Full text of Commercial and Financial Chronicle : October 13, 1923 : Bankers' Convention Section, Vol. 117, No. 3042

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B ankers’ C onvention
SECTION
OF TRE

T o m WERCIAL & j p IWANCIAL Q h ROWICLE.
Copyrighted in 1923, according to Act of Congress, by WILLIAM B. DANA COMPANY, in office of Librarian of Congress, Washington, D. 0.

Vol. 117.

NEW YORK, OCTOBER 13,1923
THE CHRONICLE.

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INDEX TO ADVERTISEMENTS.
A complete index to the advertisements appearing in the
present issue of the Bankers’ Convention Section will be
found on pages 67 and 68.

THE

C O N V E N T IO N

AND

RESERVE

THE

FEDERAL

BANK.

Discussions at the annual conventions of the Amer­
ican Bankers Association long ago became something
like a clearing house of opinion on the larger ques­
tions of the financial economic situation of the day.
The past few years have given notable illustration
of this useful function. In 1920 the annual conven­
tion took a very necessary position in defense and
approval of the Federal Reserve Banks in their pol­
icy of raising the discount rate when credit exten­
sion had gone beyond the limit of safety. The con­
vention of 1921 outlined the attitude of the financial
markets and financial institutions toward Europe,
and the action of our investment markets during the
next twelve months translated the convention’s opin­
ion of our economic relationships into fact. The
convention of last autumn took strong ground on the




No. 3042.

question of the debts of the European Governments
to our Treasury; in the main, the Government at
Washington has pursued the policy then advocated
in the bankers’ resolutions at New York.
In the convention of last month at Atlantic City,
the question of the Federal Reserve and of the atti­
tude of Congress towards it was clearly the problem
most considered. Congress, in a blind spirit of re­
sentment at the falling prices, business unsettlement,
and hard times on the farms, which accompanied
but in no true respect resulted from the advance of
Federal Reserve rates in 1920, had shown a strong
disposition to tinker with the Reserve law. It pre­
scribed a “farmer member” on the Reserve Board
and at the same time it amended away the original
proviso that two members of the Board must be “per­
sons experienced in banking or finance.” The Sen­
ate refused to assent to the reappointment of the
very capable Governor of the Federal Reserve, who
had been in office during 1920. There had been inti­
mations of even more drastic action in restraint of
the Board’s power to curtail the demands for credit
which might have overstrained the facilities of the
System.
In his presidential address, Mr. Puelicher uttered
the positive judgment of experienced bankers. He
said: “ The addition to the Federal Reserve Board of
members representing distinctive interests sets a dan­
gerous precedent. Representation on a body such as
the Federal Reserve Board ought to be for the bene­
fit of all the people. Representatives ought to be ap­
pointed on account of their qualifications and their
technical training. There can be no objection to a
farmer on the Federal Reserve Board, provided that
the farmer understands the mechanism of finance
and provided also that he will regard himself not as
the advocate of measures which may prove of benefit
to one industry of our people at the expense of
others.”
But “ there is great danger in tampering with the
fundamental principles of the Federal Reserve Sys­
tem. There is also great danger in permitting its
functions and purposes to remain misunderstood.
If America wishes a continuance of this financial
structure, if its charter is to be renewed, its funda­
mental principles must not be perverted and Ameri­

66

BANKERS’ CONVENTION.

can public opinion must be brought to an under­
standing that this System was the result of the most
painstaking study of the financial systems of the
civilized world; to an understanding of the inter­
dependence of the Federal Reserve System and Amer­
ican commercial life; and that unless intelligently
supported, the present Federal Reserve Banks may
follow the way of the First and Second Banks of the
United States.”
Mr. Traylor of the First Trust & Savings Bank of
Chicago amplified this warning by his statement that
“ the two most effective weapons available for the
maintenance of American banking institutions are the
Clearing House and the Federal Reserve System.
There are two outstanding ends absolutely essential
to maintain. First, the solvency of our institutions
and the security of our deposits. This can unques­
tionably best be obtained through a general applica­
tion of the principle of Clearing House supervision
and regulation. Second, the ability of our institu­
tions to serve the needs of our customers, our com­
munity, and the nation, and this in turn is only pos­
sible through preservation of the integrity of the
Federal Reserve System.”
W e believe that the safety of the Reserve System
lies primarily in the sense of responsibility of the
President who names the members of the Board and
the members who are named by him. On the other
hand, there is unquestionably a serious problem in
the fact pointed out by the Bankers Association Com­
mittee that “ the whole trend of the history of the
personnel of the Federal Reserve Board has shown
that there has been hardly any continuity in service
on the part of its members,” and that “ valued mem­
bers resigned because they became disheartened or
could not be reappointed on account of the objections
of politicians.” Whether support can be obtained
for the tentative suggestion of the committee that it
could be possible to provide that two members of the
Board “shall be appointed by or be representative of
Federal Reserve Banks,” or that members of the
Board at the expiration of their terms might be re­
appointed by the President without confirmation of




the Senate, is probably very doubtful from the polit­
ical point of view. The Senate has never been prone
to relinquish its own privileges. But the Bankers
Association was wise in bringing forward into ag­
gressive discussion the exceedingly important aspects
of the case.
It was equally inevitable that attention should
again have been called to the strange economic prob­
lem involved by our abnormal and steadily increas­
ing hoard of gold. Mr. Mitchell, of the City Bank,
pointed out how on the one hand we are confronted
by the fact that such increase makes possible danger­
ous inflation of credit with its demoralizing effect
on trade, and on the other hand by the problem of
determining “ how to accomplish the redistribution
of this gold without going through the usual round
of credit inflation, rise of adverse trade balances, fall­
ing prices and credit disturbance.”
In this economic phenomenon the world in general
and the United States in particular are confronted
with a situation wholly without precedent.
Mr.
Mitchell emphasized, as did other speakers, the con­
sideration that resumption of payments on the debt
of other nations than England to our Treasury would
be certain to complicate the problem. It has indeed
been shown by the recent thorough review of our vis­
ible and invisible foreign trade balance by the De­
partment of Commerce, that when our purchase of
foreign securities and our import of foreign gold are
included in the reckoning, the actual debit balance
against the United States, even in 1922, was some­
thing like $586,000,000, but that the resultant credit
accruing to the outside world was actually applied
to reduction of the current indebtedness carried for
such outside markets by American banks and mer­
chants.
To that extent, even the increasing import of gold
might be looked upon as a step toward restoring nor­
mal conditions in the general balance of interna­
tional credit. But how far that result has been coun­
terbalanced as a desirable factor by the huge accu­
mulation of superfluous gold in the United States
is a far more complex question.

Index to A dvertisements
Page.
AKRON, OHIO.
Otis & Co__________________________________ 47
AMSTERDAM, HOLLAND.
'Pierson & Co______________________________164
de Barry (H. Albert) & Co________________ 60
ANTWERP, BELGIUM.
Banoue de Commerce______________________ 60
Guaranty Trust Co. of New York_______ 158
ATLANTA, GA.
Fourth National Bank_____________________41
BALTIMORE, MD.
Baltimore Trust Co_____ ___________________36
■Continental Trust Co____________________ 24
Converse (A. D.) & Co____________________ 23
Fidelity Trust Co________________________
37
Maryland Trust Co________________________ 38
National Exchange Bank_________________ 36
Reilly, Brock & Co________________________ 33
Safe Deposit & Trust Co__________________ 37
BARCELONA, SPAIN.
Royal Bank of Canada_____________________63
BAYONNE, N. J.
Mechanics Trust Co_______________________ 27
BIRMINGHAM, ALA.
Birmingham Trust & Savings Co_________ 41
Caldwell & Co____________________________ 40
First National Bank_______________________ 41
BOSTON, MASS.
Allyn (A. C.) & Co...............................
Brown Bros. & Co________________________ 62
Coffin & Burr_____________________________ 50
Curtis & Sanger___________________________ 23
Estabrook & C o ________ Outside Back Cover
•Goldman, Sachs & Co___________________ 15
Hathaway, Smith, Folds & Co____________23
Hornblower & Weeks______________________22
Hotchkin & Co____________________________ 50
.James (Thomas M.) Company_____________ 49
Kidder, Peabody & Co_____________________64
Leach (A. B.) & Co., Inc__________________ 10
Lee, Higginson & Co____________________
2
National Shawmut Bank_________________ 50
Olsen (C. Freeman) & Co_________________ 51
Stone & Webster_________________________ 163
BROOKLYN, N. Y.
American Trust Co________________________ 25
First National Bank_______________________ 25
Kings County Trust Co___________________ 25
Nassau National Bank_____________________25
BRUSSELS, BELGIUM.
Banque Beige pour 1’Etranger____________60
•Guaranty Trust Co. of New York_______ 158
BUFFALO, N. Y .
Harriman (W. A.) & Co___________________ 12
Hathaway, Smith, Folds & Co____________23
Marine Trust Co_________________________ 61
Schoellkopf, Hutton & Pomeroy_________ 61
CAMDEN, N. J.
Camden Safe Deposit & Trust____________29
CANTON, CHINA.
Asia Banking Corporation________________ 57
CHATTANOOGA, TENN.
Hamilton National Bank_________________ 41
Hamilton Trust & Savings Bank_________ 41
Caldwell & Co____________________________ 40
CHICAGO, ILL.
Allyn (A. C.) & Co________________________ 45
Ames (A. E.) & Co_________________________ 53
Caldwell & Co____________________________ 40
Corn Exchange National Bank,
Inside Back Cover
Curtis & Sanger___________________________ 23
Goldman, Sachs & Co___________________ 15
Hallgarten & Co_________________________ 6
Hanchett Bond Co________________________ 45
Harriman (W. A.) & Co____________________12
Hathaway, Smith, Folds & Co____________23
Holtz (H. T.) & Co..........................
44
Hornblower & Weeks______________________22
Leach (A. B.) & Co., Inc_________________ 10
Lee, Higginson & Co____________________
2
Pynchon & Co___________________________ 4
Sanderson & Porter______________________ 162
Stone & Webster____________
163
Tobey & Kirk_____________________
21
CINCINNATI, OHIO.
Caldwell & Co____________________________ 40
■Otis & Co_____________________ ___. . . . . . . 47




Page.
CLEVELAND, OHIO.
Hathaway, Smith, Folds & C o ..________ 23
Leach (A. B.) & Co., Inc_________________ 10
Midland Bank_____________________________ 47
Otis & Co__________________________________ 47

Page'
MONTCLAIR, N. J.
Bank of Montclair_________________________ 29

COLORADO SPRINGS, COLO.
Otis & Co__________________________________ 47

MONTREAL, CANADA.
Ames (A. E.) & Co_________________________ 53
Dominion Securities Corporation________ 53
Royal Bank of Canada:___________________ 63
Wood, Gundy & Co_______________________24

COLUMBUS, OHIO.
Otis & Co___________________ : ____________ 47

MORRISTOWN, N. J.
Morristown Trust Co___________________ 28

DENVER, COLO.
Boettcher, Porter & Co_________________ 53
Otis & C o . . . ______
47

NASHVILLE, TENN.
Caldwell & Co_________________________

DETROIT, MICH.
Caldwell & Co____________________________ 40
Hanchett Bond Co________________________ 45
Harris, Small & Lawson_________________ 61
Hornblower & Weeks______________________22
Otis & Co_________________
47
Union Trust Co___________________________ 35
FORT WORTH, TEX.
Fort Worth National Bank_______________ 38
GENEVA, SWITZERLAND.
Ferrier, Lullin & Cie____________________

60

HANKOW, CHINA.
Asia Banking Corporation________________ 57
HARTFORD, CONN.
Estabrook & Co________ Outside Back Cover
Hartford
Aetna National Bank_________ 51
45
HAVRE, FRANCE.
Guaranty Trust Co. of New York_______ 158
HAVANA, CUBA.
Royal Bank of Canada__________________ 63
HELSINGFORS, FINLAND.
Kansallis-Osake-Pankki___________________ 58
HOBOKEN, N. J.
First National Bank of Hoboken_________ 27
HOLLYWOOD, CAL.
Hunter, Dulin & Co_______________________ 46
HONGKONG, CHINA.
Asia Banking Corporation________________ 57
Hongkong & Shanghai Banking Corp’n . 57
HOUSTON, TEXAS.
South Texas Commercial National Bank. 38
JERSEY CITY, N. J.
Commercial Trust Co. of New Jersey____28
First National Bank_______________________ 27
Trust Company of New Jersey____________26
KNOXVILLE, TENN.
Caldwell & Co____________________________ 40
LIVERPOOL, ENGLAND.
Guaranty Trust Co. of New York_______ 158
Pynchon & Co___________________________ 4
LONDON, ENGLAND.
Anglo-South American Bank______________ 58
Bank of Taiwan, Ltd____________________ 59
Banque Beige pour 1’Etranger_____________ 60
Brown, Shipley & Co_____________________62
Canadian Bank of Commerce_____________ 52
Dominion Securities Corporation________ 53
Equitable Trust Co. of New York_______ 5
Empire Trust Co_________________________ 15
Guaranty Trust Co. of New York_______ 158
Hallgarten & Co_________________________ 6
Higginson & Co__________________________ 2
International Banking Corporation______ 59
Lazard Bros. & Co_______________________ 18
Lloyds Bank, Ltd_________________________ 56
Mercantile Bank of India, Ltd____________54
National Bank of India, Ltd_____________55
Pynchon & Co___________________________ 4
Royal Bank of Canada___________________ 63
Wood, Gundy & Co_______________________ 24
Yokohama Specie Bank__________________ 58
LOS ANGELES, CAL.
Hunter-Dulin & Co_______________________46
MANILA, P. I.
Asia Banking Corporation________________ 57
MEXICO CITY, MEXICO.
Canadian Bank of Commerce_____________ 52
Equitable Trust Co. of New York_________ 5
MILWAUKEE.
Allyn (A. C.) & Co________
45
First Wisconsin National Bank____________45
Pynchon & Co___________________________ 4
MINNEAPOLIS, MINN.
Allyn (A. C.) & C o ._______

45

40

NEW BEDFORD, MASS.
Estabrook & Co________ Outside Back Cover
NEWARK, N. J.
Clark, Dodge & Co_____________________ 8
National Newark & Essex Banking C o .. 28
NEW ORLEANS, LA.
Caldwell & Co__________________________ 40
NEW YORK CITY.
Aldred & Co____________________________ 22
Allyn (A. C.) & Co_______________________ 45
American Trust Co______________________25
Ames (A. E.) & Co______________________ 53
Anglo-South American Bank___________58
Asia Banking Corporation______________ 57
Bank of America_________________________1 1
Bank of Manhattan Co_________________ 20
Bank of Taiwan, Ltd___________________ 59
Bank of United States_________________ 22
Bankers Trust Co______________________ 7
Banque Beige pour 1’Etranger__________60
Barney (Chas. D.) & Co________________ 24
Barstow (W. S.) & Co__________________161
Bertron, Griscom & Co________________ 19
Boissevain & Co_______________________ 164
Brown Brothers & Co__________________ 62
Caldwell & Co__________________________ 40
Canadian Bank of Commerce__________ 52
Chatham & Phenix National Bank______ 16
Clark, Dodge & Co_____________________ 8
Coal & Iron National Bank___________ 21
Coffin & Burr_________________________ 50
Converse (A. D.) & Co__________________ 23
Corn Exchange Bank___________________ 17
Curtis & Sanger________________________ 23
Doherty (Henry L.) & Co______________21
Empire Trust Co________________________ 15
Equitable Trust Company of New York. 5
Estabrook & Co________ Outside Back Cover
Finch, Wilson & Co____________________ 23
Garfield National Bank________________ 20
Goldman, Sachs & Co__________________ 15
Green, Ellis & Anderson_______________ 19
Guaranty Trust Company of New York_158
Hallgarten & Co_______________________
6
Hanchett Bond Co______________________45
Harriman (W. A.) & Co_________________ 12
Hathaway, Smith, Folds & Co_________ 23
Heidelbach, Ickelheimer & Co_________ 18
Hongkong & Shanghai Banking Corp__ 57
Hornblower & Weeks___________________ 22
Industrial Plants Corp___________ ’______ 164
International Acceptance Bank_______ 16
International Banking Corporation_____ 59
Irving Bank-Columbia Trust Co________ 19
James (Thomas M.) Company__________ 49
Kidder (A. M.) & Co_____________________22
Kidder, Peabody & Co__________________ 64
Lazard Freres___________________________ 18
Leach (A. B.) & Co., Inc_______________ 10
Lee, Higginson & Co___________________ 2
Maitland, Coppel & Co_________________ 56
Metropolitan Trust Co_________________ 14
National City Company_______________
3
Otis & Co________________________________ 47
Pynchon & Co_________________________
4
Reilly, Brock & Co______________________33
Royal Bank of Canada_________________ 63
Sanderson & Porter____________________ 162
Seaboard National Bank______________
9
Smith (Edward B.) & Co_______________
1
Smithers (F. S.) & C o .________________ 17
Speyer & Co____________________________ 13
Stone & Webster_______________________ 163
Tobey & Kirk___________________________ 21
Ulen & Company_______________________ 162
Underwood Typewriter Co______________159
United States Mortgage & Trust Co_____ 14
United States Trust Co________________ 11
White (The J. G.) Engineering Corp____ 160
White (The J. G.) Management Corp____ 160
Winslow, Lanier & Co______________
164
Wood, Gundy & Ce_________
24

68

INDEX TO ADVERTISEMENTS—

Page.
NORFOLK, VA.
National Bank of Commerce______________ 39
OAKLAND, CAL.
Hunter, Dulin & Co_______________________ 46
OMAHA, NEB.
Omaha National Bank___________________ 46
Omaha Trust Co__________________________ 46

Page.
PITTSBURGH, PA.
Bank of Pittsburgh, N. A ________________ 44
Commonwealth Trust Co_________________ 43
First National Bank_______________________43
Green, Ellis & Anderson_________________ 19
Harriman (W. A.) & Co__________________ 12
Hathaway, Smith, Folds & Co____________23
Union National Bank____________________ 44
Union Trust Co___________________________42

PARIS, FRANCE.
Bankers Trust Co________________________ 7
Equitable Trust Co. of New York_______ 5
Guaranty Trust Co. of New York_______ 158
Lazard Freres & C ie .____________________ 18
Royal Bank of Canada___________________ 63

PORTLAND, ME.
Coffin & Burr_____________________________ 50
Hornblower & Weeks______________________22

PASADENA, CAL.
Hunter, Dulin & Co_______________________ 46

PORTLAND, ORE.
Hathaway, Smith, Folds & Co____________23

PASSAIC, N. J.
Passaic National Bank & Trust Co______29

PROVIDENCE, R. I.
Estabrook & Co________ Outside Back Cover
Hornblower & Weeks______________________22
Kidder, Peabody & Co___________________ 64

PATERSON, N. J.
Paterson National Bank__________________ 29
PEKIN, CHINA.
Asia Banking Corporation________________ 57
PHILADELPHIA, PA.
Bank of North America & TrustCo______31
Barney (Chas. D.) & Co__________________ 24
Bertron, Griscom & Co__________________ 19
Brown Brothers & Co_____________________62
Converse (A. D.) & Co___________________ 23
Fidelity Trust Co__________________________ 32
Fourth Street National Bank____________34
Girard Trust Co________ InsideFront Cover
Goldman, Sachs & Co___________________ 15
Guarantee Trust & Safe Deposit Co___ 33
Harper & Turner__________________________ 34
Harriman (W. A.) & Co__________________ 12
Hathaway, Smith, Folds & Co____________23
Integrity Trust Co________________________ 33
Land Title & Trust Co___________________ 31
Leach (A. B.) & Co., Inc_________________ 10
Pennsylvania Co. for Insurances on
Lives, &c______________Inside Front Cover
Philadelphia Trust Co_____________________32
Real Estate Trust Co______________________30
Real Estate Title Insurance & Trtist Co. 34
Reilly, Brock & Co________________________ 33
Smith (Edward B.) & Co_________________ 1
Third National Bank______________________31
West End Trust Co_______________________35




PLAINFIELD, N. J.
Plainfield Trust Co_______________________ 28

Page.
SCRANTON, PA.
Harper & Turner_________________________ 34
Hathaway, Smith, Folds & Co____________23
SEATTLE, WASH.
Canadian Bank of Commerce_____________ 52
Goldman, Sachs & Co_____________________ 15
Hathaway, Smith, Folds & Co____________23
SHANGHAI, CHINA.
Asia Banking Corporation________________ 57
SINGAPORE, CHINA.
Asia Banking Corporation________________ 57
SPRINGFIELD, MASS.
Estabrook & Co________ Outside Back Cover
Springfield National Bank___________ '___51
Tifft Brothers______________________________51
SYRACUSE, N. Y.
Harriman (W. A.) & Co____________________12
TAIWAN, JAPAN.
Bank of Taiwan, Ltd______________________ 59

READING, PA.
Harper & Turner__________________________ 34

TIENTSIN, CHINA.
Asia Banking Corpqration________________ 57

RICHMOND, VA.
First National Bank_______________________ 38
Hathaway, Smith, Folds & Co____________23

TOLEDO, OHIO.
Otis & Co______________

ROCHESTER, N. Y.
Schoellkopf, Hutton & Pomeroy_________ 61
Traders National Bank_________________ _ 48
ST. LOUIS, MO.
Caldwell & Co____________________________ 40
Goldman, Sachs & Co__________________ 15
Hanchett Bond Co________________________ 45
Hathaway, Smith, Folds & Co____________23
National Bank of Commerce______________ 47
SAN DIEGO, CAL.
Hunter, Dulin & Co_________ '__________ 46
SAN FRANCISCO, CAL.
Asia Banking Corp__________________________57•
Canadian Bank of Commerce_____________ 52
Goldman, Sachs & Co___________________ 15
Hathaway, Smith, Folds & Co____________23
Hunter, Dulin & Co_______________________ 46
International Banking Corporation_____59
Sanderson & Porter--------------------------------- 162
San Francisco Savings & Loan Society.. 46
SANTA BARBARA, CAL.
Hunter, Dulin & Co_______________________46

47

TORONTO, CANADA.
Ames (A. E.) & Co________________________ 53
Canadian Bank of Commerce_____________ 52
Dominion Securities Co_________________ 53
Wood, Gundy & Co_______________________ 24
UTICA, N. Y .
Citizens Trust Co________________________ 48
Utica Trust & Deposit Co________________ 49
VICTORIA, CANADA.
Ames (A. E.) & Co_________________________ 53
WASHINGTON, D. C.
International Bank_______________________ 39
Riggs National Bank, The________________ 39
WILKES-BARRE, PA.
Green, Ellis & Anderson_________________

19

WINNIPEG, CANADA.
Wood, Gundy & Co_______________________ 24
WORCESTER, MASS.
Worcester Bank & Trust Co______________ 48
YOKOHAMA, JAPAN.
Yokohama Specie Bank, Ltd______________ 53

BANKING

SECTION

A merican Bankers' A ssociation
49th Annual Convention, Held at Atlantic City, N. J., September 24 to 27, 1923

INDEX TO GENERAL CONVENTION PROCEEDINGS.
The Economic State and the Banker’s Role, Charles E.
Mitchell____________________________________________________ Page 69
Seeing Things, Melvin A. Traylor----------------------------------------72
76
Across the Atlantic, Fred I. Kent___________________________
“ What We See and What We Don’t See,” William A.
S c o tt_______________________________________________________
81
Banker-Farmer Team Work, D. H. Otis-------------------------------84
Education and Banking, Stephen I. Miller_________________
86
87
A Rising or a Setting Sun, James M. Beck__________________
Address of the President, John H. Puelicher_______________
91
Report of Executive Council_________________________________
S3
Report of Resolutions Committee___________________________
93
95
Message to Convention from President Coolidge----------------Report of Economic Policy Commission_____________________
95
96
Forum— “The Federal Reserve System” _____________________

Forum (Concluded)— Discussion by Craig B. Hazlewood----- Page 96
97
Discussion by George H. Bell______________________________
Remarks of Thomas H. Brougham_________________________
98
98
Remarks of Mr. McCarter__________________________________
Remarks of Andrew J. F r a m e .____________________________
98
Remarks of Elliott C. McDougal__ ; ________________________
99
Remarks of H. M. DeMott__________________________________
99
Remarks of Howard I. Shepherd___________________________
99
Remarks of O. Howard W olfe______________________________
99
Remarks of N. S. Calhoun_________________________________
99
100
Report of Nominating Committee______________________________
Installation of Officers_________________________________________
100
Chicago Extends Invitation for next American Bankers
Association Convention_______________________________________
101
Felicitations to Retiring President Puelicher__________________
101

The Economic Stage and the B anker’s Role.
B y C h a r l e s E. M

it c h e l l ,

President Tlie National City Bank of New York.

The American Bankers Association convenes this year with
business conditions of the moment the most favorable the
country has known since our entry into the great war, and
I do not except the periods during or those immediately
following the war. Every one of business judgment recog­
nizes and in fact knew at the time, that the conditions of
those years were abnormal, that we were not on a sound
and permanent basis, and that sooner or later a settlement
day was coming. The crisis of 1920 and 1921 was severe—
in fact, perhaps, the most severe in the history of the business
world, because practically all the world had shared in the
conditions that led up to it and was involved in the collapse.
In our own country the fall of prices was without a precedent,
because the state of inflation had been more general and the
disorganization of world trade and industry greater than
ever before known. As the war temporarily increased the
dependence of Europe upon this country, so the expansion
of our production to meet the temporary needs of Europe
made us more dependent upon European markets than we
had been before, and the ordeal of readjustment was inevi­
table. The manner in which the United States passed
through this ordeal, put its losses behind it, and regained
prosperity is something over which we may feel profound
satisfaction. Our productive powers are intact; they are
functioning efficiently; and our banking and financial system
is equal to any demands that may be laid upon it.
If we look for the explanation of this wonderful demon­
stration of the inherent strength and recuperative powers of
the United States, we will find at least 90% within our own
borders. The growth of our population, the natural, irre­
sistible impulse of our people to business and to progress,
and the diversity of our resources which makes us so nearly
self-supporting, account for the revival of industry and trade.
We are wont to pass over too lightly the tendency in this
country towards growth and improvement. Who would
have thought when the war ended, for instance, but that the
enlargement of our iron and steel industries, built up to
supply war demands, would have been far more than suffi­




cient to meet the requirements of our country for a decade
to come? Yet, iron and steel production this year has
been practically at capacity. Generally speaking, our lead­
ing lines of manufacture have been surpassing the records of
war-time production.
The fact is that our industries are
so diversified that they support each other, forming a great
circle of exchanges within themselves, and if kept in balance,
there is almost no limit to their development.
In the past five years we have been gradually breaking
away from economic dependence upon the outside world.
Before the war, we were largely dependent upon Europe for
a market for our agricultural products, but our margin of
surplus in these products is now comparatively small. We
no longer depend upon Europe for capital, but are able to
supply capital to them and other countries, and in so doing,
markets are opened for our manufactures. We have be­
moaned the fact that farm prices were low as against higher
commodity prices. The economic law is gradually taking
care of this discrepancy. Our industrial growth means the
growth of an industrial population and an increasing con­
sumption of farm products at home. The demand for labor
in the mills, mines and factories draws upon the farms so
long as farm prices are lower than in the industrial field,
cuts down farm production, and at the same time increases
the demand for products from the farm, and gradually, but
assuredly, the restoration of the balance between agriculture
and industry asserts itself.
The time has come to take account of the ability of this
country to establish an equilibrium, with the centre of
gravity within itself.
We continue to have a reasonable amount of export
trade. The opportunities for trade outside of the dis­
turbed areas of Europe are so great that our dependence
upon the latter is comparatively slight, and yet business
with those disturbed areas continues in moderate volume.
We take from them little that is essential to us, but what
they take from us is vital to them. The disturbance c
European trade results in developments elsewhere in th

70

BANKERS’ CONVENTION.

world. If Germany, for example, imports less of rat
materials, it follows that she will export less of finished
goods and that other countries, the United States among
them, will manufacture and export more. 'T h e cutting out
of any country, in whole or in part from the circle of world
trade, occasions a shock and a temporary break in the cir­
culation of products— just as the loss of a limb from the
human body causes a shock to the entire system— but just
as blood circulation will again establish itself, so world trade
will be resumed through new connections and eventually
be as vigorous as before. Thus, for instance, we see that
while in 1913 the share of the United States in all the im­
ports of Latin-America was 25% — in 1921, the latest year
for which figures are available, it was 45% , and in the seven
months of this year ending with July, our exports to LatinAmerican countries increased over what they were in the
corresponding months of 1922 by a gain of 21% . In those
seven months our total exports to countries outside of Europe
aggregated $1,172,000,000; and, mark you, there was
little difficulty in paying for those products, for their export
to us in the same months aggregated $1,680,000,000; that
is, they sold to us $500,000,000 worth of products in excess
of what we sold to them. Moreover, those importations
were only in small part manufactures; they were raw material
or food products, either non-competitive with our products
or required in addition thereto.
It has long been our custom to settle adverse balances in
South America, Asia, and elsewhere by means of our credit
balances in Europe, the latter making payment for the most
part in manufactures. With the decline of European trade,
we have been doing more business with the rest of the world
direct.
We are enjoying in this country to-day a real state of
prosperity, and we should be cognizant of it and instill so
far as we are able a spirit of confidence throughout business
America that will extend the ife of the prosperous period.
I am not arguing that permanent prosperity is assured to
us. That can no more be true of any people than of any
individual. I would urge, however, a recognition that we
have emerged from the earthquake of war and the tital wave
of depression that inevitably followed. So far as American
business as a whole is concerned, the war s over and s paid
for. The great body of indebtedness owing on that account
from foreign countries represents commodities sold years
ago, and while I am not advocating the wiping out of that
indebtedness, I say that if we never got a penny of it, we
would be no worse off than now. All that is behind us.
Let us appreciate and enjoy and prolong as we can the
prosperity of the present
But while we do enjoy the present, let us not be unmindful
of the difficulties American business must meet in the next
few years when condit'ons the world over, and especially
in Europe, become stabilized and their business and trade
become active. Our problems of the future wil1 arise, not
from a diminishing trade by other countries, but from their
recovery and reappearance as competitors, and we need to
prepare ourselves for the inevitable competition of other
countries, and especially European countries, in all markets
of the world, including our own.
Foreign competition is
not altogether without its benefits, for it acts to stabilize
the price level, to restrain the tendency to inflation, and to
keep industry in touch with production costs abroad, but,
to say the least, it is trying. I am not afraid of the ability
of this country to compete in the long run and to secure an
ample share of world trade, provided that we now recognize
that that competition is coming, that it is going to be
vigorous, and that to meet it we must loosen every restraint
to American industrial development to the end that in this
country there may be an efficiency which will overcome a
high standard of living and still make us able to do business
on the world’s price level.
We want enterprise relieved of the fearful penalties to
which it is now subjected.
We want a revision of the present income surtaxes that
dam the natural flow of wealth in the channels of wealthproducing enterprise and divert it into tax-exempt invest­




ments that mean State and municipal non-productive devel­
opment and waste.
We want economy in Government expenditures that will
bring relief from taxation as fast as it can be given.
We want the oppressive hand of the Government taken
off of business, and freedom given to individual enterprise.
We want the Government out of tne shipping business
where, at enormous cost, it has been proven, at least, that
such oppressive measures as the Seamen’s Act prevent any
profitable operation of an American merchant marine— and
we want the Government out of every other business because
every experiment in Government management demonstrates
its disqualifications in that field.
We want to see a chance given to our railroads, which
constitute the very arteries through which commerce must
flow. We want recognition given to the fact that these
railroads, although laboring under great difficulties, have
been handling the largest volume of traffic in the history o f
the country in a most efficient manner. You and I know
that the railroads cannot go on indefinitely financing for the
purchase of equipment and the improvement of their service
through borrowing 98% cents of their requirements and
obtaining 1% cents from stockholders, which is the record
of the past four and one-half years. You and I know that
railroad credit must be so restored that a portion of new
capital requirements may always be met by the sale of stock,
and to do this railroads must be allowed to earn profits that
will give their stocks a standing high enough to attract new
money in a competitive market. I view it as one of the
most important conditions for the future that the guarantees
contained in the Esch-Cummins Railroad Act shall be main­
tained .
We want, above all, an ever-increasing economic under
standing of the difficulties we must overcome.
There are certain conditions often regarded as favorable
which will actually work to our disadvantage under the stress
of competition. One of them is our excessive accumulation
of gold which is growing from month to month. Every
banker is familiar with the fact that any increase of gold
reserves tends to increase the expansion of credit, that a
general expansion of credit produces higher prices, and that
higher prices will weaken our position in world competitionThe economists and financiers of Europe, as you well know,
are confidently waiting for this influence to turn the balance
of trade against the United States, start a flow of gold from
our coffers to Europe, and produce the hoped-for industrial
revival over there. We have a very real problem on our
hands, gentlemen, in determining how to accomplish a re­
distribution of this gold without going through the usual
round of credit inflation, rise of adverse trade balances,
falling prices, and credit disturbance. The symptoms of
last spring were alarming, but the good sense of the business
community averted the danger for the time being. That
danger will, however, continue to overhand as long as gold
continues to flow into our already abundant reserves. We
are in a position where, with such national debt paymentsas are being made to us, favorable trade balances have a
real element of peril in them, and yet, at the same time, we
are not wanting unfavorable balances that would signify
industrial depression. W e are in a dilemma, the chief diffi­
culty of which is in maintaining price equilibrium and at the
same time maintaining trade equilibrium.
The discussions have been so widespread that I am sure
that there is no business man who does not understand that
the indebtedness of foreign governments to the Government
of the United States, to the extent that payments are made
thereon, is a factor having a bearing upon the trade situation.
Every payment involves the creation of credits in this coun­
try which can be accomplished only by shipping gold or
goods to us. The appearance of a government in the
exchange markets as a buyer of exchange on the United
States means competition for means of payment here, and
involves higher exchange rates and consequent higher prices
on American products to foreign customers. These condi­
tions arising out of unbalanced international relationships
caused by the war, serious as they are, constitute no reason^

BANKING SECTION.
why we should not go on with regular business and with full
confidence, but they do call for the watchful attention of
bankers and business men. They emphasize the impor­
tance of the development of a super-efficient commercial
condition throughout the country that we may overcome
the obstacles which American trade must inevitably meet.
They emphasize the need of a greater degree of harmony in
industry and a greater understanding of the advantages to
both the employer and wage-earner of that production effi­
ciency which is at once the guarantee of low costs, of com­
mand over markets, and of wages of high purchasing
power.
If weight be given to your words and mine as those of
bankers in urging this doctrine upon business men and legis­
lators, it is essential toat we recognize that “ those who live
in glass houses should not throw stones,” by which I mean
that while calling for a higher efficiency elsewhere, we should
see to it that a higher efficiency exists in the banking struc­
ture of the United States. It is our responsibility to place
the business of banking in this country upon a plane paral­
leled by that in no other, and this can be accomplished
only as you and I as executives in our individual institutions
administer with understanding, with conservatism, and
with courage.
It is a great opportunity that we have each year in these
conventions, of exchanging views, of letting each other know
something of the problems that we are individually meeting,
and how we are answering them, and if I may be permitted
to do so, I would like to take this opportunity of telling
you some of the things we have been thinking about lately
in our institution.
One of these is the question of reserves against contin­
gencies. The business of commercial banking is, by its
very charcter, a business of risk. There is scarcely an opera­
tion that we perform in which risk is not inherent and
continuing, and so long as this is so, it cannot be con­
servative to carry the operating profits of a month to the
Surplus and Undivided Profits accounts until some measure
be taken of the risk of that month’s business and a reserve
directly applied for it. It has been an interesting study to
us to measure that risk and to feel our way toward obtain­
ing a standard yardstick for it. Unlike the insurance
companies, we have no actuarial table to turn to. The losses
sustained by the banking institutions of the country over a
given period, even if this information were available, would
serve as no more than an index because of the differential
arising out of dissimilar policies and management. But
it has seemed to us that under sound administration, a
bank that is taking reasonable risks in its endeavor to assist
commercial development, will find.that the risk increases
with the degree of inflation existing, and decreases with the
degree of deflation existing. How, then, can one deter­
mine the measure of normality, and what yardstick can
be applied to determine inflation or deflation? 'N ow , in
our institution, we have made an assumption which is sub­
ject to change, for experience may show it to be very wrong,
that conditions are normal when the member banks of the
country are borrowing from or discounting at the Federal
Reserve banks in the amount of $500,000,000, and that dis­
counting above or below that figure reflects a condition
of inflation or deflation. On the theory, then, that the risk
of banking varies as these borrowings increase or decrease,
we are establishing a reserve for losses or contingencies, set
aside monthly against current earnings, and based upon the
banks’ average commercial loans and discounts, increasing
our percentage so applied for each unit of $100,000,000
increase or decrease above or below the normal figure of
member bank borrowings. Now if it be a sound principle
that the business of commercial banking involves a risk that
will inevitably be met, I wonder if it is not an opportune
question for the division of the American Bankers Associa­
tion having to do with taxation to raise with the Federal
authorities as to whether commercial banks should be
called upon to pay full taxes upon current operating profits,
or whether it is not in the interest of conservatism that
banks be allowed to set up current reserves against current




71

operations, paying their taxes upon the net figure. It seems
to me the Government has it in its hands to thus foster a
conservative movement in bank operation.
And, again, in this regard, let me speak of the item of
bank buildings and fixtures, which item, as shown by the
reports of the Comptroller of the Currency for the year 1922,
for all national and State institutions, runs to the enormous
figure of $1,079,000,000, an item equivalent to nearly
one-sixth of the combined items of capital, surplus, and un­
divided profits. The bank buildings of the United States
represent probably the highest development in American
architecture. They are costly structures. But it is sound
that the banks of this country should be housed in buildings
that psychologically stimulate the feeling of strength and
stability in the minds of the people and lure thereby into
channels of usefulness currency that might otherwise go
into hiding. The outlay is justified. And yet, is it not
slightly inconsistent that banking institutions whose liabil­
ities are quicker than those of any other division of com­
merce should carry with slow depreciation an item of this
character, of such unusual size, and which is recognizedly
the slowest of all assets? I am wondering whether we
should not all be depreciating our bank buildings more
rapidly and whether our Government should not perhaps
be fostering such a conservative development by permitting
or, perhaps, even forcing us, through tax regulations, to a
more rapid depreciation plan than we are now following.
Another problem to which I personally feel there may be
directed profitable discussion is that of the degree of liquidity
properly to be maintained by our banking institutions, and
how to measure it. Cash, discountable paper, Government
obligations, and in large measure, deposits with the Federal
Reserve Bank, are unquestionably liquid assets. Brokers’
demand loans are quick, and a percentage, at least, of the
market value of the bond account is quick, and, of course,
a part, differing in every institution, of the loans and dis­
counts that are not eligible for rediscount, are quick. But
to what degree of liquidity should we be working? I feel
that each executive should carefully analyze the situation of
his own institution in this regard, and that we should be
helpful to one another in determining the ratios in respect
to this important subject that spell sound banking.
The subject of bank officers’ remuneration is one that has
been of marked interest to me. If the banking profession
is to prove inviting to the best commercial minds of the
country, it must obviously compete in remuneration with the
rewards that come to leaders in other commercial enter­
prises. The opportunities of gaining an insight into com­
mercial developments and of knowing something of the
profitable nature thereof, which are inherent in the bank
executive’s position, and the possibilities of becoming
privately interested financially in profitable enterprises
through acquaintance, have presented an allurement to
men to enter the banking profession. But these very
opportunities, when exercised, have resulted in not a few
cases in a lowering of the standard of the profession, for
personal interest is bound to cloud the judgment of the bank
executive. His interests should be first and foremost those
of his bank. His thought and his every endeavor should be
in the creation of the height of economical administration
and service to his customers, regardless of personal interest.
His compensation should be through, rather than by virtue
of, his position. And so thinking, we have in our institu­
tion established a plan by which, out of the balance of
current earnings, after establishing reserves covering the
risk in current business, and after allowing for liberal interest
on the capital in use, as represented in the items of capital,
surplus and undivided profits, a percentage is each month
set up in a management fund for periodical distribution to
those officers who have contributed most effectively to the
bank’s development and profitable progress, and for recog­
nition of significant achievement. Our plan is in its experi­
mental stage, but I am confident that while resulting in a
direct benefit to the bank executives, it will react in the
higher efficiency of the institution and in larger returns to
the shareholders.

72

BANKERS’ CONVENTION.

I speak of these problems as samples of those that we have as bank executives, deserve the confidence that the public
pondered over in our institution and a free discussion of will inevitably place in us, and let us be so diligent in our
which in such a convention as this may send us back home study of the times that our advice may be sane and sound.
thinking more deeply on how to increase the efficiency of And let us, as we return to our homes, impress upon the
banking in this country to the point where our word on many within our influence that we have emerged from the
efficiency among our clients may be more deeply respected, eddies of the war into the calm harbor of the moment
more rigidly followed. The bankers of every country are through which we can safely sail without fear of storm, but
regarded as advisors. In one way or another, they meet and let us warn that we are headed for the open sea where,
wrestle with the problems of varied industries. They see if our ship would safely sail, we must be prepared for the
the economic picture in more completeness than can the powerful rollers of world competition, and that now, in this
man in a single trade. They have a comprehensive view period of calm, is the time for us to see that the ship is
of the movement of goods. It is their business to measure freed of barnacles that retard its progress, that it is caulked
wealth. They will ever be appealed to for advice. Let us, and made ready, and that the crew is trained for service.

Seeing Things
By M

e l v in

A. T

raylor,

President of the First Trust & Savings Bank, Chicago.

The cover page of “ International Banking and Commerce”
for July carried the following gloomy statement and hopeful
forecast: “ With blank walls on either side and ahead Man
has arrived at the turning of the road. The sun is shining
obscurely through a mist. His ears are roaring with a babel
of voices shouting directions in myriad languages. Which
way shall he turn? M ost of those who seek‘ to guide him
cry warnings. Strangely, the still small voice is the voice
of courage bidding him be brave and confident. Gradually
that voice is making itself heard and soon Man will turn to
the right. The way will take him into the fields of peace
and prosperity and unparalleled progress at last.” A short
time after this publication came to hand, the esteemed
Editor of “ Commerce and Finance” of New York, Mr.
Tlieo. H. Price, made an address before the Cotton States
Merchants’ Association in Memphis entitled “ Roaring Lions
on the Hills of Business Difficulty.” He took for his text
a passage from Bunvan’s “ Pilgrim’s Progress” descriptive of
Christian’s ascent of the hill of difficulty, of his meeting with
the two individuals, Timorous and Mistrust, who were
running madly down the hill, and who in response to his
nquiry as to their action called his attention to the menacing
roar of lions ahead. Although they endeavored to induce
Christian to join them, he proceeded on his journey alone,
finally to discover that the lions were safely tied and could
do him no harm.
M r. Price then proceeded to call attention to the seemingly
innumerable present day prophets who are now, and have
been for months, energetically crying of impending disasters,
political, financial and moral. His ridicule of some of these
prophets set me to thinking and I recalled an old text learned
in Sunday school days, which ran as follows: “ And your
sons and your daughters shall prophesy, your old men shall
dream dreams, your young men shall see visions.” Al­
though I had been one of those prompt to view with alarm
many of the signs of the times, it occurred to me that maybe
after all things were not as bad as they were pictured, and I
began earnestly to try to discover just why all the agitation,
the unrest, the turmoil, the bickerings and the arguments.
In short, I wanted to discover if I could, in the language of
the street, just what all the “ shootin’ ” was about. M y
quest for the answer has led me pretty definitely to the con­
clusion that the greatest part of our trouble is purely mental.
In other words, paraphrasing the language of Joel, “ we are
given to dreaming dreams and seeing visions.” In short,
we are seeing things.
A hurried glance through the pages of history for the last
five thousand years will easily convince us that this is not a
new malady. Each civilization has had its own false
prophets, foolish dreamers, and visionaries. N o step ahead
has ever been taken, either in religious or political thought,
except by the disregard of continuous warnings that there
is lurking just beyond certain disaster which will engulf
mankind and wreck civilization— all due to the perversity
of the times. Fortunately for the race, these calamity
howlers have been more often wrong than right. The path
of progress is always beset by Doubting Thomases and by




those who do not believe in change, who are afraid of the new
and hold fast to the old.
Certainly, as regards our own country, we are warranted in
looking beyond the shadow and examining some of the
ghosts of disaster which seem to frighten us now. To-day
capital shrinks from its burden of taxation and rails at the
restrictions of Government regulation. Labor clamors for
shorter hours, shrieks for better working conditions, and
demands more pay. The farmer, exploited by politicians,
and suffering from the unwise activity of earnest, but illadvised friends, is rampant in his advocacy of political
fallacies which would mean economic hari-kari for the
country were they to prevail. While capitalizing the woes,
real or imaginary, of each group, the Demagogue is busy
riding into power on the protests or approval of his particular
faction, each and all of whom are prophesying, dreaming
dreams, and seeing things.
After all, is capital unduly handicapped, is business, com­
merce and industry too severely restrained, is labor as a whole
crippled by unsanitary working conditions or unwholesome
home surroundings, does it serve too many hours, is it too
poorly paid, is agriculture completely on the rocks, does it
languish because of legislative neglect? In short, what is
the trouble if there is real trouble, and who and what is
responsible for the conditions whatever they are? Cer­
tainly none of us would claim or be able successfully to main­
tain that things are now as they were a decade ago, any more
than they were then the same as twenty-five years earlier or a
century before. Fascinating as is the memory of “ the good
old days,” would any of us stay the hand of time and reverse
the wheels of progress for a return to the realities of those
days?
Is it not possible that the Nation’s mental unrest is largely
a natural result of the evolution which is inevitable in all
progress and a certain accompaniment of accumulating years ?
I realize that it is difficult for us to accept new theories.
With temerity we cling to the proven and tried, and we
-resist the untried. With the faith of the orthodox believer
we are prone to denounce as a heretic the protagonist of
change. We delight in kicking against the pricks. Yet in
all ages progress has only been achieved through the har­
nessing of the powerful contending forces of the times, and
history is largely a record of a compromise of the conflicting
minds and powers of the ages.
Should we despair because for the moment we seem to be
at each other’s ears, because many things are out of joint,
and strife and discord seemingly the rule of the day? I
don’t think so. However much we may not approve of
many of the tendencies of the times, and disapprove as we
may of much of the propaganda of the hour, I believe we
shall find upon careful and unprejudiced examination of those
conditions we are most ready to criticise, much that is
encouraging and hopeful. I doubt not that a correct ap­
praisal of our entire situation as a Nation will convince us
that this is the best day this country has known and that the
promise is bright for the future. I know this is a bold state­
ment, subjecting me to the possible indictment as a dreamer

BANKING SECTION.
of dreams, a false prophet and of seeing things myself— but
let us investigate.
The great contending forces of to-day are the same that
have appeared in all the struggles of the past. Modern
historians have shown us that the great struggles of the past
have turned more upon the material welfare of the individual
than we were wont to believe. This has been true even
when most of the public statements dealt with the great
fundamental theories of life, such as personal liberty, free­
dom of action, the pursuit of happiness. In other words,
under our own form of government , with the chief civil
rights of man guaranteed by our Constitution, political
strife of necessity concerns itself primarily with economic
questions, with the struggle between the masses, those who
labor with their hands and brawn and who possess little,
and the classes, those who let us say labor with the intellect
and possess much. Reduced to its last analysis, does not
all the topsy-turvy, turmoil and perplexity of to-day centre
upon this one supposed conflict of interests. That there is
actually not a conflict, that the welfare of the one is insep­
arably linked with the success of the other, is of little con­
sequence. So long as either party feels that there is an
unequal distribution of the rewards, the struggle for domin­
ance will be as geniune and fierce as though the issue were
real. If my premise is correct, then I conceive it to be the
duty of all of us earnestly to seek the facts, calmly weigh
the evidence, and without passion or prejudice conscien­
tiously endeavor to bring harmony out of chaos and unity
out of conflict. Because obviously this result, so necessary
for the peace and happiness of our people, cannot be achieved
through crimination and recrimination or in a spirit of
resentment and distrust.
To-day capital seems to feel and openly charges that it is
being unjustly discriminated against by class legislation,
unduly hampered by Government regulation, and unneces­
sarily burdened by inequitable taxation. Admittedly
there is an element of truth in each of these statements)
but may we not well inquire if, on the whole, invested capital
ever enjoyed a larger return than during the past decade,
omitting, of course, the deflation losses of the recent period
of liquidation? Granting the humiliation to management
of such abject surrender to class legislation as characterizes
the enactment of the Adamson bill, has there not been as a
direct result, in part at least, of this law compensating
legislation which has placed the railroads of the country
on a possibly sounder basis than they have been for a quarter
of a century ? Though we may justly condemn the shotgun
methods employed at the time of the Adamson enactment,
do we gain anything now by continually harking back to
that incident, if in the meantime the economic injustice
has been righted, and both the railroads and their employees
are more prosperous than before? Is it not to the balances
and checks of legislation that we must look for equality
under the law? Clamor for reduction of freight rates just
now is most insistent. It furnishes one of the choice morsels
proffered by office-seekers who know and care little of what
the result of such action might be. Granted that some
adjustment may be necessary, those who have given the
subject any thought know too well what the result of hori­
zontal reductions will be. If horizontal reductions took
place, one of two or three results would speedily follow:
either a reduction of wages, which could only be accom­
plished at the end of a strike, paralyzing transportation, and
therefore not likely, or if reductions were not achieved,
the result would be such an impairment of the earnings of
the roads as would destroy their credit and lead to bank­
ruptcy. This would cause serious loss to investors, a cer­
tain wiping out of capital, and a general reduction in the
purchasing power of the community, all of which in turn
would bring us directly to government ownership with all
that that means in inefficient management, poor service,
and increased taxation. If those who clamor loudest for a
curtailment of railroad revenues will only realize the ramifi­
cations of our transportation system, the strength it adds
when prosperous to the purchasing power of the com­
munity and to the profits of business in general, they will




73

be slow to insist upon a policy which will cripple or handi­
cap the great carriers of the nation’s commerce. It is the
duty of the railroads themselves, of all public speakers,
writers, and of the press, to point out continually and
faithfully these plain truths to the public.
Another group of our citizens, wise, cautious, and sane,
who may be seeing things, are those who believe that the
country is headed toward financial ruin through debt and
taxation. No one will deny that these items are assuming
staggering proportions, but when we examine the other
side of the ledger, is the situation as bad as it appears?
Have we not forgotten the growth of the country? Do we
properly appreciate the change that has taken place from the
forest and pasture of one hundred and fifty years ago to the
agricultural supremacy of the last quarter of the nineteenth
century, and again to the industrial achievement of the
present day. One hundred years ago government was a
simple matter. The population was small and thinly scat­
tered over great areas. The pioneer was busy subjugating
the new lands, building homes, and bringing the natural
resources of the country under his dominance. The expense
of administration then was small. But as the population
increased, as cities and towns were built, as the work of the
pioneer was largely finished, and as great industrial centres
grew up, the regulation and direction of our daily activities
became more and more complex and government became an
ever-increasing and expanding function and a consequent
growing charge. Statistics are overwhelming as to the in­
crease of our national wealth and national income. Our
mounting debt may be tremendous, the taxes we pay may be
burdensome, but is the debt out of proportion to our wealth
and our ability to pay? For what, after all, are our debts
created? Those of us who have been taught prudence and
caution in the matter of borrowing money usually say that a
debt should not be assumed except for productive purposes,
but if we Avill carefully analyze our own case we shall doubt­
lessly be forced to admit that some of our most satisfying
possessions are those acquired through the purchase of non­
productive property. N o one would maintain that a home
is a liquid or remunerative asset, and yet it’s the ownership
of a vine, a fig tree, arid a roof all our own that gives a sense
of security and pride and a jo y that nothing else can produce.
Home ownership is eloquently advocated as a panacea for
many of the ills of the present day, and yet we know that
this end can only be accomplished in any large way through
the assumption of individual debt. The one safe guide for
the contraction of such a debt is the reasonable assurance
of an income which will meet the charge of the loan and
ultimately accomplish its liquidation.
If we can justify individual expenditures for non-pro­
ductive purposes for the personal welfare of the individual,
does it require any violent wrench of economics to find a
warrant for the expenditure in behalf of the community
for community welfare? Excepting the war debt, which
was gladly and willingly assumed by all, I think it is safe
to say that a large part of new securities emitted in recent
years has been of a municipal character. Has the issue
of these securities gone too far, and has the purpose for
which the money has been expended justified the debt?
A writer recently contributed an article to a Western paper
entitled “ What’s Eatin’ Us.” He rightly, I think, attrib­
uted our panic of seeing things to a lack of proper appre­
ciation of the blessings we enjoy. Among other things
he said: “ To those who remember the time when $40 an
acre was considered an outrageous price for land in eastern
Iowa, a spring seat on a farm wagon a luxury, and the
possessor of a ‘top buggy’ a nabob; when there was scarcely
a furnace or a bath tub in the entire State of Iowa; when the
only refrigerators in town were those in the butcher shop;
this age, when only only has to touch a button to get a light
with the strength of a hundred candles, when you turn one
faucet and get cold water and turn another and get that
which is hot; when houses without bathrooms and furnaces
are exceptions; when schoolhouses in small towns are better
appointed than State capitals used to be; and country
children are taken to and from school in auto buses, and city

74

BANKERS’ CONVENTION.

schoolhouses are not considered quite up to date unless
equipped with a swimming pool; when workmen drive to
their daily tasks in gas cars; and there are enough autos in
the State of Iowa to take every man, woman, and child in
the State out for a joy ride at the same time, it seems as
though some genii had rubbed a modern Aladdin’ s lamp and
that we are living in Fairyland. The truth is that these
things ‘handed to’ the young people of to-day are the results
of toil and thrift— the subjugation of a wilderness— by men
and women, who asked only a chance to try their strength,
and to the triumphs of science and the discovery of truth.
To this pampered generation these facts, the toil, the
sacrifice, the hardships and privations are unknown. The
rich heritage is accepted as a matter of course— often without
so much as a thank you, and frequently with complaint be­
cause there is not more.”
Who of us now would willingly return to the conditions
of fifty or one hundred years ago? Much of our recent
debt has been for good roads. In most parts of the country
these cost in the neighborhood of $25,000 per mile but they
add immediate increased value of $10 to $25 per acre to
every foot of land they traverse, and they certainly add
increased dollars to every item produced on farms bordering
or near them, to say nothing of the comfort and happiness,
safe and easy traveling over them brings to the rural com­
munities. Would we stop building roads and would it be
a good investment to do so ? As the writer just quoted says,
borrowed money has gone into the erection and equipment
of splendid school buildings in city, town, and country.
Would we like to go back to the little red schoolhouse with
one window, an oil lamp, a single blackboard, and a threefoot rule, which might be used for more than one purpose?
We would not, and we will not. A very large sum has
been and is being borrowed by the farmers of the country
to pay existing debts, to purchase more land or to improve
and equip the property which they already own. Would
we have it otherwise? If national life is to survive and be
happy— and it will— the homes of the city, the town, and
the country must shelter in pleasure and comfort a con­
tented people. This can only be done by capital invest­
ment that cannot be made, with rare exception, in one
lump sum from accumulated savings. We don’t hesitate
to approve the borrowing of money by our customers,
firms or corporations for the purpose of plant expansion
and to meet the increasing requirements of their growing
business. W e purchase and freely distribute the securities
of our railroads and utilities for the construction of mag­
nificent stations, terminal facilities, and business homes,
many of which are in themselves decidedly non-productive.
W e measure the soundness of these enterprises by the
yard stick of an ample excess of value over debt incurred >
and a satisfactory income, to provide with reasonable
certainty, for the service and amortization of the loan
If we applied the same yard stick to the municipal and
farmer debt, which are causing many of our citizens such
concern, is it not clearly and easily to be seen that these
debts too are equally justified and secured? Most of our
States have very salutary laws regulating the issuance of
securities by the States themselves and the subdivisions
thereof. These are based upon sound principles of ample
property values and wise tax limitations. The difficulty is
that we cannot realize that each increase of a million popula­
tion adds just so many units of additional demand for each
foot of soil and homes for human existence. We are not
willing to concede that the community is justified and should
capitalize a part of that appreciated value for community
welfare. The farmer who borrows $50 per acre upon his land
is merely capitalizing a part of the value which has accrued
to him through the ever-increasing demand of an increasing
population for the purpose of contributing to his individual
and family comfort.
There is, however, another element which robs this bogy
of increasing debt of much of its alarm for me; that is, that
all of the securities issued are being purchased by our own
people. We are simply borrowing from our neighbors and
paying back to them. The increasing wealth of the nation




is being spent in making the nation a better and happier
place in which to live. If we were impoverishing ourselves
by the sale of our securities to others and the payment of
large sums as a charge thereon to foreign peoples, we might
well be disturbed. But the debt is our own and we in turn
own it, and better still we are not borrowing to make these
security investments. They are being made from accumu­
lated earnings, from the savings of the people, and still are
not absorbing all these savings or accumulations, as is
witnessed by the constant increase in savings deposits
amounting to more than 10% annually, to say nothing of
the tremendous increase in current bank balances. We are
rapidly becoming a nation of investors and property owners,
and cry aloud as alarmists may, I do not believe you can
make bolsheviks of such people.
To those of our friends who see the ghost of Government
regulation and supervision threatening the ruin of our free
institutions through the destruction of individual initiative
and personal ambition, I recommend a closer study of our
form of Government and the unavoidable development
which must come from the growth of a country under our
system. In the old days when people were busy with
pioneering they had little time and less concern for the
conduct of those in other lines of business than their own.
But when the job of pioneering was finished and the country
became thickly populated, with its congested centres, with
more general education and better facilities of communication
they began to study economic questions, to consider them­
selves and their business in relation to other people and
other business and promptly to demand what they conceived
to be their privileges and their rights. That part of the
population known as rural and engaged largely in agriculture
discovered that its products were entering into the commerce
of the nation and even finding their way into international
trade. They also found that enterprises which they had
been led to support as the “ infant industries” of the Common­
wealth had become full sized giants, not always too careful
in their domination of home markets, to say nothing of
their activities in markets abroad. Some of these industries
have not always acted wisely, and it may be questioned if
some of them have yet learned a proper understanding of
the influence which their actions have on public opinion.
It is questionable if some of them do not continue to do from
day to day perfectly proper and legitimate things in a
perfectly foolish and bungling way. Under any circum­
stances, the result of this awakening of the public mind was
a growing restlessness and dissatisfaction with things as
they were and an insistence for what the public conceived
to be its right or protection. Thus began the growth of
committees and commissions to investigate and regulate.
We may not approve any character of Government super­
vision of business. We may resent much of the present day
Government activity as unwise and unnecessary, but my
guess is we are likely to see more, rather than less, in the
future. M y belief also is that such activity will not neces­
sarily wreck either Government or business. I believe this
because of the counter-balancing influences which are certain
to hold such regulations in proper restraint. We must not
forget that the power of the Government is with the people,
with those who have the votes, and as these become more
and more to be the owners of an increasing amount of the
nation’s wealth they will see to it that that wealth is not
confiscated or unnecessarily disturbed.
Yet another group who are seeing things in our present
situation, and have been seeing them in every situation for
a quarter of a century or more, is the so-called labor group.
Just what constitutes this group I have never been able to
determine. Presumably, it is those who labor with their
hands in manual work. It apparently is not the clerks and
others who combine their intelligence and their muscle in
the pursuit of their daily bread. Whoever this group may
be, is their protest justified? Were their working conditions
ever so good? Was there ever a time when so much money
had been spent to improve their sanitary surroundings, and
the safety and comfort of their place of business? Were
their hours ever so short, their day so properly divided in

BANKING SECTION.
equal proportions for work, recreation, and rest? Were
they ever so generously and well paid? It seems to me
there can be but one answer and that is in the affirmative,
to all these queries. Yet the laborer asks long and loud for
a living wage. Just what that wage is I do not know, and
I have never seen a satisfactory answer. Obviously, it
would have to depend upon the standard of living each
particular group insists upon maintaining. Just what that
standard is none of those interested seem able clearly to
define. Personally, I believe it should be the best that can
be maintained upon the highest wage that can be paid con­
sistent with the general conditions of commerce and industry
as a whole. Anything more or anything less is unfair alike
to capital, labor, and the public. It has been so often
pointed out that it seems useless to state again that the
effect of a wage increase in one industry increases the cost
of living to all those in other industries who purchase the
products of the factory that has granted wage increases
and that the cycle of increasing costs thus once begun can
only end in bringing the cost and the price of all products
to a point where demand is curtailed, activity is restricted,
and business suspension is rendered inevitable. If labor
will keep these facts in mind, and if those in charge of capital
in productive enterprises will consider the public in the
pricing of their products, it may be that a fair distribution
of profits will be brought about, but so long as human nature
is as it is, so long as the law of supply and demand is in any
way suspended or abridged in its effect upon prices, so long
as the incentive of business is profits and the concern of
labor is wage, I believe we may expect our perennial periods
of conflict and strife; but again I do not despair because I
believe that the force of the community of interests of the
two will ultimately lead them to a sounder basis of relations.
The most promising sign of the coming of that day is,- I
think, to be seen in the ever increasing number of employees
who are acquiring stock in the concern by which they are
■employed. This should be encouraged by the management
o f capital and the leaders of labor. With its accomplish­
ment will come on the part of labor undoubtedly a voice
and responsibility for management, and on the part of those
representing capital it is to be hoped a fuller appreciation
o f the welfare of their employees.
Probably the largest, and certainly the most thoroughly
advertised, group which has been seeing things in recent
years is composed of those who have sought and are seeking
to exploit and capitalize the misfortunes of those engaged in
agriculture. That the conditions of that industry are bad
is unhappily true, but that they were never as serious as
pictured and that they are now greatly improved is equally
certain. Nevertheless, the harm done by the publicity
given to the condition of those engaged in agriculture is
almost immeasurable, and all of us are to some extent
responsible, because in some way most of us have contributed
to the farmer’s feeling that he is not so much the victim of
the circumstances of his own industry, as of the machinations
o f all elements of business, finance and Government. As
bankers, we contributed to this feeling when we sought to
blame our demand upon the farmer for payment on the
cruel activities of the Federal Reserve Bank and the Federal
Reserve Board. Our cowardly action in failing to tell our
farmer friends the truth, which was that we had loaned
too much money and were hard up and needed to collect,
rather than that we were being made to do so by some
Governmental agency, is bearing abundant fruit to-day,
and we have ahead of us a tremendous task to correct the
false impression for which we are responsible. The business
man and the merchant in the city, and in the small country
town, contributed his part to the same mis-information given
to the farmer. It evidences a queer twist of the human
mind that permitted those of us who knew the facts to assist
in the assassination of the most important factor in our
financial and commercial life. Naturally, the politician
was not slow to pick up these stories, for which he had such
excellent authority and to which he added some charges of
his own, for which he had no basis. It is easy to understand
how he succeeded in inflaming class hatred, and in convincing




75

the farmer that he was the goat of the universe. No wonder
he is on the war path, little wonder he is seeing red, and
equally it is not difficult to understand why some of us in
part responsible for the situation are now seeing things of
dire consequence to come because of his activity. The real
facts, as we know, and as all those who have studied the
situation know, are that the farmer like all others engaged
in business activities prospered tremendously in the period
from 1916-1920. Like all of us, also, he had speculated in
every way that it was possible for him to take a chance.
He was imbued by a feeling, common to the rest of the
population, that the boom would never end. He felt that
the price of products would continually go up and that
there would be a perpetual shortage of the things that he
could produce. To meet this increasing demand he bought
liberally of tools and equipment and reached out for yet
more land. For this land and equipment he incurred debt
just as his compatriot, the business man, incurred debt for
building and inventory; and when the inevitable slump came
and values evaporated he lost just as the business man, the
banker, and everyone else lost. The only difference was,
his losses were promptly advertised and magnified to such
an extent that he came to feel that he was the only loser in
the gamble of prosperity. N o one told him of the losses and
financial wrecks of business and industry. I doubt if he
has ever been told that during 1920 there were 8,881 bank­
ruptcies, with liabilities aggregating $295,121,805; in 1921,
19,652 bankruptcies, with liabilities aggregating $627,401,883; in 1922, 23,676 bankruptcies with liabilities aggregating
$623,896,251; and for the first seven months of 1923, 10,955
bankruptcies with liabilities aggregating $295,145,256. On
the contrary, he was repeatedly told that the Government
had neglected him, that he had no proper credit facilities,
that no adequate provision had been made for his marketing
machinery and that all around he was the nation’s one and
only outcast. Fortunately, during most of this crisis his
principal organizations have been led by men of unusual
intelligence and sound judgment. These have faithfully
pointed out that his predicament was not due to a lack of
credit but to too much credit of probably not exactly the
proper kind. Just as unfortunately, however, the sound
gospel of these leaders did not travel with the speed or
conviction of the mouthings of the demagogue, hence much
of the good they might have accomplished was destroyed
and they themselves in many instances were accused of
selling out to the “ interests,” whatever the “ interests” may
be. Herein lies one of the paradoxes of the universe.
Falsehood and error make the headlines, while truth and fact
are lost in the maze of half-point type.
Human nature
makes it so. Until the beauties of truth are as fascinating
as the romance of fiction, honesty will lag in its race with
dishonesty and the political liar will triumph. The latter
is having his day now, and if he were to become numerous
enough and had the courage to carry out his threats he would
have his day largely at the farmer’s expense. Fortunately,
there will not be enough of him to make a working majority,
and at heart he is a moral coward.
I have no fear of a wave of Bolshevism or Socialism en­
gulfing the agricultural community. The farmer is a
capitalist himself. He may not think so but he is. In
many instances he owns more property than do some of the
men he denounces as his capitalistic enemies. He may be
in debt but he will pay out, and when he does no one is
going to get what he has except for a proper quid pro quo.
Where he has been see ing other things, he is now beginning to
see the American eagle. With the marketing of this year’s
crop he will take another good slice off his debt and have
some money for the things he wants to buy. Like other
business men, he has learned some expensive lessons. He
is watching his expense account and keeping close to shore.
He has had the benefit of certain legislation which will
materially assist him in his financial and marketing opera­
tions. In this matter he is entitled to, should have, and I
hope is receiving the fullest possible co-operation of the
banker in his own community and in the larger centres as
well. That there will be failures among farmers is just as

76

BANKERS’ CONVENTION.

true, but no more certain, than that there will always be
failures among business men; that there will continue to be
periods of distress for entire communities of farmers, due
to the effects of the elements in those sections where one
crop only is raised, is just as certain, if one-crop methods
are pursued. It is an exemplification of the old adage of
having all one’s eggs in one basket. It has been the un­
doing of many an individual and many a business. The
remedy, as far as the farmer is concerned, is obvious and
well known— diversification.
In intimating that others are seeing things you may
properly indict me for the possession of cross-eyed vision
myself. If so I shall enter no plea of confession and avoid­
ance. Fully conscious of the mental, political, social, and
moral unrest of the times, I am not, and I hope may not be
accused of being a blind optimist who refuses to admit any
problems to be solved. Rather do I believe, and prefer to
have you consider, the perplexities of the hour as the natural

accompaniment of a growing and maturing Nation. I
have no fear for the future of the Republic. I do not mean
that there will not be, as there has always been, times and
conditions like those through which we are now passing. I
am certain that we shall always have, and perhaps in in­
creasing numbers, those whom it is easier to denounce as
radicals than to answer in terms of their own language,
but this Government is not a thing apart, it is constituted
entirely of you and me and company. We have an equal
voice and an equal responsibility with every other citizen
in Avhat the Government is and does. That its policies from
time to time will change is only a natural response to growing
and changing conditions. W e would not have it, and it could
not be, otherwise. But I have an abiding faith that in form and
substance it will endure, and that life under it will be happy,
contented, and prosperous as long as we, who are the Govern­
ment, govern wisely, sanely, and justly. It cannot fail, because
you and me and company cannot admit that we are failures.

Across the Atlantic
By F red I. K e n t , Vice-President, Bankers Trust Company of New York.
There are those in America who really believe that we
are self-sufficient and if we are willing to live without those
things which come from other climes and countries that
to-day constitute a great part of our daily requirements and
if we would do without the art and science of other peoples,
which are so necessary to broaden our own point of view,
we might be said to be self-sufficient.
But is there any American who would be willing to accept
such a condition himself and be deprived of the multitude
of foreign conveniences and luxuries that now take such
an important place in his life, to say nothing of the foreign
markets which absorb his surplus production directly or
indirectly ?
There are certainly no live Americans who would agree
to such a situation and surely our people have never sought
to encourage the belief that they are dead ones.
There are also those who would have us believe that
Europe is a hot-bed of dishonest politicians and that all that
the European nations desire of the United States is American
money and that even at great sacrifice to ourselves we should
therefore take no part in the present crisis. If this were
true, it is conceivable that it might be to the interest of the
United States to continue to hold aloof from Europe until a
different attitude was manifest, but is it true?
In every country in Europe there are undoubtedly dis­
honest politicians, even as there are in America, and it is
true that such politicians endeavor to mislead the people
for their own purposes. It is unfortunately a fact that
everywhere such men do meet with more or less temporary
success in fooling the people, even though at sometime or
another such gullability is found to be expensive and has
to be paid for. But alongside politicians of this stamp in
every country are men in the public service who are honor­
able, patriotic and high-minded and who are striving to the
best of their ability to accomplish those things necessary for
the good of their peoples and often under most discouraging
conditions.
When any considerable proportion of the population of
any country is under great stress of living, as is true prac­
tically throughout Europe, it is inevitable that men who are
without honor, and are therefore willing to promise to correct
all of the evils which exist in attractive but impossible ways,
should meet with sufficient favor to give them political force,
and it is equally true that honorable men, who are not
willing to promise the impossible, often have to stand by
and see quack nostrums tried out that are certain to increase
the sufferings of the masses before they can obtain the power
themselves to apply intelligence and integrity to the problems
which exist.
Such a situation may be found wherever there are com­
munities of men and unfortunately in the United States of
America we are often obliged to learn our lessons in such




devious ways and in this present day our prosperity is even
now menaced by just such forces. Then there are, of
course, the ignorant and well-meaning who unconscious^’
play into the hands of the vicious because of their lack of
knowledge of fundamentals and their enthusiasm for false
theories.
N o one would say for a moment- that because
such conditions exist in the United States Ave should stop
striving for our country’s good and because the same condi­
tions to a greater or less extent exist in the nations of Europe,
is there any reason why we should hold ourselves aloof
from being helpful to them?
After such a war as the World War, it is ineAntable that
vast masses of the people, which had become lethargic,
should be stirred into new life. Thousands and millions of
men Avhose circle of existence had been entirely confined to
a certain few neighborhoods were led into strange and
foreign places, and became acquainted Avith different liAdng
conditions and were aAvakened to neAv possibilities in life
and when they returned to their homes and met their fellows
who had had similar experiences, new ideas and new desires
were certain to permeate latent masses. But it is also
certain that such masses cannot become fundamentally
sound in their ideas immediately and that consequently such
impossible policies as Communism and radical Socialism
are temporarily looked upon with favor and that professed
dictatorships by the people, in which the people have no
voice whatsoever, are advocated.
It is not strange therefore that the world to-day is to a
certain extent taken up Avith false ideas, but such a condition
instead of decreasing the necessity for effort to bring about
sound fundamentals and proper social relationships increases
such necessity.
But fortunately there are even stronger forces than those
of disruption which have been at Avork among the European
nations and that are thoroughly constructive in their
character. Through such forces the terrible effects of the
Avar and the difficulties of the peace treaties which folloAved it are being overcome. In reality the improvement
has been at a marvelously rapid pace and the Europe of
to-day is very far removed from the Europe of the fall of
1918.
It is true that the differences Avhich continue to exist be­
tween Germany and the Allies are holding back recon­
struction, but there is very positive evidence that under­
lying the discouragement, which such a condition naturally
carries Avith it, a greater feeling of hope actually exists. In
many of the countries of Europe a very strong belief is de­
veloping that once a final agreement has been reached
betA\reen Germany and the Allies that trade and commerce
will be resumed between all countries with an increasing
rapidity that will in a comparatively few years make its
volume outstrip anything that has ever gone before.

BANKING SECTION.
The flame of race hatreds in many countries has been
gradually dying down as the fact is being recognized that
the nations are dependent upon each other to such an extent
that it is to the interest of each to make reciprocal treaties
which will reduce or remove trade barriers. A willingness
to work is also becoming more apparent and it is being
realized that markets are developed by production equally
as production is undertaken to meet markets.
The waves of propaganda which spread throughout Europe
from Russia that led labor into the belief that it could
obtain those things desired for living and luxury without
working is rapidly losing its force. Workmen are realizing
more and more that without labor there can be no produc­
tion for distribution and that without production for dis­
tribution men cannot exist.
The change in Italy in this respect since Mussolini came
into power has been almost beyond comprehension and it
would seem as though -labor in Italy had come to a full
realization of the fact that the greater the number of things
produced the more people can have them and it is working
accordingly.
Austria, which a few short months ago was a nation of
despair, has now become a country full of hope and with
a very marked intent to work out its own salvation and
to live up to the agreements which it has made with other
nations, even though it can only succeed in this program
by the hardest kind of labor and at very great sacrifice.
It is an example to the world of what can be accomplished
through right intent which in the case of Austria led its
former enemies to combine for its benefit and advance to its
Government $130,000,000.
Hungary, after going through a terrible Bolshevik reign
and an expensive foreign occupation and after having been
dismembered unfairly in the opinion of its people by the
Treaty of Trianon, was not only in despair but its people
were for a time so occupied in commiserating with them­
selves that little progress was made toward bettering their
condition. But so great has been the change and the
Hungarians are now striving so positively to make the
most of what is left to them that it would not be surprising
if their former enemies shouh also make them a loan to help
them tide over their present crisis.
While the people of Czechoslovakia have not had to pass
through the extreme difficulties which faced both Austria
and Hungary, yet they had some very serious troubles
during the period of the stabilization of their currency and
they came through them extremely well. This new nation
is made up of willing workers, notwithstanding the serious
strikes which have caused its people such needless hardships.
In Poland they are still confronted with some very terrible
problems, but there is an enthusiasm for their new country
that is bearing good fruit and that has helped to create a
most hopeful state of mind.
While the development in some of the Balkan countries
is much slower than in others and the difficulties which exist
in Greece are still very great, as there has not been sufficient
time since the Turkish War to work them out, they are all
pointed in the right direction.
The trials of Switzerland, which have borne so heavily
upon its people, should rapidly disappear alter Germany
and the Allies arrive at a final agreement; and the same is
true of Holland, where the effect of the occupation of the
Ruhr has been particularly distressing, but whose people
are most dependable and have held their mental equilibrium
extremely well under the circumstances.
In France the evidence of thrift on the part of its people
has been as great since the war as before it and the attitude
of labor has become more patriotic with a consequent great
improvement in the mental condition of all the people.
Something of this same development is noticeable in Belgium
as well. Both of these nations are fundamentally stronger
than they were at the close of 1920 and much can be expected
from them when peace is re-established.
In Great Britain some of the most dangerous phases of the
labor development which followed the armistice and the trade
collapse of 1920 seem to have been dissipated and a healthy




77

mental reaction can easily follow the return of peace in Eu­
rope. British integrity is a great asset in time of trouble.
The Scandinavian countries have had their share of the
extremes of radicalism, but have succeeded in protecting
themselves from their most evil effects and only need the
opportunity of peaceful conditions to work out of their
troubles, which have been very real.
The Russian problem is serious and can only be solved by
time. It is also going to be necessary during such time for
the other nations of the world to watch themselves carefully,
for the Russian propagandists make the most of discontent
wherever it may exist, and while the resources of such a
wonderful country as Russia are at the disposal of those who
are willing to use them for such purposes, the world is in
very great danger.
When there is extreme suffering among great masses of
people, as is true in so many parts of Europe, it is inevitable
that there should be great mental unrest and the potential­
ities for untoward developments must be recognized, but re­
gardless of this fact there is not the slightest doubt but that
the despair of desperation, which pervaded all of Europe
after the first reaction following the armistice, has given way
to very real hope, or to an undefined hope that will be brought
to life and that will exercise a tremendous force for good as
soon as Germany and the Allies come to an agreement, and
provided that that agreement is not postponed for too long
a time.
In Germany the stress of the Ruhr occupation, together
with the passive resistance developed against it, has been
very terrible in its effects, but there is reason to believe that
a settlement of the reparations and other questions with the
Allies on some final basis will result in such a relief to the
people that after such settlement they will be able to take
up their burdens in a more healthy state of mind and that
their industry will once again make itself felt in the world.
It would have been impossible for this change of mental
attitude to have developed among the nations of Europe if
everything in those countries consisted of bad politics and if
all men in Government were mere self-seekers. In fact,
unless there had been very real patriotic effort and sacrifice
upon the part of a large proportion of European men and
women, in Government and out of it, we would undoubtedly
have to-day throughout all Europe conditions which would
be similar to those that existed in Russia during the worst
period of its dissolution, instead of which we find latent hope
predominating and many nations ready to move forward
as soon as peaceful conditions are re-established.
Can we in America afford to ignore our duty to peoples
who have so successfully passed through a period of great
suffering and anguish merely because there are those among
us who are fearful that we might be inveigled into entangling
alliances if we undertake to sit in at the council table where
the great problems of the cations are being solved?
Actually the American people have no desire to isolate
themselves. They are the greatest travelers in the world
and they study and utilize the science and arts and the
products of other parts of the earth as is true of very few, if
any, other nationalities.
The economic situation in Europe is after all the result of
the psychological developments and ordinarily is a statement
of such results in figures rather than in phrases.
We find throughout all Europe taxation difficult to bear
and that in many countries has a tendency to curtail pro­
duction. This taxation while made necessary temporarily
because of the war, is much greater than it should be or need
have been, if the various peoples in their despair had not
listened to the siren voices of the makers of false promises.
The need for taxation has developed directly because
of inflated Government indebtedness and exorbitant G ov­
ernmental expenditures. Both are largely the result of the
tremendous .waste induced by experimental government,
together with government which is used by politicians to
take care of present or prospective constituents, who when
entering the employ of Government beyond its needs, have
immediately become non-producers and a burden upon all
producers. From the taxes of all the people superfluous

78

BANKERS’ CONVENTION.

Government employees are given the funds with which to
compete with the producers for the things which they
themselves require, with the result that the producers not
only have to pay unnecessary taxes, but that they are
obliged to pay higher prices for what they buy than would
be true if Government were not so burdened and excess
Government employees were obliged to become producers
themselves in order to make their livelihood.
This situation has not developed in Europe entirely
through bad intent but has been partly the result of effort to
meet the serious problem of unemployment, which in itself
came about because of unscientific government and lack of
proper co-operation between governments. Because gov­
ernment indebtedness has increased beyond all proper pro­
portion, and government budgets have been in excess of
government income, and inflation has developed at such
terrible expense to the people, does not mean that all are
bad or unworthy, or that we in America who have made the
same .mistakes to a certain extent are more worthy, but
merely that the problems which the war put up to men were
greater than they could solve without experimentation. We
should not, therefore, waste our effort in criticism but should
aim positively for understanding, and while this requires
recognition of the causes of bad government both from the
standpoint of intent and lack of knowledge, yet we should
confine our effort to the positive side of the problem and
make our constructive program so strong that those who
would be destructive will find no place in it.
The figures covering the indebtedness of governments
and their budgets, inflation, taxation, national income and
the wealth of the European nations have been recited time
and again and the proportions of the requirements of govern­
ment under present conditions to income and wealth can be
made to appear very terrifying and will truly be so unless
the increasing ratio of waste to income is not soon stopped.
If it is allowed to go on, a burden will be built up for future
generations that they cannot meet. It is inconceivable
that this generation should be willing to allow such a devel­
opment so certain to give unhappiness to many who will
follow, among whom will be those of their own flesh and blood.
While the European nations have been under greater
stress since the war than we of America and consequently
been led to greater excesses in mistaken economics, yet a
very slight reading of the bills which have been introduced
in our legislatures and in our Congress, some of which have
been passed and some not, show conclusively that we have
our own share of ignorance as to the results of wasteful
governmental expenditure and excessive taxation.

The Ruhr.
During any certain period of evolution that bears par­
ticularly hard upon a people, current opinion is very apt to
see in it only the difficulties which exist and so it is appar­
ently with the occupation of the Ruhr. But it is conceivable
that after a settlement has been reached and a few years
have gone by that we may find that the Ruhr occupation
was in effect the culminating act of the war, which finally
resulted in the establishment of a real peace and that Ger­
many will have benefited through it equally with other na­
tions. It may even be seen that the passive resistance
organized by Germany against the occupation, although it
changed a civil occupation with military protection into a
purely military operation and consequently interfered with
trade and commerce to such an extent that tremendous
financial losses were involved, may not also have played its
part in making possible a final peace. Even th6 terrible
expense entailed may be more than made up after a few years
of restored confidence.
Before the occupation of the Ruhr, the strain between
Germany and the Allies was constantly increasing and if it
had been allowed to run on, many years of uncertainty and
stress might have elapsed before the establishment of an
ultimate peace. And conditions might easily have gone
from bad to worse until they ran into another war.
Disregarding all questions of difference of opinions that
may exist as to the Ruhr occupation and the manner in which
it has been carried on, is it not a fact that there was no power




other than France which would have stepped in and brought
to a head for final settlement the growing differences be­
tween the Allies and Germany that were giving the world
so much concern before the occupation of the Ruhr?
Whether future historians will be able to construe the
Ruhr occupation in this manner would seem to depend
entirely upon what the French actually demand and accept
when a settlement is finally reached and whether such settle­
ment is of a nature that will warrant the French in reducing
their military to a national police, which they state is their
desire.
To-day France is undoubtedly the strongest military
power in the world and it is quite natural that Americans
returning from Europe should be impressed with this fact,
as it seems to be felt throughout the Continent. It is also
quite to be expected that people should wonder whether this
development has only been for temporary protection made
necessary by the untoward conditions which have existed in
Europe, and that after a settlement with Germany the
French will be contented to again occupy themselves ex­
clusively in the undertakings of peace or whether the feeling
of power, which has naturally developed with their strong
military position, will go to their heads and be too strong
for them and will evolve a sort of despotism that may in
the end lay the foundation for another terrible war.
There would seem to be no doubt but that Poincare’ s
inflexible attitude in connection with the passive resistance
will break such resistance quicker than if he showed weak­
nesses which might lead Germany to be hopeful that through
delay she could succeed in obtaining a more favorable out­
come. In view of the powerful position which the French
hold to-day and the fact that no nation can dislodge them
without going to war themselves, which does not seem a
probability or a possibility at the moment, the quicker the
German people realize that their greatest interest lies in
coming to an agreement with France, the better it will be
for them.
If after Germany surrenders its program of passive re­
sistance, the French demand the impossible and continue
to develop their military power, as is feared in so many
quarters, the world may be a difficult place in which to live
for many years to come, exactly as might have been true in
case the Ruhr occupation had never occurred.
On the other hand, if after Germany surrenders its passive
resistance, the French are fair and reasonable and it is found
possible to develop agreements which will result in the elimi­
nation of militarism throughout Europe, a new era of tre­
mendous prosperity may be in sight.
Until the terms of an actual settlement become known,
therefore, no one is in position to judge of the French action
and we are certainly not warranted now in calling her mili­
taristic or a menace to the world’s peace. Neither should
we anticipate that she may justify such an attitude and it
would seem far better for the world to accept France at her
word than to doubt her, and to look forward in confidence to
her droppiDg her military program as soon as a settlement is
concluded with Germany.
But until there is such a settlement, the world and Europe
in particular is doomed to stagger under the burden of so
many uncertainties that life to many millions will represent
only a bare existence.
This all leads up to the question as to what the people of
the United States can do and should do to bring about the
return of peace in Europe. Our duty in this connection is.
two-fold— that to ourselves and that to humanity— and it
is the same duty that confronts every nation. Duty to
one’s self does not carry with it selfishness in the sense of wish­
ing to obtain something for ourselves at the expense of others,,
but rather the sense of the desire to obtain something for
ourselves while benefitting others. For instance, it is good
for America to be able to export its surplus production and
in order to do so to the full extent of our ability to produce,
it is necessary that the buying power of Europe be restored.
It is quite impossible for the buying power of Europe to be
restored unless Europe obtains the same benefits from such
restoration that would redound to America.

BANKING SECTION.
We are thoroughly justified in this country, therefore, in
stating openly that we desire to help Europe accomplish the
restoration of her buying power in order that we may sell
to her in greater volume. It carries with it no wrongly
selfish thought whatsoever, but represents a desire for co­
operation of the highest type and it is clearly our duty to
ourselves to do our part in this matter.
Our duty to humanity lies in bringing about this condition
as quickly as possible in order that there may be as little
suffering in the world before the restoration of trade as the
existing situation will allow.
One simple act that would be most helpful is to take our
place upon the Reparations Commission officially. We
should be represented upon this Commission by a man who
can express his conviction with his vote. The economic and
moral force of the United States is so well recognized by the
Allies that if our representative had a vote there would inevi­
tably be a desire on the part of the representatives of other
nations on the Reparations Commission to work in accord
with us whenever they could do so legitimately and we could
maintain our position as being correct. W e have nothing to
fear through such an association in the nature of entangling
alliances, or other dangerous international complications,
and we would undoubtedly be less involved in difficulties
than is true at present where we are obliged to sit on the side­
lines and watch developments without having any voice in
their control.
But before going further with this matter, let us consider
for a moment the question of the capacity of Germany to
pay.
This talk about “ capacity to pay” is apt to be misleading,
as the elasticity of nations is greater than is generally realized.
The number of units in an average country is so enormous
that a small change in their activities makes a tremendous
difference in production and consumption. For instance,
let us suppose a nation of 70,000,000 people has 10,000,000
workers and that the eight-hour work day prevails. This
nation owes the rest of the world $15,000,000,000 without
interest and every man in it desires to see payment made
and agrees to work one hour extra each day unti lthe debt is
settled. Ten million men working one hour a day for 300
days would mean 3,000,000,000 work hours a year. Sup­
pose that these three billion work hours were concentrated,
as could easily be done by releasing some men in every in­
dustry who would not be needed because those who remained
would be working 9 hours instead of 8 hours, and applied to
the conversion through manufacture of 100% of imported
raw materials and then that these manufactures were 100%
exported, and that the nation received for the manufactured
articles a profit representing 25 cents a work hour. Without
disturbing its regular trade or production in the slightest
particular, the nation would be able to settle the debt in 20
years at the rate of $750,000,000 a year. Now suppose the
nation finds that it can supply from its own resources 50%
of the raw materials required and then by means of increased
efficiency and better machinery that it can increase the aver­
age value of each work hour 25% , it might easily be able to
settle the indebtedness in 15 years, or even in 10 years,
insofar as it was itself concerned.
Now if the articles manufactured were something new,
that proved desirable to all the world, they could easily be
absorbed as the labor in the rest of the world would have
had additional opportunity for employment in supplying
the raw materials and would still have had its ordinary pro­
duction to provide. But if the articles had to compete with
those produced in the rest of the world, a number of other
elements would be introduced and so we might go on adding
elements on one side or the other indefinitely.
It is only this elasticity in a nation’s power to produce and
to consume the things required by man that makes it possible
for us to absorb the tremendous losses which come from the
billions of labor hours lost through strikes and to recover
from the devastating effects of governmental waste, fires,
earthquakes and wars.
The millions upon millions of variable units covering pro­
duction and consumption that lie within a great nation are




79

such that no man can figure positively on capacity to pay
over an extended period of time in an undeveloped future.
Who could have guessed from the statistics of production
from 1900 to 1910 that the world could have produced such
untold quantities of commodities of all kinds that it did
dring the four years following Jan. 1 1915?
On the one side was, of course, a positive war market,
but on the other was the will to produce without which
no market could have caused such a tremendous increase in
production. All of that part of the ability to produce at
high speed during the war that was derived from improved
machinery still remains to the world and it carries with it
increased power to consume.
The limit of the capacity to pay of any nation over a future
period of years all things considered, is such an ellusive
figure and depends so much upon the will to pay, together
with the nature of the competition which may exist in the
world’s markets, that it would seem far better to study
reparations from the standpoint of what is fair and best for
all concerned.
Fairness demands that the restoration of devastation be
paid for by those who caused it. Honorable men in Ger­
many admit this without question. If France should accept
from Germany in settlement of reparations a sum equivalent
to that which she owes Great Britain and the United States,
that she was forced to borrow to enable her to protect her­
self from further devastation, and if she used such sum to
pay these Allied loans, she would still be left with her devas­
tation to pay for, would she not?
If to the sum demanded from Germany to meet repara­
tions a further sum is added equivalent to the inter-Allied
indebtedness, the total would be so great that, regardless of
Germany’s capacity to pay, the burden upon her people
measured by the best standards which we can apply would
require such sacrifices in labor and through taxation that
her people might become a menace to themselves and to the
world. If the German people should accept such sacrifice
and endeavor to work out the indebtedness, might it not be
necessary in order for Germany to succeed for the rest of the
world to give her a larger industrial position than it can well
afford to give?
A great effort is now being made in practically all Euro­
pean countries to obtain an export balance as they hope to
work out of their troubles by so doing. Should they suc­
ceed, who could hold the bag except the same United State-*
which so enjoys an export balance itself?
Trade ami service between nations must balance over
periods or sacrifice is inevitable. D o we want to encourage
the development of a situation wherein we may find our­
selves in the same dilemma as some of the European nations
with whom we are commiserating to-day?
We now come to the crux of the whole situation, but before
considering what part America can play in bringing peace
to the world, we must first analyze the conditions which
prevail in connection with the occupation of the Ruhr.
Concretely the demands of France are three:
1. Reparations.
2. Protection from future attack.
3. Protection from unfair competition.

We will consider these demands in inverse order and strictly
from the French point of view as French opinions are im­
portant because of the strength of their position.
The French claim that it is necessary to consider the
question of unfair competition because of the deliberate
devastation wrought by Germany during the war avowedly
for the purpose of crippling French industry. This caused
the French to wonder what would happen to their iron and
steel industry if Germany should refuse to sell coke to
French industrialists in furtherance of Germany’s war
policy. The French claim that they want no unfair ad­
vantage themselves and are willing to arrange to deliver to
Germany French ores, which Germany requires, in exchange
for German coke needed by France.
It is believed that some form of understanding has been
reached that both French and German industrialists will
approve and that this demand is not now a subject of serious

80

BANKERS’ CONVENTION.

contention. In any event it is a matter in which the United
States has no part.
The French fully understand that no peace agreements
can be entered into by any nations that may not be re­
pudiated unless there is some sufficient force to prevent,
the exercise of which would undoubtedly be an act of war
itself. Failing in their attempt to form a protective alliance
with Great Britain and the United States and realizing that
other wars are probably inevitable, they have determined,
if possible, to prevent any future war with Germany from
commencing on French territory. They feel that the
devastation from the last war was great enough to warrant
them in considering this as a vital factor. In order to make
this purpose effective and eliminate the necessity for France
to maintain a large army for defense, some plan is con­
templated that will make a sort of buffer State of the left
bank of the Rhine, even though it may continue to be
recognized as distinctly German territory. The French
undoubtedly have their ideas clear on this point and Germany
will probably have to meet them. The United States can
have no part in this matter either, as its citizens will not
authorize its Government to enter into any European
alliance that might involve us in a war without the sanction
of Congress.
This leaves only the reparations question for consideration
and it is in this connection that the United States may find
that it has a very real part.
Reparations contain three important problems:
1. Amount.
2. Methods o f payment.
3. Security.

Again we will take up the points inversely.
Security.

France demands security on the ground that certain
defaults on the part of Germany in making reparation
payments were voluntary. France undoubtedly will not
evacuate the Ruhr until some arrangement satisfactory to
her as to security has been made by Germany.
Methods of Payment.

France will demand methods of payment of reparations,
which she believes will be within the capacity of Germany
to meet, but she also demands that Germany shall pay her
such amounts and at such times as France may be called
upon by Great Britain and the United States to make
payments on account of the inter-Allied loans, but with the
understanding that any part of these loans that may be
remitted to France will be remitted Germany by France.
We can now begin to see wherein it is necessary for the
people of the United States to do a little thinking.
Amount.
Aside from the Inter-Allied loan France demands that
Germany pay her 26 milliards of gold marks, which she
claims represents a fair value for the restoration of the dev­
astated districts. In addition to this Belgium demands
five milliards of gold marks and Great Britain 14 milliards,
which with the amounts that would have to be paid the
other Allies would bring the total reparations that Germany
would have to pay to from 48 to 50 milliards of gold marks,
or roundly 812,500,000,000. This sum is exclusive of
the demand of France that as she makes payments on her
Inter-Allied indebtedness Germany must make equivalent
payments to her. But there is included within this total
in the 14 milliards that Great Britain demands of Germany
a return of the funds which Great Britain must pay the
United States.
There is reason to believe that once Germany has with­
drawn positively her policy of passive resistance that the only
real point of difference between France and Germany that
may be difficult to adjust is the total amount of reparations.
As the Inter-Allied indebtedness represents a principal
part of the reparations total under consideration and as
there is a general belief that Great Britain would willingly
consider remitting a large percentage of the debts due her,
if the United State would do so as well, we seem to be
very much in this Ruhr situation after all. Unless therefore
we are willing to sit in with Great Britain and France and




study this problem frankly and with full intent to do our
part toward solving it, we cannot complain if conditions
develop that are very much against our interests.
The problem of the Inter-Allied indebtedness has two
very strong sides and they cannot be set aside lightly from
either standpoint. That they were undertaken in good
faith is beyond question. That the good of the world re­
quires that there be no repudiation is not subject to dis­
cussion. That they Avill be a heavy burden upon many
nations and a drag upon trade and commerce if their full
payment is demanded is undoubtedly true. If the creditor
nations should consider their cancellation without using the
force which lies within them to obtain better world con­
ditions, it would be unfortunate.
But if the creditor nations in co-operation with the debtor
nations can trade off that portion of the loans which could
roundly be figured as having been spent for a common cause,
say 60 or preferably 70% , for agreements that would result
in the re-establishment of peaceful and sound economic
conditions in Europe, there would be such a sudden return
of confidence in the world that trade and commerce might
easily revive to such an extent that the monetary return
would far exceed the total cancelled loans over a com­
paratively short period of time.
The question is— How can the United States enter into
this situation without seemingly agreeing to the principle
of cancellation before it can ascertain wherein its best
interests lie?
Fortunately the way is open to us if we have the courage
to accept it.
B y Act of Congress a Debt Funding Commission has been
created whose membership, which was named by President
Harding, consists of the following men:
Charles E. Hughes, Secretary of State.
Andrew W . Mellon, Secretary of the Treasury.
Herbert C. Hoover, Secretary of Commerce.
Senator Reed Smoot.
Congressman Theodore E . Burton.
Congressman Charles R . Crisp.
Congressman Richard Olney.

These men are outstanding Americans of the highest type,
honorable, patriotic, possessed of great intelligence and great
experience. Between them they have a knowledge of law,
finance and diplomacy and an understanding of domestic
and foreign conditions that undoubtedly could not be sur­
passed by any similar body of men that might be selected
from any country in the world. This Commission, with its
extraordinary ability, integrity and understanding, could
safely be entrusted with any interests which the people
of the United States might have at stake and could be
relied upon to give a proper account of their stewardship.
Under the Act creating the Commission, Congress so limited
their powers that they are impotent to carry out their
duties except as they may make recommendations that may
be accepted by Congress that are outside of their limita­
tions. The funding of the British debt to the United States
is sufficient evidence of this fact.
If this Commission had the power to send one of its
members or a representative, or a sub-committee, to Europe,
to sit in at a conference with the British and French for
the purpose of working out a plan that would enable the
reparations total to be demanded of Germany to include
only reparations and not Inter-Allied debts, a series of agree­
ments could undoubtedly be arranged that would re-establish
peace and confidence throughout Europe.
The Debt Funding Commission being made up of honor­
able men who have accepted appointments on the Commis­
sion under the restrictions which Congress applied, is not in
position to negotiate for cancellation unless it is clearly the
public desire that it do so. There is no doubt that it is
against the wishes of the people of the United States to con­
sider cancellation of the Allied indebtedness unless by means
of such cancellation, or at the same time the causes for mili­
tarism in Europe and militarism itself shall be abolished and
proper fundamental conditions shall be established that will
allow the unrestricted development of trade and commerce.
If Congress were in session to-day, it would be the height
of folly for it to demand of the Debt Funding Commission

BANKING SECTION.
that it take up the question of the Allied indebtedness and
arrange for its cancellation without considerations. On the
other hand, if Congress could give the Debt Funding Com­
mission full power to negotiate, including the power to
arrange for cancellation, provided agreements are obtained in
return that would re-establish peace in Europe, the Debt
Funding Commission would be in a powerful and perfectly
proper trading position, and it is not conceivable that the
interests of the United States would suffer at its hands.
Should such agreements be better developed by means of
treaties, the Secretary of State, who is a member of the Debt
Funding Commission, would be in position to take over the
negotiations at such point and get them into proper shape
for presentation to the Senate for confirmation..
As one of the outstanding difficulties which exists in
connection with a possible settlement between France and
Germany lies in the fixation of the amount of reparations and
as the principal element in preventing the determination of
such an amount that it is believed that Germany can pay
without putting an unfair or too great a burden upon its
people lies in the in ter-Allied indebtedness, the entry of the
Debt Funding Commission of the United States at the council
table of the Allies, with power to trade the inter-Allied in­
debtedness, would undoubtedly be a determining factor.
This could be done without any reference to the League of
Nations.
As Congress will not convene until December and cannot,
therefore, change its instructions to the Debt Funding Com­
mission before that time and as a continuation of the present
situation in Europe over the winter would be courting catas­
trophe, a way must be found under which immediate action
can be taken.
Such a way is undoubtedly open to the
people of the United States for if they individually and
through their organizations express to their Congressmen
with sufficient force their belief in the safety to this country
of placing the authority to negotiate in the hads of the
personnel of the present Debt Funding Commission, even
to the point of cancellation of the inter-Allied indebtedness,
in part or in whole, against proper agreements assuring pacee
in Europe, and Congressmen notify the leaders in Congress
that they would favorably consider any such recommenda­
tion that might be made by the Debt Funding Commission
at the next session of Congress, the Commission would be
thoroughly justified in entering into the matter.
As things stand to-day, representatives of the European
nations naturally do not feel warranted in suggesting can­
cellation, as it would partake more or less of the nature of
repudiation if they did so, and neither are the members of
the Debt Funding Commission justified in view of the limi­
tations placed upon them of introducing the subject. It is
consequently difficult for the Debt Funding Commission to
develop negotiations which might result in recommendations
to Congress that would include cancellation of Allied in­
debtedness, unless it has clear evidence that it is the will of
the people of this country that it does so.
The whole proposition should be handled on a non-partisan
basis, which is thoroughly warranted in view of the appoint­

81

ment of two Democrats on the Debt Funding Commission.
It has recently been noticeable that in the development of
partisan politics in this country there has been a great deal
of juggling for position on European questions. Such actions
should be stopped immediately. They are just as deplorable
and just as unfortunate as some of the bad European political
methods that are so fluently criticized in the United States.
Should the Debt Funding Commission through entry into
the European negotiations in this manner succeed in bringing
about a prompt and satisfactory settlement, it woud not
mean that the people of the United States would be the losers
to the full amount of any indebtedness that might be can­
celed. On the contraiy it is conceivable that during the
period of time that it would take ftr the Allied indebtedness
to be paid, if it were paid, that increased domestic and
foreign trade profits could far exceed the amount of thecanceled debts.
America is fully justified in considering the questions of
profits and taxation when studying any plan embodying
cancellation, because of the manner in which the inter-Allied
indebtedness was undertaken. On the other hand, we are
also under obligation to bear in mind that after the agree­
ments as to such indebtedness had been made, the war de­
velopment was quite different than was expected at the time.
It was over a year before the United States took its part in
the battle line in force, during which the Allies were obliged
to bear the brunt of the tremendous German drive of the
spring of 1918. It was their men and their life blood, to­
gether with rifles and ammunition obtained from dollars ad­
vanced by us, that stopped the drive and made it possible
for the troops of the United States to land on friendly soil
after they had crossed the Atlantic Ocean.
It is impossible to believe that the spirit of justice in the
people of the United States is not sufficiently strong and that
they are not sufficiently generous to recognize this situation.
Money has never stopped them from going to the aid of any
people who have met catastrophe. The sums which they
have raised have been based on the need of humanity, and
there has seemed to be no limit as to what they would do if
necessity required. A famine such as took place in Russia,
and the terrible earthquake that just occurred in Japan, left
no element of doubt as to the human necessity that had arisen.
A situation such as exists in Europe, however, is very much
harder for our people to comprehend, but their intent as
written upon the pages of history is so clearly to sacrifice
what is necessary to meet the emergency of others, that there
is not the slightest doubt that if they could see the need
of the people of Europe as it really exists, for the peace that
is being denied them, they would meet this emergency in
the way that is open to them. It is because of the existence
of this spirit in America that we can be hopeful that insofar
as it may be dependent upon us there will soon be an end to
the terrible trials that the world is going through. Recent
developments clearly show that the time has come when
our United States should have the will and the courage to
re-enter the councils of our allies with the broad mind and
open heart that is so characteristic of the people of our nation.

“ W hat W e See and What W e D o n ’t
By W

il l ia m

A . S c o t t , Director School of Commerce, University of Wisconsin.

In the years immediately preceding and succeeding the
Revolution of 1848 the French economist, Bastiat, was
impressed by the false reasoning on economic matters of large
numbers of the French people and by the evil consequences
resulting therefrom. Among the latter he reckoned their
persistence in the maintenance of a commercial policy which,
in his opinion, handicapped their economic development and
the radical, socialistic experimentation of the revolutionary
Government which succeeded Louis Phillippe. In order to
illustrate the faults in his countrymen’s mental processes he
wrote a number of pamphlets, among them one entitled
“ Ce qu’ on voit et ce qu’ on ne voit pas” (“ What we see and
what we don’t see” ). In this he pointed out their apparent




inability to trace the more remote consequences of acts,
laws and reforms. They saw, he said, only the immediate
results, and, if these seemed to be good, went ahead, un­
conscious of the more remote consequences which they did
not see and which were often very bad. In other pamphlets
he illustrated their inability correctly to interpret what they
saw about them because of their failure to see what was
taking place beneath the surface, and their inability to
discover the causal relations between economic pheno­
mena.
During the last few years I have been often reminded of
Bastiat’s pamphlets. All the kinds of bad reasoning noted
by him have been illustrated here, in the United States, and

82

BANKERS’ CONVENTION.

forjthat matter in France and the other countries of Europe,
during this period.
During the war, for example, our Government took over
thejoperation of the railroads. What we saw were the
advantages of better co-operation among the different lines,
the elimination of interruptions from strikes, and the more
rapid and certain transportation of soldiers, sailors, war
materials and equipment. What we did not see were the
increased costs and decreased efficiency of operation, the
higher passenger and freight rates, the increased costs of
production varying in amount between different commodi­
ties and localities, the increased prosperity of some com­
munities and the decreased prosperity of others, the compli­
cations involved in holding the scales of justice even between
some producers and others, the disturbance of the relations
between the railroad labor unions and the railroad companies
and innumerable other consequences which followed from
there.
During the war we also arbitrarily regulated the prices of a
large number of commodities. What we saw were the pre­
vention of profiteering and the stimulation of the production
of,war materials and supplies. What we did not see was the
disturbance of the normal price and profits relations upon
which the successful and smooth operation of our entire
economic mechanism depends, interference with the normal
flow of investment streams, the over-equipment of some
industries and the under equipment of others, and the
fostering of the belief that the Government is omnipotent
in economic matters, and can arbitrarily adjust prices and
profits to suit its own ideas of justice or expediency or to
meet the desires of blocs or classes that may chance from
time to time to be politically dominant.
Early in our history the practice of exempting from taxa­
tion bonds issued for public purposes was inaugurated and
has been persistently adhered to. What we saw were lower
interest charges and taxes and the avoidance of friction be­
tween the Federal and the State Governments. What
we did not see were the interference of the practice with the
working out of an equitable taxation system and the di­
version of capital from industry and commerce to public
improvements at a critical period in our history.
The farmers have for some time been and still are suffering
from the fact that the prices of some of their staple crops are
relatively low. What they need and want is higher prices
for these staples. The Government arbitrarily fixed these
prices at a high level during the war, therefore it is recom­
mended that it should do the same thing again. The im­
mediate consequences, better incomes or the elimination of
losses for the farmers are alone seen. The remote conse­
quences are not seen and therefore disregarded.
The war greatly increased the expenses of Government
and rendered higher taxes necessary. On the principle that
people should contribute to the support of government ac­
cording to their abilities we levied graduated income taxes.
What we saw were the increased public revenues and the
distribution of taxes according to a principle which we be­
lieved to be just. What we did not see were the diversion
of capital from essential industries to public uses through
investment in tax-free securities and the partial defeat of
the very ends we had in view in the levy of these taxes.
Many illustrations might be given of the inability of
our people correctly to interpret what they see about them,
and to trace the causal relations between phenomena. A
few samples will suffice.
During the war and for two years following it prices
rose rapidly in this country and at the same time there
was a rapid expansion of bank credits. Then followed a
slump in prices and a contraction of bank credits. The
period of expansion was synchronous with low discount
rates at the Federal Reserve banks and that of contraction
with high rates. The interpretation of these phenomena
widely adopted was that the expanded bank credits caused
the high prices and the contracted bank credits the low ones,
and that the low discount rates at the Federal Reserve banks
caused the credit expansion and the high ones the credit
contraction. The inevitable conclusion was that the Fed­




eral Reserve Board, which fixes the rates, was responsible
for this entire series of events. It should, therefore, bear the
blame for whatever suffering resulted and the laws by which
its actions are controlled should be so changed that in the
future discount rates will be regulated so as to keep prices
stable. There is a group of people now working towards this
end and urging upon Congress this reform.
The war forced inconvertible currencies on the warring
nations of Europe and gold ceased to be used as a medium of
exchange, and has not yet been restored. This phenome­
non has been interpreted to mean that the gold standard has
been scrapped; that is, does not play the sole in the world’s
economy that the economists have claimed for it; that we had
better forget it and proceed to reconstruct the world’s ex­
changes on some other basis.
One of the essentials of a good standard of value is the pos­
session of independent value, that is, capacity to satisfy other
wants than that for a medium of exchange; therefore, it is
concluded, any commodity that possesses this quality in a
high degree will make a good standard. There are many
such commodities besides gold, namely, wheat and other
agricultural staples, and Muscle Shoals power. Let us,
therefore, select our new standard from this list.
This country prospered marvelously in the period before
the World War, and during all that time we pursued the
policies of protection to domestic industries and of avoidance
of entangling alliances with European countries. There­
fore we conclude that these policies were the causes of our
prosperity, and any modification of them would bring na­
tional disaster.
There are probably many reasons why we don’t see and
consequently neglect remote consequences. One is the very
fact of their remoteness. What is present and directly be­
fore us strikes our vision, obtrudes itself upon us. W e can­
not neglect it if we would. What is remote is at the moment
out of sight and can only be perceived by the action of our
powers of reasoning and imagination.
A second reason— and this fact also helps to account for
our difficulties in interpreting economic phenomena and in
tracing the causal relations between them— is the complexity
of the action and interaction of economic and social forces.
We perform some apparently simple act, set in motion some
easily comprehended force, and it combines with other forces
which we do not comprehend and helps to produce complex
results which we did not dream of and which we cannot
analyze.
But the most important reason is ignorance of basic facts
and principles. There are certain facts and principles which
lie beneath the surface and are not visible to the naked eye,
but are nevertheless more potent than those we *do see.
They are constants among the variables we inject into the
situation, and are ingredients in every combination of forces
which produce the results we see. They are capable of man­
ipulation but they cannot be eliminated. They act whether
we are conscious of the fact or not. N o economic phenome­
non can be correctly interpreted and understood without
knowledge of them and comprehension of the manner in
which they work. They are not so complex as are the sur­
face phenomena which we see and they are not beyond the
comprehension of ordinary men.
The consequences of popular misinterpretation of economic
phenomena and of false reasoning concerning them were
serious in Bastiat’s time. They are much more serious now
and that for three reasons.
In the first place, the dependence of man upon man, class
upon class, section upon section, industry upon industry,
and nation upon nation is much greater than it was in the
middle of the last century. Then the new economic forces
set in operation by the industrial revolution had only made
a good beginning in the work of transforming the old eco­
nomic order into the new. Now this work is complete.
Then there were nations and regions within nations, and
classes of people here and there who were economically
independent to such a degree that the failure of economic
machinery to function properly affected them only slightly,
and sometimes hardly at all. Now it would be difficult to

BANKING SECTION.
find such regions or classes or individuals or nations within
the circle of the civilized world. To-day the work of pro­
ducing and distributing the necessaries, comforts and lux­
uries of life is so divided and distributed among the people of
the world that no one performs more than an infinitesimal
part of the task of supplying his own wants, and any inter­
ruption to commerce or industry, like the casting of a pebble
into the sea, spreads its effects in ever widening circles. No
individual, no region, no community, no nation, can now
control its own fortunes. We are all affected by what
others do. Events and actions over which we have no
control affect us quite as much, and sometimes more, than
those of which we are masters.
The world’s war illustrated this interdependence in a
thousand ways. We wanted to keep out of it and we tried
our best to do so, but it was impossible and it will be equally
impossible for us to keep out of any future war that in­
volves any considerable number of nations anywhere in the
world. In thousands of ways the interests of our people
are so involved with those of people in other parts of the
world that what affe.cts them affects us.
However much
we may desire isolation, it is an impossibility and ceased
to exist long ago. The fact that our Goverment pursued
the policy of avoiding entangling alliances did not and could
not prevent individuals and corporations from entering into
all kinds of entangling alliances with foreigners and it was
these that counted in the critical period of the war.
On account of this interdependence we are all interested
in the right ordering of the economic affairs of our own
community, State and nation, and of the entire world. We
cannot afford to make mistakes ourselves or to allow other
people to make them because mistakes mean loss and suf­
fering to all of us and disaster to some of us.
Let us not forget that this degree of interdependence and
the consequence; of it are comparatively new facts in the
world’s history.
It has been a matter of gradual develop­
ment since the beginning of the last quarter of the eighteenth
century but the pace of the movement has been accelerating,
in recent years very rapidly. It is not surprising, there­
fore, that many of our people are unconscious of these con­
ditions; that they still think that each man’s business is
his own affair, and resent any interference from others;
that each one has a right to make as many mistakes as he
likes; that there is no great harm in class conflict and class
legislation and in political, economic and social experi­
mentation. They do not realize that the happiness and
prosperity, even the lives, of all of us depend upon the
smooth running of very complicated and delicately organized
world machinery which can easily be thrown out of adjust­
ment and wrecked by the actions and mistakes of them­
selves and their political and economic associates.
A second reason why ignorance of basic economic facts
and principles and popular mistakes in the interpretation
of economic phenomena are more serious now than they ever
have been in the past is the magnitude of the world’s popula­
tion in relation to its natural resources. There are several
times as many people in the world to be fed, clothed, housed,
educated and amused as there were one hundred and fifty
years ago, and the increase is still continuing. The natural
resources of the world have not appreciably changed during
that period and will not change appreciably during any
period of time short enough to concern us. Our knowledge
of these resources and of how to utilize them in the satis­
faction of human wants has enormously increased and the
wants of this larger population are undoubtedly better
satisfied than were those of the smaller population of former
times. But those conditions are due to the development
of this complicated and delicately organized economic
mechanism of which I have spoken and can only be con­
tinued by the maintenance and continued functioning of this
mechanism or by its replacement by as good or a better one.
If we wreck or seriously impair it, many of us will die of
starvation. The present population of the world cannot
be fed and clothed and housed by the primitive economic
methods of our ancestors. We cannot all become farmers
of the kind that flourished in the early days of the republic,




83

farmers who were economically self-sufficing, producing the
food for their own families, and the raw materials for their
clothes, implements and buildings, manufacturing in their
own households the necessities and such comforts of life as
they enjoyed and building their own houses and the shelters
for their animals. There are not farms enough to go around,
and, even if there were, most of us would starve to death
before we learned how to manipulate them.
No, we cannot escape from our present dilemma by going
back to primitive conditions. If we live at all, we must
co-operate in the production and distribution of the wealth
we need either in accordance with present methods or with
others equally efficient. Interdependence of man upon
man. and of nation upon nation is a necessity of modern
life. We have no choice in the matter, except the choice
between living and dying. If we choose to live, we must
learn to live together in peace and comparative harmony
and the price of such living is a certain minimum knowledge
of the necessary conditions of harmonious living together
and willingness to conform to those conditions.
A third reason why popular ignorance is more dangerous
now that ever before is the fact that for the first time in the
world’s history the control of the political machinery of the
civilized world is in the hands of the masses. The world’s
war swept away the last remnants of the old monarchical
and aristocratic regime. Everywhere in Europe as well as
in America the people are in control. How will they use
their power? That is the question of questions of our day
and upon its answer hangs the fate of all of us.
The danger of the situation is apparent. Political,
economic and social relations were never so complicated and
so difficult to unravel and to understand as at the. present
time. Their regulation and proper manipulation never
required so much insight and ability, such breadth and
depth of knowledge, such devoted, unselfish and dis­
interested service on the part of public officials and of the
men who manage and direct our innumerable private enter­
prises. The masses of the people, though better educated
than ever before and much more intelligent and better trained
in some countries than in others, are nevertheless relatively
ignorant. They do not understand the complicated political,
economic and social machinery over which they have
acquired control.
This fact is evident to even the casual observer. The
crudest kind of experimentation is in progress without any
apparent appreciation of the seriousness of it. Theories
exploded generations ago are widely current and fallacies a
thousand times exposed are daily perpetrated. Our situation
is not unlike that of the passengers of a fast railroad train,
the engineer, fireman, conductor and other members of the
train crew of which have never before had any experience in
their respective jobs or of a community whose automobiles
are driven by children or by men and women who know little
or nothing about the mechanism of the machines they are
driving.
Can anything be done to remove or materially to lessen
the danger in which we find ourselves? So far as I can see
there is but one hope, and that, indeed, a remote one, namely
the education of the masses to an understanding of their
new duties by some other means than experience. Experi­
ence is proverbially a hard teacher, and in this case may not
even be a good one. One might wreck innumerable railroad
trains and kill multitudes of passengers before learning to run
a locomotive by simply pushing and pulling the levers and
observing what happens. In this case some knowledge of
the mechanism is essential to success. The same thing is
true of our social machine. Endless experimentation may
yield only negative results, and it may be hopelessly wrecked
long before we have finished finding out what not to do.
There are many obstacles in the way of a successful popular
campaign of education along economic and social lines. One
is the magnitude of the task. In this case we are concerned
not simply with the young people in our schools, colleges and
universities, who are indeed important and must not be
neglected, but also with the grown-ups who cannot be
reached through the public schools. These are now in con­

84

BANKERS’ CONVENTION.

trol and must be reached at once if the task is to be accom­
plished. The education of the young people will provide
safety for the future, but the danger is here and now.
Another obstacle is the suspicion and prejudice of the
masses against any and all teachers except those that come
from their own ranks. Few of them are able to detect the
true from the false, and they have faith only in their own
leaders, some of whom are as much in need of education as
those they lead.
In spite of these and other obstacles, however, ought not
the job to be undertaken, and, if so, by whom? It is
because I believe that it ought to be undertaken and that the
American Bankers Association is the organization best fitted to
undertake it that I accepted the invitation to appear upon your
program to-day. The following are the grounds of my belief:
In the first place, the principles of money and banking
must have an important place in the educational program.
Ignorance concerning them is dense and widespread and just
at the present time is very dangerous. On account of the
central place which our monetary and banking systems
occupy in our present-day economic mechanism, ignorant
tampering with them will wreck us sooner and more com­
pletely than anything else.
In the second place, bankers are more closely and vitally
in touch with all classes of business men than any other
group of persons and are better organized than most others.
Your organization now reaches every section of the country
and is represented in every city and town of any importance.

Your business has forced you to study the basic facts and
principles of our economic order more thoroughly than any
other class of business men, and you are, therefore, better
fitted to serve as teachers than members of any other
economic group.
You have had experience in educational matters and are
already organized for such work. The American Institute
of Banking which you have created and fostered is already a
great educational institution. You already have a periodical
and other organized publicity machinery. Either through
the broadening of the scope of this machinery or by supple­
menting it with other, the necessary work could be most
economically performed.
Finally, you are a permanent and growing organization,
and this is a permanent and growing task. So long as the
people rule, and no believer in democracy expects that the
power they have acquired will ever pass from their hands,
the work of preparing them for their duties by education
must continue. No temporary organization like that, for
example, which was called into existence by the task of
creating our Federal Reserve System, is, therefore, fitted
for the job.
I must say in closing that I have had the courage to make
these suggestions because I know of the interest and work of
your President along these very lines. Thanks to him this
idea of popular education in economics is not new to you.
I wish simply to hold up his hands and to beg you to follow
his lead.

Banker-Farmer Team Work
By D. H. Otis , Director Agricultural Commission, American Bankers Association.
Team work implies team mates . A good horseman admires
a well-matched team. A rowing coach must have men who
measure at least five feet ten inches and who weigh at least
160 pounds. More than this, these men must work in perfect
harmony. An outstanding individual who fails to work in
unison is absolutely worthless in the crew.
The same principles apply to business. The banker may
properly be considered the team mate of the farmer, and as
such must work in perfect harmony. Why? Because eco­
nomic conditions demand i t ; the work is too heavy, it re­
quires a team. The interdependence of the farmer and
banker is so close that self-preservation demands that they
pull together. If agriculture fails we all fail. There are
no two industries that offer greater opportunities for mutual
helpfulness, for increasing profits and bank deposits than
does banking and farming.
The banker-farmer movement presents a program that
reaches down through the surface to the very roots of things.
It recognizes the truth that bank prosperity depends not
upon the prosperity of a few7 but upon the prosperity of all
and especially of the average man and the average woman.
In the last analysis we must recognize a community of in­
terest, “ each for all and all for each.”
Periods of low farmer purchasing power are invariably
followed by a decided increase in the number of business
failures. Business failures since 1866 reveal the close rela­
tion between agriculture and business. Further, when the
income per acre is increased from one to twro dollars there
is a direct effect in decreasing the number of business fail­
ures and, vice versa, wTith a decrease of one to tw7o dollars in
the income per acre, business failures mount steadily up­
ward. If this difference of one to tw7o dollars in the farm­
er's income per acre, promptly and effectively influences the
number of business failures over the entire country, can
any business man question his interest in agriculture?
Bankers, if anybody, are affected more quickly and more
directly than other business men. A period of agricultural
depression is immediately noticeable in the balances that
the country bank carries with its city correspondent. City
banks are beginning to recognize this. Many of them are
taking an active interest in the banker-farmer movement;




some are writing advertisements, carrying a rural appeal,
for their country correspondents. Pvecently a New York City
bank carried a large advertisement in the city papers call­
ing attention to the development of dairying in one of our
Central West States and what this industry added to the
resources of that State. The idea was to get their patrons
to look beyond their every-day sphere of activities, uproot
their spirit of self-satisfaction, and let it be known that all
of us can profit by acquainting ourselves with the methods
and accomplishments of others.
There are some fundamentals in farming wTith wdiich all
business men should be familiar. Success in farming is the
basis of farm life. Good homes and modern labor-saving
devices are not a part of the unsuccessful farmer’s equip­
ment. Furthermore, the unsuccessful farmer is not buying
the products of the factory and of industry.
A bank would not long succeed if it should continue to use
its capital stock for running expenses. Neither will the
farm. No matter how7 large the bank account at the start
may be, it will not stand continual checking without the ad­
dition of deposits. The lamented Dr. C. G. Hopkins Las well
said that “ the farmers of this country have been living not
upon the interest from their investments, but upon their
principal; and whatever measure of apparent prosperity they
have had in favored localities has been largely taken from
their capital stock. The boastful statement that the Ameri­
can land owmer has become a scientific farmer is as errone­
ous as it is optimistic. Almost every effort by the American
farmers has resulted in decreasing the fertility of the soil.”
The banker w7ho drives into the country and observes this
process of mining the fertility from the land should feel that
to that extent the resources of his bank are being sapped.
Three or four years ago some of the Southern bankers
w7ere “living in clover,” I should say “ cotton.” Large crops
with high prices brought in large sums of money. The farm­
ers, business men and bankers all were happy. What hap­
pened in the two years following the high prices for cotton?
To use a slang expression, all were “ busted.”
And yet some of our bankers are continuing to loan money
to the one-crop cotton farmer. I may be wrong, but I have
a notion that when such a farmer comes around for a loan

BANKING SECTION.
that the banker should make the loan on the condition that
he keep at least one cow, one sow and a couple dozen hens—
at least enough live stock to feed his own family.
It was a surprise to me to find in one of our Southern
States 20% of the farms not producing a single egg, 37%
not I’aising even one lone chicken and 36% not having a
single dairy cow. In another State, well adapted to the
poultry industry, the annual importation of poultry prod­
ucts amounted to $19,000,000. In still another State I
learned of one county in which there were located 1,000
farms and only 70 dairy cows. What does this mean? It
means that agriculture is sick, production is unbalanced.
Farmers are paying freight and other overhead charges on
food products they ought to be raising at home.
Of course more diversified farming may mean less auto­
mobile riding; it ought to. Our economic problems cannot
be solved unless we are willing to work. The one-crop
farmer is not performing his share of work. He needs prof­
itable employment throughout the year. Loafing on the
farm ought to be made unpopular. Business men work
throughout the entire year. Why shouldn’t the farmer? If
he did, there would be less time to listen to the agitator.
The latter only increases discontent, makes men less capable
and prolongs the time of recovery. The farmer must work
his way out and not look in vain for the Government to
legislate high prices.
But if we get our farmers to working full time, will we
not have over-production? This over-production cry is too
often a thorn in the flesh ; it is apt to be misleading; it blinds
us to the real issue. There may be times when certain crops,
because of climatic or economic conditions, are unprofitable
and yet there are other crops that are profitable in a wellworked-out system of diversification. At the present time
wheat is said to be selling below the cost of production and
yet at the same time corn is higher than it was a year ago,
and as much higher as wheat is lower. In the live stock sec­
tions we seldom hear of an over-production of alfalfa or
clover. In all sections of the country we are importing
either food or feed that we ought to be raising at home. Out­
cropping systems need to be readjusted to meet present
needs. We need to do just a little more constructive think­
ing.
Marketing is one of the farmer’s big problems at the pres­
ent time. The products he has to sell are relatively low in
price and the things he buys are relatively high. The farmer
realizes that the manufacturers and distributers of the
products which he buys are organized and have something to
say in regard to the price at which they will sell their prod­
ucts. He feels that he must organize on the theory that
organization must meet organization. We cannot blame the
farmer for organizing. The organization objective is sound.
The thing we need to guard against is the wrong kind of an
organization. An organization will succeed only if it is
sound and constructive and operates in accordance with
economic law. Given time and opportunity to consider, the
farming population will think clearly and act sanely. The
banking profession has a great opportunity to direct his
thinking along constructive and sane lines.
The great end of farming, banking, or any other legitimate
business or profession is to grow splendid human beings,
physically, mentally and morally. Farming is a life as well
as an industry. The hope of this country lies in its young
people. Through the boys’ and girls’ clubs the banks of this
country have an opportunity for service that is unparalleled.
Much has already been done; much still remains to be done.
Bankers can go still further. They can find here and there
bright intelligent boys and girls with a noble purpose in life
whose life’s destiny hinges upon secux-ing a college educa­
tion. but whose parents unfortunately are unable financially
to send them. Such young people need advice from a sym­
pathetic banker. They need to have explained to them what
is meant by a productive investment. By taking out life in­
surance, such loans could be well protected, and according
to statistics as to the earning power o f college graduates, it
would take only a short time after graduation to pay back
the entire cost of an education. What a tremendous influ­




85

ence for good the banking fraternity could exert if each bank
in this country would take the responsibility of encouraging
one earnest and industrious boy or girl to invest in a college
education. Loans made for such a purpose will bring the
highest returns in satisfaction and leave to society a heritage
of untold value.
By the very nature of his business the banker occupies a
commanding position. He comes in contact with the busi­
ness enterprises of his clients. He is in touch with economic
movements. He can steer his patrons away from unsound
schemes and wild-cat investments.
Periods of hard times give the banker an opportunity to
drive home some good lessons. When wheat is selling below
the cost of production, when the boll weevil is sapping the
very life-blood of the one-crop cotton farmer, then is the time
you can effectively call his attention to the more favorable
condition of his fellow farmers who diversify. Then is the
time you can get him to start to milk a cow, feed a sow and
raise a few chickens. A few dollars and a few kind
words will almost perform miracles in times of financial
distress.
Whatever our discouragements may be we should not lose
faith in the ultimate outcome of agricultural development.
Hard times will not always last. People must eat and sooner
or later adjustments will be made and the farmer will come
into his own. Who knows what a year may bring forth?
One poor crop season may change conditions “ right about
face.” The farmer who attempts to jump from wheat to
corn, from corn to cotton, and from cotton to sugar cane with
the thought of hitting high prices is very apt to jump from
the “frying pan into the fire” and discover, alas, that he
jumped at the wrong time. Let the wheat farmer continue
to grow wheat and the cotton farmer continue to grow cot­
ton, but in addition have his own vegetable garden, practice
a reasonable system of crop rotation, raise feed for a few
head of live stock, produce his own pork, milk, butter, fruit,
and a little extra for pin money. In this way he can live,
no matter what happens, and when he hits a good year for
his favorite crop and is not encumbered with a long list of
debts for living expenses, he can have the satisfaction of add­
ing to his bank account. Yes, we need faith, a faith that re­
sults in far-sighted leadership, a faith as expressed by Mr.
C. D. Rohrer, a member of the Agricultural Commission,
that looks upon our present difficulties in the agricultural
industry not as a barrier to accomplishment, but as a chal­
lenge to the ability of the banking profession.
The American Bankers Association has already exercised
faith and far-sightedness by enlarging the scope of the work
of its Agricultural Commission. The membership of this
Commission was increased to include one member from each
Federal Reserve District. An Advisory Council was also
selected, consisting o f Dean H. L. Russell of the Wisconsin
College of Agriculture, President W. M. Jardine of the Kan­
sas Agricultural College and Dean W. R. Dodson of the
Louisiana College of Agriculture.
One of the outstanding results of our work during the year
is a conviction that the work of the Agricultural Commission
should be carried forward in co-operation with not only the
Agricultural Committees of the various State Bankers Asso­
ciations, but also in the closest co-operation with the Agri­
cultural Colleges of the respective States. This relationship
forms the Banker-Farmer-Educator tripod.
Banker-farmer conferences have been held in eight of the
twelve districts and would have been held in the other dis­
tricts had conditions and the time available been suitable.
In each of these conferences the aim was to adopt a con­
structive program that can be carried out in co-operation
with the Agricultural Committees o f the different State
Bankers Associations and the respective Agricultural Col­
leges.
Following the conference of the Seventh Federal Reserve
District, an outline of the work that bankers and bankers’
associations can do to help encourage and stimulate the de­
velopment of agriculture was prepared and distributed at
the Executive Council meeting at Westchester, N. Y., and
later published in “ The Banker-Farmer.”

86

BANKERS’ CONVENTION.

At the Executive Council meeting the Agricultural Com­
mission conducted an Agricultural Symposium which in­
cluded most interesting demonstrations by boys’ and girls’
clubs on canning and calf raising.
We have tried to put new life into “ The Banker-Farmer”
publication. How well we have succeeded we must let you
judge.
The work accomplished by the Agricultural Commission
is merely a start, a drop in the bucket, so to speak, of what
lies before us. We have formed acquaintances, made points
of contact, helped to formulate programs of work at the
Banker-Farmer conferences, and encouraged and stimulated
various State Agricultural Committees. We believe we have

at least laid a part of the foundation upon which we hope
to build a large constructive program.
The spirit back of our work is the spirit of service. We
believe that service and good business go hand in hand. As
our President, J. H. Puelicher, has well said : “ Banks have
ceased to be mere money changing institutions; they are pub­
lic service stations that expect to pay in service for what
they secure in profits. Agriculture at the present time is
going through a serious crisis. There are many problems in
production and marketing to be solved. There is a call for
close and sympathetic co-operation, not only between bank­
ers and farmers, but between all intelligent citizens of our
great commonwealth.”

Education and Banking
By S t e p h e n I. M il l e k , Jk., National Educational Director, American Institute of Banking.
Mr. President, Ladies and Gentlemen: My presence as
Educational Director of the American Institute of Banking
involved a trip from Seattle to New York City, but more im­
portant, involved the severance from my university and
Pacific Northwest public service work, in order that I might
share in the educational enthusiasm of more than 28,000 stu­
dents enrolled in the greatest university of the United
States. For more than 20 years I have been convinced that
business on the one hand and education on the other are
destined to play a more important role in the immediate
future than even business men and educators now appreci­
ate.
If a lawyer, engineer, physician or minister should enter
this hall and come to this platform, you would at once accord
to him all the privileges and distinctions of a profession.
The reason is clear. You at once recognize the scientific
nature of the work that he is pursuing, and the vast amount
of education necessary to make it possible. I f the business
man of the United States be not accorded a professional
standing, it is largely due to the fact that his vision has not
yet lifted to the science and economics behind the business
he is pursuing; it is largely due to the fact that he as yet
has not appreciated the full meaning of education in order
that his work may be professionalized. Name any one of
the problems of to-day, recall any problem presented on this
platform this morning, arid I think you will agree that its
intricacy will involve the necessity of the greatest possible
training.
I recall such a simple question as, who pays the import
duties? And I recall the fact that Abraham Lincoln said at
one time that he always had trouble understanding who
paid the import duty, and that it reminded him of the time
when he was in Illinois and some one asked for a nickel’s
worth of peanuts and then passed the peanuts back and took
a glass of cider and drank it. When the customer started to
go out, Mr. Lincoln said to him, “ You didn’t pay me for the
peanuts,” and the customer replied, “ I gave you the peanuts
for the cider.”
“ But you didn’t pay me for the cider.”
The customer replied, “ I didn’t have the cider; I returned
to you the peanuts.” Mr. Lincoln said, “ I lost a nickel some­
how, but I cant’ figure out just how it occurred.”
I f you ask the simple question of who bears the ultimate
burden of the income tax, I think you will see that the rami­
fications of this answer are so complex as to make necessary
the requirement of a science and education behind this prob­
lem of the day.
It reminds me, the answer as to who bears the burden of
the income tax, of the problem presented by a philosopher
when he said that if you anchor a ship at the Equator with
its prow to the East and stern to the West, and place a man
in the prow, start the man walking toward the stern at the
same rate of speed that the ship moves East, then tell me in
what direction is the man moving?
And if you add to that the fact that the earth is revolving
at the rate of a certain number of miles per hour to the East,
and then modify that conclusion by the fact that it is moving
back west because of its relation to its orbit at another sev­




eral thousand miles per hour, and then add to that a modifi­
cation that it has a certain relation to the whole solar sys­
tem, you find that the man is neither moving east or west,
but possibly northeast or northwest at some rate of speed,
absolutely impossible to be arrived at.
So every problem of the day sinks back into an economic
science, and any business man who finds it possible to solve
the economic problems that confront him, then he of all peo­
ple should not be denied the privileges of a professional stand­
ing. The first step in lifting business to a professional
standing is our due recognition of its scientific nature. The
American Institute of Banking, a part of our own Associa­
tion, has done more to lift business toward a professional
standing than any other business agency in the world.
Largely by virtue of their own initiative, young men and
women in the banks of the United States have built up an
organization which by virtue of its logic and education aims
to improve business of to-morrow, and they have set aside
from their leisure several hours each week in order that they
may qualify some way better for the tasks within the bank
and for the service that they owe to the nation.
Modern education does not reflect the need of the time,
and that constitutes a second reason why I am interested in
the American Institute of Banking work. The college student
does not bring the enthusiasm and matureness for higher edu­
cation. The average man in business is anxious to receive a
training for the particular problems which he faces, and in
the economic background that will lie immediately behind
the problem of the day. No greater testimony could be pre­
sented for this fact than the fact that the enrollment in the
American Institute of Banking is equal to the combined
registration of Harvard, Princeton, Yale, Cornell, University
of Chicago and the na val and military colleges of the United
States.
Even more important than the enthusiasm of the students
and the special training of the instructors who teach them
is the fact that the work of the Institute is adjusted to the
need of the student. It has for a long time been disappoint­
ing to me that of the tens of thousands of students who have
an opportunity to taste higher education, nevertheless in the
States and the communities in which they reside, they are
very little active in the larger problems of the day. It is
even more disappointing to me that the business men, promi­
nent leaders in the society of their particular community,
have failed to develop the ideals and the organizations nec­
essary to make citizenship more sincere and legislation more
sincere in the United States.
But a knowledge of facts and a knowledge of principle will
not suffice for the solution of modern problems of the busi­
ness man. Business must be dedicated in terms of humanity
and in terms of public service. A business and education or
a life that is not so dedicated in terms of this larger mean­
ing and purpose will not fulfill the requirements of business
and will not fulfill the requirements of constructive prog­
ress.
No greater power for the understanding of your business,
no greater power for the translation of business to the world
in general can be found to exist than in that organization of

BANKING SECTION.
young men and women who are endowed in enthusiasm, hope
and ideals. You are to inherit each year a vast number of
young men and women in your field of work. You receive
back from the classes hundreds who have had some class
work in the Institute.
What are you going to do with the inheritance? In the
past you have given in terms that are unmistakable, but the
American Institute of Banking will now ask of you the most
supreme gift of all time, the gift of yourselves.
No struggle is so difficult as the struggle to study. No
struggle involves so much vision, so much concentration, and
so much will power as to set aside one hour each day to
study the science, the principles and the background of our
particular work. Every man and woman in this audience
will appreciate that statement.
The lawyer, the educator, the doctor, finds it necessary to
study daily in order to keep up with the progress of his par­

87

ticular profession. No inspiration is so great as the inspira­
tion of a man’s employer. No inspiration is so great as the
personal interest of a parent. No investment yields such
returns as an investment in education, whether it be the
education of your child or the education of your employee.
But no investment receives less scrutiny and less personal
co-operation than the investment in education.
The American Institute of Banking craves your individual
attendance at the meetings of the Institute. It craves your
interest, personal interest, spiritual interest almost, in the
students who are enrolled in its course. They ask this of
you in order that your business may become a profession,
in order that education may perform a more direct and im­
portant function in the affairs of life. They ask this of you
in order that progress in the United States may be properly
bulwarked by culture, by science, and by the spirit of public
service.

A Rising or a Setting Sun
By J ames M. B eck , Solicitor-General of the United States.

Ladies and Gentlemen: Fully appreciative of the honor
o f the invitation which I now gratefully acknowledge, I feel
I can perhaps best repay it by challenging your attention to
a question of very serious moment.
I have selected a somewhat enigmatic title for my address.
I wonder how many of my audience recognize the historical
allusion? When I last had the pleasure of addressing this
Association I selected as a subject the fascinating story of
the manner in which the American Revolution was financed
in its first two years by one of the most interesting person­
alities of the eighteenth century, Beau Marchais. After I
delivered that address I was told that few of my audience
had previously known the facts that I narrated. This
seemed strange to me, for apart from the fact that the story
is as fascinating in its dramatic interest as a Dumas novel,
I should have thought that an association of bankers would
have peculiar knowledge of the methods whereby our war of
independence was financed. If any considerable portion of
my present audience is similarly ignorant as to the historical
allusion of my title, then it is but another confirmation that
even with an American audience of exceptional culture— for
bankers are generally exceptionally well-read men—there is
too little time given to the study of American history. This
indifference is not peculiar to your class. I know’ of no peo­
ple who are as ignorant of their own history as the American
people, and this is the more amazing, for in all the annals of
mankind there is no more fascinating story than the devel­
opment of the>American Commonwealth. With its opening
scene— the landing of the London adventurers at Jamestown
— to the present hour, when America is potentially the great­
est nation of the world, it presents the most stupendous
drama ever played upon the stage of this “ wide and univer­
sal theatre of man.”
My title refers to one of the most interesting and dramatic
but little known episodes in American history. One hun­
dred and thirty-six years ago this September, 39 men met for
the last time in the State House in Philadelphia. They had
been in session for four long and weary months. Their
problem was as great as it was unique. ' For the first time in
human history the representatives of a nation met to devise
and promulgate a comprehensive scheme of government.
Like all true master-builders, they “ builded better than they
knew,” for when they adjourned on Sept. 17 1787, it was not
with elation in their hearts but rather in the spirit of the
deepest depression. Although their work was to be pro­
claimed by the common consent of mankind as the “greatest
piece of statecraft ever struck off by the brain and purpose
of man at a given time,” yet they were quite unappreciative
of the immensity of an achievement which was to immortal­
ize them all. Of the 55 delegates who had originally met,
16 had left before the final day in disgust. Of those who re­
mained a number refused to sign as individuals, and at least




three were outspoken in their criticism.. It is true that Ban­
croft says that when the work was completed they were awe­
struck at its greatness, but Bancroft was of that class of
historians who could not refrain from making every historic
episode a Homeric epoch. The fact is that the Constitution
came near being the stone rejected by the builders. Not
with elation, but with great reluctance, the members signed
in behalf of their respective States and they were induced to
do so by Franklin, the true founder of the American Com­
monwealth, who in a speech of ingratiating wit, reminded
the dissenting delegates of their fallibility in modestly sug­
gesting his own.
The long suspense had ended, the crisis had passed, and it
was then that Franklin, pointing to the half-disk of the sun,
painted on the chair of the President of the convention, made
the prophetic remark that, while he had often, in the weary
and arduous months of the convention wondered whether
that sun was a symbol of a rising or a setting sun for that
America to which he had already given more than half a
century of his noble life, concluded:
“ But now at length I have the happiness to know that it is
a rising and not a setting sun.”
On this day, when the sun, whose rising Franklin so
clearly saw, is seemingly in its noontide splendor, with its
rays illuming the world, we can see the full realization of the
sage’s prophecy. That sun is still ascendant in the constella­
tion of the nations, for who can ignore the momentous shift­
ing of the world’s centre of gravity which recent events have
evidenced? It does not require the gift of prophecy to real­
ize that the future destinies of the world will be determined,
not,, alone along the Tiber, the Danube, the Rhine, the Seine,
and the Thames, but also and predominantly from the Hud­
son, the Potomac and the Mississippi.
Less than 50 years ago the great nations of the world cared
little for America’s attitude on any public question, but to­
day it is pathetic to note their despairing Macedonian cry
to America, “ Come over and help us.”
There is a remarkable similarity between world conditions
in 1787 and those of the present hour. Then, as now, a world
war had just ended. Then, as now, there had been a swift
and terrible reaction in the souls of men from the nobility of
purpose and the divine spirit of self-sacrifice that had ani­
mated the nations in their fierce struggle for existence. As
Washington said, “ The whole world was in an uproar,” and
again he said the difficulty was “ to steer between Scylla and
Charybdis.” Especially deplorable were the conditions in
the colonies in the years that had intervened between the
treaty of peace and the meeting of the Constitutional Con­
vention.
The spirit of anarchy, or, as we would now say, Bolshev­
ism, had swept a people who had already been gravely tried
in the fiery furnace of war.

88

BANKERS’ CONVENTION.

Credit was gone, business paralyzed, and lawlessness ram­
pant. Not only between class and class, but between State
and State, there were acute controversies and an alarming
disunity of spirit. The currency of the little nation was
valueless. It had shrunk to a nominal ratio of one cent on
the dollar. Even its bonds were sold at one-fourth their
value. The slang expression “not worth a continental” is a
surviving evidence of the contempt for the financial credit
of the country. Tradesmen derisively plastered the walls of
their shops with worthless legal tenders.
When invited to attend the proposed Constitutional Con­
vention in Philadelphia, Washington at first declined. Sud­
denly, the news of Shay’s rebellion in western Massachusetts
came to his startled ears. It was essentially, as we would
now say, a Bolshevist movement, an uprising of debtors to
prevent the collection of debts or of taxes. Courts of law
were seized to subvert order and desti*oy property rights.
The revolution spread from Massachusetts to adjoining
States, and threatened to strangle the infant republic at its
birth. Only an army of 5,000 men and an actual battle suf­
ficed to end it. Civil war had come.
Washington saw this in his retirement at Mount Vernon.
With acute anguish of spirit, he w rote:
“ What, Gracious God, is man that there should be such
inconsistency and perfidiousness in his conduct? It was but
the other day that we were shedding our blood to obtain the
constitutions under which we now live, and now we are un­
sheathing our swords to overturn them. The thing is so un­
accountable that I hardly know how to realize it or to per­
suade myself that I am not under an illusion of a dream.”
Once again the father of his people came to their rescue.
Turning his back upon the sweet retirement of Mount Ver­
non, which he had thought would be his solace for the nine
years of absence during the great struggle, Washington
again accepted the call of his country and was hailed on his
journey to Philadelphia to attend the Constitutional Conven­
tion as the saviour of his people.
So little was the interest in the project and so weak the
faith in the possibility of any favorable result, that only a
few delegates had arrived on the day set for the beginning
of the convention and for many days it was impossible to
secure a quorum.
While waiting for enough delegates to form a bare quorum
of the proposed convention, Washington gathered the faith­
ful few about him and, as Gouverneur Morris narrated years
afterwards, he said:
“ It is too probable that no plan that we propose will be
adopted. Perhaps another dreadful conflict is to be sus­
tained. If, to please the people, we offer what we ourselves
disapprove, how can we afterwards defend our work? Let
us raise a standard to which the wise and just can repair.
The event is in the hand of God.”
In 1776 the task of our Fathers was to make America safe
for democracy; in 1787 it was to make democracy safe for
America. The latter was the more difficult task. The Fath­
ers worked with a sad and terrible sincerity begotten of the
awful necessities of the situation. They were plain men and
their unequaled success owes much to their simplicity in
thought and action, for the great things of life are always
simple and sincere. They preferred to walk on mother earth’s
hard ground of reality, over which they painfully struggled
with fleeding feet until they had reached the eminence of a
marvelous achievement. They were very practical men and
never more practical than when they formulated this won­
derful instrument of government. While they had little of
the spirit of doctrinarianism, j-et the great charter, which
contained about 4.000 words, 89 sentences and about 140 dis­
tinct provisions, stated a broad and accurate political phil­
osophy which constitutes the true doctrine of America,
and indeed the whole law and the prophets of free govern­
ment.
The principal features of this philosophy was a belief in
representative government as distinguished from direct
action of the people, a dual form of government which gave
power to the central Government for matters of purely na­
tional concern, but otherwise preserved the spirit of home




rule to the constituent States; the limitation of the power
of democracy by protecting the individual from the unfair
abuses of majority rule; the development of a fine and virile
individualism; the principle of an independent judiciary
to preserve the Constitution and to protect the individual
from the abuses of popular government; the system of Gov­
ernmental checks and balances to prevent usurpation of
power by any branch of the Government, and last, but not
least, the concurrent power of the Senate and the Executive
in formulating the policy of the nation with respect to the
rest of the world.
These, in brief, are the fundamental principles of the Con­
stitution, and while some of them were merely the amplifica­
tion of great principles of free government of previous ages,
some constitute an original contribution to the ordered progi-ess of mankind.
In minor details the Constitution was not static and ad­
mitted of progressive adaptation to the changes of the most
progressive age in human history, but these principles were
not of the day, but were fundamental verities of human life
for all time.
Were Franklin again to revisit the glimpses of the moon
and enter this hall to-day, would he, with his unequaled pre­
science, still regard the sun as a rising one? Would he, if
he knew the developments of the last quarter of a century,
regard this great luminary of the nations as in the noontide
of its splendor, or would he regard it as slowly disappearing
behind a dark cloud of Socialism—only to set some day in
the flaming West, which would write its irrevocable sentence
upon this as it has upon so many strong Governments that
have preceded?
What would Washington say if, clad in brown velvet and
with sword by his side, he entered that doorway and again
took his place upon this platform? We can know his
thoughts from those which he expressed in the Farewell Ad­
dress—the noblest political testament that any founder of a
State ever gave to a people whom he had led to high achieve­
ment. Let me quote the significant words which he, as “an
old and affectionate friend,” addressed not only to his own
generation, but to all that were to follow, and therefore to
this generation;
“ It is of infinite moment that you should properly esti­
mate the immense value of your national union to your col­
lective and individual happiness. . . . Toward the pres­
ervation of your Government and the permanency of your
present happy state, it is requisite not only that you steadily
discountenance irregular oppositions to its acknowledged
authority, but also that you resist with care the spirit of
innovation upon its principles, however specious the pre­
texts. One method of assault may be to effect in the forms
of the Constitution alterations which will impair the energy
of the system, and thus to undermine what cannot be directly
overthrown.”
Washington well saw that the Constitution could be more
easily undermined from beneath than overthrown from with­
out. If this were true in the day of our weakness, it is more
true in this day of our overshadowing strength. We need
not fear external aggression. This great, self-sustaining
nation is probably invincible to any attack that could be
made upon it. Another civil war between the sections seems
equally improbable; for the 4S States of the Union are seem­
ingly indissolubly bound together by the potent agencies of
steam and electricity.
But we cannot speak with equal optimism of the proc­
esses which, as Washington so sagaciously pointed out, might
“ undermine what cannot be directly overthrown.”
Thirty-two years ago, it was my privilege as a citizen of
Philadelphia to participate in the Centennial Celebration of
the adoption of the Constitution. Who that participated
will ever forget that memorable week of September 1887,
when the representatives of the nation met in Philadelphia
to acclaim the great work of the Fathers?
The guns of the new navy of the United States awoke
joyous echoes from the banks of the Delaware from their
bronze throats. Down our chief highway marched the vet­
erans of the Civil War, headed by Phil Sheridan, the “ boys in

BANKING SECTION.
bine” who with immortal valor had saved the Union in the
dark days of the Civil War.
Within the shadow of the belfry which crowns Independ­
ence Hall, and from which the old bell, 143 years ago, pro­
claimed “ Liberty throughout the land and unto all the inhab­
itants thereof,” there met 36 years ago, the then President of
the United States, Mr. Cleveland, the leading officials of the
Government, the representatives of many nations, and a
great body of American citizens, to thank God that a full
century had attested the splendor of the Fathers’ achieve­
ment. Through the cathedral arches of the trees of Inde­
pendence Square there sounded in noble song the faith of a
people that “ages upon ages” would be the happy lot of
America.”
This joyous io triomplie of a proud and exultant people
had then no minor chord of doubt as to the future. In all
the public utterances that marked that noted celebration
there was undoubted faith that the Ship of State had weath­
ered its hardest storms, had escaped the rocks and shoals
which had wrecked other Governments, and that, in the un­
limited future, there were before it only smooth seas and
cloudless skies.
If any of us who took part in that celebration had then
anticipated the portentous changes of the next 25 years, I
think the note of exultation would, like Macbeth’s “ Amen,”
have stuck in our throats. Little we then realized that be­
fore another quarter of a century had passed every funda­
mental principle of the Constitution would be challenged by
great political parties, and responsible leaders of thought,
and that, within that time there would be Americans who
would openly proclaim their belief that the Constitution was
an antiquated and reactionary document and an obstacle to
the progress of the American people.
In measuring the force of Constitutional changes it is
necessary to note the changes in the Constitutions of the
States, as well as in that of the Federal Government. To­
gether they form the real Constitutional system of the
American Commonwealth.
The representative principle has been challenged in twen­
ty-two States of the Union by the initiative and the refer­
endum.
The principle of home rule has been subverted by a steady
submergence of the States, which has now made of them a
little more than glorified police provinces. The latest illus­
tration is the Prohibition Amendment, whereby Congress is
given power to prescribe the habits of the people.
The guaranty of individual liberty has been violated by
many socialistic measures, while property rights are de­
stroyed from time to time by confiscatory legislation.
The independence of the judiciary is menaced by many
provisions for tiie recall both of judges and of judicial de­
cisions, and the fatal impairment of the power of the Su­
preme Court.
The system of Governmental checks and balances has been
disturbed by the persistent subordination, in the practical
workings of the Government, of the Legislative to the Exec­
utive ; while the concurrent power of the Senate over the
foreign relations of the Government has been challenged by
many thousands of well meaning but misguided men.
The taxing system has been perverted to redistribute
property.
The commercial power of the Union has been utilized to
attain unconstitutional results which were clearly outside
of the sphere of the Federal Government.
The Fifth and Fourteenth Amendments have largely
broken down as bulwarks against confiscatory legislation.
The Fifteenth Amendment is a dead letter.
Under more than one Administration, the control of the
Senate in the selection of diplomatic representatives of the
Government has been nullified by the appointment of extra­
constitutional diplomats.
Even the concurrence of the Senate in the treaty obliga­
tions of the country has been impaired under many Adminis­
trations by protocols, informal treaties, and latterly by
methods of treaty-making which make the free decision of
the Senate difficult, if not impossible.




89

Still more amazing and menacing are the propositions of
some of our leading public men to destroy the balance wheel
of our constitutional system by impairing the power of the
Supreme Court to preserve our form of government in its
integrity. The Supreme Court has been the most admired
feature of our institutions. No one can read our history and
fail to recognize that without that court the Constitution
would probably have long since perished. It has been as a
great lighthouse, and while the angry waves of popular pas­
sion have time and again beaten with fury upon its founda­
tion, yet when the storm had subsided it was recognized by
all men that the lamp of the Constitution still continued to
send forth its benignant rays upon the troubled surface of
the waters. It is now gravely proposed by some capable and
patriotic leaders of thought that this unique and indispensa­
ble feature of our institutions should be impaired, if not
practically destroyed, so that the Legislatures of State and
Nation may have greater power to pass statutes in violation
of the wise limitations of the Constitution.
Thus it is proposed that a law whose constitutionality is
assailed shall not be invalidated unless at least seven of the
nine justices are of opinion that the law is unconstitutional.
It would thus be within the power of three justices to pre­
vent the court from taking an action which two-thirds of
that great tribunal regarded as essential to the preservation
of the Constitution. Some day we may have a radical
President and in the four or eight years of his power he may
well have the appointment of three Justices of the Supreme
Court. Thus a radical faction could be formed in the Su­
preme Court which would make it impossible for many years
for that court to discharge its great duty of preserving the
Constitution. Indeed, the unanimous decision of the court
might thus be destroyed, for the court does not always have
a full bench and at times, through death or illness, only six
justices may be actually sitting. If, therefore, such a court
was unanimously of opinion that a statute could not be en­
forced without violating the Constitution, nevertheless its
decision would be nullified because three absent Justices did
not concur in the judgment. A man could thus be arbitrarily
deprived of liberty, property and even life in violation of the
sacred guarantees of the Constitution because, although six
Justices of the court were unanimously of opinion that the
guarantees protected him from an unjust statute, the
absence of three Justices had destroyed the power of the
court.
Another portentous proposal is that where the Supreme
Court has adjudged that a given statute cannot be enforced
without violating the Constitution, yet if two-thirds of the
legislative body re-enact a statute, it shall nevertheless be
law. This proposition has at least the democratic justifica­
tion that it gives effect to the popular will, but it is the de­
struction of our form of government, which wisely confined
the power of the majority within reasonable limits. The
men who framed the Constitution did not believe in an un­
limited democracy. They regarded the tyranny of a ma­
jority as potentially oppressive as that of a single autocrat.
The Constitution thus sought to protect the individual from
the impairment of his reserved rights. Such was the noble
guaranty of the Constitution, but it is not worth the paper
it is written on unless there is an independent judiciary to
enforce it, and therefore the very keystone of the Federal
arch will fall if the legislative branch could thus nullify the
authoritative action of the Supreme Court. Fortunately the
Supreme Court is created by the Constitution and its powers
could not thus be impaired by congressional statute without
an amendment to the Constitution.
Alarming as are these tendencies, infinitely more por­
tentous is the shifting of power from the Government to or­
ganized classes—and this tendency of our time is so grave
that it threatens the very existence of organized society.
When any class becomes so numerous or powerful that it can
force its will upon the Government, not through the ballot
box, but through its control over the necessities of life, then
the Government in that respect exists in form and not in
name, and such a nation has been Rolshevised. Bolshevism
means the rule of the majority: but in its practical opera­

90

BANKERS’ CONVENTION.

tion, as seen in Petrograd, it is the rule of a class. Of all
oligarchies, that of a class is the most hateful.
Even in England once pre-eminently the land of authority
and law, there was recently manifest danger of a Soviet
Government— in fact if not in form. There the miners, rail­
road employees and the dock laborers united in a trinity of
power, not to impose their views upon their employers, but
to compel the Government to take political action, under
the threat that otherwise the people of England would freeze
and starve. This they call “ direct action” ; meaning thereby
that they are not content to assert the legitimate demands of
their class through the ballot box, which is thus impliedly
stigmatized as indirect. It is a time for plain words. “ Direct
action” is civil war, and unless it be checked, there is an end
of free government.
Our own land has not been exempted from similar exhibi­
tions of class tyranny. No one now questions the right of
labor to organize, to act collectively and even to strike by
concert of action to compel the employer to recognize the
demands of the employed. Once a crime, this is now re­
garded as inherent in the libei'ty of man to work or to refuse
to work, as he thinks proper. But this right, as all rights,
is not absolute, and Government would indeed be impotent if
it could not prevent the arbitrary abuse of such power. An
equal power must exist to prevent the right to strike from
degenerating into an exercise of tyranny subversive of the
equal rights of other people and of the State.
On the eve of the Presidential election of 1916, the organi­
zation which represents the labor engaged in transportation
— as essential to the life of a nation as the circulation of the
blood is to the life of an individual— arrogantly served notice
upon the President and Congress that their wages must be
raised by statute. With a stop-watch in their hands they
demanded immediate compliance with their imperious de­
mands; and not only did the President and the Congress
yield, but even the Supreme Court bent to the storm in sus­
taining as constitutional by an almost equally divided vote
an unprecedented exercise of legislative power. “ Can such
things be and overcome us as a summer cloud without our
special wonder?”
It is gratifying to add that, when a second attempt was
subsequently made to turn this free republic into a Soviet
form of government, and the same labor leaders demanded,
under the threat of a nation-wide strike, the passage of an
Act which would have largely taken from the owners of rail­
way securities their own property, both the President and
the Congress, without division of party and with a gratify­
ing unanimity, refused to surrender to the arrogant demand.
In America— thank G od!— the spirit of free government is
not yet dead.
Who, however, can underestimate the peril? I f the labor
leaders who control mining and transportation can deny to
the people coal and food, unless their arbitrary demands
are met, there is an end of free government. And yet when a
brave Attorney-General said this a year ago he was rewarded
by sneers.
Such attempted subversions of constituted authority re­
call the solemn warning of George Washington in the Fare­
well Address, and, as I quote them, perceive the extraordi­
nary aptness of his language to present conditions:
“ All obstructions to the execution of the laws, all combina­
tions and associations, under whatever plausible character,
with the real design to direct, control, counteract, or awe
the regular deliberation and action of the constituted au­
thorities, are destructive of this fundamental principle and
of fatal tendency. . . .
“ However combinations or associations of the above de­
scription may now and then answer popular ends, they are
likely in the course of time and things to become potent
engines by which cunning, ambitious and unprincipled men
will be enabled to subvert the power of the people, and to
usurp for themselves the reins of government, destroying
afterwards the very engines which have lifted them to un­
just dominion.”
Who can deny that, in recent years, our country has wit­
nessed such “ obstructions to the execution of the laws,” such




“combinations and associations” designed “ to direct, con­
trol, counteract or awe the regular deliberation and action
of the constituted authorities.”
I have dwelt upon the disintegrating tendencies of direct
action, whether by organizations of capital or labor, as it
seems to me the most serious menace to the perpetuity of
our Constitution. When this era is seen by a later age in
the perspective of history I am not sure that future genera­
tions may not recognize that the most portentous discovery
in political science of the nineteenth century was the recogni­
tion by large and important combinations of men of the fact
that their power to control the community by the duress of
a nation-wide control of the necessities of life, as compared
to the political power of the ballot box, was as a 42 centi­
metre gun to a toy pistol. Nothing is more striking than the
decay of belief in many countries in the ballot box, or in the
legislative assemblies through this medium. The whole
world seems to be in the throes of revolution— a class dicta­
tor in Italy, a military dictator in Spain, class war in Bul­
garia, the threat of civil war in Germany and Cuba, are
current illustrations of the world-wide revolt against the
political state and the disposition of classes to take matters
into their own hands, not through the ballot box but through
violence.
How can we affirm with confidence that the waves of
revolution may not reach our own country? It is true that
its prosperity and the fact that the blessings of life are more
generally diffused among our people than in any other coun­
try is not a fruitful soil for the spirit of revolt in America,
where every man is a capitalist even if he does not recognize
it, but will our smug prosperity always prove a sufficient
bulwark against Bolshevism? Is it safe to ignore the moral
poison that is being slowly injected into the veins of America
by the world-wide movement of Communism which has its
source in Moscow and Petrograd? It may yet appear that
the turning point in modern history was when England and
the United States refused to join with France shortly after
the armistice in redeeming Russia from the cold-blooded
tyranny of Lenin and Trotzky. As long as these two bloody
dictators, in comparison with whom Marat, Robespierre and
Danton were comparatively respectable, govern the desti­
nies of that hapless people and with their stolen booty at­
tempt to poison the peoples of other countries, a dark shadow
rests upon the whole world. Since 1919 a well-organized
Communist party has existed in this country whose avowed
aim is to overthrow the Government by force or violence. It
is well financed by the Soviet Government. The last two
years have witnessed a remarkable and portentous growth
in its activities.
The agencies used to propagate the baleful ideas of the
Third Internationale have even reached into some of our
schools and colleges. There are now published in this coun­
try 567 radical papers which are printed in 26 languages,
and what is more significant, 352 are printed in foreign
countries. It is believed that their joint circulation in this
country is not less than one million issues a day, and I am
reliably informed that a sum of over $409,000 was sent from
Moscow for use this year in aligning the negro portion o f
our population with the Third Internationale. While at­
tempts at open violence would promise little success, an incalcuable injury can be done to this country by the widely
circulated proposals to follow the Ca’canny policy of taking
wages but shirking work.
It is fortunate indeed that the greatest labor organization
in this country has set its face against the spirit of Bolshev­
ism and in its own internal organization is waging a praise­
worthy fight against an increasing minority who would con­
vert the American labor movement into one of communistic
tendencies.
The Federal Government has not been indifferent to the
spread of such propaganda and only the past week the At­
torney-General has taken steps by co-operation with the
State authorities to establish a more effective supervision o f
the revolutionary and criminal elements in this country.
Nor is the next Congress likely to be indifferent to the
danger which too many men have hitherto minimized. Tw o

BANKING SECTION.
bills will be urged for passage— one to register all aliens in
the country, and the other to make it a crime to conspire to
overthrow the National Government by force and violence.
To-day, it may be doubted whether there is any specific Fed­
eral statute which enables the Federal authorities to arrest
an alien even though he is carrying a bomb to blow up a cus­
tom house. The registration of aliens, if adopted, will prob­
ably cause a speedy and welcome hegira of alien Communists
who are now under cover and who are ceasessly plotting day
and night to destroy the ordered principles of liberty for
which the Constitution stands. It may be that this peril is
unduly exaggerated, but it is well to exaggerate, for fore­
warned is fore-armed.
There is, however, a larger consideration which time does
not permit me to do more than suggest, and it applies to all
classes of the American people. We attribute a magical
effect to the Constitution of the United States. We think
that the document by its own inherent power has controlled
the destinies of the American people. The fact is that the
charter, no matter how wise its provisions were in theory,
would have been a failure if there had not been a people
with a sufficient genius for free government to maintain its
principles. Other nations have had nobly conceived constitu­
tions, but they became mere scraps of paper because the
people for whom they were intended did not have a sufficient
sense of constitutional morality to make them effective. A
Constitution is valueless unless a people has the spirit of
self-restraint.
The serious question presents itself whether the American
people, upon whom the maintenance of the Constitution must
finally depend, have the same capacity for self-government
and self-restraint as previous generations.
I have elsewhere discussed and will not now repeat my
own somewhat pessimistic belief that our hyper-meclianical
civilization has resulted in a marked deterioration in human
character. Man as the citizen, the worker, the head of the
family, the thinker, and above all, as the responsible
moral being, seems to me to have retrograded in my life­
time.
To insure the perpetuity of any form of government three
conditions must exist. In the first place the people must
take an active and militant interest in the operations of free
government, for eternal vigilance is, as always, the price of
liberty. To-day at many elections one-half of the electorate
does not even take enough interest to vote. The old-time
militant activities of the citizens belonging to two strong,
powerful political parties has largely spent its force. Recall
the campaign of 18S0, when the only issue was a high and
a low tariff; remember the incessant activities of the two
great parties between the nominating convention and the
election; recall the countless thousands of meetings that
were held nightly throughout the land; the great party or­
ganizations which in our large cities marched as great
armies in defense of their principles; and then recall in re­
cent times the scant interest that was taken by the American
people in so prodigious a problem as the League of Nations,

91

which involved the stupendous question of the attitude of
the United States to the rest of the world in the trying years
to come.
In the second place the people must taken an intelligent
interest in politics, and I gravely doubt whether there is
to-day the same clarity of vision that marked our political
life even 50 years ago. Man to-day ha= engulfed himself in
an ocean of printer’s ink and he has so lost his sense of
values that to-day the average man has what I would call a
moving picture brain, which retains only momentary impres­
sions about anything, and if this were not bad enough the
universal disease which afflicts all of us is a St. Yitus dance,
which is fatal to repose of mind or consistency of action.
In the third place, if free government is to function men
must have a deep and abiding respect-akin to a religious
feeling for the authority of the State, and the willingness to
subordinate his own views to the common good. Without
this spirit of self-restraint, democracy, or, indeed, any form
of Government is unworkable. To-day the power of the
State in this and every country is at its lowest ebb. Never
was there a time when men were more disposed to take the
law into their own hands, not for the common good, but to
serve selfish interests of individuals or classes. This revolt
against authority is a world-wide phenomenon and as time
does not permit me to do more than suggest it, may I suggest
to any one who is interested in this phase of this question
that if he will read my Lectures on the Constitution which
I delivered at Gray’s Inn, London, last summer and this sum­
mer, he will there find in the chapter entitled “ The Revolt
Against Authority,” a more careful discussion of a question
which, in my judgment, is the greatest that now confronts
thinking men.
In this period of popular fermentation, the end of which
no man can predict, the Constitution of the United States,
with its fine equilibrium between efficient power and indi­
vidual liberty, still remains the best hope of the world. If
it should perish, the cause of true democracy would receive
a fatal wound and the best hopes of mankind would be ir­
reparably disappointed.
These are “ the times that try men’s souls.”
The situation is strikingly similar to that April morning
of 1787, when Washington entered the city of Philadelphia
to gather about him a few faithful adherents to restore law
and order.
Can we do better than to imitate his spirit?
Shall we not raise the standard that he then raised?
Ought not men of all parties who love this country and be­
lieve in its past as well as its future unite in the same spirit
to which Washington gave utterance at the beginning of the
great Convention, when he so nobly said:
“ It is too probable that no plan that we propose will be
adopted. Perhaps another dreadful conflict is to be sus­
tained. If, to please the people, we offer what we ourselves
disapprove, how can we afterwards defend our work? Let
us raise a standard to which the wise and just can repair.
The event is in the hand of God.”

C ommittee and Officers ’ R eports—Banking S ection
Annual Address of the President,
John H. Puelicher.
A year has passed since our momentous gathering in New York. A
year’s progress has been made toward the solution o f great problems.
The world’s equilibrium, so ruthlessly thrown out o f balance, is slowly
righting itself. Surely the ruinous passions of war are subsiding and the
common-sense o f peace is repairing war's devastation. Large parts of
Europe, for four long years the camp o f destroying hatreds are yielding
to nature’s restoring demands. Men and nations are again at work. Pro­
duction is supplanting destruction. The green o f the field and the smoke
o f the factory are the peace offerings of industry to progress, to civilization.
Last M ay, speaking at a public meeting in Washington, Secretary of
State Hughes said: “ To-day, notwithstanding the gravity of unsettled
issues, we find throughout the world ample reason for encouragement in
the earnest efforts to remove the economic evils following the great war,
in the exhibition o f enhanced industrial capacity, in the swift repair of dam­
aged areas, in the extraordinary extent of recovery despite all difficulties.




So great has been the progress that it is not too much to say that the whole
aspect of affairs would instantly change if only means could be found to
dispel the fear and apprehension which is the barrier to accord and to give
a sound basis for the confidence which all desire.” To dispel fear, to dispel
apprehension, to restore confidence, to bring better understanding.
Thoughtful Progress Toward Recovery.
“ The crying need of both Europe and America, from the standpoint of
humanity, is for better understanding” (a); the spirit of man’s brotherhood
is expressing itself in attempts at better understanding, and where politics
have failed, economic considerations are succeeding. The vagaries of the
political dreamer, who would suspend the operation of economic law for
Bolshevist-made law, are slowly finding their defeat. Industry and initia­
tive are again assured recognition. Progress will live. The labors of men
devoted to the readjustment of the world’s economic balance are finding
their reward.
(a) Prom the report of M r. Pred I. Kent, given before the convention
the International Chamber of Commerce at Rome, March 1923.

92

BANKERS’ CONVENTION.

Great economic conferences seeking a cool, unselfish judgment of affairs
and an understanding vision of the world situation in its true relation to
man’s welfare, have given careful thought to many problems, to education,
to trade, to industry, to transportation, to finance. The great March
1923 meeting of the International Chamber of Commerce at Rome, at
which the American banker was responsibly represented, and at which an
American banker— one of our own co-workers(6)— was elected President of
that influential and important body, cemented many roads to that better
understanding. Thirty-six nations found their way to Rome. Thirty-six
nations came under unifying influence at Rome. Thirty-six nations con­
firmed “ the conviction that America has contributed to the world something
very effective and very impressive in its peculiar social and political phil­
osophy o f individualism.” Thirty-six nations, through their commercial
organizations, proceeded to make effective those fundamental considera­
tions agreed to at Rome. The gathering at Rome, statesmanlike in its
deliberations, was the contribution of commerce to peace, to progress, to
civilization. One of our number,(c) a vital factor at the Rome conference,
continued his stay further to study conditions in Europe. His address, as
Chairman of our Commerce and Marine Commission, will bring to us the
findings of his keen, inquiring, analytical mind.
“While the solution of many of Europe’s most difficult problems is not yret
apparent, still many of the underlying influences which caused them have
been corrected.
The so oft expressed world humanitarian interest of America, lately evi­
denced in her work among Europe’s stricken peoples and again in the quick
response to Japan's great need, should assure Europe, when ready, of Amer­
ica’s definite, unselfish counsel and co-operation. It is certain that progress
has been made toward a better understanding with the people of Europe.
Radical Activity in America.
In our own country there are many evidences of need of a better under­
standing. Socialism, Communism, Anarchism, Syndicalism, I.W .W .ism ,
are seeking to make converts in their attacks upon the very foundations of
our Government, in their attacks upon the institutions which have made
America a great democracy, affording more opportunities for success and
happiness than anywhere else in the world. While at Rome was “ confirmed
the American social and political philosophy' of individualism” as essential
to progress and human welfare, at home its fruits are sought by those not
willing to admit its advantages or share its responsibilities.
Although every human being hopes for ultimate success, although suc­
cess is the goal of all, warfare against the successful is volubly raging. The
dreamer, usually honest but usually impractical; the demagogue, never
honest but often too practical; the professional reformer for personal profit,
are all preaching the gospel of unrest, of class hatred, of disrespect for law
and order, o f discontent with honest endeavor. Their stock in trade is
appeal to the jealousy and cupidity of the less fortunate. Capitalism is to
be destroyed. Individual initiative is to be throttled. Its rewards confis­
cated. The lazy' and the indolent hope to secure to themselves the earnings
of the thrifty' and the diligent. As in Russia, some would use force, others
would through taxation “ bleed capital white.” To justify confiscation,
in one form or another, the faults of capitalism are magnified, its virtues
decried. The wealth-producing and opportunity-distributing qualities of
the capitalistic system are traduced. The fact is ignored that 90 % of our
luxuries, our comforts, our necessities would disappear with the destruc­
tion o f credit, and that credit is an attribute of the capitalistic sy'stem.
Where there is no capital, there can be no credit, and where there is no credit,
there is found the primitiveness of barbarity.
The Value of the Capitalistic System.
Only as industry' is rewarded by the possession and use of its accumula­
tions can it be hoped that accumulations o f capital will be striven for and
preserved. Without the aid of capital or the accumulations of y'esterday',
each day is a new beginning. The scientific appliances which have lessened
human labor and which make enlarged production possible are the result of
yesterday’s effort. Their fruits are felt in every home.
The mechanical aids to production encouraged under the capitalistic
system have released human energy into a further multitude of inventions.
Machinery' has increasingly' overcome the need and the hardship of manual
labor, bringing increased opportunity, increased remuneration, increased
possessions.
The wonderful progress and prosperity of America are due to the protec­
tion of the reward of individual initiative. The reward of individual initia­
tive is the outstanding attribute of the capitalistic system. When Russia
substituted Sovietism for individualism, only' the generosity' of the world
saved her people from starvation.
So that the inspiration of individual reward may remain the heritage of
our people, equality of opportunity must be maintained; equality of capacity
is a biological impossibility'. The first should be provided fully' in accord­
ance with each man’s capabilities; the latter is a Utopia seeking to wipe out
the inequalities imposed by nature. M an’s greatest opportunity is in his
innate fitness— “ talents, to every' man according to his several ability.”
The capitalistic system has brought to all the people more comfort and
greater leisure than has any other thus far tried system. Its higher evolu­
tion demands that, with the further development of the machine, there must
be given greater consideration to the development of the man. If we wish
to preserve the good which this sy’stem brings to humanity, we must abolish
in it whatever is bad and detrimental to progress, to happiness, to liberty.
Those men who have courageously and honestly demanded that the evils of
the capitalistic system be corrected, should command our admiration and
respect.
Evils to Be Corrected.
There should be no child labor. I f it is impossible to restrict it legally',
the moral force of the entire capitalistic system should protect child life and
child opportunity. It begins with protecting womanhood and motherhood,
compelled to labor, and is intelligent self-interest, intelligent self-preserva­
tion.
There should be no seven-day' labor week. “ Six days shalt thou labor
and do all thy' work; but the seventh day is the Sabbath— in it thou shalt
not do any work.’ ’
There should be no unduly long hours of labor, undermining the health
o f workers, and even where this is not true, preventing them from having
proper leisure for family life, for self-improvement, for recreation, and,
so that America may' be better understood, for the requirements of her

citizenship. This is all the more necessary because of the monotony im­
posed by many of our modern labor-saving devices.
There should be no treacherous business cycle, with its inflation or defla­
tion, excessive wages or unemployment, “ feast or famine.” Industry
should seek levels which would result in constant production, avoiding ex­
cesses which lead to suspension of operation, resulting in home-destroying
unemployment.
Our Americanization efforts, meagre and too long postponed, have left
vast multitudes of immigrants unfamiliar with American institutions, Amer­
ican ideals. The advantages of American political and economic life have
been accepted by too many of our newly adopted citizens without under­
standing. Should future immigration be viewed from the standpoint of
greater material wealth for the already' wealthy America, or should Amer­
ica insist on a quality of citizenship that will conserve the character and
integrity' of her institutions ?
Need of Belter Understanding.
Any system of society can last only if its adherents promptly abolish
evils as they develop. If this is not done from within, be assured it will be
forced from without by those who will destroy with the evil all that is good.
I repeat, in our own country there are many evidences of need of a better
understanding.
“ We are all blind until we see
That, in the human plan.
Nothing is worth the making if
It does not make the man.
W hy build these cities glorious
If man unbuilded goes?
In vain we build the world unless
The builder also grows."
— Edwin Markham.
In our own profession there are many evidences of a need of better under'
standing. We, as bankers, recognize above all other people the benefits
which our country has derived from the Federal Reserve System. It has
become a truism, that we could not have financed the war properly had
it not been for the Federal Reserve System. Yet errors in detail are be­
ginning to obscure in the minds of large numbers of our people the benefits
which all have derived from this^financial structure. The result has been
that Congress has amended the Federal Reserve Act in ways which appear
not to have improved it. The addition to the Federal Reserve Board of
members representing distinctive interests sets a dangerous precedent.
Representation on a body such as the Federal Reserve Board ought to be
for the benefit of all the people. Representatives ought to be appointed
on account of their qualifications and their technical training. There can
be no objection to a farmer on the Federal Reserve Board, provided that
the farmer understands the mechanism of finance and provided also that he
will regard himself not as the advocate of measures which may prove of
benefit to one industry of our people at the expense of others. The phrasing
of the original Act— “ commercial, industrial and geographic divisions of
the country” — was clearly intended to bring about proper consideration of
all the people, but by injecting the word interests, and adding two more
classifications—financial and agricultural— the entire meaning of the sen­
tence has undergone a radical change— a change from the general to the
specific. I f a change was desirable, the change should have instructed the
President in selecting appointive members to have due regard to the best
interests of all the people and of the geographical divisions of the country.
The Federal Reserve.
There is great danger in tampering with the fundamental principles o f the
Federal Reserve System. There is also great danger in permitting its func­
tions and purposes to remain misunderstood. The incidental weaknesses
which have been developed in its administration can readily be corrected.
The unfavorable public opinion which has been drawn down upon the sys­
tem can be corrected only by an intelligent understanding on the part of
both the banker and the layman of its beneficent and stabilizing purposes.
If America wishes a continuance of this financial structure, if its charter is
to be renewed, its fundamental principles must not be perverted and Amer­
ican public opinion must be brought to an understanding that this system
was the result of the most painstaking study of the financial systems of the
civilized world; to an understanding of the interdependence of the Federal
Reserve System and American commercial life; and that unless intelligently
supported, the present Federal Reserve banks may follow the way of the
First and Second Banks of the United States.
W e have a responsibility' also concerning public opinion regarding the
Gold Standard. The economic existence of a nation is dependent upon its
medium of exchange. The degree of stability of that medium determines
the degree of that nation’s continued well-being and progress; and because
so much of the superstructure of any economic condition is based upon the
character of money used, there are those whose jeremiad bewails money as
the root of all the maladjustments in any economic society. They, there­
fore, seek continuous experiments with it or its entire abolition.

The Gold Standard.
History repeats itself and is doing so at the present time in the advocacy
of fiat money, based on commodities, labor hours or land. It would seem
that the disasters which printing huge quantities of paper money' has brought
to Russia and Germany' would have served as a warning to those in this
country' desiring to overthrow the Gold Standard. It would seem that the
confusion of minds in Russia would not have spread to this country. With
our broader education, it should be realized that money is a mere symbol
of value, and generally speaking, not value itself. Hence the creation of
money by Government fiat does not, in any sense, increase wealth, and it is
wealth which people need and desire and money only as it represents wealth.
Wealth can be created only by production. Confusion in monetary stand­
ards can do more to hinder production and thereby check the increase of
wealth than can almost any other method known to man. People will
cease to produce unless they receive a safe return. Bankers advocate thrift.
Thrift is a worthy endeavor in a country' of stable currency, but a changing
currency, as we have abundant evidence in past and present day history,
“ makes a mockery of thrift."(d)
The Gold Standard is the result of evolution. The evolution has been
going on through the whole history of civilization. There is no scheme
that has been proposed in recent years which has not been tried, in some form
or other, countless times before, always without success and always result­
ing in disaster to the nations or people conducting the experiment, usually'
(&) Willis H. Booth. Chairman Conference Committee, was elected also damaging their commerce with the rest of the world.
President, International Chamber o f Commerce.
Variability of value is sometimes urged against gold as a basis of currency.
(c)
Fred I. Kent. Chairman, Commerce and Marine Commission of theGold may some day' find a successor more invariable as a measure of value.
American Bankers Association, was appointed Chairman of the Committee
on Finance. International Chamber of Commerce.
(d) Wm. T. Foster & Waddill Gatchings. “ M oney."




BANKING SECTION.
Since gold is a commodity, it is subject to the law of supply and demand,
and in conformity to this law there have been fluctuations in its value with
the discovery of unusual quantities of gold. Nevertheless, these fluctua­
tions have been so slight that experience has found nothing superior to it
as a monetary standard, and there is no justification for trying that which
has been tried and retried and found wanting. The record of failures covers
the pages of history for our edification and guidance.
From the earliest history of barter to the present day, through the great­
est unstabilizing experience of war ever known to humanity, the Gold
Standard has maintained the greatest stability for the monetary unit.
With misapprehensions and misunderstandings in regard to the Federal
Reserve System and the Gold Standard, both instrumentalities peculiarly
in the bankers’ field, with a general misunderstanding in regard to the
economic perplexities o f modern life, what will be the bankers’ contribu­
tion to peace, to progress, to civilization?
Economic Education.
The banker has made outstanding progress toward caring for education
within his profession. The American Institute of Banking is a truly uniquie
and effective school. In membership it is the largest university in the world.
By chapter contact or by correspondence, its advantages have been open
to both city and country banker. It is probably the only school which in­
cludes in its enrollment all grades of professional ability. It has been
founded on the rock of greater service to those within the profession and
through them to all of our people. It has advanced banking knowledge,
banking purposes, banking ethics, banking ideals. Its purpose, announced
in a widely broadcasted resolution asking for advancement on merit only,
supports fundamentally the philosophy o f individualism which has made.
American progress possible. “ We believe in the equitable co-operation of
employees and employers and are opposed to all attempts to limit individual
initiative and curtail production, and insofar as our profession is concerned,
are unalterably opposed to any plan purporting to promote the material
welfare of our members, individually or collectively, on any other basis
than that of efficiency, loyalty and unadulterated Americanism.”
American Institute of Banking.
Education rather than agitation is the world’s great need and education
intelligently directing man’s work, rather than agitation destroying man’s
work, will prove the world’s salvation.
The Institute is destined to serve as a model to other groups for the
achievement of greater efficiency, greater harmony, greater service. Where
there is a determined unity of purpose and where that purpose is directed to
the better qualification of the individual, and through the individual to the
broader service of the group, there is little danger of the misunderstandings
which so frequently involve capital and labor.
It is gratifying to see some of the great industrial corporations following
in a measure the example of the American Institute of Banking, not as yet
so much its educational example, as in the creation of a community of in­
terest, through a community of benefit. Some corporations havecreated
that community of interest— created loyalty, created responsibility— by
making it possible for large numbers of their employees to become partners
or stockholders. In addition, some have created a contact and like priv­
ilege between entrepreneur and employee, by inviting the latter to take over
managerial functions, usually regarded the prerogative of the executive.
The harmonizing influence o f a greater community of interest is being more
and more recognized. When that once extends even to the educational wel­
fare of the members of the group, as it does in our profession, the strife
which has so often paralyzed, will cease to be. Loyalty and responsibility
Will be found in its stead.
The higher the qualification of the individual, the higher the service ex­
pected o f him. As the bank man and bank woman have advanced, knowl­
edge and duty have continually imposed larger and broader services.
Superficiality of Present Day.
The last few years have awakened needs in many fields. The banker
of world perspective has read new economic symptoms. His diagnosis
has convinced him that the present unrest, the present superficiality of
American economic opinion and action, with its resultants in discontent,
in politics, in radicalism, come from a lack o f understanding and applica­
tion of the laws which underlie the complexities of modern life.
America has become a nation of headline readers, governed by the
psychology of sensational, superficial, simultaneous suggestion. Surface
wealth has been so easily procured that the nobility of work, the nobility
of thought, the nobility of knowledge, have lost their savor. Without a
strong foundation upon which to build sane and sound opinion and action,
we vacillate hither and yon, accepting without study each new doctrine,
each shallow assertion.
There is need to renew the zest for labor, for thought, for knowledge, for
spirituality, if we are ever to realize the fruits o f a better understanding
of man’s relation to man, to industry, to commerce, to government, to life.
The laws which govern in the field of economics, the laws by which we
work and live, are the laws which must be understood if we are to know
a right relationship between capital and labor, if we are to retain such
necessary adjuncts of our economic life as the Federal Reserve System and
the Gold Standard, if we are to reach high individual development and
satisfaction, if we are to succeed in wiping out the evils which threaten, if
we are to save the splendid virtues and institutions o f the capitalistic
system.
Noble and complete manhood and womanhood are the highest creation of
this universe. The true American is still that staunch character, responding
to the call of duty, to the voice of fairness to neighbor, of loyalty to country,
of faithfulness to his God, courageous in the maintenance o f right as he sees
the light, living for an ideal in this life or in the life to come. It is this
American who is asking for help in understanding.
The Duty of the Banker.
The banker has that contact with life which is enlightening of the needs
of our people. Banking brings with it that training and experience which
inbreeds a knowledge of life’s basic laws. Bankers cannot refuse to share—
for the sake o f America’s future, for her progress, for her liberties, for the
sake o f her citizenship, whose equal shall not have been in Greece or
Rome.
The banker is the economist in business. America’s troubles are eco­
nomic. The banker worthy o f his profession, the Institute graduate
worthy o f his diploma, find here a new field of activity through which to
support the purposes o f their profession, their professional ideals— to ad­
vance that knowledge which will bring harmony where now is strife, which
will smooth the roads to that better understanding between man and man,
which will show the futility o f a greed that expresses itself in bloc or class




93

activity, which will prove “ the unity of social interest.” (e) The unifying
influences of economic necessity will become a continually growing factor
in the peace of the world, both political and industrial, as the economic
contribution of each unit to the economic needs of all units and as the inter­
relations of all men and all countries are better understood.
It is America’s right to look to the banker for definite, well-ordered, in­
tense research into the science of money and banking and for the formula­
tion and promulgation of sound economic doctrine, sound economic policies
among her people.
“ Who shall measure the difference between the power of those who ‘do
and teach’ and who are the greatest in the kingdoms of earth as of heaven—
and the power of those who undo and consume— whose power, at the fullest,
is only the power of the moth and the rust?” . . . “ The three great
Angels of Conduct, Toil and Thought (are) still calling to us, and waiting at
the posts of our doors, to lead us, with their winged power, and guide us
with their unerring eyes.” (/) Suppose men “ should ever arise, who heard
and believed this word, and at last gathered and brought forth treasures of
— Wisdom— for their people ?” (/)

Report of Executive Council by F. N. Shepherd,
Executive Manager.
Vice-President Head: The next order of business is the report of the
Executive Manager of the official acts and proceedings of the Executive
Council, Mr. Shepherd.
Executive Manager Shepherd: M r. President, this report is merely a
brief.
Since the adjournment of the convention in New York City the Executive
Council held meetings Oct. 6 1922, aboard the Washington Irving, and at
Rye, N. Y ., April 25, 26 and 27 1923, and at Atlantic City, N. J., Sept. 24.
The Council re-elected the Executive Manager, the General Counsel
and the Treasurer.
Elected members of various committees and Vice-Presidents of territories
and foreign countries as recommended by the Nominating Committee.
Approved the appropriations recommended by the Finance Committee
and the salaries set by the Administrative Committee.
Designated the American Exchange National Bank, New 'York; the
Continental & Commercial National Bank of Chicago; the First National
Bank of Fargo, N. D ., as depositories of the Association.
Approved the action of the President in his appointment of five members
of the Executive Council at large.
Accepted the resignation of William J. Gray of Detroit, M ich ., and ap­
proved the appointment of H. H. Sanger of Detroit as his successor.
Approved the report of and discharged the Committee of 25, which
recommended that the Association continue to maintain its headquarters
in New York City.
Adopted a resolution of caution recommended by the Economic Policy
Commission concerning the strong upward trend of wages and prices.
Adopted the recommendation of the Federal Legislative Council request­
ing Congress to amend the national law to provide for indeterminate
charters for national banks and authority to obtain legislation from Con­
gress which will permit national banks to loan on city real estate for the
same term of years as they are now authorized to loan on farm lands.
Adopted the recommendation of the State Legislation Committee for
the promotion of legislation for the standardization of State Bank De­
partments.
Adopted the recommendation of the Insurance Committee to amend the
by-laws so that the General Counsel might be made an advisory member
and the personnel of the committee not restricted to members of the Execu­
tive Council.
Changes in the by-laws were made as follows;
By-Law 7 was amended to include as ex-officio members of the Committee
on Federal Legislation the Chairmen of the Committees on Federal Legis­
lation of the four divisions of the Association.
By-Law 7 was also amended to include as ex-officio members of the
Committee on State Legislation the Chairmen of the Committees on State
Legislation of the four divisions of the Association.
By-Law 6 was amended to increase the number of members of the Public
Relations Commission from 7 to 9.
By-Laws were amended by changing the number of By-Law 8 to 9,
advancing by one the number of each successive by-law and setting up a
new by-law numbered 8, creating a Committee on Public Education.
In order to equalize the membership on the Executive Council, a resolu­
tion was adopted specifying the terms of office for membership in certain
States.
Action was taken authorizing the creation of an anti-branch banking
committee and a committee to consider the action of the Federal Reserve
banks in the collection of non-cash items.
The action of the Executive Officers and the Administrative Committee
in fixing the place and time of the annual convention at Atlantic City,
Sept. 24 t o 27 1923, and the Hotel Traymore as headquarters, was approved.
The Council authorized the acceptance of applications from new members
on a pro rata basis for the quarter of the fiscal year in which they joined.
Also received, approved and placed on file reports of divisions, sections,
commissions and committees.

Report of Resolutions Committee.
President Puelicher: Gentlemen, you are missing an important part of
the meeting if you leave now.
Our Association’s relations with the world, outside of our profession,
are expressed in our resolutions, and it is important that you know what
we here assembled say to the rest of the world.
The resolutions will now be offered by the Chairman of our Committee
on Resolutions. It gives me great pleasure to present Frank Sisson.
Mr. Sisson: M r. President and gentlemen of the convention, the report
of your Resolutions Committee is submitted in the following terms;
Resolutions.
The bankers of the United States in convention assembled in this the
forty-ninth annual meeting of the American Bankers Association, review
their half century of organized effort with reasonable pride and satisfaction
as a period marked by constant progress towards sounder policies and
higher ideals in their important branch of business. Their united effort
(e)
Title of address given by Geo. E. Roberts. V .-P ., National City
Bank of New York, at Iowa State Agricultural College, Ames, Iowa, June
1923.
(/) Ruskin, “ Sesame and Lilies.”

94

BANKERS’ CONVENTION.

is directed towards the increase of knowledge and understanding In their
chosen field that will make for greater service on their part and an apprecia­
tion on the part of the public o f the facts and purposes which underlie
their activities.
Prosperity Svstained.
The order]} transition from boom conditions to those of tempered but
sustained prosperity has been the outstanding achievement in the field of
American business and finance in 1923. The volume of business, as
measured by basic production, reached an unprecedented level in the
first half of the year. The advance in commodity prices was rapid, and
bank loans were expanding. Recognizing the dangers inherent in such a
situation— for heretofore drastic reactions have usually marked the end
of similar periods of general expansion— business leaders and bankers
co-operated in preserving a degree of caution which made possible the
maintenance of generally prosperous conditions, uninterrupted by violent
readjustments. In this experience leaders in business and finance have
demonstrated their capacity for vision and initiative.
Banking Conditions.
Among the most favorable factors in the present situation is the strong
position of our banks. Loans and discounts of the member banks of the
Federal Reserve System on June 30 1923 were SI,076.328,000 less than on
Nov. 15 1920, while the bills payable and rediscounts of the same banks
amounted to less than 34% of the 1920 figure. During this period the
combined net demand, time and Government deposits o f the member
banks increased by $2,224,223,000, showing, in view of the decline in loans,
a large net increase in actual cash deposits.
We note with satisfaction that although a greater activity in production
and trade has been financed by the banks this year than in 1920 there
has been no such pyramiding of credit as took place three years ago.
Gold.
The comparative figures of reserve ratios must be interpreted in the
light o f the enormous growth in the gold holdings of the country. The
extraordinary flow of gold into this country during and since the war
has brought our stocks o f gold coin and bullion up to $4,049,000,000 on
July 1 1923, as against $1,891,000,000 on July 1 1914. Although more
than $3,000,000,000 of the total gold stocks is held by the Federal Reserve
banks, the Federal Reserve Board has properly made it clear that the
reserves are not to be regarded as a basis for proportionate credit expansion.
We believe that the gold reserves are so large that anything approximating
their full utilization for credit expansion would involve an inflation which
could hardly fail to end in disaster. Moreover, it is apparent that the heavy
importation of gold was the result of temporary and abnormal conditions,
and that it will be impossible to retain all of the present stock of gold in
this country permanently, even if it were desirable to do so.
On the other hand, there is no occasion for extraordinary devices for
disposing o f the metal. Such a redistribution of the world’s gold holdings
as may be called for by the future course of international trade and currency
readjustments should be left to the operation of ordinary agencies in inter­
national trade.
Excessive Government Regulation.
The present demonstration in this country of the advantages of individual
initiative and self-direction has been made at a time when the menace of
unwarranted extensions of Government interference and regulation in
business is especially pronounced.
In defiance of economic law, groups whose commodities or services are
temporarily depressed in relative market values, clamor for Government
action in their behalf, when the only real relief can come from those economic
readjustments which lie outside the sphere of proper Government action.
Despite the interference with the activities o f commodity exchanges, the
need for the orderly exercise o f the speculative function in business persists.
Suppression in this field reacts most harmfully upon the very interests which
it is intended to benefit.
The cry for government purchasing o f wheat or the fixing of its price
above the market is another case in point. Obviously, the corrective for
inadequate prices o f wheat is an adjustment of production to demand
which reflects the requirements o f consumption. Raising the price by gov­
ernment interference would tend to perpetuate the relative over-supply of
the commodity. Domestic production would be stimulated by the artificial
price. And, unless the Government promptly takes a loss by marketing
abroad its purchased stocks, the output o f other wheat-growing countries
would rise to meet the requirements o f importing countries. In any case,
price fixing would bring no permanent relief, and the immediate cost ef the
experiment would fall upon the taxpayers. Moreover, if the Government is
to undertake to raise the price o f one commodity by such means, producers
o f innumerable other products might, with equal warrant, lay claim upon
the taxpayers’ money.
Radicalism.
We regard the continued agitation for so-called nationalization of indus­
tries as a menace to national welfare. It is linked with the persistent
efforts to undermine the fundamentals o f the American system of govern­
ment. Government ownership in the field of industry weakens the economic
structure. With a minimum o f necessary regulation, the bases o f freedom
for individual enterprise must be preserved.
We express again our firm conviction that the forces and ideas which have
developed our country to its present unsurpassed position must not be
denied or repudiated in vain pursuit o f Utopian dreams.
Taxation.
Already the multiplicity o f government activities, with the amazing
growth in the number of public employees, has added enormously to the
burden o f taxation. There are now more than half a million employees of
the Federal Government alone; and, including employees o f State and local
governments, the total number on the public payrolls is estimated at more
than 1,500,000.
The tax burden is enhanced by needless inequalities in its apportionment.
The complete tax exemption o f many billions o f dollars o f public securities
is an important factor in the unequal distribution o f the burden, and the
necessary action for the gradual elimination o f this feature of our fiscal
system should be promptly taken.
The rates o f surtaxes on incomes should be revised downward. It is
evident that their legitimate evasion is a disturbing element not only in our
tax system, but in the security markets as well. The rapid increase in the
tax burden is shown by the increase o f the per capita tax since 1914 from
$22 95 to $79 15. We call attention to the disastrous results, previous
periods o f high taxation when public expenditures have run so far ahead of
economic development that they caused serious reactions and impairment
o f credit. Tax-levying bodies cannot hamper the legitimate functions of




private business by depriving business of necessary capital and penalze
thrift and enterprise without in turn destroying values and retarding
progress.
Federal Reserve System.
The Association calls attention to the special report o f its Economy
Policy Commission. It believes that this report embodies the views of the
best friends of the System, and it expresses the hope that the Federal
Government may adopt the suggestion made in this report. We would
call special attention of all bankers to this report and urge their support
of its recommendation.
TT'a^es.
Business is confronted with the handicap of excessive labor costs of
production, reflecting wage scales which have been raised out of proportion
to general prices or cost of living.
The advance in industrial wages since February has been greater than
in any like period since 1920. In July wages in representative New York
State factories, for example, were 118% above those for July 1914.
The cost of living in July, as measured by the index compiled by the
National Industrial Conference Board, was only 62% above the pre-war
level.
It is to be noted that since the pay of other workers— for example, farm
wages and the compensation of office employees— has not advanced pro­
portionately, the highly paid workers in the preferred positions are benfrfitting at the expense of their fellow workers in other lines.
Some recognition of this fact by those among the favored workers who
demand increased pay for less work would be helpful. That the basis
of all wage payments which are warranted is in the service rendered is a
truth too little understood.
The pressure of public opinion should be directed toward the encourage­
ment of the resort to voluntary arbitration in cases where direct nego­
tiations between employees and employers fail to reach an agreement.
The resort to force in the form of strikes entails needless costs and hard­
ships for the public.
The Coal Strike.
The recent strike of the anthracite coal miners, which has been settled
for the time by a further wage concession to the mine workers, has again
demonstrated the public’s relative helplessness with the powerful monopoly
of organized labor in this industry. The people feel a growing resentment
over the prospect of constantly enhancing prices for anthracite imposing
a further burden upon the already oppressed consumer, and look to the
Government for the protection of the public interest which has apparently
been to a degree forgotten in the agreement which has been reached in
the present controversy. The belief that the mine workers have taken
advantage of their strong position to obtain wage advances that are out
of alignment with wages in other industries is strong, and may be expected
to lead to efforts to escape the exactions of this monopoly. The adoption
of other kinds of fuel to an increasing extent is probable. Meanwhile,
the public is entitled to receive from the Government the fullest informa­
tion as to all the facts in regard to the anthracite situation, covering every
phase of production and distribution. Such a record will afford a basis
for action, which will finally be inevitable to bring the coal industry in
fair relation with other branches of business. N o settlement that tends
away from this relation can be expected to endure.
Immigration.
The numerical restrictions upon immigration imposed by the present
law, do not in our opinion represent a satisfactory immigration policy
Net immigration last year, 265,000, was less than one-fourth that in
1913. Mere restriction of numbers does not assure the desired result—
the selection for admission of the most fit among the applicants. This
law— limiting, with certain exceptions, the number of immigrants of each
nationality admissible in any fiscal year to 3% of the numbers of the
foreign born of the respective nationalities residing in this country in
1910— excluded many who are clearly fit socially and industrially for
admission and who could make genuine contributions to the national
welfare. This emergency measure, adopted during a period of widespread
unemployment and designed primarily to restrict the number of immi­
grants, is not suitable expression of a permanent immigration policy.
The law should be liberalized by providing for selection on the basis of
quality, the selection to be made abroad as far as practical. W e advocate
improved methods of examination, selection, reception and distribution
and regard our present haphazard and unfair system as a violation of
international courtesy, and an economic and social error.
Railroads.
Despite many handicaps, some of them the results o f the disturbed
conditions during the war, and of Government operation, American rail­
roads have been able this year to meet the requirements of the largest
volume of traffic in their history. Although the roads have been able
this year to earn the estimated fair return in only a brief period in the
spring, aggressive efforts are being made not only to reduce rates, but to
reduce valuations for rate-making purposes to absurdly low figures. It is
in the interest of the public that the Transportation Act should be given
a fair trial and that the carriers be permitted earnings adequate for the
maintenance and development of the systems. Adequate transportation
is a business factor of such vital importance to our national life that we
vigorously oppose any efforts to injure the credit or reduce the operating
efficiency o f our railroads in the assumed interest of any class or section.
We are confident that such a destructive policy if successful would not
only react seriously upon the general business situation but most painfully
upon our agricultural interests and the various classes of labor involved
in the operation of the roads.
Agricultural Credits
The criticism of the Federal Reserve System as inimical to the interest,,
of the farmers, and the agitation for an expansion of its activity in the
field of agricultural credits, still persists. Such an attitude indicates a
failure to realize that the usefulness of the system depends on its ability
to serve impartially the credit needs o f all sections and industries.
The new machinery of agricultural credit adopted last year, though of
doubtful value, should be allowed to demonstrate its effectiveness, without
further tinkering.
The fact that the relative purchasing power of farm products as a whole
has been increasing in recent months is evidence that gradually the prices
of these products are assuming a more nearly normal relation to general
prices. The index of purchasing power of farm products in July, as com­
piled by the Bureau of Agricultural Economics, was 72% of 1913 purchasing
power. This compares with 68% at the beginning of the year and 64%
in August and Stepember of last year.

BANKING SECTION.
Further improvement in the economic position o f the farmers is to be
■sought in continued reliance upon the readjustments of supply to demand,
rather than upon artificially cheap credit or subsidies. This Association
through its Agricultural Commission will continue its endeavors to co­
operate in the farmers’ organizations; agricultural colleges and other bodies
to the end that there may be a sane development o f the farming industry
and all o f its branches.
Soldier Bonus.
The menace o f the proposed bonus, or ‘ ‘adjusted compensation” for exservice men, which was defeated by vote o f the President last year, persists.
That proposal would have added some $4,000,000,000 to the national debt,
already heavy. There is no sufficient justification for such an a'dded
burden upon the taxpayers as the bonus would entail.
This committee renews its former statement of its interest in the welfare
and comfort of our disabled soldiers, but sees in an indiscriminate allotment
o f money to able-bodied veterans a serious menace to the credit of the
nation and a tremendous drain upon an already heavily taxed Treasury.
Generous aid should be readily available to every needy soldier, but
there seems to exist no justification for the unrestricted grant of public
funds which is proposed by the bonus bill which Congress will probably
be urged to pass.
Five years have now elapsed since the war was ended. There is to-day
little unemployment in the country and soldiers have been reabsorbed
in industrial and commercial life, and surely any need for temporary
aid that might have existed immediately after the war has long since
passed.
Savings Bank Deposits.
Institutions receiving savings deposits should be under the jurisdiction
and supervision of banking departments with proper uniform rules and
regulations. Such deposits should be invested in securities of unques­
tionable value and safety. The Association is emphatically opposed to
the acceptance of savings accounts by business firms and other establish­
ments that are not compelled to conform to those rules which are designed
to safeguard savings deposits.
Fraudulent Securities.
The American Bankers Association reaffirms its view so frequently
■expressed in the need of stamping out the issue and sale of fraudulent
securities. It urges co-operation with the Investment Bankers Association,
Better Business Bureau, and all other legitimate bodies to attain this end
■and protect the public against the machinations o f unscrupulous and
unprincipled individuals and firms.
Branch Banking.
T o the end that ways and means may be devised to carry out the spirit
of the resolution about branch ba,nking passed by this Association last
year, it is recommended to the Executive Council of the Association that
it authorize the appointment of a committee with suitable appropriation
to safeguard the present unit system o f banking.
State Departments.
We desire to express our approval o f legislation looking toward the
■standardization o f State bank departments, to the end that such de­
partments shall be distinct and independent agencies of State Govern­
ment, with sufficient authority to enforce observance of the laws affecting
banking activity, and to control the issuance of new banking charters.
Hospitality.
The outstanding success o f this convention was due in a certain measure
to many who have assisted in the working out o f its details, and we desire
to express our appreciation of the hospitality of our Atlantic City hosts
and of all others who have contributed to the comfort of our delegates
■and guests.
Obituary.
We desire to express the sincere regrets of this Association for the death
o f a former President, Caldwell Hardy, Chairman of the Board of the
Federal Reserve Bank at Richmond, Va. As an executive of this Associa­
tion, as a banker and as a citizen, M r. Hardy rendered a full measure
o 1 service, for which we desire to express the appreciation of the many
who came in touch with his life work, and we extend to his family our
■sincere condolences.
President Puelicher.
The Association takes this occasion to express its keen appreciation
■for the energy displayed by its retiring President in furthering the interests
o f ttie Association and especially the cause of economic education in the
country. Under the progressive leadership of President Puelicher, a
campaign has been inaugurated which will carry to our school children
true teachings of economics, which will do more than anything else to
prevent the spread of radicalism in this country.
American Institute of Banking.
Closely related to the efforts o f President Puelicher in furthering the
work of public education of the A. B. A ., is the work of the American
nstitute of Banking.
We acknowledge the splendid progress made by the American Institute
o f Banking Section, and we recognize the Institute as an essential agency
for training and developing the bankers of the future. We pledge our
hearty support to its undertakings and our full co-operation in its activities.
European Situation.
During the past year the effect upon the United Statas of the serious
conditions existing in Europe has become more and more noticeable in our
foreign trade and has finally begun to curtail our domestic production as
well. It is our firm belief that if we do not recognize and accept our re­
sponsibilities in connection with the reparations questions which are pre­
venting our allies and Germany from coming to an agreement that will re­
establish peaceful conditions in Europe, that both our foreign and domestic
trade will continue to suffer seriously. We again urge upon the Adminis­
tration the advisability o f giving an official standing to our representative
upon the Reparations Commission, in order that he may express his opinion
with his vote; and further recommend that the Debt Funding Commission
Immediately enter into negotiations with Great Britain and France in con­
nection with such part of the reparations question as may be included in
the inter-Allied indebtedness in order that the Commission may be in posi­
tion to make such recommendations to Congress as it may consider desirable
and to the interest of the United States.
In making these recommendations we would particularly call attention to
our former warnings as to the effect o f the European difficulties upon the
trade of this country and the fact that events have proved that our judgment
was correct.




95

A policy of complete isolation from European affairs cannot be maintained
indefinitely without grave danger to our own interests. The example of
Austria, aided in part by American capital in the rehabilitation which is
now clearly in progress in that nation, indicated that methods by which
America may in due course, when the will to establish political, financial
and economic stability and maintain peace has been convincingly demon­
strated abroad, be a powerful influence in the betterment of other Conti­
nental countries, j „
Conclusion.
In the midst of the many puzzling economic problems which the world
faces to-day, largely resulting from the political differences and ambitions
of rival nations, the conclusion is inevitably forced on the impartial observer
that the primary need of the world is moral and spiritual regeneration, as
the essential basis for economic recovery. Until the nations of the world
are willing to liquidate their hates, they can make slight progress toward
liquidating their debts. Until the dominating forces of greed and selfish­
ness are mitigated by a higher regard for the rights of others, until a larger
degree of international good-will supplants racial animosities, until a higher
regard for moral obligations and human welfare characterize the practices
of men, the many economic problems incident to the operation of these evil
forces will await solution. While the purposes which dominate the councils
of the nations are political, rather than economic, are selfish rather than
fraternal, are following the forces o f expediency and opportunism rather than
the ends of justice and righteousness, there can be little hope for improve­
ment in the existing order. Until ideals of human welfare, of a just dis­
tribution of earth's bounties and a righteous observance of the common good
are more firmly implanted in the minds of men, we must expect the constant
conflict of interest and its expression in political, social and economic dis­
order. To the ends of a better understanding, not only of the purposes of
business, but of life, that a better order may be established among men,
the bankers of America dedicate themselves in united effort to attain and
maintain those ideals of civilization upon which alone human society can
soundly rest.
COM M ITTE E ON RESOLUTIONS,
Francis H. Sisson, Chairman Public Relations Commission;
Fred I. Kent, Vice-Chairman Commerce and Marine Commission;
Walter Lichtenstein, Secretary Economic Policy Commission;
Burton M . Smith, Agricultural Commission;
Evans Woollen, Trust Company Division;
Charles A. Deppe, Savings Bank Division;
Thomas R. Preston, National Bank Division;
Francis Coates Jr., Clearing House Section;
Edwin R . Krick, American Institute of Banking;
Mrs. Helen M . Brown, State Secretaries’ Division;
A. E. Adams, Federal Legislative Committee.
President Puelicher: What will you do with this report?
The report stands adopted.

Message to Convention from President Coolidge.
M r. Shepherd: M r. President, I am in receipt of a message which I
think it proper to read at this point. It is addressed to you as the President
of the American Bankers’ Association:
“ I congratulate your Association on its strength and high standing,
and wish you prosperity and success.
“ CALVIN COOLID G E .”
President Puelicher: M r. Executive Manager, will you say to the
President of these United States they may rely absolutely on the loyalty
of the bankers of America ?

Report of Economic Policy Commission, by Melvin A.
Traylor, Chairman, President First Trust &
Savings Bank, Chicago, Illinois.
Opposed to Foreign Branches of Federal Reserve Banks.
The Economic Policy Commission of the American Bankers Association
at a meeting held on July 12 and 13 devoted itself largely to a consideration
of the Federal Reserve System and voted to reaffirm its complete adher­
ence to the fundamental principles of the system and its belief in the indis­
pensability of the system to the health and growth of America’s industries,
commerce, trade and finance.
While your Commission is unanimous in the belief that the Federal Re­
serve, during the period under review, has functioned in an entirely satis­
factory manner, there are two features in its development which your
Commission observes with profound concern and which it deems is its duty
to bring to the attention of the Council of the Association, together with
certain remedial suggestions:
The Commission looks with disfavor on the authorization recently given
by the Federal Reserve Board to two Federal Reserve banks to establish,
under the guise of agencies, organizations of their own in Cuba. It believes
that the precedent thus established is fraught with the most serious dangers,
and it suggests that the Federal Reserve Board reconsider its policy adopted
in this regard or, failing that, that an amendment to the Federal Reserve
Act be sought, forbidding the establishment, by any Federal Reserve
bank, of branches in foreign countries under the guise of agencies.
Without wishing to go into the question of whether or not the language
and meaning of the Federal Reserve Act, which does not contain a clear
and specific authority in this regard, could safely be construed to convey
upon the Federal Reserve Board the far-reaching power of establishing
what are in effect Federal Reserve branches in foreign countries, your
Commission desires to point out that all traditions and practices of central
banks of other countries confine such central note issuing institutions to
establishments within their own borders. Their outstanding duty is to
provide currency for and to protect the gold and credit structure of their
own countries. While for such protection of the gold and exchange posi­
tion of their countries they may properly carry on certain well-defined
transactions through foreign correspondents, whom, in given circumstances,
they may designate more formally as their agents, they carefully and wisely
refrain from establishing in foreign countries branch organizations of their
own. It is unnecessary to emphasize the danger of legal and political com­
plications that may arise from such governmental or semi-governmental
institutions domiciling in foreign territories. In addition, jn order to lay
bare the risks to which central banks would expose themselves by ventur­
ing across their own border lines, one need only point to the appalling
losses suffered by both European and American banks through operations
in foreign countries with uncertain credit and fluctuating exchange stand­

96

BANKERS’ CONVENTION.

ards. Moreover, operations in distant countries aggravate the difficulties Forum— “ The Federal Reserve System— Its Merits and
of proper supervision by the central office and enhance the ever threaten­
Defects.”
ing danger of abuse and corruption.
Your Commission is not unmindful of America's duties toward Cuba and Discussion by Craig B. Hazlewood, Vice-President Union Trust
o f our vast commercial and financial interests in that island. But it be­
Co., Chicago.
lieves that the object to be attained by the opening of Federal Reserve Bank
President Puelicher; The next order of the program is a forum. A
branches in Cuba could be accomplished in other ways that would not
create so fateful a precedent. Once the principle involved is broken down, forum has been arranged so that we might discuss here in convention
your Commission fears there is no telling whither, ultimately, the Federal assembled the merits and the defects in that, to America, fundamental
Reserve System may drift, and your Commission is alarmed, though not institution, the Federal Reserve System.
We are going to lend to those o f our country who value our experience
surprised, to learn that proposals are already materializing designed to
secure from the Federal Reserve Board permission to operate similar a disimpassioned expression of what we believe that system has done for us,
branches in other countries. Your Commission deems it its duty to urge making suggestions in regard to what we think may be improvements in
the Federal Reserve Board carefully to reconsider the step taken; in the Com­ the system, hoping in every way to be constructive in what we have to say.
The first speakers have been allotted fifteen minutes. There are two
mission’s opinion the Board has embarked upon a course fraught with grave
of them. All those who desire to speak after the first two speakers have
dangers.
spoken
will be allotted five minutes each. On the stroke of the five minutes
Intimate Touch Needed.
the gavel will go down. Speakers will call, come forward and speak from
The Federal Reserve System'consists of twelve organically disconnected, the platform. Now, let us give to those who have to administer the affairs
autonomous Federal Reserve banks; the only link tying them together, of this vital system that constructive suggestion which our experience
assuring and directing effective co-operation among them, is the Federal brings.
Reserve Board. The task imposed upon the Board, remote as that body
The first speaker will be Oraig B. llazlewood, Vice-President of the
is from the actual operations of the districts, is, at best, a most difficult Union Trust C o., Chicago.
one. It requires intimate understanding o f the Federal Reserve banks’
M r. Hazlewood: I doubt, M r. President, that even as bankers we
intricate problems and expert knowledge of their technique.
fully realize what a magnificent financial structure we have in the Federal
The first draft of the Federal Reserve Act very wisely provided, there­ Reserve System. No central banking system now, or in the history of
fore, that two o f the members o f the Board should be appointed by, or be the world, compares with this in point of resources, in currency issuing
representative of, the Federal Reserve banks. This provision was sacri- power or in ability to control business activity that needs restraint or in­
feed, however, later on in order to satisfy the apostles o f the theory of abso­ activity that needs stimulation.
lute Government control, whose co-operation was indispensable if the Fed­
After but nine years of service it has amassed over five billion dollars of
eral Reserve Act was to be passed. Thus, a compromise was reached by assets. The combined resources of the central banks of England, France
which the duty to appoint the five members was vested in the President, and Italy are but 70% of this total. It holds at least 30% of the world’s
while at the same time it was provided that at least two members of the gold supply. Behind it is a wonderful record of achievement through a
Board should be experts in banking. Since then an amendment to the world war, an inflation period of dizzy heights and months of serious and
Federal Reserve Act has recently eliminated this provision, requiring the costly liquidation.
President to see to it that among the five appointed members there should
Faults o f administration there have been as in any human institution. In
always be at least two bankers. As a consequence, among the appointed relation, however, to its big concepts, to the broad economic principles)
members, whose number has now been increased to six, there is to-day not written into its law by the framers of the Act itself, there can be no ques- /
one who may be considered an expert banker by profession and training. tion of its success; success in the best interests of the Government, the banks
Your Commission does not wish to indicate any doubt whatsoever as to the and the public alike. Consider in bold outline what we have accomplished: \
qualifications o f any single Board member serving at this time. "What
First, given the nation an elastic currency system which we had been
your Commission is discussing is the composition of the Board as a whole. without for fifty years. That this is so is proven by the simple statement
Your Commission does not believe in class representation as such. It that never before in the history of the country did we have a credit panic
believes that the first qualification of every member should be his ability anywhere near the magnitude of that of 1919 and 1920 without, at the same
faithfully and effectively to serve the interests of the country as a whole. time, suffering a currency panic.
But, just as much as it disapproves o f class representation, just as earnestly
Second, we concentrated the bank reserves of the nation in the hands
does it protest against class discrimination, where plainly the best interests of the System available for loans to member banks, whenever needed, in
o f the country would require the inclusion among the members of the Board any part of the country. We have reduced our own currency reserves to
of men who could be recognized, both here and abroad, as experts in bank­ till money and our non-interest bearing balances with the Federal Reserve
ing o f national reputation.
banks, free of uncollected funds and subject to definite percentage require­
If the Federal Reserve System is to survive, and if it is to render the in­ ments, but available for instant use by draft or wire transfer, represent a
valuable services which it can give if properly protected and oirected, it truer and more scientific reserve than we have ever had before.
is imperative that the position o f the Federal Reserve Board be strength­
Third, through the operation of the collection system we have greatly
ened and that measures be taken which would assure for it the continued reduced the average time in collecting the average check. In the case of
service o f the best men the country can produce for the job.
a typical large bank this reduction has been from 3.71 days before the
There is no use blinking the fact that the whole trend of the history of the Federal Reserve System as against 2.59 days at the present time. If this
personnel o f the Federal Reserve Board has shown that there has been hardly be an average saving for all member banks, then the total saving on $600,any continuity in service on the part of its members. The record shows 000,000 of floating checks in process of collection through the Federal Re­
that valuable members resigned because they became disheartened, or that serve System would be in the neighborhood of fifteen million dollars per
they could not be reappointed on account of objections o f politicians whose annum. This is a saving on account of the increased turnover of a bank
wishes or preferences they found it necessary to disregard in the conscien­ check and has nothing to do with the elimination of exchange charges on
tious exercise o f their duties. Your Commission believes that unless some­ checks collected through the Federal Reserve System. As to that, the
thing is done better to protect faithful servants and to enhance the standing Federal Reserve Act states member banks may collect checks at par through
and independence o f the Federal Reserve Board, a gradual deterioration the System, and, on the other hand, member banks must remit at par to
o f the entire Federal Reserve System is inevitable. It is unnecessary to the System. This is equitable and sound. The Act also states that checks
elaborate the great danger that faces the country if the Federal Reserve on non-member banks may also be collected through the Federal Reserve
System should, step by step, be dragged deeper into politics and ultimately System, if they can be collected at par, and only so. The Supreme Court
should be forced to envisage a fight as disastrous in its consequences as that of the United States has said that every non-member bank has an unquali­
faced by the two banks o f the United States.
fied right to elect whether it will remit at par to the Federal Reserve banks.
Matter for Congress.
This is also equitable and sound. The attempt that was made to enforce
Your Commission believes that this problem is worthy o f the most care­ par collection on non-member banks of this country by bureaucratic methods
ful thought o f this Association, and that a dispassionate discussion ought was unsound, unAmerican and, in my judgment, a blunder which has cost
to be sought with leading members o f Congress with a view to devising ways the loss of much good-will toward the System on the part of city and coun­
and means of avoiding the dangers for which the System is now headed. try member and non-member banks alike. Happily this has been stopped.
The question ought to be examined whether or not it would be possible in Bankers of all classes can now consider the advantages of the collection
some way to revert to some scheme as embodied in the first draft of the system without prejudice and on the ground of the saving of time and labor
Federal Reserve Act, or whether it may not be possible to provide that it can effect for the banking and business world.
Fourth, the Federal Reserve System has given the Government a fiscal
members of the Board, at the expiration of their terms, might be reap­
pointed by the President without subjecting them once more to the hazards agency and a depository of maximum usefulness. The war loan service
o f a confirmation by the Senate. The Senate would continue to pass upon of the System was of incalculable value to our Government.
the qualifications of Board members at the time of their first appointment,
Fifth, the System has performed the function of a central bank in the
but by relinquishing their right of confirmation in case of reappointments, mobilization and direction of bank credit. It is regarding the manner in
the friends o f the Federal Reserve System in the Senate would provide a which these functions were performed in the panic of 1919 and 1920 that
most desirable protection for faithful and conscientious Board members. most of the criticism of the System has been directed. The machinery
As it is, nobody can blame men o f worth for declining service on a Board was new and undoubtedly was stiff in many of its parts. The facts were,
where, at the end of their term, duty courageously performed will inevitably however, that the System loaned the banks of the country a total of $2,826,deliver them into the knife of politicians, whose wishes a conscientious ad­ 000.000 at the peak point and that these loans were made when needed to
the limit of capacity of the System, and in many cases without reference
ministration o f their office forced them to disregard.
Your Commission is also of the opinion that service on the Board would to so-called basic lines of credit.
prove more attractive if the Board itself were permitted to designate its
The banks in agricultural districts were borrowing 99.2% of their basic
Governors and Vice-Governors, instead of having the President charged with line, in semi-agricultural districts were borrowing 71.9% of their basic
the duty o f promoting and demoting individual members according to his line and in non-agricultural districts were borrowing only 65.2% of their
basic line. The country districts were not badly treated. Furthermore,
preference.
Furthermore, it may be worth while to amend the Federal Reserve Act whatever criticism there may be due the Federal Reserve Board for not
so as to make the Governor the Chairman of the Federal Reserve Board, having put on the brakes soon enough, and however true it may be that
the Under Secretary o f the Treasury becoming a member of the Board ex- bank loans were increased when reserve requirements were reduced, it still
officio, instead o f the Secretary o f the Treasury himself, who, naturally, must be said in all fairness that neither the System, nor the Board, nor the
is generally so overburdened with other duties that it is quite impossible individual banks were actually responsible for the inflated condition in
which the nation and, for that matter, the entire world found itself in the
for him to be a regular attendant at the Board's meetings.
Finally, your Commission wishes to reiterate the recommendation, re­ year of 1918.
peatedly made by this Association, that the major function of the Comptrol­
The Federal Reserve System deserves our support. It must have it.
ler o f the Currency be transferred to the Federal Reesrve Board with a view Most of its critics are honest and sincere and some look with hungry eyes
to bringing about a simplified and uniform system of examinations and rul­ on the possibilities of patronage and profit which seem to be procurable
ings. The present system makes for costly duplication, and in the past in its administration. Political criticisms need give us little concern
has often led to unnecessary delay and irritation. The Federal Reserve as long as this does not actually eventuate in emotional legislation. Political
System is one o f the most precious assets o f our country. No effort should influences are dangerous when applied to secure political power and patron­
be spared to diagnose and remove in its very beginning any unhealthy age. If such influences may find their way to the inside of the manage
growth that, if left undisturbed, may sap the strength o f the Federal Re­ ment, particularly to the Board, they may materially weaken the entir
serve System and undermine its integrity.
structure. The amendment to the Federal Reserve Act, including




BANKING SECTION.

97

“ dirt farmer,’’ may have brought the System no harm but the intent and appointed by our Chief Executive, if it were entirely blameless, must
is dangerous. It is dangerous because no special line o f business activity naturally come in for its share of criticism along with all other Govern­
or class o f citizens should need special representation on the Board. mental agencies.
Rather, the System should be managed entirely in the interest of the
It has always been my idea that the Federal Reserve System has been
country, as a whole, and the Government.
worth any necessary sacrifice on the part of the bankers of the United States.
Men most qualified to sit on the Board are not attracted to it if the While I am not here representing the country bankers, being only one of
office is subject to political change. Already in nine years the turnover them, I believe that the majority of them will agree with this idea. The
in the personnel o f the Board has been much too high. Only two men whole trouble arises over what should be considered necessary sacrifices.
have served continuously from the first and the term of office is supposed The country banks contend that par clearance is not an essential, or even
to be ten years. We have had four Secretaries of the Treasury and three a legal, function of the Federal Reserve System. The Supreme Court of
Comptrollers. There have been four counsels of the Board and four the United States seems to have agreed with them in principle. City bank­
secretaries.
ers contend that exchange on a bank’s own checks is immoral and that par
Appointment to the Board should be made from a picked list of men clearance benefits even the banks who have surrendered this source of
who, by experience, knowledge and patriotism, should be best qualified revenue. Unfortunately the Federal Reserve Board, under the construc­
to serve. The Governor o f the Board should be elected by its own mem­ tion of the law as they view it, has been compelled to take issue on this ques­
bership. The functions of the Comptroller o f the Currency should be tion, and has to the extent of its power— which is large— energetically
consolidated with those of the Federal Reserve Board, thus giving national inaugurated a par clearance system with no regard whatever for the individ­
banks one examination and one reporting agency instead of two.
ual opinion of the non-member banks affected. The regrettable thing is
The history of the First and Second United States banks is dim to us that controversies of this kind, being in the nature of a family row, attract
after one hundred years, but I ask you to note that the First Bank of the the attention of the neighbors, and it has done the reputation of the banking
United States failed to obtain a renewal o f its charter in 1811, its opponents business no good and has injured the standing and prestige of the Federal
charging that the bank was a “ money trust,” controlled by foreigners, Reserve Board throughout the country. There have been too few defend­
a tool in the hands of the Federalists, and that the A ct charting the bank ers of the policies of the Federal Reserve banks. The country banks admit
was unconstitutional.
their selfish interest and accuse the Federal Reserve System of serving only
Note the use of the words “ money trust.” We have the idea that the interest of the city banks and their customers. The city bankers are,
this is a modern term. The suspicions which animate the demagogue for the most part, silent on the subject when talking with a country cor­
o f to-day have not changed in a century.
respondent, but full of good argument and courage in Clearing House and
Further, I call your attention to the fact that the Second Bank of the Federal Reserve Board meetings. The country banker wants no quarrel
United States was chartered in 1816 and failed to obtain a renewal of with the man who sometimes lends him a great deal of money; consequently
its charter in 1831, the reasons as given by a noted authority being a he blames the Federal Reserve Board for all of his troubles, even in conver­
widespread belief that the bank was unconstitutional, the hostility of sations with his own customers.
the States, the opposition o f the State banks, the rise of democracy, and
Deposits of the non-member State banks amount to approximately
the envy and hatred which the poor always feel toward the rich.
twenty billions of dollars. The member banks o f the Federal Reserve
Both' banks functioned well and accomplished much for the country System have about twenty-four billions in deposits. According to the
during crucial times. The downfall of both was .caused simply and solely August bulletin of the Federal Reserve System 1,634 State banks are
by attempts to place the determination of banking policies in the hands now members o f the Federal Reserve System out of a total of 22,084
o f political authorities.
State banks. I have heard the argument that if all eligible State banks
The delicate handling of currency and credit to serve the best interests joined the System, the present requirement of gold reserve o f the Federal
o f all, with special privilege to none, cannot be left to those who are not Reserve banks would prove embarrassing, if not disastrous, to the financial
competent through proven judgment and experience. The danger of fabric o f the country. It is essential to the safety and prosperity o f our
politics in the Federal Reserve System is a real one, and upon us, as bankers, country if we are to have two great banking systems— the State and
is placed the grave responsibility of forever keeping the great System national— that all troubles and differences be eliminated, that harmony
clean.
and co-operation be the rule, that the Federal Reserve Board and the
The establishment of the Federal Reserve System represents the greatest System be accorded the respect of both member and non-member bankers.
piece of economic legislation enacted by an American Congress. Every It should be that a small banker, who is usually a business pioneer, could
country on the globe which is remodeling or is creating a banking system feel that those in authority count him as a part o f our financial system
is copying it.
and that his rights, granted by his State, will be respected and his chance
The test o f good citizenship lies in the loyalty and courage with which • for success be equal before the law with that of bankers more prosperously
we support the laws and institutions o f our country. We may criticize situated.
in detail, we may feel our individual prerogatives slightly impaired, but
The Federal Reserve Board and 'the Federal Reserve banks should be
our duty to business, commerce and banking points to such changes as so manned and conducted as to be a guarantee to all men of the impartial
will perfect but not obstruct the System. Patriotism won the war and operation under the law o f the greatest financial system the world has
patriotism will canonize the Federal Reserve System.
ever seen. I am saying this without any intention to criticize those men
who are now in authority or their predecessors. The fact is that there
has been, and there are now in progress, very damaging criticisms and
Discussion by George H. Bell, Cashier Planters Bank &
attacks against the Federal Reserve System.
Trust Co., Nashville, Ark.
I am more concerned with the present state of affairs than with the
President Puelicher: The next speaker is to be George H. Bell, Cashier, past history o f these matters. Most of the laws o f any self-governing
people are the results o f compromise; any creation o f man or nature, if
Planters Bank & Trust Co., Nashville, Ark.
M r. Bell: No man with any knowledge of finance will dispute the ser­ not progressing or growing, is already dying. It is quite possible that
vice to our country since 1914 of the Federal Reserve System— I might add the Federal Reserve System can be improved upon. If it be already
to the whole civilized world— for the financial strength o f America has been perfect, it is now time that the tongue of slander be hushed and criticisms
the saving of our civilization. The concentration of bank reserves and the and attacks be eliminated. I f it be not the perfect servant of the financial
machinery for expansion and contraction of our currency has benefited fabric of our country it is designed to be, it is time that all parties interested
every class of business in the United States. The fear ever present, before join in a sincere effort to make it so. Any permanent solution is im­
the creation of the system, that the time might be nigh when funds on de­ possible if the non-member State bank is ignored. The System should
posit would not be available in cash, has evaporated in the light of the con­ not be a political football, and the law should be so clear that legal battle
fidence in which the Federal Reserve System is now held. This feeling of be unnecessary.
If the two banking systems, State and national, are to exist and give
security has tended to stabilize bank deposits; consequently credit has been
the service to which the public is entitled, each must operate under the
stabilized.
In the brief time I have allotted to me it will be impossible to more than laws of their creators-—the State Governments and the national Govern­
mention the very great merits and the alleged defects of the Federal Re­ ment. I f that be the program, the country national bank will be at a
serve System. Having been a country banker since the year 1902, it is decided disadvantage, and will in time cease to be a national bank. Any
quite natural that I should be well acquainted with the viewpoint of the part o f the national law or the regulations of the System that would interfere
country bankers upon this Federal Reserve System, and what I am going to with the legal rights of the State bank will mean the continuation of
say is more in the nature of a report on the objections I have heard rather discontent. Should the Federal Reserve System be broadened to include
in its membership all banks, both great and small, it will be the work of all
than arguments which I individually might make.
I have always felt that the Federal Reserve System was so important that interested parties. This seems to me to be not an impossible thing. It
even the non-member bank should hesitate to openly criticize it, because of is in my memory that this very American Bankers Association was not
the probability that such criticism would be misunderstood and furnish always friendly to the idea of the Federal Reserve System, and now we
arguments for those persons who are by nature destructive in their activities. are extravagant in our praise. Time heals many wounds. A sincere
Originally designed as a servant o f the national banking system, the Fed­ effort toward settling such matters, conducted patiently and diplomatically,
eral Reserve System is admirably adapted to that intended use. Many cannot fail to bring good results. It will be the job o f the clearing house
are the problems of the reserve city banks that the Federal Reserve System bankers and the country bankers to work out some agreed program.
It seems to me that it would be unfortunate if the Federal Reserve
has solved for them. Decreased reserves with an increase in profits and an
attractive 6% investment in the stock o f the Federal Reserve Bank has Board attempted to settle the matter. Perhaps the situation would be
largely eliminated a costly transit department and made the farmer’s check more pleasant to-day if the Federal Reserve Board, however sincere their
par for the customers of the city bank. The Federal Reserve banks stand motives have been, had not antagonized the non-member country banker
ready with credit in time of need. Gone are the days of competition of one by inaugurating par clearance before the meaning of the law was inter­
city bank with another in their race for the longest par list. Life is sweeter preted by the Supreme Court of the United States. The Board would
for the customers o f the city banks; credit is more easily obtainable when have had ample justification in arranging for a Court decision, because
most needed; annoying collection charges on country checks have disap­ the law cannot be interpreted as making mandatory a par clearance system
without ignoring accompanying phrases which are in contradiction. The
peared .
I have been an interested spectator of the development of the Federal temper of the Board on this question is clearly revealed by their prompt
Reserve System. I have seen the city bank “ made safe” for the country ruling outlawing and refusing to handle checks even signed by a nonbank. I have seen a system created that makes a gold dollar do the work parring bank, although the check be drawn on a member bank and payable
of more than two. I have seen a world war financed promptly and lavishly. to a member banks, except there be an exchange charge of ten cents per
I have seen country bankers surrender the exchange on their checks. I shall hundred paid to the Federal Reserve Bank.
The fact that the twelve Federal Reserve banks are owned by the member
never forget the period o f deflation and discontent. I have listened with
intense interest to the complaints of the country bankers and the plaudits banks in each district cannot be overlooked. Such controversies, if con­
tinued, will bring more damage to the Federal Reserve System than to
o f the city bankers.
Since the year 1920 we have as a people gone through a readjustment in the country banker, because the country banker is closer to his audience,
values that has been costly and has promoted discontent in all lines of and the American public in its present rebellious state of mind seems to
business. The American banker has not escaped his full share of troubles welcome any new argument or reasons for its dissatisfaction with the
during this period. There has been the tendency to rebel against the grow­ present state o f affairs. Upon whom the responsibility for this situation
ing exactions o f the Government, both in the line of taxation and of regula­ should rest is an easy question to answer. It rests with the member banks
tion. This rebellious spirit has not been confined to the country bankers and non-member banks alike. The banking business is not strongly
of the United States. The Federal Reserve System, being a creation under enough entrenched to ignore public opinion, or to be impervious to the
the laws of our national Government, and controlled by men nominated attacks of politicians seeking a winning issue.




98

BANKERS’ CONVENTION.

The remedy for this situation lies in the appointment of a commission by
the President o f this Association, composed of member and non-member
bankers, who would undertake, after investigation, to submit a recommen­
dation to Congress which, when it became a part of the law, would make
its meaning so clear that the possibility of controversy would be entirely
removed. The rules and regulations o f the Federal Reserve Board should
be numerous enough to provide for the efficient operation of the Federal
Reserve banks, but few enough to remove any suspicion of over-regulation.
Their attitude toward the American business man should be one of a servant
instead of a master.
I doubt if the average American citizen will ever entirely cease to be a
rebel. The fact that he is an American sovereign I hope will never be for­
gotten. He is just now in a state o f mental rebellion against too much
government. It may be that time will eliminate the many points of fric­
tion, but this process will mean the gradual change of the characteristics of
the American citizen and the wearing down of the individualism of our na­
tional life in supplanting the love o f independence with a desire for orders
and rules. There are many reasons to doubt that this will be the case. It
is much safer to return to the fundamentals of life and to adhere to the one
rule which makes life sweeter and easier: “ D o unto others as you would
that others do unto y ou .”

informed that at least that is not so, that at least 25% of those who do
this work for the Federal Reserve bank receive compensation therefor,
and to show you gentlemen what proportion of the banks of the New Y ork
District, with which I am connected, are using this system, I would advise
you that 83% of the New York District are availing themselves of this
opportunity.
I, therefore, urge upon you, if I am right in my belief that we are
approaching a menace, that you arouse yourselves and see to it that the
Federal Reserve Board at least hear your side of the story.
Remarks of Andrew J. Frame.

President Puelicher: The next speaker is Andrew J. Frame, Chairman
of the board, Waukesha National Bank, Waukesha, Wis.
M r. Frame: Some 8,000 national banks had no choice. The command
came in 1913 in effect: Join the System or surrender your charters. The
great central banks joined willingly because their profits were materially
increased, and most of the small banks, rather than stand material costs
in reorganization into the State bank systems, reluctantly swallowed the
pill.
It is approximately ten years since the Federal Reserve System became
operative, State banks have been importuned constantly and, to our mind,
unstatesmanlike methods have been pursued to coerce them to join, and
Remarks of Thomas H, Brougham,
President Puelicher: This is your forum. Who will be the next speaker ? yet approximately but a small fraction have joined out of the thousands
M r. Brougham (President Corn Exchange Bank, Kansas City): Mr. eligible. W hy?
The answer seems very simple. I desire it distinctly understood that
President, Ladies and Bankers o f America: I did not come up here to give
evidence in regard to the provisions o f the Federal Reserve System, but I for many years I have openly pleaded for some great central bank of banks,
thought if this system is to be tried by a jury and this meeting is to be the to be sustained at least by the larger banks of the nation, by mobilization
jury, that I would come up and say a word for this system before the great­ of a reasonable, but not an unreasonable, part of their reserves as now
arbitrarily enforced, to the end:
est jury that ever assembled on earth.
First. That calamitous cash suspension of banks as in 1873-93 and
I do not forget the great jury that tried Warren Hastings, the House of
Lords in England, nor do I forget the grand jury that tried an ex-President 1907 should not occur again.
Second. That any central bank should be our servant and not our master
of the United States. I consider them both and all juries of which I have
ever heard, and I say that this jury to-day exceeds in manliness and intelli­ or monopolizer at any time; measures for relief and not for profit.
N
o. 1 has accomplished its great mission, as all sound economists ex­
gence all of them.
I have been a friend of the Federal Reserve System ever since the day that pected. It has done no more than European central banks without the
the great Missourian, Reed, unfolded its beauties and asserted its provi­ coercive measures here resented.
No. 2 contains germs of dissatisfaction, for example:
sions before the United States Senate. I do not believe that it is seriously
First. As the requirements for capital (now about $109,000,000) pays
on trial on this occasion, but I believe that it has already been tried and
6%
annually to members, few object.
found efficient.
In telling o f the beauties and asserting the provisions o f that measure be­
Cash Reserves.
fore the Senate, Senator Reed told the people o f the United States that this
Second. Under compulsion the member banks have now on deposit in
measure would obviate panics, and I thought then and there that anything
any provision, any law or system, that would obviate panics in the United Federal Reserve banks (on which no interest is paid) the enormous sum of,
say______________________ ______________ _____ ____________ $1,850,000,000
States would be o f a great and everlasting benefit to the country.
I have in mind the two greatest panics that ever occurred in America: Surplus funds (all go to the Government under the mis­
nomer of “ Franchise T ax,” say_________________________
220,000,000
In 1836 a panic that I think was brought on altogether for political power,
but I had personal experience with the panic of '73— one of the most wonder-.
Total without income to member banks_________________ $2,070,000,000
ful physical storms that ever swept this or any other country.
One morning, about 10 o ’clock, a dispatch was sent throughout this
This vast sum exceeds all the cash held by all the banks in the United
country that Jay Cook & Company, the fiscal agents, the men who had States in 1914 by over $400,000,000. It also exceeds the total capital
assisted in carrying this country through the greatest war that ever existed, stock of all the member banks by hundreds of millions.
failed to open their doors that morning.
But who contributes these colossal reserves?
In two hours there was not a bank door open in America. The storm
The New York, Chicago and St. Louis Central Reserve banks that held
swept more completely than the great tidal wave o f Japan.
25% of deposits in cash before the Reserve System was inaugurated now
A dollar could not be borrowed anywhere. Everything was in a state of hold approximately but 2% of deposits in cash, reserves in Federal Reserve
chaos.
banks, 13% of deposits in cash, and the balance of 10%, or more than
This panic was not brought on for political power. This panic was $500,000,000, released cash is loaned to the public, thus giving those
brought on by the Government that sustained and backed up the Consti­ banks from $25,000,000 to $30,000,000 increased profits annually. Per
tution of the United States, helped the great Lincoln to preserve all the Con­ contra, as the country State banks formerly held, say, 4% of deposits in
stitution, and why was all this? During the Civil War, there was paper cash (6% in nationals), which cannot conservatively be materially reduced,
money issued to the extent o f twenty-eight hundred millions of dollars.
it seems clear that the 12,000 and over eligible State banks fairly concluded
President Puelicher: I am sorry, I wish you might finish your argument, not to contribute from income producing sources vast sums additional!
but your time is up.
none of which will ever be needed for relief.
M r. Brougham: Ladies and Bankers: I am thankful to you for the at­
Par Collection of Checks.
tention that you gave me. I had no idea of saying a word to-day, but I
sat here and listened to the distinguished gentlemen who were speaking and
Third. The par collection of checks has absolutely nothing to do with
I thought that it would be no more than right that I should say something. the true functions of Reserve banks, and yet through compulsion of national
Now, what we need in this country—
and largely through reluctant consent of State banks, the smaller banks of
President Puelicher: I am sorry, your time is up.
the country are mulcted out of, say, $100,000,000 annually. W e do not
count an additional $94,000,000 which would doubtless be remitted at par
Remarks of Mr. McCarter.
because the accounts justified from remittances. I f this is a “ tax on com­
President Puelicher: The next speaker is Mr. McCarter, President of merce,” then Post Office orders, express, all transportation, all trade, all
the Union Fidelity Trust Co. o f Newark, N . J.
industry for reasonable profit is a “ tax on commerce.”
Mr. McCarter: M r. President, Ladies and Gentlemen: It is not my
Is not the true diagnosis of this ease summed up in the righteous decision
purpose to discuss the merits and disadvantages of the Federal Reserve of 12,000 State banks that they will not consent to an injustice which robs
System as applied to our business, but rather to bring to the attention them of, say, $100,000,000 annually, all for the benefit of the rich in the
of the members of this Association, and particularly those of us who great centres? Last, but not least—
are known as country members, that one of the chief assets in my judgment
Branch Banking.
in the membership o f that Association is in jeopardy.
And, then, if, having been advised of that fact, you do not agree with
Do the Federal Reserve banks advocate branch banking which will, as
me as to the seriousness o f the situation, I have only wasted your time proved in Canada and threatens California and other States, “ put 30,000
for a moment, and will not have to be called down by the Chairman.
independent banks out of business” ; or do they use their power to sustain
I refer to that portion of the Federal Reserve System under which the the best banking systems the world ever knew? A gleam of hope lies in
non-cash items, notes and drafts are collected by the Federal Reserve 15 applications in California lately refused by the Federal Reserve Bank.
banks in the various districts.
The Federal Reserve banks started with 12 districts. They have added
I do not propose to go into detail of that method o f collection. You some 25 branches— the last one in Cuba, and, if there why not throughout
gentlemen are more acquainted with those than I am, but I am credibly the isles of the sea? All competing more and more with members who
informed and confidently believe that there is a consistent, persistent, furnish the cash. Judge Cochran of the United States District Court in
and I am afraid effective propaganda being carried on by our friends Kentucky in a decision on par collection of checks is quoted as saying in
the city bankers, on the members of the Federal Reserve Board, to the part that H. A. Magee, traveling representative of the Federal Reserve
end that that collection system, which we believe to be a great asset in Bank of Cleveland, testified, “ in the next five years there would be no
our membership in the Federal Reserve System should be done away with, small banks.” As we have not seen any denial in the press, this state­
and that the country bankers particularly should be forced back to the ment must have given great concern to the independent bankers of the
pre-Federal Reserve time and make our collections through our corre­ nation.
spondent banks in the Reserve cities.
For these reasons alone criticism for refusal to join seems unfair.
One o f the chief assets to us in our membership in the Federal Reserve
Constructive Suggestions.
System was the reduction in the amount of reserves that we should be
As war has ceased, as the Federal Reserve banks now hold, say, $3,250,compelled to carry, and, of course, if we go back to the old system, we
either must pay collection charges or we must keep compensating balances 000,000 cash, and should not enter into competition with its own members
in any field, why should 12,000 banks be coerced into locking up hundreds
with our collecting agencies.
It is my belief, gentlemen, o f the country bankers, that unless we raise of millions more, while like sums can be released to the overburdened bank
our voice at once (and by at once I mean exactly t lat) against this attempt members, and still have ample funds to cope with any emergency?
To our mind gross inequity reigns.
on the part o f the city banks that we will be forced back to the time before
We repeat, we firmly believe in the underlying proper functioning of
the Federal Reserve System was inaugurated, and to collect our non-cash
the Federal Reserve banks, and it would be a calamity if through causes
items as we had to in those days.
It is argued by those who favor this plan, that when we receive items similar to those which destroyed the old United States Bank that another
from the Federal Reserve bank, and are forced to collect them all over Andrew Jackson should arise and destroy the Federal Reserve System.
the towns in which we reside, we are not compensated therefor. I am We say amend, but do not destroy.




BANKING SECTION.

99

that produced a lack of quorum in the first constitutional convention.
Remarks of Elliott C. McDougal.
President Puelicher: The next speaker will be Elliott C . McDougal, W e are standing too close to the problem to see it in its entirety, and a
perspective of this System modified as it may be perhaps in some of its
President o f the Marine Trust C o., Buffalo, N. Y.
M r. McDougal: M r. President, Ladies and Gentlemen: I am going to details is eventually going to bring it back, and put it in the rank and file
Ignore these controversial subjects; they are open questions, and there is of the banks of the United States.
I believe the tax itself plays along with the constitution o f the United
a great deal to be said on both sides. They are vital questions to many of
you, but in talking about these controversial subjects, we are very apt to States as one of the institutions that the rank and file of this country should
stand by at this time.
overlook the most important function o f the Federal Reserve Bank.
There is no organization in this country that is more ramifying than is
It is, o f course, o f great benefit that we have a rediscount system that can
take care o f us, but that is not the principal function; it is of the utmost the Ohio Bankers Association, and if there is any one thing that we should
benefit that we have a system that can mobilize the gold of this country, go away from the convention convinced of it is that we will not tolerate
but that is not the most important function. The par collection o f checks any discussion that has for its intention the undermining of the funda­
is a question of argument, but that is not the most important function. We mental principles of the Federal Reserve Act of this country.
I could have gone one step further back (pardon me for the assumption)
are all forgetting what is the most important function.
One o f the speakers said that there would be no more panics. I don’t than did M r. Beck in his speech, and say to you that it was on M ay I 1776,
think that the speaker who said that or the gentleman who quoted it., just a few days preceding the date of our Declaration of Independence (I
meant to say that there would be no panics of any kind. We may have think it was in Brussels) in the organization of what was then known as the
bank panics (although I doubt it ), but we will have no more monetary pan­ Illuminata, was the beginning of that insidious institution which is to-day
ics, because there will always be a supply o f good currency available. This directing itself to the institutions of this country, and has for its celebration
is the most important function o f the Federal Reserve System, and you still M ay first in celebration of that day, M ay 1 1776.
This insidious antagonism to American institutions is not of American
must not forget this— that you have got to be careful in authorizing loans
and investments by the Federal Reserve System. Its investments should origin. I f the artisan laborer is discontented it reaches him. Its founda­
be liquid. That is the danger o f giving special facilities to any particular tion is unrest; its next step is the appreciation of class and its ultimate result
class or having special accommodations. It is not because of the financial is class hatred. The farmer is to-day allowing himself willy nilly to be
accommodations in the way o f credits that they may get; it is because in influenced by this propaganda. Again I want to say it is not American,
the operations you will get into the assets o f the Federal Reserve System and the American institutions, the Constitution, the Federal Reserve Act,
less liquid assets upon which to base your currency, and the currency is the the banking system of this country and the farmers are all sound, and we
lifeblood o f your country. Every working man who carries a dollar in his can do as much in this Association as any other association to keep them
pocket, every man who has a dollar in the savings bank, should realize.that sound and gradually work out the problems that are interfering with the
happy co-operation between them.
the currency must be right or nothing is right.
We have heard nothing about that to-day, and as a rule you won’t hear
Remarks of O. Howard Wolfe.
it. You talk about par collections and about credits to the farmers and
President Puelicher: O. Howard Wolfe, Cashier of the Philadelphia Na­
credits to this man and the other man. You forget the most important
thing, and you can’t give a better illustration than Germany. Where is tional Bank, Philadelphia. M r. Wolfe.
M r. Wolfe: M r. Presidept, Ladies and Gentlemen: Some reference has
Germany’s currency? When currency is gone, you have nothing else.
It is o f vital importance that the Federal Reserve System should be kept been made here twice, I think, by previous speakers, that part of the oppo­
sition
to the Federal Reserve System from country bankers is due to the
liquid to give the United States o f America the very best country on the
fact that interest is not paid on Federal Reserve balances or that money is
face o f the earth, the currency that it needs and must have.
required to be kept in your vault, and does not count as reserve.
President Puelicher: This is good fun.
I just want to say in answer to that that most of us, I think, overlook the
The next speaker is Harry M . DeM ott, President o f the Mechanics Bank
fact that when your balance in the Federal Reserve bank is reserve, it is
o f Brooklyn, N . Y.
working for you, because you must have reserve. The money you have
got invested in your vault or building is working for you even though it
Remarks of H. M. DeMott.
returns no interest, because you must have a building, and you must have
Mr. De M ott: Mr. President, Ladies and Gentlemen: I desire to a vault. So if you are going to have a successful banking system you must
speak very briefly on a topic which I believe had sufficient merit to warrant have reserve. So when it is reserve, it is earning you something whether
your consideration, namely, the matter o f reserves carried by the member or not it is in the shape of interest.
banks o f the Federal Reserve System.
The opposition to the Federal Reserve is largely, it seems to me, centred
I would not in any way disturb the present reserve requirements, whether about this par collection item that M r. McDougal has referred to. With­
they be seven, ten, or thirteen, in your respective cities: but I would out wishing at this time to offer you arguments in the way of a debate on
suggest that a certain percentage o f cash carried in the vault, which is the subject, I want to point out in just a few minutes some of the facts in
unproductive, be counted as a certain portion of your reserve requirements. defense of the collection system that we are apt to overlook. Three im­
In speaking on the subject o f reserve carried by member banks of the portant things first: That it is not a fair thing to charge against the Federal
Federal Reserve System, I wish to call attention to what I regard as the Reserve Act par collections. The theory that collection should be collected
injustice o f member banks not being permitted to count as reserve against at par for the best interest of the bankers as well as the business public did
their deposits actual cash carried in their vaults.
not originate with the Federal Reserve Act.
In banks money makes money. That is the working medium of all
As long ago as 1899 (I think it was even before that), the Boston Clear­
financial institutions. When money is tied up, hence inactive, banks ing House instituted and organized and developed a par clearance system
are losing their main productive medium. Under the present system for New England. That was followed by Kansas City and in different
the cash maintained by the respective banking institutions has not value places throughout the entire United States. The movement was well under
as a reserve requirement, and consequently lies dormant without any way before the Federal Reserve Act wrote into its provisions something
earning power whatsoever. If, on the other hand, cash could be con­ which provided that all checks should be collected at par, at least in theory.
sidered as reserve, it would release this large sum o f money which wculd
If the opponents of the Federal Reserve collection system should succeed
immediately be available for loans to manufacturers, farmers, business in killing it, I venture to suggest that banks in the old reserve cities, through
men in general nad home builders, and have a stimulating effect upon clearing house or individual action in self-defense, will take such action as
business and become a source o f revenue to our banking institutions.
will prevent a recurrence to old collection methods.
We believe the present method to be an injustice as it works a hardship
Second, the collection by Federal Reserve banks cannot be divorced from
upon all institutions, particularly those maintaining a number of branch the reserve provisions of the Federal Reserve Act. Unless national banks
banks. And it does directly affect even the smallest o f the member banks. can again consider balances carried with other national banks as reserve,
While it is true that credit maintained at the Federal Reserve bank then we cannot go back to the old method of check collection without
can be converted into currency if sufficient time is afforded, the fact making the cost prohibitive to country banks.
cannot be disputed that in time o f stress the actual currency in vaults is
Third, the statement that some twenty thousand banks are not members
the most liquid reserve. Two-thirds to three-quarters of the currency of the system because of the check collection provision is not in accordance
of the banking institutions is represented by Federal Reserve currency with the facts. There were only ten thousand in round numbers of national
and it does seem inconsistent that demand obligations of the Federal banks before the Federal Reserve Act was ever passed. Did you ever hear
Reserve bank, such as these, cannot be counted as an offset against anybody say that there are only ten thousand national banks in the country
deposits.
and twenty thousand State banks, and we should, therefore, abandon the
I, therefore, most respectfully urge the American Bankers Association national bank system?
to pass suitable resolutions requesting that an amendment to the Federal
The reason these State banks are not members is not hard to understand.
Reserve Act be provided, permitting member banks to count as reserve Under the State bank laws under which they operate, they have a privilege
the actual cash carried in their vaults.
for which nobody can blame them for availing themselves of, by which every
check, no matter where payable in the United States, becomes instant re­
serve the moment they charge it against their city correspondent, and by
Remarks of Howard I. Shepherd.
the perpetuation of that system, which I am not going to attack, you have
President Puelicher: The next speaker will be Howard I. Shepherd, given them a privilege which naturally they are not going to forego. That
Vice-President o f the Guardian Savings & Trust Co., Cleveland.
is why I think at least nineteen thousand out of the twenty thousand banks
M r. Shepherd: M r. Chairman, I do not intend to enter upon a detailed are not members o f the Federal Reserve System.
consideration o f the provisions o f the Federal Reserve Act. I am led to
Finally, we must remember this, that no matter under what system you
give some figures from the experience of the Fourth Federal Reserve Dis collect checks (whether it is by the Federal Reserve System or country
trict during the year 1920 in the fall in answer to a certain criticism that clearing houses or by the old compensating balance m ethod), there is only
has been broadcasted to the effect that the Federal Reserve System does one way in which a country bank can profit in exchange, and that is, they
not lend itself directly to the alleviation of the problems of the farmer.
must charge more than the average. The days when the average used to
On Oct. 9 1920 the Fourth Federal Reserve District, which is a manu­ be a tenth of 1% , many years ago, these same country banks charged a
facturing district, having within it sixty-two cities o f over ten thousand quarter. When the average rate went to a tenth, they charged an eighth.
population, was not for all o f its needs asking that bank from that district When it got to be par, they now want a tenth of 1% . Where? Just in
to discount but eighty-eight millions of paper, while on the same day it those sections where they have always charged more than other sections
was discounting for the crop-moving districts, namely Minneapolis, Chicago, charged, namely, the South and the Northwest.
St. Louis, Dallas and Atlanta, one hundred fifty millions.
Therefore. I think we will see a continuation of the opposition to par col­
On that same day practically those same districts, namely the crop-moving lections as long as those particular banks can profit by charging more than
districts, were calling upon Philadelphia, Boston, San Francisco and Cleve­ the rest of us charge.
land for two hundred sixty-seven millions, and that money was going
Remarks of N. S. Calhoun.
directly to the alleviation o f the farmer’s problem, namely the moving and
the handling o f his crops whether that be wheat or not.
President Puelicher: Are there others in the hall who desire to speak
Those acts are going on without the knowledge of the public, and it is in this forum? I f so, will they step forward? M ay I ask that those
one of the greatest o f the elasticity o f the currency system of this country who are still in the hall remain through the installation of our new officers,
which has been produced by this most remarkable act.
thereby pledging to them your interest in the affairs of the work which
I also want to call attention to what I think is the answer to a large extent they are going to be compelled to undertake because of our choice o f
to the question asked by the gentleman from Waukesha as to why banks them. M r. N . S. Calhoun, Vice-President o f the Bank of Maysville,
are not joining the system. I think I see in it something o f the same answer K y . M r. Calhoun.




BANKERS’ CONVENTION

100

M r. Calhoun: Ladies and Gentlemen: 1 am a country banker, and
I know some of the reasons why the country banks don’t look more favorably
on the Federal Reserve System. I think it is a mistaken idea of most
banks that country banks don’t like the par collection idea. I believe
we have found that we would rather have our customers’ checks cleared
at par than to get the little profit we would get by taking o ff a tenth of 1 % .
That isn’t an objection.
One of the speakers before me stated an objection, which amounts to
considerable to country banks. They want the cash in their vaults counted
as reserve. Some o f the States have made their own laws more favorable
to non-member banks. That is one reason they don’t go in.
In my State we are required to have the same reserve for non-member
banks as they would have if they were in the System. One-third of that
reserve must be kept in cash. You can keep it all in cash if you want
to, but they must count what they have in their vault.
Another reason is that the float o f a member bank is counted in his
reserve. When he sends a check to his city correspondent, he counts
that in his reserve for that day. Non-member country banks can’t do
that and he has a lot o f items out for which he can’t get credit in his reserve
requirements.
If he happens to get under the line he is penalized, he is fined and it
makes it right expensive for him.
It occurs to me that the city correspondents o f the country banks can
do more to get the non-member banks in line than anybody else. The
average country banker looks to the city banker for all kinds of advice
and if there is a concerted effort on the part of the city banks to bring in
country non-members, they will have wonderful results.
The chief reasons are interest on balances of the reserve. I for one
don’t think that interest should be paid on balances by Federal Reserve
banks when the balances get beyond the legal requirement. AVe don’t
want to build up too much cash in the Federal Reserve banks, but they
should pay interest on the balances that the member banks are required
to keep on hand in the Federal Reserve bank.
I am very much obliged to you.
President Puelicher: This concludes our forum, because the time
alloted for the forum is up.
The Chair thanks the speakers who have contributed to the forum and
have brought to us their views. They will be o f value to those who are
charged with the conduct of the system.

Report of Nominating Committee (Sept. 26).
President Puelicher: AVilliam G. Edens, Chairman of the Nominating
Committee.
M r. Edens: M r. President and Fellow Delegates: AYith nearly every
State in the Union represented, and acting unanimously, I am requested
to make the following recommendations for officers:
President, AATalter H. Head o f Omaha National Bank, Omaha, Neb.
From nominating speeches we learned that he is a native of the great
State o f Illinois, grew to man’s estate and became a successful bankerfarmer in Missouri and now hails from the great State of Nebraska.
For First Vice-President, the name o f William E. Knox, President
Bowery Savings Bank of the great Empire State and City of New York.
His sponsor was modest in his speech, but generous in avoirdupois,
and the Committee got the impression that Billy was born in a savings
bank on the lower end o f Manhattan but that the confidence reposed in
him by his clients has recently enabled him to move his bank into a section
of the island where there is more space for the institution that he represents.
For Second A’ ice-President the Committee turned to the great industrial
regions of the Southland, and selected Oscar Wells, native of Missouri,
successful banker in Texas, and now President of the First National Bank.
Birmingham, and member of the Federal Reserve Directory of that district.
Nominated and seconded by every State represented. The closing nomina­
tion was by the illustrious Senator from Arizona, who stated that he came
from a State where naturally his people wanted to share in these AA’ells.
As Chairman of your Committee, M r. President, I move that the recom­
mendations of the Nominating Committee be adopted by the Convention.
President Puelicher: AA’hat is your pleasure?
M r. Hawes: I move you. sir, that the Secretary of the Convention
be requested to cast the ballot of the delegates present for M r. Head as
President, M r. Knox as First Vice-President, M r. Wells as Second VicePresident .
The motion was seconded and adopted.
Secretary Fitzwilson: I hereby cast the ballot o f the convention for
President o f the Association, M r. AValter AV. Head; for A’ ice-President,
M r. William E. Knox; for Second Vice-President, M r. Oscar Wells.
President Puelicher: And I hereby delcare these gentlemen elected
as the officers of this Association for the ensuing year. M r. Head, will
you come forward ?
President Puelicher: Professor Otis, here is your answer. The next
President of the American Bankers Association, coming from the great
agricultural districts of America, will go out of office, when he does go
out of office, known as the Granger President of the American Bankers
Association.
M r. Knox, will you please come forward?
President Puelicher: M r. Knox, by virtue of what he does daily, will
represent to America that great underlying quality needed to make every
nation enduring and which we call by just that simple word “ thrift.”
M r. AVells, please step forward.
President Puelicher: And Oscar AA’ells will represent the AVells that
contribute wealth to America.
Members of the American Bankers Association, I .congratulate you on
the selections that you have made and I know that the coming year will
be one o f untold success for our endeavors.
Gentlemen, the servants of the American Bankers Association.
M ay I ask you all to be present to-morrow at the installation, when
each will tell us something of his hopes and aspirations ?

Installation of Officers (Sept. 27).
President Puelicher: The next order o f business is what, Mr. Executive
Manager?
Executive Manager Shepherd: Installation o f Officers.
President Puelicher: There were present at this convention nine of the
seventeen past Presidents o f our organization. I have invited them to
help us give greater dignity, greater solemnity, to this installation. It is
a fine thing that though they served us in this high office, they continue to
serve us by their attendance at our deliberations. It is a feeling o f comfort




to know they are.sitting near you, so that in the course o f your duties, if
you are at all puzzled, you may turn to them for wisdom and direction.
I am sorry that Logan C. Murray, who served as President from 1886 to
1887, was compelled to leave: he stayed here until this morning, a gentle­
man very nearly eighty years of age, still manifesting that fine interest in
his profession and still attending its conventions.
Frank O. AVatts, 1910 to 1911, also compelled to leave, yet just as in­
terested as ever.
I am only calling the names of those who were actually President during
our sessions.
Now, AA’illiam Livingston, 1911 to 1912. To him the American banker
owes the travelers’ checks.
1913 to 1914, Arthur Reynolds. AVe have just been discussing the Fed­
eral Reserve System. Does 1913 and 1914 mean anything to you in view
of that discussion? It was during his term that the Act was passed, and
you may imagine his activities in connection therewith.
19161917, Uncle Peter AV. Goebel, called home this morning. He just
wanted to be here. He will go down in history as the AVar President o f the
American Bankers’ Association.
19171918, Charles A. Hinsch, great unifier. The Sections of the As­
sociation were given representation on the Administrative Committee and
as the result of the work of Mr. Hinsch.
19181919, Robert F. Mattox. 1918-1919, those terrible years in all of
the world and in America’s financial affairs. He wrestled with the after­
war problems and wrestled with them successfully.
19191920, Richard S. Hawes, to whose wisdom and whose energy, and,
I think I ought to add (because I know something about it ), to whose de­
termination (sometimes) we owe the present constitution under which we
regulate our Association’s affairs.
1921-1922, Thomas B. McAdams. He had the conception to see the
value of creating contacts outside our own business. He realized that the
banker had been speaking to himself too much, and therefore first estab­
lished a contact with our Government by taking his Administrative Com­
mittee meetings to Washington, going to the President of the United States
and pledging to the President the allegiance of the bankers o f America.
He further had the foresight to see that the banker, unsupported and alone,
was unable to carry out some of the great national fundamental things
that should be brought about, and it was through his wisdom that the heads
of cur organization meet with regularity the heads of the other great or­
ganizations.
Gentlemen, they are cur greatest servants, and I am asking you to make
impressive this installation, to make those who are going to take over the
reins of the government o f our Association feel that they, with their exper­
ience, and we with our enthusiasm and loyalty, will help them achieve.
Mr. Charles A . Hinsch, will you please step forward?
M r. AA’ells, will you please step forward?
Charles A. Hinsch will now install into office as Second A’ ice-President
of the American Bankers Association Oscar AA’ells, whom you have chosen
to serve you .
I beg your pardon, Mr. M attox is to take care of this installation. AVill
you please install M r. AVells into the effice of Second A’ ice-President o f this
Association ?
Mr. Mattox: M r. President, Ladies and Gentlemen: I take great pleas­
ure, as requested by the President , in presenting this insignia of office of
Second A’ice-President to a distinguished son of the South.
Like so many
Lochinvars who have come out of the AA’est, we have been carried away
by this splendid gentleman in the service he has rendered our Section.
Through his broad banking experience, he brings to this Association a splen­
did capacity to fill the office to which you have so wisely selected him to
fill. I feel sure that the affairs o f this Association will be ably managed
under his administration, and that he will be one of the trinity of officers
who shall guide its affairs and make the American Bankers Association,
the letters which represent it, continue to mean “ American Before A ll.”
Oscar AA’ells of Birmingham, Ala., 2d A’ice-President of the Association.
The members arose and applauded.)
Second Vice-President Wells: Mr. President, Mr. M attox, Ladies
and Gentlemen: This is neither the time nor the occasion to undertake
to make a speech, for you have been patient in listening to a most excel­
lent program, and I have no message which would be claculated to add
to the value of this occasion.
In ackowledging my pleasure in having been given the distinction of
the election of an officer of the Association, I want at the same time to
confess my dubiousness as to what the functions of the office o f Second
A’ice-President may be. I rather suspect that what ever may be the
duties of the incumbent of that position, that they shall be modest ones
and calculated to support my superiors in office.
On yesterday when we were introduced to you, you knew that because
of my earlier experiences and my nativity, that I should experience no
difficulty in undertaking to support my chief during the ensuing year,
who has been dubbed already “ The Granger President of the American
Bankers Association.”
Perhaps with no more difficulty will I find in trying to follow the ex­
ponent of the savings and thrift sections, if we have such sections, par­
ticularly when I am reminded that he comes from the cosmopolitan district
of New York, fer from my own experience which may also be yours, we
feel no bestiancy in saying that the people who live in New York and
who have savings accounts deserve no credit in being able to save a part
of the money we spend there on our occasional trips.
Mr. President, I thank you.
President Puelicher: AA’alter Head, please stand up. This looks like
the last order I am going to issue to him. Mr. Hinsch, will you remove
from the lapel of his (Mr. Head’s) coat the badge of authority and bestow
it upon the young man who has been elected First Vice-President of the
American Bankers Association ?
Mr. Hinsch: It affords me great pleasure to pin upon the lapel of
Mr. Knox this insignia of office of the First A’ ice-President of this great
Association. Several years ago M r. Knox was honored by the Savings
Bank Section with the Presidency o f that very important section of our
Association, and it is therefore fitting, in view o f the services that he
rendered at that dm e and since, that this honor should be conferred upon
him. I know tnat I voice the sentiments of every one here in wishing
him every success in the administration c f his office.
First A’ice-President Knox: Mr. President, Ladies and Gentlemen: I
am fully aware of the very great honor that you have done me. I am
also aware of the great responsibility that you have laid upon me. This
is no time for making speeches. This is just a time for a man to pledge
himself with all that he has in him to the best interests of the American
Bankers Association, and through them to the best interests of the American
people.

BANKING SECTION.

101

As an Association, I take it we want nothing that is not also for the home with him this gavel, that he might retain it in his family during the
greater good o f our own people, and following after these distinguished remainder of his service to this Association, he may do so, because he will
men who have served the Association, I hope to be able to add something render this Association a service as long as he lives. I might say that we
are not going to lose his service, because he has agreed to accept again the
to what has been done in the past.
They have done great things. I f I do only little things, they will be chairmanship of the Committee on Public Education, and in that capacity
done with the best heart that I can possibly put into them, and I shall will help carry on the work that he has been doing during the last year.
I want to say to you, M r. Puelicher, that I hand you back this gavel with
ask nothing better than to be written down in the future as a good servant
a great deal more pleasure than you handed it to me. I hope that you will
o f the American Bankers Association.
President Puelicher: And now, this is not a command; this is just a retain it and that during the years to come it will be handed down by you
to your children and they to their children.
request. Will you srtep forward, Walter Head?
In looking back over the years that have taken place while you were in
I have reserved to myself the pleasure o f installing my successor. There
Is just a bit o f selfishness in that. I have worked with him for a full the service of the American Bankers Association, we must recognize the
year, I as President, he as First Vice-President. I have learned to appre­ great service that you have rendered to us.
ciate him; I have learned to know him; I have learned to love him. I
know that he will serve you as service in his high office demands. I do Chicago Extends Invitation for Next American Bankers
think, though, that I ought to correct something that I stated yesterday.
Association Convention.
I called him unqualifiedly the coming “ Granger President o f the American
Executive Manager Shepherd: I have several announcements. I
Bankers Association” and lo and behold, I discovered last night that he
think I will ask Mr. Arthur Reynolds to make the first one in my behalf.
is the banker and his wife is the granger.
M r. Reynolds: Mr. President, I am very happy to present .to you
Now what can any association ask for more than that? Both man
on behalf o f the Chicago bankers the following invitation to hold your
and wife combined in the performance o f a high office such as this.
I know that Mr. Head is going into this office with all his dynamic next annual meeting in the city of Chicago.
You had the other day a sort o f back-hand invitation extended, which
force, that he is going to ask you to do the things we should do, and I
we had not at that time had an opportunity to present to all of the banks
am going to say to him that when he calls on us that we will do them.
I am taking from the lapel of my coat the insignia o f my office and o f Chicago in a proper way, and I am delighted to receive the following
pinning it on the lapel o f the coat o f my successor. He will wear it with telegram which I will read to you:
“ Since we are unable to reach them before their next meeting by letter,
honor as he has worn the insignia o f every office that he has thus far held.
About this gavel, I don't know— I like that pretty well myself, but I will you not kindly convey to the proper officials the following invitation:
suppose it goes with the office. Here is the gavel. Wield it with force ‘ To the Officers and Members of the Executive Council of the American
and power and determination in the interest o f those things that you Bankers Association, Atlantic City: On behalf of the banks of Chicago,
believe in, because it is with the force that you do things that you demand members of the Chicago Clearing House Association, I have much pleasure
in extending to you an invitation to designate Chicago as the place where
respect for the things you believe in.
I wish you great success in the high office to which you have been elected, you will hold your 1924 convention of your Association. Chicago as a
and I pledge you the support of these great servants o f the Association. city is well equipped to take care of the delegates comfortably and in the
I shall support you to the best o f my ability and the support of all these, event of the acceptance of their invitation, the Chicago banks pledge
you their co-operation to make the meeting a success in every way.
our members.
President Puelicher: And I reserve to myself the privilege of being
(Signed) GEORGE M . REYNOLDS, Chairman.
Chicago Clearing House Committee.’ ”
the first one to call you “ Mr. President.”
I
recognize,
ladies
and gentlemen, that this is not the proper place for
President Head: M r. Puelicher, Ladies and Gentlemen: I am fully mind­
ful o f the honor that you have conferred upon me by electing me to the action upon this matter and I refer it to the Secretary for action of the
position of President of this Association. I have but to direct your atten­ Executive Council, but I shall be very much pleased, as will all of the
tion to these men who stood here a moment ago, and to the man who just bankers of Chicago, if that city is finally designated as your next place
handed me this gavel, to emphasize the fact that you have indeed conferred o f meeting.
President Head: On behalf of the membership we are indeed indebted
upon me at this time a great and distinct honor.
We have listened to the addresses during the sessions of this convention to you for the invitation. It will be referred to the Executive Council
with a great deal of interest: grand and wonderful addresses they have been, for action.
to be sure; but if we came here only that we might listen to what is said and
Felicitations to Retiring President Puelicher.
see what is done, and go out of the entrance of the building in which we
came to hear these addresses, and forget about the things that took place
Announcements by Executive Manager Shepherd.
here, and only keep in mind that at the end of another twelve months there
President Head: Mr. McAdams.
would be another convention, at which time we would all come together
M r. Thomas B. McAdams: President Head, John Puelicher, and
again in the belief that we would have a good time in meeting our friends, Ladies and Gentlemen: To awaken the banker to a clearer conception
in listening to addresses, our benefit will be small; but on the other hand, if o f his opportunities for leadership, to educate broadly, that truth rather
we are to profit as well from what has been said and done here, we will go than prejudice may determine the actions of individuals and the policies
out o f this building and back to our respective communities in the belief o f government, to stimulate the desire for generous service in behalf of
that what we need during the interim of this convention and the one that the national welfare, to discourage movements for unsound legislation or
will take place a year hence is action on the part o f every single member administration, conceived in selfishness and advocated in the interest
o f the American Bankers Association.
of organized minorities, to stimulate individual initiative and protest
No man, be he President, Vice-President or whatnot, can successfully against governmental interference with the proper development o f private
manage an institution o f the character o f the American Bankers Association, enterprise, to develop in our people a grateful appreciation for the privileges
and therefore I shall avail myself o f the opportunity of calling upon past- o f American citizenship with the accompanying responsibility to protect
President Puelicher and all o f these past Presidents who stood here a while unsullied and unspoiled those fundamental principles upon which our
ago, and upon the First and Second Vice-Presidents of this Association for history is founded—to these practical problems have the energy and the
their loyal support during the coming year.
ability of the administration now drawing to a close been devoted with an
And I shall not stop there, ladies and gentlemen: I am going to ask you, earnestness and a fearlessness which commanded the admiration and
here and now, to pledge to me your full support during the coming year, respect of every American banker.
and that when I ask you to help perform the duties o f this great and gigantic
To commemorate the vitality of your administration, President Puelicher
organization and put into pratcice the things that we have determined upon — John— and to remind you constantly that in addition to our appreciation
here, that you will respond with a hearty “ yes.”
for duty well done, we have the privilege of knowing you for what you are
Will the past-Presidents all agree to that suggestion?
This token o f our good will is now presented.
[The past-Presidents responded with a hearty “ yes.” ]
In your year of unselfish service in behalf of banking and the protection
President Head: Do the First and Second Vice-Presidents agree to that? o f the fundamentals of American society, the theories of an educator, the
[Mr. Knox and M r. Wells responded with “ yes.” ]
dreams of a poet, the soul of a musician, have enabled you to see truly
President Head: Does the Executive Manager during the year to come great visions, with a practical viewpoint and experience o f the trained
pledge to me here and now, in the presence o f these past Presidents and all banker convinced with the character and fearlessness o f real manhood
o f you people here to-day that he will carry out the instructions that I have privileged you to convert into farseeing policy and definite action.
will issue to him during the twelve months that are to come ?
Great achievements are necessarily based upon great motives. For the
Executive Manager Shepherd: Yes.
source o f your inspiration we turn to the words of Kipling:
President Head: Do the Secretary and the Presidents of the Divisions
“ And only the Master shall praise us.
and Chairman o f the Commissions and all the members of the Committees
And only the Master shall blame.
and Commissions which I am going to appoint, or which the Committee on
And no one shall work for money,
Committees will appoint and make known to the Council this afternoon,
And no one shall work for fame.
pledge me their support ?
“ But each for the joy of the working.
[There was a hearty response of “ Y es.” ]
And each in his separate star.
President Head: Do all the membership of the American Bankers As­
Shall draw the things as he sees it.
sociation, men and women everywhere, every man, woman and child—
For the God of Things as They Are.”
[The members interrupted the President by arising and applauding.]
M ay the “ God of Things as They Are” ever guide and protect you in
President Head: I thank you, ladies and gentlemen, for your hearty re­
sponse and what you want now is no further addresses; what you want your years of further service for Him and humanity.
M r. Puelicher: What can one say when the heart is full? M y friends,
during the interim between the time that we are here and the time that we
shall meet again is action. These gentlemen here on the platform and you we have been elected by this group to a membership in a fraternity, th6
novitiate
of which takes just three years, one hundred men in one hundred
all have promised that. Therefore, you should not be disappointed at
the end of another year. However, if you are disappointed, keep in mind years can become members o f your group. We are usually elected at
that you have assumed the responsibility and agreed to help me. There­ that time of life that when we enter, we find relatively few remaining.
I have appreciated my opportunity to serve my profession, my country,
fore, if there is a failure, the failure will be these men here and yourselves.
I could not and cannot refrain from referring to the very pleasant asso­ my kind and my God. I am indebted to you for a year that nothing
that
you could give me would I part with, and I now gladly become one
ciation I have had during the past year with M r. Puelicher, who has served
you so faithfully and so well. There was no time during the year that he of your group, one o f the Past-Presidents of the American Bankers
did not put into this organization every bit o f his energy, devoted practically Association.
President Head: God be with you till we meet again.
all o f his time and gave it the best thought o f his entire life. The result
I declare the sessions o f the Forty-Ninth Annual Convention o f the
speaks for itself. I feel that in going away from here that we are leaving
after the conclusion o f the best sessions that this American Bankers Asso­ American Bankers Association adjourned.
The meeting adjourned at one-fifteen.
ciation has ever had. We owe to M r. Puelicher a debt of gratitude and from
Adjournment.
my standpoint I want to say here and now that if he wants to take back




CLEARING HOUSE SECTION
A merican Bankers' A ssociation
Seventeenth Annual Meeting, Held in Atlantic City, N. J., September 24 and 25, 1923.

INDEX TO CLEARING HOUSE PROCEEDINGS
The Government in Business, George E. Roberts__________ Page
The Clearing House in Its Relation to Our Financial and
Economic Structure, Melvin A. Traylor___________________
THe Problems and Policies of the New York Stock Exchange,
Seymour L. Cromwell______________________________________
Address of the President, James Ringold___________________

102
106
110
114

Report of the Chairman of the Executive Committee_______ Page
Report
of
Committee on Clearing House Examina­
tions ________________________________________________________
Report of Acceptance Committee____________________________
Report of Committee on Resolutions________________________
Report of Nominating Committee____________________________

115
115
115
117
117

The Government in Business
By G eorge E. R o b e r t s , Vice-President The National City Bank of New York.
The world is gradually recovering from the disorganization
and losses inflicted by the war, but beside these results the
was has left a legacy of ideas which are only slowly over­
come. The war itself was tremendously costly, but I think it
not too much to say that the losses resulting from the gen­
eral state of demoralization existing since the war have
been greater than the direct cost of the war. All of the dis­
order and confusion has not been due to the w a r; there was
a lot of disorder and confusion in industry before the war.
There had been an increasing tendency to social discontent
and criticism of the existing order, and the war, with its
emergency measures for Government control over industry,
and its political upheavals, gave a great stimulus to social­
istic agitation. It has been a great time for social reformers
and revolutionaries of every type. They have been busy
everywhere, and Governments have been embarrassed, and
the recovery of industry has ben retarded by their activities.
Moreover, we have to recognize that as population in­
creases and relations become more complex, our social prob­
lems in some respects become more difficult. People must
live more closely together, they must have more to do with
each other, and they must be more dependent upon each
other. The primitive man did everything for himself and
he was independent, but modern society has developed a
highly complicated organization in which we are all special­
ists, each doing some one thing and exchanging products and
services with each other. It is a highly efficient organiza­
tion when it is running smoothly and in balance, but it is an
inter-dependent organization; it is like a great machine in
which every part is dependent upon every other part.
I think most of our troubles are due to the fact that we
have developed the industrial organization beyond the un­
derstanding of the common man. He doesn’t understand his
own part in it, he doesn’t understand the benefits he derives
from it, he doesn’t know much about the economic laws
which govern it and which control at last the distribution of
benefits. The primitive man knew that the harder he
worked the more he would have, and when a man exchanged
work with a neighbor he had the whole transaction under
his eyes; but when a man works -with thousands of others
for a great corporation, he doesn’t see his relationship with
other workers, or any definite relationship between what he
does and what he gets; he doesn’t know whether he is get­
ting a fair share of the industrial results or not, and he sus­
pects not.
Now, there is our industrial situation, and it is no wonder
we have trouble with it. The modern industrial system is




essentially co-operative, but you cannot have effective co­
operation without understanding.
You cannot expect
masses of peopie to be loyal to something they do not under­
stand, and because people do not see the industrial organi­
zation as a whole we have the tendency for society to break
up into groups and blocs and unions and organizations of one
kind and another, many of whom are trying to advance their
own interests at the expense of society as a whole, with the re­
sult that the benefits of organization are in large degree lost.
Now, of course, we cannot do away with the modern in­
dustrial organization. The population of this country to-day
could not be supported in the state of comfort to which it isaccustomed without the modern organization. Somehow or
other we have got to bring the people to a better understand­
ing of the economic laws which control the system and
which, if allowed free play, will afford protection to every
interest. The highly complicated system simply will not
work, it will break down, unless there is a broader under­
standing of the fundamental principles upon which it isbased.
H. G. Wells, the British writer, came back from Russia
profoundly pessimistic about the future of civilization in
western Europe and in the United States. He says that it is
a race between education and catastrophe, that what hap­
pened there will happen everywhere unless there is a devel­
opment of the capacity of people to work together and under­
stand each other.
The Government of Russia was a bad Government, arbi­
trary, inefficient and corrupt, and it is easy to understand
that the people might revolt against it; but the revolt was
not simply against the Government; we have to recognize
that in its final form the revolution in Russia was against
what is called the capitalistic system, or in other words, the
private ownership of property and the private direction of'
industry, and we cannot ignore the fact that that movement
has had the sympathy of great bodies of people in all coun­
tries, including the United States.
It is true that the results of the revolution are so calam­
itous in Russia a s io give a check to revolutionary tendencies
in other countries. The great body of the people in the other
countries of Europe have been warned against Bolshevism,
and yet the economic principles of Bolshevism are influenc­
ing public opinion more or less everywhere.
In Great Britain the Labor Party is now the regular Oppo­
sition party, and a few months ago it formally proposed in
Parliament a resolution which, after setting forth the unem­
ployment existing in England and other deplorable condi­

CLEARING HOUSE SECTION.
tions resulting from the disorganized state of world trade,
proceeded to declare that these afforded proof that the cap­
italistic system of industry had broken down, and that the
Government of England should now proceed to gradually
take over all the industries of the country and operate them
in the future.
And that resolution was seriously debated through two
sessions of the British Parliament.
Furthermore, if we care for institutions we cannot afford
to ignore the fact that agitation to that end is being carried
on with fanatical fervor all over this country, and that thou­
sands of people who would not givp their approval to such
extreme policies are helping them along by favoring the con­
tinual extension of Governmental activities in business af­
fairs.
The motive behind all this agitation is the desire to estab­
lish equality. The social struggles of the past have been for
political equality, to secure for all men equal voice in the Gov­
ernment and that has been accomplished, but it does not give
people what they want. Now the demand is for equality in
possessions, equality in incomes, equality in the management
of industrial affairs. It is important to understand whither
we are tending.
These ideas result from certain economic fallacies that
are commonly accepted, and if we are going to successfully
defend the existing order these fallacies must be exposed.
One of the chief of these fallacies relates to the employment
and service of private capital. The whole radical argument
is based upon the theory that all of the wealth employed in
industry benefits nobody but the owners. It proceeds upon
the theory that all of the increasing supply of goods and ser­
vices resulting from the investment o f private capital is ab­
sorbed and consumed by the capitalists. It is like claiming
that nobody ever got any benefit from the development of
the steam engine but the owners of steam engines, or that
nobody ever was benefited by the construction of railroads
but the persons who had railroad investments, or that no­
body had gained by the development of the textile industries
but the owners of stock in the mills, and so on around the
circle of the industries. Of course, the theory only needs to
be stated for the fallacy to be apparent.
It is a fundamental truth that all the productive property
of the country, although privately owned, is part of the equip­
ment of society, by which its wants are supplied. It is doing
the same work that it would do if it was owned by the State,
and probably doing it more effectively.
The people who advocate Government ownership of the
railroads and other industries usually have in mind that the
public will thereby avoid paying profits to the owners. They
overlook the fact that if there were no surplus earnings,
nothing left over after paying expenses, there would be no
capital for the improvement and enlargement of these ser­
vices and no industrial progress.
If we have a socialist regime, with all the industries owned
by the Government, all this equipment would have to be
provided by reserving capital from distributions, just as now.
The real measure of the distribution of the proceeds of
industry is not by ownership or income but by consumption.
That portion of an individual’s income which is turned back
into productive employment is devoted to a social purpose,
just as much as though it was employed for that purpose by
the Government. It is only what a man consumes that is de­
voted to himself or withdrawn from the common supply.
The final test between private ownership and private man­
agement of business and public ownership and management
is to be found in results. The object of all business is to sup­
ply the wants of the population; which policy produces the
largest supply?
The progress of the past has been accomplished under the
individualistic system. The theory of this system is that
every one shall have for his own, as nearly as may be, that
which results from his own efforts. The merit is that it
holds out over the entire population an inducement that ap­
peals to every person, and that inspires him to labor, to
produce and to accumulate by rendering those services to the
community which the community is willing to pay for. It is




103

a system calculated to stimulate the initiative, call out the
energies and develop the ability of each individual. He is
free as to his undertakings; there are no restrictions except
that he must seek his own gains by activities that are ser­
viceable to the community as a whole, and he is inspired to
labor, not simply by the desire for personal advantage, but
by the desire to provide for loved ones, by the impulse to selfexpression, to realize and develop his natural abilities, and
by the ambition to achieve, to win distinction and to render
service. In short, the system of individual freedom and of
reward according to achievement makes use of every possible
motive to stimulate individual effort and develop individual
capacity. It does not promise equality. Unless there is
equality in production, in service, in effort, in resolution and
in self-denial, why should there be equality in the division
of results?
The justification of individualism, however, is not merely
in what it allows to the superior individual, but in the results
that inure to all. It is in the interest of all to secure the
most effective organization, the most effective management
and the largest possible production. That cannot be had by
adopting the fiction that all have equal ability for any posi­
tion, or by any other system than that which judges men by
their individual qualifications.
The modern world cannot get along without organization
and leadership. There must be executive authority to give
direction to industry. Whatever the system of ownership
may be, there must be men who give instructions and men
who obey instructions. How are the leaders to be selected?
Shall it be by lot, by political methods, by military despot­
ism?
In the business world to-day the positions of leadership
and responsibility are held by men who have been advanced
to them under a system of competition and elimination. The
test of fitness is an economic test, a test of ability to produce
economic results—and the fact that as a rule the men in
positions of responsibility have come up from the ranks is
proof that the system is fundamentally sound and effective.
Society cannot afford to change from the economic test of
leadership to an arbitrary or political system of selection.
There would be a lessening of incentive throughout the eco­
nomic organization, a loss of ability in management and a
loss of productivity everywhere. These results are quickly
seen in any organization where favoritism or the strict rule
of seniority governs promotions.
The chief significance of ownership is in the degree of
control that it gives, and private ownership of productive
property is based upon the theory, supported as it is by expe­
rience, that the control which goes with ownership is favor­
able to the largest production. Ownership, before the mod­
ern systems of taxation were devised, gave control over in­
come, and men who have had the ability to acquire owner­
ship of industries and to make them successful usually have
desired to devote the incomes largely to the improvement
and enlargement of them, in order to supply increasing pub­
lic demands. The industries of this country have been de­
veloped and built up mainly by such application of income.
This increased supply of capital has created an increased
demand for labor on the one hand, and on the other hand has
furnished an increased supply of the comforts of life for the
population. The fact that the available supply of capital has
increased faster than the labor supply has been a constant
influence in increasing the wage rate, and the increasing use
of capital in production has been the most potent agency for
increasing real wages and for raising the standard of living
for the entire population.
In what way is it likely that surplus incomes from the in­
dustries could be more effectively used to advance the com­
mon welfare than by allowing the owners, under whose*
direction these industries have been successful, to use them
for enlarging production? At what stage of the careers o f
Thomas A. Edison, Henry Ford or Andrew Carnegie would
it have been to the advantage of the public to have had the
Government step into their establishments and say that
henceforth all surplus income should be diverted into the
public treasury, to be disbursed by officials at Washington?

104

BANKERS’ CONVENTION.

Men of this type, who have demonstrated their capacity for
industrial leadership, are the men who carry society for­
ward ; they are the men upon whom dependence must be
placed for such an increasing capacity in the industries as
will meet the needs of a growing population, and at the same
time satisfy the aspirations of the people for a rising stand­
ard of living. To take out of the hands of the leaders in
industry the surplus incomes which they would invest for
industrial development is to take from them the very means
by which they do their work.
The critics of the existing order base their attacks mainly
upon what it fails to accomplish. They say that although it
has enormously increased the capacity for production, it has
not abolished poverty, it has not provided decent living con­
ditions for all the people, it has not furnished steady employ­
ment for all the people, it has not stabilized industry or been
able to prevent recurring periods of depression and disaster.
It is true that social and economic conditions are by no
means ideal, but it will be found that most of the conditions
upon which criticism is based are not properly chargeable
to the industrial system, but result from the degree of indi­
vidual liberty that the system permits. Almost without ex.
ception the persons in every bread-line have seen better days,
and need not have been there if they had observed the com
mon dictates of prudence or the rules of life which other
people have felt under obligations to follow.
The great feature of the existing order is individual lib­
erty. The individual is free to order his own life and affairs
as he likes, so long as he does not interfere with rights of
others. He may be indolent or industrious, thrifty or prof­
ligate, venturesome or cautious in business affairs, as he
pleases. Upon his own choice in these matters, to a great
extent, depends his business success.
He is expected to find his own place in the industrial or­
ganization. It is up to him to determine how he shall make
himself useful, and there is no place for him except as he
can make himself useful. There is no overhead authority to
tell him where he shall go, or what he shall do, or what he
shall get for doing it. That is all left to mutual agreement,
and it is true that people have trouble about agreeing with
each other.
We have costly strikes, which in some instances seriously
interfere with industry, and inflict not only heavy losses
upon the community, but suffering upon many homes, be­
cause men are at liberty to refuse to co-operate except upon
terms agreeable. The right of men to disagree is one of the
most common causes of industrial disorder. We cannot have
the benefits and privileges of liberty without the disadvan­
tages that go with it.
Such irregularity as exists in industry, including periods
of depression and unemployment, are due to the psycholog­
ical tendency to mass action. There is a psychology of the
crowd, a tendency of people to act together. It is what the
great body of people do in the management of their private
affairs that makes the business situation, and when there is
a general tendency to overbuy and overborrow, it is certain
that a contrary movement will follow, sooner or later.
In short, we live under a regime of liberty, with the privi­
lege of judgment and action. We must either assume the
responsibility of managing our own affairs or we must create
some overhead authority to judge and act for us. Wouldn’t
we rather take the responsibility for our mistakes than be
moved about like automatons and have every act of our lives
regulated by the Government?
The greatest thing in this world is liberty—freedom to
exercise and develop our powers—freedom to make mis­
takes, for we learn by our mistakes. The race has pro­
gressed through its experiences and by its experiences. We
want the free play for all our faculties; we want the incen­
tives of live, the opportunities of life and the experiences
of life, for by these come the development of character.
There are people who look upon business life as a sort of
a routine performance, doing the same thing over and over.
They think that running a railroad is just moving a given
number o f trains back and forth daily. They don’t see any
reason why the Government should not run the railroads.




The same people think that big profits aro obtained by
charging high prices, that large profits are proof of high
prices; whereas in all really notable instances, large profits
have been due to low costs, low prices and large volume of
business. Every great success in the business world is based
upon notable service.
There is a fascination about the idea of having all industry
and all trade and services systematized and regulated from
above, but it is a delusive idea. It rests upon the idea of
routine, regularity.
It conceives of industry as static,
whereas it is dynamic. It is changing all the tim e; no busi­
ness can remain successful unless the managament is pro­
gressing. A sound public policy will promote changes, by
offering rewards for them.
Let anyone go about this country, see the variety of in­
dustries, take account of the changes being made, the new
ideas being introduced, the multitude of experiments being
tried, and conceive of an effort to direct all of these activi­
ties from Washington. It isn’t possible for the Government
to do all the thinking for the people. It will do well if it
keeps out of the way.
The Government of a great country seems to embody so
much power that illusions about what it can do are quite
natural; but a Government is no wiser than the individuals
who compose it. In the last analysis the proposal that the
Government shall exercise its authority in a given matter
means that a given individual, or a few individuals, shall
have that authority, for which they may or may not have
suitable qualifications. The kind of ability that makes a
man successful as a candidate for office does not necessarily
make a man successful as an administrator of business af­
fairs.
Moreover, the very atmosphere in which Government
functionaries live is unfavorable to the rendering o f judg­
ments upon economic considerations. It is a political atmos­
phere. The whole situation is sicklied o’er with— the pale—
or red—hue of politics. In an address before the Canadian
Bar Association a few days ago Secretary Hughes said of
one of the embarrassments of his o ffic e :
“ Those in charge of foreign affairs do not dare to under­
take to negotiate agreements because they know that in the
present of attack inspired by political or partisan motives
the necessary adjustment could not receive the approval of
the legislative branch and would evoke such an acrimonious
controversy on both sides that matters would be made worse
instead of better.”
In short, every act of an Administration is viewed by its
adversaries, and it is likely to be considered by officials, first
of all upon its probable effect upon values. Not what will be
the economic effect, but what is likely to ^e the effect upon
the next election.
We have pending at the present time an official investiga­
tion into the propriety of permitting the merger of two great
meat packing concerns in Chicago. The merger actually
took place months ago. It was a result of the very heavy
losses sustained by the packing industry over several years,
and was instrumental in raising new capital and saving the
packing industry and live stock industry from a crisis that
might have had far-reaching effects. This is a striking illus­
tration of the utter lack of sympathetic and practical rela­
tionship between the Government and business. I do not
say this in criticism of the official who is causing the inves­
tigation to be made, for he doubtles feels that he has a duty
to perform, but failure to carry through the merger would
have been a calamity, and in addition to all the other uncer­
tainties that had to be considered in trying to avoid that
calamity, was the question of what a Government official
might think it his duty to do in the premises.
Every venture that the Government makes in the field of
business shows this inaptitude for such affairs. It took over
the railroads for operation during the war, and it may be
allowed that an emergency existed in the affairs of the Gov­
ernment which justified the action. The Government un­
doubtedly possessed powers of co-ordination which the com­
panies did not have, but if there were any resulting econo­
mies they were swamped in the whirlpool o f losses. The

CLEARING HOUSE SECTION.
Government administration ran behind in the sum of $1,800,000,000, which the taxpayers of the country are obliged to
make good. It is true that this was not entirely an economic
loss, for it was due in part to failure to increase charges, but
in this it showed the characteristic weakness of Govern­
ments, in failing to do business on business principles where
public opposition must be faced.
A large part of the excess expenditure was pure waste in
dealing with the labor question. The number of employees
on the pay-rolls steady increased under Federal control, and
after the roads were returned to private control the number
was steadily decreased until in the last six months of 1922
the railroads were handling as much traffic with four men
as the Federal administration was handling with five. This
tendency to over-man the roads has been still more pro­
nounced with the Government-owned roads of Europe. It
may be added in this connection that in the last two years
the Canadian National Railways have lost $132,914,123,
which the taxpayers of Canada have the privilege of mak­
ing up.
Government regulation of railroads is a striking example
of regulation guided by political rather than economic con­
siderations. Regulation has been carried to the point where
it is practically impossible to raise money for railroad im­
provements by selling the stock of the companies. The
strongest companies are still able to borrow, but investors
do not want a proprietary interest in them.
The United States adventure in the shipping field affords
abundant material for study. Of course nobody would
charge the entire loss on the investment in ships to misman­
agement. The ships were built as a war measure, and if the
Government had proceeded to get out of the shipping busi­
ness promptly at the end of the war, the loss to that time
would be properly chargeable to the war account. The ships
might have been sold at good prices, and a large part of the
loss which is now faced thus averted. The total investment
in ships was about $3,500,000,000. The aggregate amount
received upon sales is not given, but the last report states
that on June 30 1922 the Government owned 1,275 steel ships,
which cost about $2,500,000,000. It owns about the same
number to-day, of which about 900 are laid up and a recent
Washington dispatch says that the aggregate value of the
entire fleet is estimated at $226,733,315. The shipping op­
erations have been running behind at the rate of about $50,©00,000 per year. The characteristic official view is pre­
sented by one of the Commissioners in a recent speech, in
which, replying to a statement that the Government ships
were carrying grain at a loss, he sa id : “ Of course we are
carrying grain at a loss, but the loss goes back to the Amer­
ican farmer.” The same theory upon which the Governmentmanaged railroads carried freight at a loss! Freights were
kept down to the shippers, but charged up to the taxpayers
who could be reached by a different kind of a levy.
Of course the problem o f utilizing the ships is made far
more difficult by the terms of the Navigation Act, through
which Congress has laid regulations upon all American ship­
ping which handicap it in competition with the ships of
other countries. In view of the past record of the Govern­
ment fleet and in the face of the Navigation Act, it does
not seem out of place to suggest that the remainder of the
fleet be placed in charge of the navigating officer who di­
rected the course of the flotilla of destroyers which landed
on the California coast a few weeks ago, with instructions
to do his worst.
The Postal Service is the reliance of people who advocate
Government operations. The postal service has a great many
faithful and capable men, but the management does not un­
dergo the test of competition. Nobody claims that the
charges are scientifically adjusted to the several branches
of the service. It is notorious that some branches lose
money, and others make a profit, which means that one
class of patrons pay for the services rendered to others.
Nobody knows what the postal service costs. The Govern­
ment reports don’t show, for a large part of the expenses are
paid from outside the postal appropriations. There is no
charge to the postal service for the use of the Government




105

buildings in which post offices are located. The cost of fuel,
lights and janitor service are not charged in postal expenses.
Government business is not under the necessity of paying
its way.
The Government navy yards, arsenals, gun works, and
mines, are none of them model industrial establishments.
None of them could make their expenses in competition with
privately owned rivals. Few employees anywhere expect
to work for any Government as they would work for a pri­
vate employer. As a protection against political influence
appointments in the Government service must be made from
a civil service list, and removals must be by formulating
specific charges. The effect is to limit the authority of the
appointing officer, and to a great extent relieve him of re­
sponsibility for his force. When it comes to filing charges
against a subordinate the subordinate may retaliate by fil­
ing charges against the superior, so that is about a stand­
off.
In all the countries of Europe in which socialism ran riot
in the years following the war there has been a revulsion of
sentiment, as a result of the demonstration that Government
management is not economical management. Even Russia,
under the pressure of necessity, is going back to private man­
agement. In this country -we have the demand for the Gov­
ernment to become more intimately concerned in the man­
agement of the Federal Reserve banks, but in Europe, where
the central banks have been made subservient to Government
policies of inflation, the central banks are being removed
from Government influence. In Austria, under the League
of Nations plan for reorganizing the monetary system, the
bank of issue is made wholly independent of the Government,
and in Germany a similar reform is proposed. Even in Rus­
sia, a new currency has been provided, issued by the State
Bank, with the pledge that issues will be solely upon bank­
ing principles. Everywhere it is being recognized that the
political agencies cannot be trusted to deal with the mone­
tary system.
Propositions for Government regulation of industries are
more plausible and insinuating than for Government own­
ership and management. There are certain functions of
supervision and regulation which the Government must per­
form. In the case of natural monopolies, such as the rail­
roads and certain public utilities, where competition is im­
practicable and undesirable, there must be resort to regula­
tion by public agencies, but these agencies should be as
strictly as possible of a judicial character. Their purpose
should be to maintain just and equitable relations between
the privately owned agencies and the public whom they serve.
Experience has demonstrated how difficult it is for these
politically created bodies to maintain this position. The­
oretically these bodies are supposed to have information not
available to the general public, to know the authentic facts,
and to not only act without prejudice or favor, but to inform
the public and correct the misrepresentations which so often
influence public opinion. Too often, their findings, if op­
posed to the popular view, are overwhelmed by a storm of
protest and clamor, and it is exceedingly difficult for public
officials to withstand the pressure of public criticism. It
is commonly the case that the persons named for member­
ship on public commissions have been more or less active in
politics, and are looking to political advancement. It is a
noteworthy fact that at the very time the meat-packing in­
dustry was under investigation several members of the
Commission conducting the investigation were active candi­
dates for higher political offices in the States of their resi­
dence. It is not in human nature to be judicially minded
under such conditions.
The tendency of these supervisory commissions is to be­
come prosecuting functionaries, looking for opportunities to
justify their existence in a sensational way, rather than by
quietly working upon the problems of economic organization
and development. There is also an inevitable tendency for
all democratic supervision over business to reach out for
power, and to endeavor to reduce business activities to an
approved routine. There is an example of it in the ruling
of the Federal Trade Commission that a company producing

106

BANKERS’ CONVENTION.

gasoline must not install gasoline pumps with retail dealers
free of charge. The Supreme Court disposed of that ruling,
as it has of many others of the same kind, for which let us
be truly grateful.
Dr. Charles W. Eliot, President Emeritus of Harvard Uni­
versity, a few days ago, in an article upon “ Education,” gave
warning that there was too great a tendency to standardize
education, and he added that there was too great a tendency
to standardize industry. The idea embodied in standardiza­
tion, regularity, uniformity, has its place, but it is out of its
place whenever it restrains the free play of initiative, origin­
ality and the competitive impulse. We don’t want the meth­
ods of business standardized by Government officials, save
as restraint may be necessary to prevent deception and fraud.
I repeat that this is no argument against Government
supervision and regulation in the limited number of cases
where competition is impracticable, or in cases of great
emergency, where the competitive forces are temporarily re­
strained. Undoubtedly as society becomes more complex it
will be necessary to resort more and more to regulative agen­
cies. All the more reason, therefore, why these agencies
should be cautiously developed, and guarded against impa­
tient and misinformed clamor. They should not be over­
loaded with functions. They should not be subjected to
pressure which they cannot be expected to withstand. The
exercise of supervisory authority over business is in large
degree experimental, and depends for success upon the de­
velopment of a just sense of the true public interest.
The clamor for official regulation of business is due in
large part to a lack of understanding of the effectiveness
of the natural economic forces. There are few lines of busi­
ness in which these forces are not amply sufficient to pro­
tect the public. In normal times there are few instances of
unusual profits where competition does not quickly result,
or other corrective influences are not brought into play. The
inteference of Government officials where natural forces are
likely to be effective in due course, often has the effect of
nullifying these influences and of throwing the whole situa­
tion into confusion. Such activities as the attempted regu­
lation of trading in futures on the commodity exchanges sim­
ply add further elements o f uncertainty to the price situa­

tion. Business men are obliged to take account not only of
all the natural risks in which such trading is involved, but
the possible effects upon the market of official action be­
sides. Of course in the end the public pays for every obstruc­
tion to business that must be surmounted and every risk
that must be carried.
It is for the business men of the country, who have been
alarmed by the tendency of legislation to restrict and hamper
individual initiative and to exert a leveling pressure upon
the whole body of society, to make their opinions known and
their influence felt. It may as well be added, however, that
they will not be able to exert much influence unless their
efforts are directed by the broad principle that the public
welfare should be the first consideration all of the time, and
that they want no special policies for their own advantage
at any time. It is not uncommon to hear a business man
declaiming that the Government should stop interfering with
business, at the same time clamoring that it should regulate
some other business than his own, or pleading that Govern­
mental authority be used in some other way to his advan­
tage. There must be genuine faith in the efficacy of natural
forces to regulate the business situation and willingness to
let natural forces have their way.
Finally, there is wanted on both sides of this question a
broad appreciation of the fact that the activities of business
are all “ affected of a public interest.” They are not merely
private activities. The fundamental purpose of all business,
the purpose which gives it the chief claim to consideration
and protection, is that of serving the wants and needs of the
population. The argument against excessive Governmental
interference is that instead of serving the public interest, it
hampers this necessary service and makes it more costly;
but this plea cannot be urged effectively by business men
unless they show an appreciation of the obligations which it
lays upon them.
The controversies that arise out of the relations of busi­
ness with the public are not inherently irreconcilable. They
do not present a case where one must enlist for the war on
one side or the other. In every instance there is a right re­
lationship between business and the public which is best for
both, and wThich both should be equally eager to find.

The Clearing House in its Relation to our Financial
and Economic Structure
By M eltin A. T raylok, President First Trust and Savings Bank of Chicago.

It is truly a case of “ carrying coals to Newcastle” for me integrity of the community affected. Like almost all other
to undertake to talk to you gentlemen about the intricacies reforms, this new step forward was taken as the result of
of Clearing House affairs. In looking back through the tragedy and disaster. That we do not progress in times of
minutes of the proceedings of your annual sessions for the normal serenity, is a discouraging commentary to human in­
past several years, I have been tremendously impressed with telligence, but such seems to be the fact, and it required “ a
the intelligent discussion of what seems to me to be every leap in the dark” on the part of the Chicago bankers, be­
possible phase of the Association’s activities; hence if I cause they actually acted between sundown and sunrise and
should repeat in a measure what you have heard before it largely without information, in taking over the three bank­
is only because, as someone has said, there are no new sub­ ing institutions which was to entail a heavy loss, to vitalize
jects, for that which seems so is merely a new dress for an a thought that had frequently before been expressed, that
old idea.
the Clearing House should through a system of examina­
As I gather it. the Clearing House idea is in no sense a tions be fully familiar with the condition of its members.
modern conception, and while it may trace its genealogy While in a sense they were closing the door after the horse
directly to the nimble wits of two otherwise lazy-footed Lon­ had been stolen, they were also putting a padlock on other
don bank clerks of the seventeenth century, its effectiveness doors through which so far no thief had been able to enter
when once adopted as a part of the machinery for the expe­ and leave undiscovered and without being apprehended. In
ditious handling of banking transactions and incidentally other words, Clearing House banks in Chicago have not since
speeding up the commerce of the country, was none the less the inauguration of the system of examination lost any
important. So far as I can gather, there was no material money on account of the misfortunes of its membership.
change in the methods and practices followed by the Clear­
Notwithstanding your Secretary suggested that I report
ing Houses in this country from their inception in 1S53, from something of the progress and development of the Clearing
those that characterized the earlier English system. It was House idea in Chicago, I find there is little, if anything, that
not until 1!>06 (incidentally, the year in which this Section can be added to the excellent paper on that subject prepared
was formed, a rather interesting coincidence, and I wonder and presented by the Chief Examiner of the Chicago Asso­
if traceable to some extent to the same cause) that the ciation, Mr. Charles H. Meyer, on the occasion of your an­
Clearing House stepped out into new fields and assumed for nual meeting in 1920. Since that time, however, the Chicago
the first time a real place in the maintenance of the banking system has expanded very rapidly, the Examiner now having




CLEARING HOUSE SECTION.
160 banks under his charge. 28 being regular members of the
Association and 132 being affiliated members. Over 40 new
members have been added th's year. Also, since Mr. Mey­
er’s paper was prepared, the Association has been called
upon to deal with some very difficult problems, the out­
standing one of which I am sure is familiar to all of you,
and the experience of the membership with these problems
has only more firmly convinced not alone members but nonmember banks of the wisdom and efficacy of the principles
underlying the management of the system. We have also
learned some exceedingly important facts, always known to
us but not sufficiently, I am afraid, realized and acted upon.
Probably the most outstanding of these facts as they have
impressed me is worthy of mention here, that is the domina­
tion by stock ownership or control of boards of banking in­
stitutions by individuals who are extensively engaged in
other enterprises, and likewise the control and direction of
a group of banks by one or more individuals. I do not mean
to say that there should be legal restrictions in this regard
nor that it is not entirely proper for one man or group of
men to own a number of banks, nor that so owning or con­
trolling a bank or banks they should not engage, or for that
matter be primarily interested in other enterprises, but I
would emphasize that such facts should at all times be reck­
oned with in the matter of examination and supervision on
the part of all properly constituted inquisitorial bodies. The
possibility for complications is so inherent under such cir­
cumstances as to warrant the greatest degree of caution on
the part of those charged with the responsibility of main­
taining the financial integrity and solvency of the banking
profession.
The idea of banking supervision and regulation is much
older than the Clearing House idea itself and is undoubtedly
based upon the broad principle of the Government’s respon­
sibility to the public, and would not be denied by any of us.
The basis for such supervision has always, of course, been
•examination, and therein lies the chief problem for those
eharged with banking supervision, that is, how efficient is
examination? In this country, with our dual system of
banks, State and National, we have supervision and regula­
tion based upon examinations naturally by both State and
National examiners. All of us recognize that these functions
being exercised by political appointees and by constantly
changing administrative heads, due to the fortunes of poli­
tics, have been seriously handicapped both as to continuity
of policy from administration to administration arid because
o f the difficulty of employing the best men available, for the
reason that compensation, politically fixed, does not warrant
such men in accepting, or if they do accept in long remaining
in the service. This probably will not be changed, but this
section can perform no greater service to the banking fra­
ternity than to insist, in season and out, that larger appro­
priations be made for banking departments, State and Na­
tional, to the end that supervision and regulation may be
strengthened and improved.
Moreover, any examination by Government authority is
naturally handicapped because of the fact that those con­
ducting such examinations are almost without exception not
thoroughly acquainted writh local conditions, familiar with
local credits, or otherwise equipped properly to appraise the
assets of the institution under investigation. This is not
the fault of the individuals charged with such examinations,
because most frequently they are shifted about from one
territory to another with such rapidity as to prevent their
acquiring the knowledge essential to the most efficient
prosecution of their work. In too many instances examina­
tions are in effect more nearly audits of the accounting sys­
tems and a check for discrepancies, rather than a true de­
termination of the bank’s condition from the standpoint of
solvency, which to my mind is after all the chief concern of
those so interested in the management of our institutions.
It is for this reason that it can probably be truthfully said
that examinations conducted by Clearing House Associations
are of more real value than those made in any other way.
The Clearing House examiner has the advantage of serving
a smaller group who have voluntarily associated themselves




107

for mutual protection and wThose only concern is the solvency
and proper conduct of each of the parties to the agreement.
He works under the direction of an independent committee
consisting of the best bankers in the community, his compen­
sation is such as to attract the best talent in the country.
His contact with his principals and his freedom of action,
the absence of red tape and his knowledge of local conditions
enable him without fear or favor to approximate the highest
degree of efficiency in his work. This is not said in any dis­
paragement of the splendid wrork that has been done and is
being done by either National or State Departments, but is a
plain statement of facts, which I do not think can be suc­
cessfully denied, which presents a case w7hich I feel fully
warrants the statement that every community concerned for
the welfare of its banking institutions should have a system
of examinations, at least similar to those conducted at the
present time by the recognized Clearing House Association.
Of course, there have alwrays been numerous objections
raised to the Clearing House examiner idea. The first
usually is that wre have too many examining and inquisitorial
bodies, that as it is w7e are constantly harassing our em­
ployees and our customers as a result of these examinations,
and that the adoption of a Clearing House examiner would
only add to the confusion, to say nothing of increasing the
expense. To my mind this argument is not w7orthy of con­
sideration. Any group of bankers who do not see more
clearly their responsibility to the community, are so blind
to their own interest as to make it useless to argue. At heart
I think their real objection is one less frequently expressed
but none the less inherent in all of us and might be summar­
ized somewhat as follow s: We are running our own insti­
tution, w7e know we are running it properly, and it is non** of
the other fellow’s business wriiat we are doing; w7e do not
propose to have our competitor furnished with all of our
trade secrets and credit information. In other words, we
are inclined to rear up on our hind legs and assert our indi­
vidual right to do as we please, without being regulated or
directed by any group of our fellows. We follow this objec­
tion up by asserting that you cannot legislate morals into
the genus homo nor can you by regulation endow him with
wisdom or experience or integrity, and that any attempt to
do so through co-operative action is to reduce the best and
most competent to the dead level of the worst and most in­
efficient. That if all banks are made equally solvent by
membership in and submission to Clearing House examina­
tions and regulations, the public is relieved of the responsi­
bility of exercising proper intelligence and discretion in
their selection of a banking connection. In other words, that
if the Clearing House system has now effected all that it
professes, it is merely another form of the guarantee of de­
posits, with all that that means of danger to those individual
bankers who are endeavoring properly to conduct their in­
stitutions.
About some of these criticisms and objections there is
enough of fact to give the friends of the Clearing House
idea some real concern. The public in those communities
where Clearing House supervision obtains has been so often
told that no depositor in a Clearing House bank subject to
Clearing House examination has ever lost a dollar, that
there is danger of their further assuming that such losses
will never occur. Under these circumstances the Clearing
Houses of the country are shouldering a terrific responsibil­
ity, and it cannot be too often or too specifically emphasized
that Clearing House membership does not entail guarantee
of deposits or integrity of management, but that it does this,
and this on ly: insure the most drastic supervision consistent
with independent management of the banking institutions of
the community, that the record of its performnaces so far
has been such as to justify the belief that it will be difficult
for any member of the Association to so mismanage his in­
stitution as to impair his capital to the hazard of his depos­
its before he is apprehended, and the condition corrected or
the institution put out of the Association.
It must be again and again emphasized that there is no
relation whatever between Clearing House supervision and
the guarantee of deposits. In the first instance you have a

108

BANKERS’ CONVENTION.

group of individuals or institutions for mutual protection,
agreeing to supervision or regulation by themselves, for
themselves in the interest of themselves and the public—
this is the Clearing House, and it is clear that under this
system the best are not reduced to the level of the worst, but
the worst are elevated to the standard of the best or elim­
inated. Under any system f guarantee of deposits that has
yet been devised the reverse is true, and the best are forced
to underwrite the conduct and the solvency of the worst
without any chance or opportunity to detect, protect against,
or eliminate the worst. The past two or three years have
witnessed the utter folly and the complete failure of such a
sj stem.
Another criticism which we have frequently heard has
been that the smaller banker has vehemently asserted that
the whole Clearing House proposition was just another at­
tempt of the big bankers and the large institutions to dom­
inate and overshadow the small banker and his smaller in­
stitution, and that he, the small banker, did not intend to
permit any big banker to tell him what to do. This is prob­
ably a natural reaction and exemplifies correctly a predom­
inant trait of human nature, but it certainly is not sound in
practice, not sound in theory nor has it, so far as my expe­
rience goes, any basis in practice; and I am happy to say
that so far as the majority of the smaller banks in Chicago
are concerned the Clearing House Association is now held in
the highest regard and that membership on the part of
smaller banks in the system is to a large extent limited only
by the capacity of the examining force to take on additional
work. I have no doubt whatever that a similar situation
will develop in any of our cities when the smaller banker is
properly advised of the functions of the system, and it will
certainly obtain after a disaster to the smaller institution,
which leads them as always to embrace progress and devel­
opment.
After all, however, whose business chiefly is it as to how
the banks of the country are run; who, in fact, is most con­
cerned in the question of banking integrity and solvency?
I am aware that the usual answer is the shareholders, that
they have at risk not only their capital investment, but their
double assessment liability, and naturally they, and they
alone, are most concerned in the matter. Personally, I
think it may well be questioned if either shareholders or
management is in the biggest aspect of the question most
vitally concerned. Management, to be sure, has at stake its
reputation and its material welfare, to say nothing of its
responsibility under the criminal code for its misconduct,
but there is another party to the fraternity by far the most
numerous and representing by far the greatest financial in­
vestment— that is the depositing public. It is his welfare
that has been the basis always for all characters of supervi­
sion and regulation and however much the management may
assert its individual right of personal liberty and freedom
of action, it will only succeed in pulling its house down about
its ears if thereby in theory or in practice it fails to make
the security of the depositor its first consideration.
According to figures compiled as of June 30 1922, the last
available, shareholders have invested in all kinds of banks
in the country, in round figures $2,950,000,000. These same
institutions at that time had a surplus account of $2,700,000,000, or a total of $5,650,000,000, while depositors had in trust
with the same institutions $37,200,000,000. In other w ords:
Not considering the shareholders’ additional liability, the
public had almost six and one-half times as much at risk in
the banks of the country as had shareholders, and more than
four times as much as shareholders, considering capital, sur­
plus and double liability;
It is true, of course, that the entire capital investment
and liability of shareholders must first be wiped out before
the depositor suffers loss, but how often in recent years have
we seen just that thing happen, and we must remember that
it is the failures and not the successes that mold public opin­
ion and create or destroy confidence in business, and we
must not forget that the failure of a banking institution
affects not only the stockholders, but usually wrecks an en­
tire community. And that while bank shareholdings seldom




represent other than a minor part of the business or effects
of the particular shareholders, the bank deposit more often
and usually represents no small part of the material wealth
of the particular depositor. We must also keep in mind that
it has always been the failure of a large banking institution
or a series of failures involving many communities in widely
separated parts of the country that has led to a renewal of
the clamor for the guarantee of deposits, and other unsound
legislation. Such agitation will certainly increase as de­
positors become more numerous unless every facility is ex­
ercised to the limit by the bankers themselves to render bank
failures almost impossible.
In recent years we have heard much in commendation of
our splendid and eminently successful system of independent
banking institutions. The sessions of our National Associa­
tion have been enlivened no little with the pros and cons of
branch banking. Without in any way entering into that
discussion other than to express my unqualified belief in
the virtues of our present system, because I feel that it has
contributed as no other system could to the rapid and com­
plete development of the nation, I would impress upon its
advocates that it can only be sustained and maintained by
its friends. If the individual unit of banking institution Is
the correct system for this country it must by its conduct
and its record demonstrate that fact beyond all peradventure
of doubt, because in the end public opinion is going to con­
trol. That opinion is going to be based upon whether or not
the system proves that it is furnishing its depositors and its
community absolute integrity of management and security
of deposits. If its friends would preserve it they must leave
no stone unturned and throw out every safeguard that com­
munity of purpose and co-operation of actions can secure.
The power of change in this country rests with the people,
the same people who are the depositors in banks, and If
branch banking ever prevails in this country it will be be­
cause the people are convinced that the present system does
not give them the protection and service to which they are
entitled. I earnestly commend this subject to the attention
of the friends of banking in this country as it is. If they
succeed by merit, and, by merit alone, in shaping a friendly
public sentiment their position is secure. I f that sentiment
is furnished by the enemies of the system the system will
fail.
In my opinion the two most effective weapons available
for those interested in the maintenance of American banking
institutions are the agencies of the Clearing Houses of the
country and the Federal Reserve System.
If the associations opposed to branch banking will nail to
their masthead the development of the principles of Clearing
House supervision and the maintenance of the integrity of
the Federal Reserve System as originally intended, I have
no doubt whatever that they will weather the storm of any
opposition and preserve to the country the banking system
under which the country has developed. To my mind there
are two outstanding ends which it is always desirable and
absolutely essential to maintain. First, the solvency of our
institutions and the security of our deposits. This can un­
questionably best be obtained through a general application
of the principle of Clearing House supervision and regula­
tions, and second, the ability of our institutions to serve the
needs of our customers, our community, and the nation, and
this in turn is only possible of achievement through the
preservation of the integrity of the Federal Reserve Sys­
tem.
As to the possibility for the further development of the
Clearing House System, little can be added to what has al­
ready been said in numerous excellent papers read before
previous sessions of this Section. Primarily, these possibili­
ties lie in the direction of getting the Clearing House exam­
ination idea inaugurated throughout the entire country as
nearly as possible. To me it is utterly amazing that with
some 330 cities maintaining Clearing House organizations
less than 35 have instituted systems of examinations and
many of these have so limited and restricted their inquisi­
torial functions as to make their efficiency almost nil. The
bankers composing these Clearing House committees are ad­

CLEARING HOUSE SECTION.

109

mittedly among the best in the country, but surely they have subject with a shrug of the shoulders and an “ Oh, what’s
not considered their great responsibility to themselves, the the use?” Whereas, as a matter of fact, we ought to make
community, and the fraternity or they would have before it our business individually always, and collectively when­
this inaugurated the system that has so thoroughly proven ever we can, to answer with the facts the calumnies of our
its value. I take it for granted that there will be no let-up traducers. The utter lack of influence of the banker in
on the part of the officers of this Section in their efforts to matters of a political nature in his community is a by-word
induce the remaining Clearing House associations to install and yet there is not an individual, a business enterprise or a
political demagogue for that matter, whose welfare is secure
fully equipped facilities for examinations.
A possible further development of the Clearing House if he destroys the country’s banking system. No matter
promising additional safeguards both to the banking and how much our inclination may be to consign the political
commercial interests of the community is the installation of mouther to the demnition bow-wows we can’t afford to over­
Bureaus of Credit. This subject was admirably handled look the fact that slowly but surely he is gathering followers
from a practical viewpoint by Mr. J. R. Kraus in a paper and disciples. If we do not educate he will, and once edu­
presented to this Section at their annual meeting three years cated in the wrong direction the public who have the power
ago. I am pleased to observe that this feature of Clearing will make trouble for us.
Certainly no better vehicle could be desired than is ready
House activity is receiving the earnest and active support
of this Section. To my mind such bureaus are of special to the hand in the 25,000 odd country banks in the United
value to banks in larger centres. Few of those not familiar States whose principal shareholders are in most cases the
with the subject fully appreciate the tremendous responsi­ small merchant, professional man and farmer. These form
bility assumed by officials of the larger banks in the pur­ the nucleus which if properly used can be fashioned into a
chase of commercial paper both for their own account and vital and vocal influence for the welfare of banking. If this
the account of their correspondents. In ordinary times I Section through co-operation with the State bankers’ asso­
know it to be a fact that the time of one officer is largely, if ciations can succeed in establishing some of the essential
not entirely, occupied in the selection of such paper and the principles of the Clearing House System in connection with
detail attendant thereon. In a sense, it is far simpler to se­ the county organizations of the bankers of the various
lect paper for your own account than for that of your States it wTill rapidly become more and more difficult for the
correspondent who leaves the matter entirely to your judg­ demagogue to get away with its false teachings. If we can
get the county organizations in turn to adopt an educational
ment.
Frequently in recent years there has been more or less program along the lines of the activities of the Clearing
agitation for some scientific method of checking and regu­ House and the value of the Federal Reserve System those
lating the issuance of commercial paper. It seems to be quite organizations will have a sufficient program to maintain
possible if thoroughly up-to-date credit bureaus were main­ their active interest and we will have gone far towards sell­
tained by the various large Clearing Houses a fair under­ ing our business to our own customers and will have created
standing of the asset condition and the total borrowings of before very long public sentiment which will relieve us of
the concerns who sell paper through brokers would be easily the ever-recurring threat of additional Government regula­
had and intelligent information be substituted for the more tions and deposit guarantees.
With the solvency and security of our institutions beyond
or less uncertain speculation which now attends the purchase
of this paper, often based on statements from six to twelve question we then have to consider only our ability to serve
months old. No doubt a service of this character would be our clientele under adverse as well as prosperous conditions.
greatly appreciated by the smaller banks and possibly, too, if It is here our concern comes for the welfare of the Federal
credit inquiries cleared through such a bureau, the larger Reserve System. I take it that the friendly interest of the
particular members of this Section may rightly be assumed
banks would be relieved of a great deal of detail.
As an officer of our State Association for the past two for the Federal Reserve banks. From time to time we may
years, I have been primarily concerned in stimulating the not agree with all the policies of the Federal Reserve Board
study and solution of our every-day banking problems. My or of the management of the particular bank of which we
experience convinces me that the unit of the county is the are a member, but on the whole I have yet to find an officer
only practical avenue through which the bankers may con­ of any important institution who would openly advocate the
sider their own community affairs, and particularly the abolition of the System. Unfortunately the attitude of the
channel whereby they may reach and create in the minds officers of some smaller banks is not so friendly, and I re­
of the public a better understanding of the simplicities of the cently have had said to me by bankers who should have
banking business. This section has for some time been thought differently, that so far as they were concerned they
giving attention to the extension of the principles of the did not care how soon the System was wiped out of exist­
Clearing House System to the smaller towns and even the ence. It is easy, of course, to understand why the smaller
rural communities. I believe this can be accomplished with banker feels that it is the large bank which secures the direct
great benefit to all through the county organizations of the benefit from the Federal Reserve System. They feel natur­
different State Associations. As a practical proposition I ally that they have little or no need for it since they secure
understand that there are many difficulties in the way, chief from their city correspondents all the service and assistance
of which are some of the same objections that have been and required. They believe that the management of the city
are now urged to the Clearing House in the field of exam­ banks is in closer touch with their local problem and under­
ination in the larger cities. They reflect merely the human stands more fully their needs than does the management of
element and for that very reason are not easily overcome. the Federal Reserve banks. It must be admitted that to some
Yet the problems to be solved and the ends to be attained extent these statements are true. It is to be regretted that
are not essentially different in the small community from in some instances the management of the local Federal Re­
the large and I believe it is possible to convince the bankers serve Bank has not shown sympathy, if even intelligent un­
of these communities that there is a real need for them to derstanding, of the country bank problem. They seek to
co-operate in every manner possible, not only for their own condemn the System because of the frailty of the human ele­
protection but because of the dangers to which they subject ment in management and judgment to which if some of us
themselves and the banking business as a whole, if they per­ were subjected, would eliminate us from the banking equa­
mit public opinion to become warped by false information tion. These critics of the System do not go far enough in
and vicious agitation. It is a trite saying that the chief their analysis. While it may be true that they receive little
asset of a banking institution is the confidence and good-will or no direct benefit from the System, many of them might,
of the public. Many of us do altogether too little in the if they would, and those who cannot have institutional con­
direction of creating and fostering these important attri­ tact with the System receive benefits and advantages from
butes of human nature. We are cussed and discussed so much its existence which are none the less powerful because indi­
that when a particularly vicious assault is made upon us rect. After all, our concern is for a sound banking system.
individually or collectively, we are likely to dismiss the This is of just as much importance to the small banker as




110

BANKERS’ CONVENTION.

the large and if experience counts for anything we are forced
to admit that our whole banking structure was never as
sound as at present, and this notwithstanding that in no time
in the history of the country has the System ever gone
through so difficult a period as that embraced in the life of
the Federal Reserve System. The System cannot be main­
tained without the support of public sentiment, and favor­
able public sentiment is utterly impossible without approxi­
mate unity and co-operation of all kinds of bankers at all
times.
We may not all agree on the question of par collections or
as to whether or not the country bankers were urged to bor­
row too much and then forced to pay too quickly. It may
even be debated as to whether all eligible banks should or
should not join the System, but so far as possible all these
matters should be argued out and settled between bankers
themselves, because if the quarrel is taken to the public and
the settlement of the argument left to the arbitrament of
politics, we may be sure that the solution adopted will not
be economically sound or make for the welfare of our bank­
ing institutions. We need no better proof of this than is
embraced in a full understanding of the extent to which
public and political influence has determined the personnel
of the Federal Reserve Board in recent months. In the
original instance it was clearly contemplated and specific­
ally provided that at least two members of the Federal Re­
serve Board should be trained in banking and finance. With
no criticism whatever of the personnel of the present Board,
aL of whom are estimable gentlemen, it is a striking coinci­
dence that the original provision with respect to trained
bankers has been eliminated from the Act and the only
specific requirement with respect to the personnel of the
Board at the present time is, that at least one of them shall
be a farmer. I personally did not oppose that amendment.
The farmers of this country have a great deal at stake and
our financial system should be as responsive to their require­
ments as is possible to make it consistent with sound eco­

nomic and business principles. I believe it is a good influ­
ence to have a real dirt farmer brought face to face with
the problems and complexities of our banking machinery.
He will obtain fully as much information as he will impart
and the Board on the whole, if otherwise properly consti­
tuted, should be stronger because of his membership in it,
but I do feel and I believe the farmers of this country feel,
if they were permitted to voice their sound unprejudiced
horse sense upon the subject, that the Board should be pri­
marily constituted of men thoroughly trained not only in the
theory but in the practical application of the banking busi­
ness as well. Surely the bankers would not insist that one
of their number without farming or agricultural experience
should be Secretary of Agriculture nor would the doctors or
lawyers seriously contend that one of their members with­
out other experience or qualifications should be Secretary o f
War. Such contentions would be so childish as never to be
made. It goes without saying that all groups approve o f
the selection of men for these posts qualified to exercise the
duties of their office. Upon the same basis of reason will
not the public approve of the reinstatement of the provision
making it mandatory, if necessary, that at least two mem­
bers of the Federal Reserve Board shall have practical bank­
ing experience, national if not international in character,
such as will make them recognized authorities in economic
and financial matters.
I realize that it is not a question to be primarily dealt
with by this Section, but the membership of this Section
represents such an overwhelming majority of the banking
resources of the country, and furthermore, it is so directly
that part of the banking community most bitterly assailed by
the political opportunist, that I conceive it to be our duty to
urge with all the force at our command the application o f
a square deal, which is all that is necessary to preserve the
Federal Reserve System and incidentally insure the integrity
of our banking institutions. We can’t afford to shirk this
responsibility.

The Problems and Policies o f the New York Stock Exchange
By Seymoub L. Cromwell , President of the New York Stock Exchange.
I propose to discuss with you to-day the business o f the
Stock Exchange in relation to the public interest of the
American nation. Some time, I hope, I shall be able to ap­
pear before a gathering of this kind and not talk shop.
There are many questions connected only in general with
the Stock Exchange which I would like to discuss, but for
the present I must stick to the narrower subject matter,
which, as officials of the Stock Exchange we cannot, even
if we would, put aside. The operation of our institution has
provoked and still provokes so much public comment and
is the occasion of so much misunderstanding that we must
call public attention to it whenever and wherever we can.
My object in discussing the Exchange and its problems with
you to-day is to remove some of this misunderstanding and
to seek your co-operation in explaining to the people of
the United States what the Exchange is and under what
conditions it can best serve the interests of its clientele,
which is the whole American business community.
I have a further purpose in directing your attention to the
operation of the Stock Exchange. This institution is not
only discussed and misunderstood, it is bitterly criticized
and attacked. For the most part we have submitted to these
criticisms and attacks and merely done what we could to
repel them. We have acted scrupulously on the defensive.
But instead of moderating, they have become from year to
year more threatening until they are now made the excuse
for legislation which, if it were enacted, would seriously
and perhaps fatally cripple the Ex hange in the performance
of its major functions. We shall not act on the defensive
any longer. I intend later in this address to announce a
new attitude and a new policy on the part of the New York
Stock Exchange. It will no longer submit to unwarranted




attacks from doubtful sources without turning on its ene­
mies and exposing them. It has nothing to hide. It has
everything to gain from publicity. Its opponents have every­
thing to lose. Hereafter it will employ this weapon to the
very limit. It will give nation-wide publicity to the nature
of the attacks which are being made uoon it, to the character
of the attackers and their frequently disreputable motives,
and to the doubtful purposes which they are hoping to
achieve. And as you will see later the weapon is likely to
be effective. Whenever we are forced to use it, those who
are trying to injure the Exchange will find it difficult to
protect themselves. Their own actions have rendered them
vulnerable.
What is the New York Stock Exchange? Briefly stated
it is incomparably the greatest market for securities in the
United States and with the possible exception of the Lon­
don stock market, the greatest market in the world. There
is no question that the highest standard of business conduct
prevails on the Exchange nor that the methods there pre­
vailing serve the interests of the public better than any
system that can be devised. The Exchange has grown up
under a system of free government. It has no charter from
the State, it has no special privileges, it exists by virtue o f
the contract between its members incorporated in its consti­
tution. The success of its management is due to its auton­
omy. Men of character and experience are willing to devote
their ability and time to its service. The principle on which
free government is founded is that all who are conducting
their business in the best interests of the public should be
left to conduct their business without interference by the
State. The Stock Exchange claims that it has done better
under its own government than could possibly be expected

CLEARING HOUSE SECTION.
under any sort of State control or supervision, and in the
light of its success it asks that it be left free from bureau­
cratic interference.
When I speak of the Exchange as the people’s market I
do not say something that has a doubtful meaning. I took
the list of stocks listed on the Exchange the other day and
out of curiosity began to figure how many kinds of goods—
if I may use the expression— there were on our shelves. In
a short time I had figured u one hundred and fourteen,
ranging from aeroplanes, air brakes, asphalt, automobiles,
bread and cake, cement, cereals, collars, shirts, leather,
sugar, silks, salt, ribbons, tinfoil, typewriters, varnish, un­
derwear, down to cardboard, patterns, yeast, writing paper
and fire engines. Just imagine a great department store
with one hundred and fourteen separate shops and the goods
represented in those shops available on short notice to any
person situated in any part of
world. It is the listing of
the stocks of the companies owning these goods, on the New
York Stock Exchange, which permits the development of
industry and the distribution of the goods themselves. I
am not going to discuss to-day the economic functions of the
Exchange, but when criticism is made of the amount of
Stock Exchange loans, I want to call attention to the tre­
mendous increase in the number of commodities listed on
the Exchange as a consequence of the large number of part­
nership firms that have during recent years been incorpo­
rated. This will account for an important total amount of
new securities that have come on the market, and as a re­
sult I believe it may safely be said that to a large extent the
commercial loans of yesterday are the Stock Exchange loans
o f to-day. It is therefore only just that we should not
measure present day Stock Exchange loans by former
sta ndards.
There were listed on the New York Stock Exchange on
June 30 1923 the securities of 630 companies representing
892 issues of stocks and having an approximate value of
$24,000,000,000. There were also listed 1,669 issues of bonds
of 688 companies, Governments, etc., representing more than
$18,528,000,000. This latter amount does not include $20,000,000,000 Liberty Loan bonds. These vast figures give
you some idea of the New York Stock Exchange. Much of
the antagonism to the Exchange is begotten in economic ig­
norance. The Stock Exchange operates in terms of capital
instead of in terms of commodities, and that is why I wanted
to point out to you what a large number of commodities are
represented in the capital in which the Stock Exchange op­
erates. All progress is conditioned on public understanding,
and until we have such understanding of the purposes and
functions of the New York Stock Exchange it cannot fulfill
its natural purpose, which is to supply one of the great ele­
ments in the prosperity of the country.
The Stock Exchange is an ally of law enforcement. It is
seldom, however, in recent years that the Stock Exchange
has been called upon or even permitted to co-operate with
law enforcement officers. In the thirty-year-old fight which
the Stock Exchange waged against the bucket-shops its chief
obstacles have been the inertness and lack of co-operation
of many public officials. The Stock Exchange destroyed
through its own efforts the old “ clean sheet” bucket-shops,
and it is bending all its energy toward ending the operations
of the new type of swindle. This new bucket-shop is a more
sinister affair than the old, not only because it steals the
people’s money as it was stolen in the old days, but because,
in most cases, it has an underground backing of tremendous
influence and weight, because it is supported by men whose
position in the community has the appearance of being free
from any taint or connection with such vicious operations.
Legislation which has been proposed in recent years has
been aimed not at the bucket-shop or stock swindlers, but
for the most part at the New York Stock Exchange. That
practically every legislative proposal of recent years has
been applauded by crooks and swindlers; that the endorsers
of this legislation aimed against the security of the Ex­
change have been men known to be engaged in bucketing
business, amply justifies the suspicions with which this leg­
islation must be regarded.




I ll

The New York Stock Exchange has opposed certain pro­
posals for legislative regulation of stock trading because
such regulation would have destroyed the autonomy of the
Exchange, opened its doors to the dishonest, pa alyzed its
discipline and unloaded a horde of politicians and potential
criminals upon it. I do not say that the men who drew up
the legislation realized the effect of the laws they would
have enacted, but I do state that the position of the Ex­
change has been sustained and verified to the letter by the
damning revelations o f the past few months.
Among the proposals of those who would regulate the New
York Stock Exchange through political bureaus, were, licens­
ing of brokers, examination of books, restriction of the use
of securities by firms in the matter of loans, and regulation
of the issue and sale of securities. With the last the Ex­
change has nothing to do except in a general way to oppose
laws which might interfere with free markets for legitimate
securities offered in the State of New York.
Let me say in the very beginning that licensing and ex­
amination of brokers’ books would open up to swindlers and
that peculiar breed of politician who herds with swindlers,
the richest graft in the history of the nation. Licensing has
been advocated by men of the highest honesty and with the
keenest desire to do everything that will protect the finan­
cial markets, but these men have not figured out the effect
which will follow from the use of a system which cannot
possibly be effective and which can be and will be destruc­
tive. The whole subject of licensing brokers was considered
by a Commission appointed by Governor Smith in 1919.
This Commission was most carefully selected and was com­
posed of men conversant with the subject. In the report of
the Smith Commission there appears the following concern­
ing licensing:
The objection to a law of this character is that every citizen should be
free to enter into any legitimate business that he sees f i t ; and that to re­
quire a licensing system and to confer power upon some State official to
grant or withhold a license, is an abrogation of individual rights and liber­
ties, is un-American in principle, and has been frequently denounced by
the courts.

This is the conservative opinion of a committee of men
who impartially and at length studied the question. Licens­
ing will not eliminate the fraudulent or unscrupulous dealer
in securities, but, on the other hand, it will aid the swindler.
He can swindle the public much more readily if he is oper­
ating in virtue of a State license, which to the undiscriminat­
ing public would be a State guarantee of both his own le­
gality and the merits of the securities offered. You cannot
prevent crooks or prospective crooks from obtaining a li­
cense. A political body issuing licenses will naturally take
political references first and general references second.
When the Stock Exchange cut o ff its quotations from
Messrs. Hughes and Dier, a bucket-shop, men of the highest
political, financial and social standing wrote letters to the
Exchange urging that the wires be restored; there were
personal interviews, telephones and every kind of pressure
and solicitation from men whose name and record meant
much in the community. The Exchange denied these de­
mands; would a political license bureau have done as much?
If you have been following the New York papers during the
past few months you may have noted the queer mix-up be­
tween politicians and the bucket-shops. Would you give to
these gentlemen— the angels behind the bucket-shops—the
power to grant licenses to brokers? Would you permit them
to force the New York Stock Exchange to admit to its mem­
bership men known to be crooks?
Let me read you a statement by a man prominent in the
political life of New York State, a man of national repute,
clean in politics and business, active in public life and fa­
miliar with all the forms of politics. He was asked whether
he would approve of a law licensing brokers. This is what
he had to sa y :
I shall fight a law licensing brokers as long as I am in public life and even
when I am out of it. It would mean a deluge of licensed crooks. It would
mean that every public man in the State of New York would be under con­
tinuous pressure to approve someone whom he did not know and who was
actually a crook. Suppose I have a friend, Mr. X, who is a banker, and he has
a friend, Mr. Y, wh. is a business man who deposits with him, and Mr. Y
has a man who buys goods from him, whom we shall call Mr. Z. Through
some combination of circumstances Mr. D, a crook, knows Mr. Z and gets
him to ask Mr. Y to ask Mr. X to ask me for an endorsement. I am under

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BANKERS’ CONVENTION.

social, political, and maybe financial obligations to Mr. X. Shall I endorse
Mr. D and get him a license and be responsible for having put a crook in a
position to steal? That is not a far-fetched illustration. It would be a
common one. Licensing would mean a restriction of the usefulness of honest
brokers and the overwhelming of the security business by crooks wearing
the badge of decency which a State license would impress upon them. Li­
censing would mean the licensing of the unfit and the chances are that any
such license bureau would fall into the hands of shady politicians. That is
why I oppose and will always oppose this great potential graft game of
licensing brokers. It is not merely foolish, it is futile and dangerous.

ination of the customer’s account becomes apparent. Is the
customer the debtor or the creditor? In many transactions
carried on the broker’s books the broker buys securities for
the customer, the customer paying the broker only part of
the purchase price. This is a margin transaction and the
customer is indebted to the broker for the remainder of such
purchase price. The broker, however, is accountable and
A New York newspaper which has been carrying on an liable for the customer’s equity. This equity may become
intensive campaign against our most prominent bucketeers endangered or even exhausted because of fraud, incompe­
and which supported a licensing bill last year gravely makes tence or deceit of partners or employees, injudicious credit
allowances, etc., to the extent of impairing the firm’s work­
this suggestion:
Some people are discussing with interest the possibilities of graft in a ing capital.
licensing and examination system run by politicians. . . . Such examin­
Verification of customers’ accounts, you can readily see, is
ers and licensers would possess a “ nuisance value” which, skillfully exercised,
a painstaking and lengthy process and is complicated by the
could realize handsomely in cash.
The members of the New York Stock Exchange object to a diversity of transactions of customers, not only in various
licensing system for the reasons already stated and because stock markets, but in many instances in various commodity,
a great part of the undiscriminating public would put all future and spot markets, foreign exchange and money trans­
holders of a State license on a parity: men of questionable actions.
A medium size bank with say one thousand depositors
probity would be placed on a level with men of accepted
would present no particular difficulties to an examiner, but
character and unquestioned solvency.
In reality, licensing is merely a prelude to the examina­ a brokerage firm with one thousand open accounts would
tion of brokers’ books. The question is often asked: The present a complicated problem requiring a staff of examin­
books of banks are subject to examination; why not the ers with high special training and an understanding of the
books of brokers? A very great distinction exists between various lines of business. As the number of brokers and
the banker and the broker. Brokers are agents for their brokerage firms in the State of New York is greatly in ex­
principals. The business of a banker is primarily the busi­ cess of the number of banks an enormous staff of experts
ness of the bank and involves the affairs of its depositors would be required for even a cursory yearly examination of
only incidentally. The business of a broker is the business every brokerage house.
On the other hand, the New York Stock Exchange, by
of his customers and an examination of the books of the
broker involves an examination of the private affairs of all means of its questionnaire, can detect evidences of irregu­
his customers. The examination of brokers’ books is pro­ larities or unsoundness in time to check preventable loss to
posed as a means of protecting their customers, but the cus­ the customers of its members, and this power is exercised to
tomers are the very people who would protest most vigor­ the fullest extent with the complete preservation of the
ously against such disclosure of their private affairs. Busi­ secrets of the broker and client. Its staff of accountants are
ness done by a broker for his customers is necessarily of a men who are selected for their character, their special knowl­
peculiarly confidential nature, to be guarded as strictly as edge and their intimate familiarity with the details of the
brokerage business.
the secrets of a lawyer or a doctor.
The last of the proposed provisions, to which I have al­
The examination of a broker’s books would not afford the
public any substantial degree of protection: licensing and luded, is that which would prevent any member of the Ex­
examination of books might result in the improper use of change from pledging any securities belonging to a customer
information gained. As a result of the large force of inspec­ for a sum greater than the amount owed by such customer
tors that such an examination, however perfunctory, would or to pledge the sa ne with other securities belonging either
require, the opportunities for graft would be limitless. The to other customers or to the broker. This does not aim at
confidential information to which the examiners would those cases where the broker pledges the customers’ securi­
have access might in some cases reach people disposed to ties without his consent; it has always been contrary to law
make dishonest use of it. It would open the door to unlim­ for a broker, without the consent of his customer, to pledge
ited graft, even if only one examiner out of fifty should the customers’ securities for more than the amount due by
prove venal. Consider the price the dishonest operator the customer thereon, whether alone or with other securtiies.
would pay to learn of the transactions on some brokers’ But it is the law of the Stock Exchange:
books! Consider the opportunity to trade upon the knowl­
That an agreement between a Stock Exchange house and a customer,
authorizing the Stock Exchange house to pledge securities carried for the
edge obtained!
account of the customer, either alone or with other securities, either for the
A proper and competent examination of a brokerage house amount due thereon or for a greater amount, or to lend such securities does
takes much more time than the examination of a bank of the not justify the Stock Exchange house in pledging or loaning more of such
securities than is fair and reasonable in view of the obligations of the cus­
same relative size. This is because of the diverse and some­ tomer to the broker.
times complicated transactions which occur in the brokerage
It is further the law of the Exchange:
business. The usual bank examination consists of a verifica­
That no form of general agreement between a Stock Exchange house and
tion of assets, mainly physical inspection of cash, securities a customer
warrants the Stock Exchange house in using securities carrried
(stocks and bonds), discounted notes, etc., comparison with for the customer for delivery on sales made by the Stock Exchange house
book figures and determination of sufficiency of total assets for its own account, or for any account in which the house or any general
or special partner therein is directly or indirectly interested.
to meet liabilities, capital and surplus. It would be a rare
Thus the Stock Exchange goes further than the law and
instance where a bank examiner would do other than accept
discounted notes at face value or where he would confirm prevents any member from pledging or loaning more of a
depositor’s accounts. In a broker’s office, however, a deter­ customer’s securities than is fair and reasonable in view of
mination of the status of and a confirmation of every cus­ the customer’s indebtedness to the broker.
But the proposed legislation is also intended to prevent a
tomer’s account is one of the most vital points in the exam­
ination. Difficulties involving a brokerage firm may be broker, who is a member of an Exchange, even with the con­
brought about by partnership operations and would be dis­ sent and authority of his customer, from pledging the cus­
covered by inspection and verification of firm accounts. tomer’s securities along with other securities for even the
But a firm may also become involved through the operations amount owed by the customer thereon. One effect of this
of its customers, making imperative a thorough verification provision would be to make it impossible for brokers who
of every customer’s account. The need for this and the labor are members of the Exchange to render to their customers
Involved is readily appreciated when thought is given to the the service which such customers desire, and would prac­
tically destroy the business of such brokers. It would dis­
Btatus of the customers of a broker.
The legal relation is that of principal and agent. The criminate' in an extreme degree against brokers who are
business relation is that of debtor and creditor. It is at this members of the Exchange in favor of outside institutions
point that the importance of thorough inspection and exam­ and non-member brokers with the result that the members




CLEARING HOUSE SECTION.
of the Exchange would become mere floor brokers. The
greater part of the purchasers of securities on the Exchange
are not in a position immediately to put up the full purchase
price. They put up part of the purchase price and the bal­
ance is supplied by the broker, who must in turn borrow the
money from a bank. As business is done, it is wholly im­
possible for the broker to borrow separately on the separate
securities of each customer. It would be mechanically im­
possible because of the number and volume of transactions.
It would be financially impossible because the banks require
mixed securities as collateral. The result is that brokers
must largely finance their transactions by making large
loans, pledging therefor securities belonging to a number of
different customers. Of course, in order to do this without
violating the rights of their customers they must get their
customers’ consent, but customers who trust their brokers
feel no hesitation in giving the consent which they realize
is necessary to enable their brokers to render them the ser­
vice they want. The control of the Exchange over business
transacted on its floor, its ability to prevent manipulation,
wash sales, and all other improper transactions, would be
very materially restricted, if not wholly lost, if this legisla­
tion were enacted. The principals in the transactions
would be too far out of reach of the Exchange for it to ex­
ercise any degree of control over their transactions. The
Exchange as a great institution, composed of firms of large
capital and a wide clientele, would cease to exist. It would
be a mere meeting place for floor brokers.
Everyone understands that neither honesty, intelligence,
nor official efficiency can be legislated. It is a reassuring
fact that in the past ten years every proposal to impose these
onerous, futile and dangerous restrictions on the New York
Stock Exchange has been defeated in Congress or in the
New York State Legislature. These provisions were de­
feated because study revealed the fact that they were deadly
and useless.
A bill was introduced in the winter of 1913 in Congress
which would have incorporated the New York Stock Ex­
change and put it under the complete control of political
forces, taking away from it the power to regulate its own
doings. The bill was beaten in the spring of 1914. During
the critical days at the end of July of that year, when the
great war broke out, the Exchange wTas compelled to close,
to prevent a panic and to conserve the finances of the coun­
try. If that bill had passed in the spring of 1914, and if the
Exchange had been incorporated, any individual could by
injunction have prevented the closing of the Exchange and
thus have precipitated a panic which might have crippled
the country’s resources.
There are ten thousand new laws annually which go on
the statute books only to be forgotten. There are laws on
the statute books of the State of New York covering bucket­
ing, conspiracy to defraud, sale of fraudulent securities, and
the other forms of this kind of larceny. Why are they not
enforced? The Post Office Department to-day is demon­
strating what it can do with the fraud laws on the Federal
statute books and is driving stock swindlers out of business
throughout the country with a very small force and with a
very small appropriation. Its success is due entirely to the
fact that Post Office officials mean to put these crooks out
of business, that they desire to keep them out of business:
they do not seek the alibi of new legislation. In law enforce­
ment rather than in new laws lies the solution of the bucketshop problem. Bucketing, stock swindling, fraudulent pro­
motions, are not new. Petty larceny and grand larceny and
conspiracy remain the same. The cure is jail sentences; a
determined effort by legal officers of the State to enforce
the law. Bucketing is larceny and can be punished under
the present laws.
Here are some facts that may interest you. E. M. Fuller
& Company— the name should be familiar to you— one of the
largest bucket-shops, failed in the summer of 1922. The
District Attorney o f New York County obtained soon after
the bankruptcy thirteen indictments each against Fuller
and McGee, the partners in Fuller & Company. Fuller and
McGee obtained separate trials. The trial of Fuller began




113

in the fall of 1922. The judge dismissed the first grand lar­
ceny indictment against Fuller without sending it to the
jury. Then followed three trials on the first charge of buck­
eting against Fuller, resulting in a mistrial and two jury
disagreements, together with the most scandalous charges of
witness-hiding that have characterized any case in New
York in years. During all of these efforts of the Prosecuting
Attorney to convict Fuller the constant plea was that he
was handicapped because he could not obtain access to the
books of Fuller & Company. There was a great deal of noise
about a court fight which should wrest from the Receivers
the use of the >ooks for the redress of bucket-shop victims.
Such a fight I believe actually was begun more than a year
ago in the cases of Fuller, Dier and Ruskay. In the midst
of this fight the Referee, Harold P. Coffin, assuming rightly
that the books belonged to the bankrupt estate and not to
the bankrupts, instructed the attorneys for the Receiver to
move before him for the delivery of the books by the Re­
ceiver to the Trustee without limitation as to their use and
thereupon entered an order to that effect. In less than three
weeks the order had been sustained by Judge Julian W.
Mack, of the United States Circuit Court, and in principle
by the United States Supreme Court. The Fuller books
were immediately made available to the District Attorney,
though his own fight still remained in the United States
Supreme Court, and no sooner were these books in the hands
of the District Attorney than both Fuller and McGee walked
into the court room and entered a plea of guilty of operating
a bucket shop. Upon this principle thus established the
books of other bankrupt brokers are now available to the
prosecuting officers. I cite this ease merely to show some­
thing of the delays in law enforcement and also to show that
the continued harping on the idea that bankrupt bucketeers
who fail cannot be prosecuted because their books are not
available is not an argument based on facts.
The developments in the Fuller case have absolutely sus­
tained the position of the New York Stock Exchange against
licensing, against examination of books, and confirmed its
contention that where there is law enforcement there is
plenty of law. It is my hope and wish that the revelations
which are now going on in the Fuller case will show still
more clearly bucketing in its complications with politics.
Part of the trouble to-day is the indifference of the aver­
age citizen to political matters. He takes little interest in
the election or selection of his lawmakers or of his public
officials. He does not follow their records in office and, if
he votes at all, he votes negligently and with his eyes shut.
In time he will compel the sworn officers of the law to en­
force the laws regularly and impartially. In the meantime
enforcement of law by spasms is worse than non-enforce­
ment.
Heretofore the Exchange has contented itself with ignor­
ing attacks in the public prints, with making appearances
before the proper legislative committees and presenting its
arguments against legislation through counsel or officers of
the Exchange. Hereafter the Exchange intends to fight.
We are tired of the abuse and lies which are daily hurled at
the Exchange, and while we do not intend to reciprocate in
kind, \ye do intend that every item of information in our
possession -which will enlighten the public concerning the
men who are attacking us, concerning their methods, their
purposes, their records, and their objects, shall be given to
the public. I f an office holder stops long enough at the
Grand Central Station to call up the President of the Ex­
change ard tell him that he wants a certain thing done for
someone, contrary to the rules of the Exchange, and that
he wants an answer in fifteen minutes because his train
leaves for Albany, where he is going “ to look into the bill
aimed at he Stock Exchange,” we shall consider that threat
an item of news and give the gentleman’s name and his
threat to the newspapers.
I f another office holder, who has a retaining fee from a
notorious bucket-shop, calls us up and gives us seven min­
utes in which to restore the wires to that bucket shop, under
threat of political reprisal at Albany, we shall give that gen­
tleman’s name and a record of the conversation to the pub-

114

BANKERS’ CONVENTION.

lie, with such other details as the facts may warrant.
Again, if the author of a bill which was designed to put the
Exchange out of business comes to us and asks for a retain­
ing fee so that he may testify that he has investigated the
Exchange and found it perfectly all right, we shall be glad
not merely to deny the gentleman the retaining fee as we
have done, but to give his name, business, post office ad­
dress, and other facts which will be of interest undoubtedly
to the public. Furthermore, if any man, whether he be pub­
lic official or not, holding high place or not, writes to the
Governors of the New York Stock Exchange or to its Presi­
dent demanding, with covert threat, that certain bucketshops shall have our wires, we shall publish these letters,
no matter whether the political position of the gentleman in
question be high or low. This is desirable not from our own
point of view, but from the necessity and desirability of ad­
vising these gentlemen’s confreres as to the character of the
men with whom they are associated.
The Stock Exchange will continue to fight bucket-shops
and it will fight those affiliated with bucket shops who seek
to make money out of the power given them by their polit­
ical connections. Do not think that I am attacking political
parties or the great body of public men who are giving their
time and earnest effort to the work of government. The
State of New York has in its Legislature men of the highest
type and in its other public offices men equally impeccable.
It is not political parties with which I quarrel, but political
pirates and those hangers-on of politics who are mixed up
with politics and interfere with law enforcement. The
political buccaneer knows no party and the public official
who is spineless in the enforcement of the law is usually the
one who makes gratuitous, purposeless and rabble-rousing
attacks on decent men and decent institutions. Public offi­
cials should know that crooks take on the protective colora­
tion of respectable business men, but instead of recognizing
this fact and realizing that crooks are crooks and merely
the barnacles of decent business, decent business is attacked
in the pulpits, in the magazines, in the public prints.
I hope I have made clear the position of the Exchange.
It has fought a fight to keep the people’s market out of the
hands of crooks and their more crooked allies. It has con­
scientiously endeavored to develop some plan which would
prevent swindling of the public.
A committee of the Stock Exchange for a period of nearly
a year made an intensive study of every blue sky law and

regulatory measure in the United States. Bankers, members
of investment houses, bond salesmen, members of blue sky
commissions, and every person who might have any knowl­
edge as to the working of the blue sky laws either from the
regulatory end or from the distributing end appeared before
the committee, and gave facts concerning this kind of legis­
lation. The committee was unable at the end of this inten­
sive study to recommend any single form of blue sky law in
existence in the United States. It was unanimously of the
opinion that legitimate business would suffer through such
legislation and the sale of fraudulent securities would not be
checked. The question of the examination of books of
brokers has been studied from every angle and I have al­
ready given you some of the reasons why such examination
would be dangerous, while being absolutely useless. The
question of licensing has also been studied in every phase
and we have found no reason which would justify such li­
censing, while on the other hand we have found many rea­
sons showing its serious possibilities. There are other regu­
latory measures which the Exchange has considered and
which it is still considering.
The Exchange will not pass upon any question off-hand,
nor has it ever been the policy of the Exchange to take snap
judgment. Its members to-day are under the severest rules
and regulations of any organization in the world, but every
rule and regulation has been carefully thought out and is
the result of knowledge and experience.
In conclusion I want to extend to every member of the
American Bankers Association an invitation to visit the
New York Stock Exchange and study it from the ground up.
I also extend this invitation to every newspaper editor in the
United States. In fact, we are already planning to extend
a definite invitation for a particular date to the editors of
the newspapers of the United.States to come and see what
the New York Stock Exchange is and to study it carefully
and thoroughly. The Exchange wants every man and wo­
man in the United States to have an intimate knowledge of
its working, of its purposes, and of the men who are direct­
ing its affairs. I have promised a certain kind of publicity
to-day and I will add that we welcome any kind of publicity
which is based on actual facts. The Stock Exchange and the
banks, if they co-operate, can bring about that which is of
the greatest importance to the whole country, economic edu­
cation and understanding of financial institutions and finan­
cial ethics.

C ommittee / O fficers ’ R eports -C learing House Division
Address of James Ringold, President Clearing House
Section.
The Clearing House Section is just rounding out its seventeenth year of
service. In that time it has made an enviable record for initiating and
causing to be adopted many new ideas of great practical value to banks
and clearing house associations, and has come to be recognized by the
bankers of the country as one o f the most valuable sections of the American
Bankers Association. While the Section has accomplished great things in
the past, its possibilities for the future are, to my mind, still greater. New
thoughts are developing daily in the business and economic world, and the
clearing house associations of the United States have a better opportunity
now than ever before to be of service in furthering the proper development
of the financial thought of the country. The problems of each community
are equally the problems of every bank in that community, and it is through
the local clearing house that these problems are solved from time to time.
As individual organizations we should study the problems affecting the
welfare of eur own community, solve them in a co-operative spirit and meet
at our annual meetings as a body, prepared to solve the larger problems
that affect the business ©f banking throughout the United States. The
activities and usefulness of the Section are increasing daily and its growth
during the past year has been remarkable.
President John R. Washburn in his annual address a year ago stated
that the interests of the Association and its member banks can best be
served by this Section through adhering to the policy o f concentrating
upon two objectives, the establishment of additional clearing houses and
the installation ®f the clearing house examiner system.
During the past year your committee has endeavored to carry out this
suggestion and our efforts have met with much success.
At the New York convention a year ago our Section reported a member­
ship of 309. During the year 23 new clearing house associations have been
organized, thereby increasing our membership to 332, with a number of
our smaller cities still contemplating the organization of similar associations.
These 332 clearing house associations represent approximately 6,000 bank­
ing institutions of all classes and include practically 75% o f the banking
capital of this country.




There is no line of work to which our Section is more definitely com­
mitted than that which pertains to the clearing house examiner system.
During the past year three cities have adopted this system of examination
in connection with their local clearing house associations, namely, Newark,
N. J., Denver, Colo., and the Northern Anthracite Bankers Association,
which includes the cities of Scranton, Pittston and Forest City, Pa. The
Clearing House Committee of Omaha has just revised its articles of asso­
ciation, which now call for a clearing house examiner, and within the next
few months such a system will become operative in that city. If nothing
else had been accomplished by the Section but the bringing about of such
a safeguard for the banks in these four cities and the communities which
they serve, I feel that our efforts would have been worth while, and I am
looking forward to the day when there will not be a city or community
of any size or importance without the clearing house system of examination.
As bankers it is our duty to take every precaution to protect not only the
patrons of our institutions, but our stockholders as well, and as you go
from this meeting to-day I want you to give this thought some consideratiop.
If there is any way in which we can assist in establishing an examination
department in your clearing house association we are at your service, and
I speak for every officer of this Section.
We are more than anxious to do all that we possibly can to further the
extension of this system in order to provide the necessary safeguard for the
banking institutions of the country.
When Newark, N. J., installed the clearing house examiner system they
established a record which has never been duplicated. In March 1922
they organized their clearing house association. In November of last year
they installed a bureau of credits, for they felt the need of such, and on June 1
the examiner system was installed, which to-day is functioning as smoothly
as it is in the other thirty-two cities. A great deal of credit is due the
Clearing House Committee of Newark in bringing about such a well-rounded
clearing house association in so short a time.
In Richmond, Va., a credit bureau has been established in connection
with the local clearing house, and it is proving of great value to all the banks
in that city. We believe it is but the forerunner to the installation of the
examiner system.

CLEARING HOUSE SECTION.
A great deal o f effort has been put forth by our Secretary in helping to
further the development o f bureaus of credit not only in cities but in our
country districts. In two Midwestern States plans are being formulated
to bring about a county bureau of credits. With such credit bureaus
established and in operation it will be almost impossible for the dishonest
borrower to take advantage of his banker. Such a credit bureau is not
expensive for any clearing house association or county group of banks to
maintain and will pay for itself many times over.
Last year it was my privilege to appoint a committee on clearing house
examinations. A. O. Wilson of St. Louis and a past President of this Sec­
tion was made Chairman. During the past year this committee has ren­
dered invaluable service to the Section in its efforts to bring about the
clearing house examiner system in the cities without it, and at this time I
want to thank M r. Wilson and his committee for their untiring efforts
during the past year.
Plans are now under way to, bring about a uniform no-protest minimum
amount. From the survey made by our Secretary it was found that ap­
proximately 90% of the banks in the country are using the $10 amount,
and with the co-operation of the Federal Reserve Board it is our intention
soon to recommend to the bankers of the country the use of the $10 amount.
Last year two most successful conferences for clearing house examiners
and managers were held. A great deal o f helpful and constructive work
was accomplished at both sessions. Again this year the clearing house
examiners and managers will hold similar meetings.
It is our plan during the coming year to do all we can to further the
clearing house idea by bringing about as many new clearing house asso­
ciations as possible. Also the extension and adoption of the examiner
system in every city, town and community of any size and importance.
Our Secretary is formulating a plan of education in order to bring about
uniformity in the constitution and by-laws of the clearing house associations;
uniformity in methods of settling clearing balances, and, insofar as it is
possible, uniformity in the extent o f the powers by which clearing house
associations may govern the activities of their members. We believe this
campaign will be welcomed by the clearing houses.
The Acceptance Committee of the American Bankers Association, which
has been functioning through the Clearing House Section for a number of
years, has been co-operating with the American Acceptance Council in
its campaign to bring about a better understanding of the acceptance
practice. Jerome Thralls, Chairman o f this committee, in his report this
morning will tell you of the constructive Work carried on by that committee
•during the past year.
In order to keep in close touch with our members a bulletin is forwarded
monthly from the Secretary’s office giving such information as may be of
use to the managers and secretaries of the clearing house associations.
This service enables us to bring to their attention any constructive ideas
that may be of interest in helping to further develop the clearing house
idea in this country.
The Numerical Committee, which has served not only the Section but
the membership o f this association as well in the past, has recommended
during the year the use of separate numerical numbers to be used by branch
banks. Much confusion has arisen recently due to the fact that branch
banking has been expanding so rapidly, and in order to eliminate this
confusion it was decided to enlarge the scope of the numerical system.
During the early part of the year the Japanese Financial Commission
investigated the merits of the clearing house idea and the examiner system,
and I firmly believe that if it had not been for the appalling disaster which
befell that nation the early part of this month the examiner system would
have become operative there in a very short time.
Permit me to take this opportunity of expressing my sincere thanks for
the splendid co-operation accorded me by the members of the Executive
•Committee', the State representatives and the various committees, who
have assisted so splendidly in making this one of the banner years in the
history of the Section. Too much credit cannot be given to our faithful
and efficient Secretary, Donald A. Mullen, for the excellent manner in
which he has handled the affairs of the Section during the past year. It
has been through his efforts that clearing house associations have been
established in twenty-three cities and the clearing house examiner system
introduced in four cities, including Omaha, with others to follow.
More space in the newspapers of the country and financial magazines
has been devoted to the clearing house idea and the examiner system than
at any time in the history of the Clearing House Section.

Report of the Chairman of the Executive Committee,
by C. W. Allendoerfer, Vice-President First
National Bank of Kansas City.
The reports o f the President and Secretary o f the Section cover very
fully the activities of this group during the past year and set out its different
accomplishments.
It is impossible to measure the benefits to the banks and the nation at
large growing out o f clearing houses and the clearing house examiner system
during the past year. The fact that the depositors and stockholders in a
large number o f banks have been saved from heavy losses is directly trace­
able to the confidence of competitors in reports o f clearing house examiners,
based on which arrangements have been made for temporary help or the
orderly liquidation of banks in difficulties.
The almost untarnished record, “ No loss to a depositor from the failure
o f a bank under the clearing house examiner system” may have been
dimmed somewhat during the year by the failure o f a bank in a Middle
Western city, but even if this bank does not pay depositors in full the per­
centage o f such cases is still so small that it far outshines the record of
banks under any and all other forms o f supervision.
The tendency to adopt clearing house agreements and the examiner
system in groups o f cities which are not large enough in themselves to main­
tain such an organization opens up a very fertile field for future develop­
ment. It is certain that there are a large number of places where this
group idea can be used to great advantage.
Considerable interest has been aroused in various parts of the country
in a plan proposed by the Section for the establishment o f county bureaus
of credit to be operated on plans similar to the bureau established in Rich­
mond, Va. While no such bureau has been actually organized, it is be­
lieved that discussion o f the idea will crystallize into action and that once
the plan gains a foothold it will be quite generally adopted. These bureaus,
in cities, have been the forerunners o f the examiner system and it is believed
that the same development would result in country communities.
Altogether the objects o f the Clearing House Section seem to have been
fully realized wherever initiated and there is still a most inviting prospect
for the further extension o f its work.




115

Report of Committee on Clearing House Examinations,
by A. O. Wilson, Chairman.
M r. President and Gentlemen; I do not want to emphasize too much
at this time, the importance of the work of our Committee, but it does
seem to me that the program of to-day has led right up to our report.
Governmental affairs and general business operation, Stock Exchange
supervision and the banking business are closely inter-allied, and it does
seem to me that we do have a distinct duty to perform and it is your duty
and mine to adopt such measures as will afford the best possible protection
to the banking business of the general public as well.
I want you to know first who my associates are on this Committee.
Mr. Vincent from far off Spokane, a former President of this Association,
Mr. Adams, from whom you hear frequently, of Dallas, Texas; Mr. Krause,
our Credit Bureau expert of Cleveland: M r. Hummer, an excellent and
successful banker of La Salle, III., and the speaker.
Our Committee was charged with the duty of assisting in securing the
adoption of the Clearing House examination system throughout the country
and also with lending their support and assistance in every way to the
associations now operating such system. Manifestly, it has been impossible
for us to perform these duties in any other manner except by correspondence,
inasmuch as there was no budget available to take care of the expense of
a meeting. That, however, was not necessary and we have simply adopted
the program of spreading the propaganda as best we could by letter writing.
We have kept in close touch with Secretary Mullen and he is entitled to
great credit for such progress as has been made. Mr. Mullen has a way
of not permitting you to forget that you have a duty to perform.
To-day we are certainly entitled to all of these splendid addresses and
especially to M r. Traylor in what he had to say with reference to the
examination system. His safe, sane and convincing arguments are in a
line with our report.
As a matter of fact, there is no one better able to speak in behalf of any
proposition than those who speak from experience and not by hearsay.
I think I have a right to speak on this subject. For 17 years, our city had
in operation the Clearing House system. We followed shortly after
Chicago. I want to say that we are thoroughly convinced that once
established, it will never be abandoned. I am glad our Clearing House
Association saw fit to send our Examiner, Mr. Clabaugh, to this meeting.
I am glad that Mr. Coates and M r. Hart, M r. Meyer and Mr. McLean
are going to direct the conference this afternoon of the examiners which
will be helpful.
I want to say in passing you should give your co-operation and your
confidence to the Examiner. I speak rather feelingly on that subject
because I served five years as an examiner myself and I know what it
means. The examiner is a picked and selected man for our Clearing
House Association. He endeavors as best he can to perform the duties
devolving upon him. At times it is distressing and embarrassing but he
certainly needs and he must have your co-operation and support.
It has been our hope to-day that out of this conference this afternoon
and of our meeting this morning and of a subsequent meeting which I
hope to have df our Committee that we may develop some more definite
plan for our work or for the work of the Committee which may follow during
the present year. Of course, it would be a duplication of reports for us
to refer again to what has been accomplished in the past. President
Ringold has told y< u that there are some 35 associations already adopting
the bank examination system and during the past year four have been added
and more are in prospect.
Theie is just one special feature of the work which I want to bring to
your attention before closing. There are times, you know, when it is
not so difficult to bring the sheep into the f.Jd, but once in it must not be
concluded that it is not necessary to do everything we can to keep them
in. To be more exact, some of our Clearing House associations report
that member banks, referring especially to suburban banks, have been
withdrawing from the Clearing House Association, not necessarily on
account of the examination system, but it does mean that they have been
depriving themselves of the privilege of the system.
It is not up to us to criticize banks for withdrawing. Our duty is to
determine the cause for such withdrawals and make every effort to provide
remedies. In other words, the Clearing House System plan, for instance,
should be made so attractive and so desirable to banks of all character as
to insure their membership in the Clearing House Association, and their
continued membership in the Clearing House Association.
It should be made clear to the member banks that the protection afforded
by the Clearing House examination system is such as cannot be obtained
in any other maimer, and this without any discredit whatever to other ex­
amination agencies, because as you know there must be the closest co-opera­
tion in that connection in order to ootain the best results.
It should also be pointed out (and our Committee recommends very
earnestly the consideration of the Credit Bureau Plan) that information wll J
be given out on that subject during the year. It is certainly of great
advantage to the member banks to have that Credit Bureau plan operated
in connection with the Bank Examination system.
We are thoroughly convinced, gentlemen, that it is our duty to urge
every Clearing House Association in this country to study carefully the
situation along these lines to which our report endeavors to call your
attention, and to use every legitimate means to hold within the organization
all banks which heretofore became members. This is the one special
message which we desire to leave with the members present to-day, and
we earnestly bespeak your co-operation, not only along the lines of increasing
the use of the Clearing House Examination system throughout the country
(we believe we must have it to the farthest extent possible), but also to the
end that we may further cement the relations now existing with the banks
associated with us in our respective organizations.
I thank you.

Report of Acceptance Committee, by Jerome Thralls,
Chairman.
The slightest hindrance to the free and accurate swing of the pendulum
of the clock results in the wrong measure of time. We spend hours, even
days, in an effort to learn how to get the maximum distance and the most
accurate direction with every swing of the driver, the brassie, the midiron,
and the mashie. We get a compensation in that thrill that comes with
the first 250-yard drive. Then the great struggle to stretch the shot
to 275 or 300 yards begins. The struggle may go on for a life-time. We
know that an easy swing with a direct follow through and perfect timing
will do the trick, so we just keep on trying. How is it with our profession?
Do we study and follow it with the same ardor?

116

BANKERS’ CONVENTION.

Our banking system is a sensitive machine, equally as sensitive as the
finest time piece. It is capable of great development. The maximum
benefits from it can be realized only when we have become familiar with
every detail o f its operation and the provisions o f law that govern it.
Prior to the passage o f the Federal Reserve Act our banks were not
privileged to issue acceptance credits and the major part of our foreign
trade financing was necessarily done abroad. London dominated the
world’s financial markets. We were paying a big tribute annually to
the bankers there and in other important foreign financial centres. The
worries attending the financing of the harvesting and marketing of our
major agricultural products rested heavily upon the banker and the pro­
ducer alike. Harvest time, no matter whether the crops were light or
heavy, placed a great strain upon our financial system. Appeals had
to be made to the United States Treasury Department for aid then as is
being done now. Assistance to the banks in the principal centres in
the great agricultural districts, was provided through special deposits,
designated “ Crop Moving Funds” that were placed with these banks.
At times we had to resort to the issuance of Clearing House Script— un­
lawful money. In such pinches, farm products had to be rushed to the
market under conditions that caused great sacrifices; bank reserves were
not pooled; there was no reservoir or general supply. A bank’s own
vault and its Reserve city correspondents were its only sources of supply
in times of real need. It took hours, sometimes days, to transfer exchange.
It took days, almost a week, to get currency from New York or to deliver
United States Government securities to New York. Since that time
much has been accomplished. We have twelve well-organized Federal
Reserve banks with their many branches so located as to enable them
to give the most effective service to every community. These great
banks each have a substantial store of Federal Reserve notes ready for
issue upon a moment’s notice against a cover of gold and eligible liquid
paper. This currency flows out into the channels of trade and back into
the Federal Reserve bank through their respective members, as the de­
mands for currency for crop moving or other purposes requires. These
individual Reserve banks each have access to the resources of the others
on occasion of extreme need. They are connected with a great reservoir
or pool of gold at Washington— the Gold Settlement Fund. They have
a wire transfer and a nation-wide collection system at their command.
They are the fiscal agents of the United States Government and can
make transfers of gold, exchange and United States Government securities
from other important centres to New York or vice versa in a very few
minutes, almost instantly, even quicker than such transfers can be made
as between banks located in the remote parts of any small community.
More than 500 banks have at various times exercised the power of
granting acceptance credits that came to them with the establishment
o f the Federal Reserve System. The average annual volume of such
financing that has since taken place has reached the staggering total of
$2,500,000,000. Bankers Acceptance Syndicate financing has become
highly developed. Under this plan a number of banks may participate
in a certain credit, each being responsible for a limited amount and all
being adequately protected through the hypothecation ,of collateral or
through guarantees under the control of the syndicate managers. This
enables a wide co-operation among the banks, the buyers, and the sellers,
and gives banks opportunity through the use o f their acceptance powers
to aid in financing trade and to realize a substantial profit therefrom,
where, if they were left to act independently, their limited respective
resources and facilities would not permit them to so do. The commission
charged by banks on acceptance credits ranges from 1 to 1H % Per annum.
By exercising their acceptance powers in addition to lending money,
banks are now enabled to substantially increase their revenue. As the
country grows and develops, the banks will find it necessary to intensify
and take advantage of such means for profit and service to their patrons.
An open discount market has been developed here and while this market
is comparatively in its infancy, it is capable of absorbing many billions
of dollars of acceptances annually. Through it an aggregate of over
$2,500,000,000 of acceptances have been discounted and distributed
annually during the past five years. As with many other features of
business, acceptances reached the peak in 1920, when the total outstanding
bankers acceptances passed the one billion dollar mark. The amount
now outstanding is approximately $500,000,000. One year ago it was
around $575,000,000. This shrinkage in volume is due to natural causes.
The same situation obtains in the London market and there as here the
Government is the biggest factor in the money market and during periods
o f scarcity o f bank bills the discount houses turn to short term Govern­
ment securities as a means for employment o f temporary funds.
The Federal Reserve Board and the Federal Reserve banks, recognizing
the tremendous value o f the acceptance method of financing to the com­
mercial and industrial interests of this country, have given it every en­
couragement and every possible support. This is evidenced by the fact
that they purchased from Jan. 1 o f this year to date, in their open market
operations, $1,695,000,000 of acceptances. For the same period during
the year 1922 they purchased $1,365,940,000. The laws have been
amended in various States making bankers’ acceptances eligible for savings
banks, trust funds and insurance companies. Hundreds of banks, indi­
viduals, firms and corporations have been converted to the idea of in­
vesting temporarily available funds in acceptances.
Prime bankers’ acceptances are now regarded everywhere as a dependable
reserve. They can be converted into actual cash at any moment through
sale in the open discount market. The discount houses make daily offerings,
carry portfolios aggregating many millions of dollars, and are now supply­
ing prime member bills to investors at 4)4% discount. At the same time
they are discounting 60 to 90 day bills at 4 M % • It will thus be seen
that on such bills the discount house realizes a gross profit of H % per
annum. Many commercial banks have qualified for the full utilization
of their acceptance powers. New and substantial acceptance houses
have been organized; plans have been perfected under which funds are
now being loaned at call or on demand against acceptances as collateral
in preference to stocks, bonds and other long-term securities. Such loans
are repayable on telephonic, telegraphic, or written order and are usually
made at the rate o f
% below the stock exchange call loan rate. Through
the use of loans against acceptances and investment in acceptances, funds
heretofore idle and practically useless are being mobilized and made to
serve commerce and industry. Overnight money, spot and forward rates,
and other discount market terms, so well known abroad, are rapidly finding
their way into our business and financial vocabulary.
Arrangements have been made in a number of clearing house centres
under which both bankers and trade acceptances that are payable at banks
are now being cleared through the regular exchanges. Such acceptances,
payable at a member bank in any Federal Reserve city, are now collectible
at par through the Federal Reserve Collection System and the proceeds




are made available on date of maturity through the Gold Settlement
Fund. Thus, bills payable in Kansas City, St. Louis, San Francisco,
and other Federal Reserve and branch Federal Reserve cities can be
converted into actual cash in New York on the date of maturity. Through
the purchase and sale of bankers’ acceptances, a shipment o f gold from
one Federal Reserve centre to another may be obviated. It is hoped
when the system is further developed, shipments of gold from country
to country may in many instances be minimized or obviated through the
purchase and sale of acceptances.
A temporary setback was registered against dollar acceptances when
the terrific break took place in international exchange a couple of years
ago. The slump in prices at that time and the attending unsettled con­
ditions throughout the world caused traders and merchants to rush to cover.
Contracts were repudiated, orders were cancelled, every opportunity
to default upon credits then existed. American banks that had issued
confirmed letters of credit were appealed to by their customers, in whom
they had implicit confidence, to refuse to accept bills against such letters
of credit. A few, but very few, banks yielded. The courts promptly
set these right. They learned that an irrevocable letter of credit is a
sacred contract, and its terms are binding, quite irrespective of losses that
may have been inflicted because of price recessions, defective goods, or
conditions not covered in the letters of credit. This situation resulted
in the creation of the Bankers’ Commercial Credit Conference through
whose efforts in co-operation with the American Acceptance Council
standard forms of letters of credit have been prepared and introduced,
plans and policies have been developed that it is believed will forever
forestall a repetition of this ill-advised act of the few banks who declined
to accept bills against confirmed letters of credit.
Other progress has taken place. Farmers have become students and
better business men; they, too, are learning the power and value of co-opera­
tion. They have formed hundreds of co-operative growers’ and marketing
associations. Some with capital, some without, but all with a like purpose,
that of providing more economical and systematic means of financing
and marketing their products. Further, they are learning to diversify
their crops, test seeds, analyze the soil, substitute machine for man power,
and in many other ways to help themselves. Warehouse and transporta­
tion facilities have been improved; waste has been lessened and risks have
been reduced. The Texas Farm Bureau Cotton Association financed
the marketing of 87,000 bales of cotton last year, and has arranged accept­
ance credits of about thirty million dollars with which to finance this
year’s crops. A similar organization is now arranging for a credit of
approximately the same amount.
While our general system of financing here has not been such as would
lend encouragement to the most rapid development of the use of trade
acceptances, much progress has been made. M any thousands of con­
cerns throughout the country are now using trade acceptances in con­
nection with all their sales that are made on a time basis. Through the
use of trade acceptances, these concerns report that an equal amount of
capital has been made to do a greater amount of service; the credit period
hag been shortened; collections have been more certain; m?my troublesome
claims and disputes have been eliminated and the expense of operation
both on the part of buyer and seller has been reduced and the business
of the users has been stabilized. Further, a character of strictly liquid
paper has been produced. Approved bank-indorsed trade acceptances
can now be placed readily in the open market. It must be remembered
that the same acid test that is applied to other credit risks must be applied
with equal severity to trade acceptances, whenever they are offered for
discount. Trade acceptances originating outside of the large financial
centres are not generally finding their way into the open discount market
but are being held in the receivables of the makers or discounted at the
local banks by which they are put through for collection as maturity
approaches.
In the open discount market, prime eligible endorsed trade acceptances
command a rate of from ^ to
below rates on prime single-name
commercial paper. They can be purchased by Federal Reserve banks
in the open market, which makes them preferable to one-name com­
mercial paper. Banks throughout the country are becoming more familiar
with trade acceptances and most of the troubles heretofore experienced
in the collection of such items has been eliminated.
In the face of the notable progress that has been made with the accept­
ance method of financing, the improvements in our banking system, the
betterments in warehousing and transportation systems, the bringing
about of co-operation among farmers, and a better understanding of
business on their part, why is it that we continuously hear and read of
the howls that are being set up at Washington against the Federal Reserve
System by certain legislators, members of the Farm Bloc and others?
It is not because the member banks are not now in a position to supply
all that is required in the way of legitimate commercial bank accommoda­
tion for agriculture and other industries. The need of the agricultural
interests is for more capital and accommodation for longer periods of
time than can safely be given by institutions whose deposits are repayable
at demand. The trouble is that the people who are complaining bitterly
against the Federal Reserve System are doing so without being thoroughly
informed. They do not know the facts. The agricultural interests have
received more accommodation and support through the Federal Reserve
System than has any other single industry. W e seem to have a notion
that every time a few people begin to complain, that we must enact a
new law instead of analyzing the trouble and undertaking to see if it cannot
be cared for through the means of existing machinery. I do not mean
by this that our financial machinery is perfect. The War Financing
Corporation, the Farm Loan banks, the Joint Stock Land banks, the
Edge Law banks, the Intermediate Credit banks, the Agricultural Credit
associations, are all answers to the call for credits and loans running for
longer periods of time, than can be safely given by commercial banks
whose deposits are largely repayable at demand. The Land banks have
obligations outstanding aggregating nearly seven hundred million dollars.
Many of their loans run for a period of forty years. Up to the present
it would seem that the Intermediate Credit banks have in the main taken
business that can be readily handled by existing commercial banks and
which has been turned over to the Intermediate Credit banks for the
reason of their having made more liberal rates. It hardly seems fair
to other business that the obligations of these Intermediate Credit banks
should be tax-exempt. Their ability to function extensively has been
due to the fact that the commercial banks have provided them with funds
through the purchase of these tax-exempt securities. The Intermediate
Credit banks have a field of their own and as time goes by they will un­
doubtedly find their right place in the financial structure.
The Federal Reserve Board has liberalized the regulations governing
acceptances. Export and import bills having not more than 180 days

CLEARING HOUSE SECTION.
to run are now eligible for purchase in the open-market operations. Prior
to the war there existed two schools of thought, both o f which are again
open; one taking the position that the Federal Reserve banks should be
mere reservoirs holding the reserves of the banks, to be let out or utilized
as the basis of accommodation, only during crop moving periods or times
of unusual demands. The other school holds to the thought that the
Federal Reserve banks should through actual operation be in constant
and close touch with the commerce and industry of the country and that
they should control rates through the purchase and sale of paper in their
open market operations. The course pursued by the Federal Reserve
banks is a modification o f these two ideas.
Membership in the system is and ought to be highly prized by every
bank. The System has proven to be a shock-absorber of tremendous
value. It withstood as great a strain during and following the war as
was ever imposed upon any banking system in the world. Let us study
the System thoroughly and get a full understanding of the broad scope
of service that it can perform. America has been offered in recent years,
and is still offered, the greatest opportunity for service, profit and progress
that has ever been presented to any nation, an opportunity to make the
dollar the world currency, the peer of the pound sterling and to secure a
permanent trade foothold in every quarter of the globe. We hold 50%
of the world’s gold, have the highest productive ability, the strongest
banking system and the greatest resources of any nation of all times at
our command. With these, shall we fall short and fail to realize upon
this wonderful opportunity? We are told that our limited success is
due to inexperience in international trade and finance, lack of vision,
lack of courage, and incomplete financial machinery. Our further progress
and welfare demand that we turn our attention more and more to inter­
national business. To permanently establish dollar credits as the peer
of the pound sterling, and to make the dollar a world currency, means
that we have got to pay the price in the way of expenditure of courage,
brains, energy and capital. Our open discount market and the means
for carrying long-term international trade credits are the two vital features
of our financial machinery that need further development. We can
devize and develop these essential features of our financial machinery and
experience will come only through action.
The American Acceptance Council, through which the work of your
Committee has chiefly been done, maintains a well-organized information
bureau, through which facts about acceptances, what they are, how they
are used, why they should be used, and the benefits to be derived from
their use, are disseminated. It publishes a monthly bulletin which is
widely distributed, and co-operates closely with other important bodies,
such as the U. S. Chamber of Commerce, the National Association of
Credit Men and the National Foreign Trade Council.
No body of bankers in America has greater power or influence than
those who are associated together in the Clearing House Section of the
American Bankers Association. Through this compact body and the
banking institutions that are members of the clearing houses in the re­
spective cities you have a means of disseminating information and molding
opinion that is second to none.
In submitting this report your Committee recommends a continuation
of its work during the coming year.
Respectfully,
PE RC Y H. JOHNSTON.
JOHN W . W AD D E N ,
JEROME THRALLS, Chairman.
September 24 1923.

Report of Committee on Resolutions, by O. Howard
Wolfe, Chairman.
President Ringold: The next order is unfinished business. What is there
in the nature of unfinished business, gentlemen? If there is nothing under
that head, we will go to new business. We will have the report of the
Committee on Resolutions, Mr. O. Howard Wolfe, Chairman.
M r. President;
“ Whereas, The past year has been noteworthy by reason of the very
gratifying progress that has been made by the Clearing House Section in
th organization of new clearing houses, the development o f sound clearing
house practice and the further extension of the system of clearing house
examinations; and




117

“ Whereas, This progress has been accomplished largely through the efforts
and co-operation of certain members and officers of this Section clearing
house examiners and managers; and
“ Whereas, It is the belief of this Section that a continuation of this policy
of co-operation will assure the further development of sound banking prac­
tice; therefore be it
“ Resolved, That this Section extend its appreciation and sincere thanks
to the President, Secretary and other officers of the Clearing House Section
for their earnest and efficient efforts during the past year; that our thanks
also be extended to the State representatives of this Section; to M r. A. O.
Wilson and other members of the Committee on Clearing House Exami­
nation; to the managers and examiners of clearing house members of this
Section, and especially to M r. Francis Coates Jr. for his hearty co-operation
at all times. Be it further
“ Resolved, That in view of the diversity of service rendered to clearing
house members by their managers and examiners, and in view of the inti­
mate and confidential relations which they each sustain to their associations
in the performance of their respective duties, we approve the policy of this
Section in recognizing the value of their co-operation by election to the
Executive Committee, and recommend that this policy be continued. Be
it further
“ Resolved, That we extend the hearty thanks of this Section to the speakers
who have so ably presented to us this morning interesting and instructive
addresses.”
M r. President, I move the adoption of this resolution.
The motion was seconded and carried.

Report of Nominating Committee.
President Ringold: Next is the report of the Nominating Committee.
A. O. Wilson: The Nominating Committee submits the following report:
President— Francis Coates Jr., Examiner Cleveland Clearing House Asso­
ciation.
Vice-President— C. W. Allendoerfer, Vice-President First National Bank.
Kansas City, M o.
Chairman of Executive Committee—-Alexander Dunbar, Vice-President
Bank of Pittsburgh, Pittsburgh, Pa.
Members of Executive Committee (3-year term)— Fred A. Crandall, VicePresident National City Bank, Chicago, 111.; W . F. Augustine, VicePresident Merchants National Bank, Richmond, Va.
Upon motion duly made and seconded it was unanimously voted that the
recommendation of the Nominating Committee be accepted and that one
ballot be cast for the officers named.
President Ringold: I would like to have M r. Crandall and M r. Augustine
come forward. I want them to know the members of this organization
and I want you to know them.
I would like to present M r. Coates to you now. He is the new President
of this organization and, to my mind, has done wonderful work for it. We
look forward to great things from him in the future. M r. Coates, it gives
me great pleasure to present to you this pin.
President-Elect Coates: I am deeply appreciative, M r. President and
members, of the honor that has been conferred upon me. It means a very
great deal and in accepting the responsibilities of the office I pledge to you
my best efforts in upbuilding the work and the ideals of the Section during
the coming year. I thank you.
President Ringold: Gentlemen, it would be impossible for me to pass
without saying to you that we have had a most efficient Secretary, one whom
each of the Executive Committee, as well as the officers of this Association,
have enjoyed to be with. He is doing all the time and we hope that each
of you will appreciate him more and more.
I now wish to present to M r. Crandall and M r. Augustine their pins.
Mr. Augustine is Vice-President of the Merchants National Bank of Rich­
mond and he is also Manager and Secretary of the Clearing House Asso­
ciation. M r. Augustine represents on our Executive Committee that body
of wonderful and useful men, the managers of the Association.
M r. Crandall, you all know, is one of our most efficient workers and you
will secure splendid co-operation from him at all times.
At this point the newly elected President, M r. Coates, took the Chair.
President Coates: I f there is no further business to come before the
meeting, I presume a motion to adjourn is in order.
Upon motion duly made and seconded, the meeting then adjourned
at 12:35 p. m.
Adjournment.

TRUST COMPANY DIVISION
A merican Bankers’ A ssociation
Twenty-eighth Annual Meeting, Held in Atlantic City, N. J., September 22 and 24,1923.

INDEX TO TRUST COMPANY PROCEEDINGS
Address of President, Theodore G. Smith___________________ Page
Report on Office of Vice-President, by Evans Woollen_____
Report of Executive Committee______________________________
Report of Secretary___________________________________________
Report of Committee on Legislation________________________
Report of Committee on Protective Laws___________________
Report of Committee on Publicity__________________________
Report of Committee on Community Trusts________________
Report of Committee on Co-Operation with Bar____________
Report of Committee on Standardization ofCharges_______

118
119
119
119
120
120
121
122
124
124

Resources of Trust Companies______________________________Page
Report of Committee on
Staff Relations______________
Report of Committee on
Research_____________________
Report of Committee on
Mid-Winter Conferences____
Report of Committee on
Insurance Trusts____________
Discussion of Safe Deposit Business________________________
Fostering of Organization of Local Fiduciary Associations..
Suggestions for Appointment of Committee on Relations
with Federal Reserve System Approved___________________
Report of Nominating Committee—Election of Officers____

125
125
125
12G
126
127
127
127
128

C ommittee / O fficers 'R eports —T rust C ompany Division
Address of President Theodore G. Smith, Vice-President
Central Union Trust Co, of New York.
Ladies and Gentlemen, Members of the Trust Company Division —
It is my distinct privilege and pleasant duty to address the members
of the Trust Company Division o f the American Bankers Association
at its Twenty-seventh Annual Meeting, and on the anniversary day of
its organization, Sept. 24 1896. The past year has been an active one;
it is unnecessary for me to relate what has been done during the past
twelve months by those whom you have entrusted with the management
of our affairs.
This will be submitted to you in the reports of the several committees
and that of the Executive Committee by its able chairman; nor need
I indicate what shall be done for your welfare during the coming period,
for such recommendations will come from you in our discussions
to-day.
The work of every one of these committees has been done in a broad
scale, has been steadily constructive and has been both far reaching and
successful. To all members of these committees, to the Vice-President
and our loyal Secretary, let me extend not only my own thanks for their
efficient services rendered, but the thanks of this meeting.
It remains then for me to express my deep appreciation of the honor
conferred upon me and urge that in the year to come we join in making
the Trust Company Division more powerful, more useful and better than
it has ever been.
In our own special field of service, we are gratified to find that the
trust companies of the United States are plainly becoming stronger day
by day and more surely intrenched in the confidence of the general public
by reason of many tasks well accomplished. Their proved efficiency
is constantly bringing to them new duties and broadening the sphere of
their useful influence.
We who are close to their activities are bound to be convinced of their
exceptional value to the communities they serve, especially as powerful
agencies for the conservation and development of wealth, much of which,
as experience has amply proved, would be dissipated in the absence of
such trained and disinterested guardianship.
The development of the modern trust company has been a natural one
and has closely paralleled the development of an ever-increasing com­
plexity in our business and financial systems.
To-day the problems ard requirements of our great corporations are
such as can best be met by utilizing the intensive service which has been
established in the highly organized companies with which we are proud
to be associated.
It seems to me that our organization is a real example of that admirable,
practical idealism by which this nation is characterized and that its methods
and service constitute a notably high type of co-operative effort. By
getting together and working side by side in harmony we have been able
to remove existing or threatened evils, improve the character of our service,
broaden its field, increase its revenues and quicken the spirit of all who
share in this co-operation.
We are proud of our achievement and believe there is much to stimu­
late us in the strength of our Division, in our work as Trust Officers,
and as bankers in the generally favorable situation in the United States,
and we have every reason for looking to the future with confidence.
In a world so harassed and distressed, the United States stand out
the most prosperous of nations, yet we are menaced by the voice of the
pessimist, the discordant note of the radical and the hand of the destructive
agitator. I will agree that we have domestic problems, but I contend
they are the problems born of prosperity and not of adversity, yet many
of the solutions offered are so devised as to strike at the very vitals of
our Government and our cherished institutions.
The banking situation is sound and funds have been ample at all times
to meet the requirements of business even at the season of maximum de­
mand. Business remains large and the underlying bases for a continua­
tion of good business seem firm. Inventories are generally conservative,
bank credit is not over extended and adverse factors in the business and
economic position are being discounted, and yet there appears a mania
for exchanging the tried and proven for the new and alluring.




It is time for us to take stock and examine well our foundations. To
better fit ourselves to grapple with the big problems of Government,
we ought to recur frequently to the fundamental principles on which
this Government rests.
Never did a people have such leaders as did this country in its founding.
The Immortals, Washington, Jefferson, Hamilton, Madison, Marshall,
and a score of other great men whom Providence seemd to have raised
for the purpose, inspired and created those institutions which have so
successfully met all the tests of nearly a century and a half of our national
development.
These institutions have in every instance constituted our sure pro­
tection in periods of difficulty in the past and may be relied upon to carry
us safely through those of the future if we remain sternly jealous of their
integrity and resist the interested efforts of those who are too often urging
us to undertake policies which would weaken or destroy the foundation
upon which these institutions stand.
I will not undertake to dwell upon all such policies or problems, but
the menace with which bankers are particularly and intimately concerned
is the danger of the Federal Reserve System coming more under political
control than under banking control and that the facilities of the System
may be exploited by the dictates of political expediency rather than banking
and business considerations. Human nature in money matters tends
to express itself along the lines of least resistance.
The political control of banking affairs would be a temptation to sur­
render to clamors for every kind of banking action which would conduce to
the facilitation of business booms through inordinate expansion o f credit
and credit currency.
It takes courage as well as intelligence and experience to follow the
lines of right reasoning and conscience in banking conduct. It is too
much to expect of politics, as we know politics, to exhibit such courage
by taking counsel of banking and business intelligence and experience
and follow it.
The best time to frustrate movements for the political domination
of banking in the country is before they have gained much headway.
That time is now. There are no Americans so well qualified to in­
augurate, lead and carry on the opposition to political unwisdom in banking
and monetary affairs as the American bankers. They have for the most
part deservedly earned and they hold the confidence of their communities.
If any changes are to be made in the Federal Reserve System, they
should be made by practical bankers. Nothing could be more emphatically
the business of bankers than whatever concerns the safe and sane conduct
of this great banking system of the country on whose proper functioning
depend all the operations of the American industry and commerce, of
production and distribution which are the terms of our prosperity.
Bankers, be awake. You know the facts and the truths. M eetyourresponsibilities. The need for constructive leadership is calling as never before.
The nation has just suffered a grievous loss in the death of a beloved
leader, one who worthily maintained the highest traditions of the nation
and was ardent in his admiration and respect for those principles upon
which the Government is established. We now realize, as perhaps we
did not before, how completely he had won the confidence of our own
people and the good-will as well of the entire world.
This same confidence is being freely and generously given to his suc­
cessor, a thorough American in the broadest and finest sense of the word.
“ America,” Mr. Coolidge says, “ is built on faith in the individual,
faith in his will and power to do right of his own accord, but equally is
the determination that the individual shall be protected against whatever
faults may be brought against him. W e believe in him not because of
what he has, but what he is.”
I can find no more fitting message to leave with the members of this
Division to be carried home to friends and clients than that of Senator
Lodge in a recent address to the’ people of Massachusetts:
“ Your advance, your achievements are all your own, the work of America
has been to build and without classes, without differences of race or creed,
it is the duty of all to stand close-knit together and simply as Americans
to march forward. Give no ear to the plotters of destruction. W e are
a nation of builders and the doleful prophets of despair are not for us.
Put your utmost trust in America.”

TRUST COMPANY DIVISION.
Report on Office of Vice-President, by Evans Woollen,
President Fletcher Savings & Trust Co.,
Indianapolis, Ind.
President Smith: Although the office o f Vice-President o f the Trust
Company Division is not charged with the numerous duties surrounding
some o f the other offices, the function, nevertheless, is o f vital importance
in the complete rounding out o f our work. There probably has been no
year in the history of the Division when this office has been better handled
than by Evans Woollen, President o f the Fletcher Savings & Trust Co. of
Indianapolis. He will tell you briefly about the work o f his office and
include a statement relative to the latest information regarding the prepara­
tions for one o f our annual affairs and events, the Trust Company banquet,
o f which Mr. Woollen is Chairman.
M r. Woollen: I refer to the last mid-winter conference for the purpose
o f eliciting from those who were there concurrence in the statement, as I
am sure they will concur, that it was richly, abundantly worth while. To
any o f you who have not attended one o f these conferences, let me say that
there we come into brass-tack contact with the problems of our every-day
administra t ions.
Those conferences have been worth while primarily because they have
been arranged for adequately by our Secretary, but also and in very large
measure because those who have attended them have brought something
to the conferences.
We all know, o f course, that we get out o f conferences, conversa ions,
meetings, adequate returns only if we bring something to those contacts.
Accordingly, let me urge that preparatory to the next mid-winter confer­
ence you give diligent thought to the questions that you would like to see
there considered, that you come prepared to present those questions, to do
your part in stimulating the activity of thought that will make the con­
ference a success.
Now, as to arrangements for the next conference, it has been decided by
the Executive Committee, mindful o f the stress that we were under last
winter to complete the program, that the conference will extend over a
day and a half, namely, the latter half o f Feb. 13 and all of Feb. 14. On
the evening o f Feb 14, the annual midwinter banquet of the Trust Com­
panies o f the country will be held. Those banquets have grown in popu­
larity in such wise that it has been found that the facilities afforded at the
Waldorf have become inadequate. It has accordingly been decided to
hold the banquet next Feb 14 in the Commodore Hotel, where facilities
are such that nearly eleven hundred can be seated on the one floor. It
has been decided that applications will be received and accepted in the
order in which they are sent in, and that applications will not be received
beyond the number o f those who can be seated on the first floor.
The price, it is hoped, will be two dollars less than heretofore.
Speakers have not yet been provided, but attention is being given to
provision o f them.
Lastly, with reference to activities in the Division of Vice-Presidents, it
has been thought that full opportunity has not perhaps heretofore been
afforded for the helpful assistance that Vice-Presidents in large measure
were ready to give. Accordingly, a meeting was held this morning jointly
by the Vice-Presidents on the Executive Committee, at which consideration
was given to a program for the activities o f the Vice-Presidents during the
ensuing year. This program, in brief outline, is on the board.
It is expected that the Secretary’s office will promptly advise all of the
Vice-Presidents about the work which the Trust Company Division has in
hand, about the personnel o f the committees, the list o f membership. It is
expected that Vice-Presidents will thereupon do what they can toward the
upbuilding o f membership.
It is expected that they will give particular attention to the matter
o f legislation in their respective States, calling attention through the Secre­
tary’s office to matters which should have attention either by the American
Bankers Association’s Legislative Committee, or, in case of matters pretaining only to trust companies, the Trust Companies Division Legislative
Committee.
There will be special work which it is proposed to send out to VicePresidents during this year, work in support of and supplementary to the
work o f the Standing Committees o f the Division.
It is desired that the' Vice-Presidents get in their communities all of the
appropriate publicity which they can regarding our undertakings.
It is desired that the Vice-President in each State see that an appropriate
and adequate successor is selected at State conventions in his State.
This is perhaps particularly important— that the Vice-Presidents make it
their duty to bring to the knowledge of their colleagues in the State the
things that were done at the conventions which they attend and the meetings
o f which they know
That, briefly, outlines the program adopted this morning for the Vice
Presidents during the ensuing year, with the addition of one item which
was suggested in the meeting, and a very important one, namely, that an
endeavor be made this year (an endeavor has heretofore been made but
with only indifferent success) earnestly to effect in the State organizations
the constitution o f Trust Company Divisions or Sections. Abundantly
good results have been had in some o f the States where such Trust Divisions
or Sections have been organized. It is believed that much of value can be
brought out through the intimate contact of ohe Trust Company men of
the respective States through organization of such sections.
That, I believe, is all, Mr. Chairman.

Report of Executive Committee, by Lucius Teter,
President of Chicago Trust Co., Chairman.
M r. President, Ladies and Gentlemen: The Chairman of the Executive
Committee always labors under the disadvantage that those who speak
before him make half of his report, and he is fearful that those who are to
speak after him need the other half for their reports.
I will, however, review as briefly as I can the important matters covered
at our meetings since last year.
We have had five meetings of the Executive Committee. The first
was on Oct. 5, which was a routine organization meeting, at which your
Chairman and the Secretary were elected. At least one good job was
done at that time.
t <The meeting on Dec. 7 was called for the particular purpose of con­
sidering Paragraph 226-C of the Revenue Act. The Committee on Legislation.will speak at greater length concerning this matter, but it was regarded
as o f very great importance, and your committee unanimously decided
t o Jjoin in a test suit covering this question. We subsequently asked the
Administrative Committee of the Association to appropriate funds for
■carrying on this suit; owing to matters of policy, it seemed unwise for the




119

Administrative Committee to make the appropriation, but we had the
nerve to go ahead with it, hoping that somehow in some way we would
have the money to pay for what we believe is a great service not only
for trust companies but for all banking institutions; in fact, all people
who have to do with estates in any way.
At that meeting, we also received the resignation of Mr. W . T. Kemper,
and we were very glad to have M r. McLucas accept election to take his
place.
At our Feb. 16 meeting we had general reports of progress concerning
all of your various committees, and routine matters generally were cared for.
At the April 24 meeting, it was the sad duty of your Chairman to report
the death of former President G off and also former President Hulbert.
We had previously appointed committees to attend the funerals of these
men and Committees on Resolutions, and the resolutions were presented
and adopted.
The question of inheritance tax was presented at this meeting, and
your Committee determined to have a special committee on that subject.
This committee was appointed.
The question of insurance trusts, which you wll recall received a great
deal of attention at the mid-winter conference, had crystallized to such
an extent that it seemed desirable to have a special committee on that
subject, and that committee was arranged for.
The Committee on Mid-Winter Conferences was appointed, and that
committee, I believe, will report later, although part of their report has
already been covered by Vice-President Woollen.
A committee of one, M r. Gest of Philadelphia, was appointed to co­
operate with certain judicial problems that our members in Hawaii have
been having. M r. Gest made a report which we know has been helpful
in that quarter.
Your Committee met this morning, reviewed the work of all of the
committees, which you will hear to-day, and covered the general routine
of our program for this convention.
One special matter I was directed to bring to your attention has to do
with the fact that we are approaching the year in which the Trust Division
is to suggest a President for the Association.
The entire matter is covered in the preamble and a resolution which was
unanimously passed by your Committee this morning, and I was asked
by the Committee to present it to you asking your approval:
Whereas, At the 37th Annual Convention of the American Bankers
Association, held in Chicago in the year 1918, as part of the consideration
for the adoption of the constitution of the said Association and in order
to afford adequate representation to the different divisions of the Associa­
tion on its official staff, it was understood and agreed by representatives
of all of the divisions that thereafter the office of Second Vice-President
of the Association should be filled every other year by a representative
of the National Banking Associations, and in alternate years by repre­
sentatives of the Trust Company Division, the Savings Bank Division
and the State Bank Division successively, as suggested by such division; and
Whereas, The said agreement has met with the entire approval of
all of the divisions of the said Association for the past five years; now
be it
Resolved by this Committee, That we deem the observance of the agree­
ment of vital importance to the unity and integrity of the American
Bankers Association.
I move, M r. President, that the action of the Executive Committee
in reference to this matter be approved.
The motion, after being seconded, was unanimously carried.

Report of Leroy A. Mershon, Secretary.
President Smith: The office of the Secretary of the Division is the Clearing
House of the Division. Almost every conceivable kind of a transaction
within the scope of Trust Company activity is handled in one form or
another in his office, during the course of the year. I am pleased to say
that he is assisted by a very able corps of assistants, and Mr. Mershon
will render what I hope at this moment is a short report of his office.
Secretary Mershon: President Smith turned to me a moment ago and
asked me how long my talk will be. He said, “ It won’t be long, will it ? ”
I will promise you as I promised turn that it won’t be long.
I have visited you in your own offices and spoken before your meetings.
I have talked in duration from two minutes to an hour and a half long. It
all depends upon how much time you want filled up. This will be a twominute talk.
It is the duty of the Secretary to keep in very close and intimate touch
with the officers of the American Bankers Association and the Trust
Company Division, the Executive Committee, State Vice-Presidents and
Sub-Committees.
It is his duty to know at all times what the officers are thinking about and
what the sub-committees are planning for and what the attitude of the
State Vice-Presidents may be.
The twelve sub-committees are found in this column (indicating).
It is the duty of the Secretary to attend the meetings of all those com­
mittees held from time to time. We have been holding meetings from
early Saturday morning on through till last night and this morning, to
execute the plans of the committees to carry out their policies and some
of them are very clearly defined, particularly those connected with the
Committee on Co-Operation with the Bar.
I can’t begin to tell you the volume of correspondence that is conducted
through the New York office in connection with these twelve committees,
but it is very large and growing constantly.
Interviews in the office and in the offices of our members are being
conducted constantly, and several thousand miles are traveled each year in
visiting members and attending meetings and conveying information in
reference to the committee, speaking before groups who want to learn more
about certain activities or all of them; investigations carried on for these
committees and reports rendered.
Those are the major, we might call them, activities of the office of the
Secretary; under the head of general would be named the formation and
the assistance given the formation, and the assistance given to Trust
Company sections and associations in various parts of the country, safe
deposit activities, interviews on general matters, correspondence, and
requests.
It would be, indeed, very interesting if I could bring to you this afternoon
just a small number of the requests that we receive for information and
service touching every conceivable part of Trust Company activities.
We have some that are very heavy, some very serious and we have some
quite humorous. A little while ago a man down in West Virginia (and I
hope he is not in the room, because I am not attempting to make light o f it)

120

BANKERS’ CONVENTION.

wanted to know what the fees for auctioneers would be. We had to go
out and get that information for him.
Traveling and speaking in connection also with these general matters.
Those are the major activities o f the Secretary, and if the minor and
entire report were made for that office it would include the reports of all the
sub-committees, just the same as office o f Chairman of the Executive
Committee.

Report of Committee on Legislation, Henry M. Camp­
bell, Chairman Board of Union Trust Co.,
Detroit, Mich.
P President Smith: We are now going to proceed to the work of the active
committees. The first one is that o f the Committee on Legislation.
There could be no more important work done by the Trust Company
Division that that coming under the jurisdiction o f the Committee on
Legislation, handling the matters o f a Federal legislative nature. Those
members o f the Division who have been active in its work during the
past few years will recall the many problems of grave importance which
this Committee has worked. The past year has been no exception in this
respect. I have felt that we have been quite fortunate in having as Chair­
man o f this Committee, the gentleman who stands at the head of the legal
profession, the Hon. Henry M . Campbell, Chairman o f the Board of the
Union Trust Company o f Detroit, Mich. Unfortunately, he cannot be
with us this afternoon, which we sincerely regret, but the discussion upon
the work o f this committee will be opened up by John C. Mechem, VicePresident o f the First Trust & Savings Bank of Chicago.
M r. Mechem: M r. President and Ladies and Gentlemen: I regret ex­
ceedingly that M r. Campbell is not here this afternoon because, owing to
the nature o f the work which the Legislative Committee has endeavored
to do in the last year, it has been necessary for it to be done largely by
Mr. Campbell personally, rather than by the united efforts of the Com­
mittee.
As a result, M r. Campbell knows a great deal more about the work of the
Committee than do I.
Furthermore, the work which your Committee on Legislation has en­
deavored to do is a work which has received so much helpful assistance from
the President of our Division and from the Chairman and Members of the
Executive Committee, that much which I have to say might more properly
be contained, and part of it has been contained in the report of the Executive
Committee which you have already heard.
The work which the Legislative Committee has endeavored chiefly to do
this year has been to secure a proper construction or an amendment to
Section 226 o f the Revenue Act, because under the interpretation put
upon it by the Department, it is one o f the most unjust and I believe iniqui­
tous provisions o f our present law.
This Act primarily was intended (and we o f the Committee believe that
it was solely intended) to apply to the return for a partial year, resulting
from a change o f return from the fiscal to the calendar year or vice versa,
but, as you know, it has been interpreted by the Department to apply to
the return for part o f the year for the estate of a decedent, and as such is
most unjust.
I don't think I need to dwell upon that. You are all as familiar with
that as I am.
Of course, in this work your committee has endeavored to act in very
close co-operation with the American Bankers Association, with the officers
and other committees o f the Division and with the General Counsel of the
Association. In addition to that, it has worked in close co-operation with
the Fiduciary Association of New York, and with various representatives
of the large New York-trust companies.
The first and most natural method of approaching this problem was to
endeavor to get a change o f attitude on the part of the Department, and in
October o f 1922 the General Counsel o f the Association made a request
upon the Department for a reconsideration o f their ruling. That, I believe,
is only one o f a great many requests that have been made upon the Depart­
ment along the same line.
Many Trust Companies all over the country have taken this question up
with the Department and have filed briefs with them on the question.
The Department issued what some oftus have gotten to consider a rather
characteristic reply that they saw no reason to alter their previous attitude
on the matter.
That reply was embodied in a circular o f December first which was sent
to all the members by the Secretary of our Division. The matter was not
allowed to rest there, but it was taken up in every available channel with
the Department, but it became very apparent, indeed, that it was im­
possible to get the Department to reverse themselves, and that the only
way that the matter could be handled was by a test case before the courts
which would actually test the legality o f the regulation, and if the regulation
was a correct interpretation o f the statute, the legality of the statute itself.
A series o f conferences were, therefore, held in New York beginning in
November o f 1922, with the Executive Committee, the Chairman of the
Legislative Committee, various representatives o f Trust Companies in
New York, and with the Fiduciary Association, as to the best method
of actually testing out this question.
It was decided that, first, since the Trust Company Division of the
American Bankers Association more truly than any other organizations
represented the interests of the Trust Companies of the United States, that
the matter should be taken up through them; secondly, that everything
considered, the very best way to raise the question was to find an example
in the hands o f one o f the members o f the Association which presented the
question, and have that matter carried through the courts in the name of the
particular member.
It was therefore decided, as M r. Teter told you. at a meeting of the
Executive Committee on Dec. 7, that the President of our Division should
express that attitude to the Administrative Committee o f the A. B. A.
and should request that funds be provided for the purpose. Unfortunately,
Mr. Teter, as a matter o f general policy, the Administrative Committee
felt it was not dpsirable to furnish those funds, and the Trust Company
Division has had to go on as best it might.
After an examination into the situation, it was decided that the best test
case under all the circumstances was a case which the Bankers Trust Co.
o f New York then had up, and by arrangement with our Division, the
Bankers Trust Co. employed Messrs* White & Case, o f New York, to
act as attorneys for them in that case.
That proceeding was held in the District Court o f the United States for
the Southern District o f New Yerk. Messrs. White & Case filed a brief
on behalf o f the Bankers Trust Co., and by leave o f Court, M r. Henry
Campbell, as Chairman o f the Legislative Committee, and representing the




Trust Company Division o f the American Bankers Association, and with
consent o f Court, filed a very able brief on the same question.
The points being raised in both briefs were that the interpretation which
the Department had put upon the statute was incorrect, and that if that
interpretation was correct, the statute was unconstitutional.
As you doubtless know, that matter came to a decision in August e f this
year, and on Aug. 13 Judge Goddard presiding in the District Court,
held against our contentions in both cases. We have taken the necessary
steps to perfect an appeal, and while we are still a little in doubt as to
the financial aspects of our ability to carry the matter on, and while we
have not had a meeting of the Committee since this decision was rendered,
I think I can assure you on behalf of the Committee that we will do every­
thing possible to carry this thing to a successful conclusion.
There has been a good deal of discussion, and there is now, on the advisa­
bility of endeavoring to get an amendment to the Act, but the members of
the Committee feel, I believe (perhaps I had better speak for myself alone
in this regard), that it is necessary, in view of the past situation, for us to
go ahead with this litigation and carry it, if possible, to a successful con­
clusion, irrespective o f any steps which may be taken for an amendment
of the Act.
That is about the way, ladies and gentlemen, the situation rests with
your Committee on Legislation to-day.
We have given attention to various other pieces of legislation which have
been introduced, but on none of them has the situation reached such a
point that it has been necessary for us to take any active measures.
Our more than efficient Secretary has provided a little chart on the
Committee o f Legislation. Starting out, of course, with the fact that we
should act in all respects jointly with the American Bankers Association;
that it is the duty of our Committee to promote legislation which is advan­
tageous to the Trust Companies o f the United States, and that it is our
duty to combat with all the strength and force at our command legislation
which would be disastrous to the interests o f the Trust Companies.
As is set forth on that chart and as I have said to you, most o f your
efforts so far have been devoted to this section 226-C.
With reference to No. 4, where Mr. Mershon puts the word “ warning,” I
think he means by that that the Trust Companies in particular connection
with this section of the Act must be careful that if they do pay in accordance
with the terms of the section, they must pay under protest.
I may say it is the custom of some Trust Companies I know not to pay
in accordance with the provision of the Act.
I believe, M r. President, ladies and gentlemen, that sketches very
briefly the worlj: of your Committee on Legislation, and I desire on behalf
of the entire Committee to take this opportunity of expressing our very
great thanks to our President and to our Executive Committee and the
Chairman of the Executive Committee for the more than efficient help
which they have given us in carrying on this work.
President Smith: Reports will be open now for discussion. Members
may freely ask questions.
Let no one disregard the heed o f warning on this particular piece of
legislation. We are taking it for granted that every Trust Company is
fully advised of the iniquities and the unfairness and unjustness of that
particular Act that has taken not only the time of the officers of this Divi­
sion, but we have had to seek counsel in the larger Trust Companies of
New York, we have made trips to Washington and in every way, shape,
form and manner, we have tried to amend the ruling of the Federal Depart­
ment on this particular thing.
It is not a matter for a Division only, it is not a matter for a Trust Com­
pany only: it is a matter that goes or might go to each and every single
individual in this room. We can’t believe that it was intended, but it is
the law. There is no doubt about that. The Court decision we have just
gotten is that it is the law and as the law is so written, it was intended to
apply to the estates of decedents where we are just as sure as we can be
that in the amendment of the law the last time it was just a matter o f failure
to change two words that took it away from being applied only to cor­
porations and not upon decedents, but any of you who have studied it and
have had cases in your bank, know just how serious it is. We must leave
that word with you.

Report of Committee on Protective Laws, by Nathan D.
Prince, Vice-President of the Hartford-Connecticut Trust Co., Hartford, Conn.
President Smith: I am to introduce the Chairman of the Committee on
Protective Laws. These may be a little dry but they are all important
to each and every one of us who are engaged in this business. This present
year he has had forty-three State Legislatures to watch. It is no small
task. This could not be accomplished except by perfect organization and co­
ordination of effort. I am somewhat familiar with the message which is
going to be delivered, so I will not in any way introduce the subject. I
would say, however, that this task has never perhaps been better accom­
plished for the trust companies of the country than by our Chairman,
Nathan Prince, Vice-President of the Hartford-Connecticut Trust Co. of
Hartford, Conn., and I will say to M r. Prince that I say that with a little
feeling, as I was Chairman of that Committee for three years myself. He
has done well. M r. Prince.
Mr. Prince: M r. Chairman, ladies and gentlemen of the Convention:
From the report recently given by the Committee on Legislation, you will
notice that their activities are more along the lines of national legislation,
whereas the Committee on Protective Laws confines itself to legislature
and legislation as proposed in the various States.
The work at times is very arduous and produces correspondence which
is very voluminous. The subjects, however, I am afraid will not be alto­
gether interesting for a discussion for this entire Convention. It is the plan
of this meeting, I understand, that immediately following its adjournment,
the various committees which were outlined when the Secretary of the
Division addressed you, are to have different stations about the board.
You will find Protective Laws here on my left; it is on your right.
M y Committee will assemble there in case there are any particular bills
which you would like to ask about. We have in many instances copies of
the original bills, and I will try to cover the subject fully in my report,
which of course I will not attempt to read.
It follows that our work must be done in conjunction and is done in con­
junction with the American Bankers Association, particularly the Trust
Company Division, and working in conjunction with its Legal Department.
I would like to have you follow the chart as I will try to speak briefly to
these respective heads.
Under Number 2, naturally, it is our endeavor to assist in the promotion
and in having passed legislation which will be of direct benefit to trust

TRUST COMPANY DIVISION,
companies, and adversely to combat all legislation which is to affect trust
companies adversely.
T o those o f you who are familiar with State legislation, you doubtless
know that the greater part o f our activities are confined in combatting
legislation which is o f an adverse character, legislation and bills which
perhaps never see daylight after they have been committed to the respective
committee.
I dare say that 90% o f our work is opposing bills which would have
adverse effect upon the trust companies. Our plan o f operation is this:
There are six members o f this Committee, each residing in a different
locality in our country, and to this Committee is assigned a certain number
of States over which he is to have supervision. The particular member is
to get in touch with the State Vice-Presidents o f his respective States
over which he has jurisdiction, and I want to say right here to those of you
who are State Vice-Presidents or to those o f you who may possibly be
State Vice-Presidents, that you can render a tremendous help to this Com­
mittee and to the member who has jurisdiction over your State, if you will
look particularly after State legislation and report any bills, &c., for or
against the best interests o f our companies.
We look to you as keeping in touch, and those of you who are familiar
with State legislation also know that it is left to a few members in your
respective States to look after legislation. I find it is so in our State, and
were it not for the fact that three or four o f our men who are greatly inter­
ested in trust companies’ matters were watching carefully all bills which
are presented— in fact, we have an understanding and pay the Clerk of the
House a retainer to send us a copy o f each bill just as soon as it is intro­
duced.
During the past year forty-three State Legislatures have been in session.
You can understand that it is quite a task to keep in touch with
these various State Legislatures, particularly through our State VicePresidents.
Most of our Legislatures, fortunately for your Committee, hold their
sessions biennially. Therefore, this coming year, our duties will not be as
severe as they have been the year just closed.
Under the caption of “ Summary" I would like to read just a couple of
paragraphs from my report, for X feel that covers it more to the point than
I might do in speaking extemporaneously.
“ The subjects treated by the various State Legislatures centre chiefly
around the following topics: Establishment o f branches: guarantee of de­
posits; changes in banking law relative to conducting banking business
and the prospects of banks against fraud: change in laws relative to organi­
zation, liquidation, &c., of banking institutions; taxation of capital stock,
deposits, net income, &c.; reduction in number o f public statements each
year; various Acts and regulations relative to fiduciaries and their
functions.
“ In only four States attention appears to have been given to action in
respect to the so-called practice o f law by trust companies. The State of
Connecticut represents an outstanding example o f activity along this
line.
“ The increasing volume o f legislation in the different States each year
pertaining to trust companies as revealed in the size o f this report, indicates
the necessity for constant vigilance in order to protect trust companies from
Increasing radicalism in legislative enactments.
“ It was only a few years ago that the total number o f bills introduced in
all State Legislatures pertaining to trust companies could be summed up in
a very few measures, but now hundreds of bills are introduced every legis­
lative year, thus increasing the amount o f work necessary to be done in
connection with this matter.
“ One drastic piece o f legislation passing through a State Legislature gives
encouragement to the Legislatures in other States; hence the necessity for
watching every State Legislature in respect to these bills.”
That last paragraph I wish to emphasize particularly because it is true
that if interests are successful in getting through legislation in one State
which has an adverse effect upon trust companies or banks, it gives those
In other States who are looking for similar legislation new material and
perhaps new strength with which to work.
The forecast for 1924 and 1925, as I have just stated, the past year
forty-three State Legislatures have been in session. The coming year only
some six State Legislatures will be in session. Therefore, every other year
this Committee has somewhat of an easy time, but the year following 1925
will again be repeated these sessions o f the State Legislatures and I beseech
you all, particularly the State Vice-Presidents, to complete your organiza­
tion, see that a proper Legislative Committee is appointed in your State to
assist your State Vice-President in looking after legislation which may be
introduced.
I thank you.

Report of Committee on Publicity, by Francis H.
Sisson, Chairman, Vice-President Guaranty
Trust Co., New York.
F President Smith: We will now pass from the subject of legislation,
which even the Chairman will confess is more or less dry, to that of a livelier
topic, that o f Publicity. M r. Prank Sisson is the Chairman of the Com­
mittee on Publicity. I feel it is safe to state that no activity ever under­
taken by the Trust Company Division has made such a profound impres­
sion as that one conducted under the auspices of our Committee on Pub­
licity. The improper management and waste in administration of estates
which aggregate many millions of dollars are well known to all trust company
officials. The work is practically in its infancy. The National Publicity
Campaign which is being conducted is being handled in a most admirable
manner and merits the support of every member o f the Division.
It is with a great deal o f pleasure that I will ask Mr. Sisson to deliver
this report. At this moment I may be a little unfair to Mr. Sisson, but
inasmuch as I know that he is just returned from a trip abroad and I am
very sure that he has some information and data and facts that I know each
and every one o f us would like to hear, providing he is willing to speak on
it, I am going to ask him to do that either before his report or before he
leaves the platform.
Mr. Sisson: I think you put it mildly, M r. President, when you said
“ unfair.” However, I will be glad to give a word.
I think in speaking for the Publicity Committee I can most simply re­
port what we have accomplished during the past year by referring to the
bulletin boards on the side o f the room. Our monuments are about us
here, much more expressively and definitely than words could convey the
message to you from this rostrum.




121

We have, in brief, simply continued the work that we began three years
ago. We are and have been learning our way as we have gone along, and
I think have laid the foundation for a progressive educational campaign
on the advantage that the education of the public can be to trust companies
in teaching them the value of corporate fiduciary service.
We have approached the subject from a good many angles, as you will
see. We realize the limitations of English, but nevertheless we feel that in
some measure we at least have been able to convince the public that-the
trust companies of the country render a human service of which they may
well take advantage at a reasonable price.
Comparing the financial statement this year with those o f previous years,
I regret to say that our resources have not been as great as in at least one
year previous, but nevertheless they have furnished the substance for a fairly
successful campaign.
In 1921 we had 600 subscribers who contributed $65,000 to the campaign.
That was based upon an assessment of .001% of the combined capital, sur­
plus and undivided profits of the subscribing companies. In 1922 we had
380 subscribers who contributed $45,000. There was an average subscrip­
tion rate of $25 minimum and $2,000 maximum. During the past year
we have had 400 subscribers who have contributed about $47,000 on a
maximum of $2,000 and a minimum of $25.
It is the plan of your Committee, as recommended to the Executive
Committee this morning and approved by them, to solicit subscriptions on
the basis of $25 minimum and $1,000 maximum, in the hope that we will
be able by such a schedule to bring in a very much larger representation of
the 1,900 odd trust companies to whom our message is directed.
I am glad to say that we have already, even at this early date, secured
subscriptions from 220 trust companies for next year’s campaign, and the
prospect of making it even more successful than that of the previous year is
certainly good.
I am not going into the details of either the finances or the mediums which
we have used.
That is pretty clearly explained to you by these bulletin
boards. Of the $47,000 which we hope to have received by the end of this
year, we have already spent $32,000, and the balance remains yet to be
spent during the latter months of the year.
We have received over 11,000 inquiries concerning trust service through
the medium of this advertising. We have distributed hundreds of thou­
sands of leaflets and pamphlets, samples of which you will see upon the
boards, and we have distributed our monthly bulletin effectively to the sub­
scribing companies in a constantly increasing volume and with constantly
incr easing results to them.
We shall be delighted at any time to have suggestions or criticisms or
co-operation, if you please, from any and all of the trust companies repre­
sented in the Association, as we are quite conscious that we have much to
learn, and that only in community of thought and counsel can we expect to
achieve anything like a high degree of efficiency.
We believe that the vast field of fiduciary service, with its important
human element, as well as its decidedly advantageous business element,
offers an attractive field for development by sound selling methods, such
as we have sought to employ, of which we should take advantage and from
which we can hope to escure constantly increasing and profitable
results.
And so, with that brief statement of the important facts, your Committee
commends its activities, so far as we may modestly, to your consideration,
and expresses the hope that whether this committee be continued or not,
the work that we have begun shall be continued, as we are confident that
we have laid the foundation for profit of which you will all take advan­
tage.
Bear in mind that this may not always be reflected in immediate profit
or in directly increased business, but the educational work that is being con­
ducted here can have no other result than the broadening of trust company
service, the increasing of the public knowledge concerning it, and ultimately
the public patronage of it.
With that firm conviction (and, I am glad to say, with the conviction
backed by the Executive Committee), we have proceeded on the theory
that this is a permanent effort.
Before I complete the report, may I express, on behalf of the Publicity
Committee, their sincere appreciation of the cordial co-operation they have
had from the Executive Committee during the past year, under the very
sympathetic and cordial direction of Chairman Teter.
In securing the co-operation of Trust Company members to the splendid
extent we have, that co-operation has been 100% cordial and appreciative,
and we are grateful because we believe it is well directed in a cause of
common interest which has well justified it and from which we will all
ultimately profit.
M r. Chairman, I must say that you have placed a burden upon me that
I should like to pass on to others who have prepared for it.
M r. Sisson's Views Regarding the European Situation.
I have just returned from the other side after two months of wandering
through Europe, in the hope of finding something in the way o f inspiration
or information which might be of profit in the work that we have on this
side of the Atlantic.
I think if I were to give you my impression of the various countries in
Europe, briefly, I might state three dramatic things which happen to be the
first things I saw in three great countries which I visited.
I first went to England. As I was going up to my hotel in London, the
taxicab in which I was traveling was halted by a parade. I got out and
looked at that parade and was interested to find that it was a parade of
the unemployed. Thousands of England’s idle workers were parading the
principal streets of London on that August afternoon, carrying banners of
the most radical sort, proclaiming their right to labor, their right to share
in capital, their right to doles, and their right to paternal assistance of all
sorts in the hardships they were suffering.
They demanded Governmental reforms of all sorts, and their protest
against the existing order was voiced in that emphatic and picturesque
way which we so often see the Anglo-Saxon given to when his feelings are
deeply stirred. Perhaps there is no place in the world where radical thought
is so freely expressed as in England, as many of you know, and it found the
fullest and freest expression that afternoon.
I felt, as no doubt many o f you have felt at a distance, that there was a
seething discontent at the economic conditions which bred that unemploy­
ment, which must be reckoned with not only by England but by the whole
economic body.
Then a few weeks later I went across the Continent and I entered Ger­
many by way of Hamburg. We were prevented from landing in Hamburg
by strikes which were in progress in the city at that time, owing to food
shortage and money shortage. It had been impossible for the printing

122

BANKERS’ CONVENTION.

presses o f Germany to keep up with the demands for paper money, and in
default o f payment, labor had gone on strike all over that part of
Germany.
The banks were issuing what were in effect clearing house certificates,
seeking to stay the tide o f discontent and keep labor employed. Many of
the industries issued their own I. O. U .’ S in lieu o f money, but even they
were not well received.
When I landed in Hamburg finally, by indirect route, the first thing that
greeted me was a terrific street riot, in which six men were shot dead upon
the principal streets o f Hamburg, and which ran on for some time before
finally stilled.
There I had an expression o f what was happening in Germany— economic
disorder due to inflation and to economic malpractice o f all sorts, riots,
discontent, social and political unrest o f the most serious nature, which
might be expressed in complete revolution at any moment.
And then, after going down through middle Europe and visiting most of
the countries in that section o f Europe, I finally came to Prance. As 1
came in to Paris a very bright, sunny morning, my eyes were greeted with
a magnificent parade o f cavalry; military France, strong in her position
and proud o f it, parading to the world the supremacy o f her great army
and insisting to the world that she shall have her way and that she shall
collect that which she believes she has suffered, and in which many o f us
have the fullest sympathy, o f course.
There we have it— the unemployed in England, the rioting mobs in Ger­
many, the marching cavalry in Prance. I think that that pretty nearly
expresses the situation as the casual traveler must see it as he journeys
through those countries. We see this sharp conflict o f interest and ambi­
tions, these racial hatreds and animosities, instead o f decreasing, increasing.
As one o f our writers very well expressed it, “ having fought a war to end
war, we have appraently won a peace which has ended peace.”
As another writer very well put it in one o f the English papers one day,
it was very certain that Europe must liquidate her hates before she could
possibly make any progress in liquidating her debts.”
And so, in that atmosphere of ambition and hatred and racial animosity
and economic chaos and strikes and riots and hunger and, by and by, cold,
We see Europe trying to struggle back to economic recovery.
Unless some solution o f the problem is reached in the reasonably near
future, I am willing to predict that you will see revolution and political and
economic chaos in Europe before a great many months go by.
Germany will break up into several segments just as sure as we are all
here. The prediction of those who have studied the situation at close range
is that you will probably see a Bolshevistic and Communistic Prussia, a
monarchy in Bavaria, and a republican Rhineland. What the future of
that situation will be no man can foresee.
But fortunately the picture is not all black. There were some bright
spots which were most reassuring. Austria, two years ago at the bottom
o f the ladder and in the slough of despond if ever a nation was, by reason of
the stabilizing influence of its financial reformation and of a fairly stable
currency, is well on its way toward commercial and financial and economic
recovery. Its people are going about their duties again cheerfully and
hopefully, feelirg that they are resting upon a sound foundation under
which they can function again as a business people.
I had the privilege o f talking to Dr. Zimmerman, the head of the Com­
mission which is now controlling the affairs of Austria, and found him quite
hopeful of their future.
Even in Bolshevik Russia we find strong, reassuring factors of w-hich we
can well take cognizance here. We can be reasonably assured that the
Soviet Government in one form or another has come to stay for an indefi­
nite period, and while it has the intelligence to modify its economic program
from time to time to meet world commercial and financial conditions,
as a centralized power it is there to stay, I am sure.
Under their dictatorship, they are gradually bringing order out of chaos
and developing Russia’s economic resources. Russia this year will have
an exportable surplus of wheat, and exportable surpluses, probably, of furs
and platinum and maybe flax and some other things, with which they can
establish credits abroad for again engaging in world trade.
Italy, too, under the strong hand of her dictator, has been making sub­
stantial progress.
In some o f the lesser countries there has been a considerable recovery,
but back of it all lies this problem of reparations and the absolute necessity
for the Allied nations to agree upon some program and to settle the ques­
tion once and for all.
As you go around the circle, again and again you come to that one point
o f decision, that unless the reparations problem is settled, there will be no
peace or permanent order in Europe.
What our part is to be in that situation it is hard to imagine. Certain it is
that it vitally affects us. The situation there this year means a smaller
purchasing power for our cotton and for our wheat and for our copper and
for our manufactured products than we have known. Already the balance
o f trade is against us, and how far it will run with a decreasing purchasing
power over there is of course problematic, but it is reasonably certain that
it is only a question of degree.
So, it is our problem, and yet how to approach it is certainly puzzling to
any American as he lives in the midst of it. I personally long thought
that some international agreement or some court, whatever you please to
call it, was of vital necessity to the situation, but when you see the way in
Which such matters are scoffed at and ignored, when any particularly power­
ful nation’s personal and immediate interest becomes involved, it makes
you a bit skeptical of even that safeguard for the peace of the world. Per­
haps it may justify itself as the only possible safeguard, but certain it is
that it is not a complete one. And so we face this difficult situation cer­
tain that it is vital to us, and yet I must confess very uncertain as to how
we can approach it or what service we can render.
One of my clever newspaper friends whom I met in Paris (the Paris rep­
resentative of the New York “ Times” ), with whom I was talking and discus­
sing the situation one day, in a very rapid, sketchy and offhand newspaper
way said: “ You want me to give you a picture of Europe now? I will
tell you what it is— the French cock crowing to the dunghill.” (Laughter.)
While that may be a bit highly colored, there are elements of truth in the
situation which we must recognize and which carry a distinct menace to the
peace o f the world and the restoration of world order.
So we sit here to-day, members of this vital division of the banking group
which we represent, certain that our interests are deeply involved, but
equally uncertain how we can approach and protect them. If, Mr. Presi­
dent, it was your thought that I had some solution to offer, with all due
humility I am glad to state that I have none, except that I thank God I
live on this side of the Atlantic Ocean.
President Smith; I am both thankful for his remarks and thankful that
I called upon him. I knew Prank would do it if I asked him.




Report of Committee on Community Trusts, by Frank J.
Parsons, Vice-President United States Mort­
gage & Trust Co., New York.
President Smith: The next report Is that of the Committee on Commun­
ity Trusts. Before introducing the Chairman I would fail if I did not refer
to the loss the company has suffered during the past few months in the death
of P- H. G off of Cleveland. I presume most of you are aware that it was
from his great master mind that the first plan for a community trust was
evolved.
I take pleasure in presenting Frank J. Parsons, Vice-President of the
United States Mbrtgage & Trust Co. of New York City, whose interest
in and enthusiasm for this work fits him in a peculiar manner to act as
Chairman of this committee. He will make the report.
Mr. Parsons: Mr. President, ladies and genetlemen: I think you will
agree with me that it is somewhat difficult to get down to routine matters
after listening to that splendid word picture of world conditions. If I
seem unduly hasty in my treatment of the subject, there is a reason. When
it seemed this morning that the report of our committee was to be rendered
to the Executive Committee, a small but very energetic gentleman who
presides over the life and death of the payroll in our institution, seeing me
moving about somewhat restlessly in my chair, leaned over and whispered
hoarsely but positively in my ear: “ Frank, for the Lord’s sake, say what
you have to say in five or ten words.”
Your committee deemed it useful to circularize the various community
trusts throughout the country prior to this meeting to obtain the exact facts
with respect to the number of these trusts in existence, the number in process
of formation, the gifts that have been already received, the activities, the
plan itself and what it will accomplish.
Following the suggestion of your President, the result o f these inquiries
has been prepared in graphic form, and I will be very glad to furnish any
interested member a copy of the combined results.
Briefly, there are 44 community trusts in the United States to-day. I
have indicated the location of them on the outline map of the United States
on the chart. Of these 44 some 22 are known to have received gifts under
wills, living trusts or in cash. Ten o f these trusts have appointed their
committees of distribution and are doing active work. Eight of them are
already distributing income, and in the case of five of them known gifts
have been received in excess of a million dollars.
The result of this survey, coupled with the information which your com­
mittee received from time to time, makes it very clear that just in pro­
portion to the extent which the local trusts appreciate the value of this idea,
as an additional arm of trust company service, just to the extent that they
equip themselves for the handling of the work, just to the extent that they
push and organize the work, has the work progressed. Whereas in the case
of those trusts who have merely adopted the resolution, perhaps had one
or two public meetings, and then sat back looking for results to
accrue, very lit le of anything has happened. This is bound to be the
case.
Your committee feels that it would be of great help to the trusts through­
out the country if the best that has been done and accomplished in active
trusts should be gathered up in pamphlet form and furnished to the other
trusts who have not made so great a start. We would be very glad to under­
take that work.
Then, it has also been deemed expedient to advise in some brief way the
trust companies of the United States as to the possibilities of this plan and
what has actually been accomplished.
As to methods of progress, from all that has gone before, it seems clear
that one of the most important things is the selection of a man to actively
head the trust, a director, if you please.
In New York, I am very happy to say that the duties which I carried
on temporarily and imperfectly have fallen upon the shoulders of a very
able man, M r. Ralph Hayes, formerly of the Cleveland Foundation.
M y impression of this situation is that the man to be selected should be
a man capable o f making a success in almost any line. It is not enough
to merely select a man with clerical ability and certain publicity ability,
but a man of vigor, a man of contacts, a man who commands respect in
the community. Then I think you will begin to make progress.
Next would seem to come the education of the people who are most
intimately responsible for the making of wills and living trusts and gifts,
namely the officers of the trust companies, particularly the trust officers,
th e a tto r n ey s of th e tru st com p an ie s an d a tto r n e y s in gen eral.
T h a t is a
program that we have under way in New York, and I would urge that upon
the other trusts who are working on this matter.
Then we have adopted a plan of putting the essential facts with respect
to this plan in brief form and sending it to our clients and depositors with
monthly statement of account. We have received numerous inquiries
and requests for further information which are being followed up and are
resulting in actual business.
Then the matter of business publicity. It has been proven that it is not
enough to merely have one or two public meetings and invite prominent
people there and let it go at that. There must be persistent and consistent
publicity. This can be through addresses made before chambers of com­
merce or other public bodies, women’s clubs, charitable organizations,
and the like.
There is an opportunity for tremendous publicity of great value through
the medium of capitalizing each event as it happens, because such matters
lend themselves to legitimate newspaper publicity. You will find the
newspapers and the magazines very sympathetic and very helpful and very
willing to give their space and their time if the matter is prepared in a way
which constitutes news.
Very briefly, 1 can simply say that your committee is more than ever
convinced that this plan properly understood, properly developed, is of
very great service and is in direct line with the general purposes of the trust
companies, the conservation o f wealth.
In this particular branch of activity, it is gathering up first the small
gifts of individuals which otherwise would not be made because of a lack o f
an object, and, second, the surplus wealth of people of large means, which
we only have to read the daily prints to realize sooner or later almost in­
evitably is wasted.
The plan is of benefit to banks and trust companies as furthering service
along the lines of charitable undertaking to their various clients. It is o f
service to the individual as furnishing to him an efficient and a safe medium
for his charitable business. From the standpoint of the community it Is
a medium for the accomplishment of matters along broad, preventive and
constructive and charitable lines for which no other institution seems to
be so well equipped.

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TRUST COMPANY DIVISION.
We close the year with the distinct feeling that while progress may be
slow, progress is being made, and it will continue to be made just to the
extent o f the understanding and the devotion that is brought to the work.
President Smith: As I remarked before, this work is in its infancy, but
we verily believe that many hundreds o f thousands of lives will eventually
be reached by this great activity.

Name of Trust or Foundation,
Together with Trustees.
The Cincinnati Foundation—
Union Savings Bank & Trust Co.

Supplementing the above remarks of Mr. Parsons on the
work of his committee, we annex the following outline of
his detailed report presented at the convention:

The Cleveland Foundation—
The Cleveland Trust Co.

The Community Trust— The Plan in Brief.
1. One or more banks or trust companies agree to accept bequests for
civic, charitable or educational purposes, and to invest prudently the
principal o f such funds.
2. A carefully selected group o f citizens (the Committee on Distribution),
representative both o f trustee banks and trust companies and of the public,
supervises the disbursement o f the income (and, under certain conditions,
portions o f the principal) o f those bequests.
3. The Committee on Distribution employs income customarily for the
purposes specified by the donor. In the absence o f such specification, it
determines upon the use most conducive to the interests o f the community.
The donor, furthermore, retains the assurance that if, by lapse of years,
originally designated beneficiaries become obsolete or harmful, the com­
mittee guarantees the application o f income to such other objects as har­
monize with the spirit of the gift and the benefit o f the community, and
this without unreasonable delay, expense or litigation.
What the Community Trust Will Accomplish.
1. It will safeguard donations in trust under supervision by State legis­
lation .
2 It will employ the principal or income, or both, for educational and
charitable purposes in a broader and more useful manner in future years
than it is now possible to anticipate.
3. It will provide for specific needs stipulated by the donor.
4. It will insure the perpetuity o f principal when that is desired.
5. It will lessen preventable errors o f judgment in the disposal of prin­
cipal and income.
6. It will guard against unwise use o f income and principal by benefi­
ciaries.
7. It will, by a union o f available funds, promote the civic, moral and
mental welfare o f the people in the widest, wisest, most economical and
most efficient manner.
How the Public May Be Informed and Interested in This Plan of Charitable
Giving.
1. By newspaper and magazine advertising.
2. By issuing pamphlets.
3. By addresses before civic bodies, bar associations, charitable confer­
ences, &c.,; conferences with, and furnishing educational data to, attorneys
and trust officers o f banking institutions, and the local fraternity in general.
4. By publicity as to the failure o f endowments with fixed purposes and
the advantages o f a flexible plan.
5. By personal contact o f the director, trust officer or attorney with
clients who are making their wills or contemplating executing trust agree­
ments.
C O M M U N IT Y

TRUSTS AN D FOUNDATIONS
THE U N ITED STATES.

Name of Trust or Foundation,
Together with Trustees.

THROUGHOUT

City, and to Whom
to Address Inquiries.

The Asheville Foundation—
Wachovia Bank & Trust Co.

Asheville, N. C.
W . B. Williamson, Secretary.
36 Patton Avenue.

The Atlanta Foundation—
Fourth National Bank.

Atlanta, Ga.
W . T. Perkerson,
care Fourth National Bank.

The Attleboro Foundation.—Attleboro Trust Co.

Attleboro, Mass.
V. R. Glencross,
care Attleboro Trust Co.

Baltimore Community Foundation.Baltimore, Md.
Union Trust Co. of Maryland.
Alfred R . Riggs, Secretary.
Title Guarantee & Trust Co.
632 Equitable Building.
Merchants National Bank.
The Baltimore Trust Co.
S e c u r ity S torage & T r u s t C o .

Colonial Trust Co.
Maryland Trust Co.
The Equitable Trust Co.
The Second National Bank.
Mercantile Trust & Deposit Co.
Farmers & Merchants Nat. Bank.
Western National Bank.
Atlantic Trust Co.
Drovers & Mechanics Nat. Bank.
Permanent Charity Fund—
Boston Safe Deposit & Trust Co.

Boston, Mass.
Charles M . Rogerson, Secretary,
53 State Street.

The Buffalo Foundation—
Buffalo Trust Co.
Citizens Trust Co.
Fidelity Trust Co.
First Trust Co. o f Tonawanda.
Marine Trust Co.
Peoples Bank of Buffalo.
Erie County Trust Co.

Buffalo, N. Y.
D r. Frances M . Hollingshead,
Director,
1028 Marine Trust Building.

The Charlotte Foundation—
American Trust Co.

Charlotte, N. C.
W . H. W ood,
care American Trust Co.

Chicago Community Trust—
Harris Trust & Savings Bank

Chicago, 111.
Frank D . Loomis, Secretary,
Otis Building.




City, and to Whom to
Address Inquiries.
Cincinnati, Ohio.
Edgar Stark, care
Union Savings Bank & Trust Co.
Cleveland, Ohio.
Leonard P. Ayres,
care The Cleveland Trust Co.

Dayton, Ohio.
The Dayton Foundation—
Oscar J. Bard, Director,
The Dayton Savings & Trust Co.
6 North Main Street.
The City Trust & Savings Bank.
Winters National Bank.
Merchants Natl. Bank & Trust Co
Detroit Community Trust—
Detroit Trust Co.

Detroit, Mich.
Julius C. Peter, Secretary,
care Detroit Trust Co.

Fort Wayne Foundation—
Bowser Loan & Trust Co.
Citizens Trust Co.
Dime Savings & Trust Co.
Farmers Trust Co.
Peoples Trust Co.
First National Bank
Old National Bank
Lincoln National Bank
Lincoln Trust Co.
Tri-State Loan & Trust Co.

Ft. Wayne, Ind.
H. E. Bodine,
care Chamber of Commerce.

Grand Rapids Foundation—
Michigan Trust Co.
Grand Rapids Trust Co.

Grand Rapids, Mich.
Lee H. Bierce, Secretary,
care Chamber of Commerce.

Harrisburg Foundation—
Allison Hill Trust Co.
Camp Curtin Trust Co.
Central Trust Co.
Commercial Trust Co.
Commonwealth Trust Co.
Dauphin Deposit Trust Co.
East End Trust Co.
Harrisburg Trust Co.
Mechanics Trust Co.
Security Trust Co.
Union Trust Co.

Harrisburg, Pa.
Stanley G. Jean, Director,
care Chamber of Commerce

High Point Foundation—
Wachovia Bank & Trust Co.

High Point, No. Caro.
W . C. Idol,
care Wachovia Bank & Trust C o .

The Hawaiian Foundation—
Hawaiian Trust Co.

Honolulu, T. H.
J. R. Galt.
care Hawaiian Trust Co.

The Indianapolis Foundation—
Fletcher Savings & Trust Co.
Indiana Trust Co. •
Union Trust Cq.

Indianapolis, Ind.
H. H. Hornbrook, Secretary,
Hume Mansur Bldg.

Los Angeles Community
Foundation—
Security Trust & Savings Bank

Los Angeles, Calif.
L. H. Roseberry,
care Security Trust & Savings Bank

Louisville Foundation—
Louisville Trust Co.

Louisville, Ky.
John Stites,
care Louisville Trust Co.

The Milwaukee Foundation—
First Wisconsin Trust Co.

Milwaukee, Wis.
Fred C. Best, Secretary,
care First Wisconsin Trust Co.

The Minneapolis Foundation—Minneapolis Trust Co.
Minneapolis Loan & Trust Co.
Wells-Dickey Trust Co.

Minneapolis, Minn.
E. C. Cooke, Secretary,
care Minneapolis Trust Co.

Community Trust for Newark
and Vicinity—
Fidelity Union Trust Co.

Newark, N. J.
L. G. M cDouall,
care Fidelity Union Trust Co.

New Orleans Foundation—
Interstate Trust & Banking Co.

New Orleans, La.
Henry M . Young, Secretary
care Interstate Trust & Banking C o.

The New York Community Trust—-New York, N. Y.
Ralph Hayes, Director,
American Trust Co.
120 Broadway.
The Chase National Bank.
The Equitable Trust Co.
Fidelity-International Trust Co.
Kings County Trust Co.
Manufacturers Trust Co.
Seaboard National Bank.
Title Guarantee & Trust Co.
United States M tge. & Trust Co.
Peoria Community Trust—
Dime Savings & Trust Co.

Peoria, III.
C. W. Frazier,
care Dime Savings & Trust Co.

Philadelphia Foundation—
Fidelity Trust Co.

Philadelphia, Pa.
Marshall S. Morgan, Secretary.
325 Chestnut Street.

Pittsburgh Community Founda­
tion—■
Pittsburgh, Pa.
H. Ralph Sauers,
Colonial Trust Co. of Pittsburgh.
Commonwealth Trust Co.
care Commonwealth Trust C o.
Peoples Savings & Trust Co.
Potter Title & Trust Co.
Pittsburgh Trust Co.

124
Name of Trust or Foundation,
Together with Trustees.

B A N K E R S’ CONVENTION.
City, and to Whom to
Address Inquiries.

Plainfield Foundation—
The Plainfield Trust Co.

Plainfield, N. J.
Adele H . Kirby,
care The Plainfield Trust Co.

Maine Charity Foundation—
Fidelity Trust Co.

Portland, Me.
Roland E. Clark,
care Fidelity Trust Co.

Portland Foundation—
Title & Trust Co.

Portland, Ore.
A . L. Grutze,
care Title & Trust Co.

Rhode Island Foundation—
Rhode Island Hospital Trust Co.

Providence, R. I.
E. A . Harris,
care Rhode Island Hospital Tr. Co

The Richmond Foundation—
Virginia Trust Co.

Richmond, Va.
P. B. Watt, Secretary,
care Virginia Trust Co.

Rochester Foundation—
Security Trust Co.

Rochester, N. Y.
W . H. Stackel,
care Security Trust Co.

St. Louis Community Trust—
St. Louis Union Trust Co.

St. Louis, Mo.
H . M . Morgan,
care St. Louis Union Trust Co.

Salisbury Foundation—
Wachovia Bank & Trust Co.

Salisbury, N. C.

The Seattle Foundation—
Seattle Title Trust Co.

Seattle, Wash.
A . F. Bailey,
care Seattle Title & Trust Co.

(?)

Seattle Community Trust—
Seattle, Wash.
Dexter-Horton Trust & Sav. Bank.
C. L. LeSourd,
care Dexter-Horton Trust & Sav.
Bank.
Sioux City Common Fund—
Farmers Loan & Trust Co.

Sioux City, la.
R . H. Burton-Smith,
care Farmers Loan & Trust Co.

Spokane Foundation—
Union Trust Co.

Spokane, Wash.
George L. Kimmel,
care Union Trust Co.

Permanent Community Trust
Fund—
Exchange Trust Co.

Tulsa, Okla.
H. L. Standeven,
14 East Third St.

The Washington Foundation—
Washington, D. C.
The Washington Loan & Trust Co.
Andrew Parker
900 F St., N . W .
Williamsport Foundation or
Community Trust—
Northern Central Trust Co.

Williamsport, Pa.
Edward L. Taylor,
care Northern Central Trust Co.

The Delaware Foundation—
Equitable Trust Co.

Wilmington, Del.
E . D . Prince,
care Equitable Trust Co.

Winston-Salem Foundation—Wachovia Bank & Trust Co.

Winston-Salem, No. Caro.
George S. Norfleet, Secretary.
Winston-Salem, N o. Caro.

Worcester County Charitable
Foundation—
Worcester Bank & Trust Co.

Worcester, Mass.
Charles A . Barton,
care Worcester Bank & Trust Co.

The Youngstown Foundation—
The Dollar Savings & Trust Co.

Youngstown, Ohio.
Wells L. Griswold, Secretary,
care Dollar Savings & Trust Co.

which is performed by the trust companies, and there is the legal work In
connection with the estate which must be performed by the lawyers.
The lawyers felt, and sometimes with justice, in individual cases that
trust companies lost sight of the distinction between the business work of
the estate, the administration o f the estate and legal work to be done in
connection with the estate, and that the trust companies encroached upon
the field of the lawyers in connection with the management o f the estate,
in various parts of the country.
As a result of that friction, we found as time went on that the lawyers
in many States retaliated by hostile legislation. This legislation was of
two kinds, one kind of which is exemplified by the statutes which used to
be in force in the State of Washington, with laws directed against the
transaction of the trust business by trust companies. For instance, there
trust companies were not allowed to advertise that they could act as
executor or administrator of an estate. Similar laws directed against the
business being done by trust companies were passed in other States.
Then again another kind of law was passed, laws to prevent corporations
from practicing law. Those were directed against what the lawyers
conceived to be unlawful actions of trust companies when they were over­
stepping boundaries and were themselves attempting to practice law in
connection with the estates which they were managing.
As a result of this spread of hostile legislation, you might say, against
trust companies, the Committee on Co-operation With the Bar was organ­
ized. This Committee was not appointed to fight lawyers, it was appointed
to co-operate with lawyers. As far as the first kind of laws are concerned,
those directed against the business of the trust companies, of course, when
any effort was made to pass those laws, the only position for the trust
companies to take was to fight such laws. I think the effort to pass laws
of that nature is less and less all the time and that we won’t be confronted
with laws of that character in the future as we have been in the past.
As regards the laws directed against the so-called practice of the law by
corporations, our Committee felt that there would not be as great a tendency
to pass laws of that nature, and also the laws already on the statute books
in various States would not be administered in as hostile a manner if the
trust companies themselves were very careful not to give offense to the
legal profession.
Consequently, we have been preaching practical co-operation with the
bar, and the work of our Committee has been largely to see that the trust
companies themselves do not offend in this regard. The Committee has
been very active largely through its Secretary. One instance which occurred
recently will give you a better idea of our work than anything else I can say.
One bank and trust company in one of the Middle Western States got
out some advertising material in which they advertised they would draw
wills, ,and legal agreements of all sorts of things with their customer, not
gotten out through any desire to do that, but through the general desire
to be friendly and to be of service to their customers in all sorts of ways.
I myself took it up with the President of that bank by correspondence
with very indifferent success, I might add. M r. Mershon on one of his
Western trips went out to see the President of that bank. He explained to
him our point of view and he convinced him o f the justice of our point of
view. As a result of that trip the President of that bank submitted the
advertisements to Mr. Mershon for criticism from the standpoint of our
Committee. He adopted all of our suggestions and now he in turn has
been looking out and keeping his eyes open to see if any other trust com­
panies in his State are offending and he is an active ally of the work of our
Committee.
That one instance is only one of a number of instances being handled by
our Committee through Mr. Mershon, but it gives you an idea o f the
work which we are doing.
The objective is to so educate the trust companies all over the country
that they will not make mistakes themselves, that they will really co-operate
with the bar, that they will make the lawyers their friends. I believe
progress is being made along this line all the time, and I am hopeful that
as years go on, in a very few years, I hope, the relationship between the
bar and the trust companies will become so thoroughly and firmly estab­
lished that really there will be no further effort then for any further work
on the part of our Committee. That day has not come yet, because it is
necessary for us to be alert and we are alert through our Secretary. As I
say, we are keeping careful track o f what the trust companies are doing
throughout the country.

Report of Committee on Standardization of Charges,
by George D. Edwards, Chairman, ViceReport of Committee on Co-operation with Bar, by
President Commonwealth Trust Co.,
William S. Miller, Chairman, Vice-President
Pittsburgh, Pa.
Northern Trust Co., Chicago.
President Smith: One of our important and hard-working committees,
one of the standing committees, is known as the Committee on Co-operation
With the Bar. it was Mr. Blair who foresaw the dangers of unharmonious
relations with the legal profession and recommended in his annual address
at the Chicago convention in 1918 the formation of a committee to co­
operate with the legal profession in the development of trust business.
For the past three years we have had for the Chairman of this Committee
a prominent member of the legal profession of Chicago, whose services were
some time ago commandeered by one o f the trust companies in Chicago,
William S. Miller, Vice-President o f the Northern Trust Co. of Chicago,
111., and Chairman of the Committee on Co-operation With the Bar, M r.
Miller.
M r. Miller: M r. President, Ladies and Gentlemen: In order to under­
stand the work o f our Committee, I think it is well just for a moment to
review the past relationship between trust companies and lawyers. Origin­
ally as we all know, when a man wanted to appoint an executor for his
estate, or a trustee under his will, he quite frequently appointed his lawyer
to that position. Consequently, many lawyers very frequently acted
either as executor or trustee or administrator, guardian and in similar
capacities.
In doing that, however, those lawyers were not practicing law, they
were conducting a business. As time went on trust companies were organ­
ized to transact that business. Of course, this resulted in competition
between the trust companies and lawyers in the conduct and transaction
o f that business of managing estates, and this competition between them
had a tendency in some localities to provoke conflicts.
Then, again, in the administration o f an estate there are two distinct
sides o f the work. There is the business work, the administrative work




President Smith: The activities of the next Standing Committee affects
the income of the trust companies. It is the Committee on Standardiza­
tion of Charges. Until a very short time ago, no scientific or systematic
study was made by the trust companies of the country of fees received for
various forms of fiduciary service. Since the formation of our Committee
on Standardization of Charges, marked advance has been made in this
work. M r. Edwards, of Pittsbbrgh, Chairman of the Committee, is not
able to be with us, but a member of his Committee, M r. A. V. Morton,
Vice-President of the Pennsylvania Company for Insurances on Lives and
Granting Annuities, of Philadelphia, will make the report.
A. V. M orton: I am sorry Mr. Edwards is not here to make his report.
As this Committee has not had a meeting during the year, there is no
material that warrants a formal report. For the information of some of the
members who have not known as much about this subject as others, this
Committee was formed five years ago, owing to the great diversity of
charges throughout the country in the question of fiduciary fees. Every
company in the country was asked to give information as to its practice.
From those replies, a composite picture was formed which was printed in
a report which was sent to every member of the Section. The value of that
report I don't think is realized in those sections where trust business has
been developed in an expensive manner. It has been of great value where
new trust companies are being formed, and particularly where the smaller
banks are considering going into the fiduciary business.
I think the great evidence of that value is in the great number of requests
which are coming to the office of the Secretary and which are being answered
by him on behalf of the Committee. I question if this body has any
knowledge of the service which is being rendered to fiduciary corporations
at this time by M r. Mershon.
I am sorry, sir, that there is nothing further.

TRUST COMPANY DIVISION.
Resources of Trust Companies.
President Smith: I understand that Mr. John W . Platten, o f the United
States Mortgage & Trust Company, has just received a compilation of
recent figures o f the trust companies. I know the members would be
pleased to hear them.
M r. Servos: The total figures o f the resources o f the trust companies of
the United States as shown by the figures we have just been able to secure,
are $14,441,000,000. That is an increase over a year ago o f $1,701,000,000.
The principal gains are shown by New York, Pennsylvania and Illinois.
New York shows an increase o f $375,000,000' Pennsylvania, $268,000,000,
and Illinois, $127,000,000. California and Ohio, for the first time, are in
the billion-dollar class. California shows resources o f $1,200,000,000, and
Ohio $1,133,000,000. Total number of trust companies reporting are
2,540. That is an increase o f 172. There is one other figure that is
rather interesting. The National Bank report o f June 30 shows total
resources o f $21,000,000,000 for 8,421 national banks. That is an average
o f $2,610,000, as against aggregate resources o f trust companies of $14,441,000.000 for 2,540 companies, an average o f $5,685,000. In other
words, the average trust company is twice as large as the average national
bank.

125

The entire work of the Committee, may I say, the success of the Com­
mittee, is dependent entirely upon the co-operation of the executive officers
in the various banks which are interested.
We cannot hope to accomplish anything unless we have the co-operation
of those men. No personnel department can hope to do more than merely
exist and exist in a very rudimentary form unless it has the co-operation
of the head of the institution in which it is existing and the very active
backing of the executive officers who stand next to the head.
We feel, consequently, that the Committee itself cannot hope to make
any advances or to obtain anything of any great value unless it can have
the active co-operation and backing of those same men in its findings.
If it can have that, and if it can then determine what the current practice
is, make certain suggestions from that determination as to what the current
practice in various parts of the country should be, and get that information
back to the men in the banks or actively interested in improving the handling
of their personnel, the Committee feels that its work will have been done
to some extent satisfactorily, at least. It is the profound desire of the
expiring Committee that the co-operation which I have suggested be given
in a very much larger measure to the activities of the incoming Committee.
If that is done, I am satisfied the results will more than pay for any of the
work that may have been done.

Report of Committee on Staff Relations, P. E. Hath­
Report of Committee on Research, by L. H. Roseberry,
away, Chairman, Employment Manager
Chairman, Vice-President Security Trust &
Northern Trust Co., Chicago.
Savings Bank, Los Angeles.

President Smith: Now, we are going to hear from the Chairman of one
of our newer committees. That is known as the Committee on Staff Re­
lations. There is probably no subject that is coming more to the front
during these latter years than that of relations between officers and members
of the staff. The new order of things has brought into existence a new
officer known as Director of Personnel. On account of lack of funds, we
have been unable to develop this work to the extent which it deserves.
Progress, however, has been made under the auspices of this Committee,
and their studies and compilations are of very great interest. On behalf
of Mr. Hathaway, the Employment Manager of the Northern Trust Co. of
Chicago, who is Chairman o f our Committee on Staff Relations, the dis­
cussion will be opened by a member of his Committee, Mr. P. S. Kingsbury,
who is the Personnel Manager o f the Cleveland Trust Co. of Cleveland,
Ohio.
M r. Kingsbury: Mr. Chairman, Ladies and Gentlemen: M r. Hathaway
asked me if I would present the very brief report of this Committee, and I
feel somewhat at a loss. Whatever may have been accomplished by the
Committee is due primarily to the activities o f M r. Hathaway, and it is my
impression that Mr. Hathaway would handle the matter in a very much
better way than I.
The matter o f staff relations is merely a matter of the handling of the
relationships which exist between the employees and our trust companies
and banks. As the Chairman has said, it is a growing matter; the im­
pression is getting abroad that it is o f very much more vital importance
than it has been thought hitherto.
The Committee on Staff Relations is a Committee which is attempting
to compile the activities o f the various banks and trust companies, bringing
it together, digesting as much as it can the material which it has, and then
sending it out again for the use o f these same trust companies and banks.
The Committee is relatively new. Its existence has covered only the
short space o f about three years. Consequently, its findings are exceed­
ingly modest. It has made this discovery, which very probably was in the
minds o f practically all o f us, that definite activities on the part of banks and
trust companies do not exist to any great extent in the study and handling
o f their personnel.
It was fpund from an inquiry which the Committee made, that prac­
tically 78% , 700 banks and trust companies, with whom it placed itself in
touch, reported that they had nothing that resembled a personnel depart­
ment, and o f the remaining per cent, only 7% stated that they had an
actively operating department o f personnel.
The objects sought, as I stated a moment ago, on the part of the Com­
mittee, is to determine the activities of the various companies, bring that
material together, chart it, digest it, draw certain conclusions from that
material and send it out to the interested officers of the banks and trust
companies from which the material was originally obtained.
In the methods used in obtaining this information, we have resorted to
the usual method o f sending out a questionnaire. Some year or year and a
half ago a questionnaire was sent out to a very large number of banks from
all the sections o f the United States, and returns were obtained from 700
o f those banks and trust companies. The questionnaire covered what
appeared to the Committee to be vital questions regarding the handling of
their personnel. I will not go into the detail o f running over all the ques­
tions: doubtless a very considerable number of the people in this room have
received the questionnaire and saw to it that it was filled out and very
probably have received the digest of the questionnaire that was made up
and sent out under the direction o f Mr. Hathaway.
It covered such matters as: “ Is a personnel department existing in your
bank?” “ Do you have a pension fund?” “ Do you have a bonus sys­
tem ?” “ Do you approve o f that?” And other items of vital interest in
the handling or possible handling of the employees in your various banks.
As I stated, the returns from that questionnaire indicated a very con­
siderable loss necessary In personnel organization. The Committee has
gone further this year and has had compiled by interested members through­
out the country a series of papers upon what appear to us to be strategic
points of information concerning the handling of our employees.
Such items as the cost of replacement of employees in trust companies;
the comparative value o f high school and college graduates in our trust
companies: the police attitude in dealing with our employees, measuring
service, and determining the comparative value of employees; training and
fitting baDk employees into their proper positions.
It is the purpose of the Committee to publish in the course of the next
year a series o f bulletins, probably three bulletins, in which the findings of
these various papers will be printed, and then to send those bulletins to
interested executive officers in the various banks.
It is also the very probable intention of the Committee (I speak of this,
may I say, from the attitude of the expiring Committee, assuming that the
incoming Committee will more or less follow out the same policy) that this
be followed up to a very considerable extent, and that such articles dealing
with the handling of personnel in all its various phases be gotten together,
be published in bulletin or pamphlet form and be distributed among the
banks in a very much larger manner than it has been able to be done
before.




President Smith: Another new line of activity is that of the Committee
on Research. Our members who were privileged to attend the meeting in
Los Angeles two years ago, remember very clearly the most excellent plea
upon behalf of the beginning of a Research Department. The importance
of this work was fully set forth and very convincingly presented. It was
natural, therefore, in forming the Committee on Research to name as the
Chairman of this Committee a gentleman who entertains probably one of
the clearest visions of what such work will accomplish. With almost no
funds at all, the Committee has conducted three very valuable surveys.
The subject matter of these surveys will be presented to you by the Chair­
man of the Committee, L. H. Roseberry, Vice-President of the Security
Trust & Savings Bank of Los Angeles. M r. Roseberry.
Gentlemen:— The Committee on Research has the honor of submitting
the following brief summary of its activities since its creation in M ay 1923.
First.— In beginning our investigations and research, the Committee
was met by the problem of either using existing research agencies or itself
searching out the data it sought to amass. There was available a large
number of research agencies, both general and special, set up by universities,
large business organizations, social and scientific societies, the national
Government, &c. It was felt, however, that none of these adequately
covered a field of essential interest and value to trust companies. This
left us to the task of pioneering in the investigations which your Committee
set out to make.
At the outset, we decided to gather material through the well-known
media of questionnaires, and this has been solely employed by us in all
our work.
Second.— The first questionnaire, sent out Aug. 25 1922, was addressed
to 379 selected, but territorially scattered, trust companies. One hundred
and five replies were received, mostly incomplete, but sufficient to develop
some valuable data. The purpose of that questionnaire was to disclose the
best types of trust business handled by American trust companies.
A mass of interesting information was, obtained from this source, the
most valuable of which was the disclosure that few American trust companies
had distinguished between their profitable and unprofitable business, or
were systematically developing profitable trust business, or knew of its
precise origin. As illustrative of the lack of clear understanding of some
of the questions and of the essentials of a successful trust business, one
company, in answer to the question “ What form of trust service do you
consider the most popular with the public?” said, “ Trusts created by will
for the care of cemetery lots.” The replies as a whole indicated the need
o f considerable educational work amongst American trust companies con­
cerning the most profitable types of trust business, how to obtain it, and
what charges to make.
Third.— Our second questionnaire was sent out early in March 1923
to the Superintendent of Banks, or similar officials, in the 48 States, from
which 34 good replies were received. This questionnaire sought to develop
the safety of trust company service. The Committee believes that the
replies elicited the most valuable data which it has so far obtained, and the
most valuable it is possible to gather concerning American trust companies.
From the records of official departments in each State having supervision
over the trust companies operating therein, there is no case (a) where the
beneficiaries o f any trust administered by such companies have ever suffered
the loss of a single dollar through failure or mismanagement of a trust
company, or the misconduct of any of its officers, or, (b) where a court
judgment has been obtained against a trust company for misconduct in
the handling of its trusts, or a claim been filed with the Commissioner or
Superintendent of Banks charging such companies with irregularities, which
caused a financial loss to any beneficiary.
Such an official record is amazing and without parallel, not alone amongst
individual fiduciaries, but amongst any other business agency or instru­
mentality. It is believed that there must be instances where trust com­
panies have been sued by beneficiaries of some of their trusts for one griev­
ance or another, but the fact that such cases have not been important
enough to get into the records of the public office or department having
jurisdiction over these companies is highly gratifying. We feel that this
disclosure alone has justified all the work which your committee has done
up to date.
Fourth.— The third and last questionnaire was circulated July 1923
among 381 banks, from which 260 replies have been received to date.
The large number of answers to the last questionnaire indicates that our
membership is becoming keenly interested in our surveys and more accus­
tomed to furnishing the requested information.
The purpose of this questionnaire was to develop the policies pursued by
American trust companies in the acceptance of new business. Some of the
replies received were very illuminating and indicated the high ethical
standards pursued by our leading trust companies in the acceptance of
their fiduciary business. They constitute the highest commentary upon
the trustworthiness of such institutions, almost without a parallel in any
other business agency. In general it was disclosed that they rarely asso­
ciate with oils, mines or essentially speculative ventures; that they never
permit their name to be used to bolster up questionable enterprises; that

126

BANKERS’ CONVENTION,

There is the funded insurance trust, which has been promoted to a large
extent by the Union Trust Co. of Chicago, in which the oonor deposits with
the trust company securities, the income from which i- to lie n o 'i for the
purpose of paying the insurance premiums, and upon the death of the donor
the proceeds are to be paid to the in-urance company and distributed or
held in accordance with the terms of the trust.
The unfunded trust provides for the payment of tin premiums by the
donor, the responsibility resting upon him entirely, an the c o c e e <Hpaid
to the trust company to be distributed in accordance with the term- of the
trust.
The funded trust places a little larger rosponsihjlit' upon the tru-i com­
pany. The duty devolves upon the trust company "to see tl , the. premiums
are paid as and when due. In the event the trust comp in f. its (<• pay the
premium, there may be a serious question as to the t ru a conto-.nv'• liability.
The funded trust, where the fun s are deposited vitl t' e tin; t eomi>.iny
and the donor creates a revocable or irrevocable trust, is c o n - i ' t c
s a
separate entity.
Under the present regulations of the Revenue Hop rimem the iuc.ime
is put as such. There is the distinct advantage to a in ii of •■•(>• llh in set­
ting aside a trust of this ch r. etor for the benefit of hi- f mUy
If as
many men have in the past, a deco ent p ro v id e s that ti e in ur r ru is to be
paid to his estate an 1 distribute ’ in accordance with the term of his will,
the entire estate is subject to the usual a ’ministr five cost- n expenses
and also subject to the State and Fo 'eraI inherit; nee t; «■ If p.-v hie to
the trust company under a trust arrangement, the ..xemption of $40,000
prevails.
The trust companies are not in competition with life in-tir nee comp nies
L. H. ROSEBERRY,
for this business. The life insurance companies have attemp^e ;.n have
Chairman, Committee on Research.
met, to a large extent, the dissipation of funds by provi 'inc for the annuity
payments to the beneficiaries. In a great many cases trust comp nies
cannot meet the insurance competition, but where a man has a lirr-e num­
ber of policies in ( ifferent companies, with their various manner- of paying
Report of Committee on Mid-Winter Conference, by the funds or paying the annuity, it is best to consolidate the proceeds with
a trust company.
Frank W. Blair, Chairman, President Union
Another advantage that a trust company has over an insurance company
Trust Co., Detroit, Mich.
is that the funds hold by the insurance company are not strictly trust funds.
President Smith: On account o f the decrease in time allotted to the They must be paid in accordance with the contract. The trust insurance
Trust Company Division at the annual conventions o f the American contract is flexible. It can be prepared to pay the income to the wife or
Bankers Association and what we term the vital necessity o f having suf­ the children or other beneficiaries during their lives, and upon their deaths
ficient time to discuss problems, not make reports, pertaining to our in a lump sum divided: or in case of need or necessity, occasioned by sick­
business, four rfnd one-half years ago the thought of a mid-winter con­ ness or the desire to educate children such sums as in the discretion o f the
ference was introduced. At first it was looked upon by some members trustee may be used for that purpose.
An insurance company cannot meet that situation. Our greatest field
o f our Executive Committee as an unworkable innovation. However, the
first conference met with immediate success and it was unanimously for developing the insurance trust is the insurance agent. M ost o f the in­
surance companies recognize that a trust company can handle the proceeds
voted by our members to be continued.
Four conferences have been held in New York City. On account of the of insurance better than they can. If we can satisfy the insurance agent
inability o f many members to attend the convention and the distance that we are not in competition with him and an insurance company that
which many would be required to journey to attend the regular conference we are not in competition with it, we will find co-operation which will be
in New York, the idea o f a regional conference to take our work to the beneficial to all of us.
The forms which may be used by the trust companies are varied. I
members was introduced at the spring meeting o f the Association last April.
A committee to consider this matter was appointed with power to act believe the simple form of trust Is the best. I believe that if we attempt to
prepare
a long insurance trust with a quantity o f fine print, we will bewilder
and carry out any plan which they themselves deemed wise. The pre­
sentation o f this matter will be made now by the Chairman of this com­ our client, and while I am not singling out any one form of the 50 or 60 forms
mittee, Frank W . Blair, President o f the Union Trust Co. o f Detroit, Mich. which were sent to us by the trust companies throughout the country, the
M r. Blair: M r. Chairman, Ladies and Gentlemen: I have taken a form prepared by the Northern Trust Co. o f Chicago seems to be the sim­
plest one for our needs.
very long walk to make a very short report.
The advertising matter which has been sent to us has been examined and
Most o f the subject o f my report has been covered by other officers.
As you all know, the idea o f the mid-winter conference grew out of a a quantity o f it placed upon the boards at my right and your left. Some
realization on the part o f the officials o f your Division that the time allotted of the pamphlets, in fact most of them, are very well prepared. They are
at the annual convention of the general association was not sufficient to very explicit and give the prospect a clear idea of the service offered.
In advertising insurance trusts a suggestion occurs to me that there are
enable them to present properly to the membership of the Division those
subjects which should be presented. Out o f that grew, as I say, the several catch words that we ought not to use for fear that it might cause
some criticism on the part o f the Insurance companies. I refer to such
mic-winter conference idea. The first one was held in 1920.
It met with such success that three others have followed, each being, phrases as “ Protect your insurance.” It might create an idea in the mind
if anything, better than the one which preceded it. The next conference of the reader that a trust company Is issuing an insurance policy to insure
will be held in New York Feb. 13 and 14 o f next year, as stated by M r. the payment of the proceeds by the insurance company or trying to protect
Woollen earlier. The growth is indicated by the fact that at the next the client against some agent of the insurance company. It would be
meeting we give one and a half days to the Conference as against one best to use the expression, “ Insure the proceeds o f your life insurance pol­
icy ," or “ Protect the proceeds.”
day heretofore.
The form I feel would best serve our purpose is a concise statement of
The regional conference idea grew out o f an expression by members of
the Division residing at a distance from New York, that it would be well the fact that the trust company is co-operating with the insurance company
to
protect those whom the insured leaves behind.
if conferences could be held in various sections o f the country, under the
This Committee, which has only been in operation about two months,
auspices o f the Division. There were some misgivings on the part of
■some o f us as to whether or not this idea could be carried out successfully, intern’s to prepare for distribution among the members three or four bulle­
but after many conferences and a great deal o f correspondence, it has tins covering this service. We will have suggestions as to advertising, a
been decided to try it out in November at a regional conference to be held booklet and suggested forms.
The question of fees is one that will bother us. It does seem that where
in San Francisco.
the funded plan is adopted, possibly a little larger fee should be charged
That, I think, gentlemen, is about all there is to say about conferences.
than in the unfunded case; but I believe the same fee should be charged as
is charged in the case of a voluntary trust, although where the unfunded
trust is executed, there is always a possibility that the donor may revoke.
that is the case, there should be a charge made at the time the trust Is
Report of Committee on Insurance Trusts, by Thomas If
executed or at the time of the revocation.
C. Hennings, Chairman, Vice-President
The President of one of our insurance companies wrote a letter which,
in a measure, was confidential, but I feel that it so well covers the attitude
Mercantile Trust Co., St. Louis.
which the trust companies and the insurance companies should have toward
President Smith: The activities o f the next committee are along the lines each other that I would like to read it to you. This was written to one of
o f business extension. From its title you will see that the Committee on his agents:
Insurance Trusts covers the subject o f the creation of such trusts. Thomas
“ It is impracticable for any life insurance company to exercise discretion
■C. Hennings, the Vice-President o f the Mercantile Trust Co. o f St. Louis, in administration of these funds. There is no charge for handling the funds
M o ., is the Chairman o f the Committee and he will open the discussion on by the insurance companies and they have no facilities away from their
this matter.
home offices for being familiar with the facts and circumstances surround­
M r. Hennings: M r. President, Ladies and Gentlemen: The insurance ing the beneficiaries to enable them to exercise a sound discretion in serving
trust controlled by a trust company meets a need arising out of the dissi­ and protecting the interests of the beneficiary. Consequently, in any of
pation o f the proceeds o f insurance policies reaching the beneficiaries. It the unusual cases where discretion Is desired on the part of the trustee, and
has been estimated that 90% o f the proceeds o f insurance policies are dissi­ where the payment of definite sums at stated periods to named persons not
pated by the beneficiaries within seven years and in sums less than S5,000 not sufficient to meet the requirements of the insured, it is much better
in less than two years.
judgment and will prove more satisfactory to all parties concerned to make
The widow or the child receiving the insurance is followed by vultures with the insurance payable to some trust company and have a declaration of
get-rich-quick schemes, immense promises o f large income and seem to be trust or trust agreement expressly providing what the trust company is to
looked upon as carrion by these birds o f prey.
do with the proceeds.”
The trust companies o f the country, in extending their service in trying
I thank you.
to protect the community, have a large field in which to operate.
President Smith: Is there any discussion upon this particular subject
There are several kinds o f insurance trusts. One which is most strictly of insurance trusts ?
an insurance trust provides for the deposit o f securities with a trust company,
M r. Whitney: I would like to ask the Chairman of the Committee about
the income received from which is to pay the insurance premium.
the question of fees. In the case of an unfunded trust, the trustee does not
A trust company does not collect the proceeds o f these policies and per­ pay the premium, is that the idea?
forms no other duty than to see that the premiums are paid. This is a
M r. Hennings: He does not.
voluntary trust.
President Smith: Are there any other questions?
they accept trusts only from responsible people engaged in reliable busi­
ness, suitably financed and managed; and that they place their good repu­
tations above all allurement o f material gain. These policies are not wholly
altruistic but are the essential foundations of permanent success in the trust
business.
Without implied criticism o f any one (for we all know the reason), we
again venture to recall that your committee has been without funds of its
own to forward its investigations. We have relied upon the generous and
efficient assistance o f our Secretary’s office. So far this has been satis­
factory for the limited work we have undertaken. However, it would not
be satisfactory to continue this arrangement indefinitely. Enough new
material has already been developed to indicate the almost limitless possi­
bility of this research work. It is a distinct forward movement, thoroughly
seasoned in other avenues and generally regarded as an essential in all large
business enterprises. Whether the time has now arrived for intensifying
this work or continuing it in its present modest way is for the Executive
Committee now to determine. It would seem, however, that the almost
priceless data which may be so readily gathered and at such comparatively
negligible expense, would justify the raising of an adequate fund for the
purpose. The field is broad, the work is skilled, the demand is acute, and
the results to be attained are sure to be highly valuable to our membership.
If sufficient funds cannot be secured, the success o f our experiment to date
would seem to justify a continuance o f the committee’s present limited
activities until our promising beginnings can be turned into large realiza­
tions.
Respectfully submitted,




TRUST COMPANY DIVISION.
Discussion of Safe Deposit Business.
President Smith: A request has been made that we have a word on the
safe deposit business. I have made a memorandum that at our convention
a year ago it was our privilege to hear an address upon the growing hazards
and liabilities in the conduct of the safe deposit business. In the hurry
of that meeting, it was impossible to grasp the full significance of the
paper which M r. Rand o f Boston presented to us. The men who know
most about the work of safe deposits tell me that instead of being a simple
business to operate safely, it is the most complex.
In order to open this discussion, we have invited William P. Giblin,
President of the Lincoln Safe Deposit Co. of New York City, to meet with
us to-day and present the outstanding features of the business which he
assures us we shall all have in mind.
Mr. Giblin: You will all recall the address of Mr. Rand at the meeting
last year. He has told me that he has had requests from all over the
country to give some information about the subject, and M r. Mershon
has asked that we take it up to-day on the operating side of the question.
I have prepared a few points to bring before you for attention.
It is
not a discussion on safe deposits, but to just point out the important
things that I have found in looking over the cases that have been tried.
The safe deposit business in general has been increased by the issue of
Liberty bonds and, in many cases, the bankers found it necessary to embark
in the business in order to meet the requirements of the depositor. The
difficulty has been that many bankers have regarded the matter lightly
until they did take up the business and then found the trials and troubles
that it entailed, and not until the trouble arose did they make a study of it
to see what problems there were.
The liability of the deposit account is not likely to be more than the
amount of the account. This liability is readily ascertained and is shown
in the balance sheet, but the liability on the safe deposit box is never known.
The $5 safe may carry a liability of $100,000
I was told of one case in
New York City where a $5 safe contained $900,000 worth of negotiable
securities on the listing of the estate by the transfer tax authorities.
The question of liability of a safe deposit company is one- on which
there is great difference of opinion. There is one decision in New York
State, which is not highly regarded by lawyers, which held that it was that
o f landlord and tenant. Most of the decisions have been that the relation­
ship was that of bailee and bailor. That is the general, prevailing opinion
through the country on the different decisions that have been handed
down.
In addition, there is a difference of opinion on the part of some of the
attorneys for the safety deposit companies as to which relationship would
be more advantageous to the companies. The attorney for one big company
states that to establish a relationship of landlord and tenant would involve
the safe deposit company in the real estate law which would bring a great
deal more trouble on the company than to establish the relation of bailee
and bailor.
Whatever the relationship is the courts in the trials o f cases for alleged
loss have held that the safe deposit company was under obligation to deliver.
In one case the court stated that there was an obligation on the part of the
safe deposit company to safely keep and to deliver the property unless
prevented by some cause for which it was not responsible.
Here I might call your attention to a case that was decided recently
against the bank for a loss by burglary where the bank was held liable on
account o f the wording o f the advertising. It was held that the bank
offered a guarantee o f protection by reason of the wording of the advertising.
In the case o f a loss by burglary from the bank, the bank was held liable.
The difference o f opinion on the relationship between the depositary
and the customer has made it difficult to know just what kind of a contract
is best fitted for the safe deposit business, and also to secure uniformity
in these contracts. Some companies have no contract other than a recept
for the amount paid for the use of the safe and a receipt for the keys deliver­
ed. Others have a well-drawn lease. There should, however, be a contract
for every safe rented, showing the number of the safe, the price, the terms
of the lease, the names o f the person who have access and any conditions
that may be placed on the access.
The principal dangers in conducting a safe deposit business may be
divided between those of the day and night— vault protection at night
and vault operation in the day.
As to vault construction: I am not qualified to enter into a discussion
o f that. That is a subject only for an engineer to discuss. There have
been a number of experiments tried in the last few years on construction of
vaults and there are some new ideas being put forth as to what is best in
vault construction, but that is a subject entirely for an engineer.
There is no doubt that the courts all hold in cases of loss that before
doing a safe deposit business the bank must have a good vault and not
only a good vault constructed but a vault that is amply protected. What
“ ample protection” means has to be decided in each particular case.
Recently a case was decided m California, and the jury was influenced
by reason of the bank not having a burglar alarm or a watchman. It is
important that both, or at least one of these, should be provided.
I f the business does not warrant the expense of a watchman, then a
burglar alarm can be applied and carried to the nearest police station, and
if it is applied, it should be inspected every day, tested every day to see
that it is working properly.
As to the vault operation, the most important matter in that connection
is the selection of the man. He should be a man of mature years and of
good judgment, intelligence, courtesy, tact. We assume that he is honest
and reliable.
There has been a disposition on the part of some bankers (some years
ago) to appoint some man to take charge of a safe deposit vault who could
not be found of any use in any other department of the bank. Happily,
that is being changed now. The character of the men has been greatly
improved.
In selecting a paying teller a banker usually wants a man who knows his
job. The man in charge of a safe deposit company can cause the banker
more loss and more trouble by a mistake or lack of judgment than a paying
teller will.
Next to the man in charge, the rules of operation are perhaps of the
most importance. I have not time to go into all the details of operation
but in looking over cases where loss of property has occurred perhaps the
point most frequently raised is the question of keys, and the custody of
keys. When property is said to be missing from a box. the first thought
that comes to the mind of the safeholder is that someone has been to the
box. Most claims for alleged loss of property from the safe deposit are
honest ones. The customer simply has been careless or has a poor memory.
Once he thinks he has missed something he is sure somebody has gone to
the box. Here’s where the matter o f the custody of keys comes in.




127

It may seem strange to many of you but it is a fact nevertheless that in
many banks throughout the country a key to a safe deposit box is retained
by the bank. When a man misses something and thinks it is gone, the
natural inference is that someone connected with the bank has gone to the
safe. There has been the opportunity and it is not unreasonable for him
to think that the opportunity has been availed of. In fact, there was a
case tried not long ago where the judge in charging the jury said that it
was not unreasonable for them to think that it had been availed of. Judges
have the right to draw reasonable inferences from the facts found. The
best plan is to have the keys to all unrented safes and the guard key under
the control of two persons, either the man in charge of the vault and an
officer of the bank or if it is necessary to do it, bring in one of the inactive
directors, or counsel, or somebody who will make a check on that, so that at
no time wiil one man have access to the keys, either the keys to the unrented
safes or have a key to any rented safe.
When all the keys of a rented safe are retained by the safe holder, and
he is kept in possession of them at all times by reason of making him take
the keys with him when he takes the box out of the safe and goes to a coupon
room, you will have very little difficulty in proving that it is almost im­
possible for any one to have access to the safe other than the person who
is entitled.
Whenever a change is made in the persons having access to a safe or a
safe is surrendered, the keys should be changed or the lock changed. When
a safe is rented, the keys to that lock should be delivered to the rentor.
When they are surrendered, they should be received from the rentor, so
that the possession of the keys and the history of the possession of the
keys can be clearly shown in any claim that is made for loss from the
contents of the safe.
There is a key that is used in safe deposit vaults that is called a guard
key. It sets the lock for the customers key to open the safe. That key
should be put in charge of some person or persons and the number limited
to the least possible, and then not permit that key to be left out or to be
hung out or to be given to any safe holder to use it himself. It controls
the lock to the safe and it has come up a number of times in the case of
alleged loss as to who had possession of that kind and how opportunity
might be given of opening the safe.
A great many of the companies at the present time are taking the record
of the access to a safe. One of the best methods that I have seen is in the
Guardian Trust Co. in Cleveland where they take a signature, enter up
the number of the safe, the ticket is given to the renter, he takes it into the
vault and access is granted. It furnishes a complete record and admission
on the part of the rentor of having had access at a specified time.
In a smaller vault it might be possible to put all that on the record of the
safe and have the rentor of the safe stop at the office and sign the record
to the safe, the contract card and get the whole record on to one con­
tract card.
The last few years safe deposit men have been getting together throughout
the country and there have been safe deposit associations formed in New
York, Chicago, Boston, Philadelphia, and they have been found very
beneficial for the operating men. In New York, we have a meeting every
month and there is scarcely a meeting that some new question does not
come up or some new phase of an old question does not come up that sheds
light on a lot of the problems of the business.
I would like to suggest the formation of these associations in the cities
where there are half dozen vaults, to get the men together to discuss their
problems, if only to have a meeting some afternoon during the week. We
all get together and discuss our problems individually and then we have
a general discussion.
It helps all the men to get to the problems of the other man. Bach man
has his own problems and no one man gets a whole variety, but by bringing
them together they get the benefit of that.
I would strongly urge wherever there are half a dozen vaults in the city
that the men get together and discuss these topics.
We have a number of the forms of contract cards that are used in the
safe deposit business from the various cities at the table over in this corner
(indicating). We also have some specimens of advertising. If there is
anything we can do for you in connection with either of these matters we
shall be very glad to.

Fostering of Organization of Local Fiduciary
Associations.
President Smith: Are there any other subjects to be brought before
the meeting?
M r. Stuckey (Guardian Trust C o.. Cleveland): I would like to ask
whether the Association has ever fostered the organization of local fiduciary
associations. We have had in mind in Cleveland the organization of a
local fiduciary association. We feel that through an association of that
kind, questions such as the standardization of fees and charges can be
made readily effective locally.
President Smith. Mr. Mershon, you can give our experience on that.
Secretary Mershon. That has already been covered in the meeting,
Mr. Stuckey, at an earlier hour. It was a subject of consideration at an
Executive Committee meeting this morning, and Mr. Woollen, the VicePresident, covered that in his report. W e are encouraging the formation
of Trust Company Sections and Associations in the different States and
in the different cities, and shortlv I will gather at the New York office,
as soon as I come back from this convention. a mass of information re­
garding Trust Company Sections and Associations, their activities and
their work, and forward the total of the existing associations and others in
contemplation of formation. That answers your question, I believe.

S u g g e s t io n f o r A p p o i n t m e n t o f C om m it te e o n Relations
w ith F ederal Reserve System A p p r o v e d .
President Smith: I am conscious that our program has been long, but it
must necessarily be so in order to bring before you the activities of so many
committees that we have at the present time.
I shall take this opportunity, on behalf of the officers and of the
members of the Committee for thanking you for your patient and interested
attention to the details of our work, and even though it is late and we have
spent considerable time, we still, in the spirit of our conference method,
give the opportunity to any one who may wish to offer an additional subject
or speak upon any one particular subject that has been presented this
afternoon.
Mr. Schenck (Brooklyn): I note that at the general session o f the con­
vention on Thursday there will be held a discussion about the Federal

128

BANKERS’ CONVENTION.

Reserve System, its merits and defects. An hour and fifteen minutes has
beenjfallotted to that discussion. At that time, opinions will be expressed,
ideas will be exchanged, that will be o f great value to all concerned, all
interested in the Federal Reserve System.
I would like to suggest that the Trust Company appoint one more
committee, M r. Chairman, and call it, as the National Banks do, their
Committee on Relations with the Federal Reserve System. I think a
great many o f us are members o f the Federal Reserve Bank and would like
to see such a committee appointed. If it meets with your approval, I would
like to propose such a committee appointed by the Chairman, to consist
o f three members.
President Smith: Are there any remarks?
M r. George H. Birnie: I think you will get yourself into trouble if you
do that.
President Smith: There are certain kinds of troubles we have got to face.
Mr. Birnie: There is, among the country trust companies, an opposition
to the Federal Reserve System. We recognize it as a very necessary evil.
You could’nt argue them out o f it, either.
President Smith: W e don’t say that we can’t do anything. I think that
is the spirit that probably prompts the creation o f this committee, a spirit
help both for ourselves and for such advice that we might possibly give
to even the members o f the Federal Reserve Board.
I know before you leave this meeting in Atlantic City, you are going to be
Impressed with the very seriousness o f the menace that is now hanging over
the Federal Reserve System o f the United States. It is a subject that has
got to have most serious thought not only on the part o f the bankers, but
it is being questioned in some sections on account of certain functions; it is
also being taken up by people, by associations. As I said in my remarks,
I tried to cover a great deal of ground, giving my audience the credit of
knowing as much about it as I do, but merely calling attention to it.
So I am inclined to feel at this moment that I should personally support
the suggestion o f the appointment o f that Committee and a little later we
could determine upon the character and extent o f its activities.
The motion was carried.

Report of Nominating Committee— Election of Officers.
M r. Blair: M r. Chairman and Gentlemen: Your Committee on
Nominations [Frank W . Blair, Michigan; J. Arthur House, Ohio; Edgar
J. Fox, Pennsylvania, and Gilbert T . Stephenson, North Carolina) begs
to place before you the following names and to recommend their election.
President, Evans Woollen, President Fletcher Savings & Trust Co.,
Indianapolis.




Vice-President, Lucius Teter, President Chicago Trust C o., Chicago.
Members of the Executive Committee for three years:
J. N. Babcock, Vice-President Equitable Trust C o., New York.
John B. Larner, President Washington Loan & Trust C o., Washington,
D. O.
W . S. McLucas, President Commercial Trust C o., Kansas City.
Frank P. Kennison, Vice-President Ohio Savings Bank & Trust C o.,
Toledo.
A. C. Robinson, President People’s Savings & Trust C o., Pittsburgh, Pa.
M r. President, I move the election of those gentlemen.
The motion was seconded.
President Smith: The motion has been made and seconded to acceptithe
report of the Nominating Committee, and I am presuming that^that
carries with it the request for the Secretary to cast a ballot for the candi­
dates for President, Vice-President and the five members of the Council
of the class of 1926, to serve for three years. Are there any remarks?
If not, all those in favor will signifying by saying “ aye;” opposed, “ n o.’ ’
The motion is carried unanimously.
TheSecretary tells me he has cast the ballot. M r. Woollen, ijthink /needs
very little or no introduction. I am pleased to have the privilege^of
being the first one to congratulate you, Mr. Woollen. Your many years
of painstaking effort and helpful service bring a fund of experience^and
sound judgment to the Division that in the coming year, I feel sure,Swill
help to elevate it to greater heights of usefulness and power.
iL,
J
To officially welcome you, I have the honor to pin upon you the honorary
badge of the Division.
President-Elect Woollen: Thank you, Mr .Smith, and thank you,
ladies and gentlemen. The members of the Division would wish? me,
I am sure, to do nothing else before, on its behalf, expressing to you, Mr.
Smith, the gratitude for your service in its interest, and in testimonyiof
that gratitude I am requested to present to you this badge to be retained
permanently as the President’s Badge. M ay you wear it long and be
prosperous.
The next pleasure I have is that of welcoming my old-time friend.
Lucius Teter, and giving to him the badge of office.
Mr. Teter: Thank you.
President-Elect Woollen: Now, will the newly elected m em bersf of
the Executive Council come to the platform and receive their badges
of office?
They came forward and the badges were presented.
Upon motion duly made and seconded, it was voted to adjourn at five
o ’clock.
Adjournment.

SAVINGS BANK DIVISION
A merican Bankers' A ssociation
Twenty-second Annual Meeting, Held in Atlantic City, N. J., September 25, 1923.

INDEX TO SAVINGS BANK PROCEEDINGS
Ideals and Dangers in School Savings Banking, Thos. F.
Wallace_____________________________________________________PaSe 129
Industrial Savings Banking, Allard Smith--------------------------130
Newspaper Advertising as a Business Builder, W. R. More­
house_______________________________________________________
133
Discussion on Newspaper Advertising---------------------------------135

Address of
Report of
Report of
Report of
Report of
Report of

President Samuel H. Beach_____________________ Page
Committee on
Savings______________________
Committee on
Federal Legislation_________
Committee on
State Legislation___________
Committee on
Resolutions_________________
Committee on
Nominations________________

135
138
138
138
138
139

Ideals and Dangers in School Savings Banking
By T h o s . F. W a l l a c e , Treasurer Farmers & Mechanics Savings Bank of Minneapolis.
School Savings Banking in our Public Schools has now
reached a point where it has ceased to be classed as an edu­
cational fad or an economic experiment and is well recog­
nized as a factor of growing importance in the social and
financial life of this nation.
However, with ideas as with men, success brings increased
temptation to depart from early ideals and sound principles
and substitutes the goal of present material gain for that of
permanent achievement.
This afternono I propose, therefore, to devote the time
allotted to me on your program to pointing out some ideals
which I feel should ever be kept before us in conducting
school savings banking, and also to calling your attention to
some tendencies which are already beginning to show them­
selves and which I strongly feel menace the continued prog­
ress and usefulness along proper lines of this important de­
velopment in the educational and financial fields.
What, then, was the purpose in the minds of those farseeing pioneers who first advocated and introduced school
savings banking into our public schools? There is little
room for doubt on this point. Their sole idea was to incul­
cate not only hy precept but through practice in the minds
of the school children of our land sound thrift principles,
and so prominent was this idea in the minds of the early ad­
vocates o f the system that one of the chief obstacles to their
progress was the consequent difficulty of interesting banks
sufficiently so that they would undertake the responsibility
and incur the expense necessary to install and conduct such
systems.
Now that school savings banking is a great success, this is
no longer a difficulty, and banks in ever increasing numbers
all over the United States are enthusiastically co-operating
with the educational authorities in carrying on this work.
The results as shown by the reports of our Deputy Man­
ager for the past year have been most encouraging and the
Savings Bank Division of the American Bankers Association
Is certainly entitled to a large share of the credit for so great
a growth, but in the midst of this great success let us con­
tinue to remain true to the ideal which permeated the early
history of this movement, namely that the education of the
child in thrift, and not direct financial profit to the operat­
ing bank or banks, is the main purpose to be considered.
Do I hear someone say that the public is tired to death of
being preached to and that “ thrift” and “ thrift education”
are hackneyed and worn out terms? To such I would say




that never have the children of our country been more in
need of a sound economic training in the good old-fashioned
virtue of thrift than now. To many thrift means merely
“ not spending,” which is about as far from the real meaning
of thrift as it is possible to get. Thrift education to my
mind means:
1st. The training of the individual not only to become a
self-sustaining member of society, but so that he will in time
be able and willing to repay to society at least a part of the
debt he owes it.
2nd. The development of the individual’s self-control to
such an extent that he will be willing to sacrifice the grati­
fication of trivial present desires in order to attain a greater
permanent good; and
3rd. The acquisition by him of sufficient knowledge so
that he may know how to wisely spend.
Thrift is not the greatest o f virtues, but the more you
study the inter-relations of our complex civilization, the
more convinced you will become that thrift underlies and is
fundamental to the practice of most of the cardinal virtues,
whether they pertain to the individual, to society or to the
State. If, then, the education of the child in thrift is one of
the high ideals to be cherished in our School Savings Sys­
tems, it is self-evident that school savings should have a
place and official recognition in the educational programs of
our public schools. The teachers as well as the scholars
should be made to feel the importance of education along
this line and both should receive from Superintendents and
Boards of Education due recognition for excellence in this
department of their school work. But if we as bankers de­
mand on the part of educators due recognition of the impor­
tance of thrift education in connection with School Savings
Banking, it is certainly incumbent on us to maintain equally
high ideals in connection with our management and control
of the practical side of school savings, namely the collection,
safekeeping and scrupulously correct accounting for of all
sums deposited with us through such channels.
This in my opinion can never be accomplished if the bank
or banks in any community selected to operate school sav­
ings seek to derive a direct commercial profit from such de­
posits or strike to make what should always be a child’s
school savings account and nothing else a convenient de­
pository for the family savings. Many specious arguments
could be advanced to show that the latter course will aid in
inducing habits of saving and frugality in other members of

130

BANKERS’ CONVENTION.

the family, but the fact remains that if the thrill of individ­ 35,000 to 300,000 inhabitants, 34 were operating with con­
uality in the school deposit is lost you have departed from trol in a single bank. In three of the remaining six, located
the true purpose of school savings— the education of the in the South, there were but two banks operating the sys­
child himself in thrift— and have placed the emphasis on tem, one for the white children and one for the colored chil­
something else, which, worthy as it may be, has no place in dren. If we consider the remaining three cities in this list
where more than one bank conducted school savings, it is
school savings banking.
Again, the moment that you introduce the goal of commer­ illuminating to observe that these three stand at or near the
cial gain into school savings in the place of the education of foot of the list in the percentage of school enrollment, oper­
the child you have departed from the ideals of its founders ating accounts.
Plural operation almost invariably tends to develop jeal­
and well wishers and endangered the entire edifice. This
is a very real danger and one which the rivalry of various ousy and commercial rivalry among the operating banks
companies and agencies organized for the purpose of install­ with respect to the amount of deposits secured by each, and
ing certain special systems and selling certain equipment in owing to the various degrees of importance attached to this
connection with school savings is making more acute each work by the different banks makes the establishment of a
year because of the emphasis which they lay on this purely common standard of efficiency practically impossible. In
addition it introduces financial politics into the school
commercial side of school savings.
The bank should not engage in this work primarily for the boards, and despite since endeavors to overcome these han­
extra deposits it brings it. I f so the moral or what might dicaps they cannot fail to hamper and jeopardize the true
be called the spiritual essence of the work, which is its very success of the plan and lower the enthusiasm and loyalty of
soul, is to a great extent lost. In doing this work the bank the teachers in carrying on their part of the wprk.
Again, it cannot be expected that where a number of banks
ought to be doing it for the sake of the boys and girls whom
the banker wants to bring up, so that the next generation are joined in the management of School Savings that we will
may be composed of the right kind o ' men and women, and have either the quality of personnel, sufficiency of equip­
not merely because he can figure out some additional finan­ ment or intelligent and harmonious supervision that would
be available if one competent banking institution alone was
cial gain to his institution by carrying it on.
No mere “method” or “ system” can assure success. The interested in the success of the system.
School savings are now operated in connection with our
task is not simple and the expense is heavy, if properly per­
formed, for experienced workers, intelligent inspiration and public schools in more than 489 towns and cities in the
United States, operating in 6,884 buildings, and the school
intense loyalty to the ideals involved are all required.
In every case, then, even where the plan is officially en­ children now have on deposit through the medium of this
dorsed by the educational authorities, the depository bank agency more than $9,600,000.
A large part of the credit for developing and sustaining
must help to inspire the teacher and scholars alike. Any
banker or any educator who believes that a school savings this vast work at a very considerable outlay for which there
banking system can be operated successfully or permanently has been no direct compensating gain belongs to the banks,
without constant personal stimulation by someone who is so and especially the savings banks, of this country and the
interested that they find pleasure in details and drudgery tremendous increase in savings deposits during the past ten
years in this country is undoubtedly in considerable part
which would otherwise be annoying, is woefully mistaken.
And here again note you cannot secure whole-hearted co­ due to the principles of thrift inculcated in the minds of the
operation from the teachers if they feel or even have reason children while they were yet young through our school sav­
to suspect that the interest of the depository bank is largely ings banking. The realization that if thrift is to increase
among our people, we must devote our chief attention to the
a material one.
One other point I wish to stress and that is that more effi­ child rather than the adult is now becoming general.
Let me then urge upon you to in no way lower the high
cient operation nd better supervision result when one bank
in a city assumes entire charge rather than where a number ideals which animated those banks who were pioneers in this
jointly attempt the task. Certainly this is true where one work of School Savings Banking, or allow specious argu­
bank has assumed the responsibility and financial burden ments looking toward direct material gain or plural man­
of the early years of operation and has already achieved a agement to tarnish the lustre of the record of achievement
already made or dim the yet greater vision of possible
reasonable degree of success in carrying on the work.
In a survey recently made, 40 cities where school savings achievement in the future in respect to the sound education
systems are being conducted having a population of from of the youth of our land in thrift.

Industrial Savings Banking
By A l l a r d S m i t h , Vice-President the Union Trust Company, Cleveland, Ohio.
For several years quite a number of banks, especially in
the larger cities, have experimented with various plans for
attracting the savings of the man in the shop. The Save at
the Shop Plan (Trade Mark registered), which was inaugu­
rated in complete form in March 1923 by the Union Trust
Company of Cleveland, Ohio, is the result of about two years
of most thorough and thoughtful consideration and experi­
ment, embracing co-operative work and discussion with em­
ployees and employers alike, in some twenty different in­
dustrial plants.
Our primary object was, and is, to accomplish something
which is constructive and of real benefit to the workers in
industry, for we knew that if this effort was successful we
would at the same time have performed a valuable service
for the management in the plants.
We started upon, and have held to, the principle that
neither employee nor employer wanted a plan that would in
any sense be paternalistic or in the social welfare class,
neither was this to be a great philanthropic work on the
part of the bank.




Of course, we desired to build good-will for the bank, and
we expect that our Save ut the Shop department will grow
and that a reasonable financial profit will result, and it is
only reasonable to expect a financial profit in due time, be­
cause the Save at the Shop Plan nets the equivalent of real
financial profits to both employee and employer, while the
actual value to them is very great.
Contrary to the prevailing impression, perhaps, there is
nothing complicated about the Save at the Shop Plan— in
fact, as finally developed, it is so simple in operation that
we wonder why it took two years to find this out; but in
these two years we learned many things about workmen and
foremen and managers—how they talk, think and pretty
much how they act and react toward banks, social problems,
living conditions and one another.
This foundation was most essential to our future success
with the Save at the Shop Plan, but the work and the
thought and consideration which went on during the twoyear preparatory period does not show in the form of
new or extraordinary methods, but rather in the per­

131

SAVINGS BANK DIVISION.
fecting of old and well established practices and their a p ­
plication.
The Save at the Shop Plan is one form of deduction from
the pay-roll. While this is not a new idea, several of the
essential details of this particular plan, as for example the
manner in which it is presented and sold to the employees,
and the consistent follow-up and stimulation thereafter,
are new in practice and are what makes the plan successful.
Considering the many other methods intended to attract
industrial savings, such as thrift stamps, mechanical tellers,
savings clubs, etc., it is our opinion that the automatic
method of deduction is the most effective and practical.
The Save at the Shop Plan has given the workman the op­
portunity to save with the utmost convenience; he does not
have to make out his deposit slips, and therefore he does
not have to exert his will power anew each pay day in figur­
ing out how much he should save. The company does not
know how much he has saved, as the employee keeps his
own pass book.
A description of the Plan and the methods of merchan­
dising this service may be divided into four separate but
closely related operations.
1.
2.
3.
4.

Selling the management.
Selling the worker.
Installation and operation.
Resolicitation.

Selling the management is, of course, the first step. Many
plant executives immediately see the desirability of the Plan
and realize the good effects it will have upon the worker;
others are inclined to defer decision until they can see how it
works in some other plant.
The objections most commonly raised by plant managers
are as follow s:
1. “ The operation of the Plan involves too much work and
we are overworked now.” Knowing how capable and broad­
minded certain managers are, we are sometimes surprised to
hear them raise this question, but it is quite natural. The
keen executive nowadays, more than ever perhaps, is scan­
ning his expense figures and reducing or eliminating all
non-producing overhead. This is answered by a demonstra­
tion of the smiplicity of the operation of the Plan, and by
explaining that one clerk, in not to exceed two hours, can
perform the work for 100 accounts, and this can generally be
done during odd moments. It is not a non-producing over­
head.
2. “ I am not in favor of deductions from the pay-roll.”
This is not a “ deduction” in the sense that the company takes
a portion of the employee’s money. The workmen have the
money, plus interest, and in the tangible form of their bank
book, so that in no sense is it a deduction. There is nothing
in this operation which will create a demand for increase in
pay. Actually a portion of the pay is given in form of a de­
posit slip receipt.
3. “ I do my banking at another bank.” This requires va­
rious replies, depending upon individual conditions. Some­
times it stops further work.
After the management has approved the installation of
the Plan, then it must be sold to the employee. This is in­
augurated by a talk with the department heads and fore­
men in a group, in which the plan is explained, its benefits
outlined, and the co-operation of the group requested. With­
out exception the foremen have been enthusiastic advocates
of the Plan. The men and women who will be in active
charge of the pay-roll and whose co-operation and sympa­
thetic attitude are desirable, are also included in this thor­
ough sales effort.
The bank then sends out a letter to every employee at his
or her home upon the letter-head of the plant. This letter is
flexible, but the majority of them read as follows :
In my own experience, as an employee and employer I have never met a
man who did not want to save. I met mighty few men who wouldn’t admit
that they could afford to put something in the bank every pay day, even if it
was only a dollar.
But I also know from experience that it may be hard to save. Unless a
man lays aside a few dollars the very minute he gets his pay, the chances are
he won’t save anything. We’re all like that.
It is unnecessary for me to talk to you about the advantages of saving.
You know them as well as I do. No man ever got anything or anywhere
without saving; no man ever felt really independent without a bank account.




What I do want to tell you is that this company is interested in making it
easy for you to save and has just made an arrangement with the Union Trust
Company by which you can save regularly and easily each pay day.
The plan is simply this: We will, if you wish, set aside from your pay
each week whatever amount you want to save— $1, $2, $5, or whatever sum
you say. The paymaster will deposit this amount in your name with the
Union Trust, and the bank will pay 4% interest on every dollar, compounded
semi-annually. In case you want to draw your full pay some week, all you
have to do is to speak in advance to the paymaster. Of course, you can draw
your savings any time you wish in accordance with the regulations of the
bank.
This company will make no profit whatever, no one but you and the pay­
master will know that you are saving or how much, and you are under no
obligation to use this plan. But speaking man to man, I know that if you
once give it a trial, you will never want to stop.
There are two reasons for saving. One is to provide for old age and the
“ rainy days” that come in every man’s life. The other is to get the things
you want now— a home, a car, better clothes for the wife, an education for
the youngsters— something you can get in a year or two years or five years
of regular saving at 4% compound interest.
I find that saving to get something is the most interesting and successful
way to save. With each dollar you feel yourself getting closer to the thing
you want. I have also found that the man who saved to get the good things
of life usually has a reserve fund laid up when his earning days are over. For
saving, once started, becomes an easy habit, provided you can bank your
money conveniently.
If you start this week to save for something you can get a year or so from
now, and keep on saving until you get it, I wager that you will have a stead­
ily growing bank account the rest of your life. I know, too, that you will
have more, enjoy life more and be without the fear and worry that haunts the
later years of so many men.
Ask your foreman for further particulars regarding the savings plan.
Very truly yours,
---------------------------- , President.

This is followed two days later by a letter from the bank
containing an authorization and signature card. The au­
thorization card reads as follow s:
Please open a Savings Account for me with the Union Trust Company,
Cleveland, Ohio, and withhold each pay day from my wages for deposit
therein, subject to the rules of the bank and in accordance with the plan, as
outlined and announced by the Company______ 1923, the sum of $______ .
It is understood that this order may be canceled by me at any time.
Signature ____________________________________
Address__________________________________________

The next step is personal solicitation of the plant by two
bank salesmen thoroughly trained in soliciting. The worker
is solicited at his bench, lathe or machine, and if he has not
previously done so, the workman signs an authorization card,
same as the one enclosed with the letter from the bank. This
interview requires but a minute or two with each employee
and does not interfere with the work of the shop man.
Operation of the Plan.
After the authorization cards have been signed, they are
brought to the bank and pass-books are made out for each
employee. These are then returned to the paymaster at the
plant and on the next pay day he delivers the books to the
men, deducting from their pay the amount authorized.
Thereafter, on each succeeding pay day he makes out deposit
slips with carbon and receipts, padded alternately, and fur­
nished by the bank. These are so lined up that the receipt
for the employee is automatically made out in carbon when
the paymaster makes out the deposit slip.
After the deposit slips have been made out, the paymaster
takes the receipts, and puts up his pay-roll, inserting each
receipt in the proper envelope in lieu of the money. The
deposit slips, together with the company’s check in an
amount equivalent to the total of the deposit slips, are then
sent to the bank, where the amounts are entered for credit
to each individual employees’ account, the first entry being
the designated amount to be deducted. In the operation of
this plan all entries are made at the bank.
In most large factories they set up the names o f the em­
ployees and the amount they intend to save on an addressograph, making it very easy to run off both original and dupli­
cate deposit slips. These simple operations constitute the
only work required of the plant as the result of the installa­
tion.
The Plan having been mechanically installed, little would
be accomplished if the whole matter were allowed to rest at
this stage. As a matter of fact, the work done thus far has
simply prepared the ground for the most important work of
all. The names of all new employees are obtained and let­
ters sent to them. Every DO days a resolicitation of the plant
is made. These letters and resolicitation keep enthusiasm
alive, and the Save at the Shop idea prominent in the minds
of the shopmen—both present and prospective savers.

132

BANKERS’ CONVENTION.

Analysis shows that on the first solicitation about 31% of
the employees sign cards, and in the second solicitation this
is increased to 56%. A representative of the bank keeps in
touch with the key men in the plant at frequent intervals to
see that everything possible is done to further the bank’s ser­
vice in that particular plant. This follow-up is most impor­
tant.
As a constant reminder of the Plan and its benefits, a lib­
eral use of posters is employed, these posters being changed
at intervals of a week or two.
The two letters which are sent to the employees each con­
tain a booklet describing the Plan and its benefits in familiar
language. I will read the first page of one of the booklets to
better give you an idea of the appeal to the workingman.
Ever tried to save?
Pretty hard job, wasn’t it?
The birds who write all the stuff about it being easy to put something in
a bank each week as regularly as a clock must live in banks themselves.
I remember the first time I started saving. I took part of my pay, hopped
on a ear as soon as the noon whistle blew, and went to a savings bank.
The bank people treated me white enough, but the whistle was blowing
again by the time I got back. I had a pass-book, but I had to pass up my
lunch.
Still, when I looked at that first $5 entry in my pass-book I felt that I
was going to put John D. Rockefeller out of the running. John, Andy Car­
negie and all the rest claim they got their start with their first bank deposit
and there must be something in what they say.
And maybe I was getting .my start, too, but I didn’t last long enough to
find out. The bank was two miles from the factory. I went to work before
the bank opened and got out after it closed.
So I gave up trying to save.
But I still wanted to save. There’s a lot of bunk preached about thrift,
but no man with common sense forgets the advantages of saving. I don’t
mean saving just for the sake of saving, but saving to get something and
somewhere.

Industrial savings in one form or another, thrift stamps,
mechanical tellers, savings clubs, etc., all have played some
part, favorable or unfavorable, in the lives of most Cleveland
workmen and in the problems of management in the larger
manufacturing plants. This situation is not unlike that
which other large industrial cities have experienced since
and during the war. To sell the Union Trust Company’s
Save at the Shop Plan and to merchandise this service of our
bank, presented therefore many interesting and difficult
problems, always aggravated by an ever-present lively com­
petition, especially from the branches of other banks.
We knew that the employee wanted this service, if he and
his wife and family could only be shown how simple it was
and what actual benefit they would derive from it; many
employees had already tried some savings plan without much
result, many were already savings depositors, and many so
far never believe they could save, or even wanted to save
through the customary bank facilities.
On March 15 1923, when our campaign started, the attack
was made simultaneously in five ways, viz., advertisements
in daily newspapers, street cars and on bill-boards; direct
mail correspondence with plant executives; and personal
solicitation by eight especially trained salesmen recruited
from the bank.
Plant managers, too, seemed greatly interested in the Plan
from the very general requests for interviews promptly re­
ceived in response to our letters of announcement, but many
managers were most conservative and were persuaded to
give the plan a trial only after much discussion, and as a re­
sult of most persistent and resourceful sales effort.
Now, however, after approximately six months’ operation,
the situation has materially changed. We find employees
are asking employers for the Plan and plant managers are
now receiving our salesmen with a keen desire to learn about
the Plan. The accumulated interest by employer and em­
ployee, as one plant after another gets the plan into suc­
cessful operation, initiates much favorable comment, which,
assisted by advertisements and personal talks to the workers,
has created a great amount of good-will toward the idea and
the name.
I cannot emphasize too strongly the point that the plant
management and foremen must first be thoroughly sold and
become enthusiastic in their desire to have their employees
try it, if for no other reason than that they will then make
it easy for our salesmen to meet their employees and will
co-operate with us.




The selling campaign among the employees, conducted by
the bank, must be well planned and vigorous, and most im­
portant, the bank must initiate a follow-up and keep per­
sistently at it until the men get the habit. Once fairly
started, the workmen will continue to save without much
stimulation, but it takes hard work sometimes to get them
started.
In all contacts, personally or by pamphlet, by letter or
advertisement, try to talk to the men in their own language
and to establish friendly relations with them. In fact, this
entire endeavor is a good-will builder in which the workmen,
the plant manager, and the bank, meet for a common purpose
and for mutual benefits.
You may possibly be interested in some of the advertise­
ments used to reach both the employer and the employee.
In the cars we use appeals typified by these car cards.
As to progress, the Union Trust Company now has close to
10,000 new accounts resulting from the Save at the Shop
Plan: and they are increasing at the rate of nearly a thou­
sand each month.
An analysis of the results made last July in 60 factories,
taken at random, from different sections of the city, gives
some interesting statistics as follow s:
Accounts secured immediately upon installation--------Additional new accounts secured on subsequent solicita­
tion ______________________________________________
Banking with the Union Trust and not caring to use
this p la n ________________________________________
Banking with other banks and not caring to change----Will open later_____________________________________
Unable to save because of various reasons___________

3,031

(25

%)

3,152

(26

%)

971
667
1.454
1,576

( 8 %)
( 514%)
(12
%)
(13
%)

Total available employees in 60 plants---------------- 12,964

This shows that 51% of the people talked to are availing
themselves of the Plan. A study of the savings habits of
this same group showed an average deposit of $6 03 per man
per month. The same analysis showed that on an average,
these workmen made 19 deposits during the course of a year.
On the basis of payment every other week, which is the usual
plan, this would mean that these men on an average, stuck
to their original savings plan 19 times out of a possible 26,
which indicates a very regular and consistent saving. The
amount saved by the average workman has increased from
an average of $5 31 per month to $6 03.
The attitude of management and workmen alike is, per­
haps, best reproduced in a few verbatim statements and
stories.
These from plant managers:
“ We have a roustabout who has been with us for a number of years and
never saved a penny in his life. Since the installation of the Save at the
Shop Plan, on two or three occasions he has found it possible to turn over his
entire pay check to the company cashier for deposit and he has.saved quite a
substantial amount.”
Another, “ The Save at the Shop Plan will save us $15,000 a year in labor
turnover.”
Another, “ The Plan has demonstrated its value by stimulating attendance,
punctuality and overcoming the tendency of employees to borrow.”
Another, “ The good reaction on the men is very apparent. They become
steadier, more consistent and more substantial workmen. We find that the
men automatically sell the Plan to the new men in the plant— ample evidence
of their enthusiasm for it.”
Another, “ On the part of the company, we appreciate the Save at the Shop
Plan, as our men have become steadier and it has lessened our labor turn­
over.”

And from the men we learned many interesting things,
and their stories are full of human interest only casually
indicated by the follow ing:
Husband and wife saving to buy furniture for a little cottage.
Single man saving to buy an automobile.
Young girl saving so that when she is old she will have at least $500 and
enough in addition to buy herself a black dress.
Workmen saving to get $1,500 to buy a home.
Young woman saving for trousseau.
Married man saving to pay life insurance premium.
One workman loudly admits that he is saving for the purpose of buying
whiskey.
Another is saving $15 a week to pay a doctor and hospital bill.
Another is saving $2 a week to educate his one-year-old son.
Another is saving for his vacation.
Young man expecting to be married is saving to furnish home.
Middle-aged workman has three sons, the oldest fifteen. Is saving $6 a
week for their education.
A 64-year-old worker employed as a sweeper-out, who couldn’t write his
name, said he was saving money to buy a new suit.
Out of one department of thirteen, eight adopted the Plan in a certain fac­
tory. After two drastic cuts in working force, six out of the original thirteen
men left in this department, and out of the six, five are Saving at the Shop.
The sixth has a thriving savings account at a neighboring bank; rather
graphic evidence of the tangible effect saving has upon the value of a work­
man.

SAVINGS BANK DIVISION.
Industrial savings is a perfectly logical development and
extension of savings bank operations into a field of prospects
not adequately reached by customary bank facilities. The
Liberty Loan campaigns brought thousands of workmen for
the first time into intimate contact with investment facili­
ties, and the continued stimulation of thrift through a Save
at the Shop or some similar plan, gives to the workmen a con­
structive and much-to-be-desired intimate savings bank con­
tact.
I would not recommend this Plan for the smaller cities nor
for all larger cities, since ultimate profit to the bank is de­
pendent largely on sufficient available business to operate
effectively on a quantity basis. But in most larger cities
where large industrial plants are located, banks can operate
industrial savings and thus perform a great service to the
men and women employed in factories, especially where the
average wage received is fairly high. And under such condi­
tions a financial profit will come directly to the bank. A f­

133

ter it is once well started, industrial savings will grow with­
out any greater stimulation than is ordinarily required and
considered wise in developing of other bank services.
Furthermore, there is apparently quite a well conceived
desire and effort in banks generally to get closer to people in
a mass, and to democratize, as it were, the bank’s person­
ality and services. Industrial savings finds a very fitting
place in this policy and program.
Industrial savings is a great education in thrift and an
excellent means of developing good-will toward banks.
Broad-minded and far-sighted plant managers recognize
the intangible as well as the real value of industrial savings
in that the saver is the better and more stable employee.
The general reaction and influence on the personnel of the
plant organization is good. Better and more savers make
for a more contented and happier people. Surely, then, in­
dustrial savings is one way in which the bank may better
serve the community in which it lives.

Newspaper Advertising as a Business Builder
By W. R. M o k e h o u s e , Vice-President, Security Trust & Savings Bank, Los Angeles.
It is my firm conviction that banks can use newspaper ad­ his story. It is reduced to scenario form, a director super­
vises the making of the picture, actors and actresses portray
vertising with great success.
The power of the press in molding public opinion is un­ the characters and a camera man photographs the scenes.
questioned. That same power which convinces the people of The story is then projected upon the screen ready for assim­
a city, a State, or a nation of the need for the development ilation. When you view the motion picture your brain
of large enterprises may be used for a better understanding doesn’t have to labor, nor do you have to pull on your imag­
ination very hard. Millions flock to see motion pictures
of the services a bank can render.
Newspapers go into the homes— by their use as a medium because the hard work has all been done before the pictures
the people of a whole community may be reached in a single are projected upon the screen. Newspaper advertising will
be read and it will pay your bank to use it if it is served to
day.
Because a bank cannot directly trace a large volume of the public predigested.
new business to newspaper advertising does not prove that
How to Make Newspaper Advertising Pay.
the medium is ineffective as a business-builder. Because you
Discuss only the subjects which will make it easy for the
do not see readers studying your advertisements is not suf­
public to patronize your bank. Advertise your bank, its.
ficient evidence that the advertisements are not read.
The fact that there are certain kinds of newspaper adver­ financial stability, its officers, directors and stockholders,
tising which do not produce good results ought not to brand and you will build prestige and strengthen public confidence
the medium as ineffective, any more than the fact that be­ in your institution. Eumerate the various kinds of service
cause a certain booklet or certain business-building letter your bank is prepared to render. It has been my experience
fails to pull would warrant you in branding all booklets and that the public is on the lookout for information about banks,
banking methods and the kinds of service rendered by banks.
all letters as non-productive mediums.
A banker had erected on the roof of his bank building an
For example, take the person who feels that he should
electric sign. At first this sign proved a great disappoint­ open a savings account. He reads your advertisement
ment, the color effect was poor and the letters illegible. headed “ Interest From Date.” The terms upon which a sav­
Motorists who rode by his bank, evening after evening, wei'e ings account may be opened are explained—also the rate of
unable to read the sign. This convinced him that electric interest is given— such an advertisement 'will immediately
signs for banks were not a success. He was about to order excite his interest and inspire him to action and he is
the sign removed when it was suggested to him that a flasher prompted to call and open an account.
be attached, the color effect changed, and the tip of the light
Take another example. You have money to lend on real
globes capped. He agreed to this change rather reluctantly. estate. You publish an advertisement under the caption
For more than a year now this electric sign has been in con­ “ Money to Lend.” In the advertisement you state your terms
stant service. Night after night, from its commanding loca­ and invite applications for loans. This ad is read by the
tion at the intersection of a widely patronized boulevard, it person who is in need of additional funds, and because it
has flashed its message to thousands. Not only is the color supplies him with reliable information as to where he may
effect pleasing to the eye, but the message is easily read secure the money and upon what terms, he naturally applies
blocks away. I f 37ou should ask this same banker to-day for to your bank for the loan.
an expression as to how he regards electric signs for banks,
Another example. A widow has in her possession valua­
he would recommend them to you in the highest terms.
ble keepsakes. She is living in constant fear that they will
Newspaper advertising in many respects is like electric be stolen from her. She picks up the newspaper and reads
signs. It must be attractive and easily read if it is to pro­ your advertisement headed “ Protection for Your Valuables.”
duce good results. I f the subject presented is not to the She is informed of the protection afforded through your
point, is too deeply involved for the average mind to grasp Safe Deposit Department. Your suggestion inspires her to
readily, is too full of big and uncommon words, it is only come in and rent a box.
natural that it will not be read. If bank advertising is to
You publish an advertisement under the caption “ Concern­
accomplish its purpose it must be very simple. People will ing Investments.” It is read by individual investors, and
not read that which goes “ over their heads.” The average they call for advice. Another ad is headed “ Small Accounts
person can only understand that which is as plain as one’s Are Welcome.” Persons of small means read it and are con­
A B C’s. They will not refer to a dictionary for the defini­ vinced that their business, although small, will be acceptable
tion of unfamiliar words.
to your bank.
Note the popularity of motion pictures with the masses.
As a hypothetical case, let us assume that the space occu­
The reason for this is not hard to find. An author brings out pied by the five advertisements referred to above had been




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BANKERS’ CONVENTION.

devoted to a discussion of a bit of local history, some hydro­
electric problem, the grandeur of the Yellowstone Park, the
good roads movement, and the discovery of gold in Califor­
nia. Can you imagine advertisements of this type, dealing
with subjects that are not especially related to banking,
bringing in savings depositors, applications for loans, rent­
ers for safe deposit boxes, investors for advice, and the small
accounts? They may be good-will builders, and they may
serve to link a bank up with the community, but for quick
results I am a firm believer in sticking to subjects which
have a direct bearing on banks, banking methods and ser­
vice.
You do not find manufacturers of clothing advertising
farm implements, nor telling you how many ships pass
through the Panama Canal monthly. They are too busy
sticking on the job of telling the public about the merits of
their particular brand of clothing to devote advertising space
to subjects which do not directly bear upon their products.
Personally I do not know of any good reason why bank ad­
vertising should not be almost entirely confined to the bank­
ing field, at least until the public has become better informed
about banks and the wide variety of services rendered by
them.
If you have not been successful with newspaper advertis­
ing I wish that you would try this plan. Confine your ad­
vertising within the scope of banking and especially enu­
merate the various services which your bank is prepared to
offer. Boil down every advertisement to one hundred words
or less, preferably less. Use headings which arouse interest
at a glance. For example, a heading “ Interest From Date,*’
will inspire action on the part of persons with idle funds to
deposit because interest starts from the time savings accounts
are opened. A heading “ Money to Lend” will interest per­
sons in need of additional capital. A heading “ Protection
for Your Valuables” will inspire action on the part of per­
sons in need of protection. Give special attention to the lo­
cation of your advertisements in the newspaper, securing, if
possible, space in the upper left-hand or upper right-hand
corner next to reading matter. As to the size of your ad­
vertisements, I would recommend that you use a two-column
by five-inch advertisement twice a week in preference to an
advertisement o f double that size once a week. Use illustra­
tions where space permits and the cost of drawings and cuts
are not too high for your appropriations. Use an attractive
and distinctive border and plenty of white space; let me re­
peat, plenty of white space. Use clean-cut type of good size
so that your advertisement will be easy to read. Ninety per
cent of the people have defective eye-sight.
Analyze Newspaper Circulation.
If you are to get the maximum results out of newspaper
advertising, you must know the facts about each paper.
Analyze the publications in which you advertise to the ex­
tent that you become familiar with the clientele of each
paper. Avoid all “ one time” publications and all special
editions where you advertise in the regular edition. It is
well to remember that readers and press runs do not repre­
sent a bona fide circulation. I know of a paper which
claimed fifty thousand readers. Its press run was only
eleven hundred copies and its bona-fide circulation about
four hundred. It is necessary for you to know the propor­
tionate percentages of city, suburban and country circula­
tion and similarly, the relation of street sales to home cir­
culation. You should be informed yourself as to class cir­
culation as between farmers, industrial workers, profes­
sional men, etc.
Publicity.
Supplement your newspaper advertising with news items
about the bank, for publicity is gained through news matter
which indirectly advertises the bank. It is well to remember
that every bank depositor reads items concernings banks.
Of those who have no banking connection, many will read
news items of this kind because they recognize the fact that
their own welfare is affected by financial conditions. Every
news item has behind it the prestige of the newspaper as




well as the bank. News items invariably get good location
in rhe newspaper.
Kinks on How to Oet News Items Published.
Cultivate the acquaintance of the editor— don’t quarrel
with him. Too many bankers quarrel with editors. In fair­
ness to all concerned publish only news items of general in­
terest to the public and exclude every earmark of advertis­
ing. If the item is of sufficient importance to justify its
appearance in several papers, write it from different angles
so that each paper will have a different story although deal­
ing with the same subject. Invite the editor to revise your
copy and never insist on items being published as written
by you. The most popular length of news item is from three
to four hundred words.
The A. B. A. Newspaper Advertising Service.
At our Spring Council meeting held last April, at Rye,
N. Y., the officers and various committeemen devoted nearly
all of their time to a consideration of plans whereby the
Savings Division might render a valuable service to its
members.
I wish that every one o f you could have been there to have
heard some of the reports; reports which represented weeks
of work on the part of various committees. Take, for ex­
ample, the work of the Committee on School Savings, their
report showed that this committee had been weeks gather­
ing data. As a result o f the work accomplished by this
committee, you can for the first time buy an up-to-date book
on school savings. Get a copy if you haven’t already done
so, for it is brim full of good ideas on the subject.
A few weeks prior to the Spring Council meeting it was
suggested that the Savings Division supply to its members a
newspaper advertising service at a nominal cost. The idea
went over with a bang! Mr. Beach, President of the Divi­
sion, requested the Committee on Bank Facilities to bring
in suggestions— these suggestions were presented to the
Executive Committee of the Savings Division and were unan­
imously approved, with instructions to proceed with the Ser­
vice.
It is my privilege, as Chairman of the Committee on Bank
Facilities, to invite your attention to a consideration of the
A. B. A. Savings Division Newspaper Advertising Service.
This service consists of one advertisement a week for a
year—sixty ads in all, eight more than required. With the
advertisements are furnished four borders. Members of the
American Bankers Association are invited to use this Service
upon paying the small fee of ten dollars a year. This is at
the rate of less than twenty cents a week, about what you
would pay for a good cigar—less than three cents a day. If
your bank had produced the same series of advertisements
it would have cost not less than four hundred dollars—forty
times the Association’s fees. The sixty advertisements are
bound in book form and perforated, so that you can detach
an ad from the book very much the same as you detach a
check from your check book.
The most efficient way to use this service is to deposit with
your newspaper the four border cuts and your trade mark
or signature cut, notifying the editor to call for copy on a
certain day each week; or you can mail it to him.
If you wish to revise the copy, that can be done very eas­
ily. Where you are advertising regularly in several papers
you can run your ad in one paper and instruct the others to
copy, or you can secure additional sets of these advertise­
ments.
In all cases where more than one bank in the same city
orders the service the bank which is first to order will be
supplied at once. This is necessary to prevent a duplication
of the service in the same locality.
Anticipating that there will be a large number of eases
where more than one bank in the same city will order this
service, we have under consideration the publication of sev­
eral series of advertisements, in which event the first bank
to order would receive Series A, the second bank to order
Series B, and so on. The advertisements and borders would
be entirely different in each series, excepting as to size. I f
orders justify, work will start on the new series at once.'

135

SAVINGS BANK DIVISION.
This is our first attempt at furnishing you with a news­
paper advertising service. We hope to improve it as the
time goes on. What we need are your suggestions and con­
structive criticism.
Indications are that the service will be very popular, in
which event it will be continued year after year. If it means
anything to you to be able to purchase a standard newspaper
service for as little as 83 cents a month—get behind the
movement.

It may be that a few agencies selling a similar service will
criticize us. Let me say— it is not our aim to interfere with
their business, and we believe that with the stimulation
which this service will give to newspaper advertising
generally through the country, all will be materially
benefited.
In closing, let me urge upon you the importance of signing
up for this service to-day if you expect to be the first to use
it in your locality.

Committee / Officers ’ R eports —S avings B ank Division
Address of President Samuel H. Beach, President of
the Rome Savings Bank, Rome, N. Y.
President Beach: Members of the Savings Bank Division and Guests:
This is a very important meeting to the Savings Bank Division, and conse­
quently I am not going to take up any extra time in my remarks. If I un­
dertook to talk to you I would not know when to stop, therefore, I have com­
mitted what I have to say in writing.
This meeting of the Savings Bank Division is to be strictly devoted to
business because it is the only scheduled opportunity during the Convention
for those especially interested in savings banking to get together, and, much
as we would have been pleased to invite some of the distinguished visitors
who are present this week in Atlantic City to address us, so much of real
interest has transpired in the work of this Division during the past year that
our time will be fully and interestingly occupied by speakers who have ac­
tively participated in making that work produce concrete results.
The year just drawing to a close has witnessed the fruition of committee
work which has been for several years intensively pursued along definite
lines.
The Committee on Savings, of which Mr. Alvin P. Howard of New Orleans
is the efficient Chairman, after three years of exhaustive study of the ques­
tion of School Savings, reached the conclusion that any method of school
savings which does not bring the pupil into direct contact with banking
forms and customes does not afford a full measure of service and benefit to
the pupils and, pursuant to the recommendations of the Committee, the Sav­
ings Bank Division has published a book on the general subject of School
Savings Banking and has incorporated therein a School Savings Method,
with illustrations of all the forms necessary for its installation.
The Committee on Savings has also about completed a full set of forms
for the Pay Roll Savings System by the use of which a savings bank may
make direct and regular contact with its depositors in factories and large
mercantile establishments through the co-operation of the employees.
The appalling annual turnover of the help in our factories, which seems to
be nation-wide in extent, can be in a large measure forestalled by increasing
the number of employees who are regular savers, for nothing so tends to stop
a roving habit as the acquiring of a financial interest in the place where
one happens to live; and the ease with which pay-roll savings can be effected
when a proper system is used will make the method we are now perfecting
appeal strongly to both employer and employee. This service and the accom­
panying forms will shortly be for sale to members at cost at Division Head­
quarters.
The work of the Committee on Bank Facilities and Service, under the able
direction and efficient guidance of its Chairman, Mr. W. R. Morehouse of
Los Angeles, has culminated in the writing and printing of a complete
Newspaper Advertising Service which will be carried in stock at the Savings
Bank Division Headquarters and. will be sold to member banks at the ex­
tremely low price of $10 per set of 60 complete newspaper advertisements.
While this service is primarily intended for use by the smaller banks, the
price is so low and the advertisements are so up-to-date and attractively
worded that the large banks will in many instances find it of real service
and actual value to their publicity managers.
One of the most important matters ever taken up by this division was the
gathering and compiling during President Frazier’s administration a year
ago of the very first statistics which indicated with a reasonable degree of
accuracy what proportion of our population have savings accounts. It was
shown by those statistics that during the year ending June 30 1921 26,000,000 people actually had savings accounts in the aggregate sum of $16,618,595,000. The continuance of this work this year shows that in the year
ending June 30 1922 there was an increase of over 4% , bringing the aggre­
gate of savings and time deposits up to $17,300,000,000, of which amount
only $2,642,000 were time certificates and but $76,000,000 were postal sav­
ings.
For purposes of comparison we have compiled similar statistics for the
year 1912, the earliest year for which we can obtain comparable data, and
find that the aggregate was only about half as much as in 1922, or only
$8,433,000,000.
Even more remarkable are the increases of savings deposits in the various
classes of banks during the decade between June 14 1912 and June 30 1922,
as shown by the following table:
Increase.
Mutual Savings Banks__________________________________
58%
State Banks and Trust Companies________________________ 128%
National B an ks_________________________________________ 228%
The bare statement that savings deposits in State Banks and Trust Com­
panies have increased 128% and in National Banks 228%, while the depos­
its in Mutual Savings Banks have increased but 58%, does not indicate that
the Mutual Savings Banks are losing ground because there are Mutual Sav­
ings Banks in but 18 States and there were just as many in 1912 as there
are in 1922, so that the increase of 58% in deposits was in no way due to
new Mutual Savings Banks being started or new fields covered, while in the
case of State Banks, Trust Companies and National Banks the exact reverse
is trde, that is in 1912 there were, comparatively speaking, but very com­




mercial banks which operated savings departments, but in the last ten years
there has been a growing realization of the fact that the major portion of
the liquid wealth of the nation is made up of the small accumulations of the
many rather than of the large holdings cf the few, and to-day it is the ex­
ceptions rather than the rule to find a commercial bank which does not seek
savings deposits and which does not use every means in its power to make
the aggregate of its holdings of deposits of this class as large as possible.
There is no objection to this so long as the investment of these savings
deposits, which are literally trust funds in every sense of the word, is prop­
erly safeguarded, because the convenience afforded by the increased number
of banks where savings are received, necessarily increases the number of
savers; but in the growing competition for this class of deposits human
weakness would be strengthened and temptation often overcome if their in­
vestment were everywhere and in all cases safeguarded by law. The primal
requisite of safety appertains to the investment of all trust funds, whether
they be in a Mutual Savings Bank, a Stock Savings Bank or the interest de­
partment of a National Bank, State Bank or Trust Company, and our national
legislators will never have performed their full duty to the small saver until
they compel, by Act of Congress, the National Banks to so segregate the
strictly savings deposits that in no case nor under any circumstances can
they be used in the commercial business of the bank. This applies with
equal force to the laws governing State Banks and Trust Companies, and
experience in the not distant past has proven that the law should be so ex­
acting and so rigid that there can be no shifting back and forth of assets
between the savings and commercial department.
Our fourth annual report on School Savings Banking, soon to be issued,
shows that practically two million pupils are now participating in school
banking systems, which is an increase of 34% as compared with last year
and 58% as compared with 1921, while the total of the actual amount de­
posited last year was $9,618,000 as compared with $5,775,000 in 1921 and
$2,800,000 in 1920. This gratifying increase of nearly 340% in three years
is indicative of real effort on the part of Savings Banks throughout the na­
tion and should be sufficient evidence that this fertile field will soon be
fully covered, to deter the Post Office Department from seeking to enter it,
with all the expense and detail connected therewith with which no Govern­
ment bureau is properly equipped to cope.
Through the active effort of our various committees, ably seconded and
in many instances guided by our scholarly Deputy Manager, Mr. Woodworth,
whose ability as a writer and speaker renders his services in constant de­
mand, our Division has actively participated in making difficult the progress
of the so-called 3% loan companies, has added to the weight of the argu­
ments favoring the abolition of further issues of tax-exempt securities and
has co-operated with the Better Business Bureaus in protecting the inexperi­
enced wage earner from the blandishments and misrepresentations of the
high-pressure promoter of fraudulent or worthless securities.
In closing I would say that the multiplicity of important matters con­
stantly requiring attention of the officers and committees of the Savings
Bank Division only goes to show the necessity of our keeping our organiza­
tion fully up to the standard required for efficient service.
Never in this happy country, or elsewhere, has there been enough of every­
thing for all the people; never since time began have the sons and daughters
of men been all clothed, all fed, all housed, warmed and shoed. This strug­
gle for existence is a real struggle and that portion of our people who lie in
the lower strata of society, are at all times ready to grasp at anything, which
misguided politicians hold out to them.
We of the Savings Bank Division believe that our efforts along the line of
inculcating thrift among the people, are performing a real service to the
entire people of these United States.
I thank you !

Discussion on

Newspaper Advertising,
Charles H. Deppe.

Led by

Fellow Bankers, Members and Guests of the Savings Division: In leading
this discussion I am not going to take up the time excepting I wanted to
just give you one or two thoughts preparatory by asking for those in the
audience to bring forth their questions.
We have heard this afternoon something about newspaper advertising. To
me that means in simple words, “ Tell it to others.” You can’t tell it to
others unless you understand something about it yourselves. I have been
greatly impressed with the value of newspaper advertising even for savings,
by the recent occurrence in New York City— by the ceasing of publication on
account of a strike. We all know how the merchants and the different com­
mercial interests of New York using the public press, what a howl went up
when they did not get their morning newspapers.
The purpose of this brief discussion is to bring out the salient features, if
possible, in thirty minutes of the value of newspaper advertising for savings.
That is, we want each person in the audience here who is interested in the
subject to have a clear understanding. There are several advertising or pub­
licity men of various banks whom I know would be very glad to assist in
answering any questions that may be propounded. Make your questions
snappy and we will try to give you a snappy answer; at the end of thirty

136

BANKERS’ CONVENTION.

'minutes, why, we will cease the discussion. Of coUfSt}, We would like to go by mail system through their newspaper advertising, and' what results they
"on all afternoon, but that will be impossible.
have achieved?
Mr. Dinwiddie (Cedar Rapids, la.) : I am rising simply because the othMr. Allard Smith: We had a banking by mail operation working for a
- ers do not. I want to ask a question concerning one of those cuts which Mr. good many years. The Citizens Savings & Trust Co., which was one of the
Smith presented. He has one there representing money. I would like to ask banks which went into the Union Trust Company, had it previous to the
formation of the Union Trust Co.
him how he gets around the Government with that.
Mr. Smith : We have had no complaint from the Government. We have
I don’ t think that it pays financially. We are in doubt now as to whether
-put it in the papers, and so I assume the Government don’t object. If they or not we will continue it, but you do draw in a surprising number of small
accounts. As 1 remember, a year and a half ago we drew in that year about
'do object, we will stop it.
Mr. Dinwiddie: I got out a set of cards. The first one was “ The bank $450,000 in small savings accounts from places as far away as Honolulu—
•sheds interest like a duck’s back sheds water.” I had a duck sailing in a all over the world, you might say— but we advertise it very little, and the
•storm and the water running off of it in one. A companion card with a few expense of running it is very small. However, if you try to go at it in a way
%ur,dred-dollar bills with four single dollars sliding off that. I didn’ t use that you think you would like to do to put over in a big way, I don't believe
v;he word “ dollars.” It looked like money, but it was a postal card system.
the result would be worth it. I know there are many people who disagree
I had another one showing the dropping of the dollar bills to a great pile with me on that. I have talked with them. Maybe some of them' are in the
'of interest that we had paid. That would have made a good moving picture. audience and you can get the other side of it.
The Government commandeered my cuts and destroyed them and insisted
Chairman Deppe: tjould anyone like to express a brief opinion on that?
Mr. William Alden Smith (Michigan) : We are getting on rather danger­
that I turn over the cards I had, with a penalty attached if I didn’t. Ever
since that they have been letting everybody else do the same thing. It de­ ous ground, I think. I would like to switch the theme. Being a banker and
a newspaper man and the editor of a morning paper I think It Is time that I
pends upon who gets hold of you.
Iowa populated California. We have 160,000 people near Mr. Morehouse’ s should say something.
We have been tremendously interested in the discussions of the afternoon
beautiful city where he deals in additions of salt water marsh and such
and we have been delighted and instructed by the discussions this morning.
things as that.
I was particularly interested this afternoon in the discussion of the school
A man from California told me the only reason they had so many people
out there wTas because the ocean was so near to them they couldn’t go any savings. I didn’ t bring any charts with me, but I am going to surprise our
President, I think, by saying that in my opinion Grand Rapids Savings Bank
further.
In his own bank he has enough Iowa ideas to give him good spread of ad­ of Grand Rapids, Mich., is one of the oldest In school savings work. The
vertising, and I want to compliment him on what he said and what it would youngest bank President in our State, Mr. Daane, who sits here on my right,
was a schoolboy depositor in our bank a few years ago. He is now its Presi­
produce for us if we followed his ideas, which we do follow— in Iowa.
Chairman Deppe: Any other questions about newspaper advertising? I dent and it is the largest bank in western Michigan and has more depositors
would like to stick to the subject of newspaper advertising. If there are than any bank in the United States— in proportion to the city.
I think it may surprise you a little when I say that in an industrial city
any special questions about some other form of advertising, I am quite sure
the gentlemen who delivered those talks would be pleased to answer. What noted for its intelligence and discrimination our bank out of a population of
we are trying to do now is to confine this to newspaper advertising for sav­ 150,000 people has 60,000 accounts on our books.
Question : Does that beat California ?
ings banks.
Mr. William Alden Smith: Yes, that beats California, and we have
Mr. Chester C. Mellen (American Trust & Savings Bank, Springfield,
Ohio) : Assuming that there will be more than one ad in the newspaper, I twelve branches. We take our service directly to the community that has
would like to ask Mr. Morehouse or any of the other gentlemen whether they the least time to go to the bank and wants to go nearest their homes.
By the way, speaking of California, a year ago in New York I listened to a
have ever determined which days are the best for newspaper advertising and
most animated discussion about the question of the abolishment of branch
whether they prefer evening or morning papers?
Mr. Morehouse: We have given considerable consideration to which days banks. I don’t know whether the gentleman is here or not who delivered that
are the best. We always avoid Monday for the reason that Monday’s paper very lucid discussion, but I was told by the President of one of the largest
is usually not very large, anyway ; it hasn’t much news in it and probably banks in Los Angeles only a few months ago that the gentleman who was so
vociferous against branch banks went home from New York and started on a
does not get as wide a reading, so we stay away from Monday.
We run practically every day in one paper. We have four papers. We campaign of branch banking that has made California look like a pioneer in
will run on Tuesday in one, Wednesday in another, but we never run on Sat­ that industry.
I only rose to say that we have the youngest bank President in our part of
urday because we close at noon and they can’t get in on that day.
Chairman Deppe: He also asked whether morning or afternoon papers the country and I wanted to rise because he was a schoolboy and deposited
his money in the school savings account of our bank. Won’t you rise, Mr.
were the best.
Mr. Morehouse: We have that situation that I pointed out to you. We Daane ?
have an evening paper that is a great home paper. We run in that right
Mr. Gilbert L. Daane, President of the Grand Rapids Savings Bank arose.
along when we want to reach the women folks and people of that kind.
Mr. William Alden Smith: He is a very handsome young fellow and his
If you run in the morning paper, people reading your ad can get in to the progenitors came from Holland, but he is a real American citizen. He speaks
bank and do business without waiting all night to decide whether they want our language, thinks our thoughts and indulges in all the libations that are
to do business with your or with some other bank. If they read your ad at permissible to bankers.
night they have all night to think about it, and they may decide to invest in
I have said all that I am going to say except this— that I have been at­
something; they may invest that money before the next morning. So if you tending these meetings intermittently for 27 years. Twenty-seven years of
can give it to them in the morning paper, of course you have the advantage my life I spent in the public service. I voted for the Federal Reserve Act
that they can come down during banking hours and make the deposit.
as a member of the Senate from Michigan. I think it saved the life of the
Mr. Mellen: What is your opinion of the value of Sunday newspaper ad­ republic during the Great War. I believe it to be an important thing not
only for National Banks but for State Banks, but if I have any criticism to
vertising ?
Mr. Morehouse: We don’t use Sunday newspaper advertising at all, be­ make about my associates among the State bankers, it is that they lack a cer­
cause we feel there is so much in it that the most we could get would be tain form of aggressiveness which seems to be a part of the national banker.
just a fleeting glance, and furthermore, so many of the stores are advertising Why is it that the State Banks of the country trail along behind the National
Banks in all these great gatherings ?
in it that you could probably not find our little ad.
Mr. Dinwiddie: Do you find any occasion when it is well to run a
Chairman Deppe: Mr. Smith, I don’t think this is the place for that. We
little more than a double five column?
would like to confine our discussion here to newspaper advertising.
Mr. Morehouse: On all special events. For instance, when we are open­
Mr. William Alden Smith: I know you do. I don’t think you would like
ing a new branch in California we call that a special event. Then, if our se­ to have me say much that would irritate and therefore I will sit down.
curities department is putting out something special we do not hesitate to
Chairman Deppe: Are there any further questions on the newspaper ad­
enlarge it. As a rule I find that the smaller ad, two columns, repeated vertising matter?
twice a week, has greater value than an advertisement twice the size run
Mr. Hardy (Citizens Bank, Rome, Ga.) : Mr. Morehouse stated that posi­
once a week. If the paper has 100,000 circulation you get 200,000 from tion in the newspaper columns was desirable. Most papers charge about 25%
running two ads on different days. I would recommend the smaller ads.
extra for special position. Does he regard such expenditure as justified ?
Question: I would like to ask Mr. Morehouse if these advertisements
Mr. Morehouse: Yes, most papers do charge more for preferred position,
cover all phases of banking, or just savings?
but I think if you will warm up to your editor you will probably get pretty
Chairman Deppe: It is purely a Savings Division advertisement gotten good position and save that 25%. There is something in that. Try it.
out purely on savings.
Position is everything, because if you don’t get your ad in the range of
Question: I would like to ask the proper advertising appropriation for a vision of the reader, why, you might as well not have it. It is the number
of readers that tell the story.
bank having resources of $2,000,000?
Mr. Allard Smith: I don’t think there is any way to judge your adver­
H. A. Von Oven (Beloit State Bank, Beloit, Wis.) : I was interested
tising appropriation or measure it by resources or by capital or by deposits in Mr. Morehouse’s reference to news items. I would like to ask what his
or anything else. I think that you first have to decide what you want to do. ideas are in that. My town is small and we have only one newspaper— an
Then you have to figure out how much it is going to cost to do it. Then, ideal situation I am very much interested in that.
if your directors will approve, all right; if not, give it up.
Mr. Morehouse: I hat is pretty hard to answer. If you will give me your
Mr. F. D. Conner (Illinois Merchant Trust Co., Chicago, 111.) : I have card I will send you a collection of what we are using. It is pretty hard to
about the same opinion as Mr. Smith. Many times I am asked that question, say, but .any item of interest concerning your bank or the activities of its
“ How do you determine your appropriations?” The only safe way to deter­ officers or its directors or anything of that kind in which the bank partici­
mine your appropriations is to figure out just what you want to get at. A pates. The thing to do is to write a fine story without bringing the bank in
person who appropriates money for advertising purposes merely on a per­ too strongly. The newspaper needs i t ; the public is interested in it. Most
centage basis may miss his opportunity in getting over his advertisement or people want to read it. It is not taking undue advantage of them to furnish
his program. You want to know what you are going to do, what you are them with these items.
aiming at and then appropriate enough money to do it.
I have written lots of news items where the bank is not mentioned. If you
Chairman Deppe: Mr. Morehouse, do you want to express a short opinion have a good one some day don’t put the name of the bank in, and then the
next time you can get whatever you want.
on that?
Mr. Morehouse: The danger of having a percentage is this: For instance,
Mr. Dunwiddie: I would like to suggest that you put the newspaper man
the bank I am associated with will spend $100,000 a year. That is 1-18 of on your board of directors.
1% of our deposits. If a bank of $200,000 would use the same basis, they
Mr. Cunningham (Bluffton. Ohio) : For 20 years I was in the newspaper
would not have enough money to do anything with.
business and for 30 years in the banking business, and I learned some of
I think the plan suggested by Mr. Smith and Mr. Conner is practically the tricks of both of them.
right. Make a tentative estimate of what you want and then cut and fit as
In regard, now, to the news item. I have always found that the banker
you go through the year. You can afford to spend money on those things is entirely too modest. He can get a lot of cheap advertising if he would put
that are producing good results, and cut your program on those things that away his modesty, and I have never been bothered with that.
you find don’ t deliver. You can almost afford to spend any amount of money <( When the reporter comes around, he says, “ Is there any news?” I say
as long as you can get results that will pay you enough to do so.
“ Yes. Reverend Scoles is going to celebrate his golden wedding next Mon­
Mr. E. B. Coll (President Farmers’ Deposit Savings Bank, Pittsburgh, day afternoon.”
“ Oh, is that so ?”
Pa.) : I would like to know if any of these men have developed a banking




SAVINGS BANK DIVISION.
“ Yes. Mr. Cunningham, the President of the Commercial Bank & Savings
Co., has been invited to make a few remarks.”
Then he will come around again: “ Is there any news?”
“ Oh, yes. Did you hear that they are going to have an Old Settlers’ Day
out at the Main School House? That is next Tuesday afternoon. They are
going to have a big dinner. The Cashier of the Commercial Bank is to make
a few remarks and help along with the occasion.”
I have done a lot of that. It is good for the paper. It don’t hurt anybody
to say that the President of the bank is going to make a speech. I make
hundreds of them— or rather, I make the same speech hundreds of times.
Outside of the subject I want to tell you that I belong to the Pioneer So­
ciety of Allen County, and I am President of it. We have had 29 meetings.
I have made the same speech 29 times and told the same stories 29 times, and
all the newspapers of the country have bragged on those stories and those
speeches, and there isn’t man over 50 years in Allen County, nor a woman,
who does not know that I am President of the Pioneer Society and President
of the Commercial Bank. It is a bank in a town of 2,500 inhabitants with
a whole lot over a million in deposits.
But we didn’ t get it through modesty.
Chairman Deppe: We have ten minutes remaining before closing the dis­
cussion. Are there some more practical questions ?
Mr. Conners: I would like to ask Mr. Morehouse if this series of adver­
tisements is intended for any particular group of banks— I mean as to the
size of banks, or just what particular kind of banks it is intended for? Has
there been a demand for a service of this kind for the benefit of a certain
kind of banks? I mean as to size and their ability or inability to produce
advertising matter.
Chairman Deppe: The Savings Division has felt that they want to be of
some practical service to the members. There are a lot of the banks that
are not members of the Savings Division and are still availing themselves of
the service of this Division. These ads were compiled probably primarily
for the purpose of giving to the bank that has been interested in savings or as
a member of the Division has never done any advertising before. It is a be­
ginner in the art of advertising.
The advertisements as prepared are also applicable to perhaps larger in­
stitutions, so that we haven’t drawn the line on that. It is just a branch
service that we have adopted and to try to get the membership interested.
Does that answer your question?
Mr. Conners: Yes.
President Beach: Mr. Deppe, I would like to say this: In my judgment,
after reading those 60 ads, there is no bank so large, even though it has a
Publicity Manager, but what could well afford to invest ten dollars in that
service, because even if the publicity man only uses one of the sixty he might
get ideas from the other fifty-nine and the cost of the service is so small that
it would make little difference to any bank of whatever size, whether it pur­
chased it or not, or whether it used them or not after they had been pur­
chased.
Chairman Deppe: I may say that our institution took a set of them and
turned them over to the Publicity Department and our Publicity Manager
was very much pleased.
Mr. Spencer (First National Bank, Erie) : May I ask Mr. Morehouse the
comparison in view of newspaper advertising with that of direct advertising
by pamphlets or letters?
Mr. Morehouse: That is pretty hard for me to answer because we use no
direct advertising. The reason why we do not use it is not because we do
not believe in it, but because we have trouble in maintaining our mailing
lists. There are a few people who move so fast out there that we can’t keep
up with them. They are first out there and then back to Ohio and away we go.
I believe in direct by mail, but in some places you can’t use it and Los
Angeles is one of the places where you cannot use Direct-by-Mail successfully.
We would like to use it, but can’t.
Mr. Allard Smith: I think if you are going to make a mass appeal to
everybody on any matter or service in connection with a bank there is noth­
ing as good as the newspaper. The newspaper gets the greatest hearing be­
fore the masses in any way, shape or matter. If you want to get some spe­
cial message over to a selected service, for example on trusts or safekeeping,
or something of that character, then I think you can use Direct-by-Mail very
effectively.
Mr. Spangler (Peoples Savings Bank, Janesville, Wis.) : I wish to say this
in connection with advertising: I am a thirty-three degree savings bank; in
other words, I have been in the business for that length of time. I com­
menced as President and am handling the bank which is still alive. We
have found that in a small town like ours we have a community running from
thirty to forty thousand people, a manufacturing town ; the newspaper adver­
tising is very effective, but we follow that up in a small community like
that with a list mailed to a mailing list of people that we have gone after
by going over the tax duplicate of our county, getting the farmers and the
business men and others who have money, and then also the names of work­
men in the different factories and shops. We follow.that up. We call it
our “ gumshoe campaign.” A man came into our bank the other day and
said, “ I got this letter from you, signed by myself as President, written in
typewritten form and his name put in, taken from the list. It was a form
letter. He said: “ I got this letter from you and I like the way you talk
to me. I would like to know a little more about your Savings Bank.”
I made a customer right there and we have followed that up for many
years, not as fully probably as we ought to, but in the average small town—
and I take it that the members of the American Bankers Association, outside
of the splendid fellows of the big cities, are the great mass of the bankers
here to-day, and they are the ones who can use both plans suggested by our
friend from California.
I can thoroughly appreciate what he said about California and about the
population moving so fast. I moved out around there for seven or eight
weeks this spring. I found more people from my home town, almost, than I
had left there.
I believe for a small community, an agricultural community, manufactur­
ing community, the gumshoe proposition of sending a personal letter to
John Smith and inviting him to come in and see the new bank room, the new
safety deposit boxes, and bring the ladies along, is a good idea. We have
some ladies to wait on women, and they are invited to bring their baby
wagons right into the bank and we will take care of the babies. “ Come
in and enjoy the privilege of our bank— it is a home bank.”
It is service of that kind that wins and holds customers.
Mr. Armstrong (Peoples Trust & Savings Bank, Galesburg, 111.): I
would like to know whether to get us this newspaper advertising and other
advertising for banks, it is necessary to have a man to attend exclusively to
that business ? Is it profitable for a bank of three million resources in a
town of twenty-five thousand?




137

Mr. Morehouse: I would get a man who was half advertising man and
half banker. I would work him part of the time on the banking end of it
so that you can afford to pay him a good salary and work him two or three
hours a day on the advertising end. You can’t afford to pay a high grade
man in a small bank, but if you work him part of the time on your banking
end and part of the time on the other, you can afford to pay him a good
salary and you can get a good man for both places.
I have recommended to a lot of young men to not only learn the banking
side, but also the advertising side, and that will open a way to get into a
good bank.
Chairman Deppe: In bringing this discussion to a close, I think it has
been profitable. It has to me, because I have gotten some points that I
didn’t think about before.
I would like to leave just one thought that has impressed itself upon me,
and that is that whatever you do in the way of public newspaper advertising,
be careful that the promises you make in that advertisement are fulfilled
when the customer or the new account-opener comes in. In other words,
don’ t brag about your service in the newspaper and then fail of performance
when the individual comes in to your bank to take the service.
Mr. Bize (Citizens Bank & Trust Co., Tampa, Fla.) : For some time we
have wanted to deliver to the public that efficiency which we advertise and
for a long time I have realized that the average poor man who was kept in
the front of the institution to direct the people to the different departments
did not answer the purpose, so we employed a publicity man. We called
him a contact man. He is a graduate of Dartmouth College. During the
banking hours in the morning to two o’clock, he remains in the front of the
bank. He is a man who is versed in public affairs, a man of learning and
education, who when a customer comes into the institution he is in a posi­
tion to talk with him intelligently and to direct him to any part of the
bank that he desires.
Not only is that true, he is a man of sufficient intelligence to keep his
eyes on the different departments of the bank and to see if those departments
are delivering to the public the service which we advertise.
For instance, if our tellers do not give that personal attention which we
advertise, he notes it and every Monday morning there is laid on my desk a
criticism of any department of the bank. When we employed that man, I
called our men together, I told them what he was employed fo r ; I said “ I
want you to understand distinctly that this man is not considering personali­
ties ; those criticisms of you to me are in no sense personal.”
I get those reports. These men know it. Their efficiency is increased.
After 2.30 he has his own private office in the institution with his desk
and his papers and his stenographer, and in the afternoon after the bank
closes, he writes and provides our publicity. We have the various lines of
publicity that all of the banks of that character use, direct, newspaper, bill­
boards, etc. He provides all of that stuff.
We are a small institution. When we began this publicity effort our de­
posits were two and a quarter million. That was only a few years ago.
This past year they exceeded ten million. We feel that that progress has
been largely due to intelligent publicity arid we believe that the contact is
a very much greater improvement than an ex-police officer who is put on the
floor to direct your customers where they should go.
My observation has been that the average banker is very much discouraged
because he cannot analyze his publicity, he can’t determine whether results
are being accomplished.
Some few years ago when Dollar Day was first instituted, the merchants
of our city all got together and everybody advertised Dollar Day. I said
“ This is an opportunity to trace direct results.” So we put in an ad. invit­
ing on Dollar Day. I don’t like dollar deposits, but it was an opportunity
to trace direct results, because the entire community went together on
Dollar Day.
We advertised deposits of dollars on Dollar Day and we got several hun­
dred deposits on that day, deposits exceeding at least ten times what we
had gotten on any other day during the year. I was in a position at any
time that one of our directors asked “ Are your expenditures paying you for
publicity?” from my records of my ad. on Dollar Day, with the results
accomplished and I had an opportunity to show the direct results.
Now, as to news items, we try to keep them close to the newspaper men,
and we have encouraged the newspaper men coming to our bond department
and interview our bond man on the financial situation throughout the coun­
try. He does not know much about it, but he reads all the pamphlets and
he reads all the booklets and the up-to-date literature, and he has got it
down pretty well. He sits down, and they have quite an interview, and in
a few days it comes out that Mr. U. G. Knight of the bond department of the
Citizens Bank & Trust Co. has so and so to sav about the financial situation.
As to these ads (and I am frank to say I am going to subscribe for these
ads) my observation has been that the ad that has the greatest pull is the
ad that can get into somewhere, somehow, the personal element of the bank,
the personality of the bank.
I have found that not infrequently ads of this character can be revamped
in such a way that you can inject into them the personal element, or the
reading of these ads suggests to the writer an ad similar which has the per­
sonal element.
I believe that these ads should be worth much more than $10 to every
banker in America.
Chairman Deppe: Mr. Beach will probably desire to make a few further
remarks about the plan.
President Beach resumed the Chair.
President Beach: I merely wanted to correct one statement that Mr.
Morehouse made in which he said this service would be an exclusive service.
If he were asking $120 for these sixty ads, which is absolutely less money
than they could be bought for from any advertising service, there might be
some reason for making it an exclusive service, but as long as it only costs
$10, if there are four banks in one city and they all buy it, it is up to each
individual banker that he sees that he gets his ad in before the pthers do,
because the price is so small that we certainly could not afford to tie up the
sale of this system to one bank in a city, because there are many cities
where there are forty or fifty banks.
I merely wanted to make that correction which I thought Mr. Morehouse
understood was decided upon.
Chairman Deppe: There seems to be a misunderstanding about that.
The Committee recommendation was that that was to be exclusive, and if the
two ads were to go in the same town, they would try to prepare another
series if the orders justified it. Otherwise there would be that conflict. I
didn’t want to interfere in that, but that was the understanding of the Com­
mittee, I believe.
President Beach: Then what Mr. Morehouse said in the first place stands
—it will be an exclusive service.

138

BANKERS’ CONVENTION.

Report of^Committee on Savings, by Alvin P. Howard,
Chairman, Vice-President Hibernia Bank &
Trust Co., New Orleans, La.
The work of the Savings Committee was sub-divided by the creation of
Sub-Committees on School, Industrial and Home Savings. The particular
work of the School and Industrial Sub-Committees was to have been the
spreading of the principles and methods involved in the so-called official
A. B. A. Systems which were authorized by resolutions of the Savings Bank
Division. A special committee of Mr. Beach, Mr. Woodworth and myself
was appointed for the purpose of rounding out the School and Industrial
methods, and this work has consumed the entire year, so that very little has
been done by the Sub-Committees.
Agreement on the principles and methods of School Savings was com­
pleted and published in book form, so that the largest part of the work in­
volved has been accomplished. The book represents the best thought that
the Committee has been able to give the subject over a period of two years,
and the methods and forms selected have been carefully studied and pre­
pared. Particular stress has been laid upon the fact that School Savings
must be taught as a part of the school curriculum.
,
The work of the Special Committee on Industrial Savings has resulted in
a complete plan for placing this important field before the members of the
Association. Again the method and forms involved have been carefully
studied and prepared. It is the belief of the Committee that the Industrial
Savings method furnished the best ideas that can be applied to this part of
the savings business.
The School and Industrial systems are therefore finished and it remains
for the Division to see that they are given wide publicity and an opportunity
to become known and developed.
The work on Home Savings has resulted in nothing tangible. The SubCommittee has agreed on many of the points involved, but a further ques­
tionnaire sent to the members of the Savings Committee has not been favored
by any replies. This questionnaire was sent out on June 20 1923 and repre­
sented the progress up to that time. The Sub-Committee feels that house­
hold budgets are practical and successful, that free lectures on home eco­
nomic subjects are advisable, that a trained expert on home economic prob­
lems retained by a banking institution is of considerable value, that ladies’
departments yield a direct practical advantage, that home economics should
have its beginning in the teaching of thrift in the schools, and that news­
paper advertising written to appeal to the household, stimulates home saving.
Your Chairman feels that there are only two ways of stimulating home sav­
ing at this time and under existing conditions of American standards of liv­
ing ; namely to teach the principles of thrift in the schools and let them be
carried into the home, and to furnish households with small metal banks that
remain within the home until they are filled and the proceeds deposited in a
savings bank. Simplicity and avoidance of elaborate methods seem most
advisable because American people do not have the time nor the inclination
to keep up with the general idea of home economics. It would appear that
the ideas are retained and interest shown for a reasonable length of time,
but on the whole they soon tire of the arduous task and begin looking around
for some easier way to save money.
Respectfully submitted,
(Signed)

A. P. HOWARD,

Chairman, Savings Committee, American Bankers Association.

Report of Committee on Federal Legislation, by
Charles H. Deppe, Chairman, Vice-President
The Union Trust Co., Cincinnati.
Executive Committee, Savings Bank Division, American Bankers Associa­
tion, New York, N. Y .: Gentlemen: We beg leave to submit the following
report of the Federal Legislative Committee of your Division.
The matters of Federal legislation to which we have given special attention
since our last convention are comparatively few in number.
The proposed constitutional amendment to abolish tax exemption of secu­
rities is one of the constructive measures that was considered. The amend­
ment was adopted by a decisive vote of the House of Representatives, but
was involved in the legislative jam, which had not been broken when the
Senate adjourned.
The Association was not represented in person in the campaign at Wash­
ington, although it distributed a large quantity of printed matter and se­
cured support from constituents. A formal resolution was adopted by
bankers’ associations in at least four States, and the Savings Division obtained
a speaker to present the subject at the Louisiana Bankers Association Con­
vention.
The support for this amendment seems to increase in proportion as it be­
comes evident that there is little prospect for lighter income taxes at this
time, and it behooves bankers generally to keep this bill in mind and to
spread the propaganda wherever possible, as the measure is a step in the
right direction.
An amendment to the Postal Savings Bill again took on active form and
an attempt was made at the eleventh hour to have it passed as a part of the
Omnibus Postal Bill. The firm opposition of bankers throughout the coun­
try assisted in defeating such efforts. While this measure was successfully
combated at the last session of Congress, bankers should be alert to voice
their sentiments should any additional attempt be made to pass a new bill.
It is needless to state that the banking fraternity opposes any enlargement
of the Postal Savings business.
Federal Budgeting has always been of interest to bankers generally and
the tendency to enlarge this scope of the Government’s activities should
emphasize the necessity of bankers keeping in closer touch with legislative
matters. While many of the features may prove desirable and be perfectly
in line to receive Federal aid, nevertheless there should be a limit placed
somewhere. A broader understanding must be had among citizens generally
to prevent abuses in this regard in the future.
Special attention should be called to all schemes for granting Federal aid,
as is being requested in a dozen or more bills before Congress. An encour­
aging sign is that the appreciation of the dangers in further expansion and
even in the continuation of the present Federal aid system, are being dis­
cussed more freely by editorial writers and others. One objectionable phase
is the propaganda on behalf of the Public School Systems of the States.
Such a predisposition by teachers for a further development of centralization
should be discouraged. The suggestion is simply made that bankers gen­
erally must keep posted upon these requirements and assist in the education




of the citizenship for more sane legislation along these and other lines, and
thereby to maintain true democracy.
We are pleased to advise that our previous recommendation to have the
Chairman of the Federal Legislation Committee of the four Divisions, a
member of the Main Federal Legislative Committee of the Association, has
been adopted, and hereafter the work of your Committee will be greatly
facilitated by such close contact with the Main Committee of the Association.
We tender our best thanks for the active co-operation of those who have
assisted in our work during the past year.
Respectfully submitted,
(Signed)

CHAS. H. DEPPE, Chairman.
B. F. SAUL.
W. A. SADD.
JOS. H. SOLIDAY.
THOS. F. WALLACE.
GEO. N. ALDRIDGE.
JOS. R. NOEL.

Federal Legislative Committee, Savings Bank Division.

Report of Committee on State Legislation, by Thomas
F. Wallace, Chairman, Treasurer Farmers &
Mechanics Savings Bank, Minneapolis.
The following data is based on 'information in the files of our New York
office at this writing, which has been received in most cases through the
courtesy of the State Vice-Presidents of this Division :
Of the States which have had Commissions to consider general revision of
State Bank Acts, only Maine shows the revision adopted and no action is
reported from Massachusetts, Pennsylvania, Minnesota or Washington. Such
a Commission has been authorized in Idaho by resolution adopted this year.
Mutual Savings Banks have been authorized to rent savings deposits boxes
in Minnesota and New York. A bill to establish a deposit guaranty law in
Minnesota was defeated by the State Bankers Association. No other legis­
lation on this subject has been reported.
The list of legal investments has been enlarged in New York to include
acceptances of certain investment companies, bonds of the State of Virginia,
and increasing from 65 to 70% the amount of deposits and guaranty fund
which may be invested in real estate bonds and mortgages.
One branch bank in the same county as the head office of any mutual sav­
ings bank has been authorized in New York. Any banking institution au­
thorized to receive school savings deposits in New York may now send a col­
lector to receive and receipt for same.
A segregation of deposits law was unsuccessfully proposed in Idaho.
Departmental Bank Acts on the California model were proposed in both
Washington and Oregon. In Washington the proposal was opposed by State
and National Banks and failed of enactment. In Oregon the bill was passed
by a handsome majority in both houses of the Legislature, but was vetoed
by the Governor.
Regarding legislation for Building and Loan Associations, the Ohio situa­
tion appears to be uncertain and our State Vice-President for California
advises that “ the worst menace to the savings banking businses in our State
at the present time is the building and loan association. In a number of
centres the building and loan associations, which operate under a very gen­
eral loose law, have attempted to do and are in fact doing the business that
the law contemplates should be done only by a savings bank. This situation
is alarming, because the public 'invest their funds in those associations, not
realizing that they are practically without supervision.”
Dormant accounts would, under a proposed bill in Wisconsin, be payable
to the State if unclaimed for seven years and after advertisement by the bank
remain unclaimed at the end of the calendar year.
No legislation affecting savings deposits has been enacted this year in the
following States where Legislatures have been in session, according to re­
ports from our State Vice-Presidents: Arkansas, Connecticut, Delaware,
Idaho, Illinois, Mississippi, Missouri, Nevada, North Dakota, Ohio, Rhode
Island, South Dakota, Utah, West Virginia and Wisconsin.
In conclusion it may be well to refer to at least two subjects which may
be before us for action in the near future. These comprise a larger service
to savings depositors as a elas^by making small loans on the basis of charac­
ter, and also the question as to whether the Government should provide sav­
ings bank facilities to communities where banks may be weakened or super­
seded by Federal credit institutions.
The question as to small or character loans to wage earners is being raised
by bankers because of the success and profit attending the Morris Plan and
is emphasized by the propaganda to extend the organization of credit unions
on the ground that present savings facilities are inadequate.
The question as to the effect of the new rural credit legislation upon the
savings bank organizations of the country cannot yet be determined, and in
addition to the now existing provisions of law it is important to consider the
amendments which will be urged by the same interests which obtained the
recent enactment.
State bankers must realize that the Federal Government has been launched
in the banking business for the avowed purpose of providing a larger loaning
fund at a low rate of interest.

Report of Committee on Resolutions.
President Beach: The next order of business is the report of the Com­
mittee on Resolutions— Mr. Brand.
Mr. Brand : The Committee on Resolutions makes report as follows:
Whereas, It is the unanimous opinion of this Twenty-second Annual Meet­
ing of the Savings Bank Division of the American Bankers Association that
the extent and importance of Savings Banking should be more generally
appreciated by the public and even by the bankers ; be it
Resolved, That institutions receiving savings deposits should be under the
jurisdiction and supervision of the banking departments, with proper uni­
form rules and regulations, and such deposits should be invested in securi­
ties of unquestionable value and safety;
Resolved, That this Division will continue its active co-operation with
other established agencies, such as Blue Sky Commissions, Better Business

SAVINGS BANK DIVISION.
Bureaus and Commissions, and the Investment Bankers Association, in an
effort to stamp out the sale of fraudulent securities;
Resolved, That we note with gratification both the increase in the number
of pupils who are participating in School Savings Banking systems and the
growing disposition on the part of educators and teachers in regard to School
Savings Banking as a definite and an important item in school curricula;
Resolved, That we commend the action of the Executive Committee of
this Division in placing before our membership a definite plan of Industrial
Savings Banking.
Respectfully submitted,
JOHN W. B. BRAND, Chairman.
CHARLES H. DEPPE.
SAMUEL M. HAWLEY.
ALVIN P. HOWARD.
THOMAS F. WALLACE.
Upon motion duly made and seconded, it was voted that the report of the
Committee on Resolutions be approved and adopted as read.




139

Report of Committee on Nominations— Election of
Officers.
President Beach: We will next hear the report of the Committee on
Nominations.Mr. Sadd: The Committee reports for—
President— Charles II. Deppe, Vice-President Union Trust Co., Cincinnati
Vice-President— Alvin P. Howard, Vice-President Hibernia Bank & Tr*Co., New Orleans.
Executive Committee (3-year term)— John H. Dexter, President Society
for Savings, Cleveland, Ohio; Charles J. Obermayer, President Greater New
York Savings Bank, New York.
Executive Committee (1-year term)— Kent M. Andrew, Cashier La Porte.
Savings Bank, La Porte, Ind. ; Charles A. Taylor, President Wilmington
Savings & Trust Co., Wilmington, N. C.
The report of the Committee on Nominations was adopted, and the Secre­
tary was instructed to cast one ballot for the election of the persons nom­
inated.

STATE BANK DIVISION
A merican Bankers' A ssociation
Seventh Annual Meeting, Held at Atlantic City, N. J., September 26, 1922

INDEX TO STATE BANK PROCEEDINGS
The Banker and C o - O p e r a t i v e M a r k e t i n g , C a r l
Williams____________________________________________________ Page
Standard State Banking, E. H. W olc6tt____________________
Report of R. S. Hecht_______________________________________
Address of President H. A. McCauley______________________
Report of Federal Legislative Committee__________________
Report of Farm Finance Committee________________________

140
143
147
147
148
148

Report of State Legislative Committee___________________..P age
Report of Committee on Exchange_________________________
Report of State Vice-Presidents___________________________ _
Vox Populi— Reserves of Reserve Banks— J. M. Dinwiddie—
Carl Williams, H. M. DeMott______________________________
Report of Committee on Resolutions_______________________
Report of Nominating Committee___________________________

149
149
149
150
160
150

The Banker and Co-operative Marketing
By C a r l W i l l i a m s , Oklahoma City, Oklahoma; Editor “ Oklahoma Farmer-Stockman” ; President American Cotton
Growers’ Exchange.
The opening statement in a booklet entitled “ Co-operative
Farm Marketing,” recently issued by the State Bank Divi­
sion of the American Bankers Association itself, furnishes
my test for the hour.
“ Bankers and farmers are partners in prosperity and ad­
versity,” it says, “ at all times and under all circumstances.”
The fundamental reason for this broad and all-inclusive
statement is not far to seek. It is that the banker is the
foundation of production credit in agriculture.
America’s crop values average more than $8,000,000,000 a
year and the banks finance the production of most of it.
They furnish the farmer with money with which to buy his
seed and feed and even the food for his family during the
four to nine months’ period between the planting of the crop
and its harvest and sale.
In the cotton South and in the tobacco districts only 12%
of the farmers are sufficiently well-to-do that they can
finance their own crop raising. For cotton production alone
bankers annually advance more than $650,000,000 of their
depositors’ and stockholders’ money.
Farmers must repay this money with interest out of the
proceeds of their crop. Their success at raising crops and
the price they will get are fundamental factors in their abil­
ity to repay.
Of course the banker and the farmer are partners. One
furnishes capital and the other labor. The combination
feeds the world.
The banker has been especially concerned within the last
two or three years over the evil effects of deflation on the
American farmer. This evil exists— not because deflation
occurred in crop prices—but because it occurred in practi­
cally nothing else, so that the ratio of crop values to com­
modity values has been consistently out of proportion. The
farmer receives a dollar for a specified amount of his crop,
but when he takes that dollar to the store he finds that it
has shrunken in value to about 70 cents and that his buying
power cannot be compared with that prevailing even ten
years ago.
Farmers and students of economics unite in the belief that
this is what is the matter with agriculture. It is one
agricultural problem, true; but it is not the fundamental
one.
The fundamental problem is the fact that the individual
system under which agriculture has been organized and un­
der which crops have been marketed has always been such
that on an average the only profits earned by farmers above
a bare living have accrued from increased values of land.




The commodity ratio now hurts especially because land
values have apparently reached their peak and further in­
creases cannot be depended upon to furnish ostensible prof­
its for agriculture.
This thing is important to all business as well as to bank­
ing. Whenever the prosperity and buying power of 40% of
the American people is out of balance no class of business,
however remote, will fail to feel the effects.
Statistical records over the last 50 years conclusively
demonstrate the law of relationship between agriculture and
city business. The law is that the percentage and volume of
city business failures vary annually in accordance with the
acre value of farm crops in the preceding year. If we recog­
nize this law we inevitably conclude that when the farmer
is broke the business man is bent, and we know that, by vir­
tue of direct relationship, the banker will be first and most
keenly affected.
Farmers know their own situation better than anybody
else and none of us are so optimistic as to believe that they
are happy about it. They are angry about it and, being
angry, they have begun to think and, thinking, they have
endeavored to evolve remedies.
Some of them have turned to politics, deceived by the
mouthings of selfish politicians whose lust for personal
power blinds them so that they either cannot or will not see
the inevitable reactions of economic law.
But while political action, as an easy method which would
place the burden on the Government and relieve the indi­
vidual, has caught in its toils large masses of farmer folks,
by far a greater percentage of farmers are coming to see that
there is no political remedy for an economic evil, that the
farmers themselves are responsible for their own destiny
and that the reason why they have failed to become prosper­
ous is because they have failed to recognize the economic
principles of city business in their own marketing operations.
Agriculture is the only American industry in which both
production and marketing have been individual processes.
In every other line of business it has been long since learned
that combinations of capital and labor are more economical
and more efficient than individual efforts in the same direc­
tions. Thus the group principle has come into action in
every type of city business.
The farmer has assumed that because production is an in­
dividual problem marketing must also be, and he has only re­
cently learned that the group principle may be applied to
the marketing of farm crops just as readily as it is to the
marketing of shoes or steel rails.

STATE BANK DIVISION.
For generations he was told that price is dependent on
supply and demand, and that there is no remedy for low
prices except decreased production. Farmers could not de­
crease production without disorganizing their entire farming
system and so they turned to politics for relief.
Nowadays, however, we have learned that there are two
movable factors in supply and demand. One is time and the
other is place. The actual price of the product depends in a
large degree on its time of sale and also on whether the sale
is at the bottom of production or at the point of consump­
tion.
With this fundamental understanding the farmer began to
see how to solve his own problem. Out of that new knowl­
edge has come a movement so great that it has already be­
come the most important development in the agricultural
history of this country, and so far-reaching in its effects
that it touches directly or indirectly the pocketbooks of the
entire nation. It is a movement which to-day engages the
attention of one-sixth of the farmers of the United States
and through which more than one-tenth of all the crops— as
measured by dollar value— is marketed.
More than 90% of the dried fruit, 75% of the citrus fruits,
70% of the tobacco, 65% of the nuts, 25% of the milk and
milk products and 20% of the cotton grown in the United
States are to-day being marketed by farmers’ co-operative
associations of one standard type, by a standard method, and
for a standard purpose. There are 1,200,000 farmers who
belong to these commodity organizations. They have learned
that their success lies through the substitution of the prin­
ciple of merchandising for that of dumping.
The world’s consumption of American crops is approxi­
mately in even ratio month by month. The monthly usage of
cotton, for example, varies from 7.9% in November to 8.9%
in March, consumption of every month in the year being be­
tween these two figures. Yet 70% of the cotton crop is
dumped by farmers during the months of September, Octo­
ber, November and December. About 65% of the wheat is
marketed in August, September, October and November.
This dumping process floods the market with an excess sup­
ply, and lends its aid to speculative manipulation. It results
in a situation wherein every farmer competes with every
other farmer to sell and where, under the pressure of debts
at the bank and the need for food for the family and feed for
the teams, the necessities of the weakest make the price for
all.
No individual farmer can remedy this situation. Collec­
tively, farmers have learned that their power to avoid the
evils of dumping is limitless and that their ability to intelli­
gently merchandise their crops is just as great as the ability
of any city group to merchandise its product. Co-operating
farmers have substituted merchandising for dumping; which
means simply that they control the movement of farm crops
so that the crops go into the markets of the world at such
times and in such quantities that they are fully absorbed at
prices that are fair under given commercial conditions.
This is the one fundamental aim of the modern co-opera­
tive marketing association. The aim is not arbitrary fixa­
tion of price on an artificial basis. The aim is purely to
apply to the great industry of agriculture those principles of
business which have been approved in every other type of
manufacturing, production and distribution, and which are
in universal use in the best and largest corporations in prac­
tically every country.
We have found that in order to intelligently merchandise
a product, we must organize on the basis of the commodity
itself. No man can intelligently sell his product unless he
knows how much there is of that product, where the buyers
are and what the approximate demand is. Neither can any
co-operative marketing association compete with private
individuals in the same line unless it has control of suffi­
cient volume of the total product to insure its ability to sell
in any quantity, to standardize its product, to reach any
market of the wmrld, and to hire the same type of business
intelligence which prevails in ordinary industrial corpoi’ations without the creation of an excess overhead against the
product itself.




141

Expert nxanagenxent is vital to their success. These mod­
em commodity organizations have found that they can go
into the open markets and hire experts to work for them
instead of against them, paying these experts just as high
salaries as they get in private business, and consider that
the money so paid is the best investment ever made by farm­
ers.
These two principles: (1) That of organizing by com­
modity, and (2) The employment of experts, are two of the
five fundamentals on which the modern commodity market­
ing movement stands.
The other three are: (3) Growers only as members, so
that there will be no divided interests. (4) An iron-clad
contract under which members must deliver all their prod­
uct for a term of years, so that the association may have an
assux-ance of a specific volume of business. (5) An internal
pooling arrangement whereby every member gets the same
price for the same quality and grade of product, regardless
of the time of delivery or of sale. Seven supreme courts
have passed favoi’ably on the legality of these principles,
and they are specifically authorized by the statutes of 29
States.
These are not haphazard prixxciples. Co-operative market­
ing has assumed the proportions of a science. Experience in
many countries for hundreds of year's has dexxxonstrated
that certaixx principles lead to success and their absence to
failure. The successful prixxciples as embodied in the mod­
ern type of co-operative are so positive in their application
to max*keting that it is xxow definitely possible to look at a
plan on paper and to determine in advance whether the organizatioix attempting it has a chance to succeed or is sure
to fail.
These co-operatives have no capital in the forxxi of money,
other than accumulated reserves, axxd in this point lies their
oxxly fundamexxtal difference fronx the ordinary city corpora­
tion formed for a similar pui’pose. In the city corporatxon
capital is invested in the form of money by stockholders
with the expectation of dividends as dividends are earned.
In the commodity co-operative capital is invested in the form
of the commodity itself and with exactly the same expecta­
tion.
Here \tfe get a sheer principle of business economics, which
is, that corporations formed to both buy and sell or which
need physical properties must have capital in the form of
money with which to buy or build. A corporation formed
for selling only needs no capital in the form of money. Alt
it needs is something to sell.
In other words, for the capital of the corporation we sub­
stitute the commodity of the co-operative and then control
this commodity for a specific term of years under a plan
which has the same effect, although different in method, as
a trustees’ voting agreement among corporation stockholders.
Those co-operatives which need physical properties for the
handling, processing and stox-age, usually own their prop­
erties through subsidiary corporations with capital stock.
Practically all the co-operatives have created reserve funds
for emergency purposes and for additional safety of opera­
tion and have obtained these funds by actual deductions from
the sales price of products.
When a member’s product is delivered, an advance on the
final sales price is made, usually amounting in non-perish­
ables to from 50 to 60% of the mai'ket price at time of de­
livery. The money used in making this advance is obtained
by loans from banks, using the commodity itself as collat­
eral. As sales are made the proceeds are first applied to
loan liquidation, and additional proceeds are paid from time
to time to the members over a period of six to ten months.
In some cases an entire year passes before final settlement
is made.
The tenn orderly marketing, which is frequently applied
to the operations of these associations, means the sale of the
product as that product is actually used in manufacture
and by the ultimate consumer.
In practice, orderly mai'keting is frequently subject to
price fluctuations, to the desires of the buying public and to
the relative demand at various markets. The co-operatives

142

BANKERS’ CONVENTION.

sell when selling is good and most heavily on periods of ad­
vancing markets, while on a declining market and at times
when demands are slack and sales cannot be made except
at bargain prices, the co-operatives may be found entirely
out of the market, awaiting such better conditions as their
own statistical and information bureaus indicate as probable.
In other words, they apply the same merchandising intelli­
gence to the marketing of farm crops which prevails in the
best and soundest of city corporations, and they avail them­
selves of each item of world information both as to supply
and demand which can be gathered from every possible
source.
The fact that the co-operatives borrow the money which
they use in making the original advance to growers brings
them into the closest possible contact with the banking fra­
ternity of both city and country. The cash requirements of
the cotton associations alone during the present marketing
year will be more than $150,000,000 and the needs of all the
commodity co-operatives will probably be in excess of $700,000,000. This money is borrowed chiefly from banks, and
most of it from institutions within their own home States.
The co-operatives recognize that the country bank is a
permanently necessary credit institution for the whole com­
munity and their attitude therefore is that they prefer to
deal with the country bank up to the limit of the willingness
or ability of the bank to so deal. When that resource is ex­
hausted they go to the city banks in their home States, and
for additional needs they go into the money markets of the
world in the customary manner with paper which is gener­
ally recognized to be as good or better than the average of
commercial paper anywhere.
The tremendous sums involved in these transactions re­
quire no unusual financing nor do they make unusual de­
mands on banking institutions of this country.. The prod­
ucts of agriculture have always been financed by banks from
the beginning of production labor to the final distribution
to the ultimate consumer. Cotton is financed from seed to
shirt.
In agricultural products subject to export, a considerable
percentage of the financing was done in pre-war years by the
people of the importing countries. Disturbed economic con­
ditions, inability of the consumer to buy and fluctuating
rates of exchange have changed this situation in recent years
to the degree that the wholesale merchants and manufactur­
ers of Europe are carrying smaller stored stocks and are
buying from American exporters only as they themselves
receive orders for the raw and finished product. In cotton,
for instance, 65% of the total exports were in pre-war years
shipped abroad in the first five months of the delivery sea­
son. Last year less than 40% of the season’s exports were
shipped abroad in the same period.
This situation, which appears to be more or less perma­
nent, has changed the manner of financing American agri­
cultural exports and has thrown on American institutions
and American capital the burden of carrying the crop from
harvest period until the time of actual manufacture or con­
sumption. This burden has fallen primarily on bankers and
has increased the total requirements of business institutions
engaged in the distribution of export farm products.
The fact that the co-operatives are taking over a certain
percentage of the processes of distribution heretofore han­
dled by private concerns, however, affects no change what­
ever in the amount of banking credit required for marketing.
It furnishes merely a new bank customer to take the place
of an old one. The bankers of America are intensely inter­
ested in this new customer, because their money and a large
share of their total business is involved in the change of
marketing methods.
It was exceedingly natural that in the early development
of commodity marketing, bankers generally should look on
the new system with suspicion. City bankers were the first
to approve it because they saw an opportunity thereby to
raise agriculture to the prosperous level of industry. Coun­
try bankers were the last to approve it because in their per­
sonal relationships with farmers over many years they have
heard constant talk of many types of agricultural reform.




most of which have borne no result and some of which have
brought actual injury to both farmers and bankers.
The actual operations of the co-operative commodity asso­
ciations, however, have conclusively demonstrated to the
bankers of the nation that the system of gradual payments
to the grower stabilizes bank deposits, removes the peak
load of both deposits and loans, and puts the bank itself
on a fundamentally permanent basis for doing business.
It helps put the farmer on a cash basis and thus allevi­
ates the evils which every banker knows surround the prob­
lem of indiscriminate production credit. Too many farmers
are insecure borrowers and weak depositors.
In increases the business intelligence of farmer depositors,
thus making them better bank customers.
It increases the amount of deposits in banks as a result of
increased prices received for farm products, thus furnishing
the banker with a larger volume of money on which to base
his operations.
In the vast majority of cases it furnishes the farmer with
a better price for a given amount of produce than he would
otherwise receive and thus creates a better opportunity for
payment of agricultural debts.
The co-operatives fully protect the banker’s interest in
the matter of mortgages and crop liens given for production
credit and other purposes and the banker without effort on
his part thus has a greater assurance than ever before that
the proceeds of the crop will be applied to the payment of the
debt.
Finally, the co-operatives actually increase the volume of
commodity trade in proportion to their degree of success.
This means more business for all types of city men and in­
creased land values, increased assessed valuations, decreased
mortgage indebtedness, and a higher level of prosperity for
the whole consuming public.
There are more than 200,000 members of the cotton asso­
ciations in the South. Every member who marketed his
crop last year through a cotton association received at least
$20 per bale, or an average of $200 per farm family, more
than the non-member got for the same grade and quality of
cotton. This means a minimum of $40,000,000 of excess
original buying power in the cotton South, to say nothing of
the increased price afforded all farmers as a result of the
influence of the cotton associations on the general market.
Here we have the specific cause for a known effect, which
is that except for California and Kentucky, both hotbeds of
co-operative marketing, the cotton South has been this year
the most prosperous agricultural section in the United
States.
Here again is a lesson for the future. I f American pros­
perity is to be restored to a permanently stable basis, the pur­
chasing ratio of farm crops must come up or commodity
prices must come down. Those who appreciate the fact that
in the sum total of raw and finished products labor furnishes
approximately 80% of the total cost, and who see evident
difficulties in the way of reducing the price of labor, are a
unit in the belief that the solution of this phase of the agri­
cultural problem depends on raising the farm price level to
the commodity level.
The question has been how to do it, but this question may
not be so serious after all when you consider the known effect
of commodity co-operative marketing.
Wheat is but 3% organized for marketing, and wheat has
but 70% of its pre-war buying power.
Cotton is 20% organized for marketing and cotton has
135% of its pre-war buying power.
Tobacco is 70% organized and tobacco has 212% of its
pre-war buying power.
In other words, there is no adverse commercial ratio ex­
isting to-day among those co-operatives which are even mod­
erately organized for co-operative marketing.
So far as members are concerned, and to a large degree
to non-members as well, the co-operatives have eliminated
speculation, waste, inefficiency and graft in country mar­
kets. They have standardized the product. They have as­
sured correct grade and value for every bushel, pound or
dozen. They have shortened the route to market so that the

STATE BANK DIVISION.
producer’s share of the consumer’s dollar is larger than ever
before. They are stabilizing markets on a fair average level,
based on supply and demand and the two movable factors of
time and place. They are making the price to the farmer de­
pend on supply at the point of consumption rather than on
the supply at the point of production. They are merchandis­
ing instead of dumping.
These things are of vital interest to every business man,
of intense interest to every banker and of direct personal in­
terest to every community banker in agricultural territory in
the United States.
To speak in the language of dollars and cents, they mean
that the profts from agriculture are being kept at home in
the community where the farm*products are grown and are
being divided among all participating farmers, instead of
being concentrated in the hands of a comparatively few in
the larger cities and towns.
But the whole co-operative movement means more than
dollars and cents. It means a new standard of living on
American farms. No farmer can have many of the comforts
of civilization when the profits from an entire acre of wheat
for one year will barely equal the wage of a bricklayer for
one day.
This modern marketing movement means in the last analy­
sis more home comforts for wives and children, better schools
and a more useful education for boys and girls, better
churches and opportunity to attend them for the whole fam­
ily. All of these things mean a higher standard of civiliza­
tion on farms and a clearer understanding on the part of
farmers of the problems of the other fellow ; fewer fool no­
tions about the Government in the mind of the farmer him­
self, and a constantly increasing knowledge of public prob­
lems and of the way in which they must be solved, on the
part of the whole agricultural public.
Co-operating farmers are not as a rule radical farmers.
They are not as a rule believers in Government ownership.

143

They are not as a rule to be found on the housetops shouting
for Government control of the prices of farm products.
They come into close contact with the economics of business
in their own business operations, and they are as fully con­
vinced as you or I that Governmental price-fixing opens the
way to an infinite number of other subsidies, that it is against
the fundamental interests of the farmers themselves because
it tends to over-production, that in the long run it fattens the
pocket of the speculator and not the farmer, that it increases
the burden on the public treasury, that it means higher taxes
and their consequences and that it adds to the general cost
of living.
This is the first agricultural movement known in America
which cannot bring good to the farmer without bringing good
to the entire nation as well. It is the first attempt to intro­
duce business into agriculture on the same sane, sound, effi­
cient, economic principles which have been in vogue in city
business life through generations.
That bankers of America know all this is evidenced by the
tremendous number of them w7ho are lending their active
and constant support to the co-operative movement. There
are 5,247 State banks in the territory in which cotton is
grown. More than 3,000 of these banks are actively co-oper­
ating with the American Cotton Growers’ Exchange and its
subsidiary State organizations in the handling of mortgaged
crops.
This co-operation not only results in more prosperous
banking, but in a mental relationship between banker and
customer that is eminently satisfactory to both. The coun­
try banker is the farmer’s best friend. Throughout all Amer­
ica, wherever these co-operative associations have come into
being on a broad scale, the banker has almost universally
shown that friendship by working side by side with the farm­
ers for the solution of their common problem of farm pros­
perity. The co-operatives themselves feel decidedly grateful
for this friendship.

Standard State Banking
By E. H . W o l c o t t , Bank Commissioner o f Indiana.
The early history of banking is a tragic record with little
general relief or stability until the establishment of the Na­
tional Banking System in 1864.
Probably the origin of the National Banking System grew
out of the power assumed by a number of local banks in the
State of New York in 1836 to emit a currency secured by
deposit of State bonds. But it wras a long and perilous way
traveled by the banking interests of the country, w7ith wreck
and ruin along the route, until the National Banking Sys­
tem was in force.
In the early 19th century, w7ild-eat banks had reached their
zenith, and the circulation of worthless paper was tremen­
dous. Credit was the basis of circulation, and the rapidly
growing West suffered greatly, as newcomers represented so
much of the growing population, so credit and experience
were not so carefully considered as in the East. Many reme­
dies were suggested. In 1856 Salmon P. Chase, in his inaug­
ural address, as Governor of Ohio, briefly suggested that
relief could be found through use of coin, supplemented by
uniform currency, authorized by Congress.
In 1861, Mr. Chase, then Secretary of the Treasury, work­
ing to raise revenue for the country’s need, through laws and
loans, suggested “ the preparation and delivery to institutions
and associations of notes prepared for circulation, under
national direction, and to be secured as to prompt converti­
bility into coin, by the pledge of United States bonds.” In
1861 a Mr. O. B. Potter of New York State submitted a plan
to Mr. Chase which was presented practically as submitted
by Mr. Potter to Congress. This plan was to allow all banks
and bankers properly authorized, to secure their bills, or
notes, by depositing with the Government, United States
stocks at par, thus making stocks of the United States a
basis for banking, on which alone national circulation could




be secured. This plan was comprehensive, calling attention
to the objects to be secured, particularly uniform value of
bank notes in different States, and the demand this would
create for United States stock or bonds, as they alone could
secure circulation.
When Secretary Chase submitted his plans for nationali­
zation of banks it required the acceptance of the banks then
existing to the reorganization plan. Much opposition arose.
The strength of the uniform currency plan depended en­
tirely upon the co-operation of the banks then operating.
War financing w7as becoming difficult. Delays caused by
debating the various issues proposed, with corresponding
mental confusion, continued in Congress. The question of
receiving the new currency issued under Governmental reg­
ulation for taxes was suggested by Mr. Chase in 1863. Dur­
ing this year Senator Sherman became champion of the
Banking Bill. He advocated this measure “ because it pro­
vided for a uniform currency, because it created a market
for United States bonds, because it would furnish deposito­
ries for public funds and because the bills could be used in
payment for taxes.” The Banking Bill finally passed the
House on the 20th of February 1S63 and was approved by
the President on the 25th. The Sherman Act, therefore, be­
came a law. On .Tune 3 1864 a new Act, bearing the same
title as the Sherman Act, was passed. By this new Act the
former law was repealed. While the new law embodied most
of the Sherman Act, the w7hole was rearranged, and some
new matter introduced. Thus the National Banking Act
was born. The effect of this law was far-reaching in its in­
fluence, Jay Cook in his -writings, giving credit to the
National Banks for the success of the various Governmental
loans he negotiated. The first Bill to provide a national
currency, secured by pledge of United States stocks or bonds

144

BANKERS’ CONVENTION.

and to provide circulation and redemption of this currency,
was known as the “ Hooper Bill.” The final bill which be­
came a law, the “ Sherman Act.” The law governing Na­
tional Banks is uniform throughout all States in the Union.
In Indiana we had four different State Banks prior to the
National Banking Act. The last had as its President Hugh
McCullough, who as Comptroller of Currency under Chase,
was of material assistance in establishing the National
Banking Law. Afterwards he was Secretary of the Treas­
ury. The last State Bank in Indiana had many branches,
and when the National Banking Act went into force in 1864
these branches became National Banks. In 1869 a law was
passed in Indiana providing for the organization of savings
banks. In 1875 Banks of Discount and Deposit, or State
Banks, were authorized. Private banks were in existence at
this time, under no supervision. All other State banking
institutions were under the control of the Auditor of State
and subject to examination. In 1907 examination of private
banks was authorized, the same as other banking institu­
tions. In this year the Banking Department, under the
Auditor of State, was established by legislation and four
Examiners provided. In 1919 the office of Bank Commis­
sioner was created as a separate Department of State, au­
thorizing not more than ten Examiners.
To some extent the various States have kept pace with
the National Government by granting enlarged powers to
the State banking institutions, limited and prescribed at
first. These powers were granted to conform to the en­
larged and extended powers of the National Banks, but the
laws regulating*these State banking institutions have not
kept pace with their changed methods of operating them.
National Banks operate under one uniform law, as above
stated. Why not State institutions when their granted
power of conducting business is the same? State Banks, or
Banks of Discount and Deposit, private banks and loan and
trust companies, giving the same service and functioning
alike in many States, operate under different laws, enacted
when original rights were granted and not changed to meet
changing powers and privileges. Wherever these various in­
stitutions are restricted and controlled in investments and
services rendered, there should be different laws and regu­
lations, but where services and functions performed are
alike, there should be no difference in the laws regulating
them.
I prepared a questionnaire which I sent to the heads of the
Banking Department in each State, asking certain informa­
tion. This was to determine how much difference existed at
this time between various State banking laws. There is
much uniformity and I believe that the replies indicate that
a uniform law can readily be evolved so as to standardize
the laws governing State banking institutions to a very large
extent.
Question 1 was as follow s:
Do you have a Charter Board, or does the Banking Department approve or
disapprove applications for bank charters ? What is length of Charter ?
How many years?
12 States, including Indiana, have Charter Boards.
26 States, Charters are granted by the Department of Banking.
Delaware— Charters are granted by a special Act of the Legislature.
Virginia by the Corporation Committee, after approval by the Judge of
a local court.
South Carolina, by the Secretary of State.
In many States where Commissioners grant charters, there is a proviso for
an appeal in case charter is rejected, to a Board consisting of the Governor
and other officers.
In New Hampshire charters are granted by an Act of the Legislature.
There are four States that grant charters for 20 years, including Indiana ;
three for 25 years; three for 30 years; six for 50 years; two for 99 years;
one for 100 years and twelve unlimited charters.
In Ohio the law regarding bank charters is the same as for corporations.
In some States the banks have charters differing from the charters issued frr
savings and trust companies.
Iowa’s State Banks are granted charters for 20 years; savings and trust
companies, 50 years.
Pennsylvania Banks of Discount, 20 years.

The great variations are, of course, unwise and unneces­
sary, as there is no great fundamental principle affecting
banking involved.
My own impression is that charters should be granted for
at least 50 years by the Department of Banking, with the
right to appeal to a charter board in case charter is not
granted.




The next question was, “ In closing a bank who has charge
of liquidation— Department or is Receiver appointed by the
Court?
In 28 States the Banking Department takes charge of insolvent banks. ^
In many States a Receiver is appointed by the Court, the law providing
thus. In other States the Department acts under the order of the Court. In
10 States, including Indiana, a Receiver is appointed by the Court and the
Banking Department has no further connection after the Receiver is ap­
pointed. In New Mexico the Commissioner takes charge of an insolvent bank
and has 60 days to ask for a Receiver. The Commissioner may be appointed
as Receiver by the Court.
In Missouri the Court can appoint the Commissioner or Deputy Commis­
sioner.
In North Dakota two General Receivers are appointed by the Supreme
Court, which has charge of all closed banks.

From a review of the above facts and my own experience,
I believe that the Department of Banking should take charge
of all closed institutions and administer them until final
settlement, this being the most economical and efficient
way.
Question 3 w a s:
What different kinds of banking institutions are permitted under your
law? This question discloses many differences.
The largest number of States (27) permitted commercial banking, loan and
trust companies and savings institutions, with no private banks, except those
that have been in force when recent law prohibiting private banks was en­
acted.
13 States permit commercial banking, loan and trust companies, savings
banks and private banks, among these being Indiana.
Private banks in Connecticut give bond to secure depositors.
North Dakota only has State and Natfonal Banks.
In Georgia, Trust Companies not doing a banking business are not under
the supervision of the Banking Department.
Oklahoma has only State Banks. No Trust Companies.
In Illinois the law does not permit private banks, and has a special Act
for the organization of Trust Companies.
Texas has Guaranty Fund Banks and Bond Security Banks, but does not
permit private banks, except those previously organized.

It should be possible to decide upon a plan that would
provide much more uniformity in the establishment of va­
rious banking institutions. Objection to granting charters
to Private Banks seems to be growing.
Question 4 is supplementary to No. 3 and was as follows: “ If Private,
State, Loan and Trust Companies, is the law governing these the same or
different?”
29 States reported that the laws governing the different types of banking
institutions were practically the same
11 States, including Indiana, different.
Iowa and Wyoming have laws restricting investments for Savings Banks
only.
Mississippi’s law, practically the same for all banks, but limits deposits
of Commercial Banks to not exceeding ten times capital and surplus, for a
longer period than six months. No restrictions on Savings Banks.
Question 5 was also supplementary, being as follows: “ If different, please
state briefly the difference.”
I wanted to bring out, if possible, the facts concerning the various laws
covering different banking institutions, and if these different laws were not
of such a character as would permit a large degree of uniformity, by slightly
changing them.
The differences are in reserve requirements, investment restrictions and
loan limitations. The difference in cash reserve requirements is minor, and
a uniform requirement could easily be determined.
In Iowa, Commercial Banks must have 15% cash reserve. Savings Banks
and Trust Companies must invest 50% of their deposits in real estate mort­
gages or United States or State bonds and carry 5% cash reserve.
Practically every State has cash reserve requirements at this time, but
previous to 1907 the laws regarding cash reserve were not general.
In Minnesota, Savings Banks are mutual under new law, and investments
are authorized by specific Act. A certain amount of capital of Trust Com­
panies must be invested in authorized securities even while they can do a
general banking business.
In Georgia, Savings Banks are mutual with restricted investments.
Pennsylvania has different laws applying to different institutions.
Massachusetts has special laws governing each kind of banking company.
Michigan has laws limiting powers of Trust Companies, prohibiting them
from doing general banking business.
Ohio has different laws affecting different banking institutions, respect­
ing loan limitations, investments, reserve requirements, etc.
New Hampshire also has different laws and regulations for each kind of
banking corporation, but it does not seem impossible to me to secure uniform­
ity regarding investments or cash reserve requirements or loan limitations.
Question 6— “ What are requirements in organization of different kinds of
institutions? Amount of capital, amount paid up, etc.?”
There are eight States that provide for a minimum capital of $10,000 paid
up; seven States $15,000 paid in ; two States $20,000 and seven States $25,000. These requirements are for commercial or private banks. For Loan
and Trust Companies the requirements are larger; one State only permitting
as low capital as $10,000 ; one, $45,000 ; three States required $50,000 ; two
States $100,000 and a large number of States are based upon population.
In Indiana we have a law with a minimum of $10,000 for private banks;
$25,000 for State Banks. Trust Companies, minimum is $25,000, based on
population.
Oregon has a minimum of $15,000, except in the city of Portland, $200,000 is the lowest limit.
In Mississippi, Arkansas, Ohio, Oklahoma, Georgia, Michigan, Pennsylva­
nia and Alabama the amount of capital is regulated by population.
In Tennessee, capital is authorized in the charter granted.
Virginia is based on population, with $15,000 minimum under 2,000 pop­
ulation.
Wisconsin, the lowest capital is $10,000, based on population, Over 200,000 population must be $200,000 paid in cash.

^TATE

b a n k d iv is io n .

Mississippi $10,000 minimum for Commercial Banks, if they are granted
trust powers $15,000 additional.
. .
Maryland— State Banks based on population with a minimum of $-.5,000 ,
Trust Companies, $100,000.
Kansas, State and Private Banks, minimum capital $10,000, based on
population. Trust Companies not less than $100,000. ^
In Massachusetts, minimum for Trust Companies is $50,000, based on
population.
.
,
, _ ,
.
Minnesota is based on population, with a minimum for State Banks ot
$10,000 and for Trust Companies a minimum of $50,000.^
New York— Capital depends upon location and population.
Texas— Based on population, with a minimum of $17,500.
North Carolina— Minimum capital $15,000 ; one-half cash and balance fne
monthly installments.
Colorado— Banks, minimum $10,000 ; Trust Companies, $50,000.

145

No assessment is permitted under the law in Missouri, Virginia and Dela^ T h e writer is personally of the opinion that 100% would be sufficient to
protect the depositors.

Question 9.— “ How often do you examine banks?”
11 States annually or oftener if deemed necessary.
28 States semi-annually.
Texas— 3 times each year.
Utah examines Commercial Banks twice and Savings Banks once.
New Hampshire, the same.
,
,
In Indiana the law requires savings institutions to be examined once each
year and all others semi-annually. Every State provides for additional ex­
aminations than that provided for by law, if deemed necessary.

Question 10.— “ What is the limit upon loans above which
There seems to be an effort to base the amount of capital constitutes an excess loan?”
paid in upon population, and there is quite a variation in
Six States limit loans to 20% of capital and surplus.
Three States 20% of capital, surplus and undivided profits.
regard to payments. Most States require capital paid in
Q H O S tc lto
cash, others permitting payments. In Indiana, State Banks
Three States, including Indiana, 20% of capital. Indiana only by rule
are permitted to organize with one-lialf of capital paid in of Department.
Ohio, 20% of capital, except real estate mortgage loans, which must not
cash, balance in six months, minimum being $25,000. Loan exceed 60% of appraised value of property.
and Trust Companies based on population, minimum being
Kansas and Utah limit loans to 15% of capital and surplus.
Alabama, 10% of capital, surplus and undivided profits, except cotton
$25,000 cash paid in.
loans secured by warehouse receipts.
I am of the impression that in the organization of banking
Tennessee, 15% of capital and surplus and undivided profits, or more with
institutions, the amount of capital should be paid in in cash approval of board.
Pennsylvania— 10% of capital and surplus as applied to industrial loans,
before commencing operations. As far as the minimum
Missouri— The loans are regulated by the size of the city of town.
In Iowa, 20% of capital and surplus, except farm mortgage loans, when.
amount of capital authorized is concerned, it would be ad­
50% of capital and surplus can be loaned upon first mortgages in Iowa.
visable to limit this to $25,000.
In Minnesota, 10% of capital and surplus to officers, 15% to others. 25%
Question 7.— “ Can officers and directors borrow fiom all upon real estate mortgages.
Florida, no legal limit except to officers and directors, and this is from.
banking institutions in your State, and under what restric­
10 to 40%, depending upon security.
tions?”
In Nebraska the limit is equal to capital and surplus.
Five States permit officers and directors to borrow, with approved collat­
eral or endorsement.
Thirteen States have no restrictions except approval of the board.
In Texas, directors can borrow 25%, with approval and 10% without.
Officers cannot borrow without approval of board of directors.
In Idaho, Arizona and Oregon officers and directors may borrow 20% of
capital and surplus.
In Alabama, by approval of the board, 20% of capital, surplus and undi­
vided profits.
, ,
,
,
In South Dakota, officers and directors, with approval of the board and
with collateral, may borrow 20% of capital and surplus, but this must be
reported to the Superintendent of Banks. Stockholders in the aggregate can
borrow 50% of the capital.
In Minnesota officers can borrow 10% of capital and surplus, others not
officers or directors 15% of capital and surplus. Upon real estate, loans
can be made to the extent of 25% of capital and surplus.
New Mexico, loans to officers and directors cannot exceed 10% of capital
and surplus.
Florida, officers and directors 10% to 40%.
South Carolina, except cotton, limit loans to 10% of capital and surplus.
Idaho has a limit of 20% of capital and surplus and an aggregate not to
exceed 50%.
In New York, officers in a city of first class cannot borrow from hanks
and trust companies, but no restrictions upon directors.
Connecticut— No officers can borrow. Directors can borrow 5% if unse­
cured and an additional 5% with collateral.
North Dakota— Limit is 15% of capital, with approval of directors.
In Massachusetts there are no restrictions applying to Trust Companies,
except of sayings. The President and Treasurer and Investment Board can­
not borrow of savings institutions. Private banks, no restrictions.
In Utah, officers and directors can borrow if the security is double value
of loan.
Pennsylvania— The limit is 10% of capital and surplus, with an aggregate
to all of 25%.
In Michigan the limit of loans to officers and directors who control more
than 50% of the stock is not to exceed 10% of capital and surplus, and must
be approved by a majority of the board. More than this must be authorized
by two-thirds of the board and secured, or proper statement filed or with
collateral.
In Nebraska and Oklahoma, officers and directors cannot borrow from their
own institutions.
Colorado— no loans to officers or employees. Directors can borrow 10%
of capital; with approval of the Board, 20%.

The great variety of laws, controlling loans to officers and
directors is certainly confusing. In Indiana officers and
directors can borrow not to exceed 30% of capital in Private
Banks. They cannot borrow at all in Loan and Trust Com­
panies, and in State institutions are limited to 20% of the
capital, by ruling of Commissioner only.
I believe that loans to officers and directors should be lim­
ited to a certain extent and not to exceed 20% of capital and
surplus, and that the aggregate loans to all officers and di­
rectors should not exceed a certain per cent of the capital.
The wisdom of this, I believe, is apparent to every banker
who is conservatively inclined.
Question 8.— “ What is the limit of assessment upon own­
ers of bank stock to make up capital impairment?”
In Minnesota there is no limit as applied to State Banks, but there is no
provision for assessment against stockholders of Trust Companies or Savings
Banks for impairment of capital.
In four States there is no limit.
In 19 States— 100%.
In Colorado— 200%.




New Mexico, 20% of capital and surplus and 10% of capital and surplusto directors.
In Massachusetts, limit of Trust Companies, whose capital is $500,000, iff
20% of capital and surplus. Where the capital is less than $500,000, 20%.
of capital or 10% of capital and surplus.
North Carolina, the limit of loans is based upon capital and surplus, be­
ing 25% where capital is $250,000 or less, and reduced to 10% where cap­
ital exceeds $750,000.
In Virginia the limit is 25% of capital and surplus, unless authorized by
the board of directors, when there is no limit.
Mississippi and Arizona, 25% of capital and surplus.
Wisconsin places a limit of 30 % of capital and surplus ,but by a vote of
two-thirds of the directors this may be increased to 50% with approved se­
curity.
In Arkansas, 30% is the limit secured by warehouse receipts, with 10%
margin. No limit to discount or commercial paper and bills of exchange.
In Georgia, 10% of capital and surplus, unsecured ; 20% secured by mar­
ketable collateral.
In Delaware, 10% of capital and surplus, unsecured, and 25% if secured
by collateral worth 15% in excess of loans.
In Maryland, 20% of capital and surplus, and 30% of capital and surplus
if authorized by a vote of two-thirds of the directors.
Maine, the limit of loans is 25% of capital and surplus, with provisions
and exemptions.
In New York, 10% of capital and surplus, unsecured; 25% if secured,
with exceptions for increase of secured loans in certain cities.

This great range would indicate that a legal limit, more
conservative than many States show, would be a much
safer basis to loan upon: 20% of capital and surplus, all
loans to be approved by officers and directors, is indicated
by a review of the above replies, to be about the average of
the various States.
Question 11.— “ What suggestions have you regarding im­
provement in present law in our State?”
18 States suggested improvements and 22 States had no suggestions, or
were satisfied with the law in their States, but I feel confident that you will
be impressed with the need of improvement in many laws, as shown by these
reports of the different States.
28 States reported in favor of a uniform law.
10 States more or less favorable, but doubtful of the ability to secure such
legislation.
Two States not in favor. Advised that there were too many legal problems
to make possible a uniform law.

The replies to this question indicate that the Commission­
ers in charge of banking operations in every State recognize
the need for certain uniform laws governing the various
State banking institutions. One of the problems presented
to our National Association of Bank Supervisors is to pre­
pare a law which can correct conditions existing in certain
States which are shown to be inadvisable from the above re­
ports, and select the best laws in each State, working out a
uniform system which could be applied to all.
Your Association is on record for uniform laws which can
apply to all banking institutions, such as uniform acts re­
garding negotiable instruments, bills of lading, warehouse
receipts, stock transfers and fiduciary acts. Also for protec­
tion of banks as time limit on stop payment on checks, ad­
verse claims for deposits, payments of forged or raised^

146

BANKERS’ CONVENTION.

checks, deposits in two names, non-payment of checks
through errors, etc. Many States have given relief through
satisfactory legislation as shown by passage of laws in va­
rious States reported in the “Journal of the American Bank­
ers Association,” May 1923.
This has been needed legislation affecting the administra­
tive side of banking. But you should go farther and assist
the various States in passing uniform banking laws applica­
ble to State institutions.
Formerly National Banks, and various State institutions,
such as Discount and Deposit or State Banks, Loan and
Trust Companies and private banks, operated along differ­
ent lines. Each had distinctive features. The National
Banks with circulation privilege, but formerly limited as to
trust powers and savings deposits. State institutions have
no circulation rights but have broader powers in the way of
loans and investments, but with the enlarged fields of en­
deavor through new laws granting new privileges, the differ­
ence between National and State institutions has been prac­
tically removed.
In Indiana we have different laws applicable to each va­
riety of banking institutions operating under our law, namely
Private Banks, Loan and Trust Companies, State Banks and
Savings Banks. The first three can practically do the same
kind of business. In many other States these institutions
operate under one and the same la w ; in others there is wide
variation, but conditions in all States are practically the
same, so that some uniform law can be drawn that would
apply to all banks of like character and activities in all
States.
Back of all these laws regulating or governing banking
operations, whatever they may be, there are certain other
requirements such as experience has deemed advisable for
good banking. The laws regulating banking operations are
but the mile-posts on the way to success. Between these the
road may be straight or devious. The eyes may grow care­
less and lose sight of the proven path, carried away by the
desire to make a “ big showing,” buying deposits through
granting unwise credits, or influenced by the expediency of
certain transactions when good judgment is opposed. Every
banker should have on his desk the motto, “When in doubt—Don’t.” Personal interest in propositions presented often
blinds the vision, and prevents a careful consideration of the
matter involved.
With your indulgence I will advise you of some of the
special rules our Indiana Banking Department has pre­
scribed in order to secure the safety of our banks.
We grade all banks. This is of material benefit to the
Department in keeping track of such as need careful atten­
tion.
An “A” bank has a good surplus, few, if any, excess loans
— if any— well secured. Good cash reserve, or if low, a good
secondary reserve, consisting of bonds and quickly converti­
ble securities. Bills payable, none or temporary, and not in
excess of secondary reserve. Loans to officers and directors
not heavy or exceeding 50% o f capital and surplus in all,
also secured. Overdrafts few and past due paper negligible.
A “ B” bank. The capital must not be impaired and there
must be sufficient surplus to protect against questionable
paper. It must have bills payable, but these should be tem­
porary. Secondary reserve may be small. Excess loans not
too large, but secured or safe. Over checks limited and past
due paper in no great amount and in the process of renewal
or payment, but the capital must be intact beyond all ques­
tion.
A “ 0 ” bank is everything that an “ A” and “ B” bank is not.
I have found the psychology good, as our bankers have
pride in their institutions and want them to grade well, as
we keep a permanent record and the history of their man­
agement is preserved for reference in our files.
Twenty per cent of capital is the limit placed upon a loan
by the Department. I confess very few banks observe this
requirement and, frankly, we can look leniently upon an ex­
cess loan, well secured, more easily than upon smaller loans
unprotected. Any loan is an excess loan that is not safely
secured.




Financial statements are requested and will be required
upon all loans over a certain per cent of the capital. The
importance of this need not be discussed before this body,
but it is surprising how many smaller banks fail to protect
themselves in this manner. You larger institutions with
country bank correspondents should emphasize this require­
ment, as country banks frequently borrow from city banks,
giving notes as collateral which they have taken from their
customers, the bank endorsing the same. If the notes are
not good the bank’s endorsement is impaired and your pro­
tection lessened.
We are trying and insisting upon individual liability ledg­
ers, and in connection with this should be an additional sheet
showing endorsements for others by the borrower. This is
important, as a large endorser is a questionable risk, at times
being subject to suit as guarantor.
Capital loans are anathema in cur Department, but it -will
take an educational campaign to eradicate these entirely. It
simply means that a bank goes into partnership with the
borrower, takes all chances of loss and receives a nominal
interest for the hazard.
In Indiana, salesmen made a practice of selling stock to
farmers and individuals, taking notes in payment. Banks
were then requested to discount these notes, payments being
made by issuing certificates of deposit payable when note
was due, the assertion being made that in this way the bank
made a profit by discounting the note and did not invest any
money. Then the salesmen sold these C D’s and afterward
payments on many notes were contested and banks became
involved in litigation and loss. This practice has been vigor­
ously condemned by our Department.
We have also required complete records to be installed in
connection with bonds of customers held for safe-keeping.
The great distribution of Liberty bonds in small lots, now in
hands of many people who have not adequate places to keep
them, has resulted in all banking institutions making ar­
rangements to care for these for their customers. Careless
and loose methods whereby insufficient records of these
were kept has resulted in loss and much grief to many
smaller banking institutions. The heavy losses in various
banks and trust companies where employees defaulted has
been found largely in shortages in bonds held in trust or for
safe keeping.
We object to demand notes, or any evidences of indebted­
ness which are not brought up for review at fixed inter­
vals, as the loan committee and directors should be con­
stantly advised of maturing paper. Smaller banks in many
instances automatically renew demand notes upon payment
of interest without calling attention of the board of directors
or the loan committee to the existing loan.
I realize that you gentlemen whom I address are perfectly
familiar with the requirements of good banking and I am
not presuming or attempting to instruct you. The larger
banking institutions are the correspondents of many smaller
banking companies. These look to you for guidance and ad­
vice. Many new banks in smaller places do not have experi­
enced help, as the salaries paid are not attractive. Often a
“ good fellow,” popular in the community, is selected as
Cashier to “ draw business.” This means, in many cases, un­
wise loans and bad accounts.
The Banking Department of the various States exercises
its corrective powers like a doctor, principally after illness.
We try to prescribe rules and regulations that will ensure
safe banking, but examinations are not made oftener than
each six months. You, in many instances, have a daily con­
tact with correspondent banks. Therefore I believe you
larger banking institutions should help to educate the smaller
ones along the line of safe and conservative banking, dis­
courage banking competition -which ultimately causes loss,
and co-operate with the Banking Department of each State
in securing such laws as are wise and just, and further than
this, heli) us enforce such rules of banking where experience
and test of years have proved to be best.
Banking in the United States was never on a firmer foun­
dation. The financial interests of the world depend upon
this country for aid and support. The Federal Reserve Sys­

STATE BANK DIVISION.
tem is a strength and power, proven in our hour of stress and
need. Without it the readjustment following the war would
have left a path strewn with the wreckage of financial insti­
tutions. The strength of our National Banking System has
been tested and tried, so have the State institutions demon­
strated their soundness and reliability. But such rules and
laws as will materially aid and assist them in performing
their duties and occupying their place in the public activities
of the nation in a safer and more effective manner, are
needed. Not much change from existing laws, but uni­
formity of these laws applying to fundamental requirements
and a standardization of rules and regulations will increase
the safety of the depositors and stockholders and materially
aid the public. The National Convention of the National
Association of Bank Supervisors appointed a committee to
prepare a draft of an Act for the standardization of laws
applying to State banking institutions which practically

147

function alike. It will be submitted for discussion and ap­
proval at our next annual convention.
We will need your aid and assistance, and I feel confident
of receiving your approval of this much-needed legislation
in the various States.
Good banking is safe banking wherever it is found. There
are certain necessary rules and regulations that are an essen­
tial aid in the proper conduct of financial institutions, such
as apply to classified loans without proper limitations and
to the borrowing of officers and directors; cash reserve re­
quirements, restrictions as to bills payable and the necessity
for collateral security. These are fundamental requirements.
There should not be much variation, at least as applied
to these requirements, and any laws applicable to all State
institutions where uniform conditions prevail certainly
would be a safeguard and protection to both the bankers and
depositors.

C ommittee and Officers ’ R eports —S t a te B ank Division
Report of R. S. Hecht, President of the Hibernia
Bank & Trust Co. of New Orleans, as Chair­
man of Public Service Committee of State
Bank Division.
The activities of the Public Service Committee of the State Bank Division
during the past year have been confined almost exclusively to the promotion
o f the co-operative marketing movement, and to a careful study of the
problems connected therewith.
For the purpose of obtaining information upon which to base logical
deductions, a questionnaire was sent to members of the State Bank Division,
including a majority o f banks in rural communities, and also to the secre­
taries of State bankers associations and supervisors of State banking de­
partments.
The conclusions mentioned below represent the consensus of the replies
received in answer to this questionnaire:
1. The farmer has gone through several very difficult years, which have
impressed upon him the absolute necessity for the elimination of all wasteful
and uneconomic practices, and have convinced him that only constructive
effort and real co-operation can help to solve his problems.
2. The organization of co-operative associations rests on sound economic
principles, to which even the most conservative bankers may conscientiously
subscribe, but their ultimate success will be great or small depending upon
proper organization and the sound judgment of the men who manage their
affairs.
3. This new economic development points the way to a permanent
solution o f the whole problem of financing the production and marketing of
our principal farm products, and will if successful result in great benefit for
the farmer, will bring about a more even distribution of business activity,
more stable prices, less speculation and less violent fluctuations of bank
deposits.
4. Much good has already been accomplished by many of the co-operative
associations in getting better financial results for the producer through
more efficient distribution, better merchandising and systematic grading
and standardizing of the farmers’ products.
5. Co-operative associations will undoubtedly market considerably
more farm products this year than they did last year. New associations
are being formed and old ones enlarged.
6. The greatest danger which co-operative associations have to avoid is
the temptation to hold commodities for speculative purposes, and to
attempt to unduly increase the price by artificially withholding the products
from the market when actually needed, instead of disposing of them in an
orderly way as the demand for them justifies.
7. There is one further step which co-operative associations should take
in order to permanently establish their credit. They should retain out of
each year's operations a certain percentage to be set aside as a surplus or
reserve fund to be used in case of need. The action of the Staple Cotton
Growers Association of Mississippi furnishes one of the very best examples
o f this principle. In each of the three years in which it has operated that
association has set aside in a so-called advance fund approximate^ $400,000,
with the result that it now has what practically amounts to a capital of
over a million dollars, and is therefore prepared for any emergencies which
may arise. Naturally the bankers in their section are more anxious to do
business with them than they are with any similar organization, because
they feel that they are amply protected in their dealings and the association
consequently enjoys the very highest credit and has not the slightest diffi­
culty in getting whatever accommodations it needs.
8. As a result of the campaign of education conducted during the past
year, there has been a great improvement in the credit facilities available
for the co-operatives. Many commercial banks who heretofore stood aloof
have now been induced to participate in some o f the loans made to the
associations, and there is no doubt that very large sums of money are now
available by commercial banks at current rates for properly conducted co­
operative associations.
However, it appears that only a small part of the private capital now
available for this purpose is likely to be used by the co-operative associations
during the current season, because under the existing law it is possible for
them to borrow from the Federal Intermediate Credit banks at lower
interest rates.
As a matter of fact, the Intermediate Credit banks have become the
direct competitors of the commercial banks, instead of serving only as a
reservoir of credit to be drawn on only in case of need; that is, if and when
commercial banks are unable or unwilling to supply the required funds at
fair rates o f interest.




The law authorizing their organization specifies that the Federal Inter?*
mediate Credit Bank shall not charge more than 1 % in excess of the interest
rate borne by the debentures which they issue. Being entirely exempt
from all forms of taxation these debentures sell readily on a 4 34 % basis,
thus making the loaning rate 534 % , which is at least 14% less than the
going rate for loans of this kind made by commercial banks.
It is only natural, therefore, that the co-operative associations will take
all the money they can get from the Federal Intermediate Credit banks in
preference to dealing with the commercial banks at a higher rate, and as a
consequence the flood of tax-exempt securities is materially increased.
Your Committee records these facts, not because it desires to register a
complaint on behalf of the commercial banks, nor would we like to be
understood as criticising the administration of the Intermediate Credit Act
by the Farm Loan Board, which is doing just exactly what the law says they
shall do. However, being genuinely interested in the future welfare of the
whole co-operative movement, we fear that in the long run this tendency
will not be to the best interests of the associations themselves.
To be thoroughly successful these associations need and should have the
whole-hearted support and co-operation of the bankers in their respective
communities, and if the loans which in the nature of things should first be
made by commercial banks are, as a matter of fact, taken to the Govern­
ment agencies because of the lower rates, it is quite likely that there will
develop some antagonism which is almost certain to prove detrimental
to the upbuilding of these associations.
It is quite possible, of course, that the total sums made available by com­
mercial banks may not be sufficient to take care of all of the needs of the
co-operative associations, in which case the facilities of the Federal Inter­
mediate Credit banks should be taken advantage of. It is our thought,
however, that the law ought to be so changed that the rate made by the
Government agencies would not be below what may be considered a fair
minimum rate among commercial banks for loans of this kind, in order that
reliance may be put first on private capital available for that purpose, and
that only the surplus needs be taken from the Government agencies. This
would certainly create a better feeling among the bankers, and would curtail
the flotation of tax-exempt securities.
As a matter of fact, your Committee believes that the American farmer’s
complaint that he has not been provided with sufficient credit facilities
has now been effectively answered, and his needs for short time as well as
long time financing are now well taken care of by Government and semiGovernment agencies.
Under the Federal Reserve Act agricultural paper running from six to
nine months can now be rediscounted with the Federal Reserve banks.
The Farm Loan Act provides means of getting first mortgage loans for
thirty years on farm lands at rates lower than the current market rate for
city mortgages.
The Intermediate Credit Act provides loans from six months to three
years for the purpose of planting, cultivating and harvesting a crop, and to
breed, raise and sell live stock.
It is quite likely that still further legislation will be urged at the coming
session, but we seriously doubt that the farmers' position can be benefited by
any further legislative enactments. We believe, moreover, that it is probably
just as dangerous for the ultimate welfare of the farmer to make it too easy for
him to borrow as it would be to deny him adequate credit facilities for the pro­
duction and orderly marketing of his crops.
Agriculture is the Nation’s biggest business. The events of the last few
years have demonstrated more clearly than ever before to what an extent
agricultural prosperity lies at the bottom of our national welfare. The
results achieved by co-operative associations in helping the farmer solve
his problems are such as to merit not only the commendation, but also the
whole-hearted support of the bankers of this country.

Address of President H. A. McCauley, President
Sapulpa State Bank, Sapulpa, Okla.
By way of introduction to this program of the State Bank Division to-day,
I want to call your attention to just a foreword of the program. We have
endeavored to simplify it as much as possible. We have brought for your
consideration two features. One speaker will speak to us to-day upon the
subject of co-operative marketing; another will speak upon the subject of
standardized State banking. The foreword of this meeting of this con­
vention, therefore, is co-operation with and standardization of. That is
a simple phrase that you may get into your minds, and we want you to
keep it there.
As we assemble here we are reminded of the catch expression of the day
that everything moves in cycles. Six years ago we met in this city to hear

148

BANKERS’ CONVENTION.

the report of the first year’s work of this division. Since that time the work
of the State Bank Division has included every problem of inflation and
deflation, every question of war and peace, and every issue of the weak
and powerful as they applied relatively to State banking.
In my remarks to you to-day I would not include any question except
such as pertain to the work of the division. During the past six years we
have met together with the State banks of the North, the AVest and South
and the East. AVe have tried to correctly understand the problems of
each, and out of experience and counsel and wisdom gained serve best and
most effectively the greatest number.
The greatest question with which this division has concerned itself from
the beginning is how best to serve its membership. To arrive at a proper
solution of this problem a questionnaire is submitted annually to all State
banks. From the consensus of replies is formed the policy and objectives
of the division work for that year. By the interest, activity and initiative
o f our own members, then, may we gauge the results achieved.
If it is proper for me to refer to the function of a divisional part, I will
say that its first and principal duty is to correlate with the whole, to perform
with limitations those things which it can do individually to develop in
a large way the usefulness of the whole association. The State Bank
Division, as an integral part of the American Bankers Association, has
tried to accomplish, in its limited way, the greatest good to the largest
number of banks which go to make up a single unit of the whole association.
The platform upon which we operate is the broadest of any division. Here
may meet the smallest as well as the greatest. The fact that so many
small banks make up the greater part of our membership brings this division
closer to all the classes than any other. The business here represented
is so diversified as to include every kind of commercial activity as well as
agricultural and industrial. AVe meet upon this platform of congenial
sympathy and interesting helpfulness, each with the greatest respect and
regard for the other. If, therefore, we have seemed to achieve little, and
that much slowly, it is because there are so many different problems of
mutual interest and such limited opportunity in which to bring them
together where they may be put into practical form and made to conform
without conflict to such other divisions of this association which may be
i nterested with us.
The early years of this division were fraught with all of the difficulties
that burdened the association because of the AVorld AA’ar, and the latter
years have been taken up with problems thrust upon us by an inevitable
deflation. The problems that we have faced in the brief period of our
3xistence have been many and varied, and, until we have reached that
stage in the peaceful progress of nations where unusual problems cease
to be the cause of organic weakness in our business structure, we may not
hope to secure for ourselves the happy solution of difficulties that do not
beset us in normal times.
At our former meeting in this city, six years ago, there was presented
to us for Secretary a gentleman of long and successful experience in banking
institute work. He was described as a man of unusual ability, experience
and tactfulness. That he has lived up to the truth of that description
goes without question.' At this meeting this gentleman is severing his
connection with this division as deputy manager; and, before we go further,
I want to ask that every representative here take occasion before this
meeting adjourns to congratulate and thank Uncle George Allen for his
faithful and efficient work as division deputy, upon the years that he has
attained, the esteem in which he is held, and to assure him of the unani­
mous wish that he may for years to come return with us at each annual
convention to enjoy the old relations and the friendships here formed.
You have already had notice of the selection of Mr. Allen’s successor,
M r. Simonds, and I am sure that he needs no introduction from me. I
believe that I can assure him with your approval, the hearty co-operation
of this division as he takes up the work where Uncle George leaves it.
The work of the Division for the past year embodies three features:
The plans of the Farm Finance Committee, the Co-operative Marketing
Feature of the Public Service Committee and the always important subject
of Standardized State Banking Methods.
The reports of these committees will show what each has accomplished
during the present year.
The subject of Standard State Banking is one of such importance that
we have had presented by some one of experience, efficiency and authority
the results that have been obtained from the efforts of years gone before
and what may be accomplished by greater co-operation in the future.
The necessity for greater membership in the Federal Reserve System
is now as apparent as ever; and we must continue to labor in the general
direction that State banking and the Federal Reserve System may come
more into harmony with the plans and purposes that will accomplish the
most for the public in general and banking in particular.
Our Committee on Exchange, under the efficient leadership of M r.
Claiborne, continues its work faithfully and with the hope that ere long
a common ground will be reached whereon the rights of all may be forever
established and respected.
I have stated as briefly as possible the outstanding features that have
engaged the attention of the State Bank Division over the past two years.
There is one thing to which I would like to call your attention before closing,
and that is the combatable and necessary application of the term “ co­
operative” to standard State banking, not in the sense that banks should
be co-operative institutions but that State banks in every State should
co-operate with each other in bringing about standard State banking laws
and customs in a practical way. The American Cotton Growers Associa­
tion, for instance, became a successful factor because of the methods and
experience and knowledge that it was able to obtain from the Fruit Growers
Association, which had pioneered the field.
The Tobacco Growers Association is probably a strong functioning body
because of the application of certain fundamentals o f success that were
obtained from the experience o f the older co-operative bodies. These
three co-operative associations cover widely different parts of the country,
and yet, in a manner, they function the same; they correlate in a way to
the advantage of the several parts o f their organization and to the general
advantage o f each association.
AVhy could not this principle be used to good advantage to make standard
State banking possible? Each State has an association of State banks of
its own. Could not these associations be as co-operative as the associations
for handling commodities? Is there any good reason for the success of
any one particular co-operative while another o f essential importance fails
to function? Is it not possible as well in practice as in theory for the
State banks of various States to co-operate to that extent that laws destruc­
tive to the safe conduct o f the banking business, be repealed or their passage
prevented, eliminating the evil and applying the good to all alike? Is it
not time that this Division formulate some plan by which differences and
difficulties may be cleared away by the work of greater cc-operation ?




The same principle that has made a success of the many commodity co­
operatives might be adopted to advantage by this Division in working out
for our general use and safety such regulations and legislations as could be
as generally applied as are now applied in national banking laws.
I want to thank the members of this Division for the distinguished honor
you conferred upon me in electing me your President. I can assure you
that a man in this position never feels that his work has been well accom­
plished. There is so much to be done or that should be done that is im­
possible to be done in the limited time and in our limited way, that in
coming down to the close of the year and summing up, we feel deficient in
many particulars.
I want to thank also the committees of this Division for their efficient
work and all the membership for its continued loyalty and co-operation
during the year.

Report of Federal Legislative Committee, by C. S.
McCain, Chairman, Vice-President Bankers Trust
Co., Little Rock, Ark.
President McCauley: We are ready now for the reports of the several
committees of this division. AVhile these reports are Wrtten and very com­
plete, we are going to ask these Chairmen to bring out only just those
features which they wish to emphasize. The first report is from the Chair­
man of the Federal Legislative Committee, C. S. McCain.
Mr. McCain: Your committee begs leave to report that there have been
no differences as regards legislation affecting State and national banks.
So, for this reason, your committee has co-operated with the Federal Legis­
lative Committee of the National Bank Section, feeling that the best
interest of the association and its members could be served in this way.
With the spread of radicalism in the great States of the Middle West
and a growing demand for legislation for the protection of specific interests,
it is felt that this committee of the State Bank Division should watch very
carefully the progress of Federal legislation affecting banking during the
next few years, as amendments are constantly being suggested to existing
laws affecting banks which are not economically sound and whose passage
would seriously tend to not only weaken our present banking structure,
but at the same time actually strike at the fundamental economic laws
governing the business of banking.
Your committee does feel, however, that several positive steps should
be taken for the benefit of State banks, to obtain Federal legislation with
reference to the following matters:
1. In the event a satisfactory solution of the par clearance question is
not reached, then the State Bank Division through its proper committee
should make a recommendation to the division for its adoption, which, if
adopted, should then receive the support of the Legislative Committee
as being enacted into law, as this question should not be one of constant
uncertainty subject to various instructions and rulings.
2. Undoubtedly State banks, members of the Federal Reserve System,
should have the right to be designated as Government depositories on the
same terms as are now offered to national banks alone.
3. State banks, members of the Federal Reserve System, should be
permitted to rediscount with the Federal Reserve Bank eligible paper se­
cured by staple agricultural commodities for which bonded warehouse re­
ceipts have been issued to the limit they are permitted to make such loans
under the various State laws under which they are incorporated, provided
in no event should such paper be eligible where it exceeds the capital and
certified surplus of the bank offering, ana provided that such an amendment
should be made to Section 5200 giving to national banks a similar right.
AAre wish to pledge ourselves to the active support and interest in any
matters affecting members of the State Bank Division arising in Congress
and stand ready to serve our members in this regard at any time.
Respectfully submitted,
C. S. M cC A IN , Chairman;
N . S. CALHOUN,
GEO. A. HOLDERNESS,
F. G. ADDISON, Jr.

Report of Farm Finance Committee, by W. C. Gordon,
Chairman, President Farmers’ Savings Bank,
Marshall, Mo.
The Committee on Farm Finance of the State Bank Division of the Amer­
ican Bankers Association submits herewith a report of its activities for the
past year.
Realizing that the question of rural credits and farm finance would com­
mand the serious consideration of Congress at its last session,and would prob­
ably result in the passage of legislation covering the subject, members of
the Committee soon after their appointment took steps to familiarize them­
selves with the various plans proposed. Through the courtesy of Senators
and Representatives in Congress, copies of the numerous bills introduced
were secured and studied. Correspondence and conferences were had with
other committees of the American Bankers Association and some farm
organizations, which were considering the proposed legislation, in the effort
to co-ordinate suggestions and co-operate in the endeavor to secure such
legislation as would be feasible and effective. Arrangements were made
with the Committees on Banking and Currency in both Houses of Congress
for a hearing of the ideas and suggestions of our Committee, if it were
deemed advisable to appear for that purpose.
Following the introduction of the various bills in Congress touching this
subject, it soon became evident from the discussion and prominence ac­
corded them that the legislation which might be passed ultimately would
be based on the provisions contained in the so-called Lenroot-Anderson or
Capper-McFadden bills, or both of them.
A conference of the Committee, at which every member was present,
was held in Chicago, 111., on Jan. 16 and 17 1923, in conjunction with the
mid-winter meeting of the Executive Committee of the Division. The
whole question of rural credits and farm finance, particularly the provisions
of the two bills mentioned, was thoroughly considered. The fact that
agriculture and its needs was the burden of the major part of the discussion
at every session of the Executive Committee, is evidence of the real and
abiding interest of the State banks in this basic industry of our country.
It afforded us both pleasure and profit to have present at the sessions of
the Committee M r. J. H. Puelicher, President of the American Bankers
Association; M r. Burton M . Smith and Dean D . H. Otis, Chairman and
Director, respectively, of the AgricJtural Commission of the A. B. A ., and
M r. M . A . Traylor, Chairman of the A. B. A. Committee on Agricultural
Credits, who took an interested part in the discussion.
The result of the deliberations of the Committee was a conviction that
a majority of the members of Congress were already committed to the pro­

STATE BANK DIVISION,
visions o f the two bills mentioned, making it appear unlikely that suggested
changes from our Committee would be favorably entertained. It was de­
cided that a pilgrimage of members of the Committee to Washington for
hearings before the Congressional committees was inadvisable and unjusti­
fied, both because of the expense to be incurred and the fact that the favor­
able results sought to be accomplished were exceedingly problematical, and
the motives of the Committee might be misinterpreted. The belief was ex­
pressed that the Lenroot and Capper bills provided very liberal additions to
the credit facilities available to the farming industry, though some features
were deemed inadvisable and unworkable.
It is gratifying to note that several of the points strongly advocated by
the Committee were incorporated in the bills as finally passed. The con­
tinuation of the War Finance Corporation for approximately one more year
was provided for. Whatever difference of opinion may exist as to the essen­
tial economic reasonableness for the creation of the War Finance Corpora­
tion and its continuation after the war, there can be no doubt that the splen­
did assistance it rendered in the last few years to the farming industry, by
enabling banks to carry and extend, if necessary, legitimate agricultural
paper, was timely and unmistakable. The provision to make available for
discount with the Federal Reserve Banks agricultural paper running from six
to nine months should afford considerable relief. The facilities afforded
by the Intermediate Credit Act, in making possible loans of from six months
to three years maturity for the purpose of crop production and the breed­
ing, raising and marketing of live stock, ought to be of considerable assist­
ance in the Middle and Far Western sections of the country.
Credit requirements of the farming industry now seem to be adequately
provided for. At least opportunity should be given for a thorough test of
the recent credit legislation passed before additional proposals are made.
There is a widespread belief that the farming industry has not suffered un­
duly in recent years from a lack of credit facilities. It is well known that in
many communities just the opposite has been true and farmers have readily
admitted that credit was too easy to obtain. It seems that a solution of the
ills that beset the industry of agriculture at present must be sought else­
where than in the realm of credit requirements. The economic situation in
Europe has undoubtedly had much to do with throwing out of balance the
inevitable relation between supply and demand, which has affected the
farmer quickly and adversely. When the adjustment to normalcy there is
brought about, relief will be afforded by the supplying of an outlet for the
surplus production of the farm. Probably the most promising avenue of
relief for the industry just now is the establishment of co-operative market­
ing associations, not for speculative purposes, but for the orderly marketing
of crops and other produce. This plan has been and is being tried in various
sections of the country with increasing success. If sanely conceived and
wisely administered in accordance with recognized economic principles, the
plan of co-operative marketing should speedily enable the farming industry
to become master of its own destiny and take its rightful place among other
great industries with the certain assurance to those engaged in it that they
will receive a reasonable profit for their time and capital expended above the
cost of production.
W. C. GORDON, Chairman.

Report of State Legislative Committee, by C. B. Hazlewood, Chairman, Vice-President Union Trust Co.,
Chicago.
President McCauley: Next is the report o f the State Legislative Com­
mittee, C. B. Hazlewood.
M r. Hazlewood: Your State Legislative Committee has been in close
touch with the State Legislative Committee of the parent body.
There have been no items come up during the year which would cause
any independent action of this Division as against the Division as awhole,
which independent action we are permitted under the Constitution.
I may say to you that there have been 23 measures of various sorts
passed in various States o f the Union during the past association year.
There are just two matters to which I wish to call your attention this
afternoon, one of them being a resolution that will be presented to the
General Convention on Thursday morning which will relate to certain
standardization desired in reference to State banking departments. The
import of that resolution will be that all State banking departments should
be divorced from any other activity of the State Government. That is
to say, that the Commissioner or Auditor or Banking Superintendent
should have no other duties and no other functions than that of the super­
intendency and examination of banks.
The second matter that I wish to refer to very briefly was that the
work which was started three years ago, and in which this Division took
early part, namely, the preparation o f a digest of State banking laws,
has now been completed. This work undertaken by Judge Pa ton, with
trained assistants, has taken more time and more money than we originally
expected, but it is now something quite worthy and worth while. It
contains a complete digest of all laws relating to banking in each State
of the Union, and is available for reference to any member of the Asso­
ciation, to any library or public or educational institution and it is the
first thing o f the kind ever prepared and is now available for your use
in the offices o f the American Bankers Association.

Report of Committee on Exchange, by Charles de B.
Claiborne, Chairman, Director of the Whitney
Central Trust & Savings Bank,
New Orleans, La.
President McCauley: We will now have the report of the Committee
on Exchange, M r. Claiborne, of that Committee.
M r. Claiborne: M r. Chairman, Ladies and Members of the Association:
Your Chairman just now said that the purpose in calling on every Chairman
was that he would call to your attention only the important features. I
consider that I have but one important announcement to make as regards
this Committee. It concerns the non-member bank.
After a good deal o f discussion and perhaps a little too much litigation,
likewise ill feeling, your Committee is pleased to state that at least one
of the important units o f annoying controversy has been settled 100%.
With the decision o f the Supreme Court in the North Carolina case,
and the co-operating attitude o f the Governor o f the Federal Reserve
Board and the Boards at Washington, the matter o f charging exchange
or not, or remaining on the par list or not, is left entirely at the option
of the non-member bank.




149

This has been the contention of your Committee from the very be­
ginning, that all this matter of exchange, as well pertaining to the non­
member as to the member, should be optional. We took the position
as to the non-member, of course, the Federal Reserve Board had nothing
to say because those non-member banks were beyond the pale of the Act;
those State banks under the sovereignty of their individual States and
that was the decision in the North Carolina case— that the Federal Reserve
Act had nothing to do with banks that were not member banks and not
in the system.
I have just returned from Washington and in a conversation with the
Governor, he told me that I could announce that all coercive methods
were at an end; that all agents have been ordered withdrawn; that cash
would not be demanded any longer over the counter; that the services
of the American Express had been done away with.
It is, therefore, up to each bank to exercise its own option and judgment.
All we ask as a Committee is, Let your conscience be your guide. If
you think that par collections is fair and sound, go ahead and stay on the
par list and par collections. But if you believe that it is unfair and that
it is unsound now that we have made it possible for you to charge the
exchange which you have contended all along at these conventions that
you are entitled to, we say that in fairness to the Committee you should
be fair enough to get off the par list, to show the Board that you really
meant what you said.
As far as the non-member bank is concerned, we haven’t accomplished
much. Some 30 days ago I appeared before the Board at their suggestion,
and we worked out a plan which we thought was within the scope of the
decision o f the Supreme Court. You are all aware that the Supreme
Court has elaborated on the Federal Reserve Act and decided certain
points, and therefore any plan that is suggested must be in line with that
decision.
In view of the fact, however, that that plan was suggested, and is before’
the Board now and they have not had sufficient time to consider it, I
do not believe it would be advisable to now discuss this plan. But I
hope that what we suggest, if not adopted in its entirety, will at least
serve as some basis for the solution for non-member bank, and that therefore
when we come back next year we will be in a position to tell you just as
we have for the non-member that the entire controversy is over and that
everybody is happy.

Reports of State Vice-Presidents.
Next is the report of the State vice-presidents. If there are any State
vice-presidents here you would rise to your feet and give us your name
and the State that you represent.
The following vice-presidents were present:
A . H. Dabbs, Alabama.
H. B. Miller, Washington.
J. W . Spaulding, New York.
R. B. Crowder, Cleveland, N. C.
Webster Bell, Maryland.
C. E. Martin, Savannah, Ga.
D. O. Miller, Ohio.
President McCauley: Have any of you State vice-presidents any reports
to make?
Mr. Spaulding: Our State Vice-President, M r. Simpson, whose time
expires this year was not present. That was the reason I did not want
New York to go unrepresented and I give you my name but my term begins
at this meeting.
I don’t know that there is any special report to be made at this meeting.
However, there is a matter which has come up before the State o f New
York, which I had expected would be brought before this meeting possibly.
That is the matter o f bank taxation.
I was under the impression that about 25 States were involved in this
question through the decision of the Supreme Court— in the State of
New York we secured through the Legislative Committee after the Act was
passed in Washington a compromise which was not very satisfactory to
the banks interested, and we found out later that the private bankers and
investment banks were brought under that taxation law, are contesting
that it is not constitutional, so we don’t know what the result is going to be.
I had hoped to hear from some o f the other States interested in this
matter, as to what their experience had been in getting a settlement of the
refunds which were due and getting the new Act passed.
I f any one here can give us that information, I think it would be a benefit
to all concerned.
President McCauley: Is there any discussion of this matter? Have
any other States the same problems that he has? If not, your report will
be received and filed.
Are there any other reports from the State vice-presidents?
Mr. Miller (Washington): I understand from the program it is intended
that both the incoming and outgoing should report under your call. Our
outgoing Vice-President from the State Bank Division from the State of
Washington is not present: therefore I take the liberty of responding to
the invitation. I have no special report to make. It is a pleasure, how­
ever, for me to be present at this convention from your most distant State
It has been most interesting and intellectual. The addresses to-day,
especially that one on “ Co-operative Marketing," are of very great interest
to the people of the Northwest and especially to the State of Washington,
for at this immediate time we are undergoing the preliminary steps for the
organization of a hay growers organization, which is one of our principal
industries, particularly that of the growing of alfalfa. There are something
like one hundred thousand acres of that crop in our State, and I presume
by the time that I shall return home, the organization will have completed
with an enrollment guaranteeing the marketing through the new Association
of 75% o f that crop.
This may be of interest to you. I am sure the address this afternoon on
that question was of great interest to me and I shall carry back to my
people there the report which I am sure will be o f great interest to them.
From our State, from the standpoint of State banking, we believe that
we have a most excellent law, a minimum capital of $25,000, no private
banks, the usual manners of examination, 20% limitation of loans, 10%
only of combined capital and surplus, 10% only where you avail yourselves
of the privilege of rediscount, and 100% assessment where it is necessary.
I noticed in the report that was given this afternoon that that compared
rather favorably with the average.
I am glad to have the privilege of attending this convention and of
hearing the various splendid addresses.

150
Vox

BANKERS’ CONVENTION,

Populi— J. M. Dinwiddie— Carl Williams— H. M. De
Mott on Reserves of Reserve Banks.

J. M . Dinwiddie (Iowa): Is M r. Carl Williams in the room? I want to
ask him a question. This may be a very simple question, M r. Williams.
Here is a farmer who has suffered a loss through hail and other storms in
one season— according to my own figures o f his loss, he lost the profits of
three years’ operation. He secures, after getting on his knees and begging
some o f these banks you have tried to say are so fair to the farmer, financing
for the year. He gives a mortgage on everything, including his wife and
children perhaps. How can that man get into the co-operation association
and pledge his crop for sale?
M r. Williams: Only by the consent and co-operation of the bank itself.
M r. Dinwiddie: Has your association made any effort to get the bank
to agree to put that kind of a clause in a chattel mortgage they take, tying
this man up?
M r. Williams: We have a form of chattel mortgage which covers exactly
that point and which is available to all banks. We do not necessarily use
it in all cases, because we operate frequently under a written agreement
between the bank and the association in which the bank agrees to let the
product o f the member customer go through the association for marketing
and the association agrees to fully and completely protect the mortgage or
crop lien rights o f the bank up to the total value of the collateral concerned
less the cost o f association operation.
M r. Dinwiddie: I am glad to learn that. This bank was so generous,
as seems to be the conclusion o f most speakers, to the farmer that I financed
him myself personally in order to save him from the persecution the bank
was willing to put on him.
He is not the only one taken care o f in that territory that way. The
bank even says: “ If you get an extra bonus on your wheat, you must
.bring it in to us and live on the husks.”
M r. Williams: Let me make this clear: Neither the Association of
Commodity Marketing Farmers nor the American Bankers Association
can in any sense be responsible for the idiosyncracies o f human nature, and
we find peculiar bankers as well as peculiar farmers.
I would not have you get the idea, sir, that all banks are thoroughly in
harmony with this plan. Frankly, there are some banks and some bankers
to whom and on whom we have to take a club now and then. But I am
speaking in averages, and, speaking in averages, I say that I am proud
o f the attitude o f the American banker toward this movement.
Of course, that is a commercial attitude, because, first of all, he does
realize that he is increasing trade and general prosperity of the country by
co-operating in any methods which will increase agricultural profits.
Secondly, he knows that in the matter o f his own customers that cus­
tomer is getting a larger amount of money from a specific amount of product
with which to pay the debt.
Third, he knows that under our operating agreement with banks he
does not have to look after the collateral himself nor the collection of the
debt, but that we do it for him and for all his member customers. So that
it is really a pretty good thing for the farmer and for the association.
M r. Dinwiddie: I wish the association would let the farmer know that
so that he could use that argument with the bank that he may reform that
kind o f a banker, of whom, I am very glad, there are not many. I am just
as proud o f what the banker is doing for the farmer as any one can be. I
am glad that this matter has not been lost sight of.
M r. Williams: It has been very thoroughly covered in actual operation.
President McCauley: Are there any other questions?
M r. DeM ott (Mechanics’ Bank o f Brooklyn): There is a matter which
I believe is o f sufficient importance to receive the consideration of this body.
I would like to speak on the matter o f reserves maintained by the Federal
Reserve banks. As you know, now all of the reserves are required under
the Federal Reserve Act to be maintained with the Federal Reserve banks,
no consideration whatsoever being made for the amount o f cash carried
in the vault, necessitating a very large loss o f money.
With your permission, M r. President, 1 will read this—it will only take
about two minutes.
If cash could be considered as reserve, it would release this large sum of
money which would immediately be available for loans to manufacturers,
farmers, business men in general and home builders, and have a stimulating
effect upon business and become a source o f revenue to our banking insti­
tutions.
We believe the present method to be an injustice, as it works a hardship
upon all institutions, particularly those maintaining a number of branch
banks. Nevertheless it does directly affect even the smallest of the mem
ber banks.
While it is true that credit maintained at the Federal Reserve Bank can
be converted into currency if sufficient time is afforded, the fact cannot be
disputed that in time o f stress the actual currency in vaults is the most
liquid reserve. Two-thirds to three-quarters of the currency of the banking
institutions is represented by Federal Reserve currency, and it does seem
inconsistent that demand obligations o f the Federal Reserve Bank, such
as these, cannot be counted as an offset against deposits.
I therefore most respectfully urge the American Bankers Association to
pass suitable resolutions requesting that an amendment to the Federal
Reserve Act be provided permitting member banks to count as reserve the
actual cash carried in their vaults.
I would make a motion that a committee be formed to look into this
matter, which I believe is of sufficient importance to receive some con­
sideration.
President McCauley: Is there any discussion on this matter ?
M r. Hazlewood: M y impression is that that is the same suggestion
M r. DeM ott made to the Executive Council meeting a night or so ago.
It is one that, perhaps, requires some careful consideration and should have
that careful consideration, and for purposes of this body and so that there
may be no conflict, I move you, sir, that this suggestion be referred to our
Federal Legislative Committee for consideration and whatever action they
may desire.
The motion was seconded.
M r. DeM ott: I appeared before the Federal Legislative Committee
Monday and spoke for one-half hour on this topic. There was no activity
whatsoever. They referred it to the Executive Council. I appeared
before the Executive Council on Monday night and was privileged to present
the matter to them. They referred it to some other committee. Ale
don’t seem to get anywhere. I merely ask that a committee be appointed
to take the matter up.




President McCauley: You appeared before the Federal Legislative
Committee of the A .B .A ., did you?
M r. DeM ott: Yes.
President McCauley: M r. Hazlewood means to refer it to the Federal
Legislative Committee of this division.
M r . DeM ott: I beg your pardon. I thought he meant of the whole body.
President McCauley: Is there any other discussion ? If not, all in favor
of this motion referring the matter to our Federal Legislative Committee
make known by saying “ aye,” opposed “ n o.” It is carried.
Is there anything else now that any one wishes to bring up from the floor ?
I f not, we will have the report of the Committee on Resolutions.

Report of Committee on Resolutions;*
M r. C. B. Hazlewood: M r. Chairman and Gentlemen: Y our Committee
on Resolutions begs to report as follows:
Resolved, That we congratulate the administration of our Division and
especially the President on the work of the year and that we express our
appreciation for the co-operation of all committees; and
That we especially are grateful to our invited speakers, M r. Carl Williams
of Oklahoma and Hon. E. H. Wolcott of Indiana.
Resolved, That we reaffirm our faith in the wisdom of orderly marketing
of crops and in the efficacy of the co-operative marketing idea; provided,
however, that organizations employing this |idea are conducted on sound
economic principles.
We believe that the ultimate success of any such organization will be
great or small, depending upon the sound business judgment of the men
who control its affairs and the complete divorce of any element of specula­
tion.
Whereas, as State bankers we are vitally interested that the highest
efficiency be maintained in the offices of all State banking supervisors and
commissioners, therefore be it
Resolved, That we favor:
(1) The divorce of bank supervision from all other functions o f State
government to the end that commissioners and banking superintendents
may devote their entire attention to the administration of banking affairs
and bank examination.
(2) That the tenure of office of banking superintendents be made more
certain and lasting and not subject to political change.
(3) That sufficient compensation be paid to attract men of the best abil­
ity.
(4) That men for the examination service be chosen who have had a prac­
tical banking knowledge, preferably from actual banking experience.
Whereas, a joint committee has been appointed by Congress under the
Chairmanship of Congressman McFadden of Pennsylvania to investigate
the reasons underlying the fact that more State banks are not joining the
Federal Reserve System: and
Whereas, the State Bank Division approves the fundamental principles
upon which the system is based, fully appreciates its proved effectiveness
as a splendid stabilizing influence in maintaining the financial integrity ofour country, and desires to render any assistance possible in curing existing
defects, to the end that its facilities may be made more widely available: and
Whereas, in this Division, comprising approximately 12,000 State-char­
tered institutions, there are more banks which are not now members of the
system than in any other Division; therefore be it
Resolved, That a special committee of five members be appointed by the
President of the Division to assist in compiling the information sought on
this subject with authority to present the data obtained to the committee
of Congress referred to at a special hearing if deemed advisable.
Whereas, The State Bank Division since its organization at Kansas City
in 1916 has been served as Secretary and Deputy Manager by George E.
Allen; and
Whereas, After twenty-three years of continuous connection with the
American Bankers Association he is retiring from active service to become
an observer instead of a participant, carrying with him the well-deserved
respect and good-will of our members, and the sincere friendship and af­
fection of those who have been closely associated with him, the rich benefits
of which heritage and the consciousness of duty well done should be to him
most precious; therefore be it
Resolved, That we, the members of this Division, who have enjoyed his
conscientious labor, his marked sagacity, his entire devotion, part with him
with great regret , and wish him the best that life can hold for one who so
well deserves it; and be it further
Resolved, That this preamble and resolution be spread upon our minutes
and that an engrossed copy be prepared, signed by the officers and pre­
sented to M r. Allen.
STATE BAN K DIVISION,
Resolutions Committee.
C. B. HAZLEW OOD, Vice-President, Union Trust C o., Chicago, 111.
J. D . PHILLIP , President, Green Valley Bank, Green Valley, 111.
W . C. GORDON, President, Farmers Savings Bank, Marshall, M o.
E. C. M cDOUGAL, President, Marine Trust C o., Buffalo, N. Y .
JOEL R. PARRISH, Cashier, Farmers’ State Bank, Woods Cross, Utah.'
Upon motion duly made and seconded, it was voted to adopt the resolu­
tions as a whole.

Report of Nominating Committee— Election of Officers.
President McCauley:

Next is the report of the Nominating Committee,
Nominating Committee.
R . R. Ward, President Benton State Bank, Benton, 111. (Chairman);
A. L. Schantz, President State Bank of Omaha, Omaha, Neb.; A . H.
Dabbs, President Bank of Carrollton, Carrollton, Ala.
M r. Ward: Mr. President, your Nominating Committee desires to
make the following report:
President: J. D. Phillips, President Green Valley Bank, Green Valley, 111.
Vice-President: W. C. Gordon, President Farmers Savings Bank,
Marshall, M o.
Member of Executive Committee for the Unexpired Term of Wm. P. Sharer,
Deceased: Guy E. Bowerman, President Arlington Heights State Bank,
Los Angeles, Calif.
Three-Year Term• C. S. McCain, Vice-President Bankers Trust C o.,
Little Rock, Ark.; M . H. Malett, President Citizens Bank, Abilene, Kan.
The report was adopted.

NATIONAL BANK DIVISION
A merican Bankers' A ssociation
Eighteenth Annual Meeting, Held at Atlantic City, N. J., September 27, 1923.

INDEX TO NATIONAL BANK PROCEEDINGS
‘ Receivable Companies,” A. E. Duncan_____________________ Page 151
155
Report of Chairman of the Executive Committee___________
Annual Address of President Waldo Newcomer_____________
156

Remarks of Edward J. Cattell______________________________ P a g e
Report of Committee on Resolutions_______________________
157
157
Report of Committee on Nominations______________________

“ Receivable Com panies 99
By A. E. D u n c a n , Chairman of tlie Board, Commercial Credit Company, Baltimore, Md.
I appreciate very much the opportunity offered in appear­
ing before you to try to get before you more clearly the re­
ceivable business. If there had been in the past more desire
shown by different associations to get at the bottom of the
business, what we are trying to do, why we are in business
and all about how we do business, I think our business would
have been very much more highly regarded.
As it has been, it has been the case of an up-hill fight for
the last twelve years. From the time when I remember it
was difficult to even get a bank in my home town to take the
account of my company, to the time now when not only in
Baltimore, but all over the United States, we are dealing
with many of the best and biggest banks in the United
States.
That has been a process of development. We feel that
what we are undertaking to accomplish must be doing some
good for somebody, because they don't have to deal with us.
They deal with us of their own volition without contract as
to time or volume.
Receivable companies, after all, are simply a means of re­
discounting open accounts which are intangible, but as a
rule good assets. Notes, acceptances, installments, sales con­
tracts and such other obligations representing merchandise
sales. We stand between the banking system who furnish us
most of our money and the people who sell us the receiv­
ables, furnishing to the banking system not only our guaran­
tee upon the receivables that we acquire, but the very nec­
essary care and supervision by a trained organization of ex­
perts to see that the business is safely conducted and prop­
erly looked after.
The rapid growth of this business in the past twelve years
of itself ought to pretty firmly place the business in the
financial, business and economic world, but I am glad to
say that the latter part of last year the Federal Reserve
Board took the trouble to have its Department of Analysis
and Research make an exhaustive investigation into various
receivable companies, getting the very insides of how they
do business, what they do, everything pertaining to the busi­
ness, and if you have not seen the article you will find in
the January 1923 Federal Reserve “ Bulletin,” final issue,
■quite a long article on finance companies.
At the end of the article, under a summary headed “ Eco­
nomic Position of Finance Companies,” I would like to read
just what they say about the business :
“ In their fundamental characteristics, finance companies
date back both to the earlier money lenders in large centres
and to the factories which for fifty years have operated
largely in the textile industry. The former were chiefly in­
dividuals who advanced funds and took whatever security
■seemed most satisfactory. Factories often combined finance
and merchandising by making sales for the mills which use




their services and by advancing funds to the latter for manu­
facturing operations. These advances are made largely
against manufacturers’ bills receivable, which are assigned
to the factories.
“ The money lender and the factory still remain, but the
business of finance companies has been placed upon a more
scientific basis and is now recognized as distinct and sep­
arate. Their business has tended more and more to resemble
the practice of commercial banks. The relation between the
two closely resembles that between chattel loan companies
and banks.
“ There are in the United States a vast number of com­
panies whose resources or apparent credit risk do not meas­
ure up to the standard required by banks. It is largely these
that the finance company is called upon to finance. It does
not necessarily follow that such subjects are not good credit
risks, but merely that in so far as the bank is able to investi­
gate, they do not fulfill the usual requirements.
“ In addition, payments of loans made to this class may be
spread over a longer period than that for which a commercial
bank will advance funds. The payments, too, are probably
in small lots, such as installments which must be carefully
watched and rigidly collected when due. Collateral offered
as security is in small lots, such as a group of small accounts
receivable. As a result, commercial banks find this class of
business unproftable at the usual rates of interest. I f they
charge more it would lead to legal difficulties in some cases,
and nearly always to dissension among those borrowers who
have to pay the higher rate.
“ Finance companies, however, by dealing only with this
class of customers can charge more without causing dissatis­
faction among customers. This increased income enables it
to carry on the investigation further and to protect itself in
making a loan and also to watch developments after the
loan is made. In short, any finance companies are an inten­
sified part of our commercial banking system.
“The collection of loans require additional detail work.
Payments may be made on the installment basis as in the
case of automobile financing, or they may be made in small
lots at irregular intervals as the accounts fall due. Close
supervision is essential in either case. Through the inability
of finance companies successfully to carry out such closer
supervision, they are unable to supplement our commercial
banking system and to make for themselves a distinct eco­
nomic position in our financial organization.”
Needless to say, companies like ours were very glad indeed
to have this recognition made as to the line of business in
which we are engaged.
Touching upon the open accounts receivable business as
well as the other lines of the receivable business, a note or
an acceptance, after all, is only open account closed. I f it
is right and proper to sell or discount a note or an accept­
ance, you must admit it is right or proper to sell or discount
an open account, which cannot, or the people prefer not, to
have closed into a note or an acceptance. The principle is
identical.
The money received on either can be used to good purpose
or to bad purpose. The effect of the credit of a concern sell­

152

BANKERS’ CONVENTION.

ing receivables is a matter, after all, of individual judgment
and not of prejudice. You should consider it as either
liabilities, character and the other factors going together
to make up a desirable or undesirable credit risk, and not
necessarily merely prejudice that a concern is or is not sell­
ing its receivables.
If a bank extended credit to an automobile dealer, or to a
dealer in musical instruments, or various other lines where
installment sales contracts or acceptances are taken, and
those notes or acceptances are sold elsewhere, I can’t see any
reason why the same bank should not extend credit where
the firm is disposing of its open accounts receivable.
There is no reason if the manufacturer of clothing or met­
als or lumber wdro sells on 60 and 90-day open accounts re­
ceivable, why he should be deprived of a service similar to
another concern who sells on three to six months’ notes or
acceptances or installment contracts, just because he does
not take the trouble or cannot, or the trade custom won’t
permit him to close the account into a note.
The principles are identical, it seems to me.
Experience has proven, too, that in the sale of receivables
of all kinds, very seldom is the proceeds of the money re­
ceived on the receivables used except for increasing ojjerating capital. It is not used to add to fixed assets. Fre­
quently concerns may come to people like us, where they have
already probably gotten over-extended, through spending too
much money on fixed assets, and then come to us for relief
for increased operating capital, but almost never does a firm
go to a receivable company and get money to put into any
fixed assets.
When the firm sells its receivables, whether open account
or otherwise, their ultimate risk of loss is only the credit
risk which is usually less than 1% on the receivables sold,
and that risk is even minimized because the average com­
pany permits 30 to 60 days after the receivables are due in
which the firm that sells the receivables or the credit com­
pany itself shall try to collect the accounts that are not paid
at maturity.
So that in the final showdown, the firm would have very
little receivables to take up on their guarantee thereof.
Another thing: On the net worth— when a firm sells its
receivables, its net worth is not changed at all.- It has only
changed the character of its assets. Having received cash
for receivables, and certainly cash is a better asset than re­
ceivables, the cash, if the firm is honest, will be used to in­
crease other current receivables or to pay debts, and the net
worth is not disturbed, nor is the ultimate dividend in bank­
ruptcy but very little affected through the receivables hav­
ing been sold, because the firm either has more goods, more
assets or less liabilities.
Generally, the receivable business is divided into four
headings:
1. The open accounts receivable and an occasional loan on
merchandise awaiting conversion into open accounts.
2. Installment sales contracts on household appliances.
3. The automobile storage paper covering new cars sold
by the manufacturer to the dealer awaiting resale to the
consumer.
4. The retail time sales paper of the automobile to the
ultimate consumer.
As the automobile end of the business is probably in the
minds of most bankers to-day, I will touch upon the account
receivable end of the business, as I devoted most of my time
to the automobile end.
Open accounts are assigned in two w ays: one, where the
notices appear on the face of the invoice debtor, called the
notification plan; the other, where such notice is not given,
called the non-notification plan.
The notification on the invoice to the debtor benefits no
one except the banker to whom the account was assigned.
That was its object in the first place and why it is still held
on to.
The Notification Plan requires hat notice of such assign­
ment to the banker shall appear upon the face of invoices
sent to the debtors. This notice is most objectionable and
is given solely to protect the banker, who collects the ac­




counts direct from the debtors without any regard or notice
to creditors.
As the debtors are not interested, the Non-Notification
Plan does not require such unnecessary notice, but the
banker relies upon the honesty of the firm selling the ac­
counts to collect same and to forward the original remit­
tances thereon to the banker. This plan avoids friction with
customers and loss of trade through a third party, the
banker, usually in a distant city, trying to collect the ac­
counts, adjust discounts, differences, etc., direct with the
customer.
The absence of such objectionable notice and not “ secrecy”
is the cause of the great increase in the non-notification
business and its use by many good firms.
Secret Assignments and Fraud.
Neither of the above plans provides for the slightest no­
tice to creditors or means by which they may learn that a
firm is assigning its accounts, and therefore, one is just as
secret as the other, although only the Non-Notification Plan
has been unfairly designated as “ secret.”
Experience has proven that many firms much prefer to
have their creditors know that their accounts are being sold
than to have their customers notified thereof and disturbed
by an outside banker trying to collect the accounts direct.
Where accounts are bought on the Non-Notification Plan
and left with the seller for collection, it must be evident that
greater care is needed as to the credit, moral and financial
standing of the seller. For this reason business is fre­
quently declined on the Non-Notification Plan and accepted
with safety on the Notification Plan, one being just as secret
from the standpoint of creditors as the other.
There is no more reason for creditors being advised when
a firm sells its open accounts than when it discounts cus­
tomers’ notes and acceptances or borrows money on bills of
lading, warehouse receipts, etc. If the money is honestly
used in the business to increase assets or reduce liabilities,
there can be no fraud upon creditors and the actual dividend
in bankruptcy will be mighty little less than if the accounts
had not been sold. There are mighty few cases of fraud
upon creditors through the sale of accounts, but frequent
cases of such fraud upon receivable companies where unse­
cured creditors benefited thereby.
Wliat Firms Sell Accounts?
Firms that sell accounts are not usually hard up or broke,
as may be assumed, but generally are “ live” wire money­
making firms that have more energy, abiliity and plant ca­
pacity than working capital. They prefer to look upon a
receivable company as a “ silent partner” and to temporarily
give up a small portion of their profits and continue to con­
trol their business instead of seeking new partners or stock­
holders, involving extra salaries, possible loss of control, etc.
Many manufacturers have more practical than financial
experience; wTill not carry proper bank balances; dislike to
borrow money from banks; are located in towns with lim­
ited banking facilities; or have most of their captial in­
vested in real estate, plant, machinery, etc., with current
assets out of proportion, although they may sell the very
best rated trade.
They can increase their volume with but little increase in
overhead; use extra money over the peak season; buy for
spot cash or discount their purchases and thereby make most
of the cost, if not more, and be in better credit.
If they sell on six to twelve monthly payments, their op­
erating capital is quickly tied up and they must find a con­
tinuous outlet for such paper and be steady borrowers, to
which a receivable company does not expect but most banks
do.
In 1922, exclusive of motor vehicle and installment paper,
our Baltimore company alone bought $45,979,455 07 of open
accounts from manufacturers and jobbers, of which $6,988,294 75 was outstanding Dec. 31 1922. These accounts were
bought from and guaranteed by firms rated in the Dun or
Bradstreet January 1922 Agency Book with first or second
credit rating as follow s:

NATIONAL BANK DIVISION.
Customers’ ratings—
$1,000,000 and ov er_ __
500,000 and o v e r_ __
300,000 and o v e r_ ...
125,000 and o v e r__ —
75,000 and o v e r_ __
20,000 and o v e r_ __
20,000 and under or
no r a t in g __ __
Totals

Per cent. Outstanding.
Purchases.
$1,213,376 80
10.2
$4,678,313 67
1,557,892 59
13.4
6,186,216 68
1,918,839 73
21.4
9,824,677 54
3,364,497 70
43.1
19,794,741 21
3,516,432 53
48.2
22,170,880 18
4,689,554 31
68.7
31,608,527 93
14,370,927 14

2,298,740 44

31.3

_$45,979,455 07

_

Per cent.
17.4
22.3
27.5
48.1
50.3
67.1
32.9

$6,988,294 75

Are the Charges High?
Whether they are borrowing or not, desirable borrowers
from banks usually keep 20% average daily balance of their
credit line, without interest, and liquidate entirely one or
two months in each year. A two months' liquidation and
discount of 5% % and 6% per annum on such loans on two
five months’ notes makes an actual cost to the borrower of
7.40% and 8.05% per annum, respectively. Receivable com­
panies borrow most of their money upon this basis and must
charge materially more to cover their overhead, supervision,
risk, etc., to make a fair profit.
Our company buys thousands of invoices where customers
are offered discounts of 2% to 5% for cash in 10 days, net
30 to 60 days. A discount of 2%, 10 days, net 30 days, is 2%
for 20 days, or 36% per annum ; and 3%. 10 days, net 60 days,
is 3% for 50 days, or over 21% per annum. Including inter­
est, exchange, etc., receivable companies usually charge
1-25 of 1% per day on the net face of each account from date
of purchase until paid, plus $5 per $1,000 only on the first
$100,000 of accounts bought in any twelve successive months’
period, with no obligation either as to time or volume of
business.
The following comparison of such customary discounts
with our charge is interesting:
On an annual
volume of
$100,000
250,000
500,000
1,000,000

2% for
20 days is
$2,000
5,000
10,000
20,000

Our charge
for 20 days
$1,300
2,500
4,500
8,500

3% for
50 days is
$3,000
7,500
15,000
30,000

Our charge
for 50 days
$2,500
5,500
10,500
20,500

A total cost, including interest, etc., of only $6,500 a year
to finance an annual volume of $500,000 sales, with average
collections of 30 days, certainly will not break any firm, even
if no discounts for cash are offered.
Installments on Household Appliances, Etc.
The General Electric Company, the Western Electric Com­
pany, and others, have found it necessary to organize their
own receivable companies to furnish a steady outlet to their
distributers and dealers for financing installment sales con­
tracts of their customers. The Westinghouse Electric &
Manufacturing Company has a contract with our company
for similar service.
From the standpoint of creditors and economics, the prin­
ciple involved in this business is identical to that in financ­
ing open accounts and motor vehicle paper. Fortunately, the
very names of these companies almost overnight commanded
more respect for their receivable business as being proper
and legitimate than account companies were able to obtain
in several years of their business, although the rates are
about the same.
Motor Vehicle Industry.
The manufacture of motor vehicles must to-day be re­
garded as one of our largest essential industries, directly
employing about $1,500,000,000 capital and, with allied in­
dustries, represents an annual retail volume of some $3,500,000,000 to $4,000,000,000 and gives employment to over
2,000,000 people. Including employees of dealers, garages,
credit companies and others financing the sale of cars,
chauffeurs, etc., the industry is probably first in importance.
The passenger car is no longer a pleasure car but is the
efficient, economical and necessary means of transportation
of the day, revolutionizing the habits, happiness, ambition
and efficiency of almost all of our citizens.
The great development of the industry has been due to the
financing of the sale of cars on time and, therefore, the in­
dustry itself cannot be much more sound economically than
is the business of financing the distribution of the product.




153

I must, therefore, try to show that both are economically
sound and necessary.
Volume of Sales on Time.
It is conservatively estimated that 75% of all passenger
cars and 90% of all trucks sold in the United States are sold
on time. The buyer usually pays one-third or more down,
the balance being financed by some credit company, bank or
the dealer.
In 1922 there were sold in the United States about 2,300,000 passenger cars (average $900 each), valued at $2,070,000,000, and about 252,000 trucks (average $1,100 each),
valued at $277,000,000. Of these 2,552,000 cars, valued at
about $2,347,000,000, sold in 1922 alone, about 1,951,800 cars
were sold on time for about $1,801,800,000. I f the purchaser
paid one-third down, or $600,600,000, there remained $1,201,200,000 credit to be provided. Assuming that the average
transaction was outstanding for an average of six months—
12 monthly payments— some $600,000,000 cash supplied by
credit companies, banks and dealers was continuously out­
standing to finance the business.
This is such a stupendous sum and the supervision as to
credits, collections, repossessions, etc., is such that banks
generally recognize that the sale by a dealer of the retail
time sales paper of his customers to a credit company is no
special reflection upon the credit of such dealer, even though
the principle is identical to the sale by a manufacturer of
his open accounts receivable to a credit company. If the
buyer in each case pays the cost for the time credit, what is
the difference?
The Saturation Point.
In 1922 there were 12,239,114 motor vehicles registered in
the United States, of which about 3,200,000 were owned by
farmers. There were 8.6 persons in the United States to each
c a r ; in California 3.S; Iowa, 4.80; Massachusetts 10; New
York 10.4; Pennsylvania 10.5, etc. In our present population
of about 110,000,000, of which about 6,000,000 are farmers,
if there were five persons to each car, there would have to
be 22,000,000 cars to go around.
The total cars registered in 1915 were only 2,445,664;
3,512,996 in 1916 and 5,104,321 in 1917. I f the average life
of a car is six years, there will be an enormous potential
production for replacement alone on the increase from 3,512,996 cars in use in 1916 to 12,239,114 cars in 1922. There are
increasing thousands of people who own two or more cars—
an open and a closed car or a cheap and a high-priced car.
From the above it would seem that the long expected satu­
ration point must still be in the distant future and the an­
nual production figures have shown that the industry is much
more dependent from year to year upon the general pros­
perity of our country than merely upon the number of cars
produced in previous years.
E ffect Upon Savings.
In his recent article on “The Savings Bank Business,’’
Mr. Leo Day Woodworth, Deputy Manager, American Bank­
ers Association, Savings Bank Division, stated: “ While
every possible argument for universal thrift and also for
reasonable saving of money should be advanced, it is the
opinion of the writer that the events of the last five years
led to much cheap claptrap about thriftlessness. All of us
were classed as spendthrifts in order to reach (perhaps) the
real culprits.”
In my opinion exactly the same situation has existed and
still exists in the frequent criticism of the extravagance re­
sulting from the tremendous increase in the sale of motor
vehicles on time, which has created a great demand for
credit facilities for financing such sales and thereby has
caused a rapid development in the manufacture of motor ve­
hicles and quite an increase in the prosperity of our country.
The report of the Comptroller of the Currency shows the
number of savings depositors and total savings deposits with
Mutual and State Savings Banks for the years ended June
30, opposite to which is the number of motor vehicles regis­
tered in the United States during the respective calendar
years, as follow s:

BANKERS’ CONVENTION.

154
No. of savings
depositors.
11,379,000
12,000,000
11,936,000
11,204,000
12,959,000

Year.
1918
1919
1920
1921
1922

Savings deposits.
$5,471,580,000
6,069,900,000
6,693,746,000
6,170,648,000
7,318,984,000

Registration of
Motor Vehicles.
6,146,617
7,530,105
9,177,129
10,464,005
12,239,114

The estimate of the American Bankers Association of the
number of savings depositors and the total savings deposits
with Mutual and State Savings Banks, National and State
Banks and Trust Companies, which does not include several
States in the South and between the Mississippi and the
Rockies, for the years ended June 30, is as follow s:
No. of depositors.
(Not available)
26,637,831
30,323,320

Year
1912
1921
1922

Savings deposits.
$8,433,711,000
16,618,595,000
17,301,012,000

The report of the Comptroller of the Currency also shows
the number of Building and Loan Associations in the United
States, their total membership, and their total assets for the
years ended June 30, as follow s:
Year.
1912
1922

No. of Associations.
6,273
9,255

Total of Membership.
2,516,936
5,809,888

Total Assets.
$1,137,600,648
2,890,764,621

The total premium income of American Life Insurance
Companies (including Canada and foreign countries) and
their total assets for the calendar years are as follow s:
Year.
1918
1919
1920
1921
1922

Total premiums.
$994,266,611
1,207,134,389
1,384,938,970
1,537,280,119
1,672,099,924

Total assets.
$6,529,621,000
6,742,578,000
7,319,997,000
7,936,497,000
8,717,758,000

From the above data as to savings, which are the best sta­
tistics available as to total savings, it would appear that the
great increase in the purchase of automobiles largely by the
savings class has not adversely affected their industry and
their thrift. While the registered number of motor vehicles in
the United States has increased in ten years from $44,000 in
1912 to 12,239,114 in 1922, our citizens have, during the same
period, increased their savings from $8,433,711,000 in 1912
to $17,301,012,000 in 1922; their life insurance premiums
from about $681,900,000 in 1912 to $1,672,099,924 in 1922, and
their investment in Building and Loan Associations from
$1,137,600,648 in 1912 to $2,890,764,621 in 1922.
Extravagance.
An automobile is one of the very few things in the world
that every person would like to have and the lower the price
and upkeep, the greater the number of potential buyers.
Most of the business supplying our commerce, our comfort
and our happiness is more or less non-essential. Food is
quite essential, but even clothing and shelter in the South
Sea Islands are not. Not many years ago our forefathers
enjoyed life and prospered without the automobile as well as
the telephone, telegraph, wireless, trains, street cars, bath­
rooms and many other things which we now believe almost
necessary to our existence, and the automobile is fast taking
a similar place.
The extravagance is usually in the purchase of a Hudson
or a Buick instead of a Ford or Chevrolet. I contend that
the prosperity of the individual primarily depends upon his
happiness and his ambition. The use of a car by a young
married couple to-day certainly adds much to their happi­
ness and contentment and creates within them an ambition
for more and more of the better things of life, to get which
they will work harder, make and save more money, spend
more time together, and be better citizens.
Only recently Judge E. H. Gary of the Steel Corporation
stated: “ The sale and use of automobiles has been largely
increased by the fact that a large majority of the workmen
now prefer to take excursions with their families by automo­
biles instead of spending their time at the saloons or other
places and wasting their money in practices that are physic­
ally injurious instead of beneficial.”
There is no doubt that Prohibition has supplied much of
the money for the greatly increased sale of automobiles,
much of which money would otherwise have been wasted.




Utilitarian Uses.
The automobile has given a decided impetus to suburban
and farm real estate values, to say nothing of the increased
employment and materials used in the growing demand for
good roads. Many buyers of cars on time more than offset
the cost of their car through living in the suburbs at a much
lower rent and also have the benefit of a garden, fresh air
and better health of their family.
Stop the automobile traffic on any street or road except
on Sundays, holidays and vacation times, and you will be
surprised to find nearly all the cars are on a business errand
of some kind. The lower the price of the car the greater the
utilitarian use thereof.
Wholesale or Storage Paper.
Credit companies finance the sale of new cars at wholesale
from the factory to the dealer, requiring payment by the
dealer of about 15% of the wholesale price plus freight and
an acceptance for the balance with a lien upon the car,
which is insured against fire, theft and conversion. The
principal large factories usually arrange for such facilities
and frequently guarantee the payment of such paper or
agree to repurchase the cars covered thereby.
The service of storing new cars during the dull season en­
ables the factory to maintain a more even monthly produc­
tion schedule and still be relieved of the expense of storage
insurance, and interest, and also to get its cash. The dealer
in turn is assured of a supply of cars for immediate delivery
when the season opens. The use of this service throughout
the year as an unloading convenience is also growing.
Retail Time Sales Paper.
The purchaser usually pays one-third or more down, bal­
ance payable in about twelve equal monthly installments,
covered by a note with a lien on the car, upon which the
credit company arranges fire and theft insurance for one
year for about 80% of the value of the car. The credit com­
pany advances 100% on such secured notes after checking
the credit of the purchaser and then verifies each transaction
and collects the monthly installments direct from the buyer,
also usually looks after the repossession of cars from the
purchaser and the resale of same, thereby rendering to the
dealer a very distinct service.
The volume of such paper is on low-priced passenger cars
for utilitarian uses, and it is bought with and without re­
course upon the dealer. If the latter, the rate is loaded to
cover the increased expense and risk involved.
Contrary to the views of many bankers, truck paper is
far less safe and desirable than passenger car paper. In
fact, it is hard to find an outlet for truck paper, except on
low-priced trucks.
Safety of Retail Paper.
The safety of the retail paper held by a large credit com­
pany is in the very wide distribution of credit in many
States among all classes of buyers— business and profes­
sional men, mechanics, farmers, etc.—but few of whom are
in any way connected with the automobile industry.
The records of our companies show that the average pur­
chaser’s obligation at time of our purchase is less than $500;
also, considering current monthly collections, that the aver­
age outstanding obligation of the buyer is less than $300,
secured in each case by lien upon the car.
This means that the retail paper of about $45,000,000 held
by our companies is owing by over 150.000 different buyers
in the United States and Canada and in practically all lines
of business and professions. We will pay in 1923 over
$2,000,000 cash to insure the purchaser and ourselves against
loss by fire and theft.
Guarantees 6y Bonding Companies.
The guarantee by bonding companies against loss on retail
motor vehicle paper, both to banks and to credit companies,
is growing and, I am afraid, without either a proper charge
or sufficient supervision of both credits and collections. I
believe some bonding companies will sustain substantial

NATIONAL BANK DIVISION.

155

losses resulting from their present methods and will either
discontinue the practice or put same upon a better business
basis for them. Bonding companies and many new credit
companies lack experience in handling retail paper, which
offers an apparently easy way of making money but, in fact,
a mighty good way of losing it.
If a bonding company doubled its premiums or a bank
doubled its deposits, thereby doubling their liabilities, each
would probably brag about it in a page advertisement, but
woe unto the borrower who might do likewise! The amount
of financial guarantees by some bonding companies upon
such retail paper and other obligations is getting to be a
matter deserving of some thought and care on the part of
banks relying upon same.

Loans should be rediscountable. Two or three months’ col­
lections of a credit company plus its average cash balance
is usually more than all the money it borrows. Diversifica­
tion of its business between open accounts which turn over
in 30 to 60 days, and installment and motor vehicle paper
increases the liquidity of its assets.
Banks expect repayment direct by firms to whom loans are
made, but credit companies look to the many customers of
such firms and therefore their assets are even more liquid
than those of banks.
As loans to credit companies are now in excess of $200,000,000, and the very basis for such loans is the financing
of merchandise sales, the Federal Reserve Act should be so
amended as to make such loans eligible for rediscount.

Loans to Receivable Companies.

Banking Laws Advocated.
I should be glad to see every State require all credit com­
panies to be organized under the Banking Laws with certain
amendments thereto, and their business to be under the
supervision and examination from time to time of the Bank­
ing Department, the same as State Banks and Trust Com­
panies. Several of the large companies now operate under
the New York State Banking laws, although a number of
smaller companies operate in New York without such super­
vision.
It is most difficult, however, for a credit company organ­
ized, for instance, in New York, to do business in a number
of other States, Illinois, for example. The Banking Laws
would not hurt the well-managed credit companies but would
benefit them and, at the same time, would restrain misman­
agement of other companies and curb the reckless promo­
tion of numerous new companies with inexperienced man­
agement.
Large Companies Desirable.
The drift of the receivable business is rapidly toward a
few companies with large capital investment and large
credit lines with depository banks. They should also have
a fair amount of three to ten-year collateral trust or deben­
ture notes outstanding and enough paper sold through
brokers to outside banks, covered by unused credit lines
with depository banks, to give a complete annual liquidation
of loans with each depository bank for 30 to 60 days.
The banks should encourage the development of such large
companies as the best means of safely and properly supply­
ing the necessary credit, with much less risk to themselves
than in dealing with numerous small companies with more
or less inexperienced organizations.

Credit companies, generally, transfer receivables pur­
chased to a trustee and issue their own collateral trust notes
against such collateral, although some rediscount such paper
either with or without a bonding company guarantee and a
few borrow upon their single name paper with agreement
not to pledge any of their assets. Such short term loans to
a well-managed credit company are a very attractive and
safe investment for a bank and much better than loans
direct to the firms which sold the receivables, as the bank
has the obligation of the credit company, which has a spe­
cially trained organization to supervise such loans.
The obligation of the credit company is usually secured
pro rata and without preference by obligations of thousands
of buyers owing small amounts; liens upon the articles fi­
nanced ; the obligation of the firm selling the receivables,
except on some low-priced cars; a margin of 20% to 25% on
open accounts; and the down payment margin upon other
paper; also such receivables are usually excluded as collat­
eral when they become 60 days overdue.
Limitation of Liabilities.
The Trust Agreement of our company not only limits our
receivables available as collateral with the trustee to those
arising through merchandise transactions, but also limits our
aggregate liability upon all loans, etc., exclusive of withheld
margins, to a maximum of five times our then cash capital,
surplus and undivided profits, after deducting our invest­
ments in other companies, I think a company with $500,000
cash capital and surplus should similarly limit its liabili­
ties to from one to two times; $1,000,000 from two to three
times; $2,000,000 and over from three to five times.

C ommittee / Officers ’ R eports —National Bank Division
Report of Edgar L. Mattson as Chairman of the
Executive Committee, September 24 1923.
Waldo Newcomer, President, and Members of the Executive Committee,
National Bank Division, A . B. A .
The report o f your President and that of the Deputy Manager so fully
covers the more important matters affecting the National Bank Division
during the past year that I fear that this report will be found in large meas­
ure a repetition o f what you will have already received.
There appeared to be no necessity for a mid-winter meeting of the Execu­
tive Committee, although other meetings have been held at which various
phases o f matters of interest to national banks were discussed and the work
of this Division outlined. M uch of the work for which meetings might
have been called it was found possible to perform through correspondence.
This was particularly true in legislative matters, all o f which Were passed
upon by the members o f the Committee, who, when special work was
necessary, were very diligent in rousing the national bankers in their dis­
tricts, thus giving Congress a knowledge of where the members of this Divi­
sion stand.
This Division suffered the loss o f Mr. Passmore’s membership, because
o f the conversion of his national bank into a trust company, the vacancy
having been filled by the appointment of Harry J. Haas of Philadelphia,
who has taken a very active interest in the work of the committee.
The branch banking matter has been thoroughly gone over in other re­
ports of this and other Divisions, and I will not at this time attempt to say
anything more on the subject further than that in the interim there has been
a change in the incumbency o f the Comptroller o f the Currency. Mr.
Crissinger’s successor, M r. Dawes, while new in the work, has shown sym­




pathetic interest in the claims of both sides of the controversy, and does, it
may surely be assumed, desire, after full and complete investigation, to take
his stand on the subject according to law and to the best interests of all con­
cerned.
At the spring meeting it was deemed proper to investigate the advisability
of holding a mid-winter meeting of all members of the Division interested In
attending same for a close and intimate contact and discussion of subjects
relating to the welfare of national banks and in particular to their trust
departments. No conclusion has yet been formulated, and it will be well
for this body at this time to give the matter further consideration.
A special commission has been authorized to prepare and for .vard to the
members of this Division a treatise on organization of trust departments,
same to contain elementary suggestions in regard to policies of operation,
advertising, accounting methods, and matters of general administration.
Obviously this is a considerable undertaking and some progress has been
made, as will be indicated in report of Mr. M ountjoy, our Deputy Manager.
The decision of this committee to have representation before the Con­
gressional body investigating the limited membership in the Federal Reserve
System has not yet produced any results, because the Congressional com­
mittee has not taken any testimony. It has so far distributed a question­
naire to eligible non-member banks inquiring their reasons for remaining
outside the system. Several reasons were presented in greater number;
one of them was that membership is too costly because there is no interest
paid upon daily balances. Another statement made by a great many was
that the returns from the capital stock investment should be increased.
Other banks declined to affiliate with the Reserve System because of its
par clearance policy. Still others were frank enough to admit that they can
secure the benefits without contributing to its support. Public hearings

BANKERS’ CONVENTION.

156

on this question will open in October with the appearance of Government
officials and on Oct. 9 representatives of our Association are expected to
appear. While this appearance will no doubt be on behalf of the American
Bankers Association, some arrangements should be made whereby the
special committee o f this Division should be represented and be heard, as
the subject is one bearing very directly upon national banks, particularly
because of recent Court decisions and the generally unsettled question as
to checks drawn on non-member banks who do not wish to remit at par.
The syndicated publicity campaign of the Trust Company Division has
attracted a great deal of attention and no doubt much benefit has resulted
therefrom to all organizations seeking fiduciary engagements, and some
thought has been given to the question of a similar effort on behalf of the
National Bank Division to the end that in the public mind national banks
may be understood and placed in the pre-eminent position to which they
rightfully belong.
The most important matters of new legislation during the year were the
enactment of the Agricultural Credits Law, providing for Intermediate
Credit banks. National Agricultural corporations, which included amend­
ments to the Federal Reserve Act, Farm Loan Act and War Finance Cor­
poration Act. There was also enacted an amendment to Section 5219,
regarding matter of taxation o f national banks, which in its far-reaching
effects is probably one of the most important pieces o f legislation that has
come up before Congress for many years.
Your Chairman, because of membership on the Special Committee on
Taxation and because of personal business matters, has had occasion to
visit Washington and New York quite frequently during the year, which,
supplemented by a rather constant contact by correspondence with the
office, has enabled him to keep in very close touch with the affairs of the
Division.
I would be remiss in my duty to my associates if I did not state that my
contact with the other officers and members of the Executive Committee
has always been most pleasant and every call on them has been responded
to most willingly, and that my contact with our Deputy Manager, M r.
M ountjoy, has been both intimate and cordial, he being very much alive
to the interests of the Division and always ready to initiate any movement
beneficial to the members.
Respectfully submitted,
EDGAR L. M ATTSON,
Chairman.

Annual

Address of President, Waldo Newcomer,
President National Exchange Bank,
Baltimore, Md.

An address should, of course, either bring to the audience considerable
new information or offer solutions for one or more of the pressing problems
of the day. I have no hope, however, of giving you any new information,
and have no panaceas to offer for the trouble of the world, but will content
myself with calling attention briefly to a few matters of serious import that
should have the earnest individual consideration.
One of the greatest evils of the present day is the enormous number of
laws being passed, and it has been charged that there is a deliberate Bol­
shevik influence at work to increase the number of laws for the very pur­
pose of having them so numerous that they cannot possibly be enforced and
thus the country be driven into a state of anarchy. Whether or not there is
anything in this charge, the fact remains that the tendency to regulate every­
thing by law does have the effect of making the code so cumbersome that
nobody can keep up with it and know whether the things they are doing are
legal or illegal, and it does have the effect of making people more and more
contemptuous of law itself. Every session of Congress puts out thousands
of new laws, every State Legislature adds an unfunctionable number of
State laws and the municipalities are constantly passing ordinances. It is
said that a New York policeman who is conscientiously determined to look
out for infractions of all ordinances would be compelled to be familiar with
the details of 16,000 laws.
It would seem that the essentials for order and conduct of the country
have been so well covered by this time that surely very few additional laws
should be necessary, and it is to be hoped that the grist mill of Congress can
be reduced to a production basis of 40% of its capacity.
It is not my purpose to enter into any discussion of the prohibition ques­
tion, but I must register profound regret that this subject was introduced
into the Constitution of the United States. The Constitution was intended to
lay down the respective rights of the National Government and the State
Government, and, to a certain extent, be a sort of Declaration of Rights
and to direct the method of procedure of the Government and the limitations
to the laws which should be passed in order to defend the rights of the peo­
ple. It v/as never intended to be a code of criminal law, as you do not find
in it or any of its previous amendments any reference to murder, arson, trade
in narcotics, etc.
The serious danger of introducing this present question into the Constitu­
tion means that there is nothing to prevent their going ahead with further
amendments covering all the different crimes and misdemeanors and turning
the Constitution into a code of criminal law, and there was no reason for
putting it in in this case except that the advocates wanted to fix things in
such a way that it should be practically impossible to repeal, even though it
should turn out to be most undesirable. Now, without the slightest concern
as to whether any one of you approve or disapprove of prohibition and with­
out expressing any opinion on its merits, I submit that the introduction of
this into the Constitution of the United States was a serious blunder which
should be undone by repeal.
There is a strong intimation that at the next session of Congress there
will be a determined effort essentially to change the Esch-Cummins Railroad
Bill, particularly in the section providing for a general basis of rate mak­
ing, the so-called Guarantee Clause. I think that any one who is familiar
with the Act or will even take the trouble casually to read it, will say that
there is absolutely no guarantee in it. The general principle laid down—
that the rates should be so adjusted as to yield a reasonable compensation—•
is scarcely subject to discussion, and it is difficult to see how any one can
say that the figures laid down and defined as “ fair compensation” are in
any sense unreasonable. At any rate, it is beyond question that the law has
not yet been in effect long enough to show how it will act under normal con­
ditions, and it would be most inadvisable, and I might almost say disastrous,
to tinker with it at this time. I sincerely hope that such strong pressure
will be brought upon Congress that they will let the essential parts of the
Act alone until they have had a more complete trying out, and when sugges­
tions for improvement can be submitted that are beyond question real im­
provements.




It is perhaps dangerous to enter into a discussion of the labor problem, as
it is too big and too complicated for a definite opinion of an individual to
be worth much, but it is a most serious question in view of the growing
demands of some of the labor unions, and it does not seem to me out of place
to throw out a few suggestions in the line of ordinary fairness and good
sense, which I believe will meet with the approval of the unprejudiced public.
I firmly believe in the advisability of having labor organizations so long
as they are properly conducted. The average laboring man has not sufficient
education or intelligence or power to properly submit and sustain his re­
quests for higher pay or better working conditions, or to cope with the oppo­
sition of his employers, and it is right that such demands should be system­
atized and submitted with the strong body of opinion back of it. In the
interests of the public, however, such disputes should be settled by arbitra­
tion, if it is at all possible to get an unprejudiced body of arbitrators, and
surely this should not be impracticable. I would not deny the right of any
man to resign his position, or, if you prefer the word, to “ strike,” nor the
right of a body of laborers to go out in a body, but where such action inter­
feres with the rights of the public, fair notice should be given and in no case
should there be any opposition to their places being filled, any more than
when an employer discharges one or more men should he have any right to
prevent their finding other employment, and just as I would concede the right
of any man to join the labor union and the right of the men to act in a
body, so I think the individual laborer, should he prefer not to join the
union, should be free from any coercion and have an absolute right to work
without its benefits if he prefers to do so. This unquestionably is an en­
dorsement of the open shop. I have the same objection to the closed shop,
which means usually entire unionism and also for the closed shop in the
sense of refusing employment to one who is a member of a union, but the
withdrawal of any objection to employing union men must carry with it the
assumption of a reasonable and just organization of the union, and in all
fairness such bodies should be compelled to incorporate, so that when an
agreement is reached which is apparently satisfactory to both sides there
will be the same ability to hold the union to its bargain as there is to-day to
hold the employer. Is it right that if an employer should break an agree­
ment entered into he should be sued either to compel him to carry out the
agreement or for recovery of damages, whereas when it is broken by the
other side there is no redress ? When strikes occur and violence is used, re­
sulting in the destruction of property, or to prevent the employment of oth­
ers in place of those who have given up their jobs, I cannot see why the
employer is not entitled to the full protection of the State as to his property
and rights, the same as he would be if caused by any other lawless element.
One might go on and discuss the European situation, but so much has been
said on that and it is changing so rapidly, that I hesitate to enter into the
question, feeling that the only effect would be a wonderful display of my
own ignorance, which will show up rapidly enough without any special
effort on my part.
We are to have the pleasure to-day of hearing two excellent addresses, and
I will not longer trespass upon your time and delay the introduction of
matters of real moment and interest.

Remarks of Edward J. Cattell.
President Newcomer: A short time ago I noticed a very good friend of
mine in this hall, and I am going to take the liberty of asking him to come
forward and say a word to you. He is one of the most absolute optimists
you ever saw; one of the most lovable characters you have ever known. He
is known to every young man in the A. I. B. and known to some of us old
men in the banks. He was raised, I believe, in the Corn Exchange Bank in
Philadelphia, but he is unlike the umbrellas made in Baltimore and raised
everywhere. He was raised in one place and happy everywhere. I know you
are going to be glad to have just a few minutes’ talk from the Mark Twain
of Philadelphia, the Statistician of the city of Philadelphia, Mr. Edward
James Cattell.
Mr. Cattell: My dear friends: I came down just to pay my respects to
this friend of my father’s. Generally when I speak they play “ Old Hundred”
as appropriate music. Sometimes, if I have sipoken before, they play the
old Methodist hymn, “ Arise and strike the liar.” I am glad to be here
just as an old bank boy who did start in the old Corn Exchange about 1866.
I am ashamed to admit so many years with charming ladies here, when I
am a bachelor with hopes. •
To get on the other side, I am going to tell the ladies that I carried in my
office for 25 years a sign which reads: “ If a pretty girl passes and I don’t
notice her, call for the Coroner ; I’m dead.” I always insist that though I
am barefooted at both ends, my heart is still young. While the Lord made
man first and woman afterwards, man has been after woman ever since.
Any one who has closely read history knows that Adam moseyed around
the Garden of Eden for weeks and nothing happened ; then Eve came along
and everything happened.
I am delighted to be here. I am really optimistic; I can’t help it. Just
about as optimistic as that dear little chap who fell downstairs. Some one
came along and picked him up and said, “ Are you hurt?” He said, “ No, I
was coming down anyhow.”
I have 60 years of clear-cut memories. I can remember when our wealth
was $7,000,000,000, and it is now three hundred billion. The most remark­
able thing about that is that our wealth has grown ten times as fast as our
population. Very few people speak of that.
I have 60 years of memory and more optimistic to-day than ever before,
more in love with life. I want to live to be 100 years old and then renew
the lease at double the rent and do my own repairing.
I have traveled some 80,000 miles last year, speaking in 37 of the States.
God has given me opportunity in the past 23 years to speak to over 22,000,000 people. I have lived 14 years abroad; I have studied and written about
84 organized Governments, and I want to right here and now say that I have
a greater faith in our form of government to-day than I ever had before in
my whole life.
,
I was talking in Boston night before last. A fellow speaker had brought
back a report from Europe that made him just a little hesitant. I said to
him, “ Tell me your real view of the situation.” He said, “ Cattell, perhaps
the best thing to say is that I am opening a new branch every two weeks. I
have 700 already.”
That was a pretty good optimistic answer.
I was talking before a body of employees in the Veteran Corps of the
Pennsylvania Railroad. There were 800 men, each of whom had been over
21 years in the service. The Secretary said, “ Cattell, you might be inter­
ested in knowing that' since you spoke here last year I put $88,000 in two

NATIONAL BANK DIVISION.
and three-share certificates for men of this division.” That was in their
own company— the Pennsylvania Railroad.
In my own city I have served seven Mayors and I have been over 25 years
there right close to them. In 1909 there was a great disturbance in Phila­
delphia that brought about a strike with 135,000 people out of work. It
was among the employees of a traction company. We had Gatling guns in
the City Hall and 3,000 people under arms one night. The city didn’t know
about it. To-day that same body of men is our greatest stabilizer. They
own one-sixth of the stock of the company they operate. One of the cars
the other day carried a sign “ This car is operated by one of the owners.”
I think that marks advance. I think it is typical of the improved rela­
tions between real capital and real labor all over this country. I talked in
New London in the spring on a day when they had the biggest speaker in the
I. W. W. The manufacturers and bankers had asked me to come and hold a
counter meeting. We had 50% more at our meeting than they had at theirs.
After the meeting a great big Norwegian who stood six feet four, put his
hand on me and said, “ Dr. Cattell, I am going to keep for my boy the
chance that you told us that boys have under our form of government.”
He went on, “ I will have something to say to them at noon that they didn’t
know before.”
I once knew a man who sent his boy off to college. He came back and
thought he knew more than his father. One morning he stood behind a
mule to harness it. It ftas a mistake. The mule kicked off a section of his
face, and when his father picked him up, he said to him, “ Hiram, you ain’t
half so handsome but you have a hell of a sight more sense.”
I think that is the situation in America. A good many of us have got a
little more horse sense, cart-horse sense. We are hitching our wagon to a
star, but we are having darned long traces to keep the wheels on earth. Do
something for the old men who are here instead of working for the unborn
generation.
A good deal of our trouble is like that of Thomas Carlyle. He said to a
lady neighbor of his, “ You have got to sell that gamecock of yours ; it keeps
me awake all night. I can’t stand his crowing.” She said, “ Why, he only
crows three times and each time three seconds. What is nine seconds of
suffering to a strong man?” he said, “ Madam, you don’ t know what I
suffer waiting for the darned thing to crow.”
We start a new theory; we work it up carefully and get it into concrete
shape, and then, because it does not function in five minutes, we lose con­
fidence.
I missed a connection in one of the Southern trips that I took. I had four
hours in a little town down in North Carolina. I heard some shouting and
knew there was a baseball game going on. I still am a baseball fan. I
played a game of baseball at the Rotary Club outing last June and I got a
home run. When I got to home plate my breath was going around the sec­
ond time and my heart had made four trips. Well, I used the old means
to get into this field where they were playing this game of baseball. I pulled
off a plank and I found myself right next to a colored chap who was centrefielder. I said “ How is the game?” He said, “ Thirty-two to nothing.” I
said “ Which side are you?”
“ Nothing.”
“ Getting pretty badly beat, aren’t you?”
“ No, we haven’t been to bat yet.”
We have not had time with a good many of our theories yet. We haven’t
been to bat with them. Let’s give them time ; don’t let’s be too quick to
jump and change and condemn ; let’s remember the other fellow. Some of
you have heard me tell how that lesson was taught me. I was driving a
very hot day over in New Jersey and just around a curve in the road we
came upon an old man about 60 years of age clearing away a load of hay
which had been overturned. He looked very hot. I said, “ Stop and rest
awhile and then I will help you with that job.” He said, “ No, I can’t stop ;
father wouldn’ t like it,” I remember being afraid of my father, but I was
not 60 years old then. Well, I said to the old man again, “ Come on and
take a rest and then I will help you.” He replied, “ I can’ t, father wouldn’t
like it.” I said, “ Where is your father?”
“ He is under the hay.”
I thought his father was at home on a cool porch, but he wasn’ t. So with
many situations in life.
I am optimistic about the future, my friends, because I have had my face
up against the hard but illuminating face of fact for a good many years. I
stood alongside of Jay Cook on that awful 18th day of September 1873. I
sat alone the other night on the fiftieth anniversary of that awful day, alone
in my little flat, thinking of what had happened, recalling how I left that
banking house on Third Street, just off of Chestnut, to go around to Bank
Street to collect $4,800 for some Northern Pacific bonds I had sold at par
and accrued interest. Coming back I found the street crowded ; I turned to
a policeman and said, “ What is the matter?” He said, “ Jay Cook has
failed.” I said, “ That is a lie.” I believed it. I went inside the darkened
room. I took the hand of my dear friend, George C. Thomas. He said,
“ Boy, we have gone down.’ ’ I went in to Mr. Cook’s office and then came
down with Charley Warburton standing alongside and wrote the statement
that we put outside, “ Assets $15,600,000 ; liabilities $7,800,000.”
The
people who kept the securities got better than that.
Oh, friends, that was in 1873. A few months ago I stood in Duluth. They
asked me to have my picture taken alongside of that great bronze statue of
Jay Cook. I recalled later speaking that night how I had stood on the floor
of Congress and I heard Proctor Knott say that no good would ever come out
of the territory which now constitutes the States of Wisconsin, Minnesota,
the two Dakotas, Montana, Idaho, Washington and Oregon, and I heard
again the echo of that laughter when he proved that nobody could ever put
on any real map the word “ Duluth.” To-day it is the greatest iron port in
the world.
Miracles have happened since then. I am older, perhaps a little wiser, but
Oh, with what age and wisdom has come a stronger faith in that God who
made each a sovereign of divine right. Sixty years takes me back to the
time when we had bitterness between sections, when we had class antagonism
more bitter than nowT. Even in ’ 77 I saw $5,000,000 go up in flames in
Pittsburgh in three days and 200 people were killed in one State in labor
trouble. We don’ t have such things now. We are getting better. We are
a real nation, and in the Great War we found our soul.
The multiplied avenues of productive wealth born of our $5,000,000 in­
vestment each day in education, which has made it possible in this very
State to cnange lands which my father and myself refused to buy 45 years
ago because they only produced $15 per acre, to land which I saw the books
on last year which produced $3,500 per acre.
New wealth facilities, new means of communication, better understanding
of each other, clearer recognition that credit is merely character rendered
fluid and character flows from God and not from man.




157

Thank God for this opportunity to come to you men who have such a won­
derful power to make my wishes come true, to make this nation strong
enough to lead the world back to paths of pleasantness and paths of peace.
I just want to leave this thought with you that I picked up at your con­
vention in New York a year ago. I had been traveling four nights in the
sleeper; I was a little nervous; I had been talking to old friends on exchange
and money matters and I started to take the train to come to Atlantic City.
As I passed through the lobby of the Commodore an old friend, a Southern
banker, called after me and said, “ Cattell, do you remember the last time we
met?” I said, “ Yes, Hot Springs, Va.”
“ Why do you recall it? ”
“ Why, you talked so beautifully of a boy you loved. I am childless but I
love children. During the war period I thought very often of you and won­
dered what had happened to that boy you idolized.”
He said, “ That is why I want to talk to you. Won’t you sit down in the
lounge for a little while with me?” I said, “ Yes.” He said, “ That boy was
lost in one of the first battles of the war. It nearly killed his mother. It
made me so I could not carry on my business. In our Southern land, you
know, we have a curious light just before dawn. I woke up one morning
some time ago after a fruitless effort to fight for sleep. Just in that hour
when I opened my eyes I couldn’t see the ceiling of the room. In its place
a stretch of beautiful blue was visible and I looked and in the heart of that
blue I saw the kindliest face, or thought I did, that I had ever looked on in
my life, something familiar, and as I looked and wondered it came back to
me that it was the one that I used to think about when I first said my first
prayer. As I looked and wondered I thought I saw my boy come forward
to him of the kindly face, and he of the kindly face, leaning forward, touching
him on the forehead said, “ I have work for you to do. He whispered some
command; my boy smiled back and then the boy disappeared in that infinite
blue and I was back on earth. But, Oh, I lost my burden. My boy was
somewhere doing something for somebody. It was only a question of wait­
ing.”
All around us was still the talk of money and of discounts and of financial
problems, but there was one of the leaders in that big convention showing to
me out of his heart that his measure of life was spiritual, not material.
That is why I am an optimist concerning America. All through the web
and woof of our life runs that splendid feeling that we are sovereigns of
divine right, touched with the quickening finger of the living God, and that
when the burden comes the strength will come also, so that America is going
forward led by our bankers to lead this world back out of its great drama
of blood and pain and tears into paths of pleasantness and paths of peace.
God give to each one of you strength to be the man you ought to be and
to maintain the magnificent traditions of this great national banking
organization.

Report of Committee on Resolutions.
President Newcomer: Next in order is the report of the Committee on
Resolutions— Mr. Melvin.
Mr. Melvin read the Resolutions, presented by the following Committee
on Resolutions: E. C. Melvin of Selma, Ala., Chairman; S. E. Trimble of
Springfield, Mo., and J. E. Hagey of Chicago.
Whereas, In certain States, State Banks and Trust Companies are permitted
to own stock in Safe Deposit Companies, and
Whereas, If the National Banks doing business in these States are to be on
an equal basis in competition with the State Banks and Trust Companies of
such States, it is very vital to the National Banks that they also be permit­
ted to own stock in Safe Deposit Companies; therefore, be it
Resolved, That the National Bank Division of the American Bankers Asso­
ciation respectfully urge upon Congress an amendment to the National Bank
Act permitting National Banks to own stock in Safe Deposit Companies in
those States which permit State banks and Trust Companies to own such
stock; be it
Further Resolved, That a copy of these resolutions be forwarded to the
Governor of the Federal Reserve Board, the Comptroller of the Currency, and
the Chairman of the Committee on Banking and Currency in the United
States Senate and House of Representatives.
Whereas, The Federal Reserve System has repeatedly demonstrated its
effectiveness in the mobilization of banking and credit resources and in the
stabilization of finance, and
Whereas, We recognize the value of constructive criticism, though we view
with alarm the unwarranted assaults made upon i t ; now therefore, be it
Resolved, That the National Bank Division of the American Bankers Asso­
ciation reaffirms its confidence in the Federal Reserve System and pledges
its aid in the struggle to repel the attacks of those who, through lack of
understanding or a perverted sense of public duty seek to destroy its effec­
tiveness; be it
Resolved, That we tender our hearty thanks to the speakers and to all
others who have so cheerfully and so ably contributed to the enjoyment and
the success of this meeting, and that we make public acknowledgment of
our appreciation of their services; be it
Further Resolved, That the Division give formal expression to its feeling
of gratitude to the retiring President, Waldo Newcomer, and to his associ­
ates for their constructive service to the National Bank Division, and for
their tireless and valued efforts in the promotion of the welfare of the mem­
bers thereof.
Upon motion duly made and seconded, it was voted that the resolutions
be adopted.

Report of Committee on Nominations— Election of
Officers.
President Newcomer:
Next is the report of the Committee on Nomina­
tions.
H. J. Haas: Your Committee appointed to nominate a President, VicePresident, Chairman Executive Committee and four members of the Execu­
tive Committee for Federal Reserve Districts No. 1, 8, 9 and 11, met and
having due regard for line of succession of officers of the Division and ser­
vice to the Division, as well as geographical location and rotation of repre­
sentation, beg leave to nominate the following:
For President— Thomas R. Preston, President Hamilton National Bank,
Chattanooga, Tenn.

158

BANKERS’ CONVENTION.

For Vice-President— Edgar L. Mattson, Vice-President Midland National
Bank, Minneapolis, Minn.
Chairman Executive Committee— W. C. Wilkinson, President Merchants
& Farmers National Bank, Charlotte, N. C.
Executive Committee, Federal Reserve District No. 1— Elmer A. Onthank,
President Safety Fund National Bank, Fitchburg, Mass.
Federal Reserve District No. 8— William H. Powell, President Citizens
National Bank, Sedalia, Mo.

Federal Reserve District No. 9— John W. Barton, Vice-President Metro­
politan National Bank, Minneapolis, Minn.
Federal Reserve District No. 11— F. M. Law, Vice-President First Na­
tional Bank, Houston, Tex.
Submitted by Nominating Committee composed of Harry J. Haas of
Philadelphia, C. W. Carey of Wichita, Kan., and A. F. Mitchell of Toledo.
Upon motion duly made and seconded, it was voted that the report of the
Committee be approved and that the nominees be elected.

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