson. How would it read then?
Mr. W oodruff (reading) :
It shall be the duty of every Federal reserve bank to receive on deposit, at par
and without charge for exchange and collection, checks and drafts drawn by
any of its depositors upon any other depositor and checks and drafts drawn by
any depositor in any other Federal reserve bank upon funds to the credit of
said depositor in said reserve bank last mentioned.

Senator P omerene. Y ou used the words “ checks” and “ d rafts”
interchangeably there, do you?
Mr. W oodruff. N o, sir. I tell you, I am not authorized by our
resolution to cut out that word “ checks.”
Senator P omerene. But you have clearly defined checks and drafts

as we understand them, and now you leave the word “ checks ” in.
As I understand your statement here, you object to the collection of
checks ?
Mr. W oodruff. Yes, sir.
Senator P omerene. Why do you leave that word in ?
Mr. W oodruff. The only reason that word “ checks ” is left in is
the fact that we say “ bank drafts.” That is merely banking par
lance. We do that for convenience among ourselves. It was thought
that in some places in the country what we consider bank drafts
might be referred to as bank checks. There is no difference if it is
drawn by the bank.
Senator N elson. Y ou see. this is a check of one bank upon an
other. and it would be technically a draft, but this word is used
here-—
Mr. W oodruff (interposing). So that it would prevent any ques
tion.
Senator H itchcock. But you do have what are known as cashier’s
checks, payable to an individual in a town ?
Mr. W oodruff. Yes, sir.
Senator H itchcock. And such a check should be received at par.
Mr. W oodruff. Yes, sir; but a cashier’s check does not come under
this in any way. A cashier’s check would not be drawn upon some
other depositor. A cashier’s check is used largely for little remit
tances within a town----Senator H itchcock (interposing). Should not a cashier’s check
be received at par?
Mr. W oodruff. Well, it would probably lead to some abuse.
Senator H itchcock. N o ; suppose a man in your town is given a
cashier’s check for $100 on your bank, and he sends it to Chicago and
deposits it, and the Chicago bank deposits it in the reserve bank.
Should not the reserve bank have the right to charge it against you
at par?

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B A N K I N G AND CU R R E N C Y .

Mr. W oodruff. Y ou might put it in, but it would encourage me
to issue nothing but cashier’s checks instead of drafts against the
Federal reserve banks, because as long as I keep the cashier’s checks
floating around I would have the use of the money.
Senator H itchcock. I do not see that that would be kept floating
around any longer than the draft would.
Mr. W oodruff. It might never be sent to the Federal reserve bank;
probably it would not. There is no reason. Senator, why a bank
should use both of these things, for they have the same effect. In
other words, if a bank wants to pay a bill there is no reason why it
should draw a cashier’s check if it is going to have the same effect
as a check upon the Federal reserve bank.
Senator H itchcock. I may go into a bank and say, “ Give me a
cashier’s check to the order of John Smith.” That is often done.
Mr. W oodruff. I can see no objection to putting that in----Senator H itchcock (interposing). If you leave the word in, that
would include a cashier’s check.
Senator N elson. They have left it in.
Senator H itchcock. They have? I did not understand so.
Mr. W oodruff. One of the members of the committee suggests
that I reiterate the fact that most of the banks that make large
exchange charges are small State and country banks that Would
not come into the system. I have already made that point. His point
is that this rule, even if it were a good rule, would not affect the
worst troubles.
That is all I have to say. I appreciate your kindness.
Senator B ristow. Just a minute. There is one part, Mr. Wood
ruff, of your statement that I wanted to inquire a little further about.
I understand you object to having checks drawn against your bank
that may be deposited with your reserve bank in Chicago, for in
stance, charged to your account. You want it to come there and be
collected. One of your objections is it depletes your reserve which
your books show you have there and causes confusion. Now\ does
not that require your reserve banker in Chicago, where your account
is, to carry you for that amount of money for the time that is re
quired by that check after it is presented to be sent down for
collection ?
Mr. W oodruff. In case it is charged against us and overdraws our
account it would.
Senator B ristow. Suppose it did not? Now. when a business man
in Chicago receives a check in payment of a bill of a party in Joliet
he takes that check on your bank and deposits it with his banker,
who happens to be your reserve agent there, and that reserve-agent
bank credits this customer of its with the amount, but it can not
charge the amount to you until it sends it down to your bank, and
you authorize it to make such a charge?
Mr. W oodruff. Yes.
Senator B ristow. N ow that bank is out of the use of that money
until it gets your authority to charge you with it?
Mr. W oodruff. That bank is always foxy enough to take care of
itself on that.
Senator B ristow. We are not talking about being foxy; we are
talking about the facts.
Mr. W oodruff. Yes.

B A N K I N G AND CU R R E N C Y .

2303

Senator B ristow. What difference is there between that and the
man who follows exactly the same principle and sends his check to
Chicago, the dealer there deposits it, and it is sent back to the local
bank—we will say to Joliet—and there it is charged up to the mer
chant’s account? Are you not objecting to doing for the merchant
exactly what you are demanding that the reserve agent do for you?
Mr. W oodruff. In the first place, the Chicago Bank—I did not
mean that word “ foxy ” disrespectfully, Senator—the Chicago bank,
when it credits its customer with that check that it sends down for
collection to us, usually, if it is an interest account, does not pay the
customer any interest on that check while outstanding. They very
properly deduct from the interest account at the end of the month the
items in transit. Now. in the analysis department, where they an
alyze practically every large account, wherever there are any of those
outstanding checks, the analyzing department at the end of the
month will tell them just what they lost by items being outstanding
in the mail, what they lost by checks going from Chicago down to
Joliet, and if the balance that the man kept in the bank would not be
enough to make up that loss that the bank suffered and give a profit,
then they will certainly make some new arrangement. Usually items
of that kind may be credited three days after their receipt, or some
thing of that sort. That is how they protect themselves.
I do not quite understand the last part of your suggestion.
Senator B ristow. They protect themselves in that way, as you say?
Now, if your account with your reserve agent was sufficient so that
it cared to carry that account, and not credit your checks until it had
authority from you, it would take your account just as it does now?
Mr. W oodruff. Yes.
Senator B ristow. And if your account there was not sufficient to
justify them they would not take it any longer—they would refuse?
Mr. W oodruff. Yes.
Senator B ristow. That would be the same principle applying to
you you say the bank would apply to the merchant?
Mr. W oodruff. Yes.
Senator B ristow. My suggestion was that while you object to the
merchant taking advantage of this time of transit, you still demand
that the bank give you the same advantage that you feel you ought
not to give the merchant ?
Mr. W oodruff. I understand. That is, you mean if a local depos
itor in our bank should have $1,000 in the bank and sent a check, and
that check goes around the circle, we w’ould get the use of the $1,000
while that check is going around the circle; but if it was charged
immediately, we would not get the use of it. Your point is well
taken; there is no doubt we make a little additional profit there. The
use of bank drafts as we advocate would be fair to everybody for the
Federal reserve bank would get the use of the money while items were
in transit. Then let us call attention to the other side. Many times
the money is not on deposit with our bank.
Senator B ristow. I s not that a question for the bank to settle with
the depositors, and not to be settled by law ?
Mr. W o o d r u ff . It could hardly be done, just exactly as the Chicago
bank does with the merchant.
Senator R eed. Senator Bristow, are you not overlooking this sit
uation? I can only get at it by an illustration. I am addressing

2304

BANKING AND CURRENCY.

myself to you and Mr. Woodruff. Assuming that the merchant in
San Francisco owes a merchant in New York City $10,000. As I un
derstand, Mr. Woodruff, under this plan the merchant could draw a
check upon his bank in San Francisco and send it to the New York
merchant. The New York merchant would thereupon deposit that
check in his bank, and it would that day go into the regional bank,
and out of this Government bank there would be paid to that mer
chant in New York $10,000. Then the check would be sent back to
the regional bank in which San Francisco deposited, and there it
would be charged against the account of the San Francisco bank. All
that would take some 7 or 8 days; maybe 9 or 10 days. The Govern
ment banks (we will call them that) would advance that money for
all that period of time. In the meantime the merchant either did or
did not have the money in his bank in San Francisco. If he did have
it there, that local bank would have had the use of that money, but
this Government bank would have had to have advanced the money
for the use of the merchant in New York City. If he did not have it
there, then his local bank would not have had the use of the money,
but the merchant in New York would have had the use of the money,
and this Government bank would have been advancing the money for
.several days on the transaction. Now. it seems to me that that is a
questionable scheme.
Senator B r is t o w . I agree with Senator Heed, that I do not think
these Government banks ought to have anything to do with that
kind of business. I think that is the business of the banks that are
organized to handle the business of the country, and that they ought
to do just as they do now.
Senator R e e d . On the other hand, Senator, if you will pardon me,
if this merchant desires to use the $10,000 and had $10,000 in New
York of his own money, in some bank, he could check against it
properly, because once the check went there that banker can pay it.
Or, if he had the $10,000 in his own bank in San Francisco, he could
buy a draft and send it on. Now he, in that case, of course, would be
out the interest on his money during the time he was transmitting
it, but as he owed the bill in New York, and as it was his duty to
pay it in New York, there is no hardship imposed upon him when
he has to pay the bill where he has contracted to pay it.
Senator B r is t o w . But, Senator Reed. Mr. Woodruff's proposition
is this, that the man could buy the draft just as you suggest and pay
it just as you suggest, and not by check as I suggested. But if the
merchant gave a check to his New York house in payment of this
$10,000 account, and that New York house took the check and depos
ited it with the regional reserve bank, the regional reserve bank,
under the bill, is authorized to charge the account of the San Fran
cisco bank with the $10,000. But Mr. Woodruff is objecting to that,
and says that must not be permitted until the San Francisco bank has
authorized its account to be charged with that $10,000. Now. he is
asking that his bank be permitted to have the use of that $10,000
while it is in transit through the mail back to San Francisco, but that
the merchant be deprived of the privilege now given him.
Senator R e e d . The difference is that in the first instance the m e r
chant bears the loss incident to the payment of the bill 3.000 miles
from his home, but where he has contracted to pay it. In the other
case the loss falls upon the regional bank. The regional bank, that

BANKING AND CURRENCY.

2305

has no interest in the transaction, is compelled to stand that loss,
it seems to me. I may be wrong about it.
Senator B ristow. I can see the force of your suggestion so far
as the regional bank is concerned, and the bank that deposits with
the regional bank ought, then, to pay that bill.
Mr. W oodruff. I want to suggest, in connection with your last
statement, that there would be one serious objection to charging those
items against the reserve balance. The bill, as I understand, provides
that we must keep not less than a certain per cent of our reserve in
the regional bank, and then I believe the bill also provides if we dis
obey any of the provisions of the bill we may be fined or sent to the
penitentiary. Now, entirely unbeknown to us, a lot of those items
may be charged to our account in the Federal reserve bank. Our
reserve in the bank may therefore fall, without any action on our
part, to a point below the point provided in the bill, and we may go
to prison.
Senator O ’G orman. D o you not think, right there, that the reserve
board will make necessary rules and regulations and, among other
things, provide that the regional bank will advise member banks
daily, by wire, of the checks that have been charged up to their ac
counts ?
Mr. W oodruff. Senator, in that case we would be compelled to
deposit by wire also in order to keep our account from being over
drawn. Another thing, the Federal reserve bank could not advise
us until the close of business, because they would not know what
checks might be presented, and then it would be too late for us to
remit.
Senator W eeks. Y ou all agree that the methods of remitting are
crude, cumbersome, and unscientific, do you not?
Mr. W oodruff. Yes.
Senator W eeks. And we ought to take advantage of this legisla
tion to improve it?
Mr. Woodruff. Yes.
Senator W eeks. And that the consensus of opinion is that if the
reserve bank collects bank drafts and drafts on other reserve banks
and lets individual checks alone that would be a reasonable solution
of the question as far as this bill is concerned?
Mr. W oodruff. We feel, Senator, that the business of the country
would eventually be transacted as it should be and the payments
made with drafts on the regional banks.
Senator W eeks. That is, if charges were made on individual checks
the custom would grow, and grow rapidly, to use cashiers’ checks
or some form of bank draft or check to pay bills?
Mr. W oodruff. Cashiers’ checks would not be used very much, in
my opinion, but I do. believe drafts against regional reserve banks
would come to be the standard exchange in this country, a thing 1
feel should take place.
Senator B ristow. Mr. Woodruff, before you close, I do not want
to be understood to be advocating that your accounts should be
charged with the checks without first being submitted to you; but
I do maintain if that rule is good for you it is good for the merchant.
That is what I objected to. You change the system by law and put a
burden on the merchant that the banks voluntarily have relieved

2306

B A N K I N G AND CU R R E N C Y .

them from, and still, by law, you preserve to yourself an advantage
which you think you ought to have, and an advantage I do not deny
you ought to have.
Senator N e l s o n , There is where you are mistaken, Senator; they
have never relieved the reserve banks of that duty.
Senator B ristow. T mean the merchants.
Senator N elson. They have always insisted, most of the banks,
that they should not charge them with those checks until they notified
them.
Senator B ristow. I am not objecting to that; but I do object to
devising a plan here by which a merchant has got to buy a draft
instead of using a check.
Senator H itchcock. Mr. Chairman (Senator Reed), I move that
we take a recess to-dav until 2 o’clock.
Senator R eed. Mr. Woodruff. Senator Shafroth desires to ask you
a question.
Senator S hafroth. I have been requested to ask you this question,
Mr. Woodruff: If the reserve banks must handle individual checks,
should not they be confined to checks originating in member banks,
thereby eliminating all checks bearing the indorsement of nonmember
banks ?
Mr. W oodruff. In case you leave the law as it is that would un
questionably be a very great improvement.
Senator S hafroth. That would have a tendency to have the non
member banks come into the system, would it not, and be an induce
ment for them, if their checks were included?
Mr. W oodruff. I think it would be a very small inducement for
country banks, Senator. For city banks it would be an inducement.
Senator S hafroth. It would?
Mr. W oodruff. Yes.
Senator R eed. It has been suggested that we have an executive ses
sion for a few minutes and then take a recess until 2 o’clock.
(Thereupon, at 12.50 o’clock p. m., the committee went into execu
tive session, at the conclusion of which a recess was taken until 2
o’clock p. m.)
after recess.

Senator R eed. We will now hear you, Mr. Tilton. I want to make
the suggestion that you come directly to the criticism of the bill
which you have in mind, or any statement you have to make with
reference to any particular matter that needs improvement. I will
ask you now to state your name, place of residence, and the bank
with which you are connected.
STATEMENT OF M’LANE TILTON, JR., PRESIDENT OF THE FIRST
NATIONAL BANK OF PELL CITY, ALA.

Mr. T ilton. I live in Pell City, Ala.; I am president of the First
National Bank of Pell City; I am president of the First National
Bank of Lincoln and director in another national bank and three
State banks; I am also secretary of the Alabama Bankers’ Associa
tion.

B A N K I N G AND CU RRE N CY .

2 307

Senator R eed . What is the capital and surplus of the bank in which
you are directly connected as president?
Mr. T ilton. Mr. Chairman, and gentlemen of the committee, I
am here representing a typical country bank that has a capital, as
have all these banks I have mentioned—six in number—of $25,000.
The largest amount of surplus that any of them has is $7,000.
The largest amount of deposits that any has is $160,000, and the
smallest amount of deposits of any one of these banks is $30,000.
1 believe, Mr. Chairman, that I am representing a class of banks that
has not yet been heard before this committee and yet which represent,
in number, over 60 per cent of all the banks of the United States.
And I further feel, Mr. Chairman, that we bear a portion of the
burden of the national prosperity directly in ratio to our numbers
rather than to our total resources.
You gentlemen have heard here from the country bankers on two
subjects, and I am going to speak of the subject of the segregation of
deposits, and go into a little more details than Air. Woodruff did
this morning on one feature of the exchange provision of this bill.
Mr. Chairman, this is a matter of life and death with us. I heard
Mr. McAdoo say yesterday that we should be generous; we should
be patriotic. No one recognizes more than I do, and the country
bankers as a whole, that legislation of this kind is peculiarly of a sort
that calls for prudent compromise and unselfish concessions; but,
Mr. Chairman, when we are called upon, as small country bankers
to make concessions which send us out of business, I think the limit
of unselfishness has been exceeded.
It was my good fortune to be the country banker who called the
meeting of the country bankers in Boston.
Senator R eed. I am going to interrupt you there: Was that call
instigated in anyway, directly or indirectly, by anybody else?
Mr. T ilton . I will answer that question—no, sir. It was con
ceived in mv mind, and I did not speak to a human being, so far as
I am aware, before I sent out my call among the banks of America
and the financial journals.
Senator R eed . Pardon me for asking these questions, but I think
it is necessary to do it, because of statements that have been made.
Did you get letters, or were you advised in any way from any of the
large bankers of New York or elsewhere, asking that opposition be
stirred up to this bill?
Mr. T ilton. No, sir. On the contrary, those city bankers who
spoke to me told me not to call this meeting, because it would be a
fizzle and I would be ashamed of the result.
Senator R eed . What city bankers did that?
Mr. T ilton. I used the term “ city bankers.” I mean by that my
close friends at home, the larger bankers in the immediate territory
with which I discussed this matter. I could not recall their names
offhand.
Mr. Chairman, self-preservation is the first law of nature, and when
you have in this bill two sections, one the segregation of deposits,
and the other the matter of exchange, neither of which is germane
to the measure, and when the result of the operation of those two
sections is to put out of business, in my humble judgment, fully 60
per cent of the country national banks in America. I do not see how

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B A N K I N G AND CU RRE N CY .

this committee, which voiced the sentiments it did yesterday, will
think for one moment of doing that injustice.
Senator R eed . N ow , we are interested in your showing why the
bill will do that.
Mr. T il t o n . I will do so, sir. Permit me to say right here, how
ever, that the resolution that we adopted in Boston has been misun
derstood by a great many people. AVhat we really did there was to
try to decide upon as few things as possible which, if incorporated
into this bill, would enable the small country banker to join the
system and would enable the small national banker to retain his
charter, and would induce the small State banker either to nationalize
or to come in as a member by whatever provisions might be made.
For 50 years. Mr. Chairman, the financial legislation of this
country has been drawn directly in the interests of the fiscal centers.
I am not reflecting upon any bank in any large city of which I am
aware. Those people are my friends. During those 50 years a
great number of small country banks have developed all over the
United States. Nowhere have they developed more rapidly than
in the cotton field and in the Far West. I believe that any financial
system in this country would not be a success unless it is drawn so
that these small country banks, of whom mine is one. can come into
this system and enjoy a fair profit ; and I believe it will be a vital
error—a vital error—to so draw this bill that we must stay out and
forfeit our charters.
Senator R eed . N ow , Mr. Tilton, those are matters we can handle.
We want you to tell us what is the matter with this bill; how it is
going to injure, and how we can remedy the trouble. You see this
is a hearing and your talk is exceedingly interesting and I am not
trying to stop it. except I want to get down to the facts, because we
have more people to hear now than we are going to be able to hear.
Mr. T il t o n . I will come, then, right down to the facts. The two
subjects assigned to me are the exchange feature and the segregation
of deposits. I believe the exchange feature, unless amended in
the manner suggested bv these country-bank resolutions, will mean
a loss of profits to the country banks which will average more than
25 per cent of their net earnings. Speaking for my own bank, it
will be possibly a little larger, and I believe that our net earnings
from exchange are very much smaller than they are for the average
bank in the cotton field and in the Western States.
There was something said here this morning about how checks are
collected. This bill requires us to pay over two counters. The object
of this legislation is to enable the bank to pay over one. and always
be able to pay. Our checks as now drawn are presented to us over
our own counter, either by the individual owning them or by the col
lecting bank which is acting as an agent for the person who owns
them. Under the system you propose here, whereby the Government
bank will undertake to collect checks drawn by depositors of member
banks, you are forcing us to keep a cash balance to our credit at the
reserve bank to take care of those checks as they come in, in addition
to keeping necessary cash in our vault to take care of them there if
the}7 are presented over our counter. In other words, Mr. Chairman,
yoii are making us be prepared to pay in two places where we are
now trying desperately hard always to be able to pay in one.

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2309

Senator R eed . I understand you mean that you would have to
have a certain reserve in the regional bank, and would also have to
have a certain reserve in your own bank, and then you have to have
a working surplus over the reserve in your bank, the legal reserve, and
you say now that if these checks could be presented at the regional
bank you would have to have a working surplus over and above your
reserve there, in order that your reserve might be maintained intact?
Mr. T il t o n . Exactly. I mean this: My present correspondent
in New York, the Hanover National Bank, has no authority to charge
checks against me it may receive over its own counter. All it can
do is to remit those checks to me, in Alabama. If the regional bank
is located in New Orleans, for example, I have got to be prepared
over the counter of the regional bank in New Orleans, should the
checks be presented there for payment, as well as be prepared to pay
them over my own counter, should they come there. I do not know
where they are coming.
Second, this section as now drawn will require us, for the reason
just stated, to keep a sufficient sum in the regional bank over and above
our necessary reserve requirements to meet the accumulation of checks
during at least three days, if I estimate correctly the average distance
of the average territory for each of these twelve regional banks, and
we could not do it.
Senator H it c h c o c k . It would be much harder on you than on the
bank located nearer the regional bank?
Mr. T il t o n . Very much so, sir. My bank, the best one I have,
makes an earning of about $4,000 a year on $32,000 and surplus. We
have averaged that during the last five years, only because we have
had no losses of any nature or description. That represents about
16 per cent on our capital, a little less than 16 per cent on the capital
and surplus, and our net earnings during this period I have described
have run less than $1,500 out of a total of $4,000. Therefore, the first
effect of this section, if these checks are to be collected as the bill calls
for, is to take from my bank at Pell City and from every other little
country bank of $25,000 capital and more, through the cotton belt,
at least one-third of its net earnings. I can not see how this commit
tee can consent to a provision not germane to the bill and which will
have any such result upon 10,000 banks in the United States.
I want to correct a statement that was made this morning. It was
stated here, or estimated, that Chicago possibly might handle
$150,000,000 of country items in a single month. I have talked, just
a moment ago, with the gentleman who is going to appear this even
ing from another committee, not ours. He comes from the city of
Albany, in a large collection center. He tells me his collection of
country-bank checks each month average over $4,000,000 a day, and
there is another bank in that same city that does just as large a busi
ness. So when you come to estimate, Mr. Chairman, the amount of
country checks Chicago handles, I have not the figures at my com
mand to state that volume. Albany does much more, almost double,
what it was estimated that Chicago might do under this measure.
There is not a business building in the city of New York, there is not
one in the city of Chicago, which would be big enough, Mr. Chairman,
to house the employees that would be required to transact that enor
mous amount of business.

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B A N K I N G AND CU R R E N C Y .

Who is going to profit where we lose? Who is going to get the
$1,500 I am making and all these other country banks are making?
The business men of America would not get it. They do not pay it
now. The only people who are going to get it are the banks in the
collection centers. The banks in the collection centers criticize these
little banks for making this charge. But I notice none of them
turns down our account. Every bank in the city of Albany would
be glad to have the account of any one of our banks, even though
they say my rate of 15 cents a hundred, or $1.50 a thousand, is ex
cessive. If it is excessive, and does not warrant them continuing to
make collections for me and paying the exchange on checks of mine,
I want to know why they do not quit doing business for me?
Senator R eed . Why? You make a very interesting statement
there, that the only banks that will profit by having exchanges at par
are the city banks----Mr. T ilton (interposing). They are mistaken about it, Mr. Chair
man.
Senator R eed (continuing). In collection centers. Now, tell us
why and how that is.
Mr. T il t o n . I was invited to see the books of a national bank in a
city of Alabama, whose name I am not permitted to give unless in
sisted upon, which estimated they paid to the country banks of north
Alabama the sum of $60,000 per year for the collection of those
checks.
Senator R eed . Did that bank lose the money?
Mr. T il t o n . They made it up by the country bank balances that
were kept there with them.
Senator R eed . Didn’t they charge the customer with anything?
Mr. T il t o n . N o, sir. They have no clearing-house rule in that
city to which I refer.
Senator R eed . Y ou know we are dealing with awful hard facts
here, or trying too, at least, and we want to get them just as they are.
Mr. T il t o n . I can explain just in a moment. In a great many
banks outside of the State of Alabama, a great many banks within
the State of Alabama, keep balances on deposit with that Birming
ham bank for the privilege of clearing their north Alabama items.
They figure that the balances kept more than compensate them for the
charge they have to pay for the country bank in the territory they
clear for. In other words, they make a profit on the exchange by
reason of the interest they are able to get out of the bank balances
maintained with them.
Senator R eed . Would you, if you had a regional bank, not escape
the burden of keeping those balances with the Birmingham bank?
Mr. T ilton. Mr. Chairman, I do not want to escape that burden.
The bankers of the large banks in my territory are my closest per
sonal and business friends. We can not do business without leaning
on some man who is a little bigger and a little better than we are; a
little stronger financially, and a little wiser mentally. He is the man
who is our friend, and if we get in a hole, all we have to do is to call
on him and he will respond. And that condition applies to every
collection center in every State of our Union, so far as I am aware.
I would have to keep money in Birmingham because there are sev
eral days in the month where my cash withdrawals over the counter

are more than twice our capital, and we would have a great time in
getting that money from New Orleans, Atlanta, or Chattanooga.
Senator R eed . And now you call on Birmingham, do you ?
Mr. T il t o n . I get my cash from Birmingham; yes. Everj coun
try bank, so far as I am aware, has a larger bank as close as possible
to it where it can always look to get immediate shipments of cash.
Senator H itc h c o c k . It can telephone for it?
Mr. T il t o n . Exactly.
Senator H itc h c o c k . And get i t in how m a n y hours?
Mr. T il t o n . I can telephone and get it the next morning, or I can
telephone and get it that afternoon. There are six trains daily.
Senator R eed . H ow far are you from Birmingham ?
Mr. T il t o n . Thirty miles. Senator Owen, informally, yesterday,
made the suggestion that wre could charge our own customers this
exchange, and therefore lose nothing. Now, what would happen, my
friends? When a customer of mine has drawn checks from our
bank, at the end of the month, we make a debit charge to cover the
trouble we have gone to to cover the exchange. The banks of Birming
ham would jump at such a charge as that and say,“ If you do business
with us we won’t make that charge,” and the consequence would be
we would lose a great volume of our deposits, because in my home
town, like in most country towns, the volume of business we enjoy
from our own little cities is comparatively small with what we get
within a 5 or 10 mile radius from the outside.
Senator N elso n . From the farmers?
Mr. T il t o n . From the farmers; exactly so, sir. It would be im
possible for us to make that charge. And I want to comment briefly
upon a matter presented here this morning by Senator Bristow. I
agree fully with what the Senator said, but I do not believe that 1
country bank in 10 will agree with the view expressed by the speaker,
Mr. Woodruff, who at that time was not speaking upon a subject
germane to our resolution. Ever since the banking business in this
country has been established the cry has gone out to the people of our
communities, “ Do business with us and pay your bills by check.”
And if, as Mr. Woodruff suggested, every time a man within 5 miles
of my town wanted to pay a bill in Birmingham or Cincinnati or
Chicago he came to my bank to get a bank draft for it, I would
have as many clerks doing the business of writing checks as I have
customers now drawing them. I could not begin to handle the
business if our little bank should be run on that basis. It would take
at least five more men to transact it.
Senator R eed . Y ou did not mean you would have to have as many
clerks as customers?
Mr. T il t o n . I would qualify that. We would have to double our
force; we would have to employ five more men at least to handle
those checks, and it would be a great annoyance to us.
What is the remedy? It is stated in this country bank resolution,
“ Confine the operations of the Federal banks to only those checks
drawn by its members, either, as was suggested by the Senator sitting
on the left, drawn on itself, which would be in the nature of a
cashier’s check, or upon the regional bank in its own territory, or
upon any other regional bank with which it might maintain a bal
ance, or upon any other member bank drawing on it. The Government
escapes the enormous burden and cost of handling this huge transit
S. Doc. 232. 63-1— vol 3-- 25

2312

B A N K I N G A N D CU R R E N C Y .

business, and the country bankers continue to enjoy 25 per cent of
their net profits, and if they lose that many of them can not afford
the loss or recoup it in any other way.
Senator R eel>. If the country banks in the small towns were forced
out of business, what effect would it have upon the small town of that
community ?
Mr. T il t o n . I believe the country banker has been the greatest
business developer in this country. I do not know whether or not
the bank has built the little towns that have grown up, but I do
know that there is not a little town in the United States that could
have grown as they have grown without the benefits and facilities
that its little home bank afforded. I can certainly say that as to one
town, because that town I happened to build myself.
Senator H it c h c o c k . And you may add that one of the great ad
vantages the towns of America have over the country towns in Eu
rope is the fact that they have banking facilities which the small
town in Europe has not.
Mr. T il t o n . Precisely.
Senator N elso n . And are the great gatherers of deposits from the
farmer in the little rural communities that the big banks could not
get hold of.
Mr. T il t o n . When I went to building that city there was nothing
there; it was a 600-acre abandoned farm. I went to present some
letters of introduction to the bankers in Birmingham, wTho had
passed that alleged town on the Southern Railway, and they looked
at me in amazement at the idea that a bank there could be successful
and yet, gentlemen, that bank there was.successful and that town has
grown until to-day we have 3,000 people in six years.
Senator N elson . And what are your deposits?
Mr. T il t o n . $169,000 at the last I heard of it. Not a bit of that
money was in circulation before we came there. That monev, so far
as I am aware, except the new money that has come in there from the
manufacturing industries that we have, was money that was hoarded
away by the people.
Senator R eed . Y ou think you rustled that money out of the stock
ings and bedticks? I use that figuratively; I do not mean literally.
Mr. T il t o n . T o an enormous extent. These savings deposits are
$S0,000, and at least half was money in existence 10 years ago when
the bank was organized, but had never seen the light of day until
it passed over our counter, and I believe that can be said for every
country bank in the United States.
Senator R eed . Who are the stockholders? I do not mean the
individuals; but you have stockholders in your bank ?
Mr. T il t o n . Yes.
Senator R eed . Are they local people?
Mr. T il t o n . Yes.
Senator R eed . Any farmers?
Mr. T il t o n . Yes, sir.
Senator R eed . Any merchants?
Mr. T il t o n . Yes, sir; manufacturers, miners, and lumbermen.
Senator N elso n . Interested in the business in your neighborhood?
Mr. T il t o n . Yes, sir; property owners.
Senator R eed . In other words, the local people, perhaps with some
body like yourself, who is acquainted with the bank-promoting en-

BANKING AND CUEEENCY.

2313

terprise, the local people get together and take some of their earn
ings and savings and make a small bank; and then the people put
their money into that bank and that stimulates business and puts
money into circulation and sets it to work, and you think that is a
good thing for a community and a number of those banks are a
good thing for a State?
Mr. T ilton. Yes, sir; and I go further than that and say that
when I went to Pell City to start this bank I spent 30 days trying
to get some stockholders, and I could not get anybody who was
willing to put his money into it, so I borrowed a little more than I
had already borrowed and started a bank, and about a year or two
after that the people were falling over themselves to buy that stock,
and now they complain because they are not stockholders.
I want to say a word about the savings section. That is not ger
mane to a financial system of the United States. I do not see savings
bank depositors of either State banks or National banks coming to
this honorable committee clamoring for protection. Have they been
here? They regard their savings in country National and State
banks as important, and if they do not like us they can go to the
Government post office and make deposits, because there are dozens
of them in each county in the State. Why, then, encumber this bill
with a provision that does not need to be there, when by omitting it
you will encourage a great many banks to come in that would other
wise not do so.
A member of the committee made a suggestion that the accept
ance of savings deposits upon the part of the national banks was
unlawful. It is a. mooted point. The Comptroller of the Currency
has ruled that it was. If it is unlawful, and it is certainly desirable,
then I think it should be made lawful.
Senator N elso n . They simply pay interest on the deposits, and
that is what the great reserve banks have been doing, paying 2 per
cent interest on bank deposits, and why the little country bank should
not have as much right to pay interest on its deposits as the reserve
banks I never could see. That is all there is to this savings depart
ment.
Mr. T il t o n . That is all there is, sir.
Senator N elso n . They are time deposits, and you pay your inter
est on them; otherwise you treat those funds just as the other funds
of your bank, and require the same reserves as you do for the com
mercial deposits?
Mr. T il t o n . Precisely. The growth of the savings departments
of the country banks has been, to my notion, the one great force- be
hind the development of America. Country banks have always
encouraged savings deposits. They are doing it to-day, and they
want to be able to continue to do it. Under the cumbersome system
that this bill provides you hamper them.
Mr. Chairman, you have in this provision created two banks under
one roof. They are just as much two banks as if one was on one
side of the street and the other on the other side of the street. But
they are more than that. Two banks across the street from each
other could be mutually helpful if they desired to be so. Under the
provisions of this section you have created two banks, and have for
bidden one of them to do business with the other.

2314

B A N K I N G AND CU R R E N C Y .

Senator N elso n . Or help the other?
Mr. T il t o n . Or help the other.
Senator R eed . Let me ask you a question right there. Take this
little bank of this little town you were speaking of, Pell City, a little
town of 2,000 people. How many employees do you have in your
bank ?
Mr. T il t o n . Four.
Senator R eed . A cashier, and who else?
Mr. T il t o n . There is the executive officer, the cashier, assistant
cashier, and bookkeeper or stenographer.
Senator R eed . Is that not rather more help than is ordinarily
found in a bank of that size ?
Mr. T il t o n . N o. sir.
Senator R eed . Somebody here told us about what he called a oneman bank, in which he said the cashier was the bookkeeper, paying
teller, receiving teller, telephone girl, and janitor.
Senator N elso n . That is the case with the little State bank; you
know they can have State banks with $10,000 capital.
Mr. T il t o n . I have one of them, sir, and I have no bank where I
can employ less than two people. The volume of business is grow
ing so much that it is absolutely essential to have one man ready to
step into the shoes of another man in the event of sickness, or any
thing of that kind.
Senator R eed . If this bill was enacted and you had to segregate
the savings-bank department, could this same force you have em
ployed now transact the business for both departments?
Mr. T il t o n . N o , sir.
Senator R eed . H ow much do you figure it wTould cost you to run
the other departments?
Mr. T il t o n . We would have to employ at least one other clerk at
not less than $50 a month.
Senator R eed . That is, $600 a year?
Mr. T il t o n . Yes, sir. I will come to that in a moment.
Senator R eed . Very well.
Mr. T il t o n . Banking in th e country consists of taking money from
p eo p le w ho h av e it----Senator N elson (interposing). Your deposits are not like city de
posits ; they are made up of money paid over the till to you ?
Mr. T il t o n . Precisely; and lending to those who are in temporary
need of it. In every rural community, and I suppose in every other
community, these two types of citizens exist. If under this bill as
now drawn the Federal board is given power to withdraw those sav
ings deposits from one community and invest them in another com
munity, the first and worst thing that is done is the contraction of
credit in that community. With us it would mean cutting it down
one-third at least in the wintertime and one-half in the summertime.
Senator R eed . Why?
Mr. T il t o n . It would mean—because we would have to purchase
the class of securities demanded by the Federal board. And if the
Federal board does not intend to name a different class of securities
from that provided for, what is the use of giving them that privilege?
Senator R eed . Y ou make the statement that it would take from
one-half to one-third of your money, or it would result in that con
traction—I have forgotten which way you made your statement. I

B A N K I N G AND CUKRENCY.

2 315

want you to tell us how that works out—not but a conclusion, but
show us how it works out.
Mr. T il t o n . On the 1st day of July my little bank at Pell City
had, approximately, $75,000 of savings and $75,000 of commercial
deposits. All of that money was invested locally—loaned to local
manufacturers, miners, business men, merchants, and farmers. If the
Federal board in its wisdom, or lack of wisdom, had ordered a
few days before that, that in the segregation of our savings deposits
we should be permitted to invest only in the following items: United
States bonds, State bonds, county or municipal bonds, or in the bonds
of certain railroads that have paid dividends regularly for a cer
tain number of years, it would have meant the transfer either then,
or gradually, over a period of years, of that $75,000 that we had
invested locally and in securities which are on the outside. And I
want to say further that the average country-bank board of direc
tors can not tell what is a good bond and what is not. We thought
the Frisco bonds were good, but we were disappointed.
Senator R eed . At the present time that $75,000 which you own on
time deposits you loaned to A, B, and C right there in your own
town and county?
Mr. T il t o n . Yes, sir.
Senator N elso n . Just like your other deposits?
Mr. T il t o n . Yes, sir.
Senator N elson . Just like y o u r check deposits?
Mr. T il t o n . Yes, sir. The next point to which I wish to address
myself is the loss of revenue that this would bring about. If there
was an enormous demand created for a certain class of stocks or
bonds whereby there came into a market for these bonds country
banks which had never before been buyers, in my judgment the net
earnings on bonds at the price at which they could be bought would
be materially reduced by reason of that demand. I think it would
be safe to say that whereas now we can get a bond that will yield
us, in some cases, as much as 5 per cent, that by reason of this in
creased demand the net returns on bonds would decline by reason of
their increase in price. The result would be that country banks
would get about 4 per cent on their savings deposits.
Senator N elso n . And you could not pay your depositors over 2?
Mr. T il t o n . Exactly, sir.
Senator N elso n . Instead of paying them 3 or 4?
Mr. T ilton. We are paying them 4 now and lending them money
in our communities at 6 and 8 per cent. We would figure that to
the average country banks in the South where rates are too high—
and I am speaking now of the entire cotton belt—I think the trans
fer of these funds from local loans would mean an average loss of
interest of 4 per cent. In my own case it would mean a loss of in
terest on, say, $70,000. And 4 per cent of $70,000 is $2,800.
I have told you that under the provisions of this bill I am going
to lose $1,500 in exchange, so that would be a total of $4,300, which
is $300 more than we have ever earned during the last five years.
And yet we are asked to be patriotic----Senator O ’G orman (interposing). You do not consider this a
perfect bill, then ?
Mr. T il t o n . N o, sir; it is not the holy and sacred thing that I
thought it Avas going to be when I reached here. I think it very

2316

B A N K I N G AND CU R R E N C Y .

nearly corresponds to what a celebrated German historian said about
the Constitution of the United States, that it was forced down the
throats of a reluctant people by the stern necessities of the times.
Senator R eed . It was a pretty good thing when it got there, was
it not?
Mr. T il t o n . Yes, sir.
Senator N elso n . Y ou do not think this bill in its present form
would have that effect, do you ?
Mr. T il t o n . Well, no. These banks are forbidden to do business
with each other; they are required to keep a separate cash reserve
in their vaults. It says you can not mingle these moneys; that you
are not permitted to take money from one department to pay an
obligation in the other department. The result is, Mr. Chairman,
that you might have $10,000 surplus cash in your savings department
and a check of considerable size might be presented in your com
mercial department and you would have to dishonor it, and that
means you are insolvent. If you were to use your savings-department cash to pay that, the bill says you are subject to a $5,000 fine
or two years in the penitentiary.
Senator O ’G orm a n . Take your choice?
Mr. T il t o n . Yes, sir.
Senator R eed . They do not give you your choice.
Mr. T il t o n . The suggestion of the country bankers in this con
nection is this: That the exchange feature be granted, so that the
Federal bank will be relieved of the burden of collecting any other
checks except those drawn by members. The other suggestion as to
the savings feature is that that entire section be stricken out. It
is not germane to the measure. It has no business there, and it
will force many national banks to give up their charters, and it will
prevent hundreds of banks from coming into the system who would
be glad to do so if they were given an opportunity.
Senator R eed . Let me see if I am right in one thing that comes to
my mind now. If you take your bank which now has about half of
its deposits—that is, of the deposits which it uses—in time certifi
cates and the other half in ordinary commercial checkable deposits,
and you provide that the two funds must be segregated. Of course
you would have to keep a sufficient balance on hand in the com
mercial half of your bank, so that you could be ready at all times to
meet demands coming in over your counter, and that would have to
be in excess of your legal reserve, would it not?
Mr. T il t o n . Yes, sir.
S e n a to r R eed . N ow , y o u w o u ld h av e to c re a te th e sam e k in d o f a
fu n d in excess o f a n y le g a l reserv e o v er in th e sa v in g s d e p a rtm e n t ?
Mr. T il t o n . Yes, sir.
Senator R eed . And you say you could not use the funds of one

department in the other department even for a day ?
Mr. T il t o n . No. sir.
Senator R eed . N ow , the great trouble with the banking business is
the liability that you are under of having too many people suddenly
demand their money, is it not ?
Mr. T il t o n . Yes, sir.
Senator R eed . Then is not the fa c t that you have a large part of
your money invested in time securities, which you can justly refuse
to pay, really an element of strength to a bank f

B A N K I N G AND C U R R E N C Y .

2317

Mr. T il t o n . N o, sir.
S e n a to r R eed . Y ou do n o t th in k it is?

Mr. T il t o n . No, sir.
Senator R eed . I want to be sure you understand mv question. If
all your money was subject to demand at once—if half of your money
was held on time deposits that you could justly refuse to pay when
demand was made before maturity—then is not that fact an element
of safety to you ?
Mr. I ilton. Mr. Chairman, that is one of the banking propositions
that reads very well, but no matter what the strain or stress was, and
no matter what maturity there might be on a savings deposit, there
is not one good bank in a hundred that can afford to decline payment
on a savings account when it is demanded, even though it may not be
lawfully due until six months thereafter.
Senator R eed . I thought it was a thing that they ought to be en
couraged to do—that the banks ought to be encouraged to do that
sort of business, because it might be a very great element of safety in
the hour of trouble; but you seem to take the other view.
Senator N elso n . I will tell you what the facts are. They issue
time certificates, say, for six months, with a statement that if left
six months they will pay that much interest. But, as this gentleman
says, whenever a man comes to get his cash, they always give it to
him, whether the time is out or not, and all that that man loses is the
interest.
Mr. T il t o n . Precisely.
Senator N elso n . That is the way it is run.
Mr. T ilton. And more than that, if a person came to your bank
and wanted the money and you did not let him have it—suppose he
offered the certificate of deposit on the savings bank as security for
a loan for the unexpired period, you would not turn him down. If
you refuse to do that, or will not let him have the money, you will
start a countryman from your front door who is going to rouse the
neighborhood.
Senator H it c h c o c k . Y ou seem to hold rather emphatic views in
regard to country banks.
Mr. T il t o n . I ought to have emphatic views; I have been through
the mill.
^
Senator H itc h c o c k . Y ou did not get all your views in Boston,
from the city banks, who are supposed to have intimidated you?
Mr. T il t o n . I carried my views there and came back with them.
Senator H it c h c o c k . Did the other country bankers have equally
as positive views as you have ?
Mr. T il t o n . Some of us considered these provisions much more
important than any others.
Senator H itc h c o c k . Then the convention of the country bankers
was the real thing, and the spontaneous expression of country-bank
sentiment?
Mr. T il t o n . Y es, sir.
Senator N elso n . Tt was not an infection you got from the big city
bankers? [Laughter.]

2318

B A N K I N G AND CU R R E N C Y .

Mr. T il t o n . I issued the call, arid I wrote the resolutions, and I
had no conversations with any persons whatever before I issued the
call.
Senator R eed . Who is supposed to represent the sinister influ
ence we have been reading about ?
Mr. T il t o n . We do not know anything about that sinister influ
ence.
I have tried to show, gentlemen, why the savings section should
not be allowed to stand, and so ive ask that it be stricken out. If
that is allowed to stand, we will have to face a loss in the matter of
exchange. Small country banks which represent over half of the
total do not make excessive profits. Many of them eke out a bare
existence. Every item of expense is pared to the last farthing, and
official salaries, and I say it to my sorrow, are kept down below the
amount to which we are entitled.
Senator N elson. They do not give any $20,000 salaries like the
big city banks?
Mr. T ilton. The highest salary is $4,500 a year, and the lowest
is $1,200 in the bank with which I am connected. There is not much
opportunity to get rich out of that kind of a system.
Senator Reed. What does the cashier get as a yearly salary?
Mr. T il t o n . From $900 to $1,200.
Senator R eed . What does a clerk get?
Mr. T il t o n . From $50 to $75.
Senator R eed . A month?
Mr. T il t o n . Yes, sir.
Senator Reed. And does the president of the bank draw a salary
unless he is active?
Mr. T il t o n . N o, sir.
Senator R eed . And if he is active, what would he be doing, acting
as cashier, or what ?
Mr. T il t o n . I do not know of any country bank president who
gets more than $1,800.
Senator N elson. D o you give them 30 days annual leave and 30
days sick leave? [Laughter.]
Mr. T ilton. That depends on how much stock he has. [Laughter.]
Senator R eed . In a word, the salaries are low and the expenses
are kept low, and an institution run in that way, if it does not make
anv bad loan, may make a little money?
Mr. T ilton. Yes, sir
Senator R eed . And be o f service to the community.
Mr. T ilton. I want to say right there that a lack of profits in
banking is the most dangerous factor in bank solvency that is ex
tant. You get a president or a cashier prodded by a board of di
rectors, and they are in turn being pushed by dissatisfied stock
holders who are complaining of the earnings of their institution,
because they are not getting their 6 or 8 per cent dividends and 4
per cent surplus, and you put a bank official in that kind of a posi
tion, Mr. Chairman, and you have started that bank on the road to
ruin.
Senator N elson. He has to make risky loans, speculative loans,
because of the higher interest?

B A N K I N G AND CU RRE N CY .

2319

Mr. T ilton. Yes, sir. In conclusion, the country banker wants
this bill to be a success. We are not looking upon it as a partisan
measure. We believe it is something designed to benefit all the
people. We believe it can be made a success with our cooperation*
but we feel it is an injustice to attempt to pass any bill which the
small country banker can not take part in. I do not care for the
little $2,500 assessment in the stock of the Federal bank; I would not
mind if it was $5,000. I would be gaining an additional friend on
top of my nearby city connection. I could go to the Government
bank, and as a matter of law demand that my commercial paper
be changed into currency, whereas now I can only go to a nearby
friend and ask it as a favor from him.
Senator H itchcock. Suppose the reserve bank refuses to discount
your paper?
Mr. T il t o n . That is not what they are there for.
Senator H itchcock. There is nothing in the bill to compel it.
Mr. T il t o n . I would not care to discuss that question. We would
go around and buy a box of cartridges, I guess, and a gun.
[Laughter.]
Senator R eed . We have been asking for practical suggestions.
[Laughter.!
Mr. T ilton. Mr. Chairman, and gentlemen of the committee, the
national country bankers do not want to surrender their charters.
You have not any right to force us to do so. We are proud to do
business under the laws of the United States, and if the time ever
comes when we must surrender that charter, and attempt to go back
to the State charter, it is going to mean a very marked reduction in
our business. How can a countryman understand why this has been
done? You can get up on the housetop and talk for months as to
the reason why the Government has passed the law which you can
not do business under. It will drive our customers away, and you
have no right to disregard the 4,000 or 5,000 country national banks
and say that we are going to fix up something for the big banks in
the fiscal centers, and let you stay out and surrender your charters,
and use your name, and continue to rely upon the same people you
have been relying upon.
Senator R eed . Y ou seem to be under the impression that the coun
try bankers had some kind of a right to be heard before they were
le ’ dated out of existence.
r. T il t o n . Yes, s i r ; we feel th a t w ay, q u ite deeply.
Senator O ’G o r m a n . Have you had any opportunity before these
hearings to present your views regarding this pending legislation?
Mr. T il t o n . N o, sir; this is our first opportunity.
Senator O ’G orm an . I am not speaking of you "particularly, I am
speaking of the country bankers.
Mr. T il t o n . This is the first time we have been represented by a
committee. There may have been individual country bankers who
have had an opportunity to be heard. I do not believe there has
been a country banker who is truly a rural banker, as myself, who
has had an opportunity to be heard; I mean a banker representing a
bank with $25,000 capital and less. We are over half of the total
number of country banks.
Senator H itchcock. It is very evident that the country bankers
have not been heard or this bill would have been amended.

2320

B A N K I N G AN D C U R R E N C Y .

Senator R e e d . D o you really think it is worth while for this com
mittee to take two or three days of our time in order to hear the
country bankers? Do you think that would be a good expenditure
of time on the part of seven or eight men?
Mr. T il t o n . Yes, sir.
Senator N elso n . D o you think we are justified in having these
hearings and listening to you gentlemen?
Mr. T il t o n . Yes, sir.
Senator N elso n . And taking into consideration the fact that it
would seriously affect you ?
Mr. T il t o n . Yes, sir.
Senator N elso n . Y ou think we are justified in that?
Mr. T il t o n . Yes, sir.
Senator N elso n . I am glad to hear it.
Mr. T il t o n . If we are unable to go into the system, the small
country banker might give up his charter. That is certain. If we
are able to retain our charters and go into the system, I believe that
most of the State banks will also do the same thing.
For one I believe that the idea is rapidly growing that we should
have but one banking system in the United States. And I feel that
just as soon as the State banks see that they have an opportunity to
come in under this bill and have a part in this new financial system
they will be willing, without being forced to do it at once, to give up
their State charters and do business as national banking institutions.
Now, Mr. Chairman and gentlemen, you have the choice before
you. You have two sections in this bill, the only two we are con
cerned with. We expressed at Boston no opinion as to whether
there should be 1 or 100 banks, whether there should be 3 or 30 men
on the Federal board. We are not concerned with those things. I
do not believe there is any chance for a Government bank to be
located at Pell City, and I do not believe there is any chance for any
o f us ever getting on any of these boards. If we have a chance, we
might be a little bit excited about that, too. The things which we
have presented here now are the two things which will enable us to
become a part of this system.
Senator R e e d . Do y o u think there is a n y chance for some of you
country bankers, you little men with the banks of $25,000 capital—
I mean the capital is little, not that the men are little—to be on the
board of directors of a regional bank?
Mr. T il t o n . I do n o t im a g in e so.
Senator R e e d . Why not? You have the same vote.
Mr. T il t o n . I have not gone into that question.
Senator O ’G o r m a n . Perhaps if you organized them as y o u organ
ized the Boston convention you might accomplish something.
Mr. T il t o n . I would not undertake that. Here are two features
of this bill that are not germane to it. The bill might be perfect as
it stands; it might do something that was miraculously inspired, and
you could remove the two sections from it and it w o u l d d o the bill
absolutely no harm. You have the choice of keeping those two
features in and keeping out from 7,000 to 12,000 banks. And from
what I have heard and seen in this committee room since I have
been here I am going back home absolutely certain that no injustice
is going to be done to the country banker.

B A N K I N G AND CU R R E N C Y .

2321

Senator R eed. Suppose we make the changes that you gentlemen
suggest, in substance; perhaps not the changes that you suggest, but
give you substantially what you ask for. are you not coming into
this system?
Mr. T il t o n . Yes, s i r ; on the run.
Senator R eed . That is what we want to know.
Well, who is the next witness? I believe Mr. Barry is the next
witness.
STATEMENT OF DAVID BARRY, CASHIER OF THE FIRST
NATIONAL BANK, JOHNSTOWN, PA.

Senator R eed . What is your topic, Mr. Barry?
Mr. B arry . Reserves.
Senator R eed . Where do you live, what is your bank, and what is
your position?
Mr. B arry . My name is David Barry; I am cashier of the First
National Bank, of Johnstown, Pa.
Senator R eed . What is the capital o f that bank?
Mr. B arry . The bank was organized in 1863, and was the fiftyfirst national bank to be organized.
Senator R eed . What is the capital?
Mr. B arry . $400,000 c a p ita l.
Senator R eed . And the surplus?
Mr. B arry . $500,000 surplus; undivided profits, $70,000; deposits,
$6,000,000; and our circulation is $209,000.
We have 190 stockholders, and all but about 50 shares of our stock
is held in our community. I want to say at the start, Mr. Chairman,
that in the panic of 1907, although we are located in a great manu
facturing center, where we have heavy pay rolls to meet, in the panic
of 1907 everythinsr was paid on a cash basis.
Senator R eed . Did you put any limit on your depositors?
Mr. B arry . None whatever.
S e n a to r R eed . H ow m a n y o th e r n a tio n a l b a n k s are th e re in y o u r
to w n ?
Mr. B arry . I have those figures here. We have 3 national banks,

4 trust companies, and 4 State banks.
Senator R eed . What is the population ?
Mr. B arry . The municipality, I should say. has 60,000. but the im
mediate neighborhood would probably brimr it up to 75.000.
Senator R eed . Y ou m a y proceed.
Mr. B arry . I am asked to speak on the question of reserves, as it
concerns the country banks, and I will read the resolution adopted at
the Boston meeting in regard to reserves:
That whatever percentage of reserves is agreed upon should carry with it the
right to keep not less than one-tliird of such reserves with approved reserve
agents in fiscal centers. The reduction of reserve from 15 to 12 per cent is no
real advantage to the country bank. Very few country banks can do business
without having a larger amount of funds either in vault or with near-by connec
tions. These connections must be maintained after the passage of this law.
The money so held by them should be counted as a part of the country-bank
reserves.

I f you will permit me, Mr. Chairman, to refer to the proposed law
as compared to the present law, I will say that the proposed law

2322

B A N K I N G AND C U B E E N C Y .

provides, when it goes into final operation, that the reserve to be held
by country banks must be as follows:
Five per cent of our deposits must be held by the regional reserve
bank, 5 per cent must be held at home, and 2 per cent may be kept at
home or with the regional reserve bank, as we may prefer.
Senator P o m er en e . Yesterday in a question I misstated the pro
visions of the bill, confusing the provisions of the bill with a sugges
tion which was made here. It is 5 per cent in the vaults, 5 per cent
in regional reserve banks, and the other 2 per cent ma}' be either one
place or the other.
Mr. B arry . If you will turn to page 37-----Senator R eed (interposing). Either in the reserve bank or in their
own vaults; but there is no option permitting you to keep that 2 per
cent with any other bank?
Mr. B arry . Oh. no. It is optional between our vault and the re
gional reserve bank, so far as the 2 per cent is concerned. Five per
cent must be kept at home and 5 per cent must be with the regional
reserve bank, and 2 per cent we may have either in our own vault or
with the regional reserve bank.
Senator R eed . All rig h t; there is, then, no dispute between us.
Mr. B arry . The present law, which we are operating under now,
requires that 15 per cent of our deposits be kept in reserve: not less
than 6 at home and the other 9 entirely optional. It may be kept at
home or with our approved reserve agents, as we see fit. Country
banks, indeed, keep on hand for pay-roll purposes, as they do in our
district, more than 5 per cent, sometimes 10 per cent, and sometimes
15 per cent of their deposits, and we think that should be permitted to
count as a part of the 7 per cent reserves, provided it is kept in law
ful money. Under the proposed law. cash on hand over 7 per cent
would be counted as reserves, and yet if so counted we must take it
out of our possession and send it away into the possession of the re
gional reserve bank, where we can not get it. and then it counts as
reserves. Most of Pennsylvania, Ohio, New Jersey, New York. In
diana, Illinois, Maryland, Virginia, and West Virginia, except one
section, are deeply concerned over this provision of the bill. When
I came here this morning several gentlemen from the far West and
the South asked me to make particular mention of this feature, which
was an important thought in my mind at the time. So it is not pecu
liar to our district.
We feel that the banks in the country should be permitted, as I
said a moment ago, to count as reserve any lawful money they may
hold in their vaults over and above 7 per cent, even though it reduces
their balance with the Federal reserve bank below 5 per cent. We
believe that to modify the law as we suggest would strengthen the
bill and not weaken it, and we feel, too, there is no likelihood that
any country bank will abuse this privilege because there is no in
centive.
Senator R eed . H ow low would you allow them to Have their re
serves in the Federal reserve bank?
Mr. B arry . Without fixing any fixed limit, I should think that
reserve ought to be in every sense of the word a reserve for the
country bank. You take, for instance, I am not referring particu
larly to ourselves, we are so large that the ordinary rules do not
apply to us; but you take a bank with deposits of, say, $1,000,000.

BANKING AND CURRENCY.

2323

Under the law it must keep $120,000—$50,000 at home and $50,000
with Federal reserve bank, and, we will assume, the other $20,000
at home. That is $70,000. One of its depositors comes in and pro
ceeds to build up a great deposit account in order to make a pay roll
the next week. So large have the deposits of the country bank in
creased for this particular purpose, that night, that the country
banker must, under the terms of the law ship 5 per cent of those in
creased deposits to the regional reserve bank.
Senator N elson. The 2 per cent optional will take care of it.
Mr. B arry . I assume that 2 per cent is at home, because a pay
roll bank will need the 2 per cent at home, and a good deal more.
I assume it will keep that much at home, where they need it worse
than in the regional reserve banks. Now, the depositor, having de
posited daily for 10 days in order to meet a pay roll, in order to
have a large balance to meet his pay roll, comes in, we will
say, on Saturday, and asks to have given him approximately 7
per cent of the deposits, under these circumstances. That bank dare
not temporarily use for even a day or two, as the case may be, any
portion of its balance at a Federal reserve bank. If it is loaning
close to its reserves, it must positively borrow money for one, two,
or three days to meet this pay roll.
Senator N elson. Suppose that money is in a bank in New York,
and the bank uses it as they did in 1907; what will they do?
Mr. B arry . We managed to get along.
Senator N elson. Y ou managed to get along, but you got along
without that reserve money.
Mr. B arry . Yes; b u t that is liable to happen to-day.
Senator N elson. Was not that one of the causes of the panic, that
the reserves had piled up in New York and they could not afford
to pay 2 per cent interest on those deposits, was not that it ?
Mr. B arry . I t may be----Senator N elson (interposing). And they invested it on call loans
in the stock exchange, and when the panic came, those loans were
the least liquid of all its assets.
Mr. B arry . I am----Senator N elson (interposing). You would simply be perpetuating
a vicious system.
Mr. B arry . I am talking on quite a different subject. The point I
raise is this: We have a large pay roll to make up.
Senator N elson. Yes.
Mr. B arry . And we dare not take it nil out of our vault, because
if we do, we will run below our reserve there, and therefore we must
keep a balance with other banks in order that we may get it quickly,
because we dare not take it out of the regional reserve bank, even
temporarily.
Senator N elson. Y ou can not take your reserves. If you should
take your reserves you indirectly violate the law.
Mr. B arry . Under the old arrangement, Senator Nelson, we are re
quired to keep 15 per cent, and we were permitted to keep 9 per cent
of that wherever we saw fit. Now we are denied that right, and the
provision of the law that positively fixes 5 per cent to be kept at home
and 5 per cent to be kept in the regional reserve bank compels us to

2324

B A N K I N G AND CU R R E N C Y .

keep a much heavier reserve at home in order to meet these pay-roll
demands.
Senator B ristow . Let me see if I understand you. Say that your
deposits were $1,000,000. Then, under the present law, you would
have to have $150,000 of reserves?
Mr. B arry . Yes.
Senator B ristow . That $150,000 could be in other reserve banks or
in your vaults?
Mr. B arry . N o ; 6 p e r cen t is th e m in im u m th a t you m u st have.
Senator N elso n . But you can have 15 p e r cent, i f you want it?
Mr. B arry . Yes.
Senator B ristow . And you may have all of it there. Under this
proposed law you have got to have so much in your vault and 5 per
cent in the Federal reserve bank?
Mr. B arry . Yes, sir.
Senator B ristow . N ow , you can not use that 5 per cent in any way;
that has to be there?
Mr. B arry . It m u s t be there.
Senator B ristow . S o that you might have a large amount of cash
at a certain time in the week at home, in fact, in excess of the 7 per
cent, but nevertheless you could not count any part of that as a re
serve, because you have got to have 5 per cent of your deposits any
way in this bank?
Mr. B arry . Precisely. Let me illustrate that, Senator. We will
assume the deposits are $1,000,000, and you have $49,000 with
the regional reserve bank, and then $160,000 for pay-roll purposes.
Senator B ristow . Y ou have to have $50,000 with the regional
bank ?
Mr. B arry . I am first supposing that for the moment you happen
to get below the amount fixed by law. If your deposits are $1,000,000,
and you have only $49,000 in the regional bank and send the other
$1,000 home for pay-roll purposes you are below the law.
Senator P o m er en e . Let me ask you there, what actual reserves
do you keep on the average?
Mr. B arry . A s I said a moment ago, I am not pleading for our
selves, because we carry such an excess of reserve that the law would
not apply, but I am pleading for the country bankers in the great
pay-roll centers. Our deposits of $6,300,000 we had protected, at our
last statement, $605,000, and had from other banks $1,137,000. That
is to say, we had $1,700,000----Senator P o m erene (interposing). What per cent would that be?
Mr. B arry . Ten per cent cash at home and 15 per cent with the
reserve agent and 3 per cent scattered among our reciprocal friends.
Senator P o m er en e . Twenty-eight per cent, in other words?
Mr. B arry . Yes.
Senator P o m er en e . There is not anything in this bill which would
prevent any banker from keeping in excess of the 12 per cent if he
sees fit.
Mr. B arry . Precisely; but 5 per cent he must keep with the re
gional reserve bank, which seriously hampers the smaller bank.
Senator N elson . But he can get a discount on that.
Mr. B arry . That will be a very slow process. You can not get
it done by telephone, as Mr. Rogers suggested a moment ago.

B A N K I N G AN D C U R R E N C Y .

2325

Senator N elso n . When a bank gets so its life or death depends
on that 5 per cent the bank is hardly worth preserving.
Mr. B arry . Perfectly true, but the 5 per cent ought to be of some
use to the bank, nevertheless.
Senator N elson. It can use it by discounting paper for it.
Mr. B arry. But the point is, there is no use the bank can make
from day to day of those reserves as it can now.
Senator P o m er en e . S o your opinion is that the reserve system now
is entirely satisfactory?
Mr. B arry . Not at all.
Senator P o m er en e . Don’t 3*ou think the reserve provision in this
bill is an improvement?
Mr. B arry . Provided the 5 per cent is absolute----Senator P om erene (interposing). You have 15 per cent now and
part of it you must keep in your own vaults.
Mr. B arry. The rigidity of the present law is what we suggest be
modified.
Senator N elso n . Y ou can keep 1 per cent more under this law than
you are required to keep under the existing law.
Mr. B arry . One per cent less.
Senator N elso n . N o ; you can keep 7 per cent in your vaults in
stead of 6.
Mr. B arry. But, as I say, in actual practice we do keep 10.
Senator P o m eren e . I s not the rigidity less in the proposed law
than under the present law?
Mr. B arry. Pardon me. There is no rigidity in your resources
with your reserve agents now.
Senator P o m er en e . My question was as to the amount.
Mr. B arry. The amount is smaller, I admit.
Senator N elso n . If you drew all your reserve out from your re
serve agent you would be violating the law.
Mr. B arry . Certainly, but nevertheless we would be using the re
serve.
Senator P eed. At the present time if a bank had deposits of
$1,000,000 it would have to have some place, either in its own vaults
or the vaults of other banks $150,000 reserve?
Mr. B arry . Yes, sir.
Senator R eed. N ow, if it carried that reserve, 6 per cent in its
own vaults and 9 per cent in other banks which it could do, it could
get accommodation from those other banks if it needed money sud
denly?
Mr. B arry . Yes, sir.
Senator N elso n . Provided there was no panic.
Senator Reed. I am speaking about ordinary conditions. If it
wanted to run its reserves down in these other banks it could do so
provided at the same time it ran its reserves up in its own vaults?
Mr. B arry . Precisely.
Senator R eed. If it wanted to run its reserve in its own vaults
down clear to the 6 per cent it would do so, provided the aggregate
in all the places was 15 per cent?
Mr. B arry. Precisely.
Senator R eed . N ow , under this proposed law it has to keep 5 per
cent in the regional bank, and that 5 per cent in the regional bank is
fixed?

2326

B A N K I N G AND CU R R E N C Y .

Mr. B arry. Absolutely.
Senator Heed. And it has to keep 5 per cent in its own vaults,
which is another fixed thing.
Mr. B arry. Y^s.
Senator R eed. And when you approach the line of 5 per cent in
their vaults you must stop, and the only leeway that is left is 2 per
cent. You can keep 2 per cent in excess in the regional bank or you
can keep 2 per cent in excess in your own vaults?
Mr. B arry. Yes, sir.
Senator R eed. S o you have a leeway of 2 per cent, whereas under
the old law you had an actual leeway of 9 per cent.
Mr. B arry. That is it.
Senator R eed. N ow, you claim that as it works out it would be
something like this: You have $1,000,000 deposits normally, and
normally you would have to have $60,000 in your own vaults, under
this bill, and $50,000 in the regional bank, and 2 per cent—or
$10.000—you could keep in your own vaults or in the regional bank
as you pleased. You have $10,000 there you can move back and forth,
and that is an advantage.
Mr. B arry. $20,000, if you please; it is the rigidity, it is the fixed
investment, you may say-----Senator R eed (interposing). I understand.

Now, a man comes in
along about the first of the week, and he puts in $20,000, and per
haps later in the week he puts in $30,000 more. Now he has $50,000
in your bank that he is going to use on Saturday night to pay his
men off with. But the minute the $50,000 is put in your bank you
must send 5 per cent, of it, which is $2,500, to the regional bank.
You have that much money you must send to the regional bank, and
you can not possibly use it on Saturday night.
Mr. B arry. And you can not possibly get it until several days
after you have got this amount of cash.
Senator R eed. That is the thing you object to ?
Mr. B arry. Yes, sir.
Senator R eed. And, Senator Nelson, I do not think that goes to
the question of the solvency of the bank.
Mr. B arry. Not at all.
Senator Neeson. We must legislate, to my mind, for periods of
stress. In ordinarily good prosperous times, when everything moves
easily, almost any system will do, and our legislation must be shaped
to meet emergencies. The panic of 1907, if it disclosed anything,
disclosed the fact that our system of bank reserves was a danger.
Senator R eed. Yes.
Senator N elson. And this gentleman takes exactly the stand that
Mr. Reynolds took; and, to my mind, it amounts to this: That these
large city banks want to stili continue to hold these reserves that
they have been able to hold under the present system.
Senator R eed. A s I understand, his position is not exactly that
He would like to have the privilege of running the reserve in the
reserve bank down below 5 per cent, provided at the same time he
could run the reserve up in his own bank enough to compensate it.
Do you claim the right to put that reserve over in a third bank?
Mr. B arry. I believe the country bankers would agree with me
that we would rather have the percentage of reserve increased back

BANKING AND CURRENCY,

2327

to 15 per cent, provided we were permitted to keep some with our
present city banks, where we can get accommodation.
Senator N e l s o n . And this 2 per cent interest.
Senator R eel . Suppose that were not done and this bill were
amended so that there should be never less than 3 per cent in the
regional banks, and a total in the regional bank and in its vaults of
not less than 12 per cent. Would that do you any good?
Mr. B a r r y . That would help some.
Senator R e e d . Of course, that is depleting the reserves in the
regional bank and making it so there would not be much money there
to run it with.
Mr. B a r r y . Five per cent of $6,000,000,000 is a great deal of
money; $300,000,000 added to the Government’s deposits make an
enormous fund.
If you will permit me to go a little further, I will develop the
question why we want to keep our reserves to some extent with city
reserve banks, and I will discuss another point or two along the way.
The question has been asked by a good many country bankers here
whether the law will be construed in figuring these reserves that the
reserves will be counted as the books of the regional reserve bank
show or as the books of the country banks show. We believe that
is a matter of sufficient importance to have it defined in the bill. That
may not seem important until we study the question very closely. As
Mr. Tilden stated here a while ago, and Mr. Woodruff before him,
there is only one way that a bank of our size could be safe in obeying
the law if 5 per cent is absolute^ insisted upon and if the regional
bank is permitted to charge against our balance of checks that come
on us. There is only one way we can be safe, and that will be to
keep nearly 10 per cent with the regional bank. If the reserves are
figured according to our books, then we can keep pretty close to 5 per
cent all the time and not much of an excess.
Senator R e e d . Why is that?
Mr. B a r r y . For instance, when we start in in the morning we do
not know what our morning mail will contain. Our mail often brings
in $150,000 worth of checks on us. If they came through the regional
bank, and our reserve there is $300,000, our reserve is gone. But if
it is figured according to our books and we can make that good the
same night, that is an entirely different proposition.
Senator N e l s o n . I have no doubt but that that rule would be
adopted. I can not see how they could adopt any other rule.
Senator R e e d . It is manifestly quite important.
Senator N e l s o n . Besides, that brings us to another question here
that one of the bankers suggested, and that is this question of net
deposits. You will remember that one gentleman—I do not recall
his name—said that in the gross deposits you should deduct matters
in transit.
Senator B r i s t o w . That was Mr. Vanderlip.
Senator N e l s o n . S o that if you deducted those matters in transit
and took the net deposits you would not have this difficulty.
Mr. B a r r y . The next proposition is. coming back to the subject
again, that I asked that our country banks be permitted to carry a
portion of their reserves, provided, of course, the proper amount be
carried in their vaults and a proper amount be carried in the Federal
reserve bank. They ought also to be permitted to carry with city
S. Doc. 232. 63-1— vol 3-- 26

2328

B A N K I N G AND C U R R E N C Y .

banks and count as reserve some of their balances. From its very
nature, we doubt whether the regional reserve bank will ever become
so intimate with the country bank as to give it the service the country
bank gets now. There is an old story about a city bank cashier in
New York -who was very much concerned because he could not match
a piece of dress goods that a cashier in the West sent him, and, more
recently, we all know the trouble that has been caused New York
bank cashiers by requests for tickets for the ball games. It may be
improper, but it shows the intimate relationship and friendship in a
business as well as a personal way between the city bank and the
country bank.
Take our case, and the case of all these banks in the great pay-roll
centers. I t may be interesting, perhaps, Senators, to know that our
bank alone makes up and pays cut over its counters every month
approximately $1,400,000 in actual cash, which is disbursed right
there in our community, and that does not include the pay rolls of the
Pennsylvania Railroad and the Baltimore & Ohio Railroad and sev
eral other very large pay rolls. I dare say the pay rolls in our com
munity will run close to $1,750,000 a month.
Senator Nelson. Your town is where the great flood was some
years ago?
Mr. BARRr. Yes.
Senator N elson. I can locate it now.
Mr. B arry. A long time ago -we had an arrangement much less
satisfactory than the present one. Our bank itself, for instance,
constitutes itself a sort of reservoir for all our neighboring banks.
When they get too much cash we have a gentlemen’s agreement that
we will take it off their hands, because we have these enormous pay
rolls to make up. And that, perhaps, may answer the question that
may be in the minds of some of you, why we keep at home 10 per
cent. The reason for that is that we have to make up these enormous
pay rolls, so we relieve our neighbors of this cash. Nevertheless,
we find ourselves at times, when unexpected pay roll demands come,
that our cash at home is not quite as much as it should be. A long
distance telephone message to Pittsburgh at 10 o’clock in the morn
ing will bring out what we need in any amount. A long-distance tele
phone message to Philadelphia to-day will bring the money out to
morrow. We do not believe we could get that service from the
regional reserve bank; we know we could not, and that is one of the
reasons why we ask that we be permitted to carry a portion of our
reserves with our present city correspondents.
Senator O’G orman. What proportion do you suggest you should
be permitted to carry with your present city correspondents?
Mr. B arry. I should say 3 per cent. Perhaps I should say, make
it equal, half and half; I mean the same amount with the city
correspondent as we carry with the Federal reserve bank.
Senator Nelson. That would be 5.
Mr. B arry. Senator Reed suggested a moment ago 3; that we be
permitted to reduce our depostis in the regional reserve bank to 3
per cent, and keep 3 per cent with our correspondents.
Senator N elson. Suppose this fluctuating amount of 3 per cent—
I call it fluctuating because it may be in either one of two places—sup-

B A N K I N G AN D CU RRE N CY .

2329

pose that were placed with your big city banks. Now, instead of
being fluctuating----Mr. B arry (interposing). That would not help us much, Senator,
because the amount we require at home is often in excess of the
7 per cent we are permitted to have.
Senator N elson —. There would not be a great difference.
Mr. B arry . A s I said a moment ago, wTe would prefer the reserve
to be continued at 15 per cent, kept in the way I suggest, and to
have it 12 per cent and limited to two places.
Senator P o m eren e . A s I understand your testimony, you said this
question of reserves would not affect your individual bank very
materially.
Mr. B arry . N o.
Senator P o m eren e . And you simply had some concern about the
smaller banks?
Mr. B arry . Some, because I h a v e talked to th em .
Senator P o m er en e . On an average, what reserves do they carry?
Mr. B arry . They keep as close to the 15 per cent as they can.
Senator P o m er en e . I know that is the legal reserve, but are they
somewhat in excess of the 15 per cent?
Mr. B arry . Not to any great extent. As I say, they keep as close
to it as they safely and comfortably can.
Senator N elso n . The country banks in my section, as a rule, keep
a great deal more than the 6 per cent in their vaults.
Senator P o m er en e . Most of th e c o u n try b a n k s we h av e h e a rd from
th u s far.
S e n a to r B ristow . I n th e la rg e cities, I th in k , we w ill find it som e
w h a t d ifferen t.
Mr. B arry . Here is a peculiar condition. A bank of our size, for

instance, within 5 or 10 miles of Pittsburgh, will not keep the enor
mous reserve in the vault that we keep, because they can send a
messenger down with a bag and he will bring it back on the street
car in a few hours. We can not do that. The cost of shipment and
all that sort of thing would more than make up the amount we have
on deposit.
Senator R eed . Mr. Barry, how are you going to build up a central
reserve bank system and a regional bank system that is going to be
strong enough to withstand the pressure in the hour of adversity
and sustain the banking system, unless it has some money on hand to
do it with?
Mr. B arry . Well, Senator, that is a very big question, but the
thought that is in the mind of the country banker is this—if you
will pardon me until I make some figures here. The Government
proposes to take 10 per cent of our capital stock at once, and the
Government also proposes to take 5 per cent of our deposits of $6,000,000,000, which is $300,000,000. I do not know what the Govern
ment deposits will be, but I am told $150,000,000.
Senator N elso n . It w ill all depend on the revenues, you know.
Mr. B arry . Yes. The bank will start out with resources of $550,000,000; and, since the statement of the Comptroller of the Currency
made up on June 4, 1913, showed that the total amount of rediscounts
and borrowings of all the national banks in the United States

2330

B A N K I N G AND CU B B E N C Y .

amounted to only $73,000,000, the country banker is asking, Where
is the need of starting out with $550,000,000 ?
Senator P omerene. Oh, well, you understand that under this pro
posed system rediscounts would not be as unpopular as they are now.
Mr. B arry. Senator, I think you will find scattered throughout
this country a very large number of banks, ours being one of them—
I think, a majority of the banks—that look with considerable horror
on the idea of placing themselves in the position of borrowers.
Senator P omerene. That is because of an old system that has
prevailed here for years.
Mr. B arry. Y ou w ill find a great many banks, too, that are so
situated—-they are fortunate, I admit—that they do not need to
borrow, and no matter what provisions are made in the currency bill
for rediscount they w ill never avail themselves of the rediscount.
Senator R eed. X ow, one trouble which we have to contend with,

as I understand it, is this: That a bank takes its reserve, and, instead
of keeping it in its own vaults where the law may require it to be
kept, it deposits it in another bank. It may be deposited in a number
of banks, pyramided, and then when the crash comas, by the failure
of one bank the money may be tied up in a half a dozen banks. Now,
you want to prohibit that system to some extent by forbidding de
positing in other banks, do you not?
Mr. B arry. I think, Senator, that if the bill is passed than danger
will be at an end, because we still have the regional bank to come to
and to rediscount for our city banks and move our reserves. The
country bank views the situation in this way: The city bank renders
us a service which the regional reserve bank, under this bill, can not
possibly render. Now, permit me to state a few transactions that
come across our counter daily.
We have some large manufacturing establishments in Johnstown,
and the practice was several years ago when we had an item from
them to the Pacific coast to send it to Pittsburgh, and Pittsburgh, in
a leisurely manner, would sent it to Chicago, and Chicago in turn
would send it to San Francisco, and San Francisco, perhaps, would
forward it to Seattle, and Seattle would make returns back the
whole way. Our arangement is now that we send that item out
by special delivery, together with instructions to the bank at
Seattle to collect and remit for our credit to the bank in San
Francisco, the bank in San Francisco wiring us when they have the
credit. Under ordinary circumstances that item is cleared up and
placed to our credit with our reserve agent in San Francisco. Then,
if our needs in the East require it, we will ask our San Francisco
correspondent to make a transfer by wire to New York. These things
I mention—such transactions as that—are absolutely necessary to
the routine conduct of our business and the business of banks situ
ated as we are.
Senator N elson. Are you satisfied with the present banking sys
tem ?
Mr. B arry. N o, sir.
Senator N elson. What are the defects in it in your opinion?
Mr. B arry. The defects are, as Senator Reed said, first, the pyra
miding of reserves.
Senator N elson. I s that all?

B A N K I N G AND CU R R E N C Y .

2 331

Mr. B arry. Another is the rigidity of the currency.
Senator N elson. Are not the two great things that we are seeking
to remedy and cover by legislation, first, to give us a more elastic
currency; and, second, to gather together and conserve our reserves
and utilize them, making a basis for credit and currency? Are not
those the two leading purposes we ought to have in view?
Mr. B arry. I think so.
Senator N elson. Can we afford to take such a penny view o f it
and ignore those two central ideas?
Mr. B arry. In creating this legislation I think it would be well to
bear in mind that banks such as ours in giving up the $300,000 or
more to the regional bank must almost to that extent reduce their
loans.
Senator N elson. We are legislating for the welfare of the whole
country; we can not legislate for any particular bank.
Mr. B arry. I am not asking that. I am speaking for the banks
of this great section.
Senator N elson. Here is one advantage. These reserve banks—
1 or 12, whatever the number may be—can utilize these 5 per cent
deposits, supposing they be discounting commercial paper.
Mr. B arry. Yes.
Senator N elson. N ow, your bank could come to a reserve bank with
commercial paper—and I take it you have such paper as this bill
contemplate—and get that paper discounted and have bills issued
for it. Now, in order to make your bills good, the bank must have
a gold reserve of 33 per cent. That reserve, manifestly, must come
from its capital and 5 per cent of its deposits. Now, the best part of this
system is the fact you are not paying 5 per cent on your deposits.
That is the great thing that is permitted, and you build up these re
serves. Don’t you know that?
Mr. B arry. T wo per cent may be part of the attraction, but there
are banks in the cities to-day that we would rather keep a free balance
with and have the service they render than for other banks to pay
us 2 or 3 per cent.
Senator N elson. Y ou can keep everything you like outside of this
5 per cent,
Mr. B arry. I understand; but it is going to reduce country bank
ing loans by approximately that amount they put in the regional re
serve bank.
Senator N elson. They can not give you emergency currency.
Mr. B arry. Pardon me, Senator, but I think they do give us in
ordinary times----Senator N elson (interposing). Clearing-house certificates or
chips----Mr. B arry (interposing). No; during ordinary times they can and
would serve us better.
Senator R eed. Mr. Barry, let us see if you are not overdrawing
that—unintentionally, of course. The ordinary banker who is doing
a conservative banking business does not think of running his bank
down and keeping it down to the mere naked legal reserve, does he?
Mr. B arry. N o, sir.
Senator R eed. He always has that legal reserve, a safety fund—I
call it that for want of a better term—and he has to keep that safety

2332

B A N K I N G AND CU B R E N C Y .

fund there because of the fact that if there were to be a sudden de
mand he might not be able at once to get money. Now, if there is a
place provided where with almost absolute certainty he can get
money and get it within a few hours, he can then loan down nearer his
legal reserve, can he not?
Mr. B a r r y . Yes.
Senator R eed. And therefore there would be some money realized
in that way to compensate for the moneys that were carried away
from the community and over to the regional bank. I want you to
speak with great candor on this----Mr. B a r r y (interposing). That is true, Senator----Senator R eed. I want from you gentlemen your candid, absolute
judgment.
Mr. B a r r y . That is true, Senator; but, carrying out what Mr.
Rogers said yesterday, there are thousands of banks like ours that
would be very sorry to depart from the old practice of being very
strong in cash and reserves.
Senator R eed. Y ou can still continue that, and you can still de
posit with outside banks, carry as much as you want to in the way
of balances, get as much interest as you wrant to, and have the ad
vantage of that, and still have the advantage of this other system.
All that is required is a 12 per cent reserve in the aggregate. Now,
I have great sympathy with your argument that you ought to be able
to count as your reserve the money in the regional bank, or the money
in your own bank, without being required absolutely to keep a fixed
amount in the reserve bank provided that system does not work to the
depletion of the reserve banks’ moneys. If some plan could be de
vised whereby if you ran below for a day or two in the regional bank,
making it up promptly, I would not see so much objection to that.
Mr. B arry. It is the rigidity of this fixed amount, this reserve in

the regional bank-----Senator R eed (interposing). I am onty suggesting this as a mere
thought; I am not committing myself to it. Would it do you any
good if the bill provided that for a period of not to exceed two days,
or three days, or four days, you might at any time impair the reserve
in the regional bank, provided you had an equivalent amount in your
own vaults?
Mr. B arry. It would help quite a good deal. It is the rigidity of
the reserve bank balance that the country banks object to.
Senator N elson. Let me call your attention to this: Under the
existing law banks in central reserve cities are absolutely required to
keep 25 per cent in their vaults against the 5 per cent circulation.
Now, that is a fixed item, is it not?
Mr. B a r r y . Yes.
Senator N elson. The central reserve banks in the three great cen
tral reserve cities of this country must keep 25 per cent, and that
is deader than a doornail, compared with the new reserve banks under
this bill. Now, the reserve banks under the provisions of this bill
can discount and loan money on that reserve, but the central reserve
banks, with a 25 per cent limit, have no right under the law to util
ize that for any purpose. Now, the reserve banks can utilize the 5
per cent for discount purposes, can they not?
Mr. B arry. Yes.

B A N K I N G AN D CU R R E N C Y .

2 333

Senator N elson. So it is not as rigid as the 25 per cent in the cen
tral reserve banks.
Mr. B arry. That may be, but that does not help the country
bankers.
Senator O’G orman. H ave you concluded?

Mr. B arry. Except on one point. Senator Nelson has suggested
how easy it will be to get discounts from the regional bank. That is
not my OAvn view, but I am not speaking for myself. The country
banker, the little fellow in the town of 2,000 population, is asking
how in the world can he ever get close enough and what sort of ma
chinery the regional reserve bank will have. How can he possibly
present his paper to the regional reserve bank and how will they have
the machinery to decide whether or not it is good paper? Compared
with the city banker, he feels himself at a fearful disadvantage in
getting accommodations.
Senator O’G orman. Would you prevent the country banker that
you speak of sending his collateral to the regional bank with the
request for the accommodation he desires, and in due course securing
that accommodation perhaps the following day ?
Mr. B arry. None of us imagine for a minute it would be rendered
the following day. We think it would be a week rather than a day.
Senator O ’G orman. Y ou think so?

Mr. B arry. Yes, sir.
Senator O’G orman. For what reason?
Mr. B arry. In the first place, here we are in Johnstown. The
regional bank may be located in Philadelphia. Under no circum
stances can we expect an answer within two days; and if they take
any time at all to investigate it it will be at least another day. Under
the present arrangement, if you have your securities lying there, you
telephone in, and, just as one of the other gentlemen said a while
ago, a telephone message will temporarily consummate the trans
action.
Senator N elson. Assuming the banks have the currency there?
Mr. B arry. Of course; that is 400 days out of 500, you might say.
Senator P omerene. Can you not assume that a bank situated, for
instance, as yours is, or any other good solvent bank, if they were in
dire need for money the next day they could go to that regional bank
with the prime commercial paper, with the indorsement of the mem
ber bank on the paper, and get that accommodation without any
difficulty^ ?
Mr. B arry. I doubt whether it would come with the same speed as
it comes now from our city banks.
Senator P omerene. Y ou must be a doubting Thomas.
Senator B ristow. I think he knows what he is talking about.
Mr. B arry. I think, Senator, what we would prefer to do would
be to send our paper to a bank in a city where the regional bank was
located and ask them to attend to it for us. We think they would
do it with lightning speed.
Senator W eeks. Mr. Barry, before you leave the stand, you sug
gested a few moments ago you received various advantages from your
relations with your reserve city banks. Can you enumerate those
advantages ?

2334

B A N K I N G AND C U B B E N C Y .

Mr. B arey. Yes; I have some of them here. We have here and
there in every town a number of men with a surplus of money. They
want to buy stocks and securities from time to time and they ask
us to attend to it for them. We must ask our city correspondent to
attend to it for us. We dare not ask the regional reserve bank; it
is in another line of business.
Then, again, we have all sorts of strange collections with bills of
lading attached, which the regional bank will hardly undertake.
Senator N elson. That is the very kind of drafts that we want
the regional banks to collect.
Mr. B a r r y . We have drafts sometimes that are not bills of ex
change in any sense of the word. We ask our city bank to go out
with a verbal club and get that money. They do the most remarkable
things for us. They are close to us as the man outside the counter is.
Senator W eeks. Can you name any others?
Mr. B a r r y . If, for instance, we do not continue these balances
with our city banks, and our customers ask us to buy and sell stocks
for them and we are not able to do it, they will very soon transfer
their balances to the city banks direct. That is about all.
Senator W eeks. D o they 0 . K. the paper you buy ?
Mr. B a r r y . Our particular bank does not buy any, but they do
for a great many banks.
STATEMENT OF F. M. LAW, OF THE FIRST NATIONAL BANK,
BEAUMONT, TEX.

Senator O'G orman. Will you please state the capital and surplus
of your bank?
Mr. L aw . The capital is $200,000, with a surplus of $300,000.
Senator O’G orman. And your deposits?
Mr. L aw . $1,800,000.
Mr. Chairman, I will make the concluding remarks on behalf of
the committee representing the country bankers. Allow me to say
at the outset that, as you perhaps know, the committee which is at
tending these hearings is composed of one representative from each
State, appointed by the country bankers’ conference held in Boston,
and I was appointed on that committee from the State of Texas.
1 particularly wanted to emphasize to this committee the fact—
representing the country bankers, particularly of Texas—that ac
cording to the comptroller’s report of 1912 there are 515 national
banks in the State of Texas and over 90 per cent of that number are
country banks.
I wanted particularly to lay stress on the fact that the country
banks, th*e country national bankers, of Texas are desirous, I think,
almost unanimously, of entering this proposed system. We realize
the need of it, and we believe that the Government is trying to
formulate a bill that will provide the relief needed, provide for a
more elastic currency, and provide for the mobilization and utiliza
tion of reserves.
But on behalf of the country banks of Texas allow me to say that
we believe that the bill as it stands now will, perhaps, work some
hardships upon us as country bankers that we can hardly afford to
bear. They have been enumerated before you. In the first place,
we believe that the loss that will be entailed to us on account of the

B A N K I N G AND CU RRE N CY .

2335

depreciation in value of the Government bonds held against circula
tion and against deposits will be a hard loss for us to bear. The loss
we will necessarily have to absorb on account of the proposed regu
lations in regard to exchange, will take away from us one of the
principal sources of revenue of the country bank
Then, if the proposed segregation of savings deposits were carried
into effect it would remove from us another source of income—one
of the principle sources.
Then, in addition allow me to say that Texas, being primarily an
agricultural State, and the banking business there being based largely
on agriculture, we have conditions there that are different, perhaps,
from conditions in some other centers of this country. Nearly all of
the loans that the country banks make in my State are farm loans,
either directly or indirectly. I do not mean b}7that real-estate loans,
but advances made to the farmers for the purpose of harvesting their
crops. We either loan directly to the farmer or the far i er has his
dealings with the merchant who carries him, and we in turn carry
the merchant. In either case the loans can not be liquidated until
harvest time.
That leads me up to the point of saying that under the provision
of the bill as it now stands not longer than 90-day maturities are
eligible to rediscount from the member banks with the Federal
reserve bank. In or.der for the Federal reserve bank to measure up
to the fullest standard of usefulness to the country banks in any
agricultural section it will be necessary, in our opinion, to lengthen
the maturity of paper that can be rediscounted by the member banks
with the Federal reserve bank.
I believe, after conferring with a large number of country bank
ers throughout my State and some from outside of Texas, that if
a provision can be written into this bill enabling the lengthening of
these maturities, even a percentage of them, to six months it will
give us the relief sought for. And it is n v purpose primarily in
appearing before the committee to emphasize the fact that the coun
try bankers of Texas are in sympathy with the resolutions passed by
the country bankers’ conference at Boston and to say that we feel
that this bill as it now stands will work some hardships that we can
ill afford to stand, but that these amendments which have been sug
gested, if they can be written into the bill, the country bankers, not
only of Texas, but throughout the United States, will not only come
into the proposed association, but will gladly come.
Senator P omerene. May I ask you a question, please, without in
terrupting you?
Mr. L a w . Yes.
Senator P omerexe. H ow do your monthly loans compare one
month with another, in amount? •
Mr. L a w . They fluctuate quite a good deal.
Senator P omerene. In about what ratio?
Mr. L a w . Well, in the making of the crop our loans are, I would
say, 50 per cent greater than they are for the harvest.
Senator P omerene. That is during what months, now, would you
say, they are the largest ?
Mr. L a w . We begin to make advances to the farmer along in Jan
uary and February. Those advances are continuous as he plants his

2336

B A N K I N G AND C U R R E N C Y .

crop, as he cultivates, to the harvest time. We make further ad
vances until the crop is actually harvested and sold. We not only
do this, but sometimes, and frequently, the banks are called upon to
assist the farmer to hold his crop for more advantageous prices, even
after it is harvested.
Senator P omerene. The thought I wanted to develop, if it is true,
is the fact that you have notes constantly maturing every month. Is
not that a fact?
Mr. L aw . Yes, sir; a certain percentage of them.
Senator P o m e r e n e . A very substantial amount?
Mr. L aw . A great percentage of our loans, Senator, mature in the
harvest time, in the fall. We make those loans for instance, in Feb
ruary, and they run until October.
Senator P o m e r e n e . And during what seasons of the year do you
require additional accommodations; or do you require them?
Mr. L aw. Yes, sir. It is during the seasons when we are making
the heaviest advances to the farmers, generally along in July and
August, when our resources are at the lowest ebb and the demand
is greatest.
Senator N e l s o n . If the proportion of the paper to be discounted—
say if 25 per cent of it would be 4-months’ paper, 25 per cent 6months paper, and the balance 90-day paper, would not that help
you out? I mean the maturity?
Mr. L aw . That we could rediscount with the reserve bank?
Senator N e l s o n . Yes.
Mr. L aw . Yes, sir.
Senator N e l s o n . Say 50 per cent of it was 90-day paper; 25 per
cent 4-months paper, and 25 per cent 6-months paper?
Mr. L aw. That would help out a great deal.
Senator P o m e r e n e . What portion of your loans are s i x - m o n t h s
paper ?
Mr. L aw. I would say 50 per cent.
Senator P omerene. And the balance less than that?
Mr. L aw . Perhaps 25 per cent is less than 25 per cent more.
Senator P o m e r e n e . That would be nine months, would it, or a
year?
Mr. L aw . Hardly any loan runs over six months, and we think the
six months would measure up to the requirements, perhaps, because
we would not rediscount any of this paper until part of the time had
elapsed. Paper maturing in October we need not use for redis
count until April or May.
Senator P omerene. At any period of the year would the sixmonths paper that you have on hand exceed one-half of your total
loans ?
Mr. L aw. I hardly think so, Senator. It would perhaps approxi
mate one-half at certain seasons of the year.
Senator P o m e r e n e . And the balance would be less than that—
most of it?
Mr. L aw . Perhaps most of it would be less than that.
Senator R eed. Without desiring to cut anyone off, there are some
New York bankers and Kansas bankers who have been here for

B A N K I N G AND CU RRE N CY .

2337

flrle*inldn / ^ and fiCan say'11 think>for the committee, that if there
a e anj of the gentlemen who are here who desire to file anv briefs
or suggestions with the committee, we would be Yerv glad to consider
them. J3ut m justice to those who have been waiting here I believe
we must be rather brief. Have you any further suggestion ?
Mr. L a w . Nothing at all.
.
. Senator W e e k s . You, of course were present at the Boston meet
ing?
Mr. L a w . Yes.
Senator W e e k s . Did you attend all of the conferences there?
Mr. L a w . Yes.
Senator W e e k s . And you were present at the meeting at which
the resolutions which you come here to advocate were adopted?
Mr. L a w . Yes.
Senator W e e k s . I have in my hand here an extract from a Wash
ington evening paper relating to those resolutions, and I want to ask
you about your opinion of the correctness of the statement made, and
I will read i t :
The hint is conveyed that the influence of the big bankers of New York is
responsible for the apparent unanimity among bankers that really does not
exist, judging from hundreds of letters the President has from bankers in dif
ferent parts of the country giving the bill their approval. It is recognized by
the administration, it was intimated in several quarters to-day, that the pres
sure of the ruling banks of New York is terrific among banks In other parts of
the country dependent on these institutions, to a large extent, for favors and
assistance. There is likely to be a quiet investigation, etc.

Now I know nothing about the correctness of this statement.
There is not a solitary instance of a similar statement, and it is of
considerable importance to this committee to know whether any
terrific or other influence was used to persuade you country bankers,
so called, to adopt the resolutions which you did adopt.
Mr. L a w . I would say, most emphatically not, Senator. My ob
servation, and I was present at all the conferences and all of the
meetings, and at a good many informal conferences that were not
held at any of the sessions—I found absolutely no evidence of any
thing of that kind.
Senator W e e k s . Did you see any such evidence manifest at the
Boston convention, or any influence to have such resolutions as you
adopted considered ?
Mr. L a w . The first mention I heard of it, Senator, was the dis
patches from Washington that news had reached Washington those
sinister influences were at work.
Senator W e e k s . And you did not see or hear anvthing of it?
Mr. L a w . N o, sir.
Senator R eed. N ow. gentlemen, T believe the commitee has heard
representatives of the Boston meeting as far as you have desired. If
there are any further suggestions you have to make, we would be
glad to have you send them to us in Avritten form. We are not
trying to cut you off, but I understand vour wishes have been com
plied with.
Mr. Perkins, we will hear you now.

2338

B A N K I N G AND CU B R E N C Y .

STATEMENT OF JAMES H. PERKINS, PRESIDENT OF THE
NATIONAL COMMERCIAL BANK, OF ALBANY, N. Y.

Senator O’Gorman. Mr. Perkins, just state your full name and
the bank with which you are connected.
Mr. P erkins . James H. Perkins, Albany, X. Y. The National
Commercial Bank.
Senator O’G orman. Capitalized at what?
Mr. P erkins . A million dollars and a surplus of a million and a
half.
Senator O’G orman. And deposits?
Mr. P erkins . About $25,000,000.
Senator O’G orman. I suppose that is one of the largest banks in
the State, outside of the city of New York?
Mr. P erkins . Yes; the largest, except the Marine Bank at Buffalo,.
I think. Mr. Treman and myself come here to represent the cur
rency committee of the New York State Bankers’ Association, which
committee has been at work on this bill for the last six weeks or two
months, off and on, and to offer some suggestions that they wish
offered on the bill, in the way of amendments.
In the first place, we recognize in the present banking system two
great faults, one of which is the inelastic currency, and the other, is
the reserve system which has always broken down in time of stress.
We believe the bill in its present form to a certain extent entirely
obviates the one and to a certain extent obviates the other of those
difficulties. An elastic currency, we believe, is provided for. and
we are not going to make any suggestions upon that subject.
I will first take up the matter of reserves, which is the last matter
the country banks have been talking about, and therefore, perhaps,
it will work in better at this time than later. We are not inclined to
agree with the proposition that has been put forward that the re
serves should be allowed to remain with their present reserve agents.
We believe that the only money that should be reserve, if this new
system goes through, is money that is held in the vault of the bank
or that is held with the regional reserve bank. And although we
believe that that will cause a great deal of upset during the transition
period, we think that that has been somewhat obviated by the lower
ing of the reserve required. We do ask. however, that the period of
transition from the present system to the new system be made much
more gradual than is contemplated in the bill. We represent, as you
see, not only the larger banks of New York City but the country
banks scattered throughout the State. There are about 800 banks
in our association, 000 of whom are outside of the city of New York.
Senator P omerene. Y ou mean national banks?
Mr. P erkins . N o ; all kinds of banks, Senator. We feel that if
the banks of the country, national banks of the country, are required
immediately upon the organization of these new banks to deposit
with the reserve agents 3 per cent of their deposits, and the capital
that is required by the bill, it is going to cause a readjustment of
credit that will very seriouslv handicap the credit community of the
country. For instance, you take at one bank in Albany, with which
I am more familiar than I would be with any other: We have
$9,000,000 deposits from national banks that are kept with us as
reserve deposits. We do not know whether that is their whole

B A N K I N G AN D CU RRE N CY .

2339

reserve, or not. It probably is not. But let us suppose that is, we
will say, 5 per cent. If three-fifths of that money is suddenly taken
out of our bank and placed in the reserve bank, that is going to
cause a contraction in our credits, which will be hard to meet and
which will be very hard on the community to whom we are loaning
money. We recommend that that transition be carried on much more
slowly; that instead of 3 per cent—we have not established any
exact figure, but for instance, instead of 3 per cent being taken out at
once, that 1 per cent be put into the Federal bank to start with.
Senator O’G orman. That is, the deposits?
Mr. P erkins . The deposits. And let that continue, we will say,
for six months, or something of that kind, and then another 1 per
■cent be paid in, and that will continue for six months, and then
another 1 per cent. I believe that one of the greatest menaces that
the bill has is the contraction that will be made necessary by the
change of the reserves. That is the point we are particularly anxious
on, in that regard. We believe that the reserves should be in the
reserve association; we do not ask that they be allowed to stay with
us. That is my view, although it was a hard one to swallow.
Senator O’G orman. That is your view, although your bank has
$25,000,000 of reserves on deposit now ?
Mr. P erkins . Yes.
Senator R eed. Would it help them if. instead of the bank being
required to carry cash down to the reserve bank and put it in, and
then carry over its notes and rediscount them and bring the money
back, you were permitted under this bill, in lieu of cash or in lieu of
a portion of this cash, to deposit approved securities as part of your
reserve ?
Mr. P erkins . Yes. That would help, of course.
Senator O’G orman. I s not that permitted indirectly by the pro
visions of the pending bill ? Of course taking out of this considera
ble portion of your deposits would, if it was not compensated for in
some other way, necessarily cause a serious contraction. But will that
not be compensated for by your ability at once to secure the benefits of
the rediscounts?
Mr. P erkins . I think so. in a certain way. Senator. But you see,
the question is so large that it is not the desire of any banker to
rediscount such an enormous amount of money as we have to to carry
this thing out. Take in our bank, for instance: If we lost three or
four millions we do not want to go with a capital of a million and
borrow two or three million dollars, bang, right off the gun. Our
people are not educated to seeing their banks borrow that way
quickly. I believe the banks are going to become borrowers under
this system, and it will be considered all right in time, but I think
if you do it right off, quickly, it is going to create an uneasiness
and disturbance in the community.
Senator O’G orman. H ow much would you have to contribute?
Mr. P erkins . $100,000.
Senator O’G orman. What is the amount of your deposits?
Mr. P erkins . Of our deposits?
Senator O’G orman. Yes.
Mr. P erkins . Our deposits are $25,000,000. Of that $25,000,000
$15,000,000 come to us because we are a reserve bank. $9,000,000 of
that $15,000,000 are from national banks.

2340

B A N K I N G AN D CU RRE N CY .

Senator R e e d . Under the bill as it is, how much money would
you have to take over to this regional bank ?
Mr. P e r k in s . It is a pretty hard thing to tell, Senator, because
we do not know just what portion of this is bank reserves they have
with us.
Senator R eed . Suppose your deposits remained as they do now;
you would have to carry over, for your capital stock, how much
money ?
Mr. P e r k in s . $100,000.
Senator R eed . H ow much are your deposits—$25,000,000?
Mr. P e r k in s . Yes.
Senator R eed . Then you would have two----Mr. P e r k in s (interposing). We would put in 3 per cent of that.
Senator R eed . Three per cent now, b u t u ltim a te ly -----Mr. P e r k in s , (interposing). Five per cent.
Senator R eed . Which would be $1,000,000.
Mr. P e r k in s . $1,250,000.
Senator R eed . Of course, now, if these banks that now deposit
with you are simply carrying reserves and there are $9,000,000 of
reserves with you, when this bill goes into effect, those reserves will
go out of your bank?
Mr. P e r k in s . That is what we are afraid of. We are n o t afraid
of what we have to contribute, or what we have to put in, but these
reserves will be taken from us and put in the reserve bank. We
think that should be by slow steps, in order to give us a chance to
liquidate the business which we are carrying on and have been
carrying on and building up for a great many years.
Senator N elso n . Y ou are required to pay 60 per cent of it within
60 days?
Mr. P e r k in s . Yes.
Senator R eed . If you had to circumscribe your loans $9,000,000,
it would have a very serious effect upon the business of the country?
Mr. P e r k in s . Over the whole State, yes.
Senator R eed . What is going to take the place of that? Assuming
that that goes on all over the United States, not only in Albany, but
in Buffalo and the whole country? Here is a fund that is now de
posited and redeposited and is actually working in the commerce
of the country. Now, it is to be withdrawn, and part of it. at least,
put into the regional bank. What is going to take the place of that
under this bill?
Mr. P e r k in s . Of course, there is going to be a certain amount of
money released, because smaller reserves are required under the bill.
In the second place, there probably will be more money released be
cause this bill provides a way for getting money, and the banks will
loan a little closer than they have been loaning. The only other
way it can come about is through the banks becoming borrowers.
Now, there is one thing that has not been gone into. 1 think, and that
is the banks of New York State, if formed into a regional reserve
bank, would make a very large one, and the largest one, probably,
in the Union. It will probably do less borrowing than the banks
of the other parts of the country. We act as a reserve agent for a
great many of the country banks in New York State. Albany is a
collection-reserve center. I do not believe that the money we loan

B A N K I N G AND CU RRE N CY .

2341

to our corespondents, that all the three national banks in Albany loan
to their correspondents, runs over a half a million dollars at a time.
Senator N elson. That is, that they borrow of you?
Mr. P erkins. That they borrow of us. They are not borrowers.
1 do not see anything in this bill that should make them borrowers.
They have not any new burden to carry.
Senator O’Gorman. The fact that they have additional oppor
tunity to secure money will not, necessarily, lead them to an expan
sion of their banking activity ?
Mr. P erkins. N o. The difficulty is as you suggest, Senator, that
this money is all going to be piled into this great regional reserve
bank, and I think it is going to be a very serious trouble to get that
money out into use again—at any rate for a time. I think it is going
to be a very slow process.
Senator Nelson. Three per cent must be paid in CO days, and then
you do not ultimately get to the end of the 5 per cent until the end
of 3G months.
Mr. P erkins. N o.
Senator N elson. Suppose you take the 5 per cent; you do not
object to that ultimate period?
Mr. P erkins. N o.
Senator N elson. Suppose you take the 5 per cent and distribute
it more equitably in the three years.
Mr. P e r k in s . T hat w as m y idea, Senator, yes.

Senator Nelson. That is, so much within six months, so much
within a year, so much within 18 months, so much within two years,
so much within two years and a half, and finally 5 per cent by the
end of the three years.
Mr. P erkins. That is my idea. Senator.
Senator Nelson. That is, divide the 5 per cent equitably within
that period ?
Mr. P erkins. Yes.
Senator B ristow. That is what he suggested, Senator.
Senator P omerene. Into a half-dozen payments, instead of two
or three ?
Mr. P erkins. I think it would be a very serious proposition. I
think there would be a danger there.
Senator R eed. If you were starting a bank to-day—take your
bank: You would take $1,000,000 for capital stock and pay it in
and then you have $25,000,000 of deposits in your vaults. You
would not know what to do with it, and it would take a number of
years to get into a position to utilize that $25,000,000 of deposits?
Mr. P erkins. Yes; and this bank is going to be so much bigger
than ours; there is no comparison, Senator. It is going to be one of
the biggest things we ever saw.
Senator R eed. And you think it ought to grow gradually; its
resources ought to grow gradually in order that it can put them into
use gradually and the system, instead of being created in a night,
ought to be created over a reasonable period of time ?
Mr. P erkins. Yes; I think three years is a proper time, but I
think if it could lie distributed over the three years it would be
much safer. You see, 3 per cent is the larger part of your 5 per
cent. It is the bulk of it.

2342

B A N K I N G AND CU R R E N C Y .

Senator N elso n . And you would distribute it within that period;
that is what you suggest?
Mr. P e r k in s . Well, I think if the new bank gets its capital, as is
provided by the bill, and gets 1 per cent of the deposits of its mem
ber banks----Senator N elson (interposing). In what time?
Mr. P e r k in s . Immediately, and the Government deposits, as is
provided by the bill, that that would keep it going from six to nine
months, with all it could do to organize and get that thing into
shape, and then you could put in another one per cent.
Senator N elson . By the end of another six months?
Mr. P e r k in s . By the end of another six months, and another 1
per cent at the end of that six months, and so on. I think it would
be a very easy thing to arrange it.
Senator P e e d . H o w w ould it do to leave it to the central board to
m ake calls, sooner or later, as the business o f the bank required?
In other Avords, v estin g them w ith about the same discretion that an
ord in ary board o f directors w ould have in the m anagem ent o f a
bank ?
Mr. P e r k in s . T he on ly objection to that. Senator, Avould be the
un certain ty on the part o f the member banks as to just Avhen they
w ould be called upon for the m oney.
Sen ator H e e d . Suppose th ey gave them 30 or GO d ays’ notice?
Mr. P e r k in s . Yes; if th e y co u ld o n ly call it in lim ite d am o u n ts.
Senator N elso n . It would be much better to put it in the law.
Mr. P e r k in s . I think so, too, sir. The minute the law passed, if

it did, you would go right to work to carry out a definite program.
Senator R e e d . I s there a n y th in g else you h a\Te to suggest?

Mr. P e r k in s . Yes. I have two or three other things. We sug
gest that the regional reserve banks do not pay any interest on the
Government deposit; that the rate of interest paid to subscribing
banks be increased to 6 per cent.
Senator N elso n . Y ou mean the dividends?
Mr. P e r k in s . Y es; the dividends. E xcuse me. T he diA’idends to
th e m em ber banks b ein g increased to 6 per cent, and that the earn
in gs above the 6 per cent and the surplus that is accum ulated, or to
be accum ulated, to be paid to the G overnm ent. Our idea in that is
th is, th at it is the very essence o f this scheme that these banks be
not m oney m akers. T h a t is not Avhat they are for, as Ave understand
it, and i f all the m oney abo\re a certain percentage that is m ade by
the banks goes to the G overnm ent, you do not g iv e any incentiA'e to
th e m anagem ent o f the bank to make it a m oney-m aking institution.
Y ou leaA*e it to perform its fu n ction s of regu latin g the rates of
in terest and reg u la tin g the A oav o f gold to th is country and from this
cou n try and carryin g out the fu n ction s for Avhich it was created. I
th in k it is im p ortan t also that the member banks be guaranteed their
6 per cent on th eir subscriptions, and I do not see w hy the GoA’ernm ent should be paid interest on their deposits any more than a n y
body else should.
Senator O ’G orm a n . You have given a good reason. If Ave concluded
all beyond the surplus should go to the Government, then it Avould
be an idle thing to give the GoAernment an interest rate which Avould

simply be taken out of that surplus.

B A N K I N G AND C U R R E N C Y .

2343

Mr. P e r k in s . Taking it out of one pocket and putting i t in the
other.
Senator P om eren e . And your further theory is that the Govern
ment is not paid interest, or that if the dividends which the banks
should get or the stockholders should get should be in excess of 6
per cent it might be a temptation to give more attention to the
earning power of the regional bank than the individual bank?
Mr. P e r k in s . I th in k so; yes.
Senator P o m er en e . One of our good friends this morning said
that there would not be anything above 5 or 6 per cent.
Mr. P e r k in s . That depends on how the b ill is framed.
Senator R e e d . D o you mean to say the Government ought to
guarantee the 6 per cent?
Mr. P e r k in s . N o.
Senator R eed . Y ou did use that expression.
Mr. P e r k in s . I think the chances would be it would be cumulative.
Senator N elso n . It would be sufficient if it were cumulative?
Mr. P e r k in s . Yes.
Senator N elso n . S o if it did n ot get it th e one vear it w ould g et it
the next?
Mr. P e r k in s . Yes.
Senator O ’G o rm a n . What is the next objection?
Mr. P e r k in s . The next objection is in regard to the collection

of country checks and items, which has been gone into pretty
thoroughly here to-day. I think, however, we all recognize—now,
this is my business; I am one of those city collection banks that is
supposed to make this great profit out of the collection business’—•
and I think that everybody who is in touch with this business recog
nizes the fact that our present collection system is very unscientific.
It is not adequate and it is not good. For instance, I can give you
a few examples. I know of a banker in Buffalo if you undertook to
deposit a check there on Tonawanda, which is 10 miles away, they
will charge you exchange for the collection of that.
Senator O ’G orm a n . At what rate?
Mr. P e r k in s . I can not quote the rate on that. It will ship it to
Albany. We will ship it back to Tonawanda, who will keep it five
or six days, or sometimes longer. They will charge us exchange
and ship it back to us, and we ship it back to Buffalo again. They
are two points within 10 miles of one another. That goes on ail
over this country, and, in fact, I can not help but think that the
country bankers weakened their position this morning when they
said they make 25 per cent of their earnings out of their exchange
charges.
I do not know whether you are entitled to make 25 per cent
of your earnings. I think it is a thing you have got to be more
careful about than any other provision in the bill, in a way, be
cause if the Government goes into the collection of these items they
charge for exchange at par so that there will not be any dividends
whatever. I think the regional reserve banks should be allowed to
act as clearing houses under rules and provisions prescribed by their
directors or the Federal reserve board. I think it would be a scien
tific way to handle that thing, to clear the items in the regional re
serve banks.
S. Doc. 232, 63-1—vol 3---- 27

2344

B A N K I N G AND CUK BEN CY.

Senator N elson . It would be a tremendous expense.
Mr. P e r k in s . It would be a tremendous expense, and it lias got
to be paid out. They can not do it at par without charging for ex
change.
Our transit department costs us every year about $300,000 to
operate it.
Senator O ’G orm a n . The transit department ?
Mr. P e r k in s . The transit department. It costs us half a million
dollars to operate the whole of the transit department, and that in
cludes the interest on the bank deposits. Take that out, and the cost
of operation will run in excess of $300,000, that is for clerical hire,
and the official force, postage, and interest that we lose during the
time when the money is outstanding, and the exchange charges.
Senator P o m er en e . Can you tell us what your cost would be per
thousand?
Mr. P e r k in s . I h a v e it a t h om e, b u t I can n o t g iv e it to you now .
Senator K e e d . I wish you would send it to us.
Mr. P e r k in s . I w ill get the figures and send them to you, Senator.
My point is this: Do not make a compulsory thing in the act.
Put it in the hands of the Federal reserve board or the regional
boards to establish rules and regulations to regulate that collection
business. The country banker deserves consideration. He can not
remit at par without charging; he has to be taken care of in this
thing, but it ought to be equitable.
Senator N elso n . What do you think of the suggestion made here
that this clearing-house system be limited to checks and drafts of one
bank upon another?
Mr. P e r k in s . I think that is a good suggestion, coupled with the
other suggestion which that same speaker made, that they may per
form the functions of clearing houses. That clause is in the bill.
That leaves it in the hands of the Federal reserve board.
Senator N elso n . Y ou are familiar with the resolution that was
adopted by the country bankers. Wbat do you think of the provision
that they adopted ?
Mr. P e r k in s . I think that is a pretty good provision, although I
do not altogether sympathize with their point of view in adopting it.
Senator N elso n . If you omit that provision on page 33 which they
have indicated and leave the provision on page 24, would not that
solve it?
Mr. P e r k in s . I th in k i t w ould.
Senator N elso n . Under the provision on page 24 the banks could
receive those checks and it would be left with the Federal board to
determine the charges.
Mr. P e r k in s . Yes; I think so. I think that would solve it. Per-'
sonally I would rather see it remain as it is, because that is our
business.
Senator N elso n . And to the public at large it would be a great
blessing; there is no doubt about that, but we can not afford to crucify
the country bankers.
Mr. P e r k in s . No; I do n o t th in k to th e p u b lic a t la rg e , eith e r.
Now, we also believe that some further provisions should be made
to take care of the Government 2 per cent bonds. We believe that it
is the intention of Congress and everybody else in the country to pro
vide for those 2 per cent bonds, and we recognize it is one of the most

B A N K I N G AND C U R R E N C Y .

2 345

difficult things to do, which you have got to consider in connection
with this bill. It would not be a safe or proper situation to have the
banks of the country holding those bonds on their books at par when
the bonds are selling on the market at 90. It would not be a right
and proper banking proposition.
I think the best suggestion we have had from our committee—
they have made two suggestions—one is that the Federal reserve bank
should take over every year a proportion of these bonds at par, the
bonds carrying with them the circulating privilege. . That would
take up the slack that will come from the banks that liquidate and
reduce their net circulation, go into the State systems, and so forth.
The other suggestion is that the Government should pay off every
year a certain number of these bonds at par, and I think that probably
is better. I t acts as a sinking fund.
Senator P o m er en e . Looking at it from the standpoint o f th e
success of the system, would it not somewhat embarrass the system if
the regional banks were to take over these bonds ?
Mr. P e r k in s . Well, only that they would then be issuing two
kinds of currency.
Senator N elson . That would be the trouble, and we ought to get
on one currency basis ultimately.
Mr. P e r k in s . I think so, too, Senator. If you bought the bonds
at par, and they carry the circulating privilege, they do not cost
you anything; you take it out of their money to pay for the bonds.
Senator P o m er en e . It might encourage some banks not to go into
the system.
Mr. P e r k in s . Our suggestion has been that only a certain pro
portion of these be taken up every year, say, 5 per cent. If 5 per
cent are taken up every year it will only take up the slack in the
bond market. In my opinion it will not enable any man to get out
of the system, if he can only sell 5 per cent of his bonds. The sys
tem, we hope, at the end of five years will be working so that he will
not want to get out of it.
Senator N elso n . Suppose we leave the dividend at 5 per cent, as it
is, to the stockholders. Suppose we have interest paid on Govern
ment deposits, and then suppose all that the bank makes over the 5
per cent dividend is devoted to taking up these 2 per cent bonds. In
that way the Government would not have to advance anything it
would get out of the profits of the banks. Why would not that be a
good plan? I simply offer that as a suggestion.
Mr. P e r k in s . That might work out, Senator. I think, however, a
surplus should be accumulated for this regional reserve bank.
Senator N elso n . Yes; I mean after the surplus. Suppose they
pay a moderate interest on the Government deposits, and suppose
we leave the banks with 5 per cent dividends and leave all the other
revenues of the regional banks to become a sinking fund for the
taking up of the 2 per cent bonds, do you not believe that in the
course of 20 years that would take them up without any outlay of
money. If that would work well, this new system would pay its own
way, and relieve you holders of the 2 per cent bonds and keep your
bonds at par.
Mr. P e r k in s . Suppose, on the other hand, Senator, they do not
earn any surplus above your requirements?

2346

B A N K I N G AN D C U R R E N C Y .

Senator N elso n . Of course, that might be.
Senator O ’G orm an . In that contingency there could be subsequent
legislation, providing for the 2 per cent bonds.
Mr. P e r k in s . Then it would continue for some years, because you
have to roll up your surplus first.
Senator N elso n . Would not legislation of this very nature help to
brace up the 2 per cent bonds and stiffen them in the market ?
Mr. P e r k in s . I think it would.
Senator O ’G orm a n . What is your view regarding the substitution
of the 2 per cents, or the redemption of them, and the exchange of
them for 3 per cents ?
Mr. P e r k in s . I do not think anybody who is going to stay in the
system would want to exchange the 2 per cents with the circulating
privilege for the threes without the circulating privilege. He would
only do it in case he wanted to liquidate before the bonds became due.
In a normal money market the 3 per cent bonds would not sell at par,
in my opinion.
Senator N elso n . We know how the British 24 per cent consols are.
Senator P eed . What do you think, Mr. Perkins, of the suggestion
that was made here that we retire a portion of these 2 per cent bonds,
issuing in lieu thereof 3 per cent one-year bonds and deposit those
with the reserve banks, holding them, in fact, as Government securi
ties, with the privilege, on the part of the reserve banks, to sell them
in order to maintain a gold reserve if it became necessary?
Mr. P e r k in s . Taking the whole issue up that way, Senator?
Senator P e e d . Not necessarily the entire issue, but take a por
tion of it.
Mr. P e r k in s . I tell you our whole thought on this proposition has
been that in order to get this system under way, to get it started,
you have got one means of getting the banks all in, and that is the
2 per cent bonds. If they do not have to go in to protect their 2
per cent bonds, most of the banks will wait to see how it works
before they go in. If your system is going to be a success, it has got
to start out with strength, it has got to have the bankers behind it.
In other words, although every man abhors being forced into a thing,
you have got to force the banks into this thing or they will not go in.
Senator O ’G orm a n . Y ou believe in the compulsory features of the
bill, then?
Mr. P e r k in s . Yes.
Senator R eed . I do not believe you entirely have the idea. It was
suggested here that one way in which we could take care of a portion
of these bonds would be to take those of them that are now on de
posit, for instance, take them into this regional reserve bank and
retire them out of the assets of the bank, and then replace the assets
with bonds running one year and drawing 3 per cent, those to be
put aside and not used except for the purpose of maintaining a gold
reserve when it became necessary to use them. Is there anything
in that?
Mr. P e r k in s . Yes; I think that would keep the bonds absolutely
at par.
Senator P eed . And yet the banks would want to come in, and we
would not be forced to buy these bonds unless we wanted to. Do
you think that will work out ?
Mr. P e r k in s . I should think so.

B A N K I N G AND C U R R E N C Y .

2347

Senator B ristow. D o you think legislation adverse to the interests
of the banks should be resorted to in order to force them into a
thing which they think is against their interests?
Mr. P erkins . I do not think I expressed myself quite clearly on
that point. I do not think that any legislation adverse to the banks
should be resorted to. I think, however, that it is human nature for
every man who has been going along under a certain system to wait
to see how a new system goes before he goes into it. It may be
the best system in the world, but I do not believe if it was the best
system in the world that everybody would go into it when it was
organized.
Senator B ristow. Suppose they are forced into it and it proves
to be a bad system; what would be the effect on the country?
Mr. P erkins . Very bad.
Senator B ristow. Why would it not be better to establish a system
and invite capital to subscribe, without forcing anybody, and make it
sufficiently attractive to induce men to take stock, and then let the
banks take their time as to whether they come in or not and let them
find out whether it is going to hurt or benefit them. Why would not
that be better ?
Mr. P erkins . I tell you the great fault of our system, as I see
it now, are two things, one is the inelastic currency and the other is
the method of handling our reserves. The country bank relies on
its reserve agent to take care of it in time of trouble, and the reserve
agent has nobody to rely on in time of trouble. He has got to be
there to take care of all his correspondence. There is no system by
which a reserve agent, in time of trouble, can liquidate his assets,
and yet he is asked to take care of his correspondents.
Senator B ristow. Suppose we had a Federal bank and made re
serve provisions through this central bank controlled by a Govern
ment board, the same as this board which is proposed, or similar to
it, and that it was voluntary as to whether a bank should come in or
not, and if banks did not subscribe citizens could be invited to sub
scribe, and it was made attractive and by virtue of its desirability it
drew the banks of the country into i t ; would not that be a very much
better system than the one proposed ?
Senator N elson. This would be the trouble, Senator, if you will
allow me. These private subscribers would have no reserves to put
into a reserve bank. The French get along pretty well; they do
not have bankers to subscribe to their stocks.
Mr. P erkins . I think the banks—I was coming to that point a
little later. I think the one thing which the bankers of New York
State, all the bankers I have talked with, are most strong on is that
controlling board about i^hich you speak. I believe that if you are
going to keep the banks out of this thing, if they stay out it will be
because they are afraid of that controlling board, in which they have
absolutely no voice.
Senator B ristow. N ow, they would not have to come in if they
were afraid of them.
Mr. P erkins . Where w ill they keep their reserves, then; in the
present way?
Senator B ristow. Yes.
Mr. P erkins . Then you do not remove the defect, do you?

2348

B A N K I N G AND CU R R E N C Y .

Senator B ristow . If it was an actual defect you could create a
bank of issue and a bank of discount, a Federal bank, and bankers
need not subscribe unless they want to, and the Government deposits
are there, and this bank would be ready to loan them to any bank
ing institution that does deposit its reserves with them.
Mr. P e r k in s . And that institution would have branches all over
the country?
Senator B ristow . That institution would have branches all over
the country. It is a Federal institution, not controlled by private
stock at all.
Mr. P e r k in s . It is only a question as to who would go in and who
would not. I think they would be slow to go in.
Senator B ristow . N ow, w ith the exam ple o f the B an k o f France
before us, do you th in k that w ould be the case ?
Mr. P e r k in s . N o ; but the people o f this country have had two

experiences, I think, with a Federal bank—a United States bank.
Senator B ristow . That was a private bank.
Mr. P e r k in s . Yes; this is privately ow ned, of course.
Senator O’G orman. It is privately owned. It is to be controlled by
the Government?
Senator B ristow . Oh, no.
Mr. P e r k in s . I do not believe—it is simply my personal opinion—
but I do not believe the banks would come into that system quickly.
It might be that experience would show that it was a wise thing to do.
Senator B ristow . It would not disturb the present system so as to
cause any apprehension as to any danger that might come.
Mr. P e r k in s . N o ; but th e trouble is th at the present situation
needs disturbing.
Senator B ristow . It does not need any disturbance if you create a

means by which any bank can get relief when it needs it if it has the
security ?
Mr. P e r k in s . N o.
Senator B ristow .

If it was a bank of issue, and the Government
would discount the paper of any reputable banking institution when
it needed the discount in order to get----Mr. P e r k in s (interposing). And carried its reserve there?
Senator B ristow . Yes.
Mr. P e r k in s . Well, I do not know; that might work out. I think
the banks of the country are above all desirous that when the system
is put into effect that they have some voice, not a controlling voice—I
do not think they want that—but that they have some voice in the
management of the institution.
Senator B ristow . If they are compelled to subscribe their capital
and put their money into it, I think there is no argument against the
proposition. You can not justly force a man, or 100 men, to create
an institution and then say to them that they shall put their money
in it but have nothing whatever to do with its management. But if
they are invited to go in, with the understanding that they do not
have anything to do with it, and that they need not put their money in
unless they want to, they could not have any complaint?
Mr. P e r k in s . Not a bit.
S e n a to r B ristow . We h a d a w itn ess b efo re us, a n d he w as a b a n k e r,
w ho th o u g h t t h a t th e re w o u ld be a h u n d re d m illio n su b scrib ed if 5

B A N K I N G AND C U R R E N C Y .

234 9

per cent dividends were provided within a short time; that a hundred
million would be subscribed by the people, who would be eager to get
that stock.
Mr. P e r k i n s . His guess would be j ust as good as mine. It is not a
situation that has ever been put up to the bankers. I have never
heard it discussed at any meeting.
We suggest that in ail places where reserves, either for note issue
or reserves for deposit in Federal reserve banks, are mentioned, that
it be gold, and not gold, and lawful money. That is a question which
I will not argue, but about which Mr. Treman has something to say.
We also suggest—and this is the thing I spoke of before—that we
should be derelict in our duty to our association if we did not make it
strong that if this proposition goes through, that the banks be given
a representation on the board that controls this great system.
Senator O’G orman. A s to that, do you not think the banks will have
their influence felt when they have an advisory board, which is proT
vided for in this bill?
Mr. P e r k i n s . We suggest, Senator, that the advisory board be
dropped, and that the banks be given a representation on the board.
Then they are actual working members of this organization and have
a standing.
Senator O’G orman. N ow, suppose the banks had no representation
on the board, and I think it is safe for you to assume that they will
not—do you not think they would be anxious to have the advantages
of this advisory council?
Mr. P e r k i n s . Undoubtedly, I think.
Senator O’G orman. I s that all you have ?
Mr. P e r k i n s . No ; there is one more thing. We recommend very
strongly that the number of reserve banks be substantially reduced
from 12, as provided in the bill now7, believing that the essence of
this whole movement is to unite the reserves of the country in as
strong institutions as it is possible to make, and not to have any one
or two or three that are very much weaker than those. There are an
endless number of arguments for that which you have undoubtedly
heard, but perhaps the strongest, and one that is least harped on, too.
is the fact that we believe under this system, if this system is put
into effect, there will grow up around these centers what is called in
Europe open discount markets, or places where bank acceptances,
notes, or bank acceptances and indorsements will be bought and sold
in the open market. The advantage of those open discount markets
can hardly be overestimated, because it makes a place where you can
invest money well, and where you can liquidate money easily. It will
take away absolutely the necessity for one of the worst features of
the present system, that is, loaning money on call in Wall Street.
For instance, in Albany, if I have a sudden deposit of $1,000,000
or $2,000,000 that is liable to remain in my bank a week or a month.
1 can not go out and invest that in four or five or six months’ paper.
The only thing in the world I can do with that money and earn anyT
thing is to put it in New York on call loans, and I believe that is one
of the worst features of the present system, and one that will be obvi
ated if you have a few strong central points around which will grow
up open discount markets. That is all I have to sav, gentlemen.
Mr. Treman will now speak to you.

2350

B A N K I N G AN D C U K REN CY.

Senator N elson. I think you are just right on that subject. I am
glad to hear you talk that way.
STATEMENT OF ROBERT TREMAN, OF ITHACA, N. Y., PRESIDENT
OF THE TOMPKINS COUNTY NATIONAL BANK. ITHACA, N. Y.,
AND PRESIDENT OF THE NEW YORK STATE BANKERS’ ASSO
CIATION.

Senator O’G orman. Will you kindly give your name and address
and banking connections?
_____ _
Mr. T reman . Robert Trernan; Ithaca, N. Y .; president of the
Tompkins County National Bank, director of the Ithaca Trust Co.,
trustee of the Ithaca Savings Bank, and president of the New York
State Bankers’ Association; and, in a business way, I am president of
the New York State Hardware Association, as I spend a part of my
time in the hardware jobbing business.
____
I want to speak in reference to the gold reserve in these reserve
banks only.
If there is any one thing that the bankers of the State of New
York feel strongly about, so far as I have been able to get their ex
pressions, they are united, I believe, in thinking that the reserve
against deposits and the reserve against note issue in the Federal re
serve banks should be in gold and gold only, and therefore the words
“ in lawful money ” in two or three sections of this bill should be
eliminated and the word “ gold ” should be the only one used. In
other words, that should be the only kind of reserve for the Federal
reserve bank.
The question naturally arises, first----Senator P omerene (interposing). You would limit that to the
Federal reserve banks and not extend it to the reserves of the mem
ber banks ?
Mr. T reman . N o ; just the Federal reserve banks. The reasons
for that are two, in my judgment. You may ask why should it be
done, and, second, how can the gold be provided with which to do it.
Now, so far as the reason for it is concerned, if there is anything
that this bank is supposed to do it is to properly mobilize and pro
tect the reserves. And those reserves should not be scattered in the
25,000 banks of the country, but should be mobilized in these field
banks—I am speaking of the gold reserve—these few Federal reserve
banks. We are entering upon a great foreign distribution of goods.
Anyone who has traveled in countries aside from Continental Europe
Will be surprised to find, as the little traveling I have done has shown
me, how we Americans are not occupying the foreign markets. When
you go through Turkey, and especially Palestine, you find very fre
quent instances where the Germans and the Englishmen have gone in
and their goods are sold out there. You would be surprised at the
amount of German goods in the part of Palestine governed by
Turkey.
- I was in Venezuela and other South American countries this last
winter and found upon inquiry that nearly all the goods there came
from Germany or from Great Britain. You go into Cuba, and in all
of these places you will find branch banks of English or German
banks, or they have banking connections, so that they have ways of

B A N K I N G AN D CU RRE N CY .

2 351

paying the funds back and forth between these countries and the
country from which they buy.
One of the provisions of this new reserve-bank proposition, as I
understand it, is to offer better facilities for our foreign commerce
and for the transfer of money back and forth in our foreign com
merce. There is only one money that is recognized by those people,
and that is gold. And it seems to me if you want to establish a new
banking proposition which is to have strength, especially in foreign
countries, it must have the reserve in the gold standard which they
have, which all the leading civilized countries have. If this Federal
bank is to prove what is expected of it, it has to be practically an
anchor against any disturbance in this country caused by foreign
obligations. For instance, if we had a condition in the last six
months in which the demands to finance the war between Italy and
Turkey and the war between the Balkan States and Turkey, and the
war in the Balkan States has for six months or more disturbed our
markets here, we must be in a condition in this banking proposition
to protect the country against the withdrawal of gold which we do
not want to go out from this country.
Now, those gold reserves should be concentrated in one place where
they can be controlled and where currency can be issued against
them.
One of the troubles in 1907 was that our banking credits had been
extended and had been growing so much for two or three years
previous to that time, and the large overexpansion of banking credits.
You had at the time in the United States Treasury the largest aggre
gation of gold bullion and coin that was ever collected in any country,
but you could not use it because it belonged to the owners of the gold
certificates which were scattered all over the country.
Now, what you want is to have those reserves in a position where
they can be utilized, not only to protect the paper issues, but also to
protect the bank credits and to supply the currency and the credits
also that is necessary in certain emergencies. It can be well asked
how you are going to do this. ' If you will pardon me a moment,
I will give you some figures in regard to the gold of the country.
We have in round numbers 3,600 million of all- kinda of lawful
money in this country. Of that money 364 million is segregated in
the Treasury. These are the figures of a year ago.
Now, we will assume that is out of circulation. Of the 3,200 mil
lions that are practically in circulation, 1,500 millions are in the
banks, reported to be in the bankSj and the 1,700 millions remaining
are scattered in commerce and in private banks. Of the 1,500 mil
lions in the banks, $882,000,000, practically a little less than $900,000,000 of gold, was in the banks, in their vaults, either gold or gold
certificates, against which there was bullion in the Treasury. Of the
$900,000,000 the national banks held $600,000,000 of gold at that
time.
. ■
7,
What is going to be required to furnish gold for these reserves?
You have got to protect the Government deposits up to 33^ per cent
of that. We will assume they will be $200,000,000. That is what the
House committee gave out. You will practically get from the mem
ber banks $300,000,000, and you will have a total of deposits in the
banks of substantially $500,000,000, against which you must have
$167,000,000 of gold.

2352

B A X K I X G AXD C U R B E N C Y .

The next thing you are to provide for is a gold reserve for any of
these Federal reserve bank notes. How much that will be no one
can tell, but it is assumed it will not make any undue drain on your
gold, because you will protect them by an equal amount of other
assets, by the capital of your bank before you touch your gold, and
it would seem to me it would be a proper way to maintain your notes
that you issue by having the reserve entirely in gold and not in any
promise to pay or any other form of lawful money, so called. If
you provide that reserve in gold, you will, it seems to me, gain the
confidence of the banks of the country in regard to the stability of
those Federal reserve banks and you will gain the confidence of the
business community, because they will feel that there is actual money
in the vaults of those banks, and you will strengthen your position
with the foreign people immeasurably over what it will be if you
have gold or lawful money. They do not understand that. It does
not seem to me that it is nearly so essential that you should have in
your member banks so much gold in reserve, because if you establish
this system your Federal reserve banks will become the father to the
child all the time, and the child will be going to the father. That is
the way it is in England. They do not carry any gold reserve to any
amount. If they want any, they go to the Bank of England. If
the gold is being withdrawn from the Bank of England, it raises its
discount rate.
In 1907, when this country wanted gold, they called upon England,
and the Bank of England had to furnish the gold that was brought
over to this country, and within the period of two months between
October and December the Bank of England supplied over $100,000,000 of gold to this country. Their reserve at that time was only
about $150,000,000 of gold. You would ask why did that not weaken
them? Because the man at the head of the Bank of England was
a man trained in banking, and he watches these matters, and the
moment there is any danger anywhere in the world they begin to
hoist the flag of distress by raising the discount rate, and during this
period their discount rate at that time was raised from 41 to 7 per
cent, and the German banks, or rather the Reichsbank, raised their
rate from
to 71 per cent. The Bank of France did not raise theirs
quite as much. It went, I think, from 31 to 41 per cent within that
time. Each one did that to draw gold from other countries to them
by reason of the discount. What was the result? The Bank of
England had some £30,000,000. or $150,000,000 of gold, in their re
serve at the time of the panic in this country in October. Notwith
standing the fact that they supplied $100,000,000 of gold to this
country, they landed on December 23 with £29,000,000. or about
$140,000,000, still in their reserves that they had drawn from other
places.
Now, the banks of New York State, whatever the rest of the country
may feel, feel strongly that in that need we should have a banking
system so strong that it will provide for any unusual emergency, for
tne extension of bank credits, and for the protection of the paper
currency of the country, and if you do that you will make a strong
institution, and the small member banks will take care of their
reserves.
I am a country banker. I listened to the remarks of some of the
gentlemen who are in the same class as I am in regard to the change

B A N K I N G AND C U R R E N C Y .

2353

in reserves and what effect it is going to have. I have heard a great
deal of discussion about the unfairness of this new bill to the country
bankers in compelling them to do so-and-so. Now, they refer to a
bank of $1,000,000 deposits. Under the present national-bank act
we are required to keep $150,000—15 per cent—reserve. Of that we
must keep 6 per cent, or $90,000 in our vaults. Nine per cent can be
in a bank in New York, Albany, or some other place, wherever we
choose to put it so long as it is a reserve bank. We have been get
ting 2 per cent on that $90,000; that is, $1,800 a year, if I am not
mistaken.
Now, under this new proposition you release 3 per cent, or $30,000.
That become the property of the bank to be used for loaning or in
any way they care to invest it, in bonds or otherwise. I submit that
at the present time they can not earn 6 per cent on that money and
make the $1,800, so that although the banker is compelled to put his
money in the Federal reserve bank without interest, still, with the
lowering of the reserve, he does not suffer a great deal, and it does
not seem to me it works a great hardship to our bank.
Now, we recognize in New York that some conditions are very
different, as Mr. Perkins has said. The rediscount system is not in
vogue to a great extent with the New York State national banks, be
cause they have been educated to believe they ought to take care of
themselves and not discount their paper. Under this system I think
there will be a change of sentiment, and we undoubtedly will go to
our Federal reserve bank and feel that it is perfectly justifiable, it is
honorable, and not a sign of weakness----Senator P o m e r e n e (interposing). And in every case it is regarded
as perfectly legitimate and good banking.
Mr. T r e m a n . The bank I have been connected with as president
for 10 years never has rediscounted up to the present time, to my
knowledge. We buy bonds when we are flush, and carry them along.
If we are in trouble we may send them to the New York bank and
say, “ If we should overdraw any day you have those bonds as protec
tion.” But we try to avoid that, ami those bonds have lain there a
good many years. We also have the opportunity to sell our bonds in
the open market at a slight loss, which is compensated for.
So I could not agree personally with the feeling that you are treat
ing these small country banks wrong in compelling them to go into
the Federal reserve bank. I feel strongly that what we need in this
country is just such a central organization, composed of two, three,
five, or seven units, or something like that. Personally I would
make them as small as possible. I would have a few banks and then let
them have different branches in the various places that are convenient.
Senator P o m e r e n e . Y o u mean to make the number of banks small?
Mr. T r e m a n . Yes; 4, 5, or G, instead of 12 as your bill provides.
And it seems to me that by establishing the banks around you can
make points of convenience for these men who have felt that the
reserve bank was going to be so far off the}7 would never get into
touch with it. You have the power to provide for branch banks in
those places, and make your connection in that way, and it certainly
will result in your having greater control in times of emergency if
you only have a few banks that will work together, and there is apt
to be less friction than by having a large number.

2354

B A N K I N G AND C U R R E N C Y .

Senator N elson. There is one point I should like to ask you about;
you did not make it quite as clear as I should like. I agree with you
it ought to be a gold reserve, but how is a gold reserve to be provided
for these regional banks in the first instance?
Mr. T reman . If you left it to me I should have every member bank
that subscribes pay for its stock in that bank in gold to start with.
You give to your Federal reserve bank the right to purchase gold
bullion in the market if they want to, but I want to point out that
under your plan of reducing the reserves in cash in the central
reserve city from 25 to 18, and in the reserve from 12J to 9, and
in the country bank from 6 to 5, you are going to realize from
$230,000,000 to $250,000,000 cash. That all could be paid over, but
you do not need it. If the deposits are not more than they are
estimated—$550,000,000—you only need about $150,000,000 to
$175,000,000 in gold. If you will make them pay their stock in
gold you will start with about $100,000,000, and the rest can be ac
cumulated in such a way as a bank may prefer to get the gold out of
its own vaults into the other.
Senator N elson. This has occurred to me as a defect in the bill.
I t did not provide in the first instance how this gold reserve should
be acquired. There was no provision in the bill for that 33 per
cent gold reserve, and it seemed to me—but I did not dare sug
gest it before, and I am glad you have suggested it—that the only
way we could get it in the first irfstance would be to make these stock
subscriptions at the outset in cash.
Mr. T reman . Take our case. We have $100,000 and $150,000 sur
plus. We pay 10 per cent for our stock----Senator N elson (interposing). The last bank statement we have
here, if my recollection is good, discloses that the national banks
have something over $750,000,000 in gold at this time.
Mr. T reman . I have not seen the last statement. The last I
have is June, 1912, and there were $882,000,000 of gold in the banks,
of which the national banks had about $600,000,000.
Senator N elson. I think the last statement discloses a little over
$700,000,000.
Senator O’G orman. Mr. Treman, you and Mr. Perkins were at the
convention in Boston?
Mr. T reman . Yes, sir; I was there for onlv a day or a dav and a
half.
Senator O'G orman. Did you participate in the deliberations of the
convention ?
Mr. T reman . Yes, sir; to some extent. I found they were getting
into what seemed to me a rather acrimonious debate, and it was
after lunch time, and I arose, went to the platform, and suggested
that they adjourn for lunch. They did so, and came back and ap
parently after the luncheon they felt better.
Senator O'G orman. D o you approve of the recommendations made
by the convention regarding the changes that ought to be made in this
bill?
Mr. T reman . The recommendation of the American Bankers’Asso
ciation?
Senator O ’G orman. Yes.
Mr. T reman . I could not personally agree with all of them, sir.
I think, in the main, they are correct. They were contending for a

B A N K IN G

and

currency

2 355

principle, and I did not feel it was wise to take issue on one or two
things that I might differ on. The important thing is to get a reserve
bank of some kind, or a central bank organization started that will
relieve these difficulties as soon as possible; because this country, in
my judgment, is on the eve of a great advance. You have wiped out
apparently the tariff agitation for a while----Senator O’G orman (interposing). We hope for a long while.
Mr. T reman . And if you can settle this currency bill and get it out
of the way it seems to me we have a great opportunity, and what I
am anxious to see as an individual is a proper banking and currency
bill just as soon as possible.
Senator O’G orman. D o you recall which of the recommendations
made by the convention you disagreed with? I t was stated yester
day, I think, Mr. Treman, that the only person who opposed them
was Mr. Scudder. Is that correct?
Mr. T reman . He-was the only man on the floor that I saw that
voted against the bill. There were some who did not vote for it.
Senator O’G orman. What bank did he represent?
Mr. T reman . I think it is the Kichmond Savings & Deposit Co., if
I remember correctly.
Senator O’G orman. Y ou know Mr. Scudder, do you?
Mr. T reman . I saw him; I do not know him personally.
Senator O’G orman. What is his position?
Mr. T reman . I think he is vice president.
Senator O’G orman. Who is president?
Mr. T reman . I think it is John Skelton Williams, if I am not
mistaken.
Senator O’G orman. Coming back to the previous question, which
of those recommendations do you find fault with?
Mr. T reman . Which would I change, for instance?
Senator O’G orman. Yes.
Mr. T reman . Y ou have asked me quite a question, Senator. There
are two questions; one is the recommendations of the American Bank
ers’ Association.
Senator O ’G orman. I am speaking of the recommendations made
by this Boston convention which were presented here yesterday.
Mr. T reman. Oh, I did not understand your question.
Senator O’G orman. Have those recommendations made by the
country bankers met your approval?
Mr. T reman . Not entirely so. I should agree with them on the
question of leaving out of the bill the savings bank proposition.
Now, of course, in New York State we have not the condition they
have in the South. We have savings banks that are segregated under
State laws, and it is an entirely different proposition, but it seems to
me it has no place in this fundamental banking law of the country at
the present time.
I should not agree entirely with their recommendation—I am
speaking merely for myself.
Senator O ’G orman. I so understand.
Mr. T reman . I should not agree entirely with their recommenda
tion about the reserves, because it does not seem to me it is working
any great hardship at the present time; for instance, with our bank,
for which alone I am speaking. In this bill you reduce the reserves
from 15 to 12 per cent. Now. we probably will do business with

2356

B A N K I N G AND CU R R E N C Y .

some bank in some other city besides the Federal reserve bank, but
I think we can do it without any loss of profit more than we are
having at the present time and still make our connection with the
Federal bank.
Senator B ristow. The ability of one bank in that respect depends
somewhat upon its locality and environment, would it not?
Mr. T reman . Entirely so, in this way: Take a small country bank
in Gloversville in our State, where you have certain conditions.
They might have every dollar of their deposits that they were
legally allowed to loan out in local loans to manufacturers. It is a
manufacturing center, and they probably would want to rediscount
it. With us it is entirely different. We have not local demand
enough, so that at times we buy bonds, or we buy commercial paper
outside through note brokers.
Senator B ristow . I think that is all.
STATEMENT OF F. S. LARRABEE, FARMERS’ NATIONAL BANK,
STAFFORD, KANS.
Senator B ristow. Mr. Larrabee, what is the capital stock of your
bank ?
M r. L arrabee . $25,000.

Senator B ristow. What are its deposits?
Mr. L arrabee . $500,000. I am also director in 6 State banks, and
stockholder in 11, and director of the Larrabee Flour Mills Co.
Senator B ristow . S o you appear as a banker and business man ?
Mr. L arrabee . More as a business man, I think, than as a banker.
I come before the committee with some diffidence. I have not any
figures; I have not come from Boston. I came direct from Kansas
at the request of some of the Senators. I will tell you in advance
that the small country banker, such as I am, is not interested so much
in the organization as in the operation of the bill. With us, and with
me particularly, the only thing I need from an institution of this
kind is rediscounting at certain times of the year, and I should have
that without limit if it is to be of any benefit to me.
In our wheat-moving period we use enormous amounts of money,
and our present source of supply is our corresponding banks in the
reserve cities. They lend to us without limit. I have been a banker
for 27 years and I have never had a discount refused by a correspond
ing bank. I have always leaned on them, and they have been good
leaning. Of course, in that situation I naturaliy hesitate about
changing my credits without knowing just what I am going to get
in return.
Senator B ristow . Y ou have a bank of $25,000 capital? What is
its surplus?
M r. L arrabee . $25,000.

Senator B ristow. And its deposits $500,000?
Mr. L a r r a b ee . Yes, sir.
Senator B ristow. What is the population o f Stafford?
Mr. L a r r a b ee . T wo thousand.

Senator R e e d . Senator, can you pause long enough for me to call
the attention of the committee to this statement in the Washington
Evening Star:
The committee, it w as learned tliis afternoon, will insist upon H. Parker
W illis appearing before it to discuss the bill. Mr. Willis, who is news editor

B A N K I N G AND CU RRE N CY .

2357

of the New York Journal of Commerce, was the expert who aided the House
committee in framing the bill.

I make no complaint of that statement, but this follows:
Members of the Senate committee expect to learn from Mr. W illis just what
parts of the bill President Wilson is responsible for, and also what part
Secretary of State Bryan had in framing the House bill.

I have never heard such a suggestion made by a member of this
committee. I do not believe anybody else ever heard that suggestion
made by a member of the committee.
Senator B ristow. I do not either. I do not think it ever entered
the mind of a member of the committee.
Senator R eed. I do not believe the author of that article ever
heard anybody make that suggestion except himself.
Senator B ristow. Mr. Larrabee has to leave, and I am rather
anxious for the committee to hear him. We can discuss this la:er.
Senator R eed. I just wanted to call the attention of the committee
to it now, because my eye just caught it. Such impressions as that
ought not to be sent out by anybody.
Senator B ristow. N ow, Mr. Larrabee, as I understand, you are
more interested in your ability to get rediscounts. Now, what
amount do you rediscount?
Mr. L arrabee. Various amounts. The largest amount I have ever
rediscounted in any one wheat-moving period has been $100,000.
Senator B ristow. H ow do you get those rediscounts?
Mr. L arrabee. I send my paper to New York, St. Louis, or Kansas
(Jity, wherever I think I can get the better rate, or wherever I have
a line of credit available.
Senator N elson. D o you sell your paper, or do you give your
note and put up the paper as collateral?
Mr. L a r r a b ee . Understand, Senator, that under the existing
banking laws a national bank is limited to the amount of its capital
stock. I borrow to the amount of my capital stock, and then I give
my personal note or the note of my directors for what more money I
may need.
Senator N elson. It is the note of the bank or yourself in any
event ?
Mr. L ARRABEE. Yes.
Senator N elson. And you put up this commercial paper as col
lateral?
Mr. L arrabee. Not when I give my own note.
Senator N elson. But when you give the bank’s note?
Mr. L arrabee. When I give the bank’s note; I attach to it an
account of my bills receivable. That happens with me only once a
year, and I need that money only 30 or 60 days, because I soon get
it back and in large amounts. At times of the year I am in the
market for commercial paper myself.
Senator B ristow. D o you have an apprehension that you could
not get these accommodations-----Mr. L arrabee (interposing). I have the apprehension this far,

Senator, that I feel like waiting. The bill puts the State banks into
better shape than it does the national banks. If I were a State bank
I could wait one, two, or three years, have my resources and lines of
credit open, and at the end of that time if I saw it would be of

2358

B A N K I N G AND C U R R E N C Y .

advantage I could come in. But as a national bank I am compelled
to go in or go out of business, or else take out a State charter. And I
can not say that I will protect my bonds by staying in the Federal
system. The statement was made here that the bonds would be pro
tected, but I can not see it. The bonds may go to 80 cents, and if I
were to stay in the system I can not see but what I would have to
put up enough money to make them worth par to protect my circula
tion.
Senator B r is t o w . Suppose you asked for a rediscount f r o m the
Federal reserve bank and it was refused?
Mr. L a rr a b ee . If I had done my business with the reserve bank
and had lost my lines of credit with my corresponding bank I
would be in bad shape—absolutely bad shape. And the line of credit
granted to a country bank is dependent upon the deposits that it
keeps with its corresponding banks.
Senator B ristow. What reserve do you keep?
Mr. L a r r a b ee . Twenty-five to thirty per cent.
Senator B ristow. Of your $500,000?
Mr. L arrabee. Yes, sir.
Senator B ristow. Where do you keep it?
Mr. L a rra bee . Well, at the end of some days the bulk is in Kansas
City, and at the end of the next day the bulk may be in New York.
I switch it around, depending on my exchange requirements.
Senator B ristow. That is, you leave 9 per cent of your reserve or
more in the reserve cities?
Mr. L arrabee. Oh, yes; my cash requirements are not heavy. I
keep 6, 7, or 8 per cent in cash.
Senator B ristow. N ow, in your business you may check out all of
the money you have in Kansas City on one day?
Mr. L a rra bee . Practically all of it; it might happen that way.
Senator B r is t o w . B u t still vour reserve in St. Louis or New
York----Mr. L arra bee (interposing). I may get heavy exchanges or
drafts deposited with me on St. Louis, which I send direct there, and
I may draw pretty nearly all my balance in Kansas City. The next
day it may be reversed.
Senator B ristow. And you draw your balance out in New York
and have your reserve in Kansas City ?
Mr. L a r r a b ee . Of course, those are extreme cases. It might not
happen that way from day to day, but it might happen from one
week to another.
Sen ator B ristow. S o th a t w h ile it is 9 per cent th a t you are per
m itted to keep w ith your reserve agents, it is------

Mr. L a rrabee (interposing). Flexible.
Senator B ristow. And it is useful ?
Mr. L a rr a b ee . Yes; I do not have to keep it with any particular
ieserve agent.
Senator B r is t o w . Would you feel justified in coming into this
system if the bill should pass'?
Mr. L a rr a b ee . I do not think so. If I surrendered my national
charter and took out a State charter, I might take advantage later
on of the privilege of coming in if I thought it would prove useful
and beneficial. Under the State charter, under the laws of my State,

B A N K I N G AND CUK REN CY.

2359

I have many advantages I do not have under a Federal charter. I
can loan on real estate; my loan limit is larger, which is an advan
tage sometimes, and the State law offers us some advantages that we
do not get under the national-bank charters.
Senator B ristow. In what way would your milling company be
affected by legislation of this kind?
Mr. L arrabee. Y ou know, Senator, within the last 20 years there
have grown up among us aggregations of business. Twenty years
ago our milling cohipany made 100 barrels of flour daily. To-day
we are the second largest milling concern in the Southwest, making
over 3,000 barrels of flour daily. At certain times of the year we
use enormous amounts of money, and we go into the open market
and borrow money. None of our banks could take care of us.
Senator N elson. Y ou g et it through note brokers?

Mr. L arrabee. Through note brokers. We are fearful that when
the City National, for instance, have to turn over $50,000 of their
deposits to the Federal reserve bank, and the banks in the reserve
cities have to do that, they will restrict their operations in the open
market, and we will be unable to secure funds to operate our milling
company, because they will not buy -our paper just for the privilege
of rediscounting it with the Federal reserve bank. No bank is going
to loan money to outside interests simply for the privilege of resell
ing their paper. If we were a customer they might do it to a limited
extent to accommodate us.
Senator R e e d . Are you not mistaken about that Mr. Larrabee?
If you do business with a bank right along, and you need some more
money and would put up your notes, the bank would go down and
get the currency for you.
Mr. L arrabee. They would do that, Senator—the bank I was
doing business with. But this summer, in the face of an unfriendly
money market, we borrowed a half million dollars for our milling
operations. None of our banks nor all of the banks combined would
borrow that amount of money for us.
Senator R eed. Y ou are doing business now with how many banks?
Mr. L arrabee. T wo.
Senator R eed. N ow, suppose your two banks, knowing you were
running a safe and sound business there, entitling you to credit—
and you must be entitled to credit or you could not get the accommo
dation—and desiring to accommodate you, one of the members of this
system, they could take your paper----Mr. L arrabee (interposing). But remember. Senator—pardon me
for interrupting—but remember they are limited as to the amount
they can loan us to 10 per cent of their capital and surplus.
Senator R eed. They are not limited to it under this bill.
Mr. L arrabee. They are not limited to the amount of my paper,
like myself, but they are limited as to the amount of loans they can
make to us to 10 per cent of their capital and surplus.
Senator R eed. This bill is not written yet.
Mr. L arrabee. I am taking the bill as it stands.
Senator R eed. If that limitation were taken off as to the amount
they could lend you, leaving it to the directors of the Federal reserve
bank, so that they could accept paper in excess of 10 per cent, then
do you not think those banks, in order to handle your business and seeS. Doc. 232, 63-1—vol 3----- 28

2360

B A N K I N G AND CU R R E N C Y .

ing some profit in the handling of it, would willingly take your paper
to the Federal reserve bank and obtain money upon it, even if there
had to be money issued? Now, Mr. Larrabee, what this committee
is trying to get is the frank and honest opinion of witnesses with
reference to the virtues as well as the defects of this bill; and when
I ask this question I find all witnesses a little inclined to maintain
their position, and, of course, they ought to, if it is correct. And,
directing your thought to this particular matter now, do you not
think it would be a great convenience and help to you?
Mr. L arrabee. Well, Senator, let me explain a little further. We
do business with one bank that has $100,000 capital. Do you think
that bank would be justified in taking half of our requirements—a
half million dollars? Do you think it would be safe to permit them
to do it for the privilege of rediscounting our paper ?
Senator R eed. Possibly not----Mr. L arrabee (interposing). So we are glad to go into the open
market for a certain part of our funds.
Senator R eed. Let us see about the effect on the open market under
this bill. Would there not be a better market for your paper if not
only the bank you ordinarily do business with, but any bank pur
chasing that paper, knew it could at once turn it into money, if neces
sary, and at a reasonable rate, at the regional bank?
Mr. L arrabee. Of course, it is difficult to tell in advance what will
be the result of the operations of this bill. But I estimate it in this
way----Senator R eed (interposing). Leaving you at the same time every
resource you now have.
Mr. L arrabee. Y ou understand that banks, when they go into the
market for commercial paper from brokers when they have surplus,
do not go in and buy paper to resell; they won’t do that. Now, if
these large reserve banks have to deposit a large amount of paper
and decrease their loans to get money to put into the regional reserve
bank, our class of business is the first business they cut out.
Senator N elson. It is the floating business.
Mr. L arrabee. Yes; they cut that out.
Senator R eed. N ow, Mr. Larrabee, of course a bank would not
perhaps buy your paper in the market with the purpose in mind at
that time of taking it and certainly rediscounting it; but, as this bill
offers to every member bank that becomes a member the facility to
rediscount if it becomes at all necessary, do you not think that would
loosen up the market for your paper just to the extent that this sys
tem adds to the present facilities of the market?
Mr. L arrabee. That has not been my opinion, Senator.
Senator R eed. I wish you would tell me why that would not be
the inevitable result. To-day you have all the banks of the country
to sell your paper to. Now, a new system is created which does two
things—well, it would be better to state it as one proposition. It
affords a new place in which that commercial paper that is prime
and good can be at once rediscounted by any bank. Is not that an
additional advantage to that which you now have?
Mr. L arrabee. I do not think you get my point in that, that banks
only go in the open market when they have a surplus of funds. And
they will take care of their own customers, but in buying commercial
paper—that is, when they have loose funds-----

B A N K I N G AND CU RRE N CY .

2361

Senator R eed (interposing). They will have the loose funds after
this system is created, won’t they?
Mr. L arrabee. I have taken the statements of the men who have
been before you from the reserve centers that their funds will be de
creased.
Senator R eed. But they all say they will be decreased at first;
that is, there will be a transitory period, but nearly all of them say
there is danger under this bill that there will be an inflation after
wards.
Mr. L arrabee. I would not agree with them.
Senator N elson. A s I understand Mr. Larrabee, his demands dur
ing certain seasons, his requirement for loans is so big that no one
bank can make him a loan. No one regional bank could do it.
Mr. L arrabee. I do not know what their limitations are. My
idea was that no single bank where we kept an account would buy
our paper to rediscount it.
Senator N elson. A n d h is fu rth er theory is he w ould have to go
to a num ber o f banks to g et h is accom m odations, and th at no bank
w ould buy h is paper for the sake o f rediscounting it w ith th e re
gion al bank.

Mr. L arrabee. That is the theory.
Senator R eed. It seems to me that criticism is based on the idea
that the regional bank absorbs the funds of the country, so there are
no surplus funds left, whereas the regional bank is expected to be in
a position to supply an almost unlimited amount of funds as long
as there is a good piece of paper back of it.
Senator B ristow. N ow, Senator, I do not think you get Mr. Larrabee’s point. Mr. Larrabee is from a little town out in western
Kansas of 2,000 people. He has a bank of $25,000 capital. He
demands there in his milling business as much as a half million dol
lars. This year he borrowed a half million dollars.
Senator R eed. I understand.
Senator B ristow. And there is no bank he can go to and borrow
that money from that would be justified in loaning him that amount,
that could go and get it rediscounted ? As it is now, he has his con
nections, and he has no trouble, but here the rediscounting is only
permitted by this regional bank. His present facilities would be
curtailed, and he does not see how any bank could rediscount for him
and then rediscount at the regional bank.
Senator R eed. I do n ot understand that. H e has h is present
relations and arrangem ents m ade now to take care o f this. I do not
understand, and I w ish you w ould te ll me, w hy th is b ill destroys
those connections w hich he now has.

Mr. L arrabee. Let me go a little further. Suppose you had a
panic like that in 1907 going on and I had paper maturing. The
only way my milling company can get money from the regional re
serve banks is from some member bank. These member banks, with
my paper coming out, they are not going to take any more time
aper to accommodate me, unless I am a customer of theirs; and if
am not a customer of theirs, they are not going to handle that
paper; and so, wdien that matures they are going to get out from
under their undertakings just as soon as they can.
Senator R eed. Why are they going to get out from under your
undertakings when they could take your paper and everybody else’s

2362

B A N K IN G AND CUREENCY.

paper and go over to the regional bank and get all the cash they
needed ?
Mr. L arrabee. I do not know. I have been a banker for 27 years,
and I have never bought paper when I knew I would have to sell
immediately. In time of a panic, if my paper matures, I have got
to liquidate my business. I will take, as an illustration, the bank at
Shreveport, La. That paper matures in November. In November
a panic is on. I do not know the bank at Shreveport has my paper
until it matures. When that paper matures they are going to ask
me to pay, because they are not going to take a chance in a panic of
my failing and leaving them to pay that paper to the Federal reserve
bank. And so I have got to liquidate.
Senator R eed. Y ou have got to do that now, and now if there is
a panic on that bank in Shereveport would not help you and no other
bank would help you. All the banks are in trouble now. Now, do
you think it puts you in a worse condition if there is a place where
all of the member banks, say seven or eight thousand banks, in this
country can go and turn over paper which they take in, intending
to rediscount, and that they now will rediscount, if an emergency has
arisen, and it is in funds and the whole situation of the country will
be relieved—do you think that that puts you in worse condition?
Mr. L arrabee. Senator, I am not complaining of the bill on that
account, but I think that the section looking to open market opera
tions should be changed.
Senator R eed. In what respect?
Mr. L arrabee. I think at times they should be allowed to go in the
open market and buy paper—the regional bank; such times as that,
for instance.
Senator R eed. D o you think the section ought to be enlarged ?
Mr. L arrabee. I think so, yes. Of course, I admit it is a difficult
thing to do. Here you have the monied banks who are in the market
for that paper. At times you are in the market as their competitors.
Senator R eed. If competition is the spice of trade, would it injure
the business of this country if one of those banks occasionally bought
some paper?
Mr. L arrabee. N o, sir; I th in k it w ould be a benefit to the business
o f the country. I thin k th at should be enlarged so as to perm it their
open m arket operations to be more extended. I am not com plaining
o f the b ill on th at account, but te llin g you how it w ould operate.

Senator R eed. Y ou think the bill is a good thing, if it had some
changes?
Mr. L arrabee. If it had some changes, although I would not say

I would put my bank into it. Of course, a bank is naturally con
servative, and I would like to see how it operates.
Senator R eed. Y ou would like somebody else to take all the
chances?
Mr. L arrabee. Yes; I would like somebody else to try it.
Senator R eed. Will you tell us, now, how we can get up a system
and start it when all of the banks are in the same frame of mind you
are—want somebody else to take the first step?
Mr. L arrabee. N o.
Senator R eed. Yet you realize the necessity of something being
done?

B A N K I N G AND CU RRE N CY .

2363

Mr. L arrabee. Yes; I believe the ultimate result will be the Gov
ernment doing the banking of the country, and we fellows will be out
of business.
Senator R eed. The Government running all the banks?
Mr. L arrabee. Yes, sir; doing the banking business of the country.
Senator R eed. I do not think that follows.
Senator B ristow. Have you had any trouble in the past in handling
your credits?
Mr. L arrabee. Never. In every panic I have been able to borrow
money if I wanted it.
Senator B ristow. In 1907?
Mr. L arrabee. In 1907. I did borrow money in New York.
Senator O’G orman. Did you ever have any trouble in getting
money in New York?
Mr. L arrabee. N o, not in borrowing credits. I got credit there,
but I could not get the currency. The fact was, I wanted credit.
I was lacking New York exchange, and I had paper coming due in
New York, and I rediscounted that just to get New York exchange.
You will remember, in spite of what we are told, we depleted our
balances in New York. Exchange was selling in the West from $6
to $8 a thousand on New York, which was evidence we had no money
in New York.
Senator O ’G orman. I am very glad to have you state that, and I
think that what you now state was pretty generally known, although
I was surprised during the day to hear my good friend, Senator Nel
son, ask if all of the reserves were tied up in New York.
Mr. L a rr a b ee . If I had had New York exchange I would have been
glad to have sold it at $6 to $8 a thousand.
Senator R eed. I think if we do not do something here pretty soon,
Senator O’Gorman is going to demonstrate that Kansas started this
panic instead of New York.
Senator N elson. Maybe you did not have much on deposit to draw
from.

Mr. L arrabee. I know, but if other banks in my section had had
it they would have been glad to have sold it to me. New York ex
change on Kansas City was selling at from $G to $8 a thousand.
Senator W eeks. I t is your judgment, then, Mr. Larrabee, that the
New York banks did all they could in the panic of 1907?
Mr. L arrabee. I think so, and in the panic of 1893. I was in the
banking business then. I borrowed money in New York. Of course
I never overstrained my credit; I never asked for anything unreason
able. I have been in the banking business for 27 years, and I have
never had a loan refused me.
Senator W eeks. I want to congratulate you on your credit, for I
could not borrow money in New York.
Senator B ristow. I am sorry we can not have more time with Mr.
Larrabee, because I think he is a unique witness, living in a little
town, which is one of the largest milling towns in the United States.
Mr. L arrabee. In explanation of my theory that the Government
would be in the banking business, I wish to say, to use a concrete illus
tration, for instance, John Smith has been giving checks all mornlngj we ought to let him borrow a little money now. He comes to
my bank and wants to borrow $2,000 or $3,000. His credit is good.
I take his note and he pays 6 to 8 per cent, whatever the rate is. I

2364

B A N K I N G AND CU RRE N CY .

take his note down to St. Louis and sell it for 3. That note comes
back, and he knows the note has been down there, and he knows what
the Government rate is. He is going to figure, Why could not the
Government loan me that money direct; why is it necessary to have
a bank come between me and the Government? And if he does not
think of it somebody else will, and they will tell him about it, and
your political platforms will be drafted to loan to the people direct,
and the first thing you know you will be in the banking business.
Senator W eeks. Y ou do not think that would be a good thing?
Mr. L arrabee. I am not sure but what it would be a good thing.
Senator R eed. Then you are not sure you object to this bill on that
ground ?
Mr. L arrabee. Oh, no; I am not objecting to it.
Senator O ’G o r m a n . Y ou think the bill has some good features?
Mr. L arrabee. Yes; many good features. Of course the operation
is the main thing. If I can go to a regional bank and discount $100,000 in time of need, at the time my crop is moving, it answers my
needs entirely. But until I know I can do this I do not like to cast
off anchors I have in other directions.
Senator R eed. Would you have this system run by the banks or
by the Government?
Mr. L arrabee. A s I told you, I have not considered that we little
fellows would be concerned in the organization, because we would
not have any voice in any wa}\
Senator R eed. Y ou have a vote.
Mr. L arrabee. I t would be so little.
Senator R eed. Are you under the impression that somehow or
other the little banks are not going to be directors in these regional
banks ?
Mr. L arrabee. I did not understand that if there are any directors
appointed here in Washington on the reserve board that we little
fellows would be among them. They would be some bankers of
prominence, of wide observation. I do not know that we would be
competent to sit here and talk about gold reserves. This gentleman
who talked about gold reserves—I did not understand him.
Senator R eed. But you expect your Senator to understand it with
out hearing about it.
Senator B ristow. Mr. Larrabee, I am very much interested, al
though I have known you for a good many years, in some of your
statements. You say that the farmer out there in Stafford County,
if he wants $6,000 or $7,000, and you loan it to him, you charge
him 6 or 7 per cent, and you rediscount that note, and we will say
that the Government rate is three for these rediscounts; and he will
say, “ Now, why should I pay Mr. Larrabee 4 per cent? Why should
the Government let Mr. Larrabee have that money, and let him
charge me 7 per cent, while he is only paying 3," and he would not
stand for that?
Mr. L arrabee. N o.

Senator B ristow. In your judgment?
Mr. L arrabee. N o.
Senator B ristow. If he could help it.
Mr. L arrabee. N o.
Sen ator B ristow. D o you think he would make a fuss about it ?

Mr.

L arrabee .

You bet

would.

B A N K I N G AN D CU RRE N CY .

2365

Senator R eed. Why shouldn’t he ?
Mr. L arrabee. I do not know why he should not.
Senator R eed. Why should you charge him such an extortionate
rate, if you could get the money for him for 3 ?
Mr. L arrabee. Of course, those are current rates now. This new
bill may make a cheaper rate and he may get it for 5. But he would
kick on giving me 2 per cent profit.
Senator R eed. But he could not get his paper discounted with
out your indorsement.
Mr. L arrabee. N o ; but he does not think so. He will say, “ Mr.
Larrabee would not get it without my note.”
. Senator O’G orman. He might remember, Mr. Larrabee, or if he
did not you could recall it to him, that your capital was deposited to
help create this fund.
Mr. L arrabee. Of course there is an argument, but there is going
to be a row about it. [Laughter.]
Senator B ristow. Mr. Larrabee, you are selling to-day $1,000,000
worth of credits, your milling company is. Now, does it naturally
come to your mind why this Government could not discount your
paper direct?
Mr. L arrabee. No ; that is what I am kicking for here.
Senator B ristow. Y ou do not want to have to go to a bank and pay
2 per cent more than the bank does ?
Mr. L arrabee. My business, I am not particular about that. What
I want is to sell my paper at the going rate. If it is 6 per cent or
4 per cent I want i t ; what I want is to get funds in my time of need.
I would just as soon pay the bank; I wrould not quarrel about that, if
I could get funds through the bank.
Senator N elson. What you want is currency.
Mr. L arrabee. That is what I want—money.
Senator B ristow (interposing). What you are afraid of is the dis
turbance in that kind of a system ?
Mr. L arrabee. Yes; I am afraid of the restriction of credits, as
long as this bank is permitted to engage in open market operations.
Senator B ristow. Y ou went out there 25 years ago?
Mr. L arrabee. Twenty-seven years ago I went to Kansas from
New York State.
Senator B ristow. And did establish a bank?
Mr. L arrabee. The first month I was there, and when there were
no banking laws in Kansas. All that was required of a bank was to
acquire a safe of sufficient size to put confidence in the public and
to hang out a shingle. Many people did that and made good. Two
or three went there and opened banks and bought their safes on
credit and gave a chattel mortgage for them.
Senator R eed. And then made money and made good bankers?
Mr. L arrabee. Some of them have failed, of course.
Senator O’G orman. I s the banking business profitable in your
State ?
Mr. L arrabee. It is exceedingly profitable now, Senator.
Senator O ’G orman. What dividend is your bank paying?
Mr. L arrabee. I will tell you what it earned. We have paid two
3 per cent dividends so far this year. Last year we earned 65 per
cent.

2366
m

B A N K I N G AND C U R R E N C Y .

Senator O’Gorman. What part of the State do you do business in?
Mr. L arrabee. In the rich part, the wheat belt. But that needs
explanation, Senator. I have been there 27 years. I could do busi
ness in that town without capital. My capital is only $25,000, and we
have $1,000,000 of deposits. The people do not ask what the capital
is. It is just Larrabee’s bank. Nobody else could go there and dupli
cate that without 27 years’ record behind them. I think I have the
most profitable bank in the State of Kansas, and it has been hard
work that has done it, and not the capital.
Senator B ristow. There is one other witness—Mr. Moses—that I
would like to have heard this afternoon.
STATEMENT OF E. R. MOSES, PRESIDENT OF THE CITZENS’
NATIONAL BANK, GREAT BEND, KANS.

Mr. M oses. I am president of the Citizens’ National Bank of
Great Bend, Ivans., and president of two State banks. I am also
president of a mercantile company.
Senator B ristow. Mr. Moses, you are engaged in the banking busi
ness and the mercantile business?
Mr. M oses. Yes.
Senator B ristow. Tell us what you think about this bill; how it
will affect your business.
Mr. Moses. Well, it is only apprehensive. We do not know whether
we are going to have the regional bank and get loans as easy and with
as much facility as we are doing now. For instance, I can send my
note down with one or two of my directors on it, if I want money,
for $40,000 or $50,000 and get it immediately, or telegraph for it.
Now, if I have my reserve of 9 per cent in one bank and one of the
cities I do business with is required to take 5 per cent out, say $20,000
out of $30,000 reserve, that leaves $10,000 to my credit with the bank.
My financial standing with that bank is injured to that extent; my loan
ing capacity is cut down one-half or more. Now, you take the cap
ital I would have to put in of $5,000 and the $20,000 reserve, and I
am still injured that much more, because I can go to the banks I
have my deposits with there in the West—in Kansas City or in
Witchita or Pueblo—and get immediately, by mail or upon a telegram,
upon notes sent in by myself and directors, any amount of money I
want that is reasonable.
Again, if there is a segregation in the savings bank of my time
deposits, I could not begin to accommodate the commercial business
of my section of the country this year, because of a crop failure com
ing there, which has taken all of the money that would be available
to accommodate the farmers in putting in their crops and buying
cattle or cows, and a good many of them are going more into that
business, in which we have to help them out, and it would not aid me
in anywise whatever with the State banks there, because if I should
make a statement that the capital of my national bank is down to
$125,000, they would soon know, immediately. We have to look after
business, because the business line is drawn very closely in the western
country.
Senator B ristow. W hat per cent o f your deposits are in these time
certificates ?
Mr. M oses. They run from $360,000 to $410,000.

B A N K I N G AN D CUK REN CY.

2367

Senator B ristow. Upon which you pay interest—your savings
deposits ?
Mr. M oses. N o ; the savings deposits run about $125,000.
Senator B ristow. And you are apprehensive as to whether you
could get the credit you can get now, when you need it, in cropmoving times?
Mr. M oses. Yes, sir.
Senator B ristow. With the facilities from your present corre

spondent?
Mr. M oses. Yes.
Senator B ristow. Would it be a great hardship upon you to go
from the national banking system into the State banking system ?
Mr. M oses. It would not if they would make the bonds at par. We
could very readily go into it, if they would not let us lose anything.
Senator B ristow. In your judgment, would it be to the best inter
ests of your bank to remain as a national bank or go into the State
banking system under the State law?
Mr. M oses. I would prefer staying in the national-bank business, if
they would give me time to see the operation of the business. I think a
great many others—before I came here quite a number of bankers said
if they would just let us stay in until we can see the operation of the
law—apparently it will be so amended from time to time that it would
be of benefit for us to come in—than what it is at the present time—
and we would prefer that. If not, let us get out with our bonds at
par. We have, understand, over 1,050 State banks in Kansas, and out
of the 1,050 only 250 national banks. Out of II banks in my county
there are only 3 national banks. So you can see how the State banks
and national banks run. The national banks, while we think we have
a little prestige over the State banks, yet the State banks are accumu
lating all the time, and I do not know but what it is good, because
every little hamlet where there is a blacksmith shop or an elevator
there is a bank coming in.
Senator B ristow. Y ou think that is a good thing for a community?

Mr. M oses. It is; yes.
Senator B ristow. That brings the money into activity more than
if it was not there ?
Mr. M oses. Yes; it is really needed. The farmers in that country
at certain seasons have need for that money at the crop-moving time,
and especially when crops are not good. This year they need more
money.
Senator B ristow. What change do you need in the banking laws
of the country or in the currency ?
Mr. M oses. I do not think there is anything needed in the banking
laws of the country, except that the larger banks of this country go
and get currency when they need it. Countrv banks do not produce
panics. They have plenty of money in the £ast. We had $140,000
in one place. If we could have gotten hold of one-half if it----Senator N elson (interposing). Where was that money?
Mr. M oses. In the reserve banks.
Senator N elson. Where?
Mr. M oses. In Kansas City and New York.
Senator N elson. Y ou could not get it?
Mr. M oses. We got all we needed in the main.

2368

B A N K I N G AND CU RRE N CY .

You realize—this gentleman from Albany stated he had $9,000,000
of bank deposits, and the banks borrowed only $500,000 of it—you
can realize from that how that money piles up, and they have got
to do something.
Senator B ristow. What do you think about loans on real estate?
Mr. M oses. That is one advantage that the State bank has over
us now in the State of Kansas.
Senator B ristow. Y ou use your bank money in your commercial
business ?
Mr. M oses. Altogether. Now, in this bill—I like a great many
features of this bill. I think the capital stock, however, should be
reduced, and I think the reserve that has been mentioned here should
be put to 3 per cent, allowing the other 2 per cent to go to the home
bank or any other country banks. I think the savings section should
be stricken out entirely.
Senator R eed. That expression has been used to-day a number of
times. Suppose, instead of striking it out, we withdraw the savingsbank proposition, giving you and the small national banks the right
to establish a savings department, giving it to them upon terms so
that they could run a savings bank. You would not object to that?
Mr. M oses. N o, sir.
Senator N elson. Making it optional with them ?
Senator R eed. Yes.
Mr. M oses. Upon the whole, I think if you make this so that the
small banks would continue in the way they are I think they would
be induced to come in. If you do not, I really think the small banks,
even at a loss, would go out. It is always better to leave them in
rather than to force them in. I never saw an institution of any kind
that would prosper greatly where the people were forced into it.
Senator R eed. Still there has been force applied many times to
the banking system by the enactment of the law requiring them to
do certain things that they should do, and requiring them to stop
certain things they ought not to do. It has always, when it has been
a wise law, been a good thing for the banks. Then we had to apply
force to insurance companies, requiring them to keep certain deposits
and conform to certain regulations. It has made life insurance an
investment where it was once a speculation. Then you had to die
quick to beat it.
Mr. M oses. In this instance they have the option of remaining in
or retiring. By allowing them to see the operation of the law I
think they would all come in. I do not think it is necessary that
the small banks should come in; the larger banks probably would
join anyhow. When I say the small banks, I mean the banks of
$50,000 capital or under, but I think a great many of them would
come in. There is no question about it.
Senator R eed. Generally speaking, you think this is a good system,
and would be desirable, with certain modifications ?
Mr. M oses. Yes, sir. I am very much obliged to you, gentlemen,
for giving me the opportunity to appear before you.
Senator R eed. If that is all, we will adjourn now until 10.30 o’clock
to-morrow morning.
(Thereupon, at 6.10 o’clock p. m., the committee adjourned until
10.30 o’clock a. m. to-morrow, Wednesday, October 15, 1913.)

R A N K I N G AND CU RRE N CY .

2369

W EDNESDAY, OCTOBER 15, 1913.

Committee

B anking and C urrency,
U nited S tates S enate ,

Washington, D. C.
The committee assembled at 10.30 o’clock a. m.
Present: Senators Owen (chairman), Hitchcock, O’Gorman, Pomerene, Shafroth, Hollis, Nelson, Bristow, and Weeks.
The C hairman . The committee will come to order, and we will
hear this morning from Mr. Ingle, of Baltimore.
STATEMENT OF WILLIAM INGLE, VICE PRESIDENT OF THE MER
CHANTS & MECHANICS’ NATIONAL BANK, OF BALTIMORE, MD.

The C hairman . Give your name and banking affiliations and ad
dress to the reporter, so that wre may have them in the record.
Mr. I ngle. William Ingle, vice president of the Merchants & Me
chanics National Bank of Baltimore, Md.
The C hairman . State your banking experience, Mr. Ingle.
Mr. I ngle. I have been with my present connection 32 years; three
years before that in another local bank in Baltimore; an officer of the
bank since 1900.
The C hairman . We will be glad to have jrour views in regard to
this bill, Mr. Ingle.
Mr. I ngle. Mr. Chairman and Senators, I think it possibly only
fair to say that I am here in a spirit not at all of antagonism to a
very large portion of the bill under investigation. In other words, I
would like to feel that I could help rather than hinder it, as I recog
nize the work that has been given to it. I possibly am in the same
frame of mind as was owned by a gentleman who has been before you,
and one prominent in banking affairs of the country, who, in Boston
last week was reported to have said that he thought the bill was
about 80 per cent good. I rather imagine that the votes taken in Bos
ton reflect antagonism, not so much to the bill as a whole, but pos
sibly to that 20 or some other per cent which was deemed not as good
as it might be, each individual man, possibly, in voting “ aye ” in sup
port of the Chicago conference having in mind, it may be, some dif
ferent points which he thought were more vital than others.
I am not a speaker, and I have taken the liberty of making some
notes.
Senator N elson. That is all the better; we do not want oratory,
we want facts.
Senator H itchcock. Did you attend the Boston convention?
Mr. I ngle. Yes, sir.
Senator H itchcock. Did you see this meeting of the two thousand
or more country bankers?
Mr. I ngle. Yes, sir; I was a country banker for the time being,
in order to see what was going on.
Senator H itchcock. Can you give the committee an idea as to
whether that seemed to be a free expression of the real opinion of
the country bankers?
Mr. I ngle. Senator, I think it was an untrammeled expression,
and wffiile it is not fair to impute—and I do not do it at all—it is
nevertheless true, I believe, that the matters especially before them

2370

B A N K I N G A N D CUKKENCY.

for discussion and investigation were those in which they were
largely directly interested.
Senator H itchcock. And which they understood very thor
oughly ?
Sir. I ngle. Well, I refer especially to section 17, which refers to
the elimination, the possible elimination, of their exchange charge.
I think without that that their enthusiasm would have been less
marked. I also think that possibly a couple of other things that
they threw into their meeting, while important, were possibly so ob
vious to everyone that they were present at their particular meeting
more as sweetening than as being considered vital from the stand
point of objections of the gentlemen assembled.
Senator H itchcock. Their witnesses who have come before us
seemed to lay great stress also upon the depreciation of Government
bonds.
Mr. I ngle. I think possibly that was a part of the sweetening.
Senator H itchcock. They seemed to feel that was a vital matter.
Mr. I ngle. It is a vital matter, sir; but that is something which
appeals, and with equal force, to all of us, and it does not at all at
tach with any exclusiveness to the country banker.
Senator H itchcock. They also seemed to be very certain that the

clause relating to the savings department of country banks would be
very obnoxious and would result in keeping most of the banks out of
the system.
Mr. I ngle. Senator, I imagine that one’s views on that must be
tempered by his feeling.
Senator N elson. Has your bank got any trust company as an
appendage, in which your officers are interested?
Mr. I ngle. N o, sir; we are simply an individual commercial bank,
with no entangling alliances of any sort. We have no savings depart
ment or trust-company adjunct, nor do we have real estate loans,
directly or indirectly.
Senator N elson. D o you issue time certificates of deposit?
Mr. I ngle. We do not; we have never issued one.
Senator N elson. D o you pay interest to individual depositors?
Mr. I ngle. That is a very leading question, and I will be very glad
to answer it, if you will pardon me. I can not answer it in a moment,
yes or no. We do not, may I say, encourage the payment of interest
on ordinary mercantile accounts, and in connection with such accounts
we pay very little interest, indeed.
Senator N elson. D o you issue certificates of deposit?
Mr. I ngle. We issue demand certificates of deposit bearing in
terest, and I imagine, sir, that we have outstanding at the maximum
possiblv $100,000 out of an aggregate liability on loans of about
$20 ,000,000 .
Senator N elson. Is not that a species of savings?
Mr. I ngle. N o, sir; not in our connection, I should say, because if
anyone would come in there and ask us for a demand certificate of
deposit, at any rate of interest, we generally refer them to a mutual
savings bank. It is only in the case of a man who comes in with, say,
$10,000 or $20,000, for which he has no particular use for 60 or 90
days or four months, or something of that kind, and feels that he
ought not to let it lie in a bank earning nothing; we will then give

B A N K I N G A N D CU R R E N C Y .

2371

him a demand deposit at, say, 2 or 21 per cent. I have known us to
pay as much as 3 per cent, but not habitually.
Senator B ristow. Will you tell us, please, if you have not, what
the capital and deposits of your bank are?
Mr. I ngle. The capital of my bank is $2,000,000; the surplus is
$2,000,000; the undivided profits about $200,000; and the deposits a
week ago, when I left there to go to the Boston convention, were
$20,500,000.
Senator H itchcock. Y ou are hardly a country bank, then?
Mr. I ngle. No, sir; we could hardly with fairness call ourselves
a country bank.
Senator B ristow. ITow much of your deposits are bank deposits
and how much individual deposits?
Mr. I ngle. Our bank deposits, as segregated on our ledger—that
is, the out-of-town banking connections—aggregate just about $7,000, 000.

Senator B ristow. Seven out of the twenty and a half million is
money of other banks ?
Mr. I ngle. Of course, you will understand that both amounts in
figures as large as that, fluctuate within $1,000,000 more or less fre
quently.
Senator H itchcock. Y ou may proceed with your statement.
Mr. I ngle. I w ill say that if by any chance any Senator may have
a question he may desire to ask as I go along, I will try to answer it.
Senator N elson. Y ou will not find us modest about asking ques
tions.
Mr. I ngle. In discussing any measure as comprehensive in its scope
and language as is the proposed currency law, the points to be
especially considered might fairly be divided into two classes, namely,
those referring to fundamental and economic principles, and, second,
those not so related but in connection with which selfish considera
tions may or may not influence the judgment of those directly in
terested, although in connection with some of the matter o f the act
it is difficult to determine just where may be drawn the line between
altruism and personal interest in discussing the provisions of such
sections.

It may fairly be said in regard to two fundamental principles
referred to in the bill, namely. Government guarantee of notes to be
issued, and the option of having them redeemed in anything other
than gold coin, that the opinion of bank people is essentially unani
mous in agreeing that it is most unfortunate that it has been thought
wise in the proposed legislation to depart from beaten and tried
paths and to offend principles of world-wide acceptance. In both of
these situations the bankers’ selfish interest is only incidental and
relatively trifling, and second to that of the public for whose use notes
of any kind are to be issued. As other provisions of the law make
absolutely certain the security of proposed note issues apart from
Government guarantee, and as law can properly regulate their volume
either in the direction of expansion or contraction by providing a
sliding scale tax, it is almost a pity to commit the Treasury further
to the conduct of active banking and more confuse the present mis
understanding of the word money. The banks do not object to the
presence in the law of the strictest ordering and control of their own

2 372

B A N K IN G AND CURRENCY.

note issues, but with substantial unanimity protest that the credit
of the Government should be conserved strictly for its own use.
It is equally or possibly more unfortunate that in providing for
the redemption of the notes the words “ or lawful money ” should
have been inserted in the act apparently as an afterthought. It is
idle to here refer to the old question of double standard of measure
ment, but as the bill again forces it to the forefront, it is proper to
direct special attention to the danger attendant upon the assertion
of the discarded principle and this the bankers do with the same
unanimity and again for unselfish reasons.
The banks have in mind only the desire to have a law useful and
workable when they suggest that a relatively few, rather than many
reserve banks shall be first organized. In heartily welcoming many
of the provisions of the act it is comparatively immaterial whether
there be one single board. The essential things are first, that the
branches of a single bank or the several Federal banks controlled
from Washington shall be so located as to be in touch with business
conditions in the territory which they shall severally serve, and,
second, and what is of prime importance if the law is to be helpful to
the public through the banks, it is essential that the reserve or
branch banks shall be managed from day to day as banks and not as
a Government bureau with all the delay and attendant red tape
which usually delays business with the average Government office.
Senator H itc h c o c k . D o you think that as the system is devised
it is going to embarrass banks and involve a loss of time in getting
the relief they desire?
Mr. I n g le . It would depend altogether, sir, upon the way in which
the law is interpreted and handled.
Senator H it c h c o c k . The reserve banks are to be run just like any
other bank?
Mr. I ng le . Exactly, sir, and if they are not interfered with—I
mean if they are not so restricted by technical regulations by the
Federal reserve board as to permit the directors or the executive
officers of the Feredal reserve bank from acting with promptness,
every objection will surely melt away.
Senator H it c h c o c k . A s I recall it, there is nothing in the bill
prevent the directors from running that bank for bankers just as
efficiently as any bank is ru n ; in fact, the very purpose of it would be
to give immediate results.
Mr. I n g le . Exactly so; and I am only suggesting that because so
many people, having in mind their daily dealings—and I say it with
all respect—with the Treasury Department and other Government
bureaus----Senator N elson (interposing). I do not wonder they get that idea.
Senator H itc h c o c k . I am a little surprised. I have heard the
bankers themselves say that when dealing with the Treasury Depart
ment, that the Treasury Department was redeeming the national-bank
notes more rapidly than the national banks met those notes.
Mr. I n g le . I can tell you just what the reason for that is, if you
are at all interested in it.
Senator H itc h c o c k . Yes; I would like to know.
Mr. I ng le . I am speaking now not ex cathedra, but in a general
way, as I have observed it. The Treasury Department, for instance,
receives for redemption certain circulating notes issued by any

B A N K I N G AND C U B B E N C Y .

2373

interior bank. That interior bank, instead of making its 5 per cent
deposit as promptly as the Government will require, looks over its
ledger and finds, for instance, that it has to its credit in a city, in a
reserve city frequently, a certain balance. They will write a letter
to such city to get them to transfer for its account to Washington so
much money for the credit of this 5 per cent redemption fund. That
particular bank, in turn, has a balance, let us say, in Pittsburgh. It
wants to use that balance, which may be dead for the time being,
and instead of writing to Washington it will write to Pittsburgh,
and Pittsburgh, in turn, may write to Baltimore or New York or
Philadelphia, so that by the time that 5 per cent redemption deposit
reaches Washington the transaction may be a week or 10 days old.
Senator H itc h c o c k . Does that not really prove what I say?
Mr. I ngle. It does, in respect to those banks which adopt that
practice.
Senator H itc h c o c k . With the delay on the part of the bank and
not on the part of the Government; the Government is always, as it
were, holding the sack.
Mr. I ngle. In that particular situation, because it is to the benefit
of the bank to use the Government capital as long as possible in that
situation.
Senator H itc h c o c k . That was our testimony that the Government
has been more prompt in dealing with the banks than the banks with
the Government.
Mr. I ngle. Senator, may I make a comparison not in criticism?
For instance, in connection with the last distribution of funds made
by the Treasury Department the Government was obliged to have
proper regulations to safeguard itself, but in caring for all that
machinery I imagine as much time as two or three weeks elapsed,
in many cases, before the money found its way into the communities
where it was wanted. I do not offer that statement in any way of
criticism at all. In Baltimore it was handled with exemplary prompt
ness, as far as that goes.
Senator H itc h c o c k . That was not a case of emergency, in the first
place, and in the next place, no machinery was provided by law.
Mr. I n g le . I k n o w ; th e y h a d to m ak e a p reced en t.
Senator H itc h c o c k . I know they called upon me to name some
one in Omaha, where I live, and I suppose the same thing was done
with other Senators, and they had to depend upon what arrange
ments they could make. I thought it was handled, considering the
lack of machinery, very well by the Treasury Department.
Mr. I n g le . Very well, and I am not criticizing the officials o f the
Treasury Department in any sense.
Senator B ristow . That brings up a point which has been referred
to very often here. Senator Hitchcock refers to his being called up
to name somebody to distribute the money in Nebraska----Senator H itch co ck (interposing). It was not to distribute the
money; it was to pass upon commercial credit or paper offered by
the bank.
Senator B ristow . A Democratic politician in the State decided
how that should be. Is that to be the practice?
Mr. I ngle. If you will tell me what your State is----Senator B ristow (interposing). Kansas is my State.

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B A N K I N G AN D C U R R E N C Y .

Mr. I n g le . Oh, I see. That general subject has absolutely no
relation to this bill. That was an emergency; an extraordinary oc
casion for which extraordinary machinery was provided.
Senator B ristow . I t has been stated by a good many bankers that
this bill would be a political measure. If the distribution of the
Government’s funds to relieve the crop-moving period is to be managed by Democratic politicians who have no connection with the
Go’\ ernment, it would give some stability to this criticism, would
it not ?
Mr. I ngle. I hardly follow you there, Senator. It depends alto
gether upon the view one chooses to take of this comprehensive
measure. It would seem to me almost as fair to assume that this bill
intended to provide in this Federal reserve board practically a sub
stitute for the present management of the comptroller, subject to
the control of the Secretary of the Treasury. We can assume any
thing. It is true that many of the provisions of this act give wide
latitude; so does the present national banking act. Under the terms
of the present act it would be competent for the two men—the comp
troller and the Secretary of the Treasury—were they so minded, to
run their offices as a political machine in connection with the bank
ing of the country. It would give them the opportunity very easily
to close a very large percentage of the banks of the country, because
we all know’ that in the matter of the maintenance of reserves, in the
matter of excess, or otherwise dangerous law, almost every bank in
turn lays itself open to very severe criticism by the department. So
I can not say that—unless w*e assume that the bill was prepared de
liberately as a political measure—that it is any more open to abuse
than the present law. I, for one, do not believe for a moment that
the bill reflects any desire to control the banks or their credits for
political purposes.
Senator B ristow^. Of course, you do not believe that politics ought
to have anything whatever to do with the administration of a power
of this kind, do you?
Mr. I ng le . Politics as politics ?
Senator B ristow . A s partisan politics?
Mr. I n g le . N o, sir; I do not.
Senator B ristow . I think we all agree on that. There is some ap
prehension on the part of a good many bankers, as you know, that it
will be used as a political agency in times of intense political partisan
contention.
Mr. I n g le . That may be a very natural fear, Senator.
Senator B ristow . And I was just suggesting, since the distribution
of this money that was recently distributed was supervised, to an
extent, by politicians, who had no connection with the Govern
ment, in some of the States, that that was a ground for some such
apprehension, or might be.
Mr. I ng le . Senator, i f I understand that part of the program,
these gentlemen in the several States were named not at all to appor
tion this money; as a matter of fact, as far as I am aware, they were
not named until after the apportionment had been made. They
were simply named as the personal representatives of the Treasury
Department to see that the collateral was properly lodged in the
hands of some one other than the interested banks. In other words,
they were the custodians, to all intents and purposes, of the collateral.

B A N K I N G AND CU RRE N CY .

2375

They were also assumed to pass upon credits. I imagine that that
portion of their labor was very light. In that case it is hardly pos
sible to assume that any single individual, frequently not a bank
man, would know anything in particular about the individual notes
held among the assets of particular banks receiving a portion of the
crop fund.
Senator B ristow . D o you not believe, Mr. Ingle, that whatever
provision we make here should be made in such a way that any
banker, regardless of his politics, or his religion, or any other inci
dental relationship, could, by right, obtain from the Government the
help that he needs if he has the proper security or collateral to get
it and not have to depend upon the will of some man?
Mr. I n g le . Again, Senator, an answer to that question must—I
mean the answer j7ou would probably like to make—would assume
that we would be in danger of having these Federal reserve banks
managed as a semipolitical organization and be subject to suggestion
or control, apart from the need the member banks might have for
money.
Senator B ristow . Would that not seem to be guarding against such
a possibility? Do you not think that is advisable?
Mr. I n g le . A s an abstract proposition, sir, I believe in the fullest
liberty, but in real life, we will meet all throughout this country any
number of banks, the limit of whose desires in obtaining money is
only the stock in hand held by anyone from whom they can get it.
If under no restraint whatever, many such banks would, if no brakes
were put on them, borrow the entire stock of the Federal reserve bank,
so that we must permit some latitude of veto power.
Senator B ristow . Should not that be fixed in the law as nearly as
it can be?
Mr. I ngle. It is a pretty hard thing, sir, to write a law which will
meet every situation. The tighter you make the law, the more un
workable it is. I would very much rather live under a law which
was broad in its provisions and then trust to those administering it,
trust to their sense of fairness.
Senator B ristow . According to that theory, then, w e ought not
to have laws; just elect men to govern the country.
• Mr. I ng le . Oh, no. Law is often simply to give general directions,
but not to say, for instance, what we shall have for lunch every day.
Senator B ristow . I had not thought of having a law of that kind
in connection with this bill. [Laughter.]
Mr. I n g le . I mean we do not want to be too exact in any law we
draw. We want some play. Until we all have wings----Senator N elson (interposing). You want elasticity in the adminis
tration of law as well as of currency.
Senator B ristow . I will not disturb you any further now.
Mr. I n g le . I am very glad to answer questions. I do not know
that I have responded very clearly to your questions.
Senator W e e k s . Y ou referred to the supervision which the Secre
tary of the Treasury would have over the reserve board as provided
for in this bill.
Mr. I ng le . N o, sir; I did not intend to say so, sir. I referred to
the charge that in the present national banking act the Comptroller
of the Currency, with the consent of the Secretary of the Treasury—
S. Doc. 232, 63-1—vol 3-- 29

2376

B A N K I N G AN D CU RRE N CY .

the two men have practically absolute power over banks, unless they
are so very good that their officers are ready for translation. Under
the new law the Secretary of the Treasury, as such, will, I assume,
have no special voice.
Senator N elso n . Only as a member of the board.
Mr. I ng le . A s a member of the board, if the law as it is drawn still
stands.
Selfish considerations must be present, considering section 19 of
the bill, the section providing for the refunding of outstanding 2
per cent bonds, but surely the motive prompting the suggestion that
fairer provision be made for the protection of national banks hold
ing these bonds in faith in their Government can not be thought to be
altogether unworthy. Under the terms of the act, State chartered
institutions are expected to avail themselves of its provisions. If
all other conditions were even, the State banks would, under the law,
be better off in owning practically no United States bonds than the
national banks, which have made it possible for the Government to
fund its debts and to borrow money on terms the best in the world.
It might be well to mention here the existence of a condition the
presence of which will have great weight with all national banks
in determining whether or not they will continue in business subject
to Federal control. Practically all such banks are in sharp compe
tition with State chartered institutions organized under liberal and
many times unsafe charters and operating under widely differing
local laws. Under existing law national banks tied down to the
wholesome provisions of the national-bank act have seen their busi
ness so crippled by banking not controlled by its provisions that only
the ownership of United States bonds and the presence of faulty
reserve laws which give them some profit at the risk of safety, has
prevented them from surrendering their national charters. Only
about one-third of the banks of the country are under Federal con
trol. It is difficult to conceive that any national law can be of real
value unless it entirely controls the subject with which it deals when
such subject is of common interest to the entire country. Either
some way should be found to nationalize banking or, if that be im
possible, a new law should be so inviting as to compel common assent
to its provisions, regardless of State lines. In other words, it would
be only fair to see that national banks should have an even chance
in competition wth State institutions and especially so as the former
must enter the competition with the handicap attaching to the own
ership of United States 2 per cent bonds.
Much has been said against Federal control and compulsory sub
scription to stock in the reserve banks as also the forced deposit of
part of the reserve in these banks. If it were not for the presence
of the United States twos, which could not be sold on an investment
basis without a loss of $250,000,000, there would be little force in this
point made against the law, as a bank could either accept or reject
the plan. In other words, the idea itself is not inherently unsound
and with conditions such as would permit the exercise of untram
meled judgment no one could reasonably oppose it. National banks
have always been under control of a law which inflexibly interpreted
and followed could be made safe, just as severe in its effects as
could be the action of the Federal reserve board under the proposed
act. Instead of having, as in the past, two men to determine just

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2 377

when a bank should be liquidated, the new law gives the power to
seven. In connection with the controlling board it is unfortunate,
as a matter of expediency and fairness, that the law insures the pres
ence of only one practical bank man in its number. As under the
new law more money will be released from reserves now held for
loaning at current rates, that will be required to be kept with reserve
banks, no harm or loss should follow the gradual transfer of the
funds. In following much which has been said on this point, it
might appear that the funds so transferred are to be destroyed or
otherwise rendered useless, w’hereas just the contrary is the case.
Senator H itc h c o c k . D o you understand that those reserves which
are to be kept in the reserve banks are to be subject to the same use
that banks now make of their reserves in reserve centers?
Mr. I ngle. I will come to that a little later. It would seem to be
wise, however, to avoid the rigidity in these reserve balances sug
gested by the law as drawn. It is assumed that these reserve balances
Ure to be the active checking accounts of member banks. Against
such balances will be charged not only checks drawn directly against
them, but checks drawn on member banks and cleared through Fed
eral reserve points. In consequence no balance can be a constant
quantity. Would it not be possible to give some play here? For
instance, a member bank might be permitted to encroach, say, 25 per
cent upon its determined balance without penalty, provided its cash
reserve at home was at the moment correspondingly increased. If
depleted beyond the amount of such percentage, certain penalty
could be provided to prevent the depletion for sake of profit or for
any reason other than to meet some immediate exigency.
Senator H it c h c o c k . I infer, then, from your criticism or sugges
tion of a change, that you think that the provision in the bill which
practically impounds the reserve where it can not be used----Mr. I ngle (interposing). I think it is faulty, sir.
Senator H itch co ck (continuing). Is a defect in the bill.
Mr. I ngle. I think the money, or the credit, so carried and to be
used only as a matter of bookkeeping from morning to morning in
figuring the reserve might as well be impounded in Greenland as
in the Federal reserve bank.
Senator H itch co ck . It can not be used in the bank which has the
reserve at all?
Mr. I ngi.e. N o, «?ir.
Senator H itc h c o c k . Two-thirds of it can be used as loanable
funds in the reserve bank, and that is the onlv use that can be made
o f it ?
Mr. I ngle. That is right.
Senator H it c h c o c k . But under the present system, if the bank
has a part of its reserve in its vault and a part of its reserve in
Chicago and a part in New York, it can so change these reserves by
drafts and remittances that it practically makes active use of its
reserves, does it not?
Mr. I ngle. It can withdraw the last dollar of its balances in any
reserve city.
Senator H itc h c o c k . S o that at present a ll o f its reserves are
capable of being mobilized and used, whereas under this proposed
system 5 per cent of its----M r . I n g l e (interposing). Deposits.

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B A N K I N G AND C U B E E N C Y .

Senator H itchcock (continuing). Of its deposits are impounded
in the reserve bank; another 5 per cent of its deposits are impounded
in its own bank: and both these amounts are just as much out of its
reach as if they were down in the bottom of a well.
Mr. I ngle . Excepting for this reason, Senator: I think to make
this law of any value at all it should provide that the member banks
should be required to keep an average balance of a certain per cent
of its deposits; otherwise the law would not be effective, as permit
ting the reserve banks to be of any service to their members. The
thing I urge is that the constant presence of the reserves should not
be required. If, for instance, a bank having a forced deposit—if I
may use the word—of $800,000 with the Federal reserve bank finds
it necessary to very heavily draw exchange on a particular day—it
may want to draw $100,000, or $200,000 more than its current
dispatches to that bank on that particular day. In addition to that,
the Federal reserve bank may, on the morning on which those drafts
are presented for payment, find itself in possession of another
$100,000 worth of checks on its member bank, drawn by customers.
So that its reserve then, fixed by law, would be depleted.
Now, what would be the consequence? Would that Federal re
serve bank decline to honor those drafts or any of them? Or should
they not be permitted to allow the bank having occasion to draw ex
cessively to replenish that fund in exchange which it could arrange
for, either among its neighbors in the ordinary course of business,
possibly, or, if no other remedy presented itself, by the shipment of
Federal reserve notes or other currency? .
Senator H itc h c o c k . But there is no provision in the bill which
requires a Federal reserve bank to repudiate the drafts of a member
bank as long as it has any balance at all?
Mr. I n g le . And yet if we are required to keep the reserves as
stated in the bill, it would have that effect.
Senator H it c h c o c k . The provision is that the member bank must
make it good within a limited time.
Senator N elso n . Yes; within a month.
Mr. I n g le . But the language can be modified. And in modifying
it, unless it is desired to destroy the usefulness of these Federal re
serve banks, there should be some penalty attached to the withdraw
ing of these deposits below a certain percentage.
Senator N elso n . There is no restraint on the reserve bank. They
can loan out the whole 5 per cent. The restraint is on the member
bank.
Mr. I n g le . Yes; the restraint is on the member bank.
Senator N elso n . But, so far as the reserve bank is concerned, the
fund is not tied up ?
Mr. I n g le . Not at all.
Senator N elson . And you must not overlook the fact that that 5
per cent fund is, after all, the biggest part of the capital of the
reserve bank.
Mr. I n g le . And for that reason the law should be compulsory; but
it should so protect the Federal reserve banks----Senator N elson (interposing). Compulsory in what direction?
Mr. I ngle. In compelling the banks to recognize a certain per
centage of their deposits as a normal deposit to be maintained with
the Federal reserve bank; and the moment they impinge below a cer

B A N K I N G AN D CU RRE N CY .

2379

tain permitted percentage. I think they should ue penalized, so as to
be compelled, practically, to replenish this depleted reserve.
Senator N elso n . Blit if you adopt that other provision of the bill,
the clearing-house provision as to checks, as it is in the bill, how can
a member bank always tell what its balance is?
Mr. I n g le . If it follows the bill in good faith it can.
Senator N elso n . It can tell what the regional bank may have
cleared of its checKs----Mr. I ngle (interposing). It can tell within a margin of some 20
per cent or 25 per cent of its deposits------

Senator N elson (continuing). But how can a member bank tell
how many checks have been drawn on it?
Mr. I ng le . I t can n o t te ll a t all.
S e n a to r N elso n . A n d th e y w ill n o t know a b o u t th o se checks u n til
th e y a re tu rn e d in to th e re g io n a l b a n k , a n d th e re g io n a l b a n k c h arg es
th e m to th e m em b er b a n k ?
Mr. I n g le . Exactly; that is correct.
Senator N elso n . So that it is impossible fo r these local banks, or

member banks, to determine under that system proposed in the bill
as to the clearances until they are advised by the regional banks?
Mr. I ng le . They can tell from their own books with an exactness
which will permit them to replenish their reserves. They will know
exactly the condition of their balance this morning----Senator N elson (interposing). But the banks do not tell them
until those checks turn up what has been drawn against them?
Mr. I n g le . Exactly; but they know what they have drawn on that
Federal reserve bank, and they know by experience---- Senator B ristow (interposing). But you do not understand what
Senator Nelson is referring to.
Mr. I n g le . Yes, Senator Bristow; I do.
The C h a ir m a n . I think Senator Nelson did not understand him.
What he was trying to explain is that by experience the member
banks can tell approximately how much the checks that will come
in against them will amount to.
Senator N elso n . Oh. they can can guess at it, of course. But let
us suppose, for instance, that Mr. Ingle is a member bank.
The C h a ir m a n . Yes.
Senator N elson . And we will say that all the members of this
committee are depositors in his bank.
The C h a ir m a n . Yes.
Senator N elson . And we, each of us, draw checks on o u r accounts
there, and those checks are sent to the regional bank. Now. he does
not know that we have drawn those checks or that they are out until
the regional bank calls his attention to it under this proposed clear
ing-house system.
Senator P o m er en e . Well, does that differ materially from the
present practice?
Senator N elso n . Oh, yes: these country banks do not allow them
to do that now.
Senator P o m er en e . But these checks m ay be drawn and sent o ut
to different customers of the bank and cashed.
Senator N elson . But the bank they are drawn on does not allow
them to send them out to other banks for collection.

2380

B A N K I N G AND C U B B E N C Y .

Mr. I n g le . Only in exceptional cases.
Senator N elso n . But the rule is the other way.
The C hairman . The bank, however, does not know what checks
will come in drawn on it any day until the checks are presented.
They do not know what checks are going to be drawn against them
on a certain day.
Senator H it c h c o c k . There is this difference in the two cases: A
country merchant will not present a check on a bank in his own
town for $10,000 if he has only $2,000 on deposit. But he may send
the check to a manufacturer in a city, and the manufacturer may
deposit the check in the city bank, and the city bank may deposit it
in the reserve bank, and the reserve bank may charge the amount of
that check, $10,000, to the country bank, although the man who drew
it had only $2,000 on deposit there.
Mr. I ngle. That w ill not make any difference if there are responsi
ble indorsers on it.
Senator H itc h c o c k . It would make this difference, that that
$10,000 check would be presented for payment and charged by the
reserve bank against the country bank, although the man had only
$2,000 deposited in the country bank.
Mr. I n g le . That is exactly what should be done. That would
break up the terrible practice of “ kiting.”
Senator H it c h c o c k . Then we had a man before the committee
yesterday who said that that would encourage “ kiting” ; that it
would encourage the country merchant to send his check to the city,
where he owed somebody some money; and then he would depend
on subsequent collections to make it good by the time the check
reached his home bank.
Mr. I n g le . Senator Hitchcock, neither the country people nor the
city people need any encouragement as to that. That is a lesson they
learned long since.
Senator N elson . N ow , here is the way it would work o f necessity,
about that 5 per cent reserve in the regional bank. The regional
bank would cash a lot of checks drawn on your bank. And they
would report to you, saying: “ We have cashed so many checks drawn
against you. That reduces your 5 per cent balance so much; you
must replenish it.” Now, what else can you do? What other system
could be applied?
Mr. I ng le . I would not adopt any other system. But I only sug
gested—
Senator N elson (interrupting). So that the regional bank which
has cleared these checks must notify the member bank that it has a
deficiency, and the member bank must have an opportunity to put in
enough funds to make it good.
Mr. I ngle . Senator Nelson, if you will let me explain the routine
in such cases I think I can make it clear. That Federal reserve bank,
upon cashing checks drawm on the member banks will follow’ the
usual banking practice.
Senator N elson . Yes.
Mr. I ngle. They will simply take those checks from day to day,
inclose them in a letter----Senator B ristow’ (interposing). But that is not the law.
Mr. I ngle (continuing). And charge the bank with that. The
next morning the member bank has notice of the amount of any

B A N K I N G AND C U R R E N C Y .

2381

deficiency for which it will have to provide in its current dispatches
to this Federal reserve bank to bring its reserves back to the 5 per
cent required.
And I only suggest that the law be so amended as not to make it
appear that this 5 per cent was an absolute, fixed quantity—that you
are obliged to keep that 5 per cent there.
The C h a i r m a n . It is no more fixed than the present reserve is.
Senator N elso n . It never can, in practice, be a fixed quantity.
The C h a ir m a n . N o reserve is a fixed q u a n tity .
Mr. I n g le . Well, if that is the thought, all right. I only brought
that point out because it has been suggested that the impounding o f
this 5 per cent would make it rigid.
The C h a i r m a n . If the impounding of it in that way would make
it rigid, it ought to be changed.
Senator N elson . The language is rigid:
That every Federal reserve bank shall at all times have on hand in its own
vaults, in gold or lawful money, a sum equal to not less than 33J per cent of
its outstanding demand liabilities.

The C h a ir m a n . Yes.
Senator N elso n . And up above the bill says:
And from and after the passage of this act such fund of 5 per cent shall in
no case be counted by any national banking association as a part of its lawful
reserve.

The C h a ir m a n . I think if you will look at the national banking
act, you will find that the requirement is the same. It is a reserve,
but it is a reserve which can only be used for certain purposes.
Senator H itc h c o c k . Under the law as it exists now, a bank m ay
have part of its reserve in its own vaults, part of its reserve in a re
serve city bank, and part in a central reserve city.
The C h a i r m a n . Yes; a n d i t m a y u se th e m in a ll th r e e p la c e s.
Senator H it c h c o c k . But this bill requires the bank to have 5 per
cent of its deposits in one place, and 5 per cent of its deposits in an
other place; and even though a deficiency in one place is made up by
an excess of reserve in another place, the bank will still have a de
fault in the first place.
The C h a ir m a n . You may have a deficiency in all three places and
still make up the default.
Senator H itc h c o c k . But under the present law the deficiency in
one place may be made up in another place.
The C h a ir m a n . I thought you meant that under this bill the re
serves could not be invaded at all.
Senator H it c h c o c k . I meant that the reserve which is kept in the
reserve bank could not be invaded at all.
The C h a ir m a n . I do not think that is the meaning of the pro
vision in the bill.
Senator H itc h c o c k . What page is that?
Senator S h a fr o t h . Page 39.
Senator H it c h c o c k . What I have in mind is this: The member
bank is required to keep a reserve of 5 per cent in the Federal reserve
bank. That is an absolute requirement.
The C h a ir m a n . But that reserve is for the purpose of use by the
reserve b a n k ------

2 382

B A N K I N G A N D CU R R E N C Y .

Senator H itch co ck (interposing). Then the bill says, “ The Fed
eral reserve board may notify ”■
—no; that is not the provision I have
in mind.
Senator S h a fr o t h . I think that section 21 is what you have in
mind, Senator Hitchcock, repealing the provision in the national
banking act as to the 5 per cent redemption fund being counted as
part of the reserve.
The C h a ir m a n . I think it is section 20 he has in mind.
Senator Nelson. Well, you can see the necessity for that. Under
the present national-banking system the 5 per cent deposited in the
Treasury for redemption of the circulating notes of the national
bank is always deducted from the amount the bank is required to
keep in reserve, whether it is a country bank or a bank in a reserve
city or a bank in a central reserve city.
The Chairman. That is right.
Senator N elso n . It is necessary to do away with t h a t in order to
make it conform to other parts of this bill. That is, the law now
allows the 5 per cent for the redemption of national bank notes to be
deducted from the reserves required; and the meaning of this bill is
that that 5 per cent which they have heretofore been allowed to
deduct shall not be deducted from the reserves required under this
bill.
The C h a ir m a n . Yes; it shall no longer count as reserves under
this law. But that 5 per cent fund is constantly invaded by the
banks. Sometimes they go below it and sometimes they go over it.
And these reserves are capable of being invaded for legitimate pur
poses, and sometimes for illegitimate purposes; but if they go below
the line they are expected to promptly make it up.
Senator N elso n . And this bill adopts the same principle in regard
to the 331 per cent reserves of the regional banks*; the 5 per cent that
they are required to deposit for the redemption of the notes in the
Treasury is deducted from the 33/{ per cent reserves required.
The C h a ir m a n . Yes.
Senator N elso n . We are adopting exactly the same principle for
the regional bank as now exists.
Senator B ristow . N ow , you referred with some earnestness to the
system of “ kiting ” which has been discussed here to some extent. Do
you disapprove of the checking system which has become so prevalent
in the country, in the payment of bills by check, instead of by bank
draft or----Mr. I ngle (interposing). Not at all. when such checks are drawn
to pay a bona fide bill. But, in practice, in quite a degree, a man in
the country over here [indicating] has a friend in another country
bank over here [indicating] some 10 or 20 miles, or 120 miles away.
This man in the country at one point will ask one of his friends, or
he himself will draw a draft for $1,000 on his friend over here 100
miles away: and the man drawing the draft will send that draft to,
let us say, Chicago----Senator N elson (interposing). As far off as he can.
Mr. I ngle. A s far off as he can. By the time this man over here
gets it—and many times these drafts are not drawn on funds at all.
They are fictitious from first to last; But this man at the point at
which the draft is drawn will promptly take his collection charge of
$2.50 off of that $1,000 at the expense of the bank in Chicago, and in

B A N K I N G AND CU R R E N C Y .

2 383

the same breath present his Chicago bank a draft drawn on his friend
at the initial point, and he, in turn, takes his $2.50 off the same
$1,000. They keep that up in a more or less generous way. So that,
once you hold out a check so drawn you break the combination, and
sometimes break a bank, as happened two years ago in Kentucky, at
the hands of some one very well known to me.
Senator B ristow . Well, I bring the point up because it was empha
sized yesterday, and a serious objection was made to the system of
the payment of bills by check. To illustrate: I live at Salina, Ivans.,
and I might have a bill due in Chicago, and I pay that bill by writ
ing a check on my local bank for $1,000 and mailing it to the party
at Chicago to whom I was indebted----Mr. I ngle (interposing). Senator Bristow, I catch your point, now.
May I respond? I did not catch it before.
Senator B ristow . Yes.
Mr. I n g le . I think that is not a businesslike practice. You go to
Chicago and you buy $100 worth of goods from some one. When you
pay your bill you send him a check on Hickman, Ivy., for $100, it is
true. But that man in collecting that check only gets, possibly, $99.50.
In other words, you are compounding with your creditor at 99^ cents
on the dollar. I think you ought to go to your bank, as wras the
habit a generation ago, and purchase a draft on Chicago, or some
reserve center, and pay the cost of it. If you do not keep an account
that will justify that bank in giving you a draft at par you should
pay the cost and send that draft at par to the man to whom vou owe
the $100.
Senator B ristow . But suppose my creditor at Chicago and my
banker at Salina and his banker at Chicago are perfectly satisfied
with this method of handling the business, what right has the Gov
ernment to interfere with it?
Mr. I ngle . They make a virtue of necessity. I do not think they
are at all satisfied; somebody pays the freight. The bank which
actually makes the collection pays for it. It either pays the country
bank an actual exchange charge in money or it renders a return
service for that interior bank in the shape of clearing its checks on
other teritory, which, boiled down into dollars and cents, generally
means more than would result from a direct exchange charge.
Senator B ristow . Well, the country banks encourage that kind of
remittance and desire it. They very much prefer that to the sale
of drafts.
Mr. I ngle . O f course they do, because they know that they can not
very well compel their own local customers to pay them 10 or 15 or
25 cents when they want to settle a draft out of town, as they can
put some other disinterested bank under duress, practically, by com
pelling that bank----Senator B ristow (interposing). Under duress in what way?
Mr. I n g le . Well, I do not know whether **duress” was the word I
should have used there.
Senator N elson . Moral duress.
Mr. I n g le . Well, they are obliged to do it.
Senator B ristow . Why are they obliged to do it?
Mr. I ng le . Because they have got to do business.
Senator B ristow . It is competition which makes them do it. If
they do not do it, somebody else will.

2384

B A N K I N G AND CU B B E N C Y .

Mr. I ngle . Yes; but it is competition based upon the use of a
false principle and one which suggests the pa}?ment of a 100-cent debt
in a 991-cent dollar.
The C h a ir m a n . Mr. Ingle, will you allow me to explain at this
point? I want to ask the committee if it will be agreeable to hear
Senator Thomas at 3 o’clock this afternoon? He desires to be heard
at 3 o’clock.
Senator N elson . What is our program for the day?
Senator H itc h c o c k . Let us make it 3.30.
The C h a ir m a n . Half past 3 will be agreeable to me. But I should
like to give him notice of the time, so that he can accommodate him
self to it.
Senator S h a fr o t h . That is satisfactory to me.
Senator B ristow . It is satisfactory to me, if it is to the Nebraska
delegation.
The C h a i r m a n . We will make it half-past 3 then.
Senator B ristow . Well, continuing on the subject we were discus
sing: I think it is quite an important matter; because it has de
veloped here in these hearings recently that the city banks would like
to change the custom of making these remittances, while the country
banks are very much opposed to any change in the method of remit
tance. The country banks—some of the gentlemen appeared before
us yesterday—insisted that that method of remittances by check is
a good thing for the country, and greatly facilitates business, and is
a very great convenience; and that any bank in the city that will not
conform—or any city that will not conform—to that practice which
has grown up, would find itself handicapped, because it naturally
would drive trade away. And one gentleman talking to me yester
day cited the instance of New York, the New York banks—I think
probably through the clearing-house association; it made certain
charges upon the country banks that Philadelphia did not, and that
the tendency was to help the business of Philadelphia.
Mr. I n g le . But only in a very moderate degree, Senator Bristow.
I t would have been in greater degree, were it not for the fact that
there again was interposed the fictitious condition made by the pres
ent banking act, under which we are compelled, whether we want
to or not, to keep a balance in New York. In consequence, the New
York banks, of all the banks in the country (and in a relatively
lesser degree the Chicago banks) can make rules with the knowledge
that the banks of the country as a whole are obliged to follow them.
Such conditions do not attach to banks in the reserve cities of the
second class.
I think the issuance of local checks is a very convenient method
of settling accounts. There could be no objection whatever to it. if it
were so .arranged, as it is proposed under this law, that such checks
are to be redeemed at their face value, not at a discount for the benefit
of the paying bank.
I go to a country bank, or any bank, with a check for $10,000. and
I can get $10,000 if I am known and that check is good. If I. rather
than go there myself, elect to send that check by mail, surely that
paying bank is as much obligated to pay me 100 cents on the dollar
on that check as if I were there in person.
Senator N e l s o n . But how do they get the money to you?

B A N K IN G AND CURRENCY.

2385

Mr. I n g le . They can send me—they can elect, as a matter of
courtesy, if you choose, to send me a piece of exchange which I can
collect, or they can put a lot of currency in a bag and express it to
me at my risk.
New, if they want to charge me 5 cents or 10 cents or 15 cents for
the time they are required to tie up that shipment of money in a
bag or package rather than pass it to me over the counter, I assume
that that would be a legitimate charge.
Senator H itc h c o c k . N ow , as a banker, when you receive deposits
you engaged to pay them over your own counter on demand, do
you not?
Mr. I ng le . Yes; I engage to pay them over the counter on demand.
Senator H it c h c o c k . Y ou do not engage to pay them by express
or over the counter of another bank 500 miles away on demand, do
you? You only engage to pay them at your own bank, do you not?
Mr. I ng le . I would suggest that this bank, when it registers the
money by mail—I am not concerned whether it goes over the counter
or through the side door. The bank is as obligated to pay that in
one way as in the other.
Senator H it c h c o c k . I am talking about the proposition involved
in this bill. If a man in your town draws a check on you for $1,000
and one of the citizens of the town present it, you pay it over your
counter. Suppose that man instead of giving the check to a citizen
of your town sends it to somebody in New York and that person
deposits it in a bank, and that bank presents it at the reserve bank
in New York and that is charged to your account in New York. Is
not that practically compelling you to pay that $1,000 in New York,
and will not that compel you to stand ready at all times to pay your
depositors either at your own bank or at the reserve bank at the
option of the depositor? Does not that compel you to be ready to
pay it in two places at the same time?
Mr. I n g le . Hardly so, because that is a convenient method of
paying that check at the counter of that bank on which it is drawn.
If the reserve of that bank with the reserve bank is depleted, the
inferior bank is obliged to pay that money over its counter to that
reserve bank, in order to replenish its balance.
Senator H itc h c o c k . I say it is compelling you to be ready at all
times to pay your depositors in two places, namely, at your own
bank or at the reserve bank.
Mr. I ng le . A s long as that is what is done now, I can not see
that it makes any difference to express it so in law.
Senator H itc h c o c k . It is not done now.
Mr. I n g le . Yes; if I send a check for mail for $1,000 to a bank
in an interior town, I do not get the money for it in return. I get
a check on the very same bank in New York.
Senator H itc h c o c k . Let us take the same case as an instance. A
citizen in your town having a credit in your bank sends $1,000 to a
merchant in New York, and the merchant in New York deposits it
in a bank in New York in which you have an account. Does that
bank charge it up to your account?
Mr. I n g le . A s a practical matter; yes, sir.
Senator H itc h c o c k . As a practical matter it sends it out to you,
and you pay it when it gets to you, or it sends it to another bank

2386

B A N K I N G AND CU RRE N CY .

in your town and is paid at your counter. All the testimony here
has indicated that no reserve bank has any right to charge to the
account of its country correspondent a check drawn against that
country correspondent.
Mr. I ng le . Senator, that is a question of practice.
Senator H itc h c o c k . Can you tell me of any bank in New York
which reserves the right to charge its country correspondent with
checks which it may receive—individual checks?
Mr. I ng le . Yes; we have four reserve agents in New York which
charge promptly against our balances in their hands not only checks
on us, but any business they choose to send us in Baltimore.
Senator H itc h c o c k . That is an e x c ep tio n al a rra n g e m e n t, is it n o t?
Mr. I ng le . I believe that is because we are a very good bank.
[Laughter.]
Senator H it c h c o c k . That places you at the mercy o f a ll of your
depositors.
Mr. I ng le . We try to be prepared for that, sir.
Senator H itc h c o c k . Then, a man might overdraw his account and
it would be charged to you in New York.
Mr. I ng le . That would make no difference, in practice.
Senator H itc h c o c k . I think that might open the door to fraud.
Mr. I n g le . I c a n n o t see t h a t it w ould.
Senator H itc h c o c k . If a man might present a check in New York
against you when he had no account at all and get money on that----Mr. I ngle ( in te r p o s in g ) . That can be done a n y h o w ; it is done
e v ery day.
Senator H itc h c o c k . But it would not be charged to you?
Mr. I n g l e . I would just as leave have it charged to my account
as to send it on for collection and the New York bank has parted
with that money.
Senator H it c h c o c k . I want to know, seriously, whether a country
bank doing business with a reserve center is compelled to have checks
which individual depositors draw against it charged to the account
of that country bank in New York or Chicago or anywhere else.
You say that is the practice now?
Mr. I n g le . No, sir; I do not say it is the practice. I say, unfortu
nately, it is the growing habit of the interior banks to insist upon
what we call double accounts in the transaction of their business.
Senator H it c h c o c k . What is the practice now? Tell me frankly
what is the practice now.
Mr. I n g le . I can only state for ourselves. I assume that we now
have about 800 out-of-town bank accounts on our ledger, and we
charge against the credit balances all of our business in fully 600
of those accounts. On the other 200 accounts, they are double ac
counts, you understand, where they will not let us do that.
Senator H it c h c o c k . We are talking about different things. Are
you talking about checks drawn by another bank upon you?
Mr. I ng le . I am talking about in Baltimore the checks drawn on
Salisbury, Md., or any town. I do not care where, where the practice
prevails with us.
Senator H itc h c o c k . Let me give the same illustration I have. I
am asking you whether an individual citizen of Baltimore—Balti
more is your place, is it not?
Mr. I ng le . Yes.

B A N K I N G AND C U E E E N C Y .

2387

Senator H itc h c o c k . Whether an individual citizen of Baltimore
draws a check on your bank which goes to New York and gets in the
hands of your New York correspondent, does that New York cor
respondent charge that check to your account?
Mr. I ngle. If in connection with it or any one of the four New
York correspondents we have, it does it that very minute.
Senator H itc h c o c k . What do you mean by any one of your New
York correspondents?
Mr. I ngle. I have different arrangements, sir. with different banks.
Senator H itc h c o c k . Y ou mean to say you have four New York
correspondents----Mr. I ngle (interposing). And they will charge that check on
Baltimore, or any other check they choose to send up drawn on
Baltimore, direct to our balance in their hands.
Senator H it c h c o c k . If John Smith, in Baltimore, draws a check
on your bank, your correspondent charges that up to your account?
Mr. I ngle. Up to my account.
Senator H itc h c o c k . Without submitting it to you.
Mr. I ngle. I get it the next morning, and I am given a debit for it.
Senator H it c h c o c k . Let me ask, when is it charged to you?
Mr. I ngle. The very moment he gets it; the very moment he gets
it he debits it.
Senator H itc h c o c k . I say is that the practice of country bank
correspondence ?
Mr. I ngle. I say I can only tell you from our experience. I say
it is a growing and vicious practice, in my judgment.
Senator H it c h c o c k . Which is the vicious practice?
Mr. I ngle. This thing of permitting the maintenance of those
double accounts.
Senator H itc h c o c k . What do you mean by maintaining double
accounts?
Mr. I ngle. I am speaking of that situation which you pictured,
where we have a balance in New York, and where New York will
send us business from day to day for collection and remittance either
upon receipt, or after three days, or next week, if you choose. Now,
what does that practice result in? We are assumed to keep 25 per
cent reserve. Can’t you see, if any bank has a balance to its credit
in New York of $500,000 it will also have $500,000 cash in its vaults.
The two sums together may represent the 25 per cent on that bank’s
deposits. Now, if that New York bank sends its out-of-town bank
business from day to day, for remittance twice a week, let us assume
the paying bank may accumulate from the New York bank $250,000
worth of business to be remitted for twice a week. Now, in practice,
what do many banks do? They continue to count as reserve the full
debit balance of $500,000. And, as we all know, a reserve is only
maintained at all with a view of protecting depositors of a bank in
case of failure or liquidation—if we never failed we would not want
any reserve. You see that means our reserve the moment the bank
fails; it is not our total debit balance in New York; it is that total
debit balance less the balance we may have on our books from New
York for remittance at any particular time in the future. So that
instead of having $500,000 reserve, we, as a fatter of fact, only have
$250,000 reserve.

2388

B A N K I N G AND C U R R E N C Y .

Senator H itc h c o c k . Y ou mean New York has sent you $250,000----Mr. I ngle (interposing). For collection and remittance once a
week, if you choose—an accumulating balance. The practice is, where
it is done for accumulating balances it sends a very small balance the
first three or four days and a very large one on the fifth or sixth day
to save the New York bank.
Senator H itc h c o c k . T o save the New York bank?
Mr. I ng le . The New York bank gets its return quickly. For in
stance. one bank in Baltimore will arrange to remit for a certain
New York bank on Wednesdays and Saturdays each week. That
New York bank will arrange with another Baltimore bank to remit it
twice weekly, on Tuesdays and Fridays, and so on, possibly with a
third bank on Wednesdays—on the other two days. Now, in sending
their deposits they so arrange it that their money will be away from
them the shortest possible time, which is a very excellent idea from
their point of view.
Senator H itc h c o c k . Y ou mean New York does that?
Mr. I n g le . New York does; yes. The idea that I insist upon in
opposition to this double-account business is this: That a bank which
keeps its reserve honestly, which tries to keep a reserve of 25 per
cent—and if it does not it can not help itself, it is gone, in tight times
or for some other reason—such a bank, in trying to keep its reserve,
only figures as its reserve its actual balance in New, York plus its cash
on hand. Now, if those full debit balances are permitted to be
counted, can’t you see that the bank which does that and makes
no deduction for offsetting balances has a very superior advantage
over a bank which insists upon a single account, in which is always re
flected the actual amount of money the owning bank can draw for in
case it has to have it.
Senator H itc h c o c k . Y ou say you have $7,000,000 of country-bank
deposits ?
Mr. I n g le . Yes.
Senator FI itc h c o c k . Suppose you receive a batch of checks against
one of those country banks in a country town in your State: do you
charge those checks to the account of that country bank when you
receive them?
Mr. I n g le . I think so. in our case in 75 per cent of our accounts.
Senator H it c h c o c k . Does that depend altogether on the arrange
ment between the banks?
Mr. I n g le . Altogether on the arrangement between the banks, and
sometimes they are changed.
Senator H itc h c o c k . Suppose you send that country bank collec
tion items; when do you charge them with those items?
Mr. I n g le . Only upon receipt from that bank of advice of their
payment. We charge them, as a matter of fact, one or two days after
they have the money.
Senator H itc h c o c k . D o you charge to their accoynts such checks
drawn by their individual customers as soon as you receive them?
Mr. I n g le . That is right.
Senator H itc h c o c k . That is at variance with the custom as stated
to be by all the bankers who have testified before this committee.
They have all testified that no correspondent was permitted to
charge up items against its country correspondent until they had
been collected.

B A N K I N G AND CU RRE N CY .

2389

M r. I n g le . I th in k th e y m ad e a w fu lly p o o r a rra n g e m en ts.
The C h a ir m a n . It is a very common practice for people traveling

in Europe. They draw on their letter of credit against the country
bank’s correspondent in Europe, and it is charged against the home
bank.
Senator N elso n . That is why the country bank makes a profit;
they want something for making that collection.
Senator H itc h c o c k . Y ou say with 75 per cent of your country
bank customers you charge checks to them just the minute you re
ceive them?
Mr. I ng le . I th in k I am a p p ro x im a te ly co rre c t th e re , sir. I say
it is s u b s ta n tia lly so in th e case o f 800 c o rre sp o n d e n ts; I do n o t fo l
low it p e rso n a lly , b u t I feel I know it.
Senator H itc h c o c k . Why do you discriminate in that way?
Mr. I n g le . Simply because one arrangement is satisfactory to one

man, and another man won’t do it the same way, but some other
arrangement would suit him better. With our New York corre
spondents we make that arrangement; we insisted upon the arrange
ment.
Senator H itc h c o c k . Why?
Mr. I n g l e . Because we felt it w a s not a fair thing for us, when our
Government statement was called for, to swear our reserve was a
certain average for a 30-day period when we knew during that 30day period we might have had offsetting credits on our books from
New York banks which would probably deplete our reserve 4 per
cent.
Senator H itc h c o c k . For that reason you should always make an
allowance for checks drawn against you and floating around in
transit ?
Mr. I n g le . Oh, no; I think it is a perfectly fair proposition there.
We do not want to lean backward because—out of sight, out of mind.
We have no knowledge whether the New York bank has $100,000 or
$1,000 on that day.
The C h a ir m a n . And it is a matter of saving in bookkeeping?
Mr. I ng le . Altogether. It is a matter o f protecting the bank.
The C h a ir m a n . What bookkeeping does it save y o u ?
Mr. I n g l e . I t does save us bookkeeping.
The C h a ir m a n . I would like to have you explain to me what sav
in" there is in it.
Mr. I ng le . Well, in the actual bookkeeping it simply saves th e
difference in time it requires to keep two accounts----The C h a ir m a n . Instead of one.
Mr. I n g l e (continuing). And one account. It all goes into a com
mon account. Further than that, in maintaining these two separate
accounts there are numerous times in which all kinds of irregular
things happen, and w7e are eternally being mixed—an entry in one
account is intended to go into another account.
The C h a ir m a n . And you have a whole lot of trouble in reconciling
the accounts.
Mr. I n g le . Yes; in reconciling the accounts. I think the practice
is wrong, Mr. Chairman, because the balance due in any situation
should reflect the net balances due.
The C h a ir m a n . It avoids double-heading—what they call double
heading—does it not?

2390

B A N K I N G AND C U R R E N C Y .

Mr. I ng le . Double-headers. It has led up to this: Our figures in
all of our statements do not reflect the real thing at all, when we
take all of this pyramiding of reserves where one item of $5,000 may
be reflected for a period of a week in the statements of five other
banks all over this country before that item is liquidated. And. in
connection with these double accounts, I think it is fair to say that
probably 25 per cent of the amount of our statement footings repre
sents wind. It does not mean anything at all. It is gratifying to
report $50,000,000 of deposits rather than $10,000,000 or $35,000,000,
the real deposits you can loan.
Senator P o m er en e . Let me see if I understand your statement in
reference to the bookkeeping. Under the present arrangement that
you have with your New York correspondent your account is charged
with a check which they have paid and sent to you. If that was not
done, they would have to have the same account with you and also
a collection account with you. would they not? Do I make m}Tself
clear?
Mr. I ng le . I think I follow you, Senator.
Senator P o m er en e . That is. for instance, I d ra w a check upon your
bank—I have an account there—and it was sent to New York. Now,
of course. I am not a depositor in your New York bank, and when
they received my check there, if they adopt the other system, they
would have to send that on to you as an item for collection, and that
would necessitate the double bookkeeping you are speaking of.
Mr. I n g le . Double bookkeeping. There is one thing I ought to
explain in that connection, sir. You appreciate this arrangement with
any number of New York banks—I think we deal with about 9 or 10
New York banks—they will differ. The purpose we had in mind was
the avoidance of an appearance on our books of an item due to reserve
agents. You will frequently see in statements, if you will look at the
publications. “ Due from reserve agents, $750,000,” “ Due to reserve
agents, $430,000,” as a deposit. Now that is only a bookkeeping entry
for convenience, if you choose, or for profit, if you choose, but it
serves to artificially swell the deposit line and it always exposes the
bank so carrying its account to count the full debit balance as a re
serve rather than $200,000 as the actual reserve in case he fails,
because that is all he has.
Senator R e e d . Mr. Ingle, you have gotten into a line of discussion
here that several times I have tried to get some light on. I think you
are inclined to deal with this subject frankly. I would like to talk
with you a minute about it. To begin with, and rather aside from
what I have in mind, I want to ask you this: If a citizen of Baltimore,
having an account in your bank, draws a check payable to a merchant
in New York City, let us say, for $10,000. and the check is deposited
in his bank and credited to him. what protection does your bank
have provided that check should happen to be a bad check? How
does that bank know he has a balance of $10,000 in vour bank?
Mr. I ngle. That bank is not concerned to know, sir. That bank,
in accepting a check for $10,000 does so from one of its customers,
and it is assumed he would be a reputable merchant. Obviously that
bank would not accept from a merchant in whom he had no confi
dence, any one’s check for $10,000.
Senator R eed. In other words, it knows its depositors, and if a de
positor puts in a bad check the depositor makes it good.

B A N K I N G AND C U R R E N C Y .

2391

Mr. I ngle. There it has recourse upon him, and if it is returned the
depositor makes it good.
Senator R eed . The protection rests upon the fact that the depositor
is known to it, and if he is not a reliable man, and a solvent man you
simply send it for----Mr. I ngle (interposing). For collection.
Senator R eed (continuing). For collection, which obviates that dif
ficulty.
Mr. I n g le . Exactly.
Senator R eed . N ow , I want to come to this question of pyramiding
reserves for a minute. Assuming a bank must keep 12^ per cent of
its deposits in its own vault and 12^ per cent of its deposits in some
other reserve bank or banks, is it not a fact that those funds thus
deposited with other banks are frequently so deposited with other
banks so that as a matter of fact that 12£ per cent ceases for all prac
tical purposes to be a reserve at all ?
Mr. I n g le . I entirely agree with you. sir. As a matter of fact, the
actual cash, gold—let us call it goid, if you choose, for the sake of
letting you understand what I mean—the actual gold reserve or the
actual legal reserve in money, in lawful money, against a deposit line
of $100,000 in a country bank is just about $7,500 in money by the
time that the reserve in the secondary reserve city is further split up
by being transferred, a respectful portion of it, to the reserve city.
You understand what I mean, sir?
Senator R eed . Yes.
Mr. I n g le . If a country bank deals with a reserve city of the second
class, which city in turn deals with a central reserve city, the original
deposit of the country bank is represented by just 7^ per cent in real
money.
Senator R eed . Yes.
Mr. I n g le . N ow , mark you, here is another question there, sir.
Very unfortunately, in the case with a very generous share of these
reserves they are made up not of cash, not of demand paper payable
in a reserve city, but of miscellaneous checks and drafts listed on
slips a yard long many times, scattered all over the known world, I
might almost sav.
Senator R eed. Y ou mean to say, instead of carrying cash they carry
something in lieu of cash and count it as cash?
Mr. I ngle. N o, sir. I mean this, that a bank in the interior and
also many banks in the reserve cities of the second class, will have its
correspondent in either a reserve city of the second class or a central
reserve city. That interior bank will send to Philadelphia, if you
choose, a long letter made up of items, 10 per cent of them on Phila
delphia and 90 per cent of them on other points within the territorial
limits of the United States, very often. The moment the interior
bank charges Philadelphia with the footing on that letter, it looks
like money to that interior bank, and it proceeds to draw against it
as money. You should say competition should prevent all of that.
That is very true, but the practice is horribly abused.
Senator R eed . The fact is, then, if I understand you (and I am
going to put it in my own words to be sure I do), we will say that a
bank in Indiana has an account with a bank in New York and uses
it as its reserve agent. It gathers up a lot of collections scattered
broadly over the United States and sends them down to the bank in

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B A N K I N G A N D CU R R E N C Y .

New York, in the aggregate amounting to $500,000, and the bank in
New York at once credits to the bank in Indiana $500,000. The bank
in New York, however, does not have $500,000 in cash, but has
$500,000 in collection items.
Mr. I n g le . A certain percentage of it, anyhow.
Senator R eed . Yes. And therefore the bank in Indiana credits
itself in its reserves with $500,000 in cash in the reserve in Phila
delphia and treats it as though it were cash when in fact it is a
liability.
Mr. I n g le . Unliquidated business.
Senator R eed . That is practiced extensively?
Mr. I n g le . Most extensively. And anything in the world, as, for
instance, this bill, wThich will compel or induce the prompt presenta
tion of those checks at a minimum cost would be a step in the right
direction and get things down to a dollars and cents basis.
Senator R eed . N ow , you stated a moment ago that as it worked
out with an ordinary country bank having deposited a portion of its
funds in a reserve bank, and then that money can be redeposited,
etc., there was an actual reserve of about 7-| per cent. Now, do you
deduct from that 7-£ per cent a further sum on account of the system
you have just explained of sending in checks and drafts, etc., to be
collected and credited?
Mr. I n g le . N o, sir; I am afraid if we did that, in many cases we
would have a minus quantity.
Senator R eed . That is what I want to get at. You mean that the
7-| per cent exists because as a part of that 7£ per cent is counted the
credits which the banks obtain when they have not deposited their
cash but have deposited items for collection.
Mr. I n g le . I think that statement is true, sir.
Senator R eed . And that the items for collection are so sreat in the
aggregate as to wipe out the entire reserve of 7-1 per cent?
Mr. I ng le . Yes. But it differs with different banks, if you please,
Senator.
Senator R eed . I am asking about the general custom.
Mr. I n g le . I am speaking about the abuses which have grown up
by reason of the practices that have grown up under the present
law.
Senator R eed . I understand some bankers do not do it but that this
is a general custom.
Mr. I n g le . I think it is quite general.
Senator R eed . Then, as a matter of fact, our reserve system, with
the exception of the money actually held in vaults in the banks, is a
good deal of a----Mr. I ngle (interposing). Of a delusion and a snare.
Senator R eed . Yes. Now, if that is true ( I am coming to another
question) and this bill changes the aggregate of the reserves by reduc
ing them in various amounts, depending upon the class of banks, and
yet compels the actual keeping of the money, the effect will be to
really increase the reserves—the actual reserves.
Mr. I ng le . That would be my judgment. Senator.
Senator R eed . S o that in the change which we are putting in op
eration. applying it not to the law as it now exists, but to the custom
which has grown up under the law, there would be actually more
money tied up in reserves under the new system than under the old,

B A N K I N G AND CU RRE N CY .

2393

although we have reduced the amount in percentages in this bill?
Putting it in another way----Mr. I n g le . I think I catch you, sir, but you must remember this,
Senator, that a part of the 18 per cent reserve which we will be re
quired to keep under this law will not be money at all ; it will be a
credit on the books of the Federal reserve banks, of which only onethird is held in cash.
Senator R eed . Yes.
Mr. I n g le . S o that we will then have, under the new law, roughly
speaking—I have not a blackboard here, sir—about the same amount
of actual money reserve as we now have.
Senator R eed . But, of course, you have introduced into your last
answer a further provision; that is to say, that the bank, as soon as it
deposits its reserve with the regional bank, will then borrow it back?
Mr. I n g le . It will be borrowed back. It is not material to us
whether we earmark it or not. It will be borrowed back by some
one, and that bank will only hold, as a matter of fact, 33 per cent of
its liability to us in cash.
Senator R eed . But, omitting that last transaction, which may or
may not take place, and putting this thing, if I am able to do it, in
a sentence, the 15 per cent reserve required of a country bank and
maintained, as you say it is maintained under the present system,
actually demands less cash as it is worked now under the present
system than would be required under the new bill in actual cash,
although the reserves are reduced to 12 per cent? That is, now, up
to the time that the regional bank rediscounts.
Mr. I n g le . Senator, I am just running it through my head as you
are asking it. Mv impression is it will require a very slight increase
in the actual cash held in the reserves in the country bank, either one
place or another. But here against this in this law is the wonderful
compensating advantage----Senator R eed (interposing). I am not speaking of the advantage
now; we are coming to that in a moment. I am not contending
against the bill. The present system is so run that that part of the
reserve which is deposited in other banks is practically wiped out as
a cash reserve. Under the new system the cash is actually put in the
vaults of the bank, or would be in the. vaults of the reserve bank, as
far as the reserve part of this system goes. Then, of course, the re
serve bank is permitted to loan all of the reserves that have been put
up with it except a 33 per cent reserve, which it must hold. That is
the situation as it works out.
Mr. I ng le . Yes.
Senator R eed . And I take it from that the central reserve bank
has actually loaned out the money that has been put up with it, and
there is more money in cash in the banks under the new system,
although the reserve is less, in figures—that is, in percentage—than
there is in cash locked up now in reserves with a larger percentage.
Mr. I ng le . Senator, I have not attempted to work that out, and
I must confess I have looked at this subject more from the viewpoint
of a banker in a secondary reserve city, of course, more or less in its
related aspect.
Senator R eed . We can figure from your previous statements, but of
course you can supplement this by any statement you want to make,

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B A N K I N G AND CU R R E N C Y .

in writing or otherwise. Now, let me ask you about another matter
that is not, perhaps, exactly germane to this question: To what ex
tent is this practice followed by banks, namely, a bank likes to have
a showing of a large amount of deposits; it looks good. To what
extent do they practice this system of bank No. 1 depositing $100,000
with bank No. 2, bank No. 2 depositing $100,000 with bank No. 3,
bank No. 3 depositing $100,000 with bank No. 4, and bank No. 4
depositing $100,000 with bank No. 1—to what extent is that sort of
scheme worked?
Mr. I n g le . Senator, I have never had much personal experience
in those directions. I have heard of that and I probably have known
of two or three concrete situations of just that sort, where a bank,
for instance, will at a given moment want to replenish its reserves,
if you choose. A bank in Baltimore may draw on, shall I say,
Cincinnati for $100,000. At that time it will not have a penny to
its credit in the city of Cincinnati. I t will send that draft so drawn
out to Chicago. It is a central reserve point. By the time that draft
on Cincinnati will have reached its destination the drawing bank,
the initial bank, will send to Cincinnati, maybe, a draft on Pitts
burgh, and so on, and in that wav deliberately proceed not only to
build up its deposit line but at the same time to build up its reserves.
Senator R eed. That is kiting?
Mr. I n g le . Exactly so; pure and simple. There is quite a little
of that done. In a city, for instance, with a dozen banks I will
assume that probably no more than two or three banks will do that.
The other banks will not do it, but they recognize they are handi
capped in not being moved to do it. They swell their deposits other
wise artificially in many ways. For instance, there was offered me
for discount only last week a certificate of deposit drawn by a bank
for itself for some thousands of dollars. That bank will loan its
customer, will accept a customer’s note for $5,000. It has not the
money; it has exhausted its credit in the shape of bills payable or
rediscounts, if you choose, direct, but it will give that customer its
time certificate of deposit payable three, four, or five months after
date. That customer will take that time certificate of deposit and,
through some other channel, discount it. In the meantime such time
certificates will appear as deposits in the statement of the issuing
bank. There are all kinds of devices, sir, which we can not recall
on the spur of the moment, but it gives us pause as we meet with them
from day to day.
Senator R e e d . There is a good deal of that done, you say?
Mr. I ng le . Quite a little o f that done.
Senator R eed . I had in mind a different transaction from that
and a transaction which could not be said to be dishonest, but sim
ply a bank’s desire to have it appear they have a large amount of
deposits. And of course in the illustration I used, bank No. 1 could
have actually deposited with bank No. 2 $100,000: bank No. 2 could
actually deposit the $100,000 with bank No. 3—not the same, but an
other hundred thousand—and that could be carried on until it made
the circle and got back to bank No. 1. And if there were 10 banks
there would be an aggregate of a million dollars of deposits and
yet each bank would owe as much as its deposits, and there would
be an apparent increase of a million dollars in the aggregate in those
banks, and yet not an actual increase of a penny.

B A N K I N G AN D C U R R E N C Y .

2395

Mr. I ng le . That is exactly what I suggested about the 25 per cent
of the total statement footings of the country representing air.
Senator H e e d . S o that you think the aggregate deposits of our
banks to-day, if they were gotten down to what they actually are,
would shrink very largely?
Mr. I ngle . I f i)oiled down to a condition which would be brought
about under the terms of this bill by the clearance of the checks as
promptly as possible and not as great a delay as possible, I am in
clined to think the statement footings under the present system would
probably shrink to a loss of 20 to 25 per cent. I t would not mean
the loss of a penny except pride.
Senator R e e d . I did not hear all of your testimony, and I may
repeat a question that has been asked, but for my own information
I want to ask this: If your bank has a part of its reserve in its own
vaults, as required by law, a part of its reserve in the regional bank,
as required by law, but the aggregate of the two accounts being suffi
cient to comply absolutely with the law. and one of your customers
draws a check and passes it through the regional bank, and it is
instantly charged, will that not compel you to keep an amount with
the regional bank considerably in excess of your legal reserve, lest
the transaction I have referred to would bring you below the legal
reserve ?
Mr. I n g le . Senator, I referred to that before you came into the
room, and I took the liberty of suggesting that this bill be amended
so as to allow some little play in a situation which otherwise would
inflict a penalty. That reserve account should, without penalty, be
permitted to be 20 per cent below the fixed amount, and below that
there could be a penalty fixed so as to prevent exploiting that account
for profit.
Senator H itc h c o c k . Will you state in a few words your objection
to having this provision of the section changed----Mr. I ngle (interposing). Pardon ir e , Senator, what section is it?
Senator H it c h c o c k . It is on page 33. Most of the country bank
ers have urged that that section be changed so as not to require a
regional bank to accept checks upon member banks at par. Now,
why do you think it would be better to continue to have the regional
bank accept those checks at par?
Mr. I n g le . I t is probably fair to divide that answer. First, fo r
the reasons I have sought to give, I think it should be almost obliga
tory to compel the retirement of these checks at the earliest possible
moment, in order to avoid this undue and unreasonable expansion of
credit, this duplication of credits in the hands of four or five suc
cessive banks, bv reflecting the credit o f a single item in process of
liquidation.
Now, the meat of their objection, as I take it, is in regard to the
par facilities. Now, of course there comes a consideration which is
selfish at both ends of the argument. I have already brought out
why I feel that the bank, the paying bank, should honor its customer’s
checks when they are presented. Here is a thought I omitted. I
can not talk very well, and I have to speak rapidly and without any
preparation, as you ask questions.
You must remember that if the customer of an interior bank will
go into his bank and ask for a draft on Chicago with which to pay

2396

BA N K IN G AND CURRENCY.

a bill in Chicago, his country bank will probably charge him some
thing for the draft and the Chicago man gets his payment at par.
Now, if, instead of doing that, the interior man sends his local check
to Syracuse, N. Y., we will say, in payment of a bill, there has elapsed
one day; Syracuse will send that to its reserve point, and another day
has elapsed; the reserve point will send it to the bank upon which it
is drawn, and that makes three days. Speaking m a broad way,
checks, handled ever so promptly, will require two *or three days to
reach their destination, so that the bank upon which they are drawn
gets the benefit of the additional time in which to keep its money
loaned during the exact number of days in which those checks are
required to reach it. They now get the advantage not only of the
additional time which now amounts to a week or 10 days many times,
but they also get from $1 to $2.50 a thousand in remitting for those
checks.
But, gentlemen, the devices used by many banks are very ingenious,
indeed, when arranging for the best possible results to their profitand-loss accounts. I do not blame them at all.
Senator H itchcock. I want to refer you to some testimony which
has been given before this committee. A very intelligent banker from
Peoria testified yesterday or the day before, before the committee,
that if the bill as drawn is favorably reported and permits a customer
of a country bank to draw his check with the assurance that it will
be received at par by the reserve banks, that remittance will be made
that way, and the result will be that the reserve bank will have a
great mass of checks of that sort to handle. He says, however, if
a discrimination is made between bank drafts and individual checks
it will require a country merchant who desires to remit to go to his
bank and get a draft upon the reserve bank. That draft will pass
at par not only in that reserve district, but in all other reserve dis
tricts, and as it passes at par, and because of the competition between
banks, the country bank will not make any charge for that draft upon
the reserve bank, which he says will put a stop to kiting. He says
that if this remains as it is the country merchant, knowing that his
check sent, say, to Chicago, or, as you say, to Syracuse, will not be
charged to his account in his home town until it has made the rounds,
and will continue to maintain the practice of paying in checks, the
man depending upon his collections to make his money good later on.
Mr. I ngle. On the contrary, sir, I think under the new law he has
got to pay the bill earlier than under present conditions. He knows
that check is coming immediately back to his home bank.
Senator H itchcock. Suppose this law discriminates between an
individual check and a bank draft upon the reserve bank?
Mr. I n g l e . I d o not see the occasion for it or the merit in it.
There, again, comes selfishness, which is altogether a proper emo
tion in such a case, I imagine. I think our friend from New Orleans
is figuring that half a loaf is better than no bread. If he has got
to be stripped of part of this, he might as well save half of it out of
the wreck. I can not see the difference between a check drawn on
any bank by a banking correspondent and one drawn on it by an
individual customer. Some individual customers have their checks
frequently in the form of an ordinary bank draft, as looking more
substantial, if you c h o o s e .

B A N K I N G AND CU RRE N CY .

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Senator R eed. The distinction which he made was this: When a
man went to his bank and drew his check upon that bank, say, for
$1,000, and obtained a draft, that then that bank knew that that
money was drawn out and reduced its account by that much, whereas
if he simply drew a check and said nothing to his bank about it
and sent it on to New York, and it went to the regional bank in New
York, incidentally his reserve in that bank was reduced. He would
not know about that, and his reserve might be wiped out without his
knowledge, whereas if the bank-draft transaction took place it took
place at his counter, and he immediately made his entries. That
was one reason he gave.
Mr. I ngle. If you will excuse me, that is a very strong argument,
because there is no greater reason to suppose that a merchant in a
country town will, under these changed conditions, go to his local
bank and get a draft on a Federal reserve bank than he would now
go to that bank and get a check on New York to pay a bill. That
merchant, speaking generally, wants that check to stay out as long
as it can, and the bank upon which it is drawn wants it to stay out,
and the member bank is not at all concerned when that check is
charged to its account on the books of the Federal reserve bank,
assuming that this law can be amended to permit some little play
between the 5 per cent definitely and the 4^ to 5-| per cent as the
exigencies or delay rtiight possibiy demand.
Senator R eed. He urged this as a reason: He said if you adopt
the system that the bank draft will be credited at once in the reserve
bank, that works no harm, because the member bank knows the draft
is out and has deducted it from its account. Therefore it must in
crease its reserve in its own bank, or it must increase its reserve, if
necessary, in the regional reserve bank, and that that sort of bank
ing, if that draft would be regularly cashed at par and at once,
creditors would demand it and get it. If, at the same time, you
provide that a bank check would not be so credited but would simply
be accepted for collection and sent on to the bank upon which it was
drawn, and that that discrimination in the law between the two kinds
if paper would build up the bank-draft system and would circum
scribe the check system. Is there any thing sound in that?
Mr. I ngle. I can not say it is unsound, but I think it is probably
Utopian. I think the competition in the cities to which such checks
are sent will also require that they be accepted as cash on the same
basis as the check on a Federal reserve bank, and the bank accepting
them as cash simply takes its own chances.
Senator R eed. I t would not be Utopian if the law provided that
that check should bear a charge for collection and a draft not?
Mr. Tngle. I will not venture that suggestion. I doubt whether
the law could say that.
Senator R eed. Oh, yes: the law could easily enough provide that if
we wanted to have it do so. It could provide that the regional bank
would cash the draft, and the regional bank would send the check on
for collection, and that there should be a collection charge.
Mr. I ngle. The trouble would be that the check would not go to
the regional bank; it would go direct to its destination, as is done
now, or there would be some other rearrangement.
Senator R eed. Through some other bank?

2398

BA N K IN G AND CUBBENCY.

Mr. I ngle. Yes, sir; I take it so. It would be like New York-----Senator R eed (interposing). That would put it at some dis
advantage ?
Mr. I ngle. The customer would not care a rap about it if he gets
a credit upon the books of the bank. He does not care what happens.
Senator R eed. He would just go to his own bank, and his own
bank would give him credit and put it through ?
Mr. I ngle. The customer would not care how. Yoii know in draw
ing cotton drafts, as is done on the New England States, where three
days’ grace is always not only allowed but taken on drafts drawn at
sight, the owners of those cotton drafts at the initial point puts
them in their banks as cash. Then the initial bank, unless we have
prearranged it, immediately begins to quarrel with its corresponding
bank, because it declines to accept as a cash credit an item which will
not be paid until the lapse of four or five days thereafter, but if that
fellow has a good account, well, we swear in private and properly
credit it up to him and say nothing about it. If he has a bad account,
we will simply forward it for collection and give him credit upon
its actual payment.
Senator R eed. H ow would it strike you if all checks used in inter
state commerce—private checks— had to have a stamp upon them,
the proceeds to go to the supporting of this banking system?
Mr. I ngle. Well, I would rather----Senator R eed (interposing). I am not committing myself upon

that proposition; I am just asking you about it,
Mr. I ngle. I suggested here that it is a pity that some way under
the interstate clause of the Constitution could not be found to
nationalize the whole business, and then you would relieve all of us
of a great deal of worry and trouble, and we could all take the same
dose of medicine or tonic, as you please.
Senator B ristow. I started to question you on this check business
sometime ago, and I want to proceed with it.
Senator R eed. I beg your pardon for interrupting you, Senator.
Senator B ristow. That is all right. There is one important matter
that has not been brought out, which I would like to have brought
out. You seem to be opposed to the present system of remittances
by checks. I want to ask you----Mr. I ngle (interposing). No, Senator, I would not like to be so
set down. I am opposed to the present handling of the checks which
are remitted. I think checks, local checks or checks of any kind, are
proper methods of remitting, if you choose, under our development,
as we view it. I think there should be some way provided to quickly
get those checks back to their paying banks; get them back as
promptly as possible.
Senator B ristow. That is a question for the banks to consider as
to how they will handle the checks. But you criticized the remittance
which I suggested I had made to Chicago by check to pay an account
there, because you said that was paying a $1,000 account with $999.50.
Mr. I ngle. That was the effect upon the party of the second part
who gets your check.
Senator B ristow. I understood from your general attitude you
thought this system of remittances by checks was a bad one. and then
I suggested that the country bank had encouraged it; that they had
solicited and asked, or recommended that their depositors use checks.

B A N K I N G AND CU R R E N C Y .

2399

When you go to a bank and deposit, say, $1,000, they present you
with a check book and prefer that you check that out rather than
that you draw it out and disburse it that way.
Mr. I n g l e . For purely selfish reasons, of course.
Senator B r is t o w . That leaves the money in your bank?
Mr. I n g l e . Exactly.
Senator B r is t o w . If you have a pay roll, small or large, say with
only 15 or 20 employees, your bank prefers that you pay your em
ployees by check rather than going to the bank on Saturday after
noon, if you pay on Saturday, and drawing out the money and
paying them cash, because it keeps the money in the bank, and the
checks go around to the various merchants and finally come in. That
is a practice which country bankers have encouraged and developed,
have they not, for a series of years?
Mr. I n g l e . Unfortunately, they have.
Senator B r is t o w . Why do you say unfortunately? What does
that do ? A sa matter of fact, does it not bring the money that other
wise would be in the safes, or in the desks, or in the bureau drawers,
in the community, or out on the farms, into the bank? Does it not
increase the reservoir of money there for the use of that community
and has it not resulted in the establishing of banks in communities
where 30 years ago would have been regarded as ridiculous to under
take to establish one? Has it not resulted in drawing out of the hid
ing places millions of dollars for the use of American people in their
commercial transactions ?
Mr. I n g l e . Senator, I guess I will have to say yes to that. I do
not know whether that is altogether a proper answer, whether it has
been so much the use of the checks as it has been the solicitation of
deposits which otherwise had been concealed within the stockings
and cupboards, I do not know. The money has come from the solici
tation ; the checks follow afterwards, and operate to keep the money
more or less in the banks.
Senator B r is t o w . N o w , say there is a farmer out here in Maryland,
and he may be growing his crops and he is paying his hired men.
His banker would prefer that he keep his money which he has in
the bank and take a check book. It is safer. It is not lost. If the
check is lost and it does not turn up, that is better than to lose the
money and have it destroyed. The result has been that the farmer
has written checks. We will say he wants to pay a bill in Baltimore
instead of at Marlboro, we will say, and so he sends a check to Balti
more. The merchant takes that check and deposits it in his bank.
If you take from him this convenience of paying these bills with
checks, and make it so he can not do it, you will destroy a system
and a custom which has been built up, and which, it seems to me,
has added very greatly to our commercial activity.
Mr. I n g l e . W e will never do that. WTe have no desire to do that.
On the contrary, once that check is issued, I do not believe it should
circulate as currency for 10 days before it is redeemed. Before it
gets back to its paying bank it may have traveled 2,000 miles if you
choose, all around the country, before it reaches its destination.
Senator B r is t o w . There may be an occasional abuse in this, t h e
same as in almost everything else.
Mr. I ngle. I think a usual abuse, if you will excuse me, sir.

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B A N K I N G AND CU R R E N C Y .

Senator B ristow. What is the objection? I will give a check for
$10 to some one, we will say, who may be employed by me. 1 may
be a farmer. I may buy something and I give the man from whom I
buy a check, and if he thinks it is all right (my reputation may be
good in the community) he takes that check, and there is somebody
w’hom he owes something to and he has not the money, and he says
to the man to whom he owes something, “ I have not the money to
pay this, but I will assign to you a check of Bristow’s which he gave
me for a pig,” and he takes it, and in the course of a few days it
comes back to the bank. What harm has been done? Is not that a
convenience ?
Mr. I ngle. That is a convenience. But you will not let a bank do
that. You will not let a bank issue its notes by indorsement and
pass them around as money.
Senator B ristow. We do not let a bank----Mr. I ngle (interposing). We can not issue our promise to pay and
circulate it as money. We do it in times of panic, issue a certificate
of deposit or some makeshift-currency device, but everyone looks
askance at it.
Senator B ristow. If this customer or the employee, or whoever it
may be, is perfectly willing to accept that check, because he knows it
is good, and can get the money at any time he wants it, and if it is
convenient for him to transfer that to somebody else for some other
consideration, it gets back to the bank and is then retired. What
harm does that do? That is what I would like to know?
Mr. I ngle. N o special harm, except that it is a privilege you grant
him of circulating his checks as money which you will not grant to
the bank. You will probably believe that a note of my bank for $10
issued outside of the currency act would be a good asset in your
pocket. But I am not permitted to issue that note except under a
penalty of 10 per cent interest. You expressly sav that I shall not
do that, and yet you have a provision for the redemption of these
circulating checks, and so are in effect making of them a circulating
medium.
Senator B ristow. Y ou will give a certificate of deposit; you will
give a bank draft; that is your check?
Mr. I ngle. Yes.
Senator B ristow. If I go to you, if I am a customer of yours in
Baltimore, and I ask you for a bank draft instead of sending a
check, and get a draft, what is that but your check?
Mr. I ngle. That is, to all intents and purposes, over night if you
choose, that is money. That is the transfer of funds, and I want
that check to be presented as quickly as possible. It is in the
promptness of the redemption of this media----Senator B ristow (interposing). What is the difference between
that draft which you give me, which is a check on your bank, issued
by your bank, or upon a New York bank, probably issued by you, and
a check which I may give to somebody on your bank?
Mr. I ngle. Absolutely no difference whatever. I am not trying to
discriminate between the two classes of paper. I am only suggesting
that they ought to be redeemed as promptly as may be.
Senator B ristow. Y ou give me a draft for $1,000, and I owe a
man $1,000, and I say I have not the cash, I have not the money

B A N K I N G AND CU R R E N C Y .

2401

on deposit, but I have a draft in this bank for $1,000, and I tell him
I will turn that over to him. He says that is all right. That is
against the law ?
Mr. I ngle. N o, sir. I entirely approve of the provisions of the
negotiable-instrument act under which title can pass by indorse
ment, but I do not believe in making a circulating medium of checks,
or doing anything which will take the holders of checks and keep
them away from the paying bank any longer than is possible.

Senator B r is t o w . The l a w treats your check no differently from
the way in which it treats my check, so far as the check goes. When
you come to the bank notes that are to circulate as money, that is a
different proposition, and there are reasons, wise or unwise, which it
is not necessary for us to discuss just now, because we might not
be so very far apart upon the advisability of bank notes being used
that way, if issued in the right way. That is all. I wanted to bring
out this important point which has been overlooked by the bankers
in the great cities who are concerned with the crediting of these
checks. They overlook the tremendous advantage that they have
been to the country, and to the banking business of the country by
the development of that system.
Mr. I ngle. By all means continue their use in any volume what
ever, but provide by proper legislation to invite rather than dis
courage their prompt redemption, and I think such an invitation
is extended under that particular clause of the bill which permits
us to have those checks redeemed at par by the Federal reserve banks.
Senator N elson. Y ou have only given us a little part of your
statement. Suppose you finish your general statement.
Mr. I ngle. I w ill do that.
It must be assumed that section 4 in permitting removal of direc
tors in class B intends only to give the Federal board a weapon of
defense for use only upon occasion, and does not mean to suggest
that removals are to be the rule. If Congress in section 7 could say
6 per cent rather than 5 per cent as dividend rate the bill would
be much more acceptable to many banks, and especially the interior
institutions which earn more on their money than the rate suggested
in the act.
Senator N elson. What do you think of increasing it to G, and then
having the excess go directly to the Government ?
Mr. I ngle. There again, Senator, it would depend upon how this
Federal bank was to be managed.
Senator N elson. The theory of some people is that it should be
used for the purpose of aiding our system rather than as a money
making institution.
Mr. I ngle. I f that is followed out, if that is to be done, if an
underlying thought is in evidence, or may be in evidence, that it is a
money-making proposition to the Treasury Department, it would
obviously compel us to view it differently. For instance, one pro
vision—
Senator N elson (interposing). The argument is made that to give
the member banks an interest in the surplus revenue would tend to
arrange it for the.purpose of merely making money. If you take
away the surplus of the interest and leave it so that they will simply
get their dividends, it would be more apt to be run for the good of
the cause, rather than as a purely money-making institution?

2402

B A N K I N G A N D CU RRE N CY .

Mr. I ngle. Senator, you must remember that if you could by Fed
eral act compel everybody to assent to these principles they would
assent whether they wanted it or not. That will be one situation.
Here we want to pass an act which shall invite people to come into
it. I said that a 5 per cent revenue will not appeal to a bank which
is accustomed to get 6, 8, or 10 per cent revenue from its local loans,
and I believe that with 6 per cent instead of 5 per cent, and with the
present distribution of the surplus profits, I believe that you would
find a very much more ready assent, and you would hear very much
less of the confiscatory features of the bill.
Senator N elson . Y oil are looking at it simply from the standpoint
of mammon and not from the standpoint of public spirit.
Mr. I ngle. Purely from a standpoint of mammon, as a practical
proposition and in dealing with a new situation.
Section 14 too narrowly defines the classes of paper available for
rediscount. While city banks could possibly meet requirements the
country banks certainly would not be able to do so. In this connec
tion^ may be proper to say with respect that the Secretary of the
Treasury did not draw proper deductions from the information de
rived from the last reports made to the comptroller in response tto
that officer’s request for a statement of maturities of paper held by
the banks.
At almost all interior points the actual maturity of a note bears
little relation to the date at which its payment is expected, and to
attempt to collect such paper in accordance wih its terms would be
futile. In the cities paper drawn by the best people is frequently
made with the idea of renewing it at the mutual convenience of
those directly concerned. It probably is fair to say of maturities in
any given month, excepting possibly October and November, when
the percentage is greater, that not more than 20 per cent of maturing
obligations are paid on their due dates, while in connection with socalled demand loans payment is made at the pleasure of the borrow
ers, excepting the “ street” loans made in New York. If this section
of the law could be better worked out in detail, its beneficial provis
ions would atone for much in the act to wThich such ready assent can
not be given.
Senator N elson. Y ou would extend the maturity lim it of the
paper?
Mr. I ngle. Not so much that. I would have it more nearly con

form to the present practice. The city bankers and the banks in the
larger communities have paper acceptable under the terms of this
law, either commercial paper or paper which could be by interpreta
tion made commercial paper. But, I take it, that this law, in saying
90 or 120 days, has in mind paper which it is expected will be paid.
Now, the average interior bank, particularly in agricultural sec
tions, has one pay day a year; it may lose that for two or three
months, and after that the paper may not be made during the re
maining nine months. That bank, in borrowing, if it makes a note
for three or four months, does it with the palpable intention of hav
ing it renewed for another period of three or four months, so that it
will be paid finally after the expiration of eight or nine months.
I do not see why it would not be altogether competent for an
interior or any other bank to follow the present practice, and in
addition to rediscounting straight paper with indorsements to make

B A N K I N G AND CURK EN CY.

240 3

its own obligations and pledge with that its customers’ bills receivable
in such volume as was done during the recent panic. In doing that
you would not only be following a usual practice but one which
would permit very much better protection to the Federal reserve
bank, because in the absence of very close investigation it goes with
out saying that no Federal reserve bank, for instance, in Columbus,
Ohio, could possibly know anything about the small bills receivable,
collected, and eligible under the letter of this act by some bank in
some small interior Ohio town. They are tenant notes, country notes,
perfectly good to the holding bank, but altogether unknown out
side of its own district. So I think it would be wise to make more
explicit the provisions of your law and not leave so much open to the
interpretation of the Federal reserve board, and say that the banks
can borrow from the Federal reserve bank on their own notes, secured
by the pledge of their customers’ paper issued for all these purposes
as prescribed in the act.
Senator O ’G o r m a n . Would that afford ample security to the Gov
ernment?
Mr. I ngle. I think it would afford better security than the Federal
reserve board could receive under a strict interpretation of this law.
The affairs of a country bank will entirely be known under this new
order of things to the Federal reserve bank with which it is con
nected. That Federal reserve bank can not know anything of the
individual notes held among the assets of those banks, except in a
general way, in connection with the larger obligations, if you choose.
Now, when such an interior bank pledges its miscellaneous bills
receivable or rediscounts simply upon its indorsement, the Federal
reserve bank will stand or fall by that obligation itself, with, of
course, the protection given it by the law, as to the liens, and so forth.
But if that interior bank could give its reserve bank its direct obliga
tion for $10,000, and with that note pledged $12,000 or $13,000 or
$14,000 worth of its customers’ miscellaneous paper, the Federal re
serve bank would have 140 per cent to protect the 100 per cent of
the bank’s assets, and that is the way in which business is usually
done, and it would seem to me we want to make things easy for the
country banks and not hard, not too much disturbing their ac
customed methods of doing business.
Senator N elson. Y ou mean the practices when a bank wants to
borrow from another bank, the borrowing bank gives its own notes,
and does it with the notes of its customers as collateral?
Mr. I ngle. E xactly, with a proper margin.
Senator N elson. I s that practice more general than the other
practice of getting money simply on discounting notes?
Mr. I n g l e . Oh, my dear Senator, I think my bank, if you will ex
cuse the reference, to illustrate the point; we have loaned $5,000,000
to interior Southern banks, for instance. I do not believe we have
under rediscount $300,000 worth of paper. I think the rest of the
direct obligations of the banks, all with the pledge of collateral. We
then have better protection, and when we want to make a loan we
can say we will not lend a man $10,000 with only a 10 per cent margin
of collateral; that he has got to give us 50 per cent margin, and so we
will lend him $10,000 if he gives us $15,000 of paper. That permits
some sliding scale and to reflect our judgment of his solvency.

2404

B A N K IN G A N D C U R R E N C Y .

Senator N e l s o n . Under this system in the bill, you must remember
that the member bank who seeks to discount must indorse the paper
and be responsible?
Mr. I ngle. Exactly so.
Senator N elson. S o that in the one case you would have him held
as an indorser, and in the other case you would have him held as the
maker, with the notes as collateral.
Mr. I ngle. We take all these things upon the assumption that a
bank may do a great many things.
Senator O’Gorman. I move that the committee take a recess until
half past 2 o’clock.
(Thereupon, at 1 o’clock and 5 minutes p. m., the committee took
a recess until 2.30 o’clock p. m.)
AFTER RECESS.

Senator H itchcock. Mr. Ingle, will you proceed with your state
ment?
Mr. I ngle. I suggest that the law should contain some provision
under which it would be impossible for any bank to assume liability
of any nature, whether for deposits, notes, acceptances, or bills pay
able, beyond the amount of some agreed multiple of its own capital
responsibility.
It is altogether gratuitous; but it has just occurred to me that it
would be a wise provision, as every bank, in loaning its money to any
customer always requires that that customer shall furnish it with,
certainly, 10 per cent margin to protect it against possible loss.
The margin may or may not be good. The security may or may not
be good. But the bank always feels that it has that margin, either
in the value of securities or in the value of a man’s stock in trade,
whatever it may be, to protect it; and it seems to me that anyone deal
ing with a bank has a right to demand that that bank shall furnish
him with the same measure of protection, or some percentage of it,
at least, as the bank itself requires at the hands of customers.
Senator N elson. Suppose you limited it to capital and surplus?
Mr. I ngle. Well, I would just amend the percentage. I would
say 10 per cent, 15 per cent, or 20 per cent of capital, or 8 per cent,
10 per cent, or 12 per cent of capital and surplus—whatever was
thought desirable.
Again, section 17 provides machinery for what must become a
most useful agency and one which in its workings must relieve busi
ness of an onerous tax now laid upon it.
That is the section which we discussed here a little ahead of its
order. But I will repeat it for the purpose of making a consistent
statement.
Obviously any objection to this section must be selfish in its na
ture. Banking is the solicitation of deposits to be protected by
shareholders’ capital, all to be loaned in proper directions at current
rates of interest, and checks drawn against such deposits should be
paid without discount. A bank makes more profit in interest for the
time in which its customers' checks are outstanding in process of col
lection than the cost to such bank of furnishing exchange if indeed
it is required upon occasion in making such exchange to ship cur
rency. When a bank claims that the loss of its exchange charge,

B A N K IN G AND C U R R E N C Y .

2405

oftentimes $2.50 per thousand and even more, deprives it of its living
it is furnishing the best argument that no bank is needed in its com
munity.
Senator H itchcock. Let me interrupt you there. I have seen
something of small European towns where they have no banking
facilities; and I think it is one of the very satisfactory conditions in
the United States that almost every town, however small, has bank
ing facilities; and I am disposed to ask you to demonstrate that a
community, a small community of 2,000 or 3,000 people, would be
better off without any banking facilities at all, provided a bank
could not live wholly by the small loans it could make there?
Mr. I ngle. Well, I do not think any situation is justified, sir,
when, in order to keep such a situation alive, a special tax is laid
upon a community not attached to that situation. You know, in
talking this way, Senator Hitchcock. I would not have you think
that I desire to place myself in a position of antagonism to interior
banks. Far from it. I have tried, in three or four directions here,
to point out defects in the bill, in my judgment, in which the country
banks are not fully served.
Senator H itchcock. Let me take an illustration, so that we will
have a concrete case. A town of 2,000 population with a small bank
that has, say, a capital of $15,000—I do not know what would be the
proportion.
Senator Nelson. It would not be less than $25,000.
Senator H itchcock. Well, let us say $15,000. That bank fur
nishes a place where people can deposit funds; it furnishes a place#where people can get exchange; it furnishes a place where those in
need of money can borrow; and, as far as these loans are con
cerned, the bank is not able to loan enough money to operate prof
itably; and in order to eke out what it is not able to do through
loans it makes a certain amount upon exchange in this way, by
charging a discount upon checks.
Now, the result is that that community has a little bank, and if
deprived of that opportunity to make that little profit upon checks,
that community would be without that bank, and the money that
would be saved there would be put in stockings, mattresses, and un
der carpets, and the people would have no facilities for doing busi
ness. Do you think that community would be better off under those
conditions?
Mr. I ngle. Well, I do not know that that situation would justify
taking up a contribution throughout the country to support a bank
in that community.
Senator H itchcock. Let me put this case to you: Suppose there
were no bank there and there were collections against people in that
town. They would have to be sent to a lawyer, and he would make
a charge for them. Why not have a bank to make the collection?
Mr. I ngle. Very true. But you must remember that this law does
not undertake to interfere with the daily operation of all of our
banks in and out of town, in so far as it refers to the collection or
handling of any business other than negotiable checks. We would
still have our commerce of the country, as represented by bills of lad
ing and shipment of cotton and grain, etc. That would still be
handled through ordinary banking channels. This machinery pro

2406

B A N K IN G AND CU RK EN CY .

vided in this act has reference only at the moment to checks and not
at all to drafts or notes or other evidences of indebtedness; so that a
bank would not be handicapped at all in that way.
Senator H itchcock. Perhaps I misunderstood you. I understood
you to say that if a bank could not live in a community without
making those charges upon checks that was complete evidence that
no bank was needed in that community.
Mr. I ngle. I think that is a fair statement, sir.
Senator H itchcock. Well, I will not interrupt you any further.
Mr. I ngle. Well, I would not like that statement to go out with
out a word of explanation, because it would leave me in a rather
equivocal situation, possibly. Before the multiplication—or the ex
traordinary multiplication—of banks that this country has seen dur
ing the past 10 or 15 years it was altogether possible to very com
fortably serve a community within a radius of 10 miles, let us say, of
Raleigh. N. C., by one, two, or three banks in Raleigh. Everyone
mailed their checks, as they are invited to do now, to the city banks
for deposit. They took care of current business transactions in that
way.
Suppose a merchant had a bill against a man outside of Raleigh.
He 'would send him the bill to his post office. The man would send
the merchant from his local post office, 5 miles away from Raleigh,
his check on Raleigh; or, if he happened to be going into Raleigh
on court day, he would get in a piece of exchange on some northern
point, if you choose. His business was fairly well served.
Now, we have in all of these relatively very small places not one
bank, very often, but two or more banks in small communities of
anywhere from 500 to 1,500 people.
Now, one bank will start in such a community. It will make a
success, in one way or another, by altogether legitimate business; do
not misunderstand me. Suppose it has made such a great success,
if you choose, that competition turns up. There will be another bank.
In a little while you will find a third bank.
Then competition becomes very severe, and what is the next step?
Those banks get together and they agree upon a tariff schedule for
exchange charges.
Now-, if they would make a tariff which would reflect the expense
that those banks were put to in making that exchange, plus a fair
fee for their clerical work, their postage, and such matters, no one
would have any objection to urge, I imagine. But it unfortunately
is the case that in very many and an increasing number of cases those
two or three banks in those small communities will make some such
agreement as this:
We will unite and pay that we will all make a charge of one-eighth or onefourth of 1 per cent on all business reaching us.

And no matter to which bank is sent business on that community
that bank in collecting those items would pay its neighbor the agreed
rate of exchange. So that each bank gets its own exchange on its
own customers’ checks.
And there you have as arbitrary a trade-union as can be well con
ceived of. There is no escape from that. It is the abuse of that
thing that is onerous.
Senator B ristow. Well, now, that is done by the merchants.

B A N K IN G AND C U R R E N C Y .

2 407

Mr. I ngle. Pardon me, I do not understand.
Senator B ristow. The same plan is carried out by the merchants in
that community frequently. There is not any other line of business
in which the same processes are not in operation.
Mr. I ngle. Well, that does not justify it. Two wrongs are not
supposed to make a right.
Senator B ristow. But why should we legislate to prevent the
banks from charging this exchange, or against there being more than
one bank in a town, any more than against there being more than
one store?
Mr. I ngle. Because you are legislating on the subject of banks
now. One of these days, possibly, you will legislate against drygoods stores.
Senator B ristow. Would you limit the number of dry-goods stores
in a small town?
Mr. I ngle. I do not know. You may get to that point. I am
only suggesting that that is the reason—that you are now dealing
with banking.
. Senator B ristow. I am very much interested in this. Do you
think we ought to prevent a bank from starting unless there is
enough business there, according to your notion, to justify it?
Mr. I ngle. Not at all. I think a bank should start wherever it is
practicable. I am a great believer in the virtue of individual initia
tive. But I believe if a man makes a mistake and starts a bank
that can not succeed without having the rest of the country con
tributing to its support it is a very undesirable condition.
Senator B ristow. Please tell me how the rest of the country is
contributing to its support?
Mr. I ngle. Well, on every exchange charge that is levied, sir, the
man away from that community pays it.
Senator B ristow. Well, he may or he may not. Now, we will say
that a merchant in that community has an account for a bill of
goods in Baltimore, and this merchant sends a check to the whole
sale house in Baltimore to pay his account.
Now, the wholesale house sells this man goods. He makes his own
charge. The charge which he makes is sufficient so as to justify him
in accepting a check in payment. He does not refuse it. He says,
“ That is all right. That is entirely satisfactory to me.” The whole
saler deposits this check with his bank. The bank there in Baltimore
says, ‘ This wholesaler’s account is sufficient so that we are perfectly
justified in handling this business for him without charging him any
thing for it. We are making money out of his account.” If it did
not make money out of it, it would turn him down; it ought to. It
is optional with the bank whether it accepts the wholesaler’s account
or not. It is optional with the wholesaler whether he accepts the
merchant’s check or not. The wholesaler is glad to do it, and the
bank is glad to do it.
Mr. I ngle. But the bank’s enthusiasm is more or less modest and
moderate.
Senator B ristow. But it does it of its own free will. There is no
law compelling it to do so.
Mr. I ngle. Oh, no, sir.

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B A N K IN G AND C U B E E N C Y .

Senator B ristow. Then that check comes back. Now, the mer
chant pays enough for his goods in this transaction to take up these
incidental expenses, or the price of the goods would go up so that he
would pay enough. The community bears the burden. The country
does not bear it.
Mr. I ngle. What is the difference between the community and
the country?
Senator B ristow. Well, the difference between the community and
the country is that the community is a part of the country, as I use
the term.
Mr. I ngle. Oh, I beg your pardon.
Senator B ristow. Nobody else bears the burden of this except
that community itself where the bank is located, and the bank is a
part of the community.
Mr. I ngle. That particular community bears the burden of these
transactions in that case. In another case another community would
bear it. And, as I said, the country as a whole is levied upon in
order that a bank in a community which would not otherwise support
a bank may make its living.
Senator B ristow. N ow, it seems to me that your argument is that
instead of a little bank here with deposits of $50,000, as many of
them have, and a capital of $10,000—that serves a very useful pur
pose, in my opinion, in the community, and is very beneficial not
only to that community but to every other community that it touches,
if it is run honestly—and we presume that they are----Mr. I ngle (interposing). May I interrupt and ask you a question
there ?
Senator B ristow. Certainly.
Mr. I ngle. Where would you draw the line of capital responsi
bility in arguing for the multiplication of these small banks?
Senator B ristow. Just as many banks as the man wanted to put
the money in to start.
Mr. I ngle. Well, let us take a bank of $10,000 capital. Would
you say that that would be wise?
Senator B ristow. Certainly.
Mr. I ngle. Take a bank with $5,000 capital. Would that be wise?
Senator B ristow. Surely.
Mr. I ngle. Well, if there is no limit, then a bank with $1,000?
Senator B ristow. $1,000 is getting a little low.
Mr. I ngle. There must be some lim it; there must be some margin
which you would want there to protect business that would seek that
bank. Now, there was a provision in the national banking act limit
ing the capital to not less than $25,000. In your view would that be
proper ?
Senator B ristow. Well, we will say $25,000. We will say that is
a proper limit in a national bank. In the State banks they run down
to $5,000. But say $25,000 for a national bank. Now, I believe that
wherever there are men willing to put up the $25,000 and willing to
go into the banking business they ought to have the opportunity to
go in.
Mr. I ngle. Certainly. And wherever you will find enough men to
start with a capital of $25,000, you will find enough men to deposit
in that bank to make it self-supporting without “ Passing the hat
around.”

B A N K IN G A N D C U R R E N C Y .

2409

Senator B ristow. Nobody wants to “ Pass the hat around.” If
there is no bank there, you send the business to a justice of the peace
or some other officer.
Mr. I ngle. Excuse me, sir, I will have no account on that par
ticular place. Checks are drawn only on places where there are banks.
Senator B ristow. But some other communities would have an
account out there.
Mr. I ngle. I may have an account against a dry goods man or a
country merchant at a crossroads store where there is no bank.
Senator B ristow. Yes.
Mr. I ngle. And if that is a good account, my statement to such
a man will quite as effectively bring a remittance from him in the
shape of some sort of a check as if he lived in a town where there
were a dozen banks. If, on the contrary, he was not ready or willing
to pay that account, I will have no more difficulty with him, prac
tically speaking, because he lives in a country town, if I am obliged
to send it to a lawyer. A lawyer would simply get in his automobile
and go out there and serve a notice and hale him into court to defend
his suit. That would make no difference.
Senator B ristow. If you send it to him by bill, if he has not an
account at home, he has an account away from home?
Mr. I ngle. Five or ten miles away.
Senator B ristow. Five or ten miles away; and you would insist
on him going there and letting that man collect the fee ?
Mr. I ngle. Not at all “ insist,” Senator Bristow. I would only sug
gest that that would be a fairer proposition than levying a toll upon
the country as a whole, as would be necessary otherwise to support
that bank.
Senator B ristow. I can not understand how you would levy a con
tribution upon the country as a whole where the community that sup
ports the bank pays the toll.
•
Mr. I ngle. I am speaking of this community one day and the next
community the next day, and so on.
Senator B ristow . But it is another transaction then.
Mr. I ngle. And the country as a whole supports this proposition.
I must be extremely poor on using language if I have not made myself
clear.
Senator B ristow. I think I understand. To sum up, you are op
posed to so many of these country banks being established ?
Mr. I ngle. N o, sir.
Senator H itchcock. I got the impression that you think there are
too many of these country banks and that they ought not to exist
unless they are able to exist without making charges on their checks.
Mr. I ngle. If you will disassociate those two thoughts. As to
country banks, I think the more there are the merrier. I am in
hearty accord with the multiplication of country banks.
Senator H itchcock. Let me quote you again. You said, in sub
stance, that if a country bank could not exist without making charges
on its checks and collections that was the best evidence that that com
munity was not entitled to a bank.
Mr. I ngle. That is rig h t; I think I can affirm that.
Senator H itchcock. Well, I think we understand your position,
then. Perhaps you had better go on with your statement.

2410

B A N K IN G AND C U R R E N C Y .

Mr. I ngle. A s deposits of public funds are now placed there is
little profit to the banks holding them. I am speaking of the normal
deposits as they are usually distributed and not any special deposits
for particular purposes.
The bill in requiring that such deposits be transferred to reserve
banks will work no real injury beyond some momentary incon
venience. Here, again, the board., in naming an extravagant rate of
interest to be paid on such deposits by Federal banks, could do mem
ber banks an injustice; but it must be assumed that no such intention
is held.
In other words, the proposed law says that the Federal reserve
board shall name the rate of interest to be paid by the Federal re
serve banks on public deposits. That rate of interest paid is now
2 per cent. If, for instance, the Federal reserve board should say
that the idea of profit to the Government, or for anv other reason,
for these Federal reserve banks shall pay to the Treasury Department
6 per cent on those deposits—and there is nothing in the law to pre
vent it—you can see that the Treasury would reap the benefit of a
6 per cent investment on its funds in the Federal reserve banks for
distribution as dividends or otherwise. That is possibly a little far
fetched, but I just suggest it because there is no limitation.
Senator B ristow. Why should the Government receive money on
its deposits any more than the banks receive money on their deposits?
Mr. I ngle. Because the Government—I do not say that it should.
I am dealing with a condition not a theory. I am trying to justify
the presence in the law of that special provision.
Senator H it c h c o c k . I want to remind the committee that it is 3
o’clock now, and that Senator Thomas has an appointment with the
committee for half past 3. Are you likely to be through at half
past 3, Mr. Ingle?
Mr. I ngle. I will be through at any time that the committee will
be generous enough to dismiss me. The Government will contribute
to the working capital of these Federal reserve banks some sum of
money between $150,000,000 and $200,000,000.
Senator B ristow. That is not capital; that is deposits.
Mr. I ngle. I did not say it was capital. That money will be
loaned by these Federal reserve banks at whatever rate is determined
upon—4 per cent, 5 per cent, or 6 per cent. It seems fair to give
the Treasury 2 per cent, or some fair rate of interest on that con
tribution—very generous contribution of capital—and a permanent
contribution you might assume, as the member banks will, either in
the dividends or in their share of the 40 per cent excess earnings to
be divided in lieu of interest on deposits, receive a certain part of the
money earned by the Treasury deposits.
Senator B ristow. Suppose the surplus earnings all go to the Gov
ernment and the banks do not get any of it, then what ?
Mr. I ngle. I would not like to express mv opinion on that in this
company. I think that would be very arbitrary and unfair.
Senator B ristoav. That has been advocated by nearly every witness
we have had here who represented a large bank.
Mr. I ngle. I am sorry; I am out of touch with that.
Senator B ristow. That the bank should not be a money-making
institution, and that any profit over the 5 per cent or 6 per cent,
which ever is allowed, ought to go to the Government as an evidence

B A N K IN G AND CU R R E N C Y .

2411

that the banks are not to make any money out of this regional
reserve bank.
Mr. I ngle. Then, again, sir, it depends upon the shape that the
law finally takes.' I say if you have a 5 per cent dividend only,
that is a very moderate contribution, with the interest the banks are
all making. If you say 6 per cent dividend, it would be more
attractive.
Senator N e l s o n . Suppose a ll the rest of the revenue went to form
a sinking fund to take up the 2 per cent bonds?.
Mr. I ngle. Well, Senator, I do not know that the banks would
have much care as to what happened to the rest of that money, al
though it would be nice to feel that some definite provision was made
for the redemption of these 2 per cent bonds at some time. I do
not think the banks want the reserve banks to be a money-making
institution. On the contrary, I do not think they should be, because
they would be tempted to always charge more than was fair for
rediscounts. But they ought to give such a return for the contri
bution made by the member banks as to make those member banks
want to go in and not make them hesitate and go in simply because
they feel they are obliged to.
Senator R eed. Mr. Ingle, how much interest do you think, or upon
what basis do you think the reserve bank should fix interest charges
to member banks, either for funds or for money issued; I mean funds
on hand or money issued ?
Mr. I ngle. I am glad you asked me that question. I think that the
Federal reserve bank should, in fixing its discount rate, have respect
for the local interest rate permitted by law in the particular State or
territory from which the application for funds shall come. In other
words, I think that it would not be fair for the Federal reserve board
to charge a bank in a State where 6 per cent was the legal limit of
interest, to charge that bank 5 per cent, if you choose, for money;
and on the same day charge only 5 per cent to a bank located in a
State in which the legal rate of interest was 8 per cent.
I think that the rate fixed at any given day should be so adjusted,
on a sliding scale, as, having 6 per cent for a normal rate, because it
is the common rate, and 5 per cent as the rate quoted—that where you
are dealing with, let us say, 8 per cent territory, you should charge
banks for funds in that 8 per cent territory 5 per cent, plus one-third
of 5 per cent. So that the money shall be gotten out on these terms
from these Federal reserve banks; as otherwise you can see that there
will always—if money is plentiful and the reserve board chooses to
charge, say, 4 per cent discount rate, that rate probably would not
tempt a bank in territory in which a 4 | per cent rate was then pre
vailing to borrow money, but it would very easily tempt a bank
where loans were being made currently at 8 per cent; and it might
be continuously borrowing and borrowing beyond the limit of safety.
Senator H it c h c o c k . If that was put into force, would not the effect
be to lower the rate of interest from 8 per cent?
Mr. I ngle. Absolutely; and that is why I advocate it. You would
findj before a great while, that instead of finding here 6 per cent
territory and there 8 per cent territory, and 10 per cent contract
rate, you would soon have a 5 and 6 per cent current rate all over the
country.

2412

B A N K IN G AND CU R R E N C Y .

Senator H itchcock. If the banks were able to borrow at 4 | per
cent, they would not charge their customers 8 per cent, 9 per cent, or
10 per cent, would they ?
Mr. I n g le . Were you ever a customer in such territory, Senator
Hitchcock ?
Senator H itchcock. I have been for the last 30 years. I suppose
there has not been a period in the last 30 years in which I have not
been a customer in such territory.
Mr. I n g le . Well, I can only say----Senator H itchcock (interposing). My experience has been that,
as the banks got easier in money interest rates fell in the community;
and I feel that if the banks in the West were able to rediscount their
paper on the same terms as in the East we in the West would be able
to borrow money on as good terms as in the East.
Mr. I n g le . Y ou would in Kansas City, St. Louis, Wichita, and
cities with 100,000 or 200,000 people or more; yes. But where you get
into the interior, into the country where they have smaller banks;
where they are wanting more capital all the time, and will always
need all they can get and take all they can get, you will find that
those banks will look upon the difference between the rate they pay
and the rate they can get, and the rate they do get, as profit. It is
perfectly legitimate profit.
But we are constantly being quarreled with now, when we in
tight times have charged an interior bank 6 per cent; we are re
proached with the suggestion that in charging them 6 per cent we do
not permit the borrowing bank to make any profit that is material—a
mere 1 or 2 per cent on the transaction. So I suggest that as fur
nishing a means by which the interest rates throughout the country
will be brought to a parity.
Senator H itchcock. Well, has the Government any right, in es
tablishing a great facility like this, where it is laying a burden upon
all the banks substantially equal, in proportion to their size; has it
any right to discriminate against the customers of one bank and in
favor of the customers of another bank?
Mr. I n g le . Yes; because that is one of the strongest arguments
used in advocating 12 regional banks rather than 1 big bank, because
those 12 banks are assumed to be 12 banks in order that they may
safely respond to the needs and wishes of their own community;
they know what their community wants and when they want it;
and it is not proposed in this law, if I understand it correctly, to
always have a uniform rate of discount.
Senator H itchcock. That is one of the big questions before this
committee.
Mr. I n g le . And I thought that this law was so drawn, because it
was suggested that this central board had power, in fixing rates, to
discriminate, if you choose to use that word, among different sections
of the country.
Senator H itchcock. Well, there is going to be a very strong oppo
sition to that doctrine. We think out West that it would be just as
reasonable to compel us to pay more for our postage stamps than the
people of the East as it would be to compel us to pay a higher rate of
interest on the money we use than the people in the East.
Mr. I n g le . There is this broad difference, I suggest: In the new
and undeveloped parts of the country there is no limit to the demand

BA N K IN G AND CUBRENCY.

2413

for capital—essentially so. Everybody in some of the new sections
of the country is living as if they had only 30 days to live and after
that the deluge. They want to do everything in the next three or
four months. I f they can get hold of that money in any way, they
will get it, and they will at once spend it.
Senator H itc h c o c k . That is a very popular idea among people
that have not been out West; but I assure you that we have banks
which are just as conservative in their dealings and business men
who are just as conservative in the West as there are in the East,
and we feel that we are entitled to the same protection from the
Government that the people in the East receive.
Mr. I n g le . What makes the difference in the interest rate between
Idaho and New York is the demand. That does not mean, because of
the difference in interest rate, that the banks in Idaho are not in the
hands of people as thoroughly competent as those in New York,
Senator H itc h c o c k . I do not know what the difference in the
interest rates between Idaho and New York is: but I know that we
often have interest rates lower in Omaha than they are in New York.
Mr. I ng le . But Omaha is very close to the center, not of civiliza
tion, but of population—well, I want to withdraw that first sugges
tion. [Laughter.]
Senator N elso n . Call it the center of gravity.
Senator H itc h c o c k . Well, I will not interrupt you too much.
Senator S haerotti. Have you finished your prepared statement ?
Mr. I n g le . Yes, sir; and I appreciate very much your considera
tion.
Senator W e e k s . I want to ask you two or three questions. If we
pass a bill similar to the House bill, can you think of any good reason
why a bank in Omaha, or Idaho—as you have used that illustration—
having paper that conformed to the provisions in the bill, should not
be able to get its accommodation on exactly the same terms as the
bank in New York, or Boston, or Baltimore?
Mr. I n g le . The only reason I can think of—and that is the con
trolling reason—is this: That that bank in Idaho—I am speaking
impersonally now, you understand, of course—that that bank in
Idaho is using the facilities of a bank serving other portions
of the country, is supposed to make out of those facilities more profit
than the bank in the more thickly settled and more thoroughly
financed sections of the country, if you choose to put it that way.
Senator W e e k s . N ow , let me suggest this to you: Of course, Idaho
is developing more rapidly than New York or New England.
Mr. I n g le . Exactly.
Senator W e e k s . And there is more opportunity for development
there, and more money is needed for that development. But we are
establishing a national system now; and a national system should be
national in every respect, it seems to me; and I believe that if the rate
for rediscounts were made the same for banks in every section of the
country, it would take money from the older sections into the parts
of the country which need to be developed, and would bring about
that development very much quicker than if the present high rates of
money are going to continue; that it would bring down the rate to
every borrower in those sections.

2414

B A N K IN G AND C U K REN CY .

And it does seem to me that there is no economical or sound reason
why, if we are establishing a national-banking system, the same rate
of interest should not obtain in every section of the country.
Of course, that does not mean that private joint stock banks may
not loan at a higher rate to their customers in Idaho than a similar
bank does in New York. But the rate to the Idaho borrower is going
to come down as a result of that policy; and the rate to the New York
borrower probably will not increase.
Mr. I ng le . If that should prove to be true, sir, the result would
be in line with the wishes of all of us, I am confident.
S e n a to r W e e k s . Undoubtedly.
Mr. I ng le . We want to attain the situation in which the rate will
be uniform the country over. After that has been done, then all
banks alike will reap approximately the same profit from their mem
bership in the Federal reserve banks.
Senator W e e k s . Well, I have not any doubt that that w ill be the
result.
Now, let me ask you, were you in Boston at the convention the
other day?
Mr. I n g le . Yes, sir.
Senator W e e k s . Y ou testified this morning that you had b a n k de
posits aggregating, perhaps, $7,000,000. Are they generally from the
South?
Mr. I n g le . I t is pretty hard for me to give you exact figures; but
if you will permit me to approximate, I will do so. Bank deposits in
any reserve city other than the central reserve cities are certainly of
two, and possibly of more, kinds.
We first have reserve deposits proper. Speaking in a general way
and as of Baltimore or any other secondary reserve city, those re
serve deposits proper come from the territory immediately tributary
to such city, from interior Maryland, northern Virginia, and lower
Pennsylvania, if you choose, in the case of Baltimore. So it is with
every city. Our bank will clear the miscellaneous business for that
territory in connection with the reserve account, which is more or
less generous in relation to the volume of country checks handled
for such interior accounts. Now, another class of bank balances is
made up of deposits from cities like Chicago, New York, Philadel
phia, Cincinnati, or Pittsburgh, if you choose. Those are balances
and they are very material balances. In fact, the balances, in the
matter of figures, are very much larger than the reserve balances
proper. But those balances simply represent a method of payment
for services rendered in the collection of interior checks for account
of all those banks in these larger cities. So I say that out of a $7,000,000 bank deposit line probably half of it is made up of reserve
balances proper and the other half of balances from the reserve cities
or central reserve cities of the country for which a direct service is
performed.
Senator W e e k s . That answers my question. How many banks
deposit with you ?
Mr. I n g le . We have 800 out-of-town accounts.
Senator W e e k s . Y ou are in fairly close touch with those banks?
Mr. I n g le . They are largely through the South.
Senator W e e k s . Have you talked with them about this legislation?

B A N K IN G AND C U R R E N C Y .

2415

Mr. I ng le . Only incidentally, sir. I have not had the opportu
nity, s ir; only as they came in and out on their way down.
Senator W e e k s . Have you tried to influence them either in support
of or opposition to this bill in any way ?
Mr. I n g le . Absolutely no. I have written one letter, and that
was in response to an invitation.
Senator W e e k s . Did you vote for the resolutions that were adopted
by the Boston convention?
Mr. I ng le . The resolutions commending the proceedings in the
Chicago conference?
Senator W e e k s . Yes.
Mr. I n g le . I did. I will tell you why, if you want m e to pursue
it further.
Senator W e e k s . I would be glad to have a brief explanation.
Mr. I n g le . I am one of those who think the bill is very largely
good. I think, however, it has in it two or three features that are
bad from my point of view. When you jumble them up and ask a
vote for an entire proposition, in which is to be found imbedded two
or three points which economically might appear to you to be rad
ically wrong, you feel you are justified, shall I say, in protesting
against the passage of that bill with those elements in it. There was
no way provided by which we could separate the questions under
discussion. We had to vote aye or nay on a particular offer—Do
you or do you not approve the proceedings of the Chicago confer
ence?—which covered, I think, 10 or 12 recommendations on matters
of differing degrees of importance. So I think that was responsible
for quite a fair number of votes aye.
Senator W e e k s . D o you know Mr. Scudder, of Richmond?
Mr. I n g le . Yes; I saw Mr. Scudder, and I saw him put up his
right hand, the one lone man on the premises.
S e n a to r W e e k s . I s h e one o f y o u r c o rre sp o n d e n ts?

Mr. I ng le . N o. I say “ No ” hurriedly. Is his bank the Rich
mond Bank & Trust Co.?
Senator W e e k s . Yes.
M r. I n g le . I th in k n o t, sir.
Senator W e e k s . Then you were not in sympathy with his position?
Mr. I n g le . A s an abstract proposition, I think ves, because he

took his position as a sort of protest, if you choose, against combining
in a single vote the approval or disapproval of 10 or 20 different
principles.
Senator W e e k s . D o you see anything in the financial situation
which looks now like an emergency?
M r. I n g le . N o, s i r ; I d o not.
Senator W e e k s . D o you approve

of the course which is being
followed to thoroughly thrash out all of the questions relating to
this subject?
Mr. I n g le . Most heartily, sir. And I think the better you thrash
it out, the more workable a bill you will get, and that is all the
banks want.
Senator W e e k s . I think you have assisted us in doing that.
M r. I ng le . Y ou a re v e ry g en ero u s, sir.

. Senator R eed . N ow , in a word, your position is this: You think the
bill, in the main, has the elements of a good bill ?

2416

B A N K IN G AND C U BK EN CY .

Mr. I n g le . I do.
Senator R eed . And y o u think it needs some changes in order to
make it a better bill ?
Mr. I ng le . I do.
Senator R eed . And some o f those changes you think are very vital
and some you think are not so important ?
Mr. I n g le . If you will permit me to repeat—the two vital things
to which I object, as found in the bill, are, to me, the unnecessary
going out of the way to make the Government guarantee the credit
instrument, and, second, the placing in the bill of the words “ lawful
money,” when referring to the redemption of the same credit instru
ments.
Senator N elson. Y ou believe they should be redeemed in gold?
Mr. I n g le . Well, I think it means no more to say gold under
existing statutes. I think it a pity to have first said “ gold,” and then
to put the “ lawful money ” afterwards.
Senator S hafroth. Don’t you think that putting in the “ lawful
money ” has a tendency to preserve the gold reserve and to preserve,
consequently, the gold standard?
Mr. I ng le . I can fo llo w th e re a so n in g a d o p te d b y th e c h a irm a n o f
th is co m m ittee. I can u n d e rs ta n d th a t to m ake it a little difficult to
g e t a n y th in g is to conserve y o u r sto re o f th a t p a r tic u la r th in g .

Senator S hafroth. When it creates 12 distinct centers that will
be bidding for gold against the Government, will it not require a
great deal more gold to make those redemptions if you have a deposit
of 33 percent in each one of those reserve districts, instead of having
the same thing in the General Treasury?
Mr. I n g le . Mr. Senator, I think I ought to say here I am getting
on awful thin ice. I am an economist, sir, and I am principally a
practical banking man, and I do not know anything about that end
of it.
Senator S hafroth. Don’t you know when money like this is re
deemable in lawful money you can save a great deal in the quantity
of the reserve? For instance, suppose I have a $1,000 bank note.
United States note, redeemable in lawful money, and I go to a United
States bank and say I want gold. The bank says, “ No; I won’t give
you gold; we have not got the gold in the treasury; we will give you
lawful money.” I say, “All right.” Then the bank says, “ If there
is going to be a run on the gold, I will just take that and lock it up.”
Then (suppose I am in Baltimore) I take that lawful money and
I come to Washington, and I go to the Federal Treasury and present
that and say, “ I want $1,000 in gold.” The Government says, “ Cer
tainly,” and gives me the $1,000 in gold. Then the Government says,
“ If we are going to have a run on gold, we will lock that up.” In
that way for $1,000 in gold the Government has locked up $2,000 of
money payable in gold, and that would have a tendency for the Gov
ernment not to keep so large a gold reserve, would it not ?
Mr. I n g le . A s I see it, no. But, as I say, I may be very wrong
in anything I suggest along this line. I say this: If we could feel
away back in the heads of some of us that there was no idea to enlarge
the interpretation of “ lawful money ” there could be no objection to
employing that term. Our present lawful money, while it is safe
and good, there is a limit to its value. That very injection of the
words “ lawful money ” in a thing which first said “ gold,” which for

B A N K IN G AND C U R R E N C Y .

2 417

•one instant would indicate the want of gold dollars, would indicate to
a man a kind of apprehensive measure, which would draw the atten
tion of the country to it if there should be proposed some little law
adding very largely to the volume of “ lawful money. It would be
a very troublesome thing to have in the law. Then there would be
no gold at a ll; gold would hide quickly.
Senator S hafroth. Don’t you think it has been a great advantage
for national-bank notes to be redeemable in lawful money ? If they
had had to keep gold for the redemption of the national-bank notes,
it would have required an enormous amount of gold. As it is,
$150,000,000 in gold provides for the redemption of $346,000,000 of
greenbacks, and $700,000,000 of national-bank notes. That is all the
gold that is required. But if you make everything redeemable in
gold, you have got to have $500,000,000 or $600,000,000 locked up in
the Treasury or in these regional reserve banks.
Mr. I ngle. We do not care where it is, as long as it is there.
Senator S hafroth. Y ou do not want to make it hard for the Gov
ernment to maintain the gold reserve?
Mr. I n g l e . N o. I do not think the Government ought to guarantee
the notes; I think the responsibility should rest with the banks.
Senator S hafroth. The people do not think the banks ought to
have control of the gold reserve as much as the Government ought to.
Senator R e e d . Let me ask there: Is it not true the safer a currency
system is, the easier it is to get gold; and the more unsafe it is, the
more likely it is for the gold to run away and hide ? Is not that the
universal rule?
Mr. I n g l e . Here again, Senator, you have got me, I am afraid. I
am getting in very deep water on this economic question. I can not
see it so. The point I wanted to draw out was that there was no
necessity for getting the Government to occupy this situation as a
guarantor. We are teaching our people, it seems to me, that there is
something peculiar attached to the Government’s credit that does not
attach to the credit of any individual. That is not true, except in
degree. A credit of the Government of the United States is not any
better than your credit individually, I take it.
Senator R eed. I wish I could convince the people that way.
Mr. I ngle. Y ou can only tax to raise money; you can tax to a
certain limit, and beyond that limit the people begin to get restless.
Why, then, assume directly a responsibility for 1,000 millions of cur
rency when that currency can be just as good and just as readily regu
lated in volume and character without that guaranty as with it?
That is the only point I make against that, sir.
Senator R eed. Y ou do not understand my question I am sure. If
you have a large currency resting upon a very small gold basis, is it
not very much more likely there will be a discarding of that cur
rency and a raid on the gold than there would be if there was a very
large gold basis?
Mr. I ngle. Oh, yes; of course; and we have provided in this act
for a 33 per cent basis. I think that is more than enough.
Senator S hafroth. But they also provided in the act of 1890 and
of March 14, 1900, that there shall be a gold reserve, and the Gov
ern ' ent is obliged to maintain the parity of all forms of money.
Mr. I ngle. I believe that was put in there in absolutely good faith,
and I only say it is a pity to inject that thing, whereas the Govern-

2418

B A N K IN G A N D C U R R E N C Y .

ment could have a reserve by simply leaving the words ” lawful
money ” out of the bill.
Senator S h a fr o t h . But it would make an enormous burden on the
Government to maintain the reserve in gold.
Mr. I ng le . I would not have the Government have anything to
do with it. That is the point I make. The banks should have to
maintain that gold.
Senator S h a f r o t h . The bill is predicated on a d iffe re n t basis.
Mr. I n g le . Exactly.
Senator N elso n . Ought not the banks to supply the currency to
maintain the gold?
Mr. I ng le . I t should be their business to maintain it at any price,
profit or loss.
Senator S h a fr o t h . D o you think the law says those notes are re
deemable by gold?
Mr. I ng le . The bank notes are.
Senator S h a f r o t h . N o ; they are redeemable in g old o r la w fu l
money.
Mr. I ng le . The lawful money, will bring the gold.
Senator S h a fr o t h . And the same way under th is bill, if you have
the gold and lawful money, the lawful money would bring the gold
and prevent a raid.
Mr. I ngle. Oh, yes. But if it stays where it is to-day it could do
no possible harm.
Senator S h a fr o t h . But if it stays where it is it would necessitate
the Government maintaining a reserve of four or five times what it
does now, would it not?
Mr. I ng le . Yes; but i f the Congress shall enlarge the “ lawful
money ” by including everything else we are really in bad shape.
Senator S h a f r o t h . Y ou can imagine difficulties; but there is the
pledge of the Government against it enacted in this very bill.
Mr. I ng le . I have no selfish considerations to urge here. Senator;
you can see they are not.
Senator W e e k s . Mr. Ingle, when a person is entitled to something
and understands there is an attempt in some form to prevent his get
ting it, do you not think it is inclined to make him more anxious?
Mr. I ng le . Altogether anxious.
Senator S h a f r o t h . Has there been any anxiety about cashing the
national-bank notes?
Mr. I n g le . My recollection is, in the panic in the early nineties,
when the people wanted to hoard currency, they went into a bank and.
if it was possible for them to do so, they took gold: and in 1007. when
they wanted to hoard currency, they went into a bank and took what
was given to them, without any difficulty.
Senator S h a f r o t h . The reason for that was there was a deficiency
in the Treasury and money had to be borrowed under the excuse of
maintaining the gold reserve, when, as a matter of fact, it was to
maintain the expenses of the Government.
Senator N elson . Here is another point I want to call attention
to----Senator H itch co ck (interposing). Gentlemen, the hour of 3.30
has arrived, at which time Senator Thomas was to appear before
the committee. He has stated, however, he will give way to Mr.
Bucholz, of the Omaha National Bank, who is compelled to leave,

B A N K IN G AND CU R R E N C Y .

2419

and Mr. Bucholz expects only to detain the committee about 15 min
utes, unless the committee detains him longer. So, if that is agree
able to the committee, we will call Mr. Bucholz.
STATEMENT OE W. H. BUCHOLZ, VICE PRESIDENT OF THE OMAHA
NATIONAL BANK, OF OMAHA, NEBR.

Senator H it c h c o c k . Mr. Bucholz, please state for the benefit of
the committee your name and your banking connections.
Mr. B u c h o lz . W. H. Bucholz, vice president of the Omaha Na
tional Bank, of Omaha.
Senator H it c h c o c k . H ow large is the Omaha National Bank?
Mr. B u c h o lz . It has a million of dollars capital and surplus and
profits of $800,000, and deposits of about 12£ millions of dollars.
Senator H itc h c o c k . What size is Omaho?"
Mr. B u c h o lz . Omaha proper has probably 125,000 people.
Senator H it c h c o c k . D o you prefer to make your statement in
your own way, or shall I ask you some questions ?
Mr. B u c h o lz . I would be glad to have you ask me some questions,
i f I can answer them.
Senator H it c h c o c k . T o what extent have you deposits of country
banks ?
Mr. B u c h o lz . About between $5,000,000 and $6,000,000. It fluc
tuates between $5,000,000 and $6,000,000.
Senator H itc h c o c k . Can you give an estimate of the total country
bank deposits in Omaha?
Mr. B u c h o lz . Yes. Approximately $33,000,000.
Senator H it c h c o c k . $33,000,000 of country bank deposits in
Omaha ?
Mr. B u c h o lz . Yes; Omaha and South Omaha.
Senator H itc h c o c k . And what do the total bank deposits of
Omaha and South Omaha amount to?
Mr. B u c h o lz . $55,000,000.
Senator P o m er en e . Y ou have more country bank deposits than
you have local ?
Mr. B u c h o lz . Yes.
Senator H itc h c o c k . I think you had better proceed with your own
views about this bill.
Mr. B u ch o lz . My statement, gentlemen, will be very short. In
justice to myself I should explain I had no opportunity to prepare
a regular review of this bill. The request to come here and appear
before you came to me at Boston, and that session was very busy there
and I had little time to get down and analyze seriously this proposed
currency bill as I should in order to appear before so important a
body as that before whom I now stand.
It seems to us in the West that we owe so much to the independent
banking system, which we have had there, for our development and
progress that we can see no good in what seems to us an attempt to
destroy the national banking system and substituting some other with
the provisions for which we are not in entire accord. In Nebraska
the sentiment is very strong against this new currency bill. I
might say that in my own contact, through correspondence and per
sonal interview with national banks of that State, I know of many

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of them who are preparing now to go out of the national banking
system, if this bill becomes a law, and to join the State banking sys
tem, and that even in view of the fact that we have a guaranty law
there to 'which we are upon principle opposed as national bankers.
But we would rather take that medicine than engage in this system,
which we think will do much to retard our development and our
growth in Omaha proper. I might mention the Omaha National
Bank as an example, because I have made figures on that. Our com
putation convinces us that we shall lose in our reserve balances some
thing over $2,000,000—perhaps two million and a half.
Senator H itchcock. Those are the balances with country banks ?
Mr. B ucholz. Yes, sir; with us.
Senator H itchcock. What do you mean? That they will lose
those balances?
Mr. B ucholz. They will have to withdraw them when they come
into the system to place them with the Federal reserve banks; and,
of course, if we have to put up money for it, to get that money we
will have to contract our loans.
Senator R eed. N ow, let me ask you a question: Suppose this
system goes into effect and suppose the country banks withdraw
their deposits from your banks. You, of course, would not like that.
How are you going to help yourself on that by organizing a State
bank? You will still be out those same deposits.
Mr. B ucholz. We won’t have to put up any reserve with the Fed
eral reserve bank nor place 5 per cent of our deposits with the
Federal reserve bank.
Senator R eed. Don’t they keep any reserve under the State law ?
Mr. B ucholz. Yes.
Senator R eed. H ow much?
Mr. B ucholz. The same as the national law.
Senator R eed. Would you be, then, any better off?
Mr. B ucholz. We would have control.
Senator R eed. Y ou do not have control of the reserves: you an
obliged under the law to set aside, to segregate that amount ana
hold it as a reserve.
Mr. B ucholz. Yes; I know. That reserve has been altogether too
scattered, and we have only learned in recent years it is there for a
purpose, and that purpose is to use in an emergency. We have been
taught that by a bitter lesson.
Senator H itchcock. H ow much capital would your bank have to
contribute to the proposed system?
Mr. B ucholz. $200,000.
Senator N elson. And how much in the 5 per cent of deposits?
Mr. B ucholz. Approximatelv between $600,000 and $700,000.
Senator N elson . S o you would have to contribute from $800,000 to
$900,000?
Mr. B ucholz. Yes; in addition to the loss of our deposits. Of
course, we have our present reserves, and as to our own contribution
to the reserve, it would not make any difference. We would have to
draw that from Chicago. St. Louis, New York, and reserve centers.
Senator P omerene. What are the actual reserves which you carry
on an average?

B A N K IN G AND C U R R E N C Y .

2421

Mr. B u ch o lz . With our own institution the real reserve will run
30 per cent, and the apparent reserve, made up of float and all that
sort of thing, will very often go to 40 or 50 per cent.
Senator P o m er en e . Y ou mean real reserve, that which you carry
in your own vaults?
Mr. B u ch o lz . N o ; what I mean is actual money we carry in our
own vaults and real money with our correspondents. I t does not
mean collection accounts, or anything of that kind.
Senator H it c h c o c k . Mr. Bucholz, the witness who preceded you
stated it was his custom to permit his New York correspondent to
charge to his account checks which came into his possession drawn by
depositors of the Baltimore bank. Do you allow your New York
correspondent to charge to your account a check which one of your
customers draws on your bank which may fall into the hands of
your New York correspondent?
Mr. B u ch o lz . We do n o t.
Senator H itc h c o c k . D o you know7 what the custom generally is
with banks?
M r. B u c h o lz . I h e a rd th e te stim o n y o f th e g e n tle m a n wTho p r e
ceded m e, a n d i t is th e first tim e I knew t h a t w as p e rm itte d .
Senator H it c h c o c k . Y ou never knew of it being done before?
Mr. B u ch o lz . N o, sir. I would like to explain a little further

as
to that, that the gentleman referred to the fact that some banks
carry two accounts, and they remitted weekly or semiweekly or twice
a week, as the case might be. We do not do that way. These checks
that come to us from our correspondent banks we send them a draft
for them on the very day we receive them. We do not place them
to anyone’s credit, or carry them as a float to bolster up our figures,
or anything of that kind, and I believe that is the practice—I know
it is throughout the Mississippi country.
Senator H itc h c o c k . D o you see any danger in permitting a cor
respondent bank, or the proposed reserve bank, to charge against a
member bank a check which had been drawn by an individual de
positor on a member bank?
Mr. B u ch o lz . I do. If the New York correspondent paid a check
drawn on the Omaha National Bank they w7ould pay that check with
our own funds, with the funds of the Omaha National Bank, and send
it to us. After having once paid the check we, of course, have no
recourse so far as we are concerned whether the check is good or not,
or whether it affords indorsement, or anything of that kind. The
check is paid and the man has his money.
Senator P o m er en e . In that event would your New York corre
spondent stamp it paid?
Mr. B u c h o lz . I do not know as to that. But, in any event, if they
paid it with our money, the check is paid, and all defense against it,
if protested, would be shut off. That is one of the main reasons why
that should not be permitted. Aside from that, we could not tell
how much money we had wTith our New York correspondents.
Senator R eed . Let me see if you are accurate about that. The
Government establishes a Federal reserve bank. That bank is com
posed of a number of elements, some 600 or 700 national banks con
stituting its stockholders. It is a separate entity; it is a thing itself;
it can sue and be sued. You are a stockholder only. You deposit
with it $100,000, and a man, upon a false check, drawn upon the

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bank at Omaha, presented at that counter, receives $100,000. You
say it has been paid out of your own money, and therefore you would
have no recourse. I do not agree with you. That bank up there is
just as separate from your bank as one corporation is from another,
and if it paid a check that was a bad check it would be out, not you;
I think you are mistaken about that.
Mr. B u c h o lz . On that question were discussing the relations be
tween the Omaha bank, for instance, and its New York correspondent.
We were not discussing the proposed law.
Senator R eed . If your Omaha correspondent puts money in there
and it paid your money out, you would have recourse.
Mr. B u c h o lz . The question is, would you if it had actually paid
the money on checks?
Senator R eed . Unquestionably.
Senator P o m er en e . Every time a man would present a check to
vour New York bank, that is of itself a representation that it is a
bona fide check.
Mr. B u c h o lz . But that check is not payable in New York.
Senator P o m er en e . If it should be, in the instance you speak of.
and it would develop afterwards it was a forged check, you would
have recourse on that bank.
Mr. B u ch o lz . Perhaps so—in case of forgery.
Senator R eed . And in the case of overdraft.
Mr. B u ch o lz . Suppose a man in New York who held that check
an innocent holder, and when it came back to us we found the bank
had paid an absolutely bad check and charged it to the Omaha Na
tional Bank; I think they would have a good stand and it would
have to stand paid if it was paid out of our funds.
Senator P o m er en e . Even if there were no funds in your bank at
the time the check was drawn?
Mr. B u c h o lz . Yes.
Senator P o m er en e . Oh, no.
Senator R eed . The rule will not be different now, where one of
your correspondents pays a check that ought not to have been paid;
nor is the rule now different with reference to that correspondence
than it is with reference to any other bank with which you have no
funds. That bank pays it at its peril. The danger in this system
lies in the Federal reserve bank cashing bad checks and itself losing
the money.
Mr. B u c h o lz . Well, according to my information and belief, and
according to my recollection of court decisions, a bank check—a check
drawn on a bank—is a vastly different thing than a bank draft drawn
by one bank upon another. A check is payable at one place. It is
an order from one man to another to go to that place to get the money.
Senator R eed . That is true.
Mr. B u c h o lz . And he has no business in going to any other place.
Senator R eed . Therefore if a bank takes a chance of cashing it, it
does so at its own peril.
Mr. B u ch o lz . Exactly. But if you arrange, your correspondent
may cash those checks and charge them to your account ; that is a
vastly different thing.
Senator R eed . That is a different thing; you have a new element,
a contract in which you authorize your correspondent to use your
funds to cash that check.

B A N K IN G AND C U E R E N C Y .

242 3

Mr. B u c h o lz . Exactly.
Senator R eed . In that case if it uses ordinary diligence, the same
as the law imposes upon anybody except a bailee without hire, it
would, of course, go acquitted.
Mr. B u c h o lz . That was the question under discussion, if a New
York correspondent paid your checks and charged them to your
account.
Senator N elso n . If the practice which this banker from Baltimore
stated did actually exist, the bank paying it would simply be the
agent of the other bank, and it would bind its principal.
Mr. B u c h o lz . That is exactly the point I was trying to make.
Senator R eed. It was because they had authorized them.
Senator N elso n . Of course, a different rule would apply if it had
no right to do that.
Senator B ristow . Senator Reed, that is the position the gentleman
has taken from the beginning—that it would be unsafe to authorize
the correspondent to charge to his account the checks when they were
presented.
Senator N elso n . But that is the principle that is sought to be
applied in this bill—to charge it.
Senator H itc h c o c k . For the present, Mr. Bucholz, the practice is
that banks do not allow their reserve correspondents to charge to
their accounts checks upon them which come in the regular course of
business.
Mr. B u c h o lz . Yes, sir; that is true with our correspondents, and
true with those banks that deposit with us.
Senator H itc h c o c k . Y ou started to say when you were interrupted
something about the method you would take to raise the necessary
money, to raise the contribution you are required to make to the
capital stock of the reserve bank, and also to secure the money that
will be necessary for you to have in order to transfer the country
deposits that you now hold.
Mr. B u c h o l z . I see no way except to get that money by calling in
some of the loans and getting it that way.
Senator H itc h c o c k . Have you made any estimate at all as to the
amount of loans that would be called, for instance, in the aggregate
in Omaha?
Mr. B u c h o lz . Yes, sir. Several of us were discussing that matter
a short time ago—not with any plan to that effect, but it just came
up—and we began to figure there, and it is between $8,000,000 and
$10,000,000 out of Omaha.
Senator H itc h c o c k . Y ou think the loans will have to be reduced?
Mr. B u c h o lz . Yes; it will take that out of Omaha. Of course
there is some excess reserve in Omaha now. Things are fairly easy
there, and there are no signs of a shortage of money, and part of that
would be made up from the excess money we now carry. It would
not all have to be called, but I think it is safe to say that perhaps
$5,000,000 at least, in that city, would be liquidated in the way of
calling in bills receivable.
Senator H it c h c o c k . D o you think that same process would be
necessary in St. Paul, Minneapolis, Kansas City, and other reserve
cities?
Mr. B ucholz. Most assuredly. I can figure it no other way.
S. Doc. 232, 63-1—vol 3---- 32